McKillen v Misland (Cyprus) Investments Ltd & Ors

This judgment is concerned with applications by the petitioner and claimant, Patrick McKillen, to make very extensive amendments to his Petition and Particulars of Claim in an associated Part 7 claim, and with an application by one of the respondents to the petition, Derek Quinlan, for further information. I will deal first with the amendment applications, which raise a significant number of issues, both of principle and detail.

The proceedings are brought by Mr. McKillen in relation to the affairs of Coroin Limited (the company) against Sir David and Sir Frederick Barclay (“the Barclay Brothers”) , trusts and companies associated with or controlled by them (“the Barclay Interests”), and present and former directors of the company. They were commenced on 5^th October 2011, when a Petition under section 994 of the Companies Act 2006 was presented and a claim form endorsed with Particulars of Claim was issued.

The proceedings raise serious allegations against the respondents in connection with the plan by the Barclay Brothers to obtain control and ownership of the company and hence of the hotels which it indirectly owns.

The need to hear the proceedings as quickly as reasonably possible was apparent and was supported by evidence from the company’s independent chief executive, who takes a strictly neutral stance in these proceedings. At a directions hearing on 22^nd November 2011, I made an order for an expedited trial, which was not opposed by any party. I gave directions for disclosure, exchange of witness statements and so on, all on a tight timetable. Shortly after the hearing, a trial date starting in mid-March 2012 was fixed.

On the petitioner’s application, permission was given on 22^nd November 2011 to make significant amendments to the Petition and the Particulars of Claim. At a PTR on 10^th February 2012, counsel for Mr. McKillen indicated that an application might be made further to amend the Petition and Particulars of Claim. I directed that any such application be issued by 17^th February for hearing at a further PTR on 24^th February. An application was issued on 17^th February seeking leave to make wide-ranging amendments. In the light of points taken by the respondents in their skeleton arguments, a revised draft of the proposed petition was produced on 26^th February.

While some relatively minor amendments are not opposed, the significant amendments are opposed on essentially two grounds. First, the amendments do not raise an arguable case. Secondly, the application is made very late and the amendments should not be allowed in view of the imminence of the trial.

I will take the second of those objections first. The respondents referred to the decisions of the Court of Appeal in Worldwide Corporation Limited v GPT Limited [1998] EWCA (Civ) 1894 and Swain-Mason v Mills and Reeve [2011] EWCA (Civ) 14. Those decisions established the modern approach to be taken to late applications to amend statements of case. It is no longer enough to say that the payment of the opposing party’s costs will be sufficient to compensate for the lateness of the amendment provided only that the opposing party is not prejudiced in meeting the new case.

In Worldwide Corporation Limited v GPT Limited, Waller LJ giving the judgment of the court said:

The circumstances of the Worldwide Corporation and Swain-Mason cases were rather different from the circumstances of this case. They were both cases which had been proceeding to trial over a considerable period and where the applications to amend were made at a very late stage and were not the result of recent developments such as late disclosure. In the Worldwide case, the application was made in the first week of a five-week trial. I have already referred to the timetable in the present case, which has put great pressure on all parties, with disclosure, the exchange of witness statements and the start of the trial all occurring within a period of two months. The scope of the case is considerable. I am told that the respondents’ disclosure comprises more than 25,000 documents.

The amendments proposed by Mr. McKillen arise in substantial part from the disclosure and inspection of documents which took place only three or so weeks before the amendments were formulated. While it is right that the trial is now due to start in two weeks’ time, the petitioner cannot, in the main, be criticised for the application being made at this stage. I will not therefore refuse the amendments on the grounds of lateness.

I turn, therefore, to consider whether the amendments, or any of them, should be refused on the grounds that they do not put forward an arguable case. The parties are agreed that the correct test is that applicable to applications for summary judgment under CPR Part 24. I heard extensive argument on this question. So close to trial, it might be tempting either to refuse them all on the grounds of lateness or to allow them all and leave it all for argument at trial. I have explained why the first approach would be wrong. I consider also that the second approach would be wrong. The amendments are so extensive that it is difficult to assess the extent to which they would widen the scope of the trial. I am far from satisfied that they would not do so. Moreover, the structure of the proposed Petition and Particulars of Claim is so complex that it is essential at this stage to analyse the amended case sought to be made.

The importance of statements of case as the means by which the real issues in the case are defined is clear in all cases, but it is of particular importance in proceedings under section 994 of the Companies Act 2006 where the jurisdiction is so widely expressed. This was recognised in In re Tecnion Investments Ltd [1985] BCLC 434 at 441 by Dillon LJ who, as a first instance judge, had early experience of the new unfair prejudice jurisdiction introduced by section 75 of the Companies Act 1980.

I will deal with the proposed amendments to the Petition principally by reference to the subject areas which they cover before turning to the Particulars of Claim in the Part 7 action. My concerns with the present structure of the amended petition will become apparent as I deal with each area.

Mr. McKillen seeks to introduce a new case that the Barclay Brothers were de facto or shadow directors of the company. Paragraph 60A of the proposed petition alleges that,

Paragraph 60A then sets out in sub-paragraphs (a) to (t) the matters on which Mr. McKillen will “in particular” rely in support of this allegation. In the proposed paragraph 78.1, it is alleged :

In paragraph 78.2, it is alleged that the Barclay Brothers have breached those duties by causing the directors appointed by the Barclay Interests to take steps pleaded elsewhere and by pursuing their scheme to obtain control and ownership of the company. The directors appointed by the Barclay Interests are called in the petition “the Barclay nominee directors”, but because that may be thought to pre-judge an issue, I will refer to them as “the Barclay appointed directors”.

It is necessary first to say something about what is meant in law by “de facto” and “shadow” directors. I will start with the relevant provisions of the Companies Act 2006. Part 10 contains the provisions dealing with directors including the statement of their duties. Section 250 defines “a director” in terms which are substantially the same as used in successive Companies Acts as “any person occupying the position of director by whatever name called”. “Shadow director” is defined in section 251(1), again in familiar terms as a “person in accordance with whose directions or instructions the directors of the company are accustomed to act”. By section 251(2), a person is not to be regarded as a shadow director “by reason only that the directors act on advice given by him in a professional capacity.”

