Shepherd v Williamson & Anor

This is the trial of a petition presented by Mr Martin Shepherd under s. 994 of the Companies Act 2006 seeking an order that his shares in the company Phoenix Contracts (Leicester) Limited (“the Company”) be bought by Mr Michael Roy Williamson at a fair value.

The Company was placed in administration on 4^th March 2010 and is not represented, but the administrators have consented to the continuation of the proceedings so far as they relate to the Company.

The Company was incorporated on 18^th May 1992 as a private company limited by shares. It carried on business as a fit-out contractor undertaking refurbishment work on hotels, clubs and public buildings.

There were four founder members, Mr Williamson, Mr Shepherd, a Mr Coley and a Mr Walker, each of whom subscribed for 21,295 shares at £1 each. Mr Coley retired from the Company owing to ill-health in about 1995 and his shares were repurchased by the Company at nominal value. Mr Walker accepted redundancy on 9^th September 2002 and resigned as a director. On 11^th October 2002 his shares were transferred to Mr Williamson and Mr Shepherd at the fixed price of £2.50 per share as provided in the Company’s articles of association.

On the basis that Mr Walker held an odd number of shares Mr Williamson acquired an extra share on the division of Mr Walker’s shares. One of the questions I am asked to decide is whether he owns that share beneficially or holds it on trust for himself and Mr Shepherd equally. Since the transfer Mr Williamson is registered with 31,943 shares and Mr Shepherd with 31,942 shares in the Company.

The Company’s articles of association imposed various restrictions on the transfer of shares. On 14^th October 1993 the four founder members entered into a shareholders’ agreement (“the Agreement”) which had the effect of entrenching the position of the members as directors so that they could not be removed without their consent: clause 10.1.15. The Agreement also contained a procedure (in clause 12) for resolving deadlock in general meeting by the determination of an expert.

On 5^th February 2002, the three then remaining shareholders altered the articles of association of the Company, permitting transfers of shares to the Company or to members of a shareholder’s family who were directors. The amendment restricted any other transfer of shares unless they had first been offered for sale to existing shareholders in the proportions of their existing holdings at the fixed price of £2.50 per share.

Sale notices are provided for by article 8.4 of the amended articles. Article 8.5 includes the following provision:

Crucially, the new article 8.11 provided as follows:

Another question I am asked to decide is whether, on the true construction of this provision, a sale notice is deemed to have been served upon a person ceasing to be an employee but remaining as a director or whether the provision is only applicable on cessation as both employee and director.

This raises the overarching question of whether a member could, in the context of this particular company, cease to be an employee without also ceasing to be a director. Mr Williamson asserts that the whole arrangement between the parties is to be found in the articles, the Agreement and an Anti-Embarrassment Deed (also entered into in 2002) whereby if the Company was sold within 2 years of a share sale the person selling his shares would obtain a proportion of the additional consideration.

Mr Shepherd asserts that after the departure of Mr Walker he and Mr Williamson discussed their position and those discussions resulted in an agreement or understanding (a) that the Company would be owned just by the two men, (b) that they would both be directly involved in the management of the Company as employees and shareholders and (c) if one of them were to leave the Company and the other wanted to buy his shares the purchase would be at the full market price rather than the £2.50 per share provided for by the Agreement. In other words, come what may they would participate 50:50 in the Company. As he put it, “it was time for the Company to look after us”. He said many times that he had complete trust and confidence in Mr Williamson at that time. In any event he alleges that after the departure of Mr Walker the Company constituted a quasi-partnership of the kind described in Re Westbourne Galleries [1973] AC 360 and there was consequently no room for a non-executive director. That is disputed by Mr Williamson and is also an issue I am required to decide.

In 2005 Mr Shepherd and Mr Williamson held talks with Harvey Ingram LLP (“Harvey Ingram”), then acting as the Company’s solicitors, and the Company accountant to consider restructuring the Company. Proposals entailed the introduction of a new holding company and the associate directors were to have a stake in the business. There is no suggestion in the attendance notes at the time that the articles and the Agreement did not have full force and effect and it was suggested that as part of the restructuring the provisions about the fixed £2.50 purchase price per share would be amended. The notes acknowledge (in recording a meeting at which Mr Williamson was present) that the current position was that there was a quasi-partnership.

The restructuring was put on hold pending a potential third party sale. Neither the sale nor the restructuring came to anything.

Mr Williamson and Mr Shepherd were both executive directors and they were also close friends until the matters which caused them to fall out towards the end of 2007. By that stage the Company was prospering and the shares were worth many times the £2.50 provided for in the Agreement.

In about 2005 the Office of Fair Trading launched an investigation into collusive practices in the construction industry. One of those practices was the giving and taking of “covers”, that is to say, deliberately submitting a bid higher than other competing bids for a contract in the knowledge that it would not succeed. The object was to favour a chosen tenderer amongst those colluding; the parties could therefore make private arrangements about who would undertake which construction projects and how the price would be shared. It is common ground that the Company participated in covering prior to January 2006. It is also common ground that Mr Shepherd was not directly involved in any such practices, although there is a conflict of evidence about whether he knew that they went on. Mr Williamson’s evidence was that the reason for the Company’s participation in covering was merely that failure to make a bid at all might result in the contractor being removed from a client’s tender list.

122 companies were subjected to the investigation including, from January 2006, the Company. The practice of covering was widespread in the industry and had been for many years, to the point where it had become such accepted practice (even being referred to in textbooks) that many participants did not realise that it was unlawful.

The Company cooperated with the OFT in the investigation and it was hoped that it would consent to a leniency agreement. On 4^th April 2008 Mr Williamson signed a leniency agreement on behalf of the Company providing for a 40% reduction in the penalty to be awarded against the Company, conditional on the Company continuing to cooperate and conditional also on the Company having refrained from any covering activity from January 2006 onwards. On 22^nd September 2009 the OFT published its findings and a fine of £91,053 was levied on the Company in accordance with the leniency agreement.

Meanwhile, in the spring of 2007, Mr Shepherd and Mr Williamson discussed arrangements which might enable Mr Shepherd to retire from the Company and negotiations were conducted between solicitors. Mr Shepherd wanted to realise his investment in full and was not prepared to retire unless he received full value for his shares rather than the fixed price of £2.50 per share provided for in the amended articles. The parties failed to reach agreement and it seems that relations began to be strained between them as a result. Mr Williamson believed that Mr Shepherd was not pulling his weight thereafter and Mr Shepherd believed that Mr Williamson wanted to force him out of the Company.

Matters came to a head at a monthly management meeting on 29^th October 2007. Management meetings were attended not only by directors but also by so-called ‘associate directors’, who were senior employees. Mr Shepherd asserts that at the meeting in question one of the associate directors, a Mr Peters, reported that he was discussing a cover with a project manager, a Mr Kelly, of a hotel chain to whom tenders were being submitted. Mr Shepherd also asserts that Mr Williamson responded by saying merely “I didn’t hear that”, and reacted contemptuously when Mr Shepherd tried to raise the matter with him privately after the meeting. Mr Williamson denies that Mr Peters reported any participation in collusive practices and denies that any such conversation as alleged took place after the meeting. His version was that Mr Peters reported only that he had heard other companies were participating in a cover and that was what his own remark was addressed to.

On 15^th November 2007 Mr Shepherd placed a telephone call to the senior project manager of the hotel chain and left an anonymous voicemail message that the Company was under investigation by the OFT for bid-rigging and that Mr Peters and Mr Kelly were engaged in a collusive practice in relation to the hotel development.

