"I must emphasise, however, that I have dealt with this application on the evidence before me at the moment. That is not the end of the matter. If in the course of the trial further evidence emerges that there have been breaches of the disclosure obligations by the petitioners and, in particular, that other documents have been suppressed or fraudulently altered, the application to strike out can then be renewed and is highly likely to be successful because it will lead the Court to take the view that contrary to Nigel's denials he has not made a clean breast of his fraudulent activities."
"There has developed between them a fundamental dispute as to the basis on which Bodycare was established and as to what Nigel and Lorraine's expectations in respect of Bodycare were. Nigel and Lorraine claim that they are, as its managing directors, free to make decisions as to its affairs without reference to Graham and Margaret, whom they say have a conflict of interest as directors of both PLC and Bodycare. Graham and Margaret for their part accept that the day to day operation of Bodycare's business has been, and is, under Nigel's and Lorraine's control, but they claim that PLC has always been entitled to a high degree of control over the sales and supply side of Bodycare's business. There is, in particular, dispute as to the terms on which PLC ought to be supplying Bodycare, the particular issue being as to the profit margin which Bodycare should be able to enjoy."
"(iii) that the First Respondent [Graham Blackledge] (acting on behalf of the Third Respondent [Blackledge plc]) would transfer six of his existing stores which used the Bodycare name into the company to give it a start but there would be an agreed formula for the company to pay for these stores in relation to stock at cost, fixtures and fittings reduced by 25% p.a. up to 3 years. (iv) that the Petitioners would draw through the Third Respondent a loan for the company of£1 million which would be interest free for 3 years which would enable the company not only to purchase the 6 stores but also then to go on and set up more stores. (v) that the supply of toiletries from the Third Respondent to the company would be at a starting margin/discount of 15% (on the method of calculation used by the Respondents) which would rise at 6 monthly intervals at ½ % to a total of 17.5%. (vii) that the company should pursue a policy of expansion and after a period of 3 years consideration should be given to how and when repayment to the Third Respondent of the£1 million would be made. At that stage the parties would also discuss the margin to be applied on sales thereafter. It was never envisaged that the margin would be reduced however it was envisaged that the company might be floated or offered to investors in this timescale or that it might acquire the Third Respondent. (viii) that the company would pursue its expansion on the basis that it would thereby gain considerable trade and goodwill in its operations and in the Bodycare name and trading style and that ultimately the continuing use of such name and trading style would be that of the company. . . ."
"(i) that the expansion of the business of the company would be with a view to the trading as Bodycare being through it and acquiring the benefit of such trading name or style and expansion would be pursued with regard to the interests of the company (rather than with regard to any conflicting or potentially conflicting interests of the Third Respondent) (ii) that the monies loaned to the company would be repaid as and when the company was in a position to obtain bank finance to replace the same, alternatively upon the company being given a reasonable opportunity to obtain such finance (for which purpose sufficient time was required to allow a written supply agreement to be entered into and bank finance be sought thereafter). . . . (iii) that the supply of toiletries from the Third Respondent to the company would after the expiry of the three year period be at a market rate margin which would be greater and not less than 17.5% (iv) that the expansion of the Bodycare business would continue and would be pursued through the company (v) that the company would be not less favourably treated by the Third Respondent than other companies to which it supplied such goods at arm's length (vi) that the finance provided would be on terms not less favourable than those a bank would provide (vii) that the parties, including the Respondents and each of them, would act bona fide in the interests of the company and would in consequence cause or procure that the company assumed those matters and opportunities best in its commercial interests"
"(i) they have prevented the proper expansion of the business of the company with a view to the trading as Bodycare being through it and it acquiring the benefit of such trading name or style. In or about March 1998 the Respondents approval for following the said programme [of expansion by the acquisition of further retail outlets] was withdrawn . . . The Respondents furthermore alleged . . . by letter dated11 March 1998 that the company was unable to open any more stores without the express permission of the Third Respondent. . . . (ii) they have purported to increase the interest rate payable by the company [on inter-company borrowing] unilaterally to 10.5% and have given no reasonable or proper opportunity to the company to obtain finance from elsewhere . . . (iii) they have purported to reduce the profit margin to 15% when the same should be a margin which would be not less than 17.5% (and indeed after the expiry of the three year period was initially continued at a rate of 17.5%) and in so doing have treated the company less favourably than other parties with whom the Respondents trade. . . ."
