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You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Saxon Woods Investments Ltd v Costa & Ors [2024] EWHC 387 (Ch) (22 February 2024) URL: https://www.bailii.org/ew/cases/EWHC/Ch/2024/387.html Cite as: [2024] EWHC 387 (Ch) |
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2024] EWHC 387 ( Ch) | ||
CHANCERY
DIVISION
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
COMPANIES COURT
Fetter Lane, London, EC4A 1NL |
||
2024 |
B e f o r e :
____________________
SAXON WOODS INVESTMENTS LIMITED (a company incorporated under the laws of the Bahamas) |
Petitioner |
|
| - and - |
||
(1) FRANCESCO COSTA(2) FAR EAST MEDIA HOLDINGS PTE LTD (a company incorporated under the laws of Singapore) (3) GROSVENOR INVESTMENT PROJECT LIMITED(4) HDO HOLDING LIMITED (5) BAY CAPITAL INVESTMENTS LIMITED (a company incorporated under the laws of Mauritius) (6) KHATTAR HOLDINGS PRIVATE LIMITED (a company incorproated under the laws of Singapore) (7) SIMON POWELL (8) SPRING MEDIA INVESTMENTS LIMITED |
Respondents |
____________________
Richard Hill K.C., Lara Hassell-Hart and Honor Brocklebank-Fowler (instructed by Joseph Hage Aaronson LLP) for the First Respondent
(The other Respondents did not appear and were not represented)
Hearing dates: 10th-13th, 16th-20th and 23rd-26th October, 1st-2nd November 2023
____________________
VERSION
OF APPROVED JUDGMENT
Crown Copyright ©
Mr Simon Gleeson :
1. Introduction
very
simple case. An agreement (the Shareholders Agreement, or "SHA") was entered into between the Eighth Respondent, Spring Media
Investments
Limited ("the Company") and its shareholders (including the Petitioner and
investment
entities for the First Respondent) to the effect that they would work together in good faith towards a sale of the Company (an "Exit") by the end of calendar year 2019, and would give good faith consideration to any opportunities for a sale prior to that date. In the event that no Exit was achieved by that date, the SHA provided that the board of the Company should instruct an
investment
bank to "cause" an Exit. No such Exit was achieved, and, four years after that deadline, the Company remains unsold.
investment
bank to "cause" an Exit. The essence of the First Respondent's case is that, on a true construction of the SHA, the Company's actions did not breach it, and both he and the Company did in fact do everything that the clause required. In particular, he says that he caused an
investment
bank, Jefferies, to be retained by the Company, and that everything that happened thereafter was done on the advice of that
investment
bank. He also argues that, even if this had not been the case, the board did not consider that a sale executed on the timetable specified in the SHA would maximise
value
for shareholders, and that a decision in these circumstances not to proceed with the sale did not constitute a breach of the agreement, and therefore did not constitute any sort of unfair prejudice to the Petitioner.
Costa
has caused the Company to be in breach of the SHA. However, this action is not a claim for breach of that contract. It is a petition under s.994(1) of the Companies Act 2006 to the effect that the failure to perform the obligations contained in the SHA constituted conduct which resulted in unfair prejudice to the Petitioner, and that that failure was caused by the First Respondent.
very
great deal of evidence was presented, and the principals were extensively cross-examined over multiple days. I regret to say that not all of the evidence or cross-examination seemed to me to have been entirely germane to the issues which I am required to determine, and quite a lot of it seemed to me to be an attempt to attack the
character
of the other party, with each accusing the other of a degree of dishonesty. I have considered all of this evidence in detail, although for the sake of brevity I have not addressed it in detail in this judgment. However, it may be helpful to set out here that I do not consider that either of the principals involved in this dispute have behaved dishonestly. Mr
Costa
is clearly a passionate man, and at several important junctures seems to have allowed his passions to overrule his judgement. Mr Loy, by contrast, seems to have put the worst possible construction on Mr
Costa's
conduct, seeing conspiracy where in fact there was none. Although each clearly believed it of the other, neither was in fact engaged in a nefarious scheme to promote his own interests over those of the Company or the other
investors.
The conflict which emerged between them is one which could and should have been avoided. Sadly, it was not.
valuation
of the Company, and any such determination must be made at a further hearing.
2. The Claim
(1) The Company has acted in breach of clause 6.2 of the Shareholders' Agreement.
(2) Mr
Costa's
conduct in relation to the purported Exit process involved breaches of the duties which he owes to the Company as a director.
(3) As a result of Mr
Costa's
conduct, the affairs of the Company have been conducted in a manner which is unfairly prejudicial to the interests of
Saxon
Woods
as a member of the Company within the meaning of section 994(1) of the Act.
(4) Mr
Costa
was therefore responsible for, and/or was at least sufficiently connected to, that unfairly prejudicial conduct.
(5) Mr
Costa
should therefore be required to purchase the Petitioner's shares in the Company on the grounds that Mr
Costa
is responsible for the unfairly prejudicial conduct and/or he and/or his actions are so connected to the unfairly prejudicial conduct that it would be just to grant a remedy against him.
Costa's
legal expenses of this action which will be dealt with separately.
Saxon
Woods,
have taken any part in the proceedings, save (in the case of HDO, Bay Capital and Khattar Holdings) to confirm that they do not intend to do so. The sole active respondent to the Petition is Mr
Costa
who is the
chairman
of the Company and the holder of a substantial economic interest in the Company.
3. The Shareholders' Agreement
"6.2.Investment
Period. The Company and each of the
Investors
agree to work together in good faith towards an Exit no later than 31 December 2019 (the "
Investment
Period"). In addition, the Company and each of the
Investors
agree to give good faith consideration to any opportunities for an Exit during the course of the
Investment
Period. In the event that an Exit has not occurred upon the expiry of the
Investment
Period, in addition to any rights provided by Clause 3.5(d) and Article
V,
the Board of Directors shall engage an
investment
bank to cause an Exit during the
Investment
Period at a
valuation
devised by such
investment
bank and on such terms as shall be consented to by the Board of Directors, which consent shall not be unreasonably withheld."
Clause 6.3 provides:
"6.3. Exit Process. If an Exit is proposed in accordance with the terms of this Agreement, each of theInvestors
shall: (i) give such co-operation and assistance as is reasonably required in connection with the proposed Exit, which shall include co-operation and assistance in the preparation of any information memorandum/"teaser" and the giving of presentations to potential purchasers,
investors,
financiers and their advisers, as well as assisting on any due diligence exercise conducted in relation to an Exit; and (ii) procure (insofar as it lawfully can) that such Exit is achieved in accordance with such proposal."
"the sale of all or substantially all of: (i) the issued equity share capital of the Company; or (ii) the business or assets of the Company (whether through the shares of a Subsidiary or otherwise), in each case on arm's length terms as part of a single transaction or a series of transactions".
Investment
Period", but provides that if an Exit has not been secured within this period, the board shall engage an
investment
bank to cause an Exit "during the
Investment
Period". Both parties accepted that this was clearly a drafting error, and that what was intended was that if an Exit was not secured within the
Investment
Period, an
investment
bank should be instructed to cause an Exit thereafter.
4. The Facts
4.1 The Company's Financial Position
i) Spring Studios Limited ("SSL"), an English company and wholly owned subsidiary of the Company;
ii) Spring Studios New York LLC ("SSNY"), a U.S. company, which is 100% owned by Spring America Inc., which is in turn a wholly owned subsidiary of the Company; and
iii) Spring Studios S.r.l, an Italian company which is 90% owned by SSL.
very
significant increase in the size of SSL, and necessitated raising external
investment.
The New York real estate developer with whom Mr Loy was in discussions (a Mr Cajrati) therefore introduced him to Mr
Costa
as a potential
investor.
Mr
Costa
was already an
investor
in Mr Cajrati's company. It was not intended that Mr
Costa
should be the sole
investor,
but that he would bring other
investors
in alongside him.
Costa
to the board of SSL as
chairman.
Mr
Costa
appointed Mr Uberoi to the board in 2013, and Ms Kurzman and Mr Flammini in 2014.
investment
was made through an
investment
vehicle
(Grosvenor
Investment
Project
Ltd
("GIP"), the Third Respondent), the
investors
in which included Mr
Costa,
Mr
Costa's
investment
vehicle
Greencage SA, Mr Cajrati, Mr Uberoi and others. This resulted in GIP acquiring 20% of the equity of SSL. At this point, a further £1m was raised in the form of loan notes subscribed for by the Second Defendant, Far East Media Holdings. Along with the financing agreement, the parties entered into a separate shareholders agreement dated February 2013 (the "2013 SHA").
value
of the business in order to facilitate his own exit.
Saxon
Woods
as the nominee of the Logan 2011 Capital Trust. Mr Loy was
Saxon
Woods'
nominee director of the Company until his resignation on 18 June 2020.
investors
HDO Holding, Khattar Holdings and Bay Capital. Its effect was that the Petitioner ceased to be the majority owner of the Company, and it ended up owning a stake of around 22%. Mr Loy ceased to be CEO in 2017, and a Mr Yaffa (introduced by Ms Kurzman) was appointed to the role. Mr Loy remained with the Company as "founder president".
venture
was established under the "Spring" brand, this being "Spring Place". Spring Place was a member's club based in the Spring Studios premises in New York. It was owned by Mr
Costa
and a number of other
investors,
but Mr Loy was not involved. It paid to Spring Studios a one-off royalty of $7m in order to licence the Spring name, and co-tenanted with Spring Studios in its building.
Costa
had
investments
in three relevant businesses Spring Studios, Spring Place and the real estate entity which owned the New York premises in which those two entities were based. Mr Loy's interest was only in Spring Studios.
Costa's
position is that the financial underperformance in 2015 and 2016 was due to the ineptitude of Mr Loy, whose ability to originate business was in his
view
coupled with an inability to control or manage costs. At the request of the other
investors
(including Mr
Costa),
Mr Loy ceased to be CEO at the end of 2016, and it was the work of his successor Mr Yaffa which resulted in the restoration of the firm to profitability.
Costa
to sell his shares to him. A price seems to have been agreed by November 2017,
valuing
the Company at around $120m and Mr Loy's shares, discounted for a minority stake, at $23m. Draft heads of terms were drawn up by Mr Thomas Thesing of Sidley Austin, who at this point seems to have been representing Mr
Costa.
It is clear that the buyer for the shares was intended to be Mr
Costa's
vehicle,
Greencage. There was some debate as to whether Mr Loy believed at this time that Mr
Costa
himself was to be the buyer of the shares. Mr
Costa
resiled from this proposal in early 2018, and no sale was ever effected.
investors
were satisfied.
valuation
on this basis of $122m, and EY were mandated to prepare a Seller Information Document (the "SID").
Costa
would step down, Mr Loy would redouble his efforts to get in new business, and Mr Flammini would focus on cutting costs, with the aim being to create a stable, profitable business. This proposal ran sharply counter to that put forward by Mr Yaffa at the same meeting his presentation contained an exhortation to the board that "focussing on "profitability" too early can undermine
value".
He therefore urged expansion, the hire of Messrs Punch and Laubscher, and the establishment of the Media Division. Mr Flammini and Mr Loy seem to have been particularly incensed by the fact that the new hires had increased the staff costs by more than $3m, and that this was unsustainable. It is important in this context to appreciate that Messrs Loy and Flammini were not proposing to shrink the Company the debate was as to whether new areas of growth outside its core business should be explored. Their presentation claimed that their programme could result in EBITDA increasing by $4m, which would take projected EBITDA for 2019 to $9m, which they claimed would enable the Company to be sold for a good price on the timetable set out in the SHA. The board decided to back the senior management in its expansion plans and rejected the Loy/Flammini proposal.
Costa:
"Hank and I need to get both of them to a place where they understand that a CEO has to come in and be given the reigns and allow them to inform the scope for the position". This was not a recipe for agreement, and no agreement was achieved. The result was that Mr Loy and Mr Flammini presented to the board a paper setting out what they thought should be done, and Mr Uberoi and Ms Kurtzman presented a separate paper in effect arguing that the role of the board was not to engage in the detailed management of the Company, and that nothing should be done until the new CEO was appointed. It is unsurprising that Mr Uberoi and Ms. Kurtzman's document should focus on governance processes (in which they had expertise), whilst Mr Loy and Mr Flammini's document focussed on the operational management of the company (which was their particular field of expertise).
valuation
in April 2020, they assumed that the impact of the Covid lockdowns would reduce EBITDA to $2.7m in that year, but that thereafter the group would bounce back to a figure of $5.7m. The forecast presented to the board in July 2020 suggested that the management of Spring expected it to produce EBITDA of $5.9m in 2021 and $11.1m in 2022. Of course, nothing of the kind was achieved the second and third lockdowns having a devastating impact on the Company's business. However, in 2022, the first full year after lockdown (although affected by post-lockdown drag), EBITDA was $3.1m, $2m of which as earned in the second half of the year, and EBITDA for 2023 was forecast to be $7.1m.
4.2 The Board and the Exit Process
Costa
had been engaged since 2014 in seeking to raise external
investment
in the Company simply as part of its periodic recapitalisations. As part of this process, he had developed a relationship with Jefferies, a US
Investment
Bank. He therefore introduced Jefferies to the Company and Jefferies thereafter acted as advisor to the company as regards the Exit.
