P ordinary shares (“Ownership Shares”), which conferred rights to vote and to participate in any income/capital distributions declared on this class of share; and

Alphabet ordinary shares (“Alphabet Shares”), which conferred the right to receive income distributions declared on this class of share.

“[6.] ….. The P shares were the ownership shares, whilst the A to E shares were designed for paying out dividends and a class was allocated to each of Dean, Paul, Neil, Bart and Emma. The shareholders would draw monthly dividends as agreed between themselves. I had no input into this process. These monthly dividends were essentially the equivalent of the salaries for the directors and, as I understood, were agreed to reflect the differing contribution and roles of the individuals. The directors did take a salary up to the personal tax allowance as well and this was structured to ensure their record of national insurance payments was maintained.”

“[14.] At the shareholders meeting on 23rd June 2011, a draft shareholders’ agreement drafted by Newsome Vaughan was presented to the meeting for consideration (the “Shareholders’ Agreement”). Confirming within an email from the Petitioner to David Lee 12th March 2014 ‘we are finally agreeing to sign the draft shareholder agreement’.

[15.] At the meeting, the shareholders agreed:-

[16.] The Shareholders’ Agreement was not signed by the shareholders at that point or subsequently.

[17.] At subsequent meetings of shareholders and meetings of directors, from October 2011 onwards (at least once a year), the Shareholders’ Agreement was referred to and relied upon as a binding agreement, even though it did not bear wet signatures from each shareholder.

[18.] The Petitioner relied upon that common understanding between the parties and therefore did not insist that all shareholders subscribe to the Shareholders’ Agreement with a wet signature.

P’s allocation to be held between P, his wife and his son;

R1’s allocation to held between R1, his mother, his father and a friend;

R2’s allocation to be held between R2 and his wife;

R3’s allocation to be held between R3 and her son; and

R4’s allocation to be held between R4, his father and his mother.

As a result of the breakdown of the personal relationship between him and R1, P began looking for alternative employment and was finally offered a job with Severn Trent Water.

P began to negotiate his exit from the Company. “Around early 12 March 2018”, the Founders met and it was verbally agreed that –

“As is common in small companies, [the Company] uses ‘alphabet’ series of shares as a basis for paying monthly remuneration. The directors and Shareholders each draw an agreed monthly amount which is in effect their salary. The amounts differ depending on their individual contribution to the success of the company.”

P – £177,840.

R1, R2 and R3 - £26,000.

R4 - £57,000.

All the drafts of the shareholders’ agreement contained in the hearing bundle are marked ‘Subject to Contract’. It is possible for an agreement expressed to be ‘Subject to Contract’ to become legally binding if the parties later agree to waive that condition. However, in RTS Flexible Systems Limited v Molkerei Alois Müller Gmbh & Company KG (UK Production) [2010] UKSC 14, it was observed by the Supreme Court (with my emphasis added) -

Inconsistent with P’s primary claim that the Company was a quasi-partnership in which each of the shareholders had an expectation of management, the version of the shareholders’ agreement signed by P expressly records that –

It was P’s claim in the Petition that “[35.] By denying that the Shareholders’ Agreement is binding, the First, Second, Third and Fourth Respondents have caused detriment to the Petitioner, being that he does not have the benefit of the share valuation mechanism.” However, even if the shareholders’ agreement was binding it imposed no obligation upon either the Company or the co-Founders to purchase P’s shares. Again the version of the shareholders’ agreement signed by P provided as follows:

Was there a quasi-partnership?

Was there a binding exit agreement reached in relation to buying out P’s shareholding?

Have the affairs of the Company been conducted in a manner which unfairly prejudices the interests of P as alleged in the Petition? The allegations specifically pleaded in the Petition are (with my emphasis added) –

Section 171 - exercising powers for a proper purpose.

Section 172 - promoting the success of the Company.

Section 175 - avoiding placing themselves in a position of conflicting personal interests.

Was there a quasi-partnership?

Applicable legal framework

“The provisions of a company’s constitution bind the company and its members to the same extent as if there were covenants on the part of the company and of each member to observe those provisions.”

“My Lords, in my opinion these authorities represent a sound and rational development of the law which should be endorsed. The foundation of it all lies in the words "just and equitable" and, if there is any respect in which some of the cases may be open to criticism, it is that the courts may sometimes have been too timorous in giving them full force. The words are a recognition of the fact that a limited company is more than a mere legal entity, with a personality in law of its own: that there is room in company law for recognition of the fact that behind it, or amongst it, there are individuals, with rights, expectations and obligations inter se which are not necessarily submerged in the company structure. That structure is defined by the Companies Act and by the articles of association by which shareholders agree to be bound. In most companies and in most contexts, this definition is sufficient and exhaustive, equally so whether the company is large or small. The "just and equitable" provision does not, as the respondents suggest, entitle one party to disregard the obligation he assumes by entering a company, nor the court to dispense him from it. It does, as equity always does, enable the court to subject the exercise of legal rights to equitable considerations; considerations, that is, of a personal character arising between one individual and another, which may make it unjust, or inequitable, to insist on legal rights, or to exercise them in a particular way.”