"The Respondents are unwilling to allow the company to take any steps in its best interests and wish to prevent it obtaining supplies from elsewhere, obtaining supplies at a proper price, or obtaining long term written supply agreement (whether from the Third Respondent or elsewhere) and opening further stores so as to avoid the company being able to put its operation on a stable footing and obtaining finance from elsewhere. The aim of the Respondents in their said acts and omissions is to render the trade and profitability of the company precarious so that the Third Respondent can appropriate to themselves the entire benefit therefrom."
"A member of a company may apply to the court by petition for an order under this Part on the ground that the company's affairs are being or have been conducted in a manner which is unfairly prejudicial to the interests of its members generally or of some part of its members (including at least himself) or that any actual or proposed act or omission of the company (including an act or omission on its behalf) is or would be so prejudicial."
"In the case of section 459, the background [against which the concept of `fairness' has to be applied] has the following two features. First, a company is an association of persons for an economic purpose, usually entered into with legal advice and some degree of formality. The terms of the association are contained in the articles of association and sometimes in collateral agreements between the shareholders. Thus the manner in which the affairs of the company may be conducted is closely regulated by rules to which the shareholders have agreed. Secondly, company law has developed seamlessly from the law of partnership, which was treated by equity, like the Roman societas, as a contract of good faith. One of the traditional roles of equity, as a separate jurisdiction, was to restrain the exercise of strict legal rights in certain relationships in which it considered that this would be contrary to good faith. These principles have, with appropriate modification, been carried over into company law. The first of these two features leads to the conclusion that a member of a company will not ordinarily be entitled to complain of unfairness unless there has been some breach of the terms on which he agreed that the affairs of the company should be conducted. But the second leads to the conclusion that there will be cases in which equitable considerations make it unfair for those conducting the affairs of the company to rely on their strict legal powers. Thus unfairness may consist in a breach of the rules or in using the rules in a manner which equity would regard as contrary to good faith."
"In saying that it was "correlative" to the equitable restraint, I meant that it could exist only when equitable principles of the kind I have been describing would make it unfair for a party to exercise rights under the articles. It is a consequence, not a cause, of the equitable restraint. The concept of legitimate expectation should not be allowed to lead a life of its own, capable of giving rise to equitable restraints in circumstances to which traditional equitable principles have no application. This is what seems to have happened in this case."
"The above terms were agreed orally between Mr Tobias and the Second Petitioner [Lorraine Blackledge] and the First Respondent [Graham Blackledge] in or about April/May 1994 expressly save for the first sentence of sub-paragraph (viii) which was a natural consequence of the agreed terms and/or implied as necessary to give efficacy to the agreed purpose of and participation by the parties in the company."
"(vii) that after the initial period of 3 years the company would (a) continue to trade with the benefit of the supply of goods at a margin of at least 17.5% and to pursue its policy of expansion or (b) would be sold or the subject of a flotation or would take over the Third Respondent: . . . subject to any sale or flotation, the company would continue to be managed by Mr Tobias and the Second Petitioner without unfair or unreasonable restrictions on its profits or growth through the actions of the Respondents (ix) that the Respondents would not use their position in the company or interfere with its management so as to prevent or obstruct it in seeking to obtain working capital or outside finance by way of flotation or otherwise in order to continue its profitability and growth" (4) The allegation, in paragraph 8, that the respondents had acted contrary to the legitimate expectations of the parties was amended to read: "
"Telephone call to Nigel Tobias via my mobile phone. I said to him I was still thinking about the facts [ quaere fax] from Eversheds claiming that the letters on the Lambert Smith Hampton and Gruber Levinson file were forged. He reassured me that this was not the case and that they were genuine and I did [ quaere need] not worry. He said he did not have an explanation for why there was a 1 in the 0161 but believed that there would be and he would consider it."
"I went through again the letter of Eversheds of 3.8.99 and asked [Nigel Tobias] to reconsider whether there were any problems with the letters to which they were referring on the files of Lambert Smith Hampton and Gruber Levinson Franks. He told me that he had considered the matter last night and he wanted to tell me that the letters were not authentic and were forgeries. He went on to explain that Lorraine was not aware and he told her for the first time last night. That David Royle at Lambert Smith Hampton was not aware. That he had borrowed the file from Lambert Smith Hampton in order to check matters and then had inserted on to these files letters in place of other letters that were already there in order to strengthen up small parts of the letters. Within respect of (sic) Gruber Levinson Franks file he had borrowed that from Edward Cobb to read. There were two letters on this file and he had extracted them and put in their place two other letters. The main one being the first one in May which he amended by changing two or three words to say that the margin would go on from 17.5%."
