Gray & Ors, Re Braid Group (Holdings) Ltd [2015] ScotCS CSOH

OUTER HOUSE, COURT OF SESSION

[2015] CSOH 146

P560/13

OPINION OF LORD TYRE

In the petition of

NIGEL GRAY & OTHERS

Petitioners;

for
Orders pursuant to sections 994 and 996 of the Companies Act 2006 in respect of

BRAID GROUP (HOLDINGS) LIMITED

Petitioners: Sandison QC, MacColl; Brodies LLP

Second, Third and Fourth Respondents: Lord Davidson of Glen Clova QC, G R Middleton; CMS Cameron McKenna LLP

Fifth Respondent: Party

Eighth Respondents: D Thomson; Russel & Aitken LLP

30 October 2015

Table of Contents	Paragraphs
Introduction	1 - 3
Factual background to the application	4 - 18
The petitioners’ complaints	19 - 21
The meaning of “unfairly prejudicial conduct”	22 - 25
Assessment of witnesses	26 - 38
Existence of relationship of quasi-partnership	39 - 41
Diversion of business from PPEL	42 - 55
The management and auditing of Braid Asia	56 - 77
Exclusion of the first petitioner from management	78 - 81
The bribery investigations
Introduction: the CFT account	82 - 85
The CFT investigation	86 - 100
The Sapesco investigation	101 - 107
Findings in fact: CFT	108 - 127
Findings in fact: Sapesco	128 - 131
Conduct of investigations and disciplinary proceedings	132 - 140
Summary: finding of unfairly prejudicial conduct	141
Valuation of BGHL	142 - 152
Order for relief	153 - 161
The fifth respondent	162 - 165
The sixth and seventh respondents	166
The eighth respondents	167 - 168
Disposal	169

Introduction
[1] This is an application for orders under section 996 of the Companies Act 2006 on the ground that the affairs of Braid Group (Holdings) Limited (“BGHL”) have been conducted in a manner that was unfairly prejudicial to the interests of some of its members. The petitioners are, firstly, Mr Nigel Gray (“Mr Gray”) and, secondly, Mr Gray and Mrs Lily‑Ann Gray as trustees of The Gray Trust. The first respondent is BGHL itself. The second to eighth respondents are shareholders in BGHL. They are, respectively, Mr Allan Leddra, Mr Andrew Watson, Mr Shane Watson, Mr Jeffrey Prowse, Mr Richard Bagley, Mr Garry Russell, and the trustees of a private pension fund of Mr Allan Haldane. Andrew Watson and Shane Watson are not related to one another.

[2] I heard 24 days of evidence between 18 March and 20 July 2015. Not all of the respondents were represented or participated in the proof other than as witnesses. The petitioners and the second to fourth respondents were represented throughout by senior and junior counsel, and the fifth respondent, Mr Prowse, appeared throughout in person. At the close of the proof I received written submissions and heard oral argument on behalf of the petitioners, the second to fourth respondents and the eighth respondents, and by Mr Prowse in person. Brief written submissions were also lodged by Mr Bagley and by Mr Russell.

[3] The tasks of the court in an application under sections 994 and 996 are, firstly, to decide whether conduct that is unfairly prejudicial to the interests of a petitioner has been proved, and, secondly, if and only if such conduct has been proved, to make such order as it thinks fit for giving relief in respect of the matters complained of. In this case, the parties were at issue as to (i) whether conduct unfairly prejudicial to the interests of the petitioners had been established, and, if so, (ii) the value of BGHL and (iii) the price at which it would be fair and equitable to require the company – or any or all of the second to fourth respondents – to purchase the petitioners’ shares.

Factual background to the application
Group structure
[4] BGHL was incorporated in Scotland on 22 March 2006. It is the ultimate parent of a number of companies incorporated in various countries throughout the world. Its principal subsidiary is Braid Logistics (UK) Limited (“Braid UK”). Braid UK was incorporated in Scotland on 4 June 1971 under its former name of John S Braid & Co Limited, to carry on a shipping and warehousing business that had been conducted since the 1950s by an unincorporated body. BGHL was formed to facilitate a management buy-out of John S Braid & Co Limited following the death in 2003 of its chairman and principal shareholder, Steven Braid. BGHL and Braid UK have their head office in Glasgow.

[5] Braid UK in turn has a number of subsidiaries. For present purposes I need mention only three. The first of these is Braid Logistics Asia Pte Limited (“Braid Asia”), a company incorporated in Singapore, in which Braid UK has a 57% shareholding. Of the remaining shares, 28% are owned by Mr Leddra and the remaining 15% by three employees of Braid Asia. The second is SARL Braid Logistics Europe (“Braid Europe”), a company incorporated in France of which Braid UK owns 80% and Mr Bagley 20%. The third is Braid Logistics Australia Pty Limited, a company incorporated in Australia of which Braid UK owns 80% and Shane Watson 20%.

[6] BGHL also has a 30% holding of shares in a company called Pro-flex Packaging Europe Limited (“PPEL”). 60% of PPEL’s shares are owned by Pro-flex Packaging Company Limited (“PPCL”), a company incorporated in the British Virgin Islands, with the remaining 10% belonging to a Mr Elson Koh. Until November 2014, 60% of PPCL’s shares were owned by Mr Leddra, 15% by Mr Gray, 5% by Andrew Watson, and the remainder by Singapore employees. PPCL has a wholly-owned subsidiary, Pro-flex Packaging (UK) Limited (“PPUK”) which was incorporated in 2009.

Group business activities
[7] BGHL’s principal activity is to be the holding company of a group carrying on business in a number of divisions. The activities of the group include bulk liquid ISO tank operations, bulk liquid flexitank operations, project forwarding incorporating agency and chartering, international export and import freight forwarding, and road transport and warehousing. In recent years the largest share of the group turnover and profit has been derived from its flexitank operations. Flexitanks are large polyethylene bags which fit into shipping containers and can be used to transport non-hazardous liquids. Most of the flexitanks used by Braid group members are manufactured by PPCL and its subsidiaries.

The management buy-out
[8] Prior to the death of Steven Braid, 76% of the shares in John S Braid & Co Ltd were owned by him or by members of his family. The other 24% were owned by Mr Gray. Mr Gray had joined the company in 1973 as a water clerk, and during the years following he assisted Steven Braid in diversifying the business of the company into inter alia container shipping and freight forwarding. He became a director and shareholder in 1978. The business subsequently diversified further into transport and warehousing and into ISO tank operating.

[9] Until 1996, the directors of John S Braid & Co Ltd were Steven Braid, his wife Mrs Gay Braid, and Mr Gray. Mr Haldane, who is a chartered accountant, joined the company as its secretary in 1984 from the accountancy firm Spicer Watson, who were the company’s auditors. He was appointed finance director in 1996. Steven Braid’s shares passed on his death in 2003 to members of his family. His son and daughter joined the board but, along with Mrs Gay Braid, played no active part in the running of the company. In about 2005 the Braid family members expressed an interest in selling their controlling interest in the company. Mr Gray entered into negotiations with them regarding a management buy-out (“MBO”) in which Mr Haldane would also participate. The family wished to explore the alternative of a sale of the business within the trade. They received financial advice from Mr Iain Webster CA and brought in first Mr Ian Boyd and subsequently Mr Maurice McBride as non-executive chairman. One of Mr McBride’s first actions was to recommend the removal of Mr Haldane as finance director, and at a board meeting in May 2006 Mr Haldane was removed without notice, on the ground that he had a conflict of interest and so was not providing the information required by the family to decide which sale option was most favourable. The price demanded by the Braids for their shares increased. Mr Gray continued to negotiate a MBO and invited a number of members of the management of Braid businesses in the United Kingdom and overseas to participate. The minimum investment required from any participant was £100,000. Additional loan funding was to be obtained from the Royal Bank of Scotland.

[10] It is convenient at this point to introduce the members of management, in addition to Mr Haldane, who accepted Mr Gray’s invitation to participate.

Mr Leddra worked during the early 2000s for a bulk liquid transportation company called Logis.Based in Singapore, he promoted the development of polyethylene flexitanks which were manufactured for Logis by a German company called Büscherhoff.Logis got into financial difficulty and Mr Leddra sought a partner to manufacture flexitanks in Asia.In about April 2002, Mr Leddra was put in contact with Mr Gray, who expressed an interest on behalf of John S Braid & Co Ltd in the supply, though not the manufacture, of flexitanks.Braid Asia was incorporated, with the shareholdings set out above.Steven Braid regarded investment in flexitank manufacture as too risky for John S Braid & Co Ltd, and so when PPCL was incorporated to manufacture flexitanks, shareholdings of 15% were taken instead by Steven Braid and Mr Gray personally (but paid for by John S Braid & Co Ltd).The staff for Braid Asia were recruited locally by Mr Leddra, mainly among former Logis employees.
Shane Watson is an Australian citizen who began working in shipping and logistics in 1981.In about October 2002, he met Mr Gray to discuss co-operation between John S Braid & Co Ltd and the Australian company by whom he was employed.A joint venture company was formed.Following a takeover in 2005, the Australian company wished to divest itself of liquid logistics and thereafter the shares in the joint venture company, which subsequently became Braid Australia, were as set out above.Initially the company was principally involved with ISO tanks but from 2005 diversified into flexitanks.In this regard Shane Watson worked closely with Mr Leddra.
Andrew Watson is a polymer scientist who was previously employed as an operations director by British Polythene Industries, which manufactures polyethylene.He joined the Braid group in January 2006 as technical director.He also carried out technical work for PPCL, which financed his remuneration.In 2007 he was made managing director of PPCL and was allotted a 5% shareholding.
Mr Prowse began working for John S Braid & Co Ltd in 1981.He was a divisional manager based in Glasgow and had worked mainly for Steven Braid while the latter was still alive.His areas of responsibility included shipping and projects.
Mr Bagley is an American citizen who has lived and worked in France for many years. He has specialised in transportation of bulk hazardous and non-hazardous liquids.In April 2002, he went to Glasgow to attempt to persuade Steven Braid and Mr Gray to join him in setting up a flexitank business in continental Europe.This led to the creation of a joint venture company, which in due course became Braid Europe, owned as above.Braid Europe was profitable from the outset, and financial assistance provided by John S Braid & Co Ltd was repaid within three years.
Mr Russell began working in freight forwarding in 1974.He joined John S Braid & Co Ltd in 1997 on a temporary contract in its freight forwarding department, before taking up a permanent position as business development manager for the ISO tank division: ie as the division’s sales executive.

[11] Following months of intensive discussion, a deal with the Braid family was reached in December 2006. BGHL was formed to effect the MBO. At a later date, John S Braid & Co Ltd’s name was changed, and the various joint venture companies were brought into a group under the ultimate control of BGHL. Shareholdings in BGHL were allocated according to capital investment (including Mr Gray’s contribution of his 24% holding in

John S Braid & Co Ltd) and were as follows:

MrGray	64.42%
MrLeddra	15.81%
ShaneWatson	5.27%
AndrewWatson	2.64%
MrHaldane	2.64%
MrProwse	2.64%
Mr Bagley	2.64%
Mr Russell	2.64%

One further shareholder, Mr Stanley Fell, owns a 1.3% holding with no voting rights. He has played no part in these proceedings.

[12] A difficulty arose at an early stage regarding the 15% shareholding in PPCL which had been owned by Steven Braid and passed to Mrs Gay Braid on his death. Mrs Braid wished to sell these shares as part of the overall package of sale of the Braid family’s interests. For reasons which remain obscure to me, Mr Leddra was adamant that the two should not be linked and threatened to withdraw from the MBO if such a connection were made. In January 2006 he offered to purchase Mrs Braid’s PPCL shares for $51,000; this offer was not acceptable. By the end of 2006 the deadlock had not been broken. In order to ensure that the MBO went ahead, and without seeking Mr Leddra’s approval of what he intended to do, Mr Gray paid £52,000 out of his pension fund to Mrs Braid, and her shares were transferred to Mr Leddra for the sum of $51,000. Mr Gray considered that he ought to be reimbursed in respect of the purchase of Mrs Braid’s shares; Mr Leddra did not. This became a persistent source of friction between Mr Gray and Mr Leddra, to which I return below.

The shareholders’ agreement

[13] It will be seen from the table of shareholdings in paragraph 11 above that Mr Gray owned significantly more than 50% of the issued shares in BGHL. It was important to Mr Leddra, supported by Shane Watson and Andrew Watson, that Mr Gray did not have voting control of BGHL. A weighted voting system was therefore devised which would, in effect, give either Mr Gray or Mr Leddra a veto over critical issues such as winding up, and the power to carry a vote on less important matters with the support of other shareholders.

[14] As a consequence of the need to agree a weighted voting system, BGHL members entered into a Shareholders’ Agreement dated 6 December 2006. I shall refer in due course to other provisions in this agreement. For now, I note that immediately after completion of the MBO, for the purpose of calculating voting percentages, the shareholders’ respective voting rights were as follows:

MrGray	34.82%
MrLeddra	30.08%
ShaneWatson	10.03%
AndrewWatson	5.01%
MrHaldane	5.01%
MrProwse	5.01%
Mr Bagley	5.01%
Mr Russell	5.01%

I note also that the Agreement included express consent by the parties that Mr Haldane’s shares could be held by the Private Pension Allan Haldane Group SIPP (the eighth respondents) and that some of Mr Gray’s shares could be held by the Trustees of the Gray Trust (the second petitioners).

The BGHL board

[15] Membership of the BGHL board is regulated by clauses 4.1 and 4.2 of the Shareholders’ Agreement which provides as follows:

“4.1 Unless otherwise agreed by the 75RP [ie by a 75% weighted voting majority], the Board shall following completion comprise five directors. Each of the three largest Shareholders (by voting rights) will be entitled to appoint a Director from time to time, and in addition there will be a Group Financial Director and a Non-Executive Director appointed (both subject to the approval of the other directors).

4.2 The first executive directors shall be [Mr Gray] and [Mr Haldane], and following completion [Mr Leddra] and [Shane Watson].”

In accordance with this clause, Mr Ian Boyd, a retired former director of the Weir Group, was appointed non-executive chairman with effect from 30 January 2007. Mr Haldane was appointed group chief financial officer. In the circumstances described later, Mr Boyd resigned as chairman and from the board with effect from 4 November 2008 and Andrew Watson was appointed to the board with effect from 1 October 2008. On Mr Boyd’s resignation, Mr Gray was unanimously appointed chairman and chief executive.

[16] By this time, however, the personal relationship between Mr Gray and Mr Leddra had begun to deteriorate. Board meetings were disrupted by heated arguments between them. Among the issues causing friction was Mr Gray’s grievance regarding the purchase of Mrs Braid’s PPCL shares. After attempts to settle this issue had failed he continued to raise it and Mr Leddra continued to decline to discuss it. Mr Gray also sought information regarding the finances of Braid Asia to which Mr Leddra did not regard him as entitled, and challenged the legitimacy of certain payments made to Braid Asia employees. Mr Leddra threatened to resign from Braid Asia. Mr Haldane and the two Messrs Watson attempted to keep the peace. A Memorandum of Understanding dated 9 April 2008 was drawn up between BGHL and Mr Leddra as the majority and largest minority shareholders respectively of Braid Asia; this came to be known as the “Hong Kong Accord”. It re‑stated Mr Leddra’s sole responsibility for the day to day operation of Braid Asia including the setting of staff salaries and bonus payments, and excluded any entitlement of the BGHL board to override his actions. It was further agreed that decisions on certain matters requiring written consent in terms of the BGHL Shareholders’ Agreement would be taken by Mr Leddra, and BGHL’s consent would not be withheld.

[17] The Hong Kong Accord did not resolve BGHL’s boardroom animosity. On the contrary, confrontations between Mr Gray and Mr Leddra became more intense. The next attempt by Mr Haldane and the Messrs Watson to defuse the animosity was a set of rules put forward for agreement to a board meeting in Bangkok in January 2010 (“the Bangkok Agreement”). A flavour of the breakdown of relations between Mr Gray and Mr Leddra can be obtained from the following examples of “rules”:

“1. Implementation of the 2 CEO roles. Each CEO has full autonomy for their individual areas of control without interference and both are fully accountable to the Board. (Definition of interference – you cannot impose or enforce any decision out with the area of your control).

…

4. Personal criticisms, taunting and provocative emails or other modes of communication will stop. Must not be repeated.

5. All Directors recognise that each CEO may adopt differing business philosophies or operational procedures.

…

7. All Directors accept and recognise the majority decisions of the board and must not try to reverse any decision.

8. Group announcements must have unanimous board approval.

9. No Directors to hold separate meetings concerning the sale of the company without the approval of the remainder of the board.

…

11. ISO tanks in Asia requires no further board discussion – all now working well.

12. Braid group board cannot discuss the PPCL issue.

…

Any confirmed breach of the above code of conduct will result in a board reprimand.”

The reference to two CEOs was a suggested means of dividing executive responsibility for the group’s operations into two, with Mr Leddra being CEO of flexitanks and Mr Gray being CEO of ISO tanks and other Glasgow-based divisions. This attempt to resolve the confrontation was no more successful than previous ones, and the disruptive conduct of Mr Gray and Mr Leddra at board meetings continued.

[18] During this period, the only members of the board of Braid UK were Mr Gray and Mr Haldane. The Braid UK board did not hold regular meetings, its business activities being discussed at meetings of the BGHL board.

The petitioners’ complaints
[19] The foregoing is a brief summary of the background to the various issues which are now founded upon by the parties in their arguments regarding the occurrence of unfairly prejudicial conduct and/or the appropriate relief for any unfair prejudice. The petitioners found upon the following matters as establishing conduct by the majority of the board of BGHL that was unfairly prejudicial to their interests:

Breach by Messrs Leddra, Shane Watson, Andrew Watson and Bagley of fiduciary duties owed to BGHL by diversion of profitable business from PPEL to PPUK, a company in which BGHL has no interest, and to other PPCL subsidiaries;
Failure by Mr Leddra and Andrew Watson to disclose conflicts of interest regarding the latter’s shareholding in PPCL and the formation of PPUK;
Refusal without good reason by Mr Leddra, supported by Shane Watson and Andrew Watson, to provide the board of BGHL with information relating to the financial affairs of Braid Asia, of which BGHL was the ultimate parent;
Unjustified obstruction by Messrs Leddra, Watson and Watson of attempts by the auditors of BGHL to undertake an audit of aspects of the Braid Asia accounts;
Removal of the auditors of BGHL by a vote of the second to seventh respondents on the grounds of a divergence of opinion on the proper audit procedures to be applied (particularly with regard to information sought regarding Braid Asia) or, alternatively, the improper basis that Mr Leddra believed that the auditors were too closely aligned to the interests of Mr Gray;
Exploitation by Messrs Leddra, Watson and Watson of alleged concerns in relation to the CFT issue (discussed below) to avoid disclosure of information to BGHL’s auditors;
Effective exclusion by Messrs Leddra, Watson and Watson of Mr Gray from the decision-making process in relation to the affairs of BGHL, by discussing and agreeing upon key matters before and after board meetings, with a view to sidelining Mr Gray from his proper influence upon and involvement in the business of the company;
Conduct by Messrs Leddra, Watson and Watson of the investigatory and disciplinary proceedings in relation to the CFT issue and the Sapesco issue (also discussed below), as if they were the de facto board of BGHL with powers of suspension and dismissal of employees including Mr Gray, abetted by professional advisers who were not acting with the requisite independence and impartiality;

[20] These complaints are advanced by the petitioners in the context of the averred existence of a relationship of quasi-partnership among the shareholders of BGHL. It is contended that the consequence of the respondents’ conduct has been the destruction of the trust and confidence among shareholders upon the basis of which the MBO was undertaken and the Shareholders’ Agreement entered into.

[21] For their part, the respondents all deny that they have been guilty of any conduct unfairly prejudicial to the interests of the petitioners. They dispute in particular that the relationship among the members of BGHL is properly characterised as one of quasi‑partnership. They further contend that in the event that the court holds that the petitioners have established unfairly prejudicial conduct, it is appropriate to take Mr Gray’s conduct into account in determining what order to make.

The meaning of “unfairly prejudicial conduct”
[22] Section 994 of the Companies Act 2006 provides inter alia as follows:

“(1) A member of a company may apply to the court by petition for an order under this Part on the ground –

(a) that the company’s affairs are being or have been conducted in a manner that is unfairly prejudicial to the interests of members generally or of some part of its members (including at least himself)…

(1A) For the purposes of subsection (1)(a), a removal of the company’s auditor from office –

on grounds of divergence of opinions on accounting treatments or audit procedures, or
on any other improper grounds,

shall be treated as being unfairly prejudicial to the interests of some part of the company’s members.”

In Re Neath Rugby Ltd [2008] BCC 390 (affd [2010] BCC 597), Lewison J at paragraph 202 identified three requirements for the court to have jurisdiction under section 994:

“(i) The acts or omissions complained of must consist of the management of the affairs of the company;

(ii) The conduct of those affairs has caused prejudice to the petitioner’s interests as a member of the company; and

(iii) The prejudice must be unfair.”

