(FIRST) RONALD SOMERVILLE, (SECOND) CHARLES SHAW AND(THIRD) NICK FELISIAK AGAINST DAVID MCGUIRE [2020] ScotCS CSOH_70 (10 July 2020)

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Cite as: [2020] ScotCS CSOH_70, [2020] CSOH 70, 2020 GWD 26-344

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OUTER HOUSE, COURT OF SESSION
[2020] CSOH 70
CA120/18
OPINION OF LORD CLARK
In the cause
(FIRST) RONALD SOMERVILLE, (SECOND) CHARLES SHAW and
(THIRD) NICK FELISIAK
Pursuers
against
DAVID McGUIRE
Defender
Pursuers: McIlvride QC; Harper Macleod LLP
Defender: Thomson QC; TC Young LLP
10 July 2020
Introduction
[1]       The pursuers and the defender are shareholders in a private limited company.
Relations broke down and as a consequence they entered into a contract to have the
defender’s shares independently valued, with a view to the defender being bought out. An
expert was appointed. The present dispute is about: (i) which of the exchanges between the
pursuers and the defender constitute the terms of that contract; (ii) what those terms mean;
and (iii) whether the expert is barred from continuing in that post, as a result of apparent
bias. The case called for a proof before answer.
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Background
[2]       The pursuers and the defender are shareholders in 5 PM Limited (“the company”),
which was incorporated in 1999. In rounded figures, the respective shareholdings of the
parties are as follows: first pursuer, 35.4%; second pursuer, just under 20%; third
pursuer, 7.7%; defender, 35.4%. Thus, together the parties own over 98% of the shares. The
remaining shares are held by two others. The first and second pursuers and the defender
are the directors of the company. Since 1992 the defender has been a non-executive director.
The executive directors are the first and second pursuers.
[3]       From around January 2012, the pursuers and the defender have been in dispute
about certain issues relating to the affairs of the company. The defender raised proceedings
against the company and the present pursuers in the sheriff court. The parties came to
recognise that the dispute could be resolved by the defender relinquishing his shares in the
company at a fair price. The first and second pursuers proposed purchasing the defender's
shares at a price determined by a valuation conducted by Johnston Carmichael, chartered
accountants. The defender did not accept the proposal. The first and second pursuers and
the defender then jointly instructed Grant Thornton, chartered accountants, to provide a
valuation of the defender's shares. Grant Thornton issued their letter of engagement on
22 March 2013 (“the Grant Thornton letter”). Their valuation was issued on 16 July 2013.
They subsequently agreed to withdraw that valuation and offered the parties an
opportunity to make representations on any of the factual matters upon which they
intended to rely. The defender declined that opportunity. No further valuation was made
by Grant Thornton.
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[4]       As at 8 November 2016, there was pending before Glasgow Sheriff Court a summary
application by the defender, raised by him against the company and the present pursuers.
He sought interdict against his removal as a director of the company or, alternatively, an
order in terms of section 996 of the Companies Act 2005 that the company or the first and
second pursuers purchase his shares in the company or, alternatively, an order for the
winding up of the company. The defender’s claims were opposed by the pursuers. By letter
dated 8 November 2016 (“the offer”), the pursuers’ solicitors wrote to the defender’s
solicitors making certain proposals to settle the dispute between the parties. One of the
proposals was for the purchase of the defender’s shares based on what was described as
“the Method 2 valuation”. This was a valuation of the defender’s shares by an independent
expert in accordance with the methodology identified in article 10.2 of the company's
Articles of Association. It was a condition of the offer that if the defender elected that his
shares were valued in accordance with Method 2 he would thereafter use all reasonable
endeavours to instruct and cooperate in such an expert valuation.
[5]       Article 10.2 of the company's Articles of Association provides, so far as relevant, that
the price payable to the defender for his shares is to be such price as "the Expert shall certify
to be their fair value" and that
"The Expert will value the shares on a going concern basis as between a willing seller
and a willing buyer ignoring any reduction in value which may be ascribed to the
[shares] if they represent a minority interest and assuming that the [shares] can be
freely transferred."
Article 10.2 further provides that “The Independent Expert's decision on the Sale Price shall
be final and binding”. "The Expert" for the purposes of article 10.2 is
"an independent chartered accountant (who shall act as an expert and not as an
arbiter) nominated by the parties concerned or, in the event of disagreement,
appointed by the President of the Institute of Chartered Accountants of Scotland”
(“ICAS”).
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[6]       Following the offer dated 8 November 2016, the defender continued to pursue the
summary application in the sheriff court. The defender and his solicitors entered into
correspondence from November 2016 with the principal solicitor for the first and second
pursuer, Mr Rod McKenzie. A recurring theme of the correspondence was that the defender
wished the offer, insofar as it relates to the valuation procedure, to be “Hoffman compliant”,
meaning that it should comply with the principles set out by Lord Hoffman in O’Neill v
Phillips [1999] 1 WLR 1092, at 1107-1108. By email dated 2 December 2016 the defender
advised Mr McKenzie that he had withdrawn his instructions from his former solicitor.
Thereafter, the defender and Mr McKenzie corresponded directly about the offer. In due
course another solicitor was appointed by the defender and corresponded with
Mr McKenzie until February 2017. After sundry procedure in the sheriff court action a proof
was set down for January 2018. On 1 November 2017 the sheriff refused a motion by the
defender to discharge that diet of proof. On that date the defender then indicated that he
would accept the offer. Subsequently, the defender accepted the offer in writing, by letters
in identical terms bearing no date but delivered to the pursuers’ solicitors and to each of the
pursuers on or about 27 November 2017. On 8 March 2018, at the request of the pursuers,
the president of ICAS nominated and appointed Mr Stewart MacDonald, a chartered
accountant with the firm Scott-Moncrieff, to act as the expert.
[7]       Mr MacDonald wrote to the parties on 29 March 2018 confirming his agreement to
act as the expert and setting out the terms on which he was prepared to do so ("the first
letter of engagement"). In the first letter of engagement he indicated that he estimated that
his fee for providing a valuation of the defender's shares would amount to around £5,000
plus VAT and requested payment of £5,000 plus VAT prior to commencing the valuation
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exercise. That sum was paid by the company, which agreed to meet Mr MacDonald's whole
fees in connection with the valuation. Thereafter at a meeting on 16 April 2018 attended by
the first and second pursuers and the defender, Mr MacDonald discussed with them the
procedure he proposed to adopt in carrying out his valuation and the terms on which he
was willing to act as expert. The minutes of the meeting were taken by Mr MacDonald’s
colleague, Ms Kay Thomson. The minutes stated that the defender had asked
Mr MacDonald if he “was familiar with “Hoffman”?” and recorded that Mr MacDonald
confirmed that he was. Thereafter, the defender maintained that this was incorrect and that
Mr MacDonald had in fact said “No” to his question. Subsequently the defender requested
a private meeting with Mr MacDonald in order to provide him with further information.
That private meeting took place on 17 May 2018, with Kay Thomson also present. The notes
of that meeting record that the defender believed that the pursuers’ solicitors “did not tell
ICAS about an agreement between him and the other side that the valuation would be
Hoffman compliant” and that Mr MacDonald replied that he would update his draft letter of
engagement accordingly. Mr MacDonald issued to the parties a second letter of engagement
on 5 July 2018. In that second letter of engagement he indicated inter alia that in view of the
matters which had been raised by the parties at the meeting on 16 April, he now estimated
that his fee was likely to amount to around £15,000 plus VAT. The revised letter did not
contain the update referred to in the notes of the meeting with the defender on 17 May 2018.
Mr MacDonald requested that the parties confirm their acceptance of the terms of the second
letter of engagement by signing a docquet to that effect appended to each copy letter and by
returning the signed copy letters to him by 11 July. The pursuers did so. The defender did
not do so. In an email to Mr MacDonald dated 11 July 2018 the defender stated "Having
received legal advice in relation to your disregard of my proposed amendments to the LOE I
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confirm that l do not agree with your final version. I therefore will not be signing." In those
circumstances Mr MacDonald has been unable to begin the process of valuing the defender's
shares. Before Mr MacDonald can begin that process, each of the parties requires to agree to
the terms of his letter of engagement.
The pleadings
[8]       In the principal action, the pursuers seek declarator that the terms of the contract are
contained in the offer issued on 8 November 2016 and the defender’s acceptance dated
27 November 2017. The pursuers averred inter alia that:
“In order that Mr MacDonald may begin the process of determining the fair value of
the defender's shares it is necessary that the terms upon which he is to do so are
agreed with him. The terms of the second letter of engagement are reasonable. The
methodology Mr MacDonald proposes to employ in determining the fair value of the
defender's shares is consistent with the parties' rights and obligations under
article 10.2. The defender is obliged in terms of the contract between the parties
constituted by the letter from Harper Macleod dated 8 November 2016 and the
defender's written acceptance to use all reasonable endeavours to instruct and
cooperate in such an expert valuation, and to execute all documents required to
achieve the agreed reduction in the share capital of the company and the payment of
the Agreed Sum to the defender. The defender is in consequence obliged in terms of
the parties’ agreement to sign and return to Mr MacDonald a copy of the second
letter of engagement in acknowledgement of his agreement to its terms. He has
failed to do so. In those circumstances the pursuers are entitled to an order for
specific implement of the defender's obligation as concluded for and, in the event
that the defender fails to implement such an order, are in the alternative entitled to
decree granting warrant and authority to the Deputy Principal Clerk of Session to
sign and return a copy of the second letter of engagement on the defender's behalf.”
