Maxey: Panel firms have been cross-subsidising founder firms
Three law firms that were original members of the Injury Lawyers 4U (IL4U) marketing collective have suffered a major setback in challenging changes to how much they pay towards it.
IL4U and directors James Maxey and Daniel Slade were granted reverse summary judgment over the claim that an agreement dating back to 2003 allowing for differential pricing between founder and other members was still in force.
His Honour Judge Cawson KC, sitting as a High Court judge, held that a subsequent agreement in 2013 extinguished that right but gave the claimants – JMW Solicitors, Ralli and Howe & Co – the chance to apply to amend their claim that Mr Maxey and Mr Slade were not validly appointed.
IL4U was set up in 2002 by Andrew Twambley, Martin Cockx and Denise Wilkinson of Manchester firm Amelans in a bid to reclaim personal injury lead generation from the likes of Claims Direct and The Accident Group.
The other law firms that helped launch it spent £10,000 each in return for ‘B’ shares and a slot on the rota under which leads attracted from TV advertising would be allocated.
The early success meant the original £1m raised was not enough and so IL4U brought in other firms that were panel members but not shareholders.
To reflect the risk originally taken by the founders, new panel members had to pay £15,000 annually per slot, whereas the existing B shareholders would continue to pay £10,000.
The claimants alleged that Mr Cockx and Mr Twambley, then the IL4U directors, told a meeting in May 2003 that this 50% price differential would continue for the life of the scheme. The differential, but not its lifetime effect, was entrenched in clause 4.3 of a supplemental deed to the original shareholders agreement soon after.
A new shareholders agreement in 2013 made no explicit reference to the differential but it continued until Mr Maxey and Mr Slade, appointed IL4U directors after Mr Twambley and Ms Wilkinson (Mr Cockx having long retired) transferred their shares to Mr Maxey in 2023, decided to end it.
Their firm, Express Solicitors, bought Amelans that summer.
These developments led to the three law firms bringing the claim in September seeking a declaration that IL4U was not entitled to remove the slot price differential and an injunction to enforce it.
In the alternative, it sought to challenge the transfer of shares to Mr Maxey and appointment of him and Mr Slade as directors.
HHJ Cawson dismissed as “hopeless” the argument that the supplemental deed remained binding and effective despite the 2013 agreement; the latter’s wording was “clear and unambiguous” in stating that it superseded all previous arrangements.
The judge rejected too the argument that the claimants had a real prospect of obtaining rectification of the 2013 agreement so that clause 4.3 remained in force, as well as the alternative arguments of a collateral warranty and estoppel by convention based on what Mr Cockx and Mr Twambley were alleged to have said at the meeting in May 2003.
“Even if, which appears somewhat unlikely, what was said at the meeting went beyond that which was agreed as provided for by clause 4.3 … a mere promise to increase an obligation under an existing contract will generally not give rise to an estoppel, even if acted on by the promisee, for the promisee may reasonably be expected to appreciate that, to render it binding, it must be incorporated in a binding contract or contractual variation”.
In any case, the 2013 agreement meant a contractual estoppel operated to prevent any such claims now being asserted. He granted summary judgment on these points.
This meant too that some of the claims in relation to Mr Maxey and Mr Slade’s appointments fell away, while there were “difficulties” with the others.
However, the judge said “there might, potentially at least” be something in an unpleaded new argument that they were in breach of their obligation of good faith or, more likely, fiduciary duty, given the potential for a conflict of interest between their positions as directors of Express and of IL4U.
The 2013 agreement placed an obligation on the board to run the business for the benefit of all the shareholders and panel members, “although Mr Maxey and Mr Slade may say that by removing the slot price differential, they were striking a balance between the two”, he observed.
These arguments were “not without difficulty”, and an application to amend the particulars of claim may fail, but “I consider there to be just about enough in them to require me to allow the claimants an opportunity to seek permission to amend”.
The judge gave the claimants 14 days to apply for permission, failing which summary judgment would be granted.
Commenting to Legal Futures, Mr Maxey said Express Solicitors, though not a founder member, has been the biggest investor in IL4U “for well over 20 years” and, with the Amelans directors wanting to retire, “I’m pleased that we’ve got stewardship”.
He said there were “big plans” to invest and grow the network further, and that the differential pricing had been a bar to expansion. “The panel members have been cross-subsidising the founder shareholders,” he explained.
“I would dearly like to negotiate a resolution for the benefit of the business,” Mr Maxey went on, but pointed out that the claimants, who make up three of the six shareholders in IL4U, between them only provided a small percentage of the business’s budget.
We have approached the claimants for comment.
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