England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		10th March 2006

Mr Justice Blackburne:

Introduction

1. This is a petition under section 459 of the Companies Act 1985 brought by shareholders in the second respondent, Campbell Irvine (Holdings) Ltd ("CIHL"). They seek an order pursuant to section 461 that their shares in CIHL be purchased by the first respondent, Ian Charles Irvine ("Ian").
2. CIHL, as its name implies, is a holding company. It was incorporated on 13 January 1978. It has always operated through wholly owned trading subsidiaries, principally Campbell Irvine Ltd ("CIL"). The business of the group has been that of insurance broking with the bulk of its income derived from travel insurance. The remainder of the business has been in general insurance broking. At all material times up to 31 December 2002 the business was conducted through CIL which had been incorporated on 12 June 1973. With effect from 1 January 2003, the general insurance part of CIL's business was transferred to and has since been conducted by Campbell Irvine (Insurance Brokers) Ltd ("CIIBL") which is another wholly owned subsidiary of CIHL.
3. There are 2,800 issued shares in CIHL. The petitioners, for whom Miss Catherine Roberts has appeared, hold 1,399 (or 49.96%) of them. The remaining 1,401 shares (50.04% of the total) are held by Ian for whom Mr Michael Todd QC and Mr Nigel Dougherty have appeared. The petitioners' shares are comprised in two holdings: 699 are held by the first petitioner, Patricia Mary Irvine ("Patricia"), in her personal right; the other 700 are held by her and Michael Cleobury Thatcher (referred to collectively in the petition as the second petitioner) as trustees of a settlement ("the Trust") dated 6 August 1993. The Trust was created by Patricia's late husband, Malcolm, for the benefit of the three sons of their marriage, namely Alastair, Charles and Duncan.
4. At the time of his sudden and unexpected death at the age of 52 on 1 March 1996, Malcolm held 700 shares in CIHL. Prior to August 1994 Malcolm had been an equal shareholder with his elder brother Ian. In August 1994 Malcolm transferred 700 of his shares to the then trustees of the Trust (of whom he was one). By his will, he gave one share to Ian and the remainder of his holding (by then reduced to 700) to Patricia. This resulted in Ian holding a bare majority of the shares in CIHL.
5. Michael Thatcher, who is a solicitor and has now retired, was one of the original trustees of the Trust and an executor of Malcolm's will. He has been wanting since March 2000 or so to retire as a trustee but was persuaded to remain in office pending resolution of the disputes which have given rise to this petition. Although he remains a trustee he has delegated to Patricia his powers as a trustee in relation to this petition by a deed of delegation and indemnity. Apart from providing a witness statement (on which he was briefly cross-examined), he has taken no part in these proceedings and, apart from exchanging a few letters and attending a meeting or two, has had little to do with the events which have given rise to them. The effective contest has been between Patricia, in her own right and on behalf of the Trust, and Ian. Since Malcolm's death, Ian has been in control of the running of CIHL and its trading subsidiaries. He and Patricia are CIHL's sole directors.
6. By the petition, Patricia alleges that Ian has conducted, and continues to conduct, the affairs of CIHL in a manner which is unfairly prejudicial to her interest and the interest of the Trust in three respects. First (and principally), Ian has procured the payment to himself of what she describes as "excessive, unreasonable and unjustified levels of remuneration". Second, and as a consequence of the first, the shareholders (in particular she and the Trust) have either received no dividends at all or, in respect of CIHL's financial years ended 31 December 2000 and subsequently, have received what she refers to as inadequate dividends. Third, she says that Ian has failed to run CIHL in accordance with the requirements of the Companies Act 1985.
7. Ian denies that he has caused CIHL's affairs to be so conducted. He contends, in any event, that relief by way of a buy-out order of Patricia's and the Trust's shares should be refused as Patricia and the Trust were given, but declined to take up, the opportunity to dispose of them on fair and reasonable terms when an offer (negotiated by Ian) for all of the shares in CIHL was made by Towergate Underwriting Group Ltd ("Towergate") in February 2000. Until the twenty-second day of the trial he also relied on a further offer for the shares made by Towergate in July 2000.
8. The response of Patricia and the Trust to this allegation, as set out in their points of reply, is twofold. The first is to deny that the terms of the offers, now confined to the earlier of the two, were either fair or reasonable. The second is to aver that the terms were negotiated by Ian in breach of fiduciary duties which he owed her and the Trust (arising out of his action in taking upon himself the negotiation of the offer) and in a manner that was unfairly prejudicial to their interests.
9. Ian also contends, but Patricia denies, that given her (and Michael Thatcher's) acquiescence until March 2000 in the way he was conducting the Campbell Irvine business, including in particular the manner in which profits were distributed, it is not open to her (or the Trust) to complain about his actions prior to that date.

The origins of the business

10. The business was begun by Ian in early 1973. He had started in insurance broking three years earlier with a London based company called Ross Collins Ltd where he was employed as an account executive with responsibility for securing new insurance business. He acquired a shareholding in that company. From that position he succeeded in building up his own clientele, particularly in the travel industry which was a business area in which he concentrated.
11. One of his first clients was Trailfinders Ltd ("Trailfinders"). The founder, controlling shareholder and chairman of Trailfinders is Michael Gooley with whom from the inception of their business relationship Ian became and has since remained on very friendly terms. There were other travel companies who were his clients and for whom, among other things, he arranged travel insurance.
12. After three or so years, he decided to set up on his own. The arrangement which he came to with Ross Collins was that, in exchange for transferring his shares in that company back to it at par, he was permitted to take with him all those clients that he had introduced to the business from personal contacts. It meant that from starting on his own in March 1973 he had a portfolio of existing clients and a guaranteed brokerage income. Among those clients was Trailfinders.
13. In June 1973 he established CIL as the medium for his new business. Because of his close friendship with Mr Gooley of Trailfinders, Ian was provided by that company with offices together with secretarial support and office facilities initially at no cost to CIL. He also acquired a 15% shareholding in Trailfinders. In return Trailfinders acquired 25% of CIL's shares. For some months, Ian also assisted Trailfinders' with its book-keeping which he undertook without payment
14. CIL's business flourished. Initially, Ian employed his father, a qualified accountant, and his mother on the accounting and book-keeping side. Later, in 1973, Ian's youngest brother, Alastair (not to be confused with Patricia's eldest son, also called Alastair), joined him in the business to assist on the administrative side.
15. At the time, Malcolm was working for a business called Aldington Caravans (Redhill) Ltd as its general manager. He was also one of its directors. He had been with that company for five years. Its business was in retailing caravans. It was at Aldington Caravans that Malcolm met Patricia where she was employed as his personal assistant. They were not then married. That did not occur until 1 May 1976. Malcolm left Aldington Caravans in June 1973. For a while he was out of work.
16. After some months Alastair decided that he wanted to travel, gave in his notice and left the business. Finding that, with the business continuing to flourish, he needed more administrative support, Ian invited Malcolm to join him in an administrative role. Malcolm was willing to do so with the result that at around the end of 1973, or early 1974, Malcolm began his involvement with the business. He did so at a modest salary. He was appointed company secretary. The move proved successful and on 1 September 1974 Malcolm became a director of CIL.
17. Already in early January 1974 Ian had arranged with Michael Gooley that 150 of Trailfinders' shares in CIL should be sold to Malcolm. In due course Trailfinders disposed of the remainder of its shareholding and Ian disposed of his shareholding in Trailfinders.
18. In 1975 Ian and Malcolm acquired a small insurance broking company called Slugocki Norman & Co Ltd and formed a new company, Campbell Irvine (Financial Consultants) Ltd, to handle life assurance, pensions schemes and associated products previously handled by CIL. In January 1978, on the advice of CIL's accountants, Critchleys Chartered Accountants ("Critchleys"), CIHL was incorporated to acquire the issued share capital of CIL, Slugocki Norman and Campbell Irvine (Financial Consultants). (Other subsidiaries were later acquired but it was not long before the only active trading subsidiary was CIL.) Ian was allotted a 75% shareholding in CIHL and Malcolm 25%. In the course of 1981 and 1982 Ian sold and transferred a further 700 shares in CIHL to Malcolm. The sale was at a modest price per share. The result that, by November 1982, Ian and Malcolm were equal shareholders in CIHL.
19. From the outset Ian and Malcolm were appointed directors of CIHL. So also were Anne Irvine (Ian's then wife; they divorced in 1982 and she ceased to be a director with effect from December 1982) and Patricia. Malcolm also served as company secretary.
20. Following Malcolm's death on 1 March 1996, Ian and Patricia alone remained as directors of CIHL. That is the current position. Ian and Malcolm continued as directors of CIL. From time to time other (non-family) directors were appointed. On 23 April 1996, following Malcolm's death, Patricia was appointed a director of CIL. She continued to be a director until 9 October 2002 when she was voted off the board, effectively by Ian.

The witnesses

21. I need only comment at this stage on the more important witnesses. For the petitioners, they are the petitioners themselves, principally Patricia Irvine, together with Nicholas Fieldhouse and Peter Darby. On the other side there was Ian Irvine. In all, twenty persons were called. Two witness statements were read unchallenged. In addition I had expert evidence from three others whose evidence I will comment on when I come to it.

(1) Patricia Irvine.

22. Patricia Irvine gave her evidence with great care. Throughout, she impressed me as someone attempting, as fully and honestly as she was able, to recall events some of which were long past and to explain how she felt or reacted to this or that occurrence.
23. The sudden and wholly unexpected death of Malcolm on 1 March 1996 was self-evidently a traumatic event which inevitably had profound consequences for her. She had been accustomed up to that time to rely on Malcolm to provide for her and their three sons. Thanks to the success of the Campbell Irvine business, he could do so in a manner which enabled them to live comfortably and without financial worry while she shouldered the main burden of running their home and bringing up their young family (the sons were aged between 12 and 18 at the time of their father's death). With his death, she had to fend for herself, sort out Malcolm's estate, manage the household and wider family finances, ensure the continued education and upbringing of her three sons in the way that she and Malcolm had planned and make up in countless other ways, as best she could, for Malcolm's loss. The size of this task and the burden it placed upon her were obviously considerable.
24. There is no doubt that in the early months, indeed until 1999, she had a great deal of help and support from Ian Irvine and, to a lesser extent, Ian's new wife, Amanda. (Ian and Amanda had married on 11 October 1997.) Patricia and her late husband had not, however, been accustomed to socialise much with Ian and his previous wives even though the two brothers had cooperated closely and successfully over the 22 or so years that they were together in the Campbell Irvine business.
25. Ian was to Patricia something of a stranger. She found him intimidating to deal with. She described him as a "man's man" who was accustomed to operate in what she found, following Malcolm's death, to be an alien world. Although before her marriage to Malcolm she had worked in a secretarial capacity (indeed for Malcolm), she had no experience of and little or no understanding of the world of insurance broking or, more generally, of financial management such as estate planning and the like.
26. She found having to deal with lawyers and accountants difficult and daunting. Having no prior understanding of corporate or trust affairs (although a director of CIHL since early 1978 and a director of CIL from April 1996 she had taken no part in either company's affairs) she had no time in the months immediately following Malcolm's death to devote to the responsibilities that these roles required of her or even to discover what these responsibilities were. The same was the case when she was made a trustee on 11 August 1997. She had no reason to question what she was told by Ian and others, notably Mr Minty of Critchleys, the accountants, and Mr Thatcher who was her solicitor, a co-trustee of the Trust and one of the executors of Malcolm's estate. She accepted uncritically the advice which they gave to her. I can well understand how difficult and stressful getting to grips with all these matters must have been while having the responsibility, without Malcolm's presence and support, of bringing up her three teenage sons.
27. It was, she said, only when she came to be told by her solicitors at (or more precisely immediately after) a meeting between herself, her solicitors and Ian on 8 December 1999 that the interests of the Trust had been neglected (in that it had not received any dividends from its only asset, its 25% holding in CIHL) that she came to believe that she had failed in her duties as a trustee and had been let down in this respect by Michael Thatcher. She came to believe that it was her duty to obtain recompense from Ian to put right what, on advice, she understood to be the excessive share of the profits of the Campbell Irvine business which he had taken and to resist his wish to take more than what she regarded as his fair share of the sale proceeds of the business when the opportunity for its sale arose.
28. Against that background there are two particular features of her evidence to which I draw attention. The first is that in preparing her first witness statement she has, not surprisingly, trawled through and read herself into a huge amount of past correspondence and other documents in order to acquaint herself with the course of events. This has resulted in the production of a witness statement by her running to 671 paragraphs spread over 176 full pages. In addition there was a supplemental witness statement running to a further 89 paragraphs. Her first witness statement chronicles in very considerable detail her understanding of events. It is, however, a mixture of recollection, reconstruction, speculation and submission. It is often impossible to know what is recollection and what is reconstruction culled from a reading of the documents and, insofar as it is or claims to be recollection, whether it is first hand or based upon what she has been given by others to understand.
29. The second feature to which I draw attention was a tendency on her part, when casting her mind back to past events, to invest even small incidents (they chiefly involved Ian but also, to a lesser extent, Amanda Irvine) with a significance and, occasionally, a motivation on Ian or Amanda Irvine's part which I do not consider to have been justified or, what is more, felt by her at the time. Despite the very considerable help and support that, on any view, Ian gave to her in the months following Malcolm's death which, both at the time and in her evidence, Patricia freely acknowledged (for example in a letter she wrote to Ian on 17 July 1996), she struck me as only too willing to see Ian as remote, uncaring, insufficiently appreciative of the contribution Malcolm made to the success of the Campbell Irvine business (and therefore disloyal to his memory) and driven by purely selfish motives which I do not consider that the evidence justified.
30. The result is that, although as I have mentioned, I regard Patricia Irvine as a witness attempting to tell the story as she genuinely believed it, I found her evidence at times to be somewhat distorted in recollection, lacking in objectivity and in denial about what the contemporary documents disclosed about her feelings and intentions and, in consequence, not always wholly reliable.
31. I do not mean to sound disparaging to Patricia Irvine in so describing her evidence. For, in spite of all of this, she struck me as an immensely determined and courageous woman.

(2) Michael Thatcher.

32. Mr Thatcher was in the witness box for a comparatively short time. He was a trustee of the Trust, an executor of Malcolm's will and had for many years acted as solicitor to the two brothers. He had also acted from time to time for the Campbell Irvine business. He and Ian had come to know each other many years earlier.
33. Mr Thatcher came across as a wholly honest and credible witness. So soon as the dispute between Ian and Patricia arose and he realised that an amicable resolution was unlikely and that proceedings would appear a possibility, he no longer wished to be involved because of the conflicting ties of friendship. He became anxious to resign as a trustee. Indeed, he said that he almost insisted upon resigning and, to that end, prepared and executed a retirement deed. However, Patricia and those advising her were unwilling to accept his retirement. They took the view that his retirement and replacement as a trustee by another would trigger in Ian's favour share purchase pre-emption rights in respect of the Trust's holding of its shares in CIHL and that the exercise of those rights would be on potentially disadvantageous price terms to the Trust. They considered that, although Ian was willing to waive the exercise of those rights, his terms for doing so were unreasonable. Mr Thatcher therefore remained, and remains, a trustee. However, since early 2000 he has taken no active part in the dispute, or in these proceedings, having, as he put it in his witness statement, "delegated my powers as a trustee in favour of Patricia in relation to this petition."

(3) Nicholas Fieldhouse

34. He was the partner in Stevens & Bolton, solicitors of Guilford, who acted for Patricia between 9 March 2000 and August 2002 in relation to her interests (both personal and, it would seem, as a trustee) in CIHL. (After August 2002, one of Mr Fieldhouse's litigation partners took over and has since continued advising her in respect of her claims.) Mr Fieldhouse, who is now in practice as sole principal of Fieldhouse & Co, qualified as a solicitor twenty-six years ago and worked for a number of years with several well known firms in central London before joining Stevens & Bolton. Throughout his career he has specialised in the company commercial field. He also specialises in intellectual property and is a trained mediator.
35. Because privilege had been waived by Patricia Irvine in respect of the communications passing between her and Mr Fieldhouse relating to the Towergate share purchase offer and her dispute with Ian, Mr Fieldhouse was extensively cross-examined about the course of those communications and, in particular, what advice he gave and why and the tactics which, on her instructions and with the benefit of his advice and the input of Mr Peter Darby (see below), were adopted. His recall of events was heavily dependent upon the correspondence and other documents (they are voluminous in quantity) which this dispute has generated. That said, I have no doubt that at all times Mr Fieldhouse endeavoured to give as full and honest an account of events as his recollections would allow, acknowledging that he could not remember where that was the fact, and conceding that he might be mistaken where the documentary or other evidence suggested that that might be so.

(4) Peter Darby

36. I will describe his personal and professional background when I come to that stage of the story where he became involved. Suffice it at this point to say that he was a compelling witness, with a clear grasp of events and an impressive recollection of much of the detail, ready to acknowledge when he could not recall a matter, willing to be corrected where it could be shown that his recollection was or was likely to be at fault (a relatively infrequent occurrence) and, overall, firm and fair minded. He struck me as a reliable witness on all important matters to which his evidence related.

(5) Ian Irvine

37. Ian Irvine will be 65 this coming June. He has had two careers, one in insurance broking with which these proceedings are concerned, and the other in the Territorial Army from which he retired in 1997. In both he has been conspicuously successful. For, as will shortly appear, the Campbell Irvine business, in particular on the travel side, has prospered to such an extent that, by the 1999 trading year, the amount of profits available for distribution among shareholders (calculated before any payments, whether by way of salary, pension contributions, dividend or other benefits, to Ian, Patricia or the Trust) was only just short of £1 million. Since then that figure has consistently exceeded £1 million, comfortably so in some years. The only exception has been 2003 when there was a need to make an exceptional payment to the Inland Revenue to settle a claim for National Insurance Contributions in relation to transactions going back to the late 1990s. But for that exceptional payment, the profit would have exceeded £1 million in that year as well.
38. Between 1960 and 1997 Ian served in the Territorial Army. He served with distinction, attaining the rank of colonel. In 1996 he was awarded the CBE in recognition of his service. At one stage in these proceedings there was an issue between the parties over the extent to which Ian's TA commitments affected his capacity to devote himself to the needs of the Campbell Irvine business and the extent to which, in consequence, he was reliant on others, particularly Malcolm, to make up for his absences on military duty. I made it clear that, as Ian and Malcolm had a private agreement (to which I shall return later) for the division of Campbell Irvine's profits in the shares four-sevenths to Ian and three-sevenths to Malcolm, notwithstanding Ian's military commitments, I saw no point in investigating this issue. The fact is that, whether or not Ian was to any material extent dependent upon others to make up for his absence when on TA duty, Ian was able with Malcolm's ready co-operation to combine a part-time military career with the running (with Malcolm) of an increasingly profitable insurance broking business and to achieve success in both.
39. A striking feature of the evidence was the total faith which Campbell Irvine staff had in Ian and the great esteem in which they held him. Michael Berry, who has worked as CIL since 1980 and was made a director of CIL in January 1992 and of CIIBL in January 2003, described Ian as a workaholic and as "totally fair". Anna McManamon who has worked at CIL since 1991 and was appointed a director in 1996, spoke of the utmost respect which members of staff had for Ian, proof of which, she said, was the fact that most members of staff had been working for CIL for in excess of ten years.
40. Thomas Clarke, who has been with Campbell Irvine since 1988 and who since January 2003 has been CIIBL's managing director, spoke of Ian's tremendous ability and great knowledge of the insurance industry, his extraordinary devotion to clients' interests and his exceptionally long working hours. Anthony Kaye, who joined CIL in January 2003 and became its managing director in May 2004, spoke of CIL as being "100% client-focused as a result of having Ian at the helm". He spoke of Ian's ability to lead by example and his ability to command respect among employees because of his hard work. "Ian" he said "runs a very tight ship and, whilst he is fair and flexible with his employees, shirking is not tolerated." I had the impression that Ian expected staff to have the same total commitment to the business that he has.
41. A spin-off from Ian's service life was the making of contacts with persons who were later to become clients of the business. One such was Trailfinders whose founder and owner, Michael Gooley, was an army contact going back over 40 years. Most of CIL's clients (one witness gave an estimate of as much as 90%) were the result of Ian's personal contacts, many from his service life or from his close connection with Trailfinders and Michael Gooley. Others were former employees of clients who had established their own businesses and who had come into contact with Ian and valued the quality of what Campbell Irvine was able to provide.
42. Of particular significance to the success of CIL was its association with Trailfinders founded upon Ian's longstanding friendship with Michael Gooley. I have already referred to the early connection between the two businesses. Mr Gooley described the current position as follows:

"6. The business relationship between Trailfinders and CIL is unique, not least because CIL is located within the Trailfinders complex and, indeed, CIL is on the Trailfinders' internal telephone system. It would be fair to say that CIL is, in effect, treated as Trailfinders' internal travel insurance department."

By 2004 Trailfinders was contributing a little over 60% of CIL's travel side turnover, equal to roughly 40% of Campbell Irvine turnover overall. Mr Gooley went on to say:

"9. My relationship with Ian is certainly a personal one, (for example Ian was best man at my wedding) but it is also a professional one. The latter is very much based on Ian's knowledge of the travel insurance industry, the outstanding service that he offers and his determination to make life easy for us at Trailfinders.

…

17. If Ian was not at CIL, Trailfinders would go out to tender for another insurance broker. It is something we have not and will not consider whilst Ian runs CIL because of the special relationship that I and Trailfinders have with Ian.

18. If Ian moved to another insurance broker Trailfinders would definitely go with him, but only if he controlled the company and therefore could give the same level of service.

19. There is always a commercial choice to place one's business elsewhere. It would not be that difficult. For years Trailfinders has received two or three proposals every week or so, from other insurance brokers who are falling over themselves to obtain our account. If Trailfinders announced that we were going out to tender tomorrow, I imagine there would be a queue of insurance brokers down the street, some no doubt offering excellent deals. However, as long as Ian remains at CIL we are quite happy to leave our business with him."

43. Ian Muir Wilson, chairman of Wexas International Limited a firm of international travel agents and another longstanding client of Campbell Irvine, was no less fulsome in his praise of Ian. He said this:

"7. Ian was originally recommended to me as an individual of total integrity. The reason why Wexas has kept its business with CIL for the last 31 years is because that integrity has been proved correct and has been maintained. CIL gives Wexas an excellent service. Up until 1996 it was Malcolm and Ian who gave us that service and Ian has since maintained and enhanced that service. Ian has one or two very able team members around him but no one at CIL has the skill or ability of Ian. If Ian was no longer connected with CIL, Wexas would review the situation

…

10. The relationship between Wexas and CIL very much depends on Ian. In fact, I would say that Ian is CIL. As long as Ian remains as the decision maker at CIL and we continue to receive the same excellent service, I do not consider that Wexas will look to place its business elsewhere. I could not say that would be the case if Ian was no longer involved with CIL."

44. Ian's colleagues in Campbell Irvine expressed similar views. Thomas Clarke said that:

"If Ian left tomorrow the whole business would crumble within a very short period of time. I believe this without a shadow of a doubt. At renewal time all our accounts would come under attack … we are not the most competitive on price but Ian's involvement makes up for that. If Ian left CIL completely I believe that at least 60% of CIL's business would be lost."

45. Michael Berry said something very similar:

"20. If anything happened to Ian and he were no longer able to be involved in CIL in any way I would like to think that Trailfinders would remain a client but we would not have the same guarantees as we have now. The relationship between Mike [Gooley] and Ian basically guarantees us the Trailfinders account…. However, were Ian no longer involved in CIL, word would spread through the travel industry and it would be highly probable that at the time of the renewal negotiations for the Trailfinders accounts other competitors would be attacking Trailfinders and our other main accounts."

46. Anna McManamon said this:

"22. I have no doubt that if Ian was to be unable to work for CIL for whatever reason CIL would lose all of its major accounts within one or two years. CIL would have difficulty retaining clients if Ian left because I believe clients remain at CIL because of their loyalty to Ian. The majority of our clients could definitely get a better deal on their insurances elsewhere, especially Trailfinders."

47. All of these witnesses were cross-examined. I am satisfied that what they said about Ian and his ability to attract and retain clients is broadly accurate. Even making allowance for the fact that much of this testimony comes from persons who are effectively Ian's employees at Campbell Irvine, I am satisfied that the fact that since Malcolm's death the Campbell Irvine business has expanded to become such a profitable business (as the figures later mentioned will show) is largely the result of the combination of qualities that Ian has brought to bear in building upon the successful business that he and Malcolm had established: extraordinary hard work, his thorough understanding of that sector of the insurance industry in which Campbell Irvine has specialised, his devotion to clients' interests, his attention to detail and his ability to lead by example.
48. Perhaps it is because in running the affairs of Campbell Irvine he has been so accustomed to being in control and getting his own way - and doing so with such obvious success – that Ian has found it hard to accept that aspects of his conduct of the business should be questioned by anyone, let alone someone like Patricia who has no experience of insurance broking, or running any business for that matter. Although seemingly tireless in his efforts to explain, largely in correspondence, how the business was built up and why he was justified in pursuing this or that course of action (for example, his decisions concerning the division of profits and his method of going about it, or his negotiations with Towergate) he displayed in his letters a reluctance to accept that he might be wrong and, at times, a somewhat impatient attitude to anyone who should presume to question his understanding of matters or the course of action on which he had resolved. Although, as I accept, he was genuinely concerned to help Patricia and her family following Malcolm's sudden and wholly unexpected death, and himself grieved greatly at losing him, Ian was, I sense, emotionally rather distant from them. That may account for the fact that he seemed to lack that insight into their perception of matters which a closer relationship with them might have afforded, just as Patricia, for her part, was not always able to see matters as he did. But I must take people as I find them.
49. It is clear that, doubtless because of these varying aspects of his strong personality, Ian has been led on more than one occasion to an understanding of past events which a closer examination of the circumstances did not justify and to pursue an unyielding stance in his relationship with Patricia and her family over the matters with which these proceedings are concerned. This has meant that his evidence, like that of Patricia, was at times somewhat distorted in recollection and not always consistent with what was evident from contemporary records, and, to that extent, not always wholly reliable. That said, I have no doubt that Ian was attempting throughout to give an honest account of events as he saw them. In assessing his evidence I have not overlooked that, at times, he was suffering considerable physical discomfiture owing to back and knee problems.

(6) Robert ("Bob") Minty

50. If he had been called, I have little doubt that Mr Minty would have been able to shed much light on the history of profit distribution within the Campbell Irvine business from long before Malcolm's death right up to the present time. As he was instrumental in the creation of the Trust, it is highly likely that he could have assisted on the early thinking about why no distributions were made to it and how long this state of affairs was expected to last. The advice that he gave from time to time was frequently referred to (mostly by Ian). However, he was not called and I was therefore denied the chance of hearing what he had to say from his own mouth. There was no suggestion that he was not available.

Division of profits : the early years
 


51. The policy of Ian and Malcolm - I need only concern myself with the position after the shares in CIL had come to be held equally by the two brothers - was that, after payment of all expenses (including all remuneration except their own), the profits of the business, subject to providing for tax, would be divided between the two of them. Ian stated that their policy had always been to extract as much profit from the business as they could on the basis that, as insurance brokers, the company did not need much in the way of assets. Over the years, he explained, a sum had been set aside annually (it averaged around £10,000 per annum) which was reflected in part in the company's tangible assets and in part by cash balances. In particular, regulatory requirements affecting insurance brokers, currently those of the FSA, required that they maintained, in liquid form, assets equivalent to 5% of turnover subject to a £50,000 minimum.
52. There was no dividend policy. During the 22 years or so that Ian and Malcolm were the sole shareholders in CIHL there were only four years (1988, 1989, 1991 and 1992) when dividends were paid and then only because they were advised to declare them by Critchleys who had been the accountants to the business since its inception. The way in which profits were extracted was driven by taxation considerations; it was determined in accordance with what, on the advice of Critchleys, was understood to be the method which would attract the least tax liability. It included the payment of modest salaries to their respective wives. At the time CIHL was established, Ian was married to his second wife, Anne, who, like Patricia Irvine, was made a director of CIHL. The payments to Anne (until she and Ian divorced) and Patricia were made notwithstanding that neither of them worked in the business.
53. From the early years of their joint involvement in the business Ian and Malcolm had what was referred to in the evidence as a "private agreement" for the division of the business profits. The agreement was never formally reduced to writing but was referred to in a document typed out by Malcolm in about 1992 in which he recorded a series of items concerning his and his family's finances. He had showed the document to Patricia and discussed with her its contents.
54. The effect of the private agreement was that, taking into account salaries (each director was on a modest fixed salary), other drawings and any dividends that had been paid (for example, a £45,000 dividend paid in respect of the year 1992), profits would be shared four-sevenths to Ian and three-sevenths to Malcolm. This was notwithstanding that between 1982 and August 1994 the two of them were equal shareholders.
55. According to Ian, every February or March, Critchleys would carry out an audit of the books and records of the business in respect of the previous year of trading (which coincided with the calendar year), produce draft accounts, and raise and discuss (principally with Malcolm) any queries on them. Following that process, draft final accounts would be prepared which Ian and Malcolm would discuss. Arising from that discussion Malcolm would calculate, based on the private agreement, what exactly Ian had taken (or was entitled to take insofar as it had not already been taken) and do likewise in respect of himself. The resulting figure - giving effect to the four-sevenths, three-sevenths split - would be reflected in the final accounts which would then be formally signed off. Typically this would occur in or about June.
56. I need not go into why the private agreement was made. It is sufficient to note that it was and that it subsisted at least until Malcolm's death. Whether and if so in what way it continued after Malcolm's death was a matter of dispute between Ian and Patricia.