[9]       The defender’s answers included the following averments:
“…the letter dated 8th November 2016 and the Defender’s letter delivered on or about
27th November 2017 did not represent the entirety of the correspondence which,
together, constituted the contract between the parties. Rather, that correspondence
included (i) the representations and assurances which were given to the Defender by
the Pursuers’ then solicitor, Rod McKenzie of Harper Macleod LLP, and (ii) the
position adopted by the present Pursuers in the proceedings before Glasgow Sheriff
Court at the instance of the present Defender, in the period between 8th November
2016 and 27th November 2017. The letter dated 8th November 2016, at paragraph 15,
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expressly invited the Defender to raise any concerns or queries which he had with
the terms of the letter dated 8th November 2016. So far as point (i) is concerned, the
Defender duly entered into correspondence with Mr McKenzie concerning the terms
of the letter dated 8th November 2016. That correspondence is detailed in the
schedule produced by the Defender pursuant to paragraph 3 of the Court’s
interlocutor dated 25th April 2019. In the course of that correspondence, the Defender
sought confirmation that the Pursuers’ offer was ‘Hoffmann compliant, by which
the Defender meant that he sought confirmation that the Pursuers’ offer was to be
regarded as being subject to the requirements of an offer to purchase his shares in the
Company at a fair valueas set out in the speech of Lord Hoffmann in O’Neill v
Phillips [1999] 1 WLR 1092, 1107-1108, the relevant parts of which (pages 1107C
to 1108B) are referred to for their terms which are held to be incorporated herein
brevitatis causa. Mr McKenzie so understood the Defender. Mr McKenzie confirmed
that the Pursuers’ offer was to be understood as being subject to those
requirementsThe correspondence which passed between the Defender and
Mr McKenzie (referred to in point (i), above) falls to be considered as part of the
contract which was concluded between the parties when the Defender issued his
letter accepting the Pursuers’ offer. Separatim if such correspondence does not in
itself form part of the contract between the parties, it in any event on any view forms
part of the admissible surrounding circumstances against which that contract falls to
be construedIn either case, however, on a proper construction of the parties’
contract, it was an express term of that contract that the valuation of the Defender’s
shares was to be undertaken in accordance with the requirements set forth in
O’Neill v Phillips, as set out above. Further and in any event, in the offer letter dated
8th November [2016], the sum to be paid to the Defender was defined as the ‘Agreed
Price. The Defender’s acceptance of the offer set forth in the letter dated
8th November [2016] was on the basis of Method 2, as set out therein, that is to say,
on the basis of an expert valuation of the Defender’s shares which had as its purpose
the identification of the fair value of those shares. In that respect, however, the letter
dated 8th November [2016] also proceeded on the basis that the ‘Agreed Pricewould
be paid by the Company from funds held in its share premium account, and on the
basis of a reduction in the capital of the Company. At the very least, the terms of the
offer letter dated 8th November [2016] was [sic] not absolutely clear as to what was to
happen in the event that the Agreed Pricewas in excess of the amount available to
the Company to purchase its own shares. On that basis, in the course of the
correspondence which passed between Mr McKenzie (on behalf of the present
Pursuers) and the Defender, as referred to in point (i), above, the Defender sought
clarification as to what was to happen in that event. Mr McKenzie confirmed that, in
such a scenario, the Defender would be entitled to seek payment of any further sums
so due from the Pursuers themselves… Meantime, it was an express term of the
contract between the parties that the procedure for the valuation of the Defender’s
shares had to comply with the guidance set forth by Lord Hoffmann in O’Neill v
Phillips. In that respect, it was an express term of the contract that the parties were to
have ‘equality of armssuch that both should have the same right of access to
information about the company which bears upon the value of the shares and both
should have the right to make submissions to the expert(O’Neill v Phillips,
page 1107H). The Pursuers have failed, over a period of many years, to provide to
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the Defender the information and documentation required and requested by him in
exercise of his right to equality of arms’….Without such information and
documentation, the Defender is unable to make meaningful submissions to any
expert concerning the valuation exercise. As a result, the Pursuers are in material
breach of the express terms of the contract. The letter of engagement which is the
subject of the first conclusion of the Summons likewise makes no provision for the
Defender to have any access to information or documentation concerning the
Company. Nor indeed does that letter address the other issues which, on a proper
construction of the parties’ contract, are the subject of agreement between the parties,
as to be addressed in the Counterclaim to follow hereon. In consequence of the
Pursuers’ material breach (which the Pursuers have not remedied) the Defender is
excused performance of any counterpart obligation owed by him under the contract.
The execution of any letter of engagement or appointment is plainly the counterpart
of the Pursuers’ obligation to provide the required information and documentation
to the Defender. Accordingly, the Defender is not presently under any enforceable
obligation to execute the letter of engagement to which reference is made in the first
conclusion of the Summons. In any event, quite apart from the Pursuers’ breach of
contract, the Defender is not obliged to execute the letter of engagement to which the
first conclusion relates since that letter of engagement does not properly reflect the
terms of the parties’ contractual agreement, in respect that the Letter of Engagement
does not make provision in relation to the right to equality of arms, referred to
above. In that respect, a right to make submissions to the valuer, and any right on
the part of the valuer to call for information, do not make up for the absence of the
logically prior right on the part of the Defender to have full equality of arms,
without which a right to make submissions and representations to the valuer is
illusory.”
[10]       Shortly prior to the proof a minute of amendment was tendered on behalf of the
defender, to add averments to the effect that Mr MacDonald was disqualified from acting as
an expert as a result of apparent bias. The grounds for that contention were averred to be
that Mr MacDonald wrongly continued to deny that at the meeting on 16 April 2018 he had
confirmed his lack of familiarity with O’Neill v Phillips, had ignored most of the reasonable
proposed revisions to the letter of engagement suggested by the defender, and had agreed at
the meeting with the defender on 17 May 2018 that the letter of engagement would include
express reference to the principles in O’Neill v Phillips but had not made that revisal. Senior
counsel for the pursuers opposed the motion to amend, including on the basis that Ms Kay
Thomson (who was present at the meeting on 16 April 2018 and took the minutes) would
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require to be precognosced, but she had not been cited as a witness and was unavailable to
give a precognition prior to the proof commencing. I decided to allow the amendment, but
as the proof was about to commence in seven days or so, I made clear that the pursuers
could add Ms Kay Thomson as a witness, if so advised. I also allowed the pursuers to lodge
either answers to the defender’s minute of amendment, or if that was not possible prior to
commencing the proof, to lodge their own minute of amendment, if it was necessary to
respond to the defender’s new averments. In due course, the pursuers did so and averred
that there was no apparent bias. The pursuers also averred that the defender told
Mr MacDonald that the pursuers’ solicitors had failed to disclose to Mr MacDonald that it
was agreed between the parties that the defender’s shares were to be valued on the
principles stated by Lord Hoffman in O’Neill v Phillips. The averments went on to state that
on making enquiries Mr MacDonald was advised by the pursuers’ solicitors that this was
untrue and accordingly he did not make the proposed amendment to the draft letter of
engagement.
[11]       In the counterclaim, the defender seeks three declarators. Firstly, that the contract
was constituted by the correspondence referred to above, or alternatively if constituted by
the offer and the acceptance, that the contract falls to be construed with reference to the
correspondence in the intervening period and that in either event it was an express term of
the contract that any purchase of the defender’s shares was to be at “fair value” as set out,
and as subject to the requirements detailed in, the speech of Lord Hoffmann in O’Neill v
Phillips. Secondly, that the defender is not obliged to agree to the letter of engagement
issued by Mr MacDonald. Thirdly, that in terms of the contract, in the event that the
“Agreed Sum” is in excess of the amount then available to the company to purchase the
defender’s shares, on a proper construction of the contract, the defender is entitled to pursue
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payment of any outstanding balance from the present pursuers and that, until such time as
the “Agreed Sum” is paid in full, the defender (a) is not prevented from continuing to
pursue his application for orders under section 994 et seq of the Companies Act 2006, against
inter alios the present pursuers, which is in dependence before Glasgow Sheriff Court; and
(b) is entitled to retain his membership of the company. The pursuers contend that there are
no grounds for any such orders.
The issues
[12]       The issues in dispute between the parties are therefore:
(i) whether, in terms of the contract between the parties, the valuation of the
defender’s shares in the company required to be carried out in a manner which
complied with the principles set forth in the speech of Lord Hoffmann in O’Neill v
Phillips;
(ii) if so, what that means, on a proper construction of the contract;
(iii) whether the expert is disqualified from acting on the ground of apparent bias;
(iv) whether the third conclusion in the counterclaim should be sustained.
Evidence
[13]       Ronald Somerville (the first pursuer) was the first witness led on behalf of the
pursuers. He is a director of the company and also, along with the defender, a director of
three other companies. Mr Somerville and the defender each hold 50% of the shares in those
other companies. He commented on a number of the key documents. He explained that the
defender had access to a substantial amount of information concerning the company,
including what was referred to as the “backstage” material. This could be accessed remotely
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by electronic means and covered a wide range of details of the company’s affairs. The
defender also received the monthly management accounts. Mr Somerville accepted that the
relationship with the defender had broken down, although they remained bound together in
various businesses. They each have a negative view about the other and a series of
grievances. Referring to the contract with the defender, it was correct that in a contract of
this kind the purchaser wishes to pay as little as possible and the person whose shares are to
be bought wishes to be paid as much as possible. If the defender requested relevant
information for valuation purposes it would be provided to him. Legal advice as to what is
relevant information had been taken.
[14]       Mr Somerville agreed that the Grant Thornton letter did refer to the defender having
full and unfettered access to company records, but he explained that this had been conceded
because the defender “wasn’t giving an inch”. This resulted in the defender requesting all
emails over a three-year period and receiving about 50,000 of them in hard copy.
Mr Somerville accepted that if there was an email in respect of a new business opportunity it
would not be accessible on the backstageplatform. He spoke to the history of the sheriff
court litigation. Mr McKenzie had engaged in the correspondence after the offer dated
8 November 2016 on the pursuers’ instructions. Mr McKenzie’s view, which was the
common sense view, was that the expert valuer was best placed to decide about what
information was appropriate and relevant to the valuation. Reference was made to meetings
which the defender had held with the company’s staff during the Grant Thornton valuation
process. Several members of staff had been upset and stressed by that process. Mr
Somerville’s recollection was that at the meeting on 16 April 2018 Mr MacDonald confirmed
that he is familiar with the Hoffman principles. It was understandable that the defender
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was concerned that Mr MacDonald had not inserted in the draft letter of engagement a
reference to the procedure being Hoffman compliant.
