Case No: A3/2007/1739
Neutral Citation Number: [2007] EWCA Civ 1075
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT
CHANCERY DIVISION
(MR JUSTICE MANN)
Royal Courts of Justice
Strand, London, WC2A 2LL

Date: Wednesday, 15th August 2007

Before:

LADY JUSTICE ARDEN
and
LORD JUSTICE THOMAS
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Between:

PRINGLE & ORS
	
Appellants	
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CALLARD	
Respondent

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(DAR Transcript of 
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Mr E King (instructed by Messrs Moore Blatch) appeared on behalf of the Appellants.

Andrew Parsons (instructed by Messrs Graeme Quar & Co) appeared on behalf of the Respondent.
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Judgment
Lady Justice Arden: 

1.	Mr Callard owns one third of the issued shares in Trailer Care Limited. On 27 July 2007 he presented a petition under Section 459 of the Companies Act 1985, naming the other two shareholders, Kevin Pringle and Gary Pringle and the company as respondents. He claims that the company is a quasi partnership company from which he is to be excluded. The directors of the company were Mrs Callard, Mr Kevin Pringle and Mr Gary Pringle.  Mr Callard is not a director because he is disqualified from acting as a director, and he says that it was agreed that his wife Mrs Callard should be his nominated director.

2.	Management disputes have arisen between the individual parties. There were discussions about Mr Callard buying out the Pringles or the Pringles buying him out in the spring of 2007.  Then on 19 June 2007 or thereabouts, at a board meeting the Pringles convened an extraordinary general meeting of the company for 19 July 2007.  They immediately suspended Mr Callard from working for the company.  They also gave notice that Mrs Callard would be removed as a director at a meeting in the future. There was a holding agreement reached between the parties but Mr Callard says that, in breach of that agreement, the Pringles had changed the locks on the company’s premises and refused access to Mrs Callard and disabled the company’s computer systems which stopped Mrs Callard from fulfilling her duties.  They have also put a stop on the company credit card, of which Mr Callard had previously had the use, but we have not been concerned with that matter.  It is also alleged that Mr Kevin Pringle told Mrs Callard on 21 June 2007 not to deduct £10.00 per week from his salary although the company had been instructed to do so by the Child Support Agency.  That is another matter with which we have not been concerned.

3.	Then on 29 June 2007 there was a meeting to negotiate a resolution of the dispute. Mr Callard says that, other than agreeing to Mr Callard’s proposal that an expert valuer was jointly instructed to value the shares, the Pringle brothers were not prepared to agree to anything. He had offered to remain away from the premises provided that he had access to the company’s computer system.  The Pringles wanted him to resign immediately and they would not adjourn the extraordinary general meeting for the removal of Mrs Callard. 

4.	By letter dated 29 June 2007 the solicitors for the Pringles wrote to Mr Callard’s solicitors stating that the extraordinary general meeting would take place on Monday 23 July 2007, and that a resolution would be passed for the removal of Mrs Callard as a director. They also threatened an injunction if Mr and Mrs Callard attended the company’s premises.  Mr Callard says that at the board meeting on 29 June, the Pringle brothers had purported to pass a series of controversial additional resolutions of which no notice was given to Mr or Mrs Callard. These resolutions included resolutions purporting to exclude Mrs Callard from participating in any way in the business of the company without the prior consent of the Pringles, and they also purported to remove her from any bank mandate of the company.  It is said that the Pringles had thereupon attempted to change the bank mandate and removed her as a signatory.

5.	The order sought on the petition is that the Pringles do purchase Mr Callard’s shares at their fair value to be determined by the court or an independent valuer, with no discount for a minority shareholding and with a premium to reflect the loss suffered as a result of matters of unfair prejudice or breach of duty with interest.  It is said that the Pringles had acted wrongfully and that the relationship of trust and confidence between Mr Callard on the one hand and the Pringles on the other has broken down. There is an alternative prayer for relief that the Pringles do sell their shares in the company to Mr Callard, at a fair value to be determined by the court, with a discount to reflect the loss suffered by the company as a result of the matters of unfair prejudice and/or breach of duty set out above.

