CHANCERY DIVISION
STRAND, LONDON, WC2A 2LL |
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B e f o r e :
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GRAEME GRANT | Claimant | |
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RUSSELL BRAGG | Defendant | |
(1) RUSSELL BRAGG | ||
(2) PREMIER RESORTS LIMITED | Part 20 Claimants | |
and | ||
GRAEME GRANT | Part 20 Defendant |
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Mr Bragg in person
Premier Resorts Limited did not appear and was not represented.
HEARING DATES: 27, 28, 29, 30 AND 31 OCTOBER 2008
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Crown Copyright ©
INTRODUCTION
THE COMPANY:
The Shareholders' Agreement:
"SHARESIn the event that either intends to sell some or all of his shares to a third party he must first offer that quantity of shares at the planned selling price to the other shareholder to whom he shall allow thirty days to complete the purchase. Only in the event of the other shareholder failing to complete the purchase of such shares may he make the sale to a third party.
Consideration for such a sale of any quantity of shares to a third party must include an obligation upon that third party to simultaneously make an offer to the other shareholder to purchase an equivalent quantity of shares from the other shareholder at the same price and under the same terms, although there shall be no obligation upon the other shareholder to accept such an offer.
In the event of their own death, mental incapacity, service upon them of a Bankruptcy Petition not set aside within thirty days, criminal conviction, or long-term sickness preventing work for more than six months or unexplained absence from the business for more than three months [Mr Grant] and [Mr Bragg] each hereby appoints irrevocably [Mr Jenkins] as his Agent with instructions to sell his shares in the Company to the other shareholder (or to a third party as herein provided), and each hereby undertakes to use every best endeavour to complete such a purchase from the other in such circumstances. Such sale shall be at the price which reflects proportionally a value of the whole of the Company as being equivalent to 50% of the aggregate gross income (being Fees and nett retained commissions invoiced) of the Company for the period of twelve months commencing six months prior to the date of death or start of absence and ending six months thereafter. It is hereby agreed that the consideration for such sale shall be payable to [Mr Grant], [Mr Bragg] or their estates or successors in eight equitably balanced monthly instalments the first being payable upon the date of sale".
(1) obligations on both to work "full time" in the business of the Company (a provision somewhat negated by a subsequent provision authorising both to participate in other business activities unrelated to the business of the Company subject to prior agreement but such prior agreement was not to be unreasonably withheld);(2) obligations on both to use their best endeavours to introduce clients and assignments to the Company and not at any time to encourage work or assignments over which they had any influence to be placed with another business which was in competition with the Company;
(3) obligations on both to use their best endeavours to support the best interests of their Company;
(4) obligations on both to ensure that all fees and commissions negotiated or generated by them through any contracts or relationships in the property, leisure and related industries should be invoiced by or through the Company;
(5) obligations on both to ensure that the corporate opportunities of the Company were retained for the Company (my prιcis not Mr Jenkins' wording).
(1) is the trigger for the relevant provisions an automatic trigger or, as the parties seem to have thought, more akin to an option?;(2) what does "long-term sickness preventing work for more than six months" actually mean? Thus in the present case I am satisfied that Mr Grant, whilst very ill, did work on behalf of the Company to the best of his limited abilities during his illness but never attended its offices. Does that qualify?;
(3) does Mr Jenkins, as agent, merely have power to negotiate a sale of the shares or can he conclude a sale of the shares in the name of (even against the wishes of) his principal?;
(4) what are to be the terms of the sale? What if the purchaser requires certain restrictions on the future activities of the seller? If the seller objects, does Mr Jenkins have power as his agent to bind the seller to restrictive terms relating to the seller's future activities? If not, does the best endeavours obligation require the seller to agree to such terms?;
(5) how far does the best endeavours obligation go as against the purchaser? What if he does not have the money to purchase the shares? What if the seller wants to impose terms (for example that the shares should transfer only after payment of the final instalment or that the shares should transfer in tranches equivalent, pro rata, to the value of each instalment)? Does the purchaser have to agree to this under the best endeavours obligation? And can the purchaser insist that Mr Jenkins, as his agent, incorporates such terms in the sale?;
(6) what is the true nature of the relationship between the seller and Mr Jenkins? The agency is irrevocable, but to what extent does Mr Jenkins have to act on instructions from his principal?