[15]       Charles Shaw, the second pursuer, was the next witness. He had a long and
successful career in the drinks industry, reaching high-level positions, before becoming a
director of the company. At the time of the Grant Thornton valuation the defender
interviewed six or seven staff, some of whom became upset. The defender insisted on
seeing some 56,000 emails. Mr Shaw spoke to the background of the sheriff court litigation
between the parties. Mr McKenzie was authorised to say what was said in his
correspondence with the defender or his solicitors. At the meeting on 16 April 2018
Mr MacDonald stated that he was aware of the Hoffman principles. The defender would
have been exercised if Mr MacDonald had expressed unfamiliarity with those principles, but
that did not occur. The witness had a dim view of the defender and said that the defender
hated him. He spoke to the access the defender had to the company’s information. The
company would supply all information that Mr MacDonald requested.
[16]       Roderick McKenzie then gave evidence. He is a senior solicitor and the former head
of dispute resolution of the firm which advises and acts for the pursuers. He explained that
the offer in the letter of 8 November 2016 was addressed to the defender’s solicitor and
made clear that any queries that person had could be raised. He spoke to the further
correspondence that had ensued with the defender’s solicitor and the defender himself. The
defender had said he required full compliance with Lord Hoffmann’s criteria and that the
offer was not compliant. The defender did not depart from that position in his
correspondence. However, any concerns the defender had were not articulated in the form
of a qualified acceptance. Mr McKenzie had Lord Hoffman’s speech in O’Neill v Phillips in
mind when drafting the offer. One had to look at the offer as a whole and ask whether the
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defender has access to material he needs which bears upon the value of shares. In addition
to requesting information from the company, the defender had various other rights
including his rights as a director to access financial information, to seek a court order, to
request information from the company via the expert and if need be to apply for judicial
review. The witness accepted that on behalf of his clients he was saying, in the
correspondence, that the offer was, and was intended to be, an offer that satisfied the
principles set forth in O’Neill v Phillips and he also accepted that the defender wished an
offer that satisfied those principles. They both wanted such a process. If the defender felt he
was not getting access to relevant material his first port of call would be the expert, although
he was not the only port of call.
[17]       The next witness was the expert, Stewart MacDonald. He explained what had
occurred at the meeting on 16 April 2018 and who had been present. At the meeting he had
said he was aware of the Hoffman principles. That was recorded in the minutes of the
meeting, prepared by Ms Thomson. It was correct that he had agreed at the meeting on
17 May 2018 between himself and the defender that he would update the letter of
engagement to include the reference to being Hoffman compliant. He had omitted to do
that, which was an oversight. He had made a number of revisions to the original letter of
engagement. He explained his experience of carrying out valuations of shares. All
valuations that the witness had carried out over more than twenty years were based on
Lord Hoffmann’s principles and the requirement to be fair to both parties. In share
valuations there were commonly elements of contentiousness between parties and he had
experience of situations in which there had been a complete breakdown in relations. He also
had experience of one party having all of the knowledge and documentation and the other
not being in that position. It was possible that those who controlled a company might seek
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to downplay the values and prospects of the company’s business or might seek to inhibit
development of the company until the valuation was completed. He was aware that the
pursuers had access to all the information and the defender did not. There was nothing
controversial or objectionable in the Grant Thornton letter and the witness did not disagree
with what Mr Webster had said in his witness statement, that having full access to personnel
and records was what one would expect to see in order that the valuation process is carried
out properly and fairly. He had accepted revisions proposed by the pursuers’ solicitors to
the minutes of the meeting on 16 April 2018 but not those proposed by the defender. Those
minutes recorded that Mr MacDonald was to be allowed access to any information which
would help him to reach his decision on valuation. His evidence was that he would ask for
anything he needed to know and if he did not get that information he would not continue.
The information obtained would be shared with everyone. He accepted that the defender
might not be able to frame a request for information if he had not seen relevant documents
in the first place. If the witness felt it appropriate to interrogate the company’s systems by
using an information technology expert he would do so. The defender had access to a whole
load of information regarding the previous valuation. He would have an idea what he
wanted to see and, if asked, the witness would request that information from the company.
The defender would have access through him. Mr MacDonald said that if one party brought
to his attention something that party considered was worthy of investigation, then
invariably he would simply ask for it. He accepted that there may well be instances where
an expert would have no way of knowing whether he had been given everything.
[18]       Mr MacDonald accepted that Ms Thomson, in her handwritten notes of the meeting
on 16 April 2018, had noted no response to the question from the defender as to whether
Mr MacDonald was ”familiar with Hoffman”. However, his response had been “yes”. The
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recollection of the defender differed from his own recollection. The witness was taken to the
email on 16 April 2018 from the defender to his adviser, Mr Webster, which stated that
Mr MacDonald had never heard of Lord Hoffmann, and to the defender’s diary entry for
that day which stated “Stuart has not heard - of valuation??”. Mr MacDonald said it was
just not possible, given what he had said at the meeting, for the defender to have that view.
In relation to revising the draft letter of engagement, the witness had made no conscious
decision to recant from what had been discussed with the defender and the failure to revise
appeared to the witness to have been an oversight. The intention was to include it in the
draft and then leave it for the parties to comment further on the revised draft. The witness
had no recollection of being advised by the pursuers’ solicitors that the defender’s statement
at the meeting on 17 May 2018, about an agreement with the pursuers that the valuation was
to be on the Hoffman principles, was untrue. He spoke to having rejected the defender’s
proposed revisions to the draft letter of engagement and accepting the revisions proposed
by the solicitors for the pursuers. It would not, on Mr MacDonald’s experience, be a normal
provision to allow the person whose shares were being valued full and unfettered access to
all information the company had; to do that would be extreme. His experience was of seeing
styles for letters of engagement issued by the “big four” accountancy firms.
[19]       Kay Thomson was the final witness for the pursuers. She worked for the same firm
as Mr MacDonald, and had taken handwritten notes of the meeting on 16 April 2018. These
did not record Mr MacDonald’s answer to the question about whether he was “familiar with
Hoffman?”, however the witness said that Mr MacDonald did confirm at the meeting that he
was familiar. She was very confident in her memory that Mr MacDonald had confirmed this
and she had typed up the draft minutes that afternoon, including Mr MacDonald’s response,
before having any further discussion with Mr MacDonald. In commenting on the draft
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minutes which she had circulated, the defender had disputed what Mr MacDonald was
recorded as having said, but the defender’s comment on that was wrong. She had no doubt
about Mr MacDonald’s answer. She was aware of him being independent and
understanding the principles stated by Lord Hoffmann. She was certain he made a positive
response and if he had said “no” that would have surprised her and she would have put in a
question mark in the handwritten notes. She was not aware of Mr MacDonald having had
any discussions with the pursuers’ solicitors on whether or not it was true, as the defender
had stated in his proposed revisals to the letter of engagement, that there was agreement
about the valuation being on the Hoffman principles.
[20]       The parties agreed in a joint minute that, with the exception of one sentence, the
evidence in the witness statement of the third pursuer, Nick Felisiak, would stand as his
evidence and so he was not called. The pursuers’ case was closed.
[21]       Two witnesses were led on behalf of the defender, the first being the defender
himself. His evidence covered the history of the relationship between him and the pursuers
and the general background to the current dispute. He described the kind of information
about the company to which he had been given access by the pursuers. While he had been
given the management accounts and could see the final accounts at Companies House, and
could also access the backstagesystem, he was denied access to further information and
was not permitted to go into the company’s office. He wished to find out, for example, how
the company was coming to its decisions and strategies. He was completely excluded from
management. It was wrong of the pursuers to say that if he requested information it would
be provided to him. Around the time of the Grant Thornton valuation he had interviewed
several members of staff. Mr Webster was with him at these interviews. There was some
tension but the witness had not engaged in any inappropriate conduct. The full and
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unfettered access given to him for the purposes of the Grant Thornton valuation had
resulted in him obtaining 56,000 emails. He expressed his apology if it was his fault for
asking for these to be on paper. Mr McKenzie was correct to say that the witness would
only be likely to accept a fair offer in the sense used by Lord Hoffmann. In their
correspondence, Mr McKenzie had kept on saying his clients thought the offer was
Hoffman compliant. The witness explained his recollection of the meeting on 16 April
2018. He was completely clear that Mr MacDonald had said “no” to the question asked
about whether he was familiar with Hoffman. Mr MacDonald had said that in an
exasperated way. The entry in the witness’s diary to “Stuart has not heard - of valuation??”
was written at the meeting and was a reference to Mr MacDonald giving his answer. On the
same afternoon the witness sent the email, in the terms noted above, to his adviser
Iain Webster, to which Mr Webster responded. The meeting on 17 May 2018 resulted in
Mr MacDonald agreeing to put the reference to the valuation process being Hoffman
compliantinto the draft letter of engagement, but he did not do so. The other witnesses,
Mr Somerville, Mr Shaw, Mr MacDonald and Ms Thomson, who had been present at the
meeting on 16 April 2018 were wrong in their evidence as to what Mr MacDonald had said.
The defender was asked about why the diary entry had not been produced until during the
course of the proof and explained that he had brought it to the attention of his legal team at
a very early stage and had been advised that it was of little value. He agreed that his
acceptance dated 27 November 2017 to the offer dated 8 November 2016 contained no
attempt to qualify the offer, but the offer had been amended by what was said in the
intervening period. He was taken to the correspondence in that period. The offer was
accepted on the basis that it was Hoffman compliant. The acceptances had been produced
after a hearing in the sheriff court case at which his motion to discharge the proof had been
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refused. The reason for continuing with the summary application when he had eventually
realised that the offer was Hoffman compliantmay have been to do with expenses. He
did not accept that he had caused any upset to the staff members when he interviewed
them. For the present valuation, he wished to have access to emails generated within the
company from 2013 to date, although he was mindful that for the Grant Thornton valuation
access to emails over a period of three years was seen as appropriate. He would take advice
about which documents were relevant and act on that advice.
