Carl Baker v Anthony Potter And Bellevue Garages Limited [2004] EWHC 1422 (Ch)

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

COMPANIES COURT

[2004] EWHC 1422 (Ch)

Case No Case No: 2789 of 2003

Venue Royal Courts of Justice, Strand, London, WC2A 2LL

Between

Carl BakerApplicant

Anthony Potter And Bellevue Garages LimitedRespondents

Before

Mr Justice David Richards

Matthew Hardwick (instructed by Machins) for the Applicant

Jonathan Gavaghan (instructed by Taylor Walton) for the Respondents

Hearing dates: 17, 18, 19, 20, 23, 24, 25, 26 and 27 February 2004

[1]Mr Justice David Richards : Introduction This is a petition under Section 459 of the Companies Act 1985 concerning a company called Bellevue Garage Limited (the company). The only shareholders are the Petitioner Carl Baker and the first Respondent Anthony Potter. Each of them holds one share. In the petition Mr Baker alleges that the affairs of the company have been conducted, as regards a number of matters, in a manner which is unfairly prejudicial to his interests as a member. His allegations include that he was wrongly prevented from participating in the management of the company, that he was not paid dividends when dividends were paid to Mr Potter, and that Mr Potter wrongfully diverted a corporate opportunity to himself. Mr Potter denies the allegations and claims that an oral agreement was made between Mr Baker and himself for the purchase of Mr Baker's share. Mr Potter seeks, by way of counterclaim, an order for specific performance of that alleged oral agreement.

[2]It is necessary to consider the relationship between Mr Baker's claim for relief under section 459 and Mr Potter's claim for specific performance of the alleged agreement to purchase Mr Baker's share. I should say now that, for the reasons set out in detail in this judgment, I have concluded that the oral agreement was made, as alleged by Mr Potter. However, Mr Baker is still the registered holder of his share and therefore, as a member, has standing to make a claim under section 459. He has not on any view been paid the entire purchase price for his share, and, if he could establish actual or threatened acts of unfair prejudice, he might well be entitled to injunctive relief in order to protect the value of his shareholding and his rights as a shareholder, pending completion of the sale and as a precaution if the sale is not completed.

[3]The position is, however, rather different with respect to any financial relief. By agreeing to sell his share to Mr Potter, Mr Baker has converted his interest in the company into a right to receive the purchase price from Mr Potter. If there had been any improper extraction of funds or other assets from the company by Mr Potter before the sale agreement, there might be a case for financial relief in favour of Mr Baker, notwithstanding the agreement. The agreement would not of itself amount to a waiver of any accrued rights. Financial relief is not however appropriate in respect of the alleged unfairly prejudicial acts or conduct which occurred after the agreement. Provided he is paid the agreed price for his share, he will have suffered no prejudice. This position might well change if Mr Potter were unable or refused to complete the purchase and the contract were terminated.

[4]In this judgment I will consider first the facts, particularly as they relate to the establishment of Bellevue Garage Limited and the alleged oral agreement. I will then deal with the issues relating to the alleged agreement. Finally I will deal with the facts and merits of the various instances of unfair prejudice alleged by Mr Baker. Facts

[5]The company was incorporated in November 1998 to carry on a garage business at a property known as Bellevue Garage, 304 Luton Road, Dunstable, Bedfordshire.

[6]Mr Baker and Mr Potter had known each other socially since 1996. They met because their partners, Martha Weyman in the case of Mr Baker and Sarah Weyman in the case of Mr Potter, are sisters. Martha Weyman worked as an airline stewardess and took no interest in Mr Baker's business dealings, whereas by contrast Sarah Weyman took considerable interest in Mr Potter's business affairs. Mr Potter had been involved in the motor trade since about 1993 when he began buying and selling cars as a sole trader under the trade name of TP Car Sales. By 1998 his income from the business was about £4,000 per month before tax. Mr Baker is a US citizen presently living in France but with substantial connections with Egypt. He was described by his counsel as an international consultant, involved in a number of businesses and with a number of homes. He says in his witness statement that he serves on the board of several multi-national companies as a consultant. He presents himself as a man of considerable means. In his oral evidence he stated that he had a large yacht and homes and other property in Cairo, Paris, the South of France, New Orleans, Turkey and Japan. Mr Potter and Sarah Weyman detailed in their witness statements allegations of statements said to have been by Mr Baker about himself, his wealth and his business interests and contended that many of these statements were untrue or exaggerated. There was some cross-examination of Mr Baker on these matters, but I made clear that I was able to decide the issues in the case without going into these allegations. They went largely to Mr Baker's credibility and threatened to give rise to a trial within a trial. I have disregarded the allegations in reaching my conclusions.

[7]In about the summer of 1998 Mr Potter became aware that the business of Bellevue Garage was for sale. Its business was selling nearly-new Vauxhall vehicles. The Bellevue business was owned by Alistair Buchan and his wife. Mr Potter had traded with them, and by 1997 Mr Potter was supplying about 60 per cent of the cars sold by Bellevue Garage. The Buchans put their business on the market for £150,000 but following negotiations Mr Potter agreed with them a price of £105,000 to purchase the business, comprising the goodwill, stock and the lease of the property. This agreement in principle was reached in about July 1998.

[8]Mr Potter was not in a position to fund the full amount of the purchase price himself and, while negotiating with the Buchans, he approached Mr Baker with a view to seeing whether he was interested in becoming involved. He and Mr Baker had previously discussed business in a general way and specifically had discussed Mr Potter's existing business. According to Mr Potter, Mr Baker had indicated that if Mr Potter ever wanted help Mr Baker would be happy to lend money to expand the business or assist in any business venture.

[9]The terms on which Mr Baker agreed to provide finance for the acquisition of the Bellevue Garage business is the first of many matters in this case on which there is a sharp division of evidence between the parties. Mr Potter's evidence is that he approached Mr Baker to ask for a loan. He did not at first, he says, put forward a specific figure but after making calculations he concluded that he needed a contribution of around £90,000 to acquire the business and sufficient stock for the first few months' trading. Mr Potter says that Mr Baker immediately agreed to lend the sum of £90,000 and made it clear that Mr Potter could repay it at any time once he was in a position to do so. He said that he wished to have a return on his loan, but the amount of any return was never discussed. It was soon after this conversation that Mr Potter negotiated the purchase price for the business with the Buchans. He says that he then spoke to his accountant Philip Mooney, who advised that the business should be run through a company. He says that he discussed this with Mr Baker at the time, who agreed with the proposal. In his witness statement, Mr Potter says that in around September/October 1998 he was coming under pressure to complete the purchase and was in turn pressing Mr Baker to provide funds. He says that it was only in October/November 1998 that Mr Baker said that his accountants had advised him that he needed to have a share in the company and his name on the lease to protect himself. Mr Potter agreed to this, but it was his understanding that Mr Baker would have no interest in the company once the loan had been repaid together with a further amount by way of return on his loan.

[10]Mr Baker's account of this approach is that Mr Potter proposed to him that they should set up in business together, purchasing the garage business and entering into a partnership selling cars and providing car maintenance from the garage. He says that it was agreed that Mr Potter should have day-to-day management of the business and that he would assist in a consultancy capacity as and when necessary, but that they would both be responsible for the business and both be directors. He says that Mr Potter and he jointly instructed Taylor Walton, solicitors, to act for them in relation to the purchase of the garage. Mr Baker rejects Mr Potter's evidence that his contribution was by way of a loan, describing it as "an absurd suggestion".

[11]On 3 August 1998 the vendors' agents wrote to Mr Potter, setting out the terms agreed for the purchase, subject to contract, and stating the purchasers to be Mr Potter and Mr Baker. Mr Potter consulted Steven Griffiths, a partner in a firm of solicitors, Taylor Walton. On 4 August 1998 Mr Griffiths wrote a letter addressed to both Mr Potter and Mr Baker, which began as follows:

"Further to my recent meeting with Mr Potter I write to confirm that I should be most happy to act for you both in respect of your purchase of the above business at a premium of £105,000."

These letters are consistent with Mr Baker's evidence that from the start he and Mr Potter, or a company jointly owned by them, were to purchase and own the garage business, rather than with Mr Potter's suggestion that Mr Baker's only involvement would be as the lender of part of the funds needed for the purchase. It does not however follow that the funds to be provided by Mr Baker would not be loans nor that they were to run the business as partners. I return later to these issues.

[12]Mr Mooney arranged for the company to be incorporated for Mr Baker and Mr Potter on 16 November 1998. The two subscriber shares were transferred to Mr Baker and Mr Potter, and Mr Potter was appointed as a director. He remained the sole director until 30 July 2002 when Sarah Weyman, who had been appointed the secretary of the company in November 1998, was appointed as a second director. Mr Potter's evidence is that it was understood that Mr Baker would not be involved in the management of the business which would be in the hands of Mr Potter. Mr Baker alleges that both he and Mr Potter would be directors. He alleges that he was satisfied to delegate the day-to-day management of the company to Mr Potter but that it was his understanding and expectation that he would at all material times be entitled to become involved in the management of the company and that this would flow from his status as a joint venturer in the business.

[13]The agreement for the sale of the Bellevue Garage business was made on 20 January 1999. It provided for a sale of the goodwill and book-debts of the business at a price of £85,000, sale of the fixtures, fittings and equipment for £20,000, a sale of stock at valuation and an assignment of the lease for nil consideration. The lease had been made on 5 October 1989 for a period of fifteen years. Completion took place on 1 February 1999. Surprisingly the purchasers are named as Mr Potter and Mr Baker, rather than the company. It is however common ground that from completion it was the company that carried on the business at Bellevue Garage and all the evidence demonstrates that Mr Baker and Mr Potter regarded the business and the stock and the lease as belonging to the company rather than to them personally.

[14]The articles of association of the company were and have remained in a largely standard form, for the most part adopting Table A in the schedule to the Companies (Tables A-F) Regulations 1985. In particular the articles expressly confer the general power of management on the directors. The articles do not contain any special provisions for individual members or the holders of a certain percentage of shares in the company to appoint one or more directors. Accordingly, so far as the Articles are concerned, directors are to be appointed either by the existing directors or by an ordinary resolution of the shareholders.

[15]Mr Baker considered that it would be appropriate to enter into an agreement with Mr Potter as regards the way in which the business would be run. He supplied to Mr Potter a draft agreement entitled "Joint Venture and Shareholders Agreement" which was expressed to be made between Mr Potter and himself. The document produced in evidence by Mr Baker, and purporting to be this agreement, bears on page 5 the signature of Mr Potter dated 12 January 1999 and the signature of Mr Baker dated 19 January 1999, in each case witnessed by Mr Griffiths of Taylor Walton.

[16]There has been a good deal of controversy about this document. Mr Baker asserts that it is the agreement which he produced and which was signed by Mr Potter and himself. In his defence Mr Potter admits that a few days before 19 January 1999 he had signed at Mr Baker's request a document, which on 19 January 1999 was signed and witnessed in his presence by Mr Baker at the offices of Taylor Walton. It is also alleged in the defence that Mr Potter recalls reading the document he signed and that he is satisfied that the document put in evidence by Mr Baker, or at any rate the first four pages of it, was not the document he signed. In his witness statement and in his oral evidence, Mr Potter's position changed to the extent that he accepted that it is his writing on the first page of the document where the date is inserted and that it is his signature on the final page. However he continued to say that he did not recall ever having seen pages 2, 3 and 4 of the document produced by Mr Baker and asserted that they were not pages 2, 3 and 4 of the shareholders agreement which he signed. He states that he would not have signed a document conferring on Mr Baker powers of participation in the management of the business because he wanted total control of the company without interference from anyone else, and he remembers that the agreement which he signed contained a provision to protect Mr Baker's interests outside the UK. He is suspicious about the circumstances in which the document was provided to his solicitors in the summer of 2002. On 18 July 2002 only a copy of the signature page was provided to his solicitors and, despite repeated requests in July and August, a copy of the full agreement was not provided until 20 August 2002. He says that he thinks that during that time Mr Baker may have been producing a different version of the document which he attached as pages 2, 3 and 4. Against the background where he was seeking to prevent Mr Baker from taking a part of the management of the company, he says he believes it to be more than a coincidence that pages 2, 3 and 4 should be produced so late and should give Mr Baker the right to participation in management which he had been attempting to assert.

