Brett v Migration Solutions Holdings Ltd & Ors

This is a petition brought under section 994 of the Companies Act 2006 in which the petitioner, Mr Brett, claims that he has been the victim of unfair conduct by the majority shareholders in Migration Solutions Holdings Ltd (“MSHL” – the first respondent) and seeks an order that they pay a proper value for his shareholding at a value determined by the court. He, of course, is the minority shareholder (21%). The relevant majority shareholders are the second defendant (“Limpopo” - a Cayman incorporated company). MSHL is the first respondent. No particular relief is sought against Mr Rabbetts who is also a minority shareholder. The fourth respondent (“Thames”) is another Cayman company, controlled by the same principals as control Limpopo. Its only involvement in the matters with which this action is concerned is that it holds the freehold of the land which was part of the subject-matter of the venture and has been joined as a person who is said to have assisted the unfair conduct in question.

A very broad outline of the case is as follows. Mr Brett is a businessman who has specialised in property transactions. He became interested in data centres - large scale enterprises in which the data storage needs of enterprises are centralised into large commonly run facilities in which those enterprises take “racks” for housing their data processing equipment, and which are connected to the outside world (and therefore the enterprises) via cable so that that equipment and its data can be accessed. The enterprises might be “wholesalers” - enterprises which sell the facilities on to others; or they may be interested in “colocation” - having their data stored and processed in such a facility rather than on their own premises. The latter are likely to need more operational support from the data centre providers than wholesalers. The data centre provides the storage facilities, power (a lot of it is required), cooling, maintenance, backup, security, varying degrees of technical support and interconnection. Over the past 20 years it has been a growing industry, though with ups and downs on the way.

Mr Brett identified an opportunity to acquire a data centre near Norwich which was being disposed of by Aviva as being surplus to its requirements. It is known as DC1. Aviva had already disposed of two others (DC2 and DC3). To get the centre up and running would require capital to modernise it and to install some proper facilities. Mr Brett proposed to Mr John Herring, who had contacts with the principals of Limpopo, that his principals should provide the finance for the acquisition, refurbishment and running of DC1. Limpopo agreed to do that. In due course the land was acquired through Thames, and the participants incorporated MSHL to carry out the refurbishment and operation of the centre. MSHL was intended to acquire a lease to formalise the arrangement, but for reasons that will appear had not taken a lease before Mr Brett was excluded from the company. MSHL itself had acquired the shareholding in MSL, a company owned by Mr Brett and Mr Rabbetts, and which had a data centre consultancy business and therefore some expertise in the area. Mr Brett acquired a roughly 21% interest in the shares in MSHL, was a director and had a contract of employment under which he was entitled to £110,000 per year. The centre was duly refurbished, but shortly after it opened for business Mr Brett was dismissed as a director, in June 2011. That dismissal entitled Limpopo to acquire his shares at a fair value under the Articles, determined by the auditors (Deloitte). Deloitte, in a non-speaking valuation, valued Mr Brett’s shares at £475,000, as a “Good Leaver”. He considers that to be an inadequate sum, and seeks additional compensation in these proceedings. He also claims his costs of making submissions to Deloitte, which he puts at £113,000.

These proceedings were started with a petition presented on 8th August 2012 . Thames was joined as a defendant at a later date. MSHL was not represented; neither was Mr Rabbetts, though he gave evidence on behalf of Limpopo and Thames, who were. Mr Timothy Collingwood appeared for Limpopo and Thames; Mr Nicholas Stewart QC and Mr Sinai appeared for Mr Brett.

As these proceedings arrived at trial the parties were apparently intending to argue both liability and the valuation of the shares. Mr Brett has got valuation evidence which valued his shareholding at £2.1m. Limpopo’s expert valuer valued the shareholding at nil. At the start of the trial I ruled that liability would be tried first, with valuation questions adjourned to be heard so far as relevant when liability had been established. The trial was therefore concerned with whether Mr Brett has established a case of unfair prejudice which would entitle him to be bought out at a court-determined valuation. Mr Brett, obviously, considered that he had been treated unfairly. The active defendants say that there was no unfairness and no oppression. They rely on the circumstances in which he was dismissed, and also rely on items of alleged wrongdoing by Mr Brett undiscovered at the time of his dismissal but discovered later and which they say would have justified his dismissal as a “Bad Leaver” (entitling him only to the par value of his shares) had they been known at the time.

I heard evidence from the following witnesses.

Mr Brett was the principal witness of fact on his side of the case. He was cross-examined at considerable length. The events at issue in this case started 6 years ago, and ended with a date 4 years ago, so it is understandable that a lot of detail could not be remembered. However, I am afraid that I formed the impression that some elements of his purported absence of recollection were pretended and not real. By way of example, he gave some unconvincing evidence as to the basis on which he claimed a previous lease of some offices had been terminated (which would have avoided rent accruing). He claimed to have no recollection of what his arguments were at the time, then claimed to have had his recollection triggered on being shown some correspondence. I think that he remembered all along what his arguments were and that he did not wish to present himself as remembering. On his own evidence he was not beyond distorting the facts when dealing with an alternative potential purchaser of the site (Revcap) - a matter I describe further below. He regarded that sort of distortion (“spinning a yarn”) as part of normal business. In correspondence he represented that he had made an offer to buy DC1, and had had it accepted, when that simply was not true. That sort of thing, and other aspects of his evidence, raise the need for caution when considering his evidence, and I adopt that caution.

At times in his cross-examination he manifested an apparent tiredness, which was capable of impacting on the quality of his evidence. I took that into account in granting adjournments, and have also been careful to ensure that he was not unfairly disadvantaged in my assessment of his evidence by that factor.

One personal characteristic that is important in this case is the extent of Mr Brett’s ability to read and understand legal documents. During the course of the events relevant to this case he had to read Articles of Association, shareholders’ agreements and employment contracts. The documents demonstrate that he clearly had an eye for the detail and the significance of important provisions in these documents, and well understood their effect and impact. Nothing that happened in the witness box falsified that impression. I have come to the conclusion that Mr Brett is an able man well capable of understanding these things and of understanding the details of the bargain he was invited to enter into.

Mr Watson was a friend and business associate of Mr Brett. He gave very limited evidence of some limited contacts with Mr Brett during the period in question, whose relevance was not very apparent. His recollection of many things he was asked about was slight or non-existent. I was not assisted by his evidence.

Mr Allen-Vercoe is involved with Mr Brett in another project to develop property, at Port Derwent in Cumbria. He gave some evidence about that involvement and Mr Brett’s activities in it, which was relevant to allegations as to how much time and effort Mr Brett devoted to Port Derwent affairs when (it is said) he should have been working full time for the DC1 project. I considered him to be a straightforward and honest witness, though not able to speak directly as to the time Mr Brett will have spent on the Port Derwent project.

Mr Herring was the main actor on the Cayman investor side of this transaction. He was looking after the interests of that investor and therefore was closely involved in the whole transaction. It was he who led the move which resulted in the removal of Mr Brett from MSHL and from the project. He gave evidence over an extended period. He struck me as a measured and careful witness who gave his evidence in a straightforward manner without any tendency to exaggerate or gloss in the interests of his side’s case. If anything, he was sometimes a little suggestible in cross-examination. I considered that I could rely on his evidence on key matters.

Mr Rabbetts was the man who contributed the technical expertise to the DC1 project. He became a shareholder and director of MSHL at the same time as Mr Brett, though with a smaller shareholding. He acquired concerns about Mr Brett’s involvement and communicated them to Mr Herring. They ultimately contributed to Mr Brett’s removal. Mr Rabbetts is still a director and shareholder. He gave evidence of his and Mr Brett’s involvement and of how he came to have concerns about it. He was cross-examined with more vigour than was Mr Herring. He was criticised by Mr Stewart for being over-dogged in maintaining some standpoints, and I agree with that. However, I do not think that that affected his evidence on key issues and I found him by and large to be a credible witness. On one very important area (15 points of difficulty as between himself and Mr Brett) he was not significantly cross-examined.

Mr Michau is an English solicitor (a consultant at New Media Law LLP, “NML”) who acted for the Cayman interests from time to time. He was a board member (appointed by the Cayman interests) of MSHL, and was there primarily for his legal expertise. He came into the transaction later than the other participants, bringing his legal eye to bear on various matters which required legal attention. He seemed to give his evidence with almost over-elaborate care, and gave some very curious evidence about what the majority shareholder’s intentions were in the valuation exercise carried out by Deloitte - he said that they had no intentions in relation to a particular price (high or low) and simply thought that the auditors should produce their figure without any attempt at persuasion on the majority’s part. However, in the end not much turned on the quality of his evidence, and where material I found him credible.

Before starting on the inevitable narrative of fact it will be useful to describe certain individual and corporate participants in the story.

Mr Paul Gander is an old schoolfriend of Mr Brett’s and became a business associate. In 2008 they incorporated Sunningdale Group plc (“Sunningdale”) as a company intended to be their vehicle for participating in the data centre market, in which Mr Brett had become interested. Then, in August 2008, Mr Gander was appointed by Aviva to join their negotiation team for the sale of two data centres (DC2 and DC3), which Aviva wished to dispose of. It was Mr Gander who alerted Mr Brett to the possible availability of DC1, as will appear, though he was not part of the team tasked with disposing of it. Sunningdale was the company in whose name Mr Brett sought to interest various entities in his proposals from time to time.

MSL is a data consultancy company originally formed by Mr Rabbetts. Mr Rabbetts had traded with a company called TA Migration Solutions Ltd (“TAMS”) but that company went into a CVA. Mr Rabbetts decided to trade through another company, and MSL was formed for that purpose. After the CVA MSL entered into contracts, but the work was done by TAMS, which was propped up by MSL until TAMS was dissolved in 2010. MSL was then the full trading company.

In June 2009 Mr Brett proposed to Mr Rabbetts that Sunningdale should invest in a 75% stake in MSL, and, according to Mr Rabbetts, would do so for an investment of £1m, though an email he sent proposed paying only £1. Mr Rabbetts assumed that Mr Brett would make working capital of £1m available. That did not happen, though, as will appear, MSL came to be the effective operating company of DC1 in due course. Mr Rabbetts gave Mr Brett signed but uncompleted stock transfer forms for 75% of the shareholding in MSL, but that form was never registered. Mr Brett claims to have given the forms back to Mr Rabbetts, and said he decided not to register the share transfers for the time being because of later concerns he had about Mr Gander. Mr Brett and Mr Gander became directors of MSL, along with Mr Rabbetts who was already a director.

Thus there was a proposal within the joint venture for Sunningdale to be the holding company of MSL but it was never fully implemented. In the early stages of the negotiations in this case Mr Brett proposed that Sunningdale should be the vehicle into which the Cayman investor should invest in order to share the operating company side of the venture, but that did not happen either. In the end MSHL was incorporated specially for that purpose.

Like so may unfair prejudice petitions, the facts of this case involve a detailed narrative of events leading to the break-up of the relationship between the parties and the alleged act or acts of oppression. The events and other facts which I set out below are just those which it is necessary to consider for the purposes of the main points and issues that arise in the case. In order to assist in demonstrating their significance I outline those issues at this stage as follows:

That is not a precise formulation of the legal points that arise, but it will do as a working guide for extracting relevant facts from the whole detailed picture of the relationship between the parties and the development of the DC1 project.

In the following narration of facts, any fact narrated by me should be taken to be a finding of fact unless the contrary appears.

Mr Brett, being a person interested in data centres, was alerted to the forthcoming sale of DC1 by Mr Gander while the latter was at Aviva. Mr Brett made a telephone call and was contacted by Mr Philip Butler of Aviva who sent Mr Brett details of the property on 1^st December 2008. Mr Brett envisaged exploiting this opportunity through Sunningdale and he and Mr Gander prepared a draft Strategy Paper setting out plans.

Mr Brett needed to attract an investor and approached Mr Herring. He had known Mr Herring for some time and had done some limited business with him. These previous contacts included the occasion when Mr Herring guaranteed the lease on an office which Mr Brett said was appropriate for development but which was never developed and which cost Mr Herring money when he was called on his guarantee. He was never reimbursed by Mr Brett. Mr Herring had also previously lent Mr Brett £15,000, and bought a car for him to use. Mr Herring was not repaid for those either. However, despite those earlier potential obstacles in the road to a relationship, Mr Herring entertained Mr Brett’s approach. Mr Herring did not appear to bear a grudge about them. I think that this is a badge of his essential fairness. Mr Brett understood that Mr Herring was entertaining a possible offshore investor as a client, and it turned out that he was right about that. The client was a Cayman-based individual called Clive Calder. On 1^st August 2009 Mr Brett sent Mr Herring a copy of his strategy paper.

In these early stages of the possible venture Mr Brett was also considering other possible avenues for financing the acquisition and development of DC1, including a concern called Orion. In considering the project Mr Brett asked Mr Rabbetts to prepare an assessment of the site. Mr Rabbetts did so in December 2008, after which the latter heard nothing more about the site for some time (though he was already familiar with it from his own professional activities).

In March 2009 Mr Gander had his employment with Aviva terminated, telling Mr Brett that the reason was something to do with “discrepancies” on his CV. This meant that Mr Gander could devote all his time to the financing of Sunningdale (the intended vehicle) and the pursuit of its data centre aspirations. By now Mr Rabbetts was involved in applying his technical expertise to the assessment of the project.

Having received some details about DC1 from Mr Butler of Aviva, Mr Brett emailed him an offer of £1.5m on 17^th December 2008. This offer was rejected, and it was then increased to £1.7m on 5^th January 2009. Mr Butler apparently had difficulty in getting an internal response to this offer, and on 6^th March 2009 Mr Brett increased the offer again to £2.13m. Mr Butler replied on 9^th March 2009:

“We do not wish to commit to a sale at present. We understand that the facility will be vacated later in the year, but we do not have a confirmed date. We also await clarification from Group as to what will be left in place.

I would anticipate that we would bring this to market when these factors are known, however we are still some time off being able to conclude a sale.”

That is plainly not an acceptance of the offer. Nor does it look like any encouragement of the idea that the offer will ultimately be accepted. Despite that, on 5^th October Mr Brett sent a Memorandum to Mr Herring which said that:

“Our offer of £2.130m has been accepted by Aviva.”

In cross-examination Mr Brett sought to say that he felt the offer had been accepted by reference to telephone calls, which he could not now recall, which somehow gave the impression that that was a figure with which Aviva felt comfortable. In the light of his email I very much doubt that Mr Butler gave that impression, and in any event it would not begin to justify the categorical statement which Mr Brett made in his memorandum. I think that Mr Brett knew that that statement was untrue, and it demonstrates that Mr Brett is prepared to exaggerate, sometimes to an unacceptable extent, in pursuit of a business deal. That is something which I have to take into account on credibility in this action. Fortunately for him Mr Herring did not take the statement particularly seriously, but it was obviously intended to be believed.

Mr Herring was not the only recipient of this false information. Mr Brett also told Mr Bossom of Orion the same thing on 2^nd or 3^rd October in an email.

In his memorandum to Mr Herring Mr Brett referred to other possible investment sites, but apparently it was DC1 which caught Mr Herring’s eye. In his memorandum Mr Brett set out some broad-brush estimates of income and operating cost, and proposed that “We” (Sunningdale) would like to secure a 30 year lease with a rent of 10% pa. The memorandum ended by saying that Sunningdale was looking to expand its data centre operating side and would need an approximately £1m overdraft facility.

On 22^nd October Mr Brett reported that CBRE (agents advising Aviva) had wanted Mr Brett to tweak his offer slightly and evidence funding. He said that he proposed an offer of £2.35m “which is still a stunning deal”, as against a CBRE proposal of £2.5m, and asked Mr Herring if he was happy to do that. On the same day Mr Herring said he would get back to him in 24 hours. Mr Brett apparently continued to keep his options open elsewhere (with Orion) to whom he reported on 24^th October that they had an agreed purchase price of £2.4m and to whom he made a slightly different funding proposal. Again, he had not actually got an agreed price at that stage, and he could not explain how he came to make that statement. There is, of course, nothing wrong with Mr Brett showing the opportunity to another investor at that point.

On 27^th October Mr Herring reported that “My chap is happy to purchase DC1”, and on 2^nd November Mr Brett submitted his “best and final offer … in the amount of £2.3m”. Although there is no written record of its acceptance, it was accepted. Mr Brett then sent an “Investment Proposal” which suggested that an SPV owned by the Cayman investor should acquire DC1, that MSL should undertake the refurbishment under a contract with the SPV, and that MSL should enter into a 25 year lease and management contract. Profits were to be split 50/50. The document explained that Mr Brett, Mr Gander and Mr Rabbetts were “seeking to secure a long term relationship with a financial partner to assist Sunningdale in financing its roll out of its colocation model…” Mr Herring admitted in cross-examination that that was what he had in mind. On 6^th November Mr Herring responded, indicating that a 50/50 split was questioned by the investor because he did not see why he should only get 50% of the profit while putting in 100% of the equity. Mr Brett’s response was to propose figures which demonstrated that the investor was getting an extremely good deal, and since the site could be sold on for £3.5m Mr Brett regarded Sunningdale as providing capital “in essence”. Mr Herring did not accept that way of looking at things, though he did accept that the deal had been brought to him by Mr Brett (and Mr Gander). It is unnecessary to follow the detail of this debate. In the end the investor agreed a 60/40 share, not 50/50, though the rent calculation meant that the investor was getting more than 60% of the overall profits.

On 3rd December 2009 Mr Herring emailed some “high level” heads of terms to Mr Brett. He proposed Newco (the Cayman investor’s entity) and (inter alia) the following additional terms:

On 16th December Mr Herring sent Mr Brett some more proposals. He said, inter alia:

Much of this came to pass in the final documentation, though there were variations in the structure and in some of the detail (there seems to have been a full salary from the start, for example). From the point of view of Mr Brett the important thing to note about all this, and in the negotiations going forwards, is that his involvement in the project was not anticipated to be short-term. It was envisaged that he, and the other participants, would be in it for the longer haul. At the same time, someone else was to have the controlling stake. Mr Herring did not accept that these, and future, proposals were intended to tie down the management team into long-term commitments, and I accept that that was technically the case. However, I do consider that it was envisaged by all concerned that they would have involvements which were not merely short-term and precarious if all went well, even if the documents ultimately provided mechanisms which could be operated so as to achieve otherwise. Mr Herring told me that the structure was to incentivise Mr Brett and the others, so that they would stay if all went well, and I accept that.

Mr Brett responded by sending his own proposals to Mr Herring on 12th January. They seem to have been sent on behalf of himself, Mr Rabbetts and Mr Gander. He started by setting out the existing corporate structure, referring to Sunningdale as owned by himself and Mr Gander in equal shares and MSL as being owned by Sunningdale as to 75%, with Mr Rabbetts owning 25%. He proposed that the investor would acquire 45% of Sunningdale, there would be a shareholders' agreement including, inter alia, drag and tag along rights and the directors of Sunningdale would be 2 appointees of the investor, Mr Brett, Mr Gander and Mr Rabbetts. There would be service agreements and a dividend policy specifying dividends equivalent to 50% of Sunningdale's distributable profits. An introduction fee of 2% would be paid on all properties acquired by the venture. Further acquisitions were envisaged. Properties would be acquired by wholly-owned subsidiaries of the Cayman investor’s company and 25 year leases would be granted, along with a development agreement with an operational company and a facilities management agreement with MSL. There would be a profit share agreement entitling the investor to 40% of the distributable profits of the operating company.

