Franbar Holdings Ltd v Casualty Plus Ltd

This is the trial of preliminary issues concerning the calculation of the price of a call option exercised by Casualty Plus Limited, the defendant company, on 1^st April 2009 to buy the shares of Franbar Holdings Limited, the claimant, in Medicentres (UK) Limited (“the Company”). The issues involve the application, in the events which happened, of provisions of a Shareholders’ Agreement dated 28^th July 2005 (“the Agreement”) made between the Company, the claimant and the defendant. Master Price ordered the trial of the preliminary issues on 13^th July 2009.

The first issue is whether the price for the shares should be calculated by reference to the accounts of the Company for the year ended 31^st December 2005 (“the 2005 accounts”) or by reference to the accounts for the year ended 31^st December 2006 (“the 2006 accounts”).

The second issue only arises if the first issue is determined in favour of the 2005 accounts. It is whether the EBITDA (earnings before interest charges, taxation, depreciation and amortisation) is the sum of £524,830 set out in the chairman’s statement to the 2005 accounts.

The Agreement was entered into at the time when the defendant acquired 75% of the shares in the company. The claimant retained the other 25%. Under the terms of the Agreement, the claimant and the defendant each nominated two directors of the Company; one of the claimant-nominated directors had to be Mr Karim Lalani. The defendant had power to nominate a third director and in any event the chairman, nominated by the defendant, had the casting vote in the event of equality of votes. The directors had a brief to protect the interests of the shareholder which respectively had nominated them. Their roles were not always clearly defined as between members and directors. They also acted as the nominating company’s representative when considering shareholder issues. Although each nominee understood that he owed duties to the Company as a director, each acted as a representative of his nominating company, acted on its instructions and reported back to it.

The Agreement contained both a put option and a call option, respectively enabling the claimant to require the defendant to purchase, and enabling the defendant to require the claimant to sell, the claimant’s 25% shareholding to the defendant.

The claimant and the defendant fell out at the end of October 2007 which led to the claimant commencing these proceedings against the defendant in March 2008, alleging several breaches of the Agreement. The claimant also presented an unfair prejudice petition in relation to the Company, alleging minority oppression arising out of broadly the same facts. That petition has been ordered to be heard together with this action. The claimant says that it and its nominated directors, Mr Lalani and Mr Olbrich, have been excluded from any involvement in the Company’s business since the end of October 2007.

This action is notable in that the two directors nominated by the defendant company, Mr Patel and Dr du Plessis, have been sued by the claimant but have also fallen out with the defendant and have given evidence on the preliminary issues for the claimant.

There have been interim applications before Mr William Trower QC sitting as a deputy Judge of this Division. At one hearing, in June 2008, the defendant produced draft accounts for the Company for the year ended 31^st December 2006. The claimant’s unchallenged assertion was that this was the first time that its representatives saw any accounts of the Company for that year. Those accounts underwent amendment and were, unknown to the claimant, signed and filed as the 2006 accounts at Companies House on 14^th July 2008. On 28^th July 2008 the defendant entered into a Company Voluntary Arrangement under Part I of the Insolvency Act 1986. The finalised 2006 accounts were produced at a subsequent hearing before Mr Trower QC in October 2008.

On 1^st April 2009 the defendant served a notice which (the parties having extended the effective date for the exercise of the call option by agreement) it is common ground was an effective exercise of the call option. Thus to some extent the proceedings were overtaken by events and the trial window, fixed for 2^nd to 24^th July 2009, was vacated. However the parties could not agree as to the price to be paid for the claimant’s shares. The claimant applied to amend its action to raise the issues about the price; the Master permitted the amendment and ordered the preliminary issues.

Schedule 3 to the Agreement is headed “Determination of Option Price”. Paragraph 2 provides as follows:

“The Option Price will be determined by reference to the EBITDA set out in or determined by reference to the Company’s the [sic] most recent audited annual accounts as have been formally adopted by the Company immediately prior to the exercise date.”

Paragraph 3 provides,

“The amount of the Option Price per share will be the Company’s Adjusted EBITDA, multiplied by nine and finally divided [by] the total number of Shares in issue at the exercise date specified in the relevant Option Notice.”

‘EBITDA’ is defined (Schedule 3 paragraph 1) as follows:

“Earnings before interest charges, taxation, depreciation and amortisation as determined by GAAP as amended or updated from time to time”.

‘GAAP’ is defined (Schedule 1 paragraph 2) to mean:

“accounting principles, concepts, bases and policies generally adopted and accepted in the United Kingdom in the preparation of accounts for limited liability companies.”

