COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CHANCERY DIVISION
MR JUSTICE LEWISON
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE STANLEY BURNTON
MR JUSTICE BLACKBURNE
| IN THE MATTER OF PART 30 OF THE COMPANIES ACT 2006
AND IN THE MATTER OF NEATH RUGBY LTD (No. 04654453)
Frederick Geraint Hawkes
|- and -
|(1) Simone Francesca Cuddy
(2) Michael Cuddy
(3) Neath Rugby Limited
(4) Neath-Swansea Ospreys Limited
WordWave International Limited
A Merrill Communications Company
190 Fleet Street, London EC4A 2AG
Tel No: 020 7404 1400, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
Robin Hollington QC and Rebecca Page (instructed by Geldards LLP) for the First and Second Respondents
Christopher R Parker QC (instructed by Morgan LaRoche) for the Fourth Respondent
Hearing dates: 22, 23 and 24 October 2008, 23 March 2009
Crown Copyright ©
Lord Justice Stanley Burnton:
(i) What duties does a nominee director (viz. Mr Cuddy) of a company (Osprey) owe to (a) the company and (b) his appointor (Neath)?
(ii) What counts as the affairs of Neath (for the purposes of sections 994 and 995 of the Companies Act)?
Issue (ii) relates to the question whether Mr Cuddy's conduct as a director of Osprey was to be regarded as the affairs of Neath.
(i) Mr Hawkes and Mr Cuddy would each assume personal liability to repay half of the debt of £180,000 owed by Neath RFC to the WRU;
(ii) they would establish, as joint co-owners, a new corporate entity ("newco") to purchase the assets of Neath RFC from the WRU and thereafter to own and manage the Club;
(iii) Mr Hawkes would own one share in newco and Mr Cuddy would own the other share;
(iv) Mr Hawkes and Mr Cuddy would each be entitled to nominate one of the two directors of newco;
(v) Mr Hawkes would become a director of newco and Mr Cuddy would nominate Mrs Cuddy as the other director;
(vi) Mr Hawkes would concentrate on the management of Neath RFC;
(vii) Mr Cuddy would concentrate on the management of the regional side (the Ospreys) and for that purpose would be nominated by newco to act as one of the two directors of the new entity being established to own and manage the Ospreys;
(viii) any payments to be made by newco should be authorised by Mr Hawkes and Mr Cuddy; and
(ix) Mr Cuddy was to consult Mr Hawkes on matters affecting Neath.
That they agreed these terms is uncontroversial. Their agreement was implemented, but never reduced to writing. Neath is the newco envisaged in their agreement.
The issues on which the judge granted permission to appeal
(1) A member of a company may apply to the court by petition for an order under this Part on the ground
(a) that the company's affairs are being or have been conducted in a manner which is unfairly prejudicial to the interests of its members generally or of some part of its members (including at least himself) or
(b) 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.
Mr Cuddy's duties
194. In my judgment therefore the Ospreys were entitled to the best independent judgment of Mr Cuddy in deciding where their interests lay. He was not required to prefer the interests of Neath; and certainly not required to do so where in his judgment the interests of Neath conflicted with those of the Ospreys. in Mr Cuddy's case when the time came for a decision to be made, it was his true opinion to which the Ospreys were entitled.
195. It is, however, accepted that Mr Cuddy had a duty to consult Mr Hawkes. As I have said a duty to consult is not incompatible with Mr Cuddy's duty to the Ospreys to exercise his independent judgment in their best interests. As Mr Parker pointed out, a duty to consult does not entail that the consultee has a right of veto. Provided that his views are taken into account, the duty to consult is satisfied.
(i) The fact of his nomination by Neath to be a director of Osprey.
(ii) His de facto directorship of Neath, which imposed a fiduciary duty owed by him to that company.
(iii) His informal agreement with Mr Hawkes.
Of these, it is only the first that is the subject of the permission to appeal granted by the judge.
"Each of the Shareholders covenants with its other to use all reasonable endeavours to promote and develop the business of the Company to the best advantage in accordance with good business practice and the highest ethical standards."
Mr Hawkes agreed to this provision: the agreement required the authorisation of the directors of Neath, of which he was one, and in any event he signed it on behalf of Neath, as did Mrs Cuddy, presumably at the direction of her husband.
The affairs of Neath
(i) To the extent that Mr Cuddy was or should have been advocating Neath's interests on the board of the Ospreys he was acting in the affairs of Neath.
(ii) The businesses of Neath and the Ospreys were so intertwined that the one can be regarded as the business of the other.
(iii) Where Mr Cuddy was wearing both a "Neath hat" and an "Ospreys hat" (for example in relation to the trademark proceedings; and in particular the use of Neath's confidential information in furtherance of the Ospreys' cause) he was acting in the affairs of Neath.
(iv) Mr Cuddy's refusal to allow solicitors to represent Neath in the trademark proceedings was purely a Neath matter.
(v) Where the Cuddy share has been used to protect Mr Cuddy's position as a director of the Ospreys that is also a purely Neath matter.
The trademark proceedings are explained at paragraph 65 below.
216. In concurring in the decision to take hostile legal proceedings against Neath, it cannot, in my judgment, be said that Mr Cuddy was conducting the affairs of Neath. The institution of legal proceedings is quintessentially an arms' length matter. If Mr Cuddy believed (as in my judgment he did) that it was in the Ospreys' best interests to take such proceedings, he was entitled if not bound to concur in their institution. However, in using confidential information which he had obtained from Neath internally, he can be said to have been conducting the affairs of Neath in passing that information on to the Ospreys. Likewise in objecting to the instruction of Morgan Cole as Neath's solicitors in the trademark proceedings, Mr Cuddy was acting in the affairs of Neath. Mr Chivers accepted that if he succeeded in establishing that only a limited range of Mr Cuddy's activities were the conduct of the affairs of Neath that did not give him a gateway into the much wider allegations.
The words "affairs of a company" are extremely wide and should be construed liberally: (a) in determining the ambit of the "affairs" of a parent company for the purposes of s 320, the court looks at the business realities of a situation and does not confine them to a narrow legalistic view; (b) "affairs" of a company encompass all matters which may come before its board for consideration; (c) conduct of the "affairs" of a parent company includes refraining from procuring a subsidiary to do something or condoning by inaction an act of a subsidiary, particularly when the directors of the parent and the subsidiary are the same
I would accept these propositions, but with some qualification. (b) may extend to matters which are capable of coming before the board for its consideration, and may not be limited to those that actually come before the board: I do not accept that matters that are not considered by the board are not capable of being part of its affairs. Nonetheless, like the judge, I am unable to see how it can be said that the affairs of Neath and of Osprey were so intermingled that all of the affairs of the latter were the affairs of the former. It would, for example, be quite irrational to suggest that Mr Blyth, when acting as a director of Osprey, was conducting the affairs of Neath.
Specific instances of unfair prejudicial conduct alleged by Mr Hawkes
(i) His failure to secure that the Ospreys played games at the Gnoll.
(ii) His failure to transfer Neath's share in Osprey into the name of Neath.
(iii) The withdrawal of Osprey players from Neath.
(iv) The trademark proceedings.
(v) The Stadco variation.
(vi) Unlawful participation in the affairs of Neath.
(vii) Discussions with the WRU.
