England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
MANCHESTER DISTRICT REGISTRY

		Royal Courts of Justice Strand, London, WC2A 2LL
		07/11/2006

Mr Justice Patten :

Introduction

1. Mr Michael Keisner ("Mr Keisner") is a chartered accountant by profession but for the last twenty years he has also had a number of business interests as a shareholder in and director of various companies. These include a group of companies operating under the "Evolution" name. The holding company for this group is Evolution Trading Group Limited ("ETG") of which Mr Keisner is the sole director and shareholder. Until 2001 one of its wholly owned subsidiaries was Evolution Steel Systems Limited ("ESSL"). One of the other companies in which Mr Keisner had an interest was Quality Interior Components Ltd ("QIC"). It commenced trading in 1996. Its business was the manufacture and supply of aluminium panels and fittings to the building trade. QIC was owned and controlled by Mr Keisner and Mr Keith Davies ("Mr Davies") who each held 50 percent of the issued share capital. Both were directors of QIC but the day to day to management of the business was left to Mr Davies as Managing Director. Mr Keisner described his contribution as the provision of strategic business support and the benefit of his accountancy expertise. QIC's major customer was Anvil Trading Limited, another company owned and controlled by Mr Keisner.

2. In about 2001 Mr Keisner and Mr Davies decided to dispose of their interests in QIC and on 4 February 2003 they entered into a share sale agreement with Terrus Group Limited ("TGL") under which it agreed to purchase the entire issued share capital of QIC.

3. TGL is the parent company of Baris Limited ("Baris") and Baris UK Limited ("BUL"). BUL was formed in 1998 following a management buy out of Baris Fire Protection Limited. It carried on business as a specialist sub-contractor in the design, supply and installation of dry lining and partitioning. Its directors include Mr Terry Damms ("Mr Damms"), Mr Russ Gamble ("Mr Gamble"), Mr Howard Hinchcliffe ("Mr Hinchcliffe") and Mr Tony Bruce ("Mr Bruce"). On 26 February 2001 ETG sold half of the issued share capital of ESSL to BUL and entered into a shareholders agreement with BUL governing the exercise of their rights as shareholders in the company.

4. On 4 February 2003 as part of a re-structuring of the Baris Group of companies Baris purchased the assets and undertaking of BUL including its shareholding in ESSL and BUL became what is described as a dormant company. The directors of Baris are Mr Damms, Mr Gamble, Mr Hinchcliffe and Mr Bruce. As part of the same re-structuring exercise TGL was formed as the group holding company and Baris and BUL became its wholly owned subsidiaries. Mr Damms is the Managing Director of TGL and he and Mr Gamble are substantial shareholders in that company.

5. The acquisition of QIC by TGL was funded with borrowings from the Royal Bank of Scotland. The share sale agreement took place at the same time as the re-structuring of the Baris Group. From the report presented to the board of BUL on 15 July 2002 the purpose of the re-structuring appears to have been twofold. One objective was to allow for the purchase of QIC and its accommodation within a revised group structure. But the report indicates that it was also intended (so far as possible) to minimise any liabilities that might arise from what is commonly referred to in the documents as the Braehead litigation. This was an action by BUL against Bovis Lend Lease Limited for about £2m by way of payments due in respect of a construction project at Braehead in Glasgow. The action was commenced in 2000 and was obviously a costly piece of litigation. The board were advised that a transfer of assets from BUL could protect the business from a claim by a liquidator of BUL in the event that the litigation was not successful provided that the assets were transferred for value. In the event the litigation resulted in a substantial payment being made to BUL in late February 2003.

6. The share sale agreement of 4 February 2003 is a long and complex document and it is unnecessary to do more than to summarise its principal provisions and effect. The consideration for the QIC shares was expressed by clause 4.1 to be a maximum of £4m and the issue to Mr Keisner of 100 non-voting convertible ordinary shares of 1p each in TGL (defined as the Consideration Shares). Under clause 6.1 of the agreement these were convertible on the seventh anniversary of completion into ordinary shares entitling the holder to ten per cent of the distributable profits of TGL. In addition, (under clause 4.2) Mr Keisner and Mr Davies were to receive (in equal shares) a sum equivalent to 50 per cent of QIC's adjusted profits after tax for the period from 1 January 2002 to 4 February 2003 (defined as the Completion Profits). The consideration was to be provided by an immediate payment on completion of £1.5m and the payment of £280,000 on account of the Completion Profits by no later than 31 March 2003. The balance of the sums due under clause 4.2 was payable six months after completion.

7. The remainder of the consideration was to be paid as "Deferred Consideration" in accordance with clause 5 of the agreement. The Deferred Consideration was made up of two elements:

   i) Under cl 5.1.1 the Completion Profits reduced by the payment of the £280k under cl. 4.2;

   ii) Under cl 5.1.2 a further sum on account of profits for each of four accounting periods the first being from the completion date to 4 February 2004 and the remaining three ending on 4 February 2005, 4 February 2006 and 4 February 2007 respectively.

8. For each of these four periods the Deferred Consideration was to comprise QIC's adjusted profit after tax over £200k up to a maximum of £200k and thereafter 50 per cent of any surplus over £400k. But the amount of Deferred Consideration payable under cl 5.1.2 was limited by a proviso to the sum of £2.5m less 50 per cent of the Completion Profits as defined ( i.e. less a sum equivalent to that already paid under c. 4.2).

9. Clause 5.2 contains further provisions relating to the payment of the Deferred Consideration. The amount of the Deferred Consideration is to constitute a debt due from TGL to Mr Keisner and Mr Davies and is payable in the following proportions. The Completion Profits payable under cl. 5.1.1 are to be divided between Mr Keisner and Mr Davies in equal shares but the balance of the Deferred Consideration ( under cl. 5.1.2) is divisible between them as to 75 per cent to Mr Davies and 25 per cent to Mr Keisner until the aggregate of the sums payable to Mr Davies under the agreement (including the initial Consideration) reaches £1.75m. Thereafter, the entire balance of the Deferred Consideration is to be paid to Mr Keisner. Clause 5.2 also provides that Deferred Consideration payable under cl. 5.1.2 falls due for payment no later than three months after the end of the relevant accounting period to which it relates.

10. The payment of the Deferred Consideration obviously depends on the continued profitability of QIC in TGL's hands and the method used to calculate its adjusted profits. The first of these concerns is in part catered for by cl. 7.4 of the agreement which provides that in the period following completion and until the final earn out date in February 2007:

    "7.4.2 the Company's business and affairs shall, to the greatest extent practicable be conducted so as not to affect adversely the entitlement of the Sellers to Deferred Consideration and that the Company's business and affairs in such period shall be conducted in accordance with the provisions set out in Schedule 6."

11. Schedule 6 requires QIC to have no more than four directors; for Mr Keisner and Mr Davies each to be appointed what are referred to as B Directors and for TGL to appoint the two other directors ("A Directors"). The schedule provides for there to be monthly directors' meetings with monthly management accounts to be supplied to the directors at least 24 hours before each meeting. Paragraph 1.7 provides that each director shall have free and unrestricted access to QIC's books, papers and records and to its accountants and auditors. Paragraph 2.1 requires the company to carry on and conduct its business and affairs in a proper and efficient manner and paragraph 2.9 states that each director shall take all reasonable and proper steps to maintain, improve and extend the business of the company.

12. The agreement also deals with the calculation of profit. Clause 5.4 of the share sale agreement defines "adjusted profit after tax" as profit calculated in accordance with the accounting policies set out in Schedule 7 to the agreement subject to adjustment as agreed between the sellers and TGL from time to time. For the purposes of calculating the Deferred Consideration Schedule 7 requires QIC to prepare its accounts on an historical cost basis applying the accounting policies used by the company prior to the sale. It also stipulates certain specific requirements which are to apply "unless agreed by both A and B directors". These include paragraph 1.5 which provides as follows:

    "In preparing such accounts, any bank loan interest payable or receivable by the Company, any management charges (or other charges in the nature of management charges) or commission charges levied to the Company by the Purchaser or any member of its Group shall be disregarded. Notwithstanding this, the Purchaser or any member of its Group may charge for any costs directly incurred wholly and exclusively on behalf of the Company or such amounts as may otherwise be agreed by the A and B Directors which agreed sum shall be included within the calculation of the basis for the Deferred Consideration."

13. Clause 5.7 of the agreement (which was added in manuscript prior to completion) also provides that:

    "In addition to the calculation of adjusted profit after tax pursuant to Clause 5.4, the Company shall simultaneously therewith produce (a) its audited annual report and accounts in respect of the relevant period; and (b) a reconciliation of such adjusted profits after tax to its audited profits in respect of the relevant period."

14. The mechanics for the payment of the Deferred Consideration involve the issue of loan notes. Clause 5.5 of the share sale agreement stipulates that:

    "Any amount to which the Sellers become entitled to by way of Deferred Consideration shall only be capable of being discharged by the issue (no later than five business days after the due date for the payment of such Deferred Consideration pursuant to Clause 5.2) to the relevant Seller of a Loan Note in a principal amount equal to the amount of the Deferred Consideration to which such Seller is entitled in accordance with Clause 5.2 above (rounded up or down as applicable to the nearest whole Pound Sterling and the principal amount of the Loan Note issued to such Seller shall be calculated accordingly."

    The form of the loan notes is set out in Schedule 8 to the Agreement. The notes are expressed to be redeemable on the first anniversary of their date of issue or earlier on the giving of notice by either TGL or the holder of the note. Not less than 14 days' notice in writing requiring prepayment may be given but the note is not pre-payable earlier than six complete calendar months following the date of its issue. It may be redeemed in either sterling or US dollars at the option of the note holder.

15. These and all other provisions in the share sale agreement are subject to cl. 30 which provides that:

    "No variation of this Agreement or of any of the documents referred to in it shall be valid unless it is in writing and signed by or on behalf of all of the parties to this Agreement."

16. In addition to the share sale agreement the parties also executed on 4 February 2003 what is described as a deposit account agreement. The agreement provides as follows:

    "It is agreed by the parties (1) Keith Davies and Michael Keisner (together the "Sellers") and (2) Terrus Group Limited (the "Purchaser") that pursuant to and in accordance with the Sellers' right to deferred consideration pursuant to clause 5.1 of the Sale and Purchase Agreement dated 4 February 2003 and made between the parties that the Purchaser shall deposit such deferred consideration payable in accordance with clause 5.1 in a designated deposit account held in the name of the Purchaser and that the monies contained within the designated deposit account shall be held to the order of the Sellers and no monies contained within the account shall be released or charged without the prior consent of the Sellers."

17. Completion of the share sale agreement took place on 4 February 2003 and TGL paid to Mr Keisner and Mr Davies the initial consideration of £1.5m and £240k on account of the Completion Profits as provided by cl. 4.2 of the agreement. The balance (£40k) was paid three months later. Mr Keisner entered into a service agreement with TGL as a director and at a QIC board meeting on 4 February 2003 it was resolved to allot the 100 convertible shares in TGL to Mr Keisner and to enter his name in the register. A copy of a share certificate unsigned and undated but made out in favour of Mr Keisner was included in the bible of the completion documents and the board resolution of 4 February 2003 authorised any two directors or a director and the secretary of the company to execute the relevant share certificate.

18. Almost immediately issues arose between Mr Keisner and Mr Damms about the running of QIC and the provisions for the payment of Deferred Consideration. As indicated earlier, TGL paid to Mr Keisner and Mr Davies the £1.5m and the advance of £280k against the 50% of Completion Profits due under cl. 4 of the agreement. The balance of the Completion Profits (amounting to £338,376) was due six months after completion on 6 August 2003 by the issue of loan notes under cl. 5.5. The loan notes were issued on 4 August 2003 but due to cash flow difficulties on the part of TGL the £338,376 was not paid into the designated deposit account set up with Allied Irish Bank ("AIB") as provided for under the deposit account agreement.

19. On 18 August 2003 Mr Damms sent an e-mail to Mr Keisner and Mr Davies to say that he was working with Mr Hinchcliffe on a repayment proposal which he would put to them. He acknowledged that the situation was far from perfect but asked them to be patient. £25k was paid into the AIB account on 3 September followed by further payments of £25k on 17 September and £50k on 23 October. However, on 20 November Mr Wainwright of GLP, Mr Keisner's solicitors, sent an e-mail to Ms Laura Harry, TGL's in-house solicitor, expressing concern on the part of Mr Keisner and Mr Davies about the lack of progress and the delay in providing them with a second charge as security for the Deferred Consideration which Mr Wainwright said had been agreed at the time of the share purchase. This was followed on 25 November by a further e-mail from GLP (this time from Mr Andrew Haworth) threatening proceedings for specific performance unless the debenture was in place by 28 November.

20. The debenture, of course, required the consent of RBS, and on 26 November 2003 Mr Damms wrote to the bank asking them to agree to a second charge. At the same time Mr Damms complained to Mr Keisner both orally and by e-mail about what he regarded as the heavy-handed and unnecessary threat of litigation. This, he said, had decimated the Terrus directors' trust and confidence and Mr Keisner agreed to put matters on hold saying that the threat was the result of a breakdown in communications with GLP. But in his e-mail of 26 November he did not accept the charge that it was the actions of him and Mr Davies that had impaired trust and confidence between directors. His position was that TGL had failed to honour its agreements by not putting in place the security or making the payments required and that he and Mr Davies believed they had acted in a restrained and helpful manner.

21. A meeting took place between TGL and RBS on 11 December following which Ms Harry told Mr Wainwright of GLP that RBS had issued instructions to its solicitors to draw up the second charge. On 12 December Mr Davies discussed the matter with Mr Damms and sent him an e-mail confirming his view of the position. He complained that TGL had made indications of payment schedules in the past which had failed to materialise and that payment was a very sensitive issue. On the question of security he said that the issue of the second charge was highly sensitive to Mr Keisner but less so to him because he could always set up what he referred to as QIC2. Mr Keisner might be left "high and dry". There is certainly no suggestion in this e-mail that Mr Davies regarded Mr Keisner's position (or his own) as unreasonable. They were dealing with a purchaser which was financially unable to meet its contractual commitments.