The petitioner must therefore prove both prejudice and unfairness.

[23] The concept of fairness must be applied judicially and the content which it is given by the court must be based upon rational principles: O’Neill v Phillips [1999] AC 1092, Lord Hoffmann at 1098. Lord Hoffmann went on to observe:

“…A member of a company will not ordinarily be entitled to complain of unfairness unless there has been some breach of the terms on which he agreed that the affairs of the company should be conducted. But… there will be cases in which equitable considerations make it unfair for those conducting the affairs of the company to rely upon their strict legal powers. Thus unfairness may consist in a breach of the rules or in using the rules in a manner which equity would regard as contrary to good faith.”

In Re Saul D Harrison & Sons plc [1995] 1 BCLC 14, Lord Hoffmann had previously observed (pages 17-18):

“In deciding what is fair or unfair for the purposes of [what is now section 994], it is important to have in mind that fairness is being used in the context of a commercial relationship… Since keeping promises and honouring agreements is probably the most important element of commercial fairness, the starting point in any case under [section 994] will be to ask whether the conduct of which the shareholder complains was in accordance with the articles of association.

The answer to this question often turns on the fact that the powers which the shareholders have entrusted to the board are fiduciary powers, which must be exercised for the benefit of the company as a whole. If the board act for some ulterior purpose, they step outside the terms of the bargain between the shareholders and the company… The fact that the board are protected by the principle of majority rule does not necessarily prevent their conduct from being unfair within the meaning of [section 994]…”

A finding that conduct is not in accordance with the articles does not necessarily, however, mean that it is unfair. Conduct may be technically unlawful without being unfair. Conduct, whether unfair or otherwise, that does not cause prejudice to the applicant shareholder cannot found an application for relief under section 994.

[24] The circumstances which may amount to unfairly prejudicial conduct cannot be listed exhaustively. They include:

exclusion of the petitioner from management of the company or removal as a director;
failure to consult the petitioner or to provide information to which he/she is entitled;
breach of directors’ fiduciary duties;
subordination of the company’s interests to those of another company.

In determining whether it is unfair for the majority to exercise their rights in terms of the articles or otherwise to the prejudice of a minority shareholder, it is relevant to consider whether the company is of a type commonly described as a quasi-partnership, ie a company with the three features described by Lord Wilberforce in Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 at page 379: an association formed or continued on the basis of a personal relationship, involving mutual confidence; an agreement or understanding that all (other than any “sleeping”) shareholders shall participate in the conduct of the business; and restriction upon the transfer of members’ interests in the company. In such cases the court will more readily find unfairness in exclusion of a shareholder from the management of the company, even if there has been no breach of the terms of the articles of association.

[25] It is also relevant in the circumstances of the present case to underline the very specific provision in section 994(1A) that removal of the company’s auditor on grounds of divergence of opinions on accounting treatments or audit procedures, or other improper grounds, must be treated by the court as unfairly prejudicial to the interests of some part of the company’s members.

Assessment of witnesses
[26] I turn next to examine in detail the various elements of the petitioners’ complaint of conduct unfairly prejudicial to their interests, in order to determine whether, in relation to any or all of those elements, unfair prejudice has been proved. Before doing so, however, it is necessary to record my assessment of the credibility and reliability of the key witnesses. References in the course of that assessment to events are more fully explained in the appropriate contexts below.

[27] Nigel Gray. It is my very clear impression that throughout the events with which this opinion is concerned, Mr Gray’s actings have been dictated by advancement of his personal interests rather than, in any circumstances where they have not coincided, the interests of the companies of which he has been a director and employee. One sees this most clearly in the attitude that he has taken to the investigation of the CFT account, and in particular the framing of the self report by BGHL to the Crown Office (which he attempted, as narrated below, inappropriately and unsuccessfully to water down), but it has in my judgment pervaded his attitude to management since at least the time of the MBO. It also coloured his evidence to the court. I found him to be incapable of differentiating between disagreement with his views and conspiracy against him personally. This attitude, directed originally against Mr Leddra and later also against Andrew Watson and Shane Watson, became more widespread as time went on and investigation of the CFT and Sapesco issues proceeded, to encompass the company lawyers (DWF, formerly Biggart Baillie) and the forensic accountants (Grant Thornton) who were instructed to conduct those investigations, senior counsel engaged to advise BGHL regarding the Crown Office self report procedure, and also the other individuals personally implicated in the bribery allegations. It also extended to the non-director members of BGHL, namely Mr Prowse, Mr Bagley and Mr Russell. As I explain below, I found these three individuals to be patently honest and motivated by a desire to further the interests of the Braid group. The distress caused to each of them by Mr Gray’s attitude was readily apparent at the proof. A particularly striking example of Mr Gray’s inability to see beyond his self-interest was a letter dated 28 June 2013 sent on his instructions to solicitors then acting for Messrs Prowse, Bagley and Russell in connection with the petition by Mr Gray for judicial review (see paragraph 100 below) in which they were among those called as respondents. The letter expressed the view that:

“…If your clients continue to support one faction of the shareholder dispute (as they appear to have done to date) they will inevitably become protagonists in the dispute (if they are not already)”

and suggested that if they wished to play a role in the shareholder dispute they should resign from the board. This was regarded by the recipients, with some justification, as attempted bullying; for my part I see it as evidence of Mr Gray’s inability to understand that holding a view contrary to his own does not necessarily amount to personal enmity against him.

[28] The observations that I have made are relevant to my assessment of Mr Gray’s evidence because one feature of his one-sided approach was his refusal to accept that he was responsible for any wrongdoing. His frequently-repeated assertion when giving evidence was that he could not have known of or approved of wrongdoing within the group because he would not knowingly do anything illegal or improper. I regret that I am unable to accept the premise upon which this assertion was made. Evidence was led of a number of instances of wrongdoing by Mr Gray in the context of the management of Braid UK. He did not dispute that he had been in the habit of bringing counterfeit goods back from the Far East for resale to members of staff, and did not see anything untoward in that. VAT was reclaimed on IT equipment for personal use. The cost to the company of personal travel expenditure by Mr Gray was recovered by means of a reduction in his bonus, with the consequence that his income tax liability was wrongly reduced. Holidays were booked in advance of arranging a business engagement to justify reimbursement of travel costs. While the latter practice appears to have been prevalent within John S Braid & Co Ltd since before the death of Steven Braid, it is characteristic of a lack of integrity and may have influenced Mr Gray’s attitude to the expenses charged to the CFT account. Having regard to these practices and to Mr Gray’s apparent indifference to the illegality or impropriety attaching to them, I am unable to accept any assertion by him that he would not knowingly engage in wrongdoing. On the contrary, I did not find him to be a credible or reliable witness and have exercised great care in accepting his evidence where it has not been supported by another source.

[29] Allan Leddra. I have also required to approach Mr Leddra’s evidence with considerable caution. In contrast to Mr Gray, I am satisfied that he has generally acted in what he has perceived to be the best interests of the Braid group of companies. His perception, however, has been distorted by his personal dislike of Mr Gray and his determination that Mr Gray should be excluded from any participation in the management of Braid Asia. That distortion has coloured not only his actings since 2006 but also his evidence at the proof. He did not impress me as a witness who wished to assist the court. His answers were often evasive and crafted to deal with what he perceived to have been the purpose of the question. He frequently attempted to give answers which contained only part of the truth until a fuller version was extracted from him by the persistence of senior counsel for the petitioners. As a result, I have had to be very careful about accepting his evidence on matters such as his motivation for particular decisions and the nature and extent of his involvement in the investigation and disciplinary procedures in 2013. As with Mr Gray, I have sought corroboration before treating evidence of Mr Leddra as credible and reliable.

[30] Andrew Watson. I found Andrew Watson to be a generally credible and reliable witness. I accept that he, along with Shane Watson and Allan Haldane, went to great lengths to attempt to broker peace between Mr Gray and Mr Leddra and that for some considerable time he remained neutral in so doing. My impression, however, is that latterly his neutrality waned. I do not of course criticise him for reaching a view that on particular issues Mr Leddra was to be supported; it seems clear to me, however, that Andrew Watson allowed Mr Leddra to exercise too much influence on his decision-making in certain respects, most notably in relation to the Braid Asia audit. I also criticise him later in this opinion for breaches of statutory duty in relation to the non-disclosure of his shareholding in PPCL. These matters are relevant to my assessment of him as a witness because I considered him to be defensive and somewhat evasive when asked about them. In other respects, however, I found him to be straightforward and felt able to place weight upon his evidence on important issues such as the reasons for creation of PPUK, and his ignorance prior to September 2012 of the nature and purpose of the CFT account.

[31] Shane Watson. I accept Shane Watson as a credible and reliable witness who gave his evidence in an open and straightforward manner. He too has acted with the interests of the company in view, and I readily accept that he was dismayed by the emergence of the CFT issue and did his best to address it appropriately. He was, undoubtedly, a close associate of Mr Leddra, and at least in relation to the Braid Asia audit allowed himself to be unduly influenced by Mr Leddra’s views as well as by the latter’s intransigence. In all other respects, however, I consider that he was motivated by a desire that the group’s management be conducted transparently and properly, and I am satisfied that this desire extended to the investigation and disciplinary procedures in which he participated. I feel able to place confidence in his evidence at the proof.

[32] Allan Haldane. There appears to have been some difficulty regarding the obtaining of a witness statement from Mr Haldane, as he declined initially to provide one to agents for the second to fourth respondents. On the first day of the proof (18 March 2015) it transpired that he had provided a precognition to agents for the petitioners. Both sides subsequently lodged witness statements dated 23 March 2015 which were not wholly consistent. In assessing Mr Haldane’s evidence, I must bear in mind that he was implicated in the CFT and Sapesco bribery allegations and was dismissed for gross misconduct following a disciplinary hearing and an unsuccessful appeal. In relation to those issues he gave evidence after being advised regarding self-incrimination and declined to answer certain questions. I have not relied upon his evidence in arriving at my conclusion regarding Mr Gray’s awareness of the nature and purpose of the CFT account. In relation to other matters, I considered him to be generally credible and reliable. He appears to have retained an objective viewpoint in the battles between Mr Gray and Mr Leddra, and I believe his evidence that when he omitted to disclose matters such as the creation of PPUK to Mr Gray he did so in an attempt to avoid precipitating new sources of conflict.

[33] Jeffrey Prowse. Mr Prowse considers himself to have been unfairly treated by Mr Gray. Shortly after the emergence of the Sapesco allegations, Mr Prowse resigned from Braid UK; he subsequently raised proceedings in the Employment Tribunal for constructive dismissal which were settled by the company at a very late stage. Mr Prowse undoubtedly harbours feelings of considerable bitterness towards Mr Gray and others within BGHL. These are exacerbated by his inability to date to realise his minority shareholding in the company. I do not, however, regard his feelings towards Mr Gray as calling into question the credibility and reliability of his evidence. He conducted his own case at proof in a measured and appropriate manner and elicited useful evidence in his examinations of witnesses. His own evidence was given in a straightforward manner and I accept it as credible and reliable.

[34] Richard Bagley. I found Mr Bagley to be another straightforward and honest individual whose efforts during the years since the MBO have been directed at furthering the business interests of Braid Europe. I accept his evidence as credible and reliable.

[35] Garry Russell. What I have said about Mr Bagley applies mutatis mutandis to Mr Russell. I accept his evidence as credible and reliable.

[36] John Ashton. Mr Ashton was heavily implicated in the CFT bribery allegations and was dismissed from his employment in April 2013, the dismissal being upheld on appeal. He did not provide a witness statement. He gave oral evidence at the proof after being advised regarding self-incrimination, and was examined and cross-examined under reference to statements he had made during the DWF investigation. As narrated in more detail below, his evidence at proof was not consistent with those statements. I did not find him to be a credible or reliable witness. My reasons for rejecting much of his evidence at proof are set out below.

[37] Sarah Watters. Ms Watters is a chartered accountant who was at the material time the company secretary of Braid UK. She was subject to disciplinary proceedings for lapses in professional judgement in respect of the CFT account and received a written warning. She resigned as company secretary in 2014. At proof she was clearly aggrieved by her treatment by the company and in particular by Mr Haldane as her line manager. I did not, however, regard her evidence as in any way tainted by her grievances and found her to be credible and reliable.

[38] Other witnesses. In addition to those already mentioned, the following individuals gave evidence on matters of fact. I found them to be credible and reliable. So far as their evidence was material to my decision, I discuss it in context below.

Iain Webster
Iain Morrison
Ian Boyd
Martin McBeth
Janet McCrimmon
Peter Gray QC
Nicholas Marcar
Brent Haywood
John Tilbury
Christopher Smith
Alasdair Davidson
Michael McLaughlin

Existence of relationship of quasi-partnership
[39] It is appropriate to address now the submission on behalf of the petitioners that BGHL was re-established as a quasi-partnership following the MBO. I have already referred to the features of a quasi-partnership identified by Lord Wilberforce in Ebrahimi v Westbourne Galleries Ltd. It was contended that all of the shareholders in BGHL were to act together in trust and confidence and were to be involved in the management of the company. In the course of cross-examination, some of the respondents expressed agreement with this proposition. I am not, however, persuaded that BGHL was established, or has ever functioned, with any of the features identified by Lord Wilberforce other than restriction on share transfers. The creation of BGHL was not akin to the incorporation of a trading entity previously carried on in partnership. Participation in the MBO was by invitation by Mr Gray. I accept the evidence of Mr Haldane, Mr Leddra and Shane Watson that that invitation was made when the price demanded by the Braid family rose beyond a level that Mr Gray felt comfortable about financing from his own resources or by borrowing. It was made to 13 members of senior management, six of whom declined it. The only criterion to satisfy among invitees was a willingness to contribute at least £100,000. Those who accepted the invitation were not all well acquainted with one another. Mr Prowse, for example, knew Mr Leddra, Andrew Watson, Shane Watson and Mr Bagley by name only, through Mr Gray, and was not aware of their capabilities. Mr Russell was not closely acquainted with any of the participants other than Mr Gray. From the outset there was disagreement and tough negotiation regarding voting rights, leading to the execution of the Shareholders’ Agreement which was very prescriptive with regard to the rights and duties of the participants. It is not surprising that Shane Watson, for example, considered the shareholders’ relationship to be governed by the terms of their written agreement rather than by any sense of mutual trust and confidence. Some of the participants had clearly demarcated geographic areas of responsibility. Most obviously, Mr Leddra made clear from the outset that he would tolerate no interference, as he saw it, in the conduct of the affairs of Braid Asia in Singapore; as narrated in more detail below, he insisted on this modus operandi even before the MBO was completed. Shane Watson and Mr Bagley, for their part, also brought specific business operations into the new BGHL group and retained effective control of them thereafter. It is worthy of note that clause 16 of the Shareholders’ Agreement stated expressly that:

“nothing in this Agreement shall create a partnership or establish a relationship of principal and agent or any other relationship of a similar nature or give rise to a trustee or fiduciary relationship between or among any of the parties”.

[40] Equally striking is the absence at any time of full participation of all shareholders in the conduct of the business. From the outset, and in clear breach of the terms of clause 6.5 of the Shareholders’ Agreement, the non-director shareholders were largely excluded from group management. Except on rare occasions, they were not informed of board meetings or given copies of board agendas, papers or minutes, nor were they provided as a matter of course with budgets and management accounts or kept fully informed of the company’s financial or business affairs. There appears to have been very little recognition either within or outwith the BGHL board that these failures were occurring. They cannot simply be laid at the door of the second to fourth respondents: if anything, Mr Gray as chairman and Mr Haldane as company secretary were the more culpable. In my judgment they reinforce the impression of an organisation in which most of the executives focused on their own sphere of operations and did not encourage participation by other shareholders, whether board members or otherwise, in that sphere.

[41] For these reasons I find that BGHL cannot properly be characterised as a quasi‑partnership and accordingly that any enhanced entitlement to participation in management of the company that arises in circumstances of quasi-partnership did not exist in the case of BGHL. Put another way, under reference to Re Saul D Harrison & Sons plc (above) per Lord Hoffmann at 20, the present case lacks the “something more” which could give rise to a legitimate expectation that the board and company in general meeting would not exercise whatever powers they are given by the articles of association and, in the circumstances of this case, the Shareholders’ Agreement.

Diversion of business from PPEL
[42] In order to explain the parties’ competing contentions regarding alleged diversion of business from PPEL to PPUK, it is necessary to begin by narrating the circumstances in which PPEL was set up. By 2007, PPCL was the sole supplier of flexitanks to Braid Asia, in accordance with an agency agreement that had been entered into on 1 October 2004. The rest of the Braid group, however, was still using Büscherhoff as its principal flexitank supplier. As a result of certain incidents, there was concern regarding the quality of Büscherhoff’s product. Mr Leddra and Andrew Watson began to investigate the possibility of PPCL setting up a manufacturing facility in Europe with a view to satisfying the demands of Braid UK and Braid Europe, and possibly other customers outwith the group. Andrew Watson promoted the idea of acquiring premises in Teesside, his home area. The boards of PPCL and BGHL agreed, and PPEL was created as a joint venture between PPCL and BGHL with PPCL holding a controlling interest of 60%.

[43] A Shareholders’ Agreement dated 1 December 2007 provided for the directors of PPEL to be Andrew Watson, Mr Colin Gee (a business associate of Mr Leddra), Mr Haldane and Mr Bagley, with Mr Gee as chairman. Clause 9 (“Special Obligation”) obliged BGHL to place all future flexitank orders with PPEL who would in turn give these orders first priority at competitive prices. Only if PPEL produced more flexitanks than BGHL ordered could they sell to other customers, avoiding where possible known competitors of the Braid Group. Mr Bagley did not in fact become a member of the PPEL board.

[44] The PPEL arrangement worked well. Demand for flexitanks was increasing and PPEL was unable to manufacture enough to satisfy the needs of Braid Europe which continued to purchase also from Büscherhoff. At a board meeting on 25 June 2009, Andrew Watson reported “plans to expand next door into adjacent warehouse” provided a commitment was given by Braid UK and Braid Europe. On 20 October 2009, however, a new company, PPUK, was incorporated as a wholly-owned subsidiary of PPCL. The premises in Teesside were extended and PPUK began to manufacture flexitanks in the extension area and to supply them to Braid Europe. The directors of PPUK were and are Mr Leddra, Andrew Watson (managing director) and Mr Gee (chairman).

[45] The reasons for, and consequences of, the incorporation of PPUK are controversial. It was carried out by virtue of a decision of the PPCL board, instigated by Mr Leddra and Andrew Watson. Mr Haldane, as a member of the PPEL board, was aware of it. Mr Gray was not informed of it and it was not brought formally before the BGHL board. He became aware of the existence of PPUK in May 2011. He regarded its creation as surreptitious and sinister, and concluded that it had been put in place as a means of diverting business – and hence profit – from PPEL, which was partly owned by BGHL, to PPUK, which was wholly owned by PPCL, to the detriment of BGHL. He examined the trading results of PPEL and PPUK and identified certain further matters that caused him concern, including an annual royalty fee and an annual management charge paid by PPEL to PPCL, and discrepancies suggesting that PPUK was trading more profitably with Braid companies than PPEL. He noted further that Andrew Watson on behalf of the PPCL companies had negotiated an increase in the price of flexitanks with Mr Bagley on behalf of Braid Europe. He regarded the failure by Mr Leddra and by Andrew Watson to disclose any of these matters to the BGHL board as a breach of their fiduciary duties as BGHL directors. In advance of a general meeting of BGHL shareholders on 4 January 2012, Mr Gray emailed all shareholders drawing attention to these matters and proposing a resolution that would have altered the right of board members to vote on matters on which they had a conflict of interest. The meeting took place and the issue was raised, but Mr Leddra left the meeting before any vote was taken in order to render it inquorate. Mr Gray instructed Mr Iain Webster to quantify the financial impact on BGHL shareholders of the perceived diversion of business plus the royalty and management charges. In a letter dated 17 March 2013, Mr Webster estimated the total loss to BGHL (both historic and in its valuation) from these matters at £964,268, and the loss to Mr Gray as a shareholder as £712,268. On 8 March 2012, Mr Haldane wrote on behalf of the BGHL board to the directors of PPCL inviting them to sell a 30% interest in PPUK to BGHL at par. That invitation was declined.

[46] A further matter had come to Mr Gray’s attention. I noted earlier that Andrew Watson was allotted a 5% shareholding in PPCL in 2007. This was not, however, disclosed in the schedule of competing interests annexed to the BGHL Shareholders’ Agreement and updated in 2008. Mr Gray was unaware of it until about early 2012. The minutes of a BGHL board meeting on 9 February 2012 record the following statement by Andrew Watson:

“I wish to make the following statement to rebut the allegation that I have any conflicts of interest with regard to Braid. I request that this statement be formally included in the board minutes.

My 5% holding of shares in PPCL is common knowledge and has not been deliberately concealed. I do not believe that any conflicts of interest exist because of that shareholding. To the extent it is necessary to do so, that interest is again declared.