[22]       The final witness on behalf of the defender was Mr Iain Webster, the defender’s
adviser. He had been a practising accountant since 1985 and had experience of the valuation
of company shares. He had carried out expert determinations and given expert advice. In
relation to the Grant Thornton letter, full access to information was what Mr Webster would
expect to see, as parties should get equality of information. The witness, in representing the
defender, would exercise judgement as to what was relevant. He would go through the
background and list the information that would be relevant. Understanding the dynamics
of the business is relevant for valuation purposes. The process for the Grant Thornton
valuation was good and was what the witness would expect to be followed in relation to this
type of contentious valuation. In response to a question from the court about whether the
defender should have full and unfettered access, the witness replied that he should either
have full and unfettered access or provision should be made for the expert to have that
access. Mr Webster would ask for information which informed the inherent value of the
business. After that, one looked for “value enhancers”, such as whether the company had
barriers to the entry into its market of other competitors, or had products in the pipeline, or
had software which could enhance the customer base or whether there might be parties
interested in purchasing the company. One would also look at “value detractors”, for
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example whether the company was very dependent upon economic conditions. From what
the witness had seen, the defender did not have access to the information that would allow
him to make an informed judgment or indeed for the witness himself to make an informed
judgment on behalf of the defender. The expert in the Grant Thornton valuation did not
want to access the information herself, but rather she wanted to rely on the parties making
their own submissions. He had been present at all of the staff interviews conducted by the
defender for the purposes of that valuation exercise and recalled no inappropriate
behaviour. If it was for the expert to decide whether the information requested is needed,
that is not necessarily a direct route into getting the information which a party or his adviser
thinks is relevant. The defender had emailed the witness on the afternoon of the meeting of
16 April 2018 to say that Mr MacDonald did not understand what was meant by the process
being Hoffman compliant. The witness thought that the defender may have asked for
electronic copies, rather than paper copies, of the emails at the time of the Grant Thornton
valuation.
Submissions
Submissions for the pursuers
[23]       Dealing with the relevant legal principles, in relation to construction of contracts
reference was made to Wood v Capita Insurance Services Ltd [2017] AC 1173. The fact that the
valuation of shares is referred to an independent third party showed that the parties’ object
is to obtain an appropriate valuation by a relatively speedy and informal means: Holland
House Property Investments Ltd v Crabbe 2008 SC 619 (at [19] and [23]). An expert, subject to
the terms of his remit, is entitled to carry out his own investigations and come to his own
conclusions regardless of any submissions or evidence adduced by the parties themselves:
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Macdonald Estates plc v National Car Parks Ltd 2010 SC 250 (at [21]). The duty of an expert is
to act independently and honestly but he is not bound by the rules of natural justice: Amec
Civil Engineering Ltd v Secretary of State for Transport [2005] 1 WLR 2339 (at [38] and [46]) and
Bernhard Schulte & Ors v Nile Holdings Ltd [2004] 2 Lloyd’s Rep 352 (at [95]). The parties are
at liberty to propose amendments to the terms proffered by the expert, but it is for the expert
to then decide on what terms he will carry out the exercise: Cream Holdings Ltd v
Davenport [2012] 1 BCLC 365 (at [36]). If the terms on which the expert is prepared to act are
reasonable, the parties are bound to accept those terms: Cream Holdings Ltd (at [37]). The
appointment provisions under which the expert has been nominated do not themselves
impose any duty of disclosure of information: Cream Holdings Ltd (at [26]). One party’s fear
that the expert will be unable to deal adequately with his complaints that the company has
not made complete disclosure of all financial and other information relevant to the
determination of fair value does not excuse that party from agreeing to the terms proffered
by the expert, if the terms allow that party to raise those issues and there is no reasonable
basis for supposing the expert will not respond appropriately, although it will be for the
expert to decide what he considers necessary to know in order to carry out the valuation:
Cream Holdings Ltd (at [38]). Apparent bias is not a sufficient ground to vitiate the decision
of an expert: Macro & Ors v Thompson & Ors (No 3) [1997] 2 BCLC 36 (at 64-65); Bernhard
Schulte (at [94], [98] and [101]).
[24]       Parts of the evidence of the defender and Mr Webster were objected to and in any
event aspects of the defender’s evidence were neither credible nor reliable. The terms of the
agreement between the parties were to be found in the offer dated 8 November 2016 and the
written acceptances from the defender dated 27 November 2017. The terms of the offer were
not amended or varied. It was plain that in correspondence after 8 November 2016
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Mr McKenzie expressed the opinion that the offer was “Hoffmann compliant” and that in
their answers in the sheriff court litigation the pursuers averred that “said offer is in the
terms described by Lord Hoffmann”. Why Mr McKenzie would desire that to be the case
was readily understandable given the consequences in the defender’s unfair prejudice
summary application. Nevertheless, Mr McKenzie was simply expressing an opinion on the
offer rather than varying its terms. It was clear from a consideration of the emails sent by or
on behalf of the defender that, far from seeking confirmation that the offer was Hoffmann
compliant, the defender instead maintained the consistent position that the offer was not
Hoffmann compliant. It would of course have been entirely possible for the offer to
contain a provision to the effect that the defender’s shares were to be valued in accordance
with the principles expounded by Lord Hoffmann in O’Neill v Philips, or for the defender to
have issued a qualified acceptance insisting upon such a condition. Instead, neither
happened and the defender accepted in unqualified terms the offer which expressly
provided that his shares were to be valued “utilising the valuation methodology for shares
provided for in the current Articles of Association of the company”. Nothing in the
subsequent correspondence was capable of altering the plain meaning of the language used
in the offer as to the basis on which the defender’s shares were to be valued. The defender
was not entitled to withhold acceptance of Mr MacDonald’s letter of engagement on the
ground that it does not provide that the defender is to have an unfettered right of access to
information. By accepting the offer, as it provides, the defender is obliged to sign and return
the letter of engagement, unless its terms are unreasonable.
[25]       In those circumstances Mr MacDonald was nominated to carry out the valuation of
the defender’s shares on the basis prescribed by article 10.2 of the company’s Articles of
Association. As an expert, and having regard to the terms of article 10.2, Mr MacDonald
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would not be carrying out a quasi-judicial function. He will be obliged to carry out the
valuation exercise fairly but, subject to the terms of any letter of engagement which becomes
binding upon Mr MacDonald and the parties, he is entitled to carry out his own
investigations, may choose whether or not to have regard to any submissions made by the
parties and is not bound by the rules of natural justice. He is not obliged to allow any of the
parties unfettered access to all and any information or documentation held by another party.
The terms of the letter of engagement are reasonable and the defender is under a contractual
obligation to sign, and deliver to Mr MacDonald, a copy of that letter in acknowledgment of
his agreement to its terms.
[26]       If, contrary to the above, the terms of the offer were varied to include the principles
stated by Lord Hoffmann in O’Neill v Phillips as terms of the parties’ contract, that was done
on the express condition that “equality of arms” was deemed to be achieved by the parties
having the value of the defender’s shares determined by an independent expert under a
duty to ensure a fair and reasonable valuation procedure and not on the basis that the
defender would have unfettered access to all company information. Alternatively, if the
parties must be held to have incorporated into their contract the rights and obligations
arising from the principles explained by Lord Hoffman then those principles, properly
understood, did not confer upon the defender the right of unfettered access. Lord Hoffman
refers to access to information that “bears upon the value of the shares” and this was a filter.
One could interpret Lord Hoffman’s comments as indicating that it is for the expert to
determine what is the relevant information and to ensure that both parties have equal access
to it. If the defender sought to persuade the expert that the material was potentially
relevant, the expert would determine whether and to what extent disclosure ought to be
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required. By signing the letter of engagement the company is contractually obliged to
comply with that request.
[27]       The defender was not relieved of his obligation to sign and return the letter of
engagement by reason of any apparent bias on the part of Mr MacDonald. Apparent bias
does not vitiate the decision of an expert and, in consequence, is not a ground upon which a
party can successfully challenge the expert’s appointment. If, contrary to that submission,
apparent bias is a ground upon which the defender is entitled to refuse to sign and return
the letter of engagement, the evidence does not establish that Mr MacDonald has acted in
such a way that would show a real possibility of bias on his part. As to the first ground
upon which apparent bias is contended, Mr MacDonald and Ms Thomson had confirmed in
their evidence that the minutes are accurate about Mr MacDonald’s reply to the defender’s
question. Their evidence is corroborated by Mr Somerville, another credible witness. In any
event, the defender appeared to retract his accusation of lying and to accept that
Mr MacDonald might instead have been mistaken in his recollection. On the other point
relied upon by the defender about apparent bias, Mr MacDonald accepted that by reason of
oversight he had failed to include the statement about Hoffman compliance in his draft
letter of engagement but the defender did, of course, have the opportunity (which he took)
to include it in his proposed revisals to the draft. Thereafter it was a matter for
Mr MacDonald alone to decide on the terms on which he was prepared to undertake the
valuation exercise and to set them out in the letter of engagement. In those circumstances
the reasonable observer would conclude that no prejudice had been sustained by the
defender.
[28]       In relation to the third conclusion in the counterclaim, there was no contractual
obligation upon the pursuers in terms of the contract personally to make payment to the
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defender of the balance, in the event that the defender’s shares are valued at a sum greater
than the amount then available to the company. Even if the terms of the offer were held to
have been varied subsequently in an email from Mr McKenzie, there was nothing to suggest
that the pursuers have assumed a personal obligation to make payment.
Submissions for the defender
[29]       It was clear, on basic contract law principles, that the objective intention of the
parties was that the valuation required to be carried out in a Hoffmann compliantmanner.
The correspondence following upon the offer could be regarded as being documents which
form part of the contract. Alternatively, the correspondence was on any view part of the
admissible surrounding circumstances which may be used to inform the proper construction
of the contract. On either approach, there was consensus between the parties that the
valuation of the defender’s shares should be “Hoffmann compliant. It was not possible to
ascribe to the parties any other intention. What each subjectively understood to be required
in order for the contract to be Hoffmann compliantwas a wholly different point.
