The Deputy Judge:
Introduction
- The Company, Baumler (UK) Limited, was acquired in about 1982 by the Petitioner, Mr Michael Gerrard, and the First Respondent, Mr Michael Koby. Mr Gerrard has at all times been the holder and beneficial owner of 490 of the issued shares in the Company's capital, with Mr Koby being the holder and beneficial owner of the remaining 510 issued shares. These shares are all ordinary shares. Mr Gerrard and Mr Koby are, as they have always been, the two directors of the Company.
- It is common ground between the parties that the Company was formed on the basis, and - at any rate until 2002 - has been operated on the basis, that financial contributions, managerial control and decision making would be shared between Mr Gerrard and Mr Koby, with unanimity being required for important decisions.
- The Company was formed to take on, and still has, the exclusive UK agency for Hans Baumler GmbH, an Austrian clothing manufacturer. The Company's business involves importing Baumler merchandise into the UK and arranging direct sales of such merchandise. Its premises, at Geko House, Kimberley Road, NW6, consist of offices, a warehouse and a showroom arranged over two floors. The showroom is used for displaying and showing future seasons' lines of clothing, while the warehouse can be used for supplying retailers with current lines.
- The only detailed material put before me to indicate the substance of the Company's business in recent times is its audited accounts for the year ended 31 March 2003, with the comparative figures for 2002. These show a turnover of approximately £1.55m per annum, with a gross profit of approximately £650,000 and a profit after tax of between £20,000 and £60,000. These accounts did not include a breakdown of the administrative expenses shown in the accounts at between £360,000 and £390,000 per annum. Net current assets were, these two years, in the order of £50,000, with net assets of a little over £100,000. In each of these years a dividend was paid of £50,000 in round terms. Mr Koby, I should add, owes the Company approximately £60,000, as he has since before March 2003. In March 2003 Mr Gerrard owed the Company about half that sum.
- Despite the absence of detailed financial information for any earlier periods, it is clear that at the end of the 1990's the Company was not particularly robust. It was in the process of repaying a large debt to Baumler GmbH. And it had incurred expenditure in refitting Geko House.
- The Company has only a small staff. There are in all about 8 paid employees, of whom two are Mr Gerrard's two sons, Jason and Russell: these two have worked for the Company since the early 1990's at the latest. Without intending disrespect I shall, for convenience, refer to Mr Gerrard's two sons by their given names.
- Since about 1994 Jason has been the general manager of the Company. In recent times it has been Jason who has been running the Company on a day to day basis. Mr Koby's interests lie primarily in the creative and merchandising aspect of the Company's business, and more particularly in that of Favourite Menswear Ltd referred to below. Today his active involvement with the businesses carried on by him with the Gerrard family is confined to selling the two remaining product lines within the latter company, namely a tie cleaning product and a line of men's ties. Mr Gerrard, who in the past had a larger role than Mr Koby in the financial and administrative aspects of the Company's business, is the Company's finance director and has been the financial controller. Nevertheless, when giving evidence he conveyed the clear impression of having recently had little hands-on involvement with the Company's business. Mr Koby and Mr Gerrard share their office at one end of the first floor of Geko House, while Jason has an office at the other end of that floor.
- What has given rise to this litigation is a serious rupture between the Gerrards and Mr Koby which followed a series of events relating to Geko House and the adjacent properties.
- The Company has two leases of Geko House, each now being for a term ending on 24 March 2014, with rent reviews to market rent in March 2004 and 2009. The leases contain a break clause which permitted termination by the Company (but not the landlord) in March 2004 (but only then, and not before or after); and the operation of the break clause required 6 months' notice, so that in practice the decision whether or not to terminate might have fallen to be made before the reviewed rent had been fixed: the Company would not have had the luxury of knowing the amount of the reviewed rent before having to decide what to do. As it seems to me the break clause did not altogether remove from the Company all business risk associated with the leases; and Mr Koby's criticism of Jason for exaggerating this risk is unfair.
- Until mid-2001 the Company's landlord was a company called Sarena Limited, that company being incorporated overseas as a wholly-owned subsidiary of an English company called B&S Displays Ltd. The directors of B&S were an accountant, Mr Stevens, and the Mr Stammers referred to below.
- Besides the freehold reversion to Geko House, Sarena owned the freehold of a neighbouring property, Stirling House and Hoopers Cottage, and of a car park which adjoined Geko House. All this property, which I shall refer to as "the Property", appears to be ripe for development. Over the period from 1999 to mid-2001 the Company had the opportunity to purchase Sarena's interest in this Property. In the event it was purchased in the middle of 2001 by interests of a Mr Howard Ronson, a long-standing friend of Mr Koby's, the actual purchaser being an Isle of Man incorporated company called Vermeer Properties Ltd, and the price paid being £1,350,000.
- Mr Ronson is a wealthy businessman who lives in Monaco. In his business he is assisted by a Mr Ivor Freeman and a Mr Henderson-Williams. Like Mr Koby, he is now in his early 60's. Mr Koby and Mr Ronson have known each other since they were boys. Mr Ronson's business is, or at any rate includes, international property development. Typically the development projects will be multi-million pound ones. His business and property is conducted and held through a variety of vehicles. He explained when giving evidence that there are hundreds of trusts and companies, and that he does not know how they are all organised.
- One company which came to be within his interests was Vermeer. Its share capital was owned by trustees of a Jersey trust known as NV Realty Trust. As mentioned, it was this company which purchased the Property. In the language of Mr Freeman when writing to Mr Koby in September 2001:
"Howard was trying to save you tax. This was proposed by putting the project into an offshore corporation owned by Howard's trust".
In heads of agreement of July 2001, a document which was given to Mr Koby by Mr Freeman in July 2001 and on which Mr Koby's Solicitors (Messrs Denton Wilde Sapte) advised Mr Koby in August 2001, the position was summarised as follows:
"[Mr Ronson] has caused to be formed a corporation in the Isle of Man, named Vermeer Properties Ltd ... [Vermeer] is wholly owned by NV Trust, a Discretionary Trust settled by [Mr Ronson] in Jersey (hereafter NV). NV Trust has funded all the expenditure of [Vermeer]. [Vermeer] has acquired properties in London at a price of £1,350,000. In addition there are costs of acquisition and redevelopment which is the intention for the property...."
- A year after Vermeer's purchase of the Property, the Property was transferred by Vermeer to another entity within Mr Ronson's interests, HRO Luxembourg Investments Sarl. This was in September 2002. Mr Ronson could not say why this transfer took place, save that he thought it was in connection with a reorganisation of the way in which his interests were structured following the birth of his twin daughters in February 2002. He agreed that he remains the Company's landlord through various family trusts.
- In relation to the material events since March 2001 I do not consider it necessary to be concerned with the precise connection between Mr Ronson on the one hand and NV Realty Trust or Vermeer on the other. It is sufficient for present purposes to note that as regards dealings with the Property these entities have acted in accordance with Mr Ronson's wishes, whether or not Mr Ronson has a right to insist upon them doing so.
- This is likely to have been a profitable purchase for Mr Ronson. Stirling House has since been sold undeveloped for £975,000. The rear part of the Property has been on the market at £1,700,000 as an undeveloped site. True, at Geko House the situation remains unresolved. But the value of the freehold reversion must be several hundred thousand pounds at the least; indeed Mr Gerrard put the value at £1.4 million subject to the Company's leases.
- I shall have to set out at some length the events which led up to and followed Vermeer's purchase of the Property. However Mr Gerrard and Mr Koby have fallen out over the purchase. In summary Mr Gerrard says that Mr Koby caused Mr Ronson's purchase of the Property, to the detriment of the Company, and did that with the expectation of making a secret profit with Mr Ronson. Mr Koby, on the other hand, says that what he did was in response to a plan by the Gerrards to purchase the Property for themselves, cutting out Mr Koby and the Company and putting the Company at risk; and, although he accepts that the time came when he expected to have a secret profit, he says that this was only after Vermeer had contracted to purchase the Property.
- For his part Mr Gerrard has brought these proceedings alleging that in relation to the purchase the affairs of the Company have been conducted by Mr Koby in a manner which was unfairly prejudicial to Mr Gerrard's interests as a member of the Company within section 459(1) of the Companies Act 1985. He asks that Mr Koby should be ordered to sell him his shares or, in the alternative, that Mr Koby should be ordered to purchase his shares.
- Mr Richard Snowden QC, representing Mr Koby, submits that Mr Gerrard has not made out any grounds which would found jurisdiction for the Court to make any order under section 461 of the 1985 Act, and contends that therefore the Court must leave the parties to get on with each other in the Company as best they can. In his submission it is unfortunate, but immaterial, that their relationship is now compromised beyond repair, and that Mr Koby himself says (as he did in his oral evidence) that the only practical outcome is that one or other side should end up with the Company because after the present situation there is no way they would be able to continue to work together.
- At the present stage I am simply concerned with the questions (a) whether Mr Gerrard has established a case of unfairly prejudicial conduct within section 459(1) of the 1985 Act so as to confer on the Court jurisdiction to grant relief and (b) whether in principle some relief should be given under section 461. If both these questions are answered in the affirmative, it will be necessary to have a further hearing to determine what form any relief should take.
- For the reasons which I explain, in my judgment Mr Gerrard has made out his case for relief: there has been conduct which founds jurisdiction, and the circumstances of the case are such that in principle there should be relief given in respect of the matters complained of.
- Before giving my reasons, however, I should set out in greater detail the relevant facts, making such findings as are necessary in relation to those issues which are disputed. Also I need to say something about the witnesses.
The background to the dispute
- Mr Gerrard and Mr Koby had been in business together before the formation of the Company. They were shareholders in and directors of two companies, Favourite Ties Ltd and Linton Yarns Ltd. In these two companies Mr Koby had the greater shareholding, reflecting the fact that they had been the businesses of Mr Koby's father in which Mr Gerrard had been an employee. When the Company was formed it moved to Geko House, which it came to share with Favourite Ties and Linton Yarns.
- In about 1994 Favourite Ties and Linton Yarns went into receivership and then into liquidation. Mr Ronson had given a guarantee in relation to the overdraft of Favourite Ties Ltd. The guarantee was called, and Mr Ronson was out-of-pocket to the tune of upwards of £76,000. In the light of what happened at the end of 2001 I should add that there is no evidence before the Court that arising out of this guarantee Mr Ronson has any right to contribution or reimbursement by Mr Gerrard, or that he ever asked Mr Gerrard for any payment before the end of 2001.
- Following the failure of those two companies Mr Gerrard and Mr Koby formed a further company, Favourite Menswear Ltd, with the shareholding split in the ratio 49:51. Mr Koby, it seems has been the prime mover in this company, devoting his time and energy to promoting and selling its product lines. Its business, like that of Favourite Ties, included selling men's ties and related products.
- Later still a company called State of Art (UK) Ltd was formed, taking on a UK agency for a clothing manufacturer called State of Art (Holland). In this company the share capital is divided between Mr Koby on the one hand and Jason and Russell on the other. Also Mr Koby and Jason became the equal shareholders in a company called Geko Fashion Marketing Ltd, a company formed to carry out all the administrative and advertising functions for the Company, Favourite Menswear and State of Art.
- By the end of the 1990's Geko House housed each of the four companies I have just mentioned, the Company licensing the three other companies' occupation. The passing rent was in the order of £4.50 per square foot, the total being in the order of £40,000 per annum. However in 1999 a mill building in Kimberly Road was demolished and an office development carried out. Jason says that at the time he enquired of local agents and learnt that the rent levels were in the order of £20 per square foot. The £20 per square foot figure may be exaggerated, either because Jason's memory is at fault or because the local agents' figures may not have been those likely to apply in the case of Geko House. Certainly the written advice during the first half of 2001 suggests that the £12 to £15 might have been more realistic. Against this, by the end of 2001 Mr Ronson was telling Mr Koby that £20 per square foot was the market rent.
- Whatever the figure might have been in 1999, it is clear that a substantial hike in the rent was on the cards for the Company for the 2004 rent review. This is something which Mr Koby says at the time, in 1999, concerned him too. If, as seems to be the case, the Company's results for its 2002 and 2003 financial years are representative, any significant increase in the rent would be a very serious matter for the Company.
- From time to time Mr Koby, Mr Gerrard and his sons had toyed with the idea of purchasing the freehold of Geko House. In Mr Koby's Points of Defence it is pleaded that he had made several unsuccessful attempts before 1999 to purchase Sarena's freehold. However, in mid-1999, with the agreement of Mr Koby and Mr Gerrard, Jason approached Mr Stevens to ascertain whether Sarena might consider selling. This approach was replied to by Mr Stevens, by a letter dated 20 July 1999 addressed to Jason at the Company, to say that Sarena would consider selling, but that "we are likely to be more sympathetic towards an offer for the sale of both properties as we regard the alternative of retaining a single property unattractive". The two properties were Geko House and the adjoining Stirling House.
- Stirling House is a building which I understand to join onto Geko House and to be similar in construction and size. Hoopers Cottage is a separate small building, rather older than the other two. Stirling House and Hoopers Cottage were both let to Stirling Audio Systems Ltd. The lease of Stirling House, which was at a rent of some £4.00 per square foot, was to expire in June 2002. The details of the position with Hoopers Cottage are immaterial, as it was much smaller and for practical purposes can be taken to be part of Stirling House. Stirling Audio had the reputation of being a poor payer of its rent.
- There is an issue about the importance of Geko House for the Company's business. Jason asserts that Geko House is essential and that no alternative could be found if the Company had to leave. Mr Koby disputes this. But it is not necessary to resolve this issue. On any footing, as Mr Koby accepted, Geko House does offer useful features in the shape of a central location, good communications and reasonable parking, while being adapted for a mix of uses to allow all the Company's operations to be centred in one place. I am satisfied that at the least it would be a serious set-back for the Company if it had to leave Geko House, but that different views could reasonably be held as to quite how serious that set-back would be.
