England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION COMPANIES COURT
BRISTOL DISTRICT REGISTRY

		Royal Courts of Justice Strand, London, WC2A 2LL
		04/11/2005

Mr Justice Patten:

Introduction

1. This is the judgment of the Court. The Petitioner, Mr Lawrie Grace, appeals against the judgment of His Honour Judge Weeks Q.C. (sitting as a Judge of the High Court) given on 30 September 2004 on the hearing of a petition under section 459 of the Companies Act 1985, which relates to the fourth named Respondent, Titanium Electrode Products Limited ("Telpro UK"). Telpro UK has an authorised share capital of £1000 divided into 1000 shares of £1 each. Of these, 100 shares have been issued and are fully paid up. The Appellant and the First- Third Respondents (whom I will refer to as "the Respondents") each hold 25 shares. Until May 2003, the Appellant (along with the Respondents) was also a director of the company.
2. At an AGM of Telpro UK held in December 2002, it was agreed that there should be a dividend of £80k declared and paid in respect of the year ending 31 December 2002, which would be distributed to the four shareholders in equal shares. Mr Grace alleges that on 3 April 2003, the Respondents decided without his knowledge or consent and contrary to what had been agreed in December 2002 that the distributable profits of Telpro UK for the year ending 31 December 2002 should be distributed to the Respondents alone. The judge found that the profits were wrongly stated in the Company's accounts for 2002 and that the Respondents had received the profits which would otherwise have been available to meet the dividends as what he described as unearned management and other fees.
3. On 9 May 2003 at an EGM of the company the Respondents also purported to remove the Appellant as a director.
4. On 15 August 2003, the Appellant presented a petition in which he relied on the non-payment of the dividend and his removal as a director, as instances in which the affairs of Telpro UK have been conducted in a manner which was unfairly prejudicial to him as a member of the company. He sought an order requiring the Respondents to purchase his shares in the company at a price to be determined by the Court. The petition alleged in terms that agreements had been made between him and the Respondents prior to the formation of Telpro UK that they would go into business together and would become directors and shareholders in a company which would be conducted as a joint venture or quasi –partnership. It was agreed that each of them should have a 25% shareholding and would be a director, but that the First Respondent (Mr Biagioli) would manage Telpro UK and control its day to day administration. The initial funding for the company's operations was to be provided by Mr Biagioli through his company, Biagioli Ltd, which would supply goods and services to Telpro UK at cost plus 10%. Each of the shareholders would indemnify Mr Biagioli against losses up to a limit of $25,000, but the salary paid to Mr Biagioli and any other material payments would, like the payment of dividends, require the unanimous agreement of all shareholders.
5. On the basis of this agreement, Mr Grace subscribed for 25 shares in Telpro UK and gave the indemnity referred to. Similar arrangements were put into effect in relation to the formation of a US company, Titanium Electrode Products Inc ("Telpro Inc") and a French company, Titanium Electrode Products SARL ("Telpro SARL"). Telpro Inc was set up and managed by the Third Respondent Mrs Johannessen. The Appellant subscribed for 250 shares in this company and advanced to it the sum of $25,000. Later in 2001, he left his former employment in Singapore and set up Telpro SARL in France. He was a 25% shareholder in this company which he managed and supplied with goods and services through Helm Services SARL, ("HELM") a company which he owned and controlled.
6. At the conclusion of a four day trial during which Mr Grace and the Respondents were extensively cross-examined the judge held that unfair prejudice had been established in respect of the failure to pay the dividend in accordance with what had been agreed in December 2002. He rejected the other complaint holding that the Respondents had sufficient cause to justify the Appellant's removal as a director because he had been negotiating to acquire a company dealing in the same line of business as Telpro UK and had therefore put himself in a position of actual or potential conflict with his duties as a director. The judge also declined to make an order requiring the Respondents to purchase the Appellant's shares. He held that the appropriate relief or the non-payment of the dividend was to order Telpro UK (not the Respondents) to pay the Appellant the sum of £20k with interest from 5 April 2003.
7. There are two principal challenges to the judgment contained in the amended grounds of appeal. First, it is said that the judge was wrong to conclude that the removal of the Appellant as a director of Telpro UK was not unfair to him within the meaning of s.459(1) as a member of Telpro UK. His removal, he submits, was the culmination of a series of repeated breaches by the Respondents of agreements made between the shareholders referred to in the petition which related both to Telpro UK and to the French and US companies. Telpro SARL which was set up by the Appellant as part of the joint venture with the Respondents, provided the Appellant with his principal source of income after 2001. His conduct in seeking an alternative living from the purchase of a company with a similar business was on his case the direct consequence of the Respondents' attempts to close down the business of Telpro SARL. It has, he says, to be viewed in that wider context. In any event, it is said that his negotiations for the purchase of the other company did not in fact compromise his position as a director.
8. The second main ground of the appeal relates to the remedy which the judge granted. Although the judge found that the non-payment of the dividend did amount to unfair prejudice, it is contended that he took far too narrow a view of the underlying reasons for it and of the seriousness of what was in fact done. As in the case of his removal as a director, Mr Grace contends that the non-payment of the dividend was not an isolated incident, but was part of a wider decision taken by the Respondents to exclude him from participating in Telpro UK or from deriving any benefit from the company as a shareholder. The non-payment of the dividend not only contravened the decision taken at the AGM in December 2002. It also represented he says, a repudiation of the basic agreements made between him and the Respondents prior to the formation of the English company. He therefore contends that the non-payment of the dividend and its distribution amongst the three other shareholders is symptomatic of a complete breakdown in relations between them and indicates that the Respondents will never willingly allow him to obtain any further benefit from his shareholding in Telpro UK. The accounts for 2002 were drawn up so as to deliberately conceal the existence of distributable profits and it was submitted to us that the 2003 accounts also indicate that the distributable profits have been reduced by unusually high overheads.
9. It is therefore said that the judge was wrong to conclude that the non-payment of the 2002 dividend was an isolated incident which was unlikely to be repeated and that this characterization of it led him into error when exercising his discretion as to remedy. The Appellant submits that there were no circumstances which justified the judge in his refusal to make the buy-out order sought and that the remedy he granted was not only wrong in principle, but also failed to take account of the wider picture and the seriousness of the Respondents' conduct.
10. The appeal therefore represents a challenge both to the judge's findings of fact and to the basis on which he came to exercise his discretion in relation to the remedy he granted. It is therefore necessary to begin by outlining the background to the events which gave rise to the petition.

The Background Facts

11. It was common ground before the judge that the formation of Telpro UK and subsequently Telpro Inc. and Telpro SARL arose out of a meeting between the Respondents and Mr Grace which took place in 1998 in Bristol over the August Bank holiday weekend. What linked the four were their connections to and experience in what the judge referred to as the CP industry. CP stands for Cathodic Protection, which is a technique to prevent steel from rusting by the use of electrical currents. As an applied process, CP utilises titanium anodes which are coated with mixed metal oxides (commonly iridium or platinum) in order to prevent their degeneration caused by the electrochemical reaction from the electrical current. This generates by-products in the form of acidity and gases which would otherwise corrode the anode. The mixed metal oxides also assist in passing the electrical current from the anode to an electrolyte.
12. The evidence before the judge was that Telpro UK's expertise lay in applying the mixed metal oxide coatings to the titanium, so as to ensure that the correct amount of current passed through the CP system over its lifetime which was typically intended to be about 20 years. CP systems are commonly used to protect buildings constructed from steel and re-inforced concrete, but apart from the specialist CP market the anodes are also used for water chlorination in swimming pools. This is referred to as the non-CP market.
13. Mr Biagioli (who is referred to in many of the documents and the evidence as Mash) is a metallurgist who has worked on CP products since 1978. Until July 1998 he was the Technical Director and General Manager of a company called Actel Limited, which manufactured and applied MMO coatings to titanium anodes used in the CP industry. The coated anodes were sold by Actel to companies providing CP systems. In 1998 Actel was acquired by Corrpro, a US company, which was the largest manufacturer in the world of anodes and Actel's principal competitor. According to Mr Biagioli, Corrpro's intention was to mothball Actel. This was likely to have adverse consequences not only for him, but also for Mr van Loggerenberg and Mrs Johannessen. Mr van Loggerenberg is an industrial chemist, who owns and operates a factory in Durban, South Africa, which supplied the precious metals used by Actel in its coated anodes. Mrs Johannessen worked for Actel in the USA and had long experience in the US CP market. None of the Respondents wished to work for Corrpro and they decided that an opportunity existed to set up a specialist business to supply MMO anodes to the CP market.
14. Mr Grace is a qualified mechanical engineer with a diploma in business administration. In 1998 he was based in Singapore, working for a company called CP Tech, who were designers and suppliers of CP systems. As such, this company was a significant buyer of Actel products. His principal experience lay in marketing and Mr Biagioli in his evidence to the judge described him as a first class salesman. He was recruited because of the marketing skills he had and for his contacts in the Far East.
15. At what became known as the Bristol meeting, the parties set out the framework for their new business venture. The meeting lasted over the whole August Bank holiday weekend, but a note of the main points was prepared by Mrs Johannessen and circulated to the others by e-mail on 26 September 1998.