[30]       As to what the contract required, on a plain reading of Lord Hoffman’s words, a
distinction is drawn between, on the one hand, both parties having “the same right of access
to information about the company which bears upon the value of the shares” and, on the
other hand, the form of submissions (written or oral) which is a matter for the discretion of
the expert. Critically, the right of access is to be “provided for” in the offer. The right of
access is to inhere “in both parties” and not, for example, in the expert. It is not a matter for
the expert to decide what documents ought to be produced by the parties. A right conferred
on the expert to require the production of documents is not a right of access conferred on the
parties, far less is it one which provides “the same right of access” where one of the parties
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has all of the documentation and information and the other does not. This conclusion was
reinforced by the third of Lord Hoffmann’s principles (referred to at 1107F-G).
[31]       Further and in any event, the soundness of the defender’s construction of the
contract was supported by considerations of commercial common sense. It was known to
the parties at the time of contracting that the pursuers had access to all of the information
and documentation while the defender did not. The pursuers’ construction denied the
defender access to documentation and information which could be used in submissions to
the expert relevant to the valuation of his shares. The defender’s construction achieved
equality of arms and in addition would allow any valuation to be carried out in
circumstances where all relevant material is before the valuer. The letter of engagement
prepared by Mr MacDonald was therefore disconform to the requirements of the contract
between the parties, properly construed.
[32]       The offer dated 8 November 2016 expressly invited the defender to raise any queries
he had arising from the terms of the offer, in order that they might be addressed by the
pursuers’ solicitors. The correspondence which then ensued was in pursuance of that
express stipulation and the letters of acceptance must be construed in that context:
Kirin-Amgen Inc Hoechst Marion Roussel Ltd [2005] 1 All ER 667, (per Lord Hoffman at [64]),
quoted with approval in Marley v Rawlings [2015] AC 129 (at 144). There was no question
here of varying or modifying the terms of the contract but, rather, simply of clarifying and
elucidating the meaning of the provisions set forth in the offer. Viewed in that context,
rather than acontextually, the acceptance plainly proceeded on the basis that all of the
relevant and clarificatory correspondence formed part of the contractual documentation.
[33]       Even if that analysis was not accepted, the result was in any event the same since, on
any view, the correspondence must form part of the admissible surrounding circumstances:
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Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900; L Batley Pet Products Ltd v North Lanarkshire
Council 2014 SC (UKSC) 174; Arnold v Britton [2015] AC 1619; Wood v Capita Insurance
Services Ltd; British Overseas Bank Nominees Ltd v Stewart Milne Group Ltd 2019 SLT 1253;
Investors Compensation Scheme Ltd v West Bromwich Building Society (No.1) [1998] 1 WLR 896,
(per Lord Hoffman at 912-913). On no view could the correspondence be characterised as
“negotiations”. It was clear that the common intention of the parties was that their bargain
was to be Hoffmann compliant. To reach any other conclusion would be to attribute to
the parties an intention they could not have possessed.
[34]       On that approach, the parties were effectively agreeing to incorporate those
principles, just as they might incorporate a standard set of terms or conditions, or a statutory
test (eg Enviroco Ltd v Farstad Supply A/S [2010] Bus LR 1008). Having agreed to do so, those
principles fell to be construed on an objective basis. The evidence of Mr McKenzie as to
alternative means by which the defender might gain access to books and records of the
company was irrelevant to the question of construction and in any event did not amount to
rights on the part of the defender. On the evidence, Mr McKenzie was clear that he knew
the defender would not accept an offer that was not Hoffman compliant. The evidence
about the motivation of the defender in accepting the offer was nothing to the point; it could
not affect the proper interpretation. Lord Hoffman made clear that the offer itself should
provide for equality of arms. There was plainly also a right to make submissions. It was an
obvious misreading to proceed on the basis that this would all be left up to the expert. The
letter of engagement provided no right of access and hence it was disconform, even if one
built in the limitation that the right is only about access to information bearing upon
valuation. The letter of engagement did not give the defender a right to request information
from the expert, it only allowed him to draw to the attention of the expert things considered
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to be relevant. The case of Cream Holdings Ltd, relied upon by the pursuers, could be
distinguished.
[35]       It was clear that there has been a complete breakdown in relations between the
parties. One consequence is that the pursuers will not voluntarily produce documents or
information to the defender (at least beyond what they consider to be his bare entitlement as
a director of the company). The very real need for equality of arms was manifest, on the
evidence. Against that background, the defender was under no obligation to accept the
letter of engagement as it did not confer any rights on him to have access to information and
documentation.
[36]       Even if the defender was to execute the letter of engagement, Mr MacDonald is
disqualified from acting on the grounds of apparent bias. The test was that set forth in
Porter v Magill [2002] 2 AC 357 (per Lord Hope at [103]). While it has been held that, in the
case of independent experts, actual rather than apparent bias will be required in order to
vitiate the decision of such an independent expert (see eg Macro and Ors v Thompson and Ors
(No 3) at 64G-H; and Bernhard Schulte GmbH & Co KG v Nile Holdings Ltd) that is not the
position where the expert has not yet reached the stage of performing his allotted task and
of issuing a decision: Hopkinson and others v Maximus Securities Limited and others
[2016] EWCA Civ 1057. In support of the factual basis for the case of apparent bias, reference was
made to: the material difference between the defender and Mr MacDonald as to what was
discussed at the meeting held on 16 April 2018; the fact that despite agreeing to include
reference to Hoffmann compliancein his letter of engagement Mr MacDonald failed to do
so; that the pursuers’ pleadings indicated that Mr MacDonald was given to understand (by
the pursuers’ solicitor) that he had been misled by the defender, and in addition that such
contact would in itself raise issues of apparent bias; and also that Mr MacDonald rejected
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wholesale the revisions to the draft letter of engagement proposed by the defender. In
relation to the third conclusion in the counterclaim, if the sum due could not be paid by the
company then the defender was entitled to pursue payment from the pursuers and to
continue with the sheriff court claim. It was not being suggested that the meaning to be
ascribed to the contract is one of personal liability.
Decision and reasons
Objections
[37]       Prior to commencement of the evidence, objections were taken by senior counsel for
the pursuers to certain passages in the defender’s witness statement. I sustained the
objection in respect of certain types of evidence but in light of the extent of the material
objected to I indicated that I required to hear from parties as to the precise parts of the
statement which would fall to be covered by my ruling. Before the defender gave evidence,
I heard those submissions and I sustained the objection in respect of particular sentences. A
number of other matters covered by the parties’ witness statements were open to objection
and I allowed the evidence to be led subject to competency and relevancy. In closing
submissions, senior counsel for the pursuer took objection to approximately twenty-eight
paragraphs in the defender’s witness statement as being irrelevant because they dealt with
the history of the parties’ dealings and relationship prior to the Grant Thornton valuation,
and to a further twenty-eight or so paragraphs, said to deal with the circumstances of the
appointment of the expert, as having no foundation on record and as being irrelevant.
While there is some force in these objections, I conclude that the material objected to is of
some, albeit very limited, relevance in setting out the history and background and I
therefore repel these objections.
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[38]       Senior counsel for the pursuers also objected to what was described as the opinion
evidence offered by Mr Webster. This was said to be inadmissible, on the ground that
where a skilled witness, giving his opinions, does not comply with the recognised duties of
being independent and impartial, that evidence should be excluded. The requirement of
impartiality was one of admissibility not weight: Kennedy v Cordia (Services) LLP 2016
SC (UKSC) 59 (at paras [39] and [40]). The defender’s position was that Mr Webster was not
called as an independent expert witness. The basis upon which the pursuer objected was
unfounded and any skilled witness could offer opinion evidence, it being for the court to
decide what weight, if any, to attach to that evidence. I accept the submissions for the
defender on this point. I considered Mr Webster to be an able and experienced accountant
who had dealt with valuations both as an expert and acting on behalf of a particular party.
He gave his evidence in a genuine and straightforward manner. The fact that he was
engaged by the defender to act on his behalf did not preclude him from giving his opinion
on the matters he was asked about. I therefore repel the objection. Of course, he was not an
independent expert called to assist the court and I take that important factor into account,
along with the fact that he was engaged to act on behalf of the defender, when assessing the
weight to be given to his evidence. His evidence about the carrying out of valuations,
including the focus on value-enhancing and value-detracting points, was of some general
assistance but overall his evidence was of no particular significance or relevance to the
specific issues to be determined, which largely concerned the contract terms and their
meaning.
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Issue 1: What constituted the parties’ contract?
[39]       As noted, this issue is whether, as was submitted for the pursuers, the terms of the
contract comprised the offer dated 8 November 2016 and the unqualified acceptance dated
27 November 2017, or whether, as was submitted for the defender, a number of documents
that passed between the parties and/or their solicitors in the period between the offer and
the acceptance also constitute the contract. In advance of the proof, nineteen documents
were identified for that purpose by senior counsel for the defender. Apart from two
documents, these were items of correspondence, mainly in the form of emails but also
including letters. The two other documents were (i) the Note of Argument for the present
pursuers lodged in the sheriff court proceedings on 15 November 2017; and (ii) the adjusted
answers for the present pursuers in the sheriff court action dated 13 November 2017. In
evidence and submissions, the focus was on the correspondence. It was not suggested that
the documents lodged in the sheriff court proceedings could themselves be seen as forming
part of the contract. That is readily understandable, as they were nothing other than
expressions of the present pursuers’ position or contentions in that litigation.
[40]       In considering whether the correspondence formed part of the parties’ contract, it is
correct that the offer dated 8 November 2016 invited discussion, stating that the pursuers
would be happy to address points that may be identified by the defender or his solicitor.
The correspondence that ensued made clear the defender’s position that he wished the
question of Hoffmann complianceto be specifically addressed and that the offer had
failed to do so. That theme was reiterated throughout the correspondence. In an email
dated 16 November 2016, the defender’s solicitor stated to Mr McKenzie:
“In relation to the offer contained in your letter of 8 November, I am simply
instructed to say that the offer, in so far as it relates to the valuation procedure, is not
what might be described as Hoffman-compliant…’”.
