England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		30th November 2005

The Deputy Judge :

Introduction

1. These proceedings are brought by petition under Part XVII of the Companies Act 1985 ("CA85") by Mr Albert Allmark ("Mr Allmark"), who seeks relief in respect of alleged unfairly prejudicial conduct of the affairs of the Second Respondent, Distinct Services Limited ("DSL") against it and the First Respondent, Mr Ervel Burnham, the registered holder of a majority (64) of the issued shares in DSL. Mr Allmark is the registered holder of the remaining 36 issued shares.
2. DSL was incorporated by company formation agents on 15^th March 2002 [1/137], and in due course Mr Burnham and Mr Allmark were appointed its directors, and Mr Burnham's partner Cathryn Baldock ("Ms Baldock") was appointed its Secretary [1/151-154]. The company's registered office became Mr Burnham and Ms Baldock's home address in Dibden Purlieu, Southampton.
3. Mr Burnham and Mr Allmark (together "the parties"), who had been friends for many years, decided to go into business together, acquiring and running a newsagents, bookshop and greetings card business in the High Street of Lyndhurst in Hampshire, known as Royals of Lyndhurst ("the business"), through DSL. Mr Allmark moved from London to Lyndhurst, living in the flat above the shop. Sadly, their friendship did not survive undertaking this venture together, and within quite a short time of the commencement of DSL's trading in August 2002, relations between them became strained and Mr Burnham (to put it neutrally) started to refer to the possibility that he might buy out Mr Allmark's interest.
4. Mr Allmark did not want to leave the business, but in late September 2003 reluctantly put steps in hand to that end. The parties' attempt, with some assistance from well-meaning friends, consensually to achieve this foundered, and hence Mr Allmark petitions this Court. Despite Court directed mediation, and then encouragement from me at the outset of the trial, settlement has not proved possible. Particularly given the size of the business and the relatively modest sums at stake, this is regrettable.
5. In consequence, the Court has been faced by the need to maintain some degree of proportionality in respect of the scope and expense of these proceedings. Directions have been given for the instruction of single joint experts in accountancy and surveying/property valuation, and this evidence has been received in writing in circumstances which I will briefly explain in a moment. Equally, as will become clear, it is necessary for me to adopt a fairly robust or even rough and ready approach to (in particular) evidence as to the company's financial position and the value of its shares in order to bring this matter to a conclusion without yet further unwanted and disproportionate expense to the parties.

The witnesses of fact

6. Mr Allmark, for whom the whole experience of going into business with a close friend, and then having it all turn sour in the manner I shall summarise below, has plainly been traumatic and stressful, was nevertheless a generally composed and reasonable witness. I find that he was mistaken in his (honest) recollection in respect of 2 matters of note:

6.1 that Mr Burnham's suggestion of the 64-36 shareholding proportions made in or about March 2003 was merely a 'flippant statement' to which he (Mr Allmark) had not given any indication of assent. I find that Mr Allmark did give some indication of assent (see further at paragraph 136 below); and

6.2 the extent to which the content of Mr Wood's valuation report was discussed when he visited Mr Wood at home in December 2003, dropping in a present. At one point in his oral evidence Mr Allmark asserted that they spent 1½ hours discussing it. Although the total visit may well have been of something like that duration, I find that the subject probably was touched on, but not at any length and certainly not for anything like 90 minutes.

7. Otherwise, I find Mr Allmark's evidence of facts to have been honest and generally reliable. His evidence (in particular in his witness statement) did at times extend to attributing motives to and drawing inferences against Mr Burnham. As to this, whilst I am quite satisfied that the opinions expressed were genuinely held, they must of course be treated with considerable caution.
8. Mr Raye is a 62 year old retired accountant, now active in charitable work. He was a friend of Mr Allmark's father and family between 1967 and 1976, when they lost touch, and resumed that friendship in 2001. Though his underlying loyalties are therefore apparent, and he does not shrink from expressing certain views in his witness statement, I am nevertheless satisfied that he gave his evidence in a balanced and fair manner, and that it should be treated as honest and reliable.
9. Mr Burnham gave his evidence in a measured manner, but with a somewhat condescending air. Like Mr Raye (see witness statement para. 19 at [1/115]) I should immediately add that he was never discourteous or hostile towards the Court. Nevertheless, having heard him in the witness box for some time, I do not find it at all hard to imagine him belittling Mr Allmark in front of their staff. The terms of para. 1.5 of the minute of the directors' meeting held on 26^th September 2003 [1/179] only reinforce that view.
10. I am very sceptical as to his categoric denial of having taken any steps to rekindle negotiations with Abbey National for a loan to assist with purchasing the freehold after Mr Allmark was put on garden leave, given the terms of the letter from Abbey National dated 27^th January 2004 [3/573], and Mr Allmark's telephone conversation with the author on 11^th February 2004 (though see also [3/592]). It seems most improbable that the work being undertaken by Abbey National's solicitors at the time of writing (see second paragraph) can have been in response to a document signed in March 2003, without some much more recent prompting from the prospective borrower, which logically (given who had been in sole charge of the business since 26^th September 2003, some 5 months earlier) can only have been Mr Burnham. However given how the issues in this case ultimately resolve themselves, I do not find it necessary to make any specific finding on this point.
11. He has produced a number of notices purportedly convening directors' or general meetings during 2004 which I am satisfied were not in fact ever sent to Mr Allmark (see paragraph 82 below). To put it at its lowest, the impression given by their production was misleading.
12. He has made points through his solicitors letters which are either patently unsustainable (see e.g. paragraph 76 below), or have not then been acted on by him (see e.g. paragraph 80 below). He has also given at least one explanation of his own conduct which I have felt bound to regard as disingenuous (see paragraph 72 below).
13. Whilst I am quite sure that Mr Burnham is a man with some intelligence and business acumen, who may well make quite a success of DSL once it is his alone, and am satisfied that much of his evidence (e.g. as to the detail of how 'his' accounting systems operated) was accurate, I have to say that I think it right to approach his evidence with some caution on matters of fact which are in dispute.
14. Mr Wood (whose evidence was interposed after Mr Allmark's, by reason of pending medical treatment) is qualified as a chartered accountant, though no longer practising. He gave his evidence in a balanced and fair manner, and I find it to have been honest and reliable.
15. It was perhaps unhelpful that, despite his knowledge as a chartered accountant, the accounts he produced as part of his informal valuation exercise did not include a balance sheet. However he gave a clear explanation for this omission in his evidence – he believed at the time that the trading accounts which he did prepare were adequate for the purpose of producing a valuation.
16. In the context of the business Royal's Greetings established by Mr Burnham, to which I must come, it was noteworthy that Mr Wood thought what he was looking at when the second shop was established (at 63 High Street) was all one business.

The expert evidence

17. The Order of Registrar Baister made on 2^nd December 2004 [1/22-26] provided for a single joint accounting expert to report on a series of issues specified in the Order itself (it therefore does not assist Mr Burnham to attack the form and structure of the questions – written closing argument, page 13). At a time when the parties were both represented by solicitors, they agreed to instruct Mr Michael Mason FCCA of BDO Stoy Hayward to act as such. His resultant report occupies most of the second bundle [2/338-430, appendices 431-505]. Given the size of the business and the sums with which the Court is here concerned, the decision to provide for a single joint expert is entirely understandable.
18. I shall not attempt to set out a comprehensive summary of Mr Mason's conclusions. Suffice it to say that amongst the items comprising his own summary of his findings [2/341] are the following:

There are serious deficiencies in the invoices raised by [DSL] to Royal's Greetings and a lack of evidence that these invoices have been paid;

There is evidence to suggest that Mr Burnham has transferred the card business of [DSL] to his own self-employed business for no consideration to [DSL];

[DSL] has paid certain of Mr Burnham's private expenses without reimbursement;

The accounts of [DSL] for the year ended 31^st March 2004 and the period from 1^st April 2003 (I think a slip for 2004: see [2/357, 401 and 412-416]) to 25^th September 2004 do not show a true and fair view (I interpolate that Mr Raye made similar observations at paras. 27-29 and 48 of his witness statement [1/115-116, 118]);

The accounts of Royal's Greetings for the period ended 25^th September 2004 do not show a true and fair view.

19. Mr Mason's report, dated 27^th June 2005, is workmanlike and where appropriate detailed. It methodically addresses, so far as he finds that the material available to him enables him to do so, the issues defined by the Court's order. He had been provided with materials by both of the parties (as to Mr Burnham see [2/431]), and met with both [2/344]. Mr Allmark was content with the report, and did not require to cross-examine Mr Mason. Mr Burnham was far from content with it, but (he said) restricted in his ability to pay for Mr Mason to do the further work necessary to deal with Mr Burnham's questions for him, occupying 20 sides of A4 plus appendices [1/60-77] and/or to attend to answer questions. Forensically, Mr Burnham was in a difficult position in any event – given the clear view Mr Mason had formed on a range of issues, there must have been some uncertainty in Mr Burnham's mind as to whether the thrust of further evidence from him (for which Mr Burnham would have had to pay his proper fees) was likely to be very different from the thrust of that in his initial report.
20. In any event, I explained to Mr Burnham at the outset of the trial (as remains my view) that if Mr Mason's report as single joint expert stood uncontradicted, and if he was not cross-examined on it, then whilst Mr Burnham was free to try to attack its contents by way of evidence of fact and submission, there was a very limited prospect of it being proper for me to reject Mr Mason's opinion on any matter requiring or informed by accountancy expertise. Mr Burnham reflected on that, but in the end decided not to ask for Mr Mason to attend for cross-examination (and to do the necessary preparation) in any event. Mr Burnham incorporated the various points set out in his questions [1/60-77] into his submissions to me, and I have taken note of them.
21. The same Order of Registrar Baister provided for a Chartered Surveyor acting as a single joint expert to report on the open market value of the lease, the option it contains, and the freehold of DSL's shop premises. The parties through their (then) respective solicitors agreed upon the appointment of Mr Christopher Clark FRICS of Ely Langley Greig to act as such. His report dated 11^th February 2005 [2/506-525] is clearly written, and amplified by a letter answering some questions on it posed on behalf of Mr Allmark [2/528-9]. Subject to the more detailed explanations within the report and letter, he valued the lease at nil, the option at £70,000 and the freehold at £515,000. In the absence of any contrary indication in the Court's order, he reported on the basis of current value.
22. Neither party sought to challenge Mr Clark's valuations, or to cross-examine him.
23. Particular respects in which I have drawn on the contents of these 2 expert reports appear in the remainder of this judgment. However my overall view of both reports is that they are helpful, and that there is nothing about either of them which causes me to feel unable to rely on them. That is not to say, of course, that I must apply figures which appear in them mechanically, or without being careful to identify what the relevant expert is in fact saying about any given figure.