Section 170 which introduces the section setting out the duties of directors, called “the general duties”, provides as follows in subsections (3) to (5):

It is clear, therefore, that a real difference exists between directors – that is persons occupying the position of directors by whatever name called – and shadow directors, as defined in section 251(1). I agree with Mr. Marshall, appearing for Mr. McKillen, that a de facto director is one who fits within the definition of a director in the sense of occupying the position of a director, albeit that no attempt to appoint him as such may ever have been made. Directors, including de facto directors, are subject to the full range of fiduciary duties set out in the Act. Shadow directors are subject to those duties only to the limited extent provided by section 170(5). This reflects a real difference between their positions and involvement in the corporate governance of companies.

The law as to what constitutes a shadow director can now be regarded as well-settled. It starts, of course, with the statutory definition, the effect of which has been elucidated in some of the authorities, often in the context of director disqualification proceedings, and in particular by Morritt LJ in Secretary of State v Deverill (2001) Ch. 340. In paragraph 35, he set out five general propositions as regards shadow directors, of which I will cite the second as relevant, in particular, to the present application:

The well-known analysis of de facto and shadow directors by Millett J in Re Hydrodam (Corby) Limited (1994) 2 BCLC 180 has been qualified by later authorities but, subject to those qualifications, it still provides valuable guidance: see Lord Walker in HMRC v Holland [2010] 1 WLR 2793, at paragraph 111.

In the Hydrodam case, Millett J said, in terms which still largely hold true:

Two qualifications to that passage emerge from the authorities. First, it is not necessary that all the directors should act in accordance with the directions of the shadow director. It is enough that a majority do so. Secondly, it is not necessary that the shadow director should exercise control through the instructions which he gives over all the matters which are decided by the board. Subject to those qualifications, Mr. McKillen, in his petition, sets out to establish the matters identified in that passage by Millett J.

In HMRC v. Holland, at paragraph 109, Lord Walker, when discussing the qualification to Millett J’s analysis that a shadow director need not lurk in the shadows, gave as an instance of a shadow director:

I turn then to de facto directors on which the decision of the Supreme Court in HMRC v Holland is now the leading authority. The Supreme Court was divided 3:2 on the issue of whether the acts of an individual, carried out in his capacity as a director of the corporate director of a company, could constitute him a de facto director of the company, the majority holding that they could not do so. That is not an issue which arises on the present application.

The majority comprised Lord Hope, Lord Collins and Lord Saville. Lords Hope and Collins both analysed the concept of a de facto director and Lord Saville agreed with both judgments. All the Supreme Court Justices agreed that a single decisive test could not be formulated to determine whether a person was a de facto director and that all relevant circumstances must be taken into account.

The statement of Jacob J in Secretary of State v Tjolle [1998] 1 BCLC 333, at 343-344, was cited with approval. He said:

Also cited with approval was the statement of Robert Walker LJ in In Re Kaytech International Plc (1999) 2 BCLC 351, at 423-424, where he said, having cited the passage from Secretary of State v Tjolle:

In HMRC v Holland, Lord Hope expressed his conclusion in paragraph 39. Having accepted the force of what Jacob J had said, he continued:

Lord Collins said at paragraph 93:

At paragraph 94, as part of his conclusion, Lord Collins said that the question is whether the relevant person was “part of the corporate governing structure of the composite companies and whether he assumed a role in those companies which imposed on him the fiduciary duties of a director”.

Mr. Marshall emphasised, in the course of his submissions, one of the qualifications to the analysis of Millett J in the Hydrodam case. While Millett J had seen de facto and shadow directors as mutually exclusive categories, later authorities have rejected so rigid a distinction. In HMRC v Holland, at paragraph 110, Lord Walker cited with approval what Lewison J said in In Re Mea Corporation Limited (2007) 1 BCLC 618, at paragraph 89:

It is interesting to note that in In re Mea Corporation Ltd, Lewison J held that the respondents had been shadow directors although the case was put on the basis that they were de facto or shadow directors. He found that they had dictated company policy and given instructions to the de jure directors on which they were accustomed to act. It was, one may think, a classic case of shadow, rather than de facto, directors.

None of these authorities suggests that there is not a real distinction between de facto and shadow directors, nor would it be proper to do so given the distinction drawn by the Companies Act. The fact, as Lord Collins observed in HMRC v Holland, that the distinction has been eroded does not mean that it has disappeared. For the most part, it remains. The fact that persons in both categories will have a real influence in the corporate governance of the company does not mean that it need only be shown that a person has such influence for him to be both a de facto and a shadow director.

I turn to the proposed amendments to plead this part of the case. The same particulars are relied upon for the allegations that the Barclay Brothers were de factor and/or shadow directors. It is not suggested that either of them attended any board meetings of the company or any other meetings of officers or employees of the company as such. It is not suggested that either of them were ever held out within the company and its group or to anyone dealing with the company or to the outside world more generally as directors or officers of the company. It is not suggested that either of them ever acted on behalf of the company.

Some of the pleaded particulars are not particulars of acts relied upon as constituting them either de facto or shadow directors, but are matters which make it plausible that they might have been giving instructions to the Barclay appointed directors who between them carried the majority of the votes at board meetings. In paragraph 60A(a), it is pleaded that Mr. Faber had been the principal representative of the Barclay Brothers and their interests in relation to their attempts to obtain control of the company, handling negotiations with the Green family and Mr. Quinlan, and taking instructions from the Barclay Brothers. Sub-paragraph (b) pleads that Mr. Faber was appointed to the board of the company by Misland, a company which had been acquired by the Barclay interests, at the direction of the Barclay Brothers, and in order to represent their interests. Sub-paragraph (e) pleads that the decision to appoint Mr. Mowatt as a director to replace Mr. Quinlan on 16^th May 2011 was taken by the Barclay Brothers.

