Jersey Unreported Judgments

Companies - appeal against the decision of the Royal Court to uphold claims for exit amounts by the Respondent.

[2013]JCA177

Court of Appeal

12 September 2013

	Before     :		The Hon. Michael Beloff, Q.C., President; Christopher Nugee, Q.C., and; Robert Logan Martin, Q.C..
Between		(1) AI Airports International Limited (formerly known as Meinl Airports International Limited)
		(2) PI Power International Limited (formerly known as Meinl International Power Limited)		Appellants
And		Bjorn Pirrwitz		Respondent

Advocate N. M. Santos-Costa for the Appellants.

Advocate M. L. Preston for the Respondent.

JUDGMENT

nugee ja:

Introduction

1.        This is an appeal by two companies, AI Airports International Ltd ("AI") and PI Power International Ltd ("PI") (together "the Companies") against a judgment given by the Samedi Division of the Royal Court (Bailhache Deputy Bailiff and Jurats Le Cornu and Liston) on 24 January 2013 ("the Judgment") in favour of the Respondent, Mr Bjorn Pirrwitz.

2.        Mr Pirrwitz was formerly a director of each of the Companies until he was removed at meetings of the Companies in April 2009.  Under the terms of the service contracts which had (according to the Respondent) been entered into, or (according to the Appellants) purportedly entered into on behalf of the Companies ("the Service Contracts"), he was entitled, in the event of his being removed as director, to payment of an "Exit Amount", namely €600,000 in the case of AI and €700,000 in the event of PI.  In these proceedings he brought a claim for the Exit Amounts against each Company and in the Judgment the Royal Court upheld those claims.  The Companies appeal on the basis that the Service Contracts were not valid and enforceable.  As appears in more detail below, the essential grounds for this contention are that (i) the Boards of Directors of each Company had no power to authorise the making of service contracts in this form (Ground 2); (ii) the Boards did not in fact authorise the making of service contracts in this form (Ground 3); and (iii) that the Boards (and/or Mr Vilsmeier, who, as set out below, fixed the amount of the Exit Amounts) were not acting in the best interests of the Companies (Grounds 4 and 5).

Background facts

3.        The Judgment contains a detailed account of the background to the action.  It is not necessary for the purposes of the appeal to repeat this at length, and I will attempt to summarise it as briefly as possible.

4.        The Companies are public limited companies incorporated in Jersey.  They were established as investment funds by an Austrian bank, Meinl Bank AG ("Meinl Bank"), and were formerly called Meinl Airports International Ltd and Meinl International Power Ltd respectively. As their names suggest, AI was established with a view to investing in airports and related businesses, and PI with a view to investing in power generating assets.  They raised substantial sums: AI had raised €700m by April 2007 and PI only slightly less.  However a scandal associated with another Meinl company meant that investors lost confidence in all Meinl related stocks, and the share prices of AI and PI fell, to the extent that they were trading below their net asset values.  This made the Companies attractive to a number of hedge fund investors who began buying stock in them with a view to replacing the directors with their own nominees, the plan being that the new Boards would cut all ties with Meinl entities, realise the investments, and return cash to the shareholders, thereby generating a substantial profit to those investors. 

5.        The hedge fund investors requisitioned EGMs in July 2008.  At the EGM of AI, held on 28 July 2008, they succeeded in replacing the Board.  In the case of PI, a similar attempt was narrowly defeated, but they were successful at a further EGM held on 14 November 2008. 

6.        Following the EGMs the Boards of the Companies were as follows:

(i)        AI:     Mr Wolfgang Vilsmeier (chairman)

Mr Pirrwitz

Mr Hans-Peter Dohr

Mr Richard Boléat

Mr George Baird

Mr Fred Duswald

Mr David Pascall

(ii)       PI:     Mr Vilsmeier (chairman)

Mr Pirrwitz

Mr Dohr

Mr Boléat

Mr Baird

Mr Duswald

Mr Wilfried Hassler

The composition of the Boards was thus the same with the exception of Mr Pascall (AI only) and Mr Hassler (PI only).

7.        The Judgment records the difficulties facing the new Board of AI in July 2008.  It had previously had no executive officers, all management functions being outsourced to a further Meinl subsidiary.  The new Board had been mandated to return cash to shareholders as soon as possible; it had an expensive management agreement from which an exit was to be procured; it had no employees; and did not even have access to its own corporate records. 

8.        A number of committees were set up to deal with various aspects of the company's business; Mr Pirrwitz himself was appointed to a banking committee and an investment bankers committee which were established on 1 August 2008 (and was also charged, along with Mr Duswald, with finding new Austrian legal counsel); and later to a due diligence and legal strategy committee and a corporate finance committee which were established on 15 September 2008.  The Royal Court in the Judgment said that it was:-

"unsurprising that by the time of the telephonic Board meeting held on 1^st September 2008, Mr Vilsmeier was reporting to the Board that the workload attributed to the directors was far greater than anticipated."

9.        The Judgment also records the circumstances in which relations between the new Boards of AI (and, once appointed, PI) and the hedge fund investors became increasingly strained.  Since there is no challenge to the factual findings in this part of the Judgment it is not necessary to detail them but in brief:

(i)        AI had made a significant investment in TAV Havalimanlari Holding AS ("TAV"), a Turkish company involved in airports.  The value of this investment declined sharply, Mr Pirrwitz and Mr Vilsmeier being told by TAV's Chief Executive on 17 October 2008 that this was due to heavy hedge fund selling.  At a meeting the next day with Mr Klaus Roehrig, an investment manager with Elliott Associates (one of the major hedge fund investors in AI), they were told that he had taken a very large short position in TAV on behalf of Elliott, and that Elliott wanted to take over AI's stake in TAV.  The conclusion of the Royal Court on this matter (at paragraph 18 of the Judgment) was:-

"To find that one of the major institutional shareholders which had been instrumental in appointing the new Board was in fact the cause of depleting the value of the company's biggest asset and suggesting it would acquire that asset at the depreciated price came as a big shock. Mr Vilsmeier noted immediately the acute conflict of interest between Elliott, a major investor in AI, and AI itself, including all its other shareholders."

(ii)       Further strain was put on the relations between the hedge fund investors and the Boards of both AI and PI as a result of the so-called Pecik deal.  In November 2008 Mr Roehrig and Mr Alexander Proschofsky (the individual behind another of the hedge funds, Cube Invest) requested access to the electronic data rooms of the Companies; an approach was also made for access to information by a Mr Ronnie Pecik.  In December 2008 it became apparent that a deal had been agreed between Elliott, Mr Pecik and Meinl Bank which included the settling of various claims between the Companies and the Meinl Group with AI making various payments to Meinl.  The Boards were however advised that they had obligations to all shareholders and should not grant access to the virtual data rooms unless they came to the conclusion that such disclosure was in the interest of the Companies as a whole; they were also advised that accepting instructions from an individual shareholder, particularly if those instructions would favour the interests of a single shareholder and were not in the best interests of the Companies or the other shareholders, did not conform to good corporate governance standards and might constitute a breach of the Boards' fiduciary duties.  Due to the refusal of the Boards to acquiesce in the arrangements, the negotiations with Mr Pecik foundered.  