- There is one further fact to mention in connection with Geko House. Until the sale of the Property the Company had had a good landlord. The landlord was a family company; that is to say, it was owned directly or indirectly by trustees for the family of Mr Stammers, having for many years been owned by Mr Stammers' father. In about August 2000 Mr Stammers took over the day to day running of B&S. However, beneficiaries of his father's Will were his three sons; and according to Mr Stammers they become "directors" with him and Mr Stevens and were consulted by him in relation to the decisions taken by Sarena and B&S in what followed.
- Jason's evidence concerning the landlord was that service charges for works or repairs had never been levied on the Company and that the landlord had been supportive when the Company was going through difficult periods financially. This evidence I accept. It is the fact that in relation to the sale of the Property Mr Stammers and his companies were patient with Jason and gave him every possible indulgence. Mr Stammers gave evidence, both written and oral. He impressed me as a reliable witness. I am sure that, so far as it was a matter for him the landlord would be sympathetic, and indeed generous, in dealing with the Company.
- What this brief narrative does not reveal is the surprising fact that long before the failure of Favourite Ties and Linton Yarns and the formation of Favourite Menswear, there had been a difference between Mr Koby and Mr Gerrard. In 1988 Mr Koby had instructed solicitors, Messrs Denton Hall Burgin & Warrens, to write to Mr Gerrard a letter dated 16 August threatening the latter with an injunction and charging him with breach of fiduciary duty.
- Mr Gerrard's unchallenged evidence was that he had made an offer to buy Mr Koby's interest in the Company, offering to sell Mr Koby his interest in Linton Ties Ltd. This evidence is supported by the fact that on 5 August 1988 a draft letter to Mr Koby and Mr Gerrard was prepared by a Mr Sassoon, referred to later, dealing with Mr Gerrard's offer and mentioning a meeting which Mr Sassoon had had with Mr Koby and Mr Gerrard at the end of July 1988: the letter contained no reference to any threat having been made at the meeting by Mr Gerrard to terminate the Baumler agency. In a letter dated 29 August 1988 Mr Gerrard's Solicitors explained that he had consulted Baumler GmbH, in connection with his offer to ask that the purchase of Mr Koby's shares in the Company would not lead to a termination of the Baumler agency. It was not put to Mr Gerrard in cross-examination that he had been formulating or implementing a secret plan to terminate the Baumler agency for his own benefit, or that he had threatened Mr Koby with such a termination.
- Mr Koby, however, took it that Mr Gerrard was attempting to hijack the agency from the Company for himself. The letter dated 16 August 1988 sent on behalf of Mr Koby pointed out that the agency was a right belonging to the Company, and asserted that should Mr Gerrard acquire it for himself he would be accountable for any profits made from the agency. It asserted that at the meeting at the end of July Mr Gerrard had explained that (a) he had spoken to Baumler GmbH and had offered his services exclusively as the UK agent, and (b) he had said to Baumler GmbH that the Company would be giving notice to terminate the agency with a view to negotiating a sole UK agency with Mr Gerrard. This was the only basis put forward in the letter for any allegation that Mr Gerrard was threatening to misappropriate the Baumler agency.
- When Mr Koby came to give oral evidence he supplemented his evidence in chief with an additional witness statement made after Mr Gerrard's case had been completed. In this statement he described "Mr Gerrard's portrayal of events which took place in 1988 [as] completely untrue". He alleged that Mr Gerrard had been "secretly planning to terminate" the Baumler agency and to "take it on himself", and that it was when he discovered this that he had instructed his lawyers to threaten proceedings; and he alleged that Mr Gerrard's response to the letter of 16 August 1988 had been to try to blackmail him by threatening to reveal an extra-marital affair which he had been carrying on. But his statement made no mention of the undoubted fact that Mr Gerrard had made an offer to purchase his shares in the Company, or that Mr Gerrard's supposed plan had been laid open by Mr Gerrard in the presence of Mr Sassoon when discussing the offer: his Solicitors' letter of 16 August 1988 made no suggestion that Mr Koby had somehow discovered a secret plan on the part of Mr Gerrard. On the contrary, the supposed plan denounced by the letter was on Mr Gerrard's part to act overtly in threatening Mr Koby.
- Following this affair, says Mr Koby, his relationship with Mr Gerrard was never the same again: Mr Koby said that the foundation of friendship and trust had been lost, although he still valued Mr Gerrard as a business partner. Mr Gerrard, on the other hand, thought that nothing had changed, and that they were still the best of friends. It is an accepted fact that in the early 1990's Mr Koby lived for several months with Mr Gerrard and his wife at a time when Mr Koby had separated from his wife.
- In my judgment the letter sent by Mr Koby's Solicitors on 16 August 1988 was an overreaction. I do not accept that Mr Gerrard had been planning to remove from the Company the Baumler agency for his own benefit or had been threatening to remove it. Further I do not accept that Mr Gerrard blackmailed Mr Koby, as the latter asserts. Had Mr Gerrard in fact behaved as Mr Koby says, I cannot see how Mr Koby could have gone to live with Mr Gerrard or continued in business with him and his sons.
- Nevertheless, it does seem to me to be in Mr Koby's character to be suspicious and secretive. Whereas Mr Gerrard thought that the failure of his attempt to separate from Mr Koby, including the unfortunate exchange of correspondence between Solicitors, had left their relationship unchanged, Mr Koby did not.
- This 1988 episode combined with another has plainly been of annoyance to Mr Koby over a period of years. This second episode concerned pension contributions. Before the receivership of Favourite Ties and Linton Yarns those companies had been providing contributions for pension for each of Mr Gerrard and Mr Koby. Mr Gerrard is several years older than Mr Koby. From about 1989 until 1994 (when Mr Gerrard turned 60) the pension contributions for Mr Koby ceased, contributions being made only for Mr Gerrard. This was by agreement between the parties, it being expected that once sufficient contributions had been made to Mr Gerrard's pension fund contributions would be reinstated for Mr Koby. In the event, following the collapse of Favourite Ties and Linton Yarns, no further contributions have been made by any of the companies. Mr Gerrard has refused to agree to any pension contribution payments being made, putting forward as the reason that the companies' resources are too stretched, and that he does not believe Mr Koby's pension in fact to be under funded. This disparity in Mr Koby's treatment in the matter of his pension, as Mr Koby seens it, together with the fact that Mr Gerrard has let him down, has rankled with Mr Koby.
Witnesses
- Mr Gerrard gave evidence, the other witnesses called by him to give oral evidence being Jason, Mr Stammers, Mr Sassoon (a partner in Hacker Young, the Company's auditors), Mr Robert Stein (a director of Bond & Stein plc, financial advisers consulted by Jason in connection with a proposed purchase of the Property), Mr Jason Lewis (a partner in Howard Kennedy, the solicitors consulted by Jason), and two Company employees, namely Mrs Gillian Quiney and Ms May Wong.
- It was clear from Mr Gerrard's cross-examination that his memory for the dates of events is extremely poor, as is his memory for the sequence of events. It was Jason, not Mr Gerrard, who carried on the negotiations for the purchase of the Property which came to be frustrated by Mr Ronson; but Mr Gerrard has little memory of any detail of what was told to him during the material time. In general I thought that Mr Gerrard was trying to give truthful evidence; but I did not think much weight could be attached to anything he said concerning the progress of those negotiations or the discussions with Mr Koby in relation to them.
- Jason was described by Mr Koby as tenacious. From what I saw of Jason, and from the evidence, that is a fair description. However it also seems to me that he is inclined to act and to speak with little careful thought. This characteristic affected his evidence. I dare say Jason believed that he was justified in what he said, and that he had convinced himself of its truth: but he struck me as inclined to convince himself of the truth of that which he wished to be true.
- This can be illustrated by the claims which Jason sought to make concerning the progress of the rival offers for the Property made to Sarena by him on the one hand and by Mr Ronson (or, rather, by Knight Frank acting in accordance with Mr Ronson's wishes) on the other. Jason's witness statement tells a story of ever-increasing offers from him, (£1.135m, £1.2m and £1.24m) being successively and almost immediately over-topped by offers from Mr Ronson (£1.2m over £1.135m, £1.24m over £1.2m, and £1.35m over £1.24m). The same story is told in the Petition. In fact there were only two offers from Mr Ronson, one on 15 March 2001 at £1.2m and the second on 1 May at £1.35m; and the second appears simply to have been an increase on the first, not over-topping any other offer from Jason than £1.135m. True, the two offers were well-timed for causing upset to Jason: the first came when Jason thought he was making real progress with the purchase, and when Mr Koby believed that Jason was just about to exchange contracts; and the second came just at the point when in fact contracts were about to be exchanged. But they were certainly not offers which followed swiftly upon the heels of an offer from Jason.
- Mr Koby gave evidence, his other witnesses being Mr Ronson and Mr Henderson-Williams.
- Mr Henderson-Williams was not cross-examined. It was his evidence that Mr Ronson gave him instructions to make the £1.2m and £1.35m offers, and that in turn it was he who gave instructions to Knight Frank, the agents by whom the offers were made to Sarena.
- More needs to be said about Mr Koby's own evidence, which did not impress me. I have already said that it seemed to me to be in Mr Koby's character to be secretive. I note that Mr Ronson, who seemed disinclined to accept Mr Koby's assertions at face value, said that his friend of nearly 60 years is an outstanding salesman, so that what he says can be coloured and that he (Mr Ronson) normally believes most of what Mr Koby says with a certain discount. Much of Mr Koby's behaviour in 2001 went further than being merely secretive and was extremely devious, as I explain. I do not regard him as a witness of truth. For reasons I explain, I find myself simply unable to believe him when he says that the first offer he had from Mr Ronson for a share in the project of acquiring and developing the Property was after Vermeer had contracted to purchase the Property in June 2001.
- I give an example of a specific, but important, point on which Mr Koby's evidence was unsatisfactory. In his written evidence he explained that (a) after April 2000 and before January 2001 "no discussions on the property arose", and (b) the first he knew that Jason had done anything to follow through on discussions from about April 2000 between Mr Koby and Jason about purchasing Geko House was on an evening in January 2001, namely 10 January, when Jason came to explain that he wanted Mr Koby's blessing for the Property to be purchased by Jason and Russell in their own names, and asked for permission to have the Company undertake the repayment of a loan of £60,000 which their mother would make to help fund the purchase.
- However, Mr Koby also explained that following his discussion with Jason he had expected Jason to try to arrange the purchase, knowing that Jason is tenacious: in his written evidence he said "knowing Jason ... I was confident that he would pursue all avenues to secure the property". Also in his written evidence he described having been told by Jason that people he had seen measuring up in the offices had been there "to measure exactly the size of the property for discussions with Sarena". And he explained, in cross-examination, that one evening in late 2000 Jason had explained to him that "it seemed possible that we may able to get the property", and had asked him whether he would be prepared to put up personal guarantees. Mr Koby added that he had told Jason that he did not think he would be able to do that.
- It must have been obvious from both these conversations with Jason that Jason had done something to follow through their discussions. And of course these conversations of late 2000 both fell in a period when Mr Koby denied that any discussion on the Property arose.
- The one issue on which Mr Ronson's evidence is central to Mr Koby's case concerned the time when first he and Mr Ronson discussed the possibility of Mr Koby having an interest, direct or indirect, in the Property with Mr Ronson and sharing with him any gain which might be made. Mr Ronson's evidence was to the same effect as Mr Koby's, namely that this was only after Vermeer had contracted to purchase the Property (that is, after 15 June 2001).
- Unfortunately I do not think I am able to attach weight to Mr Ronson's evidence on this topic. Indeed, I found Mr Ronson to be an unreliable witness. Specific illustrations will explain my concerns.
i) Mr Ronson said at the outset of his oral evidence that turning the Property into a redevelopment project, including removing the Company, was not the purpose of the purchase and was not the plan. Yet Vermeer's Solicitors had prepared a document on 26 June 2001, before the purchase was completed, in which it was said "Following the acquisition, it is the Company's intention to obtain vacant possession of the Property as soon as possible", and went on to discuss among other matters what would happen "once planning permission for the residential element of the scheme has been obtained". And at the end of his oral evidence Mr Ronson confirmed that his plan had been to buy out the Company's lease. This was in keeping with the evidence of Mr Henderson-Williams that in February 2001 he learnt from Mr Ronson that the latter "wished to bid for the property with a view to redevelopment". Also it was in keeping with the line of business which Mr Ronson was in, namely property development.
ii) Mr Ronson saw himself as having acted in relation to the property with the intention of being simply a benefactor of Mr Koby in particular, but also Mr Gerrard, in having agreed with Mr Koby that he would have one of his trusts purchase the Property and then purchase the Company's lease for a premium value giving sufficient for Mr Gerrard to retire, for Mr Koby to be bought out and for the Company to relocate. But to my mind he clearly saw the purchase as an opportunity for profit. This was indeed implicit in the rationale, as he explained it, of his offer to Mr Koby (but not to Mr Gerrard or the Company) of participation. What he said was:
"There are many deals that we do ... where people bring us an opportunity which we would not have seen or been able to get hold of had they not brought it to us, and we make them partners because that is the deal they bring to us..."
iii) He said, in relation to a letter of 18 January 2002, that he was happy for the Company to remain as tenants of Geko House. Yet, as appears from the narrative given later in this judgment, during the second half of 2001 and early 2002 Mr Ronson was embarked on a strategy of bringing the Company's leases to an end and having the Company cease to be tenants.
iv) On 28 October 2001 Mr Koby wrote to Mr Ronson complaining as follows:
"As you will recall recently, in spite of everyone knowing that no word of our transaction should under any circumstances be sent to my office, somebody innocently sent a fax, which could have caused untold damage to me".
