Cobden Investments Ltd. v RWM Langport Ltd & Ors [2008] EWHC 2810 (Ch)

[2008] EWHC 2810 (Ch)

Case No 10220 of 2008

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

COMPANIES COURT

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

Date 20/11/2008

Before

MR JUSTICE WARREN

Between

COBDEN INVESTMENTS LIMITEDPetitioner

(1) RWM LANGPORT LTDRespondents

(2) SOUTHERN COUNTIES FRESH FOODS LIMITEDRespondent

(3) ROMFORD WHOLESALE MEATS LIMITEDRespondent

IN THE MATTER OF SOUTHERN COUNTIES FRESH FOODS LIMITED

AND IN THE MATTER OF THE COMPANIES ACT 1985

Mr Bernard Weatherill QC & Mr Peter Griffiths (instructed by Messrs Rosenblatt) for Petitioner

Mr Victor Joffe QC & Mr Timothy Collingwood (instructed by DLA Piper UK LLP) for Respondents

Hearing Hearing dates: 27th,28th,29th February 2008, 3rd,4th,5th,6th,7th,10th,11th,12th,13th,18th,19th, March 2008, 8th,9th,10th,11th,14th,15th,16th,17th,18th,21st,22nd,23rd,24th, April 2008 and 7th,8th, 9th May 2008

Judgment

Introduction

[1]This is a petition under section 994 Companies Act 2006 in relation to the affairs of the second Respondent (“SCFF”). Although the petition is now in a re-amended form, I will simply refer to it as “the Petition”. SCFF is a company which was incorporated on 14 August 1996 as a joint venture vehicle for the interests of the Cobden family and the Heffer family. The petitioner (“CIL”) owns 50% of the issued shares of SCFF; it is the vehicle through which the interests of the Cobden family are held. The other 50% is held by the first respondent (“RWM Langport”) a company within the RWM group of companies owned and controlled by the Heffer family. The holding company of the group is RWM Food Group Ltd (“RWM Group”). The third respondent (“RWM”) is another company within the RWM group which originally held that other 50%. CIL has power to appoint 3 directors of SCFF as does RWM Langport. Unless it is necessary to distinguish between the different RWM entities, I shall use “RWM” to include RWM Langport.

[2]Prior to the involvement of the Heffers in 1993, the Cobden family were the shareholders in JH Cobden Ltd ("JHC") which operated an abattoir in Langport, Somerset and, before that, an abattoir and boning hall in Martock, also in Somerset. The Langport abattoir is now owned and operated by SCFF.

[3]RWM has at all material times been, and is today, a meat processor and wholesaler, with significant supermarket customers. The processing aspect of its business involves the boning of cattle and sheep which have been slaughtered by third-party abattoirs.

[4]By 1993, JHC was experiencing trading difficulties. JHC and RWM became known to each other. RWM, which then carried on the major part of its business in Romford in Essex, where its boning facilities were becoming inadequate, saw an opportunity which would be of benefit to both companies. This was for RWM to move its boning business to the Langport site where a new boning hall could be built. JHC would be able to supply RWM with animals which it had slaughtered: it would have a guaranteed customer for a large amount of its throughput and would be able significantly to increase that throughput. RWM would have the benefit of a sure supply of meat with the convenience of that supply coming from the same site. Transport costs for the overall enterprise would be saved. These ideas were discussed and an agreement was reached.

[5]In July 1993 RWM acquired a 50% shareholding in JHC pursuant to a Share Sale Agreement dated 22 July 1993 (“the Share Sale Agreement”), and then on 21 August 1996 following a scheme of reconstruction under section 110 Insolvency Act 1986, SCFF took over JHC’s business. Ever since, 50% of the shares have been held by CIL. The other 50% have been owned first by RWM and later by RWM Langport. Since then RWM has been, and still is, supplied with much of its beef requirements by SCFF. There has also been trading between SCFF and RWM Dorset Ltd ("RWM Dorset"), another subsidiary of RWM Group. RWM Dorset is a processor of and wholesaler dealer in lamb; it is supplied with live lambs by SCFF in circumstances which I will need to explain later.

[6]The principal objects for which the Company was established are “to carry on business, both wholesale and retail, as dealers, distributors, suppliers, sellers … or merchants of and in all or any of the following commodities, namely meat, cattle, pigs … and other animals … whether alive or dead or fresh … and to carry on business as licensed slaughterhouse proprietors; as slaughterers of sheep and other animals; and dealers in hides and skins”.

[7]One of the issues for me is the extent to which it is possible to go outside the formal agreements to ascertain the legal relationship between the parties and in particular to identify the duties owed. Looking for the moment at the Shareholders Agreement (as to which see paragraph 83ff below), the business which it was envisaged would be carried on by SCFF, (the “Business”) was defined in the Shareholders Agreement as follows: “the business of wholesale butchers, meat processors, slaughterers, processors of hides, skins and animal by-products and pet food manufacturers”.

[8]At all material times prior to the BSE crisis in March 1996 the business carried on by JHC comprised or included the following (which, like much of this introduction, I take from the closing submission of Mr Weatherill QC and Mr Griffiths and accept as accurate):a. slaughtering cattle, mainly cows;

b. procuring clean cattle for slaughter for Romford Wholesale

c. selling beef, predominantly from cows, mainly bone-in but some bone-out;

d. selling hides, offal and other by-products;

e. slaughtering lambs and sheep, and some pigs;

f. selling lamb and sheep meat, both in the UK and in export markets; and

g. pet food manufacturers.

[9]The terms bone-in and bone-out, which will appear a number of times in this judgment, are perhaps self-explanatory. Meat is bone-in if it has not been boned; it is bone-out if the bone has been removed so that the carcassis ready for preparation for jointing and subsequently packaging where appropriate.

[10]At the time when the parties first started their discussions for the acquisition by the Heffer family interests of a share in JHC’s business, a pet food business was being carried on through a subsidiaryof JHC. By August 1996, the pet food business, which was proving unprofitable, had closed. Further, following the start of the BSE crisis in 1996, it was no longer possible to introduce cow beef into the human food chain. This, unsurprisingly, had a major adverse impact on SCFF’s business. It was forced to suspend its business of killing cows for the human food chain and undertook the following business activities:a. culling cows for the government;

b. procuring clean cattle for slaughter for RWM;

c. slaughtering lambs and sheep;

d. selling cow hides and sheep skins;

e. selling lamb and sheep meat, both in the UK and in export markets.

[11]The Langport site was previously owned by JHC and is now owned by SCFF. As part of the arrangements between the Cobdens and the Heffers, a boning hall was constructed (at the expense of JHC) in which RWM has ever since carried on a major part of its boning business. RWM, and later RWM Langport, have occupied the boning hall under the terms of a lease which I will come to in due course.

[12]The formal documentation governing the relations between the Cobden family interests (in particular CIL), the Heffer family interests (in particular RWM, RWM Langport and RWM Dorset) and RWM operates at different levels:a. Relations between the shareholders in SCFF have at all material times been governed by its Articles of Association and a Shareholders Agreement dated 19 August 1996 (“the 1996 Shareholders Agreement”). This was in broadly similar terms to an earlier agreement made in 1993 (“the 1993 Shareholders Agreement”). It was made between CIL and RWM. RWM’s shareholding was later transferred to RWM Langport as part of an internal restructuring of the RWM group and, in connection with that transfer, RWM Langport entered into a Deed of Adherence with CIL executed on 31 December 1998 under which it covenanted to be bound by and comply with the 1996 Shareholders Agreement and to assume the benefits of it as if it had been an original party. It should be noted that RWM nonetheless continued to be bound by, and remain liable under, the 1996 Shareholders Agreement: it was not discharged as a result of the transfer of shares to RWM Langport and the Deed of Adherence. The 1996 Shareholders Agreement was later varied by a Deed of Variation dated 14 May 1999. I shall refer to these agreements as the Shareholders Agreement without distinction unless the context otherwise requires.

b. The shareholders’ entitlement to dividends was further regulated by a Dividend Distribution Policy Agreement dated 17 November 2000 (“the Dividend Agreement”). Clause 2 of the Dividend Agreement provides for the distribution of 75% of Distributable Profits if cash flow permits.

c. Trading relations between SCFF and RWM have been regulated by a Trading Agreement dated 22 July 1993 (“the Trading Agreement”) superseded in 2000 by a Memorandum of Understanding (“MoU”) dated 17 November 2000, a document of considerable importance in this case.

d. The relationship of landlord and tenant has been regulated by a lease dated 4 January 1994 (“the Lease”) made between JHC and RWM under which RWM was granted a lease of the Premises (as defined in the Lease and including the boning hall) for a term of 25 years from the date of the Lease.

e. There were sheep trading activities between SCFF and RWM Dorset. In this context, a Supply Agreement made between Southern Counties Beef and Lamb Producers’ Club Ltd (“SCB&L”) and RWM Dorset (“the Supply Agreement”) dated 4 March 1998 is of relevance. I mention it here only to identify it. It seems to be common ground that the Supply Agreement was the origin of SCFF’s entitlement to be paid for some of its activities (eg procurement fees for livestock procured by or through SCFF’s Producers’ Club to RWM Dorset) but there is (or was) controversy over the other aspects of it. As to SCB&L and the Producers Club, see paragraphs 251, 252 and 276 below).

[13]Mr Weatherill underlines CIL’s central contentions thata. the directors of SCFF appointed by RWM or RWM Langport (“the RWM Directors”), have acted in breach of the fiduciary duties owed by them to SCFF; and

b. RWM and RWM Langport have acted in breach of their obligations in the 1996 Shareholders Agreement; and

c. they have all preferred the interests of RWM and RWM Dorset in failing to ensure that the terms of the Trading Agreement, the MOU and the Lease have each been complied with.

[14]As Mr Weatherill summarises it:

“In short, they have failed to conduct themselves towards the Company in the manner contemplated by CIL and the Cobden Directors and on the basis of which CIL agreed to allow Romford Wholesale to acquire its shareholding in JHC and subsequently agreed to become the 50/50 shareholder with it in the Company.”

[15]He also explains that, as his clients see it, serious tensions which have been building up over the years arising out of the relationship between SCFF on the one hand and RWM and RWM Dorset on the other have now erupted. He says that the RWM Directors have preferred the interests of RWM and RWM Dorset over the interests of SCFF in a number of ways, involving generous terms of trading being enjoyed by RWM and RWM Dorset and a refusal to renegotiate those terms. He also says that RWM and RWM Dorset have taken SCFF’s business and its customers and effectively prevented SCFF from carrying on important aspects of its business itself. SCFF, according to him, is now reduced to supplying beef and lamb for RWM and RWM Dorset with no other significant business. Mr Weatherill also asserts that there is now deadlock (in which he is clearly correct) on the board of directors. In opening, it was suggested that RWM was using its powers to maintain the association between CIL and itself in circumstances to which the Cobden Directors could reasonably say that they did not agree. Mr Joffe says that deadlock and the maintenance of the association in that way is an unpleaded allegation and that these were not pursued in cross-examination. Mr Weatherill has confirmed that he does not raise deadlock as a separate ground for relief; he submits that the specific grounds of complaint which RWM alleges are made out and that they explain why there is now deadlock on the board. But if none of those complaints is made out, he does not submit that there is nonetheless a case for granting relief under section 994.

[16]I mention, at this stage of the introduction, the principal individuals involved. There are, on each side, the various family members. I hope I will be forgiven if, for ease of reference and having identified them, I refer to them by their first names only. At the time when the arrangements were first put in place, it was really Richard Cobden (“Richard”) and Robin Heffer (“Robin”) who made the decisions. Richard’s sons Matthew and Daniel were involved in the business of JHC, but Richard was still active and had not handed over the reins. There is a third son, William, but he has had no part (or no significant part) to play in this saga. Similarly, Robin, whose entrepreneurial skills were central to the success of the RWM group which he had founded, was in effect in control of the RWM side. His sons Robert and Graham were involved in the business but were still comparatively young. In each family, the sons seem to have deferred to the father.

[17]As time has passed, the sons on each side have all taken a more active and senior role in the businesses. Matthew’s role, in particular, in SCFF became greater; he became abattoir manager. He ceased that role and no longer has a role in the management of the SCFF. He is, however, now the main spokesman for the Cobdens. Richard has substantially reduced his role in SCFF although he remains a director. He has reached an age where he is right to pass matters onto the next generation. Robert and Graham have largely taken over management of RWM, RWM Langport and RWM Dorset. Robin has taken a conscious decision to hand over management to his sons. Like Richard, he has reached the age where it is appropriate for him to have made that decision.

[18]With that introduction, I say something about the witnesses and then turn to the facts, starting with the key documents.

The Witnesses

[19]Before turning to the individual witnesses, I want to say something about the different ways in which the two families presented themselves and came across. It is difficult to make the point which I wish to make without sounding patronising. I do not mean to be when I say that the Heffers are far more sophisticated than the Cobdens. I see the Cobdens as being more easy-going, less commercial and less aggressive than the Heffers. Matthew is certainly dogged and can, I think, be obstinate; and although he has clearly developed some business and financial skills, he does not have the ruthless streak which I detect in all of the Heffers. I do not, in saying that, intend to imply that the Heffers act in any way which is unlawful or dishonest; I mean only that they see their own commercial interests as paramount and drive a hard bargain without being sentimental. They take for themselves the benefit of any doubt. Robin has built up the RWM business through his own skills of management and negotiation and has clearly instilled in Robert and Graham an ethos of hard work. He has generated in them a sense of self-confidence which enables them, as Robin’s successors, to drive the business forward. In contrast, Richard does not seem to have had the business skills possessed by Robin. His skill was in buying animals on his visits to markets and farms and dealing with farmers. I am sure he is a man who has always carried respect and affection from those he has dealt with; but bookkeeping and financial control were not his great love and for them he had little aptitude. Like their father, Matthew and Daniel are hands-on individuals whose interests really lay in animals and the dealings with farmers rather than in business. I do not think that Matthew ever really enjoyed his role as abattoir manager.

[20]This is reflected in Robin’s dealings with Richard. Although in their negotiations with the Heffers, the Cobdens were advised by professionals, Robin was a tougher negotiator than Richard. Robin did not drive improper bargains but he drove hard ones. All the Heffers have strong personalities. They like to get their own way. It is not difficult to see how this has eventually led to friction, and then deadlock, inside and outside the boardroom. Matthew has explained with some passion how he perceived the development of the relationship between the two families, with the Heffers becoming more and more forceful and, to use my word rather than his, autocratic. I have no doubt that, rightly or wrongly, that is how he genuinely perceived matters. I have no doubt either that the Cobdens were genuinely fearful, at least since the start of the BSE crisis when JHC and then SCFF became more and more dependent on RWM, that if they challenged the Heffers on any matters there would be retribution in one form or another. Having seen all the relevant individuals in the witness box, I do not find it difficult to understand why Matthew formed the perceptions which he did or why the Cobdens harboured the fears which they did.

[21]Mr Weatherill has provided me in his written closing submissions with his observations on the witnesses. He has, in relation to Robin and Graham (and to a lesser extent Robert) gone into some detail about where their evidence is, according to him, wrong, and why they are unreliable witnesses. Mr Joffe has eschewed this detail. Cross-examination of all witnesses ranged far and wide and whilst relevant in helping me form a view about the reliability of the witnesses and in giving me a full picture of the nature of the businesses of JHC/SCFF and RWM, the parts played by the various individuals and their relationships, I do not propose to attempt to resolve the plethora of differences between the witnesses on matters which are not directly relevant to the claims on the Petition.

Matthew Cobden

[22]Matthew was the main witness for CIL. He produced a long witness statement on which he was cross-examined for 6 days. He was not shaken in any material way from what he had said in the statement. There was no point on which it was demonstrated that he must be lying or even that he must clearly be mistaken. Mr Weatherill draws my attention to the facts(i) that Matthew was given the opportunity to improve CIL’s case when asked about the projections when the Cobdens became shareholders in RWM Dorset but did not do so;

(ii) that he also owned up to signing RWM Dorset accounts without making any investigations; and

(iii) that Robin was prepared to accept his evidence of the profitability of trading in cows.

[23]Matthew gave his evidence in a clear uncomplicated way although with suppressed anger and bitterness. I am sure that he was trying to help the court and to tell the truth as he saw it about how the Heffers came to dominate and to treat the business as an appendage to RWM’s business. Matthew is entitled to his perspective, but I must be more objective having seen the case from both sides.

Richard Cobden

[24]I agree entirely with Mr Weatherill when he says that Richard is a man past his prime whose memory is understandably failing. I am quite sure that he, too, was trying to assist the court and certainly was not deliberately saying anything which he did not believe was true. However, particularly towards the end of his cross-examination, it was apparent that he was giving answers in relation to some of his conversations with Robin which reflected what he believed must have happened or been said – consistently with CIL’s case – rather than what he actually recalled as happening or having been said.

Daniel Cobden

[25]Daniel gave his evidence in a straightforward way. He came across as a quiet unassuming individual who did not seem wholly engaged with the process going on in court. His evidence did not go to the central issues on this petition. His evidence goes, principally, to the legal action which had been brought against SCFF by Loders, a repair garage, for a modest amount in respect of repairs to Matthew’s car which had been damaged when being used by Richard on SCFF business; and with Matthew’s claim for unfair dismissal against SCFF. I deal elsewhere the detail of that.

Geoffrey Alexander

[26]Geoffrey Alexander is an elderly witness but clearly had a good memory. He had been a long-term full-time employee at the abattoir which appeared to have been the focus of his life. He is still employed part-time by SCFF. He answered questions put to him without hesitation. He was only called to give evidence at the last minute on a discrete issue concerning his diaries and had no knowledge of CIL’s and RWM’s cases. I find him to have been an honest and helpful witness.

Graham Heffer

[27]It was, at least in the earlier parts of his cross-examination, not entirely easy for Mr Weatherill to obtain answers to the questions which he asked. Graham appeared somewhat evasive and reluctant to accept obviously correct propositions which were not in RWM’s interests. Mr Weatherill has included in his closing submissions a long list of matters where he says Graham was evasive or wrong concluding that he was a witness who was, to a large extent, making it up as he went along. He invited me to treat him as a witness whose evidence ought only to be accepted with care unless corroborated by contemporaneous documentation or convincingly supported by others. I do not think that Graham was making things up as he went along. On one or two critical matters, as will be seen, I accept his evidence in preference to that of Matthew.

Robin Heffer

[28]Robin is perhaps the most important witness from RWM’s side. He was the one who called the shots on the Heffer side at the commencement of RWM’s arrangements with JHC. He frequently deflected questions or answered a different question or qualified his answer, always with a view to painting RWM in the best possible light. Even more so than Graham, he was reluctant to accept any point, however obviously correct, which might tell against RWM’s interests. There were a few instances where he has given answers which not only have I found it impossible to accept but also cannot believe that Robin himself can have thought were answers which reflected what he really thought. He sometimes gave contradictory answers to the same questions in the course of a few minutes, leading me to think that his memory was not as good as he would have me believe when expressing certainty in answers which were consistently in favour of RWM’s interests.

[29]Mr Weatherill suggests that it was quite apparent from Robin’s attitude in the witness box that he is a man who likes to get his own way. I think he is right to make that suggestion. It is part of the ruthless streak which has made him a successful businessman. It is an attitude which spilled over into the way he gave his evidence in cross-examination, being prone to make speeches.

[30]However, I am not willing to accept that Robin was as dissembling and self-serving as Mr Weatherill would have me believe. Again, I will resolve the conflicts of evidence when considering the detail of the various complaints made.

Robert Heffer

[31]Robert was more willing to give a straight answer to a straight question than Robin or Graham. He did, like his father, come across as a forceful person who is determined to get his own way. There is some force in Mr Weatherill’s observation that “If Robert wants cows, he gets cows; if Robert wants kill fees at a certain level, he gets kill fees at that level. If you fail to say no to his proposals, you mean yes. The customer is always right and he is the customer”.

Ian Carswell

[32]I would have hoped from Mr Carswell a rather less partisan approach than I received. He has, if I may say so, a real animus against Matthew. If it was intended to present him as an independent witness who could be relied on to give a dispassionate assessment on matters where a Cobden disagreed with a Heffer, I am afraid that such a presentation fails. That is not to say that the material parts of his evidence are to be disbelieved; I will make any necessary findings in due course.

Richard Phelps

[33]Mr Phelps, the managing director of SCFF, came across as an honest witness, willing to show independence of mind. He answered questions, some difficult, as best he could. I consider that he was truly trying to assist the court. I deal elsewhere with what Mr Weatherill considers to be the one unsatisfactory aspect of his evidence, relating to the reduction of the kill fees for lambs in June 2001 and where his evidence is directly contrary to Matthew’s evidence.

The Experts

[34]I will deal with aspects of the experts’ evidence as I go along. The Law

Unfair prejudice

[35]For the most part, the law involved in this case is not a matter of contention, although its application to the facts certainly is.

[36]The relevant statutory provisions are now found in sections 994 to 996 Companies Act 1996 (effectively re-enacting the provisions of section 459ff Companies Act 1985). Section 994(1) provides as follows:

“A member of a company may apply to the court by petition for an order under this Part on the ground – (a) that the company’s affairs are being or have been conducted in a manner which is unfairly prejudicial to the interests of members generally or of some part of its members (including at least himself) or (b) that an actual or proposed act or omission of the company (including an act or omission on its behalf) is or would be so prejudicial.” (a) that the company’s affairs are being or have been conducted in a manner which is unfairly prejudicial to the interests of members generally or of some part of its members (including at least himself) or (b) that an actual or proposed act or omission of the company (including an act or omission on its behalf) is or would be so prejudicial.”

[37]Section 996(1) provides:

“If the court is satisfied that a petition under this Part is well founded, it may make such order as it thinks fit for giving relief in respect of the matters complained of …”

[38]Section 996(2) gives specific examples of the kinds of orders the court may make including provision for the purchase by one member of the shares of another member

[39]For a petition to be well-founded, it must establish (see Re Neath Rugby Ltd

[2007] EWHC (Ch) 2999

[2008] BCC 390

), per Lewison J at paragraph 202) that:-a. the acts or omissions of which it complains consist of the management of the affairs of the company;

b. the conduct of those affairs has caused prejudice to its interests as a member of the company; and

c. the prejudice is unfair.

[40]The meaning of the expression “affairs of the company” has been considered in a number of cases. It is very broadly construed: see Nicholas v Soundcraft Electonics

[1993] BCLC 360

; Gross v Rackind

[2005] 1 WLR 3505

per Sir Martin Nourse; and Re Grandactual Ltd

[2006] BCC 85

per Sir Donald Rattee.

[41]The principles can, in large part, be distilled from the well-known cases of Saul D Harrison & Son plc

[1995] 1 BCLC 14

and O’Neill v Phillips

[1999] 1 WLR 1092

: a shareholder generally needs to establish one of the following:a. A breach of the terms on which he agreed that the affairs of the company should be conducted;

b. That equitable considerations (those referred to by Lord Wilberforce in Ebrahimi v Westbourne Galleries Ltd

[1973] AC 360

at 379) arising at the time of the commencement of the relationship or subsequently, make it unfair for those conducting the affairs of the company to rely on their strict legal rights;

c. That the board of directors has exceeded the powers vested in them or have exercised their powers for an illegitimate or ulterior purpose; or

d. Some event putting an end to the basis on which the parties have entered into association with each other, making it unfair that one shareholder should insist on the continuance of the association.

[42]Mr Weatherill relies on passages from both Saul D Harrison and O’Neill to show the importance, of conduct which is not in accordance with the Articles of Association or any express agreement between the shareholders. I do not propose to set out everything which he has included in his closing submissions, but the (strong) flavour can be detected from the following passages: a. Saul D Harrison: Hoffmann LJ at p 17:

“In deciding what is fair or unfair for the purposes of s.459, it is important to have in mind that fairness is being used in the context of a commercial relationship. The articles of association are just what their name implies: the contractual terms which govern the relationship of the shareholders with the company and each other. They determine the powers of the board and the company in general meeting and everyone who becomes a member of a company is taken to have agreed to them. Since keeping promises and honouring agreements is probably the most important element of commercial fairness, the starting point in any case under s.459 will be to ask whether the conduct of which the shareholder complains was in accordance with the articles of association.” [One might notice, however, that this is only the starting point.] Neill LJ at 31: "For the purpose of determining the legal rights of the petitioner one turns to the memorandum and articles of the company because the articles constitute the contract between the company and the member in respect of his rights and liabilities as a shareholder. Furthermore, it is to be remembered that the management of a company is entrusted to the directors, who have to exercise their powers in the interests of the company as a whole. A shareholder can legitimately complain, however, if the directors exceed the powers vested in them or exercise their powers for some illegitimate or ulterior purpose." b. O’Neill: Lord Hoffmann at p 1102: “In the case of s.459, the background has the following two features. First, the company is an association of persons for an economic purpose, usually entered into with legal advice and some degree of formality. The terms of the association are contained in the articles of association and sometimes in collateral agreements between the shareholders. Thus the manner in which the affairs of the company may be conducted is closely regulated by rules to which the shareholders have agreed. Secondly … The first of these two features leads to the conclusion that a member of a company will not ordinarily be entitled to complain of unfairness unless there has been some breach of the terms on which he agreed that the affairs of the company should be conducted. …”

Then, after considering the equitable constraints on the exercise of legal rights based on legitimate expectations he says:

“I do not suggest that exercising rights in breach of some promise or undertaking is the only form of conduct which will be regarded as unfair for the purposes of s.459. For example, there may be some event which puts an end to the basis on which the parties entered into association with each other, making it unfair that one shareholder should insist upon the continuance of the association. The analogy of contractual frustration suggests itself. The unfairness may arise not from what the parties may have positively agreed but from the majority using its legal powers to maintain the association in circumstances in which the minority can say it did not agree: non haec in foedera veni.”

[43]In the same vein, Patten J (sitting as a judge in the Court of Appeal) in Grace v Biagioli

[2006] 2 BCLC 70

, 93, said this at paragraph 61 “The concept of unfairness, although objective in focus, is not to be considered in a vacuum. An assessment that conduct is unfair has to be made against the legal background of the corporate structure under consideration. This will usually take the form of the articles of association and any collateral agreements between shareholders which identify their rights and obligations as members of the company. Both are subject to established equitable principles which may moderate the exercise of strict legal rights when insistence on the enforcement of such rights would be unconscionable.”

[44]It is pertinent to note that both Saul D Harrison and O’Neill were cases where the complaint was not that there was a breach of the Articles of Association or of some other agreement, but that powers had been exercised other than in accordance with what the petitioner considered to be his legitimate expectations. Much of the discussion therefore concerned the circumstances in which a petitioner should be able to claim unfair prejudice where rights under the relevant Articles or agreement have not been infringed.

[45]In the present case, the complaint is not that RWM Langport (and the Heffer interests generally) have exercised the powers which they do possess (in accordance with their strict legal rights) in a manner which equitable considerations make it unfair for them to exercise in the way they have. Rather, the complaint is that actions have been taken by the RWM Directors in the conduct of the affairs of the company which either they had no power to take on behalf of SCFF or which amount to breaches of their fiduciary duties to SCFF and breaches of the agreements governing the relationship between the shareholders. Actions which are breaches of duty or breaches of some express agreement are capable of being both unfair and prejudicial and there is no need to consider whether there are equitable considerations which render unfair the exercise of rights under the constitution of SCFF or the arrangements governing relations between the shareholders relating to the conduct of the affairs of SCFF.

[46]To succeed on a petition, the petitioner must show that the conduct complained of is both unfair and prejudicial. One element without the other will not suffice, as Neill LJ held in Re Saul D Harrison & Sons plcat 31c:

‘The conduct must be both prejudicial (in the sense of causing prejudice or harm to the relevant interest) and also unfairly so: conduct may be unfair without being prejudicial or prejudicial without being unfair, and it is not sufficient if the conduct satisfies only one of these tests.…’

[47]There must be a causal link between the conduct complained of and the unfair prejudice suffered by the shareholder: Re BSB Holdings Ltd (No 2)

[1996] 1 BCLC 155

; Irvine v Irvine (No 1)

[2007] 1 BCLC 349

, 417, para 256. As was held by Jonathan Parker J in Re Blackwood Hodge plc:

[1997] 2 BCLC 650

, 673: “… the petitioners must establish not merely that the BH directors have been guilty of breaches of duty in the respects alleged, but also that those breaches caused the petitioners to suffer unfair prejudice in their capacity as preference shareholders.” 48. In paragraphs 222 and following of his judgment in Neath Rugby, Lewison J considered deadlock on the board of a company and its consequences. Mr Weatherill has devoted some paragraphs of his closing submissions to deadlock and the coming to an end of the foundation on which the parties had agreed to deal together. Since he does not assert that deadlock subsists other than as a result of the matters which he says amount to unfairly prejudicial conduct, and since he does not submit that CIL is entitled to relief under section 994 on the basis of deadlock if none of those complaints is made out, I do not propose to consider his lengthy submissions on this point (or those of Mr Joffe) any further. I only note Lewison J’s conclusion that the law appears to be that any facts sufficient to justify a winding-up on the just and equitable ground are, ipso facto, sufficient to give the court jurisdiction, to make an order under Section 994, basing himself of the decision of Jonathan Parker J in Re Guidezone Ltd

[2001] BCC 692

. Lewison J expressed doubt about the correctness of what Jonathan Parker J had held but considered himself bound by it. I share that doubt.

[49]Articles of Association and agreements between shareholders can, of course, be varied by subsequent agreement and, as with any other contract, that agreement may be express or inferred from conduct. As it is put by Mr Joffe in the chapter written by him in Minority Shareholders Law Practice and Procedure (3rd ed) at 5.72 “…the court must take account of not only the articles or any subsequent Shareholders Agreement but also of the parties’ conduct and in particular any subsequent agreement, understanding or established pattern of acquiescence which may have led those in control of the company to act or continue to act in a particular way” citing Anderson v Hogg

(2000) SLT634

at 639-40 and Fisher v Cadman

[2006] 1 BCLC 499

at 528g para 90. In a case of waiver or acquiescence, it may be open, in accordance with well-established principles for one party to insist, upon reasonable notice, on the original agreement being adhered to. In Fisher v Cadman, Mr Philip Sales QC sitting a

Judge of this Division, put the matter in this way:

“[86] The test of unfairness is an objective one…: would a reasonable bystander observing the consequences of the conduct of those persons who have de facto control of a company regard that conduct as having unfairly prejudiced the petitioner’s interests?... [88] …conduct of the de facto controllers of a company may qualify as unfairly prejudicial to the interests of a member for the purposes of [section 994] if it involves (i) a breach of the agreement between the members contained in the articles of association or (ii) a violation of such other, wider equitable constraints as may have arisen to bind the controllers… [90] As to the first of the possibilities referred to in [88], above (breach of the articles of association), it is my view that, in considering whether the conduct of the controllers amounts to conduct unfairly prejudicial to the interests of a member, it is also relevant to take into account any agreement, understanding or clearly established pattern of acquiescence on the part of that member which may have led the controllers to act or continue to act in a particular way, even if their action may have involved a departure from a strict adherence to the terms of the articles. In such a case, in the light of their common understanding as to what conduct will be regarded as acceptable between themselves despite the terms of the articles of association, it would not be correct to characterise the action of the controllers as unfair within the context of the whole relationship between them and the member. In my view, this is a corollary of the approach to the test of unfairness adopted in the authorities to which I have referred above, whereby the agreement between the members as set out in the articles of association may be subject to equitable considerations and obligations arising out of the particular circumstances of their relationship overall. There is no good reason why such equitable considerations should not qualify, as well as add to, the expectations about how the controllers of the company ought to behave to be derived from a simple reading of the articles of association. [91]Anderson v Hogg 2000 SLT 634, a decision of the Outer House of the Court of Session (Lord Reed) on s 459, provides an example of this approach being applied. In that case, there was a finding that the petitioner had acquiesced in a departure by the controller of the company from strict adherence to the articles (see 2000 SLT 634 at 639). Lord Reed (at 640) held that the parties— ‘agreed, by their words and conduct, to conduct the affairs of the company on an informal basis which allowed the respondent to exercise powers of management more freely than the articles may have envisaged or permitted. In these circumstances, unfairness has to be assessed against what the members actually agreed rather than against the articles.’”

[50]I agree with what Mr Sales has said, save that, following Hoffmann LJ in Saul D Harrison, the introduction of the officious bystander is not particularly helpful. I would add that there is no difference in principle when applying this approach between the Articles of Association and any agreement between the shareholders (such as the 1993 Shareholders Agreement, the 1996 Shareholders Agreement and the MoU in the present case): see Grace v Biagioli (supra). Directors’ duties

[51]The substantive law in this area is, in large part, not in dispute. The RWM directors, the Cobden directors, as well as other directors and employees in sufficiently senior positions (in the present case Mr Phelps and Mr Carswell) owed SCFF fiduciary duties:a. to act bona fide in the interests of SCFF; and

b. not (without the consent of SCFF) to put themselves in a position where there is a conflict (actual or potential) between their personal interests and their duties to SCFF or between their duty to SCFF and a duty to owed to another person. The caveat “ without the consent of the company” is important because the prima facie duties may be qualified as a result of agreements and practices made between members of the Cobden family and members of the Heffer family. These duties are, according to Mr Joffe, qualified in the present case as explained below.

[52]These duties now appear as part of the general duties imposed by the Companies Act 2006. The perhaps old-fashioned phrase acting “bona fide in the interests of the company” is reflected in the statutory words acting “in good faith in a way most likely to promote the success of the company for the benefit of its members as a whole”. They come to the same thing with the modern formulation giving a more readily understood definition of the scope of the duty. I do not intend to consider whether, and if so how the statutory duties differ from established common law and equitable duties in the present case, since the matters relied on by CIL to establish breach of duty nearly all pre-date the coming into effect of the Act. I do not intend, either, to present an exegisis on the relevant law. That has been done by Lewison J in Ultraframe (UK) Ltd v Fielding

[2005] EWHC 1638 (Ch)

, where he considered in great detail the operation of the “no conflict” rule and the “no profit” rule. I relied on his analysis in my own decision in Wilkinson v West Coast Capital

[2005] EWHC 3009 (Ch)

[2007] BCC 717

where I also considered situations where a director could exercise his powers as a shareholder in a way which might be against the company’s interests with particular reference to Aas v Benham

[1891] 2 Ch 244

[53]In relation to acting in the best interests of a company, the directors’ fiduciary duty is to exercise the powers conferred on them “bona fide in what they consider – not what a court may consider – is in the interests of the company”, thus the test, both under the general law and under CA 2006, is a subjective one. The question is whether the director honestly believed that his act or omission was in the interests of the company. The court does not consider that the duty is broken simply because, in the court’s opinion, the particular exercise of the power was not to promote the success of the company, although it is accepted that a breach will have occurred if it is established that the relevant exercise of the power is one which could not be considered by any reasonable director to be in the interests of the company. This is significant because Mr Joffe submits that there is no instance in the present case where the RWM Directors or Mr Phelps have acted in a way other than one which they honestly believed was in the interests of JHC and SCFF so that no breach of the duty to act in the best interests of JHC or SCFF can be shown. He also submits that there is no instance where it is established on the evidence that any exercise of their powers as directors of SCFF was such that no reasonable director could regard it as in the interests of SCFF. This subjective approach does not however, entitle a director to breach the “no-profit” rule and the “no-conflict” rule simply because he thinks it is in the interests of the company to do so. Nor in my judgement, is it necessarily the case that there can, in cases of conflict, be no unfair prejudice simply because the director believes his conduct to be justified.

[54]One of the cases considered by Lewison J and myself was Bhullar v Bhullar

[2003] 2 BCLC 241

. Mr Weatherill relies on that case for a modern restatement of the fundamental equitable principle which he puts this way: Absent some modification or qualification contained in the Articles of Association or a shareholders agreement, and unless or to the extent that it is expressly authorised by fully informed shareholders who might be adversely affected, it is an inflexible rule (however flexibly applied to individual circumstances) that no fiduciary may, directly or indirectly, accept or exploit for himself the benefit of an opportunity which might have been exploited by the company to which he owes his duty. The onus is on the director in question to prove that he comes within any relevant exonerating provision: see Lee Panavision Ltd v Lee Lighting Ltd

[1991] BCLC 575

, at 581. Mr Weatherill also relies on Newgate Stud v Penfold

[2004] EWHC 2993 (Ch)

, paragraphs 230 and 234-43 to show that the self-dealing rule applies equally strictly where the director in question is associated with or manages and controls the affairs of an associated company which exploits the benefit of the opportunity in question.

[55]Mr Weatherill’s proposition is a short summary of what Bhullar actually establishes. It is worth quoting at some length from the judgments of Jonathan Parker LJ: “[27] …The relevant rule…is that (to use Lord Cranworth’s formulation [Aberdeen Rly Co v Blaikie Bros (1854) 1 Macq 461 at 471]) no fiduciary— ‘shall be allowed to enter into engagements in which he has, or can have, a personal interest conflicting, or which may possibly conflict, with the interests of those whom he is bound to protect’. [28] In a case such as the present, where a fiduciary has exploited a commercial opportunity for his own benefit, the relevant question, in my judgment, is not whether the party to whom the duty is owed (the company, in the instant case) had some kind of beneficial interest in the opportunity: in my judgment that would be too formalistic and restrictive an approach. Rather, the question is simply whether the fiduciary's exploitation of the opportunity is such as to attract the application of the rule. As Lord Upjohn made clear in Boardman v Phipps

[1967] 2 AC 46

at 123, flexibility of application is of the essence of the rule. Thus, he said: ‘Rules of equity have to be applied to such a great diversity of circumstances that they can be stated only in the most general terms and applied with particular attention to the exact circumstances of each case.’ Later in his speech Lord Upjohn gave this warning against attempting to reformulate the rule by reference to the facts of particular cases (

[1967] 2 AC 46

at 125): ‘The whole of the law is laid down in the fundamental principle exemplified in Lord Cranworth's statement [in Aberdeen Rly Co v Blaikie Bros] . . . But it is applicable, like so many equitable principles which may affect a conscience, however innocent, to such a diversity of different cases that the observations of judges and even in your lordships’ House in cases where this great principle is being applied must be regarded as applicable only to the particular facts of the particular case in question and not regarded as a new and slightly different formulation of the legal principle so well settled.’… [30] As it seems to me, the rule is essentially a simple one, albeit that it may in some cases be difficult to apply. The only qualification which is required to Lord Cranworth's formulation of it is that which was supplied by Lord Upjohn in Boardman v Phipps

[1967] 2 AC 46

at 124, where he said: ‘The phrase “possibly may conflict” requires consideration. In my view it means that the reasonable man looking at the relevant facts and circumstances of the particular case would think that there was a real sensible possibility of conflict; not that you could imagine some situation arising which might, in some conceivable possibility in events not contemplated as real sensible possibilities by any reasonable person, result in conflict. [31] The strictness of the rule, and the flexibility of its application, was stressed by Lord Wilberforce in the Privy Council decision in New Zealand Netherlands Society ‘Oranje’ Inc v Kuys

[1973] 1 WLR 1126

at 1129, where he said: ‘The obligation not to profit from a position of trust, or, as it sometimes relevant to put it, not to allow a conflict to arise between duty and interest, is one of strictness. The strength, and indeed the severity, of the rule has recently been emphasised by the House of Lords in Boardman v Phipps ... It retains its vigour in all jurisdictions where the principles of equity are applied. Naturally it has different applications in different contexts. It applies, in principle, whether the case is one of a trust, express or implied, of partnership, of directorship of a limited company, of principal and agent, or master and servant, but the precise scope of it must be moulded according to the nature of the relationship.’…

[56]I agree with Mr Joffe when he says that the application of the principle is entirely fact-related. It is not enough simply to assert that “taking business opportunities which might have been exploited by [SCFF] for the benefit of companies in the RWM Group was [not only] an obvious breach of fiduciary duty”. The full circumstances have to be examined in order to ascertain whether the rule applies, and it has to be determined whether “the reasonable man looking at the relevant facts would think that there was a real possibility of conflict”. It is that approach which must be applied to the actual facts of the present case.

[57]In Neath Rugby (above) at paragraphs 185ff, Lewison J also considered the position of nominee directors. After analysing the cases he concluded that the duties of a director, even a nominee director, are owed to the company alone. His conclusion (see paragraph 195) was that the company was entitled to the best independent judgment of Mr Cuddy, a director of the company although a nominee of another company, in deciding where its interests lay. Thus in the present case, CIL’s case is that SCFF was and is entitled to expect that the RWM directors would exercise their best independent judgment in deciding where its interests lay and lie.

[58]However, what Lewison J said has to be read in its context. Mr Joffe says that the context of the present case is very different. He submits that Neath Rugby (and the same goes for the cases cited in it) did not deal with the issue with which he says confronts me in the present case, namely: what is the position where all of the shareholders in company A (ie JHC/SCFF) impliedly consent to a director (ie each of Robin, Robert and Graham) holding an active/executive directorship in company B (ie RWM), where they know that the commercial interests of A and B (at least in certain important respects) are or are likely in the future to be opposed, and where they know that the director will represent company B in any dealings with company A with regard to those opposed interests? Mr Joffe says that, at least as far as hehas been able to ascertain, in none of the cases where the issue of “serving two masters” has been raised has it been suggested that all of the shareholders consented to that of which complaint was made.

[59]As to that, Mr Joffe’s submits that the court can indeed have regard to shareholder consent. At an earlier stage of the litigation in Neath Rugby which came before HH Judge Havelock-Allen QC, the judge held that the director was entitled to have regard to the interests of his appointor to the extent that those interests were not incompatible with his duty to act in the best interests of the company; and whether having regard to the appointor’s wishes was a matter of entitlement or obligation depended on the terms, express or implied, of the agreement pursuant to which the director was appointed. He held that it was an implied term of the relevant agreement (referred to as the Hawkes/Cuddy agreement) that Mr Cuddy would, to the extent compatible with his duty to the company, protect the interests of Neath when acting as a director of the company. Lewison J, after full citation of authority, differed from the judge’s conclusion that, to the extent compatible with his duty to the Ospreys, Mr Cuddy would protect the interests of Neath Rugby (whatever those might be) when acting as a director of the Ospreys. But he did so because he considered that the judge had identified the wrong agreement, and because he held that there was no implied term in the circumstances. Mr Joffe says that there is no reason in principle why a director should not be in a position to take account of the interests of his appointor, whether or not compatible with the interests of the company, if the shareholders consent to his doing so.

[60]Mr Joffe says that this is the conclusion reached in Australian case law, not cited in Neath Rugby. He refers to Levin v Clark [1962] NSWR 686, where directors nominated to the board of the company by a mortgagee were held to be entitled to act primarily in the interests of the mortgagee after a default by the mortgagor company, citing Jacobs J at 700-1:

“I consider that [the directors C and P] did act primarily in the interests of the mortgagee once they resumed the exercise of their powers as governing directors. However, I consider that it was permissible for them so to act. It is of course correct to state as a general principle that directors must act in the interests of the company. There is no necessity to refer to the large body of authority which supports this as a general proposition. However, that leaves open the question in each case – what is the interest of the company? It is not uncommon for a director to be appointed to a board of directors in order to represent an interest outside the company – a mortgagee or another trader or a particular shareholder. It may be in the interests of the company that there be upon its board of directors one who will represent these other interests and who will be acting solely in the interests of such a third party, and who may in that way be properly regarded as acting in the interests of the company as a whole. To argue that a director particularly appointed for the purpose of representing the interests of a third party cannot lawfully act solely in the interests of that third party, is in my view to apply the broad principle governing the fiduciary duty of directors to a particular situation where the breadth of the fiduciary duty has been narrowed by agreement amongst the body of the shareholders. The fiduciary duties of directors spring from the general principles, developed in courts of equity, governing the duties of all fiduciaries, agents, trustees, directors, liquidators and others – and it must always be borne in mind that in such situations the extent and degree of the fiduciary duty depends, not only on the particular relationships, but also on the particular circumstances. Among the most important of these circumstances are the terms of the instrument governing the exercise by the fiduciary of his powers and duties, and the wishes, expressed directly or indirectly, by direction, request, assent or waiver, of all those to whom the fiduciary duty is owed.”

[61]Mr Joffe does not, however, cite the following passage in the judgment which puts what

the judge has just said in context:

“In the present case, the sole shareholders…….are the plaintiff and Clark and Rappaport. By agreement with the plaintiff, Clark and Rappaport remain in the company so that upon default arising under the security agreement they can immediately commence to act in the affairs of the company in order to protect the interests of the mortgagee of the shares. It does not follow, in my opinion, that by acting in the interests of the mortgagee, and solely in the interests of the mortgagee, those directors necessarily cease to act in the interests of the company. Certainly they may cease to act in the interests of the plaintiff, and admittedly the plaintiff is the registered holder of the shares, but it would be quite artificial to ignore the interests of the mortgagee in these circumstances.”

[62]This does not seem to me to support a proposition that a nominee director may act in the interests of his appointor if by doing so they would be acting contrary to the interests of the company. This is particularly so when the actual acts complained of in that case cannot be seen as contrary to the interests of the company in any way, namely the removal of the plaintiff and his associate as directors, a direction to the bank to honour only cheques signed by Clark and Rappaport and the termination of the contract of an employee and its renegotiation.

[63]The decision in Levin v Clark was followed in Japan Abrasive Materials Pty Ltd v Australian Fused Materials Pty Ltd [1998] WASC 60, where Templeman J held: “It is always open to shareholders by unanimous agreement, to attenuate the fiduciary duties which the directors of their company would otherwise owe to it. That was done in Levin v Clark…”.

[64]I would not dissent from the way that Templeman J puts it; the duties are capable of being attenuated with the unanimous agreement of the shareholders, although I would remark that attenuation does not mean complete abrogation. The extent to which the shareholders could effectively agree that a particular nominee director could act in a way which he, and the rest of the board, saw to be positively against the interests of the company must be open to question. I do not think that Jacobs J can be read as addressing that question in the passage which I have cited. What he does say is that it may be possible for a director to act solely in the interests of his appointor; but this was in the context of such action remaining nonetheless in the interests of the company and he does not go so far as to say that a director may act in the interests of his appointor regardless of the impact on the company of which he is a director.

[65]The ordinary rule, of course, is that a director must act in the interests of the company; he must avoid conflicts of interest and not make an unauthorised profit: indeed, the strictness of the “no conflict” and “no profit” rules are well-established in English law whatever flexibility might be seen in the Australian cases. It may well be the case that certain sorts of relationship are appropriate for relaxation of the strict rules; but that is a relaxation which the shareholders must agree. Whether they have done so in any case depends critically on the facts of that case: absent an express agreement, a compelling case will, in my judgment, need to be made out if any sort of qualification of the duty is found to exist. This is as much so, in my judgment, in the case of a nominee director as any other director.

[66]Further, if it is said that the nature of the relationship between the parties leads to the conclusion that the general duties have indeed been relaxed or attenuated right from the beginning of the relationship, that proposition has to be viewed in the context of what the parties actually did agree. In my judgment, an implied relaxation or attenuation at the inception of the arrangements cannot be inconsistent with what the parties have expressly agreed. An express agreement would, no doubt, have to be construed against the background of the relationship between the parties; but if, on its true construction, the agreement creates identified duties and obligations, those are the duties and obligations which the parties must observe. The position is the same in contract: a term cannot be implied into a contract which is inconsistent with an express term. That is not to say that such an express agreement cannot be varied subsequently, or that a course of conduct is not capable of giving rise to waiver or acquiescence. But where such a course of conduct is sought to be relied on as amounting to waiver or acquiescence, care must be taken in addressing the nature of the relationship: it would be, or so it seems to me, wrong to pay too much attention to the nature of a relationship which, at its inception, cannot have been seen as inconsistent with the agreed express terms.

[67]For all this citation of authority and difference of emphasis, the position of a nominee director is, I conclude, as follows.a. First, he owes the same duties to the company as any other director.

b. Secondly, he owes his duties as a director to the company alone.

c. Thirdly, the company is entitled to expect from the director his best independent judgment.

d. However, fourthly, these duties can be qualified in the case of a nominee director just as they can be qualified in the case of any other director. In particular, such duties (except perhaps for certain core duties) can be qualified by the unanimous assent of the shareholders.

e. But, fifthly, it is doubtful whether, as a matter of English law, it is possible to release a director from his general duty to act in the best interests of the company.

f. Sixthly, even if it is possible to do so, it would require strong evidence to demonstrate that that had been done, ideally an express written agreement signed by all of the shareholders. The onus must lie on those saying that the general rule has been attenuated or, to use another word, relaxed, as a result of unanimous shareholder approval to demonstrate that such approval has been given. And, I must add, they must show the extent to which the general rule has been relaxed.

g. Seventhly, however, I see no reason in principle why in relation to specific areas of interest, a director should not be released from his fiduciary duty to give his best independent judgment to the company. In particular, if a director is charged with negotiating on behalf of his appointor an agreement with the company where the interests of his appointor and the company are opposed, the shareholders can unanimously agree that he may conduct such negotiation without regard to the interests of the company. But if that were to be done, it might be expected that the director concerned would, by the same agreement, be precluded from discussions of the board relating to the negotiations and certainly from voting on the issue.

[68]But whatever can be said as a matter of generality, I consider that the extent of the duties of a director in such a situation are very much fact-specific. The general duty is clear; the difficult question is the extent to which the duty is qualified. That qualification will depend critically on the context of the relationship and the particular action which is said to constitute a breach of duty. I accordingly consider the extent of the directors’ duties in relation to each complaint of unfairly prejudicial conduct alleged by CIL.

[69]Whether it is possible for the shareholders by unanimous assent to allow a nominee director actually to subjugate the interests of the company to those of his appointer is doubtful. As will be seen, it is not necessary in the light of the facts to express a concluded view on that. Acquiescence

[70]I do not propose to embark upon general consideration of the law of acquiescence and laches. In general terms, I would not dissent from the summary of principles set out in 16(2) Halsbury’s Laws paras 909-912,

[71]With specific reference to unfair prejudice petitions, in Re Grandactual Ltd

[2006] BCC 73

Sir Donald Rattee stated as follows:

“19. …I do not consider that the court should entertain a section 459 petition based on conduct of the Company's affairs in which the petitioners participated without protest nine years before the presentation of the petition. I am equally satisfied that the court would not now grant relief under section 461 on the basis of the similar allegations made in respect of the issue in 1997 of C shares for those who subscribed for convertible debentures in 1995, as to which the petitioners were fully informed at the time of the issue of those debentures in 1995. 20. Petitions under section 459 are always a very burdensome form of litigation. I understand that section 459 is not subject to any period of limitation, but relief under section 461 is always within the discretion of the court. I do not consider that the court should countenance such proceedings in the circumstances that I have described nearly ten years after the event.”

[72]That statement has to be read in the context of the facts of that case. The complaint of the petitioners, holders of “C” shares in the company, was that further moneys had been raised by the issue of additional “C” shares in the company without any reduction in the rights of the “A” shareholders to take account of the consequential reduction of the proportion of overall finance provided by them and that a purported resolution in 1995 increasing the number of authorised “C” shares in the company without a class meeting in accordance with the articles of the company was invalid. The case therefore related only to events long ago. It is not authority for the proposition that conduct in the remote past can never be brought into account in considering allegations of unfair prejudicial conduct on an unfair prejudice petition. In particular, if a course of conduct starting in the remote past has continued to the present time, I see no reason why the entire history of the conduct should not be brought into account in assessing whether the conduct as a whole has been unfairly prejudicial. Of course, the fact that it may have continued without protest for a long period may show that there has been acquiescence and no unfair prejudice; but if the conduct has met with regular objection, or even resignation but with clear non-acceptance, it is not to be rejected a priori as incapable of being entertained by the court as part of the basis for a petition. Construction

[73]The true meaning of any document governing the relationship between the parties is, of course, a matter of construction; the document must be construed in the context of the background against which it is made and in the context of the commercial arrangements which have brought the parties together. In the present case, the 1993 Shareholders Agreement, the 1996 Shareholders Agreement and the MoU all need to be construed in the light of the facts subsisting at the times they were made bearing in mind any clear commercial objective which was to be achieved but taking care not to admit inadmissible factors (in particular evidence of the parties’ negotiations and intentions) in carrying out the exercise of construction and the nature of the relationship between the parties. The general principles are now so well-established as to need no repetition but reference can be made to the line of cases starting with Prenn v Simmons

[1971] 1WLR 1381

and continuing through Reardon-Smith Line Ltd v Hansen-Tangen

[1976] 1 WLR 989

to Investors Compensation Scheme Ltd v West Bromwich BS.

[2006] BCC 73

The Heads of Agreement

[74]Heads of Agreement recording the terms on which the Heffers would acquire an interest in JHC were signed inMarch 1992. They were made between members of the Cobden family owning shares in JHC and RWM and envisaged the following matters among others:a. The Cobdens injecting £1 million into JHC and the Cobden family holdings being placed in a new company (CIL in the event);

b. The business being owned equally by the Cobdens and RWM;

c. RWM paying a nominal £10,000 for the shares it was to acquire;

d. Each family having power to appoint 3 directors to achieve equality on the board;

e. RWM providing management expertise to manage the slaughtering processing and sales units of the abattoir business and the management of JHC as a whole;

f. The Cobdens providing management expertise to manage the livestock purchasing side of the business and to assist in the management of JHC as a whole;

g. The parties entering into firm contractual arrangements with JHC initially slaughtering 200 animals per week for RWM until an improvement programme referred to was completed and thereafter the majority of the animals required by RWM so that JHC should be operating its abattoir to capacity.

h. The initial slaughter price being fixed on an arm’s length basis to enable JHC to realise reasonable profits and not less than £35 and not more than £48 per animal;

i. The figures being achieved through sales of skins and offal with monthly adjustments and quarterly review of those figures;

j. RWM being wholly responsible for funding the purchase of the animals;

k. The making of a shareholders agreement to give effect to certain funding requirements placed on the Cobdens;

l. The arrangements under the Heads of Agreement continuing for at least 5 years. On the coming to an end, for whatever reason, of the arrangements, provision is made for the purchase by one party of the other’s shareholding (at a valuation if agreement cannot be reached) or for the sale of the entire shareholding on the open market.

The Articles of Association the Share Sale Agreement, the Shareholders Agreement and the MoU

[75]The Articles of Association, the 1993 Shareholders Agreement, the 1996 Shareholders Agreement and the MoU are the relevant governing documents which form the starting point of the analysis of unfair prejudice in accordance with the law as already discussed. CIL claims that there have been serious breaches of the Articles of Association and the Shareholders Agreement. There are disputes about the meaning and effect of the Shareholders Agreements and the MoU. The Articles of Association

[76]The provisions of Table A in the schedule to the Companies (Tables A-F) Regulations 1985 (as amended by the Companies (Tables A-F) (Amendment) Regulations 1985 apply to SCFF (subject to non-material exclusions). Regulation 70 provides as follows:

"Subject to the provisions of the Act, the memorandum and the articles and to any directions given by special resolution, the business of the company shall be managed by the directors who may exercise all the powers of the company. No alteration of the memorandum or articles and no such direction shall invalidate any prior act of the directors which would have been valid if that alteration had not been made or that direction had not been given. The powers given by this regulation shall not be limited by any special power given to the directors by the articles and a meeting of directors at which a quorum is present may exercise all powers exercisable by the directors."

[77]Mr Weatherill says that, accordingly, a meeting of the directors at which a quorum is present is the appropriate organ to exercise the powers of the Company. An agreement between Robin (as a non-executive director) and Matthew (as Robin Heffer put it, the self-styled abattoir director) is insufficient.

[78]The board of directors can delegate some or all of its powers to a committee or a managing director pursuant to Regulation 72 of Table A which provides as follows:

"The directors may delegate any of their powers to any committee consisting of one or more directors. They may also delegate to any managing director or any director holding any other executive office such of their powers as they consider desirable to be exercised by him. Any such delegation may be made subject to any conditions the directors may impose, and either collaterally with or to the exclusion of their own powers and may be revoked or altered. Subject to any such conditions …"

[79]Mr Weatherill makes two points about this. First, he says that there must be a deliberate delegation of powers, and that one would expect to see evidence that SCFF’s board had formally agreed to delegate powers and what the ambit of that delegation was intended to be. Secondly, he says that in order to bind SCFF, the director(s) to whom powers were delegated must not have exceeded any authority found to have been delegated. This will have consequences in relation to Richard Phelps as managing director of SCFF.

[80]Article 13.1 of the Articles of Association is of some relevance. It provides as follows:

"13.1 A Director may vote, at any meeting of the Directors or of any committee of the Directors, on any resolution, notwithstanding that it in any way concerns or relates to a matter in which he has, directly or indirectly, any kind of interest whatsoever, and if he shall vote on any such resolution as aforesaid his vote shall be counted, and in relation to any such resolution as aforesaid he shall (whether or not he shall vote on the same) be taken into account in calculating the quorum present at the meeting."

[81]This clause, however, only applies to decisions made at meetings of the board of directors or meetings of a committee of directors. It has no application to decisions made outside such a meeting. The Share Sale Agreement

[82]On 22 July 1993, a number of documents were signed. One of those was the Share Sale Agreement under which CIL sold 45,000 ordinary shares (being 50% of the issued shares) in JHC to RWM. The purchase price was £10,000. In recital (F) it was stated that CIL and RWM had agreed “to co-operate in the management of the business of [JHC] as wholesale butchers and slaughterers”. The Shareholders Agreement

[83]The 1993 Shareholders Agreement and the 1996 Shareholders Agreements are, so far as relevant to these proceedings, effectively in the same terms. I shall refer to them as the Shareholders Agreement, drawing a distinction only where necessary. The first related to JHC and the second related to SCFF.

[84]Although the 1993 Shareholders and the 1996 Shareholders Agreement are effectively in the same terms, the latter nonetheless has to be construed against the factual matrix at the time when it was made. The way in which the former was in fact operated may cast some light on what the latter means. Whilst it is not permissible to construe the 1993 Shareholders Agreement by reference to the way in which it was operated, I see no reason to reject from consideration the way the parties actually operated between 1993 and 1996 when it comes to construing the 1996 Shareholders Agreement. Further, matters which only arose between the dates of the two agreements are to be taken into account as part of the factual matrix in construing the 1996 Shareholders Agreement insofar as those matters are relevant to construction. Mr Joffe has listed a number of factors which he says, and I agree, form part of the factual matrix. They are:a. SCFF’s business;

b. RWM’s business;

c. The purpose of the transaction;

d. The absence of merger of the businesses;

e. The separate conduct of the businesses after1993;

f. The trading between the companies;

[85]I will consider factors a. to f., before turning to the detailed provisions of the shareholders Agreement. As to factors a., and b., I have already described SCFF’s and RWM’s businesses at the time of the 1996 Shareholders Agreement. Although I agree with Mr Joffe that those are relevant factors, I would not agree with any suggestion that the nature of JHC’s business prior to the BSE crisis is to be ignored. There is nothing in the evidence to suggest that JHC (and later SCFF) would not want to resume its previous cow trade if and when the BSE crisis was over, a crisis which in the event lasted longer than the Cobdens of the Heffers (or probably anybody else) ever contemplated.

[86]Mr Joffe says that, even at the time when the 1993 Shareholders Agreement was signed, the definition of “Business” was an inaccurate description of the business which JHC was actually conducting. He accepts that, in 1993, JHC did carry on business as slaughterers and sold animal carcasses or parts of the carcass, and it did operate as a wholesale butcher in a very small way. However, he says that it did not process the meat or the hides, skins or other by-products, save in relation to the “Woofit” pet-food business. That is true, but I think that it did sell hides and skins. But more importantly, in 1992, JHC was not carrying out any commercial boning activities at Langport, and did not supply beef from clean cattle (as opposed to beef from cows), except in a very small way to local butchers. From 22 July 1993 until 19 August 1996, JHC’s principal trade was the sale of animal carcasses. It was only in the latter part of this period, and as a result of export restrictions on the sale of bone-in beef, that RWM boned out a limited quantity of cow beef for JHC to export.

[87]As to factor c., care must be taken in the way in which the purpose of the transaction is to be taken into account. It is proper to take into account the commercial background to the arrangements. Accordingly, it is relevant to recognise the different problems which each of the parties faced. These are matters which I consider in more detail later and which I have in mind (without repeating here) in addressing the question of the meaning of the Shareholders Agreement. It is not, however, proper to take into account in construing the document what the parties’ intentions were. In his closing submissions, Mr Joffe draws my attention to Robin’s evidence to the following effect:

“at no stage in the negotiations with the Cobdens either prior to or after this board meeting [15 October 1991] was it ever discussed that RWM would be doing anything more than entering into a trading arrangement with JHC, and that it was clearly understood and agreed that RWM’s 50 per cent shareholding was consideration for this trading arrangement with JHC; and it was never contemplated that RWM would help to promote the business of JHC other than through the trading arrangement – that is, providing kill numbers.”

[88]Effectively, he is saying that all that RWM would provide would be a guaranteed amount of business and that all was that was intended was a trading agreement. Whether or not Robin’s evidence as just summarised is admissible at all I am not sure. But what is, in my judgment, clear is that, even if it is admissible, there was no express restriction limiting RWM’s obligations to those which the trading arrangements imposed. Further, it cannot be right, in my view, to view the acquisition of the 50% shareholding as consideration for this trading arrangement. If that were correct, there would be no need for the Shareholders Agreement at all; the whole understanding would have been implemented, instead, as a result of the Share Sale Agreement and the Trading Agreement. Whether, and if so how, RWM’s obligations under the Share Sale Agreement were restricted to aspects of the Business covered by the Trading Agreement is a different question, as are the obligations of the RWM Directors in relation to the activities more generally of SCFF.

