Richardson & Anor v Blackmore

Capital Cabs Ltd (the Company) carries on the business of providing a taxi radio service in Cardiff. The first two Respondents (Appellants before us), Mr Richardson and Mr Wheeler, and the Petitioner (Respondent before us), Mr Blackmore, set it up in 1998. They had previously carried on the same business through a partnership, called Capital Cabs. They were the three directors, and equal shareholders, in the Company. Mr Blackmore, who is younger than the others, ran the business. Now, subject to the effect of the judgment under appeal, the Company is owned, in effect, as to two thirds by Mr Cummings, and is run by him, Mr Blackmore having still one third of the shares, but not taking any part in the running of the Company. Mr Richardson and Mr Wheeler sold their shares to Mr Cummings in June 2002. That led at once to the commencement of the main proceedings, a petition by Mr Blackmore under section 459 of the Companies Act 1985 seeking an order that his shares be bought at a price which was not discounted for being a minority holding. Not long afterwards the Company brought separate proceedings against Mr Blackmore, claiming damages for breach of his duties as a director.

Both proceedings came to trial before His Honour Judge Wyn Williams Q.C. in Cardiff, sitting as a Deputy Judge of the High Court, Chancery Division, in October 2004. After a trial extending over more than 4 weeks, he gave a reserved judgment in which he dismissed the Company’s claim against Mr Blackmore, and ordered Mr Richardson and Mr Wheeler, as well as Mr Cummings and his corporate vehicle Supatax 2000 Ltd, to buy Mr Blackmore’s shares in the Company for £300,000. He also ordered that a sum of about £60,000 which was in court should be paid out to Mr Blackmore on account of the price of his shares.

Each of the Respondents to the petition sought to appeal against one aspect or another of the order. Permission to appeal was refused on paper, but Buxton LJ granted permission to appeal to Mr Richardson and Mr Wheeler on limited grounds against the order that they should buy Mr Blackmore’s shares, and also granted permission to appeal to the Company against the order for payment out of the sum of £60,000. This is a discrete item, which I will turn to after I have dealt with the appeal by Mr Richardson and Mr Wheeler.

Mr Richardson and Mr Wheeler sought to reopen under CPR 52.17 the refusal of permission to appeal on certain grounds. That application was refused on paper by Buxton LJ, that refusal being final: see CPR 52.17(7). They also made two successive applications to admit new evidence on the appeal. Those applications were adjourned to be dealt with at the hearing and were not opposed at the hearing. In the course of the hearing Mr Richardson and Mr Wheeler also made an application to amend their grounds of appeal and the form of the order they sought by way of appeal. We refused the latter aspect of the application at the time, and said we would deal with the other part of the application, and with the reasons for both, in the course of giving judgment on the appeal.

Mr Hollington Q.C. appeared for the petitioner on the appeal, as he had below. Mr Bompas Q.C. represented Mr Richardson and Mr Wheeler, leading Mr Blackmore of Counsel who had appeared below. Ms Donnachie, a director of the Company, spoke on its behalf, as she had below. Neither the Third nor the Fourth Respondent to the petition, Mr Cummings and Supatax 2000 Ltd, appeared on the appeals, their own applications for permission to appeal having been refused.

The Company started trading in April 1998. It was already owned in equal shares by Mr Blackmore, Mr Richardson and Mr Wheeler. It traded in parallel with their partnership for a year. In April 1999 there was an informal transfer of the business and the assets of the partnership to the Company.

In 1999 Mr Richardson was 63 years old, Mr Wheeler 66 and the petitioner in his 50’s. They had discussions at that time about the possibility of entering into a shareholders’ agreement. In the course of those discussions one issue was whether they would be free to sell shares in the Company to third parties. The petitioner objected to any such freedom. No agreement was reached.

Mr Richardson and Mr Wheeler were beginning to think about retirement but the petitioner was not yet ready for retirement. From late 1999, a number of offers came to be made by third parties for all or a majority of the shares in the Company. In particular, in 2001 there was a discussion of a merger between the Company and its competitor Dragon Taxis. There was also some interest from a company called Computer Cab plc and separately from a Mr David Horton.

Mr Horton offered £250,000 payable upon completion and a further £50,000 payable two years later to each of the three shareholders. The petitioner did not wish to sell. When Dragon Taxis became aware of Mr Horton’s offer they withdrew their own interest.

On 31^st October 2001 Mr Richardson wrote to both Mr Wheeler and Mr Blackmore to say that he intended to retire from the Company and needed to sell his shares. In the light of a recent third party offer for £300,000, which presumably meant the David Horton offer, he offered to sell his one third shareholding to Mr Blackmore and Mr Wheeler for £300,000. He said that he would hold the offer open for thirty days and if it was not accepted within that period he would intend to exercise his right to sell his shareholding to a third party. Mr Wheeler made the same offer to Mr Blackmore. By the end of November Mr Blackmore had responded to each offer saying that he wished to take up the offer and was seeking funds with which to enable himself to do so.

In the meantime he passed on to Mr Richardson and Mr Wheeler a letter which he said he had received, dated 5^th November 2001, from Computer Cab plc. In fact it was a forgery, created by Mr Blackmore. This letter is central to the appeal and I set out its text here:

The petitioner obtained an offer of finance from Nat West of £425,000. With the benefit of that he offered to buy the shares of Mr Wheeler and Mr Richardson respectively for £250,000. On 23^rd and 25^th January 2002 respectively Mr Wheeler and Mr Richardson rejected those offers. Each of them said that they would give him another thirty days to reconsider his offer but subject to that would commence negotiations with third parties. Matters proceeded between the three and by March the discussions were being conducted on the basis of an immediate payment of £250,000 and a deferred payment of £50,000 subject to security. On 8^th April Mr Richardson wrote to Mr Blackmore indicating that he and Mr Wheeler were prepared to agree to the sale of the shares on terms along those lines. That led to the matter being referred to lawyers and at the end of May a memorandum of the terms of a proposed share purchase contract was prepared which provided for the shares to be bought back from the Company. That would require a good deal of preparation and paperwork so that the requirements of the Companies Act for such a purchase should be satisfied. The memorandum provided for a deferred payment of £50,000 but not for any security for that payment. Nevertheless matters proceeded with a view at first to the matter being considered at a board meeting to be held on 18^th June. Before that date there was some correspondence about clarification of the details and on 17^th June Mr Wheeler sent a message asking that the meeting be adjourned because he was unwell.