‘Earnings’ is defined (Schedule 3 paragraph 1) to mean:

“The total profit generated by the Company in the ordinary course of business, excluding exceptional and extraordinary revenues and costs.”

‘Adjusted EBITDA’ is defined (Schedule 3 paragraph 1) to mean,

“the EBITDA adjusted to take account of the factors in paragraphs 4, 5 and 6 of this Schedule 3.”

It is common ground that the factors in paragraphs 5 and 6 do not apply. The only relevant adjustment is therefore that mentioned in paragraph 4. That provides,

“A management fee for providing head office functions and services is to be charged by [the defendant] to the Company and deducted from the EBITDA for the relevant financial year. Such management fee will be in respect of such periods and such amounts as set out in the Business Plan [which formed an appendix to the Agreement].”

Schedule 3 paragraph 7 provides that in the event of “any disagreement about any amount that falls to be calculated under this Schedule 3” such disagreement is to be referred to an Independent Accountant, acting as an expert and not an arbitrator, to determine.

Clause 14.4 of the Agreement provides,

“This document is the entire agreement between the parties and supersedes all other agreements or arrangements, whether written or oral, express or implied, between the parties. No variations of this agreement are effective unless made in writing signed by both parties or their authorised agents.”

The defendant as well as the claimant saw the 2005 accounts and was content with them. It does not seem to be in dispute that the 2005 accounts were annual accounts adopted by the Company within the meaning of Schedule 3 to the Agreement, although in comparing the 2006 accounts Mr Moverley-Smith relied on a lack of formality in that adoption in circumstances to which I shall later refer. The 2005 accounts were not approved until October 2007, and they were signed on behalf of the board by Mr Patel, who had not been a director during the year to which the accounts related. The previous chairman of the board, Mr S Jaffery, (nominated by defendant), had been actively involved in preparation of the accounts prior to his resignation on 8^th August 2007.

An annual general meeting of the company was convened by notice dated 10^th September 2007 for 5^th October 2007. Although no agenda was provided with the letter, I heard evidence and I accept that the four representative directors were aware of the draft 2005 accounts and were aware that it was intended to approve them at the meeting. They were the only persons expected to attend. The draft accounts had been furnished to the claimant’s accountants and they had discussed those accounts in draft with Mr Laine, a director of the claimant, in August 2007. Mr Laine gave uncontradicted evidence that he requested and authorised Mr Lalani to attend the AGM and vote on the claimant’s behalf. No meeting was in the event held on 5^th October as it was agreed by the persons who were to attend that it would be more convenient for the meeting to be held on 8^th October 2007 instead.

The meeting on 8^th October 2007 was attended by all the four nominated directors: Mr Patel, Mr Lalani, Dr du Plessis and Mr Olbrich. Although there is no formal minute and no formal resolution, the accounts for the year ended 31^st December 2005 were discussed and approved in principle. All four men gave oral evidence and all said that the accounts were uncontentious. Certain matters were left outstanding for discussion between Mr Patel and the company’s accountants, relating to treatment of payments which had been made to Mr Jaffrey and Mr Olbrich, matters relating to the going concern status of the business and the wording of a note to the accounts in relation to the defendant’s interest.

After discussion of the accounts the meeting became heated as between Mr Lalani, Mr Olbrich and Mr Patel. However all the evidence points to the conclusion that issues relating to the accounts remained uncontentious. On 19^th October 2007 Mr Patel sent the final version of the 2005 accounts by email to the three other directors, explaining his conversation with the accountants and the changes to the draft made as a result. The email asked for comments as soon as possible. There followed a sequence of emails showing that the claimant’s and the defendant’s representatives were aware of the amendments and consented to them.

Being satisfied that Mr Lalani and Mr Olbrich (and through them the claimant) had approved the 2005 accounts, Mr Patel signed the Chairman’s Report and Dr du Plessis signed the Financial Statements on 26^th October 2007. The 2005 accounts were duly filed with Companies House at the beginning of November 2007. The 2005 accounts were audited by the company’s auditors, Grant Thornton UK LLP, who stated their opinion that they gave a true and fair view of the financial position of the company in accordance with GAAP, had been properly prepared in accordance with the Companies Act 1985 and that the information in the Directors’ Report was consistent with the financial statements.