[17]It is clear that a draft shareholders' agreement in some form was brought by Martha Weyman from Mr Baker in Cairo to Sarah Weyman in England and passed to Mr Potter on or shortly before 12 January 1999. There is no reason to doubt Mr Baker's evidence that it was drafted for him by lawyers who are based in Egypt and America. Mr Baker's evidence is also that its terms were based on notes made by him of "what had been orally agreed with [Mr Potter] including the fact that he would receive a salary and we would both receive 50% each of dividends". Mr Potter denies that the agreement reflects an oral agreement. The notes have not been found and there is no evidence, other than Mr Baker's, that the terms of the agreement reflect an oral agreement. The written agreement contains no reference to Mr Potter receiving a salary or to dividends. I am satisfied that there was no prior oral agreement as alleged by Mr Baker. I find that the draft agreement provided by him contained terms which he wanted to be agreed. I also reject Mr Baker's evidence, given orally but not in his witness statement, that he had a telephone discussion with Mr Griffiths about the draft agreement before the meeting on 19 January 1999.

[18]In his written statement, Mr Potter stated that after receipt of the draft agreement he read it but could not fully understand it and so, at Sarah Weyman's suggestion, he rang Mr Baker to find out its purpose. He goes on to say that Mr Baker said it was to protect his other business interests outside the UK. Mr Potter then read it again and, as it appeared to contain provisions to achieve that object, he signed it. In her witness statement, Sarah Weyman confirmed most of this account. She said that she too read the draft agreement, which contained a provision to the effect that one party would take control if the other died or lost his mind and provisions to protect Mr Baker's interests outside the UK. She was however annoyed that Mr Potter signed a document which he did not fully understand and suggested to him that he should not have signed it without first checking it with Mr Griffiths.

[19]In their oral evidence the account given by Mr Potter and Sarah Weyman of the circumstances in which he signed the agreement was somewhat different. Mr Potter accepted that Mr Baker did not tell him that the agreement was about his business interests outside the UK but said that it was in the agreement. He said that he did not remember much of the agreement, but the thing that stood out to him was the protection for Mr Baker's other business interests. In her oral evidence, Sarah Weyman said that "as usual" Mr Potter did not read it but signed it. She said that she did read it through, because she was particularly concerned to know her position and that of their child if Mr Potter died. She said that she saw the provisions to which she refers in her witness statement. Mr Baker agrees that he had a telephone conversation about the agreement but denies that he said anything about its purpose being to protect his outside business interests.

[20]The differences in the evidence continue in relation to the meeting on 19 January 1999 at Taylor Walton's offices, at which all agree that Mr Baker signed page 5 and Mr Griffiths signed as witness to the signatures of both parties. Mr Baker's evidence was that Mr Griffiths said that the agreement was not how he would have drawn it up, but it was fine and that neither of Mr Baker and Mr Potter had more to gain than the other. Copies of the executed agreement were taken and given to Mr Baker, Mr Potter and Mr Griffiths. Mr Potter's evidence was that he asked Mr Griffiths to check the agreement and that, after reading it, Mr Griffiths said that he should not really advise on it but he did not think the agreement was a problem because it would not stand up in court.

[21]In his evidence Mr Griffiths confirmed his signature as witness on page 5 but said that he has no recollection of the agreement, or indeed of the meeting on 19 January 1999. However, he was confident in his written and oral evidence that he did not advise at all on the agreement and did no more than witness the parties' signatures. He gave a number of reasons for this. First, he is a property lawyer, not a company/commercial lawyer, and does not advise on agreements of this sort. There are other solicitors in his firm well qualified to give such advice and, if he had been asked for any advice on it, he would have involved one of his colleagues, as indeed he did in December 2001 in relation to the alleged oral agreement for the sale of Mr Baker's shares. For this reason he would not have said, as Mr Baker recalls, that it is not how he would have drafted the agreement, because it is not the type of agreement that he ever drafted. Secondly, there is no copy of the agreement on his file, whereas if he had advised on it he would have retained a copy on the file.

[22]I have no hesitation in accepting Mr Griffiths' evidence. Having observed him, I agree with him that it is most improbable that he would have given even an off the cuff opinion of a matter such as this agreement on which he has no expertise. I would add that in circumstances where he was obviously advising both Mr Potter and Mr Baker, he would not have told Mr Potter that the agreement was not a problem because it would not stand up in court. I am satisfied that he would not have given private, one-sided advice to one of his two clients.

[23]Mr Potter's allegation that Mr Baker substituted three new pages for pages 2, 3 and 4 of the agreement as signed and then presented it to the court as the true agreement is very serious. It is not an allegation which I can accept. Mr Potter's own evidence that he read the agreement and noticed the provisions protecting Mr Baker's interests outside the UK is undermined by Sarah Weyman's evidence that he did not read it, evidence which I accept. His written evidence that Mr Baker told him that its purpose was to protect the latter's business interests outside the UK is undermined by Mr Potter's oral evidence that Mr Baker did not say that but it was in the agreement. This leaves Sarah Weyman's evidence that she did read the agreement, because she was concerned about her position in the event of Mr Potter's death, and noticed provisions dealing with control if one party died or lost his mind and also provisions protecting Mr Baker's business interests outside the UK. I do not regard her recollection some years after the event as being a basis on which to find that Mr Baker has doctored the document, especially as she accepts that she did not fully understand the agreement. The company's articles of association contain share pre-emption provisions operable in the event of a shareholder's death and provisions for a director to vacate office if, among other events, he becomes mentally incapable. I asked Sarah Weyman if she had looked at the articles and she said that she had not done so. However, I think it is quite possible that her recollection of provisions dealing with a party dying or losing his mind is based on those provisions in the articles.

[24]Mr Potter placed great emphasis on the circumstances in which only page 5 of the agreement was at first produced by Mr Baker's solicitors on 18 July 2002, with the full agreement being provided on 20 August 2002. Having looked carefully at the relevant correspondence, there is in my judgment no basis for believing that it was tampered with in that period, particularly as it appears from the letter dated 18 July 2002 from Mr Baker's solicitors that they were holding a copy of the full agreement. Finally, it is to be noted that, despite his allegations, Mr Potter chose not to subject the original document to any form of expert examination.

[25]Accepting that the agreement was signed in the form put forward by Mr Baker, it is nonetheless on any basis a very odd document to produce in relation to the participation of Mr Baker and Mr Potter in the company. It is drafted on the basis not that they are already shareholders in the company but, as stated in the first recital, that they desire to form a limited partnership. The second recital states that:

"The parties believe it is desirable and in their mutual interests to set forth their agreements with respect to the formation and management of the Limited Partnership, the transferability of their respective interests in the Limited Partnership, and other matters."

Clause 1.1 of the agreement is in the following terms:

"The parties hereby agree to cause a new Limited Partnership to be organised under International Law, to be known as Bellevue Ltd (DBA) Bellevue Garage - Dunstable. Herein after referred to as the Limited Partnership, with Articles of Incorporation/Limited Partnership in substantially the form attached hereto as Exhibit A, and by-laws in substantially the form attached hereto as Exhibit B."

It is unclear what the draftsman had in mind when he referred to a limited partnership to be organised under international law but, whatever it was, it was certainly not the company. No "articles of incorporation/limited partnership" or bye-laws are exhibited to the agreement in evidence and Mr Baker confirmed in his oral evidence that none had ever been prepared.

[26]Clause2.1 provides that the Limited Partnership shall have "an authorised capital of 200,000 shares of common stock, par value one British pound per share" and Clause

2.2 provides that Mr Potter and Mr Baker should each purchase 100,000 shares at a total purchase price of £100,000 each. Clause

3.1 provides that the business affairs of what is then called the corporation should be managed and conducted by its board of directors as provided by law and by the Articles of Incorporation and By-laws of the Limited Partnership and Clause

3.2 provides that the board of directors should at all time consist of two or more members. It goes on to provide as follows:

"So long as any party hereto owns not less than 10% of the outstanding shares of the Limited Partnership, such party shall have the absolute right to elect one member of the board of directors. In the event any member of the board resigns, is removed or is unable to or unwilling to serve as a director of the Limited Partnership, the party who elected such member shall have the sole right to elect and appoint a successor. Attendance of at least majority members shall be required to constitute a quorum for any meeting of the board, unless otherwise agreed by the parties hereto in writing, which agreement shall be placed with the minutes of such meeting, and no action shall be taken by the board of directors either with or without a meeting except by the affirmative vote and consent of a majority of the board…"

[27]Clause 4.1 provides for the maintenance of the books and records of the Limited Partnership and provides that:

"The books and records will be maintained at the principal offices of the Limited Partnership and will be available for examination by any party at reasonable time during regular business hours."

Clause 4.2 provides for the preparation and delivery to each party within ninety days of the end of each fiscal year of an unaudited balance sheet of the Limited Partnership and statements of income, retained earnings and changes in financial position for the period then ended and also for the preparation and delivery to the parties within a reasonable time after the end of each fiscal quarter of an unaudited balance sheet and statement of income for such fiscal quarter. Clause 7 contains an entire agreement provision.

[28]In my judgment this agreement can have no legal effect as a contract between the parties. It relates to an entity, a limited partnership said to be organised under international law, which the parties had not agreed to form and which bore no obvious relationship with the company formed under the Companies Act 1985 which the parties had already formed. The Articles of Incorporation and By-laws said to be exhibits A and B are an essential part of the agreement but were never drafted, still less agreed.

[29]If it does not take effect as a contract, Mr Baker maintains that it nonetheless sets out and evidences the basis on which he and Mr Potter were to participate in the company. In particular it provides that each of them, by reason of holding more than 10% of the shares, would have the right to appoint a director and sets out the right of each of them to inspect the books and records of the company. There is however a good deal in this agreement which is inconsistent with the way in which the company was set up and operated, even leaving aside the fact that this agreement refers to a limited partnership. First and most obviously Mr Potter and Mr Baker took one share of £1 each only, not 100,000 shares each at a total cost to each of them of £100,000. Secondly, contrary to the express provisions of clause 3.2 the board of directors from incorporation until July 2002 did not consist of two or more members. It consisted only of Mr Potter. Mr Baker took no part in the management of the business and in reality Mr Potter acted as the only director. Mr Baker raised no objection to this state of affairs. It was therefore impossible to operate the board of directors in accordance with the provisions of clause 3.2, requiring a quorum of the majority of the members of the board and an affirmative vote of the majority of the members of the board before any action could be taken by the board.

[30]To the extent that there may be other evidence to establish, for example, that Mr Baker and Mr Potter agreed that each would have the right to appoint a director of the company, provisions of this agreement may corroborate that evidence. But the inconsistencies between the agreement and what in fact occurred are so great that I do not consider that either party can rely on any particular provision as on its own establishing any right or understanding as against the other party.