[89]As to factor d., it is clear that the businesses of JHC and RWM were distinct and were to be kept distinct when the 1993 Shareholders Agreement was made. It is not suggested otherwise by Mr Weatherill. Further a proposed merger of RWM and JHC in 1996 did not proceed, a matter which I deal with in more detail later.

[90]The businesses were separately conducted after 1993. After the signing of the 1993 Shareholders Agreement, RWM continued to be run by the Heffers at their Romford site until January 1994. The boning hall was built at JHC’s expense adjacent to the abattoir and leased to RWM in January 1994 pursuant to the terms of a lease which was negotiated on arm’s length terms. The purpose of the boning hall was to accommodate the separate business which RWM was relocating from Upminster. After the lease of the boning hall was executed, RWM’s business was moved to the Langport site from Upminster; RWM’s business remained initially under the control of the Heffers and Knights (until December 1995) and subsequently under the sole control of the Heffers. RWM’s case is that at all times prior to 19 August 1996, the Cobdens retained effective sole control of JHC whilst the RWM Directors adopted an entirely passive role; it was not, on RWM’s case, envisaged that the Shareholders Agreement would bring about any variation in the way in which the business of SCFF would be run by comparison with that of JHC. This aspect of management is considered in more detail later.

[91]The Heads of Agreement however, provided that RWM would provide the “management expertise” to manage the slaughtering, processing and sales units of JHC’s abbatoir business and the management of JHC as a whole, whilst the Cobdens would provide the management expertise to manage the livestock buying in and the acquisition side of JHC’s business and to assist in connection with the pet food business and the management of JHC as a whole.

[92]Mr Joffe submits that the Heads of Agreement do not form any relevant part of the factual matrix to the Shareholders Agreement. Their primary purpose, according to Robin, was comfort for the bank. I can readily accept that that was one of the purposes but, unless there was a deliberate plan to mislead the bank, it would follow that RWM would indeed provide the stated management expertise. And that, I conclude on the totality of the evidence, is to some extent what actually did happen. At least, the Knights and the Heffers were not passive, simply attending board meetings to keep a supervisory eye on what the Cobdens were doing and making helpful suggestions where necessary. On the contrary, they exerted their influence in many ways and had a considerable amount of financial control.The Heads of Agreement were superseded by the 1993 Shareholders Agreement which effectively made provision for joint board control.

[93]As to factor f., the terms of trade, at least from the time of the 1993 Shareholders Agreement, were originally found in the Trading Agreement and later in the MoU, each of which I consider in detail later. It is correct, in my view, to read the 1993 Shareholders Agreement and the Trading Agreement together and also to read the 1996 Shareholders Agreement in the light of the Trading Agreement which forms part of the factual matrix against which the 1996 Shareholders Agreement is to be interpreted. Accordingly, within the limits laid down in the Trading Agreement, RWM would procure its needs through JHC and JHC would meet those needs. In particular, RWM was to take a minimum kill of 200 Animals per week (which might not be particularly onerous since an order of 200 lambs per week would be enough). More importantly, RWM agreed that all Animals “required to be slaughtered in any business operated by it shall be slaughtered through JHC” unless JHC was unable to meet the requirement.

[94]The 1996 Shareholders Agreement was drafted by RWM’s solicitors. It has not been suggested that its provisions did not, when it was made, govern the relationship between the parties. Although there is a dispute about the true meaning of the document as a matter of construction, it has not been suggested by RWM that it should be rectified if CIL’s construction is correct. The relevant provisions are as follows:

"1.1 In this Agreement the following expressions shall have the following meanings "

Business" means the business of wholesale butchers, meat processors, slaughterers, processors of hides, skins and animal by products and pet food manufacturers 3.1 The Parties agree that the management and development of the Business will be conducted in accordance with (inter alia) the following provisions and the Parties shall exercise their voting rights and other powers in relation to the Company so as to procure that (unless otherwise agreed between the Parties): 3.1.2 Each Party shall promote and enhance the Business 3.1.3 The Parties shall ensure that the Company shall carry on the Business and no other business unless the Parties from time to time otherwise agree ……. 4.2 At any board meeting a quorum shall comprise at least two directors one appointed by each of [CIL] and [RWM]. 5.1 Each of the following matters shall require a Board resolution that has been passed by at least one director appointed by [CIL] and one director appointed by [RWM] 5.1.1. … 5.1.2. The entering into termination or variation of any contract or arrangement (whether legally binding or nor) by the Company with any company which is a member of either Shareholders' group…. 10.5 This agreement may be amended modified superseded or cancelled and any other terms may be waived only by written instrument executed by or on behalf of the Parties or in the case of a waiver by or on behalf of the Party waiving compliance. 10.9 No failure to exercise and no delay in exercising on the part of any of the Parties hereto any right power or privilege hereunder shall operate as a waiver thereof … 10.11 Where any Shareholder is required under this Agreement to exercise his powers in relation to the Company to procure a particular matter or thing such obligation shall be deemed to include an obligation to exercise his powers both as a shareholder and as a director (where applicable) of the Company and to procure that any director appointed by him (whether alone or jointly with any other person) shall procure such matter or thing. [Clauses 10.11 and 10.15 are in identical terms: it was presumably a mistake to include the provision twice]”.

[95]In addition, clause 2 provided for a dividend policy since superseded by the Dividend Agreement.Clause 6 required CIL to make an interest-free unsecured loan of £611,890 which was duly made. It is not repayable until 2050. Clause 7 required RWM to loan £300,000 towards the costs of the new boning hall. This was an interest-bearing loan at a commercial rate and was repayable over a period of 5 years once the bank loan relating to the boning hall had been repaid. Clause 13.5 provided that the Agreement may be amended, modified, superseded or cancelled and any terms may be waived but “only by written instrument executed by or on behalf of the parties….”. And clause 13.16 provided that the Agreement was to apply to the exclusion of any negotiations and Heads of Agreement preceding it.

[96]RWM Langport replaced RWM for the purposes of the 1996 Shareholders Agreement by virtue of the Deed of Adherence dated 31 December 1998. RWM remained contractually liable and was not discharged when RWM Langport undertook to be bound. Clause 5.1 was amended by the Deed of Variation dated 14 May 1999 to read as follows:

“A resolution of the Board shall not be validly passed unless at least one director appointed by CIL and one director appointed by RWM has voted in favour thereof.”

[97]The Business is, it can be seen, widely defined. It is a definition which can be viewed in at least two ways. First, it can be seen as identifying the range of activities which are covered by the word. On this view, “Business” is independent of what is actually being carried on by any person. That sort of meaning would apply in an agreement which permitted or prohibited certain activities, for instance where the landlord of a warehouse grants a lease permitting the carrying certain specified businesses (eg retail electronics) but prohibits others (eg wholesale butchers). Such provisions may tell one nothing about what use the tenant actually makes of the warehouse.

[98]Secondly, it can be seen as identifying an actual business, in the sense of a particular commercial enterprise, which is to be carried on and developed. A definition of business in that sense would no doubt be apposite where A and B decide to start an entirely new business venture, for instance selling a particular product. They make an agreement which identifies the business as the trade of selling that product and define, in their agreement, the obligations and duties of each of them in the management and development of that business.

[99]It is clearly in that second sense that the word “Business” is being defined in the 1996 Shareholders Agreement. The agreement contains express provisions about management and development of the Business including the provision which has taken on such importance, the obligation on each party to “promote and enhance the Business”. Moreover, the initial business comprised in the Business was the enterprise taken over from JHC.

[100]There is a dispute about whether “the Business” includes supplying meat on a bone-out basis. RWM’s argument is that “the Business” is really a reflection of the business that JHC had, historically, carried on. It had never carried on a trade in supplying bone-out and therefore bone-out trade was not envisaged as part of the business which SCFF would ever carry out. As a matter of construction, it is not easy to see why the trade of a wholesale butcher and meat processor does not include supplying meat on a bone-out basis. There is nothing in the factual matrix, including all of the factors identified by Mr Joffe and discussed above, against which the Shareholders Agreement is to be construed which would, in my judgment justify a departure from what I see as the clear meaning of the words used as including supplying meat on a bone-out basis.

[101]It is suggested by RWM that the carrying on by SCFF of any business other than the abattoir required RWM’s consent. In the light of the definition of the Business I do not see how that can possibly be correct. Even if there is no obligation to carry on each and every element of trade comprised within the definition, it is clearly the case that the prohibition in the second limb of clause 3.1.3 does not apply to any trade which is in the first limb whether or not actually being carried on. It is no doubt correct that a board resolution would be necessary for SCFF to commence or re-commence a bone-out business and also, I think, correct that at least one RWM Director would have had to vote in favour whether under the original clause 5.1.3 or the current clause 5.1. But although shareholders can act in their own interests (subject to the provisions of the Shareholders Agreement), directors must act in the interests of the company of which they are directors. Once the board, acting in the interests of SCFF, approves the carrying on a particular element of the trades contained within the definition of the Business, no further consent from RWM is required.

[102]As will be seen, SCFF’s affairs have been conducted in a way which has not, in some important respects, complied with the provisions set out above. Many decisions have been taken without board resolutions and often by some of the directors acting outside a board meeting. Sometimes the decisions have not been recorded properly if at all, and sometime decisions have involved (so CIL would say) serious conflicts of interest on the part of the RWM directors.

[103]It is clear that the 1996 Shareholders Agreement as varied envisages that all important decisions should be taken by the board of directors in accordance with Regulation 70. This indicates how each family was to be protected. It would not be possible for the Heffers or the Cobdens to pass a resolution unless at least one member of the other family sided with them. However, if a course of conduct grew upon which Richard and Robin agreed, then the two families would be involved and, given the deference which the sons paid to their fathers in the early years, it is not surprising that complaints were not, initially, made about the absence of board decisions. Mr Weatherill suggest that the parties cannot have intended, in the light of Clause 5.1, that the provisions of Clause 5.1 and Regulation 70 could be circumvented by side agreement made between the directors outside board meeting or, ex hypothesi when unrecorded and involving a conflict of interest. He may be right, but it is not, I think, one of the more significant points in this case. The complaint of unfair prejudice is not so much that a Heffer director and a Cobden director have agreed certain actions to which other directors object, and have done so outside a formal board meeting; rather, it is that Heffer directors have made such decisions without any involvement of a Cobden director and, moreover, have done so in breach of the “no conflict” rule.

[104]It is also clear, as a matter of construction, that, unless otherwise agreed, RWM was under an obligation pursuant to clauses3.1.1 and

3.1.2 to promote and enhance the Business and that it was obliged to exercise its voting rights and other powers so as to procure that (unless otherwise agreed) RWM would promote and enhance the Business. Similarly, RWM was, pursuant to clause 3.1.3, obliged to ensure that SCFF should carry on the Business and no other business. Those, of course, were purely contractual obligations: RWM has never been a director of SCFF and there is nothing to give rise to fiduciary obligations on it, owed to SCFF. It is to be noted, however, that these obligations are subject to the qualification “unless otherwise agreed”. Further, in case there should be any doubt about another point, clause 10.11 provides that the obligation on the shareholders falls on them both as shareholders and directors and extends to procuring a nominee director to act accordingly.

[105]Clause 3.1.3 makes it clear that the shareholders are not required to procure that the business is extended beyond the cope of the Business as defined, even if that might be seen as in the interests of SCFF. On the contrary, there is a positive obligation on the shareholders (subject to any contrary agreement) to ensure that SCFF does not do so. Accordingly, the directors are not required to extend the business of SCFF beyond the scope of the Business without the consent of the shareholders; indeed, they could be prevented by the shareholders from doing so.

[106]The obligation to promote and enhance the Business is imprecise. Different minds might reasonably take different views about whether a particular course of conduct is or is not likely to do so. Neither party is required to take a step which he does not consider will do so.

[107]Further, there are clearly limits on what a party is obliged to do. The obligation cannot, I think, be read as obliging the parties to use every possible endeavour to promote and enhance the Business. For instance, it might be common ground between the parties that a particular proposed expansion of the Business is in principle desirable but that such expansion could only proceed with a large further injection of capital by the shareholders, the bank being unwilling to lend to SCFF. Suppose that one party is able, but unwilling for good reason, to make further capital available. Does the obligation to promote and enhance the Business require that party nonetheless to provide his share of the necessary capital? The answer, I think, must be that he is not obliged to do so.

[108]What gives rise to more difficulty is the extent of the obligation of one party to take steps to further the business which it is perfectly able to take but is disinclined to take but which can be seen as likely to promote and enhance the business. Suppose, for instance, that RWM is effectively promoting and enhancing the Business in accordance with its obligations in relation to the slaughtering business. Is it also obliged to take steps to enhance and promote the cow export business or can it say that its contractual obligations are fulfilled by its promotion and enhancement of the slaughtering business? [It is a different question whether the directors should take such steps in fulfilment of fiduciary duties to JHC/SCFF.]

[109]To give a general answer at this stage, I consider that the obligation is fulfilled by each party seeing that the Business is in fact conducted and that the day to day affairs of SCFF are conducted on an efficient and commercial basis. Sensible opportunities should be taken when they arise; and the parties should conduct themselves generally in a way which is good for SCFF. Further, it is certainly the case that neither party should act in the conduct of SCFF’s affairs in a way which is positively detrimental to its interests. Even if it is correct that RWM was entitled to act in its own commercial interests when it came to negotiating revised terms of trade with SCFF, and even if RWM was entitled to retain and develop its own business, RWM would not have been permitted to harm JHC’s or SCFF’s business.

[110]For completeness, although I do not think this arises on the facts, I mention that I do not consider that the obligation to carry on the Business found in clause 3.1.3, requires each shareholder to ensure that each and every element of the Business as defined is in fact carried on. For instance, SCFF has never been a processor of hides and skins. It may be that it could profitably have expanded into that business. But that does not mean that the Business has not been carried on in accordance with the obligation in clause 3.1.3.

[111]It is important to appreciate that the 1996 Shareholders Agreement is concerned both with the way in which the Business is managed and developed and with how the shareholders exercise their powers of voting and otherwise “in relation to the Company”; other powers would include, for example, the power to appoint directors. In the course of management and development of the Business, the parties are obliged to promote and enhance the Business. This might seem to suggest that each party must ignore its own commercial interests whenever they impinge on the commercial affairs of SCFF; it is only in that way, it would be said, that the Business can effectively be promoted and enhanced. If that were correct, it would impinge, in particular, on two aspects of RWM’s own business; first, the extent to which any of its own business, especially new customers, should be an entitlement of JHC or SCFF to claim for itself; secondly, the killing fees which it ought to pay to JHC and SCFF.

[112]In my judgment, such a suggestion is not correct and goes much too far. At the time of the 1996 Shareholders Agreement, as indeed at the time of the 1993 Shareholders Agreement, RWM had its own highly successful meat processing and packaging business. It is inconceivable that, at the time of the earlier Agreement, RWM could have intended to restrict the continuance and development of that business or that the benefit of that business should pass to JHC. It must be remembered that RWM really came to the rescue of JHC (perhaps, from the viewpoint of the Cobden family with the benefit of hindsight an expensive salvage operation rather than a rescue) with perceived benefits to each side; in particular, JHC whose core activity was running the abattoir would benefit by an increased number of animals for slaughter and RWM would benefit by a state-of-the-art boning hall and a convenient supply of dead animals. Neither family can possibly have envisaged that SCFF would be entitled to take over the business of RWM. That was even less conceivable (if that were possible) by the time of the 1996 Shareholders Agreement at a time when the earlier Agreement had been running for 3 years without it being suggested by the Cobdens that RWM’s business or any part of it really belonged to SCFF or that there had been a failure to promote and enhance the Business in breach of the 1993 Shareholders Agreement. That is even more clearly so in the light of the rejection by the Cobdens of the proposals that the businesses of JHC and RWM should merge. Of course, the Cobdens say that they did not appreciate the existence, or at least the effect, of the obligation to promote and enhance the Business until 2006 after taking legal advice in relation to the present dispute. But, had they intended that SCFF would effectively be entitled to any part of RWM’s business, they would surely have said so regardless of their alleged lack of understanding of the formal documentation, something which they did not do.

[113]As to RWM’s customers, I have no doubt at all that RWM was entitled to keep the customers which it had, whether in 1993 or in 1996, and to expand its trade with those customers in the same areas as it was then trading with them; such continued trading and expanded trading would not be a breach of the Shareholders Agreement. Further, I consider that RWM was also entitled to enlarge its customer base and to enhance its business in the areas in which it was already trading at the time of the 1993 Shareholders Agreement; again, this would not be a breach of the Shareholders Agreement. See further at paragraph 417ff below.

[114]In contrast, if RWM had sought to expand into a field of business not then carried on by it but which was then being carried on by JHC or SCFF, and if in doing so it risked competing with either of those companies, then that would, I consider, amount to a failure to promote and enhance the Business. For instance, if RWM had attempted, before the BSE crisis, to compete with JHC in its bone-in export business, taking customers away from JHC, that would breach the “promote and enhance” obligation: indeed, I doubt that it would have been consistent with the bona fides of the relationship between the parties even if the “promote and enhance” provision had been absent. Further, there might on the facts have been an attempted diversion of a business opportunity which properly belonged to JHC, something which was clearly impermissible.

[115]There will be cases lying somewhere between those two examples. Whether or not RWM would be in breach of the Shareholders Agreement by taking such business for itself will be critically fact dependent. I will return this aspect later in the context of the complaints made by CIL in relation to the cow trade and customer diversion.

[116]The details of the trading relations, and in particular the minimum throughput for slaughter and the killing fees, between JHC or SCFF and RWM are not dealt with in the Shareholders Agreement. These are found in other documents which I will come to – the Trading Agreement and, later the MoU. It is in relation to these trading arrangements that the Shareholders Agreement throws up particularly difficult questions. Postponing until later consideration of the conflict of interest which the RWM Directors face in deciding commercial issues between JHC or SCFF and RWM, RWM itself is likely to find itself in a position of conflict. To give a simple example, it is in SCFF’s interests to obtain as high a killing fee as possible whereas it is in RWM’s interests to obtain as low a fee as possible. If the parties were entirely at arm’s length, an ordinary commercial negotiation would take place with each side, ultimately, having the sanction of being able to walk away. No doubt conscious of that, the parties in fact entered into the Trading Agreement at the inception of the relationship and at a time when they were both free to negotiate with regard only to their own interests. It cannot, however, have been believed by anyone at the time that the Trading Agreement originally entered into was designed other than to promote and enhance the Business. I suppose that CIL could argue that, right from the beginning, the Trading Agreement failed to promote and enhance the Business and that it was valid only because it represented a contrary agreement for the purposes of Clause 3.1 of the Shareholders Agreement; that, however, would seem to me a fanciful suggestion and it is not one which Mr Weatherill has made.

[117]JHC or SCFF and RWM were not, however, forever locked into a trading arrangement which could not be altered. The Trading Agreement and later the MoU both provided for variation or termination. It would have been open for either party to seek to renegotiate the terms of the trading relationship between them. Ignoring again for the moment the position of the RWM Directors, RWM’s own obligation in such a negotiation would have been only to observe the terms of the Shareholders Agreement. It would therefore, subject to any contrary agreement within the meaning of Clause 3.1, be under an obligation to promote and enhance the Business. Such an obligation does not, however, require that RWM can trade with JHC or SCFF only on terms which JHC or SCFF might impose. In my judgment, RWM was and is entitled to negotiate its terms of trading with JHC and SCFF taking full account of its own commercial interests and the strength of its own negotiating position. This does not mean, however, that RWM can impose its terms any more than SCFF is entitled to impose its terms.

[118]Further, the Shareholders Agreement, and in particular the “promote and enhance” provision, does not, in my judgement, require that JHC or SCFF should trade with RWM at all. The Trading Agreement, as will be seen, was terminable in certain circumstances, for instance by either party on notice after 5 years. By 1998, therefore, either party was in a position to terminate the Trading Agreement. If RWM considered that its commercial interests lay in bringing the trading relationship to an end, it was entitled as against JHC or SCFF to terminate the Trading Agreement. The Shareholders Agreement and the Trading Agreement are to be seen as components of an interlocking commercial arrangement; and in that context, I do not consider that the operation of one of the component agreements (ie termination of the Trading Agreement) according to its terms can, in the absence of clear wording to that effect, be prevented by general obligations undertaken in another (ie the promote and enhance provision in the Shareholders Agreement).

[119]The promote and enhance provision must, however, have some content. It certainly requires that RWM negotiate in good faith with JHC or SCFF and not so as to undermine the prospects for SCFF’s business. RWM must not seek to impose unreasonable terms or make improper threats. For instance, it would not be proper for RWM – and I do not suggest that it did: it is only an example – to terminate the Trading Agreement and then(a) refuse to pay as much as it would have to pay to have its meat slaughtered elsewhere and

(b) at the same time to threaten to move its business to the (more expensive) alternative source; this would be to blackmail SCFF at a time when, realistically, it could not hope to replace in the short, or perhaps even medium, term the business which it would lose. If RWM wished to use that sort of negotiating tactic, it would first have to free itself from the constraints of the Shareholders Agreement by bringing it to an end. Nor, I think, would it be proper for RWM to seek to restrict the fee so that SCFF made only a “reasonable profit” as Robin suggested, by which I think he meant a profit which he considered reasonable. If the fair fee would result in a larger profit, it would, I consider, be a breach of the promote and enhance obligation to attempt to restrict it, although in saying that I do not intend to suggest that the profits which SCFF or indeed RWM might make are irrelevant and not to be taken account of at all in the negotiation, especially if there is no clearly-identified alternative slaughter fee. Again, what it can and cannot properly do is critically fact dependent; this aspect will arise for consideration when I come to consider some of the detailed complaints made, and in particular complaints in relation to trading in cows.

The Trading Agreement

[120]The Heads of Agreement were, so far as concerns the trading relationship, superseded by the Trading Agreement.

[121]The Trading Agreement met two objectives:a. first, it enabled RWM to source its growing requirements for clean cattle, which it did by ordering heifers and steers for slaughter and delivery by JHC on the basis that JHC would purchase them for RWM and slaughter them for a kill fee which was to be satisfied by its retention and realisation of the “5th quarter” providing (by virtue of the “Minimum” and “Maximum” Amounts) a guaranteed revenue for JHC of between £40 and £48. The “5th quarter” is the term used in the trade to describe those useful parts of the animal – the offals, skins, hides and other by-products – which are of economic value;

b. secondly, it provided JHC with a guaranteed throughput of, initially, at least 200 animals per week but rising to meet RWM’s greater requirements, worth between £40 and £48 per animal.

[122]The Trading Agreement was negotiated at arm’s length, each side being represented by solicitors. It was part of the package of documents also comprising the 1993 Share Sale Agreement, and the 1993 Shareholders Agreement. The relevant provisions are as follows:a. By clause

3.1 it was agreed that JHC would purchase, slaughter and deliver to RWM 200 Animals per week or such greater number of animals as were required by RWM. Animals were defined as cattle, pigs, sheep and any other animals fit for slaughter for human consumption to a standard reasonably satisfactory to RWM. RWM was required to accept delivery and to pay for such Animals.

b. By clause

3.2 RWM was to ensure that all Animals required to be slaughtered in any business operated by it were to be slaughtered through JHC unless JHC was unable to slaughter the same due to circumstances beyond its control.

c. By clause

3.3 it was agreed that for each Animal delivered RWM would pay to JHC a sum equal to the proper cost price to JHC of purchasing such Animal in the live market or on the farm (as the case may be), such sum “to be paid within the trading terms of the vendor of the Animals”. In other words, RWM would pay JHC at the same time as JHC was required to pay for the Animals: although there seems to be a dispute about the terms of payment, I entertain no doubt that this is the correct construction. The importance of this is that JHC would not need to incur any finance costs associated with procuring RWM’s requirements. One of the major complaints on the Petition is that JHC and SCFF have in fact been paid late and in effect have been carrying RWM’s working capital requirements. I will deal later with the reasons which are given by the Heffers for the late payment, remarking at present only that those reasons appear to be justifications, after the event, of a policy to pay all contractual counterparties as late as possible

d. By clause

3.4 JHC was responsible for all transport costs of the Animals to the abattoir whilst RWM would pay the costs of delivering from the abattoir to RWM. As Robin observes, it was never suggested that "cows" were excluded from the Trading Agreement.

e. By clause 4 the Trading Agreement was deemed to have commenced on 12 March 1992 (the date of the Heads of Agreement) and was to continue for a period of 5 years and thereafter from year to year unless determined by either party by not less that 12 months notice.

f. By clause 5 it was agreed that JHC would retain the Byproducts of the animals delivered to Romford Wholesale and sell these on. Byproducts were defined as “skins, offal and other by-products”. If JHC received less than the Minimum Amount on the sale of the Byproducts from any Animal, then RWM would pay to JHC the difference between the Minimum Amount and the actual amount received by JHC. On the other hand, if JHC received more than the Maximum Amount on the sale of the Byproducts from any Animal then JHC would pay to RWM the difference between the Maximum Amount the actual amount received by JHC. In the case of cattle, the Minimum Amount was £40 per beast and the Maximum Amount was £48 per beast. In the case of other Animals, it was such figure as the parties may agree from time to time. These payments, either way, were to be made within 30 days of the end of each quarter. These payment obligations have no impact, in my view, on RWM’s payment obligation under clause 3.3 and can provide no justification for any late reimbursement to JHC and SCFF by RWM of the price of animals. At least at this stage of business, in 1993, no distinction was drawn between cows and bulls, on the one hand, and heifers, bullocks and young bulls on the other unless “cattle” can be seen as a reference only to heifers and bullocks (and perhaps barley bulls).

g. By clause 6.2 the Trading Agreement was to terminate automatically if the Shareholders Agreement should terminate for whatever reason.

[123]It is worth remarking here that Robin, who signed the Trading Agreement on behalf of RWM, described it in his witness statement as a major element of the deal and as having particular importance. He acknowledged in cross-examination that it was intended to be complied with. It governed the trading relations between the parties, and subsequently between SCFF and RWM. It did not, however, in any way restrict the business which JFC or SCFF carried on or might carry on, including the business of slaughtering cows (in contrast with clean cattle) and trading in cow meat for its own account.

[124]This is what Robin says:

“So far as I was concerned, the whole rationale for the deal was that RWML needed to secure an arrangement with an abattoir that was satisfactory to its major customers and at the same time could ensure the future profitability of RWML. The choice we had was purchasing an abattoir outright as we had tried to do in Lancashire or doing some form of joint venture as we had negotiated with the Cobdens. So far as I was concerned the trading arrangements with the Cobdens were intended to secure a fair profit for the shareholders but on the basis that it was for the Cobdens to look after their own interests. A very important part of the trading agreement was the killing fee. At that time very little if anything was wasted in the slaughtering process. As a result retention of the hide, offal and by products was valuable and the custom at that time was for the abattoir to retain these items instead of charging a killing fee. The reason that the trading agreement provides for a guaranteed minimum was to satisfy the bank who were agreeing to fund the building works and since RWML was taking the risk on this, we agreed the upper limit as the amount necessary to generate for JHCL acceptable profits. This was acceptable to the bank.”

[125]I read this as his description of how matters were to proceed once the deal had been put in place. Of course, in arriving at the terms of the various agreements involved, the parties were negotiating at arm’s length. But so far as the relationship going forward is concerned, it seems to me that Robin’s attitude is a surprising one to be taken by the representative of an investor, RWM, which was agreeing to promote and enhance the business of JHC and which was to have three directors on the board of JHC. I do not say that the obligations under the Shareholders Agreement should not be construed against the commercial background or that, in some way, RWM had to subordinate its own commercial interests on every occasion to those of JHC; nor do I say that the duties of the RWM directors might not be qualified by those same considerations (a matter I consider elsewhere). What I do say is, that in the absence of a clear agreement to the contrary, the attitude that it was for the Cobdens to look after their own interests appears to me to be incompatible with the obligations which RWM and the Heffers had undertaken. How, might one ask, were the Cobdens to look after their own interests when, as a result of Robin’s successful bargaining, they had lost overall control of JHC and had entered into trading arrangements which capped their returns on killing albeit, at the same time, providing a guaranteed minimum?

[126]I should deal here with certain submissions made by Mr Joffe. He says that the Trading Agreement did not restrict RWM pursuing its own interests (which might be directly contrary to those of JHC) in a number of important respects. I agree that the Trading Agreement by itself does not do so, but that is not the issue. The real issue is the extent of RWM’s obligations under the Shareholders Agreement.

[127]Mr Joffe says that RWM was not obliged to order more than 200 Animals per week. That is also true, but it must be noted that the Trading Agreement did require RWM to take the whole of its requirement, whatever that may be, from JHC; it could not have gone off elsewhere for its meat supplies (assuming that JHC could fulfil them).

[128]Mr Joffe points out that, after 5 years, RWM could terminate the Trading Agreement, and it had rights of termination at any time under clause 6, particularly if JHC were unable to observe or perform substantially its side of the Trading Agreement. RWM was therefore clearly not locked into the Trading Agreement forever; nor was it obliged to continue with it were JHC unable to deliver in accordance with its obligations. That is entirely consistent with the conclusion which I have reached that RWM was to retain its own business for its own benefit; and that in conducting its business with JHC or SCFF it was entitled to act in its own interests, provided it negotiated in good faith. RWM was in that sense entitled to pursue its own interests. But, so long as the Shareholders Agreement remained in force, RWM would be bound to CIL to act consistently with it. In any case, the fact that the Trading Agreement was terminable does not, in my view, provide much, if any, assistance in determining what RWM might be obliged to do while it remained in force.

[129]Mr Joffe provides other examples of how he says that RWM would be entitled to pursue its own interests. He says that RWM was not restricted under the Trading Agreement in terms of what Animals it could order to be slaughtered by JHC, because Animals was defined as “cattle, pigs, sheep and any other animals fit for slaughter and human consumption to a standard reasonably satisfactory to RWM”, and so was entitled to order cows even if that might impinge on JHC’s ability to trade in cows. Further, RWM might reject animals if they were not to a reasonably satisfactory standard (even if that occasioned losses to JHC). And it was contemplated by clause 5.5 that the Maximum Amount under the terms of the Trading Agreement should be reviewed and approved on a quarterly basis.

[130]For my part, I see some difficulties arising on Mr Joffe’s approach if, by ordering cows, RWM would have been acting to the detriment of JHC or SCFF by damaging JHC’s or SCFF’s own business. For instance, if the BSE crisis had never happened, and if RWM had sought to order cows to develop a separate bone-in cow trade on its own account in competition with JHC or SCFF, I would not agree that it could properly have done so; such conduct could well breach the “promote and enhance” obligation (although RWM could argue otherwise if, for instance, the relevant customer was refusing to deal with JHC/SCFF).

[131]Mr Joffe finds it difficult to accept the (“distinctly uncommercial” as he puts it) proposition that the terms of the 1993 Shareholders Agreement, insofar as they provided for RWM to promote and enhance the business of JHC, of necessity overrode the provisions of the Trading Agreement which permitted RWM to act in its own interests and contrary to those of JHC by, for example, terminating the Trading Agreement. Both the 1993 Shareholders Agreement and the Trading Agreement were signed by Richard who was (and at all material times has been) a director of CIL. The only rational basis on which Richard could have signed both of those documents was that RWM could exercise the rights under the Trading Agreement in its own interests and was not prevented from so doing by the “promote and enhance” provision in the 1993 Shareholders Agreement.

[132]I accept that as far as it goes; I do not have any difficulty with the proposition that RWM can exercise its powers under the Trading Agreement provided that it does so in good faith. If the terms of trading had become unfair, or even commercially unsatisfactory, to RWM, it was entitled to look to its own commercial interests in deciding whether to terminate the Trading Agreement. But as a party to the Shareholders Agreement, RWM is not entitled then to act in a way which breaches the obligation to promote and enhance the Business.

[133]Although it will be necessary to consider the duties of the RWM Directors in the context of each complaint, I should say something about these duties in the context of the consideration of the Shareholders Agreement and the trading relationship generally.

[134]The Shareholders Agreement provided for the board to consist of six directors, with each of CIL and RWM being permitted to appoint and remove three directors. A proposed appointee of one shareholder had to be approved by the other shareholder. Subject to that, there were no restrictions on who might be appointed: RWM was entitled to nominate persons who were directors of RWM. Schedule 1 to the Shareholders Agreement lists the existing directors as the persons appointed by each shareholder as the initial directors of SCFF. Those listed for RWM are Robin, Graham and Robert. Clearly, therefore, CIL consented to Robin, Graham and Robert (whom it knew to be directors of RWM) also being directors of SCFF. This reflected the 1993 Shareholders Agreement which contained a similar provision and pursuant to which, from the 1993 Shareholders Agreement until the 1996 Shareholders Agreement, the three appointees of RWM on JHC’s board were three directors of RWM, initially Robin and two Knights and after departure of the Knights, Graham and Robert as from November 1995.

[135]Mr Joffe is clearly right when he says that CIL through Richard knew that the RWM Directors on SCFF’s board would continue in office as directors of RWM, and clearly assented to them so doing. He submits that when RWM exercised its rights under the trading terms between SCFF and RWM, it was equally obvious to CIL through Richard that the persons who would cause RWM to exercise those rights would be the RWM Directors. I consider that to be a realistic assessment and accept the submission. Mr Joffe adds that Richard could not possibly have considered that, after the signing of the Shareholders Agreement, the RWM Directors would no longer be in a position to cause RWM to advance its own interests.

[136]In similar vein, he points out that RWM was the tenant under the Lease of the boning hall. As tenant, RWM had rights, for example to resist increases in rent or excessive service charges which might be levied on RWM as tenant. In doing so RWM would (or might) be acting contrary to SCFF’s best interests. But again, he submits that it must have been obvious to Richard and therefore CIL that the persons causing RWM to exercise its rights or to protect its interests as tenant would be the RWM Directors who were also directors of SCFF; and he and it could not possibly have considered that, after the signing of the Shareholders Agreement, the RWM Directors would no longer be in a position to cause RWM to protect its own interests.

[137]Mr Joffe therefore concludes that, as at the date of the Shareholders Agreement, CIL through Richard was well aware of the potential conflict which the RWM Directors had, and it was content that it was in the interests of SCFF (and indeed CIL) for those directors to continue to serve as directors of SCFF; and it agreed to them serving as directors notwithstanding the potential conflict. CIL was well aware that, where conflicts arose, the RWM Directors would where necessary have to act in RWM’s interests, on the basis that the Cobden Directors would protect the interests of SCFF.

[138]Recognising the unattractive consequence of this submission, taken to its extreme, Mr Joffe draws back: he does not suggest that, when acting as directors of SCFF in cases where there was a conflict between the interests of SCFF and those of RWM, the RWM Directors were completely relieved of their duties to SCFF. He accepts that the RWM directors were under a duty of act in what they consider is the best interests of SCFF; but that, according to him, is only a duty to act fairly, and a subjective duty at that.

[139]That indicates the answer which Mr Joffe would give to the question which he says faces me and which has not been answered in the cases which to repeat is : what is the position where all of the shareholders in company A (ie JHC/SCFF) impliedly consent to a director (ie each of Robin, Robert and Graham) holding an active/executive directorship in company B (ie RWM), where they know that the commercial interests of A and B (at least in certain important respects) are or are likely in the future to be opposed, and where they know that the director will represent company B in any dealings with company A with regard to those opposed interests? He would say that the director can act in the interests of B, possibly even only in the interests of B, provided that in so doing he acts fairly.

[140]In the context of the present case, it goes almost without saying, I think, that the RWM Directors could not on any footing act in a way as directors of JHC or SCFF which would put RWM in breach of the Shareholders Agreement. What follows must be read subject to that proposition.

[141]I have mentioned Mr Joffe’s assertion that Richard could not possibly have considered that, after the signing of the Shareholders Agreement, the RWM Directors would no longer be in a position to cause RWM to advance its own interests. The question, however, is not what Richard actually considered nor even what a reasonable man in his position would have considered. The burden rests, in my view, on RWM to show that the ordinary duties of directors have been impliedly qualified. In that context, it is appropriate, I think, to apply considerations which, if not identical, closely mirror those which are appropriate for implying terms into contracts. The relevant questions are therefore whether an implied qualification on the duties of the RWM Directors is necessary to give commercial efficacy to the arrangements between the parties and whether any person in the position of CIL would have accepted that it went without saying that the duties were qualified.

[142]It is, I think, necessarily implicit in the structure of the interlocking agreements (relevantly, the Shareholders Agreement, the Trading Agreement and later the MoU, and the Lease) that RWM should be entitled to exercise its own rights and protect its own interests under those agreements through Robin, the Knights, Robert and Graham without the need for those individuals to resign as directors of JHC or SCFF. On that basis, any or all of those individuals would be able, for instance, to negotiate a rent review under the Lease on behalf of RWM with JHC or SCFF which would in turn of course have to act through different individuals, be it a Cobden Director, or Mr Phelps or some other senior officer. Similarly, the RWM Directors would not be precluded, by virtue of their positions as directors of JHC or SCFF, from exercising RWM’s rights under the Trading Agreement or the MoU.

[143]This follows in my judgment from the combination of two factors: first, that it has to be recognised that the very same individuals who owned (directly or indirectly) and controlled RWM were identified in the Shareholders Agreement as the individuals who would be the RWM Directors on the boards of JHC and SCFF; and secondly, that the Trading Agreement, the MoU and the Lease gave certain rights to RWM which it was entitled to exercise.

[144]It does not necessarily follow from this ability (ie to act in the interests of RWM when deciding how RWM should exercise its powers under the various interlocking agreements or in negotiating matters (such as rent) which fall to be dealt with under those agreements) that the RWM Directors owe no duties to JHC or SCFF when they come to give consideration to those same issues on behalf of JHC or SCFF. In some cases, no relevant duty at all will be owed to JHC or SCFF beyond the duty to ensure that RWM observes the terms of the Shareholders Agreement. For instance, a decision by RWM pursuant to the Trading Agreement whether or not to reject an Animal on the basis of inadequate quality is not a matter on which the board of JHC or SCFF has any input: the decision is one for RWM and can be made by the RWM Directors in the interests of RWM (subject to observance by RWM of the terms of the Shareholders Agreement) notwithstanding that JHC or SCFF may be adversely affected by the decision.

[145]Of course, RWM has to exercise powers of that sort on proper grounds; if anyone wishes to call that a duty to act fairly, I would not quibble. In that sense, the RWM Directors must also act fairly so as to ensure that RWM itself is not in breach of its obligations. That duty to act fairly is, I consider, one which it is correct to impose on them as directors of JHC or SCFF. It would follow that, if RWM acted unfairly and did so because the RWM Directors of JHC or SCFF had procured RWM to act in that way, those Directors would also be in breach of their duties to JHC or SCFF as members of the boards of those companies. Accordingly, the ordinary duty of the RWM Directors to act in the best interests of JHC or SCFF is replaced by one to act fairly.

[146]But other aspects of the interlocking agreements may require input from JHC or SCFF. Take, for example, a rent review. On the one hand, the RWM Directors are not precluded from negotiating on behalf of RWM in good faith the level of rent. They are entitled to attempt to drive as hard a bargain as possible in their capacities as representatives of RWM. That does not, however, entail that when acting as directors of JHC and SCFF, their duties are in any way attenuated. It is one thing to say that it is implicit in the structure of the interlocking agreements that Robin, Robert and Graham were entitled to pursue the interests of RWM in operating the terms of those agreements without putting themselves in breach of their duties to JHC and SCFF. It is quite another to say that, at the same time as acting in the in the interests of RWM, for instance in a rent review negotiation, the RWM Directors are absolved from their duty to act in the interests of JHC and SCFF.

[147]To be fair to Mr Joffe, he does not say that there is no duty at all, only that the duty to act in what they consider is the best interests of the company is replaced by one to act fairly. But since there is no express provision which restricts the duties of the RWM Directors, reliance has to be placed by RWM on an implied restriction. I do not consider that the implication should go any further than is necessary and appropriate to give proper commercial effect to what has actually been agreed. What was agreed was that the parties should combine together through JHC and then SCFF to carry on a trading business. It was appropriate that both families should be on the board; that was because both families had brought something to the business – be it money, business or skills – so that is was right that each family should have a measure of control, through the board, over how that business was conducted and developed. The nature of the arrangements meant that, from time to time, conflicts of interest in the operation of the interlocking arrangements would arise. It is implicit that those conflicts, whether merely potential or one which have actually arisen, should not preclude the RWM Directors remaining as directors nor from representing RWM in the areas of conflict. But it is not implicit that, if they do become involved in those same issues on behalf of JHC and SCFF, they should not remain subject to the ordinary duties of a director in the way they exercise their powers as directors.

[148]Let me put that point a slightly different way. A director of a company may, by virtue of his office, be prevented from doing certain things on his own behalf which, if he were not a director, he could do; his fiduciary duty to the company could be breached. For instance, he might be unable to compete directly with the company even if he was not diverting business opportunities which properly belonged to the company. Suppose, however, that it is expressly agreed by all of the shareholders that the director may do certain things which would otherwise be a breach of duty, for instance competing in a particular small sector of the company’s business. It does not follow from that express agreement, by way of implication, that the director can nonetheless act in his own interests when acting as a director of the company. In the example he could not attend a board meeting and vote against the company submitting a competing tender for a piece of work which he wanted for himself. He might, I accept, attend the board, disclose his interest in the work and suggest why it would be inappropriate for the company to tender if but only if he genuinely believes that to be in the interests of the company. But whether he should be allowed to vote on it is another matter, whatever Table A may provide.

[149]So in the present case, the RWM Directors can act in the interests of RWM in relation to matters which fall to be dealt with under the interlocking agreements. But if (assuming that they are entitled to do so) they seek to influence the board, or themselves make decisions as part of the board or otherwise, on those matters, they must do so in a way which they consider to be in the best interests of the JHC and SCFF. Their duty is not simply to act in a way which they consider fair as between JHC and SCFF on the one hand and RWM on the other.

[150]I have so far restricted myself to consideration of matters which arise under the interlocking agreements themselves, for instance rent review under the Lease and revision of kill-fees under the MoU. The extent to which the same principles apply apart from those matters is more difficult. It is not necessary to give a comprehensive answer, and I address only one type of case.

[151]First, similar considerations apply, in my judgment, to any renegotiation of the Trading Agreement. The Heffer family interests own and control RWM directly or indirectly, and clearly the interests of Robin, Robert and Graham are aligned with those interests; they are in a clear position of conflict when it comes to negotiation with JHC or SCFF. Nonetheless, the Shareholders Agreement envisages that the RWM Directors are to be persons who have precisely that conflict. It therefore has to be accepted that those individuals are entitled to pursue the interests of RWM without having to resign as directors of JHC or SCFF.

[152]There may be cases where the Shareholders Agreement does not, as a matter of contract, prevent RWM from taking a certain course of action but where RWM’s interests conflict with those of JHC or SCFF. An example might be a new area of business which both SCFF and RWM could usefully pursue but the procurement of which for SCFF falls outside the scope of RWM’s obligation to promote and enhance the Business. There is nothing to stop RWM pursuing that new area of business; but nor is there anything to qualify the duties of the RWM Directors to SCFF. Their duties in respect of that sort issue are, it seems to me, no different from what they would be if they had set up a new company to exploit the new opportunity.

[153]Let me now draw some general conclusions:

[154]The RWM Directors are subject to the ordinary fiduciary duties owed by any director save to the extent that those duties have been qualified, either expressly or by necessary implication, as a result of any agreement between all of the shareholders.

[155]There is no agreement expressly qualifying those duties save that Clause 13 of the Articles of Association allows a director to vote on a transaction in which he is directly or indirectly interested, his ordinary obligation to account for any profit being abrogated by Regulation 85 of Table A.

[156]Nor is it possible to imply a general qualification (beyond Clause 13 and Article 82) to those duties which would allow the RWM Directors to act in the interests of RWM in relation to any matters which might in the future arise and which give rise to a conflict between RWM and SCFF. The RWM Directors are entitled to pay regard to the interests of RWM when exercising their powers as directors but only in a way which is consistent with their duty to bring their best independent judgment to the affairs of SCFF. If the conflict is so great that they cannot observe that duty, their only course of action is to resign or to cease to have any connection with RWM, unless the unanimous consent of the shareholders can be obtained to some other course of action.

[157]The duties of the RWM Directors fall to be assessed, however, in the context of the inter-related agreements, that is to say the Shareholders Agreement, the Trading Agreement and, later, the MoU, and the Lease. The Trading Agreement, the MoU and the Lease give RWM certain rights. In my judgment, the RWM Directors are entitled to procure the exercise of those rights by RWM (consistently with the “promote and enhance” obligation already discussed) notwithstanding their positions as directors of JHC or SCFF. Where there is no element of negotiation, for instance, a decision by RWM to terminate the Trading Agreement by giving 12 months notice, the RWM Directors would not be in breach of their duties by procuring, as directors of shareholders of RWM, RWM to exercise that power (provided that RWM itself would not thereby be in breach of the Shareholders Agreement).

[158]But where there is an element of negotiation, the position is more difficult. It is inherent, as Mr Joffe correctly observes, in the structure of the inter-related agreements that occasions will arise when there will be a conflict between RWM on the one hand and JHC/SCFF or CIL on the other hand arising out of the terms of those agreements. Examples are rent reviews under the Lease and renegotiation of the terms of trade. Those examples are slightly different because it is a term of the Lease that there will be reviews; but there was no term of the Trading Agreement providing for any review of its terms, although the MoU does envisage review of the killing fees in certain limited circumstances.

[159]I can well understand, and accept, the submission that it was implicit in the arrangements between the parties that Robin, Robert and Graham would be entitled to advance RWM’s interests in relation to such matters. I accept that they would not have to resign as directors of JHC or SCFF simply because an occasion for negotiation had arisen in which they would be negotiating against JHC or SCFF. I accept also that they would retain a voice on the board of JHC or SCFF and would be entitled to put forward RWM’s position.

[160]None of this is inconsistent with the proposition that that they should, nonetheless, remain under an obligation to bring their best independent judgment to the board. Unless a director take steps to insulate himself from any deliberations of the board on a particular issue, I consider that that does remain his obligation. The Supply Agreement

[161]There is a dispute about whether the Supply Agreement, on its true construction, covers the credit terms for the purchase price of lambs procured by SCFF for RWM Dorset. This is dealt with in detail at paragraph’s 276ff. The MoU

[162]The MoU is an important document. Recital (C) states that RWM and SCFF wish to record their trading arrangements. The arrangements at that time did not, of course, include cows , which were out of the human food chain. The MoU is quite short: I set out its substantive terms: a. Clause 1:

“SCFF shall supply RWML with beef and lamb as ordered by RWML from time to time for which RWML shall pay to SCFF the price paid by SCFF for the animal together with a killing fee as specified below. Subject thereto, SCFF shall bear all costs incurred by SCFF in the supply of beef and lamb to RWML.” b. Clause 2: “The Killing fee shall be paid by reference to “beef unit” which comprises either of a bullock or a heffer [sic] or by reference to a “lamb unit” which comprises either of a sheep or a lamb.” c. Clause 3: “The killing fee shall be £44 per beef unit for the first 1,250 beef units per week and £34 per beef unit for all beef units in excess of 1,250 beef units per week. The killing fee shall be £5 per lamb unit irrespective of the number of lamb units per week……” d. Clause 4: “The killing fee is set on the basis that RWML is entitled to dispose of the hide and offal for its own account.” e. Clause 5 provides for the revision of the killing fee (up or down) “in the event that the costs of rendering and/or meat hygiene services shall increase or decrease.”

This is what has been referred to regularly in this case as “the line in the sand”. f. Clause 6 provides for SCFF to invoice on a weekly basis with each invoice being payable by RWM “at the end of the third week following the week to which it relates”. An invoice relates to the week in which the relevant animal is procured by SCFF and slaughtered by it. RWM is given a credit period of at least 21 days and as much as 25 days in some cases, ie for an animal procured on Monday, payment will be due from RWM only on the Friday 25 days later. g. Clause 7 provides for termination by either party on 12 months’ notice. There is no obligation (in contrast with the position under the Trading Agreement) for RWM to place all its slaughtering requirements through SCFF.

[163]These terms might be seen as favourable to RWM. The Cobdens at least see them that way, indeed as harsh and unduly favourable. Rightly or wrongly, they consider that the MoU was imposed on them as part of a number of new or revised arrangements entered into as a consequence of the reduction of the family’s interests in RWM Dorset; and they see it this way notwithstanding that there were solicitors and accountants on each side with negotiations between both the lawyers and members of the Cobden and Heffer families (principally, if not exclusively, between Graham and Matthew).

[164]Whether or not they are justified in that perception, the MoU is clearly binding on CIL and the Cobdens; and it is not suggested that the making of the MoU can of itself amount to unfair prejudice for the purposes of section 994. Although the MoU is an agreement between SCFF and RWM, it can be seen, in practice, as having been negotiated between the shareholders of SCFF; there cannot sensibly be any complaint by CIL that the RWM Directors were in breach of their duties to SCFF in participating in what was clearly an arm’s length negotiation.

[165]Mr Joffe says that there is no evidence that the parties thought at the time that they were negotiating new terms of trading as opposed to confirming the existing terms. He says that the MoU was entered into at the request of CIL’s solicitors, to confirm the prevailing trading terms. Mr Weatherill submits that the purpose and effect of the MoU was to redefine what the terms of trade between the SCFF and RWM were to be in respect of the procurement and supply of beef and lamb, and in particular to fix (until review) the killing fees to which SCFF was to be entitled going forward and RWM’s credit terms for paying those fees. It was intended to supersede the Trading Agreement, which contemporaneously ceased to have effect. I do not think that much, if anything, turns on that difference of view. What is clear is that the effect of the MoU was to do precisely what Mr Weatherill says it does; and it is clear also, that it is a departure from the terms of the Trading Agreement.

[166]An important question is whether the MoU applies to cows. The importance of this lies in the fee for killing cows. SCFF has in fact slaughtered cows for RWM which has paid the fee appropriate for beef under the MoU. The Cobdens and CIL say that, as a matter of construction, the MoU does not cover slaughtering of cows and that there had never been any agreement by them that SCFF should slaughter cows for RWM let alone at that fee. Further, they say that, contrary to the evidence of Graham and Mr Michau, that was the result which Matthew intended and agreed with Graham. If, as a matter of construction, it does not cover cows, RWM does not seek to have the MoU rectified.

[167]As a matter of construction, I have no doubt that the MoU does not cover the procurement or slaughter of cows or bulls. It is clear beyond argument, in my judgment, that clause 2 covers only bullocks and heifers so far as beef is concerned. The evidence is clear, and Graham accepted this, that no-one in the trade would have thought that cows could be included in the words bullocks and heifers. Further, in my judgment, reference back to clause 1 does not assist RWM. The wording of clause 2 cannot be stretched by reference to clause 1 even if clause 1 includes cows. I do not consider that clause 1 does include cows; in my judgment, the reference to killing fees in clause 1 refers the reader to the animals in relation to which the kill fee is stated (ie heifers and bullocks) so that “beef” in clause 1 is restricted also to heifers and bullocks. But even if clause 1 does, contrary to my judgment, include cows and bulls, there is nothing in the MoU which deals with the killing fee for cows and bulls. This at least reflects commercial reality since Matthew’s evidence, which I accept, is that the cost of slaughtering a cow or adult bull is significantly greater than the cost of slaughtering a bullock or heifer. There is one oddity on this construction in that barley bulls would be excluded too (a barley bull is a young bull) but a barley bull is no more expensive to slaughter than a heifer or bullock. That oddity does not lead me to think that the construction which excludes cows is open to any serious doubt. It is true that in practice SCFF retained the “farmer deduction” removing to some extent that element of non-commerciality; but that practice cannot detract from the point that the MoU would have been uncommercial if it did include cows.

[168]Notwithstanding these conclusions on construction, I think that I should say something about the history of the drafting of this provision since Mr Weatherill suggests that the drafting took the form it did quite deliberately to exclude cows following discussions between Graham and Matthew; he suggests that Graham or Robin must have instructed DLA Piper to exclude cows.

[169]As to that, the MoU seems to have taken the form which it did as the result of negotiations between Matthew and Graham, communications between DLA Piper (Mr Michau) and Porter Dodson (Mr George and Mr Maxwell), solicitors then acting for CIL and the Cobdens. Mr Michau had an assistant called Colin Wilson. During the course of the proceedings when the significance of how the final draft came about became more apparent than it had previously been, Mr Michau made a witness statement explaining the drafting. He says that he instructed Mr Wilson to prepare the first draft of a new agreement. Mr Michau describes this draft as being based closely on the form of the Supply Agreement; he does not think that he pointed Mr Wilson to the Supply Agreement but believes Mr Wilson adopted it of his own initiative. Mr Wilson included a definition of “Supply Unit” as “either one heifer/bullock or ten (10) lambs”.

[170]Mr Michau says, and I accept, that he discussed the framework of the MoU with Robinand the detail he required. He thinks that he must also have discussed the matter with Mr Wilson in the light of that. Mr Michau wanted a simple document; he considered the draft was too long. He accordingly instructed Mr Wilson to prepare a simpler and shorter document in the form of a memorandum of understanding. This draft, produced on 27 September 2000, retained the same definition of “Supply Unit”; it appeared in clause 2. It appears that around this time Mr Wilson spoke to Mr George of Porter Dobson about the negotiations.

[171]Mr Michau expresses himself as remaining unhappy with Mr Wilson’s draft. He accordingly prepared one of his own. During the drafting process, Mr Michau says that he spoke to Robin who advised him of the 21 day payment terms. He also simplified, as he puts it, the position by defining “killing unit” as comprising “either one beef animal or ten lambs”. After refining his draft, he sent it to Porter Dobson on 2 October 2000.

[172]On 5 October 2000, Porter Dodson (through Mr Maxwell – who had taken over from Mr George) sent a letter to Mr Michau by fax setting out the response of the Cobdens to the draft MoU and other documentation that was under negotiation. Mr Michau refers in his witness statement to that letter, saying that Mr Maxwell stated that there appeared to be some issue concerning 10 lambs comprising a killing unit at the figures suggested and that Mr Maxwell believed that Matthew and Graham were discussing that directly.

[173]On the same day, Mr Michau took instructions from Robin – he is fairly sure it was Robin and not Graham, although it appears to have been Graham who was conducting negotiations with Matthew. He had, at that stage, no instructions to change the wording “with respect to the lamb killing unit”. He then relates in his witness statement a further conversation later that day with Robin in which he was instructed that the killing fee for lambs was to be £5 per lamb. As to how the final definition of the killing fee came about, Mr Michau then says this in his witness statement:

“When I started redrafting the MoU, I had to distinguish the kill fee for the price of lamb and that for beef. Rather than drafting a separate clause for each of lamb and beef, I retained both price structures in the same clause and distinguished “lamb unit” from “beef unit”

. Initially I defined a beef unit as a beef animal. I distinctly remember that I regarded this drafting as inelegant, in particular when a lamb unit was defined as a sheep or a lamb. Consequently I sought to define beef unit more precisely. I did so by reference to the earlier drafts produced by Colin, which defined the kill unit by reference to a heifer or a bullock. So far as I was concerned, bullock and heifer were the generic terms for beef animals. I was not then aware (as I am now) of the distinctions between various types of cattle. I know that I wrote out the amendment including the definition of “beef unit” because, among other matters, I know that it was me that misspelt “heifer” as “heffer” and that this was simply transcribed in the typing process”

[174]I accept Mr Michau’s evidence about this. It seems entirely plausible. It cannot, therefore, be said by CIL that the reason why the final draft took the form which it did was because either Graham or Robin had expressly instructed Mr Michau (or Mr Wilson) that the definition should refer only to heifers and bullocks. Nonetheless, it says what it says. I have expressed my conclusions on what it means. There is no application to rectify it.

Corporate structure

[175]CIL is the company through which the Cobden family hold their investment in SCFF. It is not necessary to say any more about the structure on the Cobden side.

[176]A little more needs to be said about the Heffer interests and also about the structure underneath SCFF itself. The holding company on the RWM side is RWM Group Ltd owned by Heffer family interests. Within the group are three 100% subsidiaries of RWM Group. These are RWM, RWM Langport and Blade Farms SW Ltd. There is a further subsidiary, RWM Dorset, owned as to 92.5% by RWM and as to 7.5% by CIL ,Matthew William and David. It had previously been owned as to 50% each by the Cobden interests and the Heffer interests but that subsequently changed in circumstances which I will explain in due course. RWM Langport in turn owns a 50% share in SCFF.

[177]SCFF itself has four subsidiaries. There are three 100% subsidiaries, namely Southern Cull Services Ltd (which, as its name suggests, was the company responsible for carrying out the culling contract with the Government during the BSE crisis), Southern Counties Export Ltd (which does not feature in this dispute) and SCB&L. There is a 50% subsidiary called Southern Counties Environmental Services Ltd (which again does not feature in this dispute).

The History

[178]I will, when looking at the specific detailed complaints in paragraph 39 of the Petition, deal with the facts relevant to the relevant complaint. I should, nonetheless, set out some of the history, to the extent that it does not appear when I deal with the complaints, in order to put the relevant facts in a wider context.

[179]In their main witness statements, both Robin and Matthew set out the history of their respective companies, RWM and JHC, prior to events in 1992 and 1993 which led to the involvement of RWM with JHC. I think that much of the history each of them gives in their witness statements is largely uncontentious. It is useful to have it in mind in considering the turn that events subsequently took and so I think that it is helpful to consider it at some length even though much of it is not directly relevant to the allegations of unfair prejudice which are made.

[180]So far as concerns RWM I can pick up the history in 1980. By this time, Robin was in partnership with Ivy Knight, running, from premises in Romford, a successful meat trading business,(the “Firm”) taking much of its meat from the Upminster Abattoir, which was run by Ivy Knight’s sons Keverne and Clifford.

[181]Around this time the supermarkets' requirements were again changing and the partnership was being asked to supply meat bone-out because this would enable the supermarket to save both on wastage and chiller space.

[182]The Romford premises were not suitable for use as a boning hall because firstly they were not large enough and secondly the cost of conversion was prohibitive. Consequently the Knight brothers agreed to build a boning hall adjacent to the Upminster Abattoir which the Firm then rented. Robin thinks that the boning hall was completed in the early 1980's. The Firm moved its beef business to the Upminster Abattoir and from that point mainly supplied bone-out beef to its supermarket customers, principally Tesco but also to Safeways, and Wallis supermarkets, Dewhurst Butchers, West Layton Butchers and Trust House Forte. The Firm continued to supply a small amount of "bone-in” beef to the various small butchers the Firm was still supplying

[183]From the Romford Premises, the Firm continued to supply lambs and pigs bone-in to the same customers, again principally Tesco who did not immediately switch to sourcing all of their meat on a bone-out basis. At the end of 1980, the Firm transferred its lamb business from the Romford Premises to the Upminster Abattoir because by then its supermarket customers, again principally Tesco, were wanting bone-out lamb as well as beef.

[184]At the end of the 1980s Ivy Knight was taken seriously ill and it was decided to wind up the partnership and re-establish it as a limited liability company which occurred when the RWM was incorporated in May 1991. Initially Ivy Knight and Robin each held 50 per cent of the shares in RWM but in December 1992 each transferred their respective shares to their families, in Robin’s case to his wife and five children, and in Mrs Knight’s case to her three sons and two daughters.

[185]Philip and Graham both joined the business in 1986 and Robert joined in 1987. Keverne and Clifford became directors of RWM together with Robin, Philip and Graham. Keverne and Clifford continued to work at the Upminster Abattoir and were never on the payroll of RWM, unlike the Heffers who were.

Hilton

[186]By the end of 1993 Tesco had become RWM's major customer. At that time, Tesco approached RWM to conduct trials of centrally prepared meat. This would mean, if adopted following a successful trial, that Tesco would bring to an end its in-store butchering facility whereby it would receive large cuts of meat with the bone removed which the Tesco butchers would then reduce into cuts of meat suitable for supply to the consumer. Instead, Tesco would acquire from its suppliers meat in a form ready for selling in the supermarket. The saving to Tesco was storage and wastage. RWM agreed to take on this trial which was conducted from the Romford premises which RWM had vacated in 1994 on its move to Langport.

[187]Tesco had suggested that, if the trial was successful, which it was, RWM should team up with Hilton Meats International and Foyle Meats in this new method of trading. However, although the trial was successful, RWM did not enter into a joint venture with Hilton Meats International and Foyle Meats; instead, Philip did so. Robin says, and I see no reason to doubt what he says on this, that he viewed the joint venture as particularly risky and was not prepared to commit his own private funding to the project; RWM did not itself have the necessary funding available. Philip took a different view; his father-in-law was prepared to provide the funding required so Philip decided to go into the joint venture on his own account. The joint venture was carried out through a new company, Hilton Meats (Retail) Ltd, which was owned as to 25% by Hilton Meats International, 25% by Foyle Meats and 50% by Philip. At some later stage, RWM Food Group subsequently acquired Philip’s shareholding. As a consequence, RWM ceased to supply Tesco directly; instead, it supplied Hilton Meats (Retail) Ltd which in turn supplied Tesco (and only Tesco). Robin says that the Cobden Directors were kept fully informed by him of this development. which I accept as correct.

[188]This resulted in a dispute with the Knights who considered that the business should have been retained by RWM. The dispute was resolved at the end of 1995 or beginning of 1996 when the Knights sold their shares in RWM to RWM Food Group. Keverne and Clifford resigned their employment and directorships with JHC and their positions on the board of JHC were taken by Graham and Robert.

[189]In about 1946 or 1947, Matthew’s grandfather, who had started out as a horse dealer, built an abattoir in Martock, Somerset for the slaughter of horses. In about 1954, after the end of meat rationing, cattle, sheep and pigs came back to the free market having been controlled, during and after the Second World War, by the Ministry of Agriculture Fisheries and Foods.