Other things had been happening in the meantime. By the end of May, Mr Cummings had begun to show an interest in purchasing a majority shareholding in the Company. He was the owner of another competing business called Black Cabs. On 10^th June 2002, a meeting took place at Mr Wheeler’s home attended by Mr Richardson, Mr Wheeler, Mr Cummings and the latter’s accountant, Mr Horrigan. During the course of the meeting and as part of the process of negotiating, Mr Richardson and Mr Wheeler showed to Mr Cummings the draft accounts for the Company for the year ending 31^st March 2002, which were signed a week or so later, and Mr Richardson gave Mr Cummings a folder containing documents concerning the Company whose identity has never been disclosed. They also disclosed letters concerning previous offers to purchase. In the course of the meeting, Mr Cummings offered to buy the shares of Mr Richardson and Mr Wheeler for £300,000 each and they accepted his offer. Mr Blackmore was not told of this meeting. Mr Richardson and Mr Wheeler asked Mr Cummings to keep the meeting secret from him to which he agreed. He was told that Mr Richardson would tell Mr Blackmore of what had happened. He did so but not for nine days. In the meantime Mr Cummings had confirmed the agreement by letter and had paid each of Mr Richardson and Mr Wheeler the sum of £10,000 on account of the price.

Mr Richardson told Mr Blackmore of the agreement with Mr Cummings on 19^th June. This led to intensive activity. On the 20^th June, Mr Blackmore withdrew £43,000 from the Company’s account being what he considered to be due to him for his director’s loan account. On 21^st June Mr Richardson and Mr Wheeler did exactly the same. They were also paid £40,000 each by way of a further instalment towards the consideration for their shares. On 21^st June, Mr Blackmore instructed his Solicitor, Mr Murphy, who wrote to Mr Richardson and Mr Wheeler asking for undertakings not to complete their sale of their shares to Mr Cummings until 14^th July and threatening proceedings. That letter was in due course passed on to Mr Cummings who suggested in response that the process of transferring the shares be speeded up. A meeting took place on 23^rd June which was not a board meeting but may have been treated as such at the time by those present, though Mr Blackmore had no notice of it and did not attend. Further payments of £50,000 to Mr Richardson and Mr Wheeler were authorised and were made on the following day. Also on 23^rd June, Mr Richardson signed a stock transfer form in favour of Mr Cummings for his shares and Mr Wheeler did so in favour of Mr Cummings’ company Supatax 2000 Ltd. Notice was given to Mr Blackmore on that day of a meeting of the board to take place on 24^th June. Before the meeting, in a letter written on 24^th June, Mr Blackmore said that he would not work with Mr Cummings in the Company. The board meeting took place, though Mr Blackmore did not attend. Mr Wheeler resigned as a director, Mr Cummings and Ms Donnachie were appointed as directors, share transfers in respect of the shares of Mr Richardson and Mr Wheeler were approved and registered and the opening of a new bank account for the Company was approved. A further board meeting was called for 26^th June and Mr Blackmore was told of that and sent a copy of the minutes of the board meeting that had just taken place.

On the following day Mr Blackmore removed the Company’s computer from the Company’s premises and took it to his solicitor’s offices from which it was returned to the Company’s premises at about 9.00 that evening.

The next day the board meeting took place and various resolutions were passed including one suspending Mr Blackmore. He was sent the minutes of the meeting, told of his suspension and requested not to attend the Company’s premises.

On 28^th June, Mr Blackmore sought an interim injunction without notice for orders such that he be allowed to attend the premises and act as a director of the Company and that Mr Cummings and Ms Donnachie be restrained from acting as directors. Such an order was granted by Judge Moseley over until 4^th July. On that date, a further hearing took place at which he continued the order restraining the respondents from preventing Mr Blackmore from having access to the premises or acting as a director but the other injunctions which had been granted were not continued. The petition had been issued by then, on 3^rd July.

In August, a board meeting took place at which the possibility of the Company acquiring companies or operations carrying on the business of taxi operators by means of a system known as voice dispatch was discussed. Mr Cummings, who had an interest in some of the companies concerned, is recorded as having absented himself from the meeting for this item of business. The meeting resolved that the Company should acquire such companies or organisations. It proceeded to do so. By 2003, it seems that the Company had acquired Black Cabs, Supatax, Starline, Taxi Bus Cardiff and City Taxis. Mr Cummings had an interest in, or indeed owned, Black Cabs, Supatax and Taxi Bus.

That is a sufficient summary for present purposes of the main outline of the history. I shall need to deal in more detail with the forged letter and with the basis of the allegations of unfair prejudice and the judge’s findings in respect of those. Before I do that, I note that the judge found, despite conflict in the evidence on this point, that in 2001 Mr Richardson and Mr Wheeler knew that the petitioner wanted to go on working and was not ready to sell his shares and retire. He also found that the terms of the letter dated 8^th April 2002 which I have already mentioned were broadly acceptable to Mr Blackmore and that it was likely that terms would have been concluded between him and Mr Richardson and Mr Wheeler for his purchase of their shares if Mr Cummings had not intervened. Concerning the meeting between Mr Cummings, Mr Richardson and Mr Wheeler on 10^th June 2002, the judge made detailed findings in paragraphs 69 to 73 of his full and careful judgment. In the course of that he says that the reason why Mr Blackmore was not to be told of the meeting was to prevent him seeking to frustrate the agreement. Mr Richardson, who gave oral evidence (unlike Mr Wheeler who was too unwell) said that this was not the reason, or not the only reason, why Mr Blackmore was not to be told, but the judge had no hesitation in rejecting the suggestion that Mr Richardson and Mr Wheeler did not know or believe that Mr Blackmore was likely to be hostile to the sale to Mr Cummings.