6.	By way of further background, the Pringle brothers and Mr Callard have apparently been paying themselves a salary of £100 per week and a dividend of £650 per week though the details of how that dividend is paid are not clear to this court.  Mr Edmund King, for the appellants, has told us on instructions that the dividend is, as it were, legitimated at the end of the financial year.

7.	The appellants’ case is that Mr Callard: 

“…was justly excluded from the company on the grounds that (a) he misappropriated money from Company to found a company which he has set up with his wife, who is a director of the Company; (b) he took confidential information from the Company to assist with that new company; (c) he used company funds and his company credit card for personal use; (d) he held himself out as a director of the Company, which he was not and which he was not entitled to do as he had been disqualified from acting as a director.”

8.	I there quote from paragraph 2 of the appellants’ skeleton argument in this court. Of course all those matters are in issue; nothing which this court says constitutes any finding of fact; that would be a matter for trial if there ever has to be a trial of this case.  

9.	The individual appellants also say that they are physically frightened of the petitioner who has, they say, boasted to them of his convictions for violence. Their evidence is that the petition should be dismissed on the grounds that they were entitled to exclude the petitioner.

10.	On 19 July 2007, Mr Callard made an application for certain injunctions against the Pringle brothers in his Section 459 proceedings.  The injunctions which he sought included injunctions preventing the Pringle brothers from attempting to remove Mrs Callard as a director, or changing the company bank account or making any changes to their salary or dividends; he also sought mandatory orders for full unrestricted access to the premises and to copy documents.  

11.	The matter came before Mann J on 27 July 2007, and he granted a stay of the proceedings and certain orders: I will come to those orders in a moment.  It is said in the grounds of appeal that the judge erred in refusing to entertain arguments as to why Mr Callard could not demonstrate a serious issue to be tried, saying that the question of whether the petition had a real prospect of success would have to be determined on another day. It is also said in the grounds of appeal that he granted an injunction without considering whether the petitioner had shown a serious issue to be tried, and in addition that he failed to consider whether damages would be an adequate remedy and whether the cross-undertaking would be an adequate remedy. He failed to take into account the status quo and the delay in bringing the application and he wrongly considered that all that should happen was that the Section 459 petition should be stayed for mediation.  It is further said that the judge should have held that the petition was liable to be struck out and that no injunction was appropriate.  Reliance is placed on the speech of Lord Hoffmann in O’Neill & Anr v Phillips & Ors where Lord Hoffmann sets out the criteria for an offer which, if made by a respondent to a contributor’s petition under Section 459 and which, if made, may lead to the further prosecution of the petition being an abuse of process of the court.

12.	After Mann J made his order, an appeal was entered in this court on 30 July 2007, and on 1 August 2007 Jacob LJ made a direction that the application for permission to appeal should be relisted for hearing at the convenience of the court, that Mr Callard was not to inspect documentation or attend the company’s premises pending a hearing of the application or an appeal, and that the parties were to mediate the dispute between now and the hearing of the petition. He stated that the court would require the parties to provide details and evidence of their attempts to mediate the dispute at the relisted hearing.  I should say that Jacob LJ directed that the appeal should be heard either immediately after the permission application or with it.  

13.	I now go back to the order as made by the judge.  The position is that we have no note of any judgment of the judge.  It appears that he did not give reasons for the order that he made.  We do not even have a transcript of the hearing because, as we understand it, the tape was not switched on to enable it to be recorded. We have, however, a solicitor’s attendance note, to which the respondents to this appeal have made certain amendments, though I think it is true to say it is not an agreed document.  That solicitor’s attendance note has, however, been of assistance.  

14.	The further problem on this appeal is there is no agreed minute of order of the judge’s order, and there is a measure of dispute about precisely what was ordered. It is not the function of this court on this appeal to go into those disputes; that would be a matter for the Chancery Division.  Having looked at what the parties say about the terms of the order which the judge made, it seemed to us that the right way to proceed was to proceed on the basis that the order which the judge made is effectively that summarised in paragraph 12 of the respondent’s skeleton argument in this court. We are therefore expressing no view on what should go into the recitals to that order.

