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
		21/12/2005

Mr Justice Warren

Introduction

1. This is a petition brought under section 459 of the Companies Act 1985 in which the primary relief sought by the petitioner ("Mr Wilkinson") is an order that his shares in the seventh respondent, ("NGS") be acquired by the first and second respondents (respectively "WCC" and "Mr Gorman"). Mr Wilkinson holds 40% of the shares in NGS, although he holds those shares as to 17% for himself, 17% for one Jonathan Paul Wood ("Mr Wood") and the remaining 6% for other business associates, including 2% for one Richard James ("Mr James"). NGS is the holding company of the Eighth Respondent ("TGS") and became such in the circumstances to which I shall come. The remaining 60% of the shares in NGS are owned (i) as to 50% by WCC, a Scottish partnership of which the third and fourth respondents ("Mr McMahon" and "Sir Tom" [Sir Thomas Hunter]) are the only partners with Sir Tom having the greater share, which holds 25%, Mr Gorman also holding 25%, and (ii) as to the remaining 10% by the fifth respondent ("Mr Elvidge").
2. On 29 August 2003, a company called Birthdays Group Limited ("Birthdays") was purchased by the sixth respondent ("New Gifts"), a company owned and controlled, through a chain of holding companies, by WCC (holding 75%), Mr Gorman (holding 24%) and one Tom Walker ("Mr Walker") (holding 2%). Mr Wilkinson asserts that the acquisition of Birthdays should have been by NGS and not by Hunter/Gorman interests because (a) the opportunity to acquire Birthdays was a corporate opportunity belonging to NGS and (b) the shareholders of NGS had agreed that NGS should do so. Mr Wilkinson claims that this failure of NGS to purchase Birthdays constitutes unfair prejudice for the purposes of section 459. He also claims that Mr Gorman and Mr McMahon (who were de jure directors of NGS) and Sir Tom (who Mr Wilkinson alleges was a de facto director of NGS) were in breach of the fiduciary duties they owed to NGS in causing Birthdays to be purchased by New Gifts.
3. Birthdays was subsequently sold by New Gifts at a loss. NGS is now in insolvent administration and its shares are worthless. Although Mr Wilkinson originally sought an order authorising him to bring proceedings on behalf of NGS for breach of fiduciary duty against Mr Gorman, Mr McMahon, Sir Tom and New Gifts, and for declaratory relief that the shares in Birthdays were held by New Gifts on trust for NGS, the relief sought had, by the time the matter came before me, focussed on the further claim in the petition based on section 459.
4. The relief which Mr Wilkinson now seeks is an order for the purchase by WCC and Mr Gorman of his shares in NGS, pursuant to section 461(2)(d) Companies Act 1985. In his prayer for relief he calls for his shares to be valued on the following basis:

a. That his shares have the value they had on 29 August 2003, which was the date on which WCC purchased Birthdays; and

b. On the hypothetical basis that NGS had purchased Birthdays (so that his shares reflect the value of the combined business rather than that of NGS alone).

The witnesses

5. The witnesses on behalf of Mr Wilkinson other than he himself were Mr Wood and Mr Donoghue, originally an IT manager who became a director of TGS in 2000. Sir Tom, Mr Gorman and Mr McMahon gave evidence, on their behalves, as did Mr Simon Reuben, a business associate of Sir Tom.
6. I found Mr Wood an unreliable witness. As will be seen from the detailed consideration of many aspects of his evidence, I do not consider that he is being honest in everything he says. I found him evasive in the witness box. I found his ability to remember matters favourable to him but not those unfavourable surprising. He came across as a very hard and calculating man albeit attempting to present himself in a much softer way. Where his evidence differs from those of other witnesses, I prefer theirs.
7. Mr Wilkinson was a more straightforward witness. However, I do not consider that he has the recollection of events and their dates which he now professes to have. He did not take an interest in detail and did not read documents. He relied very much on his adviser, Mr James (who did not give evidence). I consider that Mr Wilkinson's recollection of events is very influenced by what he has since read and heard about the case. Although I do not think that he is deliberately lying, I cannot, as with Mr Wood, place reliance on his evidence where it differs from that of Sir Tom, Mr Gorman or Mr McMahon.
8. Mr Donoghue came across as an honest witness. On the main area of disagreement - whether Mr Gorman ever said that NGS would be worth £300 million - I do not find it necessary to make a determination. Even if Mr Gorman's evidence on that issue were to be preferred, I would only conclude that Mr Donoghue was genuinely trying to do his best but had simply mis-remembered. I have no reason to conclude that he was lying.
9. On the WCC side, Sir Tom struck me as entirely honest. His recollection of some details was hazy and because, in some respects, he was not as "hands on" as Mr McMahon he was not able to help as much as Mr McMahon.
10. Mr McMahon was to my mind a wholly honest and thorough witness. His evidence was entirely helpful.
11. Mr Gorman presents slightly more difficulty. Aware of where his interests lay, I am afraid that he tended to gloss over the difficulties he faced. In particular, I find it hard to accept that he was clear, in his early discussions about the acquisition of Birthdays, that he was looking at an acquisition by WCC and himself rather than NGS. I think that is wishful thinking rather than an accurate story. However, in relation to the central meetings and discussions with Mr Wilkinson and Mr Wood, I prefer his evidence to theirs.
12. Mr Reuben was a witness whose evidence I accept in its totality. He was I consider entirely honest. His evidence made perfect sense.

The Facts

13. The following paragraphs contain my findings of fact.
14. Sir Tom and Mr Gorman are close personal friends: they have been friends for a number of years and well before the events giving rise to this litigation.
15. Similarly, Mr Wilkinson and Mr Wood have known each other for about seven years. They met when introduced by a mutual business associate. Mr Wilkinson has invested in at least two companies other than NGS with Mr Wood including Digital Interactive Television Group Ltd ("DITG"). They speak regularly about business. They have become personal friends.
16. WCC is, as I have mentioned, a Scottish partnership (this having a legal personality separate from those of the partners individually) of which Sir Tom and Mr McMahon are the only partners with Sir Tom having by far the larger share. It was formed in 2001. Sir Tom got to know Mr McMahon in 1998 when, as a partner in PriceWaterhouseCoopers, he had advised Sir Tom on tax matters. WCC provides equity finance for investment and co-venturing opportunities, mainly in the retail and property sectors. Sir Tom himself has considerable expertise in the retail sector, the field in which he operated and made his fortune. It employs only a few staff. Unlike other private equity houses, it has no outside investors and is able to adopt more flexible approaches to the businesses in which it invests than other equity houses (in particular, concerning timescales on exit from investments).
17. Since its formation in 2001, WCC has used UBS as an adviser for private banking matters. It was keen on being offered opportunities to enter into investment opportunities along with UBS; accordingly, Liz Cacciottolo, who was the managing director of the private client department at UBS in London and who was well known to Sir Tom, sometime in March or April 2002, put Sir Tom in touch with a colleague of hers who was not in the private client department. This was Mr Wood. However, Sir Tom does not recall meeting Mr Wood at this time, but says that he did speak to him on the phone. That, according to Sir Tom, is how Sir Tom and Mr Wood came to know each other. Following the introduction, Sir Tom says that Mr Wood called him about various business opportunities which Mr Wood wanted to consider WCC investing in but none of the deals interested Sir Tom until the approach about NGS to which I will come in a moment.
18. Mr Wood says in his witness statement that he and Sir Tom agreed that they would each bring to the attention of the other any business opportunity which they thought would be appropriate for the other. And he says that in the event that there was an opportunity in which they could both invest, they should do so on a 50:50 basis. I am bound to say that the impression given by the witness statement is that Mr Wood was acting in a personal capacity and not for UBS and that Sir Tom knew this. However, in cross-examination, Mr Wood observed that his statement does not specifically say that he was acting in a personal capacity (which is true) and says that he might have acted in either capacity. What he does not say - because it would have been untrue - is that he would have entered into deals only on behalf of UBS; nor does he say that he made clear to Sir Tom that he might be acting other than on behalf of UBS. It might strike one as odd, and it certainly strikes me as odd, that an employee of UBS would not make clear, expressly, to a client of UBS who had been introduced to him by a colleague of his, that the deals which he was proposing might be proposed by him in a private capacity. Sir Tom understood, and he was I consider reasonable in understanding, that Mr Wood was acting on behalf of UBS since there was nothing said to him to indicate otherwise, especially given that he says, which I accept, that Mr Wood told him that he, Mr Wood, "had the UBS balance sheet to play with".
19. Sir Tom accepts that they each said that they would let each other know of suitable business opportunities. But it is clear from his evidence and from what Mr Wood said in cross-examination that neither of them was bound, legally or morally, to bring to each other such opportunities. There was no more than recognition that each might have opportunities that the other might wish to share or, as Mr Wood put it in answer to questions in cross-examination "we would share ideas with each other".
20. Sir Tom denies that there was any discussion about 50:50 sharing of any investment which they might make together. The arrangement suggested by Mr Wood was not put to him in cross-examination. There is no evidence that Mr Wilkinson knew of it.
21. On this issue, I accept Sir Tom's account and reject Mr Wood's so far as it is inconsistent. Although not of direct relevance to the matters in issue, these differences are of some significance in the overall assessment which I make of the witnesses.

The Gadget Shop

22. TGS had been founded in 1991 by Mr Elvidge. It owned a retail business of shops under the name The Gadget Shop which sold gadgets popular as gifts. It was also involved in part in technology and Mr Elvidge was intending it to launch an Internet business called gadgetshop.com. Mr Wilkinson saw an opportunity to help Mr Elvidge, whom he clearly thought was enthusiastic and driven, and that it would be interesting for him (Mr Wilkinson) to learn a bit about the retail sector of which he had no experience. After some due diligence enquiries, Mr Wilkinson invested over £1million in TGS acquiring 3% of the issued share capital in 2000. Later in 2000, NGS was incorporated. Its purpose was to serve as the holding company of TGS. This is reflected in the minutes of a board meeting of NGS dated 19 October 2000. Since then, there has been no resolution of the board or of the members in general meeting expanding that purpose or otherwise changing it. Mr Wilkinson became a director and his shareholding in TGS was replaced by an equivalent holding of shares in NGS.
23. In early 2002, NGS found itself in financial difficulty. Mr Wilkinson thought that the business was essentially sound, but that it suffered from poor cash flow. He considered that a major part of the difficulties within TGS/NGS arose as a result of the attitude of one of the other shareholders and directors, Mr Hobbs, leading to strained relations between Mr Hobbs and Mr Elvidge. Mr Wilkinson also considered that the business would benefit from the addition of an experienced retailer to manage the business: he recognised Mr Elvidge's talent in sourcing innovative produces but considered he was not an effective business manager.
24. By April 2002, it looked almost inevitable that NGS/TGS would need to go into administration. Mr Wilkinson saw an opportunity to take greater control of the business and to arrange for additional investment to put it on a more secure financial footing, and thought that it would be possible to acquire NGS for very little and then to relaunch it without Mr Hobbs.
25. He discussed the potential of the business with Mr Wood in a phone conversation. Mr Wood was interested and they agreed that any acquisition they made would be on a 50:50 basis, Mr Wood investing his own money, not that of UBS. He also explained to Mr Wood that the involvement of an experienced retailer would be necessary, and asked if Mr Wood knew of anyone. As chance would have it, this was at just the same time as Mr Wood had met Sir Tom whose name immediately sprung to mind and was mentioned by Mr Wood to Mr Wilkinson.
26. According to Mr Wood, after his conversation with Mr Wilkinson and at about this time (mid to late April 2002) he phoned Sir Tom to tell him about the NGS opportunity. Sir Tom had heard of Mr Wilkinson (whose name had become well-known in business circles as a result of his hugely successful involvement in Freeserve, the internet ISP). Mr Wood did not mention to Sir Tom, at that stage, his own personal interest in the acquisition of NGS. He says that he told Sir Tom that he and Mr Wilkinson were interested in bringing him in as an experienced retailer. He proposed, in accordance, as he puts it, with his previous discussions, that they should all go in with Sir Tom holding 50% of NGS and Mr Wilkinson and Mr Wood holding the other 50%. He does not suggest that he made any mention of Mr Elvidge holding 10%. Mr Wood says that the offer of 50% was on the basis that Sir Tom "should agree to run the company". He says that Sir Tom agreed to the 50:50 basis and impliedly, therefore, that he agreed to run the company.
27. Further, according to Mr Wood, Sir Tom said this: that he knew of somebody he could put in to run the business on a day-to-day basis although he did not mention Mr Gorman's name; that he would run the business with the third party being a day-to-day manager; and that Sir Tom made clear that this other person would be his lackey.
28. Sir Tom denies that he ever said that he would run the business whilst accepting that he would bring his retailing expertise to the board. Whether or not he actually mentioned Mr Gorman's name, it is clear that Mr Gorman is the person he had in mind to run the business at least for a limited period. Having seen and heard both Sir Tom and Mr Gorman in the witness box, the proposition that Mr Gorman would, in any sense, be Sir Tom's lackey is preposterous. They clearly have a mutual respect and whilst Mr Crystal QC (for Mr Wilkinson) may be right in suggesting that Sir Tom is Mr Gorman's mentor, the subservience implicit in the use of the word "lackey" by Mr Wood is entirely absent. That, of course, does not mean that Sir Tom could not have described Mr Gorman, contrary to the reality, as his lackey. Further, Sir Tom himself, I am perfectly satisfied, would never have dreamt of running the TGS business himself as an executive, even with a hands-on day-to-day general manager. Sir Tom had clearly left the world of retail management by this stage of his career and was more concerned with running WCC and investing the large sums of money at its disposal. NGS was a small investment in the context of Sir Tom's wealth.
29. Further, there is no reason why Sir Tom would have said any of these things to Mr Wood. Indeed, when we come to the meeting on 23 April 2002, both Sir Tom and Mr Gorman were present at the discussions with Mr Wilkinson. The discussions at that meeting are not consistent with the approach which Mr Wood says was taken in the phone conversation which he had with Sir Tom. I therefore find that Sir Tom did not say to Mr Wood that he would run the business or that the third person who would be put in on a day-to-day basis would be his "lackey".
30. The absence of any sort of note from Mr Wood of this phone call is unfortunate given the importance which he attaches to it. Indeed, I add that the almost total absence of written records of the most important conversations which are relied on by Mr Wilkinson and Mr Wood is a startling aspect of this case. This is particularly so in relation to conversations where only Mr Wood was present on the side of himself and Mr Wilkinson.
31. Sir Tom then spoke to Mr Wilkinson on the phone. Mr Wood had not, it seems, himself contacted Mr Wilkinson to tell him about what he had agreed with Sir Tom. Sir Tom says, and I accept, as follows: During the course of that call Mr Wilkinson told him that the business needed a new management team. Sir Tom responded that he no longer ran businesses. However, Sir Tom said that if he were to invest he could probably find a management team. Sir Tom mentioned Mr Gorman, saying that he might be interested in investing and might be interested in running the business for a limited period. It was agreed that Sir Tom and Mr Wilkinson would meet on 23 April 2002 at the head office of NGS in Hull.
32. The financial difficulties of NGS became acute in the middle of April 2002. At an emergency board meeting of NGS, an insolvency practitioner, Mr Mudd, was present. He had been called in by Mr Wilkinson. Mr Wilkinson proposed that NGS should go into administration which was agreed (albeit that Mr Wilkinson hoped and expected that a deal could be done with Mr Hobbs and the administration process halted).
33. I now introduce Mr Richard James. He is a solicitor and a former partner of Hammonds. He is now a legal and business adviser to Mr Wilkinson working for him in-house in relation to his various activities. He was closely involved with the events leading to the investment of Mr Wilkinson, together with WCC and Mr Gorman, in NGS. I was not provided with any evidence from him.
34. Following the board meeting which I have just mentioned, Mr James negotiated on behalf of Mr Wilkinson with Mr Hobbs for the acquisition of Mr Hobb's shares in NGS. However, no agreement appeared possible and none was reached. Nevertheless, Mr Wilkinson and Mr James still hoped that some sort of deal could be reached. And if a deal was reached, the involvement of a person with retail experience would still be necessary. It was still necessary to involve Sir Tom.

The meeting on 23 April 2002 in Hull

35. The scheduled meeting agreed between Mr Wilkinson and Sir Tom duly took place. Present were Mr Wilkinson, Sir Tom and Mr Gorman but not Mr Wood. Mr Gorman attended because, on 19 April, Sir Tom had contacted him to tell him about TGS and the opportunity it afforded: Mr Gorman had the relevant business experience and Sir Tom thought that he might be interested in taking on the management role as well as investing. Mr Wilkinson explained the problems facing TGS and that there was an immediate need for a £1 million cash injection with an anticipated need for a further £2 million. The result of the meeting was that, assuming Mr Hobbs' shares could be obtained at all, then WCC, Mr Gorman and Mr Wilkinson would make an initial investment of £1 million; the shareholdings in NGS would be altered so that WCC and Mr Gorman would between them take a 50% stake, Mr Wilkinson would take a 40% stake and Mr Elvidge would take a 10% stake (substantially reduced from his then current holding). Although Mr Wilkinson knew of Mr Gorman's involvement with WCC in relation to the investment, it is not clear whether he knew at that time that the split was 25% each: but nothing turns on that.
36. Although this division was the outcome of the meeting, it was not Mr Wilkinson's original proposal: that was that Sir Tom (and his associates) and Mr Wilkinson himself would each have 45% of the shares, with Mr Elvidge retaining 10%. However, when that proposal was put to them, Sir Tom and Mr Gorman went for a short walk around the garden to talk things over. They did not know Mr Wilkinson and, from what they had been told, they saw Mr Elvidge as being a friend of his. Accordingly, rightly or wrongly, they saw Mr Elvidge's 10% aligned with Mr Wilkinson's percentage if ever it came to a vote on any matter. They discussed the balance of power with Mr Wilkinson the outcome being as I have already explained. There can be no doubt that the result of that meeting was that Mr Wilkinson had agreed to the split 50:40:10. He says that he was not happy with the outcome, but that he wanted a solution and was a busy businessman with other things to do. Whatever he may have felt, he had, as a commercial man, agreed the commercial outcome of a commercial meeting.
37. Sir Tom and Mr Gorman say that during the meeting, Mr Gorman's management involvement had been discussed. It seems to me to be highly unlikely that it was not discussed. I accept their evidence that Mr Gorman's involvement was seen at that meeting as a short-term commitment for 3 to 6 months until an outside person could be appointed. Mr Wilkinson says that it was never understood that Mr Gorman should stay for so short a period. Why, he asks, would he agree to Mr Gorman having such a large interest in the company if he was staying for such a short period? The answer to that, it seems to me, is that the 50% share was being provided to WCC and Mr Gorman collectively, and it was not a matter of concern how that 50% was divided between them. In any event, it is clear that Mr Gorman did not, on taking up office, do so under a contract which obliged him to stay for any particular period, and he would have been able to give reasonable notice resigning his position at any time.
38. Mr Wilkinson reported the outcome of the meeting to Mr Wood saying that he was not particularly happy with it. Mr Wood told him, he says, that he, Mr Wood, was not happy either (although the precise terms in which he expressed himself are left to the imagination). Mr Wood clearly was not happy and considered that Sir Tom had changed the deal between them that they would go 50:50. It is this "unhappiness" which it seems to me has coloured Mr Wood's attitude to Sir Tom and Mr Gorman and has led to his becoming more and more hostile as time passed by, seeing in every move by them a conspiracy to water down his shareholding yet further. This is hardly a balanced view of a purely commercial relationship for at least two reasons.

a. First, it is worth noting that, even on Mr Wood's own case according to his witness statement, the agreement was that Mr Wilkinson and he would have a 50% share in NGS, and WCC and Mr Gorman would have the other 50%. In fact, that was never an available position since it was Mr Wilkinson's consistent intention that Mr Elvidge should retain 10%. It is not suggested that Mr Wood told Sir Tom of that when they spoke on the phone. When it came to the 23 April 2002 meeting, Sir Tom and Mr Gorman regarded the Elvidge 10% as part of the Wilkinson camp's interest; Mr Wilkinson was, reluctantly, persuaded to go along with that. Strictly, therefore, it would seem to me that Sir Tom could have justifiably maintained that a 50:50 split, even if it had been agreed, would have resulted in the split which was actually adopted. Mr Wood does not accept that Mr Elvidge should be regarded as in their camp. He is entitled to that view, but the fact is that the outcome was not any sort of double-dealing by Sir Tom but was the outcome of a perfectly proper commercial negotiation.

b. Secondly, if Mr Wood really thought it was unacceptable or unfair, he could have refused to proceed. But he preferred to take a 20% investment rather than walk away.

Events leading to the Shareholders Agreement

39. On the same day, 23 April, and after the meeting which I have just considered, there was a further board meeting of TGS when administration was discussed. Mr Hobbs wanted to avoid administration and put forward an offer which involved him continuing to have a significant holding in NGS/TGS. This was not acceptable to Mr Wilkinson for a variety of perfectly sound reasons. It was therefore agreed to petition for administration of both TGS and NGS.
40. Mr Wilkinson thought that that was the end of the road. However, Mr James, ever tenacious, carried on negotiating with Mr Hobbs and, at a very late stage, succeeded in negotiating a deal with Mr Hobbs which involved the purchase of his shares by Mr Wilkinson. The purchase price was £157,705 for a 48.5% holding, in an arm's length transaction.
41. Mr Wilkinson is a strategist, a "macro" man as he put it; he is not a details man. For the mechanics and details of deal structures he relies heavily on Mr James, ( I suppose a "micro" man). He accepts Mr James' work at this level almost without question and certainly without a detailed understanding. It is apparent that Mr Wilkinson sometimes does not read, other than perhaps to scan quickly, documents which Mr James asks him to sign. He was content to leave the mechanics of the share transfer from Mr Hobbs to himself in the hands of Mr James. The share acquisition was completed on 24 April. It resulted in the removal of Mr Hobbs from the scene which meant that the proposals agreed with Sir Tom and Mr Gorman could go ahead.
42. Mr Wilkinson clearly saw the arrangements between the two blocks of shareholders as a joint enterprise in which each side should have a veto over significant changes to the activities of NGS/TGS. Mr Wilkinson took this straightforward, simple, approach "because I work in a simpler way than all these complex shareholder agreements".
43. On 29 April 2002, there was a further meeting attended by Sir Tom, Mr Gorman, Mr McMahon and Mr James but not by either Mr Wilkinson or Mr Wood. Sir Tom and Mr McMahon were mistaken, as they readily accepted in cross-examination, in their witness statements in saying that Mr Wilkinson attended. I take this error into account in assessing the reliability of their evidence overall and their honesty. Mr McMahon's account of this meeting was unchallenged.
44. One of the topics for discussion was the content of an intended shareholders agreement to govern the relationship between all of the shareholders. Mr McMahon says this:

"We agreed that NGS was to be a special purpose vehicle, in other words that its only business would be the Gadget Shop, leaving those investing free to pursue other investments in the future. [WCC] would not have been interested in investing if we were not free to follow our other interests and pursue other deals unhampered."

45. After that meeting, work started on the drafting by the lawyers involved (McGrigors for WCC and Mr James for Mr Wilkinson) of a shareholders agreement. The drafting process and how and why the initial draft changed are relied on by Lord Grabiner QC (for WCC, New Gifts, Sir Tom and Mr McMahon) and Mr McCaughran QC (for Mr Gorman). The process is dealt with at length in paragraphs 13 to 18 of the closing written submissions of Lord Grabiner and Mr Strong. As they acknowledge, none of the material referred to is admissible on the question of construction of the Shareholders Agreement which was eventually signed and I have left it out of account in coming to my views on construction. But the evidence is relied on to establish Sir Tom's understanding of the Shareholders Agreement when it was made. This understanding is relevant to explain why he and Mr McMahon later believed, as it is submitted they did, that Birthdays was an opportunity for NGS only if the holders of 65% of the NGS shares were in favour of such an acquisition. Plagiarising and shortening the written submission, the position was, I find, as follows.
46. The first draft was produced by McGrigors. It contained provisions which would have had the following effects:

a. An acquisition of another company by NGS or the raising of money, for example by bank borrowing, would have required a resolution of the board of directors of NGS (draft clause 10).

b. All the shareholders would have entered into restrictive covenants (draft clause 9).

47. Mr James put forward amendments designed to give effect to his discussions with Mr McMahon. Under his drafting proposals

a. The acquisition of another company (and a variety of other matters including the raising of money) was not permitted unless the holders of more than 65% of NGS shares agreed in writing.

b. The restrictive covenants were to apply to Mr Elvidge only.

48. Lord Grabiner submits that this would (i) give each of Mr Wilkinson and WCC/Mr Gorman power to veto any acquisition (since each side spoke for more than 35% of the votes) and (ii) leave the other shareholders free to carry on other business activities, including in competition with NGS. However, I consider that those are not entirely uncontroversial propositions in that the draft provisions said nothing expressly about what an individual who is a director, as well as a shareholder, should be able to do or to prevent.
49. Mr James discussed his proposed alterations with Mr McMahon on 1 May 2002 in a telephone conversation. Mr McMahon made a note of the conversation in his day book which said:

"(a) At present restrictions on what could be done o/s [outside] GS applied to all s/h [shareholders] - PW wanted the ability for us all to do other things so should only apply to JE.

(b) Should be SPV for the deal - i.e. no deadlock break both sides have the ability to do other deals but would not commit GS unless we basically all agreed."