“[84] …… It is also clear that the term ‘quasi-partnership’ is only intended as a useful shorthand label, which should not in itself govern the answer to be given to the underlying question, whether the circumstances surrounding the conduct of the affairs of a particular company are such as to give rise to equitable constraints upon the behaviour of other members going beyond the strict rights and obligations set out in the Companies Act and the articles of association…”

“………. Petitions under section 459 [predecessor of s. 994 of the 2006 Act] are often lengthy and expensive. It is highly desirable that lawyers should be able to advise their clients whether or not a petition is likely to succeed. Lord Wilberforce, after the passage which I have quoted, said that it would be impossible “and wholly undesirable” to define the circumstances in which that application of equitable principles might make it unjust, or inequitable (or unfair) for a party to insist on legal rights or to exercise them in particular way. This of course is right. But that does not mean that there are no principles by which those circumstances may be identified. The way in which such equitable principles operate is tolerably well settled and in my view it would be wrong to abandon them in favour of some wholly indefinite notion of fairness.”

A member cannot usually complain of conduct permitted under the articles of association and the 2006 Act, even if that conduct has a prejudicial effect on their interests as a member.

However, equitable considerations may make it unfair for the other members to exercise their strict legal rights in relation to the affairs of a company.

Whilst quasi-partnership is a flexible concept intended to achieve fairness in the particular circumstances of the case, the imposition of equitable restraints on otherwise lawful conduct ought to be by reference to established principles to ensure a degree of consistency/predictability of outcome.

“Certainly the fact that a company is a small one, or a private company, is not enough. There are very many of these where the association is a purely commercial one, of which it can safely be said that the basis of association is adequately and exhaustively laid down in the articles. The superimposition of equitable considerations requires something more, which typically may include one, or probably more, of the following elements: (i) an association formed or continued on the basis of a personal relationship, involving mutual confidence - this element will often be found where a pre-existing partnership has been converted into a limited company; (ii) an agreement, or understanding, that all, or some (for there may be "sleeping" members), of the shareholders shall participate in the conduct of the business; (iii) restriction upon the transfer of the members' interest in the company - so that if confidence is lost, or one member is removed from management, he cannot take out his stake and go elsewhere.”

Application of the guidance to the facts of this case

“[6.] In July 2000, I was appointed as Deputy Creative Director of Design One Limited. I was introduced to Bart Cheung who was employed as a Designer and Paul Edwards who was employed as a Senior Designer.

[7.] In or around 2006, I met Neil Giles when he was interviewed by myself and Paul Edwards for the position of Senior Designer. Mr Giles was employed sometime prior to 2008.

[8.] In or around 2008, I met Emma Fisher when she was interviewed by myself and Paul Edwards for the position of Secretary. Ms Fisher was employed sometime prior to 2010.

[9.] We worked together for many years until we (along with all other employees of DlLTD) were notified that we were to be made redundant with immediate effect (22 July 2010) as the business was insolvent and administrators were appointed on 4 August 2010.

[10.] Due to our close association, myself, Mr Edwards, Mr Giles, Ms Fisher and Mr Cheung met and agreed to jointly purchase the assets of Design One Limited.

[11.] We agreed that we come together to form a new venture and build on the client foundations that we were continuing to manage. We felt, as each with our own individual skill and based on confidence and mutual trust of each other, that we could develop the business and share risk and reward.”

“Working together a long time with previous company. Leap of faith to participate together in new joint venture. Everyone participated and hopefully make it a success…Everyone invested their own money. Confident get clients. [P] get new business with everyone’s support. We all took the decision to participate in risk and reward.”

“Believed in venture. Everybody contributed. Trust and confidence in everybody contributing.”

“[P] was a great MD. Leap of faith joint venture, but trust and confidence in each other’s abilities to make it a success. We each put money in.”

Article 7 of the Articles of Association provided that “The general rule about decision-making by directors is that any decision of the directors must be either a majority at a meeting or a decision taken in accordance with article 8 [unanimous decisions]”. However Article 5 of the Articles of Association also provided that “the directors may delegate any of the powers which are conferred on them…to such person or committee…to such extent…on such terms…as they think fit.”

It was the oral evidence of P that taking day to day management decisions was difficult with 5 directors, and so it was agreed that those decisions be delegated to a smaller management team initially comprising him and R1. However, because of the personal difficulties between him and R1, R2 was then elected to the management team. That evidence was corroborated by contemporary documents being –

Therefore, the management team was not imposed upon, but rather agreed by the Founders as a practical arrangement to increase agility in more routine decision-making, and again reflecting the level of mutual trust and confidence shared by the Founders.