15.	There are, however, two qualifications I must make to the summary in paragraph 12 of the respondent’s skeleton argument but I will first read the first four of paragraphs of that summary.  I start with the first: 

“1) An interim order staying the Application and the substantive s.459 proceedings until 21 September 2007 (a period of 8 weeks) to enable the parties to settle by means of mediation;”

16.	The first qualifications to be made to the summary apply to this paragraph.  As we read the solicitor’s note of attendance before the judge, the judge did not intend to stay any application which may be necessary and may be advised to strike out the petition on the grounds of an abuse of process and accordingly,  the order as drawn should reflect that there is an exception from this stay, namely the stay does not apply to the issue of an application to strike out the petition on the grounds that offers have been made, and that that application can be drafted, issued and served, together with the accompanying evidence and skeleton argument even before 21 September 2007. There would, however, be no hearing before that date.

17.	Paragraphs (2) to (4) of the summary state: 

“(2) An interim injunction order that during the period of the stay Mr Callard’s wife, Mrs Tina Callard, is to remain a director of the Company and an EGM called to remove Mrs Callard should be adjourned;

(3) An interim injunction order ordering that the Pringles must give to Mrs Callard at least 24 hours notice in writing of any cheques or other financial documents that they propose to sign on behalf of the Company;

(4) An interim injunction order that the £750 per week currently paid to Mr Callard will be reduced only in the event that the £750 per week currently paid to each of the Pringles is also reduced;”

18.	Paragraphs (5) and (6) of the summary 12 set out the terms of the judge’s order as to access to the company’s documents, and it is common ground that it applies to documents of all kinds and not simply accounting records. It is not necessary for me to read those paragraphs out because Mr King does not seek to disturb those orders. I can now deal with the second qualification to this summary.  It is agreed between Mr Parsons, for Mr Callard, and Mr King, for the appellants, that the access to the books and records provided for in these paragraphs is for Mr Callard’s use solely for the purpose of valuation and mediation, not otherwise. That is an agreed matter, but it will be noted that those paragraphs give very extensive rights to Mr Callard to see the documentation of the company on a regular basis and for substantial periods at a time.  Accordingly the principal issues on this appeal relate to paragraphs (2), (3) and (4) of the order as summarised in paragraph 12 of the respondent’s argument. 

19.	I would, at this point, go back to the hearing before the judge, and to what appears from the solicitor’s attendance note.  The judge had before him the application by the petitioner which I have already mentioned.  Mr Parsons, who also appeared before the judge, submitted that the application was urgent because there was an extraordinary general meeting to remove Mrs Callard, fixed for 23 July 2007.  The judge indicated that he intended to proceed on the basis that Mr Callard would sell his shares if he were successful in his petition.  Mr Parsons submitted that Mr Callard needed access to the company documents.  Mr King, who again appeared below for the individual respondents to the petition, submitted that the Pringles did not want to part with the business as they had been running it for 30 years.  Mr Parsons submitted that there had to be equal treatment of his clients.  He asked that Mr Callard should have use of the credit card, but the judge rejected that request as Mr Callard had no need to use it given that he had been suspended as an employee.  I should point out there is no cross appeal on that point.  The judge indicated that any order would last for a short period until the application to strike out the petition could be dealt with.  He indicated that, so far as he was concerned, both parties needed a valuation and that he would stay the petition for mediation and settlement after the valuation.  He said that he proposed to stay the petition for eight weeks to allow for mediation and settlement.  The relief in the interim application was to hold the ring for the purposes of valuation and that the access to information was for those purposes only.

20.	As I have said, the parties have been unable to agree the form of the order.  We do not have a reasoned judgment of the judge; what I have summarised above are points taken from the solicitor’s attendance note as points made by the judge in the course of argument.  This court would not normally rely on those as constituting the judge’s reasons, but in this particular case it seems that the judge made his order following on from the observations that he had made in the course of argument.

21.	I now go to the general subject of the approach to interim remedies on a Section 459 petition.  It is common ground that in general the principles in American Cyanamid Co v Ethicon [1975] AC 373 apply and that accordingly the court must first be satisfied that there is a serious issue to be tried and that damages would not be an adequate remedy.