50. Mr McMahon's evidence, which I accept, about this note was as follows. The first note recorded that Mr Wilkinson as well as WCC/Mr Gorman wanted to preserve the ability to make other investments and that Mr James thought that the restrictions should only apply to Mr Elvidge. The second recorded Mr James saying that NGS should be treated as a single purpose vehicle for this deal. Both sides (which Mr McMahon understood to mean Mr Wilkinson on the one hand and WCC/Mr Gorman on the other) should be free to make other investments and should not be able to commit NGS to any deals "unless we were basically all agreed".
51. In all the above respects, Mr James' proposals were accepted and duly found their way into the Shareholders Agreement which was executed on 2 May. I do not wish to interrupt the narrative with a long recitation of its provisions and shall deal with them later (see paragraph 221 below), but for the moment it is necessary only to note that it required a 65% majority vote of shareholders for the company to do certain things, including the acquisition of any company or business.
52. Before the Agreement was signed, Mr McMahon summarised the salient points as he understood them to Sir Tom Hunter on 1 May. The salient points mentioned by Mr McMahon to Sir Tom were: the restrictions on certain activities without 65% approval and the fact that the restrictive covenants applied only to Mr Elvidge, leaving the other shareholders free to act as they wished. It is for me, of course, to decide whether what he understood the Shareholders Agreement to mean reflects accurately what it actually means.
53. Various share transfers were made and registered and allotments were also made to bring the parties to the respective shareholdings that had been agreed on 23 April. The overall result was that Mr Wilkinson (on behalf of himself, Mr Wood and other business associates) paid a net sum of £113,000 to get from his original 3% investment to a 40% holding in NGS. He also made a loan of £444,444 to NGS. WCC and Mr Gorman each paid a little short of £73,000 for their respective shares and lent £277,777 to NGS.
54. Although Mr Wilkinson did not use the phrase "Single Purpose Vehicle" and was unfamiliar with the acronym "SPV", Mr James did do so and was familiar with that acronym. Mr Wilkinson left the detail of the drafting of the Shareholders Agreement to Mr James. I am satisfied that the intention of Mr James on the one hand and Mr McMahon on the other was that NGS should, in effect, be an SPV and that it should not make corporate or business acquisitions without the consent of 65% of the shareholders. I am satisfied that WCC, for which NGS was a small investment, would not have wished to restrict the scope of further investments which it might make. Similarly, I am satisfied that Mr Wilkinson would not have been willing to restrict his own ability to make acquisitions himself or for his company InTechnology which intended at the time a programme of acquisitions.
55. I am also satisfied on the totality of the evidence that at the time of the investment in NGS which I have described, there had been no agreement, or as far as I can detect any discussion, to the effect, that Sir Tom was "to take complete control of the management and expansion of NGS/TGS both through organic growth and acquisition" as Mr Wilkinson suggests in his witness statement. Sir Tom was brought on board because of his retail experience and would no doubt use that experience to the benefit of NGS. But it was clear that Mr Gorman was being brought in as the hands-on manager. In my judgment, it was not contemplated by anyone involved that Sir Tom was to have anything like the wide-ranging role which Mr Wilkinson describes.
56. Again, Mr Wilkinson's understanding of the position at the time of the Shareholders Agreement is not relevant to questions concerning its construction. But Lord Grabiner says that it is relevant (and is, I consider, certainly admissible) when the question of unfair prejudice is examined in relation to the acquisition of Birthdays in August 2003.
57. On 2 May 2002 the parties entered into the Shareholders' Agreement. On the same day, Mr Gorman and Mr McMahon were appointed as directors of NGS and TGS, Mr Wilkinson already being a director of both companies. Neither Mr Wood nor Sir Tom has ever been appointed as a director of either company.
58. Mr Gorman took up the reins as chief executive in early May 2002. According to his evidence, which I see no reason to doubt, he decided after a few weeks that he would be prepared to stay for longer than the period of 3-6 months which he had originally envisaged. He considered that it would be sensible for NGS to introduce some sort of share option or incentive scheme for senior managers and he included himself in that if he was to make the commitment to stay. He clearly thought that that was a reasonable position, as did Sir Tom.

The meeting on 10 June 2002 at UBS's offices

59. The next event of importance was a meeting, arranged by Sir Tom, on 10 June 2002 at UBS's offices where Mr Wood worked. Present were Mr Wilkinson, Mr Wood, Sir Tom, Mr McMahon and Mr Gorman. The evidence of the different witnesses about what happened varies. My material findings are as follows:

a. A proposal was made by Sir Tom that NGS should introduce a share incentive scheme for senior managers including Mr Gorman and Mr Elvidge.

b. Sir Tom also raised the possibility of bringing Mr Philip Green in as an investor given his unrivalled experience in the retail trade and the possibility of opening up other opportunities that his presence would bring.

c. Mr Gorman, after giving an update on the work he had been doing, explained (i) that he was prepared to commit long term to the business and said that he thought it was fair for him to receive share options in the event of a successful sale of the business and (ii) that, while the business would be his main focus, he would as a business man have other interests.

d. Mr Wood expressed some views about the value of NGS. His evidence is that he said it was worth £50 million (ie at that time) whereas both Sir Tom and Mr McMahon say he said it was worth between £100 and £200 million. Even the lowest of those figures is somewhat surprising to me given what Mr Hobbs had recently been paid for his shares although, no doubt, there was a hope that, if things turned out well, the company might become worth a great deal.

e. Mr Wilkinson and Mr Wood were opposed to the idea of bringing in Philip Green principally because this would necessarily dilute their shareholdings which they were opposed to.

f. They were also opposed to the idea that Mr Gorman or Mr Elvidge should have any more shares, something they considered outrageous.

g. Nothing more was said about the share incentive scheme in relation to other senior managers at this meeting.

60. Mr Wood (and possibly Mr Wilkinson) now considers that the proposals relating to the share incentive scheme and bringing Mr Green on board were designed by Sir Tom and Mr Gorman to bring about a further dilution of their shareholdings. The starting point for that proposition is, of course, that their shareholdings had already been diluted; but as the discussion above in relation to the initial allocation of shares shows, it was never agreed that Mr Wilkinson would have the same number of shares as WCC and Mr Gorman together. But whether the starting point is equality or inequality, both the proposals appear to me to be perfectly reasonable and sensible ones to have put forward and their rejection by Mr Wilkinson and Mr Wood does not demonstrate that they were not reasonable and sensible proposals or that they were put forward with the ulterior motive of marginalising Mr Wilkinson and Mr Wood.
61. After that meeting, Sir Tom indicated separately to Mr Gorman that he would ensure that, if the business did well, Mr Gorman would not lose out by not having any share options, suggesting that he could have some options over WCC's holding.
62. Sir Tom himself did not see the meeting on 10 June 2002 as the end of the discussion. On the next day, 11 June 2002, he sent a fax to Mr Wilkinson and Mr Wood in which he suggested again that all shareholders dilute their equity equally to allow Mr Green to become a shareholder. He also proposed a share incentive scheme for managers excluding Mr Gorman and Mr Elvidge. It referred to possible percentage shareholdings which could be given to management if the company was sold at various values between £50 million and £150 million. It is obvious from this that Sir Tom, at least, did not regard NGS as worth anything like even £50 million at that stage since, if it were, the share options would immediately cut in and the shareholders would, in practice, be making an immediate gift of shares to senior management without the need to have improved the performance of the business. As Sir Tom and Mr McMahon observed in cross-examination, this would be a strange form of incentive.
63. Mr Wilkinson responded by fax on 13 June 2002. He said that he thought his trust was being "betrayed" and that it was "fundamental to leave ourselves at 50/50". Since Sir Tom had not raised the matter with Mr Green, he did not, in the light of this response, do so. It is not easy to understand why such intemperate language was used by Mr Wilkinson. The starting point was not, for reasons already given, 50/50, but 50/40 in favour of WCC and Mr Gorman. One cannot help feeling that Mr Wood, who was clearly unhappy with the initial 50/40 division, was influencing Mr Wilkinson's view of Sir Tom and Mr Gorman.
64. On 31 July 2002 there was a board meeting of TGS. It was attended by, among others, Mr Wilkinson, Mr Gorman, Mr McMahon and Mr Elvidge. Neither Mr Wood nor Sir Tom was present. A further board meeting took place at Hesslewood Hall, the head office in Hull on 24 October 2002. This was the first board meeting which Sir Tom attended. Also attending were Mr Wilkinson, Mr Gorman, Mr McMahon and Mr Elvidge. There may have been mention of a share option scheme; if there was, the discussion was not of significance for present purposes. At this meeting, the possibility of moving the head office to Scotland was mentioned.

The share option scheme

65. On 29 October 2002, Mr Gorman sent Mr Wilkinson an email (which he in turn sent to Mr James for him to review and consider). In an attachment, Mr Gorman set out his proposals for a share option scheme. Both he and Mr Elvidge were included in the scheme. The proposal had two main features: first, managers would be granted options to acquire shares equivalent to 5% of the existing share capital of NGS if the budgeted profit of £2.2 million was achieved that year; and secondly, further shares would be issued to management if the business was sold or floated depending on the value: if the value was over £60 million, they would receive 1% of the existing share capital with an extra 1% for every £10 million above that, with an additional 5% for a value over £100 million.
66. Mr Wilkinson replied first on 30 October 2002 saying that his people were checking the details: he stated that he was fully supportive of incentivising management. On 12 November 2002, he gave a substantive reply saying that he had looked at the scheme with Mr James and Mr Parkinson (who was then beneficial owner of 1% of NGS shares held for him by Wilkinson since 2 May 2002). Aside from what he described as a tweak, (which was to grade the option scheme from £100 million at 1% for each £10 million) he said that in general "we were supportive of the scheme".
67. Before giving this response, Mr Wilkinson had not consulted Mr Wood. However, Mr Wilkinson's response unprompted by Mr Wood shows, I think, that he did not have at that time the distrust and feeling of betrayal towards Sir Tom and Mr Gorman which he now professes to have had. This is the first example of Mr Wood's actions leading to the strong impression which I gain from the entirety of the evidence that it is very much Mr Wood, rather than Mr Wilkinson, whose attitude and animus is driving the campaign of attrition which is this litigation, against Sir Tom and Mr Gorman.
68. Having told Mr Wood briefly about the proposal, he forwarded the details to him. This produced a response from Mr Wood rejecting the proposal, a response which both he and Mr Wilkinson describe in anodyne terms in their witness statements. The two emails in which Mr Wood gave his response to Mr Wilkinson are in fact intemperate and abusive. I have no doubt that Mr Wood is, as is Mr Wilkinson, a man who peppers his conversations with a deal of swearing which he, I dare say, would simply regard as colourful language. But when he described Mr Wilkinson, in accepting the proposal, as a "fucking soft git" he was not simply giving Mr Wilkinson a friendly kick in the shins. The relationship between them is, perhaps, unimportant. What is more important is that these e-mails display his true attitude to Sir Tom and Mr Gorman (whom he clearly disliked) and regarded them, without proper justification, as having (i) reneged on a 50/50 deal and (ii) as having been "given" shares in NGS not just by Mr Wilkinson but by Mr Wood himself.
69. Although he does not remember the conversation, Mr Wilkinson does not challenge that Mr Gorman spoke to him on the phone on 4 December 2002 and agreed that Mr Gorman could tell the senior management about the share incentive scheme. The scheme was in fact announced at a strategy meeting of the senior management in Scotland. The scheme, in its then form, would give management share options if NGS was sold or floated for at least £50 million. Mr Donoghue, in his evidence on behalf of Mr Wilkinson, accepted that, in February 2003, the figure of £50 million was not regarded by him or anyone else involved in management as the then current value of NGS: it was a value which it was hoped would be achieved in the future. Having approved the announcement of the share option scheme, as I find he did, Mr Wilkinson cannot, I conclude, have believed that, as at December 2002, NGS was worth £50 million. And it is clear that none of Sir Tom, Mr Gorman or Mr McMahon considered that it was then worth anything like that figure.

The move to Glasgow

70. Mr Gorman, meanwhile, had been formulating a plan to move the head office of NGS/TGS from Hull to a location near Glasgow. Having decided to extend the period of his full-time commitment to the business, he wanted the head office to be nearer his home in Glasgow. He also considered that there was a wider range of support services and personnel available in Glasgow, many of whom he already knew. Sir Tom was supportive of this proposal. I reject Mr Wood's assertion that the move was for the convenience of Sir Tom. Sir Tom did not need to visit the head office at all frequently, and did not in fact do so. The new office was not close to Sir Tom's own base, WCC's offices not being in Glasgow but further south in Dundonald, Ayrshire. In connection with the move, Mr Wood says this in his witness statement:

"I asked Mr Hunter why he wanted to move NGS to Glasgow. He told me that he did not intend "to be part time" and that he was putting his reputation on the line. He said that he wanted the management of NGS to be on his doorstep. He also told me that Mr Gorman often rang him up to 20 times a day about NGS business."

71. I reject that evidence. The sense of such a statement is that Sir Tom was going to be full time in the company; but that is preposterous given the scope of WCC's business and Sir Tom's involvement in it, and would have been known to be preposterous to Mr Wood. It would have made no sense for Sir Tom to say this to Mr Wood; I am sure he did not do so. I also accept Sir Tom's evidence that he did not say that he spoke to Mr Gorman 20 times a day.

Birthdays

72. Birthdays was, and so far as I know remains, a chain of retail shops selling predominately greetings cards. It also sold toys and small gifts, together with wrapping paper, ribbons and items of that sort. Its business, selling cards etc, was entirely different from that of TGS, selling gadgets. Following an approach from Mr David Kaye, the company secretary of Birthdays and someone whom he had known for some time, Mr Gorman and Mr Bailey (who was a senior manager at TGS and a director from 29 August 2002) met with Mr Richard Boland, the chief executive of Birthdays, on 14 November 2002, to discuss a proposal put forward by Mr Boland that TGS products be sold in smaller Birthdays shops and that TGS should operate concessions in the larger Birthdays shops. As will be seen, a pilot for the first of these proposals was eventually put in place.
73. By late 2002, Sir Tom had become aware from sources which had nothing to do with NGS/TGS that the venture capital houses backing Birthdays wanted to sell their investments. Further, in a meeting shortly before Christmas, Mr Boland had suggested to Mr Gorman that WCC and Mr Gorman might back him in a management buyout of Birthdays which he was hoping to put together. Sir Tom's evidence, which I accept, is that WCC was not interested in pursuing the possibility of acquiring Birthdays at this stage. It was not interested in getting involved in a management buyout; nor was it interested in an acquisition itself as it was already fully occupied with a number of property joint ventures and with investigating the possibility of investing in Allders, House of Fraser and Selfridges. Indeed, a serious attempt was made to acquire Selfridges, but this eventually failed.

Meetings on 6 February 2003

74. On 6 February 2003, there was a board meeting and a shareholders' meeting of NGS at Wescott House, Hesslewood Office Park. Those present included Mr Wilkinson, Mr Wood, Sir Tom, Mr Gorman and Mr McMahon. Significantly different accounts of this meeting are given by the witnesses about both its contents and its atmosphere. There is no doubt, however, that Mr Wilkinson arrived expecting a confrontation about the share options scheme at the shareholders' meeting. There is no doubt that Mr Wilkinson described Mr Gorman, in front of management, in language which Mr Gorman says he found offensive and humiliating, although Mr Wilkinson denies that it was either or that it was intended as such. Nor is there any doubt that Mr Wilkinson regarded Mr Gorman as too fond of publicity and as having too large an ego. Mr Wilkinson's expectation of subsequent confrontation coupled with remarks that could be regarded, and were regarded by Mr Gorman at least, as offensive and undermining makes it unlikely that the atmosphere was good. Certainly, I find it hard to believe that it was jovial and light-hearted as Mr Wood states.
75. By this time, proposals for a trial of TGS products in Birthdays shops were being developed and that was one of the items for discussion. Other items included a proposal to open 48 new Gadget Shop shops. Mr McMahon's note of the board meeting shows that the question was raised by someone whether both the trial and the expansion were to proceed, the conclusion being that they would both proceed. A draft was tabled of an information memorandum for submission to the banks for funding that expansion plan.
76. The board meeting was followed by a shareholders' meeting, the management team having left the room. There was brief discussion about the move to Glasgow. Mr Wood says that Sir Tom again stressed the importance of moving the business closer to him, a matter on which I again reject Mr Wood's evidence. The share option scheme was discussed. Mr Wood admitted that he had persuaded Mr Wilkinson to object to the scheme as originally proposed by Mr Gorman. Mr Wilkinson acknowledged this and said that he was "not proud" of his change of mind. Sir Tom, Mr Gorman and Mr McMahon all say that Mr Wilkinson and Mr Wood expressed themselves to be against the option scheme: it is certainly the case, as Mr Wilkinson and Mr Wood agree, that they were against the scheme including Mr Gorman and Mr Elvidge. Mr Wood said that he considered Mr Elvidge was being greedy in not wanting his holding to fall below 10%.
77. There is no evidence that Mr Wilkinson told Mr Wood of his conversation with Mr Gorman on 4 December 2002 when he agreed to senior management being told of the share option scheme. There is no evidence, therefore, that Mr Wood knew that the scheme had been announced before the matter was discussed at the 6 February 2003 shareholders meeting. Given the hostility with which Mr Wood had greeted the concept in November 2002, it is unlikely that he had modified his stance by 6 February 2003. Indeed, in his witness statement, he says that he questioned how the scheme could have been announced to management when it had not been agreed by shareholders, lending support to the idea that he was opposed to it altogether. However, there is no doubt that the shareholders did, at that meeting, agree that the share option scheme should proceed; but I conclude that this was so, on the part of Mr Wood at least, only because it had already been announced.
78. That short description of the shareholders' meeting does not begin to capture the unpleasant atmosphere which I have no doubt developed, nor the antagonism of Mr Wood, in particular, and Mr Wilkinson to some extent to Sir Tom and Mr Gorman. Mr Wilkinson indeed lost his temper, as he admits, over the share option issue. Mr McMahon's evidence about the atmosphere rang particularly true to me. He described the meeting as falling apart through rancorous exchanges. He said that the meeting was "probably - probably - the most embarrassing meeting I have sat through in all the 30 years professionally. It was an incredibly embarrassing meeting and I was very sad that matters had got to this position". When I asked why he used the word "embarrassing" he said this:

"Mr Gorman was either in tears or close to tears, the main shareholders were arguing and fighting with the executive team of the Gadget Shop, Jonathan Elvidge was being told how greedy he was. The whole meeting had broken down, my Lord. It was for me a very difficult meeting. I was not used to the displays of emotion and aggression. I though it could have been much better handled."

I hardly needed the reminder, in Lord Grabiner's closing written submissions, of that most clear and honest piece of evidence. Some might express surprise and scepticism at the idea of as tough and experienced a businessman as Mr Gorman being reduced to or close to tears. But I have no doubt that it happened, not just because I believe Mr McMahon when he says it. I also say so because Mr Gorman too says that is what happened and when he did so, he was, in the witness box, clearly reliving what for him had been an obviously shattering experience.

79. Sir Tom, Mr Gorman and Mr McMahon all say that the meeting broke down over the discussions about the share option scheme. Mr Wilkinson and Mr Wood both say that, at the meeting, a possible acquisition of Birthdays was discussed. They assert that Sir Tom said that there was an opportunity to buy Birthdays and that Mr Gorman was "on top of it". Mr Wood says that he told Sir Tom that

"…there was no point in pursuing the expansion programme if [Birthdays] were available. We agreed that if the joint venture with [Birthdays] was a success NGS should consider buying BG. This aspect of the meeting was concluded on the basis that Mr Hunter and Mr Gorman would make further investigations into this with a view to a possible acquisition".

80. If I may say so, the obvious reading of that is (and anyone hearing such words at a meeting would understand it to mean) that it would be pointless to continue to progress the expansion programme. If that is correct, then Mr Wilkinson would have understood what Mr Wood said in that way too. Indeed, in his own witness statement, Mr Wilkinson says "I don't remember all the details but I have a clear recollection of Mr Hunter saying that he knew BG was for sale and of Mr Wood asking why we were continuing with the expansion plan if BG was for sale". It is then surprising that Mr Wood was not challenged by Mr Wilkinson. In the course of his cross-examination, Mr Wilkinson said, in relation to the events leading up to the actual acquisition of Birthdays later in the year, that it would not make sense to put expansion plans on hold until it was certain, or reasonably so, that the acquisition would go ahead. At the meeting on 6 February 2003, there had, even on Mr Wood's evidence, been only the most preliminary of preliminary discussions about the opportunity and there had been no approach whatsoever to the vendor. Mr Wilkinson would have surely made the same point at that meeting which he made in cross-examination. There is not a hint that he did so.
81. However, in cross-examination, Mr Wood, taking a very literal reading of what he had said in his witness statement, explained that he did not state that the possibility of expansion should not be progressed; it would still make sense to look at the possibility of opening more shops while still pursuing the acquisition of Birthdays; he says that, that was in fact his position. So a distinction is being drawn between NGS acquiring Birthdays, as opposed to pursuing the possibility of acquiring it.

The period after 6 February 2003

82. Over the next weeks and months, the expansion programme was progressed, and a business plan/information memorandum was prepared, in March 2003, for the Bank of Scotland and Lloyds TSB. This plan made no mention of a possible acquisition of Birthdays. Mr Wood was kept informed of progress on the expansion programme and sent a copy of the business plan/information memorandum. Mr Wood was asked why, in the face of all this, he did not respond to Mr Gorman and say something to the effect of "Hang on, why is all this being pursued in such detail with the banks without at least having an understanding of what is happening with our possible acquisition of Birthdays because all this may turn out to be a rather pointless and expensive course". He agreed that there was no response of that sort. But went on to say that "I think you will find I had lots of conversations with Tom Hunter at the time, and would have raised it with him again". I find nothing else in the evidence to support what Mr Wood says; this rests on his word alone. Indeed, his first witness statement, in contrast with his oral evidence, states that he contacted Mr Wilkinson, not Sir Tom, on receipt of the business plan/information memorandum and it does not say what was discussed. Mr Wilkinson did not respond at all when he had received the business plan/information memorandum although he said that he had read it "briefly". Mr Wilkinson, by his own admission, is not a great reader of documents, relying heavily on Mr James to master the detail on his behalf.
83. It is clear that the possible acquisition was not pursued after the 6 February 2003 meeting and that Sir Tom and Mr Gorman took no steps to investigate further. It was only later that any work was done, when the possibility of an acquisition arose in circumstances to which I will come. During the course of the weeks and months after 6 February 2003, there is no note of a conversation between Mr Wood and Sir Tom or Mr Gorman about an acquisition. There is no evidence from Mr Wilkinson that the matter was discussed with him.
84. I am afraid that I consider Mr Wood to be making up what he says about that part of the meeting on 6 February 2003 in which he says Birthdays was discussed. I accept the evidence of Sir Tom, Mr Gorman and Mr McMahon that the question of the acquisition of Birthdays was not raised. I consider also that Mr Wood's explanation of what he says he said about Birthdays at that meeting is simply raised to help explain away the difficulty of what I consider to be the natural reading of his witness statement and the meaning I think he intended to convey. Mr Wilkinson admits that he has no recollection of the detail and I consider that he has been too willing to go along with what Mr Wood says in expressing a clear recollection of that which I find did not take place.
85. I do not consider that anything turns on whether or not Mr Wilkinson was abusive to NGS staff at the board meeting on 6 February 2003. However, it is clear to me that he used words which Mr Gorman found offensive and undermining. And, in spite of what Mr Donoghue has to say, I think it likely that others found his language inappropriate. Given that Mr Wilkinson was upset before he arrived at the meeting, expecting a confrontation later in the day, it is not likely that he was "jovial" to use his word at the board meeting.
86. In the period after the 6 February meetings to 23 May 2003, Mr Wilkinson had little to do with NGS. Certainly, nothing which concerned him has any relevance to the issues in the present case.
87. During that period, however, there were conversations between Sir Tom and Mr Wood, as Mr Wood asserts and Sir Tom accepts, about business deals which were nothing to do with NGS and which WCC was considering entering into. Sir Tom accepts too that Mr Wood put him in touch with some UBS corporate financiers and even attended a meeting at UBS with Sir Tom (presumably on UBS business rather than Mr Wood's personal business). Mr Wood's attitude, if I may say so, does not seem to be one of a commercial businessman who had lost trust in another (Sir Tom) whose conduct he regarded as reprehensible.
88. In about April 2003, Sir Tom was preparing a bid to acquire Selfridges. Mr Wood wanted to become involved, which Sir Tom accepts although he did not know whether this was to be on behalf of UBS or Mr Wood personally. Sir Tom told him that he did not want another investor. Sir Tom says, and I accept this, that the only investors were to be WCC and, with a small stake, the Bank of Scotland. At a late stage in the bid, Mr Green introduced Sir Tom to Mr Simon Reuben (of whom I will say more later) with a view to Mr Reuben's involvement. Mr Green himself was never a potential investor in the acquisition. I reject the suggestion made by Mr Wood that Mr Green had been involved in the Selfridges bid.

The shopping centre acquisition

89. At this point, I turn to deal with another property transaction in which Sir Tom was involved. It has nothing to do with NGS, but it is of some significance in helping me to assess the veracity of the witnesses.
90. Mr Wood says this:

a. In or about May 2003, Sir Tom contacted him in relation to a property deal in which he wished to involve Mr Wood. This deal involved the purchase of a number of shopping centres. Sir Tom had told him that Lehmans had been lined up to invest in the deal which he was doing with a Mr Leslau, but they had pulled out.

b. Mr Wood said that he would be happy to put in a third of the necessary funding, matching what Sir Tom and another investor were each putting in. Sir Tom told him that he would have to put in £6 million.

c. Sir Tom said "OK, you're in" and said that Mr McMahon would be in touch with Mr Wood's lawyers to arrange the necessary paperwork.

d. In mid to late July (certainly after 17 July), Mr Wood phoned Sir Tom to chase him for the paperwork. I note that Mr Wood does not seem to allege that there was any contact about this deal between May and July, something which is slightly surprising even for a businessman who takes as apparently cavalier an attitude to documentation as does Mr Wood.

e. Sir Tom's response was that there was a difficulty. He said that he had originally agreed the deal with Mr Reuben who had said that he was not interested. Sir Tom then offered the deal to Mr Wood but Mr Reuben had now changed his mind.

f. Mr Wood said that he did not want to fall out over this and would split the £6 million investment with Mr Reuben, each of them putting in £3 million. Sir Tom said he would come back to Mr Wood on this proposal.

g. Mr Wood heard nothing and a couple of days later (as Mr Wood subsequently learnt from newspaper reports in late July or early August) the deal was completed without him but with Mr Reuben.

h. Mr Wood was annoyed and phoned Sir Tom. He was unable to speak to him but spoke instead to Mr McMahon, who agreed that WCC had not acted properly, apologised and said that they would put Mr Wood in the next property deal.

i. Shortly after that, Sir Tom also phoned and apologised.

j. Mr Wood then phoned Mr Reuben and told him what had happened. Mr Reuben said that he did not know that Mr Wood was supposed to be in on the deal and that Sir Tom had been badgering him for weeks to come in on the deal. Mr Reuben said that he had not been very interested in getting involved as the deal was lower value than those in which he normally invested.

k. Mr Reuben said that he did not particularly like or want to do business with Sir Tom. He even offered to let Mr Wood take his place in the deal.