An anonymous telephone call is not a praiseworthy course of action. However Mr Shepherd says that he was very concerned about the OFT investigation and the prejudice that would be caused to any leniency agreement in the event that the Company was still engaging in collusive activities. He had tried to raise the matter with Mr Williamson but had been shrugged off. He denies bad faith or any motive other than a genuine desire to frustrate any covering in which the Company might be involved.

On 19^th November 2007 Mr Shepherd went away on leave and did not return to work until 28^th November 2007. Meanwhile the senior project manager informed Mr Kelly about the message with the result that Mr Williamson was told and supplied with an audio copy. I have little doubt that Mr Williamson was genuinely upset and angry at what Mr Shepherd had done, irrespective of the merits or otherwise of his own conduct. Mr Williamson took the view that Mr Shepherd had acted vindictively in order to harm the Company and/or in order to improve his own negotiating position with Mr Williamson, in breach of his duties of good faith. I note the comments of the Tribunal (to which I later refer) about this:

Mr Williamson, together with Mr Peters, consulted Mr Saul of Harvey Ingram on 19^th November 2007. The privilege attaching to attendance notes and other correspondence with Harvey Ingram is that of the Company rather than Mr Williamson and has been waived. The Court is thus able to read and consider Mr Williamson’s actions on behalf of the Company in the context of what was really going on behind the scenes. I have had the file of open correspondence open at the same time as the Company’s privileged file and the two together make remarkable reading.

Mr Peters denied that there was any collusive activity in relation to the hotel contract. Mr Williamson was sure that he recognised Mr Shepherd’s voice on the tape; Mr Saul said he would seek advice from another Harvey Ingram solicitor “to consider the employment aspects of the situation, in particular the suspension of Martin Shepherd from his employment”. He warned Mr Williamson that any action against Mr Shepherd was bound to bring the relationship between the two men to an end.

On 21^st November 2007 Mr Williamson sought further advice from Mr Saul, this time together with Mr Palmer, the Harvey Ingram Human Resources specialist. The attendance note shows that Mr Saul again warned that suspending Mr Shepherd would be an irrevocable action which would make it very difficult for the two men to work together in the future. Moreover although Mr Palmer said he would draft a letter suspending Mr Shepherd from his employment, Mr Saul advised that because the two men were the sole directors and shareholders there were some “major difficulties” as Mr Williamson had no authority to suspend Mr Shepherd or remove him as a director. There was discussion as to whether Mr Williamson’s extra share could be exploited “and we may need to press that forward with regard to Martin’s removal as a director”.

In his evidence Mr Williamson said that he did not remember Mr Saul telling him that there was no authority to suspend Mr Shepherd, although he eventually accepted that he was told that what he wanted to do would not ‘stack up in law’. He also denied that he had ever contemplated removing Mr Shepherd as a director. I do not accept that evidence: matters had come to a stage where he was prepared to follow any course he deemed legitimate to get rid of Mr Shepherd. I accept however that Mr Williamson did not in fact take any positive steps to remove Mr Shepherd as a director.

On 28^th November 2007 Mr Williamson confronted Mr Shepherd on his return to work. Mr Shepherd denied (he says in fear of victimisation) that he was the man who had placed the call. Mr Williamson told Mr Shepherd that he was on ‘garden leave’ and Mr Shepherd left the building. The locks were changed, Mr Shepherd’s mobile phone was barred and he was for a while deprived of his Company car.

Mr Williamson immediately telephoned Harvey Ingram to tell them what had happened and seek further advice. Again, Mr Saul told him that there was no authority to suspend Mr Shepherd. The note records Mr Williamson’s response as,

On the same day two letters were delivered to Mr Shepherd telling him that he was suspended as a result of the telephone call and stating that,

He was “suspended from work with immediate effect whilst allegations are carried out into matters that might lead to allegations of gross misconduct”,

His suspension would be “for as short a period as possible”,

He should not “contact anyone at work…nor pass yourself out [sic] as acting on behalf of the company in any manner with our clients or anyone else associated with Phoenix Contracts”,

“Due to the need for your voice samples to be analysed…it may be a number of days before the matter can be progressed to the point of any formal allegations for you to respond to.”

There was to be a disciplinary investigation conducted by Mr Palmer.

Mr Shepherd’s solicitors, Spearing Waite, immediately took issue with the question of the Company’s authority to suspend him. That matter was raised again in a telephone call on 30^th November 2007 and it is evident from the attendance note that Mr Saul too was concerned about the question. However in evidence Mr Williamson said that he was unable to remember Harvey Ingram raising the issue of authority with him. Again I do not accept his evidence in that regard.

Mr Shepherd objected to an employee of Harvey Ingram conducting the disciplinary investigation. An attendance note of a telephone conversation on 12^th December 2007 between Miss Cosgrove of Harvey Ingram and Mr Williamson shows that although Mr Williamson was content for a Ms Nita Benson to undertake the investigation “it was not ideal as one of the issues with that could be that the independent person could find that this was not an issue for dismissal”. Mr Williamson agreed that Mr Palmer “probably could not hear any disciplinary hearing as he is already biased and has already made a decision that it is untenable for Martin to continue in the business”. The discussions behind the scenes show that Mr Williamson intended the outcome of the disciplinary hearing to be dismissal of Mr Shepherd.

By early December 2007 the Company had been awarded the hotel construction contract. On 12^th December 2007 Mr Shepherd indicated to Harvey Ingram through his solicitors that he was going to admit to having made the telephone call. On 18^th December Spearing Waite wrote to Harvey Ingram confirming this admission and explaining in 35 numbered paragraphs why Mr Shepherd had done what he did. The letter asserted that his call was a protected disclosure for the purposes of the Public Interest Disclosure Act 1998 and the Employment Rights Act 1996. It also asserted that in making the disclosure he acted in good faith and in the best interests of the Company, and thus in compliance with his statutory duties to the Company, expressly mentioning s. 172 of the Companies Act 2006.

On 20^th December 2007 Mr Saul again met Mr Williamson and Mr Peters, who repeated their assertions that Mr Shepherd’s version of the events of 29^th October 2007 was untrue. On 9^th January 2008 Harvey Ingram responded to Spearing Waite’s letter of 18^th December saying merely that the Company was “still in the process of carrying out its investigations into the allegations”. Under cross-examination Mr Williamson explained the continuation of the investigation on the basis that it was, as he put it, a “neutral act”, “only fair to Mr Shepherd”.

The suspicion that, far from having an open mind, Mr Williamson wanted to get rid of Mr Shepherd at all costs is borne out by what happened afterwards. First, Mr Palmer sent the Report he had compiled to Ms Benson in the middle of January 2008. Mr Shepherd, despite requests, did not see a copy until over a month later. Ms Benson, having read the report and the witness statements emailed Harvey Ingram at length to say that she had received legal advice that the telephone call was “very likely to be classed as a protected disclosure” and “based on this advice would not be prepared to undertake a disciplinary hearing”. On 29^th January 2008 she wrote a letter to Harvey Ingram setting out her reasons in detail. Spearing Waite were told only that Ms Benson was “unable” to hold the disciplinary hearing. Spearing Waite pressed Harvey Ingram for an explanation and on 19^th February Harvey Ingram responded stating (without disclosing her letters) that Ms Benson had been advised that the telephone call “could amount to a protected disclosure” and had withdrawn from the process. The letter continued that Mr Williamson would not accept her decision and therefore had “no alternative” but to engage another independent person.

