England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CHANCERY DIVISION
MANCHESTER DISTRICT REGISTRY
The Hon. Mr. Justice Blackburne V-C

		Royal Courts of Justice Strand, London, WC2A 2LL
		27 November 2002

Lord Justice Auld:

1. The Companies Act 1985 makes provision, in Part XVII, for the protection of a company's members against unfair prejudice. By section 459, "[a] member of a company may apply to the court … for an order … on the ground that the company's affairs are being or have been conducted in a manner which is unfairly prejudicial to the interests of" all or some of its members or just himself. And by section 461, "[if] the court is satisfied that … [the application] is well-founded, it may make such order as it thinks fit for giving relief in respect of the matters complained of".
2. The appeal arises out of a petition by the Respondent, Shaun Larvin, a shareholder and director of the first Appellant, Phoenix Office Supplies Limited, alleging that the affairs of the company had been conducted by the second and third Appellants, his fellow shareholders and directors, Jonathan Parish and Brian Ogden, in a manner unfairly prejudicial to his interests. Blackburne J. has held that his petition is well-founded and, in the exercise of the broad discretion conferred by section 461, has ordered that the company, Mr Parish and Mr Ogden should purchase his shares at approximately one third of the valuation of the company at the date of the hearing, which he assessed, on a maintainable earnings basis, at £290, 000.
3. The claimed unfair prejudice is that Messrs Parish and Ogden, who held between them some two thirds of its issued capital, wrongfully excluded Mr. Larvin, the third director and remaining one third shareholder, from his entitlement as a director to access to the company's records, thereby preventing him from protecting his interest as a shareholder.
4. It is important to note that Messrs Parish and Ogden, initially at any rate, did not seek to exclude Mr. Larvin as a director or in any other respect from his involvement in the company. He it was who wanted to sever all connection with it for personal reasons and to sell them his shares at their full value – that is, without an agreed discount to reflect his minority holding. He remained a director for the sole purpose of enabling him to negotiate and secure that sale. The central issue on the appeal, given the Judge's findings of fact, is whether, as a minority shareholder seeking to leave the company, he was entitled, by a petition under section 459, to obtain relief under section 461 enabling him to "put" his shares on Messrs Parish and Ogden at their full value. There is a subsidiary issue, if the section 459 claim is established, as to how and at what date the full value of his shareholding should be calculated.

The facts

5. The essential facts, as found by the Judge and unchallenged in the appeal, are as follows.
6. The company was incorporated on 25^th September 1989. Mr. Parish acquired it shortly after and, until about 1995, was the beneficial owner of all its 100 issued shares. It was based in Sheffield and its main business in the early days was the supply of office equipment and stationery. In about 1991 Mr. Larvin joined Mr. Parish, initially not as a company shareholder, director or employee, but as a sort of partner in the establishment of a separate "division" of the company specialising in the supply of computer products, trading as "Phoenix Computers". The arrangement was that they would divide the profits of the new division equally between them after paying for the use of the company's premises and towards its overheads.
7. This new venture soon became the principal source of the company's turnover and profit. And, as it developed, Mr. Larvin became more closely involved with the company in an institutional sense. In March 1992 he became an employee as sales manager for Phoenix Computers. In 1994 and 1995 he became a director and shareholder respectively, following an agreement with Mr. Parish and Mr. Ogden, the company's hitherto part-time accountant and bookkeeper, that each would hold a third interest in the issued share capital, would be a director and would work full-time for the company. Mr. Parish transferred 33 of his shares to Mr. Larvin and 33 to Mr. Ogden and retained the balance of 34. Mr Parish "gave" those shareholdings to them seemingly in consideration for their past and contemplated future working contribution to the success of the company.
8. The computer side of the business continued to flourish and to grow; so much so, that in early 1995, the three men began to consider putting the company's affairs and their respective interests in it on a more formal footing. On 27^th March 1995 they held a meeting at which they discussed, among other matters, what would happen to their respective shareholdings if any of them ever wished to leave the company. The general drift of their discussion was that each, on, or over a two year period after, leaving, should receive one third of the value of the company's net asset value – that is, without any discount for his minority holding. Insofar as one can tell from notes produced at the time by Mr. Larvin, what they may have had in mind was that each of them should have a put-option against the others for the proportion of the value of the company represented by his shareholding. They reached no final agreement on the matter, but took it sufficiently seriously to seek the advice of a solicitor. However, although there was some further discussion and the solicitor produced some drafts for their consideration, nothing came of them. The Judge's finding on the matter was as follows:

"14. It is reasonably clear, I think, that what was 'agreed' at the meeting of 27 March … represented matters which the three of them, at the time, wanted to have included in properly drafted documentation. I reject the evidence of Mr. Parish and Mr. Ogden that the buy-out provision on leaving the company, as recorded in Mr. Larvin's note, did not represent what they were willing to agree at the time of their meeting … On the other hand, I am of the view that it was never intended that they should be bound there and then by what was agreed. I reject Mr. Larvin's evidence in so far as he suggested that they were be bound. … In any event, as Mr. Bartley Jones accepted, it is impossible to give a sensible meaning to Mr. Larvin's notes, at any rate the passage concerned with what was to happen to a director's shares when that director wished to leave the company."

9. A further five years passed under the same ownership and direction. The company's business and value continued to grow, save for a hiccup in 2000 caused in the main by the company's investment in an expensive and wayward new computer system. However, in the autumn of 2000 Mr Larvin decided for personal reasons – a change of domestic partner – that he wanted to leave the company and move from Sheffield to a new home and job in Manchester. On 12^th September 2000 he wrote to Mr Parish informing him of his wish, giving him two months' notice of his resignation "as an employee" and expressing the hope that associated matters, "such as shareholders agreements, directors' loan accounts, pensions etc." could be dealt with "in a professional manner". As to his loan account, which amounted to about £23,000, he requested payment in full by the end of the month. In the final two paragraphs of the letter, he can have left Mr. Parish in no doubt that, in addition to his resignation as an employee, he wished to relinquish on suitable terms and as soon as possible his position as shareholder and director:

"… as time is of the essence, I would like to arrange a meeting to discuss my future association with Phoenix Offices [sic] Supplies Ltd as a shareholder and a director.

As you are aware a number of factors have contributed to this decision on both a personal and professional level and I hope you will wish me well with the new life I intend to make away from Sheffield with my new partner and that this parting can be amicable."

10. As the Judge found, all this came as a complete surprise to Messrs Parish and Ogden and had not resulted from any significant concern of Mr. Larvin about the running of the company. There followed a meeting on 14^th September at which, according to Messrs. Parish and Ogden at the time and in evidence, Mr Larvin orally tendered his resignation as a director. However, in a letter written a few days after the meeting, Mr. Larvin denied the suggestion, making plain that he had not done so and did not intend to do so "until after the purchase and transfer of my shares is completed in full". Other correspondence passing between them thereafter supported Mr. Larvin's stance, to which he adhered in evidence and which the Judge accepted.
11. Thus, Mr. Larvin retained both his directorship and membership of the company although he was about to terminate his employment with it. That termination took place, with the agreement of Mr. Parish and Mr. Ogden, within the two months period of notice that he had given. He left on 3^rd October 2000. Thereafter, his only interest and involvement with the company were his attempt to secure early repayment of the money owing to him on his loan account and, in reliance on their discussion over five years before on 27^th March 1995, payment of a sum reflecting the full value of his one-third entitlement in the company.
12. As to the latter, I should mention that the company's articles contained no provision for a put-option or right of pre-emption in the event of a shareholder seeking to dispose of his shares. And the first sentence of Regulation 24 of Table A, entitling directors to refuse to transfer non fully paid shares to a person of whom they do not approve, had been replaced by Article 6 of the Company's Articles, giving them "an absolute discretion, and without assigning any reason therefor," to decline to register or transfer any share, whether or not it was fully paid. It follows that, in the absence of some equitable entitlement derived from breach of a relationship of quasi-partnership or other circumstance of unfairness (see per Lord Hoffmann in O'Neill v. Phillips [1999] 1 WLR 1092, HL, at 1101H-1102A) enforceable by the court through sections 459 and 461 or in the court's general power to wind up the company on the just and equitable ground, the value of the shares would be what Mr. Larvin could get for them.
13. Messrs Parish and Ogden, while not disputing Mr. Larvin's entitlement to repayment of the loan monies, sought to delay it. As to payment for his shareholding, they asserted that he was only entitled to an amount suitably discounted to reflect his minority holding, and proposed a figure of £33,000.
14. By this time, as the Judge put it, battle lines had been drawn and solicitors on each side engaged each other in writing on the two matters. Messrs Parish and Ogden continued to treat Mr. Larvin as having resigned his directorship of the company and would no doubt have excluded him from involvement in its management if he had sought it. But he did not. As the Judge found, in paragraph 90 of his judgment, Mr. Larvin's wish was to secure a clean break with the company and he no longer expected to take any part in the day-to-day management of its affairs. The loan account issue, though it figured prominently in the solicitor to solicitor correspondence, was eventually resolved by payment of the amount due just before Mr Larvin presented his petition in December 2000. On the continuing issue of his entitlement to and payment of a share of the value of the company, his solicitors requested on his behalf management accounts for 1998, 1999 and 2000 and copies of budgets, projections and financial planning documents from 2000. The company, through its solicitors, initially refused the request because, on their instructions, he was no longer a director of the company, and was not, therefore, entitled to such information. Subsequently, they wrote maintaining the company's refusal to supply the 1998 and 1999 management accounts on the ground that he had already had access as a director to much financial information for those years. As to the management accounts for 2000, they had provided him at the time of his notice of resignation in September 2000 with the then latest management accounts (to 31^st July)); and in November 2000 they sent him the management accounts for August 2000. They provided him with no other financial documentation.
15. The hearing of Mr. Larvin's petition took place in March 2002. On 10^th April 2002, the Judge gave judgment, finding unfair prejudice under section 459 and ordering by way of relief under section 461 that the company and Messrs Parish and Ogden should purchase Mr. Larvin's shares for £290,000, being, as I have said, the Judge's assessment of their full value, on a maintainable earnings basis, at the date of trial.