Mr Cuddy's failure to secure that the Ospreys played games at the Gnoll
93. It is plain, in my judgment, that Mr Cuddy believes strongly that the board of a regional club like the Ospreys should not favour one of its feeder clubs over another, even if the favoured club is a shareholder. In his first witness statement he said:
"As a director of the Ospreys I have a duty to carry out my role in the best interests of the Ospreys not the interests of Neath Rugby as if it were the sole shareholder. That is precisely what I have done. Hawkes' real complaint is that I have not preferred the interests of Neath Rugby to those of the Ospreys."
94. As he put it in his oral evidence:
"I am torn between the best interests of Neath and the best interests of the Ospreys. The Ospreys is Neath's biggest asset. If the Ospreys carried on losing the money at the rate they had lost for the two years prior, we would not have had an Ospreys. And it is in my opinion that it is in the best interests of Neath to play the games at the [Liberty] stadium."
95. He subsequently explained:
"There is a number of issues at the time that you could look at. And one of the biggest -- there are two in my mind: one, the finances. Mr Hawkes said categorically, "I am not putting any more money into the Ospreys." That is fine, I had to agree with it. So the main objective for myself is to make sure that the Ospreys becomes a sustainable business, and in the first two years it wasn't; it lost a million and a quarter. And I believe that playing games out of a new stadium, which is totally neutral from the tribalism of St Helens and the Gnoll and the Brewery field, has made a significant difference to the support of it, the way the Ospreys are perceived as the only true region, and the balance sheet. And I think that is in the best interests of Neath, that the Ospreys is healthy on the field and healthy, financially, off it."
258. Clause 8 of the shareholders' agreement committed Neath to using all reasonable endeavours to develop the business of the Ospreys. Both Mr Blyth and Mr Cuddy took the view that the best way of developing the business of the Ospreys was for it to play all its matches at the Liberty Stadium. Even Mr Hawkes saw the commercial merits of their decision. Mr Cuddy did manage to persuade Mr Blyth that the Ospreys should offer to play a regular friendly fixture at the Gnoll but Mr Hawkes turned down the offer. This was a compromise and, in my judgment, represented the best that Mr Cuddy could do. Any harm to Neath would have been mitigated if Mr Hawkes had accepted this compromise.
259. In addition in reaching the decision on the venue for the Ospreys' matches, Mr Cuddy was not conducting the affairs of Neath. He and Mr Blyth were conducting the affairs of the Ospreys as an independent corporation.
260. In my judgment the decision by the Ospreys not to play matches at the Gnoll does not support the claim that the affairs of Neath have been conducted unfairly. No relief on the petition is justified on this ground.
Mr Cuddy's failure to transfer Neath's share in Osprey into the name of Neath
The withdrawal of Osprey players from Neath
265. It was in the interests of the Ospreys to recover the amount that, in good faith, they were claiming from Neath. Swansea had paid for players on the basis that the Ospreys claimed from Neath. There was no discrimination against Neath. It was in Neath's interests to accept liability for the lower amount that Mr Hawkes was willing to concede. There was, therefore, a direct conflict of interest between Neath on the one hand and the Ospreys on the other. Mr Cuddy was convinced that the Ospreys' position was right and that Neath's position was wrong. In preferring the interests of the Ospreys to those of Neath Mr Cuddy was doing his duty as a director of the Ospreys. Claiming the higher amount was also consistent with clause 8 of the shareholders' agreement.
266. In claiming the higher amount, and concurring in the decision to withdraw the players, I do not consider that Mr Cuddy was conducting the affairs of Neath. This was an arms' length bona fide dispute on both sides. Nor do I consider it unfair that he should prefer the interests of the Ospreys to the interests of Neath where, as here, there was a direct conflict between them and where, as here, Mr Cuddy thought that the Ospreys were in the right and Neath was in the wrong. No relief on the petition is justified on this ground.
The trademark proceedings
126. On 29 January 2007 officers from the local authority trading standards department arrived at the club shop in Neath and seized a large number of items of clothing. Mr Cuddy had encouraged the raid. All the seized items bore the Ospreys' logo. None had been supplied by licensed suppliers. Since Mrs Barton had been told nothing about the offered licence or the solicitors' letter, the raid by trading standards was understandably surprising and distressing. Following the raid, Mr Hawkes said that Neath had been trading in Ospreys branded goods "before the trademarks were created". This assertion was plainly wrong, but what Mr Hawkes really meant was that the goods had been ordered before the Ospreys complained of trademark infringement. Mr Cuddy had caused Neath's records to be inspected by Mr Morgan, an accountant, ostensibly to obtain information on behalf of Mrs Cuddy in her capacity as a director of Neath. But he used that information to pass on to the Ospreys the information that the purchase of the goods had not showed up in Neath's sales and purchase ledger.
267. In encouraging the raid by trading standards officers and in concurring in the decision to launch the trademark proceedings Mr Cuddy was not, in my judgment, conducting the affairs of Neath. He was conducting the affairs of the Ospreys, which were in this respect diametrically opposed to those of Neath. On the face of it the Ospreys have a good case against Neath. Mr Hawkes was personally present at the meeting of the Ospreys' board where it was agreed that all merchandise must be approved by the Ospreys. It was Neath who went against that agreement. To the extent that Mr Cuddy preferred the interests of the Ospreys to those of Neath, it was not unfair of him to do so.
268. However, in using Neath's internal confidential information in order to promote the interests of the Ospreys, Mr Cuddy was, in my judgment, conducting the affairs of Neath and was, moreover, doing so unfairly. The information about Neath's finances had been ostensibly obtained in order for Mrs Cuddy to satisfy herself about the state of the finances. Yet Mr Cuddy used it in order to help further the Ospreys' position in a hostile dispute. In my judgment that was unfair. To the extent that it made Neath's defence harder to maintain, it also operated to the prejudice of the members of Neath. In considering the gravity of Mr Cuddy's conduct it is necessary to consider the nature of the information that he used. The question was whether Neath had ordered the infringing goods before the Ospreys had made it clear that its formal licence would be required for the sale of Ospreys branded goods. Mr Cuddy passed on the information that there was no trace of a purchase order in Neath's books. In order for Neath to be able to maintain its defence, it would in due course have been required to make disclosure of its purchase orders for the goods. So it seems probable that the information that Mr Cuddy disclosed to the Ospreys would in due course have been liable to have been disclosed by Neath itself to the Ospreys and to have been available for use by the Ospreys in advancing its case in the litigation. Mr Cuddy's fault was, in effect, the premature disclosure of the information.
269. The other allegation relating to the trademark proceedings was the alleged refusal to allow Neath to instruct solicitors to file a Defence. This allegation is, in my judgment, exaggerated. Mr Cuddy objected to Morgan Cole, who were Mr Hawkes' personal solicitors, from being instructed on Neath's behalf. In circumstances in which relations between Mr Hawkes and Mr Cuddy personally had completely broken down, that was not an unreasonable or unfair stance to take. Mr Cuddy's suggestion that Mr Morris be instructed was rejected by Mr Hawkes. That too was not an unreasonable stance for Mr Hawkes to have taken, given that the proceedings concerned a somewhat specialised field of law. It is, however, right to say that Mr Cuddy should have responded more constructively to the counter-suggestion that Geldards be approached. But in my judgment it goes too far to say that a failure to respond constructively was the unfair conduct of Neath's affairs to the prejudice of its members in circumstances where the proceedings have been stayed pending the outcome of this petition.
270. Although a petition is not established by trivial and technical breaches, I think that the premature use by Mr Cuddy of Neath's confidential information is more than trivial or technical. That was in my judgment the conduct of Neath's affairs to the prejudice of its members. Some relief on the petition is justified on this ground.