The issue of whether Mr Shepherd had suffered detriment through a protected disclosure was, in the circumstances to which I refer below, eventually referred to an Employment Tribunal (“the Tribunal”). The Tribunal stated at paragraph 106.3 of their reasons:

In cross-examination Mr Williamson sought to distance himself from these findings against the Company. He said that the disciplinary process was ‘out of his hands’. He said he did not receive a copy of Ms Benson’s email of 22^nd January 2008 and was not told its contents; he was unaware that Spearing Waite had pressed for information about Ms Benson’s withdrawal. He said that he was not shown her letter of 29^th January until a later date. He also said that Harvey Ingram engaged a new disciplinary officer at further expense to the Company without instructions from him. He insisted that he was keeping an open mind at that stage, that the delays had been out of his control, that everything had been done by Harvey Ingram and that he had not been involved other than in making a witness statement.

This evidence is inherently implausible, bearing in mind that the Company was at that time acting only by Mr Williamson himself. It is even more implausible in the light of an attendance note between Mr Williamson and Mr Saul in which they discussed the “rather unfortunate findings of Nita Benson” and expressed the hope that a new disciplinary officer “would side with the Company”. So far from, as he had promised, suspending Mr Shepherd for as short a period as possible, the Company’s investigation had turned after three months from an investigation of whether Mr Shepherd was responsible for the telephone call into a disciplinary process intended to lead inexorably to his dismissal.

On 4^th February 2008 Mr Williamson approved “Instructions to Counsel to Advise on Protected Disclosure” prepared by Harvey Ingram. They state that the relationship between Mr Williamson and Mr Shepherd had broken down and,

The Instructions refer to the effect of article 8.11 and that arguably a consequence of Mr Shepherd losing his status as employee or director could have an adverse impact on the value of his shares.

The Instructions state that Mr Williamson,

As well as advising on the protected disclosure issue, Counsel was specifically asked for,

The disciplinary hearing was conducted by the new disciplinary officer over several days between March and April 2008. Mr Williamson, Mr Peters and two other witnesses gave evidence about the events of October 2007. The hearing was then adjourned pending a reference to mediation which was ultimately unproductive. Mr Shepherd was bitter about this as he says that an agreement was reached at the mediation. That is not however an issue for me.

Meanwhile, on 20^th February 2008, Spearing Waite wrote a letter before action to Harvey Ingram as Mr Williamson’s solicitors alleging unfair prejudice under s. 994 of the 2006 Act. Thereafter, from May 2008 onwards, Mr Williamson gave notice to Mr Shepherd in his capacity as director asking him to attend board meetings, most of which were for the approval of the Company’s accounts. A letter dated 6^th March 2008 from Harvey Ingram in reply to Spearing Waite’s letter before action draws a distinction between Mr Shepherd’s position as a member and as an employee. However the letter also acknowledges that Mr Shepherd had not formerly been involved in the Company’s accounts.

The new disciplinary officer became a partner in Spearing Waite and considered it inappropriate in those circumstances that he should continue to act. At the beginning of November 2008 Mr Williamson decided not to pursue the disciplinary proceedings further. The thinking behind this appears in attendance notes of telephone calls between Miss Cosgrove and Mr Williamson on 14^th and 20^th November 2008.

On Friday 14^th November 2008 Mr Williamson wrote to Mr Shepherd in what after nearly a year of suspension can only be described as exceedingly brusque terms, saying that Mr Williamson had “decided to lift the suspension” and inviting Mr Shepherd to return to work on the Monday, that is to say, 17th November 2008. The letter did not confirm that disciplinary charges had been dropped, did not set out any reintegration measures and said nothing about Mr Shepherd’s costs of the proceedings.

Spearing Waite responded in letters dated 17^th and 24^th November 2008 by raising what they described as Mr Shepherd’s exclusion and victimisation. They pointed out that the invitation to return to work took no account of witness statements made by Mr Williamson and the associate directors that they could never work with Mr Shepherd again. They drew attention to the Company’s failure to investigate Mr Shepherd’s grievances over the conduct of Mr Peters and Mr Williamson in October 2007. They pointed out that Mr Shepherd had been denied all participation in the management of the Company for a year and asked what reasons had been given to employees and others to account for this. They also required payment of a bonus (“the 2007 bonus”) which had been awarded to Mr Shepherd but was still unpaid after nearly a year.

Mr Davies valiantly submitted that Mr Williamson’s decision in November 2008 to recall Mr Shepherd to work was genuine and he only decided to try and remove Mr Shepherd when it became plain that Mr Shepherd had no intention of returning to work.

However, by at latest 2^nd December 2008 (hardly a fortnight later) Mr Williamson told Miss Cosgrove that “he wants him out of the business”, which contrasts with the personal appeal to Mr Shepherd he was to make in a letter of 19^th December 2008. The return to work was to be followed by immediate dismissal (attendance note of 4^th December), by notice of retirement (5^th December) and, (10^th December onwards), by redundancy.

Mr Davies, again valiantly, tried to convince the Court on behalf of Mr Williamson that the redundancy process was a fair and proper one. The Company issued all employees, not just Mr Shepherd, with a notice warning of possible redundancy. Mr Davies submitted that the prospect of redundancy was merely the result of economic difficulties faced by the Company.

This does not explain how Mr Williamson was able, as one of two directors of a deadlocked board, to conduct a redundancy process for his co-director and co-shareholder. Moreover, it is evident from the attendance notes of 10^th December onwards that the process, however it was presented on the surface, was nothing short of a farce. Mr Shepherd was put in a pool of two persons considered for redundancy with, of all people, Mr Peters. Mr Williamson in correspondence contended that Mr Shepherd’s role had been and could continue to be absorbed by Mr Peters, taking no account of the fact that Mr Shepherd’s absence had been an enforced one.

The Tribunal found:

I can only say that with the advantage I have had, which the Tribunal did not have, of seeing what instructions were being given by Mr Williamson on behalf of the Company, and what advice he was receiving in return, I entirely support the Tribunal’s findings in this respect. As far as Mr Shepherd was concerned, the redundancy process was artificial and contrived and had the sole aim of expelling him from the Company. It was impossible for Mr Williamson genuinely to contend that Mr Shepherd’s role might fairly have been found to be redundant when he had been prevented from fulfilling it.

The invitation to return to work was patently insincere. No steps were taken to reintegrate Mr Shepherd and insult was added to injury by the appointment of Mr Peters and Mr Vann, the very employees about whom Mr Shepherd was complaining, to consider and evaluate Mr Shepherd’s grievances.

On 23^rd December 2008 Mr Shepherd applied to the Tribunal for a declaration that he had suffered a detriment for making a protected disclosure under the statutes to which I have referred. On 31^st December 2008 he presented this Petition under s. 994.

The hearing before the Tribunal was conducted in July, August and September 2009 and a reasoned judgment was given on 1^st October 2009.

Meanwhile, in the spring of 2009, Mr Williamson on behalf of the Company was taking advice on whether to operate the deadlock procedure prescribed by Clause 12 of the Agreement in order to resolve the redundancy issue. On 21^st April 2009 Mr Williamson proposed a resolution, which it was then sought to be referred to expert determination, in the following terms,

Mr Shepherd protested about this procedure. Throughout the summer of 2009, at about the same time as the hearings before the Tribunal, there were negotiations between Spearing Waite and Harvey Ingram as to an undertaking that might be given by Mr Williamson to avoid injunction proceedings. An undertaking was offered, not that if Mr Shepherd succeeded on the Petition Mr Williamson would not rely on any expert determination as to Mr Shepherd’s redundancy in the meantime, but in more limited terms. The undertaking was that Mr Williamson would not rely upon the determination of redundancy to buy Mr Shepherd’s shares under article 8.11 so as to deprive Mr Shepherd of his standing to pursue his petition. In effect Mr Williamson reserved the right to argue that if Mr Shepherd succeeded on the Petition the Court should only direct his shares to be bought at the fixed price because he would already have been made redundant.