Mr Moverley Smith pointed out that there had been no formal resolution approving the accounts, either by the shareholders of the Company or by the Board. However, no such resolution was necessary. The important thing was that the two shareholder companies were in agreement, through their nominated directors: see Re Duomatic Limited [1969] 2 Ch 365, Runciman v. Walter Runciman plc [1992] BCLC 1084. Shareholders and directors can make final determination of company matters within their jurisdiction by informal means provided that they are unanimous. Their assent is as binding as a resolution in general meeting or, as the case may be, in a board meeting, would be. As Mummery LJ said in Euro Brokers Holdings Ltd v. Monecor (London) Ltd [2003] EWCA Civ 105,

“What matters is that all the members have reached an agreement. If they have, they cannot be heard to say that they are not bound by it because the formal procedure was not followed. The position is treated in the same way as if the agreed formal procedure had been followed.”

It is clear from Mr Laine’s evidence that Mr Lalani was authorised to consider the 2005 accounts on behalf of the claimant and that unanimous agreement was reached by Mr Lalani, Mr Olbrich, Mr Patel and Dr du Plessis both as directors of the company and on behalf of the claimant and the defendant as shareholders.

On 16^th January 2008 allegations of misconduct were made against Mr Lalani and he was suspended from his employment with the Company on 16^th January 2008. Less than two months later the claimant issued proceedings. The claimant and its representatives were excluded from the Company’s business. On 14^th April 2008 the defendant wrote to the claimant asking it to nominate a replacement for Mr Lalani on the Board of the Company. The claimant declined to do so, pointing out that Mr Lalani had not been removed as a director.

It became urgent for the defendant to file its own accounts for the year ended 31^st December 2006 at Companies House. Its directors were receiving letters threatening prosecution. As the Company was treated as a subsidiary of the defendant for this purpose, it was necessary to the defendant that the Company’s accounts also should be filed for that year.

On 17^th June 2008, Mr Patel sent an email to the directors of, and others interested in, the defendant (but not to the claimant or any representative of the claimant) containing the following passage,

“At present all the outstanding audit queries have been sent to Grant Thornton with regards to Casualty Plus Ltd…..at a meeting of the Executive Board yesterday it was agreed that we might as well have the audit report qualified and get the accounts filed. It is not advisable that we undertake the same policy for Medicentres (UK) Ltd due to the need to get approval from Franbar Holdings and in any event prosecution against the directors for Medicentres (UK) Ltd has not reached the same stage. The four Directors of Medicentres (UK) Ltd are Karim Lalani, Mark Olbrich, Johan du Plessis and me…”

It is common ground that despite this warning the defendant excluded the claimant and its nominated directors from involvement in and consideration of the 2006 accounts. The defendant took the view that the dispute and ongoing proceedings between the claimant and the defendant precluded the possibility of the claimant’s involvement. Further, as the defendant could have carried any vote put to the Board within the Company, a vote on the 2006 accounts seems to have been considered by the defendant as unnecessary.

Mr Patel was requested by the defendant to, and did, sign the Directors’ report in the 2006 accounts, purportedly “by order of the Board” of the company. Dr du Plessis signed the profit and loss account and balance sheet below the statement “The financial statements were approved by the Board of Directors on 14 July 2008”. The 2006 accounts were filed at Companies House on that day.

Mr Patel was suspended from his employment with the defendant in October 2008 and was purportedly dismissed by the defendant on 12^th February 2009. On 7^th September 2009 Mr Lalani (who had remained suspended on full pay) was dismissed from the Company.

In cross examination Mr Moverley Smith sought to establish that Mr Patel was motivated by resentment in giving evidence on behalf of the claimant. However, it is plain from the documents alone that while both parties approved the 2005 accounts the claimant was kept in ignorance about the 2006 accounts despite Mr Patel drawing attention to the requirement that it should be involved.

Mr Moverley Smith does not deny the validity of the 2005 accounts on the basis of informality; he merely seeks to say that the same lack of formality applies to the 2006 accounts. He submitted that the approval of the 2006 accounts was no more informal than the approval of the 2005 accounts. There was no formal quorum for the 2005 accounts and the intended AGM did not take place. The 2005 accounts were, the submission runs, therefore no more and no less “formally adopted” for the purposes of paragraph 2 of Schedule 3 to the Agreement than the 2006 accounts.

However there was the crucial difference that the 2005 accounts had been approved on behalf of the claimant as well as the defendant whereas the 2006 accounts were approved unilaterally by the defendant.