I should mention that, at paragraph 9 of his judgment, the judge recorded that he was far from convinced that any of the principal witnesses before him, Mr Blackmore, Mr Richardson, Mr Wheeler (by way of a witness statement only), Mr Cummings and Ms Donnachie, were wholly reliable witnesses. He said:

I turn now to the allegations of unfair prejudice relied on by the petitioner. He started from the proposition that the Company was a quasi partnership. This was in essence accepted although the respondents asserted that the nature of the relationship had changed later on. Next, he asserted that the dealings concerning the Respondents’ shares were part of the affairs of the Company, a point which the Respondents denied but which the judge accepted. Mr Richardson and Mr Wheeler sought to challenge that by way of appeal but that is one of the points on which they were refused permission to appeal so that point is not open before us. He asserted that the sale by Mr Richardson and Mr Wheeler of their shares to Mr Cummings and his company was an act of unfair prejudice to him in his position as a shareholder. It was prejudicial to his position because it altered his position in the Company from that of being an equal shareholder with two people who had been partners, and in the context of the Company had been quasi partners, to that of being a true minority shareholder where the majority shareholding was held by someone with whom he had never had any dealings and who was a competitor of the Company in respect of its business. The evidence was clear that this would among other things cause a substantial diminution in the value of his shareholding. The prejudice was unfair, he said, because the equitable considerations arising from the quasi partnership relationship obliged the respondents to act in good faith towards Mr Blackmore in relation to the proposed sale of the shares. In addition, he relied on the fact that, at any rate in respect of a number of steps to do with the sale, Mr Richardson and Mr Wheeler as directors acted in breach of their duty of good faith to the Company. The judge accepted those contentions. Again, Mr Richardson and Mr Wheeler sought to challenge that by way of appeal, but that was among the points on which they were refused permission to appeal, so that point is not open.

He also relied on the conduct of the respondents as excluding the petitioner from the management of the Company. He had been not only an equal shareholder and quasi partner but the Managing Director of the Company. The judge concluded that the exclusion of Mr Blackmore was prejudicial to him and that it was unfair because it was not justified by his conduct. In respect of his conduct a number of matters were relied upon. One was that Mr Blackmore had maintained, and did maintain until well into the course of the proceedings, a claim for which there was no proper basis, and which in fact he acknowledged to be false, that two important assets did not belong to the Company but rather to the partners as individuals. These were the distinctive telephone number of the Company, 777 777, and the premises from which the Company had carried on and was carrying on business. That was one act of alleged misconduct. A second was his removal of the computer on 25^th June. There were a number of other lesser acts in respect of which Mr Blackmore was accused of having acted in breach of his duties and to the prejudice of the Company, thereby justifying his suspension. The judge criticised his false claim in respect of the telephone number and the premises and he said that the other conduct was not all readily consistent with the interests of the Company but that Mr Blackmore had been acting in good faith in what he considered to be the best interests of the Company. The judge also concluded that the Company had not suffered any loss as a result of this conduct.

Mr Blackmore relied in addition on one further category of conduct, which started after the presentation of the petition, as showing unfair prejudice to him. These were the acquisitions of the other businesses by the Company. I have referred to these briefly in paragraph 18 above. Plainly these involved potential conflicts of interest for Mr Cummings in respect of those businesses that he owned. As the judge said, despite this, in respect of none of the transactions was any independent advice obtained on the terms of the acquisition, no due diligence was undertaken and no prior approval was obtained as required by section 320 of the Companies Act 1985.

Those therefore were the grounds on which Mr Blackmore based his petition. The judge found that all these allegations were made out. He held that there was a quasi-partnership, that Mr Richardson and Mr Wheeler owed duties of good faith by reason of that quasi-partnership to Mr Blackmore, and acted inconsistently with those duties of good faith in relation to the sale of their shares to Mr Cummings and Supatax. He held that this conduct was part of the management of the affairs of the Company because of the necessary involvement of acts of Mr Richardson and Mr Wheeler as directors, or acts inconsistent with their duties as directors, and the conduct of the meetings on 23^rd and 24^th June, to which I have referred. He held that Mr Richardson and Mr Wheeler, together with Mr Cummings, had attempted to exclude Mr Blackmore from the management of the Company and that this would have constituted unfair prejudice to him. Of course that lasted only for a very short time because it was remedied by the injunction granted on 28^th June. However, the fact that the respondents, having attempted to act in a manner which would be unfairly prejudicial, have been prevented from doing so, or to any substantial extent, by an order in favour of the petitioner does not prevent Mr Blackmore from relying on that conduct in support of his petition. The judge also held that the acquisitions amounted to conduct of the affairs of the Company which was unfairly prejudicial to the interest of Mr Blackmore. He held that Mr Blackmore’s conduct in June 2002 which was arguably inconsistent with his duties to the Company, including the temporary removal of the computer, was not in breach of his duty because he genuinely considered the acts in question to be in the best interest of the Company. I have mentioned at paragraph 22 above the one respect in which he did criticise the petitioner’s conduct. He also held that the petitioner’s acts had caused the Company no loss and accordingly he would not in any event have granted the Company any relief on its separate action against Mr Blackmore.

On the basis of his findings in favour of Mr Blackmore, he decided that it was right to order each of the four respondents (not including the Company) to purchase Mr Blackmore’s shares at a price pro rata to the value of the shares as a whole. Accordingly his order provides for Mr Richardson, Mr Wheeler, Mr Cummings and Supatax 2000 to buy Mr Blackmore’s shares at a price which he fixed at £300,000.