Yet Mr Ronson said in his oral evidence that there was no secret in the second half of 2001 of the offer he had made to Mr Koby of participation in the profits from the Property. This cannot be correct. The whole point of Mr Koby's letter was that the offer was to be kept secret from the Gerrards, as was his involvement with Mr Koby in Mr Ronson's plan for developing the Property. As Mr Ronson said, Mr Koby was to have extra money beyond that which would be shared with the Company through the buy out of the lease.
The factual issues as regards the purchase of the Property
- Before continuing with a description of the material events which have given rise to this Petition I should set out what I understand to be the principal issues of fact. These are:
i) What were the Gerrards' proposals for the purchase of the Property?
ii) What were the Gerrards' motives and expectations as regards the purchase?
iii) What knowledge did Mr Koby have of the Gerrards' proposals? What was his attitude to that purchase as expressed to and understood by the Gerrards?
iv) What was the course of action taken by Mr Ronson in relation to the purchase of the Property?
v) How far did Mr Koby influence or agree to that course of action?
vi) What interest did Mr Koby have in Mr Ronson's purchase of the Property?
vii) What did the Gerrards know about Mr Ronson's purchase and such interest as Mr Koby might have had?
The Gerrards' proposals for the purchase of the Property
- In September 1999, in response to Mr Stevens' letter expressing a willingness to consider a sale of the Property, Jason wrote offering £700,000. This letter must have been written on the letterhead of Geko Fashion Marketing, as it was to that company that Mr Stevens wrote to acknowledge Jason's letter. Yet it was to Jason at the Company that Sarena's agents wrote on the 21 December 1999 to say that their clients were not prepared to sell. It should be mentioned that the letter of 21 December 1999 had been preceded by some telephone conversation between Jason and the agents.
- On 16 June 2000 Jason again wrote to Mr Stevens, this time putting forward an offer of £775,000. His letter was written on the letterhead of Geko Fashion Marketing. Also in June 2000 Jason wrote to Mr Tenzer of Jeffreys Henry. Jeffreys Henry were accountants. It appears that Jason had consulted Mr Tenzer about "setting up the vehicle that will carry this freehold purchase through", should the offer be accepted; and also Jason had consulted Mr Stein for help in arranging finance and that the latter had given "an indication that Northern Rock may be prepared to finance the freehold purchase."
- Even at this early stage, therefore, the documents suggest that it was something of an open question who would be the actual purchaser of the Property, should Sarena sell. In particular the Company and Geko Fashion Marketing both seem to have been identified as possible purchasers, but with the possibility also that the purchaser would be a new vehicle. However there is no doubt that the entity chiefly concerned was the Company, that being the lessee of Geko House. Geko Fashion Marketing was essentially a management company for the various Koby/Gerrard vehicles, the main one of which was the Company. From the perspective of Jason I accept that when corresponding for Geko Fashion Marketing he was, as he saw it, corresponding for the Company; although, as explained later, the time undoubtedly came when after 2000 Jason was no longer corresponding for the Company as actual or substantial purchaser. On the other hand Mr Stammers came to think that the name of the proposed purchaser was Geko Fashion Marketing.
- Over the summer of 2000 Jason pursued his efforts to get a favourable response, corresponding with B&S Displays Ltd by Mr Stevens and then Mr Stammers. His efforts appeared to have failed when, on 14 August 2000, Mr Stammers wrote to Jason at Geko Fashion Marketing saying that the landlord would not sell the Property for the time being.
- Jason was not daunted. He wrote on the Company letterhead to Mr Stammers and persuaded him to come to visit the Property, which he did in about September 2000. At this visit Jason appealed to Mr Stammers to consider selling the Property by saying (a) how important it was for the Company to stay at Geko House, (b) how the Company might need to expand into Stirling House, and (c) that once the Stirling Audio lease was renewed the Company would lose its opportunity to expand and would be unable to purchase the Property.
- Following Mr Stammers' visit Mr Stammers wrote to Jason, at Geko Fashion Marketing, his letter dated 14 October 2000 indicating a willingness to consider selling the Property for not less than £1.2 million.
- There is an issue as to whether or not Mr Stammers met Mr Koby during his visit. Mr Stammers thought that he might, as he recalled having met someone who shared Mr Gerrard's office; but he could no longer recognise that person. Mr Koby was adamant that he had not met Mr Stammers. Ultimately it is not necessary to resolve this particular issue. For reasons I explain later I conclude that over the second half of 2000 Mr Koby knew that Jason was carrying on his discussions with the landlord with a view to purchasing the Property.
- Jason's response to Mr Stammers was to point out that he needed time to rearrange financing; and he made arrangements to have the Property surveyed in a way which would not alert Stirling Audio to the possibility of the freehold reversion being sold. The surveyors engaged were Lancaster Brown, who took steps to start their work in early November 2000, their final report being dated 8 February 2001 and giving a freehold open market value of £1.5m. I have referred earlier to Mr Koby's written evidence concerning his having seen people in the offices measuring up and his subsequent conversation with Jason.
- On 22 November 2000 Mr Gerrard spoke to Mr Sassoon about the proposed purchase. According to Mr Sassoon's attendance note:
"We discussed the possibility of the Gerrard family purchasing the property at Geko House. They had the opportunity of purchasing the property for £1 .1M"
The note then went on to discuss the total income the Property could produce as a whole "at £15 per sq ft if you took a market rent". After pointing out that "they need to raise about £180,000 for the deposit", the note continued:
"Michael Gerrard could take a tax-free lump sum from his pension fund which is worth about £460,000 at the present time. Michael Koby's pension fund is calculated to produce about £1M in value when he is 65. Russell Gerrard could sell his house and create equity of about £60,000 if required."
Finally the note concluded by stating that "Jason is currently negotiating with Northern Rock for a mortgage."
- This attendance note is relied upon by Mr Koby as evidence that by November 2000 he and the Company were being excluded from the purchase; and it was also suggested that the Gerrards' plan was to finance the purchase by increasing the Company's rent to £15 per square foot. I do not agree with this: I am unable to draw any inferences from the note either way. For reasons I explain later, I accept the evidence from Mr Gerrard and Jason that it was not their plan to increase the Company's rent to pay for the Property. Further, the reference to Mr Koby's pension fund made in the note suggests that the earlier reference to the Gerrard family purchasing the Property may not be a literal and accurate record of what was told by Mr Gerrard to Mr Sassoon: Mr Koby's pension fund would be irrelevant if he was to have nothing to do with the purchase.
- On 6 December 2000 Mr Stammers sent Jason an e-mail in which he offered, as an alternative to selling the Property, to sell Sarena for £1.2 million. The Company purchase would save in the order of £40,000 of stamp duty.
- Jason's next letter to Mr Stammers was dated 23 January 2001 and offered a price of £1.135 million, this to be for Sarena and not for the Property. The letter explained that the offer was made "after extensive deliberations with my Father and Brother and after many discussions with the bank"; and asked for £135,000 of the price to be deferred.
- By e-mail dated 30 January 2001 Mr Stammers replied accepting the offer in principle, but raising a couple of points about the deferred consideration. The e-mail was followed up by a letter of the same date addressed to Geko Fashion Marketing.
- Then, on 12 February 2001, Jason wrote to Howard Kennedy, the solicitors he was engaging for the purchase, saying that "I am writing to confirm that my brother, father and I are purchasing" the Property. He also said,
"We are currently being advised by Mark Tenza of Jeffreys Henry, on whether the structure of the purchasing of these freeholds. He is advising us on whether or not this should be a share or asset purchase. This will be clarified once Mark Tenza has reviewed the situation."
The reference to the "structure of the purchasing of these freeholds" must be to the decision whether the purchase was to be of the Property or of Sarena as the freehold owner of the Property. Howard Kennedy in about February 2001 provided a client care letter addressed to Jason at the Company, the terms of business being headed "Baumler (UK) Limited".
- An e-mail dated 13 February 2001 from Jeffreys Henry to Jason reveals that he had by then indeed consulted with Jeffreys Henry about "the structure" of the purchase, and in particular whether the purchase should be of the Property or of Sarena. The document is not clear as to who would be the substantive purchaser, but does contain an indication that Mr Koby was not to participate. The document also suggests that the discussion with Jeffreys Henry had included consideration being given to the possibility that "discretionary trusts would be desirable as an alternative to individual ownership".
- By the end of February 2001 it was settled that the purchase was to be of the Property, not of Sarena, which of course meant that the stamp duty would be much greater. However, according to a letter sent by Jason to Howard Kennedy, although the "funding from Northern Rock is in place", what was not in place was the "structure of the purchasing vehicle", save to say that "the discretionary trust route is out". In this context the "purchasing vehicle" must be the contracting party or, perhaps, legal holder. The letter also stated that "we have ... discussed in depth the possibility of re-furbishing Stirling House on lease expiry."
- On 28 March 2001 Howard Kennedy wrote to Sarena's Solicitors enclosing an amended draft of the sale contract and saying "the property is to be acquired by our clients in their individual names and not through their company". The first letter sent by Sarena's Solicitors dated 1 March 2001 had referred to a sale to Geko Fashion Marketing, that having been the party named as purchaser in the first draft of the contract. The subsequent drafts of the contract starting from 10 April 2001 showed the purchasers as Jason and Russell, with Mr Gerrard as guarantor of the deferred consideration.
- 10 April 2001 is also the date of the first formal document from Northern Rock included in the trial bundle. The document is a letter of some four pages setting out the detailed terms and conditions of an offer of a £900,000 loan to Jason and Russell to purchase the Property at a price of £1,135,000. These conditions included a satisfactory valuation from Chesterton. Chesterton had not yet been instructed, so that even at 10 April 2001 Jason and Russell could not have exchanged contracts with Sarena with any confidence that the £900,000 loan would be available.
- On 15 March 2001 the apparently smooth and relaxed course of dealing between Sarena and B&S by Mr Stammers on the one hand and Jason on the other had been interrupted. On that day Knight Frank sent a letter to Mr Stammers' private fax number in Brecon, Wales, offering on behalf of unnamed "private clients, based offshore" to purchase the Property for £1.2m and suggesting an exchange of contracts within five working days.
- The following day, 16 March, Mr Stammers' partner, Jill Body, sent Jason by fax a copy of the Knight Frank document. In her fax she said:
"As promised when we spoke a moment ago, I attach a copy of a letter received today. Mike has not yet seen it, but heard it from me over the 'phone. He felt that you should certainly be made aware of it. He has not had the opportunity of speaking to his fellow directors yet, but will obviously have to."
- Mr Koby has described at length what he says transpired on 15 March, when Jason learnt of the Knight Frank offer. It is clear, in my judgment, that it was in fact only on the following day that Jason first learnt of the offer, and that that was when the fact of the offer was communicated to him by Mr Stammers' partner.
- The importance of this date is that Mr Koby says that it was after Jason had learnt of the Knight Frank offer that Mr Koby provided to Jason a document which has come to be known as the Option A document and which was in preparation on 11 March 2001. Jason, on the other hand, says that he was given this document after 11 March but before he learnt of the Knight Frank offer.
- The circumstances in which the Option A document came to be produced are as follows. On 11 March 2001, a Sunday, Jason was to meet at Geko House Mr Sassoon (who happened to be in London). As it chanced, Mr Koby was also at the offices when they arrived, and was working on the preparation on his computer of the Option A document. Jason and Mr Sasoon were to discuss the proposed acquisition of the Property. They in fact held this discussion in Mr Koby's office, in Mr Koby's presence. From their discussion Mr Koby formed the understanding that the exchange of contracts for the proposed purchase was imminent, and was indeed scheduled for 15 March.
- The Option A document, in the form handed over to Jason a few days after 11 March, summarised Mr Koby's understanding of what was contemplated by the Gerrards for the acquisition of the Property, and set out his criticisms of the proposal. At this time he plainly knew the price, the amount to be borrowed on loan from Northern Rock, and the fact that the balance of the price was to be funded as to part by a deferral of payment to Sarena and as to part by family borrowing. He then set out an alternative proposal, the "M.K.Proposal", which he styled "Option 'A". This had as an aim an "agreed time buy-out of" Mr Koby's shares "in all companies". It provided for "HRO" (that is, Mr Ronson) "to buy the option on Baumler UK lease for £1,650,000". It continued as follows:
"2. Profit on agreed selling price of £1,150,000 = £500,000.
3. Profit to be split 50/50 Koby/Gerrard = £250,000 each.
4. Removal and refurbishment contribution additional £200,000".
Option 'A' included a buy out of Mr Koby's shares over 6 years based on the 31 March 2001 value of "the company". It also contemplated that "Geko" would secure new premises and that "the £250,000 windfall lump sum to Gerrards may be used tax free for this benefit if so desired independent of" Mr Koby.
- The precise mechanic contemplated by Option 'A' is obscure. Was the Property to be purchased by the Company or its participants and then sold on, the Leases having merged in the freehold or having been surrendered, at a £500,000 profit to Mr Ronson, who would also undertake to pay the Company £200,000 for removal expenses? Or was Mr Ronson simply to purchase the Leases for £700,000, treating with the landlord as best he could? Or was the proposal something altogether different, as the pleadings in the case seem to suggest, namely that Mr Ronson should have an option to purchase the Company's Leases for £1.65m? Mr Koby says he never showed the Option A document to Mr Ronson, and claims never to have discussed with Mr Ronson the figure to be offered for the Company to vacate Geko House. Further, there was no great discussion of the document between Mr Koby and Jason. It is difficult to know precisely what Mr Koby was in fact intending to propose to the Gerrards in the document. The most specific one can be is that in some way Mr Ronson was to pay a sum of money, which would seem to be £700,000, and in return the Company would leave Geko House.