Paragraph 60A(c) pleads that the Barclay Brothers communicated orally and, in the case of Sir David Barclay, by text messaging. Sir David Barclay’s text messages have not, as yet, been disclosed although attempts are being made to retrieve them. This sub-paragraph is included to explain the paucity of written material to evidence instructions given by the Barclay Brothers. It is, as Mr. Marshall submitted, both proper and not unusual in cases such as the present for a claimant to rely, to some extent, on inferences.

Paragraph 60A(d) alleges:

It is necessary, therefore, to turn to paragraphs 33A and 37. Paragraph 33A does not, as such, address the question of board control, but pleads that from at the latest January 2011, Mr. Quinlan, by himself and by his alternate director, Mr. Murphy, assisted and supported the Barclay Brothers to further their plan to obtain control of the company to the detriment of Mr. McKillen.

Four matters are relied upon, of which two can be said to be relevant to the case made in paragraph 60A. First, Mr. Murphy said in an email dated 10^th March 2011 to Sir David Barclay,

These particulars in paragraph 33A arguably support an allegation of a willingness generally by Mr. Quinlan to do as he was told by, or on behalf of, the Barclay Brothers and are in that sense relevant, but they do not amount to facts from which an inference of involvement or instruction such as to constitute the Barclay Brothers de facto or shadow directors can be drawn.

Paragraph 37 pleads that from January 2011, Mr. Quinlan and Mr. Murphy would discharge their functions as director and alternate director respectively in a manner which mirrored or followed the actions of Mr. Faber and that it is to be inferred that Mr. Faber and Mr. Quinlan were acting on the instructions of, or at the direction of, the Barclay Brothers.

Particulars are given in six sub-paragraphs. Three of them cannot, in my view, support this allegation. Paragraph 37(c) pleads that Mr. Murphy, as holder of a power of attorney from Mr. Quinlan, and at the request of Mr. Faber, agreed to Ellerman being registered as holder of shares charged by Mr. Quinlan to secure a debt which had been acquired by Ellerman. This appears to be the consent of Mr. Quinlan as beneficial owner and, as it may be, the existing holder of the shares in question to the registration in Ellerman’s name. Sub-paragraph (e) refers to the conversion by Misland of its loan stock into non-voting shares and to Mr. Faber informing Mr. Murphy of this so that they could follow suit if they wished, and to Mr. Murphy replying, “We are happy to take your instructions on this.” Mr. Quinlan did indeed convert his loan notes. This was not action by Mr. Quinlan in his capacity as a director, but as an investor. Likewise, sub-paragraph (f) pleads that Mr. Murphy forwarded a request from an outside party for discussions about selling his shares to Mr. Faber asking, “What do you want us to do?” and to Sir David Barclay, saying “We will be guided by you and Richard Faber.” Sub-paragraphs (e) and (f) and possibly sub-paragraph (c) are relevant only as particulars of a willingness to follow the instructions of the Barclay Brothers or the Barclay Interests in relation to Mr. Quinlan’s investment in the company.

Paragraph 37(a) does relate to Mr. Quinlan’s actions as a director as follows:

Paragraph 37(b) refers to negotiations between Mr. Faber on behalf of the Barclay Interests and Deutsche Bank in relation to finance for the possible acquisition by the Barclay Interests of the company’s senior debt owed to NAMA. Deutsche Bank had previously acted for the company and requested a formal release from the company. On 2^nd February 2011, Mr. Faber emailed Mr. Quinlan asking him to “write supporting to release them”, presumably as a director of the company.

Paragraph 37(d) pleads a memorandum sent by Mr. Faber on 10^th February 2011 to someone who was being encouraged to seek to purchase Mr. McKillen’s shares with funding from the Barclay Brothers. In it, Mr. Faber wrote, “As we control the board votes thanks to our alliance with Derek Quinlan we can control the pre-emption process.” It is further alleged that on 25^th January 2011, Mr. Faber briefed a PR firm that the Barclay Interests controlled 60% of the board votes being those capable of being cast by Mr. Faber and Mr. Quinlan and that in an email to directors of MFL on 12^th April 2011, Mr. Faber said that Misland was able to pass board resolutions. These statements raise an arguable case that Mr. Faber and the Barclay Interests more generally perceived that they could, and if necessary would, control board votes, at least where the issue concerned the Barclay Brothers’ aim to obtain control and own the company.

Returning to paragraph 60A(d), it contains no particulars beyond those in paragraphs 33(a) and 37.

Paragraph 60(f) pleads further statements that the Barclay Interests (in this case the Barclay family) controlled the board of the company. These were contained in letters sent in similar form by Ellerman to two banks in May and June 2011 setting out a proposal to borrow funds to purchase the company’s senior debt from NAMA. Under the heading “Board Control”, the letters state, “This is exercised by three out of six directors. A resolution needs 100 votes to be passed” and Mr. Seal, Mr. Mowatt and Mr. Faber are then named with the number of their board votes which exceed 100. Under the heading “Sale of Major Asset”, the letters state:

Paragraph 60A(f) further pleads that the practice of Mr. Faber, Mr. Seal and Mr. Mowatt was to discuss the position that they would collectively adopt in relation to decisions on company matters. It continues that it appears that it was left to Mr. Faber to speak with the Barclay Brothers and relay the instructions to the others for this purpose although no particulars are given beyond the references in the letters.

Paragraph 60A(g) reads as follows:

No particulars of instructions from the Barclay Brothers are given, but they are said to be inferred from the fact that Messrs. Faber, Seal and Mowatt took decisions as directors with the objective of promoting the interests of the Barclay Brothers alone rather than the interests of the company with regard to various matters.

The first of those matters is said to be the decision to close the data room “referred to in paragraph 37(a) above.” As previously mentioned, no such decision, or if it was taken what was wrong with it, is pleaded in paragraph 37(a) or elsewhere.