THE CYPRUS MONEY:
(1) as early as 13 August 2002 the directors of the Company had all agreed that where an individual director acted directly as a sales agent on site then that individual director should be entitled personally to the relevant commission. At a board meeting of the Company on 20 November 2002 it was noted that Mr Grant would be on site at Tobago Plantations during the Christmas/January sales period and that, accordingly, he would be eligible personally for all sales commissions earnings during his period on site;(2) by July 2003 the Company owed Mr Grant some £64,174 in sales commissions under these board authorisations. Mr Bragg, quite simply, did not want this money to be paid to Mr Grant by the Company and most conveniently forgot about the earlier board authorisations. This was undoubtedly money which he had agreed should be paid to Mr Grant (indeed the Company was receiving money which Mr Grant may well have been entitled to receive directly without it going to the Company at all);
(3) Mr Bragg's unwillingness to allow this money to be paid to Mr Grant formed a sub-dispute to the major concerns which Mr Grant had that far greater sums of money (for projects which had commenced before the inception of the Company's business) were continuing to be paid to Mr Bragg or his company;
(4) in an attempt to resolve all these issues Mr Jenkins drafted an Equalisation Agreement. That was signed by Mr Bragg on 6 June 2005. It involved, in effect, Mr Grant writing off his claims to the commissions I have identified, plus all his other claims for monies received personally by Mr Bragg, or his company, in return for the payment by Mr Bragg, of £40,000 into the Company. From Mr Grant's point of view this was a ridiculous deal commercially and he refused to sign the Equalisation Agreement. However, Mr Jenkins told Mr Bragg that Mr Grant had "agreed" to the Equalisation Agreement. I find as a fact that Mr Grant told Mr Jenkins no such thing. So Mr Bragg put £40,000 into the Company;
(5) having refused to sign the Equalisation Agreement Mr Grant still wanted to receive his outstanding commission payments. I accept his version of events that he discussed the matter with Mr Jenkins and between them it was agreed that 30,000 Cyprus pounds out of the total proceeds of sale of the Cyprus Property could be received by Mr Grant personally in reduction of his outstanding commissions;
(6) Mr Grant made no secret whatsoever of what had happened. The payment to Mr Grant's account was recorded in an e-mail dated 5 April 2006 sent by the Cyprus agent to the Company and that was then forwarded by the relevant employee (Lisa Basire) to various people (including Mr Jenkins). Sadly it does not seem to have been forwarded to Mr Bragg. He started to make enquiries as to where the missing 30,000 Cyprus pounds had gone and was infuriated to discover that it had gone to Mr Grant. At a meeting between Mr Bragg and Mr Grant held on 6 May 2006 Mr Grant protested that he had agreed with Mr Jenkins that the 30,000 Cyprus pounds should be treated in this way. At this point Mr Bragg drew Mr Grant's attention to the fact that Mr Grant had waived any entitlement to commission under the Equalisation Agreement. It is quite clear from what then occurred that Mr Bragg honestly believed, based upon what Mr Jenkins had told him, that Mr Grant had signed the Equalisation Agreement back in June 2005. Of course, Mr Grant had not.
MR GRANT'S ILLNESS:
JANUARY/FEBRUARY 2007: THE ALLEGED CONTRACTS
"The shareholders' agreement provides that the company is to be valued at 50% of its aggregate gross income for the period of twelve months commencing six months prior to that date [21 March 2006] and ending six months thereafter.
We have spoken with Mr Jenkins. He suggests that whilst he can provide the figure for that period from which the value of your 50% holding in the company will be calculated, it may be more transparent and certain for both parties to use the company's accounting period from 1st January 2006 to 31st December 2006 for the purposes of the period for which the aggregate gross income of the Company is to be calculated. We understand from Mr Jenkins that the value of your shares during the period of 1st January 2006 to date would be £274,750."
"Kindly confirm your agreement to such sale and that you will be prepared to complete the necessary documentation to effect that sale. If you do not agree to do so, the Company Secretary will have to consider proceeding with the sale without your co-operation".
"In the circumstances, I look forward to receiving a draft share vending agreement as soon as possible".
(1) I see no reason to doubt Dixon Ward's express contention that they wrote their letter of 2 January 2007 on behalf of the Company. It was not written by, or on behalf of, Mr Bragg;(2) even if written on behalf of Mr Bragg, the letter of 2 January 2007 contains no independent offer by Mr Bragg to sell his shares at a price ascertained in accordance with the formula contained within the SA. Rather, objectively analysed, the letter of 2 January 2007 seems to me to be more akin to an "invitation to treat". It seeks Mr Grant's agreement to a sale, on the terms of the SA, but outside the machinery of the SA. Indeed, the express threat is made that if such a sale is not effected then the Company Secretary would have to consider proceeding with the sale without Mr Grant's co-operation under the SA machinery. In effect the letter invites Mr Grant to take steps to sell his shares but does not amount to an irrevocable offer by Mr Bragg to buy those shares on the terms set out in the SA;
(3) even if the letter of 2 January 2007 contained an irrevocable offer by Mr Bragg, the letter of 9 January 2007 cannot be regarded as an unequivocal acceptance of that offer. All that Mr Grant does is to accept Mr Bragg's requirement that the shares should be sold to Mr Bragg in accordance with the provisions of the SA. It is, I think, particularly significant that Mr Grant concludes his letter by indicating that he looks forward to receiving a draft share vending agreement as soon as possible. Objectively analysed, both parties still regarded the fine details as remaining open for negotiation and discussion.