As appears above, at this point Sunningdale did not actually own 75% of MSL, but Mr Brett did have the blank share transfer forms.

By the beginning of February Mr Mark Chester of Wragges (solicitors) had become involved. Mr Chester was an old friend and business contact of Mr Brett. On 3rd February 2010 he wrote to Mr Brett by email advising him of the sort of documents that would be needed to protect his (Mr Brett's) interest, along with a checklist of the sort of things that had to be considered in a joint venture. It is plain that in this respect he was acting for Mr Brett, a point relied on by the respondents in this action.

On 4th February 2010 Mr Herring emailed Mr Brett with some more proposals. They were not very different from that which had gone before. They proposed the purchase of DC1 and the spending of enough capital to bring it into working condition – estimated at around £3.5m. There would be a lease between the purchasing SPV and MSL on terms to be agreed, with a separate management/operating agreement. The latter would contain a profit sharing element, with the profits being split 50/50 after rent and the costs of management. Mr Herring said that his investor would require "at least a 50% interest in [MSL] and would initially like to pitch this at 60% but would be happy to acquire more over time." It was the intention to acquire further sites suitable for data centre use. There would be an agreement as between shareholders, with (inter alia) drag and tag along rights, but Mr Herring expected those rights to be embodied in a set of articles of association rather than in a separate agreement. This was the first suggestion that there should be no separate shareholders’ agreement. Service agreements would be entered into by the three existing participants in MSL and he envisaged that “in the early stages" a salary package of around £100,000 would be appropriate for Mr Brett. He went on: “Clearly this can increase as the profits of the business grow.”

Mr Brett responded to this on 9th February 2010 by appending his comments to Mr Herring's email in a different colour. In due course (on 15th February 2010) Mr Herring responded further by marking in a further different colour. The content of this negotiation, so far as relevant, was as follows:

In the same month Mr Rabbetts and Mr Brett prepared financial projections of the profitability of DC1. They were considered by Mr Griffin (an expert brought in by Mr Herring) for their apparent consistency - he was not in a position to consider the validity of the underlying assumptions.

By 8th March it had been decided that the freehold would be acquired (if acquired at all) by Thames, and Mr Chester of Wragges had been informed accordingly. On 10th March Mr Herring informed Mr Chester, who was interested in (inter alia) the corporate structure, that there would be a new holding company above MSL to provide “a layer of protection if there turns out to be something very nasty in Migration Solutions Limited which none of us knows about at present.”

On the same date Mr Herring reported on the status of the Norwich acquisition to his Cayman principal (Mr Calder). He said that the site was ready to exchange, subject to a final review. He also reported that he had hoped to be able to claim capital allowances on the plant and machinery left on the site but that was not going to be possible because Aviva was claiming them. Nonetheless he expressed the view that:

“it is still quite comforting that the purchase price (before costs) of £2.3m includes not only the two purpose-built buildings but also a minimum of £8.4m of plant and machinery (admittedly not all of it may be usable).”

He was thereby apparently expressing the view that the deal appeared to be a good one.

On 12th March Mr Brett sent a diagram showing a structure for the venture (in terms of participating entities and their relationships) to Mr Herring, asking if in principle that was the structure to be adopted “notwithstanding there are some minor issues to iron out”. The diagram showed Thames holding the property and letting it to Opco. Thames and the individuals own Holdco (in a 60/40 split). Holdco holds MSL, and also holds Opco (an operating company). Thus it showed an additional company (Opco) when compared with the structure which finally existed. Mr Herring replied on 11th March:

“Paul, I do not see the necessity for Opco. The new holding company, to be called Migration Solutions, will enter into a lease with [Thames] and will also be the ongoing operating company.

Also a different Cayman company will hold the 60% share interest in Migration Solutions, but this is detail.”

Mr Stewart’s case seemed to vest this email, and the expression “this is detail”, with a lot of significance. It is said that it was demonstrating an intention that Mr Brett should not be adversely affected by the fact that the freehold of the DC1 site and the Cayman interest shares were held by different companies, and this was said to have a significance when, at the time of Mr Brett’s removal, the lease had not yet been granted but it is said that it was ready for grant. I shall return to the issue of the lease later, but for the moment will merely say that I do not consider that this email has a great significance. All that Mr Herring is saying is that Thames will not hold the shares in the jointly owned company; another company will hold them. That was, indeed, a matter of detail in that it was not something which would concern Mr Brett. Mr Herring was not giving any form of wider assurance as to what the effects might be in some unknown future situation, and there was no evidence that Mr Brett vested this point with any significance or in any way relied on it other than as being the simple statement that it was about the structure on the Cayman side. While it is true to say (as Mr Herring conceded) that it indicated that Mr Brett would be in the same position as if the freehold and the shares were held by the same company, it was a structural point made in the context of the facts as they then were.

On 16th March moves were made to start producing documents. Mr Brett wrote to Mr Herring identifying that certain documents were required - a Lease Agreement, a Facilities Management Agreement, a Refurbishment Agreement, “S&P Agreement re Migration Solutions Limited”, Employment Contracts, Shareholders’ Agreements and a Loan Agreement. He proposed that Mr Chester of Wragges be instructed to prepare the property related agreements. Mr Herring decided that Mr Chester should prepare the lease, and the Cayman investor’s lawyers should prepare a shareholders’ agreement and articles of association. That is what ultimately happened. Those other lawyers were New Media Law LLP (Mr Michau’s firm) and on 19th March they sent to Mr Herring a draft Shareholders’ Agreement. It is unnecessary to dwell on this, or any other draft, because in the end there was no separate shareholders’ agreement, and for present purposes it is relevant to note merely the following:

On 19th March Mr Herring wrote to Mr Brett saying that references would be required from “key players”. That did not (for these purposes) include Mr Brett and Mr Rabbetts, but it did include Mr Gander. Two references were sought in respect of him, one of which was to be from Aviva.

MSHL was incorporated on 23rd March.

Having received the draft shareholders’ agreement Mr Herring sent it straight on to Mr Brett, on 25th March, and Mr Brett sent it on to Mr Chester. Mr Chester commented that he had passed it on to a colleague (Emma Payne) “to give this a quick review for the purposes of alerting you and Alex of its key terms.” It is clear from this and other material that Mr Brett had legal advice on the documents, though not, apparently, on the contract of employment that he ultimately entered into. This is significant both because his having that advice goes to the unfairness question which I have to address, and because it goes to credibility. In his pleaded case he denied receiving legal advice from Wragges, though he retracted this in his first witness statement in which he accepted some broad advice was given. I consider this symptomatic of his somewhat cavalier attitude at times.

By now Mr Brett was apparently having concerns about Mr Gander and he wrote to Mr Herring to express them on 25^th March. He had real doubts about Mr Gander’s motivation, and indeed his experience when it came to his part of the business (sales). He was having another meeting to raise matters. Mr Gander had already told Mr Herring that the circumstances of his leaving Aviva were such that it would not be possible to get an Aviva reference for Mr Gander, and Mr Herring himself met Mr Gander on 30th March. He described that meeting as unsatisfactory, not least because he was told by Mr Gander that if a criminal records check was made against him his name would appear, though Mr Gander said that it was a case of mistaken identity.

On the same day (25th March) NML sent Mr Herring a version of the Articles of Association of MSHL. They created two classes of shareholder - A and B. The B shareholders were employees and the draft provided for the compulsory transfer of B shares in the event of employment ceasing in the same sort of manner as contained in the final version and set out below. They provided for “Good Leavers” and “Bad Leavers” in the same way. As well as giving the A shareholders some dominant rights in relation to directorships, the draft provided drag-along rights enabling the A shareholders to compel the B shareholders to sell their shares to a purchaser of the company. Mr Herring immediately forwarded them to Mr Brett.

Ms Payne seems to have been under a misapprehension as to what she was going to be instructed to do, because on 29th March she sent Mr Brett a checklist of the sort of things that he should think about for the purposes of a shareholders’ agreement and Articles of Association, and she seems to have thought that she was going to be asked to start drafting them. However, one of her documents was a table which showed that she had already seen the existing draft Articles, and she commented on them. She pointed out the fact that there would be a compulsory transfer if Mr Brett ceased to be an employee, that a “Good Leaver” would get market value and a “Bad Leaver” would get the par value. Although he equivocated in the witness box, I am satisfied that Mr Brett will have received, read and understood that point. The table also raises the question of whether there should be a lock in period for 2 to 3 years during which no shares could be sold, and a lock in period for the drag along rights; and it makes the suggestion that there should be tag along rights (rights for the minority to insist their shares be sold when the majority sell to a third party) as well.

The next relevant document that was prepared was a draft of the employment agreement. Mr Michau sent a draft to Mr Herring on 8th April 2010. It contained provisions which are the equivalent of those which the respondents have invoked against Mr Brett in these proceedings; they never changed, or not materially, during the drafting and negotiation process. In particular, they contained no fixed term but did contain a provision that the contract could be terminated on either party giving the other 6 months notice.

Mr Brett forwarded these documents to Mr Herring on 30th March. At this time concern about Mr Gander’s participation was continuing. On 30th March Mr Rabbetts wrote a strongly worded letter to him complaining about his lack of activity. Mr Brett’s evidence, which I accept, was that he had fallen out with Mr Gander in the March. By mid-April Mr Rabbetts had come to the conclusion that they would have to part company with Mr Gander, and he emailed that to Mr Brett on 12th April, and Mr Brett in turn passed this on to Mr Herring.

Mr Brett was apparently concerned that the position with Mr Gander would jeopardise the deal with the Cayman investor, because on 22nd April he emailed Mr Chester at Wragges as follows (with the subject heading “SOS”):

“I am not sure if I will be able to resolve the issue outstanding with Paul G to the satisfaction of Caymans solicitor. To this end, and as a back up, do you have any relationships with funds/investors etc who would be prepared to step into the deal at short notice as a property investor?

In this respect we would be looking for a third party to acquire DC1 for 2.3m and commit to the refurbishment cost of 4.5m (say 5m for comfort and a little profit) based upon a lease agreement to rent the property at say a 10/12% yield?"

This email was a source of criticism by the respondents, whose cross-examination suggested that this was not a wholly straightforward or proper approach for Mr Brett to adopt. I do not accept that criticism. It is apparent from this email, and from Mr Brett’s answers in cross-examination, that he was concerned that the whole deal might go off because Mr Gander had not been dealt with. He obviously thought that there was some sort of risk that the Cayman investor might pull out. In case that happened he wanted to find a substitute partner. There is nothing wrong in that. He was not seeking to cut the Cayman investor out of the deal. He was seeking to cover the situation where that investor himself withdrew.

On the next day (23rd April) Mr Herring sent “completion documents” to Mr Brett so that he could share them with Mr Rabbetts. They were a loan agreement, an employment contract, a shareholders’ agreement and draft Articles of Association. However, Mr Rabbetts at any rate had perceived that the position with Mr Gander was possibly holding up taking the project farther until it had been dealt with. He raised that problem with Mr Herring in an email of 25th April. He expressed the view that Mr Gander would have no claim if he were removed, and offered that, in the event of an exchange of contracts to purchase DC1 without finalising all the other documents, he would be prepared to support the project in terms of refurbishment and operation services. Mr Herring responded the next day in an email saying that he was keen to close the transaction but Mr Gander was a loose cannon and they needed to be sure that he had no cause of action against “us” or MSL. He hoped that Mr Brett would come to an agreement with him that day. If not he wondered (like Mr Rabbetts) whether there was mileage in the idea of exchanging on the property, building it out with MSL and finalising the deal later, presumably on the footing that in the meanwhile they would deal with Mr Gander in a way which did not cost too much or leave him with substantial interests or claims which would adversely affect the venture.

Mr Herring obviously decided to adopt the course of exchanging without other elements of the deal being in place, because on 27th April he gave email instructions to Wragges to exchange and added:

“For the time being could you keep this information to yourselves.”

Unfortunately for him his attempt at temporary confidentiality was frustrated by his adding Mr Brett as a recipient of the email, but no damage seems to have been done to relationships. Exchange took place on 30th April 2010.

Mr Gander was not taken out of the purchasing management team at that stage, though negotiations continued to try to achieve that. The parties also attempted to make progress on various of the “completion documents”. On 5th May Mr Chester emailed Mr Herring, enclosing some of Emma Payne’s comments on the shareholders’ agreement, without some of the “commercial” matters which were said to be matters for Mr Brett and Mr Rabbetts. He pointed out that the rest of the comments were ones equally applicable to the majority and minority shareholders and asked whether Mr Herring was content for the agreement not to address them. Thus it was apparent that Wragges were still acting for Mr Brett in relation to this agreement notwithstanding that they had been acting for Thames in the purchase of the land.

It is also apparent that Mr Brett was getting to grips with the various agreements because on 18th May he emailed Mr Herring saying:

“I sat down with Alex [Rabbetts] last Friday and went through the various corporate agreements. Alex has made separate comments relating to each agreement but I wish to add mine having read through them a number of times over the weekend.

My initial reaction is that they contain little, if any minority shareholder protection which does give us some concerns. The agreements also provide for a wide ranging list of decisions that require the consent of the "Majority A Shareholder". [He then make some comments on directors' meetings].

Notwithstanding the above, our principle [sic] issues/thoughts with the corporate agreements (above those already made by Alex separately) are as follows:

1.

If a Director is removed or retires he forfeits his respective shares for par value. We cannot agree to this.

2.

It is impossible for us to comply with the restrictions regarding "outside interests and minority shareholdings” .…

3.

There must be a restriction placed upon the "Majority Shareholder" in relation to the issue of further ordinary shares…

5.

There is no dividend policy. We think that there should be a "minimum" dividend policy of 50% of the distributable profits.

6.

Their [sic] are clauses in the proposed employment contract that I have been advised are unenforceable in law and we therefore feel they should be omitted [sic].

7.

The "Drag Along" rights do need some addressing. We wish to include the following:

(i)

The rights are unenforceable for the first 3 years. [And various other points taken]…"

His points were met by Mr Herring on 24th May, in significant terms:

“On the deal between you and Alex and Newco (the company buying the [MSL] business) I think I should paint the big picture.

We (the investors) have purchased DC1 and intend to develop a data centre business in the UK. Initially the investment commitment is not less than £10m - the cost of DC1 plus £3m in Newco. In the future it could be very much larger. This is a substantial sum of money. We are looking at this in much the same way as any private equity house would. In other words, we are providing 100 per cent of the equity (probably a bit more as the [MSL] business probably has net liabilities) and therefore should retain absolute control over the business. We are, through a stake of around 40 per cent, providing substantial upside to the [MSL] current shareholders. This is a far greater shareholding than would normally be made available in such circumstances. Clearly we absolutely want this to succeed and grow into a major business and make all shareholders a very strong return but we must have control.

In response to your particular points:

1.

This is standard.

2.

We would be happy for there to be certain carve-outs here. I know Alex has an issue with one or two interests.

3.

Your request could effectively prevent us from expanding the business. In the same way as we have allocated 40 per cent of the equity to you, we would not wish to act unfairly, but it is the intention to grow this business and it seems a bit unfair to have a party that will contribute very little equity exercise control over the party providing all the equity.

5.

It is too difficult to devise a dividend policy so far in advance. I completely take on board the fact that you must be able to take out profits, if available for distribution.

6.

Please advise – we will of course adjust.

7.

The drag along clause is pretty standard but we would be happy for you to mount a competing offer.…”

I agree with Mr Collingwood that this email emphasises the arm’s length, commercial nature of the deal. This is a commercial negotiation between arm’s length parties about the detailed terms of commercial documents which are to govern their relationship in the future. It is in issue as to how much that state of affairs displaces, or impacts on any statutory obligation of fairness as between shareholders under section 994. Mr Collingwood, via cross-examination, drew attention to the fact (which Mr Brett admitted) that he did not mount a counter-proposal about the drag along rights and that no reference was made to a carve-out for any interests of Mr Brett. For his part Mr Brett’s case involves pointing out the indication in point 3 that the Cayman interests would not wish to act unfairly. I do not consider that that particular point has great significance in this context. Whatever the source and extent of the duty to act fairly which is enforced via section 994, it exists because an objective assessment of the facts requires it, and the express protestations of the parties about it at the time of the transaction are of little assistance.

What is also significant about this exchange, however, is what it says about Mr Brett’s abilities to understand and analyse complicated commercial transactions, and to stand up for himself. In cross-examination he said that the points he was raising here were points that had occurred to him (and not to Mr Rabbetts). He had obviously been through the documents carefully and thoughtfully.

Ms Payne returned to the documents when she emailed Mr Brett on 26th May. Having dealt extensively with the position of Mr Gander, she made various comments on the shareholders’ agreement and the Articles. She commented on certain contradictions about the appointment of directors, and said that: “There are no minority protection rights – see attached list for suggestions which must be incorporated in order to protect your interest. In particular I note that Mr Herring has suggested that your request to prohibit Cayman from diluting your shareholding would prevent them from expanding the business. This is not correct. The protection you are requesting is fundamental.…”. Her list referred to various "Reserved Matters" – important matters which would require the approval of the majority shareholder. They are very extensive. It was put to Mr Brett that he would have understood from this letter that if one wanted protection one would have to put this sort of thing in the documents – the shareholders' agreement and the Articles. He accepted that that was what Ms Payne was saying but claims not to remember whether or not he understood that at the time. I found that failure to recollect unconvincing.

Email traffic disclosed as part of the disclosure process in the petition revealed that Mr Brett was not wholly committed to keeping the project going for the benefit of the joint venture. An email exchange apparently dated 28th May (though Mr Brett’s email was probably sent on the 27th) reveals that he was negotiating with a concern which I can describe as Revcap. He seems to have approached them with a proposal that they should acquire the DC1 site. He sent them an email which followed on from a meeting arranged “at short notice” and at which financial forecasts were apparently provided. The email sets out 4 possible structures for an arrangement, including selling on the contract, and a deal which seemed to involve a similar structure to that in which Mr Brett, Mr Rabbetts and the Cayman investor were currently involved (with Revcap substituting for Thames/Limpopo). Mr Herring knew nothing of this. In the email Mr Brett represented himself as being directly interested in the purchase:

“Existing Deal

We have exchanged contacts [sic] to acquire the site at 2.3m (basically what the land is worth) and are due to complete in 3 weeks time. We have an offer of 10m on the table from a Cayman-based, private equity group, which we will complete contemporaneously with completion of the property purchase. This package relates to the site purchase, its refurbishment and 3m for Migration Solutions Limited. We also have drawdown facilities available for further acquisitions. The management has 40% of the company but do not own the property."

That was obviously a misrepresentation of the position. Mr Brett accepted that the "We" in the quoted passage was apparently MSL. It was certainly not couched so as to identify the real purchaser, which was the "Cayman-based, private equity group", which is presented merely as a financier. Nor was it true that there were drawdown facilities in place available for further acquisitions. Although there was an interest in further acquisitions, there were no facilities in place. That whole passage in the email was a serious distortion of the actual state of affairs, apparently intended to elevate the apparent status of Mr Brett and MSL in the then current acquisition in the mind of the recipient.

When cross-examined about these events Mr Brett explained that he was “on a fishing trip to see what would happen”. He accepted that he could not have delivered on the deal himself because Thames had by now contracted to purchase the DC1 site. He said that had some sort of deal come out of it he would have had to have gone back to Mr Herring. He thought Mr Herring might be interested in a deal which gave the Cayman investor a quick turn on his money. He was not pressed on how this could have been the case, but, at least in relation to some of the options put forward, it is hard to see how that can have been the case because there was no obvious capital generated to provide that turn. I do not think that Mr Brett gave a full account of his thinking in relation to this incident, though since it was more than 5 years ago that may, to a limited extent, be understandable.

