Hunter v Senate Support Services Ltd & Ors

In this action the Claimant, Mr Keith Hunter, seeks to impugn the forfeiture of his minority shareholdings in the First, Second and Third Defendant companies (respectively “SSS”, “Acquire” and “EAT”; together “the 3 subsidiaries”). The shares in question have all been transferred to the Fourth Defendant (“SVSP”), which is the group holding company of the 3 subsidiaries as well as other companies. SVSP is effectively controlled by Mr Tim Cookson (the vast majority of whose former shareholding in SVSP has been transferred to a discretionary trust for members of his family, including himself) and Mr Vic and Mrs Pam Tippins (I shall refer to the three of them together as “the majority”). There are also minority shareholders, including a Mr Roy Farrier and a Mr Edward Bevan.

As his counsel Mr Griffiths frankly acknowledged when opening the case, the Claimant’s underlying but substantive purpose in bringing this action is to gain locus standi to bring petitions under s.459 Companies Act 1985 (“CA85”) in the 3 subsidiaries, and most particularly in SSS, where he perceives that his forfeit shareholding had the greatest value.

On a superficial review of the facts giving rise to this action, a world weary cynic might well conclude that what occurred must have been some form of ‘set-up’, deliberately instigated and carried through by the majority so as to get rid of someone they regarded as a troublesome minority shareholder and to appropriate the benefit of his shareholdings for themselves. Were it so, the resolution of the case would have been straightforward. However the longer the trial went on, the clearer it became that the picture was in truth very different.

At trial the Claimant called 2 witnesses (including himself), and the Defendants 5 (plus a sixth, whose evidence was taken as read). There were 5 bundles of documents, and I shall refer to documents appearing in those bundles in the form TB1/2 (1 being the volume and 2 being the page), omitting the numbers shown on any relevant tab dividers. After the close of the evidence the Claimant obtained transcripts of the evidence, to which I shall refer in the form TPT 3.2.04 p1 (being the transcript of evidence given on 3^rd February 2004 at page 1), where appropriate adding line numbers.

Prior to his involvement with the majority the Claimant, a retired police officer who had previously been involved with another company which had not prospered, owned and ran Oasis Support Services Limited (“Oasis”), which had a security business. Through transactions I shall summarise below, he joined in first Mr Cookson’s company Senate Food Services Limited (“Senate Food”) and then the newly formed SVSP group. He plainly feels a strong sense of grievance against his opponents in this litigation in respect of a number of matters, including but by no means limited to their involvement in the forfeiture of his shares in the 3 subsidiaries. However I am satisfied that it was the Claimant who was primarily responsible for the breakdown in communication and working relations between himself and the majority which occurred in and around September 2002, and which has indirectly led to this lengthy and doubtless expensive litigation : he had a tendency to assert that agreements had previously been reached when they had not (e.g. his letter of 30^th June 2000 – as to which see paragraph (19) below); he was primarily responsible for the increasingly acrimonious tenor of the e-mails exchanged; he it was who came to refuse to speak to the majority (see e-mail of 19^th September [TB4/232]), having declined to ring back in response to an answer-phone message left by Mr Tippins earlier that morning; he it was who recklessly failed to take seriously at least the first call notice (which he accepts receiving) and did not (contrary to the terms of his own e-mail dated 16^th October) take professional advice about it. Short but telling descriptions or characterisations of him incidentally emerged (I am sure genuinely, rather than in any deliberate attempt to ‘smear’ him) in the course of the evidence of a number of his former colleagues within the SVSP group, not limited to the majority. He was described as ‘bloody-minded’, and the sort of person who might be expected to pay a sum of a few hundred pounds late on the last possible day entirely in small coins, just to make a point. Mr Farrier at one point said of the Claimant (in the context of not having paid the £300 by 24^th October) “he was being Keith - awkward”. Having read quite a number of his e-mails, and observed him in the witness box, I am satisfied there is substance in these descriptions or characterisations of the Claimant. He was not always, in particular from late August 2002 onwards, an easy man to deal with.

Although I can accept much of his evidence, there were particular aspects of it about which I have reservations. At points in his cross-examination he appeared himself to be a little uncomfortable in the evidence that he gave; a particular example is when dealing with his assertion that it was reliance on certain words in note 10 to the accounts which had been sent to him on 6^th September which (in contrast to the terms of his own e-mail dated 16^th October) caused him to decide that he could safely decline to pay the call. I have also had anxiously to consider whether I can accept his evidence that he did not receive the second call notice (dated 16^th October). I shall revert to these points below.

A Mr Hudson, formerly employed in the accounts department of SVSP reporting to and sharing an office with Mrs Pam Tippins, was called for the Claimant on the topic of whether the sums comprised in the management charges by SVSP to the 3 subsidiaries, and in particular SSS, were calculated on a proper or fair basis. When he gave oral evidence it rapidly became clear that his witness statement markedly over-stated the evidence which he was in fact able to give. I accept his oral evidence. In essence, he said that he was not in a position to impugn any of the sums included as not being fair allocations of relevant expenditure. Insofar as there were round sums which appeared to have been set so as roughly to match (and thus eliminate) the profit which would have been reported without their inclusion, there was no example he could point to in respect of the years and the companies with which he was familiar where the round sum represented an increase (as opposed to a reduction) of the sum which would otherwise have been arrived at [TPT 4.2.04 p39].

Given the serious case (in part tantamount to a conspiracy theory) put against them, and given that some personal advantage accrued to them (through SVSP) from the ultimate transfer of the Claimant’s shares to SVSP, I have of course had to scrutinise the evidence of the 2 male members of the majority especially closely. Having done so, and taking full account of the corrections each had to make as to what documents they had available to them on 26^th and 27^th September 2002 (as to which see below), I find each of them to have been impressive and scrupulously honest witnesses.

Mr Cookson was the majority shareholder in Senate Food from its incorporation in July 1999 until the creation of the SVSP group in July 2000 (Mrs Pam Tippins held 15% of its shares). In October 1999 Senate Food acquired the entire issued share capital of the Claimant’s company Oasis, which upon becoming a subsidiary of Senate Food was renamed SSS. By January 2000 he was involved in negotiations with Mr and Mrs Tippins concerning a possible merger of their respective business interests. Implementation of that proposal commenced in April 2000, with the incorporation of SVSP as the intended holding company of their new group. He gave his evidence in a calm and measured way, and impressed me as a witness. He was generally quite precise in his use of language including in his interpretation of questions, but subject to that was willing to accept points put to him in cross-examination where appropriate. One passage which illustrates both points is at TPT 23.2.04 p25 line 32 – p26 line 8. His evidence when later re-called was mostly of a similarly impressive character, though at one point he was honestly mistaken, I believe through some confusion (see paragraph (152) below).

Mr Tippins and his wife were the majority shareholders in Catercheck Purchasing Group Ltd and Catercheck Consultancy Serves Ltd from their respective incorporations in 1997 and 1999 (Mr Cookson held a minority shareholding in the former, and Senate Food in the latter). Mr Tippins did his best to maintain temperate communication with the Claimant when that became increasingly difficult. He took the initiative to use Mr Martin as a channel of communication (the Claimant had known and dealt with Mr Martin for longer than the majority). As he himself observed, the worst thing he said in a very difficult sequence of e-mail correspondence was a sentence in his e-mail timed at 16.15 on 4^th September 2002 [TB4/105] “I further suggest that in an attempt to bring sanity to the situation, your advisers deal with Paul [Martin], and cut out the wild, irrational correspondence you continue to enter into.” Read against some of the e-mails sent to him by the Claimant (including that timed at 14.30 on the same day [TB4/100]), that does not merit much criticism. Under cross-examination he was calm, clear and unflustered. It was noteworthy that Mr Tippins did not always agree with Mr Cookson’s evidence, more or less all of which he had heard sitting in court. One example was in relation to whether the Claimant’s shares in Acquire and EAT were valuable when he acquired them in July 2000 [TPT 24.2.04 p66 line 35 – p67 line5]. When re-called to deal with questions arising from the disclosure of privileged documents, Mr Tippins remained calm, at his ease, and in my judgment conspicuously direct and realistic in his answers, whereas many witnesses in his position would (understandably) have been uncomfortable and defensive. An example is afforded by his answers at TPT 27.2.04 p3 lines 1-33. Similarly, when asked whether he agreed with Mr Farrier’s evidence on the ‘inevitability’ of forfeiture in the event of non-compliance with the second call notice (and once the crucial point had been put to him clearly), he gave clear and to my mind strikingly honest affirmative answers in circumstances in which he must have sensed that this was unhelpful to his cause [TPT 26.2.04 p55 lines 8-53]. Mr Tippins too impressed me as a witness.

Mr Paul Martin, a Chartered Accountant in private practice who acted as accountant and auditor to SVSP and its group, was called by the Defendants. He was a witness of fact, though his professional knowledge and expertise inevitably impacted upon his evidence at various points. I was most impressed by the whole manner in which he gave his evidence. He was precise in his answers, and gave them with noteworthy calm and clarity. It is possible that on one highly technical (and, given his entirely understandable belief or assumption that the shares in question would have been fully called up upon issue, entirely theoretical) question as to the proper accounting treatment of issued but uncalled share capital – in effect a question of professional opinion rather than fact - he was wrong (see the citation of paragraph 4.005 from Palmer’s Company Law, 25^th (looseleaf) ed., at paragraph (26) below). I make no finding on that question, because it is unnecessary for me to do so and because it has not been fully explored in submissions. In every other respect – factual and professional - I have no hesitation in accepting Mr Martin’s evidence as reliable.

Mr Roy Farrier, one of the minority shareholders in SVSP and a director of Acquire and (from 5^th April 2001) SVSP, gave evidence. He initially spoke very quietly, I think reflecting some nervousness at the experience of giving evidence in court. However he soon relaxed somewhat, and throughout his evidence again impressed me as a witness who was making every effort accurately to answer the questions put to him.

Mr Edward Bevan, another minority shareholder in SVSP and a director of EAT and (from 9^th September 2002) SVSP, was the Defendants’ final witness. He was a straightforward witness, who again took obvious care in answering the questions put to him. One example was when he declined simply to reconfirm en bloc a passage in his witness statement put to him in cross-examination with a single ‘yes’, despite being prompted by Mr Griffiths to do so, but instead set about going slowly through it clause by clause (in the event, reconfirming all of it).

The 4 director witnesses for the Defendant were asked about a number of common points. Where dependent on recollection, those recollections naturally enough differed as to some detail, and as to the words they used to express them, but not as to the general thrust. That in no way causes me to criticise the evidence of any of them; on the contrary I am confident that each was doing his honest and careful best to give accurate evidence. Where it appears material to do so, I will indicate my preference between their evidence on particular points below.

The evidence of Kyla Whitefoot proving posting of the second call notice on 16^th October 2002 by first class post (TB 1/110-112a) was ultimately taken as read without her being required for cross-examination.

As indicated above, prior to the formation of the SVSP group, the Tippins ran the 2 ‘Catercheck’ companies I have mentioned, which had apparently been successful. Mr Cookson ran Senate Food, which had mixed fortunes in its early trading after incorporation in 1999 (see its accounts for the 11 month period ended 20 June 2000 at TB 2/419a-m). The Claimant ran Oasis.

In October 1999 Senate Food acquired the entire share capital of Oasis, and in return for his shares the Claimant received a 12.5% holding in Senate Food (125 £1 shares). Thus this transaction can properly be described as a ‘share swap’, in that the consideration the Claimant received for transferring away (Oasis) shares already vested in him was the transfer to him of other (Senate Food) shares.

From late 1999 or very early 2000, Mr Cookson and the Tippins were involved first in discussions over, and then in planning, the merger of their business interests, to be implemented by means of the creation of a group of companies headed by a (new) holding company. In the event that was SVSP. This process was of course to affect the interests of others involved with them in one or more of their companies. The Claimant, Mr Bevan and Mr Farrier were three such persons.

By 12^th May 2000, the proposals had become sufficiently advanced that Mr Tippins was able to write to the Claimant [TB 4/1] setting out the shareholdings with which it had been agreed he would end up. The phraseology of the letter suggests that he was to be allotted (rather than to retain) a 5% shareholding in SFS, but nothing turns on whether that was an oversight, or whether that was the method of implementation envisaged at that date. The Claimant replied on 30^th June 2000 [TB 4/2], in the course of which letter he asserted that “at the discussion stage with Tim [Cookson] in relation to the allocation of shares I was promised … that in [EAT] I would be issued with 5% and not 2.5% … I have since had a conversation with Tim [Cookson] and he assured me that this was an error on his part …” I find both those assertions (original promise and assurance of error) to have been inaccurate, and accept Mr Cookson’s evidence that he was simply ‘amused’ by it at the time and chose not to make an issue of it. I reject the Claimant’s evidence (as expanded in cross-examination TPT 3.2.04 pp5-6) that both Mr Cookson and later Mr Tippins apologised to him for any error in this respect.

Although formal completion of the restructuring took place on 27^th July 2000, in fact trading commenced in at least some of the companies which were to form the new group from 1^st July 2000 (the first day of their financial years), and the relevant entries in the 3 subsidiaries’ nominal ledger accounts recording the allotment of shares to the Claimant and others, and the creation of a debt owed by the Claimant in respect of the unpaid face or par value of the shares allotted to him, were dated 1^st July 2000 [TB3/195 and 207 (SSS), 197 and 211 (Acquire), 199 and 203 (EAT)].

At or about the time of the restructuring, the shares of at least some of the group companies were subdivided (£1 shares being sub-divided into 100 1p shares). For this reason it will generally be simplest for me to refer to shareholdings by reference to the percentage which they represented of the entire issued share capital of the company in question.

Though the Claimant now alleges that he always understood the nature of the July 2000 transaction, so far it involved him, to be a single transaction in the nature of another share swap, in that he received shares in the 3 subsidiaries ‘in return for’ transferring away 75 shares representing a 7.5% interest in Senate Food, that is an over-simplification of what happened. In truth there was a 2 stage process. The first stage was (spelling it out in legal language which will not have been that used by the Claimant and Mr Cookson) that the Claimant sold the 75 shares in Senate Food to Mr Cookson in return for payment of their face or par value (£75) plus Mr Cookson’s agreement to procure that the Claimant was offered the opportunity to subscribe at par for a 25% shareholding in SSS and 2.5% shareholdings in Acquire and EAT upon the imminent restructuring. This was attractive to the Claimant because there were at the time high hopes that such shareholdings would become valuable (if they were not so already), and because he was keen to move back into a company whose main business was in security. This was attractive to Mr Cookson because it enabled him to assemble a sufficient shareholding in Senate Food to make the required contribution to the overall merger as between himself and the Tippins.

This was the reason why the 75 shares were not transferred direct to SVSP by the Claimant. He may not recall the detail of it now, but I am satisfied that at the time the Claimant did understand the 2 stage nature of the process, and did understand the terms of the first stage as between himself and Mr Cookson. At the 27^th July 2000 completion meeting, Mr Cookson joked with the Claimant about owing him £75, because that (modest) sum had not in fact changed hands. In the course of oral evidence Mr Cookson volunteered a less than certain recollection that this £75 may have been the subject of a ‘double or quits’ bet which he and the Claimant made at about this time over which of the football teams they supported (Leeds and Chelsea respectively) would finish higher in the next season’s Premiership (how times have changed!). Whether or not it was made the subject of such a bet, the very fact that such a personal debt of £75 was (as I find) the subject of jocular discussion between them on 27^th July 2000 evidences knowledge on the Claimant’s part that 75 of his £1 shares in Senate Food had been transferred to Mr Cookson personally at par. I should add that the same was quite clear on the face of the share transfer form which the Claimant signed at the time [TB 2/419].

The second stage of the process which involved the Claimant was the allotment of shares to him by each of the 3 subsidiaries (he retained his remaining 5% shareholding in Senate Food). These allotments were in accordance with the agreement recorded in the letter dated 12^th May 2000, namely 25% in SSS and 2.5% in each of Acquire and EAT. In accordance with the agreement with Mr Cookson, it was intended that the Claimant pay for the same at par. However (no doubt in large part because the sums were so small) the implementation of that intention was subsequently overlooked by all concerned : the Claimant did not volunteer payment and the respective companies did not make any call for it (prior to that of September/October 2002).

It should be noted that at the same time Mr Bevan was allotted 5% shareholdings in each of SSS, Acquire, EAT and Senate Food. In Mr Bevan’s case this was apparently a new experience for him, and he was excited about it. He remembered physically reaching inside his jacket for his cheque book at the 27^th July 2000 meeting, and volunteering to pay for his allotments there and then. However Mr Cookson brushed his offer aside, saying something to the effect that Mr Bevan should not worry and would be asked for the payment in due course. Thereafter the matter of either making or calling for payment was overlooked for some considerable time in Mr Bevan’s case too.

In law, the effect in the case of the Claimant’s and Mr Bevan’s shareholdings is straightforward and provided for by the scheme of CA85, though as a matter of practice it is unusual. By agreeing to take the shares (which both the Claimant and Mr Bevan clearly did), they agreed to pay for them at par. In the (unusual) absence of an accompanying call, there was an unpaid (and arguably contingent) liability on each of the shareholders for the unpaid sum. Palmer’s Company Law, op. cit., at para. 4.005 states the position thus :

“When the nominal capital is allotted in whole or in part, each of the persons to whom it is allotted becomes liable to pay to the company the nominal value of the shares taken. The Act envisages that the obligation of the shareholder shall be payable either on the company making a call on him or by way of instalment fixed on the issue of the shares or by the Articles. Calls are in practice very rare…. As long as anything remains uncalled on an issued share, there is an unpaid liability for the balance, and the total amount of these liabilities will be regarded in the books of the company as the uncalled capital.”