The judge’s findings in favour of Mr Blackmore are challenged on three grounds. Two of them relate to the letter dated 5^th November 2001. The third relates to the finding that Mr Blackmore had been excluded from the Company. In order to explain and deal with the first two grounds, I must set out the position in relation to the letter of 5^th November 2001.

That letter was not written by Computer Cab plc as it purports to have been. Mr Blackmore forged it. He admitted as much during the trial, after the conclusion of his evidence. There had been discussions and at least one meeting with representatives of Computer Cab plc, but this letter is a complete fabrication. What now appears to have happened is this. Mr Blackmore took a letter which had been written by Computer Cab plc to him, photocopied it in such a way that all that emerged on the photocopy was the printed letterhead, wrote new text of his own for the letter, and had that text typed, and the letter signed, by Mrs Janet Miller, an employee of the Company. Not all of that became clear in the course of the trial. Part of it is now known as the result of the applications to admit further evidence. Before describing the course of that matter I will describe the use made by Mr Blackmore of the letter up to the point at which he admitted that it was a forgery.

On 6^th February 2002, Mr Blackmore wrote to Mr Richardson. In the course of his letter he referred to the question of whether he would buy Mr Richardson’s and Mr Wheeler’s shares. He said that they had both refused what he believed to be a fair value “taking into consideration the other offers you have had”. It is clear that the other offers referred to included the supposed offer from Computer Cab plc. Once the proceedings had started there was further reference to the letter. In an affidavit sworn by Mr Blackmore on 17^th July 2002, at paragraph 16, he referred to there having been an offer for £200,000 to each of the outgoing directors, which is clearly a reference to the supposed Computer Cab offer. In the defence, Mr Richardson and Mr Wheeler asserted in paragraph 13.1 that Computer Cab had made an offer to purchase the business, which was not acceptable to the shareholders. In his reply, Mr Blackmore admitted this and said that the offer was contained in the letter of 5^th November 2001. In his witness statement used at trial, at paragraph 28, Mr Blackmore referred to attempts to sell the shares and asserted that he had been very supportive of all attempts to sell the shares of Mr Richardson and Mr Wheeler before June 2002. He referred to having attended meetings with Mr Myers of Computer Cab plc and to that company having written and made an offer on 5^th November 2001, though it was said to have been turned down because the money was apparently not sufficient. In the course of cross examination he made repeated reference to the supposed offer by Computer Cab.

Mr Myers had left Computer Cab plc by 2003. Mr Blackmore’s solicitors managed to contact him. On 6^th March 2003, from his new place of employment, he wrote a letter about the meetings that had taken place between Computer Cab and Mr Blackmore and about the options that were considered. He said that the Computer Cab organisation had decided to put potential acquisitions on hold and that the discussions never came to fruition. He had not been asked any questions about the 5^th November 2001 letter. Neither party had obtained a witness statement from him in due time before the trial. During the trial, however, Mr Hollington, on behalf of Mr Blackmore, applied for a witness summons to have Mr Myers summoned to attend court and to verify the contents of his letter of March 2003. Such an order was made on 14^th October 2004 and the summons was duly issued. Not surprisingly Mr Myers was unhappy at receiving such a summons. Mr Blackmore’s solicitors had sent him a draft witness statement which essentially put into proper form as such the contents of his March 2003 letter. Subject to minor corrections he signed that and returned it dated 22^nd October. That witness statement was then produced at court but though counsel for Mr Richardson and Mr Wheeler did not require his attendance for cross examination, Mr Cummings did object to his evidence being adduced without his attendance and accordingly the judge was not prepared to admit the witness statement on that basis.

At the time when counsel applied for the witness summons, Mr Blackmore was still being cross examined. As I have mentioned he made a number of references to the Computer Cab offer in the course of that cross examination. His cross examination seems to have concluded on Friday 15^th October. On the following Monday he told his solicitor that the letter was not genuine, who then passed this information on to counsel. This led to Mr Blackmore making a witness statement dated 19^th October in which he said that the letter was written by himself. He asserted that the first paragraph of the letter was “accurate” but that he inserted the second and subsequent paragraphs passing them off as the comments of Mr Myers. He also said that his aim had been to persuade Mr Richardson and Mr Wheeler of the benefits of investing in data technology, which he said he was convinced would benefit all of the shareholders by increasing the value of the Company. He said that the rest of the matter was phrased so as to ensure that they were not tempted to accept a low offer. He then said that when he made his witness statement he had forgotten the true source of the letter and that he did not begin to recall the letter or its source until he was under cross examination when it began to come back to him. He said that over the weekend he realised who had produced it and he spoke to his solicitor on the Monday. He apologised to the Court for what he had done.

The Respondents then required him to produce the original letter and to explain the circumstances on affidavit. He made an affidavit on 22^nd October in which he said that the original letter could not be found and that he believed that he had destroyed it. He asserted that the first paragraph had been taken from the original letter and that it was the remaining paragraphs that had been inserted. Later in the trial, Mr Blackmore was recalled to be cross examined on behalf of Mr Richardson and Mr Wheeler. He confirmed in that cross examination that there never was an offer made by Computer Cab, and he denied the suggestion that his purpose in writing the letter was to persuade Mr Richardson and Mr Wheeler that the price they had been asking was too high.

Mr Richardson and Mr Wheeler rely on additional evidence. First there is a witness statement from Mr Myers which says that he has no knowledge or recollection of writing the forged letter and that it is unlikely that the letter was composed by him or any representative of Computer Cab, for a number of reasons. His evidence would show that the whole letter was a forgery, not just the paragraphs after the first. The second application for further evidence would show one further fact, namely that the purported signature “Y Dearden” was likely to have been written by Mrs Janet Miller, who had worked at the Company with Mr Blackmore and appeared as a witness on his behalf at the trial. She had a neighbour and friend called Mrs Yvonne Dearden and the inference was that she had chosen that name to sign the letter with.