I have at all times (and continue now) acted within my powers, as a director, to promote the success of the Company. In doing so I exercise independent judgment and act with reasonable care, skill and diligence.

Accordingly I believe that I have at all times complied with my general duties as prescribed by law (including, but not limited to, those contained in sections 171 to 177 of the Companies Act 2006.”

Mr Gray is recorded as stating that “he was pleased to have this declared, it was overdue but welcomed”.

[47] Mr Leddra and Andrew Watson explained the circumstances of the setting up of PPUK as follows. PPEL was unable to satisfy Braid Europe’s demand for flexitanks. The board of PPCL was keen to expand the group’s manufacturing capacity to meet the demand. That could have been done by increasing production in Asia where the cost base was lower; Mr Leddra considered that this would be in the best interests of PPCL and its Asian backers. However, Andrew Watson persuaded Mr Leddra that it was in the interests of PPCL to take advantage of the administrative facilities in place at the PPEL Teesside site and to locate the additional manufacturing capacity there for the European market. The reason why a new company wholly owned by PPCL was incorporated was because the allocation of further manufacturing business to PPEL was not acceptable to PPCL’s manufacturing partners in Singapore and China. Neither Mr Leddra nor Andrew Watson considered himself to be under any obligation further to enhance the value of BGHL’s stake in PPEL; they regarded themselves as entitled to approach the matter with the best interests of PPCL, the manufacturer, uppermost in mind. For his part, Mr Haldane was aware of the reasons why Mr Leddra and Andrew Watson decided to create PPUK, but considered that the correct action would have been to expand PPEL. He did not inform Mr Gray of the incorporation of PPUK or raise it formally in the BGHL board because he thought that this would merely create a new source of friction with regard to what was effectively a fait accompli. Andrew Watson agreed with this assessment. Mr Bagley, in his capacity as Braid Europe’s director and thus PPEL’s customer, was not a party to the decision to create PPUK. He first became aware of PPUK’s existence when it was drawn to his attention that invoices were being received from PPUK rather than PPEL. He saw no reason to inform Mr Gray, and assumed that the matter had been discussed at BGHL board level. Braid Europe continued to place its orders with PPEL as it had always done; it was a matter of indifference to Braid Europe whether it received invoices from PPEL or from PPUK. Mr Bagley was, however, disappointed when told by Mr Gray that PPUK had been formed without any Braid Group interest in it. Mr Haldane acknowledged later that the creation of PPUK ought to have been brought to the attention of the BGHL board.

[48] As regards the royalty and management charges paid to PPCL, Andrew Watson was adamant that it was reasonable for them to be paid and also that PPEL and PPUK were treated entirely alike in this respect. Mr Haldane was aware that the charges were being paid and regarded them as reasonable. There was nothing in the PPEL Shareholders’ Agreement to preclude them.

[49] So far as disclosure to the BGHL board of his 5% shareholding in PPCL was concerned, Andrew Watson accepted that this had not been done until 2012 but maintained that there was no sinister purpose. He had no intention of realising the investment and it had not appeared to him to be of much importance.

[50] I interject at this point to note that in the course of Mr Haldane’s evidence I sustained an objection by senior counsel for the second to fourth respondents to a line of questioning that would have sought details of a petition by Mr Gray in 2012 to a court in the British Virgin Islands under the BVI equivalent of section 994 for relief from the consequences of alleged unfairly prejudicial conduct of the affairs of PPCL. I understand that those proceedings were settled and a confidentiality agreement was entered into. The petitioners wished to elicit evidence from Mr Haldane regarding the reasons why Mr Gray had instituted the BVI proceedings against Mr Leddra and others. I refused to allow the line of evidence because there was no record for it, and because Mr Gray had been examined and cross-examined at considerable length without reference to it. The petitioners sought leave to reclaim my decision. I refused leave and the proof resumed.

Has there been unfairly prejudicial conduct?
[51] I accept the evidence of Mr Leddra and Andrew Watson as to the reasons why the additional manufacturing capacity required to supply Braid Europe and, possibly, other customers was provided through a new, wholly-owned subsidiary of PPCL rather than through expansion of PPEL. The key point, as it seems to me, is that manufacturing flexitanks was the business of PPCL, and not of the Braid group companies. Steven Braid had taken a decision in 2003 not to commit the then John S Braid & Co Ltd to investment in the manufacturing side, and while Mr Gray may subsequently have wished the Braid group to have a participation in the manufacturing business of PPCL, that was not on offer except to the limited extent of creating PPEL as a joint venture. In 2009, BGHL had a twofold interest in the production of flexitanks by PPCL and its subsidiaries: firstly, and most importantly, as the holding company of a group which included purchasers of flexitanks and, secondly, and less importantly, as a minority shareholder in PPEL which was making modest profits and not paying any dividends. As regards the former interest, it made no difference to Braid Europe or Braid UK whether it was purchasing from PPEL or PPUK so long as the terms of purchase were the same; I accept the evidence of Andrew Watson and Mr Bagley that they were. When PPEL reached its production capacity with the European market still unsatisfied, it was open to the PPCL board to decide whether to expand PPEL or to service the market in some other way. I recognise that the interests of PPCL’s manufacturing associates in Singapore and China could not be ignored, and I do not consider that PPCL was under any obligation to BGHL to promote a case for channelling the additional business through PPEL. The same can be said regarding various subsequent joint ventures of PPCL (referred to at the proof as PPZL, PPQL and PPSL) explained by Andrew Watson in the course of cross-examination. The decision to increase manufacturing capacity through a wholly-owned subsidiary rather than expansion of PPEL may well, of course, have been prejudicial to BGHL and at least some of its shareholders, in respect that that increase has not been reflected in additional past profit and current value of PPEL. But in circumstances where the PPCL board owed no obligation to BGHL to adopt a course of action which maximised the return to PPEL, any such prejudice has not, in my opinion, been unfair. As regards the imposition of royalty and management charges by PPCL, I see no reason why this could not be done, and I accept the evidence of Andrew Watson and Mr Bagley that there was no discrimination between PPEL and PPUK in this regard. There was accordingly no prejudice, unfair or otherwise, arising out of these charges.

[52] I turn now to the related but distinct issue of disclosure of conflicts of interest. Section 175(1) of the Companies Act 2006, entitled “Duty to avoid conflicts of interest”, provides that “a director of a company must avoid a situation in which he has, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with the interests of the company”. By virtue of section 175(4), the duty in subsection (1) is not infringed (a) if the situation cannot reasonably be regarded as likely to give rise to a conflict of interest, or (b) if the matter has been authorised by the directors.

[53] The shareholdings in PPCL held by Mr Leddra and Andrew Watson - and also of course Mr Gray – constituted, in my opinion, interests that conflicted, or might possibly conflict with the interests of BGHL, in respect that members of the Braid Group were customers of PPCL as supplier of flexitanks and flexitank technology. As regards Mr Leddra and Mr Gray, that conflict was acknowledged and authorised in BGHL’s schedule of conflicting interests. I heard no reasonable explanation for the omission of Andrew Watson’s shareholding from disclosure. Although the holding is smaller, the issue is the same. Its significance was magnified by the creation of PPUK as a wholly-owned subsidiary of PPCL.

[54] I also find that, more generally, a situation of indirect conflict was created by the decision to carry out expanded manufacturing activities through the newly-incorporated and wholly-owned PPUK rather than the joint venture PPEL. Although, as I have said, I am not persuaded that this decision had any impact on BGHL through its subsidiaries qua purchasers of flexitanks, it did impact upon the achievable profits of PPEL and accordingly upon the value of BGHL’s interest in PPEL. I make no finding as to the reasonableness or otherwise of Mr Webster’s estimate of such impact, which was disputed by Mr Leddra and Andrew Watson. Although Mr Haldane was aware of the PPUK arrangement, it was never formally disclosed to or authorised by the BGHL board; nor, in my view, could this be characterised under section 175(4)(a) as a situation which could not reasonably be regarded as likely to give rise to a conflict of interest. I accordingly hold that in failing to bring this matter to the attention of the BGHL board – and, specifically, to the attention of Mr Gray – Mr Leddra and Andrew Watson were in breach of their duty under section 175(1). I do not regard either of these infringements as “trivial or technical” (cf Re Saul D Harrison & Sons plc above, Lord Hoffmann at 18). Accordingly, in my opinion, applying the observations of Lord Hoffmann in O’Neill v Phillips, Mr Gray has a legitimate complaint of unfairness both in relation to Andrew Watson’s failure to disclose his 5% shareholding in PPCL and, separately, in relation to the failure by Mr Leddra and by Andrew Watson to disclose the PPUK arrangement to the BGHL board.

[55] That, however, is not the end of the matter. Conduct – even unfair conduct – will only found an application for relief under section 994 if it causes prejudice to the shareholder seeking relief: see eg Rock (Nominees) Ltd v RCO Holdings plc (in liquidation) [2004] BCC 466, Jonathan Parker LJ at paragraph 73; Re Baumler (UK) Ltd [2005] 1 BCLC 92, George Bompas QC at paragraph 180. In my opinion, the petitioners have failed to prove that any prejudice to them in their capacity as shareholders has resulted either from Andrew Watson’s failure to disclose his 5% shareholding in PPCL or from the separate failure to inform the BGHL board of the PPUK arrangement. As regards the 5% shareholding, I see no reason to doubt that it would have been authorised in the same way as the larger holdings by Mr Leddra and Mr Gray were authorised. I do not accept that it would have made any difference to Mr Gray’s approval of Andrew Watson’s appointment as a director of BGHL. When the matter did come to light in 2012, Mr Gray’s reaction was not to challenge authorisation but rather to acknowledge the disclosure as better late than never. It is difficult to see how he could have done otherwise. As regards disclosure of the existence of PPUK, it is equally difficult to identify any course of action that the board of BGHL could or would have taken other than to note the position. I have no doubt that Mr Haldane and Andrew Watson were correct in their assessment that the only practical consequence of bringing the existence of PPUK before the BGHL board would have been to create another flash point in the relationship between Mr Gray and Mr Leddra. PPCL could not have been obliged, by any legal argument or commercial pressure, to expand its production through PPEL. When in due course BGHL sought to acquire a 30% interest in PPUK at par, the request was refused. I therefore hold that although Mr Leddra and Andrew Watson did commit breaches of duty as described, those breaches did not constitute unfairly prejudicial conduct capable of founding an application for relief under section 994.

The management and auditing of Braid Asia
[56] The seeds of the conflict between Mr Leddra and Mr Gray regarding the management of Braid Asia were sown prior to completion of the MBO in 2006. From the outset it was Mr Leddra’s desire that control of Braid Asia should rest with its own board and not be subject to any supervisory power vested in the Group board. In an email dated 24 November 2006 to Mr Gray, copied to Mr Haldane, Mr Leddra sought a commitment on various changes to the Braid Asia shareholders’ agreement, including:

“…2. Scope of management involvement – none in day to day activities. Dialogue with JSB will be limited to annual budgets, forecasts, and submission of monthly accounts.

3. Payments to JSB – royalties, dividends, management charges etc to be viewed cumulatively, not to be excessive and to be paid after satisfying local commitments, specifically bonuses, fee payments to local management/staff/shareholders etc.”

By the end of 2007, disputes had arisen between Mr Leddra and Mr Gray regarding the degree of scrutiny of Braid Asia management sought by Mr Gray. A request by Mr Gray for information regarding employee salaries and bonuses sparked an acrimonious email exchange and a refusal by Mr Gray to sign off the annual Braid Asia audit papers.

[57] Mr Gray was not the only person who experienced difficulty in obtaining information regarding payments to Braid Asia staff. In the course of 2007, Mr Ian Boyd, at that time chairman of BGHL, sought information regarding distribution and bonus payments made to employees of Braid Asia which Mr Leddra declined to supply on the ground that he had agreed with Mr Gray prior to the MBO that he (Mr Leddra) had sole discretion regarding remuneration of Braid Asia’s employees. Mr Boyd found this unusual and unacceptable as, in his view, these matters fell within the overall responsibility of the parent company. Mr Leddra’s evidence was that he did not recall withholding any specific information from Mr Boyd. I prefer the evidence of Mr Boyd, and I do not believe that Mr Leddra does not recall this significant disagreement, because the consequence was that at a BGHL board meeting on 6 March 2008, at which Mr Boyd was not present, Mr Leddra promoted his removal as chairman after a period of six months, to be replaced on the board by Andrew Watson. Mr Boyd’s questions remained unanswered.

[58] The next significant event in the issue of Braid Asia management was the execution on 9 April 2008 of the “Hong Kong Accord” which I have already mentioned. In terms of the Accord, BGHL and Mr Leddra agreed inter alia that:

“…Allan Leddra’s authority and actions in his executive capacity with the Company will not be overridden by the Braid Group and he will have sole responsibility for the day-to-day operation of the business including the setting of staff salaries and bonus payments, and will determine annual distribution levels to all shareholders in line with their shareholdings, either by way of dividend or management charge and bonus, such distributions to be in line with past precedent. In respect of Clause 4.1.9 of the Shareholders Agreement, Braid Group will consent to the appointment of an additional director nominated by Allan Leddra. That nomination will be Andrew Watson in the event that he is appointed Managing Director of the Company, otherwise an alternative nomination will be made. The number of directors will increase to four and Allan Leddra will have the casting vote in the event of a tie. In respect of other matters requiring written consent by Braid Group as listed in Clause 4 of the Shareholders Agreement, with the exception of those items listed below it is hereby agreed that decisions taken on such matters by Allan Leddra will be advised to Braid Group whose consent will not be withheld. Excepted items:

Clause 4.1.1 in respect of the issuing or allotting of new shares or securities convertible into shares.

Clause 4.1.9 in respect of the removal of a director.

Clause 4.1.12 in respect of the amendment to the Memorandum or Articles of Association of the Company.”

[59] The effect of this Accord was to exclude the BGHL board from the making or reviewing of Braid Asia management decisions. It also generated a fresh dispute between Messrs Gray and Leddra. Andrew Watson was not in fact appointed managing director of Braid Asia. Instead, Mr Leddra proceeded to appoint Ms Gan Huey Hoon as a director without going through any process of formal nomination or indeed informing Mr Gray, who, it will be recalled, was a director of Braid Asia. When Mr Gray found out, he challenged and continues to challenge the validity of Ms Gan’s appointment, primarily on the ground that Mr Leddra only had a right to nominate a candidate for approval, although as I understand it he does not take issue with Ms Gan’s suitability for appointment. This dispute is characteristic of the attitudes adopted by Messrs Leddra and Gray on almost every aspect of the conduct of the group business: Mr Leddra keeping Mr Gray in the dark regarding the affairs of Braid Asia, and Mr Gray objecting whenever possible to actions by Mr Leddra. For my part I attach no weight to Mr Leddra’s failure to go through a process of nomination because the Memorandum of Understanding includes no entitlement on the part of BGHL to reject the nomination. That does not, however, preclude the possibility that there has been a failure to comply with the requirements of Singapore company law with regard to Ms Gan’s appointment; the fact that Mr Gray was kept in ignorance of it and the absence of any relevant documentation lodged for the proof might indicate that there has indeed been such a failure.

[60] The “Bangkok Agreement” in January 2010 included a paragraph stating that “Braid Asia Hong Kong Agreement terms apply in full”.

The 2011 Braid Asia audit
[61] A new and serious problem regarding Braid Asia subsequently emerged. For many years, John S Braid & Co Ltd and, subsequently, the Braid group, had its accounts audited by Bannerman Johnston Maclay (“BJM”) a small general practice firm based in Glasgow which had been created at the time when Spicer & Oppenheim was taken over by Touche Ross in 1990. Mr Martin McBeth was initially an audit manager and, after 1998, a partner in BJM whose portfolio of clients included the Braid companies. He gave evidence at the proof. I found him to be a credible and reliable witness who, throughout the events that I am about to relate, had adopted a professionally correct and reasonable approach in attempting to deal with the difficulties he encountered. BJM were responsible inter alia for auditing the consolidated accounts of the group and in this regard required to work with the accountants engaged in various jurisdictions to audit the non-UK subsidiaries. From time to time BJM had experienced difficulties in obtaining information regarding Braid Asia because Mr Leddra considered that the local audit was sufficient. BJM managed to work around these issues until 2011, when a request by them to review the files of the local auditors, Ken Wong & Co (“KW”) was refused by Mr Leddra.

[62] The background to BJM’s request to review KW’s files was that Mr McBeth had been advised by Mr Haldane, prior to commencement of the 2011 Group audit, of the legal proceedings in progress in the BVI (referred to earlier) between Mr Gray and Mr Leddra regarding PPCL. Mr McBeth was concerned to ensure that the subsistence of these proceedings would have no impact on the audit process. To begin with, BJM sent the same queries as they had sent in previous years and to other subsidiaries. They were not, however, satisfied with the responses received from KW. On 3 February 2012, Mr Douglas Paton of BJM emailed KW (copying in Mr Leddra, Ms Gan and Mr Haldane) seeking answers and clarifications on a number of audit-related issues. No further information was provided by KW. Instead, Mr Paton received an email dated 8 March 2012 from Mr Leddra stating:

“Adi of Ken Wong & Co and Braid Singapore has made a huge effort to accommodate Bannermans, this is a full and final reply.

We do not want any further contact between Bannermans and Ken Wong & Co. If you have any more questions come back to me only.”

[63] As Mr McBeth explained, this response rang alarm bells. It was not good practice for the Singapore auditor to refer BJM to the client to answer their queries, and the effect of Braid Asia’s resistance to requests for information was to oblige BJM to escalate their enquiries. On 22 March 2012, BJM wrote to the BGHL board with a detailed explanation of why they regarded the information provided to date by KW as inadequate. BJM strongly recommended that they be given full access to KW personnel, their audit file, and, if necessary, the books and records of Braid Asia. The alternative would be the issuing of a qualified audit report.

[64] Mr Leddra’s stated reason for refusing to allow BJM full access to KW and Braid Asia files was that he doubted their impartiality. He was suspicious of the long-standing relationship between BJM – specifically Mr McBeth – and Messrs Gray and Haldane, which he regarded as extending beyond a professional one into personal friendship. He enunciated various grounds for his suspicion: Mr Gray had participated in social activities organised by BJM for business development; BJM were responsible for Mr Gray’s personal tax affairs; Mr Haldane had worked at one time for a predecessor firm of Spicer and Oppenheim; Mr Haldane’s son was employed by BJM as an audit student. Mr Leddra was concerned that BJM’s true motive for seeking information regarding Braid Asia was to furnish Mr Gray with it for use against Mr Leddra in the BVI proceedings. Mr Leddra sought legal advice from Singapore solicitors who provided a letter that purported to support his position. I am not impressed by this letter, which bears the hallmarks of having been written on the basis of partial information in order to provide a client with what he wanted to exhibit to others. Mr Leddra’s position was supported by Andrew Watson. Shane Watson’s stated concern was to obtain a clean audit report.

[65] BJM sought to persuade the BGHL board of their impartiality and to explain what they regarded as their duties as auditors. A meeting took place on 18 April 2012 attended by Mr Gray, Mr Haldane and Mr McBeth in person and by Andrew Watson and Shane Watson through video or telephone link. Mr Leddra declined to participate but instead circulated an excerpt of a letter from Ince & Co, solicitors in London from whom he had sought advice. Mr Leddra has refused to waive privilege with regard to the letter as a whole and I attach no weight to the excerpt that he has seen fit to disclose. The BGHL board now sought advice from another London law firm, Reynolds Porter Chamberlain (“RPC”). The instructions to RPC were drafted by Mr Haldane and Shane Watson and circulated to the other board members. RPC’s advice, contained in a note dated 25 June 2012, was clear: they saw nothing to lead them to believe that any Braid Asia director had a legitimate interest in seeking to withhold information relevant to the preparation of the accounts, and nothing to indicate that BJM could not properly be instructed to carry out the audit. Mr Leddra refused to accept this advice on the ground that RPC had not been provided with full information. He wished to communicate with RPC directly. RPC did subsequently communicate with Mr Leddra directly by email. Mr Gray then sought advice from senior counsel in Scotland (David Sellar QC) who provided a note dated 24 August 2012 supporting RPC’s advice and expressing the view that in the circumstances that had arisen an application by a shareholder under section 994 would have very strong prospects of success.

[66] BGHL’s accounts were now late, and the company was receiving reminders from Companies House of its directors’ statutory duties. At a meeting on 10 September 2012, attended by alternates on behalf of Mr Gray and Mr Leddra, the BGHL board voted by a 3‑2 majority (Andrew Watson, Shane Watson and Mr Gee as Mr Leddra’s alternate comprising the majority) to reject RPC’s advice. The board then discussed the possibility of appointing an international firm to re-do the BGHL Group audit as a second opinion. Shane Watson saw this as the only remaining means of avoiding a qualified audit. Mr Gee mentioned Grant Thornton as a suitable firm. It was agreed to seek the advice of Biggart Baillie, the company’s solicitors, as to whether such a process required BJM’s consent, and also to obtain fee quotations from Grant Thornton and another firm.