[130] None of these important authorities addresses an issue that the petitioners’ primary case acutely raises. This is whether a quasi-partnership can exist (and give rise to equitable constraints of the type identified in the authorities) where some only of the shareholders are said to be within the scope of the agreement or understanding about participation in management. This is a different point from that adverted to in Lord Wilberforce’s reference to sleeping partners, which indicates only that some of those within the scope of the understanding and relationship of mutual trust and confidence may be agreed or understood not to be going to be personally involved in managing the business. The petitioners’ primary case seems to me to involve something different from that, namely a relationship of trust and confidence and an understanding about management participation that exists only between some, not all, of the shareholders. Of course, if the understanding exists only as between a minority of the shareholders it is unlikely to be of real practical importance, since ex hypothesi the majority is not bound by it. But it is easy to envisage a case where one or more minority shareholders stand outside a relationship and understanding shared by all the other shareholders, perhaps because of a transmission of the shares of an original member.”

“TRANSFER OF SHARES

[11.] The Directors may in their absolute discretion and without assigning any reason therefore decline to register the transfer of a Share whether or not it is a fully paid Share.”

“Share transfers

Share transfers: general

………

The directors may at their absolute discretion refuse to register the transfer of a share, whether such share is fully paid or not, and if they do so the instrument of transfer must be returned to the transferee with the notice of refusal unless they suspect that the proposed transfer may be fraudulent.”

“[142.] As part of the restructuring, the articles of the Company were changed…… The express power of the directors to decline to register a transferee was removed. This relaxation indicates a move away from a closely controlled quasi-partnership type company.”

“[49.] Generally speaking, it is possible under English law to make a contract without any formality, simply by word of mouth. Of course, the absence of a written record may make the existence and terms of a contract harder to prove. Furthermore, because the value of a written record is understood by anyone with business experience, its absence may – depending on the circumstances – tend to suggest that no contract was in fact concluded. But those are matters of proof: they are not legal requirements. The basic requirements of a contract are that: (i) the parties have reached an agreement, which (ii) is intended to be legally binding, (iii) is supported by consideration, and (iv) is sufficiently certain and complete to be enforceable”.

“[57.] Immediately after a meeting on 26 March 2018, held between Bernard Rogers and the other directors/shareholders. I was asked to attend a meeting of Shareholders specifically Emma Fisher, Paul Edwards and Neil Giles were present. I do not recall attendance by Bart Cheung or his reason for not attending. This meeting was chaired by Neil Giles.

[58.] An undocumented conversation took place relating to the purchase of my shares. Neil handed me a set of speculative company financials and asked, 'Had I given any consideration to the value of my shares?'. I maintained monthly financials, along with Emma Fisher and was aware of the day-to-day financial position of the business. I responded, 'I had no idea of the share value, only indicative based on previous shareholder meetings.' I confirmed in conte[x]t of that meeting that that I would offer my shares to the business.

[59.] At conclusion of that meeting I believed verbal agreement had been reached by all in attendance that:-

[60.] At the end of the meeting I recall that we all shook hands, again indicating and representing to me and the others that we had reached an agreement.

[61.] I was relieved - I had reached an agreement with my fellow shareholders which would allow me to resign and move on.

[62.] Immediately after the meeting, I was followed back to my desk by Paul Edwards, unfortunately no other shareholders were present, to witness that conversation. Paul asked, 'Could we come to an arrangement with the sale of your shares, agreeing a tax benefit that would be beneficial to all.' Adding, 'this process may take some time to finalise.'

[63.] I was slightly confused as I believed no taxable benefit existed but I

“[44.] In the Petition Dean says that there was a meeting on 12 March 2018 in which his exit agreement was discussed. I do not recall a meeting on that day and have checked through my timesheets and can see that I had a very busy day and no mention of a meeting which would always be noted…... I have also checked the timesheets of Bart and Neil and can see that Bart had a half day holiday and Neil was working on Core Education, Paragon Veterinary Referrals and some Sadlers Keg Lens Designs and Cask Templates…... I can’t remember exactly what date Dean did tell us or what happened when he did tell us, I doubt I was the first person I was most likely the last person he told. The only way I can tell exact dates from that long ago is by looking at my timesheets as everything was recorded.

[45.] I think around 26 March 2018, I recall having a meeting with Dean along with the other shareholders to discuss his departure and we asked him to extend his notice period to 6 April as we knew that both Neil and Emma were due to be on holiday beforehand. Dean agreed to do that. Dean also wanted us to ask Bernard for his opinion on the share valuation and Bernard said he couldn’t do that because he was the Company accountant and to advise Dean that he needed to get independent advice, which I understood Dean was going off to do. We would have considered purchasing his shares back if they were a fair price to everyone, but we were under no obligation to do that and did not make any agreement with Dean to do so which I thought he understood – we would definitely not agree to a blank cheque given that we had no idea what the value would be.

[46.] There was no agreement with Dean to purchase his shares back, even if they were valued at an acceptable price.”

[17.] I do not recall attending a meeting with Dean and the other shareholders on 12 March 2018. Accordingly, I have reviewed my timesheets from this date…. and confirm that it does not note any meeting of the shareholders on this date……..