What I think that this incident does show is that Mr Brett is prepared seriously to overstate relevant facts in order to get the commercial attention of a negotiating counterparty. The passage that I have quoted is a serious mispresentation of the true state of affairs. It is not a minor puff of the sort that might more understandably be made in negotiations. It suggests a degree of control over the property that he simply did not have, and relegates the Cayman investor to a financier who could, if necessary, be ditched. That is a major misrepresentation. Mr Brett acknowledged that he could not have done anything in relation to a deal with Revcap without Mr Herring’s agreement, but that is not the point. He still vastly overstated his position. He seemed to justify it on the basis that he was just testing the water ("fishing”) but that is no real justification. It says much about his credibility, in my view, and also says much about his reliability as a business partner, though this incident was not known to Mr Herring at the time, or at the time of the decision to exclude him from the company.

However, one must not take this too far. Mr Collingwood suggested that the email exchange indicated a wish and intention on the part of Mr Brett to cut the Cayman interests out of the deal. I do not think that Mr Brett’s thinking will have gone that far. By now he could not have done so because they had contracted to purchase the land. He could not have removed them without their consent, and he will have known that. It was some sort of attempt to squeeze something different out of the deal, but not by removing Mr Herring’s client against his will. Furthermore, Mr Rabbetts apparently knew about this approach to Revcap and I do not think he would knowingly have been party to such a removal.

On 3rd June Ms Payne of Wragges sent Mr Brett and Mr Rabbetts a letter confirming their instructions to act for them in relation to their joint venture with Cayman and their attempts (which they were making) to remove Mr Gander from MSL. The letter records that Wragges were instructed to advise on the shareholders’ agreement and that they had specifically been asked to restrict comments to “key issues only”. That supports Mr Brett’s evidence that the advice he received was high level rather than detailed.

There had been attempts to negotiate with Mr Gander to procure his agreed departure. They came to nothing at this time. On 4th June an EGM of MSL removed him as a director of that company. For those purposes Mr Rabbetts treated himself as being the sole shareholder of that company, despite the transfers in blank that he had provided for the benefit of Mr Brett (and Sunningdale). Obviously the parties did not treat those transfers as being effective.

Despite the fact that Mr Gander was removed as director, he was still apparently thought to pose a threat to implementing the joint venture fully because of his expectations as to participation. On 4th June Mr Brett wrote a (mis-dated) email to Mr Herring about this and other issues. He pointed up some cashflow difficulties in MSL (caused, in his view, by Mr Gander’s failure to procure sales) and expressed his fears that the continued presence of Mr Gander would cause delays in completion of the whole deal because Cayman would not complete until he was seen off. He then went on to propose the acquisition of the Dartford site, and a different structure for completing the DC1 joint venture (in which MSL was not acquired by Limpopo and he and Mr Rabbetts would not be shareholders in Limpopo). Mr Herring replied on the same day saying that Cayman was committed to the venture, and that if Mr Gander did not come to the table they would find a way of completing without him. They wanted to press on with DC1 and keep Dartford warm. In relation to future deals, Mr Brett and Mr Rabbetts would have the opportunity to be involved, but Mr Gander would not. He went on:

“If you wish to keep your options open and deal with whoever offers you the best deal on all these other deals (e.g. Stanhope [another source of finance]), I think it best you decide now and we will gracefully go our own way and wish you all the best (would Alex [Rabbetts] also go with you?). We would not look at the alternative deal you propose as we have every intention of pursuing the deal on the table and it would completely muddy the waters to do anything different at this late stage …”

He went on to confirm various points which had arisen out of a recent meeting - they would do away with drag-along and tag-along rights and buy the minority out at a fair value in the event of an offer; they would protect against dilution of shares; they would pay a dividend of 40% of profits; they would buy MSL and not just the assets; and salaries were agreed. In this email Mr Herring was making it clear that his client was not interested in variations of the structure.

On 8th June Mr Michau emailed a further draft of the Articles of Association to Mr Herring. He said:

“Given that the B Shareholders are not now a Management Team, I think that it is advisable to dispense with a Shareholders Agreement and instead rely on the Articles which reflect all the operative provisions of the Shareholders Agreement.”

It is not clear what the reference to Management Team really meant, but in any event the idea of a separate shareholders’ agreement faded and there never was a final one. The draft Articles were forwarded to Mr Brett by Mr Herring, and Mr Brett forwarded them to Mr Chester with his comments added in red. It is apparent from his added comments that he had paid careful attention to their terms. His comments included remarks on Good Leavers and Bad Leavers, on what a non-voluntary departure should be taken to mean, and on the operation of the mechanism to determine a fair price for the shares of a departing shareholder.

Mr Herring then apparently turned his attention to the form of the lease which Thames was to grant to the new holding company. On 9th June 2010 he sent a form back to Mr Michau, saying it was in “reasonable shape”. He said they had not finalised the rent yet, but the principle was that Thames would charge a base rent of 10% of the development costs, which they should probably fix at £700,000, and then add a turnover rent at 50% of the net profit. The next day he responded to Mr Brett on the Articles, adding his own comments in response to Mr Brett’s. I do not need to deal with the detail.

There was then apparently a meeting about the Articles between Mr Herring, Mr Rabbetts and Mr Brett on 14th June. Mr Herring reported on it to Mr Michau the next day. He indicated that Mr Rabbetts and Mr Brett were asking for an amendment to the Bad Leaver provisions so that a voluntary leaver would not be Bad Leaver (because there might be good reasons for his leaving which would make it unfair that his shares be acquired merely at par), and Mr Herring thought that that was a reasonable point and that a voluntary leaver would be a Good Leaver for 2 years and thereafter at the discretion of the A shareholders. He also accepted the suggestion that the board should not be quorate without a B director. The detail of this is not important to this case, but what this episode demonstrates is that Mr Herring was not seeking to drive a very hard bargain with Mr Brett and Mr Rabbetts. He was trying to be fair to them, as well as acting properly in the interests of his client. I consider that to have been a feature of his conduct throughout. In this particular case Mr Michau accepted the first of the proposed modifications, but advised against the latter, and Mr Herring accepted that advice.

All this activity led to the final draft of the Articles at this time. On 16th June Mr Herring sent Mr Brett and Mr Rabbetts the “completion documents”. The documents sent were the Articles, contracts of employment and a sale and purchase agreement for the shares in MSL. The form of the Articles was said to highlight changes in the Articles to show changes to ensure that a fair price was paid when a shareholder left voluntarily (the two year point just referred to).

While the parties were anxious to get the corporate documents in place at about the same time as the land purchase was completed, less urgency was felt about the lease. That is reflected in an email from Mr Michau dated 16th June 2010 in which he says that there was no “frantic rush” about the lease, and he agreed with that in his evidence; he agreed that it was because there was a lot of refurbishment to be done.

It was intended that Mr Rabbetts and Mr Brett should formally disclose their outside interests. Mr Rabbetts wrote two careful disclosure letters (for himself) on 16^th June 2010, and sent them to Mr Herring. Mr Herring sent them on to Mr Michau with some comments (which do not matter) on 17^th June. Part of the significance of these events is not the content of the disclosure. It lies in whether Mr Brett did the same, as he should have done. In pre-trial correspondence his solicitors said, firmly and clearly, that at a completion meeting on 17^th June, attended by Mr Rabbetts, Mr Michau, Mr John Haggis (a colleague of Mr Michau), Mr Herring and Mr Brett, Mr Rabbetts handed to Mr Michau a document which had been prepared by Mr Rabbetts prior to the meeting and which Mr Brett had signed the day before. The document is said to have contained disclosure about the interests of both Mr Rabbetts and Mr Brett, and the letter clearly suggests that there was one (joint) document. The letter goes on to chastise the respondents’ solicitors for being too quick to challenge the existence of a disclosure document from Mr Brett. The letter was ostensibly written on the clear instructions of the client. A later letter (10^th February 2012) indicates that their client “stands by his assertion that a joint declaration was provided”.

Mr Brett’s account in his oral evidence was different. He backtracked from the notion of a joint document and said there were two documents, one for him and one from Mr Rabbetts. He said that Mr Rabbetts prepared them both, and both were handed over. In his evidence Mr Rabbetts denied preparing a document for Mr Brett. Mr Herring denied ever having received any such document from Mr Brett. It is clear what Mr Rabbetts provided; it is not joint, and it was sent by email.

As will appear, the issue of whether such a declaration was provided is capable of being of potential significance in the case insofar as the respondents have relied on culpable non-disclosure. It also has a significance for credibility. I do not think that Mr Brett’s story is credible, in the circumstances, and I think he was deliberately making it up. Having told one, slightly elaborate, story to his solicitors (apparently) and asserted it vigorously, he then backtracked in his evidence, and his vigorously asserted story cannot be true because we have Mr Rabbetts’ disclosure and it is not joint. I do not believe that Mr Brett’s assertions were merely the result of a mistaken recollection. I think they were a deliberate contrivance.

Completion of the purchase of DC1 took place on 17^th June 2010. The corporate and other documentation had not been finalised and completed by this time, but a start was made on that process. On that date MSHL acquired all the shares in MSL for £1 and Mr Brett and Mr Rabbetts signed their respective employment contracts which, according to Mr Herring, were held in escrow. I assume that this was pending their appointment as directors.

Other steps followed thereafter. On 24^th June Limpopo entered into a loan facility agreement with MSHL for the total principal amount of £2m and received a floating charge. On 25^th June MSHL changed its name into its current form (having been incorporated under the name Migration Solutions (Limpopo) Ltd on 23^rd March 2010).

These matters were now being conducted without any reference to Mr Gander. Attempts were made to reach a deal with him to stop him making further claims. They took some time to come to fruition. In the end he received a compensation payment from MSL for loss of office or an introduction fee in the sum of £25,000 and he departed the scene.

So far as the organisation of MSHL is concerned, various things happened on 30^th June:

Mr Brett (and presumably Mr Rabbetts) was asked to sign a new form of employment contract which bore MSHL’s new name, and did so on or about 1^st July. Mr Brett’s contract bears that date. His salary was £110,000, and he was employed as Property Director (or such other role as the Company considered appropriate).

The relevant terms of all those June and July documents appear in the Annex to this judgment and will be referred to below as necessary. Their key features were as follows:

The result of the ordinary share issue was that 5 shares (5%) were not allotted. The plan was that they would be available for future employee incentive purposes. Mr Brett had just over 21% of the issued share capital, and Mr Rabbetts a little over 15%. Limpopo had a bit over 60%. The structure was therefore that Thames held the freehold to the DC1 site, MSHL was the jointly owned company and would take a lease of the site, and MSL was owned by MSHL and would be the actual operating company in the sense that it was in this company that the relevant employees, and all their expertise, lay. The services that this company (and originally TAMS) brought to the venture was of real value to the venture, even though it later occurred to Mr Herring, in the course of the build up to the exclusion of Mr Brett, that if necessary the same expertise could be bought in from elsewhere.

On 27th July 2010 there was a “Management meeting” of MSL or MSHL (it is not clear which, but does not matter), attended by Mr Brett, Mr Rabbetts, and Mr David Manning, an employee of MSL who was (next year) made a director of MSHL and MSL. It records that Mr Brett was looking at a number of other opportunities. This reflects his principal role at the time. As well as having duties (as property director) connected with DC1, he was to identify, and possibly pursue, other opportunities. It will be remembered that the prospect of adding to DC1 was part of the contemplation of the parties, though Mr Herring had said that DC1 was a priority. On 1^st September 2010 a board meeting took place (again it is not wholly clear of which company, but again that does not matter) at which Mr Rabbetts indicated that he would like to offer a shareholding of 2.5% to Mr Manning. It would seem that Mr Brett may not have been keen on this, but after an out-of-meeting discussion he agreed.

Also at the meeting, those present discussed other property purchase opportunities. One of them was a data centre in Bromley. Mr Herring asked for a one page summary for each property so that he could present them to Cayman. It is not apparent that such summaries, or a discussion with Cayman, took place before Mr Brett authorised Mr Chester to make a subject to contract offer of £18m for the property, which he did. Mr Brett said that he “felt” that he had authority to make this offer, but I find that he did not have that authority. He explained himself to Mr Herring on 8^th September:

“Mark [Chester] is due to speak to Dominic tomorrow. I hope I have not over-stepped the mark here? As we discussed establishing a possible purchase price from Wellcome at the board meeting, and having discussed the best way to achieve this with Mark C and Mark T, it was felt the best way was to submit an offer and see what response we received!”

This demonstrates that he did not have authority. His evidence was that Mr Herring had asked him to go “fishing”. I think that this was another example of his somewhat cavalier approach to negotiations in terms of what he is prepared to say. He did not have authority to put forward the offer that was made. Fortunately for him Mr Herring did not disapprove of this tactic. He responded (on the same day)

“No, I think that it is fine – certainly the best way of doing it and it is not as if they know who Thames are anyway.”

This post-hoc approval does not affect the view that I take of the quality of Mr Brett’s conduct.

On 7^th October Mr Michau sent to Mr Herring a draft of the lease (which was a Wragges original draft), on which he had been working, with some amendments which he asked to have someone review “from an operational point of view” Mr Herring immediately forwarded it to Mr Brett asking him to take a look at it. The draft contained a number of amendments. For present purposes the only ones that I need to refer to are a proposed change of the term from 20 years to 10 years, and a change which removed a one year rent free period. Mr Herring could not recall giving instructions for those proposed changes, but Mr Michau said that the amendment to the term was done on the instructions of Mr Herring.

On 20^th October there was a meeting of the board of MSHL. The minutes record a large number of things, the following of which are relevant:

This last point is a significant point because Mr Brett’s handling of this matter was a source of complaint on the part of Mr Rabbetts. Whatever the dispute was with the landlord, it ended up with the landlord excluding MSL from its offices and negotiating only a short-term resumption of occupation. Mr Rabbetts blamed Mr Brett for this, saying that he had an overly confrontational approach when dealing with the landlord. The details of the dispute between the landlord and MSL, and who was responsible for what, was not something that was investigated in any depth at the trial, and it was not dealt with in detail in the witness statements. It is therefore not possible for me to form a judgment as to the extent to which Mr Brett was to blame (which Mr Rabbetts apparently thought he was). What can be said is that, based on an email exchange at the end of October 2010, Mr Brett and Mr Rabbetts did not have a good relationship. That email exchange shows Mr Rabbetts complaining but seeking a sensible way forward, to which Mr Brett responded by describing Mr Rabbetts’ email as an “essay” and accusing Mr Rabbetts of dictatorial and totalitarian behaviour. Its tone was far from emollient. The exchange demonstrates a bad relationship between the two, a point which is said to have been part of the reason for the ultimate exclusion of Mr Brett from the company. The lease point was sorted out, for the short term, on 27th October, and in an email of that date Mr Herring observed that they should not have got into the position in the first place and they had to rescue some difficult client concerns.

On 1st November Mr Brett wrote to Mr Rabbetts saying that he wished to undertake a comprehensive review of MSHL in order to place a report before the board. He listed 17 specific points that it should cover, and said that he intended to visit DC1 fortnightly in order to keep up to date with progress on site. In cross-examination he accepted that he wished to bring about a state of affairs in which he was positioned above Mr Rabbetts in the corporate structure.

On that same day Mr Rabbetts had a meeting with Mr Herring, arranged urgently at the request of Mr Rabbetts. He said it was going to be about the relationship between Mr Rabbetts and Mr Brett. At the meeting Mr Rabbetts told Mr Herring that Mr Brett was largely absent from the office and was making little or no discernible contribution either to the refurbishment or the general running of the operation. When he did get involved Mr Rabbetts said he was disruptive and his contribution was largely counter-productive. He gave as an example Mr Brett's handling of the office lease point which had just been sorted out – according to Mr Rabbetts, Mr Brett had adopted an aggressive posture with the landlord and withheld rent with the result that the landlord had repossessed the office. (Previous email traffic did indeed demonstrate that the reason the landlord gave for repossession was non-payment of rent which, as Mr Herring had observed, ought not to have happened.) Mr Rabbetts was, according to Mr Herring, highly distressed by the situation and made it clear that he could not continue to work with Mr Brett and would consider resigning rather than allow the situation to deteriorate and jeopardise the project. Mr Herring asked Mr Rabbetts to put his concerns in an email.

That email was sent on 2nd November. The complaints in it are important because they were the underpinnings of Mr Herring’s ultimate decision that Mr Brett had to go. Although it is long, I therefore have to set out its most important features:

Mr Herring was shocked at this email, and passed it on to Mr Brett for his comments. Mr Brett responded to the various points as follows (I shall use the same numbering as I have used above):

He then went on to criticise Mr Rabbetts’ management style and his autocratic manner of running MSL. He suggested that if Mr Rabbetts was really threatening to leave they should call his bluff, because there were others who could take MSL’s place. He went on: “As I see matters, I am more than happy to leave Alex alone and let him sink or swim with DC1”, but suggested a system of checks, balances and tracking be put in place. He proposed the appointment of a different finance director and the production of a business plan.

Mr Herring considered these long letters and was more inclined to accept what Mr Rabbetts had said rather than what Mr Brett had said. The latter’s attitude reminded him of what he had regarded as an unsatisfactory feature of a previous venture in which they had been involved (known as St Cuthmans) in which Mr Brett was said to have been quick to criticise others but did not do what was required of him. It is not possible for this court to adjudicate on who was right and wrong in relation to each of the various matters raised by Mr Rabbetts, but I find that Mr Herring’s view was a tenable one which he was entitled to adopt.

Mr Herring’s evidence was that he considered at that point whether or not to take steps to dismiss Mr Brett, but decided that doing so would be unnecessarily disruptive and “with some considerable misgivings” decided not to take such a step in the hope that the situation could “be contained”. He asked Mr Brett to moderate his behaviour, and Mr Brett said he would. I accept that evidence.

Mr Rabbetts seems to have been a little disappointed by this because he wrote an email to Mr Kimber on 8th November which reflects that and which says that Mr Brett has been told not to “hassle” Mr Kimber or to get in the way or cause trouble with Mr Manning. He records that Mr Herring was worried that if they removed Mr Brett then the latter would become litigious. The email reflects the apparent fact that Mr Herring was “resolute” that Mr Brett would go in time, but Mr Herring said in evidence that that was not his view. I think that this email was likely to be largely accurate as conveying what Mr Herring had said to Mr Rabbetts. I think that it evidences a state of affairs in which Mr Herring could see that Mr Brett was likely to continue to pose the same difficulties as existed already but (as he said) he did not want to risk the completion of the DC1 project. He was hoping that the problem would dissipate but recognised that that might well not be the case. Having had the opportunity of seeing Mr Herring in the witness box, I do not think that he had already taken the decision, or even fully realised, that Mr Brett would have to go and wanted to string him along for the time being, or some similar state of mind (and to be fair to the petitioner, this was not really the petitioner’s case). I find that Mr Herring was concerned about the well-being of the project and hoped that the problem might go away, but realised that it might well not do so.

Mr Rabbetts obviously decided that he should try to patch things up with Mr Brett and there is an email dated 7th November 2010 which makes a real effort to do so and to avoid a falling out. Despite that, however, things were never fully patched up and, at least as far as Mr Rabbetts was concerned, there remained a problem as between them. In his first witness statement Mr Brett painted a picture in which it was just the incident of “cash for cable” that caused the difficulties between them, and gave the impression that other matters were subsidiary. I think that that demonstrated a failure to appreciate the real problems between them, or an unwillingness to acknowledge them, whoever might have been said to be at fault.