And at para. 6.201 :

“A member is under a liability to pay up in accordance with the articles the amount for the time being unpaid on his shares. If his shares have been issued as paid up or partly paid up, whether for cash or otherwise, or if he or some prior holder has paid them up wholly or in part, he would be wholly or pro tanto exempt from calls; but prima facie his liability is to pay the full amount …The nature of this liability is defined by Section 14. A shareholder is bound to pay the full amount unpaid on his shares, but, unless the terms of the issue so provide, he is not bound to pay up at once.”

In due course the books of each of the affected companies came to be written up by someone in the accounts department, either Mrs Tippins herself or someone responsible to her. Credit entries were made in each of the 3 subsidiaries ‘share capital’ ledger accounts in respect of the par value of all the issued shares [see TB 3/207, 211, 203]. I infer that such entries were made on the understandable assumption (which accorded with what had been intended) that all the issued shares were fully called up (as is, after all, very commonly the case in respect of shares in private companies). Accordingly matching debits had to be entered in the books, if only to ensure that the double entry system balanced. In the case of each of the 3 subsidiaries, accounts entitled “unpaid shareholding” followed by the shareholder’s name were created for each shareholder to whom shares had been issued, and debited with the appropriate sum. This I infer was done as a purely mechanical exercise, in particular given that in the case of SVSP its accounts so named were (despite the word “unpaid” in the account name) immediately cleared by corresponding credit entries which charged the like sums to its loan accounts with the 3 subsidiaries (on each of which there was a net balance in favour of SVSP) [see TB 3/205, 209, 201]. The presence of small debit balances on the corresponding accounts for the Claimant and Mr Bevan did not attract anyone’s attention for some time, and no-one was prompted to consider the need for each of the 3 subsidiaries to make a call for payment of the very modest sums involved on either the Claimant or Mr Bevan. However the debit balances were there in the books, and those balances did in due course (modestly) contribute to the debtors figure in each of the 3 subsidiaries’ balance sheets at 30^th June 2001, the next financial year end [see TB2/62 and 65 (note 8) and TB1/115a and 115d (SSS); TB2/154 and 156 (note 6) and TB1/115a and 115h (Acquire); TB2/232 and 234 (note 6) and TB1/115a and 115f (EAT)].

In drawing up and auditing such balance sheets, reflecting the treatment in the companies’ ledgers, Mr Martin in turn made the at least subconscious and again understandable assumption that all the issued shares were fully called up. He did not notice that the Claimant’s and Mr Bevan’s shares remained unpaid. In compiling the relevant note to the share capital figure in the balance sheets [TB 2/66 (note 10), TB2/156 (note 8) and TB2/235 (note 8) – together “the 3 erroneous notes”] he used a standard template without modifying the relevant wording. Accordingly in the case of each of the 3 subsidiaries the relevant note to the audited balance sheet at 30^th June 2001 erroneously described the entire share capital (so necessarily including the Claimant’s and Mr Bevan’s shares) as “Allotted, called up and fully paid”. In his evidence, Mr Martin acknowledged that the words “fully paid” were - to the extent of the Claimant’s and Mr Bevan’s shares – used in error, by reason of an oversight. Very strictly, it appears to me that the words “called up” were also in error at least as regards the Claimant’s shares, since the evidence before me discloses no call having been made until that on the Claimant’s shares dated 27^th September 2002 (as to which see below). However I would not criticise Mr Martin for this, because the company’s ledgers implied that the shares were fully called up, and therefore his assumption that all shares issued were also called up was understandable. To expect an auditor of a private limited company to seek positive confirmation that a call had accompanied the issue of unpaid shareholdings with very modest par values in such circumstances would, I think, be a counsel of perfection.

Once the restructuring I have described had occurred, the relevant position within each of the Defendant companies up to the forfeitures was as follows :

At the end of the transaction there were a number of other direct subsidiaries of SVSP, including Senate Food and Total Retail Security Ltd (“Total Retail”).

Somewhat confusingly, the group’s security businesses were split between 2 companies. Whilst a majority of the security business was in SSS, some of it was carried on by Total Retail.

All dates or months given in the remainder of this judgment are, save where otherwise stated, in 2002.

In or about November 2001 Mr Bevan entered into an agreement with SVSP whereby he transferred to SVSP his shareholding(s) in each of the 3 subsidiaries and in Senate Food in return for which SVSP allotted him 22,401 shares in SVSP [see TB2/406]. Those transfers went through without anyone noticing that the shares in each of the 3 subsidiaries which SVSP received were not paid up.

However this was subsequently noticed by Mrs Tippins, the finance director of SVSP, on or about 28^th June. She therefore, in Mr Bevan’s words, took it upon herself to make the necessary payment on his behalf straightaway. She did so by paying the 3 subsidiaries (and I assume Senate Food) the requisite sums (£50 re each of SSS and Acquire, and £100 re EAT) by debiting them against the substantial sums standing to the credit of the loan account she and her husband held with SVSP (see TB 3/191). As a matter of bookkeeping they will have been credited to the accounts of the 3 subsidiaries in the books of SVSP and debited to the accounts of SVSP in the books of each of the 3 subsidiaries (all 3 of those inter-company accounts had a credit balance in favour of SVSP). The final credit clearing the “unpaid shareholding” accounts of Mr Bevan which had been created in the books of each of the 3 subsidiaries in July 2000 appear in the respective ledger accounts dated 28^th June and bearing the caption “EB shares paid by Tippins” [TB 3/194, 3/192 and 3/193]. Mrs Tippins told Mr Bevan of her discovery and what she had done about it within a day or so, and he reimbursed her with the requisite total sum (£200) within a week or so, in early July.

It should be noted that in so acting, Mrs Tippins was ensuring that SVSP was not left with an unexpected liability to the 3 subsidiaries qua holder for the time being of shares which were not fully paid up : see the extracts from Palmer’s Company Law, op. cit., cited in paragraph (26) above. I infer that it was because she came across the fact that what had formerly been Mr Bevan’s shares were unpaid in this context, that it did not occur to her at the time that there was likely also to be an equivalent problem in respect of the shares still held by the Claimant.

In August Mr Martin or his firm undertook, or at least commenced, the task of auditing the accounts of the SVSP group for the year to 30^th June 2002. On 27^th August Mr Martin was informed that the business and assets of SSS had been sold to Temple Security Ltd (there had previously been dealings with another prospective purchaser), and at a meeting with Mr Cookson and Mr and Mrs Tippins on 3^rd September he was instructed to deal with all the post-completion matters which needed sorting out, in order to prepare for the (at least informal) winding-up of SSS. He had also been asked by the Claimant for a full analysis of the accounts and of the management charges borne by SSS up to the date of its sale. It was while undertaking this work that on some date between 6^th and 16^th September, during which period he was in almost daily contact with Mr or Mrs Tippins, it came to Mr Martin’s attention that the Claimant still owed £250 in respect of the face or par value of his shares in that company. Mr Martin told Mrs Tippins by telephone about this, drawing her attention to the inclusion of this sum within ‘other debtors’ in the (then draft) accounts for the year to 30^th June 2002 [see TB2/108 and 112 (note 8)], and informing her that the effect of this was that the Claimant would not qualify for inclusion in any dividend paid to shareholders. The latter point was made in the context of an anticipated dividend in respect of the anticipated surplus at the end of the winding-up process following the sale of SSS’s business and assets to Temple Security Ltd, and was based on the provisions of Regulation 104 of Table A, which is incorporated into SSS’s Articles of Association. Mrs Tippins mentioned this to her husband, who himself spoke with Mr Martin to confirm the position. Within the following week or so it then occurred to Mr Martin that the Claimant’s shares in Acquire and EAT had also never been paid for, and he duly told Mr Tippins about this too.

Over the period from July to September the Claimant (who at various stages involved professional advisers on his behalf, in particular a Mr Jacques Cadranel (an accountant), a Mr Adrian Learer, and a Mr James Jacobson (a solicitor)) had been pressing for a variety of further information about SSS, the proposed sale, and its financial affairs generally. The trial bundles [at TB4] contain a considerable volume of e-mails generated over a relatively short period of time. They, and in particular many of those emanating from the Claimant, demonstrate one of the potential disadvantages of e-mail as a method of communication, namely that a recipient who chooses to reply immediately will type while still affected by any emotional reaction which first sight of the incoming e-mail has provoked, and may thus end up sending back a less considered or temperate response than would have been the case after the time-lag inherent in dictating and later signing off a traditional letter.

For a time the directors used Mr Martin as a channel of communication with the Claimant. This phase was initiated by Mr Tippins’ e-mails to the Claimant timed at 09.59 and 16.15 on 4^th September [TB4/95-96 and 105]. In particular, Mr Martin by letter dated 6^th September [TB4/126] sent the Claimant a number of accounting documents relating to SSS and SVSP, including copies of SSS’s audited accounts for the year to 30^th June 2001 and its draft accounts for the following year (having first obtained the express authority of the majority to do so, at some time during that day between the e-mails timed at 11.15 and 16.07 [TB4/122 and 125]). Then by letter dated 12^th September [TB4/220] Mr Martin sent the Claimant a number of statutory and accounting documents relating to various companies in the SVSP group, including copies of the audited accounts for the opening 15½ month period to 30^th June 2001 of Acquire and for the year to 30^th June 2001 of EAT (having again first obtained the express authority of his clients, at some time during that day between the e-mails timed at 09.03 and 12.24 [TB4/213 and 214]). The 3 sets of audited accounts specifically mentioned in this paragraph contained, in the relevant section of the note attached to the figure for “share capital” in the balance sheet, the 3 erroneous notes [TB2/66 (note 10), TB2/156 (note 8), and TB2/235 (note 8)], and the like erroneous caption (“Allotted, called up and fully paid”) appeared in the draft accounts of SSS for the year to 30^th June 2002 [TB4/141 (note 9)].

At some time around the weekend of 20^th/21^st September, Messrs Cookson and Tippins decided to instruct Mr Martin to cease dealing with the Claimant’s enquiries. Hence Mr Martin’s short letter of 23^rd September [TB4/237] indicating that SSS would be writing to him directly regarding his further queries. They explained this essentially on the grounds of cost, in that it appeared to them (in essence) that the Claimant was asking for the same information repeatedly, and that however much information was provided to him he would not be satisfied. Whether or not with hindsight this was a good decision is debatable, but I am satisfied that it was a reasonable one, made in good faith, at the time. The Claimant reacted badly. He had already refused to return Mr Tippins’ phone call of 19^th September, having previously declined to have any further discussions with Mr Cookson (both are evidenced by his e-mail of 19^th September, timed at 09.24 [TB4/232]). The tone of his e-mail of 24^th September timed at 09.59 [TB4/238], in response to Mr Martin’s short letter, was characteristically robust. Having summarised Mr Martin’s changed instructions he continued :

“I have NO intention of dealing directly with your clients as I feel there are areas of serious conflict. I would therefore suggest the proper course of action here is for it to remain with yourselves or with their appointed lawyers, either way this is the agreed way to progress. In relation to my lawyers I have now been referred to lawyers specialising in the areas of concern and I will forward there (sic) details onto you and Robert Hamill once I have had the opportunity of instructing them with James Jacobson next week.”

On the same day Mrs Fatani, a solicitor with the City of London office of the firm then known as Hammonds Suddard Edge (“HSE”), wrote what for present purposes may be regarded as an initial letter of advice addressed to the directors of SSS dated 24^th September [TB4/239]. It records in its second paragraph that :

“You have asked us to advise you in relation to your obligations to Keith as a 25% shareholder of [SSS] in light of the recent sale and the proposed winding up and distribution of the assets of [SSS].”

The underlying request for this advice had come from Mr Cookson, as the opening greeting (“Dear Tim”) reflects. The background to this request for advice was the majority’s perception that the Claimant was asking for the same information repeatedly, and that however much information was provided to him he would not be satisfied. Hence the subject matter of the advice in the letter included the extent of information which the Claimant was entitled to receive as a minority shareholder, and the costs involved in reviewing the company’s affairs.

A reflection of the majority’s continuing desire to have temperate communication with the Claimant is the sending to him the next day by Mr Cookson of an e-mail headed “Bygones”, with a copy of Mrs Fatani’s letter as an attachment [TB4/241]. This set out Mr Cookson’s view of some of the history expressed in moderate terms, finished with what amounts to a warning about the professional fees which will be incurred by both sides if they fight each other rather than move forward, and was signed off in a light-hearted manner. This did not produce a constructive response. Rather (as the documents now show) the Claimant forwarded it to his then solicitor Mr Jacobson under cover of an e-mail dated 26 September [TB4/242] which, having suggested that they discuss it, added “I really want to put the pressure on them and I have some interesting documents which shows (sic) the lies and hiding profit.” The majority would not have seen that until some time later, but it is an indication of the Claimant’s state of mind at that time. He sent an e-mail to Mr Martin the same day [TB4/244] acknowledging receipt of Mr Cookson’s “Bygones” e-mail and expressly requesting that Mr Martin advise his client “not to contact me directly until I have had the opportunity to discuss my issues with my advisors”. The Claimant’s e-mail was (rather more darkly) headed “re unanswered questions”.

It was on all accounts Mr Tippins who sought and obtained advice on the question immediately in issue from Mrs Fatani, prompted by the advice his wife and then he had received from Mr Martin about the Claimant’s shares being unpaid and the effect in those circumstances of Regulation 104 of Table A, coupled with the increasingly acrimonious and hostile tone of the Claimant’s e-mails and the increasing difficulty in temperate communication with the Claimant. This request was for advice on what should be done about the Claimant’s shares having been discovered to be unpaid. It is to be noted that Mrs Fatani was already aware that they were working towards a “proposed winding up and distribution of the assets of [SSS]” when she dictated the second paragraph of her letter dated 24^th September. There is an issue between the parties as to when her advice on the question immediately in issue was first requested and given.

During the course of the trial (on 26^th February 2004), and after Mr Griffiths had indicated that he would if necessary argue that the Defendants had waived privilege in respect of relevant advice received at this time, the Defendants voluntarily disclosed some additional documents from their solicitors HSE, together with linked documents (including telephone records) of the Defendants. HSE (through their clients’ counsel) indicated that they had produced all the potentially relevant documents they had, and Mr Griffiths accepted that without requiring further or more formal proof from them. These documents now appear at TB3/217 et seq. Both Mr Tippins and Mr Cookson were re-called to answer further questions about them the next day, which was the last day of the evidence. Mr Griffiths relies on them (and on what is not amongst them) in support of his argument that no advice on this topic had been obtained from HSE at the time that the Executive Team Meeting (“ETM”) took place on 26^th September (and hence that the Defendants’ evidence about the discussions on that day was unreliable).

I have considered the point carefully. At first sight the documents appear to lend some support Mr Griffiths’ contention. Nevertheless, having considered those documents closely, and also considered all the other evidence bearing on the point, including of course that of all 4 witnesses who were present at the 26^th September ETM, I find that, notwithstanding the absence of an earlier HSE attendance note than that dated 27^th September [TB3/217] and Mr Griffiths’ other arguments, Mr Tippins had discussed the making of a call with Mrs Fatani of the companies’ solicitors HSE prior to the ETM of 26^th September, and reported the substance of it to that meeting in good faith. I am not persuaded by Mr Griffiths’ argument that the wording of the HSE attendance note dated 27^th September can safely be taken as indicating that it necessarily recorded her first conversation with Mr Tippins on the point. I take into account the 29 minute telephone call to a direct line number within her firm’s offices (that of her senior partner, Mr Hamill) on 24^th September [see TB 3/235a], the presence in her firm’s time costing records of an entry in respect of Mrs Fatani (but not Mr Hamill) dated 24^th September for 2 hours work “Preparation of letter to Senate directors and telephone conversation with VT” [TB 3/235, my emphasis], the evidence of Mr Tippins himself when cross-examined after these documents had been disclosed (on both 26^th and 27^th February 2004), and the evidence of the other directors at the ETM that he reported to them on having obtained advice not only from Mr Martin but also from Mrs Fatani/the companies’ solicitors. I was particularly impressed by Mr Cookson’s evidence upon his re-call to the effect that it was obvious to him from the language Mr Tippins was using that he had received lawyers’ advice on the point prior to the meeting [TPT 27.2.04 p5 lines 23-28 and 49-51], evidence which struck me at the time he gave it as quite obviously true. I would reject any argument that Mr Tippins may have told the meeting that he had received Mrs Fatani’s advice, when in truth he had not. I can see no sensible motive for him to mislead his three fellow directors in that way, and am satisfied that he did not do so. The reason he told his fellow directors that he had received such advice was because he had indeed done so. I also find that Mr Tippins had copies of Table A available to him at the 26^th September ETM which had not come from Mrs Fatani (though she sent him an extract by fax on the afternoon of 27^th September to support the first paragraph of her e-mail [TB3/223-226, 218]), and that the probable source of this was his wife (in accordance with his evidence upon re-call, albeit that his recollection of this had apparently been prompted by a conversation with his wife, who did not herself give evidence).