Costa
had broken down. Mr Loy was removed as CEO in 2017, disagreed profoundly with the way in which his successor, Mr Yaffa, ran the business, and perceived Mr
Costa
as having interfered in the operational running of the Company. Mr Loy said in his witness statement that "by late 2017 Mr
Costa
and I were really going at each other", and in early 2018 a letter was written to Mr Loy on behalf of the Company making serious allegations of wrongdoing (later withdrawn). I would note at this point that the most
violent
disagreement within the Company seems to have been between Mr
Costa
and Mr Flammini, but Mr Loy made common cause with Mr Flammini as to what he perceived to be the best interests of the Company and was therefore perceived by Mr
Costa
as hostile.
investor
appetite.
very
prescient concerns about leaving such a long gap without a CEO in London). Importantly, the board also approved the appointment of Jefferies, on the basis that "The
Chairman
reported they have spoken with several
Investment
Banks. Jefferies
is the one most interested in working with Spring". The board appointed an "Exit" sub-committee, which consisted of Mr Aspinall, Mr Oberoi, Mr Uberoi and Mr Loy.
Costa
promptly e-mailed Mr Mineard of Jefferies "Board approved mandate to Jeffereis [sic] let's start the process". Two employees of the Company Mr Starker and Mr Di Capua promptly began preparing an
investor
deck and a financial model, both of which were sent to Jefferies by 9 January 2019. The
investor
deck referenced the idea of a "Spring ecosystem", in which the Company co-operated with Spring Place and the real estate
investment
entity. However, the bulk of the deck clearly related only to the Company.
Costa
alone on the other, supported by Mr Puri, an employee of Mr Oberoi. This draft was also commented on by Mr Thesing of Sidley Austin. I am not entirely clear whether Mr Thesing was at this point representing Mr
Costa
or the Company, but the answer seems to have been both.
Costa,
Mr Di Capua and Mr Starker a document entitled "Timeline and Potential
Investors".
The "timeline" element suggested that the placing could be completed by the end of April. The "potential
investors"
section was a broad list of potential bidders, ranging from strategic corporate acquirers to family offices. Interestingly, it also included a number of mid-market buyout funds whose business model is broadly the same as that of Metric (an entity we will encounter later). It seems reasonably clear from this document that Jefferies were thinking about capital raising in the most general terms possible. It is notable that this list is entirely compatible with the mandate which was set out in their presentation of November 2018. It is not, however, easily capable of being explained as compatible with a mandate solely to secure an "Exit" as defined in the SHA.
investment,
asked Mr
Costa
to arrange for Jefferies to come and give the board an update on the sale process. Mr
Costa
refused, on the basis that he "did not want to sit Jefferies in front of Mark [Loy] and Maurizio [Flammini]". However, he offered to arrange a separate meeting between Jefferies and Mr Mehta. On 19 February 19 Mr
Costa
arranged for Mr Thesing of Sidley Austin to speak directly to Mr Mineard to discuss the sale and the Jefferies retainer letter.
Investors"
document. This now suggested a closing date of the end of May. The list of target
investors
had
changed
somewhat, with the most notable feature being that it was now divided into only three groups strategic acquirers, family offices and Private Equity firms. This
very
strongly suggests that at this stage they were looking at all possibilities - 100% strategic acquisitions, a capital raise (the only area in which family offices would be relevant) or some sort of leveraged buy-out. This update was circulated to the board, but does not seem to have been discussed at the board meeting on the 28th February, presumably on the basis of Mr
Costa's
report that Jefferies were fully ready to begin marketing the company, and would commence doing so as soon as they received that board meeting's approval of the 2019 budget and the Q1 numbers. It is notable that Mr Flammini, in an e-mail sent shortly after the meeting, recorded his recollection that what had been agreed was that "Jefferies mandate is solely to offer to the market 100% of [the Company's] shares. Not less than that", but no discussion on this point is recorded in the minutes of the meeting. However, this may be because the minutes of the meeting were the subject of some debate after the meeting, with Mr
Costa
expressing to Mr
Chechile,
who was compiling the minutes, the
view
that "no one has ever excluded a capital increase".
view
of all concerned within the Company was that the sale process should be capable of being completed within the year, and that the sensible course of action was to wait for the new CEO to be appointed. However, Mr Flammini and Mr Loy were concerned Mr Flammini about the length of time that the search was taking, and Mr Loy about Mr
Costa's
bona fides. Mr Loy was still trying and failing to arrange a meeting of the ExitCo, with other members apparently unavailable. His reasons for concern were set out in an e-mail of 14 March to Mr Aspinall, in which he said:
"the radio silence from FC suggests to me he is not pressing Jefferies on the matter of the sale, but he/they and the management (who do his bidding) are working on his agenda. I think he is trying to utilise Jefferies not for a sale, but to attract aninvestor
to buy-out the shareholders at a low price
via
a drag and tag. This is why we need to see the mandate letter, the terms of appointment, see the
valuation,
avoid the drag and tag at a low ball offer by setting a minimum price, and importantly, understand how the sales process is being managed."
view
clearly explains why Mr Loy had consistently pressed in board meetings for a high minimum
value
to be attributed to the Company. It is also clear that at this point Mr Loy decided that it was necessary for him to seek buyers independently of Mr
Costa
as he said in an e-mail to Mr Flammini of the 15 March, "I need the Jefferies mandate and
valuation
- I cant talk to any buyers until I get it!". He therefore continued to press for a meeting of the ExitCo at which he expected this information to be presented. Mr
Costa
agreed to a meeting of the ExitCo on 26 March, but when Mr Loy sent him an e-mail on the day before the meeting asking for this information, Mr
Costa
refused to provide it. At the subsequent meeting, of which Mr Loy made a recording, there was an extended discussion about potential acquirers and price. Mr
Costa
agreed to send the requested information to Mr Loy and to arrange a meeting between him and Jefferies (although no such meeting ever happened). Mr Loy pressed for the setting of a minimum price for the sale a strategy with which Mr
Costa
strongly disagreed.
investors.
The basic model to be proposed was that he and Mr Flammini would contribute the equity piece, and a private equity house would provide debt to finance the purchase of the other shareholders.
view
that this confirmed his worst fears. The letter provided that;
"Jefferies will provide the Company with financial advice and assistance in connection with a possible sale, disposition or other business transaction or series of transactions involving all or a material portion of the equity or assets of one or more entities comprising the Company, whether directly or indirectly and through any form of transaction".
Costa
responded badly. Mr
Costa's
particular concern seems to have been a suggestion by Mr Loy that he (Mr Loy) communicate directly with Jefferies a suggestion to which Mr
Costa
responded: "Unless authorised to do so by the board, you should take no steps to negotiate or communicate with Jefferies. Any unilateral steps taken by you without the appropriate authorisation will not be tolerated and will be treated with the utmost seriousness". Unsurprisingly, this response seems to have confirmed to Mr Loy the idea that what Mr
Costa
was discussing with Jefferies was something other than a sale of the Company.
Costa
explained that the Jefferies retainer letter had not been signed because of the dispute over Mr Loy's requirements for it to be
changed.
Mr Loy therefore agreed to drop his proposed amendments "in order to give sufficient time for the Exit to be achieved in accordance with Clause 6.2 timeframe". However, the retainer letter seems to have remained unsigned, and consequently the sale process remained uncommenced. This may have been a result of the fact that at the same time a transaction between Mr de Mevius and Bay Capital seems to have been being negotiated. The breadth of the definition of "transaction" in the Jefferies engagement letter could have led to their being due remuneration in respect of that transaction, and Mr Thesing (who was now clearly acting for the Company) was therefore requested by Mr Di Capua to amend the definition in order to ensure that any such transaction would not trigger any entitlement by Jefferies to remuneration.
Costa
had been in discussions with a number of prospective purchasers of the Company, that he too wished to seek prospective
investors
in the Company, that he wished to provide the EY document to such purchasers, and asking for a copy of the NDA that Mr
Costa
had used in order for Mr Loy to be able to ensure that any such information was provided on terms of equivalent confidentiality. This letter was not responded to.
Costa
that the mandate letter was signed and the process was now running.
Costa
pointing out that he was yet to share the mandate letter with Jefferies or to provide any substantive information as to the process. Mr
Costa
replied on the 8 July. Both letters can be described as intemperate. However, one element of Mr
Costa's
reply is notable. In response to Mr Flammini's criticism of the lack of progress on the deal he said:
"You cannot be the only one who didn't understand that Jefferies, as well as other serious merchant banks, would never have accepted to be engaged on the basis of last years' results and financial performance. On this topic they werevery
clear with me and with our CEO and CFO and in turn I was
very
clear about this with the BoD members and shareholders.
Let me remind you that in order to have anychance
to successfully pursue the exit process, "the Board agreed that the Company should (i) improve its results, (ii) complete a
Vendor
due diligence process and (iii) hire a talented CEO responsible to prepare a business plan that is a key factor to pursue the exit process.".
Costa's
mind there were now a significant set of preconditions to the commencement of any marketing process, some of which would take some time to satisfy.
investors,
and believed he had found one in a Private Equity fund called Metric Capital. By 15 July Mr Loy and Mr Balfour of Metric had constructed a high level term sheet for an offer for the Company. This
valued
it at $100m, which seems to have been a discount to the
value
which Jefferies were reported to have placed on it at the time of $125-150m. On the 8 August the fact that Metric wished to make an offer was communicated to Mr Mineard of Jefferies. Mr Mineard initially played for time, suggesting that they get in contact in September, but Mr Balfour replied explaining that Metric "would be keen to move forward ahead of September". Mr Mineard forward this to Mr
Costa,
who responded: "Ridiculous. I would tell them that there are many parties interested and there will be a competitive bid". Mr Mineard responded: "And we're not ready (new CEO, etc.) I will call him. Always better than over e-mail".
Costa's
observation to Mr Mineard was to both of their knowledges untrue. However, it is notable that Mr Mineard seems to have sought to construct a better and more truthful reason for delay.
Costa
as to the progress of the sale. Mr
Costa
declined to provide any such information, on the somewhat surprising ground that "I have nothing to show or to demonstrate to anyone". At this point it is clear that in Mr
Costa's
mind the conduct of any process for the sale of the Company was a matter for him and him alone, and he saw no reason to discuss it with any other board member.
investors
for information packs as regards the Company. However, the main action seems to have been between Metric and Jefferies. After receiving Mr Mineard's call, Mr Balfour sent a follow-up e-mail asking a number of further questions. Mr Mineard responded to Mr Balfour that "I circled up with the Spring team earlier today. As I suspected, no interest in a debt-based capital raise at this time". Mr Balfour pointed out in reply that that was not what he had proposed and submitted on 13 September a formal non-binding expression of interest,
valuing
the Company at $110m net of debt. Jefferies does not seem to have responded to this. Mr Loy, through
Saxon
Woods,
therefore sent a letter to all board members and shareholders of the Company on the 24 September informing them of the fact of the Metric offer. This produced an e-mail from Mr Mineard to Mr Balfour which read in its entirety: "Copying Francesco and Hank who are pleased to follow up. Francesco will take the lead since he is in London".
Costa
agreed to meet with Metric. However,
Saxon
Woods
sent another letter to directors and shareholders informing them of the meeting and suggesting that they should join it. Mr
Costa
responded by cancelling the meeting and sending an e-mail to the addressees of the
Saxon
Woods
e-mail setting out his reason for doing so. He suggested that the proposal that other shareholders or directors should be involved in the transaction process was an attempt by "certain shareholders" to "interfere with a fair and sound process, potentially destroying
value
and disrupting a sensitive process by pursuing personal interest". It is notable here that what Mr
Costa
seemed most focussed on in his response is the preservation of his own exclusive role as negotiator and conductor of the sale process. Mr Loy's lawyers, Mishcon de Reya, then wrote to Sidley Austin, who now seemed firmly in place as the Company's solicitors, asking them to confirm that the Company was acting in accordance with the SHA, and asking for particularisation of the allegations made against Mr Loy.
Costa
and presented his "first 30 days" analysis. As with most incoming CEOs, Mr Ringel had identified a set of issues within the Company which he considered required urgent action. He concluded that he "would need to spend at least 70% of his time in the next 6-9 months on fixing underlying business issues rather than focus on new business opportunities.".
Costa
to the effect that Soho House, a business which was generally perceived to have a similar business model to Spring Place, had raised capital at an attractive multiple, and saying "lets try to accelerate what we are doing. There is so much opportunity and a ton of capital available. But it won't be around forever
". This seems to indicate that even Mr Mineard seems to have thought that Mr
Costa
was not actively pursuing the transaction as enthusiastically as he might have.
Costa
and Mr Uberoi alone. This meeting, which took place on the 5 November, appears to have been used by Mr Uberoi and Mr
Costa
to probe Metric as to their relations with Mr Loy, and no further information was provided about the Company. Mr
Costa
also raised concerns about Metric doing any due diligence at all on the Company, suggesting that this would cause disruption to the Company.
voiced
a concern about the description of the sale process which he was recorded as having given, in particular that it recorded him as having said that "the process was put on hold once the decision had been taken to install the new CEO". His concern was that the description attributed to him could indicate that he and Mr
Costa
"had not been seriously following the sale process", and that, if these minutes were circulated, that message could be communicated to other shareholders. However, it was eventually decided not to forward these comments to Metric. Mr
Costa
queried whether the production of the minutes might be a good enough excuse to decline to deal further with Metric, but the suggestion was not pursued.
valuing
the company at $110m. This offer explained that the figure had been arrived at by applying what they regarded as the relevant market multiple of 12x EBITDA to the $9.2m figure given in the EY SID. It also set out a proposal to conduct a two-stage diligence process in order to avoid disruption.