[18.] I remember that on Friday 16 March 2018, Angelo, Taj and I would go to the local pub on a Friday lunchtime. Unusually on this Friday lunchtime Dean had joined us. So I specifically remember it was this Friday afternoon that he told me he was resigning shortly after we had got back to the office from lunch. Dean took me aside and told me that he was going to be resigning from the Company. It came as a bit of a shock to me.

[21.] I asked Dean if he wanted me to inform the other shareholders that he was resigning. I then proceeded to inform Paul and Bart. I am not sure if they told Emma but I didn’t. On Thursday 22nd March, shortly after Dean and I returned from a client meeting with Sadlers Ales, I was asked by the other shareholders to talk to Dean to see if there was anything which could be done to see if he would retract his resignation. In that meeting only Dean and I attended, Dean said he would stay if his salary was increased by £10,000 pa. This had been a tactic used by a former employee called Angelo who would find a new job, accept it and then ask for a pay rise or he would leave. I said to Dean I would ask all the shareholders for their views. It was unanimous that all shareholders agreed to accept his resignation and allow Dean to leave.

[24.] Following Dean’s verbal resignation, I recall there being discussions about who would pick up his workload and clients and other handover related items. I do not recall any discussions about the actual value of his shares.

[26.] When Dean left, it was my understanding that the Company could possibly consider buying his shares but we were under absolutely no obligation to buy them as nothing was agreed. Nor did we agree to buy them in principle not least because we had no idea what the cost would. We told him he would have to seek independent legal advice as to the value of those shares as Bernard Rogers had advised he could not do this as he was working for the Company.

[27.] Myself and the other shareholders did not collectively engage in any discussions with Dean about the value of the shares as we simply did not know the value. For the same reason, I did not have any individual discussions with him about the value of his shares. I understood that Dean would go and seek independent advice.

[28.] I do not recall any discussions around exit agreements or any agreement that Dean’s shares would be purchased by the Company.”

“[31.] There was not a meeting of the shareholders/directors on 12 March

[32.] Dean informed me verbally on Friday 16th March that he was resigning from the business and would be leaving on Friday 23rd March – giving only one week’s notice. I can recall Dean whispering it to me in the upstairs office we shared, whilst Paul, Neil and Bart were all downstairs in the studio………

[33.] After Dean told me, I went outside to call Bernard Rogers to check whether Dean was able to just give one week’s notice. I thought it was unreasonable and I thought as we were paid monthly, he should give one month’s notice. I spoke to one of Bernard’s colleagues, who said Dean could give a week’s notice and that we could not stop him. Bernard’s colleague said he would arrange a meeting with Bernard for his first day back from holiday on 26 March.

[35.] Following Dean’s verbal resignation, we had various internal meetings without Dean regarding what we were going to do, how clients would be managed and what we would say to clients. We were shellshocked and panicked about our clients who Dean managed. As Neil and I were both booked to be off during the first week of April, we had very little time to agree how clients would be managed, who would take on responsibility for those clients.

[37.] On 26 March 2018, Paul, Neil, Bart and I attended a meeting with the Company’s accountants. We discussed what we were going to do in respect to filling the gap created by Dean’s departure. I would step up to be the main point of contact for the clients, Neil and Bart would take over Dean’s clients. Bernard told us that he could not provide a valuation for Dean as he represents the Company and that we should advise Dean to seek independent advice. I don’t recall anything else being discussed.

[38.] There was no agreement to purchase Dean’s shares and no agreement in principle to purchase them dependent on the value, we consistently reiterated that Dean should seek independent advice whenever he raised this. It was my understanding that Dean would go away and seek that advice but we did not agree to purchase Dean’s shares. We are sensible people and would never have agreed to purchase something which we had no idea what the value was.

[39.] Following the meeting with the Company Accountants, Bernard Rogers and David Rogers, on 26 March 2018, Paul, Neil, Bart and myself did meet with Dean to discuss his departure. We asked Dean to extend his notice period to 6 April which he agreed to do. It was during this meeting that we mentioned to him that he needed to seek independent advice as he could not use the Company’s Accountant. We told Dean that Bernard could not advise him in respect of a valuation for his shares and he should seek independent advice from his own accountant. At no point was any share value discussed. Otherwise, the meeting served as a handover meeting about Dean’s clients, which projects were at which stage, what work was looming and who would take responsibility for those clients – clients do not like change and we were keen to ensure we did not damage existing relationships on Dean’s accounts where he had been the key contact….

[45.] Before he left it was agreed that Dean would go and get some independent advice about the value of his shares, which he did and the figure he came back with was ridiculous. We never said we would buy his shares and never said how much they were worth. Prior to Neil and I breaking up for holiday, we all had a meeting (with Paul and Bart too). The main topics discussed were clients and workload - upcoming projects, projects in progress, delivery dates. Dean did ask if we were happy for him to use Bernard to sort out a valuation of his shares. We told him, as per Bernard’s advice, that Bernard could not advise Dean and that he should seek independent advice. From my recollections, we did not discuss the value of his shares and we did not suggest we would purchase them.