"The Bodycare option originally came about when Dad and I were looking for a business for Peter and at that stage Graham tried to convince us of the merits of some kind of Franchise, but upon inspection this was clearly not going to work as from the information provided to me it was not likely to be viable. Following on from recent discussions with Graham, and his niece, Lorraine, we are looking to progress in a different way. This Bodycare option could offer great potential and whilst the initial salary package, to be set by ourselves, will be low, this is offset by the investment required for the purchase of some 24% of the shares. Graham needs Bodycare to replace the loss in turnover, c£25m , of Wilkinsons who have given notice that they are leaving and he needs to replace them quickly. From our discussions it is anticipated that we have the potential to open at least 150 stores, certainly 40 or more over the first three years of our agreement. It is envisaged by Graham that we will produce profits of c£1m p.a. within 3 years, as he will supply at a profit margin of 15% from inception, rising every 6 months by 0.5% to 17.5% and we will move forward from there. We discussed the possibility of a Floatation or even taking over Graham's, but either way from here on in we would be the retail arm establishing the value and Graham gets to replace Wilkinsons which he desperately needs to."
"Section 54 item 1 letter Nigel Tobias to Edward Cobb 3/5/94 - this letter was not written and despatched by Nigel Tobias to Mr Cobb on 3/5/94. Rather it was created by Mr Tobias in or around May/June 1999."
"In relation to the two letters appearing to be from myself to Gruber Levinson Franks dated 3 May and18 May 1994 these letters were never sent from me to Gruber Levinson Franks on or about the dates which appear on the face of the letters or at all. I created the letters and placed them in Gruber Levinson Franks' file."
"I have given disclosure of my 1995, 1996 and 1997 diaries. At the same time as I added to/created the letters referred to above I added to these diaries by locating some of the dates of my meetings with Graham Blackledge and adding in from memory notes of what took place. Regrettably I cannot now distinguish between my genuine contemporaneous notes and the ones I have added in. . . . This represents the sum total of the evidence I have created."
"First and foremost I wish to sincerely and profusely apologise to all those affected including but not limited to the Court, Graham and Margaret Blackledge, Eversheds, Lorraine Blackledge and my former advisors Linder Myers, Lambert Smith Hampton and Gruber Levinson Franks (now Baker Tilly). I realise only too well that what I did was not only utterly wrong but also stupid. Indeed I realised that soon after I had done it but unfortunately it was too late. I literally feel sick with contrition. I still do not understand why I did it. It all happened over a two day period in or around May or June of this year. I do not know whether or not I had a mental block but I would say it was a mental and moral aberration."
". . . the written evidence was not as helpful as I had expected . . ."
". . . where the Court could be satisfied that the abuse had as far as possible been remedied and there was no significant risk that a fair trial of the issues between the parties could not thereafter take place. In short whether the word " contumelious " when used by Lord Diplock [in Allen v Sir Alfred MacAlpine & Sons Ltd[1968] 2 QB 229 , 259 and in Birkett v James[1978] AC 297 , 318] meant " deliberate and continuing " or simply " deliberate "."
". . . it is not a proper exercise of the Court's power under the rules or its inherent power to strike out a claimant's case where the claimant has been found to be in contumacious breach of the rules or an order of the Court or even is guilty of conduct amounting to a fraud on the Court and to a gross contempt, if it can be shown that notwithstanding the claimant's conduct there is no substantial risk that a fair trial of his claim cannot follow."
"The object of order 24 rule 16 [of the Rules of the Supreme Court 1965] is not to punish the offender for his conduct but to secure the fair trial of the action in accordance with the due process of the Court (see Husband's of Marchwood Ltd v Drummond Walker Developments Ltd[1975] 1 WLR 603 ) The deliberate and successful suppression of a material document is a serious abuse of the process of the Court and may well merit the exclusion of the offender from all other participation in the trial. The reason is that it makes the fair trial of the action impossible to achieve and any judgment in favour of the offender unsafe. But if the threat of such exclusion produces the missing document, then the object of order 24 rule 16 is achieved. In my judgment an action ought to be dismissed or the defence struck out (as the case may be) only in the most exceptional circumstances once the missing document has been produced and then only if, despite its production, there remains a real risk that justice cannot be done. That might well be the case, for example, if it were no longer possible to remedy the consequences of the document's suppression despite its production, perhaps because a material witness who could have dealt with the document had died in the meantime, or where, despite the production of the document, there was reason to believe that other documents had been destroyed or remained concealed. But I do not think that it would be right to drive a litigant from the judgment seat without a determination of the issues as a punishment for his conduct, however deplorable, unless there was a real risk that that conduct would render the further conduct of proceedings unsatisfactory. The Court must always guard itself against the temptation of allowing its indignation to lead to a miscarriage of justice."