The Stadco variation
97. The original agreement for the management of the Liberty Stadium had been a joint venture between Swansea City Council, Swansea City Football Club and the Ospreys. It was managed by a company in which all three were equal shareholders ("StadCo"). At the end of 2005 Swansea City Council wanted to withdraw from the joint venture and the question arose whether Swansea City Football Club and the Ospreys would carry on alone. The draft heads of terms (for the Council's withdrawal) included a provision by which the two clubs agreed to indemnify the StadCo and the City Council directors against all losses. Messrs Harvey, Cuddy and Hawkes met on 19 January to discus the heads of terms. They agreed that Ospreys should proceed with accepting responsibility for the running of the Liberty Stadium and increasing its involvement in StadCo from 33 per cent to 50 per cent. However, there were six points of concern. The agreement to proceed was on the basis that these six points were met. The two important ones were:
(i) Liability for losses should be capped at 50 per cent even if Swansea City Football Club were to become insolvent and
(ii) The position in respect of maintaining the option of playing matches at the Gnoll was to remain unaffected by the new arrangements.
98. Mr Harvey relayed these points to Mr Atherton on 16 February. A few days later Mr Atherton sent round revised heads of terms. He commented that these were the best deal likely to be achieved; and he pointed out that the City Council would take responsibility for a loan to StadCo of £2.3 million, which was, in effect, being written off. Mr Harvey reviewed the revised heads of terms. He commented in an e-mail to Mr Cuddy that he could not see how the cap had been addressed in the new agreement and that that was "a big issue". The point about the option to play fixtures at the Gnoll had not been explicitly addressed; but Mr Harvey commented that it was not a big issue provided that everyone knew that that was the case.
99. On 22 May 2006 Mr Hawkes e-mailed Mr Atherton. He said that as a shareholder in Ospreys and a director and shareholder in Neath and in accordance with the shareholder agreements of both companies, he was "completely opposed to Ospreys taking over the day to day running of the Liberty Stadium." He said that since decisions of that importance could not be made unless all shareholders both within Ospreys and Neath were in agreement, the restructuring could not proceed. Mr Hawkes' explanation in evidence for his uncompromising stance was that by this time in May 2006 "relationships had broken down". At the time, however, it seems that the ostensible trigger for Mr Hawkes' position was that he had seen an accountants' report projecting losses for StadCo. On the following day Mr Hawkes e-mailed Mr Cuddy. He said that as far as he could see none of the six points of concern had been addressed. On the same day he made the same point to Mr Atherton. Mr Atherton replied by e-mail on the same day. On the two principal points he said:
"liability for future losses is capped at 50% for the Ospreys even if the Swans become insolvent. The issue of fixtures at the Gnoll is already covered in enduring agreements and is therefore not addressed further."
100. Mr Cuddy replied a couple of days later that all matters had been discussed at their meeting of 19 January and that as far as he was concerned he had acted in accordance with that agreement and the Ospreys shareholders' agreement. It is now accepted that Mr Atherton was quite wrong about the existence of a cap on the liability of the Ospreys. No such cap in fact existed. The heads of terms provided explicitly that the two clubs were to be "jointly and severally" liable for losses. Mr Atherton had seen an earlier draft in which the two clubs were to be "jointly and equally" liable for losses; and he had assumed that that was adequate as a cap. He had not noticed the change in wording; and anyway he did not understand the meaning of joint and several liability. On Mr Hawkes' side, it is accepted that Mr Atherton's mistake was a genuine one; and that the answer he gave in his e-mail of 22 May was given in good faith. In an internal e-mail of the following day Mr Atherton repeated that the six points of concern had been addressed. This internal e-mail shows that his mistake was a genuine one.
101. The heads of terms had been signed off in April 2006. They were agreed, but not legally binding. In June or July at a meeting with Swansea City Council Mr Atherton was disabused of his mistake about the cap. He tried to renegotiate the terms so as to introduce (or re-introduce) the cap. But the Council would not agree. Nor would Swansea City FC, because although the change would have been for their benefit, they were keen to conclude the deal which would result in their receiving a lump sum of cash that was urgently needed. Mr Atherton reported back to Mr Blyth and Mr Cuddy, whom he probably saw separately, and convinced them that the deal was still an attractive one. Both Mr Blyth and Mr Cuddy were convinced and agreed to go ahead; and the StadCo variation agreement was signed. No one went back to Mr Hawkes to tell him that the first of the six concerns had not been met. He did not find out about the terms of the agreement until much later.
102. Since Mr Hawkes was under the impression that the six points of concern had been addressed, the failure to address them cannot have been his reason for opposing the StadCo variation. He accepted as much in evidence. His contemporaneous e-mail said that his opposition was based on a pessimistic financial forecast and he expanded on this in the course of his oral evidence. His principal concern was that the Swansea City Council were dropping out of the picture, leaving the two clubs with the financial responsibility. He was also concerned about the sustainability of the stadium. Even on the basis that the liabilities had been capped, he would still have opposed the variation. This, in my judgment, represents a change of position on Mr Hawkes' part which had nothing to do with the detailed provisions of the heads of terms.
271. Neath was not a party to the StadCo agreement or its subsequent variation. In concurring in the decision to enter into the StadCo variation Mr Cuddy acted in what he believed to be the best interests of the Ospreys. He also acted in conformity with clause 8 of the shareholders' agreement which committed both shareholders to using all reasonable endeavours to develop the business of the Ospreys to best advantage. In my judgment in so doing, he was not conducting the affairs of Neath.
272. Although Mr Chivers flirted with the idea that entry into the StadCo variation might have required Neath's consent under the terms of clause 4 of the shareholders' agreement, in the end he did not press that submission.
273. Mr Chivers did, however, say that even though the consent of Neath might not have been formally required, in practice the board of Ospreys regarded Neath's consent as having been given through Mr Cuddy, just as Swansea's consent had been given through Mr Blyth. In a very loose sense he is right. But in my judgment this perception arose simply because Mr Blyth was assumed to be Swansea's representative on the board just as Mr Cuddy was assumed to be Neath's. How each of the directors communicated with his constituency was a matter for him. So far as the Ospreys were concerned the decision whether or not to enter into the StadCo variation was a matter for its board; and the board decided to go ahead. I do not therefore accept the submission that Neath gave only a conditional consent to the entry into the StadCo variation and that once it was appreciated that the conditions had not been fulfilled its consent lapsed, with the result that Mr Cuddy had no authority to concur in the decision to enter into the StadCo variation. Neath's consent was not necessary, and Mr Cuddy's authority derived from his position as a director of the Ospreys. He was not simply an agent of Neath.
274. However, in failing to tell Mr Hawkes that the assumption that the six points of concern had been addressed had been falsified, Mr Cuddy was in breach of his obligation to consult. But Mr Hawkes had made his position very clear: he was opposed to the StadCo variation in principle on financial grounds, even on the assumption that the six points of concern had been addressed. I do not consider that consultation would have made any difference to Mr Hawkes' personal position. Mr Chivers said that if the fact that the points of concern had not been addressed had been made known to Mr Hawkes, he might have been able to re-open the question with the other joint venturers. While that is, of course, a possibility, I do not consider that it is a strong one.
275. The breach of the obligation to consult was a breach of the Hawkes/Cuddy agreement. The failure was exacerbated by the failure by Mr Cuddy (contrary to the shareholders' agreement) to ensure that board meetings were both held and recorded and that agendas for board meetings were circulated in advance. The fact that Mr Hawkes was not consulted was, in my judgment, prejudicial to him, even though consultation would have been unlikely to have affected the outcome. Some relief on the petition is justified on this ground, .