[46.] I never gave much thought to what would happen with Dean’s shares in the Company. I thought it would be better if we had them back but equally the Company wasn’t going to pay the amount he asked for. I did think Dean would be more open to negotiation…..”

“[16.] I was not present at any meetings with the Company on either 12 March 2018 or 3 April 2018.

[17.] However, I recall that sometime in late March 2018 Dean rang me and said he was likely to be leaving the Company and that as part of his departure would need a company valuation. I do not know anything of Dean's discussions with the other shareholders. I was not aware of any agreement in principle for the purchase of the shares being reached.

[18.] Dean said there had been a falling out with the other directors which had left him with no choice other than to leave. I explained that the client was my Company, and that he should seek independent advice as I felt there was a conflict of interest.”

“[28.] Dean Banfield has said that in March 2018 it was agreed between him, myself and the other Respondents that the Respondents would purchase Dean Banfield’s shares and the purchase price would be set using the mechanism contained in the unexecuted Shareholders Agreement.

[29.] I was not involved in any discussion, arrangement or agreement in terms of the sale and purchase of Dean Banfield’s shares. I have no knowledge of any such agreement and was not involved in any such discussion. As far as I understood it, Dean Banfield had decided to resign and leave Brand to set up his own business. I had no idea that Dean Banfield was unhappy until shortly before he resigned, when he advised me that he was about to resign and would shortly be setting up his own company.”

Evasive and argumentative answers;

Tangential speeches avoiding the questions;

Blaming advisers for documentation;

Disclosure and evidence shortcomings;

Self-contradiction;

Internal inconsistency;

Shifting case;

New evidence; and

Selective disclosure.

Shifting case: P claimed in his Petition that the meeting, when the exit agreement was allegedly made, took place on 12 March 2018, but claimed in his evidence that the meeting took place on 26 March 2018. P was unable properly to explain his “confusion over the dates” of what was on his own case such a crucial meeting.

Self-contradiction: It was P’s written and oral evidence that there was a binding shareholders’ agreement, which provided that the shares of anyone leaving the business would automatically be bought out. However, it was ultimately conceded on behalf of P that (i) there was no binding shareholders’ agreement, and (ii) in any event the various drafts of the shareholders’ agreement contained no such mandatory buy-out provisions.

“[11.] The Company kept very good accounting records; they were what I would describe as a 'once a year' client. Once a year they would provide me with their records, both electronically and on paper. I would then prepare the statutory accounts for the Company and send the draft to Emma. I would then meet with all five directors in around September to discuss and approve the accounts. The Company did not require much in the way of additional services — they did not ask for anything and I did not offer.

[12.] There was one exception in the early stage of the Company, I think it would have, following my initial meeting at the Company in May 2011. Because of the flat ownership structure of the Company - at the time the Company only had 6 or 7 employees including all 5 directors and through the P shares, of which 24.75% were held by each of Dean, Paul, Bart and Neil and 1% were held by Emma, control could only be exercised by a minimum of 3 participants - I suggested that putting in place a shareholder's agreement was something which they should address. I referred them to Newsome Vaughan in relation to this.”

However, it is clear from the contents of the contemporary documents that Mr Rogers was more heavily involved with the Company than ‘once a year’. It appears that he routinely advised on a wide variety of issues as and when they arose during the course of the year. For example, on 12 April 2018, R3 emailed Mr Rogers to ask for his “thoughts” on appointing Angelo as a director of the Company to which Mr Rogers responded:

R4 claimed that although he had agreed in principle to day-to-day management decisions being delegated to the management committee, he was in fact excluded from all management decisions including in particular over salaries/dividends.

However –

Further, R4 claimed in his oral evidence not to have been involved in any discussions over the purchase of P’s shares in and by the Company. However, on 29 June 2018, R4 forwarded to R1 – R3 the share valuation he had received from Mr Rogers. R4 marked the email with high importance. R4’s explanation for why he was receiving and then circulating urgently a share valuation in respect of a discussion he apparently knew nothing about was at best confused and confusing.

Still further, R4 claimed in his oral evidence not to know about any discussions over the distribution by way of dividends of trading profits of £80K after the departure and to the exclusion of P. However, on 24 October 2018, R4 emailed the new Company accountant (David Rogers) –

When the Company accountant responded to say that he could not advise upon “how dividends be split across the shareholders”, R4 sent a follow up email the same day –

Indeed, despite claiming to be no more than a messenger, it was R4, who on 24 October 2018, sent an email to R1 and R2 suggesting his own complicated scheme for distributing the £80K to the exclusion of P:

"[19.] The process of civil litigation itself subjects the memories of witnesses to powerful biases. The nature of litigation is such that witnesses often have a stake in a particular version of events. This is obvious where the witness is a party or has a tie of loyalty (such as an employment relationship) to a party to the proceedings. Other, more subtle influences include allegiances created by the process of preparing a witness statement and of coming to court to give evidence for one side in the dispute. A desire to assist, or at least not to prejudice, the party who has called the witness or that party's lawyers, as well as a natural desire to give a good impression in a public forum, can be significant motivating forces.