For the purposes of deciding whether there was a protected disclosure the Tribunal made various findings of fact which appear from its written reasons of 1^st October 2009. Thus, after giving detailed consideration to the evidence:

The Grounds of Resistance to Mr Shepherd’s case described Mr Shepherd’s contentions as to what had happened on 29^th October 2007 as “a fabrication”. The Tribunal (again giving carefully considered reasons) did not accept Mr Peters’ evidence of what he had said at the meeting on 29^th October 2007. It rejected the evidence of other associate directors of the Company, Mr East and Mr Vann, describing Mr East’s evidence as “vague and unconvincing” and Mr Vann’s evidence as “unreliable”. I note the view of Counsel who had acted for the Company, reported in a Harvey Ingram attendance note of 8^th October, that the case had been lost solely on the basis that the Tribunal did not believe the witness evidence.

The Tribunal also rejected Mr Williamson’s evidence that there was no subsequent meeting between him and Mr Shepherd and broadly speaking accepted Mr Shepherd’s version of events. It found, contrary to Mr Williamson’s story, that there was a meeting between the two men immediately after the main meeting, in which Mr Shepherd attempted to raise what had happened and at which Mr Williamson simply shrugged his shoulders and turned his back on Mr Shepherd.

Crucially, the Tribunal made findings as to Mr Shepherd’s motives in making the telephone call and concluded that he had acted in good faith. I note however that, unlike in the present case, where the burden is on the petitioner, the burden of proof was on the Company to establish absence of good faith. The effect of the decision was therefore that the burden had not been discharged.

On 19^th November 2009 Mr Shepherd obtained an injunction preventing Mr Williamson from referring the issue of redundancy to expert determination pending the hearing of this Petition. Mr Williamson was ordered to pay the costs of the application.

In January and February 2010 there was further argument before the Tribunal on Mr Shepherd’s remedy for the detriment he had suffered. A reasoned judgment was sent out on 16^th March 2010. Mr Shepherd was awarded £18,000 for injury to feelings, £5,000 aggravated damages and £34,500 for non-payment of the 2007 bonus plus £2,034.64 as compensation for delayed payment of the 2007 bonus, as well as his legal costs of the disciplinary processes.

It is common ground that a bonus of £50,000 each was agreed between Mr Williamson and Mr Shepherd on 16^th November 2007. Spearing Waite sought payment of the 2007 bonus by letter dated 5^th December 2007 and continued to press for it. It is impossible to avoid the conclusion that Harvey Ingram’s responses to these requests were founded on a wish on Mr Williamson’s part to stall the payment as long as possible.

In considering the question whether Mr Shepherd had suffered any detriment from his protected disclosure the Tribunal concluded that non-payment of the 2007 bonus amounted to a detriment, saying as follows:

It is correct that a payment of £34,000 was made by the Company into Mr Shepherd’s bank account but then immediately reversed on Mr Williamson’s instructions. He explained this in evidence before me as a clerical error.

However, the Tribunal did not know, as I now do, that the Company’s Counsel advised the Company on 9^th October 2009 that he could see no corporate reason why the payment of the bonus was subject to the signature of the accounts. Mr Williamson ignored that advice and continued to refuse to pay the 2007 bonus. Again, the Tribunal did not then know that on 26^th November 2009 Mr Williamson paid himself his corresponding bonus. The Tribunal also did not then know that the statement in Mr Williamson’s witness statement of 11^th December 2009 that he had not been paid his own bonus was therefore false, although he relied on that statement for the purposes of the remedies hearing.

A firm of Insolvency Practitioners instructed in early February 2010 to review the Company’s financial situation informed Spearing Waite that Mr Williamson had been paid his own bonus. Spearing Waite raised this with Harvey Ingram who then told Mr Williamson that they were under a professional duty to inform the Tribunal and, as appears from the Tribunal’s reasons in its judgment on remedies, they did so. Even then (when Mr Williamson knew that he would have to pay the bonus because of the decision of the Tribunal) Mr Williamson told Harvey Ingram that his preferred option was to repay his own bonus to justify his position. The 2007 bonus was eventually paid in February 2010 after pressure from Harvey Ingram. No convincing excuse was given to me in oral evidence for Mr Williamson’s conduct. The Tribunal observed in paragraph 23 of the remedies judgment,

I also observe that in his most recent witness statement (of 19^th April 2010) in these proceedings Mr Williamson said:

Mr Williamson on the Company’s behalf sought a review of and appealed against the decision of the Tribunal. The review was refused. Permission to appeal was refused on paper and the application was renewed to an oral hearing.

On 2^nd March 2010 the Company applied to the Leicester County Court to set aside a judgment obtained in that court on the basis of the Tribunal’s award. The ground for the application was that there was an appeal pending to the Employment Appeal Tribunal and the Company should be given the opportunity to have the appeal heard before Mr Shepherd was permitted to enforce. This application was supported by a statement of truth signed by Mr Williamson on 1^st March 2010, the previous day. Leicester County Court granted the stay of execution and the sheriff was prevented from executing a writ to enforce the judgment at the suit of Mr Shepherd prior to administration of the Company.

However, also on 1^st March 2010, Mr Williamson, acting on behalf of the Company, had withdrawn the Company’s application for permission to appeal. His signature appears on the form. Mr Williamson’s explanation for basing an application for a stay on an appeal which had just been withdrawn was simply that it was a mistake as “there was a lot going on at the time”. That is scant comfort for Mr Shepherd who has been unfairly frustrated in his attempt to enforce the Tribunal’s awards.

The grounds for Mr Shepherd’s petition are that, following the breakdown in the relationship of trust and confidence between him and Mr Williamson in November 2007, his interests as a member of the Company have been unfairly prejudiced by Mr Williamson. S.994 of the Companies Act 2006 permits a petition to be brought on the ground:

If the court is satisfied that the petition is well founded, it may by s. 996 make such order as it thinks fit for giving relief in respect of the matters complained of, including an order for the purchase of the shares of any member by any other members.

I turn to the discrete preliminary issues which I have been asked to decide.

First there is the question of the ownership of Mr Walker’s extra share. Under the articles, the entitlement of Mr Williamson and Mr Shepherd was to acquire the shares of an outgoing member equally. The contemporaneous attendance note (of 21^st August 2002) proceeds on this assumption. The articles provided that lots should be drawn in the event that there was an odd share but it is common ground that this procedure was not followed.

Mr Williamson’s evidence was that he merely told the Company’s accountant, without referring the matter to Mr Shepherd, to register the extra share in his name. He stressed the fact that he did not in practice try to vote on that extra share to depose Mr Shepherd. Mr Williamson proceeded on the assumption that the unequal acquisition was a matter of convenience only.

There is no evidence about what Mr Shepherd paid for his share of Mr Walker’s shareholding, although it may well be that he paid £2.50 less than Mr Williamson. It could be said that Mr Shepherd acquiesced in the transfer of the extra share to Mr Williamson although he did not expressly agree to it. He must be taken to have known the position even if he did not in fact address his mind to it.