[67] On 26 September 2012, first orders were granted by this court in a petition (not this one) under section 994 by Mr Gray. It was duly served on, inter alia, Messrs Leddra, Watson and Watson. On 10 October 2012, the BGHL board voted in favour (Mr Leddra abstaining) of a motion that the board instruct Braid Asia to provide the outstanding audit information requested by BJM direct to them. Mr McBeth was notified and he replied expressing the view that a visit by BJM to Singapore would be necessary. At a BGHL board meeting on 29 October 2012, there was discussion of a change of auditors for the future. Unnecessarily protracted correspondence then took place between BJM and Dundas & Wilson, solicitors instructed by Messrs Leddra, Watson and Watson in relation to the section 994 petition, regarding the appropriateness of BJM’s requirements. A general meeting of BGHL shareholders was held on 23 November 2012, at which the audit difficulties were discussed and a motion was passed (Mr Gray, Mr Haldane and Mr Webster representing the Gray Trust voting against) to change the group auditor for the year 2012. This decision was intimated to Mr McBeth.

[68] On 17 December 2012, the BGHL board discussed a proposal by Mr Leddra to settle the matter of the 2011 Braid Asia audit. Agreement was reached that Mr Gray would drop his section 994 petition and Mr Leddra would contact BJM to invite them to Singapore to complete the audit. On 18 January 2013, Lord Hodge, having been informed of the agreement regarding BJM’s visit to Singapore, pronounced an interlocutor dismissing the petition and finding Mr Leddra, Shane Watson and Andrew Watson jointly and severally liable to Mr Gray for the expenses thereof. The way seemed clear for BJM to go to Singapore, obtain whatever information they required from the Braid Asia books and records, and complete the group audit.

[69] By now, however, the visit to Glasgow by Mr Leddra and Andrew Watson to investigate the CFT arrangement, discussed later in this opinion, had taken place on 3 January 2013. At a board meeting on 25 January 2013, at which Mr Derek Ellery of DWF Biggart Baillie was in attendance, Mr Leddra queried whether it remained appropriate for BJM to carry out the audit pending the investigation being carried out by Grant Thornton and DWF. It was agreed nevertheless that Mr Leddra would provide dates suitable for a visit by BJM to Singapore. No visit, however, took place. Mr Leddra’s explanation in evidence was that during January 2013, at an early stage of the CFT investigation, he was advised by Joanne Hall of DWF that he must not do anything that would constitute tipping-off. Ms Hall was not a witness at the proof, and there was no clear oral evidence as to exactly what advice was given. I am satisfied that the words “tipping off” were used by Ms Hall, although they cannot have been meant in a technical sense to refer to the offence created by section 333A of the Proceeds of Crime Act 2002 in connection with money laundering, which applies only to information received by a person in the course of a business in the regulated sector. Despite being given more than one opportunity, Mr Leddra was unable to explain what he understood to constitute tipping off. My conclusion, based largely on the contemporaneous documentation, is that the advice given by DWF was along the following lines. If the auditors were made aware of the CFT investigation they, not having the benefit of legal professional privilege, would be obliged to report the matter immediately to inter alia the Crown Office. That would deprive the company of the opportunity to proceed by way of a self report with a view to avoiding criminal prosecution. DWF were not, as I understood the evidence, recommending keeping the auditors in the dark, but rather emphasising the need for the company to make an urgent disclosure to the Crown Office before anyone else did. That was not how Mr Leddra saw the matter, and I found his evidence extremely evasive. I have no real difficulty in concluding that Mr Leddra seized upon information regarding the CFT obtained on and after 4 January 2013 as a pretext for withdrawing his agreement to BJM’s Singapore visit. I do not go so far as to find, as Mr Gray believed, that this had already been Mr Leddra’s intention at the time when he made his settlement offer on 17 December 2012. I think it is more likely that Mr Leddra latched on to Ms Hall’s reference to tipping off as a convenient and timely reason to depart from an agreement into which he had been forced by the section 994 proceedings to which there was no arguable defence.

Removal of BJM as auditors of BGHL
[70] On Wednesday 20 March 2013, a general meeting of the shareholders of BGHL was held in Glasgow to consider two resolutions: firstly, to remove BJM as auditors with immediate effect for the financial year ending on 30 June 2012 and, secondly, to appoint new auditors, the recommendation of the chairman (Shane Watson) being to appoint Grant Thornton. Having regard to the terms of section 994(1A), it is necessary to narrate the evidence regarding the grounds of removal. In advance of the meeting, BJM had provided brief written representations which had been circulated to members. These stated inter alia:

“…We have received no satisfactory explanations for the basis of our proposed removal.

The audit for the year ended 30 June 2011 remains incomplete as we have yet to be granted the full co-operation of the directors and access to the books and records of [Braid Asia].

Three of the directors of BGHL have engaged a legal firm who have levelled certain accusations of incompetence at us which we believe to be totally unfounded, and which we have been assured do not have the support of the Financial Director or Chief Executive. They have also attempted to influence our audit work which, given our duties to the shareholders, is unacceptable.

Our independence as auditors has also been questioned and as a result of this we consented to an external review of our relationship. This external review found no issues with our professional independence.

Please note that the audit requirements will not change should we be removed as auditors.”

Mr McBeth attended the meeting and answered questions put to him by shareholders. In the ensuing discussion, attention of the non-board shareholders focused on completion of the overdue 2011 accounts, and the board was exhorted to address this as a matter of urgency. The resolution in favour of removal of BJM was put to a vote and carried by a simple majority, supported by Mr Leddra, Shane Watson, Andrew Watson, Mr Bagley, Mr Russell and Mr Prowse. It was not supported by Mr Gray, Mr Haldane or Mr Webster representing the Gray Trust. BJM were advised of the outcome of the meeting and Grant Thornton were appointed as auditors for the year to 30 June 2012.

[71] Mr Leddra’s stated reasons, in his evidence to the court, for voting for the removal of BJM as auditors were that they were too closely connected to Mr Gray, and because an international business like the Braid Group needed a more global firm of auditors. In cross‑examination, Shane Watson gave as his reason that the company could not afford to go through the same difficulties regarding Braid Asia again in the following year. In re‑examination, however, he gave as his reason the worldwide growth of the business, mentioning that the appointment of new auditors had been under discussion for some time; he also agreed with a suggestion put to him that he felt that the CFT issue should have been identified earlier than it was. Andrew Watson’s reason was that BJM were a small Glasgow firm whereas the Group needed an international firm. He accepted that the difference of opinion between BJM and Mr Leddra regarding the provision of information for the 2011 audit was a contributory factor in his decision, as was the need to avoid the same thing happening in relation to the 2012 audit if the resolution to change auditors was delayed until the year end. Mr Bagley’s decision to support the removal of the auditors in mid-year was informed by the ongoing dispute between BJM and Braid Asia and the consequent failure of BGHL to lodge its accounts. Mr Russell considered that appointment of new auditors was the only means of ascertaining the truth in the impasse between Mr Leddra’s belief that BJM were obtaining information on behalf of Mr Gray, and Mr Gray’s belief that something untoward was going on within Braid Asia. Mr Prowse’s decision was made on the basis that removal would resolve the immediate problem of getting accounts lodged.

[72] Removal of BJM as auditors for the year to 30 June 2012 did not, of course, resolve the problem of the 2011 accounts. On the advice of Grant Thornton, the BGHL board instructed BJM to complete their audit as quickly as possible on the basis of the information currently available to them. No further access to Braid Asia was to be provided. BJM carried out this instruction but declined to provide any audit opinion for the financial statements. The 2011 BGHL accounts, lodged eventually on 25 May 2013, accordingly include the following statement within the Auditors’ Report:

“The audit evidence available to us was limited because of a restriction on audit scope imposed on us by the Directors. As a result of this limitation placed on the scope of our audit work we have been unable to obtain sufficient appropriate audit evidence on the financial statements.”

For these reasons no opinion was expressed on the financial statements.

[73] Grant Thornton duly carried out the audit of the 2012 Group accounts. No restrictions were placed on their access to information from Braid Asia or its Singapore auditors. The Auditors’ Report contained within the 2012 Group financial statement, lodged on 21 November 2013, was unqualified.

Has there been unfairly prejudicial conduct?
[74] I have identified three separate aspects of the management and auditing of Braid Asia, namely (i) the restrictions placed from the outset upon the entitlement of the parent board to make or review management decisions of the Braid Asia board; (ii) the difficulties that arose in carrying out the 2011 audit; and (iii) the circumstances in which BJM were removed as auditors in mid-year. In my opinion all of those aspects, separately and cumulatively, constitute conduct unfairly prejudicial to the interests of members of BGHL, including the petitioners.

[75] Dealing firstly with the restrictions on parent board involvement, I recognise that Mr Leddra saw the business of Braid Asia, especially flexitank business, as his domain and area of expertise, and that he had good reason to believe that he was more familiar with and better qualified to run the business in Singapore than the directors based in Glasgow. To that extent there was nothing wrong with his demanding and obtaining an agreement that the parent board would not interfere in the management of the Asian subsidiary. It seems to me, however, that in implementation of that agreement Mr Leddra has lost sight of the distinction between independence and accountability. Braid UK held the majority shareholding in Braid Asia. The parent board was accordingly entitled, and indeed bound, to satisfy itself that the affairs of its subsidiary were being properly conducted. That did not mean participating in day to day management decisions, even important decisions regarding remuneration of staff, but it did mean that it was entitled to seek information to confirm that there was nothing improper about the manner in which Braid Asia’s financial affairs were being conducted. In refusing, as he did in the terms of the agreements that I have narrated, to countenance scrutiny of such matters by the BGHL board, Mr Leddra conducted the affairs of both Braid Asia and BGHL in a manner which caused unfair prejudice to shareholders of BGHL who were entitled to have mechanisms in place to secure that the affairs of the subsidiary were properly conducted. Although I heard no evidence of actual loss to BGHL shareholders through improper conduct of the financial affairs of Braid Asia, there was evidence of matters which at the very least give rise to cause for concern and demonstrate the need for accountability to the parent board, including:

the debatable validity of the appointment of Ms Gan to the Braid Asia board;
a loan made to Mr Leddra of a sum in excess of $450,000 from the funds of Braid Asia which ought apparently to have been made by PPCL;
the holding for many years of funds belonging to Braid Asia (the Braid Asia “rainy day fund” or RDF) within – and apparently mixed with other funds in – an account in the books of PPCL.

In addition, while delegation to the Braid Asia board of authority regarding the nature and amount of remuneration of its employees was unexceptionable, the parent board retained an entitlement – and indeed an obligation – to be satisfied that there were no improprieties in the manner in which that authority was exercised. I emphasise that there was no evidence of impropriety, but that is neither here nor there: Mr Leddra persistently failed to acknowledge any obligation of accountability, and thereby caused unfair prejudice to the petitioners as minority shareholders of BGHL.

[76] As regards the restricted access permitted to BJM as Group auditors, I regard this as having been wholly unjustified and a clear infringement of the interests of BGHL shareholders. Mr Leddra’s refusal of sight of the books and records of Braid Asia, and his insistence that no further communication take place between BJM and KW, was motivated partly by his ongoing determination that Braid Asia should not be required to provide information to its parent company and partly by his suspicion that Mr McBeth was seeking information to assist Mr Gray in the BVI proceedings. I find that suspicion to have been without any reasonable foundation. Any such action by Mr McBeth would have been a breach of professional duty of the utmost seriousness, and I find it inherently unlikely that Mr McBeth would have jeopardised his professional standing by abusing his position as an auditor in order to assist a client in a litigation. The perceived motivations for impropriety relied upon by Mr Leddra amounted to no more than connections that could reasonably be expected to exist between a professional firm and the business community in which it operated. Mr McBeth made considerable efforts to explain his position; those explanations seem to me to have been very reasonable, but were ignored by the majority of the board, as was advice from solicitors and senior counsel which the majority found unwelcome. In fairness to Mr Leddra, he did acknowledge during his evidence that he had adopted an excessively dogmatic position in relation to the 2011 Braid Asia audit. It does not reflect creditably upon either Andrew Watson or Shane Watson that they were minded to support Mr Leddra’s unreasonable stance until service upon them of the section 994 petition forced them to re-appraise the situation and vote to allow access. In summary, the majority of the BGHL board failed in their duty regarding the Braid Asia audit in creating a situation in which the auditors had no alternative but to issue a report in which they were unable to express an opinion on the company’s annual financial statements: a deplorable and potentially damaging outcome for a business with the status of the Braid group. The prejudice to minority shareholders is readily apparent and obviously unfair.

[77] In terms of section 994(1A), BJM’s mid-year removal from office must be treated as having been unfairly prejudicial to the interests of some part BGHL’s members if it was effected on grounds of divergence of opinions on accounting treatments or audit procedures, or on any other improper grounds. In the light of the evidence that I have summarised above, I find that the predominant reason for BJM’s removal was divergence of opinions on audit procedures, namely the extent to which they were to be permitted access to the books and records of Braid Asia and the questions which they were to be permitted to put to Braid Asia’s local auditors. Some of the company’s members cited as one of their reasons the need for a more international auditor, and made the point that this had been under discussion for some time. I accept that a change of auditors had been under consideration, and I do not doubt that there was a genuine desire among some members for appointment of a larger firm. That would not, however, have justified a mid-year removal, and I do not believe that if this had been the only motivation for change it would have been done other than in the usual manner by the passing of a resolution at the company’s annual general meeting. In my judgment it is clear that the reason why immediate removal of BJM was promoted by some members and approved by the majority was to address the impasse that had arisen regarding auditing of Braid Asia and to try to ensure that this did not recur in relation to the 2012 accounts. A minority of members voted against removal because they considered that BJM should have been allowed the access that they had requested. That, in my view, constitutes a divergence of opinion on audit procedures falling within section 994(1A). To the extent that the removal was motivated by professed suspicions as to BJM’s independence, I regard these as having been without foundation and also, therefore as an improper ground for removal. The members whose interests were prejudiced by the removal were inter alia the petitioners. I therefore hold that unfair prejudice has been established on this basis.

Exclusion of the first petitioner from management
[78] Before embarking upon the chapter of this opinion dealing with the CFT account and its consequences, I shall address the petitioners’ submission that since long before September 2012, Messrs Leddra, Watson and Watson acted together with a view to excluding Mr Gray from a role in the management of BGHL and its subsidiaries. It is asserted that these individuals worked closely together on the flexitank aspects of the Group’s business; that they regarded flexitanks as deserving priority over the more traditional “Glasgow” elements of the business; and that they did not regard Mr Gray as having any true business acumen, notwithstanding that he had put in place the MBO that led to them obtaining their executive roles in the business. Flowing from this, it is said, they came to operate together, discussing key issues before and after board meetings, to the deliberate exclusion of Mr Gray. They “acted with a view to achieving their aims and objectives” and were, in truth, a “cabal” which sought to sideline the petitioner from his proper influence and involvement in the business and affairs of BGHL.

[79] Concerns regarding the existence of a “concert party” within the BGHL board were expressed by Mr Gray in a letter to shareholders sent by email on 30 December 2011 in advance of an extraordinary general meeting requisitioned by Mr Gray for 4 January 2012. In this letter Mr Gray drew particular attention to what he claimed were moves to remove him as chairman of BGHL and moves to remove him as a director of Braid Asia. He stated that he considered these to be “…just the latest in a very subtle but carefully orchestrated plan to transfer control of the group board and its decision making into the hands of a small group of shareholders who act in concert but who between them own just over 24% of your Company”. The reference was to Messrs Leddra, Watson and Watson. Mr Gray proposed a resolution to increase the size of the Board to seven, with certain rights of appointment, and an independent non-executive chairman. The general meeting took place on 4 January 2012 but no vote was taken on the resolution because, as already mentioned in another context, Mr Leddra left the meeting in order to render it inquorate.

[80] It is undoubtedly the case that Mr Leddra, Shane Watson and Andrew Watson worked closely together in the flexitank aspects of the Group’s business. Mr Leddra and Shane Watson were in particularly close contact because they were operating in the same time zone. It is also apparent from the witness statements lodged for the proof and from their oral evidence that none of these three individuals holds, or has in the past held, a high opinion of Mr Gray’s business acumen. Even before the CFT affair came to prominence, they regarded him as making little positive contribution to the Group’s trading activities and as adopting a disruptive and obstructive attitude to the conduct of the business of the board. There is clear evidence that in advance of at least one board meeting there had been discussion among them as to how to achieve their aims at the meeting. I refer to the board meeting on 21 June 2011, after the conclusion of which the tape used to produce a transcript of the meeting was inadvertently left running and recorded a conversation between Mr Leddra and Shane Watson congratulating one another on their handling of certain agenda items and referring to Mr Gray in less than complimentary terms.

[81] None of this, however, in my opinion, comes close to amounting to unfairly prejudicial conduct. By 2011, Shane Watson and Andrew Watson, along with Mr Haldane, had been attempting for years, with little success, to manage the hostility between Mr Gray and Mr Leddra which disrupted meetings, wasted time and expense, and generally interfered with the smooth management of company affairs. At one point they even suggested that Mr Gray and Mr Leddra should both resign from the board and appoint alternates; that suggestion received short shrift. Against that background, they proposed that instead of Mr Gray, there should be a rotating chairmanship beginning with Shane Watson. I am satisfied that this suggestion was made with good intentions and with the interests of the company foremost in mind. Mr Gray’s response was to raise procedural objections including an unmeritorious argument regarding the board’s power to reach such a decision. In these circumstances I do not find it at all surprising, or in any way untoward, that those supporting the concept of a rotating chairmanship should discuss the approach to be taken in advance of a meeting at which they knew the proposal would be opposed by Mr Gray. The same goes for other agenda items. Mr Gray’s view to the contrary fails to distinguish between a “concert party” or “cabal” on the one hand, and a majority view within the board on the other. Whenever he found himself in a minority, as was frequently the case, he saw this as further evidence of conspiracy against him. I reject this analysis which for Mr Gray has become more and more entrenched as time has passed. It is my very clear impression that in their approach to the matters which caused controversy at board level, Shane Watson, Andrew Watson and Mr Haldane acted in what they regarded as the best interests of the Group and not, as Mr Gray perceived it, for the purpose of excluding him from management or advancing their own interests at the expense of his. Each board member was perfectly entitled to form his own view of Mr Gray’s capabilities, and of the way in which board meetings ought to be conducted; the fact that Messrs Leddra, Watson and Watson appear to have arrived at a common view does not, in my opinion, warrant the description “cabal”. In short, and subject to what I have held elsewhere with regard to Braid Asia, I find no evidence that the conduct of any of these respondents in the period up to 2012 in relation to the management of BGHL and its subsidiaries was unfairly prejudicial to the interests of either of the petitioners as shareholders.

The bribery investigations
Introduction: the CFT account
[82] The operation of the so-called CFT account, and the question of who knew what about its purpose and function is one of the core issues in this litigation, and one upon which I must make findings in fact based upon the evidence presented to me at the proof. It is relevant to the establishment of unfairly prejudicial conduct, and also to the question of appropriate remedy, dealt with later in this opinion.

[83] I begin with a brief outline of features of the CFT that are not now controversial. It was an arrangement created and operated for the purpose of bribery of an employee of a customer of Braid UK, namely Mr James Park, a director of SGL Carbon Fibers Limited, a company within the SGL group. The benefits to Mr Park, members of his family and others included gifts, foreign travel, holidays and cash payments. The arrangement was set up at the instigation of Mr Park, and in return he ensured that an increased volume of business was placed with Braid UK by companies in the SGL group. Mr Park’s benefits were funded in three ways. The first was that the prices charged by Braid UK to SGL for certain goods and services were inflated by amounts notified by Mr Park to John Ashton, the Braid UK employee with responsibility for managing the SGL account. Mr Ashton would inform the Braid companies’ accounting staff in Glasgow of the amount of the add-on, which was then credited to a ledger account in the books of Braid UK called the CFT account. (It is understood that “CFT” stood for Carbon Fiber Technology, an American company taken over some years ago by SGL.) Funds in the CFT account were available to be drawn down by Mr Park by means of submitting invoices or sending instructions for payment to the Braid accounting staff. The second method of funding was a 50p per square foot addition to the rental charged to SGL for use of space in a warehouse in Glasgow which was owned by Mr Gray and let to Braid UK. The third method was that Mr Park had access to the details of Mr Haldane’s company credit card and was authorised to charge expenditure of a personal nature to that card. On one occasion Mr Gray’s company credit card was used. In about 2011 Mr Park was transferred to work for SGL LLC, an American subsidiary within the SGL group, based in Evanston, Wyoming. SGL LLC also then became a client of Braid UK.

[84] The work principally carried out by Braid UK for SGL Limited and SGL LLC was transportation of goods, including customs clearance. Mr Ashton was a freight forwarder who had worked for Braid UK since 2001, and whose responsibilities were enlarged in 2007 to include flexitank business. According to Mr Ashton’s evidence at proof, Mr Park asked him to create an account within Braid for payment of travel and other expenditure. Mr Ashton did not have authority to instruct the opening of such an account, so he sought and obtained approval from Mr Gray of the setting up of the account that became known as the CFT account.