In response to the applications to adduce further evidence, Mr Blackmore made a yet further witness statement. In the course of it, he said that he had had taken a copy of a earlier letter from Mr Myers and photocopied the letter head to create a blank page including logos at the top and bottom right hand side and at the top left hand corner the words Computer Cab plc but no text, not even “Yours Sincerely” etc. He said he wrote out on a separate piece of paper the wording he wanted typed onto this blank letter headed paper. He accepts that it was inaccurate of him to suggest that the first paragraph came from Computer Cab’s letter. He said he then took the manuscript and the blank letterhead to the office of the Company and asked Mrs Janet Miller to type the contents of the letter on the word processor in the office which she did and it was printed on the letter headed paper in the printer. He asked her to sign the letter by way of pp, because he was conscious that his own handwriting was distinctive. He asked her to sign in the name of anyone else and she chose Y Dearden. He said that he did not mention Mrs Miller’s involvement because he regarded her as an innocent party to his own misconduct and wanted to protect her.

The additional evidence, therefore, shows that Mr Blackmore’s forgery was more extensive than he had admitted in the course of the trial, and that Mrs Miller, who was separately a witness at the trial, was involved in the process. The judge knew already that the letter was, at any rate largely, a forgery. He made a number of findings about it. At paragraph 65 of his judgment he held that the letter was sent for one purpose only, namely to lay the ground for reducing the expectations of Mr Richardson and Mr Wheeler in relation to the price likely to be obtained for their shares. He therefore rejected the evidence of Mr Blackmore as to his motivation. At paragraph 116 he referred again to Mr Blackmore’s conduct in forging the letter. He said that the letter had no bearing on the reason why Mr Blackmore was entitled to a purchase order nor on why Mr Richardson and Mr Wheeler behaved to him as they did. He made no reference in the course of his judgment to the evidence of Mrs Miller. Having regard to the terms of his judgment, and in particular the passage in paragraph 9 quoted at paragraph 20 above, it seems to me that it is not possible to contend that Mrs Miller’s evidence had been of any importance, or that the judge’s conclusions about her evidence, or for that matter about that of Mr Blackmore, would have been any different if he had known the full story as to the forgery rather than only that to which Mr Blackmore admitted in the course of the trial.

Accordingly, while it is plainly appropriate for the Court to consider the fresh evidence, since it bears on the trial judge having been deceived as regards the evidence of the Petitioner and, indirectly, that of Mrs Miller, it does not seem to me that the new evidence adds very significantly to that which the judge already had, namely the story of the partial forgery and the account, which he did not believe, from Mr Blackmore as to why it had been done.

Mr Richardson and Mr Wheeler relied on the forged letter in closing submissions at the trial for two purposes. Both of these are points still open on this appeal. The first is that writing the forged letter and sending it to Mr Richardson and Mr Wheeler fundamentally changed the nature of the relationship between the three men. The second is that, under or by analogy with the “clean hands” doctrine, the fact of having written and sent the forged letter should disentitle Mr Blackmore to discretionary relief under sections 459 and 461. As to these points the judge said, at paragraph 81:

For that reason, he rejected the first point by way of an answer to the petition. As regards the second point, he dealt with it in two ways. Directly he covered it at paragraph 112, where he said this:

Thereafter, dealing with the question of whether the shares should be bought at a pro rata price or at a price discounted for being a minority shareholding he made the observation at paragraph 116 to which I have already referred (paragraph 34) and he rejected the submission as punishing Mr Blackmore for something of no relevance.

Before dealing with the substance of the grounds of appeal, I must mention Mr Bompas’ application for permission to amend those grounds. There were three live grounds of appeal before us. The application to amend related to the second of them, and to the order sought. The second ground was originally formulated as that the judge erred in law in determining

In context, the fraudulent conduct referred back to the previous ground, and meant his forgery of the letter and his attempt thereby to defraud the Respondent by persuading them to sell their shares at a price less than their market value. It did not include his references to the letter as being genuine in the course of the proceedings. During the hearing of the appeal Mr Bompas relied on that aspect of Mr Blackmore’s conduct as regards the letter as well. In order to bring this contention within the scope of his Appellant’s Notice, he asked for permission to amend that ground so that the judge’s determination to be challenged would be this (the words in italics were not in his original draft, but I have added them to show, as I believe to be right, that it is only conduct as regards the letter that is sought to be relied on):

The second aspect of his application was this. Whereas in the Appellant’s Notice he had simply sought the reversal of the judge’s order, he also applied to amend to add, as an alternative form of relief, a variation of the purchase order so that the shares to be bought would be valued as a minority holding, rather than pro rata.

We refused permission to amend in this respect, since it would have raised, at a very late stage in the hearing, an entirely new point, which had not been hinted at previously on the appeal, and would have widened the scope of the appeal considerably.

By contrast, the reformulation of the second ground of appeal would bring it into line with the way the appeal had been argued. In relation to this aspect of the application we allowed the matter to be argued on the basis of the amendment, but said that we would give our ruling in the course of the judgment. There are two aspects to this: first the introduction of the petitioner’s conduct as regards the letter during the proceedings, rather than just the forgery itself and the use of it in November 2001; secondly the formulation of the ground as referring to the exercise of the discretion under section 461. The second point raises no difficulty. It causes no prejudice to the petitioner and it raises no point that was not before the judge.

The first aspect is more questionable, in that it challenges the judge’s reasoning, and the exercise of his discretion, on a basis which was not argued before him and which he could therefore not be expected to have taken into account. In the written concluding submissions of Mr Blackmore, Counsel for Mr Richardson and Mr Wheeler, dated 6 December 2004, it was submitted that, even if unfairly prejudicial conduct was found, relief should not be granted because of the petitioner’s conduct. The conduct relied on included the forgery of the letter, but not any use of it after it had first been sent. It also included some conduct of the petitioner during the proceedings, including his false claim as regards the telephone number and the premises. In turn Mr Hollington’s written closing submissions (which answered those of Mr Blackmore) did not deal with the letter except as regards the use made of it in November 2001 and, as it was said, its complete lack of any impact on Mr Richardson. We do not know exactly how the matter was put in final speeches but there is no indication in the judge’s judgment that the matters relied on as regards the letter went any wider. The formulation of the original ground of appeal is itself consistent with the matter having been seen and put on this limited basis.