The Judge's finding of unfairly prejudicial conduct

16. The Judge held that Messrs Parish and Ogden had unfairly prejudiced Mr. Larvin's interests as a member – as a shareholder – of the company in two respects:

1. they had breached a common understanding between the three of them concerning their involvement in the company's affairs such as to give rise to a quasi-partnership entitling him to a distribution of one third of the company's net asset value on his leaving it; and

2. they had wrongly treated him as having resigned his directorship of the company (at the meeting on 14 September 2000) as a result of which he was thereafter excluded from the further involvement in its management and refused access to its records and accounts.

(1) The nature of the quasi-partnership

17. As to the first of those findings, it is not now in issue that there was a relationship of quasi-partnership between the three men as to their interests in and conduct of the company's business. The issue is only as to the extent or incidents of that relationship. Mr Parish and Mr Ogden accept that there was a common understanding that the three of them should be actively involved in the management of the company and that, as directors, each was to have full access to the company's records and accounts. However, they deny that this relationship of quasi-partnership involved any understanding as to what was to happen in the event of any of them wanting to leave the company and dispose of his shareholding. As to the exclusion of Mr. Larvin from his entitlements as a director, there is no issue on this appeal that he was excluded from the only entitlement he sought, namely access to certain company accounting documents after the meeting on 14^th September 2000. The issue is whether that exclusion and/or denial amounted or contributed to unfair prejudice to his interests as a shareholder.
18. As to the extent and incidents of the quasi-partnership, the Judge found, as I have said, that there was no concluded agreement in the discussion on 27^th March 1995 as to any one of them taking a one third share of the company in the event of that person leaving, a finding not challenged by Mr Larvin. However, he appears to have found that there was a relationship between them amounting to a "quasi-partnership" in the sense of achieving very much the same thing. This is how he put it:

"39 …. It is plain, in my view, that theirs was an association founded and intended to be continued on the basis of a personal relationship of mutual trust and confidence. It is not simply a coincidence that, although never executed, one of the documents which …[the solicitor instructed …] prepared in mid-1995, presumably on their joint instructions, was a draft deed of trust and confidence.

40. This relationship was reflected in the fact that, although (as I have mentioned) no legally binding agreement was entered into at (or subsequent to) the meeting held on 27 March 1995 with regard to what should happen to his shareholding if one of the shareholders should leave the company or retire or die, the matters which were discussed and apparently agreed on that occasion were intended to give form to and put flesh on their relationship of mutual trust and confidence in the conduct of the company's business. Throughout, there was a restriction on the transfer of shares in the company reflected by article 6 of the company's articles of association (amending regulation 24 of Table A) which conferred an absolute discretion on the directors to decline to register a transfer. It would therefore seem that what the three of them had in mind was a company in which the existing director/shareholders could veto someone wishing to be a shareholder of whom they disapproved and in which, as a result of wishing to move elsewhere, the participants could be sure of realising full value for their shareholdings. [my emphasis]

41. All this points strongly to the existence by early 1995 of a common understanding between Mr Larvin, Mr Parish and Mr Ogden, which found expression in the restructuring of the shares and the appointment of Mr Larvin and Mr Ogden to the board of the company. That understanding was that the three of them were in substance equal co-partners in the business conducted through the medium of the company with each participating, and entitled to participate, in the management of the company's affairs (a) as full-time employees and (b) as directors. It follows that by 1995 (if not before) theirs was a quasi-partnership company in which the exercise of legal rights was subject to equitable constraints designed to ensure the maintenance of their common understanding concerning their right of participation in the management of the company and enjoyment of their shareholder rights."