"Partners for new venture; Mash, Stephen, Cathy, Lawrie. The plan is to set up three companies. Each company will be owned in equal parts by all partners, 25% each. The first in the USA, then one in the UK and, a year or so later, a company in Singapore. Cathy will manage the company in the US, Mash in the UK and Lawrie in Singapore. Each partner will invest the equivalent of US dollars, 25,000 in each company. Contributions for the US venture will be made as follows: Mash and Lawrie in the form of cash, Stephen in the form of product, Cathy in the form of reduced compensation for managing the venture in the US. If any partner wants to get out at any time, remaining partners have the first right to purchase leaving partner's shares. Stephen, (NMT Electrodes, PTY Ltds South Africa) Mash's experience has been quality products, good pricing. First year salaries for managing partner, Mash and Cathy, $66,000 plus car mileage reimbursement, Lawrie $66,000 per year plus $35,000 per year for house allowance. Market areas: Mash: Taiwan during initial start-up will transfer to Lawrie when his business is starter, Europe, Middle East, West Africa, Mediterranean, Gulf and Algeria. Lawrie: Pakistan, Asia Pacific, Australia Pacific Rim. Cathy: North and South America, Mexico, Canada. Targeting CP companies. New company name: Titanium Electrode Products Inc, Titanium Electrode Products Ltd, Titanium Electrode Products PTE "

16. By the end of 1998 both Telpro UK and Telpro Inc. had been established and shares were issued to each of the four parties as contemplated by the Bristol agreement. But no steps had been taken by Mr Grace to set up Telpro PTE as agreed and in fact a third company was never set up in Singapore. Mr Grace had to give six months' grace to terminate his employment with CP Tech, but it was not until February 2001 that he finally left Singapore and moved to France to set up Telpro SARL. The agreement reached at the Bristol meeting contemplated that Telpro PTE would be set up in Singapore a year or so after the US and English companies, but at periodic progress meetings which were held (and also minuted in emails) the Respondents continued to press the Appellant for a date when he would resign and set up the Singapore company.
17. Telpro UK made a profit in its first year of operation of $29k on a turnover of $198k. Because of a restraint of trade clause in Mr Biagioli's contract with Actel, it was then necessary for the company, at least at that stage, to conduct its business with customers outside the UK. Mr Grace, Mrs Johannessen and Mr van Loggerenberg had given guarantees to Mr Biagioli against any future losses of Telpro UK Limited to $25k each, but these were never called on. The company obtained its working capital through Mr Biagioli's company, Biagioli Limited, which purchased stock from Mr van Loggerenberg at a discount and then sold it on to Telpro UK at cost plus 10% on extended credit terms. The US company, Telpro Inc., did receive direct cash injections of $25k from Mr Biagioli and Mr Grace (as agreed in Bristol). In the year up to July 1999 it made a profit of $10k on a turnover of $200k. Following a progress meeting in France held in August 1999, Mrs Johannessen circulated a note in an e-mail which referred to Mr Grace's position as follows:

"Lawrie's intention for the future – Lawrie will resign by the end of December 1999. He will inform partners by the end of September where he plans to set up the Telpro Far East offices."

18. In January 2000 Mr Grace met Mr Biagioli to discuss his position in relation to setting up the company in Singapore. He told Mr Biagioli that he would resign from CP Tech in April 2000 and leave Singapore in about July. He also revealed to Mr Biagioli that he wanted to move to France where he already had a home and to set up a company there which would specialise in the non-CP market for Telpro products. The main points discussed are set out in a long e-mail from Mr Biagioli in these terms:

"The following notes are to document the main points, either for the record or to form the basis of further discussions or courses of action. (1) Lawrie will resign from CP Tech in April. He has six months notice to work, but hopes for various practical reasons that CP Tech will agree he will leave Singapore in July or sooner. (2) Lawrie will establish himself initially at Simon, (Dordogne, France) but after a few months, will probably relocate himself permanently near Nice, France. (3) His main thrust will be to develop Telpro's worldwide non-CP markets. This is seen as the major long-term development, which should allow all our long-terms aspirations to be met. (4) En passant, Lawrie will assist to develop the CP markets, in particular in the Asia Pacific region. (5) Given that Lawrie has no 'natural customer base' to bring with him, it should be understood by all partners that this will be a long haul and that the development period before breaking even is likely to be two or three times as long as it has been for the CP businesses. (6) The other partners should assist Lawrie with marketing help and research, to be commenced immediately, and provide as much help as possible. (7) It is proposed to finance Lawrie's non-CP business along the lines of the Biagioli Ltd/Telpro arrangement, with Lawrie forming his own company, for whom he will work, and which will purchase all materials and services for a new company, XYZ Ltd. Lawrie's company will invoice XYZ Ltd at cost plus 10% for his salary, business expenses, materials and services. We did not discuss Lawrie's salary to be charged to XYZ Ltd, but may I propose he enters the same regime as Cathy and I, with him charging 40,000 GBP plus state social security in year one and subject to the state of XYZ's finances, 45,000 GBP in year two. Please would you all confirm your agreements or otherwise. (8) Mash, Stephen and Cathy understand and agree, as Lawrie, Stephen and Cathy have understood and agreed in the case of Biagioli Ltd/Telpro Ltd that should XYZ Ltd rack-up losses, that in the same way they would share any profits that they would share any losses should it be decided to wind up XYZ Ltd. Lawrie understands that the total accumulated loss should not be allowed to exceed 60,000 GBP; (this being four times GBP 15,000, we all initially agreed to put up for each new business) without the agreement of the other partners. Given the scenario stated at point 5 above, it is expected we could reach these levels of loss before the company starts to become profitable. (9) Lawrie is to decide where to incorporate XYZ Ltd; he is currently thinking of the Channel Islands. (10) At the same time, XYZ Ltd is set up, we should resolve the following: (a) the most tax-efficient structure for Telpro Group, possibly with a holding company in somewhere like the Channel Islands, which would own the shares in Telpro Inc, Telpro and Telpro Pty and XYZ Ltd. (Cathy is already seeking expert tax advice on this.) (b) Register each partner as shareholder and director of the respective companies. As I said at the beginning, none of the above is set in stone yet, if there are comments or observations, please make them ASAP and certainly before Lawrie resigns "

19. A further progress meeting took place in Orlando on 27 March 2000. One of the matters agreed was that there should be shareholders' agreements to cover each company, but again this never took place and no formal documentation was ever executed between the parties to vary or supplement the articles of association and bye-laws of Telpro UK, Telpro Inc. or Telpro SARL. At the same meeting it seems to have been agreed or at least recorded, that the Appellant would resign from CP Tech on 30 April 2000 and after working out a six month period of notice, would move to France and set up a Telpro company.
20. On 30 April Mr Grace did in fact resign as agreed and his period of notice expired in October of that same year. But he remained in Singapore until February 2001. At a meeting held in Durban in December 2000 the position in respect of Mr Grace was minuted in these terms:

"Telpro Systems (Telpro Sarl), Lawrie will check where the company will be incorporated. If it is UK, it may make sense to work as a division of Telpro. Lawrie will fund new company in the same manner that Mash does for Telpro. Departure date from Singapore, 8^th February 2001.

CP Tech has asked that Lawrie work as a consultant. He will review the matter. If times allows and he agrees any revenue would go to Telpro Systems. There was much discussion regarding this matter; partners all agreed that it would be best to cut ties with CP Tech and move on. Lawrie won't have time to both. "

21. At the same December meeting the Telpro UK dividend for 2000 was discussed. The turnover for 2001 was expected to be approximately £500k and it was agreed that there would be a dividend payment for 2000 of £60k. Each of the four shareholders therefore received £15k.
22. By April 2001 the Appellant had moved to France and was involved in the process of setting up what became Telpro SARL. His evidence to the judge, which is not specifically commented on in the judgment, is that he agreed to use up to $100k of his own money to provide the company with working capital against what he described as an understanding that the other shareholders would each underwrite 25% of any losses up to that limit before deciding whether to continue with the project. Telpro SARL was funded in a similar way to Telpro UK by using Mr Grace's company HELM as its supplier. Goods and services were provided at cost plus 10%.
23. These arrangements in effect duplicated those for Telpro UK and were uncontroversial. But the start-up costs which were encountered in relation to the French company proved to be destructive of the relationship between the parties. Mr Grace's evidence to the judge was that it was always understood that Telpro SARL was likely to rack up losses of up to $100k (£60k) before breaking even and ultimately becoming profitable. It began trading in about July 2001 and up to December 2001 had made a loss of €27k. The non-CP business was a new one, which took time to break into and Mr Grace explained in his witness statement the various efforts which he made to attract non-CP customers for the Telpro products in Europe, the USA and Australia. These efforts were, he said, hampered by the failure of some of the Telpro products during testing by customers. His evidence was that the Respondents did not make sufficient allowance for these difficulties and that by early 2002 relations had worsened (particularly with Mr Biagioli) to the point where Mr van Loggerenberg sent an e-mail on behalf of himself and the other Respondents threatening to stop Telpro SARL from trading and suggesting that Mr Grace should draw no further salary for a period.
24. The Respondents' account of this period was very different in its emphasis. Mr Biagioli's witness statement concentrated on Mr Grace having failed to make any proper inquiries about the residence and other permits necessary in order to set up a company in France, which caused delays in establishing Telpro SARL. There were then various disagreements about some of the provisions in the company's articles of association which necessitated their revision. This delayed the start of trading by Telpro SARL until about July 2001. At a meeting in December 2001, figures were produced up to 30 November of that year showing a loss of ?10k. Mr Biagioli said that this was expected, but on 23 January 2002 the Appellant produced provisional accounts for the company up to 31 December 2001, which included an item of FF56,356.57 representing a social security payment equal to 42% of Mr Grace's salary for that year. This produced a loss of FF93,641.01. The respondents' case was that the whole of the social security payment could have been avoided if Telpro SARL had either been set up as a division of Telpro UK in France or had been established off-shore. Mr Biagioli said in his witness statement that these accounts came, as he described it, as a bombshell and that the relationship between the Appellant and the Respondents worsened from then on and unravelled.
25. The judge made very few specific findings of fact in relation to this period. Despite the large amount of oral evidence, he restricted himself in his judgment to quoting from the e-mails which passed between the parties and which, of course, do contain many of the complaints later articulated in the witness statements. At the December 2001 meeting, it was agreed that there should be a dividend of $5k each from Telpro Inc and one of £20k each from Telpro UK . In the exchanges of e-mails which followed, both sides debated the reason for Telpro SARL's losses and the Appellant's responsibility for them. The judge set these out verbatim, but it is unnecessary for the purposes of this appeal to do likewise. The Respondents' position was that they were unwilling to shoulder the losses attributable to the social security costs. Mr Biagioli said in his evidence that these costs were extraordinary and were not foreseen at the time of the original proposals for the Telpro venture. On 1 February the Appellant offered to continue to work for Telpro SARL without a salary for a limited period of time on condition that if company continued in existence any salary and other related costs not drawn for the time being would be re-imbursed by the company before any other disbursements and that if a decision was ultimately made to trade before the $100k limit on losses was reached, then the unpaid salary and other costs would be included in the losses and shared equally between all four parties.
26. The Respondents sought to re-negotiate these conditions and suggested that the reported losses of Telpro SARL should be met by the dividends which were due to be paid to Mr Grace for 2001 in respect of Telpro UK and Telpro Inc. and that the Respondents should not be required to contribute to them. Mr Grace replied on 28 February, complaining that the Respondents were seeking to renege on the agreement to bear the accumulated losses of Telpro SARL up to a limit of $25k each as agreed in Bristol back in 1998. At the end of his e-mail he said this:

"If you wish Telpro Sarl to cease trading, this is your collective prerogative but, I believe that your honourable, fair and reasonable exits are as follows: (a) On a fair value basis, purchase my shares in the Telpro companies and either of the following (b) pay your share of losses to date, as presented in London and updated to end of February, excluding salary for February, as this issue was only raised at the end of January, (c) cede all shares in Telpro Sarl to me together with a sub-contract manufacturing and marketing agreement with NMT and the other Telpro companies. (13) The issue of dividend payments to me from any Telpro company in which I am a shareholder is not germane to the issue under discussion here"

27. The Respondents replied to these proposals in a further long e-mail of 4 March 2002. For present purposes, it is enough to quote the following passage which encapsulates the sentiments of the Respondents at this time:

"Save for the CP Tech business, which amounts to about five per cent of Telpro's turnover, you have done little over the past three and a half years to assist in the development of the other Telpro companies. You have during this period received a 25% stake in these businesses and to-date a 15,000 GBP dividend. You have been treated as an equal partner and given all available support from the other partners in the setting up of Telpro Sarl. Due mainly to your absent research into the time and costs of setting up and running a business in France you have presented your partners with unexpected costs, (in particular the huge French social security costs, which we did not know about until after eleven months of you being in France) and the prospect of large short to medium term losses. These things have caused your partners great concern and to lose confidence in your ability to turn things around. We have, therefore, made what we consider to be, in the circumstances, a very fair and reasonable proposal. (1) We believe there to be a viable medium to long term future for Telpro Sarl, (2) The partners will continue to provide you with technical, production and what financial support they can in the form of dividends from the other companies during the period of turnaround, (3) When the company becomes viable the partners have agreed you can recover reasonable foregone costs, (4) In appreciation of the 25% stake in the other companies, dividends received to date and the continued support indicated in (2) above, we ask you not to make any further overhead charges to the company and to assume the risk of these charges until such time as the company is viable. We require you to confirm or reject this proposal within seven days. If we do not hear from you within seven days, then we will assume you have rejected the proposal and Telpro Sarl will cease to trade and we will take the necessary steps to advise the market of this cessation. In the event of Telpro Sarl ceasing to trade, please let us know what the accumulated losses are, excluding French Social security costs, as we are not minded to contribute towards these at all, because we have only just found about them and we would never have agreed to set up company in France, had we known about them. We will then determine what contribution, if any, we can afford and are willing to make towards these losses. The levels of dividend, if any, to be paid during 2002 from the other Telpro companies have yet to be confirmed. On a general note, we have no intention to purchase your Telpro shares from you at anything other than a nominal value, reflecting any financial investment made, or to cede Telpro Sarl to you"

28. Despite the obvious depth of feeling on both sides, negotiations between the Appellant and the Respondents continued after this exchange and on 11 March Mr Grace and Mr Biagioli met and were able to agree a basis for continuing the running of Telpro SARL. The following day Mr Grace was able to e-mail the Respondents in these terms:

"You will all probably be aware that I have discussed this latest e-mail at some length with Mash during the 11^th March and the following key issues appear to have been agreed. (1) As I believe that it has a viable future, I wish to continue with Telpro Sarl, despite the differences in understandings that we have and have agreed in principle to accept the proposal of 11^th March to do so, with the following caveats/amendments, (2) I have agreed to absorb losses to the end of February 2001 and the sheet starts clean from 1^st March 2002, as far as the other Telpro partners are concerned, (3) The business will continue at my risk until it either turns around or it is determined that it is not viable, (4) In consideration of accepting this additional risk and that I will continue to use my best endeavours to make the business viable, it is agreed by the other shareholders in Telpro Sarl to pay a dividend, the equivalent to each of not less than GBP 20,000 from Telpro and GBP 3,000 from Inc, no later than 30^th June 2002., (5) I will temporarily forego salary at the rate of 40,000 GBP per annum, until the company becomes viable, or until such time as it is determined to be not so. Subject to the company continuing in business, any salary foregone will be reimbursed, prior to disbursement of any other funds to the other shareholders. Where relevant in future years, the level of any salary increases will correspond to the level of profitability, compared to the other Telpro companies and salaries, as will payment of bonus, (7) All company overheads associated with the running of the business, including those for salary, social security (at 11%), office operations, communication and marketing, will be recoverable, in the event that the business becomes profitable before any other disbursements are made."

The dividends for 2001 were then paid on or soon after 30 June 2002.

29. One might have thought that this agreement could have provided a basis for the parties to continue, but it was common ground before the judge that further difficulties arose almost immediately. The titanium used by Telpro UK and Telpro SARL was supplied by Telpro Inc. In March 2002 Mrs Johannessen asked HELM for pre-payment for the titanium before it was shipped. The Respondents' evidence was that the same payment procedures were adopted for Telpro UK because Telpro Inc. did not have sufficient credit limits with its suppliers to allow it to provide credit facilities for titanium to the other Telpro companies. In July Mr van Loggerenberg also began to press for payment for electrodes supplied by his company, NMT. At the beginning of August, Mr Grace paid €10,036 but two invoices were left outstanding.
30. On 14 August the Appellant indicated to the Respondents by e-mail that he proposed to attend an electronics trade fair that was to be held in Singapore in early September. He said that he would also take the opportunity to visit CP clients elsewhere in Asia. The trip was to take about two weeks and was estimated to cost under €3k. Mr Biagioli was opposed to the trip because Singapore was not a major market for non-CP products, which was the business that Telpro SARL was intended to promote. But in the end the trip went ahead.
31. On 16 September Mr Biagioli e-mailed to the Appellant a request for the accounts of Telpro SARL to 31 August 2002. On 30 September Mr van Loggerenberg also contacted Mr Grace about the outstanding unpaid invoices rendered by NMT to HELM, which amounted to more than €60k. In a further e-mail to the Appellant sent on 2 October he said this:

"It is my understanding from an agreement reached, that you earn ten per cent on all transactions, as you are self-funding Telpro Sarl. I find it totally unfair to be expected to be a bank; I cannot afford this. I would appreciate it if you could find a way to settle the outstanding invoices by the end of the week. The Biagioli Ltd/Telpro pay on 30 days."

32. This produced an undertaking from the Appellant that he would attempt to arrange payment of €32k on 4 and 5 October, but these payments were not made. On 22 October the management accounts for Telpro SARL for August and September were, however, produced which showed a profit for the seven months of 2002 of €39,956. However, they also included travel expenses for August and September of €3,437 and €3,381 respectively. The Appellant explained that the August figure represented the return air fair to Singapore and the September figure his other expenses incurred in the visit to Singapore. This was, of course, more than double the estimate he had given.
33. The disclosure of these figures sparked off a furious debate between Mr Biagioli and Mr Grace about the cost of the trip and whether it was justified. But it also caused the Respondents to focus on the business of Telpro SARL . On 25 October Mr Biagioli asked the Appellant to provide marketing data from Telpro SARL to enable a decision to be made as to whether there was going to be a viable non-CP business. If there was not, Mr Biagioli suggested that Telpro SARL should be closed down and its business transferred to the other Telpro companies. If the non-CP business was viable, then Telpro SARL was to concentrate on this and leave the other Telpro companies to deal with the CP business.
34. The exchanges about Mr Grace's trip to Singapore had confirmed that, whilst Telpro SARL continued to attempt to establish a non-CP business as originally envisaged, most of its income (and therefore that of the Appellant) was derived from CP related business. Mr Biagioli regarded this as an unnecessary duplication of what Telpro UK was engaged in. Mr Grace's position was that he had agreed to operate Telpro SARL at his own risk and needed to use his CP contacts as a platform on which to build the new non CP business. Without the CP business in the interim, Telpro SARL could produce no real income. He continued to maintain that his trip to the Far East would result in increased CP and other business.
35. This dispute about whether Telpro SARL should carry out CP as opposed to non-CP business continued into November 2002. The Respondents maintained their position that Telpro SARL was set up to deal with non-CP business and that there was no sense in trying to run a CP business for Far East customers using a company based in France. They contended that they had the right to close down Telpro SARL if it was not going to carry out non-CP business and to re-locate its CP business to Telpro UK and Telpro Inc. Mr Grace's response remained that this was unfair and that having agreed to bear the cost of running Telpro SARL until a review of its business took place at the end of 2003, he was now under threat of having his livelihood removed.
36. On 5 November 2002, Mr Biagioli sent an e-mail to the Appellant summarising the position of the Respondents:

" (1) From the data given, we are not convinced that Telpro Sarl's business profile in the short to medium term will show it having the major part of its business in the non-CP sector,

(2) We only want to have a company in France, in which the major part of its business is in the non-CP sector,

(3) We reaffirm point (f) of the e-mail dated 11^th March 2002, namely, 'These proposals would continue until the end of 2003. If we are not happy with developments then, we will all agree to call it a day and go our separate ways,'

(4) So that there is no misunderstanding, we will not be happy with developments if at least 51% of Telpro Sarl's sales and/or gross contribution are not generated from the non-CP sector by the end of 2003, in which case we will call it a day and close down Telpro Sarl and we will go our separate ways."

37. At the same time Mr Biagioli circulated a proposal which he had discussed and agreed earlier with Mr van Loggerenberg and Mrs Johannessen for deciding on salaries and dividends by a 75% vote of shareholders. This would obviously enable the Respondents to decide such matters without the concurrence of Mr Grace. The memorandum circulated was headed "Telpro's Administration" and stated as follows:

"Introduction: As it is not always possible given our geographical spread, to have annual meetings, we should put into place a mechanism whereby we can agree such things as salaries, bonuses, distribution of profits, policy etc, without the need to have a meeting. Proposal: The following procedures be adopted:

(1) Changes to salary and expenses drawn by the managing partner for the day-to-day running of the business to be proposed by the managing partner by 1^st December by e-mail to each partner. Shareholders have five working days to respond to e-mail. Must be agreed by at least 75% of shareholders.

(2) Yearly bonuses to be proposed by the managing partner by 1^st December by e-mail to each partner. Shareholders have five working days to respond to e-mail. Must be agreed by at least 75% of the shareholders,

(3) Distribution of profits: Total amount of profits to be distributed will be proposed by the managing partner by 1^st December and agreed by 75% of the shareholders within five working days. Each managing partner to negotiate on an individual basis with the other partners the amount of profit paid to that partner. Any scheme to be proposed by the managing partner and agreed by at least 75% of shareholders,

(4) All matters of changes of policy to be agreed by at least 75% of shareholders, (5) Each partner to register his agreement or otherwise by e-mail or fax. Please confirm your agreement to the above"

38. On 12 November Mr Grace replied in these terms:

"I cannot possibly agree to this memorandum, as I do not see the meaning in it, it is too loose and potentially prejudicial to any one person's position within Telpro at any time. It attempts to lump all companies under one entity in a closed corporation, when, in fact, we have four companies operating under four jurisdictions, each of which have different mandatory requirements at least. If I was in a cynical frame of mind, (God forbid), I would think the person most likely to be prejudiced by agreement to this memorandum, coming hot on the heels of the e-mail of the same date on Telpro Sarl, and given the events of at least the past several weeks, as well as what has gone before, is myself. However, I see the overall implications as much wider and suggest that we either make a serious effort to bring this all together in a more structured and formal basis than at present, or agree on how best to go our separate ways."

On the same day Mr Biagioli replied:

"We have all replied to my e-mail of 5^th November and 75% of partners have agreed to the proposals. We will therefore proceed on this basis, making any changes to company articles of association etc, as necessary, to enable resolutions to be carried by written resolutions, if we are not able to meet face to face"

39. This system for reaching decisions on the basis of an agreement by 75% of the members was soon put into effect, notwithstanding the protests of Mr Grace. On 13 November Mr van Loggerenberg raised again the question of the outstanding invoices from NMT amounting then to €40,738 and told Mr Grace that no further goods would be released until his company had been paid in full. When he complained of the hostility being shown towards Telpro SARL, Mr Grace was told that the Respondents had together decided that the bills due to Telpro Inc. and Telpro SARL should be paid promptly and that until that was done Telpro SARL would receive no further materials and no further technical or marketing support. They gave him seven days in which to pay the bills, failing which they would take what they described as the necessary steps to advise Telpro SARL's customers of the situation and to recover the monies owed.
40. On 2 December Mr Biagioli circulated the following proposal relating to the payment of a bonus and dividend by Telpro UK for 2002:

"In accordance with the agreed Telpro Companies' Administration procedures, I would like to propose the following to the shareholders regarding Telpro.

(1) Bonus to Mash, 25% of profits before tax, before consideration of bonus. The PBT figure before bonus is likely as about 160,000 GBP, so my bonus would be around 40,000 GBP, leaving the final PBT to be about GBP 120,000. This I believe is justified on the basis of Telpro's improved performance over the previous year.

(2) Profits to be distributed to shareholders: I propose that 80,000 GBP be distributed in an agreed manner, sometime after 5^th April 2003. This is the same amount as last year.

(3) Payment to Mash for management services to Telpro to be increased by 10% from 1^st January 2003. Please let me have your agreement or otherwise within five days from 2^nd December. If 75% of shareholders approve of the above, then it will be implemented."

Subject to slight re-wording suggested by Mr Grace, the proposal was agreed to by all four shareholders. It is the subsequent non-payment of this dividend which the Judge found to constitute unfair prejudice to the Appellant.

41. At this point matters were obviously coming to a head and even Mr Grace seems to have accepted that it was unlikely that the present arrangements could continue. He sent an e-mail setting out the position as he saw it:

"It is obvious that for whatever reasons the relationships are not as they should be and seem to have deteriorated further from December 2001, even though Telpro Sarl has moved into profit in only its second year of operation from a truly fresh start. We all appear to have our own views on what is correct procedure and how this situation has occurred. However, unless we can find a way to redress that in some way, it is not in anybody's interest that we continue as we are, and I am not prepared to proceed in what is, to me, an atmosphere of mistrust etc. Therefore, I propose that we either rationalise the arrangements between the various individuals and companies by way of shareholders' agreements, making issues more transparent, as we had originally agreed, or go separate ways. In the latter case, apart from ceasing any operational involvement in Telpro, via Telpro Sarl, I propose that we negotiate a reasonable settlement for my interests in the other Telpro companies, to avoid any further disputes and allow everybody to move forward with the minimum of difficulty for all concerned"

42. Respondents replied separately to this, but each of them adopted a common line. They required Telpro SARL to pay the outstanding bills and were not prepared to consider buying out the Appellant's shares in the other Telpro companies. They were content for him to remain a shareholder in Telpro UK and Telpro Inc. even if a decision was ultimately taken to close down Telpro SARL when its progress was reviewed at the end of 2003.
43. Despite these disagreements and difficulties, 2002 ended on what the Judge described as a more positive note. Telpro Inc. declared a dividend of $10k for each shareholder for 2002, which was to be paid in 2003. On 3 December HELM paid the outstanding invoices from NMT. Mr Biagioli even circulated an e-mail suggesting that the Respondents should accept an increase by Telpro SARL in its CP business and might rely on Mr Grace to maximise the CP business of all the Telpro companies.
44. Despite these signs of progress, a further crisis in relations soon occurred. In early December Mr Grace learnt that Corrpro intended to dispose of some of its business in the Far East. Without first consulting the Respondents, he contacted an agent in Singapore (Mr Colin Gee of CGIM Pte Limited) and asked him to contact Corrpro to get an indication of whether the company wished to dispose of some of its assets and at what price. The agent contacted Corrpro and indicated that he could probably obtain the information which Mr Grace needed if he was able to convince Corrpro that he represented serious investors. Mr Grace was not willing to disclose his identity at that time, but told the agent that he should say that he represented a group of investors which included a company with extensive involvement in the CP business on a worldwise basis.
45. On 17 January 2003 the agent provided Mr Grace with additional information about what Corrpro was proposing to sell. The e-mail exchanges between the Appellant and the agent at this time indicate that Mr Grace was taking a fairly cautious approach and felt that he needed more information before committing himself to any sort of bid. Towards the end of January, Corrpro asked him to sign a confidentiality agreement as a pre-condition to any further discussions. At this time, exchanges of e-mails continued between him and Mr Biagioli about the future direction of Telpro SARL. Mr Biagioli had suggested that one possibility was for Mr Grace to move back to the Far East and to operate the business from there. But on 23 January Mr Grace indicated that there was no point in discussing this option any further if he was required to set up a Far East business at his own risk.
46. During these discussions with the Respondents about Telpro SARL no mention was made of the approaches which had been made to Corrpro about the possible purchase of some of its CP businesses. Mr Grace said in his evidence to the judge, that by December 2002 he had become concerned about the integrity of the Respondents and about his future prospects. He believed that there was little prospect of being allowed to continue with Telpro SARL even if it became profitable and he therefore began to look into alternative ways of earning a living.
47. On 15 February Mr Grace was asked to produce the accounts for Telpro SARL up to the end of 2002. He supplied accounts up to October which showed a profit of €45,142. Mr Biagioli then pressed for the year end accounts and proposed to the Respondents the agreed dividends from Telpro UK and Telpro Inc. (amounting to €42k) should not be paid to Mr Grace until the position regarding Telpro SARL and its distributable profits for 2002 had been resolved. Mr Biagioli had proposed that 80% of the profits before tax of Telpro SARL should be distributed by way of dividend. Mrs Johannessen and Mr van Loggerenberg agreed with this, but on 24 February Mr Grace sent an e-mail to Mr Biagioli saying that there was no case for a profit distribution until after the viability review of Telpro SARL which was due to take place at the end of 2003. Until then, the business continued to be run at his own risk.
48. A position was therefore reached at the end of February, where Mr Grace was resisting any attempt to declare a dividend in respect of Telpro SARL and the Respondents were relying on their majority as shareholders to withhold the dividends already declared in respect of the other Telpro companies. Mr Biagioli sent an e-mail to Mr Grace on 28 February which accurately summarises the Respondents' position:

"We are unanimous in our view that what you claim was never agreed to. The onus is on you to provide satisfactory documentary evidence to the contrary. You now have a board resolution, requiring you to distribute all of Telpro Sarl's post-tax profits before the end of June 2003. Please let us have the final Telpro Sarl 2002 accounts. Unless we receive these and agree them before the Telpro and Inc dividends are distributed to you, we will withhold the sum of 30,000 Euros from these dividends and distribute them to the other three partners on Telpro Sarl's behalf. You can then take this amount from Telpro Sarl"

E-mails continued to fly back and forth, but as of March 2003 there was still no resolution of the issue.

49. By the end of February, the Appellant had been told by the agent in Singapore, who was handling the discussions with Corrpro, what his charges would be if an offer to purchase one of the businesses proceeded. The agent had sent to Corrpro a list of questions on the information which had been supplied about the businesses for sale. Corrpro had replied to the effect that it had received a number of offers already and asked for an indicative offer, or valuation range, from the agent. This was passed by e-mail to Mr Grace in France using his e-mail address on the Telpro website. Mr Grace was experiencing difficulties at the time in receiving his e-mails and had asked Mrs Johannessen on 7 March whether she could assist in rectifying the problem. When she logged into his e-mail account she was able to read two recent e-mails sent by the agent which disclosed the contacts with Corrpro. She forwarded these to Mr Biagioli.
50. Mr Biagioli said that he and the other Respondent were shocked and appalled by this, because Corrpro had been the reason for their leaving Actel and were, of course, Telpro's largest competitor. He spoke to Mr Grace on 11 March and later e-mailed him in these terms:

"Following our telephone conversation of this morning, I am still concerned that, by association, we could receive a negative reaction from some of our principal customers, if your potential involvement enters the pubic domain. I sincerely hope that, from a Telpro point of view, that you will not be taking things further. Should you decide to go the full nine yards, I think the least you should do, as agreed, is to let us know before you go public, so that we can have some sort of response/position ready"

Mr Grace had told the judge that he did not see his intention in respect of the Corrpro companies as being detrimental to or in conflict with the Telpro companies. If he acquired one or more of the Corrpro businesses, they would have been customers of rather than competitors with Telpro. In the event, his interest was not carried very much further. He said that he asked for information on Corrpro Asian and Pacific ("CAP") and expressed an interest in the company subject to information on various issues. This was not forthcoming and he lost interest in taking the matter any further.

51. The events following 7 March were, however, somewhat more complicated than that. On 12 March, the agent in Singapore e-mailed Mr Grace in France to tell him that Corrpro wanted to know the name of his principal; have an indicative bid in place by 17 March and a sale agreement by 31 March. CAP was likely to cost no more than $1.5m and he wanted to know whether he should concentrate on the acquisition of this company.
52. At this time, the exchange of e-mail correspondence between Mr Grace and Mr Biagioli had returned to the issue of whether Telpro SARL's profits for 2002 should be distributed as a dividend. On 15 March the agent sent an e-mail to Corrpro to indicate that his principal would be interested in making an offer for CAP and that he would disclose his name shortly. Mr Biagioli knew from the e-mails which Mrs Johannessen had seen and forwarded, that there were three bids in place for CAP. On 25 March he e-mailed Mr Grace and asked him whether he was one of the bidders. Mr Grace replied on the same day that he had not made a bid. Mr Biagioli then asked him also to confirm that he had no indirect involvement in any of the bids and that "he had no future plans for direct or indirect involvement in any bids". Later he asked for confirmation that he had not bid for any of the Corrpro businesses which had been put up for sale. He asked for a reply by close of business on 26 March. Not having heard from Mr Grace by then, he sent this e-mail to the other Respondents:

"As we have not heard from Lawrie during the day, we must infer that after all in some way or another he is or will be directly or indirectly involved in a bid to purchase non-North-American assets of Corrpro. I propose we issue the following statement: 'Mr Lawrie Grace, currently responsible for Telpro Sarl in France, is no longer associated with the commercial operation of Telpro Companies and will be pursuing separate business interests to Telpro companies"

By then Mr Grace was in Singapore and at 8.09 p.m. on 26 March he replied as follows:

"Your inference is incorrect and I do not understand the paranoia. I have been out of the office for a family problem and have not accessed e-mail."

The following morning (27 March) he sent a further e-mail to each of the Respondents, confirming that he did not intend to bid. On 28 March he returned to the UK.

53. But on 1 April Mr Grace composed an e-mail to his agent in Singapore asking whether a Mr Lim Kent was a director of CAP and suggesting that he should be made one "if my proposal is acceptable". By mistake this e-mail was sent to Mr van Loggerenberg who forwarded it to Mr Biagioli. Mr van Loggerenberg then sent this e-mail to Mr Grace:

"Re this e-mail, which I obviously received in error; I must assume from this correspondence that you are still pursuing other interests, of which your 'partners' are not aware. You have denied any involvement in any scheme involving Corrpro or its allied companies, whichever they may be. Mr Kent, I believe, is involved in Corrpro in a managerial position. So it would appear as if your earlier denials were a lot of BS. Come clean, Lawrie, so that we can get on with our lives and not have to look over our shoulders to see what our partner is doing"

This prompted a reply from Mr Grace, which was sent to all three Respondents:

"You have not lived up to your agreements. This does not help to create confidence or an environment conducive to developing any business, let alone a new one. Given this, and the consistently antagonistic attitude towards Telpro Sarl and myself in particular from some quarters, for whatever reasons, almost since the very commencement of my active involvement, I believe that it is in the best interests of all that this company ceases operations once existing commitments have been executed, unless there is a desire and constructive effort to do otherwise, which has yet to evidence itself. In the event that operations cease, the accounts will be finalised and clients advised accordingly."

54. By now there was a rapid disintegration of what remained of the working relationship between the Appellant and the Respondents. On 3 April Mr Biagioli sent an e-mail to Mr Grace and the two other Respondents in these terms:

"In accordance with the agreed and approved memorandum of 5^th November 2002, I hereby propose the following: (1) There will be no dividend paid to shareholders from profits generated during the financial year 2002, (2) A management fee, in addition to any others already agreed, be paid to shareholders who are actively involved in the running of Telpro, from profits generated in the financial year, 2002, as follows: Stephen, GBP 30,000; Cathy GBP 30,000 and Mash, GBP 37,500. (3) The above supersedes any other previously given intentions with respect to dividends. Please confirm your agreement or otherwise. Upon receipt of 75% shareholder agreement, the above will be actioned."

On the same day he gave notice to the others of an EGM to be held on 9 May 2003, at which he intended to propose that Mr Grace be removed as a director of Telpro UK. The Appellant responded the same day objecting strongly to the proposal to cancel the dividend and to divide it between the Respondents as a management fee. He threatened to seek redress if the proposal were implemented. On 4 April he submitted a formal letter of interest to Corrpro indicating that he was prepared to pay in the region of $250k for CAP but this came to nothing.

55. Following the calling of the EGM a discussion took place between the Respondents as to what had been meant by the reference to the parties going their separate ways when the dispute about Telpro SARL broke out in 2002. This led to the Respondents taking the view that Mr Grace should transfer his shares in Telpro UK and Telpro Inc. to them without payment. In an e-mail of 30 April, the reasoning behind this was explained as follows:

"As Lawrie's venture has failed, our shareholdings in Telpro Sarl have no value, so conversely he should have no value in the remaining Telpro Companies. This was clearly discussed and agreed by all at the start. As evidence of this, I cite clause (f) of the e-mail of 11 March 2002, when Lawrie agreed to carry on at his own risk: "we all agree to call it a day and go our own separate ways." Lawrie asked me at that time what I meant by this and I said it means we would have nothing more to do with each other, any loans would be repaid and we would have no more involvement with each other."

But this version of events was not accepted by Mr Grace and he continued to insist that his shares in the Telpro companies should be acquired at their fair value.

56. The EGM was held on 9 May. Only Mr Biagioli and Mr Grace were present, but Mr Biagioli held proxies for Mrs Johannessen and Mr van Loggerenberg. The resolution to remove Mr Grace as a director was passed. The dividend for Telpro UK agreed in December 2002 was not paid and the £80k was instead divided between the Respondents, purportedly as the payment of management fees. There was no contractual basis for these payments. NMT and Telpro Inc. refused to supply Telpro SARL with any further goods and services and its customers were informed by the Respondents that its business had been transferred to Telpro UK and Telpro Inc. Telpro SARL has ceased to trade and Mr Grace now earns his living through HELM which has continued a CP based business.
57. On 29 July solicitors instructed by Mr Grace threatened to issue proceedings under s459 unless an offer was made to purchase his shares in Telpro UK at 25% of the total value of the company, as determined by an independent valuer. No such offer was made and the petition was issued on 15 August 2003.