Mr Bhundia gave evidence on behalf of the defendant that Mr Olbrich had lost interest in the company, had moved to live in Poland and would not have attended even if he had been summoned to a meeting. The implication was thus that it was unnecessary to serve notice of any meeting for the approval of the 2006 accounts on Mr Olbrich: see Young v. Ladies Imperial Club Ltd [1920] 2 KB 523 at 528. However I accept Mr Olbrich’s statement that he did not permanently move to Poland until January 2009 and that he attended all meetings of which he was in fact given notice. Mr Bhundia had no cogent evidence to support his assertion that Mr Olbrich had lost interest in the company. In cross-examination Mr Bhundia was asked to, but could not, point to a single instance of a meeting which, having been given due notice, Mr Olbrich failed to attend. It is noteworthy that Mr Olbrich travelled under difficult conditions to give evidence in this case. Despite the cancellation of all flights into UK airports he managed, with some difficulty, to travel from Poland and arrive at court in time to give evidence in due order.

Mr Bhundia gave no explanation for excluding Mr Lalani from the decision other than that he was under suspension as an employee of the Company. That was in my view an insufficient reason to exclude Mr Lalani from involvement in the 2006 accounts as the director nominated by the claimant.

In my judgment therefore, while the parties could not be heard to rely on the absence of formalities in relation to the 2005 accounts, there was no agreement between them which would waive the requirement for formalities to be observed in the approval of the 2006 accounts. Those formalities were requisite but were not observed.

Mr Moverley Smith sought to distinguish the requirement in the Companies Acts for approval of accounts from the requirement in the Agreement that the accounts be those “adopted” by the company. He pointed out that the claimant had not sought to challenge their filing at Companies House but had, in effect, taken the benefit of that filing and the relief that it afforded Mr Lalani and Mr Olbrich from the obligation to file them. However, by the time the 2006 accounts had been filed litigation was under way and it was evident that the 2006 accounts were disputed. It is unrealistic to suggest that the claimant should have taken some formal steps at that stage to renounce them at Companies House.

I do not accept that ‘adopted’ simply means that the Company had treated the 2006 accounts as its accounts by filing them at Companies House, thereby relieving the claimant’s nominated directors of their duty to file accounts. In this context I note the requirement of clause 2.11 of the Agreement that audited accounts for the Company be made available for inspection “by the parties or their representatives” and formally adopted within a set time period. The use of the word “adoption” involves (a) formal approval or some conduct by the claimant demonstrating either (b) that it had accepted the accounts informally in such circumstances that it could not be heard to say that it was not bound because formal procedures had not been followed, or (c) that approval of the accounts had been delegated to the directors who in fact signed them. Unilateral adoption by one part of the membership and one half of the directors cannot in my judgment be adoption for the purposes of the Agreement.

Mr Moverley Smith sought to establish in cross-examination that although the 2006 accounts had not been expressly approved by or on behalf of the claimant, Mr Patel and Dr du Plessis had authority from the Board to adopt the 2006 accounts. They were both cross-examined as to why they signed the accounts on behalf of the Board if they did not genuinely believe that they had authority to do so. Mr Moverley Smith reminded them of their duties to the Company and cross-examined on the basis that if they did not believe at the time that they had such authority the statements they made would have been manifestly false.

Mr Patel’s response was that he never really believed that he was signing on behalf of the Board. He said that he never thought about the matter in much detail. He was required by the defendant to sign and he did so, not realising that the accounts would be used for any purpose other than fulfilling formal filing requirements enabling the defendant to file its own accounts. He knew the audited accounts contained a disclaimer and he said he did not therefore attach any great importance to them. When it was put to him that as he was in charge of the Company’s accounts department he did have authority to sign the accounts he agreed with the proposition. However it was evident that all he meant was that he had the de facto power to pass the accounts, not that he believed that the accounts were validly adopted by the Company.

Dr du Plessis is a medical specialist and was in charge of the operational side of the Company’s business. He is neither an accountant nor a lawyer. His response in cross-examination was that he had authority to sign because the defendant could have outvoted the claimant and carried the accounts if the matter had in fact been put to a vote. However he was aware that the 2006 accounts had not in fact been put either to the Company in general meeting, or to the board as a whole, and that the claimant had been wholly excluded from the decision. The fact that the claimant could have been outvoted does not validate the decision to exclude it from the decision altogether: see e.g. Harben v. Phillips (1883) 23 Ch D 14 at 26, Re Portuguese Consolidated Copper Mines Ltd (1889) 42 Ch D 160.