[20.] Considerable interference with memory is also introduced in civil litigation by the procedure of preparing for trial. A witness is asked to make a statement, often (as in the present case) when a long time has already elapsed since the relevant events. The statement is usually drafted for the witness by a lawyer who is inevitably conscious of the significance for the issues in the case of what the witness does nor does not say. The statement is made after the witness's memory has been "refreshed" by reading documents. The documents considered often include statements of case and other argumentative material as well as documents which the witness did not see at the time or which came into existence after the events which he or she is being asked to recall. The statement may go through several iterations before it is finalised. Then, usually months later, the witness will be asked to re-read his or her statement and review documents again before giving evidence in court. The effect of this process is to establish in the mind of the witness the matters recorded in his or her own statement and other written material, whether they be true or false, and to cause the witness's memory of events to be based increasingly on this material and later interpretations of it rather than on the original experience of the events."

“[57.] ………….. It is frequently very difficult to tell whether a witness is telling the truth or not; and where there is a conflict of evidence such as there was in the present case, reference to the objective facts and documents, to the witnesses' motives, and to the overall probabilities, can be of very great assistance to a Judge in ascertaining the truth."

“[22.] In the light of these considerations, the best approach for a judge to adopt in the trial of a commercial case is, in my view, to place little if any reliance at all on witnesses' recollections of what was said in meetings and conversations, and to base factual findings on inferences drawn from the documentary evidence and known or probable facts. This does not mean that oral testimony serves no useful purpose – though its utility is often disproportionate to its length. But its value lies largely, as I see it, in the opportunity which cross-examination affords to subject the documentary record to critical scrutiny and to gauge the personality, motivations and working practices of a witness, rather than in testimony of what the witness recalls of particular conversations and events. Above all, it is important to avoid the fallacy of supposing that, because a witness has confidence in his or her recollection and is honest, evidence based on that recollection provides any reliable guide to the truth.”

“I understand from your colleagues that you are on holiday this week – so apologies for interrupting you.

We urgently require your advice as Dean resigned last Friday afternoon, giving us just one week’s notice. As you can imagine that was a very big shock, and whilst we are still reeling, we are concerned that we have very little time to deal with this, and also very little knowledge of what we need to do. I believe Connell has booked you in to come over next Monday morning – but given that Dean is leaving on Friday, any interim guidance, assistance you can provide would be very much appreciated.

As you can imagine this is very destabilising for everyone (remaining directors and staff) within the business and I’m sure will be equally so for several clients, some of whom have had Dean as their main/only point of contact for almost 20 years. Would we have to pay for his shares in one lump sum or could we propose staged payments? Depending on the price agreed, it could mean that we have no cash flow if we do have to pay in one go. How do we go about replacing an MD (we do not have the skill set in-house)? As a director, does Dean have any responsibilities (not damaging the company etc)??? Should we start advertising for an account director?

Obviously there will be legal requirements that need to be satisfied, and negotiations over Dean’s share valuation.

Your advice and input as to how we should proceed would be greatly appreciated.”

“The first thing to say is that in the absence of a shareholders' agreement (which is something we have discussed each year) is that the company does not have to buy Dean's shares. You will recall he owns 24% of the company but is paid dividends via the alphabet shares. You do not pay dividends via the ownership shares so whilst it would be inconvenient to have a dissenting shareholder owning 24% it could be managed since you would simply pay no dividends to his alphabet shares once he leaves.

I think the major concern is with the clients. Is Dean saying he is going to take what he regards as his clients with him? If so - what is the value of that work? Do you know what he is doing next - is he going to a competitor or set up on his own?

……..”

From the following exchange of emails in the late afternoon of the 26 March 2018 (being the day P now claims that the exit agreement was reached and after Mr Rogers had earlier met with R1 – R3 to discuss P’s departure), it appears that Mr Rogers was not only unaware of any exit agreement he was firmly of the view (no doubt influenced by his discussions with the other directors earlier in the day) that there “may be some disagreement” over P’s shares such that P ought “to seek independent representation” -

On 3 April 2018, R1 emailed Mr Rogers as follows -

On the same day, Mr Rogers responded -

On 10 April 2018, R3 emailed Mr Rogers to advise that “[P] left on Friday – [R1] had a meeting with him prior to his departure. [P] has appointed an accountant in Telford who is apparently a ‘specialist’ at dealing with scenarios such as ours. He will apparently be contacting you directly.” Mr Rogers responded the next day -

On 16 April 2018, P emailed the co-Founders and Mr Rogers (with my emphasis) to confirm that -

On 17 April 2018, Mr Rogers advised R3 upon the contents of P’s earlier email as follows -

On 8 May 2018, Mr Rogers further advised R3 that -

“Prior to my resignation it was discussed, represented and agreed that following my resignation as a director my shares would be purchased in line with the shareholders agreement. I have now provided you with a valuation, submitted on 28th June 2018 and would be grateful if you could confirm when the sale will complete?”