[31]The total amount needed for completion of the agreement with Mr and Mrs Buchan, including costs, was £124,739.82. This was provided as to £63,650 by a set off of the amount due from Mr and Mrs Buchan to Mr Potter's business, TP Car Sales, and as to the balance by funds provided by Mr Baker. He provided £24,986 by transfer into the company's bank account on 11 January 1999. Completion was effected using those funds and a further sum of £36,103 borrowed from the bank under the company's overdraft facility. On 4 March 1999 this was in effect refunded by Mr Baker who paid £49,986 into the company's account. Accordingly Mr Baker provided just under £75,000, of which £61,089 was directly or indirectly used in the purchase of the business. Mr Baker alleged in his points of reply, but not in the petition, that he contributed a further £15,000 in cash in February 1999 towards the purchase of stock and payment of expenses. Mr Potter's evidence was that he chased Mr Baker for an extra £15,000, to bring his contribution up to £90,000, but it was not paid. There is no evidence, other than Mr Baker's written and oral evidence, that this sum was paid. I do not accept Mr Baker's evidence and I am satisfied that it was not paid.

[32]The company commenced the business of dealing in nearly-new Vauxhall cars from 1 February 1999. The business was conducted by Mr Potter without any significant involvement by Mr Baker. Mr Potter was, as I have mentioned, the only director of the company. In paragraph 10 of his witness statement Mr Baker says that, although he left day-to-day running of the business to Mr Potter, he nonetheless understood that he was part of the management of the business and that he would be entitled to examine the company's books and records when he desired. It does not however appear that during 1999 or 2000 or indeed throughout most of 2001 Mr Baker sought to participate in the management of the business or to examine the books and records of the company. There is no record of any complaint that he was not a director or any complaint that he was not summoned to meetings of directors.

[33]Between November 1999 and January 2001 a number of payments were made by the Company, and in one case by Mr Potter, to or on behalf of Mr Baker and Martha Weyman. The purpose of these payments is in dispute. It is Mr Potter's case that the sums totalling £74,792 paid by Mr Baker to the company in early 1999 were loans and that the disputed payments were repayments of those loans. Mr Baker denies that the monies paid by him to the company were loans and says that the disputed payments were, in two cases, consultancy fees and, in the case of payments to Martha Weyman, repayments of personal loans made by her to Mr Potter and Sarah Weyman. The resolution of these disputes is closely connected with the central dispute as to whether an oral agreement for the sale of Mr Baker's share was made and I will consider these issues together.

[34]Little else of significance to these proceedings occurred until November 2001 when, as alleged by Mr Potter, he and Mr Baker orally agreed that he would purchase Mr Baker's share. Mr Baker and Mr Potter are agreed that they had a discussion about the company after dinner one evening in November 2001 at the house of Mr Potter and Sarah Weyman. Sarah Weyman participated in the discussion, although from time to time made tea or coffee and talked to her sister. Martha Weyman was not involved in the discussion. It is the evidence of both parties that they anticipated having a discussion about the company. Mr Baker says that by the autumn of 2001 he had become concerned at the apparent failure of the company to return any profit and at the failure of Mr Potter, despite requests, to arrange a meeting with Mr Mooney to discuss the company's financial position. He says that he raised these concerns with Mr Potter in a telephone conversation and was told that the company was not making a profit. Mr Baker says that he told Mr Potter that he wanted to become actively involved in the company and would exercise his rights under the shareholders agreement. Mr Potter denies this conversation, but he had discussed with Sarah Weyman that he would make an offer to buy Mr Baker's share.

[35]Mr Baker agrees that in the discussion after dinner Mr Potter offered to buy his shares for £100,000. Mr Baker says that in response he offered to buy Mr Potter's shares for £100,000 and the "bantering" continued without any agreement. Mr Potter and Sarah Weyman say that agreement was reached that he would buy Mr Baker's share for £100,000, of which £40,000 would be paid as soon as possible, with a payment of an additional sum of £50,000 if the lease of the garage premises were renewed in June 2004.

[36]The evidence of both Mr Potter and Sarah Weyman is that Mr Potter told Mr Baker that the company was not doing very well and Sarah Weyman said that they had been told by the accountant that, if things continued as they were, there would be no company in a few months. Sarah Weyman's statement was, as she accepted in her evidence, untrue. She accepted that it was a lie, although she preferred to call it "a bargaining tool". She said it to persuade Mr Baker, as she put it in evidence, "to take less of a bung". Mr Potter knew it was untrue and said nothing to correct it.

[37]According to the evidence of Mr Potter and Sarah Weyman, Martha Weyman telephoned one of them a few days after this discussion and asked for the first instalment of the price to be paid as soon as possible. A sum of £10,000 was paid from the company's account to Mr Baker on 19 November 2001. Mr Potter says that this was a first instalment of the purchase price, while Mr Baker says that it was his annual consultancy fee. A further £30,000 was paid from the company's account to Martha Weyman on 16 January 2002. Mr Potter says that this was the balance of the initial sum of £40,000 to be paid for the shares, paid at Mr Baker's request to Martha. Mr Baker and Martha Weyman say that it was the repayment of personal loans previously made by Martha to Sarah. Was the oral sale agreement made?

[38]In considering whether the oral agreement alleged by Mr Potter was in fact made, it is necessary to consider a number of matters: i. the relevant events following the discussion after dinner in November 2001; ii. the rival explanations for the payments of £10,000 and £30,000 made in November 2001 and January 2002; iii. the explanations given by Mr Baker and Martha Weyman for those payments are inextricably linked with their explanations for the payments made to them between November 1999 and January 2001 and it is therefore necessary to examine the true purpose of those payments; iv. arising out of (iii), whether the payments made by Mr Baker to the company in early January 1999 were loans or, as he maintains, capital investments. I shall set out the facts relevant to these issues before making findings on those issues and on the issue of the oral agreement. The connection between all these issues are such that it is not possible to make findings on the principal points or on the credibility of the evidence given by the witnesses without taking the issues together.

(i) Events after the discussion

[39]Mr Potter says that at the end of the evening when the agreement was made, Mr Baker agreed that he would instruct his solicitors to draw up a short document to record the agreement and send it to Mr Potter. No such document was ever sent to Mr Potter. Mr Potter contacted Mr Griffiths of Taylor Walton in late November 2001. Mr Griffiths' attendance note of a telephone conversation with Mr Potter on 12 December 2001 reads as follows:

"Attending Tony Potter on the telephone. He has agreed to purchase Dr Baker's interest in the business for £100,000. He has already paid £10,000, £30,000 is to be paid when completion takes place (or possibly just a letter in an agreed form confirming the arrangement) with the balance £60,000 (to be paid over 30 months) I pointed out that the sensible step is to obtain the landlord's confirmation that he will grant his licence to the lease being assigned. Dr Baker is anxious for matters to proceed quicker than this however and can we not produce a letter which has contractual effect setting out the deal. I said that I would consider this."

Jottings made by Mr Griffiths during the conversation also record that the sum of £60,000 was to be paid by instalments of £2000 per month. It was suggested to Mr Griffiths in cross-examination that this note was prepared in January 2002 or some time later at the request of Taylor Walton's litigation department. Mr Griffith's evidence, which I accept, was that he prepared the note very shortly after the conversation and it was confirmed by Taylor Walton's electronic records that it was entered on their system on 14 December 2001. I am satisfied that it accurately records what Mr Potter told Mr Griffiths.

[40]As mentioned earlier, Mr Griffiths is a property lawyer, and does not undertake company/commercial work. Accordingly he referred this matter for Mr Potter to a partner in the commercial department, Michael Pettit, who immediately involved an assistant solicitor, Dipika Thakur. She had a meeting with Mr Potter to take instructions on 21 January 2002. It lasted from 9.45 to 10.15am and was immediately followed by a discussion between Ms Thakur and Mr Pettit for 15 minutes. She made handwritten notes during those meetings. They show that Mr Potter told her that Mr Baker would sell his share or shares to Mr Potter for £100,000 of which £40,000 had been paid and the balance of £60,000 would be paid over the next 30 months at £2,000 per month. The note also records that if the lease (of the garage premises) which expired in June 2004 was renewed, a further £50,000 would be paid. The note of the meeting with Mr Potter also includes the words "by cheque to Martha Weyman (sister-in-law)". The note of the subsequent discussion with Mr Pettit includes "£40k – returnable deposit". This reflected the concern of Ms Thakur and Mr Pettit that Mr Potter had already paid £40,000 without any written agreement. The words "returnable deposit" was their description. Ms Thakur did not remember Mr Potter using these words and does not think that he would have done so. Mr Potter was firm in his evidence that he did not use those words and I find that he did not do so.

[41]Ms Thakur prepared a draft of a letter to Mr Potter which was finalised after discussion with Mr Pettit. The letter contains the following: "1. You are purchasing Dr Carl Baker's entire shareholding in Bellevue Garage Limited ("the Company"). Dr Baker is the registered holder of 49 shares in the Company.

[2]You have agreed to pay Dr Baker £100,000 for the shares and a further £50,000 if the present lease in respect of the Company's premises at 304 Luton Road, Dunstable, which expires in June 2004, is renewed (the Sale and Purchase Agreement will specify that the renewal terms must be broadly similar to the existing terms.).

[3]You have already paid Dr Baker £40,000 of the £100,000 mentioned above. You have agreed that you will pay him the remaining £60,000 over the next 30 months as and when you choose. Payments will be made by cheque and given to your sister-in-law, Martha Weyman.

[4]Dr Baker wishes to be released from his obligations in respect of the lease over 304 Luton Road, Dunstable.

[5]Dr Baker will resign as a director of the Company. As Mike Pettit mentioned at the meeting, it would not be possible for the Company to pay part of the consideration (unless it was actually buying back the shares for cancellation). This is a personal transaction between yourself and Dr Baker and you will be liable for the whole consideration regardless of the Company's future performance. In other words, this will be a personal debt owed by you to Dr Baker. I am also concerned that you have already paid £40,000 without any form of documentation in place. You should as soon as possible obtain confirmation in writing from Dr Baker that he has already received £40,000 from you and this money is a refundable deposit forming part of the consideration for the proposed sale of his entire shareholding in the Company to you (or as you direct.) Without such confirmation, there is nothing which would conclusively stop Dr Baker from retaining the money already paid over if he fails to complete the transfer. Of course, it would be better in any event for the monies to be held in an account over which you could exercise control. As I mentioned to you at the end of our meeting, it would be preferable to have Dr Baker's physical presence at completion. The Company will need to hold a board meeting and his presence may be needed for a quorum. There will also be various documents for him to sign including the Sale and Purchase Agreement and his resignation letter. It helps if all the parties are present in case there are any last minute amendments."

[42]Ms Thakur was pressed in cross-examination as to whether she understood from Mr Potter that he had reached a binding or concluded agreement. Her oral evidence as well as her written evidence, which I accept, is that she understood that the parties had reached agreement and that part of the purchase price had been paid, but she did not analyse whether in law it amounted to a contract. This is consistent with Mr Potter's evidence that he told her that he made an agreement with Mr Baker, and did not refer to it in any way which suggested that it was only a proposed agreement.

[43]On 29 January 2002 Ms Thakur started to draft the sale and purchase agreement, which was sent in draft to Mr Potter on 8 February 2002. She also obtained the results of a company search and the statutory books for the company. From the latter, she saw that Mr Baker was not a director. Ms Thakur chased Mr Potter for any comments on the draft agreement on 1 March 2002, just after Mr Potter had returned from holiday. Mr Potter rang back with a few comments on 4 March 2002. Ms Thakur's attendance note records Mr Potter as saying that he had spoken to Mr Baker who was willing to sign anything Taylor Walton sent.