The second is the resistance to the registration of JQ2 as a shareholder as set out in paragraph 49. In April 2011, JQ2, a company associated with Malaysian investors interested in acquiring the company, purchased a debt due from Mr. Quinlan to NAMA, which was secured on 13% of Mr. Quinlan’s shares. It applied to the company to be registered as the holder of those shares. It is pleaded in paragraph 49 that Messrs. Faber, Seal and Mowatt strongly objected to JQ2’s registration, which was delayed until the end of August 2011. While it is clearly arguable that it was in the Barclay Brothers’ interests to prevent or delay registration, it is also the case that Mr. McKillen, as a director, supported this course. The case that the Barclay-appointed directors were not acting in the interests of the company cannot be maintained unless Mr. McKillen likewise was not acting in the company’s interests, but the essence of this plea is that instructions from the Barclay Brothers can be inferred because the Barclay-appointed directors were acting in disregard of the company’s interests.

Thirdly, there is a compendious reference to paragraph 58. The general allegation in paragraph 58 is that in 2011 the Barclay appointed directors increasingly conducted the affairs of the company and the group without reference to Mr McKillen or other board members, and in a manner contrary to the interests of the company and Mr McKillen, as a member, and designed to exclude Mr McKillen. Particulars are given in ten sub-paragraphs. There is no alternative to going through each sub-paragraph.

Paragraph 58(1a) does not deal with a decision of the directors.

Paragraph 58(a) alleges that Mr. Faber and the other Barclays appointed directors conducted negotiations with Barclays Capital regarding the potential refinancing of the Company’s senior debt facilities, now with NAMA, on behalf of MFL and in the context of seeking funding for MFL to purchase the facilities from NAMA. I find this plea as a particular in support of the allegation of de facto or shadow directorship of the company confusing. If Mr. Faber was acting on behalf of MFL, how can it be said that he was taking decisions as a director of the company?

Paragraph 58(b) pleads that Mr Seal discouraged Mr Hennebry, then the chief financial officer of the company, from writing to NAMA or setting out the company’s right to be consulted on any transfer of the senior debt facilities, because he was aware of MFL’s discussions with NAMA to purchase the facilities. That, clearly, does relate to Mr Seal’s position as a director of the company.

In paragraph 58(c) it is alleged that in July 2011 Mr Faber directed the appointment on behalf of the company of Jones Lang LaSalle to prepare a valuation of the company. It is said that the valuation was commissioned for the benefit of the Barclay Interests because it was a pre-condition of the provision of finance by Barclays Capital for the purchase of the facilities from NAMA. Again, that relates to Mr Faber’s position as a director of the company.

Paragraph 58(d) pleads that on 9^th September 2011 the Barclays appointed directors dismissed Mr Hennebry without good reason and without board approval, and contrary to the interests of the company. Mr Faber had emailed Mr Seal and Mr Mowatt on 17^th August 2011 suggesting this step and saying it will “make our lives considerably easier”. Again, the dismissal of Mr Hennebry was action taken by those directors in their capacity as such.

Paragraph 58(e) alleges that the Barclay appointed directors blocked renovations and redevelopment at Claridge’s and The Berkeley against the interests of the company and to further the separate interests of the B Interests as owner of the Ritz and Cavendish Hotels. Mr Mowatt is a director of the companies owning those hotels. Again, this paragraph relates to those directors’ actions as such.

Paragraph 58(f) and (g) contain allegations that the Barclay appointed directors failed to disclose to the company, first, that the security held by Ellerman over 22% of Mr Quinlan’s shares had become enforceable, which would trigger the power of the board to require the pre-emption process to be followed in respect of them and, secondly, that MFL was negotiating to purchase the senior facilities from NAMA in circumstances where they were involved in negotiations on the company’s behalf with NAMA. Those, therefore, are allegations of an omission by the Barclay appointed directors in their capacity as such.

Paragraph 58(h) pleads that the Barclay appointed directors pressed Mr Hennebry to transfer intellectual property rights relating to the Berkeley Hotel from an Irish company outside the Coroin Group to a company within the Group. It is said that this was contrary to the interests of the company because it had previously been decided, for tax and other reasons, to be in the interests of the company and its shareholders for these rights to be held in this way. It is alleged that the real reason was to bring the rights within the security for the NAMA debt which MFL was negotiating to purchase. This is a difficult allegation to understand. While it might be contrary to the personal interests of the shareholders to do this, although this would need more particularity, nothing is pleaded which can sustain the allegation that it was contrary to the interests of the company.

Paragraph 58(i) contains a wholly unparticularised allegation that the Barclay appointed directors followed “the instructions, interests or perceived interests of the Barclay brothers.”

Returning to paragraph 60A, sub-paragraphs (h), (i) and (j) plead a memorandum sent by Mr Faber to Sir David Barclay on 1^st August 2011 setting out means of obtaining control of the company. It is alleged that it is implicit in the document, first, that the majority of the directors would take the board decisions specified in the memorandum and, secondly, that the Barclay appointed directors would pursue a refinancing with MFL even if better terms were available elsewhere. This is likely to be an important document at trial as regards the conduct and intentions of the Barclay Interests as shareholders in the company. I do not think that the document is capable of giving rise to the implications pleaded in these sub-paragraphs. There are references to board control by the Barclay interests but, as paragraph (c)(ii) of the memorandum makes clear, these are references to the common meaning of being entitled to appoint a majority of the board.

Sub-paragraph (k) pleads a draft response prepared by Sir David Barclay to a letter from Mr McKillen’s then solicitors. The draft includes a paragraph which is capable of suggesting that Sir David Barclay considered himself able to say what position the board of the company would take to Mr McKillen.

Sub-paragraphs (l) to (o) deal with the steps taken to address Mr McKillen’s suggestion that the company should appoint its own independent financial adviser. This was a matter for the board, and the documents pleaded raise an arguable case that Sir David Barclay was giving instructions or guidance as to the board’s decision.

Sub-paragraph (p) pleads that when Mr Cunningham wrote on behalf of Mr McKillen a letter dated 14^th September 2011 complaining, in particular, about the decisions of the Barclay appointed directors, Mr Faber sent a draft of the response to Sir David Barclay. Since the complaints made were said to stem from the Barclay Interests’ acquisition of shares in the company, this hardly seems surprising and cannot support an allegation of de facto or shadow directorship.

Sub-paragraphs (q) to (s) do not provide any support or substance to the allegation of de facto or shadow directorship.