However in the circumstances it cannot be right that by what amounts to a side wind Mr Williamson could acquire control of the Company. The Instructions to Counsel of 4^th February 2010 approved by Mr Williamson state that he held the extra share “simply as a consequence of the issued share capital being an uneven number”, and Counsel’s advice, reflecting this statement says that “the company is for all practical purposes owned in equal shares.” I agree. Thus it seems to me that the extra share was owned beneficially by both of the remaining directors, although Mr Shepherd may have to give credit for £1.25, that is to say his share of any payment that Mr Williamson made for the extra share.

Mr Williamson places much emphasis on the contention that the basis of the relationship between him and Mr Shepherd is only to be found in the articles, the Agreement and the Anti-Embarrassment Deed. It is not part of Mr Shepherd’s case that there was a quasi-partnership prior to the departure of Mr Walker. It is also true to say that the Company was at all times legally advised; Mr Davies asks me to infer from this that the members always ensured that the terms on which they participated as members of the Company were set down in writing with due formality and the benefit of legal advice. I observe also that the Agreement contained “no partnership”, “entire agreement” and “no amendment or variation save in writing signed by all parties” clauses, attempting to exclude any side agreement creating a new relationship between the shareholders.

Mr Shepherd’s evidence as to his agreement with Mr Williamson was fairly vague and he did not recollect the discussions in detail as to wording or the precise time when they occurred. It seems to me unlikely that there was any articulated agreement that article 8.11 would not apply for the future. The discussions at the time of the proposed restructuring are neutral in this regard, but Mr Shepherd’s desire to stay on at the Company when negotiations to buy out his shares broke down is not. If he really believed that article 8.11 did not apply there would have been no need for Mr Shepherd to remain.

That said however, there must have been, and I find that there was, some discussion about the future of the Company and how it should be managed at that time. Mr Williamson himself accepted in cross-examination that he and Mr Shepherd agreed that it would be better if just the two of them were to run the Company without any other shareholders. Although he denied that it was specifically agreed that they would both continue to be employed by the Company he accepted that it was understood that the shareholders would be working directors. He agreed that it was never contemplated that there would be non-executive directors.

I find that there was some discussion between Mr Shepherd and Mr Williamson after Mr Walker’s departure to the effect that they would run the Company between them thereafter. I also find that there was an understanding that both shareholders would be working directors, running the Company together.

Ultimately the question of whether there was an express agreement is of minor significance. After Mr Walker left there were just the two directors and shareholders. Neither could under the existing terms of the documents remove the other as a director, shareholder or employee. Moreover under clause 10.2 of the Agreement each owed the other obligations of good faith and to act in accordance with the spirit of the Agreement. It plainly never crossed the minds of Mr Williamson or Mr Shepherd that either of them would not be a working director. Each shareholder was to be a director and each shareholder was expected to be a working director.

In my judgment, article 8.11, strictly construed, means what it says in that it provides for a fixed price for an outgoing shareholder when he ceases to be an employee or when he ceases to be a director. However, this finding is subject to two important caveats. First, what amounts to an expropriation of shares at a bargain price cannot be engineered by forcing an employee out unfairly. Mr Williamson admitted that he would have been outraged if Mr Walker and Mr Shepherd had orchestrated his dismissal as an employee and then sought to acquire his shares at the fixed price. He fairly accepted that he did not think that article 8.11 was intended to cover the involuntary departure of an employee who was ousted by his fellow shareholder. I agree.

Secondly, the article has to be construed against the wider background of the relationship between the parties which I have already examined. There were two shareholders and two directors (both of whom were entrenched as such under the Agreement) and both of whom were employed in running the Company.

The effect of the disjunctive interpretation is not therefore that one shareholder could oust the other and cause a sale at a fixed price. It is merely that (provided his fellow shareholders were willing to acquire his shares) a shareholder could not choose to retire from his employment without also ceasing to be a director and a shareholder. He had to remain a working director or retire from the Company altogether.

The starting point of the Court’s analysis is always the articles of association and any shareholders’ agreement. In order to find a quasi-partnership the court must find something to move it from the view that the basis of the parties’ association is adequately and exhaustively laid down in these documents. In my judgment in all the circumstances of this case the totality of the arrangements between the members is not to be found in the articles and other written documents alone. At latest when Mr Williamson and Mr Shepherd became the sole directors and shareholders the Company became a quasi-partnership. The elements mentioned by Lord Wilberforce in Westbourne Galleries at 379 are all present, namely (i) an association continued on the basis of mutual confidence, (ii) an understanding that the shareholders should participate in the conduct of the business and (iii) a restriction on the transfer of the members’ interests in the Company.

In my judgment Mr Williamson is bound by the findings of fact made by the Tribunal: see the observations of Roth J in Shah v. Shah [2010] EWHC 313 (Ch) at [74]–[89], based on Johnson v. Gore-Wood & Co [2002] AC 1 per Lord Bingham at 31 B-G. I agree with Roth J that where the Company’s defence in the Employment Tribunal has been conducted by one director-shareholder there is sufficient identification of that person with the Company for an issue estoppel to arise. I would add that this proposition was not seriously disputed by Mr Davies.

I bear in mind that in its statement of reasons on liability, the Tribunal said (paragraph 3):

One question is therefore, what findings did the Tribunal make? I rely on the following findings:

At the management meeting on 29^th October 2007 Mr Peters did report the matters set out in the Petition, mentioning Mr Kelly as the source of his information.

Mr Shepherd reasonably believed that there was collusion between Mr Peters and Mr Kelly in relation to the hotel project. For the record I should however make it clear that it was not found (nor is it asserted) that any covers were actually given by the Company since the start of the OFT investigation. Mr Williamson consistently denies any such misconduct attaching to the Company’s bid for the hotel contract.

Mr Williamson turned a blind eye to Mr Peters’ disclosure of collusive practices.

Mr Shepherd did have a conversation with Mr Williamson after the main management meeting, a conversation which Mr Williamson denies took place, in which Mr Shepherd told Mr Williamson that collusive practices of covering and buying were unacceptable and Mr Williamson shrugged off Mr Shepherd’s concerns.

Mr Vann approached Mr Shepherd later on the same day and gave him a post-it note listing the names of the other three contractors for the project stating that he believed that the name underlined was that of the coverer.

The telephone call was made at a time when Mr Shepherd was fearful of the outcome of the OFT investigation and considered that the Company’s conduct had to be ‘lily-white’.

The telephone call was not made as part of a negotiating tactic, nor with the intention of harming the Company.

On the contrary, it was made with the intention of protecting the Company and preventing it getting into further trouble.

The immediate purpose of the telephone call was to warn the hotel company of collusive practices in the hope that it would launch an investigation.

Mr Shepherd reasonably believed that if he raised the matter with Mr Williamson again he would be victimised.

There was no valid reason for non-payment of the 2007 bonus, its non-payment being a direct result of the protected disclosure.

The redundancy process was contrived and artificial.

I would add that I have heard a great deal of evidence in this court on several of these issues, namely Mr Shepherd’s motives in making the telephone call, the meeting between him and Mr Williamson after the main meeting on 29^th October 2007, non-payment of the 2007 bonus and the redundancy process. If I am wrong and I am not bound by the Tribunal’s findings (or it would not be an abuse of process for Mr Williamson to re-open them) I have come to the same conclusions myself on these issues on the basis of the evidence I have independently heard.