Unlawful participation in the affairs of Neath
35. Gowerpark went into liquidation on 16 October 2003. That gave Mr Cuddy a seven day window in which to apply to the court [under section 216(3)] for retrospective leave to be concerned in the management of a company with a prohibited name (Insolvency Rules 1986 r. 4.229). He did not make an application. Although he did make an application much later on, the court has no power to grant retrospective leave.
36. Mr Williams and Mr Newman met Messrs Hawkes and Cuddy on 2 December 2003. Mr Newman made it clear that:
"Simone Cuddy was a Director of the Company and due to the proceedings with Gowerpark Mike Cuddy should ensure that his involvement with Neath Rugby Limited was kept to a minimum."
37. Mr Newman's advice was that if there was any risk that Mr Cuddy would become involved, directly or indirectly, in the management of Neath, then he ought to seek the leave of the court. Messrs Hawkes and Cuddy were keen to do the deal, and went ahead with the proposal that Mrs Cuddy should be appointed as a director of Neath. Mr Cuddy did not make any application to the court.
38. Mrs Cuddy and Mr Hawkes were the formally appointed directors of Neath. However, Mrs Cuddy took no part in its governance. Both Mr Hawkes and Mr Cuddy knew from the outset that Mrs Cuddy was to be no more than a front for Mr Cuddy. Although "board meetings" of Neath were held, they were attended by Mr Hawkes, Mr Cuddy and, usually, Mr Harvey. Both Mr Hawkes and Mr Cuddy completely ignored Mr Newman's advice that Mr Cuddy should keep his involvement in Neath to a minimum. Mr Hawkes had no knowledge about being involved in a rugby club; and so to start with he relied heavily on Mr Cuddy. The petition complains repeatedly that the appointment of Mrs Cuddy as a director was a sham. So it was; but it was a sham in which both Mr Cuddy and Mr Hawkes were equally complicit. There was no sense in which Mr Hawkes was deceived by the so-called sham. As he accepted in evidence, he knew from the outset that Mrs Cuddy was a front for her husband. However, although both Mr Hawkes and Mr Cuddy ignored Mr Newman's advice that Mr Cuddy's involvement in Neath should be kept to a minimum, neither of them realised at the time that the extent to which Mr Cuddy participated in the management of Neath was actually illegal. They both thought that the appointment of Mrs Cuddy as a director had solved the problem. It was not until April 2007 that Mr Hawkes was advised that the manner in which Mr Cuddy participated in the management of Neath was in fact in contravention of section 216.
39. The Hawkes/Cuddy agreement required any payments made by Neath to be approved by both Mr Hawkes and Mr Cuddy. Although Mrs Cuddy was named as a signatory on Neath's bank account, cheques were in fact signed by Mr Cuddy using his wife's name. This, too, was well-known to Mr Hawkes from the outset. On occasions he would give Mr Cuddy a chequebook for him to sign in blank; and there are frequent examples in the case papers of requests by Mr Hawkes to Mr Cuddy asking him to sign cheques that were urgently needed. There is no example of a request made by Mr Hawkes to Mrs Cuddy asking her to sign any cheque. Mr Hawkes' practice of giving Mr Cuddy a book of blank cheques to sign was witnessed by both Mr Harvey and Mr Morris, the solicitor acting for the WRU in the negotiation of the sale of the assets of Neath. When, eventually, Mr Cuddy refused to sign any more cheques Mr Hawkes still had 30 blank cheques signed by Mr Cuddy that he had not used. Mr Hawkes also knew from the outset that Mr Cuddy signed other documents in his wife's name. Mr Hawkes' allegations of forgery against Mr Cuddy were hypocritical, in that to the extent that Mr Cuddy was guilty of forging his wife's signature on cheques, Mr Hawkes was equally guilty of inciting him to do so.
40. The case papers contain a letter in the following terms:
I appreciate that I have today become the owner of 50% of the shares in Neath and agreed to become a Director of the Company. However, my involvement will be via Michael at all times.
I am notifying you that I have authorised Michael to sign cheques in my name and the signature on the cheques will be as follows:-
S F Cuddy [the signature is in manuscript]
My understanding is that you will have the day to day running of the Company, and I will simply be required to sign off the company accounts and attend the occasional Board Meeting if appropriate.
Please notify Michael of anything you wish me to consider that affects the Company, and I will communicate back with you again via Michael.
If you wish to notify the Bank, then please do so.
I hope we have a long and successful relationship.
Simone F. Cuddy"
41. Although the letter is undated, from its terms the letter purports to have been written on the day that Mrs Cuddy became the registered owner of one of the two shares in Neath. Mr Hawkes said that he did not see that letter at the time. His evidence is directly contradicted by Mr Morris. Mr Morris says that he drafted the letter at Mr Hawkes' explicit request; that he read a draft of the letter to him over the telephone and that he went through the terms of the letter with Mr Hawkes on 30 January 2004. Mr Morris says that he envisaged that Mr Cuddy would sign cheques with his wife's authority, but in his own name. He said that he did not envisage that Mr Cuddy would sign cheques in his wife's name. This latter piece of evidence cannot be true because the text of the letter explicitly refers to Mr Cuddy signing cheques in his wife's name. Mr Hollington said that there was no possibility of resolving the conflict of evidence between Mr Hawkes and Mr Morris except by concluding that one or other of them was deliberately lying. He said that Mr Hawkes was lying; and that the effect of the lie was to hole Mr Hawkes' credibility below the waterline. Mr Chivers on the other hand said that Mr Morris was lying. Mr Morris is a practising solicitor and is not (at least ostensibly) personally involved in the dispute and (at least ostensibly) has no axe to grind. It is difficult to conceive of any motive for his having come to court to tell deliberate lies. He gave his evidence in a convincing manner, apart from his attempt to distance himself from the statement in the letter that Mr Cuddy was to sign cheques in his wife's name. It is also the case that his evidence that he drafted the letter at Mr Hawkes' request did not sit well with his professional duties to his client at the time, the WRU, which was on the opposite side of the transaction from Messrs Cuddy and Hawkes. He himself acknowledged this. He is therefore in the position of having admitted conduct which does him no credit. If he were prepared to tell deliberate lies, it would have suited his personal position to have denied all knowledge of the letter, but he did not. I bear in mind also that Mr Morris has acted in the past for both Mr Hawkes and Mr Cuddy, and does not appear to have any animosity towards Mr Hawkes. I accept Mr Morris' evidence in preference to Mr Hawkes'. That said whether or not the letter was written on the date that it purports to bear is not a critical issue in the case. Although I have preferred Mr Morris' evidence to that of Mr Hawkes it does not of itself demonstrate that Mr Hawkes' evidence is untrustworthy on everything. It is not, for example, suggested that the signed letter was ever given to Mr Hawkes: merely that he was shown the draft without the completed signatures. He may genuinely have forgotten having seen the draft and in the light of the increasingly bitter feud between himself and Mr Cuddy have convinced himself that he had never seen it.
Discussions with the WRU to change the Regional Operating Agreement ("ROA")
154. On 2 September 2007 Wales on Sunday ran a story about a dispute between the regional clubs and the WRU relating to compensation to be paid by the WRU to the clubs for players participating in the World Cup as part of the national side. In the course of the story reference was made to a new "rugby charter". This was the first that Mr Hawkes had heard about a new rugby charter.