My conclusions on the extent to which these various sub-paragraphs are even arguably capable of supporting a case of de facto or shadow directorship is as follows. I should say that, in approaching this, I have, as both Mr Marshall and Mr Hill urged me to do, considered their collective as well as individual effect.

The following sub-paragraphs contain no support for the basic plea: 33A(b) and (d), 37(a) and (b), 51(1a),(a), (h) and (i); the first and second sentences of paragraph 60A(f); the references in paragraph 60A(g) to the dataroom and to the delay in registering JQ2 as a shareholder; and paragraphs 68A(h)-(j) and (p)-(s).

The following paragraphs are capable of supporting a general plea that it is plausible that the Barclay Brothers might have given instructions to the Barclay appointed directors: 33A(a) and (c), 37(c), (e) and (f), and 60A(a), (b) and (e). There is nothing in 60(a)-(d) beyond the references to 33A(a) and (c) and 37(c)-(f).

The following paragraphs support a general allegation that the Barclay interests considered that they were able to control the way in which a majority of the votes on the board were cast: 37(d), 60A(k) and the fourth and fifth sentences of 60A(f).

Subject to the further factors considered below, the following paragraphs are the only ones which could provide any possible particulars of instructions to the Barclay appointed directors: 58(b)-(g) and 60A(l)-(o).

Three substantial points arise for decision. First, Lord Grabiner, on behalf of both the Barclay Brothers, made the important point that a case must be made against each of them. While the petition in some respects treats them collectively, for example, in their plan to obtain control and ownership of the company – I do not think that objection is taken to that – it is not said that each was the agent of the other or that any action of one is to be taken as the action of the other. While there are a number of the relevant paragraphs which particularise the involvement of Sir David Barclay, there is none which does the same for Sir Frederick Barclay. In fact, the only separate mention of Sir Frederick Barclay is that he received a copy of Sir David Barclay’s draft reply to the letter dated 12^th August 2011 from Mr McKillen’s solicitors. In my judgment, no arguable case is put forward as regards Sir Frederick Barclay.

Secondly, can the paragraphs which I have identified above support a case of de facto directorship against Sir David Barclay? In my judgment, they cannot. Even on the most expansive analysis of a de facto director, the pleaded case falls well short of what is arguable. I have already pointed out that there is no suggestion that Sir David Barclay was ever held out as a director or other officer of the company, or as having any place in its corporate governance, either externally or internally. He never attended any board or other meetings, or took part in any discussions on company matters with any directors except Mr Faber and, perhaps, Mr Seal and Mr Mowatt. There is no suggestion of his involvement in any decision of the board other than those specifically pleaded. I was shown the minutes of board meetings held in 2011 and they covered a wide variety of matters, but it is not suggested that Sir David Barclay had any involvement in more than a few of them. The alleged sporadic involvement in the shape of giving instructions or guidance to the Barclay appointed directors is, in my view, incapable of amounting to his assumption of the role or responsibilities of a director such as to subject him to the full range of statutory and other duties attached to a de jure or de facto director.

Thirdly, can those paragraphs support a case of shadow directorship against Sir David Barclay? As his alleged involvement is restricted to giving instructions, this would suggest that, if anything, he was a shadow director. The fact that his instructions were not in respect of anything like the full range of board decisions but were restricted to a narrow range of matters, almost all closely connected with the Barclay Brothers plan to obtain control, is not fatal to a case of shadow directorship. A person can be a shadow director and, arguably, owe duties to the company as such, not generally but in respect of those matters where he gives instructions.

I conclude on this aspect of the application that Mr McKillen should have permission to amend the petition to plead a case that Sir David Barclay was a shadow director of the company in respect of those matters on which he is said to have given instructions. Permission is not given to include in this any of the sub-paragraphs or parts of sub-paragraphs which I earlier indicated provided no support for the case.

The present structure of this part of the draft petition is not satisfactory. The extensive cross-references make it very difficult to follow and, in its present form, it will, in my view, impede the efficient conduct of the trial. The matters relied on need to be gathered together in one place, whether in the body of the petition or perhaps in a schedule.

I will deal now with the amendments which relate to clause 8.5 of the shareholders’ agreement. Clause 8.5 of the shareholders’ agreement provides as follows:

Reliance on clause 8.5 has always had a place in Mr McKillen’s petition. In the petition as presented, paragraph 59 read as follows:

Paragraph 59 was amended either in November 2011 or January 2012 so as to add a further sentence, which started: “In this regard”, and then referred specifically to the transfer of shares in Misland to B Overseas. That was the transfer which has been held not to trigger the pre-emption provisions because it was a transfer of shares in Misland, not a transfer of shares in the company. The amendment specifically raised the contention that, in those circumstances, it was a breach of clause 8.5 for Misland not to offer the shares held by it as if the pre-emption provisions applied to them. The addition clarified the extent to which the argument under clause 8.5 was being made. As I read the paragraph as amended, that argument was restricted to the impact of the transfer of Misland.

The amendments now proposed involve, in effect, a full-stop coming after clause 8.5 of the Shareholders’ Agreement, to be followed by the words, “In this regard and without prejudice to the generality of the foregoing”. There then follows what was added in November 2011 or January 2012 as sub-paragraph (a), and several further sub-paragraphs and sub-sub-paragraphs containing allegations of breach of clause 8.5.

In my view, these amendments, if allowed in their present form would be both embarrassing in the technical sense and would impede the efficient conduct of the trial. The unrestricted reference to “the matters complained of in paragraphs 22 – 58 above”, which are in the existing pleading, with anything like the expansion of those paragraphs proposed by Mr McKillen, would make it difficult, if not impossible, fully to see easily or at all the extent of Mr McKillen’s case. Sub-paragraph (c)(i) would require the judge the trawl back through the Petition to pick out the acts of the Misland-appointed director complained of in the petition. The brief reference to further breaches identified at paragraph 68(e) and (f) below in sub-paragraph (d) would increase these difficulties. There are also the opening words that the sub-paragraphs are “Without prejudice to the generality of the foregoing”.