Mr Bompas’ pursuit of the relevance of the petitioner’s conduct as regards the letter during the proceedings led him to draw an analogy with cases such as Arrow Nominees v. Blackledge [2000] 2 BCLC 167, in which proceedings under section 459 were halted before the conclusion of the trial because the petitioner’s conduct had made a fair trial impossible. The extent of the misconduct in that case was much greater than in this case, but the analogy is illuminating in principle.

In those circumstances there is a good deal of force in Mr Hollington’s argument that it would be inappropriate to allow this ground of appeal to be widened so as to challenge the judge’s determination, as a matter of his discretion, on a ground which was not put to him and which he therefore did not take into account. The judge had before him a mass of conflicting evidence from witnesses, many of whom he found unreliable. The trial had overrun substantially (see paragraph 8 of the judgment) and the judge had to, and evidently did, manage it with particular care, especially given that several parties were not professionally represented. In the light of that, very sensibly, he limited his findings to the points that mattered on the issues as they stood before him: see paragraph 50. He made no findings as to the conduct of the petitioner during the proceedings in respect of the letter, other than those involved in finding that the letter had been forged and as to the petitioner’s motivation, in particular at paragraphs 28 and 65. Accepting the submission made by Mr Hollington would lead to the application for permission to amend being allowed only to the extent of the second aspect identified above. On that basis the ground of appeal would read as follows:

Nevertheless, the additional element in the amendment would not require the consideration of matters of which the judge was not aware by the time he gave judgment. Accordingly, although he did not expressly consider these matters in relation to the exercise of the discretion under section 461, it would involve a less radical departure from the position before the judge than one which would rely on matters of which the judge had been entirely unaware.

Moreover, although it seems to me that the judge did in fact take into account all matters relevant on the case as it had been argued before him, it is arguable that the way in which he expressed himself at paragraph 112 of his judgment suggests a misunderstanding either of the submissions of Counsel for the Petitioner or of the law as regards the scope and extent of the discretion under section 461. On balance, therefore, I would be willing to permit the amendment sought.

It follows that this court has to exercise the discretion under section 461 itself, having regard to all the relevant conduct relied on, though of course having regard to the facts found by the judge insofar as he did make relevant findings. I will turn to the second ground of appeal shortly; when I do so I will first consider it on the more limited basis, by reference only to the material which the judge considered, and then on the broader basis, including the petitioner’s conduct in the course of the proceedings as regards the letter.

There was a question as to whether the first two grounds of appeal, as originally formulated, were properly open to Mr Richardson and Mr Wheeler, it being said that they had not taken these points before the judge, or had even conceded them. Having examined the written closing submissions put before the judge at trial it seems to me that these points had been sufficiently taken by Mr Blackmore on behalf of Mr Richardson and Mr Wheeler, and I would not decline to deal with them. Mr Hollington told us that Mr Blackmore did not, in his oral closing submissions, challenge the principle of Re London School of Electronics Ltd (to which I will come later). That is very different from not arguing the point in question. It does not sound to me as if that was a concession, and it certainly cannot have affected the course of the evidence which was by then closed.

The first and second grounds of appeal are closely related, turning on the significance and effect of the petitioner’s forgery. I will deal with them together.

It seems to me that the judge was plainly right that the forgery did not automatically discharge the obligations of good faith which he had found to be imposed on the former partners towards each other. If Mr Richardson and Mr Wheeler had found out about the forgery at or soon after the date of the letter, they would no doubt have reacted strongly in one way or another. But it does not follow that they would have regarded any obligations of good faith between the former partners as terminated. They might have wished to reinforce them and insist that they be properly observed. There is certainly no basis for a finding that the good faith obligations were in some way discharged without any of the parties having had any choice in the matter.

There is more to be said for the contention that the petitioner’s conduct was relevant to the court’s discretion whether or not to grant relief under section 461 if the conditions under section 459 were satisfied. The judge dealt with this rather briefly in paragraph 112, quoted above (paragraph 37). He cited the decision of Nourse J in Re London School of Electronics Ltd [1986] Ch 211 at 221-2 as authority for the proposition that there is no requirement that the petitioner under section 459 should come to the court with clean hands. It is authority for that proposition, but it also shows that conduct which in another context might be used to invoke the clean hands doctrine can be relevant on a section 459 petition, in that “it may affect the relief which the court thinks fit to grant”: see p.222B-C. Nourse J did not say so in terms, but it seems to me clear that, depending on the seriousness of the matter and the degree of its relevance, such conduct would be capable of leading a court to deny the petitioner any relief at all, even though the conditions under section 459 are made out.

If misconduct by the petitioner is relied on as a reason for exercising the court’s discretion under section 461 so as not to grant any relief, some of the cases on the clean hands doctrine may provide useful guidance by way of analogy. In the present case Mr Bompas invited us to refuse the petitioner any relief by reference to cases such as Willis v. Willis [1986] 1 EGLR 62 and Gonthier v. Orange Contract Scaffolding Ltd [2003] EWCA Civ 873. In the first of those cases the Defendants had sought to set up a proprietary estoppel case as a defence to an otherwise plain claim for possession. In support of their claim to have incurred expenditure in reliance on the alleged representation they put forward a forged letter which appeared to be from a contractor describing the work which he had done for them over the years and the sums charged. The judge held that this conduct disentitled the Defendants from the assistance of equity, and the Court of Appeal agreed. In Gonthier there was also an equitable estoppel claim, and it was supported by documents which fraudulently represented the expenditure to have been about £50,000 rather than the true £19,500. The judge at trial had felt able to give effect to the estoppel despite this fabrication of evidence, but the Court of Appeal allowed the appeal and held that the case was on all fours with Willis.