The facts

24. The parties had been friends since their teenage years, i.e. for something of the order of 25 years. In or about 2000 or early 2001 the parties agreed, apparently at Mr Burnham's prompting, that they would seek to go into business together as partners in a newsagency, and at the early stages (prior to the change of plan from freehold to leasehold purchase, mentioned below) their discussions about this venture were on the basis that they would be equal or 50-50 partners (as Mr Raye's evidence confirms). It appears that it was in about May 2001 when Mr Burnham first noticed an advertisement for the business. It comprised a newsagency, with sale of ancillary products including tobacco and a National Lottery outlet, and a book and greeting card shop. It was located at 38 and 40 High Street in the village of Lyndhurst in Hampshire ("38-40 High Street"), and was then run by a Mr and Mrs Bargrove through a private company of their own, Barent Limited (accounts at [2/434-449]). The parties became interested in acquiring the business, and in due course rudimentary business plans were prepared [1/213, 213a].
25. At first this was on the basis of a freehold purchase of 38-40 High Street, with a company (to be incorporated) borrowing most of the money required and the parties securing the same on an equal, joint and several basis. However in due course they decided that, at least initially, a freehold purchase was not realistic, and therefore reformulated their business plan on the basis of taking a lease with an option to purchase the freehold, which the Bargroves, who did not want to lose the parties as purchasers of the business, were willing to grant. Each would contribute to the capital required to acquire the business, in the case of Mr Allmark to the full extent of his ability to do so. Otherwise, the basis of their agreement for this venture into business together did not change. That was that they would both work full time in the business as partners with equal status, receiving the same remuneration (including any 'profit share'), and that Mr Allmark would move to Lyndhurst from the London area (Mr Burnham already lived in Hampshire, and did not have to move) specifically for the purposes of the venture. Once the business was established and profitable, they hoped to use its profits to expand into property development.
26. The parties took some time looking at and working up this proposal, and in the course of doing so took advice from, amongst others, Mr Raye.
27. At some stage in early 2002 it became clear that the venture could proceed, and DSL was either incorporated or acquired 'off the shelf' by Mr Burnham as the vehicle for this. The parties agreed that they would be the 2 directors and shareholders. In May 2002 Mr Burnham and his partner Ms Baldock were appointed director and secretary respectively, and a few weeks later in early July Mr Allmark was appointed a director. Nevertheless, although a limited company was the legal 'vehicle' used, for all practical purposes the parties treated one another as partners in the business (Mr Wood was still describing them as such in December 2003 – see para. 57 below, I am sure reflecting terminology used by the parties' themselves), and the commencement of their business relationship had, as I have indicated, been founded on a long-term personal friendship.
28. The purchase from the Bargroves/their company was completed in early August 2002. Lamport Bassitt acted as solicitors for DSL and the parties. DSL paid £182,932 for the business, apparently apportioned as £85,000 for goodwill, £82,932 for stock, and £15,000 for fixtures and fittings. To what extent the apportionment was strictly realistic, and to what extent the willingness to pay these sums reflected perceived value in the overall deal done, one cannot now say. However, as Mr Mason notes [2/428], on the face of things £85,000 for goodwill appears to have been excessive, insofar as it represented 7 times the profit made in the previous owners' last full financial year (to 30^th April 2002). Mr Wood formed a similar view when he undertook his informal valuation exercise in late 2003 (mentioned below). However the parties expected to be able to increase the turnover and profitability of the business. The cost of acquisition was substantially funded by loans of £182,500 made to DSL by the parties. Mr Allmark raised more or less all the capital he had, which amounted to £65,000, and lent DSL that sum. Mr Burnham lent the balance, £117,500.
29. DSL started trading from 38-40 High Street on 12^th August 2002. The 21 year lease appears formally to have been granted by the Bargroves to DSL 2 days later, with the parties as guarantors ("the lease guarantee") [1/322-337]. Significantly, the lease contained (in clause 15) an option (personal to the leaseholder) to purchase the freehold at a fixed price of £325,000 during the option period of 5 years (i.e. until 14^th August 2007).
30. Mr Allmark, who had raised more or less all the capital he had in order to make the loan of £65,000 to DSL, moved from London to Lyndhurst, taking the flat above the shop as his new place of residence. He remortgaged his flat in South Norwood to raise as much capital as possible, and then rented it out. He was to work full time in the shop from the outset. Thus it is right to observe that his personal commitment to this new business venture was total. The parties agreed that the amount of the interest otherwise payable to him on his directors' loan of £65,000 should be treated as equivalent to the rent otherwise payable for his use of this flat. Neither of them has sought to resile from that agreement, which was expressly continued at the meeting of 26^th September 2003 (minutes at para. 5.4 [1/181]). No written shareholders' agreement, nor director's service agreements/contracts of employment, were ever suggested or signed.
31. Mr Allmark worked long hours, averaging 15 hours a day, and starting by dealing with the arrival of the newspapers at about 5.30am (which it was convenient for him to do, being resident above the shop).
32. Unfortunately, it did not take long for strains to emerge in the relationship between the parties, after they had become (in effect) business partners for the first time. Mr Allmark appears to have taken particular exception to Mr Burnham returning to his former place of employment to complete a notice period of two weeks or so, without prior warning, just when their venture first started trading. This, however, was of no long term significance in its own right. Within quite a short time Mr Allmark had formed the view, with some justification, that Mr Burnham was treating him as an inferior partner or even mere employee in the business, and as lacking intellectual parity with Mr Burnham, and was denigrating and belittling him in the presence of DSL's staff. Mr Burnham for his part appears to have regarded Mr Allmark as insufficiently resilient and unduly vulnerable to stress and periods of depression.
33. Mr Allmark's duties were in the shop, particularly the newsagents part, dealing face to face with customers and staff. Mr Burnham, who had IT experience, worked principally in the office, running the accounting and administration side of the business.
34. Within a short time Mr Burnham first raised with Mr Allmark the possibility of his 'buying out' his old friend and new business partner. It is clear that over the following year or so this prospect was raised by Mr Burnham on a number of further occasions (see glly. minutes of directors' meeting of 26^th September 2003 at para. 2.1 [1/179]). Mr Allmark appears to have seen this as something of a campaign to drive him out, or at least a period of sustained pressure to that end. For his part, Mr Burnham presented it in his oral evidence as a kindly attempt on his part to offer Mr Allmark a route by which he could be relieved of the stress which he was clearly feeling. Having seen and heard Mr Burnham give evidence, I am satisfied that there was a definite element of the former in his repeated raising of this topic.
35. Mr Allmark clearly very much enjoyed living and working in Lyndhurst. At one point in his evidence he spoke with great feeling and obvious sincerity as to this. Nevertheless eventually, after what was plainly a somewhat strained year for both of the 'partners', in September 2003 he reluctantly came to the conclusion that there was nothing for it other than to seek to arrange a consensual exit from the business.
36. Other events had of course occurred along the way. In early 2003 the parties had explored the possibility of raising a loan from the Abbey National sufficient to enable them to exercise the option to purchase the freehold of 38-40 High Street. They obtained in support of their loan application what has become known as the Pinder Report as to the value of the property and business [1/216-243]. Messrs Pinders, whose report was dated 10^th February 2003, assessed the current trading level at £470,000 "net turnover", £137,000 (29.1%) gross profit, and £60,000 (12.8%) net profit (as to which see at [1/232-233]). Their report attributed a market value of £475,000 to the business as a fully operational going concern, including the freehold of 38-40 High Street, reduced to £375,000 if it were assumed that a sale had to be concluded within 6 months and that there were no accounts or records of trade available to prospective purchasers. On a very rough and ready basis, and equating the value of the freehold with the option price, this suggested a value of the business as a going concern of £150,000, reduced to £50,000 on the 2 unfavourable assumptions mentioned above. On the basis of this report, the offer of a loan of £303,000 towards the acquisition of the freehold was received in early April 2003 [4/922-7].
37. In or about March 2003 the parties negotiated overdraft facilities with HSBC Bank Plc ("HSBC"), with whom Mr Allmark had banked for many years. The security for this included both a debenture from DSL and a joint and several personal guarantee from the parties limited to £20,000 ("the HSBC guarantee"). The formalities in respect of concluding the arrangements with HSBC were dealt with over some months thereafter [1/155-159], with the debenture in favour of HSBC not being registered at Companies House until the beginning of July [1/175-177].
38. Mr Burnham said in evidence that it was during the discussions with HSBC that a number of questions about DSL's formal internal arrangements were raised, including as to whether they had 'key man' insurance. As a result of this, the question of the parties' respective shareholdings (which thitherto had not formally been dealt with) arose. On Mr Burnham's evidence it was at this point that he first put it to Mr Allmark that it would be appropriate for their shareholdings to be in the same proportion as the amounts of their respective loans to the company, (and hence not equal or 50-50). Those proportions were, to the nearest whole percentage point, 64% in Mr Burnham's case and 36% in Mr Allmark's case. Mr Burnham says that Mr Allmark agreed to this without demur, and that in due course he therefore completed the company's annual return (dated 16^th May and recorded as filed on 30^th May 2003) accordingly [1/168-174]. Mr Allmark's witness statement (para. 14 [1/81]) appears to acknowledge that this split was put forward in March 2003, though not that it was agreed.
39. Mr Burnham gave very detailed evidence, and cross-examined Mr Allmark at some length, as to the operation of the business' accounting systems. One was DSL's 'Epos' system, which operated through its 3 tills. Another was DSL's 'Quicken' accounting software. Figures from the tills (which were totalled at the end of each day, in the form of a 'Z-read' printout on a till roll) were manually entered into the Quicken system, where they initially appeared (or could be accessed) on a 'day sheet', the figures from which were in due course automatically collected into weekly summary sheets and monthly summary figures. The tills were only capable of recognising (e.g. for stock control and ordering purposes) a proportion of the items sold. During the evidence of each of the parties, Mr Burnham made extensive reference to samples, taken from June 2003, of a Z-read [4/1008], a day sheet [4/1000], and weekly [4/1007] and monthly summary sheets [4/1025-1026], as well as an Epos weekly summary sheet [4/1015-6]. Mr Allmark accepted in cross-examination that so far as he was aware, all income into the business other than lottery commission (paid on takings paid in through a separate, Camelot till), and the notional rent for his occupation of the flat upstairs, was entered through the tills. However Mr Burnham, despite his asserted intellectual superiority to his partner, either did not, or affected not to, understand the limited value of income and expenditure accounts or similar trading records without the other forms of cross-check which appear in or underlie a balance sheet. To take a very simple example, Mr Allmark's (uncontradicted) evidence was that, once money received through the tills was put in the safe, there was then no reconciliation between it and the amounts subsequently banked as part of the ordinary accounting systems.
40. In due course (see paragraph 46 below) the company adopted 31^st March as its first financial year end. Although Mr Burnham has suggested that the directors were initially content to have certified rather than audited accounts prepared as permitted by Sections 249A and 246 CA85, the minutes of the General Meeting held on 26^th September 2003 clearly contemplate DSL's first accounts being audited, and there is nothing whatever to suggest that the parties had discussed this question previously. The first suggestion that DSL's accounts to 31^st March 2003 should not be audited which I find to have been made was Mr Burnham's own suggestion to that effect made when he instructed first Pandey & Co and then Ed Connolly (as to which see below), and one of which Mr Allmark neither knew not approved. Further, no steps to have accounts professionally prepared for that opening period were taken prior to the 26^th September 2003 general meeting.
41. More generally, there had been a distinct absence of meetings, formal or less formal, at which Mr Burnham gave Mr Allmark the opportunity to make meaningful input into the management and decision making for DSL (as was acknowledged at the directors' meeting on 26^th September 2003: see minutes at paras. 1.5 and 1.6 [1/179]).
42. By the summer of 2003 Mr Allmark was taking informal advice as to the position of the business from his friend Mr Raye, and was told that the projected net profit on the first year's trading was between £52,000 and £54,000. It may be noted that this was not dissimilar to Pinders' assessment of £60,000. In August 2003 Mr Wood prepared a series of reference letters on behalf of Mr Allmark, and these appeared to point to a broadly similar financial position. It subsequently transpired, however, that at least in Mr Wood's case and possibly in Mr Raye's case as well the figures mentioned at this time were based on a misunderstanding as to which parts of the company's till receipts represented its own turnover as opposed to lottery turnover, and the result may have been that Mr Allmark's financial expectations were unduly raised.
43. Also by the summer of 2003, a particular point of disagreement between the parties emerged, though it was not the origin of the disputes between them. Mr Burnham was keen to take the lease of a further shop in Lyndhurst High Street. However Mr Allmark was not, not least because he was well aware that, as he recounted one conversation with Mr Burnham in evidence, "in a couple of months you [Mr Burnham] want me out", and did not consider it desirable for DSL to take on further substantial commitments at such a time.
44. As I have mentioned, in or about September 2003 Mr Allmark gave up hope of being able to remain in the business with Mr Burnham. He called a meeting to consider proposals for the possible solution to what was described as "the untenable working relationship" [1/178] between himself and Mr Burnham in the running and management of that business. It was agreed in advance that Messrs Wood and Raye would attend as independent observers. Their role was supportive and constructive, with each of them wishing to do what they could to assist the two partners in a civilised and appropriate separation of their business affairs. In the event a somewhat belated general meeting of the company was first held, commencing at about 9.30 am that morning and chaired by Mr Raye. The minutes prepared by Mr Raye [1/188-190], although not signed, have not been criticised on either side as inaccurate. The matters dealt with included belated recognition of various formalities associated with incorporation, the issue of share certificates to the 2 shareholders and provision for the preparation of annual accounts.
45. As to the shareholdings the minutes read:

"3.1 The meeting noted and ratified the issue of fully paid up ordinary £1 shares in Distinct Services as follows:

E. Burnham - 64 shares

A. Allmark - 36 shares …"

46. As to the question of annual accounts, it was resolved to adopt 31^st March as the company's financial year end. It was agreed a set of accounts for the period from commencement of trading 12^th August 2002 to 31^st March 2003 should be prepared for audit. Mr Wood is recorded as having agreed to, as it is put, 'prepare and frame' those accounts. He offered to do so without remuneration but the meeting resolved that he should be remunerated in order to give his appointment some contractual validity. Mr Wood ruled himself out from appointment as auditor, he not then being a practising accountant. The minutes continue:

"He did, however, recommend that Pandey & Co of 32 Padwell Road, Southampton be appointed auditors to undertake the audit of the accounts of 31 March 2003 that he would be producing. The shareholders resolved to do so and E. Burnham agreed to contact them as soon as possible to determine if they would be agreeable to act accordingly and provide an estimate for the same."