Costa
that this approach, if applied to the projected $6m EBITDA, would result in a
value
for the Company of $72m. Mr
Costa's
response was that by "saying that they mix preferred and common they are admitting that they back Loy".
valuation
they felt they were likely to get, and that this decision needed to be "formalised in the best way from a legal perspective".
Costa
and Ms Gerami. Ms Gerami had, through a mutual contact a Mr Shekofti - discovered that The Hut Group (THG) were potentially interested in the Company, and had sought to put them in contact with Mr
Costa.
Mr
Costa's
reply is striking.
"Leili maybe is not clear the situation we are facing, Mark Loy misrepresented the real situation of the company, destroyed 50 mln of cash we injected, paid his social security with company money and now he is creating disturbing actions to be bought out.
I have no intentions to speak or engage any conversation with whoever is in touch with him."
Costa
was accustomed to expressing himself strongly in e-mails. However, on this occasion, he seems to have articulated exactly his position that he was not prepared to negotiate an Exit with a buyer who was in any way connected with Mr Loy. Mr
Costa
therefore began making arrangements for the THG approach to be dealt with by him, Mr Uberoi and Mr Mineard without involving anyone else from the Company indeed he expressly requested that Mr Ringel not be informed of the approach. Mr Shekofti contacted Mr Mineard to arrange a meeting with THG, Mr Mineard reported this to Mr
Costa,
and Mr
Costa
replied "another aggressive idiot", suggesting delaying the meeting.
Costa
that they respond by explaining that, although the offer was expressed to be for $110m, based on the current numbers Metric's approach would lead to a
valuation
of below $75m". However, Mr
Costa
observed that it would be important to prepare for a board discussion, and to that extent Mr Mineard was asked to provide a formal update on the process to the board. The proposed text of this update was communicated in an e-mail of the 26 November to Messrs
Costa
and Uberoi, and was presented to the board as a one-slide update. I regard this e-mail as being of significance, and will return to it.
"In light of historical financial performance (which was below expectations) and the CEOchange
we are keeping parties warm until we are ready to engage in a second phase of our process to include sharing of detailed data and access to the management team
While we are keen to do this ASAP we need to be sure that we are ready and have everything we need in hand to get to the finish line with one or more parties
Timing of this next phase will be governed by (a) allowing Tim Ringel sufficient time to impact the business; and (b) availability of data that supports an improvement in financial performance with sustainability going forwards."
investors
in general terms. I think that Mr Mineard's description of his mandate to Mr Balfour as being "Open" was entirely accurate he believed that what he had been instructed to do was to "see what the market says about the business". The size, nature and intent of that interest was something which could be discussed at a later stage. I think he was also entirely correct in his assessment that the Company could reasonably have been expected to be sold for a better price towards the end of 2020, when Mr Ringel had had the opportunity to build a stronger track record, and that the best way of doing this would be to hold, at that point, a competitive auction. Mr Mineard's assessment of current status was therefore almost certainly an accurate assessment of the position
viewed
from his perspective.
investment
bank to be instructed to conduct a sale by a particular date, and that in such a case it would be usual for the
investment
bank to require something to this effect to be inserted in writing into their mandate letter. No such provision was included in the Jefferies mandate letter, or appears to have been discussed with them.
Costa.
I think they would entirely reasonably have taken the
view
that the Company's compliance with its legal obligations in respect of the SHA was a matter for the Company and its lawyers, and not a matter for them. I think that they were fully entitled to assume that the instructions which they received from Mr
Costa
were the result of a full and proper consideration by the Company of its own obligations, and if the issue was not raised with them, they were under no obligation to raise it with him. There is no suggestion that they did so, and they cannot be faulted in any way for not having done so.
Costa
throughout presented the position as a dichotomy between engaging with Metric and proceeding with Jefferies' competitive auction approach indeed Mr
Costa
described the
choice
for shareholders as "whether or not to proceed with Jefferies".
value
of the Metric bid was not the $110m which they had in fact offered. He seems to have come to this conclusion by assuming that Metric would price their final offer exclusively by reference to the actually achieved EBITDA figure for calendar year 2019. This is a bizarrely oversimplistic approach to have been applied by a person who held themselves out as a serious and sophisticated
investment
banker. I have absolutely no doubt that Mr Uberoi was well aware that Metric would have looked at a number of different
variables
in this regard (as indeed Metric confirmed to Mr Loy that they had done in an e-mail of the 4 December). More importantly, since he believed that they had been talking to Mr Loy, he must have known that they would have undertaken their own projections as to the potential earnings capacity of the business once it had been restructured. In short, Mr Uberoi must have known that his assertions that the "true"
value
of the Metric bid was below $75m were no more than guesswork, and that some serious engagement with Metric would be necessary in order to ascertain their actual position.
Costa
that they seemed to be serious buyers, and Mr
Costa
agreed to meet them in early January. Meanwhile, with the December deadline approaching, Mishcon de Reya sent a long letter to the directors suggesting that they had failed to comply with the requirements of the SHA, and that as a result there were potential actions both against them personally for breach of duty and for a petition under s.994.
Saxon
Woods
copied this to the other shareholders.
Costa
sent an e-mail to Mr Balfour suggesting that they meet to discuss
valuation,
and shortly after this a response to the letter from Mishcon de Reya was sent by Sidley Austin, which referenced the prospect of this meeting as evidence that the Company was progressing the transaction. Sidley Austin also sent a memorandum to the board of the Company. This memorandum is a critical part of Mr
Costa's
defence to this petition and requires detailed consideration.
"On the basis of the information provided to date, we believe that the Company has complied with these obligations and continues to do so, including by engaging Jefferies as the Company's financial advisor to explore potential exit possibilities."
chose
not to engage with its substance.
investment
bank to cause an Exit during the
Investment
Period at a
valuation
devised by such
investment
bank and on such terms as shall be consented to by the Board of Directors, which consent shall not be unreasonably withheld." This was summarised as a requirement that the Company engage an
investment
bank "to assist with the process" of sale. If this had in fact been the requirement to which the Company was subject, it is clear that, as Sidley concluded, it would have been satisfied by the retention of Jefferies which had already occurred. However, it is entirely clear from the mandate letter that Jefferies were not engaged on the terms provided for in clause 6.2.
investigate
with Mr
Costa
the basis on which the Sidley's advice had been given, but took the memorandum as advice that they were acting in compliance with the SHA by following Jefferies' advice to defer the process of gathering bids for the Company.
Costa,
were not aware of the existence of the Exit committee, and pointed out that intermediating disputes between shareholders and/or ensuring that agreements like the SHA were adhered to fell entirely outside their remit.
investors,
and a series of
investor
meetings being attended by him and by Mr
Costa.
valuing
the company at $125m. This offer explained that it was not based simply on historic EBITDA, but was based on an assessment of the Company's market position, and in particular a "strategic premium on account of future revenue potential under Metric ownership". This offer was again copied to all shareholders, who were invited to a proposed forthcoming meeting with Mr
Costa.
However, Mr
Costa
declined a meeting, explaining in an e-mail that he did not believe that Metric's interest was genuine or that its offer was being made in good faith, and that he believed that Metric were acting in association with Mr Loy. Meanwhile Mr Uberoi had had a meeting with THG on the 26 January in which he provided no information about the Company and gave no indication of when it might be able to engage in serious discussions. However, he and Mr Mineard agreed that he should send a follow-up e-mail, which he did.
Costa
and Mr Mineard seem at this moment to have switched into high gear as regards finding other
investors.
The concerns which prevented them from sharing information with Metric and THG do not appear to have applied to these other
investors
Mr
Costa
was quite happy to agree to a possible bidder, Hanson Lux, having access to the data room which had been established some time ago to support the transaction.
investor
conversations".
Costa
in his separate e-mail was "can't win with this guy. I try to put him at ease that he's not being excluded." Mr Balfour had, however, raised a serious question. Mr Mineard had observed to him that the Jefferies' plan was to begin an auction "when the company had completed 2019 actuals and 2020 projections". As Mr Balfour pointed out, that meant that the auction could not commence until April, with completion probably not before September.
Costa
decided that the meeting should not happen, and that follow-up should be
via
Jefferies.
challenging
on April 16th they presented a
valuation
(which may have been pursuant to the obligation in clause 6.2 again, there are no records of the instructions given to them), but this suggested a
value
between $16.3m and $149.3m, which cannot be described as helpful. What this
valuation
does demonstrate, however, is that in
valuing
the company two
very
different types of answer can be obtained depending on whether the approach
chosen
is primarily turnover-based or primarily EBITDA based. The turnover of the business had continued to grow strongly, and the higher of these two
values
was obtained by simply applying a 2x multiple to budgeted turnover. Conversely, because of the relatively low profitability of the group, even high (12x) multiples of EBITDA, when applied to budgeted EBITDA, produced a
valuation
of less than half that - $68m. Even lower
valuations
were produced by applying these multiples to the covid-affected actual EBITDA.
4.3 Shareholdings and control of the Company
investors
coming in at different times, and partly because Mr
Costa
was an
investor
who liked to operate in association with other
investors.
Costa's
main
investment
vehicle
was a Luxembourg incorporated entity, Greencage S.A. Greencage is a Luxembourg securitisation
vehicle
(sociιtι de titrisation). This means that it exists to hold assets on behalf of those who hold notes issued by it.
Vehicles
of this kind were, for the whole of the relevant time, prohibited from engaging in any active management role in respect of their assets they are necessarily purely passive entities. Mr
Costa
seems to have been the person
charged
with acting on behalf of Greencage, and as a result could in some respects be said to control the shares owned by it.
Costa
controls around 56% of the shares in the Company, and therefore has de facto control. Mr
Costa,
by contrast, argues that his actual economic interest in the Company is only around 30%, since that is the only economic exposure he has to the performance of the company. Both of these positions are correct, but taken together they do result in a difficult question as to what is meant in this case by "control".
investors
who Mr
Costa
introduced to the Company who, by the time the events complained of occurred, owned around 78% of the Company were (apart from Mr Flammini) broadly content to leave decisions relating to the company to Mr
Costa.
Their interests were absolutely aligned with his they were all financial
investors,
they were all looking for a return on their
investments
within a relatively short period, and the thing which is likely to have been most significant to them is the likely Exit price. None of them (apart from Mr Flammini) seem to have had any great desire to be closely involved in the affairs of the company, and the logic for that position would seem to have been the knowledge that Mr
Costa
was closely involved in his capacity as
chairman
and at some points at least shadow CEO. At no point does there ever seem to have been any dissension within this
investor
group as to the wisdom of allowing Mr
Costa
to determine and act in their collective interests, and to that extent the question of whether Mr
Costa
could, in the event of such dissention, have imposed his will, does not arise.
5. The Evidence
5.1 The Petitioner's Witnesses
Mr Loy
Costa,
and to explain how he felt the Company was being ruined by incompetent management. However, his evidence was of limited use as regards the issues before the court. Unlike many petitions, there is no doubt as to the terms of the agreement between the shareholders. As regards the conduct of the Company during the period complained of, since the essence of Mr Loy's case was that he had been deliberately excluded from access to any information about what decisions were being taken and why, he was unable to help much beyond expressing at some length his unhappiness with that situation. Mr Hill put to him repeatedly the point that it had been a breach of his duties as a director to the Company to provide information about it to potential bidders. His response was that he believed that Mr
Costa
was making the same sort of information available to other
investors
(for purposes other than an Exit), and he was therefore justified in doing the same. It was clear that Mr Loy sincerely believed that Mr
Costa
was not acting in accordance with the agreement which he believed had been made between them.
Mr Barley
Saxon
Woods
and holds them as trustee of the Logan 2011 Capital Trust. He is also President of Montague East
Ltd.
and Sterling East
Ltd.,
the nominee companies which act as directors for
Saxon
Woods.
His evidence did not add anything of significance.
5.2 The First Respondent's Witnesses
investors
in the Company; whilst Mr Uberoi and Ms Kurzman had been appointed by Mr
Costa
by reason of their skills and backgrounds.
Navin Khattar
investment
office, Khattar Holdings Private Limited (the Sixth Respondent) which is a shareholder of the Company. Mr Khattar was appointed a director of the Company on 14 August 2018. At the time of his appointment, he was a director of 12 other UK companies, as well as 2-3 US companies and one Indian company. As he acknowledged, he is a busy man. Mr Khattar was also candid about the fact that Khattar Holdings has
invested
in a number of
investments
in which Mr
Costa
(and other directors, including Mr Oberoi) are involved, including Spring Place, Billionaire Club and Sambazon.
Costa.
Alok Oberoi
Costa
for over 10 years, and described him as his "business partner". Like Mr Khattar, he has multiple different roles and offices - he is on the board of 10-12 other companies, sits on the advisory council of a business college at Cornell University and has a
charitable
foundation. He accepted that the Company is a small part of his affairs, albeit that he still
invested
quite a lot of his personal money.