(iii)      A further matter of contention was a rights issue by TAV which was published on 31 December 2008.  The hedge fund investors (Mr Roehrig on behalf of Elliott, Mr Proschofsky on behalf of Cube Invest, and Mr Geoffrey Strong on behalf of another hedge fund, QVT Financial LB) made it plain that they did not want AI to take up the rights issue but rather to sell their rights instead.  Mr Pirrwitz however considered that it was in the interests of AI to take up the rights issue; he had the perception that as there was limited liquidity in TAV stock, the rights issue was an opportunity for Elliott to buy TAV shares cheaply and off market to cover the short position they had taken in the autumn.  The Board of AI in the event did take up the rights issue despite the demands made by the hedge funds, a decision which AI's adviser at Goldman Sachs described as "a strongly disputed decision" and one where the Board "had to exercise judgment and courage also vis-à-vis shareholders' requests."

(iv)      The Royal Court's summary of the position was strongly supportive of the Boards of AI and PI, as set out in paragraph 32 of the Judgment:

"AI and PI are public funds registered in Jersey. Shareholders include not only the hedge fund investors but also private retail investors. The Pecik and TAV deals as proposed would pretty clearly have benefited a few individual shareholders, but not the company at large. We are satisfied that the professional advice given to the Boards of AI and PI in how to deal with these issues was good advice, and we are equally satisfied that the Board acted properly in following it."  

10.      From the time of their respective appointment the Boards met quite frequently.  Among other matters discussed were the terms of the directors' service contracts.  It is Mr Pirrwitz's case, which was accepted by the Royal Court, that as a result of the meetings and other discussions over this period, the Boards of AI and PI authorised the making of his Service Contracts, a conclusion which the Companies challenge in Ground 3 of their appeal.  I will consider below in detail the evidence of these discussions when discussing that ground.

11.      For the present, it is sufficient to note that Mr Pirrwitz's Service Contracts were signed in early March 2009.  That with AI is dated 2 March 2009 and signed by Mr Vilsmeier (on behalf of AI) and by Mr Pirrwitz himself.  That with PI is dated 6 March 2009 and again signed by Mr Vilsmeier (on behalf of PI) and Mr Pirrwitz.  The evidence however was that the documents were in fact all signed on 9 March 2009.

12.      The relevant provisions of each Service Contract are identical, namely as follows:-

"1.1 Your appointment will be initially until the Fund's next Annual General Meeting unless otherwise terminated earlier by and at the discretion of either party upon three months' written notice or in accordance with the Fund's Articles. Continuation of your contract for services is contingent on satisfactory performance and re-election at forthcoming Annual General Meetings."

"9.2 If the Fund shall resolve not to re-elect you as a director in accordance with clause 1 of this letter or to remove you as a director in accordance with article 133 of the Articles of Association of the Fund then in consideration of your service and time commitment to the Fund since your appointment you will be entitled to such sum as shall be agreed between you and the Chairman (or any two directors as determined by the Legal Committee, should you be the Chairman) (the "Exit Amount") which shall be payable on the date of such removal. For the avoidance of doubt, in the event that you are removed from the office of director without the Fund giving you three months' prior notice under clause 1 of this letter, the Exit Amount shall include any fees which may have otherwise been due to you in respect of such notice period.

9.3 If you shall decide to resign as a director of the Fund at any time then in consideration of your service and time commitment to the Fund since your appointment you will be entitled to such sum as shall be agreed between you and the Chairman (or any two directors as determined by the Legal Committee, should you be the Chairman) (the "Resignation Amount") which shall be payable on the date of such resignation. In the event that you fail to give three months' notice to the Fund in accordance with clause 1 of this letter, the Fund shall be entitled acting in its absolute discretion to withhold all or part of the Resignation Amount."   

13.      In each case the Service Contract was supplemented by a further letter, also dated 2 and 6 March 2009 respectively but in fact signed on 9 March 2009, and again signed by Mr Vilsmeier (and countersigned by Mr Pirrwitz by way of agreement and acknowledgment) ("the Side Letters").  That in relation to AI provided, so far as material as follows:-

"In accordance with the director service agreement made between you and the Fund dated March 6, 2009 (the "Agreement') the amount of the Exit Amount as specified at paragraph 9.2 of the Agreement shall be EUR 600,000 and the amount of the Resignation Amount as specified at paragraph 9.3 of the Agreement shall be EUR 600,000."

The Side Letter in relation to PI was identical save that the amount in each case was €700,000.

14.      Other directors received service contracts in similar form: the details are given below. 

15.      Mr Pirrwitz was removed as a director of each of the Companies at EGMs, held on 21 April 2009 (PI) and 22 April 2009 (AI).  He therefore claimed in these proceedings the Exit Amounts specified in each Side Letter as being due under clause 9.2 of the Service Contracts.  There is no dispute that the sums would be due if his Service Contracts were valid and enforceable.

Ground 2

16.      Advocate Santos-Costa commenced his submissions with Ground 2 of his appeal, which is that the Boards of each Company had no power under the Articles to authorise the making of a service contract in the form in which the Service Contracts were made.  If this contention is well founded, there is no need to consider whether the Boards did in fact authorise the Service Contracts in this form

17.      The relevant Articles of Association are the same in the case of each of the Companies.  They are as follows:-

"POWERS OF THE BOARD

123. Subject to the provisions of the Act, the Memorandum and these Articles and to any directions given by special resolution, the business of the Company shall be managed by the board which may pay all expenses incurred in forming and registering the Company and may exercise all the powers of the Company, including without limitation the power to dispose of all or any part of the undertaking of the Company ... The powers given by this Article shall not be limited by any special power given to the board by these Articles. A meeting of the board at which a quorum is present may exercise all powers exercisable by the board.

REMUNERATION OF NON-EXECUTIVE DIRECTORS

134. The directors who do not hold executive office for their services (excluding amounts payable under any other provision of these Articles) shall be entitled to such ordinary remuneration as the directors may from time to time by ordinary resolution determine. Subject thereto, each such director may be paid a fee (which shall be deemed to accrue from day to day) at such rate as may from time to time be determined by the board.

135. Any director who does not hold executive office and who serves on any committee of the board, or otherwise performs special services which in the opinion of the board are outside the scope of the ordinary duties of a director, may (without prejudice to the provisions of Article 134) be paid such extra remuneration by way of salary, commission or otherwise as the board may determine.

EXECUTIVE DIRECTORS

137. Subject to the provisions of the Act, the board may appoint one or more of its body to be the holder of any executive office (except that of auditor) in the Company and may enter into an agreement or arrangement with any director for his employment by the Company or for the provision by him of any services outside the scope of the ordinary duties of a director. Any such appointment, agreement or arrangement may be made on such terms, including without limitation terms as to remuneration, as the board determines. The board may revoke or vary any such appointment but without prejudice to any rights or claims which the person whose appointment is revoked or varied may have against the company because of the revocation or variation, provided that the remedy of any such person for any breach of such agreement shall be in damages only and he shall have no right or claim to continue in such office contrary to the will of the directors or of the Company in general meeting."

18.      The Royal Court in the Judgment held that the Board of each Company had power to authorise the making of a service contract with an individual director containing provision for exit fees (i) under Article 123; (ii) alternatively under Article 137; and (iii) in the further alternative under Article 135.  Advocate Santos-Costa submits that this is wrong: Article 123 contains no express power to pay directors; and Articles 135 and 137 are confined to "remuneration".  The essence of his submission was that the effect of the service contracts was to entitle a director to an exit payment whether he was not re-elected, was removed, or voluntarily resigned; and that since he could thereby claim an exit payment by resigning without doing any more work, the exit payment could not be characterised as remuneration.