19. The Judge, whilst acknowledging that the 27^th March 1995 discussion had not resulted in a legally binding agreement, appears nevertheless to have placed considerable reliance on it, along with the "lock-out" provision in Article 6 of the company's Articles, as an indication of "a common understanding" intended, as he put it in paragraph 40, "to give form to and put flesh on" their relationship of quasi-partnership. As to the law he was seemingly applying some propositions of Lord Hoffmann in O'Neill v. Phillips, at 1107A-H and 1008B-C, applicable to quasi-partnership cases where the majority shareholders seek to exclude the minority shareholder, that is, to put an end to their quasi-partnership with him. But Lord Hoffmann had different propositions for circumstances in which the minority shareholder in a quasi-partnership is not driven out but who, because of some dissatisfaction with the others (or, a fortiori, for other personal reasons) wants to sever his association with the company by disposal of his shares. Lord Hoffmann dealt with the latter at 1104C-1105A under the heading, No-fault divorce. I take the liberty of summarising Lord Hoffmann's analysis (with which the other Law Lords agreed), so far as it is relevant to the competing arguments on this appeal, returning later to certain passages of his speech when examining those arguments:

• the unfair prejudice for which sections 459 and 461 provide a remedy is that suffered in the capacity of a company member (1105C-G);

• a partner in a "quasi-partnership" company who has not been dismissed or excluded cannot require his partners to purchase his shares at a fair value simply because he has lost trust and confidence in them (1104C-1105A);

• on the other hand, it will almost always be unfair to exclude a minority shareholder without an offer to buy his shares or to make some other fair arrangement (1107A);

• the unfairness does not lie in the exclusion alone but in exclusion without a reasonable offer (1107B-C);

• it is therefore very important that participants in such companies should be able to know what counts as a reasonable offer, namely to purchase his shares at a fair value (1107C);

• ordinarily a fair value should represent an equivalent proportion of the total issued share capital, that is, without discount for it being a minority holding (11107D); and

• the offer should provide for equality of arms between parties, namely both should have the same right of access to information about the company which bears upon the value of the shares (1107H).

(2) Exclusion as a director

20. As to the second of the Judge's findings, there is now no issue that Messrs Parish and Ogden did, at least from shortly after the 14^th September 2000 meeting, treat Mr. Larvin as having resigned as his directorship at that meeting. However, the real issue is the extent to which, if at all, their conduct in excluding him from access to the records and accounts of the company unfairly prejudiced his interests as a shareholder, including his entitlement to the value of his shareholding, whatever that amounted to. As the Judge observed, it was "clear that, having voluntarily resigned his full-time employment with the company …, he did not expect to be involved in the further day-to-day management of the company's affairs".
21. The Judge, in ruling that Mr. Larvin had established a case of unfair prejudice in this respect, said:

"97… I am… of the view that treating Mr. Larvin as if he had resigned as a director when he had not (and, even if he had, holding him to his resignation when he made clear to them very quickly afterwards that he wished to remain as a director for so long as he retained his shareholding) was unfairly prejudicial to his interests as a member. Mr. Larvin had a substantial stake in the company; he had invested much time and effort in it. Membership of the board of directors – and not just participation in the company's affairs [as] a full-time employee – was part and parcel of the understandings between the three of them at the time the shareholdings in the company were restructured. One of the purposes of this was to enable each shareholder to protect his shares and, ultimately, to realise them for their full undiscounted value. It was a consequence of those understandings that, for so long as Mr Larvin retained his shareholding in the company, Mr Parish and Mr Ogden were subject to an equitable restraint not to exercise their powers to remove him from his position as a director or do anything to prevent him from fulfilling his expectation of remaining a director and allowing him access to the company's records and other information to enable him to protect those interests…" [my emphasis]

The issues and submissions

22. Counsel for Mr. Larvin, Mr. Edward Bartley Jones, QC, made the following submissions, basing them on those of Lord Hoffmann's propositions applicable to excluded "partners":

• in the light of the Judge's finding that Messrs Parish and Ogden had wrongly treated Mr. Larvin as having resigned as a director and had refused him access to certain of the company's accounting documents, he should be treated as an excluded "partner";