[85] The CFT ledger account was opened in Braid UK’s books at some time between 1 January and 5 March 2007. The total amount credited to it during the years to 30 June 2009, 2010, 2011 and 2012 and the period to 19 December 2012, after deduction of refunds and reverse postings, was £388,793.64. As the account was regularly drawn upon, the balance disclosed in the ledger, especially at accounting year ends, was never high enough to attract attention; as at 19 December 2012 it had a debit balance of £7,483.48.

The CFT investigation

[86] I have mentioned that there is a dispute among the parties as to who knew what, and when, about the purpose and operation of the CFT account. The petitioners’ position is that Mr Gray was unaware of its illegal purpose but that Mr Leddra and Andrew Watson had been told of it by Mr Ashton some considerable time before September 2012. The second to fourth respondents’ position is that Mr Gray and Mr Haldane were aware of its bribery purpose from the time when it was set up, but that they themselves had no suspicion of its purpose until September 2012 and no knowledge of the detailed circumstances until after January 2013. The following account of the circumstances leading up to commencement of the CFT investigation is taken largely from the evidence of Andrew Watson. I accept his evidence on this. It is detailed and circumstantial and obtains support from the evidence of Mr Leddra and Shane Watson as to what they learned from him and when.

[87] On 10 September 2012, Andrew Watson was walking through Glasgow with Mr Haldane and Mr Ashton to go for dinner when he overheard Mr Ashton observe to Mr Haldane that Mr Park “had spent over £100,000 in the year to date”. Mr Ashton complained that his credit card was “maxed out” and that Mr Park was also double-dipping, ie claiming reimbursement of expenses that Braid UK had paid. This conversation caused Andrew Watson concern, but Mr Haldane was a friend and he wished time to reflect before mentioning it to anyone. About a week later he was driving with Mr Haldane from Houston to Baton Rouge and took the opportunity to question Mr Haldane about the conversation in Glasgow. Mr Haldane reluctantly explained that Mr Park had access to his credit card. Andrew Watson was shocked by the scale of the expenditure and the fact that Mr Haldane would allow a customer to use his company credit card. At this stage he informed Mr Leddra and Shane Watson. Mr Leddra consulted his lawyers: Dundas & Wilson in Scotland and Ince & Co in England. He received advice regarding possible consequences in terms of the Bribery Act 2010 of the activities reported by Andrew Watson. Grant Thornton were recommended as potential investigators; Mr Leddra held a preliminary meeting with them. Mr Leddra, Andrew Watson and Shane Watson conferred. They decided to adopt the tactic of going to Glasgow to confront Mr Haldane about the matter at a time when they knew that Mr Gray would be abroad, and in the meantime to say nothing to either Mr Gray or Mr Haldane.

[88] Mr Leddra, Shane Watson and Andrew Watson were all cross-examined at some length as to the reasons why, having received disturbing information in September or October 2012, they took no positive action to investigate until January 2013. Various explanations were given. I am satisfied that the true explanation was that given by Shane Watson, and accepted to some extent by the others, ie that they resolved to wait until Mr Gray was absent from the Glasgow office in order to conduct a full investigation when he was not there, and to speak to Mr Haldane alone in the hope of obtaining a frank admission of guilt.

[89] On Thursday 3 January 2013, Mr Leddra and Andrew Watson arrived unannounced at the company’s Glasgow office. Mr Haldane was in the office; Mr Gray was in New Zealand. Messrs Leddra and Watson asked for a full explanation of how the CFT account operated; Mr Haldane answered their questions. Mr Leddra consulted Colin Hutton, solicitor with Dundas & Wilson (now CMS Cameron McKenna), who advised that Grant Thornton be brought in as forensic investigators. This was put to Mr Haldane who agreed to sign the request to Grant Thornton on behalf of Braid UK.

[90] The following day (4 January 2013), Mr Haldane sent an email to Mr Gray, copied to Ms Watters and entitled “SGL – CFT A/C – Jim Park”. In view of its importance I set it out in full:

“Allan and Andrew visited the office yesterday and today and hit me with a bit of a bombshell to say the least. They (including Shane) said they had only just become aware of the arrangements that were in place for Jim Park and were concerned that the company and all the directors were exposed under the Bribery Act 2010. In fairness, I cannot disagree with them. With hindsight we should have realised the changes this act brought in and put a stop to this arrangement but we didn’t.

I explained how the situation worked, Sarah, that you had raised concerns at this situation and we were taking steps to change it, if not stop it altogether. I advised that the figures have grown since the warehouse was rented to SGL and I confirmed that I signed off the expenditure that came through on my credit card in the full knowledge of what it was for, other charges tended to come through John Ashton’s expenses. I offered to provide a detailed report on the transactions but they had taken legal advice from Dundas & Wilson and they had recommended the only course of action was for the investigation to be carried out by a 3^rd party in order to be fully compliant with the act.

In the circumstances, having confirmed what was in place, I had no desire or reason to refuse this. I think, in the circumstances, the sooner this investigation is complete the better, one way or another the arrangement will need to stop. Grant Thornton are visiting the office on Monday to commence their investigation.

John Ashton is unaware of this situation as is Jim Park. I will wait until I have spoken to Grant Thornton on Monday before determining when they are advised.

I asked Geraldine to run me a copy of the transactions since Navision came in, 1^st July 2008, see attached. I will provide this to Grant Thornton as a first step and take it from there. There is back up to all the entries on the expenses side but I will need help in identifying how the credits are determined.

Nigel, can we have a chat about this over the weekend, send me a text or mail when you might be available. Sarah, I will speak to you on Monday if I need any assistance, it is my desire that as few people as possible know about this.

Sorry to hit you with this but I wanted you to know as soon as possible.”

No email reply by Mr Gray was produced.

[91] Grant Thornton’s investigation began on Monday 7 January. With the assistance of Ms Watters, their team collated documents relating to the CFT account and obtained a forensic image of the Braid UK server. On Grant Thornton’s advice, with a view to benefiting from legal privilege, the investigation was thereafter carried on through the medium of DWF, the company’s lawyers. On about 12 January, Mr Leddra contacted DWF to instruct them to conduct the investigation. Grant Thornton’s instruction by the company was thereafter revoked and instead they were engaged by DWF to provide accounting advice in relation to the investigation.

[92] On 8 January, Mr Haldane sent the following email entitled “CFT” to Mr Gray, copying in Ms Watters:

“This arrangement has got way out of control, see the summary amounts below, there is no way whatsoever this can be shown as a commission or part time arrangement. We have no defence to this, the sooner it is brought to an end the better for all concerned. The way it has been processed no 1 person has been seeing or computing the quantum and it has increased greatly since Jim Park went to the States. With Sarah and Geraldine Henry’s help we managed to fulfil all GT’s requests in 1 day and they were only here yesterday. I did not agree to taking a copy of John’s laptop. I have provided access to a back up tape to review emails and the P drive. They have taken copies of all my cc statements and John’s expenses as well as copies of other expenses through the account. Allan was in attendance and we agreed to receive the initial report before having to bring John Ashton into the investigation. The initial report won’t be completed until GT have had a chance to speak to you as well and review any further documentation they deem necessary. We are currently compiling a report on the history of the SGL account over the last few years. Turnover and Profitability will forward this to you later.”

The “summary amounts below” appear to be as follows:

Year to 30 June 2009	£63,213.21
Year to 30 June 2010	£56,413.88
Year to 30 June 2011	£93,982.57
Year to 30 June 2012	£145,286.62
6 months to 20 December 2012	£44,725.14

Again no email response by Mr Gray was produced. It was submitted, however, that it could be inferred from the first sentence of this email that Mr Gray had reacted to the first email by suggesting that payments to Mr Park were properly to be characterised as a commission or as a part time arrangement. This appears to be correct; in a letter to Shane Watson dated 11 April 2013, Mr Gray stated that he sent a text message on 7 January to Mr Haldane making reference to the possibility of Mr Park having been given a “part time commission paid role” by Steven Braid. (A spreadsheet detailing the nature and amounts of expenditure debited to the CFT account was produced at the proof.)

[93] The first BGHL board meeting following these events took place on 25 January 2013. Mr Derek Ellery of DWF was in attendance. He recommended the appointment of an investigation committee within the board to provide a point of contact for DWF and Grant Thornton. It was decided that the committee would consist of Mr Leddra, Andrew Watson and Shane Watson, being all of the directors of BGHL who were not also directors of Braid UK. Mr Gray objected unsuccessfully to the inclusion of Mr Leddra because he suspected his motives. The investigation began. Representatives of Grant Thornton and DWF initially interviewed Mr Gray, Mr Haldane and Ms Watters. They did not interview Mr Ashton “for reasons of confidentiality”. A draft joint report by Grant Thornton and DWF was produced on 25 February 2013 and a substantially revised report on 15 March.

[94] The next BGHL board meeting took place on 20 March. Mr Ellery, Ms Hall and another DWF employee were present. Board members were provided with copies of the Grant Thornton/DWF report. Ms Hall advised the board that offences under the Bribery Act 2010 had been committed and that, going forward, money laundering offences would also be committed unless the company made a disclosure to the Serious Organised Crime Agency (SOCA) under the Proceeds of Crime Act 2002. Ms Hall further advised that the best way to minimise the risk of criminal proceedings against the company was to make a self-report to the Crown Office conforming with the requirements of a COPFS guidance note that had been in operation since the 2010 Act came into force on 1 July 2011. HMRC would also require to be notified. The Crown Office would not be satisfied with anything less than a full investigation which sought to identify any similar arrangements with other customers. The minute of the meeting also recorded that Ms Hall advised that “The company, its directors and advisers must not tell anyone or indicate that a POCA disclosure has been made. To do so would be ‘tipping off’ which is a criminal offence in itself”. The board resolved unanimously to make disclosures to SOCA and to the Crown Office, and Ms Hall left the meeting to do this immediately. At the same meeting, Messrs Leddra, Watson and Watson were appointed as additional directors of Braid UK with immediate effect; Mr Gray abstained in the vote.

[95] On 21 March 2013, Shane Watson, acting in the capacity of a director of Braid UK, sent a letter to Mr Gray suspending him on full pay with immediate effect pending the outcome of the CFT investigation. Shane Watson intimated that he would be assisted in carrying out the investigation by Mr Michael McLaughlin of DWF and stated that it would be his (Shane Watson’s) decision whether it was appropriate to take the matter forward to a disciplinary hearing. Mr Gray was instructed not to attend any Braid company premises or contact employees, customers or suppliers, and was informed that his access to the Braid UK main server was temporarily suspended.

[96] Mr McLaughlin and others proceeded to take statements from a number of Braid employees, including Mr Ashton. On 28 March 2013, Mr Gray offered a lengthy note to supplement the statement taken from him at interview in February.

[97] On 5 April 2013, Andrew Watson wrote to Mr Gray intimating that he had decided that a disciplinary hearing would be held on 12 April, presided over by Shane Watson. Andrew Watson explained that he and Shane Watson had exchanged responsibilities for investigation and conduct of the disciplinary hearing respectively because of an allegation by Mr Ashton (which was denied) that Andrew Watson had known about the CFT. Andrew Watson’s task would be to decide whether there was evidence suggesting culpability on Mr Gray’s part. On 11 April 2013, Mr Gray sent a lengthy letter to Shane Watson in which he challenged the fairness of the investigation and disciplinary process, expressed his suspicions about the motives of Messrs Leddra, Watson and Watson for instigating these procedures, and set out his position in detail regarding the creation and operation of the CFT account, and the various connections alleged between the CFT account and himself. He provided comments on the witness statements taken by DWF, and reiterated in emphatic terms his denial of awareness of or involvement in any illegal activity regarding the CFT arrangement.

[98] On 11 April 2013, Shane Watson chaired a disciplinary hearing in respect of Mr Haldane. By letter dated 23 April 2013, Shane Watson, again writing in the capacity of a director of Braid UK, intimated that he had concluded that Mr Haldane was guilty of a serious and fundamental failure in the conduct of his duties that had prejudicially affected the interests of BGHL and Braid UK. Although not amounting to gross misconduct, Shane Watson concluded that Mr Haldane’s conduct constituted material breaches of contract entitling Braid UK to terminate his employment. Mr Haldane was advised of a right of appeal.

[99] Mr Gray’s disciplinary hearing took place on 15 April 2013. In addition to Mr Gray and Shane Watson, Mr McLaughlin and another DWF employee were present. A minute was taken and provided to Mr Gray, who subsequently provided an “additional explanation to NG answers” to questions at the hearing, and also a letter commenting on supplementary statements obtained from certain witnesses including Ms Watters and Mr Ashton. On 26 April, Shane Watson, again in the capacity of a Braid UK director, wrote to Mr Gray advising him of the outcome of the disciplinary hearing. His letter begins:

“I have reflected on all of the documentation produced before and after the disciplinary hearing. In particular I have considered the Minutes of the hearing. I have concluded that on balance John Ashton did make you aware of the true nature of the CFT arrangement and in particular that it would be used to fund Jim Park’s private expenditure. I accept that you agreed to this arrangement being put in place by John Ashton in the knowledge that it was for Jim Park’s personal expenditure. I also accept that you said to John Ashton that SGL would be expected to increase its business with Braid as a result of the arrangement being put in place.

Only you know whether or not you consciously recognised at the time that the arrangement would constitute bribery or some form of other criminal act. If you didn’t recognise it as this, you should have. At the very least you should however have appreciated at the time that it was an entirely inappropriate and unethical arrangement. I regard your behaviour, particularly in the capacity of an experienced Chief Executive, as an act of gross misconduct and/or conduct which may bring the company into disrepute or prejudicially affect its interests or the interests of a group company, all pursuant to clause 13.1(a) of your service agreement dated 15 December 2006. On that basis, the company is entitled to terminate your employment without notice or payment in lieu of notice. I have decided that it is appropriate to do so. Your contract of employment therefore terminates upon your receipt of this letter in any format.”

Shane Watson went on to set out in detail the reasons why he accepted Mr Ashton’s account of events and rejected Mr Gray’s contention that he had not been aware of the criminal purpose of the CFT arrangement. He also addressed and dismissed two matters that had been founded upon by Mr Gray, namely (i) a suggestion that the CFT arrangement was related to a reimbursement arrangement mentioned by Mr Ashton concerning Braid Asia, and (ii) Mr Ashton’s assertion that Mr Leddra and Andrew Watson had been aware of the true nature of the CFT account. Mr Gray was advised of a right of appeal which, it was envisaged, would be to a committee consisting of Mr Bagley, Mr Russell and Mr Prowse, subject to their being appointed as directors of Braid UK. On 29 April, Mr Gray’s solicitors wrote to Mr McLaughlin intimating that he intended to invoke his right of appeal. Grounds of appeal were sent to Mr McLaughlin on 3 May. These were mainly of a procedural nature, including alleged failures to carry out a proper investigation, but also included a final ground that the decisions of Andrew Watson to convene a disciplinary hearing, and of Shane Watson to find that Mr Gray was guilty of gross misconduct and should be dismissed, were decisions that no fair and impartial decision maker, acting reasonably, could possibly have taken.

[100] No appeal hearing took place. Instead, Mr Gray presented an application to this court for judicial review of the actions and proposed actions of Andrew Watson, Shane Watson, Mr Bagley, Mr Prowse and Mr Russell relative to the purported operation against him of the disciplinary processes of Braid UK. On 31 May 2013, the Lord Ordinary (McEwan) pronounced an interlocutor ad interim suspending Shane Watson’s decision to suspend Mr Gray from his position as managing director of Braid UK, suspending Andrew Watson’s decision to convene a disciplinary hearing against Mr Gray, suspending Shane Watson’s decision to dismiss him, and interdicting Messrs Bagley, Prowse and Russell from conducting any hearing in relation to Mr Gray’s appeal against his dismissal. The respondents to the petition sought and were granted leave to reclaim. The eventual outcome of the reclaiming motion was that on 8 October 2014 (see [2014] CSIH 81), an Extra Division recalled the Lord Ordinary’s interlocutor and dismissed the petition as incompetent on the ground that the supervisory jurisdiction of the court was not properly invoked. In the meantime, Mr Gray had returned to work as managing director of Braid UK. An appeal by Mr Haldane was heard by Messrs Bagley, Prowse and Russell; it was unsuccessful and Mr Haldane’s dismissal was upheld.

The Sapesco investigation
[101] I have noted that DWF, and in particular Ms Hall, advised the BGHL board that the Crown Office would not be minded to accept the company’s self-report unless satisfied that the investigation had been sufficiently comprehensive to uncover any further wrongdoing within the Braid group. DWF instructed Peter Gray QC to advise them regarding the conduct and reporting of their investigation. Regular consultations were thereafter held with him; some of these were with DWF personnel only and some were also attended by Messrs Leddra, Watson and Watson. Ms Hall’s investigations were thorough, to the point where they provoked expressions of concern from members of the BGHL board, including both Mr Gray and Mr Leddra, as to their necessity and the resultant cost to the company. However, Peter Gray QC emphasised at consultations the need to demonstrate to the Crown Office that no stone had been left unturned.

[102] With one exception, DWF’s investigations discovered no evidence of further wrongdoing within the Braid group. The exception concerned a company called Sahara Petroleum Services Company (“Sapesco”), an Egyptian oilfield services company with whom John S Braid & Co Ltd had done business in the 1990s. The individual within Braid responsible for the business relationship with Sapesco was Rashmi Bhagat, who was based in London and who had become an employee of Braid when it acquired the business of a company called Project Forwarding Limited. After Steven Braid’s death, Mr Bhagat’s main points of contact in group management were Mr Gray and Mr Haldane. His line manager was Derek Darroch and latterly Mr Prowse. The Sapesco employee who dealt with the business relationship with Braid was Mustafa Kanafani. During the pre-2004 period of the companies’ relationship, Mr Kanafani was remunerated by what Mr Bhagat described in a statement taken by DWF as a “profit share agreement” in terms of which he would receive 50% of the profit on any business he brought to Braid.

[103] The initial business relationship between Braid and Sapesco came to an end in about 2004, but was revived in 2009. Mr Kanafani approached Mr Bhagat and stated that he wished to work with Braid again on the same terms as before. What Mr Bhagat in fact did was to inflate the price payable to Sapesco by the amount required to pay Mr Kanafani a 50% share of a profit calculated in accordance with market rates. The effect was that Braid retained the whole of the calculated profit and Sapesco bore the burden of an additional payment which was made into Mr Kanafani’s personal bank account. It was, in substance, an arrangement whereby Mr Kanafani sought and received bribes in return for giving Sapesco’s business to Braid UK. On 2 December 2009, Mr Bhagat emailed Mr Haldane to inform him that Braid UK had begun to receive orders from Sapesco. As part of that email Mr Bhagat forwarded an email received by him from Mr Kanafani which stated inter alia:

“Dear Rashmi,

It was great talking to you tonight, as I’ve explained today was my first day in SAPESCO as Vice President and head of Supply Chain controlling Egypt, Saudi Arabia, Libya, Yemen, Iraq, Abu Dhabi & Syria.

This email address [specified] to be top confidential and to communicate only between me & you and if necessary any of Braid Management for the private discussions.

On the other hand my formal email address that will be [specified] of course make sure not to send to the formal address any confidential things…”

On the same day, Mr Haldane copied Mr Bhagat’s email, including the forwarded email from Mr Kanafani, “for info” to Mr Gray, Mr Darroch and Mr Prowse.

[104] On 27 August 2010, Mr Bhagat sent a draft freight forwarding agreement between Braid UK and Sapesco to Mr Prowse for comment. The draft made provision for signature of the agreement by Mr Bhagat as branch manager of Braid UK and by Mr Kanafani as “VP supply chain” of Sapesco. On 30 August 2010 Mr Prowse forwarded Mr Bhagat’s email to Mr Gray and Mr Haldane with the observation “We should talk about this”.

[105] Similar questions arise in relation to Sapesco regarding who knew what and when as arise in relation to the CFT account. In a statement given to DWF in August 2013, Mr Bhagat asserted that both Mr Gray and Mr Haldane were aware in 2003 that Mr Kanafani was an employee of Sapesco and expressed no concern regarding the “profit sharing” arrangement. Mr Bhagat further asserted that when the Sapesco business returned to Braid UK in 2009, he informed Mr Gray and Mr Haldane that this would be on the same terms as before and obtained their authorisation. On the basis of the information contained in this statement, the BGHL board resolved at a meeting on 2 August 2013 to remit the matter to Mr Bagley to make recommendations as to whether disciplinary proceedings in relation to Sapesco should be instituted against Mr Gray, Mr Prowse, Mr Bhagat, and/or certain other employees (Mr Haldane having by then been dismissed). Mr Bagley considered the evidence assembled by DWF and concluded that disciplinary proceedings should be brought in respect of Mr Gray and Mr Bhagat. At a Braid UK board meeting on 10 January 2014, Mr Gray objected to any disciplinary proceedings being taken against him on the grounds that they could not be impartially conducted and would, in any event, be inappropriate as the present petition had been commenced. It was decided (Mr Gray dissenting) that disciplinary proceedings should be taken with Mr Russell chairing them, but that these should be deferred pending the outcome of the self report process. Subsequently, however, discussions took place between DWF, acting on behalf of BGHL and Braid UK, and Brodies, acting on behalf of Mr Gray, regarding the possibility of disciplinary proceedings chaired by an independent adjudicator.

