Hawkes v Cuddy & Ors [2009] EWCA Civ 291

[2009] EWCA Civ 291Case No A3/2008/0272
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
[2007] EWHC 2999 (Ch)
ON APPEAL FROM CHANCERY DIVISION
MR JUSTICE LEWISON
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 02/04/2009
Before
LORD JUSTICE MOORE-BICKLORD JUSTICE STANLEY BURNTONMR JUSTICE BLACKBURNE
Between
IN THE MATTER OF PART 30 OF THE COMPANIES ACT 2006AppellantAND IN THE MATTER OF NEATH RUGBY LTD (No. 04654453)AppellantFrederick Geraint HawkesAppellant(1) Simone Francesca CuddyRespondents(2) Michael CuddyRespondent(3) Neath Rugby LimitedRespondent(4) Neath-Swansea Ospreys LimitedRespondent
(Transcript of the Handed Down Judgment ofWordWave International LimitedA Merrill Communications Company190 Fleet Street, London EC4A 2AGTel No: 020 7404 1400, Fax No: 020 7831 8838Official Shorthand Writers to the Court)
David Chivers QC and Hugh Sims (instructed by Morgan Cole) for AppellantRobin Hollington QC and Rebecca Page (instructed by Geldards LLP) for First and Second RespondentsChristopher R Parker QC (instructed by Morgan LaRoche) for Fourth RespondentHearing Hearing dates: 22, 23 and 24 October 2008, 23 March 2009
Judgment

Introduction

[1]Neath Rugby Ltd (“Neath”) is a company with two issued shares, one held by the Appellant, Geraint Hawkes, and the other by the Respondent, Michael Cuddy (although the share is registered in the name of Mrs Cuddy). It owns the assets of Neath Rugby Football Club, and it is one of the two equal shareholders of Neath-Swansea Ospreys Limited. Neath-Swansea Ospreys Limited, to which I shall refer as “Osprey”, owns the Ospreys regional rugby team. The other shareholder of Osprey is Swansea Rugby Football Ltd (“Swansea”). Mr Hawkes was one of the directors of Neath. Until after service of Mr Hawkes’ petition, the other director was nominally Mrs Cuddy, but in fact Mr Cuddy. Mr Hawkes had day to day management control. Mr Cuddy was one of the two directors of Osprey, having been nominated by Neath; the other director, Mr Blyth, had been nominated by Swansea.[2]On 13 December 2007, following a three-week trial, Lewison J handed down his judgment on Mr Hawkes’ petition, brought under section 459 of the Companies Act 1985 (subsequently section 994 of the Companies Act 2006) alleging that the affairs of Neath had been or were being conducted in a manner that was unfairly prejudicial to himself as a member of that company, and on a cross-petition brought by Mr Cuddy under the same section alleging such conduct on the part of Mr Hawkes. Nothing turns on the change in the applicable legislation. The judge found that both petitions were in part well-founded, and granted relief.[3]On 18 January 2008, Lewison J gave judgment on the issues of costs arising from his judgment.[4]The order made by the judge on the petition and the cross-petition, including his order for costs, is annexed to this judgment.[5]Lewison J gave Mr Hawkes permission to appeal his judgment on two issues, namely:(i) What duties does a nominee director (viz. Mr Cuddy) of a company (Osprey) owe to (a) the company and (b) his appointor (Neath)?(ii) What counts as the affairs of Neath (for the purposes of sections 994 and 995 of the Companies Act)? Issue (ii) relates to the question whether Mr Cuddy’s conduct as a director of Osprey was to be regarded as the affairs of Neath.[6]Mr Hawkes also contends that, even on the basis that Lewison J’s judgment stands on these two issues, he erred in granting the relief he did. Chadwick LJ refused permission to appeal on this ground on the papers. The application for permission has been renewed before us, and we heard it on the basis that if we were to grant permission the hearing would also be the hearing of the substantive appeal.[7]In addition, Mr Hawkes applied for permission to adduce additional evidence relating to events after Lewison J’s judgment. He did not pursue this application before us.[8]Lastly, both Mr Hawkes and Mr and Mrs Cuddy renewed their applications for permission to appeal against the orders for costs made by Lewison J, on Mr Hawkes’ petition and on Mr Cuddy’s cross-petition, following refusal of permission by Chadwick LJ when he considered their applications on the papers.[9]This is my judgment on the appeal of Mr Hawkes and his and the Cuddys’ applications for permission to appeal. The applications for permission to appeal were heard by the Court on the basis that, if permission were granted, the appeals would be determined on the basis of the submissions made in this hearing.[10]The hearing of the appeal and of the applications for permission to appeal was expedited. It was disappointing in the extreme, in these circumstances, to find that the files of documents placed before the Court were most unhelpfully and illogically put together. In addition, they contain many documents, particularly inter-solicitor correspondence on matters of procedure, and witness statements, which were irrelevant to the issues before us. The lack of logically assembled files has made it difficult and wasteful of time for any particular document to be located, and has largely contributed to the delay in producing this judgment. It will no doubt be taken into account when costs are assessed.

History

[11]None of the judge’s primary findings of fact have been challenged. He set out the facts fully and clearly in paragraphs 5 to 168 of his judgment, which is available on the BAILII website (http://www.bailii.org). There is also a helpful account of the facts in the judgment of HH Judge Havelock-Allan QC at [2007] EWHC 1789 (Ch) which is similarly available. In the following summary I have borrowed extensively from their judgments. Apart from the specific matters that are the subject of this appeal and these applications, therefore, it is unnecessary for me to set out the facts in detail, and a summary should suffice.[12]Both Mr Hawkes and Mr Cuddy are successful businessmen with an interest in rugby. In April 2003 a company called Gowerpark was formed and took over the running of Neath RFC. Mr Cuddy became a director of the company. The company was unsuccessful financially, and in October 2003 it went into creditors’ voluntary liquidation.[13]Meanwhile, the Welsh Rugby Union had decided to re-organise Welsh rugby. The WRU decided to establish regional professional teams owned and supported by local clubs. It stipulated that the new regional sides could only be owned by existing clubs. One of the new regional teams created as a result was Neath-Swansea Ospreys, to which I shall refer as the “Ospreys”.[14]Mr Cuddy wanted to become involved in the Ospreys. He proposed to establish a company to acquire the assets of Neath RFC; it would own a share in Osprey. He however needed a partner who would conduct the daily management of Neath RFC and provide additional financial support. Mr Hawkes was that partner. In between January and April 2003 they agreed:(i) Mr Hawkes and Mr Cuddy would each assume personal liability to repay half of the debt of £180,000 owed by Neath RFC to the WRU;(ii) they would establish, as joint co-owners, a new corporate entity (“newco”) to purchase the assets of Neath RFC from the WRU and thereafter to own and manage the Club;(iii) Mr Hawkes would own one share in newco and Mr Cuddy would own the other share;(iv) Mr Hawkes and Mr Cuddy would each be entitled to nominate one of the two directors of newco;(v) Mr Hawkes would become a director of newco and Mr Cuddy would nominate Mrs Cuddy as the other director;(vi) Mr Hawkes would concentrate on the management of Neath RFC;(vii) Mr Cuddy would concentrate on the management of the regional side (the Ospreys) and for that purpose would be nominated by newco to act as one of the two directors of the new entity being established to own and manage the Ospreys;(viii) any payments to be made by newco should be authorised by Mr Hawkes and Mr Cuddy; and(ix) Mr Cuddy was to consult Mr Hawkes on matters affecting Neath. That they agreed these terms is uncontroversial. Their agreement was implemented, but never reduced to writing. Neath is the newco envisaged in their agreement.[15]When the acquisition of Neath by Mr Hawkes and Mr Cuddy was being negotiated, they retained as solicitor Paul Newman from the Swansea firm of John Collins & Partners LLP, to assist them in putting the Hawkes/Cuddy agreement into effect.[16]Osprey was incorporated on 10 April 2003. Two shares were issued, one to Mr Cuddy, who held it on trust for Neath, and one to Mr Roger Blyth, who was the director of Osprey nominated by Swansea, and held that share in trust for it.[17]Gowerpark had been known by the name Neath RFC. The insolvency of Gowerpark was a problem for Mr Cuddy because, if the club were to be acquired by a new company and the same or a similar trading name was to be used, he would be prohibited from being a director of the company or concerned in its management under section 216(3) of the Insolvency Act 1986. In July 2003, Mr Newman raised the issue with Mr Hawkes and Mr Cuddy. As HH Judge Havelock-Allan QC put it, they hit upon the solution of appointing Mrs Cuddy as a director of the new company, instead of Mr Cuddy, and registering his share in that company in her name. However, she was never more than a proxy for her husband: he made all relevant decisions, and indeed often acted in her name, including signing cheques in her name. Until 2007 neither Mr Hawkes nor the Cuddys appreciated that Mr Cuddy was in fact acting in contravention of the prohibition imposed by section 216.[18]Mr Hawkes and Mrs Cuddy were nominated as directors of Neath. Neath’s purchase of the assets of Neath RFC from the WRU was not completed until January 2004. The terms of the purchase differed slightly from those originally negotiated, but the difference is immaterial to the issues on this appeal.[19]From the start of the 2003/2004 season Mr Hawkes began running Neath and Mr Cuddy began running Osprey jointly with Mr Blyth.[20]Until April 2005 there was no written record of the basis on which which Neath and Swansea owned Osprey. On 25 April 2005, Neath and Swansea signed a shareholders agreement. It provided that only two shares of Osprey would be issued, one to be owned by Neath and the other to be owned by Swansea.[21]Until the summer of 2005 Mr Hawkes had a fairly free hand in running Neath. Mrs Cuddy played no active part. There were only a few meetings to consider administration and strategy. They were not formal board meetings and Mrs Cuddy did not attend. Mr Cuddy attended on one or two occasions. Such acts as Mrs Cuddy did perform in her nominal role as director (such as signing cheques or accounts) she performed at the instigation of her husband.[22]By about May 2006 relations between Mr Hawkes and Mr Cuddy had completely broken down. Communications between them soon descended into solicitors’ correspondence, with Mr Newman acting for the Cuddys. Mr Hawkes’ petition was issued on 3 May 2007, and the Cuddys’ cross-petition on 11 or 12 June 2007.[23]Mr Hawkes’ petition, to which I refer further below, contained numerous allegations of unfair conduct on the part of Mr Cuddy. The underlying complaint was that when acting as a director of Osprey Mr Cuddy had failed to represent the interests of Neath, and indeed had acted against Neath’s interests; but there were also allegations of forgery and the making of secret profits. At this stage of my judgment it will be sufficient to refer to the allegations that were pursued at the end of the trial before Lewison J and considered in his judgment. They are summarised in paragraph 56 below.[24]On 10 May 2007 Mr Hawkes issued an application for summary judgment, based on the allegation that Mr Cuddy was a de facto director of Neath and therefore in breach of section 216. He sought declarations that Mr Cuddy had acted in breach of the section, and an injunction restraining him from acting as a director of Osprey on the basis that his doing so infringed section 216 and in addition he was not a fit and proper person to be a director. On 11 June 2007, the Cuddys issued an application to strike out the petition as an abuse of process. For his part, Mr Hawkes issued an application to strike out parts of the cross-petition.[25]Mr Hawkes’ application for summary judgment, and the Cuddys’ strike out application, were heard by HH Judge Havelock-Allan QC, sitting as a judge of the High Court, over 5 days in June and July 2007. Judgment was given on 23 July 2007. The strike out application was dismissed, but the defence of abuse of process was allowed to proceed to trial. On the application for summary judgment, the judge granted declarations that Mr Cuddy had contravened section 216 by performing the acts of a director of Neath in the name of Mrs Cuddy and by using her name to conceal the fact that he had been acting as a de facto director of Neath since October 2003. HH Judge Havelock-Allan QC refused to grant injunctive or declaratory relief in relation to Mr Cuddy’s acting as a director of Osprey; but he struck out part of the cross-petition on the ground that it could not stand in the light of the decision on breach of section 216. The judge dismissed the application for summary judgment apart from the declarations he made and ordered the Cuddys to pay 60 per cent of Mr Hawkes’ costs of and incidental to that application, and all of his costs of the strike out application.[26]The Cuddys appealed against the order made by HH Judge Havelock-Allan QC to the Court of Appeal. Judgment on the appeal was given on 17 October 2007; Chadwick LJ gave the only substantive judgment, with which Tuckey and Maurice Kay LJJ agreed. The court allowed the Cuddys’ appeal against the making of the declarations, on the basis that it had been premature, since the Cuddys’ defence of abuse of process was proceeding to trial and might then succeed, and went further than necessary to serve a useful and proper purpose in the proceedings. However, it was clear from the judgment of the Court that on the facts alleged by Mr Hawkes (and not disputed in evidence by the Cuddys) Mr Cuddy had contravened section 216; and the Court ordered that the trial be conducted on the basis of the findings of fact in relation to the contravention made by the judge in his judgment. The Cuddys’ appeal against the striking out of part of the cross-petition was dismissed. The Court reserved the costs of the appeal and of the hearing before HH Judge Havelock-Allan QC to the trial judge, in the event Lewison J.[27]Meanwhile, in order to avoid the delays and distractions of a threatened application under section 216(3) by Mr Cuddy, Mr Hawkes had agreed not to contend at trial that a relevant factor in the exercise of the court’s discretion in granting relief was any disability imposed on Mr Cuddy under that section. It was on this basis that the trial before Lewison J, which began on 23 October 2007, was conducted.

The issues on which the judge granted permission to appeal

[28]As indicated above, Mr Hawkes’ complaints of prejudicial conduct relate principally to Mr Cuddy’s conduct in performing his duties as a director of Osprey, nominated by Neath pursuant to his agreement with Mr Hawkes. Hence the two issues on which the judge gave permission to appeal: what duties were owed by Mr Cuddy to Mr Hawkes or to Neath when acting as a director of Osprey, and to what extent, if at all, was his performance of his functions as a director of Osprey the conduct of the affairs of Neath? The latter question was required to be answered, of course, by reason of the requirements of section 994(1) of the Companies Act 2006: (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 which is unfairly prejudicial to the interests of its members generally or of some part of its members (including at least himself) or (b) 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. (a) 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 (b) 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.