19.      In my judgment the Royal Court was right in its conclusion on this issue.

20.      I will start with Article 135.  I will assume that the directors, including Mr Pirrwitz, did not hold executive office: this was something argued before the Royal Court but which they did not in the end find necessary to decide, and we for our part heard no extensive argument on it.  It does however seem to me likely that none of the directors held executive office: the appointments were not full-time and the service contracts provided that they were contracts for services and not contracts of employment.  At an early stage Mr Carl O'Shea of Crill Canavan (who had been appointed as AI's Jersey legal counsel at the first Board meeting of the new Board of AI on 1 August 2008) circulated draft service contracts which he had drafted on a non-executive basis, and asked who was to be appointed as an executive director, to which Mr Pirrwitz replied that no director was executive, all being non-execs.  There is no particular reason to think that the position changed thereafter. 

21.      On this basis Article 135 applied to Mr Pirrwitz as he did serve on committees of the Board; the Royal Court also held that he performed special services outside the scope of the ordinary duties of a director, and that has not been disputed before us.  The only question which arises on Article 135 therefore is whether the Exit Amounts payable under clause 9.2 of each Service Contract are "extra remuneration".  In my judgment they are. 

22.      "Remuneration" is not defined in the Articles but we were helpfully referred to a decision of the English Court of Appeal in Currencies Direct Ltd v Ellis [2002] EWCA Civ 779 where Mummery LJ said (at [20]):-

"The essence of remuneration is that it is consideration for work done or to be done.  The consideration may take different forms.  It is not necessarily in the conventional form of a direct payment of a regular wage, salary, cheque or credit.  As Blackburn J said in R v Postmaster General (1876) 1 QBD 658 at 663:

"If a man gives his services, whatever consideration he gets for giving his services seems to me to be a remuneration for them."

Mummery LJ went on to hold that the consideration which forms remuneration may include one-off lump sum payments. 

23.      Two points clearly emerge from this analysis.  First, remuneration can take many different forms and includes any consideration in return for services.  It can clearly include a one-off lump sum payment payable at the end of a director's service.

24.      Second, remuneration is consideration in return for services, but it can include payments for services already rendered.  It is not necessary that an agreement to pay remuneration to a director is in return for future services; an agreement to make a special payment for past services is equally "remuneration".  Not only is this what Mummery LJ says in terms ("consideration for work done or to be done"), it is also implicit in the decision of the House of Lords in Guinness plc v Saunders [1990] 2 AC 663.  In that case a director of Guinness plc, Mr Ward, had been paid a fee in connection with work he had done on a takeover bid.  The company successfully claimed it back on the basis that the articles conferred the power to grant remuneration only on "the board", and the relevant committee had had no power itself to grant remuneration.  The relevant article read, so far as material, as follows:-

"91.    The board may, in addition to the remuneration authorised in article 90, grant special remuneration to any director who serves on any committee or who devotes special attention to the business of the company or who otherwise performs services which in the opinion of the board are outside the scope of the ordinary duties of a director..."

The significant point for present purposes is that both Lord Templeman and Lord Goff, who gave the only reasoned speeches, expressly contemplated that the power to award remuneration could be exercised after the services had been rendered.  Lord Templeman (at 692E) said:-

"A director of Guinness who contemplates or accepts service on a committee or has performed outstanding services for the company as a member of a committee may apply to the board of directors for a contract or an award of special remuneration."

Lord Goff said (at 702A):-

"Furthermore, for such services as he rendered, it is still open to the board of Guinness (if it thinks fit, having had a full opportunity to investigate the circumstances of the case) to award Mr Ward appropriate remuneration."

This is no more than one would expect.  It would unduly hamper the board of directors of a company if their power to award special remuneration to those who served on committees or rendered special services could only be awarded in advance.  Further, as a matter of ordinary language I have no doubt that an article in the form of Article 135 of the Companies' Articles (or of Article 91 of Guinness's Articles which is in similar form) does confer power on the relevant Board to award remuneration to a director for work he has already carried out. 

25.      This in my judgment provides a complete answer to Advocate Santos-Costa's point that by resigning, a director could claim an exit payment under clause 9.3 without doing any more work and hence the exit payments are not "remuneration".  Both clause 9.2 and clause 9.3 of the Service Contracts describe the payments due thereunder (the Exit Amount in the case of clause 9.2 and the Resignation Amount in the case of clause 9.3) as being:-

"in consideration of your service and time commitment to the Fund since your appointment."

On their face therefore the payments due under these clauses are consideration for services already given.  They are thus squarely within the meaning of remuneration, and (assuming Mr Pirrwitz to be a non-executive director) authorised by Article 135.

26.      Advocate Preston had other points in answer to this part of Advocate Santos-Costa's submissions, namely (a) that even if clause 9.3 is unauthorised, it is severable and does not affect the validity of clause 9.2; and (b) that in any event clause 9.3 does not permit a director to resign immediately and claim the Resignation Amount.  It contemplates the director giving 3 months' notice (in accordance with clause 1), and if he fails to do so, the Company can withhold all or part of the Resignation Amount; and it is therefore incorrect to say that a director could obtain an exit payment without doing any more work.  Both of these points seem to me to have considerable force, but in the light of the conclusion to which I have already come, I do not think it is necessary to consider them further. 

27.      I have assumed above that Mr Pirrwitz was not the holder of an executive office.  If he was (a question which as I have already said was not extensively argued before us), then Article 135 does not apply to him, but Article 137 does.  This enables the Boards to:-

"enter into an agreement or arrangement with any director for his employment by the Company or for the provision by him of any services outside the scope of the ordinary duties of a director"

and provides that such appointment, agreement or arrangement may be

"on such terms, including without limitation terms as to remuneration, as the board determines"

I see no reason why these words should not mean what they say.  The Board can determine the terms of the appointment, agreement or arrangement they make with Mr Pirrwitz, whether the terms are technically terms as to remuneration or not. 

28.      In these circumstances I agree with the Royal Court that the Board of each Company had power, under Article 135 or 137, to enter into the Service Contracts with Mr Pirrwitz providing for payment of the Exit Amounts in accordance with clause 9.2 of each contract. 

29.      It is therefore not necessary to consider whether Article 123 would by itself have authorised the Board to make payments to a director.  The general principle is that a director, being a fiduciary for his company, is not entitled to remuneration out of the company's funds save as authorised by the articles (see Guinness plc v Saunders), or by the company in general meeting.  Article 123 merely confers on the Board the power to manage the business of the company, and contains no express reference to the remuneration of directors.  Advocate Santos-Costa said that what was needed was not just a power to manage the business of the company but a specific release of a director's fiduciary obligations.  I consider there is some force in this submission, but since it is not necessary to decide whether or not it is correct, I prefer to leave open the question whether Article 123 would suffice by itself.  It may be doubted how significant this question is in practice: the articles of commercial companies no doubt usually, if not always, do contain express provisions authorising remuneration to be paid. 

30.      For the reasons I have given, however, I would reject this ground of appeal.

Ground 3

31.      Ground 3 of the appeal is that as a matter of fact the Boards of AI and PI did not authorise the making of the Service Contracts.  This requires examining the history of the Boards' discussions on the directors' service contracts.

32.      The new Board of AI was appointed at an EGM on 28 July 2008.

33.      The first meeting of the new Board was held by telephone on 1 August 2008.  Among other matters discussed was the basis of directors' remuneration.  It was agreed that a fixed fee of €10,000 per director per month was appropriate, and that a success fee would be discussed at a later date.  It was agreed that Mr Andrew Pinel of Crill Canavan would draft temporary service contracts for each director to be presented at the next meeting on 12 August 2008.