Mr Hollington showed us Moody v. Cox [1917] 2 Ch 71. There the plaintiff M contracted to buy trust property from the trustees (C and H), H being a solicitor and C his managing clerk, and H’s firm (through C) acting for both vendor and purchaser. C failed, in breach of duty, to disclose to M some relevant material. M had offered C a bribe during the negotiations, which C accepted. M sued for rescission on the basis of the non-disclosure and H and C counterclaimed for specific performance. It was held that, by suing for specific performance, H and C had affirmed the contract, which they might otherwise have rescinded on the basis of the bribe, and the fact of the bribe was no defence, on the clean hands principle, to M’s claim for rescission on the basis of the non-disclosure. Scrutton LJ said, at 87-8, that

That is entirely consistent with Willis and Gonthier, where the misconduct lay in fabricating evidence in support of the claim itself. I deplore the petitioner’s conduct as much as the judge did. However, considering the point first on the same material as the judge took into account, it seems to me that, on his finding (see paragraph 116) that it had no bearing on the matters directly in issue, a finding which he was plainly entitled to make, he was right to disregard the forgery, and the petitioner’s use of the forged letter, when deciding whether the conditions under section 459 were made out. He was also right to disregard it in relation to the question whether to exercise his discretion to make any, and if so what, order under section 461. The forgery itself had no immediate or necessary relation to the circumstances upon which the petitioner’s entitlement, or otherwise, to relief depended. At best it was an episode in the background history. Given the lack of impact it had on Mr Richardson and Mr Wheeler, the judge was entitled to treat it in the way in which he did.

Having allowed the amendment to the second ground of appeal as described above, it is necessary for me to look at the matter more broadly and in particular to take into account the petitioner’s use of the forged letter during the proceedings, which I have described in paragraph 28 above. I do so on the basis that, as stated in paragraph 53 above, a party’s conduct may be such as to lead the court to refuse relief under section 461 altogether, even if the conditions for the exercise of the discretion in his favour are otherwise satisfied.

The starting point for this is that the petitioner has established that the Respondents’ conduct of the affairs of the Company was prejudicial to him as a shareholder, and unfairly so, in the three respects on which he relies: the sale of Mr Richardson and Mr Wheeler’s shares to Mr Cummings and Supatax 2000 Ltd, the attempt to exclude him from the management of the Company (with which I deal next in this judgment) and the later acquisition of other businesses. It would therefore be open to the court to exercise its discretion so as to grant him a remedy under section 461. Nevertheless it is also open to the court to deny him a remedy in the exercise of its discretion.

The conduct of the petitioner which is relied on in this respect, namely his forging of the letter, his sending it to Mr Richardson and Mr Wheeler, and his later reference to and use of it, including during the proceedings, is directly relevant only to the first matter of unfairly prejudicial conduct. It seems to me plain that his conduct during the proceedings is not such as could be described as an abuse of the process of the court rendering a fair trial impossible. It is therefore not of the same kind as the conduct at issue in Arrow Nominees v. Blackledge.

Considering the petitioner’s conduct, therefore, in the exercise of the court’s discretion under section 461, but on the basis of the facts found by the judge, insofar as he did find them, in respect of the letter, the relevant matters seem to be these. The letter was fabricated by the petitioner (with the help of Mrs Miller, but that is not significant in itself). His intention (though he denied it in evidence) was to lay the ground for reducing the expectation of Mr Richardson and Mr Wheeler as regards the price likely to be obtained for their shares. In fact it had no such effect. In particular by his letter dated 8 April 2002 the petitioner offered a price of £300,000 (albeit with £50,000 deferred) and Mr Richardson and Mr Wheeler were seriously interested in this price (see paragraph 67 of the judgment). This offer was comparable to the Horton offer and to the eventual offer from Mr Cummings. Mr Bompas submitted that the petitioner used the letter in the proceedings to suggest, falsely, that he had never prevented Mr Richardson and Mr Wheeler from disposing of their shares, and indeed tried to help them, and that his own shares had never been for sale. As the judge found (paragraph 116) the letter “had no bearing on why the Respondents behaved to him as they did”, as he had described their conduct in paragraphs 87 and 88 of his judgment.

It seems to me that there may be some substance in Mr Bompas’ submission as to the additional forensic use to which the letter was put during the trial, but it is of little, if any, significance compared to the petitioner’s forgery of the letter in the first place. In my judgment, even bringing into the reckoning the use made of the letter during the proceedings, as described above, and even accepting that he may have had the additional motivation that Mr Bompas ascribed to him, his conduct is neither sufficiently serious nor sufficiently closely related to the Respondents’ unfairly prejudicial conduct to make it appropriate for the court to exercise its discretion so as to refuse to grant him a remedy under section 461 which it would otherwise grant. Accordingly, even on the enlarged second ground of appeal, I would hold that the appeal is not well founded.

It would have been open to the judge to have taken account of the misconduct in his order for costs. He did not do so, and that is not challenged on appeal.

As regards the points which are raised on appeal, under the first and second grounds, it seems to me that the judge’s conclusions were correct.

The third ground of appeal challenges the judge’s finding that the petitioner had been excluded from the Company. Comprised within this, as argued, there are two different points. The first is that when the petitioner was excluded, by the board resolution of 26 June suspending him, this was justified by his conduct immediately beforehand. The second is that, when the effect of this was reversed by the interim injunction, he did not in fact take part in the affairs of the Company, so that his non-participation was then voluntary, not as the result of exclusion.

Given that the first ground of unfair prejudice, as regards the sale by Mr Richardson and Mr Wheeler of their shares, was, in my view, correctly accepted by the judge, and that his finding that the third ground of unfair prejudice was also established is not challenged on appeal, it would make no real difference if Mr Richardson and Mr Wheeler were able to show that the judge was wrong on this second ground. I can therefore deal with this point shortly.