As to the 26^th September ETM itself, it was attended by Mr Cookson, Mr and Mrs Tippins, Mr Farrier and Mr Bevan. No minutes of this meeting were kept, because Mr Cookson’s Personal Assistant (who usually took such minutes) had just gone on maternity leave, and it seems not to have occurred to anyone to make alternative arrangements. It was the usual practice of these companies that any formal directors’ business requiring attention was discussed at the end of ETMs. This is what occurred on 26^th September. It is important to note that all 4 of the directors of the 3 subsidiaries (Messrs Cookson, Tippins, Farrier and Bevan – together “the 4 directors”) were present. The question of the Claimant’s shares in the 3 subsidiaries, Mr Martin’s discovery that they had never been paid for, and the possible implications of this in relation to the informal winding-up of SSS was discussed. I accept Mr Farrier’s specific and positive evidence that Mr Tippins did specifically mention in this context the desire to pay a members’ dividend at the conclusion of the informal winding-up of SSS and the group’s security business (i.e. to the Claimant as well as SVSP). As I have just found, legal advice as to what formal procedure was available to make a call on shares had been obtained orally by Mr Tippins from Mrs Fatani, and was passed on to the meeting by him. He had a copy of Table A with him. The 4 directors unanimously agreed that the 3 subsidiaries should make a call in accordance with that procedure, and Messrs Cookson and Tippins were deputed to hold formal, minuted board meetings the next day to that end.

Mr Griffiths explored the question of why the 4 directors chose to deal with the question of the call on the Claimant’s shares formally through solicitors rather by some informal approach to the Claimant. He suggested that the fact that the solicitors’ fees incurred exceeded the amount of the call suggested an ulterior motive, namely a desire to bring about a forfeiture of the Claimant’s shares if possible. I reject that suggestion. I accept the Defendants’ explanation that it was simply because of the increasing difficulty in conducting temperate communication with the Claimant (for which in my judgment the Claimant was at least largely responsible). Mrs Fatani was, at least in general terms, aware of the difficulties being encountered in communication with the Claimant (see again her letter of 24^th September [TB4/239]), and in those circumstances it would have been entirely understandable for her to recommend use of the formal procedure under the Articles of Association. Indeed, it ill lies in the mouth of the Claimant to complain about the absence of an informal approach to him at this time, when his e-mail to Mr Martin of 26^th September had specifically requested that the Defendants should cease contacting him directly [TB4/244].

The question of whether as a matter of fact formal Board meetings took place on 27^th September and resolved to make the call, essentially as reflected by the minutes produced [TB2/2, 8 & 5], is the subject of Issue 4 below, and I shall deal with it there. For the sake of the narrative, however, it is convenient simply to state that it will be my finding that they did.

Following the formal board resolutions of 27^th September, a letter was sent to the Claimant by Mr Tippins as a director of each of the 3 subsidiaries (one letter, which had been drafted by Mrs Fatani, dealt with all 3 subsidiaries) making the call in accordance with the terms of Regulation 12 of Table A (“the call letter”). A copy appears at TB4/245. The Claimant admits receipt of the call letter, and makes no complaint about its form and efficacy.

On 11^th October Mr Cadranel sent a short e-mail to Mr Martin [TB4/248-250 – p249 is out of sequence]. It ended with a request that Mr Martin confirm to the Claimant that as far as he was aware the information that he had already forwarded was accurate. This appears to have been the first contact from the Claimant or his representatives after the e-mail the Claimant sent to Mr Martin on 26^th September. The requested confirmation was given orally by telephone on 18^th October, as is evidenced by Mr Cadranel’s e-mail to the Claimant of that date [TB4/255], which encouraged the Claimant to take some comfort from it even if he felt that he had not received all the information necessary.

15^th October was the last day for payment under the terms of the call letter. As it happened there was a meeting held that day attended by all the 4 directors. It was primarily concerned with issues arising from an agreement which had been entered into by Acquire and others regarding an investment in Acquire by Compass Purchasing Ltd. Mr Farrier described it as being in essence ‘my meeting’ [TPT 26.2.04 p30]. The Defendants’ case (in answer to the point being put in issue by the Claimant by the late re-amendment mentioned in paragraph (122) below) is that the 4 directors on behalf of the 3 subsidiaries duly decided to issue a further call notice in accordance with Regulation 18 of Table A at this meeting, albeit informally. The question of whether they in fact did so is the subject of Issue 6 below though ultimately, in the light of the evidence of all 4 of the relevant directors on the point, Mr Griffiths confined his submissions on this issue to 2 points. I shall deal with them when I reach issue 6. Again for the sake of the narrative, however, it is convenient simply to state that it will be my finding that the directors did duly decide to issue a further call notice at this meeting.

On 16^th October no payment from the Claimant arrived in the morning post, and accordingly a further notice calling for payment in accordance with the terms of Regulation 18, which had been signed by Mr Tippins as a director of each of the 3 subsidiaries (“the second call notice”), was duly posted to the Claimant. Again, it had been drafted by Mrs Fatani, and dealt with all 3 subsidiaries. A copy appears at TB4/253. The Claimant denies receipt of the second call notice, and I shall deal with that aspect under issue 8 below. Subject to non-receipt, however, the Claimant makes no other complaint about its form and efficacy.

Mr Tippins attended a meeting on the morning of 16^th October, and had left it to his secretary Kyla Whitefoot to check the morning post for any payment from the Claimant and, if appropriate, to post the second call notice. It was only after this meeting, and after Miss Whitefoot had duly posted the second call notice, that he received the Claimant’s (e-mailed) response to the call letter, albeit timed at 08.11 that morning. It read [TB4/252]:

“Vic,

I am in receipt of your letter dated the 27^th of September in relation to the demand for payment of the costs of the shares listed, namely [SSS, EAT and Acquire]. It is being looked into and I will come back to you very soon after my advice.

Is there also a payment demanded for my shares in SFS? All these outstanding amounts are no doubt shown in the completed company accounts.

Many thanks

Keith”.

Mr Tippins responded on 21^st October, in the following terms [TB4/259] :

“Keith

With reference to your e-mail of 16 October, I can confirm there is no demand for payment in regard of SFS, as there is no debt owing. As far as outstanding amounts are concerned, I believe they are accounted for under the heading of debtors within the company accounts. I have asked Paul Martin to confirm this to me.

As stated in my correspondence to you, interest is accruing on the outstanding amount of £300. The rate of this interest is 5% per annum from and including 16 October 2002 until the date on which payment is made.

I hope this answers your questions. I will get back to you once Paul Martin has confirmed my belief on outstanding amounts.

Vic”

On 24^th October the next ETM was held. At the end of this meeting there was, for the first (and only) time, a considered discussion between all the 4 directors about what should happen were the undesired and unexpected situation of outright non-payment by the Claimant to arise at the end of the time period set by the second call notice. They agreed that if such eventuality should occur then the forfeiture procedure should be followed and that as before (ie on 27^th September, following the discussion at the end of the ETM on 26^th September) Messrs Cookson and Tippins were to hold the necessary formal board meetings to that end. All were aware that there would be no effective decision to forfeit until then; all were aware that a further decision was required to effect a forfeiture; none of them expected or desired that situation to arise; however all agreed that forfeiture should take place in the event of non-payment. I must return to this meeting and the basis for that agreement under issue 9(ii) below.

E-mails were exchanged between the Claimant and Mr Tippins on the topic of realisations from the sale of the security businesses and related issues between 17^th October [TB4/254] and 1^st November [4/285].

On 2^nd November time for payment under the second call notice expired. Contrary to the expectations and desire of all the 4 directors, the Claimant still had not paid the call.

On 3^rd November the majority held formal board meetings of each of the 3 subsidiaries (Mrs Tippins attended as company secretary), resolving to forfeit the Claimant’s shares for non-payment of the call, and to transfer the same to SVSP [minutes at TB2/3, 6 and 9]. These meetings were conducted in accordance with draft minutes prepared by Mrs Fatani, which in each case duly provided for disclosure of the directors’ interests as shareholders in SVSP.

Mrs Fatani wrote to the Claimant the next day notifying him of the forfeiture, and enclosing copies of the relevant board minutes [TB4/289]. When the Claimant’s present solicitors replied on his behalf on 25^th November [TB5/1], in which letter receipt of the second call notice was immediately denied, battle lines were in effect drawn.

Mr Griffiths for the Claimant emphasised the existence of 3 unresolved issues between the Claimant and the majority. In short form, these were disputes as to the level of costs re-charged to SSS as management charges by SVSP, as to the invoicing arrangements with Temple, and as to the proposed payment of an interim distribution to the Claimant in respect of the informal winding-up of SSS.

He submitted that these unresolved issues were the key to why this forfeiture had ever taken place. These 3 issues were, Mr Griffiths submitted, insuperable. The whole forfeiture process was, according to the Claimant’s case, all a plan or set-up conceived and pursued for the purpose of getting rid of him as a shareholder, and benefiting the majority through the vehicle of SVSP. The advancing of this case was not the result of any over-enthusiasm in the oral advocacy of Mr Griffiths on the spur of the moment. The Claimant himself is quite convinced of it. I quote brief passages from his 2 witness statements, both duly verified without modification in his evidence in chief : “I have no doubt whatsoever that Mr Cookson and Mr Tippins made the calls and forfeited my shares to avoid paying me any of the proceeds of sale of the assets of SSS or any share of the profits left in SSS or any of the other companies” [TB1/75, para 34]; “They were setting me up to forfeit my shares” [TB1/78d, para 7].

I emphatically reject this part of the Claimant’s case. I specifically find that none of the 4 directors had or were motivated by a desire to deprive the Claimant of his shares or their value at any stage in the process up to and including the resolutions to forfeit and transfer to SVSP of 3^rd November which marked its conclusion. In deciding to make the call, and then to issue the second call notice, their intention was to get a shareholder whom they reasonably regarded as awkward and uncooperative, and with whom temperate communication had become effectively impossible, to pay the nominal or par value for his shares, in the case of SSS in order thereby to facilitate the expeditious and efficient completion of the informal winding-up process, and in the case of each of the 3 subsidiaries (i.e. including SSS) as a matter of corporate ‘good housekeeping’. Contrary to the Claimant’s case, neither of these decisions, nor the decisions to forfeit themselves, were made pursuant to any plan or plot to remove the Claimant as a shareholder, nor for the purpose or with the intention of benefitting SVSP (other than incidentally, when it came to the consequential transfers). There was no ‘set-up’ of the nature alleged. I shall deal with the question of what was their motivation for the actual decisions to forfeit under issue 9(ii) below.

At the conclusion of the evidence, it was agreed that the issues requiring my determination are as follows :

On the evidence as a whole, were the Claimant’s shares in each of the 3 subsidiaries in fact fully paid up or agreed to be so credited – and if so, how?

Is each of the 3 subsidiaries estopped by representation from denying that the Claimant’s said shares were fully paid up or agreed to be so credited? To that end:

Further or alternatively to 2, is each of the 3 subsidiaries estopped by convention from so denying? To that end:

Did the directors of each of the 3 subsidiaries decide to make a call on the Claimant’s shares on or about 27 September 2002 as (purportedly) recorded in the minutes at TB 2/2, 8 and 5?

If so

Did the directors of each of the 3 subsidiaries duly decide to issue a further call notice in accordance with Regulation 18 of Table A on or about 15 October 2002?

If so

Were the decisions of the directors of each of the 3 subsidiaries made on or about 3 November 2002 (a) to forfeit the Claimant’s shares for non payment of the call, and (b) to transfer the forfeited shares to SVSP,

If yes to any limb(s) of 5 or 7 or 9, is the Claimant entitled to rely on such point(s)?

If yes to any of 1(c), 2, 3, or any limb(s) of 5, 7 or 9, or if no to 4 to 6, or to both limbs of 8, then

In addressing these issues it is neither practicable nor convenient entirely to separate out the questions of fact and of law involved.

This issue encompasses 2 distinct arguments which were advanced by the Claimant or on his behalf at various stages. The first, which flies in the face of the documents and was therefore only ever capable of being based on the Claimant’s evidence of his understanding, was that the Claimant’s shares in the 3 subsidiaries were allotted to the Claimant pursuant to some sort of share for share exchange, or share swap. This is dealt with by my findings at paragraphs (22)-(23) above. As I have found, at the time of their allotment the Claimant did understand the 2 stage nature of the process which I have described, and did understand the essential terms of the first stage, including that it was between himself and Mr Cookson. This argument was, rightly in my judgment, not pursued by Mr Griffiths.

The second, the origin of which seems to have been the Claimant’s lawyers rather than the Claimant himself, was to the effect that the Claimant had paid for his shares, by means of the amount payable thereon being debited to his loan accounts with each of the 3 subsidiaries: see paragraph 1 of the Reply at TB1/38. The Claimant disowned knowledge of any such loan accounts in his oral evidence. There is no trace of any such account in the books of the 3 subsidiaries, the relevant entries in which I have described in paragraph (27) above. The point was never more than a speculative one, probably inspired by the caption “Loans – Shareholding Hunter” in the SSS management accounts to 31 July 2002 at TB4/179 and 121 (the latter is misdated in its heading), and there is therefore some force in Mr Davies’ criticisms of the signing of a Statement of Truth at the foot of this pleading. Be that as it may, in his written and oral submissions in reply Mr Griffiths has wisely not pursued it.

It follows that the Claimant’s shares in the 3 subsidiaries are not paid up.

The first limb of this issue raises the questions of (i) whether the 3 subsidiaries made a clear and unequivocal representation to the Claimant that his shares were fully paid up or agreed to be so credited, and, if so, how; and (ii) if so, whether they did so intending the representation to be relied on or in circumstances where they ought reasonably to have expected it to be so.

Mr Griffiths submits that the necessary representations were made by the sending (with his clients’ express authority in each case) of Mr Martin’s letters dated 6^th and 16^th September with the enclosed accounts mentioned in paragraph (38) above. He relies on the caption in the respective notes to the balance sheets I have already identified “Allotted, called up and fully paid”. At the close of the evidence, he further submitted that he would rely on the absence of any communication to the Claimant since the July 2000 transaction up to the time of these 2 letters suggesting that his shares were not fully paid up, in other words silence on the point. However in the absence of a legal duty to speak as to a particular fact, no representation will be inferred from silence, as Mr Davies rightly submitted citing Greenwood v Martins Bank Ltd [1933] AC 51 per Lord Tomlin at 57 and Spencer Bower, “The Law Relating to Estoppel by Representation”, 4^th ed., at para. III.4.1. Mr Griffiths did not seek to support reliance on silence in his submissions in reply.

Mr Davies realistically concedes that the audited accounts of Acquire and of EAT to 30^th June 2001 do contain representations to the effect that their entire share capital was fully paid up. He submits, however, that they ceased to be unequivocal on the point once the call letter had been sent to the Claimant. There is obviously force in this argument. Given that the Claimant had not read or focussed on, let alone relied on, the crucial caption prior to receiving the letter of 27^th September, however, I consider that this argument is more conveniently to be addressed in the context of the second question under the second limb of this issue (reasonableness of reliance).

Mr Davies submits that the position in respect of the audited accounts of SSS to the same date is different, because the Claimant himself was a director of this Company throughout the financial year in question, and indeed when the accounts were adopted, namely 7^th May (he resigned on 29^th August). He argues that, as one of the two directors of SSS, the Claimant was responsible for preparing those accounts under section 226 CA85 and approving them under section 233 CA85, and should therefore be treated as responsible for any representations they contain. I am not persuaded that the conclusion must follow from the premise in every case. In my judgment the factual position in respect of the particular company and the particular accounts in question must also be considered. Here, (a) the Claimant’s employment within the group had ended in late 2000, (b) although thereafter he was still invited to the ETMs at which any formal board business was also dealt with as and when required (they were held to a regular pattern, established before he had left employment within the group) in practice he did not attend, (c) he was not given notice of any formal board business which was to be dealt with in this manner, including in particular (as I find) that the audited accounts would be tabled for approval on 7^th May, (d) when he was sent these accounts on 6^th September by Mr Martin, neither Mr Martin nor the majority who expressly authorised the sending of this letter suggested that he had already been sent them, from which I infer that he had not. In these circumstances I am not persuaded that for the purposes of whether he can raise an estoppel by representation, the Claimant must be treated as himself being responsible for the making of the representation relied on by reason of his said legal obligations under CA85, and I reject Mr Davies’ submission accordingly. In my judgment the audited accounts of SSS for the year to 30^th June 2001 coupled with the letter dated 6^th September 2001 are not materially different to those of Acquire and EAT coupled with the letter dated 16^th September 2001. Each of the 3 erroneous notes contains a representation to the effect that the relevant company’s entire share capital was fully paid up.

Mr Davies also submits that the position in respect of the draft (and unaudited) accounts of SSS to 30^th June 2002 is different. The covering letter of 6^th September said of them that they “have not been finalised at this stage, although we have completed our fieldwork at the client and do not envisage there will be any material changes”. Mr Davies submits that in the circumstances, these draft accounts should not be treated as a clear and unequivocal representation by SSS of the truth of all the facts and matters stated therein. In essence he makes 2 points:

I accept Mr Davies’ submissions on this point. The draft accounts of SSS for the year to 30^th June 2002 coupled with the letter of 6^th September did not contain the clear and unequivocal representation contended for, even before the letter of 27^th September was sent to the Claimant.

The second question which arises under this first limb is whether the 3 subsidiaries made the representation which I have found in paragraphs (69) and (70) above intending it to be relied on or in circumstances where they ought reasonably to have expected it to be so. It is common ground that the objective test indicated by the latter words of this formulation will be applied in the absence of actual intention : see e.g. Spencer Bower, op. cit. at paras. I.2.2 – I.2.3and Trane (UK) Ltd v Provident Mutual Life Assurance [1995] EGLR 33 per HHJ Cooke at 38M-39A.

As indicated in paragraph (28) above, I accept Mr Martin’s evidence that the words of a standard template, which included the crucial ones, were used without modification in error by reason of an oversight. It is quite clear that there was no such actual intention that the representation be relied on, as the crucial words represented a simple error on the part of Mr Martin, and there is nothing to suggest that any of the 4 directors had addressed their minds to or noticed the wording of the relevant notes. However applying the objective test, ought the 3 subsidiaries reasonably to have expected them to be relied on? Mr Davies accepts so, in respect of the 3 sets of audited accounts in question.