34.      In the event draft contracts were not prepared until shortly before a Board meeting held by telephone on 1 September 2008.  At this meeting it was resolved that in the light of the fact that the workload of the directors was far greater than anticipated, the monthly fee of €10,000 should be understood as a base fee that covered a time commitment of 60 days per year (5 days per month) and any time spent in excess would be compensated at the rate of €2,000 per day.  Mr Vilsmeier also reported that further discussions would take place in relation to the incentive fee due to directors.

35.      At the next Board meeting, held in Munich on 15 September 2008, a further amendment was proposed, namely that the daily rate should be uplifted by 50% when directors worked on public holidays or weekends; the Board resolved to approve this amendment and to sign all the service contracts.  An unsigned version of Mr Pirrwitz's contract dated 15 September 2008 is before the Court; we have not seen a signed copy, but Mr Pirrwitz's evidence was that the contracts were signed on 15 September.  The contract provided, as well as the base fee and additional fees for extra time spent, for a performance-related fee to be agreed by the Board in due course.  The Board thereafter took advice from Hay Group on this success fee element.

36.      On 14 November 2008 the new Board of PI was appointed at an EGM. 

37.      On 25 November 2008 Mr O'Shea circulated a first draft of a revised director service agreement for AI to Messrs Pirrwitz, Boléat and Duswald.  This appears to have been the first time that the draft incorporated provision for exit payments on a director not being re-elected, being removed, or resigning.  At that stage the draft provided for the amount to be specified in each contract itself.  

38.      The next relevant Board meeting of AI took place by telephone on 29 November 2008.  A Board meeting of PI also took place on the same day, a practice which appears to have been regularly followed thereafter.  The Board of each Company was told that further proposals would be brought before them and would be circulated by 3 December.  At that stage it was contemplated that an independent third party would need to be appointed to approve that any additional proposals were in the interests of the Company.  At the Board meeting of PI it was resolved to appoint Carey Olsen as the Company's Jersey law advisers. 

39.      On 5 December Mr O'Shea sent Mr Pirrwitz a draft incorporating provisions for exit payments together with a letter addressed to the directors of AI drawing attention to the differences between the existing service contract and the new one.  Mr O'Shea's letter said that he understood that the Board would obtain independent advice as to the commerciality and propriety of the documents.

40.      On 11 December Mr Peter German of Carey Olsen sent to Mr Pirrwitz a draft services contract.  This did not contain any provision for exit payments.  Mr Pirrwitz pointed this out in an e-mail to Mr Alan Stevens of Carey Olsen on 14 December in which he said that there should be a break-up fee in the event of non-reelection, the amount to be paid to each director to be fixed by the chairman.

41.      On Sunday 14 December 2008 Board meetings were held at the Longueville Manor Hotel in Jersey, that of AI at 6.30 pm and that of PI at 8.30 pm.  We have seen transcripts of the meetings.  In the AI meeting, Mr Pirrwitz was invited to deal with the revised service contracts for the directors.  He explained that Crill Canavan had prepared a letter of advice and a series of documents, one of which was the revised director service agreement; and that this included a severance payment clause.  He then proposed that where there was a blank amount in the drafts, the Board should give authority to the Chairman to fix amounts for each individual in "one-on-ones".  He was clear that the Board should take a decision then and there to the effect that authority on this point was given to the Chairman. 

42.      There was considerable discussion as to whether matters needed to be brought back before the Board once the amounts had been fixed.  Some directors thought this would be necessary, but Mr Pirrwitz said that he had advice from Mr Pinel that this was not necessary: it was within the Board's rights to set out all the other amounts but to delegate authority to the Chairman to fix this one amount.  At the end of the discussion, Mr Pirrwitz proposed a resolution as follows:-

"BJORN PIRRWITZ: First we need to be very precise about what we minute and what we resolve. I think we should minute the fact that the documents that I just referred to will be distributed after this meeting, I mean, as soon as practicable, I will go and print it out, everybody can go and read this, these three documents, plus the advice letter from Crill Canavan. We will resolve that with regard to the severance payment and the success fee, this board now decides to give the authority to the chairman to determine this individually, subject to Andrew advising us that this does not have to go to the board again. If he says it has to, then we will take this to the board again. And I think that is -- did I miss something?

WOLFGANG VILSMEIER: Yes, and I take the help of a neutral third party like Hay.

BJORN PIRRWITZ: In determining the success fee, which is obviously -- okay, maybe one more thing, also with regard to the severance payment, it needs to be satisfactory to the lawyers, so the lawyers should look at it and say, okay, this makes sense, with whatever formula, and with regard to the success fee, to determine what is a success and how do you -

FRED DUSWALD: In these circumstances.

WOLFGANG VILSMEIER: How to define it.

BJORN PIRRWITZ: In these circumstances, the chairman will get the assistance from Hay Associates to come up with a workable solution. So, can we vote on this?"

43.      Mr Baird, who was chairing the meeting, then proposed that the Board agree to Mr Pirrwitz's proposition as follows:-

GEORGE BAIRD: I would propose that we agree to Bjorn's proposition, and also that from tonight's meeting, because this is kind of important, amongst everything else, that Lisa, when she's preparing the minutes of the meeting, deals with this as a special item to be included in the minutes which will be dealt with separately and must be agreed unanimously, the wording must be agreed unanimously by every director before it's incorporated into the final minutes.

That means Bjorn, in terms of what you've said this evening if Lisa produces something, she'll send it round all the directors, and I'm afraid to say you will have to be absolutely pivotal in this, because you have to be absolutely clear that that is what it means word for word. And the other directors would follow on in due course.

Then once that's been done, and I suggest it's done within the next 48 hours, or maybe -- I take it you are going to be in Istanbul, but by the middle of next week, but it must be done within the next two or three days, and we can agree with that separately, and that will be incorporated within the minutes. Is everyone happy with that?

(General agreement)."

The reference to "Lisa" is to Lisa Diamond (later Lisa Boléat) who was responsible for the minutes.

44.      The Royal Court said in the Judgment that while it was difficult to say that agreement was reached unconditionally at this meeting, they did think that the substance of what later emerged was agreed then.  I agree.  So far as concerns the exit or severance payments, there were three aspects to Mr Pirrwitz's proposed resolution, namely:-

(i)        that the draft contract and Crill Canavan's letter of advice would be printed and handed out;

(ii)       that the Board should "now" give authority to the Chairman Mr Vilsmeier to agree the severance payments individually, subject to Mr Pinel advising that it did not need to go to the Board again; and

(iii)      that the lawyers should look at the severance payment and agree that it was satisfactory and say "this makes sense, with whatever formula". 

This last point does not appear to me to contemplate that the lawyers should sign off on the individual amounts of the exit payments (something that they could not be expected to judge) but that they should confirm that the proposed mechanism for quantifying it was legally acceptable.  This resolution was agreed; it was also agreed that the precise terms of the resolution would be agreed as a separate item in the Minutes.

45.      The transcript of the Board meeting of PI later that evening contains little discussion of this particular point, most of the time being taken up with a heated discussion about Mr Hassler's personal position.  But in the course of the meeting Mr Vilsmeier said that it was important that the directors had their contracts in place as soon as possible, preferably that night; and proposed that they agree a monthly fee for directors with overtime fees "as we did at airports" and added:-

"So, I think that, as discussed earlier with Bjorn, we need to have a so-called breakup clause and change of control clause in place. I think this is essential and that this breakup and change of control clause is not directly related to what we call success fee. Yeah?"

(It is clear from other evidence that the reference to a breakup and change of control clause is to the provision for exit payments.)  He reverted to this point a little later, as this exchange shows:

"WOLFGANG VILSMEIER: So, I think that is, first of all, we need a basic contract. It has to be the same as at airports.

GERMAN: Yeah.