"43 I am not satisfied that I have received from Nigel a truthful picture of the circumstances of the forgeries which he admits ... I accept that contrary to Nigel's evidence the respondents have established that in respect of the four letters that Nigel admits he forged to LSH in late 1993 and early 1994, contrary to Nigel's evidence, there were either no original letters and in consequence the forged letters were entirely new creations or, alternatively, the letters which were originally sent were in a substantially different form from the forged letters. I do not find it established that there were replies from LSH to these letters which have been destroyed as submitted. 44 This memorandum [the Linder Myers' file note of4 August 1999 ] contradicts Nigel's evidence that the two GLF letters were entirely new creations and their forgery did not involve the destruction of existing letters from him to GLF. 45 I am satisfied that an entirely false picture has been presented by Nigel and his brother Joel of the forged additions to the 1995, 1996 and 1997 diaries. . . . I find that Nigel only confessed to the forged entries in the diaries after it was apparent to him from Messrs Eversheds letter of the 6 th August that they had their suspicions as to certain entries in those diaries. 46 . . . 47 In my judgment, therefore, it must be accepted that there is a significant risk that the originals of Nigel's letters to LSH which he admits to having tampered with contained information damaging to the petitioners' case which is now not available because those letters have been destroyed. There must also be a significant risk that there were original letters by Nigel to GLF which his forged letters replaced which contain similar damaging information. In the light of Nigel's untruthful account of the forgeries of these letters the disappearance of the 1993 and 1994 diaries becomes more suspicious as does the removal of pages from the diaries which were produced. None of the entries recording events in the produced diaries can now be trusted unless confirmed from reliable sources and this doubt must infect evidence contained in affidavits and witness statements which may have been prepared in reliance on those diary entries. 48 The respondents submit that because Nigel has been shown to have lied in his account of the forgeries it follows that his denial that any other relevant documents have been tampered with or suppressed cannot be accepted and there must be a serious risk that other relevant documents now in evidence have been forged or have been destroyed containing relevant information damaging to the petitioners' case. Subject to what I shall say about the apparent purpose of this campaign of forgery I accept that submission. . . ."
"51 In his evidence Nigel sought to give the impression that his forgeries came about as a result of an impulsive moment of madness flowing from his disappointment that his case was not adequately supported by the documents. In my judgment, so far from that being the case, it is apparent that the process of forgery, which Nigel admitted to, was sophisticated and must have taken time to complete including the special manufacture of headed notepaper of the defunct Tobias family companies. But for the slip up with relation to the telephone numbers shown on the headings it would, in all probability, not have been discovered. 52 In the course of his cross examination Nigel was pressed as to the purpose behind the forgeries. He would not admit that there was any specific purpose. It seems to me to be quite plain that the purpose of the forgeries was to manufacture written support for Nigel's case as to what was agreed between himself and Graham in late 1993 and early 1994 as to the terms upon which Bodycare would deal with PLC in the supply of toiletries for the first three years of its trading and thereafter. In particular he wished to create written evidence which supported his case that he never at any time accepted that a 15% margin over the retail price fixed for toiletries by PLC would afford Bodycare an acceptable level of profit. . . ."
"If in the course of the trial further evidence emerges that there have been breaches of the disclosure obligations by the petitioners and, in particular, that other documents have been suppressed or fraudulently altered, the application to strike out can then be renewed and is highly likely to be successful because it will lead the Court to take the view that contrary to Nigel's denials he has not made a clean breast of his fraudulent activities."
"I accept that submission subject to the qualification that there would be no substantial risk to a fair trial of a case which was not based on the 1994 agreements, or, to the extent that it depended on the terms of those agreements, the relevant terms were not in issue between the parties."