While all this was going on the lease had not yet been finalised, and a board meeting on 17th November indicates that Mr Brett and Mr Petch (another Cayman-nominated director) would meet to take this forward. It also recorded authority given to Mr Brett to move forward to agree terms for the acquisition of land at Basildon. A record of his subsequent dealings again demonstrates the tendency of Mr Brett to go beyond his proper authorisation or authority in terms that he proposed to his negotiating counterparty.

Although a draft lease had been prepared by now, and had been circulated, on 2nd December 2010 Mr Brett emailed Mr Petch with some “scenarios” for the lease - two different rental structures and one proposal which involved MSHL acquiring the freehold and dispensing with a lease completely. So, at least as far as Mr Brett is concerned, the rental structure (which was important to the deal) was not yet finalised, and he was making some proposals to take things forwards. However, other than his alternative which did away with the lease entirely, he did not seem to be challenging any of the other main terms of the lease.

On 8th December Mr Brett attended and spoke at a gathering called the Finance and Investment Forum. This was a major event in the data centre world with all significant participants in the industry attending. He had had too much to drink the night before, and even at 3pm the following day, when he gave his presentation, he was still suffering from the effects of that. Apparently that was quite obvious, and he stumbled badly in his presentation, uttered an obscenity, and generally performed badly. There was a dispute as to whether he managed to finish it. I do not need to resolve that (though I would tend to prefer Mr Rabbetts’ evidence that he did not), because it was plain that, on any footing (and on his own admission in an email at the time) Mr Brett performed extremely badly. He admitted all that, and apologised to Mr Rabbetts the next day. In an email Mr Rabbetts sought to put him at his ease, even though, according to Mr Rabbetts, the organisers of this important event were furious. Mr Rabbetts also reported it back to Mr Herring, who took a very dim view of it. He considered that this was very embarrassing for MSL, and that in many organisations it would lead to dismissal. However, he reluctantly decided to take no action, though (according to his first witness statement) he said it was becoming increasingly difficult to justify to himself Mr Brett’s continued involvement in the project

The documentation of the project was advanced a little further when a development (refurbishment) agreement was made between Thames, MSHL and MSL on 13th December 2010. The minutes of a board meeting of MSHL on 15th December record that Mr Brett wanted the lease to be agreed so that it could be valued and added to the balance sheet. Mr Brett was to arrange the valuation, and he, Mr Petch and Mr Herring were to meet to finalise the terms of the lease. Mr Herring said that this minute was inaccurate in recording that he agreed the valuation of the lease and its addition to the balance sheet. He did not think that leases were necessarily a valuable asset, as opposed to a liability, anyway. I accept his evidence as to what his views were, and the minute is probably inaccurate.

Mr Brett apparently had concerns about the way MSL, or at least its consultancy business, was being run. On 7th January he sent a strong email to Mr Herring. In the first paragraph he summarised some poor sales results (and complained that he had not been properly consulted about taking on a new salesman). In the second paragraph he complained about a lack of strategy and said it was “… a mess really”. He went on:

“We are haemorrhaging cash at an alarming rate, which is only being financed by contributions from DC1, which will stop in April, if indeed we hit this deadline. I am not trying to rock the boat but enough is enough. I have been involved in to [sic] many corporate insolvencies, both personally and as an advisor, to be quiet any longer. I would prefer to walk away than be involved in the potential disaster that is looming. Alex will not listen to me as he believes I have no authority any more from you, given what happened last time. Most of my ideas and thoughts are merely disregarded, with little, or no response given to my desires or concerns. Alex is very good at what he does. However, this is only part of the equation required to make this company the success it can be.

Given the conversations I have had with other parties, we can build this into a substantial company very quickly, but I do need your input and support if we are to do so. I need you to legitimise my position within MSHL by appointing me as CEO and allow me to do what I am good at doing… strategy, property and structures. I am not looking to create a conflict with Alex, merely steer him in the right way. We have given him 12 months and nothing much has changed in real terms.

Can we have a chat when you have a free moment.”

Mr Brett sought to play down the strength of some of the things said in this email. In cross-examination he sought to suggest that he did not really want to be in a position to control Mr Rabbetts, but then accepted that, in a sense, that is indeed what he wanted. In particular, he treated the threat to "walk away" as a "figure of speech", suggesting that it was something said for impact rather than a serious suggestion. If that is right then it was a somewhat unfortunate thing to say. Mr Herring’s evidence did not suggest that he treated this as an enormously important email, though he did say that he took the first two paragraphs of the letter as really being part of Mr Brett's play to have himself made CEO. He said that he "would have spoken" to Mr Rabbetts about it but could not remember having done so. In my view, whatever else this email may show, it shows that there was still a considerable degree of tension between Mr Brett and Mr Rabbetts, and that was not helpful to the business.

On 21st January 2011 there was a meeting about the lease, reflected in an email from Mr Petch to Mr Michau of 24th January. The meeting took place between Mr Herring, Mr Petch and Mr Brett. It set out the main terms, “Subject to approval by Thames”. They included a 20 year term, and initial rent set at 10% of capital cost and a rent free period until 1st October 2011. Bearing in mind that the letter went on to say that the lease needed to be finalised, and if possible by 31st January, the rent free period proposal was therefore in effect a proposal for a 9 month period. The email went on to express an urgency in getting the lease signed so that it could be revalued in the accounts of MSHL so that the company could present a stronger balance sheet for marketing purposes. Unless this was done by 31 January the company would have to go for a less satisfactory February year end. This idea was in conflict with the view of Mr Herring which was that the lease would not have a value which could be included in the balance sheet.

Unfortunately the venture then encountered a problem with the lease, which meant it could not sensibly be granted until the problem was fixed. Advice was received from Deloitte to the effect that a lease for twenty years at the rent then being discussed would attract a charge to SDLT of £750,000. In the weeks that followed the parties spent some time trying to work out how to avoid this consequence. One solution was for Thames to have a bigger shareholding in MSHL (75%) so that it would qualify for relief or a lower charge to tax because of group provisions. This in turn would have the consequence that Mr Brett and Mr Rabbetts would have a smaller shareholding, and debates took place as to how they should be compensated for that. Some of the detail of this appears below.

On 1st February 2011 Mr Petch circulated documents intended to solve the SDLT problem in the manner just referred to, namely by giving Limpopo a 75% shareholding. He proposed a division of the existing shares, and an issue of shares to the shareholders (including an issue of a limited number of shares to Mr Manning) which would, inevitably, leave Mr Brett and Mr Rabbetts with a lower percentage holding. Mr Brett would be left with only 12.5% under this proposal. (The email actually transposed Mr Brett’s and Mr Rabbetts’ respective holdings, but nothing turns on that.) However, in order that they should not lose out in capital terms he proposed an amendment to the articles of association which had the effect that on a sale of the company the B shareholders should receive 40% of the total value of the shares in the company notwithstanding the fact that their aggregate shareholding was now less than 40%. These documents were to be discussed at a meeting the next day.

The anticipated discussion duly took place at what is recorded as a board meeting of MSHL on 2nd February. The proposals were put forward. Mr Michau pointed out that the new shareholdings would still give rise to the former 40% entitlement of share value in the event of a sale of the company, but would give rise to a loss of dividends for Mr Brett and Mr Rabbetts, and no side arrangements about this were permissible. The affected shareholders were to consider these proposals and respond in due course. It was also recorded that the term of the lease was agreed at 20 years.

At the same meeting Mr Brett raised the possibility of acquiring a Basildon site and referred to some of the financials. Mr Herring said that although it might be of interest, his Cayman principals would prefer to see DC1 finished and open for business before committing further funds to the business.

A post-meeting note reports a “solution” to the dividend point under which, if a dividend was declared, a bonus would be paid equivalent to the dividend that Mr Brett and Mr Rabbetts would have lost by virtue of the adjustment to their shareholdings. Mr Michau was to draft an agreement for signature about that.

One of the significant points arising out of these new events so far is that the Cayman interests were seeking to be fair to the minority shareholders in respect of what had happened. They were seeking to find a mechanism under which those shareholders lost part of their shareholding but did not lose out financially. The SDLT discovery, and the proposed solution, were not used as a way to squeeze a better deal (for Cayman) out of the overall structure. There seems to have been no suggestion of that at all.

Before that meeting Mr Brett had had a short exchange of emails with Mr Rabbetts in which he demonstrated that he understood the effect of the proposals on dividends, that the 75% holding gave the Cayman investor complete control, and that getting independent advice would be desirable. Mr Rabbetts said he would listen to what was said, and wanted to hear how they would be compensated for losses. After the meeting Mr Brett asked Mr Kimber to look at the possible scope of the loss of dividends, and on 6th February he sent the calculations to Mr Herring. On various assumptions (not least assumptions as to significant profits from the third year of the venture onwards) the calculations suggested that the loss to the B shareholders by the end of year 5 would be £791,000.

On 9th February 2011 Mr Michau asked Mr Petch if there was any news on agreement of the new structure. Mr Petch reported that there was “not yet” an agreement; Mr Brett was trying to get Mr Rabbetts “comfortable” and it was hoped they would agree in the next day or so. On 17th February Mr Herring emailed Mr Petch about a meeting concerning the restructuring arrangements, and said:

“I cannot do late Thursday morning. I think that they will accept the new proposal - Alex seemed fine with it. I think it may be Paul doing a bit of stirring.”

Mr Herring acknowledged in cross-examination that he did not have a lot to go on so far as the remark about “stirring” was concerned. Mr Petch responded that the Cayman investor (Mr Calder) had indicated that the pill could be sweetened with a suitable bonus arrangement if necessary, but that had not been proffered to Mr Rabbetts and Mr Brett.

On the other side of the negotiation, Mr Brett was discussing proposals with Mr Rabbetts. On the same date (17th February) he proposed that they offer to the other side that MSHL should pay for them to have some independent advice, that they would receive £250,000 net of tax to compensate them for lost dividends and that they should receive an increase in salary to £130,000. According to Mr Rabbetts this was preceded by a discussion with Mr Brett in which the latter said that he would use the situation to try to improve their position. Mr Rabbetts said he did not agree with this but nonetheless Mr Brett insisted on writing an email that he then wrote. Mr Rabbetts said that he agreed to the email just in order to keep the peace with Mr Brett. I accept that evidence.

The email proposed a change in the proposed compensation sum from £250,000 to £350,000. Mr Herring responded:

“… As I said previously, we and you negotiated in good faith and it is absolutely not our intention that you should be short-changed in any way by our desire to avoid the very high stamp duty exposure. We can discuss this further next week – I am generally around."

I have mentioned that Mr Rabbetts was not comfortable with Mr Brett's stance. On 25th February he wrote to Mr Herring and Mr Petch. He said he was entirely comfortable with the idea that Mr Michau was drafting an agreement to protect their position. He went on:

“I am somewhat concerned that the impression may be given that Paul speaks on my behalf. This is not the case. I am aware of the proposal put forward by Paul last week, and indeed agreed to him putting it forward because he was insistent that we should issue a proposal to provoke a response, but I had, and have, no expectation that it would be acceptable. It is often easier to accept what Paul is saying he wants to do in the interests of keeping peace, but I would fail to understand why anyone would pay out a huge lump sum based on potential loss of dividends that have not yet been earned and for which there is no guarantee that they will be.…

I would re-iterate, unless I have badly misunderstood the situation, my understanding is that an agreement, in whatever form meets the legal and commercial requirements, is being drafted by Peter Michau and that this is a situation I am entirely comfortable with. For the record, I have spoken to David [Manning] and he is entirely in agreement.”

On the same day Mr Herring wrote to Mr Brett and Mr Rabbetts (copied to Mr Petch) saying that Mr Michau was preparing an agreement under which Mr Brett and the other B shareholders “would receive an appropriate level of bonus in the event that a dividend was paid."

Mr Herring confirmed the intention to pay a bonus in lieu of any dividends at a board meeting of MSHL on 1st March.

On 17th March Mr Brett emailed Mr Herring asking for a meeting “off the record” so that they could talk about “me, MSHL and my future with this company”. They met the next day. Mr Brett did not give an account of that meeting, but Mr Herring did. He said that Mr Brett expressed his frustration that the parties were not moving ahead to purchase new sites, and he was “largely disengaged from the business and expressed little interest in the imminent opening of DC1." His witness statement said that prior to this meeting he had suspected that Mr Brett’s reluctance to agree the share reorganisation was a “ploy” on this part. In his cross-examination he withdrew that word and substituted the notion that his tactic was a negotiating manoeuvre to try to get an upfront payment. This sort of view is likely to have formed the background to his view of the meeting. It was, to a significant degree, unfair. There is no evidence that Mr Brett was obstructing the share reorganisation per se. There is no indication that, so far as that part is concerned, he did anything other than take it as a starting point and then try to work out the fair consequences of it. In order to do that he was negotiating, and there is nothing much wrong with that. So while Mr Herring might have had some misgivings about Mr Brett’s approach, they would have been unjustified if they amounted to a criticism of him for negotiating to try to secure himself a fair and commercial deal. However, even allowing for that I accept that what passed at the meeting gave him reasonable grounds for thinking, as he did, that Mr Brett was no longer engaged with, or fully interested in, the business.

At the trial the suggestion was made by Mr Stewart, more than once, that it was perfectly reasonable and normal for one business partner to investigate the possibility of his parting company with another, while maintaining the position that if there were no satisfactory arrangement then he would continue quite happily in the business, and that Mr Brett’s approach was of that nature. It did not betoken that he really and clearly wanted to get out. Mr Stewart's proposition is doubtless correct, but I do not think that that described Mr Brett's position when he spoke to Mr Herring, or at least Mr Herring would be justified in coming to the conclusion that that was not what was happening. Mr Brett gave the impression not just that he was investigating whether he might be able to get out; he gave the impression that he really did want to get out. At the meeting Mr Herring made it clear that Mr Brett could leave if he wished, but he should not expect some big payoff at that stage prior to the completion of the refurbishment and (as was the case) at a time when not a single rack space (the space which the business was to offer to its clients for data storage equipment) had been sold.

The Cayman side was still obviously working in good faith to address the concerns of the B shareholders as to loss of dividends. On 29th March Mr Michau wrote to Deloitte with a draft resolution intended to deal with the loss, and asked for their advice as to the Revenue consequences were it to be passed. The draft resolution established a bonus pool from the profits of MSHL in which the executive directors would be entitled to participate. It appears that that draft resolution contained words which would have bound the company to the payment of bonuses, and Deloitte advised that it was not possible to give an undertaking to make good the lost dividends (from a tax point of view) so some offending words in the draft resolution were removed in order to remove any binding quality.

For his part Mr Brett continued to pursue what he thought were worthwhile further possible ventures. Board minutes of MSHL for 6th April record that he was working on proposals for the Basildon property and another one in Birmingham. However, Mr Herring confirmed to him that while the Cayman investor retained an appetite for the sector, it was unlikely he would be interested in further investment until DC1 was delivered and operational.

On 27th April Mr Brett sent an email to Mr Herring saying:

“Are you in the UK or globetrotting? I would like to meet/discuss possible interest from Cayman to buy my shares?”

They met on 30th April. According to Mr Herring’s unchallenged evidence, he was not surprised at this approach given what he considered to be Mr Brett’s continued lack of interest in DC1. Mr Brett wanted a large premium for his shares based on nothing more than what seemed to be the value of his having identified DC1 for investment. Mr Herring made it clear that he had no intention of going back to the Cayman investor to persuade him that DC1 had any real value at that time. Mr Brett could not remember this meeting, but the thrust of his evidence was a curious denial by him of a desire to sell his shares. I find that he demonstrated a wish to sell his shares at a premium, and that that demonstrated, to put it at its lowest, a real interest in not being part of the long term plans for the project, though of course that was on the footing that the price was right. It was not without significance that this was the second discussion on the topic in 2 months.

Mr Petch returned to the subject of the lease in an email of 5th April, sent to Mr Rabbetts, Mr Brett, Mr Manning (by now a director), Mr Herring, Mr Kimber and Mr Michau. He reported that attempts to finalise the lease had been put on hold pending the sorting out of the capital structure, and that Deloitte had advised that any formal agreement to link bonus payments directly to dividends that would otherwise have been paid would be seen through by the Revenue. He then referred to the board resolution to set up the bonus pool and said that the new shareholder and lease arrangements needed to be agreed with some urgency. He invited comments.

On 11th May DC1 was, at long last, opened. There was an opening ceremony on 14th May, attended by (inter alia) Mr Brett and Mr Michau. Those two men travelled to and from Norwich together on the train, and the discussion they had, as subsequently reported by Mr Michau to Mr Herring, was a material stimulant to the decision by Mr Herring to remove Mr Brett in June.

As recounted in his witness statement, Mr Michau said that he did not know how the DC1 transaction came about, and was interested during the journey to Norwich to know something of Mr Brett’s background and the circumstances of the acquisition. So far as the latter was concerned, Mr Brett explained that his friend Mr Gander had been employed by Aviva and it was from him that Mr Brett found out that Aviva were considering selling DC1. Mr Michau says that he got the impression that Mr Gander had provided “insider information” and that he found it surprising that Mr Brett would want to share that type of detail with him (Mr Michau). As a result he felt somewhat uneasy about Mr Brett.

His cross-examination contained a bit of extra detail. He said that he understood from Mr Brett that Mr Gander had “tipped the wink” to Mr Brett about DC1 and that Mr Gander would be cut in on the deal if there ultimately was one. That last point did not appear in his witness statement. He then added that he thought that Mr Gander was sharing confidential information with Mr Brett, which Mr Brett was able to use to his and, in due course, Mr Gander’s financial advantage. He was left with the impression that Mr Brett was someone who could not tell right from wrong. During the course of his evidence he explained that he did not act on his views immediately, and pondered them for a while. It was only after that that he mentioned the matter to Mr Herring in the circumstances appearing below. Then at the end of his evidence he suggested that it would have been a better way of describing what he thought Mr Brett did to say that Mr Gander was not so much misusing confidential information as turning aspects of his employment to his own post-employment benefit.

This evidence is curious. Mr Michau is an experienced solicitor who thought he had detected admissions of behaviour so far out of the norm that he thought they reflected adversely on Mr Brett’s integrity. His concerns were sufficient to make it appropriate for him to mention them to Mr Herring, as question-marks over Mr Brett’s ethics, but only when they were meeting some weeks later to talk about other things. One would have expected Mr Michau to articulate his concerns plausibly and consistently in his evidence, but some of his stated concerns were odd. Thus the fact that DC1 was to be sold by Aviva does not seem to have been confidential, and it is not particularly plausible that it was. Mr Gander did not play any part in the sale, and Mr Brett dealt with others (including agents) who would not have been affected by any acts of Mr Gander. The late suggestion that Mr Gander was going to be cut in on the deal is something which one would have expected to see in the first round of evidence if it were as clear and significant as Mr Michau would suggest that it was (especially since Mr Michau spent some considerable time mulling things over), yet it only materialised in cross-examination. And if he really had serious concerns about Mr Brett’s integrity it is odd that he did not mention them sooner than he did, and on an occasion driven by him and not just when other things needed to be dealt with.