22. This resulted in an offer from Mr Damms and TGL of scheduled payments in to the AIB account. The sum of £7,500 would be paid weekly from 17 December 2003 and further payments would be made, depending on cash flow, to clear the balance of £238k. It was hoped that this would be done by February 2004. Arrangements were also being considered to deal with the tranche of Deferred Consideration due for payment in May 2004 in respect of the period up to 4 February 2004. This was expected to be in the region of £375k.

23. The payments of £7,500 by QIC into the AIB account began on 17 December 2003 and continued weekly right through to February 2004. On 23 January 2004 Mr Keisner gave notice to TGL pursuant to cl. 5.3 of the loan note that he required the redemption amount specified in the loan note of 4 August 2003 to be paid to him in US$ on 5 February 2004. By then Mr Davies had approached Mr Damms with a proposal to vary the share sale agreement and to provide for accelerated payment of the deferred consideration under cl. 5. Mr Davies' evidence is that he had also discussed this with Mr Keisner and had even offered to sell his deferred share to him at a reduced value which Mr Keisner refused. However, according to Mr Davies, Mr Keisner did not oppose Mr Davies' negotiating a commuted payment schedule for himself and Mr Davies received tax advice that he could claim the benefit of retirement relief which would compensate him for a reduction in earn-out of up to £250k.

24. Mr Davies gave evidence about the reasons for his seeking this change in the payment provisions but by way of introduction to the issues in this litigation it is unnecessary to deal with this. The intention was for TGL to table some proposals in February 2004. Mr Damms says that he spoke to Mr Davies regularly up to Christmas 2003 about the variation of the agreement but that Mr Keisner was not left out of the process. He was, says Mr Davies, kept appraised of developments and TGL proceeded on the basis that any variation of the share sale agreement would require the consent of both Mr Davies and Keisner under cl. 20 of the agreement.

25. On 5 January 2004 Mr Damms sent to both Mr Davies and Mr Keisner an e-mail referring to the discussions he had had with Mr Davies about an accelerated earn-out. He raised the suggestion of a reduced payment to Mr Davies which would also be spread over a period commencing sometime in 2005. Mr Davies would continue to be involved in QIC as a consultant working two or three days a week.

26. Mr Keisner does not, I think, dispute that he was aware of the discussions between Mr Davies and Mr Damms about a possible variation of the earn-out arrangements, but Mr Davies says that Mr Keisner reacted very strongly to the proposals in his e-mail of 5 January. Mr Keisner said he was concerned about the impact on his own deferred consideration of Mr Davies having no real incentive to maintain or increase the profitability of QIC.

27. On 27 January 2004 Mr Damms e-mailed to Mr Davies marked subject to contract a proposal to pay him £275k in respect of his entitlement to Deferred Consideration for the period from 4 February 2004 onwards. This would be in addition to the £1.2m estimated to be due to him for the period up to and including 4 February 2004. A copy of this e-mail was sent to Mr Keisner. Mr Davies rejected these terms. At this stage only £150k of the first tranche of Deferred Consideration of £338k was likely to have been paid by 4 February 2004 and at the rate of £7,500 per month the balance would not be cleared before August. Mr Damms therefore proposed to Mr Keisner and Mr Davies in an e-mail of 29 January that a further £38k should be paid into the AIB account in February and thereafter the payment schedule should be revised to £10k per week. This would enable payment of the first tranche to be completed by May 2004 when the second earn-out payment would become due. It would not, however, enable payment in full to be made to Mr Keisner by 5 February 2004 in accordance with the pre-payment notice he had served.

28. On 29 January Mr Damms also reached agreement in principle with Mr Davies about an accelerated earn-out. The agreed proposal was for Mr Davies to receive £580k by 58 instalments of £10k each which would be paid to him by standing order once the final instalment of the £338k first tranche of Deferred Consideration had been paid into the AIB account assuming that this occurred no later than 31 May 2004. Mr Davies would continue as a consultant working an average of three days a week. In his e-mail of 30 January Mr Davies said that he wanted to remain involved in QIC for as long as he was welcome and perhaps to act in a wider role if the Terrus Group expanded. His e-mail ended by saying that the revised arrangements required the agreement of Mr Keisner and that Mr Damms had agreed to discuss it with him. This discussion took place on 2 February. Mr Damms said that Mr Keisner voiced his earlier concerns about a possible lack of incentive or involvement by Mr Davies but said he was prepared to accept the proposal if he (Mr Keisner) became more involved in the financial management of QIC and what he described as his vendor protection was maintained. Later he called Mr Damms and said that he would like to negotiate an accelerated earn-out of his own.

29. Mr Damms said that he would consult and get back to him. At 5.28 p.m. on 12 February he sent Mr Keisner an e-mail in these terms:

    "1) I understand that you may consider a potential agreement whereby your earn-out is revised in line with that of Keith Davies

    2) Therefore, it is proposed that after the sum of £338,000 is paid in respect of the 2002/2003 profits that the sum of £581,000 be guaranteed as payment in respect of your earn-out residual.

    3) This residual sum would be paid at 58 weeks at £10,000 (rounded up) commencing in May 2004.

    4) The potential conversion of 10% of Terrus B Shares into A shares on the sale of Terrus to be rescinded.

    5) We would be looking for a clean break in respect of potential joint ventures between us and as such we would be looking for the 50/50 shareholding in Evolution Steel Systems to be revised whereby your 50% shareholding would be acquired by a potential purchase agreement.

    6) If the above proposal is accepted then the Board would believe that it would not be in the best interests of the company for you to be retained as a non-executive director of the company.

    The Board acknowledge some of the difficulties that Keith's change of heart may be causing you and as such we believe that the above potential agreement may allay some of the fears and concerns you have.

    I believe that if you are serious in your suggestion that the above may be acceptable to you that we could pursue potential funding of this deal through various avenues."

30. Almost immediately Mr Keisner replied as follows:

    "I really cannot believe the content or tone of this email both of which I deem to be offensive.

    Let me make it clear that the Evolution name is not for sale.

    I will revert back to you as regards the other matters raised and my position in respect of the Terrus group both as an employee and creditor."

31. The next day Mr Damms received an e-mail from Mr Wainwright of GLP. This sought confirmation that no concluded agreement had been reached with Mr Davies and set out certain proposals. These were that Mr Keisner should either be appointed Managing Director of QIC in place of Mr Davies or be given the right to appoint the managing director if QIC's profits fell below £1.2m per annum. He also suggested an immediate cash settlement of Mr Keisner's own entitlement to Deferred Consideration. This was to comprise the immediate payment of the amount outstanding on the August 2003 loan note with interest; an immediate payment of £290k and a further payment of £290k by way of five monthly instalments.

32. Mr Damms replied that same day confirming that there had been no contractual variation of Mr Davies' earn-out entitlement under the share sale agreement but making the point that Mr Keisner was agreeable to such a variation on the terms proposed subject to four provisos. The position was however still subject to contract. He said that the board would not agree to Mr Keisner being appointed managing director of QIC at that time but were in principle agreeable to his having a right to appoint a managing director should QIC's profitability fall to a level which jeopardised his own earn-out entitlement. TGL was also prepared to consider an accelerated payment of earn-out for him although it would have to be a term that Mr Keisner gave up the conversion rights attached to his shares.

33. On 16 February (at 12.27) Mr Damms sent to Mr Keisner and Mr Davies a revised schedule of payments designed to clear the balance of the first tranche of Deferred Consideration due under cl 5.1.1 of the share sale agreement. As indicated earlier, this amounted to £338k with interest of which some £215k had by then been paid into the designated AIB account. The payment schedule envisaged weekly payments of £10,500 into the account which would clear the debt by 4 May 2004. The e-mail also confirmed that RBS was prepared to consider funding an accelerated earn-out payment for both Mr Davies and Mr Keisner and set out a proposed timetable leading to a variation of contracts by mid to late April. What the e-mail also confirms is that from the £215k paid into the AIB account Mr Keisner and Mr Davies had each been paid £100k. These payments took place on 5 February which was of course the date for payment which Mr Keisner had earlier given notice of. Coincidentally, Mr Keisner sent an e-mail to Mr Damms at 12.36 on 16 February saying that there were arrears due to him of £69,187.88 plus interest and asking for his proposals for the settlement of these sums.

34. The two e-mails seem to have crossed but Mr Keisner did then respond to Mr Damm's earlier e-mail saying that he would revert to him on the other issues raised. They also spoke by telephone. In an e-mail sent at 13.41 Mr Damms told Mr Keisner that in respect of the second tranche of Deferred Consideration due on 4 May 2004 he hoped that the monies could be paid as agreed. Later he sent Mr Keisner another e-mail apologising for any offence caused by his e-mail of 12 February and asking him to respond to the proposals for a variation of the earn-out provisions of both himself and Mr Davies which he had set out earlier. The e-mail concludes with this paragraph:

    "Finally, may I request on a personal note for you to reflect on the track record of you and I to satisfactorily reach final agreements on many previous potentially difficult issues. Having had business connections with you for some 10 years or so now and seeing the final payment of all bills and amounts being owed to you through your associated companies being achieved, albeit ever seemingly these payments are always late, I would hate to see the trust and relationship between us built up over many years, disintegrate in to a "no winding-up situation" arising from these matters commented on above. "

35. On 20 February Mr Damms reached agreement with Mr Keisner (through GLP) on his proposals for a revised earn-out and TGL's solicitors, Messrs Davies Arnold Cooper ("DAC") were instructed to draft heads of terms. They were also asked to prepare a draft of a second charge to secure the earn-out. The draft proposed earlier by GLP had been rejected by the solicitors acting for RBS but it was envisaged that a draft of a form of security acceptable to the bank could be ready by March.

36. By early March 2004 GLP were pressing Mr Damms and DAC for the draft heads of terms relating to Mr Keisner's accelerated earn-out. In the meantime a board meeting of QIC was scheduled for 17 March and Mr Keisner was informed and confirmed that he could attend on that date. It was to take place at the offices in Buckingham. On 4 March DAC sent to Mr Wainwright of GLP a draft of the floating charge for him to consider. Mr Vause of DAC also asked to speak to Mr Wainwright about the draft heads of terms dealing with the revised earn-out arrangements. Mr Wainwright responded on 8 March. The form of draft debenture was still not acceptable. On the heads of terms he said that Mr Keisner's preferred option was the re-payment of outstanding monies as soon as possible. Mr Vause asked Mr Wainwright to mark up the draft debenture with any proposed changes and he would put them to TGL and RBS.

37. On 8 March the audit of QIC began. Mr Damms sent an e-mail to both Mr Davies and Mr Keisner highlighting two charges which TGL wished to set off against the profits for the 2003/2004 period. These were a sum of £60k for services provided to QIC by Baris. The charge was intended to cover time spent by Mr Damms, Mr Hinchcliffe, Mr Bruce and others and the services identified in the e-mail were financial and accounting, health and safety and general commercial input. The other item was a sum of £100k as a credit for an overcharge by QIC to Baris in respect of goods supplied for a building project at New Providence Wharf. In his e-mail of 9 March Mr Damms sought agreement on these items.

38. This sparked off a series of e-mail exchanges with Mr Keisner in which he (Mr Keisner) disputed both of the proposed charges. His initial response was to say that they were not acceptable and that the position was governed by paragraph 1.5 of Schedule 7 to the share sale agreement. Mr Damm's position was that he had discussed the £60k charge with Mr Davies and that he hoped it would not be necessary to have to spend time and effort producing time sheets, petrol and mileage records, telephone and fax records and expense claims in order to justify it. The New Providence Wharf charge had also been discussed, he said, at board meetings. He concluded his email by saying that unless the QIC accounts could be agreed it would not be possible to progress any variation of the earn-out arrangements with RBS.

39. Mr Keisner's response was that he was more concerned with the principle at stake than with the amount of Deferred Consideration payable for 2003/4. The position was spelt out in Schedule 7. Mr Damms suggested that they discuss it further at the QIC board meeting although this was likely to delay the earn-out variation. He also hoped to be able to produce the accounts for February 2004 and draft management accounts for 2003/4 by the following week.

40. At 17.48 on 9 March Mr Keisner sent to Mr Damms the following email:

    "In view of recent communication and most particularly your emails of today's date I am concerned that my position as a Terrus Director may become untenable especially if there would appear to be likely litigation. I would ask you to reassure me as to my position as a Director in Terrus as a matter of some urgency."

    Mr Damms' response was that he could not understand what likely litigation there would be and he asked Mr Keisner for further information. Later he confirmed that the QIC board meeting fixed for 17 March 2004 would take place at 10.00 a.m. at QIC's offices at Gawcott.

41. Mr Keisner set out what he regarded as the potential for litigation in an e-mail of 9 March sent at 19.04. The list of items includes the lack of the second charge, default on the loan notes, lack of TGL board meetings and financial statements, the £60k management charge and the £100k claim against QIC in connection with New Providence Wharf. The last item in the list is:

    "12. A seeming breakdown in relationship between yourself and myself. Your contact with me seems chiefly to be by email copies to "All and Sundry"."

42. At this stage Mr Damms began to point to a possible conflict between Mr Keisner's position as seller and his position as a director of QIC. In his e-mail of 10 March sent at 13.11 he said this:

    "It may well be that any proposed management changes are in the best interests of both QIC and Terrus and supported by the relevant Board of Directors at QIC or Terrus yet you appear to be suggesting that you may block any such proposals as a seller. The Board of both QIC and Terrus are obviously greatly concerned over this potential situation as it seems potentially harmful for both QIC and Terrus. In this respect the Board must now consider the current position and also potentially refer this to the shareholders of the company. "

    The email indicates a marked loss of patience on the part of Mr Damms. His position was that although the share sale agreement provides for monthly board meetings of QIC the pattern of meetings had been varied by agreement between all four directors. Monthly accounts had also been provided and there had been no restriction on the availability of further information. In relation to the revision of the earn-out arrangements he said that lawyers on both sides had been instructed to proceed with heads of terms. If Mr Keisner did not wish to proceed with this he should say so and the parties could return to the terms of the share sale agreement.

43. On 10 March Mr Keisner sent an e-mail to Mr Hinchcliffe asking him to provide the share certificate for the completion shares in TGL which he had asked for earlier, copies of TGL's consolidated accounts and the minutes of TGL board meetings held since he was appointed a director, the draft minutes of the last QIC board meeting and the accounts for QIC up to 31 January 2004. He also asked for 50% of the monies paid by TGL into the AIB account to be paid into the account he had set up for this purpose. On the same day he sent an e-mail to Mr Davies following an earlier conversation with him which deals with the issue of management charges and refers to Mr Davies having expressed the view that any claim for a refund in connection with New Providence Wharf would be only a fraction of the £100k claimed. Mr Keisner's own views can be gleaned from the concluding paragraphs of his email:

    "8. I can only conclude that Terrus either do not understand the nature of the transaction that they have entered into, or are simply trying "Bully boy" tactics. Neither situation bodes well for the future.