91. It will not come as a surprise if I say that Sir Tom tells a very different story:

a. The deal related to the acquisition of a portfolio of 6 shopping centres from REIT Asset Management. Neither Lehmans nor Mr Leslau (or his investment vehicle) were involved in the deal at any time. Sir Tom did not tell Mr Wood that they were.

b. The participation of further investors in the deal was not needed. However, the Reuben Brothers were offered a share of the equity because Sir Tom was very grateful for the assistance which they had given in the closing stages of the unsuccessful Selfridges bid. They eventually took up the offer.

c. Sir Tom denies that he ever said that Mr Wood would be brought in on the deal or that Mr McMahon would be in touch with his lawyers. Sir Tom accepts that Mr Wood was continually badgering him to get in on WCC property deals and that he may have said, during one of their conversations, that he would see what happened in the future.

d. Sir Tom rejects the allegations made by Mr Wood which follow on from an alleged involvement which Sir Tom says was never agreed.

e. WCC were not leading the deal: the deal was Catalyst Capital's deal which WCC and the Bank of Scotland were involved in. The original offer to involve Mr Reuben was not pursued because he regarded the deal as too small, albeit expressing a willingness to provide funds if they were needed (which they were not).

f. The deal closed on 23 July 2003 and was reported in the press.

g. It was only after the deal was completed that Mr Reuben changed his mind and told Sir Tom that he would be interested in taking a stake. On about 4 August 2003, Mr Reuben took a stake equally from WCC and the Bank of Scotland, investing £6 million.

92. Consistently with Sir Tom, Mr McMahon says this:

a. He was not aware of any proposed property deal concerning shopping centres with Lehmans and Mr Leslau. If there had been, he would have been bound to know about it (something which it appears to me is obviously correct). There were discussions about other property deals with Mr Leslau, a commercial property portfolio being acquired as a joint venture in August 2003.

b. WCC acquired the portfolio of 6 shopping centres from REIT Asset Management for £310 million as a member of a consortium including Catalyst Capital and Bank of Scotland. WCC was asked whether it wanted to be involved in this deal. WCC subscribed just over £9.6 million for shares and provided £7.75 million in loan stock while the bank provided substantial banking facilities and £10.125 million loan stock.

c. The Reuben Brothers had been supportive during the latter stages of the Selfridges deal and Sir Tom and Mr McMahon agreed that they should be offered a portion of the investment.

d. Initially they were not interested. No part of the investment was offered to Mr Wood or to any other investor. Later they invested, through an investment vehicle, a total of £6 million, taking £1.5 million shares and £1.5 million loan stock from each of WCC and the bank.

e. Mr McMahon denies that the phone conversation which Mr Wood alleges ever took place. Mr Wood was not promised that he would be put into the next property deal.

f. Mr McMahon accepts that property deals generally were discussed by him with Mr Wood. Mr Wood wanted to get involved in property deals with WCC. Mr McMahon remembers a conversation in mid to late July when he explained that the key to buying property was having a good property deal flow. Mr Wood said that UBS did indeed have a property deal flow. He arranged for his colleague Mr Chadwick-Healey, to send details to Mr McMahon which was done. Mr McMahon found them to be not the type of property which WCC would be involved in. He accordingly kept rejecting the deals which Mr Wood suggested, leading Mr Wood to get annoyed.

93. Mr Reuben says this:

a. Soon after the Selfridges bid had failed (in May 2003) Sir Tom asked if Reuben Brothers would like to take a portion of the equity in a consortium which was buying a portfolio containing 6 shopping centres from REIT Asset Management for £310 million.

b. Reuben Brothers were not initially interested, as the equity participation was relatively small. But he suggested that Reuben Brothers would lend the money if required.

c. At a dinner given by the Bank of Scotland in July which Mr Reuben attended, conversation turned to the REIT transaction and it was mentioned that the bank was a member of the acquiring consortium. The officers of the bank present were enthusiastic about the acquisition and about Sir Tom. Following such praise, it was determined that Reuben Brothers should be involved in the consortium.

d. Following that dinner, Mr Reuben phoned Sir Tom to tell him that Reuben Brothers were now keen to come in on the deal. However, by then the consortium (comprising Catalyst Capital, Bank of Scotland and WCC) had already acquired the properties. Sir Tom said there was no urgency and that Reuben Brothers could participate when they were ready.

e. Mr Reuben was not sure whether he had a conversation with Mr Wood or not. He thought it unlikely that he would have said that Sir Tom had been badgering him because that is not a word he used. Further, it would not represent the good relationship built up at that time or to date. Since the Selfridges deal, Mr Reuben's relationship with Sir Tom has been exceptional and both have been keen to do deals with each other.

f. Mr Reuben finds it most unlikely (as do I) that he would have said that he did not like or want to do business with Sir Tom.

94. As I have said, I find Mr Reuben to be an obviously honest witness whose description of his relationship with Sir Tom is wholly at odds with what he is supposed to have said to Mr Wood. Taking that evidence alone is enough to destroy Mr Wood's evidence about the shopping centre property deal. Taken with the evidence of Sir Tom and Mr McMahon which I prefer, the conclusion is that I reject this aspect of Mr Wood's evidence too.

Pilot scheme for sale of TGS products in Gadget Shops shops

95. The pilot scheme for the sale of TGS products in Birthdays shops - there was no trial concession - commenced on 9 May 2003. A considerable amount of time and effort has been expended on evidence concerning this aspect of the case. Mr Wilkinson and Mr Wood wish to establish the trial - which was successful - as important in driving the decision to acquire Birthdays and thus to link the acquisition to NGS. In contrast, and no doubt partly to distance the acquisition from a link with TGS's business, WCC and Mr Gorman say that the result of the pilot played little part in their deliberations.
96. I do not propose to review the evidence at length since, in the end, I do not find it of much help in answering the questions which I have to resolve. The fact is that the trial was reasonably successful; but it was also very limited. The sales involved no more than £45,000. Sales of TGS products formed a tiny part of Birthdays' sales. I cannot possibly conclude, on the basis of this pilot, that a larger and longer term commitment to putting TGS products into Birthdays' shops across the country would have been successful, still less that concessions in the larger shops would have succeeded. Indeed, later experience suggests that such a conclusion, if drawn at the time, would have been misplaced since the success of the pilot was not replicated when TGS products were sold more widely across Birthdays' shops once New Gifts had acquired Birthdays.

Email dated 23 May 2003

97. Mr Gorman had brought into the management team at TGS Mr Tom Walker as finance director. He became a director of TGS and NGS on 31 March 2003. Mr Walker had identified and discussed with Mr Gorman a number of concerns he had arising from the restrictions in the Shareholders Agreement concerning the need of a 65% majority. He felt that this hampered management and did not allow enough flexibility to run the business effectively.
98. Accordingly, on 23 May 2003, Sir Tom sent an email to Mr Wilkinson and Mr Wood. It contained a list of points which Sir Tom wanted to discuss. In it, Sir Tom expressly referred to various matters which fell within the 65% voting restriction in the Shareholders Agreement, including the appointment to the board of Mr Walker, an increase in share capital following introduction of the share option scheme and confirmation of what Sir Tom describes as joint ventures entered into with Birthdays and with Sharper Image. Sir Tom also proposed certain increases to Mr Gorman's remuneration.
99. The share option scheme and the "joint ventures" are relied on by Mr Wilkinson and Mr Wood to show that a practice had developed of matters proceeding without the consents required by the Shareholders' Agreement. However, by that time the share option scheme had not been implemented and the documentation in final form was not sent to Mr Wilkinson until Mr McMahon did so on 7 August 2003. Further, although the 65% restriction applied to joint ventures, I agree with Mr McMahon that an arrangement with Birthdays to sell TGS products in Birthdays stores on the trial basis could not really be seen as a joint venture. I think Sir Tom was mistaken to refer to it as such in his email. The email is insufficient, in my judgment, to show that, at least by that stage, any such practice had evolved.
100. Indeed, so far as Mr Wilkinson was concerned, it could not have evolved. His evidence, which I accept astonishing as it is, is that he had not read the Shareholders Agreement before coming to the hearing before me. He clearly had only the most cursory understanding of it and regarded it as a micro-matter to be dealt with by Mr James. He signed it because Mr James told him to do so. Mr Wilkinson cannot have had in mind any waiver of the terms of the Shareholders Agreement in May 2002 because he did not, at that time, have any appreciation of what those terms were.
101. Mr Wood says that he was extremely suspicious when he received that email, wondering why Sir Tom was taking an interest in such administrative details. He says he discussed the matter with Mr Wilkinson and that they considered that a face-to-face meeting with Sir Tom should be arranged. That was eventually fixed for 5 June 2003. However, it seems to me on the evidence which I have seen that he was, then, concerned not so much with the aspects of the Shareholders Agreement but with Mr Gorman's remuneration. He wanted to tie Mr Gorman down to a longer-term full-time commitment if his remuneration was to increase in the way which Sir Tom was suggesting. That is consistent with Mr Wilkinson's reply to the email on 28 May 2003 who, referring to the points on the Shareholders Agreement, said he had referred it to Mr James but did not see anything which would be an issue; and, in the event, Mr James did not have any problem with those aspects either, as can be seen from his email to Sir Tom on 4 June 2003. It was in relation to Mr Gorman's remuneration that he wanted to have a face-to-face meeting with Sir Tom.
102. Meanwhile, on 20 May 2003, Mr Boland had resigned as a director of Birthdays and had ceased to be chief executive.

Monaco and the Grand Prix; Nicky's Bar and the Amber Lounge

103. Before turning to the meeting on 5 June 2003, it is necessary to take a virtual trip to Monaco and the Grand Prix. Sir Tom, Mr Gorman and Mr McMahon flew to Monaco on 29 May 2003 to see the Grand Prix. According to both Sir Tom and Mr McMahon, Mr Gorman mentioned, during the flight, that he had learned that Mr Boland had left Birthdays and, according to Mr Gorman, he had done so under a cloud. Mr Gorman had concluded that there might be an opportunity to buy the company and asked if WCC would be interested. As Mr McMahon correctly observes, Birthdays was more the size of company which Mr Gorman had been looking to run when they invested in NGS. Quite independently of this development, Sir Tom had heard that Clintons (the well-known card retailer and competitor of Birthdays) were making an approach for Birthdays and Mr McMahon, through his contacts at Rothschilds had heard that the venture capital funds which held the majority of the shares in Birthdays wanted to sell out. It was these developments, I hold, which started the acquisition process which led to the eventual acquisition of Birthdays by WCC and Mr Gorman in August 2003. The fact that that is clearly so is another reason for rejecting Mr Wood's story that the acquisition was discussed in February and that Sir Tom and Mr Gorman agreed to investigate such an acquisition at the 6 February 2003 meeting.
104. Mr Gorman had not contacted Mr Boland about a possible acquisition before he left for Monaco. It was agreed on the plane that he would do so on his return.
105. During the course of the Monaco visit, there were three incidents giving rise to dispute. These are (i) a conversation between Mr Wood and Mr Gorman in the Nicky Beach Bar in San Tropez at lunchtime on 30 May 2003 (ii) two conversations in the Amber Lounge nightclub during the evening of 1 June 2003, one between Mr Wood and Sir Tom, the other between Mr Wood and Mr Gorman. Mr Wood says that Sir Tom was drunk on both occasions. Sir Tom says that he was not. Quite what the relevance of the allegation is, other than to reduce Sir Tom's esteem in the eyes of those who have been following this case on a daily basis in court, I do not know. If he was drunk - by which I took Mr Wood to mean more than a little merry and unwound - Sir Tom would hardly be in a position to make, in an informed way, the assertions which Mr Wood says he did and, indeed, it is questionable whether he would have been likely to make them at all. If he was simply cheerful and relaxed, his state of alcoholic inebriation is neither here nor there. If Mr Wood is using this assertion, and other similar assertions, to suggest that Sir Tom is a reprobate whose word is not to be trusted, I entirely reject the suggestion. In any case, although Sir Tom is by his own admission a man who likes his drink, I think it is highly unlikely that he was anything like drunk at the lunch meeting and less likely than not that he was drunk at the time of the conversation in the Amber Lounge.
106. As to the first conversation, there is a dispute whether Mr Wood said to Mr Gorman that if he was "a good boy" and "did what he was told" his remuneration at NGS might be improved. Mr Wood denies saying it. It would not surprise me at all to find that he did say it; and there is no reason for Mr Gorman to make it up. However, I do not consider that anything turns on this incident and to use it as a way of testing the honesty of the witnesses would be to put the cart before the horse: it is only after having formed a view of the witnesses that, on this disputed issue, I would feel confident in making any finding. I decline to do so.
107. As to events at the Amber Lounge, Mr Wood relates the following scene-setting incident. He says that Sir Tom was at a table with a number of his guests, one of whom was Mr Brian Johnson of Bank of Scotland. He relates that Mr Johnson came over to his (Mr Wood's) table. Mr Wood asked what was necessary for Bank of Scotland to lend money to his business partners to which the reply was that it was "basically necessary to be flown down to the South of France in a private jet, stay on a super yacht and get taken to events such as the one we were attending" - a sharp and witty response if it was made. Sir Tom, however, says that Mr Johnson was not one of his guests, that he did not travel on the plane to Monaco with Sir Tom and that he was not a guest on Sir Tom's yacht. It was not put to any of Sir Tom, Mr Gorman or Mr McMahon that Mr Johnson travelled to Monaco with them on the plane. Neither side saw fit to obtain any evidence from Mr Johnson to resolve this simple point. I find that Mr Johnson was not a guest at Sir Tom's table and that the conversation which Mr Wood reports did not take place.
108. This leads to the disputed conversation between Mr Wood and Sir Tom. This, conveniently for Mr Wood since no-one was around to hear it, took place, if it took place at all, in the toilets, or at least it started there. Mr Wood says that he went to the toilets at around midnight and bumped into Sir Tom - I do not take it that he means literally bumped into him although he does allege that Sir Tom was, once again, drunk. Mr Wood relates a conversation about Mr Gorman's pay. He then mentioned, according to his witness statement, the Birthdays acquisition to which Sir Tom responded that "we" (by which Mr Wood understood him to mean him and Mr Gorman) were on top of it and that it was going well, using the words "We are on top of it. We have an in there". The conversation lasted, according to his witness statement, about 10 minutes.
109. One would be forgiven for thinking, as I did, from reading the witness statement that the whole conversation took place in the toilets. However, Mr Wood said in cross-examination that the conversation merely started there and continued in the Amber Lounge, this, it will be noted, with Sir Tom, as Mr Wood would have it, in a drunken state and staggering around.
110. Again, I do not accept Mr Wood's evidence on this point. Having rejected Mr Wood's evidence concerning discussion and agreement, at the 6 February 2003 meeting, about the acquisition of Birthdays, it follows that he would not have been in a position to raise the topic at the Amber Lounge. Indeed, having accepted what took place on the plane to Monaco and the novelty of the idea of acquiring Birthdays, it is simply not believable that Sir Tom could have said to Mr Wood that "we are on top of it".
111. The third conversation, according to Mr Wood, took place about 5 minutes after his conversation with Sir Tom. There is no doubt that there was a conversation, but Mr Gorman says that it was very short. He, Mr Gorman, was heading to speak to someone else, Drew Pert, whom he had spotted and wished to talk to and passed Mr Wood's table. In cross examination, Mr Gorman replied that he had said to Mr Wood something along the lines "We are working bloody hard at Gadget Shop, we are doing everything we can to make this work. I can do without the kind of comments that I get from you" [ie. a reference to the conversation of the day before], and that was about the level of it". Mr Wood, in contrast, says that the question of Birthdays was mentioned and that Mr Gorman told him that NGS was close to buying it. It is absolutely clear that an acquisition of Birthdays, whether by NGS or WCC/Mr Gorman was nowhere near. It would have made no sense at all for Mr Gorman to say that it was. Indeed, it was not even discussed with Mr Boland until 9 June 2003. I find that he said no such thing on that occasion and that Mr Wood is making this up to bolster his case that the acquisition of Birthdays had all along been a corporate opportunity for NGS.

Meeting on 5 June 2003

112. On 5 June 2003 there was a meeting between Mr Wilkinson, Mr Wood and Sir Tom at the offices of UBS which had been arranged to discuss Sir Tom's email dated 23 May 2003. By then, Sir Tom had received Mr James' response to his email of 23 May 2003 in which no suggestion was made that an acquisition of Birthdays was on the cards. That is surprising if Mr Wilkinson, who had clearly approved what Mr James was saying, thought that such an acquisition was proceeding. Mr James, at least, would have appreciated that a 65% majority would be needed for such an acquisition. It is, of course, possible that Mr James was not told about the proposed acquisition but he did not give evidence so his position is not known.
113. For that meeting, a sheet had been prepared comparing the terms on which finance would be made available by Bank of Scotland and Lloyds TSB. It is clearly not concerned with financing a possible acquisition of Birthdays. It can, realistically, only relate to financing the expansion plan for TGS. Mr Wood, for reasons I cannot understand, seemed reluctant to accept that was what it was, saying that he does not remember it. That Mr Wilkinson had it is apparent from his own manuscript marking "Meet 5/June".
114. Sir Tom made a note of the meeting in his day-book. It recorded, among other matters, that (i) Mr Gorman's remuneration was discussed (ii) Sir Tom was to get PD [I think Mr Davidson of McGrigors] to draw up a materiality clause: this refers to proposed changes to the Shareholders Agreement to widen what the managers of NGS/TGS could do without shareholder approval and was dealt with by McGrigors in due course but, following the provision of a draft by them on 8 July 2003, the matter does not appear to have proceeded further.
115. Sir Tom's note also records "BoS Agreed" which he says recorded the fact that it had been agreed to pursue the Bank of Scotland financing option rather than the Lloyds TSB option. Mr Wilkinson accepted that that could be correct, although he did not recall it. Mr Wood likewise had to accept that the expansion of TGS/NGS was discussed at the meeting although he says he could not remember whether the two bank proposals were discussed. His own diary, for 9 June 2003, after the meeting, contains an entry "check term sheet for Gadget loan!!" which confirms that the expansion and bank financings were discussed. It is clear to me, and I so find, that the expansion of business was discussed and that Bank of Scotland was chosen as the banker rather than Lloyds TSB.
116. It is clear that there was no discussion of an acquisition of Birthdays while Mr Wilkinson was at the meeting. However, he left the meeting once the matters raised in Sir Tom's email had been dealt with. Mr Wood says that he then discussed a number of unrelated business deals with Sir Tom and then that they discussed the Birthdays acquisition. He alleges that Sir Tom said that it was continuing to go well and that he, Mr Wood, said that we should put the expansion plan on hold.
117. It is, to my mind, quite astonishing that Mr Wood should suggest putting the expansion on hold. This is for at least three reasons. First, only minutes before, as I find, the expansion plan had been discussed and Bank of Scotland had been chosen as the banker; Mr Wilkinson, Mr Wood and Sir Tom were then proceeding on the basis that the expansion should proceed. Then, in the absence of his 50/50 partner, Mr Wilkinson, Mr Wood makes a suggestion which is entirely inconsistent with that agreed course. Secondly, the diary entry which I have mentioned shows that Mr Wood was continuing to concern himself with expansion: if he considered that an acquisition was on the table and that, as he says he suggested at the meeting, expansion should be put on hold, his response to Sir Tom should have been to call off discussions with the bank. Thirdly, Mr Wood had no material on which he could judge the stage which the acquisition of Birthdays had reached. On his own evidence in relation to the alleged acquisition in February, he drew a distinction between progressing an acquisition and actually making an acquisition: it was only once one was reasonably sure of the acquisition going ahead that one stops progressing the expansion. Why then, I ask, would Mr Wood seek to put the expansion plan on hold rather than take it to the very last stage before commitment to real expense, for instance property acquisition and shop-fitting?
118. The suggestion made by Mr Wilkinson and Mr Wood that Mr Wilkinson got on so badly with Sir Tom that he wanted to leave everything to Mr Wood is not one I can accept. In the context of an acquisition requiring an investment of many tens of millions of pounds, it is scarcely credible that the matter was not raised, if not by Mr Wood, then by Sir Tom, while Mr Wilkinson was still at the meeting. In any case, at this point in time, Mr Wilkinson was discussing with Sir Tom a possible investment in Mr Wilkinson's own company; indeed, there is a reference to DITG on the very same page of Sir Tom's day-book as the note of the 5 June 2003 meeting. Later in the month, Mr Wilkinson sent an email to Sir Tom seeking his help in promoting DITG, offering him the opportunity to invest in DITG. That is not the action of a man who did not trust Sir Tom's "business morals and ethics" at the time, as Mr Wilkinson asserted in cross-examination.
119. Quite apart from Mr Wood's own position on his story, Sir Tom's points out that it was not until four days later, on 9 June 2003, that the first discussion about acquisition took place with Mr Boland. There was, accordingly, nothing to discuss with Mr Wood about acquisition.
120. Accordingly, I reject the account of this meeting given by Mr Wood and accept that given by Sir Tom.

Meeting on 9 June 2003 - Mr Boland, Mr Gorman and Mr Walker

121. On 9 June 2003 there was a meeting between Mr Boland and Mr Gorman at Mr Gorman's home. Mr Gorman had arranged the meeting. Also present was Mr Walker who, it will be remembered, was finance director of NGS/TGS. Mr Boland provided a certain amount of information about Birthdays and its shareholders. Mr Gorman says that he had asked Mr Walker to go with him because Mr Walker knew Mr Boland from when they had previously worked together at another company. He wanted Mr Walker to be involved if anything transpired as a result of the discussion. Mr Gorman says that he was asked by Mr Boland who might be interested in acquiring Birthdays to which he says he answered himself and Sir Tom.
122. Mr Walker made some notes of this meeting. He records that an operating profit of £8.5 million for 2003 was forecast, and that at this point the business was believed to have an equity value of £35 - £48 million based on an EBITDA [earnings before interest, tax, depreciation and amortisation] of £18 million in June 2002. The opportunities "if we acquired the business" included "a) merge the two businesses to create an enhanced card, gifting and celebration range…c) potential to save up to 50% of central admin costs - £6m….e) potential to roll the Gadgetshop fascia into towns where Birthdays are over-represented". Opportunities a) and e) surely envisaged the two businesses (that of TGS and that of Birthdays) being under one umbrella, although c) might easily be achieved by a sharing of central administration between two separately owned businesses. I should also note here that, a few days later, Mr Walker prepared a sheet which showed in summary form on a single sheet of paper some financial features of Birthdays in one column with the corresponding figures for the combined business in another column. They show an enterprise value of £14,502,000 for Birthdays and of £66,607,000 for the combined businesses. These are based on out-of date accounts and unverified information and cannot be taken as an accurate reflection of the worth of the businesses. In the light of all of this, it seems to me that "we" in Mr Walker's notes is more likely to mean TGS/NGS than WCC and Mr Gorman. However, the documents are consistent with either view of "we" since, if it meant WCC/Mr Gorman, the opportunities identified would still remain.
123. The reality, I think, is that Mr Gorman did not really distinguish at this stage, and perhaps at all until a very late stage, the different positions of NGS/TGS on the one hand, and himself and WCC on the other. Be that as it may, and in the light of subsequent events, I do not think it matters whether, at that stage, Mr Gorman claimed the opportunity for himself and Sir Tom since, on any footing, NGS became accepted as at least a potential acquirer at a later stage.
124. Mr Gorman saw the acquisition of Birthdays as a potentially valuable opportunity. He spoke to Sir Tom about it and they agreed that an approach should be made to the chairman of Birthdays, Mr Roger Pedder. He made the call but was told by Mr Pedder that he was not looking to sell but he would mention Mr Gorman's call to 3i, one of the venture capital funds holding shares in Birthdays. Mr Gorman was soon contacted by Mr Robbins of 3i; they met on 16 June 2003 in Glasgow at TGS/NGS's offices. Mr Gorman told him that he and Sir Tom were interested in looking at Birthdays but was told it was not for sale. However, after some pushing from Mr Gorman, Mr Robbins said they would not be looking to sell at a figure below £85 million. Nonetheless, Mr Robbins agreed to consider providing further information to enable Mr Gorman to pitch an offer at that sort of level if that was what he thought Birthdays was worth.

Meeting on 23 June 2003

125. On 23 June 2003 there was another TGS/NGS board meeting. There is, curiously, no evidence of Mr Gorman having discussed with Sir Tom his discussion with Mr Robbins. At this meeting Mr Wood, Sir Tom, Mr Gorman and Mr McMahon were present as was Mr Walker, but Mr Wilkinson was not. It is clear that the expansion plan was discussed. Mr Wood says that Mr Bailey gave a briefing on it although Mr Gorman says that he gave the briefing himself. I think Mr Gorman's memory on that is more likely to be accurate. Mr Wood, consistently with his evidence about previous conversations with Mr Gorman and/or Sir Tom says that the subject of an acquisition of Birthdays was mentioned and that he intervened to question why the expansion plan was being pursued when there was an opportunity to purchase Birthdays. The evidence of Sir Tom, Mr Gorman and Mr McMahon is that the subject was not raised and that the only mention of Birthdays was in the context of the trial of TGS products in Birthdays' shops.
126. Now, according to Mr Wood, it had been agreed in February that the acquisition possibility would be investigated and that he had been told on a number of occasions since then that it was all proceeding. He had, according to his evidence, previously suggested that the expansion programme be put on hold. If that is correct, his intervention at this meeting on 23 June 2003 when Birthdays was mentioned would have been, I think, rather different from that which he states. Surely, he would have been much more forceful, questioning what was going on, why his previous suggestions had been ignored and getting to the bottom of progress on the acquisition investigations.
127. In any case, if Mr Wood had intervened as he suggests, there would either have been a discussion - if not a full discussion, at least a discussion going far beyond the short interchange which, even on Mr Wood's evidence, was all that took place - about both putting the expansion plan on hold and acquiring Birthdays. It is not possible that the meeting could simply have moved forward without questions being raised by management who were present. Mr Wood seeks to explain this away by saying that Sir Tom effectively shut him up, saying that they would talk about it later. But I cannot accept that members of management present would simply have let the matter pass. Although claiming to have a clear recollection of the meeting, he had no clear recollection of how management reacted. In any event, Mr Donoghue, who was present, said in his evidence that he did not hear anything about an acquisition of Birthdays until later, in July. Further, for what it is worth, the lengthy minutes of the meeting make no reference to an acquisition of Birthdays.
128. Accordingly, I find that there was no mention of an acquisition of Birthdays at the 23 June 2003 board meeting while management were present. What was discussed in relation to Birthdays was the trial. Everyone accepts that the trial was described as successful, Mr Wood saying that it was described as hugely successful. But as I have already observed, it was a small trial and even if the word "huge" was used, it would not be justified to infer that there was an enormously valuable business opportunity waiting which would justify an acquisition of Birthdays.
129. There is an equally stark division between Mr Wood on the one hand, and Sir Tom, Mr Gorman and Mr McMahon on the other about what was said once the management team had left the meeting. Sir Tom says that there was a short shareholders meeting after the board meeting. He says with certainty that there was no mention of Birthdays. Mr Gorman says the same, but he left the meeting with the other three remaining. Mr McMahon has no memory of Birthdays having been mentioned.
130. Mr Wood tells a very different story. He says this:

"I said to Mr Hunter that there was no point proceeding with the expansion plan and wasting money on it if the acquisition was to proceed. Mr Hunter agreed. Mr Hunter said that NGS was in the race to acquire [Birthdays]. He said things were going well in the negotiations which were continuing and that the shareholders in [Birthdays] were keen to sell. We agreed that NGS would pursue the acquisition and that the expansion plan would be put on hold."