In theory, different considerations apply in the case before me to the issue of Mr Shepherd’s good faith or otherwise in making the telephone call. The Tribunal found that Mr Shepherd did act in good faith, but that was in the context of the two statutes I have mentioned, which are not in issue in this case, and in circumstances where the burden of proof was on the Company to establish the absence of good faith. I observe however that the statutes considered by the Tribunal contain no definition of good faith and that the authorities relied on were of general application.

S. 172 (1) of the Companies Act 2006 provides,

the likely consequences of any decision in the long term,

the interests of the company’s employees,

the need to foster the company’s business relationships with suppliers, customers and others,

the impact of the company’s operations on the community and the environment,

the desirability of the company maintaining a reputation for high standards of business conduct, and

the need to act fairly as between members of the company.”

I am asked to decide whether Mr Shepherd acted in good faith for the purposes of s. 994 and therefore taking into account the matters specified in s. 172. I do that against the specific findings of fact made by the Tribunal as to Mr Shepherd’s motives in making the telephone call, findings with which, as I have said, I in any event agree.

Mr Davies submitted as follows. The hotel chain was the Company’s most important client at the time of the telephone message, accounting for some 80% of its turnover if it were to obtain the hotel contract. The Tribunal found that the voicemail message was potentially damaging to the Company and that Mr Shepherd hoped that the hotel chain would ask the Company to withdraw its tender. The message therefore put the Company at risk of serious financial harm and also risked damaging the Company’s reputation. There were other more appropriate ways in which Mr Shepherd could have dealt with the situation bearing in mind his directorship and shareholding. He could have issued clear instructions to the Company’s employees, taken legal advice from Harvey Ingram, and brought the matter to a head with Mr Williamson. Instead, submitted Mr Davies, Mr Shepherd adopted the extreme tactic of making an anonymous telephone call direct to the Company’s main client and then went on holiday for a week.

Mr Davies submitted that in the circumstances it was Mr Shepherd who precipitated the breakdown in the relationship between the two men and Mr Williamson was right to be concerned that Mr Shepherd could no longer be trusted to act in the best interests of the Company. Mr Shepherd’s conduct, submitted Mr Davies, was accordingly “underhand, reckless and potentially extremely damaging to the Company, even if, as found by the Tribunal, he acted in good faith”. It was also dishonest as to his initial denial of responsibility. By contrast, Mr Williamson acted in good faith, in what he considered to be in the best interests of the Company and on the basis of legal advice, both in suspending Mr Shepherd and in contesting the proceedings in the Tribunal.

The problem with these submissions is that they are to a large extent based on Mr Williamson’s version of the events of 29^th October 2007 being the correct one. His evidence and that of Mr Peters, Mr Vann and Mr East as to what happened was disbelieved by the Tribunal. The Tribunal also made the following comment:

It is true that some the Company’s employees have said that Mr Williamson gave instructions following the commencement of the OFT investigation that the Company should not participate in covering. They have also given evidence that since then the Company has not to their knowledge in fact done so. If, however, as the Tribunal in effect found, Mr Williamson was turning a blind eye to the fact that the Company had improperly received information about collusive activities, it does not lie in his mouth to say that Mr Shepherd should have taken other action to deal with the matter in the face of (a) his dismissive reaction to Mr Shepherd’s concerns and (b) the false or at best incomplete story given by him and the associate directors to Harvey Ingram in November 2007. I do not in such circumstances accept Mr Davies’s submission that Mr Shepherd’s conduct was an overreaction.

Further it is not entirely correct to say that Mr Williamson acted on the advice of his solicitors when on a number of occasions Mr Saul expressed his doubts as to Mr Williamson’s authority to conduct a disciplinary process against Mr Shepherd.

Again I do not think it lies in Mr Williamson’s mouth to say that Mr Shepherd abdicated his responsibilities of addressing the problems of collusive trading when he was insistent that there were no such problems. He cannot say that Mr Shepherd abdicated his responsibilities of dealing with the OFT when he had been suspended from the Company and his grievances about what had happened were comprehensively (and wrongly) denied.

Applying the criteria laid down in s. 172, Mr Shepherd was balancing the deleterious consequences of his conduct as far as its relations with its major customer was concerned, and the potential for damage to the Company’s employees if the contract was not gained, (s. 172 (1) (a) (b) and (c)), against the Company’s reputation as a whole (s. 172(1)(d) and (e)) in the light of the OFT investigation.

The decision as to what promotes the success of the Company within s. 172(1) is one for a director’s subjective judgment, exercised in good faith: see per Lord Greene MR in Re Smith and Fawcett limited [1942] Ch 304 at 306, per Jonathan Parker J in Re Regentcrest plc v. Cohen [2001] 2 BCLC 80 and see also Extrasure Travel Limited [2003] 1 BCLC 598. In my judgment Mr Shepherd cannot be criticised for wanting to ensure that the contract was not obtained by the use of collusive activities, irrespective of whether it meant that the Company might lose the contract altogether.

The Court may make an order under s. 994 if, but only if, a member can show that the affairs of the Company have been conducted in a manner unfairly prejudicial to his interests as a member, or of the members generally: see Re a Company (No 004175 of 1986) [1987] BCLC 574. The requirement that prejudice must be suffered as a member is not to be too narrowly construed: see Gamlestaden Fastigheter v. Baltic Partners Limited [2008] 1 BCLC 468 at [35]. Further, the conduct complained of must be both unfair and prejudicial to the petitioner: see Re Saul D Harrison & Sons plc [1995] 1 BCLC 14. The use of the word “unfairly” enables the Court to have regard to wider equitable considerations: Re a Company (No 00477 of 1996) [1986] BCLC 376 at 378h.

The essential element of unfairness is a breach of the agreement between the members regarding the conduct of the affairs of the Company: O’Neill v. Phillips [1999] 1 WLR 1092. In the case of a quasi-partnership, the Court may, as a matter of equity, treat conduct which whilst permitted by the Company’s formal constitution, is inconsistent with the true agreement or understanding between the parties as unfair.

A breach of duty by a director does not of itself amount to unfair prejudice: see Re Saul D Harrison (above). That question again depends on whether the conduct is contrary to the underlying agreement between the members in relation to the Company. Thus conduct for an ulterior purpose, or conduct in breach of duty which causes the Company loss, or a diminution in value in the shares, may be unfairly prejudicial. A member’s interests will be prejudiced where the respondent’s conduct causes, or threatens to cause, damage to the value of his shareholding. However the fall in the value of the Company’s shares is not the only test. The exclusion of the petitioner from his legitimate expectation of participation in a quasi-partnership situation is a classic instance of prejudice: see e.g. Quinlan v. Essex Hinge Co Ltd [1996] 2 BCLC 417.

There is no concept of “no fault divorce” in a s. 994 petition. A petitioner who cannot show that he has been the victim of unfair prejudice is not entitled to a remedy even if, in the context of a quasi-partnership, there has been a breakdown in trust and confidence between the members: Re Phoenix Office Supplies [2003] 1 BCLC 76. There is “no stark right of unilateral withdrawal”; see O’Neill (above) at 1104. In Grace v. Biagioli [2006] 2 BCLC 70, Patten J, giving the judgment of the Court of Appeal, said at [77],

A petitioner’s own misconduct may be relevant to the grant of relief: see Re RA Noble & Sons (Clothing) Ltd [1983] BCLC 273 and Re London School of Electronics Ltd [1986] Ch 211 at 222 per Nourse J. While there is no requirement that the petitioner should come to the court with clean hands, the petitioner’s conduct may mean that the harm inflicted on him was not unfair or that the relief granted should be restricted.