47. After this more formal meeting had been concluded, the parties together with Messrs Wood and Raye proceeded with a directors' meeting which is recorded as having commenced at 10.25 am. This time Mr Wood chaired the meeting. Again Mr Raye prepared a set of minutes. The unsigned minutes I have [1/183-186] turn out to be a print of Mr Raye's first draft, which was circulated by email. Mr Paveley's suggestion in opening that they represented changes made by Mr Burnham to the (signed) minutes is wrong. The minutes [1/178-182] which bear the signatures of Messrs Allmark, Wood and Raye represent a revised version which all three of the signatories approved as accurate. As it transpired at trial, Mr Burnham did not in fact challenge the accuracy of these minutes, and explained that the reason he had not signed them was that the hard copy had not, so far as he could tell, ever been sent to him for signature. Thus in the event I have the advantage of an unchallenged set of minutes of this important meeting. I should also record that Mr Raye confirmed, in answer to Mr Burnham in cross-examination, that the general tone of this meeting was not hostile.
48. The first section of the minutes, headed "Breakdown of Working Relationship", offers some insight into the state which the parties' working relationship had reached. Its final sub-paragraph reads:

"Wood summarised that the working relationship between Burnham and Allmark had irreparably broken down and it was resolved that the only course of action would be a 'parting of the ways' between the two 'partners'."

49. As the minutes record, the meeting then proceeded with Mr Allmark's proposal for the solution to the untenable position. Again it is probably simplest to quote an extract from the minutes:

"2.1 Allmark informed that Burnham had offered to buy his interest in the business as early as approximately four weeks after the commencement of trading on 12^th August 2002 and at least on four subsequent occasions. As a result, he finally decided to avail Burnham's offer, in late-August 2003, and expressed his wish to divest his interest in the business venture in Royals of Lyndhurst and proposed that his shareholding, 36% of the paid-up share capital, in the company was available for Burnham to purchase. Allmark had expressly put the proposal to Burnham prior to the meeting."

50. Mr Burnham's reaction was to concur in the proposition that their working relationship was no longer tenable, to indicate that he too would in principle have been willing to sell his shareholding, but - on the grounds that (in his opinion) Mr Allmark would not be able to raise the necessary funds to proceed with such a purchase - to express himself "agreeable" to the proposition that he buy out Mr Allmark.
51. A quantified offer and counter offer were then made and rejected. The minutes summarise the outcome, thus:

"Burnham and Allmark failed to reach an agreement on the consideration for the transfer of the interest in Distinct Services Limited."

52. The next section of the meeting, and of the minutes which record it, is of particular importance to the present case. I will therefore set out the minutes of this section of the meeting more fully:

"3.3 Raye said that the consideration should be based on a fair and equitable valuation of the business on the agreed date of the transaction. Both Burnham and Allmark asked Wood if he would put a valuation to the business, accordingly. Wood advised that the various factors, and permutations thereof, that influence valuation have to be considered. He warned that any business could have several valuations placed on it, dependent on the factors introduced into the valuations and that it was not necessarily based on the Balance Sheet alone.

3.4 Wood agreed to prepare a set of accounts from 12^th August 2002 to the suggested date of 31^st August 2003 to determine the profit for the period and provide a foundation for the valuation. The valuation would also take cognisance of seasonal fluctuations, deference to similar business ventures and any other relevant factors.

4. Time Frame

4.1 Wood indicated that the earliest he could provide data for the basis of a valuation would be no earlier than mid-November 2003, given that he would be heavily engaged in the preparation of the accounts to 31^st March 2003 for audit.

4.2 Once presented with the relevant data, Wood pointed out to Burnham and Allmark that the onus was on them to agree a valuation as expediently as possible. He estimated that this process should be completed by end-November 2003. The transfer of Allmark's interest in Distinct Services Limited to Burnham would then be effected in full and final settlement of the agreed consideration."

53. Having heard evidence from all four of the persons present at this meeting, one thing seems clear – that there was a degree of misunderstanding between them as to what the end product of Mr Wood's freely offered services was to be. However as the minutes make quite clear, there was certainly not an agreement at this meeting whereby the parties bound themselves in advance to enter into a transaction at a consideration to be determined by Mr Wood. Mr Allmark seems to have expected the result of Mr Wood's work to have been a proper set of accounts for the period 12^th August 2002 to 31^st August 2003 and, building thereon, a formal valuation of his shares. Mr Burnham was clearly expecting the latter, though seems to have been less focussed on the former. Mr Wood, on the other hand, appears genuinely to have believed that what he in the event produced (a document headed "Report on Valuation of 'Royals ' ", which I shall deal with below) was that which had or should have been expected of him.
54. It is possible, though this is but surmise on my part, that Mr Wood took something of a shortcut with regard to the preparation of accounts which all present had envisaged would form the first stage of his work, perhaps due to pressure of time and/or work. In any event, and whether or not that surmise is correct, that which Mr Wood ultimately produced [1/244-250] was a short document of very limited assistance. It was headed "Report on Valuation of 'Royals' ", which appended "summary management trading accounts" but no balance sheet or more formal profit and loss account. The opening section of this report, headed "Parameters of Report", included the following:

"As stated to both shareholders previously, the valuations given in this report are subjective and have been given as a friend to both people concerned and not in my capacity as a chartered accountant."

55. After a brief recital of a combination of formalities and some history of the business and its trading, Mr Wood's report went on to consider the valuation basis. He wrote as follows:

"I have considered the basis of valuing the business in order to ensure the fairness of said valuation. It must be emphasised that any such valuation is subjective, and, in the absence of any prior agreement between the shareholders is dependent upon both parties agreeing the basis and value so ascribed to the business."

56. He went on briefly to explain and reject an assets based valuation, and then suggested that valuing the business as a going concern with a willing vendor and a willing purchaser was appropriate. He considered and summarised the price earnings ratio method and the investor returns method of valuing on that basis, and concluded that:

"It is not considered appropriate to use [the former] basis of valuation."

57. Taking a figure of £14,460 (from adjusted trading accounts) as the "annualised accounts profits" he arrived at valuations of £33,250 on the basis of an investor return of 30% and £24,580 on the basis of an investor return of 50%. Mr Wood's report ended thus:

"Suggested course of action. It is strongly recommended that both partners review this report with a view to coming to an agreement after Christmas on the acceptable valuation to be placed on the business. If any queries arise before then, I would welcome a discussion with either partner to clarify matters (including any details within this report). If such queries can be resolved before-hand, it will assist in speeding up the process of agreement and minimise the potential risk of technical details causing a fruitless disagreement."

58. Thus it is clear from the documentation, as well as from his oral evidence, that Mr Wood was expecting his documents to be used as the basis of a negotiation, not as supplying a figure to be treated as pre-agreed.
59. Until closing submissions, all the evidence had pointed to Mr Wood having provided copies of his valuation report to each of the parties at about the same time. To the best of my knowledge there was no material to cause Mr Paveley to cross-examine Mr Wood (or Mr Burnham) to the contrary. However in the course of making his closing submissions, Mr Burnham stated that he had been shown Mr Wood's report in draft, and that Mr Wood had had to go back and modify a stock figure after that. Given the content of Mr Wood's valuation report it is not clear which figure(s) that might have been. Given the (entirely understandable) absence of cross-examination as to contact between Messrs Burnham and Wood over the content of the report during its preparation, I cannot judge the purpose and extent of this. However, putting the matter at its very lowest, there can be no doubt that if Mr Allmark had known that Mr Burnham (but not he) had been given the opportunity to comment on and influence the contents of Mr Wood's report whilst in draft, he would (reasonably) have had even less confidence in its reliability than he did.
60. I should also record Mr Mason's conclusion about this report. At paragraph 11.2 of his report, having quoted the passage from Mr Wood's report which I have set out at paragraph 54 above, he states:

"I am not sure what import the valuer was hoping this paragraph would have but I take it to mean that the valuer defers from providing a valuation that is independent and prepared in his capacity as a professional accountant. Consequently I do not believe that any reliance should be given to this valuation, and I do not comment on it further. I note too that the valuation is neither signed nor dated."