[190]In the 1950s, a new abattoir was constructed on an adjacent site at Martock, with facilities for slaughtering cattle, sheep and pigs. The abattoir had a capacity to slaughter around 2,000 cattle per week. There was also a boning hall there at which 40-50 boners and packers were employed.

[191]After completion of the building, it soon acquired its export status when it became EC approved in about 1956. By this time, JHC – Matthew’s grandfather’s company – was extensively involved in the export of cow beef and lambs to France, Holland and Belgium. The export of cow beef was a profitable business for approximately 10 years.

[192]Richard became involved in JHC during his teens in about the late 1950s. During the period 1965 to 1990, JHC had a substantial number of customers which included Birdseye, Walls, Batchelor, Heinz, Harris (Calne) and Tynebrand, who were customers for bone-out meat in the UK as well as various customers in Europe, including Arimpex Renard in France, Goedegebuurs in Holland and others in Germany and Switzerland. Meat was sold both bone-in and bone-out to these customers, with the meat being boned at the boning plant on the Martock site. When JHC moved to Langport, the boning was done in the butchering room next to the quartering area.

[193]During the mid 1980s, the profits began to wane following the introduction of levies on export, which were calculated by the Intervention Board. At the same time, many large export abattoirs were sold to companies such as Brooke Bond, Heinz, Dalgety and Vestey; and other abattoirs over-expanded. Because of this, there was an overcapacity in the beef abattoir industry.

[194]Matthew’s grandfather retired from business in the early 1980s. Richard was placed in charge of the business from that time. Matthew started working full time for JHC in 1987, where he had previously worked during school holidays since the age of 10. His brothers Daniel and William started working for JHC in or around 1991 and 1993 respectively.

[195]In about 1984 or 1985, part of the Martock site became ripe for development and was sold. At the same time, JHC began negotiations for the acquisition of the Langport abattoir from Croda Agriculture plc. The abattoir was closed at the time. In 1986, JHC actually acquired the Langport abattoir from Croda. The Martock abattoir was subsequently closed and demolished. In January 1987, the JHC business moved to Langport and continued slaughtering barren cows for export to France and Holland, sheep for export to France and pigs for export to Germany and bone-out cow forequarters to Birdseye.

[196]In the period 1986 to 1990, as a result of the overcapacity within the beef slaughtering industry which I have mentioned, there was intense competition both in buying cows and selling cow beef.

[197]JHC started encountering difficulties with Lloyds Bank, its then bankers, the Bank insisting that JHC’s auditors produce more and more forecasts and budgets. Consultants were called in. However, Richard was able to keep the bank at bay with the prospect of the sale of a further 8 acres of development land adjacent to the development site at Martock. Planning permission was obtained and the land was eventually sold for about £1.2 million.

[198]In around 1989, because there were simply too many abattoirs competing to source too few cows, and under pressure from JHC’s bankers, a decision was made either to sell the business or find some alternative third party investment. Richard tried to sell the business to other abattoirs but was unsuccessful since they also had unused capacity.

The Langport site and its operation

[199]An overview of the working of the Langport abattoir and the industry generally is needed. This is provided by Matthew in his main witness statement. I do not think that there is anything contentious in what now follows on those subjects.

[200]The main abattoir at Langport was refurbished in 1997. Matthew considers that it was then - and probably still is now – one of the most modern, hygienic and largest in England and possibly Europe. I can accept what he says at the time of the refurbishment. I am not so sure that it is now a top-quality facility as he would suggest. Nothing turns on that, since it certainly remains a good if not excellent facility even if it is a little tired.

[201]The abattoir is situated in the heart of the South West of England, which has the densest population of dairy cows in the UK and substantial quantities of “clean” cattle or beef producers. The abattoir has good road access close to the M5 and the A303.

[202]Animals arrive from the public highway through the dirty access and are unloaded into the lairage which can hold about 250 cattle and about 1,000 sheep (depending on the number of cattle).

[203]The beef slaughterline has a capacity of 57 animals per hour allowing a maximum capacity of around 2,300 cattle per 5 day week. At the present time, SCFF slaughters about 1,800 to 2,300 cattle per week. It would be possible to increase capacity to approximately 2,500 cattle if the slaughterline were worked 6 days per week. The separate sheep slaughterline has a capacity of around 350 – 400 animals per hour, allowing a maximum kill of around 16,000 lambs per week, if the line is run continuously. This has never happened and currently the sheep line is unused.

[204]From the slaughter lines, the carcasses of the animals go into fridges. These fridges were refurbished in 1997 and they have the capacity to refrigerate and hold the current volumes which are slaughtered for the periods currently required.

[205]Adjacent to the main abattoir is the boning-plant which is leased to and used by RWM.

[206]Also on site are a laboratory (which carries out most of the testing necessary to comply with public health requirements), various yards and car parks, various buildings for offices, storage and salting skins. There are also 2 workshops. There is also a modern effluent treatment plant which Matthew procured on behalf of SCFF in 1996.

[207]There is a second abattoir on the site. This is operated by Southern Cull Services Ltd (“SCS”), a wholly owned subsidiary of SCFF. This abattoir deals with the older animals, whose meat it is illegal to sell.

The industry

[208]By way of brief overview, the process of getting meat from the farm to the plate on the consumer’s table is as follows: -a. Farmers breed and finish the animals;

b. The farmers then market the animal. There are a number of ways a farmer can do this, through a Producers’ Marketing Group; through an agent; at an auction or direct to an abattoir. SCFF has a wide network of farmers from which it can procure animals through its livestock procurement office. This is known as “the Producer Club”.

c. The animal is then taken to an abattoir to be slaughtered. This is known as primary processing.

d. The carcass of the animal is then processed further to make the desired end products, which are subsequently distributed, for example to a supermarket.

[209]Primary processing comprises(i) the slaughter and “dressing” of the animal and the cutting of the carcass into sides, which is often followed by

(ii) the further cutting/deboning of the side into quarters or primal joints. The primal joints are usually then vacuum packed and distributed. These two processes take place in different plants; the animals are slaughtered and dressed in an abattoir and the quarters are deboned in a boning facility. Both of these facilities must be licensed by the Food Standards Agency and the day to day control is governed by the Meat Hygiene Service.

[210]A brief overview of the general slaughtering process is as follows: -a. On arrival at the abattoir, the animals are examined by MHS vets to determine whether they are fit for human consumption.

b. The animal (when ready) is taken to the slaughter line where it is first humanely stunned to desensitise it to pain;

c. The animal is immediately suspended by its hind legs and at least one of its carotid arteries is , terminating the supply of blood to the brain. The animal is then left suspended so that all of the blood can drain from the body;

d. The animal is then dressed. This involves the removal of the head, feet and hide followed by the removal of the internal organs;

e. The carcass is then cut into sides;

f. A further examination is carried out to ensure once more that the animal is fit for human consumption;

g. The sides are then placed into fridges.

[211]Once the carcass has reached this point it can either be sold in this form (bone-in) or it can be further processed in a boning facility and then sold (bone-out). A boning facility can be a stand-alone plant or it can be located adjacent to an abattoir.

[212]As well as the meat that is derived from an animal, the slaughter process also generates both edible offals and inedible by-products and waste. These are generally dealt with in the following ways: -a. Edible offals can be sold for human consumption;

b. Edible offals can also be processed for animal consumption, for example in pet foods;

c. Some of the fats can be collected and sold;

d. Some of the waste products from animals that might be prone to BSE are designated as Specified Risk Material (“SRM”) and must be specially disposed of;

e. Much of the other waste is rendered (processed or broken down) for disposal;

f. Trade effluent, which is a mixture of water, blood, fats, faeces and urine from the abattoir is normally treated on site before it enters the sewers;

g. Blood has to be collected and treated;

h. Hides (of bovine animals) and skins (of ovine animals) can be processed by specialist merchants, for example into leather.

McKey and Keymeats

[213]At the time of the Shareholders Agreement in 1993, McKey was a supplier of hamburger patties which they supplied to McDonalds. McKey sourced some of its requirements for bone-out beef for mincing from RWM. It also sourced some of its requirements from Keymeats. Keymeats itself sourced some if not all of its requirement from JHC, JHC supplying bone-in cow forequarters to Keymeats which boned them and then supplied the bone-out product to McKey.

Negotiations begin

[214]I can now pick up the history in 1991. Tesco had become RWM’s main customer of the Upminster Abattoir. RWM was supplying bone-out meat to McKey which in turn supplied meat to McDonalds. McKey has remained to this day a customer of RWM without interruption. Tesco was putting pressure on RWM to expand the capacity of the boning hall and of the abattoir in order to meet their own increasing demand for meat. There was also a need for upgrade of both facilities in order to meet increasingly stringent EEC standards. Although plans were drawn up, planning permission was not obtained. RWM therefore had to find some other solution. The solution was to find another abattoir of sufficient size and EEC approved.

[215]At that time, Keverne Knight was actively involved in buying cattle during the course of which activity he visited markets and farms. On one or more occasions he had met Richard at a market. Keverne and Richard each realised that the other had a problem and that together a solution could be found which solved each of their problems whether by a sale of JHC or its business to RWM or by some mutually agreed business arrangement. Keverne then fixed a meeting between Richard and Robin. As a result of that, Keverne and Robin first visited Langport, and subsequently Clifford, Philip and Graham visited.

[216]There then followed meetings between representatives of each side: for the Cobdens were Richard, Keith Kyte (of JHC’s accountants Dixon Walsh) and Tom George (of JHC’s solicitors,Porter Bartless), for the Heffers, Robin and Nigel Shaw (of RWM’s accountants, Bird Luckin and later Fisher Michael) and a representative of RWM’s solicitors. Robin says that from these meetings he learned the following:a. the Cobdens had been trying for some time to sell the Langport Abattoir, but without success;

b. JHC was in financial difficulties. As a result of trading unprofitably, the business was carrying substantial debt. Robin says that this was because the Cobdens had badly managed JHC’s business; that may be his perception but it is not accepted by the Cobdens themselves. It is not a matter which I need to resolve and, indeed, I do not have the material on which to do so. It is not surprising that Robin says what he does because he now never misses an opportunity to run-down the Cobdens. I note here a curiosity. It is part of CIL’s case that RWM through the Knights and the Heffers were to take control of management of JHC. Robin says that that was not so. But one wonders why it was not so if Robin held the Cobdens’ management skills in such low esteem. It was certainly what the Heads of Agreement envisaged.

[217]Robin says that the following matters were also discussed:a. The possibility of RWM purchasing a 50% shareholding in JHC in order to preserve certain tax losses within JHC. It is common ground that this was discussed. Matthew says, and I see no reason to doubt this, that RWM wanted to obtain a majority but that the Cobdens resisted that and that, in any event, the tax loss issue dictated that there should be only a 50% interest.

b. The possibility of the Cobdens taking over part if not all of JHC's debt. It is again common ground that this was discussed.

c. The possibilities of JHC being responsible for live buying and slaughtering and of RWM transferring its killing requirements to Langport provided that the Langport abattoir was substantially upgraded and a boning hall was built on the site for RWM's use as had been the case at the Upminster Abattoir. Again, it is common ground that most of this was discussed, although it is not accepted on the Cobden side that an upgrade of the abattoir was discussed at that early stage.

[218]Matthew describes Robin as being very difficult to deal with during these negotiations but, faced with the choice of continuing in business with Robin or going out of business (with all the adverse financial consequences for the Cobden family) the Cobdens, led by Richard, saw no option other than to continue the negotiations. I am sure Robin was difficult to deal with in the sense that he was driving a hard bargain and was in it for what he could get for him and his family. Matthew does not suggest, and there is nothing to support any suggestion, that Robin was acting improperly in any way.

[219]The possibility of doing a deal with the Cobdens was considered at a board meeting of RWM held on 15 October 1991. From the minutes of that meeting it can be seen that Robin made it clear that the proposal as reported by him was for RWM to acquire a 50 per cent interest in JHC which would be responsible for live buying and slaughtering. Robin says that at no stage in the negotiations with the Cobdens either prior to or after this board meeting was it ever discussed that RWM would be doing anything more than entering into a trading arrangement with JHC, it being clearly understood and agreed that RWM's 50 per cent shareholding was consideration for this trading arrangement with JHC. Therefore it was never contemplated, he says, that RWM would help to promote the business of JHC other than through the trading arrangement.

[220]Whatever was or was not discussed, Heads of Agreement dated 4 March 1992 were eventually agreed and both those Heads and the Shareholders Agreements contain the provisions which they do. I have already discussed these in some detail.

[221]Following the Heads of Agreement, negotiations for an agreement to supersede them continued. It was eventually agreed in the summer of 1993 that JHC would finance the building of a boning hall on the Langport site which would be leased to RWM. The Cobdens were to raise £1 million cash to inject into the business thus enabling improvements to the abattoir to be made, by selling a farm (raising £240,000) and by way of a loan of £740,000 from Lloyds Bank. In addition, further finance was raised to build the boning hall, £800,000 coming from Lloyds Bank and £300,000 (secured by a debenture) coming from RWM. In connection with this, RWM was to acquire a 50% stake in JHC.

[222]Matthew’s perception is that Robin continually tried to improve RWM’s position during the course of these negotiations – by which I infer that Robin was trying to negotiate down the obligations envisaged by the Heads of Agreement. It is entirely consistent with my assessment of Robin’s approach to business that he would attempt to achieve as good a deal as possible for RWM. Be that as it may, after further negotiations, the deal was finally formalised, completion taking place on 22 July 1993. As part of the transaction, there were several agreements which were negotiated and signed. The documentation included several documents which I have already mentioned: the Trading Agreement, the 1993 Shareholders Agreement , the Share Sale Agreement, a loan note instrument and an agreement for the Lease. I have already dealt with the provisions of these documents.

[223]Robin acknowledges, as he has to, that the 1993 Shareholders' Agreement provided that "each party shall promote and enhance the Business". He says that at the time, he viewed the business of JHC as that of an abattoir that should concentrate on contract killing. His reason for this was, he says, that contract killing provided an abattoir with a steady income without risk. So far as he was concerned there was no future in an abattoir selling meat bone-in because the requirements of the supermarkets were for meat bone-out. The market for bone-in was difficult and in his view would become more difficult over time. When RWM came along, JHC was, as he points out and is clearly the case, close to bankruptcy. Robin then concludes that “….it was clear to all that JHC's future lay in contract killing, not killing cows for its own account. The reason linking up with RWM was attractive to the Cobdens was because they knew we had a substantial supermarket client base that virtually guaranteed regular and sizeable kill numbers.”

[224]I think that this is a somewhat self-serving assessment. I do not doubt that the benefits of the link-up which he describes were perceived by both sides nor do I doubt that neither he nor RWM were really interested at that time in JHC’s cow trade. But the cow trade was not inherently unprofitable and with the throughput which RWM was able to provide for the abattoir, there was no reason to think that the cow trade could not contribute to JHC’s profits. Indeed, until the BSE crisis, that is precisely what happened.

[225]Robin has been at great pains to explain that, so far as he was concerned, the purpose of the deal done in 1993 was simply to create a trading structure for RWM and JHC. Further, what was integral to the deal with the Cobdens was that JHC would build a boning hall onto the abattoir from which RWM would run its business. There was, Robin says, never any suggestion at the time by Richard that JHC should acquire any part of RWM's business. The following significant passages appear in his main witness statement:

“If Richard Cobden thought at the time of doing the deal that RWML would be contributing anything more than providing killing numbers, he would have discussed with me how JHCL's business of killing cows for sale "bone-in" could be integrated with RWML's business of selling "bone-out" meat. For example, he could have suggested that, given selling meat "bone-out" was more profitable than selling meat "bone-in", perhaps RWML could "bone-out" meat for JHCL. He never made any such suggestion. Also it could have been suggested that RWML and JHCL combine sales teams. He never suggested it. Instead, it was clearly agreed and understood that RWML and I in particular would make no greater contribution to JHCL's business than by providing kill numbers. ……………….. From that time on it was never suggested by Richard Cobden that I and my sons, as the RWML directors, should be doing more for JHCL and now SCFF……We never agreed to help JHCL promote its business killing cows or for that matter to diversify in any way. ….. Over the years the discussions at director level have centered around the numbers we can kill and how we can keep costs down in order to make SCFF more profitable. Prior to the time the Cobdens decided to sell their shareholding, it was never suggested by them at JHC/SCFF board meetings that we should be promoting in any other way "the business of wholesale butchers, meat processors, slaughterers, processors of hides, skins and animal by-products and pet food manufacturers".”

[226]I accept that Robin’s focus in the negotiations was on the matters which he describes in the passages from his witness statement just set out. I do not, however, accept that it was clearly agreed and understood that RWM and Robin in particular would make no greater contribution to JHC's business than by providing kill numbers. It is far more likely, I think and so hold, that nothing at all was discussed about the detail of other aspects of JHC’s business. But what was understood was that RWM would have three seats on the board of JHC producing equality with the Cobdens. It must have been obvious to a businessman of Robin’s experience that this would give RWM a say in all aspects of JHC’s business and with that say came responsibilities too. As will be seen, the RWM Directors certainly did not confine themselves only to “providing kill numbers”. The fact is that the 1993 Shareholders Agreement did contain the “promote and enhance” provision. Robin was not entitled simply to ignore that provision, although he, and other members of the family, were entitled to form genuine views about other aspects of JHC’s business, for instance its cow trade, and to take account of those views in deciding what they genuinely believed would promote and enhance the Business.

[227]It is, however, only right that I should mention, as Robin does, the management arrangements just before and just after the time of the 1993 Shareholders Agreement. Just before that time, Richard was the managing director and was responsible for cattle buying and the sale of carcasses; Matthew was in charge of JHC's "woofit" pet food business; Joe van Hoof was the abattoir manager, there was a general manager, Geoff Alexander, who also assisted Richard on the sales side; and Joe Cobden, Richard's brother, handled the export paperwork. A management structure going forward was discussed. It was proposed that Robin act as joint managing director at £14,000 per annum, Richard act as executive chairman at £35,000 per annum and still remain responsible for cattle buying and sales of carcasses; his brother Joe would remain as export manager at £25,000 per annum; Keverne would become joint managing director, together with Richard responsible for cattle buying, at a salary of £35,000 pa; and Clifford would become abattoir hygienist at £40,000 pa.

[228]Equal board representation was effected; as a result the board comprised Robin, Keverne and Clifford on the RWM side and Richard, Matthew and Joe on the Cobden side.

[229]Under the new arrangement after 1993, Keverne, his son Geoff, Richard and Matthew were all in the markets and on farms buying clean cattle and cows both for JHC’s own account and, in accordance with the Trading Agreement, for RWM. The cows were exclusively for the account of JHC and the clean cattle were for slaughter and supply to RWM. Matthew says, and I accept this, that from time to time RWM required cow beef. In such cases, RWM would purchase it from JHC on a per kilo basis.

[230]Initially, following the signing of the Heads of agreement, the cattle killed for RWM at Langport were transported bone-in back to its boning facility in Essex. This changed once the boning plant at Langport became operational. Instead of having to transport the carcasses, they were simply put in JHC’s fridges (next to the boning plant) after slaughter, and taken out of the fridges by RWM’s employees and into the boning plant when required by RWM. Robin, Graham, Robert and Phillip Heffer all became permanently based in Langport. However, Phillip soon moved to Huntingdon to set up Hilton Meats, which became the catalyst for the dispute between the Knights and the Heffers.

[231]Matthew has more to say about the impact of that dispute on the Cobdens. What he says, and I accept, is this.a. He and his father were very concerned when they learned of the dispute starting between the Knights and the Heffers during July 1994. It continued for a considerable time and matters became very acrimonious. The Cobdens sought letters of comfort from the Knights and the Heffers so that they would know how long their dispute was likely to continue but at least until May 1995 these were not forthcoming.

b. During the dispute, Robin tried to keep the Cobdens on side. For example, he suggested new salaries for Matthew, William, Daniel and Joe. He told Matthew that when the dispute was behind them, RWM would turn the Langport site into an equal venture between the families with the Cobdens being able to acquire a 50% interest in the RWM business.

c. Eventually, in 1996 the Heffers reached a settlement with the Knights to buy their shares in RWM for £2 million. The Heffers paid the Knights £1m immediately (funded by a bank loan) with the balance payable in 5 annual instalments of £200,000 commencing in November 1996. Although Matthew records the settlement as having been reached in 1996, Robin says that terms were agreed in 1995. I think Robin is correct on this but nothing turns on it.

[232]Following the departure of Keverne and Clifford, Robin approached Matthew early in 1996 proposing a merger of JHC and RWM. Robin indicated a price of £1 million which was the initial tranche of the payment to the Knights. After seeking advice from their accountants, the Cobdens decided not to proceed and nothing came of it. It was formally agreed at a board meeting on 24 November 1996 that the merger would not go ahead. At that same meeting, it was noted that JHC had a large exposure to RWM at a detrimental cost of finance.

[233]That is to paint a neutral picture. Matthew’s perception is rather different. He says that “….it soon became clear that this offer was a complete false promise by the Heffers. The reason being that the price the Heffers demanded was, from the advice we had received at the time, entirely unrealistic. The negotiations became quite heated and soon started to become a strain on the relationship between the 2 families. Dad and I therefore decided to end the negotiations before the relationship become irreconcilable”.

[234]In the meantime, the dividend policy set out in the 1993 Shareholders Agreement was considered at a board meeting of JHC on 8 July 1996. It was agreed that the Cobdens would waive their right to a dividend on the basis that they would not be required to introduce additional capital into JHC.

The BSE crisis

[235]During 1994/95, the BSE crisis in cattle, (that is the bovine equivalent of CJD in humans), began to worsen significantly; MAFF began enforcing EU Directives dating from 1991, which allowed only cows coming from BSE free herds to be exported bone-in. This made trade more difficult since JHC’s customers preferred bone-in meat to boneless meat. JHC did manage to carry out some bone-out exports. Robin, as ever keen to paint dealings with the Cobdens to RWM’s advantage, says, in relation to that, as follows:

“As a result RWML helped out JHCL by boning out cow meat for them at an agreed price per kilo. However, this was for a short period and did not involve any significant quantities. Also, it did not set any precedent which is borne out by the fact that when the issue was raised by Matthew Cobden in particular that the JHCL cow business should be revived with the lifting of the ban exporting beef to Europe, he never once suggested that business should be conducted on a bone out basis.”

[236]I have no reason to think that the terms on which Robin agreed were other than commercial; I would reject any suggestion that RWM “helped” JHC as some sort of favour or at anything other than a full charge for the boning which it did.

[237]22 March 1996 is known in the meat trade as Dorrell Day. Stephen Dorrell, the then Minister for Health announced in Parliament that there was a possible link between BSE in cows (mad cow disease) and vCJD in humans. The Government then introduced what is known as the over 30 month rule. That rule was to the effect that only meat from cattle below the age of 30 months could be sold for human consumption; additional precautions also required that the spinal cord, head, intestine and thymus gland were to be separated from the other by-products for rendering and incineration (known as SRM waste). Shortly afterwards, McDonalds and Burger King ceased to use British beef; and then the EU announced a total ban on the export of British beef.

[238]This left the UK beef industry in turmoil. The Langport abattoir was left with quantities of beef in stock. In addition, JHC had returned to it loads of beef which were en route to France and Holland and loads which had been delivered to Keymeats. Eventually, all of the over 30 month beef was purchased and paid for by the Government and destroyed.

[239]To regain public confidence by offering full traceability, Tesco launched the Producers’ Club procurement system. All suppliers of beef coming from animals under the age of 30 months and destined for Tesco had to be members of the Producers’ Club and sell direct from farm to abattoir thus avoiding markets.

[240]The period immediately following the ban was very quiet for JHC because it was not able to supply its previous regular customers other than RWM at reduced volumes.

[241]However, an opportunity then arose for JHC when, in or around June 1996, the “over 30 month scheme”, known as the OTMS, commenced. This was a Government scheme for the cull of cattle over the age of 30 months under which certain selected abattoirs (including a facility at Langport) were contracted to slaughter such animals for the Government. These cattle were predominantly dairy cows.

[242]Initially, the main abattoir at Langport became dedicated to the OTMS. Initially, abattoirs involved in the OTMS were contracted to clear the considerable backlog of cows which had accumulated for slaughter in the weeks following the crisis. Slaughtering these animals for the Government was very profitable. Between May 1996 and July 1997, JHC and then SCFF earned substantial profits. The Government paid around £115 per animal as a slaughter fee; in addition the hides were kept by JHC for onward sale. In the first two weeks of the OTMS alone, JHC slaughtered 2,000 cows per week generating a profit in the region of £250,000. As more abattoirs were awarded work under the OTMS, JHC and SCFF obtained fewer animals for slaughter and profits were not sustained at that sort of level.

[243]Matthew says that JHC only got this very profitable business in the first two weeks of the OTMS because he persuaded the Intervention Board that JHC had the capacity to slaughter 2,000 per week. I see no reason to doubt that.

[244]Whilst these large quantities of cows were being slaughtered in the main abattoir, JHC arranged for the cattle required by RWM to be slaughtered in other abattoirs, for instance Kellows at Yetminster and others in Hereford, Cornwall and Southhampton. These cattle were procured by JHC, slaughtered by the other abattoirs and transported to Langport for boning by RWM. Kellows, for instance, were paid a killing fee of £40 which included the cost of delivery to the boning hall at Langport. SCFF was paid a procurement fee of £8. RWM took the hide, offal and by-products the value of which had become uncertain in the light of the BSE regulations. At a total fee of £48, RWM was thus paying the top amount which it would have to pay JHC under the 1993 Trading Agreement.

[245]The OTMS had been implemented quite hastily. After some months, the Government then put out the cull business to competitive tender. Southern Counties Cull Services Ltd (“SCCS”) was incorporated as a wholly-owned subsidiary in February 1997 to carry out the cull operations and to provide commercial transparency, for instance in the identification of costs attributable to the cull. SCFF/SCCS put in a tender in July 1997 but failed to retain work under the OTMS. Matthew considers that this was because, notwithstanding his protests, Robin “got greedy and insisted on the Company tendering at too high a price”. Robin takes a different view. Clearly the failure to secure this contract did not help relations between the families.

[246]At about this time, but prior to the complete ban on the export of beef, regulations had been introduced which required the export of beef to be accompanied by a certificate to the effect that the meat came from animals clear of BSE. Unfortunately, there had been irregularities (responsibility for which lay with Joe Cobden) in the certificates issued by JHC. This resulted in the threat of prosecution by Trading Standards. This could have had disastrous consequences not only for JHC but also for RWM because of the likely publicity and the possibility that RWM's customers would be reluctant to accept meat killed in an abattoir associated with a trading standards prosecution of this nature. As a result, SCFF was incorporated. JHC’s undertaking was transferred to SCFF in order to distance the continuing business from the business that might be prosecuted. In the event the threatened prosecution never materialized. But this outcome was not known when the decision to form SCFF was made.

[247]By then, the new arrangements had been implemented. Documentation was prepared in some haste as a result of which, on 19 August 1996:a. SCFF became the landlord of the boning plant;

b. SCFF purchased the JHC business;

c. SCFF commenced trading in succession to JHC;

d. CIL and RWM became the only shareholders in SCFF;

e. Richard, Matthew and Daniel and together with Robin, Graham and Robert became the only directors of SCFF; and

f. SCFF and RWM commenced trading in accordance with the 1993 Trading Agreement which had operated for the previous 3 years beween JHC and RWM.

[248]As part of the arrangements, the 1993 Shareholders Agreement was replaced by the almost identical 1996 Shareholders Agreement which was in turn subsequently varied, in 1999, by the Deed of Variation which I have already explained.

Abattoir reconstruction

[249]In the light of early profits from the OTMS, a decision was made to resurrect an old abattoir on another part of the site at a cost of about £250,000 and to move the OTMS into it in January 1997. The main abattoir was to be refurbished for the slaughtering of animals for human consumption. This would enable the resumption of supply to RWM. Matthew says, and I have no reason to doubt this, that he hoped that one day JHC would be able to resume the slaughter of cows for human consumption and export trading as had been done prior to the ban in 1996.

[250]Once the old abattoir had been made ready to carry out cull operations, the main abattoir was closed for refurbishment. Some extensions to the kill lines were built. All areas were refurbished with new drains, floors, re-cladded walls and ceilings and a new conveyorised kill line installed. This resulted in what Matthew, accurately I think, describes as a “state of the art abattoir”. About £2.5 million was spent on the refurbishment. The abattoir recommenced slaughtering in June 1997. It is fair to say that the refurbishment was more expensive than had originally been envisaged. It is, however, inconceivable to my mind that the Heffer directors were not closely concerned with the making of the decisions to reopen the old abattoir and refurbish the main abattoir or that they did not keep a close eye on how the necessary works were progressing and what they were costing.

Mr Phelps’ appointment

[251]As explained, Tesco started its own Producers’ Club. In parallel with that, SCFF established its own group of suppliers acceptable to Tesco. Prior to that, about 70% of the cows and cattle slaughtered by JHC and SCFF came from livestock auction at which one or other of the Cobdens would have been bidding. The basis of procurement underwent a significant change when the procurement of cattle directly from the farmers, rather than from markets, became the norm.

[252]It was originally envisaged that SCFF would run its procurement operations through a subsidiary which it formed called Southern Counties Beef & Lamb Producers’ Club Ltd (“SCB&L”). In fact, this company has always been dormant and procurement has been carried out by SCFF itself. There was, nonetheless, a division within SCFF known as the Producer Club which dealt with the relevant farmers who can be seen as a group, or club, of approved suppliers to SCFF. The Producers’ Club, viewed as a group of farmers, currently has nearly 2,600 signed-up members and SCFF has a further 2,000 farmers with who it deals. There are therefore nearly 4,600 farmers providing a supply base for SCFF, many of whom have been suppliers to JHC and SCFF for many years.

[253]Mr Phelps was brought into SCFF in late 1996. Matthew describes his role this way:

“The Heffers wanted to bring in somebody new to run the Producer Club. I suggested Richard Phelps, who I knew from Gloucester Market auctioneers. I persuaded him to join the Company to run the Producer Club. For the first couple of years or so, Richard would take instructions from all the directors of the Company and act generally in the best interests of the Company…..”

[254]Robin, with a slightly different perspective says this:

“At this time and as a result of our supermarket customer pressure, SCFF were procuring cattle for us solely from farmers and not as previously also from the livestock markets. Although Richard and his sons had purchased cattle from farmers, their primary experience lay in purchasing cattle from livestock markets. In the event it was agreed that SCFF should be looking to hire someone with experience of procuring cattle from the farmers direct and this resulted in SCFF employing Richard Phelps as procurement manager in late 1996.”

Trading prior to November 2000

[255]It is clear that trading terms varied and differed from supplier to supplier and from farmer to farmer. Matthew’s evidence, which I accept on this aspect, was that some markets gave no credit but most markets allowed a minimum of 7 days’ credit and that a few (probably only one or two) allowed 14 days. These terms of trading with farmers had been established by conduct over many years and long before SCFF was incorporated. The terms with livestock markets were usually agreed orally prior to commencing regular business with that market.

[256]Matthew’s evidence is supported by such limited contemporaneous evidence as there is: several board minutes show that SCFF’s suppliers were tightening up on their credit terms and board minutes of RWM for a meeting dated 11 April 1997 refer to SCFF having to pay producers in 7 days. The same point was made at a SCFF board meeting on 14 April. Moreover, Tesco introduced a requirement that their suppliers of meat should pay the farmers within 7 days, an important requirement of which SCFF were reminded in a letter from Tesco (addressed to Robin at SCFF) dated 6 October 1997.

[257]Robin, after being pushed by Mr Weatherill on a number of occasions, accepted that credit was usually 7 to 14 days but would not accept that 7 days was the norm. In my judgment, however, the evidence shows that at least from April 1997, 7 day payments to farmers were the norm and that the SCFF board knew that to be the case.

[258]After the Producers’ Club started, it became Tesco’s requirement that their farmers be paid within 7 days of delivery. This requirement was respected by SCFF which has to the best of its ability paid accordingly. This was all well known to RWM and the RWM Directors.

[259]There was a history of late payment both under the Trading Agreement and the MoU. I consider the relevant factual material when considering the individual items of alleged unfair prejudice, of which late payment is one.

Reduction in killing fee – 1997

[260]In October 1997, after the Company had refurbished the main abattoir, the kill fee in fact paid by RWM was £42. It is CIL’s case that this fee was introduced unilaterally without the consent of the Cobden directors and that it was a reduction from the kill fee which RWM was obliged to pay under the Trading Agreement. This is a matter of specific complaint which I deal with in due course.

Yetminster and RWM Dorset

[261]In 1997, Robin had attempted to purchase on behalf of SCFF an abattoir at Yetminster in Dorset, owned by Mr Kellow. He did not want to see the Yetminster abattoir fall into the hands of a potential competitor of RWM; his concerns were that, given the proximity of the Yetminster abattoir to the Langport abattoir, this could create increased competition for the purchase of cattle in the surrounding area. Given the BSE crisis, the supply of meat was under increasing pressure with an upwards push on prices. His attempts to purchase were not successful. He had offered £1.5 million but Mr Kellow wanted £1.7 million: they could not meet in between. It is interesting that he saw the risk as one to RWM (which no doubt it was) but does not appear even to have considered the risk that it might also present to SCFF. A reduction of the supply of cattle would not only damage RWM, but could also damage SCFF. That damage would come from two directions: First, a reduction in throughput for supply to RWM or, if not a reduction, a pressure from RWM to reduce slaughtering costs so that RWM’s profits would not be adversely affected; secondly, competition in respect of any business which SCFF might attempt to obtain, whether to replace any lost throughput to RWM or in the development of its own cow trade if and when cows came back into the human food chain.

[262]At the end of that year, 1997, the company which owned the Yetminster abattoir went into receivership. Robin then negotiated to purchase the abattoir from the receivers. He succeeded in negotiating a price of £1 million, with them. The RWM Food Group completed the purchase through a newly created subsidiary company, RWM Dorset. Robin says that he asked Richard whether he was interested in SCFF bidding to buy the Yetminster abattoir from the receivers but that he declined. That may be so, but it was in a context where Richard understood that the price would be in the region of £1.5 million. What is entirely unclear is whether Robin reverted to Richard to see if he was interested in SCFF acquiring the abattoir once he had succeeded in reducing the price to £1 million, an issue I do not need to decide.

[263]What is clear is that, after the acquisition, the Cobdens were offered a deal to buy a share of RWM Dorset, but that deal was very different. It required the Cobdens to contribute £1 million by way of share purchase and cash injection and involved also the transfer by RWM of the sheep business which RWM had with Safeways to RWM Dorset, In effect, the Cobdens had to buy into the Safeways sheep business which unfortunately eventually came to a premature end. I do not suggest that the Cobdens did not go into this arrangement other than with their eyes open to the risk. Nor does the transaction form part of any alleged unfair prejudice. It is, however, a significant component in the deteriorating relationship between the two families.

[264]That transaction came about in the following way. After the purchase by RWM Dorset, if not before, the Heffers decided that the abattoir would be ideal for the killing of lamb that they then supplied to Safeways supermarkets. The actual slaughtering of lambs was at that time carried out at Langport with SCFF doing the killing. Robin also saw the potential for the Yetminster abattoir killing lamb for export and potentially for new customers who had a requirement for lamb. He says that all of this was discussed with Richard and Matthew and it was this that encouraged them to invest in RWM Dorset as they did. He does not say whether he ever considered that moving the sheep line away from Langport would be in the interests of SCFF. There is nothing to suggest that he or the RWM Directors did so. The move seems to have been driven by the interests of RWM and RWM Dorset.

[265]No doubt Robin’s vision did encourage the Cobdens to invest but from their perspective they had no choice. They were nervous that, if RWM or the Heffers bought the abattoir alone, a large proportion of the animals slaughtered at Langport would move to Yetminster with SCFF becoming just an overflow plant for Yetminster and unviable. Accordingly, the Cobdens, for their own protection as shareholders in SCFF, considered that they had to be part of the Yetminster venture. Just as both sides seem to have overlooked the existence of the “promote and enhance” obligation, so too the Cobdens seem to have overlooked the obligation on RWM to take all its meat requirements from SCFF, an obligation which would, had it been appreciated, have alleviated their concerns.

[266]The initial proposal was that the Cobdens would buy a 50% share in RWM Dorset. The Heffers had placed a value of £1 million on RWM’s Safeway business which they proposed transferring to RWM Dorset, coincidentally the same figure as the cost of the abattoir itself. In a letter dated 26 January 1998 to Richard and Matthew, Simon Milstead, who was representing the Heffers (although he was – and still is – the Company’s auditor), stated:

“I think that the position can best be explained by reminding you that as a 50% shareholder you will still effectively own the value of half that which you introduce. Therefore, if Romford Wholesale Meats is to benefit by £500,000 from your contribution then you will need to introduce a full £1 million into the company. Whilst the company benefits from all the cash introduced, as you will own half the company your effective loss is only half the sum introduced (and Romford’s gain is only half what you introduced)”

[267]It seems to me that Matthew is right in how he describes what it was being suggested, namely that the Cobdens should buy into the abattoir for £500,000 and, on top of that, pay for a 50% share of the value of the Safeway goodwill, which RWM was introducing into the new business and which they valued at £1 million. In the end, the Cobdens were only able to raise £900,000 and therefore the Heffers would only give them a 45% interest in RWM Dorset. It was, however, agreed that RWM Dorset would grant the Cobdens an option to subscribe for further shares to bring them up to 50%.

[268]Matthew says that there was no negotiation in relation to this deal saying that “Robin told us what was on the table and we had to follow if we wanted to be part of the deal”. I can well believe (and indeed I accept) that it was a “take it or leave it” proposition.

[269]But equally I accept what Robin says about certain matters:

“When Richard and Matthew Cobden requested that they be allowed to invest in RWM Dorset, there was never any complaint by either Richard or Matthew Cobden that we were moving the Safeway business to Yetminster and thereby depriving SCFF of that business nor that by doing so we were breaching the Shareholders Agreement or in breach of our fiduciary duties as directors of SCFF. At the time Southern Counties Export Services Limited, which was exporting lamb carcasses to Europe, was still trading and Richard Cobden did not raise any objection to our proposal that RWM Dorset may also export lamb to Europe.”

[270]I also accept Robin’s evidence that it was Matthew who approached him in early 1998 looking for the opportunity to invest in RWM Dorset: that is entirely consistent with Matthew’s own evidence that the Cobdens considered that they had to be involved in the venture to protect the interests of SCFF and their own interests. I am sure that Robin did point out to Matthew that there was no certainty that RWM Dorset would retain the Safeway account going forward and that he should take this into account before committing himself and his family to invest almost £1,000,000 in the company. Whatever the motivations of each family, a deal was reached with Matthew and consequently Matthew, his brothers William and Daniel and CIL acquired a shareholding in RWM Dorset, the legal formalities being completed in March 1998. Matthew and William joined the board and so joined Robin, Graham and Robert as directors. Richard came to board meetings, although he was not a director

[271]At that time SCFF continued to kill the lamb that RWM supplied Tesco. The Yetminster abattoir was not simply an abattoir, also having a purpose-built boning hall and it was subsequently expanded so that it could also undertake retail packing. Before the Yetminster abattoir was fully operational, it required substantial refurbishment and consequently it was some 12 months after the purchase that the Safeway lamb business was moved away from the Langport abattoir.

[272]As part of the deal, a number of ancillary matters were agreed including a dividend distribution policy, a service agreement whereby Matthew was seconded by SCFF to the Yetminster abattoir as abattoir manager, and the Supply Agreement. As a result of the investment by the Cobdens in RWM Dorset, Matthew moved to manage the Yetminster abattoir and the Langport abattoir continued to be managed by Jonathan Davies. Graham had moved to the Yetminster abattoir while Robin and Robert remained at the Langport site.

[273]Around this time Simon Milsted of Milsted Langdon, RWM Food Group's auditors and also SCFF’s auditor, apparently suggested that it would be advantageous if the SCFF results could be consolidated with the RWM Food Group accounts. By advantageous, I think he meant advantageous to RWM since it is not easy to see why this should be advantageous to SCFF itself (or indeed to CIL). Robin says that Mr Milsted suggested that there was a way to justify this and he was able to persuade the Cobdens and their accountant to agree to this. Robin says that this was a technicality which did not mean that SCFF was actually under the control of the RWM Food Group; rather, it reflected the fact that SCFF was heavily dependent on RWM as its principal customer. Since 1998, the RWM Food Group accounts have shown SCFF as a subsidiary. I regard this as a lame explanation from Robin. It seems to me that he perceived an advantage to RWM from having consolidated accounts and was prepared to see group accounts prepared and signed on the basis that SCFF was under the control of Group in the sense that RWM (itself a subsidiary of Group) was in practice able to control the direction of SCFF’s business. This may well, in practical terms, have been true, reflecting the influence which RWM had over the affairs of SCFF.

[274]Robin draws attention to the fact that towards the end of 1998 he agreed with Lloyds Bank an overdraft facility of £1,500,000 for SCFF after some protracted negotiations. He says that he believes that Richard was fully involved and approved of this, adding that the reason for the need for an overdraft was down to the fact that the credit terms afforded to RWM and RWM Dorset, which matched the credit terms these companies obtained from their customers, were better than the credit terms SCFF obtained from its suppliers. Then in January 2006 the overdraft was increased to £1,750,000. Again, Robin says that Richard was fully involved in the negotiations with the bank for the increase. What Robin does not address is the reason for this difference in credit terms given that the major customer whose credit terms were causing problems for SCFF was none other than RWM.

[275]At the end of 1998, Matthew swapped with Jonathan Davies so that Matthew returned to the Langport abattoir as abattoir manager.

Trading between SCFF and RWM Dorset and loss of the Safeway contract

[276]At the time of the venture in RWM Dorset, the Supply Agreement was made. This was a supply agreement between SCB&L and RWM Dorset dated 4 March 1998. This agreement provided that SCB&L “shall procure the sale of and [RWM Dorset] shall purchase such Supply Units as may be ordered by [RWM Dorset] from time to time.”

[277]A Supply Unit was either one heifer/bullock or ten lambs. Clearly cows and bulls were not covered, nor were pigs or any other animal for human consumption. SCB&L was to use its best endeavours to arrange to supply the orders placed. It was to arrange at its own expense for the animals to be delivered to the Yetminster abattoir, risk passing to RWM Dorset once delivery had been effected.

[278]RWM Dorset was to pay a fee for this supply. The fee was £5 for each Supply Unit or such other sum as may be agreed from time to time. This fee was to be paid within 30 days of the end of the month in which the delivery took place. But this was subject to delivery of an accurate invoice, with RWM Dorset having the right to refer any material inaccuracies back to SCB&L before payment.

[279]The agreement contains a “whole agreement” provision stating that it constitutes the entire agreement between the parties in connection with its subject matter and a provision stating that no amendment shall be effective unless it is in writing and signed by representatives of each party.

[280]It can be seen that the Supply Agreement was to govern the terms on which the Producers’ Club was to arrange for the procurement of supplies of livestock to RWM Dorset. This was to be carried out for a fee. There is nothing in the Supply Agreement which contemplates, let alone makes provision for the regulation of, the purchase by the Producers’ Club on its own account of livestock for onward trading with RWM Dorset. Mr Weatherill submits that that is because the Producers’ Club’s responsibilities were limited to using its best endeavours to procure the sale and arrange the delivery of supplies ordered by RWM Dorset: it was RWM Dorset’s obligation to purchase the supplies, and the only sums RWM Dorset was required to pay were the fees which he says were plainly set at a level which was designed only to cover the Producers’ Club’s costs of procurement and haulage. It cannot, he submits, have been contemplated by the drafters of the Supply Agreement that the Producers’ Club was to acquire the supplies ordered by RWM Dorset on its own account and re-sell them to RWM Dorset for the same price on generous credit terms. There is no provision for that in the agreement, and no suggestion that the fees payable by RWM Dorset were intended to cover the cost of finance.

[281]RWM, as I understand its case, contends that the Supply Agreement covers both procurement and purchase on credit terms, although Mr Weatherill says that this is a recent invention. It is certainly the case that it was not relied on by RWM in its original defence.

[282]I agree with Mr Weatherill that the supply agreement does not cover purchase or credit terms. The Supply Agreement contains no terms about payment for the animals procured. Clearly it was not envisaged that SCB&L would sell a Supply Unit to RWM Dorset for the £5 fee; that was a fee for the service of procuring the animals. In my judgment, the Supply Agreement is no more than a service agreement under which, for a fee, SCB&L would source animals on behalf of RWM Dorset. SCB&L, in contracting with suppliers, would do so as agent for RWM Dorset, albeit without disclosing that it was buying as an agent and without disclosing the identity of its principal. However, whatever the contractual relationship between SCB&L and the suppliers might be, the cost of acquisition would be down to RWM Dorset. It is true that the provision about the passing of risk which I have mentioned, and the provision concerning invoices, might suggest that SCB&L would purchase animals on its own account for onward sale to RWM Dorset. I do not think that such a suggestion would be correct. If it were, I would have expected the terms of any written agreement between the parties to be rather different from the Supply Agreement and to have provided expressly for the payment of a purchase price by RWM Dorset.

[283]Graham, in cross-examination, accepted this result and also that he had previously misunderstood the effect of the Supply Agreement. Robin confessed that he realised the true position about a year ago but did nothing to correct affairs in spite of a proposed board resolution. I accept what Robin says about that notwithstanding that Mr Michau, the partner of DLA Piper acting for RWM, gave evidence chiefly to the effect that Robin was wrong to make his confession because he, Mr Michau, had not himself appreciated the true effect of the Supply Agreement until Graham was cross-examined during the trial.

[284]SCFF is not a party to this agreement, but has in fact done precisely what it was envisaged that SCB&L, a wholly-owned subsidiary of SCFF it will be remembered, would do. It was at one time CIL’s position that there was no agreement at all between SCFF and RWM Dorset for procurement of lambs. But in fact such procurement was carried out by SCFF over a significant period of time and there can be no doubt at all that the Cobden Directors knew that this was being done and were content that it should be done; it is the terms of credit to which they object.

[285]In my judgment, the original terms of trade between SCFF and RWM are to be found in the Supply Agreement; everyone involved knew that the Supply Agreement had been entered into and everyone knew that SCB&L was dormant. Further, SCB&L had as part of its name “Producers’ Club” and the department within SCFF which handled this business was known as the Producers’ Club. It is artificial to think that the trade has been conducted by SCFF with RWM Dorset was intended to be other than on the basis of the Supply Agreement.

[286]Whichever approach to the Supply Agreement is correct – agency or purchase and onward sale – it is clear that RWM Dorset has to pay for the animals as well as pay the fee. The Supply Agreement is silent about when such payment is to be made. This is important because SCFF has been financing the costs of acquisition itself. It buys lambs in the markets or from farmers and pays them according to their credit terms; but RWM Dorset has been paying the purchase price only in accordance with the same arrangements as apply to the fee. Payment for the animals is not covered by the Supply Agreement itself. But RWM’s case is that a 28 day credit period was either agreed or has become binding on SCFF as a result of the adoption of such terms over a long period. I will deal with this aspect when considering the pleaded item of unfair prejudice alleged in paragraph 39(8) of the Petition.

[287]Before leaving the Supply Agreement, it is to be noted that towards the end of 1998, the procurement fee was changed, by agreement between Matthew and Graham, to a flat fee of £750 per week. Matthew explained the rationale for that change; he considered that the fee then being paid was excessive having regard to the little time and effort then required to source sheep in the markets, and thought it fairer to provide for a flat fee per week. His evidence was that all of the SCFF directors agreed to this change. A major bone of contention later on was the failure of the Heffers to bring about a revision of this fee when conditions changed and, according to CIL, the cost of procurement far exceeded £750 per week. It is perhaps worth remarking that at that time Matthew was employed at Yetminster and would have had the interests of RWM Dorset at heart and that the Cobden family owned 45% of RWM Dorset so that the actual level of cross-charging between the companies might not have been seen by anyone as a matter of great moment. That all changed in 2000 when the Cobden shareholding in RWM Dorset was substantially reduced.

[288]At the beginning of 2000, RWM Dorset was experiencing difficulties in retaining the Safeway account. As a result, the profitability of RWM Dorset was suffering and a decision needed to be made as to the way forward given the distinct possibility that RWM Dorset would fail to retain the Safeway account. The Cobdens were extremely concerned, in the light of the profitability of RWM Dorset that it might become insolvent and that, if that were to happen, SCFF would not recover about £2 million owed to it by RWM Dorset. Matthew, at least, was worried that this would have resulted in SCFF itself becoming insolvent.

[289]In the end Safeway ceased doing business with RWM Dorset at the end of 2000.

[290]With the loss of Safeway the Cobdens understood from the Heffers that the RWM Dorset business had ceased to be viable. Unsurprisingly, the Cobdens were hugely disappointed that the business was lost having paid £450,000 for their share of the value of the Safeway goodwill.

[291]There were regular discussions between Graham and Matthew about the way forward. Matthew was very concerned to ensure that SCFF did not suffer as a result of the potential insolvency of RWM Dorset. If SCFF were to be put into liquidation, the Cobdens’ financial position would have been ruined (to use Matthew’s words), with the family farm and Richard’s home being sold to repay the substantial debt which the family had incurred to buy into RWM Dorset in the first place. In addition, he feared, rightly or wrongly, that the Heffers would purchase both the Langport and Yetminster abattoirs from the respective liquidators, thus keeping the businesses for themselves and leaving the Cobdens with nothing.

[292]During the course of the negotiations, various other issues relating to trading relations generally were brought into the equation. Matthew says it was Robin who introduced them and that, in the end, the Cobdens felt that they had no choice but to take what the Heffers were insisting upon because if they did not do so, they thought that they would lose SCFF and the family farm. Robin says that it was Matthew who insisted on these other matters being addressed. I do not need to decide who introduced these matters. What is clear is that formal agreements were reached with both sides being professionally advised by lawyers and accountants. However hard those agreements seemed to the Cobdens at the time and however unfair the agreements now seem to them, it is not suggested that they are not fully effective and binding or that of themselves they are matters of unfair prejudice justifying relief under section 994.

[293]The agreement eventually reached between RWM and the Cobdens to save RWM Dorset was this: in return for RWM transferring its Tesco lamb business to RWM Dorset and thereby ensuring the continued viability of the Yetminster abattoir, the Cobdens would substantially reduce their shareholding in RWM Dorset, to 7.5%. Formal documentation was prepared by the lawyers at the same time in relation to SCFF resulting in the MoU and the Dividend Distribution Policy Agreement dated 17 November 2000. I can readily understand the pressure which the Cobdens felt themselves to be under and the resentment which these arrangements engendered. Indeed, the MoU formalised aspects of the trading relationship between SCFF and RWM about which Matthew had been complaining as not reflecting the terms of the Trading Agreement. The Cobdens effectively conceded complete defeat over these complaints.

[294]Before turning to the specific complaints of unfairly prejudicial conduct, there are two further matters I wish to say something about, namely “give and take” and management.

Give and take

[295]A number of complaints are levelled by CIL in respect of inter-company arrangements between SCFF and RWM. Some of these are matters relied on as unfairly prejudicial conduct for the purposes of section 994. Mr Joffe gives as an example CIL’s complaint that SCFF should have charged RWM in respect of the parking of chiller trailers on areas of the Langport site that were not strictly demised to RWM. He submits that such complaints demonstrate a fundamental mischaracterisation of the relationship between RWM and SCFF (and formerly JHC). SCFF and RWM have, he says, conducted their businesses in a manner of consensual co-operation to their mutual benefit. Such conduct comprised numerous inter-company arrangements and understandings and a sharing of resources on an informal basis.

[296]This conduct of affairs, it is said, evolved as part of an informal practice of “give and take” between SCFF and RWM; the antithesis of a culture of detailed charges being raised between them. The Cobden Directors did not raise any substantive objection to these matters, but rather acquiesced in and agreed with them, because they regarded RWM’s business as being so closely tied to that of SCFF and RWM’s benefit to be in the interests of SCFF; RWM’s convenience maintained the attraction of continued reliance on SCFF for supply.

[297]I should say at once that there is not a shred of evidence to suggest that any of the Cobden Directors agreed to some sort of swings-and-roundabouts arrangement under which neither company would insist on detailed cross-charging of debits and credits on the footing that, in the overall context, they would somehow cancel out. Mr Joffe himself acknowledges that what he calls “this spirit of “give and take”” was not articulated in terms prior to 2006. He does, however, submit that it implicitly underlay the inter-company dealings and that it only became an issue once relations between the parties had deteriorated towards legal positioning.

[298]I accept that in respect of a number of matters, charges were not made by either party to the other; what is more, this absence of charging was known to, and not objected to, by the party which would otherwise be entitled to expect payment. In relation to comparatively trivial matters, such as the parking of lorries by RWM, I can well understand the submission that the activity now complained of does not amount to unfairly prejudicial conduct. I will look at each matter on its merits when considering the specific complaints which are raised. However, there is nothing to suggest that the failure to complain in the past has anything to do with a conscious decision on the part of one party not to raise complaints because the other party has not done so in relation to matters which might have been complained of the other way round. It is not so much that there has been give and take – which would involve some consideration of the give matching the take – but rather there has been an informality in dealings which has not been a matter of objection and, whatever its financial consequences, cannot be relied on as unfairly prejudicial conduct.

[299]I therefore reject the idea of “give and take” as affording some overriding defence to conduct which would otherwise constitute unfairly prejudicial conduct.

[300]In any case, even if I had been attracted by the argument, I would approach the argument with some circumspection since it was not applied universally. There are many instances where RWM has applied strict accounting when, if there had been a general give and take, one might have expected some give on its part.

Management

[301]Paragraph 31 of the Re-Amended Petition alleges as follows:

“The RWM Directors were responsible for the management of, and Mr Carswell managed, [SCFF’s] office functions, financial affairs, administration, treasury functions and inter-company trading including recharging overheads to Romford Wholesale and RWM Dorset, raising invoices and would have included charging licence fees for going onto the Estate, preparing any accounts showing the Annual Expenditure containing a fair summary of the expenditure to be certified by [SCFF’s] accountant in accordance with paragraph 1.2 of the Fifth Schedule of the Lease, determining the proportion attributable to the Premises of the Annual Expenditure as properly incurred by [SCFF] in respect of the Services referred to in the Fifth Schedule to the Lease, charging the Tenant’s Proportion of the Service Charge and also charging for other services provided by [SCFF]. Mr Carswell was directed by and primarily reported to the RWM Directors. The RWM Directors were also responsible for the management of, and Mr Phelps managed, the purchase and supply of beef, lamb, cows and sheep. Mr Phelps was directed by and primarily reported to the RWM Directors.”

[302]It is worthy of note that this apparently important allegation is not specifically addressed at all in Mr Weatherill’s written closing submissions although there is reference to the activities of the accounts department in the discussion of alleged late payment by RWM. Mr Joffe suggests that this allegation is an essential one for CIL being relevant to many of the individual allegations made under paragraph 39 of the Petition, and provides the Cobdens with a reason for insisting that everything which they allege has gone wrong in the conduct of SCFF’s business is solely the fault of the RWM Directors, or Mr Carswell or Mr Phelps.

[303]I do not propose to enter into a lengthy discussion of what management functions RWM did and did not undertake. Instead I deal with the allegations of management control as and when they arise when addressing the various complaints of unfairly prejudicial conduct.

The Complaints of Unfairly Prejudicial Conduct

[304]I turn now to the specific complaints raised in the Petition each one of which is said to be a breach of the Shareholders Agreement, a breach of duty by the RWM Directors and to demonstrate conduct in the affairs of SCFF which is unfairly prejudicial to CIF as a member of SCFF. In addressing these I deal with factual matters not already mentioned.

Petition Paragraph 39(1): Late payment under the Trading Agreement

[305]CIL claims that SCFF was persistently paid for animals later than was provided for under the Trading Agreement which obliged RWM to pay SCFF within the trading terms of its own suppliers. RWM do not admit this allegation in their Points of Defence but, as will be seen, I think that the allegation is made good. Whether that amounts to unfairly prejudicial conduct is an entirely different matter.

[306]The Trading Agreement originally provided for JHC to be remunerated for killing by retention and sale of the fifth quarter, with a cap on what it could retain and a guarantee from RWM of a minimum price. I should add that I see no reason to think that, once a fixed killing fee was substituted for the original mechanism, the killing fee should not be paid within a reasonable time and certainly no later than the time for payment for the beast concerned. The Trading Agreement,which it will be remembered was made between RWM and JHC not SCFF, provided for RWM to pay for the animals within the trading terms of the vendor of the animals.

[307]As Mr Joffe observes, as a matter of fact, the credit terms provided for in the Trading Agreement were departed from at an early stage. It appears that when Mr Carswell came on the scene the credit terms actually operated were payment within 14 days of purchase of the Animal. Mr Carswell did not himself implement this arrangement: he simply operated the credit terms which he understood were operating at that time. He did not himself look at the Trading Agreement (which surprisingly he saw for the first time only in the witness box) nor was he told of its terms by anyone although he seems to have known of its existence. I will say something more about this 14 day period later.

[308]At a JHC board meeting on 24 July 1995 Robin asked for an extension of credit terms from JHC as RWM customers were mostly on 28 days’ credit and Hilton wanted to extend its credit to 28 days (whereas Tesco had formerly paid in 14 days). At the next JHC board meeting (on 14 September 1995) Richard stated that he thought that it would be impossible to obtain additional credit from any of the markets. Nevertheless, Mr Joffe says that it appears that in practice, JHC afforded RWM 28 days’ credit. It is not at all clear from the evidence how this practice came to be implemented. The board minutes do not record agreement to that practice and nor does RWM allege that it was expressly agreed outside a board meeting with Richard or anyone else. The most likely explanation, I consider, is that RWM simply started paying late and that none of the Cobden Directors complained; so that what Mr Carswell found in operation on his appointment was a regime under which, unknown to him, RWM paid late and which he would have had no reason to question.

[309]Richard confirmed in cross-examination that RWM was enjoying a credit period that was not provided for in the Trading Agreement, and that by 1996 RWM was enjoying 28 days’ credit; he knew that giving credit to RWM was costing SCFF/JHC money because of the need for an increased overdraft. Similarly Matthew acknowledged that in 1997 the Cobden directors had known for some time that RWM was paying SCFF after SCFF had paid the farmers and that that situation continued. He also acknowledged that the terms of the Trading Agreement had not been kept to. There had, however, been no formal variation to the terms of the Trading Agreement so far as concerns credit terms. The evidence establishes that the Cobden Directors were never happy about it and at best simply put up with the situation. They did question the position at board meetings.

[310]When SCFF was incorporated and took over from JHC, the actual terms of trade applied between RWM and JHC (including the 28 days’ credit) were, according to Mr Joffe, transposed to SCFF. Those were the terms applied in practice. CIL says that the Trading Agreement, nonetheless, remained in force in 1996. RWM denies that such is the case, and avers that(i) by 1996 the Trading Agreement had been varied by the conduct and acquiescence of both parties, in particular as to credit terms and

(ii) when SCFF commenced trading, the Trading Agreement was not adopted but SCFF and RWM acted in accordance with its terms as varied. On either case, the terms of trading between SCFF and RWM included those which permitted RWM to act in its own interests. If those were the terms of trading, it is submitted by Mr Joffe that the proper inference to be drawn is that the parties were content with such terms.

[311]It is unrealistic, I consider, to think that the parties intended the relationship between RWM and SCFF to depart from the relationship between RWM and JHC whatever that had become by the time when SCFF took over JHC’s business. The 1996 Shareholders Agreement in relation to SCFF in effect continued seamlessly the 1993 Shareholders Agreement in relation to JHC and the terms of trade between RWM and SCFF were to be the same as those between RWM and JHC. In my judgment, the Trading Agreement applied as between RWM and SCFF in the same way as it applied immediately prior to the transfer of business to JHC. If it had been varied from its original terms (either expressly or as a result of conduct such as acquiescence) in a way which was binding on JHC, then any such variation would likewise be binding on SCFF. But, conversely, if JHC was entitled to enforce any aspects of the Trading Agreement, so too SCFF would be able to enforce them; and if SCFF was entitled to complain about the 28 day credit period (either in relation to the past, or in relation to the future by insisting on reverting to the terms of the Trading Agreement), then SCFF would have had the same rights too.

[312]The Cobden Directors raised the issue of credit terms at the board meetings held on 24 November 1996 and 14 April 1997; and it was again discussed at a "Cost Cutting" meeting on 16 July 1997 and at a further board meeting on 8 September 1997. They were clearly well aware of the problem. Indeed, prior to the first of those meetings, Dixon Walsh (SCFF’s accountants) had written a number of letters to Richard and produced a report which was provided to him under cover of a letter dated 8 November 1996. The report stated that SCFF/JHC had been funding RWM’s credit to Hilton Meats (Retail) Ltd, one of its major customers. Richard’s evidence was that this was not the first time that he realised this. In their letter to Richard dated 15 November 1996, Dixon Walsh provided further explanation about the debt finance provided by SCFF to RWM.