Mr Shepherd’s grounds for the Petition under s. 994 are that Mr Williamson, without authority and in breach of his obligations of good faith towards Mr Shepherd, assumed control of the Company, locking Mr Shepherd out of the management. Secondly it is alleged that Mr Williamson has been guilty of misconduct in relation to the Company by reason of alleged breaches of statutory and fiduciary duties which he owed as a director. Thirdly it is alleged that Mr Williamson has sought to acquire Mr Shepherd’s shares at the fixed price provided for in article 8.11 rather than at their true market value.

Mr Davies put forward two principal arguments against Mr Shepherd’s claim of unfair prejudice. His main argument was that Mr Shepherd’s position as a member was not prejudiced and all the facts about the suspension from employment were therefore of marginal relevance. Secondly he contended that offers Mr Williamson made to Mr Shepherd mean that in any event there has been no unfair prejudice. I propose to deal with these matters in turn.

Mr Davies submitted, rightly, that it does not follow from the Tribunal’s finding that Mr Shepherd was subjected to a detriment as an employee as a result of having made a protected disclosure that he has been unfairly prejudiced in his capacity as a member.

However, the artificial and contrived procedure that was adopted by Mr Williamson in his efforts to dismiss Mr Shepherd and then to make him redundant excluded him from the participation in running the Company which he was in my judgment legitimately entitled to expect because of the nature of the quasi-partnership between the two men.

There was no proper ground for excluding Mr Shepherd as an employee. It is nothing to the point that he received a full salary while suspended. There was no ground for excluding him as a director, an exclusion prohibited by the Agreement. While he stayed on, his expressed desire to retire on the grounds of ill-health and age were irrelevant.

It is wholly artificial to draw a distinction between Mr Shepherd’s role as an employee on the one hand and as a director and shareholder on the other. As Lord Hoffmann said in O’Neill at 1107B, the removal of a shareholder from substantially all his functions as a director can be unfairly prejudicial conduct. Mr Williamson changed the locks of the Company’s premises so that Mr Shepherd could only attend as an invitee or during office hours. Mr Williamson initially barred Mr Shepherd’s Company mobile phone and withdrew his Company car. Mr Williamson told Mr Shepherd that he must not have any contact with customers and commenced a disciplinary process in the name of the Company. Mr Shepherd was not provided with the financial information to which he was entitled. Everyone at the Company’s offices, including junior employees, would have known of his exclusion.

There was thus prejudice to Mr Shepherd in his exclusion from management. That prejudice was by its nature unfair, and all the more so because of the contrived procedures adopted to dismiss him, procedures which were designed to appear fair while the outcome was intended to be a foregone conclusion.

Mr Davies pressed the fact that Mr Shepherd was invited to attend board meetings. He said that there was therefore a distinction between Mr Shepherd’s position as an employee from his position as a director and shareholder. However, the invitations only began to be made after Mr Shepherd indicated through his solicitors that he intended to bring proceedings under s. 994. In any event, as I have said, Mr Shepherd’s entitlement was to be a working director, not a non-executive director permitted only to enter the Company’s premises when summoned by Mr Williamson.

Mr Davies also argued that Mr Shepherd’s position as shareholder was unaffected on the basis that there was no evidence that Mr Williamson had any agenda to force Mr Shepherd into a position where he had to sell his shares at the fixed price of £2.50 per share. I accept that Mr Williamson did not attempt to do so. However, he could not operate article 8.11 until Mr Shepherd either agreed to retire or was effectively dismissed from the Company.

I also accept that Mr Williamson’s motive in excluding Mr Shepherd was not exclusively to expropriate his shares at an undervalue. Mr Williamson had lost faith in Mr Shepherd and simply could not bear to work with him any more. However I do not accept that he had no intention of taking advantage of article 8.11 if he could. The intention to do so can be seen from the Instructions to Counsel of February 2009 and the conversations with Counsel in March 2009. Further Mr Williamson has expressly reserved the right to rely on article 8.11 if permitted to do so.

I do not accept Mr Davies’s submission that any prejudice suffered by Mr Shepherd was self-inflicted. I have dealt with the criticism of Mr Shepherd’s conduct in relating to the telephone call and in not returning to work in November 2008.

I must however deal with further matters under this head. It is said that Mr Shepherd voluntarily engaged in the disciplinary process. He himself initiated proceedings in the Tribunal. He chose to pursue his complaints against the Company and obtain an award against it. Mr Davies submitted that it is therefore not open to him to say that Mr Williamson had no authority on behalf of the Company to suspend him or to use the Company’s money in conducting and defending these processes. That would, submitted Mr Davies, be for Mr Shepherd to have his cake and eat it. He should not be able to rely on detriment to himself as a member rather than as an employee or rely on costs being incurred which he could have prevented.

The s. 994 proceedings were in practical terms concurrent with the proceedings in the Tribunal. I do not criticise Mr Shepherd’s conduct against the allegations made against him and the line taken by Mr Williamson and the Company’s associate directors. If and when it comes to quantum there may be arguments about double counting. That is to say, there may be issues as to how the Tribunal’s award dovetails with the valuation of Mr Shepherd’s shares. However I do not consider that it lies in Mr Williamson’s mouth to assert an authority he did not have for the purposes of these proceedings, particularly as he was alerted to his lack of authority both by Spearing Waite and by Harvey Ingram.

A further contention is that Mr Shepherd contributed to the deteriorating financial position of the Company by failing to approve the annual accounts and ignoring all invitations to attend board meetings for that purpose.

The deadlock in the administration extended to the approval of accounts. That deadlock led to a number of difficulties; in particular withdrawal of credit facilities from creditors and bankers which in turn affected the Company’s credit rating. There were also threats of prosecution from Companies House. However it puts it too high to contend that in refusing to attend board meetings Mr Shepherd abdicated his responsibilities as a director, acting deliberately in a manner contrary to the best interests of the Company either out of pique or to further his personal position in negotiations with Mr Williamson.

Mr Shepherd’s position appears from an email dated 31st October 2008 from Mr Mody of Spearing Waite to Mr Saul. Harvey Ingram had contended that all Mr Shepherd’s queries on the accounts had been dealt with by a letter of 29th January 2008. Mr Mody responded,

Until the OFT unequivocally determined the level of fine and it was clear that there would be no further comeback Mr Shepherd wanted the 2008 accounts to reflect the contingent liability to pay a fine to the OFT, contending that such liability ought to be reflected in both the 2007 and 2008 accounts. The accounts merely contained a note as to an unspecified future liability although Counsel had advised as to the minimum amount of the fine. Mr Shepherd’s position was that Mr Williamson was unreasonably refusing to consider that provision should be made in the accounts themselves for the potential fine. Even after the OFT’s decision, Spearing Waite continued to raise issues on the accounts, particularly in relation to the 2007 bonus.

The Company’s accountants, Clear & Lane, having seen Counsel’s advice, nevertheless said that it was inappropriate for provision to be made in the accounts and Mr Williamson’s case is that he had no option but to follow such advice. Mr Eaton Turner submitted that this advice must have been given on instructions from Mr Williamson. I cannot draw such an inference from the evidence before me.

However the whole issue must be viewed against the background of the continuing exclusion of Mr Shepherd from the business and against the continuing denials by Mr Williamson and the associate directors of Mr Shepherd’s version of events.

Thus the deadlock can only be considered in all the circumstances of the case, including the important one that Mr Shepherd was excluded from management and information relevant to management of the Company. His concerns that his allegations should be investigated were stated to be false and ignored. It seems to me that Mr Williamson’s remedy in relation to the deadlock was to petition to wind up the Company, not to continue to require Mr Shepherd to approve the accounts.