Costa,
and that their economic interests as
investors
were aligned. In particular, he trusted Mr
Costa
to give correct instructions to Jefferies and to ensure that the Exit provisions of the SHA were complied with.
vague
for example he was unable to recall why one of his employees was involved in helping Mr
Costa
negotiate the Jefferies engagement letter, why Jefferies was involved in discussions about the restructuring of the Company, or the mechanics of a transaction negotiated in 2019 in which it was proposed that his
vehicle
should acquire the Bay Capital stake jointly with Mr
Costa.
However, it seemed to me that the issue was simply that Mr Oberoi was not particularly involved in the issues surrounding the Company, and was relying on Mr
Costa's
stewardship.
Cecilia Kurzman
Costa
as a director in 2014. Her primary focus at the Company appears to have been the identification and recruitment of senior talent. She was a combative witness who appeared to have taken a strong dislike to Mr Loy. Her desire to support Mr
Costa's
position seems at times to have led her beyond the ordinary bounds of witness discipline for example, her account in her witness statement of the debate which took place at the June 2019 board meeting was somewhat undermined by the fact the minutes recorded that she had not been present at it. However, here again, Ms. Kurzman had limited involvement in the principal matters under scrutiny in these proceedings. Her knowledge of the Exit process was based principally on what she was told at board meetings and conversations with Mr
Costa.
Hank Uberoi
very
different position from the other witnesses as regards the Exit process. He is a former
investment
banker, having spent 14 years at Goldman Sachs. He has known Mr
Costa
for 15 years, and was brought in as a non-executive director by him in 2013, at which time his primary role was as CEO of Earthport. However, he gave up his role at Earthport in 2017, and thereafter appears to have worked closely with Mr
Costa
on the corporate finance transactions of the Company.
"In my experience, these clauses are usually designed to trigger a discussion around the date specified in the agreement, and then people work in good faith to figure out what should happen next if it doesn't make sense at that point in time, you don't sell."
He clearly expresses his
view
that he agreed with the strategy of waiting for mid-2020 before beginning an auction, but at no point does he suggest that he considered whether this strategy was in line with the terms of the SHA. In particular, he does not seem to have even asked himself whether the other parties to the SHA in particular Mr Loy and Mr Flammini might have legitimate concerns that it was not being complied with.
vociferously
disagreed with his and Mr
Costa's
strategy for selling the Company. He clearly felt that the appropriate response to their interventions was an increasingly forceful assertion that he was right, they were wrong, and the best approach was to exclude them as far as possible from any involvement in the Company or its sale. As an approach to corporate governance, this falls some way short of ideal, no matter how convinced Mr Uberoi may have been about the correctness of his strategy.
Mr
Costa
Costa
is the
chairman
of the Company's board of directors (in which position he is entrenched under the 2016 SHA) but also a substantial indirect
investor.
He is the principal protagonist in these proceedings and the only substantive respondent.
Costa's
evidence between the way that he dealt with conversations of which there was some documentary record, which was meticulous, and those of which there was not, where he was only too happy to provide broad assurances that conversations had indeed taken place, and had contained exactly the material which helped his case. A point which Mr Davies highlighted was in respect of the process by which Jefferies were appointed. Mr
Costa
told the Board that he had spoken to other
investment
banks before recommending Jefferies, and explained the absence of any record of any such communication because his meetings with the other banks had been "all in-person conversations". In his witness statement he claimed to have approached Merrill Lynch, Goldman Sachs and JP Morgan an implausible
choice
of advisers for a deal of this size. However, in his meeting with Mr Loy, he gave an entirely different list of names of firms that he had approached. In much the same
vein,
Mr
Costa's
verbal
evidence was that he had told Matt Starker in a call on the 26 November 2018 that the fundraising on which he thought he was working "was basically dead and the decision of the board was to move forward with the sale of the company". However, this is unlikely some time after that call, Mr Starker was still talking about the "SS raise" in communications with Mr
Costa.
variance
with Mr
Costa's
evidence. Mr
Costa
said that "[Jefferies'] mandate was
very
clear; to sell the company, from me and from the company". However, on 30 May 2019 Mr di Capua (the Company's CFO and an appointee and confidant of Mr
Costa's)
emailed the Company's solicitor, Mr Thesing, to discuss, inter alia, "[f]inaliz[ing] the mandate to Jefferies for the fundraise process".
Costa's
evidence was reliable as regards matters which are documented for example, events in board meetings. However, I do not feel that I can place any great evidential weight on his accounts of undocumented conversations.
5.3 The Documentary Evidence
very
large amount of documentation. However, one of the strangest evidential features is the almost complete absence of any written correspondence between Jefferies and its client. It seems to me to be highly implausible that there was no such correspondence. Mr Meade, the expert for the Petitioners, explained in his oral evidence that during a pre-sale period of the kind which is said to have occupied most of 2019, he would expect to see fortnightly or monthly written updates from an
investment
bank to its client, along with weekly or fortnightly phone calls, and that this would be likely to increase to daily briefings during the auction phase. Mr Hill, the expert for the Respondent, did not dissent in broad terms from this position, although he thought that there might have been rather more communication by telephone than in writing in the earlier stages of the marketing process.
channel
for such communication would have been between Jefferies on the one hand and Mr
Costa
and Mr Uberoi on the other. Mr
Costa's
practice as regards share transactions appears to have been to involve himself in the initial presentation and pricing discussions but to leave the written discussion of details to others - as, for example, he did with Mr Waldman and Mr Finkielsztain as regards the aborted purchase from Mr Loy and with Mr Puri as regards the aborted purchase by Mr de Mevius of the Bay shares. I therefore entirely accept that Mr
Costa
may have left this
channel
of communication to Mr Uberoi. I am less confident that he was not copied on any of these communications.
chosen
not to co-operate with the Company as regards disclosure, and has not given full disclosure of relevant correspondence. Mr Uberoi has provided an explanation for his non-co-operation, that being that he uses only a single e-mail account, that that e-mail account is
very
large, that he is engaged in a number of confidential matters where duties of confidence are owed to different people, and that the result of this is that he can neither conduct a search for relevant e-mails himself nor grant any third party access to his e-mail account for the purposes of conducting such a search. This refusal caused some consternation to the Company, who had been ordered to give disclosure of documents in the custodianship of Mr Uberoi using the specified disclosure search parameters, and the Company's solicitors wrote to me at the pre-trial stage pointing out that although the Company had been ordered to disclose these documents, there was nothing that they could do in the face of Mr Uberoi's non-compliance, and in effect - pre-emptively applying for relief from sanctions.
Costa
and Mr Uberoi have in their possession documentation which demonstrates that this was in fact the advice given, but have unaccountably failed to disclose it. I am therefore forced to the conclusion that this is not in fact what the correspondence said.
Costa
as to what was required. The absence of any written communications of any kind between Mr
Costa
and Mr Uberoi specifying the parameters within which the Company was required to act is itself equally notable. In this regard, I note that even though Mr Mineard of Jefferies expressed a preference at one point for keeping discussions on certain points
verbal
rather than written,
investment
banks generally seek to obtain reasonable clarity on the parameters within which they are required to advise before advising, and such instructions are generally for good reasons sought in writing. Here again, the absence of any such instructions means that their contents, to the extent that they can be known at all, must be inferred from the communications made by Jefferies that we do have. These do not give any suggestion of any awareness of the obligations of the Company under clause 6.2.
5.4 The role of Jefferies
Costa
and Jefferies appear to have started in late 2017. These initial discussions related principally to Jefferies being invited to provide a $45 million convertible loan note to fund the Exit of certain shareholders and to conduct a search for new
investors
into the Company.
investors.
This work was attributed a project name: "Project Style". The identity of some of the names on the list which included high net worth individuals and family offices as well as corporates - makes clear that the list was not intended to be a list of potential purchasers for the Company as a whole. A teaser and a draft
investor
presentation dated 27 January 2018 depicting the
vision
of the wider "Spring Ecosystem" (Studios/Place and Real Estate) was also produced.
investor
presentation" was produced which, in a slide headed "
Valuation
and upside potential" suggested that the
valuation
of the Company, based on comparable quoted companies, was in the range of approximately $130 to $260 million and that "new shareholders would be buying at a significant discount relative to relevant comparables". The presentation then detailed a proposed $20 million loan to Greencage S.A. for the purpose of Greencage acquiring shares from "3 shareholders" in the Company "at an implied Company
valuation
range of $110 to 135 million". It was further noted that "Spring Media is currently working with an
investment
bank for a secondary transaction with an implied Company
valuation
range between $175-$225 million".
valuation
analysis together with a contact log which categorised
investors
by their status as to whether they had been contacted or were yet to be contacted and amongst those contacted whether they were "evaluating" or had passed. This list appears to be centred around identifying parties that could potentially
invest
"$5m a piece". The logs indicate that there were some thirteen parties who had been contacted and were evaluating the opportunity and seven that had passed on the opportunity and a further long list yet to be approached.
investors
right after Labor Day, the first/second week September". Financial information including a 2018 re-forecast and a long range (three to five year) strategy plan for Spring Studios was also discussed as being required.
investor
term sheets". The document also set out Jefferies' engagement terms being "6% of the aggregate primary and secondary capital raised, subject to a minimum of $3m".
investor
presentation deck dated 26 November was circulated internally suggesting the formal process had not yet begun.
Investors".
This document essentially repeated the nine to twelve-week timelines in the document of 2 November 2018 but pushed the expected close of the transaction to April 2019. The document still contemplated a placing of shares, not the sale of the Company as envisaged by the SHA.
Investors".
This document essentially repeated the nine to twelve-week timelines in the documents of 2 November 2018 and 24 January 2019, but pushed the expected close of the transaction to end of May 2019. It did not refer to the need for a new CEO to be appointed or improved financial performance. The document is somewhat ambiguous as to whether Jefferies was seeking
investors
in the Company or purchasers of the whole, or substantially all, of the Company's shares with references to
investor
lists and
investor
term sheets but also the EY SID and the SHA.
The Jefferies engagement letter
"to advise and assist with a possible sale, disposition or other business transaction or series of transactions involving all or a material portion of the equity or assets of one or more entities comprising the Company, whether directly or indirectly and through any form of third party transaction, including, without limitation, merger, reverse merger, liquidation, stock sale, asset sale, asset swap, recapitalization, reorganization, consolidation, amalgamation, spin-off, split-off, jointventure,
strategic partnership or other transaction (any of the foregoing, a "Transaction")".
This definition of "Transaction" was drafted widely, as is typical of such
investment
bank engagements.
Investments
Ltd.
(either directly or through an intermediate company) and/or ii) a current shareholder of Spring Place One
Ltd.
(either directly or through an intermediate company) owning an interest higher than 2% of the share capital of such company (the shareholders under i) and ii) above hereinafter referred to the "Current Shareholders") or an affiliate of any such Current Shareholders." This carve out appears to have been made at the request of the Company on 5 June 2019 by Marco di Capua (the Company's CFO) in an email to Craig Mineard at Jefferies dated 6 June 2019.
(a) "At the closing of a Transaction, 4.0% of TransactionValue";
![]()
(b) "subject in all cases to a minimum fee of $2.5 million payable";
(c) "provided, however, that the total Transaction Fees payable hereunder shall not exceed $4.0 million".
"Transaction
Value"
was widely defined to include any debt assumed by the buyer and included any equity roll over. The fee cap of $4.0m means that Jefferies were incentivised to obtain a
valuation
of at least $100m, but were not incentivised to achieve anything higher than that figure.
investment
bank) by all the shareholders / major shareholders as well as by the client company which will be the subject of the transaction. The Jefferies engagement letter provided a place for it to be signed by "participating securityholders" and the letter committed such shareholders to agree to pay Jefferies their share of the Transaction Fee at the closing of the transaction. However, the letter is clear that Jefferies' advice was solely for the benefit of the Company and not for the benefit of the securityholders.
changed.
5.5 The Experts
investment
bank with a free hand would unquestionably have recommended that the Company do what it in fact did to wait for the new CEO to get settled in, for the track record to be improved and for profitability to increase before conducting a competitive auction. I think that this is all correct, and Mr Meade did not really dissent from it. However, Mr Hill then went on to pose what seemed to me to be an entirely unrealistic dichotomy that if the sale were not deferred, the only alternative would have been a "distressed sale" in which the selling shareholders would have received little or no consideration. Mr Meade did not accept this dichotomy, and neither do I if only because the fact that at least one substantial offer was received in the period concerned would seem to demonstrate that the Company was not in fact
valueless
at that time.
value
of the Company. However, Mr Hill's report seemed to proceed on the assumption that any sale conducted in any other way would necessarily realise a lower sale price than a competitive auction. Mr Meade, by contrast, took the
view
that a competitive auction was only one way of maximising
value,
and that an
investment
bank seller should maintain flexibility and openness to all kinds of approaches, regarding the holding of a competitive auction as only one amongst a number of possible marketing tools. On this point, again, I agree with Mr Meade the role of an
investment
bank in these circumstances would not be to stick rigidly to one strategy, but to seek to assess any and all possible approaches with the overall aim of maximising
value.
Mr Meade
investment
banking. His opinion on the matters about which he was cross-examined reflected the depth of his experience and knowledge. Thus, when questioned about whether a rollover could constitute a sale of a company, he correctly emphasised the importance of looking carefully at the capital structure of the newco:
"So you could still have control in say, for example, the sweet equity, but have lost many aspects of control to the providers of finance who may have you know, may have a shareholder agreement that gives them these powers. It could be in the share structure; the preference shares sitting ahead of your sweet equity. So that where you have a newco introduced into the transactional structure, it becomes more opaque as to whether you've
simply found
investors
to help you buy the 48% or whether you'
ve
restructured it so fundamentally that you'
ve
reached the point where I think would say there's been an offer for the whole company and there's been a rollover".
investment
bank to give, e.g. about the importance of flexibility in a sales process and when to move from an auction process into bilateral discussions with a prospective purchaser.