At the end of the day Mr Brett’s ethics, in the manner referred to by Mr Michau, did not form one of the grounds on which it was decided to remove him from the company, so I do not have to make a finding about them in that context. However, the question of his ethics in the context of his dealing with Mr Gander has been raised and it would be wrong to leave it hanging over Mr Brett if it were insufficiently proved. I find that while there was something that piqued Mr Michau’s interest in relation to how Mr Brett dealt, Mr Brett did not say anything which would have suggested that he or Mr Gander misused confidential information, and it is not clear what other question-marks Mr Brett might have raised about his own conduct in the conversation with Mr Michau. All that can be said is that, justified or not, Mr Michau formed some sort of view about how Mr Brett dealt, perhaps because of a degree of boastfulness on the part of Mr Brett (which would be in character) and that that gave rise to some sort of subjective view about his conduct which led to Mr Michau’s remarks to Mr Herring, but that is the most that can be said. Mr Michau was not making things up, and I accept he had the misgivings he had, but I do not find that there were actually any substantial roots to them.

Meanwhile Mr Brett was expressing his own concerns about the failure to finalise the lease. On 16th May he wrote to Mr Rabbets asking for a meeting about it (and other matters). He was concerned that the absence of a lease meant that MSHL had no contractual relationship with Thames, and he wanted to discuss his future with MSHL “and the conversations I have been having with other board members in this respect”. He was cross-examined about this, and did not accept that this reference to his role and the conversations with Mr Herring (which he accepted was his recent conversation about selling his shares) was an indication that he wanted to talk to Mr Rabbetts about the same thing. I find that he did, and it demonstrates again that Mr Brett was looking to see if there was a way out of the venture for him.

On 20th May Mr Brett, Mr Rabbetts and Mr Manning met to review the lease; comments were to be collated and passed back by Mr Brett. The result was a memorandum dated 26th May emailed by him to Mr Petch and Mr Herring, and then to Mr Michau, on 31st May. It suggested an alteration to the rent commencement date (putting it back by some months to May 2012), permission to underlet, amendments to the repairing obligations and to the forfeiture obligations, an immaterial (for present purposes) amendment to clause 30, and adjustments to the rent (downwards). The memorandum said that he (the word “I” is used, suggesting that this was his idea) would want independent advice from a solicitor in relation to the proposed amendments to the articles, and wanted “clarification” of the absence of a time limit in respect of Good and Bad Leavers, how the loss of dividends was to be legally covered by the award of bonuses and on “the share valuation mechanism”. It also suggested clarifications to the Articles and the capitalisation of the Limpopo loan.

A number of these alterations were acceded to by the Cayman side. Mr Rabbetts in cross-examination sought to portray this document as part of a pattern of conduct by Mr Brett of raising further demands, of which he did not approve, and which would be likely to be rejected. If he thought that about this document then such thoughts were, in my view, misplaced. Mr Brett was raising various points on behalf of all three minority shareholders (himself, Mr Rabbetts and Mr Manning) and many of them were actually agreed with the other side. It certainly shows him having an eye to his side of the deal, but there is nothing wrong with that. It also shows him as a man which an eye for the detail of complex legal documents, a point which has relevance to the basis on which he went into this venture and the effect of his agreeing the terms and structure of it.

Also on 31st May, Mr Brett emailed Mr Petch and Mr Herring asking that the salaries of himself and Mr Rabbetts be increased to £130,000. He justified this by reference to a prior agreement that they should be at that level and had been reduced to £110,000 so that those two directors bore the cost of paying off Mr Gander. Since Mr Gander had now been paid off, and did not have to be factored into future costs, he asked that salaries be increased back to £130,000.

On 2nd June Mr Rabbetts wrote to Mr Petch and Mr Herring raising the question of operating costs and the need to get a lease in place. He said he had now calculated that the operating costs were now £300,000 greater than anticipated (which fed through into the rental calculation) and he expressed the fear that the absence of a lease would damage sales because they could not demonstrate to customers that they had a lease in place. He hoped they were close to sorting out the revised structure, which he appreciated had to be in place before the lease could be signed.

On 8th June a meeting took place between Mr Michau and Mr Herring which is important to this case. It was not called to discuss the joint venture in particular, but there was some discussion about the revised equity structure to deal with the SDLT issue, and Mr Herring expressed the view that he hoped the outstanding issues would be resolved shortly. Then the conversation turned to Mr Brett. Mr Michau reported something of his conversation with Mr Brett on the train journeys, as referred to above. He does not seem to have shared detail, but apparently said that he was unsettled by some of the things said by Mr Brett. In particular he expressed the view to Mr Herring (according to Mr Herring, whose evidence I accept) that he was under the impression that Mr Gander had been instrumental in assisting Mr Brett in his attempts to secure DC1 at a time when Mr Gander was still employed by Aviva. He asked Mr Herring, pointedly, whether he (Mr Herring) was happy that Mr Brett was suitable to act as a director of MSHL. Mr Herring then shared with Mr Michau something that he said had been weighing on his mind for some time, namely that the relationship between Mr Brett and Mr Rabbetts seemed to have broken down and that Mr Brett had largely disengaged himself from the business of MSHL and had discussed with him “on several occasions” his desire to leave MSHL and sell his shares.

Mr Herring then put in train a series of events which resulted in Mr Brett’s dismissal from the company. I shall deal with some of them in a separate section of this judgment in which I make findings about the reasons for that dismissal, and for the moment I will continue to chart the events leading up to and beyond that dismissal.

On 9th June Mr Michau sent to Mr Petch a revised draft of the lease. In line with what Mr Rabbetts had said, he increased the agreed deductions (to arrive at the rent) and proposed an alteration in the repairing obligations (not in line with the observation that Mr Brett had made in his memorandum). Mr Rabbetts must have met with Mr Herring and confirmed that he was happy with all the latest proposals because on 9th June Mr Brett emailed Mr Rabbetts saying:

“Can we speak tomorrow please as met with JH today who said you are happy with the lease/Articles. Is this the case?”

On 10th June Mr Rabbetts replied to Mr Brett reporting (in essence) that he accepted the latest drafting of and proposals for the lease (including a compromise on an initial rent free period) and that he accepted the explanation that it was not possible to produce a side letter (impliedly in relation to the bonus for dividends proposal) because it would be illegal. He expressed the need for urgency in putting a lease in place so that sales of rack space could begin properly and identified a particular purchaser with whom they could not contract without a lease in place. He ended by saying : “So, in essence, yes I am happy with the lease and the Articles”.

Although he denied it, Mr Brett seems to have regarded this attitude of Mr Rabbetts as being something of a betrayal. He responded in an email of the same day, saying:

“Hi A,

There was a time that you needed me and would call everyday! It's funny how people forget those who helped them when they do not need them any more! I do not know why I am still surprised by human nature… I suppose I still believe in people!

Have a good weekend!”

Mr Rabbetts' reply stated that he did not know what to say and he would never forget what Mr Brett had previously done to support him. He set out a justification for his position and ended by saying:

"I don't really know where your email came from. Of course I remember what you have done and of course I will never forget!"

Mr Rabbetts’ email indicating acceptance of terms was forwarded by Mr Brett to Mr Herring the same day, observing:

“It appears we are in agreement and would therefore suggest that we prepare both in final form for signing at the next board meeting.”

In the light of the preceding correspondence this would indicate that Mr Brett’s acceptance was reluctant and that he tended to feel that Mr Rabbetts had sold the pass in relation to items that he thought still needed to be discussed. Be that as it may, and whatever his motivation, Mr Brett by now accepted that the terms of the deal were now finalised, whether he liked it or not (he probably did not). He must have seen the terms of the 9th June draft lease (though he could not remember seeing them) and took the terms of the lease to be finalised, because otherwise he would not have proposed that an engrossment be prepared for execution at the forthcoming board meeting. This is consistent with what his solicitors later said in submissions to the valuing auditors (in Appendix E):

“5.

While that latest amended draft did not fully meet Mr Brett’s proposals this was plainly an advanced stage of negotiation.

6.

Accordingly, it is clear that by 20 June 2011 the 20 year lease was on the verge of execution between these connected companies…”.

Mr Brett said that paragraph 5 did not really represent his then views - the negotiations were more than “advanced” - and that he considered that the terms of the lease had actually been finalised. I find that that was his belief, though he did not really like it.

Mr Brett was still continuing to look for other opportunities for the Cayman investor and emailed some outline proposals for buying small industrial estates to Mr Herring on 14th June. Mr Herring was not interested because, first, he had told Mr Brett that they wanted DC1 up and running properly before looking at other opportunities, and, second, by now he had formed the view (on behalf of his client) that steps should be taken to remove Mr Brett from the venture.

He had reached that conclusion after discussion with Mr Petch. He did not discuss the point with his Cayman principals. Before putting it forward formally Mr Herring met Mr Brett on 15th June at the Holiday Inn in Guildford to explain his intention to call a board meeting to table a resolution which would propose the termination of his employment. He explained that there had been a question mark over his ethics after Mr Brett’s train conversation with Mr Michau, and that he did not consider that it was in the best interests of MSHL that Mr Brett continue to be employed, because of the breakdown in Mr Brett’s relationship with Mr Rabbetts, his detachment from the business and the fact that he was not making a significant contribution to it. His lack of commitment was reinforced by his stated desire to leave and sell his shares.

On 15th June Mr Brett responded in an email which said that he did not feel any animosity towards Mr Herring, and made proposals about the sale of his shares on the footing that he would be treated as a Good Leaver (and therefore receive full value for his shares and not merely par value). He wanted his employment to be terminated at the end of July, because he needed to be seen to be employed or have sufficient wealth to support his then new Ukrainian wife in relation to her application for a visa.

A board meeting was called for 20th June. In an email of 17th June Mr Herring told Mr Brett that he could attend in person or by telephone. On 20th June itself Mr Brett said that he would not attend the board meeting so as not to cause anyone discomfort. In email traffic with Mr Rabbetts he asked for the latter’s support and Mr Rabbetts responded by saying that he would argue that any settlement must be fair and equitable. It is plain that Mr Brett, sensibly, thought that his removal was virtually inevitable.

At the board meeting, after discussion, Mr Brett’s employment was determined with immediate affect, and he was to be paid 6 months salary in lieu of notice. The minutes record that Mr Brett had raised the prospect of selling his shares and had become disengaged from the company. His involvement with the affairs of the company was sporadic, and it was in the best interests of the company that his employment be terminated. They went on to record that the termination of his employment required him to resign as a director, and that the Articles allowed his removal. In the circumstances he was also removed as a director with immediate effect. He was deemed to have served a transfer notice in respect of his shares, and was entitled to be treated as a Good Leaver; he would therefore be paid a fair price for his shares under the Articles.

Mr Brett was informed of the decision to exclude him by a letter dated 20th June and emailed to him on 21st June. It explained that the board considered his previous expressions of a desire that they arrange for the purchase of his shares and that it was apparent to the board that he did not wish to continue his involvement with the company. It recited the termination of his employment and his directorship and that his shares would be acquired at a fair price, treating him as a Good Leaver.

Mr Brett’s attitude as someone who wished to leave the company was repeated as a reason for dismissing him when Mr Herring emailed him on 30th June 2011. In that email Mr Herring expressed the view that because the business was at a very early stage in its development his shares did not exceed their nominal value, and that that was the price he would be offered. However, because they did not wish him to leave empty handed they were prepared to offer him the further sum of £250,000.

Mr Brett responded on 3rd July rejecting that offer. Much of his letter is devoted to arguing that there was, or ought to be, a lease of DC1 and that a valuation ought to take place on the footing that there was one. He carried out a short valuation exercise and put forward a figure of £19.8m, for MSHL, giving his shareholding a value of £3.96m. He expressed the view that a discounted cash flow valuation would provide an even higher figure.

Mr Herring countered on 19th July, in a long letter which accepted that there was always an intention to grant a lease to MSHL, but saying that none had been granted by the time of Mr Brett’s exclusion because there had not been agreement on all the points raised by Mr Brett about the lease and the Articles. Further email traffic between Mr Herring and Mr Michau revealed that they understood that the absence of a lease would be capable of having a depressive effect on any valuation of Mr Brett’s shares, though at the same time the outstanding 21% interest in Mr Brett meant that they still could not grant the intended 20 year term without incurring large SDLT liabilities. (Until Mr Brett’s shares were acquired, and the share capital re-organised, Limpopo would not have the 75% shareholding necessary to create a “group” structure and thus avoid the SDLT.) The directors of MSHL then became wary of entering into such a long term commitment because of the absence of sales and question-marks about the viability of the company and the propriety of taking on such a long term commitment. At the same time there were expressions of view by Mr Rabbetts that the “PB issue” (by which he meant Mr Brett’s outstanding shareholding impeding the grant of the intended lease) was itself impeding sales.

By 21st December the board and Thames had agreed two forms of agreement. The first was a facilities management agreement to cover the period from May to December 31st under which MSHL agreed (largely retrospectively) to manage the facility for Thames, and the second was a lease for the period from 1st January 2012 onwards in favour of MSHL which enabled it to trade on its own account. The term was in essence a rolling term terminable on 3 months notice.

The company and majority shareholders invoked the compulsory transfer provisions in the Articles and in due course the share valuation mechanism in the Articles was invoked. On 2nd July 2012 Deloitte (the auditors) valued Mr Brett’s shareholding at £475,000 (£23,750 per share). Material relevant to this valuation exercise is dealt with in a separate section below. In accordance with the procedures in the Articles those shares were offered to Limpopo and the latter agreed to purchase them at that price. That was not acceptable to Mr Brett as an outcome to his claims, and he presented the present petition on 8th August 2012.

In the aftermath of Mr Brett’s leaving various investigations are said to have revealed that Mr Brett wrongfully used the company credit card to buy foreign exchange for personal purposes, claimed expenses to which he was not entitled and continued an involvement with his personal property matters to an extent which was contrary to the terms of his employment contract. It is said that these matters were not known at the time of Mr Brett’s dismissal and therefore played no part in the reasoning of the majority shareholders to dismiss, and thus exclude, him. However, once they had come to light they were relied on in these proceedings as being matters which could be relied on as contributing to the fairness of his exclusion, or as rendering his exclusion fair, or as supporting the fairness case. It is said that he could have been treated as a Bad Leaver had those matters been known at the time of his dismissal and exclusion, in which case he would have got no more than the nominal value of his shares. He in fact got a lot more than that, so he has not been treated unfairly. Again, I deal with those matters in further separate sections below.

Since 2011 the business has been nothing like the success that was hoped and which was projected in the financial projections at the time the venture was being set up. This is relied on as demonstrating that Mr Brett has not been treated unfairly because he has not been deprived of any long term growth in the shares, so he has not sustained unfairness. I have not found it necessary to consider this particular point further in the light of the other conclusions I have reached on fairness.

Deloitte’s instructions were set out in letter written by that firm on 21st November 2011 in which they set out the exercise they were to carry out. Mr Brett and MSHL agreed those terms. They set out that they were to determine a “Fair Price” in accordance with Article 25.7 and that Mr Brett and his advisers would see the information provided by the company, and its submissions, and would be able to provide submissions of their own. The company was to provide information for the purposes of the exercise and was to confirm that there was no material known to it and uncommunicated to Deloitte which might reasonably affect the determination. Mr Herring signed the terms, by way of confirmation, on 6th December. Thus both parties were able to contribute to the exercise, and in due course both did.

The company’s initial contribution was factual without seeking to make any argument. On 9th December 2011 it submitted the signed engagement letter, some “Background files”, management accounts for May and June 2011, Projections as at 20th June 2011 and “current”, a description of the funding arrangements, the development contract and a report and accounts for the year ended 13st December 2010. Mr Michau’s evidence was that at this stage the majority shareholders were simply seeking to implement the bargain and that they would accept the consequence of the bargain, so they did not make actual submissions. He professed to a certain insouciance as to whether the sum was high or low - the accountants would do what they were supposed to do. This is a rather odd attitude in the circumstances, but that is what the company (majority shareholders) did at this stage - they made no submissions at all. On 9th December they submitted their material (identified above), all without commentary (though the background files contained material such as correspondence which will have indicated what was happening in the company from time to time).

Mr Brett was (understandably) less restrained. Having indicated that he would participate in the exercise on 10th February 2012, his solicitors put in detailed and full submissions. Those submissions urged on the valuers that a net assets basis of valuation was not appropriate, and proposed 3 other methodologies - comparable transactions, comparable companies and discounted cash flow. Section 9 deals with the question of the lease. It points out (correctly) that projections assumed that MSHL would continue to operate the DC1 site, sets out the background to the negotiation of the lease, and the almost complete agreement for its grant, and submits that:

“9.1

(d) There was a lease in final form to be granted by Thames to MSHL … with only minor matters to be resolved before its execution.

…

(f)

The only fair and realistic basis for your determination of the Fair Price under Article 25 is that MSHL would remain in occupation under a lease for [the] 20 year term.”

The section goes on to observe that it suited Limpopo to argue that there was no executed lease as at 20th June 2011, but there was no real doubt that a 20 year lease would be granted. To accept an argument that it was not granted would contrive a depressed value of MSHL’s shares. It is not clear to me where it was that Limpopo was actually making an argument based on any hypothesis about the absence of a lease, but that is what Mr Brett’s solicitors said. Appendix E seeks to back up this argument with more detail about the process of negotiating the lease, stating that it was clear that by 20th June 2011 “the lease was on the verge of execution” and “There was no reason to doubt that the parties would proceed to execution of that lease on the essential terms of the circulated lease.” It had previously observed that the latest draft “did not fully meet Mr Brett’s proposals [but] was plainly [in] an advanced stage of negotiation”. As appears above, Mr Brett said in evidence the first part of that last quotation was not correct, even though he approved the terms of this Appendix before it was submitted.

MSHL responded to those submission on 1st May 2012. They said:

“3.

It is for you to decide the methodology of your Determination.

At the Valuation Date MSHL did not have a lease of DC1 and instead had only the prospect of one but with certain issues remaining unresolved as explained below. If at the Valuation Date MSHL had entered into a 20 year lease on the terms being discussed in the previous February, it would have exhausted its funding by now as is evident by the proforma balance sheet that has been prepared for the purpose of this response and is submitted herewith.”

The submissions go on to contradict the proposition that as at 20th June the lease was ready for grant and would have been granted and taken. The thrust of what was being said was that while a lease was intended, as at 20th June the letting of racks was well short of that assumed in the financial projections. In the event the directors decided not to take the 20 year lease because to do so would have exhausted MSHL’s funding before DC1 started to trade profitably. So a terminable lease was taken instead. If the question of taking the lease had been considered as at 20th June the directors would have called for further projections and would have delayed taking the lease until there was clarity as to the timeframe within which MSHL would become profitable. A willing purchaser would not have relied on the projections prepared the previous February (which had been falsified, because of an almost complete absence of customers who had signed up by summer 2011, contrary to those projections) but would have undertaken fresh research which would have identified the difficulties in getting rack rentals . So MSHL was not in a position to commit to the 20 year lease as at 20th June 2011.

Mr Brett’s solicitors responded on 18th May 2012 by disputing the validity of the introduction of the idea of a lease terminable on 3 months notice as opposed to a lease for 20 years in what were said to be agreed terms.

Precisely how Deloitte took all this into account is not known, because their valuation was a non-speaking one. On 2nd July 2012 they determined the Fair Price to be £475,000 (£23,750 per share). On 6th August 2012 Mr Brett was informed that the shares had been offered to Limpopo at that price and Limpopo had agreed to purchase them.

As has already appeared, that was not an acceptable outcome to Mr Brett and he presented the present petition on 8th August 2012.