• such exclusion was unfairly prejudicial conduct, especially when that exclusion was without an offer to purchase his shares at a reasonable value;

• a reasonable offer would have been to purchase his shares at a fair value, namely one representing the value of his shares as a proportion of the total issued share capital, that is, without a discount for a minority holding;

• for that purpose, there should have been, but was not, "equality of arms" between the parties in the sense that both should have had the same right of access to information about the company bearing upon the valuation of the shares;

• while Mr. Larvin wanted to have nothing more to do with the management of company after the 14^th September 2000 meeting, he was entitled to retain his directorship and its accompanying entitlement to access to company records in order to protect his financial interest as a member of the company; and

• to the extent that he was so deprived or disabled from protecting that interest he was unfairly prejudiced within the meaning of section 459.

23. Counsel for the company and Messrs Parish and Ogden, Mr. Grant Crawford, characterised the issue as whether their behaviour after the 14^th September meeting 2000 in excluding him as a director was capable, in the circumstances, of amounting to unfairly prejudicial conduct. He submitted that it was not, for the following reasons:

• the essential issue was the propriety of Mr. Larvin's exclusion from involvement in the management of the company after that date;

• from the end of September 2000, Mr. Larvin, far from being excluded against his will from involvement in the management of the company, wanted nothing to do with it, save to extract his money entitlement from it to enable him to settle elsewhere and in different employment; and

• section 459 is not intended to enable a member to negotiate a satisfactory sale of his shareholding when he has no other interest in the company's affairs.

Conclusions

24. Section 459 has two roles, as explained by Lord Hoffmann in O'Neill v. Phillips, at 1098G-1099A. First, it protects shareholders against the breach of terms on which they have agreed the affairs of the company should be conducted, through the articles of association or, say, some collateral agreement. Second, it protects them against some inequity that makes it unfair for those conducting the company's affairs to rely upon their strict legal power, for example, a resolution by majority shareholders to remove a minority director under section 303 of the 1985 Act. As Lord Wilberforce had earlier explained in In re Westbourne Galleries Limited [1973] AC 360, HL, the latter protection is the source of the notion of a relationship of quasi-partnership between shareholders in this context. He identified, at 379E-G, a number of circumstances, one or probably more of which may call for more than the commercial regulation of members' relationship, one to another, derived, say, from the company's articles of association:

"(i) an association formed or continued on the basis of a personal relationship involving mutual confidence – this element will often be found where a pre-existing partnership has been converted into a limited company; (ii) an agreement, or understanding, that all, or some (for there may be 'sleeping' members) of the shareholders shall participate in the conduct of the business; (iii) restriction upon the transfer of the members' interests in the company – so that if confidence is lost, or one member is removed from management, he cannot take out his stake and go elsewhere."

.

25. In Re Astec (BSR) plc [1998] 2 BCLC 556, at 588, Jonathan Parker J, as he then was, summarised the effect of the authorities as to the circumstances required for such a relationship of quasi-partnership. He did so in the context of an issue as to "legitimate expectation", but as Lord Hoffmann, in an approving passage in O'Neill v. Phillips indicated, at 1101D-E, it is of more general application:

"In order to give rise to an equitable constraint based on 'legitimate expectation' what is required is a personal relationship or personal dealing of some kind between the party seeking to exercise the legal right and the party seeking to restrain such exercise, such as will affect the conscience of the former."

26. Lord Hoffmann in O'Neill v. Phillips, also suggested, at 1101F-G, the following cross-check in a case of exclusion:

"… to ask whether the exercise of the power in question would be contrary to what the parties, by words or conduct, have actually agreed. Would it conflict with the promises which they appear to have exchanged? … In a quasi-partnership company, they will usually be found in the understandings between members at the time they entered into association. But there may be later promises, by words or conduct, which it would be unfair to allow a member to ignore. Nor is it necessary that such promises should be independently enforceable as a matter of contract. A promise may be binding as a matter of justice and equity although for one reason or another (for example, because in favour of a third party) it would not be enforceable in law."