- There are, however, two further points to make. First, it is clear from Mr Koby's and Mr Ronson's evidence that by mid-February 2001 they were in fact in discussion about a plan for the payment of a sum to the Company for the surrender of the Leases, with Mr Ronson purchasing the Property. Mr Henderson-Williams confirms that in February he learnt from Mr Ronson that the latter wished to bid for the Property with a view to redevelopment. Second, it is also clear that Mr Ronson was aware that there was a significant marriage value between the freehold of the Property and the Leases of Geko House. And Mr Koby was aware that Mr Ronson was prepared to pay a significant sum to obtain immediate vacant possession.
- I now deal with the issue as to the time when the Option A document was given to Jason by Mr Koby. In my judgment Jason's version is more likely to be correct. In view of what subsequently transpired after June 2001, I do not believe that Mr Koby would have produced the document for Jason, once the Knight Frank offer had been made. Jason was plainly upset and suspicious, believing that someone had leaked to a third party the fact that the Property might be available for purchase and the asking price, as well as the place to contact the seller. His £1.135m bid had been over-topped by someone with seeming financial strength. There was now a danger of losing what he believed to be a beneficial purchase when it seemed at last to likely to be realised. For Mr Koby to have produced the document following the making of the rival offer would have been pointless unless Mr Koby had also said, which he certainly did not, that the Knight Frank offer was from Mr Ronson, who would be willing to pay the Company a premium. This was because the Option A document was premised on a Ronson entity being the purchaser instead of the Gerrards. While the identity of the Knight Frank client was unknown, it might be that neither the Gerrards nor Mr Ronson would be successful in purchasing.
- I now continue with the narrative of events after 15 March. Mr Stammers' response to Knight Frank was to ask for the name of their client, and how they had come to know his personal details. As he explains, the Property was registered to Sarena, not to B&S to whom Knight Frank addressed the offer. Knight Frank gave an evasive reply in a letter dated 20 March. When Mr Stammers explained that he would not deal with an anonymous party, Knight Frank wrote offering to give information by telephone. On the telephone Knight Frank told Mr Stammers that the secret buyer was an Iranian family by the name of Shashoua. This was of course false. The buyer was Mr Ronson acting by one of his trusts.
- On 27 March 2001 Mr Stammers wrote back to Knight Frank rejecting the offer, after having consultation with his directors. His letter said that £1.2 million was inadequate; but he said that should Knight Frank be interested in increasing the offer, he would naturally put it before his directors. There was then a further unsuccessful attempt by Knight Frank to communicate by telephone with Mr Stammers, who wrote a further letter dated 28 March 2001 suggesting that "we are about to exchange contracts for the sale of this property to another company, for exactly the sum offered by you", and saying that Knight Frank's offer would need to be considerably improved to be of any interest.
- By the end of March, as it seems to me, contracts were in fact still a little way from being exchanged with the Gerrards or any company connected with them: as I have explained, the draft contract had yet to be finalised, and there were still important issues for Jason to resolve in connection with the necessary borrowing. Nevertheless it would have been reasonable for Mr Stammers to believe that exchange of contracts would not be long in coming. Indeed, on 11 March 2001 Mr Koby came to believe that contracts were expected to be exchanged on 15 March: this belief was formed from what Jason told Mr Sassoon at the meeting at Geko House on 11 March. No doubt Jason said something to convey that exchange of contracts was imminent, probably himself believing exchange to be imminent: this would be quite in keeping with Jason's character.
- There is, however, an important issue which Mr Stammers' letter of 28 March foreshadows. During April 2001 steps continued to be taken with a view to a sale of the Property to Jason and Russell. Jason contends that he had indeed matched the £1.2m offer made by Knight Frank, and suggests in his evidence that it was the matching of that offer which led Mr Stammers to continue to treat with him. Yet all of the subsequent documents passing in April 2001, with one exception, show the purchase continuing unchanged at £1.135m.
- This issue is material not only in relation to the quality of Jason's evidence, but also in relation to discussions between him and Mr Koby concerning the purchase. Jason says he was able to increase the offer by £65,000 because, and only because his mother agreed to provide that sum from her savings. As mentioned earlier, Mr Koby says that he only learnt of the fact that the landlord had agreed to sell the Property in early January 2001, and then only because Jason asked him to agree to the Company repaying his mother some £60,000 which she was to lend for the purchase of the Property. He does, however, agree that after 15 March 2001 Jason asked him to contribute to the purchase, and indeed asked him to ask his father-in-law for help, both of which requests he refused.
- I think it likely that after mid-March 2001 there were efforts by Jason to raise further finance to allow for an increased offer, and that in this context there was also discussion between Jason and Mr Stammers concerning the matching of the Knight Frank offer. To this extent there is some basis for Jason's evidence about the increased offer of £1.2m, and possibly also for Mr Stammers' comment in his letter of 28 March. Mr Stammers for his part remembered there having been an offer of £1.2m from Jason, which would be consistent with what he had said in his letter of 28 March 2001; although when pressed with the documents he agreed that he might have been mistaken. In the event I do not think that the discussion between Jason and Mr Stammers ever translated into an agreement subject to contract that the price paid for the Property was to be £1.2m. Rather, as it seems to me, Mr Stammers for whatever reason continued to treat at a price, ostensibly at least, of £1.135m.
- Although all the documents dating from April 2001 depict the proposed price as being £1.135m, there is one document which shows that in truth there was a little more to the continuing negotiations than that, and which confirms that after 15 March 2001 Jason had made efforts to improve the consideration being provided for the Property. This I should explain. On 16 April 2001 B&S rendered to the Company an invoice for £10,000 for "shopfitting and display material for Baumler"; and this invoice was paid shortly afterwards, a cheque for £10,000 being sent by Jason to Mr Stammers on 20 April 2001. In this letter Jason said: "Further to our telephone conversation this morning I can confirm that we have signed the contract and I will be pressing the lender for a completion date on or around May 10 2001." In fact the £10,000 was not for shopfitting and display material at all, but was connected with the proposed purchase. Precisely what it was for (whether, that is, it was a payment on account for legal expenses which the draft contract was to lay at the door of the purchasers, or was some kind of refundable or non-refundable deposit or disguised addition to the stated purchase price), and why it was dressed up as it was, has not been clearly explained. There are a number of possible explanations, none of which gives a satisfactory and proper justification for the dressing up of the invoice. But the payment was undoubtedly, as I see it, an inducement for the vendor to continue with the sale. I should just add that the £10,000 was returned when the sale went off.
- Towards the end of April 2001 it would appear that the Gerrards signed the contract for the purchase of the Property ready for exchange. On 27 April 2001 Jason sent Howard Kennedy cheques for the deposit for the purchase price with an instruction that these could be presented on 2 May 2001. He also said that Northern Rock's surveyors were due to make their physical inspection on 30 April, and that he was expecting verbal confirmation of their conclusions by 2 May, when he would telephone Howard Kennedy "so that we may proceed with the exchange post-haste".
- On 1 May, however, Knight Frank again intervened, this time faxing to Mr Stammers at his private number an offer for the Property for £1.35m. This subject to contract offer Mr Stammers wrote to accept on the following day; and on 3 May Knight Frank wrote to Sarena's Solicitors say that that "acting on the instructions of our clients the Shashoua Family Trust" a sale of the Property had been agreed.
- On 4 May Mr Stammers spoke by phone to Jason and told him of the £1.35m offer and that it was being accepted, and followed this with a confirmatory fax. He gave Jason the opportunity to come up with something which would change that, saying that he would phone later, at about 12.30pm, the same day. That subsequent discussion clearly took place, as Mr Stammers was persuaded to put the acceptance of the £1.35m on hold until 24 May. Jason was to be away on holiday from Monday 7 May until Wednesday 23 May.
- Jason says that on 4 May 2001 he offered Mr Stammers £1.24m. There is, indeed, in existence what purports to be a copy of a letter dated 4 May 2001 from Jason at his home address to Mr Stammers in which he said:
"Further to our telephone conversation today please take this fax as my written undertaking that the Gerrard family will meet your offer of £1,240,000 to purchase the freeholds .... As explained the difference of £95,000:00 between our contract figure and your offer price will be met privately in order that we do not sustain any further legal or stamp duty costs..."
- When and why the document dated 4 May came into existence is something of a mystery. It may, for example, have been a document prepared by Jason as a first reaction having first heard from Mr Stammers on 4 May that there had been a further offer, and before speaking for the second time. But, as I conclude, whether or not Jason sent the letter, the letter must have been superseded by the second conversation with Mr Stammers for the simple reason that it has no reflection in Mr Stammers' letter of 21 May, referred to below, and further contains no reference to the increased offer of £1,215,000 which Jason mentioned in his own letter of 24 May, referred to below. What must have transpired on 4 May is that in the second conversation between Jason and Mr Stammers a counter-bid of £1,215,000 was made by Jason, with Mr Stammers agreeing to defer any decision until later in May.
- On 21 May 2001 Mr Stammers wrote a letter to Jason in which he referred to the £1.35m offer from "the Shashoua Family Trust", said that "we would prefer to sell to you", but pointed out that "your offer, although this has now been increased to £1,215,000, remains" too low. He required Jason's response by close of business on 23 May.
- Jason's reply was dated 24 May. This may have been Jason's first day in the office after his return from holiday. It was a lengthy appraisal of the course of negotiations which he had had with Mr Stammers and of the rationale for the purchase. He explained that:
"after the offer from Shashoua was received, I had, with our family, made a contingency to increase our offer to you should such a situation arise again.... and it was because of this contingency that I was able to go to £1,215,000 so quickly just before I left."
He added, "I have done some investigation on the Sashoua family and they are a Middle Eastern family with fingers in many, many pies; I cannot compete.." Finally he suggested that:
"we exchange on the original price of £1,135,000 so that this can go through without any further costs. £10,000 has already been paid to you and the balance of £70,000 will be paid to you in cash".
- This appeal did not prevail, as Mr Stammers evidently told Jason in late May. As mentioned, on 15 June 2001 contracts were exchanged for a sale of the Property to Vermeer at £1.35m. On that same day Jason put forward a further offer at £1.25m, Mr Stammers telling Jason on 22 June that the Property had been sold and that "from the beginning of next month you will have a new landlord - Vermeer Properties Ltd".
- In the course of this narrative of the events down to June 2001 I have described the offers made by Jason for the purchase of the Property. In summary these were:
i) first, on 23 January2001, at £1.135m;
ii) second, on about 4 May 2001, at £1.215m;
iii) third, on 15 June 2001, at £1.25m.
However, I also accept that after mid-March 2001 Jason and Mr Stammers discussed the possibility of the £1.135m offer being improved upon and that this led to Jason causing the B&S £10,000 "shopfitting" invoice to be paid.
- It is now convenient to set out my conclusions on the first of the issues mentioned above. In my judgment when the offer of £1.135m was made by Jason on 23 January 2001 the substantive purchasers were to be some one or more of the Gerrard family, to the exclusion of Mr Koby and the Company. It was Jason and Russell who were named as purchasers on the draft contract; the offer of finance from Northern Rock was made to them; advice was given to Jason by Jeffreys Henry (e-mail of 13 February 2001) and Hacker Young (letter of 24 April 2001) which is only consistent with members of the Gerrard family being the purchasers; and numerous of Jason's own letters (including indeed the offer letter of 23 January, but also including that of 12 February to Howard Kennedy) convey that it was members of the Gerrard family who were purchasing. From January 2001 on there is not one single document which suggests that either the Company or Mr Koby was to have a beneficial interest in the Property. What is more, Mr Koby's Option A document showed that he believed that it would be the Gerrard family which was purchasing the Property.
- Although the point probably does not matter, it is likely that Mr Gerrard had dropped out of the picture as being one of the intended purchasers by April 2001 at the latest.
- In is implicit in the findings I have just made about the identity of the proposing purchasers that they were to be purchasing beneficially, and not as nominees or trustees for the Company. This stands in contrast with the following:
i) In Jason's written evidence, signed only a few weeks before the trial, he claims that he was proposing a
"suggestion to acquire the site in our names [that is his and Russell's names] as nominees for Baumler with the intention that Baumler would fund the loans out of rent receipts and from other sources, such as rent from Stirling House".
ii) The case was opened by Mr Michael Gadd, Mr Gerrard's Counsel, on the basis that the purchase was to be by Jason and Russell as nominees for the Company.
iii) Jason and Mr Gerrard, both said in their oral evidence that the purchase was to be by the individuals on behalf of the Company and "as nominees" (using that word), even though the highest the point had been put by Mr Gerrard in his written evidence was that the purchase was to be by Jason and Russell "themselves on behalf of Baumler".
- I have no hesitation in rejecting this case. The documents which I have mentioned above contain nothing at all to support the case. At the lowest, if the individuals were acting as nominees, that is something which could be expected to have been told to Howard Kennedy, as well as to those giving tax advice about the proposed purchase and its structuring. But, as it seems to me, the contemporaneous documents are only consistent with an intended purchase by the individuals as beneficial owners, or possibly by a company to be owned by them as beneficial owners. The expression "nominee" was never used by anyone, and certainly not by Jason (as he agreed when giving his oral evidence).