61. Before Mr Wood's report was received by the parties, which occurred in mid December 2003, events had moved on apace. Mr Burnham chose, more or less immediately after the meeting of 26^th September 2003, to go ahead with a proposal of his on which he and Mr Allmark had thitherto disagreed, namely the possible acquisition of a second shop close by. Without any further consultation with or disclosure to Mr Allmark, either at the meeting of 26^th September 2003 or at all, and despite Mr Allmark's continuing status as a director and shareholder of the company, Mr Burnham took a lease of a shop which was available at 63 High Street. The close proximity of the premises is readily apparent from the plan of the immediate area incorporated in the Pinders Report [1/227]. Mr Burnham did so in his own name, and there established a greetings card business. It was named 'Royal's Greetings', an obvious allusion to the name of the business, and a shop sign was commissioned in equivalent colours [2/483-5]. He agreed in evidence that if this had been done by anyone else, he would have regarded it as unacceptable passing-off. It seems from Mr Burnham's evidence that three members of staff worked in both DSL and Royal's Greetings, namely Vicky Forman, Ms Baldock and (he said only occasionally) the bookkeeper Miss Smythe.
62. Once the new shop had the necessary shelving, he caused the entire stock of greetings cards held by DSL to be moved to the new shop, without any formal stock count or listing of the stock so transferred taking place. Some shelving units were moved from 38-40 High Street, where they were replaced with new ones.
63. The accounting arrangements in respect of all this were thoroughly unsatisfactory. So far as the transfer of shelving units and so forth was concerned, Mr Burnham (on his own account of the matter in evidence) purchased some new shelving units for 38-40 High Street, and simply treated them as equivalent in value to the units which he had moved over the road.
64. With regard to the transferred cards, Mr Burnham's account of matters is that for the first few months, until some date (not very specifically identified) in or about February 2004, all the stock at Royal's Greetings had come from DSL. For this initial period, which given the run up to Christmas was a very busy period for card sales, he therefore simply took the total turnover of Royal's Greetings on a monthly basis, applied 50% as the conventional cost price of greetings cards then sold on a retail basis, and caused DSL to raise remittance advices (for other technical reasons it seems that the relevant part of DSL's accounting systems was not suited to raising invoices in this situation) under cover of which Royal's Greetings then made payments to DSL, typically about a month later. Unhappily even this less than satisfactory explanation, which involves DSL giving Royal's Greetings the benefit of at least extended credit on its stock if not a sale or return arrangement, cannot be entirely right, because in seeking to answer one (the fifth) of a series of questions raised by Mr Mason at paragraph 6.5.2 of his report [2/379], Mr Burnham accepted that an invoice for greetings cards raised by Ling Design on 18^th November 2003, and addressed to "Distinct Services, T/As Royals of Lyndhurst, 63 High Street …" [2/482], had been paid by DSL in error, and should have been paid by himself trading as Royal's Greetings. Thus it is clear that, contrary to Mr Burnham's evidence, Royal's Greetings was not selling solely stock transferred from 38-40 High Street over this period, and I cannot and do not accept that over this period Mr Burnham would have contemplated any arrangement whereby his new business Royal's Greetings was in any way 'subsidising' DSL.
65. It will immediately be noticed that in the case of both the shop fittings and the cards themselves, the whole system involved a significant element of assumption, and was entirely dependent upon Mr Burnham's judgment exercised simultaneously on behalf of both DSL and Royal's Greetings as to whether or not such arrangements were fair and equitable between the two entities. A grosser conflict of interest would be hard to imagine.
66. Mr Burnham adopted a cavalier approach to the need to maintain a proper accounting distinction between the business of DSL at 38-40 High Street and the business of himself trading as Royal's Greetings at 63 High Street, at least pending the conclusion of the proposed exit agreement between himself and Mr Allmark. A good deal of what he has put forward in evidence on this topic is, I fear, simply the best he can do by way of retrospective justification for and rationalisation of actions he never expected to be queried. Further, even on Mr Burnham's own evidence it is very hard to justify his assertion passed on via his solicitors' letter dated 2^nd February 2004 that Royal's Greetings "is a completely separate trading entity which has not been funded in any way by [DSL]" [3/582].
67. I find the underlying explanation for Mr Burnham's conduct to be quite simple, and substantially in accordance with a number of answers he gave during his oral evidence. Mr Burnham was simply anticipating the completion of the informal 'agreement' of 26^th September 2003, and treating it as if already fully implemented. In other words he was treating himself as if sole shareholder and sole director of DSL, and, despite what had been said at the meeting of that date, acting with no regard whatever for the continued role (as director) or interests (including as shareholder, creditor and guarantor) of Mr Allmark in DSL. He also told me in his oral evidence that it had been his intention to bring Royal's Greetings within DSL as soon as he had bought out Mr Allmark.
68. Mr Burnham sought to justify this, both in evidence and in his written closing argument, on the basis that as Mr Allmark was to be paid out on the basis of a valuation as at 31^st August 2003, events thereafter could not adversely affect him. Even if that had come to pass, this 'justification' was of course grossly over-simplistic. There were no reliable and complete accounts up to 31^st August 2003 in existence when Mr Burnham acted as he did, and his actions precluded such accounts from ever being prepared and capable of independent verification. Mr Allmark's interest (and, indeed, his largest single interest) in DSL as an unsecured creditor was adversely affected by Mr Burnham's actions, as was his exposure as a guarantor both to HSBC and under the lease. As if to add insult to injury, when it came to instructing accountants to prepare and/or to audit accounts for DSL, Mr Burnham did not even instruct their preparation to 31^st August 2003, but rather to a different (and later) date, as I shall explain below.
69. In the course of his evidence Mr Burnham gave a detailed and at times almost impassioned account of why he believes that his business judgment was correct in determining – contrary to Mr Allmark's views expressed prior to 26 September 2003 – that the overall trading would be more satisfactory and more profitable all round if the entirety of the bookshop part of the premises at 38-40 High Street was used for the sale of books, stacked and displayed floor to ceiling, and additional premises taken for the purpose of the sale of greetings cards, where a much higher proportion of the total stock could be displayed than had been the case at 38-40 High Street. It may be that, looking at all the trading of DSL and of Royal's Greetings together, Mr Burnham's business judgment was in this respect correct. However his implementation of it without the knowledge let alone approval of his co-director and co-shareholder, and his failure to maintain proper accounting records, was clearly unjustifiable in law and a serious breach of his fiduciary obligations to DSL.
70. Further this was not the only respect in which Mr Burnham 'jumped the gun' with regard to the conclusion of the party's agreement of 26 September 2003. As the minutes of the directors' meeting of that date confirm (see at paragraph 5.2), it had been expressly recognised that, although Mr Allmark was no longer going to participate in the day to day operation of the business, his position as a director of DSL was to be neither prejudiced nor altered by this. It was expressly agreed that Mr Burnham was to keep Mr Allmark updated of the activities of DSL's business on a weekly basis, and that this should be done by way of written reports both for practical reasons, given the difficulty in their working relationship, and to serve as a permanent record of the same. In the event Mr Burnham hid certain keys, such that Mr Allmark could only access the offices of the business during opening hours. Once a week, for the first few weeks only, he simply put an Epos printout into the flat occupied by Mr Allmark. The Epos system only reflected a part of the company's trading pattern, and even assuming that its contents were as readily understandable to Mr Allmark as they were to Mr Burnham, even this was not an adequate performance of the obligation he undertook at that meeting.
71. Furthermore the position rapidly deteriorated. Within a few weeks even the weekly Epos printouts were no longer provided. Mr Burnham's excuse for this, and the word "excuse" is appropriate, was that because Mr Allmark was still entering the shop's office premises for the purposes of arranging the payment of his monthly salary, it was unnecessary for the Epos printout to be delivered to his flat as he was able to access that and indeed other business records while he was in the office.
72. I have to say that I regard that excuse to be somewhat disingenuous. If physical access to the shop's office premises during working hours had been regarded as suitable or adequate for the purpose of Mr Allmark keeping himself apprised of the company's financial position, the agreement recorded in paragraph 5.2 of the minutes of 26 September 2003 would never have been reached. Furthermore, there was no change of circumstances between the commencement of the arrangement and the cessation of delivering weekly Epos reports to the flat. Mr Burnham had been well aware throughout that Mr Allmark was going to continue to draw his salary.
73. Once Mr Allmark left the flat at the end of January 2004, and his position as an employee was terminated very shortly thereafter, Mr Burnham accepts that he took no steps at all to cause the promised weekly updates, nor even weekly Epos reports, nor indeed any other business information whatosever, to be sent (whether by post or otherwise) to Mr Allmark's new address. Mr Burnham offered no justification for this, and in my judgment there was none for him to offer.
74. Again, very much in accordance with my finding at paragraph 67 above, I am satisfied that the reality of the position was that, more or less straight after the agreement of 26^th September 2003, Mr Burnham chose simply to regard Mr Allmark as a "has been" so far as the business was concerned, chose to ignore the commitments he had given which are recorded in paragraph 5.2 of the minutes, and in all respects possible treated Mr Allmark as if no longer a director or shareholder of the company. Whether Mr Burnham's actions were simply one reflection of a somewhat high-handed streak in him, or whether he acted consciously for the purpose of putting additional pressure on Mr Allmark in order to negotiate more favourable terms for the ultimate purchase of his shares, is very hard to unravel and does not ultimately matter for the resolution of his case.
75. In January 2004 a meeting was arranged, apparently by Mr Raye, for 16 January 2004 in order to progress the negotiations for an agreed exit by Mr Allmark. In the event Mr Allmark cancelled this meeting by email at short notice. The same day a first solicitor's letter was sent by Mr Paveley on Mr Allmark's behalf, which amongst other things indicated his intention to vacate the flat above the shop at the end of January, and his expectation that he would thereafter start receiving payment of 10% interest on his capital loan to the company as well as his continued payment of salary. Needless to say the impression given was unfortunate, and – particularly given the combination of the e-mail and letter - not well received by Mr Burnham.
76. Equally, the first letter in response from Lamport Bassitt Solicitors instructed by Mr Burnham was also somewhat unfortunate. It included the assertion that Mr Allmark in his capacity as a director had refused to attend board meetings in order to approve company accounts resulting in Companies House levying a fine against the company. This, as Mr Burnham accepted in cross examination, could not be true as no such accounts had been prepared on behalf of the company by this time in any event. It went on to suggest that Mr Allmark should return to work at the premises on 26^th January 2004 given that his salary was still being paid and that the share valuation had yet to be agreed. There is no question that the relationship between the parties had improved significantly or at all since 26^th September 2003, when both had agreed that they no longer had a tenable working relationship. This wholly unrealistic request for Mr Allmark to return to work was followed up with what was effectively a threat:

"If your client fails to attend work next Monday then we regret our client may be forced to take disciplinary proceedings which may include suspension without pay whilst the matter is investigated."

77. The letter went on to criticise Mr Allmark for entering the company's offices and writing salary cheques in his own favour, stating that: "this practice is not acceptable." In fact, this practice had continued with Mr Burnham's knowledge and tacit approval since the agreement of 26^th September 2003, and Mr Burnham had made no other suggestions or offers as to how Mr Allmark's salary was to be paid in accordance with that agreement. The letter went on to assert that Mr Allmark's refusal to attend board meetings had deadlocked the company, leaving Mr Burnham unable to pass any form of director's resolutions, asserting that this was "hindering the business". Again this assertion was wholly unjustified. The reality of the position was that Mr Allmark had not been invited to attend any board meetings other than that convened by him on 26^th September 2003, and perhaps the meeting convened by Mr Raye, for 16^th January 2004 which Mr Allmark had cancelled at short notice. However the latter had been solely for the purpose of progressing negotiations for a buy out in any event. The correspondence which ensued speaks for itself.
78. On 30^th January 2004 a further directors' meeting took place, attended by the parties, by Mr Paveley as solicitor for Mr Allmark, and by the independent observer Mr Raye. The minutes of this meeting were again kept by Mr Raye (1/191-193). Mr Burnham subsequently produced a version with an additional note added at the end as paragraph 4.3. In fact that note was at least partially inaccurate, in that it was quite clear from the minutes of the general meeting of 26^th September 2003 (see especially at paras. 4.1 to 5.1 inclusive) that Mr Burnham had been party to an agreement that accounts for "year 1" (i.e. for the opening period from commencement of trading) should be prepared and audited. Mr Raye enquired whether Mr Wood's valuation report was accompanied by a balance sheet as well as the appended trading accounts. Mr Burnham did not directly answer, but referred him to Mr Wood. The position was that no such balance sheet had been prepared.
79. The meeting agreed that independent auditors should be appointed to audit the accounts. For a second time those present approved the proposal that Pandey & Co be appointed. There was a dispute towards the end of the meeting as to whether the accounts should be prepared to 31^st December 2003 or 31^st August 2003. The minutes show that that matter remained unresolved. It should be noted that during the course of the meeting Mr Burnham informed Mr Allmark that he was "no longer employed by" DSL. However, after a telephone conversation with his solicitors Lamport Bassitt, Mr Burnham modified this statement to informing Mr Allmark that he was "suspended from his employment without pay". This was the first of several occasions on which Mr Allmark was informed by Mr Burnham that his employment and/or status as a director had been terminated.
80. The following day Mr Allmark vacated the flat above the shop. However, despite having been informed in a further letter from Lamport Bassitt dated 2^nd February 2004 that he "would receive his monthly interest on the due date" [3/582], and again in a letter from Mr Burnham drafted by Lamport Bassitt dated 18^th February 2004 [3/590] that his "entitlement to interest payments in respect of your directors loan will continue to be paid on a monthly basis as this is separate from your employment status" [3/590], in fact no such payment was ever made. The former letter also misleadingly asserted that Royal's Greetings "is a completely separate trading entity which has not been funded in any way by [DSL]."
81. Within a few days Mr Burnham had instructed Pandey & Co to prepare some accounts, although his instructions did not include for those accounts to be audited. As Pandey & Co's confirmatory letter dated 6^th February 2004 evidences, their instructions differed from those previously agreed between the directors and shareholders in two material respects. First, the accounts to 31^st March 2003 were not to be audited. Second, the next set of accounts to be prepared were to run to 31^st January 2004, and were described as "management accounts". It is entirely unclear why Mr Burnham chose to give those instructions, rather than commissioning accounts to 31^st August 2003 (in accordance with his own case), or to 31^st December 2003 (as Mr Paveley had suggested on Mr Allmark's behalf at the end of the meeting of 30^th January 2004).
82. On 18^th February 2004, Mr Burnham wrote a letter to Mr Allmark which had been drafted for him by his then solicitors Lamport Bassitt. Surprisingly, in the light of that, it stated "Your position as a director will also terminate with effective (sic) from the disciplinary hearing as this position is clearly part of your employment status." Mr Burnham's evidence was that he specifically queried that part of the draft with Lamport Bassitt, but was advised to include it. If Mr Burnham consciously included such a passage in a letter dated 18^th February, I find it very hard to believe that if Mr Allmark had failed to attend a formally convened directors' meeting the previous day that would not have been mentioned in such a letter. Similarly, had he failed to attend formally convened directors' or general meetings on 23^rd March, 20^th April, 24^th August, 28^th September and 16^th November 2004, I would have expected such failure to have been promptly complained of or at least mentioned in correspondence shortly after those respective dates. It is right to note that Ms Baldock's letter of 22^nd September [3/680] (the same day as the purported notice at [1/202]) does refer to requiring Mr Allmark to attend an EGM on 28^th September; however see also Mr Paveley's letter of 4^th October [3/686]. Mr Allmark disputes that he received any of the purported formal notices for such meetings, all of which are documents produced by Mr Burnham, and which appear in the bundle at [1/194-196, 201, 204-205]. Furthermore, none of these notices appeared in the file of DSL's statutory and other like documents which was belated produced after the trial had commenced. I find that none of these 6 puported notices was in fact sent to or received by Mr Allmark.
83. Following a supposed disciplinary meeting held on 11^th February 2004, Mr Allmark was dismissed from his employment with DSL by Mr Burnham on 18^th February 2004.
84. It was only at the end of February 2004 that Mr Allmark's solicitors wrote responding to the contents of Mr Wood's valuation report, despite its receipt in mid December, the abrupt cancellation of the meeting Mr Raye had convened for 16^th January 2004, and the solicitors' letter on other topics of 16^th January (mentioned above). The delay in first writing on this topic was unfortunate, although obviously the topic had been discussed at the meeting of 30^th January 2004.
85. In due course Pandey & Co's instructions were withdrawn. Notwithstanding the apparent position on the face of Pandey & Co's letter dated 19^th March 2004 [3/602], Mr Burnham's evidence was that they had in effect been frightened off from accepting the assignment by the terms of the two letters they had received from Mr Paveley on behalf of Mr Allmark [3/597, 3/600[. Mr Burnham asserted that his account of matters was based on a telephone conversation with the relevant accountant at Pandey & Co. I do not find sufficient grounds for rejecting Mr Burnham's evidence in that regard. However even on his own account of matters he then went on to select and instruct Ed Connolly & Co instead, without even informing Mr Allmark, let alone involving him in the decision.
86. In April 2004 Mr Allmark lodged an application with the Employment Tribunals at Southampton alleging unfair dismissal. That application was ultimately unsuccessful, being dismissed by their decision entered on 5^th October 2004 [1/338ff, 4/985-992].
87. Over the 9 months or so after Mr Allmark was put on garden leave, DSL's bank position worsened markedly. A table and graph illustrating this produced by Mr Allmark, and not in themselves challenged as inaccurate, appear at [1/317-381]. This is one of the more important grounds for Mr Allmark's concern about the reliability of the accounts put forward, and is supported by Mr Mason's conclusions. In evidence Mr Burnham volunteered the explanation that this adverse movement in DSL's bank position was the result of his causing DSL to 'catch up' in paying for goods purchased, and resultant excesses of payments made to suppliers over goods purchased. In his written closing argument (at p12) Mr Burnham produced a detailed table which he submitted as support for his explanation.
88. However on analysis of the figures in that table (without checking the sources of the underlying figures) it is far from clear that they provide any such support. The fifth column (of six) has to be viewed with care, as its month by month figures reflect the difference between income (or sales) and payments, not the difference between purchases and payments. Only the year end figures shown against a shaded background reflect the latter.
89. The first point to be made on Mr Burnham's figures is that between August 2002 and June 2004 payments only exceeded purchases in 6 of the 23 months (December 2002, January, October and November 2003, and February and April 2004). The second point is that the profile of bank balances adjusted for the (cumulative) difference between payments and purchases, starting from August 2002, does not support Mr Burnham's point. On the contrary, there is still a marked decline in the bank position over the 9 months after Mr Allmark was put on garden leave, which has not been satisfactorily explained :