The second limb of this issue raised the questions of (i) whether such representation in fact caused the Claimant to believe that his shares were fully paid up or so credited, and (ii) if so whether such resultant belief was reasonable in all the circumstances.

It is quite clear that the Claimant did not even consider the question of whether his shares in any of the 3 subsidiaries were or were not paid up until after he received the call letter. He accepted this in cross-examination (TPT 4.4.04, p10 line 43 – p11 line 18), and indeed until his receipt of that letter it is very hard to imagine why that question should ever have occurred to him. Insofar as paragraph 2 of his second witness statement [TB1/78b] suggests to the contrary I unhesitatingly reject it.

The case which the Claimant’s oral evidence went to support is that put forward in paragraph 3 of his second witness statement, namely that when he received the call letter of 27^th September he thought the assertion that his shares were unpaid was odd but :

“thought I would check the position and the only documents I had to hand were the audited accounts for the period ended 30^th June 2001. I checked the notes to those accounts and they confirmed the issued share capital in all three companies were fully paid up. I therefore assumed that Mr Tippins has made a mistake in his letter … The audited accounts were quite clear on this point … I did not, therefore, give the letter the urgency it may have deserved because I was quite confident that my shares were fully paid up. There was no doubt in my mind. It was something that could be clarified in due course but I did not regard it as urgent.” [TB1/78b]

In cross examination the Claimant asserted that following receipt of the call letter he went back and looked at the accounts for all of the 3 subsidiaries, found the 3 erroneous notes indicating that the shareholding was allotted, called up and fully paid, and concluded that the call letter was :

“very bizarre. I just did not know where it was coming from…. I checked and double checked the accounts. They showed it as fully paid up. I really did not know where this was going but clearly why make a payment for something which I could see for myself was not a true demand” [TPT 4.2.02 pp12-13].

I reject the Claimant’s evidence on this matter. I find the terms of his e-mail response to the call letter, which he sent on 16^th October, to be inconsistent with the Claimant’s evidence and to belie it. They are not credibly reconcilable. That e-mail [TB4/252], which was addressed to Mr Tippins, was also copied to the lawyer and the accountant then advising him, Messrs Jacobson and Cadranel respectively. I have already set it out in full in paragraph (52) above. In cross-examination the Claimant said that the last sentence was a “facetious remark”, made knowing the opposite to be true. He said that the e-mail was copied to his lawyer for the purpose of impressing Mr Tippins with his seriousness rather than in fact to seek legal advice. He said that the last sentence of the first paragraph was “a bit of bravado” [TPT 4.2.04 pp16-19].

I simply do not believe that if the Claimant had made the checks he now says he made, and if his state of mind when he set about composing his e-mail response to the call letter was that he was quite certain that the call was based on an error, and that his shares were fully paid up and shown as such in notes to the statutory accounts, he would have written in these terms. Furthermore, the Claimant is not the sort of man who, if he thought he had a knock-out point available to him which would make the majority look foolish, would eschew the opportunity to throw it back at them in a very direct way in his next response, or who would plump for subtle irony instead. There is also a narrower point on the exact wording used. Even if the final sentence had been intended as a facetious, or perhaps ironic, observation, if (which I find it was not) it had been prompted by a specific consideration of the wording of 3 erroneous notes, it would have been expressed in relation to their subject matter, and have read something along the lines of “All these unpaid shares are no doubt shown in the completed company accounts”. The wording which in fact appears is directed to the appearance or non-appearance in the accounts of a debt or outstanding sum. This ties in much better with the Claimant having at least at the back of his mind the caption “Loans – Shareholding Hunter” that appeared on whichever of the management account documents he had received in early September [see TB4/179 and 121, and TPT 4.4.04 pp27-28]. Further, if the Claimant did consult the audited accounts but on the question of debtors (as opposed to share capital) there would indeed have been room for some genuine (rather than feigned) uncertainty given the limited breakdown of that figure shown [TB2/62 and 66 (note 8) (SSS), TB2/154 and 156 (note 6) (Acquire), and TB2/232 and 234 (note 6) (EAT)].

The probable explanation for the Claimant’s inaction is that he simply did not treat the call letter with the seriousness it deserved. I note that it took him over 2 weeks to get round to responding to it at all, even by e-mail. The Claimant did intend to seek legal advice about it in due course, but was not in any hurry to do so. He appears to have been focussed on other issues at the time. The bloody-minded streak in him came into play. He sent the e-mail reply he did – which no doubt deliberately strikes a somewhat unconcerned tone - intending to look at the matter further in his own time. However he then did not get round to doing so until it was too late.

I find that the presence in the audited accounts to 30^th June 2001 for each of 3 subsidiaries of the caption in the 3 erroneous notes containing the representation relied on had no operative effect on the mind of the Claimant at any time prior to the forfeiture.

I shall nevertheless briefly deal with the second question under the second limb under this issue. Even if I were wrong about the first question, I am satisfied that the Claimant’s asserted belief founded on the representation contained in the caption relied on was not a reasonable one in all the circumstances. Even on his own account of matters, the Claimant had not read or focussed on, let alone relied on, the crucial caption in the 3 erroneous notes prior to receiving the call letter.

Mr Davies submits that the information in the call letter regarding the shares was highly specific, and clearly contradicted any representation by the captions in the 3 erroneous notes to the effect that the shares were fully paid. Accordingly, he submits, the call letter rendered any such prior representation to that effect equivocal. Another way of looking at the same underlying factual point is to say that once the call letter had been received, it would have been unreasonable for the Claimant to rely on the representation contained in the 3 erroneous notes without further enquiry. That, if it were to become relevant, is my conclusion. Given that the Claimant had not read or focussed on, let alone relied on, the 3 erroneous notes prior to receiving the letter of 27^th September, it follows that there was never a time at which he could reasonably have relied on the representation they contained.

If and insofar as the burden of proof would be relevant to the effect on reasonableness of reliance of the terms of the call letter when set alongside the terms of the 3 erroneous notes (as to which I was referred to Spencer Bower, op cit, at para IV.3.6), the Defendants have established to my satisfaction that in all the circumstances it would not have been reasonable for the Claimant after receipt of the call letter to have read the 3 erroneous notes (had that happened at all) independently of, rather than in conjunction with, the terms of the call letter, nor to have relied on the representation which those notes taken alone contained.

The third and final limb of this issue raises the question of whether the Claimant changed his position on the basis of such (reasonable) belief, such as to render it inequitable or unconscionable for the Defendants now to deny the accuracy of their representation.

As follows from my answers to the second limb of this issue, the Claimant did not do so. His actions were uninfluenced by the representation which was there to be found in the notes to the accounts I have described.

As to estoppel by convention generally, a convenient starting point is the 3 part formulation approved by the Court of Appeal in The Vistafjord [1988] 2 Lloyds 343 at 352 and by Brooke J in Bank of Scotland v Wright [1991] BCLC 244 at 261e (citing an unreported judgment of Peter Gibson J as he then was with approval):

There are two limbs to issue 3. The first raises the question of whether the parties (or one of them) made a mistaken assumption that the Claimant’s shares were fully paid up or agreed to be so credited – and if one sided, whether the other acquiesced in it.

Mr Griffiths correctly reminds me that there is evidence that each of the 4 directors was surprised to learn that the Claimant’s shares were not fully paid up. However I am satisfied that such surprise arose because none of the four of them had at any stage thitherto formed any view or made any assumption one way or the other as to whether or not those shares were paid up (see e.g. TPT 23.2.04 p38 line 51 –39 line 2 (Cookson) and 25.2.04 p6 lines 41-42 (Tippins)), and because those of them who in July 2000 had it in mind that a payment for the shares would be needed from the Claimant had thereafter simply forgotten about that need, which was overlooked by all concerned. There was no assumption on their, and hence the Defendants’, part that the Claimant’s shares were fully paid up or agreed to be so credited. None of them had turned their minds to the point.

That being so, there was no assumption on their part in respect of which to consider the further question of whether such an assumption (or conduct founded on it) ‘crossed the line’ between the Defendants and the Claimant (see The August Leonhardt [1985] 2 Lloyd’s Rep 28 per Kerr LJ at 34-35). Mr Griffiths argues that the assumption for which he contends did ‘cross the line’ when the audited accounts to 30^th June 2001 were sent to the Claimant on 6^th September (as to Acquire and EAT, it was 12^th September – see paragraph (38) above). No such assumption was ever made by the Defendants. They either had not turned their minds to the point or (once Mr Martin had noticed and raised the point, which was between 6^th and 16^th September in the case of SSS, and shortly thereafter in the cases of Acquire and EAT - see paragraphs 12 and 14 of his first witness statement at TB1/100-101, which I accept) they believed to the contrary.

Nor did the Claimant himself make any assumption on the point. He too had been aware in July 2000 that he would have to make a modest payment for the shares in due course (see paragraphs (22) – (24) above). He too thereafter simply forgot about that need, which as I have said was overlooked by all concerned. Thus there was no assumption on his part either that his shares were fully paid up or agreed to be so credited. Once he forgot about the need to make that modest payment, he did not turn his mind to the point again until he received the call letter. Nor, if (contrary to my finding) any relevant assumption was made by the Defendants, did the Claimant acquiesce in it. Mr Griffiths submits that he did so by making no objection to the 3 erroneous notes following receipt of the sets of audited accounts containing them. Whether or not such an argument would be well founded if the Claimant had read those notes and consciously refrained from objecting to them on the basis that the Defendants were assuming to the contrary and had communicated that assumption to him, in my judgment it has no substance where (as I have found) the Claimant did not read or consider them at all.

Mr Griffiths also submits that I should infer that the 4 directors knew or suspected that the Claimant assumed that his shares were fully paid up, because otherwise they would not have incurred the legal fees they did in relation to the forfeiture process, the drafting of related documents and so forth. I do not so infer. The reason why they went to solicitors was because they had come to the view (reasonably, in my judgment) that normal and constructive communication with the Claimant had become increasingly difficult (see paragraph (46) above), and they felt that the only way of resolving the difficulty over unpaid shares raised by Mr Martin was by formal means, which should be dealt with entirely properly and accurately.

After 27^th September there can be no question that the Defendants assumed that the Claimant’s shares were fully paid up or agreed to be so credited. Indeed, in the Further Information he provided under paragraph 24(10) of his Amended Particulars of Claim [TB1/p20], the Claimant disavowed any such suggestion. Nor could it realistically be suggested that the Defendants, having made the call on 27^th September which involved an assertion of the direct opposite, and thereafter following it through, were in any way acquiescing in such an assumption on the Claimant’s part.

The second limb of this issue raises the question of whether both parties conducted themselves on the basis of the mistaken assumption / acquiescence such as to render it inequitable or unconscionable for the Defendants so to deny. In the factual context of this case, it is important to bear in mind the following statement of one of the requirements for raising such an estoppel made by Brooke J (as he then was) in Bank of Scotland v Wright supra at 261f, cited to me by both counsel:

“There is, however, an important feature of this type of estoppel, which Robert Goff J had found as a fact to have been present in the post-contract dealings between the parties before him [in Amalgamated Investment & Property Co v Texas Commercial International Bank [1982] QB 84], and this is that the party who is sought to be estopped must have contributed in some active way towards the creation or continuance of the mistaken basis on which the parties thereafter conducted their dealings, so that it would be unconscionable to allow him to resile from the stance he had taken, which had to a certain extent influenced the other party to behave as it did.”

Further to my findings in relation to the first limb of this issue, I am satisfied that, even if (contrary to my finding) the Claimant did conduct his dealings on the basis of a mistaken assumption on his own part that his shares were fully paid up or agreed to be so credited, the Defendants had not contributed in some active way towards the creation or continuance of that mistaken assumption on his part.

Up to 27^th September there was no ‘mutually manifest conduct’ based on any assumption (whether express or implied) that the Claimant’s shares were fully paid up or agreed to be so credited as is required for an estoppel by convention (see The August Leonhardt [1985] 2 Lloyd’s Rep 28 per Kerr LJ at 34-35; contrast the facts of the other cases there discussed and Hiscox v Outhwaite [1992] 1 AC 562 (in the Court of Appeal – the estoppel point was not considered in the House of Lords, see at p599)). As to the matters pleaded in the particulars set out at paragraphs 24(1)-(7) of the Reamended Particulars of Claim (TB1/10-11), they do not support a case of ‘mutually manifest conduct’ for the reasons set out in Mr Davies’ written closing submissions at paragraph 48.

After 27^th September, as I have already found, there can be no question that the Defendants either themselves assumed that the Claimant’s shares were fully paid up or agreed to be so credited, or in any way acquiesced in such an assumption on the Claimant’s part. In any event, the Claimant did not in fact make any such assumption: see his e-mail dated 16 October [TB4/252] and my findings at paragraphs (78) – (81) above. Accordingly there can be no basis for any estoppel by convention in respect of conduct after that date.

I reject the Claimant’s suggestion that the Defendants or their directors had hatched some sort of plan to forfeit the Claimant’s shares, and/or had incurred legal costs in order to seek to take unfair advantage of some known or suspected mistaken assumption on the Claimant’s part to the same end.

Finally on this issue, I am quite satisfied that there is nothing in the circumstances of this case which renders it inequitable or unconscionable for the Defendants now to deny that the Claimant’s shares were fully paid up or agreed to be so credited.

I am satisfied that the board meetings of 27 September did take place, essentially as described in the evidence of Messrs Cookson and Tippins, and reflected in the minutes [TB2/2, 8 & 5]. Having been specifically deputed at the end of the ETM on the previous day formally to hold such meetings, it would have been odd for them not to have done so. Mr Cookson chaired the first in time, being that of the board of SSS which both he and Mr Tippins attended at the companies’ offices in Hartley Wintney, before leaving for a business appointment in Leicester by car. Later that morning the meetings of the boards of Acquire and EAT were held. Mr Tippins, still at the offices, chaired these and Mr Cookson participated by (hands free) mobile telephone from his car en route to Leicester. The minutes produced fairly reflect the substance of what occurred.

The background to them was, as I have found in paragraphs (44) – (45) above, that on the previous day the subject matter had been discussed informally towards the end of the ETM by all the 4 directors, they had come to the unanimous view that a call should be made on the unpaid shares (in practice that was only the Claimant’s), and Messrs Farrier and Bevan had approved the holding of formal meetings of the boards on the next day although they were unable to attend – Mr Farrier being due to take a day’s leave and Mr Bevan being due to work at home that day (see their respective witness statements at TB1/117 and 121-122).

The Claimant’s case on this issue is simply that, as matters of fact, the formal board meetings never took place, and thus that the decisions to make the call recorded in the minutes were never made, at least in the manner alleged, rather than raising any narrower point regarding the formal convening of the meetings or the like. That case fails, on the basis of the findings of fact I have just made. Given the terms of Mr Griffiths’ submissions on this point, I should perhaps add that I am not persuaded that the differences in the evidence given by Messrs Cookson and Tippins before and after disclosure of the HSE documents to which he refers (with regard to whether pre-prepared minutes were or were not read out in terms) demonstrate that they or either or them fabricated any part their evidence about these meetings. Both impressed me as honest and straightforward witnesses, doing their best accurately to recollect events. Mr Cookson initially used the phrase “it is very likely that I would have read through this” in respect of the reading out of draft minutes on 27^th September [TPT 23.2.04 p54 lines 30-32], thereby indicating that his evidence was at least in part based on extrapolation or reconstruction rather than direct recollection. It was only when pushed by Mr Griffiths putting to him that his use of such qualified language was “extraordinary really” [lines 35-36] that he changed to an unqualified verbal formulation on this point. He was then challenged as to the change, to which he replied “Because you required a yes or no answer” [lines 46-47]. Mr Cookson’s answers when re-called after disclosure of the documents from HSE were in my judgment reasonable and measured [see TPT 27.2.04 p7 lines 50-54 and p8 lines 3-9]. There may well have been some form of note available to him from which to “run” the SSS board meeting which he chaired before leaving the office, and available to Mr Tippins when he chaired the equivalent (with regard to the call) meetings of the Acquire and EAT boards. Further or alternatively, Messrs Cookson and/or Tippins may well have confused the process followed at different but essentially similar, formal board meetings over this period. Mr Tippins volunteered this possible explanation in his cross-examination when re-called [see TPT 26.2.04 pp46 – 47]. It may well be right. His willingness to accept the inaccuracy in his earlier oral evidence without hesitation or equivocation, and the responses he then gave, certainly impressed me. Whatever the extent to which the 27^th September meetings were scripted, I am confident in my finding that they all took place, and that the minutes produced fairly reflect the substance of what occurred.

In those circumstances I shall deal only very briefly with the Defendants’ alternative case, which was that if necessary they would rely on the unanimous agreement of all four of the relevant directors that such call should be made, which was made informally at the end of the ETM held on the previous day. As Simon Brown J (as he then was) said in Runciman v Walter Runciman plc [1992] BCLC 1084 at 1092d, “That directors, provided they act unanimously, can act informally appears clearly established – Re Bonelli’s Telegraph [infra] and Charterhouse Investments Trust v Tempest Diesels [1986] BCLC 1 so decide …”. I have already found that Mr Tippins had received initial legal advice on the matter prior to this meeting, and reported the substance of it to the meeting in good faith (paragraph (44) above). I have made my other findings as to what occurred at the relevant part of the meeting on 26^th September (paragraph (45) above). Had it been necessary, I would have held that the unanimous decision reached, albeit less formally than at the meetings on 27^th September, by all four directors at the end of the ETM on 26^th September sufficed as decisions of the three boards to make the call under regulation 12 of Table A, and satisfied the terms of the dictum of Sir James Bacon V-C in Re Bonelli’s Telegraph Co.; Collie’s Claim (1871) 12 Eq 246 at 258 cited to me by both counsel :

“If you are satisfied that the persons whose concurrence is necessary to give validity to the act did so concur, with full knowledge of all that they were doing, in my opinion the terms of the law are fully satisfied, and it is not necessary that whatever is done by directors should be done under some roof, in some place, where they are all .. assembled”.