Mr Cuddy’s duties

[29]Lewison J summarised his conclusion as to the duties owed by Mr Cuddy in his capacity as a director of Osprey as follows:194. In my judgment therefore the Ospreys were entitled to the best independent judgment of Mr Cuddy in deciding where their interests lay. He was not required to prefer the interests of Neath; and certainly not required to do so where in his judgment the interests of Neath conflicted with those of the Ospreys. … in Mr Cuddy’s case when the time came for a decision to be made, it was his true opinion to which the Ospreys were entitled.195. It is, however, accepted that Mr Cuddy had a duty to consult Mr Hawkes. As I have said a duty to consult is not incompatible with Mr Cuddy’s duty to the Ospreys to exercise his independent judgment in their best interests. As Mr Parker pointed out, a duty to consult does not entail that the consultee has a right of veto. Provided that his views are taken into account, the duty to consult is satisfied.[30]Mr Chivers QC, on behalf of Mr Hawkes, submitted that this was an inadequate statement of Mr Cuddy’s duties, and that the judge should have found, as had HH Judge Havelock-Allan QC, that Mr Cuddy was under a duty, to the extent that it was compatible with his duty to Osprey, to protect the interests of Neath when acting as a director of Osprey. Mr Hollington QC, for Mr Cuddy, supported Lewison J’s finding.[31]It is common ground that Mr Cuddy, as a director of Osprey, was under a duty to act in its best interests as he saw them. However, there were a number of possible sources of additional duties that might affect his conduct of his office as a director of Osprey:(i) The fact of his nomination by Neath to be a director of Osprey.(ii) His de facto directorship of Neath, which imposed a fiduciary duty owed by him to that company.(iii) His informal agreement with Mr Hawkes. Of these, it is only the first that is the subject of the permission to appeal granted by the judge.[32]In my judgment, the fact that a director of a company has been nominated to that office by a shareholder does not, of itself, impose any duty on the director owed to his nominator. The director may owe duties to his nominator if he is an employee or officer of the nominator, or by reason of a formal or informal agreement with his nominator, but such duties do not arise out of his nomination, but out of a separate agreement or office. Such duties cannot however, detract from his duty to the company of which he is a director when he is acting as such (as to which see the authorities referred to by the judge at paragraphs 186 to 188 of his judgment).[33]As the Australian cases to which the judge referred indicate, an appointed director, without being in breach of his duties to the company, may take the interests of his nominator into account, provided that his decisions as a director are in what he genuinely considers to be the best interests of the company; but that is a very different thing from his being under a duty to his nominator by reason of his appointment by it.[34]The judge made no finding as to the actual or potential conflict between the duties of Mr Cuddy as a director of Osprey and his duties as a de facto director of Neath, although paragraph 41.12 of the Petition was an allegation of breach by him of his fiduciary duty owed to Neath. However, Mr Hawkes’ grounds of appeal do not refer to any alleged breach of that duty and I therefore leave it out of account.[35]On this basis, as Mr Chivers accepted, the duty if any owed by Mr Cuddy to Mr Hawkes depended entirely on the agreement between them. There was evidence, referred to at paragraph 19 of the judgment, that Mr Cuddy accepted that he was to “look after the Region and Neath’s interests in the Region”. This is, however, a very vague formulation for a legal duty, and particularly so when Mr Cuddy’s overriding duty to Osprey when acting as a director of that company is borne in mind. That that duty was overriding is implicitly accepted by Mr Chivers in the formulation of the alleged duty (“to the extent that it was compatible with his duty to Osprey”).[36]There was also evidence that Mr Blyth regarded Mr Cuddy as representing the interests of Neath on the Board of Osprey, and that conversely Mr Cuddy regarded Mr Blyth as representing the interests of Swansea. However, there was no evidence that Swansea, the other shareholder of Osprey, had agreed to any dilution of Mr Cuddy’s fiduciary duties. This is a point that is further addressed below.[37]On 25 April 2005 Neath and Swansea entered into a shareholders’ agreement formalising their relationship as shareholders of Osprey. Clause 8, to which

the judge referred, provided:

“Each of the Shareholders covenants with its other to use all reasonable endeavours to promote and develop the business of the Company to the best advantage in accordance with good business practice and the highest ethical standards.”
Mr Hawkes agreed to this provision: the agreement required the authorisation of the directors of Neath, of which he was one, and in any event he signed it on behalf of Neath, as did Mrs Cuddy, presumably at the direction of her husband.[38]Mr. Chivers submitted that the shareholders’ agreement was incapable of varying the Hawkes/Cuddy agreement, being an agreement made between different parties. Strictly speaking, that is correct, but it fails to take account of the wider picture. It cannot be supposed, in my view, that, having given their approval to the terms of the shareholders’ agreement, Mr Hawkes and Mr Cuddy intended that any terms of the earlier agreement should remain unaffected if and insofar as they were inconsistent with it. It was plainly their understanding that the shareholders’ agreement should represent the basis on which Osprey was to be managed, and insofar as their earlier agreement was inconsistent with it they must have intended that it should be modified. The fact that neither Mr Hawkes nor Mr Cuddy was questioned during the trial about the effect of clause 8 seems to me to be irrelevant: it is not suggested that the agreement was not effective, and as a contract it affected the legal duties of the parties to it. Like the judge, I find clause 8 inconsistent with the suggestion that Mr Cuddy was under a duty, owed to Mr Hawkes, to promote the interests of Neath while he was in the actual or notional Osprey board room. While Mr Cuddy could properly take account of the interests of Neath, his duty was, as the judge held, to act in what he saw as the best interests of Osprey.[39]In paragraph 21(5) of his skeleton argument, Mr Chivers criticises the judge for having treated Mr Cuddy’s duties as a director of Osprey as decisive when the matters complained of in the petition had not been decided at a board meeting of the company. I do not understand this criticism. The fiduciary duties of a director do not begin or end at the door to the (actual or notional) boardroom. They apply to him whenever he is acting as an officer of the company or in relation to its assets or affairs. It would have been quite wrong for Mr Cuddy in his capacity as a director of Osprey to adopt a course of action, or to seek to persuade Mr Blyth to adopt a course of action, that he did not believe would be in the best interests of the company.[40]Mr. Chivers’ second criticism is of a different order and as the oral argument proceeded it became clear that it is fundamental to his case. His submission was that in their various discussions Mr Cuddy and Mr Blyth were primarily acting as representatives of the two joint venturers, Neath and Swansea, and as such could agree upon any course of action to be taken by Osprey, whether in its best interests or not. As representatives of the only two shareholders they had the right to take the company in any direction on which they could agree: see Re DuomaticLtd [1967] 2 Ch 365. In that context Mr Cuddy had a duty to pursue Neath’s interests without regard to the interests of Osprey (though it was likely that the two would usually coincide). Insofar as he could obtain Mr Blyth’s agreement, there could be no question of his acting in breach of duty towards Osprey; insofar as he did not, the course he had advocated would not be pursued in any event. In support of this argument he drew our attention to Japan Abrasive Materials Pty Ltd v Australian Fused Materials Pty Ltd [1998] WASC 60, a case concerning three joint venturers under an agreement which required unanimity in reaching certain decisions.[41]At root this argument depends on establishing that Mr Cuddy and Mr Blyth were appointed primarily to represent Neath and Swansea as shareholders rather than as directors and that each had general authority to act on behalf of his principal. In the case of Mr Cuddy that is said to be the effect of the Hawkes/Cuddy agreement. However, the Hawkes/Cuddy agreement did not expressly cover that question and the evidence of Mr. Hawkes and Mr. Cuddy indicates that they viewed the matter solely in terms of Mr Cuddy’s position as a director. That appears most clearly from paragraph 19 of the judgment below. Moreover, there is no evidence that the board of Neath authorised Mr Cuddy to act as its agent for the purposes of negotiations with Swansea. His duty to protect its interests was assumed to be derived from his appointment as a director of Osprey.[42]Mr Blyth was appointed to the board of Osprey as its nominated director, but there is no evidence and no finding by the judge that he had authority to act on Swansea’s behalf in the manner suggested by Mr Chivers. There is nothing in the shareholders’ agreement that gives him or Mr. Cuddy authority to act otherwise than as a director of Osprey. It does contemplate that there may be meetings of the shareholders, but not that such meetings will take place whenever Mr Cuddy and Mr Blyth meet to discuss the company’s affairs.[43]In my view, therefore, this argument fails on the facts. Mr. Cuddy and Mr. Blyth were appointed to act as directors of Osprey without any general authority to act on behalf of Neath and Swansea respectively as shareholders when dealing with the affairs of Osprey.[44]Mr Chivers also sought to rely on provisions of the shareholders’ agreement that assumed that they could control the decisions of their nominated directors. I consider these terms to have been the result of defective drafting rather than reflecting a considered agreement on the part of the shareholders, but in any event I do not think they assist Mr Hawkes. It would have been quite inconsistent with the agreement between him and Mr Cuddy, even on Mr Hawkes’ own case, for Mr Cuddy to have been under the control of Neath, a company that was to be managed by Mr Hawkes. In addition, as mentioned above, there was no evidence that the other shareholder of Osprey, i.e. Swansea, had agreed to any dilution of Mr Cuddy’s fiduciary duties to the company (c.f. Re DuomaticLtd [1967] 2 Ch 365) so as to justify his putting the interests of Neath ahead of those of Osprey when making decisions as a director of the latter. It would not have been sufficient to show that the other director of Osprey, i.e. Mr Blyth, had agreed to such a dilution.[45]In these circumstances, I consider that the judge’s finding that the only effective duty of Mr Cuddy when acting as a director of Osprey was to consult with Mr Hawkes was justified. The purpose of such consultation would have been for Mr Cuddy to be better informed when deciding what was, in his view, in the best interests of Osprey.[46]The fact that there were occasions when Mr Cuddy when acting as a director of Osprey did in fact seek to advance Neath’s interests is not inconsistent with this conclusion: it does not show that Mr Cuddy was under a legal duty to do so. Nor does it show that Mr Cuddy acted in what he did not see were the interests of Osprey.[47]I consider below the position if I am wrong in this conclusion. For the moment, I simply mention that I do not see how it is possible to establish that in making a decision for Osprey Mr Cuddy was acting in a manner that was unfairly prejudicial to Mr Hawkes if Mr Cuddy’s only legal duty was to act in the best interests of Osprey. On the other hand, I understand it to be accepted by Mr Cuddy that a failure to consult Mr Hawkes in relation to a matter to be decided by Osprey affecting Neath would constitute conduct in relation to the affairs of Neath that could be unfairly prejudicial to Mr Hawkes.

The affairs of Neath

[48]I entirely accept that the affairs of a company are to be liberally determined for the purposes of section 994. Before Lewison J, Mr Chivers, for Mr Hawkes, submitted that Mr Cuddy was conducting the affairs of Neath in five respects:(i) To the extent that Mr Cuddy was or should have been advocating Neath’s interests on the board of the Ospreys he was acting in the affairs of Neath.(ii) The businesses of Neath and the Ospreys were so intertwined that the one can be regarded as the business of the other.(iii) Where Mr Cuddy was wearing both a “Neath hat” and an “Ospreys hat” (for example in relation to the trademark proceedings; and in particular the use of Neath’s confidential information in furtherance of the Ospreys’ cause) he was acting in the affairs of Neath.(iv) Mr Cuddy’s refusal to allow solicitors to represent Neath in the trademark proceedings was purely a Neath matter.(v) Where the Cuddy share has been used to protect Mr Cuddy’s position as a director of the Ospreys that is also a purely Neath matter. The trademark proceedings are explained at paragraph 65 below.[49]Lewison J rejected (i), on the basis that it was inconsistent with the duty of Mr Cuddy as a director of Osprey. He rejected (ii), on the facts. He held that (iii), (iv) and (v) were aspects of the conduct of the affairs of Neath. As he said, (iii) and (iv) essentially relate to the trademark proceedings brought by Osprey against Neath. He said: 216. In concurring in the decision to take hostile legal proceedings against Neath, it cannot, in my judgment, be said that Mr Cuddy was conducting the affairs of Neath. The institution of legal proceedings is quintessentially an arms’ length matter. If Mr Cuddy believed (as in my judgment he did) that it was in the Ospreys’ best interests to take such proceedings, he was entitled if not bound to concur in their institution. However, in using confidential information which he had obtained from Neath internally, he can be said to have been conducting the affairs of Neath in passing that information on to the Ospreys. Likewise in objecting to the instruction of Morgan Cole as Neath’s solicitors in the trademark proceedings, Mr Cuddy was acting in the affairs of Neath. Mr Chivers accepted that if he succeeded in establishing that only a limited range of Mr Cuddy’s activities were the conduct of the affairs of Neath that did not give him a gateway into the much wider allegations.[50]The judge cited the observations of Powell J in Re Dernacourt Investments Pty Ltd (1990) 2 ACSR 553: The words “affairs of a company” are extremely wide and should be construed liberally:(a) in determining the ambit of the “affairs” of a parent company for the purposes of s 320, the court looks at the business realities of a situation and does not confine them to a narrow legalistic view;(b) “affairs” of a company encompass all matters which may come before its board for consideration;(c) conduct of the “affairs” of a parent company includes refraining from procuring a subsidiary to do something or condoning by inaction an act of a subsidiary, particularly when the directors of the parent and the subsidiary are the same … I would accept these propositions, but with some qualification. (b) may extend to matters which are capable of coming before the board for its consideration, and may not be limited to those that actually come before the board: I do not accept that matters that are not considered by the board are not capable of being part of its affairs. Nonetheless, like the judge, I am unable to see how it can be said that the affairs of Neath and of Osprey were so intermingled that all of the affairs of the latter were the affairs of the former. It would, for example, be quite irrational to suggest that Mr Blyth, when acting as a director of Osprey, was conducting the affairs of Neath.[51]Ultimately, however, the question whether decisions of Osprey affecting Neath should be regarded as part of the affairs of Neath may be academic, since it is only unfair conduct that can found a petition under section 994, and the fiduciary duty of the directors of Osprey is relevant to the question whether conduct is fair or unfair: see paragraph 54 below.[52]One is therefore driven to examine the submission summarised in paragraph 48(i) above. It assumes, rightly to my mind, that Mr Cuddy’s duties in relation to Neath and the scope of its affairs were coterminous. But if Mr Cuddy’s only relevant duty was a duty to consult, as the judge held and was entitled to hold, the submission fails.[53]I do not understand it to be challenged by Mr Cuddy that he acted in the affairs of Neath in relation to the matters identified in paragraph 48(iii), 48(iv) and (v) above.