I now turn to make some findings as to why it was that Mr Brett was excluded from the company, and to make certain findings in relation to the non-finalisation of the lease and the timing of his departure. The reasons for exclusion are obviously a key element in practically every unfair prejudice claim based on removal of a minority shareholder. Mr Brett’s case is that there was no fair reason which justified his dismissal. It is therefore relevant to consider what the reasons were said to have been. I shall then consider fairness separately.

It was not part of Mr Brett’s case that Mr Herring and his colleagues had, subjectively, any ulterior reason for removing him and not reflecting on him. He did not, for example, allege that they had decided that they wished to control more of the shares and therefore contrived a case against him with ex post facto reasoning. Rather, his case (under this head) turned on two things. First, Mr Stewart’s submissions from time to time suggested that there was a dismissal for no reason, and second they also made a case for the poverty of the apparent reasons.

I do not consider that Mr Brett was dismissed for “no reason”, whatever Mr Stewart may have meant by that. It is hard to see how any such act can ever be for no reason at all, if taken by sane people. There will always be some reason, even if it is not objectively a good or fair one. In this case the decision to dismiss him was not arbitrary. There were reasons behind the decision of the Board (and the majority shareholders).

Mr Herring was the initiator of the process. The background is set out in the factual material above. It is important to bear in mind that the possible lack of probity on the part of Mr Brett was not one of his, or apparently anyone else’s, reasoning for the actual dismissal, though it was the cause for considering Mr Brett’s position. As far as Mr Herring is concerned his reasons centred round his belief that Mr Brett was not sufficiently committed to the business and was actually causing trouble within it. Most of this was reasoning that was adopted by the board and reflected in the minutes of the meeting which voted to dismiss him. Mr Brett had, on more than one occasion, expressed the view that he wished to be bought out. Mr Herring obviously did not believe that this was a merely casual inquiry, and I find that that was a reasonable and justifiable (and indeed correct) belief.

Mr Brett managed to contribute to this impression by giving the impression that he was indeed disengaging from his role in the company, both as a development director (who did not, at the time of his leaving, have a particularly big role in this respect because Mr Herring had indicated that there would be no further purchases until DC1 was running and profitable) and as a director with more general responsibilities. Both Mr Herring and Mr Rabbetts felt that in all the circumstances Mr Brett could and should have been doing more than he was towards the general business of the company and, in Mr Rabbetts’ case at least, in drumming up sales. This point has to be treated with a little caution, at least so far as Mr Herring’s views are concerned, because it is not apparent that he actually in terms required Mr Brett to do more. Mr Brett’s role as property director who was supposed to be looking out for new opportunities was somewhat attenuated when he was told such opportunities would not be pursued for the time being, though he still continued to look for them to some extent. It does not appear that he was given express instructions to divert his energies elsewhere, though Mr Rabbetts had his own complaints about functions that he was not fulfilling. This seems to have been more a complaint that Mr Brett did not himself realise that there were other jobs that needed doing. That, of itself, is a matter relevant to the board’s decision, In failing to do so, combined with his absences, he gave the justifiable impression that he was not so committed to the business.

Mr Brett did not help himself by fairly frequent absences from the business in the first half of 2011. During that period he had a number of absences because of trips to Kiev to meet the lady whom he then married in April, and to be with her family. Between February and May 2011 he made 5 trips, amounting to 36 days, of which 23 were working days, at a time when a lot of work was being done to open DC1. Nobody forbade him from making those trips, and he says he took them as holidays to which he was entitled (his contract entitled him to 25 days per year), but he did not agree the days in advance and they would understandably have fed into a belief about his lack of commitment to the project.

There was also the matter of Mr Brett’s disagreements with Mr Rabbetts (and vice versa). These had been serious, and they had not been patched up. They were not improved by Mr Brett making demands for the minority shareholders which they did not always like in the negotiations following the SDLT point emerging. These caused Mr Herring concern, and that concern is justifiable. Those concerns were not articulated in the minutes of the board meeting, or subsequent letter, as being a reason for dismissal, but I do not doubt that they played a part.

It was Mr Brett’s case that the board meeting of 20th June was called to consider something that was a foregone conclusion - the decision was always going to be one way. Mr Herring said that he would have been surprised if the meeting had not resulted in dismissal, but there was a possibility that the result would have been different if one of the other directors had thought that that was the wrong course. I accept that evidence. The most likely dissentient would have been Mr Rabbetts, but in the end he did not dissent and was more concerned to make sure that Mr Brett was treated fairly thereafter. The meeting took some significant time. It was not a rubber-stamping exercise.

Mr Brett’s case did not involve him demonstrating that the points taken by the board were bad to the point of being irrelevant points; nor, as I have observed, was it his case that the ostensible reasons were not the real reasons. The farthest his case went on this was to describe the reasons as “flimsy” (in the opening). I shall have to consider in due course whether they were, fairly speaking, good reasons for dismissing him and then removing his shares when I come to consider questions of unfairness, and for present purposes find that the reasons were far from “flimsy”. They were substantial and rational, in all the circumstances.

It will be convenient here to deal with another point of motivation which was suggested in final submissions. Mr Stewart suggested that the dismissal was unfair because it was not a good faith decision because it was motivated by Limpopo’s motive and expectation that the dismissal of Mr Brett would enable Limpopo to get Mr Brett’s shares at an unfairly low price because there was no executed lease (although it was on the verge of execution), and there was an obvious real prospect that the absence of an executed lease would affect the valuation to Mr Brett’s prejudice. So far as valuation goes it is said that there is a risk that a valuer would value on the footing that MSHL had no established right to remain in and operate DC1 at all, and that that would affect the view of the hypothetical purchaser as to the price to be paid.

This claim introduces a timing factor into the claims of Mr Brett. It involves the relevant people (unidentified) coming to the conclusion that they needed to get rid of Mr Brett, and they should do it sooner rather than later because at that time the lease had not yet been granted. It could, I suppose, be rendered plausible if it could be made to fit with a finding that there had been a prior positive decision to get rid of Mr Brett, because it would then make sense to try to do it before they were manoeuvred into granting a lease. It is hard to make it plausible as an allegation without that prior decision.

On my findings there was no prior decision. There was no prior positive decision to get rid of Mr Brett as cheaply as possible. So in that context it does not work. Nor does it work with my findings about the board meeting on 20th June. There was a genuine discussion. It was not suggested that anyone raised the point at the board meeting, so it is not clear how it can have fed into the decision-making process there.

In fact the allegation was not investigated at the trial at all, and was not even pleaded as such. It was not put to Mr Michau that he had formed that intention, and it was not suggested to Mr Rabbetts that he was privy to it or had been told about the point. The point was raised with Mr Herring, after a fashion, as the last question he had to answer in cross-examination:

“Q. I suggest to you, Mr Herring, that actually when you got

the email -- we needn't go to it again -- from Mr Brett

on 10 June, you appear to be in agreement about the

lease and the Articles, that that [was] entirely [un]welcome news

to you.

A. No, I completely disagree with that.

Q. Because what happened was that you then -- in fact, you

got it under the wire and you got rid of Mr Brett very

quickly then, before the lease was formally in place and

when DC1 had only been open a month, didn't you?

A.

There was no plan in that. It just happened.”

(I have interpolated some text to make the transcript make sense.)

That is all there was. In fact, it can be seen that it was not really put at all. The idea of a plan was not actually put as such; the idea came from Mr Herring, who interpreted the question in that way. There was no investigation of it; no suggestion of how Mr Herring’s thought processes might have worked; when he formed the idea; whether he discussed it with anyone else; or anything like that. That is too flimsy a basis to amount to a fair challenge, and on that ground alone I would not allow the allegation to stand. However, in addition there is no plausible evidential basis for it. As a motivation, therefore, the point fails. I would add that if there was some sort of idea to depress the valuation in that way it was a very odd way of going about it to fail to advert to it in the first round of submissions to Deloitte. One would have thought that such a point, if an active objective, would have been made in positive submissions to the valuers; but no submissions were made until after Mr Brett had made his.

These were not the subject of any real dispute. Each side deployed uncontested authority which supported its view of the case.

Section 994 of the Companies Act 2006 reads:

“994.

Petition by company member

(1)

A member of a company may apply to the court by petition for an order under this Part on the ground -

(a)

that the company’s affairs are being or have been conducted in a manner that is unfairly prejudicial to the interests of members generally or of some part of its members (including at least himself), or

(b)

that an act or proposed act or omission of the company (including an act or omission on its behalf) is or would be so prejudicial.”

There are many cases which consider the circumstances in which conduct will be regarded as unfair, many of them summarising or re-stating in their own ways principles which have been applied in other cases. I do not need to go back to the seminal cases or those that follow them for most of the principles. I prefer to start from the summary of Patten J (sitting in the Court of Appeal) in Grace v Biagioli [2005] EWCA Civ 1222:

“61.

From Lord Hoffmann's speech [in O’Neill v Phillips [1999] 1 WLR 1092] one can deduce the following principles:

(1)

The concept of unfairness, although objective in its focus, is not to be considered in a vacuum. An assessment that conduct is unfair has to be made against the legal background of the corporate structure under consideration. This will usually take the form of the articles of association and any collateral agreements between shareholders which identify their rights and obligations as members of the company. Both are subject to established equitable principles which may moderate the exercise of strict legal rights when insistence on the enforcement of such rights would be unconscionable;

(2)

It follows that it will not ordinarily be unfair for the affairs of a company to be conducted in accordance with the provisions of its articles or any other relevant and legally enforceable agreement, unless it would be inequitable for those agreements to be enforced in the particular circumstances under consideration. Unfairness may, to use Lord Hoffmann's words, "consist in a breach of the rules or in using rules in a manner which equity would regard as contrary to good faith": see p.1099A; the conduct need not therefore be unlawful, but it must be inequitable;

(3)

Although it is impossible to provide an exhaustive definition of the circumstances in which the application of equitable principles would render it unjust for a party to insist on his strict legal rights, those principles are to be applied according to settled and established equitable rules and not by reference to some indefinite notion of fairness;

(4)

To be unfair, the conduct complained of need not be such as would have justified the making of a winding-up order on just and equitable grounds as formerly required under s.210 of the Companies Act 1948;

(5)

A useful test is always to ask whether the exercise of the power or rights in question would involve a breach of an agreement or understanding between the parties which it would be unfair to allow a member to ignore. Such agreements do not have to be contractually binding in order to found the equity;

(6)

It is not enough merely to show that the relationship between the parties has irretrievably broken down. There is no right of unilateral withdrawal for a shareholder when trust and confidence between shareholders no longer exist. It is, however, different if that breakdown in relations then causes the majority to exclude the petitioner from the management of the company or otherwise to cause him prejudice in his capacity as a shareholder.”

To this the following elaborations, glosses and additions can be added:

As David Richards J said in Re Coroin Ltd (No 2) [2013] 2 BCLC 583:

“635 …Equitable considerations, affecting the manner in which legal rights can be exercised, will arise only in those cases where there exist considerations of a personal character between the shareholders which makes it unjust or inequitable to insist on legal rights or to exercise them in a particular way. Typically that will be in the case of a company formed by a small number of individuals on the basis of participation by all or some of them in the management of the company."

The majority were legally entitled, under the corporate and employment transactions, to act as they did. The inquiry therefore becomes, in short, whether there were dealings between Mr Brett on the one hand and the majority shareholders on the other which make what happened to him as a member unfair (unconscionable) to a degree which attracts the court’s intervention.

There is one additional point which I should get out of the way at this stage. Mr Collingwood seemed to make it part of his submissions that in the circumstances of this case section 994 had no real part to play because the acquisition of his shares followed on more or less automatically from an act upon which section 994 did not impact. The trigger was his removal as a director under his employment contract. Section 994 did not have anything to say about that - it was a purely contractual matter. Once that had happened the Articles took over and were automatically applied, with their inexorable result in arriving at a binding valuation. So section 994 did not have any relevance to that either. It was all pre-ordained.

That submission, if correct, would provide a handy way of contracting out of the effect of section 994. I reject it. The removal of a shareholder from a right of management participation is capable, in appropriate circumstances, of being unfairly prejudicial to him as a shareholder, and if it thereafter triggers the right to affect his shareholding (and in particular to deprive him of it) is capable of being unfairly prejudicial conduct. One can either view it as conduct as a whole which is unfairly prejudicial, or one can view the implementation of the Article rights (which other shareholders could ultimately decline to take the benefit of or to enforce) as unfair prejudice to the shareholder. Mr Collingwood’s point is therefore not a complete answer to the petition, and it is necessary to consider the background to the matter, and the events complained of, to see if there is unfair prejudice.

I therefore turn to the first question - whether the relationship between the parties is sufficient to impose some constraint on the implementation of what the majority shareholders’ rights would otherwise be under the documentation.

I start by considering the nature of the relationship in order to ascertain to what extent, if any, the rights under the employment contract and the Articles were constrained by any requirement of fairness.

Mr Stewart's first submission was that the joint project was not fairly characterised as a deal between a private equity investor and a replaceable management team. He seemed to present such a state of affairs as if it were the opposite of a quasi-partnership, and made submissions apparently intended to justify the description of the relationship as a quasi-partnership. As I have indicated, I do not think that the answer to this question necessarily lies in characterising the relationship as a quasi-partnership or not, as the case may be. It is the quality of the relationship that is more important.

Mr Stewart's submission that there was something more to the relationship than a mere arm's-length management team/employer relationship (and which contained personal elements which introduced limits of fairness and equity) was based on the following factors:

Mr Collingwood’s case was that there were no such equitable conditions overhanging the agreed contractual terms embodied in the Articles and the employment contract. He relied on the following factors (amongst others):

I largely accept the submissions of Mr Collingwood on this point, though not entirely, and not for all the reasons that he gave. The relationships in this case cannot usefully or appropriately be described as a quasi-partnership. There was no relevant personal relationship between Mr Brett and anyone else. He had had a former business relationship with Mr Herring, but it seems to me that the DC1 venture was entered into between the two of them despite that relationship, not because of it – Mr Herring’s previous commercial relationships with Mr Brett had left him with liabilities and an unpaid debt. Mr Brett identified a business opportunity and sought an investor, with whom he negotiated an arm’s length relationship. Detailed terms for that relationship were negotiated over an extended period and at arm’s length. Mr Brett had legal advice on them. The extent to which that advice was detailed or high level does not matter much for these purposes. The fact was that this was a situation in which he considered it was appropriate to get that advice because he realised the importance of the terms of what he was negotiating to his own position. As I have observed from time to time, he gave attention to that detail, was capable of understanding the issues that arose, spotted points that needed to be dealt with and raised them in the negotiation. Those actions, of course, do not necessarily mean that there was no personal relationship, but they point firmly in the direction of a commercial arm’s length relationship with the parties understanding that it was the documents which governed their relationships.

From his side, Mr Herring was from time to time firm in saying that his client insisted on its status and its proposed rights, and wanted control. To that end the documents were drafted as they were. He did, of course, give some ground in negotiation, but that is the essence of negotiation. He also sometimes referred to his client’s intention to act fairly, but that would be an expectation in any negotiation and in any commercial relationship. If one party thinks another will not act fairly then they are most unlikely to go into the deal in the first place. I do not doubt that Mr Herring’s side intended to act fairly - I think that Mr Herring is a fair man, and he was largely in control - but the relationship was really governed by the documents he negotiated, and the deal was one which he was entering into because it was thought to be a good commercial deal for his client, not because it flowed from some sort of personal relationship with Mr Brett.

I accept and find that the parties thought that their relationship would not be a short-term one. They probably both envisaged (absent a consensual parting) that it would last for a while. That, again, is natural in those circumstances. However, it does not mean that either side was actually committing to the other outside the scope of the legal documents. So all the indications relied on by Mr Stewart as pointing to a longer term relationship (the express statement to that effect in the email traffic, the expressed possibility of a flotation in 2 or 3 years, and so on) are what was envisaged, not what either party was committing to.

There is therefore, in my view, little room for the sort of equitable considerations that underpin section 994 (absent unlawful conduct, of course). Mr Brett signed up to a deal which exposed him to the control of the Cayman interests, and he was aware of that. He admitted in cross-examination that he knew that he could be removed for any reason. That does not mean that he accepted that that would be a fair state of affairs if it happened, but he went into the deal with his eyes open in that particular respect. The Cayman interests insisted on having the rights that they acquired, and he was (in effect) aware of that too. Mr Brett, with justification, envisaged at the start that this was a venture which was likely to be long- (or at least mid-) term in terms of its duration, but he was always vulnerable to the majority co-venturer having different views, and he appreciated that and accepted the risk.

All that means that this is a case of an arm’s length deal on agreed documentation and not a venture which is founded on the sort of considerations which are likely to give rise to the possibility of overriding equitable considerations. This is not the sort of situation referred to by David Richards J in Coroin at paragraph 635, cited above. I accept that considerations of fairness might still have a part to play if there were bad faith in that sort of situation (for example, were it the case that Mr Brett had been deliberately strung along by the Cayman side in order to get DC1 and have it built out, with a view to ditching him thereafter), but that is not Mr Brett’s case.

That being the case, that is an end of the matter for the purposes of this litigation, but I go on to consider the case on the footing that I might be wrong about that, and that there is scope for considerations of fairness and equity in the circumstances that arose in this case. On this alternative view there is limited scope for the operation of the sort of considerations that underpin section 994. It assumes that which Mr Brett seeks to establish, namely that fairness governs whether Mr Brett could be dismissed at the time, and the manner of valuation of his shares. It is into this area that he also seeks to introduce considerations relating to the grant of the lease of DC1 (or rather the failure to grant it as a 20 year term).

This section is therefore predicated on the assumption that the right to affect Mr Brett’s rights as member, by dismissing him and then insisting on depriving him of his shares, is capable of being affected by considerations of fairness.

My findings as to the reasons appear above. As a basis of the dismissal they can only be viewed as unfair if they ought not to have been taken to be reasons (for example, if it ought to have been apparent that they were bad on the facts, even if believed to be subjectively good), or if taken together it would have been unfair to treat them as sufficient to justify dismissal and the removal of his shares. It is clear to me none of that can be made out.

Each of the reasons given by the directors, whether those expressed at the time or the additional matters referred to in evidence, reflected views and reasoning that were justifiable in fact and were perfectly reasonable for a reasonable director (or shareholder) to adopt. It was reasonable to believe that Mr Brett had lost his commitment to the business in the manner referred to above. He was apparently not attending, and his absences in the Ukraine contributed to this. It was a reasonable view to take that he ought to have been contributing more to the activities of the business even if his intended role did not originally anticipate that he would carry out certain of those activities, and it was reasonable, in the circumstances, to take the view that he ought to have done more. His requests about being bought out certainly justifiably contributed to a feeling of lack of commitment. The fact of his bad relationship with Mr Rabbetts was, it seems to me, an important matter. Again, it might have contributed to his apparent lack of commitment, but even by itself it could justifiably be viewed as something which raised serious question-marks about the desirability of his remaining on the payroll, and as part of the start-up company as shareholder.

I therefore find that the reasons of the directors were reasons which a reasonable board could consider as being good reasons for removing Mr Brett as a director. They were also reasons which could fairly be regarded as good reasons for removing his shareholding (and it is likely that the board took the view that it was all one process). The project required commitment and activity from the main participants, and it was a justifiable view that Mr Brett did not demonstrate those and that his continued presence might cause further problems. The majority shareholder had, by agreement, put itself in a position in which it could control whether it wished to continue with someone over whom it had doubts of the kind that arose in relation to Mr Brett, and its agents were entitled to reach the conclusion that they did. It was part of the bargain that they were entitled to do so, and the view that was taken was well within the bounds of reasonableness and, for these purposes, fairness.