- There is a further point which makes it impossible for me to accept the case that the purchase was to be by the Gerrards or some of them as nominees. Jason explained that there was a time when Mr Koby was to be a purchaser along with the Gerrards. He claims that this was, indeed, up to and continued after 23 January 2001, before Mr Koby dropped out. As I explain, I think it likely that there had been such a time, at any rate during 2000. But there is no suggestion that Mr Koby was to have been a nominee purchaser for the Company.
- In reaching my conclusion on the "nominee" purchase point I have taken into account the Petition, the truth of which Mr Gerrard deposed to as long ago as 2002, in which the purchase was to be by individuals, supported by personal mortgages. True, each of the individuals was to have "openly stated his intention to subordinate his personal interests for the benefit of the Company". But there was no allegation that the individuals would be purchasing as nominees. Rather the picture presented is one of a proposed purchase by individuals, but nevertheless one which would be commercially beneficial for the Company in securing its ability to continue in occupation of the Property on advantageous terms and with "a friendly landlord to protect the Company for (sic) future rent increases". For the reasons I explain below, I think that Jason did believe that the purchase would be beneficial for the Company. Nevertheless he did not in my judgment intend that he should be a mere nominee for the Company.
- The way in which the case has been developed that the purchase was to be by Jason and Russell as nominees for the Company is unsatisfactory, and has caused me considerable anxiety. I have asked myself whether this was a presentation of a knowingly false case. This question is relevant not only when considering the weight to be attached to their evidence, but also when considering Mr Koby's behaviour and the extent to which, if at all, he may have been justified in what he did, and whether or not the case is one in which any order should be made under section 461 of the 1985 Act, if indeed there has been unfairly prejudicial conduct of the Company's affairs by Mr Koby.
- Ultimately I have reached a clear conclusion on this point. I think that what has gone wrong is an example, admittedly an extreme example, of Mr Gerrard and Jason having convinced themselves of the truth of something that was not but which they now wish to have been. As I see it, their evidence is the result of Mr Gerrard's poor memory and Jason's tendency to confuse his wishes with facts. I accept that they believed that the purchase of the Property would be beneficial for the Company. From that they have persuaded themselves that the purchase must have been intended to be on behalf of the Company and then characterised that as being a purchase by an intended nominee.
The Gerrards' motives and expectations as regards the Property
- Although I have rejected the case the Gerrards' proposed purchase of the Property was, after January 2001, to be by them as nominees for the Company, I accept that they genuinely viewed the purchase as being for the Company's benefit in assisting in protecting the Company's occupation of the Property on favourable rent terms. And I accept their explanation of the way in which the purchase came to be proposed as a Gerrard family purchase.
- As to the first of these points, there are two questions. One is whether the Gerrards intended that Geko House should be redeveloped. The second is the question of the financing of the purchase: what was contemplated as regards the Company's contribution or responsibility for financing the purchase?
- I have set out Mr Sassoon's attendance note of November 2000. I do not draw from this any support for a view that the Gerrards were planning to redevelop Geko House or to finance the purchase by increasing the Company's rent to £15 per square foot. Rather, as it seems to me, the document suggests only that Mr Sassoon and Mr Gerrard had a discussion about the value of the Property in its present condition, that value being a function of its rental value.
- None of the documents emanating from Jason during 2001, except possibly the letter of 12 February 2001 referred to below, suggest that he had given any thought to a redevelopment of Geko House and a relocation of the Company. On the contrary the documents suggest that the purchase was "almost ... a pension fund investment", that being an expression used in the Jeffreys Henry e-mail of 13 February 2001, but with consideration being given to the way in which Stirling House could be exploited, as appears from a letter of late February 2001 sent by Jason to Howard Kennedy: this is the "part of the site", I am sure, which was referred to by Hacker Young in their letter of 24 April 2001 as being subject to "current proposals" for development with a view to letting to "a greater number of tenants".
- The letter dated 12 February 2001 referred to above was, as previously stated, the first letter sent by Jason to Howard Kennedy giving instructions in relation to the proposed purchase. It contained the statement that "We will ... be seeking your advise (sic) on the existing leases and their impact, should we not wish to renew with the existing tenants, as well as your advise on creating and issuing new leases. I will be able to discuss the outline plans for tenants with you in greater detail when we meet." The letter then set out a list of the constituent parts of the Property, and included in this Geko House with the statement "currently occupied by our family business". I do not, however, read this letter as indicating any intention on the part of Jason that the Company should be removed from the Property. At the time of writing the Company's leases had 13 years left to run before any question of renewal would arise. Rather, as it seems to me, Jason's concern was with the Stirling Audio leases and licences, which were of much shorter duration.
- On the other hand at some point Jason prepared a spreadsheet dealing with the possible financing costs and rental income. With this was a discussion document headed "Property Freehold Costing & Plans", and which concluded with a proposal that the offer to be made for the Property should be £1.1m, with a borrowing of £900,000 and with an "assumed purchase price" of £1.2m. In view of this reference to a proposed offer price, an offer less than the £1.135m in fact offered by Jason in the 23 January letter, I conclude that the documents must have been brought into existence before that time. As the document also contained a discussion of the stamp duty implications of purchasing Sarena rather than the Property, the document is likely to post-date Mr Stammer's letter of 6 December 2000.
- Jason's discussion document contemplated that from 2004 the rent for Geko House would be reviewed to £5.50 per square foot, while expressing the view that market rents were of approximately £10 to £15 per square foot and that such a rent would be obtained for Stirling House. In effect the plan contemplated by the spreadsheet was that the Company would continue to pay a rent, but one which was significantly lower than market rent. The document envisaged that there was a profit to be made on the income to be gained from the Property in its existing state, in particular by reason of increased rents on Stirling House, over the financing cost of the borrowing of £900,000, but with part of the price (approximately £100,000) being deferred and repaid within 2 or 3 years from the profit. Having regard to expenses associated with the purchase estimated at £120,000, the amount which was needed to be found immediately was between £200,000 and £300,000 on a purchase price of between £1.1m and £1.2m.
- It is not clear from the spreadsheet how it was proposed that this £200,000 to £300,000 sum was intended to be raised. Indeed, it is not clear from the Gerrards' evidence precisely how they expected to raise this sum. Jason's written evidence points out difficulties facing the Company in raising the sum, adding that once it was decided that the purchase should be in personal names he was still very concerned as to "how we would raise the sum of £235,000 plus stamp duty". But he does not state precisely what solution was ever arrived at, beyond pointing out that his father was to provide some £45,000; and the Petition indicates that Jason and Russell were to provide funding.
- Mr Koby's Option A document suggests that in his understanding there was to be a "family raised deposit", but one that would not necessarily be sufficient. What is more, in his understanding the Company was to have some responsibility for servicing the borrowings, whether or not the Company was to be legally committed in that respect.
- On this point I think that Mr Koby must be correct. The fact that the Company was expected by the Gerrards to assist with the purchase is demonstrated by the fact that it was the Company which paid the £10,000 B&S "shopfitting" invoice. Other invoices associated with the purchase also seem to have been addressed to, and were in the event paid by, the Company. Also, it is common ground that there was a time when Jason asked Mr Koby to agree that the Company should repay a loan from Jason's mother which would be made to Jason and Russell to assist with the purchase. Further, if it had not been correct, it would have been an answer to Mr Koby's Option A document to explain that the Company was under no circumstances to be responsible for financing or refinancing the purchase, and that Mr Koby could if he wished contribute to the purchase price and join as one of the purchasers.
- In summary, it seems to me that the Gerrards thought that their purchase would be beneficial for the Company, and would permit the Company to remain at Geko House on favourable terms; but Mr Koby thought, and may have had good grounds for thinking, that the purchase could well come to involve direct or indirect funding by the Company and might be a real risk for the Company.
Mr Koby's knowledge of and apparent attitude towards the Gerrards' proposals
- This brings me to the questions concerning the involvement of Mr Koby in the Gerrards' proposals for the Property. How far was he aware of what was being proposed? How far was he informed or consulted by the Gerrards? And what was his attitude towards the proposals, at any rate as understood by the Gerrards? On this there is a stark conflict between the evidence of Mr Gerrard and Jason on the one side and Mr Koby on the other.
- Jason says that the question of the purchase was frequently discussed with Mr Koby. Between October 2000 and 23 January 2001 he had to find a way of raising any offer to be made to Sarena from the £800,000 mark to a figure approaching Mr Stammers' requested £1.2m. According to Jason and Mr Gerrard this matter was discussed extensively with Mr Koby. He says that initially from October 2000 consideration was given to the Company purchasing the Property, but that this course was impossible as it would have required guarantees from Mr Gerrard and Mr Koby which neither was willing to give. Then, he says, the proposal was one for the individuals all to purchase, that initially Mr Koby was agreeable to this plan but then he pulled out unexpectedly, attributing this changed attitude to lack of resources which he described in a vivid metaphor. He says further that after the "Shashoua" offer of £1.2m had been made, he sought from his mother the loan of £65,000 and asked Mr Koby to agree to this being repaid by the Company, which request Mr Koby refused. He says that Mr Koby appeared to be fully in agreement with the planned purchase of the Property, never expressing any objection or opposition, beyond at one stage producing the Option A document, and appeared to share the Gerrards' upset at the making of the rival offers.
- Mr Koby denies that Jason told him anything of any of his exchanges with Mr Stevens or Mr Stammers during 1999 and 2000, and suggests that these matters were kept secret. He says, moreover, that the first he knew of the willingness of Sarena to treat for the Property at in the region of £1.2m, and of Mr Stammers' letter of October 2000, was on 10 January 2001, when he claims that Jason approached him to obtain his agreement to having the Company repay Jason's mother £60,000 to be advanced by her towards the price for the Property, and told him that he wanted Mr Koby's blessing for Russell and himself to purchase the Property in their own names. Mr Koby says that he explained that he was not in favour of paying the £60,000 from company finances, and that he wanted to investigate other ways of dealing with the Property "having regard to the fact that I did not want to jeopardise the Company's business and very tight cash flow", pointing out that "there was no involvement for me in their scheme".
- Jason's "Property Freehold Costing & Plans" document was provided to Mr Koby, according to him, in January 2001, at the same time as Jason showed him Mr Stammers' letter of 14 October 2000 and at the same time as Jason first informed him of the willingness of Sarena to sell at £1.2m. As I have already said, the document appears to date from between 6 December 2000 and 23 January 2001. It is also consistent with Mr Koby's evidence that the document does contemplate the Company as continuing to pay rent, and therefore as not being the purchaser of the Property.
- But in his evidence Mr Koby did agree to two important points. First, he said there was a time in late 2000 when Jason asked him whether he would be willing to provide a guarantee in relation to the purchase of the Property, and he refused. Second, he agreed that there was a time when he was asked to contribute to the purchase of the Property and refused using the expression attributed to him by Jason; and this time he placed in early 2001, around the time when according to him he was first told of Sarena's willingness to sell.
- I have come to the conclusion that Jason's evidence is to be preferred on this issue. I think that Mr Koby was kept reasonably informed and that, although he did not join in with the proposals to purchase the Property, he never expressed any positive objection. On the contrary, I think it likely that if anything he conveyed to the Gerrards that he was supportive.
- So far as the period down to January 2001 is concerned I note the following:
i) Mr Koby agrees that in about 1999 he discussed with Jason the risks the Company faced at the 2004 rent review from increasing rents in the area, in particular from comparables based on a recent and near-by development, and that in early 2000 Mr Koby went with Jason to see that development. All this is in the context of a possible solution lying in a purchase of the freehold of Geko House.
ii) Mr Koby says that he had agreed with Jason that the latter should approach Sarena to see if the freehold could be secured for the Company, and was confident that he would pursue all avenues to secure the property.
iii) Mr Stammers' name, address and private phone number were readily obtained by Mr Koby from Jason's desk when he wished to pass them on to Mr Ronson. This does not suggest that Jason was being secretive.
iv) Most importantly, the conversation which Mr Koby admits he had with Jason concerning the giving of a guarantee is hardly consistent with an attempt by Jason to keep matters secret. What is more, I have difficulty in understanding how Mr Koby could have sensibly been asked the question, or if asked have failed to seek further information, if the question had simply been posed out of the blue and without any explanation of the reason for the question.
- Given the foregoing I cannot accept that Jason deliberately chose to keep Mr Koby in the dark about his negotiations with Mr Stevens and Mr Stammers. Mr Koby does not say, for example, that he asked Jason to explain why he was raising the guarantee question or how far he had progressed with negotiations, and that Jason had refused to answer or had been evasive. But in fact I think that Mr Koby must have been told in broad outline what was going forward.
- There was a time when Jason discussed with Mr Koby Jason's spreadsheet, at which time at the latest Mr Koby knew that Jason was no longer proposing that the purchaser of the Property should be the Company but that instead it should be individuals. I also think it probable that at that time Jason was proposing that Mr Koby should be one of the purchasers and was looking to him for a contribution towards the financing.
- In this context it is possible that Mr Koby told Jason that he would ask Mr Ronson to have a look at the Property. It is common ground that on about 25 January 2001 Mr Ronson and Mr Henderson-Williams visited Geko House at Mr Koby's invitation. For their part the Gerrards were aware that Mr Ronson had visited the Property, as they saw him there; and Jason says that after the visit Mr Koby told Russell that Mr Ronson was there to see if the figures stacked up. However it is not suggested that any of them discussed with Mr Ronson his purpose in coming to the Property, and Jason says (and I accept) that he thought that Mr Ronson was coming to assess Jason's proposal. The Gerrards of course knew well Mr Koby's friendship with Mr Ronson and that Mr Ronson was in business in property.
- It follows that I do not accept Mr Koby's evidence that in January 2001 he told the Gerrards that he objected to a proposal for the Gerrards to purchase the Property. Shortly stated the subsequent behaviour of each of Mr Koby and the Gerrards is inconsistent with this.