    9. As yet Terrus are/have been in numerous breaches of the agreement:

    1. Failure to provide a charge, to protect the vendors of QIC against Terrus's insolvency.

    2. Failure to pay money into the AIB account as set out in the S&P contract. Failure to comply with subsequent compromises.

    3. Default on the loan notes.

    4. Non-adherence to the management schedules; Board meetings not held on a monthly basis, non-provision of accounts within the prescribed time limits.

    5. Non deliverance to me of a share certificate in respect of my holding in Terrus.

    They now seek to breach Schedule 7 of the agreement. Clearly they think that they are on a roll!

    Clearly, for my part, I am deeply disturbed by both Terry's approach and his actions. I feel that I am being pushed into a corner."

44. On 11 March Mr Hinchcliffe e-mailed Mr Keisner asking him for a copy of the documents showing the exchange rates used to convert the payments from the AIB account into US$. Mr Keisner had the £100k paid to him on 5 February transferred into his own designated account (referred to in the documents as the HIFX account) and then converted into US$. But Mr Hinchcliffe had been told by Mr Keisner that he was entitled to the sterling amount and he asked Mr Keisner to e-mail to him his calculation of the amounts due. Mr Keisner's response was that this was a matter to be dealt with between Mr Wainwright and Mr Vause. Mr Damms' response was that TGL could not ascertain what monies were due and the debt seemed therefore to be in dispute. The only possible dispute of course was as to any variation caused by a fluctuation in the exchange rate assuming that the risk of that lay with TGL. But a little later Mr Damms took a more practical view of the matter and told Mr Hinchcliffe to calculate what was believed to be due and "for good order to send it to Michael irrespective of whether he is instructing solicitors on anything or not".

45. On the same day DAC distributed the proposed heads of terms for the variation of the earn-out provisions. Mr Davies was not happy. In his e-mail he said this:

    "Given that you and your colleagues openly accept that I am the person who generated the bulk of the wealth of QIC over the past 7 years, I do not feel that the making of substantial payments to MAK in advance of my receipt of payments is either reasonable or fair. Furthermore, this action reverses the intention of the original S & P Agreement and puts me very much "at risk" as the major creditor of the Terrus Group (other than the RBS) for the next 18 months or so, whilst also receiving a lower payment than MAK over a far longer time frame."

46. Mr Damms replied as follows:

    "Thank you for the responding email. I fully understand your position and comments. When we have a co-director such as Michael Keisner telling you he is going to "put Terrus down" and "why don't we start QIC up again" all at odds with his obligations and duties as a director of QIC and non-executive director of Terrus, then it does beg the question as to why he should potentially be a "preferential seller" in terms of getting his money before you for as you say you are the man that has generated the bulk of the wealth of QIC. As you may appreciate, it is now seemingly impossible to accept Michael is working in the best interests of the company. On the contrary, he is seemingly trying to do everything in his power to harm the business. I can confirm that the directors of both QIC and of Terrus are now of the opinion that Michael's actions are clearly outside his contractual obligations and as such we are currently taking legal advice as to this current situation.

    The fact remains that although we have agreed a variation to the earn-out payment in making weekly payments, Michael is a creditor where monies are technically overdue and he could therefore consider issue proceedings that may harm the company going forward. This is clearly what I am attempting to avert."

47. The previous day DAC, when e-mailing the heads of terms to Mr Wainwright of GLP, had indicated that the balance of the first tranche of Deferred Consideration due on 5 February 2004 could be paid by 17 March 2004 and that £70k would therefore be available for payment to Mr Keisner. In his e-mail Mr Vause asked GLP to confirm by close of business on 12 March the actual amount Mr Keisner considered to be due and owing and to provide written confirmation that he would not be making demand or taking proceedings against TGL "in keeping with his continued position within both QIC and Terrus".

48. On 12 March Mr Damms sent out to Mr Keisner and others the QIC proposed draft accounts for 2003/4 and for February 2004 in advance of the board meeting fixed for 17 March. They included the two sets of charges referred to earlier which were dealt with in a paper circulated by Mr Damms by e-mail also on 12 March. The e-mail invited any comments to be circulated. Mr Keisner responded that he did not concur with the charges but gave no reasons. Mr Damms replied that this was unhelpful:

    "I suggest you revert with a detailed response forthwith or otherwise I will propose that the accounts be prepared and progressed to audit with these charges in place and that the proposed timetable and progression of a potential earn-out variation for you simply be abandoned."

49. Rightly or wrongly this e-mail appears to have caused a complete breakdown in co-operation between Mr Damms and Mr Keisner. Mr Keisner replied in these terms:

    "You can imagine my reaction to this email. I love threats! Anyway the die is cast!

    Needless to say I have instructed Paul Wainwright to deal with this on my behalf. Notwithstanding any other issues I am mindful of my fiduciary duties to QIC and professional obligations. As a vendor of QIC I will rely on Schedule 6 and 7 of the S&P contract.

    I also understand that a large rebate has been proposed for QIC to make to Baris, in the region of 35% of turnover. I have not been copies on this, and maybe It does not exist. Clearly I fail to understand the justification thereof, and hence, could not agree to it, should it subsist!

    I believe that the board meeting should be postponed as it could be detrimental to the best interests of QIC.

    Clearly I will not be prepared to discuss any matters relating to the S&P agreement, or variations thereto. I also note that I have received neither minutes of the last meeting, nor January Management accounts. I had also hoped to receive an agenda.

    I am in Cologne on Monday and Tuesday and return on Wednesday. Should you wish to speak to me I will be available on my cellular."

50. By the time this e-mail had been sent GLP had supplied DAC with their calculation of what remained due under the loan note of August 2003. As of 17 March this would amount to $136,035.36 including interest. They asked for it to be paid into Mr Keisner's US$ account by 12.00 noon on 17 March. DAC replied as follows:

    "It goes without saying that your client, or you on his behalf, must confirm now that on payment of the agreed outstanding Completion Profits there will be an end to any threats of litigation by your client.

    Any requirement to make a demand (whether supported by the threat of litigation) will have been removed on payment of the outstanding monies, which, subject to final agreement on the amount, the Company has agreed to pay as set out in my earlier email to you.

    This request on behalf of the Company is not unreasonable in any way and is entirely appropriate bearing in mind your client's position as a paid board member of both QIC and Terrus. "

51. On 16 March there was a further exchange of e-mails between GLP and DAC about the payment which had been promised on 17 March. Mr Haworth of GLP noted that the only element which could be the subject of any dispute was the £926.45 due in respect of interest.

52. Mr Keisner had expressed the view that the board meeting of QIC scheduled for 17 March should be postponed. This was followed up by a request for postponement from GLP to DAC. Mr Sinding of DAC passed the request to Mr Damms who said that it would not be possible to adjourn the meeting because it could delay the QIC audit. Mr Sinding was asked to confirm that the meeting could go ahead but that as Mr Keisner apparently did not wish to attend the venue would be moved to Baris' offices at Huthwaite in Nottinghamshire. Mr Damms says that he spoke to Mr Davies who also confirmed his impression that Mr Keisner was not coming to the meeting. By some error the change of location was not passed on to GLP or to Mr Keisner until Mr Davies spoke to him at about 7.45 a.m. on the morning of 17 March. By then Mr Keisner had returned to England from abroad and had gone to QIC's offices only to find that Mr Davies had left to attend the board meeting at Huthwaite. Mr Davies says in his witness statement that he explained to Mr Keisner that the meeting had been re-scheduled on the assumption that he was not going to attend, but that Mr Keisner, (to use his words) "went totally mad, swearing profusely and calling me a traitor for siding with Mr Damms".

53. Mr Davies says that he tried to calm Mr Keisner down but was told that it was too late and that he was going to instruct his solicitors to issue proceedings. Mr Davies went to the board meeting at Huthwaite and explained what had occurred. At 9.01 a.m. GLP had sent an email to Mr Hinchcliffe complaining about the change of venue and asking for the meeting to be re-arranged. Mr Bruce telephoned Mr Keisner and offered either to drive down with the other directors to Buckingham or to wait until Mr Keisner could get to Nottinghamshire. Mr Keisner said that the directors should wait at Huthwaite until 10.30 a.m. for some papers to be faxed from his solicitors. At the same time faxes were passing between solicitors about re-scheduling the meeting. But at 10.21 a.m. a fax was sent by the company secretary of ESSL to BUL and Baris demanding payment of £45,360.94. This is relevant to the second of the two actions I have tried and I will return to it later in this judgment. At 10.44 a.m. GLP faxed to Mr Damms a copy of a winding-up petition against TGL which had been presented earlier that day. The petition sought to wind-up TGL on the basis of the unpaid debt of £74,822.85 due on 5 February 2004 under the share sale agreement and the August 2003 loan note. Also faxed was a letter of resignation from Mr Keisner (through GLP) from his directorship of TGL. It was expressed to be of immediate effect.

54. Mr Keisner says that although willing to wait at QIC's offices for the other directors to arrive he was in fact asked to leave and was escorted from the premises. GLP sent a fax to Mr Damms at 1.27 p.m. indicating that Mr Keisner was still available to attend a board meeting at QIC later that day. But the board meeting went ahead at Huthwaite in Mr Keisner's absence and it was agreed that £60k could be charged to QIC for services provided by Baris and £71,134 (rather than the original £100,000) in respect of the New Providence Wharf overcharge. Mr Keisner was not asked to and did not consent to either of these charges being made.

55. The events of 17 March 2004 completely severed whatever remained of the relationship between Mr Keisner and TGL. Mr Damms sent a memo to all Baris and QIC staff telling them that Mr Keisner was no longer connected with TGL, Baris or QIC; that they were not to communicate with him in any way without Mr Damms' prior approval; and that he was not to be allowed to enter any of the group's premises or sites without Mr Damms' permission. AIB were asked to remove Mr Keisner as an authorised signatory on the designated account and Mr Damms signed two sets of Form 288b to remove Mr Keisner as a director of TGL and QIC.

56. It is clear that Mr Damms had been advised that Mr Keisner's resignation as a director of TGL automatically triggered a termination of his directorship of QIC. But GLP made it quite clear in a fax sent to Mr Damms on 17 March that they did not accept that he had ceased to be a director of QIC and that Mr Keisner had no intention of resigning. They wrote to Ms Harry on 18 March 2004 making the point that under his service agreement there had to be a request from TGL in terms requiring Mr Keisner to resign as a director of any other group companies. It is now accepted by Mr Keisner that an effective request was made on 16 July 2004 but he maintains that he remained a director of QIC until then. In their letter of 18 March GLP threatened proceedings for an injunction unless they received confirmation that Mr Keisner's status as a director had been preserved.

57. I can take the remaining background facts more quickly. The winding-up petition was never advertised and on 18 March the petition debt was paid in full. On 22 March the solicitors lodged a consent order with the Manchester District Registry of the High Court under which the petition was withdrawn. TGL also agreed to pay £1k towards Mr Keisner's costs. On 23 March there was a further board meeting of QIC. The minutes record that the directors of QIC could no longer be expected to have Mr Keisner sit on the board. But despite this discussions did continue on a possible settlement involving an accelerated payment of Mr Keisner's earn-out entitlement. It is clear that by now Mr Davies had sided with the TGL directors in their dispute with Mr Keisner. Although he had earlier shared many of Mr Keisner's concerns about TGL's failure to pay the Deferred Consideration in accordance with the share sale agreement he says in his witness statement that he does not share Mr Keisner's views about the financial position of TGL or QIC and regards TGL as extremely well run. He says that he regards Mr Keisner's behaviour in early 2004 as completely unacceptable.

58. For reasons which I will come to later little of this is relevant to what I need to decide. But Mr Davies' credibility as a witness was challenged by Mr Berkley in part on the basis that he has chosen to support Mr Damms and TGL for largely economic reasons and is not an independent witness. The prime example relied on by Mr Keisner concerns the arrangements which took place in May 2004 in connection with the payment into the AIB account of the Deferred Consideration due for the period 2003/2004. On 29 April GLP sent an email to Mr Vause of DAC making it clear that Mr Keisner wished to adhere to the existing contractual arrangements and wanted the whole of the Deferred Consideration for 2003/2004 to be paid into the AIB account pursuant to the deposit account agreement. These monies were due on 4 May 2004. On 30 April a second e-mail was sent to Mr Vause re-affirming the requirement to deposit the whole of the Deferred Consideration due at the same time as issuing the loan notes. GLP said that Mr Keisner intended to seek specific performance of the agreement if it was not adhered to.

59. Mr Vause replied on 30 April 2004 as follows:

    "The sum of £340,949 will be transferred to the AIB designated bank account on the 4th May 2004. This represents the earn-out and will be paid into the account for your client in one sum of £85,237 (being the amount owed to him) and the balance of £255,712 will be paid into the account for Keith Davies (being his share of the amount owed to him).

    This amount has been verified by Tenon in respect of the 2003/2004 accounts.

    Loan notes are being issued on the 4th May 2004 for the aforementioned sums.

    We refer to our client's offer to pay your client's sum of the deferred consideration to your client account direct. This and this offer still stands. The claim by your litigation colleague that this amounts to a variation of the agreement is incorrect. These payments have been made before without complaint. "

60. The loan notes were issued on 4 May 2004 and £340,949 was paid into the AIB account. On the same day £275,712.00 was paid out of the AIB account and back to the same TGL account with RBS. Both instructions for payment were given by Mr Damms and Mr Hinchcliffe on 30 April. On 4 May Mr Wainwright sent an email to Mr Vause asking for confirmation that the £340,949 had been paid into the AIB account. DAC replied as follows:

    "Attached is confirmation sent to us by our client. This is forwarded to you even though any contractual obligation whatsoever to make the payment of the sums claimed by you on behalf of your client (and supported with continuing threats of litigation by you) is denied. Confirmation is sent to you without admission of liability by our client and without prejudice to its position. "

    The attachment was an email from Mr Damms to Mr Vause which read:

    "I can confirm that in relation to the sums in respect of the 2003/2004 earn-out agreement of £340,949 (calculated as previously advised 25% for MAK and 75% for KCD) that amounts were transferred by us earlier today to provide a minimum of that amount being held in the account at AIB."