155. It subsequently transpired that since at least February 2007 the Professional Rugby Board (which included representatives of the WRU and the four regional clubs) had been discussing the possibility of amending or replacing the Regional Operating Agreement for each of the regional sides. Meetings appear to have taken place at approximately monthly intervals. The Ospreys' representative at the meetings was usually Mr Thorburn, although Mr Hopkins attended at least one meeting. The discussions do not appear to have got very far. Mr Hawkes' position is that the discussions touch on the funding of the regional sides by the WRU and that, by reason of Neath's financial interest in the Ospreys, Neath has a keen interest in those discussions.
156. Although Mr Cuddy made the faint suggestion that he might have told Mr Eric Evans about these discussions, I find that he did not. Mr Hawkes complains that in failing to inform him about these discussions or consult him over them, Mr Cuddy is in breach of the Hawkes/Cuddy agreement.
281. I do not think that the Ospreys' participation (together with the three other regional sides) in discussions with the WRU can plausibly be described as conduct of the affairs of Neath. Moreover, Mr Cuddy himself does not appear to have played any active role in those discussions. However, he was aware of them, and did not inform Mr Hawkes. It is true that by early 2007 relations between him and Mr Hawkes had broken down, but the failure to inform Mr Hawkes was, nevertheless, a breach of the Hawks/Cuddy agreement. Even so, the discussions have not progressed far, and I cannot see that any actual prejudice has been caused by that breach, other than the breach of the obligation to consult itself. As in the case of the failure to consult over the StadCo variation some relief on the petition is justified on this ground, but I think that the main concern must be to ensure, so far as practicable, either that consultation takes place in the future or is made unnecessary.
What if Mr Cuddy was under a greater duty?
The order made by the judge
290. I have found that to a limited extent the cross-petition is well founded. I have also found that some of the allegations in the petition are well founded. But although I have found that some of the allegations of unfair prejudice alleged in the petition have been established, they are the less serious ones. Those which pertain to the internal affairs of the Ospreys are not conduct of the affairs of Neath. It would be disproportionate to require Mr Cuddy to sell the Cuddy share to Mr Hawkes on the grounds that I have found established, if a less drastic remedy can be devised. In conducting himself as a director of the Ospreys Mr Cuddy has acted in what he considered to be the best interests of the Ospreys; and in accordance with clause 8 of the shareholders' agreement. In so doing he was not in breach of any duty owed either to Neath or to Mr Hawkes. There is no justification for terminating or imperilling his position on the board of the Ospreys as a Neath representative, which was one of the fundamental terms of the Hawkes/Cuddy agreement. On the other hand, he failed to consult Mr Hawkes on the StadCo variation once he learned that there was no cap on liability, and has failed to keep him informed about the negotiations with the WRU. That can be cured for the future by giving Mr Hawkes a voice (and eyes and ears) in the Ospreys boardroom. The spirit of the Hawkes/Cuddy agreement can be preserved by giving Mr Hawkes the ability to enlarge the board of Neath thus giving him effective control of it. This solution means that any demerger can be avoided, as can any winding up.
291. I do not therefore consider that the appropriate solution lies in either of Mr Hawkes' offers to buy the Cuddy share (Mr Hawkes' offers of 11 April and 4 October 2007). Nor do I consider that it is an appropriate solution to restructure the Ospreys so as to give a decisive shareholding to the WRU (Mr Hawkes' offer of 4 October 2007). For one thing it would require the consent of a majority of the Welsh rugby clubs. For another, it is likely to create a potential conflict of interest, given that negotiations with the WRU are in progress for a new rugby charter. Nor do I consider that the introduction of a third club (Bridgend) into the shareholders of the Ospreys is appropriate (Mr Cuddy's offer of 16 October 2007), since both Swansea and Neath went into the venture on a 50:50 basis. Since I consider that Mr Cuddy has acted properly in his capacity as a director of the Ospreys, I do not consider that it would be right to adopt a solution that means that his vote does not count if he exercises it in a manner that, in effect, does not meet with Mr Hawkes' approval (Mr Hawkes' offer of 2 November 2007). However, I consider that the joint offer made by Mr Cuddy and Swansea on 5 November 2007 is the appropriate solution to the problems that have arisen. That solution, as I see it:
(i) gives Mr Hawkes eyes, ears and a voice on the board of the Ospreys;
(ii) cures for the future the lack of consultation that I have found to have been established;
(iii) preserves the 50:50 relationship between Neath and Swansea as members of the Ospreys;
(iv) preserves the good working relationship between Mr Blyth and Mr Cuddy;
(v) pays attention to the expressed position of Swansea;
(vi) gives Mr Hawkes effective control of Neath while not imperilling Mr Cuddy's position on the board of the Ospreys, thus preventing any future deadlock in the affairs of Neath;
(vii) retains for Neath the benefit of its most valuable asset, and
(viii) does not endanger the Regional Operating Agreement by triggering a potential forfeiture.
In consequence of this conclusion, the judge made the order set out in the schedule to his order, as annexed to this judgment.
"The court will not award relief which [the petitioner] shareholders do not seek and do not agree to."
"The shareholder must specify the relief he seeks."
"10.2 It is also important to note that the court has a discretion as to what type of relief should be granted, and even as to whether relief should be granted at all. Accordingly, a court may refuse relief where, on the facts, it considers that the relief sought would not constitute an appropriate remedy or where some other course of action is preferable, even where it has held that the petition is well founded."
Footnote 7 is as follows:
"Re Antigen Laboratories Ltd  1 All ER 110, cited with approval by Warner J in Re JE Cade & Son Ltd  BCLC 213, 223. The court will not, therefore, award relief which the petitioner does not seek. The court may make an order which is not in the terms originally sought by the petitioner, provided that any variation is accepted by the petitioner, as in Re HR Harmer Ltd  1 WLR 62, 68."
"(i) that an order might be made for regulating the conduct of the company's affairs in future; (ii) or that such other order, whether directing investigation into the company's affairs or otherwise, might be made as in the premises should be just."
Roxburgh J said:
"From the prayer of the petition as presented, it is impossible to know what the petitioner wants. A petitioner seeking relief under s 210 ought to state in the prayer of the petition in clear terms the general nature of the relief sought, whether it be by the appointment of a director or of some other kind. The prayer need not contain as much detail as the court would require on the drawing up of the order, or as much as is requisite in a draft minute. It must, however, contain enough to leave no doubt what the petitioner desires the court to do. The petitioner must take the responsibility of stating specifically what he wants. "
"I turn to the prayer for relief in the petition. There can be no doubt, and indeed it was common ground between counsel, that the relief prayed for in a petition under ss 459 and 461 must be appropriate to the unfairly prejudicial conduct of which the petitioner complains. Nor can there be any doubt that the petitioner must specify the relief that he seeks (consider for instance Re Antigen Laboratories Ltd  1 All ER 110) though it is of course proper for the petitioner to add, as indeed the form set out in the schedule to the Companies (Unfair Prejudice Applications) Proceedings Rules 1986, SI 1986/2000 envisages, a prayer 'that such other order may be made as the court thinks fit'."
The judge's order
(i) The Cuddys were to pay to Mr Hawkes 50 per cent of his costs of the petition up to and including 23 July 2007.
(ii) Mr Hawkes was to pay to the Cuddys 90 per cent of their costs of the petition after 23 July 2007.
(iii) There would be no order as to the costs of the appeal to the Court of Appeal.
(iv) The Cuddys were to pay Mr Hawkes' costs of the cross-petition until 23 October 2007 and he was to pay their costs of the cross-petition thereafter.
