“A member of a company may apply to the court by petition for an order under this Part on the ground that the company’s affairs are being or have been conducted in a manner which is unfairly prejudicial to the interests of its members generally or some part of its members (including at least himself) or that any actual or proposed act or omission of the company (including an act or omission on its behalf) is or would be so prejudicial.”
“From Lord Hoffmann’s speech [in O’Neill v Phillips] one can deduce the following principles: (1) The concept of unfairness, although objective in its 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; (2) It follows that it will not ordinarily be unfair for the affairs of a company to be conducted in accordance with the provisions of its articles or any other relevant and legally enforceable agreement, unless it would be inequitable for those agreements to be enforced in the particular circumstances under consideration. Unfairness may, to use Lord Hoffmann’s words, ‘consist in a breach of the rules or in using rules in a manner which equity would regard as contrary to good faith’: see p.1099A; the conduct need not therefore be unlawful, but it must be inequitable; (3) Although it is impossible to provide an exhaustive definition of the circumstances in which the application of equitable principles would render it unjust for a party to insist on his strict legal rights, those principles are to be applied according to settled and established equitable rules and not by reference to some indefinite notion of fairness; (4) To be unfair, the conduct complained of need not be such as would have justified the making of a winding-up order on just and equitable grounds as formerly required unders.210 of the Companies Act 1948 ; (5) A useful test is always to ask whether the exercise of the power or rights in question would involve a breach of an agreement or understanding between the parties which it would be unfair to allow a member to ignore. Such agreements do not have to be contractually binding in order to found the equity; (6) It is not enough merely to show that the relationship between the parties has irretrievably broken down. There is no right of unilateral withdrawal for a shareholder when trust and confidence between shareholders no longer exist. It is, however, different if that breakdown in relations then causes the majority to exclude the petitioner from the management of the company or otherwise to cause him prejudice in his capacity as a shareholder.”
“From this line of authority I derive the following principles in the context of the present case: (1) In certain circumstances a court may be entitled to draw adverse inferences from the absence or silence of a witness who might be expected to have material evidence to give on an issue in an action. (2) If a court is willing to draw such inferences they may go to strengthen the evidence adduced on that issue by the other party or to weaken the evidence, if any, adduced by the party who might reasonably have been expected to call the witness. (3) There must, however, have been some evidence, however weak, adduced by the former on the matter in question before the court is entitled to draw the desired inference: in other words, there must be a case to answer on that issue. (4) If the reason for the witness’s absence or silence satisfied the court then no such adverse inference may be drawn. If, on the other hand, there is some credible explanation given, even if it is not wholly satisfactory, the potentially detrimental effect of his/her absence or silence may be reduced or nullified.”
““Bank Funding and A “non recourse” loan in the sum of Complementary around 400 million GBP (henceforth: funding”: “Funding Sum”) which will be financed, partially through bank funding and partially through complementary funding, detailed as follows. The loans agreements’ terms will include “Grace” instructions, for payments at the fund’s expense, for a period of at least 5 years after the loan has been given. Bank of Scotland (Henceforth: “BOS”), which accompanies the project and will provide the funding, has given its consent in principle for the project acquisition terms and for the funding at the aforementioned terms and the detailed terms as follows. In any case, the parties agree that the signing of the project acquisition contract will only occur after final arrangement with the bank according to the aforementioned principles. The rest of the loans’ terms, for the funding, will be resolved by Tonstate with coordination with PBC and Destiny. In the framework of the complementary funding terms, the BOS will have the right to receive 35% of the capital gain that will generate from selling the project or from receiving refinance for the project (but not from constant gains- the new company will be allowed to use those for other needs), (as detailed in Appendix B).”
“BOS”), which accompanies the project and will provide the funding, has given its consent in principle for the project acquisition terms and for the funding at the aforementioned terms and the detailed terms as follows. In any case, the parties agree that the signing of the project acquisition contract will only occur after final arrangement with the bank according to the aforementioned principles. The rest of the loans’ terms, for the funding, will be resolved by Tonstate with coordination with PBC and Destiny. In the framework of the complementary funding terms, the BOS will have the right to receive 35% of the capital gain that will generate from selling the project or from receiving refinance for the project (but not from constant gains- the new company will be allowed to use those for other needs), (as detailed in Appendix B).”
“RE: BANK OF SCOTLAND LOAN TERMS FOR METROPOLES Regarding the Senior Term Loan D,£13 Million , I would suggest the following: 1. Reduce to£10 Million and have separate facility for the Tonstate Group but not Tonstate (Hotels) Ltd. This is due to a special reason whereby Tonstate Group will reinvest this£10 Million in Tonstate (Hotels). 2. The£3 Million balance to be used for capex facility which will increase from£20 Million to£23 Million as agreed with Hilton.”
“1. Loan D£13 Million to be reduced to£10 Million and be provided as a separate facility to and guaranteed by Tonstate Group and not Tonstate Hotels. I have explained the reason for this as I would like to show a stronger Tonstate Hotels to start off with by transferring the£10 Million from the Tonstate Group Tonstate (Hotels) account. 2. The balance of£3 Million to be transferred to bring the capex facility to£23 Million as this amount was agreed with Hilton.”