61. Mr Wainwright then asked for documentary evidence that the payment had been made and was supplied with a fax from AIB to Mr Hinchcliffe confirming that £340,949 was paid into the account on 4 May. Nowhere in this or the earlier emails from Mr Damms is there any suggestion that the share of the consideration payable to Mr Davies had already been paid back to TGL instead of being retained in the AIB account. On 18 May Mr Damms wrote to AIB requesting them not to provide Mr Keisner with any information about the designated deposit account. On 14 May GLP wrote to AIB enclosing a copy of the deposit agreement and putting them on notice that they would hold the bank responsible for any loss Mr Keisner might suffer if monies were released from the account without his consent. AIB responded on 20 May denying that the agreement created any trust in favour of Mr Keisner and stating that it did not hold any designated deposit account "in the name of our customer or your client".

62. GLP were prompted by this letter to write again to DAC on 26 May. They said that it appeared from the AIB letter that the monies had been withdrawn from the bank and asked for an explanation. On 28 May DAC replied as follows:

    "In respect of the AIB account, we refer you to earlier correspondence and ask that you review this as it provides sufficient certainty as to payment of the amounts into the account at a time when it is disputed that they are due and owing. Even though there is no obligation to pay any amount held in that account or otherwise until the loan note is redeemed, the money has been placed into the account as an act of good faith by our client and to give your client the comfort he sought at the time of the original deal. Of course, our client has done this without any admission of liability, without any obligation to make payment or even to allocate sufficient funds for payment until the loan note is redeemed. On redemption of the loan note (and not before) your client will have the right to payment immediately. Until that time the issuer of the Loan Note has nothing more than a future liability to pay an unsecured debt."

63. On 1 June GLP wrote again to AIB re-iterating their concerns about the deposit account and asked the bank in terms to confirm that the £340,949 was still held in the account. A similar letter was sent to DAC. In that letter, GLP said that unless they received confirmation of the sum in the account by 12 p.m. on 3 June they would seek a freezing order. DAC replied on 3 June disputing Mr Keisner's construction of the deposit agreement but not answering the question. On 8 June GLP sent TGL a letter before action complaining of five breaches of the share sale agreement. They were:

    i) A failure to hold monthly directors' meetings of QIC and to provide Mr Keisner with monthly management accounts as required by Schedule 6 of the Agreement;

    ii) The understating of QIC's profits for 2003/4 by the inclusion of spurious management charges and other set-offs;

    iii) The exclusion of Mr Keisner from the board of QIC ;

    iv) The failure to confirm that the amount of deferred consideration due under the loan notes of 4 May had been paid into the AIB account;

    v) The failure to issue the consideration shares to Mr Keisner.

64. TGL were asked to provide written undertakings failing which proceedings would be issued. The undertakings sought included one to re-instate Mr Keisner as a director of QIC; to conduct the business of QIC in accordance with Schedule 6 to the share sale agreement; to provide Mr Keisner with the financial information referred to in cl 5.7 of the agreement; to disclose whether it had opened a further designated deposit account agreement in accordance with a further agreement of 4 February (this is a reference to an agreement with Mr Davies); to ensure that QIC would not sell, charge or deal with its assets otherwise than in the ordinary course of its business; and not to cause or permit the business of QIC to be conducted in such a manner as to adversely affect the entitlement of Mr Keisner to deferred consideration.

65. On 15 June 2004 DAC responded to the points raised by GLP but declined to give the undertakings. They did, however, indicate that a share certificate in Mr Keisner's favour was being held by TGL. The proceedings were issued on 29 June 2004 and at the same time Mr Keisner applied for interim relief in similar terms to the undertakings sought in GLP's letter of 8 June. The only difference was the inclusion of an application for an order requiring TGL to restore to the AIB account each of the withdrawals made otherwise than in accordance with the deposit account agreement. In the particulars of claim in the action Mr Keisner makes essentially the same allegations of breach of the share sale agreement as in GLP's letter before action so that in summary the issues raised are:

    i) Failure to provide the accounts and financial information required under cl 5.7;

    ii) Failure to calculate the adjusted profit for the year 2003/2004 in particular by including the £60k management charge and the £100k set off in respect of New Providence Wharf;

    iii) The issue of a loan note in an amount less than the deferred consideration to which Mr Keisner is entitled;

    iv) The threat to vary the payment terms to Mr Davies without the consent of Mr Keisner;

    v) The release of monies from the designated deposit account without Mr Keisner's prior consent;

    vi) The exclusion of Mr Keisner as a director of QIC and the failure to provide him with management accounts and access to the company's books and papers;

    vii) The failure to issue him with the consideration shares.

66. On the basis of these allegations Mr Keisner seeks damages, specific performance of the share sale agreement and injunctive relief similar to that sought on the interim application.

67. The litigation resulting from the break down in the relationship between Mr Keisner and Mr Damms is not limited to Mr Keisner's action against TGL. On 16 June 2004 Mr Keisner made an application to the Employment Tribunal seeking compensation for his unfair dismissal as a director of TGL. These proceedings are still pending. On 14 May 2004 Evolution Fasteners UK Ltd, one of the Evolution group of companies controlled by Mr Keisner, issued proceedings in the Northampton County Court against QIC seeking payment of £1,057.68 for a Sony laptop computer supplied and invoiced to the Defendant. The claim was denied by QIC and in its defence it pleaded that the laptop had been given by Mr Keisner to a QIC salesman to use. The action was settled in September 2004 by the return of the laptop. The action was dismissed by consent with no order for costs.

68. More serious, however, is the litigation which has been commenced between ETG and BUL. This is a claim for damages for breach of the shareholder's agreement dated 26 February 2001 which governs the relationship between ETG and BUL as shareholders in ESSL. As I mentioned earlier in this judgment, ESSL was originally a wholly owned subsidiary of ETG but in February 2001 ETG agreed to sell a 50% stake in ESSL to BUL and the two companies entered into the shareholders' agreement to regulate the future conduct and management of ESSL. The consideration for the shares acquired by BUL was £25k but this was advanced to ESSL as working capital. Mr Keisner and Mr Damms became the directors of ESSL and Mr Keisner the chairman of the company. Clause 10 of the agreement provides that:

    "10.1 Matters Requiring Directors' Approval

    The Shareholders shall exercise their powers in relation to the Company to procure that save as otherwise provided or contemplated in this Agreement and save with the prior approval of a resolution of the directors or of a written resolution of the directors the Company will not:

    ………..

    10.1.7 Commence any legal or arbitration proceedings (other than routine collection of trade debts"

69. The underlying dispute concerning ESSL relates to the arrangements for payment of the goods which it supplies to Baris. As of 2001 BUL was ESSL's largest potential customer for the lightweight steel framing systems which it imports and sells in the UK. Most of the steel was imported from the Marino International Corporation of New Jersey ("Marino"). The steel was then stored in a yard adjacent to the offices and warehouse of Baris at Huthwaite. Until the re-organisation of the Baris Group in February 2003, BUL was the trading company and this was the reason why it was chosen to enter into the shareholders' agreement of February 2001. Until February 2003 the sale of the steel took place between ESSL and BUL. As a result of the re-organisation Baris became the trading company and the dispute about payment concerns steel supplied and invoiced to Baris.

70. On 18 May 2004 Mr Keisner instructed the company secretary of ESSL, Ms Paula Lee, to issue proceedings in the Watford County Court against Baris for payment of £57,444.78 in respect of steel which had been delivered and invoiced to Baris between September 2003 and May 2004. I shall refer to this as "the ESSL action". Then on 25 May proceedings were issued in the Manchester District Registry of the High Court by ETG against BUL for alleged breaches of the 2001 shareholders' agreement. These include a claim that BUL has permitted Baris to take stock belonging to ESSL for which payment has not been made. This is a reference to the unpaid invoices which are the subject matter of the ESSL action. The other alleged breaches are the raising of unauthorised management charges as a contra charge to the monies due from Baris to ESSL and the purchase by Baris of steel direct from Marino in breach of cl 14 of the agreement which it is said has resulted in a secret profit for Baris at the expense of ESSL.

71. Both claims are denied. In the ESSL action Baris admits the delivery of the steel but relies on what is described in the defence as the supply agreement. This is an oral agreement alleged to have been made in January 2001 between Mr Keisner on behalf of ESSL and Mr Damms and Mr Hinchcliffe on behalf of BUL. Under the agreement ESSL was to supply BUL with the steel framing systems and parts at prices representing the net cost to ESSL of purchasing the steel products plus an uplift of 20%. Further, although invoices would be rendered to BUL on ESSL's standard terms and conditions, BUL would not be required to pay for the goods supplied unless ESSL reasonably required such payment in order to maintain its cash flow and to pay its own suppliers. Baris maintains that under the re-organisation in February 2003 the benefit of this supply agreement was assigned to it. Alternatively, it claims that it continued to do business with ESSL on the terms of the supply agreement when it took over as the trading company from BUL.

72. In the ESSL action the supply agreement is also relied on as the basis of a counter claim. It is said that it was also a term of the supply agreement that BUL (and hence Baris) would provide ESSL with collection, storage and delivery services and would be entitled to charge for them when ESSL was trading profitably. It seeks payment of £86,720.75 and interest in respect of these items.

73. In the ETG action against BUL the supply agreement also forms the defence to the claim that BUL has allowed Baris to remove steel belonging to ESSL without payment and has levied unauthorised charges. The same issues govern both claims. The alleged breach of cl.14 of the shareholders' agreement is also denied. The direct order from Marino in March 2004 is said to have been placed by Baris because Mr Keisner had cancelled an order placed by ESSL on 16 February 2004 in respect of material ordered by Baris for use on a building project at Park Lane in Croydon. Mr Bruce of Baris agreed with Marino to take delivery of the steel in order to avoid cancellation penalties. A profit of £3k was made by Baris but it is denied that this amounted to a secret profit. ESSL had (through Mr Keisner) cancelled the existing order and so deprived itself of the benefit and profit from the transaction with Marino.

74. The issues in the ESSL and the ETG actions are not however limited to the contractual arrangements for the purchase and re-sale of the imported steel products. In the ESSL action Baris raised as a defence the issue of Mr Keisner's authority to sanction the commencement of proceedings in the name of ESSL. The ESSL action was transferred from the County Court to the Manchester District Registry of the High Court because of the common issues it raises and directions had been given that it should be tried by me along with the ETG action and Mr Keisner's action against TGL. But I took the view that issues of authority could not be left until the trial and had to be raised by way of an application to strike out the claim as unauthorised. Such an application was made by Baris on 6 April 2006 and I gave judgment striking out the claim but staying my order on terms that a firm of solicitors should give independent advice to the board of ESSL (Mr Keisner and Mr Damms) and the board should then be permitted to consider what (if any) action to take in the light of that advice. As a consequence, further proceedings in the ESSL action have been stayed.

75. I do not intend in this judgment to repeat my reasons for acceding to the application to strike out the claim. They are set out in my earlier judgment. The commencement of the ESSL action was never put to a board meeting of the company and was not therefore authorised. The real problem in the ESSL action is whether a way can be found round the deadlock at board level even if the solicitors advise the company that the claim should be continued. One obvious answer is for me to decide the issues in relation to the supply agreement which are (as I have explained) also issues in the ETG action. Both sides have invited me to do this since I have heard the relevant evidence. Hopefully, a decision on the point will make any further litigation between ESSL and Baris unnecessary and it is difficult to see how Mr Damms could legitimately refuse to sanction the continuation of the claim if I were to rule that Baris had no defence or available counter claim to meet it.

76. But the ETG claim itself raises issues as to whether the claims being made are properly justiciable between ETG and BUL. In its defence BUL takes the point that the covenants entered into between ETG and BUL under cl 14 were with ESSL and are not mutually enforceable as between the two shareholder companies. If this is right then the Marino claim is not enforceable at the suit of ETG.

77. Conversely, ETG takes similar points about BUL's counterclaim. This is made up of four elements:

    i) The cancellation by Mr Keisner of the order placed by ESSL with Marino;

    ii) The payment of £25k out of ESSL's bank account on 3 March 2004 on the instructions of Mr Keisner alone without the consent of Mr Damms;

    iii) The payment of £14,461 out of ESSL's bank account on the instructions of Mr Keisner without the consent of Mr Damms; and

    iv) The commencement of the ESSL action without the prior approval of a resolution of the board of ESSL.

78. All these acts are said to be breaches by ETG of various provisions in the shareholders' agreement. But they each relate to the alleged conduct of Mr Keiser as a director of ESSL and his authority as a single director to cause ESSL to take the actions complained of. ETG's case is that regardless of the merits of these claims they are all matters for ESSL to pursue and that ETG has no corporate responsibility for what Mr Keisner authorised. Any loss has been suffered by ESSL. These are matters for the board of ESSL (or a liquidator) to sort out.

    Keisner v TGL

79. The application for interim relief was originally listed for hearing before HHJ Maddocks on 16 July 2004 with an estimate of two hours. It was then re-listed by agreement for 1.5 days on 26 and 27 July. In the meantime DAC forwarded to GLP a copy of Mr Keisner's share certificate and asked whether they wished the original to be forwarded to them. On 16 July 2004 the board of TGL met and resolved to ratify the earlier decision of the board of QIC and to remove Mr Keisner as a director of QIC. As mentioned earlier, Mr Keisner accepts that this was effective to terminate his directorship of QIC.

80. The hearing fixed for 26/27 July 2004 was also adjourned by agreement on 23 July 2004 to allow for the service of further evidence from Mr Keisner by 30 July 2004. Time for service of TGL's defence was extended to 13 September 2004. Mr Keisner did not serve his evidence by 30 July 2004 and an application was made for an extension of time. Eventually an extension to 23 August 2004 was agreed and the interim application was listed for 12 October 2004. On 23 August Mr Keisner through GLP offered to compromise all the various pieces of litigation on terms which involved removing the joint interests in TGL and ESSL; Baris paying ESSL £60k for the unpaid stock; and Mr Keisner's earn-out entitlement being bought out for a total of £286k. All proceedings were to be stayed with no orders for costs but TGL was to pay Mr Keisner £35k towards his costs then estimated at £84k. The offer was refused.