Bank balance date (nearest available date to month end – see [1/317])	Bank balance £	Payments less purchases (cum.) £	Adjusted bank balance £
27 August 2002	17,794	- 12,687	5,107
17 March 2003	26,745	- 15,040	11,705
29 September 2003	34,460	-44,074	-9,614
31 March 2004	-7,759	-24,932	-32,691
22 June 2004	-11,615	-31,048	-42,663

Looking simply at the movement over the 9 months or so between 29^th September 2003 and 22^nd June 2004, over that period payments (£247,251) exceeded purchases (£234,266) by £12,985. The adverse movement in DSL's bank position over that period was £46,075, and so after adjustment for the said excess the still unexplained adverse movement is £33,090.

90. When Ed Connolly & Co produced audited accounts for DSL to the year to 31^st March 2004, they had been re-drawn (as compared to the unaudited accounts) on a cessation basis. On Mr Burnham's evidence that was the auditors' own idea, and apparently based on the receipt of demands for repayment of directors' loans from both directors. On 8^th September 2004 Mr Allmark had made such a written demand [3/667]. It does appear to be a very considerable coincidence that Mr Burnham wrote a letter to like effect on the very same day [3/670], and particularly given the absence of a convincing or any reply on this point to the query raised by Mr Paveley in his letter to Ms Baldock dated 4^th October [3/686], I find that it was written on a tit for tat basis following receipt of Mr Allmark's letter, and so far as necessary back-dated to match it. In the event many months have passed, neither director has pressed for repayment (perhaps pending the outcome of these proceedings), and as Mr Burnham told me DSL continues to trade.
91. Given that I consider it right to look at DSL as a going concern, it is more convenient to take the unaudited figures for a number of purposes, which appear in this judgment. Save for the cessation basis adjustments (briefly identify), the figures do not otherwise appear to vary materially (see [2/451]).
92. In 2004 the agents Andrew Greenwood passed on an offer to buy DSL's business for the sum of £100,000 plus stock at valuation [3/716-718]. If stock at that time remained at about the level at which it appears to have stood at 31^st March 2004 (£114,749 per the Ed Connolly & Co accounts [2/451], £110,723 per Mr Mason (including Royal's Greetings' stock) [2/427]), this offer in aggregate would afford market-based support for Mr Mason's overall figure of £205,019 [2/427].

The parties' submissions

93. Mr Paveley for the Petitioner and Mr Burnham each submitted a written skeleton argument at the outset, and later written notes of their closing arguments, each of which was developed somewhat orally. I am grateful to them both for having done so. In those circumstances I need not lengthen this judgment further by myself rehearsing the thrust of the submissions made to me.
94. In his short oral opening statement, Mr Burnham was anxious to point me to the terms of the prayer for relief at the end of Mr Allmark's petition [1/8]. He stressed that neither could, realistically, succeed. Whilst true in itself, this submission is ultimately of limited assistance to Mr Burnham. The second limb of prayer (iii) (for the lease and the option to be the subject of an open market valuation) had been carried out by Mr Clark, subject to his valuation having been at 11^th February 2005 rather than 31^st August 2003. However the first limb (for the preparation of full audited accounts as at 31^st August 2003 by an independent firm of Chartered Accountants) had not been carried out. I would observe that if this were ever to have happened it is Mr Burnham who should have instigated it (as to which see further at paragraph 111 of this judgment), and that it seems clear in the light of Mr Mason's report that the results of any such exercise now undertaken would be of very limited value, if indeed an accountant was willing to undertake this task at all. It follows that the prayer at (i) for specific performance of the agreement of 26^th September 2003 is, effectively, doomed to fail for these reasons quite apart from any other. However all that this means, as I endeavoured to make clear to Mr Burnham, is that the prayer at (ii) for a buy-out order at a fair value determined by the court becomes the more important. Further, the Court has a wide discretion as to relief by virtue of s.461(1) CA85, and is not limited to granting relief in the form requested by the petition (subject, as always, to the over-riding requirement for procedural fairness to the Respondents).
95. It is also right that I record that the Respondents did make very late disclosure of a significant number of documents (see [3/839-842]) and even later (i.e. during the trial) disclosure of DSL's file of statutory and like documents. It was therefore very hard for Mr Paveley properly to test the contents of the same during the trial, in the way in which he otherwise would have wished to do, or to obtain any additional expert evidence (in particular, from the single joint accountancy expert Mr Mason) in respect of them.

Unfair prejudice

96. In the circumstances of this case, there are a series of acts which clearly amount to unfairly prejudicial conduct of DSL's affairs for which Mr Burnham is responsible, both before and after the meetings and agreement of 26^th September 2003. Mr Paveley relied on:

96.1 Exclusion of Mr Allmark from the management of DSL. This is conveniently taken together with:

96.2 Failure to consult Mr Allmark or to provide him with information.

(I will consider these questions initially without reference to what offers to buy out were made; those offers are considered under the next heading). Both these heads of complaint are clearly made out. Before 26^th September 2003 this was effected by Mr Burnham not only running the administrative systems for DSL on a day to day basis, which was his agreed primary role within the business, but by simply not involving or consulting Mr Allmark with regard to most managerial decision making whether formally (no board meetings were held prior to that of 26^th September 2003) or informally. Mr Allmark was certainly not treated by Mr Burnham as a partner with equal status in the business. Mr Burnham formed the view that Mr Allmark was not his intellectual equal, and seems to have come to regard him with some disdain (see para. 1.5 of the minutes of the directors' meeting on 26^th September 2003 [1/179]). On 26^th September 2003 this took the form of, in effect, requiring that Mr Allmark, as the outgoing 'partner', go on gardening leave pending resolution of the terms for his departure. Furthermore it was expressly agreed, as is reflected in the minutes, that Mr Allmark's position as a director was not to be prejudiced or altered, and that he was to be kept updated on the progress of the business by weekly written reports. This simply did not happen, and Mr Burnham ignored Mr Allmark's rights as a director (the only further board meeting held was that of 30^th January 2004 [1/191-3]), and paid little or no heed to his entitlement under the said agreement of 26^th September, more or less straightaway thereafter. In his written closing argument, Mr Burnham says that he "views the [request for weekly reports on the company] as a superfluous burden since taking the company forward is now entirely his responsibility". That was not what was said and agreed on 26^th September 2003, but the submission itself is a telling illustration of the attitude which Mr Burnham subsequently adopted. The breach of an express agreement between shareholders for such consultation can amount to unfair prejudice: see e.g. Re Cumana Ltd [1986] BCLC 430 CA, cited by Mr Paveley. The request made in Lamport Bassitt's letter of 20^th January 2004 that Mr Allmark return to work on 26^th January 2004 was entirely unrealistic, and well known by Mr Burnham to be so at the time is was made. In truth, it was just the starting point for depriving Mr Allmark of the employment and livelihood which had been a crucial part of their venture into business together. That deprivation was duly effected by letter of 18^th February 2004, following a so-called 'disciplinary hearing' (for not turning up to work on 26^th January 2004 and thereafter) on 11^th February 2004. Mr Paveley also relied on 3 occasions (30^th January 2004; 18^th February 2004 (letter, penultimate paragraph [3/590]); and the giving of notices of meeting for 15^th June 2004) on which Mr Burnham indicated to Mr Allmark that he was no longer a director of DSL, although on none of these occasions (or indeed at all) was he ever in fact lawfully removed from that office under the provisions of CA85 or the Articles of Association. In respect of the first such occasion, the remark appears to have been more directed to Mr Allmark's employment rather than his office as a director, and in any event was within a short time retracted in favour of 'suspended without pay' (see 1/192 at para. 3.1), itself then modified to suspension with sick pay until 26^th January 2004 (para 3.2, ibid). On the second occasion Mr Paveley's point is a good one, as the letter in question entirely fails to distinguish between employment and office as a director, and wrongly asserts that the termination of the latter follows from the termination of the former (a position not resiled from by Lamport Bassitt in their letter of 8^th March 2004 [3/596]). As to the third occasion, Mr Burnham was entitled under the company's constitution to convene a meeting to consider a resolution for Mr Allmark's removal as a director. Equitable considerations flowing from the parties' original agreement would have made it unfair for this to have been carried out for so long as Mr Allmark remained a shareholder, but in the event it was not.

96.3 Misappropriation of DSL's business or assets. Again, this head of complaint is clearly made out. The business of Royal's Greetings was promoted by use of the goodwill in the name of DSL's business, and it seems the 'get-up' of its signage too. The nature of its business (the sale of greetings cards and ancillary goods) competed with that of DSL. Fixtures and fittings and stock belonging to DSL were applied to the use of Royal's Greetings without proper records and accounts of the inter-trading being kept. Some expenditure for the benefit of Royal's Greetings was met by DSL. Inevitably, a proportion of Mr Burnham's time and effort was taken up with the business of Royal's Greetings. Mr Burnham, as a director and fiduciary of DSL, could only lawfully act as he did (if at all) with the fully informed consent of all its members and directors (being in this case at all material times the same people, namely himself and Mr Allmark). As Mr Burnham accepted in evidence, Mr Allmark was not so informed, let alone ever given the opportunity to say whether or not he consented to it, which he certainly would not have done.

96.4 Mismanagement of the company's business. Here, the principal new or additional allegation relied on by Mr Paveley was that Lamport Bassitt, DSL's solicitors, were used at DSL's expense to undertake work that was for the benefit of Mr Burnham in his personal capacity. Lamport Bassitt did express some concern internally as far back as 3^rd October 2003 as to whether, having acted for both the parties on the acquisition of the business, they could properly act for both or either of them in respect of Mr Burnham's proposed purchase of Mr Allmark's shares (see attendance note at [3/557]). Further, Mr Mason in arriving at his maintainable earnings figures did identify some DSL expenditure on Lamport Bassitt's fees in respect of which he made adjustments [2/505]. However it is not immediately clear that there was usage of DSL's funds to pay for Lamport Bassitt's fees incurred by Mr Burnham personally on a sufficient scale to amount to material mismanagement of DSL's affairs by Mr Burnham in its own right. Given that unfair prejudice is clearly established in a number of other respects, and that no separate or additional relief is sought by Mr Allmark in this regard, I do not propose to go into this allegation any further.