27. Given the breadth of such propositions, it is important to keep in mind that section 459 is designed for the protection of the members of companies. It is in that capacity that they seek its protection, not as directors or employees, an important reminder where the provision is prayed in aid by a departing member who may also be a director or employee. And, as Lord Hoffmann indicated in O'Neill v. Phillips, at 1107B-C, where the member is departing because he has been excluded by other members from his involvement as a director and/or employee, the provision is aimed not at unfairness in such exclusion for its own sake, but at unfairness in his exclusion without a reasonable offer for his shares (since followed by the Privy Council in CVC/Opportunity Equity Partners Ltd. & Anor. v. Almeida [2002] UKPC 16, at para. 34). To that extent, the seemingly general submission of Mr. Crawford that section 459 is not intended to enable a member to negotiate a satisfactory sale of his shareholding when he has no other interest in the company's affairs is wrong. If Mr. Larvin had had, as a result of the quasi-partnership, an equitable entitlement to require Messrs Parish and Ogden to purchase his shares at their full-undiscounted value when he chose to leave the company, he would have been entitled to seek such protection.
28. How then is the principle to be applied in a quasi-partnership company where the departing minority shareholder, not the majority shareholders, seeks to put an end to the association for personal reasons and take his investment in it with him, and where, as the Judge found, there was no agreement for such a "no-fault divorce"? I have already indicated the answer in my summary of Lord Hoffmann's propositions, but here is the place to put it in his own words, at 1104D-1105B:

" Mr. Hollington's submission comes to saying that, in a 'quasi-contractual' company, one partner ought to be entitled at will to require the other partner or partners to buy his shares at a fair value. All he need do is to declare that trust and confidence has broken down. …

I do not think that there is any support in the authorities for such a stark right of unilateral withdrawal. There are cases, such as In re A Company (No. 006834 of 1988), Ex parte Kremer [1989] BCLC 365, in which it has been said that if a breakdown in relations has caused the majority to remove a shareholder from participation in the management, it is usually a waste of time to try to investigate who caused the breakdown. Such breakdowns often occur … without either side having done anything seriously wrong or unfair. It is not fair to the excluded member, who will usually have lost his employment, to keep his assets lock in the company. But that does not mean that a member who has not been dismissed or excluded can demand that his shares be purchased, simply because he feels that he has lost trust and confidence in the others. I rather doubt whether even in partnership law a dissolution would be granted on this ground in a case in which it was still possible under the articles for the business of the partnership to be continued. And, as Lord Wilberforce observed in In re Westbourne Galleries Ltd. …[at] 380, one should not press the quasi-partnership analogy too far: 'A company, however small, however domestic, is a company not a partnership or even a quasi-partnership..'

The Law Commission Report on Shareholder Remedies … considered whether to recommend the introduction of a statutory remedy 'in situations where there is no fault' (paragraph 3.65) so that members of a quasi-partnership could exit at will. They said, a p. 39, para. 3.66:

'In our view there are strong economic arguments against allowing shareholders to exit at will. Also, as a matter of principle, such a right would fundamentally contravene the sanctity of the contract binding the members and the company which we considered should guide our approach to shareholder remedies'

The Law Commission plainly did not consider that section 459 already provided a right to exit at will and I do not think so either."