WOLFGANG VILSMEIER: With a breakup clause and a change of control clause for everybody -   

GEORGE BAIRD: So essentially you're suggesting, Wolfgang, that the contract for MIP would emulate, you know, would be the same as the contract for Airport International, but you said -- you said that the monthly --the monthly fee would be 12,000?

WOLFGANG VILSMEIER: Yeah, I think, yeah. "

There is no suggestion of any dissent from any of the directors; the discussion then moved to whether all the directors should have the same basic fee or whether the Chairman's should be higher to reflect his greater responsibility.

46.      On 16 December 2008 Mr Pinel sent an e-mail to Mr Pirrwitz, copied to some of the other directors (Mr Duswald and Mr Boléat).  He referred to his discussions with Mr Pirrwitz on Sunday afternoon (ie on 14 December 2008, before the Board meetings that evening) and continued:-

"As discussed provided that the full board of directors have reviewed the form of the agreements, the board can authorise the Chairman (or a Committee of directors) to finalise the agreements with the individual directors and in particular to deal with the issue of discretionary bonuses and/or success fees upon termination.  However, this is not ideal and does leave the board with a risk of criticism or challenge in the future.  In the ordinary course of events, the final form agreements would be presented to the board for approval; is there any reason why this cannot be done ?  We can draft the necessary board resolutions if that would assist.

In relation to the discretionary bonus or success fee, as discussed, this can, within reason, be dealt with in any manner the board approves. I mentioned that typically the success fee is linked to change in share prices. However, given the current market and the effect of factors such as the litigation on the current share price of AI, this may not be appropriate."   

47.      So far as exit payments are concerned, this seems to me to deal with the two legal matters outstanding from the terms of the resolution proposed by Mr Pirrwitz.  First, it confirms Mr Pinel's advice that the Board has power to delegate the setting of the exit payments (here referred to as discretionary bonuses) to the Chairman.  It is true that he recommends that the final form agreements are presented to the Board for approval; but he clearly advises that it is not necessary to do this.  The terms of Mr Pirrwitz's resolution had been to the effect that the Board:-

"now decides to give the authority to the chairman to determine this individually, subject to Andrew advising us that this does not have to go to the board again. If he says it has to, then we will take this to the board again."     

To my mind it is clear from the e-mail that Mr Pinel's advice was that it did not have to go to the Board again; this condition was therefore satisfied.

48.      The second relevant matter which the e-mail deals with is as to the method of setting the exit payments.  Mr Pinel's advice was that there was no particular mechanism that was legally required; the Board could do what it wanted within reason.  This seems to me to satisfy the other legal requirement arising out of the terms of the resolution proposed by Mr Pirrwitz, namely that the lawyers should confirm that the proposed method for quantifying the exit payments was legally acceptable.  

49.      On 17 December 2008, Ms Diamond circulated a first draft of the extract of the minutes of the Board meetings of AI and PI of 14 December 2008.  They are in almost identical form, which reflects the fact that the PI Board did not dissent from Mr Vilsmeier's suggestion that the contracts needed to be the same as at AI.  So far as exit payments are concerned the AI draft contained resolutions as follows:-

"The Chairman further reported to the Board that in consideration of the directors' service and commitment to the Company thought should be given to the making of a one off payment to a director should he not be re-elected at the next AGM/EGM, should his appointment be terminated in accordance with the Articles of Association of the Company or should he decide to resign for whatever reason. The Board discussed and it was RESOLVED that the value of the one off payment is to be determined by Wolfgang Vilsmeier in his capacity as Chairman and it may be appropriate to incorporate a formula which reflects the contribution made and time engaged by the individual director.

IT WAS RESOLVED and agreed that Crill Canavan will be instructed to draw up a new service contracts for circulation which will incorporate the above resolutions and that the Chairman will sign all such contracts on behalf of the Company following confirmation from the directors that they are in order. It was agreed and RESOLVED that BP will sign the Chairman's service contract upon the Chairman's approval that said contract is in order."

The PI draft was in similar form save that the second paragraph referred to Carey Olsen in place of Crill Canavan (and contained some minor textual differences of no significance).  Advocate Santos-Costa drew our attention to the fact that the words which I have underlined did not find their way into the final version of the minutes.  I do not myself think that there is any significance in this point.  The final sentence shows that what is there being referred to is Mr Vilsmeier's approval that his contract "is in order", or in other words his acceptance that it correctly reflected what had been agreed.  Since he would be asked to sign it, this is no more than one would expect.  It cannot be read as suggesting that he should have an opportunity to reopen the terms of his contract.  The same must be true of the previous sentence which must therefore also be read as referring to the fact that each director, before being committed to his contract, would have an opportunity to confirm that it correctly reflected what had been agreed.  I do not consider that this passage lends any support to the idea that the Board contemplated that the question of the contracts was not yet resolved or would be brought back before another Board meeting for further discussion.

50.      Advocate Santos-Costa also drew our attention to the last paragraph of the draft extract, which again did not find its way into the final version of the minutes, and which read as follows (in the case of AI):-

"The Board discussed and it was UNANIMOUSLY RESOLVED that independent advice will be taken to ensure that all remuneration matters including break up clause provisions and Indemnity Security Agreement are reasonable in all the circumstances and reflective of the onerous tasks with which the directors are faced. It was agreed that Bjorn Pirrwitz would engage an independent advisor and obtain a report from said advisor for presentation to the board."

Again the PI draft was the same with some irrelevant textual differences.  This passage does not appear to reflect the terms of the resolution proposed by Mr Pirrwitz and passed at the AI meeting, or any discussion at the PI meeting, although it does echo what had been said at the Board meetings of 29 November 2008.  However there was substantial input from the two sets of lawyers (Crill Canavan and Carey Olsen) after the 14 December 2008 meetings; and the Royal Court considered at length the whole question of whether there was a precondition that independent legal advice had to be obtained as to the validity and propriety of the directors' service agreements.  They found that the advice over the intervening period showed that the structure of the service contracts was substantially signed off by the lawyers; and concluded (at paragraph 103):-

"We are quite satisfied that any precondition that the lawyers should be satisfied as to the propriety of the arrangements was met."

This in my judgment was and is an entirely reasonable conclusion.  Mr Pirrwitz's evidence in cross-examination was indeed that at the end of the St Gallen meeting referred to below it was agreed that the Board was satisfied with the advice received, which was why the requirement for any further advice was dropped.

51.      Ms Diamond asked the directors of each Board for any comments on the draft minutes.  Apart from Mr Pirrwitz, who asked for a passage setting out the rationale for the severance clause to be expanded, none of the directors took issue with the draft minutes.  This is to my mind powerful evidence that none of the directors of either Board dissented from the resolution that is recorded in the draft minutes to the effect that Mr Vilsmeier would determine the value of the one-off payment.

52.      The next Board meetings of the Companies were held on 2 February 2009 at St Gallen in Switzerland.  The Minutes of the AI meeting include the following:-

"The Minutes of the previous meeting dated 14th December 2008, having already been circulated, were discussed and some minor amendments were noted. An amended version will be circulated to the directors after the Meeting.

The Board discussed the matters arising from the Board Meeting on the 14th December. It was noted that at the previous board meeting, comments would be provided on circulated Board minutes within 5 business days of circulation, failing which the Minutes would be signed as conclusive evidence of the business conducted at the relevant meeting.

All comments now having been made, the minutes of the previous meetings are final and have been filed in the minute book of the company as a true complete and accurate record of those meetings."