The Trust

57. The Trust was executed on 6 August 1993 but was not fully constituted until, as settlor, Malcolm transferred to it 700 of his shares in CIHL (equal therefore to half of his overall shareholding) in August 1994. The 700 shares were the only assets which were settled on the Trust. The Trust was an accumulation and maintenance settlement for the benefit of Alastair, Charles and Duncan Irvine. The terms of the settlement were such as, broadly stated, to make their respective shares in its assets contingent upon attaining the age of 25.
58. Malcolm, Mr Minty of Critchleys and Mr Thatcher were the initial trustees although Mr Minty resigned in September 1994 (roughly a month after the transfer of the 700 shares). He did so to avoid any conflict arising from the fact that he was the reporting partner in Critchleys for the purposes of CIHL's accounts.
59. Ian was unaware of the Trust until the transfer of the 700 shares came up for approval in August 1994. He had no objection to the transfer.
60. Following Malcolm's death, but not until nearly eighteen months had passed, Patricia was appointed a trustee to replace him. Her appointment was made towards the middle of August 1997.
61. It is reasonably clear, and I find, that, at any rate for so long as he was involved in the running of the business, Malcolm did not intend that the 700 shares should generate any income for the Trust. It is also clear that he did not see the settlement of the shares as altering in any way the private agreement between himself and Ian for the division between the two of them, in their personal capacities, of the distributable profits of the business in the way that I have described. Mr Thatcher's unchallenged evidence - set out in his witness statement - was that, as a trustee, he had no discussions with Malcolm, the settlor and his co-trustee, over any dividend policy for CIHL and no expectation that dividends would be paid. In his brief cross-examination he went a little further; he stated that when the Trust was set up Malcolm told him that the trustees would not be receiving any income from the shares. It was likewise Ian's understanding that Malcolm did not intend that the shares should receive any income.
62. It is not surprising therefore that during the short period between the constitution of the Trust in August 1994 and Malcolm's death 18 months later, no dividends were declared which would have provided the Trust with an income and no payment was made by Malcolm to the trustees of any part of the three-sevenths of distributable profits which he received from the business for the year 1994 (the accounts for which were signed by Malcolm on 13 October 1995) or which he received (or to which he was entitled) from the business in respect of 1995 and the first two months of 1996. It is also the case that, following his death, no steps were taken by Mr Thatcher, the surviving trustee, to call for any payment. Patricia Irvine who was, as I find, unaware of what arrangements Malcolm had made concerning the operation of the Trust and, in any event, had no understanding until somewhat later of her role as a trustee, had no reason to question any of this when she became a trustee in August 1997.
63. In short, so far as the Trust was concerned, matters carried on after Malcolm's death exactly as they had done before. Not unsurprisingly given these circumstances, there were no trust accounts. This state of affairs continued until Patricia's attention was drawn to the fact that the Trust had not received any income (because no dividends had been paid) and was informed that she and Mr Thatcher as trustees might be open to criticism for not having sought any income for the Trust. These matters were drawn to her attention by Mr MacDougald of Winckworth Sherwood at a meeting on 8 December 1999.

The actual figures

64. Starting in 1994, profits have been distributed between Ian, Malcolm, Patricia and (after 1999) the Trust in the amounts and proportions set out on the appendix to this judgment. Also included are turnover, tax paid (or credited as the case may be), the retained profit for the year and shareholders' funds as at each relevant year end.
65. The following points about those figures are to be noted. First, dividend payments were resumed in 2001 and succeeding years with respect to profits available for distribution for the years 2000 and following. I explain how this came about later. Second, in the "remuneration" columns, salaries and pension payments are included as also are benefits in kind. It appears that the two brothers set up and from time to time made payments to a self-administered pension scheme and that Ian continued to make such payments after Malcolm's death although there were no further pension contributions for Patricia's benefit out of the profits of the business for 2000 and onwards. Third, the turnover and other figures are taken from the consolidated accounts of CIHL and therefore incorporate CIL's trading results and, from 1 January 2003, CIIBL's trading results as well. Fourth, the figures for Malcolm (until his death on 1 March 1996), Patricia and the Trust are aggregated in determining the relative percentage split of profits (referred to, in the case of Malcolm, Patricia and the Trust, as the "Overall Percentage": see column 15) as between Ian, holding 50.04% of the shares, and the others, holding between them 49.96% of the shares. Fifth, divisible profits as shown in column 3 are CIHL's profits before tax and before any payments to Ian, Malcolm, Patricia and the Trust and, in the case of 2003, before deduction of £313,000 to meet an exceptional Revenue claim (as to which see paragraphs 74 and 250 below).
66. It will be seen from the above figures that the four-sevenths, three-sevenths split did not survive Malcolm's death. Despite Ian's belief expressed in several of his letters that the split continued in the three years following Malcolm's death (effectively until the end of 1998), it is plain that this did not happen.

Fixing the distribution of profits

67. Ian's case was that during Malcolm's life profits had not been distributed taking any account of shareholdings because, as a result of the private agreement, it had been agreed that distributable profits should be divided between them so as to reflect each brother's current and historic contribution to the business and, further, that this policy continued notwithstanding Malcolm's death. Indeed his case was that the private agreement survived Malcolm's death on the basis that there was nothing said between them to suggest that it would not.
68. In amplification of this he said, and I accept, that prior to his death Malcolm had resolved to cut down on the time he intended giving to the business. Ian's understanding was that Malcolm intended to take off the equivalent of one week a month. Ian, I should add, said that in contrast to Malcolm he had no immediate intention at that time to cut back although, like Malcolm, he was on the look out for a purchaser of the business so that he could retire from it altogether. He said, and I have no reason to doubt, that Malcolm accepted that his reduced involvement in the business would involve an adjustment of the four-sevenths, three-sevenths split but he and Malcolm did not get around to agreeing what that adjustment should be before Malcolm's unexpected death.
69. He said that because, after Malcolm's death, he took on his brother's workload (or at least the vast bulk of it - he mentioned a figure of 95%) he felt it only fair that he should be remunerated for so doing. He took the view that this was in accordance with the private agreement. In particular, he took the view that the fact that Malcolm had died did not alter in any way the practice hitherto followed of extracting from the business all or very nearly all of its profits and distributing them to those who generated them (ie himself mainly) and wholly without regard to size of shareholdings. He said that this was consistent with, indeed gave effect to, his late brother's wish that the Trust should not receive any income from its shares. He said that the only reason why any payments were made to Patricia was because he wished to ensure that Malcolm's efforts in building up the business should not be disregarded and that Patricia was looked after fairly.
70. I cannot accept that the private agreement did somehow survive Malcolm's death. The fact is that, whereas during his lifetime there was a definite arrangement in existence between the two brothers, who between them were the sole shareholders, as to how distributable profits should be shared, after Malcolm's death the decision how distributable profits were to be applied was left entirely to Ian's decision. Ian by then held only half of the shares plus a further single share. The views of the other shareholders were simply not invited. The only exception to this was that Ian would discuss, separately with each employee concerned, what bonus that employee should receive (over and above his/her salary entitlement) out of the past year's profits. Having established what these payments would be (in the aggregate a fairly modest sum) the determination of how to share out between himself and his fellow shareholders what was left was Ian's alone. In what follows, when making references to distributable profits (or more generally the "profits" of the business) I shall be referring to profits available for distribution to the shareholders, including the salaries which Ian and Patricia were paid.
71. Ian said, and I accept, that before deciding how profits should be dealt with he would discuss matters with Mr Minty and would take his advice on the amounts involved and how this could best be achieved from the point of view of minimising any charges to tax. But, as was clear, the decision whether to make any and if so what distributions was entirely his own. It was not something he discussed even with his other (executive) directors of CIL as the entity which made the payments. Directors' remuneration, he said, had never been discussed much less decided at directors' meetings but had always been left to Malcolm and him and, following Malcolm's death, to himself alone. There was certainly no involvement of Patricia in this process notwithstanding that from April 1996 until October 2002 she was a director of CIL and had throughout been and was to remain a director of CIHL, and held, both in her personal and in her representative capacity, just under 50% of the shares in that company. Beyond the fact that there was no dividend policy after Malcolm's death any more than there had been before, it is unreal to suppose that the agreement somehow continued. If it had I would have expected Ian to have raised it with Patricia. He never did.
72. Not only were the decisions about how much profit would be distributed taken by Ian alone, board minutes of CIL, purporting to approve the payments to be made, and meetings of shareholders both of CIL and of CIHL to approve accounts which reflected those payments and which purported to show that Patricia had been present, were with one or two exceptions no more than minutes which Critchleys had prepared for signature and which Ian signed. With those one or two exceptions no meetings in fact took place. Indeed no notices of these meetings were given to Patricia or subject to those very few exceptions to the other directors (in the case of CIL) who were shown as being present.
73. What then of the Trust after Malcolm's death? It seems reasonably clear that, before his death, Malcolm was content, despite the fact that he had settled half of his shareholding, to take the whole of the three-sevenths share of income just as he had done before the Trust had been established. This was doubtless because whatever maintenance or other financial support the beneficiaries under the Trust (his three sons) needed, for example payment of school fees (all three sons were being privately educated), came out of Malcolm's three-sevenths share of profits. Whether there were tax advantages in so doing or Malcolm had other reasons for proceeding in this way is not something on which I need come to any conclusion.
74. For so long as Patricia continued to receive a substantial share of the profits, as she did in 1996 and 1997 when payments were made to her which far exceeded what she would have received if there had been a division of profits based simply on size of shareholdings, and for so long as she continued to meet the maintenance needs of her three sons out of the sums which she received (as clearly happened) the trustees (in fact Mr Thatcher alone until August 1997) could perhaps not complain. But once the situation changed, as it did in the case of the distribution of profits earned in the year 1998 when Patricia received a much more modest (21.82%) share of distributable profits - admittedly a sizeable sum (£180,500 odd) but from which national insurance and PAYE had first to be deducted, the situation changed. By 2000 Patricia's overall share of distributable profits was only 14.74% (or £156,750) and the Trust (by way of dividend) received 3.46% of profits. For the year 2001 the share she received declined to just under 5% and the Trust's share (by way of dividend) to 2.25%. For 2002 and subsequently Patricia and the Trust together took no more than 5% of distributable profits, which they received exclusively by way of dividend, with Ian taking the other 95%. By then the disparity between what Ian was taking (then comfortably in excess of £1 million annually) and what Patricia and the Trust were together taking was very considerable. The only reason why in 2003 his share of profits dipped to £747,000 odd (although in percentage terms it remained at 95% of distributable profits) was because of a claim by the Revenue for unpaid national insurance contributions. This was the consequence of an unsuccessful national insurance anti-avoidance scheme which, years earlier, Malcolm and Ian had been advised to enter into. The claim was ultimately settled by CIL making a payment to the Revenue of £313,000 in the course of 2003, thereby reducing the amount of distributable profits by that amount.

The relevant facts: a narrative summary

(1) the early months

75. Following Malcolm's death, Ian was quick to offer Patricia what assistance he could and to assure her that her sons' school fees would continue to be paid. Following discussions with Mr Minty, Ian wrote to Patricia on 23 April to explain that she would receive an enhanced salary from CIL (raised from £25,000 to £35,000 per annum with effect from 1 April 1996) that she would be provided with a company car and be paid all expenses connected with it as well as private health insurance and any expenses she incurred while carrying out duties on behalf of CIL. At that stage it was envisaged that Patricia, who knew something of the business from what Malcolm had discussed with her, could play a part in the running of CIL. As events soon showed, however, this did not prove practicable and by August of that year there was no longer any talk of Patricia having such a role. She continued nevertheless to receive a salary, just as she had before Malcolm's death, although at the increased rate of £35,000 per annum. It was later to be increased by 10% to £38,500.
76. That same day, 23 April 1996, Patricia was made a director of CIL. It was just under eight weeks since Malcolm's death. In a letter to her the following day Ian explained that her appointment was in recognition of her "substantial shareholding in the company". In fact, of course, her shareholding was in CIHL but, from a practical point of view, no distinction appears to have been made between CIHL and what by then was and until January 2003 remained its only (and wholly owned) trading subsidiary, CIL. In the board minutes of CIL recording Patricia's appointment it was stated that she had "an interest in the future development of Company and as a major shareholder should therefore be entitled to both know, and have a say in, future developments". Unusually, this was a minute which had been drafted internally by CIL. It is likely therefore to have reflected Ian's intention rather than being what Ian described as a "statutory" minute of the kind that Critchleys habitually prepared and he unquestioningly signed.
77. As will appear, the aspiration expressed in the board minutes did not extend to decisions, which throughout Ian has regarded as his own preserve, on how the distributable profits of the business should be applied.

(2) the 1995 accounts

78. Patricia, although a director, was not involved in the approval of CIL's accounts for 1995. They were approved at a "meeting" of CIL's directors on 6 June 1996, ostensibly at 5 pm, to which, although shown as present, neither Patricia nor the other directors (Michael Berry and Linda Lapham) were either invited or their views on the accounts sought. At an earlier (9 am) "meeting" that same day the same four persons had purportedly approved the payment to Ian of a bonus of £222,721 and to Malcolm's estate of a bonus of £125,587. Neither of the meetings actually took place. Ian's overall percentage share of the profits amounted to just under 58% and Malcolm's (including Patricia's "salary" of £25,000) to just over 42%. That equates to a four-sevenths, three-sevenths split of profits and was in accordance with the "private agreement" still operative in 1995 to which the profits related. The annual general meeting of CIL's shareholders took place on 7 October 1996. The minutes state, incorrectly, that Patricia was present. She was not given notice of the meeting. Nor was she consulted on, much less invited to any meeting of directors or of shareholders of CIHL to approve, its accounts which were signed by Ian "by order of the board" on 5 October 1996. The meeting of directors - Ian and Patricia - purportedly took place on 5 October 1996 and the annual general meeting of shareholders on 13 December 1996. In reality no such meetings occurred and Patricia was never even shown the annual accounts. Since Ian was corresponding with Patricia at this time on other matters concerned with the business, notably her use of a company car and on what benefits she should continue to enjoy at the expense of the business, it would have been easy for Ian to have referred the accounts to her.
79. Ian's explanation for not doing so was twofold. The first was that, following her appointment to the board of CIL in April 1996, Patricia asked what would be required of her as a director. He said that he replied that she would be entitled to attend board meetings but went on to explain that board meetings were always at the Kensington office so that her attendance would necessitate her travelling into London from Reigate and that meetings involved discussions about internal matters affecting the business which he doubted that she would find to be of any interest, particularly when she had other matters to cope with in the aftermath of Malcolm's death. The upshot, he said, was an agreement that it would be a waste of time for her to attend and that he would explain this to the other directors. It was left, he said, that he would let her know if they were any major decisions affecting the structure or future of CIL. Directors' remuneration was not within that category of decision. His other explanation was that he and Malcolm had never in the past discussed their own (or indeed any other director's remuneration) at a meeting of directors and that it did not occur to him to change this practice after Malcolm's death.
80. Although I accept Ian's evidence of his conversation with Patricia following her appointment to the board of CIL and his evidence (borne out by other evidence) that it had not been their practice prior to Malcolm's death to convene board and annual general meetings to fix and vote upon directors' bonuses (or even discuss them), or to discuss or approve accounts - and that the minutes of such "meetings" were prepared by Critchleys and signed (usually by Malcolm) even though they had not taken place - I do not consider that these facts provide a justification for Ian's failure long after Malcolm's death to continue to adhere to these practices.

(3) the 1996 accounts

81. CIL's accounts for 1996, in which the distribution of profits for that year was reflected, came up for consideration and approval in June 1997. As with the 1995 accounts, all decisions affecting them and in particular the amounts to be taken by Ian and Patricia were reached by Ian without consultation of any kind with his co-directors. Instead, as was his practice, Ian consulted Mr Minty and no one else. The division, taking into account pension payments and other benefits, resulted in Ian receiving just over 66% of distributable profits and Patricia and Malcolm's estate (as to Malcolm's annual salary of £50,000 apportioned for the two months up to the date of his death) between them receiving just under 34%. The Trust, for the reasons I have mentioned, received nothing.
82. As appears from a letter dated 3 June 1997 from Mr Minty to Ian, the four-sevenths, three-sevenths split was applied "as agreed" by excluding Patricia's "salary" of £32,500 and then allocating the three-sevenths to which Malcolm would have been entitled under the private agreement by dividing it equally between Ian and Patricia. This split of profits doubtless reflected Ian's view that since he had now assumed much of the work which Malcolm had previously undertaken it was only fair that he should receive the lion's share of the three-sevenths of divisible profits which Malcolm would have taken if he were still alive. The significant point, however, is that the decision how to distribute profits and what share of them Patricia (or the Trust) should receive was Ian's alone; Patricia and the Trust were neither consulted nor even told what the split would be.
83. Indeed, although the decision was reached by Ian in June 1997 on how to distribute the profits for the previous year, Patricia was only informed of what she was to receive when Ian wrote to her on 10 October 1997. He did not send her the 1996 accounts. He did not inform her how much he was taking. Ian's letter merely invited her to raise with Mr Minty any queries she might have. Mr Minty later sent her a breakdown of the sum allocated to her for 1996. Patricia said, and I accept, that she made no further enquiries as to how the figures given by Mr Minty were arrived at or whether the payment should be made by way of director's bonus or dividend. Nor, she said, did she request any end-of-year figures but was simply relieved and grateful to have funds. She said that she had no appreciation of the disproportionate return which she and the Trust were receiving as compared with Ian, did not appreciate how the amount Ian was to receive had been arrived at and had no knowledge then of what Ian was taking out of the business. She said that she never challenged Ian about these matters but just assumed that as he was the majority shareholder he was entitled to do much as he wished.
84. Board meetings of CIL, purportedly held on 25 June and 10 September 1997, determined the amount of Ian's bonus for 1996, namely, £226,279 together with a further £247,928 to be paid by means of the purchase by CIL of a freehold property which was then to be transferred to Ian, and, for Patricia, a bonus of £215,559. At an annual general meeting of CIL's shareholders purportedly held on 6 October 1997, the directors' report and accounts for 1996 were received and approved. Patricia was shown as present at each of these meetings. In reality none occurred. Patricia was not given notice of any of them.
85. Ian signed CIHL's accounts "on behalf of the board" on 16 October 1997. It purportedly followed a board "meeting" that day at which he and Patricia were "present" to approve the directors' report and the audited accounts for 1996 in readiness for submission to the next annual general meeting. As with the previous year, Patricia was not informed of the board meeting which did not in any event take place. Neither was she given notice of, nor did she take part in, the ensuing annual general meeting of CIHL purportedly held on 12 December at which the directors' report and audited accounts for 1996 were received and approved and the decision "confirmed" not to pay a dividend for that year. As in the past, Critchleys merely prepared a minute which Ian signed. It was purely a paper exercise in which Patricia was given no chance to participate.
86. What is more, Ian seems to have had a somewhat casual attitude to the monies Patricia was to be paid. In a letter dated 18 September 1997 to Mr Minty he said that while Patricia "is aware that money is due to her [for 1996], she is not expecting a sum of the size [namely £215,559 after allowing for payments already made] and as such there is no great urgency for this matter to be resolved". The monies were paid to her over a month later.

(4) the 1997 accounts

87. Already in his letter to Ian of 3 June 1997, Mr Minty made clear his view that the determination of how much Patricia should receive was not straightforward. In his letter he said this:

"I have also prepared a schedule with a suggestion on how future profits should be appropriated. There are three components to this. Firstly you would receive a realistic salary for managing the company plus a bonus geared to a proportion of the profits after your salary. The balance would then be appropriated as a return on investment based upon your respective shareholdings. It would then be for the individual directors to decide the components of their remuneration package whether it be pension contribution, benefits or a straightforward salary etc. I do agree with you that a formula should be put in place for future years so that you do not have the embarrassment each year of deciding how the profits should be appropriated."

Mr Minty's schedule, which assumed that the business profits for 1997 would be £1 million (in the event an understatement), suggested that Ian should have a salary of £110,000, an executive bonus of one-third of the profits after salary, and with the balance divided equally between Ian and Patricia (with Patricia's share being aggregated for this purpose with the shareholding of the Trust). Mr Minty's letter was never copied to Patricia nor were its contents raised with her. It never occurred to Ian to do so. His view was that if Patricia had any queries she could have raised them with him but she never did. Ian's only comment when cross-examined about Mr Minty's suggested method for dealing with future profits was that he regarded it as no more that a proposal which in any event he rejected.

88. In evidence was a file note prepared by Mr Minty and dated 16 December 1997 of a meeting he had had with Ian some days earlier. I have no reason to think that the note was not an accurate and full account of what had been discussed. According to the note, the main purpose of the meeting had been to discuss whether there were any matters which needed to be actioned in advance of the business year end on 31 December 1997. One of the items noted was in the following terms:

"…Ian has spoken to her [Patricia] about a proposed split of profits for the 1997 year and she seems to accept that Ian will take the lion's share to recognise his involvement in the business and that Patricia's share will probably be less than it was last year in percentage terms. The higher figure in the 1996 year was to reflect that Malcolm was a director for two months of the year."

89. Patricia's evidence was that she had no recall of any discussions with Ian about splitting the 1997 profits but thought that if Ian had said anything about how profits were to be split she would simply have treated what he said as a fait accompli over which she had no control or influence. Ian said that he had no recollection of what he had discussed with Patricia or when but stated that he would have had no reason to tell Mr Minty what Mr Minty records him as having said if he had not had the conversation with Patricia to which the note refers.
90. Since Ian was not in the habit of discussing with his fellow directors what remuneration he was to take and had not told Patricia in 1996 what he had taken for 1995, I doubt very much that he would have discussed with her how he was proposing to split profits for 1997 if by that was meant that he gave to her any particular figures, including an estimate (it could only be an estimate at that stage) of what he was proposing to take.
91. On 27 April 1998 Ian met Mr Minty to discuss the draft accounts for 1997. Mr Minty's file note dated 30 April 1998 of that meeting recorded at paragraph 2 that:

"Ian seemed quite happy with the result for the year and we discussed how the profits were to be distributed between himself and Patricia. What he initially has in mind is that he would like for himself basically the same amount as he received last year with the rest being split 50/50 with Patricia. I was asked to take the year end profits and work out allocation based on this but bearing in mind that Patricia has already had some bonus by virtue of the £10,000 net received earlier in the year and also we can write back the National Insurance on Ian's proposed remuneration for last year which in the event was not payable because he took his bonus in benefits. Ian is of the view that because he organised his affairs to his best advantage that the saving in National Insurance is to his benefit rather than being split with Patricia."

None of this was raised by Ian with Patricia, either then or subsequently.

92. On 28 May 1998 Mr Minty wrote to Ian to suggest that, after adding back salaries already taken, £912,975 in profits was available for distribution in respect of 1997. He advised that Patricia's share would have to bear employer's national insurance payable in respect of it but that Ian's could be taken "in a form not subject to national insurance". On 3 June 1998 Ian replied to say that:

"…I agree with the draft accounts you have sent me and whilst I agree with your proposals for the profit share, I should like to discuss with you personally the position of Patricia for the future. There is one other important point which I may have omitted to mention. I should like to pay a bonus to the Directors of the company for the same figure as in 1996, which I imagine may affect your overall figures. Perhaps we could also discuss this when I telephone you in a few days time."

In accordance with his stance in relation to accounts and directors' remuneration, none of this was discussed by Ian with Patricia.

93. On 18 June 1998 Ian replied to Mr Minty's letter of 28 May. He said that he accepted Mr Minty's proposals for the distribution of earnings for 1997 "even though this will give Patricia an increase of just over 10% from 1996" adding that he was "perfectly happy, in the circumstances, for the income to be distributed in this way". It evidently did not occur to him to consider whether, as his fellow director and as 49.96% shareholder (personally and as trustee) in CIHL, Patricia was happy with the 20% or so increase over the 1996 figure in Ian's bonus. His letter to Mr Minty continued:

"With 1998 and future years in mind I would however like to get Patricia's position on a more formal footing for two reasons. The first is, as you know, although a director and major shareholder of the Company, it was her decision not to become involved in the business. As such I do not think she can expect to receive such a large income each year when she is doing nothing to contribute towards it. She is of course also in receipt of the other benefits and allowances as a director of the Company and as these are quite considerable they must not be ignored. The second reason relates to the likely performance of the Company in the future and in particular the income derived from our various travel insurance schemes. The travel insurance market is increasingly competitive and to maintain existing accounts I sometimes have to agree to work for a smaller margin…"

Later in his letter he summarised the position by saying that:

"…. Whilst I am pleased Patricia's income for 1997 will exceed that of 1996, she must also accept that if 1998 proves to be a less profitable year then it will affect her income, because everyone else is working just as hard as they have ever done. When we spoke I suggested that I would try to put together [a] formula for future earnings, but I would actually prefer to wait until I can see the way the present year is developing."

He referred also to having written to Patricia to tell her the income she would receive from 1997 adding "although I do not anticipate she will want payment of what is due to her at the present time".

94. Consistently with previous years, a board minute was produced by Critchleys and signed by Ian purporting to show that a board meeting of CIL had been held on 17 June 1998 which Patricia had attended and at which the directors' report and audited accounts were approved and bonuses of £567,975 to Ian and £230,433 to Patricia were voted. This was followed by minutes of an annual general meeting of CIL purportedly held on 5 October 1998 (at which Patricia was again said to be present) approving the directors' report and accounts for 1997 and, on 7 October 1998, by minutes of a meeting of directors of CIHL (said to have been attended by Ian and Patricia) approving CIHL's accounts for submission to the next annual general meeting. There were also minutes of an annual general meeting of CIHL purportedly held on 11 December 1998 (shown as having been attended by Ian and Patricia) receiving and approving CIHL's accounts and confirming that no dividend was payable that year. None of these meetings took place. Patricia was not shown the accounts for 1997. Her views on what bonus should be paid were not canvassed. Nor was she consulted on whether CIHL should pay a dividend.
95. Ian did indeed write to Patricia. He did so by a letter also dated 18 June 1998. He referred to what she had received in 1996 and what Mr Minty was proposing for her in 1997. He referred also to the fact that payments already made to her fell to be deducted and that the resulting balance, £235,433, would be paid to her by September 1998 but would be subject to deduction of tax and national insurance contributions. He then said that, regrettably, he did not believe the position for 1998 would be "as healthy because the travel insurance industry is at present subject to fierce competition" and added that, based on returns for the first three months of 1998, he expected the income for 1998 to drop considerably below what it had been for 1997.
96. Although he was writing to a fellow director and a major shareholder in the business, it evidently did not occur to Ian to enclose the 1997 accounts which he had signed the previous day or to take up with Patricia the point discussed in correspondence between himself and Mr Minty concerning the need to put together a formula for future consideration or even to say (as he had said to Mr Minty) that before proceeding further with suggestions for such a formula, he would prefer to wait until he could see the way that 1998 was developing. In short, Patricia was kept wholly in the dark about all of these matters.
97. One matter concerning the future of the business which Ian did raise with Patricia - he did so in a letter to her dated 25 November 1998 - was his wish to divide the business into two so that from 1 January 1999 the travel side and the general (or non-travel) side would be run as separate entities. The context for this, as his letter pointed out, was his prediction of a 15% drop in travel insurance income for 1998 and what he referred to as "the volatility" of the travel accounts side of the business and the intense competition for travel insurance and strong competition that Campbell Irvine's travel company clients were facing from others in the field, including household names such as Boots and Tesco. As he went on to explain, his wish to divide the two parts of the business was relevant to his wish to transfer the underwriting and claims handling of the travel business to a new group at Lloyd's called Euclidian plc. A longer term reason for this was the possibility, although this was not something that Ian mentioned in his letter to Patricia, of a sale of the travel side to, or its merger with, Euclidian, a matter which he had raised with Mr Minty "to keep you [ie Mr Minty] abreast of developments". Ian's wish to separate the travel from the non-travel side of the business was to become a very live issue in 2001 and later.
98. It is of interest to compare the trouble taken by Ian to explain to Patricia these various matters, affecting the future structure and operation of the business, while remaining silent about the overall profits of the business and what part of those profits he was taking.

(5) the 1998 accounts

99. The size and amount of profits earned by the business in 1998 came up for discussion between Ian and Mr Minty at a meeting on 22 April 1999. Mr Minty prepared a lengthy file note of that meeting. He did so the following day, 23 April. Once again, there is no reason to doubt the accuracy and completeness of that note, at any rate so far as it relates to the distribution of profits.
100. After raising what bonuses for the year should be paid to staff (a total of just over £20,000) and after noting that those bonuses should be provided in the 1998 accounts together with employers' national insurance, Mr Minty's note went on to discuss what he described as the "difficult" position concerning directors bonuses. He then referred to a property which Ian had taken as a benefit which had more than absorbed the bonus available to him in 1997 and which, as to the excess, would count against his bonus for 1998. The note then continued:

"We then discussed the allocation of the bonus between himself and Patricia and clearly Ian does not have quite the same strength of feeling that he has to be seen to be doing right by Patricia as he used to have. I think this is partly as a result of the reduced profits for the year, which means that the bonus will inevitably be lower than it has been for the last two or three years. I think he has it in mind that he will cushion the effect on himself, to some extent at least, by reducing the bonus to be paid to Patricia.

I again suggested to Ian that we should put in place a formula so that if, as he fears may be the case, the travel business continues to decline for a year or two and as a consequence profits that there is a mechanism in place which recognises Ian's executive role within the company and therefore he is protected to some extent by a greater proportion of any reduction in profits falling upon Patricia. I think it is important that we do distinguish between return for effort and return on investment. I undertook to put forward some suggestions to Ian when sending the accounts to him to look through, and at the same time advise the packet of remuneration etc which Patricia has received over the period since Malcolm's death."

101. Ian's comment on this part of Mr Minty's note was that he felt he had been paying Patricia very generous bonuses but did not consider that this should continue indefinitely, especially as she did nothing for the company. As he put it "I thought that [the] situation had to start tapering off".
102. As with earlier discussions between Ian and Mr Minty, none of this was raised with Patricia. It was clear from his evidence that Ian regarded the amount which Patricia should receive as something which, like his own remuneration, he had to decide, albeit with the benefit of Mr Minty's advice.
103. Just over three weeks later, on 11 May 1999, Mr Minty wrote to Ian enclosing a draft of the 1998 accounts and raising with him the allocation of the profits for that year as between him and Patricia. After stating that he had been giving thought to how, as he described it, "additional directors' remuneration" should be allocated and after setting out by reference to the actual figures how profits had been distributed in 1996 and 1997 he said this:

"For the current year I suggest the following allocation:

1. A "salary" of £100,000 plus pension contributions of £100,000 for you with a non-executive director's fee of £25,000 paid to Patricia. This would increase by 10% per annum.