[106] No such proceedings have taken place. On 4 December 2014, Mr Gray gave notice to the directors of Braid UK of his resignation from employment as managing director of Braid UK, with effect from 10 December 2014. This notice was expressly on the basis of an undertaking given to this court by Mr Leddra, Shane Watson and Andrew Watson, in an ordinary action (A693/14) raised by Mr Gray against Braid UK following dismissal by the Inner House of his petition for judicial review. The undertaking given was not to pass any resolution seeking to remove Mr Gray as a director of BGHL or Braid UK, nor to exercise certain rights under Mr Gray’s service agreement or the articles of association of BGHL, pending resolution of the present petition (including any appeal). Mr Gray accordingly remains a director of BGHL and of Braid UK. He continues, in action A693/14, to dispute the validity of the decisions taken in March and April 2013 to suspend and dismiss him. That action is currently sisted.

[107] Work on the self report continued during the latter half of 2013 and into 2014. A draft prepared by Ms Hall in December 2013 underwent revisions which took account inter alia of advice received from Peter Gray QC. Shortly prior to submission of the report to the Crown Office, Mr Gray (ie Nigel Gray) through his solicitors, Brodies, expressed concern to DWF that there were significant omissions from the report and that it was biased against him. A large number of revisals were suggested; among them were insertion of the word “apparent” before the word “wrongdoing” (in relation to both CFT and Sapesco) wherever it occurred. It was indicated that if agreement could not be reached on the terms of the self report and the documents to be submitted with it, separate and direct representations on Mr Gray’s behalf would be made to the Crown Office. On DWF’s advice, the self report was submitted to the Crown Office on behalf of BGHL on 3 April 2014, accompanied by voluminous appendices of documents and witness statements, without any of the revisals or additional documents proposed by Mr Gray. On 7 April 2014, Brodies wrote to the Crown Office enclosing their letter to DWF, including a copy of the draft self report with Mr Gray’s proposed changes, together with certain further documents including pleadings in the present petition. At the conclusion of the proof in July 2015, the outcome of the self report was not yet known.

Findings in fact: CFT
[108] I have explained why I consider it necessary to make findings in fact regarding the extent (if any) of Mr Gray’s knowledge of the nature and purpose of the CFT arrangement. Before embarking upon my examination of the evidence, I remind myself that the present proceedings are not proceedings for judicial review or for unfair dismissal. I need not, and ought not to, restrict my consideration to the procedural complaints that formed the basis of Mr Gray’s unsuccessful application for judicial review and now constitute the grounds of the sisted action A693/14. I have heard evidence and am in a position to state my findings on the underlying factual issues without concerning myself with actual or apparent procedural unfairness in any other proceedings in which findings have been made or might have been made had those proceedings reached a conclusion. I return below to the question whether, in the conduct of the investigation or disciplinary proceedings, there was actual procedural unfairness amounting to unfairly prejudicial conduct for the purposes of section 994.

[109] Investigations of Mr Gray’s awareness of the nature and criminal purpose of the CFT arrangement have produced voluminous witness statements, letters, and transcripts of oral evidence. It would be a monumental and, ultimately, an idle task to analyse all of this secondary evidence for inconsistencies casting doubt upon the credibility or reliability of any of the witnesses who gave evidence at the proof, especially as the substance of their evidence to the court was broadly consistent with written statements or oral evidence given by them during the DWF investigations in 2013. To this generality there are two exceptions. Firstly, as my own inquiry focuses on the credibility and reliability of Mr Gray’s evidence, I should give careful consideration to any discrepancies between statements made by him from time to time. Secondly, as Mr Ashton’s evidence to the court differed substantially from the statements he gave to DWF and during his disciplinary hearing, I must consider which version of his evidence, if any, to accept.

Summary of evidence
[110] Nigel Gray. When interviewed by DWF and Grant Thornton on 7 February 2013, Mr Gray’s position was that he understood that the CFT was an arrangement set up by Steven Braid. He had first heard about it at a management meeting in about 2007 when it was mentioned by Mr Ashton. After that meeting Mr Gray had asked Mr Haldane to explain the reference, and was told that it was an arrangement between Steven Braid and Mr Park that operated for the benefit of SGL and Mr Park. He had seen no reason to query it and it was not his task to monitor the operation of the account. (I interject to note that in response to a question in cross-examination by Mr Prowse, Mr Haldane agreed that Mr Ashton did not attend management meetings in 2007.) Mr Gray was subsequently informed by DWF that Mr Ashton had given a statement to the effect that he (Mr Ashton) had had a meeting with Mr Gray and possibly Mr Haldane in about 2006 or 2007 to seek authorisation of the creation of an account within Braid UK for payment of expenses incurred by Mr Park. Having considered the matter, Mr Gray stated that he had no recollection of such a meeting but accepted that Mr Ashton’s recollection could be correct. That remained his position at proof. He denied, however, that he had ever been informed, or become aware before January 2013, that there was anything untoward about the CFT account or that it was being used to fund personal expenditure of Mr Park or others. It was operated out of his daily sight by Mr Haldane, Ms Watters and Mr Ashton. In his evidence at the proof he agreed in cross-examination that the ledger account could not have been set up without his knowledge. He was vaguely aware that Mr Haldane’s credit card was used to pay expenses incurred by Mr Park. On the occasion when his own card was used, he had trusted Mr Ashton to use it for proper business purposes.

[111] As regards the 50p per square foot addition to the warehousing rental, Mr Gray and Mr Ashton had accepted an invitation in 2012 to visit Mr Park at SGL’s Wyoming premises (and to take the opportunity to ski nearby) and had been asked to quote a price for warehousing. At a later date Mr Park had told Mr Ashton to increase the price by 50p. Mr Gray did not find this surprising; he thought he had suggested to Mr Ashton that he had underpriced the job. If he had known that the extra 50p was for Mr Park’s personal benefit he would not have agreed to it.

[112] Mr Gray’s evidence was that he was at all times unaware of the amounts passing through the CFT account. It was only with the benefit of hindsight that the operation of the account could be identified as a mechanism for bribery. If Mr Haldane had intended to imply, in the emails sent in early January 2013, that Mr Gray was aware that the account had an unlawful purpose, Mr Haldane was wrong about that. He was unsure what part, if any, Mr Haldane had played in the illegality.

[113] Allan Haldane. Mr Haldane stated that he was not at the meeting between Mr Gray and Mr Ashton when the former authorised the arrangement, although he would have signed the instruction to create the ledger account. On the face of it, the account was similar to other arrangements for payment of costs incurred on behalf of a client that were being reimbursed. He had not regarded it as bribery. He denied knowing that cash payments were made to Mr Park or that the account was used to fund family expenditure. From the point of view of Braid UK the important matter was that whatever expenditure was being charged to the CFT account was being recovered from SGL; in these circumstances there was no need to scrutinise the detail. He was shocked when in January 2013 he discovered the amount and volume of the transactions that had gone through the account. When asked if he now recognised that the account had had an illegal purpose, he declined to answer.

[114] As regards Mr Gray’s knowledge of the unlawful purpose of the account, Mr Haldane’s position was equivocal. He was clear that Mr Gray had known of the CFT account from the outset, had authorised its creation and knew how it operated. In particular, Mr Gray knew how the expenditure was recovered. There was no attempt to conceal the account within the company. Mr Haldane’s credit card was used because it was an easy method by which to have expenses charged automatically to Braid UK. In his evidence in chief to the court, Mr Haldane stated that he did not believe that Mr Gray had regarded the arrangement as improper. Mr Gray knew what types of things were being purchased through the account but would not have seen any details of the amounts or volume of transactions going through it. In cross-examination, Mr Haldane agreed that there was no honest explanation for the 50p addition to the warehouse rental, and accepted that it was a means of crediting money to a slush fund.

[115] John Ashton. Mr Ashton’s evidence at the proof was that he had told Mr Gray of Mr Park’s request to set up an account within Braid UK. He did not remember the terms of the conversation but thought that it was to the effect that the money in the account would be used for business expenses and entertainment. In re-examination he confirmed that it remained his position that he did not tell Mr Gray that it would be used for anything other than legitimate business expenditure. He did not recall any conversation in 2012 in the presence of Andrew Watson regarding the extent of Mr Park’s expenditure.

[116] In written and oral statements made in 2013, Mr Ashton’s position was significantly different. In a signed statement taken from him by Mr McLaughlin on 25 March 2013, Mr Ashton stated that when he put Mr Park’s request to inflate the price charged by Braid to Mr Gray, Mr Gray stated that he would agree to the request on the basis that additional business would come from SGL to Braid UK. On certain occasions when Mr Ashton and Mr Park were travelling abroad together, Mr Park would make purchases of a personal nature which Mr Ashton paid for with his personal credit card and claimed back from Braid UK who in turn debited the expenses to the CFT account. At a disciplinary hearing held on 11 April 2013, chaired by Shane Watson and attended by Mr McLaughlin and another DWF employee, Mr Ashton is recorded as saying that Mr Gray and Mr Haldane were fully aware that funds in the CFT account would be for Mr Park’s personal use, and not solely for business travel in connection with legitimate work to be carried out by Braid UK for SGL. He repeated this assertion at the hearing of his appeal against dismissal on 23 May 2013. He also stated that Mr Gray and Mr Park agreed during Mr Gray’s visit to Evanston that the 50p addition to the warehousing charge would be made and placed in the CFT account.

[117] Mr Ashton has stated consistently, in his 2013 statements and oral hearings and in his evidence to the court, that Mr Leddra and Andrew Watson were fully aware of the mechanics and purpose of the CFT arrangement because he had told them about it. He has also consistently been unable to provide any specification of when or where such conversations took place. Mr Ashton also mentioned in the second of his 2013 statements that he saw a resemblance between the operation of the CFT account and a previous arrangement involving Mr Park and Braid Asia. In about 2004, the Braid group had carried out a shipment of goods for SGL to a company in Singapore called PolyOne. Braid Asia made an error regarding delivery of the goods and SGL made a claim against them for US$8,760, which was paid by Braid Asia. Subsequently, however, on Mr Ashton’s instructions, the $8,760 was credited in instalments of $100 by Braid UK to Braid Asia. According to Mr Ashton, these instalments were funded by means of additions, agreed by Mr Park, to the price of work carried out by Braid UK for SGL.

[118] Sarah Watters. Ms Watters was aware of the CFT ledger account and understood it to be a commercial arrangement agreed between Braid UK and SGL to pay business related travel expenses incurred in fulfilling the SGL contract. The arrangement was transparent and the balance was reported monthly in management accounts to the Braid UK directors, ie Mr Gray and Mr Haldane. Ms Watters had concerns that the business entertainment expenses put through the CFT account were not being correctly treated for tax purposes. She expressed her concerns to Mr Haldane. Now that she knew the truth about the account she felt that Mr Haldane had concealed its true nature from her. She believed that Mr Gray was aware of the existence of the CFT account but she had never discussed it with him.

[119] Allan Leddra. Mr Leddra denied that Mr Ashton had told him of the mechanics and corrupt operation by Mr Park of the CFT account.

[120] Andrew Watson. Andrew Watson also denied any knowledge of the operation or purpose of the CFT account prior to his conversations with Mr Haldane in September 2012.

[121] Janet McCrimmon. Miss McCrimmon is employed by Braid UK in the accounts department of their head office in Glasgow. She received instructions from Mr Ashton to transfer sums into the CFT account. She also carried out the instruction to credit $100 to shipments for SGL between 2004 and 2008 by Braid UK to Braid Asia. She did not think that the price charged to SGL was inflated to fund the $100 credits.

[122] Michael McLaughlin. Mr McLaughlin spoke inter alia to the taking of witness statements from all of the above Braid personnel during the 2013 investigations and to the transcripts of the disciplinary proceedings taken in relation to Mr Gray, Mr Haldane, Mr Ashton and Ms Watters.

[123] Other evidence. I have noted the terms of the emails sent by Mr Haldane to Mr Gray on 4 and 8 January 2013. Certain other email chains are of relevance to the issue of Mr Gray’s knowledge of the purpose of the CFT arrangement.

On 7 August 2012, Mr Park emailed Mr Ashton, inquiring “Have you put the 50 pence on the warehouse for CFT if not can you do so and I will look to tell Mark to approve”. (I take “Mark” to be a reference to Mark Jolliffe, a senior executive of SGL.) This email was forwarded by Mr Ashton to Mr Gray and Mr Haldane with the comment “FYI – I have answered in affirmative”.
Annexed to Mr Haldane’s email to Mr Gray on 8 January 2013 was an email exchange from November 2012 regarding a proposed skiing holiday at Whistler, Canada in March 2013, in which Mr Park and his wife Donna, Mr and Mrs Gray and Mr Ashton were to participate. Mr Park, who had made a hotel reservation for Mr and Mrs Gray, emailed Mr Ashton stating “Room for Nigel booked and paid for he can CFT it or square Alan up with the cost!” Mr Ashton forwarded the email to Mr Gray, copying in Mr Haldane, observing “Nigel, Seems your accommodation is booked and paid for!!! Will be on AH CC. Presume you can sort out with AH and credit CFT if you wish.” In his evidence at the proof, Mr Gray stated that he had not asked Mr Park or Mr Ashton to book accommodation for him and would have intended to pay for it with his own credit card. He saw this now as a snare by Mr Park to set him up. An email from Mr Ashton to Mr Park on 27 November 2012 indicated that Mr Gray intended to “pay his own way”.
Also in connection with the proposed holiday at Whistler, it appears that Mr Ashton, encouraged by Mr Park, had been attempting to persuade Mr Gray and Mr Haldane to provide additional Braid company credit cards. On 29 November 2012, Mr Park emailed Mr Ashton stating “We will get you to go on expedia web site to get the ski passes for Myself, Donna and you and CFT it unless Allan comes back with an outcome with the cards.” Mr Ashton replied “Jim, Allan will email you – another card will be issued. You would have laughed at Nigel’s face when he agreed!! John PS there will be rules this time!!” Mr Park responded by asking “what rules…”; no further correspondence was produced.
Amounts invoiced by Braid UK to SGL group companies increased significantly during the period from 2008 until 2012.

Conclusions on evidence
[124] I am satisfied to a high degree of probability that Mr Gray was aware at all material times that the purpose of the CFT arrangement was to provide funding for expenditure by Mr Park of a personal as well as a business nature, on the understanding that Mr Park would endeavour to ensure that increased business was given by SGL to Braid UK. I accept, firstly, Mr Ashton’s evidence that he sought and obtained Mr Gray’s authorisation of the creation of the CFT account within the books of Braid UK. Mr Ashton would not have had authority to instruct the creation of such an account and it is likely that, given the very unusual nature of the arrangement, he would have sought the approval of Mr Gray, who took operational decisions on behalf of Braid UK, rather than that of Mr Haldane who was finance director with little direct client relationship responsibility. I do not believe Mr Gray’s evidence that he does not recall the meeting at which Mr Ashton sought his authority. There are many aspects of the CFT arrangement that are inherently suspicious: the creation of an expense account within Braid UK’s books for use by a director of a customer company; the funding of that account by means of an addition to the price of services supplied by Braid UK to that customer company; the further funding of the account by means of an addition, requested by the customer’s director, to the cost of warehousing space supplied by Braid UK; frequent references in emails sent or copied to Mr Gray of expenditure of a personal nature being charged to the CFT account (ie being funded ultimately by the customer SGL and not by the supplier Braid UK as one might expect for legitimate business entertainment); the use by a director of a customer company of the company credit card of Braid UK’s finance director; the entitlement of a director of a customer company to instruct Braid employees to arrange his travel. Mr Gray was aware of all of these features of the arrangement. They could have had no purpose other than to conceal Mr Park’s expenditure from SGL and its American subsidiary, despite the fact that those entities were ultimately bearing the cost. I do not believe that Mr Gray would authorise such an extraordinary and clearly improper arrangement and then forget about the meeting when he gave it his approval. Nor do I believe that a chief executive who was not privy to the purpose of the CFT arrangement would have failed to query suspicious matters such as the 50p uplift, the email references to “CFT’ing” a skiing holiday expense, and the use by Mr Park of a company credit card, as soon as they came to his attention.

[125] Strong support for my conclusion is afforded by the terms of the emails sent by Mr Haldane – and admittedly received by Mr Gray – on 4 and 8 January 2013. They demonstrate unequivocally that Mr Haldane was aware that the CFT arrangement had an improper purpose. The inference I draw from the terms of the emails, in particular the absence of any perceived need to provide him with an explanation of the arrangement, and the absence of any response to the contrary at the time from Mr Gray, was that Mr Gray was equally aware of its purpose. I accept that it is likely that neither Mr Haldane nor Mr Gray fully appreciated, prior to 4 January 2013, the scale of the amounts passing through the CFT account, but I do not regard that as significant; what matters is that Mr Gray at least was complicit in the arrangement being approved and created. It may well be that Mr Gray was not specifically aware that the operation of the arrangement constituted a criminal offence under the Bribery Act 2010. Again that is neither here nor there, reflecting rather a broader inability of Mr Gray to distinguish between proper and improper conduct of business affairs.

[126] I have carefully considered the evidence of Mr Ashton, and I have concluded that so far as Mr Gray’s awareness is concerned, I should accept the version he provided at his disciplinary and appeal proceedings, namely that Mr Gray knew that the funds in the CFT account were for Mr Park’s personal use. That version was full, detailed, and consistent with contemporaneous emails. At proof his evidence was vague and, at least as regards the year in which Mr Gray’s authorisation was sought, clearly mistaken. I reject it so far as inconsistent with his earlier statements in respect of Mr Gray’s awareness. I also reject as not credible his assertions, in 2013 and at the proof, that he had told both Mr Leddra and Andrew Watson about the illicit purpose of the CFT account. It is highly adverse to his credibility on this aspect that Mr Ashton has been unable at any time to specify when, where or why he imparted this information to either of those individuals, despite having been asked about it at length by DWF and during his disciplinary hearing, and in cross-examination at the proof. He had a clear motive in 2013 to embellish the truth, ie to keep his job by persuading the investigators that knowledge of the purpose of the CFT account was widespread among the group directors. By the time of the proof he had been dismissed from his employment by Braid UK and may have been inclined to make trouble for those currently running the company. Be that as it may, there is nothing in the evidence to support Mr Ashton’s assertions. The possibility raised by Mr Ashton, and founded on by Mr Gray in the hope of turning the tables on Mr Leddra, that the CFT arrangement mirrored a previous one for reimbursement of Braid Asia, appears to me to be nothing more than unsubstantiated speculation. Having regard to the evidence of Miss McCrimmon, I am not satisfied that SGL were charged extra to fund the $100 credits by Braid UK in favour of Braid Asia.

[127] There was nothing in the demeanour of Mr Gray at proof that causes me to doubt my conclusion. His proposition that there was nothing surprising in a customer requesting a 50p per square foot addition to the price of the warehousing space was not credible; nor was his suggestion that Mr Park had booked accommodation in Whistler as a device to set him up as complicit in the CFT when he was not. Throughout his evidence he demonstrated a close attention to detail in identifying passages, often very short, in other witnesses’ statements which he regarded as supporting his position; I do not believe that his recollection on matters important to his personal interest such as the meeting with Mr Ashton was as flawed as he asserted.

Findings in fact: Sapesco
Summary of evidence
[128] Nigel Gray. Mr Gray’s position at proof was that he was aware both in 2003 and 2009 that the business arrangement between Braid and Sapesco involved an element of profit sharing, but was unaware that Mr Kanafani was an employee of Sapesco or that the “profit share” was being paid to him personally. He did not recall a discussion with Mr Bhagat in 2009 when he authorised an arrangement with Mr Kanafani on the same terms as previously, but did not dispute that this would have happened. He did not recall seeing the email forwarded to him by Mr Haldane on 2 December 2009, and did not think he had read the second part of the email, ie the forwarded email from Mr Kanafani making reference to “the private discussions”. He did recall receiving the draft freight forwarding agreement between Braid UK and Sapesco from Mr Prowse on 30 August 2010 because he had been shocked by its quality, regarding it as amateurish and badly laid out. As a result of focusing on these concerns he would not have paid attention to the page on which Mr Kanafani’s designation as an employee of Sapesco appeared. He accepted, with hindsight, that the relationship between Braid UK and Mr Kanafani could be regarded as bribery, but no-one, including himself, had seen it that way at the time.

[129] Allan Haldane. Mr Haldane was also aware that the pre-2004 and post-2009 arrangements with Mr Kanafani included profit sharing. He thought Mr Kanafani was a forwarding agent being paid a commission, but later became aware that he was an employee when trying to recover payments from Sapesco. He did not recall seeing Mr Kanafani’s email referring to “the private discussions”. He considered it highly likely that Mr Gray would have been aware of the relationship with Mr Kanafani because of his involvement in the operational side of the business.