81. On 13 September and again on 1 October DAC wrote to GLP asking for confirmation that Mr Keisner intended to narrow the scope of the relief sought on the interim application. When the application came on for hearing before the Vice-Chancellor, Lloyd J, on 12 October 2004 it was compromised. By consent the application was dismissed and the costs were reserved to the trial judge. The Vice-Chancellor then made directions leading up to a trial on 7 March 2005. It was agreed between solicitors after the hearing (although not recorded in the order) that Mr Keisner should receive monthly management information from QIC and that both parties should consider mediating the dispute. In the event, no mediation took place until shortly before the trial and this was unsuccessful. The management information was supplied for a time but in 2005 this ceased.

82. The other significant procedural step in the action was the service of TGL's counter claim. In the defence and counter claim served on 9 November 2004 it is alleged that Mr Keisner provided no useful services to TGL or QIC after February 2004 but instead conducted himself in a way which was deliberately designed to damage the business of TGL and QIC. The acts relied on (which have been amended by the provision of further particulars on 25 January 2006) include the commencement of the winding up proceedings, the employment tribunal and laptop claims; and the commencement of the ESSL and ETG actions. TGL also relies on the inclusion in the Keisner action itself of the claims in respect of the share certificate, the complaint about unauthorised payments from the AIB account and what is described as the misconceived application for wide ranging interlocutory relief including a freezing order. Mr Keisner is said to have acted with the intention of maximising the cost and damage to TGL and QIC by refusing to narrow the issues, pursuing irrelevant issues, filing inaccurate evidence including "spin", making baseless requests for disclosure and failing to provide disclosure or to comply with directions for the exchange of witness statements. These allegations are made the subject of a claim for damages notwithstanding that in some cases the procedural failures themselves have already been dealt with by adverse orders for costs.

83. The counterclaim seeks to recover as damages compensation for the time spent by TGL's management and in-house counsel in dealing with the litigation and for the loss to QIC's business occasioned by management personnel (including Mr Damms) having to waste significant time dealing with Mr Keisner's actions. It is estimated that QIC suffered a loss of profits in the year 2004/5 of £263,338 which could have been passed to TGL. There is also a claim to recover overpayments of salary and National Insurance contributions in respect of Mr Keisner amounting to £7,322. In all, the counterclaim is for £517,252. This includes an estimate of the value of management and in-house counsel's wasted time of £246,592.

    The Claim

84. There has been no amendment of the particulars of claim in the Keisner action but in his witness statement of 12 January 2006, Mr Keisner accepts that he was lawfully removed as a director of QIC in 16 July 2004 and that a number of the other alleged breaches have been remedied. A copy of the share certificate was delivered by DAC to GLP on 12 July 2004 and the original was sent on 3 June 2005. Copies of the audited accounts for QIC for 2003/4 and a reconciliation of the net adjusted profit after tax were delivered on 12 July 2004. Mr Keisner accepted in cross-examination that he has received the same documentation for 2004/5 and 2005/6 and therefore has had the documents he is entitled to under cl 5.7 of the share sale agreement. He also accepts that he has received the deferred consideration due to him for these years. His complaint about documentation is limited to the late delivery of the accounts and profit reconciliation in July 2004 (it should have been delivered in May). His complaint that he was excluded as a director of QIC from March to July 2004 and therefore from receiving monthly management accounts in that period is similarly historic and is not alleged to have affected the amount of deferred consideration he has subsequently received.

85. The only breach of the share sale agreement which is alleged to have affected the deferred consideration received by Mr Keisner is the inclusion of the £60k management charge in the accounts of QIC for 2004/5. He now accepts that the recovery of the overcharge in respect of New Providence Wharf (which was agreed to by the board of QIC on 17 March 2004) is not excluded by Schedule 7 to the share sale agreement and is therefore a proper deduction. The shortfall in deferred consideration due to what is said to be the unauthorised deduction of the £60k management charge is calculated to be £5,625 exclusive of interest.

86. In money terms therefore the claim is barely outside the limits of the small claims court but the alleged breaches of the share sale agreement (even those now remedied) are relied upon by Mr Keisner to support his claim for specific performance of the agreement. There is, however, the counterclaim which seeks very substantial damages. I propose therefore to deal with the alleged breaches of the agreement which are said to have subsisted at the time of the issue of the proceedings. With the exception of the issue of the management charge for 2004/5 these are only relevant to the question of specific performance and in that context I can deal with some of them quite shortly.

    The issue of the share certificate

87. Clause 6.1 of the share sale agreement requires TGL at completion to allot and issue to Mr Keisner the consideration shares credited as fully paid up. In some further information served on 31 May 2005 Mr Keisner accepted that the shares had been issued and that subsequently he has received his share certificate. The agreement says nothing about the timing of the delivery of the share certificate and it is clear that a draft of the certificate was provided as early as March 2003. The delay in the delivery of the share certificate was not a matter which appeared to cause Mr Keisner any real concern at the time and he accepted that such complaints as he had came to an end on 12 July 2004 when he received the copy certificate from DAC. He said in evidence that it would have been ludicrous to initiate High Court proceedings about a share certificate.

88. I take the view that there was no breach of clause 6.1 and that even if the late delivery of the share certificate was technically a breach of the agreement it would not be relevant to the issue of whether or not to make an order for specific performance.

    Late delivery of the earn-out accounts

89. It is common ground that these were due on 4 May 2004 but were not sent to Mr Keisner until 12 July. Clause 5.7 of the agreement requires this material to be produced at the same time as the calculation of the adjusted profit under clause 5.4. This does not in fact specify a time but the deferred consideration based on the amount of the adjusted profit becomes payable under clause 5.2.2 not later than three months after the end of the relevant accounting period: in this case by 4 May 2004. The agreement does therefore seem to envisage that the accounting information will be provided to the sellers by then.

90. Even though a breach of the agreement, I accept that the delay involved is not indicative of a general refusal on the part of TGL to comply with its obligations under the agreement. The fact that Mr Keisner has no obvious complaints about the way in which the accounting information was provided in 2005 and 2006 really puts the matter beyond doubt.

    Denial of Mr Keisner's rights as a director of QIC

91. Mr Keisner accepts that he was validly removed as a director of QIC in July 2004. What is challenged is his purported removal on 19 March 2004. As a director he was entitled to attend board meetings, be provided with monthly management accounts and have access to QIC's books and papers. These rights are confirmed by Schedule 6 to the agreement (paragraphs 1.5 and 1.7) which provide as follows:

    "1.5 Up to date management accounts shall be prepared within 15 days of the end of each calendar month or other monthly period as the Board may agree, and shall (save in cases of emergency) be supplied to the Directors at least 24 hours before Board meetings. Management accounts (even in cases of emergency) shall be available for discussion at such meetings.

    ………

    1.7 Each Director shall have free and unrestricted access to the Company's books, papers, records, and to its accountants and auditors."

92. It is common ground that since 17 March 2004 Mr Keisner has not been invited to attend board meetings and has not been supplied with or given access to this information as a director. All that he has received are the calculations to which he is entitled as a seller under clause 5.7. At one level the dispute on this issue is simply one about notice. Mr Berkley accepts that under clause 16 of Mr Keisner's service agreement as a director of TGL the board could have required him to resign as a director of QIC as soon as he resigned as a director of TGL. His case is that no such request was made before TGL took steps to remove him on 16 July 2004. But he also submits that the provisions of his service contract have to be read as subject to paragraph 1.2 of Schedule 6 to the sale agreement which on its true construction requires Mr Keisner to remain a director throughout the term of the agreement. He relies on cl.7.4.2 which provides that:

    "7.4 The Purchaser agrees with and for the benefit of the Sellers that in the period following Completion and until the Final Earn-out Date:

    …….

    7.4.2 The Company's business and affairs shall, to the greatest extent practicable be conducted so as not to affect adversely the entitlement of the Sellers to Deferred Consideration and that the Company's business and affairs in such period shall be conducted in accordance with the provisions set out in Schedule 6. "

93. Taken alone, I think that Mr Berkley's construction of the share sale agreement is correct. It does envisage that the sellers will remain directors of QIC whilst they retain an interest in its performance. But for the provisions of the service contract TGL would not, I think, be entitled to seek to exercise its powers as a shareholder in QIC to remove Mr Keisner as a director. But the terms of the service agreement cannot be ignored and their effect must be to qualify as between TGL and Mr Keisner the rights which he would otherwise enjoy under the share sale agreement. Given that TGL could require him to resign, it was in my judgment within its power to remove him as a director on 16 July. I do not, however, accept Mr Auld's submission that the reference to a request in cl. 16 of the service contract is a reference to a request being made to the board of QIC. That is not what it says. Nor am I attracted to Mr Berkley's argument that the effectiveness of Mr Keisner's dismissal as a director somehow depends upon the outcome of his claim for constructive dismissal. Clause 16 in terms operates when the employee ceases to be a director of TGL. It is not in dispute that that occurred on 17 March 2004.

94. Removal of Mr Keisner as a director of QIC was the direct consequence of the winding-up petition issued on 17 March 2004 against TGL. It has to be looked at in a much wider context. Even if (as I think) Mr Keisner was not properly removed as a director of QIC until July 2004 the damage to him is limited. No claim to substantial damages is based upon the temporary breach of the share sale agreement. Nor does Mr Keisner seek his re-instatement as a director, which I would in any event have refused. The only real relevance of this issue is in relation to the claim for specific performance and I shall come back to this when I consider that claim.

    Withdrawals from the AIB account

95. It is not part of Mr Keisner's pleaded case that this was a trust account and there is nothing in the share sale agreement or the deposit account agreement to suggest that it is. On Mr Keisner's construction of the deposit account agreement the monies are to be paid into the account when the loan notes are issued and held in the account until payment is due or both sellers agree to the release of the monies. The money therefore represents security for the particular instalment of deferred consideration due under the loan notes then issued. The trust argument adds nothing to this.

96. The deposit account agreement does not in terms specify a date for the payment of the deferred consideration into the account. It requires TGL to deposit the deferred consideration "payable in accordance with cl 5.1" in the designated account. The deferred consideration specified in cl 5.1 becomes payable on the dates specified in cl 5.2 but in each case the debt can only be discharged by the issue of a loan note in the amount due to the seller. "Loan Note" is a defined term and the notes have to be issued in the format set out in Schedule 8 to the agreement. This provides for the loan note to be redeemed on the first anniversary of its issue unless notice is given under cl 5.3 by the noteholder (or 5.1 by TGL) requiring early redemption. This can take place as early as six months from the date of issue.

97. None of this is in dispute but Mr Auld submits that in the light of these detailed provisions for payment, the reference to "payable in accordance with cl 5.1" in the deposit account agreement should be construed to mean actually payable to the sellers as of the redemption date under the notes. I do not accept that. The more obvious meaning of "payable in accordance with cl 5.1" is that it identifies the sum which has become or will be payable under the share sale agreement: not under the deposit account agreement. There is no obvious purpose in requiring TGL to pay the money into the account if it can then be immediately disbursed to Mr Keisner and Mr Davies. The more obvious construction is that the monies have to be paid into the account when they fall due for payment under cl 5.2 and are then held there until the redemption date arrives or the sellers agree to its release. In that way a payment under the loan notes (which extend the period for actual payment) is secured.

98. The more difficult issue is whether the "prior consent of the sellers" means the consent of both sellers or only of the seller whose money is to be released. "The Seller" is a defined term in the agreement and Mr Davies and Mr Keisner are described as "together the "Sellers" ". But I do not regard that as conclusive of the question whether monies due to only one of the sellers can be released with only his consent. I think that in common with most agreements the plural should include the singular when appropriate. The reference in the agreement to the money being held to the order of the Sellers is a reference on my construction of the agreement to the time after the loan notes have been issued. The scheme of the share sale agreement is that separate loan notes are issued in respect of each seller. Consistently with this it seems to me that the restriction on release from the account should be limited to a seller being able to insist on his prospective share of the deferred consideration being retained in the account until redemption of the loan note. On this basis, no breach of the agreement occurred when Mr Davies and Mr Keisner received payments from the account without the other's consent.

99. However, even if I am wrong about that and the consent of both sellers is required for any release, this is not an issue which in my judgment calls for any relief. Both Mr Keisner and Mr Davies have to date been paid the amounts of deferred consideration due to them. Where loan notes have been issued the sums due under them have been paid into the AIB account. It is now far too late to order that the sums so far disbursed from the account with the consent of both sellers should be paid back in and Mr Keisner does not, I think, seek such an order although it was part of his claim for interim relief. This matter has assumed a quite unnecessary importance because of the events of May 2004. Prior to that date both Mr Keisner and Mr Davies received payments out of the account without reference to each other. The rather crude attempt by Mr Damms and TGL to hide the fact that Mr Davies' share of the consideration due in respect of 2003/4 had been paid back to TGL out of the AIB account has, I think been linked in Mr Keisner's mind with what he regards as an alliance between Mr Davies and Mr Damms which is likely to prove detrimental to his own interests. A more honest and straightforward response to the enquiries made by GLP would have been far better.

    Threatened variation to Mr Davies' earn-out

100. Earlier in this judgment I set out much of the history of the negotiations between Mr Davies and TGL about revising his entitlement to deferred consideration under the share sale agreement. Various proposals were made to both Mr Davies and to Mr Keisner about some form of accelerated earn-out and Mr Keisner was at one stage content for the agreement to be varied contractually along the lines proposed. Ultimately, this came to nothing because Mr Keisner refused consent to the variation and in paragraph 10 of the Further Information served on 31 May 2005 he accepted that the agreement has not in fact been varied.

101. But the complaint was pursued in cross-examination of Mr Davies and it was put to him that he had colluded with TGL to alter the terms of the share sale agreement unilaterally. This was largely based not on the negotiations to revise the terms of the share sale agreement which it is accepted came to nothing but on the fact that Mr Damms had come to some kind of side arrangement with Mr Davies under which he received accelerated payments of earn-out from 13 July 2004. These payments were made from the £255,712 that was paid into the AIB account of 4 May 2004 as part of the deferred consideration of £340,949. As I have described earlier, the £255,712 was then withdrawn on the same day and paid to Mr Davies in instalments later that year. Mr Damms explained in his evidence that a major concern of his was that Mr Keisner (who he said had been threatening litigation) might attempt to freeze the monies in the AIB account and this would, I think, explain the reluctance of TGL and DAC to confirm that Mr Davies' share of the consideration had been withdrawn.