96.5 Mismanagement of DSL's internal affairs. A number of the matters to which Mr Paveley points under this head equally form part of his client's case in respect of the first and second heads, dealt with together above, and the third head, also dealt with above. He also points to failures to convene directors' and/or annual general meetings to consider and approve annual accounts, and a general disregard for the requirements of CA85. I accept that the earlier matters or many of them equally amount to mismanagement of DSL's internal affairs, and that so does the failure to have accounts properly prepared and then duly laid before directors' and then members' meetings. Mr Paveley was at a disadvantage in respect of pursuing the allegation of more general disregard of the provisions of CA85, not least because it was only part way through the trial that Mr Burnham first produced a (blue, lever-arch) file said to contain DSL's statutory records (it was only after its production that Mr Paveley withdrew a witness summons requiring the attendance of Ms Baldock as company secretary, for the purpose of compelling her to produce such documents). Given the other findings of unfair prejudice I have made, and the absence of any detailed development of this as a separate point by Mr Paveley, albeit after the very late production of this file, I do not propose to go into the allegation of a general disregard of the provisions of CA85 any further.

96.6 Payment of excessive remuneration. Here Mr Paveley relies on Mr Burnham's summary doubling of his agreed salary, immediately following Mr Allmark agreeing to be put on garden leave, and the payments of remuneration to Ms Baldock at what appears to have been an excessive rate. As to the former, Mr Burnham's justification of it was spurious. He asserted that because Mr Allmark was no longer working, his responsibilities had doubled. However he was already supposed to be working full-time, and a simple doubling of his salary was quite excessive and unjustifiable. This is reflected in Mr Mason's adjustments to directors' remuneration which appear at 2/505, which I have already mentioned. Ms Baldock also appears to have been overpaid for whatever work she did for DSL, even on the (most favourable) assumption that she was working full time (see per Mr Mason at [2/392-393]). I accept that the affairs of DSL were conducted in an unfairly prejudicial manner in this respect too, from October 2003 onwards.

Alternative remedy

97. Mr Burnham relies on 2 particular offers made to Mr Allmark for the purchase of his shares as having afforded Mr Allmark a suitable alternative remedy rendering it unnecessary for him to pursue the grant of relief from the Court and inappropriate for the Court to grant the same. The offers made are also relevant to the question of whether the exclusion of Mr Allmark from the management of DSL amounted to unfairly prejudicial conduct (see per Lord Hoffmann in O'Neill v Philips [1999] 1 WLR 1092 HL at 1107C).
98. As to the essential elements of a reasonable offer, I would refer to the same speech of Lord Hoffmann at 1107D-1108B.
99. The first "offer" relied on by Mr Burnham was that comprised in the parties' 'agreement' of 26^th September 2003. In my view it is quite clear that this did not amount either to a firm 'offer' by Mr Burnham or to a concluded 'agreement' at all. The minutes of the first meeting that day make it abundantly clear that Mr Wood was expected to produce accounts for the period 12.8.02-31.3.03 in a form suitable for submission to audit by a practising accountant [1/189]. In the event no such accounts were produced. The minutes of the second meeting that day make it clear that Mr Wood was to prepare accounts from 12.8.02 to 31.8.03, and that such accounts were to "provide a foundation for the valuation" [1/180]. It went on to refer to Mr Wood providing "data for the basis of a valuation" [1/180], and to record that Mr Wood pointed out to the parties that "once presented with the relevant data … the onus was on them to agree a valuation as expediently as possible" [1/181].
100. Further, I have already dealt with the material which Mr Wood in the event produced (see at paragraphs 54-57 above).
101. Insofar as Lord Hoffmann's essential elements of a reasonable offer are applicable to what was 'agreed' on 26^th September 2003, and to what was provided by Mr Wood pursuant thereto, it does not pass muster. Mr Wood acted informally as a friend, not as an expert (competent or otherwise); his resultant report was not a determination by which the parties were bound; and there seems not to have been an equality of arms between the parties insofar as Mr Burnham but not Mr Allmark was shown a copy of the draft report, and given the opportunity to influence the content of the final report.
102. The second offer relied on by Mr Burnham was that contained in his then solicitors' letter dated 14^th October 2004 [3/698], sent after the petition herein had been presented and the first interlocutory orders had been made. This letter appears to have been drafted by direct reference the speech of Lord Hoffmann in O'Neill v Philips. In other circumstances, it might have sufficed to offer the recipient a satisfactory alternative remedy, which should not reasonably have been refused (subject to various possible points mentioned below). However in the circumstances of the present case that is not so. As we now know, such accounts for DSL as were (and are) available were unsatisfactory, and, as Mr Mason's evidence states, did not offer a 'true and fair view'. Further, there was the whole question of the business known as Royal's Greetings, and whether or not its assets and/or its turnover and profits should be taken into account in valuing DSL/its shares, and if so how. In these unusual and unsatisfactory circumstances, a simple provision for expert determination without the need to give reasons did not offer Mr Allmark a satisfactory alternative remedy which he ought reasonably to have accepted. Mr Allmark's initial and substantive responses to this offer were respectively dated 18^th and 27^th October 2004 [3/699-700 and 713-715]. Had it become necessary to consider this point further, there would also have been points as to whether 'fair value' necessarily meant without minority discount, at what date that value was to be taken, the absence of satisfactory disclosure of documents by Mr Burnham (whose initial disclosure list is dated 18^th October 2004) hampering Mr Allmark's ability to make effective submissions to the expert, the 14 day time limit for acceptance, and the fact that the letter itself only (expressly) indicated that it would be relied on as to costs if not accepted.
103. Neither the so-called 'agreement' of 26^th September 2003 nor the letter of 14^th October 2004 offered Mr Allmark a satisfactory 'alternative remedy' which he ought reasonably to have accepted. I must therefore go on to consider what relief the Court ought to grant in this case.

Relief

104. As I have already indicated, the accounting material available to me is less than complete or satisfactory. I cannot be sure as to DSL's current financial position, and in particular whether it could lawfully and appropriately expend sums – and if so what sums - on purchasing or assisting in the purchase of shares in itself. In those circumstances, it would not be right to make such orders against DSL itself.

(i) Debt

105. On any realistic view of the figures in this case, Mr Allmark's largest financial 'interest' in DSL is as a creditor for capital of £65,000 lent to the company to enable it to purchase the business back in August 2002, together with interest which has accrued (though not yet been paid) thereon since he gave up occupation of the flat above the shop at the end of January 2004, a period of 22 months to date.
106. By reason of a number of the matters for which I have already found Mr Burnham to have been responsible, and most particularly the establishment of Royal's Greetings in the manner I have described, the inadequately explained deterioration in DSL's 'cash at bank' position, and the absence of reliable accounts (especially balance sheets), Mr Allmark's prospects of being repaid these sums by DSL have been adversely affected to a significant though unquantifiable degree. Similarly, his exposure as joint and several guarantor on the HSBC guarantee and the lease guarantee has been significantly though unquantifiably increased. If taken at face value (as to which see paragraph 90 above), the preparation by Ed Connolly & Co of audited accounts to 31^st March 2004 on a cessation basis might be said to accentuate these points. Although this form of relief is not commonplace in such matters (examples of cases where orders have been made with regard to the discharge of debts include Re Nuneaton Borough AFC Ltd (No 2) [1991] BCLC 267 Harman J, and Re Ghyll Beck Driving Range Ltd [1993] BCLC 1126 Vinelott J), in the unusual and unsatisfactory circumstances of this case the relief which I find it fit to grant to remedy the effect of this aspect of the unfair prejudice suffered by Mr Allmark (see s.461(1), CA85) is:

(a) to order that Mr Burnham be jointly and severally liable with DSL to Mr Allmark for the repayment of the amount of the said loan and the interest accrued and accruing thereon;

(b) to order Mr Burnham either to procure the lawful repayment of the same by DSL and/or to repay the same himself within a relatively short – and specified - period;

(c) to order Mr Burnham to indemnify Mr Allmark in respect of the latter's liability under the HSBC guarantee and the lease guarantee;

(d) to order Mr Burnham to take all lawful and reasonable steps within his power to procure Mr Allmark's prompt release from liability under each of the said guarantees.

107. In deciding to grant such relief, I have first considered whether I should simply leave Mr Allmark to recover his debt from DSL in the usual way, on the basis that if DSL were to default he could always put it into liquidation, and then encourage – and if necessary fund - an insolvency practitioner to take action against Mr Burnham for compensation for DSL in respect of the losses it has suffered from the establishment of Royal's Greetings, its trading in competition with DSL, and the unsatisfactory inter-trading between the two entities which has occurred. Given the modest sums involved coupled with the evidential difficulties in establishing the true extent of DSL's relevant loss or Royal Greetings' relevant gain, there is a real risk that such a remedy for Mr Allmark would exist in theory but be uneconomic in practice. As the matter has been explored in some detail in the evidence before me, including in particular Mr Mason's report, I have concluded that the relief I have indicated, albeit unusual, is appropriate to the circumstances and should be granted.
108. As to the amount of Mr Allmark's loan, the capital sum is undisputed at £65,000. As to interest, though I was told by Mr Paveley that a rate of 10.2% p.a. had been agreed (which would equate to £552.50 p.c.m.), on the basis of the interest charges included in the March 2004 accounts (see at [2/397]), the parties have in practice treated the interest accruing as £541.66 p.c.m. (which equates to 10% p.a.), and that is the figure which Mr Paveley asserted to be due, as simple interest without compounding at annual or any other rests. It is common ground that until the end of January 2004 when Mr Allmark gave up occupation of the flat above the shop, his entitlement to interest was to be equated to and discharged by the value of his otherwise free occupation of the flat above the shop. I shall therefore declare that the sums due jointly and severally from DSL and Mr Burnham as at 30^th November 2005 are £65,000 principal and £11,916.52 (£541.66 x 22) interest (the aggregate being £76,916.52), with interest accruing from 1^st December 2005 until payment at the daily rate of £17.80. I note that, in the context of these parties' financial affairs, the impact in interest of the delay in effectively severing the parties' business and financial affairs has already been significant. It is plainly in all parties' interests that the sums due are now discharged promptly.

(ii) Shares

109. Turning to the matter of Mr Allmark's shares in DSL, in the circumstances I have described it would plainly be unfair for him to remain 'locked in' to a company which has already been under Mr Burnham's sole de facto control for some time, and I unhesitatingly conclude that the appropriate relief in this regard is the more conventional order that the remaining majority shareholder (here Mr Burnham) do purchase the outgoing minority shareholder's shares (here Mr Allmark's 36 shares) at their fair value in all the circumstances. However determining that value is, in the unusual and unsatisfactory circumstances of this case, not entirely straightforward.
110. A helpful starting point is Mr Mason's valuation of the business of DSL, treating Royal's Greetings as part of the same (chapter 11 of his report [2/421-428]) at 31^st March 2004, effectively the one valuation which he both felt able to do and considered to be appropriate. Given what I have found as to Royal's Greetings and the accounting position generally, I am quite satisfied that such treatment should be adopted as the Court's approach here.
111. As to the date of 31^st March 2004, ideally a valuation figure as at Mr Allmark's actual departure from working in the business, namely 26^th September 2003, or the similar date the parties themselves suggested at their meeting that day, namely 31^st August 2003, would be taken. However the financial information available at/to that date is even more limited than that at/to 31^st March 2004. This is largely attributable to the fact that, notwithstanding the agreement of 26^th September 2003 (see esp. signed minutes para 3.4 [1/180]), and then what was said at the meeting of 30^th January 2004 (see minutes para 4.2, unchallenged in this respect by Mr Burnham's subsequent note added as 4.3 [1/193 and 193a]), Mr Burnham did not instruct either Pandey & Co or Ed Connolly & Co to prepare accounts to either of these dates. The nearest he came was instructing Pandey & Co to prepare management accounts to 31 January 2004 [3/586]; he then instructed Ed Connolly & Co to prepare 'certified accounts' to 31 March 2003, and audited accounts to 31 March 2004. In the course of his closing submissions Mr Burnham accepted that this failure was down to him, describing it as an 'oversight' on his part. In the circumstances, and in order to resolve the matter, the least unsatisfactory course is that adopted by Mr Mason, namely to take figures at/to the next date for which Ed Connolly & Co prepared (and audited) accounts, namely 31^st March 2004. Not only is Mr Burnham in no position to complain about this, but in any event it seems very unlikely that any serious inaccuracy or injustice will result, given that both Mr Mason [2/421] and Mr Wood (in his oral evidence) expressed the view that the value of the business is unlikely to have changed much between these dates.
112. As to what comprises 'the business' of DSL as valued by Mr Mason, it is the goodwill, stock and fixtures and fittings. It will immediately be seen that this involves something of a 'hybrid' between an earnings based and an assets based valuation. However it has the merit of matching the practical reality of the 'deal' by which DSL acquired the same from the Bargroves/Barent Ltd. in mid August 2002, which was only a little over a year before the de facto exclusion of Mr Allmark from the business on 26^th September 2003. Mr Mason's figures may therefore be compared with what DSL paid for the same on acquisition, as well as with figures from the unaudited (i.e. going concern) balance sheet (of DSL only) as at 31.3.04 (see 2/451) and the valuation prepared by Pinders dated 10^th February 2003 (as to which see paragraph 36 above):