[130] Rashmi Bhagat. Mr Bhagat did not give evidence at the proof. In a statement given to DWF and Grant Thornton in May 2013, Mr Bhagat referred to a meeting held in 2003 with Mr Gray, Mr Haldane and Steven Braid to discuss how the Sapesco account would work and, in particular, to reward Mr Kanafani for placing business with Braid. This, according to Mr Bhagat, was how business operated in the Middle East. The cost of a job to Braid would be calculated and the profit element decided. That element would then be doubled; the cost of the job would be increased and the extra profit would be paid to Mr Kanafani. By such means Mr Kanafani got his “profit share” but Braid was not out of pocket. The arrangement was authorised by Steven Braid. When the Sapesco business returned to Braid UK in 2009, Mr Kanafani asked Mr Bhagat to confirm that they would be working on the same terms as before. Mr Bhagat reported to Mr Gray and Mr Haldane that this was what Mr Kanafani was proposing and obtained their authorisation. Mr Bhagat saw nothing improper in the arrangement.

Conclusions on evidence
[131] There is less factual controversy in relation to Sapesco than the CFT account. Mr Gray did not dispute that Mr Bhagat had advised him in 2009 that the Sapesco business was returning to Braid UK on the same terms, as regards Mr Kanafani, as had applied pre‑2004. He had been aware of the pre-2004 “profit sharing” arrangement. He acknowledged that if Mr Kanafani was an employee of Sapesco when the arrangement was operated, this constituted bribery. The critical question of fact is, therefore, whether Mr Gray was aware in 2009 that Mr Kanafani was an employee of Sapesco. I have little difficulty in finding that he was. Mr Kanafani’s status as a vice-president of Sapesco was expressly disclosed both in the email that was forwarded to Mr Gray on 2 December 2009, and in the draft freight forwarding agreement sent to and read by Mr Gray on 30 August 2010. I reject Mr Gray’s evidence that he did not read the former and that he was so distracted by the unbusinesslike quality of the latter that he did not notice the capacity in which Mr Kanafani would be signing it. I have already referred to Mr Gray’s keen attention to detail in matters that affect his own interest. The recovery of the Sapesco account was important to Braid UK and may, according to several witnesses, have saved the London office from closure. It is not credible that Mr Gray would not read an email setting out the basis upon which the business was returning. That email, when read, has a number of highly suspicious details: the opening of a channel of communication concealed from Mr Kanafani’s employer, and the references to “top confidential” and “private discussions”. It is difficult to read it otherwise than as a reference to an improper arrangement between Mr Bhagat, representing Braid UK, and Mr Kanafani in a personal capacity.

Conduct of investigation and disciplinary proceedings
[132] The procedures adopted to investigate the revelation of illegal conduct in relation to the CFT account and, subsequently, the Sapesco arrangement, and the consequent disciplinary proceedings against Mr Gray, are founded upon by the petitioners as unfairly prejudicial conduct for the purposes of section 994. It is contended that the respondents’ approach to claimed concerns in relation to the CFT was driven by the purpose of using it as a tool to avoid disclosure of the Braid Asia audit requirements to BJM and also to engineer the removal of Mr Gray from BGHL. Their actings between September 2012, when the matter is said to have come to light, and January 2013, when the external investigation commenced, are said to have been unfairly prejudicial in that they deliberately excluded Mr Gray from (potentially) significant management issues during this period. It is further contended that the second to fourth respondents’ whole approach to investigation of alleged malpractice and the subsequent disciplinary proceedings was unfairly prejudicial. Despite their obvious interest in its outcome, Messrs Leddra, Watson and Watson allowed the establishment of an investigation procedure controlled by them, acting throughout as if they were the de facto board of BGHL with powers of suspension and dismissal. It is submitted that they were abetted in that approach by DWF, who were content for Mr Gray to be sidelined and for his contractual rights to be ignored, and by Grant Thornton, who agreed to carry out a forensic investigation on behalf of the company despite having previously been instructed by Mr Leddra in a private capacity on connected matters. It is further contended that breaches of Mr Gray’s contractual rights were facilitated by Mr Prowse, Mr Bagley and Mr Russell agreeing to take up appointment to the board of Braid UK for the purpose of acting as an appeal panel, without any entitlement to hear an appeal which would have had to be taken to the board of BGHL.

[133] I am not persuaded that anything done in pursuance of the CFT and Sapesco investigations or the consequent disciplinary proceedings against Mr Gray and others constituted conduct that was unfairly prejudicial to the interests of any of the members of BGHL, including the petitioners. I have little doubt that when details of the arrangements between Braid UK and Mr Park came to the attention of Messrs Leddra, Watson and Watson in the latter part of 2012, they (and especially Mr Leddra) would have spotted, at the edge of the cloud of concern created by evidence that the company had committed criminal offences, a possible silver lining. Nevertheless the difficulties emerging were extremely serious and I do not regard it either as unreasonable or as having been unfairly prejudicial to Mr Gray, as CEO complicit in an unlawful arrangement, that the other directors stayed their hand until they knew that there would be an opportunity to examine the books and records of Braid UK, and to question Mr Haldane, in Mr Gray’s absence.

[134] The professional advisers appointed to investigate the bribery allegations found themselves in a difficult position. As Mr McLaughlin observed, their instructions to act on behalf of the company had to come from someone, and if all of the directors were ruled out there would be no-one to instruct them. Clearly, however, the matter had to be investigated as a matter of urgency. At the outset of the investigation, there was prima facie evidence implicating Mr Gray and Mr Haldane but not any of the other three members of the board. Mr McLaughlin accordingly considered it “appropriate” for DWF to take instructions from an investigating committee of directors which did not include either Mr Gray or Mr Haldane. I too consider that to have been appropriate.

[135] Once the investigation began, it was carried out by DWF and Grant Thornton. There is no doubt that it was extremely thorough. I am entirely satisfied, having read the statements that the investigation produced and having heard evidence from Mr McLaughlin and Brent Haywood of DWF and Nicholas Marcar of Grant Thornton, that it was also conducted in a fair and unbiased manner. Mr Gray in particular was given ample opportunity to state his position. Not only was he interviewed on several occasions; he also provided detailed supplementary notes in which, in addition to making lengthy procedural complaints, he made clear his position on the matters under investigation. DWF had no axe to grind in the long-running battle between Mr Gray and Mr Leddra; nor, despite the fact that they had initially been consulted by Mr Leddra, did Grant Thornton. DWF sought guidance throughout the process from a specialist senior counsel. I find that the petitioners’ averment in their petition of DWF’s “established partiality to the interests and wishes of the second third and fourth respondents” has no basis in fact. It is indicative rather of Mr Gray’s mindset that anyone who does not agree with him is prejudiced and/or part of a conspiracy against him.

[136] The solicitors and accountants tasked with carrying out the investigation process were not, of course, in a position to make any executive decisions arising out of its conclusions. So far as disciplinary measures against Mr Gray were concerned, his contract of employment, which was with Braid UK, provided that any matters concerning his unsatisfactory conduct or performance would be dealt with by the chairman of Braid UK, with a right of appeal in writing to the board of BGHL. Clearly those provisions were unworkable given that Mr Gray was chairman of Braid UK and a member of the parent company board. The solution decided upon by the majority of the BGHL board was that the decision whether there was a disciplinary case to answer would be made by Shane Watson and that any disciplinary proceedings would be conducted by Andrew Watson. Matters were complicated at that stage by Mr Ashton’s allegation that Andrew Watson had known about the existence and purpose of the CFT account. That allegation was carefully investigated by DWF. Statements dealing with this issue were taken by Mr McLaughlin from Mr Ashton and Andrew Watson. Mr McLaughlin’s assessment was that there was no substance in the allegation; nevertheless DWF recommended that the two Watsons should exchange roles so that Shane Watson became the decision-maker following any disciplinary proceedings. As I have already mentioned, that recommendation was accepted.

[137] The principal complaint made by the petitioners regarding the investigation and disciplinary procedures is that they were under the direction of three individuals all of whom had a clear personal interest in securing an adverse outcome from Mr Gray’s point of view. I reiterate that I am not here concerned with issues of appearance of bias. My concern is rather to assess whether there has been actual prejudice to the petitioners in the conduct of the proceedings and, if so, whether such prejudice was unfair. Both Andrew Watson and Shane Watson stated emphatically that they had not had regard to their own personal interests in carrying out the duties delegated to them regarding the disciplinary process. Both stated that the implications for themselves of Mr Gray being categorised as a “Bad Leaver” had not occurred to them until those implications were drawn to their attention in communications from Mr Gray’s advisers. I accept that evidence. I have observed that I found both of these witnesses to be credible and straightforward, and having heard and carefully considered their evidence I am satisfied that they did their best to act fairly and with a view to completing the process in a proper manner. In particular I find that both Andrew Watson and Shane Watson carried out their respective duties without being influenced by what might or might not have been in their respective personal interests. My finding is supported by the terms of the letter dated 5 April 2013 from Andrew Watson to Mr Gray explaining the reasons why he had decided that a disciplinary hearing should take place, and the letter dated 26 April 2013 from Shane Watson to Mr Gray explaining the reasons why he had decided that Mr Gray ought to be dismissed. Both letters are fully and coherently reasoned, and include appropriate explanations of why the authors regarded themselves as able to carry out the tasks delegated to them. In view of the conclusion reached at the end of this opinion, it is undoubtedly the case that the outcome (as opposed to the conduct) of the disciplinary proceedings, namely the dismissal of Mr Gray for inter alia gross misconduct, will cause prejudice to the petitioners as shareholders. However, given (a) that I have independently reached the same conclusion on the evidence before me as Shane Watson did on the evidence before him; and (b) my findings that both the investigation and the decision-making process were carried out with actual impartiality, there is no basis upon which such prejudice can be characterised as unfair.

[138] A related complaint by Mr Gray is that he was excluded from discussions at BGHL and Braid UK board meetings relating to disciplinary proceedings against him. This was said to have occurred with regard to a Braid UK board meeting held on 11 September 2013, which Mr Gray refused to attend unless he was permitted to be accompanied by his personal legal adviser. Shane Watson, as chairman, with the agreement of the remainder of the board, informed Mr Gray that this was not acceptable. Mr Gray did not attend the meeting. When he attempted to join the meeting by telephone from a location where he was accompanied by his solicitor, this too was refused. Another example is the meeting of the Braid UK board on 13 August 2014 at which Mr Bagley’s report on Sapesco was to be discussed. After persistent refusals by Mr Gray to leave the room, attempts to discuss the matter were abandoned. In my opinion the petitioners’ complaint is without substance. After Mr Gray had obtained interim orders suspending his dismissal etc, relations between him and the other board members, not surprisingly, deteriorated even further. There were arguments about taping meetings. Often Mr Gray’s contribution to meetings was in the form of a prepared statement drafted by himself or his legal advisers. It was clearly within the management powers of the board to decide, by a majority, that a member should not be permitted to attend meetings, in person or remotely, while accompanied by a personal legal adviser. Mr Gray appears to have lost sight of the fact that discussions of the self report were concerned with safeguarding the interests of the company as opposed to the personal interest of himself or anyone else. As regards discussion of the Sapesco report it would, as Mr Ellery of DWF attempted unsuccessfully to point out at the time, have been bizarre for this to be discussed with one of the individuals implicated in criminal conduct present.

[139] Finally in this chapter there are the complaints of unfair prejudice based upon the participation of Mr Prowse, Mr Bagley and Mr Russell in the disciplinary process as an appeal committee. According to the petition, the complaint rested upon two grounds: firstly, that it would be unlawful for Messrs Prowse, Bagley and Russell, in their capacity as members of the Braid UK board, to hear an appeal against Shane Watson’s decision because in terms of Mr Gray’s contract of employment his right of appeal was to the board of BGHL, not Braid UK; and, secondly, that having regard to their respective personal interests as BGHL shareholders in the outcome of the appeal, there could be no expectation that they would conduct themselves in the best interests of the company. By these means, it was averred, Messrs Prowse, Bagley and Russell were “recruited” by Messrs Leddra, Watson and Watson to the purpose of using “whatever opportunity may present itself to remove [Mr Gray] from any position in which he might become aware of the nature of their activities in relation to [BGHL] and its subsidiaries”. In his oral evidence, Mr Gray described all three as “eager” to be involved in the appeal process. A different scenario emerged from the evidence of each of Mr Prowse, Mr Bagley and Mr Russell. None of them believed that they had been appointed to the board of Braid UK solely because an appeal committee was needed (although Mr Leddra’s evidence was that they were). Each believed that his past and potential future contribution to the business of the group warranted a place on the board. Significantly, each saw the appeal committee as an unwelcome and unpleasant task that he was prepared to undertake, in the absence of other candidates, for the benefit of the company. I regard all of these three witnesses as credible and reliable and accept this evidence. I also accept their respective denials that self-interest as regards the value of their shareholdings played any part in their decisions to agree to hear an appeal. No appeal, of course, proceeded, because of the interim order granted in Mr Gray’s application for judicial review. The petitioners’ contention at the close of the proof that the ignoring of Mr Gray’s contractual rights was “facilitated” by Messrs Prowse, Bagley and Russell’s agreement to take up appointment as directors of Braid UK represented a retreat from the “recruitment” allegation in the petition. I reject this contention too. Firstly, the appeal committee never sat. Secondly, as already discussed, Mr Gray’s contractual rights could not have been followed to the letter, and if Messrs Prowse, Bagley and Russell had been appointed to the “correct” board I am satisfied that they could have conducted an appeal hearing without being influenced by their interest as shareholders.

[140] For these reasons I hold that nothing in the investigation of the CFT account or Sapesco, nor in the disciplinary proceedings resulting in Mr Gray’s dismissal for gross misconduct, amounted to conduct that was unfairly prejudicial to the interests of the petitioners as members of BGHL.

Summary: finding of unfairly prejudicial conduct
[141] I have rejected the petitioners’ contentions that the affairs of BGHL have been carried on in a manner that is unfairly prejudicial to their interests as members as regards:

the creation of and allocation of manufacturing business to PPUK;
failures to disclose conflicts regarding interests in PPCL and its subsidiaries;
conduct of BGHL board meetings prior to September 2012;
conduct of BGHL board meetings after the emergence of the CFT issue;
conduct of the CFT and Sapesco investigations and the disciplinary proceedings against Mr Gray.

On the other hand I have found that the petitioners’ interests have been unfairly prejudiced by conduct as regards:

refusals to provide information concerning Braid Asia;
·obstruction of the 2011 audit of Braid Asia;
removal of BJM as group auditors.

I therefore hold that conduct unfairly prejudicial to the interests of the petitioners has been proved. I must therefore now address my task under section 996, namely to make such order as I think fit for giving relief in respect of the matters complained of.

Valuation of BGHL
[142] Expert evidence on the valuation of BGHL, and consequently of the value of the petitioners’ shareholdings, was led on behalf of the petitioners and the second to fourth respondents respectively. The experts’ views on the value of the company differed very widely. It was, however, common ground between the parties that in valuing the shares of any of the members for present purposes, it was appropriate to value them at a pro rata share of the value of the company, and not to apply any minority shareholding discount.

Evidence for petitioners: Paul Beber
[143] Mr Paul Beber is a partner in HW Fisher & Co, Chartered Accountants, London, and a director of Fisher Corporate plc, a company wholly owned by HW Fisher & Co with specialisation in inter alia company valuation. On average, Mr Beber has carried out approximately 12 valuations per year for the last 20 to 25 years. He provided a written report dated 10 February 2015 which had been prepared by him in collaboration with a manager in his firm’s forensic department. This was the first case in which he had given oral evidence in court, his work usually being more concerned with assisting parties to actual share sales.

[144] In valuing BGHL, Mr Beber adopted a market multiple approach, and also used a discounted cash flow (“DCF”) income approach as a “sanity check”. For the market multiple approach it was necessary firstly to arrive at a figure for BGHL’s maintainable earnings, ie the post-tax profits that the business could be expected to generate in the future. Mr Beber considered it appropriate to base his calculation on three years’ earnings, namely the years to 30 June 2013 (for which audited accounts were available), 2014 (for which final accounts approved by the board were available), and 2015 (for which the board’s forecast together with management accounts to 31 December 2014 were available). He adjusted the post-tax profits for exceptional items and exchange rate gains and losses, and then applied an average tax rate to the adjusted profits. He also adjusted the 2015 figure to eliminate the value of minority interests in subsidiary companies held by other shareholders, using the average minority interest percentage for all Braid group profits between 2010 and 2014. This exercise, after revision during the proof for an arithmetic error, produced average adjusted annual profits after tax of £2,998,000. The next step was to select an appropriate multiplier (the P/E ratio) reflecting the number of years’ earnings a purchaser would pay to acquire the company. Mr Beber found no published P/E ratios of any direct comparator companies. He therefore relied upon P/E ratios of 23 UK and non-UK shipping and logistics companies, and 44 UK and non-UK packaging companies. Companies with no published P/E ratio were excluded on the assumption that these companies were making losses, which BGHL was not. This exercise produced an average P/E ratio of 16.2. Mr Beber applied a marketability discount of 20% to give a P/E ratio of 12.8 for BGHL. Applying this figure to the average adjusted annual profits produced a value for the company of £38,374,400.

[145] On a DCF basis, Mr Beber used the same figure of £2,998,000 as a reasonable estimate of ongoing cash flows. In order to calculate the present value of assumed future earnings, he applied a discount factor derived by using a modified capital asset pricing model. He assumed that a hypothetical purchase would be effected using equity capital (which is more expensive than debt) and applied the “buildup” method for the cost of equity capital. Beginning with a risk-free rate of 1.5%, he added an equity risk premium of 6% to which he applied a beta value of 0.73: a low figure recognising that BGHL was debt-free. He then added a small stock premium of 11.65%, producing a discount rate of 17.53%. Next he required to take into account the company’s anticipated growth rate. Historically, the shipping and container market showed a growth rate of 6.7% pa, and studies showed anticipated future growth of around 6 to 7%. BGHL’s average annual growth rate since 2009 had however been 12.4%. Mr Beber considered it prudent to take a midpoint and assume a growth rate of 9%. Cash flow into perpetuity was calculated by dividing £2,998,000 by (17.53% - 9%), giving a value of £35,146,000.

[146] Finally, because BGHL had substantial surplus assets over and above those required for the business’s day to day working capital requirements, Mr Beber regarded it as appropriate to add £3,000,000 to both the earnings and DCF valuations.

Evidence for respondents: Ms Emma Porter
[147] Ms Porter is a chartered accountant who is a director/partner of Aver Corporate Advisory Services Ltd. Her forensic accounting experience has included company share valuation in the context of disputes including a minority shareholders’ claim. Prior to specialising in forensic accounting she carried out share valuations in other contexts on a regular basis. She provided a written report dated 10 March 2015 which had been prepared after sight of Mr Beber’s report. She also provided a supplementary report dated 29 June 2015 which was prepared after sight of an unofficial transcript of Mr Beber’s oral evidence at the proof.

[148] Ms Porter agreed with Mr Beber that the most appropriate method of valuation of BGHL was on the basis of maintainable earnings. However, she considered it appropriate to use earnings before tax (EBITDA) as the basis of the calculation, as opposed to Mr Beber’s use of post-tax earnings. In order to assess what would be an appropriate EBITDA figure, she had regard to the operating profit in each of the years to 30 June 2010, 2011, 2012, 2013 and 2014. She also took into account the forecast profit for 2015, but as it was significantly higher than the actual profit for the preceding years, she “flexed”, ie reduced, the 2015 figure for two reasons: firstly, scepticism as to the achievability of the projected growth and, secondly, because it did not appear to take account of a reduction due to intra-group trade which would occur when the group companies’ accounts were consolidated. Taking all of these figures into account, she considered that the 2014 operating profit could be used to produce a figure for EBITDA, which she calculated to be £4,685,000. Her starting point for selecting an appropriate multiplier was the BDO Private Equity Price Index, which had an average in 2014 of 8.7. To this figure she made several adjustments, adding 1 for market position and financial strength, deducting 1.5 for dependence upon key individuals who were also shareholders, deducting 0.5 for boardroom difficulties, deducting 1 for uncertainties arising out of the self report, and deducting 0.5 for potential reputational risk and trading party relationship changes as a result of the bribery issues. The resultant multiplier was 6.2 which when applied to the EBITDA gave £29,047,000. From this figure she deducted £2,000,000 in respect of possible future costs arising from the self report, and £5,610,000 in respect of minority interests. Her valuation of BGHL was accordingly £21,437,000.