I do not consider that the fact that one of the four present (Mr Cookson) had formed his own unspoken view that if the matter went all the way to forfeiture (contrary to their joint and several expectation) the Claimant’s shares were likely to end up being transferred to SVSP, but had not expressly stated that view to any of the others, would invalidate such a decision for want of the requisite knowledge on the part of all present. That view was not in any sense a necessary part of the decision the board was making at that stage, and was no more than the private thoughts of one of their number, which were in no sense either an inevitable outcome or binding on them or the companies.

As to (a), the suggested conflicting interest, which affects each of the 4 persons who were directors of one or more of the 3 subsidiaries at the material time, is the holding of shares in SVSP, to which company each of the forfeited shares were in the event transferred. In the case of Mr Cookson, Mr Griffiths additionally relies on his oral evidence that by 26^th September he had formed the unspoken conclusion that if the procedure were to lead to forfeiture of the Claimant’s shares, they would then be transferred to SVSP. Though Mr Cookson apparently assumed that his three fellow directors would also (independently, since the matter was not discussed until much later) have come to the same conclusion, none of them in fact did so - the question of what would happen to the shares after any forfeiture (which none of the four expected would happen) simply did not occur to them.

The decision made formally on 27^th September, having been agreed informally the previous day, was to make a call on shares (pursuant to Regulation 12 of Table A). It was not a decision to forfeit shares. At worst, it was a decision which, depending on how the Claimant (as the only shareholder affected) reacted to it, was capable of giving rise to a situation in which the Board could in the future make a further decision (to issue a further notice requiring payment of the call, pursuant to Regulation 18 of Table A), which in turn was capable, depending on how the Claimant reacted to that, of giving rise to a situation in which the Board could (aliter, would have the opportunity to) resolve to forfeit the Claimant’s shares pursuant to Regulation 19 of Table A. The passage of such a resolution for forfeiture would in turn give rise to the powers to sell, re-allot or otherwise dispose of the same provided for by Regulation 20 of Table A.

When the nature of this decision is thus analysed, it is unsurprising that Mr Griffiths did not pursue any argument that the provisions of s.317 CA85 are of any direct application to it. The resolution did not concern a contract or proposed contract (see sub-section (1)), even taking into account the expanded definition of those words to include a transaction or arrangement (see sub-section (5)).

Mr Griffiths relies on the general prohibition (described by Gower as ‘the common law rule’) on directors (like other species of fiduciary) putting themselves in a position where there is a conflict (actual or potential) between their duties to the company and their personal interests (or any duty owed to another person). For this he cites Palmer’s Company Law, op. cit., at paragraph 8.516 and Aberdeen Railway Co v Blakie Bros (1854) 1 Macq 461 at 471 per Lord Cranworth L-C:

“A corporate body can only act by agents, and it is of course the duty of those agents so to act as best to promote the interests of the corporation whose affairs they are conducting. Such agents have duties to discharge of a fiduciary nature towards their principal (see Mr Hudson’s case, 16 Beav. 485). And it is a rule of universal application, that no one, having such duties to discharge, shall be allowed to enter into engagements in which he has, or can have, a personal interest conflicting, or which possibly may conflict, with the interests of those whom he is bound to protect.

So strictly is this principle adhered to, that no question is allowed to be raised as to the fairness or unfairness of a contract so entered into.”

I have also helpfully been referred by Mr Davies to Gower & Davies’ Principles of Modern Company Law, 7^th ed (2003) at pp380-381 and 391-416.

The references in that citation to “engagements” and to “a contract so entered into” are noteworthy. The case of Transvaal Lands Co v New Belgium (Transvaal) Land and Development Co [1914] 2 Ch 488 which he also cites was a case concerning 2 contracts entered into in breach of the above principle. It is authority on the sufficiency of a shareholding qua trustee in the other contracting party to amount to a conflicting personal interest, but does not help on the possible application of the principle to non-contractual situations, and in particular the exercise of powers.

Mr Davies submits that the application of this principle in the context of a simple exercise of a power by directors, such as the power to make a call or declare a dividend, is not well established. In particular, he submits that it is not clear in a case where the directors have simply exercised a power, as opposed to procured the company to enter into a contract, in what circumstances the directors will be found to have an interest which may possibly conflict with their duties to the company.

Mr Griffiths cites Re National Provincial Marine Insurance Co.; Gilbert’s case (1870) 5 Ch App 559. The factual circumstances were fundamentally different from the present case, in that there the directors decided that a call was necessary in the interests of a company some of whose shareholders were threatening to transfer their partly-paid shares. However they postponed the declaration of such call for a few days, in order to give at least one of their number a window of opportunity first to transfer away partly-paid shares of his own and/or to have such transfers registered, with the intention of thereby escaping liability on the call. Their failure, in the result, to succeed in that intention is wholly unsurprising. In the course of his judgment (at p565) Giffard LJ described the directors as having:

“what was unquestionably a discretion to exercise with regard to a fiduciary power – namely, a power to decide whether at a particular time a call ought or ought not to be made”. On page 566 he stated that any disinterested directors would “if they had any regard to the due interests of the shareholders and of the company, have made the call, as it was their plain duty to do, on that day. I have no hesitation in saying that I can find but one reason why the directors did not make the call on that day, and that reason was that their duty and their interests lay in totally opposite directions; and if persons having to exercise a fiduciary power choose to place themselves in this position, that their interests pull one way while their duty is plainly to do something quite different, and for that reason they abstein from exercising that power, they must be held to all the same consequences as though that power has been exercised.”

That was achieved not by impugning or reversing the call, but by holding the transfers of directors’ shares registered during that window of opportunity void (which it may be noted was a remedy for the benefit of the company).

The conflicting personal interest in that case was immediate and direct: at the time of the decision to make the call the directors, including in particular Mr Gilbert, were the registered holders of partly-paid shares which were (or were to be) subject to the proposed call. The directors were only bound to register a transfer if it was lodged before the call on the subject shares had been made. Hence the reason for the short postponement. Strictly, the objectionable decisions of the directors tainted by conflicting self-interest were those to postpone implementation of the agreed call and/or to register the directors’ own transfers away during the short window of opportunity their decision to postpone had created. Putting it another way, those 2 decisions were made for an improper purpose.

The circumstances of the present case are wholly different. When deciding whether to make the call on 27^th (or 26^th) September, the only potentially conflicting interest of the directors was anything but immediate, being multiply contingent, with the 2 principal contingencies depending on voluntary actions of the Claimant wholly outside the directors’ control (see paragraph (106) above). Furthermore I have been satisfied (see paragraph (61) above) that the directors’ decision to make this call was made for motives or purposes which Mr Griffiths accepted in opening are (if correct) to be regarded as proper ones (see paragraph (121) below). In these circumstances I do not consider it necessary for me to attempt an overarching analysis in abstract terms as to when and how what Gower calls the ‘common law rule’ will or will not be applied to decisions of directors which constitute the exercise of powers (the description of which as ‘fiduciary powers’ may import different things in different contexts or for different legal purposes). Assuming without deciding that the common law rule is applicable to the decision to make the call, I am satisfied that it was not infringed on these facts. Accordingly the decision to make the call is not invalidated by reason of any (undeclared) conflict of interest.

Mr Davies takes the further point that even if the common law rule had been infringed, the directors of the 3 subsidiaries were nevertheless authorised to participate in making such a decision by the companies’ respective Articles of Association.

As to this Mr Griffiths in essence submits, building on his submissions as to the general rule summarised in paragraph (108) above, that (i) in the case of directors, their ability to act when under a relevant conflict is dependent on the existence of an applicable relaxation of the general principle in the company’s Articles of Association, (ii) the relaxation found in Article 8.1 is not applicable on these facts, and (iii) that is the only relevant relaxation in the Articles. I agree with submissions (i) and (ii), but not with (iii).

My acceptance of submission (i) is founded on general principle, Mr Davies does not dispute the point, and it therefore requires no elaboration. As to submission (ii), Article 8.1 in each of the 3 subsidiaries’ Articles of Association is in identical terms. It provides :

“A Director who is in any way, whether directly or indirectly, interested in a contract or proposed contract with the Company will declare the nature of his interest at a meeting of the Directors or a committee of the Directors in accordance with Section 317 of the Act. A Director who has disclosed his interest may vote in respect of any contract, proposed contract or any arrangement in which he is interested directly or indirectly and such director will be counted in the quorum present at any meeting at which such contract or proposed contract or arrangement is being considered. Regulations 94 and 95 of Table A will not apply to the Company.”

The express authorisation to vote on a matter in which the director is interested is dependent on that director having “disclosed his interest”. Those words, which appear at the beginning of the second sentence, are to be read as meaning disclosed in accordance with the provisions of the first sentence. Those provisions require the disclosure to be made at a meeting of the Directors, and in accordance with s.317 CA85. No such disclosure was made at any such meeting until those held on 3rd November. Therefore the express authorisation contained in Article 8.1 cannot be relied on in respect of decisions made prior to those meetings. The presence of the word “arrangement” in the second but not the first sentence of this Article appears odd; given the reference to s.317 CA85 in the first sentence one might have expected “transaction or arrangement” to be included in the first and second sentences (see s.317(5)). Be that as it may, all I need say about it for the purposes of this judgment is that I am satisfied that the presence of the word “arrangement” in the second but not the first sentence of Article 8.1 would not assist the Defendants on the present facts in any event.

However Mr Davies relies on the provisions of Regulation 85 of Table A, which is incorporated into the Articles of Association of each of the 3 subsidiaries. In contrast to Article 8.1 considered above, this does not require the disclosure to fellow directors to have been made at a meeting nor in accordance with s.317 CA85 : the material words simply read “provided that he has disclosed to the directors the nature and extent of any material interest of his”. Given that all 4 of the directors well knew of each other’s shareholdings in SVSP, their respective material interests were disclosed, albeit informally. I am not persuaded by Mr Griffiths that Mr Cookson’s thought processes described in paragraphs (104) and (105) above constituted any additional “material interest” on his part requiring disclosure. In a case such as the present, where s.317 CA85 does not apply to the decision in question (contrast the facts on which the decision of Harman J in Lee Panavision v Lee Lighting [1991] BCLC 575 was made), the opening words of Regulation 85 (“Subject to the provisions of this Act”) do not in my judgment add anything to the other requirements set out in Regulation 85.

Therefore, if and so far as the Defendants need to and can rely on the provisions of paragraphs (a)-(c) of Regulation 85 (this aspect of the alternative submission has not been fully developed), I find on the facts that the proviso for disclosure is satisfied so as to enable them to do so. Thus Mr Griffiths’ submission (iii) on this point (as set out in paragraph (115) above) fails. As I have already found for the Defendants on their primary submission that there was no infringement of the common law rule in any event, I do not think it necessary to develop my ruling on this alternative point any further.

Had I come to a different view on this issue, further questions would have arisen as to what the appropriate sanction would be. Given the findings I have already made on this issue above, I do not consider it necessary or desirable that I lengthen this judgment further by going into Mr Davies’ submissions in that regard. Similarly, given what I have said in paragraph (107) above, I do not need to resolve the interesting question raised by Mr Davies as to whether the Court would or should set aside a decision reached in breach of the formal disclosure requirements of s.317 CA85 in circumstances where full disclosure of the material conflicting interest had been made albeit informally, a submission which he founded on the observations of the Court of Appeal in Lee Panavision v Lee Lighting [1992] BCLC 22 at 33b-c per Dillon LJ (with whom Stocker LJ and Sir David Croom-Johnson agreed : 33f); as to which see also Neptune (Vehicle Washing Equipment) v Fitzgerald [1995] 1 BCLC 352 Lightman J, cited by Mr Griffiths, esp at 360g.

As to limb (b), improper purpose, in most cases of a directors’ decision to make a call on shares, the only likely proper purpose will be to raise the capital sum involved for the use of the company concerned. However towards the end of his opening, having reflected overnight on a question posed by me, Mr Griffiths conceded that if the facts were as the directors and their witnesses (including importantly Mr Martin) asserted, and that their purpose in the case of SSS was to facilitate the payment of a dividend rateably to all shareholders (including the Claimant) at the conclusion of the informal winding-up process (given the provisions of Regulation 104 of Table A, which Mr Martin had drawn to their attention), coupled with a desire for good corporate housekeeping in the case of all of the 3 subsidiaries, that could not in the unusual circumstances of this case be impugned as an improper purpose. I would add that in my view that concession was realistic and rightly made. As I have found, contrary to Mr Griffiths’ submissions, the facts to be as the directors and their witnesses asserted in this regard (see paragraph (61) above), there is no further dispute for me to resolve in respect of limb (b). The decision to make the call in each of the 3 subsidiaries was made for proper purposes.

By a re-amendment to paragraph 17 of the Particulars of Claim, which was first intimated before the end of Mr Griffiths’ opening, and which I permitted despite Mr Davies’ opposition before the end of the Claimant’s case, the Claimant has put in issue whether any sufficient decision to issue the second call notice pursuant to Regulation 18 of Table A was ever made. The Defendants were given the opportunity to add to their evidence to deal with this new point, which they did, and one result was that Messrs Farrier and Bevan became witnesses in the case.

Mr Davies accepts that a valid exercise of the power to give notice under regulation 18 of Table A requires a decision by the board of directors, but submits that there is no requirement under the respective Articles of Association for such a decision only to be taken at a formally convened meeting of the board. As to that he is right, and the principle already stated in paragraph (103) above as to directors acting unanimously but informally applies equally here.

As to the simple factual question, the Defendants have satisfied me that the 4 directors did unanimously agree to issue the second call notice towards the end of a meeting on 15^th October. Their evidence on this matter, which I accept, was (as Mr Davies has rightly submitted) to the following effect :

Ultimately, and in the light of such evidence on the part of all the 4 directors, Mr Griffiths has confined his submissions on this issue to 2 points.

First, rehearsing a submission already made in the context of issue 4, he submits that the directors present were insufficiently informed to enable them to make a valid decision on the matter at an informal meeting (see the citation from Collie’s Claim at paragraph (103) above). The matters he relies on are (i) not having legal advice passed on to them, (ii) not knowing of the erroneous caption within the relevant notes in the 3 audited accounts to 30^th June 2001 and the draft accounts of SSS to 30^th June 2002, and (iii) not knowing of Mr Cookson’s unspoken conclusion that in the even of forfeiture SVSP was likely to receive the forfeit shares. As to (i), the point about legal advice is wrong on the facts. The 4 directors were given a fair and accurate summary of the substance of the legal advice which had been received. As to (ii), I do not consider that ignorance of the presence of the erroneous captions in any way impugns the validity of the decisions to make or pursue the call. They were mere clerical errors in one note to each of the accounts in question which (when discovered) would require correction in any event. Even if (contrary to my findings) the Claimant had seen, read and assumed them to be accurate prior to the call being made, that would not in my judgment invalidate a decision to make the call (though it might have affected questions of estoppel and so forth, depending on how the facts unfurled from then on). As to (iii), Mr Cookson’s unspoken conclusion, again that was not a matter of which the other directors required knowledge in order to be able properly to decide whether to make a call. It was simply one director’s thought as to what might happen in the future. I have already held that it was not a ‘material interest’ requiring disclosure to satisfy the proviso in Regulation 85 of Table A.

Second, Mr Davies submits that by virtue of the words “the directors may regulate their proceedings as they think fit” in what is currently Regulation 88 of Table A, explained by the dicta of Warrington J in Barron v Potter [1914] 1 Ch 895 at 901, “it would be entirely unrealistic to characterise what took place towards the end of the meeting on 15 October .. as other than a meeting of the board of directors of each of SSS, Acquire and EAT”. Mr Griffiths submits otherwise, because the 4 directors, though all present on 15^th October, made “no decision to treat [that] informal meeting … as a formal board meeting.” Given that the principle already stated in paragraph (103) above as to directors acting unanimously but informally applies here, this difference is at best a theoretical dispute which makes no difference to the outcome, and I do not therefore propose to go into it.

As to whether the final paragraph of the minutes of the ETM held on 24^th October [TB2/p382C] are an accurate reflection of what else might have been said at the 15^th October meeting, see paragraph (132) under issue 7 below.

As regards the allegation of conflict of interest, Mr Davies submits that “there is no material distinction … between the decision to authorise the making of calls in respect of the shares and the decision to give further notice of such calls under Regulation 18.” Though the number of contingencies mentioned in paragraphs (106) and (113) above has by this stage in the process reduced by one, I nevertheless agree.

For like reasons to those I have already given in respect of issue 5(a) above, assuming without deciding that the common law rule is applicable to the decision to issue the second call notice, I am satisfied that it was not infringed. Accordingly the decision to issue such a notice is not invalidated by reason of any (undeclared) conflict of interest.