"56 It seems to me that the petitioners are able to pursue a simple case for relief under sections 459 and 461 on the basis that at the time that the parties fell out in December 1997 they held 48% of Bodycare's issued shares. Since that time the respondents by reason of the fact that they are majority shareholders and directors, with at least equal representation on the board, have been able to prevent any further expansion by Bodycare of its retail outlets [see paragraph 8(1) of the petition] . . . It seems to me also that such a claim could be based on the allegation that it was reasonable to expect that the respondents would not use their control of Bodycare to require it to purchase from PLC toiletries on terms less favourable than those available to other customers of PLC or from third party suppliers in the open market thereby, at least, restricting Bodycare's profits and so the value of the shares of the petitioners. [See paragraph 7(5) and 8(3) of the petition]. If it can be shown that the respondents have used their control of Bodycare to restrict its ability to borrow money to finance its trading and expansion to borrowing from PLC, which has charged interest on borrowings at a rate higher than that obtainable by Bodycare in the open market, that might also be a ground for seeking relief [see paragraphs 7(6) and (9) and 8(2) of the petition]. [emphasis added] 57 These claims of the petitioners do not depend on any term of the 1994 agreements which is in issue between the parties. If fought out, whether the petitioners establish a right to relief will depend on events which have occurred between December 1997 when the parties fell out and today. It will depend on whether the petitioners can establish that the respondents have used their control of the company to restrict its ability to expand and/or have diverted opportunities for expansion to PLC. It will depend on a comparison between the terms offered to comparable customers of PLC and those given to Bodycare during that period and whether Bodycare could have obtained supplies of toiletries from third party suppliers at appreciably less cost than it was incurring in taking supplies from PLC to which supplies it was restricted by reason of the respondents' control of Bodycare ."
"60 From this passage in the speech of Lord Hoffmann it is plain that he was not restricting the right to relief under section 459 and 461 to circumstances where it could be shown that the respondent was exercising his control of the company to the disadvantage of the petitioner in breach of some contract or understanding between them which the Court would regard as either contractually binding or sufficiently binding in conscience so that the Court could treat its breach as unfair. Lord Hoffmann plainly acknowledges the right, long established by authority undersection 210 of the Companies Act 1948 and section 459, for a minority shareholder to petition where a majority exercised its majority power to the disadvantage of the minority in their capacity as shareholders. Such conduct can be rationalised as a breach of the express or implied terms of the articles of association binding on the shareholders."
". . . None of the matters referred to in paragraph 8 [of the petition] amount to acts by the Third Respondent relate (sic) to the exercise or proposed exercise by the Third Respondent of its majority voting power at general meetings of the Company, but relate solely to the Third Respondent's acts on its own behalf and in the conduct of its own affairs in its commercial relationship with the company. Further the First and Second Respondents have at no time had day-to-day conduct of the affairs of the Company nor have they exercised a majority vote at board meetings. . . ."
". . . have sought to ensure that the company enters into a new credit facility only if the terms and conditions of the facility are appropriate, and only if the company's financial and trading position is such that it can meet its obligations under it." and, at paragraph 17.2.5, that: "
"Plainly decisions as to whether to seek to open or to reverse decisions to open stores are for the board of [the Company] to take and it is not for your clients to seek to do so in isolation. It is for Blackledge, as owners of the IP rights, to determine whether or not [the Company] can open further stores. In the event that: (1) a business plan and cash flow forecast can be produced in relation to the five stores referred to in your clients' letter and (2) your clients acknowledge (as they seem to be willing to do) in clear terms that it is for Blackledge, as owners of the Bodycare IP rights, to determine whether [the Company] can open future stores and (3) the issue of margin is resolved (as to which see below) then we recommend that a board meeting of [the Company] is convened for the purpose of considering the position. Both Blackledge and Mr and Mrs Blackledge, in their capacity as directors of [the Company], would be willing to consider fairly and positively the position in relation to the proposed stores referred to by your clients. . . . Our clients will agree to the indebtedness being repaid at the rate of£700,000 per annum, to be repaid by two equal portions on 30th June and 31st December each year. Interest is to accrue at 3% above base rate on the liability. If your clients wish to consider replacing the Blackledge loan with facilities from another source then, subject to checking the terms of any proposed facility our clients will be amenable to this in principle. . . . . . . your clients themselves have acknowledged that following the expiration of the three year term the terms of business between the parties were to be renegotiated. Because of the terms of trading between Blackledge and [the Company] the discounts extended by Blackledge give [the Company] a guaranteed margin, that is a profit which is risk free regardless of any fluctuations in market prices or sources of supply. Whilst our clients will listen carefully to your clients observations on this point, they are firmly of the view that the discount should be 15%. . . . These proposals are not put forward on a "take it or leave it" basis. They represent our clients' view as to a fair and proper way forward. They seek to temper your clients' enthusiasm for a rapid and ambitious programme of expansion with our clients' genuine and serious concerns over the current level of indebtedness within [the Company] and the fact that future expansion will increase the company's gearing still further. We would encourage your clients to discuss these proposals. . . ."
"Bodycare will be entering into a supply agreement with another supplier which will be operative after that and which will at that stage enable bank loans to be entered into which will in fact enable repayment of all monies owing from Bodycare to the PLC."
Showing the 50 most senior of 227.