131. It would be strange if Sir Tom had said what Mr Wood says he said. It was still more than two weeks before WCC and Mr Gorman made their first offer, at £51 million, on 9 July 2003. It was four days before Mr Gorman had even been told that he would be given access to information to enable him to evaluate the value of Birthdays and to make an offer. It was more than a week before Mr Gorman signed the confidentiality undertaking without which the information would not have been provided. Although it may have been known that Clintons was interested in acquiring Birthdays, if a race was on, Sir Tom and his colleagues would surely have been pressing Rothschilds for information earlier and harder; and would have put in a realistic offer rather than the low initial bid, of £51 million, which they did. Further, I can understand that, if Sir Tom, Mr Gorman and Mr McMahon were behaving as dishonourably as Mr Wood and Mr Wilkinson now say they were, then they might have said nothing about a possible acquisition had they been proceeding with one. But it makes no sense at all to tell Mr Wood a pack of lies about an acquisition which was not, in fact, under way and in which they might not have wanted to involve him as turned out to be the case.
132. I find that there was no mention of an acquisition of Birthdays in the shareholders meeting which followed on from the board meeting on 23 June 2003.
133. For completeness, I should add that Mr Wood accepted that, in saying that an agreement was reached to purchase Birthdays if that was possible, he did not mean that an agreement had been reached for the purposes of Clause 5 of the Shareholders Agreement. That was not, even on his case, in his mind at the time.

Events after 23 June 2003

134. On 27 June 2003, Mr Gorman says, and I accept, that he was called by Mr Robbins of 3i on behalf of the shareholders of Birthdays telling him that information would be provided to enable him to make a decision on an offer and its amount. Mr Gorman puts a spin on this by saying that Mr Robbins confirmed "that West Coast and I would be given access to basic information". Mr Robbins said that any deal would need to be concluded in a short period, 6 to 8 weeks, and that he had handed the matter over to Mr Thomas, at Rothschilds, on behalf of the sellers. Mr Gorman called Mr Thomas saying that what was required was due diligence information. Mr Thomas said a confidentiality undertaking would be required.
135. Again, that this stage, I do not consider that Mr Gorman made it clear that he was looking at an acquisition by WCC and himself. All he saw was an opportunity which needed to be investigated; and it was an opportunity in which WCC and he would be involved however the acquisition was effected. This conclusion is consistent with the signing of the confidentiality letter to which I come in a moment.
136. On 1 July 2003, Mr Walker sent to Mr McMahon a draft information request directed at Birthdays headed "Project Amber", a name Mr Walker had chosen for what reason I do not know. Mr McMahon at that stage clearly thought that the project was one which Mr Gorman was driving with WCC's financial backing. He amended the request and returned it to Mr Walker. On 2 July 2003, Mr Walker emailed to Mr Thomas the amended request which Mr Gorman had also commented on before it was sent. A confidentially letter was prepared by Mr Thomas and emailed to Mr Gorman and Mr Walker on 2 July 2003.
137. That letter contained space, at the end, for signatures of the vendor and the counterparty. Under the space for the counterparty appears "For and on behalf of The Gadget Shop Limited". It is to be noted that the draft was prepared by Mr Thomas. He must have gained the impression from some source that the intended purchaser was TGS. According to Mr Gorman, he had told Mr Thomas in the call which I have mentioned, that the intended acquirer would be WCC and himself. It is very odd, then, that Mr Thomas identified the purchaser as TGS. He could have done that only if Mr Gorman had in fact told him that was the case, or because somebody else had done so (eg Mr Robbins or Mr Boland) or because, having received an email from Mr Walker from TGS, he had made an assumption as to the identity of the acquirer.
138. What is clear is that Mr Gorman in fact signed the confidentiality letter on behalf of TGS and not on behalf of WCC and himself. His evidence on why this was so is not entirely satisfactory. In his original witness statement he says that he was on holiday with his family in Spain on 2 July 2003 and that the last page was faxed to him by his PA. He believed he was signing on his own behalf. He corrected this in a later witness statement when, having gone through his diary, he realised that he was in fact at the TGS offices on 2 July 2003, only going to Spain the next day. In that later statement, he says that he was in a meeting when his PA brought the letter to him. He signed it without reading it and also initialled a deletion, which had been made in manuscript by Mr Walker, on the same page. He says he did not notice the reference to TGS where he signed it. He clearly realised that it was a confidentiality agreement since he confirms what he said before, namely that he thought he was signing it purely on his own behalf. I find all this hard to accept. It is no doubt true that Mr Gorman did not read the whole letter, or perhaps any of it; but it is not easy to see how he could not have noticed the words clearly printed in the same type-face and font as the rest of the letter the words "For and on behalf of The Gadget Shop Limited". I think the reality is that Mr Gorman attached no importance to whom he was signing on behalf of: all he knew was that the information was required and he did not distinguish, for that purpose, between himself, WCC, TGS or NGS. Indeed, if he had thought about it then, even if he was signing on behalf of the Gadget Shop, he would have done so on behalf of NGS rather than TGS since that is where a corporate acquisition would have been made.

The early July telephone conversation - Sir Tom and Mr Wilkinson

139. Sometime in early July 2003, Sir Tom called Mr Wilkinson. It is clear that the purpose of this call was to raise the acquisition of Birthdays. According to Sir Tom, he said that there might be a chance of acquiring Birthdays and that "we" (by which Sir Tom says he meant WCC and Mr Gorman) had been given access to limited information. He asked whether this would be something which Mr Wilkinson might be interested in and thinks that he probably mentioned a price range. According to Sir Tom, his thinking (although he does not suggest that he communicated this to Mr Wilkinson) was that one option for the structure of the deal would be to acquire Birthdays through the Gadget Shop and that another option would be for WCC and Mr Gorman to acquire it themselves. Mr Wilkinson's response, according to Sir Tom, was that he might be interested but had seen no information. Sir Tom said he would get back to Mr Wilkinson when he found out more.
140. It will again come as no surprise that Mr Wilkinson disagrees with that account. He says that Sir Tom told him that NGS was buying Birthdays and asked if he had Mr Wilkinson's support. He said that the purchase price would be £60 million, £55 million to be debt and the balance of £5 million to be made up from shareholders. He rejects Sir Tom's account, saying that the conversation was nothing like as vague and non-committal as that.
141. Mr Wood says that Mr Wilkinson reported this conversation to him and was told that the price was around £60 million with £55 million to be provided by Bank of Scotland.
142. I am satisfied from Sir Tom's evidence (including a reference to his diaries) that this conversation took place before the £51 million offer which I will come to was made by WCC and Mr Gorman.
143. I am also satisfied that it was before information had been obtained from Birthdays which would have enabled a figure of £60 million to be assessed by WCC and Mr Gorman as a price for which Birthday's could be acquired. It is true that there is a note dated 8 July 2003 made by Mr McMahon in which he had recorded a considerable amount of information which was relayed to him by Mr Gorman. One of the entries is "Anything with a 6 will get it". But if it had been suggested that Birthdays could be acquired for £60 million, the note would have said that rather than "Anything with a 6 in it". It is far more likely that the sense of it is "Something with a 6 in it" and indeed, there is another document where the figure which the shareholders might accept is "6?".
144. The conversation was clearly before there had been any discussion with the Bank of Scotland about providing debt finance of £55 million. The figures of £55 million and £5 million came up later, as will be seen.
145. In the light of all these factors, I consider that Mr Wood and Mr Wilkinson are, putting it in the most favourable light, confused in their memories and are wrong to attribute these figures to this conversation. Given that conclusion, I prefer Sir Tom's account of the conversation.
146. This is another occasion relied on by Mr Wilkinson as one where an agreement was made between the holders of more than 65% of the shares of NGS to acquire Birthdays. In the light of my findings, I reject that suggestion.

The first offer and events leading up to it

147. Having received some, but by no means all, of the information required to make an assessment of the value of Birthdays, Mr Gorman worked on a proposal, with input from Mr Walker. Following discussion with Sir Tom and Mr McMahon, it was decided that an offer of £51 million would be made. It was not seriously expected that this offer would be accepted, being regarded as a low opening price. It was made on the basis that Birthdays would be free of any debt; it was subject to due diligence investigations; and to the agreement of an exclusivity period. The offer was contained in a proposal letter dated 9 July 2003.
148. The proposal letter was sent under cover of a letter from McGrigors dated 9 July 2003. In it, McGrigors stated clearly that they were acting on behalf of WCC and referred to the proposal letter enclosed "confirming the proposal by [WCC] or its nominee to acquire the entire issued share capital of Birthdays". That nominee could, of course, have been NGS, TGS or any other person. In the proposal letter the purchaser is identified as WCC and the offer price was stated to be £51 million. The final page contains a space for a signature under the rubric " Jim McMahon West Coast Capital (the Purchaser)". Rothschilds and, if they had read it, the shareholders of Birthdays cannot possibly have thought that that offer came from NGS or TGS.
149. Indeed, Mr McMahon is of the view that an offer made by NGS would not have been taken seriously. It was an unknown company without the financial strength of WCC about which Rothschilds did know.
150. Following the decision at the board meeting of Birthdays on 11 July 2003, the offer was rejected.

Dinner chez Hunter

151. On 17 July 2003 Sir Tom was at his home with his wife and family in the s-outh of France. He invited Mr Wood and his girlfriend to dinner. Mr Wood says that, before dinner, he was taken aside and Sir Tom told him, to quote his witness statement

"….that Clinton Cards plc ("Clintons") who had also shown an interest in [Birthdays] were now out of the picture and that there was no question that we (by which I understood him to mean NGS) were going to be able to acquire [Birthdays]. Mr Hunter said that we were going to make lots of money and build a large retail empire together."

152. After dinner, Mr Wood says that they discussed business again for about 15 minutes and that by this time Sir Tom was quite drunk. He says that Sir Tom told him that NGS had an exclusivity period and that the price would be about £60 million with £55 million of that coming from the bank. Sir Tom said that the expansion plan had been cancelled and that favourable terms had been offered by the bank. He says that reference was made to the property deal which it had been agreed that Mr Wood would be involved in (as to which I have already found that there was no such agreement). He states that neither Sir Tom's wife nor his girlfriend heard this conversation as "they had gone ahead into the upstairs sitting room".
153. Sir Tom denies being drunk. He points out that his house does not have an upstairs sitting room. He denies saying that Clintons were out of the picture, that NGS had an exclusivity period and that the banks had offered favourable terms. At that time, there was no outstanding offer to the shareholders of Birthdays: the offer of £51 million had been rejected and no exclusivity period had been agreed (and would not be agreed for another 12 days). The bank had not yet been approached for finance. This was not done until about 24 July 2003 when Mr McMahon says, as I accept, that he instructed Mr McCluskey (a consultant to WCC) to oversee the banking arrangements. Again, I can see no reason why Sir Tom would have said what Mr Wood alleges he said when it would have been untrue. Sir Tom could have gained no advantage by lying in this way. I accept this evidence from Sir Tom about this meeting. And I accept his evidence that he did not say that he and Mr Wood would build a large retail empire together.
154. The next day, 18 July 2003, Sir Tom put in a call to Mr MacRitchie the new chairman of Birthdays. He happened to be in the south of France, as was Mr Gorman, and a meeting was arranged for the following day. The three of them met on 19 July 2003 and discussed the Birthdays deal. Mr MacRitchie gave some further information about the respective position of different shareholders. He said an offer of at least £60 million would be required. He said this would be needed since the shareholders could get at least that much from Clintons. This shows that Clintons were still in the frame, contrary to what Mr Wood says Sir Tom had told him two days before. There is no reason to think that this information was provided to NGS rather than to Sir Tom and Mr Gorman personally.
155. Meanwhile, Mr McMahon had been working on the figures with Mr Walker and carrying on discussions with Rothschilds. He had been considering in his own mind the structure of the deal and one of the options he was considering was for Mr Wilkinson to take a share in the investment. By 11 July 2003, his conversations with Rothschilds had led him to believe that an acquisition could be achieved for £58 million and by 14 July 2003, Rothschilds were indicating that an offer of £57/58 million would get them talking. Mr McMahon also began thinking about financing and thought that, with WCC's good relationship with Bank of Scotland, the bank might be persuaded to lend 80% of the purchase price. He considered also, if the deal were to be put through NGS, NGS's EBITDA could be used to borrow an even higher percentage from the bank. He also considered that it would be important to achieve an exclusivity period before significant due diligence costs began to be incurred. This was important because it was known that Clintons were interested.
156. On 21 July 2003, a revised offer was sent to Rothschilds again on behalf of WCC. The offer was for £60 million subject to a limited due diligence exercise. There were further negotiations resulting in a slightly revised offer on 25 July 2003 (the changes relating mainly to the amount of debt remaining in Birthdays). This offer was accepted subject to contract on 29 July 2003 at which point the exclusivity period, running until 29 August 2003, came into effect. In this letter, WCC entered into a confidentiality agreement with Birthdays' shareholders in respect of information that was to be made available to WCC. In addition, WCC expressly agreed to be bound by the confidentiality agreement entered into by NGS on 2 July as if it had been a party to it.
157. There was a considerable amount of evidence from Mr Gorman and Mr McMahon, and some from Sir Tom, about how the negotiations for the acquisition continued after the exclusivity period had been agreed. I do not consider that anything turns on the detail of those negotiations or of what was going on at the NGS/WCC/Gorman end of the discussions. Nor do I think that I need to consider the details of the Information Memoranda which were prepared for the Bank of Scotland in relation to the alternative acquisition routes (NGS or a WCC entity). It is enough to say that a considerable amount of information was supplied to Mr Gorman: this was used by him with help from Mr Walker in conjunction with Mr McMahon with help from his assistants at WCC and with considerable input of time and effort by TGS staff, to put forward the offer which was eventually accepted. I would add that I accept from Mr Donoghue that the acquisition was talked about at management meetings in July and August 2003, and that a great deal of due diligence work was being carried by NGS staff. This is not surprising to me bearing in mind that an acquisition by NGS was one of the possible routes being considered even on Mr Gorman's story. Mr Gorman sought to play down these aspects almost to the extent of denying their existence. He should not have done so. I shall consider later the impact if any which the way in which that information was provided and the work which was done by NGS staff has on the question of whether the opportunity to acquire Birthdays was one which belonged exclusively to NGS.
158. On 6 August 2003, Sir Tom broke off his holiday and returned to Scotland to meet with Mr McMahon to discuss a number of business issues including the acquisition of Birthdays. Mr McMahon had been working hard on the structure of the deal and its financing. Sir Tom understood from discussions which he had held with Mr Gorman that TGS had a fairly extensive head office team which was not fully utilised. Mr Gorman had suggested that the two companies could share head office costs. One route which Mr Gorman had put forward for consideration was an acquisition by NGS. This made sense, in both Sir Tom's and Mr Gorman's eyes, because it had, all along, been envisaged that Mr Gorman would run Birthdays if WCC and Mr Gorman had bought it. However (and this was not challenged) Sir Tom says that he was concerned that a company the size of Birthdays and NGS together could not be run effectively with the restrictions like those in the Shareholders Agreement, which was, of course, the same concern as had been identified by Mr Walker and been the subject matter of Sir Tom's email of 23 May 2003. That was why he, Mr Gorman and Mr McMahon decided that they would suggest to Mr Wilkinson and Mr Wood that NGS acquire Birthdays but only on the basis that WCC and Mr Gorman would fund the acquisition and that Mr Wilkinson and Mr Wood would accept a reduced shareholding in the combined entity. Giving them only 25% would prevent their blocking matters which currently required a 65% majority.
159. Sir Tom says he sent, and I find that he did indeed do so, a text message to Mr Wilkinson to suggest a meeting. Mr Wilkinson does not recollect receiving it and it is likely that he did not, given that he was (a) on holiday and (b) says he does not read or send text messages.
160. On 14 August 2003, Information Memoranda were sent to Bank of Scotland. These related to two projects, being the alternative methods of structuring the deal. Project Amber was the name given to the proposal to acquire Birthdays through NGS; Project Belgium was the name given to the proposal to acquire Birthdays through WCC and Mr Gorman.
161. On 18 August 2003, the bank responded with outline terms and conditions for loans for an acquisition by each of NGS and a WCC company; and revised Project Belgium figures were sent to the bank.
162. On 20 August 2003, a meeting was held at UBS's offices between Sir Tom, Mr McMahon, Mr Wilkinson and Mr Wood; Mr Gorman was not present. It is not clear when the meeting was arranged, but it can be seen that that was done before 16 August 2003 when Mr Gorman sent an email referring to the meeting as having been arranged. Before turning to that meeting, I wish to deal with suggestions made by Mr Wilkinson and Mr Wood that the meeting was deliberately arranged towards the end of the exclusivity period in order to pressurise them into agreeing the proposals which Sir Tom put to them at the meeting and to ensure that it was too late for them to take steps to acquire Birthdays for themselves.
163. As to that, it is the case that, even after the acquisition by New Gifts, Sir Tom, Mr Gorman and Mr McMahon continued to negotiate with Mr Wilkinson and Mr Wood in the hope of reaching a resolution but they were not prepared to consider any outcome other than retaining the same share as before, contributing, of course, pro rata to the investment.
164. It was put to Mr McMahon by Mr Crystal that the twin approach (ie running Project Amber and Project Belgium side by side) was kept secret from Mr Wilkinson and Mr Wood. Mr McMahon considered that they were not kept secret although he accepts that they did not know about them. The reason for that he said, was because he and Sir Tom wanted a face to face meeting which was arranged as soon as possible. He considered that he and Sir Tom acted honourably. There had been problems in the past, for instance over the share option scheme, and it was considered, he says, that the best way to sort out whether there could be an agreed investment was in a face to face meeting. That may well be correct, but it does not explain why more information was not given sooner - for instance, the Information Memoranda sent to the bank could have been copied to Mr Wilkinson and Mr Wood. Having said that, I do not consider that the evidence is sufficient to establish that the absence of provision of information or the lateness of the meeting were deliberate acts designed to put pressure on Mr Wilkinson and Mr Wood or to prevent them from themselves putting together a bid for Birthdays. Further, it is to be noted that an attempt was made to contact Mr Wilkinson earlier in August to arrange a meeting but he was on holiday: see 159 above.
165. I turn now to the meeting on 20 August 2003. Sir Tom had with him what has been referred to as a "crib-sheet". This comprised some pages which had been emailed to him the previous day by Mr Walker, although who actually prepared them is not clear. Sir Tom did not provide copies of these sheets and, if Mr Wilkinson or Mr Wood saw them at all, it was only very briefly. It is not in dispute that Sir Tom proposed an acquisition by NGS but only on the basis that Mr Wilkinson and Mr Wood took a 25% holding in the new, combined, business; nor that Mr Wilkinson and Mr Wood declined to accept that proposal.
166. Sir Tom did indicate that Birthdays could be acquired for £60 million (of which Mr McMahon explained £3 million would be by way of a tax guarantee) and that, if terms could be agreed for NGS to do so, Bank of Scotland would be willing to lend £55 million; alternatively it was prepared to lend WCC £46 million on an acquisition by a WCC entity.
167. Sir Tom and Mr McMahon say that no agreement was reached at this meeting that NGS would acquire Birthdays. It is clear that Sir Tom said that if an agreement could not be reached, he (or WCC) would purchase Birthdays. Mr Wilkinson accepted in cross-examination that there was no agreement. Mr Wood sought to say in cross-examination that there had been an agreement (whether legally binding or not is to the point) that NGS would acquire Birthdays but that what had not been agreed was only the shareholdings which the parties should thereafter have. However, that seems to be a conclusion which he reaches from the uncontroverted fact that everyone considered that the purchase was an opportunity not to be missed, but the opportunity would not be missed if the acquisition was made by WCC. His position in cross-examination is, I consider, inconsistent with his witness statement where he acknowledges, indeed complains, that Sir Tom said he (or WCC) would acquire Birthdays unless Mr Wilkinson and Mr Wood agreed to his proposal. Again, I reject Mr Wood's evidence and find that there was no agreement that NGS would acquire Birthdays.
168. Mr Wilkinson says, and I think Mr Wood agrees, that they simply wanted to "take up their rights" by which he meant the right to make a proportionate investment for the acquisition of Birthdays by NGS. In other words, they would retain their 40% shareholding after the acquisition but would make the same pro rata investment, whether by way of equity or loan, as the other shareholders. Each of them appears to have been under the impression that they had some sort of legal right to insist on NGS acquiring Birthdays and, if it did so, to invest pro rata. Their attitude is understandable, whether or not it is right or wrong, if one ignores the Shareholders Agreement. But if the Shareholders Agreement is taken into account, the position is very different. As I have said, I will look at the Shareholders Agreement in some detail in due course. But jumping ahead, NGS could acquire Birthdays only if 65% of the shareholders agreed. Only if could be shown that either or both of WCC and Mr Gorman had previously agreed, would the necessary 65% have been obtained by 20 August 2003. Accordingly, unless there is some overriding provision of the Shareholders Agreement, or some overriding legal or equitable principle, leading to a different result, Mr Wilkinson and Mr Wood had no rights to take up.
169. Mr Wilkinson did not know about the 65% provision in the Shareholders Agreement at that time (and probably not until a few weeks before the commencement of this trial) as he accepted in cross-examination. Mr Wood, in cross-examination, said that he only learned of the 65% restriction shortly before Hammonds were preparing a letter (to which I will come) dated 8 September 2003, but then claimed to have learned about it slightly earlier, although it is not clear whether he was saying prior to this meeting on 20 August 2003. In his diary, Mr Wood has written in the page for 20 August 2003 (he may have written it that day or later) "get proxy for Jonathan [ie Elvidge] as well 50/50 then!"; he explained this as seeking to get Mr Elvidge's vote on his side making it 50/50 with WCC and Mr Gorman, thus protecting his and Mr Wilkinson's vote from the exercise against them of a majority vote. But if he had understood the 65% restriction, he would have known that he and Mr Wilkinson between them already had power to veto anything significant which they did not approve of. So his reaction (ie to exercise his rights) and that of Mr Wilkinson to Sir Tom's proposal really makes sense only if neither of them knew, or at least had in mind, the provisions of the Shareholders Agreement.
170. Mr Wilkinson identified the source of his rights as being standard business practice. It did not occur to him, he said, that standard practice might not be applicable where a shareholder had entered into a shareholders agreement. In response to being asked why he thought people make contractual bargains he said "Look, I am not a legal expert……But at the end of the day, I do not see any clause in there that says you can get dipped down to 25%". That, it seems to me, is the nub of his complaint expressed from a layman's perspective. And he is correct, there is no such clause; but there is a clause which says unless 65% agree, a corporate acquisition such as Birthdays cannot go ahead. What his answer fails to address is what is to happen if 65% do not agree.
171. I find that there was no agreement on 20 August 2003 that NGS would acquire Birthdays. I would add this in relation to the suggestions, which I have already rejected, that there were such agreements in June and July. Neither Mr Wilkinson nor Mr Wood objected, at the 20 August 2003 meeting, that there had been previous agreements that Birthdays would be acquired by NGS; nor did Hammonds do so in their letter dated 8 September 2003. It would have been an obvious objection to Sir Tom's proposal if there had been such an agreement. Although Mr Wood did not accept in cross-examination that no objection was made at the 20 August 2003 meeting on that basis, it was not mentioned in his witness statement. I find that no such objection was made.
172. It is accepted by Sir Tom that he compared the potential worth of a 40% holding in NGS (without Birthdays) with a 25% holding in NGS and Birthdays combined. Mr McMahon explained to the meeting where the cross-over would be on various scenarios. It is denied by Sir Tom and Mr McMahon, however, that either of them said that the combined value would be £200 - £300 million.
173. The crib-sheet to which I have referred showed projected valuations for the combined NGS/Birthdays businesses of £128 million in 2005 growing to £177 million in 2008. Those figures were based on projected EBITDAs using a multiplier of 6. The EBITDA for 2003 was only £4,047,000 which, using a multiple of 6, would have given a value of under £25 million but that figure was not shown on the sheet and may not have been a useful indicator of anything to anybody. What is quite clear is that the crib-sheet does not support a valuation of £200 to £300 million at any time. Mr Wilkinson said in his witness statement that the sheet which he saw contained a valuation with those figures. There is, however, nothing to suggest that Sir Tom handed Mr Wilkinson and Mr Wood anything other than the crib-sheet.
174. What Mr Wilkinson then said in cross-examination to explain the reference to £200 - £300 million is that Sir Tom had said, in the meeting, that a multiplier of 6 was very conservative and that a multiplier of 10 would be more appropriate. If that was correct, then the figure of £200 - £300 million would indeed be arrived at starting in 2005 and increasing to 2008. But even on that basis, there would be no justification for a figure of £200 - £300 million in 2003 which was what Mr Wilkinson's evidence was in his witness statement. Mr Wilkinson made absolutely no reference to this justification for the valuation in his witness statement: it came completely out of the blue to explain the apparently inexplicable when Mr Wilkinson, on seeing the crib-sheet apparently for the first time since the meeting, saw that it did not contain the figures he had mentioned.
175. Mr Wood, in cross-examination, put forward the proposition that the combined business was worth £200 - £300 million in August 2003; that was the figure which he thought that a valuer would put on the shares for the purposes of ascertaining the price if a buy-out order were to be made against Sir Tom and Mr Gorman. He puts forward that figure not because he has undertaken, or had undertaken, a valuation of his own, but because that is what he says he was told by Sir Tom. It is, however, a preposterous proposition, if it is based only on what has been put in evidence in this case, to suggest that the combined businesses were worth £200 - £300 million in August 2003. It would have been obvious to anyone reading the crib-sheet and its projections that that was so. I do not believe that Sir Tom said it was so. And I certainly do not think that Mr McMahon, about whose honesty and integrity I have no doubt, would have let it pass uncorrected if Sir Tom had said it. Moreover, Mr Wood did not mention a multiplier of 10 but then he had not, when he gave his evidence, heard Mr Wilkinson explain how he got to the figures which he did on the basis of the crib-sheet.
176. Furthermore, there is nothing in the documentary evidence that supports a multiplier of 10; indeed, the multiplier used by PwC in relation to the share option scheme in their communications with the Inland Revenue was of only 4 (although one should not read too much into that because special considerations no doubt apply in that case).
177. I therefore find that no mention was made by Sir Tom (or indeed by Mr McMahon) of a valuation of £200 - £300 million at the meeting on 20 August 2003.
178. On a small matter of detail, Mr Wood says that Sir Tom stated that he was running NGS, that he was putting his reputation on the line and that Mr Gorman was ringing him 30 times a day. Allegations similar to the second and third of those were made about Sir Tom in the context of the proposed move to Glasgow. I rejected Mr Wood's evidence on the point then, and I reject it at this stage too.
179. Sir Tom, in an attempt to find a solution, offered to buy out Mr Wilkinson. He, however, did not want to sell to Sir Tom and indeed, if he was to sell to anyone, would have wanted to sell to Mr Wood. The offer for Mr Wilkinson's shares, some 23%, was £7 million, putting a value on NGS (without Birthdays, of course) of about £30 million.
180. At the 20 August 2003 meeting, Mr Wood asked for more financial information to be provided. This information was sent to Mr Wood on the same day. He forwarded it to Mr Wilkinson the following day. There has, so far as I can detect, been no reluctance either then or at any other time by Sir Tom and Mr McMahon to provide information or projections or other financial data.
181. Notwithstanding attempts by Sir Tom and Mr Wood to come to an agreement, no agreement was in fact reached. Birthdays was then acquired on 29 August 2003 by New Gifts. Sir Tom informed Mr Wood by text that Birthdays had been acquired, but Mr Wood says he read the message to mean that NGS had done so. Given (a) that Sir Tom had made clear, to the anger of Mr Wood, that he (or WCC) would acquire Birthdays unless an agreement was reached about a restructured shareholding in NGS and (b) that no such agreement had been reached, I do not understand how Mr Wood could have read the message that way. Nothing turns on that and I say no more about it. The consideration for the acquisition of Birthdays was some £14,000 for the entirety of the issued shares, about £27.6 million for loan notes issued by Birthdays and repayment of bank borrowings of about £34.4 million, a total of about £62 million.
182. Even after the acquisition, Sir Tom attempted to reach an accommodation with Mr Wilkinson and Mr Wood for the acquisition of Birthdays by NGS. There was a meeting at the Metropolitan Hotel on 2 September 2003 between Sir Tom, Mr McMahon, and Mr Wood. It is clear that Sir Tom made an offer that, at Mr Wilkinson's option, he could either buy Sir Tom's shares or sell his 23% on the basis of a value for the whole of NGS of £35 million (taking no account of the value of Birthdays). That was rejected. There are differences between the parties about what precisely was said after that in terms of a counter-proposal from Mr Wood. I do not think that any point turns on anything else which was said at the meeting.
183. There is one further important factual issue arising out of all this which I need to resolve. Sir Tom, Mr Gorman and Mr McMahon all say that, if they had been advised that they could not properly acquire Birthdays for themselves, they would have walked away from the opportunity rather than have allowed NGS to acquire it with the then existing share structure. They would not have been prepared to invest in this much larger business without having the control that the substantially increased shareholding proposed by Sir Tom involved. Mr Crystal submits that that is simply self-serving evidence which should be rejected. It is, of course, evidence which assists their case. But on the totality of the evidence concerning the relationship between the various individuals concerned, and without needing in any way to apportion blame for the poor relations which existed by August 2003, I conclude that neither WCC nor Mr Gorman would have permitted NGS to proceed with the acquisition without a change in the shareholding. This is not a conclusion which I reach simply on balance; it is a clear view which I reach on the overwhelming weight of the evidence leading to it.
184. On 8 September 2003, Hammonds (acting for Mr Wilkinson) wrote to Sir Tom, Mr Gorman and Mr McMahon accusing them all of breach of fiduciary duty in acquiring Birthdays through New Gifts. This letter was written very soon after the acquisition which has given rise to this action and must be taken to reflect Hammonds' instructions at the time.
185. Lord Grabiner draws attention to the following features of the letter:

a. First, the letter contains no suggestion of the case subsequently advanced in the witness statements that it was ever agreed by the holders of more than 65% of the NGS shares that NGS would acquire Birthdays. All it says is that it was agreed on 23 June that "NGS would explore the possibility of acquiring the Birthday[s] Group" and that "Mr Gorman and Sir Tom Hunter would conduct preliminary negotiations". I have already rejected the suggestion that such an agreement was made.

b. Secondly, the letter contains no suggestion that the acquisition of Birthdays was discussed as early as February 2003 as is now claimed (or indeed any earlier than 23 June 2003). I have also already rejected that claim.

c. Thirdly, the letter demanded that the shares in Birthdays be transferred to NGS (although no proposal was made as to how NGS would pay for those shares). The letter did not ask for Mr Wilkinson's shares to be bought. Lord Grabiner says that this point is relevant to the case subsequently advanced as to the appropriate date for valuing Mr Wilkinson's shares and that one of the many reasons why 29 August 2003 is not appropriate is that Mr Wilkinson did not then wish to have his shares bought. Sir Tom had offered to buy them, but Mr Wilkinson chose at the time to remain a shareholder in NGS.

186. There was, in the evidence, a large amount of material about the businesses of NGS and Birthdays, and how they were run, after August 2003. I do not think that it is necessary for me either to deal with most of it or to make any findings.
187. It is, however, necessary to say that Birthdays was found to be in a far less satisfactory state than Sir Tom, Mr Gorman and Mr McMahon had been expecting. In retrospect, all of them say that it was a mistake to have acquired Birthdays, at least at the price which they paid. In circumstances which I will come to, Birthdays was in fact sold at a considerable loss. Paraphrasing what Mr McMahon said, when you realise you've made a mistake in business, you acknowledge it and move on. Moving on, in the present case, meant disposing of Birthdays. It is an arid debate, in the context of what actually happened, whether Sir Tom, Mr Gorman and Mr McMahon (or any of them) regarded the opportunity to acquire Birthdays as "outstanding" which is a word it is suggested that they used and believed and which does indeed appear in the Information Memoranda, in the period leading up to the acquisition. It is incontrovertible that they regarded the opportunity as one which should be taken and, in that sense, it was clearly perceived as valuable. But it is also incontrovertible that Birthdays was sold at a loss and that NGS is insolvent. And, for reasons which I have already given, there is nothing in the suggestion that the combined enterprise would have been worth anything like £200 million in August 2003.
188. The problem was that the projections on which the offer price had been based were flawed. The difficulty with projections, of course, is that events may take an unpredicted different turn. And because of a number of issues, the projections were flawed even when they were made in August 2003 and relied on by Sir Tom, Mr Gorman and Mr McMahon. This aspect is dealt with in the witness statement of Mr McMahon where he identified three key elements which he says shows that the projections were flawed. This aspect of his evidence (see paragraph 60 of his first witness statement) was not challenged and I accept it.

a. First, the projected performance was based on inaccurate historic information as opposed to current information. The profit for 2003 turned out to be £20 million lower than had been assumed when the plans were prepared. This was in part because of a large write down of stock which should have been written down in previous years' accounts. Mr McMahon even goes so far as to say, and I accept, that if the true figure had been known, WCC would not have proceeded with the acquisition.

b. Secondly, the NGS/TGS figures which Mr Walker used in the projection for the periods predating the preparation of the projections were not actual results but estimates. This was because the final management accounts for the period were not yet available. These figures failed to take account of NGS/TGS's trading position. That factor does not mean that the value of Birthdays was affected; but since the offer price was calculated by reference to projections in relation to the combined business, the deterioration in the position of NGS/TGS would have had an impact on the level of the offer which the purchasers were prepared to make.

c. Thirdly, Mr Walker had prepared figures based on acquisition accounting on the assumption that Birthdays would be acquired on 1 September 2003. This meant that less than a full year's trading profit was included in the figures. Although Mr Walker's figures were strictly correct as a matter of acquisition accounting, it is not the way in which most venture capital houses would build a model on which to base projections. If a full year's profit had been included for NGS and Birthdays, the operating profit in the business projections for the year to March 2004 would have been £6 million lower. The projected step up in profit between 2004 and 2005 would have been greater and very much more apparent, so that the difficulty in achieving it would have been more apparent.

189. Apart from those three elements, there were three damaging developments.

a. It was discovered that there were serious stock deficiencies. Birthdays' records (which were very inadequate in their format, usefulness and accuracy) significantly overstated its stock, and a significant quantity of stock which did exist turned out to be of poor quality in any case. Accordingly, the turnover projected could not be achieved. As Mr Gorman explains, the stock simply was not there which Birthdays' records indicated ought to be there. In order to dispose of the significant quantities of poor quality stock which existed, many more shops than had already been planned for conversion were converted to Card Direct stores - a discount trading format. This had knock on effects for cash-flow and delay in ordering new stock which caused turnover to remain lower than projected.

b. Mr Gorman had intended to merge the distribution centres for TGS and Birthdays. Unfortunately, it transpired that they operated too differently to be merged successfully. Mr Bodsworth reported to Mr Gorman that the warehouse in Bury was not big enough to take all the stock of the combined businesses at peak times of year. Although an overflow warehouse could have dealt with the problem this would have required expenditure. Further, a significant sum would need to be spent to change the racking in the existing warehouse. There was not the cash available to effect this merger of warehouses.

c. Both NGS and Birthdays experienced disappointing trading results over Christmas 2003. So bad were matters at NGS that Mr Walker reported to the board on 23 February 2004 that one of its banking covenants would be breached on the forecast figures.

190. The result of all these factors was that the story of Birthdays' performance for September 2003 onwards was one of results consistently and significantly below the expectations reflected in the projections prepared in August 2003 for the acquisition.
191. By mid July 2004, Birthdays was experiencing real financial problems. There were breaches of banking covenants connected with the acquisition. Mr McMahon states, quite correctly it seems to me, that the only options open to New Gifts were (i) to allow Birthdays to be put into administration or liquidation (ii) to refinance Birthdays or (iii) to sell Birthdays. WCC was not prepared to provide support, to throw good money after bad. In the event - and here I do not think I need to go into any details of the negotiation - Clintons made a subject to contract offer to purchase all of the shares in Birthdays
192. At this time, the relief claimed in the Petition included an order for the shares in Birthdays to be transferred to NGS. McGrigors asked Mr Wilkinson to consent, or not to object to, the sale to Clintons. He refused to do so. An application was made to the Court to obtain an order permitting the sale to proceed. Lewison J, on 5 October 2004, granted relief enabling the sale to go ahead against an undertaking by New Gifts to hold any profit from the sale in a separate account (an offer which McGrigors had, in any event, made on 13 August 2004). In fact there was no profit. A long formal contract of sale, subject to approval of the acquisition by Clintons' shareholders as required by the Stock Exchange, was entered into on 18 November 2004 and the sale was duty completed. The consideration was £46.4 million. The balance ultimately available for distribution to shareholders was £7.75 million which meant that WCC and Mr Gorman had lost approximately £4.75 million on their investment: that was the unchallenged evidence of Mr McMahon.
193. So far as NGS itself was concerned, I have already mentioned its poor result for Christmas 2004. It is worth examining to some extent the events from September 2004. This is what Lord Grabiner and Mr Strong have to say.

a. When Mr McMahon was looking to sell Birthdays, he also made enquiries seeking a buyer for Gadget Shop because he thought that it would also require refinancing and WCC was unwilling to inject further funds. He reported in a letter to shareholders and directors and at an NGS board meeting on 8 September 2004 that expressions of interest in WCC's shares had been received from Hamleys and Maplin Electronics, that Hamleys offer gave NGS an enterprise value of £11.5 million (i.e. including refinancing NGS's bank and shareholder loans) and that WCC intended to pursue the interest shown.

b. Mr McMahon explains that by December 2004, Hamleys' offer for NGS had fallen below £3 million as a result "[of]" its due diligence investigations and WCC decided to wait until after Christmas before proceeding with any sale of its shares. However, Gadget Shop's trading over Christmas was disappointing, and the 13 week cashflow forecast sent to directors on 14 January 2005 indicated that NGS would run out of cash in roughly 6 weeks' time.

c. NGS board meetings were held very frequently thereafter. The banking situation was discussed at a board meeting on 19 January 2005. Mr James said that the shareholders he represented were not prepared to provide any guarantee or collateral for NGS's ongoing banking requirements. The following day, since neither a guarantee nor collateral was to be provided, Bank of Scotland exercised its right to pre-pay the company's term loan out of its current account.

d. Mr McMahon says that he considered, in the light of this, that it was clear that the only way that NGS could avoid insolvency was for a purchaser to be found and he reported to the board that he had spoken to Game Group plc, which had expressed an interest in acquiring NGS. Following the board meeting, Mr McMahon and Mr Gorman had further discussions with Game, and on 28 January Game offered, subject to the fulfilment of certain conditions, to purchase the entire issued share capital of NGS for £1 million. One of the conditions was that all the shareholders confirm their willingness to accept the offer. The pull provisions in clause 9 of the Shareholders Agreement meant that if they received an offer for their shares WCC and Mr Gorman could together require Mr Wilkinson either to sell his own shares to the offeror or to buy their shares, in either case at the same price.

e. At an NGS board meeting on 1 February Mr James asked whether WCC and Mr Gorman would be willing sellers if Mr Wilkinson and Mr Wood wanted to make an offer for the business. Mr McMahon and Mr Gorman confirmed that they would. The following day, Mr James said that Mr Wilkinson was prepared, subject to contract and due diligence, to buy WCC and Mr Gorman's shares at the price offered by Game. In response to Mr McMahon and Mr Gorman's concerns about the risk of Mr Wilkinson spending time doing due diligence only to withdraw his offer, Mr James said that it was "no hollow offer". Mr Wilkinson confirmed in cross-examination that he had authorised Mr James to make the offer.

f. On 3 February, however, Hammonds telephoned McGrigors to say that Mr Wilkinson's offer was revoked. No explanation was given, but in the board meeting later that day Mr James referred to "complications with the litigation" if Mr Wilkinson bought WCC and Mr Gorman's shares. Mr Wilkinson's suggestion in cross-examination that the offer was withdrawn because overnight his team had concluded that an additional £5 million would need to be invested in NGS should be rejected: nothing of the sort was said at the time or during any of the hearings before Peter Smith J. [As to that last point, I decline to make any finding.]

g. WCC, Mr Gorman and Mr Elvidge entered into heads of terms with Game on 8 February. On 10 February, Mr McMahon wrote to Mr Wilkinson asking him to confirm that he would comply with the Shareholders Agreement if a pull notice was served. Mr Wilkinson did not respond directly, but served Amended Points of Reply on 11 February asserting that he was entitled to terminate the Shareholders Agreement. On 15 February he applied for an injunction to prevent the exercise of the pull provisions. The Court is invited to conclude that Mr Wilkinson's desperation to avoid being faced with a pull notice, which would have required him to put up or shut up, shows that he knew or strongly suspected that his claim (and the claim he asserted on NGS's behalf) had no value. [Again, I decline to make any findings on that issue.]

h. On 16 February Mr James, on behalf of Mr Wilkinson, proposed selling TGS rather than NGS to Game. Mr McMahon explained that he thought that attempting to change the transaction at this stage would be more risky than pursuing the transaction Game had been negotiating (to Mr Wilkinson's knowledge) until then.

i. That application was heard on 3 March and resulted in a consent order which allowed WCC to serve a pull notice. WCC undertook that if Mr Wilkinson served a counter notice (to buy WCC and Mr Gorman's shares), WCC would not argue that this affected his position adversely in the Petition.

j. On 7 March Game reduced its offer to £500,000 for all the shares in NGS. On the same day, WCC, Mr Gorman and Mr Elvidge served a pull notice on Mr Wilkinson. Mr Wilkinson returned to Court to contest the validity of the pull notice rather than pay £300,000 for the shares of WCC, Mr Gorman and Mr Elvidge.

k. On 10 March Peter Smith J ruled that the pull notice was not valid because Game's "offer" was subject to contract. The following day, despite Mr McMahon's attempts to persuade Game to continue their investigations into NGS, Game said that it was no longer interested in purchasing NGS, saying that they were concerned

"that the hostile attitude of Mr Wilkinson will mean that if we try to progress the acquisition of the New Gadget Shop Limited we will be dragged into litigation and we are concerned that we will never get sufficient certainty of acquiring one hundred percent of the shares in The New Gadget Shop Limited"

l. No other purchasers for NGS were found, and on 14 March TGS went into administration. On 18 March, WCC and Mr Gorman appointed an administrative receiver to NGS under the terms of the debentures securing their loans. TGS, which at the time had 742 employees, has now ceased trading.

. With the reservations I have record in square brackets, that appears to me to be an accurate summary of the events described in the evidence of Mr McMahon (which I accept) and the documents. The only matter in relation to which I would say more is the proposal from Mr Wilkinson that it should be TGS rather than NGS which should be sold to Game. Whilst it is possible to see why Mr Wilkinson's advisers might have had concerns about the effect on the Petition of such a sale, it was within the range of reasonable decisions, in my judgment, in all the circumstances for New Gifts to decline to go along with that. If it is suggested on behalf of Mr Wilkinson that the refusal was simply a tactic in the litigation to make life difficult for him, I reject that suggestion.

. There is an aspect of Mr Wilkinson's case which I have not yet touched on. It relates to the way in which the businesses of TGS and Birthdays were in fact conducted after the acquisition and raises a point about sharing of staff. The suggestion, if I understand it correctly, is that if NGS had in fact acquired Birthdays, the combined business would have been conducted in a way different from that in which it was actually conducted; that that would possibly or probably have resulted in a better performance. Since one cannot tell what would have happened, this supports the approach that the date for assessing the value of the NGS shares, in the context of an order that Sir Tom and Mr Gorman purchase Mr Wilkinson's shares, should be 29 August 2003.

. This argument depends, at least to some extent, on the proposition that the short, medium and long term plans set out in the Information Memorandum for Project Amber were not carried out. For this argument to have any prospect of success, it would need to be shown that those plans would have been carried out under Project Belgium.

. The Information Memorandum for each of Project Amber (acquisition by NGS) and Project Belgium (acquisition by a WCC entity) contained a Growth Plan containing three headings, Short Term, Medium Term and Long Term. They contain, hardly surprisingly, a considerable amount of overlap.

. The Short Term plan in each case is worded identically. In practice, there would be no difference on the ground in the implementation of the Short Term plan.

. The Medium Term plan for Project Amber was as follows:

"In the 6 months January 2004 - June 2004 we would look at rationalising the support functions across the business. This would include :

a. Closing gadgetshop distribution centre in Hull and moving the operation to Bury

b. Reducing the Birthdays head office administration head count to 95 which, together with gadgetshop's 45 personnel, would provide a support team of 140 [£1.5million sales per Birthdays employee compared to Clinton Cards £1.9million]

c. Relocating administration staff to gadgetshop CSO in Glasgow"

. In contrast, the Medium Term Plan for Project Amber included only

"1. Reducing the Birthdays head office administration head count to 113 [£1.4million sales per Birthdays employee compared to Clinton Cards £1.9million]"

. So it can be seen that the principal differences were that the Project Belgium Plan did not envisage the closure of the NGS warehouse in Hull and anticipated a reduction in head office staff for Birthdays to 113 rather than to 95, together with a move to Glasgow. Even though it was Project Belgium which went ahead, Mr Gorman envisaged the advantages listed in the Medium Term plan for Project Amber being implemented. He continued to investigate the merging of the distribution centres since this would have advantages for both businesses (even though they were not in common ownership). However, as I have already explained, that merger was not feasible but that was nothing to do with the fact that there was not common ownership. Mr Gorman also explained in cross-examination that, in fact, the Birthdays staff were relocated to Glasgow, albeit a month later than planned and the actual reductions in head office staff were more than planned under Project Amber. I accept his evidence on that.

. The Long Term plans were not implemented because of the financial problems which I have described facing each of the businesses. It would not have been possible to implement either of those plans. The position, had the acquisition been by NGS, would have been no better than following the acquisition which took place.

. It is also suggested on behalf of Mr Wilkinson that the sharing of staff between TGS and Birthdays after the acquisition might have resulted in the conduct of one or other of the businesses being jeopardised. The question of "management stretch" was something which concerned Bank of Scotland and was raised in an email dated 7 July 2004 to Mr McMahon from Mr Brechin, a manager at the bank (although his concern seems to have been principally that key management were focused on Birthdays rather than a concern that NGS's business was being inadequately supervised). Mr Gorman touched on this issue in his witness statement and it was developed in cross-examination.

. Mr Gorman had always envisaged synergies between NGS/TGS and Birthdays whether it was Project Amber or Project Belgium which proceeded. He had not envisaged major changes before Christmas 2003 but he needed NGS/TGS staff to become involved in Birthdays to understand the business. He regarded the NGS/TGS management team as underutilised so it was possible for some managers to go to Birthdays to assist. It was only in early 2004 that more time began to be spent by the NGS/TGS management team at Birthdays: Mr Gorman accepted that all of the executive directors of TGS other than Mr Elvidge and Mr Bailey spent time at Birthdays. But there was some reciprocity with Birthdays management working at TGS. Mr Gorman says that he regarded this as a synergy of advantage to both companies: I accept that.

. There was a board meeting of NGS on 23 February 2004 attended by Mr Gorman, Mr Elvidge, Mr McMahon and Mr Walker, with apologies recorded from Mr Wilkinson. Mr Walker pointed out that a banking covenant would be breached on the basis of forecast figures. Mr Gorman stated that board approval was needed for certain items in order to achieve budget targets. These were the reduction of overhead base through the sharing of certain services by outsourcing activities such as IT, HR and property. He suggested that cost saving could be achieved by sharing such services with Birthdays. Relevant staff could move across to a new vehicle. The board agreed to these proposals subject to identification of savings of at least £250,000. Following that, and the completion of a full redundancy exercise, Birthdays moved from Bury to Glasgow. After that, certain NGS employees (including Mr Walker, Mr Bodsworh, Mr Donoghue and Ms Crossland) split their time between the two companies. Appropriate reimbursements were made charging Birthdays for the time of these personnel at cost.

. It is impossible to rehearse exhaustively all the evidence on this point. From what I have seen, I am satisfied that the sharing of staff was carried out in what Mr Gorman believed was the best interests of both NGS/TGS and Birthdays. Importantly, I am satisfied that the sharing of staff cannot have such an impact (if indeed there was any impact at all) on the results of either NGS/TGS or Birthdays as would have either (i) prevented the insolvency of NGS or (ii) prevented the sale of Birthdays at a loss.

. I also reject any suggestion that the sharing of staff is an indication that Mr Gorman in particular, but also Sir Tom and Mr McMahon, were not trying to make a success of Birthdays or of NGS.

. In the context of the success of the enterprise, Mr Wilkinson complains that WCC and Mr Gorman failed to make an investment into Birthdays which it was known would be needed to make it a success. The implication must be that such an investment would have been made if NGS had acquired Birthdays, otherwise the point gets Mr Wilkinson nowhere. However, the only planned investment which I have been able to detect is that which was envisaged in the Project Amber and Project Belgium Information Memoranda. The fact is that WCC and Mr Gorman did invest that which was envisaged by Project Belgium (namely £12.5 million of their own money plus a term loan to New Gifts of £46 million and a working capital facility of £10 million) and no more was envisaged being provided under Project Amber. The planned investment was therefore made. It turned out to be insufficient as Mr McMahon explained. He thought that perhaps £25 million was needed just to stabilise the business. That was not an investment WCC was prepared to make. It was in that context that Mr McMahon made his comment, that if you make a mistake, recognise it. I do not consider that WCC can be criticised for not making this further investment which it was under no obligation to make.

. There are two further aspects of the case which I need to deal with in completing my review of the facts.

. The first I will deal with shortly. It relates to a company called Blue Sky Designs Ltd. Mr Wilkinson complained that the conduct of Mr Gorman and Mr Elvidge in relation to Blue Sky was another aspect of unfair prejudice. It has been clear for a long time that the financial impact of this complaint, even if it is a good one, is de minimis in the context of these proceedings, affecting the value of NGS at 29 August 2003 by less than £10,000 and the value of Mr Wilkinson's shares by less than £2,500. The essence of the complaint is that the design business of TGS has been diverted to Blue Sky. Once Mr Wilkinson had expressed concerns, Mr Gorman and Mr Elvidge offered to sell their shares in it to NGS at no profit, an offer which Mr Wilkinson declined. On the second day of the hearing, Mr Wilkinson effectively abandoned reliance on conduct in relation to Blue Sky and Mr Elvidge took no further part in the proceedings. It is unfortunate, I think, that Mr Elvidge has been made to suffer the strain of involvement in this litigation up to that time. I say that, even if it is the case, as to which I know nothing, that he has been fully protected against costs by some other party to this litigation.