2. An executive director's bonus to you. This would be 50% of the distributable profit for the year less the salary, pension contributions and fees paid as above.

3. A director's bonus would be paid in relation to shareholdings (for this purpose the shares held by the accumulation and maintenance trust would be treated as part of Patricia's shareholding). This would be calculated from the distributable profits less the amounts paid in 1 and 2 above."

He then set out how this would result in the allocation of distributable profits for 1998 of £876,634 and how this would work out for 1999 (the then current year) assuming there should be £500,000 of profits available for distribution that year. The calculations yielded for 1998 a 78% share for Ian and a 22% share for Patricia and for 1999 an 82% share for Ian and an 18% share for Patricia. He concluded his letter by stating:

"I think it is important to have a formula in place to determine the allocation of profits in future years without any need for discussion or embarrassment particularly as you expect profits may reduce over the next couple of years."

104. Ian accepted that he did not notify Patricia of his discussion with Mr Minty. In his view the matter had nothing to do with her rights as a director of CIL. He considered, in line with his earlier evidence, that having taken on 95% of the work Malcolm had previously carried out, he could justifiably have taken 95% of the share of profits Malcolm had previously taken in addition to his own previous four-seventh's share. In fact, he said, he waived part of the extra which he could have taken in order to ensure that Patricia and her family were looked after financially. In his mind, it was a matter purely for him to decide, Patricia having no claim other than an appeal to his concern for the well-being of Malcolm's widow and sons. In any event it was, in his view, difficult to justify the payment of any salary to Patricia. In summary, he regarded Mr Minty's suggested method of allocation as no more than a proposal to be considered in the future but not at that stage.
105. An issue between the parties is whether at an early morning meeting between Ian and Patricia at Campbell Irvine's Earls Court Road office on 29 June, Ian discussed with Patricia Mr Minty's proposal (summarised above), supplied her with a copy of Mr Minty's letter of 11 May (setting out that proposal) and secured her agreement to it. In a letter to Mr Minty dated 29 June Ian stated that a meeting with Patricia to discuss his proposals had just taken place and that "not only is Patricia perfectly happy with what you propose [s]he thinks that it is very fair and something that should be put into effect straightaway". His letter then goes on to say that Mr Minty's proposals for 1998 were agreed but that for 1999 he wanted to increase Patricia's salary by 10% to £38,500 and that he wanted to make one final pension contribution for her in an amount roughly equal to the sums paid for her during 1997 (£61,500) and 1998 (£57,000).
106. Patricia recalled that she had a meeting with Ian on 29 June. It was referred to in her diary and fixed for 7 am that day. Beyond feeling that the meeting lasted no more than 20 or so minutes Patricia seemed to recall (her recollection in cross-examination was rather more detailed than what had appeared in her witness statement) that Ian explained that he had had a meeting with Mr Minty. She recalled that he referred to various figures and was "waiving around some documents", proffered them towards her but did so in a manner which, she believed, made her think (and suggest) that Ian would not want them lying around in the office and that he should lock them in his office cabinet. She was adamant that she was not supplied with a copy of Mr Minty's letter to Ian of 11 May and that she was not told what Ian was receiving from the business. This, she believed, was because of the very considerable disparity (as she subsequently discovered it to be) between what Ian was receiving and what she was. She believed that the proposed drop in the future return for her and the Trust outlined in Mr Minty's letter were matters which, if she had been told of them, she would certainly have recalled. She believed, but could not be certain, that Ian did no more than talk in very general terms at their meeting and may well have raised, again in general terms, the issue of future profit division.
107. In cross-examination Ian accepted that he did not send to Patricia a copy of Mr Minty's letter. He accepted, although he could not recall the occasion, that he had an early morning meeting with Patricia and that the meeting must have been around 29 June but said, not unreasonably, that he would not have stated what he had in his letter of 29 June to Mr Minty (the very day of the meeting), namely that he had met Patricia and that she was happy with what Mr Minty was proposing, if that was not true.
108. I find that Ian raised with Patricia at that meeting what she could expect to receive in respect of 1998 (namely a further £96,000 odd). I also find that he raised with her what was proposed for her in respect of 1999, namely (as his letter to Mr Minty of 29 June stated) a 10% increase in her salary and a further pension contribution of around the same amount as had been paid for her in 1997 and 1998 and, as Mr Minty recommended, a bonus in relation to her shareholding (treating for this purpose the Trust's shares as if they were part of her own holding). I find that he did not mention actual bonus figures not least because 1999 was only part way through, and also that he did not discuss either what he had received in past years or what percentage of distributable profits he was expecting to receive in 1998 or in 1999. I therefore accept the general thrust of Patricia's evidence of this meeting, although I have doubts about aspects of her detailed recollection of it, namely that at that meeting she was not appraised, even in approximate terms, of how much Ian had received or was likely to receive out of the distributable profits of the business or that what she would be receiving represented a decreasing percentage of those profits.
109. I am reinforced in this view by Ian's letter to Patricia of 26 July 1999. In the first sentence of that letter he referred to Patricia's visit to his office "to discuss your earnings from the Company" (emphasis added). Unusually for Ian, he was writing a letter almost four weeks after the meeting to which it refers; normally he would write a letter, confirming what had happened at a meeting, within a day or two of the meeting in question. His letter made no mention of his own earnings from the business. Although it referred to Mr Minty's letter of 11 May 1999 and to the fact that it set out Mr Minty's proposals for 1999 and beyond, it did not set out the proposals but assumed that he had given a copy of that letter to Patricia at their meeting. The letter referred to the proposed 10% increase to £38,500 in Patricia's salary for 1999 (as against Mr Minty's suggestion that it be no more than £25,000), to a final pension contribution of £55,000 (as against Mr Minty's suggestion that there should be no further contribution) and to Patricia receiving "a very considerable Director's bonus" when the figures for 1999 were finally calculated. In short, there was nothing in Ian's letter setting out what percentage of Campbell Irvine's distributable profits Patricia had received in the past or could expect to receive in the future, much less what percentage of them Ian had received or could expect to receive.
110. I am further reinforced in this view by the fact that, having seen the reference in Ian's letter of 26 July to Mr Minty's letter of 11 May, she subsequently rang Mr Minty who, under cover of a letter to her dated 12 August 1999, sent her a copy of the letter of 11 May. It was only, she said, when she read that letter that she "realised for the first time the disparity between what I and the Trust were receiving out of the company and what Ian was receiving". Because of its significance she does not believe that she would have mislaid Mr Minty's letter of 11 May if Ian had indeed handed a copy of it to her at the time of their early morning meeting on 29 June.
111. Ian's letter of 26 July also referred to his concern to ensure that Patricia was financially well looked after. He pointed out that between 1996 and 1998 Patricia had received approximately £825,000 which, the letter continued, equated to approximately 25% of the value of the business. He stated that he had done his best "and am now happy in my own mind that you have been looked after fairly".
112. Patricia said that she received the letter when she was on holiday with her three sons at the family home in Devon. She said that she and her sons read the letter together and that it filled them with "absolute fear for the future". She focused in particular on Ian's estimate that she had received payments equivalent to approximately 25% of the value of the business and to Ian's belief that she had been looked after fairly. She said that she understood Ian to be indicating that he had discharged his duty towards her and that "anything else we received from that point on would be a lucky bonus". She believed, she said, that her income from the company would henceforward inevitably diminish and, not knowing that a shareholder might have rights, felt that Ian could do "pretty much what he liked as he had control of the company".
113. I do not accept that evidence. On 16 July she wrote a lengthy letter to Amanda Irvine. Towards the end of that letter she wrote as follows:

"It is time for Ian to be the No. 1 priority. At least one of these Irvine brothers MUST be allowed to enjoy a long and totally satisfying retirement. The support Ian has shown and continues to show and the astounding loyalty towards Malcolm's family is wonderful and greatly appreciated by us all. However, Ian is the important one now. Thanks to him I am stronger and hopefully back on course. I shall do all I can to remain that way. He has my support in whatever course he chooses to follow regarding the future of CI and his own personal fulfilment. Please convey this to him again."

Patricia attempted to explain away that clear expression of gratitude for what Ian had done for her by saying that she regarded Amanda as her husband's "eyes and ears", that despite what she wrote she harboured an "underlying fear", that when writing the letter she was very aware that Amanda was "the wife of the man who held our future in his hands" and therefore that her letter was "placatory". I doubt very much whether, despite what she said, Patricia entertained any of those doubts at the time or that her letter was other than an entirely genuine and straightforward letter of appreciation.

114. It also explains why, as I accept happened, Patricia rang up Ian's office on 30 July and, Ian being out, asked to speak to his secretary, Ann Stevenson. In evidence was a note under Mrs Stevenson's name, setting out what Patricia was reported as having said. That note was in the following terms:

"Patricia phoned and when Audrey said you were unavailable she asked to speak to me. She really just wanted to confirm that she has now received your letter [of 26 July], has read it very carefully and is happy with the contents. Patricia took the opportunity to tell me how incredibly grateful she and the boys are to you for all you have done for them. She told me Malcolm had assured her that if anything ever happened to him you would look after them - Patricia said he has been proved absolutely right. Patricia particularly mentioned how highly the boys now hold you in their regard."

115. Patricia said that she had no recollection of speaking to Mrs Stevenson at or around that time and that she found the contents of Mrs Stevenson's note "extraordinary". She could not believe, she said, that she would have expressed the sentiments attributed to her in that note because, as she put it, "when I read the letter [of 26 July] with the boys I was devastated".
116. In cross-examination she said that, at the time (July 1999), she regarded Ann Stevenson as Ian's "second pair of eyes". Although she could not recall the conversation, she felt that she would not have told Mrs Stevenson about her fears, that she would not have been entirely truthful to her and that she would have said what Ian and Mrs Stevenson wanted to hear.
117. I do not accept that evidence. There is no reason why, having already written to Amanda Irvine on 16 July, she should have felt it necessary to volunteer, in her conversation with Mrs Stevenson, the remarks attributed to her unless she genuinely felt them. I therefore accept that telephone attendance note as a genuine account of what Patricia said and, in particular, as signifying Patricia's genuine happiness with its contents. I would only add that neither side sought to call Mrs Stevenson either to reinforce or to contradict the contents of her note. I therefore also reject Patricia's evidence that when on or by (but not later than) 30 July 1999 she first read Ian's letter of 26 July she was filled with dismay and foreboding for the future. On the contrary, if as I accept she did not know, because she had not seen it, the contents of Mr Minty's letter of 11 May (and was not of course privy to Ian's other communications with Mr Minty) she would have had no reason to see anything sinister in his letter and every reason to take it as an expression of Ian's past and continuing concern to see that she was financially well looked after.
118. I am of the view that it was only when, as was pointed out in her cross-examination, her eldest son Alastair, who arrived in Devon after she had done, noticed the reference in Ian's letter to Mr Minty's letter of 11 May, asked to see it and, ascertaining from his mother that she did not have it, suggested that she contact Mr Minty to send her a copy of it, that Patricia began to become anxious about what Ian had written. She said, and I accept, that she rang Mr Minty and asked for a copy of his letter. Mr Minty did so under cover of a letter dated 12 August 1999. The likelihood is that her call to Mr Minty was at about this time. This suggests to me that the realisation that Ian was intending to reduce the amount she expected to receive from the business only really dawned on her and her sons (Charles had scant recollection of the matter and Duncan's was scarcely better) when she received Mr Minty's letter of 12 August enclosing his letter of 11 May. Even then, unaware of her rights either as a shareholder of CIHL or as a director of either CIHL or CIL, Patricia would not have been in a position to challenge the amounts which Ian was taking from the business or to assert a claim to better treatment in the division of profits.
119. The significance of these conclusions is twofold. First, they do not show that by June 1999 if not earlier Patricia understood and accepted the way that Mr Minty was proposing that profits of the business should be distributed for 1999 and onwards or that she knew and understood the way in which profits had been distributed in the past. Second, they are illustrations of Ian's habit, after Malcolm's death, of treating the distribution of the profits of the business not only as a matter to be decided (after consultation with Mr Minty) exclusively by himself and therefore without involvement of his co-directors in CIL, but also as a matter the details of which were confidential to himself and not something which he divulged to others.
120. Having obtained a copy of Mr Minty's letter of 11 May the fact is that Patricia did not question any of its contents either with Mr Minty or with Ian or, for that matter, with Mr Thatcher. She said that she felt "powerless" and that it would have done her no good to have raised the matter with any of those three. I suspect, but I do not need to reach any conclusion on the matter, that she had no reason to know whether what Mr Minty was proposing in that letter was something which she could legitimately question, particularly when taken with Ian's letter to her of 26 July 1999 in which he had indicated an intention to give her a greater share of profit (by increasing her salary and making a further £55,000 pension payment) than Mr Minty had suggested. I can understand, however, that armed with Mr Minty's letter she may indeed have entertained some concern for the future.
121. As in previous years, Ian approved and signed the accounts of CIL and CIHL without bothering to call any meetings and without consulting or obtaining the approval of anyone other than Mr Minty. In due course, he signed CIL's accounts (they are dated 4 August 1999) and CIHL's accounts (they are dated 14 October 1999). CIL's board minutes, although there was no meeting in fact, "voted" a bonus of £456,975 to Ian and a bonus of £85,480 to Patricia. Annual general meetings of both companies (at which the respective directors' report and accounts for 1998 were "received and approved") were purportedly held, on 6 October 1999 in the case of CIL and 10 December 1999 in the case of CIHL. Patricia was not given notice, and therefore took no part in, those meetings. Ian said, and I accept, that he did not realise that he should have convened proper meetings.
122. On 27 September 1999 Ian wrote to Patricia to inform her that the figures for 1998 had been finalised and that, taking into account what she had already received for that year and other deductions, just under £49,000 was due to her. In due course that payment was made.

(6) Towergate

123. It is appropriate at this point to introduce a new theme into the narrative. This concerns Ian's wish to effect a sale of the Campbell Irvine business. To set the scene it is necessary to jog back in time.
124. It appears that Ian had been thinking about retirement even before Malcolm's death in March 1996. Already in 1992 he and Malcolm had decided that neither wanted to work much beyond his mid-50s. As early as May 1990, Malcolm had discussed with Mr Minty and Mr Payne of Critchleys the prospect of running the business for another five years and then retiring. It was in the course of their discussions on that occasion that, in the interests of prudent long-term estate planning, the idea of placing half of Malcolm's shareholding in an accumulation and maintenance settlement for his three sons was first recommended to him. (Critchleys also advised (as they set out in a letter dated 7 June 1990, a few days after the meeting) that "all available cash generated by the company should be drawn by way of remuneration or dividends over the next five years with a view to building up personal assets and investments that can be used to finance living expenses if and when the company [is] sold and to reduce reliance on a capital sum arising from the sale of shares".) As the success of the business had given them a certain amount of financial independence, they were able to entertain the prospect of early retirement or, failing that, a partial withdrawal from full-time engagement in the business in order to have more time for family and outside interests. Accordingly, they had been on the lookout for an opportunity to sell the business. Equally, however, in the interests of both Campbell Irvine's loyal staff and its clients, they were anxious to find a purchaser who could continue to run the business in the same successful way that they had done.
125. Malcolm's death and the need for Ian, having decided not to take on a replacement, to put in many extra hours of work to compensate for his loss pushed the search for a purchaser somewhat into the background. But as time passed, Ian's desire (he was now in his late 50s) to find an exit from the business became more pressing.
126. No suitable exit opportunity presented itself although several possibilities were considered until Ian was approached by Towergate Underwriting Group Ltd ("Towergate"). Towergate was a newly established business which was intent upon acquiring profitable specialised insurance broking companies with a view to forming a large insurance group. By the autumn of 1999 it had already acquired five companies, one of which, Chase Parkinson Ltd, was a competitor of CIL specialising in travel insurance accounts. Towergate's interest was in CIL's travel insurance rather than its general insurance business.
127. Contact between Ian and Towergate to explore the possibility of a sale first occurred in October 1998. Nothing came of the matter at that time. No price for CIL's business was mentioned. It was left that contact might be resumed the following year.
128. Some months later, in June 1999, the possibility of a deal was raised again. Towergate was still very interested in exploring a purchase of some or all of CIL's business. It led to a meeting between Ian and senior representatives of Towergate in early September 1999 and to a resumption of negotiations. The discussion at that stage was of Towergate acquiring CIL's travel accounts which were much the more profitable side of CIL's business. Relevant to this was that Ian had had in mind, and had discussed with Critchleys, splitting the travel accounts from the general insurance business and transferring the travel accounts to a separate limited company with the same shareholdings as CIHL. A division of this kind, he reasoned, would enable the cost and therefore the profitability of the travel side to be established. The idea was that Towergate would purchase the travel accounts by acquiring some or all of the shares in the new company.

(7) Towergate's November 1999 offer

129. In due course, on 29 November 1999, Towergate submitted an offer letter, marked subject to contract, to acquire the travel insurance side of the business by acquiring the shares of the new company to which the travel insurance portfolio would be transferred. The offer envisaged an initial acquisition by Towergate of a 52% interest in the share capital of the new company coupled with an irrevocable agreement to acquire the balance in three equal tranches over a three year period. The price for the acquisition of the initial interest was to be 52% of eight times the post-tax profits of the travel side of the business for 1999. The price so calculated was to be paid upon acquisition of those shares. The price for the three tranches of 16% (making up the 48% balance) was to be on the basis of 16% of eight times the post-tax profits of the travel side as determined for each succeeding twelve month period immediately following completion of the initial acquisition. Each 16% would therefore be by reference to succeeding twelve month trading results. The offer was subject to various conditions, including a due diligence review of the business to be acquired, the entry into by CIHL and its subsidiaries of non-competition, non-solicitation and non-enticement restrictions during the three year buy-out period and, importantly, Ian entering into a service agreement with the new company (whose shares Towergate was acquiring) to remain as managing director of that company for the duration of the buy-out period. The offer letter envisaged purchase of the initial 52% taking place on or before 31 January 2000 (therefore just over two months from the making of the offer) and stated that the offer was open for acceptance until 15 December 1999.
130. Before replying to that proposal, Ian had a meeting with Mr Payne of Critchleys for the purpose of considering the tax implications of the offer and whether it could be better structured from a fiscal point of view. Mr Payne's note of the meeting recorded Ian's concern that his controlling shareholding should be reflected by a larger percentage of the sale proceeds. It recorded that the initial 52% tranche of shares to be sold should comprise the complete holdings of Patricia and the Trust and (as to the balance) 2% from Ian together with a single additional share from him but on terms that his contribution would be for a proportionately higher price than Patricia's and the Trust's. The note referred to the "informal arrangement" in force whereby the profits of the business were distributed to Ian and Patricia on an "agreed formula based upon remuneration plus benefits, plus pension contributions, plus bonus to Ian, after which the balance of profits available for distribution are paid out by directors remuneration to Ian and to Patricia". The note recorded that Mr Minty would prepare a schedule, assuming that the price to be paid would reflect that formula. It further recorded a suggestion by Mr Payne that the formula for arriving at the value of the shares should be on the basis that the net assets of the business at the date of disposal be apportioned rateably among the shareholdings but with the balance of the agreed purchase price being apportioned between shareholdings in the same ratio in which profits were distributed. Among the tax considerations dealt with in the note was the possibility of some of the sale proceeds being taken in loan notes so that they could be cashed in at a later date when the tax regime would be kinder to Ian but otherwise assumed that Patricia and the Trust would receive cash for their shares even though that would trigger a CGT liability on virtually the whole of those sale proceeds.
131. Ian replied to Towergate's offer on 2 December 1999. Having already explained (at an earlier meeting with Towergate's representatives) that he owned 51% of the shares and that Patricia owned 24% and the Trust 25% (the percentages were not accurate but the point was to stress that, by a small margin, he was the majority shareholder) he proposed that the initial acquisition should be of Patricia's and the Trust's 49% shareholding followed a year later by a 19% tranche of his own and then by two tranches of 16% (of his own) at the end of the second and third years. He also explained that, having regard to the shareholding sizes and also to his earning capacity, relationships with major clients and the requirement that he continue working for at least three years, it was appropriate to differentiate between the price per share paid for his shares as against the price paid for Patricia's and the Trust's with the result that he did not expect the value of the equity not owned by him to be more than one third of the total consideration. He explained that by initially acquiring Patricia's and the Trust's holdings, Towergate would have to pay out less by way of initial consideration than it would if it were to acquire 52%. He also indicated that he wanted the price for the initial tranche to be based on income generated in 2000 (rather than 1999) and said that the acquisition should be of the business as a whole and not just of the travel insurance side.
132. A meeting between Ian and Towergate's representatives to discuss Ian's letter took place on the following Monday, 6 December. At that meeting Towergate made clear that it would have to acquire a majority holding "from day one", insisted that the value of the business be based (in the case of the initial 52% acquisition) on figures for the 1999 trading year and indicated that it was willing to include the general insurance business in its offer (but at a price to be agreed).

(8) the meeting on 8 December 1999

133. Having thus satisfied himself of the seriousness of Towergate's wish to purchase the business and that the offer price was realistic, Ian had a meeting with Patricia and Michael Thatcher to discuss the matter. The meeting was at Michael Thatcher's office in central London and took place on 8 December 1999. Present at the meeting were Ian, Patricia, Michael Thatcher, a Mr MacDougald (a colleague of Michael Thatcher in the firm of Winckworth Sherwood) and, taking a note of the meeting, a Mrs Mansfield.
134. The agreed minutes (agreed that is by both Ian and Patricia to whom draft minutes had been sent and comments invited and which I therefore accept as an accurate and sufficient record of what was discussed) recorded that the meeting had originally been arranged to discuss Patricia's financial affairs with a view to preparing a new will and possibly to advise her on estate planning. Winckworth Sherwood were therefore advising Patricia as her solicitors. The minutes went on to record, however, that "an offer had just been made to purchase the family company, Campbell Irvine Ltd" and that "the proposed sale was therefore dealt with first (with ICI [ie Ian] present) who was able to explain the background to the offer and to give details of the proposal".
135. The minutes recorded that Ian explained the recent history of the business to enable those present to understand how the proposals for division of the sale proceeds had been calculated, that the company's business was mainly (as to 60% of its income) from the travel industry (with 40% coming from Trailfinders and the remainder from other sources), that the Trailfinders business was dependent upon Ian's connection with that company (of which he was a director) and that other travel business often emanated from ex- Trailfinders' employees who had started their own travel companies and therefore that because of this connection CIL was "vulnerable and a sale would be very timely given that such niche business companies are now finding it difficult to operate independently". He explained that before Malcolm's death, he and his brother had taken "a token salary and divided the profits, after pension payments, by way of bonuses", that "the company did not pay dividends", that profits had been divided as to three-sevenths to Malcolm and four-sevenths to himself and that this was done for tax reasons but with one of the consequences being that the shareholding in the Trust did not receive any income. He explained that "[t]his was a policy decision at the time by MCI [ie Malcolm] that the profits would go to him personally as he was supporting the children".
136. Paragraph 7 of the minutes then recorded that:

"7. After MCI's death, PMI continued to receive the same benefits as her husband for three years. From 1^st January 1999, after discussions with Mr Minty of Critchley's, another formula was agreed for remuneration of PMI. It was agreed that after salaries, pension payments and other expenses, eg car, petrol, telephone bills, the profits would be divided as to 50% to ICI and then the balance divided according to the shareholdings, ie 51% to ICI and 49% to PMI on behalf of herself and the trust. It appears likely that under this arrangement, PMI will receive an income in excess of £200,000 by way of salary and her share of the profits, although it is impossible to be precise until the year-end figures are known."

This was clearly a reference to the division of profits for 1999. Ian was not correct in stating that Patricia had continued for three years to receive the same benefits as Malcolm had done or that she had agreed another formula for her remuneration. The note does not suggest, however, that Patricia raised any objection to what Ian was saying. In her witness statement, Patricia stressed that she had not agreed to the formula. In cross-examination, she said that she did not recall Ian making this remark and that, in any event, from her perspective this part of the meeting was a "listening exercise" and much of it was "above my head". The fact is, however, that the minutes were agreed. Ian could therefore be forgiven for thinking, at any rate after December 1999, that the formula had indeed been agreed.

137. Ian is then recorded as explaining the terms of the Towergate offer, that he wanted Towergate to acquire the general insurance side of the business as well, that Towergate would take 52% of the business as at 1 January 2000 (of which the 49% held by Patricia and the Trust would form the bulk and the balance would be provided by Ian) and that Ian would then be "locked into the company for 3 years and would transfer 16% of his holding at the end of the first, second and third years". He explained what the purchase price would work out at on various assumptions as to CIL's profits, that the three year buy-out of the remainder of his holding would be very much based on performance but that that involved an element of risk for which he should be compensated. He therefore suggested that "the 1999 formula devised by Critchleys to calculate Patricia's remuneration" should be used to calculate the share of the sale proceeds to be paid to Patricia and the Trust and that "25% or thereabouts" was a fair figure for those holdings.
138. The minutes went on to record Michael Thatcher as stating that there were two elements of the proposals to be considered: (1) the principle of a sale as to which "all parties were happy… provided the time and price is right" and on which Mr Minty could advise all parties and (2) the division of the sale proceeds between Ian's shareholding and that of Patricia and the Trust as to which Mr Minty would have a conflict of interest and PMI should appoint a separate accountant to advise her on her entitlement and the trust's entitlement". Paragraph 13 of the minutes recorded an agreement that:

"(i) Critchley's will now be asked by ICI to report fully on the deal. There should be a written formal offer from Towergate immediately.

(ii) Critchley's will make proposals on behalf of ICI as to how the price should be split.

(iii) PMI and the trust should seek separate advice from an independent accountant on how much they should receive out of the sale proceeds for the 49% shareholding in the company owned by PMI and the trust."

Paragraph 13 went on to note that Patricia required sufficient funds to provide her with an income for the rest of her life and that the beneficiaries of the Trust would look to the trustees to ensure that "they have looked after their interests in a way which is beyond reproach". It also recorded an acceptance that:

"The consideration is payable on performance and there must be a discount in PMI and the trust's share to reflect this and a value placed on ICI's further effort. ICI would need to see the calculations being formally prepared by Critchleys but did not anticipate the value of PMI's family holding to exceed 1/3 of the total."

139. Finally, the minutes recorded a suggestion that Ian should appoint lawyers on the sale of the business, observed that Winckworth Sherwood no longer acted for the company and stated that, in the circumstances, it would be appropriate for a separate firm to be appointed in any event.
140. It is not suggested that the meeting was other than entirely amicable. It appears, although the minutes did not record this, that after Ian had left the meeting Patricia remained to discuss various matters with Mr MacDougald and Mr Thatcher and that it was at that point that she came to realise, from comments made by Mr MacDougald, that she had arguably neglected her duties as a trustee (and that Mr Thatcher had likewise done so) by failing to take steps to secure an income for the Trust from its 25% holding in the Campbell Irvine business. It seems, and I accept, that this caused her very considerable bewilderment and upset. She was also concerned at Ian's suggestion that on a sale the shareholdings of herself and the Trust, although just under 50% of the issued share capital, the two should only receive 25% of the sale proceeds.

(9) the follow-up to the meeting of 8 December 1999

141. In accordance with what had been agreed at the meeting, Ian wrote the following day to Mr Minty for his views on the benefit to all of the shareholders of a sale of the business. Ian pointed out that he was approaching retirement, had no one in the business to succeed him or, from a long-term point of view, who could deputise for him, that the travel insurance market was extremely competitive with only the larger companies likely to survive and that the business's major travel accounts were "vulnerable" and their retention uncertain. He expressed the opinion that the Towergate offer was extremely fair and that a sale to Towergate "must be in the best interests of all the shareholders". As to how, if the offer were accepted, the sale proceeds should be split, he summarised how and why, both before and after Malcolm's death, profits had been divided, including the four-sevenths, three-sevenths split which he said was continued after Malcolm's death and how he had decided after three years that that arrangement had to be changed "to reflect the fact that Malcolm's family had been adequately looked after, but more importantly no contribution to the business from the family was being provided". He stated that this had culminated in what he referred to as an agreement for a revised division of profits effective from 1999 which had been made "on your advice and with Patricia's agreement". He pointed out that if the sale proceeded he would be locked into a three year contract at a "nominal" salary (but with certain benefits and expenses) which would require him to continue running the business at a time when he would prefer do less. He stressed that, although Towergate could not recover the price paid for the initial acquisition of 52% of the shares, the amount to be paid for the remaining 48% would be dependant on the future success of the business and therefore would be subject to a considerable element of risk. For those reasons he expressed the view to Mr Minty that the value of his shares should reflect his current status and what he would be risking in the future.
142. The points rehearsed by Ian in his letter were to remain constant themes in the stance adopted by him over the ensuing months during the course of protracted communications between himself and Patricia over how, if a sale proceeded, the sale proceeds should be shared.
143. Following that meeting, Ian considered with Mr Minty the 1999 profit figures for the business and discussed and agreed the terms of the letter which Mr Minty was to write to Michael Thatcher setting out Critchleys' views on the benefit to shareholders of accepting the Towergate offer and how the sale proceeds should be split. Mr Minty's letter dated 21 December 1999 largely repeated the views which Ian had set out in his letter of 9 December. It was not, I think, the kind of independent report which the meeting on 8 December had had in mind in agreeing that Critchleys should provide a report. Mr Minty's letter made clear Ian's wish that the split should be on the basis of the so-called "profits pool formula" (meaning the method of allocating profits which Ian claims had been agreed with Patricia for 1999 and onwards). In his reply dated 5 January Michael Thatcher emphasised to Mr Minty the need for Patricia and the Trust to have independent accounting advice on the division of the sale proceeds and stated that shareholders should be advised by him (Mr Minty) on the final terms of the actual disposal to Towergate.