What is needed, in my judgment, is a concise statement of the matters said to constitute a breach of clause 8.5 and the grounds on which each is said to be a breach, including any relevant interpretation attributed to clause 8.5 for the purposes of such alleged breach.

I shall come in a moment to the pleading of fiduciary duties between the shareholders, but I must mention paragraph 15 which, as proposed to be amended, would not only state the content of such fiduciary duties but also appears, as a result of the words in parenthesis “and in any event having regard to the express obligation of good faith”, to plead that the same duties arise under clause 8.5.

The obligations, as sought to be pleaded, are as follows:

The exact content of the contractual duty of good faith contained in clause 8.5 is, clearly, a matter for argument, but I consider it unarguable that it is as extensive as the fiduciary duties pleaded in paragraph 15. Neither of the decisions to which I was taken on the meaning of good faith clauses, that is to say, Barclay Community Villages Limited v. Pullen [2007] EWHC 1330 (Ch) and Horn v. Commercial Acceptances [2011] EWHC 1757 (Ch) begin to support so wide a statement of the effect of such clauses. In particular the fiduciary duties of loyalty and of avoidance of conflict of duty and interest cannot, in my judgment, be spelt out of clause 8.5. Rather than a general statement of the duties said to arise under clause 8.5, whether or not they are relevant to the case, the right course, in my judgment, is to identify each alleged breach of clause 8.5 and the grounds on which it is said to be a breach.

I turn, then, to the question of fiduciary duties. Mr McKillen applies to amend paragraph 15, as I have indicated, to introduce a case that the shareholders of the company owed fiduciary duties to one another. Paragraph 15, as it currently stands, reads as follows:

It is proposed to add, by way of amendment, the following: “Further in all the circumstances the relationship between the shareholders was a fiduciary one and in that context (and in any event, having regard to the express obligation of good faith) contained obligations”, and there then follows the statement of obligations which I have already set out. Many of the matters complained of in the petition, both as originally pleaded and as amended, are alleged also to be a breach of these fiduciary duties.

The respondents object to these amendments on the grounds that they are unsustainable as a matter of law, given, first, that the relationship between shareholders in a company is not one which gives rise to any fiduciary duties between them and, secondly, in this case the shareholders have spelt out detailed contractual obligations among themselves in the Shareholders’ Agreement.

Whilst it is accepted for Mr. McKillen that the status of shareholder does not normally impose any fiduciary obligations to other shareholders, it is submitted that certain features present on the facts of this case make it arguable that fiduciary duties, or obligations, do arise or are owed between the shareholders.

The features relied on are, first, the express obligations under clause 8.5 and, secondly, the other factors identified in paragraph 15 of the Petition, which I have read out. The Shareholders’ Agreement was in the nature of a joint venture which, it is said, is very capable of giving rise to a fiduciary relationship, and reference is made to the Australian High Court decision in United Dominions Corporation v. Brian Proprietary [1984-1985] 157 CLR 1. It is said that partners owe fiduciary obligations not because of the label applied to their relationship but as a consequence of the relationship of mutual trust and confidence which underlies it. It is said that the present arrangement between the shareholders was clearly a joint venture in which the investors were joined together on the basis of a relationship of mutual trust and confidence, as is evidenced from clause 8.5 in particular. It is said that the fact that there is a contractual framework does not prevent fiduciary obligations arising.

In his reply, Mr. Marshall also relied on clause 8.9 of the Shareholders Agreement, which provides:

In my judgment, a case that the shareholders owed each other fiduciary duties is not sustainable. Fiduciary duties arise where one person A holds property or exercises rights or powers for another, or for the benefit of another B. It is for that reason that A must deal with the property or exercise the rights or powers in the best interests of B and for the purposes which are properly within the scope of the power. It is for that reason that A owes a duty of loyalty to B and must not allow his duty to B to conflict with his own personal interests.

In Peskin v. Anderson, [2000] 1 BCLC 372, Mummery LJ said, at paragraph 34:

So also in Bristol and West Building Society v. Mothew [1998] Ch. 1, Millett LJ said in a well-known passage at page 18:

Accordingly, trustees, directors, solicitors and agents will all owe fiduciary duties. So, also, will partners, even though each partner is jointly holding property or exercising powers for his own benefit as well as for the benefit of his partners. It is because he acts for his partners as well as for himself that a partner owes fiduciary duties to his other partners. By contrast, the shareholders in the company own their own shares for their own benefit and not for the benefit of others. Likewise, all the rights and powers conferred on them by the Shareholders’ Agreement and the Articles of Association belong to them personally. There is nothing in the Shareholders’ Agreement which provides that the parties’ shares, rights and powers are held for the benefit of their fellow shareholders. Clause 8.15, which provides in standard form that the Agreement shall not be deemed to create any partnership between the parties in relation to the company or otherwise, is, in my judgment, a strong indication to the contrary.

Mr Marshall, for Mr McKillen, seeks to overcome this fundamental difficulty in a number of ways. First, he relies on the provisions of clause 8.5 imposing obligations of good faith, but these are contractual, not fiduciary, obligations, and their inclusion points, if anything, against the existence of fiduciary duties. If there are fiduciary duties which, on any footing, would be as wide as anything imposed by clause 8.5, and in my view a good deal wider, why include those contractual duties of good faith?

If fiduciary duties did arise, they would have to conform to the contractual provisions. I was referred to the decision of the Privy Council in Kelly v. Cooper [1993] AC 205 at 215. Lord Browne-Wilkinson, in giving the judgment of the Board, first cited a passage from the judgment of Mason J. in the High Court of Australia, in Hospital Products Limited v. United States Surgical Corporation (1984) 156 CLR. 41 at 97, where Mason J. said:

Mr. Marshall relied on the decision in Horn v. Commercial Acceptances, to which I have referred, but in that case Peter Smith J. held that the contractual duty of absolute good faith left no room for fiduciary duties. His decision that the contractual duty imposed an obligation of disclosure of material facts on the defendant before the claimant made an investment is consistent with and goes no further than the long-standing duty of disclosure owed by an insured to an insurer, contracts of insurance being like the contract in Horn, a contract of utmost or absolute good faith.