Unfair prejudice

[54]In order to succeed on his petition, Mr Hawkes had to establish that the conduct of Mr Cuddy in the affairs of Neath had been unfairly prejudicial. Like the judge, I cannot see that a decision made by Mr Cuddy, as a director of Osprey, in what he genuinely considered to have been in the best interests of that company, could be said to be unfairly prejudicial to Mr Hawkes. It was Mr Cuddy’s legal duty to make such a decision on the basis that he did. The fact that matters alleged in the petition were not considered at a board meeting of Osprey does not detract from this. Fiduciary duties are not restricted to board meetings.[55]Mr Hawkes’ case suffered from another difficulty. He contended that it was Mr Cuddy’s duty when acting as a director of Osprey to seek to advance the interests of Neath, “to do his best for Neath”, and to argue Neath’s case “come hell or high water”, provided he did not act in breach of his duties as a director of Osprey. Leaving aside the fact that, according to Mr Hollington, it was not argued before Lewison J that Mr Cuddy was under a duty to argue Neath’s case to the point of disagreement, what is the best that can or should be done, how far an argument can or should be taken, is very much a matter of judgment. Mr Cuddy could not be held to have acted unfairly if he advanced Neath’s interests as far as he genuinely and reasonably thought appropriate.

Specific instances of unfair prejudicial conduct alleged by Mr Hawkes

[56]According to Lewison J’s judgment, in his closing submissions Mr Chivers relied on the following instances of unfairly prejudicial conduct by Mr Cuddy:(i) His failure to secure that the Ospreys played games at the Gnoll.(ii) His failure to transfer Neath’s share in Osprey into the name of Neath.(iii) The withdrawal of Osprey players from Neath.(iv) The trademark proceedings.(v) The Stadco variation.(vi) Unlawful participation in the affairs of Neath.(vii) Discussions with the WRU.[57]Mr Chivers suggests that the judge overlooked the allegations pleaded in paragraphs 40D to 40G of the re-amended petition, which were pursued in his written closing submissions. I suspect that Mr Chivers’ own explanation for the omission is correct: these paragraphs alleged in essence that Mr Cuddy when acting as a director of Osprey put its interests ahead of Neath’s, and the judge’s finding in paragraph 168 of the judgment as to Mr Cuddy’s duty to Osprey as a director of that company (with which, as appears above, I respectfully agree) rendered these allegations unsustainable.

Mr Cuddy’s failure to secure that the Ospreys played games at the Gnoll

[58]When the Ospreys began playing they played their fixtures at Neath’s ground at the Gnoll, and Swansea’s ground at St Helens. The fixtures were divided equally between the two grounds. However, a new stadium was under construction in Swansea. This was originally called Morfa stadium, but it subsequently became the Liberty Stadium. The stadium was a joint venture between Swansea City Council, Swansea City Football Association Club (known as “the Swans”) and the Ospreys. The Swans and the Ospreys were to share the ground, but in order to comply with conditions of funding from the FA the Swans were to have priority. At the time it was not clear how long it would take for the pitch to be converted from a soccer pitch to a rugby pitch; and there was a possibility that there might be a clash of fixtures which might deny the Ospreys the use of the stadium. The Liberty Stadium is a state of the art stadium, with a seating capacity of 20,000. It can cater for over 1,000 people in its hospitality boxes and function rooms. By contrast, the Gnoll is (in Mr Hawkes’ own words) “very tired” and only has a capacity of 7,200 of whom less than half are seated. It has poor facilities for corporate hospitality and the toilets are “basic”. Nevertheless Mr Hawkes was and is very keen for at least some of the Ospreys’ matches to be played at the Gnoll. One of the main complaints made against Mr Cuddy in the petition was that he failed to ensure that any of Ospreys’ fixtures were played at the Gnoll and that, in effect, he reneged (or allowed the Ospreys to renege) on an agreement that some of those fixtures would be played at the Gnoll.[59]The judge rejected Mr Hawkes’ allegation. He accepted that Mr Cuddy had acted in what he considered to be the best interests of Osprey, and indeed of Neath. In paragraphs 93 to 95 of his judgment he cited with approval extracts from Mr Cuddy’s evidence: 93. It is plain, in my judgment, that Mr Cuddy believes strongly that the board of a regional club like the Ospreys should not favour one of its feeder clubs over another, even if the favoured club is a shareholder. In his first witness statement he said:
“As a director of the Ospreys I have a duty to carry out my role in the best interests of the Ospreys not the interests of Neath Rugby as if it were the sole shareholder. That is precisely what I have done. Hawkes’ real complaint is that I have not preferred the interests of Neath Rugby to those of the Ospreys.” 94. As he put it in his oral evidence: “I am torn between the best interests of Neath and the best interests of the Ospreys. The Ospreys is Neath's biggest asset. If the Ospreys carried on losing the money at the rate they had lost for the two years prior, we would not have had an Ospreys. And it is in my opinion that it is in the best interests of Neath to play the games at the [Liberty] stadium.” 95. He subsequently explained: “There is a number of issues at the time … that you could look at. And one of the biggest -- there are two in my mind: one, the finances. Mr Hawkes said categorically, "I am not putting any more money into the Ospreys." That is fine, I had to agree with it. So the main objective for myself is to make sure that the Ospreys becomes a sustainable business, and in the first two years it wasn't; it lost a million and a quarter. And I believe that playing games out of a new stadium, which is totally neutral from the tribalism of St Helens and the Gnoll and the Brewery field, has made a significant difference to the support of it, the way the Ospreys are perceived as the only true region, and the balance sheet. And I think that is in the best interests of Neath, that the Ospreys is healthy on the field and healthy, financially, off it.” “As a director of the Ospreys I have a duty to carry out my role in the best interests of the Ospreys not the interests of Neath Rugby as if it were the sole shareholder. That is precisely what I have done. Hawkes’ real complaint is that I have not preferred the interests of Neath Rugby to those of the Ospreys.” “I am torn between the best interests of Neath and the best interests of the Ospreys. The Ospreys is Neath's biggest asset. If the Ospreys carried on losing the money at the rate they had lost for the two years prior, we would not have had an Ospreys. And it is in my opinion that it is in the best interests of Neath to play the games at the [Liberty] stadium.” “There is a number of issues at the time … that you could look at. And one of the biggest -- there are two in my mind: one, the finances. Mr Hawkes said categorically, "I am not putting any more money into the Ospreys." That is fine, I had to agree with it. So the main objective for myself is to make sure that the Ospreys becomes a sustainable business, and in the first two years it wasn't; it lost a million and a quarter. And I believe that playing games out of a new stadium, which is totally neutral from the tribalism of St Helens and the Gnoll and the Brewery field, has made a significant difference to the support of it, the way the Ospreys are perceived as the only true region, and the balance sheet. And I think that is in the best interests of Neath, that the Ospreys is healthy on the field and healthy, financially, off it.”

The judge set out his conclusions on this issue in paragraphs 258 to 260 of his judgment:

[60]258. … Clause 8 of the shareholders’ agreement committed Neath to using all reasonable endeavours to develop the business of the Ospreys. Both Mr Blyth and Mr Cuddy took the view that the best way of developing the business of the Ospreys was for it to play all its matches at the Liberty Stadium. Even Mr Hawkes saw the commercial merits of their decision. Mr Cuddy did manage to persuade Mr Blyth that the Ospreys should offer to play a regular friendly fixture at the Gnoll but Mr Hawkes turned down the offer. This was a compromise and, in my judgment, represented the best that Mr Cuddy could do. Any harm to Neath would have been mitigated if Mr Hawkes had accepted this compromise.259. In addition in reaching the decision on the venue for the Ospreys’ matches, Mr Cuddy was not conducting the affairs of Neath. He and Mr Blyth were conducting the affairs of the Ospreys as an independent corporation.260. In my judgment the decision by the Ospreys not to play matches at the Gnoll does not support the claim that the affairs of Neath have been conducted unfairly. No relief on the petition is justified on this ground.[61]The judge’s finding that there was no unfair prejudice in Mr Cuddy’s alleged failure to cause more Osprey matches to be played at the Gnoll is unassailable both legally and on the basis of his finding of fact that the offer to play a regular friendly fixture at the Gnoll was the best Mr Cuddy could do.

Mr Cuddy’s failure to transfer Neath’s share in Osprey into the name of Neath

[62]This was inconsequential and had been remedied soon after the petition had been presented: see paragraph 117 below. It could not justify an order on the petition.

The withdrawal of Osprey players from Neath

[63]This related to a dispute between Neath and Osprey as to the charges made by the latter to the former for players it lent to Neath. Osprey withdrew players when Neath did not pay what it, Osprey, considered to be due. The judge’s findings may be taken from paragraphs 265 and 266 of his judgment:265. It was in the interests of the Ospreys to recover the amount that, in good faith, they were claiming from Neath. Swansea had paid for players on the basis that the Ospreys claimed from Neath. There was no discrimination against Neath. It was in Neath’s interests to accept liability for the lower amount that Mr Hawkes was willing to concede. There was, therefore, a direct conflict of interest between Neath on the one hand and the Ospreys on the other. Mr Cuddy was convinced that the Ospreys’ position was right and that Neath’s position was wrong. In preferring the interests of the Ospreys to those of Neath Mr Cuddy was doing his duty as a director of the Ospreys. Claiming the higher amount was also consistent with clause 8 of the shareholders’ agreement.266. In claiming the higher amount, and concurring in the decision to withdraw the players, I do not consider that Mr Cuddy was conducting the affairs of Neath. This was an arms’ length bona fide dispute on both sides. Nor do I consider it unfair that he should prefer the interests of the Ospreys to the interests of Neath where, as here, there was a direct conflict between them and where, as here, Mr Cuddy thought that the Ospreys were in the right and Neath was in the wrong. No relief on the petition is justified on this ground.[64]For the reason I stated at paragraph 54 above, I consider that there is no arguable basis for challenging this conclusion.

The trademark proceedings

[65]It was alleged that Mr Hawkes caused Neath to sell goods bearing Osprey’s trademarked logo without its consent. For present purposes, I can take the facts from paragraph 126 of the judgment: 126. On 29 January 2007 officers from the local authority trading standards department arrived at the club shop in Neath and seized a large number of items of clothing. Mr Cuddy had encouraged the raid. All the seized items bore the Ospreys’ logo. None had been supplied by licensed suppliers. Since Mrs Barton had been told nothing about the offered licence or the solicitors’ letter, the raid by trading standards was understandably surprising and distressing. Following the raid, Mr Hawkes said that Neath had been trading in Ospreys branded goods “before the trademarks were created”. This assertion was plainly wrong, but what Mr Hawkes really meant was that the goods had been ordered before the Ospreys complained of trademark infringement. Mr Cuddy had caused Neath’s records to be inspected by Mr Morgan, an accountant, ostensibly to obtain information on behalf of Mrs Cuddy in her capacity as a director of Neath. But he used that information to pass on to the Ospreys the information that the purchase of the goods had not showed up in Neath’s sales and purchase ledger.[66]The judge held that Mr Cuddy had acted unfairly in the affairs of Neath when he used its internal confidential information, available to him as a director of Neath, for the purposes of Osprey’s claim. There is no challenge to that finding. He rejected Mr Hawkes’ other allegations under this head. He said:267. In encouraging the raid by trading standards officers and in concurring in the decision to launch the trademark proceedings Mr Cuddy was not, in my judgment, conducting the affairs of Neath. He was conducting the affairs of the Ospreys, which were in this respect diametrically opposed to those of Neath. On the face of it the Ospreys have a good case against Neath. Mr Hawkes was personally present at the meeting of the Ospreys’ board where it was agreed that all merchandise must be approved by the Ospreys. It was Neath who went against that agreement. To the extent that Mr Cuddy preferred the interests of the Ospreys to those of Neath, it was not unfair of him to do so.268. However, in using Neath’s internal confidential information in order to promote the interests of the Ospreys, Mr Cuddy was, in my judgment, conducting the affairs of Neath and was, moreover, doing so unfairly. The information about Neath’s finances had been ostensibly obtained in order for Mrs Cuddy to satisfy herself about the state of the finances. Yet Mr Cuddy used it in order to help further the Ospreys’ position in a hostile dispute. In my judgment that was unfair. To the extent that it made Neath’s defence harder to maintain, it also operated to the prejudice of the members of Neath. In considering the gravity of Mr Cuddy’s conduct it is necessary to consider the nature of the information that he used. The question was whether Neath had ordered the infringing goods before the Ospreys had made it clear that its formal licence would be required for the sale of Ospreys branded goods. Mr Cuddy passed on the information that there was no trace of a purchase order in Neath’s books. In order for Neath to be able to maintain its defence, it would in due course have been required to make disclosure of its purchase orders for the goods. So it seems probable that the information that Mr Cuddy disclosed to the Ospreys would in due course have been liable to have been disclosed by Neath itself to the Ospreys and to have been available for use by the Ospreys in advancing its case in the litigation. Mr Cuddy’s fault was, in effect, the premature disclosure of the information.269. The other allegation relating to the trademark proceedings was the alleged refusal to allow Neath to instruct solicitors to file a Defence. This allegation is, in my judgment, exaggerated. Mr Cuddy objected to Morgan Cole, who were Mr Hawkes’ personal solicitors, from being instructed on Neath’s behalf. In circumstances in which relations between Mr Hawkes and Mr Cuddy personally had completely broken down, that was not an unreasonable or unfair stance to take. Mr Cuddy’s suggestion that Mr Morris be instructed was rejected by Mr Hawkes. That too was not an unreasonable stance for Mr Hawkes to have taken, given that the proceedings concerned a somewhat specialised field of law. It is, however, right to say that Mr Cuddy should have responded more constructively to the counter-suggestion that Geldards be approached. But in my judgment it goes too far to say that a failure to respond constructively was the unfair conduct of Neath’s affairs to the prejudice of its members in circumstances where the proceedings have been stayed pending the outcome of this petition.270. Although a petition is not established by trivial and technical breaches, I think that the premature use by Mr Cuddy of Neath’s confidential information is more than trivial or technical. That was in my judgment the conduct of Neath’s affairs to the prejudice of its members. Some relief on the petition is justified on this ground.[67]I see no basis for interfering with the judge’s assessments under this head.