(10) the involvement of Peter Darby

144. It so happened that on 9 December, the day after the meeting at Michael Thatcher's office, Patricia received a telephone call from a friend called Peter Darby. Mr Darby's wife, who had died shortly after Malcolm's death, had been a close friend of Patricia. The friendship between the two families had gone back many years.
145. In the course of that call Mr Darby sensed that Patricia was upset and he asked her the cause. She explained that she was worried about the sale of Campbell Irvine and mentioned the meeting that she had had the previous day with Ian and her advisers to discuss the sale. Mr Darby had known that Malcolm and Ian jointly ran Campbell Irvine and had assumed that they were equal shareholders and that on Malcolm's death Patricia had inherited his shareholding. He offered to help her. He was well placed to do so. He was a chartered accountant by qualification, having trained with Peat Marwick Mitchell (now KPMG), and was, at the time of his conversation with her, finance director of the Berkley Group plc and had experience in the buying and selling of companies. (He has since become finance director for Crest Nicholson plc, a stock exchange listed developer of residential and mixed use property.)
146. Mr Darby wasted no time in finding out about the situation. He made contact with Michael Thatcher, was supplied with a copy of the minutes of the 8 December meeting, copies of letters sent by Mr Minty to Michael Thatcher and copies of CIL's accounts for the years 1994 to 1998. From these, in particular a letter from Mr Minty to Michael Thatcher, he obtained an understanding of how the so-called profits allocation formula operated which it was said had been agreed with Patricia. In particular, he ascertained that the formula allocated to Ian around 73% of distributable profits with Patricia taking the balance, that this was "to reflect [Ian's] close involvement in the generation of profits" and Ian's belief that the sale proceeds on a disposition to Towergate should be allocated in the same way "particularly as he will be required as part of the deal to continue to work for Towergate for three years at a very nominal salary package".
147. On 16 January Peter Darby wrote to Mr Minty to set out his understanding of the situation. He did so having spoken to Patricia but before having had an opportunity to discuss matters with Michael Thatcher who was in the USA at the time. His letter expressed Patricia's gratitude to Ian for his efforts in having borne the burden of running Campbell Irvine since Malcolm's death and her wish not to hold Campbell Irvine shares beyond the point at which Ian exited from the business. He stated that she was therefore minded to sell her shares to Towergate, but emphasised that she and Michael Thatcher would need to exercise care as trustees that the sale arrangements would be fair. He raised a number of questions concerning the corporate structure of Campbell Irvine and how the sale price to Towergate was calculated. In particular, he asked for confirmation of his understanding of the profit-sharing arrangement (namely, that after deducting directors' salaries and pensions, Ian took 75% and Patricia 25%) and asked how the interests of the Trust were protected if the profit allocation formula distributed all of the profits to directors and the Trust received nothing.
148. It is clear from a letter which he wrote the following day to Mr MacDougald of Winckworth Sherwood that Peter Darby had doubts about the legality of the Trust receiving nothing on its shares from a distribution of profits and of the proposed split of the sale proceeds with more per share going to Ian than to other shareholders. He expressed concern that because Patricia had not been invited to attend any board meetings "there must be some doubt as to whether Board Meetings at which the profit allocation formula was established was [sic] properly convened".
149. Mr Minty's reply dated 7 February, written after he had consulted Ian, confirmed Peter Darby's understanding of the way that profits were shared and stated that on a sale to Towergate Ian would be paid an annual salary of £50,000 (plus private health insurance and car, travel and entertainment expenses) and that £50,000 was what Towergate believed was the current market price of an experienced insurance broker to run the travel insurance accounts. He stated that Ian's salary, shown in Mr Minty's calculations at £110,000 per annum, was not the salary he actually drew but "an attempt to reflect an appropriate salary for his role within the company" and, importantly, that "the shares of the Trust have always been considered to be aggregated with Patricia's for the purpose of deciding the appropriation of profits" and that "at present the Trust receives no income from its involvement in the company".

(11) Towergate's February 2000 offer

150. The following day, 8 February, Towergate sent Ian a letter enclosing a formal proposal to acquire all of the shares in CIL. Dated 7 February, the proposal (referred to before me as "the first offer" although in fact it was Towergate's second offer) proceeded on the footing that (1) Towergate would acquire all of CIL's shares on or (if acquired in tranches) with effect from 1 January 2000, (2) that it valued CIL at £4,480,000 being eight times CIL's 1999 post tax profits, (3) that the minority shareholders (erroneously referred to simply as the Trust but plainly intended to include Patricia) would sell their shareholding for £1,344,000 (equivalent to 30% of the overall value attributed to CIL) and (4) that Towergate would immediately acquire 52% of the shares at a price of £1,426,300 "with the balance of the share capital to be acquired within four months of the end of the current financial year on the basis of put and call options".
151. The proposal went on to state that the Trust (meaning the Trust and Patricia) would receive "£1,344,000 in loan notes payable over three years to maximise CGT tapering relief" and that Ian would receive £82,300 in cash for the 3% (or so) of the shares that he would be contributing to the initial 52% tranche. It stated that Towergate would expect to receive "warranty and indemnity protection appropriate for a transaction of this nature". Another term was that Ian would grant a call option exercisable by Towergate up to 31 March 2001 and Towergate would grant a put option exercisable by Ian between 1 April 2001 and 31 May 2001, the effect of which, on exercise, would be that Towergate would acquire Ian's remaining 48% holding for £904,000 plus a sum based on eight times CIL's actual post-tax profits for 2000, 2001 and 2002. The £904,000 would be paid by three equal instalments together with the balance of the consideration calculated by reference to CIL's actual post-tax profits for those three years. It also stated that Ian "would enter into a service agreement ... on agreed terms".
152. It will be noted that the proposal, which related to the whole of CIL's business (and not just the travel accounts side), assumed that Patricia and the Trust would be paid by way of loan notes over a three year period rather than by cash. It was unspecific, however, about the terms of the notes, in particular what coupon they would carry, and, importantly, whether they would be guaranteed or otherwise secured. The proposal appeared to assume that Patricia and the Trust would provide Towergate with warranty and indemnity protection, albeit of an unspecific nature, and left unstated what the terms would be of Ian's service contract.
153. As will appear, although the offer related to Patricia's and the Trust's shares, as much as to Ian's, and although Ian sent a copy of the proposal to Mr Minty (on 14 February), no copy of it was sent either to Patricia or to Michael Thatcher until towards the end of that month.
154. On 22 February Peter Darby, Patricia and Patricia's eldest son Alastair had a meeting with Michael Thatcher. The purpose of the meeting was to discuss the proposed sale to Towergate (they were still unaware of the terms of Towergate's February 2000 offer let alone its November 1999 offer) and the position of Patricia and the Trust regarding the suggested division of the sale proceeds with a view to adopting an agreed position at a meeting with Ian and Mr Minty which was to take place two days later. A few days before that meeting, Patricia and Peter Darby had each been sent by Mr Minty a schedule showing the allocation of directors' remuneration for the years 1994 to 1998. Those figures showed, as Peter Darby was able to calculate, that for the years 1996 and 1997 Ian had taken by way of remuneration (but ignoring pension contributions) twice as much as Patricia (and the Trust) and that in 1998 the split was 80/20 in Ian's favour. (Inclusive of pension contributions, the split was roughly the same for 1996 and 1997 but 78/22 for 1998.)
155. Michael Thatcher prepared an attendance note of the 22 February meeting, the accuracy and sufficiency of which I have no reason to doubt. According to that note the meeting agreed that the sale to Towergate was in the best interests of all parties and should proceed as speedily as possible if terms for the division of the sale proceeds could be agreed. It referred to a discussion of CIHL's failure to pay a dividend and recorded an agreement that this was of concern to the Trust. Peter Darby's recollection was that Michael Thatcher acknowledged that, as a trustee, he had been at fault in failing to pursue this. The note recalled Michael Thatcher's comment that for so long as profit had been shared after Malcolm's death in the same ratio as it had been between Ian and Malcolm, this was probably acceptable as "Malcolm had always envisaged that his share of the profits would cover any income due to the Trust, and it was simply a case of him expending that portion of profit on the boys' education and maintenance, rather than it being paid by way of dividend into the Trust". The note acknowledged, however, that the situation changed with the change in profit sharing ratio in 1998. On the proposed distribution of the sale proceeds, the note recorded Patricia's strong feeling that Ian was taking advantage of her and that she should take action to prevent this. The note then recorded an agreement that at the meeting with Mr Minty and Ian (fixed for 24 February) the non-payment of a dividend on the Trust's shares should be put to Mr Minty and his comments invited, Ian and Mr Minty should be informed that Patricia and the Trust preferred that only half their entitlement should be sold to Towergate at the point of sale with the other half coming from Ian, that the division of proceeds arising from the first tranche should be according to shareholdings and that Patricia and the Trust would stay in for the three year period and receive payment, but on a 70/30 split in Ian's favour, on the next three tranches. It was also agreed that Patricia should not attend the forthcoming meeting.

(12) the meeting on 24 February 2000

156. The meeting on 24 February was attended by Peter Darby and Michael Thatcher together with Ian and Mr Minty. It took place at Winckworth Sherwood's offices. Michael Thatcher took a note. In advance of the meeting Peter Darby had prepared a list of "points to be made". Those points included the following: (1) a willingness on the part of Patricia and the Trust to sell and their confidence that Ian would secure the best terms, (2) a recognition of Ian's contribution to the continuing success of Campbell Irvine (in particular in maintaining the very important relationship with Trailfinders) and of the need to find a way of giving a majority of the sale proceeds to him, (3) a realisation that, as soon as the monies which Patricia had received for herself and the Trust had decreased (below what Malcolm had been receiving), the trustees should have insisted on an annual dividend on its 25% shareholding and therefore that the beneficiaries could consider the trustees to have been negligent, (4) an acceptance that although the trustees should "readdress" all the years since Malcolm's death, they would "much prefer to let sleeping dogs lie provided they could demonstrate that 1999 profits and the sale proceeds were being more equitably distributed" and (5) an appreciation that Ian needed to be treated fairly given that, under the proposed sale terms, he was to be locked in to the business for three years at "a relatively modest salary".
157. Michael Thatcher's note of the 24 February meeting - the note is relatively brief - reflected the willingness of Patricia and the Trust to reach an accommodation with Ian as set out in Peter Darby's "points to be made". The note referred to the lack of dividend on the Trust's shares and to a response by Mr Minty that it would not have been tax efficient to have paid dividends but that, as regards 1999, he would consider whether a dividend could be declared without crippling tax penalties. The note then recorded the counter-position of Patricia and the Trust with regard to the proposed sale, namely that they too should stay in for the three year period and should contribute equally with Ian at each share sale tranche but with the sale proceeds of the first tranche being divided in accordance with shareholdings and only the three subsequent payments being weighted 70/30 in Ian's favour.
158. Ian's response, according to the note, was an insistence on a 70/30 split of the sale proceeds of the first tranche coupled with a rehearsal of the reasons why, in his view, this position was fair. The note then recorded Ian as saying that if his proposed division was not agreed "he would simply sell his 51% shareholding, and walk away, and Patricia and the Trust could take their chance with the remainder of the company". Peter Darby said that the note failed accurately to refer to Ian stating that if they did not accept the 70/30 split they risked getting nothing. I accept that Ian said something along those lines. Michael Thatcher's note then recorded that, after what was described as "an exhaustive discussion", it was agreed that Towergate should be informed that Campbell Irvine would pursue the sale but with Towergate paying a full consideration for the 52% first tranche, that Mr Minty and Peter Darby would confer on figures and the tax position and that Peter Darby would advise Patricia as he thought fit. He also noted that the meeting ended "on entirely amicable terms". Peter Darby confirmed that there was "no real animosity" even after Ian's comment that, if they did not accept the split he was offering, Patricia and the Trust might end up getting nothing.
159. Although the purpose of the meeting had been, as Mr Minty's note of it makes clear, "to consider the proposed sale of the shares", as well as the allocation of the sale proceeds, it is puzzling (at the very least) that Ian, to whom it had been sent, had not thought it appropriate to send a copy of the formal offer (Towergate's February 2000 offer) to those whose agreement to the sale he was hoping to obtain, namely Patricia and the Trust. Indeed, those others were not even aware that a formal offer had been made. It was only on the day after the meeting that Peter Darby was sent a copy; even then it was sent to him by Mr Minty. Michael Thatcher was only supplied with a copy (again by Mr Minty) towards the end of March 2000 and then only after he had written to ask for a copy. (Ian had also omitted to supply Patricia and Michael Thatcher with a copy of Towergate's November 1999 offer.)

(13) the 24 February telephone conversation

160. Following the meeting Peter Darby visited Patricia at her Surrey home to report on what had happened at it. This was during the evening of 24 February. In the course of that visit, he spoke over the telephone to Ian who, at the time, was at his home in Pembroke Square. I find, in case anything turns on the point, that it was Peter Darby who rang Ian rather than Ian who rang Peter Darby.
161. There is an acute difference over what was said in the course of that telephone conversation. Ian's recollection is that during the course of their conversation Peter Darby stated on behalf of Patricia and the Trust that they would accept a 70/30 split of the sale proceeds. Patricia and Peter Darby were both adamant that no such concession was made at that time. Although neither could recollect Peter Darby speaking to Ian over the telephone that evening, Peter Darby accepted that there might have been such a conversation but, if so, it would have been of a "non-memorable nature". Otherwise, he said, he would have recalled it. For him to have gone back on the stance which he and Michael Thatcher had adopted at the meeting with Ian and Mr Minty earlier that day when they had insisted on a 60/40 split, would, he said, have been highly memorable; it would have gone against his advice to Patricia that a 70/30 split was not fair to her and the Trust.
162. Ian plainly thought that an agreement for a 70/30 split had been reached because, the following day, he e-mailed his wife Amanda. She was in New Zealand at the time and was to meet him a day or two later in Australia when Ian arrived there for one of his periodic business trips to that country. In the course of his e-mail he stated:

"Surprised last night. Got home just after 9 pm & had call from Patricia's accountant who was obviously at Mulberry Down [Patricia's Surrey home]. After discussion he told me that on her own behalf & on behalf of the Trust Patricia was agreeable to the immediate sale of her & the Trusts shares on the basis of the formula Bob Minty & I had put to her for consideration. Don't know what changed during the day but it must have been what was said at the meeting. However it's good news because I can now get on with Towergate & try to finalise the deal. Thought you would like to know."

He also wrote to Mr Minty on that Friday to say that he had received a telephone call from Peter Darby late on Thursday evening from Patricia's house and that:

"…after discussion, and Patricia was obviously listening in the background, Peter told me that in her personal capacity and as a Trustee Patricia was happy to accept the proposed split in the sale price of the business. She had also agreed that her personal shares and the shares in the Trust should be disposed of immediately to Towergate. This is only subject to final figures being produced, but there is nothing we can do about this until you have draft accounts available. I do not know what caused the change of mind, but I was glad to hear the decision."

At the same time he wrote to Mr Dyer of Towergate to report that at a lengthy meeting the previous day he had "secured approval" for the deal with Towergate to go ahead. As Towergate was not concerned with the split of the sale proceeds, his letter made no mention of that aspect of the transaction.

163. I accept both the e-mail and the letter to Mr Minty as genuine expressions of Ian's understanding of his telephone conversation with Peter Darby. But it does not necessarily follow that Peter Darby had indeed communicated a change of mind by Patricia and the Trust on the vexed question of the appropriate split. Peter Darby's belief is that Ian must have misconstrued what he was saying to him of the telephone. He felt reinforced in this not only because he had no recall of such an important concession (if, as Ian clearly believed, he had made it) but also because of what occurred two days later when he and Patricia met at a local operatic dramatic society evening. Peter Darby knew that Ian was shortly to leave for Australia and that he wanted a definite answer to whether Patricia and the Trust would agree to a 70/30 split. He recalled that he had asked Patricia to reflect on the matter. Having ascertained from her, when they met at the society evening, that she wanted to adhere to their counter-proposition of a 60/40 split, he took the opportunity of the interval during the society's performance to ring Ian from his car telephone to say that that was Patricia's decision.
164. It is common ground that Peter Darby did ring Ian that evening and that Peter Darby said that Patricia was insisting on a 60/40 split. Ian regarded that as an attempt by Peter Darby to go back on the agreement reached two days earlier. He felt reinforced in this view by the fact that under cover of a letter dated 12 March 2000 (misdated 12 March 1999) to Mr Minty, Peter Darby attached a schedule showing how he thought a distribution of the sale proceeds would work. That schedule assumes a 70/30 split of the sale proceeds as between Ian and Patricia/Trust. That showed, said Ian, that a 70/30 split had been agreed.
165. I am of the view that Ian was mistaken in thinking (as he clearly did at the time) that Patricia (through Peter Darby) was accepting a 70/30 split during the course of their telephone conversation on the evening of 24 February. I consider that there was a misunderstanding between them over this. I do not attach any particular significance to the schedule attached to Peter Darby's letter of 12 March to Mr Minty. By then, on any footing, the parties were at odds over the split; by then Patricia, through Peter Darby, was insisting on a 60/40 split at the least. The schedule, in my view, did no more than show the split that Ian was willing to accept. In the overall scheme of events I consider that this difference of recollection goes at most to the credibility of the participants involved. What is certainly clear, as was evident both from the terms of the first offer and from a letter dated 29 February 2000 from Mr Dyer of Towergate to Ian, is that Ian's negotiations with Towergate had proceeded on the basis that, although the shares of Patricia and the Trust represented 49% of the overall shareholdings, the price that they would receive, £1,344,000, represented 30% of the "agreed consideration" of £4,480,000 on which the negotiations had been based.

(14) the involvement of Mr Nicholas Fieldhouse of Stevens & Bolton

166. On 27 February 2000 Ian left for Australia.
167. While Ian was abroad, Patricia and Peter Darby decided that it would be sensible to obtain legal advice. At Peter Darby's suggestion (following enquiries which he made) she consulted Mr Nicholas Fieldhouse, then of Stevens & Bolton. An initial meeting took place on 9 March. The result was that Mr Fieldhouse was later instructed to act for the Trust (ie for Patricia and Michael Thatcher in their capacity as trustees) as well as for Patricia personally. By now, as Patricia made clear in a letter she wrote to Mr Fieldhouse shortly after his firm had been instructed, she felt as if she and her three sons had been "betrayed" over the running of the Trust and that she was disenchanted with Michael Thatcher. She considered that she had been let down by him over the conduct of the Trust's affairs and that he would "never stand against Ian in my defence". For his part, Michael Thatcher made clear that he hoped that at all times he had approached matters in a professional and impartial manner in the interests of Patricia and her children but understood if, in view of his long-standing friendship with Ian, they felt that he might not wish to act directly against Ian. He made clear his willingness to retire as a trustee.
168. The upshot of the advice which Mr Fieldhouse gave to Patricia (and Michael Thatcher) was, so far as material, that the differentiation in sale treatment (as regards price and structure of sale) between Ian's shares and those of Patricia and the Trust was not to be accepted. In particular he advised that:

"With regard to differentiating between the shareholders as to the timing of their entitlements and the different tranches in which they were participating, this is also unacceptable. So also is the differentiation as to price. An ordinary £1 share owned by Patricia has the same value as an ordinary £1 share owned by Ian Irvine. There is absolutely no logic whatsoever in differentiating between them. I also have difficulty with the trustees being able to accept this unfair position when acting for the beneficiaries of the trust. They could be regarded as in breach of trust allowing this position to proceed."

Mr Fieldhouse tendered this advice notwithstanding the willingness of Patricia and the Trust to accept a 60/40 split of the sale proceeds reflecting Peter Darby's view (expressed in his "points to be made" in advance of the meeting of 24 February 2000) that, by way of recognising Ian's contribution to the undoubted success of the Campbell Irvine business, "a way needs to be found to give the majority of the [sale] proceeds to Ian".

169. It was jointly agreed that a letter should be sent by Stevens & Bolton setting out a series of complaints about the way in which Ian had conducted the affairs of CIHL and CIL. The terms of the letter were the subject of considerable prior discussion and amendment in which both Patricia and Peter Darby were closely involved. Patricia's view, expressed in an e-mail from her to Peter Darby on 26 March which was the day before the finalised letter was sent, was that, as then worded, the letter was not what was required because it was "instantly confrontational simply because no allowance has been made for a just reward to Ian for his efforts". She went on:

"I believe the unfairness began in 1998 not previously. Ian will look at the payment to me in 1996 and 97 as being combined for myself and the trust and say, correctly, that it should have been split between us. It is quite unfair in my own mind that I should do nothing, yet receive benefit on a par with Ian. I cannot understand the thinking behind this and certainly cannot put my name to such a suggestion. I have no wish to be unfair even if 'technically' correct. I simply want a 'just' settlement for the years where we HAVE been taken advantage of with regard to the forthcoming sale … I strongly feel that we should approach this in a different manner. We will get no where if Ian will not speak to us and behaves childishly, which he certainly will if this is received by him."

170. The letter underwent some revision in consequence of this objection. The resulting letter, which was dated 27 March 2000, was sent by hand to Ian's home address in west London. It was delivered on the evening of the very day that he returned from Australia.

(15) the letter of 27 March 2000

171. After stating that Stevens & Bolton acted for Patricia both personally as a shareholder, as a director of CIHL and also in her capacity as a trustee of the Trust, the letter asserted that as a result of information received from Ian and from Critchleys since the beginning of the year, Patricia had become aware that the affairs of CIHL had been conducted in a manner which was unfair to the Trust as shareholder. It went on to state her concern that she properly discharged her responsibilities both as a trustee and as a director whilst ensuring that Ian's contribution to the business was properly recognised and rewarded. The letter referred to Towergate's February 2000 offer. It commented on the structure of the offer and made suggestions as to how it could be more advantageously structured from a taxation point of view. It suggested that from the share vendors' perspective it would be preferable to sell all of the shares "on day 1". It then proceeded to comment on the proposed 70/30 split of the sale proceeds between Ian on the one hand and Patricia and the Trust on the other. It stated:

"While your role in the direction of the business and in the generation of annual profits needs to be recognised in the form of a compensation package commensurate with your responsibilities, the same does not apply to sale proceeds. The suggested 70/30 split is unfairly prejudicial to our client and the Trust. It would be the norm, and only just, that such proceeds were split on the basis of share ownership."

The letter then advised that the proceeds should be split according to share ratios. It then complained that, as a director and shareholder of CIHL and as one of the trustees of the Trust, the fact that Patricia was not invited to board meetings and was not receiving any management documentation and that there had not been any annual general meetings were instances of both Patricia and the Trust being unfairly prejudiced in the administration of CIHL.

172. The letter then referred to the right of minority shareholders not to be unfairly prejudiced in respect of the management of a company's affairs, to a shareholder's right to petition the court under section 459 of the Companies Act 1985 and to the remedies available on such a petition. It referred also to the salaries and bonus treatment of the shareholdings from the 1996 trading year onwards. It calculated that, based on shareholding ratios and after deducting what had been paid to Ian, Patricia and (in 1996) Malcolm by way of salary and benefits, the Trust had been unfairly prejudiced in the sum of £512,657 which was the notional amount which it should be repaid. Of that sum, the letter continued, £39,547 should come from Patricia (being the amount which, by way of bonus, she had received in excess of her entitlement on the basis of her proportionate shareholding) and £473,111 should come from Ian on the same footing. The letter acknowledged that Ian's £25,000 annual salary was not adequate reward and that an agreed amount would need to be used to adjust past profits in Ian's favour. It stated that the trading year 1999 had to be settled on the same corrected basis and invited Ian to attend an urgent meeting to discuss the issues raised before Patricia went away for three weeks at the end of that week.
173. Ian was incensed to receive the letter. It came, he said, completely out of the blue with no prior complaints by Patricia over the way that profits had been distributed in the past. He regarded it as a declaration of war.
174. It is easy to criticise features of the letter but its general thrust was clear. True, it was intended to put pressure on Ian. To an extent it was confrontational (despite Patricia's wish to avoid such an impression). It is true also that it was advancing complaints that had not been raised before, or at any rate had not been clearly articulated in the past although Peter Darby said that, at the meeting on 24 February, he had raised the non-payment of dividends
175. In my view, Ian was inclined to protest too much about the terms of this letter. He was more than capable of standing up to this particular shot across his bows, for it was no more than that. He himself was attempting, with justification as he saw it, to secure a 70/30 split in the proceeds resulting from a sale to Towergate and was unwilling to contemplate a split which was to any extent less favourable to him. For my part I see no reason why, with the aid of Peter Darby and Mr Fieldhouse of Stevens & Bolton, Patricia should not seek to meet Ian's firmness over this matter with equal firmness on her side. Whether sending a letter of this kind was a sensible course for Patricia to pursue was, to a large extent, one of tactics.

(16) Ian's retainer of Charles Russell and the ensuing inter-solicitor correspondence

176. Having received - out of the blue - Stevens & Bolton's letter of 27 March, Ian took steps to instruct solicitors to advise him. He retained Charles Russell. In the course of a lengthy letter of instruction dated 31 March 2000 to Jonathan Hart of Charles Russell, Ian set out the history of the Campbell Irvine business and of the negotiations he had had with Towergate, in particular how the price Towergate had offered to pay was calculated. He said this:

"I now need to explain the manner in which profits from the business have in the past been divided and how, in conjunction with Critchleys, I have suggested a value to Mrs Irvine of her shares and those of the Trust. For many years the manner in which my late brother and I divided the post tax profits of the Company was simply to take the total post tax profit, divide it four sevenths to me and three sevenths to him, incorporating any salary payments that had been made during the year. After my late bother's death I continued with this arrangement as far as Mrs Irvine was concerned, notwithstanding the fact that she had nothing whatsoever to do with the business. You will appreciate that this was not done for commercial reasons, but simply because having run a business for over 20 years with my brother there was obvious emotion involved."

Two comments are prompted by those last two sentences. The first is that it is not correct that Ian had continued the four-sevenths, three-sevenths split of profits between himself and Patricia (and the Trust) during the three years following Malcolm's death. As the figures referred to earlier show, she received rather less than three-sevenths. Second, Ian plainly regarded any payment to Patricia as an act of "emotion" by reason of his brother's death and not as something to which Patricia might have any claim as a shareholder. Ian continued:

"Bearing in mind the immense pressure I was under running the business single handed, my accountants felt I was being over generous and eventually during the early part of 1999 I agreed that the manner in which Mrs Irvine was being paid needed adjustment. In simplistic terms what was agreed was that I would take 50% of the post tax profits as an executive salary (which was slightly less than the four sevenths I had previously been taking). The reminder of the post tax profits would be distributed along the lines of the shareholding, which roughly equated to 25% for me and 25% for Mrs Irvine. Whilst no payments for 1999 have yet been made, I should just mention that on Mrs Irvine's express instructions payments made for the 1996, 1997 and 1998 trading years were to her personally and nothing has ever been paid to the Trust."

Two further comments are prompted by that passage. The first is that there is no reference to any agreement having been made with Patricia over the future division of profits now said to have been made on 29 June 1999: the reference is merely to an agreement "during the early part of 1999". The second is the reference to "Mrs Irvine's express instructions" that nothing should be paid to the Trust. In the course of his cross-examination, Ian accepted that that was an inaccurate remark in that Patricia had not given any such instructions. Instead, he explained the matter by saying that his action in not making payment to the Trust had been with Patricia's "tacit" approval in that she had not raised with him that there should be a payment to the Trust. This is a good example of Ian's capacity for self-deception over the course of past events. I have no reason to think that in making these remarks to his solicitor he was doing other than explaining matters as he genuinely understood them. The plain fact is that his recollection of past events, even important matters such as why there had been no payment at all to the Trust, is imperfect.

177. In the last part of his letter he set out his belief that the proceeds of a sale to Towergate should be divided 70/30 in his favour, his understanding that through Peter Darby this had been agreed on 24 February 2000 but that Patricia went back on that agreement two days later and his annoyance, following his return from Australia, at receiving Stevens & Bolton's letter of 27 March 2000.
178. A week later, on 12 April 2000, Charles Russell (in the person of Mr James Holder) wrote to Mr Fieldhouse in reply to the letter of 27 March. It referred to Ian's anger and disappointment at the accusations which had been made against him. It reserved Ian's rights concerning the payments which had been made to Patricia if she were to persist in her claim. It questioned whether, in view of the overpayment to Patricia and underpayment to the Trust to which Mr Fieldhouse's letter referred, it was appropriate for Stevens & Bolton to act for both Patricia and the Trust. Among other points it asserted that, because CIHL did not trade, no board meetings were held (which was true although in fact board and shareholder meetings had purportedly been held, at any rate on paper, and of course CIHL had continued throughout to carry on business if only as a holding company) and, as regards CIL, asserted, again wrongly, that Patricia had had every opportunity to attend board meetings (there were of course many to which, as Ian has now accepted, Patricia had not been given notice and which, in any event, only took place "on paper") and had been kept informed of "major issues arising at board meetings". It also asserted that:

"4. The payments of the bonus which have been paid to my client are as a result of an agreement reached by my client and his late brother, as a reward for his efforts as an employee. They form part of the terms upon which my client is employed and for which she has acknowledged her gratitude. They are therefore not overpayments, nor have they been paid to my client as a distribution of profit as suggested by you."

This was simply wrong. Ian's terms of employment, if by that was meant his contract of employment which is dated 1 September 1997, made no reference to any entitlement to bonus payments, let alone to any of the scale on which Ian had paid himself. Moreover, it is plain that some at least of what Ian had drawn had been effectively by way of distribution of profits albeit drawn as a bonus (and thus as additional remuneration).