As to (b), improper purpose, Mr Griffiths does not make the same concession as he made about the Defendants’ alleged purpose for making the call in the first place. He submits that this decision was made “for the purpose of forfeiting [the Claimant’s] shares and/or benefiting [SVSP] rather than any proper purpose”. I do not agree. I find (see paragraph (61) above) that the Defendants’ purposes in making this decision were essentially the same as those for making the call in the first place. I accept the clear evidence of all the 4 directors that they firmly believed that the Claimant would pay before the time for payment allowed under the second call notice expired. Given that their purpose and intentions had not changed, and that the second call notice (like the original call letter) was not one which could itself effect a forfeiture of the Claimant’s shares, the same purposes were proper ones this time just as they were on the previous occasion. Furthermore, given that a call had now been made but not complied with, at the time of this decision there is an additional proper purpose in that the directors are under a duty, once a call has been made, to compel every shareholder to pay the sum thus demanded, and to take all reasonable steps for enforcing payment : Palmer’s Company Law, op. cit., at paragraph 6.212.

Mr Griffiths draws attention to the terms of the final paragraph (Any Other Business) of the minutes of the ETM held on 24^th October, made as it happens by Mrs Tippins, as affording some record of what had taken place on 15^th October (“A discussion took place, again concluding that the view reached on 15^th October that the Directors of SSS, Acquire and [EAT] should follow the guidance of their professional advisors if the call remained unpaid, they should resolve that [the Claimant] forfeit his shares”) [TB2/p382C]. The 4 directors were closely cross-examined about this text (which suffers from poor punctuation and grammar in any event), and the extent to which it is a fair reflection of what had occurred on 15^th October. I accept the evidence of Messrs Tippins, Cookson and Bevan that insofar as this minute appears to record that a decision had been taken on 15^th October that in the event of non-payment of the second call notice by the Claimant his shares would (as opposed to could) be forfeit, it is inaccurate.

As to (a), the Claimant denies that he received the second call notice. He accepts that it was entirely accurately addressed. The evidence of posting is unchallenged (witness statement of Kyla Whitefoot, TB1/110-112A). The second call notice was not returned undelivered. Both the copies that were posted at the same time (to Mr Martin and to Mrs Fatani) were duly received the next day.

In contending that I should reject the Claimant’s evidence on this point, and find that the second call notice was in fact received by him, Mr Davies also draws attention to the passage in Mr Tippins’ e-mail to the Claimant dated 21^st October [TB4/259] (the receipt of which is not disputed) which states “As stated in my correspondence to you, interest is accruing on the outstanding amount of £300.” The Claimant did not respond with any enquiry as to what correspondence Mr Tippins was referring. Mr Davies invites me to infer that this was because the Claimant had by then received the second call notice, which spells out the fact that interest is accruing on the £300 in its third paragraph [TB4/253].

Mr Griffiths relies heavily on the fact that the Claimant has denied receipt of the second call notice from the very start of the solicitors’ correspondence in this matter (his solicitors’ letter of 25^th November [TB5/p1]). As to the suggested inference from the absence of any enquiry in response to the e-mail of 21^st October, he responds that there was a reference, albeit short, to the possibility of interest accruing in the final sentence of the call letter, and that in those circumstances the suggested inference is not a safe one.

As I have indicated above, this is a question on which I have reflected anxiously. I have had to reject the Claimant’s evidence on other points. The circumstances do give rise to some grounds for scepticism over the Claimant’s evidence on this point. However, having so reflected on the matter, and bearing in mind that given the very early denial of receipt there is no realistic basis on which one could conclude that the Claimant’s case on this point was wrong by reason of a mistake, lapse of memory, or retrospective self-justificatory reasoning, I have come to the conclusion that there are not sufficient grounds for rejecting the Claimant’s evidence on this point. I therefore find and proceed on the basis that he did not receive the second call notice.

It follows that (b) is an important issue for the resolution of this case. As to this, my conclusion is that the Claimant is nevertheless to be treated as having received the second call notice by virtue of Regulation 115 of Table A. The relevant part of that Regulation, which was incorporated into the Articles of Association of each of the 3 subsidiaries before the amendments to Table A introduced by the Companies Act 1985 (Electronic Communications) Order 2000 [SI 2000.3373] came into force on 22 December 2000 (see ss.8(2) and (3) CA85), provides as follows:

“Proof that an envelope containing a notice was properly addressed, prepaid and posted shall be conclusive evidence that that notice was given. …”

On the face of things, such proof has been provided, indeed on the facts is uncontested. However Mr Griffiths ingeniously submits that the words “properly addressed …” must be construed as meaning “posted to the member at his registered address”, which words appear in Regulation 112. He points out that on this construction of the opening words of Regulation 115 the second call notice has not been so proved in respect of any of the 3 subsidiaries, because :

Mr Griffiths’ argument runs thus :

Mr Davies submits that the Claimant’s approach to the interpretation of regulation 115 is misconceived and should be rejected for the following reasons:

I find no necessity for construing the permissive word ‘may’ in the first sentence of Regulation 112 as if it were the mandatory word ‘must’, and prefer Mr Davies’ submissions on this point. It would in my judgment be somewhat absurd, and contrary to the approach commended by Vaisey J in the passage cited above, to construe the phrase ‘properly addressed’ in such a way that a notice in all respects accurately addressed (as was the case in respect of the second call notice) is nevertheless not ‘properly addressed’, and I would reject such a construction unless there was no other way of giving effect to the express words. That is by no means the position here, and the words ‘properly addressed’ can and should be given their natural meaning. Any absurdity (as Mr Griffiths would put it) inherent in the operation of a conclusive deeming provision need not and should not be added to with any further and avoidable absurdity in its construction. I would also observe that in most cases, the effect of construing Regulations 112 and 115 in such a manner as conclusively to deem the addressee to have received an inaccurately addressed notice would be to disadvantage - and potentially to cause considerable hardship to - the addressee; it just so happens that on the facts of the present case such a construction would fortuitously advantage the Claimant.

The decision to forfeit, contrary to the Claimant’s case, was not made pursuant to any plan or plot to remove the Claimant as a shareholder, nor for the purpose or with the intention of benefitting SVSP. I have rejected that suggestion at both the earlier stages of what has been called the ‘forfeiture process’, and I reject it in respect of these two decisions made formally on 3^rd November, and informally in advance (in case the unexpected eventuality of non-payment by 2^nd November should occur) on or about 24^th October. It is true that the relevant formal meetings were held on a Sunday, which at first blush could give the impression of indecent haste and/or snatching at a welcome opportunity. More prosaically, however, I accept the Defendants’ evidence that the day was simply chosen for convenience, as both Mr and Mrs Tippins were working in the office on that day in any event. At that time Mr Tippins was doing a lot of work for IBM, and was not to be in the office the next day. Mrs Tippins attended the meetings as company secretary. Mr Cookson participated by telephone.

Understandably, Mr Griffiths seeks to make play of what I am satisfied were some rather confused answers of Mr Cookson (TPT 24.2.04 pp12-13) in which at times he appeared to be saying that he was acting in the interests of SVSP when the decision to forfeit the Claimant’s shares were made. Whilst he did not always express himself clearly, I am satisfied that what he was trying to say overall was that until the resolution to forfeit the Claimant’s shares had been passed, in dealing with first the call (both stages) and then the forfeiture, he was seeking to act in the interests of the shareholders of SSS as a whole.

The passages mentioned by Mr Griffiths have to be read in the context of the pages which preceded them. Mr Cookson first agreed (as is obvious in an objective sense) that the forfeiture of the Claimant’s shares and their transfer to SVSP was in the interests of SVSP (aliter benefited SVSP) : TPT 24.2.04 p10 lines 1-17. I would observe that, given that by the time of the forfeiture SVSP held all the remaining (ordinary) shares in each of the 3 subsidiaries, and given the alternatives as to how forfeited shares may be dealt with provided for by Regulation 20 of Table A, SVSP would almost inevitably benefit from a forfeiture, simply viewing the matter objectively.

The subject of the questioning then moved to intention to benefit SVSP (lines 19-25). After an intervention by me (lines 27-34) to ensure that Mr Cookson distinguished between 2 distinct points covered by the same question (lines 19-25) Mr Cookson stated (as to the relevant point) :

“In respect of Mr Hunter’s shares .. I was acting in the interests of the shareholders of [SSS] in seeking to bring about the closure and winding up of the security business” (lines 42-45).

His answers on the following pages are undoubtedly somewhat confused, but that which I find most nearly reflected what he was trying to state was that on page 12 at lines 33-36, when he sought to clarify previous answers as to the point at which he thought he had ceased acting in the interests of the shareholders of SSS as a whole and started acting in the interests of SVSP, by saying it was “at the point when the resolution [for forfeiture – see his next answer, to me] had been passed … that was the point where I was advised that [the Claimant] no longer became a shareholder.”

Once the forfeiture had occurred, SVSP was the sole (ordinary) shareholder in each of the 3 subsidiaries, and so its interests and those of the whole body of (ordinary) shareholders were one and the same thing. Neither party has made any submission suggesting that the existence of a comparatively small number of issued ‘A’ shares in each of the 3 subsidiaries should make any difference to the outcome of this or indeed any other issue in the case.

Nor do I accept the suggestion that the directors wanted to get rid of the Claimant as a shareholder because they were at loggerheads with him as regards various unresolved issues relating to the distribution of the proceeds of sale of the security business. As Mr Davies rightly submits, and as both Mr. Cookson and Mr. Tippins indicated in their evidence, none of the matters relied upon on behalf of the Claimant as such unresolved issues (principally, the disputes as to the level of costs charged to SSS by Servicespan, as to the invoicing arrangements with Temple and as to his expectation of receiving an interim distribution) would have prevented the parties proceeding with the proposed winding up of the security business. Nor, I would add, were they insoluble by any means other than removing him as a shareholder. If a consensual resolution was impossible, there was always the fall-back recourse of legal proceedings.

Mr Griffiths is on stronger ground, however, when he raises the question of what the true purpose of passing these resolutions was. In the case of SSS, a forfeiture would ex hypothesi not facilitate the payment of a dividend rateably to all shareholders (including the Claimant) at the conclusion of the informal winding-up process. In the case of each of the 3 subsidiaries, good corporate housekeeping is an entirely credible purpose for making a call for payment of modest sums amounting in aggregate to £300 on the Claimant’s shares, but on the face of things a forfeiture of the Claimant’s shares would appear wholly disproportionate merely for that purpose, and thus at least prima facie lack credibility as an explanation for taking that step. The answer as to why these two resolutions were passed lies in issue 9(ii) to which I must in a moment turn.

So far as the decision to transfer the forfeited shares to SVSP is concerned, given that SVSP was by the time of the forfeiture the only other (ordinary) shareholder in each of the 3 subsidiaries, I find nothing improper in the making of that further and consequential decision pursuant to Regulation 20 of Table A once the decision to forfeit had been taken.

None of the 4 directors actively wished or desired to forfeit the Claimant’s shares. All of them wanted him to pay the call, so that the informal winding-up could proceed without avoidable difficulty. Furthermore they were all convinced that he would pay, if only at the last minute and perhaps with a large quantity of small coins, just to be awkward or make a point. Thus the non-receipt of the payments due from the Claimant on the call by the expiration of the second 14 day period represented an undesired and unexpected situation for them all.

As I have already found at paragraph (54) above, the first (and only) time when there was a considered discussion about what should happen should this undesired and unexpected situation arise between all 4 of the directors was at the end of the ETM held on 24^th October. They agreed that if such eventuality should occur then the forfeiture procedure should be followed and that as before (ie on 27^th September, following the discussion at the end of the ETM on 26^th September) Messrs Cookson and Tippins were to hold the necessary formal board meetings to that end. Each of the 4 were of course cross-examined as to their reasons or purpose for agreeing or deciding that (in such eventuality) the Claimant’s shares should be forfeited.

Mr Cookson, having first made it clear that he had had no desire adversely to affect the Claimant, stated that “it was a case of bringing the matter .. all matters to a conclusion… I was called upon to vote on the grounds that [the Claimant] had been asked to make payment for his shares along the lines of advice given to us by our legal advisers and voted accordingly” (TPT 24.2.04 p30). By the time he was re-called the subject of this issue had emerged, and he was asked about it. By that stage in the hearing its potential significance must have been obvious to him. That makes what I find to be the scrupulously fair and honest nature of his answers on this point the more impressive. He said (TPT 27.2.04 p10) “I believe the advice Mr Tippins received was that we could [in contrast to ‘should’ in the question] forfeit [the Claimant’s] shares – if he did not pay them up … I do not recall any other option, although I do recall vividly the fact that none of us believed the shares would remain unpaid .. I do not recall any other option being discussed”. When asked “When [Mr Tippins] reported on what advice had been given, he did not give any other option than forfeiture in the event of Mr Hunter not paying for his shares?” he answered “I do not believe so”. I find that his later oral evidence to the effect that the question of what was to be done if the Claimant did not pay by the expiration of the time set by the second call notice was not specifically raised, and that no decision was taken about that, was honestly mistaken (my finding on this is set out in the preceding paragraph); my impression was (though I intervened to try and avoid this) that Mr Cookson had become somewhat confused at that stage. However he then confirmed, in answer to me, that the intended meaning of the relevant passage in his witness statement [TB1/133 paras 8-9] was an acknowledgment that “if we followed the procedure laid out in the articles and if [the Claimant] failed to pay them, then that would result in his forfeiting the shares.” [TPT 27.2.04 pp13-14]

Mr Tippins stated that it was at the meeting on 24^th October that the 4 directors agreed that, although they all still expected that the Claimant would pay the monies required by the call, if unexpectedly he did not then the result would be the forfeiture of the Claimant’s shares (TPT 25.2.04 p46). Later, having said that it was ‘unthinkable’ that the Claimant would not pay for his shares, he added :

“obviously .. if he did not pay for his shares, then we had to go to the next step. There would seem little point in doing the whole process if we did not follow it as per the next step.” (TPT 25.2.04 p52 lines 21-24). A few minutes later he added “I wanted to follow the Articles of Association, as I was instructed to do, advised to do. I mean, if we have Articles of Association within the company and we follow them step by step, I could see that that had to be right. It seemed proper. Everybody thought it was proper.” (p 57 lines 5-9)Shortly thereafter he said “We did what we were instructed to do. Mr Hunter had on two occasions been written to asking to pay his call and he did not do under the Articles. And I was given the process to do, which I did.” (p58 lines 12-16)

When re-called the next day, Mr Tippins agreed with Mr Farrier that, on the basis that the unexpected happened and the Claimant did not pay in response to the second call notice, there was an inevitability that forfeiture would be the result [TPT 26.2.04 p55 lines 31-53; see also in re-examination at p60 lines 19-22].

Mr Farrier’s evidence [TPT 26.2.04 p31] also indicated that it was on 24^th October that the outcome in the event of non-payment by the Claimant was canvassed. He said that his understanding of the legal advice which had been received was to the effect that if the Claimant did not pay for his shares by 2^nd November, the directors should resolve to forfeit his shares [line 11-21], though he later added that he could not specifically recall that the directors were advised that they should forfeit the shares [lines 44-45]. His past experience in personnel law had been that “if there is a process to be followed, it must be followed properly to the letter, and that way everyone is protected. And it was because of that, that I was saying that if we have taken advice and we have started a process, we must follow it, as per the book” [lines 3-9]. Very revealingly, having described forfeiture as “a natural outcome” in the event of non-payment, and in the context of the 24^th October meeting, he described being advised that the Claimant’s shares should be forfeited as “like a sinking feeling, thinking ‘Goodness, we have got ourselves into this’ and in following the routine there was the potential for [the Claimant] to lose his shares.” He agreed that in the event of non-payment “there [was] a sort of inevitability about it” [lines 45-54]. It came across clearly when Mr Farrier gave this evidence that he had not wanted the Claimant to lose his shares, but had understood there to be no real alternative to resolving to forfeit if the Claimant did not pay; he felt himself to be locked into a process which, on the advice received, required him to make a decision he did not want to make.

Mr Bevan in paragraph 10 of his witness statement also confirmed that there was a discussion about what would happen if the Claimant failed to pay for his shares by 2^nd November. He further stated that “we unanimously agreed that if the Claimant failed to pay the sum of £300 by 2 November 2002 the forfeiture procedure should be followed. It was agreed that as before Tim Cookson and Vic Tippins would hold the necessary statutory meetings.” He specifically re-confirmed the first of those sentences in cross-examination [TPT 27.2.04 p30]. He also agreed that if the Claimant did not pay for his shares, there was an inevitability about forfeiture.

As to the discussion on 24^th October, there is also the final paragraph of the minutes prepared by Mrs Tippins. Whilst there is a question as to their accuracy as an indirect record of what had been said on 15^th October, the only qualifications suggested by the Defendants’ witnesses as to their accuracy so far as the discussion on 24^th October is concerned are that there should be a comma or full stop after “advisors” and that the word ‘should’ (immediately before ‘resolve’) ought more accurately to have read ‘could’. On this basis the relevant passage would record as follows “A discussion took place, … concluding that … the directors of [the 3 subsidiaries] should follow the guidance of their professional advisors. If the call remained unpaid, they could resolve that [the Claimant] forfeit his shares.”

The evidence of Mr Martin was also noteworthy in this regard. Having stated that as an accountant he was aware of what a call on shares meant and the process which leads to forfeiture of shares, he added that he was certainly aware “of the procedures and what was the inevitable outcome [if] the shares and calls were not paid” [TPT 26.2.04 p11 lines 2-7]. At the conclusion of his evidence he said in answer to me that he believed that if a shareholder does not pay a call, it was inevitable that forfeiture would follow [p24 lines 30-32]. There is no evidence that Mr Martin ever gave advice to the directors about the forfeiture process as such. However he was in regular contact with them over the relevant period, and if the directors had been advised, or howsoever else become aware, that they had a genuine discretion whether to forfeit in the event of non-payment, the exercise of which they were bound to consider, I think it likely that this would have come up in conversation with Mr Martin. The terms of Mr Martin’s answer about his own understanding of ‘inevitability’ is, therefore, some further indication that the directors had not been advised or become aware that they had a genuine discretion whether to forfeit in the event of non-payment, the exercise of which they were bound to consider. As appears from the preceding paragraphs, the effect of the evidence of 3 of the 4 directors (similarly to that of Mr Martin) was that (save for the possibility of complete inaction), they regarded forfeiture as the effectively inevitable result of non-payment of the second call notice. At least three of them indicated that this was the effect of the legal advice they had received.