22.	Mr King’s argument on this appeal is essentially that the judge should not have granted any injunction as there was no serious issue to be tried on the petition in the light of the fact that his clients had made two offers which complied with the criteria laid down by Lord Hoffmann in O’Neill v Phillips [1994] 1 WLR 1092.  He submits that valuation was an adequate remedy.  Mr Parsons for the respondents submits that what the judge was doing was exercising his case management power to stay the proceedings and to hold the ring in the meantime, but of course the mere fact that the judge grants a stay does not mean that a party is entitled to the grant of an injunction.  There still has to be a serious issue to be tried and the other considerations in American Cyanamid have to be considered.

23.	Mr Parsons submits that the principles in American Cyanamid have a qualified application in this context. He relies on the judgment of Hoffmann J (as he then was) in Re a Company [1985] BCLC 80 at 82 to 83: 

“I would add that, as it seems to me, in cases of litigation under s75 it is most desirable that the position of the company be not altered or disturbed more than is absolutely essential, between the presentation and the hearing of the petition. The existing share structure, the existing contractual rights, the present service contracts and so forth, should in my judgment be maintained as they are pending the determination of the litigation. There might be circumstances where change was essential, but if possible the existing position should be preserved. In my judgment, that is a factor which in these matters arising under contributories petitions is particularly powerful and has more than the normal ‘Cyanamid’ (American Cyanamid Co v Ethicon Ltd [1975] I All ER 504, [1975] AC 396) force in favour of preserving the status quo, since it is the very nature of this matter that the status quo must affect the remedy which may be available.”

24.	In that case there was a risk of irreversible damage if an interim remedy was not granted.  That is because the respondents to the unfair prejudice petition in that case proposed to make a rights issue and Hoffmann J held that there was an arguable issue as to unfair prejudice where the object of the issue, and its effect, might be to deplete the resources of the petitioner to such an extent that he could no longer properly prosecute the petition and where he could not take up his proportionate entitlement under the rights issue.

25.	In my judgment it is very important to read what Hoffmann J said against the background of those facts.  He had in mind a situation where the refusal of the interim remedy could affect the remedy that might be available at trial.  Accordingly, when Hoffmann J says that “it is the very nature of this matter that the status quo must affect the remedy which may be available”, he is referring to the very nature of the matter which was before him, and his observations as to the desirability of maintaining the status quo being a particularly powerful matter in a contributory’s petition apply where, and only where, the failure to maintain the status quo may affect the remedy sought in the petition.  

26.	It is a very different matter where the remedy sought at the end of the day is a buyout and where the matters complained of on an interim basis can be taken into account in the process of the valuation of the shares for the buyout.  This is made clear by Hoffmann J in Re Posgate and Denby (Agencies) Ltd [1987] BCLC 8.  Hoffmann J said this at pages 16 to 17: 

“Assuming that I am wrong in holding that the petitioner has not made out an arguable case, the next question is whether it is just and convenient that I should grant the injunction. That is a question to which as it seems to me the American Cyanamid rules apply by analogy.  One cannot literally ask whether damages would be an adequate remedy because s. 461 does not provide for an award of damages at common law. But the section allows the court to order various forms of financial compensation, for example the respondents can be ordered to buy the petitioner’s shares at a price which reflects the value they would have had if the unfairly prejudicial issue conduct had not taken place. 

“I cannot see how the petitioner can suffer prejudice from the proposed transactions unless it turns out that the syndicates could have been sold at a higher price. The fact that the equity shareholders have not been given the right to block the sales cannot constitute prejudice let alone unfair prejudice without regard to the financial consequences to the shareholders and sales going through. On the other hand, it the evidence at the hearing of the petition shows that it is well founded and that the syndicates have been sold an undervalue, the court can order financial compensation. On the respondents’ side there is a good deal of evidence to show that continuing uncertainty about the future of the syndicates is damaging to the goodwill attaching to their management and that unless they are quickly sold that goodwill may disappear. Although there is some dispute about the degree of urgency the existence of such a risk is not seriously denied.  