	Mr Mason para. 11.11.6 (combined value, 31.3.04)	Paid by DSL on acquisition (8.02)	Pinders' Valuation (10.2.03)	Unaudited balance sheet DSL (31.3.04)
Goodwill	£79,296	£85,000		£70,906
Stock	£110,723	£82,932		£114,749
Fixtures and Fittings	£15,000	£15,000		£12,748
Total	£205,019	£182,932	£150,000	£198,403

113. As Mr Mason points out [2/428], taking the apportionments of the purchase price in August 2002 at face value, the figure of £85,000 for goodwill as things then stood appears to have been excessive. Mr Wood made a similar observation in his oral evidence. However the general tenor of the evidence, and in particular that of Mr Wood speaking as a local resident and regular customer, though having the background of a chartered accountant, is that after the initial months under new ownership, the business did improve somewhat. As Mr Mason notes [2/427], the business was open for longer hours than under the previous owners, and the turnover had gone up. Over the initial 13½ months trading the parties, notwithstanding their deteriorating relationship, applied their energies to the business with the enthusiasm of new owners. Between then and 31^st March 2004 Mr Burnham continued to do so, not least with regard to Royal's Greetings. I therefore find Mr Mason's goodwill figure of just below £80,000 at 31^st March 2004 unsurprising.
114. Notwithstanding the assertions on page 15 of Mr Burnham's written closing argument, I find no sufficient reason to reject or adjust (save as indicated in the next paragraph) Mr Mason's valuation of these 3 items as such, made as single joint expert, and based on figures to 31^st March 2004 as adjusted by him (see [2/425-6] and [2/505]), at a total of £205,019.
115. However DSL's ability to trade has depended on the ownership of its assets, and the funding of the same has been substantially provided by the borrowing of money. Although it has a relatively modest overdraft facility of £20,000, the vast majority of this funding has come from the directors' loans, which at 31^st March 2004 stood at the very slightly reduced figure of £178,738 [2/451]. Mr Mason's earnings figure used to arrive at his valuation of goodwill specifically excludes the cost of interest to service such borrowing (see paragraph 11.10.1(d) of his report [2/425] and following). However in arriving at a fair value of DSL/Mr Allmark's shares, one way or another this borrowing (which will not be extinguished or disappear by any buy-out order alone, as is reflected by what I have already said and decided about the repayment of Mr Allmark's loan) cannot be ignored, as Mr Paveley realistically acknowledged.
116. As to how this is best to be done, I do not have Mr Mason's help. However when undertaking the exercise myself, it is right that I should bear firmly in mind Mr Mason's reservations about the reliability of (at least some of) such figures as are available for the purpose.
117. One approach would be to say that as stock and 'fixtures and fittings' are both assets, and goodwill too is an asset (albeit valued by reference to earnings), DSL's liabilities, or at least the liability to repay the directors' loans, should also be brought to account ("the first approach"). I must bear in mind that this has the disadvantage of heading towards something like an asset based valuation of what is a continuing, trading business. That is usually inappropriate, and has the tendency artificially to depress the value of the company/its shares.
118. Another approach would be to go back to Mr Mason's adjusted earnings figure, discount it for the cost in interest (at a commercial rate) of servicing the borrowing which funds the business, and then to apply either a multiplier or a required yield/investor return approach ("the second approach"). The application of either approach here will of necessity be a somewhat rough and ready exercise. In either case, it will then be necessary to consider whether certain adjustments should be made, in particular with regard to the value of the option contained in the lease.
119. In considering the possible application of the first approach, it may be noted that DSL had other (current) assets and liabilities. These appear in the balance sheet figures conveniently gathered together by Mr Mason at para. 5.10.7 of his report, and (with a somewhat greater breakdown of the items shown) at Appendix 3.2 thereof (at [2/358] and [2/451] respectively). The unaudited figures at 31^st March 2004 are to be taken, as those are produced on a going concern basis (the change to a cessation basis is the essential cause of the differences in the audited figures). The other items shown are current assets (being debtors and cash in hand, in aggregate £4,908) and current liabilities (being bank overdraft, and trade, statutory and other creditors, in aggregate £52,313) (together "the other current items"). Netted off, they represent a net current liabilities figure (apart from stock) of £47,405.
120. I do not consider it appropriate to take the other current items into account in applying the first approach. Were I to do so, the first approach would become all the closer to an asset based valuation, which for the reasons I have mentioned is not appropriate. One would not ordinarily expect such items directly to affect the valuation of a private limited company as a going concern. Furthermore, the other current items are affected by many of the figures in the accounts which caused Mr Mason the greatest concern, and which would be affected by many of the individual adjustments for which Mr Paveley contends (in many cases based on observations made in the course of Mr Mason's report). In this context it is noteworthy that the equivalent net figure for other current items at 31^st March 2003 was a net current liabilities figure (apart from stock) of only £10,204 (current assets of £28,174, less current liabilities of £38,378).
121. As I am not going to take the figures for the other current items into account, I will deal with the question of what adjustments I might otherwise have made to the figure of -£47,405 quite shortly. Potential individual adjustments (inter alia to the cash at bank figure) include the following:

Item	Adjustment agreed?	Mr Mason's report, at vol 2 page	Amount
Purchase of wall units in Nov/Dec 2003	No	379, no. 2	£960 + VAT
Purchases of shelving in 6/7.03 and 1.04	No	379, no. 3	£379 + VAT
Rentokil bill	No	379, no. 4 (first)	£1,645 + VAT
Fees paid to Lamport Bassitt	No	379, no 4 (second)	£1,780 + VAT
Purchase of cards from Ling Design 18.11.03	Yes	379, no. 5	£719.58 + VAT
Purchase of Beech bookcases	No	388, at 8.7.3-8.7.4	£1,128 + VAT
Overpayment of Ms Baldock	No	393, at 9.2.12	£400
Unsanctioned payments to Ms Baldock	No	393, at 9.2.10	£3,800 min. (based on full-time work)
Payments/debts apparently reimbursing Mr Burnham re establishment of RoyalsGreetings	No	396, at 9.4.11	£56,736 (alleged by petitioner to coincide with decline in DSL bank balances)
Payments to Mr Burnham 12.03	No	396, at 9.4.12	£3,000
Payment to Ms Baldock 4.04 (post year end)	No	396, at 9.4.14, and 501	£250
Audit fee paid to Ed Connolly, whose instruction was not authorised by directors	No	398, at 9.6.3	£2,000 + VAT
Burnham salary in excess of £1,000 net – Oct 03	No	498 (earnings figure adjusted in this respect: see 425)	£1,854.75 (+ related statutory deductions)
Same – Nov 03	No	498	£854.75 (+ related statutory deductions)
Same – Dec 03	No	498	£1,854.75 (+ related statutory deductions)
Same – Feb 04	No	498	£854.75 (+ related statutory deductions)
Same – Mar 04	No	498	£854.75 (+ related statutory deductions)

122. However it is important that one does not become so focussed on the detail of those particular potential adjustments which Mr Mason has individually identified, and for which Mr Paveley contends, that one loses sight of the fact that the starting figures are themselves the subject of significant legitimate concerns, as Mr Mason's report makes out. Hence a mathematically calculated adjustment based on individually identified potential adjustments and individual figures causing particular concern would not in my judgment have been the appropriate way to arrive at an adjustment to any figure which was to be used in calculating fair value.
123. However some significant adjustment to reduce the net current liabilities (apart from stock) figure of £47,405 would have to have been made, before it could properly have been used in determining fair value. Doing the best I can on the material available to me, I have concluded that a broad brush reduction of at least 50% would have been required before (if otherwise appropriate to do so) this figure could have been used in any determination of fair value.
124. Thus my application of the first approach produces a figure of £26,281 as follows :

Items	Collection	Totals
'The business'
Goodwill	£79,296
Stock	£110,723
Fixtures and Fittings	£15,000
Total (per Mr Mason, as at 31.3.04)		£205,019
Adjustment*
Directors' loans (31.3.04)	(£178,738)
Net value		£26,281