“The only thing we discussed with [P] was that he needed to take independent advice, as per your instructions. He wouldn’t tell us what he wanted for his shares and wouldn’t discuss it prior to his departure. As you know, we have no shareholder agreement in place so I am unsure as to what he is referring to in this regard.

We have not communicated with [P] since he left apart from a text to tell him that one of our clients had died. We did sign for the recorded delivery letter regarding his request for audited accounts – but other than that, we have not acknowledged him or his communications at all.

At the moment we have holidays going on for various directors and in addition, we have a substantial workload, so we haven’t even had a conversation about this matter. We hope to do this once everyone is back in September.”

some discussions taking place prior to P’s departure from the business over the possibility of P’s shares being acquired by the Company, if the price was mutually acceptable, but

no binding buy-out agreement having been reached prior to P’s departure because P was simply unable to put a figure on what P thought his shareholding was worth after Mr Rogers declined to provide a share valuation and instead advised P to obtain his own independent valuation, which P duly did albeit only several months after exiting the Company.

“[R2] chaired the meeting and asked to purchase my shares and how much I wanted for the shares but I did not know the value. It was agreed I would get the shares valued and come back and offer to sell them. I wasn’t expecting an agreement on the value of shares until gone away to obtain a valuation. Agreed to purchase my shares but couldn’t agree without knowing the value……… Intention to open negotiation. Obtained valuation. Needed to negotiate valuation. But no opportunity to discuss valuation with them. Unsure of the process. Valuation submitted and heard nothing more……….If I’d come back and valuation not equitable I’d have been open to offers.”

P’s oral evidence in this regard was also consistent with the contents of the contemporary documents in that it was discussed prior to his departure from the business that P would, after obtaining an independent valuation, offer to sell his shares to the Company, but without any obligation upon the Company to accept that offer come what may.

“[20] Section 994(1), so far as relevant, provides:

[21] The key phrase in s 994(1), “unfairly prejudicial”, comprises two elements, unfairness and prejudice but both of these must be understood in the context of company law. The concept of fairness inherent in this phrase is flexible and open-textured but it is not unbounded. The courts must act on a principled basis even though the concept is to be approached flexibly. They cannot decide whether to grant or refuse relief from unfair prejudice on the basis of palm-tree justice. The impact of the context was explained by Lord Hoffmann in O'Neill v Phillips [1999] 2 All ER 961, [1999] 2 BCLC 1, [1999] 1 WLR 1092. The editors of Pettet's Company Law: Company Law & Corporate Finance (Longman 4th ed 2012) have described his speech as “a state-of-the-art account of the rationale of this area of law”. So far as material to this case, Lord Hoffmann held:

[22] One of the most important matters to which the courts will have regard is thus the terms on which the parties agreed to do business together. These are commonly found in the company's articles. They also include any applicable rights conferred by statute. In addition, the terms on which the parties agreed to do business together include by implication an agreement that any party who is a director will perform his duties as a director. Primary among these duties are the seven duties now codified in ss 171 to 177 of the Companies Act 2006. Under these duties, a director must act in the way which he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole. There is also the well-known duty to avoid conflicts of interest and duty: a director must avoid a situation in which he has an interest which conflicts with that of the company. Six out of seven of these duties are fiduciary duties, that is, duties imposed by law on persons who exercise powers for the benefit of others. Non-compliance by the Respondent shareholders with their duties will generally indicate that unfair prejudice has occurred.”

[35.] ……. The breadth of the court's jurisdiction in such cases makes this essential, both so that the respondents know the case they have to meet and so that the court can keep the proceedings within manageable bounds.

“[27] Unfair prejudice proceedings generally raise numerous factual issues entailing examination of events over a considerable period of time. Just as defended divorces used to raise numerous issues, making trials long and complex, so trials of section 994 petitions can be long and complex. Thus a high degree of case management is required if the case is not to get out of hand. Effective case management means that, where possible, the court prevents unnecessary court time being spent on issues that are not capable of giving rise to relief. Thus a court will generally determine the issues necessary to determine whether a buyout order should be made at one hearing (‘the liability hearing’) and only proceed to a second hearing (‘the quantum hearing’), at which evidence would be given relevant to establishing the value of the petitioner’s shares, once it has determined that a buyout order should be made. Case management, however, must be consistent with both parties’ right to a fair hearing.”