Unfair Prejudice

58. Section 459(1) of the Companies Act 1985 (as amended) provides as follows:

"A member of a company may apply to the court by petition for an order under this part 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 its members generally or of some part of its members (including at least himself) or that any actual or proposed act or omission of the company (including an act or omission on its behalf ) is or would be so prejudicial."

The key to the exercise of the Court's jurisdiction is a finding of unfair prejudice in the conduct of the company's affairs. The acts complained of must be unfairly prejudicial to the petitioner (and any others) as members. If this is established, then the Court has power to grant relief under s.461. This provides that

"(1) If the court is satisfied that a petition under this Part is well founded, it may make such order as it thinks fit for giving relief in respect of the matters complained of.

(2) Without prejudice to the generality of subsection (1), the court's order may

(a) regulate the conduct of the company's affairs in the future,

(b) require the company to refrain from doing or continuing an act complained of by the petitioner or to do an act which the petitioner has complained it has omitted to do,

(c) authorise civil proceedings to be brought in the name and on behalf of the company by such person or persons and on such terms as the court may direct,

(d) provide for the purchase of the shares of any members of the company by other members or by the company itself and, in the case of a purchase by the company itself, the reduction of the company's capital accordingly."

59. This appeal raises challenges both to the judge's finding that Mr Grace's removal as a director was not unfairly prejudicial to him as a shareholder and also to his decision that the one issue of unfair prejudice which was established could be adequately remedied by an order against Telpro UK for the payment of the 2002 dividend with interest. It is therefore necessary to begin by stating what seem to us to be the relevant established principles in relation to the exercise of this particular jurisdiction.
60. The leading authority on the interpretation and operation of s.459(1) is the decision of the House of Lords in O'Neill v Phillips [1999]1 WLR 1092. It concerned a private company in which the entire issued share capital was originally held by the Respondent. Subsequently, he gave 25 of the 100 issued shares to the Petitioner, who was an employee of the company and had been rapidly promoted through his hard work and ability. He was also appointed as a director. Discussions took place between the two men, in which the Respondent, Mr Phillips, expressed the hope that Mr O'Neill would eventually be able to take over the running of the company. In that event, he would be allowed to receive 50% of the company's net profits. Eventually, Mr O'Neill did, in fact, take over the running of the business and received half of the profits. At the same time, Mr Phillips retired as a director. Discussions also took place about Mr O'Neill obtaining a 50 per cent shareholding and these reached the stage of an agreement in principle dependant on certain targets being reached. But there was never on the judge's findings any concluded agreement and Mr Phillips eventually became concerned about Mr O'Neill's management of the company and resumed control. Mr O'Neill ceased to be managing director and was told that he would in future receive only his salary plus the dividends payable in respect of his 25 per cent shareholding. He issued a petition under s.459(1) complaining of the breach of what he alleged was an equal profit sharing agreement and an agreement to allot him 50 per cent of the shares. The judge rejected the claim holding that negotiations had never matured into a concluded and unconditional agreement to share profits and allot more shares, and that Mr O'Neill's treatment by Mr Phillips through the use of his controlling shareholding did not constitute unfair prejudice to him as a shareholder. The Court of Appeal reversed the judge's decision on the basis that Mr O'Neill had what was described as a legitimate expectation that he would receive more shares and an equal share of profits if and when the targets had been reached and that the denial of this opportunity did constitute unfair prejudice to him as a shareholder. The House of Lords allowed the appeal.
61. From Lord Hoffmann's speech one can deduce the following principles:

(1) The concept of unfairness, although objective in its focus, is not to be considered in a vacuum. An assessment that conduct is unfair has to be made against the legal background of the corporate structure under consideration. This will usually take the form of the articles of association and any collateral agreements between shareholders which identify their rights and obligations as members of the company. Both are subject to established equitable principles which may moderate the exercise of strict legal rights when insistence on the enforcement of such rights would be unconscionable;

(2) It follows that it will not ordinarily be unfair for the affairs of a company to be conducted in accordance with the provisions of its articles or any other relevant and legally enforceable agreement, unless it would be inequitable for those agreements to be enforced in the particular circumstances under consideration. Unfairness may, to use Lord Hoffmann's words, "consist in a breach of the rules or in using rules in a manner which equity would regard as contrary to good faith": see p.1099A; the conduct need not therefore be unlawful, but it must be inequitable;

(3) Although it is impossible to provide an exhaustive definition of the circumstances in which the application of equitable principles would render it unjust for a party to insist on his strict legal rights, those principles are to be applied according to settled and established equitable rules and not by reference to some indefinite notion of fairness;

(4) To be unfair, the conduct complained of need not be such as would have justified the making of a winding-up order on just and equitable grounds as formerly required under s.210 of the Companies Act 1948;

(5) A useful test is always to ask whether the exercise of the power or rights in question would involve a breach of an agreement or understanding between the parties which it would be unfair to allow a member to ignore. Such agreements do not have to be contractually binding in order to found the equity;

(6) It is not enough merely to show that the relationship between the parties has irretrievably broken down. There is no right of unilateral withdrawal for a shareholder when trust and confidence between shareholders no longer exist. It is, however, different if that breakdown in relations then causes the majority to exclude the petitioner from the management of the company or otherwise to cause him prejudice in his capacity as a shareholder.

Removal as Director

62. The first ground of appeal relates to the removal of Mr Grace as a director in May 2003. The judge held that this was prejudicial to his interests as a shareholder, because although he was unpaid as a director and took no part in the management of the company as such, his membership of the board entitled him to vote as a director and to receive information in important matters, which would include the payment of salaries and the distribution of profits.
63. But the judge took the view that his removal was not unfairly prejudicial within the meaning of s.459(1) because the exercise by the majority shareholders of their power under the articles to vote him off the board, did not contravene any prior agreement between them and was not contrary to any equitable principle of good faith, as explained by Lord Hoffmann in O'Neill v Phillips.
64. The judge based this conclusion on an examination of Mr Grace's conduct in the period leading up to his expulsion and applied the dictum of Nourse J in Re London School of Electronics [1986] Ch.211 at p.222, where he said this:

"The combined effect of sub-ss (1) and (3) is to empower the court to make such order as it thinks fit for giving relief, if it is first satisfied that the affairs of the company are being or have been conducted in a manner which is unfairly prejudicial to the interests of some part of the members. The conduct of the petitioner may be material in a number of ways, of which the two most obvious are these. First, it may render the conduct on the other side, even if it is prejudicial, not unfair: cf Re RA Noble & Sons (Clothing) Ltd [1983] BCLC 273. Second, even if the conduct on the other side is both prejudicial and unfair, the petitioner's conduct may nevertheless affect the relief which the court thinks fit to grant under sub-s (3). In my view there is no independent or overriding requirement that it should be just and equitable to grant relief or that the petitioner should come to the court with clean hands."

Although this has now to be read in the light of Lord Hoffmann's speech in O'Neill v Phillips, it seems to us to be correct in principle. The use by the majority of the powers and voting rights conferred by the articles cannot be regarded as contrary to good faith where they are invoked to protect the company from conduct which is itself either in breach of a relevant agreement, or otherwise detrimental to the well-being of the company and its assets. The judge was therefore entitled to have regard to Mr Grace's conduct in relation to the negotiations with Corrpro in determining whether his removal as a director by the Respondents was a proportionate and justifiable response to what they had discovered.

65. The judge's reasons for finding that the Respondents' conduct justified his removal as a director are contained in the following passage from his judgment:

"When Lawrie, without informing the others, began negotiating with Corrpro, it seems to me inevitable that he could not continue as a director of Telpro. The others could, in my judgement, quite legitimately take the view that it was in the best interests of Telpro not to be seen to have any connection with a potential competitor in the CP industry of their customers and, in particular, with Corrpro. Secondly, there was an actual or potential conflict of interests between Lawrie's position as a director and his aspiration to buy companies in the same or related way of business. Thirdly, by concealing his negotiations from his colleagues, Lawrie destroyed any remnants of trust between the four. It is not necessary for me to decide whether Lawrie's e-mail of 27^th March was a deliberate lie on Lawrie's part. The failure to correct it, when it became patently untrue on 4^th April is bad enough. In my judgement, Lawrie's removal as director was brought about by his own conduct and cannot be stigmatised as unfair"