102. A significant and perhaps the primary reason for Mr Davies seeking to capitalise his earn-out in January 2004 was his tax position. He was advised that he could obtain retirement relief if a fixed as opposed to a variable sum was due to him. In anticipation that Mr Keisner would agree to a variation in the earn-out provisions, so as to produce a fixed sum, he made an election in January 2004 in advance of the deadline of 31 January and paid tax on that basis. It was therefore very much in his interests to obtain Mr Keisner's consent to a variation, but by 31 January 2004 that had not been achieved and ultimately it never was. Suggestions were put to him by Mr Berkley that in the light of his election the issue of the loan note on 4 May 2004 was in some way a sham and that the payment to him of the £225k showed that there had been a de facto variation of the share sale agreement. He also suggested that Mr Davies had in some way compromised Mr Keisner's own tax position although this is not part of the pleaded case and is in any case not an issue between Mr Keisner and TGL.

103. My own view is that there is nothing in any of these complaints which is actionable by Mr Keisner. There has been no variation of the share sale agreement. There were proposals for its variation canvassed openly in emails and discussions between Mr Damms, Mr Davies and Mr Keisner which because of the outbreak of hostilities in March 2004 have come to nothing. Mr Keisner has refused to sanction a variation of the share sale agreement and Mr Davies accepts (as he must) that the original agreement continues to govern the contractual relations between the parties and his own tax position. He said that the revenue had been informed about the change of circumstances arising from the failure to vary the agreement, but this is a matter for Mr Davies and the Revenue, not for me. Properly analysed, Mr Keisner's real complaint on this issue is not that there has been a variation of the agreement, but that there have been unauthorised withdrawals from the AIB account and payment to Mr Davies of his share of the consideration earlier than the loan notes provide for. I have already dealt with the first issue. The withdrawal of the £225k from the account by TGL was permissible. The payment of that money to Mr Davies earlier than the date provided for under the loan notes is not in accordance with the contract, but it is not a variation of the contract within the meaning of cl 30 of the agreement and in any event, the relevant redemption date has now passed. This is at most something which I ought to consider in relation to the question of specific performance.

     The unauthorised management charges

104. The amount of deferred consideration payable depends on QICs adjusted profit after tax ("APAT") in each relevant year. This is defined in cl 5.4 of the share sale agreement by reference to the Accounting Policies set out in Schedule 7 to the agreement. I have already set out (in paragraph 12) the terms of paragraph 1.5 which is the relevant policy in relation to this issue.

105. The structure of paragraph 1.5 is to exclude from the accounts of QIC (at least for the purposes of computing the deferred consideration) "any management charges (or other charges in the nature of management charges)". It is common ground that this therefore excludes the management charges under consideration and the only issue (apart from quantum) is whether they are brought back into account by the second half of paragraph 1.5. In order for this to apply the charges must either represent "costs directly incurred wholly and exclusively on behalf of the Company" or be agreed to by the A and B directors. The use of the word "or" makes it clear that these two possibilities are alternatives and that the charges are deductible if they come under either head.

106. I agree with Mr Berkley's submission in closing that if Mr Keisner was wrongly excluded as a director from the board meetings at which the charges were agreed, then TGL cannot rely on the second of the two conditions. The agreement of Mr Keisner was required under that condition for so long as he remained a director, which on my analysis was until 16 July 2004. I have already explained why I do not accept that he had a contractual right to remain a director for the entire duration of the share sale agreement. The reference to "the Board" in paragraph 2.10 of Schedule 6 to the agreement which is also referred to in Mr Berkley's opening submissions has, in my judgment, to be construed in the same way. The £60k management charge was agreed at the board meeting on 17 March 2004. At that time Mr Keisner was still a director of QIC and it follows that the charge is not deductible on the basis that it was agreed by the A and B directors of QIC. For subsequent years the position is, I think, different. The 2005 accounts (including a similar management charge) were approved by the board of QIC on 27 April 2005 and no issue can therefore arise in respect of that year.

107. The other apparent point of construction concerns the phrase "directly incurred wholly and exclusively on behalf of the Company". By definition this paragraph is dealing with charges which TGL (the Purchaser) can invoice to QIC. Although Mr Keisner suggested at one point in his evidence that "directly" meant that the persons providing the services being charged for had to be recruited by QIC that cannot be right. QIC would be directly liable itself for those costs as part of its own expenditure. They could not be billed to the company as a management charge by TGL. Absent agreement by the directors for the time being of QIC, TGL is entitled to set off costs which it has incurred wholly and exclusively on behalf of QIC. The word directly indicates, I think, that the costs must have been incurred by TGL and not by anyone else.

108. The £60k charge was explained by Mr Damms in his email of 8 March 2004 as an estimate of the cost involved of various personnel on financial and accounting matters, health and safety and what is described as commercial input The email then gives details of the amount of time spent by the staff involved. This was:

     Mr Hinchcliffe : half day per week x 46 weeks;

     Joanna Moss : 2 days per week x 46 weeks;

     Jason Dean : 1 day per week x 46 weeks;

     Mr Damms : half a day per week x 46 weeks;

     Mr Bruce : half a day week x 23 weeks

109. Mr Damms prepared a paper for the board meeting on 17 March. He says in it that the £60k charge was put forward with a view to it being agreed by the A and B directors rather than prepare "penny by penny schedules detailing a whole host of individual charges". In his paper he indicates details of the salary costs including National Insurance of all the employees concerned. On the basis of his estimate of time spent the salary costs attributable to work done for QIC would be £78,741.58. This calculation is set out in more detail in Mr Damms' third witness statement where he explains how he has calculated the cost to TGL of the time spent by staff on QIC business.

110. Mr Keisner accepted in cross-examination that the work done by the individuals I have referred to was for the benefit of QIC and that some payment ought to be made for their services. The work needed to be done and would have had to be paid for if performed by other contractors. In opening Mr Keisner's case, Mr Berkley suggested that the main issue relating to the management charge was one of construction in relation to paragraph 1.5 of Schedule 7. Neither Mr Damms nor Mr Hinchcliffe was cross examined about the calculation of the management charge and the expert evidence is directed only to the management time claimed for under the counter claim. In these circumstances, Mr Auld invites me to treat Mr Damms' evidence as unchallenged on the issue of quantum. That seems to me to be right. There is nothing to challenge Mr Damms' evidence that the cost to TGL of the provision of these services has been at least £60k. The challenge to the 2004 management charge therefore fails.

     Specific performance

111. That leaves the claim for specific performance of the agreement. Mr Berkley says that Mr Keisner has lost his ability to exercise any influence or control over the affairs of QIC and is very vulnerable. Mr Damms has shown by his conduct in relation to the AIB account and his dealings with Mr Davies that he cannot be trusted as the steward of Mr Keisner's interests. I should therefore make an order in terms of cl 7.4.2 of the agreement (see paragraph 10 above) thereby ensuring that Mr Keisner has the protection which the agreement was designed to give him until the deferred consideration has been paid in full.

112. The claim for specific performance is really the converse of TGL's counterclaim for breach of fiduciary duty. Although the causes of action are very different, both have been used in this litigation as a platform for criticising the conduct of the other party and seeking relief in respect of it. I propose therefore at this stage in my judgment (and before turning to analyse the legal basis for the counterclaim) to set out my own analysis of the conduct of the respective parties so far as it is relevant to what I have to decide.

113. The flashpoint in the relationship between Mr Keisner and TGL came with his presentation of the winding up petition in March 2004 but the potential for conflict pre-dates this and is in many ways attributable to the personalities of Mr Keisner and Mr Damms. Mr Keisner has been referred to by a number of witnesses and in the contemporary documentation as difficult. He clearly has a very precise attitude to contractual arrangements and what some would regard as an over-rigid insistence on compliance with requirements which may appear to be little more than formalities. The principal criticism of his conduct of this litigation is that he has taken a number of points (some of them technically correct) without regard to whether they have really caused him any loss or damage. The complaint about the late delivery of the accounting information in July 2004 is an obvious example. The issue about the share certificate is another. His conduct has been portrayed by the Defendants in both this and the ETG action as a malicious, deliberate campaign designed to cause damage to the business of TGL and QIC. It is alleged that he threatened to "bring down Terrus" and began that process with the presentation of the winding-up petition.

114. I agree that the scale of the Keisner action is wholly disproportionate to what is actually involved. But I do not accept or find that Mr Keisner has throughout this and the other proceedings he has been responsible for set out deliberately to cause damage to TGL and QIC regardless of what he perceives to be the merits of his case. Mr Damms is in many ways the opposite of Mr Keisner. He operates, I suspect, in a much more relaxed way and takes an essentially pragmatic view of any difficulties he encounters. When TGL suffered from cash flow problems in 2003 and 2004, his assumption was that Mr Davies and Mr Keisner would accept a late payment of the consideration due to them. For a time that proved to be right but both Mr Keisner and Mr Davies were clearly concerned about TGL's ability to pay as Mr Davies accepted when he gave his evidence. He said that some payment schedules had not been honoured and that both he and Mr Keisner had concerns about future payment. Mr Keisner believed that TGL was in financial difficulties and it clearly depended upon the support of its bankers. It has not been suggested that these concerns were unreasonably held at the time even though subsequently the position changed.

115. Mr Keisner says in his first witness statement that he had no alternative but to commence the winding-up proceedings. I do not accept that. The presentation of the petition was undoubtedly a reaction to the events of 17 March 2004, but it has its roots earlier than that. By January 2004 Mr Keisner's concerns about the financial strength of TGL and QIC were exacerbated by Mr Davies' desire to take an accelerated payment of his earn-out and to become a consultant with reduced hours. He clearly relied on Mr Davies remaining with QIC as an important safeguard for his share of the deferred consideration. Mr Davies had a similar interest in ensuring that QIC was properly run in accordance with the Schedule 6 principles. Once he was paid out this was not assured.

116. Mr Keisner thought that Mr Davies had so to speak changed sides. Mr Davies said that in early 2004 they were barely on speaking terms as a result and Mr Keisner's position is illustrated by the allegations in these proceedings that Mr Davies and Mr Damms were intent on a variation of the agreement by some kind of side deal. Mr Berkley put it to Mr Davies that on 4 May 2004 he had been bought by Mr Damms with the promise of the advance payment of the £255k.

117. The failure to notify Mr Keisner of the change of venue of the 17 March board meeting caused him to over react. It is clear that he lost his temper and presented his winding-up petition. The subsequent events surrounding the payment out of the £255k did nothing to reduce the temperature and this action was then commenced. Most people would have stood back before responding in the way Mr Keisner did. But I should say that I do not regard the presentation of the winding-up petition as an abuse of process. Although payment in full had been promised by 4 May the money was due in February under the notice served earlier by Mr Keisner. Failure to pay debts as they fall due is one of the statutory tests of insolvency. It was satisfied in this case. When the petition was served the debt was paid together with a contribution towards Mr Keisner's costs. This happens every day in the Companies Court. The petition was not advertised and the episode came to an end almost as soon as it started.

118. Unfortunately, the same cannot be said for this action. DAC wrote several long letters to GLP seeking to persuade them to withdraw the interim application and to agree to a speedy trial. Mr Keisner was cross examined at some length by Mr Auld about his failure through his solicitors to narrow the issues. The application is said to have adopted a scatter-gun approach and to have included a number of wide ranging and false accusations such as that of Mr Davies being in collusion with Mr Damms against Mr Keisner's interests. The exercise is said to have been both inappropriate and disproportionate.

119. But the interim application was not in fact pursued and on 12 October 2003 as I mentioned earlier it was dismissed by consent. At about the same time the laptop claim was also settled. In opening this case I was told by Mr Berkley that Mr Keisner decided not proceed with the application because much of what was complained of had been remedied. Since then the share sale agreement appears to have been operated without obvious difficulty and there is now only one possible instalment of deferred consideration left to be calculated and paid. In the meantime, the parties have contrived to spend huge sums of money (the estimate for TGL is over £1m) on litigation.

120. My own assessment is that Mr Keisner's reaction to the events of early 2004 was unnecessary and unjustified. I have no reason to believe that the failure to inform him of the change of venue for the board meeting was not accidental. The problems caused by the payment out of the £255k were, as I have said, badly handled but should on subsequent analysis have been kept in proportion. To a considerable extent Mr Keisner has, I think, acknowledged this. His lack of activity in pursuing the Keisner and the ETG actions which is criticised by the Defendants and has led to numerous interlocutory applications was, I think, a recognition that at least in the Keisner claim there was nothing really left worth fighting about. The damages claim (had it been successful) was worth little more than £5k and the claim in the ETG action is even smaller. What Mr Keisner should have done at the time of the October hearing was to recognise that the litigation was not likely to be of any real utility to him and to have settled it. He did make an attempt to do that prior to the hearing, but that was rebuffed by the Defendants. Thereafter, he allowed the action to drag on to its conclusion.

121. Much of the difficulty about bringing these proceedings to an end may lie with the counterclaim. This was served in November 2004 and seeks to recover damages for management and in-house counsel time spent on all the litigation and the reduction in QIC's profits which this is said to have caused. I shall come shortly to why I do not consider that it discloses any cause of action but in terms of a response to Mr Keisner's actions it also is completely disproportionate. TGL refused to consider an offer of settlement prior to the October hearing. Mr Damms made a lot in evidence about the potential damage to TGL of the winding-up petition and the threat of a freezing order but by October 2004 all that was over. Most of the allegations about refusing to narrow the issues, filing inaccurate evidence and making unduly wide applications for disclosure which have been introduced by amendment post date 9 November 2004 when the counterclaim was served. At that time the only real costs were those of the interim application. I do not see how time spent dealing with the litigation after that date can be recoverable as damages in any event. Notwithstanding this, the counterclaim has been pursued at great expense and has been self-fulfilling. Since the cost in staff time involved in this action is part of the claim, so with the pursuit of the counterclaim it has been increased. These costs on both sides largely incurred since October 2004 have now made it impossible to settle this litigation.