The Stadco variation

The judge made detailed findings of fact in paragraphs 97 to 102 of his judgment:

[68]97. The original agreement for the management of the Liberty Stadium had been a joint venture between Swansea City Council, Swansea City Football Club and the Ospreys. It was managed by a company in which all three were equal shareholders (“StadCo”). At the end of 2005 Swansea City Council wanted to withdraw from the joint venture and the question arose whether Swansea City Football Club and the Ospreys would carry on alone. … The draft heads of terms (for the Council’s withdrawal) included a provision by which the two clubs agreed to indemnify the StadCo and the City Council directors against all losses. Messrs Harvey, Cuddy and Hawkes met on 19 January to discus the heads of terms. They agreed that Ospreys should proceed with accepting responsibility for the running of the Liberty Stadium and increasing its involvement in StadCo from 33 per cent to 50 per cent. However, there were six points of concern. The agreement to proceed was on the basis that these six points were met. The two important ones were:(i) Liability for losses should be capped at 50 per cent even if Swansea City Football Club were to become insolvent and(ii) The position in respect of maintaining the option of playing matches at the Gnoll was to remain unaffected by the new arrangements. 98. Mr Harvey relayed these points to Mr Atherton on 16 February. A few days later Mr Atherton sent round revised heads of terms. He commented that these were the best deal likely to be achieved; and he pointed out that the City Council would take responsibility for a loan to StadCo of £2.3 million, which was, in effect, being written off. Mr Harvey reviewed the revised heads of terms. He commented in an e-mail to Mr Cuddy that he could not see how the cap had been addressed in the new agreement and that that was “a big issue”. The point about the option to play fixtures at the Gnoll had not been explicitly addressed; but Mr Harvey commented that it was not a big issue provided that everyone knew that that was the case. 99. On 22 May 2006 Mr Hawkes e-mailed Mr Atherton. He said that as a shareholder in Ospreys and a director and shareholder in Neath and in accordance with the shareholder agreements of both companies, he was “completely opposed to Ospreys taking over the day to day running of the Liberty Stadium.” He said that since decisions of that importance could not be made unless all shareholders both within Ospreys and Neath were in agreement, the restructuring could not proceed. Mr Hawkes’ explanation in evidence for his uncompromising stance was that by this time in May 2006 “relationships had broken down”. At the time, however, it seems that the ostensible trigger for Mr Hawkes’ position was that he had seen an accountants’ report projecting losses for StadCo. On the following day Mr Hawkes e-mailed Mr Cuddy. He said that as far as he could see none of the six points of concern had been addressed. On the same day he made the same point to Mr Atherton. Mr Atherton replied by e-mail on the same day. On the two principal points he said:
“liability for future losses is capped at 50% for the Ospreys even if the Swans become insolvent. … The issue of fixtures at the Gnoll is already covered in enduring agreements and is therefore not addressed further.” 100. Mr Cuddy replied a couple of days later that all matters had been discussed at their meeting of 19 January and that as far as he was concerned he had acted in accordance with that agreement and the Ospreys shareholders’ agreement. It is now accepted that Mr Atherton was quite wrong about the existence of a cap on the liability of the Ospreys. No such cap in fact existed. The heads of terms provided explicitly that the two clubs were to be “jointly and severally” liable for losses. Mr Atherton had seen an earlier draft in which the two clubs were to be “jointly and equally” liable for losses; and he had assumed that that was adequate as a cap. He had not noticed the change in wording; and anyway he did not understand the meaning of joint and several liability. On Mr Hawkes’ side, it is accepted that Mr Atherton’s mistake was a genuine one; and that the answer he gave in his e-mail of 22 May was given in good faith. In an internal e-mail of the following day Mr Atherton repeated that the six points of concern had been addressed. This internal e-mail shows that his mistake was a genuine one. 101. The heads of terms had been signed off in April 2006. They were agreed, but not legally binding. In June or July at a meeting with Swansea City Council Mr Atherton was disabused of his mistake about the cap. He tried to renegotiate the terms so as to introduce (or re-introduce) the cap. But the Council would not agree. Nor would Swansea City FC, because although the change would have been for their benefit, they were keen to conclude the deal which would result in their receiving a lump sum of cash that was urgently needed. Mr Atherton reported back to Mr Blyth and Mr Cuddy, whom he probably saw separately, and convinced them that the deal was still an attractive one. Both Mr Blyth and Mr Cuddy were convinced and agreed to go ahead; and the StadCo variation agreement was signed. No one went back to Mr Hawkes to tell him that the first of the six concerns had not been met. He did not find out about the terms of the agreement until much later. 102. Since Mr Hawkes was under the impression that the six points of concern had been addressed, the failure to address them cannot have been his reason for opposing the StadCo variation. He accepted as much in evidence. His contemporaneous e-mail said that his opposition was based on a pessimistic financial forecast and he expanded on this in the course of his oral evidence. His principal concern was that the Swansea City Council were dropping out of the picture, leaving the two clubs with the financial responsibility. He was also concerned about the sustainability of the stadium. Even on the basis that the liabilities had been capped, he would still have opposed the variation. This, in my judgment, represents a change of position on Mr Hawkes’ part which had nothing to do with the detailed provisions of the heads of terms. (i) Liability for losses should be capped at 50 per cent even if Swansea City Football Club were to become insolvent and (ii) The position in respect of maintaining the option of playing matches at the Gnoll was to remain unaffected by the new arrangements. “liability for future losses is capped at 50% for the Ospreys even if the Swans become insolvent. … The issue of fixtures at the Gnoll is already covered in enduring agreements and is therefore not addressed further.”
[69]The judge’s findings are in paragraphs 271 to 275:271. Neath was not a party to the StadCo agreement or its subsequent variation. In concurring in the decision to enter into the StadCo variation Mr Cuddy acted in what he believed to be the best interests of the Ospreys. He also acted in conformity with clause 8 of the shareholders’ agreement which committed both shareholders to using all reasonable endeavours to develop the business of the Ospreys to best advantage. In my judgment in so doing, he was not conducting the affairs of Neath.272. Although Mr Chivers flirted with the idea that entry into the StadCo variation might have required Neath’s consent under the terms of clause 4 of the shareholders’ agreement, in the end he did not press that submission. …273. Mr Chivers did, however, say that even though the consent of Neath might not have been formally required, in practice the board of Ospreys regarded Neath’s consent as having been given through Mr Cuddy, just as Swansea’s consent had been given through Mr Blyth. In a very loose sense he is right. But in my judgment this perception arose simply because Mr Blyth was assumed to be Swansea’s representative on the board just as Mr Cuddy was assumed to be Neath’s. How each of the directors communicated with his constituency was a matter for him. So far as the Ospreys were concerned the decision whether or not to enter into the StadCo variation was a matter for its board; and the board decided to go ahead. I do not therefore accept the submission that Neath gave only a conditional consent to the entry into the StadCo variation and that once it was appreciated that the conditions had not been fulfilled its consent lapsed, with the result that Mr Cuddy had no authority to concur in the decision to enter into the StadCo variation. Neath’s consent was not necessary, and Mr Cuddy’s authority derived from his position as a director of the Ospreys. He was not simply an agent of Neath.274. However, in failing to tell Mr Hawkes that the assumption that the six points of concern had been addressed had been falsified, Mr Cuddy was in breach of his obligation to consult. But Mr Hawkes had made his position very clear: he was opposed to the StadCo variation in principle on financial grounds, even on the assumption that the six points of concern had been addressed. I do not consider that consultation would have made any difference to Mr Hawkes’ personal position. Mr Chivers said that if the fact that the points of concern had not been addressed had been made known to Mr Hawkes, he might have been able to re-open the question with the other joint venturers. While that is, of course, a possibility, I do not consider that it is a strong one.275. The breach of the obligation to consult was a breach of the Hawkes/Cuddy agreement. The failure was exacerbated by the failure by Mr Cuddy (contrary to the shareholders’ agreement) to ensure that board meetings were both held and recorded and that agendas for board meetings were circulated in advance. The fact that Mr Hawkes was not consulted was, in my judgment, prejudicial to him, even though consultation would have been unlikely to have affected the outcome. Some relief on the petition is justified on this ground, ….[70]Mr Hawkes challenges the judge’s assessment of Mr Cuddy’s conduct in relation to the Stadco variation. I see no basis for interfering with the judge’s factual findings and no basis for a challenge to his assessment of Mr Cuddy’s conduct.

Unlawful participation in the affairs of Neath

[71]The judge’s factual findings are in paragraphs 35 to 42. I set out the relevant passages below. The italics are mine: the italicised passages are relevant to the applications for permission to appeal the costs orders made by the judge.35. … Gowerpark went into liquidation on 16 October 2003. That gave Mr Cuddy a seven day window in which to apply to the court [under section 216(3)] for retrospective leave to be concerned in the management of a company with a prohibited name (Insolvency Rules 1986 r. 4.229). He did not make an application. Although he did make an application much later on, the court has no power to grant retrospective leave.36. Mr Williams and Mr Newman met Messrs Hawkes and Cuddy on 2 December 2003. Mr Newman made it clear that:
“Simone Cuddy was a Director of the Company and due to the proceedings with Gowerpark Mike Cuddy should ensure that his involvement with Neath Rugby Limited was kept to a minimum.” 37. Mr Newman’s advice was that if there was any risk that Mr Cuddy would become involved, directly or indirectly, in the management of Neath, then he ought to seek the leave of the court. Messrs Hawkes and Cuddy were keen to do the deal, and went ahead with the proposal that Mrs Cuddy should be appointed as a director of Neath. Mr Cuddy did not make any application to the court. 38. Mrs Cuddy and Mr Hawkes were the formally appointed directors of Neath. However, Mrs Cuddy took no part in its governance. Both Mr Hawkes and Mr Cuddy knew from the outset that Mrs Cuddy was to be no more than a front for Mr Cuddy. Although “board meetings” of Neath were held, they were attended by Mr Hawkes, Mr Cuddy and, usually, Mr Harvey. Both Mr Hawkes and Mr Cuddy completely ignored Mr Newman’s advice that Mr Cuddy should keep his involvement in Neath to a minimum. Mr Hawkes had no knowledge about being involved in a rugby club; and so to start with he relied heavily on Mr Cuddy. The petition complains repeatedly that the appointment of Mrs Cuddy as a director was a sham. So it was; but it was a sham in which both Mr Cuddy and Mr Hawkes were equally complicit. There was no sense in which Mr Hawkes was deceived by the so-called sham. As he accepted in evidence, he knew from the outset that Mrs Cuddy was a front for her husband. However, although both Mr Hawkes and Mr Cuddy ignored Mr Newman’s advice that Mr Cuddy’s involvement in Neath should be kept to a minimum, neither of them realised at the time that the extent to which Mr Cuddy participated in the management of Neath was actually illegal. They both thought that the appointment of Mrs Cuddy as a director had solved the problem. It was not until April 2007 that Mr Hawkes was advised that the manner in which Mr Cuddy participated in the management of Neath was in fact in contravention of section 216. 39. The Hawkes/Cuddy agreement required any payments made by Neath to be approved by both Mr Hawkes and Mr Cuddy. Although Mrs Cuddy was named as a signatory on Neath’s bank account, cheques were in fact signed by Mr Cuddy using his wife’s name. This, too, was well-known to Mr Hawkes from the outset. On occasions he would give Mr Cuddy a chequebook for him to sign in blank; and there are frequent examples in the case papers of requests by Mr Hawkes to Mr Cuddy asking him to sign cheques that were urgently needed. There is no example of a request made by Mr Hawkes to Mrs Cuddy asking her to sign any cheque. Mr Hawkes’ practice of giving Mr Cuddy a book of blank cheques to sign was witnessed by both Mr Harvey and Mr Morris, the solicitor acting for the WRU in the negotiation of the sale of the assets of Neath. When, eventually, Mr Cuddy refused to sign any more cheques Mr Hawkes still had 30 blank cheques signed by Mr Cuddy that he had not used. Mr Hawkes also knew from the outset that Mr Cuddy signed other documents in his wife’s name. Mr Hawkes’ allegations of forgery against Mr Cuddy were hypocritical, in that to the extent that Mr Cuddy was guilty of forging his wife’s signature on cheques, Mr Hawkes was equally guilty of inciting him to do so. 40. The case papers contain a letter in the following terms: “Dear Geraint, I appreciate that I have today become the owner of 50% of the shares in Neath and agreed to become a Director of the Company. However, my involvement will be via Michael at all times. I am notifying you that I have authorised Michael to sign cheques in my name and the signature on the cheques will be as follows:- S F Cuddy [the signature is in manuscript] My understanding is that you will have the day to day running of the Company, and I will simply be required to sign off the company accounts and attend the occasional Board Meeting if appropriate. Please notify Michael of anything you wish me to consider that affects the Company, and I will communicate back with you again via Michael. If you wish to notify the Bank, then please do so. I hope we have a long and successful relationship. Regards, Simone F. Cuddy” 41. Although the letter is undated, from its terms the letter purports to have been written on the day that Mrs Cuddy became the registered owner of one of the two shares in Neath. Mr Hawkes said that he did not see that letter at the time. His evidence is directly contradicted by Mr Morris. Mr Morris says that he drafted the letter at Mr Hawkes’ explicit request; that he read a draft of the letter to him over the telephone and that he went through the terms of the letter with Mr Hawkes on 30 January 2004. Mr Morris says that he envisaged that Mr Cuddy would sign cheques with his wife’s authority, but in his own name. He said that he did not envisage that Mr Cuddy would sign cheques in his wife’s name. This latter piece of evidence cannot be true because the text of the letter explicitly refers to Mr Cuddy signing cheques in his wife’s name. Mr Hollington said that there was no possibility of resolving the conflict of evidence between Mr Hawkes and Mr Morris except by concluding that one or other of them was deliberately lying. He said that Mr Hawkes was lying; and that the effect of the lie was to hole Mr Hawkes’ credibility below the waterline. Mr Chivers on the other hand said that Mr Morris was lying. Mr Morris is a practising solicitor and is not (at least ostensibly) personally involved in the dispute and (at least ostensibly) has no axe to grind. It is difficult to conceive of any motive for his having come to court to tell deliberate lies. He gave his evidence in a convincing manner, apart from his attempt to distance himself from the statement in the letter that Mr Cuddy was to sign cheques in his wife’s name. It is also the case that his evidence that he drafted the letter at Mr Hawkes’ request did not sit well with his professional duties to his client at the time, the WRU, which was on the opposite side of the transaction from Messrs Cuddy and Hawkes. He himself acknowledged this. He is therefore in the position of having admitted conduct which does him no credit. If he were prepared to tell deliberate lies, it would have suited his personal position to have denied all knowledge of the letter, but he did not. I bear in mind also that Mr Morris has acted in the past for both Mr Hawkes and Mr Cuddy, and does not appear to have any animosity towards Mr Hawkes. I accept Mr Morris’ evidence in preference to Mr Hawkes’. That said whether or not the letter was written on the date that it purports to bear is not a critical issue in the case. Although I have preferred Mr Morris’ evidence to that of Mr Hawkes it does not of itself demonstrate that Mr Hawkes’ evidence is untrustworthy on everything. It is not, for example, suggested that the signed letter was ever given to Mr Hawkes: merely that he was shown the draft without the completed signatures. He may genuinely have forgotten having seen the draft and in the light of the increasingly bitter feud between himself and Mr Cuddy have convinced himself that he had never seen it. “Simone Cuddy was a Director of the Company and due to the proceedings with Gowerpark Mike Cuddy should ensure that his involvement with Neath Rugby Limited was kept to a minimum.” “Dear Geraint, I appreciate that I have today become the owner of 50% of the shares in Neath and agreed to become a Director of the Company. However, my involvement will be via Michael at all times. I am notifying you that I have authorised Michael to sign cheques in my name and the signature on the cheques will be as follows:- S F Cuddy [the signature is in manuscript] My understanding is that you will have the day to day running of the Company, and I will simply be required to sign off the company accounts and attend the occasional Board Meeting if appropriate. Please notify Michael of anything you wish me to consider that affects the Company, and I will communicate back with you again via Michael. If you wish to notify the Bank, then please do so. I hope we have a long and successful relationship. Regards, Simone F. Cuddy”
[72]The judge’s findings of fact are not and could not be challenged. As can be seen, he found that Mr Hawkes had been a party to Mr Cuddy’s unlawful participation in the management of Neath until they fell out, and in my judgment Mr Hawkes could not for this reason found a petition on Mr Cuddy’s unlawful conduct.[73]Mr Hawkes also contended that he was entitled to rely on the unfairness of Mrs Cuddy’s failure to resign once the infringement of section 216 was exposed. However, the presentation of the petition led to Mrs Cuddy’s resignation and her replacement, albeit on a temporary basis pending judgment in the proceedings, by a director, namely Mr Eric Evans, who did not act on Mr Cuddy’s instructions. Given that Mr Hawkes had agreed not to rely on the possibility of future breaches of section 216, and that it was now clear that Mr Cuddy could not lawfully act as a director or de facto director of Neath until the expiration of the section 216 prohibition or the leave of the court, the judge concluded that further relief under this head was unnecessary. He specifically refused to make an order for the compulsory sale of the Cuddy share in Neath.[74]There is, in my judgment, no basis to question this conclusion.