179. After taking Patricia's instructions, Mr Fieldhouse replied on 27 April. Among other matters he questioned the way that the payment of the sale proceeds of a sale to Towergate was proposed to be structured (he suggested that each shareholding should be treated in the same manner) and asked to be kept informed about the structure of the sale or be a part of the negotiation with Towergate. He confirmed that Patricia had not been given advance notice of board or shareholder meetings. (In her letter to Mr Fieldhouse Patricia had acknowledged ("I think it only truthful and fair to say") that initially Ian had probably not involved her to protect her from additional work in the two years following Malcolm's death when Ian had helped her a great deal and that he had "kept me up to date with decisions out of courtesy" but "at no time, however, has my opinion on any matter been sought …".) The letter went on to say that Patricia was simply concerned that "in respect of the past distributions of profit and the future sale of [CIHL] the shareholders are all treated fairly and in proportion after taking into account proper remuneration for your client".
180. In his reply to this Mr Holder continued to assert on Ian's behalf that the payments that Ian had taken were not distributions "but were part of his contractual entitlement as an employee" in contrast to the payments which Patricia had received. He pointed out that the offer from Towergate provided for the payment of a fixed sum for Patricia's (and the Trust's) interest and "an undetermined sum" for Ian's interest and that it was a matter for their respective clients to decide whether they wished to proceed on such a basis. He raised once more the question of whether it was appropriate for Mr Fieldhouse to act both for Patricia and also for the trustees.
181. In a without prejudice letter the next day Mr Fieldhouse stressed that Patricia had no wish to litigate the matter but would do so to achieve a reasonable financial settlement, stressed that she had great respect for Ian and was grateful for the payments she had received but stressed that in the context of the sale and the other payments that Ian had received Patricia did not consider that the current proposal was equitable. He made the point that the parties had common objectives in seeking to separate their interests and procure a profitable sale of the company. It stressed the desirability of negotiation and said that Patricia would be happy to submit to a form of mediation or to attend a meeting to negotiate matters face-to-face in order to avoid the costs of litigation. In his reply Mr Holder said that he could see no reason why Ian should submit to mediation since he regarded the claims made against him as without foundation so that there was nothing to mediate. He stressed that what each would receive on a sale was entirely dependent upon what they could agree with the purchaser (Towergate) and that Patricia was under no obligation to accept any offer which might be made for her shares. He reiterated that, as regards payments which each had already received since Malcolm's death, what Ian had received were sums "which were agreed as a part of the terms upon which he is employed by the Company". He stated that Ian was willing to waive his claims in respect of payments which had been made to Mrs Irvine (presumably a reference to payments over and above those which, having regard to the non-payment or anything to the Trust, Patricia ought arguably not to have received) but only if no claims were made against Ian in respect of the payments that he had received.

(17) the 1999 accounts

182. While all this was going on Mr Minty was busy preparing CIL's accounts for 1999. He had already (in early April) received from Ian a copy of Stevens & Bolton's letter of 27 March. He had received it under cover of a letter from Ian dated 4 April 2000 stating that "having given the matter careful thought" he had decided to "adopt a strictly commercial attitude towards Patricia and the Trust" adding that "if this results in them receiving anything less than my proposals then Patricia has no one but herself to blame".
183. On 18 April 2000 Mr Minty had a meeting with Ian to discuss CIL's trading figures for 1999 following which draft accounts were produced. Mr Minty sent Ian a copy of them on 10 May 2000. After raising matters arising out of those accounts, Mr Minty made the following observation:

"The appropriation of the profits this year is likely to be tricky, and I expect you will wait to see how negotiations with Patricia and the Trustees progress before making any decision on this."

184. This led to a meeting between Ian and Mr Minty on 17 May 2000. It took place against the background of the unresolved dispute with Patricia and the continuing negotiations with Towergate. Mr Minty set out in the fourth paragraph of his file note of that meeting the substance of his discussion with Ian about how profits were to be distributed. He said this:

"I then talked through with Ian his thoughts on the division of the profits, and he has in mind applying the formula which had provisionally been agreed for 1999 and then saying to Patricia and her advisers that this is what is proposed and to see what the reaction is. Clearly, there is significant disagreement between Patricia and Ian on the sale of the business, and in particular the proceeds to be allocated to Patricia and this shows no signs of being resolved. I suggested to Ian that he should discuss this with his Solicitor and in particular the issue that was raised previously that effectively the Trust has not received any income from the company, although it has been accepted that Malcolm and latterly Patricia Irvine had been treated as if they were owners of the Trust shares. It Patricia and her advisers are insistent that the Trust should receive some form of income from the company, then the only way this can practically be done is by way of a dividend and I said to Ian that I was not too sure without doing the figures whether this would still represent a tax disadvantage to the company or whether the introduction of the new arrangements for ACT that this would make little difference. Clearly, the dividend would have to be paid out of the current year, and this may be something that Towergate would not be happy about."

I have no reason to doubt the accuracy of Mr Minty's note. I did not understand Ian to challenge its accuracy. What is significant about it is the reference to "applying the formula which had provisionally agreed for 1999 and then saying to Patricia and her advisers that this is what is proposed and see what the reaction is". If, as Ian claimed, Patricia had already agreed the formula (at their meeting on 29 June 1999) its application would be exactly what she would be expecting. If, however, and as Patricia has consistently maintained, the formula had not been agreed, Mr Minty's comment made sense.

185. On 26 May 2000 Stevens & Bolton wrote to Charles Russell asking, among other things, for draft accounts for CIHL and CIL since the date of the last filed audited accounts together with a copy of the minute books of CIL and CIHL. They also asked Charles Russell to:

"… notify Mr Irvine that our client does require reasonable advance notice of the time, place and agenda of all board and shareholder meetings of both of the above companies to enable her to attend and that in the circumstances she may feel the reasonable need on occasions to bring a business adviser with her."

186. Although a copy of the draft accounts for CIL was subsequently sent to Stevens & Bolton, the request that Patricia be given notice of all board and shareholder meetings of CIHL and CIL to enable her to attend was, as will be seen, simply ignored. This is all the more surprising in view of a reminder of Patricia's right to be invited to board meetings which Stevens & Bolton later sent to Charles Russell on 27 July 2000 (see below).
187. By the second half of July 2000, the 1999 trading accounts for the Campbell Irvine business were ready. On 21 July 2000 Ian wrote to Patricia and Michael Thatcher in their capacity as trustees of the Trust to ask whether they wished "to change the instruction that has existed since the Trust became shareholders, namely that the Trust should not receive any benefits from Campbell Irvine Limited". The letter referred to "specific instructions having been given [in the past] by the trustees of the … Trust that no benefits of any kind should be paid to the Trust …"
188. Ian accepted in cross-examination that this referred to his original understanding with Malcolm when the Trust was established that the division of profits between them in accordance with their private agreement would continue notwithstanding the establishment of the Trust. He accepted, however, that although Michael Thatcher and Mr Minty were aware of this understanding and had not questioned it, Patricia, in her capacity as a trustee, had never given any such instruction. On the other hand, as Ian fairly explained, Patricia had never in the past asked for anything to be paid to the Trust and, in addition, she had received sums which, as she had accepted through Mr Fieldhouse, were in part what would otherwise have been paid to the Trust.
189. By now, however, Michael Thatcher was expressing to Patricia his view that to avoid being in breach of trust, the trustees should request that a dividend be declared in respect of the Trust's shares. Patricia retained separate solicitors, Messrs Mundays, to advise her in her separate capacity as a trustee. She sought their advice on what to do. Echoing Michael Thatcher's concern, Mundays wrote on 27 July 2000 to Charles Russell to make clear that there was no question of the Trust waiving any right to dividends or other benefits from CIHL. They denied that the trustees had ever in the past given any specific instruction that no benefits should be paid to the Trust.
190. On 27 July 2000 Mr Fieldhouse wrote to Mr Holder to complain of Ian's failure to supply Patricia with full management information and to invite her to board meetings. He complained about Ian's practice of consistently placing Patricia's apologies for absence in board minutes of meetings of which she had never been given notice.
191. On 18 August, Mr Minty sent Ian revised accounts for CIL for the year 1999. He explained that they incorporated "the appropriation of the majority of the taxable profits to you" and then added the following:

"In view of the current involvement of solicitors acting for Patricia, I believe that it will be necessary to follow closely the formal procedure for approving these accounts, which includes calling and holding of a directors meeting, prior to an Annual General Meeting."

This echoed the letter three weeks earlier from Stevens & Bolton to Charles Russell stressing the need for proper meetings to be held in the future and due notice of them to be given to Patricia.

192. In fact, Ian was wholly to disregard Mr Minty's advice and Stevens & Bolton's request. The consideration and approval of accounts continued as before as an entirely private matter by Ian himself. When asked during his cross-examination about Mr Minty's advice and why he ignored it, Ian's response was that he did not take it seriously. He approved and signed the accounts both of CIL and of CIHL without even purporting to hold the necessary board and shareholder meetings. CIL's accounts for 1999 were approved and signed by Ian on 13 September 2000 and those for CIHL for the same period on 19 October 2000. Patricia's share of profit (a combination of salary, pension contribution and benefits) totalled £96,250. Ian's came to £902,063. The Trust received nothing.

(18) Towergate's June 2000 offer

193. On 6 June Towergate sent Ian a revised offer for the shares in CIL.
194. The proposal offered two alternatives, each based on a valuation of £4,480,000 for the shares in CIL. The first, on the basis that full warranties were given by all of the vendors, including the minority shareholders, was that the minority shareholders (ie Patricia and the Trust) would be paid £2,238,400 for their 49.96 holding and that Ian would be paid £2,246,600 of which £91,200 would be payable on completion with the balance (subject to adjustment) payable in accordance with earn-out arrangements. The payment to the minority shareholders would be in the form of loan notes and the payment to Ian would be in cash or loan notes. The maximum liability of the minority shareholders under the warranties would not exceed half of the value of the loan notes issued to them on completion. Alternatively and on the basis that the minority shareholders provided no warranties other than as to title to their shares, the minority shareholders would be paid £1,678,800 (equal to 75% of the larger amount) which would be satisfied by the issue of loan notes on completion which would carry a redemption premium of 10% of the principal if, by the second anniversary of completion, no claim for breach of warranty had been made which resulted in a liability falling upon Ian as sole warrantor. In both alternatives Ian would be offered the same earn-out as with the previous offer that had been made. The offer went on to provide that in the event of the minority shareholders choosing the second alternative and there being no breach of warranty notified within the stated two year period which resulted in Ian having to meet a liability, the amount to be received by the minority shareholders would increase to £1,846,680.
195. The terms of this revised offer were never communicated to Patricia or those advising her but were overtaken by further discussions between Ian and Towergate.

(19) Towergate's July 2000 offers

196. These resulted in the making on 13 July 2000 of yet another subject-to-contract offer by Towergate (addressed to CIHL's shareholders) for all of the share capital in that company. Expressed to be based on CIHL's "indicative performance" in 1999, the proposal offered to pay £1.83 million for all of Patricia's and the Trust's shares with the consideration to be satisfied by the issue of loan notes. No warranties were sought from Patricia or the Trust except as to title. The proposal offered to purchase Ian's shares for £4.27 million payable in three equal but adjustable annual instalments, to be satisfied by the issue of loan notes which would be redeemable in accordance with an earn-out formula by reference to CIL's accounts for the years 2000, 2001 and 2002. Ian was to give such warranties, indemnities and restrictive covenants as would be "normal for a transaction of this size and nature" and to enter into a three year service contract with CIL at an annual £50,000 salary (subject to annual review). The offer was expressed to be open for acceptance for 31 days from its date. £1.83 million comprised 30% of the overall headline price of £6.1 million.
197. This offer too was never submitted to Patricia. Instead it was overtaken by another revision of its terms. This followed further negotiations between Ian and Towergate aimed at confining the number of shares to be acquired by Towergate from time to time to the percentage for which it was providing consideration. The result was a further subject-to-contract offer dated 20 July 2000. Referred to before me as "the second offer" it was the same as the proposal dated 13 July 2000 except that at completion Towergate would acquire 76% of CIHL's issued share capital comprising all of Patricia's and the Trust's shares with the balance coming from Ian. However, the shares of Patricia and the Trust (totalling 1399 in number) were to be (as before) at the price of £1.83 million whereas Ian's shares out of the initial 76% (totalling 729) were to be for a consideration of £2,221,864. The purchase was to be in consideration of loan notes except that those to be issued for Ian's shares were to be redeemable according to an agreed earn-out formula by reference to CIL's accounts for 2000. Ian's balance of 672 shares (ie the remaining 24%) was to be the subject of put and call options at an aggregate headline price of £2,048,136 payable in three equal annual instalments in accordance with an earn-out formula by reference to CIL's accounts for 2000, 2001 and 2002 with provision for early exercise of the options in the event of a sale or floatation of the Towergate Group. The offer permitted the profits of CIHL available for distribution in the period to 31 December 1999 to be distributed by way of dividend. The provisions concerning warranties and Ian's fixed three year contract with CIL at an annual reviewable salary of £50,000 remained the same.
198. Copies of this offer were sent to Michael Thatcher and Mr Fieldhouse (on Patricia's behalf) on 25 July 2000. The offer was expressed to be available for acceptance for 31 days from the date of the offer letter (20 July 2000).
199. On 7 August 2000 Charles Russell wrote to Mundays and Stevens & Bolton proposing an "all party" meeting on 15 August 2000 to discuss the latest offer from Towergate. Stevens & Bolton immediately responded accepting the suggestion and stating that Mr Fieldhouse, Patricia and Peter Darby would be attending. Mundays did likewise indicating who would be present from their side. They also invited Charles Russell to obtain Ian's agreement to the appointment of new and independent trustees of the Trust without triggering in his favour on the transfer to the new trustees' pre- emption rights in respect of the Trust's shareholding.
200. On 10 August 2000, to the surprise of Patricia and those advising her, Mr Holder wrote to Stevens & Bolton to say that the meeting fixed for 15 August was cancelled since "there is no point in you or your client or representatives from Mundays coming to a meeting when … confirmation [as to whether Patricia and the Trust were willing to accept Towergate's offer] can be communicated in writing or over the telephone". After summarising the offer and how Ian had negotiated improvements to what had originally been proposed, the letter stated that Ian was willing to accept it adding:

"I think that you should also be aware that my client is only willing to sell his shares to Towergate on such terms if all of the shareholders, including my client, waive any claims they allege they have against each other or against either of the companies."

The letter also enclosed draft accounts of CIL for 1999.

201. On 15 August 2000, the day of the cancelled meeting, Mr Fieldhouse faxed a letter to Mr Holder asking for details of the loan notes which, under the Towergate offer, were to be the consideration for Patricia's (and the Trust's) shares. In particular, he wanted to know what the "taxation qualities" of the notes would be and whether they would be guaranteed by a bank. He also enquired about the dividend to shareholders proposed for 1999 and asked for details of the remuneration and benefits to be paid to Patricia in respect of that year.
202. In a faxed reply that same day Mr Holder stated that Towergate was offering cash for Patricia's shares (an error which he later corrected) and that Ian's and Patricia's remuneration and benefits for 1999 would be "payable … in accordance with their respective contracts of employment". Mr Holder was evidently still under the impression, which was mistaken, that remuneration and other benefits were payable pursuant to contractual arrangements rather than, as was effectively the case, at the discretion of the Ian.
203. On 17 August Mr Fieldhouse wrote to Mr Holder to protest at the cancellation of the meeting fixed for the 15^th. Among many other points Mr Fieldhouse made clear that Patricia and the Trust required cash and not loan notes for their shares. He then asked on Patricia's behalf as a director of CIHL for various categories of accounting information about the Campbell Irvine business and for copies of all correspondence between Towergate and Ian. The letter then concluded:

"If your client is convinced that the Towergate offer is a fair one which he wishes to accept then the minority shareholders will cooperate with him provided that the position of unfair prejudice against the Trust for the years 1996 to 1999 is redressed. However, the apportionment of the sale proceeds would need to be more beneficial for the minority shareholders than they are at present if they are going to be convinced that the sale timing is right."

The letter acknowledged that Patricia personally had obtained an "excessive distribution of profits over the years and must repay some of these monies to the Trust" but looked to Ian to make good the bulk of what it asserted was an underpayment to the trust of at least £750,000.

204. On 21 August 2000 Mr Holder replied to Mr Fieldhouse's letter of 17 August. After declining to make available any of the accounting and other information Mr Fieldhouse had sought (much of it on the basis that it did not exist anyway), Mr Holder asked for confirmation that Patricia and the Trust would be willing to accept an offer of £1.83 million for their shares and to release Ian and the two Campbell Irvine companies from any claims against them in exchange for similar releases by Ian the companies. He added that if confirmation of those points could not be given Ian would not accept the offer which Towergate had made for his shares, and expressed the view that, in that event, it was unlikely that there would be any sale.

(20) the collapse of any deal with Towergate: the unavailability of cash or security

205. On 4 September 2000, Towergate replied to enquiries which Mr Holder had made concerning the availability of cash instead of loan notes for Patricia's and the Trust's shares. The letter stated:

"Our understanding from our earlier discussions both with you [ie Mr Holder] and Ian Irvine was that Loan Notes would be an acceptable mechanism for settlement of the consideration and we have structured our proposal to the shareholders of Campbell Irvine (Holdings) Limited with this in mind.

As a group we are involved in a number of acquisitions projected to take place in the course of the next six weeks and our detailed planning has to take payment schedules into account. It is for this reason that our chosen route for settlement of the consideration would be through the issue of Loan Notes, which would be remunerated at commercial rates of interest."

It has not been suggested that Patricia or the Trust had ever given anyone reason to think that loan notes would be acceptable.

206. A few days later Towergate wrote to say that they would not be able to offer any security. Mr Holder later reported this to Mr Fieldhouse. He repeated that Ian was only willing to accept Towergate's offer if Patricia and the trustees released him and the two companies from any claims against them.
207. At this stage, Patricia's instructions were not to accept Towergate's offer but to delay responding to Mr Holder's letter beyond simply acknowledging it. As is clear from communications between her and Mr Fieldhouse, her purpose was to put some pressure on Ian, no doubt in the hope of persuading him to agree to a more favourable split of the sale proceeds in favour of herself and the Trust.
208. Peter Darby who had taken a back seat in the dispute for some months was once more consulted by Patricia. He advised her to press for equality of treatment over the consideration to be paid for the shares of herself and the Trust and to insist that cash be paid for them. He also suggested that Ian should be informed that Patricia and the Trust would approach Towergate direct if Ian continued to refuse to pass more of the sale proceeds to them. Despite having some doubt about going direct to Towergate, Patricia agreed with this approach. Mr Fieldhouse duly communicated with Mr Holder along these lines. For his part, Ian was immoveable in his refusal to accept less for his shareholding in the division of what Towergate was willing to pay.
209. On 10 November 2000 Mr Fieldhouse wrote direct to Mr Dyer of Towergate in an attempt to resurrect a sale. He made clear however that Patricia would find it "difficult" to sell her shares in return for unsecured loan notes with payment deferred for three years "unless there is significant detail and agreement at least about the assets of the issuer …". He also stated that the terms as to price should be "broadly equivalent" to those applicable to Ian's shares.
210. Not having given up hope of achieving a sale, on 27 November 2000 Ian met Patricia and Alastair together with Peter Darby and Ann Stevenson (Ian's secretary who had brokered the meeting) at Campbell Irvine's Kingston office to see if, even now, an agreement could be reached. The meeting was not a success. Ian followed this up with a letter to Alastair explaining why he had acted over the years as he had done. His aim was to persuade Alastair, notwithstanding the unsuccessful meeting, that the Towergate offer was, as he put it, "exceptional and one which I am absolutely certain we will never achieve elsewhere" and therefore one which, if Towergate were to reinstate it, Patricia, Alastair's mother, should accept. Unfortunately, the letter contained a mistaken reference to the terms of Malcolm's will and to the provisions affecting the self-administered pension scheme. These and other clumsily worded passages caused Alastair (and his brothers to whom he showed it) some resentment. I am satisfied that Ian had no intention of misrepresenting the position. The letter, like the earlier meeting, served only to worsen family relations.
211. Nevertheless, the fact is that, shortly afterwards, Patricia, having discussed the matter with her three sons, "decided to accept the 70%/30% split rather than run the risk of losing everything" (as she put it in an e-mail to Mr Fieldhouse on 5 December 2000). She was assuming that Ian could revive the deal. As the same time she wrote to Ian to thank him for seeing them and explaining his point of view. She also wrote to Mr Minty to be supplied with copies of the 1999 accounts of CIHL and CIL. By now both sets had been finalised and signed. Mr Minty made the accounts available later that month.
212. In the meantime, on 4 December 2000, Mr Dyer of Towergate replied to Mr Fieldhouse's letter of 10 November enquiring about the consideration for Patricia's and the Trust's shares and the terms of the loan notes which had been offered. Mr Dyer said this:

"As you may or may not know, we regularly make acquisitions of companies and, in so doing, we follow a formula which involves a payment of cash at completion but with the bulk of the consideration being deferred. … We do not offer guarantees or any other securities in support of the Loan Notes which are issued in respect of such deferred consideration. Our negotiations with Mr Ian Irvine were conducted on the basis that a substantial part of the consideration would be deferred and be satisfied by the issue of Loan Notes which would have been unsecured. …"

213. At about this time Stevens & Bolton obtained a search report on the Towergate Group. This disclosed that Towergate had been incorporated in July 1997 and that, according to its last filed accounts (to the end of December 1999), the group had net liabilities of just under £2.5 million and that it had recently acquired several companies for quite substantial sums largely on deferred terms as to consideration. A Dun and Bradstreet rating on the Group dated 15 December 2000 was to the effect that its financial strength was "negative" and that, as regards its overall condition, there was a slightly greater than average risk. The maximum credit recommendation for the Towergate business was £45,000. On 18 December 2000 Mr Fieldhouse reported these findings to Patricia. He stated that "clearly the degree of risk in accepting Towergate unsecured notes is high and ill advised".
214. On 17 January 2001 Patricia wrote to Ian to explain the basis on which she would agree to a sale to Towergate and to set out her proposals for settling their dispute over the unequal distribution of past profits. Because it is an important letter I set it out in full:

"Naturally, I have spoken with my sons over the Christmas period about the possible sale of Campbell Irvine and the way in which any sale proceeds should be split. We are all keen to bring our disagreement to an end and acknowledge that your retirement has been delayed by our failure to come to a mutually acceptable agreement and sincerely regret this. We are also sure it is in our common interest if the sale to Towergate can be resurrected on an agreed basis. You could then, at least, begin to plan for your retirement and we could pick up the pieces of our lives.

To enable you to recommence discussions with Towergate, you need to know the terms which we would be able to accept.

We will accept the 70-30 split you proposed provided that

a. The 30% on the sale of Campbell Irvine is paid at the outset when the sale agreement is signed.

b. The 30% is paid either in cash or in loan notes guaranteed by a bank. I understand that Dun and Bradstreet have a maximum credit rating of £45,000 for Towergate and there is absolutely no way, as a Trustee, that I would be allowed to accept unsecured loan notes in payment of the 30%.

c. The 70-30 split is applied to profits (before your and my salaries, bonuses, benefits and pensions) for both the 1999 and 2000 financial years. You have previously suggested that a dividend of £200,000 could have been paid in respect of 1999 and that this could be reinstated. I do not want any of this for myself but I would suggest that a special dividend of £200,000 could be paid to the Trust out of 2000 profits to restore the 70-30 split for the 1999 year. The balance of the profits for the 2000 year (after deducting the special dividend) should then be split 70-30.

I must add that I would ask that we be kept fully informed of negotiations with Towergate and of progress in drawing up the sale agreement. While I do not expect, personally, to have any major input, I know that as a Trustee I am expected to take legal advice on the proposed sale agreement before signing it. Being kept informed of negotiations would remove the risk of problems arising at the 11^th hour which would embarrass both of us.

Finally, I fully understand that your relationship with the boys and particular with Alastair has always been closer than with me, so if you should wish to appoint Alastair to replace me as a director, I would be happy to resign."

215. Ian responded on 5 February 2001. He said that he would endeavour to resurrect the proposed sale as soon as he felt able to present Towergate with "a fait accompli". On the basis of acceptance of a 70/30 split of the sale price he said:

"I totally agree that your [ie Patricia's and the Trust's] 30% is either paid in cash or you receive loan notes guaranteed by a bank."

216. In a letter Ian wrote to Mr Fieldhouse some months later, in late September 2001, he referred to having told Towergate that "Mrs Irvine, perfectly correctly, cannot accept non-guaranteed loan notes" with the result that, as Towergate could not offer cash or guaranteed loan notes (guaranteed, that is, by a guarantor of sufficient financial substance to ensure that, if called, the guarantee would be honoured) the sale could not proceed. It was his acknowledgment, in the course of his cross-examination, of the reasonableness of Patricia's stance on this issue, as reflected in his letter to her of 5 February and in his later letter to Mr Fieldhouse, that led Ian, at the start of the 22^nd day of the trial to abandon any reliance on the petitioners' failure to dispose of their shares in response to Towergate's July 2000 offer. The reason why Ian has continued to rely on the petitioners' failure to take up Towergate's February 2000 offer is because of Ian's contention, which Patricia has disputed, that the loan notes to be provided as consideration for her shares and those of the Trust under that offer were secured or, if they were not secured, that Towergate could have been persuaded at that time to offer secured loan notes if only Patricia and the Trust had accepted what was then on offer and pursued that issue with Towergate. I will come later to my conclusion on that issue.

(21) the 2000 accounts

217. In his letter of 5 February 2001 to Patricia, Ian took up (among other points) Patricia's wishes concerning the profits available for distribution in respect of 1999 and 2000. After pointing out that in the past no dividend had ever been paid (in fact there were dividends, all small in amount, in four of the years prior to Malcolm's death) "but instead profits of the company were paid out as end of year bonuses, taking account of the salaries drawn by Malcolm, you and me", Ian stated that he would consider an overall dividend payment of £200,000 for 1999 but would take advice from Mr Minty to see if more could go to the Trust than would otherwise have gone to it. He also said that he would consider a dividend for 2000 of a like amount increased to reflect the extent to which profits for 2000 exceeded those for 1999. He made clear however that:

"The intention of paying a dividend is to reflect the various shareholdings in the Company, but what I am not prepared to consider is the division of profits any further, as neither you, nor the Trust, contribute anything to the running or success of the Company."

He rejected her suggestion that there should be a 70/30 split of profits for 1999 and 2000 overall. He stated that he saw the dividend as being "a payment on a purely commercial basis to reflect the shareholdings in the Company and the price to be paid if the sale of the Company goes ahead as the means by which you will realise the value of your shareholding".

218. On 26 February 2001 Patricia replied to Ian's letter. She noted that "the overwhelming proportion of 1999 profits had been paid to him alone. She stated that "as a Trustee this position seems inequitable and should, if possible, be redressed".
219. Ian was in Australia for most of March. On his return he raised with Mr Minty the desirability, for regulatory reasons and for reasons connected with the future of himself and Campbell Irvine's employees, of hiving off the travel side of the business from the non-travel side into a new company within the group. It was an idea he had considered before. He also raised with Mr Minty what payments should be made for 1999 which, he thought, should be settled as part of the 2000 allocation of profits. Mr Minty's note of his meeting with Ian referred to Ian's wish, for reasons connected with his entitlement on retirement to a tax-free lump sum payment from his pension scheme, to have "money … allocated by way of bonus rather than by way of dividend". This was not a matter which Ian raised with Patricia.
220. On 10 May 2001 Ian had a meeting with Mr Minty to discuss the accounts for 2000. It will be recalled that no bonus had been paid to Patricia for 1999 (over and above her £38,500 "salary") and no dividend had been declared. In addition she had received £55,000 by way of a pension contribution and had been paid various small other benefits totalling under £3,000. As in previous years the Trust had received nothing. For his part, Ian had taken just over £900,000, inclusive of his £25,000 salary and a pension contribution. Ian proposed to make up for the loss by the Trust of any dividend in 1999 by declaring a dividend payable out of 2000 profits as well as making a payment in respect of those profits, in effect rolling up the payments to Patricia and the Trust for two years out of the profits made in 2001 alone. At the same time, for reasons connected with the tax-free lump sum, he wanted as much as possible to be paid by way of bonus. The upshot of his meeting with Mr Minty was that a dividend of £150,000 should be paid to provide the Trust with some income (namely one-quarter of that sum) which, as Mr Minty's note recorded "would then represent a defendable position if the Trustees ever queried it". The note went on to state that the rest would then be taken as bonus payable to Ian and Patricia. For the first time Mr Minty's note recorded Ian as wanting to involve Patricia in the process. The note recorded that:

"…he would like me to write [to] Patricia, outlining what had been done, and also enclosing a copy of the accounts and inviting her to a meeting with Ian to agree the figures and the Directors remuneration…"

221. On 31 May 2001, Mr Minty came up with some concrete figures for Ian's consideration. They were a net dividend of £160,000 which, grossed up for tax purposes, would amount to £200,000, and a bonus to Ian of £973,000 and a payment (a "bonus") of £135,000 to Patricia (for herself and the Trust). With Ian's approval Mr Minty wrote to Patricia on 7 June 2001 with these suggestions.
222. Patricia responded by saying that, now that she better understood her duty as a trustee, she did not see how she could be correctly carrying out that duty "by accepting a personal bonus for the year 2000 as suggested and leave the Trust unacknowledged …". She continued "…surely this money should be paid out in the form of dividends in relation to the shareholdings as has been suggested for 1999".
223. As a file note by Mr Minty indicated, this way of dealing with the profits for 2000 would not be "helpful" to Ian. Doubtless this was because of Ian's wish to maximise his tax-free lump sum payment payable under his pension arrangements. However given the need, for reasons connected with the wish on all sides to revive the Towergate offer, to finalise the 2000 accounts as soon as possible, it was agreed that Patricia should accept this way of dealing with the matter and not press her wish to have distributions made by way of dividend. In fact, a small adjustment was made in the direction desired by Patricia: the dividends were increased from £200,000 gross to £240,000 gross and a bonus of £115,000 was to go to Patricia (reduced from £135,000) and a bonus of £953,000 to Ian (reduced from £973,000). CIL's accounts were approved at a (genuine) meeting of CIL's directors held on 16 August 2001 (to which, however, Patricia was not invited). He had already signed the accounts "on behalf of the board" seven days earlier, on 9 August 2001. There was no shareholders' meeting. There were no meetings either of directors or of shareholders in the case of CIHL's accounts for 2000 which Ian signed on 16 October 2001.