“The position is therefore that if I grant an injunction and allow the holders of the majority of the equity shareholders the right to veto the transaction there is a risk (to put the matter no higher) of thereby causing irreparable harm to the company and its shareholders as a whole. If I refuse the injunction and the transaction turns out on the hearing of the petition to have been unfairly prejudicial to the petitioner, he can in my judgment be fully compensated by orders which enable him to receive the value that his shares would have had if the transaction had not taken place.  Counsel for the petitioner said that this would be shutting the stable door too late, when it might be impossible to quantify the loss, if any, which the sales had caused to the company.  But I think that proof of some undervalue must be an essential element in the petitioner’s case and the quantification of that undervalue, difficult as it might be, is a familiar problem faced by the courts in many different contexts. It does not prevent financial compensation from being an adequate remedy.  

“The balance of convenience is therefore in my judgment heavily against the grant of an injunction. The right course is to allow the board to proceed with the proposed sales and to leave the petitioner, if so advised, to pursue such other remedies as may be available under S. 461”

27.	So Hoffmann J refused on that basis to grant an interim remedy in a Section 459 petition when an order was sought seeking to enjoin the disposal of certain of the company’s assets. He said that that could all be dealt with at the stage when the valuation of shares was being done if the petition was successful.  Accordingly, as I see it, when considering the grant of interim remedies the court must consider whether there is an issue to be tried and, if there is, then the court has to consider whether there is an adequate remedy at the end of the day for the petitioner.

28.	Now that takes me first to the question of whether there is a serious issue to be tried.  As I have indicated, Mr King’s argument on this appeal is that the judge should not have granted any injunctions as there was in his submission no serious issue to be tried because of his client’s offers.  

29.	The correctness of this submission turns on whether or not the individual respondents have made a proper offer for the purposes of O’Neill v Phillips.  What is known is that that issue is contested, at least that is known at this stage.  It was open to the judge, if the position before him was not clear, to decide that he could not properly deal with that matter before him without proper evidence on the offers and skeleton arguments dealing with the application of O’Neill v Phillips and also giving a proper opportunity to the petitioner to be heard.  There was no application for striking out the petition at that stage.  In the circumstances, as it seems to me, the judge was entitled to take the view as a matter of case management that he could not deal with that issue at that stage on 27 July, and that there was insufficient time and it was otherwise inappropriate for him to do so.  On that basis he was entitled to proceed on the basis that there was a serious issue on the petition to be tried.

30.	As I have recounted, the judge was prepared to proceed on the basis that Mr Callard would be a seller, seller only, not a buyer, and I have recounted already that the appellants are not only majority shareholders but they also, as we are told, have been involved in this company for some 30 years.  Mr Callard has not cross-appealed from the judge’s holding.  On the other hand, Mr Parsons submits that there is a prayer in the petition for a buyout order and that his client wants to keep all the options open. I have to say that there does not seem to me to be much evidence to show that it is a realistic prospect at this stage, but in view of the speed with which this appeal, and no doubt the application below, came on, I would not decide this appeal against him on that point alone.  So as it seems to me it is necessary to move to the next issue about the adequacy of remedies.  I do this by reference to paragraphs (2), (3) and (4) in the summary in paragraph 12 of Mr Parsons’ skeleton argument. As I have said, those are the only ones which are now in issue.

31.	Paragraphs (2) and (3) can in my view be taken together because they both relate to Mrs Callard and to the fact that she is to have information about the company’s transactions. The position is that Mrs Callard has agreed to stay away from the company’s premises.  She had previously had payroll responsibilities but they have been taken over by someone else. Mr Parsons explains to the court that the reason why it is desired that she should remain a director is so that she can get advance information of transactions and so she if was notified that “the company was about to take on a massive liability”, and there I quote from Mr Parsons’ argument, “she might want to intervene in the affairs of the company, or rather Mr Callard might wish to do so”.  So the primary purpose is to receive information.  She could provide that to Mr Callard so that he had the basis for some other application.  Mr Parsons submits that this is consistent with holding the ring. He submits that anything could happen.  The Pringles have already removed Mrs Callard from the bank mandate but he accepts very fairly that if the company gave Mrs Callard advance notice of transactions over a certain size, that would perform the same purpose as her remaining as a director.