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31
In his reply, by email dated 17 November 2016, Mr McKenzie said that the offer “was drawn
up with specific regard to the five elements that such an offer should include, as set out by
Lord Hoffmann” and also stated that “The purpose of the offer was to provide a
‘Hoffman-compliantmechanism which would achieve precisely what it was understood
was your clients preferred outcome”. On 9 December 2016, in his email to the defender,
Mr McKenzie stated that the defender had been asking for a Hoffman compliantprocess
“and that is what you have been offered.” In an email to Mr McKenzie on 12 December
2016, the defender stated that it should be obvious that his solicitor “intends the wording of
the acceptance will set to ensure that the agreement between us is fully
Hoffman-compliant”. In a further email to Mr McKenzie on 13 December 2016, the defender
stated that the offer was “manifestly not ‘a fair and reasonable’ offer” and that “the
deficiencies in the offer are blindingly obvious to me”. One point mentioned was a
suggestion by the defender that the “companies [sic] records be made available” to him and
“this process would assist in ensuring that both parties have ‘equality of armsin making
submissions to the valuer if that is the eventual route”. In response, by email on
13 December 2016, Mr McKenzie stated: “The valuer will make such directions as to access
to documents and records that he considers acceptable.” The email ended with the words:
“Equality of arms is ensured by having an independent professional appointed by a
professional body such as ICAS who will be under a duty in law to ensure a fair and
reasonable valuation procedure”.
By email dated 2 February 2017, the defender’s solicitor requested
“all email correspondence sent or received by the company between 2013 and the
present date using the 5pm email address or any version of it along with all links,
attachments and documents referred to in these emails”.
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In his reply later that day, Mr McKenzie stated “Your client has no right to have open access
and/or a copy of every electronic communication sent or received by the company during
the referenced period.” He added that
“In the context of a valuation process, if your client wants access to company
material which goes beyond his statutory rights [as a director] then he may specify
what that information is, why it would be relevant to a valuation of his shares and
how he will ensure that it will not be used by your client in a way which [is] against
the interests of the company. The directors will consider any request in those
contexts. If your client disagrees with the decision of the board on such a request
then he will have the option of asking the expert to require provision of the material
and ultimately, if he is still dissatisfied, will be able to apply to the court for an
order.”
The defender’s solicitor replied on 8 February 2017, stating inter alia that the offer of
8 November 2016 needed to be read along with Mr McKenzie’s email of 13 December 2016.
He went on to say that the defender:
“… remains willing to accept an offer which complies with the criteria stated by
Lord Hoffman in O’Neill v Phillips. However, he has consulted Counsel about the
proposal whose firm view is that it is not Hoffman compliant.”
The defender’s solicitor then set out two reasons for the proposal not being compliant. The
“main reason” was that there would be a cap on what the company will pay. The second
reason was that Mr McKenzie was proposing that if there was a shortfall between what the
company could pay and the valuation, the defender’s remedy would be to continue the
litigation. In response, Mr McKenzie stated: “I have my clients’ instructions on your
proposal. My clients consider the offer made by them to have been Hoffman compliant”.
[41]       In the submissions for the defender, senior counsel argued that the defender’s
acceptance plainly proceeded on the basis that all of the relevant and clarificatory
correspondence formed part of the contractual documentation. The offer dated 8 November
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33
2016 required an acceptance in writing, which was duly given on 27 November 2017. The
letters of acceptance stated:
“I accept your offer of 8/11/16 and expressly elect for method 2 and I agree to be
deemed to have agreed and to act all as provided for in Clause 4 of the offer
of 8/11/16 and I agree to be deemed to have agreed to act as elsewhere provided in
the offer of 8/11/16.”
The acceptance was not in any way qualified and it referred only to the offer dated
8 November 2016, making no reference at all to any of the other correspondence or
documents which are now argued to form part of the contract. These other documents
comprise many pages and deal with a number of matters. On behalf of the defender, there
was no identification of the relevant passages in these numerous documents which were to
be taken to constitute part of the contract. This raises considerable difficulties for the
suggestion that they do form part of it. It is inappropriate to conclude that an offer which is
met by an acceptance is supposed to have added to it words from numerous other
documents which also form part of the contract when those words are not identified.
Moreover, there is nothing in the further correspondence relied upon by the defender to
suggest consensus in idem on the points raised. The central feature of the defender’s case
concerns the right of access to the company’s books and records for the purposes of
valuation, a matter mentioned by Lord Hoffman, as noted below. It is absolutely clear that
this issue was discussed in the correspondence and the positions of the parties were in stark
contrast: the defender sought unfettered access and the pursuers expressly refuted any such
right of access. It is impossible to see the correspondence as clarificatory on that issue. The
proper view is that there was a detailed offer and an acceptance of it, against the
background of a lengthy and detailed discussion of various points of difference.
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34
Accordingly, the numerous other documents relied upon by the defender do not constitute
part of the contract between the parties.
Issue 2: The meaning of the contract terms
The relevance of the correspondence
[42]       In the alternative, the defender relies heavily on this correspondence as indicating
the common intention of the parties that the offer, and the valuation procedure, were
Hoffman compliant. In relation to construction of contracts, in Arnold v Britton,
Lord Neuberger (with whom Lord Sumption and Lord Hughes agreed) set out the key
principles, including the following:
“15. When interpreting a written contract, the court is concerned to identify the
intention of the parties by reference to ‘what a reasonable person having all the
background knowledge which would have been available to the parties would have
understood them to be using the language in the contract to mean’, to quote
Lord Hoffmann in Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38,
[2009] 1 AC 1101, para 14. And it does so by focussing on the meaning of the relevant
words...in their documentary, factual and commercial context. That meaning has to
be assessed in the light of (i) the natural and ordinary meaning of the clause, (ii) any
other relevant provisions of the lease, (iii) the overall purpose of the clause and the
lease, (iv) the facts and circumstances known or assumed by the parties at the time
that the document was executed, and (v) commercial common sense, but
(vi) disregarding subjective evidence of any party's intentions.”
As is well-known, that position is in line with a number of other authorities (eg Rainy Sky v
Kookmin Bank Co Ltd; Wood v Capita Insurance Services Ltd) and is the approach taken in
Scotland (eg HOE International Ltd v Andersen 2017 SC 313; British Overseas Bank Nominees
Ltd v Stewart Milne Group Ltd; Ashtead Plant Hire Company Limited v Granton Central
Developments Limited [2020] CSIH 20).
[43]       As Lord Hodge explained in Luminar Lava Ignite Limited v MAMA Group plc 2010
SC 310 (at [42]) while evidence of prior negotiations is generally inadmissible, evidence of
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the factual background to the contract is relevant where the facts are known to both parties
and those facts can cast light on either (a) the commercial purpose or purposes of the
transaction objectively considered; or (b) the meaning of the words which the parties used in
their contract. As Lord Hodge explained, the two cases very often overlap, as the
ascertained commercial purpose may give meaning to particular words or phrases. In
Patersons of Greenoakhill Ltd v Biffa Waste Services Ltd 2013 SLT 729, Lord Hodge also
discussed the relevance of pre-contractual discussions in relation to the parties’ intentions
and said:
"[17] Not everything that the parties knew when negotiating an agreement can be
considered when the court construes the contract. For reasons both of relevancy and
also of pragmatism the law has set its face against the consideration of parties'
statements of intention in the negotiations leading to the contract. There is recent
authority for this (Chartbrook Ltd, Lord Hoffmann at pp.1115-1121, paras 27-42;
Luminar Lava Ignite Ltd v Mama Group Plc at 2010 S.C., pp.319-321; 2010 S.L.T.,
pp.153-154, paras 39-45). Again there is also older authority in this jurisdiction
(Buttery & Co v Inglis, Lord Gifford (dissenting) at (1877) 5 R., pp. 69-70; Inglis v
Buttery & Co, Lord Blackburn at (1878) 5 R. (H.L.), pp.102-103).
[18] The rule excluding statements of intention in pre-contractual negotiations has
its limits. In Chartbrook Ltd Lord Hoffmann stated (at p.1121, para.42):
'The rule excludes evidence of what was said or done during the course of
negotiating the agreement for the purpose of drawing inferences about what
the contract meant. It does not exclude the use of such evidence for other
purposes: for example, to establish that a fact which may be relevant as
background was known to the parties, or to support a claim for rectification
or estoppel. These are not exceptions to the rule. They operate outside it.'"
The fundamental distinction drawn by Lord Hodge in these cases is therefore between
evidence about the factual background as known to both parties and parties’ statements of
intention in pre-contractual negotiations. This fits with Lord Neuberger’s observation in
Arnold v Britton that subjective evidence of either party's intentions is to be disregarded. It is
perhaps of assistance to note what Lord Blackford said in Inglis v Buttery, where the House
of Lords held that no regard should be had to evidence of the parties’ prior communings (or
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36
negotiations) that were said to establish their intention as to the meaning of the words in
dispute. Lord Blackburn said (at 103):
“…you may, while taking the words of the agreement, ‘look at the surrounding
circumstances,as Lord Ormidale expresses it, and see what was the intention. You
do not get at the intention as a fact, as Sir James Wigram in his Treatise on Extrinsic
Evidence calls it, but you see what is the intention expressed in the words used as
they were with regard to the particular circumstances and facts with regard to which
they were used. The intention will then be got at by looking at what the words mean
in that way, and doing that is perfectly legitimate.”
There is further assistance in understanding the proper approach to evidence of
pre-contractual discussions in the observations made by Leggat LJ in Merthyr (South Wales)
Limited (FKA Blackstone (South Wales) Limited) v Merthyr Tydfil County Borough Council
[2019] EWCA Civ 526 (at [43] - [55]). I need not set out the observations in full, but the following
comments are pertinent for present purposes:
[54] What is not permissible, as the decision of the House of Lords in the
Chartbrook case confirms, is to seek to rely on evidence of what was said during the
course of pre-contractual negotiations for the purpose of drawing inferences about
what the contract should be understood to mean. It is also clear from the Chartbrook
case that it is not only statements reflecting one party’s intentions or aspirations
which are excluded for this purpose but also communications which are capable of
showing that the parties reached a consensus on a particular point or used words in
an agreed sense. The exclusion of such evidence was justified in the Chartbrook case,
not on the ground that it will always or necessarily be irrelevant, but because of the
costs and other practical disadvantages that would result from relaxing the rule and
because the ‘safety devicesof rectification and estoppel will generally prevent the
exclusionary rule from causing injustice.