Discussions with the WRU to change the Regional Operating Agreement (“ROA”)

[75]The ROA was an agreement dated 1 September 2004 between the Welsh Rugby Union and Osprey by which the WRU appointed Osprey as a regional rugby club. It granted certain rights to Osprey (e.g. to receive funding from the WRU) in return for the performance by Osprey of certain obligations (as to organising the squad, hosting matches, providing broadcast facilities etc.). Clause 3 of the agreement contained a number of conditions precedent, one of which was that Osprey should provide evidence that all its issued and paid up share capital was vested beneficially and absolutely in Swansea and Neath.[76]The judge’s findings under this head are in paragraphs 154 to 156 of his judgment:154. On 2 September 2007 Wales on Sunday ran a story about a dispute between the regional clubs and the WRU relating to compensation to be paid by the WRU to the clubs for players participating in the World Cup as part of the national side. In the course of the story reference was made to a new “rugby charter”. This was the first that Mr Hawkes had heard about a new rugby charter.155. It subsequently transpired that since at least February 2007 the Professional Rugby Board (which included representatives of the WRU and the four regional clubs) had been discussing the possibility of amending or replacing the Regional Operating Agreement for each of the regional sides. Meetings appear to have taken place at approximately monthly intervals. The Ospreys’ representative at the meetings was usually Mr Thorburn, although Mr Hopkins attended at least one meeting. The discussions do not appear to have got very far. Mr Hawkes’ position is that the discussions touch on the funding of the regional sides by the WRU and that, by reason of Neath’s financial interest in the Ospreys, Neath has a keen interest in those discussions.156. Although Mr Cuddy made the faint suggestion that he might have told Mr Eric Evans about these discussions, I find that he did not. Mr Hawkes complains that in failing to inform him about these discussions or consult him over them, Mr Cuddy is in breach of the Hawkes/Cuddy agreement.[77]The judge’s conclusions are in paragraph 281: 281. I do not think that the Ospreys’ participation (together with the three other regional sides) in discussions with the WRU can plausibly be described as conduct of the affairs of Neath. Moreover, Mr Cuddy himself does not appear to have played any active role in those discussions. However, he was aware of them, and did not inform Mr Hawkes. It is true that by early 2007 relations between him and Mr Hawkes had broken down, but the failure to inform Mr Hawkes was, nevertheless, a breach of the Hawks/Cuddy agreement. Even so, the discussions have not progressed far, and I cannot see that any actual prejudice has been caused by that breach, other than the breach of the obligation to consult itself. As in the case of the failure to consult over the StadCo variation some relief on the petition is justified on this ground, but I think that the main concern must be to ensure, so far as practicable, either that consultation takes place in the future or is made unnecessary.[78]These conclusions are, in my judgment, unimpeachable.

What if Mr Cuddy was under a greater duty?

[79]If I consider each of the matters listed in paragraph 56 above on which Mr Hawkes ultimately relied, but which the judge rejected, on the basis that, as Mr Hawkes submits, Mr Cuddy’s obligation under the joint venture agreement was to protect the interests of Neath to the extent compatible with his duty to Osprey, I reach no different conclusion as to the unfair prejudice that Mr Hawkes established. In relation to the matches played by the Ospreys at the Gnoll, as mentioned above, the judge found as a fact that Mr Cuddy did his best for Neath. The failure to transfer the share in Osprey into the name of Neath had been remedied soon after the petition was presented. The judge found that in agreeing to the withdrawal of Osprey players from Neath Mr Cuddy was doing his duty as a director of Osprey, and he would not therefore have been in breach of the term alleged by Mr Hawkes. The judge found that Mr Cuddy was convinced that the deal involving the StadCo variation was an attractive one, and it follows that it was his duty as a director of Osprey to authorise it to be entered into notwithstanding Mr Hawkes’ opposition.

The order made by the judge

[80]The assessment of the seriousness or otherwise of unfairly prejudicial conduct and the decision as to the appropriate remedy when it is established are very much matters of judgment. The latter decision is clearly a matter for the discretion of the trial judge. The Court of Appeal will be slow to interfere with the trial judge’s decisions on these matters, unless it can be shown that his decision was based on a legal error or on unsustainable findings of fact, that he failed to take a relevant matter into account or took an irrelevant matter into account, or that his decision was such that he could not sensibly have reached. In my judgment, none of these requirements has been established.

The judge said:

[81]290. I have found that to a limited extent the cross-petition is well founded. I have also found that some of the allegations in the petition are well founded. But although I have found that some of the allegations of unfair prejudice alleged in the petition have been established, they are the less serious ones. Those which pertain to the internal affairs of the Ospreys are not conduct of the affairs of Neath. It would be disproportionate to require Mr Cuddy to sell the Cuddy share to Mr Hawkes on the grounds that I have found established, if a less drastic remedy can be devised. In conducting himself as a director of the Ospreys Mr Cuddy has acted in what he considered to be the best interests of the Ospreys; and in accordance with clause 8 of the shareholders’ agreement. In so doing he was not in breach of any duty owed either to Neath or to Mr Hawkes. There is no justification for terminating or imperilling his position on the board of the Ospreys as a Neath representative, which was one of the fundamental terms of the Hawkes/Cuddy agreement. On the other hand, he failed to consult Mr Hawkes on the StadCo variation once he learned that there was no cap on liability, and has failed to keep him informed about the negotiations with the WRU. That can be cured for the future by giving Mr Hawkes a voice (and eyes and ears) in the Ospreys boardroom. The spirit of the Hawkes/Cuddy agreement can be preserved by giving Mr Hawkes the ability to enlarge the board of Neath thus giving him effective control of it. This solution means that any demerger can be avoided, as can any winding up. 291. I do not therefore consider that the appropriate solution lies in either of Mr Hawkes’ offers to buy the Cuddy share (Mr Hawkes’ offers of 11 April and 4 October 2007). Nor do I consider that it is an appropriate solution to restructure the Ospreys so as to give a decisive shareholding to the WRU (Mr Hawkes’ offer of 4 October 2007). For one thing it would require the consent of a majority of the Welsh rugby clubs. For another, it is likely to create a potential conflict of interest, given that negotiations with the WRU are in progress for a new rugby charter. Nor do I consider that the introduction of a third club (Bridgend) into the shareholders of the Ospreys is appropriate (Mr Cuddy’s offer of 16 October 2007), since both Swansea and Neath went into the venture on a 50:50 basis. Since I consider that Mr Cuddy has acted properly in his capacity as a director of the Ospreys, I do not consider that it would be right to adopt a solution that means that his vote does not count if he exercises it in a manner that, in effect, does not meet with Mr Hawkes’ approval (Mr Hawkes’ offer of 2 November 2007). However, I consider that the joint offer made by Mr Cuddy and Swansea on 5 November 2007 is the appropriate solution to the problems that have arisen. That solution, as I see it:(i) gives Mr Hawkes eyes, ears and a voice on the board of the Ospreys;(ii) cures for the future the lack of consultation that I have found to have been established;(iii) preserves the 50:50 relationship between Neath and Swansea as members of the Ospreys;(iv) preserves the good working relationship between Mr Blyth and Mr Cuddy;(v) pays attention to the expressed position of Swansea;(vi) gives Mr Hawkes effective control of Neath while not imperilling Mr Cuddy’s position on the board of the Ospreys, thus preventing any future deadlock in the affairs of Neath;(vii) retains for Neath the benefit of its most valuable asset, and(viii) does not endanger the Regional Operating Agreement by triggering a potential forfeiture. In consequence of this conclusion, the judge made the order set out in the schedule to his order, as annexed to this judgment. (i) gives Mr Hawkes eyes, ears and a voice on the board of the Ospreys; (ii) cures for the future the lack of consultation that I have found to have been established; (iii) preserves the 50:50 relationship between Neath and Swansea as members of the Ospreys; (iv) preserves the good working relationship between Mr Blyth and Mr Cuddy; (v) pays attention to the expressed position of Swansea; (vi) gives Mr Hawkes effective control of Neath while not imperilling Mr Cuddy’s position on the board of the Ospreys, thus preventing any future deadlock in the affairs of Neath; (vii) retains for Neath the benefit of its most valuable asset, and (viii) does not endanger the Regional Operating Agreement by triggering a potential forfeiture.[82]This was a not untypical case of businessmen falling out. As found by the judge, Mr Cuddy’s conduct did not justify his exclusion from Osprey, and he could not continue as a director of Osprey if he or his wife did not retain a share in Neath. A perfect solution to the problems caused by the hostility between Mr Hawkes and Mr Cuddy could not be devised. In this area, the perfect may well be the enemy of the good. The judge’s order represents a, and probably the, least bad solution. Mr Hawkes has abandoned his contention that it is unworkable.[83]Mr Chivers’ principal contention is that the order made by the judge has deprived Neath of its deadlock power – its negative control – on the board of Osprey. This was because Mr Cuddy had ceased to represent Neath. Instead of negative control, under the judge’s solution Neath will have only a voice on the board of Osprey. In my judgment, this contention confuses Neath with Mr Hawkes, and Neath’s interests with Mr Hawkes’ interests. It is clear that Mr Hawkes seeks to oust Mr Cuddy from Osprey, as well as from Neath, and through his control of Neath to have negative control of Osprey; but the joint venture agreement between Mr Hawkes and Mr Cuddy did not give Mr Hawkes that power. It envisaged that it would be Mr Cuddy, not Mr Hawkes, who would participate in the management of Osprey. Mr Hawkes failed to establish sufficiently serious unfairly prejudicial conduct on the part of Mr Cuddy to justify the Cuddys being deprived of their share in Neath or in Mr Cuddy losing his position in Osprey – a position that no one other than Mr Hawkes wanted him to lose. Under the solution adopted by the judge, he will retain it. Their agreement envisaged that Mr Hawkes would administer Neath, and he will likewise continue to do so. In addition, he will have a director on the board of Osprey who will consult him.[84]Mr Chivers also submitted that the judge wrongly took into account the matters to which he referred in paragraph 291(iii) and (iv) of his judgment. He submitted that only the effect on shareholders of Neath and the shareholdings in that company are relevant when the Court makes an order under section 996. I reject this submission. If upheld, it would mean that the interests of creditors of the company could not be taken into account. Their interests are clearly relevant, and may be decisive in deciding what order should be made under the section. I do not see why the court should close its eyes to the interests of others, and the effect of any order made under section 996 on them, although of course the weight to be given to their interests will depend on the circumstances. In the present case, a major object of the agreement between Mr Cuddy and Mr Hawkes was to establish Osprey and for it to be managed by Mr Cuddy together with a director appointed by Swansea. The most valuable asset of Neath was its share in Osprey, and the success of Osprey, and the value of that share, depended on the ability of the directors appointed by Neath and Swansea to work together on the board of Osprey. The judge was entitled to take into account the effects of any order he made on Osprey, which inevitably involved taking into account the position of Swansea.[85]It was suggested that on a petition under section 994 the court cannot award relief that the petitioner does not seek. In the present case, the correctness or otherwise of that proposition is academic, since ultimately, when it was apparent from the judge’s judgment that Mr Hawkes would not be able to buy out Mr Cuddy, he agreed to the order proposed by the judge being made on his petition. On any basis, therefore, the judge had power to make the order he did. But I would not want it to be assumed that that proposition represents the law. The terms of section 996 are clear: once the court is satisfied that a petition is well founded, “it may make such order as it thinks fit”, not “such order as is sought by the petitioner”. We were referred to the unreported judgment given on 22 June 2007 of HH Judge Behrens sitting as a deputy High Court judge of the Chancery Division in Leeds District Registry in Bhullar v Bhullar. He said, at paragraph 289:
“The court will not award relief which [the petitioner] shareholders do not seek and do not agree to.”
[86]The authority cited for this proposition is paragraph 10.2 of the Law Commission Consultation Paper No. 142 on Shareholder Remedies and the cases at footnote 7. Footnote 7 is in fact a note to the last sentence of paragraph 10.1, which states only:
“The shareholder must specify the relief he seeks.”
[87]Paragraph 10.2 states:
“10.2 It is also important to note that the court has a discretion as to what type of relief should be granted, and even as to whether relief should be granted at all. Accordingly, a court may refuse relief where, on the facts, it considers that the relief sought would not constitute an appropriate remedy or where some other course of action is preferable, even where it has held that the petition is well founded.”
Footnote 7 is as follows:
“Re Antigen Laboratories Ltd [1951] 1 All ER 110, cited with approval by Warner J in Re JE Cade & Son Ltd [1992] BCLC 213, 223. The court will not, therefore, award relief which the petitioner does not seek. The court may make an order which is not in the terms originally sought by the petitioner, provided that any variation is accepted by the petitioner, as in Re HR Harmer Ltd [1959] 1 WLR 62, 68.”
[88]The proposition that the court will not make an order which the petitioner does not seek or agree to lies uneasily with the proposition that the court has a discretion as to what relief should be granted. Re Antigen Laboratories Ltd is authority only for the proposition that the petition must specify the relief sought. The prayer of the petition asked:
“(i) that an order might be made for regulating the conduct of the company's affairs in future; (ii) or that such other order, whether directing investigation into the company's affairs or otherwise, might be made as in the premises should be just.”
Roxburgh J said:
“From the prayer of the petition as presented, it is impossible to know what the petitioner wants. A petitioner seeking relief under s 210 ought to state in the prayer of the petition in clear terms the general nature of the relief sought, whether it be by the appointment of a director or of some other kind. The prayer need not contain as much detail as the court would require on the drawing up of the order, or as much as is requisite in a draft minute. It must, however, contain enough to leave no doubt what the petitioner desires the court to do. The petitioner must take the responsibility of stating specifically what he wants. …”
[89]Re Antigen Laboratories Ltd was indeed cited with approval by Warner J in Re JE Cade & Son Ltd, but only for the proposition that the petition must specify the relief sought by the petitioner. Warner J said, at 223:
“I turn to the prayer for relief in the petition. There can be no doubt, and indeed it was common ground between counsel, that the relief prayed for in a petition under ss 459 and 461 must be appropriate to the unfairly prejudicial conduct of which the petitioner complains. Nor can there be any doubt that the petitioner must specify the relief that he seeks (consider for instance Re Antigen Laboratories Ltd [1951] 1 All ER 110) though it is of course proper for the petitioner to add, as indeed the form set out in the schedule to the Companies (Unfair Prejudice Applications) Proceedings Rules 1986, SI 1986/2000 envisages, a prayer ‘that such other order may be made as the court thinks fit’.”
[90]The all-but-universal inclusion in the prayer of petitions of “that such other order may be made as the court thinks fit” itself means that the discretion of the court as to the relief to be granted is unfettered by the petition. Such a prayer was included in Mr Hawkes’ petition.[91]Lastly on this subject, as the footnote to the Law Commission paper indicates, Re HR Harmer Ltd was a case in which the petitioner had agreed to the relief granted by the judge, although it had not been specified in the petition. It is not authority for the proposition that the court will not grant relief which he has not sought and has not agreed to, let alone for the proposition that the court does not have power to grant such relief. The unacceptability to the petitioner of the relief that the court otherwise considers appropriate is doubtless a major consideration to be taken into account when deciding whether to grant that relief, but it goes to the exercise of the discretion of the court, not to the power of the court to make such order as it thinks fit.[92]In conclusion, it has not been shown that the judge erred in the exercise of the wide discretion conferred on him by section 996. For the reasons set out above, I see no basis for interfering with the order on the petition made by the judge. Costs The judge’s order