[44]Ms Thakur sent the draft sale and purchase agreement to Mr Baker with a letter which was dated 7 March 2002 and headed "subject to contract". In the letter Ms Thakur stated that Taylor Walton had been instructed by Mr Potter in relation to his purchase of Mr Baker's shareholding and that they understood from Mr Potter that "he has discussed the proposed Agreement with you and you are happy to sign our draft". The letter suggests that Mr Baker's presence at completion would not be necessary. I accept Ms Thakur's evidence that in referring to the "proposed Agreement" she was not suggesting that Mr Baker and Mr Potter had not reached agreement, but was referring to the proposed written agreement.

[45]According to Mr Baker, his reaction to this letter was to call Mr Potter and ask him what it was all about, and Mr Potter agreed to arrange a meeting with Taylor Walton. He did not respond with any letter either to Mr Potter or to Taylor Walton protesting that no agreement of any sort had been reached. Ms Thakur's attendance notes show that it was not until 8 May 2002 that Mr Potter rang to arrange a meeting and that Mr Potter told her that Mr Baker had some comments on the sale and purchase agreement.

[46]The meeting took place on 9 May 2002 at Taylor Walton's offices and was attended by Mr Baker, Mr Potter, Ms Thakur and Mr Pettit. Ms Thakur prepared an attendance note of the meeting. Again her evidence, which I accept, is that she prepared the note very shortly after the meeting and the firm's computer records show that the relevant file was opened on 10 May 2002. The suggestion was put to her that it was not prepared until five months later, in September 2002, after the parties were in dispute and Mr Baker's solicitors asked for a copy of the attendance note. I reject this suggestion.

[47]In his witness statement, Mr Baker states that he hoped that at the meeting an agreement could be reached for him to have access to review the company's books and in his oral evidence he said that the only purpose of the meeting was to find out why he was not being given access to the books. The impression given by Mr Baker's witness statement is that it was only at the meeting that he started to look through the draft agreement.

[48]However, Ms Thakur's attendance note begins by stating "CB saying that he had some comments on the draft SPA", and the entirety of the note records discussion of the draft agreement. According to Mr Baker, there was a long discussion concerning access to the company's books and information about the business. Mr Potter said in evidence that there was no such discussion. Ms Thakur, whose evidence was based on her memory of the meeting and not just her attendance note, could not remember any such discussion and said that she would have dealt with it in her attendance note if it had occurred. I am satisfied that there was no discussion at the meeting of access by Mr Baker to the company's books and that the discussion related solely to the purchase of his shares and the draft agreement.

[49]I am also satisfied by Ms Thakur's evidence that they went carefully through the draft agreement. This is Ms Thakur's written evidence, confirmed by Mr Pettit who was not cross-examined. This is significant because while it is clear from Ms Thakur's note that Mr Baker focussed in detail on a number of the provisions of the draft agreement, there is no comment recorded on clause 3.1 which reads as follows:

"3.1 The purchase consideration for the Share shall be the aggregate of: 3.1.1 the sum of £40,000 already paid to the Vendor by the Purchaser by way of refundable deposit, receipt of which the Vendor hereby acknowledges; and 3.1.2 the sum of £60,000 being paid in the manner provided in Clauses 3.2 below."

As his case is that he had not received £40,000 or any other sum in respect of the purchase of his shares, and that the sums of £10,000 and £30,000 paid in November 2001 and January 2002 were respectively consultancy fees and repayment of a loan made by Martha Weyman, it is very surprising that he made no comment on clause 3.1.

[50]I am satisfied that Ms Thakur's attendance note is an accurate summary of the principal points discussed at the meeting. Disagreements arose at the meeting over the terms of the draft Agreement, particularly as to whether the additional consideration of £50,000 was payable only if the lease were renewed or, as Mr Baker suggested, if the company continued in business after expiry of the lease in June 2004 even if the lease were not renewed. The meeting ended without final agreement on all the terms of the document.

[51]Relations between Mr Baker and Mr Potter quickly deteriorated. In June 2002 Mr Baker started to attend the garage premises on a daily basis and asserted a right to involvement in the management of the business. He instructed solicitors, Machins, to whom Taylor Walton sent a copy of the draft sale and purchase agreement. There was correspondence concerning the Shareholders Agreement dated 19 January 1999 and Machins asserted rights on behalf of Mr Baker to access to the company's accounts and records. In a letter dated 18 July 2002 to Machins, Taylor Walton asserted that Mr Baker and Mr Potter had concluded an agreement for the sale and purchase of Mr Baker's share, which was reflected in the draft agreement, and that Mr Potter had paid a returnable deposit of £40,000 towards the purchase price. Mr Baker denied that any agreement had been made. (ii) Payments made to Mr Baker and Martha Weyman

[52]Before assessing the impact of this chronology of events on the case for an oral agreement of sale made in November 2001, it is necessary to consider the payments made to or on behalf of Mr Baker and Martha Weyman. The payments of £10,000 and £30,000 made in November 2001 and January 2002 are of central importance. Mr Potter says they were the part payment of £40,000 of the purchase price, while Mr Baker says they were completely unrelated to any supposed agreement for the purpose of his share. As mentioned above, the earlier payments need to be considered at the same time, because the true purpose of those payments has a direct bearing on the real purpose of the later payments.

[53]There are six payments whose purpose is disputed by the parties. They are as follows: Date Sum (£) Payer Payee 22.11.1999 11,011 Company Mr Baker 3.02.2000 20,000 Company Martha Weyman 1.11.2000 10,000 Company Mr Baker 9.01.2001 10,500 Mr Potter Martha Weyman 19.11.2001 10,000 Company Mr Baker 15.01.2002 30,000 Company Martha Weyman Mr Baker's case is that the payment of £11,011 on 22 November 1999 and the payments of £10,000 on 1 November 2000 and on 19 November 2001 were consultancy fees, including in the case of the first payment a figure for expenses. The remaining payments, made to Martha Weyman, were on his case repayments of loans made by Martha to her sister and to Mr Potter. Mr Potter's case is that the first four payments were repayments of the loans made by Mr Baker to the company in early 1999 and the last two were part payment of the purchase price for Mr Baker's share.

[54]I will take first the three payments said by Mr Baker to be consultancy fees. His oral evidence was that he and Mr Potter agreed before the start of the company's trading that he would provide business consultancy services for a fee of £10,000 per annum plus expenses. He accepts that there was no written record of this agreement, but it is fair to note that there is no record of the loan agreement alleged by Mr Potter. Mr Baker relies on the regularity of the timing and amounts of these payments, coming at or near the end of the company's financial year.

[55]It is surprising that the agreement alleged by Mr Baker was not pleaded in his petition. If there was the agreement put forward by him, then the company had failed to pay £10,000 in 2002 and this breach might be expected to have featured as an instance of unfairly prejudicial conduct. Mr Baker accepted that he approved the contents of the petition but could give no explanation as to why it had not been pleaded.

[56]In response to Mr Potter's allegation in the defence that £10,000 paid in November 2001 was part payment of the purchase price for Mr Baker's share, Mr Baker's reply, which pleaded in detail to other parts of the defence, simply denied that the sum of £10,000 has been paid for the purpose alleged and put Mr Potter to proof of the allegation. Although, in the same reply, it was pleaded that the sum of £30,000 paid to Martha Weyman was repayment of a separate loan owed to her, no positive case was pleaded as regards the payment of £10,000 and no mention was made of any consultancy agreement or that it was a consultancy fee. In correspondence Mr Potter's solicitors asked for a statement of Mr Baker's case as to the purpose of the payment. In response it was stated only that it "related to services provided to Bellevue Garage by our client". Details of those services were sought in correspondence and in a formal request for further information. The response signed by Mr Baker on 12 December 2003 raised for the first time an allegation that an oral agreement had been made at the start of trading for the provision by Mr Baker of consultancy services. It was not alleged that an annual fee of £10,000 plus expenses was agreed and it was said to be agreed that "his fees would be paid in accordance with what the [company] could afford at the relevant time". Likewise, there was no clear statement in Mr Baker's witness statement that an annual fee of £10,000 plus expenses was agreed. In his witness statement he states that he "received £5,000 for consulting and £2,100 for travel and communication expenses being a total sum of £7,100.00 in the first year and £10,000 thereafter".

[57]The payment of £7,100 is not subject to any dispute. It was paid by two cheques on 4 February 2000. The cheque stubs and the company's cash book record "consultation" as the purpose of the payment of £5,000 and "expenses" for the payment of £2,100.

[58]Mr Baker's explanation in cross-examination for this payment of £7,100 was that it represented half a year's consultancy fee for the first period of trading from February to November 1999, together with expenses. This explanation undermines the case that the earlier payment of £11,011 in November 1999 was a consultancy fee plus expenses. Further, Mr Baker provided an invoice for the consultancy fee of £5,000 and expenses of £2,100 in February 2000, but no invoice for the payment of £11,011 in November 1999 or indeed for the payments of £10,000 in November 1999 and November 2000.

[59]The company's accounting records suggest that the payment of £11,011 was part repayment of a loan from Mr Baker and provide no support for it being a consultancy fee. The company's cash book records it as "Carl Baker loan repay". It is not said that this was not roughly contemporaneous and there is no reason why it should then have been misdescribed. In the company's accounts for its first period of trading to 30 November 1999, creditors include, as note 6 shows, "other creditors" of £63,961. The total undisputed amount paid by Mr Baker to the company was £74,972. If £11,011 is deducted from £74,972 the result is £63,961. It is clear that in these accounts Mr Baker is treated as having lent £74,972 to the company and the payment of £11,011 in November 1999 is treated as a part repayment of that loan. The accounts were signed by Mr Potter on 27 November 2000 and filed at Companies House on 7 December 2000. As the chronology of events shows, there was not at that time any difficulties or disputes between Mr Baker and Mr Potter. Mr Mooney's evidence showed that the accounts would be prepared on the basis of explanations provided by Mr Potter. It is not suggested that Mr Baker knew or approved this treatment in the 1999 Accounts. However, there was no reason at all in November 2000 why Mr Potter should give a false explanation either for the money received by the company from Mr Baker or for the payment of £11,011 in November 1999.

[60]The payment of £10,000 in November 2000 was made to the credit of an account in the name of Paula Nichols in Texas. It is common ground that she was Mr Baker's personal assistant and that this payment was made to her at his request. In the cash book, the payment is recorded as being for stock, which fits neither party's explanation for the payment. These books were maintained by book-keepers employed by Mr Mooney who provided accountancy services to the company. This entry was in the handwriting of one of his book-keepers. There was no clear explanation for this description, but no reason was suggested for disguising the purpose of the payment and I conclude that it was a mistake. I deal below with the annual accounts for the year to 30 November 2000.

[61]There is no documentary evidence relating to the payment of £10,000 on 19 November 2001 to indicate its purpose.

[62]Mr Baker was unable to provide evidence of any significant consultancy services provided by him, although there may have been some minor pieces of advice provided in the first few months. It was not, however, Mr Baker's case that the consultancy fees were intended in reality to be simply a form of return on his investment unrelated to any services which he might provide.

[63]Before setting out my findings on the three payments said by Mr Baker to be consultancy fees I will consider the other payments. The three payments were all made to Martha Weyman, two by the company and one (£10,500 on 9 January 2001) by Mr Potter. Mr Baker's case is that they were all repayments of loans made by Martha Weyman to Sarah Weyman or to Mr Potter.

[64]As already noted, it was pleaded in the reply that the crucial payment of £30,000 on 15 January 2000 was "payment of a wholly separate loan owed to Martha Weyman". In response to a request for further information, Mr Baker alleged that to the best of his current knowledge, the loan had been made to Sarah Weyman at approximately the same time as Mr Potter and Sarah purchased their first home and further small advances were made between the first advance and repayment. This account was largely confirmed by Martha Weyman in her witness statement. The original loan was to help out with the purchase of a property by Mr Potter and Sarah in Westoning and this was followed by various small advances used to pay for costs of improvement. She also states that there were various loans to Sarah to do up various properties in which Mr Potter and Sarah had invested. It is not clear from the witness statement whether these were in addition to the loans totalling at least £30,000. She explained that there was no agreement or other record of any of these loans because they were made to her sister.