(22) further attempts at settling their differences

224. By early September 2001 it was made clear by Towergate in a letter to Ian that "not unexpectedly" its bank had declined to guarantee payment by it of its loan notes offered as consideration for the shares in CIL. Ian reported this both to Mr Fieldhouse and to Patricia. He also reported that he had spoken to Towergate about the matter and had no doubt that its position would not change. He also made clear that he was willing to accept unguaranteed loan notes explaining that, in the space of two years, Towergate had grown from a small company to a large insurance group, having acquired 25 small companies like Campbell Irvine with others in the pipeline, and that it had a premium income of £210 million per month.
225. In reply Mr Fieldhouse reiterated that Patricia could not accept the risk of selling her shares for unguaranteed loan notes. He said that Patricia would, however, be willing to sell her shares to Ian at the same price that Towergate was willing to pay but that, equally, the price would have to be paid in cash or be bank-guaranteed. He also offered by way of alternative that she would be willing to sell her shares back to CIHL to the extent that that would be legally possible. Ian's response indicated that he was unwilling to acquire her shares on anything like the terms that Towergate had offered but that he would take advice on the proposal.
226. Some days later, Ian announced to Patricia that he was proceeding with a division of the travel side from the non-travel side of the business into separate companies, the travel side remaining in CIL and the non-travel side going into a new company. He offered to purchase from Patricia and the Trust their prospective shares in the new company (after the transfer to it of the non-travel business) for 30% of the previous year's declared non-travel income together with 49% of the new company's cash or liquid assets (as distinct from its vehicles, computers and the like). In a later letter to Mr Fieldhouse (it was the letter in which he commented that Patricia quite correctly could not accept non-guaranteed loan notes) Ian explained that Towergate did not want the non-travel business, that that side of the business would be run separately from the travel side with effect from 1 January 2002 and that his offer for Patricia's and the Trust's shares of the non-travel side was open until the end of that week.
227. There was some resentment on the part of Patricia (and those advising her) that the proposed division of the business into two had been planned for some time, was about to proceed and that this was occurring without any prior involvement of Patricia and the Trust as effectively the holders of just under 50% of the shares in the company. A meeting between Mr Fieldhouse and Ian to discuss matters was fixed. It took place on 28 September 2001. Nothing came of the meeting except an indication by Ian that if Patricia did not agree to the division, he, Ian, could vote her off the board (of CIL) and terminate her position as an employee.
228. Any hope that Towergate might be willing to revive its offer to purchase Campbell Irvine's travel business received a further set back in early October 2001 when Ian was given to understand that, having recently made a substantial purchase of an insurance company, Towergate had no more plans to make any further acquisitions.
229. While objecting to the way in which the demerger was being handled (namely, minimum consultation with Patricia) Mr Fieldhouse made clear in the course of subsequent correspondence with Ian, culminating in a letter dated 16 November 2001, that Patricia was not opposed to the demerger, was in principle willing to sell her shares in the company holding the non-travel business and was willing to do so at the price which Ian had proposed. But Mr Fieldhouse made clear that, in return for doing so, Patricia would want Ian to undertake to procure that in the future the travel company would pay Patricia and the Trust jointly one-half of the amount which Ian took out of the company in any form (including pensions, dividends and remuneration) and that the company would distribute not less than 50% of its distributable reserves in any financial period so as to ensure that some income would be forthcoming.
230. On 17 November 2001, Ian e-mailed the following curt response:

"Fieldhouse. Your letter 16.11.01 refers. Kindly don't waste my time with stupid suggestions. Irvine."

231. Two days later, on 19 November 2001, Ian wrote to Patricia to say that her employment with CIL had ceased but that this would not affect the overall remuneration she drew from the company each year in respect of her shareholdings which would "continue to be calculated by Critchleys" who would advise her of the most tax efficient manner in which she could be paid. He indicated that her employment should cease at the end of that month.
232. In early December Patricia received what, in a letter of acknowledgement to Ian, she described as "my first notification of a Board Meeting in connection with the business of Campbell Irvine Limited". The meeting was fixed for 11 December 2001. As Patricia observed, the agenda which accompanied the notice showed that the main (indeed the only specific) item of business was to be her resignation as a director of CIL. In her letter to Ian she indicated that she had no wish to resign but as Ian was intent on removing her, attending such a meeting would be a waste of time and therefore she would not be in attendance. She asked nevertheless to be supplied with a copy of the minutes of the meeting "should you decide to proceed … to discuss the second point on the Agenda which is 'any other business'."
233. At the meeting of CIL's directors held on 11 December 2001, Patricia's position was discussed and the cessation of her employment noted. The meeting resolved unanimously that she should be removed as director with immediate effect. In fact, as was later acknowledged, her purported removal had not been lawfully effected and she remained in law a director.
234. In a letter to Ian dated 11 December 2001, Mr Fieldhouse set out the history of Patricia's dispute with Ian and suggested that, because of the breakdown in the relationship between the two of them, it would be in everyone's best interest if Patricia's and the Trust's shares were purchased by Ian or CIHL as this would allow the parties to go their separate ways. He suggested that she and Ian jointly instruct an independent valuer with expertise in dealing with share valuations of private unquoted companies to provide a range of valuations of CIHL's shares so that once the parties had an idea of their potential value thought could be given to negotiating a sale price. The letter ended with a reminder that if a resolution was not reached one of the other options open to Patricia would be to proceed with a petition under section 459 of the Companies Act. Mr Fieldhouse expressed the hope that this would not be necessary and that the matter could be concluded amicably.
235. Ian responded on 14 December 2001. He was plainly angry at the threat of legal action, regarded Mr Fieldhouse's involvement as having been unhelpful and stated that, Patricia having rejected his offer to acquire her shares in the non-travel side of the business (it is not at all clear that she had), his offer was withdrawn. Just as Mr Fieldhouse had done, he too rehearsed his view of the dispute. His letter, which runs to nearly four pages, ended with what he described as "one final offer". That was that if Patricia formally agreed to the demerger he would be prepared to buy her shares and those of the Trust in the non-travel business for £150,000 and would be prepared to pay her, either by bonus or dividend (whichever was the more tax advantageous), 49% of the liquid retained profits of the business stated in the accounts at 31 December 2000. This, he said, would be dependent on Inland Revenue approval of the demerger. He stated that Patricia and the Trust would retain their shareholdings in the travel business and would be entitled to bonuses or dividends in respect of those shareholdings as calculated by Mr Minty. He stated that if a subsequent sale of the travel business should take place he would require Patricia's continuing confirmation of the 70/30 split in the sale price. He made clear that the offer he was making was on the basis that by no later than 31 December 2001 Patricia confirmed by letter that her employment with CIL had ended with effect from 30 November 2001. He described his offer as made on a "take it or leave it" basis. Nothing came of the offer.
236. In fact, the demerger did not occur as planned: it was delayed for a year and only took effect at the start of 2003. In an effort to secure approval of it Ian wrote to Alastair (Patricia's elder son) in April 2002 and again in July 2002 to canvas his and his brothers' support for the demerger. Not wanting to become involved in the dispute between his mother and Ian, Alastair adopted a non-committal position. Ian also wrote to Duncan Irvine (Patricia's youngest son) and Michael Thatcher to canvas their support. Nothing came of those approaches. Patricia was not in principle opposed to a demerger, merely to the terms of Ian's proposal to buy out her and the Trust's interest in the demerged non-travel side of the business.

(23) the 2001 accounts

237. The trading year 2001 turned out to be another successful one. Already, by a letter dated 18 December 2001, Ian had informed Mr Fieldhouse that so far as the 2001 trading year was concerned it was his intention to pay to Patricia and the Trust an amount calculated in the same way that the bonuses for 1999 and 2000 had been determined but that the payment would be made directly proportionate to the actual profitability of the company during the year. As in the past, Ian regarded the distribution of profits as entirely for himself to decide after Mr Minty had produced the relevant accounts. In subsequent correspondence between Ian and Mr Minty it was proposed that a dividend of £128,000 should be declared (of which £32,000 would go to the Trust and fractionally under that amount to Patricia) and that, over and above his contractual salary of £25,000 and benefits valued at £11,250, a bonus should be paid to Ian of £1.22 million.
238. A copy of CIL's draft accounts was sent to Patricia. It led to Patricia writing to Mr Minty to question the disparity between the amount proposed to be distributed as dividend and the amount of £1,437,392 (she was not provided with a breakdown) shown as directors' remuneration.
239. Mr Minty drafted a proposed response to Patricia's letter. Before sending it he took the precaution of submitting it to Ian for his approval. Apart from providing a breakdown of directors' remuneration and revealing that Ian's share of it was £1,124,500 (excluding benefits), Mr Minty was proposing to say to Patricia that "both directors' remuneration and dividends are proposed by the directors and agreed by the shareholders at an Annual General Meeting" and that "it is for the directors and ultimately the shareholders at the Annual General Meeting to determine the level of directors' remuneration and dividends".
240. In an e-mail to Mr Minty, Ian wanted those references to be deleted. As he put it in his email: "I am concerned that if you mention the AGM it will simply raise more queries which we can both do without". He proposed that instead Mr Minty should say that:

"In general directors' remuneration is in recognition of the work and effort undertaken on behalf of the company. A dividend is a return on the shareholders investment in the company. I note your concern about Malcolm's efforts but you must remember he was remunerated for them whilst working for the company and has left you and the Trust a valuable investment in your shareholding in the company. I hope this has been helpful."

Mr Minty's letter to Patricia, as sent to her on 10 July 2002, adopted this wording.

241. Ian's exchange with Mr Minty is revealing. It shows that Mr Minty was very willing to carry out Ian's suggestions and looked to Ian for guidance on what he should say to Patricia. It belies the notion, made and repeated by Ian on more than one occasion during his oral evidence, that he followed what Mr Minty said that he should do. It also shows Ian's concern not to alert Patricia to her right at an AGM to have a say on amounts paid out as dividends and directors' remuneration since, of course, his practice had been and was to remain not to hold any such meetings.
242. In fact, just as had happened in respect of the previous year's accounts, Ian did not even purport to hold any directors' or shareholders' meetings of CIHL to receive and approve CIHL's accounts and resolve upon the payment of any dividends. Instead, Ian simply signed CIHL's accounts "on behalf of the board" on 15 October 2002. He convened a meeting of CIL's directors on 20 August 2002 to which, however, Patricia was not invited. At that meeting CIL's accounts for 2001 were agreed. Interestingly, two of the directors who attended that meeting had no recall of seeing the draft accounts. This may be because the accounts themselves were never in fact before the meeting or it may be that, because the meeting was concerned with a host of other items, the directors in question simply could not recall what it is that they saw on that occasion. The only other director recorded as present was not asked about the matter. There is no record of any shareholder meeting of CIL being held in 2002 to receive and agree the accounts and resolve upon a dividend. In fact dividends were distributed (£35,292 to Patricia and £32,000 to the Trust) without any steps being taken to sign CIHL's accounts. Ian's share of profits comprising salary, bonus and benefits together with his share of the dividend came to £1,320,296. The payments were made in September 2002; CIHL's accounts were only signed a month later, on 15 October 2002.

(24) Patricia's removal as a director or CIL

243. In mid-April 2002, Ian raised with Mr Minty his wish to remove Patricia from the boards of CIHL and CIL, his wish to proceed with the demerger of the travel and non-travel sides of the business and, having achieved this, his wish to acquire the shares of Patricia and the Trust in the non-travel business. (Campbell Irvine Insurance (Brokers) Ltd had already been acquired as the vehicle through which the non-travel side of the business was to operate but, pending the demerger, it remained inactive.)
244. On 6 September 2002, Ian gave notice to Patricia of his intention to remove her as a director of both companies at meetings of shareholders of each company convened for 9 October 2002. This was to be his second attempt so far as Patricia's directorship of CIL was concerned. Patricia wrote to Ian to say that she did not propose to attend the meetings, that she had no wish to cease to be a director of either company but that, as Ian was the majority shareholder, there was nothing she could do to prevent him from achieving her removal. In due course a resolution removing Patricia as a director of CIL was recorded as having been passed at an extraordinary general meeting of CIL on 9 October 2002. Patricia has accepted that, from that date, she has ceased to be a director of that company. It is common ground that no valid resolution was passed removing Patricia as a director of CIHL and that she has at all times remained a director of that company.

(25) the demerger, Ian's share purchase offer and the letter before action

245. In a letter to Patricia written on the day that the meeting took place at which she was removed as a director of CIL, Ian offered to purchase the shares in CIHL of herself and the Trust at a price equal to six times the dividend each had received that year from the company, a figure which worked out at £384,000. At the same time Ian was once again in correspondence with Towergate. In a letter to Ian dated 1 November 2002, Mr Dyer asked whether Ian had been able "to move things forward with the other shareholders".
246. In the meantime, Ian arranged for the long-mooted demerger to come into effect so that from 1 January 2003 the non-travel side operated through CIIBL. Like CIL, CIIBL was a wholly-owned subsidiary of CIHL. Thomas Clarke was appointed managing director of the new company. A new member of staff, Anthony Kaye, was taken on towards the end of January 2003 and with effect from 1 May 2004 was appointed managing director of CIL. Patricia was duly notified by Ian of these matters in a letter which she received in late November 2002.
247. On 31 January 2003 Stevens & Bolton wrote a lengthy six page letter to Ian. The letter stated the willingness of Patricia and the Trust to sell their shareholdings provided a fair price was paid and provided that redress was made for what was alleged to be the unfair prejudice which each had suffered since Malcolm's death over the disproportionate division of profits as between Ian on the one hand and Patricia and the Trust on the other. The letter stated that Ian's offer to purchase the shareholding for £384,000 (as the writer understood the offer to amount to) did not reflect fair value and was therefore rejected. Aside from being too low, it failed, the letter said, to take into account the unfair division of profits. The underpayment was estimated to be £250,000 in the case of Patricia and £1.6 million in the case of the Trust. To address these matters, the letter set out alternative proposals for the sale of the two shareholdings to Ian (or to such person or entity as he might nominate) at an independent valuation but taking into account, as the independent expert should assess, any unfairness in the distribution of profits since Malcolm's death. The letter went on to state that if Ian rejected the proposals set out in it, Patricia would seek to resolve matters by mediation but if that was rejected by Ian or it was not successful Patricia would petition for relief under section 459 of the Companies Act 1985. In effect, the letter was a letter before action.
248. Ian's response was to say that his earlier offer (for £384,000) would not be materially increased and therefore that there was no point in going to a valuation. He gave no response to the offer of mediation.
249. This resulted in the presentation of the petition in this matter on 4 March 2003. Michael Thatcher, as I have mentioned, although a co-petitioner in his capacity as a trustee of the Trust has taken no part except as a witness called by Patricia.

(26) the 2002 accounts

250. By June 2003 Mr Minty had prepared CIL's accounts for 2002. Matters had been complicated by an Inland Revenue investigation, started in 2001, into CIL's affairs (and also into Ian's tax returns). The Revenue's concern was the lawfulness of CIL's action in transferring to Ian the flat in west London (used by him and his wife as their London home) by way of bonus instead of paying him in cash. The Revenue evidently took the view that the manner in which the transaction had been structured meant that the value of the property was taxable pay. There was also a threat by the Revenue to reopen previous similar bonus transactions. It must be emphasised that Ian had entered into these transactions on professional advice as a legitimate means of avoiding the payment of national insurance contributions. There was no question of any income tax having been wrongly avoided. The transactions in question went back some years. The investigation was eventually settled by a substantial payment by CIL. There was also a payment by Ian. The affair also led to a claim by CIL against Critchleys who (although not through Mr Minty) had advised in the matter. That action was eventually withdrawn and a contribution made by Critchleys of £160,000 to CIL's costs of the action.
251. As in past years, the accounts of CIHL were not considered at either a board or a shareholders' meeting of that company. Instead, and after correspondence between the parties' solicitors on the matter, Patricia signed a written directors' resolution approving the accounts and the report of directors and authorising Ian to sign them CIHL's behalf. It also authorised the payment of a dividend of £135,000 resulting in a payment to each of the Patricia and the Trust of just over £33,700. Patricia signed the minutes subject to certain reservations set out in a letter from Stevens & Bolton to Charles Russell dated 30 October 2003. Those reservations were, in essence, that Ian's remuneration was excessive and the dividend inadequate. Although Patricia only signed the minutes on 30 October, Ian anticipated matters by signing the accounts "by order of the board" ten days earlier on 20 October 2003. This method of dealing with the matter was agreed to enable CIHL to meet its statutory obligations with regard to the filing of accounts while preserving Patricia's right to object to them.
252. In a letter to Patricia dated 1 October 2003 Ian stated that the amount of the dividend was "based on the same formula as that recommended by Critchleys in the past". When asked in cross-examination what that formula was Ian was unable to say. As in the past the dividend came from a like sum made available to it by a dividend paid to it by CIL. CIL's accounts for 2003 were signed by Ian on 14 October 2003. He did so without troubling to hold any board or shareholder meeting to receive and approve them or to resolve upon any dividend to CIHL. The amounts paid by way of dividend and as remuneration to Ian for the year (comprising salary, bonus and benefits) totalled £1,204,000. They were determined by Ian alone after consultation with Mr Minty.

(27) the 2003 accounts

253. In October 2004, the 2003 accounts of CIL and CIIBL (the latter in respect of its first year of trading) were available. They were signed by Ian on 5 October 2004, again without troubling to hold any board or shareholder meetings. While Patricia may not have been entitled to complain about that since she was no longer a director of CIL and had not been made a director of CIIBL, she was entitled to complain, and did through Stevens & Bolton in a letter dated 11 October 2004, that on 26 October CIHL's accounts for 2003 had been signed by Ian on behalf of the board without prior notification to Patricia, much less without going through the proper formalities of holding meetings of directors and shareholders to approve them and resolve upon a dividend.
254. In due course, and belatedly, the same procedure was adopted for the receipt and approval of those accounts and of the report of the directors and for resolving upon a dividend as had been adopted the previous year in respect of CIHL's 2002 accounts. Patricia signed the relevant minutes subject to the same reservations concerning the amount of Ian's remuneration which, inclusive of salary, bonus, pension contribution and benefits, came to £746,693. The dividend paid was (overall) £83,000. The amount available for distribution in respect of 2003 was substantially below what it would otherwise have been owing to the settlement which Ian reached with the Revenue over the latter's investigation into CIL's and his own tax affairs. The settlement required a payment by CIL in the course of 2003 of £313,000. It is reasonable to suppose that if there had been no need to make this payment the amount of the dividend and the amount of Ian's remuneration would have been proportionately greater. On the basis that Ian's overall share of distributable profits (taken by him by way of salary, bonus and dividend etc) was running at 95%, his remuneration would probably have been greater by at least a further £275,000 and have brought it (with his share of the dividend declared) to a sum in excess of £1 million.

(28) the 2004 accounts

255. During the course of the trial the 2004 accounts of CIL, CIIBL and CIHL were prepared and approved. Yet again, Ian approved and signed those for CIL and CIIBL in advance of any consultation with his fellow directors. Although dated 25 October 2005 when, according to the evidence, Ian's fellow directors of those two companies were asked for and gave their approval to them, the fact is that Ian had signed and returned them to Mr Minty the previous day. Those for CIHL were signed and dated 28 October 2005. Patricia's approval of CIHL's accounts and her agreement to the payment of a dividend were sought and given on the same basis as had been done for the 2002 and 2003 accounts of CIHL. Ian's overall remuneration for 2004, inclusive of salary and benefits, was £1,023,126. Dividends paid for the year totalled £113,500 of which Ian's share was £56,790.

Unfair prejudice: general considerations

256. The jurisdictional requirements of section 459 were not a matter of dispute. The relevant authorities are Saul D Harrison & Sons plc [1994] BCC 475 and O'Neill v Phillips [1999] 1 WLR 1092. The conduct complained of must be both unfair and prejudicial to the petitioners as shareholders (if not to the members generally). Unfairness contemplates breach of an agreement, or of a duty or of a legitimate expectation. For an expectation to be a legitimate expectation it must arise out of the relationship between the parties in the circumstances explained in Ebrahimi v Westbourne Galleries Ltd [1973] AC 360. The prejudice complained of must be real, rather than merely technical or trivial, and must flow from the conduct said to be unfair. See Re BSB Holdings Ltd (No2) [1996] 1 BCLC 155.
257. Miss Roberts laid stress on the fact that CIHL was a family company and submitted that what might be fair as between businessmen might not always be fair as between members of a family and that Ian should therefore have tempered the exercise by him of his powers and responsibilities as a director and shareholder of CIHL with this fact in mind. But it has not been suggested that CIHL was at any material time a quasi-partnership, whatever the position may have been before Malcolm's death. On the contrary, the position adopted by and on behalf of the petitioners has been that Malcolm's death "prompted a fundamental change in the management and shareholding structure" of CIHL (as it was put by Mr Emile Woolf, an expert called on the petitioners' behalf in connection with dividends and other issues: see below) with neither of the petitioners having or expecting to have any participation in the running of the company or any other legitimate expectation such as to subject the conduct by Ian of CIHL's affairs to any particular equitable consideration. Moreover, for the reasons I have already expressed, the private agreement between Ian and Malcolm did not survive Malcolm's death. Whatever legitimate expectations might have arisen as a result of that agreement ceased when Malcolm died.
258. The fact that by his will Malcolm transferred a single share to Ian thereby giving Ian a majority shareholding did not subject Ian to any particular obligations. Nor conversely did it confer on him – or require Patricia and the Trust to accept that Ian had – any particular rights concerning the management of CIHL's (or CIL's) affairs over and above those enjoyed by anyone holding a majority of a company's issued shares. In particular, I reject the suggestion - it came from Michael Thatcher in the course of his cross-examination - that the gift of the one share, referred to as "the golden share", conferred on Ian, or was intended by Malcolm to confer on him, "absolute and unfettered control of the Company, including in relation to financial matters". Patricia understood from her conversations with Malcolm that the purpose of the gift of that one share was to ensure that Ian would be able to drive the Campbell Irvine business forward and not have his hands tied by solicitors and accountants while Malcolm's estate was being administered. Michael Thatcher's evidence was to a similar effect. That may well be so. My own view is that the explanation is much simpler: Malcolm wanted to ensure that CIHL should not be deadlocked. Ian's ownership of the additional one share ensured, for so long as he retained his other shares, that this would not happen.
259. One other observation. The petitioners' major complaint - that Ian drew excessive remuneration – related to the conduct of CIL's affairs rather than of CIHL's since it was CIL that made the payments. So also, to an extent, did the complaint concerned with inadequate dividends in that the monies needed to enable CIHL to declare and pay them derived from the profits made by CIL (and CIIBL). It has rightly not been suggested, however, that the manner in which the affairs of CIL have been conducted cannot constitute conduct of CIHL's affairs. Given the extent of Ian's control of the affairs of both CIHL and CIL (he was at all times a director of both and plainly directed how CIL was managed so far as relevant to issues concerning remuneration and dividends) the petitioners could properly claim that the acts complained of, so far as they constituted the conduct of CIL's affairs, were also acts in the conduct of CIHL's affairs. This approach is sanctioned by the decision of the Court of Appeal (reviewing earlier authority) in Gross v Rackind [2004] EWHC Civ 815.

The pleaded claims

260. As summarised earlier, the allegations of unfair prejudice are essentially four in number: (1) that since Malcolm's death Ian has procured the payment to himself of excessive, unreasonable and unjustified levels of remuneration from the business; (2) that shareholders in CIHL, in particular Patricia and the Trust, have received either no or inadequate dividends in respect of the years following Malcolm's death; (3) that Ian has failed to run CIHL in accordance with the requirements of the Companies Act 1985 in that he has failed to give Patricia notice of board meetings of CIHL, failed to give notice of general meetings of CIHL to approve its accounts and failed to have his remuneration approved by CIHL in general meetings; and (4) (raised by the petitioners in their reply) that Ian negotiated terms for the sale of CIHL's shares to Towergate in breach of fiduciary duties which he owed to the petitioners in that he negotiated terms which were unduly advantageous to him and failed to take proper account of the petitioners' interests and that he failed adequately or in a timely manner (or in some respects at all) to inform the petitioners of the course of those negotiations.
261. In his closing submissions, Mr Todd took the point that, as pleaded, the complaints were limited to events occurring prior to 2002. This was largely a consequence of the date when the petition was presented, which was March 2003. The fact nonetheless is that the matter had been opened by Miss Roberts and thereafter pursued and correspondence read to me and evidence given in relation to matters of complaint concerning excessive remuneration, inadequate dividends and breaches of the Companies Act requirements going beyond that cut-off point. In their own evidence Ian and his witnesses had not confined themselves to the position before 2002. The pleading point was therefore without merit. On Miss Roberts' application at the outset of her closing submissions (and ultimately without opposition from Mr Todd) I allowed the petition to be amended so as to carry the complaints forward to include the 2004 trading year and continuing.

Excessive remuneration and inadequate dividends

262. I take these two issues together because they are in effect opposite sides of the same coin in that unless the petitioners can establish that the remuneration taken by Ian was excessive there can be no scope for contending that dividends were inadequate. This is because, subject only to the very modest annual retention from profits and the payment of any tax, the remuneration and dividends, including, while they continued, the payment of salary, bonus, pension contributions and other benefits to Patricia, absorbed the whole of the available distributable profits. (See the appendix to this judgment for the relevant figures.) What was left in the business, ignoring goodwill, was in part the value of office furniture and equipment and, as to much of the balance, the amount needed to satisfy regulatory requirements affecting insurance brokers.
263. As Mr Todd rightly pointed out, Ian's remuneration has always been paid by CIL. As it was taken by Ian purportedly in an executive capacity, it fell to be fixed by CIL's board of directors. See regulation 84(3) of Table A (to the Companies Act 1948) made applicable to CIL, subject to modifications, by article 1 of CIL's articles of association. The approval of CIHL in general meeting was not required. Insofar as the remuneration might be said to have been paid to Ian in a non-executive capacity, regulation 76 of Table A required that it be fixed by CIL in general meeting. Again, shareholder approval by CIHL was not in point.
264. As the evidence showed, however, at no stage relevant to this dispute has Ian's remuneration been fixed or approved by CIL whether by its board of directors or in general meeting. Although there were board meetings of CIL, by which I mean genuine meetings (as distinct from purported meetings which consisted of no more than a minute signed by Ian), at no stage was the board concerned to fix Ian's remuneration. It was a matter which he alone determined. He said, and I accept, that he did so after consulting Mr Minty but the decision was his and his alone. But Mr Minty was neither a director nor a shareholder of CIL. Moreover, not having seen him give evidence, I am very far from persuaded that, apart from advising on the tax consequences of this or the other proposed distribution and apart from suggesting from time to time ways in which Ian might tackle the thorny question of payment to Patricia (and later the Trust), Mr Minty had much influence over Ian's actions. Even if he had, that does not provide any kind of excuse for Ian's failure to observe the correct procedures.
265. If there had been any independent scrutiny of Ian's remuneration and it had been fixed by CIL's directors at properly convened meetings, the position might have been very different. But it never was.
266. Mr Todd reminded me that all of the corporators of a company acting together may do anything which is intra vires the company and that as CIHL was CIL's sole corporator it was in effect open to CIHL to fix Ian's remuneration. The inference behind this was that, as the majority shareholder of CIHL, Ian could control how CIHL acted and could therefore have directed CIHL, as CIL's sole corporator, to fix his remuneration. I do not see how this assists Ian since it is clear that no steps were taken by Ian to convene any meeting of CIHL's board to resolve upon his remuneration or, for that matter, to delegate to him the power, on behalf of CIHL, to approve the payment by CIL of his remuneration. The most that Mr Todd was able to point to was Patricia's willingness, in the immediate aftermath of Malcolm's death, to forego attendances at meetings of directors, both of CIHL and of CIL. But that does not by any means suffice. The plain fact is that Ian never once sought to involve Patricia in determining what his remuneration should be. I also reject the further submission, impliedly made, that the gift by Malcolm to Ian of the so-called golden share was intended and understood to give Ian carte blanche to fix his own remuneration. In my view it did no such thing.
267. In the absence of any actual consideration and fixing (except by himself) of Ian's remuneration in accordance with the procedures laid down by CIL's articles of association, the court has to determine whether what Ian drew was appropriate in amount. In her opening, Miss Roberts referred to the observations of Sir Richard Scott V-C in Re A Company (No 004415 of 1996) [1997] 1 BCLC 479 where the petitioners, seeking relief under sections 459 and 461 affecting three companies, challenged the amount of the remuneration drawn by the respondents. There was also a challenge to the dividend policy of the companies in question. In his judgment on an application by the respondent directors to strike out the petition, the Vice-Chancellor said this (at 492g-h):

"If the respondents are unable to justify by objective commercial criteria that the companies' dividend policy was a reasonable one and that the remuneration the …directors were paid by the companies was within the bracket that executives carrying the sort of responsibility and discharging the sort of duties that they were carrying and discharging would expect to receive, the petitioners will, in my opinion, have succeeded in establishing their s459 case."