Costs

[93]As can be seen from the judge’s order, the principal provisions he made as to the costs of this litigation were:(i) The Cuddys were to pay to Mr Hawkes 50 per cent of his costs of the petition up to and including 23 July 2007.(ii) Mr Hawkes was to pay to the Cuddys 90 per cent of their costs of the petition after 23 July 2007.(iii) There would be no order as to the costs of the appeal to the Court of Appeal.(iv) The Cuddys were to pay Mr Hawkes’ costs of the cross-petition until 23 October 2007 and he was to pay their costs of the cross-petition thereafter. 23 July 2007 was the date of HH Judge Havelock-Allan QC’s judgment. 23 October 2007 was the date when the cross-petition was amended.[94]In his full and careful judgment on costs, the judge set out his reasons for these costs orders. He said:
“14. Those parts of the petition that resulted in Mr Hawkes obtaining the outcome that he asked for had that result before trial. So far as the resignation of Mrs Cuddy was concerned, that also happened without the need for the intervention by the court. Likewise, in relation to the share certificate of the share in the Ospreys and John Collins and Partners LLP ceasing to act. 15. The issues relating to section 216 of the Insolvency Act were finally determined by Judge Havelock-Allan. The remaining issues went to trial. … 17. In opening the case at the trial Mr Chivers said: “The root cause of the problem behind this petition are the differences between Mr Hawkes and Mr Cuddy as to the relationship between Neath and the Ospreys. Mr Hawkes considers that the Neath representative on the board of the Ospreys should be looking after the interests of Neath as a 50 per cent joint venturer in the Ospreys. Mr Cuddy takes the view that Neath was simply a vehicle to acquire a 50 per cent share in the Ospreys. Neath had no special relationship with Ospreys which should be run regardless of the interest of Neath and, if he thinks fit, contrary to the interests of Neath”
. That encapsulates the dispute between the parties insofar as that dispute remained live at trial. 18. It is thus true that most of the time taken up at trial was taken up with the manner in which Mr Cuddy conducted himself as a director of the Ospreys. I found that those complaints were not established. I did, however, find that in two respects Mr Cuddy did not consult Mr Hawkes over the affairs of the Ospreys and that in one respect Mr Cuddy unfairly used information that he had acquired from Neath in connection with the Ospreys’ claim for trademark infringement. But it is right to point out that, despite the length of the petition, this last complaint was not in fact a pleaded complaint. 19. Although these complaints justified the grant of some relief on the petition, the essential thrust of Mr Hawkes’ case failed. The solution proposed by Mr Cuddy, and which I adopted, was one that Mr Hawkes opposed and said was of no use to him. It was not advanced by Mr Hawkes even as an alternative or fall-back case to his primary contention that nothing short of a share purchase order would do. There were, it is true to say, other offers made by Mr Hawkes during the course of the proceedings, but they were not acceptable because they removed Mr Cuddy’s voting power from the Ospreys. As Mr Chivers’ opening made very clear, control of the Ospreys was what was really in issue. 20. Whether the order which I made is to be considered as having been made on the petition or the cross-petition is in my judgment a matter of form rather than one of substance. I must look at the realities of the case. The trial was about the control of the Ospreys. Mr Hawkes had in fact been offered a seat on the board before trial, which he turned down. Looked at realistically and in the round, I consider that Mr Cuddy was the overall winner of the trial. 21. That does not mean that Mr Hawkes failed to derive benefit from the litigation. The tangible benefits were all gained before the trial began. I would regard Mr Hawkes as the successful party to and including 23 July 2007 when Judge Havelock-Allan gave his judgment. Leaving aside for the moment what happened in the Court of Appeal, I regard Mr Cuddy as having been the successful party thereafter. In my judgment, therefore, I should deal with the costs up to and including 23 July 2007 separately from the costs incurred thereafter. My starting point is that Mr Hawkes should recover his costs up to and including 23 July 2007. 22. Should I make any deduction form those costs in order to reflect the subsequent progress of the case? The costs incurred up to and including 23 July 2007 will have included the drafting of the petition containing many allegations which ultimately failed or were abandoned or were irrelevant, and the making of disclosure and the filing of voluminous evidence relating to those issues. 23. Mr Chivers argued that Mr Hawkes was the overall winner in the litigation, including the trial. I have rejected that argument. Mr Chivers accepted that, even if he was right, a deduction should be made for Mr Hawkes’ costs to reflect the issues on which he failed. Mr Chivers suggested a deduction of 25%. But most of the petition and the bulk of the evidence filed before 23 July 2007 went to the issues on which Mr Hawkes ultimately failed. In my judgment, 25% is too low a deduction. I consider that 50% is appropriate. I will adopt that percentage in relation to Mr Hawkes’ costs up to and including 23 July 2007. Mr Cuddy will therefore pay 50% of Mr Hawkes costs up to and including 23 July 2007. … 28. One effect of the Court of Appeal’s decision was that the cross-petition was unsustainable in the form in which it then stood. In my judgment the consequence should be that Judge Havelock-Allan’s order about the costs of the cross-petition should be changed so that Mr Hawkes’ costs incurred up to and including the date of that order are his costs in any event. 29. I now deal with the trial costs, that is to say the costs incurred after 23 July 2007. In principle I regard Mr Cuddy as the successful party, but he lost on one discrete issue, namely abuse of process. Mr Hollington QC says that was a legal argument only. Mr Chivers, on the other hand, says that it was a legal issue accompanied by factual baggage. Mr Chivers made it clear that Mr Hawkes did not rely on allegations relating to the so-called sham, or on allegations that Mr Cuddy had been guilty of forging documents. But although Mr Chivers said that he did not rely on those allegations, the allegations themselves were not withdrawn. Moreover, those allegations had been publicised widely in the press. In my judgment it was not unreasonable for Mr Cuddy to defend himself against those serious allegations. I do not accept that they went only to the question of the abuse of process. 30. In principle I consider that Mr Hawkes should have his costs of the abuse of process issue. The way to do that is by making a deduction from Mr Cuddy’s costs sufficient to reflect both that part of his own costs, which are not recoverable, and also to allow for a credit on favour of Mr Hawkes representing his costs of that issue. The argument about abuse of process took little more than half a day. There will, of course, have been research and preparation involved. In my judgment a deduction from Mr Cuddy’s costs of 10% will fairly reflect his lack of success on that issue. My provisional view, therefore, is that Mr Hawkes will pay 90% of Mr Cuddy’s costs incurred after 23 July 2007.” “The root cause of the problem behind this petition are the differences between Mr Hawkes and Mr Cuddy as to the relationship between Neath and the Ospreys. Mr Hawkes considers that the Neath representative on the board of the Ospreys should be looking after the interests of Neath as a 50 per cent joint venturer in the Ospreys. Mr Cuddy takes the view that Neath was simply a vehicle to acquire a 50 per cent share in the Ospreys. Neath had no special relationship with Ospreys which should be run regardless of the interest of Neath and, if he thinks fit, contrary to the interests of Neath”.

The parties’ submissions

[95]Mr Chivers submitted that the judge should have held that Mr Hawkes was the substantial victor on the petition. He had obtained relief that he could not otherwise have obtained (other than by agreement); the fact that he did not obtain all that he had wanted was not a ground for finding that Mr Cuddy was the victor. In addition, the judge had failed to take into account that Mrs Cuddy’s resignation as a director of Neath in favour of Mr Evans had been temporary pending the outcome of the petition. In the alternative, he submitted that if the Cuddys were to be treated as the victors, the deduction of only 10 per cent from their costs did not reflect the fact that the judge had found that Mr Hawkes was entitled to relief by reason of Mr Cuddy’s unfairly prejudicial conduct, and failed to take into account what Mr Chivers described as Mr Hawkes’ success in his application of 19 September 2007 for summary judgment securing the removal of Mr Cuddy as a director of Osprey and for specific disclosure.[96]Mr Chivers submitted that the judge erred in making an order that Mr Cuddy should have the costs of his cross-petition from the date of its amendment, on the basis that the judge had erred in finding that it was well-founded.[97]For the Cuddys, Mr Hollington QC submitted that the judge had erred in law and in principle and made an order that no judge properly exercising his discretion could have done in:(i) finding that Mr Hawkes had been the successful party until 23 July 2007;(ii) ordering them to pay 50 per cent of Mr Hawkes’ costs of the petition to 23 July 2007;(iii) ordering that the costs order made by HH Judge Havelock-Allan should stand, and that there should be no order as to the costs of the appeal from his order to the Court of Appeal.[98]The principal submission of Mr Hollington was that the judge’s costs orders failed adequately to take into account the fact that the Cuddys had largely won on the issues raised by the petition: the object of the petition had been to remove Mr Cuddy from both Neath and Osprey, and in that respect Mr Hawkes had failed. Most of the many allegations in the petition had been rejected. It also failed to take sufficiently into account the fact that there had been no proper letter before claim, and that the successes obtained by Mr Hawkes after presentation of the petition could and would have been obtained without litigation if a proper letter before claim had been sent. Mr Hawkes’ success before HH Judge Havelock-Allan QC was reversed in the Court of Appeal, and in any event was immaterial to the relief ultimately ordered.[99]Mr Hollington submitted that the judge had correctly held that the cross-petition was well-founded, and that accordingly had been entitled to make the order for its costs that he did.