Mr Hill
investment
banker.
vehicle
partially financed by the selling shareholders would not constitute a disposal, since:
" the original shareholders still end up owning the same business and assets; the same, you know, stake in the company's business and assets. They haven't sold it I wouldn't describe them as having sold their assets -- the business and assets of the company. They may have exchanged their shares in the original company for another company."
It seemed to me that this would be true if the shares in the new company were on the same economic terms as the shares in the old company, but that was absolutely not the nature of the transaction which was being put to Mr Hill.
6. Mr
Costa's
Alleged Scheme
Costa
was never serious about selling the Company because he had an alternative plan which involved consolidating the company into a larger group including Spring Place and the real estate entity. His basic argument was that a sale of the Company to a third party would have disrupted this plan, and that Mr
Costa
was only pretending to be engaged in a sale of the Company, when his real objective was to raise new capital from outside sufficient to enable him to implement this scheme what Mr Davies calls his "alternative plan".
Costa
put forward in his evidence a reasonably clear case as to why this would not have worked, which seemed to me to have some plausibility. However, I think that the position was at once more complicated and less structured than this.
Costa
was clear in his evidence that his
investment
in the Company was a purely financial
investment
what he wanted to do was to make a profit out of it. It is probable that he would have been reasonably indifferent to the nature or identity of any buyer if he felt that the proposed price was sufficiently attractive. Indeed, during the negotiations with Mr Loy in 2017, he was clear in his witness statement that his aim was to purchase the shares of Mr Loy, Mr Flammini and Bay Capital in order to resell them to new
investors
at a higher price. Consequently, I think it is entirely plausible the actual instructions which he gave to Jefferies were exactly what Mr Mineard represented them to be to find
investor
interest of any kind in the Company.
Costa]
see the danger here except that it makes the rest of Spring unsaleable to other
investors
or that they might not want your ecosystem SP and building". This observation became the fulcrum of Mr Davies case in essence he argued that because a sale of the Company would potentially damage the ecosystem, such a sale would potentially damage Mr
Costa's
economic position, and that therefore he cannot have been pursuing it.
Costa
under which Bay Capital's interest in the Company would have been sold to DLF and another purchaser. Mr de Mevius, the
chairman
of DLF, was under the impression that Mr
Costa
would be the other purchaser, but Mr
Costa's
evidence was that he had made clear at all times that this was not the case. This clarity does not seem to have been manifest to Mr de Mevius, who wrote on the 14 July 2019 to Mr
Costa
recording the terms of his part of the transaction. Contemporary e-mails suggest that the proposed purchaser for the other half of the stake was intended to be Mr Oberoi's and Mr
Costa's
vehicles
- e-mails suggest that the purchaser would be "FC & Zedan", which Mr Oberoi accepted was a reference to his
investment
vehicle,
Zedan Limited, and Francesco
Costa.
Costa
was pursuing a multi-track strategy, in which he was both pursuing an Exit in good faith by the end of 2019 and at the same time pursuing alternative transactions. However, this does seem unlikely. If Mr de Mevius had completed the transaction as proposed only to discover that he was obliged by the drag-along rights in the shareholders agreement to sell a few weeks later for whatever price the other shareholders had agreed, it seems unlikely that he would have been happy. This is especially the case since Mr de Mevius' explicit aim in the transaction was to equalise his stakes in Spring Place and the Company on the basis of an expectation that these two stakes would merge into a single stake in a "Spring newco" if such a newco were to be formed. Clearly the sale of the Company to a third party purchaser would have made a nonsense of this strategy. Finally, Mr
Costa
regarded Mr de Mevius as a person of some importance as he said in his oral evidence, "Mr de Mevius, for me, would have been a fantastic shareholder because he belongs to one of the richest families in Europe
so he was a
very
prestigious person and to have him involved would have been something
very,
very
positive." So it seems unlikely that Mr
Costa
would have casually set out to deceive him. When this was put to Mr
Costa
as a witness, his answer that Mr de Mevius would have been pleased, because "it would have been easy money" - did not carry conviction, since Mr
Costa
also said that he believed that "in my opinion, the price being asked by Bay was a
very
high price" (it
valued
the Company at $90m). I would also note that, as regards this transaction, Mr
Costa's
evidence that he was only peripherally involved, and was merely copied on e-mails, stretches plausibility. It is clear that the bulk of the work arranging this transaction was done by Mr Oberoi and his office, and in particular Mr Puri, who worked for Mr Oberoi's firm. However Mr
Costa
received an e-mail addressed to him, suggesting that he and Mr Oberoi between them pay $5.3m to acquire part of the Bay Holding, and ending: "please confirm that you are fine with these terms so we can proceed forward". This is not really compatible with the idea of his non-involvement. The conclusion which Mr Davies seeks to draw from this is that Mr
Costa
expected Mr de Mevius to be presented with an attractive sale opportunity within 12-18 months, and therefore never intended to sell the company. More importantly, since the opportunity was presented to Mr de Mevius as an opportunity to
invest
in both Spring Place and Spring Studios, he argued that it was intended either to merge the two or to keep them operating in tandem.
view,
the options package which Mr Ringel was granted is of a type which as Mr Uberoi said in evidence - was "a fairly standard clause". Mr Hill pointed out in his submissions that its effect was that Mr Ringel would have received some financial upside in the event of a sale. However, I think it is simply wrong to say that Mr Ringel's initial package was in any way an incentive scheme this package was not set up until November 2021, when Mr
Costa,
in a letter to shareholders, said that the Company was proposing by implication for the first time - "The establishment of an incentive plan for the company's top management in the event of a sale of the company, with a
view
to aligning their interest with the shareholders in relation to a sale". Finally, Mr Uberoi was clear in his evidence that Mr Ringel was not told about the proposed sale at any point during the recruitment process, and that he only found out about it after he joined the company.
investor
exit", and the other to the effect that he would be required to "build and grow the company with an eye towards a potential sale".
challenged
this. In cross-examination Mr Uberoi explained that he regarded it as perfectly proper for candidates for the role of CEO not to be told about a proposed sale of the Company, even where the preparations for such sale were at a developed stage and the Company was committed to proceeding with it, and that it was equally proper for him to lie to Korn Ferry about the true position. I must say, I struggle with this. It is not often that a Judge disbelieves a witness who testifies that he was lying, but on this occasion I think Mr Uberoi was telling the truth as he saw it that the Company was not for sale, would not be sold in the short term, and therefore required a CEO who would put significant effort into getting it ready for sale over a period of many months or possibly years.
Costa,
at all times during the disposal process, seems to have taken the
view
that, as regards the disposal process, he was the Company. His primary focus at all times appears to have been to ensure that no director or shareholder (other than Mr Uberoi) had any knowledge of or involvement in the Exit process. It is fair to note that this appears to have been largely unchallenged by most of the other directors, but when Mr Aspinall and Mr Loy tried to acquire any information as to the conduct of the process they were aggressively rebuffed. The core issue seems to have been that the other directors were satisfied with Mr
Costa's
assurances that he was doing everything in accordance with the advice of Jefferies, and their
view
seems to have been that acting on high-quality advice must necessarily have been the best thing for the Company.
Costa
never intended to sell the Company. I go with him as far as the conclusion that Mr
Costa
had formed the
view
that he did not want to sell the Company until he was confident that he could get a good price for it, and that he did not expect this to happen until 2020 at the earliest. However, it is a substantial leap from that conclusion to the conclusion that he never intended to sell the Company at all, and there I cannot follow him.
Costa's
position is entirely clear from his own evidence. He was a financial
investor
seeking a financial return, and he believed that, if the sale was deferred until an EBITDA figure could be got to $9m, the sale
value
of the Company as a whole could have been got to $150m. However, he knew that other
investors
wanted to sell Mr Loy had been prepared to sell at a
valuation
of $100m, and Mr Mehta at a
valuation
of $90m. He also knew that Mr Flammini wanted out at any respectable price. Between them, these holders controlled 57.75% of the Company. If they agreed to sell for $90m, the effect of the drag-along provisions of the SHA would have compelled him to offer his shares at the same price to the purchaser. Before any such sale, the selling shareholders would have had to offer the shares to him (and the other shareholders), but Mr
Costa
was clear that he did not wish to
invest
any more of his own money in the Company. Consequently, the only way in which he could avoid being compelled to sell at what he regarded as an undervalue would have been either to find a lender to finance him to purchase the shares (this appears to have been the purpose of the $45m loan which he sought to obtain from Jefferies in 2017-18) or to find a potential
investor
prepared to purchase these shares and to come in with him as a long-term holder. For Mr
Costa's
perspective, almost the worst possible outcome would have been a firm offer in late 2019 to purchase the Company for $100m capable of being accepted by the shareholders.
Costa's
delaying tactics were no more than that.
7. Mr Loy's alleged scheme
Costa,
and it was to that end that he sought to sell his shares to Mr
Costa.
When that transaction fell through, it seems to me reasonable that he would have begun to hope for an external bidder who would buy them both out. When he formed the
view
that Mr
Costa
was not seeking to progress the sale, it is entirely unsurprising that he would have begun to look for such a purchaser himself.
investor,
but was actively seeking to procure that that
investor
could buy the Company at a discount to its true worth. This is somewhat mysterious. Mr Loy's first steps towards attracting new
investors
involved a short memorandum which he had prepared, setting out some information about the Company and explaining that his proposal was that the Company should be acquired for $100m. Mr Hill's expert, however, concluded in his report that the Company was in such a poor financial state in 2019 that "it would not have been possible to launch a credible formal auction process before March/April 2020", and the presentation given by Jefferies in April 2020 suggested that the best possible EBITDA-based
valuation
for the Company would be $68m. These facts formed the basis of his submissions that any sale attempted in 2019 would have been, as he described it, a "distressed sale" which could only realise a
very
low
value.
There is a degree of implausibility about an argument that Mr Loy's attempt to attract bidders at the $100m level for a Company which, on Mr Hill's own case, was at that time worth less than $68m, could constitute an attempt to acquire it at an undervalue.
value,
Mr Hill points to a
version
of the document prepared by Mr Loy in which Mr Loy says that his proposal "seeks to take back control of the business at a price which is at a discount to a likely auction price". However, this does not seem to be anything more than puffery by Mr Loy it is certainly not borne out by the
valuation
figure contained in that
version
of the note, which is $60-100m. It certainly is true that Mr Loy regularly referred to the possibility that an offer made now would "pre-empt the sales process". However, it absolutely does not follow that an attempt to pre-empt an auction process is necessarily an attempt to acquire that asset at a discount. The process of seeking to pre-empt an auction process is an entirely legitimate commercial move, offering the seller jam today rather than an indeterminate but possibly larger amount of jam tomorrow. There is nothing in the idea that Mr Loy was seeking to pre-empt the auction process which, of itself, demonstrates that he was seeking to purchase the assets concerned at an undervalue.
valuations
of $110m contained in the
various
Metric offers were part of a "bait and switch" strategy, in that Metric cannot possibly have intended to bid the amount they specified, and would lower their bid substantially once they had conducted due diligence. However, it is perfectly clear from Mr Loy's memorandum that that was never any part of the strategy which he suggested to them. His pitch to Metric was in many respects the same as the pitch he had made to the board continue rapid revenue growth whilst controlling staff and consultancy costs. The Board did not accept that this was a
viable
strategy, or that he was the right person to implement it, but, to an external
investor
who did, the $100m
valuation
made perfect sense and promised a substantial return after a 2-3 year implementation period. It is entirely clear that Mr Loy was not trying somehow to acquire the Company at a discount to its true
value.
8. The relevant legal principles
very
straightforward the shareholders and the Company are alleged to have entered into a contract, properly documented and executed, to the effect that the Company would seek to sell itself on or shortly after a particular date. That did not happen. The obvious remedy for the disappointed party would therefore seem to be an action in contract. That is not this action. The contract records a common understanding between the parties, and the breach of an understanding of this kind can give rise to a petition under s.994 on the basis of unfair prejudice. That is the ground on which this action is based.
choice
seems to me to be legitimate. What Mr Loy and Mr
Costa
both seek is to be free of their involvement with each other, and the proper
vehicle
for achieving this is the making of an order that one party should buy out the other. The s.994 process is well adapted to considering the rights and wrongs of the making of such an order.
"A member of a company may apply to the court by petition for an order under this Part on the ground-
(a) that the company's affairs are being or have been conducted in a manner that is unfairly prejudicial to the interests of members generally or of some part of its members (including at least himself), or
(b) that an actual or proposed act or omission of the company (including an act or omission on its behalf) is or would be so prejudicial."
i) The petitioner is a member of the Company;
ii) There has been conduct of the affairs of the Company by the respondent or an actual or proposed "act or omission of the company (including an act or omission on its behalf)";
iii) That conduct or act was prejudicial to the interests of the members generally or of some part of its members (including at least himself);
iv) That conduct or act was also unfair; and
v)
That in all the circumstances the Court should exercise its discretion under s. 996(1) to make an order in favour of the petitioner.