- Mr Koby does not say that he discussed with Jason, or raised with Jason, at any time before 11 March 2001 the progress he was making with his alternatives; and he did not even mention, at the meeting on 11 March, the fact that he had been pursuing an alternative and had indeed been in discussion with Mr Ronson about it in February 2001.
- The Option A document is instructive. As explained, it summarised the "Current Proposal" and put forward the "MK Proposal", which would have as its aims "securing long term security for Geko", giving "financial security for MK and Gerrards in equal measure", and "agreed time buy-out of MK shares in all companies". Jason says that when looking at the document he was immediately struck by the fact that Mr Koby now apparently wanted out of the Company and was not fully behind everything that had been done and the current proposal. He says he at once asked Mr Koby about the document, and Mr Koby brushed it aside as "jlust an idea boys". For his part Mr Koby does not claim to have told Jason, when Jason talked with him about the document, that the "Current Proposal" was unacceptable, and that Jason must not proceed with that plan, whether or not Mr Koby's proposal was acceptable.
- The Gerrards on the other hand clearly, believed that Mr Koby was in principle agreed, or at the least was not objecting, to the purchase. As to this, (a) the proposed purchase was no secret; (b) to the knowledge of Jason Mr Koby knew the details; and (c) Mr Koby never expressed any definite objection.
- The first of these points is illustrated by two facts.
i) First, on 26 January 2001, a Friday, there was a party for the Company's staff at which Jason explained that the chance had been given of purchasing the Property and thereby securing Geko House for the Company. Mrs Quiney says that she had had to send personal invitations to everyone. Mr Koby did not come to the party, however. But the fact a purchase of the Property was going ahead was no secret within the Company, and was known to Mr Koby who also knew from his previous conversations with Jason that the Company was not to be the Purchaser.
ii) Second, on 11 March 2001 when Mr Sassoon and Jason met at the Company's offices they sat together in Mr Koby's office, with Mr Koby present throughout, while discussing the details of the proposed purchase. Clearly Jason did not see any need for secrecy.
- The second point is in effect admitted by Mr Koby. By 23 January 2001 he had been shown Jason's "Freehold Property Costing" document. Again, by the time he came to produce to Jason the Option A document in March 2001 Mr Koby knew that the purchase was to be at the price offered on 23 January, namely £1.135m and not the £1.1m or £1.2m referred to in Jason's "Freehold Property Costing" document. He also knew that stamp duty was to be at 4%, and therefore that the purchase was to be of the Property and not of Sarena.
- As to the third point, the behaviour of Jason in announcing the purchase to staff on 26 January and in discussing the purchase with Mr Sassoon in Mr Koby's presence in March 2001 is inconsistent with his having any conception that Mr Koby had refused to allow the purchase to go forward. Indeed, Mr Koby accepts that during that meeting he did not tell Jason that he had any objection to the purchase. The furthest extent his evidence goes is that at a time when Jason was out of the room and he was by himself with Mr Sassoon he said, in answer to a question by Mr Sassoon, that he was "not too happy about the idea" of Jason and Russell buying the Property in their own names.
- A striking demonstration of Jason's belief that Mr Koby was not objecting to the purchase is that according to Mr Koby (and in this agreeing with Jason) even after 15 March 2001 the Gerrards asked him to contribute to the financing of the purchase of the Property by them, and also asked him to ask his father-in-law to help.
- This same episode shows that Jason's belief was not unreasonable. Mr Koby refused Jason's request for financial help on the grounds that he could not afford to contribute and that he could not get funds from his father-in-law. He did not refuse, on his case, by explaining that the proposed purchase was objectionable and should not be allowed to continue.
- I conclude that Mr Koby's attitude expressed to the Gerrards' attempts to secure the Property, certainly after Mr Ronson's interests had made their offer of 15 March 2001 and in all probability from January 2001, was at its most hostile one of reluctant acquiescence, with expressed sympathy after March 2001 for the fact that they were now facing a rival bidder. This attitude would have been that most calculated to assist in the deception, referred to below, that his friend Mr Ronson was not involved in the offer made by "the Shashoua family trust". Rather, as it seems to me, Mr Koby had formed the view that if the Gerrards were planning to purchase the Property, that was a matter for them; but by the same token it was open to him to do whatever he thought fit to frustrate that purchase, including assisting a friend to purchase or, indeed, to purchase himself. In cross-examination he pointed out that so far as he was concerned the Property was never an asset of the Company; and he continued:
"If the Gerrards had decided to buy this property in their own names this was for them to do. It is a free society. It is a free world. If they want to buy a property they are at freedom to do so. Whether it is wrong or right, if it would have been the company purchasing ... that would have been - well, anyway. They were purchasing it themselves."
Mr Ronson's purchase of the Property
- It is now convenient to set out my conclusions on the issues surrounding the purchase of the Property by Mr Ronson's interests. In summary these are that:
i) Mr Ronson sought to keep secret the fact that his interests were purchasing the Property
ii) Mr Koby knew that it was Mr Ronson's interests which were purchasing, and indeed that Mr Koby was instrumental in bringing about that purchase
iii) Mr Koby also kept secret the fact that it was Mr Ronson's interests which were purchasing.
iv) The Gerrards did not know that the purchaser was Mr Ronson or his interests: rather Jason thought that the purchaser was a family from the Middle East by the name of Shashoua.
- As to the first point, the conduct of Knight Frank in being evasive as to the identity of the purchaser and then in putting forward a fiction speaks volumes. However Mr Ronson himself said in his oral evidence that as far as he was concerned the Gerrards were not aware of his plan to purchase the Property, and also that he believed that the Gerrards were not aware of his plan "because it was my interest to get the property in order to safeguard my friend Koby and to avoid Gerrards buying this and then finding my friend hurt."
- The second point requires little amplification: it is clear from the evidence. However the following may be noted:
i) Mr Koby said in his written evidence that on 18 February 2001 he had a lengthy conversation with Mr Ronson about the outlines of Mr Ronson's plans for the purchase, and how these might be of advantage to the Company and to Mr Koby and the Gerrards.
ii) He also explained that on 11 March 2001 he had been working on his Option A document when Mr Sassoon and Jason met at the Property, and that he concluded that exchange of contracts for the purchase of the Property was imminent, indeed due for 15 March. He said he immediately contacted Mr Ronson that Sunday evening, meeting with him the following evening, at which time he told Mr Ronson what was expected and that urgent action was required, and Mr Ronson said that he would sort it out.
iii) It is common ground that Mr Koby told Mr Ronson Sarena's asking price for the Property, and told Mr Ronson how to communicate with Mr Stammers as the person responsible for negotiating for the seller. Mr Ronson would not have had any of this information without Mr Koby's assistance. Also, Mr Koby explains in his written evidence how he had passed to Mr Ronson "details of the lease, square footage, etc".
iv) Both Mr Koby and Mr Ronson agree that Mr Ronson's purchase was settled upon by the two men as a way of securing the Property, of thwarting the Gerrards' proposals, and of enabling the Company to receive a payment for the surrender value of its leases. Had Mr Koby asked Mr Ronson not to purchase, I am sure that the latter's purchase would not have gone ahead.
- That the true identity of the purchaser was kept secret from Jason is clear. Jason was anxious to discover who the purchaser was and thought that there must have been a leak of inside information, a point evidenced by his exchanges of correspondence with Mr Stammers in the immediate aftermath of the 15 March offer. Yet as late as 24 May Jason was still referring to the purchaser as the Shashoua family and describing the result of his investigations in the way I have quoted above. None of the other Gerrards was any better informed.
- Mr Koby, I have no doubt, assisted in this deception. He himself says that his response, when challenged by Jason following the 15 March offer, was to say that he had not put in a bid for the Property and that he could not speak for Mr Ronson. This was disingenuous, as he knew perfectly well that the offer came from Mr Ronson. What is more, to his knowledge Jason would have expected him to know if Mr Ronson had indeed been involved, Mr Koby's long-standing friendship with Mr Ronson being well-known. The answer he says he gave would have been tantamount to saying, "not so far as I am aware", when the speaker was someone whose knowledge was likely to be reasonably complete. I should just add that Jason says, and I accept, that Mr Koby told him that Mr Ronson would never do anything behind his, Mr Koby's, back.
- On behalf of Mr Koby the point was made that Mr Ronson had, to the knowledge of the Gerrards, visited Geko House in January 2001. Further, the Option A document contained a reference which could have conveyed to the Gerrards that a Ronson vehicle would, on Mr Koby's proposal, become a purchaser of the Property. These points did not impress me. They only go to show that the Gerrards had clues which might have enabled them to see through the deception which was being practised on them. They do not show that the Gerrards in fact knew that Mr Ronson lay behind the rival bid, much less that they knew that Mr Koby had assisted Mr Ronson. Had they known that Mr Ronson was the rival, they would not have asked Mr Koby for financial help, but would have asked or demanded that he intercede to cause Mr Ronson to back off
Events after May 2001
- I must now deal with events subsequent to the purchase of the Property. These are relevant because of the light they cast on the question whether or not Mr Koby had any interest with Mr Ronson in the purchase, and on the position in which the Company now finds itself I should stress that they are not relevant as founding relief on the ground of some alleged breach of fiduciary duty on the part of Mr Koby in failing to bring to the Company an undoubted opportunity which he had had to share with Mr Ronson in any profit to be made from the latter's purchase of the Property: any claim in that direction was renounced by Mr Gadd in opening the case.
- By 25 June 2001 at the latest Mr Ronson and Mr Koby had come to an agreement. The essence of this was that Mr Koby, it may be jointly with his wife, would be entitled to 50% or so of the profit to be made by or through Vermeer on the purchase and development of the Property, after taking account of interest and a management charge to be levied by Mr Ronson's interests, but with the Kobys sharing half the loss to a limit of approximately £0.5m or, if less, the value of a flat owned by Mr Koby and some Treasury Stocks owned by Mrs Koby, the flat and the Treasury Stocks being offered as security. As to numerous details, however, there were over time different variations of this agreement which were drafted and discussed and, ultimately, abandoned unresolved. These details are all immaterial for present purposes.
- On 25 June 2001 Mr Henderson-Williams met Mr Dermot Rice of Slaughter & May and gave him instructions about this agreement. The following day Mr Rice produced what he described as a summary of the intended transaction, the summary running to four pages of detail. I have already quoted certain of the terms of this document. Others of note are as follows:
"The two leases held by Baumler (UK) Limited (ground and first floor of Geko House) expire in 2014. There is however a rent review in March 2004 at which the rent will rise substantially. [Vermeer] hopes to convince the tenant [that is, the Company] that it is no longer economic for it to occupy its existing space at the Property and that it should surrender its lease"
and
"The shares in the Company are to be held 50:50 by:
(A) [NV Realty Trust]; and
(b) Michael Koby [Has it yet been decided whether or not Michael Koby can own shares in the Company in his own name, or whether they need to be held through a Trust?]"
On the document in the trial bundle there is manuscript marking alongside the italicised text quoted above: this contains the notation "Thru a Trust".
- On 13 July 2001 a revised version of this document was sent to Mr Koby by Slaughter & May with the comment that "as Howard [that is, Mr Ronson] has no doubt told you, he has asked me to assist in putting together the various documents that will be needed for the above transaction". Consistently with the manuscript marking on the earlier version, the revised version has Mr Koby's interest in Vermeer being "through a trust", namely NV Realty Trust.
- By August 2001 Mr Koby had received from Mr Freeman the heads of term document of July 2001 from which I have quoted above. On 2 August 2001 Mr Koby's Solicitors wrote to him commenting on this document and remarking that it had been given to him to sign.
- From this time until early February 2002 negotiations of the documents to give effect to the agreement moved forward between Mr Koby and Mr Ronson without arriving at a conclusion. The negotiations involved numerous communication between on the one side Mr Koby and his Solicitors (John Rosenheim of Dentons) and on the other Mr Ronson, Mr Freeman and Slaughter & May. Differences between the two sides concerned, among other matters, the questions (a) whether the Kobys' interest was to be 50% or 49.9%, (b) whether the security to be provided by the Kobys could be retained by their Solicitors, and (c) whether the Kobys should accept that the shares in Vermeer were to be held by NV Realty Trust, the trustees of that trust merely being directed by a letter of wishes from Mr Ronson to add the Kobys as discretionary beneficiaries of the trust and requested to allocate or make available to them jointly or the survivor of them "49.99% of any gain from the realization of those shares", or whether the Kobys' interest in Vermeer or the profits from the Property should be held or secured in some other fashion.
- In the course of these negotiations Mr Koby wrote to Mr Freeman, copied to Mr Ronson, a fax dated 18 August 2001 in which he set out his understanding of the agreement between himself and Mr Ronson. These included besides the proposition that Mr Koby was to own 50% of Vermeer, the proposition that "Vermeer will use its best endeavours to obtain vacant possession as soon as possible of the Property with a view to redevelopment of the Property", and that Mr Ronson also "shall use his reasonable endeavours to procure vacant possession of the Property as soon as practicable and thereafter its redevelopment and sale".
- While the details of the agreement between Mr Ronson and Mr Koby were being worked out, Mr Ronson's interests put in hand the plans for exploiting the Property. On 10 October 2001 Mr Ronson sent to Mr Koby a report from Mr Henderson-Williams dated 4 October 2001. This made reference to an engrossed management agreement to be made with Knight Frank, and discussed plans and progress in relation to Stirling House, including the fact that agents "are making excellent progress with the planners". The report also contained the statement:
"It is readily apparent from Toby's market report that commercial demand in the immediate locality has softened and it might usefully buy us some time to sort out a deal with Michael's partners in Geko House."