[65]The house in Westoning was bought in August 1998. The completion statement prepared by Mr Potter's solicitors showed that after taking into account the net proceeds of sale of a house in Dunstable and a new mortgage loan, Mr Potter had to provide £16,934. Martha Weyman gave oral evidence that she lent £8 - 10,000 to Mr Potter and Sarah for the purchase of the house and then further sums to refurbish the house. Mr Potter denied that any part of the purchase price for the Westoning house was lent by Martha Weyman or that she had made any further loans for its refurbishment. Sarah Weyman gave evidence that she paid almost all of the £16,934 needed for the purchase of the Westoning house and gave detailed evidence as to how that money was raised. She also denied receiving any loans to refurbish either the Westoning house or any other house.

[66]As the house in Westoning was bought in 1998 and a sum of £20,000 was paid to Martha Weyman in February 2000, which she says was in repayment of loans made by her, it becomes very difficult to sustain the case that the sum of £30,000 paid to her in January 2002 was in repayment of loans made in connection with the purchase and refurbishment of the Westoning house. In cross-examination Martha Weyman gave evidence that she also lent money to Sarah to refurbish a house in Wickham Way, Luton where their mother was living. She said that the house was completely derelict and needed to be completely refurbished. Sarah Weyman was not then working and so Martha helped out by making loans for the works. She could not remember amounts or dates but said that it was "small amounts, few thousand here, a few thousand there." Mr Potter and Sarah Weyman denied that the house in Wickham Way was derelict or that it needed substantial repairs. It had some work done to it, such as work to the bathroom and kitchen, new carpets, and re-decoration which was carried out by Sarah Weyman and a friend. They denied that any money was borrowed from Martha for any work to the house.

[67]Rather than the loan towards the purchase of the Westoning property and subsequent loans being repaid by the payment of £30,000 in February 2002, as had appeared from the pleadings and witness statement, Martha Weyman's oral evidence was that loans had been made and repaid and new loans made. Thus it appeared from her evidence that she was saying that the loan for the purchase of the Westoning property and at least some of the additional loans for refurbishment were repaid by the payment to her of £20,000 in February 2000 and the payment of £30,000 in January 2002 related to other subsequent loans, principally, it must be assumed, in relation to the house in Wickham Way. Martha Weyman's evidence as to the dates, amounts and purposes of any of the loans which she said she had made and as to their repayment was vague in the extreme. Mr Baker said in cross-examination that he knew that loans were being made for the purchase and repairs of houses but did not know any details as to dates or amounts.

[68]Mr Baker and Martha Weyman were pressed to explain the source of the funds to lend to Mr Potter and Sarah Weyman. Mr Baker's witness statement contained no evidence on this, but in her statement Martha Weyman stated that:

"I gave these funds to Sarah from my account but also provided most of the money in cash from one of Carl's accounts which he had set up and I had access to from time to time."

Mr Baker refused to provide information before trial as to this account. In cross-examination he was asked what account Martha Weyman was referring to. He replied:

"She was talking about a cash drawer account we have in our house."

When Mr Gavaghan for Mr Potter asked if that was a current account, Mr Baker replied:

"No, sir. That is money sitting in an envelope sitting in a dresser drawer."

The envelope, Mr Baker went on to explain, was inside a metal box and he kept cash in different currencies in it. At times, he said, he would have £30 – 40,000 in it. It was kept at Martha Weyman's house at 56 Dunstable Road, Toddington. As to the source of the cash he explained that as often as possible he arranged to be paid consultancy fees and expenses in cash, and while he accepted that he was not being paid for any work or expenses in the UK, he said that he would sometimes ask foreign companies to pay him in cash in sterling. He was unable to give any details of the dates or amounts of payments in or out of the cash box by Martha in respect of loans to Sarah.

[69]Although the loans were said to date back to the purchase by Mr Potter and Sarah Weyman of their house in Westoning in August 1998, Martha Weyman did not move to 56 Dunstable Road, Toddington, where it was said that the cash-box was kept, until about May 2000. She lived in rented accommodation in Egham, Surrey until May 1999 and Mr Baker agreed that she did not keep the cash box there. He had no explanation for the source of the loans in that period, except saying that Martha Weyman had authority to draw on a bank account in his name and also that he had a briefcase in which he kept not more than a couple of thousand pounds. In re-examination he said that, while living at Egham and from May 1999 to May 2000 while living with Mr Potter and her sister at Westoning, Martha Weyman "had money of mine", but did not know where she kept it. Some money was kept in a briefcase "that I carried around while I was in England, some was kept in her car. The briefcase was kept in her car". There were, he said, sometimes large sums of money.

[70]In her oral evidence, Martha Weyman said that Mr Baker gave her money to use if she needed it. She said that at one stage she kept his briefcase in her car with money in it. She did not know how much money, but it varied, and was sometimes £15,000. She kept the car in a secure car park at the airport. When she and Mr Baker moved to the house in Dunstable Road, Toddington, she said that a cash box was kept in a drawer. She had never counted how much was kept in it but it had to be over £10,000. It was a "cash box account" and it was the account to which she was referring in her witness statement. Cash box account, she said, is a phrase frequently used on aircraft to describe the cash box kept for the sale of duty free goods.

[71]As regards other evidence concerning the three payments, there is written on the cheque stub for the cheque dated 3 February 2000 for £20,000 against Payee "Carl Baker Installment [sic] of loan". Mr Potter confirmed that it was his writing and it was not suggested that it was not contemporaneous. The cheque itself was made payable to Martha Weyman, and Mr Potter's evidence is that this was a result of a request from Mr Baker or Martha Weyman to himself or Sarah Weyman. The cashbook records the payment as "C Baker loan repayment" in the writing of the bookkeeper who would have taken it from the cheque-stub. The company's accounts for the year ended 30 November 2000 record "Other Creditors" as £69,860, up from £63,961 in the previous year's accounts. Whereas it could be deduced from the 1999 accounts that the payment of £11,011 had been treated as a part repayment of a loan from Mr Baker, no such deduction can be made from the 2000 accounts in respect of £20,000. Mr Mooney's evidence in relation to the 2001 Accounts was that "Other Creditors" would include directors' loan accounts but included other items as well. He was not asked about the same item in the 2000 accounts but Mr Potter could not think of any new creditors in that year who would have been included in the item.

[72]The payment of £10,500 on 9 January 2001 was made by a cheque drawn on Mr Potter's personal account in favour of Martha Weyman. The date, amount in numbers and signature is in Mr Potter's writing, but the name of the payee and the amount in words are in Martha Weyman's writing. In his witness statement Mr Potter states that it was a part-repayment of Mr Baker's loan and the cheque was made payable to Martha Weyman as a result of a telephone request from Mr Baker or Martha Weyman. As to why it was drawn on his own account rather than the company's account, Mr Potter said that the money was transferred from a business reserve account because it was not a cheque account. He could not however explain why the transfer had been to his personal current account, rather than to the company's current account. Martha Weyman's evidence was that this was repayment of money she had let him have in cash for a short time so that he could buy a Cartier watch for Sarah Weyman. Mr Potter denied that Martha Weyman had made a loan to him, whether to buy a watch or for any other purpose. There is no record or other evidence of the alleged personal loan.

[73]The cheque for £30,000 paid in January 2002 was drawn on the company's account and signed by Mr Potter who also wrote in the date and the amount in numbers. The payee ("M. Weyman") and the amount in words were written by Martha Weyman. I reject the improbable suggestion put to Mr Potter and Sarah Weyman that the payee was left blank because Sarah Weyman did not know whether it should be made payable to "M. Weyman" or "Martha Weyman". The likely explanation is that it was left blank so that Mr Baker could decide on the payee. It is recorded in the company's cashbook as a payment to Mr Baker and classified under the heading "other" which Mr Mooney explained was a miscellaneous column which would be analysed at the year-end.

[74]Looking overall at the evidence concerning the disputed payments, I have concluded that none of the three payments made directly to Mr Baker in November 1999, 2000 and 2001 were consultancy fees. I am satisfied that the first payment of £11,011 in November was not, as Mr Baker maintained, the payment of an annual consultancy fee and some expenses. Mr Baker's evidence on this payment is inconsistent with the payment of £7,100 in February 2000 which is admitted to be a consultancy fee and expenses. Mr Baker's evidence was that the fee was only £5000 because it related to the first period of trading to November 1999 which is inconsistent with the payment in November 1999 also being a consultancy fee. The November payment was contemporaneously written up in the cashbook as a loan repayment to Mr baker and it was treated in the same way in the relevant annual accounts. Mr Baker submitted an invoice for consultancy services and expenses for the February payments, but not for the payment in November 1999 or for the subsequent payments in November 2000 and 2001. There is no evidence of any consultancy services provided by Mr Baker, at least beyond the first few months, except for Mr Baker's own very vague oral evidence and there is no evidence except Mr Baker's to support an agreement for the provision of consultancy services by Mr Baker at £10,000 per annum. Mr Baker relied heavily on the pattern of annual payments of about £10,000 in November each year. However, if the first payment is excluded, it becomes a "pattern" of only two years. The allegation of an agreement for consultancy services at £10,000 per annum evolved in the course of the pleadings and his evidence. It was not mentioned in the petition and no complaint was made of any breach in failing to make the payment which, on Mr Baker's case, was due in November 2002.

[75]The payment of £20,000 in February 2000 was described in the cheque stub as an instalment of a loan and Mr Baker was shown as the payee. These features and the similar description in the cashbook support Mr Potter's case and are inconsistent with Mr Baker's case that it was the repayment to Martha Weyman of loans made by her. There was at this stage no dispute between Mr Baker and Mr Potter, and no obvious reason for misdescribing the payment. The fact that the cheque was made payable to Martha Weyman is not of great significance as she and Mr Baker were partners and Mr Baker indisputably caused the payment of £10,000 in November 2000 to be made not to himself but to his personal assistant.

[76]The explanation given by Mr Baker and Martha Weyman of the payment of £20,000 was that it was in repayment of loans made by Martha to Sarah and Mr Potter. Their evidence on all aspects of these alleged loans was vague and highly unsatisfactory. The case initially was that the payment of £30,000 in January 2002 represented a repayment of sums advanced by Martha Weyman for the purchase (£8 – 10,000) and refurbishment of the house in Westoning bought by Mr Potter and Sarah Weyman in August 1998. However, that explanation did not fit well with the payment of £20,000 in February 2002 also being a repayment of personal loans by Martha Weyman. Her evidence changed, so that the earlier payment related to the loans connected with the Westoning House and the later payment was given a different explanation. It was said to be repayment of loans made in relation to the property in Wickham Way, Luton. There was a complete absence of any detail of the dates or amounts of any of these loans, although the same can fairly be said of the unrelated loans said by Mr Potter to have been made by him to a Mr and Mrs Dennis and referred to later in this judgment.

[77]Also very telling was the evidence given by Mr Baker and Martha Weyman about the source of these loans. If made from a bank account, it would have been possible to trace the payments. I found their evidence that most of the loans were made from Mr Baker's "cash drawer account" or "cash box account", and the explanation that this was what Martha Weyman meant by "one of Carl's accounts which he had set up and I had access to from time to time", incredible. Once again the evidence developed to meet difficulties arising from indisputable facts, so that in this instance the cash box was at first said to be kept in a dresser drawer in their house until it was put that they did not have a house for much of the relevant period, when it was said instead that it was kept in Martha Weyman's car.

