Scottish Court of Session Decisions

OUTER HOUSE, COURT OF SESSION [2010] CSOH 167
A758/10	OPINION OF LORD STEWART in the cause DAVID DOWNIE Pursuer; against DS BETEILIGUNGS GmbH and FREUDENBERG OIL & GAS UK LTD Defenders: ­­­­­­­­­­­­­­­­­________________

Pursuer: Upton; Paull & Williamsons LLP

Defender: Sandison; Brodies LLP

16 December 2010

[1] This is an action for interdict and payment. The Pursuer is the owner of 20 of the 102 issued shares in the Second Defender company. The First Defender company is the owner of 82 of the 102 issued shares. A written Shareholders' Agreement between the parties dated 31 July 2007 conferred on the First Defenders an option to purchase the Pursuer's shares exercisable between 1 August and 30 September 2010 in return for payment of a price calculated in accordance with a contractual formula, broadly five times 2010 earnings per share. The Shareholders' Agreement provides that transfer of the Pursuer's shares in implement of the option will take place on 1 January 2011. The First Defenders purported to exercise the option by notice dated 6 August 2010. The Shareholders' Agreement contains provision for the transfer of the Pursuer's shares to be effected by an attorney nominated by the First Defenders in the event that the Pursuer does not cooperate. The Pursuer was employed by the Second Defenders as general manager until some time between 21 October 2008 and 31 January 2009.

[2] The Pursuer maintains that the share purchase option was superseded by an oral agreement between the parties entered into on 21 October 2008 and subsequently acted on and in large measure implemented. The Pursuer avers that the First Defenders undertook as part of the oral agreement to acquire his shareholding for the price of £348,211.32. His action concludes (1) for interdict of the First Defenders from implementing the share purchase option; (2) for interdict of the Second Defenders from registering the share transfer; (3) for implement of the oral contract of 21 October 2008 by the First Defenders by making payment of the price of £348,211.32 in return for a stock transfer; failing which (4) for payment by the First Defenders to the Pursuer of the sum of £348,211.32 as damages. The Pursuer seeks interim interdict in terms of the first two conclusions.

[3] The First Defenders maintain that although there was oral agreement in principle on 21 October 2008 the agreement was not meant to be binding unless and until reduced to writing; and that matters were superseded when on 27 October 2008 the Pursuer gave notification that he regarded himself as having been, on 21 October 2008, unfairly dismissed from his employment as general manager of the Second Defenders. The Pursuer subsequently brought proceedings for unfair dismissal in which he was unsuccessful.

[4] At the hearing of the Pursuer's motion on Friday 10 December 2010 (before calling of the Summons) for interim interdict in terms of the first two conclusions neither side was able to give me an estimate of the price of the Pursuer's shareholding calculated in terms of the contractual formula but I was left with the clear impression that it would be substantially less than £348,211.32.

[4] Counsel for the Defenders accepted that the Pursuer had a prima facie case on averment supported to an extent by documents but stated that, equally so, there was a prima facie defence. Counsel referred to Gordon's Executors v Gordon 1918 SLT 407 at 410─411 per the Lord Chancellor, at 412 per Lord Haldane. There was no dispute that the shared intention was for the Pursuer to transfer his shares somehow. The only question between parties was the price. If it turned out that the Pursuer got too little through the implementation of the option, he would get more in due course. It was accepted on both sides that the First Defenders could satisfy any decree for payment or damages many times over. Counsel submitted that the status quo was represented by the Shareholders' Agreement until the issue between parties about the claimed oral agreement was tried. Counsel submitted that the issue as regards interim orders was simply one of the balance of convenience. The inconvenience that would result to the Defenders if interim orders were granted would be that the Pursuer could continue to exercise a veto in relation to the management of the Second Defenders in terms of the Shareholders' Agreement Cl 6 and Sched 5; and that the Pursuer would continue to exercise the ordinary rights of a shareholder all as listed in Palmer's Company Law [looseleaf] 6.009 to 6.013 which would be administratively inconvenient and would involve some expense to the Second Defenders. Given the Pursuer's knowledge of the business there should be no difficulty for him in valuing his shareholding.

[5] Counsel for the Pursuer submitted that the status quo resided in his continued ownership of his shareholding. On his version of matters the Pursuer was entitled to retain his shares and his shareholder's rights until the orally agreed price was tendered. Counsel undertook on behalf of the Pursuer at the Bar that if interim interdicts were granted the Pursuer would not exercise his rights of veto in terms of the Shareholders' Agreement Cl 6 and Sched 5. If interim orders were not granted the Pursuer would be deprived of his shares and his shareholder's rights and would have to enter into the contractual procedure for valuing his shareholding. The procedure would involve instructing professionals, might last several months, could be expensive and might all turn out to have been unnecessary. On the other hand the Shareholders' Agreement would continue in being along with the option and there would be no difficulty in implementing the option in due course if the Court were to find in favour of the Defenders. If at the end of the day it came to damages there might be adverse tax implications, though Counsel was unable to be specific.

[6] There are parallel proceedings by way of Petition in which the Pursuer as Petitioner seeks substantially the same outcomes by invoking his rights as a shareholder in terms of the Companies Act 2006 ss 994 and 996. It was suggested somewhat tentatively that the Pursuer's qualification to seek the Companies Act remedies fell to be tested at the time of presentation of the Petition. Counsel for the Pursuer stated that it was the present intention if interim orders were granted to sist the Petition proceedings.

[7] Having regard to all the circumstances and in respect of the undertaking given at the Bar on behalf of the Pursuer I take the view that the balance of convenience narrowly favours the Pursuer and I propose to grant interim orders as moved for. As requested by both counsel I shall reserve expenses.