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Companies Court dismisses unfair prejudice petition as “at best naïve, at least simplistic and at worst misleading”

The Companies Court has dismissed a £21.5 million claim brought against BCA Trading Limited, a subsidiary of BCA Marketplace plc, a FTSE 250 company. The claim arose following BCA’s purchase in 2014 of 51% of the shares in Tradeouts Limited from Tradeouts’ founder, David Brown, and his business partner. Tradeouts was a digital platform connecting car dealers, which BCA hoped would complement its market-dominant car auctions business.

Post-acquisition, Tradeouts’ revenues did not increase in line with Mr Brown’s forecasts, and the company lost money month-on-month. Despite extensive support from BCA, by late 2015 Tradeouts did not have a viable business model and the relationship between BCA and Mr Brown, who had stayed on as Managing Director, was deteriorating. On 2 February 2016, Tradeouts’ board resolved that it should cease business with immediate effect; three weeks later BCA was served with an unfair prejudice petition by Mr Brown.

Mr Brown’s claim made wide-ranging allegations of bad faith against BCA, accusing BCA and its employees of having deliberately sought to damage Tradeouts in order to neutralise it as a competitor and prevent Mr Brown being paid under earn-out provisions of the acquisition documents. He also alleged a “Fundamental Understanding” going beyond the contracts in place between Tradeouts’ shareholders, and accused the BCA-nominated directors of Tradeouts of breaches of their directors’ duties.

These allegations was comprehensively rejected following a 12-day trial in October 2017. The Court found that the bad faith case was contrary to the contemporaneous documents, far-fetched, and verging on the irrational; that the Fundamental Understanding was a subjective and biased theory; and that the BCA-nominated directors had not breached their duties to Tradeouts. Rather, Mr Brown had planned from summer 2015 to disclaim his responsibilities to Tradeouts and, instead, manoeuvre into a stronger position to abandon the company and sue BCA.

There was evidence that Mr Brown’s hope was to extract a favourable settlement from BCA as a listed company scared of the bad publicity his allegations would attract. In choosing to fight the case, BCA and its legal team had to examine a very large amount of documentary evidence (for which BCA was permitted to use predictive coding in its disclosure process, in the first case in which its use was contested: [2016] EWHC 1464 (Ch)), and BCA’s witnesses at trial faced what the Judge described as “extreme and sometimes convoluted attacks” on their honesty. BCA’s emphatic defence of its conduct has now been vindicated by the wholesale dismissal of Mr Brown’s claims, the rejection of any suggestion of dishonesty by BCA’s witnesses, and the Court’s findings that BCA – rather than acting to destroy its acquisition – gave Tradeouts reasonable and extensive assistance.

Sa’ad Hossain QC and Joyce Arnold appeared for BCA Trading Limited, instructed by Berwin Leighton Paisner LLP.

The Judgment can be found here.