[78]Having considered all this evidence and listened to the explanations given by Mr Baker and Martha Weyman, I am satisfied that none of the alleged loans by Martha Weyman was in fact made. I am satisfied that the payment of £20,000 made in February 2000 was a part repayment of the amounts paid by Mr Baker to the company. I reach the same conclusion in relation to the payment of £10,500 in January 2001. Martha Weyman's evidence that it was repayment of money provided by her in cash to enable Mr Potter to buy a Cartier watch is not supported by any other evidence and suffers from the same difficulty as the other alleged loans that its source was the "cash drawer account". I do not regard the fact that the cheque was drawn on Mr Potter's own account as particularly significant, nor is it, for reasons already given, significant that the payment was made to Martha Weyman rather than Mr Baker.

[79]I am satisfied that the monies provided by Mr Baker to the company in early 1999, and also the assets contributed by Mr Potter, were treated as loans to the company, and that the first four disputed payments were repayments of Mr Baker's loan. It is true, as Mr Hardwick pointed out, there was no loan agreement or other contemporary record nor any covering letter with the payments. Exactly the same point may be made of Mr Baker's case for a consultancy agreement and the payment of fees. There are, however, entries in the accounts and accounting records supporting the case for a loan and loan repayments. Mr Hardwick also pointed out that the repayments were made in varying sums on apparently random dates. The evidence however suggests that it was Mr Baker who, directly or through Martha Weyman, required repayments. The final repayments of the loan, amounting to about £23,500 are said by Mr Potter and Sarah Weyman to have been made in cash in varying amounts in or about the summer of 2001. There is no evidence of this beyond what is said by Mr Potter and Sarah Weyman, and it is of course denied by Mr Baker. Having regard to all the evidence relating to the other payments and my assessment of the witnesses, I am satisfied that the remainder of the loan was repaid to Mr Baker. (iii) Conclusion on the oral sale agreement

[80]This brings me to the critical payments of £10,000 in November 2001 and £30,000 in January 2002. For the reasons I have already given, I reject Mr Baker's case that the first was payment of his annual consultancy fee and the second was repayment of loans made by Martha Weyman and I do not believe the evidence of Mr Baker and Martha Weyman in support of that case. This is itself highly significant to Mr Potter's case that the payments related to an oral agreement for the purchase of Mr Baker's share. No other explanation for the payments has been advanced. Moreover Mr Baker is in an intelligent man who would have realised the importance of providing an alternative explanation. If, as I find, his evidence on the reasons for the payments was untrue, it also impugns his evidence that he did not agree to sell his share to Mr Potter. This is not a case which can be explained by a difference of recollection. Mr Baker was as firm in his evidence that any talk of a sale in the discussion after dinner was mere banter as Mr Potter was that an agreement was made.

[81]Mr Potter's case for an oral agreement does not rest there but has other support. He contacted Taylor Walton in late November 2001 and explained the agreement, including the early payment of £40,000. Mr Griffiths' note of the conversation does not refer to the payment of £50,000 on renewal of the lease but that is reflected in Ms Thakur's note of the meeting on 21 January 2002. It is unlikely that Mr Potter would be telling his solicitors that an agreement had been reached on these terms if it had not been. It is in the highest degree improbable that he would invent a term to the effect that a further £50,000 should be paid on renewal of the lease. Ms Thakur's note and letter to Mr Potter records that £40,000 has been paid in respect of the purchase price. This was a few days after the payment of £30,000 had been made and again it is unlikely that Mr Potter would tell his solicitors that £40,000 had been paid in part payment of the purchase price if it was not the case. It would involve a most elaborate plan of deception. I am satisfied that Mr Potter was not seeking to deceive his solicitors but was telling them what had been agreed with Mr Baker.

[82]Ms Thakur drafted a sale and purchase agreement and sent it to Mr Baker on 7 March 2002. It recorded that the sum of £40,000 had already been paid to Mr Baker. If no agreement had been made and in particular if no part of the price had been paid to Mr Baker, Mr Baker would almost certainly have written to or contacted Mr Potter or Taylor Walton to say so. Alternatively, he would have made it clear at the meeting on 9 May 2002. It is significant that he commented in detail on the provisions of the draft agreement but made no comment on clause 3.1.1 which refers to the payment of £40,000. I am satisfied that he would, above all, have commented on that clause if it had not been correct.

[83]Mr Hardwick submitted that it was inconceivable that Mr Baker would have entered into the alleged agreement without investigating the position of the company. I am not persuaded by this. He had taken little interest in the company's business and when it came to the meeting on 9 May 2002 he did not either at or before the meeting investigate the company's position before entering into detailed discussions on the terms of the draft share sale agreement. I also reject Mr Baker's evidence that in the autumn of 2001, both before and during the evening meeting in November 2001, he raised concerns as to the company's performance and sought a meeting with Mr Mooney and inspection of the company's accounting records. Mr Baker took no steps to pursue these matters, apart from allegedly raising them with Mr Potter, and Mr Mooney's evidence which I accept is that he was not asked for a meeting. This inactivity is in sharp contrast to the steps which Mr Baker took during the summer of 2002 to involve himself in the company's affairs.

[84]Mr Hardwick pointed to the lack of any contemporaneous documentary evidence of the oral agreement. In particular, he submitted that Sarah Weyman would have made some record. This is not a strong point, when it is remembered that Mr Potter expected Mr Baker to prepare a short agreement and, when it did not appear, was in contact with Taylor Walton and gave them the details of the agreement. In his witness statement, Mr Potter gave evidence that the sum of £40,000 needed to pay Mr Baker under the oral agreement was raised by the company through a finance company, First National Motor Finance. The company applied for the facility on 19 November 2001 and the sum of £40,000 was received by the company on 26 November 2001. It was put to Mr Potter that the facility was unconnected with any oral agreement, as could be shown by the fact that the first amount of £10,000 was paid on 19 November 2001 before the funds were received from the finance company and the balance of £30,000 was not paid until 16 January 2002. I do not find it surprising that Mr Potter caused the first £10,000 to be paid in advance of receipt of the advance of £40,000 if Martha Weyman asked for it to be paid urgently, nor do I find it very surprising that Mr Potter did not pay the balance of £30,000 until pressed for it. The application for an advance of £40,000 from the finance company is consistent with the making and terms of the oral agreement and I reject the point put to Mr Potter that he had tried to create a connection where none in fact existed.

[85]Mr Hardwick submitted that the fact that the payments were made by the company when the alleged agreement was for a purchase of Mr Baker's share by Mr Potter personally told against the existence of any agreement. The same point can be made in respect of Mr Baker's explanation that the payment of £30,000 was the repayment of a personal loan made to Sarah Weyman. I am satisfied that, in common with many directors of small companies, Mr Potter drew little distinction between his own and the company's bank accounts.

[86]Having considered all the evidence including the oral evidence of Mr Baker, Mr Potter and Martha and Sarah Weyman, I am satisfied that in November 2001 Mr Baker agreed to sell his share to Mr Potter for £100,000, of which £40,000 was to be paid as soon as possible, with a further £50,000 payable on renewal of the lease. I am satisfied that the early instalment of £40,000 was paid by the payments of £10,000 on 19 November 2001 and £30,000 in January 2002. Although Mr Baker and Mr Potter wished the agreement to be recorded in writing, I am satisfied that it was regarded by them as a firm and unconditional agreement. Mr Baker's Petition under section 459

[87]The consequence of my finding of an oral contract for the sale of Mr Baker's share is that his petition under section 459 fails. I will consider and make findings in respect of each ground advanced by Mr Baker in his petition, and indicate why, even if otherwise well founded, it does not in this case provide a ground for relief.

(i) Exclusion from management

[88]Mr Baker complains first that he was excluded from involvement in the management of the company. He alleges that it was(a) his understanding and expectation, as a joint venturer in the business of Bellevue Garage, and

(b) his contractual right under the Shareholders Agreement, that he would be entitled to be involved in the management of the company. He says that when the company commenced trading in February 1999 he was satisfied to delegate the day-to-day management of the company to Mr Potter, but by the autumn of 2001 he had become concerned by the apparent failure of the company to make a profit, and decided to take an active role in the company. The evidence, however, shows that Mr Baker's attempts to become involved in management did not start until June 2002 and Mr Potter objected strongly, not least because Mr Baker had agreed to sell his share. It is clear that this ground of complaint must fail because the alleged exclusion occurred long after the making of the oral contract of sale, which Mr Potter was and remains willing to perform.

[89]I will, however, consider whether in any event Mr Baker had any basis for complaining about an exclusion from management. As already noted he puts his case for a right to be involved in management on the alternative bases of a contractual right under the Shareholders Agreement and his understanding and expectation as a joint venturer. I have already dealt with the Shareholders Agreement and held that it is incapable of giving rise to contractual rights. The alternative rests on the proposition that Mr Baker and Mr Potter were "joint venturers" in the business. This is a vague phrase which does not accurately describe either the legal or factual basis of their participation. In legal terms, each of them was a shareholder in the company which owned the business. The status of shareholder, even if holding one out of the two issued shares, does not itself confer any right of participation in management. Nor does it of itself make it inequitable for the other shareholder to refuse to admit him to management. As Lord Willbeforce observed in Ebrahami v. Westbourne Galleries Ltd.

[1973] AC 360

at 379 "[the company] structure is defined by the Companies Act and by the articles of association by which shareholders agree to be bound. In most companies and in most contexts, this definition is sufficient and exhaustive, equally so whether the company is large or small. The "just and equitable" provision does not, as the respondents suggest, entitle one party to disregard the obligation he assumes by entering a company, nor the court to dispense him from it."

[90]There may however be circumstances which make it inequitable for the other member or members to insist on their strict legal rights so as, for example, to exclude or prevent a member from participation in management. In the present case, this would require an understanding between the parties that Mr Baker was entitled to participate in management.

[91]On the facts of this case, I find that there was no understanding that Mr Baker would be entitled, if he chose, to become involved in the management of the company. This was a very small business in a trade in which Mr Potter had experience, but Mr Baker had none. I am satisfied that both of them would have regarded as outlandish the idea that Mr Baker, who divided his life between homes in various countries and acted as an international business consultant in various countries, principally in the healthcare sector, could be entitled to take an active part in the management of a small car dealing business in Luton. The fact that in the early stages Mr Potter and Mr Baker were referred to personally as the purchasers of the business makes no difference. The idea of using a company was adopted well before the acquisition of the business and there is no evidence to suggest that they had intended to carry on the business as partners.

[92]Although it is common ground that Mr Baker was not appointed as a director, there is some evidence which might suggest that both parties thought that Mr Baker was to be a director, albeit with no day to day functions as regards the business, and thought that he had in fact been appointed a director. In his witness statement Mr Baker states that it was agreed that they should both be directors and that it was only in the autumn of 2001 that he discovered that he had not been appointed. As for Mr Potter's understanding, Ms Thakur's evidence was that Mr Potter told her in January 2002 that Mr Baker was a director and would resign as part of the share sale agreement. This is reflected in her attendance note of the meeting on 21 January 2002 and in her letter dated 25 January 2002 to Mr Potter.

[93]As against this, Mr Baker's case has not been a complaint that he was not a director from the start, but that he was not permitted to participate in management when he elected to do so in late 2001 or 2002. That was at least 2½ years after the company commenced trading. During that time he never asserted that he was a director or queried the absence of board discussions or tried to exercise any rights or responsibilities as a director. When in late 2001 he discovered that he had not been appointed a director, he raised no complaint and did not assert that his formal appointment should be effected.

[94]Overall on the evidence I am satisfied that it was not agreed that Mr Baker be appointed a director at the start. I am also satisfied that the provision in the Shareholders Agreement that the holder of 10 per cent or more of the shares could appoint a director did not reflect an oral agreement between Mr Baker and Mr Potter to that effect.