The auditors took what I am told is the relatively unusual step of publishing a disclaimer in relation to the 2006 accounts. They said they were unable to form an opinion whether the financial statements gave a true and fair picture in accordance with GAAP of the company’s affairs or of its profits and losses and that they were unable to express an opinion whether they had been properly prepared in accordance with statutory requirements. I am asked to deal with the effect of the disclaimer in this context.

Mr Moverley Smith observed that there is no provision in the Agreement to the effect that formally adopted audited annual accounts are not adopted merely because the accounts are subject to qualification.

However Mr Matthias argued that a rider has to be implied into Schedule 3 to the Agreement. He submitted that the reference to “the Company’s most recent audited annual accounts” in paragraph 2 must reasonably be understood to mean accounts declared by the auditors in their opinion (a) to give a true and fair view, in accordance with GAAP, of the state of the Company’s affairs as at the relevant year end and (b) to have been properly prepared in accordance with s. 226A of the Companies Act 1985 (and s. 393 and 396 of the Companies Act 2006 after 6^th April 2008) to give a “true and fair view of the state of affairs of the company”. Mr Matthias therefore submitted that the 2006 accounts could not fall within the scope of the “audited annual accounts” for the purposes of paragraph 2 of Schedule 3 to the Agreement. Further, he submitted, the prior consent of the claimant would have been required, and was not obtained, under paragraph 5.12 of the Agreement because the 2006 accounts involved a material change in the accounting policies and principles adopted by the Company in the preparation of its audited accounts.

I deal with this matter of the implied term only briefly because it does not seem to me that the issue arises in the circumstances of this case. Mr Matthias accepted that if there had been approval of the 2006 accounts on a Duomatic basis they would have been approved for all purposes including the purposes of the Agreement. The only circumstance in which such an issue would have arisen is if there had been a meeting (which it is common ground did not happen) at which the claimant’s representatives had objected to the 2006 accounts but had been outvoted.

I do not believe that it would have been open to the defendant to adopt accounts for the purposes of Sched 3 of the Agreement which had not been certified by the auditors as representing a true and fair picture of the Company’s financial statements. It cannot be right that the defendant’s representatives could force the accounts through on any basis they liked. Mr Moverley Smith pointed out that the directors would always owe a duty to the Company (see s. 393 Companies Act 2006) only to approve accounts which they believed to be fair and true. However it seems to me that the Agreement is predicated on the basis that accounts will be binding because they have been independently audited. Under the terms of the Agreement the auditors are the final arbiters of what is a true and fair view of the company’s affairs. That cannot apply where the auditors have certified that they are unable to give their opinion on the issue. The position is very far in my judgment from some minor qualification on a discrete issue which could be resolved to the auditors’ satisfaction. I do not consider that the entire agreement clause derogates from this conclusion.

As a separate matter the defendant adduced expert evidence that the reasons cited by the auditors for their disclaimer did not affect the EBITDA. I prefer the evidence of the claimant’s expert that they had the potential to affect it. One of the matters mentioned by the auditors was the inability to reconcile cash balances. If invoices are or may not be an accurate reflection of the Company’s cash position there is a real risk that the profits will have been misstated in the accounts.

Accordingly I find that the last accounts adopted by the company for the purposes of paragraph 2 of Schedule 3 to the Agreement were the 2005 accounts. Mr Moverley Smith referred me to Dashfield v. Davidson [2009] 1 BCLC 220 in which Lewison J discussed the meaning of “the last set of audited accounts” in the context of a provision in a company’s articles for compulsory share transfer on the death of a member. What is required is certainty and fairness between the members. I cannot accept that it is certain or fair to use as the basis for determining the option price accounts which were never agreed by the shareholders or the board of the Company and which were disclaimed by the Company’s auditors.

The Chairman’s Statement in the 2005 accounts specifies certain items affecting the results for the year, including “A management fee of £109,000 charged by Casualty Plus for providing services during the last 5 months of the year.” It then continues:

“After making the above adjustments, we note that the adjusted Earnings before Interest, Tax, deprecation [sic] and Amortisation (Adjusted EBITDA) for the year 2005 is £524,830 which is 10% higher than the adjusted EBITA [sic] for 2004 of £478,122.”

The defendant’s case on the second issue is simple and persuasive. The schedule prescribes that the option price is to be “determined by reference to the EBITDA set out in or determined by reference to” the relevant accounts. There is no figure for EBITDA specified in the 2005 accounts, but only (in the Chairman’s statement) purported “Adjusted EBITDA”. Indeed, the experts have agreed a figure for the EBITDA calculated by reference to the accounts, namely £415,571.