I therefore do not accept that the prejudice caused to Mr Shepherd was self-inflicted or otherwise not unfair.

I conclude that Mr Shepherd’s exclusion from the Company was prejudicial to his interests as a member. I have concluded that the Company was a quasi-partnership and participation by both director-shareholders in its business was part of its agreed operation. Mr Shepherd’s expulsion prevented him from participating in the Company’s management and from contributing to the prosperity of its business which could lead to profits in which he was entitled, as a member, to share.

In O’Neill, Lord Hoffmann said at 1107,

Mr Williamson relied on what he said were fair offers for Mr Shepherd’s shares in which he did not seek to pay only the £2.50 per share provided for in article 8.11.

One offer preceded the principal events in question, being made in July 2007. That offer provided for a new company to acquire Mr Shepherd’s shares at a fixed price of £1m, only a quarter of which was to be payable immediately. The remainder of the consideration was to be deferred for a five year period without any security. The valuation of the Company was based on a historic valuation of two freehold properties and there was no provision for an independent valuation which would arrive at a fair value. Mr Shepherd was unhappy at, among other things, the long period of deferral and made various counter-proposals which were not pursued.

A second offer was made on 2nd October 2008 of a fixed sum of £400,000 plus Mr Williamson’s half interest in a villa in Spain which he shared with Mr Shepherd. As I understand it, that offer is not in itself relied on as a fair offer as defined by O’Neill principles. However a further offer was made by email dated 5^th November 2008. This contains a brief preliminary to an offer in the following terms,

I note the background to this offer. Mr Shepherd was still complaining about how the costs of the abortive mediation were being paid, he was still suspended, his 2007 bonus was still being withheld and he was denied access to management accounts and the minutes of and papers for management meetings. The offer was followed only a few days later by the invitation to return to work.

In these circumstances the offer cannot in my judgment be construed as an offer capable of acceptance to buy at a fair value of the kind contemplated by Lord Hoffmann in O’Neill. There was still no equality of arms; it was unfair to expect Mr Shepherd to take the risk of a valuation at current values without knowledge of what had happened during his period of suspension. There was to be no consideration of the costs question, no provision for the valuer to take account of costs of the disciplinary process paid out of Company moneys and no provision for payment of the 2007 bonus.

Most important of all, the only sensible way of interpreting the second quoted paragraph is to say that the offer was not intended to bind Mr Williamson to buy at the price fixed by the valuer. He was reserving the right to reject the valuation and put the company into liquidation instead. I do not think that Mr Williamson can for this purpose rely on the fact that the winding-up option had been proposed by Mr Shepherd in August 2007, before the suspension.

In these circumstances I accept Mr Eaton Turner’s submission that the offer would not have enabled Mr Williamson to strike out the petition on the ground that he was offering Mr Shepherd all that he was entitled to recover. In other words, this was not an O’Neill type offer.

In my judgment Mr Shepherd has made out the case in his Petition for unfair prejudice under s. 994 and, in principle, for Mr Williamson to be ordered to buy his shares.

The parties are at odds as to the date of valuation and, indeed, Mr Davies submitted that no purpose would be served by ordering Mr Williamson to buy his shares since the Company is insolvent; it would be unjust for the price to be determined by reference to a back-dated valuation.

Mr Shepherd’s contention is that his shares ought to be purchased at a back-dated valuation and his primary position is that the date should be the date of his exclusion on 28th November 2007.

The Company’s fortunes declined at the time of Mr Shepherd’s exclusion. Mr Williamson had sole control. On the other hand Mr Williamson’s evidence is that the reasons for the Company’s failure are complex and predominantly outside his control. He also maintains that Mr Shepherd’s conduct in refusing to take any steps towards approving the accounts itself contributed to the decline.

The Court has a very wide discretion as to the relief it grants under s, 994 and this discretion extends to the date of valuation. The overriding consideration is that the Court must select a valuation date that is fair on the facts of the particular case.

In Profinance Trust SA v. Gladstone [2002] 1 BCLC 141 the Court of Appeal considered and analysed the authorities in this context, in particular Scottish Cooperative and Wholesale Society Limited v. Meyer [1959] AC 324, Re London School of Electronics Limited [1985] BCLC 273, Re a Company (No 002612 of 1984) (1986) 2 BCC 99, Re OC (Transport) Services Limited [1984] BCLC 251, Re Bird Precision Bellows [1985] BCLC 493, (on appeal from Re a Company above) Re Cumana Limited [1986] BCLC 430 and Re Elgindata Limited [1991] BCLC 959.

In Profinance the Court of Appeal said that there were two competing considerations that the court must bear in mind in deciding what is a fair valuation date. The first is that the shares should be valued at a date as close as possible to the actual sale so as to reflect the value of what the shareholder is selling. That consideration militates in favour of valuation at the date of the court’s order. The second is that a valuation at the date of the petition may be appropriate because that is the date on which the petitioner has elected to treat the unfair conduct as destroying the basis on which he continued to be a shareholder.

The Court of Appeal rejected the statement of Vinelott J in Re a Company (above) that a departure from valuation as at the petition date must be justified on the ground of some special circumstance, holding that the starting point was that an interest in a going concern ought to be valued at the date of the order. However the Court reiterated the overriding requirement of fairness on the facts of the particular case. As Oliver LJ said in Re Bird Precision Bellows (at 672), what the Court is required to do is that which is just and equitable between the parties.

It is evident from Profinance that the clearest reason for selecting an early valuation date is that there has been a major change in the company’s business, whether for better or worse.

Robert Walker LJ, giving the judgment of the Court, set out at [61] by reference to the authorities, some of the relevant circumstances in which fairness requires the Court to take a date other than the date of the order,

Thus it may be appropriate to specify an early valuation date where it is simply unclear whether the respondent’s conduct after the date of unfairly prejudicial conduct has caused the diminution in the value of the shares, on the basis that it is unfair for the petitioner to assume the burden of the risk: see Re OC Transport. In Croly v. Good and Others [2010] EWHC 1 (Ch) His Honour Judge Cooke (sitting as a deputy Judge of this Division) fixed the date of valuation as the date of expulsion, although that was considerably earlier even than the date of the Petition. One factor relevant to his finding that a valuation after the date of expulsion would be unfair to the petitioner was that the company had been put into administration by the majority shareholder for the purpose of implementing a pre-pack sale of its assets to a new company owned by that shareholder and his wife. The Judge said at [113],

Factors which are relevant to the date of valuation in the present case are the following:

There is little information about the pre-pack sale and there is no valuation evidence. The question of expert evidence has been left to the second part of the split trial. Mr Eaton Turner suggested as a fallback that the lack of valuation evidence could lead me to defer the decision as to the date of valuation. I of course agree that decisions are best made with all relevant evidence before the Court. However, it does not seem to me that expert evidence on values at different times should affect the Court’s decision as to which date should be selected. That is the wrong way round.

Mr Williamson did all he could to exclude Mr Shepherd from the Company. He apparently believed that his conduct was commercially and morally justified. However he had no right to do so and he was told that he had no right to do so.

In all the circumstances it would in my judgment be unfair to Mr Shepherd if he were to be left with the value of his holding at the date of the order. Further, despite the considerable amount of time that has passed since the exclusion, it seems to me that the only fair and proper course is to order that Mr Shepherd be bought out at a price fixed by reference to the value of his shares at the date he was excluded, namely 28^th November 2007.