[95]The result is that there is no basis on which Mr Potter was obliged to agree to Mr Baker's participation in the management of the business and no basis for concluding that it was unfairly prejudicial to Mr Baker's interests as a member that Mr Potter would not agree to his participation. Mr Baker attempted on a number of occasions in the summer of 2002 to exercise day to day control of the business, and did so in a highly disruptive way. He had no legal rights, nor any understanding with Mr Potter, which entitled him to do so. (ii) Tudor Trade Centre Limited

[96]The second ground raised in Mr Baker's petition relates to a company called Tudor Trade Centre Limited (Tudor). Tudor was established in November 2001, very shortly before the oral agreement for the sale of Mr Baker's share in the company. Mr Potter held either its only share or one out of two shares, and Mr Potter and Mr Terry Fewtrell were its directors. It is common ground that Mr Potter did not inform Mr Baker of Tudor's existence. It was pleaded in the petition that Tudor had received cars from the company for no apparent payment and sold them on its own account. Particulars were given of four vehicles said to have been passed to Tudor for no payment but the case was not pursued in respect of two of them. In their witness statements, Mr Potter and Mr Fewtrell firmly denied the allegations. Mr Potter was cross-examined as regards the remaining two vehicles and also as regards a further vehicle. I did not permit Mr Potter to be cross-examined in relation to any other vehicles as no particulars had been given of them and there had therefore been no opportunity to investigate and properly prepare a defence in respect of them. Mr Baker's case in relation to the three vehicles was abandoned later in the trial.

[97]In his closing speech Mr Hardwick sought to make a separate case arising out of the facts relating to Tudor, that the sale of part exchange cars was a profitable business which Mr Potter caused to be carried on in Tudor. Because the opportunity to do so arose out of his position as a director, Mr Potter's conduct was unfairly prejudicial to Mr Baker and Mr Potter was accountable to the company for the value of Tudor or his shareholding in it. This case was not pleaded in the petition and it did not feature in Mr Hardwick's written opening. Mr Gavaghan objected to this new case being raised and his objection is in my judgment well-founded. It is important in petitions under section 459, which confers such a wide jurisdiction, that the allegations of unfair prejudice relied on by the petitioner are clearly pleaded: see Re Tecnion Investments Ltd

[1985] BCLC 434

. Mr Gavaghan submitted that if the allegation had been made earlier, the evidence of Mr Potter, Mr Fewtrell and other witnesses would have been more fully directed to the benefits of the arrangement for the company and the absence of any value in it for Mr Potter. This evidence would be relevant to whether Mr Baker could show any unfair prejudice. I accept that there is force in these submissions. In my judgment, this is not a case which is open to Mr Baker.

[98]In any event, Mr Baker cannot in my judgment establish any prejudice, in view of the agreement to sell his share to Mr Potter. Tudor was incorporated only very shortly before the agreement and the evidence establishes that Mr Potter has not received any payments from Tudor, whether before or even after the agreement. (iii) Purchase of 308 Luton Road

[99]The third allegation of unfairly prejudicial conduct relates to a property at 308 Luton Road, Dunstable. There are two parts of the case. First, the acquisition of the property by Mr Potter was the diversion to him of either the company's property or of a corporate opportunity available to the company, without the knowledge or consent of Mr Baker. Secondly, the whole or part of the purchase price was paid by the company. All the relevant events took place in 2002, and therefore after the oral agreement for sale made in November 2001. As a result of that agreement, and Mr Potter's willingness and ability to perform it, the acquisition of 308 Luton Road is not a matter of which Mr Baker can complain as being unfairly prejudicial to him. I will nevertheless consider the facts and make relevant findings.

[100]The property at 308 Luton Road is a small ground floor shop with parking space for about six cars and a one-bedroom flat above the shop. This property and the garage premises are on either side of a road leading into Luton Road. In early 2002 Mr Potter heard that it was for sale and he thought it would be a good investment. I am satisfied that he did not consider its purchase as additional trading premises for the company. He made an offer of £85,000 which was accepted. He and Sarah Weyman instructed Denis Wesley, a conveyancing executive with Franklins, a firm of solicitors, to handle the legal aspects of the purchase. In early February 2002 Mr Potter had a meeting with National Westminster Bank and, he says, discussed the different options for raising funds for the purchase price, particularly whether to do so personally or through the company. Mr Potter decided that the company would purchase the property. On 8 February the bank offered a loan facility to the company expressly for the purpose of assisting the purchase of the property. On the same day, Mr Potter signed forms which showed the company as purchaser. On 11 February 2002 Mr Wesley wrote to the vendor's solicitors, stating the company to be the purchaser. Correspondence between the solicitors and between Mr Wesley and Mr Potter then continued on that basis.

[101]Mr Potter and Sarah Weyman met Mr Wesley at his office on 12 March 2002. At that meeting Mr Potter signed the purchase contract on behalf of the company, which was named in the contract as the purchaser. They discussed the bank's security requirements for the loan, which included a personal guarantee from Mr Potter and a charge over the house at Westoning. Mr Wesley advised that he considered these requirements to be excessive. Mr Potter was concerned at this and told Mr Wesley to put the bank loan on hold, saying that he would explore other ways of raising the finance. On the next day Sarah Weyman rang Mr Wesley and told him that the purchase was to proceed in the name of Mr Potter personally. He expected to receive confirmation of these instructions from Mr Potter as the proposed purchaser but never did so. Accordingly he proceeded on the basis that the company was still to be the purchaser and contracts were exchanged, with the company named as purchaser, on 10 April 2002. He prepared a completion statement, headed with the company's name, and sent it to Mr Potter on 15 April 2002.

[102]Completion took place on 19 April 2002 and the company was named as the purchaser in the transfer document. On 17 May 2002 the Land Registry informed Mr Wesley that the company registration number was needed before the transfer could be registered. On 20 May 2002, Mr Wesley spoke to Mr Potter who said that the property should have been purchased in his name, not in the company's name. On 27 June 2002 the property was transferred into Mr Potter's name. Mr Wesley arranged this to give effect to what he now understood to have been Mr Potter's intention.

[103]I am satisfied that Mr Wesley proceeded as he did with the purchase in the name of the company because he never received confirmation from Mr Potter of Sarah Weyman's statement on the telephone on 13 March 2002 that Mr Potter was to be the purchaser. I am also satisfied that on 13 March Mr Potter decided that he, rather than the company, should be the purchaser and no doubt assumed that sufficient instructions had been given to Mr Wesley by Sarah Weyman's telephone call. The correspondence from Mr Wesley to him after that date does not state the company to be the purchaser and could well be read by Mr Potter as referring to the purchase by him personally. It is true that the completion statement sent to Mr Potter is headed with the company's name, but I find that it did not alert Mr Potter to the fact that the purchase was proceeding in the company's name.

[104]Nonetheless, the decision, taken at the latest on or about 8 February 2002, was that the company should purchase 308 Luton Road and the matter proceeded on that basis for over a month. The prospective purchase was therefore an opportunity available to and adopted by the company by the time that Mr Potter changed his mind and decided to purchase it personally. It was not a step which as a matter of law was open to him without the informed consent of Mr Baker as the other shareholder; Regal (Hastings) Ltd v Gulliver

[1967] AC 134

n. Strictly speaking, as Mr Baker still held his share and only part of the purchase price had been paid, his consent was required. Until paid the purchase price, he was not a nominee of his share for Mr Potter but was still entitled to exercise the voting rights attached to his share, subject to fiduciary restraints resulting from his position as a vendor under a specifically enforceable contract of sale: Musselwhite v C.H. Musselwhite & Son Ltd

[1962] Ch 964

, Michaels v Harley House (Marylebone) Ltd

[2000] Ch 104

. These considerations apply equally to the transfer of the property from the name of the company to Mr Potter. Although Mr Potter intended from 13 March 2002 that he personally should be the purchaser, the property was, correctly as a matter of law, transferred into the company's name. It was not therefore open to Mr Potter to give instructions for its transfer from the company to himself, without the informed consent of Mr Baker.

[105]It was submitted for Mr Potter that the principles established by Regal (Hastings) Ltd v Gulliver and other authorities are not applicable on the facts of this case, on the grounds that when Mr Potter first became aware of and considered the possibility of buying 308 Luton Road, it was not an opportunity which came to him in his capacity as a director. I can accept the premise, but not the submission. I have found that the purchase was not made to increase space available to the company's business, but as an investment. I will assume that the possibility of purchasing it did not come to Mr Potter in the course of or by reason of his position as a director. If, for example, he simply saw that it was for sale from his office window, that would not without more make it a corporate opportunity of the company. It is Mr Potter's subsequent decision that the company should buy it, which he took steps to implement, which restrains him from later deciding to make the purchase personally.

[106]The second aspect of the matter is the funding of the purchase price of £85,000. Mr Potter's account changed from the pleadings to his witness statement. In the former he said that £45,000 came from the resources of his family and himself (later particularised as comprising £20,000 by cheque and £5,000 in cash from his mother and the balance of £20,000 from his own resources) and that the remaining £40,000 was funded by a loan from the company to himself. In his witness statement, his evidence was that no part of the purchase price was funded by the company. It was funded(i) as to £20,000 by a bankers draft dated 4 April 2002 from Sarah Weyman which was paid into his bank account;

(ii) as to £9,000 by a bankers draft given by Sarah Weyman to Mr Wesley's firm;

(iii) as to £20,000 from a cheque from his mother paid into his account on 24 January; and

(iv) as to the balance, it was taken from loans totalling £40,970 repaid to him by friends, Robert and Claire Dennis, by three cheques between 1 and 11 April 2002. He explained that he did borrow £40,000 from the company on 14 March 2002 but it was in order to buy a Mercedes car. The purchase of the car did not in the end proceed and he accepted that he had not repaid the loan of £40,000.

[107]Mr Potter's evidence in cross-examination was confused and confusing, but the position became a good deal clearer when he produced his personal bank statements for March and April 2002. From the fluctuation of the balance on the account, which on 14 March 2002 was £6,030, it can be seen that the payment into the account of £20,000 from his mother on 24 January 2002 formed no part of the completion monies. Nor was the money paid to him for the purpose of funding the purchase, because the decision to buy the property personally rather than through the company was not taken until 13 March 2002.

[108]A sum of £40,000 was paid from the company to Mr Potter's account on 14 March 2002. This was the sum which was stated in Mr Potter's defence to have been used for the purchase of the property. His evidence was that it was to be used as part payment for a Mercedes car which was being offered for sale at a price of £40,000. It was also his evidence that the price was later increased to £46,000 but in the end the owner decided not to sell it. The statement for Mr Potter's personal account shows a debit on 5 April 2002 for a bankers draft for £46,000 which was not used but re-credited to his account on 11 April 2002. The statement for the company's account shows a debit on 17 April 2002 for a banker's draft of £46,000. Although the timing of this draft indicated that it could have been used towards the purchase of the property, the paying-in book showed that the draft was not used but was re-credited to the company's account with the other items on 23 April 2002.

[109]Whether the loan of £40,000 by the company to Mr Potter was to fund the purchase of the property or the Mercedes does not greatly matter, because in either case it was made in breach of his fiduciary duty as a director. This is not only because it constituted a breach of section 330 of the Companies Act 1985, but also because the loan was not made on commercial terms or for any proper corporate purpose, but was made purely to benefit Mr Potter. Even if there were no statutory prohibition on the making of loans by a company to a director, this loan would still have been a misapplication of the company's funds. These considerations distinguish this case from Re Ciro Citterio Menswear plc

[2002] 1 BCLC 672

and in my judgment Mr Potter held the sum of £40,000 as a constructive trustee for the company.