Part of the picture is the provision under the Articles for the acquisition of the shares of a Good Leaver. A Good Leaver is paid for his shares at a Fair Value (what a third party purchaser would pay), and the valuation is to be determined by an agreed third party. In those circumstances a shareholder will normally be left with the consequences of his bargain so far as valuation mechanism is concerned, and will not be entitled to have a valuation carried out by the court.

“But a provision that the auditors (or some other independent person) shall fix a 'fair value' for the shares gives the auditors precisely the function which a court would have to perform under s 459. The auditors will be free to have regard, if they think it fair to do so, to any of the matters mentioned by Nourse J in Re Bird Precision Bellows Ltd [1984] BCLC 195, [1984] 3 All ER 444, [1984] Ch 419 or by me in Re a company (No 007623 of 1986) [1986] BCLC 362. The only difference is that the court's valuation will take longer and be far more expensive. I therefore do not consider that in the normal case of the breakdown of a corporate quasi-partnership there should ordinarily be any 'legitimate expectation' that a member wishing to have his shares purchased should be entitled to have them valued by the court rather than the auditors pursuant to the articles.” (per Hoffmann J in In re a Company (No 004377 of 1986) at page 102b-d).

The position will be even stronger where the mechanism has, as here, been agreed in advance by the outgoing shareholder. There is therefore nothing unfair about Mr Brett’s being paid out at the value of the shares at the time in accordance with the agreed mechanism.

However, in the present case an additional fairness point is taken in relation to the basis of the valuation. In his written final submissions Mr Stewart put it in various ways:

Point (a) has been considered above in the section dealing with the reasons for Mr Brett’s dismissal and removal, and it fails on the facts. An allied pleaded point, namely that a deliberate decision not to grant the lease in order to prejudice Mr Brett, was not pursued in final submissions. I also add that an allegation made in the pleadings and in opening to the effect that failing to pursue and obtain a 20 year lease in and after June 2011 was a breach of duty on the part of the directors of MSHL was also not pursued in final submissions; nor was it put to any of the director witnesses. I therefore do not consider that particular point either, though it seems to me prima facie to fail on the facts anyway.

Point (b) seems to me to add nothing to the case. The evidence was not wholly clear as to whether Mr Herring or Mr Michau actually formed that particular view before the dismissal, but some of Mr Herring’s cross-examination suggests that the effect of not having a lease in place might have been in their minds as a fact when considering the overall position because it would mean that a willing buyer would not want to pay anything for a company in that position. However, as a mere piece of knowledge, or subjective appreciation, that awareness does not render the timing or the process unfair. It is a mere fact. The really significant point, if there is one, is the one made at (c).

The state of play on the lease, as at the date of the 20th June board meeting, appears from the narrative above. The distilled picture is as follows. The lease was one of the major transactional documents which had to be agreed between the principal parties, including Mr Brett. As a property man he plainly had a commercial eye as to its terms and how they affected the venture and his interest in it. Agreement with him was required by his counterparties. Drafts of the lease were therefore passed between the parties for comment and agreement. Before final agreement was reached the SDLT problem arose, which required further thought. Thereafter further drafts of the documents passed. Shortly before he was told that his dismissal would be considered, Mr Brett had (apparently with some reluctance) agreed outstanding matters. There were some minor matters which had to be sorted out, but the main terms were agreed. There was, of course, the potential for some disagreement, but by and large the parties, at least on the MSHL side, seemed to have got there. In his final submissions Mr Collingwood said that Thames had not agreed the terms yet, and it might have different views on the matter, but so far as drafting went, and absent a perceived change of circumstances, I consider it unlikely that Thames would have raised fundamental objections.

One of the reasons why the lease was not executed was because it could not be safely executed until Limpopo held 75% of the shares in MSHL (because of the SDLT risk), and that required the restructuring of the shareholding and amendment of the Articles to prevent Mr Brett and Mr Rabbetts from losing out in terms of the effective value of their shares. Once the dispute arose between the parties Mr Brett did not transfer his shares or agree to a change in the Articles, so for that reason alone the lease could not be granted. The thrust of the evidence was that when further consideration was given to these matters second thoughts were had on the non-Brett side about the wisdom and propriety of entering into a 20 year term anyway - see above. Those thoughts, however, had apparently not come to the surface by the time of the decision to exclude.

Against that background I have to consider whether it is unfair to submit Mr Brett to a valuation which would be likely to have been, or might have been, affected by the absence of a lease, notwithstanding that the parties seemed very close to granting one at the time of his exclusion.

I prefer to approach this question by supposing there is something in the point and asking what would have been a fair way to deal with it? There are two theoretical answers. The first is to hold off with the dismissal until the lease had been granted. I regard that as unworkable. The second (if one acknowledges the possibility of unfairness) is to approach the valuation on the agreed footing that it should be assumed that the 20 year lease has been granted.

I do not regard the second as appropriate either. (This is despite the fact that in these proceedings both the valuers have approached their valuations on that footing; I do not know why they have done that.) The fact was that at the date in question the documents had not been finalised, let alone entered into. Furthermore, question-marks were arising, although not articulated at that precise date, as to the wisdom of the longer term of the lease. It would not have been possible to say, with certainty, that as at 20th June a 20 year term lease would have been granted.

So those two possible solutions do not provide the fair solution. In those circumstances I do not regard it as unfair that the valuation should have been required as at a date when it would, or might, have been affected by the then state of affairs, that is to say that there appeared to be an agreement as to a lease, but it was not finalised. That might make a valuer’s job more difficult, but it is not unfair. It was the actual state of affairs. It arose out of the terms and effect of documents freely agreed by Mr Brett, and out of the events as they happened to be at the time.

Furthermore, if one turns to the actual valuation and its own background, it is not apparent that any actual unfairness is demonstrated there either. Arrangements were made for Mr Brett to contribute to the exercise, and to bat second so that he could comment on the material that went in from the company. Odd though it now seems, the company did not positively rely on the absence of a lease when it provided its initial documentation. True it is that the absence of a lease will have been apparent from the documentation that was submitted, but attention was not drawn to it. Furthermore, it was accompanied by financial projections (into which Mr Brett had previously had input) which assumed a lease of DC1.

Mr Brett then made his submissions, and I have set out relevant extracts above. The company then responded with materials which accepted that a lease had been intended but a purchaser would not necessarily have taken a 20 year lease at the valuation date because of the state of the business, and made the other points identified above.

The valuers then produced their valuation based on the material that they had. They came up with a substantial figure. Although their valuation does not contain any reasoning, Mr Stewart accepted that the valuers must have assumed some form of lease because otherwise the valuation, on any basis, would have had to have been nil. The valuers themselves were free to ask for further information and there is no evidence that they found themselves in any difficulty in finding an appropriate factual base for their valuation. Mr Brett had a fair opportunity to make his case, and he made it; as did the company.

The decision cannot be attacked as a decision. It was a decision of a nature which was provided for by the agreed Articles. It took place against a factual background of a lack of clarity as to what lease should be assumed, but that is because that was the factual background at the time. That is not unfair; it is merely an effect of how the factual cards happened to fall on the facts of this case. It might have been unfair if there was contrivance in terms of timing, so as to give the company an unfair benefit of the uncertainty, but that did not occur in this case.

I therefore find that there was nothing unfair about the timing and basis of the valuation, or about the valuation process as a whole, in its context.

I therefore find that there was no unfair prejudice in this case arising out of the circumstances and timing of Mr Brett’s dismissal, and the circumstances, timing and basis of the valuation. The petition therefore stands to be dismissed.

As pointed out above the respondents ran other points as justifying the dismissal had my conclusion been otherwise on the main point. They are points which rely on later discoveries as to Mr Brett’s activities. Strictly speaking they are irrelevant in the light of my conclusions on the main point, but they were points that were taken, and some of them involve serious allegations against Mr Brett which should probably not be left hanging over him. They might also become relevant should my main conclusion be challenged elsewhere. I will therefore deal with them, though more briefly than might otherwise have been the case.

Had it been necessary to do so, the majority shareholders rely on breaches of duty said to have been committed by Mr Brett which would of themselves have justified his dismissal had the company and shareholders known about them at the time (conducting outside activities, wrongly claiming expenses and withdrawing company funds). If that were right then he could have been treated as a Bad Leaver and received only par for his shares. All that, if established, is said to mean that his dismissal on more favourable financial terms cannot have been unfair.

For Mr Brett, Mr Stewart did not dispute the underlying proposition that if Mr Brett had been guilty of dishonesty then he could have been dismissed for it and his dismissal in the circumstances would not be unfairly prejudicial conduct. Two of the three heads are essentially claims of dishonesty. However, he joined issue with the claim that Mr Brett had acted dishonestly in relation to expenses or anything else. He also seemed to accept that if Mr Brett was in breach of his obligations not to allow outside interest to impinge on his activities for MSHL then that could also have been the basis of a fair dismissal as a Bad Leaver (save insofar as his activities were consented to by the company), but said that it was not the case on the facts.

Accordingly the issues I have to decide are essentially factual ones - have the respondents established that Mr Brett made dishonest expenses claims, did he wrongfully draw company moneys, and did he wrongfully devote excessive amounts of his time to his personal business interests, in each case in a manner which could have justified summary dismissal and treating him as a Bad Leaver.

The relevant provisions of Mr Brett’s employment contract appear in the Annex to this judgment. They are clauses 3.2(c) (employee to abide by legal duties to any group company of which he is a director), 3.2(e) (devote whole of time and attention to the business of the company and group companies), 3.2(i) (report his own wrongdoings), 3.2(j) (use best endeavours to promote and develop and extend the business of any group company), and 10.1 (not to have a financial interest in or be engaged in any other business, without the prior written approval of the chairman). It is said that his engagement with and interest in two concerns, one known for short as Port Derwent Developments or PDD, and the other as West Cumbria land, contravened these restrictions and requirements.

Mr Brett accepted that he had an interest in PDD. He had interests in various companies and LLPs which were interested in acquiring, and which held development land interests, in the north-west. The detail of his holding was referred to in his evidence (he had a 50% interest overall), but the detail is not relevant here so I shall not set it out. It is sufficient to note that those interests existed during the period of his employment. His partner in PDD was Mr Allen-Vercoe.

He also did some work for a concern known as West Cumbria Land LLP. He denied having an ownership interest in this concern, but admitted doing significant work for it and contributed to discussions as to how the partnership’s property might be exploited. He did not suggest that he was paid for that work. There are a number of emails about this concern (though not as many as there are about PDD). Mr Brett frequently used the pronoun “we” when talking about it, but still denied having a financial interest in it. His protestations and explanations for that were not generally convincing. If he did not actually have an interest in it I think that he was hoping he would acquire one, and that is why he was participating in discussions as he did. He was being coy in the witness box for some reason. However, this point does not add much to his undoubted involvement in and for PDD for the purposes of the point presently under consideration. It is really his engagement with PDD that is the main point.

In their letter before action his solicitors said that he provided a formal written declaration of outside interests at or about the time of the completion in June 2010. I have dealt with this above – he did not. I think he has made that up.

However, in the actual context of this litigation that failure is not as serious as it might otherwise have been, because Mr Herring accepted that he knew that Mr Brett had an interest in PDD and that he did work on that project whilst being employed by MSHL. Mr Brett had even written a letter seeking to interest the Cayman investor in his project. Mr Herring accepted that Mr Brett’s involvement with PDD would not have been a problem unless it impacted materially on his ability to work, and his actual work, for MSHL and the DC1 project. He said, and I accept, that he would not have allowed Mr Brett to have devoted so much time to PDD that it adversely affected that project.

In the light of that the respondents would not have been able to rely on the mere fact of his interest in PDD, and his activities in relation to it, as being a fair reason for terminating his employment contract. That means that the real question becomes not whether Mr Brett had an outside interest which he pursued, but whether he had an outside interest which he pursued to an extent which would have entitled MSHL to have dismissed him from the company and take his shares away as a Bad Leaver. That involves some sort of assessment of how much time Mr Brett was devoting to the affairs of PDD and whether that detracted from the time that he should have been devoting to the affairs of MSHL and the joint venture.

Mr Brett’s case was that his work for PDD (and West Cumbria Land) did not prevent his being engaged, as and when necessary, on the affairs of MSHL. He would work out of hours on his own project, if necessary, and the time involved did not prejudice his participation. Mr Allen-Vercoe gave some assessment of the sort of time likely to have been devoted to PDD by Mr Brett, but since he was making no more than an intelligent guess, and had no direct experience, I do not give any weight to that evidence.

This issue was not really fully engaged with by the respondents. They did not need to do much to demonstrate that Mr Brett was engaged in the affairs of PDD while he was employed by MSHL - Mr Brett never denied that. The main line of attack in relation to this point was conducted by putting forward a selection of emails sent to and received by Mr Brett in the period 10th August 2010 to 23rd December 2010 reflecting some significant PDD activity, interspersed with a few other references to his activities which were said to have demonstrated PDD activities during and shortly after that period, and to cross-examine him on that material to establish the extent to which it demonstrated PDD-related activities. When thus described it was successful - it did demonstrate that during that period Mr Brett was engaged in those activities (and, to a much lesser extent, West Cumbria Land activities). This evidence was supplemented by pointing out that well over 3,000 documents were found in Mr Brett’s computer account which were said to relate to non-MSHL activities. These documents were emails and other documents. Every email was counted as one, even if it was a short one-line email. An email with 4 attachments counted as 5 documents. It was said that this quantity of material demonstrated a large-scale engagement with PDD affairs across that period.

Mr Brett’s solicitors carried out a filtration exercise in relation to those 3000 documents. They eliminated all documents which were sent to Mr Brett (presumably on the footing that the receipt of documents did not require time to be taken away from MSHL’s activities), filtered out documents whose recipients would tend to indicate an MSHL connection, removed duplicates (which the respondents had apparently not done), removed documents outside the period of his employment, removed documents whose timing was outside normal working hours and did some more filtering, all of which was said to demonstrate that the number of documents which might be said to have any significance in judging substantial activities was no more than 525. They then carried out a further assessment activity to separate out very short emails from longer ones, and came up with a series of propositions which were intended to demonstrate that a proper analysis of the emails by number did not give a proper picture, and a better analysis (not particularly textually based) demonstrated a fairly low level of activity.

The numerical email analysis does not really help either side very much on this question. The number (and length) of emails and documents sent or received by Mr Brett is a very poor proxy for the real question, which is how much time Mr Brett was spending on PDD (and West Cumbria Land) business and whether it was impacting on his work for MSHL. A more focused inquiry would be required for that purpose. Mr Collingwood’s cross-examination and submissions did not really seek to quantify the extent of the work. He established that work was done, and that some work (or even a lot of it) was done during the working day (though some emails are clearly timed outside the working day). It is plain that some meetings were conducted during the working day. If the question were whether the work done by Mr Brett on PDD (taken with Cumbria Land) was significant or material, then the answer would be Yes. However, it is not possible to go further and to conclude that that work was done at the expense of work that ought to have been done for MSHL, and therefore to conclude that his PDD work adversely affected his MSHL work. The evidence was not sufficiently developed or focused to enable that particular conclusion to be reached.

That answers the narrow question which was effectively posed in the proceedings, namely whether the breach of obligation not to have other interests can be seen to have been sufficient, had the point been taken, to dismiss him summarily for it and justify treating him as a Bad Leaver.

It is important to distinguish this narrow point from the wider point as to the overall fairness of the dismissal reasons. In that wider context Mr Brett’s devotion to duty has played its part, as appears above. One of the legitimate concerns that Mr Herring had was as to Mr Brett’s engagement with the company. He was concerned that he was not devoting enough time. Mr Rabbetts had already drawn attention to the point, and to the fact that Mr Brett was devoting some of his time to his personal affairs, in his long letter of November 2010. There is no evidence that Mr Herring specifically associated that with Mr Brett’s activities for PDD, but he was plainly concerned with the lack of engagement. It is almost certainly the case that PDD work was partly behind that. All that is material which contributed to the justification of what then happened to Mr Brett in June. But it is a wider point than the breach of contractual duty point taken (as an apparently subsidiary point) by the respondents. On the narrower point the respondents fail.

In the further alternative the respondents claim that Mr Brett used a company debit card to make payments of a personal nature that were not incurred in the course of his employment when he knew that the board would not approve the use of that card, and that he claimed reimbursement of expenses which he was not entitled to claim, and in circumstances in which he knew that the board would not have consented to them if properly informed of their nature. Those are said to be a breach of his duty of good faith and duty of fidelity such that he could have been dismissed for it and treated as a Bad Leaver.

The reference to the debit card is a reference to a single incident when Mr Brett used the card to obtain foreign currency to a value of over £2,000 at Gatwick airport. The expenses point is a reference to a large number of expenses claims made by him over the course of his employment. They are particularised in a schedule which shows 21 days on which expenses were claimed; 48 separate items are complained of, totalling £3975.45. They are mainly taxi fares, with a few train fares and some other “entertainment” matters. This list is a subset of a much longer list which was prepared earlier in the course of the dispute but not pursued in the proceedings. At the trial Mr Collingwood confined his investigation of this expenses claim to three particular events only, and he cross-examined only on those. This involved just 8 separate items totalling just £306.98. By not challenging the rest in cross-examination the claim based on those was effectively abandoned. Leaving some items not put may have been for want of time, but nonetheless it would obviously not be right to make findings on them in those circumstances, and to be fair to Mr Collingwood his final submissions relied only on his three events.

I shall start with the single debit card item. On 11th April 2011 Mr Brett used a company bank debit card at Gatwick Airport to purchase foreign currency in the sum of £2,031.25. The case of the respondents is that this was first discovered in mid-May when Mr Kimber was carrying out a routine review of bank statements. He pointed out the transaction to Mr Rabbetts, and the latter rang the bank to obtain confirmation of the credit card used and where the transaction had taken place. He discovered it had been used at Gatwick to buy currency. He then asked Mr Brett about it in a subsequent telephone conversation and asked why it had occurred. Mr Brett explained that it represented expenses which he had incurred on behalf of MSHL but for which he still had to be reimbursed. Mr Rabbetts pointed out that at the time of the transaction he had not submitted an expenses claim, which Mr Brett accepted but he said the expenses were genuine. Shortly thereafter Mr Brett submitted a manuscript expenses claim for expenses due on 11th April, which amounted to £1,821.37. A large portion of this amount was not supported by vouchers.

Mr Brett’s version of events is different. His second witness statement says that a few days before he used the card he had a conversation with Mr Rabbetts following his attending at the office and handing in a large bag of receipts in respect of an expenses claim. He says he asked Mr Rabbetts in a telephone call if he was happy for him to reimburse himself with the company debit card and Mr Rabbetts said that was fine. He therefore used the debit card at Gatwick.

Mr Rabbetts disputed that conversation - he says it did not happen. Although an email of 7th April foreshadowed Mr Brett’s bringing in “expenses etc” the next day, he says that he did not do so. No expenses were claimed, or documentation brought in, until the next month. No member of staff recalls the expenses being dropped off on that day.

Despite this being the largest sum claimed in the expenses claim, Mr Brett did not deal with the point in his first witness statement. His principal evidence on the point came in his reply witness statement. This is an odd way of dealing with this allegation. However, his cross-examination on the point was very short - it was no more than putting to him that the conversation with Mr Rabbetts did not take place. There was no other investigation of the background; there was no putting of Mr Rabbetts’ case that the point was raised between them in May. This is very thin cross-examination on which to be invited to make a finding which Mr Collingwood invites me to make and which is in essence a finding of dishonesty.