- This material was faxed by Mr Ronson to Mr Koby at home. Mr Koby received further reports as to the progress being made with the planning. For example, in a letter dated 8 November 2001 faxed by Mr Ronson he was told as follows:
"... We have now finally agreed our planning in principle with, the planning authorities and will be making an application in the next 10 days. The positive news is that we gained 50% more space than we envisaged in the beginning, subject to local authority, final consent and issuing of planning consent."
And the fax which, as Mr Koby complained to Mr Ronson on 28 October 2001, had been sent to his office and "could have caused untold damage to me" was probably a fax dated 24 October 2001 from Mr Henderson-Williams to Mr Ronson dealing with progress with planners in relation to the Property.
- Mr Henderson-Williams' fax of 4 October 2001 had referred to a deal to be sorted out with "Michael's partners in Geko House". This was to be a deal under which the Company surrendered its leases and vacated Geko House. In this respect it was similar to the deal contemplated by the Option A document. But I have no doubt the strategy which was to be used was one of a stick and a carrot. The stick was indicated in Slaughter & May's summary from which I have quoted above, and was the prospect of the threat of significantly increased rent following the 2004 review. The carrot was to be the payment of some premium.
- Mr Ronson's fax to Mr Koby of 19 November 2001 explained not only that the decision had been taken "to get Sterling out as quickly as possible", the planning authorities having given agreement in principle, but also that now Geko House required to be dealt with. The fax is important, and needs to be quoted from at length. Mr Ronson said:
"This will leave Gecko (sic) House and I'd like to discuss this with you as to what price you think your partners will be happy to sell their lease interest, knowing that they will have a major rent review in three years' time. We will send in our retained agent in due course to discuss it with the directors of what their potential rent reviews are going to be. My idea once they have got the message through, is to then turn it around and offer them a sum of money, to be discussed, in order to get out during the first 6 months of 2002. This would then allow us to sell on the property to a residential developer and make a substantial profit and much more than we have previously envisaged. The market is still there, in this area, for developers and residential sales.
Then, we would be out very fast with a very healthy profit but it all depends on the price that we have to pay to buy in Gecko's lease.
We will be able to prove, although I'm sure that Jason will dispute it, that the market rents are around £20. Jason can argue this night and day but the fact is that, at the end of the day, we can go to arbitration and know that we have a good chance of winning. Alternatively, the company will then have a chance of taking a capital sum, which would more than pay for new premises and leave some money in the bank. I'm assuming that on this assumption, you're going to remain as frugal as you have been and not think you just hit the jackpot or the weekly lotto because that's not the case. Maybe, in the sum that you will think about and that you will strongly recommend, can be a sum of money whereby they can then start paying you out of your interest within the companies...."
- Mr Koby, I am sure, was a participant in this plan, as indeed appears from his fax of 28 October 2001 from which I have already quoted. It is the plan summarised in the Slaughter & May Summary, a plan implicit in the heads of agreement provided by Mr Freeman. His participation also appears from his response to Mr Ronson given in a fax of 25 November 2001. In this he said:
"Regarding the development itself, we are delighted with the way it is progressing and will look forward to seeing the model, which will mean a great deal more to laypeople such as ourselves. I hear what you say as to getting out by mid 2002. This will of course depend on what Geko is told will be the likely rent in 2004 and being given the option of going now with some agreed sum for removal and securing new premises, or hanging on till rent review time and then having to go in any case, but penniless. I shall be pushing to start looking for alternative freehold premises as soon as we have some indication from the managing agents as to the proposed rent review figure in 2004."
When asked in cross-examination who he was expecting to "push", Mr Koby said that it was himself that he had in mind. This I reject. In his letter to Mr Ronson he was telling Mr Ronson that he would be seeking to persuade the Gerrards to take steps towards vacating the Property.
- The plan so far as Mr Koby was concerned, was that he was not to reveal to the Gerrards his interest in the "substantial profit" or his arrangements with Mr Ronson. He was to advise Mr Ronson as to the sort of premium which might be acceptable to the Gerrards for leaving Geko House; and he was to seek to persuade the Gerrards that it was in their interest to accept the premium and leave. But the Gerrards were not to know that the lower the premium the greater Mr Koby's and Mr Ronson's share of the development profit, or indeed that Mr Koby's encouragement to them for the Company to leave Geko House was not disinterested.
- On 3 January 2002 Mr Koby obtained from estate agents particulars of various commercial properties in London which might have been suitable as alternatives for the Company. I have no doubt this was to give effect to his intention of pushing to start looking for alternative premises once the managing agents had given an indication of the 2004 rent.
- Next, on 18 January 2002 estate agents (Moss Kaye Pembertons Ltd) acting on behalf of Vermeer wrote to Jason. The agents said they had been instructed in connection with "your impending rent review" (a review which lay 2 years in the future) and wanted to meet Jason "to discuss our preliminary thoughts about current rental value and your attitude to the break option". The letter continued:
"If there is any interest in leaving then it is our view that a modest incentive payment could be justified for an early cancellation of the lease and this is something we would be happy to discuss with you."
- The following month Knight Frank wrote on behalf of Vermeer in similar vein. This letter was disingenuous. It contained the assertion that:
"our clients see themselves as medium to long term investors in Kimberley Road. They fully accept and appreciate your long term rights of occupation, and confirm that they would be more than happy for you to remain in occupation throughout the entire term of your lease. It is for this reason (as much as any other) that our clients have been in no particular rush to engage you in any dialogue."
This ignores Mr Ronson's stated plan of getting the Company out of Geko House.
- The letter went on to offer the stick and the carrot. The stick was expressed as follows:
"Our clients ... believe that it is only fair to tell you that it is their intention to seek a significant uplift in the rent at the next review. For your information, our clients believe that the relevant comparables would put the rental value of your property in the region of £20 per square foot...
- The carrot was expressed as follows:
"You have rights to break under your lease. You are of course free to choose to exercise or not exercise these rights ... It may interest you to know that, at present, our clients would place a premium value on the exercise of such rights. The premium value will obviously diminish however as the rent review due in two years' time approaches."
- Meanwhile on 18 January 2002, the same day as Moss Kaye Pembertons Ltd wrote to Jason, Mr Freeman wrote to Mr Koby and Mr Gerrard demanding £123,414 in settlement of a "debt of honour" arising from Mr Ronson's payment, so Mr Freeman said, of £78,368 on 10 May 1994 under the "guarantee that Howard Ronson had given to your bank many years ago". This was the first Mr Gerrard had heard of the matter for several years at the least, to judge from his reply of 19 February 2002. The purpose in writing the letter at this particular juncture must have been to bring pressure to bear on Mr Gerrard to agree to the Company's leaving Geko House in return for a sum of money.
- Finally in this sequence I should mention that in June 2003 the Company received a service charge demand from the landlord for external and internal repairs totalling some £65,000. The evidence from Jason was that the demand included matters which were unnecessary; and as mentioned the Gerrards' evidence is that until this time it had been the Company which had maintained Geko House and there had never been any service charges. The demand was in any event incorrect in being for the full estimated charge rather than for quarterly instalments. In due course Mr Gerrard has had to assist the Company to pay the service charge, Mr Koby having refused to repay to the Company any of the outstanding £60,000 owed by him.
- Meanwhile, in early December 2001 Jason had started to investigate Vermeer. The first the Gerrards knew of the discussion which Mr Ronson's interests had been having with the planning authorities was on 7 December 2001 when architects wrote to the Company informing the Company that plans had been submitted on behalf of Vermeer to the planning authority for the redevelopment of the Property into a mixed use development. On 11 December 2001 Jason instructed enquiry agents to investigate Vermeer, and these reported on 21 December 2001 having discovered that Mr Henderson-Williams had a connection with Vermeer, and was himself connected with "HRO". The initials HRO were known to Jason to denote Mr Ronson or his organisation.
- Suspicion then at once fell on Mr Koby. Jason had the Company's computer searched for material, and also had a tape-recorder planted into the car used by Mr Koby. As a result of this Jason discovered that Mr Koby was in league with Mr Ronson.
- On 28 January 2002 Mr Koby was asked by Jason to sign two letters written on behalf of the Company, one to Vermeer and the other to the local planning authority. To Vermeer the letter expressed objection to any suggestion that the Company should move, stressing the importance of Geko House for the Company's business. To the planning authority the letter expressed objection to Vermeer's planning application on various grounds.
- I am sure that Jason required Mr Koby to sign these letters as a test, to see whether or not Mr Koby would do something in apparent opposition to Mr Ronson's plans. I am sure that Mr Koby signed the letters because, consistently with his plan with Mr Ronson, he could not reveal his interest in the proposed development for which Vermeer was seeking permission or in having the Company leave Geko House.
- However by the time he signed these letters Mr Koby must have thought that he was himself under suspicion; and on 13 February he had a telephone conversation in which he expressed concern that information had been collected from his rubbish. He was perfectly well aware of the acute conflict of interest in which he had placed himself, as he had (so he says) been long before advised of this by his Solicitors. On 11 February 2002 his Solicitors wrote to Slaughter & May to say that Mr Koby was not proceeding with the profit sharing transaction with Mr Ronson. But Mr Koby must by this time have himself told Mr Ronson, as the letter from Mr Koby's Solicitor reads "You will have no doubt heard from your client that my client is not proceeding with this transaction".
- At the of February 2002 there was an emotional meeting between the Gerrards and Mr Koby at which the Gerrards confronted the latter with what they had learnt, and Mr Koby denied having had any involvement with Mr Ronson. On 6 March 2002, however, he sent a fax in which he said that:
"after the purchase by Vermeer, I was invited to participate in the investment on the basis that as well as sharing any potential profit, I would also share any losses ie. A strictly commercial arrangement. Given the companies occupation of Geko House, the extent of any future development was entirely speculative. I was given no indication nor did I give any comfort as to the company vacating Geko House."
He went on to say that his discussions with "Vermeer and others were in relation to the terms of my proposed participation"..
- As it seems to me, Mr Koby misdescribed the plan which, as I find, was formed between him and Mr Ronson: the removal of the Company from Geko House was without question an element of the plan and was contemplated by both Mr Ronson and Mr Koby. An important question, though, is whether Mr Koby was truthful in saying that it was only after Vermeer's purchase that he was invited to participate in profits.
- Against Mr Koby is a fax he sent to Mr Freeman on 25 September 2001 when debating the terms of the agreement with Mr Ronson. What Mr Koby said was as follows:
"When the project was first discussed and agreed between Howard and ourselves, it was Howard who said that he was willing to purchase the property on a 50/50 basis with us. Likewise, he quite understood when I informed him that we were unfortunately unable to match his 50% of the purchase price with our securities. This did not appear to cause him a problem and he agreed to continue with the purchase with our securing our 50% share to the value of Dawn's bond and my flat, which were to be secured to our mutual satisfaction."
- Mr Snowden submitted that what Mr Koby was referring to in this e-mail as the first discussion was not a discussion of "the acquisition of the site", but was of a joint venture, and was a discussion which took place only after exchange of contracts by Vermeer on 15 June and before completion on 4 July. This I do not accept.
i) First, this is not what I see as the natural reading of the document.
ii) Second, the author of the letter, Mr Koby, himself stated in his oral evidence that the "project" he referred to was "the development project".
iii) Third, the "development project" was not something separate and distinct from an "acquisition project". Mr Ronson's evidence is clear, that before March 2001 he had discussed with Mr Koby approximate "acquisition and development figures". I have also quoted from Mr Henderson-Williams' evidence, where he said how in February 2001 he learnt from Mr Ronson that "he wished to bid for the property with a view to redevelopment".
Accordingly, I conclude that in the letter the "project" referred to by Mr Koby was that of the acquisition and development of the Property. As to that, the first discussion between Mr Koby and Mr Ronson was on their evidence in February 2001, when Mr Ronson decided and agreed with Mr Koby to offer for the Property.
- Further, the agreement mentioned in the document for Mr Ronson "to continue with the purchase" is in the context more naturally understood as an agreement made at a time when Mr Ronson was in a position to resile from purchasing the property than once he had already contracted to purchase.
- The reply from Mr Freeman dated 25 September to my mind confirms that he understood Mr Koby's message in its natural sense. That refers to "the project" being put into "an offshore corporation owned by Howard's trust" to save tax. The offshore corporation must be Vermeer, owned as it was by NV Trust; and "the project" must be the acquisition of the Property for development. Mr Freeman's message clearly conveyed that Vermeer was selected as the purchaser to suit Mr Koby: in other words, that Mr Koby was expected to be a participant before the purchase contract was exchanged.
- As I have explained, by 15 March at the latest Mr Koby was working with Mr Ronson for the latter to purchase the Property; it being their plan that Mr Ronson's interest would be kept secret from the Gerrards. By that time too, as I am satisfied, they had also formed the plan that Mr Koby would participate in the profits. As to this:
i) I do not think that Mr Koby would have made a mistake when writing to Mr Freeman. The language he uses in all his other correspondence is perfectly clear and free from ambiguity.
ii) The secrecy maintained by Mr Koby as to the identity of the rival bidder to the Gerrards supports the conclusion that Mr Koby was to have an interest. In the absence of that interest there would have been no need for him to hide the fact that Mr Ronson was the rival: he could have pointed out that Mr Ronson would buy, and then it would be open to the Company, of which he was a member, to negotiate with his friend with a view to securing its future.
iii) On the other hand I cannot see why Mr Ronson and Mr Koby should have waited till after 15 June 2002 to discuss Mr Koby's having an interest in the profits, or what had changed when 15 June 2002 arrived to lead him then to offer the participation. I have quoted earlier in this judgment the evidence of Mr Ronson, given in cross-examination, when he explained the rationale for his offer to Mr Koby of participation in the project. That reasoning would have been just as applicable in February 2001, when Mr Ronson and Mr Koby were discussing the proposed purchase, as it would have been in June 2001.