Three points should be made about the significance of whatever legal advice had been given to the directors. First, saying what the legal advice was begs the question of what advice had been requested, and on the basis of what instructions. Second, the fact that a certain course of action may have been advised or recommended by lawyers does not divest their clients of responsibility for acting on it, if they choose to do so, nor gives them carte blanche to do that which if not advised or recommended by lawyers would have been improper (cp Re W & M Roith Ltd [1967] 1 WLR 432, cited in Tolley’s Company Law paragraph D3005 (considered further infra) at (ii)). Third, I do not know to what extent - if at all - Mrs Fatani’s suggestion (in her e-mail of 27^th September at para 5 [TB3/218]) that if the 3 subsidiaries got to a stage when neither the first nor the second call notice had been complied she should, in addition to preparing draft board resolutions for forfeiture, “advise you further on the forfeiture process in accordance with the Companies Act” was in the event taken up by her clients. There is nothing in the evidence to suggest that the Defendants obtained legal advice as to the call and/or the forfeiture process from any source other than Mrs Fatani or her firm HSE over the relevant period.

Save insofar as privilege has been waived, it is not for me to speculate as to what advice was sought by or given to the directors about any possible resolution to forfeit after the initial advice given orally prior to the 26^th September and by e-mail of the following day [TB3/218], and on what instructions. Amongst the documents in which privilege was waived was a short e-mail from Mrs Fatani to Mr Tippins dated 15^th October [TB3/229]. Its primary function was to enclose the draft of what became the second call notice, for use “if payment has not been received in the meantime.” In the present context, however, its second paragraph is noteworthy : “Before the shares can be forfeited you need to pass a board resolution. I will prepare this for you a few days before 2 November so the paperwork is ready in the event payment is not received on the due date.” This does not cause me to believe that the 4 directors (contrary to their evidence) either desired to forfeit the Claimant’s shares or had already made a firm decision to do so in the event of non-payment of the second call notice. However, bearing firmly in mind the need to guard against speculation which I have just mentioned, it does seem to me if anything to suggest an assumption on the author’s part that such non-payment would be followed by a resolution to forfeit as a matter of course : it makes no reference to any other possible course of action, and provides for the “paperwork” for such a course to be prepared before the time for payment has expired. In any event, whatever the reason or cause, I find it to be clear from the evidence that the 4 directors agreed upon proceeding to a forfeiture of the Claimant’s shares in the event of non-payment without giving any consideration to (and quite possibly without even being consciously aware of) any alternative course of action (other than inactivity) available to them, or to the existence of a genuine discretion as to whether to forfeit, the exercise of which they were bound to consider.

They were aware, at least in general terms, that they had to pass another resolution to forfeit the Claimant’s shares (and hence that forfeiture was not the automatic consequence of non-payment), but only on the very limited basis that there was the alternative of doing nothing. They proceeded on the basis that, having received legal advice to proceed to forfeiture in this event (or on the understanding that such was the effect of their legal advice), they had no real alternative but to do so.

In many cases the obvious alternative would have been to issue proceedings to recover by means of a money judgment the capital and interest due under the terms of the call. Palmer’s Company Law, op. cit., at paragraph 6.212 states :

“It is now common to sue for a call on a specially indorsed writ. After judgment has been obtained against the defaulting shareholder the company can, if needs be, proceed against him in bankruptcy, or, if it has these powers in its articles, declare his shares as forfeit.”

However in the unusual circumstances of this case, where raising the capital was not the purpose of the call, and where the amount is so modest that the cost of prosecuting such a claim even under the Small Claims Track in the County Court would be thought by many to be uneconomic or disproportionate, Mr Griffiths (realistically in my view) does not rely on this as a course which any reasonable boards of directors would have considered.

Mr Griffiths does however put forward a number of other alternative courses of action which he submits could reasonably have been taken, and therefore should at least have been considered by the boards before making a decision to forfeit :

Whilst at first blush a number of these suggestions may come across as improbable or unconvincing, where ex hypothesi the companies concerned had already gone through the formal 2 stage process laid down by Regulations 2 – 18 of Table A, in fairness to Mr Griffiths’ submission they have to be considered against the background of the unusual circumstances mentioned in paragraph (161) above. Even so, given that the Claimant had declined to reply to a telephone call (in which an answer-phone message was left) from Mr Tippins on 19^th September, having declined to speak with Mr Cookson the previous week, and that normal communications between the Claimant and the majority had broken down more generally, I do not consider alternative (i) to have been a realistic alternative requiring consideration by any reasonable board of directors in the circumstances of this case.

As to SSS, a company whose business and assets had already been sold, and whose informal (and solvent) winding-up was already underway, I consider that alternative (v) did require serious consideration. Forfeiture of shares in such circumstances is a particularly harsh course. Not only would alternative (v) have been short, quick and economic to implement, being effectively self-executing once the letter has been sent, but also, as a matter of common sense, it seems probable that it would have proved highly effective in bringing about prompt payment even from an awkward or bloody-minded person such as the Claimant. Although the Claimant had not made payment in response to either of the 2 call notices, that was in the context that he had not been told the reasons for the call, and had not acknowledged receipt of the second call notice. Given that conclusion in respect of alternative (v), I do not have to reach a firm view in respect of alternatives (ii), (iii) and (iv). In the circumstances of a conventional call, alternatives (ii) and (iii) would not impress me, as amounting to a self-imposed requirement for an extra or third warning, when the procedure under the Articles of Association provides for two. However in the circumstances of the present case there is something to be said for them. Alternative (iv) possibly merited consideration in the present circumstances, although it is more contrived than alternative (v), with little that I can detect by way of countervailing advantages over it.

Turning to the law, Mr Griffiths submits that the directors, in agreeing to or deciding on forfeiture, neglected to take into account matters which they ought reasonably to have taken into account, and that on such ground their decision can be set aside. This language is of course familiar in the context of the so-called Wednesbury principles (Associated Provincial Picture Houses v Wednesbury Corporation [1948] 1 KB 223). He refers to paragraph D3005 of Tolley’s Company Law supra, which is too lengthy conveniently to set out within the body of this judgment, but is very much in point and should be treated as here incorporated en bloc. He also relies on 3 cases, cited in paragraph D3005, to which I now turn.

In Re A Company, ex parte Glossop [1988] BCLC 570, Harman J had before him an application to amend a petition for relief under ss459-461 CA85 and in the alternative for a just and equitable winding-up, to add allegations concerning the directors’ failure (as it was alleged) to recommend payment of a dividend. In the event it succeeded in part (as to the claim for the latter relief only). At p577 d-i Harman J said :

“It is, in my judgment, vital to remember that actions of boards of directors cannot simply be justified by invoking the incantation ‘a decision taken bona fide in the interests of the company’…. If it were to be proved that directors resolved to exercise their powers to recommend dividends to a general meeting … without regard to the right of members to have profits distributed so far as was commercially possible, I am of opinion that the directors’ decision would be open to challenge. This is an application, in a sense, of the principle affirmed in so many local government cases and usually called ‘the Wednesbury principle’…”

In Byng v London Life Association [1990] Ch 170 CA, the defendant company’s AGM was convened at a location which proved of wholly inadequate capacity for the number of members who attended. The Chairman adjourned the meeting until later that day at a different location with a greater capacity. The Court first held that in any circumstances where there is a meeting at which the views of the majority cannot be validly ascertained, the chairman has a residual common law power to adjourn “so as to give all persons entitled a reasonable opportunity of voting” and speaking (see at 188 per Sir Nicholas Browne-Wilkinson V-C). The question then arose of whether the Chairman exercised that discretion validly. As to that the Vice-Chancellor said (at 189):

“The chairman’s decision will not be declared invalid unless on the facts which he knew or ought to have known he failed to take into account all relevant factors, took into account irrelevant factors, or reached a conclusion which no reasonable chairman could have reached, i.e. the test is the same as that applicable on judicial review in accordance with the [Wednesbury principles]”

For the decision on the facts see at 190-191; see also per Mustill LJ at 194 and Woolf LJ at 194.

Mr Griffiths also referred me to Equitable Life Assurance Society v Hyam [2002] 1 AC 408. I note the dicta of Lord Woolf MR at pp416-417 (paragraphs [17]-[21]) in the Court of Appeal, which are valuable in the context of this question. These should be treated as here incorporated en bloc.

Mr Davies submits that the suggestion that a decision of a board of directors could be invalid if taken by directors labouring under some mistake of fact or law is a radical proposition. He argues that directors of companies must frequently make decisions without a full and/or accurate understanding of the relevant factual or legal position and that it cannot be correct that all such decisions are invalid. He accepts that a mistake in the context of a decision taken to enter a contract may have consequences as a matter of contract law, but submits that there is no basis for contending that the decision itself is invalid as an exercise of the directors’ power to manage the affairs of the company.

He seeks narrowly to confine each of the 3 cases (or dicta from cases) considered above to their particular factual circumstances, and submits that the editor of and contributors to Tolleys Company Law responsible for paragraph D3005 have seriously overstated the position.

In view of Mr Davies’ somewhat in terrorem submission, I have considered the current position in relation to decisions of trustees. In doing so I have firmly in mind that the analogy between directors (who are fiduciaries) and trustees as such is not an exact one : see Gower and Davies, op. cit., at pp380-381. Provided that point is borne in mind, however, there is in my view some value in making this comparison.

The relevant modern trustee cases generally involve consideration of the application and ambit of what is often referred to as the rule in Hastings Bass (Re Hastings Bass [1975] Ch 25 – which it may be noted concerned a private trust, not a pension trust). The case of Stannard v Fisons Pension Trust [1991] PLR 225 CA concerned, as its name suggests, trustees of a pension fund. The relevant passage is at paragraphs [34]-[39] of the judgment of Dillon LJ. He cites an earlier unreported decision of the Court of Appeal, in which a decision of pension trustees was held ineffective because they had failed to give a properly informed consideration to the subject claim for incapacity benefit. A finding that, if the trustees had taken into account the matter which they had not, it might materially have affected their decision had been sufficient for their decision to be held ineffective (see paragraph [36]). The Stannard case itself was similarly resolved, applying the ‘might materially have affected’ test (see paragraph [39]). The applicability of that test, rather than the tougher ‘would’ test suggested by Hastings Bass itself, was supported by Lawrence Collins J in AMP (UK) v Barker [2001] PLR 77 at 96, another pension trust case, in paragraph [90] of his judgment.

Edge v Pensions Ombudsman [2000] Ch 602 CA (cited by Lord Woolf MR in paragraph [17] of his judgment in Equitable LifeAssurance Society v Hyamsupra) was again a case concerning pension trustees. The judgment of the Court was given by Chadwick LJ. The relevant passage runs from 627E to 630G. He referred (at 627E) to

“the ordinary duty which the law imposes on a person who is entrusted with the exercise of a discretionary power: that he exercises the power for the purpose for which it is given, giving proper consideration to the matters which are relevant and excluding consideration matters which are irrelevant.”

Having cited a decision of Carnwath J in which the learned judge had observed that the principles applicable to valid decision making by pension trustees were virtually identical to the so-called Wednesbury principles (see at 629C), Chadwick LJ went on to say (at 628D):

“It seems to us no coincidence that the courts, considering the exercise of discretionary powers by those to whom such powers have been entrusted (albeit in different contexts), should reach similar and consistent conclusions; and should express those conclusions in much the same language”

and went on to cite extensively from Lord Greene MR’s judgment in the Wednesbury case, supra. It is right to add that at the end of that citation Chadwick LJ went on to draw a comparison between the grounds on which the pension trustees in that case were chosen and Lord Greene MR’s exposition of the reason why Parliament entrusts local authorities with various discretionary powers (see at 630B-C).

The Hastings Bass principle as it now stands in light of subsequent cases was concisely summarised by Etherton J in Hearn v Younger [2002] WTLR 1317 (another pension trust case) at 1338, paragraph [86] thus :

“a decision of trustees to exercise a discretion will be void if (a) the trustees have failed to take into account a material consideration, and (b) that consideration might have materially affected their decision”.

In using the word ‘void’ rather than ‘voidable’, Etherton J was agreeing with the earlier observations on that point of Lawrence Collins J in AMP (UK) v Barker supra, again in paragraph [90] of his judgment.

Abacus Trust v Barr [2003] Ch 409 Lightman J, like Hastings Bass itself, concerned a private trust, not a pension trust. The learned judge considered the present state of the rule in Hastings Bass in paragraphs [16]-[20] of his judgment, and concluded that “the choice between the two criteria [‘would’ or ‘might’ have taken a different decision] remains open”, citing Scott v National Trust [1998] 2 All ER 705, 718. Later he went on to consider the ‘void’ or ‘voidable’ question in paragraphs [28]-[33] of his judgment. Contrary to the views of inter alios Etherton and Lawrence Collins JJ mentioned above, Lightman J concluded that “A successful challenge made to a decision under the rule [in Hastings Bass] should in principle result in the decision being held voidable and not void.”

In the company law context Mr Griffiths submits that a decision made by directors who have failed to take into account a material consideration in breach of the Wednesbury principles is ‘unconstitutional’ in the language of Lord Wilberforce in Howard Smith v Ampol Petroleuminfra, adopted by Dillon LJ in Lee Panavision v Lee Lightingsupra at 29i-30g. However that language, even if applicable to such cases, does not expressly address the ‘void’ or ‘voidable’ distinction. Looking back at two of Mr Griffiths’ main cases on this point, in the passage from Re A Company, ex parte Glossop cited supra Harman J spoke of decisions being ‘open to challenge’. I am confident he was not contemplating such decisions being void even without being set aside by the Court. The language used and relief granted in Byng v London Life Associationsupra (the chairman’s decision to adjourn was said and declared to have been “invalid” and a declaration made that the proceedings conducted at the resumed and relocated meeting were “invalid and of no effect” (see at 191 per the Vice-Chancellor)) does not unambiguously address the distinction.

Finally on this issue, Mr Davies cites Charterbridge Corporation v Lloyds Bank [1970] Ch 62. In that case Pennycuick J’s primary ruling was that in construing the ambit of purposes and powers expressly provided for by a company’s Memorandum of Association (for the purposes of an issue as to ultra vires), there should be no implied limitation by reference to the state of mind of the directors dealing with the transaction (see at 74B). Pennycuick J then went on to consider (in case his primary ruling was wrong) the consequences of an earlier finding which he had made that the directors had failed to give separate consideration to the benefit of the particular company concerned (as opposed to its group as a whole) (see at 74C). The effect of the passage in his judgment which follows (74C-75B) is that provided an intelligent and honest man in the position of a director of the relevant company could, in the whole of the existing circumstances, have reasonably believed that the transactions were for the benefit of the company, the decision would not be set aside notwithstanding the earlier finding I have mentioned. This cannot be directly equated with the ‘would’ test considered in the trust cases mentioned above, but it is certainly the application of an objective test to uphold a decision which had been made without taking into account a material consideration (the benefit to the particular company concerned).

In the absence of any clearer guidance on the ‘void’ or ‘voidable’ question in the context of company law, and in particular decisions of directors, in any of the cases cited to me on this point, I conclude that the appropriate legal consequence of a relevant failure by directors to take into account a material consideration is voidability. Pragmatic considerations undoubtedly point in favour of relief in such cases being discretionary. This fits in with the judgment of Pennycuick J in Charterbridge Corporation v Lloyds Banksupra. This would also appear to accord with general principles in relation to what in old fashioned language would have been described as ‘fraud on a (directors’) power’ (as to which I note the observations of Helsham J in a New South Wales case Provident International Corporation v International Leasing Corporationinfra, citing Dixon J at 439 [32]-[35], and then in the passage I cite in paragraph (196) below), and is consistent with the views of Lightman J in Abacus Trust v Barrsupra, the most recent of the series of trustee cases discussed above.

Thus, as the directors’ decision to forfeit the Claimant’s shares is (subject to locus standi) voidable not void, I must go on to consider the ‘would’ or ‘might’ question for the purposes of deciding whether the resolution to forfeit should be set aside, in case it makes a material difference on the facts of this case.

Mr Davies points out that because this point was not pleaded, none of the 4 directors dealt with how they would have decided the forfeiture issue if they had been conscious of the existence of a genuine discretion as to whether to forfeit, and duly considered the alternative courses of action (beyond mere inactivity) available to them, in their witness statements. Nor were they cross-examined as to such. This is correct, though it is a by-product of the way in which the factual basis for this particular point emerged during the course of the trial. He submits that in these circumstances it would be unfair to assume against the directors that they would have acted differently. That submission is only applicable to the application of the ‘would’ test. Further, if the ‘would’ test is the one which should be applied, what this submission amounts to is a warning against assumption and perhaps also against speculation without a sufficient evidential basis; such a warning is a proper one. That said, any finding as to how a person or persons would have acted in hypothetical circumstances can only be a matter of inference to be determined from all the circumstances (Allied Maples v Simmons & Simmons [1995] 4 All ER 907 per Stuart-Smith LJ at 915d). Further, there are considerable inherent limitations to the value of witnesses’ evidence, albeit honest and well-intentioned, as to what they would have done in hypothetical situations; a fortiori where they have any sort of interest in the outcome.