Nonetheless, on the basis of what I heard I prefer the evidence of Mr Rabbetts to the evidence of Mr Brett. I think that Mr Brett was generally cavalier enough to withdraw the money for personal purposes without consulting Mr Rabbetts, and he did so. In any event, he ought to have consulted Mr Herring as well, but did not do so even on his own evidence. He was going to the Ukraine to make arrangements for his forthcoming wedding and needed the money for that purpose. He was not a sufficient observer of the niceties to get a form of permission from Mr Rabbetts, and he had already demonstrated a cavalier approach in other areas, as referred to above. Mr Rabbetts’ account is more convincing. I therefore find that Mr Brett withdrew the money without advance permission.

However, I do not find that he approached the matter in a way which was as dishonest as the respondents’ case would suggest. He was not so cavalier as to knowing help himself to money that he knew was not his and which could never be justified. I think he had an eye to expenses which he had not yet been reimbursed for, and somehow thought that that would make it alright. Nor do I consider that Mr Rabbetts considered that the act was as bad as he suggested in the witness box. In the witness box he said he considered that he viewed the matter as theft. He may have disapproved, but I do not think that he felt as strongly as that about it. Had that been the case I consider it likely that he would have raised the matter with Mr Herring, and that the point would have featured in the reasons given for dismissing Mr Brett. He did not tell Mr Herring, at the point of discovery, and while he claims to have raised the point at the board meeting in June at which Mr Brett’s fate was sealed I find that he probably did not. Mr Herring’s evidence about the meeting in his first statement expressly says that Mr Rabbetts did not raise the difficulties he had had with Mr Brett over, inter alia, expenses. Had Mr Rabbetts raised the point I think it likely that the point would have been recorded in the minutes, or that there would have been some reference to it somewhere at the time. There was no such reference.

That indicates that the matter was not viewed, at least by Mr Rabbetts, as seriously as he says he viewed it. That factor also demonstrates the seriousness of the incident in the overall context of the relationship. It was cavalier behaviour, but not as dishonest as Mr Rabbetts sought to paint it. Had it been the only complaint about Mr Brett, I do not consider it likely that disciplinary steps would have been taken against him, and I certainly do not think he would have been dismissed for taking the money if it had been raised. He would probably have been told informally not to do it again, but in the light of how he was generally dealt with at the time (and leaving on one side, for these purposes, the other complaints about him) I do not consider it would have led to his dismissal.

That, however, is not quite the question on the basis of the way this part of the respondents’ claim is put. It is said that his breach of duty was such that the board would have been entitled to treat him as a Bad Leaver. The board would have been so entitled if it had been a reason for Summary Dismissal (as that term is defined in the Articles), which means a termination of his employment in circumstances where the company is entitled summarily to terminate it. The company is so entitled (inter alia) in the event of gross misconduct affecting the business of any group company, or any serious breach of the provisions of the agreement. Taken by itself, in the circumstances, and while an unauthorised withdrawal of that sort of money would in many circumstances qualify, I do not think that this one does. Mr Brett’s thinking about taking his unreimbursed expenses was skewed, but not thoroughly dishonest. If an indication is needed of the seriousness of the event, it lies in what Mr Rabbetts did about it internally when he discovered it which was, for a time, nothing. It could not, in my view, by itself have been relied on as a reason for summary dismissal.

By the end of the trial (in effect by the end of cross-examination) the respondents had cut down the expenses point to the expenses claimed in just three matters. These were not sample charges, somehow to be taken as representative of a wider picture. They were the only matters relied on. That is a material shift in focus. While many more claims were in issue Mr Brett might have been presented as a serial wrongful expenses claimer. When only three are in issue, although none can be dismissed as absolutely trivial, the picture becomes very different. It looks much more like a picky exercise, though one forced on the respondents by the exigencies of time. It is tempting in the circumstances of this case, and bearing in mind my findings on the principal fairness point, to decline to deal with them. But the allegations have been made, they involve dishonesty, and it would not be satisfactory just to leave them.

The first set of expenses is an aggregate of £87.98 claimed in respect of 10th September 2010 (train £26.90, taxi £8.60 and restaurant £52.48). They relate to a meeting with Ms Alison Rivers of Wragges. The sums claimed are claimed on the footing that this was a meeting which concerned the affairs of the joint venture. The respondents say it was not and that they were dishonestly claimed because the meeting concerned the affairs of PDD.

It appears that that the meeting was set up by an email of Mr Brett (with PDD as the subject matter) on 7th September saying:

“I am in a bid frenzy at the moment… Akin to a child in a sweet shop… Have money, must spend and NOW J! [sic]

On the subject of PDD, we do need to speak! So, if you are free Friday, shall I pop in at 11 AM for a chat and then for some lunch thereafter?!

Over to you…"

There is no direct evidence from anyone other than Mr Brett as to what happened at the meeting. After the meeting Mr Brett emailed Ms Rivers on the same day at 2.47pm thanking her for lunch and saying:

“Do you think u could email me a short letter re Port Derwent, including possible litigation cost and timing etc and chances of success so I can pass this onto [sic] my partner in the LLP? ..."

A letter of advice followed, purporting to confirm the advice that Ms Rivers gave on 10th September. It is headed up in the matter of Port Derwent, and looking at its terms it reflects a seriousness and detailed consideration of some of the business affairs of Port Derwent.

In his oral evidence Mr Brett accepted that the affairs of Port Derwent were mentioned at this meeting, but says that he also discussed the affairs of MHSL. His witness statement verified a pre-trial schedule of expenses which set out his basis for claiming them. This schedule said that the principal item of discussion was the ongoing dispute with the landlord over MSHL’s offices and dispute resolution strategies over a dispute with Aviva over DC1. It is said that there was then a meeting in the afternoon with planning experts to discuss planning issues over a possible new site for the venture (Basildon Gateway), and there is an email from Mr Brett on 10th which refers to a meeting with GVA later that day. On 13th September (the following Monday) Ms Rivers forwarded to Mr Brett a copy of an email that she had sent to MSHL’s landlord’s solicitors making proposals to resolve the dispute about its lease; her email to Mr Brett is headed up in the matter of the premises and starts by saying “As discussed on Friday …”.

It is plain enough that the affairs of both PDD and MSHL were discussed at the meeting with Ms Rivers. Probably the main issue of fact between the parties is whether this was a meeting primarily involving PDD with a bit of MSHL thrown in (the respondents) or whether it was primarily MSHL with a bit of PDD thrown in (Mr Brett). In an earlier schedule recording Mr Brett’s response to the expenses claim he had recorded “We also discussed PDD for about 30 minutes.” Those words were omitted from the schedule annexed to his pleading and the schedule which he verified in his witness statement, and it was put to him that he deliberately omitted them to give a false impression. I find that that was not the case. I think it highly unlikely that Mr Brett would have thought that he could successfully mislead anyone in this way, bearing in mind that he had already said it and there were documents which made it plain that PDD was discussed. So that point is not a useful test of credibility.

I think it likely that the respondents’ case on the origins and substance of the meeting is correct. The letter setting up the meeting demonstrates that it was intended to be about PDD, and the letter of advice about PDD reflects something more than an incidental 30 minute talk. In my view it looks like a much more substantial matter than the office lease matter, which resulted in a much shorter and less significant email. This matter might have achieved clarification if both sides had produced time sheets or attendance notes from Ms Rivers, but neither did. I am left with having to rely on impression and my view of Mr Brett’s credibility.

One must not overlook the meeting with GVA. That was an MSHL matter. There was no challenge to that happening. That adds substance to a claim for expenses for the day.

The travel expenses therefore have a mixed purpose. If the wrongful expenses claim were confined to them, and if the company were taking the technical point, I would expect the complaint to be that Mr Brett was not entitled to all of them, but I would not find that his claim would have justified summary dismissal. The lunch claim also has a dual purpose, though less for the company than for PDD. However, in my view the same would apply. These expenses do not demonstrate dishonesty which would have justified a summary dismissal.

Next are two pieces of travel expenses claimed in respect of 1st November 2010 - train fare of £26.90 and a taxi fare of £8.80. On this day Mr Brett had a meeting at the Lansdowne Club with a number of people. This meeting was plainly arranged in the context of PDD. In his schedule of responses annexed to his witness statement Mr Brett said merely that: “There was discussion re the Green grid and MSL”. He omitted earlier wording in an earlier schedule which made it clearer that there was “in part” discussion of a possible solar farm in Cumbria (for PDD). He was again challenged over the omission of words disclosing the PDD connection and said that he went to the meeting to discuss “that” (meaning the words in his schedule) while recognising that the meeting was originally called to discuss PDD matters. It was not clear to me what the Green grid/MSL connection really was, and it was not developed in evidence other than some reference to green energy powering data centres.

This was another mixed purpose meeting, and I think it likely that the main purpose was PDD-related. It is not possible to ascertain to what extent it related to MSHL. But when it comes to ascertaining whether claiming expenses for it justified summary dismissal the most important question is whether the expenses were dishonestly claimed. That, as a topic, was not investigated in cross-examination. I am invited to infer that the board would not have approved these expenses, and that Mr Brett knew that. That was not investigated either. That would have depended on what explanation Mr Brett would have given, what the view of the board would have been (Mr Herring gave no evidence about that) and what Mr Brett thought the view of the board would have been. I am not prepared to find dishonesty on the basis of the limited evidence that I heard, and in the light of that, and in the light of the actual evidence, I do not find that the claiming of these expenses would have justified summary dismissal.

The last set of expenses surround a meeting on 25th January 2011. The expenses are a train fare (£28.90), taxi (12.80) and food at Brown’s Hotel (£154.40). In his schedule Mr Brett describes the meeting as being for “Networking/Business Development” with Mr Herring, Mr Petch and others, and the schedule goes on:

“Site visit to see 18-19 Albermarle Street. Possible office purchase by Cayman. After site visit, we all (except John Herring) went to Browns Hotel for coffee, food and drinks. Discussions on structuring issues on Basildon Gateway, Liberty potential deals with MSL/MSHL.”

It was common ground that the meeting was to view the office as a possible investment for the Cayman investment group, albeit not actually for Limpopo or MSHL. Mr Herring said that he saw the meeting as one between himself and Mr Petch, to consider the property as an investment for Cayman and as an office for the investor as well. He did not mind Mr Brett being there. He expressed an understanding for the fact that after a review meeting it would be natural for the participants to go on to have a more social encounter and discussion at a local hotel, and that it would not be unnatural for Mr Brett, on this occasion, to pick up the bill (someone had to). His only observation on that was to emphasise that the occasion was related to the Cayman investor, and not specifically to MSHL (or Limpopo).

Mr Herring was not at the post-inspection “meeting” at the hotel. Prior to the meeting one of the participants (Mr Watson, who had introduced the property, though Mr Herring said he did not know why he was attending) emailed Mr Brett to say:

“After we go round Albemarle St can you get rid of John [Herring] after we are finished, as I’d like to intro you to David Whitmarsh and discuss some ideas.”

Mr Brett responded:

“No problem as John has another meeting to go to.”

Mr Collingwood invited a finding that this meant that the meeting after the viewing was nothing to do with MSHL (or Cayman) and was one from which Mr Herring was to be excluded. That made the claim for expenses illegitimate.

There was not a great deal of investigation about what happened at the hotel. According to Mr Brett there were 6 or 7 participants, and when some left Mr Watson and Mr Chester were left and they probably discussed the building they had seen and “MSHL business model”. Mr Watson had wanted to have a discussion away from Mr Herring about his business getting involved in any refurbishment, and the costings involved.

I find that the viewing part of the meeting was, as Mr Herring and Mr Brett said, with a view to the Cayman investor acquiring the property. Prior email traffic demonstrates that Mr Herring knew that Mr Brett was going to attend, and did not object to it. His attendance could be seen as justified on the footing that he was a property man and he was part of the chain of introduction. A claim for expenses for attending could not be regarded as dishonest (which is the finding that I am invited to make) when made against MSHL. True it is that this was not an MSHL project, but the Cayman connection was a strong one, and in claiming against MSHL Mr Brett would be in part claiming against himself as a shareholder. One can quite see why Mr Brett would genuinely think it appropriate to claim expenses from MSHL if he was claiming against anyone.

That deals with the travel costs. The hotel expenses attract the further objection that the gathering was not anything to do even with the Cayman investor, as is said to be demonstrated by the email from Mr Watson seeking a meeting in the absence of Mr Herring. I agree that that email raises a possible question-mark about the content of the meeting, but it was not sufficiently established on the evidence that it was sufficiently far removed from the preceding viewing as to make it wrong, much less dishonest, for Mr Brett to claim it if he had a claim for the travel expenses. It has not been established that it was dishonest to make it and in the absence of dishonesty it would not have entitled MSHL summarily to dismiss Mr Brett.

I therefore find that none of the expenses claims would have justified summary dismissal, so this attempt to reinforce Mr Brett’s dismissal fails.

In the context of this litigation that is not a conclusion which is reached with any regret bearing in mind how the expenses claim developed and narrowed. As I have indicated, the claim and investigation into expenses originally concerned a much larger batch of incidents which ended up with just 3 being pursued at trial. The expenses point always had the air of a sort of afterthought on a “just in case” basis. They would either have to be examined in detail, or not at all, and examining them all in detail would have added hours, if not days, to the proceedings. For that reason, too, introducing them was not a promising course of action. This case was never really about the expenses, and it was, in my view, somewhat regrettable that the point was introduced, and even more regrettable that it was maintained in such a reduced form as it assumed by the end.

For the reasons given, I find that Mr Brett’s exclusion from the company was not unfair, and the petition therefore fails.

DEPARTING B SHAREHOLDER TRANSFERS

If a B Shareholder becomes a Departing B Shareholder, that Departing B Shareholder shall be regarded as giving a Deemed Transfer Notice in respect of all the B Shares held by the Departing B Shareholder on the Termination Date (Sale Shares) and at a price (Transfer Price) calculated as follows:

where the Departing B Shareholder is a Bad Leaver, the nominal value of the Sale Shares; and

where the Departing B Shareholder is a Good Leaver, the Fair Price of the Sale Shares (calculated in accordance with article 25.7 and 25.8).

The Deemed Transfer Notice shall constitute the Company (by the Board) the agent for the transfer of the Sale Shares at the Transfer Price.

The Sale Shares shall be offered by the Board first to the A Shareholders who shall be entitled to purchase them in whole or part and/or direct that they be offered to such of the other the B Shareholders and in such proportions as the A Shareholders may specify. Alternatively the A Shareholders may direct that subject to the Act, the Company purchase the Sale Shares.

All voting rights attached to the Sale Shares shall be suspended on the Termination Date. However, the holders of the Sale Shares shall have the right to receive a notice of and to attend, all general meetings of the Company, but shall have no right to vote either in person or by proxy.

All voting rights attached to the Sale Shares transferred under this article 25 shall be automatically restored on completion of the transfer.

The Fair Price shall be such price as the Departing B Shareholder and (with the A Shareholders’ consent) the Board shall agree within ten business days of the Termination Date or failing such agreement, such price as the Auditors shall determine pursuant to article 25.7.

If the Fair Price falls to be determined by the Auditors:

the Board shall immediately instruct the Auditors to determine the Fair Price on the basis which, in their opinion, represents a fair price for the Sale Shares at the Termination Date as between a willing seller and a willing buyer without discount for minority holdings and not having regard to the fact that the transferability of the B Shares is restricted by the Articles;

the Auditors shall certify the Fair Price as soon as possible after being instructed by the Board and in so certifying the Auditors shall be deemed to be acting as experts and not as arbitrators and the Arbitration Act 1996 shall not apply;

the certificate of the Auditors shall, in the absence of manifest error, be final and binding and

the Board shall procure that any certificate required hereunder is obtained with due expedition and the cost of obtaining such certificate shall be borne by the Company unless (i) such an arrangement would not be permitted by the Act or (ii) the Fair Price as determined by the Auditors is greater than 110% of the highest price offered by the Board when trying to agree the Fair Price for the B Shares, in which event the cost shall be borne by the Departing B Shareholders and deducted from the Fair Price paid for the B Shares.

FAILURE TO TRANSFER

INTERPRETATION

The definitions and rules of interpretation in this clause 1.1 apply in this agreement.

TERM OF APPOINTMENT

The Company shall employ the Executive and the Executive shall serve the Company on the terms of this agreement. The Appointment shall commence on the Commencement Date and shall continue, subject to the remaining terms of this agreement, until terminated by either party giving the other not less than six months’ prior notice in writing.

DUTIES

unless prevented by incapacity, devote the whole of his time, attention and abilities to the business of the Company and any Group Company of which he is an officer or consultant;

report his own wrongdoing and any wrongdoing or proposed wrongdoing of any other employee or director of any Group Company to the Board immediately on becoming aware of it;

use his best endeavours to promote, protect, develop and extend the business of any Group Company;

HOURS OF WORK

The Executive’s normal working hours shall be 9.00 am to 6.30 pm on Mondays to Fridays and such additional hours as are necessary for the proper performance of his duties. The Executive acknowledges that he shall not receive further remuneration in respect of such additional hours.

SALARY

The Executive shall be paid an initial salary of £110,000 per annum (inclusive of any fees due to the Executive by any Group Company as an officer of any Group Company).

HOLIDAYS

The Executive shall be entitled to 25 days’ paid holiday in each holiday year…

OUTSIDE INTERESTS

Subject to clause 10.2, during the Appointment the Executive shall not, except as a representative of the Company or with the prior written approval of the Chairman, whether paid or unpaid, be directly or indirectly engaged, concerned or have any financial interest in any Capacity in any other business, trade, profession or occupation (or the setting up of any business, trade, profession or occupation).

TERMINATION

Notwithstanding clause 2.1, the Company may, in its sole and absolute discretion, terminate the Appointment at any time and with immediate effect by paying a sum in lieu of notice (Payment in Lieu) equal to the basic salary (as at the date of termination) which the Executive would have been entitled to receive under this agreement during the notice period referred to at clause 2.1 (or. if notice has already been given, during the remainder of the notice period) less income tax and National Insurance contributions….

The Company may also terminate the Appointment with immediate effect without notice and with no liability to make any further payment to the Executive (other than in respect of amounts accrued due at the date of termination) if the Executive:

is guilty of any gross misconduct affecting the business of any Group Company; or

commits any serious or repeated breach or non-observance of any of the provisions of this agreement or refuses or neglects to comply with any reasonable and lawful directions of the Chairman; or

is guilty of any fraud or dishonesty or acts in any manner which in the opinion of the Chairman brings or is likely to bring the Executive or any Group Company into disrepute or is materially adverse to the interests of any Group Company; or

OBLIGATIONS UPON TERMINATION

On termination of the Appointment (howsoever arising) or, if earlier, at the start of a period of Garden Leave following the service of notice or purported termination of the Appointment by the Executive, the Executive shall:

immediately resign, without any claim for compensation, from any directorships in any Group Company;

transfer (in accordance with the Articles of Association) to the Company or as it may direct any shares or other securities held by him in the Company or any Group Company as a nominee or trustee for the Company any Group Company and deliver to the Company the related certificates; …

The Executive hereby irrevocably appoints the Chairman to be his attorney to execute and do any such instrument or thing and generally to use his name for the purpose of giving the Company or its nominee the full benefit of clause 16.1(a) and clause 161(b).