66. Mr Hubbard submitted that what this analysis failed to take into account was that Mr Grace's approaches to Corrpro were the result of a breakdown in relations between him and the Respondents caused by the adoption of the majority voting system and the abandonment of the earlier agreement or practice of basing all significant business decisions (including the distribution of profits) on the unanimous consent of all four shareholders. By December 2002 the Respondents had threatened, he said, to close down Telpro SARL if it was not carrying on a viable non-CP business by the end of 2003 and had ceased to supply goods and services on the discounted terms originally agreed. He submits that the approaches made to Corrpro did not in any event come to anything and no businesses were acquired which might have placed Mr Grace into a position of actual conflict between his personal interests and those of Telpro UK.
67. Mr Hubbard accepted in argument that the need for unanimity was not part of the Bristol agreement, nor was it a requirement under the articles of association of Telpro UK. But it was, he said, the consistent practice for important decisions to be agreed to by all four shareholders and from this it should be inferred that unanimity was adopted as a condition governing the dealings between the parties as members of the company. The change to majority voting was therefore an abrogation of this principle, when it was introduced in November 2002.
68. The judge did not deal in terms with Mr Grace's reliance on the Respondents' alleged breach of the agreement or understanding in relation to voting rights, or their alleged hostility towards Telpro SARL. But it is clear from his finding that he regarded the Appellant's removal as a director as prejudicial to his position as a member of the company that he would have treated it as amounting to unfair prejudice but for his conduct in relation to Corrpro. Therefore, the only real issue on this part of the appeal is whether it was open to the judge to treat Mr Grace's conduct as justifying his removal as a director, notwithstanding the history of relations between the parties and the effect which his absence from the board would have on his ability thereafter to at least scrutinize the decisions which were taken in relation to the company and its profits.
69. It seems to us that the judge was entitled to form the view which he did. Although there were frequent disagreements between Mr Grace and the other shareholders as to how Telpro SARL should be run and as to who should bear the cost and expenses which it had generated, these differences were accommodated in a series of ad hoc agreements which both sides attempted to live with. The relationship between the parties was not governed by any form of overriding shareholders' agreement and although Mr Grace remains at odds with the Respondents as to the circumstances in which Telpro SARL came to be set up and the type of business which it conducted, the terms imposed or agreed by the Respondents are not relied upon in themselves as instances of unfair prejudice. The judge was not invited to treat the disputes as in some way manufactured by the Respondents, with a view to excluding Mr Grace from participation in Telpro UK. Despite the introduction of majority voting and the arguments about the credit terms for the supply of goods and materials to Telpro SARL, and the disputed cost of Mr Grace 's trip to the Far East, 2002 ended on what the judge described as a more positive note. The invoices due to NMT were paid, dividends had been declared and Mr Biagioli was suggesting ways in which Mr Grace through Telpro SARL could assist in developing the CP business of the Telpro companies in general. Although Mr Grace was entitled to take the view that the differences between him and the Respondents made it sensible, or even necessary, to seek out alternative opportunities for the future, he set about this in an underhand and secretive manner and began to negotiate the purchase of a related business, which as the judge found, would have placed him in a position of conflict with his duties as a director towards Telpro UK.
70. Mr Grace's response to this is that the negotiations never reached fruition, which is true, but what justified his dismissal as a director was his willingness to embark on such negotiations without any prior disclosure or discussion with his fellow directors and shareholders and his attempts to conceal the existence of the negotiations by making statements in e-mails, which were either untrue when made, or at the very least became untrue and remained uncorrected. We agree with the judge's finding that this conduct justified his dismissal as a director and cannot be excused by reference to the events of 2002. The first ground of appeal therefore fails.

Non-payment of the dividend

71. The judge held that the failure to pay the 2002 dividend and the distribution of profits between the Respondents under the guise of management expenses, did constitute unfair prejudice to Mr Grace as a shareholder and there is no appeal by the Respondents against that finding. The only issue therefore is whether the judge was right to decline to order the Respondents to purchase Mr Grace's shares and instead to order payment by the company of the £20k dividend which was due to him.
72. There is no doubt that there was a conscious and deliberate refusal to pay the 2002 dividend to Mr Grace and the judge concluded that Mr Biagioli (with the concurrence of the other Respondents) used the profits available to meet the dividend in order to pay management fees to himself and the others, to which they had no contractual entitlement. The accounts of the company for 2002 show a figure for profits before tax, which is reduced by the subtraction of the £80k under the guise of costs of sales and expenses. The judge held that this was in breach of the agreement made in December 2002 for the payment of a dividend and rejected the submissions of Mr Warner for the Respondents that the non-payment of what was due to Mr Grace was justified by his conduct in relation to Corrpro and his dealings in relation to the setting up and operation of Telpro SARL. There is, as already indicated, no appeal against this part of the judgment and it is, in any event, clearly right. Whatever grievance the Respondents may have felt that they had, nothing justified the non-payment of the dividend due to Mr Grace. Although the judge held in terms that non-payment was in breach of the December 2002 agreement, the reality is more fundamental than that. Mr Grace as a 25% shareholder in the company, is entitled to a proportionate share of any dividend declared. Once the board had satisfied itself that there were available profits which permitted the payment of the dividend, then Mr Grace became entitled to receive it when paid. He had no liability to Telpro UK, which could provide the basis of any set-off and his failure to pay a dividend in respect of Telpro SARL was simply irrelevant. To make matters worse, not only was the dividend due to him not paid. It was distributed to the other shareholders under the guise of management or other expenses to which they had no entitlement. The Respondents therefore paid themselves the totality of the £80k due for distribution between all four shareholders and entered the payments as expenses in the accounts, which, as a consequence, were mis-stated.
73. Once unfair prejudice is established, the court is given a wide discretion as to the relief which should be granted. Although s.461(1) speaks in terms of relief being granted " in respect of the matters complained of", the court has to look at all the relevant circumstances in deciding what kind of order it is fair to make. It is not limited merely to reversing or putting right the immediate conduct which has justified the making of the order. In Re Bird Precision Bellows [1986]Ch.658, Oliver LJ described the appropriate remedy as one which would "put right and cure for the future the unfair prejudice which the petitioner has suffered at the hands of the other shareholders of the company." The prospective nature of the jurisdiction is reflected in the fact that the court must assess the appropriateness of any particular remedy as at the date of the hearing and not at the date of presentation of the petition; and may even take into account conduct which has occurred between those two dates. The court is entitled to look at the reality and practicalities of the overall situation, past, present and future.
74. It was, therefore, incumbent on the judge to consider the whole range of possible remedies and to choose the one which on his assessment of the existing state of relations between the parties was most likely both to remedy the unfair prejudice already suffered and to deal fairly with the situation which had occurred. The principal criticism of his judgment on this issue, is that it concentrated on the precise nature of the prejudice already suffered (i.e. the non-payment of the dividend), but failed to look at matters in the round. In particular, no adequate regard was paid to the fact that the Respondents had in effect helped themselves to the dividend to which Mr Grace was undoubtedly entitled, nor to what is said to be the overwhelming likelihood that similar acts of prejudice will be suffered in the future.
75. In most cases, the usual order to make will be the one requiring the Respondents to buy out the petitioning shareholder at a price to be fixed by the court. This is normally the most appropriate order to deal with intra company disputes involving small private companies. This is the relief which Mr Grace says that the judge should have granted and which he seeks on this appeal. The reasons for making such an order are in most cases obvious. It will free the petitioner from the company and enable him to extract his share of the value of its business and assets in return for foregoing any future right to dividends. The company and its business will be preserved for the benefit of the Respondent shareholders, free from his claims and the possibility of future difficulties between shareholders will be removed. In cases of serious prejudice and conflict between shareholders, it is unlikely that any regime or safeguards which the court can impose, will be as effective to preserve the peace and to safeguard the rights of the minority. Although, as Lord Hoffmann emphasised in O'Neill v Phillips, there is no room within this jurisdiction for the equivalent of no-fault divorce, nothing less than a clean break is likely in most cases of proven fault to satisfy the objectives of the court's power to intervene.
76. The judge set out his reasons for not making the buy-out order that was sought in the following passage:

"Section 461, (1) Companies Act provides, "If the court is satisfied that a petition under this Part is well founded, it may make such order as it thinks fit for giving relief in respect of the matters complained of ".It has been said this sub-section gives the court the widest possible discretion, but I note that the discretion is limited by the purpose of the order, which must be to give relief in respect of the matters complained of. In the present case, the only matter complained of justifiably is the non-payment of a dividend by Telpro for the year 2000.

Section 461, (2) sets out a non-exhaustive list of orders the court can make. Over the years, a general practice has grown up of making an order under paragraph (d), compelling the majority shareholder to buy out the petitioning minority at a fair value, often a pro rata asset valuation.

In my judgement, that is not the appropriate remedy in the present case for a number of reasons. First, this is a case with faults on both sides. In O'Neill v Phillips (supra), Lord Hoffmann ruled out a "no fault divorce." I do not think that divorce against the wishes of the majority ought to be automatic where both sides are at fault, even though it may be an appropriate and sometimes an inevitable remedy. In the London School of Electronics (supra), Mr Justice Nourse recognised that the conduct of the parties, could affect the remedy.

Secondly, Telpro is only part of the jigsaw. This joint venture is a truly international one with companies in France, the USA and possibly elsewhere, although Stephen when in giving evidence denied that there was a company set up by him as part of the venture. I could make orders in personam against the first three defendants, but that would, in my judgement, be an unwarranted intrusion into the affairs of companies which are subject to foreign jurisdictions and of whose affairs I have only limited knowledge. I could make an order dealing with Telpro shares only, but that would, I think, affect the bargaining rights of the parties, who have to sort out the whole economic picture themselves.

Thirdly, this is not a case where there has been a history of repeated acts of unfair prejudice. I have found one act proved, but I do not think I should conclude that the majority shareholders will necessarily abuse their dominant position by refusing to declare dividends where appropriate. It is accepted in the defence that Lawrie is entitled to a quarter share of the dividends declared by all Telpro companies; such dividends depending on taxation, the need to retain profits and so on.

The 2003 accounts of Telpro show an operating loss of £46,856, and I have no evidence from which I can conclude that this loss is artificial and there are profits for that year which could and should have been distributed.