“... the documentation should be adjusted so that£10 Million out of the facility is drawn to Tonstate Group. Therefore, the facility to Tonstate Hotels should be reduced accordingly. To be more clear, what I mean is that the paperwork must show this exactly (eg Tonstate Hotels therefore has a debt of£10 Million less).”
“Further to your letter of the30 October 2006 regarding tranche D of the proposed lending for Tonstate (Hotels) Ltd I am willing to allow the transfer of the funding to Tonstate Group Ltd subject to a guarantee from Tonstate Hotels Ltd (backed by a second charge) being put in place in favour of the Group to secure the debt. In respect of the apportionment of the debt, given that Tranche D is going to be lent by the Bank of Scotland only and tranches A, B and C will be from the syndicate against a pre agreed formula for the Capex which is in line with our credit sanction it will not be possible at this stage to increase the Capex line and we will therefore retain the Tranche D lending at£13m …”
“2. I have repeatedly explained the reasoning and logic for the£10 Million facility to TGL. This also benefits the Metropoles as it makes them£10 Million less owned. I understand we want to keep your 35% share confidential and I am sure our lawyers can find a solution how to do this… ”
“... As I mentioned, the new borrowing needs to be in a Newco due to the existing security in Tonstate Group Ltd and the bank’s requirement to get clear security. As outlined in previous letters, the borrowing in Newco will be subject to a guarantee from Tonstate (Hotels) Ltd supported by a second charge. With respect to your request for the transferred borrowing to be from Tranche A, unfortunately, we cannot achieve this as the transferred borrowing needs to be attached to the lending in the Bank of Scotland’s name only which as you are aware is only the D strip. Any other alternative alters the bank’s security net and is not covered by our existing credit sanction. However, one solution is for Tranche D to be transferred to Newco and a paid loan coupon to be taken from Tonstate (Hotels) Ltd to Newco in respect of the borrowing. . . .”
“... The second charge is in favour of Tonstate Ten Limited and they are then assigning this to HBOS. I understand that it is important for your client that HBOS is not seen as being directly involved in relation to the£10m loan...”
“The Borrower [Tonstate Ten] may only use the initial Advance of£10,000,000 under the Term Loan to on-lend to Tonstate Metropole Hotels Limited to help Tonstate Metropole Hotels Limited fund the purchase of the entire issued share capital of the Target and may only use subsequent Advances ... to on-lend ... for further expenditure ... and fees not yet agreed in relation to said acquisition and extra parking rights and to fund interest payments under this letter.”
“We received the required material, mainly the financing agreements, the collateral provided in their regard and the hedging agreement relating to interest. We were also given the TPD trial balance sheet, various details required requested regarding investments in property, loans received, cash balances and various P&L items, all as set forth below. In general, on all matters relating to the receipt of the material and to the business and accounting management, our impression is most definitely favourable. We found that the local staff is proficient with the material and that operates very professionally both in commercial and financial term, and we found no incidents of deviations.”
“… Metropol - According to the accounting department, Tonstate’s balance amounts to£28.7M instead of£29.3M according to the accounting between the parties – i.e. a deficit of ~£600K . According to Henry, this relates to interest for the£10M loan that Tonstate was forced to take (as part of the£377M loan for acquiring the hotels). The interest is paid from the TPD bank account and charged to the Tonstate account (i.e. not included in TPD financing expenses). We believe this poses a problem and the said interest should be paid from the Tonstate account. On the other hand, according to Henry, Tonstate did not withdraw owners’ interest in 2009 under the£500K distribution to PBC and Destiny.”
“3. The expected cost of the Hilton Cardiff Project was estimated to be at a total sum (expenses included) of approx. 35.2 million Pounds Sterling. In actuality, approx. 34.5 million Pounds Sterling have been spent to date, 29 million Pounds Sterling of which were financed with a loan received from the HBOS Bank. 4. The parties declare that the sums provided thus far by the owners as an owner’s loan to TPD in relation to the purchase of the Hilton Cardiff Project, do not match the agreement made in the Main Memorandum, and that Tonstate will act to settle the accounts between them in accordance with their portions in the equity, as specified in the Main Memorandum. 5. Other than the above, the remaining provision of the Memorandum of Understanding will remain valid and with no changes made to them.”
“The Petitioners’ position is therefore that, as a matter of fairness, the valuation of their interest in the TPD Group should reflect this excess contribution to the Cardiff Hilton purchase, from which Tonstate benefitted. This will be a matter for the Court in due course, but in my opinion a reasonable and fair way to reflect this complaint would be to adopt the same approach as I have adopted as regards Loan D, and increase the notional size of the Petitioners’ stake in the Cardiff Hilton appropriately.”
“The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.”
“... the estimated price for the transfer of an asset or liability between identified knowledgeable and willing parties that reflects the respective interests of those parties.”
“the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.”