53.      Mr Pirrwitz's evidence was that Mr Vilsmeier signed the Minutes of the 14 December meetings at the 2 February meetings; Mr Vilsmeier's evidence was that although he did not recall the circumstances, he believed he would have signed them "at or shortly after" the board meetings of 2 February 2009.  The Minutes suggest that they are more likely to have been signed after rather than at the meeting, as they were to incorporate minor amendments and then be recirculated.  But on either view this is evidence from which it could be inferred that the final form of minutes signed by Mr Vilsmeier had been discussed and agreed at the 2 February meetings.  Advocate Santos-Costa submitted that the changes identified above from the draft minutes could not be described as minor amendments, but I am unpersuaded of this: if the Board thought it unnecessary to obtain further advice having received the input of the lawyers over the intervening period since the meetings of 14 December, then it might well regard the dropping of the final paragraph of the draft as a minor change.

54.      In the result the signed minutes of the 14 December Board meeting of AI read, so far as material, as follows:-

"The Board discussed that the directors all had service contracts in place which were standard contracts and needed to be revisited in light of the history of the Company and the work required restructuring the Company for the benefit of the existing shareholders. In particular, the Board discussed that it was appropriate to revisit the working of the indemnity provision.

The Board discussed that in the last days/weeks pressure from certain shareholders on the board and on individual directors has become bigger and bigger, including threats to sue directors and call an EGM to have directors removed if they did not execute the "instructions" given. In this climate of conflict and fear it is of the utmost importance for the board to remain independent and meet its fiduciary duties so as not to favour one shareholder over another and always act in the best interest of all shareholders and not in the interest of one group over another. It would therefore strengthen the independence of the directors if they knew they were going to receive a compensation payment in the event they would be removed from their office and/or sued by an unhappy (controlling) shareholder although that director had only exercised his office in line with his fiduciary duties and in the best interests of all shareholders.

The Chairman further reported to the Board that in view of the above and in consideration of the director's service and commitment to the Company thought should be given to the making of a one off payment to a director should he not be re-elected at the next AGM/EGM, should his appointment be terminated in accordance with the Articles of Association of the Company or should be decide to resign for whatever reason. The Board discussed and it was RESOLVED that the value of the one off payment is to be determined by Wolfgang Vilsmeier in has [sic] capacity as Chairman and it may be appropriate to incorporate a formula which reflects the contribution made and time engaged by the individual director. IT WAS FURTHER RESOLVED that the DDC, acting by a majority of its members, would make said one off payment value determination in respect of the Chairman.

IT WAS RESOLVED and agreed that Crill Canavan will be instructed to draw up new service contracts, substantially in the form of the draft director's service agreement tabled to the Meeting, for circulation which will incorporate the above resolutions and that the Chairman will sign all such contracts on behalf of the Company. It was agreed and RESOLVED that Bjorn Pirrwitz will sign the Chairman's service contract on behalf of the Company."

The PI Minutes were in materially similar form.

55.      The Royal Court in the Judgment concluded that:-

"there were further discussions [ie after the 14 December meetings] leading to what one might call a travelling consensus which became a true consensus at the St Gallen meeting in February 2009."

It seems to me in the light of the material I have referred to, that this was a conclusion to which the Royal Court was entitled to come and from which we have no reason to depart.  Mr Pirrwitz's oral evidence was indeed that although the draft minutes reflected what was actually agreed in December, the final form of minutes reflected what had been agreed by the time they were signed.  If the final form of the minutes as signed was discussed and agreed at the St Gallen meetings, it would amount to a consensus resolving that service contracts be entered into giving effect to the terms of the resolution and conferring authority on Mr Vilsmeier to determine the amount of the exit payments.  Advocate Santos-Costa submitted that the Boards could not have approved the service contracts on that occasion as there was no evidence that copies of the service contracts were before the Boards. But this seems to me to misunderstand the finding of the Royal Court.  The Court does not say that the Boards gave specific approval to final draft contracts placed before them (and indeed the Court itself said at paragraph 77 of the Judgment that if this had been done, and reflected in the Minutes, no problems would have arisen).  What the Court found to be a consensus, as I read the Judgment, was a consensus in terms of the signed form of the Minutes, or in other words that contracts should be prepared which reflected the resolutions (and in particular incorporated provision for exit payments), that Mr Vilsmeier be authorised to determine the amount of the exit payments, and that he be authorised to sign the contracts on behalf of the Companies (save for his own).  This seems to me to suffice to confer the necessary authority to make the Service Contracts valid.

56.      Advocate Santos-Costa sought to persuade us that the finding of the Royal Court that there was a consensus on 2 February could not be right.  But he faced the obvious difficulty that the Royal Court had the advantage of hearing oral evidence and seeing the witnesses being cross-examined in detail.  It is clear from the Judgment that the Royal Court accepted Mr Vilsmeier and Mr Pirrwitz as witnesses of truth: in paragraph 32 of the Judgment they said of them:-

"However, we found them both to be careful and credible witnesses, and what is more their evidence is supported by contemporaneous emails and correspondence."

And at paragraph 100 they contrasted their credibility with that of other witnesses (Mr Baird and Mr Boléat), saying:

"We regret that we did not find the evidence of either of these two directors particularly compelling, and where there is a divergence between the evidence which they gave and the evidence of Mr Vilsmeier and Mr Pirrwitz, we substantially accept the evidence of the latter directors. We regarded Mr Vilsmeier and Mr Pirrwitz as careful witnesses who gave their evidence credibly and well. What they had to say was largely consistent with the written records put before us."

57.      The limitations on an appellate court, which has not seen the witnesses, in interfering with a conclusion of fact reached by the trial court, which has, are well known.  For the position in Jersey, we were referred to the decision of this Court in Pell Frischmann v Bow Valley Iran Ltd [2008] JCA 146, [2008] JLR 311 where Beloff JA, giving the judgment of the Court, summarised the position as follows:-

"107.     It is well established that in a case where findings are made dependent on the view that the Royal Court has formed of the various witnesses, the circumstances in which the Court of Appeal can interfere with a judgment of the Royal Court are circumscribed.  There is indeed a consistent line of authority in this Court to that effect: Hyams v. English [1981] at page 89, Taylor v. Fitzpatrick [1979] 1 CA at page 9, Shalia v. Granite [1971] 1 CA at pages 758-760, Davis v. Stirling [1983] 1 CA at pages 79-80.  This line of authority adopts the approach of the English Courts under the pre-CPR regime.  The position may also be compared with the present position in England, epitomized in Assicurazioni Generali SpA. v. Arab Insurance Group [2003] 1 WLR 577 per Clarke LJ at paragraphs 14-17.

108.     In the House of Lords, Lord Sumner put the matter in the following way in The Hontestroom [1927] A.C. 37, at pages 47-48 (approved in Whitehouse v. Jordan [1981] 1 WLR 246 by Lord Wilberforce at page 249, and by Lord Fraser at page 263):-

"not to have seen the witnesses puts appellate Judges in a permanent position of disadvantage as against the trial Judge, and, unless it can be shown that he has failed to use or has palpably misused his advantage, the higher Court ought not to take the responsibility of reversing conclusions so arrived at, merely on the result of their own comparisons and criticisms of the witnesses and of their own view of the probabilities of the case.  The course of the trial and the whole substance of the Judgment must be looked at, and the matter does not depend on the question whether a witness has been cross-examined to credit or has been pronounced by the Judge in terms to be unworthy of it.  If his estimate of the man forms any substantial part of his reasons for his Judgment the trial Judge's conclusions of fact should, as I understand the decisions, be let alone.  In The Julia (1860) 144 Moo. P.C. 210, 235, Lord Kingsdown says: 'They, who require this Board, under such circumstances, to reverse a decision of the Court below upon a point of this description, undertake a task of great and almost insuperable difficulty ... We must, in order to reverse, not merely entertain doubts whether the decision below is right, but be convinced that it is wrong.'  Wood L.J., in The Alice (1868) L.R. 2 P.C. 245, 248, says: 'The principle established by the decision in The Julia is most singularly applicable ....