Ltd
[1973] AC 360 at 379, where "quasi-partnership" equitable considerations apply. The Company sought and obtained financing from
various
of the defendants on the explicit basis that they were providing commercial funding for a commercial
venture.
I do not think that there has ever been any common understanding between the respondents, or indeed between them and the Petitioner, that their involvement was other than as financial
investors.
Costa
is directly responsible for the unfairness which it has suffered, and (b) justify the relief it seeks against Mr
Costa.
9. Issues to be decided
9.1 The Construction of Clause 6.2
characteristics
an offer would have to have before it could be regarded as giving rise to an "Exit". The fourth is as to whether and to what extent the clause requires things to be done on any particular timetable.
Is there an implied director's duties override?
void
if it requires the person to act in a way which is contrary to his fiduciary duties thus, to take a well-known example, where a person is appointed by a shareholder to a board to represent that Shareholders' interests, his mandate must reflect that in the event of a conflict between his fiduciary duties and his obligations to his appointor, his fiduciary duty must triumph. A contract to any other effect is
void
on grounds of public policy (Boulting
v
Association of Cinematograph, Television and Allied Technicians [1963] 2 QB 606 at 626-627 per Lord Denning M.R.), and, as
Vinelott
J suggested in John Crowther Group plc
v
Carpets International plc and Ors [1990] BCLC 460, a covenant of this kind "is to be read as subject to anything which the directors properly consider they should do in the interests of the company".
Ltd
v
Lord Grade [1983] BCLC 244. This case is the leading authority for the obligations of directors in a case where they are faced with competing bids for the shares in their company, and decides that, in such a position, the interests of the company are the interests of the shareholders. In a nutshell, if directors are faced with two competing bids at different prices, they prima facie breach their fiduciary duties if they act so as to ensure that shareholders receive the lower rather than the higher offer. As Sir Terence Etherington said in Arbuthnott
v
Bonnyman [2015] EWCA Civ 536: "The primary role of the directors is to ensure that the offer and any competing offers are put to the members so that they can decide for themselves whether to accept or reject the best bid available".
choice
between pursuing a transaction today and a possible but uncertain better one tomorrow. The argument for which Mr Hill contends is that directors in such a position who pursued a deal today rather than waiting for a better deal tomorrow would potentially be in breach of their fiduciary duties. I think that this is simply wrong. It is true in general terms that in the context of a sale of a company, the directors of that company are in general obliged to seek the best price for shareholders. But the suggestion that it is somehow a breach of their fiduciary duty to elect for jam today over jam tomorrow or
vice
versa
is I think unsupportable. Decisions of this kind are commercial decisions, but no more. It is only where there are contemporaneous competing offers, between which the shareholders can
choose,
that the principle in Heron has any application.
choice
between what he called a "distressed" sale, which could be conducted in 2019, and a sale for a higher
value
which could be conducted at some later stage. I am not sure why he uses the term "distressed", but I am prepared to assume with him that board members could have firmly believed that the proceeds of a sale conducted in late 2019 would be less than the proceeds of a sale conducted in say early 2021. What I absolutely do not accept, however, is that board members in this position who elected to sell in 2019 rather than in 2021 would have been in breach of their fiduciary duties to the company. A great deal of the expert evidence put forward by Mr
Costa
was intended to show that the company was in such a bad way in late 2019 that any offer sought would necessarily have been low. However, even had all of this material been fully believed by the directors at that time, I do not believe that they could be said to be in breach of their fiduciary duties merely by seeking an offer at that time.
Is there a commercial reasonableness override?
What is an Exit?
investors)
would have been effected through the purchase of 100% of the shares of the Company by an SPV established for the purpose. It would also have been highly likely to have been agreed with the relevant buyer that some of the sellers would "stay in" that is, reinvest some or all of the consideration received for the sale of their shares in equity of the SPV.
investors
in the new company, then the result is not a disposal of all or substantially all of the Company.
vehicle,
there are certain types of transaction whose economic structure would be such that they would not fall within what the parties would have intended by the term a "sale" for this purpose a substance over form argument.
investors
reinvesting their proceeds of sale into the acquisition
vehicle
does not satisfy this requirement.
vehicle,
and were in exactly the same economic position as they were before the transaction, I would agree that the transaction did not constitute a sale of "substantially all" of the Company. Thus, if 60% of the shareholders agreed to sell to an SPV, where a new
investor
was prepared to equity finance the purchase of the drag-along holdings, the result would simply be a
change
in the ownership of 40% of the Company, with the other shareholders left economically unaffected. In such a case, I think it is entirely clear that the result would not be a disposal of the majority of the Company. The position is entirely different, however, where the purchase is made by a
vehicle
whose capital structure is entirely different from that of the target company. In such a case, it is misleading to speak of shareholders "rolling over" what they are doing is selling an
investment
with one particular set of
characteristics,
and acquiring another
investment
with a
very
different set of
characteristics.
In this case, the rolling over shareholders would not simply have reacquired the interest which they previously had. They would have become the owners of a relatively highly-leveraged newco whose economics were entirely different, and their claim to the profits of the Company would have been subordinated to several levels of new debt introduced by the sponsor. The risk/reward profile of the position that the rolling over shareholders would have had under the Metric deal was entirely different from that which they would have had prior to the deal.
Saxon
Woods
would retain its shares in the Company, not sell them." This is simply wrong.
Saxon
Woods
would have given up its shares in the Company and acquired shares in an entirely different entity with an entirely different economic structure. It is the fact of this substantial
change
in economic structure which demonstrates that the proposed transaction was a disposal to a new entity and not a retention of an existing
investment.
invested
in the Company. They must therefore have considered that such a transaction could constitute an "Exit".
Does the clause impose a timetable on the process?
investment
bank and consideration of terms by the board is incompatible with a strict obligation on the Company and
Investors
that the Exit must take place at a specific time.
investment
bank and negotiating terms could not have a precise timetable set for it, and therefore does not propose that there should be one.
9.2 Was there a Breach of Clause 6.2?
investment
period. I consider these separately below.
Working towards Exit
investors
would work together in good faith towards an Exit by a specific date. Mr Hill submits that this is not a binding obligation on the Company or the
investors
to sell for whatever can be got, however little, and he is of course entirely correct in that contention. However, the point seems to go wide of the mark. A great deal of his case, and of the evidence of his expert, Mr Hill, was based on the idea that the Company was not ready for sale by the specified date and would have realised a low price if sold on that date. That is, with respect, entirely beside the point. The question is as to whether the Company and the directors, and in particular Mr
Costa,
did in fact work towards an Exit on that date, and give good faith consideration to any opportunities for Exit which arose at that time. Even if Mr
Costa
personally sincerely believed that no offer at an acceptable price could be secured at that time, that belief would not of itself release him from the obligation to seek such an acceptable offer. There is also clearly no issue of detriment to shareholders. The board was not, in this phase, empowered to bind the shareholders to a sale, but merely to present to them such offers as it had solicited or received.
investment
period, it is accepted that Jefferies' instructions were not amended when the
investment
period ended. There is a slightly mysterious e-mail from Mr Thesing at this point to the effect that this was dealt with by providing a copy of the text of Clause 6.2 to Jefferies, and receiving confirmation from them that they were happy to continue under the terms of their current engagement letter, subject to including the
valuation
as part of the engagement. This is possibly partly explained by the fact that it would have been useless for Mr Thesing to have advised that the Company should have acted differently several months previously by instructing Jefferies to prepare a
valuation
then, and the best that could now be done was to instruct them to do so now which seems to have been done. Possibly more importantly, Mr Thesing had previously been informed by Mr
Costa
that Jefferies had already been instructed to obtain offers for the Company in accordance with clause 6.2, and, if he believed that Jefferies had already been given such instructions by Mr
Costa,
he may have concluded there was no need to repeat those instructions.
Good faith consideration of offers received
investment
period. It is not entirely clear what is meant by the term "opportunities for Exit" as used in the clause, but it is clear that it cannot be read as confined only to unconditional offers. I think each of the Metric offers received prior to the end of 2019 was an "opportunity" for this purpose, and the question is whether they were given good faith consideration. It seems to me that they were not, on the basis that Mr
Costa
had by that point already decided that he was not prepared to deal with any bidder who was in any way associated with Mr Loy. This cannot in any sense of the word be construed as giving good faith consideration of such offers. It should also be noted that as regards the second Metric offer, Mr Uberoi's dismissal of it as being in fact an offer for below $75m could have been corrected by a single phone call to Mr Balfour. It seems, again, that the reason no such call was made was simply that Mr
Costa
did not wish to deal with anyone associated with Mr Loy.
Costa,
performed its obligation to give good faith consideration to it as an opportunity for an Exit. It would have been open to the Company to refuse to deal with Metric if it had been clear on the face of their offer that what they proposed was not in reality an Exit. However, that was absolutely not the case. Mr Hill's argument that the Metric deal was not an Exit rested on the idea that one possible outcome of the transaction would have been that some of the shareholders of the Company retained a degree of economic ownership of the Company. That was not the form of the proposal that Metric presented. It is of course clear that the Company, had it given good faith consideration to the initial approach, could have ceased that consideration as soon as they came to the conclusion that what was proposed was not an Exit. However, prior to that point the issue does not arise.
9.3 Was the Breach the result of the acts of Mr
Costa?
Costa,
and Mr
Costa
did not conduct that process in accordance with the obligations of the Company. Throughout the process Mr Loy made repeated complaints to Mr
Costa
that he was not acting in accordance with those obligations, and Mr
Costa
responded by treating Mr Loy as "disruptive", declining to engage with him, and refusing to engage with potential bidders who he believed to be associated with him. Mr Loy unquestionably was disruptive, but this was because he strongly felt that promises which had been made to him and formalised in an agreement were being deliberately broken. As a result of all this, Mr
Costa
pursued on behalf of the Company a strategy which he knew or should have known was contrary to the obligations of the Company, and in particular contrary to its commitments to Mr Loy. I think it is clear that as a result of this the Company was in breach of its obligations.
Costa's
defence is his argument that it was the board, and not him alone, who made the decisions in relation to the sale. This argument requires some analysis.
Costa
and Mr Uberoi, and possibly Ms Kurtzman, had any interaction with Jefferies. Consequently, the only information that the board had as to what Jefferies were in fact recommending was what they were told by Mr
Costa.
Critically, however, no board member (other than Mr Uberoi) seems to have had any idea what it was that Jefferies had actually been instructed to do. Mr
Costa's
determination to maintain his control of the sale process was so strong that he responded with threats to suggestions from other directors that they might even speak to Jefferies. The result of this is that the information which the board had as to what advice the Company was receiving was filtered through Mr
Costa.
As regards the terms of the specific obligation, the directors, had they asked themselves whether the Company was performing its obligations under clause 6.2, would presumably have said that the Company was obliged to act in good faith towards securing an Exit, that Mr
Costa
had assured them that he had appointed Jefferies to do exactly that, and the Company was therefore clearly performing its obligations. This argument would have worked for most directors apart from the two Mr Uberoi and Mr
Costa
who were in actual contact with Jefferies. I am in no doubt that Jefferies were clearly aware of Mr
Costa's
desire to maximise the profit on his shareholding, and I am equally clear that it would have been entirely reasonable for them to advise that this might best be achieved by waiting until late 2020 to begin marketing. Mr
Costa
and Mr Uberoi were therefore the only people in a position to know both about the scope of Jefferies' mandate, and about the Company's obligations under 6.2, and therefore to realise that what Jefferies were engaged in was absolutely not "working in good faith towards an Exit no later than 31 December 2019". In giving their fellow directors a different impression, they misled the board. Mr
Costa
therefore cannot rely on the argument that it was the board who had caused the Company to breach its obligations, since the Board's decisions in the matter were the result of the fact that he had misled it.
9.4 Did Mr
Costa
breach his duties as a director?
Costa
in respect of breach of director's duties.
Ltd
[2013] 2 BCLC 567 (CA), at [22], Arden LJ explained that any breach of the directors' duties set out in ss. 171 to 177 of the Companies Act 2006 will generally indicate that unfair prejudice has occurred; see also Re Coroin
Ltd
(No. 2) [2013] 2 BCLC 583 (CA) at [17]. Consequently, the aim of these allegations seems to be to support the case on unfairness.
Costa
was in breach of his fiduciary duties as entirely separate from the question of whether he had caused the Company to breach its contract or its understanding with the Petitioner. If Mr
Costa
was under the impression that what he was doing was in the best interests of the Company, then the fact that it potentially exposed the Company to litigation is not probative of a breach of duty. Put simply, if a director sincerely believes that a particular course of action is in the best interests of his Company but will expose it to litigation, he is not automatically in breach of his fiduciary duties if he causes the Company to pursue that course of action. The issue of breach of fiduciary duty must be considered on its own terms.
"[a] director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to [ ] (f) the need to act fairly as between members of the company".
v
Cohen [2001] 2 BCLC 80 at [120]:
"The question is not whether,viewed
objectively by the court, the particular act or omission which is
challenged
was in fact in the interests of the company; still less is the question whether the court, had it been in the position of the director at the relevant time, might have acted differently. Rather, the question is whether the director honestly believed that his act or omission was in the interests of the company. The issue is as to the director's state of mind."