29. The Judge, in the passages that I have emphasised in paragraphs 40 and 97 of his judgment (see paragraphs 18 and 21 above), ruled that a consequence of the quasi-partnership here was that Mr Larvin was entitled to the full undiscounted value of his shares. In so ruling, he appears to have proceeded as if it had been Messrs Parish and Ogden who had taken the initiative to sever the association rather than, as was the case, Mr. Larvin. True it was that they refused to recognise him as a director or to give him access to certain company information, but that was only after he had made plain that he wanted to sever all relationship with the company and them and to take the value of his shareholding with him. In my judgment, this is not the sort of case that Lord Hoffmann had in mind when formulating his propositions applicable to excluded members. The Judge did not expressly refer to such propositions, but he appears to have had them in mind in the passages that I have emphasised in paragraphs 40 and 97 of his judgment.
30. Lord Hoffmann's different treatment of those cases where there is a withdrawal because of a sense of loss of trust and confidence applies a fortiori to a shareholder who, even without such a sense, but for other personal reasons, simply wishes to leave and take his investment in the company with him. Where, as here, the company is small and with only a few shareholders each holding a significant proportion of the company's issued capital, a sudden demand from one of them, for essentially personal reasons, to seek to withdraw his investment could be very damaging, even potentially ruinous, to them and the company.
31. As to the Judge's reliance on the "lock-in" effect of Article 6 of the company's Articles of Association, I do not consider that the "absolute discretion" it purported to give to the directors to decline to register any transfer of any share pointed to an intention that if any one of them wanted to move elsewhere, for whatever reason, he could be sure of realising the full value of his shareholding. Such an entitlement could, for the reasons, I have just given, be ruinous to the company and its members. The company's directors have a fiduciary duty as such to act in the interests of the company. The power of veto on a transfer, despite its terms, is not absolute. It is subject to the equitable jurisdiction of the court to intervene by winding up the company on the just and equitable ground or to the provisions of section 459 itself. The latter is there, for among other purposes, to protect a shareholder from unfair prejudice to his interest in the company in the event of his seeking to dispose of his shareholding, a protection which, depending on the circumstances, may or may not entitle him to recovery of the value of the shares as a proportion of the share of the company's net assets that they represent.
32. As Mr. Crawford submitted, not every quasi-partnership company relationship gives rise to an entitlement to a "no-fault divorce"; there must be something more. Section 459, without that something more, does not imbue such a relationship with a right to leave and be paid in full for shares or to elevate something that is not a binding contract into an obligation to that effect. On the Judge's findings of fact, neither the parties' understanding at the time of the original reorganisation of the company in 1994/5 nor the discussion on 27^th March 1995 could be said to justify the emergence of such an obligation. The discussion did not itself amount, or lead, to a concluded agreement. And such an obligation would be of such a potentially damaging nature to the company and other shareholders that it would require clear expression, which the Judge, in the passage I have quoted from paragraph 14 of his judgment (see paragraph 8 above), expressly found was lacking here.
33. Accordingly, it does not follow from the fact that the company was a quasi-partnership that Mr Larvin was entitled to insist on leaving with an undiscounted value of his minority shareholding. For the reasons I have given, the Judge was wrong so to find and, in large part on the basis of such finding, to conclude that Messrs Parish's and Ogden's denial of that entitlement amounted to unfair prejudice entitling Mr. Larvin to relief.
34. Depending on the issues as they developed between the parties, there might have been a claim for an appropriately discounted value of his holding. Or Mr. Larvin could have continued with his substantial minority holding, with a view eventually to agreeing a price with the others or for its transfer to a third party. Failing such agreement, he might have been able to seek such relief as might then be appropriate under section 459 or for the company to be wound up on the just and equitable ground. But that was not the basis of his petition.
35. As to the other limb of the claim for relief, that Mr. Larvin was denied access to information enabling him to protect his interests as a shareholder, he was undoubtedly entitled to rely on his entitlement as a continuing director to such information from the company as would enable him to advance a claim to which he was entitled. While the Judge appears to have made a general finding of such denial (in paragraph 23 of his judgment), he did not identify in what specific respects want of information prejudiced Mr. Larvin. On the evidence before the Judge, the latest management accounts, of 31^st July 2000, were available to Mr. Larvin in September 2000 when he gave notice of his intention to resign as an employee. And he subsequently received, in November, management accounts for 31^st August 2000. It was only as time went on that the information became out of date, and his accountancy adviser, who reported in October 2001, sought more. But, as Mr. Crawford observed in argument, Mr Larvin's problem was not so much that he could not find out what his shares were worth, but that his fellow shareholders would not offer him what he wanted.
36. To the extent that Mr. Larvin might have been unfairly prejudiced by lack of information as to valuation of his interest in the company, his remedy under section 461(2)(b) would have been for the wrong done in failing to furnish that information, not for the refusal to acknowledge his claim for a put-option. But, if I am correct in my view that he was not entitled to insist on the full undiscounted value of his shareholding, that is now academic, as are the issues raised by the second ground of appeal, going to the basis of and date for valuation of the shareholding on an undiscounted basis.

Valuation

37. As the valuation issues, I add only a few words. The two issues, basis of valuation and the date for it, are closely connected. As to the former, Mr. Crawford did not develop his argument beyond complaining that, on the maintainable earnings basis agreed if Mr. Larvin was entitled to full value, the Judge awarded him more than his expert witness had argued for at trial. As to the date of valuation, Mr. Crawford maintained that the Judge should have fixed it at the time of Mr. Larvin's departure in September 2000, not 18 months later at the time of trial, in March 2002. The latter date, he said, was a wrong exercise of the Judge's discretion because it gave him the benefit of the improvement in the company's fortunes after he had left it. He suggested that that improvement was largely attributable to the good work of the directors he had left behind, one of a number of possible considerations considered relevant by this Court in Profinance Trust SA v. Gladstone [2001] EWCA Civ 1031 and [2002] 1 WLR 1024.
38. Mr. Bartley Jones challenged Mr. Crawford's complaint about the factual correctness of the Judge's valuation. And, as to its date, he relied heavily on the wide discretion the Judge had in the matter, also citing the Profinance case, both as an example of the Court's articulation of such discretion and in its treatment, by way of examples, of considerations that bear on its exercise.
39. If Mr. Larvin had succeeded on the first and main issue as to unfair prejudice, I would have found it difficult to rule in Messrs Parish's and Ogden's favour on Mr. Crawford's barely developed complaint about the excessiveness of the Judge's assessment on a full value basis. The Judge considered the conflicting, changing and difficult expert evidence on the issue in great detail and with some skill; I can see no basis for unseating his assessment. I would also have found it difficult to find that he erred in his treatment of the relevant considerations or in the exercise of his discretion as to the valuation date. He dealt very fully with that issue too, including the various considerations referred to in the Profinance case, in particular that of the performance of the company following Mr. Larvin's departure, as to which he said, at paragraph 114 of his judgment:

"… The company has since conducted its business much as it did before Mr. Larvin's departure; it is essentially the same company; it has not in any sense acquired a new economic identity. …"

40. However, for the reasons given on the first ground of appeal, I would allow the appeal.

Lord Justice Clarke:

41. I agree.

Lord Justice Jonathan Parker :

42. I also agree.
43. There can be no doubt (and the contrary was not argued in this court) that the company was a quasi-partnership in the sense in which that term was used by Lord Wilberforce in Re Westbourne Galleries Ltd [1973] AC 360; but, as Lord Hoffmann explained in O'Neill v. Phillips [1999] 1 WLR 1092 in the passages in his speech to which My Lord has referred, that is not in itself enough to found a claim to relief under s.459.
44. It is also common ground that s.459 will afford protection to a member of a quai-partnership company who has been unfairly excluded from participating in the management of the company. But that did not happen in the instant case. As the judge said in paragraph 18 of his judgment:

".... it is the fact that Mr Larvin gave no forewarning of his resignation which, so far as Mr Parish and Mr Ogden were concerned, came 'out of the blue'. It is emphatically not the case that Mr Larvin felt driven to resign because of the actions of his co-directors and shareholders."

45. Moreover, as Mr Larvin made crystal clear in his resignation letter, he wanted to sever all connection with the company and start a new life, with a new job, elsewhere. In paragraph 92 of his judgment the judge recorded that Mr Larvin's decision to do so:

".... was motivated very largely, if not entirely, by difficulties in his private life."

46. In these circumstances, I find it impossible to place the instant case in that category of cases which typically qualify for relief under s.459, where a member who wishes to participate in the management of the company is unfairly prevented from doing so.
47. Nor, as the judge found (in paragraph 14 of his judgment), was there any contractual obligation on Mr Parish and/or Mr Ogden to purchase Mr Larvin's shareholding on his leaving the company.
48. Thus the issue which lies at the heart of this appeal, as I see it, is whether s.459 extends to affording a member of a quasi-partnership company who wishes, for entirely his own reasons, to sever his connection with the company – and who de facto has done so – an opportunity to "put" his shareholding onto the other members at its full, undiscounted, value when he has no contractual right to do so. I can for may part see no basis for concluding that s.459 can have such a Draconian effect.
49. Further, I am unable to see how Mr Larvin can be heard to assert his rights as a director by complaining of a failure on the part of his co-directors to supply him with financial information to which he was entitled as a director, in circumstances where it is plain that he had no intention whatever of discharging any of his duties as a director. The plain inference is that Mr Larvin was using his position as a director (albeit de jure only) simply as an aid to achieving as high a price as possible for his shares.
50. In the unusual circumstances of this case, therefore, I respectfully disagree with the judge's conclusion (in paragraph 97 of his judgment) that the conduct of Mr Parish and Mr Ogden in treating Mr Larvin as having resigned as a director when he had not done so was unfairly prejudicial to Mr Larvin's interests as a member.
51. In any event, even if unfair prejudice had been established by reason of the withholding of financial information to which Mr Larvin was entitled as a director, the remedy which the judge granted – a buyout of his shares at their full, undiscounted, value – seems to me to be wholly disproportionate to any possible prejudice suffered.
52. In the light of these conclusions, issues as to valuation do not arise.
53. For those reasons, and those of My Lord, I would allow this appeal.

Order:

54. That the Appeal be Allowed
55. That the said order of the Honourable Mr Justice Blackburne be set aside and the Petitioner's petition dated the 22^nd December 2000 be dismissed.
56. That the Respondents' costs of the appeal and of the petition be paid by the Petitioner, such costs to be subject of a detailed assessment if not agreed.
57. That the Petitioner pay £100,000 plus VAT (if recoverable) to the Respondents on account of such costs within 28 days.
58. Application for permission to appeal to House of Lords refused.
(Order does not form part of the approved judgment)