We should require evidence that would be overpowering in its effect on our Judgment with reference to the incredibility of the statements made.' James L.J. thus laid down the practice in The Sir Robert Peel (1880) 4 Asp. M.LC. 321, 322: 'The Court will not depart from the rule it has laid down that it will not overrule the decision of the Court below on a question of fact in which the Judge has had "the advantage of seeing the witnesses and observing their demeanour, unless they find some governing fact which in relation to others has created a wrong impression".'

109.     In the case of Jones, Jones and Bedell Cristin Trustees Limited v. Plane [2006] JLR 438, the Court of Appeal at paragraph 29 approved another classic passage from the speech of Lord Wright in Powell v. Streatham Manor Nursing Home [1953] A.C. 243 at pages 265-266 couched in the following terms:-

"Two principles are beyond controversy.  First it is clear that in an appeal of this character, that is from the decision of a trial judge based on his opinion of the trustworthiness of witnesses whom he has seen, the Court of Appeal, 'must, in order to reverse, not merely entertain doubts whether the decision below is right, but be convinced that it is wrong' ... And secondly the Court of Appeal has no right to ignore what facts the judge has found on his impression of the credibility of the witnesses and proceed to try the case on paper on its own view of the probabilities as if there had been no oral hearing".

The Court of Appeal in Jones at paragraph 30 of its own Judgment went on to say as follows:

"The application of these principles is ... particularly important in this jurisdiction where, as in this case, the facts are found by the Jurats rather than a judge".

110.     This latter dictum is, in our judgment, a recognition of the jurats' distinctive (and historic) role as fact finders, in contrast with that of the Judge who has a dual role in deciding both law and fact."

58.      In my judgment these principles make it impossible for us to overturn the finding of the Royal Court that there was a consensus among those present at the Board meetings of 2 February 2009. 

59.      Advocate Santos-Costa made a number of points in this part of his submissions.  He naturally relied on the fact that at paragraph 70 of the Judgment the Royal Court had said:-

"The minutes [of the AI Board meeting of 2 February] do not reflect any discussion on the directors service agreements"

whereas at paragraph 90 it said:-

"It is clear from the minutes of the St Gallen meeting that there was considerable discussion about the director service agreements at that meeting, and indeed that was the evidence of the directors present who appeared before us"

and at paragraph 94 it said:-

"It is clear that at that meeting there was discussion about the directors service agreements, and no-one has contended that the minutes of the St Gallen meeting are in any way incorrect (although they are somewhat opaque on detail) in reflecting the existence of that discussion."

There is an obvious inconsistency in these passages and it is not possible to be sure why the Royal Court has expressed itself as it has.  But this does not to my mind detract from the finding that there was a consensus reached at the St Gallen meetings on the terms of the minutes of the 14 December meetings, a finding which, as I have said, is supported by the oral evidence.     

60.      Advocate Santos-Costa also relied on the fact that at that stage there had been no decision that the amount of the exit payments should be set out in side letters.  This is correct: the suggestion for side letters only came at a later stage in March.  Indeed the evidence was that service contracts between AI and 4 of its directors (Messrs Vilsmeier, Pirrwitz, Duswald and Dohr) which are dated 16 December 2008 were in fact signed in St Gallen on 2 February 2009.  Each of these has provision for exit amounts (in each case of €600,000), which are specified in the body of the contract.  But I do not see this as being of significance: whether the amounts are specified in the body of the contracts or in side letters does not change the substance of the matter which is that the director in question is entitled to an exit payment in specified circumstances, the amount to be determined by Mr Vilsmeier.

61.      Advocate Santos-Costa also relied on the fact that the Minutes of the PI Board meeting on 2 February do not record any discussion or approval of the Minutes of the 14 December meeting.  This is also correct.  On the other hand, there was evidence, which I have referred to, that the Board of PI wanted to have the same contracts as in AI, and if a consensus had been reached at the AI meeting earlier that day, it would not be difficult to suppose that the Board of PI was content to follow AI, even though this is not minuted.  Certainly the fact that minutes in virtually identical form were signed suggests that the understanding was that the same consensus had been reached. 

62.      Advocate Santos-Costa also relied on the oral evidence of Mr Boléat and Mr Baird.  This however runs into the obvious difficulty that the Royal Court did not find their evidence compelling and where there was a conflict preferred that of Mr Pirrwitz and Mr Vilsmeier.

63.      Having considered the various points set out above, I am left in no doubt that this Court is in no position to interfere with the finding of fact of the Royal Court that the Boards of AI and PI reached a consensus at the Board meetings of 2 February 2009 on the matters recorded in the final form of the Minutes of the 14 December meetings.

64.      The Royal Court supported its conclusion by reference to the conduct of the individual directors, as follows:-

"Furthermore the conduct of Messrs Pirrwitz, Vilsmeier and Boleat in connection with directors service contracts between December 2008 and March 2009 in our view show that consensus was reached as to the finalisation of these contracts. Additionally, each director other than Mr Shinehouse and Mr Boleat, the latter not being present, in fact agreed the terms of their individual contracts, which they signed, and the amount of the exit fees. Mr Shinehouse signed an identical form of contract on 20th February 2009, albeit there was no signed side letter to agree the quantum of the Exit Payment. The evidence taken as a whole suggests that there was agreement that the Board should authorise Mr Vilsmeier to sign these individual contracts on behalf of the company in question, and having seen the witnesses and read the relevant evidence, we are satisfied that he had corporate authority from the board of each company, to do so."

(Mr Jim Shinehouse was appointed by the Boards as an additional director of each Company at Board meetings held by telephone on 24 February 2009.)

65.      Advocate Santos-Costa addressed us on the basis that these findings represented an alternative basis for the Royal Court's conclusion, namely that there was an informal consensus reached by the directors of each Company after the 2 February meetings.  His submission was that such an informal consensus could not be found because it requires unanimity and Messrs Boléat and Pascall did not sign a Service Contract, and Messrs Boléat, Pascall and Shinehouse did not sign Side Letters.

66.      In the light of my conclusion that we cannot disturb the finding that there was a consensus reached on 2 February 2009, I do not think it is necessary to address this part of the submissions at length.  But in any event I do not think this was intended by the Royal Court to be a separate and alternative ground of decision.  Rather, as I read it, the Royal Court was relying on the conduct of individual directors as supporting the conclusion it had come to that a consensus was reached.  For this purpose unanimity is not required; any evidence that individual directors were content to proceed with the contracts is capable of supporting the conclusion that the Board as a whole had consented to this.  Viewed in this light, the statements of the Royal Court appear to me to be wholly justified. 

67.      The next Board meetings after the meetings held by telephone on 24 February were held on 9 March 2009 in Klosters, Switzerland.  It is not in dispute that Mr Vilsmeier used that occasion to hold one-to-one meetings with most of the directors, at which their Service Contracts and Side Letters for both Companies were signed (despite the fact that these were dated 2 and 6 March 2009).  These directors (Messrs Pirrwitz, Dohr, Duswald and Baird, and (in the case of PI) Mr Hassler), as well as Mr Vilsmeier himself, must have been satisfied that Mr Vilsmeier then had the authority to sign contracts in that form. 