122. In order to justify the making of an order for specific performance I have to be satisfied that TGL is unlikely to perform its obligations under the contract except under an order of the Court. I am not satisfied of this. The history of the last two years has confirmed that however bitter the relations between Mr Keisner and Mr Damms may have become the contract has been performed and the deferred consideration paid. The events of 2004 have to be weighed up against subsequent events. It seems to me most unlikely that the relatively smooth operation of the provisions of cl 5 of the agreement in 2005 and 2006 will not be repeated for the last time in 2007.

123. I am also doubtful whether the obligations set out in cl 7.4.2 of the agreement are the kind of contractual provisions which the Court ought to supervise by the imposition of what amounts to an injunction. It seems to me that it could potentially involve the Court in having to make decisions about how QIC should be run and that the board would be at risk of having any marginal decision reviewed by a judge. This is not something which the Court ought to do. Continued supervision is normally a bar to specific performance. In this case it would be inevitable.

124. I propose therefore to dismiss the action for specific performance and damages except for awarding nominal damages in respect of the late delivery of the accounting information in 2004 and the exclusion of Mr Keisner as a director between March and 16 July 2004.

     The counterclaim

125. This depends on an allegation that Mr Keisner owed fiduciary duties to TGL after he resigned as one of its directors on 17 March 2004. He did of course continue to owe fiduciary duties to QIC until at least July 2004 but QIC is not a party to these proceedings. It can commence its own action and it alone can sue for the loss of profits (if any) which it is alleged to have suffered. The amendments to the counterclaim seek £263,338 in respect of the loss of profits of QIC. It is also said that QIC made over payments of salary National Insurance contributions to Mr Keisner. At one point in the amended pleading it is alleged in terms that Mr Keisner owed fiduciary duties to both companies. Yet TGL seeks to recover both for itself and for QIC.

126. I consider that the claim for loss of profits and for the recovery of the National Insurance contributions should be struck out and dismissed for the obvious reason that they are only recoverable by QIC itself. The fact that the profits of that company may in due course be dividended up to its parent does not give TGL a right to sue for its subsidiary's loss of profits or for a mistaken overpayment by that company. To adopt the language of the Court of Appeal in Prudential Assurance Co Ltdv Newman Industries Ltd (No 2) [1982] Ch 204 QIC is the party injured and the person in whom the cause of action is vested. TGL's loss is merely reflective of QIC's even if it has a cause of action to recover it.

127. As to that there are I think a number of difficulties. The claim for breach of fiduciary duty by TGL assumes that Mr Keisner continued to owe it such duties after he resigned. Some duties do clearly survive the termination of a relationship which gives rise to them. A solicitor, for example, who owes his client a duty of confidentiality has a continuing obligation of that kind notwithstanding the termination of his retainer. But the fiduciary duties relied on in this case are those set out in paragraph 6.3.1 of the Defence and Counterclaim: i.e.

     "(1) To act at all times in the best interests of the company

     (2) To act at all times with proper care, skill and competence in the performance of his duties as a director in particular with a view to maximising the profitability of the company.

     (3) To avoid any conflict of interest between himself and the company or, if such conflict arose, to fully and properly disclose and/or resolve the same in favour of the company."

128. I do not accept that any of these duties survived Mr Keisner's resignation as a director of TGL which took effect on 17 March 2004. There are cases of course when a director or other fiduciary resigns his position in order to exploit an opportunity or to use information which has come to him in his capacity as a director for his own benefit. There is no doubt that in such cases the Court will prevent the misuse of the Company's property, notwithstanding the resignation of the director concerned. This is because the misuse of the information originated when the relationship still existed. The claim is also in part proprietary.

129. Mr Auld has produced no authority to suggest that Mr Keisner's fiduciary duties as a director continued after 17 March 2004. But he relies on his service contract which was terminable on twelve month's notice and must therefore, he says, have subsisted until March 2005. This would continue by implication similar fiduciary obligations to those owed by him as a director. Even if that is right, I cannot see how it assists TGL. On Mr Auld's analysis Mr Keisner's immediate resignation was a repudiation of that contract. Clause 16 of the service agreement which gives TGL the right to require Mr Keisner to resign as a director of QIC "on the termination of his employment" with TGL was invoked by TGL on 17 March and used to attempt to justify the removal of Mr Keisner with immediate effect as a director of QIC. He was escorted from QIC's offices and on the same day Mr Damms sent the memo referred to in paragraph 55 above informing staff that Mr Keisner was no longer connected with TGL; Baris or QIC. This seems to me a clear indication that TGL accepted Mr Keisner's repudiation of the service contract and that his contractual relationship with that company ended on 17 March. The matter is put beyond doubt by TGL's Response in the Employment Tribunal Proceedings which at paragraph 11.8 states that:

     "Later on 17 March 2004, TGL accepted Mr Keisner's resignation as a director, noting that pursuant to the Service Agreement, his employment and directorship were both now terminated."

130. The counterclaim based on breach of fiduciary duty therefore fails for the reasons above. None of the alleged duties subsisted beyond 17 March 2004 in relation to the matters with which the counterclaim is concerned. But I am also not satisfied that Mr Keisner was ever in breach of the fiduciary duties alleged. His winding-up petition was presented to secure payment of the arrears of deferred consideration then due. They were paid. The Keisner action was based on breaches of the share sale agreement. Whilst that action has failed to establish a case for relief beyond nominal damages and some claims have failed in toto, I am not persuaded that the action was continued with the sole intention of causing damage to TGL or QIC. Mr Keisner was in my judgment motivated by a belief (however wrong) that there had been breaches of the agreement. Objectively viewed, his actions were an unnecessary over-reaction. Many of these claims have failed and I suspect that the proceedings have continued unsettled largely because of the costs involved and the size of the counterclaim. But that does not make the claim a breach of fiduciary duty. Unreasonable and disproportionate litigation can be dealt with by being dismissed with costs. It does not normally give rise to a claim in damages by the successful defendant. The pleaded case is that Mr Keisner has maintained what amounts to a vendetta against TGL with the intention of damaging its commercial interests and in so doing his own. I do not accept that characterisation of his conduct.

131. The counterclaim is also based on alleged breaches by Mr Keisner of the share sale agreement. The terms relied on are paragraph 2.9 of Schedule 6 to the agreement and an implied term that Mr Davies and Mr Keisner would act at all times in the interests of TGL and QIC to maximise the success and profitability of their respective businesses.

132. The provisions of Schedule 6 are brought into play by cl 7.4.2 of the agreement. This is in terms a covenant by TGL "with and for the benefit of the Sellers" that the company's business will be conducted in accordance with Schedule 6. Mr Auld contends that I should read this as an obligation undertaken and enforceable on both sides and not simply as a covenant by TGL enforceable by the Sellers. I cannot accept that. The document was professionally drawn and carefully worded. These provisions are inserted for the protection of the Sellers. Their purpose is to compel TGL as the purchaser to adhere to a code of conduct for the business designed to maximise the amount of the deferred consideration. The Sellers have given no covenant because their failure to observe the code during the term of the agreement will impact on them not on TGL by reducing the deferred consideration.

133. The claim based on an implied term fails for much the same reason. It is not suggested that such a term is necessary in order to make the agreement work and the term suggested is similar in effect to the provisions of cl. 7.4.2. Given my views about the construction and effect of that clause I am unable to see how one can properly imply a term to the contrary. The other difficulty is that the suggested term imposes a duty in respect of the business of TGL as well as that of QIC. No other provision in the share sale agreement imposes any obligations in respect of TGL's business. Clause 7.4.2 and Schedule 6 relate exclusively to QIC. I cannot see why business efficacy requires the imposition of a duty on Mr Keisner and Mr Davies to maximise the success and profitability of TGL's business but makes no similar demands on TGL itself.

134. For these reasons the counterclaim will be dismissed. In the circumstances it is not necessary for me to express any view about the evidence of loss and damage in relation to the time spent by TGL's own personnel or on the expert evidence in relation to that.

     ETG claim

135. As mentioned earlier, the claim in this action consists of two issues: the failure to pay for the steel fittings invoiced to Baris by ESSL between September 2003 and May 2004 and the allegedly secret profit made by BUL in about March 2004 from ordering steel direct from Marino. The first issue is presented in these proceedings as a breach by BUL of its obligations under cls 8 and 10 of the shareholders' agreement of 26 February 2001. The Marino claim is alleged to be a breach of cl 14.

136. Clause 8 of the agreement provides (so far as relevant) that:

     "8.1 Except as the Shareholders may otherwise agree in writing or save as otherwise provided or contemplated in this Agreement the Shareholders shall exercise their powers in relation to the Company so as to ensure that:

     8.1.1 the Company carries on and conducts its business and affairs in a proper and efficient manner in accordance with its business plan as approved by the Shareholders from time to time and for its own benefit

     8.1.2 the Company transacts all its business on arm's length terms except to the extent that it is otherwise able to obtain more favourable terms from a Shareholder or any company or business in which a Shareholder directly or indirectly has an interest in respect of business transacted with that Shareholder or such company or business

     8.1.3 the Company shall not enter into any agreement or arrangement restricting its competitive freedom to provide and take goods and services by such means and from and to such persons as it may think fit

     …..

     8.2 Each Shareholder shall use all reasonable and proper means within its power to maintain improve and extend the business of the Company in the areas described in Recital (3) of this Agreement and to further the reputation and interests of the Company and the other Shareholder shall support it in these endeavours"

137. Clause 10.l provides that:

     "10.1 Matters Requiring Directors' Approval

     The Shareholders shall exercise their powers in relation to the Company to procure that save as otherwise provided or contemplated in this Agreement and save with the prior approval of a resolution of the directors or of a written resolution of the directors the Company will not:

     10.1.1 conduct business in a manner which is inconsistent with the provisions of Recital (3) and clause 8 or any business plan approved by the Shareholders from time to time

     ….

     10.1.5 enter into any material contract or arrangement outside the ordinary course of its business

     10.1.6 pay any remuneration or expenses to any person other than as proper remuneration for work done or services provided or as proper reimbursement for expenses incurred in connection with its business

     10.1.7 commence any legal or arbitration proceedings (other than routine collection of trade debts)"

138. BUL is said to be in breach of one or more of these provisions by having "permitted" Baris to take stock without paying for it and by having fettered ESSL in the routine collection of trade debts. None of these breaches is alleged to have caused any quantifiable loss to ETG as a shareholder in ESSL. The only claim for damages is in respect of the Marino order which is estimated in the sum of £3k.

139. Most of the individual sub-clauses relied on are very general in effect but a number have no obvious application to a failure by Baris to pay the invoiced price for the steel it has used. Sub-clauses 8.1.3, 10.1.5 and 10.1.6 are not directed to this case. But there are, I think, two much more fundamental obstacles to this claim.

140. Both cl 8 and cl 10 of the agreement are in terms agreements by the shareholders in ESSL as to how they will exercise their powers "in relation to the Company". The only powers which ETG and BUL have as shareholders is the power to vote. Even if this can be interpreted as extending to the exercise of power through their appointed directors the agreement still only relates to the control of ESSL and the way in which ESSL conducts its business. The claimant's case has nothing to do with the control of ESSL as such. It is an allegation that Baris has removed stock without paying for it and that BUL has permitted it to do this. The provisions of the share sale agreement (especially cl 10.1.5) could, I think, be relevant to the question whether ESSL did or should have entered into the alleged supply agreement. But I cannot see how they give ETG a cause of action against BUL simply on the basis of Baris's failure to pay for the stock.

141. The second difficulty is the allegation that BUL somehow "permitted" Baris to do this. Although BUL and Baris (and for that matter TGL) have common directors they are different companies, each with their own constitution and legal personality. Baris is not a subsidiary of BUL. They are associated companies within the same group. Much of the cross-examination of the relevant witnesses such as Mr Damms and Mr Hinchcliffe centred on what they had personally agreed or authorised. But there is no evidence that the board of BUL as such ever concerned itself about this transaction or even discussed it. Since February 2003 it has been a dormant company. The decision not to pay for the steel or rather to deal with payment on the basis of the supply group was a decision taken by the directors of Baris, not by the board of BUL. The word "permitted" also suggests that BUL had the power to prevent Baris from acting in the way it did. That again is unsupported by any real evidence. There is no contractual arrangement between the companies giving BUL any form of legal control over its associated company. I fail to see how BUL as such could have influenced the matter at all.

142. The claim for payment of the steel is a claim which is being pursued by ESSL and which in my judgment can only be pursued by ESSL. Baris' failure to pay is not as such a breach by BUL of the shareholders' agreement. That leaves the claim that BUL has fettered the ability of ESSL to collect routine trade debts from Baris by raising contra charges to the amount due under the invoices. The allegation is not that Mr Damms has refused as a director of ESSL to sanction proceedings for the recovery of the debt. Any such claim would, of course, be premature because as set out in my earlier judgment Mr Damms was never asked to give consent and the ESSL was commenced on the instructions of Mr Keisner.

143. The difficulty about the management charge claim is that again these have not, as alleged, been raised by BUL. They are the subject of a counterclaim by Baris in the ESSL action based on terms which Baris says governed its dealings with ESSL. If they were never agreed then Baris has no basis for a counterclaim or any defence to the claim for payment. But again, I cannot see how BUL can be said to have raised the charges or to have fettered the collection of trade debts (routine or otherwise) by doing so.

144. That leaves the Marino issue. The background facts are not really in dispute. In February 2004 ESSL had ordered stock from Marino. The steel was to be used by Baris on a construction project in Croydon. Mr Keisner cancelled the order. Mr Bruce on being informed about this and also of a possible claim by Marino for cancellation penalties, re-ordered the steel direct. By doing so, Baris made about £3k worth of profit on the re-sale of the steel. This is said by ETG to be a secret profit although it is pleaded as arising from a breach of cl 14 of the agreement. It is not alleged in terms to have been obtained in breach of fiduciary duty or in other circumstances which would give rise to a claim for an account in equity. There is no allegation that the shareholders' agreement creates a partnership or that the legal relationship between ETG and BUL is a fiduciary one. In any event, the profit was made by Baris not BUL and Baris owes no duties at all to ESSL beyond those imposed by a debtor/creditor relationship.