Mr. Marshall also relied on what he suggested were developments in the law relating to joint ventures whereby, although not partnerships, joint venturers could be held to owe each other fiduciary duties. He cited a passage from the majority judgment in the High Court of Australia, in United Dominions Corporation Limited v. Brian Proprietary Limited, to which I have referred, at pages 10-11. In my view, that passage provides no support for the proposition that parties to a joint venture agreement, which is not a partnership, owe fiduciary duties to each other. In fact, it is rather to the contrary effect. In his own separate judgment, Dawson J, at page 16 suggested that the relationship created by a joint venture, although not a partnership, “may nevertheless be a fiduciary one if the necessary confidence is reposed by the participants in one another”. He drew a parallel with a partnership. While accepting that the agency of partners was a reason for the existence of fiduciary relations between partners, he said that it was really the mutual confidence among partners which imposed fiduciary duties on them. This suggestion does not appear to have taken root in the following 27 years, judging by the authorities cited to me. Much depends on what is meant by mutual confidence. Particularly in the case of a contract containing express obligations of good faith, there are, in my judgment, no grounds for imposing anything further by way of or as a result of any mutual confidence.

The only joint venture case which Mr Marshall was able to cite which involved the imposition of fiduciary duties was the decision of Etherton J. in Murad v. Al-Saraj [2004] EWHC 1235 (Ch). However, it is clear from paragraphs 325 – 335 that the grounds for the imposition of fiduciary duties lay in the particular facts of the case in which the defendant acted as the claimants’ agent in most, if not all, aspects of the joint venture and in which the claimants entrusted the defendant with extensive discretion to act in relation to matters affecting the claimants’ interests. The reality was that the claimants were wholly dependent on the defendant for his advice and recommendation and for the negotiations and other matters in which he acted as the claimants’ agent. There are no such features alleged to exist in the present case. In the light of the particular circumstances of that case, Etherton J. said at paragraph 332: “The relationship between them was a classic one in which the Claimants reposed trust and confidence in Mr Al-Saraj by virtue of their relative and respective positions.”

Mr. Marshall relied on the pleaded relationship between the parties as being one of mutual trust and confidence, but it is not pleaded as a relationship in any sense comparable to that in Murad v. Al-Saraj. It may or may not be a relationship of trust and confidence of the sort discussed in Ebrahami v. Westbourne Galleries [1973] AC 360, although the complex commercial arrangements between the parties in this case will tell against that view. Even in a case such as Westbourne Galleries, it was not suggested that fiduciary duties arose, only that the exercise of legal rights might be subject to equitable considerations, such that the exclusion of one of the shareholders from management, contrary to the express or implicit understanding between the shareholders, could make it just and equitable to wind up the company or, now, give relief under the unfair prejudice provisions: see O’Neill v. Phillips [1999] 1 WLR 109 at 2.

Finally, Mr Marshall’s reliance in his reply on clause 8.9 does not, as it seems to me, help him. It does no more than preserve such rights or remedies as the parties may have at law or in equity. It provides no support for the existence of the fiduciary obligations, which Mr McKillen seeks permission to allege.

In my judgment, the claim for such fiduciary obligations cannot succeed, and I therefore refuse permission to amend to introduce it.

I turn now to the amendments proposed in the case against Mr Quinlan. The Petition in its present form conveniently sets out the allegations concerning Mr Quinlan in a single block in paragraphs 34 – 42(d). The draft amendments not only add greatly to those paragraphs but add other allegations, sometimes repeating those which have gone before, in a number of other paragraphs in different parts of the draft. Again, this is confusing, making it difficult to follow the case. So far as possible, and to the extent that I permit the amendments, the case against Mr Quinlan or in respect of his actions should be contained in one section of the petition. The first proposed amendment is the addition of paragraphs 33A – 33E, running to some seven pages.

The main part of paragraph 33A reads:

Counsel for Mr McKillen agreed to delete the reference to Mr Kelly, as no case at all is particularised against him. The words “without prejudice to the generality of this” are objectionable. The “matters set out further below” need to be specified both because they are too vague and because the matters set out in sub-paragraphs (a) – (c) are not instances of assistance and support, but expressions of willingness to give assistance and support. They are not irrelevant but they do not make the case.

I asked Mr Marshall for a list of the matters referred to and he identified the following: the last sentence of paragraph 33D(d), the exclusivity agreement referred to in paragraph 33D(e), the last sentence of paragraph 33D(h), the agreement of 17^th February 2011, referred to in paragraph 33D(m) and (n), the power of attorney referred to in paragraphs 33D(o) and 38A, the agreement referred to in paragraph 34 and the matters pleaded in paragraph 37. These should be expressly identified in paragraph 33A or, perhaps, in a schedule.

Paragraph 33B pleads that the support and assistance was given in breach of clause 8.5 of the Shareholders’ Agreement and in breach of fiduciary duties said to be owed between the shareholders. For the reasons earlier given, the case of breach of fiduciary duty is not sustainable.

As regards the alleged breach of clause 8.5, the pleading should set out concisely the interpretation of 8.5, which makes these actions a breach.

Paragraphs 33C to 33E set out a case that payments admittedly made by the Barclay Brothers to Mr Quinlan and his family from October 2010 when Mr Quinlan was in financial difficulties were linked to the support and assistance provided by Mr Quinlan and were, in effect, an inducement for his support and assistance. I consider that the case is sufficiently arguable that permission should be given to include it.

Paragraph 37 is concerned with Mr Quinlan’s actions as a director of the company. Permission is sought to add a number of particulars. Sub-paragraphs (c), (e) and (f) do not relate to his actions as a director and permission to include those sub-paragraphs is refused, but the others may be added.

Permission is given to add paragraphs 38A, 40A, 42B(b) and a new sentence in paragraph 42D.

Further allegations are sought to be added against Mr. Quinlan later in the Petition.

Breaches of clause 8.5 are again pleaded against Mr. Quinlan in proposed additions to paragraph 59. Subparagraphs (b) and (c)(iii) are not objectionable in their terms but it would avoid confusion if they were included in the earlier paragraphs which set out the case against Mr. Quinlan.