23 July 2007 was the date of HH Judge Havelock-Allan QC's judgment. 23 October 2007 was the date when the cross-petition was amended.
"14. Those parts of the petition that resulted in Mr Hawkes obtaining the outcome that he asked for had that result before trial. So far as the resignation of Mrs Cuddy was concerned, that also happened without the need for the intervention by the court. Likewise, in relation to the share certificate of the share in the Ospreys and John Collins and Partners LLP ceasing to act.
15. The issues relating to section 216 of the Insolvency Act were finally determined by Judge Havelock-Allan. The remaining issues went to trial.
17. In opening the case at the trial Mr Chivers said:
"The root cause of the problem behind this petition are the differences between Mr Hawkes and Mr Cuddy as to the relationship between Neath and the Ospreys. Mr Hawkes considers that the Neath representative on the board of the Ospreys should be looking after the interests of Neath as a 50 per cent joint venturer in the Ospreys. Mr Cuddy takes the view that Neath was simply a vehicle to acquire a 50 per cent share in the Ospreys. Neath had no special relationship with Ospreys which should be run regardless of the interest of Neath and, if he thinks fit, contrary to the interests of Neath".
That encapsulates the dispute between the parties insofar as that dispute remained live at trial.
18. It is thus true that most of the time taken up at trial was taken up with the manner in which Mr Cuddy conducted himself as a director of the Ospreys. I found that those complaints were not established. I did, however, find that in two respects Mr Cuddy did not consult Mr Hawkes over the affairs of the Ospreys and that in one respect Mr Cuddy unfairly used information that he had acquired from Neath in connection with the Ospreys' claim for trademark infringement. But it is right to point out that, despite the length of the petition, this last complaint was not in fact a pleaded complaint.
19. Although these complaints justified the grant of some relief on the petition, the essential thrust of Mr Hawkes' case failed. The solution proposed by Mr Cuddy, and which I adopted, was one that Mr Hawkes opposed and said was of no use to him. It was not advanced by Mr Hawkes even as an alternative or fall-back case to his primary contention that nothing short of a share purchase order would do. There were, it is true to say, other offers made by Mr Hawkes during the course of the proceedings, but they were not acceptable because they removed Mr Cuddy's voting power from the Ospreys. As Mr Chivers' opening made very clear, control of the Ospreys was what was really in issue.
20. Whether the order which I made is to be considered as having been made on the petition or the cross-petition is in my judgment a matter of form rather than one of substance. I must look at the realities of the case. The trial was about the control of the Ospreys. Mr Hawkes had in fact been offered a seat on the board before trial, which he turned down. Looked at realistically and in the round, I consider that Mr Cuddy was the overall winner of the trial.
21. That does not mean that Mr Hawkes failed to derive benefit from the litigation. The tangible benefits were all gained before the trial began. I would regard Mr Hawkes as the successful party to and including 23 July 2007 when Judge Havelock-Allan gave his judgment. Leaving aside for the moment what happened in the Court of Appeal, I regard Mr Cuddy as having been the successful party thereafter. In my judgment, therefore, I should deal with the costs up to and including 23 July 2007 separately from the costs incurred thereafter. My starting point is that Mr Hawkes should recover his costs up to and including 23 July 2007.
22. Should I make any deduction form those costs in order to reflect the subsequent progress of the case? The costs incurred up to and including 23 July 2007 will have included the drafting of the petition containing many allegations which ultimately failed or were abandoned or were irrelevant, and the making of disclosure and the filing of voluminous evidence relating to those issues.
23. Mr Chivers argued that Mr Hawkes was the overall winner in the litigation, including the trial. I have rejected that argument. Mr Chivers accepted that, even if he was right, a deduction should be made for Mr Hawkes' costs to reflect the issues on which he failed. Mr Chivers suggested a deduction of 25%. But most of the petition and the bulk of the evidence filed before 23 July 2007 went to the issues on which Mr Hawkes ultimately failed. In my judgment, 25% is too low a deduction. I consider that 50% is appropriate. I will adopt that percentage in relation to Mr Hawkes' costs up to and including 23 July 2007. Mr Cuddy will therefore pay 50% of Mr Hawkes costs up to and including 23 July 2007.
28. One effect of the Court of Appeal's decision was that the cross-petition was unsustainable in the form in which it then stood. In my judgment the consequence should be that Judge Havelock-Allan's order about the costs of the cross-petition should be changed so that Mr Hawkes' costs incurred up to and including the date of that order are his costs in any event.
29. I now deal with the trial costs, that is to say the costs incurred after 23 July 2007. In principle I regard Mr Cuddy as the successful party, but he lost on one discrete issue, namely abuse of process. Mr Hollington QC says that was a legal argument only. Mr Chivers, on the other hand, says that it was a legal issue accompanied by factual baggage. Mr Chivers made it clear that Mr Hawkes did not rely on allegations relating to the so-called sham, or on allegations that Mr Cuddy had been guilty of forging documents. But although Mr Chivers said that he did not rely on those allegations, the allegations themselves were not withdrawn. Moreover, those allegations had been publicised widely in the press. In my judgment it was not unreasonable for Mr Cuddy to defend himself against those serious allegations. I do not accept that they went only to the question of the abuse of process.
30. In principle I consider that Mr Hawkes should have his costs of the abuse of process issue. The way to do that is by making a deduction from Mr Cuddy's costs sufficient to reflect both that part of his own costs, which are not recoverable, and also to allow for a credit on favour of Mr Hawkes representing his costs of that issue. The argument about abuse of process took little more than half a day. There will, of course, have been research and preparation involved. In my judgment a deduction from Mr Cuddy's costs of 10% will fairly reflect his lack of success on that issue. My provisional view, therefore, is that Mr Hawkes will pay 90% of Mr Cuddy's costs incurred after 23 July 2007."
The parties' submissions
(i) finding that Mr Hawkes had been the successful party until 23 July 2007;
(ii) ordering them to pay 50 per cent of Mr Hawkes' costs of the petition to 23 July 2007;
(iii) ordering that the costs order made by HH Judge Havelock-Allan should stand, and that there should be no order as to the costs of the appeal from his order to the Court of Appeal.
"Before the court can interfere (with the judge's exercise of discretion) it must be shown that the judge has either erred in principle in his approach or has left out of account or has taken into account some feature that he should, or should not, have considered, or that his decision was wholly wrong because the court is forced to the conclusion that he has not balanced the various factors fairly in the scale."
The caution to be exercised on appeal is that much the greater when the protracted proceedings have resulted in a judgment as detailed and convincing as that in the present case.
In the case of s 459, the background has the following two features. First, a company is an association of persons for an economic purpose, usually entered into with legal advice and some degree of formality. The terms of the association are contained in the articles of association and sometimes in collateral agreements between the shareholders. Thus the manner in which the affairs of the company may be conducted is closely regulated by rules to which the shareholders have agreed. Secondly, company law has developed seamlessly from the law of partnership, which was treated by equity, like the Roman societas, as a contract of good faith. One of the traditional roles of equity, as a separate jurisdiction, was to restrain the exercise of strict legal rights in certain relationships in which it considered that this would be contrary to good faith. These principles have, with appropriate modification, been carried over into company law.
The first of these two features leads to the conclusion that a member of a company will not ordinarily be entitled to complain of unfairness unless there has been some breach of the terms on which he agreed that the affairs of the company should be conducted. But the second leads to the conclusion that there will be cases in which equitable considerations make it unfair for those conducting the affairs of the company to rely upon their strict legal powers. Thus unfairness may consist in a breach of the rules or in using the rules in a manner which equity would regard as contrary to good faith.