Costa's
position is that he reasonably believed that it was in the best interests of the Company's shareholders for it not to comply with the requirements of clause 6.2 on the timetable that it specified, on the basis that a considerably higher
value
might be obtained for them by delaying the process. He knew perfectly well that at least some of the shareholders disagreed with this, and felt that their interests would be best served by complying with the clause 6.2 timetable. He also perceived that his personal interests as a shareholder were best served by delay. More importantly, he ensured that it was him and him alone who controlled the Company's actions in this regard, such that he was not merely in a position to recommend a course of action, but to ensure that that course of action was in fact pursued. However, I do not believe that it was his intention by doing this actively to injure either the Company or any
investor.
I think his state of mind might be summarised as "they wouldn't like it now if they knew, but they will thank me in the long run". Put another way, I think Mr
Costa
did sincerely believe that he was acting in the best interest of the Company and its
investors.
Applying the test set out in Regentcrest, I therefore do not find that Mr
Costa
was in breach of his duties under s.172(1).
"(1) A director of a company must exercise reasonable care, skill and diligence.
(2) This means the care, skill and diligence that would be exercised by a reasonably diligent person with-
(a) the general knowledge, skill and experience that may reasonably be expected of a person carrying out the functions carried out by the director in relation to the company, and
(b) the general knowledge, skill and experience that the director has."
i) The scope of the advice sought, i.e. the instructions which were given;
ii) Relatedly, whether advice was sought on the specific issue in question or more generally (see, e.g., Re Bradcrown
Ltd
[2001] 1 BCLC 547 at [58] per Lawrence Collins LJ);
iii) Whether the advice was on a technical point on which the director could not reasonably have been expected to form any
view
personally (see, e.g., Re D'Jan of London
Ltd
[1994] 1 BCLC 561, at p. 563c-d per Hoffmann LJ); and
iv) Whether the director asked all reasonable questions of the professional adviser (Re Bradcrown
Ltd
at [58] per Lawrence Collins LJ).
v
Nag [2022]
EWHC
153 (
Ch),
at [62(ii)] per David Halpern QC).
Costa
relies in his defence on the proposition that the Company was advised at all material times by Sidley Austin and by Jefferies. In Sharp
v
Blank [2019]
EWHC
3096 (
Ch),
Sir Alastair Norris said (at [629]):
"In general, a director who takes and then acts upon expert evidence has gone a long way to performing his duties with reasonable skill and care. But the taking and acceptance of advice is not a substitute for the exercise of reasonable skill and care: it is only part of the discharge of that duty".
Costa
can rely on either of these pieces of advice. I think it is clear that he knew what Jefferies were engaged to do, that their advice was addressed to that mandate, and that that mandate did not encompass any of the obligations imposed by clause 6.2. He therefore cannot say that he believed that Jefferies had advised him that what he was doing was in line with clause 6.2. The same is true of the advice from Sidley Austin - if Mr
Costa
had instructed them to advise on the basis that the Company was complying with its obligations under clause 6.2, he cannot invoke that advice as supporting his belief that that was the case.
Costa
not to ensure that the Company fulfilled its obligations under the SHA. I do not think it was. Mr
Costa
sincerely believed that he was engaging in a course of action which would ultimately be for the benefit of the Company and its shareholders, and applied himself energetically to pursuing this course of action. He took the
view
that the Company's breach of its obligation was a price worth paying in order to achieve this aim. I cannot see how this can be described as negligence in the way the term is described in s.174. As a result, I do not think that Mr
Costa
failed to exercise the appropriate levels of skill, care or diligence.
Ltd
v
Chester
Overseas
Ltd
and others [2014] Bus LR 1110 at [72] per Stephen Jourdan QC).
Costa's
alternative scheme pursuing a separate agenda involving other companies in which he was interested. However I do not find that that was the case, and therefore I do not think that there is any action of Mr
Costa's
to which this section could apply.
The allegations of negligence
Costa's
conduct of the Exit process was negligent. This was weakly presented at trial, and barely mentioned in written closing submissions.
Costa
failed to progress the Exit process, failed to keep other directors and shareholders properly informed, failed to involve the Exit committee in his activities, failed to instruct Jefferies on a basis which was consistent with the Company's obligations, and that he effectively delayed the Exit by delegating it to Mr Armbruster and Mr Ringel, who were already fully employed and would therefore be unable to progress it properly.
Costa
did, and the reasons why he did it, are entirely clear. His commercial judgement may be called into question, but there was no neglect in his pursuit of his objectives.
9.5 The appropriateness of ordering the remedy against Mr
Costa
alone
Ltd
[2010] 1 BCLC 367, at [277]-[278] per HHJ Purle QC (where an order was made against a director); and Re Fi Call
Ltd
[2014] BCC 286, at [125] per
Vos
J).
v
Barthelemy (No 2) [2012]
Ch
613, at [1096]:
"In my judgment, the test is whether the defendant in a section 994 claim is so connected to the unfairly prejudicial conduct in question that it would be just, in the context of the statutory regime contained in sections 994 to 996, to grant a remedy against the defendant in relation to that conduct. The standard of justice to be applied reflects the requirements of fair commercial dealing inherent in the statutory regime. This is to state the test at a high level of abstraction. In practice, everything will depend upon the facts of a particular case and the court's assessment whether what was done involved unfairness in which the relevant defendant was sufficiently implicated to warrant relief being granted against him."
Costa
acted in breach of his duties to the Company, or that the Company was actually in breach of the contract made, in order to grant this relief. Conversely, it would be entirely permissible to find that Mr
Costa
was in breach of his duties, and the Company was in breach of the contract, but that the threshold for relief under s.996 had not been reached. It is
Saxon
Woods'
case that Mr
Costa
did act in breach of duty, but the question of whether he did in fact breach that duty is not per se determinative of the petitioner's entitlement to relief.
Costa
did not in fact own a majority of the
voting
shares, and was not in a position to give formal instructions to other board members to take an action as director or to
vote
in any particular way. I accept all of this if Mr
Costa
had been a company, he would not have been required to consolidate the Company in his accounts. However, the issue here is not as to whether Mr
Costa
had such formal control it is as to whether it was his actions which had the effect of causing the Company to do what it did. In this regard, it is clear that that is the case. Mr
Costa
had sole control of the process relating to the Company's compliance with its obligations under clause 6.2, and appears to have consistently reported to the Board that these obligations were in fact being complied with, when he knew that they were not. In this regard, it is significant that his most strenuous efforts were directed towards ensuring that no other director had any information at all about the process other than what Mr
Costa
chose
to provide. I am therefore in no doubt that the Company's failure to comply with its obligations was a direct result of the actions of Mr
Costa.
Mr Uberoi clearly assisted him in his design, but Mr Uberoi had no particular axe to grind in this regard and was simply assisting Mr
Costa
in pursuing his objective of maximising the
value
he hoped to realise for his
investment.
10 Was there prejudice, and was it unfair?
"The conduct must be both prejudicial (in the sense of causing prejudice or harm to the relevant interest) and also unfairly so: conduct may be unfair without being prejudicial or prejudicial without being unfair, and it is not sufficient if the conduct satisfies only one of these tests."
EWHC
2810 (
Ch)
at [47]. It is fatal for a petition if the petitioner is no worse off as a result of the allegedly prejudicial conduct: see Rock (Nominees)
Ltd
v
RCO (Holdings) Plc (In Members
Voluntary
Liquidation) [2004] BCC 466.
10.1 Was there prejudice?
Ltd
(No. 2) [2013] 2 BCLC 583 (1st instance) at [630] per David Richards J). Indeed, disregard of a member's rights will be prejudicial where it is serious and likely to continue in the absence of relief under s. 996 and has a significant impact on the
value
of the member's shares (Re Last Lion Holdings Limited [2018]
EWHC
2347 (
Ch.)
at [109], per Murray Rosen QC). This will be the case where a minority shareholder is unable to realise the
value
of its shares in breach of its rights unless relief is granted (ibid at [180]). That is an accurate
characterisation
of the position here.
Saxon
Woods
cannot have been prejudiced since the Metric deal, had it gone through, would have resulted in
Saxon
Woods
continuing to be
invested
in the Company whilst Mr
Costa
was bought out. He therefore says that it is perverse that Mr
Costa
should be forced to buy out
Saxon
Woods.
Costa
and Jefferies were making no attempt to find buyers themselves. I accept his evidence that his preference would have been to exit the Company altogether, and that for him the Metric deal was
very
much a second best option. The question to be determined is whether another offer, had it been sought, would have been made. If it would have been made at a level that Mr Loy would have accepted, then that is the measure of the detriment which he has suffered.
10.2 Was there unfairness?
v.
Phillips [1999] 1 WLR 1092, HL, Lord Hoffmann held (at p. 1098D) that fairness was the criterion by which the Court had to determine whether it had jurisdiction to grant relief under s. 994. 'Unfairness' for this purpose includes a breach of the terms on which it had been agreed that a company's affairs would be conducted, e.g. a breach of the articles of association or shareholders' agreement or the expectation that the directors would act in accordance with their duties to the Company. However, as Lord Hoffman also said in O'Neill (at 1101G), the test is
"what the parties, by words or conduct, have actually agreed . it [is not] necessary that such promises should be independently enforceable as a matter of contract".
investment
in order to finance the expansion of the Company, he was looking to Exit within a specified timeframe, and that this is why Exit language was included in the 2013 SHA. He also made the point that by the time the current SHA was entered into his shareholding was only 22%, and that as a minority shareholder this protection had become more
valuable
to him. He therefore argued that the commitment to use good faith efforts to sell the Company by the specified time was the basis of his involvement with the company thereafter. It is clear that he was serious about his desire to exit the company, as is evidenced by his attempt to sell his shares to Mr
Costa
in 2018, and it is equally clear that he tried as best he could to push the Board to fulfil this obligation. I think it is clear that the Company undertook to Mr Loy to conduct such a process, and that it did not perform that undertaking, despite his insistent efforts to induce it to do so. I think that that constitutes unfairness.
10.3 The "Clean hands" defence
vehicle
for Mr Loy, and Mr Loy's conduct had been so heinous that he should be denied relief on the grounds of fairness.
v
Blackmore [2006] BCC 276 (CA) at [53]:
"Nourse J. in Re London School of ElectronicsLtd
(1985) 1 B.C.C. 99,394 at pp.99,39999,400 [said that] there is no requirement that the petitioner under s.459 should come to the court with clean hands. [However] conduct which in another context might be used to invoke the clean hands doctrine can be relevant on a s.459 petition in that it "may nevertheless affect the relief which the court thinks ?t to grant": see p.99,400; 222BC. Nourse J. did not say so in terms, but it seems to me clear that, depending on the seriousness of the matter and the degree of its relevance, such conduct would be capable of leading a court to deny the petitioner any relief at all, even though the conditions under s.459 are made out."
v
Willis [1986] 1 E.G.L.R. 62, Gonthier
v
Orange Contract Scaffolding
Ltd
[2003] EWCA Civ 873 and Moody
v
Cox [1917] 2
Ch.
71. He continued:
"55. ...Scrutton L.J. said, in Moodyv
Cox at pp.8788, that "equity will not apply the principle about clean hands unless the depravity, the dirt in question on the hand, has an immediate and necessary relation to the equity sued for."
56. That is entirely consistent with Willis and Gonthier, where the misconduct lay in fabricating evidence in support of the claim itself. I deplore the petitioner's conduct as much as the judge did. However, considering the point ?rst on the same material as the judge took into account, it seems to me that, on his ?nding (see para.116) that it had no bearing on the matters directly in issue, a ?nding which he was plainly entitled to make, he was right to disregard the forgery, and the petitioner's use of the forged letter, when deciding whether the conditions under s.459 were made out. He was also right to disregard it in relation to the question whether to exercise his discretion to make any, and if so what, order under s.461. The forgery itself had no immediate or necessary relation to the circumstances upon which the petitioner's entitlement, or otherwise, to relief depended. At best it was an episode in the background history. Given the lack of impact it had on Mr Richardson and Mr Wheeler, the judge was entitled to treat it in the way in which he did."
v
Ferster [2016]
EWHC
2896 (
Ch)
at [318], Morgan J. explained the position as follows:
"It is established that wrongdoing on the part of a petitioner seeking relief under section 994 can be relevant in two ways. The first way is that the petitioner's wrongdoing may make the prejudicial conduct of the respondent not unfair. The second way is that the petitioner's wrongdoing may justify the court in refusing to grant relief to the petitioner or may influence thechoice
of any relief which is granted. These propositions are established by Re London School of Electronics
Ltd
[1986]
Ch
211 at 222 B-C, Richardson
v
Blackmore[2006] BCC 276 and Grace
v
Biagioli [2006] BCC 85.
Costa's
efforts. Mr Hill presented his case that any and all communications between Mr Loy and potential buyers constituted "multiple serious breaches of duty on Mr Loy's part". It is certainly arguable that they may have been breaches of his duties. The question for me is as to whether they were serious. I think that the touchstone for this as Mr Hill correctly submits - is as to whether they constituted either acting against the best interests of the company, or prejudiced the interests of the company, or were unfair to one or more shareholders.
Costa
would have no desire to remain
invested
in the Company, and he knew that Mr Mehta was keen to exit his
investment.
It was therefore entirely reasonable of him to assume that there was no prospect of Mr
Costa
or Mr Mehta wishing to remain
invested
in the company after that point. It was suggested to Mr Loy that his intention was actively to exclude Mr
Costa
from equity participation in the deal, but negotiations never progressed to a stage where this issue even arose. I therefore do not see any unfairness in the proposed Metric deal.