[313]At the meeting on 24 November 1996, the board of SCFF discussed the credit terms extended to RWM. The Cobden Directors knew that SCFF was financing the debt. Richard asked whether anything could be done to improve the situation. It was noted that buying costs had risen considerably and that this would affect the overall debtor figure. Mr Joffe says, correctly, that none of the Cobden directors stated at that meeting that JHC could not continue to extend credit of 28 days to RWM; but neither, I remark, did the RWM Directors who were at the board meeting as directors, representing the interests of SCFF, not as persons negotiating in the interests of RWM. They were not entitled simply to sit back and take the view that this was a matter for the Cobden Directors to fight on behalf of SCFF

[314]The SCFF board decided to review the debtor figures and reconvene to discuss the issues. Richard’s evidence was that the Cobdens simply waited for an answer, but none came. It was obviously convenient for RWM that matters should be left as they were pending further discussion since it was enjoying good credit terms; but as directors of SCFF it was surely incumbent on the RWM Directors to get the matter resolved as soon as possible. However, it appears that no substantive steps were taken to adjust the credit afforded to RWM. Indeed, at the SCFF board meeting on 14 April 1997 Richard noted that the RWM credit remained the same and Robin confirmed that it was 28 days, as it generally was, according to his assertion, across the industry, seeming to imply that that was sufficient justification for accepting that the same terms should apply to the terms of trade between RWM and SCFF. Whether it was sufficient justification would depend on the overall terms of trade, but there was no suggestion or acknowledgment by the RWM Directors that an extended credit period might be reflected in higher killing fees.

[315]During this period it appears that SCFF was paying suppliers in 7 days but was being paid by RWM on average only after 4 weeks. Robin appears to have been willing to improve RWM’s payment schedule if, but only if, RWM could achieve a corresponding improvement from its own suppliers: in other words, any pain relief for SCFF had to be provided from RWM’s own customers and RWM itself was not prepared to bear any part of this particular burden. Robin says that RWM subsequently took the issue up with Hilton Meats (Retail) Ltd, one of its major customers who agreed to pay RWM within three weeks; RWM in turn agreed to pay on the same basis. This payment regime was eventually reflected in the new trading arrangements found in the MoU. As Mr Weatherill correctly observes, there does not appear to be any sign of the RWM Directors considering alternative courses of action to ensure payment by RWM in accordance with the terms of the Trading Agreement.

[316]It is true that the Cobden Directors did not make a great fuss about this in board meetings, for instance by seeking resolutions to press the matter with RWM and for SCFF to take legal action if necessary. But they should not have needed to. The obligation under the Trading Agreement was clear; it had not been formally varied and the longer period of credit had not been informally agreed rather than simply being adopted by RWM. There is no suggestion that the longer credit term was actually in the interests of SCFF. RWM itself was obliged to pay on time; and whatever qualification there may have been to the duties of RWM Directors in the context of the Shareholders Agreement and the Trading Agreement, their duty to act in the best interests of SCFF on this issue was, in my judgment, unqualified.

[317]Robin himself acknowledged in cross-examination that RWM’s obligation under the Trading Agreement was to pay at the same time as SCFF paid its suppliers. RWM’s case is that by some time in 1996, RWM were in fact paying in 28 days; and that SCFF had acquiesced in and become bound by that practice. Robin nonetheless accepted that RWM was paying a few days late even in 1996 and 1997 although I ought to say that I am not clear, having read the transcript of his evidence, whether he meant a few days more than 28 days or a few more days than that which the Trading Agreement provided for. I think he was saying the latter, but I may be wrong. If that is correct, and even if one takes the 14 days credit in practice enjoyed from quite early on as the datum point for payment under the Trading Agreement, the credit which SCFF was obtaining from farmers and markets did not exceed, save in a very rare case, 14 days: it is not easy to see how Robin can say that RWM was only paying a few days late on that basis given that payment was made only after 28 days at best.

[318]In any case, payment even a few days late was significant in financial terms for SCFF. There was a rolling business between RWM and SCFF. If RWM was consistently paying even 3 days late, it meant that something was always owing which should already have been paid and that “something” had to be financed by someone. It was in fact financed by SCFF which therefore had an additional and continuing need for working capital, the result of which was, correspondingly, to reduce RWM’s working capital needs. This was not a case of one or two payments being late.

[319]I have to say that I do find surprising Robin’s answers given in the course of the same part of his cross-examination to questions from Mr Weatherill seeking an explanation about why it was that RWM paid from an early stage only after 14 days and not in accordance with the Trading Agreement. He explained that the reason was because RWM did not know the credit terms which SCFF provided to its suppliers and, indeed, it could not be known what credit terms applied to any particular beast which was, in the event, supplied to RWM. He said that the issue of payment terms was therefore not straightforward. Mr Carswell adopted this explanation as a justification for the process which he inherited and continued, although there is nothing to suggest that he ever discussed it with anyone or that he had even thought about it before this litigation.

[320]Mr Joffe adopts it in his closing submissions. He says that in practical terms it would have been impossible for RWM and JHC to implement the terms of the Trading Agreement, that the credit terms of the suppliers varied from market to market and that it would have been a significant task to match each animal to each invoice. According to him, RWM and JHC therefore operated a credit term of 14 days for the supply of animals. There is, however, no evidence at all that this was ever discussed with the Cobden Directors or raised at any JHC board meeting; there is nothing to suggest that the Cobden Directors ever focused on this deviation from the Trading Agreement or appreciated the financial consequences which it would have on JHC’s cash flow. There is no explanation of how 14 days came to be adopted or even that it was adopted as a fair reflection of the average period of credit which JHC obtained from the farmers and markets. It seems likely to me that the period was adopted because it was the period which RWM itself gave to its main customers thus reducing RWM’s own working capital requirements. Whatever the true explanation, it is impossible to conclude that the Cobden Directors expressly agreed to this change in the terms of trading.

[321]Apart from being surprised by Robin’s explanation for departure from the payment terms set out in the Trading Agreement, I have to confess that I find the explanation difficult to understand. I appreciate that some of the animals purchased by JHC were on its own account and not for RWM. But these were almost exclusively cows for its own cow trade whereas clean cattle were acquired almost exclusively for RWM. Accordingly, whenever JHC paid for clean cattle, the payment was, in nearly all cases, one which would be passed on to RWM. If any particular purchase of clean cattle was wholly for the account of RWM, there would be no doubt what RWM had to pay and when: it would have to pay the full purchase price of the cattle and it would have to pay at the same time as JHC was obliged to pay the farmer or market. I feel sure that there were many, if not the majority of, occasions when a batch of cattle was procured exclusively for RWM, brought to the abattoir, slaughtered and supplied to RWM. In those cases, it is not sensible to think that RWM should not pay in accordance with the Trading Agreement. If JHC were to divert for its own purposes a small number of the cattle initially procured for RWM, meeting the order placed by RWM from another source, no doubt adjustments would have to be made to the price: but that possibility would not justify a wholesale departure from the trading terms, replacing an obligation to reimburse actual payments with an obligation to do so only within 14 days.

[322]If, however, a particular batch of cattle was acquired by JHC partly for RWM and partly for JHC, it might well not be known until actual division after slaughter which animals would go to RWM and which to JHC. Further, if different batches of cattle from different sources with different credit terms were to arrive at the abattoir at around the same time, it might not be clear which animals would actually be provided after slaughter by JHC to meet its orders from RWM. But what is clear is that RWM must pay for the animals which it actually receives. If it becomes clear before the due date for payment by JHC to the farmer or market that a particular animal is one for which RWM will have to pay – for instance because it has actually been delivered to RWM before the date for such payment, or because JHC has already taken the animals which it requires, leaving all of the remainder to satisfy RWM’s order – then there is no reason why RWM should not pay in accordance with the terms of the Trading Agreement.

[323]The only case of difficulty is when carcasses are stored in the meat chiller some (indeed almost certainly most) of which will be delivered to RWM and some (almost certainly a comparatively small proportion) will be taken by JHC. This difficulty, which should arise only comparatively rarely, does not, I think, make the credit terms of the Trading Agreement unworkable or justify RWM in declining to pay other than after 14 days. I see no reason why JHC should not invoice RWM by matching the invoice to payment which it will in due course have to make to its suppliers. If, in the event, RWM is in fact supplied with carcasses from animals other than the ones to which the invoice relates, adjustments will have to be made by way of refund or additional payment depending on the terms of purchase of the actual animal concerned.

[324]I do not believe it to be the case that there was not ultimately a match between the price paid by RWM for a carcass supplied to it and the price paid by SCFF for the animal from which it came. Each animal was acquired for a given price, or a number of animals were purchased together for a given price. It was known at the end of the day what animals had been supplied to JHC and which of those had been slaughtered and supplied to RWM, thus allowing for an appropriate allocation of JHC’s purchase price. Given such a match, I see no difficulty in applying the Trading Agreement as I have indicated.

[325]At a later stage, Robin may have considered it fairer – or at least in tune with the terms which he would be able to obtain from other abattoirs – to have 28 days’ credit, but other abattoirs agreeing to such credit would have been able to negotiate killing fees which reflected that credit period for price of animals whereas as SCFF was bound by the killing fees provided for in the Trading Agreement or otherwise agreed or imposed and which the Cobdens stood no chance of increasing because RWM would not agree. In any case, there is nothing to suggest that the credit terms of other abattoirs had changed since the date of the Trading Agreement; those credit terms do not, therefore, seem to me to be a justification for changing the credit terms as between JHC/SCFF and RWM originally found in the Trading Agreement.

[326]I do not accept the explanation given by Robin which I regard as no more than a lame excuse, invented with the benefit of hindsight. It is not one which had ever seen the light of day until given in cross-examination. It is not one which was given to the SCFF board when the one or other of the Cobdens complained about late payment and the pressure it was putting on SCFF’s overdraft.

[327]I doubt that it could be used to justify a 14 day credit period. But whatever the right answer to that, it would clearly, in my judgment, not justify a 28 day credit period: there was no farmer or market who gave credit of anything like 4 weeks since most farmers gave 7 days maximum and few markets gave more than that. Even Robin now accepts that the normal credit period in markets and from farmers was 7 to 14 days. Moreover, RWM would have known of Tesco’s requirements for 7 day payment to suppliers. Robin’s explanation is, in my view, an after-the-event attempt to justify RWM’s departure from the terms of the Trading Agreement. Moreover, I have no doubt at all that the 28 day payment regime was implemented by RWM for its own benefit without regard to its contractual obligations pursuant to the Trading Agreement.

[328]Mr Carswell, as I have said, has no first-hand knowledge of reasons for the introduction of the 14 day credit period given by JHC to RWM. And for the same reasons as I have given in rejecting Robin’s explanation, I think that he overstates the difficulties involved in abiding by the terms of the Trading Agreement. Since he did not know the terms of the Trading Agreement – he had not seen it before the hearing and did not have it explained to him when he took office or thereafter – he cannot have considered that the 14 day and later the 28 day credit period was a justifiable departure from those terms.

[329]The truth, I consider, is that RWM paid late because it suited it to do so. Indeed, when I asked Robin why RWM was not paying on time, he replied “At that time [a reference to some time in 1996] I don't think we had the cash to do it”, an answer which is consistent with my suspicion that the 14 day period was adopted as a reflection of the credit period which RWM gave its own main suppliers. It is also consistent with what Robin accepted was RWM’s general policy namely to pay its creditors more slowly than its debtors were required to pay.

[330]However, even though I have rejected the explanation for the introduction of the 14 day credit period given by Robin, 14 days credit was in fact initially operated and the 28 days period was in fact subsequently operated; and clearly, there were discussions about the credit period at board meetings. RWM’s case is that 28 day credit period was effectively adopted as the credit period and became binding on SCFF. It is said by Mr Joffe in his closing submissions that this position was reached in the following way:a. The 14 day period of credit had become the accepted period as a result of conduct from 1992 to 1996.

b. The extension to 28 days became binding on JHC. According to Mr Joffe, this is because the Cobden Directors (and CIL) acquiesced in and/or assented to late payment.

c. The 28 day credit period was in operation when SCFF took over JHC’s business and was then adopted by SCFF. SCFF thereby became bound to the 28 day period. Alternatively, a similar case of acquiescence and/or assent is raised.

d. The Cobden Directors did not make substantive complaint at the time and did not bring any proceedings of any kind prior to December 2006.

e. Any matter of complaint was addressed by an agreement made on 18 November 1999, alternatively by the agreement contained in the MoU which recorded the terms of trade between the companies.

[331]In addition, Mr Joffe submits that the Grandactual principle should operate so as to prevent CIL raising a complaint some 6 years after the event, in circumstances where the issues between the parties as to credit terms were resolved for the future by the MoU.

[332]I do not understand Mr Joffe to submit that there was an express agreement assented to by the Cobden Directors or CIL that the credit period should be extended to 28 days, although there is perhaps a hint of that when he says that it appears that in practice, JHC afforded RWM 28 days’ credit. I would in any case reject such a submission. It would be inconsistent with the contemporaneous evidence showing the RWM Directors’ awareness of the Cobden Directors persistent concerns both before and after 1996 about late payment by RWM and the adverse effect it had on its cash position; such an agreement, if made, would have constituted a major variation of the Trading Agreement, and would, as Mr Weatherill says, surely have been referred to somewhere in the contemporaneous documents but it is not.

[333]As to the allegation that in 1996 the terms of the Trading Agreement had been varied by the conduct and acquiescence of JHC, what RWM rely on is a course of conduct which, as its own response to a request for further information explains, arose as follows:

"after 1993 the practice developed of RWM paying [JHC] when RWM was paid by its customers, which was generally 28 days. Both [JHC] and RWM acted on the basis that the credit terms for RWM were 28 days. In particular, [JHC's] invoices were paid by RWM by reference to that period. The Respondents rely on the conduct of RWM in making payments by reference to the credit period of 28 days and the conduct of [JHC] in accepting such payments without demur. [JHC] acquiesced in such conduct by failing to take steps to require earlier payment."

[334]So, here we have an acknowledgement that, from RWM’s perspective, the 28 period was adopted because that was the period of credit afforded by RWM to its own customers; payment after only 28 days must, initially, have been a breach of the terms of the Trading Agreement, a breach of the Shareholders Agreement and a breach of fiduciary duty by the RWM Directors. This is because, until JHC or CIL had become bound by acquiescence or assent to the 28 day credit period, the terms of the Trading Agreement were of full effect as between JHC and RWM; but acquiescence or assent would only arise as the result of a course of conduct over a period of time. Payment after 28 days was self-evidently a breach of the terms of the Trading Agreement (even if one were to accept that 14 days had been adopted by variation as the credit period). It was a breach of the Shareholders Agreement since it can hardly be in accordance with an obligation to enhance and promote the Business for RWM itself to breach the terms of trading which it had agreed; there is no evidence to suggest that it was in the interests of JHC to allow RWM this longer period of credit, for instance because a failure to do so would result in a restriction of RWM’s own trade and less throughput for the abattoir. And it was a breach of fiduciary duty because, even if the RWM Directors’ duties were qualified to the extent that they could act in the interests of RWM, that would not entitle them to sanction on behalf of JHC something which was a breach of the Shareholders Agreement. Nonetheless, RWM now seeks to make a virtue out of the continuing breaches of the Trading Agreement, the Shareholders Agreement and the RWM Directors’ breaches of duty to assert a case based on acquiescence and/or assent.

[335]Mr Weatherill submits that in so far as such consent or acquiescence involves any act of SCFF, it is ineffective. This, according to him, is because such consent or acquiescence would be based on decisions of directors made outside the boardroom and not in accordance with the Articles of Association. As already noted, Mr Weatherill says that a meeting of the directors at which a quorum is present is the appropriate organ to exercise the powers of JHC and SCFF.

[336]He may be right on this but, so it seems to me, it rather misses the point. The real point is that JHC and later SCFF have in fact adopted a course of conduct which, it is said by RWM, all of the directors and, more importantly, all of the shareholders have known about it (in the case of CIL, through Richard, one of its directors) and have allowed it to continue without objection. If a case of acquiescence or assent can be made out as against all of those parties, then it is not easy to see how CIL could now allege unfair prejudice based on the conduct which, on this hypothesis, it has acquiesced in or assented to, or indeed seek to hold the RWM Directors liable for breach of fiduciary duty. Since the Trading Agreement has been superseded by the MoU (as long ago as 2000), it is not necessary to consider whether such acquiescence or assent (if established) has a permanent effect as between SCFF and RWM.

[337]However, in my judgment, a case of acquiescence and accord is not made out. Mr Joffe asserts that the Cobden Directors did not make substantive complaint at the time. But, whether or not there was a formal objection, it is quite clear that the Cobden Directors were very concerned about the credit terms and regarded them as unfair. What, I ask rhetorically, difference would it have made if, at a board meeting, all of the Cobden Directors had expressly objected to payment other than in accordance with the Trading Agreement or even after 14 days? I have little doubt that it would have made no difference at all. In any case, once the MoU was in place, complaints were made although, directed at alleged failures to comply with the payment terms of that document; failures to pay under the Trading Agreement were no doubt regarded as matters of history, at least until this Petition was presented.

[338]It is true, as Mr Joffe also observes, that no formal proceedings were taken until 2006. I am not sure what it is said that the Cobden Directors or CIL should have done. Their attempts to get earlier payment were rebuffed. They could not have procured the commencement of proceedings by SCFF against RWM even if they had tried, since without a shadow of doubt such a suggestion would have been rejected by the RWM Directors. Their only real course of action would have been a petition under section 459 Companies Act 1986. Whether they had advice about the wisdom of such a course of action prior to the advice which leads to the present proceedings, I do not know. I do not think that it would be reasonable to criticise them for not commencing proceedings before they did.

[339]There is a dispute about what happened in mid-November 1999. Mr Joffe submits that, on about 18 November 1999 it was agreed that the period for payment would be 21 days instead of 28 days. This was agreed, he says, at a weekly financial meeting of SCFF. Mr Carswell gave evidence to that effect in his witness statement, but he seems to have relied only on the minutes of the meeting in doing so. Richard’s evidence was that he could not remember what was said or agreed at the meeting. Matthew’s evidence was that these payment terms were imposed on SCFF and that the Cobden Directors did not agree to them, although he appeared to accept that the Cobden Directors did not expressly object. Mr Joffe submits that the better evidence is that the agreement was reached.

[340]Mr Weatherill submits that it is perfectly apparent on any reasonable reading of the minutes of the meeting on 18 November 1999 that it did not signify any agreement amending the terms of the Trading Agreement by formalising RWM’s credit terms at 21 days, but rather constituted an announcement to the effect that RWM would in future pay SCFF no later than 21 days coupled with an aspiration to improve on that in the future. Rather than improving the credit terms to 21 days, it is, according to Mr Weatherill, the strongest possible evidence of RWM’s and the RWM Directors’ certain knowledge that payments to SCFF had been considerably more than “one or two or three days” late; the agreement for which RWM contends depends on a wilful misreading of the minutes in question. He invites me to reject Mr Joffe’s submission, adding for good measure his forensic view that the fact that it is advanced at all speaks volumes for the opportunistic manner in which RWM and its nominee directors attempt to manipulate matters.

[341]What the Minute records, under AOB, is this:

“Payment terms – will move to 21 days with RWM effective next week. Will look at decreasing it further if RWM can reduce its creditors.”

[342]I agree with Mr Weatherill that this can really only be read as a record of what the meeting is being told by someone on behalf of RWM. It no doubt reflects what RWM itself had been able to negotiate with its own customers. But it is no more a binding agreement by SCFF to accept 21 days credit than it was previously bound to accept 28 days.

[343]Accordingly, I conclude that RWM was consistently paying late with the adverse effects which I have recorded on SCFF’s overdraft. This late payment enabled RWM to reduce its own working capital requirements. SCFF did not agree to a variation in the terms of the Trading Agreement. Nor did the course of conduct actually adopted result in SCFF being bound by acquiescence to accept these credit terms for the future. Although the late payment was by a person, RWM, in contractual relations with SCFF, this late payment was, in my judgment, conduct in the affairs of SCFF for the purposes of section 459 Companies Act 1986 and now for the purposes of section 994; the Trading Agreement and the Shareholders Agreement formed part of a single set of arrangements all of which can be regarded as relating to the affairs of SCFF. This conduct amounted, in my judgment, to unfairly prejudicial conduct in the affairs of SCFF.

[344]It does not follow from those conclusions that CIL can now rely on these matters in support of the present petition. In that context, Mr Joffe submits, in essence, that the slate has been wiped clean by the MoU and that an application of Grandactual precludes reliance on any late payment under the Trading Agreement.

[345]It is, of course, the case that the Trading Agreement and the November 1999 agreement, if made at all, were superseded by the MoU. Mr Joffe submits that the MoU thereby “addressed” the complaint about late payment which had been made. I assume that, in using that word, Mr Joffe means that the MoU settled the credit terms for the future and recognised that SCFF would have no claim in respect of the past. Whilst it is clear that it settled the credit terms for the future, I do not think that it precluded any claim which SCFF might have for the past. If it was in fact the case that SCFF had a money claim against RWM before the MoU, there is nothing in the MoU which released that claim.

[346]But that is not the main point for present purposes. The main point is whether CIL, by entering into the MoU, would cease to be able to launch an unfair prejudice petition on the basis of previous late payment. Subject to one qualification, I do not consider that it would have been right for the court to entertain a petition under section 459 Companies Act 1986 after the MoU seeking a share purchase order. By negotiating and sanctioning the MoU, CIL and the Cobden Directors were recognising that their relationship with RWM was to continue. Since the MoU addressed the very subject matter of the complaint – late payment – and regulated the credit terms for the future, I consider that the slate was wiped clean so far as concerned unfair prejudice. CIL could not at the same time(i) agree to continue the trading relationship on renegotiated terms as to credit and

(ii) assert that the relationship should be brought to an end because of prior unfairly prejudicial conduct in relation to breach of earlier credit terms.

[347]Mr Joffe relies on the decision in Grandactual Ltd. He does so as a strand of his argument quite separate from the effect of the MoU. As he points out, any unfairly prejudicial conduct based on breaches of the Trading Agreement relates to conduct which occurred about 6 years before the date of the petition and earlier. Mr Joffe submits that it is far too late to rely on such conduct as unfairly prejudicial conduct for the purposes of section 994. But, as I have already pointed out, what Sir Donald Rattee said in his judgment must be read in the context of the facts of that case. It is one thing for the court to refuse to entertain a petition based on conduct of no direct detriment to the company itself where that conduct took the shape of a one-off event; it is another to refuse to do so where the conduct complained of actually damages the company (as would persistent late payment of amounts owing) and where that conduct was raised as a matter of concern at the time.

[348]It is not, however, necessary or appropriate to consider what the court might be willing to entertain in the absence of the MoU, an issue which could only be addressed on a different set of facts. Rather, I must consider the position in the light of the fact that the parties did enter into the MoU. Against that background, I consider that, even if I am wrong to say that the MoU wipes the slate clean, it was incumbent on CIL to make its position clear promptly and, if necessary, to commence proceedings if it wished to rely on breaches of the Trading Agreement as giving rise to unfairly prejudicial conduct. As in Grandactual Ltd, I do not consider that the court, subject to the same qualification as just mentioned, should entertain CIL’s complaint based on breaches of the Trading Agreement taking place so long before the date of the petition.

[349]The qualification is this. CIL’s case is that RWM has failed to observe the credit terms of the MoU itself and submits that this failure amounts to unfairly prejudicial conduct for the purposes of section 994. In those circumstances, I see no reason why the court should not take account of any late payment under the Trading Agreement to establish, when taken together with a breach of the credit terms of the MoU itself, unfairly prejudicial conduct.

[350]The result, in my judgment, is that breaches of the Trading Agreement cannot be relied on as free-standing matters of unfairly prejudicial conduct. But, taken together with any breaches of the MoU, they can be taken into account to establish unfairly prejudicial conduct. Alternatively, if breaches of the MoU taken by themselves amount to unfairly prejudicial conduct, then breaches of the Trading Agreement can be taken into account in assessing the appropriate remedy.

Petition Paragraph 39(1A): Killing fees £42-£44-£48

[351]The complaint under this heading is that RWM paid a kill fee under the terms of the Trading Agreement of only £42 or £44 at a time when it had previously been paying at £48. It is common ground that a fixed fee had replaced the original terms of the Trading Agreement under which JHC and SCFF retained the by-products (the “5th quarter”) following the BSE crisis and the uncertain market for skins and hides. But there is a dispute about the level at which that fee was first fixed. Thus, in paragraph 11B of the Re-Amended Petition it is pleaded "On a date after the Trading Agreement but before October 1997 Romford Wholesale took and sold the By Products but paid £48 per animal which was the maximum amount which [JHC] could receive."

[352]The background to this dispute is that in about June 1997, killing of clean cattle resumed at Langport. It was recognised by both parties that the previous arrangement under which JHC had kept the offal and hides was no longer suitable and should be replaced. What in fact happened was that it was replaced by a fixed fee: the dispute is about the level of that fixed fee.

[353]SCFF contends (as in paragraph 11B of the Petition as set out above) that the fee was first fixed at £48, being the maximum which could be recovered by SCFF under the Trading Agreement itself, whereas RWM contends that it was agreed that the fixed fee would be £42. If it was agreed at that lower figure, there is an issue of where and when and by whom it was agreed. Whichever was the case, the kill fee was in fact implemented at £44, after a short period at £42, although there seems to be no satisfactory explanation of how this came about.

[354]CIL maintains that the Cobden Directors only learned that the £42 fee had been introduced – as they would say, unilaterally imposed – at about the end of September or the beginning of October 1997, when they say Mr Carswell first informed them. CIL claims the kill fee was reduced to £42 after the refurbishment of the abattoir and then increased to £44 when it should, all along, have been £48. CIL claims that this was a breach of the RWM Directors' fiduciary duties, a breach of the obligation to promote and enhance the Business in the Shareholders Agreement and a breach of the provision requiring all resolutions to be supported by at least one Cobden Director and one RWM Director

[355]Matthew said in cross-examination that, when killing of clean cattle resumed at Langport, Richard agreed with Robin that the kill fee should be £48 and that this was the fee initially paid. The Petition itself, whilst alleging the fact of payment, makes no claim that the figure was agreed between Richard and Robin. RWM alleges that there was no agreement that the fixed kill fee should be £48 and denies that a £48 fee was in fact paid. Rather, it says, there was an agreement between Robin and Richard that the kill fee would be £42. That figure was, it says, increased to £44 following the board meeting which took place on 29 October 1997, and contends that, had the price been fixed in accordance with the Trading Agreement, SCFF would have only received £40 as the price of hides and offal had dropped to below that figure. No evidence of that was produced at the board meeting nor presented to me. RWM also submits that SCFF is debarred by laches and delay in respect of this issue.

[356]Apart from Matthew’s evidence, there is nothing to support the suggestion that Richard agreed a £48 fee. His evidence in cross-examination was that he could not remember whether it was agreed. Matthew has not said when, or in what circumstances, his father told him of this agreement.

[357]The fact of payment or non-payment of this amount at the beginning of the new arrangement would be of assistance in resolving the question. If, in fact, £48 was paid, that would lend support to the existence of an agreement. But if that amount was not paid by RWM at all, it casts doubt on the existence of an agreement (Why, one might ask, would RWM immediately breach it if it had been made?) Further it would show that the evidence of both Matthew and Richard is wrong when they say that £48 was initially paid.

[358]Matthew accepted in evidence that he had not found any documents which supported his case that a fee of £48 was initially paid although he claims that invoices were issued in that amount. None have come to light and the contemporaneous documents show no payment at that rate. The management accounts for June 1997 lend no support to a £48 fee; and the fact that Mr Carswell prepared his projections (see below) mainly on the basis of a £42 fee suggests that that was what was being paid initially.

[359]I find as a fact that there was no express agreement to pay £48 and that payment was not in fact made at that rate.

[360]I turn then to the alleged £42 kill fee. RWM’s case is that a kill fee was agreed at £42 between Richard and Robin. Robin’s evidence on this in his main witness statement was that he would have agreed the figure of £42 with Richard. It needs to be noted, as is common ground, that when killing was being undertaken at Kellows RWM had been paying in total the amount of Kellows’ own killing fee which was £40 and SCFF’s procurement fee which was £8 (although I do not know how that was set). In other words, RWM was having to pay the maximum which it would have had to pay under the Trading Agreement. Robin says this:

“It could be asked why we did not agree £48 since this was the actual amount it was costing us to kill at Kellows (ie £40) and pay SCFF a procurement fee of £8. I never looked at it in this way. At the time you could say that Kellows had us over a barrel and that we paid SCFF a generous procurement fee. When I agreed the £42 fee with Richard he was fully aware that it had been costing us £48 to kill at Kellows but he did not suggest this is what we should pay as indeed now SCFF had us over a barrel. Instead we agreed what the two of us thought was fair as a temporary measure given we needed to agree a new killing fee going forward, since we could not go back to the old system.”

He refers to some Projected Weekly Operating Statements showing the profit that was generated by this killing fee.

[361]Graham refers to the minutes of a board meeting on 8 September 1997. He says that Matthew was very much concerned that the killing fee at that time was £42 whereas prior to the onset of BSE it had been £48. He says this:

“[Matthew] never seemed to fully grasp that the £48 was not set in stone, instead it was the maximum amount that JHCL could retain from the sale of the offal and hides and that depending on the price that could be obtained for these, could go as low as £40. At the meeting I explained to Matthew that if we were to revert to the old method of linking the killing fee to the current price for hides and offal, that this would generate probably the same amount. Instead, the position I took was that it was not simply a question of trying to find what was a commercial killing fee but also one that could generate reasonable profits for SCFF. This was the reason why we had asked Ian Carswell to prepare projections showing what profit could be generated by a variety of kill fees in each case depending on the anticipated throughput.”

[362]Mr Carswell’s projections were produced making various assumptions about overheads and throughput of animals and most of them were based on a kill fee of £42 for clean cattle. These were presented at the reconvened board meeting and it was on this basis that Graham says that “we” (by which I assume he means the entire board rather than the RWM Directors alone) agreed to set the kill fee. Although he cannot recall exactly how or when the kill fee of £44 was arrived at, he says that he clearly remembers paying a kill fee of £44 from that time.

[363]Matthew gave rather different evidence. He says that the fee was originally £48 which was then unilaterally reduced by RWM to £42 and then revised to £44. He says that in October 1997 RWM unilaterally reduced the kill fee from £48 to £42, but accepts this may subsequently have gone up to £44. He says that this reduction was never agreed by the Cobden directors. He says that the Cobdens were not even told in advance that this was going to happen and that he was incensed when he was told. He too refers to the board meetings on 22 October 1997 and 29 October 1997 at which he says that rows took place.

[364]Whilst different individuals may have different recollections about the meetings, what the minutes actually show is as follows:a. Matthew wanted the kill fee to be £48.

b. He identified the biggest problem as “the fall in the kill free from £48 to £42” to which Robin observed that the old agreement had gone and given the fall in the price of offal and hides, the kill fee under the old system would probably be £42.

c. Robin considered that the “kill fee would be determined by the customer”.

d. Robin did not want to incur costs by having a third party arbitrate on what the kill fee should be.

e. No agreement was reached.

[365]Matthew finds it extraordinary that Robin chose to reduce the kill fee at a time when he knew that the bank was losing confidence in SCFF and what effect the reduction would have on its finances. He relies, for example, on the following:a. At a meeting on 16 July 1997, it was noted that “there were some worries that the bank was loosing (sic) confidence in (sic) the company and might withdraw their support”.

b. At a board meeting on 8 September 1997 Robin was “worried that we must keep the Bank happy to avoid the Bank contributing to offset losses” in response to which Matthew pointed out to him that the bank manager “didn’t like RWM credit terms, killing fees and volume”.

c. In a further letter to Mr Newman of Lloyds Bank dated 30 November 1998, again written on Romford Wholesale notepaper, Mr Carswell stated “Southern Counties continues to struggle to meet the anticipated level of profitability” whilst pointing out that “Romford’s results were more or less in line with expectations with the gross margin being maintained”.

[366]Matthew now says that he perceived the Cobden Directors as powerless to do anything about the reduction in the kill fee. He did complain, but “realised that we were fighting a losing battle. I was fearful that Robin might decide to reduce the kill fee even more if I carried on complaining”.

[367]Richard’s evidence was that he did not make any such agreement with Robin. He says that when SCFF resumed slaughtering after the refurbishment of the abattoir in or around May 1997, SCFF continued to charge RWM a kill fee of £48 leaving RWM to have the benefit of the hide and offal. Further, from a starting point of £48, it is Richard’s case that he never agreed a reduction to £42 or £44.

[368]Both Matthew and Richard say that the first that they knew about what they say was a reduction in the kill fee was when Mr Carswell told them of it in September 1997. Mr Carswell did not, according to them, say that Richard and Robin had agreed a reduction in the kill fee: rather, Mr Carswell asked if they knew that Robin had told him to reduce the kill fee a few weeks earlier.

[369]Mr Carswell has no recollection about what happened at the time. In saying that he had no recollection of any discussion which Matthew and Richard say they had with him, he was quite clear that he meant precisely that and not that he knew such a discussion had not taken place.

[370]I am unable to accept that the agreement which Robin alleges he made with Richard was in fact made. I find as a fact that it was not. Even accepting, as I do, that matters were often dealt with informally, it is surprising, to say the least, that such an agreement, even if it had been made orally, would not have been either reduced to writing or at least recorded in writing. It was a matter of importance to SCFF, particularly in the light of the financial pressure which it was under from the bank, a pressure which was well-known to Robin. It is particularly surprising that it was not recorded in writing somewhere; I would have expected that Mr Carswell would have made a note about it if he had been told by Robin that such an agreement had been made. The absence of such a note suggests to me that Robin did not tell Mr Carswell that such an agreement had been made. However, it does appear that Mr Carswell was instructed by Robin in June or July that the fee on resumption of killing clean cattle was to be £42 although he did not say that he had been told that there was an agreement. He did give evidence that a manuscript note made by him on a document would only have been made if he was recording what had been agreed between the Heffers and the Cobdens. He may well have believed that to be the case – for instance, the mere instruction to set the fee at £42 might have been understood by him as resulting from an agreement – but he has not said that he remembers being told.

[371]Robin does not appear to have told Graham that he had made such an agreement. He is not recorded in the minutes of the RWM board meeting on 29 October 1997 as having told the directors of such an agreement. Nor did he mention it to the directors of SCFF itself at the board meeting on 12 September 1997.

[372]Moreover, as a director of SCFF, it is surprising that Robin did not seek the approval of the board to a fundamentally new arrangement replacing the retention of the 5th quarter with a fixed fee, let alone a fee towards the lower end of what the Trading Agreement had previously provided. Clearly, were the proper formalities to be observed, a board resolution would have been necessary in accordance with the Shareholders Agreement. It is all the more surprising given Robin’s low opinion of Richard’s management abilities and therefore, presumably, his view of Richard as a person whom he could not have expected effectively to protect the interests of SCFF. Why he did not discuss the position with Matthew before making the alleged agreement, I cannot imagine.

[373]The kill fee was discussed at board meetings of SCFF on 22 October 1997 and 29 October 1997. Robin was present and took an active part in the discussion. There is nothing in the minutes to suggest that an agreement between Richard and Robin about the killing fee was ever asserted; Matthew and Richard say that it was never mentioned at a board meeting and even Robin himself does not assert to the contrary. Richard says that if Robin had said any such thing, he would have corrected him. On any view, the existence of such an agreement would have been an important matter to relate. It would have provided a complete answer to criticisms that the kill fee had been unilaterally reduced or that it ought to be set at £48. It is, to use Mr Weatherill’s word, astonishing if Robin did not remind Richard of such an agreement if it had been made.

[374]In cross-examination when faced with these oddities, Robin said that this was deliberate on his part because Matthew would have been cross with Richard, who was scared of him. That came as a surprising suggestion to Mr Weatherill (and indeed to me). It had never been made before. There is no evidence whatsoever to support it. I can see it only as an on-the-hoof attempt by Robin to explain the inexplicable. In my judgment, no such agreement was made.

[375]Nor is there anything to suggest that an agreement was made at any of the board meetings which I have mentioned. Indeed, the minutes show that the matter was left over for further consideration.

[376]As regards the subsequent increase from the unilaterally imposed £42 to £44, nobody seems able to say how this came about. The change to £44 is not recorded in the minutes of any board meeting which I have seen. Mr Weatherill suggests that the most likely explanation is that Robin fixed the kill fee on his own as RWM’s final offer describing this as entirely consistent with Robert’s evidence that you have to go with what the customer wants. He may be right but it is speculation. I do not need to resolve that question.

[377]Matthew and Richard say, as I have mentioned, that they first learned that the kill fee had been set at £42 when Mr Carswell informed them sometime in September or October 1997. I make no finding about that. Whether they learned then or knew before, their knowledge is reflected, I think, in the stance being taken by Matthew at the board meetings in October when he quite clearly stated his view that the fee should be £48 and not £42.

[378]It is clear that the fee was actually set at £44 not long after the board meeting on 29 October 1997. Robin cannot recall how that fee came about but rejected any notion that it was imposed by RWM. Richard did not accept that the £44 kill fee was agreed. Matthew initially claimed that he did not know that the fee being paid was £44 until he found some invoices on disclosure, but that has been demonstrated to be wrong. He knew by 11 November 1997 that the fee being paid was £44. Mr Joffe says that the natural thing for Matthew to have done when he discovered the kill fee, if he believed that it had been agreed at £48, would have been to have objected to a £44 kill fee. I do not think that can be correct: Matthew had complained at the board meeting about what he saw as a reduction from £48 to £42 but those complaints got him nowhere; it might then be questioned why he should raise the matter again when he saw £44 being paid. I agree, however, with Mr Joffe to the extent that the absence of any further complaint is at least consistent with an agreement having been reached between Robin and Richard after the meeting that £44 would be paid. But Robin was unable to assert such an agreement; and the failure to complain is equally consistent with a final offer from RWM of £44 which it then implemented without express agreement.

[379]On balance, I conclude that no express agreement was made. However, clearly the £44 was implemented and clearly Matthew knew of that by 11 November 1997; and I think it likely that Richard knew of this too. It is also clear that the Cobden Directors took the matter no further with the £44 fee remaining unchallenged up to the time of the MoU.

[380]I need here to draw attention to the fact that paragraph 39(1)A of the Petition complains about payment of a fee of only £42. Mr Joffe has taken this literally, and reads the Petition as making no complaint about the £44 fee. The complaint articulated in Mr Weatherill’s closing submissions, however, complains as much about the £44 fee as the £42. If Mr Joffe were right on his main submissions, it would make no difference, since he says there was an agreement at £42, superseded by an agreement at £44; if such agreements were made, then clearly CIL would not be able to establish any unfairly prejudicial conduct in SCFF receiving only those fees. But I have decided, as matters of fact, that express agreements were not made, whether at £48, £42 or £44, concluding only that Richard and Matthew knew of the £44 fee from at latest 11 November 1997.

[381]Mr Joffe has not, however, addressed the allegation that the setting of the £44 fee by RWM was also a breach of the RWM Directors' fiduciary duties, a breach of the obligation to promote and enhance the Business in the Shareholders Agreement and a breach of the provision requiring all resolutions to be supported by at least one Cobden Director and one RWM Director. However, I do not think, in the event, that that matters since, in my judgment, the complaints of unfairly prejudicial conduct are not established either in relation to the £42 or the £44.

[382]This is because the foundation of Mr Weatherill’s argument is that the fee was reduced without agreement from an initial fee of £48; it was the effecting of that reduction without agreement which amounts to unfairly prejudicial conduct. My findings of fact, however, remove that foundation since, on those findings, a fee of £48 was not paid in the first place.

[383]CIL has not raised an alternative case that by setting a fee of £42 (or indeed any other fee) rather than £48 that there has been any breach of the Shareholders Agreement or breach of duty. Nor is it suggested that the absence of a board resolution setting the fee at £42 or £44 amounts to unfairly prejudicial conduct absent a reduction from £48.

[384]In these circumstances, the allegation in paragraph 39(1A) of the Petition is not made out.

Petition Paragraphs 39(2) and (7): Diversion of customers and prevention of cow trade

[385]There are a number of complaints which are closely connected and which I propose to take together. They are found in paragraphs 39(2) and (7) of the Petition. The complaints relate principally to the way in which cows were dealt with once they had come back into the food chain. CIL claims that all cows should have been dealt with on a traded basis by SCFF. Such trade could either be with third parties or RWM itself which, it is said, should have acquired cow meat on a traded basis rather than for a kill fee following procurement by SCFF. Examples of the former would include third party customers for bone-in cow carcasses for export or domestic customers such as Somerfield who could have purchased their requirements from SCFF with RWM carrying out the necessary boning and packaging on behalf of SCFF for a fee. The complaints also relate to the alleged diversion of sheep export business to RWM Dorset away from SCFF. There is a more general allegation that all of RWM’s new business should have been placed with SCFF.

[386]CIL claims that the RWM Directors have effectively prevented SCFF from trading in cows or failed to cause SCFF to trade in cows, that RWM has taken the cow trade, that this was a breach of the fiduciary duties which the RWM Directors owed to SCFF and a breach of the obligation to promote and enhance the Business. In this context, CIL’s response describes trading in cows as “procuring, purchasing and slaughtering live cows and selling meat “bone in” or “bone out” depending on the market and also selling the hide, the edible offals and fat.”

[387]The factual background to this allegation, which I take from Mr Joffe’s closing and which I consider to be accurate, includes the following:a. There was no boning facility at Langport until one was built in 1993 and leased to RWM in 1994.

b. Until May 1996 and the introduction of the OTMS which banned cows from being slaughtered and sold for human consumption, JHC sold cow beef bone-in (it did in the latter part of this period sell some cow beef bone-out when restrictions on the export of beef bone-in were introduced, the cow beef being boned out by RWM).

c. In late 2005 the OTMS was relaxed so as to allow cows born after August 1996 to be slaughtered and sold for human consumption;

d. RWM had sold some cow beef prior to May 1996. It had not had cows contract killed because of its customers’ limited requirements for cow beef; such requirements being predominantly for forequarters, and occasionally hindquarters, which RWM purchased from JHC as required.

e. Richard and Matthew were fully aware that the cow forequarters that RWM was purchasing from JHC prior to May 1996 were purchased for the express purpose of boning-out for supply to McKeys.

f. In 2005 RWM’s principal customer, Tesco, agreed to accept cow beef from both the forequarters and hindquarters with the result that RWM now had a requirement for the whole carcass.

g. From 1996 to late 2005, it was not possible to trade in cows owing to the BSE restrictions. The allegation in paragraph 39(7) therefore relates to the period from late 2005 onwards.

[388]In relation to paragraph d. it is interesting to note that the evidence, particularly that from Mr Alexander, establishes, in my view, that pre-1996, RWM did, from time to time, take whole sides as well as hind quarters of cows which had been slaughtered by JHC, and more regularly took cow fores, but this was all on a traded basis and not for a killing fee. There is a dispute of fact about whether this was done (as Matthew says and Mr Alexander’s evidence supports) on a commercial basis to satisfy RWM’s requirements or whether it was done (as Robin and Graham suggest) to take up meat for which JHC had been unable to find a buyer.

[389]I find as a fact that, in every instance when JHC satisfied RWM’s requirements for cow meat, it did so on a traded basis under which RWM placed its orders and paid a negotiated price per pound or kilo. The weight of the evidence suggests that that was because RWM recognised that trading in cows constituted an important aspect of JHC’s business, and (unlike in the case of clean cattle) regarded itself as a customer for that business, much like any other of JHC’s customers. I find that RWM placed firm orders with JHC for its cow meat requirements and paid a full commercial price with only minimal discounts to reflect transportation savings.

[390]Since the definition of trading in cows includes selling meat bone-out, it is necessary to consider how SCFF might have been in a position to sell bone-out meat. It had no boning facility itself at Langport or anywhere else. It is not suggested that SCFF could in practice have had the meat boned other than by RWM – at least, no suggestion has been made that this could have been done let alone in a way which would at the end of the day produce a profit for SCFF and it was not something which the Cobden Directors ever suggested. Accordingly, if SCFF were to trade in bone-out meat to third parties, the boning would have had to be carried out by RWM.

[391]The question then is whether RWM was obliged to carry out any boning for SCFF at a fee; if it was not obliged to do so, it cannot be said that RWM or the RWM Directors have prevented SCFF trading in bone-out meat. It is clear that there is no express obligation on RWM to carry out this service for SCFF at a fee. It is also clear that no such obligation can be implied into the MoU or otherwise into the trading relationship between SCFF and RWM. Such an obligation, if it exists, has to be spelled out of the Shareholders Agreement and in particular the “promote and enhance” obligation.

[392]I have already discussed at length the effect of the Shareholders Agreement and the extent of the obligations which it imposes on RWM in the context where it nominated half the board of SCFF. I consider that two proposition flow from the discussion:a. First, if RWM is obliged to carry out this service at all, it is not obliged to do so at cost: it is permitted to make a reasonable profit. RWM is no more obliged to work for no profit than it was obliged to provide interest-free finance to cover SCFF’s capital requirements.

b. Secondly, RWM is not obliged to carry out this service if, in doing so, there would be an impact on its own legitimate business. There are in turn two aspects of that proposition.

[393]The first aspect is that if RWM is working near to capacity in supplying its customers (assume, for the sake of the argument, its customers for clean cattle), an obligation to divert capacity to boning-out for SCFF could adversely impact on its core business. This is all the more significant if one brings into account legitimate customers of cow meat. For instance, I do not consider that CIL can complain that RWM has procured cow meat for supply to Tesco in the same way that it procures clean cattle with SCFF receiving only a killing fee.

[394]The second aspect is slightly more complex. The complaint which I am addressing at the moment is that SCFF was prevented from trading in cows bone-out and not that RWM itself was trading in cows (a separate matter of complaint about customer diversion). If RWM was entitled to trade in cows, I do not consider that the obligation to promote and enhance the Business requires it to make provision of its own services and facilities to assist what would be a competing business.

[395]These limitations which, in my judgment, must subsist on any obligation on RWM to provide boning services to SCFF suggest strongly to me that there is no such obligation in the first place. In my judgment, the trading relationship between SCFF and RWM was circumscribed by the Trading Agreement and then the MoU. There was no obligation for either party to trade on any other basis, and that includes the boning of cows for SCFF by RWM as much as it applies to the slaughter of cows by SCFF for RWM (something which I have already concluded SCFF is not obliged to do since cows are not within the scope of the MoU). The obligation to promote and enhance the Business does not, in my judgment, oblige RWM to enter into further contractual arrangements with SCFF extending the trading arrangements into a new area, namely boning-out by RWM for a fee.

[396]Although the BSE restrictions precluded trading in cows until late 2005, SCFF had been addressing what may happen when the restrictions ended. For instance, Mr Phelps drew up a “cow strategy” document in mid-2005 and there was discussion of it at the board meeting on 21 July 2005 and of the “Strategy for OTMS into Food Chain”. One of the RWM Directors indicated that they would purchase “manufactured meat” (eg meat from fore-quarters for burgers) and referred to the need for the fieldsmen (the procurers in farms and markets) to be aware of the anticipated demand of 700 to 800 animals per week. This level of demand was RWM’s own requirement for animals in the context of its mainstream business: there is no suggestion that this level of demand was designed to fulfil some other trade, such as the export of bone-in meat. It was thought that there would be a lot of competition for animals; it was important to be in at the beginning otherwise the opportunity to purchase from particular sources might be lost to competitors making it very difficult to get back into the market.

[397]There was no discussion about the basis on which this trade would proceed. Mr Joffe points out that none of the Cobden Directors claimed that SCFF was solely entitled to trade in cows or that SCFF should not contract kill cows for RWM. But equally it can be observed that none of the RWM Directors said the contrary. Further, this was, after all, a board meeting of SCFF and not a negotiating forum for discussion of trading aspects between the two companies.

[398]The parties’ attitudes to SCFF’s trading in cows are shown to some extent from the minutes of SCFF board meetings and from a few other documents. There is, of course, also Matthew’s oral evidence and the acknowledgment from Mr Phelps that Matthew made it quite clear to him in early 2006 that Matthew wanted SCFF to trade in cows and should not be killing cows for RWM for a fee. Mr Joffe has prepared a summary of the relevant contents of the relevant documents, which I have found of assistance. I think that it is accurate and incorporate it verbatim:a. Board meeting 10 February 2006: Matthew is recorded as saying that he thought it would be more profitable trading cow carcasses than having them all boned by RWM, and there was considerable disagreement between the shareholders as to the best options for SCFF in relation to business opportunities for cow carcasses. Matthew is recorded as saying that historically SCFF made around £50 revenue per cow by trading as compared to around £30 by slaughtering. At that moment with no export trade, bone-in trading was more difficult. Graham is recorded as saying that if Matthew thought trading a better option he should do so personally, and was dubious which customers would buy bone-in carcasses because of information obtained from the MLC (Meat and Livestock Commission).

b. Richard’s letter dated 20 February 2006: Richard stated that it was vital to the profitability of SCFF that it trade in cows, and (in response to Graham’s queries as to what customers there would be) that it would not be an insurmountable task to re-acquire the historical customers and new ones; and that a revenue of £50 per cow would result in greater profits than a fixed rate kill fee of £33.

c. Board meeting 24 February 2006: The minutes state that Robert wanted to minute three options relating to the trading of cows, namely Matthew to

(i) personally trade cows, contract killed at SCFF

(ii) to present a better plan for the trading of cows giving a better return than the present option or

(iii) to accept that cows be slaughtered for RWM at the agreed price to give immediate increased revenue to SCFF. Robert went on to say that if there was a better plan than the present one, then the directors were duty bound to consider it. Matthew’s response is recorded as being that he thought that cows were excluded from the current trading arrangements and that they should be treated in an entirely different basis. Cows should not be treated in the same way as steers and heifers and should be generating revenues in excess of £50 per animal. He also stated that he hoped Mr Phelps would be looking for a more enhanced revenue for cows for SCFF.

d. Board meeting 3 March 2006: In response to Mathew’s suggestion that cows should be killed to generate revenue in line with the historic returns, Robin suggested that SCFF start killing a few cows to be traded bone-in, with SCFF retaining the hides and offal etc. He also indicated that RWM had no customers for bone-in carcasses, and that SCFF should find their own customers for bone-in carcasses and not use RWM’s customers. Robin again suggested trading some cows on a bone-in basis to other customers apart from RWM. He also wanted to know how SCFF would price the cow carcasses if they were to be traded bone-in to RWM. Matthew stated they should be priced on a pence per kilo basis and is recorded as saying that he thought that the cow livestock trade was not as difficult as it had been in the past. Robin indicated that RWM would not give a pence per kilo price for cows and therefore would not trade with SCFF on this business. He again suggested that SCFF trade some cows on a trial basis to some external customers. Richard thought that they would like to trade cows when the time was right. He also did not accept that RWM's customers for cows were unconnected with SCFF's old customers for cows. Robin said that he had no problem with SCFF continuing to trade cows with their old customers as long as the trading was profitable. He also said that he thought it was important to be involved in the cow trade from the initial opportunity otherwise the trade could well be lost by the time the export ban was lifted.

e. Board meeting 27 March 2006: Under “costs savings” Matthew reiterated his view as to the revenues to be generated from killing cows and that Graham and Robert should be trading cows as salesmen on behalf of SCFF.

f. On 1 June 2006, Mr Phelps sent to Matthew an agenda for a board meeting on 5 June 2006 attaching an agenda which referred to “European ventures for cows” (it is common ground that the export ban on cows was lifted in about April 2006). By his letter dated 2 June 2006, Richard said that he could not see anything “urgent or pressing” on the draft agenda and that the Cobden Directors had been advised that it was not appropriate to attend the meeting until advice had been received. By his reply dated 7 June 2006, Robin compared Richard’s attitude with his intimation in his letter dated 21 February 2006 that trading in cows was “absolutely vital” for SCFF’s profitability.

g. Board meeting 29 August 2006: Under the item “European cows” the minutes state that Robin intimated to the board that there had been correspondence between the shareholder families on this topic. Matthew reiterated his view that SCFF should be participating in the trading of all cows slaughtered. Once this principal (sic) had been recognised then the source of the sales could be discussed. Robin thought that exporting of bone-in cow meat was a positive move for SCFF. Again there was a strong divergence of opinions on this subject between the family shareholders and further progress could not be achieved despite prolonged discussion. Fundamentally the option to export cows [this is a reference to export by RWM of cows slaughtered by SCFF] was not acceptable to the Cobden family, as they refuted that the current slaughter contract included cows, and covered heifers and steers only.

h. Board meeting 19 February 2007: Matthew stated that the Cobdens wanted to trade in cows and asked what profits RWM derived from cows. Robin asked what Matthew’s plan to trade cows was as he still had not presented this to the board. Matthew replied that he wanted SCFF to trade all cows and that bone-in cow beef sold by RWM should have been trade that SCFF should have undertaken. He wanted to return to the basis of trading between the companies that had existed prior to 1996. There was disagreement as to how profitable this trade had been to SCFF prior to 1996. Matthew stated his view that if RWM wanted to bone out cows they should purchase the FQ’s [forequarters] and HQ’s [hindquarters] from SCFF on a per kilo price basis as had been done prior to 1996. The Heffers asked for figures to back this up, and Robin suggested that SCFF start trading some cows on a per kilo basis and see what profit could be derived. Matthew stated that it had to be all the cows not some cows and felt that RWM had hijacked the lucrative cow trade from SCFF. Robert also suggested that SCFF trade some cows to increase its profitability. Matthew wanted RWM to deal in cows with SCFF on a pence per kilo basis but Graham wanted to know how the pricing of this could be established. There was disagreement as to which basis of trading in cows was best for SCFF. Robin suggested SCFF trade cows with some of SCFF's old customers with Richard and G Alexander acting as the salesmen to see how profitable the trade was. Matthew disagreed and stated that all cows were out-with the inter-company agreement.

[399]CIL’s complaint that SCFF has been prevented from trading cows has been addressed on the basis that it comprises two separate but related complaints, namely(i) RWM prevented SCFF from trading cows to RWM itself; and

(ii) RWM prevented SCFF from trading cows to third parties.

[400]As to the first of those, there are conceptually (at least) two ways in which cows might have been traded with RWM. First, RWM could have taken simply the meat which it required for processing and packaging and onward supply to its own mainstream customers, particularly Tesco. SCFF would then need to dispose of the balance as best it could. Secondly, RWM could take whole carcasses on a traded basis sufficient to allow it to supply its customers with what they required, leaving RWM to dispose of any balance. Whichever way the trade might proceed, it would be necessary to set a price. The argument before me has proceeded largely on the basis that a price-per-kilo would be set; that at least was Matthew’s approach although the Heffers have consistently maintained that the approach has not been properly explained and that, for their part, they do not see how a sensible system could practically be implemented. Be that as it may, I cannot believe that, if SCFF and RWM wished to deal on a traded basis – whether for bits or for whole carcasses - some suitable price-fixing mechanism could not be implemented. It must surely be that meat slaughterers and meat processors who are at arms length actually do deal on such a basis in the commercial market.

[401]Mr Joffe submits that, in order for this allegation to succeed, it must first be established by CIL that RWM had a contractual obligation to take bone-in cow meat which it required from SCFF on a traded basis. I agree with that submission, subject to one qualification to which I will come in a moment when considering the extent of the “promote and enhance” obligation, since, absent any obligation (whether an express obligation or one arising as a result of the “promote and enhance” obligation itself) I do not consider that there can be any unfairly prejudicial conduct of the affairs of SCFF in the failure to achieve trading on that basis in circumstances where RWM had made clear, as it did, that it was not willing to trade on that basis.

[402]It is a different question whether, even if it was not contractually entitled to require RWM to take its cow requirement on a traded basis, SCFF should have been permitted to conduct a cow business with RWM on a contract fee basis. It might be said that if SCFF had taken the (perhaps risky) approach of refusing to contract kill cows, RWM would have been forced to deal on a traded basis; but equally, it might be said in response to that that RWM would then have sought to source its cow requirement elsewhere on a contract-kill fee basis. I return to this aspect later in the context of the different complaint that SCFF should not have been contract-killing either at all or at the fee in fact charged.

[403]Returning to the complaint now under consideration, there is quite clearly no express obligation on RWM to take all or any of its cow meat requirements on a traded basis. Nor can such an obligation be implied into the trading relationship between SCFF and RWM.

[404]The question then is whether the “promote and enhance” obligation requires RWM to fulfil its cow meat requirements by doing so on a traded basis with SCFF. There are two parts to that question: first whether RWM has to fulfil its cow-meat requirements through SCFF at all; and secondly, even if it does not, whether it has to source on a traded basis, rather than on a contract kill basis, such supplies as it in fact decides to procure through SCFF.

[405]Before attempting to answer those questions, I should make clear that, in referring to RWM’s cow meat requirements, I am referring to its requirements for cow meat in the course of activities which, vis a vis SCFF, it is entitled to conduct. But note:a. In this context, it may be that RWM cannot trade in bone-in meat for example for export because to do so would be improperly to divert SCFF’s customers or potential customers in an area of trade which was really that of JHC in 1993. That is an aspect which is a matter of specific complaint and with which I deal separately.

b. In contrast, it is correct, for reasons which I will come to in due course, to conclude that the fulfilment by RWM of bone-out cow-meat orders from its own customers is part of RWM’s legitimate trading activities about which CIL cannot complain.

[406]Returning to the two-part question which I have posed in the context of RWM’s legitimate cow-meat requirements, the answer to the first part of that question is, in my judgment, that RWM does not have to fulfil any of its cow-meat requirements through SCFF. The current trading arrangement found in the MoU circumscribes the trading relationship between RWM and SCFF. I do not consider that the “promote and enhance” obligation requires RWM to enter into trading arrangements which go beyond those agreed. It might, however, be said that the obligations under the Shareholders Agreement must be judged by reference to the state of affairs when it was made in 1996, at which time it was the Trading Agreement which governed and not the MoU. If that is correct, it does not help CIL because the Trading Agreement, unlike the MoU, did cover cows. RWM would have been entitled to source its own legitimate requirements for cow meat, to supply its own customers, from JHC (and later from SCFF) on a contract kill basis. I should add, although it does not arise for consideration on the facts, that if RWM were to source its cow requirement other than through SCFF, it might do so in such a way that impinged detrimentally on SCFF’s own requirements in the course of its own business and that it turn might be a breach of the “promote and enhance” obligation.

[407]The answer to the second part of the question is less straightforward. However, the way I have addressed the first part of the question indicates, in my judgment, the correct approach to the answer to the second part of the question. The starting point (the answer to the first part of the question) is that there is no obligation on RWM to source its cow-meat requirements through SCFF at all. It is then a matter for the joint decision of RWM and SCFF whether they bring cows into their business arrangements and, if they do so, whether they do so on a traded basis or on a contract kill basis. The “promote and enhance” obligation does not, in my judgment, require RWM to agree to a traded basis rather than a contract kill basis any more than it requires RWM to agree to whatever contract kill fee SCFF might put forward. It is a different question whether the RWM Directors should have allowed SCFF to deal on a contract kill basis at all, but that is not the area of complaint which I am presently addressing.

[408]There is one qualification to this. RWM’s obligations to “promote and enhance” the Business envisage an element of good faith. Suppose for instance that, as a matter of commercial reality, the RWM Directors accepted privately that a refusal by SCFF to contract kill would result not in RWM walking away but in agreeing to deal on a traded basis, and suppose that their view was that trading on reasonable and proper terms would be likely to result in a larger profit for SCFF. In those circumstances, not only would RWM be in breach, in my view, of the “promote and enhance” obligation, but the RWM Directors would be in breach of their duties to SCFF. Unfairly prejudicial conduct would be established. The onus would I think, be on CIL to establish the facts which amount to a breach of the “promote and enhance” obligation and a breach of the directors’ duties. I would not accept and do not accept that trading on a contract kill fee basis is to be taken as a breach of contract and duty unless and until the contrary is proved by CIL.

[409]The RWM Directors did not, however, take the view which I have just described – at least there is not a shred of evidence which suggests that they did or from which it could properly be inferred that they did.

[410]Keeping in mind the basis of the present discussion, namely that RWM is entitled to trade with its own customers in bone-out cow meat, CIL could nonetheless argue along the following lines:a. RWM historically took cow beef from JHC on a traded basis.

b. Trading cow beef on a traded basis eg on a pence-per-kilo basis or some other basis would have been for the benefit of SCFF.

c. In refusing to permit SCFF to sell bone-in cow carcasses to RWM, the RWM Directors acted in breach of fiduciary duty and in refusing to deal on a traded basis, RWM itself was in breach of the “promote and enhance” obligation.

[411]As to those factors, it is true that RWM did take some meat on a traded basis. There is a dispute about whether the quantities were properly described as significant or substantial, both Robin and Graham saying that quantities were small; but this meat was often in the form of different joints and not whole carcasses. However, at that time, cows were covered by the Trading Agreement and it would have been open to RWM to source entire cows on the basis of that Agreement. Furthermore, it would not have been open to RWM at that stage to source its requirement for Animals, including cows, elsewhere. I do not, in these circumstances, gain any assistance from what actually took place in deciding what the parties’ rights and obligations then were let alone what they now are.