- Finally, there is one further finding I should make. It does seem to me that the net result of the events discussed so far is that the Company now finds itself with a landlord which is likely to be far less sympathetic than either Sarena or the Gerrards would have been. The episode concerning the service charge illustrates the point.
Applicable law
- I am now in a position to consider the questions of law which arise.
- Mr Gerrard's case, as opened, is that the following actions on the part of Mr Koby constituted the carrying on by him of the Company's affairs, or was an act of the Company, which was unfairly prejudicial to Mr Gerrard's interests as a member of the Company, namely:
i) diverting to Mr Ronson the opportunity to purchase the Property; and
ii) seeking to persuade the Gerrards that it would be for the Company's best interests to surrender its leases to Verrneer for a cash payment so as to avoid a potentially ruinous rent review.
- Mr Gadd, Counsel for Mr Gerrard, seemed disposed when opening the case to accept that, if the intended purchase by the Gerrards had not been by them as nominees for the Company, Mr Gerrard would not be entitled to complain as the case would be one of "crooks falling out", that being the expression used by Mr Gadd. However, he submitted in closing that this conclusion did not follow.
i) First, he submitted that Jason's and Russell's proposed purchase had been decided upon as being as the only practical way Geko House could be purchased and secured for the Company, and that they had been acting with Mr Koby's knowledge and, if not with his express agreement, at the least without any clear objection. It was also pointed out that, although the Company would not have been the freehold owner of Geko House or the Property had the Gerrards' purchase gone ahead, its right to occupy Geko House would be preserved and it would enjoy the advantage of a low rent, while Jason and Russell would be running the risk of exposure on the Northern Rock loan.
ii) Secondly, he submitted that the Company's situation was, as a consequence of Mr Koby's intervention, much worse than it would have been had Jason and Russell purchased, or indeed had Sarena remained the landlord.
- For Mr Koby it was submitted by Mr Snowden as follows:
i) Mr Koby's actions in furthering Mr Ronson's purchase of the Property were, it was said, in what Mr Koby genuinely believed to be the best interests of the Company and therefore did not involve any breach of the duties owed by Mr Koby as a director.
ii) In addition, the decision by the Gerrards to offer for the Property for themselves meant that the Property was never going to be acquired for the Company, and the opportunity to purchase it had become as it were an open matter for anyone to pursue.
iii) There was no breach of director's duty by Mr Koby after June 2001 in negotiating a possible participation with Mr Ronson, as Mr Ronson was by that stage the owner of the Property; and anyway the negotiations never bore any fruit for Mr Koby.
iv) There was no prejudice to Mr Gerrard's interests as a member of the Company by anything done by Mr Koby: all that had happened was that Mr Gerrard's sons had failed to purchase a property which they should never have been purchasing in the first place.
v) Further, so it was said, any prejudice was not unfair, as what Mr Koby had done was a response to the actions of the Gerrards, and their conduct disqualified Mr Gerrard from obtaining relief.
vi) It was further said that a mere breakdown in relations between the participants in a quasi-partnership company is insufficient to ground an unfair prejudice petition, and the submission was made that that was what had happened in the present case.
- The applicable law was helpfully summarised by Mr Snowden in terms which it is perhaps simplest to set out more or less verbatim:
i) The Court does not have the jurisdiction to make an order under section 461 merely on the grounds that there has been a breakdown in the relationship between partners in a company formed as a quasi-partnership. A petitioner must show that the affairs of the company in question are being or have been conducted in a manner unfairly prejudicial to the interests of the petitioner, or that some actual or proposed act or omission of the company (or on its behalf) would be so prejudicial. This requires,
a) acts of the respondent amounting to conduct of the company's affairs or acts or omissions on its behalf;
b) proof of prejudice to the interests of the petitioner in his capacity as a member of the company; and
c) proof that any such prejudice is unfair.
ii) Prejudice suffered by a petitioner in a capacity other than as member of the company cannot found a petition under section 459, and a petitioner cannot seek to vindicate his interests other than as a member of the company under section 459.
iii) Further, although a petitioner will ordinarily be entitled to complain of breaches of duty by directors under section 459, these must be breaches of duty that are more than merely technical breaches, and they must cause prejudice or loss to the company. Breaches of duty that are technical, or which do not cause prejudice or loss to the company will not found a petition under section 459.
iv) Moreover, the Court should only make a finding of unfair prejudice or grant relief in its discretion under section 461 if it is satisfied that the conduct complained of was unfairly prejudicial taking into account all relevant factors.
v) One relevant factor is the conduct of the petitioner himself. The conduct of the petitioner may be such that even if the respondent's conduct caused him prejudice, that prejudice was not unfair. Alternatively, the petitioner's own misconduct may make it inequitable to grant him relief. For this proposition Mr Snowden relied on the case of Re London School of Electronics Limited [1986] Ch 211.
- Broadly I accept Mr Snowden's summary. However there are two points which I think require qualification.
i) The first point, is that in the case of a quasi-partnership company a breach of duty by one participant may not in the event be causative of "prejudice or loss" to the company, but may nevertheless lead to such a loss of confidence on the part of another, innocent, participant and breakdown in relations that the innocent participant is entitled to relief under section 461 of the 1985 Act. In effect the unfairness lies in compelling the innocent participant to remain a member of what was once a company formed with the characteristics which made it capable of being given the label of "quasi-partnership", unsatisfactory as that label might be. In this respect I refer to the part of the speech of Lord Hoffmann in O'Neill v Phillips [1999] 1 WLR 1092 at 1101H, where he said:
"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 section 459. For example, there may be some event which puts an end to the basis upon which the parties entered into association with each other, making it unfair that one shareholder should insist upon the continuance of the association. The analogy of contractual frustration suggests itself The unfairness may arise not from what the parties have positively agreed but from a majority using its legal powers to maintain the association in circumstances to which the minority can reasonably say it did not agree...."
ii) The second point is that Re London School of Electronics Limited did not decide that the conduct of the petitioner might be such as to make it "inequitable to grant him relief". On the contrary, Nourse J held that there was no requirement that it should be just and equitable to grant relief or that the petitioner should come to court with clean hands. In that case Nourse J granted relief to a petitioner who had been guilty of misconduct. But of course the conduct of the petitioner may be relevant. In his judgment at 222A-C Nourse J said that:
"The conduct of the petitioner may be material in a number of ways, of which the two most obvious are these. First, it may render the conduct of the other side, even if it is prejudicial, not unfair ... Secondly, even if the conduct on the other side is both prejudicial and unfair, the petitioner's conduct may nevertheless affect the relief which the court thinks fit to grant ... In my view there is no independent or overriding requirement that it should be just and equitable to grant relief or that the petitioner should come to court with clean hands."
- I am not persuaded by Mr Snowden's submissions. I can summarise my conclusion by saying that in my judgment what Mr Koby did from February 2001 on in procuring and furthering Mr Ronson's purchase of the Property and in forming and furthering the plan for its redevelopment was unfairly prejudicial to the interests of Mr Gerrard as a member of the Company. I take in turn each of Mr Snowden's points.
- On the facts I consider that Mr Koby was acting in breach of fiduciary duty.
i) After June 2001 he was beyond any doubt party to just such a plan as submitted by Mr Gadd. Given his expectation of a secret profit from the plan, I reject any suggestion that he was acting in what he honestly believed to be the best interests of the Company.
ii) Given my finding as to the time by which Mr Koby and Mr Ronson had agreed upon Mr Koby's participation with Mr Ronson in the profits to be made from the Property, Mr Koby was similarly in breach of fiduciary duty in procuring the 15 March 2001 offer. But even if he did not at that time have any suspicion or hope that he might be able to participate in the profits, I still consider that he was acting in breach of fiduciary duty. Honesty of purpose could not be sufficient to authorise Mr Koby to pass away confidential information, or to divert to his friend a corporate opportunity; and there is no suggestion that Mr Gerrard, as the other director of and shareholder in the Company, ever authorised any of those acts by Mr Koby.
- What I have just said gives my answer to Mr Snowden's second point. There never was an agreement between the Company's two directors and shareholders that the Company would not seek to purchase the Property and that instead the Property should be the subject of a general free-for-all. On the facts there is only one agreement which might have been made; and even that is one which Mr Snowden for Mr Koby submits was never in fact made. This is an agreement that the Gerrards should be allowed to purchase in the place of the Company. The Gerrards thought, it may be misguidedly, that this would be for the benefit of the Company. But they did not agree to Mr Koby introducing Mr Ronson as a purchaser, much less to Mr Koby himself having an interest in Mr Ronson's purchase.
- If one looks at the position on the assumption that Mr Koby had not agreed to the Gerrards' acquisition of the Property, the position is no better for Mr Koby. Properly the opportunity to acquire the Property should only have been exploited by the Company, and the relevant information (that Sarena would consider selling, the asking price sought by Sarena, the terms that had been offered and accepted, the person to contact to deal with Sarena and his fax number) should properly have been kept confidential to the Company. Just because the Gerrards were threatening wrongfully to divert the opportunity and to misuse the information did not change the position and would not have been a warrant for Mr Koby to divulge the information to a third party and to seek to have the third party usurp the opportunity. His proper course would have been to insist that the Gerrards refrain from their threatened course and, if they had not done so, to engage his solicitors to make in effect the same objections as they had made for him in 1988.
- In part Mr Snowden's third point is to be rejected, for reasons I have given above. I am satisfied that there was a breach of duty by Mr Koby after June 2001. It was not simply a case of Mr Koby being tempted to do wrong but never actually doing anything. On the contrary, the plan was formed and was implemented. Thus Mr Koby was kept informed by Mr Ronson as to the progress of discussions with local authority planners, but did not pass on to the Company what was being discussed - even though the discussions concerned Geko House and could affect the Company. So too, the approaches were made to the Company by Vermeer's agents with a view to subjecting the Company to the stick and carrot treatment, but without Mr Koby saying what he knew about these approaches.
- On the other hand I accept that by early 2002 the Gerrards had discovered the plan, that the Company has so far not submitted to Mr Ronson, and that in the event Mr Koby has not received any share of Mr Ronson's profits. To this extent Mr Snowden can rightly say that the Company has not itself suffered any material damage by reason of what Mr Koby did after June 2001. But what Mr Koby did after 2001 was destructive of any continuing trust between him and the Gerrards, and was contrary to the basis of his and Mr Gerrard's relationship in the Company.
- Mr Snowden's fourth point is correct insofar as it refers to things done by Mr Koby after June 2001. However, I do not accept it so far as concerns Mr Koby's actions in March 2001. The Company is now saddled with Mr Ronson as its landlord. I am sure that unless and until the Company gives up Geko House it can be expected to be subject to continuing pressure to go, pressure which it would in all likelihood not have had to face if Sarena had remained the landlord or if the Gerrards had become the landlord. True, the Company may be able to obtain a premium for its lease; but while matters remain as they are there is no ground for thinking that Mr Ronson will pay a better price, or a larger proportion of the marriage value between the Company's leases and the freehold reversion, than the Company could have secured if Sarena or the Gerrards had been the landlord.
- As to Mr Snowden's fifth point, it may be that it was the Gerrards' proposals for purchasing the Property which first led Mr Koby to consult with Mr Ronson. But I do not think that Mr Koby's engagement with Mr Ronson, or even his encouragement to Mr Ronson to make his offer, can fairly be characterised as a response to the Gerrards' actions. If I am correct in my conclusion that from mid-March 2001 at the latest Mr Koby was expecting a share of the profits to be made by Mr Ronson, he was simply trying to get for himself a benefit. But if this conclusion is wrong, still I do not accept that it was proper for Mr Koby to seek to stop the Company's landlord being changed from Sarena to the Gerrards by procuring it to be changed, in secret from the Gerrards, from Sarena to Mr Ronson.
- I reject Mr Snowden's sixth point. That there has been a breakdown in the relations between the Gerrards and Mr Koby is clear and is in any case admitted by Mr Koby, as is the fact that a continuation of the present state of affairs is impractical for the Company. In my judgment that has been caused by Mr Koby's underhand behaviour. Given that the Company was founded on mutual confidence between Mr Gerrard and Mr Koby, and that all major decisions were supposed to be taken unanimously between those two, I think that Mr Gerrard is entitled to relief under section 461 on the basis that his interests as a member of the Company have been unfairly prejudiced.
What relief?
- The relief sought by Mr Gerrard is a buy-out order. There is no suggestion made on behalf of Mr Gerrard that the Company should be seeking to recover from Mr Koby or Mr Ronson any relief in respect of the profits on the acquisition of the Property, or indeed that it has any such claim; and, although the Petition prayed for an order for the bringing of proceedings against Mr Koby for damages for breach of fiduciary duty, this has not been pursued at the trial.
- In relation to the buy-out order, the Petition asks for Mr Koby to be ordered to purchase Mr Gerrard's shares as one alternative; but Mr Gadd submits that the order should in fact be for Mr Gerrard to purchase Mr Koby's shares, notwithstanding that Mr Gerrard is strictly speaking a minority shareholder and that it is unusual for a majority shareholder to be ordered to sell to a minority shareholder. Mr Koby's position appears to be, from his pleaded Defence, that if there is to be a buy-out order it should be for him to purchase Mr Gerrard's shares.
- There has yet to be argument on the question of the appropriate form of relief. Under the circumstances I shall say only that in principle it seems to me that relief should be given on the Petition, and that that relief should include or take the form of a buy-out order. If at all possible the Gerrards and Mr Koby should now part company.