268. According to that decision, therefore, the test is whether, applying "objective commercial criteria", the remuneration which Ian took was within the bracket that executives carrying the sort of responsibility and discharging the sort of duties that Ian was, would expect to receive.
269. Mr Todd submitted, applying Charterbridge Corporation Ltd v Lloyds Bank [1970] Ch 62 at 74 (concerned with the validity of a charge), that the test to be applied was "whether an intelligent and honest man in position of a director of the company concerned, could, in the whole of the existing circumstances, have reasonably believed" that the level of remuneration was appropriate. Alternatively, he submitted that Ian would be entitled to a quantum meruit reflecting the significant value of his services to CIL. See Craven Ellis v Canons Ltd [1936] 2 KB 403 at 412.
270. I prefer the formulation by Sir Richard Scott V-C although I doubt that there is any difference of substance between that formulation and the test culled from the decision in Charterbridge, or for that matter, the application of a quantum meruit.
271. Before coming to the evidence on whether what Ian drew, purportedly as remuneration for his services, was appropriate having regard to objective commercial criteria, I should say something about the linked question of dividends.
272. Mr Todd submitted, correctly, that in law the divisible profits of a company belong to the company itself (as part of its property) and not to its shareholders and that the only right or entitlement of a shareholder in relation to any dividend (absent any rights attaching the shares set out in the company's articles – and there were none in the case of CIHL) is that conferred by the provisions of Table A (incorporated with modifications, as I have mentioned, into the articles of CIL and also into those of CIHL), in particular regulations 114 to 122. So far as material, those provisions only entitle shareholders to such dividends as may be declared by CIHL in general meeting and then only up to an amount not exceeding that recommended by the directors (see regulation 114) or, in the case of an interim dividend, as may be paid by the directors (see regulation 115).
273. Mr Todd submitted, again correctly, that the petitioners had no legitimate expectation (in the sense discussed in authorities such as Saul D Harrison & Sons plc and O'Neill v Phillips) that dividends would be paid on their shares and that, in any event, no such expectation had been pleaded. He was also correct in my view to submit that the petitioners had no expectation of a dividend payment merely because they were shareholders and that the reported decisions on the non-payment of dividends (for example (Re a Company (No 00370 or 1987) ex parte Glossop [1988] 1 WLR 1068 and Re Sam Weller & Sons Ltd [1990] Ch 682) do no more than establish that the non-payment of dividends may, in the particular circumstances of the case, amount to unfairly prejudicial conduct.
274. He also submitted, in reliance on Saul D Harrison & Sons plc (at 489c), that there was no positive duty on directors to consider whether there should be a distribution of profits through the payment of a dividend. Instead, he said, the question was whether by not recommending the payment of a dividend it could be said that the directors had abused their fiduciary powers. He went on to submit that if there was such a duty the test to be applied, referring once more to the decision in Charterbridge, was whether an intelligent and honest man in the position of a director of CIHL could in all the circumstances have reasonably believed that the non-payment of dividends was appropriate.
275. That is all very well as far as it goes. What it overlooked, as Miss Roberts pointed out, was that the practice of Ian and Malcolm had been to take out all of the divisible profits by whatever means were fiscally efficient and that Ian continued this practice following Malcolm's death. The question to my mind is whether, if and to the extent that Ian's reasonable remuneration does not absorb all of the available divisible profits, the directors of CIL and CIHL, mindful of the policy of profit extraction, would have recommended the distribution of the balance by way of dividend.
276. That conveniently brings me to the expert evidence bearing on remuneration and dividends. I begin with remuneration.

Remuneration: the expert evidence

(1) David Brooks

277. David Brooks, chief executive and controlling shareholder of Inbucon Consulting (described as an independent human resources consulting firm), gave evidence for Patricia on remuneration issues. Mr Brooks has over 20 years of experience advising companies on their senior level and board remuneration and is the appointed adviser to a number of remuneration committees. His company, Inbucon Consulting, maintains a salary survey database covering the public and private sectors, which is updated annually and goes back over 40 years.
278. Mr Brooks was an extremely impressive witness with a wide knowledge of remuneration issues and, as it seemed to me, a thorough understanding of the factors which are in play in the fixing of an executive's remuneration. The focus of his evidence was to express an opinion on what would have been for Ian a reasonable remuneration package (comprising salary, bonus and other benefits) based on his role within the Campbell Irvine business and the services that he provided and whether therefore the remuneration that he has drawn has been excessive and/or unreasonable. He then went on to consider whether Ian could command a similar package if he were to seek alternative employment and what it would cost Campbell Irvine to acquire a suitable replacement for Ian.
279. His approach was to identify Ian's position – effectively as chief executive officer of the Campbell Irvine business – and the size of the organisation which he was running and relate those matters to the general level of remuneration earned by others in comparable positions. He did so by reference to a broad range of survey data, in part from the database maintained by Inbucon and in part from a similar database maintained by a separate organisation called Remuneration Economics. He checked these against other surveys. He did this by reference to a combination of turnover and employee numbers and also by reference to pay levels in organisations operating in the financial services field and then by examining data available in relation to companies operating in the South East region (ie covering London), the private insurance sector, both for British Insurance Brokers Association brokerages and for Lloyds brokers, and ultimately by examining the statistics on pay for brokerages with turnovers of between £1 million and £6 million. (Campbell Irvine's turnover for 2003 – the relevant year for most of the data – was £2.3 million.)
280. From all of this he concluded (1) that the range of remuneration for a chief executive officer of a brokerage like Campbell Irvine in 2003 would be between £100,000 and £300,000; (2) that any remuneration above this level would need exceptional circumstances to justify the payment; (3) that from the information he had seen he was not aware of any such exceptional circumstances; and (4) that, at best, any such circumstances would probably operate simply to move Ian to the higher end of this remuneration range, not beyond it. He concluded that Ian would appear to be "a competent CEO" and that he had "sale/customer relationship skills which would make him capable of obtaining alternative employment running a small business of, say, up to £3 million turnover" but that his history and the history and growth of Campbell Irvine did not demonstrate a capacity "to build a company through acquisition and organic growth to the extent necessary that would give his skills a premium". He therefore felt that Ian would not be able to command a similar remuneration package to that which he has in fact received, either elsewhere in the insurance industry or in an alternative sector. He considered that "a very able replacement" could be obtained for Ian for a base salary and cost of between £100,000 to £150,000, with a bonus potential of between 50% and 100% giving an overall remuneration package of between £100,000 (at the bottom of the range) and £300,000 (at the top of the range). He said that there would be an expectation of some equity participation but that this would be traded off against the bonus entitlement.
281. Mr Brooks discounted very considerably the claim by Ian to have assumed the bulk of Malcolm's responsibilities following Malcolm's death and, as a consequence, the very long hours Ian devoted to the business. He said that, after Malcolm had died, some redistribution of function would almost certainly have occurred within the upper management tier of the business, that there was a point beyond which a busy full-time chief executive officer is not physically capable of assuming the full-time functions of another senior executive officer in the business such as Malcolm was and that, in any event, chief executive officers are not paid by reference to the number of hours they work since, in one sense, a chief executive officer is always on the job. As he put it: "a CEO job is not a job, if it is being done even vaguely competently, which can double in size". In his view there was no relationship between remuneration and the hours that a chief executive officer works. At most the extra work would move the person in question towards the upper end of the relevant pay range.
282. Mr Brooks said that a premium, above the range of remuneration, would or might be available to a person who demonstrated an ability to "grow a company" but that there was no evidence of any growth sufficient to justify a premium in Ian's case. Mr Brooks estimated that the annual growth in Campbell Irvine's overall turnover averaged 7% per annum between 1990 and 2002. He said that there was nothing unusual in that rate of growth.
283. That a chief executive officer was someone with individual relationships which brought clients to the organisation was, in Mr Brooks' experience, a common feature of professional and similar organisations and, insofar as Ian had done so in relation to CIL, not a reason for paying him anything extra. It was to be expected of such a person. Indeed, he said, the chief executive officer was expected to "corporatise" such relationships, that is manage them so that they were no longer exclusive to that person but became (in Mr Brooks' language) "a corporate relationship" with the result that the relationship was not lost if the chief executive officer left. A chief executive officer who had that ability would command a premium if he were able to move on to the next relationship, "corporatise" that relationship and so contribute to a process of growth and stability in the organisation. Even then the "premium" would not take the individual executive officer beyond the upper limit of his particular remuneration range. Despite the evidence of Ian, that of the other executive directors of Campbell Irvine who provided witness statements, and also that of Mr Gooley, Ian's relationship with Trailfinders was not, in Mr Brooks' view, in any sense unique: the service Campbell Irvine provided was not unique, the skills needed were not unique and the fact that there existed a relationship between Ian and Mr Gooley was not of itself unique in that many organisations employ individuals who have personal relationships with clients. At best the existence of such a relationship might take the remuneration of the executive in question to the top end of the range. As Mr Brooks put it:

"There is a sort of circular point here that … because the business has not grown and developed so that the Trailfinder account has become a smaller proportion of the whole, there is a dependency on it, but I do not accept that because there has not been growth in the business, which would be a normal parameter for paying a premium, because the company has continued to be dependent on one account, [that] those are factors that would justify a premium. I would suggest that those are factors that would justify anything but that. I think the solution is not necessarily to continue to pay or to argue to pay very substantial sums of money, but the solution would be to build the business so that it had a non-dependency on any one single account. Therefore, the justification of saying that we should pay this individual this substantial amount because we are entirely dependent upon this account would in fact disappear if the company grew."

284. And later:

"…had the stewardship of the business been such that the business had grown and developed over the last five, six, seven years so that it was not a £2.5 million but it was a £10 million or £25 million business, I think the argument that is being put forward would become a lot weaker because the argument would then become that there is this one account which has this value to it which is no longer 60 percent of the entire business but is now only 6..."

(2) Nicholas Andrews

285. Nicholas Andrews, a chartered accountant, a partner in KPMG Forensic since 1998 and, since 2002, head of KPMG's Expert Witness Services, was called on Ian's behalf to provide his expert opinion on remuneration issues. His view was that Ian's remuneration in the period 1996 to 2002 was not excessive in the sense that it could not be reasonably justified by reference to objective criteria. In reaching this conclusion he considered primarily Ian's "unique personal value to the business, in terms of his personal business contacts, his operational input to the business as executive director and the profit improvement that CIL … achieved under his sole stewardship". He was also of the view, based upon his "experience and knowledge of the scale of remuneration packages for key individuals involved in certain "City" professions, particularly within the financial sector", that the absolute level of Ian's remuneration was "not uncommon".
286. In contrast to Mr Brooks' very considerable experience in the field of executive remuneration, Mr Andrews' was largely confined to recruitment to KPMG Forensic (a unit consisting of 150 persons) and his involvement in employment and personal injury disputes where remuneration was an issue. This involvement, it appeared, had resulted in three or four reports by him over a three year period in which remuneration issues, of the kind with which this dispute is concerned, had featured. In reaching his conclusions he did not consult with anyone within KPMG who had the range of knowledge of remuneration issues which Mr Brooks had. Mr Andrews took the view when he had looked at the matter that what he described as the "survey type benchmarking approach" was inappropriate. He considered that there was no true comparator to CIL and Ian's role in it.
287. Instead, Mr Andrews endeavoured to establish what he described as "the value of Ian to the business in economic terms". To do this he devised a method of approach all of his own which, he accepted, was unique to the circumstances of this particular dispute. The way that Mr Andrews went about matters was as follows. The starting point was the so-called private agreement between Ian and Malcolm. He assumed that their four-sevenths/three-sevenths profit split was an acknowledgement by them that what they thereby took "represented income payable to the two brothers as executive directors for the work performed by each of them and did not include the payment by way of a dividend to reward them in their capacity as shareholders" (see paragraph 3.4.2 of his report). Dividends, he considered, were covered under a separate heading of the private agreement in that, if any were to be declared, they were to be split 50/50 as per their shareholdings at the time the private agreement was made. He found support for this way of approaching the four-sevenths/three-sevenths split in the fact that for the years 1994 and 1995 the Trust did not receive any income.
288. Building on this foundation and after considering features of the business attributes that Ian brought to the Campbell Irvine business, namely, personal contacts with key customers, a reputation for client service and integrity, hard work and dedicated commitment to the business, entrepreneurial flair and ambition, insurance sector experience particularly in the travel insurance field, and the respect and loyalty of his workforce (see paragraph 4.2.6 of the report), and drawing on his "general experience of remuneration policy in businesses where, more usually, one, but sometimes two, directors are fundamental to the viability and profitability of the business" and mindful of the need to take into account "the balance of reward due to the individual for his 'labour' and to shareholders for their 'capital'", Mr Andrews sought to devise a formula to reflect what remuneration (for his "labour") Ian could reasonably claim given the increase in profits made by the business after Malcolm's death. A feature of this formula was an assumption by Mr Andrews, reflecting what he had stated in paragraph 3.4.2 of his report, that "historically up to the year ended 31 December 1995…the profit appropriation to Ian and Malcolm represented salaries and bonuses" and therefore that "Ian's remuneration as a director should have been increased following Malcolm's death directly in respect of that proportion of Malcolm's work responsibilities that he then assumed". From this he reasoned that because, as he understood matters, Ian assumed approximately 95% of Malcolm's responsibilities this justified Ian being paid 95% of Malcolm's executive remuneration. Since Malcolm's remuneration represented three-sevenths of available profits this meant that, taking into account his own original four-sevenths, Ian could legitimately claim to be entitled to 97.9% of the overall profits.
289. He then asserted that "remuneration in the year ended 31 December 1994 can be used as one basis for calculating any fair remuneration for Ian from the year ended 31 December 1996 onwards". The year 1994 was chosen by Mr Andrews because that was the last year in which accounts were finalised prior to Malcolm's death. On this footing, Mr Andrews was of the opinion (see paragraph 4.2.18 of his report) that, as regards the years 1996 onwards, "…based on the 'fruits of work done' approach to remuneration prior to Malcolm's death, Ian would be entitled by way of executive remuneration to 100% of the additional profits generated by these improvements…".
290. All of this resulted in a number of graphs and tables culminating in table 7, supplemented by appendix 2, set out in Mr Andrews' report. Table 7 showed a series of calculations based on CIHL's audited accounts in which Mr Andrews estimated for each year from 1990 onwards what he referred to as the gross operating profit of the business. He reached this figure by deducting administrative expenses from turnover and then adding back salaries and bonuses but not, apparently, pension payments (at any rate in his initial calculation). He then expressed the aggregate of the salaries and bonuses drawn by Ian and Malcolm in 1994 as a percentage of the gross operating profit for that year (a figure of 117%). He described this as the gross operating profit ratio. He then calculated what 117% of gross operating profit for 1996 and for each subsequent year would yield and, on the assumption that Ian's share of profitability in the period after Malcolm's death was 97.9%, calculated what, applying that percentage, Ian could claim to be entitled to. He then carried out the same exercise taking 121% (based on the average of the corresponding percentages derived from the 1990, 1991 and 1994 figures) instead of using 117% based on 1994 figures alone. For no very good reason except that, if he had done so, the resulting gross operating profit ratio would be "exceptionally high" he excluded from his calculations the corresponding ratios for 1992 and 1993, namely 187% and 257%. For 2000 onwards he assumed that all of the increase in gross operating profits compared to the year 1995 was attributable to Ian together with 97.9% of 117% of the gross operating profit for 1995 (or, in the alternative calculation, 97.9% of 121% of the gross operating profit for 1995).
291. I was puzzled why Mr Andrews had chosen to proceed in this peculiar fashion in his attempt to calculate Ian's economic value to the business. There seemed to me to be no good reason why, in seeking to reach this goal, he should have juggled with figures in this manner. This puzzlement was amply confirmed by the results of Mr Andrews' exercise. This showed that the "range of appropriate executive remuneration for Ian" (as he described it) for each of the years 1996 onwards was greater by a considerable margin than the salary and bonus which Ian had actually taken. Thus, for the year 2002, whereas Ian actually drew £1.197 million by way of salary and bonus, nevertheless according to Mr Andrews' calculation the appropriate remuneration for Ian for the year was between £1.482 million at the top of the range and £1.457 million at the bottom of the range. In other words Ian underpaid himself by at least £250,000 for that year. Since £1.457 million (to take the lower of those two figures) exceeded the net profits available for distribution in that year (£1.363 million) the result seemed perverse.
292. It seemed fairly obvious that something was wrong with Mr Andrews' approach, even ignoring the fact that Ian's "appropriate executive remuneration" calculated on this basis was almost five times the upper range of the £100,000 to £300,000 remuneration band (and for 2003 what is more) reached by Mr Brooks in the way that I have earlier summarised. Mr Andrews' approach also assumed, quite contrary to the fact, that all of the remuneration drawn by Ian and Malcolm under their private agreement in accordance with the four-sevenths, three-sevenths split was payment for work carried out by them as executives and was not to any extent a distribution of profits to themselves in their capacity as shareholders. This was not consistent with the advice given to them by Critchleys which I have summarised at paragraph 52 above. Not the least of the reasons for questioning this assumption was the fact, as the underlying documentation disclosed but of which Mr Andrews was not aware, that in calculating the four-sevenths, three-sevenths split in 1992, Malcolm had included the dividends with he and Ian took in respect of that year.
293. Another of Mr Andrews' questionable assumptions was that, having (as he understood it) taken on 95% of Malcolm's responsibilities, Ian was entitled to 95% of the share of profits that Malcolm had formerly drawn. In cross-examination Mr Andrews accepted that a more modest share, not exceeding 50%, was more appropriate. Another questionable feature of Mr Andrews' approach was why, in his calculation of gross operating profit, he had added back salaries and bonuses but not the pension contributions that Ian and, until his death, Malcolm had drawn.
294. To make good this last omission a fresh set of calculations was produced when Mr Todd came to make his closing submissions. These calculations added back pension contributions and therefore produced different gross operating profit ratios. This calculation also extended the range of reasonable remuneration by reworking the gross operating profit ratios. This was achieved by taking the average of each of the gross operating profit ratios for the years 1990 to 1994. It produced a ratio of 131%. This in turn yielded a "range of appropriate executive remuneration for Ian" which not only far exceeded what Ian had actually taken for each year following Malcolm's death, but, at the top of the range, exceeded for each of the years 2000, 2001, 2002 and 2004 the total turnover for CIHL, never mind its gross operating profit. Thus the range of Ian's "reasonable remuneration" for 2004 was £2.64 million at the bottom of the range and £2.92 million at the top. Turnover for that year, however, was only £2.33 million.
295. Faced with this absurd result, Mr Andrews, who had by now long since departed the witness box and was not therefore able to be cross-examined on his reworked calculations, produced yet further calculations. I will not trouble to summarise what they indicated because, further errors in them having been spotted, a fourth reworking of the figures was produced. By now it was the late afternoon of 14 December (the final day of the hearing) and Miss Roberts had completed her closing submissions. This further reworking adjusted the calculation to take into account the fact that in 2003 and 2004 Anthony Kaye was, according to Mr Andrews's instructions, "taking a part of Malcolm's former workload". These reworked calculations produced the odd result that for each year from 1996 onwards except 2004 the reasonable range of Ian's remuneration was greatly in excess of what he actually drew (for example, in 2001, Ian actually drew £1.256 million in salary bonus and other benefits but, according to Mr Andrews' re-re-reworked calculation, the appropriate range was £1.438 million at the bottom of the range and £1.569 million at the top) whereas, in 2004, ignoring dividends, Ian had actually drawn more (except at the very top of the range) than he should have done.
296. In his closing submissions, Mr Todd, while criticising the approach of Mr Brooks in a number of respects and while commending Mr Andrews' general approach to the value, recruitment and remuneration of "exceptional individuals" summarised in the question "what is Ian worth to CIL?", did not seek to defend Mr Andrews' particular workings with a view to answering this question. Miss Roberts submitted that Mr Andrews' approach amounted to playing with numbers in an endeavour to justify the actual levels of remuneration which Ian had drawn.
297. I agree with Miss Roberts. I was wholly unpersuaded by Mr Andrews's methodology. As I have mentioned, it was one devised by himself to suit the circumstances of this case. It is not one, so far as I am aware, which is followed by anyone else in the field of executive remuneration. Mr Andrews claimed to draw on his general experience of these matters, but that general experience was, at best, limited and no effort was made to draw on any comparative data to support his overall calculations. His approach wholly ignored executive survey data of the kind relied upon by Mr Brooks which, although open to criticism (as I shall later describe), at least made an attempt to relate Ian's services to and role within the Campbell Irvine business to executive remuneration in the private insurance broking sector and other related fields.

Dividends: the expert evidence

(1) Emile Woolf

298. Emile Woolf is a chartered accountant, a founder member of the Academy of Experts (established in around 1990), a partner since 1984 of Kingston Smith with special responsibility for litigation, regulatory and insurance support services and his firm's referral partner on technical accounting matters, audit reports and independence/ethical issues. For the past 13 years, he has been chairman of the Professional Indemnity Insurance Panel of the Institute of Chartered Accountants of England and Wales. He is also chairman of the Joint Advisory Panel of Participating Insurers. He has regularly lectured to accountants in practice, commerce and industry on a wide range of issues, is a frequent contributor to the professional press, has written texts for accountants and auditors, and was founder in 1975 of the Emile Woolf colleges which provide accountancy training in the UK. Over the years he has provided over 300 Expert's Reports on matters involving professional negligence, liability and quantum issues, regulatory complaints and forensic accounting work in commercial and other disputes and has given evidence at trial on over 30 occasions.
299. After pointing out that dividends may only be paid out of profits and that whether any dividends are to be paid in respect of any particular period is a matter for the directors' discretion in the absence of a shareholders' agreement, Mr Woolf expressed the view that the dividend policies adopted by other companies, regardless of whether such companies might be considered comparable in other respects, were of no relevance for the purpose of assessing the reasonableness or otherwise of the dividend policy adopted by CIHL following Malcolm's death. He pointed out that, prior to Malcolm's death, the division of profits was entirely a matter for Ian and Malcolm who between them owned and ran the company, and that even after the Trust was established and before Malcolm's death the two brothers continued for understandable reasons to divide the profits between themselves. The position changed, however, when Malcolm died in that there occurred what Mr Woolf described as the "real watershed". That was because from then on there was what in Mr Woolf's view was a "fundamental change" in the management and shareholding structure of the company in that 49.96% of CIHL's shares were now owned by shareholders who, notwithstanding Patricia's position as a director, did not as a matter of fact participate in the running of the Campbell Irvine business in any executive capacity. Mr Woolf expressed the view that from that time onwards dividend policy should have taken account of the following factors: (1) the requirement to ensure that Ian as the company's sole remaining executive director received a fair and reasonable remuneration package commensurate with the remuneration paid to such directors in comparable companies and which took into account the fact that he would in all probability thenceforth be required to take responsibility for a significant proportion of the work previously undertaken by Malcolm; (2) the fact that the nature of the company's business was such that only limited funds were required to be retained within the business as working capital with the result that any funds in excess of those working capital requirements were available for distribution to the shareholders as dividends; and (3) the fact that, prior to Malcolm's death, virtually all surplus profits had been withdrawn from the company. On that basis Mr Woolf expressed the view that the dividend policy adopted by CIHL after 1996 (for this purpose he made no distinction between CIHL and the underlying trading company, CIL) should have been determined by reference to the profit available for distribution after taking into account proper remuneration for Ian. In cross-examination Mr Woolf stated that, although this was not a matter for his expertise, as a result of the further responsibilities assumed by Ian following Malcolm's death, his remuneration should have been "significantly" or "noticeably" increased. He was not prepared to say by how much. He also said in cross-examination that it was incumbent on the directors of a company to have regard to the expectations of shareholders when considering dividend policy. This meant that the question of how the profits should thenceforth be divided between those who contributed directly to the generation of the profits and the non-participating shareholders should have been carefully reconsidered but was not.
300. In assessing what the appropriate level of dividend for Patricia and the Trust should have been (if other than what was actually paid to them) Mr Woolf prepared a series of appendices to his report in which he added back to each year's reported profits (before any dividend payments which had actually been made) the remuneration (salary, bonus, pension contributions and other benefits) received by Ian and Patricia and then deducted from the restated profits (1) an arbitrary £25,000 per annum to take account of the fact that prior to 1996 (and indeed after that date) a small annual proportion of the profits generated in each year was usually retained by CIHL and (2) what Mr Brooks had considered what was reasonable remuneration for Ian's services. Mr Woolf then provided for the balance to be distributed as dividend according to the respective shareholdings of Ian on the one hand and Patricia and the Trust on the other. He did so on three alternative bases, by taking the bottom of the range of remuneration for Ian estimated by Mr Brooks, namely £100,000 per annum in 2003 and discounted annually for each preceding year, alternatively £200,000 and in the further alternative, £300,000. He then calculated the overall amount underpaid, on this footing, to Patricia and the Trust (and, correspondingly, overpaid to Ian) for the period 1996 (following Malcolm's death) to 2003 on the three alternative levels of remuneration suggested by Mr Brooks. In so doing he assumed that as Patricia was performing no material services for the business at any time, her drawings from the business were to be considered as de facto dividends. At the lower end of the range of remuneration advised by Mr Brooks, Mr Woolf estimated that up to and including 2003 Patricia and the Trust had been underpaid by £2.54 million and Ian overpaid by £2.62 million. At the upper end of the range he estimated that Patricia and the Trust had been underpaid by £1.92 million and Ian overpaid by £1.99 million. These figures were in substance no more than indicative.
301. The assumption underlying this approach was that, apart possibly from the small amount retained annually out of profits, CIHL had in fact operated on the basis of paying all of its profits away, in short that the amount of dividend was calculated by reference to the amount left after deducting the sum properly payable as remuneration to Ian. As Mr Woolf observed:

"If the company is operating on a system of paying all the remaining profits away as dividend, then the amount of that dividend is going to be determined by what Mr Irvine's remuneration is."

302. Then, after referring to Mr Brooks' figures, Mr Woolf continued:

"So once you have reasonable remuneration, which is not my province, you arrive at a reasonable dividend, if you are paying everything out."

(2) Nicholas Andrews

303. Mr Andrews, acting also as Ian's expert on dividend issues, considered that the dividend payments by CIHL for the period 1996 onwards were within what he regarded as a reasonable range.
304. In reaching this view he analysed the average annual dividend payout ratios (ie dividends expressed as a percentage of net profits after tax available for distribution by way of dividend) for private insurance brokers and private insurance companies in general, excluding CIL and CIHL, for the period 1996 to 2002. The figures were taken from a recognised source. He also analysed CIHL's dividend payout ratios from 1978 to 2002. He did so both in respect of actual dividends paid out over this period and also in respect of dividends actually paid out together with all other payments made to Patricia. He performed the latter analysis on the basis that, although described as either bonus, salary, pension contributions or other benefits, the payments to Patricia were to be considered as "quasi-dividends" as Patricia had rendered no services to CIL (or CIHL) in return for them.
305. His analyses yielded the following results: (a) that (as might be expected) there was a wide range of average dividend payout ratios across the period which in turn highlighted the importance of individual company dividend policy; (b) that CIHL's average (actual) dividend payout ratio during the period 1978 to 1995 was 29.4% per annum; (c) that CIHL's average (actual) dividend payout ratio over the years 1996 to 2002 had increased to 35.8%; (d) that CIHL's average (actual) dividend payout ratio for the years 2000 to 2002 was 83.4%; and (e) that, if the quasi-dividends paid to Patricia were included, the average dividend payout ratio for the period 1996 to 2002 was 93.8% "which would put CIHL in the top 50% of private insurance brokers for average dividend payout".
306. I did not find Mr Andrews' analyses particularly helpful, beyond confirming what one would have expected anyway, namely that dividend policy among private companies is extremely variable, a matter which was common ground between him and Mr Woolf. That CIHL's dividend payout ratio was very high was, as Mr Andrews accepted, no more than a reflection of the fact that Ian's policy, continuing the policy of himself and Malcolm when the two of them ran the Campbell Irvine business, was to extract all of the distributable profits of the business save only a very small annual amount. Thus, in 2001, out of profits of £1.43 million available for distribution in the form of salary, bonus, dividend and other payments to Ian and his co-shareholders, only £11,330 (or just under 1%) was retained and added to shareholders funds; the corresponding figures for 2002 were £1.36 million and £30,779 (or just over 2%); and for 2003 the figures were £847,354 and £17,661 (again, just over 2%).
307. As Mr Woof had observed when he was cross-examined on dividend issues:

"…when one looks at dividend yields, there is an implicit assumption that what the directors [of public companies] decide not to pay by way of dividend is retained within the company … whereas I think it is Mr Irvine's evidence that with his company …when they resumed the payment of dividends, Mr Minty was asked what would be an appropriate dividend and that was struck after all the remuneration and bonuses for the other directors [ie the executive directors other than Ian] had been determined. Any retention within the company, usually very small, was taken into account. Then depending on what Mr Minty came up with, the dividends to Patricia and the Trust were determined and of course, because of the 50:50 holding, Ian also got his equal share of that and what was left over was not retained, it was the bottom line balancing figure which determined his [Ian's] bonus …"

308. This emphasised that, after providing for dividends (from 2000 onwards) and after retaining the very small but variable annual sum, all of the distributable profits were paid out without regard to whether and, if so, to what extent they reflected a proper level of executive pay.