[412]As to trading being profitable, it is not immediately obvious that SCFF would in fact have been better off with a trading arrangement than a fee arrangement. There are several factors to bear in mind:a. Under the contract kill fee arrangements, RWM must take the whole animal. Once the arrangement moves to a traded basis, there is no reason why RWM should be bound always to contract for a whole animal. Mr Joffe identifies this as a risk to SCFF, the risk of what has been referred to as “carcass balance” that is being left with parts of the animal surplus to requirements which then need to be disposed of, perhaps at a loss. RWM is able to handle carcass balance reasonably efficiently because of the scale of its business and range of its customers. SCFF has, at least at the moment, only one customer which may decide to order, on a traded basis, only part of the animal leaving SCFF to dispose of the rest. I do not consider that it can be seriously maintained that the “promote and enhance” obligation would require RWM not only to deal on a traded basis but also to acquire the entirety of an animal.

b. Under the present arrangement, RWM takes the risk that an animal procured for it by SCFF was sub-standard, not producing meat of a quality acceptable to its supermarket customers. That risk would be transferred to SCFF if cows were dealt with on a traded basis.

c. Robin and Graham say that there would be great difficulty in setting what price RWM should pay. Matthew’s suggestion that Graham should be selling the beef to himself creates, it is said, an unworkable solution. I think this is to overstate the difficulties. I see no reason why, if the parties really wanted to deal with cows on a traded basis, they should not be able to produce a mechanism for doing so, just as they have, according to RWM, agreed all sorts of matters outside the boardroom in the conduct of business.

d. There is the risk to SCFF that it would be able to dispose of meat surplus to its own requirements only at a price less than it had paid. This point is raised by Mr Joffe, but I think that it is really part and parcel of the carcass balance risk.

e. The risk identified in relation to carcass balance is lessened by Mr Joffe’s own case that RWM’s principal need for cow beef is now for whole carcasses for Tesco. It is nonetheless objected that if whole carcasses were offered, there would be many carcasses on which a price could not be agreed. It is said the pence-per-kilo basis on which trading proceeded with JHC only worked because of the very small quantities involved; he may well be right on that and in saying that a price-per-kilo basis would not be practicable in relation to dealings in large numbers of whole carcasses. That is not to say that some other price mechanism could not be devised but there has never been any attempt to do so.

[413]It is a matter of comment by Mr Joffe (a fair comment I would observe) that, given these practical difficulties, the court might have expected some concrete evidence to demonstrate that for SCFF trading cow beef to RWM was likely to more profitable than contract killing for RWM. However no such evidence has been adduced.

[414]What the evidence does show, in my judgment, is that the RWM Directors did not see purchasing cow beef on a pence-per-kilo basis as a workable solution. Matthew himself did not really give a clear explanation of how it would work. If the RWM Directors honestly did not see purchasing cow beef on a pence-per-kilo basis as workable either from SCFF’s viewpoint and indeed possibly causing it loss, then they cannot be criticised for refusing to cause RWM to purchase its requirements for cow beef from SCFF on a pence-per-kilo basis. I find as a fact that they did hold that belief and were honest in doing so in relation to their own requirements for bone-out cow meat.

[415]The RWM Directors did not, however, seek to find for themselves some other solution to the problems which they perceived – or at least now articulate – in assessing a fair payment if the parties dealt on a traded basis. In particular, they do not appear to have addressed the possibility, once it became clear that RWM would require whole carcasses for its Tesco business, of acquiring whole carcasses on a traded basis thus eliminating the carcass balance problem for SCFF. This may have something to do with the fact that they were proceeding on a mistaken view of the MoU. They took the view that the MoU covered cows and would therefore have thought that RWM was entitled to insist on the contractual basis.

[416]Matthew’s position, however, was that RWM should deal on a traded basis and clearly objected to trading on the basis of a killing-fee. Since Matthew had only articulated the price-per-kilo basis, and since the RWM Directors had made the judgment that that basis was not in the commercial interests of SCFF and had not themselves formulated any other basis, they took no steps to reverse, or even question, the steps which Mr Phelps had taken to implement contract killing of cows. Whether allowing contract killing to take place amounts to unfair prejudice is a separate complaint under paragraph 39(4) of the Petition. I deal later with that complaint and the consequences.

[417]At this point, I turn to consider whether RWM was entitled to permit expansion of RWM’s own business and, in particular, to explain my conclusion in paragraph 113 above. It is convenient now to consider cow meat and clean cattle in this context.

[418]I take clean cattle first. Ignoring for the moment the duties of the RWM Directors as directors of SCFF and the consequences of those duties for RWM itself, it is clear, in my judgment, that the Shareholders Agreement does not preclude RWM from expanding its business in the processing and sale of bone-out meat from clean cattle. Whether under the Trading Agreement or the MoU, RWM was entitled to have clean cattle contract killed; and it was clearly entitled to do so in the furtherance of its own bone-out business. I reject the suggestion that the “promote and enhance” provision required RWM to channel any new business (whether expanded business with existing customers or business with new customers) to SCFF.

[419]Further, there can, in my judgment, be no complaint about RWM disposing of any carcass balance in respect of carcasses which it acquired for the purposes of its bone-out business even if such balance is disposed of on a bone-out basis. I need to say a little about Mr Joffe’s explanation of what he describes as RWM’s “Secondary Trade”. It is explained by Graham in his third witness statement. In particular he says, after identifying RWM’s principal customers:

“8…However in the case of all our other customers, we do not kill to meet their requirements specifically but instead they will purchase generally what Hilton Meat (Retail) do not purchase. In this way we achieve what we commonly refer to as “carcass balance”, namely the disposal of the whole carcass. However the sale of the surplus is by no means straightforward because it requires our sales team actively to sell what surplus is available. Thus they have to be in regular contact with our existing customers and also with potentially new customers to ensure that we can sell what surplus is available and what is available week by week will never be the same…we are heavily dependant on the skill and experience of our sales team to ensure that we achieve “carcass balance” at a price which means we make a profit… 10… RWM's trade with those customers it has allegedly acquired after 1993 is essentially a secondary trade of selling surplus meat that has been generated by its primary trade of fulfilling the requirements of its principal customers. If it were not for this primary trade, there would be no secondary trade. There would therefore have been no point in our introducing these new customers to SCFF unless SCFF had established a primary trade in the sale of boneless beef. The secondary trade provides the “carcass balance” that is essential to achieve profitability.”

[420]I accept that evidence. On that footing it can be seen that the disposal of carcass balance is all part and parcel of the trade in bone-out meat to supermarkets and the like. There is nothing, in my judgment, in the Shareholders Agreement which prevents RWM from conducting its business in this way; further, the “promote and enhance” obligation does not require RWM to allow SCFF to take the benefit of the profit (if any) made by RWM in relation to this carcass balance, even assuming that profit on a whole carcass could be apportioned in some way between the bits sold to Tesco and the balance disposed of elsewhere. Whether RWM would be entitled to acquire clean cattle on a contract kill basis with a view to disposing of the whole carcass bone-in is not an issue which, strictly, I need to decide since it is not suggested that this ever occurred. However, I will need to address a similar issue in the context of cows, and the answer may be seen to follow from what I say in respect of that issue.

[421]In my judgment, not only is RWM not prevented by the Shareholders Agreement from expanding its bone-out business in relation to clean cattle, but also it is the case that the RWM Directors were not in breach of any duty to SCFF in permitting it to do so. Further, if there would otherwise be a breach of the self-dealing or no-profit rules, I consider, following the discussion earlier in the judgment, that those rules are qualified to the extent necessary to allow RWM to trade in this way. Those rules (which are the only aspects of the directors’ duties which are of relevance here) are qualified in the circumstances of the present case at least to the extent sufficient to permit RWM to continue and develop its bone-out business in clean cattle, including the secondary trade. Accordingly, RWM was able to acquire clean meat under the MoU and to use that meat in the development of its own business.

[422]The position is the same, in my judgment, in relation to cows. The Trading Agreement included cows as Animals within its scope. Certainly on a literal reading, RWM was entitled to order cows for slaughter and, if it did so, it would clearly be entitled to process them and sell the bone-out meat on to its customers. There would, on this approach, be no question of RWM being in breach of the Shareholders Agreement in doing so; nor could there be any complaint by SCFF or CIL on the basis of the self-dealing and no-profit rules. But even if SCFF could say that the Trading Agreement did not cover cows, that would not help it; on that footing, there would be nothing in it which required RWM to take its requirement for cows from SCFF and nothing to prevent RWM from sourcing cows elsewhere. If it did so, there would be no breach of the Shareholders Agreement and no breach of the Trading Agreement. Nor, in my judgment, would the RWM Directors duties to SCFF extend to requiring them to procure that RWM should not source its cow requirements elsewhere.

[423]Accordingly, if RWM were to source its cow requirements elsewhere, there is nothing to prevent it processing the meat and then supplying it bone-out to its existing or new customers as part of its business. Further, if there was a carcass balance to be disposed of, RWM would be entitled to effect such disposals as it saw fit, as part of its secondary trade, whether bone-in or bone out.

[424]The position is the same, in my judgment, after 2000 when the MoU replaced the Trading Agreement. This is for two reasons. The first is that I do not consider that the replacement of the Trading Agreement by the MoU has any impact on the effect of the Shareholders Agreement. If RWM was entitled to trade in cow meat under the Trading Agreement, and if the RWM Directors’ duties to SCFF were qualified to the extent that allowed RWM to do so without putting them in breach of duty or rendering RWM liable as a result of the self-dealing and no profit rules, then there is nothing to change that position going forward. The second reason is that the MoU does not qualify the nature of the trade which RWM itself can carry out. The “promote and enhance” obligation does not, in my judgment, prevent RWM from sourcing its cow requirement elsewhere so that, once again, it is not the trade in cow meat bone-out (and the secondary trade) which is per se objectionable; it can only be that, having decided to deal with SCFF at all, RWM should have done so only on a traded basis. Further, an argument that SCFF is entitled to the benefit of RWM’s new customers for cow meat and the extension of its business into cow meat with existing customers sits uncomfortably with CIL’s own case. Its principal complaint, after all, is not that RWM acquired cow meat from SCFF but that it did not do so on a traded basis. If it had acquired the meat from SCFF on a traded basis, it would clearly be entitled thereafter to process it and sell it on to its own customers bone-out (again with a valid secondary trade). It is not easy to see how SCFF could, at the same time, claim that RWM’s customers should all along, have been its customers.

[425]My conclusions, therefore, are that, as with clean cattle, RWM is not prevented by the Shareholders Agreement from expanding its bone-out business in relation to cows and that the “promote and enhance” obligation does not require it to divert all such business to SCFF. Thus, if it had acquired cows from a different source, it would have been entitled to trade those cows bone-out and to conduct its secondary trade without any breach of the Shareholders Agreement and without any breach of fiduciary duty on the part of the RWM Directors.

[426]There is, however, this important difference between clean cattle and cows. In relation to clean cattle, SCFF was obliged under the MoU to slaughter on a contract kill fee basis; but that was not so with cows. As I have said, it is a separate issue whether the RWM Directors were in breach of their duties in allowing SCFF to slaughter cows on a contract kill fee basis and, if so, whether RWM itself was in breach of any of its obligations under the Shareholders Agreements. That issue, and the consequences if it is right, are matters I deal with in due course. But if one puts aside that aspect at the moment and accepts that RWM has properly acquired cows on the contractual basis, it follows that there is no further breach of duty or breach of the self-dealing rule or no-profit rule if RWM then trades in the cows including the secondary trade.

[427]In other words, I reach the conclusion that CIL has no complaint that RWM has traded in bone-out cow meat or has carried on its secondary trade, but subject to the propriety of SCFF having been allowed to deal on the contract kill fee basis.

[428]In contrast, if it could be shown that RWM has acquired cows on a contract kill fee basis with the principal view of trading those cows bone-inas part of a free-standing bone-in business eg export trade, then the position is different. In those circumstances, the factors which lead to the conclusion that the RWM Directors’ duties, and the self-dealing and no-profit rules, are qualified in the case of clean cattle do not apply. The RWM Directors would need to consider the opportunities open to SCFF. It may well be that the factors which have led RWM to identify customers for this sort of trade (if it is established in the first place) should have led SCFF also to identify them; indeed, unless they owed duties to RWM preventing the diversion of a business opportunity known only to them in their capacities as directors of RWM, the case for bringing these opportunities to the attention of the SCFF board would appear compelling. There is, however, no evidence so far as I am aware that this has ever occurred. The nearest one gets to it is Graham’s own evidence where he says this:

“As I stated above, the quality of beef from older cattle is not of the same quality as that from younger animals. When a farmer has cows for sale he is reluctant to allow us to purchase only the ones we want and leave him with those that are not of a standard acceptable to our customers. Accordingly if the cows a farmer has available are generally of the required standard, we will purchase all the cows he is offering even though they may include cows that are not of that standard. Initially this meant that there was no point in our boning out those cows that were not of a standard required by our customers and instead we would sell these cows on a bone-in basis either to boning halls in the UK whose customer base were prepared to accept meat of that standard or for export. Until approximately August of this year we were selling perhaps 30-50 cows bone-in per week. However, we found the bone-in business to be highly volatile and consequently we have since August stopped selling cows bone in and instead have developed a new customer base that is prepared to purchase on a bone out basis cow meat that is not acceptable to our established supermarket customer base. . When we were selling bone in cow meat, we were able to export some to Holland, Spain, Denmark and Ireland as a result of the experience we had built up of exporting boneless beef to Europe. However we have not been able to develop France as a market for beef generally and I believe that we exported through Yves Renard probably no more than 60 hindquarters bone in to France since the export ban was lifted. In the other four countries I mention all sales are achieved by us using our own sales persons based at Langport; we do not use agents and we have never supplied Goedegebuur in Holland. In any event our short lived trade in bone-in cow beef is not one that we would have chosen and as it has turned out, was very much a short term solution during which we were able to learn the market of trading in cow beef. Our experience reinforces the views I, Robin and Robert expressed in 2006 that we did not believe that SCFF could re-establish a financially viable trade in bone in cow meat.”

[429]This evidence may perhaps be seen in some respects as self-serving; and Mr Weatherill says that the reason for abandoning bone-in exports was nothing to do with volatility and everything to do with the foot-and-mouth crisis in 2006. As to that, Robin appears to have agreed with Mr Weatherill’s observation.

[430]I am in any case slightly confused by this evidence because, under the MoU (according to the terms of which RWM thought it was operating even in relation to cows), RWM orders from SCFF such cows as it requires for its own trade of bone-in meat; or, if it orders more than that, it must surely do so on the basis that it will be trading whole carcasses bone-in, an opportunity which should at least have been brought to the attention of SCFF. This was not an aspect dealt with in cross-examination. However, whether the cows were bought specifically in an attempt to develop an export trade or because it was necessary to purchase all the cows a particular farmer was selling, I see no reason why SCFF should not at least have been given the opportunity of trading in these cows. Matthew might have taken a very different attitude to trading in these animals in the absence of an acknowledgement that SCFF should trade all of the cows from that which he was taking generally. And even though the RWM Directors did not have a business plan for the development of a cow trade generally, these excess cows could have been traded without difficulty. At least, RWM had no difficulty trading them – in some cases with purchasers who had in the past been customers of JHC – and, in the absence of any contrary evidence, I see no reason to think that SCFF would not have been able to trade them. The trade actually carried out by RWM may not, in the great scheme of things, have been of great significance in terms of numbers; and it may not even have been very profitable. But it was an opportunity which the SCFF board as a whole might have considered it appropriate for SCFF to take and it might have formed a springboard from which SCFF could develop a successful export trade. That is speculation; but the complaint that this opportunity was not brought to the board is not speculation.

[431]Accordingly, I consider that RWM Directors were, in this respect, in breach of their duties as directors of SCFF. For what it is worth, I also think that RWM itself was in breach of the Shareholders Agreement in taking this trade for itself without at least giving SCFF the opportunity to do so. The Shareholders Agreement required RWM to promote and enhance the Business, something which it failed to do by taking for itself trading opportunities which their nominee directors did not bring to the board when they should have done.

[432]Further, I consider that this conduct amounts to unfairly prejudicial conduct in the context of section 994. It is conduct which is unfair in two aspects, since it breaches the obligations under the Shareholders Agreement to promote and enhance the Business and is a breach of the self-dealing and no dealing rules; the RWM Directors should not have allowed it to take place. It is prejudicial, in my judgment, because SCFF has lost the opportunity to make a profit on these transactions and has lost the opportunity to start building a base to re-establish the cow trading which JHC had previously carried on.

[433]Nonetheless, although Matthew regards the failure to trade in cows as of huge importance, his real complaint is that SCFF did not trade with RWM. I think that even he would regard the limited trading described by Graham as far less important, albeit indicative of what he would say is the Heffers’ improper approach to their duties as directors of SCFF. This will have to be taken account of in considering what, if any, relief should be given on the Petition.

[434]I turn now to the complaint that SCFF has been prevented from carrying on a cow-meat trade with third parties. I have already concluded, subject to the qualifications expressed, that CIL has no valid complaint in relation to the expansion of RWM’s business into the sale to its own customers of bone-out cow meat and the secondary trade in the disposal of carcass balance thereby engendered. And I have also dealt with trading by RWM of bone-in meat which was not part of the secondary trade. I now focus, therefore, on the suggestions, first that SCFF has been prevented from trading in cow meat with potential customers with whom RWM itself has not dealt.

[435]There is no doubt that Matthew made clear the Cobden Directors’ wish that SCFF should trade in cows. A constant refrain from him was that the cow trade previously belonged to JHC; that it only came to an end because of the BSE crisis and that SCFF had, either itself or through its subsidiary SCS, carried out the cull which was what replaced the cow trade while cows were not allowed into the human food chain. But having said that, this is one of those areas where Matthew has displayed the obstinate side of his character. He has refused to contemplate any cow trading – for instance, export trades to test the market – unless the RWM Directors recognised SCFF’s right to all of the cow trade and, in particular, to deal with RWM on a traded basis rather than a contract kill basis. He was adamant that under no circumstances should SCFF be contract killing for RWM; Mr Joffe put a number of scenarios to him which involved some contract killing but he rejected each scenario as permissible.

[436]He has also refused, or at least failed, to produce any business plans for reviving the cow trade and in particular the export trade. The RWM Directors have regularly expressed willingness to consider trading cows but wanted Matthew to produce a business plan. He for his part has regarded that suggestion as a tactical device by the RWM Directors to delay any action. He says that it is and always was obvious that cow trading would be profitable and it was unnecessary to produce a business plan to show that to be the case. The truth is shown, CIL would say, by the fact that RWM itself commenced trading in cows; the RWM Directors therefore knew that it would make commercial sense for SCFF to trade in cows and did not need a business plan to proceed.

[437]Moreover, CIL says that it was in any event incumbent on the RWM Directors as much as the Cobden Directors to investigate for themselves the merits of cow trading: they could not simply throw the burden onto the Cobden Directors, especially in the light of RWM’s own activities in cow trading. Indeed, CIL seems to go further and appears to suggest that since RWM traded in cows bone-out, the RWM Directors would be better able to produce a business plan regarding the cow trade and yet still insisted on the Cobden Directors providing a business plan. I do not consider that CIL can seriously suggest that the RWM Directors somehow had a greater responsibility than the Cobden Directors to produce a business plan. After all, the Cobdens were claiming to have run successfully JHC’s cow trading business and were asserting that the commercial case for trading in cows was “unanswerable”. If so, it should have been straightforward to produce the unanswerable case. In a situation such as that, the Cobden Directors, acting in the interests of SCFF as they saw it, were surely under a duty, as directors, at least to put before their doubting fellow directors the case for the action they wished to see taken.

[438]I should enlarge on some of these issues. As I have said, Matthew refused to allow SCFF to undertake trial cow trades while SCFF was contract killing for RWM. When the question of SCFF trading in cows to third parties first arose, the RWM Directors took the position that the fact that SCFF was contract killing for RWM did not mean it could not trade in cows if Matthew could show that trading in cows would be profitable: that was Graham’s evidence, it seems sensible and I accept it. Matthew’s position, however was that SCFF had made £50 per cow historically by trading; but Graham was dubious about who the customers would be for bone-in carcasses. It is common ground that the Heffers wanted to know who the customers would be; and it is the case, I find as a fact, that RWM itself had no customers of its own for bone-in carcasses nor any experience of selling bone-in carcasses

[439]At the board meeting on 24 February 2006, the options minuted included one for Matthew to present a better plan for the trading of cows giving a better return than the present option or Matthew to accept that cows be slaughtered at the agreed price to give immediate increased revenue. This seems to me to have been a perfectly reasonable line for the RWM Directors to take: even if Matthew was right to say that SCFF should be entitled to deal in cows on a traded basis, he as a director would have to consider (and probably agree to) contract killing if that was in fact more profitable for SCFF.

[440]Matthew clearly considers that the RWM Directors were acting unreasonably or disingenuously in asking for a business plan. But is seems to me perfectly reasonable that the RWM Directors should understand why it was said that the case for trading in cows with third parties was compelling. Graham explains, an explanation which I accept, why the RWM Directors wanted to see a plan. The cow trade had not been carried on for 10 years; if SCFF were to establish a new trade in this line, investment would be required and the costs implications needed to be considered; the RWM Directors had no idea about the profitability of the trade or who the anticipated customers might be; and it would be necessary to know how the whole carcass was going to be disposed of (particularly, he adds, since Key Meats, according to Matthew the “jewel in the crown” which took cow forequarters from JHC, no longer existed and McKeys took no cow meat). Further, there was at that time nothing put before the board to show how a gross profit in excess of £50 per cow would be achieved. The figures on which Matthew relied were in respect of trades several years earlier; conditions had changed significantly.

[441]Importantly, the RWM Directors did not know who the third-party customers for cow meat would be. It is a matter of comment that the Cobden Directors have not made any contact with old JHC customers to see what interest they might have had in recommencing trading, even in the case of the connections of friendship with Yves Renard and Godegebuur. Matthew accepted in cross-examination that he did not know at the time what the profitability would be; he was simply adamant that the cow trading should be carried out by SCFF and even considered that the profit might be higher. But, to put the position bluntly, he presented nothing to the board to justify his approach; the RWM Directors were presented only with assertion.

[442]Mr Joffe acknowledges that the RWM Directors might have been more accommodating by offering to assist Matthew in drawing up a business plan. It was not something he ever asked for help with, his stance being that one was not needed.

[443]However, even in the absence of a business plan, it was suggested by Robin at the board meeting on 3 March 2006 that a trial load be undertaken. Matthew acknowledged in cross-examination that a trial load would have produced profits. There is no reason to think that he would not have held that view at the time; but he refused to allow it to happen. And the principal reason for this refusal was Matthew’s objection in principle, which, in agreement with Mr Joffe’s submission, I consider had no sensible or commercial rationale.

[444]Richard’s position in this must not be overlooked in terms of what the RWM Directors might have considered to be the attitude of the Cobden Directors as a whole – indeed, given that it was Richard and not Matthew who was a director of CIL, Richard’s attitude is of added importance. At the board meeting on 3 March 2006, Richard said that he thought that they, the Cobden Directors, would like to trade cows when the time was right, but that they needed more time to look into potential customers for bone-in carcasses. And in his letter dated 2 June 2006 it is fair to say that he gave the impression that he did not consider cow trading was an urgent or pressing matter.

[445]Nonetheless, at the board meeting on 29 August 2006, Matthew again reiterated his view that SCFF should be participating in the trading of all cows slaughtered; once the principle had been recognised, then the source of sales could be discussed. Mr Joffe says that, at this meeting it is clear that it was the Cobden family, not the Heffers, who were the ones opposing the export of cows. That is not a true reflection of the position. The minute records that Robin thought that exporting bone-in meat was a positive move for SCFF; it also records that the option to export cows was not acceptable to the Cobden family as they refuted that the current slaughter contract included cows. Mr Joffe appears to think that this minute is referring to export of bone-in cow meat by SCFF. But that is not the case; Robin was referring to export of bone-in cow meat by RWM which had acquired the meat in the first place as a result of the contract killing by SCFF. The only benefit which SCFF would receive would be the possibility of an increased throughput as a result of such exports increasing RWM’s own requirement for meat.

[446]There was another board meeting on 19 February 2007. Robin asked again what plan Matthew had to trade in cows. Matthew neither presented any written information showing that the business could be viable, nor attempted to explain how he saw the business working. Instead, he repeatedly asserted that JHC had previously successfully traded in cows.

[447]Again, Mr Joffe seems to accept that the Heffers could have been more helpful. For instance, RWM accepts that it sold some carcasses, a matter which I will consider in more detail in addressing customer diversion: the RWM Directors could have been more helpful in explaining to which customers they had managed to sell those carcasses. But, RWM submits, in the context of Matthew’s proposed trade of 1,000 cows a week those customers would be very small beer.

[448]At the same meeting, Robin again made the suggestion of a trial load. Matthew’s response is recorded as “MC stated that it had to be all the cows not some cows and felt that RWM had hijacked the lucrative cow trade from SCFF”. That, however, was no justification for not having a trial load if that was in the interests of SCFF.

[449]In these circumstances, I do not consider that the RWM Directors can be held responsible for the absence of any trading in cows by SCFF with third parties. Even less so can it be said that the affairs of SCFF have, in this respect, been carried on in a manner unfairly prejudicial to CIL. These conclusions are, however, subject to one important qualification. If, as CIL says but RWM denies, RWM has supplied cow meat to customers when RWM, acting in accordance with the Shareholders Agreement, and the RWM Directors, acting in accordance with their duties, should have procured SCFF to supply, then it can be said that such diversion of trade has prevented SCFF effecting those supplies. To that extent, RWM and the RWM Directors would be responsible for the absence of trading; and such conduct may very well amount to unfairly prejudicial conduct.

[450]I must, at this point, say that I have not overlooked Mr Weatherill’s criticisms of certain evidence which Robin gave. Mr Joffe relies on Robin’s evidence in cross-examination where he stated clearly that he wanted SCFF to trade in cows and that it should be doing so, and that he did not resist it; that it was the Cobdens who would not do so and resisted trading in cows, and that the Cobdens had no intention of killing cows. I found that evidence surprising when it was given and find it surprising now. There is nothing to suggest that Robin ever wanted SCFF to trade in cows. At most he could say that he would want it to do so if it were more profitable than contract killing and if he were satisfied, as the result of a business plan from Matthew, that it would be more profitable. He certainly never had a subsisting wish that SCFF should without more get on with cow trading except for the trial runs which he suggested.

[451]The next aspect of this part of the case relates to sheep. CIL claims that one or more of the RWM Directors have failed to cause SCFF to trade in sheep for export and that RWM Dorset has taken SCFF’s customers and diverted them to its own business. As I understand the way this allegation is put, it is said that RWM Dorset has taken trade which should have belonged to SCFF; and that in consequence of that, there has been a failure to cause SCFF to trade in sheep. I do not understand it to be suggested that, if RWM Dorset was entitled to trade in the way it did, that there has nonetheless been a failure by the RWM Directors to procure SCFF to trade in sheep (presumably with different customers).

[452]It is common ground that SCFF had traded in sheep exports at one time, latterly through its subsidiary Southern Counties Export Ltd. Mr Weatherill says in his closing submissions that this continued until about 1999, but Mr Joffe says that this business came to an end at the end of September 1998. Graham’s evidence was to the effect that it came to end in early 1999 but the accounts for SCE show that it ceased trading on 30 September 1998. I do not think that anything turns on the precise date.

[453]This lamb export business came about in the following way. In 1997 when the Langport Abattoir was refurbished, the opportunity was taken to add a separate lamb killing line. Graham discussed with Richard the possibility of exporting lamb; JHC had previously exported lamb, according to Mr Joffe only in small quantities but according to Mr Weatherill in a substantial way. In the event, SCFF established a separate subsidiary, Southern Counties Export Limited for the export of lamb to Europe. Richard, together with an employee recruited for the purpose, Mr Tony Dunnage, ran this business. They sold lamb principally to customers introduced by Tony Dunnage.

[454]The circumstances of the closure of SCFF’s business are not clear; all the Cobdens know is that Mr Dunnage’s services were dispensed with and the entire export operation was undertaken by RWM Dorset Matthew’s evidence was that the Cobdens do not know why it ceased trading and that it was not Richard who was responsible for the closure. At the time, the only directors were Richard and Graham. If Richard was not responsible for the closure, as I hold to be the case, the formal decision must have come from Graham, although in practice I think that Robert is likely to have been involved in moving the export trade to Yetminster.

[455]Matthew’s evidence is that the Cobdens have never asked for SCFF to resurrect the lamb export business because Robin had always told them that RWM Dorset lost money from it. Robin does not remember any such conversation and given that RWM Dorset has been generally profitable (apart from the problems associated with the loss of the Safeway business) he cannot imagine why he would have said it. I do not need to resolve this dispute of fact for reasons which will appear.

[456]It is apparent that RWM Dorset’s export trade is now both significant in terms of volume and profitability. It has been built up by RWM Dorset since 1998. It is also apparent that both Richard and Matthew were aware that this export business was being carried on. That at least is what Robin says in his witness statement. It is confirmed by this example: it seems that for a while both SCE and RWM Dorset were exporting lambs; in his cross-examination, Matthew related how loads comprising lambs from both Langport and Yetminster would be put into lorries for distribution amongst customers in France, something which he clearly knew about at the time. Richard agreed that he knew about that. It is even the case that Richard has ordered lambs for RWM Dorset which he knew were destined for the export market. Further, Richard has at all material times been a director of RWM Dorset with access to the accounts from which he would have been able to see the export trade.

[457]Moreover, as I think is apparent from what Matthew said, once the Cobdens had invested in RWM Dorset, it did not matter much whether the lamb export trade was carried on by SCFF (or SCE) or by RWM Dorset. Even after the Cobdens had to make their substantial exit from RWM Dorset, the lamb export trade continued to be carried on by RWM Dorset. It was not until amendments to the Petition that it was first suggested that this trade really belonged to SCFF/SCE and that the RWM Directors were in breach of duty in allowing it to pass to RWM Dorset.

[458]Mr Weatherill submits that the obligation to promote and enhance SCFF’s business ought to have resulted in the opportunity to export lambs being afforded to SCFF instead of being undertaken by RWM Dorset. RWM, he submits, breached its obligations under the Shareholders Agreement to promote and enhance the Business, and the RWM Directors breached their fiduciary duties by allowing a business opportunity which (as they must have known) could have been undertaken by SCFF to be taken instead by RWM Dorset, in which they were interested.

[459]When asked in cross-examination why this business was being done through RWM Dorset rather than by SCFF Robin said he didn’t know, which would rather indicate that he at least gave no consideration at all to whether this business should be being carried on by SCFF. Robert acknowledged that the possibility of SCFF resuming its export trade rather than it being done by RWM Dorset was never considered at the time.

[460]I have found this a difficult issue to resolve. My conclusions are these. First, it was one or more of the RWM Directors who were responsible for the closure of SCE’s lamb export trade and the subsequent adoption of all of the business by RWM Dorset. Secondly, Richard and Matthew were both well aware(i) that prior to the closure of SCE’s business, RWM Dorset was conducting a parallel trade in lamb export and

(ii) that after the closure, RWM Dorset conducted all of that trade. Thirdly, no complaint was made about this either prior to the Cobden family’s exit from RWM Dorset (when, in broad terms, it made little difference to them which company carried out the trade) or thereafter (when it would have made a considerable difference to SCFF’s position). Fourthly, by the time of that exit, RWM Dorset had been carrying on the export trade for some time. Fifthly, the point was not raised in the negotiations in 2000 which resulted in that exit and in the MoU. In these circumstances it is not open, in my judgment, for CIL to raise a complaint of unfairly prejudicial conduct based on diversion of SCE’s trade nor to raise a case of breach of duty or breach of the self-dealing rule or the no-profit rule based on the same material. It is simply too late to do so. The matter should have been raised, at latest, as part of the negotiations in 2000 when the change in shareholdings meant that the value of the lamb export trade would have been of real importance if it was of any value. CIL should not be entitled, having taken no action then, now to claim the benefit of the business built up by RWM Dorset.

[461]This, in my judgment, is so, whether or not Robin had (wrongly) told Richard that the lamb export trade was not profitable. But in case it should be important, I state that I am not satisfied that Robin ever did say such a thing. He does not remember doing so; Matthew can give only hearsay evidence from his father about what Robin told Richard; and when Richard himself gave his own answers in cross-examination it was one of the occasions, I am afraid, where he appeared to me to be giving the answer which he knew was needed – and may even have persuaded himself was correct – but of which he had no real memory. It is also worth noting that none of this was ever raised in a board meeting, at least there is not a hint of any discussion about this in any board minute; I would have expected something to have been said at a board meeting if it had ever crossed the minds of any of the Cobden Directors that the lamb export trade belonged to SCFF/SCE but that it not being pursued because of the understanding given by Robin that the trade was not profitable.

Petition Paragraph 39(3): Late payment under the MOU

[462]CIL claims that RWM always paid late under the MoU. Under the terms of this agreement RWM was obliged to pay SCFF at the end of the third week following the week to which the relevant invoice related, in practice the week of delivery of the carcass by SCFF to RWM. It does seem that there was late payment.

[463]Mr Fisher, an accountant who gave evidence of fact for CIL, has carried out a detailed analysis of payments made. According to him, RWM was very regularly 3 to 7 days late in paying, and often 8 to 13 days late, and regularly more than that on the ROMMEA account (that is, the account between RWM to SCFF relating to livestock and related purchases and slaughter fees), hardly ever paying on time, and more usually weeks and months late, in paying on the ROMGEN account (that is, the general account between RWM and SCFF relating to other payments such as service charges). The schedules which he produces, were prepared from the accounting records of SCFF provided to him. I do not understand there to be any dispute about the data.

[464]Mr Grantham, an expert instructed by RWM, agreed that RWM failed to adhere to the credit terms provided for in the MoU. The principal dispute between Mr Fisher and Mr Grantham was over the quantification of the cost to SCFF of these late payments, effectively financing RWM’s working capital requirements. The differences between Mr Fisher and Mr Grantham relate to the periods over which interest should be notionally charged and the rates at which it should be charged.

[465]As to interest on late payment of debtors, Mr Fisher estimated the interest cost at £1,393,000. Even Mr Grantham, adopting different interest rates, puts the loss to the Company at £267,000. These figures relate not only to RWM but also to RWM Dorset; and they also relate to the period from 1997 to 2000. In contrast, the Petition relates only to late payment under the MoU. If one extracts from those totals the figures on ROMMEA and ROMGEN from the date of the MoU, they are £588,503 (Mr Fisher) and £170,711 (Mr Grantham). The figures for 1997 to 2000 are £611,175 (Mr Fisher) and £143,119 (Mr Grantham). The RWM Dorset debt comprises two parts: procurement, haulage and lamb slaughter fees; and on-sale of lamb units. The figures for the former are £43,275 (Mr Fisher) and £14,868 (Mr Grantham) and for the latter are £747,510 (Mr Fisher) and £53,988 (Mr Grantham).

[466]One cause of delay in payment (both before and after the MoU) was the office procedure adopted. The evidence establishes that there was one accounts department for RWM, RWM Dorset and SCFF working out of the same office at Langport. It had six employees, five of whom were employed by RWM. Mr Carswell managed the accounts department; he was paid in part by SCFF and part by RWM. The Cobden Directors were all executive directors of SCFF but none of their responsibilities involved managing the accounts department in any way. I am satisfied that the RWM Directors, and Robin in particular, had the dominant influence over the activities in the accounts department, a factor which Robin no doubt considered justified SCFF’s accounts being consolidated with those of the RWM Food Group as they were.

[467]The procedure for payment to SCFF after the MoU in relation to cattle purchases can summarised as follows:a. Invoices raised by SCFF are passed across the shared office to a member of RWM’s financial team.

b. Mr Carswell manages both SCFF’s and RWM’s financial operations, and was in overall charge of the procedure for payment.

c. Although Robin repeatedly suggested that a primary reason for late payment lay in the late delivery of invoices by SCFF making it impossible for RWM to pay on time, I reject that suggestion. The invoices together with cheques for signature may have arrived with him at a late stage, but that was not due to any shortcoming on the part of SCFF. There is no evidence that SCFF’s invoices were raised, and passed across to RWM, too late to enable payment to be made on the due dates. Indeed, the evidence is quite to the contrary. Had the cheques been issued for signature shortly after delivery of invoice, there would have been plenty of time for those cheques to be in the hands of RWM’s financial team for delivery to SCFF in a timely manner.

d. There were the following features of the procedure correctly, in my judgment, identified by Mr Weatherill: i. The RWM Directors were not provided with cheques (with invoices attached) to pay SCFF until the Friday of the week in which payment was due. ii. Bank runs to bank cheques were made at lunchtimes, including on Fridays, with the consequence that signed cheques received by SCFF after that time would only be banked on the following business day (which, in the case of cheques received after the bank run on Fridays, meant the following Monday). iii. Whether cheques presented for signature by RWM directors were actually signed on Fridays, and if so whether signed before or after the bank run, depended on the availability of the signatories on that day. iv. There were occasions when late payment was caused by the signatory not being in the office on days when cheques were presented to him for signing. v. In the case of payments due by RWM Dorset to SCFF there was added potential for delay because after being signed by a Cobden Director, RWM Dorset cheques would then have to be sent over to Yetminster for signing by Robert (and presumably needed to be brought back to Langport for the next bank run). vi. Robin never suggested or directed Mr Carswell (wearing his hat as RWM’s employee) to ensure that cheques (with attached invoices) were provided for signature a day or two earlier in order to ensure that they were signed in time to catch the Friday bank run. vii. Nor did he suggest or direct (and it did not occur to Mr Carswell) that the cheque runs on Fridays be delayed until all the cheques were received. viii. The bank’s practice was to credit SCFF’s account and debit RWM’s and RWM Dorset’s accounts on the day when the cheques were presented for payment. ix. It follows that the process which resulted in cheques signed on Fridays regularly missing the bank run and being presented for payment on the following working day had the effect of extending RWM’s and RWM Dorset’s credit by three days, to their significant advantage and to SCFF’s disadvantage.

e. Mr Weatherill adds that neither Robin nor Mr Carswell informed the Cobden Directors of this difficulty in order that they might be able to do something about it, and so the Cobden Directors were powerless to speed up the system of payment. I will need to examine that assertion further in a moment

[468]Mr Joffe has made detailed submissions about these alleged late payments. He accepts, I think, that the procedure for payment is as I have indicated above and he accepts that this has resulted in late payment from time to time. He says that this was not deliberate but occurred because payment was made by cheque and signatories were not always available. However, in relation to that he makes what is to my mind a rather surprising observation namely that “These late payments should, however, be viewed in the context that SCFF is itself not paying farmers in 7 days, but taking considerably longer, on Mr Carswell’s analysis, an average of 22.7 days”.

[469]Mr Carswell explains in his witness statement that, contrary to CIL’s case, farmers are not in general paid within 7 days; rather, he receives his cheque within 14 to 18 days and, by the time it is banked, SCFF’s account is drawn-down only within 22.7 days on average. On that basis, Mr Joffe submits that the relevant date by which to judge whether the late payment is prejudicial or unfair is the date upon which the payment to the farmers is debited from SCFF’s bank account; such, he says, were the actual terms of credit allowed to SCFF by the farmers (as opposed to 7 days).

[470]None of that, however, detracts from the facts(a) that the farmer’s own stated credit terms may well be 7 days (particularly in relation to purchases from markets) and

(b) that RWM’s own credit entitlement is unrelated to the time when SCFF actually pays the farmer or SCFF’s credit terms with the farmer. I can see no reason at all why RWM should be able to take advantage of any benefit which SCFF might obtain from late payment of its own suppliers. SCFF was at all material times running a significant overdraft at the bank, an overdraft which would have been less for 3 days per week if RWM’s payments had been credited in the bank on Friday rather than after the weekend. Accordingly, I reject Mr Joffe’s submission and conclude that the correct time to judge whether late payment is unfair or prejudicial is the due time for payment. I am sure that the Heffers would take the same view as myself if one of RWM’s customers attempted to justify late payment by reference to the fact that RWM was itself paying SCFF late.

[471]These late payments do, however, need to be judged against a rather fuller picture than that presented by Mr Weatherill. It appears that the Cobden Directors knew about late payment a few weeks after the MoU came into effect.

[472]That is confirmed by evidence suggesting that the Cobden Directors kept themselves informed about SCFF’s cash position. Matthew gave evidence that he received weekly management accounts for SCFF from Mr Carswell by hand prior to about 2001-2002 and that thereafter he received them by e-mail when he asked for them. Similarly, Matthew said that he received monthly management accounts (although not regularly) and aged debtor lists (quite rarely) and that he was never refused access to them if he asked; nor for that matter was he ever refused access to Mr Carswell’s office. Richard was aware of SCFF’s bank position throughout. Mr Phelps’ evidence, which I accept, was that Richard would monitor anything to do with the bank balance with Mr Carswell.

[473]Matthew also accepted that he had asked Mr Carswell to prepare information reports on late payments; and Mr Carswell’s own evidence, which I also accept, was that Matthew quite often requested an aged debtor analysis. Mr Carswell produced a number of debtor reports for the Cobden Directors. Accordingly, Mr Joffe submits that the Cobden Directors were fully aware of the time taken by RWM and RWM Dorset to pay sums owed to SCFF. I think that he is right to say that, although how much can be gleaned from management accounts depends, of course, on what they show; I have not, I am relieved to say, been taken to the details of these accounts and, not having been taken to any of them even by way of example, I do not rely on them in reaching my conclusion.

[474]Part of the late payment problem arose, of course, from the fact that payment was made by cheque. One obvious solution would have been to move to payment by BACS, something which was indeed suggested either by Robin or Mr Phelps. However, Richard accepted in his evidence that he objected to moving from cheque payment to BACs, because he thought that where payment was by cheque, it was easier to notice mistakes. He remembered telling Mr Phelps that RWM was not delivering cheques on time, but he could not recall whether he asked Mr Phelps to deal with it. Mr Phelps gave evidence that Richard told him not to worry about the cheque payments because he, Richard, would deal with it. That was not challenged in cross-examination. I accept Mr Phelps’ evidence on that. For his part, Matthew never asked Mr Carswell about the scheme applied by SCFF for paying-in cheques and made no effort to investigate it, even though he knew that RWM was paying late.

[475]Although the cheque payment system accounts for part of the delays experienced, the analysis of the inter-company accounts by Mr Fisher and Mr Grantham shows significant delays in some cases which cannot be explained in that way: see the delay periods mentioned in paragraph 463above.

[476]What Mr Joffe says about the Cobden Directors must be true also of the RWM Directors. I am sure that they appreciated as much as the Cobden Directors that RWM was from time to time paying for cattle later than provided for by the MoU. They acknowledge that they were aware of RWM’s obligations to make payments to SCFF, saying that that is why they had set up a system within the accounts department intended to ensure that a cheque was signed and delivered on the due date. But that system seems to have been “not fit for purpose” in that respect. It seems to me that, if blame is to be apportioned between the directors, the responsibility lay with the RWM Directors and Mr Carswell rather than with the Cobden Directors. The RWM Directors were, after all, directors of RWM as well and could have ensured delivery of cheques in good time thus ensuring that RWM would comply with its obligation to promote and enhance the Business.

[477]The RWM Directors not only knew of RWM’s payment obligations, but both they and RWM itself knew that RWM was, on occasions, paying late. I say paying late in the sense that SCFF received funds into its account after the due date. In relation to that, Mr Joffe raises what may be seen as a somewhat technical point. He submits that it is well established as a matter of general legal principle that:a. A tender of a cheque constitutes conditional payment and acceptance thereof is a conditional acceptance on the basis that the underlying debt is suspended until the cheque is either honoured upon presentation or dishonoured.

b. On the condition being performed by actual payment, the cheque is an actual payment ab initio and relates back to the time when the cheque was given even if presentation is at a later date.

[478]In the circumstances of the present case, he submits that presentation of a cheque to SCFF on a Friday constituted a conditional payment that was constituted an actual payment ab initio on the Friday by reason of the later presentation. Accordingly, providing SCFF with a cheque on a Friday constituted good payment on that date, even if the cheque was not paid into SCFF’s bank account prior to the Monday with the result that RWM was liable to interest in respect of the additional 3 day period of credit.

[479]Mr Joffe may well be right that, as a matter of contract between RWM as customer and SCFF as supplier, payment by cheque operates as he suggests. But that misses the point which is that as a result of the procedures adopted, RWM was able in reality to enjoy an extended period of interest-free credit. None of the witnesses on either side were asked if they understood the effect of payment by cheque in this respect. I have to say that I would be surprised if Richard or Matthew had any idea that the law regards the payment as having been made on the Friday. Their complaint, raised at board meetings, was thatSCFF was being paid late. Had the directors of SCFF appreciated the point, it could have been dealt with easily in one of at least three ways. First, payment by BACs could have been introduced; although Richard objected to that, I see no reason to think he would have continued to do so if he had appreciated the reason for delayed credit to SCFF’s bank account and the technical point raised by Mr Joffe. Secondly, SCFF could have refused payment by cheque unless the cheque was delivered on the Friday morning. Thirdly, SCFF itself could have introduced a bank-run on the Friday afternoon; this would have been effective in many, if not all, cases since non-receipt of the cheque on a Friday was not the norm.

[480]It is said on behalf of RWM that there is no evidence of any sustainable complaint about banking. Mr Carswell’s evidence, which I accept, is that banking is carried out every day and, provided that a cheque is received by lunchtime on any business day, it will generally be banked that day; if received after lunchtime, it will generally be banked the next business day. CIL does not identify any instance where a cheque received has not been banked in accordance with this timetable. The question however is whether something should have been done to improve the result of that practice, so far as concerns payments due on Friday. CIL’s complaint is that the procedures actually adopted gave RWM an extra 3 day’s credit to which it was not entitled. That is a result which could have been improved from SCFF’s perspective in one of the ways I have just mentioned.

[481]In my judgment, however, there have been breaches of contract and duty by RWM and the RWM Directors of which complaint can justifiably be made. First of all, in relation to delays not caused by the method of cheque handling (resulting in- a 3 day delay over the weekend) no explanation or excuse is given and no challenge is made to Mr Fisher’s assessment of late payment as recorded above and which can, in any case, be seen from the schedules he produces. Secondly, in relation to the cheque aspect, it is acknowledged by Mr Joffe in his closing submissions that the question of late payment was raised from time to time at board meetings. Accordingly, the RWM Directors knew of the late payment (perhaps not appreciating precisely why it was happening) and RWM knew it was paying late. It is, I consider, no answer to CIL’s complaints to say that the Cobden Directors knew what was happening: the solution lay in the hands of RWM.

[482]However, even if blame for these delays can be laid at RWM’s door, the question arises whether late payment can be seen as conduct in the affairs of SCFF for the purposes of section 994. It could be said on behalf of RWM that late payment is simply a breach of the terms of trading between the parties and, as in any other commercial relationship between customer and seller, late payment has to be dealt with on a commercial basis. Thus, a seller can, ultimately, recover his debt in the courts and/or seek to recover interest on late payment; but it will be a matter of commercial judgment whether to take such steps because to do so may result in loss of the customer. That, as a general rule, is no doubt true. But in the present case, the relationship is not simply one of customer and seller. The relationship between SCFF and RWM is part and parcel of a wider arrangement including, of course, the Shareholders Agreement. If RWM is regularly late in making payments, it is in breach not only of the MoU itself but also of the “promote and enhance” obligation in the Shareholders Agreement. Further, in those circumstances, one would expect the RWM Directors making efforts to exert their influence over RWM to achieve payment on time but there is not a hint that they ever did so. I consider that CIL was entitled to see strict observance of the payment obligations given(i) the history of late payment under the Trading Agreement

(ii) regular expressions on dissatisfaction about that late payment prior to the MoU

(iii) the obvious desirability of keeping SCFF’s need for working capital and its overdraft to a minimum and

(iv) the advantage in terms of its own working capital requirements which RWM would gain from late payment. Taking all those factors together, I consider that it is correct to treat the late payment as conduct in the affairs of SCFF for the purposes of section 994.

[483]In my judgment, the conduct was also unfairly prejudicial to CIL as a shareholder. The conduct was unfair because it breached both the Shareholders Agreement and the MoU and because it gave rise to breaches of duty by the RWM Directors. It is no defence to that to say that the Cobden Directors should have complained more than they did or that they should have pushed for implementation of a different regime in respect of cheques (as to which I would only add that cheques were only part of the problem).

[484]RWM then says that CIL is barred by laches and acquiescence. Mr Joffe says that, although complaints were made about late payment, it is difficult to see why CIL should be entitled to store up the complaint for several years before bringing proceedings. I reject a defence based on delay (or on the Grandactual approach). RWM cannot in any sense have been lulled into a false sense of security or into thinking that the Cobdens were happy with the way things were being dealt with: they clearly were not.

[485]In my judgment, the complaint of unfairly prejudicial conduct in paragraph 39(3) of the Petition is made out.

[486]On a subsidiary related point, if SCFF is entitled to interest on outstanding payments which should have been paid on Friday but were not credited to its account until Monday (or later), Mr Joffe submits that the relevant rate of interest should be the rate paid on SCFF’s overdraft. It makes no sense to compensate SCFF for a loss which it has not suffered. I consider that that is the correct approach in the context of correcting any unfair prejudice caused as a result of late payment.

Petition Paragraph 39(4): SCFF supplying RWM with cows and mature bulls

[487]CIL claims SCFF has supplied RWM with cows and mature bulls purportedly pursuant to the MoU at an inadequate kill fee (£34 rather than £60) and without the consent of the Cobden Directors or SCFF's board of directors. CIL claims that this was a breach of the fiduciary duties which the RWM Directors owed to SCFF and a breach of the obligation to promote and enhance the Business and a breach of the provision in the Shareholders Agreement requiring any resolution of the board of directors to be supported by at least one Cobden Director and one RWM Director. There are two aspects to this complaint; first, that cows and bulls should not have been slaughtered on a contract basis at all and secondly, that even if contract killing was undertaken, the fee was inadequate.

[488]RWM accepts that SCFF supplied it with cows and bulls. Its principal argument is that cows are included in the MoU. Alternatively, it alleges that Mr Phelps agreed to SCFF supplying RWM with cows and mature bulls and it was within his authority as managing director of SCFF to do so.

[489]I have dealt with the meaning of the MoU elsewhere. For the reasons given, I do not consider that the MoU includes within its scope cows or bulls.

[490]Mr Joffe has referred me to a substantial amount of material to demonstrate that contract killing was discussed in 2004, 2005 and 2006. I have addressed some of that material already, in particular, board minutes of SCFF in April 2005 and Mr Phelps’ Cow Strategy document. But all of that seems to me to be beside the point. The real point is that in the event, whatever may or may not have been discussed, Matthew made perfectly clear the opposition of the Cobden Directors, to the contract killing of cows. His position, obstinate as it may have been, was that all dealings in cows with RWM should be on a traded basis. Notwithstanding that opposition, RWM nonetheless dealt only on a contract kill basis.

[491]Now, if the parties had not taken such hostile positions and used board meetings as a forum for negotiation, responsible directors would have addressed the situation calmly and rationally. They would first have identified what the MoU entitled RWM to require. The RWM Directors said that the MoU covered cows; on that basis, they would have been right in permitting Mr Phelps to operate cow slaughter for RWM on a contract kill basis and CIL would have no grounds of alleging unfairly prejudicial conduct or breach of directors’ duties.

[492]But if, as I have held to be correct, the MoU did not cover cows, then the RWM Directors in my judgment had no right, without a board resolution where one Cobden Director voted in favour, to procure SCFF to slaughter cows on a contract kill basis. The Shareholders Agreement originally required a board resolution passed by at least one director from each side in relation to a number of matters. These included the entering into of any contract by SCFF with any company which is a member of either Shareholder’s Group. That would clearly include a contract for the killing of cows for a fee or, indeed, for any dealing in cows on a traded basis. So long as that provision remained in place, it could not be maintained either that the RWM Directors could procure dealings on a contract kill basis or that Mr Phelps, in exercise of any operational control, could bring about such a contract in opposition to the Cobden Directors.

[493]That provision was amended on 14 May 1999. The whole of the provision was deleted and was replaced by one which relates to all matters, namely that a resolution of the board shall not be validly passed without the concurrence of a director from each family. In deleting the entirety of the previous provision, there was lost a description of the types of transaction which require a board resolution in the first place. In my judgment, the introduction of contract killing of cows was an important matter for SCFF and required either a board resolution or the authority of someone who had actual authority (whether express or implied) to bind SCFF to such a contract. Quite clearly, none of the RWM Directors or the Cobden Directors had such authority: indeed, if there were such authority, it is not easy to see why the opposing camp would not have immediate authority to revoke the decision of the other.

[494]The question then is whether Mr Phelps had such authority. In my judgment, he did not. There is nothing to suggest that he had express authority to bind SCFF to contract kill for RWM. Indeed, it seems to me that a board resolution would be necessary to give such express authority but there is none. Nor do I think that he had implied authority to enter into such a transaction. It is important to focus on the nature of the authority which must be shown. This is an issue of implied authority, not of ostensible authority. It may be that, had such a contract been made with a wholly independent third party, that party would be able to say that this sort of transaction was within the ordinary scope of the authority of a managing director. But here the question is not ostensible authority but implied authority. The question is whether the authority with which Mr Phelps was clothed, as necessarily implicit in his post, was sufficient to give him this power. Quite clearly his authority was not sufficient when he was appointed: the Shareholders Agreement prior to its variation makes that clear as I have just explained.

[495]In my judgment, his authority did not somehow grow automatically as a result of a change in the Shareholders Agreement (the terms of which it appears he did not even know). But even if that is wrong, and his authority is to be judged as if the variation to the Shareholders Agreement had been in place when he was appointed, I do not consider that, as between him and RWM– whatever may be the position as between him and an independent third party – he had authority to bind SCFF to contract kill for RWM in the face of opposition from the Cobden Directors.

[496]On that footing, I reject Mr Joffe’s submission that this whole issue about contract killing is one about commercial judgment as to which the view taken by the RWM Directors is, he says, a perfectly reasonable one and therefore not open to attack as unfairly prejudicial conduct or breach of a director’s duty. I consider that the boot is on the other foot. In order to contract kill for RWM, a board resolution was necessary and it is really for RWM to show that no reasonable director, faced with the situation when cows came back into the food chain, could as a matter of commercial judgment have taken any course other than to agree to contract killing.

[497]Of course, the Cobden Directors could no more force RWM to conduct their cow business with SCFF on a traded basis than could the RWM Directors force SCFF to do so on a contract kill basis. Mr Joffe, in explaining why the RWM Directors’ decision was a commercially justifiable one, has not expressly said that rejection of contract killing would have been a decision which no responsible director could take. However, I have no doubt that he would say so on the basis of the submissions which he has made, and I propose to address the matter on that basis.

[498]Let me preface this part of the case with a few observations:a. First, that, were the matter one for the commercial judgment of the RWM Directors and Mr Phelps, I am quite sure that their decision to allow contract killing was one which a reasonable board could take. However, even so, it is one which should be taken only on the basis of full information, which they did not have, and a correct application of the law. In particular, they did not have a correct understanding of the MoU (and indeed Mr Phelps had not even seen it although, it must be remembered, he had no vote on the board).

b. Secondly, even if they had had a correct understanding of the MoU, I can understand that in the circumstances where the initial batch of cows had actually been procured there was no alternative to actually slaughtering them and to do so on a contract kill basis might have been excusable even in the face of Matthew’s opposition. But what I find difficult to accept is, that once Matthew’s position had been made plain, Mr Phelps and the RWM Directors should continue to trade on a contract kill basis as if Matthew did not exist, a situation which continues to this day.

c. Thirdly, I am satisfied that, if it can be shown that no reasonable director could in fact have taken the stance which Matthew took, then I do not consider that the conduct of the RWM Directors in allowing Mr Phelps to operate as he did, or indeed Mr Phelps’ own actions, can be categorised as unfairly prejudicial conduct even if, strictly, they should not have proceeded without a board resolution.

[499]There are powerful arguments which Mr Joffe has presented to demonstrate that dealing on a contract kill basis was the only reasonable decision for the board to take. Taking his most important submissions in my own words:a. RWM had made clear that it would not deal on a traded basis. It was not bound to do so. Accordingly, contract killing should have been agreed to since business on that basis would be better than no business at all. There is, of course, some merit in that argument, but it overstates the position. It does so because it assumes that RWM would be able to source its requirements elsewhere on a contract kill basis. RWM says that that is what it would and could have done, but I have no evidence that that is so except vague assertions to that effect, including sourcing from South America. Indeed, if anything the evidence suggests that RWM might have a problem. Thus one sees from Mr Phelps’ Cow Strategy paper and minutes of the ensuing board meeting, concern being expressed about the procuring of cows. It was seen as important to be “in at the beginning” procuring several hundred cows per week. It was thought that the market would be competitive and that if RWM/SCFF were not there from the start, it might prove difficult to get back into the market. In this context, one thing is clear: cow procurement would be undertaken by SCFF and the Producers’ Club would be central to that operation. The Producers’ Club “belonged” to SCFF not to RWM. I do not think it would have been open to RWM consistently with the Shareholders Agreement, or for the RWM Directors consistently with their duties to RWM, to divert the fruits of the Producers’ Club away from SCFF to itself. In other words, if SCFF refused to contract kill cows for RWM, it is not clear that RWM would have a reliable source of cows.

b. But against that point, RWM could reasonably point out that between them RWM and SCFF would need to source the full amount of cows, otherwise both of them would find themselves without an adequate supply. If that were not done, SCFF could not possibly have traded with third parties the hundreds of cows per week which would be purchased and, realistically, would need to provide them to RWM. The risk to SCFF would be far greater since, having acquired and slaughtered the cows with no agreement with RWM (on either a traded or contract basis), it would have to dispose of them quickly in which case RWM would be in a very strong negotiating position.

c. It also needs to be taken into account that if RWM were to source its cows elsewhere, killing fees would have to be paid to another abattoir. RWM (as well as CIL of course) would therefore lose the profit which SCFF would make if RWM and SCFF were to deal on a traded basis: half of that profit accrues indirectly to RWM as 50% shareholder in SCFF.

d. The practical difficulties in trading between SCFF and RWM were such that it could not sensibly be contemplated. Again, I consider that this overstates the difficulty. I can accept that trading bits of rather than whole carcasses might have presented serious difficulties; and I can accept that trading on a pence-per-kilo basis would have been unsatisfactory. But as I have said before, if the parties really wanted to deal on a traded basis, these difficulties could be overcome at least in respect of the sale of whole carcasses. Serious discussions could have been carried out in the light of the parties’ respective bargaining positions on the basis of a proper appreciation of the meaning of the MoU (or at least a recognition by RWM of the strength of SCFF’s case) and the commercial difficulties which RWM itself might face. Of course, Matthew would also have to recognise the weakness of his case in saying that RWM was bound to deal on a traded basis. It may be that, both sides recognising their strengths and weaknesses, an agreement would have been reached to deal on a traded basis.

e. I should add this. It might be suggested that, even if an agreement to deal on a traded basis could not be reached, and even if it would then clearly be in SCFF’s interests to deal on a contract kill basis, the result of a negotiation might have been to arrive at a higher fee than actually paid. However, for the reasons appearing in a moment, I do not consider that, on the evidence, the fee actually paid is unreasonable.

f. It was hinted that, if SCFF refused to contract kill cows for RWM, RWM might divert some of its clean cattle to other abattoirs. That threat was not in fact made and I doubt that it could properly be made. The possibility is not relied on as a reason why it made commercial sense for SCFF to contract kill for RWM

[500]In my judgment, CIL fails to make out a case of unfair prejudice in relation to the failure to deal on a traded basis in cows. On the material before the board at the relevant time, and faced with the options of(i) contract killing or

(ii) refusing to contract kill and insisting on trading, the board could, in my view, take only one view namely that SCFF should agree to contract kill (the level of fee being a different matter). The board knew of RWM’s opposition to dealing on a traded basis and they knew of RWM’s willingness to deal on a contract basis. No terms of trade had been formulated by the Cobden Directors so that there was no basis on which the parties could even begin to negotiate.

[501]The vague pence-per-kilo proposals put forward by Matthew were quite reasonably seen as unworkable by the RWM Directors; indeed, on the evidence before me, trading bits rather than whole carcasses, until a method of disposing of carcass balance had been devised in accordance with a proper business plan, was not something which the board could responsibly undertake. Even in front of me, no proposals were presented which would show in practice how that sort of trading could work.

[502]Even in relation to a proposed trade in whole carcasses, no proposals were put before me to show how, in a negotiation, the trade would operate, in particular in relation to competition between SCFF and RWM for cows actually procured. Significantly, when Mr Joffe addresses that issue in the context of the allegation that there should have been trading with third parties, he said that, to avoid the problems, RWM would simply source its cows elsewhere; that, of course, brings us back to the question whether it could in fact do so. Be that as it may, no proposals were put to the board by the Cobden Directors about how trading in whole carcasses could be carried on in an orderly manner; until some concrete proposals were formulated, I do not see how the board of SCFF as a whole could properly refuse to operate, if only temporarily, on a contract kill basis. It is a different issue whether, once proposals are formulated, the Cobden Directors would be able to say that SCFF’s negotiating position was such that a reasonable director could take the commercial view that SCFF should threaten to cease contract killing and actually to do so if it proves impossible to reach agreement about a traded basis. In that scenario, SCFF must at least have some contingency plan in case it finds itself with no agreement at all with RWM; the board of SCFF would need, for instance, to be confident that RWM would not be able to source its cows elsewhere.

[503]It is then said by CIL that the kill fee of £34 was too low and should be £60.

[504]Mr Joffe has made some submissions about the £34 fee which depend on his (incorrect) approach that the MoU covers cows. In that context, he correctly points out that the MoU provides that the first 1,250 animals are charged at £44, with the excess at £34. If the cows fell within the first 1,250, then they would be charged at £44, and £34 if in the excess. (In fact the figures are £44.32 and £34.32 respectively after Mr Phelps negotiated an increase.). Assuming, as is currently the case, 2000 animals are killed per week for RWM, RWM would pay an average kill fee of £40.57.

[505]Furthermore, with specific regard to cows, Mr Joffe again correctly points out that Mr Phelps agreed with SCFF’s farmer suppliers that SCFF would deduct £19.35 from the price it paid for a cow being £7.04 greater than the deduction in respect of clean cattle. This deduction is effected in this way: The amount of the deduction is deducted by SCFF from the price of the animal which it pays to the farmer, but SCFF invoices RWM for the whole price of the animal (without reference to the deduction). Accordingly, SCFF retains the deduction which is paid by RWM, so the amount that SCFF receives for each cow/bull it kills for RWM, if it can be assumed that the cow/bull is killed during a week when 2,000 animals are killed, is £59.92 (£40.57 +£19.35).