145. Clause 14 provides in terms that:

     "14.1 Each of the Shareholders (who shall be referred to in this clause as the ("Covenantor") covenants with the Company that the Covenantor (whether alone or jointly with any other person and whether directly or indirectly and whether as Shareholder participator partner promoter director officer agent manager employee or consultant of in or to any other person) shall not (and where the Covenantor is a company shall procure that none of the other members of its group shall or any employees or agents of any such company) at any time ("the date in question") whilst the Covenantor is the holder of any shares in the Company and for a period of six months after the date on which the Covenantor ceases to be a shareholder in the Company ("the Termination Date") without the written consent of the other Shareholder and the Company:

     14.1.1 compete directly or indirectly with any business of the Company as carried on at the Relevant Date (as defined in clause 14.1.5) in any territory in which the Company carried on such business at the Relevant Date

     14.1.2 solicit or endeavour to entice away from accept business from or place orders with (as the case may be) or discourage from dealing with the Company any person who was at any time during the period of one year preceding the Relevant Date a supplier customer or client of the Company or with whom the Company was in discussions at the material date with a view to them becoming a supplier customer or client of the Company "

146. The only sub-clause that might prohibit the placing of an order with Marino by Baris is cl 14.1.2. Baris is not competing with the business of ESSL nor is BUL. But the whole of cl 14 is a covenant by ETG and BUL with ESSL. It is not a covenant enforceable between ETG and BUL. Only ESSL has the benefit of the covenant and can enforce it. ETG has no cause of action in contract based on cl 14.

147. The factual issue does not therefore need to be decided but it seems to me straightforward. Mr Keisner accepts that he cancelled the order. He said in his oral evidence that he did not know the order was intended for use at the Croydon project or was needed for a specific project at all and his reason for placing the order on hold was to regularise the state of the account between ESSL and Baris. However, in an exchange of emails on 16 February 2004 Mr Keisner was informed by Mr Damms that he (Mr Damms) accepted that the delay in clearing the debts due from Baris to ESSL was unacceptable and that there were no funds in ESSL to order further goods from Marino. Mr Damms promised to put forward an offer of payment to allow ESSL to place an order for the steel required for the Croydon project.

148. Mr Damms says it was agreed that two payments of £25k would be made against outstanding invoices up to November 2003 and Mr Keisner ageed to place a further order with Marino for another container of steel sections. This is confirmed in an email from Mr Keisner to Mr Damms of 18 February 2004. The order was placed the following day. Mr Keisner confirmed that he had placed the order in an email of 19 February 2002 which stated that: "I understand that the product will be required for a Baris project".

149. Baris made a payment of £25k to ESSL on 1 March 2004 but this payment was transferred on 3 March on the instructions of Mr Keisner to the account of one of his companies, Esterry Trading Limited. This is one of the payments for which BUL counter claims. Mr Keisner claims to be entitled to the payment of this sum as delayed payment for the sale of his shares in ESSL to BUL but this meant that the money was not available to pay for the steel ordered from Marino. On 13 March Marino was asked by Mr Keisner to postpone shipment of the steel he had ordered on behalf of ESSL. On 16 March Marino emailed Mr Keisner asking what he wanted to do about the order.

150. Following the fracas on 17 March Mr Bruce telephoned Marino to ask about the status of the order and was told that ESSL had not sent payment of the necessary funds and that a request had been made by Mr Keisner to halt production of the goods. Mrs Marino made it clear to Mr Bruce that if the order did not go ahead there would be cancellation penalties. The following day a fax was received from Marino asking for the status of the order to be resolved urgently due to imminent increases in steel prices. The funds needed to be wire transferred and an invoice signed. Mr Bruce agreed with Mr Damms and Mr Hinchcliffe that Baris should take delivery of the order and pay Marino for the goods to minimise the risk of penalties and to enable the steel to be delivered for use at the Croydon project. The steel was then ordered and paid for. The £3k represents the 20% uplift which ESSL would have charged Baris over the price paid to Marino. By ordering direct this was saved. The notional loss to ETG as shareholder would of course have been half of this sum.

151. It seems clear to me that Mr Keisner both knew what the Marino order was to be used for and agreed to place the order on behalf of ESSL after receiving assurances that the two payments of £25k would be made. After payment of the first of these but before payment of the second the order was cancelled. Mr Keisner had no real explanation for this when cross-examined about it and it seems to me that it was almost certainly bound up with his reaction to the events of 17 March. I do not regard these as a justification for his cancellation of the Marino order on behalf of ESSL. The order was placed on an agreed basis which Baris adhered to. In these circumstances ESSL was not entitled to cancel the order and cannot complain that Baris was forced to place the order direct in order to avoid penalties and to maintain its own contractual commitments. Even if Baris' conduct can in some way be made the responsibility of BUL (and ETG can sue for what amounts to a loss suffered by ESSL) there was no breach of cl 14 of the agreement. The restriction on placing orders imposed by cl 14.1.2 cannot be relied on when the ESSL has been given the order and the opportunity to profit from it but has then without justification refused to obtain and supply the goods. There must be an implied obligation by ETG that ESSL will honour the orders that are placed with it except for proper cause. The cancellation in this case had no justification. Quite apart therefore from the issues of justiciability and cause of action the claim fails on its merits.

     The counterclaim

152. That leaves the counter claim and it suffers from many of the same defects as the claim itself.

153. Paragraphs 23(1) and (4) of the counterclaim are allegations that ETG "caused or permitted" ESSL to cancel the Marino order and to commence the ESSL action without the authority of the board. In each case it was Mr Keisner who did the acts complained of as a director of ESSL. Although Mr Keisner was of course also a director of ETG I can see no reason why his actions should be attributed to that company as opposed to any other company of which he was also a director. There is no evidence to substantiate a claim that he acted on behalf of ETG and in fact all the indications point the other way. The Marino order was placed by ESSL through him as its representative and the instructions to commence the ESSL action were given by him as a director of ESSL to the Company Secretary.

154. In each case the parties directly involved and affected were ESSL and Baris and the whole of BUL's counterclaim is directed to conduct which is primarily the concern of ESSL. The profit for the Marino contract would have gone to ESSL, the money in its bank account belongs to ESSL, and the costs of the ESSL action (if not re-instated) will be borne by ESSL to the extent that they are not paid by its solicitors. These are therefore potentially breaches of duty by Mr Keisner as a director to ESSL for which the company can recover.

155. I do not accept that BUL has a cause of action against ETG for the matters alleged. Quite apart from the issue of whether ETG has "caused or permitted" Mr Keisner to act as he did the counterclaim has to meet the objection (as in the case of the claim) that clauses 8 and 10 simply regulate the exercise by ETG and BUL of their powers as shareholders. It is difficult to see what power as a shareholder ETG should have brought to bear on what Mr Keisner did as a director of ESSL. But even if there is a cause of action invested in BUL under the shareholders' agreement in respect of these matters, the claim is one to recover what is only a reflection of the loss suffered by ESSL itself. The loss claimed for is in no sense separate and distinct from that suffered by ESSL. Therefore, on the principles set out in Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) (Supra) and more recently by the House of Lords in Johnson v Gore Wood & Co [2002] 2 AC 1 ESSL is the proper claimant to seek recovery. The counterclaim will be dismissed.

     The Supply Agreement

156. In these circumstances it is not necessary for me to deal with the issue of the supply agreement which is common to both the ETG and the ESSL actions and which will determine whether Baris is entitled to resist ESSL's claim under the invoices and to seek payment for storage and other services. But both parties have asked me to make some findings in respect of this issue which hopefully will assist the board of ESSL and those advising them to decide on the future conduct of the ESSL action.

157. The supply agreement is alleged to have been made in about January 2001 between Mr Keisner on behalf of ESSL and Mr Damms and Mr Hinchcliffe on behalf of BUL. The agreement was that ESSL would supply the steel frames and parts to BUL (then its major customer) at cost plus 20%. Moreover, although invoices would be issued for the steel supplied on ESSL's usual terms and conditions, there would be no obligation on BUL to pay for the goods unless ESSL reasonably required payment in order to meet its own liabilities including payment to the suppliers of the steel. It is also alleged that under the supply agreement ESSL agreed to pay for the collection, storage and delivery by BUL of the steel although this would not be payable until ESSL was trading profitably.

158. The benefit of the agreement is alleged to have been passed to Baris under an agreement of 4 February 2003. Alternatively, it is said that Baris continued to trade with ESSL on the same terms.

159. It is clear that there were discussions between Mr Damms and Mr Keisner about some kind of joint venture as early as the summer of 2000. Because of the existing trading relationship between ESSL and BUL it was decided to conduct the joint venture through ESSL rather than establish a new company. This had savings for both parties. The negotiations about the terms of the joint venture took place mainly between Mr Keisner and Mr Hinchcliffe. They lasted from late 2000 until the completion of the share sale agreement on 26 February 2001. By early 2001 Mr Hinchcliffe and Mr Keisner had agreed that BUL's investment would be limited to £25k and that it would obtain a 50% holding in the company. The £25k would be invested in ESSL rather than paid to Mr Keisner and would be used as working capital.

160. A major attraction of the joint venture and its primary purpose from BUL's point of view was that it gave BUL a secure source of supply from Marino which was thought likely to be free of the delivery problems which BUL had experienced in the past with its current suppliers AMP. The US suppliers were also likely to be cheaper.

161. The negotiations in early 2001 took place against the background of a draft shareholders' agreement originally supplied by ESSL but then considered by BUL's own solicitors, Messrs Irwin Mitchell. A copy of the draft was shown to RBS which raised no objections to what was proposed.

162. On 26 January 2001 Mr Hinchcliffe had a meeting with Mr Keisner to discuss what he describes as the practical aspects of the joint venture. By the time of this meeting the structure of the joint venture was settled and the draft shareholders' agreement was substantially in the form in which it was subsequently executed. Mr Hinchcliffe's discussion with Mr Keisner on 26 January was (according to his witness statement) taken up with agreeing on banking arrangements, a management accounting system but also the payment terms which ESSL would offer to its customers.

163. Mr Hinchcliffe says that at the meeting on 26 January he made it clear that BUL wanted more flexible payment terms than it enjoyed with AMP. Currently, it had to pay for goods 60 days from the end of each month in which the invoice was dated. It was agreed that external customers would be invoiced 30 days from the end of each month but agreement on the payment date for BUL was postponed. Mr Hinchcliffe's note at the meeting reads: "30 day after goods Terms to Baris to be arranged".

164. Mr Hinchcliffe says that he also agreed with Mr Keisner that BUL would collect and unload stock at its yard in Barking and arrange for its onward transport to a customer. The stock would be stored there in the meantime. Mr Keisner is alleged to have agreed that BUL would be entitled to charge ESSL for these services. Mr Hinchcliffe's notes read: "ESS to re-imburse costs to Baris once trading profitably".

165. In his witness statement Mr Hinchcliffe says that he reached agreement with Mr Keisner on payment terms for BUL between 19 and 26 February. Between 23 February and 26 February Mr Damms was also discussing the question of pricing. He told Mr Hinchcliffe that he had agreed that BUL would be charged cost plus 20% and that external customers would pay cost plus 40%. Mr Damms told him that he intended to write to Mr Keisner to record what they had agreed and a letter was written on 26 February in the following terms:

     "I refer to our recent discussions. I am delighted we have been able to reach an agreement on this initiative. I have a list of potential orders for Evolution at Aberdeen – 2000m2, Putney – 1300m2, IOP – 1000m2, etc etc. I understand from receipt of order we are looking at around 4 to 5 weeks at the latest for goods to reach the UK from Marino. Providing we can resolve the technical issues and all the signs are that we can, then this has got to be good news for us.

     I understand that Howard is resolving the insurance and tax position with you and that you have also jointly agreed payment terms will be flexible for Baris as a concession for the business predominantly being based on Baris in the early days. In terms of pricing structure I confirm your agreement that Baris will buy at Marino cost plus 20% and all other supplies to outside customers will be at Marino costs plus 40% as a minimum as per the attached schedule. Any transport charges will be additional subject to pricing levels.

     In terms of stocks I understand that your warehouse lease at Barking is shortly being terminated and as such the you wish to transfer these stocks to our yard here as agreed. I shall instruct Alan Williams to speak to you regarding the arrangements to be put in place for Baris to clear the stock to Barking to the new storage yard here. In terms of pricing levels for the steel sections from stock I suggest we sell those materials at the current Marino list price plus 40% plus transport."

166. Mr Keisner's case is that he never agreed with Mr Hinchcliffe that ESSL would pay storage and other charges for the collection and delivery of its products. It was already supplying the steel to BUL at a discount and any further reduction would be uncommercial. On the issue of payment terms he maintains that ESSL was entitled to invoice on a 30 day credit basis (which it did) and that any forbearance beyond this was simply a concession brought about by the circumstances from time to time. Ultimately, he chased for payment and it was promised. The issue about storage charges only arose at the time of the commencement of the ESSL action and as an attempt to avoid payment.

167. Mr Hinchcliffe was asked about the supply agreement when he gave his evidence. The notes made on 26 January 2001 were, he said, a list of points which were agreed as to how ESSL and BUL should operate. He was asked by Mr Berkley about his statement in paragraph 8.3 of his witness statement in the Keisner action where he says that Mr Keisner was very much aware of the agreement to charge for storage, reloading and transport of the steel and that the ESSL accounts were prepared in the full knowledge of Mr Keisner that "at an appropriate juncture" the charges would begin. What he says was agreed was that BUL would charge when ESSL was "financially on its feet".

168. I accept that there were discussions between Mr Keisner and Mr Hinchcliffe on 26 January 2001 which touched on the terms of payment for BUL and on the possibility of ESSL making some payment in the future for services supplied to it which generated a cost to BUL. But I do not accept that these discussions had any contractual effect. They are accurately set out in Mr Damms' letter of 26 February 2001 where he says that it has been agreed that payment terms will be flexible. It is not suggested by Mr Hinchcliffe that anything but the 30 day credit period was agreed. The claim is that ESSL's standard terms would not be enforced until ESSL needed the money. A contract on these lines is impossible. The terms are uncertain and were not intended in my judgment to be any more than an informal understanding of how payment would be required. Similarly, the discussion about storage and other charges was no more than that. Mr Hinchcliffe's evidence strongly suggests that there was no more than an agreement to agree in the future that some charges would be levied. But the terms of the contract between ESSL and BUL were those of the shareholders' agreement and although ESSL did not press for payment in many cases until long after the 30 day period was over, it supplied its goods on those terms and it is contractually entitled to demand payment accordingly. Had I therefore been trying the ESSL claim, I would have given judgment for ESSL in the sum claimed and have dismissed the counterclaim.