Thus, the argument runs, what is said in the accounts about the Adjusted EBITDA is not only not conclusive, it is irrelevant to the preliminary issue. There is a disagreement about the Adjusted EBITDA (under paragraphs 3 and 4 of Schedule 3) for the purposes of calculating the option price. The defendant says it is entitled to refer that dispute to the independent accountant, acting as an expert, under paragraph 7.

The nature of the dispute was aired before this court in argument and in evidence. Paragraph 4 of Schedule 3 to the Agreement required the defendant to charge the company a management fee for providing head office functions and services in respect of such periods and amounts as are set out in the annexed Business Plan. It also required the management fee to be deducted from the EBITDA for the relevant financial year in arriving at the Adjusted EBITDA. The difference between the parties is that in stating the Adjusted EBITDA in the Chairman’s Statement the management fee was added to, rather than deducted from, the EBITDA.

The explanation given by the claimant’s witnesses for this in oral evidence was also simple. It was that (despite the misleading statement as to “a management fee…charged by Casualty Plus”) no Head Office functions or services were in fact provided for the year in question. Evidence was given of discussions between Mr Lalani and Mr Jaffrey about how various charges should be allocated as between the defendant and the Company. It was said that the Company was paying rent, business rates and service and utility charges for premises occupied by the defendant because the Company was operating an x-ray facility there. However the income from the facility belonged to the defendant. It was said that salaries were also recorded against one or other company although staff members were undertaking duties for both. Mr Lalani gave evidence of discussions that he had with Mr Jaffrey at the time as to how the figures should be reconciled on a proper basis. He said that a figure was agreed which, it was further agreed, should be credited back to the EBITDA and Mr Jaffrey drafted the Chairman’s Statement accordingly. Mr Patel’s evidence was that when he took over from Mr Jaffrey in April 2007 he saw emails about these negotiations. He was aware of the discussions and of the reasons for the adjustments. However the figure had by then been settled between Mr Jaffrey and Mr Lalani and Mr Patel saw no reason to reopen the matter.

I agree with Mr Moverley Smith that the EBITDA as defined in paragraph 1 of Schedule 3 to the Agreement is not £524,830. That is expressed to be an Adjusted EBITDA figure. Mr Moverley Smith proceeded on the basis that as no EBITDA is stated in the 2005 accounts (for the purposes of paragraph 2 of Schedule 3 to the Agreement) and there is a dispute about the adjustment, referral to the expert is necessitated.

However an underlying issue emerged during the course of the hearing whether a dispute between the parties as to the effect of the passage about “Adjusted EBITDA” in the Chairman’s statement was one capable of reference to the expert under the Agreement. Mr Matthias submitted that the defendant could not reopen any matter as a disagreement under paragraph 7 of Schedule 3 if it had been conclusively settled by the agreement of the parties. A dispute for the purposes of invoking such a reference must be one that arises in the absence of a pre-existing agreement.

He submitted in closing argument that the expression “Adjusted EBITDA” can only have been intended to mean the Adjusted EBITDA as defined in the Agreement. There was thus, he submitted, unanimous agreement as to what the Adjusted EBITDA was when the 2005 accounts were approved.

The second preliminary issue must in my judgment plainly be answered in the negative. However, on the mistaken basis that both parties expected me to do so, I was at first minded to qualify that answer with a determination of the underlying issue.

Mr Moverley Smith objected on the basis that such a decision would be impermissible as going beyond the scope of the second preliminary issue as ordered. He has persuaded me that as the effect of the reference to Adjusted EBITDA in the Chairman’s statement was not an issue directed to be tried he did not acquiesce in its determination. He explained that he did not lead any evidence in relation to it, nor did he make any oral or written submissions on it. His cross-examination did not fully explore it. He has outlined the issues of law, construction and fact which he would have raised, but did not, and the evidence he might have called or cross-examined on, but did not, because of the restrictive way in which the second preliminary issue was framed.

If the issue about agreement as to Adjusted EBITDA had been squarely raised by an application (or suggestion from the Court of its own motion) to amend the preliminary issue, no amendment could have been made without hearing argument from both parties. That did not happen. In such circumstances the Court cannot proceed on the basis that the preliminary issue as ordered is inappropriate and some other unformulated determination might bring resolution to the proceedings.

I therefore propose to say nothing more about the second preliminary issue other than to determine it in the defendant’s favour on the limited basis that the EBITDA is not set out in the 2005 accounts.