[55] I would accept that there may be borderline cases in which the line between
referring to previous communications to identify the ‘genesis and aim of the
transactionand relying on such evidence to show what the parties intended a
particular provision in a contract to mean may be hard to draw…”
As Lord Wilberforce observed in Prenn v Simmonds [1971] 1 WLR 1381 (at 1385):
“The only course then can be to try to ascertain the ‘naturalmeaning. Far more, and
indeed totally, dangerous is it to admit evidence of one party’s objective – even if this
is known to the other party. However strongly pursued this may be, the other party
may only be willing to give it partial recognition, and in a world of give and take,
men often have to be satisfied with less than they want. So, again, it would be a
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37
matter of speculation how far the common intention was that the particular objective
should be realised…
In my opinion, then, evidence of negotiations, or of the parties’ intentions, and
a fortiori of [one party’s] intentions, ought not to be received, and evidence should be
restricted to evidence of the factual background known to the parties at or before the
date of the contract, including evidence of the genesis’ and objectively the ‘aimof
the transaction.”
[44]       It was submitted on behalf of the defender that the correspondence after the offer
and prior to the acceptance did not constitute negotiations, but rather was about achieving
clarification. The terms of the correspondence from the defender included repeated
references to deficiencies in the offer, stating that it needed considerable revisal and that
many important issues remained unresolved, that safeguards required to be put in place and
that amendments were required. The points in question were identified. The
correspondence is readily capable of being viewed as negotiations. But, whether viewed as
negotiations or attempts at clarification, the characterisation of the correspondence may not
be of particular significance. It is something that took place and was shared between parties
after the offer but prior to the contract being concluded. If it did contain evidence of facts
known to both parties which, on the authorities, could properly be taken into account in
identifying the genesis or aim of the transaction or in construing the meaning of the words
in the contract, that evidence is relevant.
[45]       Most of what was said in the correspondence merely involved statements of
intention rather than indications of facts known to both parties and it is therefore irrelevant.
In any event, the approach taken on behalf of the defender was that the parties’ respective
understandings of what was meant by “Hoffman compliant” did not matter, the point
simply being that according to the correspondence the valuation procedure was to be
“Hoffman compliant”. However, this is an attempt to focus only upon the use of that
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38
expression in the correspondence without taking into account what the parties said they
took it mean. If, against the view I have reached, it is appropriate to have regard to the
evidence of what was said in the correspondence, it is clear that Mr McKenzie was not
expressing an intention that the procedure would be “Hoffman compliant”, whatever that
was taken to mean; rather, he was saying that the terms of the offer were considered by him
and the pursuers to meet that test. He plainly intended it to be “Hoffman compliant” in
order for it to be a valid and effective defence to the unfair prejudice allegation. But that is
quite different from saying that the offer and any valuation procedure that ensued were
intended to be “Hoffman compliant”, no matter what that term meant. The defender’s
position was that “Hoffman compliant” included what was said in O’Neill v Phillips (at
page 1107H):
“Fourthly, the offer should, as in this case, provide for equality of arms between the
parties. Both should have the same right of access to information about the company
which bears upon the value of the shares and both should have the right to make
submissions to the expert, though the form (written or oral) which these submissions
may take should be left to the discretion of the expert himself.”
The defender takes that to mean a full and unfettered right of access to company
information rather than, as Mr McKenzie made clear was his position, a right to seek
information from the company via the expert. Therefore, if I view the correspondence as
part of the surrounding circumstances, it does not assist the defender; on the contrary, it
makes clear that there was no consensus on the meaning of “Hoffman compliant” and hence
no shared intention or aim.
The general context
[46]       Leaving aside the pre-contractual correspondence, there was plainly a factual
background known to both parties. It is obvious from the context that a reasonable person
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39
would understand that each party did indeed aim to have a contract that was “Hoffman
compliant”, subject to the important qualification that this was as they respectively
understood the meaning of that concept. That is clear from the very fact that the offer was
made by the pursuers in the context of seeking to give themselves a defence to the allegation
of unfair prejudice made in the sheriff court proceedings. It could only give that defence if it
was indeed “Hoffman compliant”, as they understood it. It might also be said that the
defender could only rationally and sensibly accept the offer if he concluded, or was advised,
that it was “Hoffman compliant”, as he or his advisers understood it. If it was not, he could
readily have ignored or rejected the offer and continued with his action.
[47]       The approach to identifying the aim of the transaction is stated by Lord Wilberforce
in Reardon Smith Line Ltd v Hansen-Tangen (The “Diana Prosperity”) [1976] 1 WLR 989 (at 996):
”when one is speaking of aim, or object, or commercial purpose, one is speaking
objectively of what reasonable persons would have in mind in the situation of the
parties.”
Viewed objectively, I conclude that there was no aim that the agreement would be
“Hoffman compliant” whatever that concept meant. A reasonable person in the situation of
each of the parties was not aiming for or committing to the application of a meaning of that
concept which ran starkly against his understanding. There is nothing in the factual
background to support the view that the pursuers were proceeding on the basis that the
concept applied whatever it meant and even it if did include full and unfettered access, and
that the defender was also proceeding on the basis that the concept applied, again whatever
it meant, and even if it did not include full and unfettered access. It is the substance of the
aim, and not simply the label attached to it, that may be relevant.
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40
The role of the surrounding circumstances
[48]       Senior counsel for the defender submitted that once regard is had to the surrounding
circumstances, including the correspondence, it becomes clear that
the common intention of the parties was that their bargain was to be Hoffmann
Compliant. To reach any other conclusion is to attribute to the parties an intention
they could not have possessedThat, in turn, leads one to the second issue of
contractual construction which arises, namely, what does Hoffmann Compliance
require?
This reflects what was pled on behalf of the defender, as noted in para [9] above, that the
admissible surrounding circumstances had the same effect as an express agreement as to
“Hoffman Compliance”:
In either case, however, on a proper construction of the parties’ contract, it was an
express term of that contract that the valuation of the Defender’s shares was to be
undertaken in accordance with the requirements set forth in O’Neill v Phillips, as set
out above.”
The submissions for the defender went on to refer to the principles stated by Lord Hoffman
and contended that the parties were effectively agreeing to incorporate those principles,
just as they might incorporate a standard set of terms or conditions…”. Accordingly, the
defender’s position was not that any specific terms or language used in the offer or
acceptance fell to be construed in a particular way, having regard to these surrounding
circumstances. Rather, it was that the “common intention” incorporated into the contract
the concept of “Hoffman Compliance”. The authorities do not support the proposition that
the common intention or aim, as derived from the surrounding circumstances, becomes a
term of the contract rather than being, potentially, an aid to interpretation of the words used.
In any event, there was no common intention or aim of any substance in relation to
“Hoffman Compliance”.
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41
[49]       For these reasons, I do not accept the alternative contention made on behalf of the
defender.
The effect of an agreement that the procedure be “Hoffman compliant”
[50]       As I have decided that the defender’s case on the constitution of the contract and its
meaning must fail, the issue of what is meant by the procedure being Hoffman compliant
does not arise. However, in light of the submissions on the point, it is appropriate that I
briefly express my views on it. The pursuer and the defender each accepted that if there was
a requirement that the offer be Hoffman compliant, this had the consequence of
incorporating into the offer the various principles stated by Lord Hoffmann. The key issue
was the fourth principle, noted above, which states inter alia that “Both should have the
same right of access to information about the company which bears upon the value of the
shares the right of access to information which bears upon valuation…”. Giving these
words their natural and ordinary meaning, they do not give a full and unfettered right of
access to all information which the defender wishes to see. It is made entirely clear by the
qualification used by Lord Hoffman that the right of access is to information which bears
upon valuation.
[51]       When one takes into account the surrounding circumstances, that construction does
not alter. As in many similar cases, this is a contentious dispute which follows on from a
breakdown in relations, an absence of mutual trust and indeed a degree of mutual hostility.
The pursuers have access to all of the company information and the defender does not. The
pursuers wish the company to pay the lowest price and the defender wishes to sell for the
highest price. As the expert evidence showed, it is not inconceivable that those running a
company might conceal or fail to disclose relevant information (although I make clear that I
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42
say that only as a general observation and not about the present pursuers). These factors do
not remove the qualification that the right of access is to information that bears upon
valuation, and in particular they do not turn these words into meaning access to all
information. Thus, in the present case when in a previous valuation exercise the defender
was given full and unfettered access to information and requested all of the emails sent
within a three-year period, resulting in some 56,000 emails being sent to him, and has now
said in evidence that he may wish to obtain emails over the seven-year period thereafter
(which he may reduce on advice), such a request for access to information is not covered by
Lord Hoffmann’s statement of requirements. In addition, it makes less sense commercially
for parties to be able to access every single communication or document. Such a process is
likely to prolong the exercise and cause it to be much more expensive. Lord Hoffmann’s
words must be viewed in the context of his earlier comments when stating the third
principle: “The objective should be economy and expedition, even if this carries the
possibility of a rough edge for one side or the other…”. In my view, any other construction
which has the effect that the words mean that a party can request every single item and then
make his or her own decision on whether they bear upon valuation, has no foundation.