Remuneration and dividends: counsel's submissions

309. Dealing first with Ian's remuneration Mr Todd reminded me (1) that prior to Malcolm's death income was taken out of CIL without reference to shareholdings and divided between Ian and Malcolm in accordance with their private agreement and that this practice continued notwithstanding the establishment of the Trust and (2) that after Malcolm's death Ian continued Malcolm's practice of discussing directors' remuneration with Mr Minty. He pointed to the existence of Ian's very longstanding professional relationship with Mr Gooley of Trailfinders and to the evidence that it was their friendship and the particular skills which Ian provided when dealing with Trailfinders which had been fundamental to the retention of the Trailfinders' account. It was that account and the account with Wexas which between them accounted for just under 70% of CIL's travel business income. The Trailfinders' account provided "critical mass" to CIL in the conduct of its business and, accordingly, contributed very significantly to CIL's profits. Mr Todd pointed also to the evidence of Ian and Mr Gooley that if Ian were to cease working for Campbell Irvine, Trailfinders would put its insurance business out to tender and, in Ian's view, the business would be lost. Likewise, if Mr Gooley were to cease his involvement in Trailfinders. He pointed also to the evidence of the other directors of CIL (Messrs Berry, Clarke and Kaye and also Ms McManamon) which was to similar effect. He submitted that the evidence suggested a similar uncertainty over the future retention of Wexas's travel business. He pointed out that Ian was under no obligation to continue working for CIHL beyond his a nominal four week contractual notice period, was approaching 65 and had been wanting for some time to retire having worked extremely hard and for many years in the business.
310. Mr Todd submitted that there was no substance in the suggestion made by Mr Brooks that Ian should have established a "successor" to enable the Trailfinders business to be retained after he (or Mr Gooley) retired or should otherwise have taken steps to "corporatise" the Trailfinders and Wexas business. He pointed out that this was not a matter of pleaded complaint and was not put to Ian in cross-examination. In any event, the contention overlooked the nature of the personal relationship between Ian and Mr Gooley, the unanimous view of CIL's directors about the uniqueness of that relationship and the probability that the Trailfinders business would indeed be lost when one or both of Ian and Mr Gooley left. It also overlooked the wish of Trailfinders, when offering for CIHL's shares, to tie Ian into the business post-acquisition for a three-year period. Moreover, he said, the evidence showed that following Malcolm's death Ian had effectively taken on the work of two persons (a matter which was scarcely challenged in the course of Ian's cross-examination) and had worked exceedingly hard and for long hours and had achieved a significant growth in CIL's turnover and profits. The evidence demonstrated that Ian had the respect and loyalty of CIL's workforce and had an excellent and well founded reputation among CIL's clients.
311. In these circumstances, said Mr Todd, it was plain that, despite what Mr Brooks might think, Ian (who had not been interviewed by Mr Brooks) possessed and made use for the benefit of the Campbell Irvine business of exceptional skills and was of exceptional importance to the business. He submitted that these factors, combined with his huge workload on behalf of the business since Malcolm's death and valuable client contacts, fully justified the level of remuneration which Ian had taken. He submitted that seeking to fit someone like Ian into what he described as Mr Brooks' overly rigid approach failed adequately to reflect these matters and therefore that the court should approach the matter as Mr Andrews had done in an attempt to assess Ian's value to the business. On any view, he should be placed at the very top of the band suggested by Mr Brooks.
312. As regards dividends, the evidence made clear, said Mr Todd, that working in consultation with Mr Minty Malcolm had followed the practice of giving careful consideration to whether any and if so what dividend should be paid, the more particularly when Ian and Malcolm formed their long-term wish to retire from the Campbell Irvine business and considered how, from the point of view of estate planning and investment strategy, this could best be achieved. Although at one stage Malcolm contemplated the payment of dividends to the Trust, the fact is, said Mr Todd, that the practice of Ian and Malcolm, as the two corporators, during Malcolm's lifetime was for no dividends to be paid unless Critchleys advised that that was necessary or desirable for tax reasons (as had happened in 1988, 1989, 1991 and 1992). He pointed out that, as Michael Thatcher confirmed, Malcolm made it plain that the Trust would not be receiving any income from its shares and that, as a trustee, he (Michael Thatcher) was not expecting any. He submitted that the practice of Ian and Malcolm not to pay dividends unless Critchleys advised that it was necessary desirable for tax reasons to do so was as effective as a resolution in general meeting of CIHL that, unless necessary or desirable for tax reasons to do so, dividends should not be paid. In those circumstances, he submitted, there had been no breach of fiduciary duty by Ian in not arranging for dividends to be paid prior to 2000. Alternatively, Ian could justifiably take the view, consistently with past practice, that dividends need not be paid. Accordingly, the non-payment of dividends did not constitute either a breach of fiduciary duty or a misuse of fiduciary powers. Nor did it constitute unfairly prejudicial conduct. Alternatively, an intelligent and honest man could have reasonably believed that the non-payment of dividends was appropriate.
313. Miss Roberts submitted that I should accept Mr Brooks' conclusions on the appropriate band of remuneration for Ian's services as coming from a person having a wide knowledge of executive remuneration who spoke with skill and authority on the subject. She reminded me that Mr Brooks' conclusions were backed by a mass of survey data, that, for the reasons which Mr Brooks had explained, an increase in turnover did not mean that the remuneration of the chief executive officer should be correspondingly increased and the various factors which it was claimed by Mr Andrews made him unique – his so-called "skills set" – principally, making use of client contacts for the benefit of the business and working long hours, were not factors which took Ian out of the recommended remuneration range but were the very attributes that one would expect of a competent chief executive officer. Nor was CIL's growth from 1990 (or for that matter from Malcolm's death in 1996) in any way exceptional. She submitted (for the reasons I have already set out) that I should disregard Mr Andrews' approach to remuneration. The truth, she said, was that no reasonable director would begin to think that Ian's remuneration was appropriate. On the contrary, she said, it was an "exercise in avarice". She said that care must be taken not to exaggerate the significance to the Campbell Irvine business of the Trailfinders account. There was no reason to think that the skills provided by Ian in running that account were in any way unique.
314. On the matter of dividends, she submitted that both experts agreed that if Ian's remuneration was excessive and, to the extent of the excess, should not have been paid, there was more in the pool for distribution to shareholders. They also agreed that CIL was a company that has never retained profits and that there was no reason for it to do so now. She submitted that any argument affecting dividends founded on the private agreement ceased with Malcolm's death when it came to an end. She submitted that to the extent that Ian's remuneration was excessive, it was appropriate that it should be treated as divisible among the shareholders pro rata to their shareholdings.

Conclusions on remuneration and dividends

315. The following considerations are in my view of importance in deciding whether, as the petitioners claim, Ian took too much by way of remuneration (ie salary, bonus, pension contributions and other benefits) from the time of Malcolm's death and if so to what extent.
316. First, the decision as to what remuneration to take was made by Ian alone. His fellow directors in CIL (from which the payments came) were not in any way involved in the decision. In particular, Patricia had no involvement. I accept that Ian consulted Mr Minty. But Mr Minty was not a director of CIL (or CIHL), he had no executive role in the Campbell Irvine business and, in any event, he was principally concerned, on what I have seen, to advise on the most fiscally advantageous manner in which profits could be extracted from the business. It follows that Ian's remuneration is to be justified, to the extent that it can be, by reference to the test suggested by Sir Richard Scott V-C in Re a Company (No 004415 of 1996) referred to above.
317. Second, there is no evidence to indicate that in fixing upon the amount to take Ian considered, any more than Malcolm did, whether what he was taking was properly to be regarded as remuneration justified by objective commercial criteria. The matter was entirely academic from their point of view since between them, at any rate up to the time that the Trust was established, they were the sole corporators. Their concern was to extract the available profits in a manner which attracted the least charge to tax and national insurance contributions. That was as true for Ian after Malcolm's death as it had been before that event. Even when Patricia and those advising her began to push for the payment of dividends and Ian agreed to their payment, there was no attempt by Ian, who continued to decide the matter without reference to others (subject only to obtaining advice from Mr Minty), to justify the amount taken by him by reference to any objective commercial criteria. Thus, in Mr Minty's note of his meeting with Ian following Ian's return from Australia in early 2001, when consideration was given to the amount that should be paid out by way of dividend, there is reference to Ian's wish, for reasons connected with his entitlement on retirement to a tax-free lump sum payment from his pension scheme, to have "money…allocated by way of bonus rather than by way of dividend". (See paragraph 219 above.)
318. Third, from long before Malcolm's death the policy had been to draw all of the distributable profits from the business, save only the small annual amount needed to ensure compliance with regulatory requirements. This meant that there was no policy of expansion of the business. I do not consider that Ian is to be criticised for continuing this policy after Malcolm's death, not least when, by then aged almost 55, he was looking to effect an exit from the business when a favourable opportunity arose.
319. Fourth, as I have already stated (see paragraph 47 above), I am satisfied on the evidence, not least from what was said by the other executive directors of CIL who gave evidence, that the fact that the Campbell Irvine business had expanded from what it had been at the time of Malcolm's death to become so much more profitable, certainly by the time the dispute with Patricia arose in early 2000, was very largely the result of Ian's hard work, thorough understanding of that sector of the insurance industry in which Campbell Irvine specialised, devotion to clients' interests, attention to detail and leadership ability. I also accept, indeed the evidence was overwhelmingly to this effect (not least from Mr Gooley in the case of Trailfinders and Dr Ian Muir Wilson in the case of Wexas), that it was Ian's continuous involvement in the Campbell Irvine business that ensured that those two clients, in particular Trailfinders which was of such critical importance to the success of the business, remained as clients. In the case of Trailfinders, I am satisfied, particularly in the light of Mr Gooley's evidence, that a major factor in this was the very special personal chemistry which existed between him and Ian going back to the very early days when each was establishing his own business. I do not accept that Ian is to be criticised for not having "corporatised" those clients. It was Dr Muir Wilson who said "… I would say that Ian is CIL". Although an exaggeration, there was I am satisfied an essential truth in that remark. In short, I accept that well over half of CIL's turnover would not have been earned but for Ian's continuous involvement in the business and the display by him of the various qualities referred to above. These are factors which should feature in any objective assessment of the appropriate level of Ian's remuneration.
320. I am also satisfied that, as he claimed, Ian did indeed take on a significant part of the burden hitherto carried by Malcolm following the latter's death, although I discount the suggested figure of 95% of the work in question. I do not think that it is useful to state how much it was except that it was significant. In part Ian was able to do so because Malcolm's death roughly coincided with his retirement from the TA. In part, I accept, he was able to do so by devoting longer hours and working more intensively to make up for his brother's loss. This, in my view, is another factor which should feature in any objective assessment of the appropriate level of Ian's remuneration.
321. In what amount then should Ian's remuneration be assessed for the years 1996 onwards? I regard Mr Brooks' £100,000 to £300,000 band (as at 2003 and adjusted, according to inflation, for earlier years and 2004) as very much a minimum. I consider that the evidence justifies treating Ian as exceptional with regard to his remuneration. Mr Brooks himself accepted that there were factors present (for example, Ian's hard work and his unusual client connection) any one of which would justify placing him at the upper end of that remuneration band. I disagree with his overall conclusion that there was nothing in Ian's circumstances which justified fixing his remuneration at a level in excess of the band. Commonsense suggests that his major responsibility for the continued and increasing profits of the business should be more adequately reflected in his remuneration than Mr Brooks' recommended band would allow. To confine it to £300,000 (and, a fortiori, to confine it to anything significantly below the upper end of that band) would result in Ian's overall share of the profits (assuming the balance is distributed by way of dividend) coming to only a little above 50%. This is well illustrated in Mr Woolf's calculations. His calculations at Appendix 2b (showing the amount of profit available for distribution on the assumption that Ian's remuneration was at the mid-point of Mr Brooks' recommended £100,000 to £300,000 band) demonstrate that in 2001, out of profits for the year of £1.43 million (estimated after adding back Ian's actual takings and the benefits that Patricia received), Ian would have received, by way of remuneration and dividend, 55% of the profits available for distribution with Patricia and the Trust between them taking the other 45%. These figures are calculated before tax. (By distributing practically all of the business profits as remuneration, as Ian had procured up to and including 1999, he was able to keep tax on business profits to a minimum.) In her e-mail of 26 March 2000 to Peter Darby, in which she commented on an earlier draft of the letter which Mr Fieldhouse was to send to Ian the following day – it was written at a time when what Patricia had been receiving had not discriminated between herself and the Trust, Patricia recognised, rightly, that it was "quite unfair" that she should "do nothing, yet receive benefit on a par with Ian". Fair remuneration for Ian justifies paying a sum dependent upon the actual performance of the business – in short, a performance bonus – over and above a fixed salary.
322. In my judgment, his appropriate remuneration would have been 40% of the business's net profits (calculated after payment of all expenses but before tax) subject to a minimum of £300,000 (for the year 2003) and discounted down (as per Mr Brooks' calculations) for each preceding year back to 1996. The excess would have been available for payment as dividends to Ian, Patricia and the trustees of the Trust according to their respective shareholdings and, given the practice of distributing as much of the Company's profits as possible (subject only to the small amounts annually retained) would probably have been dealt with in that way.
323. This split, ignoring tax, produces a 70/30 division of profits between Ian on the one hand and Patricia and the Trust on the other. This happens to be the basis upon which Ian was willing to share the share sale proceeds if a sale to Towergate had proceeded and was the split which Patricia subsequently accepted.
324. I have not carried out the exercise of calculating precisely what such a split produces but estimate that for the years 1996 to 1998 Ian received an overall amount which roughly equates to what this approach to remuneration and dividends yields for him if tax is ignored. Mr Todd submitted that if the petitioners were successful on the issue of excessive remuneration I should not grant them any relief affecting any period before the 1999 trading year. I am not inclined so to limit the period of relief, and for two reasons. First, already by 1998 Ian was paying himself more than he should. It is only by aggregating the three years 1996 to 1998 that what he actually took equates approximately to what he should reasonably have taken. Second, and in any event, my calculations for those three earlier years (taken together) suggest that Ian could justifiably have paid himself slightly more than what, overall for those three years, he in fact took. My calculations may not be entirely accurate. Overall fairness is best served, in my view, by reworking the figures over the whole of the period since Malcolm's death. Although this must be a matter for Patricia and Michael Thatcher to decide, I see no reason for adjusting the sums received by Patricia for the years 1996 to 1998 since my understanding is that, out of what she received for those years, Patricia defrayed expenses of her three sons which, if dividends had been paid to the Trust, would probably, to some extent at least, have been applied towards their maintenance.
325. It follows that the petitioners succeed in establishing that Ian has conducted the affairs of CIHL in a manner which has been prejudicial to their interests. They do so to the extent that he drew more by way of remuneration for the years 1996 to 2004 (effectively on my calculations from 1999 to 2004) than he should and that, in consequence, he prevented Patricia and the Trust from receiving as much by way of dividend as they would have received – consistently with the historic policy of profit distribution – if the remainder of the profits (after deduction of Ian's proper remuneration and the annual sums actually carried to retained profits) had been paid out by way of dividend.

The Towergate issues

326. I can deal with these fairly shortly notwithstanding that much time at the trial was devoted to them both in the correspondence and in the witness statements.
327. The first of these, raised by Ian as a defence to the petition, is whether the petitioners were given but declined to take up an opportunity to dispose of their shares in CIHL on fair and reasonable terms, namely those offered by Towergate's February 2000 offer.
328. As Mr Todd observed, it was common ground that the Towergate offers, all of them, were holding out the prospect of an extremely good price for the shares in CIHL including the amount to be paid for the shares of Patricia and the Trust, notwithstanding the differential in price as between what was being offered for them and what was being offered for Ian's shares. Towergate's February 2000 offer proposed to pay £1.344 million for those shareholdings; its July 2000 offer increased the price for them to £1.83 million.
329. Towergate's February 2000 offer to Patricia and the Trust was for payment in loan notes over a three year period. Its July 2000 offer also offered loan notes in payment. It was subsequently established that the loan notes under the July 2000 offer were unsecured and that no bank or similar guarantee of their due payment would be forthcoming. Ian was later to acknowledge, in a letter he wrote to Mr Fieldhouse in September 2001 (see paragraph 216 above), that Patricia "perfectly correctly" could not accept non-guaranteed loan notes with the result that, as no cash alternative was available, she was acting quite reasonably in declining to proceed with a sale of her shares on that basis. There can be no question but that Patricia and Michael Thatcher, on behalf of the Trust, would have been no less justified, and for the same reason, in declining Towergate's offer to purchase the Trust's 25% shareholding in CIHL on the same unsecured basis.
330. The question is whether the loan notes offered for Patricia's and the Trust's shares as part of the February 2000 offer were on any different footing, ie unsecured and without a cash alternative or the backing of a bank or similar guarantee.
331. I have no reason to think that there was any difference. The only cash offer as part of Towergate's February 2000 offer was £82,300 for the small proportion of Ian's shares which, with Patricia's and the Trust's, were to be acquired on completion (with Ian's remaining shares to be acquired by three instalments over a three year period on an earn-out basis). There was no cash alternative on offer to Patricia and the Trust.
332. It is hard therefore to see why if the loan notes offered as part of Towergate's July 2000 offer were to be wholly unsecured, those offered as part of its February 2000 offer should be understood as being acceptably secured. Ian did not seek to call anyone from Towergate to say otherwise. The probability, indeed the overwhelming probability, is that the loan note offer was indeed wholly unsecured and non-guaranteed.
333. Mr Andrews, Ian's expert on the question whether Towergate's February 2000 offer provided CIHL's shareholders with an opportunity to sell their shares on fair and reasonable terms, said, in answer to a question from myself, that only if it could be established that the loan notes were acceptably secured would he have recommended to Patricia and the Trust to accept Towergate's offer and that if the position were anything short of that he would have advised them not to accept it.
334. Is there any reason for thinking that Patricia and the Trust could have negotiated an acceptable cash alternative or an acceptable form of security for the loan notes on offer? It was not suggested that such a possibility existed by July 2000. I see no reason to think that the possibility would have existed if Patricia and the Trust had raised the matter with Towergate sometime between late March and June 2000. I say "late March" because, for reasons which were never made clear to me, Ian chose not to make available to Patricia (and those advising her) or to Michael Thatcher a copy of Towergate's February 2000 offer until Mr Minty sent Peter Darby a copy towards the end of February 2000 and Michael Thatcher was supplied with a copy towards the end of the following month. (See paragraph 159 above.)
335. There were other aspects of the offer which would have needed fleshing out before it was reduced to a form capable of acceptance by Patricia and the Trust. This is a matter commented on by Mr Andrews in paragraph 4.2.3 of his report. It seems unlikely that these matters could have been speedily achieved. Everything, therefore, points to the conclusion (a) that the loan notes offered as consideration under the terms of Towergate's February 2000 offer were unsecured and non-guaranteed and (b) that Towergate would not have been willing, except possibly at the cost of a greatly reduced price for the shares, to offer a cash or an acceptably secured alternative.
336. It follows that there is no merit in this defence to the petitioners' claims.
337. The second Towergate issue concerns the petitioners' contention that, arising out of his action in negotiating a proposed sale to Towergate of the shares in CIHL (including therefore those belonging to Patricia and the Trust), Ian owed them fiduciary duties (a) to keep them properly informed of the course of the negotiation and (b) to conduct the negotiations in a fair and equitable manner having regard to the petitioners' interests as the holders of just under 50% of the shares in question. The complaint is that Ian acted in breach of those duties (a) by failing to keep the petitioners properly informed and (b) by insisting in his negotiations on a 70/30 split (in his favour) of the sale proceeds thereby seeking to achieve maximum benefit and advantage for himself at the expense of the interests of the petitioners.
338. It is sufficient if I simply record my conclusion on this complaint and then state shortly my reasons. My conclusion is that, while in principle I can well see that someone who takes upon himself, as Ian did, to negotiate the terms on which the shares of another are to be sold to a third party can be said thereby to undertake duties of a fiduciary nature to negotiate the best price and, except with that other's informed consent, to avoid any conflict of interest, I am of the view that there is nothing in the way that Ian went about this task which would amount to the conduct of CIHL's affairs in a manner unfairly prejudicial to the petitioners' interests in that company. This is because (a) there is no complaint about the overall "headline" amount offered for the shares as a whole which Ian was able to negotiate, (b) within a very short time of the making by Towergate of its November 1999 offer Ian had communicated its broad terms (even if he did not supply a copy of them) to Patricia and those advising her at the meeting on 8 December 1999 and then went on to suggest that Patricia and the Trust should obtain independent advice on how much they should receive out of the sale proceeds for their shares, (c) Patricia proceeded thereafter to obtain such independent advice (in the person of Peter Darby) and, being himself a solicitor-trustee, Mr Thatcher, on behalf of the Trust, was in any event well able, if he needed it, to obtain separate advice, (d) the terms of Towergate's February 2000 offer were disclosed to Peter Darby and Michael Thatcher at their meeting with Ian on 24 February 2000 and the offer itself was subsequently made available (a couple of days later in the case of Peter Darby and a month later in the case of Michael Thatcher) and (e) each was free to approach Towergate direct to negotiate the terms to be offered for their shares and, through Mr Fieldhouse in November 2000, Patricia sought to do just that.
339. But even if Ian's conduct of the matter was in some way unfair, for example because he negotiated terms which were to his advantage and at the expense of Patricia and the Trust and which Patricia and Mr Thatcher could not have undone, the fact is that no sale resulted. For that reason it cannot be suggested that the petitioners have suffered any prejudice as a result of the breaches. In this connection, it has not been suggested that if Ian had gone about matters in a different way a sale might have resulted and that because, in breach of duty, he did not, the petitioners have thereby suffered prejudice.
340. In my view, there is nothing in this head of complaint.

Failure to comply with the Companies Act 1985

341. Although not pleaded as fully as they might have been, the complaints here are, broadly stated, that Ian failed to hold any general meetings of CIHL and took his remuneration without obtaining the necessary approvals.
342. Section 233 of the Companies Act 1985 provides that a company's annual accounts (which the directors are required by section 226(1) to prepare for each financial year of the company and which, by section 227(1), are to be group accounts where a company is, as CIHL is, a parent company) are to be approved by its board of directors. Other requirements of directors include preparing a directors' report and obtaining its approval by the company's board of directors (see sections 234 and 234A), to lay before the company in general meeting copies of the company's annual accounts, the directors' report and the auditors' report on the accounts (see section 241) and to ensure that an annual general meeting is held in each year (see section 366).
343. It is plain that, although accounts and directors' reports were prepared and the accounts duly audited and auditors' reports obtained, no steps were taken to have CIHL's accounts laid before CIHL in general meeting (or to have CIL's accounts so dealt with) or to obtain approvals of any general meeting of those companies to the payment of any dividends (as required by regulation 114 of Table A). Nor were any directors' meetings of CIHL held at which to recommend the payment of any dividend or to approve its annual accounts and the directors' report. The position in CIL was no better except that for the years 2000 and 2001 directors' meetings were held at which, purportedly, CIL's accounts were approved. There were certainly no meetings of CIL's board at which Ian's remuneration, which was always paid by CIL, was fixed, as regulation 84 required. Except as mentioned, Ian simply proceeded to sign the directors' report and approve the accounts (both of CIHL and of CIL) without troubling to convene the necessary meetings or otherwise observe the necessary requirements. The minutes drawn up by Critchleys and signed by Ian, insofar as any were prepared because there were years when even this formality was disregarded, did not, with those exceptions, relate to any actual meeting, whether duly convened or not.
344. These failures were plainly wrongful and are deserving of censure. In the course of his cross-examination Ian accepted that he had acted wrongfully. In his defence, although not by way of excuse, it was pointed out, and I accept, that Ian was doing no more than continuing the practice which Malcolm and he had followed in that, even before Malcolm's death, CIHL had never held any shareholder meetings to receive its annual accounts and directors' and auditors' reports and to approve the payment of any dividends (in those years when dividends were paid). I also accept that, until these defaults were pointed out to him, Ian was unaware that he was subject to these requirements. The same criticism, it might be said, could be levelled at Patricia since she too was and had been since 1978 a director of CIHL and between April 1996 and October 2002 had been a director of CIL. She was of course aware that Ian was drawing remuneration, even though she did not know its amount until sometime in early 2000, and must have known that company accounts were being prepared and filed.
345. Ian's default was nevertheless all the greater when, despite being told, via Charles Russell, of the need to hold appropriate board and shareholder meetings and to give Patricia due notice of them (see Stevens & Bolton's letters of 26 May 2000 and 27 July 2000 referred to in paragraphs 185 and 190 above), he continued as before.
346. In agreement with Mr Todd, however, I do not consider that these matters, reprehensible though they are, can fairly be said to have caused Patricia to suffer any material prejudice. This is because, even if these various statutory requirements had been observed and the relevant meetings held (or at any rate notice given of such meetings since, in the case of CIHL, it must be doubtful whether, until she was alerted to the fact that these irregularities existed, Patricia would have attended), the fact is that as majority shareholder Ian could have voted in his own interests at general meetings of CIHL to obtain the result he wanted and could (and, having seen the other executive directors of CIL, I believe he would) have got whatever approval he wanted at board meetings of CIL to ensure that the divisible profits of CIL were dealt with, whether as remuneration or as a dividend, in the way that he wished.
347. At best, the due observance by Ian of the proper requirements with regard to the need for and the holding of general and board meetings of CIHL and CIL might have alerted Patricia at an earlier stage to the disparity between what Ian was taking and what she and the Trust were taking but would not, I think, have led to any different or lesser prejudice from that about which the petitioners complain.

Acquiescence

348. Mr Todd drew attention to Michael Thatcher's role as Malcolm's solicitor and later executor, and to his role as a trustee of the Trust and also to Mr Minty's role as Malcolm's onetime personal financial adviser, as co-trustee (for a short period) of the Trust and as Patricia's sometime accountant. He submitted that Ian was entitled to assume that Mr Minty and Mr Thatcher would advise Patricia as to her rights and duties as a trustee and as to her rights as a member of CIHL and as a director of both CIL and CIHL. He submitted that Patricia could at any time have asked Mr Minty questions about the financial affairs of CIHL or CIL but she never did so.
349. In the course of detailed written closing submissions, Mr Todd drew my attention to the documentary record which showed, he said, that Patricia was well aware that Ian was taking significant financial decisions (including decisions on how much she would receive from the Campbell Irvine business) and that she knew or must have known that he and Malcolm had done so prior to Malcolm's death. The documentary record further showed, he said, that Ian provided much practical assistance to Patricia, particularly in the aftermath of Malcolm's death, that Ian arranged through Mr Minty that Patricia should be informed, or himself took steps to inform her, of what she was receiving or would be receiving from the business, that Ian repeatedly invited her to contact him if she had any questions and that she was grateful for all that Ian had done for her (as demonstrated in the letters that she wrote on 17 July 1996 to Ian and on 16 July 1999 to Amanda – see paragraphs 29 and 113 above). He pointed out that, at any rate up to March 2000, Patricia had no complaints but, on the contrary, was willing to assist Ian when she could (for example her willingness to make a loan to him when, on one occasion he needed it) and was content to leave it to Ian to make the important decisions about the Campbell Irvine business.
350. Mr Todd pointed out that by mid-August 1999, if not earlier, Patricia, having been supplied with a copy of Mr Minty's letter to Ian of 11 May 1999 setting out his thoughts on how additional directors' remuneration should be allocated between Ian and Patricia, raised no objection to what was proposed. Indeed, following Ian's letter to her of 26 July 1999 she had telephoned Ian (on 30 July) and had spoken to Ann Stevenson to say how grateful she was for all that Ian had done for her and her family. He pointed out that, at the meeting on 8 December 1999, Patricia had stood by and evidently raised no objection to Ian's reference to Mr Minty's formula for the division of profits.
351. All of this, said Mr Todd, supported the view that until she began to take the advice of Peter Darby and, more particularly, Mr Fieldhouse in early 2000, culminating in the letter of 27 March 2000, Patricia was perfectly content to accept Ian's decisions in the running of the Campbell Irvine business, had raised no objection, indeed had raised no questions, in respect of the amount that she was receiving, was not concerned either through Michael Thatcher or through Mr Minty, much less by speaking directly to Ian, to question how Ian was conducting matters. For all of these reasons, submitted Mr Todd, Patricia, and no less Michael Thatcher, should be treated as having fully acquiesced in the earlier failure to pay any dividend and in the manner in which Ian had arranged for CIHL's profits to be distributed.
352. At best these matters merely affect Ian's actions prior to March 2000 and in view of my conclusions in relation to other issues (notably the appropriate level of Ian's remuneration, and therefore whether there should have been dividends, for the years 1996 to 1998) are of little or no practical consequence. For what the matter is worth, however, I do not consider that by their conduct Patricia or Mr Thatcher acquiesced in the informal way in which Ian went about the approval of the accounts etc for those three years, much less that, not knowing what the relevant figures were for these three years until they were made fully available in early 2000, they must be taken to have acquiesced in Ian's division of the available profits.
353. Relief
354. Miss Roberts submitted that, assuming unfair prejudice was established, the appropriate relief should be an order that Ian buy out the petitioners' shares at a price that takes into account the excess remuneration which Ian has drawn.
355. Mr Todd submitted that, the grant of relief being discretionary, it was material to the exercise of the discretion to note that no allegation of dishonesty had been made in relation to Ian's conduct of the Campbell Irvine business. The suggestion made that Ian had run the business as if he were the 100% owner of CIHL had to be seen in the light of the fact that Ian genuinely believed, as a result of the gift to him of the so-called golden share, that he was to have absolute and unfettered control of CIHL, including its financial matters and therefore that he was entitled to act as he did.
356. He submitted that if the petitioners established unfair prejudice it would not be appropriate in all of the circumstances to make a but-out order. As regards his responsibility for the failure to convene directors' and shareholder meetings with a view to obtaining approval of accounts and the fixing of his remuneration, his offence was ignorance. For the reasons already explained, it had caused Patricia no prejudice. In any event, Ian had undergone a "sharp learning curve" and the court could be confident that such irregularities would not recur in the future. As regards remuneration with its knock-on effect on dividends, Mr Todd submitted that if I were to conclude that Ian had drawn excessive remuneration and therefore that he should repay the excess, the "harshness" of that on Ian could be reduced by directing that a dividend be paid by CIHL to its shareholders thus enabling Ian to set off his dividend entitlement against the amount he should be found to owe. The court could then fix the level of Ian's remuneration for the future. It would then be for Ian to decide whether he wished to carry on, having regard in particular to his age and his reluctance to work for a reduced return.
357. In my judgment, the breakdown in trust and confidence between Patricia on the one side and Ian on the other – and I accept that CIHL is not a "quasi-partnership" – has gone too far to make Mr Todd's proposal a sensible solution. Ian is too dominant a person and, it has to be said, was too dismissive of the need to involve his co-director in decision making even when the need to do so (for example, over approving accounts and fixing remuneration and dividends) was pointed out to him. The truth is that Ian resents his co-shareholders receiving other than a fairly nominal return on their shareholdings. The history of events since 1996 (as my narrative shows) is shot through with Ian's failure to involve Patricia, and his unwillingness even to consult her, on matters affecting the running of the business. He regards himself, with some justification, as the generator of the bulk of the business profits. His executive co-directors, accepting this analysis, are content that he should run the Company's affairs in the way that he has. But Patricia does not, and rightly does not. The sensible course is for Ian to buy out the petitioners' shares. If Ian is right and the value of the Company (at any rate the CIL side of the business) is dependent upon his willingness to continue to run it but from which he is free to withdraw at any time on no more than four weeks' notice, it may well be that the shares in CIHL have little worth. That will be a matter for expert valuation.
358. I shall therefore order Ian to buy or procure the purchase of the petitioners' shares. In fixing the price, account must be taken of the excess remuneration drawn by Ian in accordance with my conclusions on the matter set out at paragraphs 322 to 325 above. I have no particular view on the date as at which the buy out order and therefore the share valuation should be treated as taking effect. If necessary I will hear further argument on that. If necessary, I shall also consider whether the shares should be valued on a pro-rata basis; in other words, whether there should be a discount to reflect the fact that each petitioner's shareholding is a minority holding, as is the aggregate of their two holdings. My present inclination, but I have heard no argument on the point, is to think that there should not be any minority discount.

Appendix (see paragraph 64 of judgment)