32.	Mr King has stated on instructions that his clients are prepared to give two business days’ clear notice of any transaction over £10,000.  Mr Parsons submits that that figure should be £5,000.  We have been shown the annual accounts for 2004 and the abbreviated accounts for 2005. In my judgment the figure of £10,000 would be adequate to protect the petitioner’s interests.  The court has got to bear in mind that this company has to carry on its business and that a balance has to be struck between the interests of the petitioner and the interests of the respondents.  It would be no good to the petitioner if the company’s business was effectively driven into the ground.

33.	On that basis paragraph (2) can be discharged and it is unnecessary to decide whether it is appropriate for the court as an interim remedy to prevent the company from exercising its undoubted statutory right to remove a director by an ordinary resolution. We have been taken to the decision of Mervyn Davies J in Re Sticky Fingers [1992] BCLC 84, where the petitioner sought an order of the court under S. 371 of the Companies Act 1985 convening a meeting of the company for the purpose of appointing his own director.  The court granted that relief on the basis that there was to be an equal playing field and that no steps would be taken to remove the respondent to the petition, although the petitioner was in fact a majority shareholder. That was a very different situation.  In essence it is contrary to principle to impose a director on a company.  It is highly impractical so to do in any event where there are disputes between the directors or indeed, as here, allegations of improper conduct.  Accordingly, the court would have to be extraordinarily cautious before imposing a director on a company by way of an interim remedy, but as I have said it is not necessary to decide that point.

34.	Having reached this point it is unnecessary also to deal with paragraph (3) of the summary of the judge’s order. It is unnecessary for there to be an order that Mrs Callard have 24 hours’ notice in writing of any proposal to sign any cheques or certain other documents -- there is a dispute as to precisely what documents are intended to be referred to -- because of the undertaking which Mr King is prepared to give on behalf of the individual respondents.  

35.	That takes me to paragraph (4) of the summary, that is, that there should be an interim mandatory order that the £750 per week currently paid to Mr Callard should only be reduced to the extent that the same amount is reduced in relation to the Pringles.  The position is that Mr Callard is entitled to £100 per week as an employee and he is at the moment suspended.  The company has indicated that it intends to implement its disciplinary procedures against him.  As regards the payment of £100, in my judgment, that appears to be a remuneration of Mr Callard in his executive capacity and not a benefit which he receives as a shareholder and thus it would not be appropriate to make an order for the payment of that sum in these proceedings.  His proper remedy is by way of enforcement of his contract of service, which I understand is not written, but there is nonetheless a contract of service, or was one.  

36.	As regards the balance of £650, it appears as I say to have been paid by way of dividend there are obvious issues regarding legality if the company makes interim payments of dividend without having appropriate accounts on which to do so and for the company to continue to pay these sums when those sums are intended to reduce the share price would in certain circumstances involve a violation of Section 151 of the Companies Act 1985.  In my judgment it is not appropriate to continue the order in paragraph (4). Mr King is correct in submitting that if there are sums outstanding to Mr Callard they can be taken into account either as a credit or a debit, depending on who ultimately purchases the shares, if indeed the petition is successful.  Accordingly, I would discharge paragraph (4).

37.	In those circumstances I would dispose of this appeal as follows.  On the appellant giving an undertaking to give not less than two clear days’ prior written notice to Mrs Callard on any transaction over £10,000, and to give that notice also to the petitioner’s solicitors, I would grant permission for this appeal and allow the appeal.  If my Lord agrees, I would also direct, in the light of previous experience, that the parties should remain within the precincts of the court to enable counsel for the appellants to draft a minute of order and to present it to Mr Parsons for the respondents for their agreement so that an agreed minute of order can be handed into the court and an order drawn. Obviously counsel can agree the precise wording of the undertaking.

38.	If the matter is not agreed, then it should be mentioned to the court at 4.00pm.

Lord Justice Thomas:

I agree and in particular with the order my Lady has proposed.  

Order:  Application granted.  Appeal allowed.