. The second relates to open offers which have been made. I start with an offer dated 10 March 2004 when McGrigors, calling Mr Wilkinson's bluff, wrote a long letter to Hammonds containing an offer on behalf of WCC and Mr Gorman, to sell their shares to him at half the value which he was asserting NGS was worth at that stage ie half of £150 - 200 million. Alternatively there was an offer to buy out Mr Wilkinson on the basis of an independent valuation. As to the date of valuation, McGrigors considered that a current valuation was appropriate but that, if Mr Wilkinson wished to argue for an August 2003 date, their clients would propose that the parties make submissions to the independent valuer on what date should be chosen. They also offered to make available any documents which could reasonably be said to have a bearing on valuation.

. Hammonds wrote a long letter in reply which, so far as concerns the offers, rejected them saying "….our clients will, inter alia, pursue an order that their shares are purchased by your clients and will produce evidence of their value. The valuation issue is one which will develop further in the litigation….". This is slightly odd: the alternative offer was precisely that - to purchase at a valuation which is precisely what the court would order if Mr Wilkinson succeeded. If it was intended simply to reserve the position about the appropriate valuation date then the response is an extremely opaque way of saying so.

. A revised offer was made by McGrigors on 26 March 2004. It was in these terms:

"1. to buy your client's shares to be valued as at the end of August 2003 as if NGS had then purchased [Birthdays] at the price [WCC] in fact paid for it….

Alternatively

2. your client will be given the opportunity to "follow his money" and fund his share of the acquisition costs of [Birthdays] in order that NGS can acquire [Birthdays] on the same basis as originally acquired by [WCC]"

McGrigors repeated the offer to provide documents which can reasonably be said to have a bearing on the valuation of NGS, including the valuation of NGS and Birthdays together.

. The first of these offers is precisely the relief which Mr Wilkinson now seeks from the Court.

. The offers were rejected in Hammonds' letter to McGrigors dated 7 April 2004. It is not entirely surprising to see that the second offer was rejected. The parties were by now so hostile to each other that one might think that it would have made no sense at all for them to enlarge their commercial relationship rather than to sever it. However, this appears to be inconsistent with the position taken when the Petition was issued the following month; in it, the primary relief sought was an order for the transfer of Birthdays to NGS. Further, when the time came for a sale of Birthdays to proceed, the matter had to be brought before Lewison J because Mr Wilkinson objected to the sale on the basis that Birthdays belonged in equity to NGS.

. In relation to the first offer, Hammonds stated that, in the light of what, to use my own shorthand, I will describe as the alleged disgraceful behaviour on the part of Sir Tom, Mr Gorman and Mr McMahon, "it is unrealistic to expect our clients to agree to a voluntary form of dispute resolution with your clients". Alas, I remark, perhaps unrealistic; but certainly not unreasonable. Then they say this: and detailed "It would be impossible to agree a mechanism by which a fair valuation, acceptable to all parties could be undertaken. The only fair and acceptable forum in which the valuation issue can properly be resolved is in court, on the basis of expert evidence cross-examination of witnesses". It is also suggested that of critical importance are the forecasts sent to Mr Wood on 20 August 2003 and that any resolution of the valuation issue will have to incorporate cross-examination of the person who prepared the projections. I am not sure that the forecasts are of great significance. What is of significance is the material on which they were based. The value of the combined businesses on 29 August 2003 cannot have depended in any way on the forecasts themselves; rather, that value depends and the forecasts depended on the available figures and information. Nor does the value depend at all on whether the persons who prepared the forecasts, or Sir Tom, Mr Gorman or Mr McMahon, actually honestly believed them. In any event, Mr Wilkinson sought to rely on, rather than refute, the projections. Accordingly, the need for cross-examination seems to me to be a misplaced idea.

. I see no proper ground of objection to the appointment of an independent valuer. The mechanism for appointing a valuer put forward by McGrigors in their letter of 10 March 2003 (appointment by the President of the ICAEW in the absence of agreement) should have been perfectly acceptable. Why it should be thought that the court is the appropriate forum in which to resolve a valuation issue I do not understand. The court itself will not carry out the valuation, whether on the basis of expert evidence or not. What the court would do, were Mr Wilkinson entitled to an order at all, would be to order an expert valuation accompanied by appropriate disclosure orders.

. It appears that Hammonds also had a concern about disclosure of documents, not trusting that proper disclosure would be made. To meet this, McGrigors offered in a letter dated 16 April 2005 to provide standard disclosure in accordance with CPR 31.6. If he had not been happy with the disclosure provided, Mr Wilkinson could have brought the matter to court for an order for disclosure and production by way of enforcement of the agreement to do so.

. Lord Grabiner also draws attention to Hammonds' letter dated 7 May 2004, which, he submits, shows Mr Wilkinson's real agenda was to threaten Sir Tom with public embarrassment. As he points out, the letter states that McGrigors' clients were seeking to "preclude any public light being shone upon" their conduct, and quotes further from their letter where they say that there was

"a clear and relevant distinction between your clients purporting to make offers which are intended to be taken as being at least as "good" as any relief which ours might obtain on a Petition, and your clients making clear and appropriate admissions as to their misconduct. They are trying to do the former, for the reasons above: they are at great pains to avoid the latter."

. That is an entirely inappropriate and inadmissible attitude to the resolution of litigation.

The Shareholders Agreement

. I now turn to the detail of the Shareholders Agreement dated 2 May 2003. It is made between (1) the Original Shareholders, Mr Wilkinson and Mr Elvidge (2) NGS and (3) the Investors, WCC and Mr Gorman. The following provisions are of relevance:

a. Clause 3 dealing with directors. Clauses 3.1 and 3.2 provide for the Investors and the Original Shareholders respectively to appoint two directors each to the board of NGS. Unless there is written agreement to the contrary, Clause 3.3 ensures that the Investors and the Original Shareholders each have 50% of the votes at board meetings (with no casting vote).

b. Clause 5 dealing with general management controls. It provides:

"5.1 Unless the Shareholders holding in excess of 65% of the issued Shares otherwise agree in writing the Shareholders shall exercise their power in relation to the Company so as to ensure that:

………

all business of the Company, other than routine day-to-day business specifically delegated to the Managing Director in writing, is undertaken and transacted by the Board;

the business of the Company is carried on pursuant to policies laid down from time to time by the Board;

……….

(i) the company does not make any material change in the nature of its business as carried on from time to time or commence any new business not being ancillary or incidental to such business;

the Company does not arrange any overdraft or other borrowing facilities;

……….

(l) the Company does not increase, alter or in any way reorganise any part of the share capital of the Company;

………

(n) the Company does not acquire or invest in another company or business or incorporate any subsidiary;

……….

5.2 The expression "the Company" where used in Clause 5.1 shall be deemed to include each of the other companies (if any) in the Company's Group from time to time to the intent and effect that the provisions of Clause 5.1 shall apply in relation to each such company as they apply in relation to the Company."

c. Clause 7 dealing with promotion of NGS's business.

Clause 7.1 provides:

"Each Shareholder shall use all reasonable and proper means in its power to maintain, improve and develop the business of the Company and other companies (if any) in the Company's Group and to further the reputation and interests of such companies." [Under Clause 7.5, the Company is deemed to include other companies in the group.]

Clause 7.2 contains undertakings by Mr Elvidge (but not by any other Shareholder) while he is a shareholder and for 24 months thereafter not to (i) compete (ii) solicit manufacturers for, suppliers to or customers of, NGS (iii) solicit officers or senior employees of NGS (iv) employ any officer or senior employee of the Company.

Clause 7.5 provides that the restrictions on Mr Elvidge shall not preclude him from holding share or loan capital (not exceeding 5%) in any company competing with NGS (or other group companies) whose shares are listed on a recognised investment exchange.

d. Clause 15 providing for the Shareholders Agreement to prevail over the Articles. It provides:

"If any provision of this Agreement is inconsistent with the Articles, this Agreement shall prevail and the Shareholders shall procure that such amendments are made to the Articles to remove such inconsistency."

e. Clause 22 dealing with notices.

"Any notice or communication to be given under, or in connection with the matters contemplated by, this Agreement, shall be in writing and signed by or on behalf of the party giving it.Notices may be served personally, by recorded delivery or registered post or by fax but not by email."

f. Clause 26. This is an "entire agreement" clause; the Shareholders Agreement, together with a Loan Agreement referred to in it, constitute the entire agreement between the parties.

. There are three issues arising out of these provisions. The first is whether the provisions of Clause 7 (effectively obliging the shareholders to take reasonable and proper steps to promote the interests of the NGS) override those of Clause 5 (containing the requirement that certain actions by NGS require the consent of more than 65% of the shareholders). The second is whether 65% of the shareholders did consent to the acquisition by NGS of Birthdays; if they did, questions then arise about what follows from such consent. The third is the extent to which the Shareholders Agreement defines the scope of the duties of the directors of NGS. I shall consider the first two issues in the following paragraphs, but postpone dealing with the third until I have looked at the law concerning directors' duties.

Interaction of Clauses 5 and 7

. Mr Crystal submits that the provision of Clause 7.1 take precedence over the provisions of Clause 5. Accordingly, even if (contrary to his submissions on the facts) the 65% requirement under Clause 5.1 had not been fulfilled in relation to the acquisition by NGS of Birthdays, WCC and Mr Gorman were obliged to use all proper and reasonable means to bring about that acquisition, including, if necessary, the provisions of their share (ie 50%, the other 50% coming from Mr Wilkinson and Mr Elvidge) of the additional loan finance over and above that which the bank was willing to make available.

. Mr Crystal says that the contrary interpretation when putting Clauses 5 and 7 together would render Clause 7.1 essentially worthless. He submits that the two clauses ought to be made to work in conjunction with one another, not to the exclusion of one another. He suggests that one purpose of Clause 7.1 is to ensure that the shareholders exercise their powers under Clause 5.1 in the interests of NGS and not purely in their own interests. He went as far as to submit that, where the directors of NGS conclude that the purchase of another business or company is in the interests of NGS, but for various reasons it was not possible for NGS, without recourse to the shareholders, to arrange the full amount of the loan finance necessary for such an acquisition, clause 7.1 obliged the shareholders to inject the necessary additional capital to enable the company to make the purchase if they could reasonably afford to do so (as they - save perhaps for Mr Elvidge - could in the case of the acquisition of Birthdays).

. I reject Mr Crystal's submission concerning the interaction of Clauses 5 and 7. In my judgment, the obligations under Clause 7.1, which are couched in wide general terms, take effect only subject to the specific provisions of Clause 5. The parties have seen fit to make special provision for certain matters which cannot be effected without the requisite 65% support; that provision qualifies the extent to which each shareholder is obliged to use all proper and reasonable means to maintain, improve and develop the business of NGS and other group companies. It can be said that, in the context of the agreement read as a whole, "reasonable" means would not include taking action which Clause 5.1 provides should be subject to the requirement of consent. This does not render Clause 7.1 essentially worthless. The shareholders must continue to promote the interests of NGS but are only obliged to do so in a way which does not conflict with Clause 5.1. I do not consider that it is a purpose of Clause 7.1 to ensure that the powers under Clause 5.1 are exercised in the interests of NGS. Indeed, if that were the case, it would be Clause 5.1 which was rendered essentially worthless.

65% Agreement to acquire Birthdays

. Under the Shareholders Agreement, the shareholders must exercise their powers, unless otherwise agreed in writing by 65% of the votes, to ensure compliance with the specified restrictions. Absent contrary agreement, the shareholders were therefore obliged to ensure that NGS did not acquire Birthdays.

. It is clear that there has been no such contrary agreement in writing in relation to an acquisition by NGS of Birthdays. Or, to put the same point another way, there has been no agreement in writing that NGS should be permitted to acquire Birthdays.

. On the evidence which I have reviewed, I also find that there has been no contrary agreement made even orally. There is no occasion (or taking the events as a whole no occasions together) on which anything amounting to such a contrary agreement has taken place.

. This makes it unnecessary to consider the extent to which the Duomatic principle relied on by Mr Crystal can be invoked to sidestep the formal requirement for written consent.

The Law

. The petition is based on section 459(1) of the Companies Act 1985:

"(1) A member of a company may apply to the court by petition for an order under this Part on the ground that the company's affairs are being or have been conducted in a manner which is unfairly prejudicial to the interests of its members generally or of some part of its members (including at least himself) or that any actual or proposed act or omission of the company (including an act or omission on its behalf) is or would be so prejudicial."

. In order to found a petition, it is the conduct of the company's affairs, or an act or omission of the company, which must be shown to be unfairly prejudicial; and that unfair prejudice must be to the interests of the members or some part of the members (including the petitioner).

. If the court is satisfied that a petition under section 459 is well-founded, it may, pursuant to section 461 "make such order as it thinks fit for giving relief in respect of the matters complained of".

. In the present case, the unfair prejudice complained of is the acquisition of Birthdays by New Gifts rather than by NGS or TGS. Mr Crystal submits that that acquisition was a breach of duty by the directors of NGS since they had interests as shareholders in the acquiring vehicle, New Gifts. For this purpose, Mr Gorman and Mr McMahon were clearly directors of NGS; Mr Crystal submits, on the facts, that Sir Tom was a de facto director in respect of whom the same fiduciary duties apply as they do to a de jure director. The alleged breach of duty is of central importance to the unfair prejudice claim.

Unfair prejudice

. The starting points are the agreements (typically the articles of association and any shareholders agreement) which members of the company have made and the promises (whether or not legally binding) made to each other by word of conduct. Unfair prejudice can be established where there has been a material breach of such an agreement. Breach by the directors of their fiduciary duties may be an important factor in determining whether there has been unfair prejudice. These points are illustrated by Re Saul D Harrison & Sons plc [1995] 1 BCLC 14 and O'Neill v Phillips [1999] 1 WLR 1092.

. In Re Saul D Harrison & Sons plc, Hoffmann LJ, after pointing out that, in section 459, Parliament had chosen deliberately imprecise language, said this at p 17h:

"In deciding what is fair or unfair for the purposes of s 459, it is important to have in mind that fairness is being used in the context of a commercial relationship. The articles of association are just what their name implies: the contractual terms which govern the relationships of the shareholders with the company and each other. They determine the powers of the board and the company in general meeting and everyone who becomes a member of a company is taken to have agreed to them. Since keeping promises and honouring agreements is probably the most important element of commercial fairness, the starting point in any case under s 459 will be to ask whether the conduct of which the shareholder complains was in accordance with the articles of association."

. Lord Hoffmann explained the position further in O'Neill v Phillips at p 1098G

"In the case of section 459, the background has the following two features. First, a company is an association of persons for an economic purpose, usually entered into with legal advice and some degree of formality. The terms of the association are contained in the articles of association and sometimes in collateral agreements between the shareholders. Thus the manner in which the affairs of the company may be conducted is closely regulated by rules to which the shareholders have agreed. Secondly, company law has developed seamlessly from the law of partnership, which was treated by equity, like the Roman societas, as a contract of good faith. One of the traditional roles of equity, as a separate jurisdiction, was to restrain the exercise of strict legal rights in certain relationships in which it considered that this would be contrary to good faith. These principles have, with appropriate modification, been carried over into company law.

The first of these two features leads to the conclusion that a member of a company will not ordinarily be entitled to complain of unfairness unless there has been some breach of the terms on which he agreed that the affairs of the company should be conducted. But the second leads to the conclusion that there will be cases in which equitable considerations make it unfair for those conducting the affairs of the company to rely upon their strict legal powers. Thus unfairness may consist in a breach of the rules or in using the rules in a manner which equity would regard as contrary to good faith."

. The discussion after the passage which I have just cited repays study. Lord Hoffmann draws a parallel between the notion of "just and equitable" in the context of a ground for winding up as explained in In re Westbourne Galleries Ltd and the notion of fairness in section 459, the parallel being, not in the conduct which the court will treat as justifying a particular remedy, but in the principles upon which it decides that the conduct is unjust, inequitable or unfair. One useful cross-check, he thought, was

"to ask whether the exercise of the power in question would be contrary to what the parties, by word or conduct, have actually agreed. Would it conflict with the promises which they appear to have exchanged?" (see at p 1101E).

. In O'Neill v Phillips the petitioner, according to the Court of Appeal, had a legitimate expectation that he would be allotted further shares. However, in the discussion of "legitimate expectations" at section 6 of his speech (see at p 1102B) Lord Hoffmann explained that a "legitimate expectation" was a consequence, not a cause, of the equitable restraint on the exercise of powers by members of company to the prejudice of other members. Accordingly, the real question for Lord Hoffmann was "…whether in fairness or in equity Mr O'Neill [the petitioner] had a right to the shares". As to that, there was

"the insuperable obstacle of the judge's finding that Mr Phillips never agreed to give them. He made no promise on the point. From which it seems to follow that there is no basis, consistent with established principles of equity, for a court to hold that Mr Phillips was behaving unfairly in withdrawing from the negotiation. This would be restraining the exercise of legal rights. It would be imposing on Mr Phillips an obligation to which he never agreed…."

. Before leaving O'Neill v Phillips, I also refer to the section of Lord Hoffmann's speech headed "No fault divorce?" starting at page 1104B. Lord Hoffman rejects the idea that a member who has not been dismissed or excluded from participation in management can demand that his shares be purchased simply because he feels that he has lost trust and confidence in the others.

. Mr Crystal refers to Re Elgindata [1991] BCLC 959 to show, in particular, that misapplication of a company's property by those in control of its affairs for their own benefit is, by its very nature, unfairly prejudicial to the interests of the other shareholders. The judge, Warner J, was satisfied (see at pp 1003i-1004a) that the respondent had been

"unscrupulous in his use of the company's money, that he had indeed used it for his personal benefit, and for the benefit of his family and friends, and that his conduct in that respect had been unfairly prejudicial to the interests of the petitioners…..".

. Later he says this (see at p1004f-h):

"This is not, to my mind, a case in which it can be said that conduct that was unfair to the petitioners was prejudicial to their interests because it resulted in a serious diminution of, or in serious jeopardy to, the value of their shares. Of course, the misuse by Mr Purslow of the company's money was reflected in its profit-and-loss account and to the extent that it reduced the company's profits or increased its losses, it reduced the value of the petitioners' shares. But it cannot have been a major cause of the diminution in the value of those shares. The reason why I have concluded that it was conduct unfairly prejudicial to the petitioners' interests is that it was inherently so. By its very nature the misapplication of a company's assets by those in control of its affairs for their own benefit or for the benefit of their family and friends, is unfairly prejudicial to the interests of minority shareholders….."

. Clearly, other breaches of fiduciary duty are capable of amounting to unfair prejudice as can be seen from case such as Scottish Co-Operative Wholesale Society Ltd v Meyer [1959] AC 234, Re Saul D Harrison (supra, at p18d and p31g-h) and Bhullar v Bhullar [2003] 241 (a case to which I return later).

. Mr Crystal relies on the decision in Re Charnley Davies Ltd (No 2) [1990] BCLC 760. He does so to draw a distinction between misconduct and unfairly prejudicial mismanagement. After rejecting submissions from both counsel for the administrator (Mr Crystal QC) and for the petitioners (Mr Oliver QC), and after explaining that infringement of legal rights is not a necessary allegation in the context of an unfair prejudice petition under section 27, the judge, Millett J, says this at pp 783e - 784f:

"Counsel for the petitioners asked: 'If misconduct in the management of the company's affairs does not without more constitute unfairly prejudicial management, what extra ingredient is required?' In my judgment the distinction between misconduct and unfairly prejudicial management does not lie in the particular acts or omissions of which complaint is made, but in the nature of the complaint and the remedy necessary to meet it. It is a matter of perspective. The metaphor is not a supermarket trolley but a hologram. If the whole gist of the complaint lies in the unlawfulness of the acts or omissions complained of, so that it may be adequately redressed by the remedy provided by law for the wrong, the complaint is one of misconduct simpliciter. There is no need to assume the burden of alleging and proving that the acts or omissions complained of evidence or constitute unfairly prejudicial management of the company's affairs. It is otherwise if the unlawfulness of the acts or omissions complained of is not the whole gist of the complaint, so that it would not be adequately redressed by the remedy provided by law for the wrong. In such a case it is necessary to assume that burden, but it is no longer necessary to establish that the acts or omissions in question were unlawful, and a much wider remedy may be sought.

A good illustration of the distinction is provided by Re a company (No 005287 of 1985) [1986] BCLC 68. In that case the petitioners, who were minority shareholders, alleged that the respondent, who was the majority shareholder, had disposed of the company's assets in breach of his fiduciary duty to the company and in a manner which was unfairly prejudicial to the interests of the petitioner. Hoffmann J refused to strike out the petition, holding that the fact that the petitioners could have brought a derivative action did not prevent them seeking relief under s 459.

Again, I respectfully agree. The very same facts may well found either a derivative action or a s 459 petition. But that should not disguise the fact that the nature of the complaint and the appropriate relief is different in the two cases. Had the petitioners' true complaint been of the unlawfulness of the respondent's conduct, so that it would be met by an order for restitution, then a derivative action would have been appropriate and a s 459 petition would not. But that was not the true nature of the petitioners' complaint. They did not rely on the unlawfulness of the respondent's conduct to found their cause of action; and they would not have been content with an order that the respondent make restitution to the company. They relied on the respondent's unlawful conduct as evidence of the manner in which he had conducted the company's affairs for his own benefit and in disregard of their interests as minority shareholders; and they wanted to be bought out. They wanted relief from mismanagement, not a remedy for misconduct.

When the petitioners launched the present proceedings, they wrongly believed that Mr Richmond was managing the affairs of the company in a manner which disregarded their interests and those of the creditors generally. That was a perfectly proper complaint to bring under s 27. Long before the case came to trial, however, it had become a simple action for professional negligence and nothing more. That, if established, would amount to misconduct; but it would neither constitute nor evidence unfairly prejudicial management. In my judgment it would be a misuse of language to describe an administrator who has managed the company's affairs fairly and impartially and with a proper regard for the interests of all the creditors (and members where necessary), conscientiously endeavouring to do his best for them, but who has through oversight or inadvertence fallen below the standards of a reasonably competent insolvency practitioner in the carrying out of some particular transaction, as having managed the affairs of the company in a manner which is unfairly prejudicial to the creditors."

. This distinction between relief for mismanagement and remedy for misconduct is not one which Mr McCaughran or Lord Grabiner disputes. Where they differ is in its application. Mr Crystal submits that the respondents were guilty of commercial immorality and that his clients seek a relief from mismanagement not a remedy for misconduct. The respondents say that the thrust of the complaints is breach of duty which breach is denied and which, in any case in Mr McCaughran's submission, was not done in bad faith and that what is sought is a remedy for an alleged breach.

Directors' duties

. The courts have, over the last century or more, had a great deal to say about the duty of directors and their obligations as fiduciaries. It is clearly of great importance in any case based on breach of duty to be careful to ascertain the scope of that duty. Some general principles can be set out. But it must always be remembered that the content of any fiduciary duty is, in the ultimate analysis, fact dependent; it is trite law that not all relationships described as fiduciary relationships import precisely the same duties. Lord Browne-Wilkinson emphasizes these points in Henderson v Merrett Syndicates [1995] 2 AC 145 at 206 A-D:

"The phrase "fiduciary duties" is a dangerous one, giving rise to a mistaken assumption that all fiduciaries owe the same duties in all circumstances. That is not the case. Although, so far as I am aware, every fiduciary is under a duty not to make a profit from his position (unless such profit is authorised), the fiduciary duties owed, for example, by an express trustee are not the same as those owed by an agent. Moreover, and more relevantly, the extent and nature of the fiduciary duties owed in any particular case fall to be determined by reference to any underlying contractual relationship between the parties. Thus, in the case of an agent employed under a contract, the scope of his fiduciary duties is determined by the terms of the underlying contract. Although an agent is, in the absence of contractual provision, in breach of his fiduciary duties if he acts for another who is in competition with his principal, if the contract under which he is acting authorises him so to do, the normal fiduciary duties are modified accordingly: see Kelly v Cooper [1993] A.C. 205, and the cases there cited. The existence of a contract does not exclude the co-existence of concurrent fiduciary duties (indeed, the contract may well be their source); but the contract can and does modify the extent and nature of the general duty that would otherwise arise."

The emphasis on the contractual basis is important and may be significant in the present case in the light of the Shareholders Agreement.

. Further, whatever duties may generally be cast on a director, those duties, or at least many of them, can be qualified in various ways. For instance, Articles of Association may define those duties in specified situations and provide for a narrower duty than might ordinarily apply, or exclude a duty altogether. Similarly, an agreement made between all of the shareholders and the company itself and which is stated to take precedence over the Articles of Association is capable, I consider, of displacing the duties which would otherwise rest on a director. I say "those duties, or at least many of them" because there may be certain core duties which cannot be modified, just as there are certain core duties of a trustee (eg of a commercial trust such as a pension scheme or a family settlement) which cannot be abrogated or qualified. I do not think I am concerned in the present case with that point since it seems clear to me that the Articles could have validly provided expressly that Mr Gorman and Mr McMahon could purchase for themselves in a case where the relevant 65% majority of votes could not be obtained.

. The subject of directors' duties has been the subject of a recent comprehensive review and analysis in the decision of Lewison J in Ultraframe (UK) Ltd v Fielding [2005] EWHC 1638 (27 July 2005). No-one, I think, would quarrel with the section at paragraphs 1292ff headed "Acting in the interest of the company": directors must exercise their powers in what they consider, not what a court may consider, is in the best interests of their company, and not for any collateral purpose. Thus, if a director does not have a power, as a director, to do a particular act, then he cannot be in breach of duty for failing so to act. The directors' duty is owed to the company itself, and not to the shareholders individually.

. There are two important rules which, if not qualified, generally affect directors, as they affect all fiduciaries. They can be called the "no conflict" rule and the "no profit" rule: see Ultraframe at paragraphs 1305 and 1306 (where I think the reference to Lewin on Trusts (17th ed) should be to Chapter 20 rather than 40). One might also add a reference to the discussion in Snell's Equity (21st ed) at 7-88ff and 7-99ff.

. Lewison J discusses the "no conflict" rule in paragraphs 1307 to 1317 of his judgment starting with the well-known citation from the speech, of Lord Cranworth LC in Aberdeen Railway Co v Blaikie Brothers (1894) 1 Macq 461 at 471.