Costa,
he would simply refuse to engage with them. It is also clear that Mr Loy would have had to disclose his involvement in the transaction well before the point at which the Board was asked to take a decision as to whether or not to accept it. The question is simply one as to whether he owed such a duty at the time when he initially introduced the transaction. This is a question which could potentially become troublesome even if the conclusion is that such a duty was not owed at the moment of initial introduction, the question of at what point in the negotiations it might arise would otherwise be a difficult one. Fortunately it does not arise here, since the proposal was not engaged with, but fobbed off. The issue therefore turns solely on the point at which the proposal was introduced to the board. There is no doubt that it would have been good practice for Mr Loy to give full disclosure at the moment of initial introduction. However, he felt that he had a good reason for not doing so, and he also felt that if the effect of his actions was to avoid obstruction by Mr
Costa
and bring the offer to the attention of shareholders generally he would be acting in the best interests of both the company and the shareholders. I do not need to decide on the rightness or wrongness of this position. However, I am clear that I do not regard Mr Loy's actions as being sufficiently blameworthy in this regard to debar him from relief if relief is otherwise due to be granted to him. This also deals with the criticism of Mr Loy's conduct which is oriented at his attempts to bring the offer to the attention of other shareholders. Mr Hill says that what Mr Loy was engaged in was "taking Metric's side against the company". The only way that this could be the case would be if the interests of Metric and the Company were in some way in conflict. At this stage, before even the commencement of substantive negotiations, they were not, although Metric's persistence was regarded by Mr
Costa
as hostile.
Costa
declined to respond to Metric was that Metric were seeking a period of exclusivity before deciding whether to make an offer, and that this would somehow interfere with the "organised auction process" that Jefferies were said to be organising. This is simply incorrect. Jefferies were quite clear about the fact that they envisaged the auction starting after the CEO had been in place for some time, and once improved financial results had been established. It is therefore impossible to envisage such a sale process commencing much before the end of the first quarter of 2020. A grant to Metric of ten weeks' exclusivity (the time taken to update the EY SID, which Mr Meade suggested could take up to a month, plus the six weeks specified in the letter to begin from the date of receipt of that updated SID), which they requested on 19 November 2019, cannot possibly have interfered in any way with the subsequent conduct of an auction if it were decided not to proceed with the Metric transaction. The apposition suggested that pursuing the Metric transaction would have been in some way incompatible with the conduct of an auction by Jefferies on their timetable is untenable. Mr Uberoi did offer a partial justification for the approach, in that "Jefferies' advice was also that if Metric gained exclusive access to the Company's numbers, they would likely offer a
very
lowball
valuation
and
word would then be out in the market that the Company was a distressed seller." There is no record of Jefferies having said this, and I assume it is in fact Mr Uberoi's own
view.
It is also not a particularly good fit with the facts. If the idea was to wait until the company had stabilised and improved its historic track record before launching the auction, the fact that it had received a lower offer before that track record was established does not seem to be a particularly significant factor.
viable
bid to shareholders. There was not the slightest obligation on the shareholders to accept a bid presented by the Company (or an
investment
bank), and the mere fact that a bid was approved by the directors had no bearing on whether it was accepted by the shareholders. Mr Loy was not trying to force through the Metric transaction, he was trying to force the board and in particular Mr
Costa
to engage seriously with the Metric bid in accordance with the timetable set out in the SHA.
Costa
was trying to implement, since he had a strong belief that Mr
Costa
was not in fact trying to execute the obligations of the Company at all. However his early requirements seem to have been for nothing more than some transparency as to what had been agreed between the Company and Jefferies. These requests clearly caused huge annoyance to Mr
Costa,
but they were not inherently disruptive. Since Mr
Costa
said that the Company must be complying with its obligations because it had instructed Jefferies, Mr Loy wanted to know what it was exactly that Jefferies had been instructed to do. Mr
Costa's
aggressive and determined efforts to ensure that he received no information on this point clearly fed Mr Loy's suspicions. This meant that Mr Loy, unlike the other directors, was not prepared to leave the Exit process to Mr
Costa
and repeatedly tried to obtain information about. In a different context, this might have been considered the healthy level of
challenge
of executive action which is expected of directors. However, it was accompanied by a series of communications from Mr Flammini which, in my
view,
went well beyond the level of the professional and
verged
towards the abusive as did some of Mr
Costa's
responses. In this environment, more or less any disagreement with Mr
Costa
became explosive. The other directors, having collectively decided that Mr Loy was not the right man to lead the Company, and not having a CEO in place, were therefore placed in a position where they had little
choice
but to back Mr
Costa
in these disagreements.
Costa.
This is correct, and the Petitioner does not say otherwise.
11. Consequences
Costa's
gamble that the Company would significantly increase its
value
if its sale were deferred for twelve months or so spectacularly failed because of the onset of Covid and the restrictions imposed on social and business activity by governments in response. As Mr Hill fairly points out, Covid came out of nowhere and could not have been foreseen. However that dos not help Mr
Costa's
position in this case.
Investment
Period. If it had properly instructed Jefferies, it might well have had more. The extent of the loss suffered by the Petitioner as a result of the unfair prejudice which it has suffered is therefore, to my mind, simply a function of the
value
of the best offer which the Company would have received.
value
of such a hypothetical offer.
view
of Mr Loy, who accepted in cross-examination that "none of the shareholders would have been interested in a price of $72m at that point in time". I do not believe that the distinction between $72m and $75m is material here, so I find that Mr Uberoi was correct in his assessment that an offer at the $75m level would have been rejected by the other shareholders.
i) The company was not obliged to
change
its strategy, or alter its behaviour in any way, in order to facilitate an Exit it was simply required to solicit or consider offers. Consequently, the decisions to reject the Loy/Flammini strategy and to proceed with the attempt to hire a new CEO should be assumed to have taken place.
ii) The Company should not have paused the marketing process whilst the search for a new CEO was ongoing, since this is incompatible with the idea of a good faith attempt to obtain offers by the end of 2019.
iii) The Company should have instructed Jefferies that it was required to seek offers by the end of the period.
iv) The Company should have given due consideration to the offer from Metric, and should have progressed the contact with THG in a timely manner.
Ltd
v
RCO (Holdings) Plc (In Members
Voluntary
Liquidation) [2004] BCC 466, he is not entitled to relief. In the interests of clarity, I should emphasise that this does not imply that there was no prejudice, nor that it was not unfair as I say, I accept that the Petitioner has suffered unfair prejudice. However, where it is clear that the unfair prejudice suffered by a petitioner has not in fact caused him any loss, then I do not think that the broad equitable principles which I am required to apply in considering a petition for relief permit the grant of any such relief.
Investment
Period. This provision required that the Board of Directors (a) engage an
investment
bank, (b) require the
investment
bank to conduct a
valuation,
(c) require the
investment
bank to find buyers for the Company at that
valuation,
and (d) consent to the resulting transaction with one such buyer if they consider it reasonable. The shareholders are required to "procure that such Exit is achieved in accordance with such proposal". What seems to have been argued is that if this process had been followed i.e. if an
investment
bank had been mandated, and had determined that the
value
of the Company was below $75m, had marketed it on that basis and had produced unconditional offers at that lower level, then the Petitioner would have had a negotiating position. This argument in turn is based on the idea that neither the Board nor the shareholders would have had any option but to accept such a lower offer, that the only way in which they could have escaped their predicament would have been by amending the SHA, that such an amendment would have required unanimity, and that the petitioner would at that point have been able to impose his will on them as regards the running of the company in exchange for consenting to that amendment. The basis of this argument is that the effect of the section is that the board is compelled to approve, and the sellers to sell, at any
valuation
which the appointed
investment
bank produces. I do not think that this is correct for three reasons. One is that, as was accepted by both experts during the trial, no
investment
bank would have accepted a mandate to in effect guarantee a sale of a Company at a specific price. When Jefferies produced their
valuation,
it was, as I note above in paragraph 97, in a range of $16.3m to $149.3m. Thus the provisions of the section are simply as they are set out unworkable. More importantly, the idea of an
investment
bank presenting to the board of its client a specific
value
and saying "this is the price for which you must sell" is fantasy. In reality, the best that could be achieved would be that the
Investment
bank would present one or more offers along with a recommendation. The question of price would then be one of the terms of the offer. The Board is not in fact absolutely obliged to approve the terms of the offer it can reject them provided that it is not acting "unreasonably". It seems to me that the rejection couched at a level which the board knew that the shareholders would reject would not constitute an unreasonable rejection. Third, I cannot see how the "negotiating position" hypothesised would have existed if the shareholders did not want to sell their shares, they would simply not have sold their shares. This would have given the Petitioner a right to bring an action which is roughly coterminous with the action currently before me that he was unfairly prejudiced by their non-compliance with the terms of the SHA. Since at that point it was already his position that he had been unfairly prejudiced, I cannot see how the accrual of a right to claim on this basis could have added anything to the position which he already had.
valuation.
v
Cuddy (No. 2) [2008] BCC 390 at [243]-[252] and Re Phoenix Office Supplies Limited [2003] BCC 11 at [48]-[51] of the Court of Appeal's judgment. It is also open to the Court to decline to grant any remedy at all if it regards the position between shareholders as not justifying such a remedy (see, e.g., Re Metropolis Motorcycles [2007] 1 BCLC 520 at 561) or where a petitioner has engaged in wrongdoing: Richardson
v
Blackmore at [53], [57].
12. The Indemnity Claim
Costa
for his legal fees and expenses in defending these proceedings and paid him £182,984.50 pursuant to that indemnity. That money was only returned by Mr
Costa
in settlement of
Saxon
Woods'
application for an interim injunction. The Company and Mr
Costa
have given undertakings not to use Company money to fund Mr
Costa's
defence but only pending the outcome of this trial, and accordingly the question of whether the indemnity is lawful and enforceable still needs to be determined.
Costa
and (it appears) the Company that the Company is obliged to indemnify Mr
Costa
for his legal costs pursuant to clause 3.8 of the 2016 SHA, which provides as follows:
"3.8. Indemnification of Directors. To the extent allowable under applicable law, each member of the Board of Directors shall be indemnified and held harmless by the Company from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by such member in connection with or resulting from any claim, action, suit or proceeding to which he may be a party or in which he may be involved by reason of any action or failure to act and against and from any and all amounts paid by him or her in satisfaction of judgment in such action, suit, or proceeding against him or her provided that he gives the Company an opportunity, at its own expense, to handle and defend the same before he undertakes to handle and defend it on his or her own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Company Articles, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless."
(The "Contractual Indemnity".)
This indemnity essentially reflects the substance of ss. 205 and 234 of the Companies Act 2006. I accept that there is nothing improper in an indemnity of this kind being given by a Company to a Director, and so the grant of the Indemnity is not a ground of unfair prejudice per se.
v
Istelmeleri AS [2021]
EWHC
789 (
Ch)
at [66],
"whatever the procedural context in which the issue arises, the court is concerned to identify the true substance of the proceedings and that which constitutes the real contest. If the real contest is between parties other than the company itself, it will be a misfeasance for the company's directors to cause its funds to be expended on the legal costs of that contest."
"In myview,
what these cases show is that the issue for the court is whether the claim or counterclaim was brought bona fide in the independent interests of the company or whether it was advanced as a response to or as part and parcel of the shareholders' dispute. The relevant question to ask is: is the company a genuine protagonist in proceedings against one of its members, or is the true nature of the dispute one in which it is the object over which its shareholders are themselves in dispute? In answering that question, the court will always have regard to the substance of the dispute."
Costa
is of the
view
that he personally has not committed any wrongdoing, because he excused himself (seemingly on the grounds of a conflict of interest) from the board's decision to indemnify him. Mr Davies says that this position is absurd: a director cannot demand that a company pay him money to which he is not entitled and avoid liability on the grounds that it was another director who procured the company to make the payment. In any event, Mr
Costa
was the beneficiary of the misfeasance, for which reason he is sufficiently connected to the unfair prejudice as to justify relief being granted against him under section 996.
Costa
in his capacity as a director. The allegations boil down to (i) a claim that a director has caused the Company to breach its contractual obligations under the SHA, and (ii) a claim that he as a director has breached his duties to the Company. Neither claim is brought on behalf of the Company. He argues that there is no legal principle that prevents the Company from indemnifying Mr
Costa
on point (i). On point (ii), the Company is entitled to indemnify a director for any liability to a third party. It is also permitted to indemnify Mr
Costa
in any event (i.e. regardless of whether it is the Company claiming against him) if he is successful and to do so pending judgment.
Costa's
actions caused the Company to breach its obligations under Clause 6.2. However, the breach of Clause 6.2 is not the cause of action this is not a breach of contract case. What is argued is that the facts which gave rise to the breach also caused unfair prejudice to the petitioner, and it is that unfair prejudice which is complained of. I do not think that it could possibly be argued that it is any part of the proper role of a director to cause unfair prejudice to one or more shareholders. Consequently, when a director acts in a way which has the effect of causing such prejudice, his actions in that regard cannot be regarded as being pursuant to his position as director.
Costa's
performance as director has been recast as an unfair prejudice petition. It is certainly true that Mr
Costa used his position as a director to cause the Company to act in a way which caused unfair prejudice to the Petitioner as a shareholder. However, I think that in this case the Company is not, as Trower J said, a "genuine protagonist".