Fourthly, this is not a case of wrongful exclusion from management. Lawrie was never an executive director; indeed he did not become a director until he left CP Tech. Lawrie was always intended to be a minority investor in Telpro. He did not pay for his shares except to the extent of providing a guarantee, which was never called upon. It was anticipated that if Telpro was successful, his shares would provide him with unearned income in the form of a dividend, after management charges, but not a capital gain which he could realise at will. He must have known that he was locked in from the beginning; just as each of the others was locked in to the companies they chose to form. This is not a quasi partnership in the sense of a company formed to continue a partnership association; it is an international joint enterprise with limited companies formed deliberately in different jurisdictions. In my judgement, the appropriate order in the present case to give relief in respect of the matter complained of is to order the fourth defendant, Telpro, to pay the claimant the sum he should have received by way of dividend, i.e. £20,000, with interest, from 5^th April 2003."

It does appear from the first two paragraphs of this section of his judgment, that Judge Weeks may have construed s.461(1) more narrowly than is appropriate and that he may have thought the remedy had to be geared in a specific way to the wrong complained of. If that is so, then it was in our judgment a misdirection for the reasons given above. However, the judge does then set out four specific reasons for not making what he himself recognised was the more usual share purchase order. Mr Hubbard submits that none of these reasons provides any adequate justification for not ordering the relief sought.

Fault on both sides

77. The first point relied on by the judge is that there was fault on both sides and that the conduct of Mr Grace could affect the remedy to be granted. Although as already mentioned, the general principle is not in doubt, we do not accept that it is a relevant factor going to remedy in this particular case. Lord Hoffmann's remarks on no-fault divorce in O'Neill v Phillips were not directed to the case where fault amounting to unfair prejudice was found to exist on the part of the Respondents. He was concerned only to exclude the possibility of a buy-out order being made simply because the parties found it difficult to co-exist, although nothing amounting to unfair prejudice could be made out. The judge's ruling that the existence of fault on the part of the petitioner should exclude the making of a buy-out order, even if that order would otherwise be an appropriate remedy for conduct on the part of the Respondents amounting to unfair prejudice, also needs to be examined. Although we do not rule out such a case, it is difficult to reconcile this with the judge's earlier rejection of Mr Warner's submissions that Mr Grace's conduct in relation to Corrpro, his failure to make a proper contribution to the joint venture and his failure to declare a dividend in respect of Telpro SARL were all irrelevant to and not a justification for the non-payment by the Respondents of the 2002 dividend. If Mr Grace's conduct ought to be excluded (which we accept) from any consideration of whether he has suffered unfair prejudice, we do not understand how it can then be admissible so as to deprive him of what would otherwise be the appropriate remedy for that prejudice. It is also difficult to see what (if any) allowance the judge actually made for Mr Grace's conduct, so as to justify a lesser remedy than the one sought. We are not, therefore, persuaded that Mr Grace's conduct can be used to support the rejection of a buy-out order.

Part of the Jigsaw

78. We have some difficulty in following this point. The Respondents were anxious in their submissions to the judge to distance themselves from any notion that the Telpro companies should be regarded as some kind of overall partnership or joint venture. On that basis, the judge was only concerned to deal with the affairs of the English company, which is the subject matter of the petition. He was not asked to deal with any of the other Telpro companies and had no jurisdiction to do so. But given that Mr Grace's complaint related only to Telpro UK, his inability to deal with any other company was simply irrelevant. We do not understand his reference to an order dealing only with the shares of Telpro UK as having an effect on the bargaining rights of the parties generally, and Mr Warner for the Respondents, was unable to enlighten us.

No risk of repetition

79. This seems to us to be the most important point. Mr Warner accepted that the judge's order for the payment of the dividend could not be justified if there was a real risk of the repetition of some form of unfair prejudice, but he submitted that the judge was entitled and correct to find on the evidence, that this was an isolated incident, which was unlikely to recur. Perhaps the most obvious question to ask is whether there has been any recurrence of the problem in the period leading up to the hearing. With this in mind, Mr Grace made an application to the judge prior to the hearing of the petition, for disclosure of the background papers relating to the accounts of Telpro UK for 2003. This application was resisted by the Respondents and refused by the judge on the ground that the material was only relevant to the question of the price at which the shares should be purchased, if that was ordered. It seems to us that this material was clearly relevant to the issue of whether or not to order a buy-out which was a matter for the judge to deal with at the hearing. It ought, therefore, to have been disclosed. The judge's order was not, however, appealed and Mr Hubbard told us that he felt unable without the material, properly to pursue the matter in cross-examination with Mr Biagioli.
80. The 2003 accounts were, however, before the judge and as part of his closing submissions, Mr Hubbard took the point that it could be inferred from them that similar payments of management fees had been made during 2003, which had the consequence of artificially reducing the profits available for distribution by way of dividend. The judge said that he had no evidence from which he could conclude that the operating loss for 2003 of £46,856 was artificial and that there had been profits in that year available for distribution. But the accounts themselves do raise a number of questions. In 2003 on a turnover of £758,027 (increased from £717,899 in 2002) there was the loss of £46,856 compared with a profit of £12,867 in the previous year. Cost of sales is shown as £742,611 (up from £650,156 in 2002) and administration expenses have increased from £49,720 to £64,749.
81. Although on an appeal of this kind the findings of fact made by the judge will not easily be disturbed, the lack of evidence to which he refers was the result of his own refusal to order the disclosure of relevant material. It left him in the position of having to speculate about figures, which clearly call for an explanation, but he declined to draw any adverse inferences from the figures themselves. In answer, however, to various questions from the court, Mr Warner offered, during the hearing of this appeal, an explanation on instructions of the 2003 figures. He said that after April 2003 Mrs Johannessen and Mr van Loggerenberg, through Telpro Inc and NMT, ceased to supply goods to Telpro UK at cost and instead sold the items to the company at a profit. The mark-up has increased from about 20% to 100%. Telpro UK has continued to be funded through Biagioli Ltd, but the result of the increase in the prices charged by Telpro Inc and NMT is that Biagioli Ltd has been paid as the cost of funding 10% of a very considerably increased cost price. The result of this change in trading terms has been to allow the Respondents to take as profits from Telpro UK monies which would otherwise have created a profit and could ultimately have been available for distribution as a dividend. This explains why the cost of sales figure has increased so dramatically although commodity prices are said also to have risen over the year.
82. Mr Warner accepts that an obvious inference from this change in the inter-company trading arrangements, is that the Respondents wished to reduce the available dividend and to take most of their profit entitlement through the profits made by their own companies. We are not called on to decide whether this constitutes unfair prejudice, but it is a significant change in operating practice which was not notified to Mr Grace and which does have a considerable impact on the value of his shareholding. It certainly does not bode well for future relations between the parties. Although it is unlikely that there will be any repetition of the stark refusal to pay a dividend already declared, it does look as if the Respondents have already taken steps to minimise the dividends which will become payable and this is bound to lead to further disputes in the future.
83. Even if the judge was justified in reaching the conclusion he did on the 2003 accounts, we do not accept his assessment of the significance to be attached to the non-payment of the 2002 dividend and the inferences to be drawn from it for the future. The unfair prejudice which he found to have been proved, consisted of a deliberate refusal to pay the dividend and the mis-stating of the 2002 accounts. The fees paid were not due and could not properly have been included in the accounts as liabilities of the company to be deducted before tax. Having made the finding of unfair prejudice which he did, the judge should then have considered the position more generally. Taking everything into account, it seems to us obvious from the lengths which the Respondents were prepared to go to avoid payment of the 2002 dividends, that nothing short of a buy-out order will ensure that Mr Grace's rights are respected in the future. He no longer has a seat on the board and he is therefore dependant on the Respondents being prepared to respect his position as a shareholder. A share purchase order seems to us to be the sure and fair way of dealing with the situation which has occurred. The fact that both sides have grievances (or to use the judge's analysis that there can be said to be faults on both sides) provides more rather than less of a reason for ordering the Respondents to buy the petitioner's shares.

Exclusion from management

84. The final point considered by the judge was that this was not a case of wrongful exclusion from management. Whilst it is true that the day to day management of Telpro UK was left to Mr Biagioli, his membership of the board did entitle Mr Grace to receive notice of proposals for changes in the way that the company was run and to be kept informed generally about matters which impacted on his rights as a shareholder. The fact that he was not an active manager of the business is not, therefore, a reason for refusing to make a buy-out order. Nor is the fact that Mr Grace did not pay for his shares. He provided a guarantee as asked for the company's liabilities and he received shares which entitled him to a dividend. To suggest, as the judge did, that it is necessary to show that the shareholder was intended to be able to realise a capital gain, would exclude a buy-out order in most cases. There is no warrant for this restriction. Section 459 is intended to assist the petitioner shareholder by allowing him to receive the value of his shares in satisfaction of his rights as a shareholder. The judge said that Mr Grace knew from the start that he was locked-in. But in many (if not most) of these cases, the shareholder will be locked into the company but for the court's intervention. That is the reason for the existence of the statutory remedy. Once unfair prejudice is established, the constraints of the articles can be overridden by the orders of the court. The predicament of the minority shareholder then becomes a reason for exercising the jurisdiction rather than one for denying it.

Conclusions

85. For these reasons we consider that the judge exercised his discretion under

s461 on too narrow a basis and that the factors which he took into account as reasons for not making a buy-out order, do not on analysis justify the conclusion which he reached. It seems to us that the right order to make is for the Respondents to purchase Mr Grace's shares at a price to be determined by the court. The appeal will therefore be allowed. We will remit the case to a judge of the Chancery Division to determine the purchase price of the shares.

86. Although the point does not arise for decision, we should also say that we accept Mr Hubbard's submission that even if the order which the judge made for the payment of the dividend had otherwise been justified, it should have been made not against the company, but against the Respondents who received the amount of the dividend.