[506]Therefore, the effective average kill fee that SCFF today charges RWM per cow or mature bull is £59.92, after allowing for the farmer deduction. Or, if one takes the fee assuming that cows all fall in the bracket over 1,250 animals slaughtered, the amount would be £52.67 (£34.32 + £19.35).

[507]Mr Joffe submits that there is no evidence that £60 (without making allowance for the farmer deduction) is the proper kill fee payable by RWM for a cow or mature bull. Both he and Mr Weatherill refer to the following evidence relating to other charges for cow slaughtering:a. In 1999, SCFF charged Alec Jarrett Limited (“Jarrett”) for the slaughter of clean cattle a kill fee of £55.96. However, SCFF also had the benefit of the offals, which it sold for £6.00 per animal, which meant that the effective kill fee paid by Jarrett was £61.96. Further, Jarrett procured the cattle and paid the farmers thereby retaining any farmer deduction, so that the £61.96 represents the total amount that SCFF received, bearing no procurement or financing costs.

b. In about 2000, Graham and Richard Phelps agreed to charge Bridgewater Beef (another abattoir) for slaughtering clean cattle, a killing fee of £57. This was on the basis that Bridgewater kept the hide and was credited with the value of the offals. However, Bridgewater procured the cattle and paid the farmers, thereby retaining any farmer deduction, so that the £57 (less the value of the offals which SCFF was then able to sell) represents the total amount SCFF received, again bearing no procurement or financing costs.

c. Mr Joffe correctly states that Jarrett and Bridgewater were both short-term contracts, with no guarantee of volume. The kill fees agreed did not contain any element of reduction to reflect volume or guaranteed numbers.

d. In September 2006, Graham agreed to have cows killed for RWM at Drurys’ abattoir in Swindon at a price of £45 per head. However, SCFF procured the cattle and paid the farmers for which RWM paid SCFF a procurement fee of £7.50. The total amount paid by RWM for killing and procurement was £52.50. The equivalent average amount paid by RWM to SCFF for both procurement and killing is £40.57 for a weekly kill of 2,000 but this does not recognise the farmer deduction which SCFF receives but which Drury’s did not receive. What happened was that SCFF procured the cows and paid the farmer a net amount after making the farmer deduction; but RWM then paid SCFF only that net amount and not the full amount (before the deduction) which it does where the killing is carried out by SCFF. The cost to RWM of procurement and slaughter at Drury’s must take account of this retention of the farmer deduction, so that the £19.35 has to be deducted from the £52.50 to compare like with like. Therefore, the net cost to RWM of killing a cow at Drurys was £33.15, which is less than the discounted rate RWM pays SCFF when it exceeds 1,250 animals a week, namely £34.32 and even less than the average rate of £40.57.

e. In February 2008, Richard had a conversation with Peter Bowyer, the managing director of West Devon Meats, who expressed the view that the minimum price for slaughter only of cows should be £72. Mr Bowyer was not called to give evidence so his view was not tested. Nevertheless, in order properly to compare this suggested kill fee with that received by SCFF when killing cows for RWM, the farmer deduction needs to be deducted from £72, giving an effective rate of £52.65 (i.e. £72 - £19.35) when making a comparison with SCFF’s average receipt of £40.57 (and bearing in mind that SCFF bears procurement and financing costs).

[508]Mr Joffe submits that the fees SCFF received from Jarrett and Bridgewater are comparable to the average kill fee of £59.92 which SCFF today receives for cows and bulls killed for RWM, after allowing for the farmer deduction. But that ignores the fact that SCFF is bearing procurement costs and financing charges when slaughtering for RWM. If one were to deduct the amount of £7.50 which RWM was prepared to pay SCFF for procurement at Drury’s a representing the cost to it of procuring generally, the comparison becomes rather less favourable, with the figure received by SCFF reducing to £52.24(£59.92 - £7.50).

[509]He also submits that the Drurys rate is below the discounted rate of £34.32 which RWM pays SCFF when it exceeds 1,250 animals a week. I think that the figures set out above do justify that submission. Further, he submits that the kill fee of £72 suggested by Peter Bowyer after allowing for the farmer deduction (ie. £52.65) is considerably lower than the alleged proper kill fee of £60 per cow or mature bull. But the figures are not strictly comparable since out of the £60, SCFF has to meet procurement and finance costs, whereas Mr Bowyer’s figure is, as I understand it, based on there being no such costs.

[510]These examples are not altogether helpful. I would have thought, given the huge amount of time and expenditure on this case on each side, that CIL would have taken steps – unless it thought that this claim was simply a make-weight – to ascertain in a rather more substantial way what the killing fee for a regular weekly supply of cows would be, given that the slaughterer will be procuring at his own cost and financing the capital payment to the farmer for the period provided in the MoU. It may be that further, detailed, evidence would establish that a larger fee represents the market rate. And if that were established, I can see the argument that a failure to agree a reasonable fee would amount to unfairly prejudicial conduct. I am not persuaded, however, on the evidence which I do have that the fee is too low; still less am I persuaded that the failure to agree a greater fee is unfairly prejudicial conduct.

[511]I have not found the detailed analysis which Ms Gread carried out at all helpful. I think that all of her points are answered by Mr Grantham. Mr Joffe has devoted some pages of his closing submissions to how the experts have sought to adjust the EBITDA as a result of their views of the kill fee. I do not propose, in this already very long judgment, to give any further consideration to those views. In my judgment, the position is sufficiently set out in what I have already written.

[512]What might be argued to be unfair is the unilateral imposition of the fee which is actually being paid. Just as the current fee might not seem to be unreasonable, there is no doubt a range of fees with an upper and lower limit, with any point in the range being a reasonable one to pay. Why, it might be asked, should RWM be entitled to select the fee rather than SCFF?.

[513]The appropriate fee is, ultimately, a matter for negotiation in the light of full information and advice obtained by each party rather than the material placed before me which, as I have just indicated, is inadequate for the purpose. If the parties cannot agree a figure, then the board of SCFF will have to make a judgment whether to refuse to conduct business at the fee level which RWM is willing to pay. If the Cobden Directors take the view that SCFF should withdraw its services then, unless no reasonable director could take that decision in the light of the risks involved as compared with the benefits which might be obtained (ie forcing RWM into paying more that it is willing to pay), then neither the board nor Mr Phelps will have authority to continue dealing with RWM on that basis.

[514]But that is not the position today. The position today is that the parties are dealing at a fee level which, in my judgment on the evidence before me, is within the range of fees which can be considered reasonable. It seems to me that no reasonable director of SCFF could, today, refuse to allow it to continue to deal at this fee level in the absence of sufficient evidence to show that the fee level should be higher; to chose to terminate the current arrangements today rather than putting together a proper case for an increased fee would be irrational. Conducting business at this fee level is not, therefore, on the evidence before me unfairly prejudicial conduct for the purposes of section 994.

[515]This is not to say that SCFF is stuck for ever and a day with the fee level which RWM has effectively imposed. If evidence is produced which shows that a higher fee level would be reasonable or, better still, which shows that the current fee is mean or perhaps even unreasonably low, then SCFF will have a strong case to take to RWM for an increase in the fee. If RWM then refuses to agree an increase, SCFF may have a case based on breach of “the promote and enhance” obligation. Further, it would put the Cobden Directors in a stronger position if they then considered that SCFF should put pressure on RWM by refusing to deal on a contract kill basis.

Petition Paragraph 39(5): Late payment for cows and mature bulls

[516]Paragraph 39(5) of the Petition alleges that the RWM Directors and/or Mr Carswell caused RWM to pay for cows and mature bulls supplied by SCFF to RWM after SCFF had paid for the cows and mature bulls without any profit and/or failed to cause SCFF to take steps to ensure it was paid on time and to pay the cheque into the bank immediately and/or failed to cause SCFF to recover the monies. Cows and mature bulls are not dealt with in the MoU and so, given the supply of cows and mature bulls, Mr Weatherill submits that RWM should have paid for them on delivery but in any event before SCFF had to pay for the cows and mature bulls. RWM paid for them on the third Friday of the third week after the week of delivery or later and thus on the same terms as it paid for the clean cattle. RWM accepts that that was done. It is submitted that this was a breach of the fiduciary duties owed by the RWM Directors and a breach of the obligation to promote and enhance the Business.

[517]RWM’s response in summary is this:

[518]RWM says that the cows and mature bulls were properly supplied under the terms of the MoU, or pursuant to the agreement reached between Graham and Mr Phelps, and no breach of fiduciary duty or of the Shareholders Agreement was occasioned by the supply. I have already rejected those submissions in considering paragraph 39(4) of the Petition.

[519]It is accepted that, even on that basis, some of RWM’s payments have been slightly late (ie beyond the credit terms agreed under the MoU), but that must be set in the context of SCFF itself delaying payments to farmers and receiving substantial financial benefits from RWM (give and take). I have likewise rejected that submission as having any force.

[520]The steps which CIL says that the RWM Directors should have taken were impracticable and cheques were generally paid into SCFF’s bank account on the same or next business day. I have already rejected that submission.

[521]Accordingly, Mr Joffe says that, in effect, the only new allegation is that the cows and mature bulls were supplied without profit. That, of course, is not correct given my decision that the MoU does not cover cows and bulls because there is another new allegation viz that payment should have been on or before SCFF itself had to make payment to the farmers in accordance with their own credit terms.

[522]However, once it is accepted that cows and bulls are being supplied on a contract fee basis – the allegation that they should not have been is a different complaint dealt with separately – it is not to be expected that SCFF should make a profit on the actual purchase and sale of the cow or bull. Rather, SCFF receives a killing fee which reflects its overheads (including procurement costs), retaining the farmer deduction of £19.25. Accordingly, I agree with Mr Joffe about the new issue which he identifies.

[523]That leaves me to deal with the other new issue, namely the time for payment of the killing fee which, for present purposes, is to be taken as agreed ie that which would apply if, contrary to the facts, the MoU actually applied.

[524]Albeit without proper board authority, Mr Phelps and Graham have instituted an arrangement which adopts the MoU lock stock and barrel in relation to the slaughter of cows and bulls. I have conducted, in the context of paragraph 39(2) and (7) of the Petition, an analysis of CIL’s and SCFF’s rights following from the Shareholders Agreement and the duties of the RWM Directors and what the board should properly consider. The same considerations apply here. Accordingly, the RWM Directors and Mr Phelps had no authority to enter into the agreement with RWM which they did. But until it is shown that the terms of trade should be different, it is clearly not in the interests of SCFF to terminate the current slaughter arrangements and no unfairly prejudicial conduct is demonstrated. But that is subject to one important difference between the complaint under paragraph 39(2) and the complaint under paragraph 39(5): in relation to the former, I am in no position, on the evidence presented to me, to say that a fair killing fee would be greater than the one actually paid whereas in relation to the latter it might be said that I am in a position to say that the fee, whether fair or unfair, should be paid at once. However, as before, I think that that is really a matter for(a) evidence and

(b) a decision of the board. It is not immediately obvious to me that the board should put SCFF at risk of losing the cow kill altogether by insisting on obtaining earlier payment at once.

[525]My conclusion is that the allegation of unfair prejudice in respect of paragraph 39(5) of the Petition is not made out.

Petition Paragraph 39(6): Reduction in the kill fee for sheep

[526]In addition to the beef and cow slaughtering undertaken by JHC and SCFF at Langport, they also slaughtered lambs from time to time for RWM and RWM Dorset.

[527]Robert and Mr Phelps gave evidence which establishes to my satisfaction the following matters. RWM transferred its Tesco lamb business to RWM Dorset at the end of 2000. It was anticipated by RWM that thereafter RWM Dorset would kill its lambs at Yetminster, rather than at the Langport abattoir. At that stage there was no expectation by anyone that RWM or RWM Dorset would be killing any lambs at Langport. However, SCFF did contract kill lambs for RWM Dorset on occasion from 2001 as follows:a. In 2001, the foot and mouth outbreak involved restricted animal movements. SCFF slaughtered lambs that it procured for RWM Dorset in its locality, which was a restricted area for movement;

b. In 2002 and 2003 SCFF killed lamb for RWM Dorset at peak times, because of the lack of capacity at Yetminster;

c. In the first half of 2004 and 2005 RWM Dorset’s kill requirements fell below the threshold required to justify keeping the Yetminster abattoir open. [The reasons do not matter, although Matthew’s evidence was that during early 2003, lambs were in short supply and were expensive for RWM Dorset to purchase. Compounded by the supermarkets switching to New Zealand lamb for the first few months of every year, RWM Dorset made a loss in the first 6 months of 2003. The Heffers therefore decided that in the subsequent years, they would close RWM Dorset for those quiet months and get SCFF to slaughter what lambs they did require at Langport.] RWM Dorset used SCFF to contract-kill the animals at Langport, which was operating at less than full capacity and could easily absorb the additional numbers for slaughter;

d. In 2006 SCFF killed the over-spill from Yetminster at peak times, caused by its lack of capacity; and

e. In 2007 the Yetminster slaughter line was closed for refurbishment for about 4 weeks, during which time SCFF contract-killed for RWM Dorset.

[528]It also appears that, on occasions, lambs were in fact killed prior to the foot and mouth outbreak. Mr Phelps’ evidence indicates that lamb was contract killed between the beginning of January 2001 up to 20 May 2001 at a price of £5 per animal. The kill fee for the sheep specified in the MoU is £5 per animal. RWM Dorset was not a party to the MoU but it appears that the parties proceeded on the basis that the MoU governed the trading relationship. Curiously, there is no evidence about who negotiated or agreed to this arrangement. It is easy to imagine that Robert, as managing director of RWM Dorset needed, for whatever reason, some lambs killed other than at Yetminster; Langport was the obvious choice and, presumably with the agreement of someone at Langport, possibly Matthew, lambs were sent to Langport for slaughter. By default, someone then applied the provisions of the MoU, quite possibly because RWM was entitled to procure lambs under the MoU. The fee paid was thus £5 and the credit terms under the MoU were then applied.

[529]Since the credit terms under the MoU applied, Matthew says that the £5 was a favourable price to RWM as it pays the same price for each sheep or lamb as SCFF pays the farmers: SCFF does not make any profit on the purchase and sale of the sheep and lambs so that the credit terms in fact cost it money. It does not follow that the £5 fee was, even on that basis, too low since the credit terms might be reflected in the price just as any other overhead would be: the fee of £5 might have been set to provide SCFF with a fair profit after taking account of the work which it would have to do in procuring and financing purchase of the sheep. It is a matter of fact whether the £5 fee gives, or has ever given, SCFF a proper margin on its activities.

[530]The £5 fee was reduced or increased at various times to prices ranging between £3 and £4. The first relevant event was a reduction from £5 to £4 in June 2001. RWM say that this reduction was agreed between Robert and Matthew and is reflected in a letter dated from Matthew to Robin dated 21 June 2001. There were further changes to the fee: it was reduced at the beginning of 2004 to £3, RWM alleging an agreement between Robert, Mr Phelps and Matthew to that effect. It was increased in March 2004 to £3.50 per lamb and then to £3.70 per lamb in both cases pursuant to an agreement between Robert and Mr Phelps. RWM alleges Mr Phelps had authority to enter into such agreements on behalf of SCFF. CIL’s case is that the reduction from £5 was a breach of the fiduciary duties owed by the RWM Directors, a breach of the obligation to promote and enhance the Business and a breach of the provision requiring all board resolutions to be supported by at least one Cobden Director and one RWM Director.

[531]The financial impact of these changes is significant if, in fact, RWM was properly accountable for a £5 fee at all times. PwC have carried out an analysis of SCFF’s monthly management accounts which give details of the number of lambs killed and the killing fees charged. The results of this analysis are set out in paragraph 50 of the Response for Request for Further Information, which shows the killing fees during each period. This analysis shows the underpayment for each period and that the total underpayment up to 10 September 2006 amounted to £278,149. Mr Fisher’s report now shows that the underpayment was £229,473 but this may because of an error in the monthly management accounts for the 4 week period ended 19 August 2000, which shows a kill fee of £8.36 being paid. If that was an error, then Mr Fisher says that the figure increases by £57,569.

[532]So far as the reduction from £5 to £4 is concerned, Robert’s evidence is that this was agreed between him and Matthew sometime in 2001. He was unable to say precisely when and was not asked where the relevant discussions took place. If it happened, it was certainly before 21 June. Matthew was unable to state categorically in cross-examination that he did not have discussions with Robert about a reduction in the kill fee; he says that he had other more pressing and important matters on his mind.

[533]It is, I think, clear that a reduction in the kill fee was something which Robert had raised with Mr Phelps: it was, I am sure, Robert who asked Mr Phelps to draft the letter of 21 June 2001 and I have little doubt that the memorandum dated 13 June headed “Lamb Procurement Costs” was produced because of Mr Phelps’ understanding that the changes reflected in that letter were at least under discussion between Robert and Matthew.

[534]There are some things to note about the letter. First of all, it is addressed to Robin as chairman of RWM and not to Robert as managing director of RWM Dorset. That is perhaps not altogether surprising since in early 2001 it appears that SCFF was invoicing RWM for sheep killing even though the work was being done for RWM Dorset – and, indeed, that may be an explanation for why the credit terms of the MoU were being applied in relation to this work. More curiously, the letter refers to “our conversation today”. Robert had no idea why this was so: he pointed out that he had nothing to do with the letter and that it was not copied to him, his case being that the change in the killing fee was simply something which he had agreed with Matthew. Mr Phelps was not asked about this. The letter purports to come from Matthew as a director of SCFF and contains at the bottom “cc R Cobden, R Phelps I Carswell”. There is no evidence that the letter was ever copied to Richard or to Mr Carswell. There is no evidence that Richard knew of the £4 fee at the time.

[535]The letter purports to record a new fee of £4 per head for lambs purchased through the salaried staff at SCFF and delivered with no extra transport costs. It provides for commission being paid to commission agents to be invoiced to RWM Dorset. It provided for Matthew to inform Mr Carswell of the change, to be implemented from 25 June 2001. In that last regard, I note again Mr Phelps’ evidence which shows that the change was in fact implemented as from 21 May.

[536]Mr Phelps’ evidence was that he drafted the letter. I am perfectly satisfied that he did so and also that, when he did so, he thought he was doing so to reflect an agreement which Matthew had already reached and that he was proceeding on the basis of what he had been told by Robert. That, of course, does not mean that there was, prior to the letter, a binding agreement between SCFF and RWM/RWM Dorset. It may be that the change in kill fee and the other terms agreed were intended to be subject to a formal agreement.

[537]Mr Phelps’ evidence was also that he could recall seeing Matthew sign the letter, and that hethought it was he himself who had delivered it to Robin. He records Robert’s argument, when asking him to draft the letter, that, in order for RWM Dorset to increase its supply of lamb to its own customers as it wished to do, it needed to be price competitive and to do so had to reduce its own costs. On the basis that this increase in supply should lead to RWM Dorset having to use SCFF for part of the increased kill, Matthew was persuaded to accept the reduction. Robert’s evidence is to the same effect. Robin’s evidence is that he saw a signed copy: I treat that evidence with some degree of scepticism since his own evidence is that he did not regard the letter as important in the great scheme of things, he did not file it for retention and does not remember how it was delivered to him.

[538]Mr Joffe relies in support of Mr Phelps’ version of events on the following:a. A note (the “Lamb Procurement Costs” paper referred to above) dated 13 June 2001 is prepared on the basis that “Haulage pads for lambs will not be invoiced direct to RWM Dorset” and “Commission and haulage to be invoiced in full to R.W.M Dorset”, which one sees recorded in the letter dated 21 June 2001. Further, the note of the weekly financial meeting on 22 June 2001 (attended by Richard, Matthew, Mr Phelps and Mr Carswell, but with no Heffers in attendance) contains an entry in the Action column “Commission and haulage costs charged direct to Dorset”.

b. Mr Phelps sent an unsigned copy of the letter dated 21 June 2001 to Mark Price by internal memo dated 24 August 2001; in it he referred to the letter “as laying out their [Matthew and Robin’s] agreement with regard to lamb kill and haulage fees”. It was not suggested to Mr Phelps that he did not believe that to be the agreement between the parties when he sent that memo.

[539]Mr Phelps could not, however, explain why neither the original nor even a single contemporaneous paper copy of such an important letter has emerged, the only copy being one printed off his computer. He acknowledged its importance, but said he did not keep a photocopy. He said that, if acting normally, he would have given a copy to Mr Carswell as Company Secretary, or to Robin if it was addressed to him. He speculated that Robin had lost the original, and then said that he would have expected him to provide Mr Carswell with his copy for filing. Whatever the truth is, no signed copy has come to light either from Mr Carswell’s files or from RWM. Mr Phelps was unable to explain why, if the letter was said to be copied to Richard, Mr Carswell and himself, no signed copied had been revealed from any of them.

[540]Matthew denies having seen the letter dated 21 June 2001 before it was disclosed in these proceedings. However, in cross-examination he modified that to say that he had no recollection of signing it. It is clear, I think, that he did not write it. The evidence established that a letter in the terms of the purported letter of 21 June 2001 was prepared by Mr Phelps or his secretary. Matthew denies that he signed it or sent it to, or left it with, Mr Phelps: he prays in aid the following as reasons why he would not have agreed to its contents:a. He was barely speaking to Robin or the other Heffers at the time as a result of the Cobdens’ treatment resulting in the reduction of their share in RWM Dorset. I accept that that was the case.

b. The letter is copied to “R Cobden”. Richard says that he had not seen a copy of this letter until it was disclosed in these proceedings, a matter on which I accept Richard’s evidence.

c. At this time, he says that he was too busy dealing with the Welfare Disposal Scheme in the cull abattoir to get involved in negotiating sheep kill fees.

[541]To counter any suggestion that he must have known about the reduction in the kill fee from the accounts which he saw, Matthew says that he did not actually notice the reduction until some time in 2004, when SCFF started slaughtering a much larger volume of sheep. That is a perfectly plausible explanation: the accounts are certainly not conclusive in favour of the proposition that Matthew must have known about the reduction long before 2004 by which time he certainly did know.

[542]Mr Weatherillsubmits that there is no reason to think that Matthew would have agreed to this reduction, let alone that he would have done so without consulting Richard. He says that such evidence as there is suggests that a kill fee of less than £5 per sheep would be loss-making and he relies on the proposition which he says is also established that the Yetminster break even point for killing sheep is £5 and that there is no evidence that SCFF’s break even point was less. There is, in short, no reliable evidence that Matthew ever signed that letter, and for him to have done so would have been against SCFF’s best interests.

[543]I find as a fact that Matthew did sign the 21 June 2001 letter. I am satisfied that, whether or not Robert and Matthew reached a concluded agreement, Robert instructed Mr Phelps to draft the letter believing that an agreement had been reached. If he was wrong on that, because the discussions which were actually held did not give rise to a binding agreement, or because he recognised the need for something in writing (and hence his instructions to Mr Phelps), then the situation was regularised by the letter itself (a point I will develop in a moment). I do not consider that Mr Phelps is lying when he says that he remembers Matthew signing the letter. I also consider that it is clear that a letter (whether signed or not) was given to Robin by Mr Phelps – Robin remembers receiving it and Mr Phelps thinks, but could not be sure, that he took the letter across to Robin. This is entirely consistent with Robert having had the discussions with Matthew which he says he had and with the documents relied on by Mr Joffe. In reaching this conclusion, I do not need to reject Matthew’s evidence. In relation to the alleged discussions with Robert, he said he could not remember such a discussion but in saying that he was not intending to say “of course I don’t remember because I know it never took place” but was saying simply that so much was going on at the time he simply had no recollection of it. Similarly, he accepted only that he could not recall signing the letter and in so doing was withdrawing from a firm position that he did not sign it.

[544]I use the word “regularised” in the preceding paragraph deliberately because it might be argued that even the letter did not give rise to a binding contract. But what it certainly did indicate was that Matthew accepted for the future that the fee should be £4. It has not been suggested that, if Matthew did agree the figure and sign the letter, there was nonetheless unfairly prejudicial conduct in proceeding at a fee of £4. In particular, it has not been suggested – and so Mr Joffe has not needed to address – that Matthew had no authority to bind SCFF or that, even if he did, Robert was nonetheless somehow in breach of his duty as a director of SCFF or that the self-dealing or no-profit rules applied in full force.

[545]In my judgment, the allegation of unfairly prejudicial conduct based on a killing fee of £4 from 25 June 2001 fails. It may be that there should be some financial adjustment if the £4 fee was in fact implemented from 25 May, but an (erroneous) early implementation is insufficient to give rise to a complaint of unfairly prejudicial conduct.

[546]The next change in the killing fee was in early 2004. The evidence is this:a. Robert initially proposed a fee of £3 (according to Mr Phelps for the period January to June). This was on the basis that he was proposing to close the Yetminster killing line temporarily and wanted SCCF to kill all of RWM Dorset’s requirements in this period. The £3 fee was proposed to Mr Phelps and Matthew Cobden to reflect the volume of kill envisaged.

b. Robert’s evidence was that he expected Matthew to get back to him with his reaction to this proposal, and that when Matthew failed to do so, Robert took it that it was agreed and gave instructions to Mr Carswell that it was to be implemented. Although Matthew does not accept that it was left that he would get back to Robert, Mr Phelps’ evidence is that this is how matters were left. Indeed, it is confirmed by Matthew’s involvement in the draft letter prepared by Mr Phelps which they discussed and where again, according to Mr Phelps, it was left that Matthew would get back with his comments on the draft (which he never did). I accept Robert’s and Mr Phelps’ evidence on this.

c. Mr Phelps’ evidence was that, while he waited for Matthew to get back to him before reverting to Robert with a counter-offer, Robert implemented a reduction in the kill-fee to £3. When he realised that this had been done, Mr Phelps took the initiative of consulting with Mr Carswell and (concluding that £3 was unprofitable), he proposed a figure of £3.75, eventually compromising with Robert at £3.50.

d. Matthew’s evidence was that he had nothing to do with those negotiations, that it was all agreed between Robert and Mr Phelps without reference to him.

e. Mr Phelps does not accept that Richard and Matthew were kept out the picture; he accepts that they were not involved in the negotiation but says that they were kept informed; they knew he was negotiating and they knew the result of the negotiation. He also accepts that he would not have said to Robert that he needed to check with the Cobdens before agreeing the £3.50 figure; and having agreed it, would have sought their confirmation of his decision. As he put it: “I'm pretty sure I would have said that we'd got £3.50. I don't know whether I would have said, "Are you okay with that?" because if they had said "No" there's not much I could have done. I can't remember the exact wording.”

f. The £3 figure was then charged and paid in the period 1 January 2004 to 19 March 2004. The £3.50 figure was paid from 20 March 2004 until 31 December 2004. No explanation is given by Robert as to why matters were not reviewed in June 2004 given Robert’s initial proposal that the reduced fee should apply from January to June.

[547]The next change in fee came about as the result of an agreement between Robert and Mr Phelps in late 2004, implemented on 1 January 2005. It resulted in a kill fee of £3.75 which was paid until 12 September 2005. The evidence shows that Mr Phelps and Robert (with only limited reference to Matthew) negotiated a kill fee on the basis that SCFF would kill the whole of RWM Dorset’s lamb requirements in the period January to June 2005. Mr Phelps and Robert agreed a fee of £3.70 per lamb. In fact a rate of £3.75 was charged from 10 January 2005 to 12 September 2005, the extended period being agreed between Robert and Mr Phelps. The evidence is that the negotiations which took place were entirely between Robert and Mr Phelps.

[548]The limited reference to Matthew was as follows. In preparing for his negotiations with Robert, Mr Phelps drafted three letters from which he appears in versions 1 and 2 to have intended to seek kill fees of between £3.50 and £4.50 depending on volumes, and in the final version to have intended to seek between £3.50 and £3.95. Mr Phelps thinks that he sought information from Matthew in order to complete various blanks in the letters; Matthew thinks that may have been the case but has no proper recollection of it. It does not appear that any of these draft letters were sent to Robert. There is no explanation of how the kill fee of £3.70 or £3.75 was eventually arrived at.

[549]The drafts show that SCFF’s “break even” killing cost was £5.17 per sheep. In cross-examination, Mr Phelps explained that the drafts had been prepared for negotiation purposes and presented a figure which it was appreciated Robert would seek to negotiate down. He disagreed that £5.17 was in reality the “break even” figure.

[550]From 26 September 2005 the kill fee reverted to the base rate of £4, save for a brief period in 2007 which is a matter of separate complaint in the Petition, and which I deal with separately.

[551]CIL’s case is that Mr Phelps had no business or authority to negotiate kill fees as he did. Mr Weatherill invites me to find that, although Mr Phelps may have done his best to propose a higher kill fee than the £3 initially set by Robert, Robert’s decision to compromise at £3.50 per sheep was for RWM Dorset’s benefit, and that he did not even begin to discharge his fiduciary duty to act in the best interests of SCFF in compromising at £3.50 let alone unilaterally imposing £3. Likewise in relation to the £3.75 fee, he invites me to find that it was negotiated between Robert and Mr Phelps in circumstances in which Mr Phelps had no authority from the board of directors or the Cobden Directors to agree matters on SCFF’s behalf and Robert again did not even begin to discharge his fiduciary duty to act in the best interests of SCFF.

[552]Mr Weatherill’s submissions raise a number of inter-related issues. But ultimately the question for me is whether there has been conduct which is unfairly prejudicial to CIL’s interests. The issues raised require consideration of these questions:a. Was Robert able, consistently with his duties as a director of SCFF, to negotiate on behalf of RWM Dorset at all? If he was, what steps did he need to take to ensure that no valid criticism could be made of him?

b. Did Mr Phelps have authority to reach the agreements on killing fees which he did?

c. Was the lamb killing profitable at the fees agreed?

d. Were the arrangements fair?

[553]Negotiations by Robert. The starting point here is that there can be no objection to SCFF entering into an arrangement to kill lambs for RWM Dorset. In contrast with the position in relation to cows, it is not suggested that the relevant sheep trade should have been offered to SCFF or that RWM Dorset has diverted SCFF’s customers. It was perfectly proper for RWM Dorset to enter into a contract kill arrangement with SCFF; and this is so whether or not the MoU actually applied or was treated as applying. If there is any complaint, it can only be that the fee paid was too low, not that business was conducted in the first place.

[554]In those circumstances, SCFF, CIL and the Cobden Directors would have to accept that some individual or individuals would have to carry out negotiations on behalf of RWM Dorset when fixing fees with SCFF. In setting the fee, there is no obligation on RWM Dorset to promote and enhance the business of SCFF. That is an obligation only of RWM under the Shareholders Agreement, to which RWM Dorset is not a party. The RWM Directors have their duties as directors of SCFF, but those duties do not require RWM Dorset to act in any particular way. Accordingly, RWM Dorset should be allowed to negotiate as best it can in its own interests in setting the killing fee, just as SCFF is able to do. To put this point another way, the relationship between RWM Dorset and SCFF was (in contrast with the relation between RWM and SCFF) one where SCFF or its shareholders were not entitled to see RWM Dorset act other than in its own interests.

[555]Conflicts are, obviously, apparent if the person negotiating on behalf of RWM Dorset (Robert) is also a director of SCFF (as he is). The conflict could, of course, have been handled by Robert taking no part on either side of the negotiation; this is not a situation, I think, where the conflicts are so stark that Robert’s only course would have been to resign from the board of SCFF. Equally, they could have been handled by Robert declaring his interest to the board of SCFF and for the board (including the Cobden Directors) to agree to his acting for RWM Dorset in the negotiation. In this context, Richard’s assent would be enough to bind CIL and to prevent it subsequently alleging a breach of duty by Robert.

[556]That is not what happened. But what did happen is that Robert negotiated with Mr Phelps and in doing so he certainly at least distanced himself from SCFF and did not seek to represent its interests in any way. I will come to Mr Phelps’ position in a moment but focusing for the present on Robert, it was known by Matthew and Richard that SCFF was killing lambs for RWM Dorset and they knew that, on each occasion of review of the fees, Robert was acting in negotiations with Mr Phelps. Matthew knew perfectly well that Robert was negotiating in a partisan way. He knew, given my findings of fact, that this was Robert’s position in relation to the reduction to £4; he certainly knew it in relation to the proposed £3 fee negotiation and he knew it in relation to the £3.70 fee negotiation. The Cobden Directors knew, as is admitted in the Amended Points of Reply, of the kill fees being paid. And yet Matthew made no objection to Robert conducting negotiations on behalf of RWM Dorset nor did he assert that the level of fees gave rise to complaints of breach of duty and breach of contract. This lack of action and complaint may not be enough to discharge Robert from his fiduciary duties as a director of SCFF but it is significant in the context of fairness and prejudice for the purposes of section 994 as I will explain in a moment. Nor does it make any difference to that conclusion that Robert believed, as he says he did, that Mr Phelps had authority to negotiate and agree the kill fee.

[557]If I am wrong in my approach to the Shareholders Agreement in relation to RWM Dorset, so that a failure by RWM Dorset to act as though it were subject to the Shareholders Agreement ipso facto results in RWM itself being in breach of contract, then RWM Dorset would have to act in a manner designed to promote and enhance SCFF’s business. That does not mean that it cannot negotiate fee levels with SCFF but it does mean that it needs to consider, from SCFF’s perspective, whether the fee arrangement is fair. Robert’s position of conflict is particularly acute but there is a “sauce for goose and sauce for gander” flavour here. Thus, if it is right that the Shareholders Agreement in effect impacts on RWM Dorset in the same way that it does on RWM itself, then the qualifications on the duties of the RWM Directors which are to be spelled out of that agreement coupled with the Trading Agreement and the MoU, should equally apply to Robert in relation to his dealings on behalf of RWM Dorset. He could properly act on behalf of RWM Dorset, but would need to satisfy himself that the agreement reached was fair from SCFF’s perspective.

[558]Turning to Mr Phelps’ authority, the question is whether he had authority to make the agreements on the terms which he did.

[559]CIL denies that Mr Phelps had actual, implied, ostensible or any other authority to act on behalf of SCFF in relation to any agreement between RWM Dorset and/or RWM and SCFF, and in particular in relation to the agreements and the kill fees. Mr Joffe says that this is a difficult submission to understand: acceptance of customer orders and price would normally be precisely the sorts of issue which would fall within the remit of a managing director. But that qualification “normally” is important. I have already considered authority in the context of killing cows. Of course, Mr Phelps has authority to conduct the day to day operations of SCFF. He may have ostensible authority to bind SCFF to contract with third parties, for instance to slaughter animals at rates agreed by him. He may even have actual (implied) authority to make such arrangements with third parties. I do not, however, think that he had actual authority (express or implied) to decide on the trading arrangements between SCFF and companies in which the Heffer family were interested. As I explained in relation to cows, the Shareholders Agreement as originally drafted expressly required a board resolution to effect certain sorts of inter-family transactions, and Mr Phelps’ authority on his appointment was constrained by those provisions. I concluded that this authority was not extended when the Shareholders Agreement was modified. That applies equally to preclude his authority to agree killing fees, at least if his (implied) authority is to be spelled out of his position as managing director.

[560]If he had no actual authority, then whatever may be the position in relation to an independent third party so far as concerns ostensible authority, I do not think that Robert (or, therefore, RWM Dorset either) can rely on any ostensible authority. It surely cannot be the case that one person can rely on the ostensible authority of another person when he knows that that other person in fact has no actual authority. Robert, as a director of SCFF and as a person who has been involved with SCFF from its inception and from at least the time of Mr Phelps’ appointment, knew, or must be taken as knowing, the extent of Mr Phelps’ actual authority.

[561]It is, in theory, possible that Mr Phelps was given actual authority by SCFF to carry out the negotiation with Robert and to reach a binding agreement with RWM Dorset quite as a result of factors arising in the context of that very negotiation. For instance, the board could have expressly authorised him in 2004 to negotiate and agree a fee for killing, in which case SCFF would be bound by the arrangement he actually made. It is impossible, however, to spell any such authority, either express or implied, out of the circumstances of the negotiations and the making of the agreements.

[562]I do not, however, criticise Mr Phelps for acting the way he did. As will become apparent in a moment, he considered that he was acting in the interests of SCFF at all times and, as he (justifiably in my view) saw it, he could not, in relation to the £3.50 negotiation get an answer from Matthew. In relation to the £3.70 negotiation, it is true that he did not directly involve Matthew in the negotiation but he did provide copies of draft letters which he was proposing to send to Robert and sought information to complete them. Matthew knew that Mr Phelps was carrying out negotiations but did nothing to tell him that he should not do so or even that he should not agree anything without the board’s or at least Matthew’s, own approval. Given that by this time Matthew (and indeed Richard) knew that Mr Phelps had in fact previously agreed the £3.50 (about which they had not protested that he should not have done so), Mr Phelps might reasonably have thought that there was no objection to his contracting on the basis of his new, authorised, negotiation. I think it is quite clear that Mr Phelps simply wanted to do what was right for SCFF.

[563]There has been considerable debate about the benefit of the lamb killing to SCFF. Matthew seems unwilling to accept that it could possibly have been beneficial. He compared the hourly income earned from cattle killing with that earned from lambs, demonstrating that the former produced more than the latter at the rates actually achieved for each animal. That may be so, but there is no evidence to support Matthew’s suggestion that the killing of sheep was keeping out of the slaughter lines cattle, cows or bulls which could have achieved a greater income. Nor was there any evidence to support another suggestion that the added costs of killing the sheep (including finance costs in relation to the credit period taken) was not met by the fees. There was not even any evidence to support the suggestion that sheep killing would be at a loss with a proper apportionment of general overheads, in spite of Matthews speculation to the contrary; rather, such evidence as there is, in the shape of SCFF’s accounting documents, demonstrate that killing lambs produced a gross profit in all years, which additional revenue contributed to SCFF’s overheads. Certainly Mr Phelps’ view, reflected in his approach, was that it was beneficial to SCFF to have this throughput of lambs at the fees attained even if they were not as high as Matthew, or even Mr Phelps, would have liked to see.

[564]So far as concerns fairness, I am not persuaded that any of the fees agreed by Mr Phelps were outside the range of reasonable fees. I do not repeat, but simply say that similar considerations arise in relation to an argument whether a better fee within the range of reasonable fees could have been achieved as apply in relation to the slaughter fee for cows killed on a contract fee basis. The reasonableness of the fee is, in any case, to be judged in the context of the following factors which make Mr Phelps’ approach seem entirely sensible:a. Killing lambs was profitable for SCFF in the sense that a gross profit was achieved: the lamb kill was effectively top-up kill. The abattoir was not, according to Robert, operating at capacity (in particular in 2004 and 2005) and the lamb kill brought it nearer to capacity. There is nothing to gainsay that evidence, which I accept.

b. Again according to Robert, it was important for SCFF to retain the RWM Dorset business in order to maintain the relationship with the farmers within the Producers’ Club and to avoid the lambs from being sourced elsewhere. Again, there is nothing to suggest that that is incorrect.

c. Mr Phelps did not think that RWM Dorset would have agreed to a higher kill fee than it did. I accept the genuineness of that belief, which adds support to his own view that the course he took was in the interests of SCFF.

d. RWM Dorset could have sourced their lamb requirements from elsewhere, but Robert offered the opportunity to SCFF. That was Robert’s evidence and I accept it. He thought that it would be more beneficial to source his requirements from SCFF rather than enter into contract killing with another abattoir. But, of course, sourcing elsewhere would reduce SCFF’s profits which would in turn hit the Heffers as indirect 50% owners; RWM Dorset had an incentive to agree a fair kill fee.

[565]My conclusion after this discussion is that the allegations of unfairly prejudicial conduct in relation to the lamb killing fees are not made out (excepting for the moment the separate issue under paragraph 39(19) of the Petition). The central reason for this conclusion is this: even if Mr Phelps acted in excess of his authority, he did so in the best interests as he (reasonably in my view) saw them. This did not result in unfairness to SCFF. Further, although Robert in fact acted in the interests of RWM Dorset and possibly in breach of his duties to SCFF, Mr Phelps represented SCFF’s interests to the best of his ability and Robert did not in any way seek to involve himself on SCFF’s side thus in practice resolving his conflict by removing himself from SCFF for this purpose. Further, the Cobden Directors were kept informed but made no objections.

[566]In that context I would set out what Mr Joffe says about acquiescence, all of which is established: the Cobden Directors knew the level of the kill fee and did not demur. CIL has admitted that the Cobden Directors were well aware of the killing fees charged by SCFF. The Cobden Directors were well aware that lambs were being killed for RWM Dorset. The lambs were put through the lairage, where Richard Cobden worked, and one of the Cobden Directors signed the cheques from RWM Dorset to pay SCFF for the slaughter. The Cobden Directors also received financial reports that demonstrated the number of sheep being killed and the kill fees charged. Matthew accepted in his evidence that he had received the weeklies in 2003-2005 and that he would have seen the kill fee from them. The Cobden Directors made no complaint in respect of the kill fee prior to the emergence of the current dispute. Whether or not this amounts to a technical defence of acquiescence, it is enough, in my judgment, to defeat any claim that there has been unfairly prejudicial conduct.

[567]Finally on this aspect of the case, CIL complains that there was a failure to take steps to ensure that SCFF was paid on time and to pay the cheque into the bank immediately. I have dealt with the problem over cheque payment in dealing with the late payment under the MoU. To the extent that the credit terms of the MoU govern the relationship, the same considerations apply.

[568]However, taking the late payment of killing fees in isolation, I do not consider that the failure to credit the account on the Friday instead of on the Monday amounts to unfairly prejudicial conduct. But for the future, RWM and SCFF need to take steps to ensure that payment due on Friday is banked on Friday. And if that is done, as it should be, the value of the shares ought to reflect what should happen rather than what has in fact happened.

Petition Paragraph 39(8): Supply sheep to RWM Dorset on generous terms

[569]I understand that this complaint relates to animals procured pursuant to the Supply Agreement where a procurement fee is charged. The animals procured are not for slaughter at Langport. Different arrangements apply to animals slaughtered at Langport when a killing fee, but no procurement fee, is charged.

[570]CIL claims SCFF supplied sheep to RWM Dorset on terms that provide for RWM Dorset to pay SCFF long after SCFF had paid its suppliers thereby financing RWM Dorset's working capital requirements. It is said that this was never agreed to by any of the Cobden Directors and was an arrangement made by the RWM Directors for the benefit of RWM Dorset. It is said that the RWM Directors have walked out of a board meeting where this issue was to be discussed and have refused to attend any further meeting to discuss it, with the result that SCFF continues to supply sheep to RWM Dorset on terms which CIL says are unfair and prejudicial to it. CIL claims this was a breach of the RWM Directors' fiduciary duties, a breach of the obligation to promote and enhance the Business and a breach of the provision requiring a board resolution to be supported by at least one Cobden Director and one RWM Director.

[571]RWM alleges that the supply of sheep to RWM Dorset was a matter of commercial judgment and therefore fell outside sections 459 Companies Act 1985 and section 994. It further alleges that CIL is debarred by laches and delay from relief in respect of the supply of sheep to RWM Dorset, again relying on Grandactual Ltd.

[572]It is said on behalf of the Cobden Directors that the credit terms for the supply of lamb to RWM Dorset remain a mystery to them and that they had nothing to do with agreeing them. It is submitted by Mr Weatherill that the most likely explanation for the adoption of these credit terms is that a mistaken assumption was made that the Supply Agreement covered not only the procurement of animals by the Producers’ Club on the terms there provided for, but also their purchase by SCFF, in the same way as had been provided for, in RWM’s case, in the Trading Agreement.

[573]I have already discussed the Supply Agreement, concluding that it does not cover the terms on which SCFF was to be reimbursed for the cost of animals for which it, in the first, instance, paid. The evidence establishes, I consider, that the fee provided for under the Supply Agreement was set at a level which took no account of the financing costs attributable to the purchase of the animals. This can be seen most clearly in relation to the adoption of a £750 procurement fee shortly after the Cobdens had acquired their shareholding in RWM Dorset. This is what Mr Phelps has to say about that, evidence which I accept:

“I believe some six months after the Cobdens acquired their shareholding in Dorset, Matthew Cobden informed me that in future RWM Dorset would pay SCFF a flat procurement fee of £750 per week irrespective of the numbers of livestock involved. At the time I tried to argue with Matthew that this did not make any commercial sense since it would not cover the fees we were required to pay to commission agents. However Matthew was adamant and as a result the new fee arrangement was implemented. I was aware at that time that Matthew had a direct shareholding in RWM Dorset and only had an indirect interest in SCFF. I believed strongly that this fee arrangement was wrong and it took me at least six months to have it corrected so that RWM Dorset paid a flat weekly procurement fee of £750 but also would reimburse SCFF for its payments to the commission agents….”

[574]Matthew’s own evidence was that he wanted to see the £750 fee introduced because he thought that RWM Dorset was paying over the odds given that SCFF’s staff costs were nothing like £750 per week in carrying out procurement. It is not apparent to me, how, if at all, he took into account payments to commission agents. But what is clear is that neither he, nor Mr Phelps in achieving the changes which he did, thought that the procurement fee would cover the financing costs. Nor could any director of SCFF who troubled to consider the procurement arrangements have thought that this was so.

[575]Although there have been slight improvements from SCFF’s perspective in the procurement fee, these are limited. There was certainly no consideration given to the credit terms for animal purchases. Thus, in April 2002, Mr Phelps attempted to obtain better terms and produced an analysis showing by how much more than £750 per week the costs really were. All that Richard could negotiate was an improvement in the haulage terms as recorded in his letter dated 22 April 2002 to Robin, coupled with a promise that matters would be reviewed in the future (which they never were).

[576]RWM and RWM Dorset nonetheless say that the credit terms applied in practice were agreed or acquiesced in by the Cobden Directors, with the result that those credit terms allowed by SCFF cannot be relied on as unfairly prejudicial conduct.

[577]Mr Weatherill submits that, if the RWM Directors had given this supply of sheep to RWM Dorset any thought, they would have realised (but they probably knew anyway) that there was no profit for SCFF in supplying sheep to RWM Dorset. They were not prepared to discuss this item. He submits that the supply of sheep to RWM Dorset under these credit arrangements gave rise to a breach of the RWM Directors' fiduciary duties and a breach of RWM’s obligation to promote and enhance the Business. SCFF could not have made a profit out of this supply with such generous credit terms, but instead it was funding RWM Dorset’s working capital requirements to the latter’s significant advantage. At the very least, there was a breach of the provision requiring all board resolutions to be supported by at least one Cobden Director and one RWM Director.

[578]These breaches are, it is submitted, compounded by the fact that the supply of sheep to RWM Dorset was an agenda item for the board meetings held or scheduled for 19 February 2007, 15 June 2007 and July 2007. I do not understand this submission fully. The first of those meetings did not mention trading with RWM Dorset at all and nor did the Agenda raise it. The Agendas for the later two meetings refer to proposed resolutions to cease procuring lambs for RWM Dorset, but there is no hint in it (unsurprisingly) of the reasons why the Cobden Directors might want to bring this work to an end. I have to say that I am entirely unaware of when, precisely, the specific complaint about the credit terms was first raised by the Cobden side with the Heffer side.

[579]What can be said, however, is that Robin appreciated the true effect of the Supply Agreement (in the sense that he formed the view that it did not provide the credit terms actually applied) in about May 2007 and Graham more recently in early 2008. Notwithstanding that appreciation, they took no steps as directors of SCFF to tell the board of their views or to modify RWM’s position on this Petition or indeed to implement different credit terms.

[580]Mr Joffe’s submission is that the preponderance of evidence demonstrates that it was assumed and understood by everyone that:a. the Supply Agreement operated between RWM Dorset and SCFF.

b. SCFF would purchase livestock on behalf of RWM Dorset on credit; ie SCFF would finance the livestock purchase.

[581]The division into two limbs is his division, not mine. His primary submission is that the Supply Agreement itself provides for the credit terms actually applied (ignoring the fact that Mr Carswell applied a slightly different period in practice). But I have rejected that submission. Accordingly, the assumption and understanding can only have arisen because everyone (wrongly) assumed and understood that the Supply Agreement provided for those credit terms. There is certainly no evidence of other factors which might have given rise to such an assumption or understanding.

[582]As to the alleged assumption and understanding, Mr Joffe relies, among other matters, on the following evidence:a. Robin’s evidence was that both the Heffers and the Cobdens understood this to be the position at the time and that lamb was supplied on that basis. Graham confirmed in his evidence that from the very beginning the trading arrangement was that SCFF would procure and purchase the animals for RWM Dorset and that RWM Dorset would reimburse the livestock cost on credit terms. SCFF made no profit on the reimbursement of the livestock cost and gave 28 days’ credit.

b. Matthew’s evidence was that he did not really think about it at the time, and that he could not remember.

c. Mr Carswell has always operated on the basis that RWM Dorset’s credit terms are 28 Days from the Friday of the week of delivery. When Robert took over at RWM Dorset, he sought only to continue the terms of trade as they had been applied by Graham and Matthew.

d. The Cobden Directors have been aware of the supply of lamb to RWM Dorset and the terms of supply for a significant period and agreed to them. CIL admits in its Response that the Cobden Directors have been aware of the supply of lamb to RWM Dorset and its terms since 1998.

[583]With one qualification, I think Mr Joffe is correct in all of that. The qualification is that I am not at all sure that Richard and Matthew assumed and understood that the credit terms would be as in fact operated, still less that they understood this to be an obligation under the Supply Agreement. On the other hand, I am satisfied that Robin and Graham did assume that the credit terms in the Supply Agreement applied (although whether either of them focused on the point or gave it much thought, I very much doubt). The way in which the credit terms came to be implemented is not clear, but I consider it more likely than not that it was implemented as a result of instructions given to the RWM end of the accounts department by either Robin and/or Graham. I am satisfied that the credit terms were then applied; and also that the Cobden Directors knew of the terms actually being applied – indeed, the Response admits this – although whether they assumed or understood that that was because the Supply Agreement so provided I very much doubt.

[584]Mr Joffe emphasises that the credit terms were applied consistently without objection having been raised. That was clearly true at the inception of the trading arrangement. However, Mr Weatherill submits, whatever the position was when the Supply Agreement first came to be operated, the fact is that Matthew became concerned about the procurement business for RWM Dorset. That is true, but it is important to see precisely what he complained about. For that, it is necessary to look at the minute of a board meeting of SCFF on 10 November 2000. At that meeting, he complained that, in relation to RWM Dorset, SCFF got no benefit from livestock procurement, administration, haulage or commission, but the minutes show that fuller discussion was deferred. The topic of financing costs of animals was not, however, raised even though he knew what credit terms were being operated.

[585]His failure to do so could have been for one of at least three possible reasons. The first possible reason is that, like Robin and Graham, he did think that the credit terms in the Supply Agreement applied to animal purchase costs. The second possible reason is that he did not care. The third possible reason is that he simply did not think about it. Whatever the truth, I am sure that the RWM Directors must have appreciated, or would if they had thought about it have appreciated, that in allowing the credit terms which it did, SCFF was, in effect, funding a large part of RWM Dorset’s working capital requirements and that, in that sense, the arrangement favoured RWM Dorset.

[586]Although Matthew raised the non-profitability of the procurement arrangements at an early stage as I have just explained, the express complaint about credit terms is a much more recent complaint. Until the issue was raised, there was no reason for the RWM Directors to think that their assumption and understanding about the meaning of the Supply Agreement was wrong. Accordingly, over a long period, the Cobden Directors have allowed the credit terms to be operated without protest and, indeed, without themselves thinking that they might be entitled to protest.

[587]It can reasonably be said that they have done more than simply allow others to implement credit terms of which they did not approve but without protest. Rather, there has been active involvement. Richard signed the SCFF livestock cheques for the sheep, which he knew were for supply to RWM Dorset; he also accepted that when he signed SCFF cheques for haulage and commission he knew that they were for lamb that was being supplied to RWM Dorset. Matthew (or William Cobden during 2002) signed the RWM Dorset cheques to SCFF in respect of the sheep. Matthew gave evidence that he would have looked at the invoices from SCFF to RWM Dorset in particular and that he would have looked at them very carefully in the period between 1998 and 2000. Indeed, a Cobden Director still has to sign the RWM Dorset cheques. Matthew also signed RWM Dorset’s accounts; if he had thought that a large amount was owing to SCFF in relation to delayed payment, it is something that one might expect he would have raised with the auditors.

[588]The Cobden Directors had three particular opportunities to raise a point about credit terms which I should mention. a. Matthew and Andrew Davies of Berkeley Jackson met on 19 September 2000. As a result of that meeting Mr Davies wrote a letter of that date to Porter Dodson. The letter summarised for Porter Dodson the terms that Matthew was prepared to accept from the Heffers as part of the renegotiation of the Cobdens’ shareholding in RWM Dorset. Point 9 stated as follows:

“RWM Dorset Limited pays [SCFF] for its animal supplies on the same day that [SCFF] pays its farm suppliers.”

There is nothing in the evidence to suggest that this point was ever raised with the Heffers. b. The terms for the supply of sheep to RWM Dorset were varied in two respects at the request of one or other or more of the Cobden Directors (as set out more fully in relation to the complaint under paragraph 39(8A) of the Petition) namely in relation to the procurement fee and haulage and commission fees.

[589]Before coming to my conclusions on this part of the case, I need to mention one other matter about the evidence, or rather lack of it. There is no evidence to suggest that, had everyone involved recognised at the beginning that the Supply Agreement did not provide credit terms of the purchase price of animals, RWM Dorset would not have procured lambs for the procurement fee which it did but paying in such a way that SCFF did not make a loss on the purchase and sale of animals. It is not surprising that there is no such evidence. Assuming that the procurement fee was a fair fee for procurement (eg if RWM Dorset had paid the farmers or markets direct), one would not expect to see SCFF undertaking purchases at a guaranteed loss. This is the more so given that SCFF was purchasing as agent for RWM Dorset and not on its own account as a dealer. Nor, given the level of procurement fee, can it be maintained that the profit on that is sufficient to justify the credit terms on the animals. Moreover, there is no evidence to suggest that in procuring lambs in, say 2003, RWM Dorset relied to its detriment in placing orders in, say 2004; it is not for instance said that orders would have been placed elsewhere (whether for lambs or for meat on a pence-per-kilo basis) if it had been known that credit would not be given on these terms.

[590]In my judgment, CIL succeeds on this part of its case. The Supply Agreement must be taken as the basis on which the parties were to trade; the credit terms were applied by the Heffers not because they believed that this is what had been agreed but because they thought that this was what the Supply Agreement provided. There is nothing to cause me to think that, had the true position been appreciated, the same amount of lamb would not have been ordered for the same procurement fee. The arrangements actually made can now be seen to have been entirely beneficial to RWM Dorset and detrimental to SCCF.

[591]Further, in my judgment, the responsibility for the actual implementation of those credit terms lies, I think, with the RWM Directors; someone must have instructed the accounts department to implement these credit terms and I am sure it was not a Cobden Director. Even if that is stating the position too highly, which obviously I do not think it is, the RWM Directors clearly failed (as to be fair did the Cobden Directors) to prevent such implementation. In saying that, I do not mean to criticise the RWM Directors in the sense of attributing to them conduct which they knew, or indeed even suspected, to be improper. I acquit them of any breach of good faith; they simply had a mistaken view of the Supply Agreement.

[592]Nonetheless, in failing to implement the provisions of the Supply Agreement on behalf of SCFF in the correct way, they acted, albeit innocently, against the interests of SCFF and in the interests of another company, RWM Dorset, in which they were financially interested. This was conduct in the affairs of SCFF. This is all the more so when it was an RWM Director – first Graham and then later Robert – who acted for RWM Dorset in these affairs. It was clearly conduct which was prejudicial to SCFF’s interests. It was in all the circumstances also conduct which was, in my judgment, unfair. What relief follows from that, is something I deal with later. Although taken by itself, an appropriate order might be some sort of financial recompense to SCFF rather than an order for share purchase in one direction or the other, that may not be the correct relief in the overall context.

[593]The Shareholders Agreement now needs to be considered in this context. As I have concluded in discussing the reduction in killing fees, RWM Dorset is not directly subject to the Shareholders Agreement and not subject to the obligation of promote and enhance the Business. However, if I am wrong on that, then I am of the view that the credit terms operated in practice would be a breach of the obligation to “promote and enhance” the Business. Although RWM Dorset does not have to trade with SCFF at all, it must, if it chooses to do so, do it in a way which promotes and enhances the Business: the terms of trade must be fair which in my view these credit terms were not. Given that the procurement fee was not designed to cover finance costs and was, at best, fair in the sense of providing some profit on procurement, the finance costs are a separate matter and it would not be fair for SCFF to bear them.

[594]The fact that the Cobden Directors did not object to the credit terms – whether because the Cobden Directors were labouring under the same mistake as the RWM Directors or because they thought they were bound by them for some other reason – does not persuade me to reach a different conclusion on any of these matters. Conduct on the part of the RWM Directors can be unfair even if they were acting innocently; it does not become fair even if not objected to by the Cobden Directors. Whilst assent to a course of conduct would normally preclude a petition under section 994 based on that conduct, I do not consider that that is an absolute rule.

[595]Before leaving this complaint, there are some other matters which I must mention.

[596]I do not, in the circumstances need to address whether Mr Phelps acted in breach of his authority or in breach of fiduciary duty. I think he acted as ever in a way which he saw to be in the interests of SCFF. If he was acting under the same misapprehension as to the credit terms as were the Heffers, it is not surprising that he allowed the supply of lambs to RWM Dorset to continue.

[597]Mr Joffe says that the credit terms extended to RWM Dorset must be viewed in their context. SCFF was not paying farmers within 7 days, but taking considerably longer. In the context of financial adjustment if a share sale one way or the other is ordered, I agree with that submission. There is no reason to allow SCFF to be treated as making a profit on the purchase of lambs given that it was doing so as agent for RWM Dorset; its remuneration is to be found in the procurement fee.

[598]Mr Joffe says that the credit terms reflect part of the “give and take” between the companies. I have already dealt with “give and take”; but in any view, this is far too significant a matter in financial terms to be seen as part of any “give and take”.

[599]Then he says that, in the light of the knowledge and acquiescence of the Cobden Directors, CIL is debarred by its own laches or delay from claiming relief. Mr Weatherill says that this is as unattractive as it is opportunistic. He draws attention to Matthew’s complaint at the 10 November 2000 board meeting that SCFF, a time long before the matter was formally raised as a board agenda item, and, there are here, he says, none of the elements which could possibly justify defeating this aspect of the claim on these grounds; indeed, in light of their obligations under the Shareholders Agreement, it hardly lies in the mouths of RWM even to raise this sort of argument: doing so is itself completely inconsistent with their obligation to “promote and enhance” the Business. As I have already pointed out, the point about credit terms was not raised at that board meeting and it remains unclear to me when it was first made. Nonetheless, I reject Mr Joffe’s submission not least because it is not demonstrated to me when the Cobden Directors first appreciated the credit terms point and the true effect of the Supply Agreement.

Petition Paragraph 39(8A): Review of the procurement fee for RWM Dorset

[600]CIL claims that one or more of the RWM Directors, Mr Carswell or Mr Phelps failed to cause SCFF to review the £750 per week charged to RWM Dorset for the costs of sourcing sheep after more sheep were sourced directly from farmers rather than from markets, when salaries and related costs increased, when the numbers of sheep supplied increased, or at all. RWM’s general response is to complain that the pleading is inadequate to enable them to know what revisions ought to have been made, but there is no suggestion in their defence that it would not have been appropriate to review these fees.

[601]The background is that SCFF’s procurement department employs livestock buyers who negotiate the purchase of livestock direct from the farmer. SCFF also buys livestock through independent agents at a fixed fee, at the time in question, of £0.50 per head for sheep. SCFF does not charge RWM Dorset a procurement fee for livestock that is killed at Langport, but does charge such a fee for livestock that it procures but does not kill. Haulage costs were only payable by SCFF where livestock is acquired through the livestock markets and not where it is procured direct from the farmers (where the farmers pay the haulage).

[602]Prior to about the latter part of 1998, the agreement for supply between SCFF and RWM Dorset provided for a procurement fee of £0.50 per head for sheep but SCFF paid all haulage costs and commission fees to agents (as well as paying salaries to its own buyers and financing the purchase of animals). In about the latter part of 1998, Matthew insisted on a flat procurement fee of £750 per week. He thought that the charge of 50p per sheep was too high just to send Daniel Cobden and Steve Lowe to market to wiggle their fingers as he put it in cross-examination. I think it likely that the £750 figure came from Matthew himself.

[603]Mr Phelps regarded this as inappropriate and (at his suggestion) it was agreed in about the middle of 1999 that RWM Dorset would also reimburse SCFF in respect of payments to commission agents. Matthew accepted that it was Mr Phelps who obtained the improved terms, but he could not recall it happening only 6 months after the introduction of the £750 fee. However, Mr Phelps was not challenged on his evidence that it was at this point in time and I accept his version of events.

[604]At about the beginning of 2001 Mr Phelps agreed with Robert that SCFF would charge RWM Dorset a set amount for haulage depending on the particular journey. Mr Phelps does not recall either Richard or Matthew asking him to revisit the £750 weekly flat procurement fee at this time. He is certain that he would have raised this issue with them. He considers that the fact that he did not try to raise the point with Robert when discussing haulage costs suggests that neither Richard nor Matthew would have wanted him to have raised it at the time. I am satisfied that it was not in fact raised by Mr Phelps with Robert and that he was not asked to raise it with Robert by either Richard or Matthew at that time.