“It would be possible to provide in an order that the value of a company’s share capital was to be valued not by reference to its market value but by reference to some other yardstick, but it would need clear words to do so. It is, I consider, impossible to read the Order as referring to anything other than the market value of the company’s share capital. That is the clear effect of the second assumption in paragraph 2 of the Order, that the respondent and the appellants “are respectively a willing seller and willing purchasers operating at arms’ length”
“... valuation directions concern the ascertainment of fair value. This calls for an evaluation of a number of factors, including the history of the events in issue in the litigation (ReBird Precision Bellows Ltd[1986] Ch 658 ). . . ”
“In my judgment, there should be some allowance for the selling costs to reflect the fact that the company could never have realised any value from the properties without paying these costs. . . ”
“One further submission made on Mr Bolton's behalf must be considered. He said in evidence that he could not, out of his own resources, find the money to buy Mr Lewis's shares. The judge seems to have envisaged that he might have to sell his own shares or raise money in some other way to buy out Mr Lewis. The evidence from the expert witnesses was that the sale of shares in Cumana might be difficult. All this led counsel for Mr Bolton to submit that the judge should have made an order containing what he called an 'escape clause', that is to say a provision which would enable the court to make some other order if, despite Mr Bolton's best endeavours, he was unable to raise the money to purchase Mr Lewis's shares at the price fixed. Despite the initial attractiveness of this submission, it is wrong in principle. What the judge was deciding was the amount of the compensation which Mr Bolton should pay Mr Lewis for the wrong he had done him: see Scottish Cooperative Wholesale Society Ltd v Meyer[1958] 3 All ER 66 at 89,[1959] AC 324 at 369, per Lord Denning. The fact that a wrongdoer is impecunious is no reason why judgment should not be given against him for the amount of compensation due to his victim. What Mr Lewis should do to get money out of Mr Bolton, claiming, as he still does, that he is impecunious, is a matter for him to decide, not the court.”
“Q. But in fact it is the case, isn’t it, that 10 million was debited to Tonstate’s account against its shareholder loan, wasn’t it? A. That’s my understanding, yes. Q. So in essence the 10 million was repaid, wasn’t it? A. The 10 million loan, all right, the liability was assigned, yes to TPD, so it became a liability of TPD. In exchange, TPD charged Tonstate’s loan account by this amount. Q. By 10 million? A. Yes, and after that, yes TPD repaid this loan by drawing a new loan out of the capex facility. Q. So in fact Tonstate’s liability was fully discharged in respect of this 10 million, wasn’t it, by a debit to its loan account? A. I mean the debit of their loan account reflects the significance of this transaction. They assigned a liability to TPD, so they were charged for it in their loan account.”
“... it is, if not common ground, then I think generally accepted at any rate, that the source of the payments to be made to the petitioners will indeed be the proceeds of sale of the hotels. There is no other obvious source of money available for that purpose.”
“What is the relevant test of attribution of responsibility beyond the narrow class of case where an agency relationship exists? In my judgment, the test is whether the defendant in a section 994 claim is so connected to the unfairly prejudicial conduct in question that it would be just, in the context of the statutory regime contained in sections 994 to 996, to grant a remedy against that defendant in relation to that conduct. The standard of justice to be applied reflects the requirements of fair commercial dealing inherent in the statutory regime. This is to state the test at a high level of abstraction. In practice, everything will depend upon the facts of a particular case and the court’s assessment whether what was done involved unfairness in which the relevant defendant was sufficiently implicated to warrant relief being granted against him.”
“In my judgment, these authorities all speak with one voice. They show that sections 994-6 provide a wide and flexible remedy where the affairs of the company have been conducted in a manner that is unfairly prejudicial to the interests of some or all of its members. A section 994 petition is appropriate where, for whatever reasons, the trust and confidence of the parties to a quasi-partnership has broken down. Relief can be granted to remedy wrongs done to the company, and in such a situation the alleged wrongdoers must be made parties to the petition. Non-members of a company who are alleged to have been responsible for such conduct can be joined as respondents, and, in an appropriate case, such non-members can be made primarily or secondarily liable to buy the petitioners’ shares. Artificial limitations should not be introduced to reduce the effective nature of the remedy introduced by sections 994-6.”
“… Fairness requires me to consider not only the circumstances which have led me to decide that such a sale should be ordered, but also what the position of the petitioners and respondents would respectively have been had those circumstances never obtained. As to that it is important to appreciate that the informal understanding which existed in this case at the outset never amounted to a cast iron commitment on the part of anyone actually to achieve a realisation of the value of the investment at the end of the five year period or at all. Still less was there commitment by any one individual that, if such realisation was not achieved, he would dig into his own private pocket to compensate a fellow shareholder. There is a real sense in which the petitioners have gained a valuable right as against the respondents which they would not have enjoyed but for the maladroit and ill-motivated management of the company’s affairs in December 1997. The wrong thus done to them turns out to confer an uncovenanted advantage on them. To give them the benefit not only of that right but also of the application of a set of optimistic assumptions about the future would be to run the risk of over-compensating them and unjustly penalising the respondents with whom the risks will remain.”