This approach to the concept of unfairness in s 459 runs parallel to that which your Lordships' House, in Ebrahimi v Westbourne Galleries Ltd  AC 360, adopted in giving content to the concept of "just and equitable" as a ground for winding up.
I should make it clear that the parallel I have drawn between the notion of "just and equitable" as explained by Lord Wilberforce in Ebrahimi v Westbourne Galleries Ltd and the notion of fairness in s 459 does not mean that conduct will not be unfair unless it would have justified an order to wind up the company. There was such a requirement in s 210 of the Companies Act 1948 but it was not repeated in s 459. As Mummery J observed in Re a company (No 00314 of 1989), ex p Estate Acquisition and Development Ltd  BCLC 154 at 161, the grant of one remedy will not necessarily require proof of conduct which would have justified a different remedy:
"Under ss 459 to 461 the court is not ... faced with a death sentence decision dependent on establishing just and equitable grounds for such a decision. The court is more in the position of a medical practitioner presented with a patient who is alleged to be suffering from one or more ailments which can be treated by an appropriate remedy applied during the course of the continuing life of the company."
The parallel is not in the conduct which the court will treat as justifying a particular remedy but in the principles upon which it decides that the conduct is unjust, inequitable or unfair.
177. I turn next to the relationship between the jurisdiction under s 459 and the jurisdiction to order a winding up on the 'just and equitable' ground under s 122(1)(g). Mr Acton submits that once it is established (applying Ebrahimi v Westbourne Galleries Ltd  2 All ER 492,  AC 360) that the company in question is a quasi-partnership, then the court will make a winding-up order if the circumstances are such that, had the company been a partnership, the court would have made a dissolution order. He submits (echoing in this respect the submission made by counsel for Mr O'Neill in O'Neill v Phillips  2 BCLC 1,  1 WLR 1092 in the context of s 459, referred to earlier), that it is not necessary to establish unfairness for the court to make a winding-up order on the 'just and equitable' ground: in other words (as he submits) the jurisdiction to make a winding-up order under s 122(1)(g) is wider than the jurisdiction to grant relief under s 459.
178. In support of that submission he relies on Re R A Noble & Sons (Clothing) Ltd  BCLC 273. In that case Nourse J held that although the petitioner had not established that its interest had been unfairly prejudiced for the purposes of s 75 of the Companies Act 1980 (the statutory predecessor of s 459), nevertheless it was just and equitable that the company be wound up. In the course of his judgment in Re R A Noble & Sons (Clothing) Ltd  BCLC 273 Nourse J said (at 291):
'I have no doubt that sooner or later a case will emerge in which the particular facts will make it necessary for the court to make a closer examination of the relationship between s 222(f) and s 75 than I feel is necessary in the present case. In this case I have come to a clear view that it has not been established that the affairs of the company are being or have been conducted in a manner which is unfairly prejudicial to the interests of [the petitioner], but that it has been established that it is just and equitable that the company should be wound up.'
179. In my judgment, Mr Acton's submission is based on a misreading of both Ebrahimi v Westbourne Galleries Ltd  AC 360 and O'Neill v Phillips  2 BCLC 1,  1 WLR 1092. In the first place, in Ebrahimi v Westbourne Galleries Ltd Lord Wilberforce expressly warned against simply treating a company (even a 'quasi-partnership' company) as if it were a partnership; a warning which Lord Hoffmann quoted in O'Neill v Phillips. Secondly, in drawing a parallel in O'Neill v Phillips between the jurisdiction to order a winding up on the just and equitable ground and the jurisdiction under s 459, Lord Hoffmann applied the reasoning of Lord Wilberforce in Ebrahimi v Westbourne Galleries Ltd. Thirdly, I accept Mr Mabb's submission that it is difficult to believe that Lord Hoffmann would have placed the limits on the s 459 jurisdiction which he did, had he thought that by so doing he was in effect transferring business from the s 459 jurisdiction to the winding-up jurisdiction. On the contrary, it is plainly implicit in Lord Hoffmann's reasoning, as I read his speech, that the winding-up jurisdiction is, at the very least, no wider than the s 459 jurisdiction: a proposition which is consistent with a winding-up order being, as it were, the death sentence on a company (an analogy drawn by Mummery J in Re a company (No 00314 of 1989), ex p Estate Acquisition and Development Ltd  BCLC 154 at 161), and with the statutory recognition in s 125(2) of the Insolvency Act 1986 (see above) that a winding-up order is an order of last resort. Fourthly, it would in my judgment be extremely unfortunate, and inconsistent with the approach and the reasoning of Lord Hoffmann in O'Neill v Phillips, if, given the two parallel jurisdictions, conduct which is not 'unfair' for the purposes of s 459 should nevertheless be capable of founding a case for a winding-up order on the 'just and equitable' ground. As to Nourse J's decision in Re R A Noble & Sons (Clothing) Ltd  BCLC 273, in so far as that decision is authority for the proposition that conduct which is not unfair for the purposes of s 459 can nevertheless found a case for a winding up on the just and equitable ground it is in my judgment inconsistent with O'Neill v Phillips.
180. I accordingly conclude that if the conduct by the majority relied on by Surendra in the instant case is not unfair for the purposes of s 459, it cannot found a case for a winding-up order on the "just and equitable" ground.
For example, there may be some event which puts an end to the basis upon which the parties entered into association with each other, making it unfair that one shareholder should insist upon the continuance of the association. The analogy of contractual frustration suggests itself. The unfairness may arise not from what the parties have positively agreed but from a majority using its legal powers to maintain the association in circumstances to which the minority can reasonably say it did not agree: non haec in foedera veni. It is well recognised that in such a case there would be power to wind up the company on the just and equitable ground (see Virdi v. Abbey Leisure Ltd.  B.C.L.C. 342) and it seems to me that, in the absence of a winding up, it could equally be said to come within section 459. But this form of unfairness is also based upon established equitable principles and it does not arise in this case.
This is not therefore a case in which deadlock has made it impossible for Neath to carry on its business. But Mr Hawkes has made plain his desire to remove Mr Cuddy as the Neath nominated director on the board of the Ospreys. Thus far his attempts have failed, not least because Mr Eric Evans does not support them. To that extent there is deadlock; and to the extent that the appointment of the Neath-nominated director of the Ospreys is the running of Neath's business, it has become impossible to reach agreement for the future running of the business. To this limited extent I find that the cross-petition is well founded.
"Pending receipt of a substantive reply by the deadline referred to above, Mr Hawkes will refrain from disclosing any of the facts and matters in this letter to the Law Society, the police, Neath's auditors and/or the wider constituency of stakeholders in Neath (including the Right Honourable Peter Hain MP)."
This was an attempt to exert illegitimate pressure on the Cuddys. The implied, and in the circumstances unwarranted, threat is obvious. I say unwarranted not least because, as the judge held, Mr Hawkes was well aware of, and had been a party, to the circumvention by Mr Cuddy of the prohibition in section 216 of the 1986 Act of which complaint was made. Mr Hawkes was always at liberty to disclose matters to the police or to the Law Society. What was illegitimate was to use the threat to do so as a form of pressure. This was something to which a solicitor should not be and should not have been a party.
"Our client has made plain all along in these proceedings that he seeks the replacement of Mr Cuddy as Neath's nominee director. We are pleased you have confirmed that you understand that our Petition does not state that Mr Hawkes seeks to replace Mr Cuddy with himself."