Plainly the petitioner was excluded on 26 June, and this was only reversed, as regards his status and rights as a director, by the injunction. Unless his suspension had been justified this by itself would be sufficient to establish unfair prejudice. He was only reinstated as a director, not as managing director as he had been. He was not paid. The bank mandate was changed so that his signature was not needed. His evidence was that he did not attend thereafter because of stress. This seems inherently credible, and was not challenged in cross-examination, as we were told.

Thus the only answer to the case based on expulsion would have been on the basis that his suspension was justified. On this, Mr Bompas criticised the judge’s acceptance in paragraph 100 of the petitioner’s explanation of his actions as having been in good faith on legal advice, that legal advice not having been disclosed. He also criticised the judge for having looked at the petitioner’s conduct on the basis of his subjective belief, but not at the Respondents’ actions on the same basis.

It has to be remembered that the judge was very critical of the petitioner as a witness, as he was of the Respondents. He was not, in general, prepared to accept the evidence of any of them without corroboration. Despite that, on this point he was clearly prepared to accept the petitioner’s evidence. It seems to me that it is not for us to disturb his finding, on the evidence he heard, that the Respondents’ acts in suspending the petitioner on 26 June were not justified by what he had done. If that is so, the third ground of appeal is not made out.

Accordingly, although I would permit the second ground of appeal to be amended in the terms set out in paragraph 40 above, I would dismiss the appeal by Mr Richardson and Mr Wheeler.

I now come to the quite separate appeal by the Company, concerning the £60,000.

The relevant facts for this appeal are these. Shortly before the trial was due to start, there was a suggestion that a mediation might be undertaken. This was not, in the event, agreed to by all parties. On 4 October 2004 a board meeting of the Company was held, at which, first, each of Mr Cummings and Supatax agreed to increase their loans to the Company by £30,000, having in mind that this might facilitate a repurchase by the Company of the petitioner’s shares. Later in the minutes it is recorded that

On this basis the board resolved that the Company should pay £60,000 to the petitioner, by transfer to his solicitors’ account. Such a payment was made on the following day by telegraphic transfer. On 6 October the Company wrote to Messrs D J Murphy, saying, among other things:

The Company did not at that time have legal advice. Otherwise it might have acted more circumspectly. The solicitors, however, looked this gift horse in the mouth, and perceived some problems, not least the possible relevance of section 151 of the Companies Act 1985. They replied on 7 October, saying this:

No further light was cast on the basis of the payment by any later correspondence. During the trial the Company applied for an order that the money be paid back to it. Instead Messrs D J Murphy paid it into court, by then a little interest having accrued. According to a later letter from the Court Funds Office, £60,065.10 was paid into court on 3 November 2004.

The application for payment out was renewed in closing submissions. The judge dealt with this by a written ruling at the end of December, before he was able to give judgment on the case generally. He refused the application. The essence of his reasoning appears from paragraph 6, as follows:

In effect, he considered it right that the money should remain in court pending a decision whether the Company would have to pay Mr Blackmore anything at the end of the day.

When he had decided the issues on the petition and the Company’s claim, the judge then came to consider what order to make. His order requires the first four Respondents to pay £300,000 to the petitioner’s solicitors in payment for the shares. It then provides for the money in court to be paid out to the petitioner’s solicitors in part satisfaction of the £300,000. The order made on the petition imposes no liability on the Company. The order made on the Company’s claim required Mr Blackmore to pay three quarters of the Company’s costs up to 21 September 2004, on the indemnity basis, and required the Company to pay his costs thereafter.

It seems to me that, in ordering that the £60,000 be paid out of court to the petitioner in part satisfaction of the liability of the first four Respondents to pay for his shares, the learned judge must have overlooked the basis on which that money came to be in court, its provenance, and the basis on which he had decided that it should stay in court for the time being.

Mr Blackmore might possibly have accepted the payment made by the Company as a free gift by it to him, which, on the face of it, it was. He did not do so. By his solicitors he sought to treat it as paid on account of liabilities of Mr Cummings and Supatax 2000 Ltd. Their letter to that effect, not agreed to by the Company or by Mr Cummings and Supatax 2000 Ltd, could not change the basis of the payment or its source. If it was not accepted unconditionally by Mr Blackmore as a gift by the Company, it remained the Company’s money. As such there was no basis on which it could be used to satisfy obligations of the other Respondents. In particular it could not be used to pay for shares in the Company itself, because of section 151.

Accordingly it seems to me that in this one respect the judge’s order was wrong and must be varied. The money has in fact been paid out of court. We were told that it is still held by Messrs D J Murphy.

Ms Donnachie asked for it to be ordered to be paid back to the Company. However, there is a liability of the Company for costs to Mr Blackmore under the judge’s order. Although this is to be set off against Mr Blackmore’s liability to the Company, it is premature to form a view as to who is likely to be the net debtor after assessment. It could be the Company.

I therefore proceed on the basis that the money does belong to the Company, and must be treated accordingly, but that the Company may turn out to owe Mr Blackmore money under the judgment. That being so, if the money were still in court I would not order its payment out at this stage. It would only be right to make such an order if, when and to the extent that it becomes clear that the money, or part of it, will not be needed to cover any liability of the Company to Mr Blackmore under the order.

Since the money is not in court it would be possible, and normal, to order it to be paid back into court. That would not be necessary if Messrs D J Murphy were to undertake to hold it in a separate interest-bearing account, and not to dispose of the principal or interest except (a) with the written consent of Mr Blackmore and the Company, or (b) as directed by the court. Mr Hollington indicated that such an undertaking would be given. If it is given, then on the substance of the Company’s appeal I would discharge paragraph 2 of the judge’s order on the petition, and declare that the money belongs to the Company and would make no other order, but give all parties permission to apply in the Cardiff District Registry for any further directions that may be necessary in respect of the money.

I agree.

I also agree.