Mr Davies submitted that so far as the ‘would’ test is concerned, the appropriate finding looking at the evidence overall is that the directors would have decided to proceed to forfeiture in any event. He referred in particular to Mr Farrier’s answers in cross-examination at TPT 26.02.04, p31. I have already quoted some passages from that page of the transcript in paragraph (154) above. I find Mr Farrier’s evidence helpful on this hypothetical question, but it does not point me towards the same conclusion as that which Mr Davies urges. I am confident that Mr Farrier at least (the witness who described his ‘sinking feeling’) would almost certainly have preferred a sensible and constructive alternative to forfeiture (such as alternative (v) mentioned in para. (162) above) had one been considered by him, and I so infer. I do not consider that his earlier answer about following a process through having started it undermines such an inference. In the hypothetical circumstances now under consideration, one approaches the question on the assumption that (assuming the directors would have received legal advice and would have had that it in the forefront of their minds) they would have been advised that in the event of non-payment within the time limited by the second call notice served pursuant to Regulation 18 of Table A, they had a genuine discretion as to whether to forfeit, and should consider the realistic alternative courses of action available to them (as to which see paragraph (162) above). If the ‘would’ test rather than the ‘might’ test should be applied, in all the circumstances of the case the inference I draw, applying the balance of probabilities, is that the board would have made a different decision, in particular with regard to SSS. I believe they would have been anxious to preserve unanimity, and Mr Farrier’s desire to avoid forfeiture if possible would therefore have been influential. This inference is also consistent with the directors’ own case as to purpose (which I have accepted), namely that in the case of SSS their purpose was to get the Claimant to pay the nominal or par value for his shares, in order thereby to facilitate the expeditious and efficient completion of the informal winding-up process, as well as (in common with Acquire and EAT too) as a matter of corporate ‘good housekeeping’ (see paragraph (61) above).

The ‘might’ test is of course an objective one. Applying this test, I have no hesitation in finding that the directors might have made a different decision, i.e. one other than to proceed to forfeit the Claimant’s shares, had they been conscious of the existence of a genuine discretion as to whether to forfeit, and duly considered the alternative courses of action (beyond mere inactivity) available to them.

Thus in the event, on the historical and hypothetical facts of this case as I find them, both the ‘would’ and the ‘might’ test lead to the same, affirmative answer. In these circumstances it is unnecessary for me further to investigate yet another legal issue in order to determine which of these tests should be applied in the present context, and I shall not do so.

Before leaving this issue, however, I would add a more general observation. As Palmer’s Company Law, op. cit., at paragraph 6.903 explains, “Forfeiture is treated very strictly by the courts, and directors seeking to enforce it must pursue exactly the course of procedure marked out by the articles. A slight irregularity is as fatal as the greatest.” The authors go on to give examples of in relation to procedural and formal defects. It would in my view be odd and regrettable if the law were to take that approach with regard to procedural and formal defects, yet turn a blind eye to a serious flaw in the substantive decision making process.

It occurs to me that there may be other ways of analysing or expressing the legal implications of the same underlying point, in particular :

However for the reasons I have given I accept Mr Griffiths’ submission on this issue in any event. The directors’ decision to forfeit was flawed for neglecting to take into account matters which they ought to have taken into account, is one which would or might have been different but for that flaw, and is therefore voidable. In my judgment on the facts of this case such decision should be set aside, at least in respect of SSS, subject to the Claimant having locus standi on the matter. As to this, see issue 10 below. This is a convenient point for me to mention that the need for a Claimant to have locus standi to seek to invalidate a particular decision of a board of directors would appear to be one important reason why there is not and should not be a flood of such claims. In most circumstances the status of shareholder without more will not give such locus standi. Attempts to use derivative actions to circumvent absence of locus standi and to pursue claims seeking to impugn decisions of boards of directors will not, where inappropriate, survive the procedural hurdle which they will face immediately after the issue of proceedings, namely the need for the court’s permission to continue the same : CPR 19.9(3).

As for the decisions to forfeit in Acquire and EAT, the case for saying that the directors were bound first to consider alternatives other than mere inaction is not as strong. However given the conclusion I have reached in respect of the decision to forfeit the Claimant’s shares in SSS, and that in reality the decisions in respect of the 3 subsidiaries were made together throughout, I have concluded that it would be artificial to uphold the validity of what in reality was one decision as regards shares in two companies whilst simultaneously setting it aside as regards shares in the third, SSS. If the directors had decided to take another course in respect of the Claimant’s shares in SSS, I find it hard to imagine that they would nevertheless have proceeded to forfeit his shares in Acquire and EAT and the inference I draw, applying the balance of probabilities, is that they would not have done so.

For completeness I would add that if the decision to forfeit the Claimant’s shares pursuant to Regulation 19 of Table A had not been flawed, I would not have found there to be any flaw in the consequential resolution pursuant to Regulation 20 to transfer the forfeit shares to SVSP. However if the decision to forfeit pursuant to Regulation 19 is to be set aside, the consequential decision pursuant to Regulation 20 must fall with it.

In conclusion on this point, I would observe that there is some irony in the fact that the Claimant’s ultimate success on this point, which only emerged during the course of the trial, is largely founded upon what I have found to be the scrupulously honest evidence on the point given by the 4 directors.

The one relevant issue which I have answered in the affirmative is issue 9(ii) above. As to that, therefore, I have to consider Mr Davies’ submission that the Claimant does not have standing in these proceedings to pursue his claims, which Mr Davies in effect submits are all one way or another in the nature of claims for breach of fiduciary duty. He rightly submits that, as a general starting point the fiduciary duties of a director are, in principle, owed to the company of which he is a director, and not to the individual shareholders in that company, citing Percival v Wright [1902] 2 Ch 421.

Particularly given the considerable length of this judgment, I will not follow Mr Davies down the ultimately rather sterile, though understandable and doubtless forensically satisfying, path of going through the less felicitous formulations which have been put forward of the legal basis for the Claimant’s case on locus standi, and then exhaustively analysing their flaws. In my judgment the Claimant’s best point in respect of this issue is that on authority the Claimant has a direct personal or representative right to bring a claim to set aside the forfeiture of his own shares. In opening the case Mr Griffiths put this submission in the context of a claim brought on the grounds that the directors’ decision to forfeit was invalid by reason of an improper purpose. However if that is right, then it seems to me that the same must follow in relation to such a claim brought on the grounds that the directors’ decision to forfeit was invalid by reason of a failure to take into account matters which they ought to have taken into account, as mentioned under issue 9(ii) above. Discussion of whether such a direct right is to be regarded as a ‘representative’ (rather than ‘personal’) one is not germane on the facts of this case because in the case of all 3 subsidiaries the Claimant is the only shareholder affected by the decisions to forfeit and indeed by the underlying call, and therefore he alone is the whole body of affected shareholders.

In my judgment, of the cases cited to me that most directly in point is Sweney v Smith (1869) LR 7 Eq 324, a decision of Lord Romilly MR. The case was one brought by an individual shareholder in a company called (for short) Spence. The primary claim was that the purported forfeiture of the plaintiff’s shares in Spence, and of those of “all persons in a similar position with him”, might be declared void and cancelled (see at pp324 and 326 – the facts strongly suggest that, as in the present case, the plaintiff was the only person in a similar position); originally there had also been a claim to set aside two purchases of patents as ultra vires, but in argument the plaintiff seems to have indicated that (provided he regained the status of shareholder) he was content for the decision whether to proceed with those purchases to be made by the shareholders (see at p328) and comparatively little was said about this claim in the judgment. Though the report of the argument for the defendants on the primary claim is very short and plainly (from the judgment at p333) incomplete, it seems clear that the very point which Mr Davies takes here was taken for the defendants in that case. The Master of the Rolls said (at pp332-333) :

“It is necessary, however .. to consider the objections the Defendants make to the cancellation of the forfeiture. On the merits they have said little; indeed there is not much to be said … But many technical reasons are alleged against it … The third objection, that the suit is not in the name of the company is a more serious objection, but it does not apply to the question of forfeiture; it applies to the other branch of relief which the bill seeks.” (underlining added)

The words I have underlined directly answer Mr Davies’ point on locus standi. I do not accept his argument that the reasoning is dependent on (as he asserts) the refusal of a tendered payment meaning that the forfeiture had not been carried out validly under the Articles of Association, and that the Master of the Rolls’ ruling on this point was because the shareholder had an action against the company for breach of the contract between them constituted by the Articles of Association (now reflected in s.14, CA85). Were it so, one might have expected those points to be at least mentioned, however briefly, in the judgment (the brevity of the report of the plaintiff’s argument on p328 greatly weakens any similar point made in relation to that). I would also observe that the words underlined appear unsurprising, given that a resolution to forfeit directly expropriates the property of the shareholder(s) affected, in contrast to most resolutions of directors, which directly affect the company’s property or other interests and only indirectly (via the value of their shareholding) those of the shareholders.

More recent cases, though not concerning resolutions to forfeit, tend to support the decision on this point in Sweney v Smithsupra. Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821 was a decision of the Privy Council, on appeal from Street J (as he then was) sitting in the Equity Division of the Supreme Court of New South Wales. Ampol brought a successful claim in the Supreme Court to set aside an allotment of shares by the directors of RW Miller (Holdings) Ltd (“Miller”) and for consequential rectification of Miller’s share register. Ampol and another company called Bulkships with which it was associated, between them held c.55% of the shares in Miller. The allotment which was challenged had the effect of diluting that combined holding to 36.6%. Street J found that although Miller had needed capital, and although the directors who resolved to make the challenged allotment to Howard Smith (a company which had announced a take-over bid for Millers, which Ampol and Bulkships had rejected) had not been motivated by any purpose of personal gain or advantage, nor by a desire to retain their own positions on the board, their primary purpose was to reduce the proportionate shareholding of Ampol and Bulkships, so as to enable Howard Smith’s take-over bid to proceed. Such a purpose was outside the constitutional role of the directors of a limited company, and therefore the exercise of their power to allot was invalid and set aside. The plaintiff in the suit was Ampol, and the defendants Howard Smith (the allotee), Millers, 11 directors and Millers’ registrar. Having accepted that an allotment of shares was within the directors’ powers under Millers’ Articles of Association (clause 8), Lord Wilberforce giving the opinion of the Privy Council said (at 834 and then 837):

“intra vires though the issue may have been, the directors’ power under this article is a fiduciary power: and it remains the case that an exercise of such a power though formally valid, may be attacked on the ground that it was not exercised for the purpose for which it was granted”…. (continuing at 837) “Just as it is established that directors, within their management powers, may take decisions against the wishes of the majority of shareholders, and indeed that the majority of shareholders cannot control them in the exercise of these powers while they remain in office … so it must be unconstitutional for directors to use their fiduciary powers over the shares in the company purely for the purpose of destroying an existing majority, or creating a new majority which did not previously exist. To do so is to interfere with that element of the company’s constitution which is separate from and set against their powers.”

For the immediate purposes of this case, the key point is that the successful plaintiff, Ampol, brought the case in its own name and not as a derivative action (the company, Millers, was one of the defendants, though it seems that only Ampol and Howard Smith took an active part in the proceedings before the Privy Council). Lord Wilberforce observed (at 838) that “It was not disputed that an action to set aside the allotment and for rectification of the register was properly brought by Ampol as plaintiff”. However there is nothing to indicate that Lord Wilberforce felt that this point should have been disputed, or that such a dispute if raised would have succeeded. Mr Davies correctly points out that the report of the action at first instance before Street J sub. nom. Ampol Petroleum v RW Miller Holdings and ors. [1972] 2 NSWLR 850 contains no indication that Ampol’s locus standi had been disputed below, either.

The industry of Mr Griffiths, however, has unearthed a possible explanation. He draws to my attention that one of the numerous cases cited to Sir Laurence Street in the Ampol case which were dealt with in the unreported part of his judgment was another decision of the Supreme Court of New South Wales made only 3 years earlier, Provident International Corporation v International Leasing Corporation [1969] 1 NSWLR 424, Helsham J. This was another case in which a shareholder sued in his own name to set aside an allotment of shares to others. Before trial the defendant had filed a demurrer to raise the issue that Provident was not a proper plaintiff, which demurrer was over-ruled by Street J on 1^st September 1967 in an unreported judgment. At trial, Helsham J nevertheless permitted the defendant to demur ore tenus which in general terms (pace the more precise analysis of Helsham J at 427[15]-[48]) had the effect that the defendant was able to take a locus standi point again (see at 426 [46] – 427[15]). The locus standi point again failed. Helsham J said (at 439[50]-[54] in connection with the claim to set aside, and then at 441[2]-[5] in connection with the claim to rectify the register):

“the rule in Foss v Harbottle supra does not apply in the case of a fraud on the powers of directors at any rate where the abuse of power concerns a purported issue of shares, and I am of the opinion that this is so where the fraud consists of no dishonesty but a mere attempt to use the power for purposes other than that for which it is given …” (continuing at 441) “… there is not the slightest doubt that no restriction of the nature of the rule in Foss v Harbottle is placed on a shareholder’s action if he relies on his statutory right to rectify the register … although exactly the same issues will be involved.”

Finally on this issue, Mr Griffiths cited dicta of Hoffmann J (as then was) in Re a Company (No 005136 of 1986) [1987] BCLC 82. I have in mind (as Mr Davies rightly submits) that this was a case brought under s.459 CA85, that the central allegation was that directors had breached their fiduciary duties by the improper exercise of the power to allot shares, just as in Howard Smith v Ampol Petroleumsupra, and that the result of the application before Hoffmann J, namely that the petitioner was not entitled to an indemnity from the company for his costs, was entirely consistent with the orthodox approach to costs in the context of s.459 petitions. Hoffmann J said (at 84d-85a):

“Although the alleged breach of fiduciary duty by the board is in theory a breach of its duty to the company, the wrong to the company is not the substance of the complaint. The company is not particularly concerned with who its shareholders are. The true basis of the action is an alleged infringement of the petitioner’s individual rights as a shareholder …. Professor Gower in his Principles of Modern Company Law … distinguishes between the derivative action and the member’s personal action. The former is brought when-

“a wrong has been done to the company and action is brought to restrain its continuance, or to recover the company’s property or compensation due to it.”

In such a case, says Professor Gower, the company is the only true plantiff. In the member’s personal action the dispute is an internal one between those interested in the company. A shareholder in such an action may sue as representative of himself and other shareholders who have identical interests but he does not in substance assert a right which belongs to the company alone. It is perhaps worth observing that in cases concerning the improper allotment of shares like Howard Smith Ltd v Ampol Petroleum Ltd there is no suggestion that the plaintiff sues on behalf of the company or in any capacity other than individual shareholder.”

Although for the reasons submitted by Mr Davies I entirely accept that the above passages must be regarded as obiter dicta, nevertheless they are of course extremely persuasive, and in my judgment are entirely consistent with the other authorities I have already cited on this issue

If a shareholder has the right to sue in his own name to set aside a decision of directors to make an allotment which has had the effect of diluting his shareholding and thereby reducing its value, one would surely expect a right to sue in his own name to set aside a decision of directors to forfeit his shareholding to follow a fortiori. The substance of a claim to set aside a forfeiture of shares, such as the present, is indeed an alleged infringement of the claimant’s individual rights as a shareholder; it is not in substance a claim where a wrong has been done to the company, which needs to restrain its continuance, or to recover its own property or compensation due to it, nor a claim where the rights infringed belong to the company alone.

I conclude that the Claimant has locus standi and is entitled to rely on the point at issue 9(ii) above in his own right.

In these circumstances I do not need to consider Mr Griffiths’ alternative submissions in respect of what he also called a representative action. Nor do I find it necessary to analyse the extent to which the various submissions for the Claimant under this head are properly to be regarded as exceptions to the rule in Foss v Harbottle (1843) 2 Hare 461, as conveniently restated by the Court of Appeal in Prudential Assurance v Newman Industries [1982] Ch 204 at 210 (as opposed to not being within the scope of that rule in the first place). For the reasons I have just given, I would reject his further alternative submissions in respect of a possible (if somewhat last minute) conversion of these proceedings into a derivative action as inappropriate and unnecessary.

This is not a case where the forfeiture is void ab initio by virtue of some formal invalidity underlying it, such as Garden Gully United Quartz Mining v McLister (1875) 1 App Cas 39, a decision of the Privy Council on appeal from the Supreme Court of Victoria (in Equity) cited by Mr Griffiths, where a number of members of the board of directors which passed the resolution to forfeit had not been duly elected in the first place.

This is a case where I have found the resolution for forfeiture to have been voidable for the reasons considered under issue 9(ii) above, and have decided that it is appropriate in all the circumstances for it to be set aside. Given the roles in SVSP of the directors of the 3 subsidiaries, SVSP took the transfers of the claimant’s shares with full knowledge of the material facts and circumstances which have led in law to the voidability and setting aside of the forfeiture. It is fixed with notice that the resolutions to forfeit were passed without taking into account matters which ought to have been taken into account. It is in no stronger position to retain the Claimant’s shares than Howard Smith was to retain the newly allotted shares in the Ampol case : see per Street J at [1972] 2 NSWLR 850, 882G-883G). SVSP has properly been a defendant to these proceedings throughout, as transferee of the claimant’s shares. In these circumstances I can detect no right in SVSP to resist an order effecting the transfer of the claimant’s shares back to him. Once that has happened, Mr Davies’ submissions do not appear to raise any further objection to a consequential rectification of the register pursuant to s.359 CA85.

However given the complexities of the case, and the considerable attention to detail which is apparent in counsel’s submissions to date, I will hear counsel further on the exact form which my order should take. Given that this is a case in which the Defendants have succeeded on more or less all disputed issues of fact, yet the Claimant has in the end won on a point which emerged during the course of the trial, they will no doubt also wish to address me on the issue of costs in any event.