. That passage is also cited by Lord Upjohn in Boardman v Phipps [1967] 2 AC 46 at 124 A-D where Lord Upjohn, adding an explanation of his own:

"It is perhaps stated most highly against trustees or directors in the celebrated speech of Lord Cranworth L.C. in Aberdeen Railway v. Blaikie, where he said:

"And it is a rule of universal application, that no one, having such duties to discharge, shall be allowed to enter into engagements in which he has, or can have, a personal interest conflicting, or which possibly may conflict, with the interests of those whom he is bound to protect."

The phrase "possibly may conflict" requires consideration. In my view it means that the reasonable man looking at the relevant facts and circumstances of the particular case would think that there was a real sensible possibility of conflict; not that you could imagine some situation arising which might, in some conceivable possibility in events not contemplated as real sensible possibilities by any reasonable person, result in a conflict."

. The disapplication of the "no conflict" rule is discussed in paragraphs 1308 - 1317. The purpose of the rule is to prevent the fiduciary being swayed by personal considerations of his personal interests or competing fiduciary interests in the exercise of the powers exercisable by him in a fiduciary capacity. If he has no powers to exercise, then the foundation for the rule has, as Lewison J puts it, been undermined and the rule will not apply. It is for this reason that a director ceases to be subject to the "no conflict" rule after he has ceased to be a director (see the cases cited in paragraph 1309: CMS Dolphin v Simonet [2001] 2 BCLC 704; Quarter Master UK Ltd v Pyke [2005] 1 BCLC 245, 264 and British Midland Tool Ltd v Midland International Tooling Ltd [2003] 2 BCLC 523 although he may remain liable under the "no profit" rule if he uses for his own benefit property of the company or information which he has acquired as a director and which is of value to the company.

. It is important to note that the "no conflict" rule can apply to a fiduciary in some situations where he neither makes a profit from trust property nor from his fiduciary position. This is because he has a duty to protect those to whom his duties are owed. He cannot prefer his own interests to those of his beneficiaries. His problem arises where he enters into a transaction inconsistent with his duty of loyalty to his beneficiaries. One of the difficulties, however, for the fiduciary (and for the court) may be in identifying, in any given situation, whether the relevant element of conflict is present.

. The last sentence of the citation from the judgment of Lord Upjohn in paragraph 250 above is of significance in that context. A company with a wide objects clause could, in theory, diversify its business in limitless ways if the necessary funding were available. But a director of a company selling fashion clothing for women could hardly be in breach of the "no conflict" rule if he took a stake in a company distributing farm machinery, even if the company did have such a wide objects clause. There would simply be no "real sensible possibility" of conflict. In contrast, if the board of the fashion clothing company had been actively considering diversification into the distribution of farm machinery, there would be a real sensible possibility of conflict in a director taking a stake in such a company. He could escape the conflict only by resigning as a director (although if he had by then learnt of a relevant business opportunity, at least if that was by virtue of his directorship, the "no profit" rule might apply).

. Turning to the "no profit" rule, this is summarised in Lewin at 20-26 in this way:

"If a trustee or other fiduciary without authority makes a profit directly or indirectly from the use of property subject to the trust or other fiduciary relationship, or in the course of the fiduciary relationship and by reason of his fiduciary position, then he is not permitted to retain the profit."

That, I consider, is an accurate summary of the rule. Frequently, the "no profit" rule will apply where there is a clear conflict between the personal interest of the fiduciary and the interest of the person to whom he owes his duty; so that both the "no conflict" rule and the "no profit" rule will then apply on the facts.

. Lewison J deals with the "no profit" rule in a passage and citations at paragraphs 1319 to 1322 which I gratefully adopt:

"1319. The relevant principle in relation to companies was "forcefully expressed and elegantly explained" in the joint judgment of Rich, Dixon and Evatt JJ in the High Court of Australia in Furs Ltd v Tomkies (1936) 54 CLR 583 at 592 as follows:

"…..the inflexible rule that, except under the authority of a provision in the articles of association, no director shall obtain for himself a profit by means of a transaction in which he is concerned on behalf of the company unless all material facts are disclosed to the shareholders and by resolution a general meeting approves of his doing so or all the shareholders acquiesce. An undisclosed profit which a director derives from the execution of his fiduciary duties belongs in equity to the company. It is no answer to the application of the rule that the profit is of a kind which the company itself could not have obtained, or that no loss is caused to the company by the gain of the director. It is a principle resting upon the impossibility of allowing the conflict of duty and interest which is involved in the pursuit of private advantage in the course of dealing in a fiduciary capacity with the affairs of the company. If, when it is his duty to safeguard and further the interests of the company, he uses the occasion as a means of profit to himself, he raises an opposition between the duty he has undertaken and his own self interest, beyond which it is neither wise nor practicable for the law to look for a criterion of liability. The consequences of such a conflict are not discoverable. Both justice and policy are against their investigation."

1320. This passage was recently cited with approval by the Court of Appeal in Gwembe Valley Development v Koshy (No. 3) [2004] 1 BCLC 131, 146 at paragraph 44, who noted at paragraph 45 that this was

"the same equitable doctrine of accountability for unauthorised profits as was applied by the House of Lords in Regal (Hastings) v Gulliver [1967] 2 AC 134n."

1321. In Regal Hastings v. Gulliver the House of Lords stressed that the "no profit" rule applies even where the fiduciary has acted in good faith. As Lord Russell put it [1967] 2 AC 134, 144:

"The rule of equity which insists on those, who by use of a fiduciary position make a profit, being liable to account for that profit, in no way depends on fraud, or absence of bona fides; or upon such questions or considerations as whether the profit would or should otherwise have gone to the plaintiff, or whether the profiteer was under a duty to obtain the source of the profit for the plaintiff, or whether he took a risk or acted as he did for the benefit of the plaintiff, or whether the plaintiff has in fact been damaged or benefited by his action. The liability arises from the mere fact of a profit having, in the stated circumstances, been made. The profiteer, however honest and well-intentioned, cannot escape the risk of being called upon to account."

1322. As the Court of Appeal pointed out in Gwembe Valley, the "no profit" rule does not apply to all profits; it applies to unauthorised profits. In the case of a director of a company, some profits may be (and usually are) authorised by the company's articles of association."

. How then are these general principles applied in the "corporate opportunity cases"? Again, Lewison J deals with all the cases cited to me (and many others) in the section of his judgment starting at paragraph 1332 and running through to 1361.

. He starts with a helpful summary of the facts in Cook v Deeks [1916] 1 AC 554,

"….a decision of the Privy Council, Messrs Deeks and Hinds were the directors of the Toronto Construction Company. They negotiated a lucrative construction contract with the Canadian Pacific Railway. During the course of the negotiations, they decided to enter into the contract personally, on their own behalves. However, they incorporated a new company, the Dominion Construction Company to carry out the work. Precisely what happened next is obscure, but the report records that: "The contract was accordingly taken over by this company, by whom the work was carried out and the profits made." A shareholder in the Toronto Construction Company brought a derivative action against the directors and the Dominion Construction Company. Because this was a derivative action, the Toronto Construction Company was also joined as a defendant. The Privy Council held that Messrs Deeks and Hinds were guilty of a breach of duty in the course they took to secure the contract, and must be regarded as holding it for the benefit of the Toronto Construction Company. The factual finding on which this conclusion was based was that that "while entrusted with the conduct of the affairs of the company they deliberately designed to exclude, and used their influence and position to exclude, the company whose interest it was their first duty to protect."

. After that summary, he cites another familiar passage which states the legal conclusion that:

"……men who assume the complete control of a company's business must remember that they are not at liberty to sacrifice the interests which they are bound to protect, and, while ostensibly acting for the company, divert in their own favour business which should properly belong to the company they represent."

. I agree with Lewison J that this conclusion seems to be an application of the "no conflict" rule, based on the finding that Messrs Deeks and Hind had put their own interest first, while still in office and entrusted with the conduct of the company's affairs.

. Mr Crystal relies on the statement of principle by Laskin J in Canadian Aero Services Ltd v. O'Malley (1973) 40 DLR (3d) 371 at 382:

"Descending from the generality, the fiduciary relationship goes at least this far: a director or a senior officer.…. is precluded from obtaining for himself, either secretly or without the approval of the company (which would have to be properly manifested on full disclosure of the facts), any property or business advantage either belonging to the company or for which it has been negotiating; and especially is this so when the director or officer is a participant in the negotiations on behalf of the company…

An examination of the case law in this Court and in the Courts of other like jurisdictions on the fiduciary duties of directors and senior officers shows the pervasiveness of an ethic in this area of the law. In my opinion, this ethic disqualifies a director or other senior officer from usurping for himself or diverting to another person or company with whom or with which he is associated a maturing business opportunity which his company is actively pursuing…"

. It does not appear to matter whether or not the company could have availed itself of the opportunity (at least provided that it had power to do so); both the "no conflict" rule and the "no profit" rule would apply.

. This, I think, reflects the old decision in Keech v Sandford (1726) Sel Cas Ch 61 where a trustee for an infant who renewed a lease held the renewal for the infant notwithstanding that the landlord had refused a renewal for the benefit of the infant. Effectively, the trustee was the only person "of all mankind who might not have the lease".

. In Industrial Development Consultants Ltd v. Cooley [1972] 1 WLR 443 Mr Cooley was the managing director of the claimant. Roskill J found that there was no doubt that Mr Cooley, who resigned from his position and then entered into certain contracts which his employer had previously negotiated, unsuccessfully, to obtain, obtained the contract for himself as a result of work that he did while still the company's managing director. At p452, he says this:

"Therefore, I feel impelled to the conclusion that when the defendant embarked on this course of conduct of getting information … using that information and preparing those documents … and sending them off…, he was guilty of putting himself into the position in which his duty to his employers, the plaintiffs, and his own private interests conflicted and conflicted grievously. There being the fiduciary relationship I have described, it seems to me plain that it was his duty once he got this information to pass it to his employers and not to guard it for his own personal purposes and profit. He put himself into the position when his duty and his interests conflicted."

And later, at p453G he says this:

"Therefore, if the plaintiffs succeed they will get a profit which they probably would not have got for themselves had the defendant fulfilled his duty. If the defendant is allowed to keep that profit he will have got something which he was able to get solely by reason of his breach of fiduciary duty to the plaintiffs

When one looks at the way the cases have gone over the centuries it is plain that the question whether or not the benefit would have been obtained but for the breach of trust has always been treated as irrelevant. I mentioned Keech v. Sandford a few moments ago and this fact will also be found emphasised if one looks at some of the speeches in Regal (Hastings) Ltd. v. Gulliver (Note) [1967] 2 AC 134 though it is true, as was pointed out to me, that if one looks at some of the language used in the speeches in Regal such phrases as "he must account for any benefit which he obtains in the course of and owing to his directorship" will be found…….

………..It is an over-riding principle of equity that a man must not be allowed to put himself in a position in which his fiduciary duty and his interests conflict. The variety of cases where that can happen is infinite."

. As Lewison J observes in his judgment, the reasoning underlying this decision is an application of the "no conflict" rule, based on the finding that Mr Cooley had used information that came to him while he was still managing director of the company even though it might be easier, conceptually, to view it as an application of the "no profit" rule.

. In paragraphs 1342 to 1354, Lewison J then went on to consider a number of other cases, including CMS Dolphin Ltd v Simonet [2001] 2 BCLC 704 and Bhullar v Bhullar [2003] 2 BCLC 241, cases I select from his review since they are relied on by Mr Crystal to support the proposition that a director will be in breach of his fiduciary duty if he uses any property (including information) of the company for his own benefit.

. Again, I gratefully adopt Lewison J's summary of those two cases and his citation of relevant passages in the following two paragraphs.

. In CMS Dolphin Ltd v. Simonet [2001] 2 BCLC 704 Mr Ball and Mr Simonet formed an advertising agency called CMS Dolphin. Mr Simonet was the managing director. Following a period of tension between Mr Ball and Mr Simonet, Mr Simonet resigned and set up a rival agency called Blue. All the staff of CMS Dolphin left and joined Blue; and its principal clients changed their allegiance too. Blue subsequently became insolvent. CMS Dolphin claimed that Mr Simonet was in breach of his fiduciary duties as a director in diverting business opportunities from CMS Dolphin to Blue. Lawrence Collins J held that that claim had been established. He examined a number of authorities in a search for the underlying principle and concluded:

"In my judgment the underlying basis of the liability of a director who exploits after his resignation a maturing business opportunity of the company is that the opportunity is to be treated as if it were property of the company in relation to which the director had fiduciary duties. By seeking to exploit the opportunity after resignation he is appropriating for himself that property. He is just as accountable as a trustee who retires without properly accounting for trust property. In the case of the director he becomes a constructive trustee of the fruits of his abuse of the company's property, which he has acquired in circumstances where he knowingly had a conflict of interest, and exploited it by resigning from the company."

. In Bhullar v. Bhullar [2003] 2 BCLC 241 two directors of a property investment company ("Bhullar Bros Ltd") acquired a property adjacent to property already owned by the company. They did so through the medium of another company ("Silvercrest") which they controlled. The Court of Appeal decided that the two directors were accountable for profits and also liable to procure the transfer of the property to the company. The trial judge appears to have granted a declaration that Silvercrest held the property on trust for Bhullar Bros Ltd, even though it was not a party to the proceedings. This does not appear to have been challenged on appeal, where the argument turned on the question of liability. The Court of Appeal analysed the case as an application of the "no conflict rule" rather than the "no profit rule". But this was a case in which the fiduciaries were still active directors of the company; so no question of the cessation of the "no conflict rule" arose. Jonathan Parker LJ said:

"In a case such as the present, where a fiduciary has exploited a commercial opportunity for his own benefit, the relevant question, in my judgment, is not whether the party to whom the duty is owed (the company, in the instant case) had some kind of beneficial interest in the opportunity: in my judgment that would be too formalistic and restrictive an approach. Rather, the question is simply whether the fiduciary's exploitation of the opportunity is such as to attract the application of the ["no conflicts"] rule."

. Lewison J concludes his review of these authorities at paragraph 1355 in these words:

"The law relating to the accountability of a director (or former director) for profits derived from the diversion of corporate opportunities is still developing. As the cases stand it is I think possible to draw the following conclusions:

If a person diverts to himself a business opportunity while in office, he may be liable to account for profits under the "no conflict rule" or the "no profit rule" or both;

The application of the "no conflict rule" does not depend on establishing that the company has a proprietary interest in the business opportunity that has been diverted;

After a person ceases to be in office, he may be liable for the diversion of a business opportunity either under the "no profit rule"; or because the business opportunity itself is to be treated as the property of the company (in the sense of an intangible asset) and hence is treated for this purpose as trust property."

. In the present case, we are not concerned with the position where a person ceases to be in office as a director since the relevant persons - Mr Gorman, Mr McMahon and, if but only if he is a de facto director, Sir Tom - were in office at all material times.

. I do not think there is any serious dispute about anything which I have said about the duties of a director and the "no conflict" and "no profit" rules. I have nonetheless considered the position at some length because Mr McCaughran submits that these principles, when properly applied to the facts of the present case, do not impact on the acquisition of Birthdays by New Gifts; and to understand how the Respondents seek to justify that submission, it is necessary to have a prior understanding of the nature of the rules and the extent of the directors' duties.

. Mr McCaughran identifies Mr Wilkinson's main complaint this way: The directors of NGS obtained information about Birthdays, and the opportunity to acquire Birthdays, in the course of carrying out their role as directors of NGS; that because of this, the directors were not free to take up the opportunity to acquire Birthdays themselves; and that they were in breach of duty in doing so. However, I think that the complaint goes wider than that: even if the directors learnt of the opportunity, and of the relevant information to permit them to formulate their offer, quite independently of their capacity as directors of NGS, nonetheless they were in a position of conflict in relation to the acquisition of Birthdays and should not have acquired it for themselves.

. In considering that complaint, Mr McCaughran says, correctly I think, that one must have regard not only to the scope of the directors' duties, but also to the related question of the scope of NGS's business. In that context, he relies on the decision of the Court of Appeal in Aas v Benham [1891] 2 Ch 244, the decision of the Privy Council in Trimble v Goldberg [1906] AC 493 and on certain passages of the judgments in Boardman v Phipps.

. Aas v Benham was a partnership case; the defendant was a partner in a ship-broking firm which hoped to act in negotiations between the Spanish and Portuguese Governments and ship builders. He had also been approached for advice by a ship-building company. He realised as a result of information he learnt while in Spain on behalf of the ship-broking firm that it would be advantageous for the ship-building company to reconstitute itself as a builder of warships and to acquire for this purpose a yard which he had discovered was available in Bilbao. He used that information to help write a prospectus for the ship-building company's reconstruction, and made profits for himself as a result of the reconstruction.

. Mr McCaughran relies on the following passage from the judgment of Lindley LJ at p 255-6:

"As regards the use by a partner of information obtained by him in the course of the transaction of partnership business, or by reason of his connection with the firm, the principle is that if he avails himself of it for any purpose which is within the scope of the partnership business, or of any competing business, the profits of which belong to the firm, he must account to the firm for any benefits which he may have derived from such information, but there is no principle or authority which entitles a firm to benefits derived by a partner from the use of information for purposes which are wholly without the scope of the firm's business, nor does the language of Lord Justice Cotton in Dean v MacDowell warrant any such notion. By "information which the partnership is entitled to" is meant information which can be used for the purposes of the partnership. It is not the source of the information, but the use to which it is applied, which is important in such matters. To hold that a partner can never derive any personal benefit from information which he obtains as a partner would be manifestly absurd."

. However, more pertinent to the actual decision is a passage earlier on p255:

"The answer, however, to this claim is short and conclusive. It was no part of the business of [the firm] to promote or reconstruct companies, nor to advise them how to improve the management of them, All such matters were quite foreign to the business of [the firm]…..He never was in fact acting for his firm in this matter, nor did his partners ever suppose he was, or treat him as so acting…."

. In these circumstances, the defendant was held not liable to account to his partners in the ship-broking firm. Since it was no part of that firm's business to advise on corporate reconstructions or to build ships, the partner had no fiduciary duty to his partners which prevented him making use of the information as he did, even though he had learnt it while on the firm's business. The use he made of the information was outside the scope of his fiduciary duty. Mr McCaughran submits that exactly the same approach should be applied in the case of a company and the duties owed to it by a director.

. The Privy Council reached the same conclusion in Trimble v Goldberg [1906] AC 494. There the parties entered into a partnership to acquire "stands of land" for conversion into a township and subsequent re-sale. The land was acquired, along with shares in a company owning other stands in the same locality. One of the partners then bought that company's other stands himself, having been shown them while in Johannesburg for the purpose of finalising the terms of the partnership's acquisition. The partner was not liable to account because "the purchase was not within the scope of the partnership", even though he found out about the land while on partnership business and his personal purchase was an identical type of investment to that of the partnership (see at p499 per Lord Macnaghten).

. Aas v Benham was considered in Boardman v Phipps [1967] 2 AC 46 (the facts of which are well-known) where there was no suggestion that it was wrongly decided. Lord Hodson, for instance, mentioned the case with apparent approval. He noted (at p110C-E) that the partnership business in Aas v Benham was ship-broking and the profit made was in an unconnected business and then said:

"This shows the limitation which must be kept in mind in considering the sense in which each partner is agent of the partnership, but does not assist the appellants. Mr Boardman continued to be in a fiduciary position up to and including the time when the shares were purchased (March 1959), and the scope of the trust concerning which his fiduciary relationship existed was not limited in the same way as a partnership carrying on a particular business.

It cannot, in my opinion, be said that the purchase of shares in Lester & Harris was outside the scope of the fiduciary relationship in which Mr Boardman stood to the trust."

. Lord Guest also referred to Aas v Benham. He cited passages from Regal (Hastings) Ltd v Gulliver to establish the general proposition that a fiduciary such as a trustee, director or agent, must (unless what he does is done with the full knowledge and consent of the other person ie beneficiaries, company, principal) account for profits acquired a result of his fiduciary position and by reason of the opportunity and the knowledge resulting from it. Applying those principles, he had no hesitation in holding that the appellants held the shares as constructive trustees and were bound to account to the respondents. However, at p117F, including a passage highlighted below and relied on by Mr McCaughran, he says this:

"Analogy was sought to be obtained from the case of Aas v Benham where it was said that before an agent is to be accountable the profits must be made within the scope of the agency (see Lindley LJ at 255-6). That, however, was a case of partnership where the scope of the partners' power to bind the partnership can be closely defined in relation to the partnership deed. In the present case the knowledge and information obtained by Boardman was obtained in the course of the fiduciary position in which he had placed himself….."

. So Aas v Benham is an illustration of the importance of defining the scope of the duty before being able to decide whether a person is in breach of it and in particular whether the "no conflict" rule or the "no profit" rule applies. In that case, the position was that Mr Benham's duty as a partner did not require him to treat the information and opportunity which he obtained and learned as acquired by him in his capacity as partner since that information and opportunity fell outside the scope of the partnership business. Further, as Lindley LJ said, Mr Benham "never was in fact acting for his firm in this matter nor did his partners ever suppose he was, or treat him as so acting". There is nothing in the case, in contrast with, for instance, Regal (Hastings) Ltd v Gulliver or Boardman v Phipps, to suggest that Mr Benham received confidential information on behalf of the firm or that negotiations were being carried out with third parties who dealt with him in the belief that he acted for the firm. Suppose, for instance, that Mr Benham had been provided with confidential information because he was a partner in the firm and that the provider would not have provided it to him in any other capacity; and suppose that that information had been instrumental in putting him into a position which enabled him to bring to fruition his formation of the company. It is far from clear that the decision would have been in favour of Mr Benham in those circumstances.

. Although Lord Cohen did not refer to Aas v Benham, he recognised (see p100F - G) that the mere use of knowledge or opportunity which comes to the trustee or agent (or I would add company director, for his duties are no higher than those of a trustee in the ordinary sense) in the course of his trusteeship or agency does not necessarily make him liable to account. He cited passages from Regal (Hastings) Ltd v Gulliver and the argument of Mr Bagnall (for the appellants) whose test for liability was put this way.

"The question you ask is whether the information could have been used by the principal for the purpose for which it was used by his agents. If the answer to that question is no, the information was not used in the course of their duty as agents. In the present case the information could never have been used by the trustees…..therefore purchase of the shares was outside the scope of the appellants' agency and they are not accountable".

That was regarded as too simplistic: Lord Cohen said this at p 102F:

"This is an attractive argument, but it does not seem to me to give due weight to the fact that the appellants obtained both the information which satisfied them that the purchase of the shares would be a good investment and the opportunity of acquiring them as a result of acting for certain purposes on behalf of the trustees. Information is, of course, not property in the strict sense of that word [Lord Hodson (see at p107) did, however, refer to the confidential information as "property of the trust" and Lord Guest expressed a similar view (see at p115)] and, as I have already stated, it does not necessarily follow that because an agent acquired information and opportunity while acting in a fiduciary capacity he is accountable to his principals for any profit that comes his way as the result of the use he makes of that information and opportunity. His liability to account must depend on the facts of the case. "

. Mr McCaughran relies particularly on the last sentence to show how fact-dependent each case really is.

. He also says that there is nothing in the company law authorities "which in any way detracts from the principle in Aas v Benham". I am not sure that there is anything which warrants the epithet "principle" which can be derived from Aas v Benham. However, what it does establish, or reflect as existing law, is that the scope of the duty of a partner is circumscribed by the partnership agreement; and that the mere use of information or an opportunity obtained and acquired while acting in his fiduciary capacity does not necessarily mean that the partner cannot use that information or take advantage of that opportunity on his own account. The case possibly establishes, or re-affirms, a negative proposition viz that there is no principle which entitles a firm to benefits derived from the use of information for purposes which are wholly outside the scope of the firm's activities.

. In applying that negative principle, one must act with care because the firm's activities may not be limited by the formal partnership agreement. For instance, if Mr Benham had been mandated, with a view to a possible extension of the firm's business, by his partners to investigate, on behalf of the firm, a possible investment in ship-building opportunities while in Spain and Portugal conducting business on behalf of the firm, the relevant activities might thereby have been extended to ship-building. Whilst the partners could not, in fact, have extended the scope of the business without Mr Benham's consent as a partner, and even though he might, on his return to England, refuse to agree to such an extension, it does not necessarily follow that he would have been entirely outside the constraints of the "no conflict" and "no profit" rules. Certainly, Aas v Benham is not authority for the proposition that he would have been free to act in his own interests in those circumstances.

. Turning, now, to Mr McCaughran's comments on the company law authorities, I start with Regal (Hastings) v Gulliver [1967] 2 AC 134. I take his summary of the facts. A company ("Regal") wished to extend the sphere of its operations by the acquisition of two cinemas; negotiations began for the acquisition of the leases of these cinemas; part of the machinery for the proposed acquisition by Regal involved the creation of a subsidiary company ("Amalgamated"). Amalgamated needed £5,000 in order to acquire the leases of the two cinemas; however, its parent, namely Regal, could only find £2,000; accordingly Regal put £2,000 into Amalgamated and the remaining cash was put in by the directors of Regal, and a number of others. The shares in Amalgamated were issued to those who injected cash, on a pro rata basis. The shares were later sold at a profit. It was held that the directors were liable to account to Regal for the profit so made.

. This was a case in which the directors came across the opportunity to acquire the shares in Amalgamated in the course of carrying out their role as directors of Regal, and in which the opportunity itself fell squarely within the scope of Regal's business. Mr McCaughran does not dispute - he could not - the well-established principle that a fiduciary cannot by the use of his fiduciary position or information learned in that capacity in the course of his fulfilling his duties or an opportunity acquired in that course, make a profit nor does he dispute the principle that such a fiduciary must account where he makes a profit having put himself in a position of conflict even though he does not obtain the relevant information or learn of the relevant opportunity in the course of fulfilling his duties. Indeed, those propositions are reflected in the speeches in Regal itself. On the facts, it was established that the directors did, indeed, come across the opportunity to obtain the shares in Amalgamated in the course of carrying out their duties as directors.

. One sees this in the speech of Lord Russell at p149E-F in a passage relied on by Mr McCaughran:

"In the result, I am of opinion that the directors standing in a fiduciary relationship to Regal in regard to the exercise of their powers as directors, and having obtained these shares by reason and only by reason of the fact that they were directors of Regal and in the course of the execution of that office, are accountable for the profits which they have made out of them. The equitable rule laid down in Keech v Sandford and Ex parte James and similar authorities applies to them in full force."