In his Petition, P stated;

In his written evidence, P stated:

“[27] …….. it is important to keep in mind that s 459 [predecessor of s. 994 in the 2006 Act] is designed for the protection of the members of companies. It is in that capacity that they seek its protection, not as directors or employees, an important reminder where the provision is prayed in aid by a departing member who may also be a director or employee. And, ……where the member is departing because he has been excluded by other members from his involvement as a director and/or employee, the provision is aimed not at unfairness in such exclusion for its own sake, but at unfairness in his exclusion without a reasonable offer for his shares……

[28] How then is the principle to be applied in a quasi-partnership company where the departing minority shareholder, not the majority shareholders, seeks to put an end to the association for personal reasons and take his investment in it with him, and where, as the judge found, there was no agreement for such a ‘no-fault divorce’? I have already indicated the answer in my summary of Lord Hoffmann’s propositions, but here is the place to put it in his own words, ……. :

[29] The judge, …… ruled that a consequence of the quasi-partnership here was that Mr Larvin was entitled to the full undiscounted value of his shares. In so ruling, he appears to have proceeded as if it had been Messrs Parish and Ogden who had taken the initiative to sever the association rather than, as was the case, Mr Larvin. True it was that they refused to recognise him as a director or to give him access to certain company information, but that was only after he had made plain that he wanted to sever all relationship with the company and them and to take the value of his shareholding with him. In my judgment, this is not the sort of case that Lord Hoffmann had in mind when formulating his propositions applicable to excluded members………… Lord Hoffmann’s different treatment of those cases where there is a withdrawal because of a sense of loss of trust and confidence applies a fortiori to a shareholder who, even without such a sense, but for other personal reasons, simply wishes to leave and take his investment in the company with him. Where, as here, the company is small and with only a few shareholders each holding a significant proportion of the company’s issued capital, a sudden demand from one of them, for essentially personal reasons, to seek to withdraw his investment could be very damaging, even potentially ruinous, to them and the company.”

A lot of important issues arose following P’s departure including in particular the appointment of Angelo as a director and the payment of dividend salaries to directors.

These were matters which necessitated a general meeting.

The deprival of the opportunity to be notified and to vote on the same was unfair and prejudicial conduct.

“Appointment of directors

Methods of appointing directors

………

Directors' remuneration

It had no proper commercial basis.

It was in breach of the Duties.

It had the effect of diluting P’s shares to the advantage of the other shareholders.

From the very outset and thereafter it was recognised that Angelo was a key employee with a valuable/specialist skill set, and who would need to be properly incentivised to retain his worth to the business –

On 20 October 2017, Mr Rogers responded:-

On 25 October 2017, R1 emailed Mr Rogers to confirm:-

Whilst R1 referred in his email to the meeting having taking place between the management committee (including P) and Angelo, P for the first time in his oral evidence sought to distance himself from the contents of the email by denying that he had or would ever have agreed to the share allotment. However, P’s explanation made little commercial sense –

In summary –

On 7 April 2016, R4 emailed Mr Rogers –

The minutes of the meeting on 25 April 2016 record -

On 26 April 2016, P emailed the solicitors instructed to draft the amended Articles of Association to increase the Alphabet Share allocation:

“Sorry can I just ask a quick very private and confidential question?

The D1 business has been given the opportunity to develop a waste trading platform for the government body responsible for recycling WRAP - for and on behalf of The Environment Agency.

The lead contact is a client/business colleague who currently holds a 100% shareholding of the business - www.wasteproducerexchange.com. For Design One to become involved and help develop this offer he has offered us a 49% share - sharing to be decided by myself.

Given the difficulty with the shareholding at Design One I do not wish to keep my share of this enterprise within the D1 business and would rather keep it with myself or held by another ltd company. What would be the most appropriate and advantageous solution?”

It was always the agreed practice that the directors’ remuneration comprise a minimum basic salary topped up by way of monthly dividends paid on the directors’ Alphabet Shares.

Under the Articles of Association the continuing directors were entitled to determine the amount of the directors’ remuneration by way of dividend payments and without being required to consult with P following his resignation from the Board.

“[36] In my judgment, as Blackburne J held in Irvine v Irvine [2006] EWHC 406 (Ch), [2007] 1 BCLC 349 at 267-268, where the court has to determine the appropriateness of a director's remuneration, it should do so by reference to objective commercial criteria.”

On 10 April 2018, R3 emailed Mr Rogers:

Mr Rogers replied:

Therefore, the total dividend salary payments over the relevant 3 year period on average decreased (by 3% per annum) rather than increased compared to the total dividend salary payments in 2017 and even ignoring inflation.

In his oral evidence P accepted that he was the highest paid director reflecting in part his important role as Managing Director.

R1 was the second highest paid director. In his oral evidence, R1 said that his market salary was £65,000 per annum, but he had never earned anything close to that figure whilst employed by the Company.

Angelo, who was paid a market salary as a programmer, earned £45,000 per annum, but left the Company in 2020 having been offered a substantial pay rise to work elsewhere.

In his oral evidence Mr Rogers said “Because the directors’ salaries were low, the profits looked artificially high. Had they paid themselves normal commercial salaries then profits would be less.”

When preparing his share valuation on behalf of the Company in 2018, Mr Rogers undertook the following analysis of the impact upon profitability if the directors were paid market rates -