Discussion

[100]It almost goes without saying, and this is common ground, that the circumstances in which the Court of Appeal will interfere with a costs order made by the trial judge are circumscribed. I refer to the judgment of Lord Woolf M.R. in AEI Ltd v PPL [1999] 1 W.L.R. 1507, 1523C–D:
“Before the court can interfere (with the judge’s exercise of discretion) it must be shown that the judge has either erred in principle in his approach or has left out of account or has taken into account some feature that he should, or should not, have considered, or that his decision was wholly wrong because the court is forced to the conclusion that he has not balanced the various factors fairly in the scale.”
The caution to be exercised on appeal is that much the greater when the protracted proceedings have resulted in a judgment as detailed and convincing as that in the present case.[101]It is convenient to deal first with Mr Chivers’ submission that the cross-petition, as pleaded after amendment, did not justify the judge’s finding that it was well-founded. His principal submission was that the cross-petition was based on the deadlock between the shareholders of Neath; that if the judge made a finding of deadlock, he made no finding that it was caused by the unfair conduct of Mr Hawkes; and that deadlock alone, while it may well justify a winding-up order on the “just and equitable” ground, does not without more constitute unfairly prejudicial conduct on the part of a respondent for the purposes of a petition under section 994.[102]Mr Hollington submitted that a breakdown of trust and confidence, leading to deadlock, are sufficient to found both the exercise of the jurisdiction under section 994 and the jurisdiction to wind up on the “just and equitable” ground. He submitted that Re Guidezone Ltd [2000] 2 BCLC 321, to which I refer below, was correctly decided. It follows that in a case in which two parties in a quasi-partnership company have through no fault attributable to either lost trust or confidence in each other, and there is deadlock in the affairs of the company, both have satisfied the requirements of section 994.[103]I accept Mr Chivers’ submission. It accords with the speech of Lord Hoffman in O’Neill v Phillips [1999] 1 WLR 1092. Lord Hoffman made it clear that unfairness is a requirement under section 459 (as it then was). He said, at 1098 to 1100: In the case of s 459, the background 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 upon 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. This approach to the concept of unfairness in s 459 runs parallel to that which your Lordships' House, in Ebrahimi v Westbourne Galleries Ltd [1973] AC 360, adopted in giving content to the concept of “just and equitable” as a ground for winding up. … I should make it clear that the parallel I have drawn between the notion of “just and equitable” as explained by Lord Wilberforce in Ebrahimi v Westbourne Galleries Ltd and the notion of fairness in s 459 does not mean that conduct will not be unfair unless it would have justified an order to wind up the company. There was such a requirement in s 210 of the Companies Act 1948 but it was not repeated in s 459. As Mummery J observed in Re a company (No 00314 of 1989), ex p Estate Acquisition and Development Ltd [1991] BCLC 154 at 161, the grant of one remedy will not necessarily require proof of conduct which would have justified a different remedy:
“Under ss 459 to 461 the court is not ... faced with a death sentence decision dependent on establishing just and equitable grounds for such a decision. The court is more in the position of a medical practitioner presented with a patient who is alleged to be suffering from one or more ailments which can be treated by an appropriate remedy applied during the course of the continuing life of the company.”
The parallel is not in the conduct which the court will treat as justifying a particular remedy but in the principles upon which it decides that the conduct is unjust, inequitable or unfair. “Under ss 459 to 461 the court is not ... faced with a death sentence decision dependent on establishing just and equitable grounds for such a decision. The court is more in the position of a medical practitioner presented with a patient who is alleged to be suffering from one or more ailments which can be treated by an appropriate remedy applied during the course of the continuing life of the company.”[104]It is to be noted that Lord Hoffman did not say that the facts giving rise to the jurisdiction to wind up under the “just and equitable” jurisdiction were the same as those giving rise to the exercise of the jurisdiction under section 994: he used the word “parallel”. To the contrary, he expressly approved the statement of Mummery J in Re a company (No 00314 of 1989) that the grant of one remedy will not necessarily require proof of conduct which would justify a different remedy. In many, if not most, cases the conduct of the respondent may give rise both to the jurisdiction under section 994 and to that under section 122(1)(g); but there may be cases which satisfy the requirements of one jurisdiction but not the other. In addition, it should be borne in mind that a winding up may be ordered on the “just and equitable” ground where no unfair conduct is alleged, as in the cases in which the so-called substratum has gone, as in Re German Date Coffee Co (1882) 20 Ch D 169 and Re Baku Consolidated Oilfields Ltd [1944] 1 All ER 24.[105]This conclusion is consistent with the judgment of Arden LJ (with whom the other members of the Court of Appeal agreed) in Jones v Jones and others; re Incasep [2002] EWCA Civ 961 at paragraph 44, and with the earlier judgment of Nourse J in Re R A Noble & Sons (Clothing) Ltd [1983] BCLC 273 (which was cited to the Appellate Committee in O’Neill v Phillips but was not commented upon). It is consistent with the differences in the statutory wording: Parliament would not have used such different wording in section 994 of the Companies Act 2006 and in section 122(1)(g) of the Insolvency Act 1986 if the jurisdictions were intended to be coterminous.[106]In Re Guidezone Ltd Jonathan Parker J stated: 177. I turn next to the relationship between the jurisdiction under s 459 and the jurisdiction to order a winding up on the 'just and equitable' ground under s 122(1)(g). Mr Acton submits that once it is established (applying Ebrahimi v Westbourne Galleries Ltd [1972] 2 All ER 492, [1973] AC 360) that the company in question is a quasi-partnership, then the court will make a winding-up order if the circumstances are such that, had the company been a partnership, the court would have made a dissolution order. He submits (echoing in this respect the submission made by counsel for Mr O'Neill in O'Neill v Phillips [1999] 2 BCLC 1, [1999] 1 WLR 1092 in the context of s 459, referred to earlier), that it is not necessary to establish unfairness for the court to make a winding-up order on the 'just and equitable' ground: in other words (as he submits) the jurisdiction to make a winding-up order under s 122(1)(g) is wider than the jurisdiction to grant relief under s 459. 178. In support of that submission he relies on Re R A Noble & Sons (Clothing) Ltd[1983] BCLC 273. In that case Nourse J held that although the petitioner had not established that its interest had been unfairly prejudiced for the purposes of s 75 of the Companies Act 1980 (the statutory predecessor of s 459), nevertheless it was just and equitable that the company be wound up. In the course of his judgment in Re R A Noble & Sons (Clothing) Ltd[1983] BCLC 273 Nourse J said (at 291):
'I have no doubt that sooner or later a case will emerge in which the particular facts will make it necessary for the court to make a closer examination of the relationship between s 222(f) and s 75 than I feel is necessary in the present case. In this case I have come to a clear view that it has not been established that the affairs of the company are being or have been conducted in a manner which is unfairly prejudicial to the interests of [the petitioner], but that it has been established that it is just and equitable that the company should be wound up.' 179. In my judgment, Mr Acton’s submission is based on a misreading of both Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 and O'
Neill v Phillips [1999] 2 BCLC 1, [1999] 1 WLR 1092. In the first place, in Ebrahimi v Westbourne Galleries Ltd Lord Wilberforce expressly warned against simply treating a company (even a 'quasi-partnership' company) as if it were a partnership; a warning which Lord Hoffmann quoted in O'Neill v Phillips. Secondly, in drawing a parallel in O'Neill v Phillips between the jurisdiction to order a winding up on the just and equitable ground and the jurisdiction under s 459, Lord Hoffmann applied the reasoning of Lord Wilberforce in Ebrahimi v Westbourne Galleries Ltd. Thirdly, I accept Mr Mabb’s submission that it is difficult to believe that Lord Hoffmann would have placed the limits on the s 459 jurisdiction which he did, had he thought that by so doing he was in effect transferring business from the s 459 jurisdiction to the winding-up jurisdiction. On the contrary, it is plainly implicit in Lord Hoffmann's reasoning, as I read his speech, that the winding-up jurisdiction is, at the very least, no wider than the s 459 jurisdiction: a proposition which is consistent with a winding-up order being, as it were, the death sentence on a company (an analogy drawn by Mummery J in Re a company (No 00314 of 1989), ex p Estate Acquisition and Development Ltd [1991] BCLC 154 at 161), and with the statutory recognition in s 125(2) of the Insolvency Act 1986 (see above) that a winding-up order is an order of last resort. Fourthly, it would in my judgment be extremely unfortunate, and inconsistent with the approach and the reasoning of Lord Hoffmann in O'Neill v Phillips, if, given the two parallel jurisdictions, conduct which is not 'unfair' for the purposes of s 459 should nevertheless be capable of founding a case for a winding-up order on the 'just and equitable' ground. As to Nourse J's decision in Re R A Noble & Sons (Clothing) Ltd [1983] BCLC 273, in so far as that decision is authority for the proposition that conduct which is not unfair for the purposes of s 459 can nevertheless found a case for a winding up on the just and equitable ground it is in my judgment inconsistent with O'Neill v Phillips. 180. I accordingly conclude that if the conduct by the majority relied on by Surendra in the instant case is not unfair for the purposes of s 459, it cannot found a case for a winding-up order on the “just and equitable” ground. 'I have no doubt that sooner or later a case will emerge in which the particular facts will make it necessary for the court to make a closer examination of the relationship between s 222(f) and s 75 than I feel is necessary in the present case. In this case I have come to a clear view that it has not been established that the affairs of the company are being or have been conducted in a manner which is unfairly prejudicial to the interests of [the petitioner], but that it has been established that it is just and equitable that the company should be wound up.'[107]Lewison J in the present case at paragraph 230 and Warren J at paragraph 48 of his judgment in Re Southern Counties Fresh Foods Limited [2008] EWHC 2810 (Ch) expressed doubt as to the correctness of the conclusion of Jonathan Parker J. For the reasons I have endeavoured to give above, in my judgment, those doubts were justified: the judgment of Jonathan Parker J on this point should no longer be followed. This is not to say, however, that his decision on the facts of that case was incorrect. On the facts as found by him, it is difficult to see that either the “just and equitable” ground or the requirements of section 994 (then section 459) were satisfied.[108]It seems to me that the judge’s acceptance, in paragraph 231 of his judgment, of Mr Hollington’s submission that a breakdown of trust and confidence, resulting in deadlock and the inability of the company to conduct its business in the manner initially contemplated, justified an order under section 994 was based on his decision to follow the judgment of Jonathan Parker J in Re Guidezone Ltd. Deadlock and the inability of a company to conduct its business as initially contemplated when the parties trusted and had confidence in each other may be inherent in the breakdown of that trust and confidence, but in my judgment do not without more satisfy the requirements of sections 994 and 996. Of course, in many cases one party will be able to point to unfairness in the other party’s reaction to the deadlock. As Lord Hoffman said in O’Neill v Phillips at 1101: For example, there may be some event which puts an end to the basis upon which the parties entered into association with each other, making it unfair that one shareholder should insist upon the continuance of the association. The analogy of contractual frustration suggests itself. The unfairness may arise not from what the parties have positively agreed but from a majority using its legal powers to maintain the association in circumstances to which the minority can reasonably say it did not agree: non haec in foedera veni. It is well recognised that in such a case there would be power to wind up the company on the just and equitable ground (see Virdi v. Abbey Leisure Ltd. [1990] B.C.L.C. 342) and it seems to me that, in the absence of a winding up, it could equally be said to come within section 459. But this form of unfairness is also based upon established equitable principles and it does not arise in this case.[109]Lewison J held that the cross-petition was well founded in one respect only. He said: This is not therefore a case in which deadlock has made it impossible for Neath to carry on its business. But Mr Hawkes has made plain his desire to remove Mr Cuddy as the Neath nominated director on the board of the Ospreys. Thus far his attempts have failed, not least because Mr Eric Evans does not support them. To that extent there is deadlock; and to the extent that the appointment of the Neath-nominated director of the Ospreys is the running of Neath’s business, it has become impossible to reach agreement for the future running of the business. To this limited extent I find that the cross-petition is well founded.[110]There are two points to be made about these findings. First, the judge did not find that there was deadlock in the sense of the company being unable to carry on its business. He used “deadlock” in an unusual sense, to refer to the lack of agreement between Mr Hawkes and Mr Cuddy as to the latter’s position as the Neath nominated director on the board of Osprey. This is not deadlock as the term is normally used. Moreover, as I have held, deadlock without more does not satisfy the requirements of section 994. Mere attempts to remove a director by a shareholder who has no power to do so are not any actual or proposed acts or omissions attributable to the company for the purposes of subsection (1)(b); and in addition I cannot see that those unsuccessful attempts have caused relevant prejudice to Mr Cuddy. Mr Hollington submitted that the prejudice consisted of the precariousness of Mr Cuddy’s position, which depends on the unwillingness of Mr Evans to agree to his removal. I do not accept that that is relevant prejudice, but in any event it does not equate to unfairness. If there had been an unfair removal of Mr Cuddy as the Neath nominated director, or such had been proposed with Mr Evans’ agreement, the grounds for a section 994 petition would have been established; but neither of these had occurred.[111]In paragraph (1)(v) of the grounds of Mr Cuddy’s notice on his cross-petition he relied on the dispute between him and Mr Hawkes and the ensuing litigation and their effect on the company and its interest in the Ospreys. However, the dispute adds nothing to the assertion of a loss of trust and confidence, and a claim brought by a shareholder or director under section 994 is neither the conduct of the company’s affairs nor an act of the company. Mr Cuddy also relies on the finding that Mr Hawkes’ assertions as to Mr Cuddy’s breaches of section 216 were hypocritical; but those assertions, made in the context of Mr Hawkes’ petition, did not fall within section 994.[112]Mr Cuddy’s grounds do not refer to paragraphs 25A to paragraph 25E of his cross-petition, and for that reason I do not consider that they should affect the order to be made on this appeal. Lastly, Mr Hollington abandoned the contention that the cross-petition was well-founded because the grounds for winding up on the just and equitable ground were established, doubtless at least in part because no winding up order was sought or made.[113]It follows that I would hold that the cross-petition was unfounded; and that, therefore, the judge’s allocation of costs on the cross-petition cannot stand. In my judgment, Mr Hawkes was and is entitled to his costs of the cross-petition.[114]I have similar concerns in relation to the costs orders on the petition. They relate to the order that the Cuddys pay 50 per cent of Mr Hawkes’ costs of the petition to 23 July 2007. There was no effective letter before claim, a matter to be taken into account: see paragraphs4.1 and4.2 of the Practice Direction on Protocols. By their letter of 14 March 2007, Mr Hawkes’ solicitors indicated that, unless negotiations were successful, they had instructions to proceed to wind up Neath. Mr Cuddy’s solicitors, in their letter of 16 March 2007, accepted that Neath should be wound up. Mr Hawkes resiled from that position. In a 20-page letter dated 17 April 2007, of which the signatory was Mr Caldicott of Mr Hawkes’ solicitors Morgan Cole, detailed allegations were made against Mr Cuddy and Mr Newman, who was then acting for the Cuddys. The letter stated that counsel had already been instructed to settle a petition under section 459 on the grounds set out in the letter, and that interim relief would be sought to remove Mrs Cuddy as a director of Neath, and an interim injunction to restrain Mr Newman from acting for the Cuddys. Most unreasonably, the letter, received by Mr Newman on 18 April, required him to agree, by 4 pm on 20 April 2007, to cease to act for them. It was an unreasonable deadline because of the length and content of the letter, which had clearly been longer in the preparation than the deadline it sought to impose on Mr Newman and the Cuddys. The letter stated:
“Pending receipt of a substantive reply by the deadline referred to above, Mr Hawkes will refrain from disclosing any of the facts and matters in this letter to the Law Society, the police, Neath’s auditors and/or the wider constituency of stakeholders in Neath (including the Right Honourable Peter Hain MP).”
This was an attempt to exert illegitimate pressure on the Cuddys. The implied, and in the circumstances unwarranted, threat is obvious. I say unwarranted not least because, as the judge held, Mr Hawkes was well aware of, and had been a party, to the circumvention by Mr Cuddy of the prohibition in section 216 of the 1986 Act of which complaint was made. Mr Hawkes was always at liberty to disclose matters to the police or to the Law Society. What was illegitimate was to use the threat to do so as a form of pressure. This was something to which a solicitor should not be and should not have been a party.[115]Without waiting for a substantive response, which had been promised by Mr Newman by 18 May 2007, Mr Hawkes’ solicitors issued the petition on 3 May 2007 and served it on 4 May, the Friday of a Bank Holiday weekend. It runs to 100 pages. As summarised by HH Judge Havelock-Allan QC, it included 18 allegations against Mr Cuddy, including an allegation of forgery by backdating documents and by forging his wife’s signature. So far as the second forgery allegation was concerned, Mr Hawkes pleaded that he had been unaware that Mr Cuddy had signed Neath documents in his wife’s name. That allegation was rejected by Lewison J. The petition also included a defectively pleaded allegation, in paragraph 19.5, that Mr Cuddy had made secret profits; it was subsequently abandoned.[116]As mentioned above, an application for summary judgment was issued and served, for hearing on 23 May. Mr Newman ceased to act for the Cuddys, and Eversheds were instructed in the place of his firm. They had had no prior involvement, and not surprisingly sought an adjournment. However, by letter dated 21 May 2007 they informed Mr Hawkes’ solicitors that Mrs Cuddy was prepared to stand down as a director of Neath in favour of Mr Eric Evans, a solicitor who was independent of the Cuddys, and she subsequently did so with effect from 31 May 2007, his appointment then being made pending trial of the petition.[117]By letter dated 24 May 2007, Mr Hawkes asked for confirmation that the share in Osprey in the name of Mr Cuddy should be transferred to Neath, to whom it beneficially belonged. Mr Cuddy’s solicitors, in their letter of 5 June 2007, stated that he had sometime previously signed a stock transfer form in favour of Neath which had been lodged with Osprey’s company secretary. An order for its transfer was therefore unnecessary. In a letter of 15 June 2007 Osprey’s solicitors confirmed that Mr Cuddy had deposited the stock transfer form with them over 2 years previously, and stated that it would be laid before the Osprey board as soon as possible for the transfer to be completed.[118]It was clear from the beginning of these proceedings that Mr Hawkes’ object was to remove Mr Cuddy as a director of Osprey, although he did not seek to be appointed himself. Hence the repeated allegation in the unduly voluminous correspondence between solicitors that Mr Cuddy was not a fit and proper person to be a director. In Mr Hawkes’ solicitors’ letter to the solicitors for Swansea and Osprey dated 20 June 2007, they stated:
“Our client has made plain all along in these proceedings that he seeks the replacement of Mr Cuddy as Neath’s nominee director. We are pleased you have confirmed that you understand that our Petition does not state that Mr Hawkes seeks to replace Mr Cuddy with himself.”
Statements to like effect were made on behalf of Mr Hawkes during the trial.[119]Mr Hawkes failed to establish that Mr Cuddy was not a fit and proper person to be a director of Osprey. He did establish unfairly prejudicial conduct, but in relatively minor respects, and one matter, Mr Cuddy’s disclosure of Neath’s confidential information for the purposes of the trade mark proceedings, was not pleaded in the lengthy petition. In relation to one of the principal matters alleged, the breach of section 216, Mr Hawkes was held to have been complicit.[120]Mr Chivers submits, correctly, that the fact that a claimant does not obtain all the relief is not inconsistent with his being the substantial winner. However, the assessment of success in litigation certainly takes into account what the parties sought. It is clear that the judge took into account that to a minor extent Mr Hawkes had succeeded; but his success was so minor compared with his ambition as to justify the judge’s assessment. I therefore see no basis for arguing that the judge was not entitled to conclude that the Cuddys were in substance the victors after 23 July 2007, and I see no reason to differ from his order in that respect.[121]However, it seems to me that the judge erred in making his order in relation to the costs of the petition until 23 July 2007. If I assume that the costs incurred by Mr Cuddy and Mr Hawkes were equal, the effect of his order was to make Mr Cuddy liable for three-quarters of the combined costs for that period. Mr Cuddy has to bear his own costs of responding to the allegations in a petition that charged him with forgery and dishonesty, in circumstances where the allegation of dishonesty vis-à-vis Mr Hawkes must have been known by him to be unfounded: as the judge held in paragraph 39 of his judgment: Mr Hawkes’ allegations of forgery against Mr Cuddy were hypocritical, in that to the extent that Mr Cuddy was guilty of forging his wife’s signature on cheques, Mr Hawkes was equally guilty of inciting him to do so. Moreover, the success achieved by Mr Hawkes before HH Judge Havelock-Allan QC was ultimately of little moment.[122]The judge’s reasons for his order in relation to the costs of the petition until 23 July 2007 focused on who had been successful in the proceedings to that date, with a discount in relation to issues on which Mr Hawkes failed. In my judgment, he failed to take into account the manner in which the proceedings were commenced or, more importantly, the seriousness of the allegations of dishonesty made in the petition, which should never have been made. In this connection I refer to the passages from his judgment that I have italicised under paragraph 71 above. The latter matter, in particular, should have been marked by the costs order. Nor do I think that the judge’s discount of 50 per cent adequately reflected the extent of the allegations made in the petition that failed. Pumfrey LJ, in what was one of his last judgments, if not the last, in Monsanto Technology LLC v Cargill International SA [2007] EWHC 3113 (Pat), said: 7. … In relation to costs that can properly be allocated to issues upon which the party who is successful overall has nevertheless lost, there are two questions: should that party recover his costs of that issue, and should he pay the otherwise unsuccessful party’s costs incurred in respect of that issue? 8. The first question, ‘should he recover?’, is the question which was traditionally answered by the process of certification. The second question, ‘and should he pay the other side?’, is to be answered, it seems to me, having regard not merely to the reasonableness or lack of it in raising the issue at all, but upon it being established that there was something more than conduct justifying his being deprived of the costs of the issue in all the circumstances. I take the view that, as one moves away from the general rule that the unsuccessful party will be ordered to pay the costs of the successful party, an increasingly strong justification is required. 9. If there is justification for ordering the otherwise successful party to pay the costs of a particular issue to the other, it is often convenient to treat both parties’ costs of an issue as being equal and to double the deduction. So, if a party fails to recover costs of an issue amounting to 15% of his total costs, he will be deducted 30% of his costs if the court concludes that he should also pay the costs of that issue to the other. This is a rule of thumb, but is convenient when one comes to working out the resulting order.[123]This is a case in which Mr Hawkes should not recover the costs of his unfounded allegations, and Mr Cuddy should not be required to bear his own costs of those allegations, and in particular the most serious allegations of dishonest forgery and the making of secret profits. The judge’s order did not take into account the factor addressed by Pumfrey LJ at paragraph 9 of his judgment in Monsanto.[124]For these reasons, I consider that the appropriate costs order on the petition up to 23 July 2007, apart from those subject to the order of HH Judge Havelock-Allan QC, was that there should be no order, leaving each side to bear its own costs of the petition to that date.[125]However, I would not interfere with Lewison J’s order in relation to the costs of the hearing before HH Judge Havelock-Allan QC. Lewison J gave good reasons for his order in paragraph 27 of his judgment on costs. I see no basis for challenging his order in that respect. I similarly see no basis for interfering with the order made by the judge in relation to the costs before the Court of Appeal, which I would uphold for the reasons he gave.[126]Lastly, the deduction made by the judge from the costs recoverable by the Cuddys on the petition from 23 July 2007 appears to be low, but not so low that I see an arguable basis for an argument that his assessment was unfounded.[127]Ultimately, therefore, I would dismiss Mr Hawkes’ appeal on the issues in respect of which he had permission to appeal; I would otherwise refuse permission to appeal save in relation to the costs orders on the cross-petition and on the petition to 23 July 2007. So far as those are concerned, I would grant permission to appeal. I would vary the order made by the judge on the petition to no order for costs; and I would order Mr Cuddy to pay Mr Hawkes his costs on the cross-petition.[128]I agree.[129]I also agree. Annex: the Order made by Lewison J Upon the trial of the Petition and the Cross-Petition herein And this Court having delivered its Judgment herein on 13 December 2007 (“the Judgment”) And upon hearing Counsel for the Petitioner (“Mr. Hawkes”), Counsel for the 1st and 2nd Respondents (“Mr. and Mrs. Cuddy” respectively and “the Cuddys” collectively), Counsel for the 4th Respondent (“Ospreys”), and Counsel for the 3rd Respondent (“Neath”) And upon Swansea RFC Limited (“Swansea”) by Counsel for the 4th Respondent instructed for this purpose agreeing to the terms set out in the Schedule hereto IT IS ORDERED THAT: (1). The affairs of the 3rd Respondent (“Neath”) be conducted in accordance with the terms set out in the Schedule hereto. (2). That part of Mr. Hawkes’ application by notice dated 19 September 2007 which has not yet been disposed of be dismissed. (3). The Cuddys do pay 50% of Mr. Hawkes’ costs of the Petition up to and including 23 July 2007. (4). Mr. Hawkes do pay 90% of the Cuddys’ costs of the Petition after 23 July 2007 (including their costs of Mr Hawkes’ application of 19 September 2007). (5). There be no order as to the costs of the Cuddys’ appeal to the Court of Appeal in the Petition. (6). The Cuddys do pay Mr. Hawkes’ costs of the Cuddys’ appeal to the Court of Appeal in the Cross-Petition. (7). The orders as to costs in paragraphs 2 and 4 of the order made in the Petition by HH Judge Havelock-Allan QC on 23 July 2007 do stand, and the order in paragraph 5 thereof be set aside. (8). There be no order as to the costs as between Neath and the Cuddys of Neath’s application by notice dated 19 June 2007 in the Cross-Petition. (9). The Cuddys do pay Mr. Hawkes’ costs of the Cross-Petition until [23][22] October 2007 (including the costs of Mr Hawkes’ application by notice dated 13 June 2007 in the Cross-Petition). (10). Mr. Hawkes do pay the Cuddys’ costs of the Cross-Petition after [23][22] October 2007. (11). For the avoidance of doubt all orders as to costs as between Mr. Hawkes and the Cuddys be set off against each other. (12). Mr Hawkes do pay the Ospreys’ costs down to and including 5 October 2007, which are limited to and include the following:(i) Those costs up to 2 August 2007 as identified in paragraphs 7 and 8 of the order dated 2 August 2007 (including the costs of the preparation and service of witness statements);(ii) Costs of the Ospreys’ statement of case;(iii) The Ospreys costs of the application to remove Mr Cuddy of 19 September and of the PTR on 5 October 2007;(iv) The Ospreys costs of the disclosure they gave;(v) The Ospreys costs of the preparation of the evidence that the Ospreys filed [relating to the Ospreys’ Issue] from 3 August 2007 down to 5 October 2007; such costs to go to a detailed assessment if not agreed. (13). Mr Hawkes do pay to the Ospreys on account of his liability for costs under the previous paragraph a sum of £50,000 by 1 February 2008. (14). Costs be the subject of detailed assessment if not agreed. (15). Mr. Hawkes do have permission to appeal on two legal issues, namely: (i) What duties a nominee director of a company owes to (a) the company and (b) his appointor ; and (ii) The extent to which Mr Cuddy’s activities in relation to the Ospreys constituted the affairs of Neath for the purposes of section 994 of the Companies Act 2006 (formerly section 459 of the Companies Act 1985). Save as aforesaid Mr. Hawkes’ application for permission to appeal (including his application for permission to appeal against the order as to costs made herein) be refused. (16). The application by the Cuddys for permission to appeal against the order as to costs made herein be refused. SCHEDULE The Ospreys’ board