[149] For purposes of comparison, Ms Porter also produced a valuation based upon P/E ratio. She considered Mr Beber’s comparators to have been too broadly based and preferred to use five companies with businesses that she regarded as closely aligned to that of the Braid group. This produced a P/E ratio of 10, which she reduced by a 25% marketability discount to 7.5. Using post-tax profits for 2010-2014, together with the flexed forecast for 2015, she arrived at a figure of £2,804,000 for sustainable post-tax earnings. The value of the company on this basis was therefore £21,030,000. Ms Porter did not consider a DCF method to be appropriate. Again, however, she produced a valuation for comparative purposes. Her main area of disagreement with Mr Beber was over growth rate; she did not consider it prudent to make any use of the anticipated 12% growth rate for 2015 and instead calculated a growth rate, based on past performance, of 7.1% which was in line with the shipping and container market growth rate and projected growth rate. The resultant valuation would have been £22,918,000.

Assessment of evidence
[150] I find it surprising, and somewhat disappointing, that two share valuation experts could arrive at such radically different opinions on the value of the company, especially as they agreed that a valuation method based upon maintainable earnings was the appropriate one, and that it ought not to matter much whether one used profits before or after tax. There is, of course, no “correct” answer to the valuation of a company. I am, however, driven by the size of the gulf between the respective valuations to conclude that this is not attributable entirely to acceptable differences of judgment, but rather that one or other or both of the witnesses has or have adopted an erroneous approach in some way. I do not feel able to accept either opinion in its entirety. Having considered the evidence very carefully, my inclination is to place greater confidence in the opinion of Mr Beber. It is the case that his report contained certain errors, notably in relation to confusing addition and subtraction of certain adjustments for exchange rate gains and losses. (I do not accept another of Ms Porter’s criticisms, that Mr Beber’s use of the forecast 2015 operating profit failed to account for intra-group transactions; as Mr Beber explained, these would net off at the profit line on consolidation.) I did form the impression that Mr Beber was attempting to provide an impartial opinion without any tendency towards a high valuation. Ms Porter, on the contrary, seemed to me at times to lean towards a desire to arrive at a low valuation, which would of course favour the second to fourth respondents’ interests. This may have been partly due to the fact that her reports were to an extent reactive to Mr Beber’s evidence, giving the impression that she was looking for reasons to bring his figures down. An example of this was her “flexing” of the 2015 forecast profit which seemed to have no basis other than that it looked a bit too high.

[151] It appeared to me that each expert witness made valid criticisms of the methodology adopted by the other. In reaching my own conclusion, I have begun by making adjustments in respect of the criticisms which seemed to me to have the greatest force.

Mr Beber’s P/E calculation.I accept, in one respect, Ms Porter’s criticism of Mr Beber’s choice of comparator companies as too broadly based.Having heard detailed evidence regarding the nature of the current and anticipated future business activities of the Braid group of companies, I consider that there is an insufficient factual basis for use of companies in the packaging industry as comparators.A perusal of Mr Beber’s schedules indicates that his comparator companies are largely concerned with manufacture of various types of packaging; that of course is not the business of BGHL but rather of PPCL.If the selection of comparators is restricted to shipping and logistics companies, the market in which the Braid group professes to operate, one obtains an average P/E of about 13.A 20% discount for marketability provides a P/E ratio for BGHL of 10.4.I also consider, given the uncertainties regarding the outcome of the Crown Office investigation, including the amount of any fine or confiscation order, that it is not appropriate at this time to make any addition for surplus cash.With these amendments to Mr Beber’s calculation, the value of BGHL would be £31,179,000.
Mr Beber’s DCF calculation.Mr Beber emphasised that his DCF calculation was included merely as a cross-check; I accept it on that basis.I also accept, however, Ms Porter’s view that Mr Beber’s assumed growth rate of 9% is over-reliant upon a single unfinished year’s projected growth.As Ms Porter’s table (supplementary report, paragraph 6.17) demonstrates, a variety of average growth rates for the company can be obtained by choosing different beginning and end points.I consider that Ms Porter’s growth rate of 7.1, in line with industry averages, is a more prudent figure to use.When a growth rate of 7.1 is substituted for 9 in Mr Beber’s calculation, and applied to an adjusted net annual profit of £2,998,000, a value of £28,744,000 is produced.
Ms Porter’s EBITDA calculation.With one exception, I am not persuaded that any of Ms Porter’s adjustments to the BDO index figure of 8.7 is required.While Mr Beber accepted that an increase from the average might be appropriate, he pointed out that the addition of 1 selected was wholly subjective and unsupported by any source.The deductions for dependence on key individuals and board room issues also seemed to me to be speculative, especially given the purpose and intended outcome of the present litigation.I accept Mr Beber’s opinion that uncertainties regarding the Crown Office self report are properly to be taken into account by a lump sum adjustment to value rather than by a multiplier which implies recurrence.In my own calculations I have addressed this point by removing Mr Beber’s addition for surplus cash.I do, however, find an evidential basis for Ms Porter’s deduction of 0.5 for trading party relationship changes; there was evidence that, as a matter of course, large companies who may be customers of the Braid group ask questions designed to uncover any history of bribery offences by a prospective supplier.That being so it seems to me that the deduction proposed is justified.That would produce a multiplier of 8.2.I also reject Ms Porter’s final deduction of £2,000,000 from her valuation which would duplicate either (in her calculation) the reduction by 1 of the multiplier in respect of legal uncertainties or (in my calculation) the disregard of surplus cash.When applied to an EBITDA of £4,685,000, a multiplier of 8.2 produces, after the deduction of £5,610,000 for minority interests, a value of £32,807,000.

Conclusion
[152] There are many other disagreements, of a more detailed nature, between the two witnesses. I consider that these largely consist of matters upon which two experienced and competent valuers might reasonably disagree. Having identified and taken account of the elements of each valuation that I regard as open to valid criticism, I find that figures not too far apart from one another have been produced. I therefore find, on an analysis of all of the company valuation evidence presented to me, that BGHL may reasonably be valued, as at the date of conclusion of the proof, at £32,000,000.

Order for relief
[153] I now turn to the assessment of appropriate relief under section 996 for the unfair prejudice to the petitioners’ interests that I have found established. Here lies the crux of the dispute between the petitioners on the one hand and the second to fourth respondents on the other. The petitioners submit that the court should order the purchase by the company of their shares at a price pro rata to the valuation of the company. On the basis of my finding that the value of the company is £32,000,000, the cumulative value of the petitioners’ holdings would be £20,614,400. The second to fourth respondents, supported by the fifth respondent, submit that because of Mr Gray’s participation in the CFT and Sapesco bribery offences, he is a Bad Leaver in terms of the articles of association of BGHL, entitled on disposal of his shares to be paid only whichever is the lesser of their fair value or their subscription or par value. It is contended that to give appropriate relief under section 996, an order should be made for the purchase by the company of the petitioners’ shares at par value, ie £2,444,000.

[154] The discretion granted to the court by section 996 is a wide one. In a well-known dictum, Oliver LJ observed in Re Bird Precision Bellows [1986] Ch 658 at 669 (with statutory references updated):

“…It seems to me that the whole framework of the section, and of such of the authorities as we have seen, which seem to me to support this, is to confer on the court a very wide discretion to do what is considered fair and equitable in all the circumstances of the case, in order to put right and cure for the future the unfair prejudice which the petitioner has suffered at the hands of the other shareholders of the company; and I find myself quite unable to accept that that discretion in some way stops short when it comes to the terms of the order for purchase in the manner in which the price is to be assessed. It has been pointed out, and I mention it again, that [section 996(2)] is merely a collection of possible methods of giving effect to [section 996(1)], and it is expressed to be without prejudice to the generality of subsection [(1)], which gives the court a very wide discretion as to the granting of relief in general terms in respect of the matters of which complaint has been made.”

In Grace v Biagioli [2006] 2 BCLC 70, Patten J, delivering the judgment of the Court of Appeal, put the matter thus at paragraph 73:

“Once unfair prejudice is established, the court is given a wide discretion as to the relief which should be granted. Although [section 996(1)] speaks in terms of relief being granted ‘in respect of the matters complained of’, the court has to look at all the relevant circumstances in deciding what kind of order it is fair to make. It is not limited merely to reversing or putting right the immediate conduct which has justified the making of the order… The court is entitled to look at the reality and practicalities of the overall situation, past, present and future.”

The discretion must of course be exercised judicially. “Fairness” includes the avoidance of unjust enrichment: Re Sunrise Radio Ltd [2009] EWHC 2893 (Ch), HH Judge Purle QC at paragraph 283. Conduct of the petitioner may affect the relief which the court thinks fit to grant: Re London School of Electronics Ltd [1986] Ch 211, Nourse J at 222; Richardson v Blackmore [2006] BCC 276, Lloyd LJ at paragraph 53.

[155] The circumstances of Re LCM Wealth Management Ltd [2013] EWHC 3957 (Ch) bear certain resemblances to those of the present case, although the matter came before the court in a different way. The petitioner in that case, a Mr Moxon, sought relief under section 996 in respect of (i) his removal from office as a director and his exclusion from management, and (ii) the implementation of provisions in the company’s articles and in a shareholders’ agreement which compelled the transfer of his shares at par value if he was to be characterised as a “Bad Leaver”. Hildyard J held that whether or not the company was properly to be regarded as a quasi-partnership, there was no overriding reason not to give effect to arrangements, including those for dismissal and removal of a director and the sale of his shares, comprised in agreements entered into among shareholders which were neither unreasonable nor inequitable. If Mr Moxon was a “Bad Leaver” according to the terms of these agreements, then his dismissal and the sale of his shares at par value could not be said to be unfair, and there would be no jurisdiction under section 994 for the court to interfere with the consequences contractually prescribed. Having held that Mr Moxon was indeed to be characterised as a “Bad Leaver” who had been guilty of gross misconduct, Hildyard J dismissed the petition. At the very least, this case demonstrates that the terms of contractual arrangements freely entered into by shareholders are a relevant consideration when the court exercises its discretion under section 996 as to the appropriate relief for unfairly prejudicial conduct.

[156] Article 6.8 of BGHL’s articles of association deals with compulsory share transfers. It applies inter alia where any shareholder ceases for whatever reason to be a director and/or employee of BGHL or a group member, and deems such an individual to have given a transfer notice constituting the board as agent for the compulsory transfer, at the “Sale Price”, of all shares then held by him. Article 6.8.2 provides as follows:

“The Sale Price for Compulsory Sale Shares the subject of a Deemed Transfer Notice will be determined as follows:

…

6.8.2.2 If the Leaving Shareholder is a Bad Leaver, the Sale Price shall be 75% of the fair value as determined by the chartered accountant pursuant to Article 6.1, save where the reason for ceasing to be employed or to act as a director is fraud or gross misconduct in which event the Sale Price shall be the lower of (a) 75% of the fair value as determined by the chartered accountant pursuant to Article 6.1 and (b) the subscription price (including any premium thereon) paid by the Vendor for the Compulsory Sale Shares…”

In terms of article 1.4, the expression “Bad Leaver” includes a leaving shareholder whose contract of employment is terminated where, in the reasonable opinion of the Board, he has committed an act of gross misconduct (whether or not constituting a ground for summary termination of his employment, and including any act of fraud), other than in circumstances where the termination is subsequently held by a court or employment tribunal to have been unfair or wrongful dismissal (other than because of a failure to comply with appropriate disciplinary or grievance procedures).

[157] Clause 13.1 of the Shareholders’ Agreement provides that all provisions in the agreement relating to transfer of shares are to be read subject to the articles of association, and that no transfer of shares shall be made other than in accordance with the articles or (where appropriate) schedule 4 to the Shareholders’ Agreement, which deals with put and call options.

[158] It was submitted on behalf of the petitioners that it was beyond the reasonable bounds of the court’s discretion under section 996 to treat Mr Gray as if he were a Bad Leaver as defined in the articles. That was a decision for the board, not the court. The board had made no such decision. So long as proceedings challenging the disciplinary procedure were continuing, it could not be said whether Mr Gray’s employment by Braid UK was terminated by Shane Watson’s decision in April 2013 or by Mr Gray’s resignation in December 2014. So long as he remained a director of BGHL, he could not be a Bad Leaver. It was not a proper exercise of the court’s discretion to “punish” an applicant for his own conduct.

[159] On behalf of the second to fourth respondents, it was submitted that in order to inform itself of all the circumstances relevant to the exercise of its discretion, the court had to make a finding as to whether the BGHL board would have reasonably concluded that Mr Gray had committed an act of gross misconduct. Regardless of whether there had been unfairly prejudicial conduct, the evidence was that Mr Gray’s employment would have been terminated; the BGHL board would have come to the reasonable conclusion that he had committed an act of gross misconduct; as a result, he would have been removed as a director of all Braid companies; and the provisions of article 6.8.2.2 would have been invoked to require the sale of his shares at par value. The purpose of relief under section 996 was to compensate a shareholder for the unfair prejudice complained of, not to put the petitioners in a better financial position than they would have been had there been no unfair prejudice at all. Otherwise the petitioners could use these proceedings to escape from the terms of the articles applicable to a Bad Leaver.

[160] In my opinion the submissions for the second to fourth respondents are to be preferred. The authorities to which I have referred emphasise that the court’s discretion is a broad one, to do what is fair and equitable in the circumstances of the case. They also make clear that in exercising its discretion the court ought not to restrict its consideration to the conduct that has justified the making of an order, but must have regard to all of the relevant circumstances. Commission by a petitioner for relief under section 996 of gross misconduct entitling the board to dismiss him as an employee and remove him as a director is clearly, in my opinion, one of the relevant circumstances. If the consequence of such dismissal and removal is the triggering of a provision in the company’s articles for transfer of the dismissed employee’s shares at par value, that is what the parties agreed and, like Hildyard J in Re LCM Wealth Management Ltd, I see nothing intrinsically unfair in giving effect to what was no doubt a carefully negotiated contractual provision.

[161] It is acknowledged by Mr Gray that participation in an arrangement for bribery of a senior executive of a customer company would, in principle, amount to gross misconduct. I have found in fact that Mr Gray did authorise the arrangement for bribery of Mr Park of SGL, as well as the separate arrangement for bribery of Mr Kanafani of Sapesco, and did therefore participate in both of those arrangements. I accordingly find that he has been guilty of gross misconduct. I reject the submission on his behalf that the court cannot treat Mr Gray as if he were a Bad Leaver unless or until the BGHL board has found him to be so (and, presumably, until any challenge by Mr Gray to the legitimacy of such a decision has been exhausted). It is yet another objection of a procedural nature which runs contrary to the wide power conferred upon the court to decide what order it is fair to make. The proper approach for the court to take is to determine what is fair and equitable in circumstances in which the consequence of Mr Gray’s conduct is that the Bad Leaver provisions of the articles have become applicable. To do otherwise would be to put the petitioners in a better position than if there had been no unfairly prejudicial conduct. It is therefore, in the whole circumstances of the case, fair and reasonable to make an order for the purchase of the petitioners’ shares at the lower of 75% of fair value and the subscription or par value paid for them. I understand it to be common ground that par value is £2,444,000, and that that figure is lower than 75% of fair value. I shall therefore make an order for the purchase of the petitioners’ shares for the aggregate sum of £2,444,000.

The fifth respondent
[162] At the close of the proof, the fifth respondent, Mr Prowse, presented a written submission refuting the petitioners’ contention that he had been a participant in conduct unfairly prejudicial to their interests. For the reasons given earlier in this opinion, I hold that the petitioners have failed to prove that Mr Prowse did anything that constituted unfairly prejudicial conduct. No order against him is now sought.

[163] Mr Prowse also, however, sought leave by a motion intimated on 1 July 2015, in the course of the proof, to amend his pleadings to seek an order requiring petitioners and the other respondents, or any of them, to purchase his shares at such price and in such proportions as to the court should seem fit, together with certain ancillary orders including an interim payment. I continued the motion for argument at the end of the proof. Mr Prowse submitted that the power conferred upon the court by section 996 was sufficiently wide to make an order in his favour if the evidence was such as to demonstrate that this would be fair and reasonable.

[164] I am not persuaded that the statutory provisions are sufficiently wide to permit the court to make an order in favour of a party who has entered the process as a respondent and who has remained only in that capacity. Section 996 provides for relief to be given “in respect of the matters complained of”. That is a reference to the complaint of the petitioner, in terms of section 994, that there has been prejudice to the interests of members generally or to some part of the members including at least the petitioner. In other words, the focus is on conduct prejudicial to the petitioner. To the same effect, section 996 makes clear that the court’s jurisdiction opens up if it is satisfied “that a petition under this Part is well founded”. That is a reference to the application by way of petition under section 994: again, the power to make an order may be exercised only under reference to the application of the member who has brought the petition. The power does not extend to a member who has not applied by way of petition. In the present case, it is apparent from Mr Prowse’s written submission that he would wish to base his case upon complaints of conduct that has been unfairly prejudicial to himself, including in particular the refusal of the board to engage in the procedure set out in BGHL’s articles of association for purchase of his shares following his resignation in 2013 and the subsequent proceedings before the Employment Tribunal. I have great sympathy for Mr Prowse’s position, but these were not the issues with which this petition has been concerned. It is not open to me to attempt to give relief in respect of them. I should add that even if I had considered that it was competent to entertain an application for such relief, I would have refused the amendment on the basis that it came too late in the proceedings as the other parties would have been denied the opportunity to lead or to challenge evidence relevant to the interests of Mr Prowse, as opposed to the interests of the petitioners.

[165] I would, however, say this. It is readily apparent that at least some of the conduct that I have found unfairly prejudicial to the interests of the petitioners, ie regarding Braid Asia and its audit, has been equally unfairly prejudicial to the interests of Mr Prowse. It is further apparent from the evidence I have heard that Mr Prowse and the other non-director shareholders of BGHL would have their own strongly arguable case of unfairly prejudicial conduct with regard to persistent failures to respect their rights under the Shareholders’ Agreement. Were Mr Prowse to raise his own petition under section 994, the prospects of success would appear to me to be high. That being so, I would express the earnest hope that the BGHL board will give early consideration to the buying out of Mr Prowse’s interest without the need for yet more litigation, and that the views on valuation that I have expressed will be of some assistance in that regard.

The sixth and seventh respondents
[166] Mr Bagley and Mr Russell submitted brief closing written submissions refuting the petitioners’ claim that they were part of a conspiracy against Mr Gray, and denying that they have acted in a manner unfairly prejudicial to the interests of the petitioners. As with Mr Prowse, I hold that the petitioners have failed to prove that either Mr Bagley or Mr Russell did anything that constituted unfairly prejudicial conduct. No order against either of them is now sought.

The eighth respondents
[167] It was submitted on behalf of the eighth respondents that it was not appropriate for a substantive order to be made against them requiring them to purchase the shares of any other person. This was, in substance, a dispute between Mr Gray on the one hand and Messrs Leddra, Watson and Watson on the other, with the eighth respondents caught in the middle. I agree that it would not be appropriate to make an order requiring the purchase of any of the petitioners’ shares by these respondents; no such order is now sought.

[168] The eighth respondents also, however, submitted that I should make it a condition of any order for the purchase of shares (by whichever party) that the shares of the eighth respondents should also be so purchased. They further submitted that there was no basis for that purchase to be at a discounted price, whether by application of the Bad Leaver provisions of the articles or otherwise, but that the shares should be valued pro rata of the company valuations. I consider that what I have said regarding Mr Prowse’s submission applies mutatis mutandis to the eighth respondents’ submission, and I decline to make the order sought. Counsel for the eighth respondents referred to Re Neath Rugby Ltd [2010] BCC 597 (CA), in which Stanley Burnton LJ pointed out (in an obiter passage at paragraphs 85-88) that the power under section 996 was to make such order as the court thinks fit, and not merely such order as is sought by the petitioner. That is undoubtedly so, but it would be quite a different matter to grant relief to a person who has not applied for it by way of petition, in respect of conduct said to be unfairly prejudicial to that person as opposed to the petitioner. I express no view on whether, and if so how, the Bad Leaver provisions would fall to be applied in the event of a transfer or deemed transfer of the eighth respondents’ shares; that issue does not arise for decision in the present proceedings.

Disposal
[169] In the prayer of the petition, as adjusted in September 2014, the petitioners seek an order for purchase of their shares by the first petitioner (ie the company), and/or the second to eighth respondents, at such price or prices and in such proportions as to the court shall seem fit. In closing submissions, however, the petitioners’ position was that the court should order the purchase of the petitioners’ shares by BGHL, which failing by any or all of the second to fourth respondents. I understand that the alternative is sought as a protection against any attempt by these respondents to run down the resources of the company following the making of an order against it. Having regard to the valuation evidence I have heard, and the price for which I am ordering the petitioners’ shares to be transferred, I do not regard this as a realistic risk. I shall make an order for the purchase of the petitioners’ shares by the company, but before pronouncing an interlocutor I shall put the case out by order to discuss the time scale for payment and any other matters arising from this opinion. All questions of expenses are reserved.

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	Scottish Court of Session Decisions
You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Gray & Ors, Re Braid Group (Holdings) Ltd [2015] ScotCS CSOH_146 (30 October 2015) URL: http://www.bailii.org/scot/cases/ScotCS/2015/[2015]CSOH146.html Cite as: [2015] ScotCS CSOH_146

Scottish Court of Session Decisions