[605]The change in haulage charges came about this way. Richard was becoming concerned, during 2001, about the level of haulage charges that SCFF was paying on behalf of RWM Dorset for lamb purchased from livestock markets in Scotland. He was closely concerned with procurement and a cheque signatory; and as such he was well aware of the costs involved. He was concerned that these costs were impinging unfairly on SCFF and prevailed on Mr Phelps to sort the matter out with Robert (as managing director of RWM Dorset). Mr Phelps is of the view that this all came about as a result of Richard realising that, since the Cobdens would be reducing their shareholding in RWM Dorset, RWM Dorset and SCFF could no longer be seen as one enterprise jointly owned by the Cobdens and the Heffers. Accordingly, Mr Phelps negotiated with Robert that from sometime around the beginning of 2001 SCFF would charge RWM Dorset for haulage a set amount determined according to the area in which the livestock market was situated.

[606]There must have been concerns on Mr Phelps’ part about the procurement fee even after that. With a view to negotiating a better deal he wrote a letter to Robin dated 22 April 2002 attaching a schedule showing the costs of procurement at £1,539 per week, a figure which he said in cross-examination was a negotiating figure but nevertheless substantially in excess of £750 per week. The following interchange is, nonetheless, interesting:

“Q: Would it be fair to say that even though it may have been a negotiating figure, you regarded in 2002 the figure of £750 per week as woefully inadequate? A: I did, and then you know when you look at the fact that it's an addition to the business, I still feel it's inadequate, but it does help towards the overheads of running the Producers’ Club.”

[607]Mr Phelps expressed a rather different view in his witness statement, analysing the figures rather differently and saying:

“Fixed costs such as staff salaries and postage totalled £214 per week meaning that £536 was left to cover variable costs, all of which were recharged to RWM Dorset except SCFF fieldsmen. SCFF fieldsmen are out procuring cattle all day and none would be made redundant if SCFF were to stop procuring sheep for RWM Dorset so essentially the £536 is incremental income for SCFF.”

[608]However, he is there referring to the figures in his “Lamb Procurement Costs” document which I have already mentioned dating back to June 2001 even thought he (mistakenly) refers to that document as attached to his letter of 22 April 2002.

[609]After discussions in April or May 2002 with Robin, Richard sent a letter to him dated 16 May 2002 setting out the then agreed terms for procurement (which, incidentally make no reference to the cost of financing animal purchases). Matthew thought that he would have played a part in the discussions about this letter. The terms were that RWM Dorset would pay £750 per week and reimburse all commission and haulage costs. It should be noted that this sum was described as a contribution towards salaried fieldsmen, livestock payment staff and the management of the Producers’ Club. It was described as a minimum contribution subject to review (clearly only upwards) in six months’ time. It clearly contained no allowance for finance costs in respect of animal purchase costs.

[610]Richard gave evidence that he regarded this agreement as fair at the time (although I did not understand him to say it was fair if financing costs were taken into account). So I have, curiously, a witness for CIL, which claims the fee was unfair, saying it was fair; and a witness for RWM, which claims the fee was fair, saying that it was inadequate.

[611]The procurement fees have not in fact been reviewed since then. It is nonetheless the case that costs have increased since 2002. Further, the number of lambs supplied has increased from 700 to 16,000 per week according to Matthew, whose evidence to that effect I accept.

[612]Mr Weatherill suggests that the Cobden Directors have sought to have a review, but have been rebuffed. However, those attempts have been recent. It is true that the issue of procurement charges to RWM Dorset was raised at the latter end of 2005 when the procurement charges for cows to be killed at Yetminster were discussed but this was really only in passing and was not pursued (perhaps because the proposal to kill cows at Yetminster never materialised). The only real attempt to raise the issue since then was the tabling of an agenda item for the board meetings that were called in June and July 2007. Even those resolutions do not propose renegotiating the procurement fee; instead one proposes ceasing to procure lambs for RWM Dorset altogether and the other proposes ceasing the finance of procurement of lambs for RWM Dorset.

[613]Mr Joffe submits that the £750 procurement fee (or as it is perhaps better described, contribution) was reasonable. He says that Matthew fixed it and that it was reviewed in May 2002.

[614]He says that the Cobdens did not thereafter ask for it to be reviewed until they called a board meeting to terminate the whole arrangement with RWM Dorset. Whenever the Heffers were approached with respect to procurement, they agreed to change the terms: the change to £750, the reimbursement of commission agent’s fees, the reimbursement of haulage costs and the minimum contribution to fixed costs agreed in May 2002. Matthew essentially accepted this; his explanation for not requesting a review was that the Cobdens had other bigger problems to deal with.

[615]Mr Joffe relies on Mr Phelps’ evidence (which I have already mentioned) that the £750 fee was beneficial to SCFF, because the staff overhead cost of procuring lamb for RWM Dorset would be incurred anyway.

[616]Mr Phelps’ cross-examination, however, revealed that he thought the fee woefully inadequate. Moreover, he considered that to be the position in 2002 when far fewer sheep were being procured than more recently. He confirmed that he saw these fees, on the terms agreed in 2002, as questionable by 2004 and had wanted to suggest a review in January 2005. I must be careful here, because one reason for this was that it did not “cover the £30,000 in outstanding monies from RWM Dorset to SCFF on an annual basis”; so it might be said that the fee was inadequate only because of that aspect of SCFF’s own costs and that that is a matter, in any case, dealt with in relation to the complaint about credit terms. It does, however, underline the fact that the credit terms are not reflected in the procurement fee.

[617]What view Mr Phelps would express today about a current contribution of £750 ignoring finance charges, I do not know; it was not an area explored in cross-examination. It might be that the increased work means the fieldsmen that are now being employed would be excess to requirements without this business and who, contrary to the position in 2002, would be made redundant today. Be that as it may, I do not see how a fee which was woefully inadequate in 2002 could be adequate today. Perhaps the explanation for Mr Phelps’ evidence is this (it is the only explanation I can think of): he sees the fee as adequate in the sense that it contributes to fixed overheads and incurs little if any extra cost. But at the same time, in a commercial deal, one would expect to see a service being provided at a level which does contribute to overheads.

[618]Finally, I include this interchange:

“Q: Today, reviewing the reasonableness of that £750, the case for reviewing the reasonableness of that £750 procurement fee is overwhelming, isn't it? A. Yes, I would love to review that kill fee, that's correct.”

[619]I agree with Mr Weatherill that, in context, that answer is a slip and that Mr Phelps was clearly referring to the procurement fee.

[620]The preponderance of the evidence, to use Mr Joffe’s phrase, is, in my judgment, that the procurement fee of £750 is, and has been, at least since the beginning of 2005, inadequate. The absence of a review of those fees in the light of changing costs and the increasing numbers of lambs being procured surely made the express terms of Richard’s letter dated 16 May 2002, important to observe.

[621]In my judgment the RWM Directors were, in these circumstances, in breach of their duties as directors to SCFF in failing to seek a review of the procurement charges. They did not even consider whether they should do so. It is true that the Cobden Directors did not do so and are as much to blame and are as much in breach of duty as the RWM Directors. But the fault of one does not discharge the fault of the other and, in the absence of any agreement between the Cobdens and the Heffers that a review should be undertaken, the breach remains. The difference between the position of the Cobdens and the Heffers is that the Heffers, through their interests in RWM Dorset will have profited if the procurement fee was one which should (or would) have been increased had the issue been raised. For reasons similar to those given in relation to the complaint about the credit terms allowed in relation to lambs supplied to RWM Dorset, I consider that there has been unfairly prejudicial conduct and that this complaint is made out.

[622]However, I have no evidence about what a reasonable procurement fee would have been at any particular time. Accordingly, I cannot take account of some notional larger fee in addressing the value of SCFF or how this conduct, assuming it to be unfairly prejudicial conduct, is to be reflected in money terms. This, I think, is a valid point made by RWM when it claims that the pleading (and I add, the evidence) is inadequate to enable them to know what revisions ought to have been made.

[623]Even if I am wrong in those conclusions, once the complaint was raised by the Cobden Directors expressly, it ought to have been addressed. In this respect, I think that the Agenda items are a sufficient warning that the Cobden Directors wanted to see the whole issue of the procurement fees addressed. However, by that time, the Petition had been issued and the meeting of the board had become a hostile negotiating forum. The complaint that the procurement fee was not addressed at that stage is therefore really a complaint about failure to attend board meetings, which I deal with separately.

Petition Paragraph 39(8B): Recovery of cost of haulage from RWM Dorset

[624]This is a discrete issue which arose because RWM’s disclosure raised questions as to whether haulage charges of £229,206 due to SCFF from RWM Dorset in the period ended 30 November 2001 had been recovered. CIL sought comfort about that from RWM, and only amended the petition to include this allegation when no adequate response was forthcoming.

[625]RWM has simply denied that any part of that sum remains outstanding, but it appears from Mr Carswell’s witness statement that that is not so and that the bulk (£203,828) has been recovered. In the joint experts report dated 15 April 2008 Ms Gread indicated that this was now accepted on behalf of CIL, but that she considered that the remainder was unaccounted for.

[626]Mr Carswell was cross-examined on this. He said that he could not confirm whether or not it was recovered in a subsequent period (although it is an issue in the petition and it might have been thought that he would have taken steps to find out). He acknowledged that, if not recovered, it should be paid. In re-examination, he said that the explanation probably lay in the fact that the charges in question were incurred by SCFF in the part of 2001 before it had been agreed that haulage charges would be recovered from RWM Dorset.

[627]Mr Weatherill protests that, if that explanation had been forthcoming when enquiry was first made, it is probable that this issue would not have been litigated. As it is, he says that Mr Carswell’s evidence leaves matters up in the air. It does not establish that the sum could not have been recovered by SCFF from RWM Dorset; it merely casts doubt on whether it is due and owing. It would have been perfectly straightforward for Mr Carswell to have explained what he said in his re-examination either to the Cobden Directors or to their solicitors but he did not do so, and RWM’s Directors attitude was simply to deny that any sum was due. It seems to me to be highly unlikely that the RWM asked Mr Carswell to investigate and report, for if that had been done he would surely have said more in his witness statement.

[628]I have some sympathy with Mr Weatherill when he says that, in fact, this little issue is informative both of RWM’s attitude towards legitimate questions posed by, or on behalf of, the Cobden Directors and of the control which RWM have over the accounting function. However, I think that Mr Carswell’s explanation is likely to be correct.

[629]Mr Carswell’s witness statement also disclosed, for the first time, that disparities have resulted in another sum of £15,073 being due from RWM Dorset, and he was able in cross-examination to confirm that that sum remains outstanding. It is noteworthy that it has not been paid since Mr Carswell signed his witness statement on 13 November 2007. Mr Weatherill again relies on this saying that this speaks volumes about the attitude of RWM and the RWM Directors and the relative powerlessness of the Cobden Directors. At least he might be relieved that Mr Joffe does not suggest that this is all part of the “give and take”. This, however, is hardly the subject matter of an unfair prejudice petition, even as a make-weight to be thrown into the scales with more serious matters.

[630]I reject the complaint under paragraph 39(8B) of the Petition.

Petition Paragraph s39(9) and (10): Trespass and failure to charge a licence fee

[631]CIL claims that RWM has trespassed on 8 discrete areas at the Langport site. They are:a. the main car park;

b. the lorry park next to the slaughter hall;

c. the workshop;

d. the lorry park next to the workshop;

e. the yard manager’s office, training room and laboratories;

f. the former tannery buildings;

g. the quarter chill; and

h. the canteen. CIL claims that these occupations by RWM were breaches of the RWM Directors' fiduciary duties, breaches of the obligation to “promote and enhance” the Business and breaches of the provision requiring a board resolution to be supported by at least one Cobden Director and one RWM Director.

[632]RWM’s case is that the occupation (or part occupation) of the areas is part of the “give and take” between SCFF and RWM and should not be viewed in isolation. Further, even apart from the convention of “give and take”, RWM contends that there is nothing objectionable in its use and/or occupation of the areas. In accordance with the informal arrangements between SCFF and RWM, the respective rights and understandings between them were not recorded in writing, but nonetheless formed the basis of operation of SCFF over a number of years

[633]Accordingly, Mr Joffe submits that RWM’s occupation was consensual and/or acquiesced in by the Cobden directors (and, thereby, CIL). He is correct, I think, when he says that no substantive complaint was made in respect of occupation by RWM until early 2006 by which time one sees, as examples, the following:a. In the letter dated 21 February 2006 to Robin, Richard pointed out that RWM was currently operating outside the Premises including various lorry parks, a workshop, a tray store and a shed containing old machines and this was more extensive than originally formalised by the Lease. He added that it must therefore be correct that the Lease be revised to cover those areas and a proper rent payable. He then asked whether Robin would agree to appoint an independent surveyor to report on what would be an arm’s length rent in those circumstances. He did not agree.

b. At a board meeting on 24 February 2006 Matthew said that he thought Romford Wholesale was using areas of the Langport site that were not covered by the existing Lease and suggested an independent surveyor be appointed to apportion an adjustment to the existing rent. Robin’s response to this was to say that further investigation was needed before a surveyor was appointed.

c. At a board meeting on 29 August 2006 Matthew listed the various areas of the site which were being utilised by RWM and for which no rent was paid, especially for lorry parking and maintenance facilities. He also stated that the Lease should be modified and rental charged accordingly and suggested that a surveyor review the site to assess it properly. Robin observed that this had not been mentioned until 18 months before. He then went on to mention that several members of RWM staff performed some of their duties for SCFF for which it paid no charges although there is nothing to suggest that Robin accepted that SCFF might have a justifiable complaint. Mr Carswell was instructed to quantify the costs which Robin had identified and to present them to Matthew for consideration. Matthew says, and I accept, that this was never done. Mr Carswell was also asked to investigate why no recharges were being made for support to SCFF from the RWM technical team. The Cobden Directors would review the lease situation in a few days time once the facts were clarified. The issue, it seems to me, was effectively “booted into touch” by Robin.

[634]It is also the case that, much earlier, at a reconvened board meeting of SCFF on 22 October 1997, it is recorded that Matthew wanted to discuss various areas of cost saving including this:

“RWM are using additional areas on site outside the rental agreement, need rental value of 3 storerooms”

. Mr Joffe says that this was simply a general point and that it related only to 3 storerooms. I am not sure that Matthew’s concerns were limited in that way to the 3 storerooms but it does not seem that he is complaining about shared areas such as the car-park or laboratory. However, the point does not seem to have been followed up by any of the Cobden directors.

[635]Mr Joffe takes from Megarry & Wade, The Law of Real Property (7th ed) at 16-001 the very brief description of the principles governing the doctrine of proprietary estoppel, according to which an equity arises where:a. an owner of land O induces, encourages or allows a claimant C to believe that he has or will enjoy some right or benefit over O’s property;

b. in reliance on this belief, C acts to his detriment to the knowledge of O; and

c. O then seeks to take unconscionable advantage of C by denying him the right or benefit which he expected to receive. This equity gives C the right to go to court to seek relief. The court has a wide discretion as to the manner in which it will give effect to the equity, having regard to all of the circumstances of the case.

[636]RWM’s case is that the Cobden Directors (and thereby CIL and SCFF) agreed to, acquiesced in and/or encouraged the occupation by RWM of the separate areas. Its case, as set out in more detail below in respect of each individual area, is that:a. RWM was granted an express or implied licence to occupy and acted in reliance thereon such that the licence cannot be revoked, alternatively it is an implied term of the licence that it cannot be revoked, until RWM ceases to occupy the Demised Premises; and/or

b. the Cobden Directors and/or CIL and/or SCFF induced, encouraged and/or acquiesced in RWM’s occupation and RWM is entitled to the benefit of an equity by reason of proprietary estoppel allowing RWM to occupy until it ceases to occupy the Demised Premises; and/or

c. RWM and SCFF have operated and conducted themselves on the assumption that RWM has been (and is) entitled to occupy and use the areas in the manner in which it has over the years. RWM has acted to its detriment in paying for the construction and maintenance of certain of the areas such that it would be unconscionable for SCFF to go back on that assumption, relying on Amalgamated Investment & Property Co Ltd v Texas Commerce International Bank Ltd

[1982] QB 84

;

d. RWM’s occupation has been and remains lawful and RWM has not trespassed; and

e. it is not and/or was not unfair for the RWM Directors not to take steps to prevent RWM’s occupation.

[637]I turn now to the separate areas.

The main car park

[638]Initially there was inadequate parking at the Langport site for the employees of both SCFF and RWM. The car park was built on a field at Langport in about 1997. The field was used for car parking prior to the car park surface being laid, as is established to my satisfaction by the aerial photograph of the site that was provided to Mr Hicks by Matthew (or possibly Richard).

[639]It was Robin’s evidence that he and Richard agreed that SCFF and RWM would build a car park on some vacant land at the entrance to the Langport site. Richard could not remember whether Robin Heffer had suggested this, but denied that he agreed. RWM’s case is that this land would not have been used were it not for the construction of the car park. I accept that it is certainly the case that no other use has ever been proposed and that the Cobden Directors have never suggested that the land was needed or could be used for some other purpose. It is said also that Richard and Robin agreed (on behalf of SCFF and RWM) that SCFF and RWM would build and share the use of the car park, on the basis that RWM would contribute 64% of the cost and SCFF the remainder; this was based upon approximate proportion of use by each company by their respective staff.

[640]The possibility of constructing a car park had been discussed at a board meeting of JHC as long ago as 27 October 1994 at which time there was consideration of the planning implications. I am satisfied from the evidence of Mr Hicks that an application for planning permission by JHC was required. Such an application was in fact made by agents on behalf JHC. Matthew was in overall control of the construction work for the refurbishment of the abattoir at that time and dealt with Nick Reid the constructor and John Wykes the architect. Although both of those gentlemen were involved with the car park, Matthew’s evidence was that he did not think that he was involved with the car park. It can hardly have escaped his (or anyone else’s) notice, however, that the car park was under construction. No objection seems to have been raised by any of the Cobden directors with Robin or anyone else on the Heffer side about what was going on. Matthew says that he was very busy on other aspects of the business including the refurbishment itself but he cannot possibly say that he did not know the car park was being constructed. Further a Cobden director would have signed the cheque for the construction of the car park and the cost of the planning application.

[641]Matthew and Richard both accepted that they knew that the car park was built on land that was not part of the Demised Premises. Richard acknowledged that he was aware of the construction before it started, but he too did not make any enquiries. He parked in the car park himself from time to time and knew that RWM employees used it.

[642]Matthew’s evidence was that as far as he knew the car park was built without the approval of the SCFF board. Mr Joffe suggests that this is surprising in the light of the discussion at board meetings, the application for planning permission, the parking on the grass prior to the construction of the car park and the actual construction of the car park; all without any complaint from the Cobden directors. I am sure he is right to conclude that the Cobden directors knew of the construction of the car park as it was happening and probably even before construction started. I find on the evidence that none of the Cobden directors complained at the time to any RWM director about the construction, the payment of part of the cost by SCFF or the use of the car park once constructed. It does, however, appear that there was no formal board resolution approving these matters.

[643]Robin stated in cross-examination that he did not think the RWM was obtaining any rights at that time. However, in re-examination, he said that if Richard had told him that RWM could not use the car park shortly after it had been built then he would have responded that they had an agreement and had contributed 64% of the costs. I can quite see that that would have been his response; it would be perfectly natural to think that, having paid 64% of the cost, RWM would have some right to use the car park. It is, however, clear to my mind that there was no agreement between Richard and Robin about the terms on which RWM would be entitled to use the car park once constructed, whether about the period of permitted use or the payment, if any, which could be demanded.

[644]The car park was refurbished and extended in 2001. There can be no doubt that Matthew and Richard saw it being constructed, but did not raise it with anybody. RWM paid 64% of the costs according to Mr Carswell whose evidence I accept on this point. Richard did not ask who was paying for it or why it was being extended.

[645]When planning permission was sought for the extension of the boning hall in July 1999 it would have been necessary for SCFF to demonstrate that there was sufficient parking for the workers at the boning hall. Mr Hicks also accepted that it would not be possible to operate the boning hall without the car park.

[646]The Cobden directors did not complain about the use of the car park by employees of RWM at any point prior to 2006; this, indeed, was accepted by Matthew and Richard.

[647]Mr Joffe suggests that it was not contemplated that there would ever be any additional charge or contribution by RWM beyond the contribution to the construction costs and none was requested. I am sure that this issue was not discussed and that no request was made. Mr Joffe also reminds me that Matthew eventually accepted that none of the SCFF directors expected RWM to make a payment for the use of the car park. That is true but, it must be remembered, was in the context of an ongoing commercial arrangement between the Heffers and the Cobdens at a time when the two families were on good terms and co-operating to make SCFF a success. It does not follow that, the parties having fallen out, SCFF should not now be entitled to assert its formal rights. The real question is whether RWM has any rights to use the car park and if so, for how long and at what cost.

[648]It is RWM’s case that all of the Cobden directors were also aware of this agreement and/or arrangement, that is to say, the alleged agreement between Richard and Robin that the car park would be built at joint expense for joint use. It is then said that, in reliance on SCFF’s encouragement, RWM procured and contributed to the construction of the car park. CIL complain that the trespass started on 1 January 1998, yet no complaint was made prior to February 2006.

[649]In summary, RWM contends that:a. It has the benefit of an express or implied licence;

b. Alternatively, the events give rise to an equity in favour of RWM under the doctrine of proprietary estoppel. SCFF encouraged and/or acquiesced in the contribution by RWM to the construction of the car park in the belief that RWM would have a right to the use of the car park (or part thereof) while RWM was in occupation at SCFF’s site and had need of the car park. It would accordingly be unconscionable for SCFF to seek to resile on the position and enforce its strict legal rights;

c. RWM has not trespassed; and

d. In any event, the conduct of the RWM Directors in the circumstances does not amount to unfair prejudice, in that it was not prejudicial or unfair.

[650]Mr Weatherill does not accept much, if any, of what Mr Joffe has to say.

[651]As to the alleged agreement, he points out that the only agreement put to Richard in cross examination was about paying the cost of building the car park. It was never suggested to Richard that he agreed that RWM could use the car park for free. There was no agreement to that effect. There was no discussion about whether or not RWM could use the car park for nothing. He says that this was something that RWM wanted and, as usual, got it.

[652]My conclusions on the alleged agreement concerning construction of the car park are these.a. First, I consider it more likely than not that the construction of the car park was discussed between Richard and Robin and that they discussed the 36/64 apportionment of cost between SCFF and RWM. Richard agreed that the project would go ahead on that basis.

b. Matthew was not party to these discussions and agreements. There was no formal resolution of the board of SCFF for the construction of the car park. If the proposal was discussed at a board meeting, there is nothing to suggest that the board as a whole expressly agreed to the proposal even if no objection was ever raised.

c. Secondly, Richard (and indeed Matthew) were aware that the car park was being built but made no objection at the time.

d. Thirdly, they knew that SCFF was contributing to the cost, but again made no objection at the time. SCFF itself, of course, must clearly be taken as knowing that the car park was being built and that it was contributing to the cost.

e. CIL, through Richard as a director, is to be taken as knowing of these matters to the same extent as Richard.

[653]However, I also conclude that there was no discussion at the time between Richard and Robin (or anyone else) about the terms on which RWM would be entitled to use the car park, once constructed. Accordingly, there was certainly no express agreement that RWM would be entitled to occupy the car park let alone that it would be entitled to do so for nothing.

[654]But it must have been obvious to Richard that RWM would not be spending money on constructing a car park unless both he and Robin thought that it was to have some right to use it, even if the exercise of that right was to be subject to payment of some sort. Even so, I do not think that, in the circumstances of the present case, it can be said that there must therefore be an implied licence of some sort (in contrast with a right arising as the result of an estoppel): the terms of such licence would be far too vague (in relation to the extent of the licence (eg how many cars, and what areas, its duration and payment under it) to arise by implication.

[655]As to proprietary estoppel Mr Weatherill submits that no case is made out to establish such an equity. He says that for an estoppel to arise it would be necessary to establish the existence of some agreement or understanding which was relied on to RWM’s detriment, as to which his case is that Robin was quite frank in acknowledging the absence of “any such elemental ingredients”. He makes that submission, of course, on the basis of his assessment of the facts which I have rejected, his submission being that there was no agreement between Richard and Robin such as that which I have held to have been made.

[656]I reject Mr Weatherill’s submission. In my judgment, the court should recognise an equity in RWM on the basis of a proprietary estoppel. RWM has incurred expenditure on the construction costs of the car park in the belief that it would be entitled to use the car park: I regard that as self-evidently obvious otherwise why, one asks, would it incur that expenditure. SCFF, through Richard, has allowed, indeed agreed, to the incurring of that expenditure by RWM in circumstances where it is obvious, in my judgment, that RWM would believe that it was acquiring such a right. None of the Cobden directors, who could see the car park being built, took any steps to question the position; and CIL, through Richard, must be taken as knowing what Richard knew and what he had agreed to. Further, the expenditure by SCFF was there for all to see and yet the Cobden directors made no complaint. They did not question the construction of the car park partly at the expense of SCFF itself at the time. Not only did they not do so at the time: they did not do so at the time of the refurbishment/extension of the car park in 2001 or, indeed, at any time thereafter until 2006.

[657]I do not, of course, overlook the fact that the individuals involved in the arrangements and actions which give rise to this equity owe fiduciary duties as directors to SCFF nor the fact that RWM is under an obligation to “promote and enhance” the Business. As to the former, I do not consider that the existence of such duties prevents the establishment of an equity by way of a proprietary estoppel when all of those concerned – the Cobden Directors and, through Richard, CIL – know what is happening and take no steps to prevent it. As to the latter, I do not consider that the use of the land as a car park without payment for so long as the expenditure on construction justifies such use (by way of proprietary estoppel) can possibly be a breach of the Shareholders Agreement.

[658]As to the duration of the equity, SCFF is only to be prevented from taking unconscionable advantage of RWM by denying it the right or benefit which it was entitled to expect to receive. I agree with Mr Weatherill that RWM’s payment of a proportion of the cost of constructing the car park should not entitle it to perpetual use of the car park rent-free; that could not sensibly have been suggested by RWM at the time nor can SCFF be taken to have encouraged RWM to think that would be so.

[659]There is nothing to suggest that, before the car park was constructed, RWM had any right to use the land on which it was constructed for parking although, in practice, it may have done so. It is not as though the boning hall was built, and leased to RWM, only on the basis that RWM would have extensive parking rights. Accordingly, there is no obvious justification for linking the duration of rights over the car park to the period during which RWM occupies the premises demised by the Lease as Mr Joffe would have me do.

[660]Instead, the equity arises because of the expenditure which RWM has incurred. It would have been unjust to prevent use of the car park the day after its completion. But the expenditure does not give a right in perpetuity or even entitle RWM to continue to use car park provided that it pays a reasonable fee for its use. There can be no “right” answer about how long RWM’s rights should last. In my judgment, however, SCFF was entitled by the time Richard wrote on 21 February 2006 to say that such rights as had arisen as a result of any proprietary estoppel had come to an end. Following that, the RWM Directors, Robin in particular, refused to allow arbitration to determine what payment should be made and have, even since, failed to take any steps to resolve the issue.

[661]I do not suggest that the board of SCFF should have taken steps to prevent RWM from using the car park. Indeed, quite the reverse may be the case since it is SCFF’s interests that RWM should be able, as SCFF’s only or main customer, to operate effectively and efficiently. The SCFF board should no doubt seek to obtain a commercial payment for use of the car-park and, if the RWM board is acting sensibly, it will agree to pay. But the “give and take” argument, even if it provided a defence for RWM in respect of the past (at least up to the date of Richard’s letter, 21 February 2006) can provide no justification for non-payment in the future now that I have determined the extent of RWM’s equity.

[662]I do not consider that the use of this area prior to 21 February 2006 amounts to unfairly prejudicial conduct for the purposes of section 994. But once Richard had raised the issue, the matter becomes more difficult. Richard, and later that year, Matthew raised this issue in the terms recorded in the letter and the minutes mentioned at paragraph 633above. There does not appear to be any express reference to the car park, but it is reasonable to infer that by this time the Cobdens had identified their concerns and that the car park was mentioned. Even if it was not referred to expressly, there was sufficient concern expressed to warrant the board examining the whole issue of what areas of the site RWM occupied. It does seem to me that the attitude taken by Robin was not based on any proper consideration of the interests of SCFF but had everything to do with the interests of RWM. He did not allow matters to go forward and effectively shelved the whole issue.

[663]In the context of this Petition and of the serious issues which are raised, the complaint relating to conduct from mid-February 2006 seems to me to be fairly minor. Taken by itself, it would not, in my view, be appropriate to grant relief under section 994 on the basis of it. However, I do consider that Robin was acting unfairly when he effectively side-lined the whole issue of payment by RWM for use of extra areas and facilities including therefore the main car park. This was prejudicial to SCFF and thus to CIL as a member. It is, nonetheless conduct which I am entitled to take into account in considering the appropriate relief in relation to all the matters of complaint which are eventually established as alleged in the Petition.

[664]In particular, in ascertaining the EBITDA of SCFF, however, there should be recognition that, if it continues to use the car park, RWM should pay for the privilege. Whether SCFF seeks to prevent such use is matter for the board: it is not easy to see how the Cobden Directors, acting in the interests of SCFF rather than in their own interests as part of a tactical war, could properly refuse to allow RWM to use the car park provided that a proper fee for doing so is paid. That, at least, is so unless and until a change of circumstances (eg a more profitable use of the land) leads to a different conclusion about what is in SCFF’s best interests.

Other areas

[665]The contention that SCFF consented to the use by RWM without charge and/or granted an implied licence and/or that SCFF is estopped from denying that Romford has such a licence is repeated in the case of the workshop, the lorry park adjacent to the workshop, the training room and laboratory and the canteen, but in no case was either Robin or Mr Carswell able to say that any particular thought had been given to the basis on which the use began or the terms on which it was to commence and continue. Accordingly CIL contends that in no case have RWM discharged the evidential burden of establishing any licence to occupy on a free basis. On the contrary, it is said that the evidence shows that in each case RWM entered into occupation and/or shared the use of these areas without agreeing any terms for such use and occupation and SCFF has not agreed or consented to free use and occupation and that in each case the facility of using and occupying the areas in question is either admitted to be of value to RWM, or is self-evidently of value, and it is fair and reasonable that it should pay for it. I take the areas in turn.

The lorry park next to the slaughter hall

[666]RWM has parked trailers next to the abattoir for some years. Matthew was aware of such occupation since about 1997. RWM marked the bays out on the tarmac. The Cobden Directors have been fully aware of this throughout the period but did not object to the use; Matthew accepted that no complaint was made prior to 2006 and that he never thought about seeking a fee for the use. Matthew could not think of any other use that the area would be put to.

[667]Nonetheless, the use of this parking space was clearly of benefit to RWM as is reflected in the evidence of Mr Foot, one of the expert witnesses, called on behalf of RWM, who expressed the view that it was inconceivable that a tenant would make such a significant investment as the extension of the boning hall without having thought about where he would park his lorries and his cars when he was going to build on his existing parking spaces.

[668]However, Robin frankly admitted in cross-examination that neither he nor anyone else ever made any agreement as regards the basis on which RWM’s units would be parked on that area. He said “there was neither agreement nor disagreement.”, and when asked about expectations or understandings said “nothing was mentioned”, and admitted the use of the area was of value to RWM.

[669]Unlike the position in relation to the car park, there does not appear to me to be material on which to found a proprietary estoppel. But, having said that, the actual position today is no different from that in relation to the car park where the equity established has now expired. My conclusions are the same. I do not consider that the use of this area over the period up to 21 February 2006 amounts to unfairly prejudicial conduct for the purposes of section 994. In ascertaining the EBITDA of SCFF, however, there should be recognition that, if it continues to use this area, RWM should pay for the privilege. I do not, however, consider that RWM should be expected to pay for this use before that date. SCFF has not suffered any actual loss so that, even if this use is properly to be regarded as a trespass, damages should not be awarded for loss; nor is this a case where, in the absence of protest by the Cobden Directors, the alternative measure of damages (see Attorney General v Blake

[2001] 1 AC 268

where the relevant principles were considered by Lord Nicholls in his speech in at pp 277 to 287) should be applied.

[670]In respect of the period after 21 February 2006, I repeat my observations in paragraph 663above.

The workshop

[671]There is a small workshop on part of the Langport site that is used by, but not demised to, RWM. Prior to 2000 this workshop was a dry goods store. Certain RWM customers complained that the store was not sufficiently hygienic because birds could enter it. The store was converted into a maintenance workshop and RWM paid for the conversion works. Five RWM maintenance staff have currently occupy the workshop. RWM staff have used the workshop since about 2000 or later.

[672]RWM’s case is this: The Cobden Directors (and therefore CIL and SCFF) were aware of the work carried out by RWM and RWM’s use of the workshop. They acquiesced in the works carried out by RWM at its cost in the knowledge that RWM believed that it was entitled to use the area as a workshop. Matthew saw RWM staff moving their equipment in, but he could not remember whether he expected RWM to pay anything for the use. Further, RWM staff have also carried out maintenance works for SCFF without charge. RWM is entitled to the benefit of an equity and SCFF is estopped from preventing further use of the workshop. The Cobden directors never demanded any rent for the use of the workshop. In any event, in the circumstances the use has not been unfair.

[673]Mr Weatherill points out that Robin accepted that the workshop was not a shared facility, admitted it was of value to RWM and that in isolation it was fair to pay an occupation rent, but said no rent was demanded. It had not been discussed one way or the other.

[674]There is really nothing in the evidence to suggest anything other than that RWM took over the workshop and spent money on it of its own choice without any encouragement or agreement from the Cobden directors. It may well be the case that they did not, at the time or afterwards, object or demand a fee. But that does not mean that RWM has acquired a right to continue to use the workshop let alone to do so free of charge.

[675]My conclusions and observations in relation to this area are, again, the same as in relation to the lorry park next to the slaughter hall.

The lorry park next to the workshop

[676]This complaint concerns 4 lorry spaces adjacent to the workshop and the cull abattoir, where RWM’s lorry chiller units can be (and have been) connected to electricity and run overnight. The operation of these units creates a noise, which is such that it might be objectionable to residential neighbours of the Langport site if the chillers were inappropriately located on the site.

[677]I am satisfied on the evidence that the use of the workshop lorry park by RWM for siting lorry chiller units was part of the scheme agreed for planning permission in 2000 in respect of an extension of the boning hall and that it was a requirement that the chillers operate on electricity rather than by separate diesel generators. The section 106 Agreement between South Somerset DC, SCFF and RWM dated 30 October 2000 provides (among other matters) as follows:a. clause 1(b) – SCFF agrees to implement the approved noise management policy at Annex 1;

b. clause 3 – the Council would grant conditional planning permission, subject to the proposed conditions at Annex 2;

c. paragraph 11 of Annex 1 (the noise management policy) – all diesel fridge motors should only be started at the point of departure when leaving the site and not before unless being urgently repaired as a result of mechanical failure;

d. paragraph 12 of Annex 2 (the proposed conditions) – at no time shall vehicles being loaded on the western façade of the buildings have their refrigerated units operated other than by electricity. During night-time hours (as defined) no refrigerated vehicle or container shall be operated on site other than by electricity unless immediately departing from the site; and

e. paragraph 13 of Annex 2 – loaded refrigerated vehicles and containers not immediately departing shall be held in other parts of the site shown on drawing no.5039.01E.

[678]Richard and Geoff Alexander, together with Robert, were responsible for agreeing the terms of the section 106 Agreement. Between them they agreed that the chiller units would be moved to the workshop lorry park so as to allow them to run on electricity. Richard said that he could not remember this. However, he did accept that there was no suggestion that RWM might pay any rent.

[679]The section 106 agreement was signed by Richard and Robert on behalf of SCFF. RWM paid for the construction of the pallet chill and the offices which formed part of the extension to the boning hall and which were part of the subject of the planning application.

[680]Richard and Matthew were both aware of the lorries parked here but never objected to it. Matthew did not expect any payment for the use.

[681]The construction of the extension to the boning hall meant that the lorry parking originally demised to RWM could no longer be used. Mr Foot’s evidence was that it was inconceivable that a tenant would make such a significant investment without having thought about where he would park his lorries and his cars when he was going to build on his existing parking spaces.

[682]Mr Joffe then submits that, “by reason of Richard’s express agreement (on behalf of the Cobden Directors, CIL and SCFF), the execution of the section 106 Agreement and the acquisition of planning permission, SCFF agreed (expressly or by implication) to allow RWM to use the workshop lorry park for siting its lorry chillers during its occupation of the Demised Premises, with the benefit of the electricity supply, SCFF is expressly or impliedly precluded from terminating such licence while RWM remains in occupation of the Demised Premises, alternatively SCFF is so estopped.”

[683]In point of fact, there is no evidence that Richard expressly agreed with anybody that lorries could park in this way although he clearly was involved in the section 106 Agreement. RWM’s case, in my view, turns on what is to be implied from SCFF’s entering into the section 106 Agreement and the obtaining of planning permission. In cross-examination, Robin accepted there was no agreement about the basis on which the parking area was to be used, and said that he did not think anyone gave it any real thought. This, according to Mr Weatherill, rules out any actual consent or implied licence or estoppel.

[684]I agree that RWM has no case based on actual consent because there was no actual consent given. But I disagree that there is no case based on estoppel or perhaps even on an implied licence. I regard the following factors as important:a. SCFF was a party to the section 106 Agreement. It knew that planning consent for the boning hall extension was conditional on the noise/parking restrictions.

b. The boning hall extension was built at the expense of RWM

c. The boning hall extension resulted, to the knowledge of SCFF, in the loss of existing lorry parking spaces.

d. Accordingly, it was known by SCFF that for all practical purposes RWM would need to use the parking spaces for its lorries.

e. SCFF knew that RWM would incur expenditure on the boning hall extension in the expectation that it would obtain the right to use these parking spaces. That expectation was encouraged by SCFF which itself was involved in the section 106 Agreement and the planning application.

f. CIL, through Richard, was itself aware of these matters.

[685]In these circumstances, I consider that RWM has established the right to use the parking spaces so long as(a) it occupies the boning hall and the extension for its existing business and

(b) unless and until it no longer needs the parking spaces because, for instance, it obtains, or is able to obtain, other suitable parking facilities on the site or, because delivery systems change rendering the need for this particular parking unnecessary. There can be no complaint about RWM using this area.

[686]That is not to say that RWM is entitled to enjoy this facility without payment. I can see no reason why it should not pay for this facility which is of obvious benefit to it.

[687]However, once again I do not consider that non-payment can be a matter of complaint for the purposes of section 994 prior to 21 February 2006. In respect of the period after 21 February 2006, I repeat my observations in paragraph 663above.

Yard manager’s office, training room and laboratory

[688]The training room/yard manager’s office was previously a staff room. It was converted – or at least put into a decent decorative state – in 1997. According to Mr Carswell, whose evidence I accept on this point, RWM and SCFF shared the cost of the conversion works on the basis of a shared use of the area.

[689]The yard supervisor has had a desk in the training room since about 2004. The yard staff undertake all yard cleaning and maintenance, dispense cleaning chemicals for the cleaning staff, distribute Wellington boots for the abattoir and the boning hall staff and undertake all general yard duties and ground maintenance work (including cutting grass and hedges). Again, I take that from Mr Carswell. There is training in the training room at least once a week. RWM staff train RWM staff and SCFF staff. Although Matthew accepted that training of SCFF abattoir staff is carried out, he says that the amount of training is small compared with the amount of training of RWM staff since far fewer numbers are involved. Further it is only in the last few years, possibly as much as 3 years, that training of abattoir staff has been a requirement. I accept Matthew’s evidence. RWM does not charge SCFF in respect of any of these matters. Mr Joffe says that both companies need a training room purporting to rely on Robin’s evidence: but the passage of his cross-examination to which I have been referred does not establish that, although I am sure it is the case that some training of SCFF staff is now necessary.

[690]Robin’s initial reaction to Mr Weatherill’s questioning on this topic was that use of the training room was, as he put it, 50/50. However he had to accept that far greater use was made of the training room by RWM than by SCFF; and he accepted that, in isolation, RWM should pay an occupation rent which reflected its own use of the training room. As to actual payment, nothing was discussed when the training use started. Matthew could not recall whether he expected RWM to pay for its use, but he accepted that he did not raise any question of trespass prior to 2006.

[691]The laboratories are next to the training room. They were converted at the same time as the training room in 1997 at the joint expense of RWM and SCFF on the basis of shared future use. Two employees work in the laboratories, doing testing required by the Hygiene Regulations for RWM, SCFF and RWM Dorset. RWM Dorset is recharged at a slightly discounted commercial rate for the work done for it. The remainder of the work is an equal split between work for RWM and work for SCFF. Matthew accepted that some work was done for SCFF, but insisted that this was done because it was a requirement of RWM’s customers. Mr Joffe submits that this is irrelevant; he says that SCFF needs to carry out the testing in order to attract the business, by which I understand him to mean the business from RWM. I think Mr Joffe is right. The work may have to be done because RWM’s customers require it, but it is work that has to be done in the context of SCFF’s activities. The position is really no different from any hygiene requirement imposed by RWM’s customers where it is clearly impossible for SCFF to say that it should not need to pay the cost of adopting high standards of hygiene.

[692]RWM and SCFF share the cost of the senior employee working in the laboratory. After deducting the recharges to RWM Dorset and SCFF (for half of the senior employee’s salary; £9,400), Mr Joffe says that the cost to RWM of the laboratories was £29,645 in 2006, a figure which I take from him but have been unable to find the supporting material. He points out, correctly, that Matthew knew about the occupation, but made no complaint prior to 2006 and did not give consideration to any charge to RWM for it. The question of rent was not discussed prior to 2006.

[693]In the cases of both the training room and the laboratory, Robin agreed that there were no expectations understandings or agreements as to the basis of RWM’s use, and no suggestion that rent should or should not be paid.

[694]In the circumstances, Mr Joffe submits that RWM has an express or implied licence, alternatively the benefit of an equity by reason of a proprietary estoppel, in respect of these areas, as a result of which RWM is entitled to use the laboratory free of any occupation charge.

[695]I reject that submission. There was clearly no express agreement concerning the use of the training room or the laboratory; and, for reasons similar to those given in relation to the main car park, I do not consider that an implied licence to use these areas indefinitely or for as long as RWM occupies the boning hall can be established. Expenditure by RWM on the refurbishment (at a cost which I do not know but I imagine to have been modest) and on the laboratory would, I accept, have resulted in an expectation that RWM would be able to use the (joint) facilities for a period of time. I reject the suggestion that such an expectation is to be converted into a right to use the areas without payment; and I also reject the suggestion that the expenditure gives rise to a right (or perhaps even an expectation) to use the areas for other than a relatively short period, a period which must have expired prior to Matthew’s complaints of trespass in 2006.

[696]That is not to say that, prior to Matthew’s complaints, RWM was trespassing. It was clearly using these areas with the knowledge and consent of SCFF – certainly there was no objection – before then. But whether or not RWM can be made to account in money terms for its past occupation, SCFF is entitled to require RWM to vacate this area although it would, of course, be open to the parties to agree terms on which such storage should continue. Whether it could possibly be in the interests of SCFF to require RWM to vacate provided that it was willing to pay a proper licence fee for its use is something that I very much doubt.

[697]My conclusions and observations in relation to this area are, again, the same as in relation to the lorry park next to the slaughter hall.

The former tannery buildings

[698]According to Mr Carswell, whose evidence I accept on this point, these buildings are dilapidated barns without doors and they are not weatherproof (in particular they are liable to water penetration). They have been used by RWM and SCFF for storage intermittently over the years although in recent years use has been almost exclusively by RWM. The Cobden Directors have been aware of the use by RWM of this storage space from time to time without objection. Mr Joffe submits that the Cobden directors have consented to and acquiesced in this use and that RWM has an express or implied licence to use the former tannery buildings for storage.

[699]Again, I reject any suggestion that RWM has a right to use this storage area for the indefinite future without payment. There is really no material distinction between this area and the yard manager’s office. My conclusions and observations in relation are, yet again, the same as in relation to the lorry park next to the slaughter hall.

The quarter chiller

[700]The quarter chiller was originally built in 1997 to chill lambs, but has been used for some time as additional chiller space for cattle. However, since the chillers were built for lamb, they will not hold a full size carcass of beef, so the carcass has to be quartered to fit into the quarter chill. There is a dispute about who is responsible for the cost of running the chiller.

[701]It is common ground that it is RWM employees who quarter the carcasses. Mr Joffe says that they do so for SCFF. Robin gave evidence that he considered the carcasses belong to RWM only once the bar code which has been applied to them is zapped and that the quarters in the quarter chiller are only zapped in this way when they are taken out of the chiller for boning, and not when they are initially put in there for storage. He said that the quarter chiller is of value to both RWM and SCFF.

[702]RWM accordingly contends that it has not been in occupation of the quarter chiller or used it. Its case is that the quarter chiller is used by SCFF to store cow quarters which belong to it before they are delivered to RWM and provides larger chilled storage for SCFF than it would otherwise have thereby enabling it to kill greater numbers.

[703]Robin accepted that there is no written agreement concerning the use of the quarter chiller and that says that its current use just happened without discussion.

[704]The quarter chiller was a later addition to the boning hall; it was constructed by SCFF after 1993. It can only be accessed from the boning hall there being no access through the lairage. According to Mr Joffe, it can have, and can have been intended to have, no use other than its current use. He says that to suggest that SCFF did not intend that the quarter chiller to be used as it currently is, is nonsensical. Matthew did not complain about the use of the quarter chiller prior to 2006 and was not aware of Richard or Daniel having complained.

[705]There thus appear to be two strands to RWM’s argument. First, it does not use the quarter chiller itself, since the quarters in it belong to SCFF and not to RWM. Secondly, even if the quarters belong to RWM, it is entitled to use – for nothing if I understand correctly – the quarter chiller and to do so without payment.

[706]CIL’s case is that the quarters in the quarter chiller belong to RWM. Mr Weatherill says, correctly in my judgment, that the practice is for RWM take the carcasses out of the main carcass chiller into the boning hall, RWM employees then quarter the carcasses and put them in the quarter chiller. He says that the carcasses become RWM's property at the moment they take them out of the main carcass chillers.

[707]It is established that carcasses delivered to RWM which it bones immediately are delivered to RWM in sides. In the absence of any agreement to the contrary – and there is none – there is no reason to think that carcasses taken by RWM’s employees which they then quarter and place in the quarter chiller are to be dealt with on any other basis. This conclusion is underlined by the fact that the quarters were put into the quarter chiller by RWM staff. The idea that RWM quarters the carcasses on behalf of SCFF was, as Mr Weatherill notes, first raised in cross-examination of Matthew, but, as Mr Weatherill wryly observes, at least SCFF is not being asked to pay for this service.

[708]In cross-examination, Mr Carswell suggested that such use of this quarter chiller benefits both companies by enabling a higher throughput of animals through the abattoir. However, it needs to be understood that the need to use the quarter chiller in this way arose either due to Tesco’s requirement for 48 hour boning or to RWM’s inability to bone out at the rate at which the abattoir was killing. 48 hour boning means that a carcass must be hung for at least 48 hours after slaughter of the animal before it is boned. This presented RWM with a problem since either it would need to find more chilled storage capacity on the Langport site or it would have to move some of its meat requirements away from Langport. Clearly the former was more convenient even if, as to which I have no evidence, the latter could have been achieved economically.

[709]I am, in any case, slightly puzzled by all of this. The MoU – which is now the relevant supply agreement under which SCFF supplies RWM with meat – says nothing about delivery times or the retention of carcasses after slaughter. There is nothing – at least nothing expressly – in the MoU which obliges SCFF to retain carcasses for any period at all before delivering them to RWM. The MoU simply envisages RWM ordering a number of cattle and for SCFF to procure and slaughter them. It might be thought that the corresponding obligation of RWM was to accept delivery at once, with RWM itself being responsible for the cost of providing any necessary chilled storage pending boning. However, this is not a point which has been taken by CIL and, for present purposes, I will assume that it was implicit in the trading relationship under the MoU that carcasses would be placed in SCFF’s main chillers for retention for a number of hours until RWM was able, in the ordinary course, to take delivery for boning. It does not follow from that, however, that, if the period of retention is extended because Tesco imposes a 48 hour boning requirement, SCFF has to retain at its own expense the carcasses for an extended period without a recognition by RWM of the expense thus incurred, either by a change to the terms of the MoU (eg an increased killing fee) or by provision for payment for extra storage time. This consideration is another, separate, reason for concluding that ownership of the carcasses passed to RWM when its employees took them into the quartering hall prior to placing them in the quarter chiller.

[710]As in the case of all the other areas so far considered, the use of the quarter chiller by RWM with the knowledge of the Cobden Directors and without objection, is not, in my judgment, unfairly prejudicial conduct at least prior to 21 February 2006. However, in contrast with the other areas, I doubt very much that anyone would have thought that Matthew and Richard, in raising a question mark about use of areas outside the Lease, had the quarter chiller in mind. Even if that is wrong, it is far more difficult for CIL to establish that the use of the chiller for no payment was unfair since commercial considerations might have led SCFF to make this facility available quite cheaply given SCFF’s interests in keeping as much killing trade with RWM as possible. RWM must, it has to be accepted, make its fair contribution to the use of electricity bills to reflect is use of the quarter chiller. It must also pay a reasonable fee for its use (to be agreed with SCFF) if it wishes to continue to use it. As with the other areas, it seems unlikely to me that it could be in the interests of SCFF to terminate that use provided that an offer of fair payment is made.

The canteen

[711]In about 1994 Robin and Richard agreed that part of the loft in the main abattoir should be converted into a canteen for RWM and JHC staff. The area is halfway between the abattoir and the boning hall. RWM and JHC split the building costs equally, but RWM paid all of the fitting out costs. Robin accepted that RWM undertook the fitting out without any agreement (to get it done with the quality he wanted) and said that the only further agreement was that the costs of the building works would be shared.

[712]RWM’s case is that the agreement was that the RWM staff, the SCFF staff, farmers visiting the site and the Producers’ Club could use the canteen. Robin says that he was confused about the legal niceties, but believed that RWM was acquiring rights (which he did not specify in detail) in respect of the canteen; the canteen was not part of the Demised Premises, but “it was agreed with Richard”.

[713]Richard could not recall Robin suggesting the conversion to the canteen, but he accepted that it would have been obvious that conversion works were going on. He accepted also that RWM employees used the canteen and that he himself did so.

[714]In about 2000 the canteen was refurbished. Again, RWM paid the entire fitting out cost and also half of the building cost. Richard said that he could not remember this or taking any interest in who was paying for it. It is not said by Robin that he agreed anything with Richard on this occasion. Robin says that, in 2004, he agreed with Richard that SCFF would reimburse RWM for ⅓ of the annual loss in running the canteen, based upon the number of staff employed by RWM and SCFF respectively: in cross-examination, Robin accepted that more RWM staff use the canteen than SCFF staff. Richard said that he could not remember reaching this agreement. Indeed, he denied reaching it, and he did recall refusing to allow SCFF to share the losses in 2005 and 2006.

[715]Richard did not make any complaints that RWM was trespassing by making use of the canteen prior to 2006. Nor did any of the Cobden Directors.

[716]In these circumstances, Mr Joffe submits that RWM has the benefit of an express or implied licence, alternatively an equity pursuant to the doctrine of proprietary estoppel.

[717]In my view, the position here is parallel to that in relation to the main car-park. RWM establishes an equity to use the canteen but its right to do so, based on a proprietary estoppel, has expired. I reach the same conclusion as before.

Conclusions on trespass

[718]The complaint of unfairly prejudicial conduct is not made out in respect of the period before 21 February 2006. In relation to the quarter chiller, it is not made out in respect of use of it at all. In relation to the other areas, the question, in my view, is not whether the use of the areas amounts to unfairly prejudicial conduct; rather, it is whether such use without payment, or without even any attempt by the RWM Directors to ascertain what was in the interests of SCFF, is unfairly prejudicial conduct. In my judgment it is. But I must be cautious about how I take it into account in assessing the relief sought because, standing by itself, this failure would most sensibly be recognised in a financial adjustment between RWM and SCFF in the carrying out of which RWM ought to be entitled to take account of elements of account operating the other way, elements which Mr Joffe would say ought, in any event, to be cancelled out under the “give and take” without a need to carry out an exercise of this sort.

Petition Paragraph 39(10A): Rent Review

[719]In accordance with the agreement for a lease forming part of the documentation signed on 22 July 1993, JHC granted, on 4 January 1994, to RWM a 25 year lease (“the Lease”) of the boning plant and its immediate surrounding area at a rent of £30,000 per annum. It provides for rent reviews as at 25 January 1998, 2003 and 2008. The rent was not reviewed either in 1998 or 2003.

[720]As regards the rent review due in 1998, Mr Weatherill states, correctly, that there has been no evidence adduced to suggest the existence of an express agreement or understanding between SCFF and RWM which could have affected SCFF’s right to invoke the rent review provisions. Certainly, there was no agreement to waive the right to review the rent, and the issue was never discussed at any board meeting. Nor is it apparent that any legal advice was sought about it. Accordingly, he submits that there is no reason to think there need not have been a rent review in 1998. However, neither the Cobden Directors nor (unsurprisingly) the RWM Directors sought a review.

[721]As to the 2003 rent review, there is a conflict of evidence as to whether it was agreed that the right to invoke it was waived. As to the 2008 review, although it has not yet taken place, there is no reason at all why it should not be implemented (provided, of course, that SCFF’s advice is that it would be likely to obtain an increase: if expert advice is to the contrary, it is a waste of everyone’s time and money to proceed).

[722]So far as concerns 2003, it needs to be borne in mind that there had been some costly extensions to the boning hall. Robin’s evidence was this:

“… it was decided that the proposed extension [to the boning hall] was within the lease area and that on the basis that the extension would be paid for by RWML (the total cost to RWML being around £1,900,000) there was no need to amend the lease and that the rent would remain fixed at £30,000 per annum”

[723]Richard’s evidence in his witness statement was that it never occurred to him that the extension of the boning hall had anything to do with the rent review under the lease, and denied that Robin either asked for the rent review to be waived or even mentioned it. In cross-examination he denied the suggestion put that RWM’s expenditure on the boning hall extension was incurred on the basis that there would not be a rent increase for the rest of the term which was, at one time, RWM’s case. However, he could not remember what was agreed. Matthew’s recollection was that the extension was built and the lease was left as it was, but he could not remember discussions about rent review. In his cross-examination, Robin said that he had agreed matters with Richard, but acknowledged that there was no contemporaneous evidence to support him and accepted that any agreement went no further than to waive the rent review in 2003.

[724]There is no contemporaneous evidence of any agreement or discussion that the rent would remain at £30,000 (whatever basis Robin may have thought he was proceeding on).This absence is surprising in particular given that the parties had been in negotiation about the boning hall and one might have expected that any aspect of the agreement which eventually emerged in relation to that would have been recorded especially such an important term as the continuing rent.

[725]It is not easy to tell what really happened. I think that it is quite possible that Robin and Richard discussed the question of the rent which would be paid in respect of the extension to the boning-hall. In that context, it is fair to point out, as Mr Joffe does, that Richard’s suggestion that any rent review should be on the basis of the enlarged and improved premises after RWM had paid for them was unfair. However, I think it unlikely that they discussed – and they certainly did not agree – the rent remaining at £30,000 and the rent review being waived. Robin might, I suppose, have said that, in rejecting the idea that rent should be paid for the extension, the rent under the lease should continue. He may have assumed that that meant continued at £30,000 without focusing on the rent review provision at all. This is all speculation. All I can say is that on the evidence before me I am sure that there was no agreement that the rent would continue unreviewed and unpersuaded that it was the basis on which Richard understood RWM would incur expenditure on the boning hall.

[726]RWM’s case, therefore, in relation to both the 1998 review and the 2003 review has to rest on a combination of two factors namely(i) that the Cobden Directors knew of the rent review provision but did nothing to request implementation of its terms and

(ii) that rental values were such that, in fact, a review would have produced no increase. The first of those is established but the second is not, at least not to my satisfaction – although it is said that, in circumstances where RWM made a significant investment of some £2m in the extension of the boning hall (but without any extension of the lease) it was not unfair for the rent not to be reviewed or increased in 2003.

[727]Moreover, in the context of the first of those factors, it is only fair to point out that the question of rent review was not wholly ignored. During the course of the negotiation process over the extension to the boning hall and who should pay for it, the Cobden Directors were involved in corresponding with the solicitors advising SCFF (Porter Dodson), who raised the issue with Richard in a letter to him dated 2 July 2002. He advised obtaining advice on various rental questions, but there is nothing to suggest that this was taken forward by the Cobden Directors.

[728]Mr Weatherill submits that the failure to implement the reviews in 1998 and 2003 was the fault of the RWM Directors and, possibly, Mr Phelps. He says that cross-charging was a matter dealt with by the accounts department under the control of RWM employees with little or no involvement of the Cobden Directors. That department should have initiated the rent reviews just as they had implemented quite trivial amounts in the other direction. Mr Phelps, as managing director, should have at least alerted all the other directors to the unfairness of charging for almost every last item without there being a rent review. Robin was, it is suggested, particularly blameworthy since he knew of the rent reviews (as I am satisfied that he did). The failure to review the rent was a breach of the RWM Directors’ fiduciary duties and of the obligation to promote and enhance the Business and, absent a resolution authorising it, any such decision is not binding on SCFF or CIL.

[729]I reject that last submission. Whatever control RWM may have had over the accounts department, matters such as a rent review were as much a matter for the Cobden Directors as for the RWM Directors. It may be that the RWM Directors were in breach of their duties in failing to invoke the rent review; but so too would be the Cobden Directors. Although in relation to some other complaints, I have held that an innocent failure to apply an agreement properly (eg the credit terms of the Supply Agreement) does give rise to unfair prejudice, I do not consider that it is now open to CIL to allege that these failures (which are to be treated as known to it through Richard, one of its directors) amount to unfairly prejudicial conduct. That is not to say that SCFF could not seek some financial recompense based on the breach of duty or the self-dealing or no-profit rules; but that is not a matter I am willing to decide on this Petition in the absence of evidence to show that a rent review would have resulted in any increase in rent.

[730]Accordingly, I reject the complaint under paragraph 39(10A) of the Petition.

Petition Paragraph 39(11), (12),(13) and (14): Service Charge under the Lease and shared services

[731]The Lease contains provisions dealing with the Service Charge. In summary, these provisions required RWM to pay a proportion of all costs, expenses and outgoings reasonably and properly incurred by SCFF in respect of the maintenance and services including maintaining and repairing neighbouring and adjoining lands including forecourts, loading bays and car parking areas, servicing and maintaining and replacing apparatus, plant, machinery and equipment used in common by RWM and other occupiers, the cost of electricity and fees and reasonable management expenses incurred by SCFF in management. SCFF's expenditure was to be certified by SCFF's accountant which would be conclusive save in the case of manifest error. RWM says that all the costs have been shared in agreed proportions and RWM has itself maintained and repaired those parts which it occupies.

[732]Although the complaints pleaded in the petition relate to the failure to implement the formal provisions of the Lease concerning preparation of accounts and the determination of the appropriate proportion of the annual expenditure payable by RWM, CIL now only relies on a failure by RWM to pay its proper share of certain costs.

[733]Thus, CIL claims that SCFF has paid more than its fair share of the costs of electricity used on the site, insurance and the effluent plant. It claims that this was a breach of the RWM Directors' fiduciary duties and the obligation to promote and enhance the Business.

[734]As to electricity, when the boning hall was built no separate electricity supply was installed, so electricity was inevitably provided in a manner that needed to be apportioned. Mr Carswell considers that apportionment of electricity is difficult, because of shared meters and shared use of facilities and necessitates apportionment in a relatively rough and ready manner. The apportionment was originally effected on the basis of a 50-50 split. That changed in about 1997 with the arrival of Southern Cull Services to 44-44-12. It has not been changed since.

[735]RWM pays 44% of the electricity used by the whole site. This has been the percentage paid since January 2000. Since then, the following have taken place:a. Four or more chiller units running off electricity (instead of diesel) situated in one of the disputed “trespass” areas have been drawing power.

b. A blast freezer has been installed by RWM.

c. A new box chiller was built in 2003 or 2004.

d. The boning hall has been extended, resulting in additional areas used by RWM needing to be lit and chilled.

[736]In spite of these changes, no adjustment has been made to the percentage paid by RWM. This analysis leaves out of account the cost of power to the quarter chiller which, according to my conclusions, has been used to store quarters belonging to RWM. Mr Weatherill contends that RWM’s proportion of electricity costs should fairly have been reviewed sharply upwards. The assumption behind that submission, however, has to be that the apportionment of 44% to SCFF was not a significant under-estimate: if the apportionment should, prior to January 2000, have been, say 50%, then a review might still leave SCFF with a liability of 44% or more. I have no evidence at all about whether 44% represented a fair apportionment, although Matthew has given evidence which suggests that the 12% apportioned to Southern Cull Services was excessive.

[737]Mr Fisher (instructed on behalf of CIL) estimates that RWM uses 79% of the electricity and should therefore be charged £89,000 pa by way of adjustment. His figure takes no account, however, of the supply to certain chillers, use of which supply is recorded on one of the meters which Mr Fisher has taken as allocated to RWM.

[738]Mr Grantham (instructed on behalf of RWM) suggests that RWM uses 56%, indicating an adjustment of £30,454 pa. His figure differs from that of Mr Fisher because he has attributed 73% of the use recorded in the meter I have just mentioned to the supply to the chillers and allocated it to SCFF.