Statements to like effect were made on behalf of Mr Hawkes during the trial.
Mr Hawkes' allegations of forgery against Mr Cuddy were hypocritical, in that to the extent that Mr Cuddy was guilty of forging his wife's signature on cheques, Mr Hawkes was equally guilty of inciting him to do so.
Moreover, the success achieved by Mr Hawkes before HH Judge Havelock-Allan QC was ultimately of little moment.
7. In relation to costs that can properly be allocated to issues upon which the party who is successful overall has nevertheless lost, there are two questions: should that party recover his costs of that issue, and should he pay the otherwise unsuccessful party's costs incurred in respect of that issue?
8. The first question, 'should he recover?', is the question which was traditionally answered by the process of certification. The second question, 'and should he pay the other side?', is to be answered, it seems to me, having regard not merely to the reasonableness or lack of it in raising the issue at all, but upon it being established that there was something more than conduct justifying his being deprived of the costs of the issue in all the circumstances. I take the view that, as one moves away from the general rule that the unsuccessful party will be ordered to pay the costs of the successful party, an increasingly strong justification is required.
9. If there is justification for ordering the otherwise successful party to pay the costs of a particular issue to the other, it is often convenient to treat both parties' costs of an issue as being equal and to double the deduction. So, if a party fails to recover costs of an issue amounting to 15% of his total costs, he will be deducted 30% of his costs if the court concludes that he should also pay the costs of that issue to the other. This is a rule of thumb, but is convenient when one comes to working out the resulting order.
Mr Justice Blackburne:
Lord Justice Moore-Bick
Upon the trial of the Petition and the Cross-Petition herein
And this Court having delivered its Judgment herein on 13 December 2007 ("the Judgment")
And upon hearing Counsel for the Petitioner ("Mr. Hawkes"), Counsel for the 1st and 2nd Respondents ("Mr. and Mrs. Cuddy" respectively and "the Cuddys" collectively), Counsel for the 4th Respondent ("Ospreys"), and Counsel for the 3rd Respondent ("Neath")
And upon Swansea RFC Limited ("Swansea") by Counsel for the 4th Respondent instructed for this purpose agreeing to the terms set out in the Schedule hereto
IT IS ORDERED THAT:
(1) The affairs of the 3rd Respondent ("Neath") be conducted in accordance with the terms set out in the Schedule hereto.
(2) That part of Mr. Hawkes' application by notice dated 19 September 2007 which has not yet been disposed of be dismissed.
(3) The Cuddys do pay 50% of Mr. Hawkes' costs of the Petition up to and including 23 July 2007.
(4) Mr. Hawkes do pay 90% of the Cuddys' costs of the Petition after 23 July 2007 (including their costs of Mr Hawkes' application of 19 September 2007).
(5) There be no order as to the costs of the Cuddys' appeal to the Court of Appeal in the Petition.
(6) The Cuddys do pay Mr. Hawkes' costs of the Cuddys' appeal to the Court of Appeal in the Cross-Petition.
(7) The orders as to costs in paragraphs 2 and 4 of the order made in the Petition by HH Judge Havelock-Allan QC on 23 July 2007 do stand, and the order in paragraph 5 thereof be set aside.
(8) There be no order as to the costs as between Neath and the Cuddys of Neath's application by notice dated 19 June 2007 in the Cross-Petition.
(9) The Cuddys do pay Mr. Hawkes' costs of the Cross-Petition until  October 2007 (including the costs of Mr Hawkes' application by notice dated 13 June 2007 in the Cross-Petition).
(10) Mr. Hawkes do pay the Cuddys' costs of the Cross-Petition after  October 2007.
(11) For the avoidance of doubt all orders as to costs as between Mr. Hawkes and the Cuddys be set off against each other.
(12) Mr Hawkes do pay the Ospreys' costs down to and including 5 October 2007, which are limited to and include the following:
(i) Those costs up to 2 August 2007 as identified in paragraphs 7 and 8 of the order dated 2 August 2007 (including the costs of the preparation and service of witness statements);
(ii) Costs of the Ospreys' statement of case;
(iii) The Ospreys costs of the application to remove Mr Cuddy of 19 September and of the PTR on 5 October 2007;
(iv) The Ospreys costs of the disclosure they gave;
(v) The Ospreys costs of the preparation of the evidence that the Ospreys filed [relating to the Ospreys' Issue] from 3 August 2007 down to 5 October 2007;
such costs to go to a detailed assessment if not agreed.
(13) Mr Hawkes do pay to the Ospreys on account of his liability for costs under the previous paragraph a sum of £50,000 by 1 February 2008.
(14) Costs be the subject of detailed assessment if not agreed.
(15) Mr. Hawkes do have permission to appeal on two legal issues, namely: (i) What duties a nominee director of a company owes to (a) the company and (b) his appointor ; and (ii) The extent to which Mr Cuddy's activities in relation to the Ospreys constituted the affairs of Neath for the purposes of section 994 of the Companies Act 2006 (formerly section 459 of the Companies Act 1985). Save as aforesaid Mr. Hawkes' application for permission to appeal (including his application for permission to appeal against the order as to costs made herein) be refused.
(16) The application by the Cuddys for permission to appeal against the order as to costs made herein be refused.
The Ospreys' board
1. There shall be four members of the board of directors of the Ospreys.
2. Swansea shall be entitled to appoint (and to remove any director appointed by it) two directors.
3. Neath shall be entitled to appoint the other two directors, one of whom shall be Mr. Cuddy or any other person appointed by Mrs. Cuddy, and the other shall be a person (other than Mr. Hawkes) appointed by Mr. Hawkes. Mrs. Cuddy and Mr. Hawkes shall have the right to remove any director appointed by her or him respectively.
4. Clauses 1-3 above may be varied by the unanimous agreement in writing of Mr Hawkes, Mrs Cuddy and Swansea.
The Neath board
5. Mrs. Cuddy shall have the right to appoint (and to remove any director appointed by her) one director to the board of directors of Neath (other than herself or Mr. Cuddy).
6. Subject thereto, the directors of Neath shall be appointed by Mr. Hawkes, who shall have the right to remove any director appointed by him. If there are only two directors (one of which is Mrs. Cuddy's nominee) Mr. Hawkes or any director nominated by him shall have a casting vote.
General meeting of Neath
7. The manner in which any vote attached to Neath's share in the 4th Respondent shall be exercised at any general meeting of the 4th Respondent shall be determined by Mr. Hawkes and Mrs. Cuddy in a general meeting of Neath.
8. In the event of any deadlock between Mr. Hawkes and Mrs. Cuddy over any matter arising in any general meeting of Neath (including but not limited to the exercise of any vote attached to Neath's share in the Ospreys), the said disagreement shall be resolved by a person nominated by the President of the Institute of Chartered Accountants of England and Wales who shall act as an expert and not an arbitrator and whose decision shall be final and binding.
9. Clauses 5-8 above may be varied by the unanimous agreement of Mr Hawkes and Mrs Cuddy.
10. In the case of any conflict between the provisions of this Schedule and the contents of the memorandum and articles of association of Neath and the Ospreys respectively or of the Shareholders' Agreement between Neath and Swansea dated 25th April 2005, the provisions of this Schedule shall prevail.
11. The rights granted hereunder (including for the avoidance of doubt those under clauses 4 and 9) shall attach to the shares currently held in Neath and the Ospreys respectively as if the terms hereof were contained in their respective Articles of Association.