[110]The payments by Mr and Mrs Dennis totalling £40,970 to Mr Potter's account were established by his bank statement and by copies of the cheques which were produced during the trial. Mr Potter was pressed in cross-examination to give some details of the dates and amounts of the loans which he said he had made to Mr and Mrs Dennis and were being repaid by these cheques. Other than a loan of £15,000 in 1997 to help with the purchase of a property, Mr Potter could give no details. Mr Hardwick suggested to him, and submitted in closing, that it was plainly possible that the remaining £25,000 had been lent to Mr and Mrs Dennis by the company or out of money provided by it. This allegation, which would involve a clear breach of fiduciary duty, was not pleaded and in my judgment it is not established on the evidence.

[111]By tracing through the debits and credits to Mr Potter's account, it is clear that at least part of the sum of £40,000 paid into his account by the company was used in the purchase of 308 Luton Road. As a constructive trustee, Mr Potter is presumed in accordance with Re Hallett's Estate

[1879] 13 Ch D 696

to have used his own funds in personal expenditure first. On that basis, some £21,788 of the funds received from the company was applied in the purchase. I reach that conclusion by disregarding the banker's draft for £46,000 debited on 5 April 2002 but never used and re-credited on 11 April 2002. In my judgment it would be an unrealistic and mechanical application of Re Hallet to include the banker's draft in the calculation. In any event, the company's money was traceable into the banker's draft which was repaid into the account.

[112]The overall result is that in purchasing the property, Mr Potter diverted to himself an opportunity which belonged to the company and did so using company funds paid to him in breach of the Companies Act and in breach of duty. Without the prior oral agreement for the purchase of Mr Baker's shares, this would have constituted conduct which was unfairly prejudicial to Mr Baker as a member. However, as Mr Baker had already contracted to sell his share to Mr Potter and as Mr Potter has been and remains willing and able to complete the contract, Mr Baker's interest as a member has not been prejudiced. (iv) Dividends

[113]The fourth and final head of unfair prejudice alleged in the petition pre-dates the oral contract of sale. Dividends amounting to £21,600 were paid to Mr Potter in the years ended 30 November 2000 and 2001, but no dividends were paid to Mr Baker. As the holder of one out of the two issued shares, Mr Baker was on the face of it entitled to the same amount of dividend as Mr Potter. Mr Potter does not dispute that this is the basic position, but, he says, at the suggestion of Mr Mooney, the company's accountant, he took part of his salary as dividends in order to reduce his and the company's liability for national insurance contributions and tax, and this was agreed with Mr Baker.

[114]The tax forms in evidence demonstrate that for the first two months of trading by the company, Mr Potter was paid a salary at a gross rate of £4,000 per month. Mr Potter's unchallenged evidence was that this was the amount that he had previously earned from his business TP Car Sales. From April 1999 he was paid a salary by the company at a gross rate of £2,200 per month and a dividend of £1,800 per month. This change, made it is said at Mr Mooney's suggestion, did not alter the gross amount of Mr Potter's drawings but reduced the national insurance contributions, involving a saving for both the company and Mr Potter. Mr Potter says that he discussed it briefly with Mr Baker who agreed with it and accepted that he would not receive the equivalent dividend.

[115]Assuming that Mr Potter's agreed gross salary was £4,000 per month, it was a sensible arrangement from the point of the company and its members. Mr Baker denied that he had agreed to this arrangement and in his oral evidence for the first time asserted that Mr Potter's salary had been agreed at £2,200. This would have involved a substantial reduction in Mr Potter's salary and, as he was running the business and doing much as he had done before, I can see no reason why he should have agreed it. Mr Mooney's evidence which I accept is that Mr Potter told him in October or November 1998 that his salary was to be £4,000. I can see no reason why in the early days of the company Mr Potter should tell Mr Mooney that his salary was agreed to be at that rate if in fact the agreement with Mr Baker was for a salary at a level of £2,200. Moreover, Mr Baker unexpectedly went to see Mr Mooney in his office on 16 August 2002, the first time they had met. Within a day or so of the meeting Mr Mooney made a note of the meeting, which records Mr Baker as saying that he had agreed Mr Potter's remuneration as £4,000 gross of tax. I accept that this accurately records what Mr Baker said. I am satisfied that Mr Potter and Mr Baker agreed the salary at a gross rate of £4,000 per month.

[116]It is the evidence of both Mr Potter and Mr Mooney that in April 1999 Mr Mooney made the suggestion that part of the salary should be paid as a dividend. This was a common arrangement in small companies, designed to reduce income tax and national insurance contributions, and it is not at all surprising that Mr Mooney suggested it. Mr Mooney's evidence was not challenged and his suggestion is recorded by him in a letter dated 6 April 1999 to Mr Potter. The letter refers to the position of Mr Baker in relation to this proposal. Mr Mooney's evidence, which I accept, is that he was concerned that Mr Baker's agreement be obtained to this arrangement, and to a waiver of his entitlement to an equivalent dividend, and that within a couple of weeks Mr Potter told him that Mr Baker had agreed. I accept Mr Potter's evidence that he did speak to Mr Baker about it and that Mr Baker agreed to it. Having been advised to obtain Mr Baker's agreement it is likely that he did so and there is every reason why Mr Baker would have agreed to it, as it reduced the cost to the company of Mr Potter's remuneration. Mr Hardwick laid some emphasis on Mr Potter's evidence that the topic was discussed with Mr Baker in a two-minute conversation in passing. Given the attraction to the company of the proposal, the brevity and informality of the conversation is not surprising. I am entirely satisfied that this was not intended to be, and was not in fact, a means of extracting money from the company to the detriment of Mr Baker. I am also satisfied that Mr Baker's agreement to the arrangement did not involve any greater waiver of dividends than was necessary for this arrangement. It would have been illogical and Mr Potter does not suggest that he asked for or obtained any general waiver.

[117]In light of Mr Baker's agreement for the payment of part of Mr Potter's remuneration as dividends, there is no basis for any complaint of unfair prejudice or complaint that Mr Baker's rights as a shareholder were not observed. I should add that even if his consent had not been obtained I do not consider that he could make out a case of unfair prejudice. He would under the articles be entitled to the payment of an equivalent dividend, but the arrangement with Mr Potter did not prejudice, but benefited, the company and its members and was not made for any improper purpose. Mr Baker's petition under section 459: conclusion

[118]My overall conclusion is that there is no factual basis for two of the grounds of unfair prejudice alleged in Mr Baker's petition, the transfer of cars to Tudor Trade Centre and the payment of dividends to Mr Potter, even if there had been no contract for the sale of Mr Baker's share. The same is true of Mr Baker's complaint of exclusion from management, because there never was any basis entitling him to participate in management. If there had been no contract for the sale of Mr Baker's share, Mr Baker's complaint as to the ownership by Mr Potter personally of 308 Luton Road would have been well-founded. However, the existence of the contract of sale, and Mr Potter's willingness to complete it, means that these matters have caused no prejudice to Mr Baker as a member. Accordingly, I dismiss Mr Baker's petition. Specific performance of the share sale agreement

[119]This leaves for consideration Mr Potter's counterclaim for specific performance of the contract to purchase Mr Baker's share. In view of my findings as to the existence of the contract, only one defence is relied on in opposition to an order for specific performance. It is submitted that Sarah Weyman's untrue statement to Mr Baker that the accountant had said that, if things carried on as they were, there would be no company, disqualified Mr Potter from the equitable remedy of specific performance. Mr Potter heard it, knew it to be wrong and did not correct it.

[120]The court is not bound to order specific performance of a contract and it is undoubtedly the case that where either a contract has been induced by a misrepresentation or where there has just been some tricky or unfair conduct in connection with the contract, the court has a discretion to refuse specific performance: see Snell's Equity (30 th ed.) paras 40-42 and 40-62, Jones & Goodhart: Specific Performance pp 86-93,112-117. If there has been a fraudulent misrepresentation, then the other party will be entitled to rescission of the contract as well as to resist an order for specific performance. That, however, requires proof that the misrepresentation was at least a factor inducing the contract to be made. In the present case, Mr Baker has strongly denied that any agreement at all was made and has not therefore given evidence that he relied on Sarah Weyman's statement in making an agreement. Nor in this case am I prepared to infer that in fact he did rely on it to make the agreement of sale. He was not at the time of the meeting concerned to investigate the actual performance of the company and the price agreed bears no discernable relationship to any particular level of performance. I am satisfied that exactly the same agreement would have been made if Sarah Weyman had not made her statement.

[121]As noted, the court may still refuse specific performance if there has been trickiness or reprehensible conduct on the part of the claimant in connection with the agreement. It was on this basis that the Court of Appeal in Quadrant Visual Communications Ltd v Hutchinson Telephone (UK) Ltd

[1993] BCLC 442

approved the judge's decision to refuse specific performance on an application for summary judgment. It should however be noted that the reprehensible conduct in that case was the failure by the plaintiff to disclose, prior to the date fixed for completion of the contract, an agreement made by it after date of the contract and, on the defendant's case, made in breach of the express terms of the contract. In contrast, I am very doubtful whether it would be right to refuse specific performance on the basis of a dishonest statement made in the course of negotiations which did not play a part in inducing the contract. If the contract would have been made on the same terms in any event, a refusal of specific performance does not redress a wrong done to the defendant but simply imposes a penalty on the claimant.

[122]However, even if the court could properly refuse specific performance in such circumstances, I am satisfied that this is not the case to do so. This is not a case where the claimant has admitted the contract but refused to proceed because of Sarah Weyman's statement to him. Mr Baker has consistently denied the existence of the contract, or even an informal agreement, and has supported his case with evidence as regards the agreement, the payments of £40,000 under it and the earlier payments to Martha Weyman and himself which, in my judgment, he knew to be false. I approach the exercise of the discretion as to whether to order specific performance in the light of Lord Brightman's remarks in Sang Lee Investment Co Ltd v Wing Kwai Investment Co Ltd (1983) 127 Sol. Jo. 410 "To disentitle a plaintiff to relief the alleged want of probity had to arise in the transaction and had to have an immediate and necessary relation to the equity sued upon. In a case where there were alleged improprieties on both sides it was not the proper approach for a court in exercising its discretion to grant specific performance to compare the misconduct on the one side with the misconduct on the other side. The court should first decide whether there had been any want of faith, honesty or righteous dealing on the part of the person seeking relief and then decide whether as a matter of discretion and in all the circumstances, which might include any relevant misconduct on the part of the person resisting, if it was right to grant or refuse specific performance. There was no balancing exercise which fell to be performed. On the facts specific performance should be granted." Taking account of all the circumstances, I am satisfied that it is right to grant specific performance of the agreement for the purchase of Mr Baker's share and that it would be unjust to refuse it.

[123]I will however attach one condition. The payments of £10,000 and £30,000 in November 2001 and January 2002 towards the purchase price were made by the company out of its own funds. They were therefore made in contravention of section 151 of the Companies Act 1985, although I am satisfied that at the time no-one appreciated that it was illegal for the company to make these payments. Mr Baker and Martha Weyman could be held liable to repay those amounts to the company in a claim brought by or on behalf of the company. This would be an unjust result and Mr Potter must take the steps necessary to ensure that this is not possible, for example by himself now paying that sum and interest to the company and procuring a release of any claim by the company. Subject to that condition, I shall make an order for specific performance of the contract for the purchase by Mr Potter of Mr Baker's share

Carl Baker v Anthony Potter And Bellevue Garages Limited [2004] EWHC 1422 (Ch)

(i) Events after the discussion

(i) Exclusion from management

Cited in 4 later judgments