[52]       However, the defender is to have the same right of access as the pursuers to
information which bears upon valuation. When one seeks access to such information, there
must, no doubt, be a means of characterising the request which demonstrates that the
material has a bearing upon valuation. In his evidence, Mr Webster spoke of
value-enhancing and value-detracting information and gave examples of types of
information in each regard. Merely by way of example, the defender could request all
information concerning any new business opportunity that has arisen or has been identified
as the subject of consideration. The defender is to have “the same right of access”. This
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43
could be taken to mean that the defender has a right, personally or through a representative,
to ask for all information that bears upon valuation. If the words are taken to mean that the
defender can request from the company, not directly but through the expert valuer, any
information which bears upon valuation, that makes no material difference and satisfies the
test of having the same right of access to information which bears upon valuation. On the
other hand, if the expert valuer has the authority to refuse to make a request which the
defender considers to bear upon valuation, that arguably could be seen as denying the
defender the same right of access. If that decision is made by the expert on his view that the
information requested cannot have any bearing upon valuation, that leaves open the
possibility that the expert may be wrong.
[53]       Thus, if, against the decision I have reached, the procedure required to be Hoffman
compliantand hence required the same right of access to information about the company
which bears upon valuation, the issue becomes whether the letter of engagement issued by
Mr MacDonald on 5 July 2018 is disconform to that requirement. The timetable set out in
the letter of engagement expressly refers to the parties being able to make written and oral
submissions to the expert. Mr MacDonald also lists the information that has been provided
to him by the parties since his appointment and adds that he will request further
information which: “As a minimum, I would expect to include the following”. He then lists
types of information, including “6) Any other factors which you believe may impact the
Company’s valuation”. He goes on to say:
“For the avoidance of doubt, I shall be entitled to request further information and
explanations as I consider to be relevant to my appointment, from the parties
throughout the duration of my work. The parties shall be required to provide such
information and/or explanation to me within a reasonable period…”
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44
He states that all of the information will be shared with the parties. The letter of
engagement therefore makes clear that he will request further information on any other
factors which the parties’ believe may impact upon the valuation. The words “believe may
impact” mean that he is founding upon their beliefs as to the potential impact, rather than
him having to be persuaded by them that it is relevant to valuation. The parties may of
course be required by the expert to say why they believe information of a particular type
may impact upon valuation. The letter of engagement does not therefore allow full and
unfettered access to all company information, but it does allow the expert to access
information which the either of the parties believes may impact upon valuation. I was given
no real or substantial basis for concluding that the same right of access, albeit exercised
indirectly through the expert valuer, would not result in the defender obtaining the same
information as he would have obtained had he directly requested information bearing upon
valuation from the company. If in a particular valuation exercise there is a failure to disclose
relevant information, that could occur whether the request was made directly by the party
or by the expert. In the present case the pursuers have accepted the terms of the letter and
such a failure to disclose would be a clear breach of their obligations. Accordingly, if the
consequences of the procedure having to be Hoffman complianthad arisen for
determination, I would have rejected the defender’s position that the letter of engagement is
disconform to that requirement.
Issue 3: Apparent bias
[54]       On behalf of the pursuers, it was submitted that once an independent valuer has
been appointed, apparent bias will not found a challenge and it is actual bias that requires to
be established. Reference was made to Macro & Ors v Thompson & Ors (No 3) and Bernhard
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45
Schulte & Ors v Nile Holdings Ltd. However, in Macro the test of actual partiality was said
(at 65) to apply “when the court is considering a decision reached by an expert valuer” and
in Bernhard Schulte (at [98]) the reasoning in Macro was viewed as referring “to the duty of an
expert in issuing a valuation of the shares to act fairly and impartially”. I accept the
submission by senior counsel for the defender that the position is different where the expert
has not yet reached the stage of performing his allotted task and issuing a decision. In
Hopkinson and others v Maximus Securities Limited and others the Court of Appeal held that the
appropriate test, before the expert had performed the task entrusted to him, was that of
apparent, rather than actual, bias. Patten LJ observed (at [29]) in relation to actual bias that:
In relation to an exercise which has not yet taken place, this is likely to be a near
impossible task. The difficulty of proving actual bias (which may often be
unconscious) has been a strong reason for the development of an objective test of
apparent bias as a sufficient basis for demanding the recusal of judges and other
adjudicators prior to any actual hearing or determination and I can see no
justification for applying a different rule in relation to experts.”
In the present case, Mr MacDonald was nominated by ICAS and was appointed as the
expert. His letter of engagement has not been signed by the defender and the process of
valuation has not commenced. The position is far from any actual determination or the
issuing of any valuation. Apparent bias will therefore suffice, if shown. The question is
whether, objectively viewed, there is a real risk, for the reasons presented on behalf of the
defender, that Mr MacDonald may act partially in carrying out the valuation. As explained
in Porter v Magill (per Lord Hope at para [103]): “The question is whether the fair-minded
and informed observer, having considered the facts, would conclude that there was a real
possibility that the tribunal was biased.”
[55]       In relation to the meeting on 16 April 2018, Mr MacDonald accepted that the
defender may simply have a different recollection of what was said, rather than have stated
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46
any untruth. As I understood the defender’s evidence, he was not suggesting that
Mr MacDonald was telling a lie about what happened. I see no basis for concluding that
because they differed in their recollections of what was said at the meeting that could give
rise to a conclusion of a real possibility of bias. I prefer and accept the evidence of the four
witnesses who spoke to Mr MacDonald having answered in the affirmative at that meeting,
including the evidence of his long history of familiarity with the Hoffman principles. But
the evidence of the defender was plainly his own recollection of events. The fact that on the
same afternoon he sent an email to Mr Webster recording his position backs that up. The
defender’s diary entry was less forceful, given its language. However, I do not consider the
defender’s evidence on the point to be in any way fabricated. From what appears to have
been a somewhat tense and fraught meeting between the parties, understandings of what
was said can differ. The second ground for apparent bias concerned Mr MacDonald having
been told by the defender at the meeting on 17 May 2018 that the pursuers’ solicitors had
agreed that the draft letter of engagement should include a reference to the process being
Hoffmann compliant, and Mr MacDonald stating that he would revise the draft letter of
engagement to that effect. In his evidence, Mr MacDonald explained that his failure to
revise the draft letter of engagement in that respect was an oversight. On behalf of the
defender, it was submitted that when one had regard to the averments made on behalf of
the pursuers in their minute of amendment (as noted above), that evidence was
questionable. It was submitted that Mr MacDonald had therefore made a judgement that
the defender had told an untruth and had done so solely in discussion or consultation with
the solicitors for the pursuer. The problem with that submission is that there was no
evidence led to indicate that what was averred had in fact taken place. I do accept that
senior counsel for the pursuer must have had some basis for making that averment but at
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47
the end of the day it was simply an averment and no evidence in support of it was led. I do
not regard it as relevant to the issue of apparent bias. Accepting, as I do, the evidence of
Mr MacDonald that it was simply an oversight, there is no support for the suggestion of a
real possibility of bias. In relation to the rejection of the other revisions proposed by the
defender, Mr MacDonald’s evidence was that while the majority of the proposed revisions
were unobjectionable and reasonable the letter of engagement would normally be two to
three pages long, the matters had already been adequately covered and it was not necessary
to make them explicit. Once again, this discloses no basis for finding a real possibility of
bias. Taken individually and cumulatively, the points founded upon by the defender do not
justify any basis for a conclusion of apparent bias.
Issue 4: The third conclusion in the counterclaim
[56]       The third conclusion in the counterclaim states:
“… in the event that the Agreed Sumis in excess of the amount then available to the
company to purchase the defender’s shares, on a proper construction of the contract,
the defender is entitled to pursue payment of any outstanding balance from the
present pursuers and that, until such time as the ‘Agreed Sumis paid in full, the
defender (a) is not prevented from continuing to pursue his application for orders
under section 994 et seq of the Companies Act 2006, against inter alios the present
pursuers, which is in dependence before Glasgow Sheriff Court; and (b) is entitled to
retain his membership of the company.”
I was not directed to any particular language in the offer dated 8 November 2016 which
should be construed to have the meaning which is suggested. The offer sets out that the
defender will, if he accepts the offer, receive the Agreed Sum (that is, under Method 2, the
sum fixed by the valuer) from the company. It also sets out certain consequences which
follow on from payment of the Agreed Sum. None of these terms provide for the position
suggested by the defender. In the defender’s averments, it is contended that the defender
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48
sought clarification as to what was to occur in that event and that Mr McKenzie confirmed,
in the correspondence, that the defender would be entitled to seek payment of any further
sums so due from the pursuers themselves. I have already concluded that the
correspondence does not form part of the contract and for that reason I reject the defender’s
submission to grant the declarator. However, even if the correspondence did form part of
the contract, Mr McKenzie’s comments do not support the defender’s position. He said that
if the valuation exceeded the sum the company could pay then the defender could either
accept that sum, or carry on the existing litigation in the sheriff court seeking an order
against the first and second pursuers. He did not state that if the defender accepted only
what the company was able to pay, the defender could then seek payment of the
outstanding balance from the pursuers. The position is that if the Agreed Sum is paid, then
the consequences, of the defender ceasing to be a director and the sheriff court action being
settled, will follow. If the Agreed Sum is not paid, those consequences do not follow. The
third conclusion in the counterclaim is not sustained.
Conclusion
[57]       For the reasons given, I reject the submissions for the defender as to what constitutes
the contract and the meaning of its terms, and on the issue of apparent bias. The letter of
engagement issued by Mr MacDonald on 5 July 2018 is therefore not disconform to the
contract. That is the sole basis put forward for the defender’s refusal to sign the docquet. I
conclude that the terms of the letter of engagement are reasonable.
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49
Disposal
[58]       In the principal action, I shall sustain the first and fourth pleas-in-law for the
pursuers, repel the pleas-in-law for the defender and pronounce decree for specific
implement in terms of the first conclusion of the summons, reserving meantime the question
of whether warrant and authority should be pronounced in favour of the Deputy Principal
Clerk of Session to sign and deliver the letter of engagement. In the counterclaim, I shall
repel the pleas-in-law for the defender, sustain the second, third and fourth pleas-in-law for
the pursuers and assoilzie the pursuers from the conclusions of the counterclaim. In order
to ascertain whether the decree for specific implement has been complied with, I shall fix a
by-order hearing to call in early course. In the meantime, all questions of expenses are
reserved.



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