Blue Index Ltd, Re
2014
CHANCERY DIVISION
United Kingdom
CORAM
- Hearing dates: 9-11, 14-16 July 2014
- Judgment: 29 July 2014
Areas of Law
- Corporate Law
- Contract Law
- Equity and Trusts
2014
CHANCERY DIVISION
United Kingdom
CORAM
AI Generated Summary
In the case concerning Mr. Murrell and Blue Index Limited, Murrell sought an order for the purchase of his shares following internal conflicts and dismissal. The court determined that the shares should not be discounted for minority shareholding and found that directors Sanders and Swallow breached their fiduciary duties by paying themselves excessive remuneration and declaring inadequate dividends.
In the late 1990s the Petitioner (Mr. Murrell) and the 1 st and 2 nd Respondents,
Mr. Swallow and Mr. Sanders, got to know each other well whilst working together as traders at a firm called Everetts in the City of London. Everetts specialised in trading “penny shares”, i.e. companies with very small market capitalisations, on behalf of clients. They were young men, aged respectively 29, 23 and 24 in 1998. And they earned a considerable amount of money, particularly at the height of the internet technology boom, which began dropping off in 2000.
Mr. Sanders and Mr. Swallow left Everetts in June 2000 in order to set up their own brokering business together, so as to enable clients to deal in what are called “contracts for differences”, or CFDs for short. Dealing in CFDs is different from the ordinary business of investment by way of buying and selling quoted stocks and shares and other commodities and financial instruments. A CFD is a derivative product which enables a client to go “long” or “short” in a stock or financial instrument, i.e. speculating that the price of a particular stock will go up (long) or down (short). Furthermore, partly it appears because the holding of a CFD will invariably be short-term, facilities are made available to the client enabling it to “leverage” its position, i.e. giving the client access to capital beyond the capital ventured by the client from its own resources. Thus, it was a highstakes and high-risk business for the client who needed to be highly sophisticated and knowledgeable, and, I would add, who should be able to afford losing a lot of money very quickly. And a risk-averse client could always “hedge” its position, thus limiting the risk. Mr. Murrell described this form of speculation as the equivalent of on-line gambling, but I think that probably goes too far. Dealing in CFDs was just a particularly sophisticated, high risk, high stakes version of investment. I suppose it was also a useful get-rich quick mode of investment for the unscrupulous who might think they had inside information. In any event, it was a regulated form of investment.
The business that Mr. Sanders and Mr. Swallow set up was Blue Index Limited, which I will refer to as “the Company”. It was an introducing broker. It had arrangements with CFD market-makers which enabled its clients to deal in CFDs. The Company’s income would be derived principally from the commissions payable by its clients on deals. And it was to be a ruthless selling busi