"It was also good to be able to talk to you in the cab coming back and I am confirming that I will now buy your 50% shareholding according to the terms of the shareholding agreement to which you have already agreed. Dixon Ward are preparing a short heads of terms and I will bring the stock transfer form around at some time next week for signing and a cheque for the first payment".
This, to my mind, confirms that matters remained in the realm of intent, not contractual obligation, until either the heads of terms were agreed or the stock transfer form executed.
(1) resignation by Mr Grant as a director of the Company with effect from the date of completion;(2) co-operation from Mr Grant in the publication of a suitable Press Release announcing his retirement from the Company; and
(3) an undertaking from Mr Grant that, whilst he might be establishing a new business in competition with the Company, he would not make any statements or observations deleterious to the reputation or standing of the Company, its performance, or professional competences.
Mr Jenkins proposed a completion date of Monday or Tuesday 22/23 January 2007. Mr Jenkins concluded by asking whether Dixon Webb were able to act in the matter of the Share Sale Agreement.
(1) an undertaking by Mr Grant that he would not at any time after completion use the name "Premier Resorts Limited or any name including the words Premier Resorts or likely to be mistaken for or confused with the name of the Company (clause 7.2); and(2) an undertaking by Mr Grant not to utilise any trade secrets or confidential information concerning the business or finances of the Company (clause 7.3).
(1) he accepts what Mr Grant has to say about the entity purchasing. Mr Bragg would need to accede to this point. "B Co was, as we discussed, a device worth floating: we failed!";(2) he advises Mr Bragg, in graphic and forceful language, that Mr Grant's contention that Mr Bragg is already contractually obliged to purchase Mr Grant's shares without any Terms and Conditions being imposed on Mr Grant (because no Terms and Condition were identified in the SA) as being wrong. "You can walk away even now and until he has agreed the Share Sale Agreement and executed the Stock Transfer Form!". For once it seems to me that Mr Jenkins has got the law right.
"I therefore sought to make certain that [Mr Bragg] is still willing to proceed subject to your agreement to that wording [i.e. the Dixon Ward Draft] - and he has so confirmed.Thus, everything now hangs on your decision to accept the Dixon Ward wording or not. Please could you advise this morning, as promised?"
"I confirm that I am prepared to enter into that agreement [i.e. the Dixon Ward Draft] in its original form, however inappropriate it might be.On the above basis, there can be no further objections to completion [my underlining] and I look forward to hearing from either you or [Mr Bragg] accordingly, without further delay".
(1) English law generally adopts an objective theory of contract formation (ignoring the subjective expectations and the unexpressed mental reservations of the parties). The governing criterion is the reasonable expectation of honest men. In a case such as the present that means that the yardstick is the reasonable expectations of sensible businessman;(2) the fact that the contract in question was executed, rather than executory, was a consideration of the first importance on a number of levels. In a case where the transaction was fully performed the argument that there was no evidence upon which the Judge could find that a contract was proved was implausible. Having referred to the decision of the House of Lords in Brogden v- Metropolitan Railway (1877) 2 App. Cas. 666 Steyn L.J. said that, in 1992, the Courts ought not to yield to Victorian times in realism about the practical application of rules of contract formation. One must not lose sight of the commercial character of the transaction.
AMENDMENT:
COUNTERCLAIM:
"These authorities support the following propositions. (1) Where a company suffers loss caused by a breach of duty owed to it, only the company may sue in respect of that loss .(2) Where a company suffers loss but has no cause of action to sue to recover that loss, the shareholder in the company may sue in respect of it (if the shareholder has a cause of action to do so), even though the loss is a diminution in the value of the shareholding. This is supported by Lee v- Sheard [1956] 1 QB 192, 195 196, George Fisher (Great Britain) Ltd v- Multi Construction Ltd [1995] 1 BCLC 260 and Gerber Garment Technology Inc v- Lectra Systems Ltd [1997] RPC 443. (3) Where a company suffers loss caused by a breach of duty to it, and a shareholder suffers a loss separate and distinct from that suffered by the company caused by breach of a duty independently owed to the shareholder, each may sue to recover the loss caused to it by breach of the duty owed to it but neither may recover loss caused to the other by breach of the duty owed to that other. I take this to be the effect of Lee v- Sheard, at pp 195 196, Heron International v- Lord Grade [1983] BCLC 244, particularly at p262, R P Howard Ltd v- Woodman Matthews & Co [1983] BCLC 117, particularly at p123, Gerber and Stein v- Blake [1998] 1 All ER 724, particularly at p726".
CONCLUSIONS:
(1) grant permission to Mr Grant to amend his Particulars of Claim to raise the February Contract;(2) find that Mr Bragg and Mr Grant entered into the February Contract; and
(3) dismiss Mr Bragg's counterclaim.