SCHEDULE

[1]There shall be four members of the board of directors of the Ospreys.[2]Swansea shall be entitled to appoint (and to remove any director appointed by it) two directors.[3]Neath shall be entitled to appoint the other two directors, one of whom shall be Mr. Cuddy or any other person appointed by Mrs. Cuddy, and the other shall be a person (other than Mr. Hawkes) appointed by Mr. Hawkes. Mrs. Cuddy and Mr. Hawkes shall have the right to remove any director appointed by her or him respectively.[4]Clauses 1-3 above may be varied by the unanimous agreement in writing of Mr Hawkes, Mrs Cuddy and Swansea.

The Neath board

[5]Mrs. Cuddy shall have the right to appoint (and to remove any director appointed by her) one director to the board of directors of Neath (other than herself or Mr. Cuddy).[6]Subject thereto, the directors of Neath shall be appointed by Mr. Hawkes, who shall have the right to remove any director appointed by him. If there are only two directors (one of which is Mrs. Cuddy’s nominee) Mr. Hawkes or any director nominated by him shall have a casting vote.

General meeting of Neath

[7]The manner in which any vote attached to Neath’s share in the 4th Respondent shall be exercised at any general meeting of the 4th Respondent shall be determined by Mr. Hawkes and Mrs. Cuddy in a general meeting of Neath.[8]In the event of any deadlock between Mr. Hawkes and Mrs. Cuddy over any matter arising in any general meeting of Neath (including but not limited to the exercise of any vote attached to Neath’s share in the Ospreys), the said disagreement shall be resolved by a person nominated by the President of the Institute of Chartered Accountants of England and Wales who shall act as an expert and not an arbitrator and whose decision shall be final and binding.

General

[9]Clauses 5-8 above may be varied by the unanimous agreement of Mr Hawkes and Mrs Cuddy.[10]In the case of any conflict between the provisions of this Schedule and the contents of the memorandum and articles of association of Neath and the Ospreys respectively or of the Shareholders’ Agreement between Neath and Swansea dated 25th April 2005, the provisions of this Schedule shall prevail.[11]The rights granted hereunder (including for the avoidance of doubt those under clauses 4 and 9) shall attach to the shares currently held in Neath and the Ospreys respectively as if the terms hereof were contained in their respective Articles of Association.

Cited in 43 later judgments

and 34 more of the most senior