Paragraph 59(c) (ii) alleges that Mr. Quinlan was in breach of clause 8.5 by

A new paragraph 60E alleges breach of duty as a director against Mr. Quinlan and his alternate Mr. Murphy in connection with MFL’s acquisition of the company’s debt to NAMA. The particulars relate to August and September 2011 but Mr. Quinlan ceased to be a director on 16^th May 2011. This paragraph does not therefore appear to make a sustainable case and permission to include it is refused.

A new paragraph 78.3 would plead that Mr. Quinlan and Mr. Murphy acted in breach of duty as director and alternate director respectively, in that,

Various additions are made in the case against the Barclay appointed directors. I have already indicated the amendments to paragraphs 58(a) create a confusing case and should not therefore be permitted. Likewise, paragraph 58(h) concerning intellectual property rights should not be permitted because it does not raise an arguable case.

Mr. Davies, on behalf of the Barclay appointed directors, raised two further objections. The first, as regards paragraph 58(e), was sufficiently met by Mr. Marshall’s agreement to delete the penultimate sentence. The second was to paragraph 58(i) which alleges that they acted on the instructions of the Barclay Brothers. This objection will be met by the amendments to paragraph 60A and by including an express reference in paragraph 58(i) to the facts pleaded in paragraph 60A.

As a result of the decision which I have already indicated in this judgment, there will plainly need to be a significant number of consequential changes to the proposed amendments, such as deleting references to the fiduciary duties of the shareholders or any allegation that the Barclay Brothers were de facto directors, or that Sir Frederick Barclay was a shadow director.

More generally, it is not permissible to use phrases such as, “for example” or “without prejudice to the generality of the foregoing”. The case is confined to the pleaded allegations and particulars. Nor is it helpful or meaningful to include a sentence such as, “the Petitioner reserves his position to add further matters”. Whether or not he can add further matters would have to be the subject of an application to amend.

I turn to the proposed amendments to the Particulars of Claim. The Part 7 action is a claim for damages for an alleged conspiracy to injure Mr. McKillen by unlawful means, being the various breaches of contract and duty alleged in the Petition. It is entirely dependent on the allegations made in the Petition as the Particulars of Claim made clear by annexing the Petition to the Particulars of Claim and by making copious cross-references. The effect of the proposed amendments to the Particulars of Claim is to expand the number and effect of the cross-references. The respondents object. While they were prepared to live with the Particulars of Claim as originally served and subsequently amended, they submit that the vices present in the original Particulars of Claim are rendered wholly unmanageable by the proposed amendments.

Further, they submit that necessary pleas to the claim of procuring breaches of contract and perhaps conspiracy are absent. Mr. McKillen must establish the defendants knew that their agreed actions would constitute breaches of contract or perhaps breaches of other duties. This involves establishing that the defendants knew, for example, that clause 8.5 carried the meanings for which Mr. McKillen now contends.

Given that I have permitted only some of the proposed amendments to the Petition and require the Petition to be restructured, I think the right course is to require Mr. McKillen to provide a redraft of the proposed amended Particulars of Claim at the same time as or very shortly after the proposed re-amended Petition is produced. Only then, I think, will it be possible for me to decide whether the amended claim has become unmanageable.

The defendants’ amended Particulars of Claim must properly plead and particularise the necessary elements of knowledge. I consider that Mr. McKillen is entitled to this opportunity to put right his draft as the defendants have not previously raised this objection. I will discuss with counsel the timing of these steps.

Finally, I turn to Mr. Quinlan’s application for further information. It seeks from Mr. McKillen information as to the loans secured by charges over his shares or loan stock in the company and any actual or potential event of default in respect of such loans, including any event which on Mr. McKillen’s construction of the Shareholders Agreement would amount to an event of default. The significance is that events of default on loans secured over shares in the company may trigger the operation of the pre-emption provisions.

Mr. McKillen puts forward a wider meaning of the Shareholders Agreement as regards events of default than Mr. Quinlan accepts. Part of Mr. Quinlan’s defence is to say that, if Mr. McKillen is right on that, then there has been at least one event which would amount on that view to an event of default affecting Mr Quinlan for the purposes of the pre-emption provisions and there may have been others. This seems to me a legitimate line of alternative defence.

Mr. Denton-Cox, who appeared for Mr. McKillen on this application, objected that it led nowhere. Mr. Quinlan was not seeking a counter-order against Mr. McKillen in respect of such events. I do not accept this as a valid objection. Mr. McKillen is basing his case in part on his allegation in this respect. If it transpires that he has been behaving himself in the same way, this is relevant to whether he can be said to have been unfairly prejudiced by Mr. Quinlan’s actions, or lack of them, and to whether Mr. McKillen is entitled to any discretionary relief in respect of those actions under section 996.

It does not follow that Mr. Quinlan is entitled to an order for the further information which he seeks. In essence, it requires Mr. McKillen to disclose whether there are facts which could ground an additional claim or defence against him. In ordinary cases, as it seems to me, a party would not be entitled to an order for that purpose, which is in large part a fishing expedition.

There are, however, some special circumstances as regards this particular issue in this case. By a letter dated 14^th November 2011, Mr. McKillen’s solicitors wrote to Mr. Quinlan’s solicitors demanding that he provide pursuant to CPR Part 18 the same type of information as now sought by Mr. Quinlan. The letter asserted that Mr. Quinlan was contractually bound by the Shareholders Agreement to provide this information. Mr. Quinlan agreed to answer the request in his defence and has done so.

Paragraph 42A(b) of the Petition alleges:

What is sauce for the goose is sauce for the gander. Putting it more analytically, Mr. McKillen cannot rely on one reading of the contract and demand that others comply with it without being willing to do so himself. It is, in my view, unconscionable - an appropriate test in the context of a section 994 petition - for him now to refuse to provide information of the sort requested by Mr. Quinlan. I will, however, limit the request, like Mr. McKillen’s, to any actual or possible event of default since 1^st April 2010.