. But Lord Russell goes on:

"It was contended that these cases were distinguishable by reason of the fact that it was impossible for Regal to get the shares owing to lack of funds, and that the directors in taking the shares were really acting as members of the public. I cannot accept that argument. It was impossible for the cestui que trust in Keech v Sandford to obtain the lease, nevertheless the trustee was accountable. The suggestion that the directors were applying simply as members of the public is a travesty of the facts….".

. And one sees it also in the speech of Lord Macmillan at p153E-F

"The plaintiff company has to establish two things: (i) that what the directors did was so related to the affairs of the company that it can properly be said to have been done in the course of their management and in utilisation of their opportunities and special knowledge as directors; and (ii) that what they did resulted in a profit to themselves."

. It is clear that the fact that a company might have been practically unable to take up an opportunity does not exonerate a director who takes it for himself. That is a hard rule: but it is a clear rule. So it seems to me that one needs to approach with caution the situation where the inability arises, or is said to arise, not from a practical inability but from a structural restriction comparable to that in Aas v Benham. The argument, in that sort of situation, is that, since there are constitutional restrictions on what the company can do, an activity within the scope of that restriction cannot be an activity within the scope of the company's affairs; so that if the directors, personally, carry out that activity they cannot, ex hypothesi, be doing something which falls within Lord Macmillan's first condition. I shall return to this aspect later when considering the effect of the Shareholders Agreement.

. I have already touched on Industrial Development Consultants Ltd v. Cooley [1972] 1 WLR 443. That again was a case where the defendant obtained information and knowledge of an opportunity in the course of his role as a director of the plaintiff company. I have also mentioned Bhullar v Bhullar [2003] 241 and, again, that was a case where the defendant was in a clear position of conflict of interest, as explained by Jonathan Parker LJ in the passage which I have cited at paragraph 268 above

. In Canadian Aero Services Ltd v. O'Malley (1973) 40 DLR (3d) 371 (which as already mentioned is relied on by Mr Crystal), two individuals (Mr. O'Malley and Mr. Zarzycki) who stood in a fiduciary position to a company were actively pursuing a business opportunity on behalf of the company; they resigned and pursued essentially the same opportunity on their own behalf, notwithstanding that the company's interest in the opportunity continued. They were held liable to account in the sum of US$125,000, to be viewed as an accounting of profits or liability based upon unjust enrichment. Mr McCaughran refers to it as a classic case of an opportunity within the scope of the company's business which the company wished to acquire and which the directors were obliged to acquire for the company if they could. He also points out that Laskin J recognised that the standard of conduct to which a director must conform must be tested in each case by many factors "which it would be reckless to attempt to enumerate exhaustively".

. I agree with Mr McCaughran that, on the facts, this would appear to be the sort of classic case which he suggests. But it should be noted from the passage cited at 260 above that the judge considered the disqualification which he identified to apply to a "maturing business opportunity which his company is actively pursuing". I agree with that; and it will be so, in my view, whether or not what is being actively pursued is in fact within the scope of the company's business, at least if it is being done with the knowledge and approval of those who could authorise it.

. Mr McCaughran submits that what these cases show is only that, once a conflict has been established, a director who makes a profit, is accountable for the profit. They do not establish accountability where no conflict is established. Of course, a fiduciary can only be made to account for a profit if he has made a profit. That goes to remedy. At this stage, however, I am more concerned with whether there has been any breach of duty - at a time when it cannot be known whether a profit will in fact be made. Mr McCaughran accepts that, once a conflict has arisen and a profit has been made, it is no defence for the director to allege that the company could not as a matter of fact have acquired the opportunity itself, for example because the company could not afford to pursue the opportunity (as in Regal (Hastings) Ltd v Gulliver) or because the third party would not have wanted to deal with the company (as in Industrial Development Consultants Ltd v. Cooley). But he submits that none of the cases is concerned with the situation where, as in Aas v Benham there was a legal impediment to the company taking up the opportunity; he says that, where there is a legal impediment of this sort, there is no relevant conflict of interest. On the facts on the present case there was, he submits, a legal impediment to the acquisition of Birthdays by NGS and therefore no relevant conflict of interest in the acquisition by WCC and Mr Gorman.

. By legal impediment, I understand Mr McCaughran to be focusing essentially on constitutional documents such a partnership agreements, Articles of Association and shareholders agreements. A contractual restraint arising under an agreement with a third party (such an anti-competition covenant given on the sale of a business) would, I apprehend, more properly be regarded as a practical impediment although a statutory prohibition would certainly fall to be treated as a legal impediment. But even a legal bar (save a statutory prohibition and, perhaps, a true restriction on the powers of a company in its objects clause) in the sense used by Mr McCaughran is not conclusive as to the scope of the activities of a company or partnership.

. However, what I think is important in the present case is not so much the effect of a legal impediment on the duty of directors generally; but rather the impact of the director himself being able, in a non-fiduciary capacity, to prevent the company of which he is a director from obtaining the benefit of the opportunity. I doubt very much that a legal impediment requiring shareholder consent to certain matters impacts to any great extent on the duties of a director who is not a shareholder. It does not follow from the fact that a particular acquisition requires shareholder consent that a director is freed from any duty which would otherwise arise to bring an opportunity of acquisition to the attention of the board and the shareholders. In contrast, the ability of a shareholder, who also happens to be a director, to block certain action on the part of the company may be of great importance in the context of his duties to account under the "no conflict" and "no profit" rules.

. Let me take an example. Consider a company (call it X) carrying on a particular business. Suppose X has three equal shareholders A, B and C, each of whom is a director; and suppose that it has one additional, non-shareholder, director D. Suppose that the Memorandum and Articles of Association restrict X's business to its current business but so that activities can be diversified (either directly or through a corporate acquisition) with the consent of 66% of the shareholders.

. Suppose, then, that an opportunity to acquire a company (call it Y) whose business is outside the scope of X's existing business becomes generally known. There would be nothing, I think, to prevent A and B acquiring Y for themselves even if the board of X considered that it would be a good thing for X to acquire Y. In these circumstances, there is of course a conflict between the personal interests of A and B on the one hand and their duties, as directors, to X on the other hand. But it is not a conflict to which the "no conflicts" rule has any application because A and B are entitled, as shareholders, to block the acquisition by X. There is, I consider, no duty on them to use their votes as shareholders to approve the acquisition (and this is so, in my judgment, even though it may be in the interests of X to make it and even though they are directors). There is no risk (such as that which caused concern in Keech v Sandford) which needs to be guarded against and no occasion for the intervention of equity. There is no question of the application of the "no profits" rule either since the opportunity is, in the example, generally known.

. The position would be the same, I consider, if the opportunity had come to the attention of A and B other than in their capacities as directors. It would be open, I think, for them to keep that opportunity for themselves. At most, detecting a possible advantage to X in acquiring Y, it may be their duty, acting in the interests of X, to bring the opportunity to the attention of the board. But having done that, they could not be compelled to agree to the actual acquisition by X of Y. Being able, acting perfectly properly, to block such an acquisition, there is, as before, no relevant conflict of interest; and, in this case, there would clearly be no use of a corporate opportunity were A and B to acquire Y for themselves. I ignore the possibility of intervention by a court equity if Y would be in competition with X. But that is not the present case, where the businesses of TGS and Birthdays were so different to make it unrealistic to think that they were competitors.

. Now suppose that the opportunity has, instead, come to the notice of X and its board in circumstances where that opportunity is clearly that of X exclusively (eg because the owner of Y approaches D in his capacity as a director with an offer to sell to X). The board and the shareholders decide that it might be in the interests of X to effect the acquisition of Y because its business, whilst outside the scope of its own business, presents synergies with that business. Actual acquisition of Y will require the consent of A, B and C once the merits of the acquisition have been investigated. Suppose that the vendor of Y provides confidential information to the board to enable X to make an offer. At this stage, there is a "maturing business opportunity" which belongs to X and if D were to attempt to divert it, both the "no conflict" rule and the "no profit" rule would apply if he in fact acquired the target business/company and made a profit. It would not be open to D to claim, as against X or A, B and C, that the scope of X's business, and therefore his duty, was restricted by the scope of X's current business and that he could therefore obtain Y for himself. Nor would he escape the rules if X were unable to make the acquisition because it could not raise the finance: the case would fall squarely within the principles established in Regal (Hastings) Ltd v Gulliver.

. Next suppose that the board, having looked carefully at the potential acquisition, decides, for commercial reasons, not to proceed. It is a very difficult question whether this would take D out of either or both the "no conflict" and "no profit" rules. Aas v Benham certainly does not provide an answer. That D can do so with the informed consent of the company in general meeting is clear; that he cannot do so without it is not clear.

. Whatever the position of D, however, the position of any two of the other shareholders, say A and B, acting together may be different. As before, where the opportunity is generally known, there is, I consider, no duty on them to use their votes as shareholders to approve the acquisition; they remain able to block it. Further, for the reasons already given in the example where the opportunity is generally known, I do not consider that there is any scope for the application of the "no conflicts" rule. The question then is whether there is any scope of the application of the "no profits" rule when the opportunity is confidential to X. Can A and B, who are both directors and shareholders and who, together as shareholders, can block the acquisition be permitted to take advantage of the opportunity themselves? That is not an easy question to answer; and I prefer to leave it unanswered since, as will be seen, I do not consider that, on the facts, it arises in that stark form.

. Applying these principles to the present case, there has, in my judgment, been no breach by Mr Gorman or Mr McMahon (or indeed by Sir Tom even if he is a de facto director) of the "no conflicts" rule. On my findings of fact, there was no agreement that NGS should acquire Birthdays so that they were, as shareholders, able to block the acquisition. There is no question, on my findings, of the board being able to proceed with the acquisition in the face of the provisions of the Shareholders Agreement to which NGS itself was a party. In any event, Mr Gorman and Mr McMahon could not be criticised if, acting as board members, they had voted against NGS acquiring Birthdays in order to respect the provisions of Shareholders Agreement which, as between 100% of the shareholders and NGS itself, were stated to take precedence over the unamended Articles. There is no "omission" for the purposes of section 459 in the board failing to acquire Birthdays for NGS.

. There is more difficulty with the "no profit" rule. It is, of course, the position that the confidentiality agreement was given by Mr Gorman on behalf of TGS (so that, strictly speaking, the information provided by Birthdays in reliance on that confidentiality agreement was provided to TGS rather than NGS but no point has been taken about that). Moreover, a considerable amount of work in the evaluation of the Birthdays business was carried out by NGS personnel in NGS time and, initially at least, at NGS expense. In these circumstances, WCC and Mr Gorman were able to make the successful bid only by use of the information provided to TGS and work done by NGS personnel.

. However, this is not a case where the original opportunity came to NGS. The possibility of acquiring Birthdays did not come to the notice of Mr Gorman because he was a director of NGS/TGS or because of the trial sales of TGS products in Birthdays' shops. It came to his notice because he knew Mr Boland and spoke to him about the opportunity. Nor did the possibility of the acquisition come to the notice of Mr McMahon because he was a director of NGS/TGS or to Sir Tom because of his connection with NGS/TGS. They learned of the possibility through a combination of their network of information in the business world and Mr Gorman. Perhaps it would not have been an opportunity which would have interested them if they had not been connected with NGS; and it was clearly an opportunity which they thought could have been of value to NGS, otherwise they would not have been considering an acquisition through NGS. But that does not alter the fact that they did not become aware of the opportunity as directors (or in Sir Tom's case as a de facto director if he is one).

. So far as Mr McMahon is concerned (and the same goes for Sir Tom if he is properly to be regarded as a de facto director) they were proceeding from the time when the opportunity was first identified in June 2003 on the basis that the Birthdays acquisition was one which they were interested in investigating and progressing as a WCC investment along with Mr Gorman. They had an open mind about whether the investment should be made through a WCC vehicle (as eventually happened using New Gifts) or whether it should be through NGS, although in the latter case they identified from an early stage that they would require a change in the shareholdings as between themselves and Mr Gorman on the one hand and Mr Wilkinson on the other. Since, for reasons already given, I do not consider that the "no conflict" rule disqualified them from acquiring Birthdays, there would have been no difficulty or impropriety in their adopting a dual approach as is reflected in Project Amber and Project Belgium provided that they did not use confidential information of NGS/TGS in doing so. As a matter of fact, I conclude on the evidence that Mr McMahon and Sir Tom were not aware that Mr Gorman had signed the confidentiality agreement, which he did sign, on behalf of TGS. There was, accordingly, no reason for them to have thought that they were acting in any way which a court of equity might either disapprove of or visit with unexpected consequences (eg an order for an account of profits) in continuing to regard the Birthdays acquisition as one which they were permitted to pursue on their own behalves.

. Mr Gorman's position is more open to question. Mr Crystal suggests that Mr Gorman understood perfectly well that he had signed the confidentiality agreement on behalf of TGS and that he intended all along that the acquisition of Birthdays should be effected by NGS. I have already dealt with Mr Gorman's evidence about that. I think the truth is neither as Mr Crystal submits nor quite as Mr Gorman states. The whole picture which Mr Gorman paints, in relation to events both before and after the giving of the confidentiality undertaking, is that he did not focus in those discussions on who would acquire. All he saw, as I said in reviewing the evidence, was an opportunity which needed to be investigated; and it was an opportunity in which WCC and he would be involved however the acquisition was effected.

. It would seem, therefore, that Mr Gorman in fact used information provided in confidence to TGS, and used NGS staff, to work on that information in order to enable both the initial unsuccessful bid of £51 million and the successful bid to be put together. I find that he did so innocently in the sense that he did not use information which had been provided in confidence knowing or believing it was confidential to NGS or that he could not or might not be able properly do so.

. That, however, is not an answer to the question whether the "no profit" rule applies: see the passage from the speech of Lord Russell in Boardman v Phipps quoted by Lewis J in paragraph 1321 of Ultraframe and set out at 255 above.

. In relation to that it is clear that the £51 million offer in early August 2003 was made by WCC. This does not seem to have concerned Birthdays at all; indeed, given the way in which Mr Gorman approached Mr Boland and Mr Robbins, it is highly unlikely that they would have had any concern at all about providing the information to Mr Gorman and WCC provided that they knew it was going to remain confidential to them. Certainly, Mr MacRitchie had no problem about providing information without a confidentiality undertaking. There is, after all, no complaint by anyone that the confidential information was provided to NGS notwithstanding that the confidentiality undertaking was given on behalf of TGS. The only reason that the information was provided to NGS rather than to Mr Gorman personally is because he himself had brought the opportunity to NGS in circumstances where he would have been within his rights to retain it for himself and where his co-investors had no reason to think that the opportunity was one of which they could take advantage.

. Had a profit been made out of Birthdays, this would be a real issue: were NGS bringing an action to make Mr Gorman - and possibly Mr McMahon (and even Sir Tom if he was a de facto director) - account for the profit made, then there are powerful arguments that he (or they) should do so. However, the fact is that Birthdays was sold at a loss and there is no profit to account for. Further, NGS has suffered no detriment as a result of the acquisition by New Gifts: NGS was unable to acquire Birthdays itself and, as I have already found, it would not have acquired Birthdays even if WCC and Mr Gorman had been advised that they could not themselves acquire it.

. In all the above circumstances, I do not consider that Mr Wilkinson has suffered any unfair prejudice (or indeed any prejudice at all) for the purposes of section 459 by the fact of New Gifts acquiring Birthdays. NGS itself has suffered no financial loss and nor, therefore, has Mr Wilkinson as a shareholder of NGS. However, even if it is assumed that the acquisition of Birthdays by New Gifts, gives rise to an application of the "no profit" rule on the part of each of Sir Tom (assuming he was a de facto director) Mr Gorman and Mr McMahon, it does not necessarily follow that the acquisition is properly to be described as a breach of duty: the application of the rule merely gives rise to certain consequences, the most important of which is that New Gifts would hold any profit for NGS.

. But even if it does amount to a breach of duty, that breach has, in my judgment, caused no unfair prejudice to Mr Wilkinson. That is clear so far as concerns financial prejudice because, if the duty had been observed, Birthdays would not have been acquired by NGS. Further, even drawing the distinction between mismanagement and misconduct which Mr Crystal draws basing himself on the decision in Charnley Davies Ltd, I do not consider that that element of mismanagement, assuming that there is mismanagement at all, represented by New Gifts taking advantage of an opportunity which (on this hypothesis) belonged to NGS but which it was incapable of taking advantage of, amounts to unfair prejudice to Mr Wilkinson. This is not a case of a corporate opportunity being diverted at all. It is, at most, a case for the intervention of equity had a profit been made.

. Further there is not, on my findings of fact any prejudice, unfair or otherwise, arising out of the way in which the affairs of NGS or TGS were conducted after the acquisition of Birthdays. I have concluded that the use of NGS personnel to assist in the management of Birthdays (and vice versa) has had no discernable adverse effect on the results of NGS/TGS's business and there is, of course, no case even hinted at that Mr Wilkinson has in any way been excluded from having his say in the management of the affairs of the company. That the parties have fallen out in a massive way and distrust each other is manifest. But that does not of itself amount to unfair prejudice by one side against the other.

. It might have been argued, had Birthdays been sold at a profit, that the directors were in breach of their duties in not suing New Gifts for an account of such profit; and that such a breach would have been unfairly prejudicial conduct. But that argument does not begin to get off the ground on the facts.

. There is one other point which I should mention in relation to fiduciary duties and remedies for their breach. It has been pointed out that an application of the "no conflict" and "no profit" rules can render the fiduciary liable as constructive trustee. It is suggested therefore that New Gifts in fact held Birthdays as constructive trustee for NGS. That would not appear to assist Mr Wilkinson since Birthdays was sold at a loss and it cannot possibly be maintained that NGS can take the benefit of the acquisition without paying the purchase price. It might, however, be said that had Birthdays actually been acquired by NGS, the performance of the combined businesses would have been such as to result in a hugely improved financial outcome.

. There are at least two answers to that. The first is, that on the facts, that is almost certainly not so. Mr Gorman in practice ran the businesses after acquisition in the same way as he would have run them under common ownership. It is inconceivable, to my mind, that any significant difference in outcome would have been achieved. The reality is that Birthdays would have had to be sold at a loss and that NGS would have gone into insolvent administration. The second is that it would, to my mind, be extraordinary if the imposition in the present case of a constructive trust - designed, after all, to produce equity between the fiduciary and the person to whom he owes duties - were to carry with it a duty on Mr Gorman and Mr McMahon (and possibly Sir Tom) not only to treat the property in fact acquired by New Gifts as if it and been acquired for NGS in circumstances where NGS could never have acquired it for itself, but also to make them account for a breach of fiduciary duty in the management of the property (ie Birthdays) as if it were held by NGS when it never could have been acquired by NGS in fact. It may be that equity does impose such a harsh treatment, although I would need a lot of persuasion about that. But what, in my judgement, is the case is that the failure to manage the property in that way cannot possibly amount to unfair prejudice within section 459 on the facts of the present case.

. Before leaving the subject of directors' duties, it is perhaps worth noting that Mr Gorman's own position would have been unaffected by the acquisition route taken. In each case, he would take a 25% interest either through his existing shareholding in NGS or because that was the percentage shareholding which he was to take in New Gifts. He would not, therefore, have profited improperly even if a profit had been made.

Valuation Date

. Quite apart from that, even if Mr Wilkinson had been able to show unfair prejudice to his interests as a shareholder flowing from the acquisition of Birthdays by New Gifts and the conduct of management thereafter, and even assuming that the appropriate order was one that Sir Tom and Mr Gorman purchase Mr Wilkinson's shares, Lord Grabiner and Mr McCaughran submit that there is no justification adopting a date in August 2003 as the appropriate valuation date.

. This issue was considered by the Court of Appeal in Profinance Trust SA v Gladstone [2002] 1 BCLC 141. The company in that case was still a going concern, and in relation to such a company, the court adopted (see paragraph [60] in the judgment of the court delivered by Robert Walker LJ) as the starting point the general proposition stated by Nourse J in Re London School of Economics Ltd [1985] BCLC 273 at 281, [1986] Ch 211 at 224:

"Prima facie an interest in a going concern ought to be valued at the date on which it is ordered to be purchased."

. Robert Walker LJ then continued (see paragraph [61]) as follows:

"The general trend of authority over the last 15 years appears to us to support that as the starting point, while recognising that there are many cases in which fairness (to one side or the other) requires the court to take another date. It would be wrong to try to enumerate all those cases but some of them can be illustrated by the authorities already referred to (i) Where a company has been deprived of its business, an early valuation date (and compensating adjustments) may be required in fairness to the claimant (Meyer).

Where a company has been reconstructed or its business has changed significantly, so that it has a new economic identity, an early valuation date may be required in fairness to one or both parties (OC Transport, and to a lesser degree London School of Economics). But an improper alteration in the issued share capital, unaccompanied by any change in the business, will not necessarily have that outcome (DR Chemicals).

Where a minority shareholder has a petition on foot and there is a general fall in the market, the court may in fairness to the claimant have the shares valued at an early date, especially if it strongly disapproves of the majority shareholder's prejudicial conduct (Cumana).

But a claimant is not entitled to what the deputy judge called a one-way bet, and the court will not direct an early valuation date simply to give the claimant the most advantageous exit from the company, especially where severe prejudice has not been made out (Elgindata).

All these points may be heavily influenced by the parties' conduct in making and accepting or rejecting offers either before or during the course of the proceedings (O'Neill v Phillips)."

. The overarching consideration is that of achieving fairness and justice between the parties on the facts of the case. Where the company is no longer a going concern, it may be necessary to take into account why that is so; and if its ability to trade has been lost because of the unfair conduct of which complaint is made, an early date may, again, be appropriate. In contrast, if it is the case that (a) the petitioners would have stayed with the company absent the conduct of which complaint is made and (b) the cessation of trading has nothing to do with that conduct, then the date of the petition or even the date of trial may nonetheless be the appropriate date for valuation notwithstanding that the shares have, by that time, become worthless.

. There would, in my judgment, be no justification in the present case for valuing Mr Wilkinson's shares in NGS at their value in August 2003 rather than at their current value. The fact that NGS could not, in any event, itself have acquired Birthdays removes any justification for valuing the shares on the basis that Birthdays had in fact been acquired by NGS and accordingly makes it impossible for Mr Wilkinson to argue that the appropriate date for valuation is the date on which Birthdays should have been acquired by NGS. It is, I consider, that argument, and that argument alone, which would justify the selection of August 2003 as the appropriate date. Taking a current value, the shares are, of course, worthless.

. Moreover, to value the shares at a date in August 2003 would run the risk of giving Mr Wilkinson a completely undeserved windfall. If NGS had, in fact, acquired Birthdays, it cannot seriously be contended that he would have disposed of his shareholding in the period during which the fortunes of NGS and Birthdays declined. Mr Wilkinson would have therefore shared in the losses which were suffered by WCC and Mr Gorman.

. That is enough to dispose of the Petition on two grounds: first, there is no unfair prejudice; and secondly, even if there is, the appropriate valuation is a current valuation not a valuation in August 2003. But there is another aspect which should disentitle Mr Wilkinson from relief and that is his rejection of the last open offer made by WCC and Mr Gorman.

Offers of settlement to a petitioner

. It is often the case that a respondent to a section 459 petition will make offers to the petitioner in order to settle the litigation. Such offers, although rejected, can be of relevance in two respects. First, an offer might be such a good one that, if accepted, it would give the petitioner everything which he could hope to obtain from the court; and it might be made before the petition had been launched. In these circumstances, Mr McCaughran submits that the court should conclude that there was no unfair prejudice to the petitioner at all, or at least no subsisting unfairness in respect of which relief should be given; and, accordingly, that if such an offer is rejected, a subsequent petition would not be well-founded. Secondly, an offer might, even if insufficient to meet the entire prejudice suffered by the petitioner, have an impact on the relief which the court will grant and, in particular, could influence the date as of which shares are to be valued if a share purchase order is made.

. The effect of offers, in the context of unfairly prejudicial conduct on the part of the majority shareholders by removing the minority shareholder as a director or from substantially all of his functions as a director, was considered in O'Neill v Phillips. In that context, Lord Hoffmann said this (at p1107C):

"But the unfairness does not lie in the exclusion alone but in exclusion without a reasonable offer. If the respondent to a petition has plainly made a reasonable offer, then the exclusion as such will not be unfairly prejudicial and he will be entitled to have the petition struck out. It is therefore very important that participants in such companies should be able to know what counts as a reasonable offer."

. It seems to me that Lord Hoffmann, in saying what he did, was simply recognising that the justification for interfering, on the basis of unfairness, with the exercise by the majority shareholders of their strict legal rights is absent if, in fact, a reasonable offer has been made which removes the unfairness. In my judgment, however, what he said is equally applicable in cases where the unfairness arises not from a strict exercise by the majority of their rights, but also where the unfairness arises from some breach by a shareholder (whether or not representing the majority) of the terms on which he had agreed that the company's affairs should be run. Indeed, I see no reason why the same approach should not apply even in a clear case of improper behaviour as in Elgindata. Misappropriation of assets by those who control the company may give rise to different remedies. The minority may wish to remain with the company and thus seek to assert, through a minority shareholders' action, the rights of the company to recover from the majority who have acted improperly, perhaps even dishonestly dealt with the company's property; alternatively, the minority may wish to cease their connection with the majority and seek to have their shares purchased by the majority. If they elect to pursue the latter course, then an offer to purchase at the same value which the court would order on a petition under section 459 eliminates the prejudice arising from the improper action of the majority just as much as it does in a case where legal rights have been strictly exercised, albeit in a manner which is unfair to the minority

. In the present case, it seems to me that the offer contained in McGrigors' letter dated 23 March 2004 which I have considered in some detail at 213 above is one which offered to Mr Wilkinson everything which he could have hoped to achieve if he had been successful in his Petition. It was rejected.

. Accordingly, even if Mr Wilkinson had established all the allegations which he made against Sir Tom, Mr Gorman and Mr McMahon and had shown them to be in serious breach of duty and liars in court, his Petition would still, in my judgment, have failed. The rejection of the offer eliminated whatever prejudice there might have been. But, even if that is to go too far, it removes any reason which there might be to adopt a valuation date in August 2003 rather than a current valuation were it appropriate to make a share purchase order.

. I accordingly dismiss this Petition.