* = no adjustment re other current items for reasons given above
125. Turning to the second approach, Mr Mason's ultimate figure for maintainable profits after tax (treating Royal's Greetings as part of DSL's business) is £26,432 p.a. [2/427]. The cost of servicing long-term borrowing of say £180,000 at 8% is £14,400 p.a., leaving a net figure of £12,032 p.a.. Applying Mr Mason's suggested multiplier of 3 [2/426], which equates to a required net return/net investor yield of 33.33%, and which is conservative by reference to what the parties themselves were prepared to pay in August 2002, this produces a figure of £36,096.
126. Thus the figures produced by the first approach (£26,281) and the second approach (£36,096) are c.£10,000 apart. As I have said several times, the nature of the exercise is of necessity rough and ready. For the purposes of arriving at a fair valuation of Mr Allmark's shares, I shall attribute somewhat more weight to the figure arrived at by the second approach than the first (the company being one which continues to trade as a going concern), and take the overall fair value of DSL, before adjustment as below, at say £32,000 (a weighting of 40-60 produces a figure of £32,170). In passing, I note that this figure, perhaps somewhat ironically, falls within the bracket of £24,580 to £33,250 indicated by Mr Wood (at 1/135 and 1/245), although of course Mr Wood's valuation added nothing in respect of the option (he remembered Mr Allmark raising that omission with him after he had received the report, and suggesting to him that if necessary advice about the option should be sought).
127. I now turn to the adjustments which require consideration. The largest item, namely the value of the lease, or more particularly of the option to purchase the freehold at a price well below current market value which it contains, does not appear on any of the DSL balance sheets. Its absence from the balance sheets which I have is not necessarily a matter of criticism of those balance sheets per se, as it may be that a responsible board of directors properly advised would decide not to carry such an item into the balance sheet in any event. However such an item must be considered as part of the process of arriving at a fair value.
128. In his report of February 2005, Mr Clark places a 'current open market value' on the option of £70,000, although it is important to read that figure in the context of the explanation of how he arrives at it given in his report, in particular at paras. 4.16-4.23 [2/517-519]. I would observe (i) that the only valuation of the option available to me is as at 11^th February 2005, and there is no evidence of any different value as at 31^st March 2004, and (ii) that I am satisfied that using Mr Clark's valuation as the starting point for an adjustment to reflect the value in the option does not offend against the general rule that events after a valuation date (for these purposes 31^st March 2004) should not be used save for the purpose of checking what was a proper estimate at that earlier date (Buckingham v Francis [1986] 2 All ER 738 Staughton J, at 742b). The option is an item quite distinct from those which affect the valuation of the trading business at 31^st March 2004, and therefore taking (of evidential necessity) different valuation dates (by 10½ months) for two such distinct items is not objectionable in principle.
129. Mr Paveley contends that I should take a figure nearer to the total excess of the open market value over the option value plus purchase expenses (£140,000 – see [2/525] and [2/529]). Mr Burnham, on the other hand, submitted in closing that the petitioner should not be allowed to 'have his cake and eat it' (my phrase), in that Mr Mason's valuation of the goodwill is arrived at on an earnings basis but in order to realise any capital profit on exercise of the option DSL would need to stop trading and sell the property with vacant possession. Mr Clark himself draws attention in his report (paras. 4.19-4.23 [2/518-519]) to the differing approaches to the option and to the goodwill of a property investor on the one hand, and someone buying the premises in order to continue trading the business on the other hand. In reply, Mr Paveley pointed out with some force that at £325,000 for the freehold, and a rent of £25,000 (which prevailed until August 2005, when the first of the 3 yearly, upwards only reviews was due to take place), an acquisition of the same would be cost neutral for the owner of the business (be it DSL or a purchaser from it) who could (subject to the ability to borrow) service a £325,000 mortgage at say 7.5% pa (for commercial borrowing against land, secured by a first fixed charge) for about the same annual cost (£24,375 p.a.). I note that this argument is all the stronger if one assumes a market rent from August 2005 in the region of £40,000 (see per Mr Clark's report at paras. 4.5-4.6 [2/515]).
130. I conclude that either DSL (in the sole control of Mr Burnham) or a purchaser of the business from DSL would find the opportunity of acquiring the freehold, with the advantage of avoiding the effect of future rent reviews coupled with the prospect of increasing capital value over time, attractive (as did Messrs Allmark and Burnham when they first looked into purchasing the business), at least so long as the cost of servicing the requisite mortgage did not markedly exceed the rent that would otherwise have to be paid for the premises. Furthermore, on the figures available to me, I note that the saving to an owner occupier trader in paying mortgage interest at say 7.5% on £325,000 (the fixed price at which the freehold is available under the option until August 2007) as against paying rent at £40,000 p.a. would amount to £46,875 in just 3 years. I therefore do not share Mr Clark's view expressed in para. 4.22 of his report that a hypothetical purchaser of the business would be unlikely to be interested in paying a premium to purchase the company in order to exercise the option, especially after August 2005. Equally, there is real additional value in the option if the business remains in DSL's ownership.
131. Looking at the matter in the round, given Mr Paveley's 'cost neutrality' point, and its increased force after the August 2005 rent review, I find that it would be appropriate to include in a fair valuation of DSL/its shares a sum in respect of the value of this option in addition to Mr Mason's valuation of its goodwill. On the other hand, I am not persuaded that I should include a sum greater than Mr Clark's valuation, made as single joint expert, of £70,000. To do so would be to assume a 'property investor' approach of the type described by Mr Clark, and it would not be fair to set a price for Mr Allmark's shares which only made commercial sense on the basis that Mr Burnham would have to close down DSL's business in order to exercise the option and treat the freehold as a property investment.
132. More difficult is the question of whether, and if so by how much, I should discount Mr Clark's £70,000 valuation of the option in order to arrive at the premium which it would be reasonable to expect a hypothetical purchaser of the business from DSL to pay for the opportunity to purchase the freehold at £325,000, with the consequential saving in paying mortgage interest rather than rent, and prospect of capital growth, or equally to arrive at its value to DSL as a trading company. Ideally, the Court would have had additional expert evidence as to this, but in its absence I conclude that Mr Clark's £70,000 figure (from which I do not dissent in itself) would somewhat exceed the 'premium' which a hypothetical purchaser of the business, already ex hypothesi purchasing the goodwill, might be expected to pay for the benefit of the option, and/or its value to DSL as a trading company. Bearing in mind the £46,875 potential saving over 3 years from August 2005 mentioned above, and doing the best I can on the material available to me, for the purpose of my determination of fair value I will take the figure of £50,000 in respect of the value of the option in addition to the value of goodwill.
133. In arriving at a fair value for Mr Allmark's shares, Mr Paveley contends for further adjustments to the figure which would otherwise be derived as a simple percentage of the value (be it 34% or 50%) of DSL as a whole. In particular, he contends for an adjustment in respect of the net salary which Mr Allmark would have received had he remained employed by DSL throughout. He urges that in the context of this company his client's receipt of salary should not be regarded as simply remuneration for work done in the business, but as directors' fees or emoluments which should not have ended just because his daily duties in the shop came to an end.
134. In my judgment equitable considerations, flowing from the parties' original agreement pursuant to which DSL was incorporated and the business was purchased, made it unfair to deprive Mr Allmark (without good cause) of remunerated employment in the business of which he was (in effect) a co-owner. These were infringed by his being 'forced out' at the meeting of 26^th September. Thenceforth, like equitable considerations with regard to the continued payment of salary flowed from the 'agreement' for the same reached that day. However such equitable considerations could not, in my judgment, have extended either indefinitely or for so long as he remained a registered shareholder and/or a director. DSL's was a modest business, with a finite capacity for carrying overheads. It was not in a position to pay a significant salary (by its own standards) to a non-working director otherwise than on a short-term basis. These equitable considerations flowing from the 26^th September 'agreement' can only have continued for a reasonable period sufficient to enable the agreed process for a consensual exit to be carried through. I find that 6 months or so in total, or 3 months or so after the unexpectedly limited product of Mr Wood's (entirely voluntary) work was received and digested, would be their reasonable extent. Given the dates, on both bases I conclude that equitable considerations requiring the continued payment of Mr Allmark's salary expired at the end of March 2004. Mr Allmark continued to receive his salary up to and including February 2004. I am therefore persuaded to increase the figure otherwise representing the fair value to be paid by Mr Burnham for Mr Allmark's shares by the sum of £1,000, equating to the net benefit after statutory deductions which the payment of salary in March 2004 would have given Mr Allmark, but no more.
135. For the avoidance of doubt, I am quite satisfied that there is no inconsistency between the making of this modest adjustment and the decision of the Employment Tribunals at Southampton (Messrs Guyer, Evans and Aslam) entered on 5^th October 2004 to dismiss Mr Allmark's claim for unfair dismissal [1/338a-h]. I have made no decision in respect of the fairness or otherwise of Mr Allmark's dismissal in employment law terms, nor made the adjustment I have on the basis of any entitlement under the terms (wholly or largely implied) of such contract of employment as existed between Mr Allmark and DSL between 12^th August 2002 and 18^th February 2004.
136. Although Mr Allmark is the registered holder of 36 shares, Mr Paveley submits that I should attribute to them the value of a 50% shareholding on the basis that equitable considerations flowing from the parties' original agreement required that Mr Allmark be allotted 50% of the shares issued. Although when their venture was first discussed the parties did anticipate equal shareholdings, as Mr Raye's evidence confirmed, that was on the basis that DSL would acquire the freehold of the shop and borrow much of its capital requirement, with Mr Burnham and Mr Allmark each personally securing the same with equal exposure (see business plan at [1/213]). In the event that plan was substantially altered (contrast revised business plan at [1/213a]). I am not satisfied that any equitable considerations require that Mr Allmark be treated as if he had been allotted a greater proportion of the issued shares. It appears to me unlikely that Mr Allmark would have said nothing to challenge the reference to his being the holder of 36 out of 100 shares at the General Meeting held in the presence of two independent observers (Messrs Wood and Raye) on 26^th September 2003 (see minutes at [1/189]) had this taken him by surprise as something which had not already been agreed. I therefore think it probable that Mr Burnham had, in or about March 2003, being around the time that they were arranging the HSBC overdraft facility, agreed the share allocations with Mr Allmark. Hence he completed the Annual Return accordingly on 16^th May 2003 [1/168-174]. Whilst it is true that the share certificates were subsequently backdated, that was done (as between the parties) openly and following discussion with Mr Wood (see minutes of general meeting on 26^th September 2003 at para. 3.3 [1/189]), and does not materially assist Mr Allmark. I therefore reject Mr Paveley's submission and will value Mr Allmark's 36 shares as such.
137. The question then arises as to whether or not the value of Mr Allmark's 36% shareholding in the company should be discounted to reflect its minority status. This case has many of the features of a so-called 'quasi-partnership'. The whole venture was one founded on long-term personal friendship. The parties' contributions differed both in monetary terms and in the nature of the work they performed. Mr Allmark moved home from London to Hampshire, and realised all his capital, in order to undertake it. The parties regarded themselves as partners in the business. This is a clear case for a pro-rata valuation without a 'minority discount'.
138. Mr Paveley seeks an award of or equivalent to interest in respect of the value otherwise payable for his client's shares. In support of this submission, he points to the totality of Mr Allmark's commitment to the company from the outset of the venture (place of residence, employment, personal capital), and the circumstances in which he has been 'locked in' to the company pending judgment on this petition, without any director's remuneration either paid or accruing after February 2004, and with the interest accruing on his director's loan account not being paid from February 2004 onwards, whilst Mr Burnham has taken sole control of the company, received an increased salary, and will enjoy the sole benefit of the fruit which has accrued since 31^st March 2004 of what Mr Burnham himself regards as the significant improvements in trading patterns introduced by him. No dividends have been paid over the relevant period.
139. In these circumstances there are serious grounds for considering the exercise of the court's undoubted power under the broad words of s.461(1) CA85 to make such an award: see Profinance Trust SA v Gladstone [2001] EWCA Civ 1031, [2002] 1 BCLC 141 at paras. [30]-[32], and the discussion in Hollington's Shareholders' Rights, 4^th ed. (2004) at paras. 8-23 to 8-25. This power "should be exercised with great caution" (Profinance Trust SA v Gladstone at para. [32], per Robert Walker LJ).
140. However when one looks at the detail of the position, this is not in my judgment a case where an award of or equivalent to interest should be made. First, albeit for the reasons I have already given, the valuation is based on accounting figures at 31^st March 2004, rather than 31^st August 2003. Second, the majority of the value of Mr Allmark's shares is in fact attributable to the value of the option contained in the lease, and that was valued by Mr Clark – whose valuation has been adopted in my valuation of the shares, as the only one available in the expert evidence before me - at a date earlier this year, 11^th February 2005 (he gives "current" open market valuations: see para 1.3 at [2/507]). Any award of interest from 1^st April 2004 on that element of the share price which is not attributable to the option would be relatively modest in any event (at 8% p.a., it would amount to about £77 p.c.m.). Third, although he should already have been paid it, Mr Allmark will receive interest on his director's loan from 1^st February 2004 to date, and I have already indicated the orders I am going to make to that end (I treat the 'delayed payment' since March 2004 of the £1,000 adjustment as de minimis in this context). Fourth, taking into account the £1,000 adjustment I am going to make, Mr Allmark will have received net salary at the agreed rate for 6 months after his duties in the shop ceased (see paragraph 134 above). Further, so far as the total directors' salary actually paid is concerned, Mr Mason has made adjustments in respect of directors' remuneration in arriving at his maintainable earnings figure. Those are equivalent to a net reduction of £6,520 (£39,520 - £33,000 – see [2/505]), which is at least roughly equivalent to the £1,000 p.c.m. increase in Mr Burnham's salary from October 2003 to March 2004 inclusive. I therefore decline to make any further adjustment in respect of interest.
141. Accordingly, my 'rough and ready' fair valuation of DSL, and thus of Mr Allmark's 36 shares in it, runs as follows:

Items	Collection	Totals
Fair value of DSL
(at 31.3.04)	£32,000
Adjustments for other assets and liabilities
Valuable option to purchase the freehold (the Court's adjustment of Mr Clark's valuation at 10.2.05)	+ £50,000
Fair value of DSL		£82,000
x36% =		£29,520
Adjustment to take account of non-receipt of net salary in 3.04	+£1,000
Fair value to be paid for petitioner's shares	rounded, say	£30,500

142. By way of a cross-check, and standing back from the accounting detail and valuation methodology, the practical effect of the relief indicated is that Mr Allmark receives repayment of the capital he contributed to the original purchase monies via DSL (with the agreed interest), a sum which can be viewed as representing his 36% share of the increased profitability/value of the business since August 2002, and his 36% share of the value represented by the option, plus a sum equivalent to one month's salary. This accords with common sense.
143. I thus determine the fair value at which Mr Burnham must purchase Mr Allmark's 36 shares in DSL at £30,500. I will again hear submissions as to the time period I should set for the completion of this purchase.

(iii) General compensation

144. Mr Paveley submitted that I should make an award of (in effect) general damages to compensate Mr Allmark for the unfair prejudice he has suffered, citing Joffe, Minority Shareholders: Law, Practice and Procedure (2^nd ed.), at page 257, and Atlasview Ltd v Brightview Ltd [2004] EWHC 1056 (Ch), [2004] 1 BCLC 191, Mr Jonathan Crow (sitting as deputy judge). Suffice it to say that I am satisfied that the relief which I have already indicated that I will award adequately meets Mr Allmark's legitimate complaints, and that this is not a case in which it is necessary for me to consider making such an unusual (in the context of proceedings under Part XVII CA85) award in addition thereto.

Conclusion

145. I find unfair prejudice proved and will so declare. The relief I shall grant is as outlined in paragraphs 106, 108, 109 and 143 above. Before finalising the terms of my Order I will hear the parties with regard to its provisions as to time, and any other matters of detail they wish to raise. They will also doubtless wish to address me on the question of costs.

[END]