[739]Unfortunately, there are two major uncertainties which Mr Fisher and Mr Grantham were unable to deal with. First, neither of them seemed to know whether the chillers referred to were chillers used by RWM, for instance, the quarter chiller (which I have concluded was used by RWM to store its own quarters), or some other chillers used by SCFF. Secondly, the basis of the 73% figure is flimsy: Mr Grantham obtained it from his discussions with Graham and Mr Carswell but neither of them gave evidence about how such a figure was reached (or indeed to explain which chillers were referred to). These difficulties are recognised in the Joint Report of Mr Fisher and Mr Grantham where they agree that the meter readings should be adjusted to take account of electricity actually used by each company. And Mr Fisher accepted in cross-examination that he did not know what equipment was fed through which meter.

[740]Mr Weatherill would have me resolve the difficulty this way. He seems to accept that the chillers were ones used by SCFF; however, he says that RWM claims the cost of the electricity for these chillers but has made no attempt to find out the relevant proportion of electricity used. He submits that, since RWM seeks reimbursement but has not made any attempt to find out the relevant proportion, Mr Fisher's adjustment of £89,000 pa is to be preferred. I do not think that that is correct. As I understand the position from Mr Fisher’s report, SCFF receives bills for the whole site and itself seeks to cross-charge RWM; there is therefore no question of SCFF reimbursing RWM for what RWM has paid. It is the case that there is a meter described as RWM’s meter which, I assume, has been installed to record the supply to the boning hall but through which the supply to the relevant chillers is included also. I know nothing about the installation of this meter and cannot infer on the evidence before me that RWM has accepted liability for the electricity recorded on that meter undertaking the onus to establish what, if any, amount of electricity consumed is attributable to the chiller. It is, I am afraid, simply impossible for me, on the current state of the evidence, to resolve the proper apportionment of electricity charges.

[741]However, what is clear is that a fair apportionment of electricity charges would result in some adjustment in favour of SCFF. As I have said, even Mr Grantham’s approach results in an adjustment of £30,454 pa. RWM has not as a matter of fact effected even that adjustment even though it has had Mr Grantham’s report since February of this year and no doubt knew of his opinion well before that date.

[742]It does not follow simply from the fact that a strict apportionment of electricity costs would have resulted in RWM paying more than it did that there has been any unfairly prejudicial conduct for the purposes of section 994. Although the apportionment has not been changed since the introduction of the 44-44-12 apportionment, there was no request made by the Cobden Directors to change it until recently. They did not ask Mr Carswell to review the apportionment. They signed cheques knowing of the apportionment in practice. In effect, they allowed the informal arrangement and apportionment to continue without protest even if they never formally agreed it. In the context of how these companies were run and in the light of the physical state of affairs on the ground, it is not entirely surprising that these difficulties have arisen. They can be rectified for the future but, for the past, I do not consider that there has been any conduct which has been unfair to CIL as a member.

[743]As regards insurance, Mr Fisher and Mr Grantham agree that RWM and SCFF should each pay 50% of the fire insurance premium. Mr Joffe expressly states in his closing submissions that this should indeed be split 50-50 saying that historically this has been part of the give and take between the companies. As I have made clear, I do not regard give and take as an argument of any force but the implication of Mr Joffe’s submission is that RWM is liable for half which, if it has not paid already, it is liable to pay. Mr Weatherill says that at present, SCFF pays all of the premium and should therefore be able to recover half. This results in an adjustment to maintainable earnings of £23,000 pa in round figures. Historically, from January 2001, £134,103 (ignoring any interest) was not paid and, so far as I am aware, remains outstanding. No explanation is given for this. It seems to me to be a clear breach of the Shareholders Agreement and of the RWM Directors’ duties at least from the time when CIL first alleged non-payment of this part of the service charge; and by the same token is, from that time, conduct which is unfairly prejudicial to CIL.

[744]As regards the effluent plant, both RWM and SCFF use it. The cost from January 2001 to 2006 was £1,248,486. RWM only paid £27,683 of that cost. CIL says the costs should be shared on the basis of water usage as all water to the site comes out of the site through the effluent plant. On that basis £199,758 should have been paid by RWM.

[745]RWM argues that its effluent does not need to go through the plant since it could be discharged directly into the sewers: the boning hall does not require the use of the plant. That is accepted by CIL. But that is not in fact what actually happens; rather, RWM’s discharges do go through the effluent plant. It must be noted that:a. it seems to be common ground that, if RMW discharged directly into the sewers, RWM would be charged by South West Water and

b. further, if this were done, then the volume of water flowing through the effluent plant would be reduced, and SCFF would incur less costs, thereby achieving a saving which it is currently prevented from doing

[746]However, neither RWM nor CIL has established what such a charge would be or what savings would be achieved.

[747]Although the current arrangements started long ago and have run without objection until recently, that is no reason why RWM should not, once objection was raised, contribute towards the costs of the plant at a proper rate. I consider that it ought to pay at least the lower of(a) the cost of discharging direct into the sewer and

(b) a proportion of the overall costs based on volumes of waste passing through the plant. Mr Fisher, on behalf of CIL, has prepared his report on the basis of (b); if RWM wished to argue that (a) would produce a lower figure, it seems to me that it was incumbent on it to do so. In the absence of such evidence, I accept Mr Fisher’s approach which in turn has a knock-on for the figure arrived at by Ms Gread in assessing the EBITDA.

[748]In my judgment, however, these complaints about the micro-management of the affairs of SCFF are insufficient to give rise to a complaint under section 994.

Petition Paragraph 39(15): Termination and renegotiation of the MoU

[749]CIL claims that the terms of trading between SCFF and RWM must be renegotiated and the case for doing so is unanswerable. The case for doing so was not, however, so clear and unanswerable as to have been raised by Richard in his letter of complaint dated 21 February 2006 or in the Petition as originally presented. Indeed, the allegations concerning termination of the MoU saw the light of day for the first time in his letter dated 1 May 2007 written months after the petition had been presented.

[750]I have already, in addressing the MoU itself, pointed out that the making of the MoU cannot amount to unfairly prejudicial conduct in the context of section 994 having been expressly assented to by all shareholders. Nor can it amount to a breach of the “promote and enhance” obligation in the Shareholders Agreement or, if it did, the MoU amounts to a contrary agreement [“unless otherwise agreed”] so as to allow the MoU to take effect.

[751]Similarly, actually conducting trade in accordance with its terms cannot, either, amount to unfairly prejudicial conduct or a breach of the Shareholders Agreement (although I would not rule out the possibility of such a significant change in circumstances as would render unfair and prejudicial that which previously was not). RWM is entitled to trade in accordance with its terms without being in breach of contract.

[752]However, the MoU is terminable by either side on 12 months’ notice. I doubt very much that the “promote and enhance” obligation would require RWM itself to terminate the MoU even if it thought that it would be in SCFF’s interest to do so. The power to terminate is given, I consider, to enable each party to act in its own interests. RWM could reasonably say that if it is in the interests of SCFF that the MoU should be terminated, SCFF has the power to bring about such termination and that RWM itself has no duties in that respect. SCFF’s interests are thus to be safeguarded by its directors: they therefore need to consider from time to time whether such a notice should be given and there is nothing in the arrangements between the parties which expressly or impliedly qualifies their duties in that respect.

[753]Further, the board of SCFF needs to consider from time to time whether it can, with or without termination of the MoU, achieve better trading terms with RWM. Such terms are to be achieved by negotiation. It is not necessary actually to terminate the MoU in order to negotiate; but the threat of termination must, ultimately, be the threat that brings the parties to agreement. It is only the knowledge that the MoU can be terminated by SCFF that produces a need for RWM to negotiate at all. Absent that threat, RWM need do nothing other than continue to trade in accordance with the MoU which continues as a binding contract unless and until terminated. Negotiations may come to nothing. SCFF then has to decide whether or not actually to terminate the MoU; and in doing so will need to assess the risks in doing so against the benefits which might be achieved.

[754]In the context of board decisions, it is important to remember that different directors of a company, both acting reasonably and responsibly, may come to radically different conclusions on any particular issue. This can typically be seen in relation to the taking of commercial decisions. Mr Weatherill therefore needs to pitch his case very high, which indeed he does. Effectively, he asserts as his primary case that no reasonable and responsible director of SCFF could take any course other than to terminate the MoU.

[755]Mr Joffe, of course, rejects that assertion. He says that paragraph 39(15) simply assumes what in reality CIL has to prove namely that the only proper course any reasonable director of SCFF could take would be to join in steps leading to termination of the MoU. I agree with him when he says that it is not enough for CIL to say, or even establish, that the terms of the MoU are not as attractive from SCFF’s point of view as they could be or that they are somehow “unsatisfactory”. If an improved trading arrangement from SCFF’s perspective could be guaranteed were the MoU to be terminated, then there might be a strong case for saying that a failure to procure termination would amount to unfair prejudice: there might be only one commercial judgment which the directors could properly take, namely to terminate the MoU. But that would not necessarily be so: for instance, if the terms of a new trading agreement were such as to damage seriously RWM’s own business, the result for SCFF itself could be worse than remaining with the existing MoU and it will be for the board to form a commercial view on matters such as that.

[756]Similarly, if the terms of the MoU were so unsatisfactory that the only reasonable commercial decision would be to terminate it even if it were known that an improved agreement could not be negotiated, then a failure to terminate it could amount to unfairly prejudicial conduct.

[757]The actual facts of the present case are not at either of those extremes. One question is therefore whether it can be said that no reasonable director of SCFF could properly form the view, as a matter of commercial judgment, that the MoU should not be terminated. That is a different question from whether the terms of the MoU itself are, or have become, unfair or unsatisfactory: if an improved agreement is not capable of attainment, then the unfair or unsatisfactory terms of the MoU do not inevitably lead to the conclusion that it must be terminated. Its continuation even on apparently unfair terms may be less harmful than bringing it to an end.

[758]That is looking at the position of the directors. But what of the position of RWM itself under the Shareholders Agreement ? I have already expressed the view that RWM itself has no obligation under the “promote and enhance” obligation to terminate that MoU even if it thought that it would be in SCFF’s interest to do so. That is a matter for the judgment of the board. I have already held that the “promote and enhance” obligation does not oblige RWM to trade with SCFF at all. If the MoU is terminated, it will be free to trade elsewhere. However, the extent to which it can, consistently with its “promote and enhance” obligation, use the threat to move its business elsewhere to drive down SCFF’s killing fees is a matter of some difficulty. On the one hand, there is no strong reason why it should pay more to SCFF than it would need to pay elsewhere. But on the other, it would hardly be to “promote and enhance” the Business were RWM to drive SCFF to accept a price well below other abattoirs which allowed it virtually no profit. It could, I suppose, be argued by RWM that even a small profit is better than having no business at all, were it to close down; no doubt that is true but does not seem to me to be an adequate response. The position may be that there is no obligation to trade at all, but if trading does take place, it must be on terms which bear some relation to the market. It is, however, very difficult to say where or how to draw the line.

[759]At this point, I think it is helpful to address why it is said that the MoU is in fact unsatisfactory. Mr Weatherill identifies a number of unsatisfactory features which I take from his closing submissions:a. If cows are dealt with in it, as the RWM Directors seem to contend, there is either no specified kill fee for cows or such kill fee is inadequate. I have held that cows are not dealt with in it, so that this point is no longer of relevance in the context of terminating the MoU.

b. The terms of payment are extremely generous to RWM. Clause 6 of the MoU provides as follows: "[SCFF] shall invoice on a weekly basis and each invoice will be payable by RWM] at the end of the third week following the week to which it relates”

c. Since SCFF was obliged to pay farmers for their cattle within 7 days (for instance as Tesco insists), SCFF is giving RWM two to three weeks' free credit. The sums involved are substantial, with annual purchases of nearly £65 million in 2006 and an outstanding balance owing to RWM of over £4.7 million.

d. This credit has an effect on cash flow for SCFF as a result of which it was unable to pay a dividend.

e. SCFF was also providing RWM with its working capital requirements. RWM has used this working capital to build a substantial business. It includes the cow trade and supplying customers who should have been customers of SCFF. These suggestions, that these customers should have belonged to SCFF is one which I have already dealt with and substantially rejected.

f. There is also no limit to the bullocks and heifers which RWM can

[760]Ultimately, the complaint comes down to money – the kill fee and the credit terms. As to that, each of RWM’s witnesses (including their expert Mr Grantham) accepted that SCFF’s overhead costs have risen inexorably since the date of the MoU, and all acknowledged that the appropriate inflation rate has on average been of the order of 2% per annum. Further, apart from the stance of the Cobdens that the case for renegotiation is unanswerable, there is evidence from Mr Grantham and Mr Phelps.

[761]Mr Grantham was willing to acknowledge that there were factors which would be objectively likely to influence RWM to engage in a constructive process of renegotiation, and expressed the view that although there is considerable room for uncertainty as to what the final package might be worth, there was a basis for assuming that a renegotiation would result in increased profitability for SCFF. He acknowledges that there would be pressures on RWM to continue to do business with SCFF and regards it as reasonable at least to renegotiate the line in the sand provision of the MoU and acknowledges that it would be commercially sensible to renegotiate its terms more generally. Mr Phelps agreed that the case for renegotiating the MoU was “very strong” and “unanswerable”.

[762]In the light of those of the criticisms listed by Mr Weatherill, which I have not rejected, and in the light of the views of Mr Grantham and Mr Phelps, there is clearly a case for renegotiation which the SCFF directors must consider. But it is clear from what the Heffers have said both in correspondence and at SCFF board meetings that RWM’s position is that it will not renegotiate the MoU. Accordingly, if SCFF is to be able to put pressure on RWM to reconsider that position, the board of SCFF needs to do two things. First, it needs properly to prepare a carefully constructed case to show that(i) the killing fee is too low and

(ii) that the credit terms are unfair. Secondly, it needs to decide whether, in the negotiation, it is really prepared to terminate the MoU and to take the risk that it will then be left with no trading agreement with RWM at all and that RWM might take its business elsewhere.

[763]On the evidence before me, neither the board as a whole nor the Cobden Directors alone have done either of those things. As to the first aspect, the £50 fee is no doubt one which the Cobden Directors would wish to see adopted, but they have as yet produced nothing compelling to demonstrate that that would be a fair fee in contrast with the current fee. Further, although the trading terms appear to be unfair, RWM has some argument to the contrary as articulated in the correspondence between solicitors. As to the second aspect, it is pointless for SCFF to go into negotiations unless it has decided that it would terminate the MoU otherwise it has no negotiating position at all. Indeed, this is precisely why Mr Weatherill says that the MoU must now be terminated. I would not go that far with him, since the negotiation can be carried out against a background of a threat to terminate it. I shall return to the prospect of the threat in a moment, but before I do, it seems to me that a director of SCFF could reasonably require – indeed, I rather think that he would be in breach of duty if he did not – that the full consequences of terminating the MoU should be investigated before that were done. A careful assessment would also need to be made of the consequences for RWM of terminating the MoU. That exercise might indicate two things: first, that without it, SCFF would not be able to continue to trade unless it could retain business from RWM; secondly, that RWM could not in practice do without SCFF and that it would be as much in its interests to negotiate new trading terms more favourable to SCFF than exist at present. On the evidence I have seen, I think that that is quite a likely scenario.

[764]The board would then need to decide whether it should, if necessary, actually terminate the MoU. Unfortunately, the exercise which I have suggested needs to be undertaken before the board makes its decision has not been carried out. The board is unable to make a properly informed decision. However, if it had no more information than it in fact has, I do not think that, on the evidence available at the moment, a reasonable director could not properly decline to vote in favour of a resolution to terminate the MoU: he could perfectly properly say that he was unwilling to take the risk at least until he knew more about the consequences for SCFF and was able better to assess the commercial pressures on RWM to agree something better.

[765]That is not to say that the SCFF board could not, all the same, decide to attempt to negotiate a better arrangement than the MoU and to threaten to terminate the MoU as part of that negotiation. Were the SCFF board wholly independent, that threat could be a useful negotiating tactic. RWM would not know whether it was a real threat or not and would itself have to judge whether it would be better to agree some changes to the MoU or risk the MoU being terminated with whatever commercial consequences that would have for it. The reality then might be that both sides would recognise their strengths and weaknesses and recognise that the MoU ought to be changed in a way which would favour SCFF.

[766]Unfortunately, the SCFF board is not wholly independent of RWM; it has three RWM directors on it and the conflict in which the RWM Directors find themselves is particularly acute since there would in practice be no way of preventing RWM from knowing whether the threat by SCFF to terminate the MoU was real. This is a game of poker where one player can see the other player’s cards and therefore knows that his own hand is winner. But, on the other hand, the RWM Directors know the true position of RWM and what it would in fact do if the threat to terminate the MoU by SCFF were carried out. In bringing, as they must, their best judgment to the decision which is to be made by the board of SCFF whether or not to terminate the MoU, the RWM Directors might have to reveal RWM’s hand. But even if that is not so, it would not be proper for them to say to the SCFF board that RWM would take its business elsewhere unless that were actually true and, in voting on the SCFF board, they would have to take account of their own knowledge of what SCFF would do.

[767]It might be said that the relationship between the parties is such that, since RWM can negotiate to its own advantage, it cannot possibly be the case that the RWM Directors are precluded from acting for RWM in the negotiation and, in doing so, keep secret from the SCFF board their deliberations on behalf of RWM. However, if that is correct, it seems to me that they cannot at the same time claim to be entitled to be privy to the deliberations of the SCFF board let alone to vote on the resolutions relevant to the negotiation. But if the conflict were to be resolved by removing the RWM Directors from the SCFF side of the negotiation, that would leave the Cobden Directors with the decision whether or not to terminate the MoU which is precisely what the RWM Directors are not prepared to see since they take a different view – which I assume for the moment to be an honestly held view – that it would not be in the interests of SCFF to terminate the MoU.

[768]These aspects of the RWM Directors’ duties and how to handle their conflicts of interest have not been argued before me. If SCFF is to continue in the joint ownership of the RWM and CIL, these issues will have to be addressed and resolved. That said, I do not consider that the complaint under paragraph 39(15) of the Petition is made out at the present time. It is not, I think, possible to say that there has been any unfairly prejudicial conduct in the RWM Directors refusing to agree actually to terminate the MoU: a far more detailed consideration of the consequences of doing so would need to be carried out before it could be said that they were not acting in the interests of SCFF if voting against the resolution. Further, I do not consider that the RWM Directors were acting in a way which was unfairly prejudicial to CIL in declining to consider any further than they did the terms of the draft trading agreement presented to them. Richard had described that draft as necessary and appropriate in the context of CIL owning the whole of SCFF, that is to say as if the Petition had already been determined in CIL’s favour. It was not unreasonable to refuse to consider an agreement prepared and presented on that basis.

[769]I do, however, consider that further steps ought to have been taken by the board of SCFF to attempt to resolve the acute conflict of interest which I have discussed and for the Cobdens and the Heffers to attempt to agree, if that conflict could not be removed in a mutually acceptable way, the extent to which the RWM Directors were obliged, pursuant to the Shareholders Agreement, to reveal RWM’s true position about moving its trade elsewhere if the MoU were terminated. It is not surprising to me that that was not done in the light of the existing litigation and the hostility between the parties. But it was not suggested by the Cobden Directors. I do not consider that a failure to take matters forward was, in the circumstances, unfairly prejudicial conduct for the purposes of section 994. I accordingly reject this complaint.

Petition Paragraph 39(16): Defence of Legal Proceedings – Loders and Matthew

[770]On 16 April 2007 there was a board meeting attended by Daniel and Graham. The only item for business was to discuss proceedings brought by Loders against SCFF and Matthew and a claim by Matthew against SCFF for unfair dismissal. Since both Daniel and Graham were relatively neutral, it was they rather than other family members who attended the meeting with Mr Carswell attending as SCFF’s company secretary. Daniel's evidence is that at that meeting it was agreed SCFF would only get legal advice but would not defend the proceedings without further consideration by the board. Graham and Mr Carswell say that at the end of the meeting it was agreed that solicitors would be instructed to defend the proceedings. The contemporaneous written note taken as the meeting went along contains an alteration which reflects this alleged result and the typed minutes reflect this. Mr Carswell then instructed the solicitors who defended both claims. CIL claims this was a breach of the Articles of Association and the provision requiring board resolutions to be supported by at least one Cobden Director and one RWM Director.

[771]In cross-examination Mr Carswell said "… Graham said, "for goodness sake, let’s just get this done because we've got to beat a deadline. Lets just appoint – agree to appoint solicitors", and that’s when Daniel said yes, and that’s why I amended the original note".

[772]That fails to make it clear what was agreed. It is easy to see that there may have been a misunderstanding.

[773]However that is not the end of it even if, contrary to Daniel’s evidence, it was agreed to appoint solicitors to defend these actions at the board meeting on 16 April 2007. Account needs to be taken of Daniel’s subsequent email dated 5 June 2007 and the further board meeting which it prompted. In the email, Daniel expressly stated that the agreement at the meeting had been to instruct solicitors to “advise” and noted that SCFF was taking active steps in each action without board sanction. At the board meeting (attended by Graham, Daniel and Mr Carswell) Graham and Mr Carswell both maintained that the note of the meeting was accurate and that lawyers were to represent SCFF “provided there was a justifiable defense (sic)” which Mr Carswell reported there was. Quite how he could report that I do not know given that SCFF’s defence to the Loders’ claim was hopeless and he had not received advice to that effect.

[774]At the very least, it must have been apparent to Graham and Mr Carswell that there was a misunderstanding as to what had been agreed previously. I agree with Mr Weatherill when he says that they should have reacted accordingly rather than simply asserting the righteousness of their own views and carrying on in the face of Daniel’s obvious disagreement. I also agree that Mr Carswell proceeded in this matter without proper authority but with the implicit assent of Graham. It is not unfair to describe his behaviour towards Matthew as vindictive. I conclude that, even if originally authorised, the defence of these claims was continued when it was plain that the Cobden Directors had withdrawn any authority which they may be found to have originally agreed, and at all times Mr Carswell exceeded his own authority.

[775]The financial loss suffered by SCFF is insignificant in the context of this Petition. The way in which these actions were handled may have caused Matthew distress. But I do not think that conduct which is unfairly prejudicial to CIL is thereby established. I reject this complaint in the context of section 994.

Petition Paragraph 39(17): Skins International

[776]Skins International Ltd (“SIL”) is a company which trades in the hides and skins of slaughtered animals. Since about January 2005, SIL has occupied part of a building on the abattoir site (owned by SCFF) that was formerly used as a sheep lairage. Stephen Mayes is the managing director SIL; he dealt with Robert in the negotiations for the renting of space at Langport. He was cross-examined by Mr Weatherill. His evidence was not shaken and I accept what he said in his witness statement and cross-examination so far as it goes. It is to the following effect.a. He first met Robert in about 2002 when he approached RWM with a view to purchasing their hides. At that time he was aware that RWM was selling its hides to a number of different hide merchants. Business grew and after a time SIL was purchasing most of the hides that RWM was producing.

b. He had experience, through an associated company, of an arrangement with a supplier under which hides were purchased on an exclusive basis and space was rented from the supplier for the storage of hides, thus enabling hides to be collected on a weekly basis.

c. In about 2004, Mr Mayes suggested to Robert that Robert might wish to consider RWM entering into a similar exclusivity arrangement. Mr Mayes proposed to Robert that in return for the exclusivity, SIL would pay an additional 50 pence per hide. He also requested that SIL be allowed to rent space which would enable it to store the hides for collection on a weekly basis instead of the then current daily basis. They discussed the renting of one of the outbuildings on the Langport abattoir site. Mr Mayes proposed a rent of £30,000. Robert suggested, instead, that the rent be linked to the number of hides. They eventually agreed to a rent of 45 pence per hide which at that time would have equated to an annual rent of around £30,000 per year.

d. For Mr Mayes, it was most important to achieve the exclusivity arrangement. Use of a building at Langport was an advantage because it saved on transport costs to SIL’s main premises in Tiverton. Mr Mayes says that he agreed a loyalty payment of 50 pence per hide quite independently of the rent for the space at Langport; indeed, when he agreed the loyalty payment, he had dismissed in his own mind the possibility of obtaining space because preliminary investigations had lead Robert to the conclusion that nothing suitable was then available.

e. It is true that, before the loyalty payment was formally agreed or put into operation, negotiations for renting of space had resumed. But Mr Mayes says that the rent for that was agreed quite separately from the loyalty payment. Initially, he indicated that SIL would be prepared to pay £30,000 pa, this being based, as he saw it, on the amount which the associated company was paying (although, as he accepted in cross-examination, the loyalty payment and the rent were, in the case of the associated company, linked transactions).

f. Mr Mayes emphasised to me that the 50 pence per hide paid to RWM is a premium for the grant of exclusivity and is not an additional rent for the outbuildings that are rented from SCFF.

[777]Mr Weatherill asked Mr Mayes a number of questions in an attempt to show that it would not have made any difference to SIL if the apportionment or allocation between loyalty payment and rent had been different provided the total payment remained the same. The use of the words apportionment and allocation assumes that there was a single deal the price of which needed to be apportioned between its constituent elements. Indeed, Mr Weatherill put to Mr Mayes that there was in reality a single transaction and that the allocation of payment did not matter to him. Mr Mayes disagreed. I accept that, so far as he was concerned, there were two elements of which the exclusivity was the most important and which stood by itself – the loyalty payment of 50 pence per hide would have been made even if space could not be found or if it were too expensive. I have more difficulty accepting – or rather understanding – his reason for saying that the allocation did matter to him. The answer he gave was “It mattered to me because that's the arrangement we had. We had an agreement on the exclusivity of 50p and then we had another agreement as far as the rental was concerned.” I can understand that it mattered to Mr Mayes that he should be seen a man who kept his word and stuck by his agreements. But had Robert himself suggested a different allocation, for instance 55 pence as rent and 40 pence as a loyalty payment, it is not easy to see why he would have refused. What mattered was that SIL had an exclusivity agreement. I do not understand why it would have mattered if more had been allocated to rent and less to exclusivity. Indeed, one might think that such an arrangement would be beneficial since, if SIL had to leave the site for one reason or another, that would not necessarily affect the exclusivity arrangement which would continue at the lower loyalty payment (subject of course to any renegotiation).

[778]Both Matthew and Robert gave evidence on this issue. Matthew is the only Cobden who was in any way involved in the renting of space to SIL and there is no suggestion that any of them, other than Matthew, knew anything about a proposed letting. There is a dispute about precisely how much even Matthew knew about the progress of negotiations and what he agreed to. Matthew’s case, in a nutshell, is that he and Robert were looking to obtain £90,000 pa from SIL and that negotiations were left to Robert. Before he, Matthew, had been able to consider fully how such a figure might be achieved, Robert, he says, had done the deal under which a significant revenue would be generated from SIL but 50 pence of the total of 95 pence per hide would be going to RWM.

[779]According to Matthew, Robert told him, after the deal had been done, that he had agreed a rent of 45 pence per hide and that SIL would also pay RWM an additional 50 pence per hide over and above the price which it was paying for the hides themselves. Given that SIL was occupying a building belonging to SCFF, Matthew did not see any reason why RWM should be entitled to receive this or indeed any amount for SIL using SCFF’s land. RWM’s case is that this was a loyalty payment (as explained by Mr Mayes). Matthew says that he did not appreciate this at the time. He says that when he questioned Robert about the 50 pence additional payment, he was told that it was because “RWM needed it” saying that Robert did not mention at the time – and did not afterwards mention - any “loyalty payment”, the first reference to which, appears in the Amended Points of Defence. He says that he did not take the matter further because it was just another example of the Heffers abusing their position to the detriment of the Cobdens and he felt that there was nothing he could do about it.

[780]Robert says that Matthew was kept informed. He says that before any deal was done, he discussed this with Matthew, explaining exactly the deal he was doing with SIL, namely that they would purchase the hides at the market price but pay RWM a loyalty payment of 50p per hide and also that they were willing to rent one of the barns at a rent equal to 45p per hide. At that time RWM was having killed approximately 1,800 cattle per week at Langport which meant 1,800 hides and at 45p per hide this translated into an annual rent of £42,120. Robert says that this is far in excess of the commercial letting value of the barn and certainly in excess of the £30,000 which Mr Mayes had indicated he was willing to pay. Matthew was happy, according to Robert, to agree to SCFF renting the barn to SIL on this basis but asked that he make certain that the terms were reflected in a formal rental agreement. Robert, like Mr Mayes, emphasises that the 50p per hide that RWM received is a loyalty payment and not a rent nor a disguised rent.

[781]There is no documentation which shows that the 50 pence payment to RWM was a loyalty payment. One is left simply with the oral evidence of Mr Mayes and Robert. Matthew says that when he questioned Robert about this payment, he was not told that it was a loyalty payment but simply that RWM was keeping it “because RWM needs it”.

[782]Given the commercial arrangement described by Mr Mayes, the rental agreement actually signed is a curious document. Its first 5 pages comprise of a Law Society standard form letting agreement of certain store rooms shown on a plan and the provision of certain services (including use of fork-lift truck and diesel, light, power and water, heating and lighting and processing of effluent). Non-standard terms include a break clause and the exclusion of the Landlord and Tenant Act 1954. The rent is set at £1 per annum. The document continues with a section headed “Terms of Trade” which commences with definitions: the Buyer is SIL and the Seller is SCFF; the Goods are “the hides which the Seller is to allow the Buyer to handle at the Property in accordance with these Terms”. There is then a paragraph headed “Basis of sale” which provides for the Seller to sell and the Buyer to purchase the Goods at the price of 45 pence a hide handled by the Buyer. This provision seems to bear no relation to reality at all (or to the way in which the lease has been implemented) save that the “price” of the hides equates with the rent which SIL was to pay. I do not think that anything turns, for present purposes, on this document and I say no more about it.

[783]My conclusions on this aspect are these. First, the loyalty payment and the rental agreement were separate transactions. Mr Mayes saw it as essential to secure his source of hides and was willing to pay a loyalty payment of 50 pence per hide. Although not formally agreed before the rent proposal was formulated, the 50 pence per hide was separately and independently agreed before the rent was agreed. Secondly, Matthew did not know about the 50 pence payment to RWM in his initial discussions with Robert about what rent to charge SIL but he did know about it by the time the lease with SIL was completed. Thirdly, he did not understand the alleged nature of this payment as a loyalty payment until after the commencement of these proceedings. Fourthly, I have no reason to think that, if Robert himself had suggested to Mr Mayes a different allocation of the total 95 pence per hide which allocated more to rent, Mr Mayes would not have agreed to it. Fifthly, 95 pence per hide was a figure beyond which Mr Mayes would not go: it is impossible to conclude that he would have agreed 95 pence plus a loyalty payment. Whatever the case may be about the split between RWM and SCFF, I am sure Robert did as good an overall deal as he possibly could. Sixthly, Matthew knew that RWM was receiving 50 pence per hide.

[784]As to the third of those conclusions, Matthew’s evidence that Robert simply told him that RWM was taking the money because it needed it seems unlikely. The fact of the matter is that it was a loyalty payment and had been agreed with Mr Mayes. There is no reason why Robert would not have told Matthew the nature of the payment given that he had told him the fact of the payment. This is perhaps a case of one person saying something which he intended to convey one message and it being received by another person as conveying a different message. However, it should also be noted that when the issue of the 50 pence payment to RWM was raised at a board meeting of SCFF, Robert did not explain the payment as a loyalty payment: he simply said that the only benefit RWM obtained as a result of the letting to SIL was from having one outlet for the hides, to my mind a slightly disingenuous answer, and a full answer might have explained that SIL paid a price, consisting of a loyalty payment and a rent. It was, however, not untrue if the starting position is that 50 pence per hide was a proper level of loyalty payment. It would then indeed follow that the only advantage to RWM of the lease was that it could provide its hides to a single customer who would be on site; the message was that the money being received by RWM – ie in total the price plus the 50 pence per hide – was not the result of the letting to SIL.

[785]CIL’s case is that in entering into the arrangements, Robert agreed an unauthorised profit to RWM of 50p per hide; this was a breach of Robert's fiduciary duties, a breach of the obligation to promote and enhance the Business, and a breach of the provision requiring a board resolution to be supported by at least one Cobden Director and one RWM Director.

[786]I reject that submission. RWM was perfectly entitled to enter into an agreement with SIL for the payment of a loyalty fee. Had SIL never proposed that it should occupy the barn, CIL could not possibly maintain that in some way SCFF was entitled to benefit from the loyalty payment. Suppose then that the 50 pence per hide agreement had been made and implemented and that, some months later, SIL had indicated that it would like to rent some space and that Robert negotiated a rent of 45 pence per hide. Again, it could not possibly be maintained, in my judgment, that RWM was under an obligation (presumably under the Shareholders Agreement) to forgo part of its 50 pence per hide in favour of SCFF. Nor would Robert be in breach of duty as a director of SCFF in failing to procure RWM to do so.

[787]On the actual facts, Robert had negotiated the loyalty payment with SIL before negotiations for the lease began and I find that the figure of 50 pence per hide was agreed in principle, although not formally, before negotiations began. On that basis, neither RWM nor Robert were, in my judgment, under any obligation to go back on the 50 pence per hide figure and to enter into some other arrangement. Certainly, the “promote and enhance” obligation does not oblige RWM to give up what it had, in principle, agreed with SIL and that being so, there was nothing in Robert’s duties which obliged him to achieve something which RWM was not obliged to do.

[788]Even if it is wrong to say that the 50 pence figure had been agreed in principle before SIL had suggested that it wished to rent some space, there is nothing to suggest that the 50 pence per hide figure was agreed other than on its own merits as an appropriate loyalty fee; in particular, there is nothing to suggest that Mr Mayes started with a figure of 95 pence per hide in total without caring whether or not he agreed more or less than 50 pence for the loyalty part. Indeed, even once negotiations began he had no certainty of being able to acquire any premises.

[789]I do not think that on the facts the conflict of interest for Robert on which Mr Weatherill seeks to rely, really existed. But even if it did, so that some technical or even non-technical complaint could be made about his behaviour, I do not consider that there had been any unfairly prejudicial conduct in the context of section 994. The 50 pence per hide figure is, without doubt in my view, within the range of proper and reasonable loyalty payments which RWM could expect to receive. The rent which SCFF became entitled to receive was a good rent, way above what it could have hoped to receive if SIL had not been on the scene.

[790]Accordingly, I reject the complaint in paragraph 39(17) of the Petition.

Petition Paragraph 39(18): Failure to attend board meetings

[791]CIL claims that the RWM Directors have refused to attend meetings of the board of directors. CIL claims this was a breach of the RWM Directors' fiduciary duties and a breach of the obligation to “promote and enhance” the Business. CIL’s case on this issue is based on the RWM Directors' conduct at the meeting on 15 June 2007 and Graham’s email to Matthew dated 26 July 2007. That email reads as follows:

“It is clear that until your petition has been disposed of, there is little point in our trying to take the business forward. Therefore there is no sense in our trying to hold board meetings to try and get agreement on strategic issues affecting the business because you will no doubt each time attempt to trade off issues you are perusing [sic] in the litigation. I am not sure how you could justify this as acting in the best interests of the Company but no doubt your lawyers will have a go! Therefore issues such as site improvement will have to be put on hold until after the trial and we will simply continue to run the business on the current basis. This should avoid the necessity of board meetings which have been reduced to a farce by your tactic of using them for no other purpose than to promote your case.”

[792]The chronology is this:a. On 12 January 2007 the Cobden Directors had proposed a board meeting to consider a resolution to terminate the MoU and enter into negotiations for a new trading agreement (proposing terms for discussion).

b. On 26 January 2007 Robin wrote to Richard acknowledging receipt of the proposed new trading agreement, describing the proposed agreement as tactically aimed at testing the RWM Directors’ fiduciary duties. Tiresome (to use Robin’s word) as it was, he took the request seriously. Robin agreed to discuss matters at a forthcoming board meeting and raised a number of detailed questions about the proposed new trading agreement on which he sought clarification. These were all perfectly sensible requests. Although perhaps raised from an RWM perspective, they were matters which the SCFF board would need to address in deciding what action to take.

c. On 31 January 2007 Richard responded in detail. The negotiating lines were beginning to be drawn. It is more than slightly surprising that, in the context of an ongoing company with two shareholders, Richard should describe the purpose of thedraft trading agreement as being to deal with the position when CIL is the sole shareholder. That was to beg a rather large number of questions and if anything was designed to make Robin see red, that was it. It is hardly surprising that a document designed to deal with a situation which Robin was fighting on the Petition and would not reflect – or might well not reflect – SCFF’s interests going forward with RWM and CIL as shareholders is not one which the RWM Directors subsequently saw as being in the interests of SCFF.

d. On 31 January 2007 Richard wrote a further letter to Robin noting that the proposed agenda for the forthcoming board meeting included AOB and stating that the Cobden Directors would be attending on the strict understanding that only agenda items would be considered.

e. On 14 February 2007 the agenda for the board meeting was issued

f. On 16 February 2007 Robin responded in detail to Richard’s letter of 31 January to the effect that the proposed new trading agreement was not considered fair or reasonable for the reasons given.

g. On 19 February 2007 the board meeting to discuss, among other matters, the termination of the MoU and proposed renegotiation of the trading terms was held. I say proposed negotiation because that is how Mr Weatherill puts it; and it reflects the literal wording of the Agenda referring to “a new trading agreement”. But there can be no doubt that it was intended by the Cobdens to discuss their draft and it is the case that the actual discussion was in that context. The meeting appears to have been pretty unpleasant, with Robin indicating – intended I think as a threat – that in response to the proposed new agreement, RWM would be making arrangements to move part of the kill from SCFF to another abattoir. There was then a vote with the Cobden Directors voting in favour of the resolutions and the RWM Directors against, thereby ensuring that they were not passed

h. On 1 May 2007 the Cobden Directors wrote to the RWM Directors explaining in some detail why the MoU was considered beneficial to RWM and of little or no benefit to SCFF, and calling for a board meeting to authorise service of a notice terminating the MoU.

i. On 15 June 2007 a board meeting was held to consider not only the proposed termination of the MoU but also resolutions relating to RWM’s trespass on areas outside the Lease and the supply of sheep to RWM Dorset, but during the meeting Mr Carswell resigned as Company Secretary and after an adjournment for legal advice as to whether the meeting could continue, Robin drove away and the board members dispersed without conducting further business.

j. Phone calls took place and emails flew forth in an attempt to reconvene the meeting, the last in the chain being Graham’s email which I have set out above.

[793]Since then RWM have asserted in their Amended Defence dated 30 October 2007 that they intend to convene a board meeting to consider such resolutions as the Cobden Directors wish to put forward and to consider any other Company business. Nothing happened to further that intention until the RWM Directors proposed that a board meeting should be convened on 13 February 2008 shortly before the commencement of this trial. CIL and the Cobden Directors regarded that as an unreasonably late suggestion.

[794]Mr Weatherill invites me to find on that sequence of events that RWM was in breach of its obligations to promote and enhance SCFF’s Business and to procure that its nominees the RWM Directors, did likewise, and that the RWM Directors’ refusal to continue even to discuss changes needed to the trading relationship between RWM and SCFF was an egregious breach of their fiduciary duties to SCFF. He submits that RWM’s suggestion that a board meeting be held coming so late in time before the trial does not constitute a proper defence to the allegation that the RWM Directors refused to attend Company board meetings.

[795]Mr Joffe paints a different picture. He says that the RWM Directors considered that it was not in the interests of SCFF to hold a board meeting in order to discuss hotly-contested issues that were the subject of court proceedings, but they stated that they would attend meetings to address operational issues; that was their position as stated in an email from Graham dated 25 July 2007. The RWM Directors did not want board meetings that were purportedly to discuss operational issues to become bogged down in arguments in respect of the litigation. Matthew responded indicating that it was not possible to draw a distinction between operational and strategic issues, since some of the issues on the Petition would impact directly how SCFF’s affairs should be conducted. There then followed Graham’s email on 26 July 2007 which I have quoted above. The RWM Directors say that they considered that such a meeting could not be productive at that time, when issues were not crystallised and rational debate was unlikely. However, as Mr Joffe puts it, the RWM Directors have recently sought to hold a meeting to address all issues, now that there can be a proper discussion, but their attempt to hold the meeting was rejected by CIL’s solicitors. In any case, it is said that SCFF has not suffered by reason of there being no board meetings for a period; there have been no operational matters requiring discussion and none was suggested to RWM’s witnesses in cross-examination.

[796]Notwithstanding the absence of board meetings, the day to day conduct of SCFF has continued. RWM’s position is that board meetings are not necessary for effective conduct of the company’s business (by Mr Phelps and other executives) during the currency of this litigation. The Cobden Directors have not suggested that any particular issues (unrelated to the MoU) need discussion and resolution; but if any arose there is no reason to think that the RWM Directors would not now agree to a board meeting to consider them even if their position had at one time been that they would not attend any meeting.

[797]The real complaint is that the RWM Directors have refused to attend board meetings to discuss resolutions related to the MoU. Although there had been major disagreements before July 2007 and rows at board meetings, there had been no refusal to attend such meetings. The email correspondence in July ended with the RWM Directors refusing to attend meetings. There was then a period during which that refusal was not withdrawn. However, in October 2007, the Amended Defence stated that a meeting would be convened to consider any resolution which the Cobdens wished to raise. It is true that that intention was not effected until February 2008 at a very late stage. But it would have been open at any time for the Cobden Directors to question what was being done to implement the intention expressed in the pleading; that was not done. I do not consider that any complaint of unfairly prejudicial conduct can, after service of the Amended Defence, be levelled at the RWM Directors on the basis that they refused to attend a meeting. The complaint, if any, is that they failed to convene a meeting but, in the absence of any reminder or follow-up by the Cobden Directors seeking a meeting, I do not think that there would be any merit in that complaint.

[798]That leaves the period from the end of July, when the stated position was that the RWM Directors refused to attend any board meeting, until mid-October when they signified that a meeting would be held. In my judgment, the continued absence of a board meeting – which I will take to be because of a continuing refusal to attend on the part of the RWM Directors – does not give rise to a separate complaint of unfairly prejudicial conduct. If the separate complaint about a refusal to renegotiate the MoU fails, then the complaint concerning non-attendance at board meetings relates to a short period in respect of which the added delay in addressing the issue has not, so its seems to me, been so detrimental to the interests of SCFF as to make the refusal to attend conduct which is unfairly prejudicial to CIL.

[799]Accordingly, the complaint under paragraph 39(18) of the Petition is not made out.

Petition Paragraph 39(19): £2.70 slaughter fee for sheep

[800]SCFF does not now normally slaughter any sheep. Sheep are now slaughtered by RWM Dorset in Yetminster. Between 16 April 2007 and 11 May 2007, Yetminster abattoir was closed for refurbishment so it was necessary for sheep which would have been slaughtered at RWM Dorset to be slaughtered elsewhere and this was undertaken at Langport. This was arranged by Robert and Mr Phelps. They agreed a slaughter fee of £2.70 per sheep on the basis that RWM Dorset provided the necessary labour. I understand, and accept, that Mr Carswell carried out some calculations to establish that the appropriate figure for labour costs was £1.30; the resulting figure of £2.70 was therefore set on the basis of the normal killing fee of £4.

[801]Mr Phelps acknowledged that he made no effort to negotiate the £3.30 compromise kill fee which Richard was pressing for and indeed that he did not even put it to Robert. He also acknowledged that he took on the work without the authority of the board or Richard. Indeed, he acted in the face of expressed instructions to the contrary from Richard; there is, however, no evidence to suggest that Robert knew of that.

[802]Matthew does not dispute the £1.30 deduction, but says that the base fee should have been £5 not £4. Richard did not agree with the £2.70 fee either; he wrote to Mr Phelps on 10 April 2007, after the fee had been agreed between Robert and Mr Phelps but before any killing had been undertaken on this basis, saying that he thought that SCFF had RWM Dorset over a barrel and that SCFF should charge £3.30 per head. That fee, after taking account of the labour cost of £1.30, represented a kill fee of £4.60.

[803]Mr Joffe says that Richard’s letter seems motivated by the dispute as opposed to any proper commercial rationale; and he describes Richard’s letter as a request to Mr Phelps to negotiate a higher price. I think that that is not a fair submission. It must be remembered that the dispute has been driven by the Cobdens’ perception, right or wrong, that they have been unfairly treated at every turn. It is hardly surprising, therefore, that they should think it appropriate that SCFF should take advantage for once of a clear opportunity to drive a proper bargain. The commercial rationale was to make some money for SCFF and there is nothing to suggest that the £5 or £4.60 base fee was above the range of reasonable fees which an abattoir might charge, whether or not the £4 was also in that range. Nor can this letter be seen as a request to renegotiate; rather it was a complaint that an agreement had been made (against the express instructions of Richard, it will be remembered) and a statement of what should be obtained.

[804]According to Mr Phelps, whose evidence I have no reason to doubt, the gross profit for the kill (without accounting for the small increase in electricity and water) was £28,428 for a 3-week period. This was entirely top-up kill in the sense that it did not prevent SCFF from undertaking business which it could otherwise have acquired. The overhead costs to SCFF were minimal. The business produced a profit for SCFF. Mr Joffe submits that this business was clearly in the interests of SCFF. I accept that the business was in the interests of SCFF in the sense that it was better off with it than without it and I accept that Robert believed that it was in SCFF’s interests to kill lamb for RWM Dorset, because of the additional income; this business actually made a profit and undertaking it did not prevent SCFF from making some different profit on some other business. But if SCFF would have received a better price if Mr Phelps had followed Matthew’s instructions, because it would then have been able to negotiate a higher price with RWM, it can be said that this business was not in its interests. RWM Dorset might, I suppose, say that it could have had lambs slaughtered elsewhere equally cheaply, but there is no evidence to suggest that any other abattoir would have allowed RWM Dorset to introduce its own labour to carry out the work.

[805]I also accept that Robert thought that the kill fee was fair although I would not accept, if it were suggested, that he gave any thought to whether, in his capacity as a director of SCFF, the fee was one which SCFF should agree. He might also have thought that a fee of £2.90, or £3.10 or even £3.30 would also be fair and, had he been wearing an SCFF hat only, might have thought it appropriate to press for a larger figure. Of course, Mr Joffe would say that he was entitled to negotiate on behalf of RWM Dorset; but, if that is correct, his evidence that he believed the £2.70 fee to be fair really takes me no further.

[806]Mr Phelps was of the view that it made sense to take this business on, in particular because SCFF’s lamb line was out of action and I accept, of course, that that was a perfectly sensible and reasonable view. And I agree, of course, that SCFF was better off carrying out this work at the £2.70 figure than not doing it at all.

[807]Mr Joffe submits that it was within Mr Phelps’ authority to take orders. For reasons already discussed in relation to the complaint under paragraph 39(6) of the Petition relating to killing fees for lamb generally, I do not consider that Mr Phelps had the authority to fix this fee with Robert, and Robert, as a director of SCFF must be taken to know of Mr Phelps’ (actual) authority. I have also concluded that RWM Dorset cannot rely on the proposition that Mr Phelps had any ostensible authority. I accept, of course, that he was in a difficult position, in the middle of the dispute between the families. And I accept that he acted in perfectly good faith: he wanted the revenue for SCFF and felt that he had to get on with things, or nothing would have been agreed, and that it was the right thing to do.

[808]Nonetheless, I consider that the complaint under paragraph 39(19) of the Petition is made out. Mr Phelps in fact had no authority to agree the £2.70 figure (or indeed to take the business at all). Robert knew that there was no board authority for the transaction and must be taken to have known of Mr Phelps’s authority. He says that he thought the fee was fair, but there is no evidence that he gave SCFF his best informed judgment about this, or indeed any judgment at all. As I have said, there is no evidence to suggest that the fee suggested by Richard was unfair. It is a fee which Robert should have been in a position to consider. It was, I appreciate, not put to him by Mr Phelps so that he could not, in fact consider it; but had the affairs of SCFF been conducted properly, the board would have been kept informed and there can be no doubt that Robert would have known of the £3.30 proposal. RWM Dorset is here in a dilemma. If its case is that it would have agreed £3.30 if only Robert had been told, then that shows that the £2.70 was not the figure at which SCFF should have conducted this business. If it is its case that the £3.30 would have been rejected, then it would need to convince me that its commercial position was such that it could reasonably do so. But in the absence of any evidence to suggest that it could have found an abattoir willing to allow RWM Dorset to use its own labour and to fill for a fee of £2.70, I cannot be convinced.

[809]Accordingly, in my view this complaint is made out. I consider that this conduct of the affairs of SCFF was unfair to CIF in that it was conduct not authorised by the Shareholders Agreement. It was also prejudicial to SCFF since there was a real prospect in a proper negotiation of achieving a better fee. Whether SCFF would actually have achieved a better result if Mr Phelps had followed Matthew’s instructions is not, of course, certain. But having dealt on the basis of an agreement which there was no authority to make, it is not unfair to assume that an authorised agreement would have achieved the level which Richard suggested. The parties should proceed on that basis.

Conclusions on unfairly prejudicial conduct; questions of relief

[810]Mr Joffe submits that the parties can only properly address the correct form of relief once it is known what matters of unfair prejudice have been established. He submits that it is right that the parties should be given an opportunity to address the form of relief now that it is known which complaints have succeeded and which have failed. Given that I have rejected a considerable number of CIL’s complaints but I have also held that unfairly prejudicial conduct is established in a number of respects, I think his approach is sensible and fair, I therefore propose to allow further submissions about relief. It might, nonetheless, be helpful if I were to express some, albeit not concluded, views,

[811]All of the complaints established must be taken into account in considering whether relief should be granted and if so what relief. Some of the complaints which are established are significant and serious matters; and it is also the case that the parties have fallen out to such an extent that a working relationship is in reality no longer possible. Although Mr Weatherill does not, as I have already said, submit that relief should be given simply on the basis that there is deadlock on the board or the coming to an end of the foundation on which the parties had agreed to deal together, the fact of the matter is that there is deadlock and a breakdown of trust. I consider that I am entitled to take that into account when I decide what relief should be given in respect of the complaints which are established.

[812]Those considerations suggest that I should bring the association between the parties to an end by ordering a share sale and purchase in one direction or the other. The questions are: in which direction? and at what price?

[813]The relief sought includes an

[814]CIL wishes to purchase RWM Langport's shares. Mr Weatherill puts forward these reasons.a. The abattoir has always been owned and run by the Cobden family. Members of the Cobden family were shareholders and directors in the company which owned and ran the abattoir long before any involvement with the Heffer family. They surrendered control to the Heffer family on certain terms which the Heffer family have not honoured. It is said to go against all sense of justice that the Heffer family should be able to keep their shares, let alone take the Cobden family's shares.

b. If the Court is considering the appropriate relief, the Court will already have decided that the affairs of SCFF have been conducted in a manner which is unfairly prejudicial to CIL which will be the wronged party and RWM and the Heffers will be the wrongdoers. If the only relief granted is an order that the RWM purchase CIL's shares, the wrongdoers will benefit from their own wrong since it is quite clear that they want CIL’s shares.

c. The parties are miles apart on the value of SCFF. The gulf is enormous. CIL genuinely believes that SCFF has a substantial value and is willing to put its money where its mouth is. It is willing to pay far more than RWM’s valuation. If the only relief granted is an order that RWM purchase CIL's shares at a value approaching the value contended for by RWM, the relief granted will add insult to injury because CIL will have to give up something of value for a pittance.

d. RWM Langport also has minimal assets and without group support would not be able to purchase CIL's shares. If the Court decides on a low price, RWM Langport will, no doubt, be financed by RWM Group or RWM. If the price is too high, such finance might not be forthcoming and there would be little CIL could do about it. An order that RWM Langport purchases CIL's shares will effectively give the RWM Group an option. That would not be fair given that RWM are the wrongdoers.

e. RWM have given CIL no comfort as regards this issue. Robin Heffer says in paragraph 138 of his witness statement: "I understand the Petitioner is asserting that RWM Langport Limited would not have the financial resources to purchase the Petitioner's shareholdings in [SCFF]. I find this surprising since it was Matthew Cobden who first approached me with a request that we would make an offer for this shareholding. He has not at any time suggested that the Heffers would not be in a position to fund that purchase. In any event, I am happy to give this honourable Court all the assurances that may be necessary that both the RWM Food Group and the Heffer family will have no difficulty in raising the funding necessary to purchase the Petitioner's shareholding in [SCFF]."

f. So Robin offers only a limited assurance and does not offer an undertaking that either the RWM Food Group or the Heffer family will provide the funds to purchase CIL's shareholding. This witness statement was drafted with the benefit of legal advice and the omission to offer that undertaking speaks volumes. The undertaking presently being offered (but still not given) is to purchase CIL's shares if CIL is unsuccessful. Again, that undertaking was drafted with the benefit of legal advice and the limitation that RWM will only purchase CIL's shares if CIL is unsuccessful increases CIL's concerns.

[815]Accordingly, CIL seeks an Order that RWM Langport sells its shares to CIL.

[816]However, for the purposes of such a purchase, Mr Weatherill tells me that the Cobden family need more certainty as to what they are acquiring and time to find a new customer or customers and finance. I hope that this Judgment will give them at least a considerable part of that certainty by having answered a number of questions about the extent of RWM’s rights, particularly in relation to its property rights over parts of the site not included in the Lease.

[817]For perfectly understandable reasons, CIL says that, if it is entitled to purchase RWM’s shares, the MoU must be terminated at the latest by the time the share sale is completed. If the MoU continues once the RWM Directors have ceased to be directors of SCFF and once the Shareholders Agreement is at an end, SCFF will be exposed to substantial commercial risks. CIL therefore seeks an order terminating the MoU at the time it purchases RWM Langport's shares. Until then, SCFF has the relative safety of the RWM Directors fiduciary duties and RWM Langport's obligation to ensure that the RWM Directors “promote and enhance” the Business. At the point of purchase, however, the position will be very different and therefore the MoU must be terminated. The Court has, I consider, jurisdiction to make such an order.

[818]There will be other difficulties facing SCFF. Summarising CIL’s submissions:a. SCFF will need customers which, without RWM, it will have to find. It will have to recruit a sales director or manager who will have to look for customers for both clean cattle and cows. This could take up to 3 months although it could be a much shorter period if a major customer is willing to sign up sooner rather than later.

b. CIL will also need to find finance for the purchase. For the purpose of raising that finance it will need to have certainty as regards those parts of the site occupied by RWM and also certainty as regards customers. It would be impossible to raise any finance without those two issues being clarified. Finding finance could take a month after the new customer or customers have been found.

c. At present, the Cobden family may have a possible customer who could also be providing the finance. Terms have not been negotiated. If that particular customer does go ahead, the timescale could be quite short. Since doing a deal with the new customer is the Cobden Directors' best prospect, a three month period for the Cobden family to make up their mind as to whether to buy or sell is requested. I note that that submission was made at the end of the hearing (much to my regret a number of months before the handing down of this judgment) but no further developments have been reported to me.

[819]Next it is submitted that it is also important that if CIL is unable to find a customer or customers and finance for the purchase of RWM Langport's shares, it should be able to sell its shares to RWM. There is a possibility that negotiations with the possible customer could prove fruitless. It may be that CIL is unable to find sufficient customers for the abattoir to be viable. In those circumstances it will have to sell its shares. There will, however, still be a risk that RWM Langport is not financed by RWM Group or RWM and so CIL seeks an Order that RWM purchase CIL’s shares if CIL does not purchase RWM Langport’s shares.

[820]In other words, CIL effectively wants an option to purchase, exercisable over a number of months with RWM Langport or RWM being obliged to purchase SCFF’s shares if it cannot get a suitable package together. As already noted, there is a huge gulf between the parties on price, although I hope and expect that the gulf can be reduced to a gap and perhaps even eliminated in the light of my findings of fact and decisions in relation to the various complaints made. Although it is said that CIL is willing to put its money where its mouth is, I do not imagine, in the light of my findings, that the figure put forward at the end of the hearing would form a realistic basis for proceeding with a third party customer who would provide finance.

[821]I am bound to say that I perceive the offer put forward at the end of the hearing at a figure in excess of £9 million to be difficult to understand. It is similar to the figure which Ms Gread originally reached in her expert report. On receipt of that report, RWM saw the value which she reached as being so unrealistically high that they enthusiastically offered to sell their shares at that valuation with the dual effect of bringing an end to the litigation and providing RWM with a handsome return. Presented with that, CIL declined to treat, saying that Ms Gread’s valuation was based on a number of assumptions on which CIL could not rely in reaching an agreement. Yet, after 30 days of hearing when it must have become apparent to CIL (and even appreciated by Matthew) that the value of SCFF could not possibly be anything like the figure in Ms Gread’s report, CIL seem prepared to treat on the basis of that figure. The relief which Mr Weatherill seeks presents no risk to CIL in treating at the figure because, absent a customer and finance, it will not exercise the option to purchase. It is, frankly, wishful thinking on CIL’s part that the value is anything like that high figure or that it could hope to find an investor at that figure. I can only think that the offer is put forward in the hope of persuading me that SCFF is in fact worth much more than Mr Grantham suggests – although he will, of course, need to revise his valuation in the light of my findings of fact.

[822]Mr Joffe has put forward a number of reasons why, if there is to be a share sale, it should be a sale to RWM Langport rather than a sale to CIL. I do not propose to rehearse those reasons at this stage, having decided that I should allow the parties a further opportunity to make further submissions in the light of the judgment. But I do draw attention to one fact which I consider to be of some relevance in my deliberations. It is that the Cobdens – it is now a matter of years rather than months ago – were keen to sell their interest in SCFF to the Heffers. The negotiations were unsuccessful because a price could not be agreed. But it does to my mind show that the Cobdens were, at that time, interested in money and not in continuing the business. I therefore treat with some scepticism Mr Weatherill’s submission that the Cobdens have a claim to retain SCFF because it owns the business which has been in the family for so long.

[823]It therefore seems to me that, as well as there being strong arguments in favour of a share purchase order, there are also strong arguments in favour of the sale being to RWM or RWM Langport.

[824]As to quantum I propose to say very little at this stage. I hope that, in the light of my judgment, the experts will meet again to update their reports and to see what, if any, further issues can be agreed or disputes narrowed. I am bound to say that I do not feel equipped to effect any adjustments to the figures of each expert myself. It may be that the parties, or the experts, would wish me to make further findings of fact in order to resolve valuation questions. On the further hearing to deal with submissions about the form of relief, I would like any questions on valuation to be addressed. In particular, I would like to know precisely what, if any, further issues of fact or law which the parties would like determined in order to enable the value of the company to be determined on the assumption that a sale in one direction or the other will be ordered. I would like to know, in particular, whether the experts can now agree the appropriate adjustment to the EBITDA to reflect what I have held to be the late payment of money owing as the result of the Friday banking arrangement and the delay in presentation of cheques until after the weekend.

order

i. If RWM only order 500 bullocks or heifers per week, there is nothing SCFF can do about it. There is no minimum order per week. This would be disastrous for SCFF because 500 bullocks or heifers a week would not cover the overheads. ii. Similarly, there is no upper limit. If RWM order 3,000 bullocks and heifers per week SCFF would be unable to supply them and would be in breach of contract. This is a bad point. Quite clearly the MoU cannot be construed as casting an obligation on SCFF to provide in excess of the capacity of the abattoir. iii. What is needed is a minimum and maximum order so as to ensure SCFF’s overheads are covered and orders cannot exceed the abattoir's capacity. That is essential from the SCFF’s point of view and is not an unreasonable requirement in a renegotiation. I observe that there is perhaps a theoretical risk. But this situation has not in fact arisen in the past and there is no reason to think that it would happen in the future if the MoU continued unchanged. g. The 12 months’ notice provision in the MoU is illusory because on proper analysis it only applies to SCFF. If RWM does not want any more beef because, for example, it is obtaining its supplies from Yetminster, it does not need to order any beef. If RWM does not like the kill fee, it simply reduces the kill fee as it did with the sheep. Indeed, RWM stopped ordering any sheep from SCFF but gave no notice. There is no need for RWM to give any notice. h. The kill fee is now inadequate. The kill fee was inadequate in 2000. It is worse now because costs have increased over the years. Now RWM wishes to recharge part of the salaries of some of its employees, the kill fees are unrealistic. As to that Mr Joffe points out that since the signing of the MoU, kill numbers have increased significantly whereas direct costs have not, or where they have done as in the case of the pay increase in 2005, that was reflected in an increase in the kill fee. He says that the RWM Directors were open to any reasoned and cogent argument why the kill fee should be increased, although it was not sufficient simply to claim that the kill fee must be increased because there had been no increase since 2000, or that since RWM viewed it as advantageous, it must be disadvantageous to SCFF. i. At the very least it should be varied so as to make clear that payment should be made by 10am on the Friday when it falls due, thereby enabling the cheque to be included in the bank run for that day and thereby saving interest over the weekend (as well as increasing the value of the Company by the amount payable on the Friday cheque run). I have already dealt with this issue fully elsewhere. I concluded that, for the future, arrangements can and should be put in place which ensure that the payment is received across into SCFF’s account on the Friday. But it does not need a renegotiation of the MoU to achieve that since the MoU does not prescribe in any way how payment is to be effected. It is the “promote and enhance” obligation coupled with the RWM Directors’ fiduciary duties which dictate that this change of practice should be effected. order: " that RWM Langport be ordered to sell to the Petitioner and/or the Company the 50,000 ordinary shares of £1 each in the Company registered in its name at its actual value less the difference between the value which the Petitioner's shares in the Company would have had had the affairs of the Company not been conducted in a manner which was unfairly prejudicial to the Petitioner and the actual value of those shares or, at the option of the Petitioner, that RWM Langport be ordered to purchase the 50,000 ordinary shares of £1 each in the Company registered in the Petitioner's name at the value which the Petitioner's shares in the Company would have had had the affairs of the Company not been conducted in a manner which was unfairly prejudicial to the Petitioner."

Cited in 21 later judgments

and 12 more of the most senior