68.      That leaves Messrs Boléat, Shinehouse and (in the case of AI) Pascall.  Mr Boléat was not present in Klosters, but he had been sent, together with Mr Pirrwitz, copies of various drafts of the agreements.  In particular at 16.38 on 6 March Mr German of Carey Olsen sent to him and Mr Pirrwitz draft forms of contract (which still provided for the exit amounts to be specified in clauses 9.2 and 9.3 themselves); at 17.25 Mr Boléat expressed himself happy with these.  At 20.24 Mr German sent to him and Mr Pirrwitz replacement drafts which provided for the exit amounts to be in separate side letters, and at 20.25 execution copies of the same documents in the form in which they were executed on 9 March.  There is no suggestion in the documentation that Mr Boléat raised any objections to contracts in this form.    

69.      So far as Mr Shinehouse is concerned, he had not been a director at the time of the 2 February meetings; but in any event he too signed a contract in the same form (dated 20 February 2009, although since it was in the form first drafted on 6 March it must have been signed later).  He did not sign a Side Letter, and his evidence was that he was not aware that other directors had; but he did sign a contract providing for exit payments, their amounts to be determined by Mr Vilsmeier.  He too must have thought that this was something Mr Vilsmeier then had authority to do.   

70.      In my judgment the Royal Court was entitled to regard these facts as supporting the conclusion they came to that the Boards of the Companies had reached a consensus.  

71.      That leaves one final point on Ground 3.  Advocate Santos-Costa relied on Article 140(c) of the Articles of each Company, which provides as follows:-

"Where proposals are under consideration concerning the appointment (including fixing or varying the terms of appointment) of two or more directors to offices or employment with the Company or any Company in which the Company is interested, those directors may be counted in the quorum for the consideration of such proposals and such proposals may be divided and considered in relation to each director separately and, in such case, each of the directors concerned (if not debarred from the voting under sub-Article 141(b) above) shall be entitled to vote in respect of each resolution except that concerning his own appointment."

His submission was that this required a series of separate resolutions, and that no director was entitled to vote on a resolution concerning his own contract.

72.      This submission does not appear to have been advanced at trial and we do not have the benefit of the Royal Court's view on it; nor have we been referred to any authority on any similar article. I accept the Article is engaged as the proposals were proposals to vary the terms of appointment of all the directors to the office of director.  The Article consists of two parts, the first of which (down to "...consideration of such proposals") provides that the directors interested may be counted in the quorum.  The second part ("and such proposals may be divided...") clearly contains a permissive, not a mandatory, procedure.  If it had been intended to be mandatory, it would have provided that "such proposals shall be divided".  I therefore reject the first of Advocate Santos-Costa's submissions: in my judgment this Article does not prevent a single composite resolution. 

73.      I also reject his second submission.  All the Article says is that if the proposals are divided and considered in relation to each director separately, then each director shall be entitled to vote on the resolutions applying to other directors, but not his own.  It says nothing about the position if the resolution is not divided. 

74.      I accept that this leaves matters not comprehensively explained, and that the form of the Article does suggest that if the resolution is not divided there might be a problem.  However, Article 140(b) of the Articles (immediately preceding) provides that a director interested in a contract or matter is entitled to vote on that matter provided he has disclosed the nature and extent of his interest at a board meeting.  We have heard no submissions on whether the directors disclosed their interests, nor on whether they had to go through the ritual of making an express disclosure of interests in circumstances where the interest each director had in the proposals was obvious to all concerned; nor was the evidence directed at this point; nor indeed did Advocate Santos-Costa put his submissions on the basis that there had been no disclosure in accordance with Article 140(b).  The point was put simply on the basis of Article 140(c) alone.  For reasons I have given I do not accept that Article 140(c) has this effect.

75.       I would reject Ground 3 of the appeal.

Grounds 4 and 5

76.      I can take these two grounds together, and very shortly.  Ground 4 is that the Royal Court was wrong to find that the Boards were acting for a proper purpose (ie in the best interests of the Companies) when they resolved that the Companies should enter into the Service Contracts.  Ground 5 is that the Royal Court was wrong to find that Mr Vilsmeier was acting for a proper purpose when signing the Service Contracts and the Side Letters.

77.      The Royal Court considered in detail (i) whether the making of any exit payment was reasonable and in the best interests of the Companies and (ii) whether the quantum was fixed such as to still be in the best interest of the Companies. 

78.      It had no hesitation in answering the first question in the affirmative, for two reasons.  The first was that the directors (or at any rate most of them including Mr Pirrwitz) were key men who were performing enormous amounts of work, and who had been recruited against a background of support for a success fee.  However the actions of Elliott in AI in shorting the TAV stock, and the feelings of insecurity given their increasing lack of popularity with the hedge fund investors meant that the directors could not be sure they would receive a success fee, and might end up working for no more than the per diem fees.  In these circumstances:-

"the exit payment could reasonably be seen as an important factor in securing the continuing contribution of directors who were key to the prosperity and success of each company during complex and urgent re-structuring. The exit amounts were justified on the basis of securing the loyalty of these key men."

79.      The second reason was the conduct of the hedge fund investors. The Royal Court had the benefit of expert evidence, including evidence that:-

"a main rationale for structuring arrangements with exit payments was to ensure that the services of an individual were retained through a potentially difficult period and to provide certainty to that individual in uncertain times ... in addition, the payment assisted in preserving the independence of the board by strengthening its ability to act in the best interests of the company overall"

and that severance payments might be intended to provide additional security to directors who might be subject to pressure from a significant minority shareholder or group of shareholders.  They concluded that if the shareholders in general meeting had been told of the directors' resistance to individual shareholders who were seeking to make very large profits at the expense of the company and the shareholders as a whole:-

"we do not think there is much doubt that in those circumstances the shareholders in general meeting would have considered that the directors ought to have support for resisting the approach of significant individual minority shareholders which sought to drive down the value of the company and profit as a result, and to take confidential information available to the company on the premise that it would be used for their benefit rather than the company's benefit and possibly even to the company's detriment."

80.      The conclusion that the exit payments could be seen as being in the interests of the Companies on the grounds that they helped to secure the loyalty and independence of the directors in difficult circumstances is one that is rational and cogent: supported as it was by expert evidence which the Royal Court had the opportunity of hearing and which we have not, it would take a strong case to persuade me that we would be justified in disturbing it.

81.      Advocate Santos-Costa relied on the fact that the exit payments were capable of being triggered by a director choosing to resign, as well as by a director being removed or not being re-elected; and that the directors would remain entitled to them even if removed for incompetence, negligence, breach of duties or other fault.  He submitted that such provisions were not capable of being in the best interests of the company.  He submitted that as a matter of law it did not matter whether the directors acted in the honest belief that what they did was for the good of the company, and that a purported exercise of their powers which is not in fact in the best interests of the company will be invalid, citing Hogg v Cramphorn Ltd [1967] 1 Ch 254 and Howard Smith v Ampol Petroleum [1974] AC 821.

82.      This does not seem to me to be an entirely accurate statement of the law. Under Article 74 of the Companies (Jersey) Law 1991 the duty of a director is as follows:-

"(1) A director, in exercising the director's powers and discharging the director's duties, shall -

(a) act honestly and in good faith with a view to the best interests of the company; and

(b) exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances."

Article 74(1)(a) is directed at the duty of the director to act in good faith with a view to the best interests of the company.  It seems to me that on the plain wording of the Article, a director is not in breach of this duty if he acts in a way which he bona fide considers to be in the best interests of the company.

83.      I do not doubt that directors, as fiduciaries of their companies, owe other duties which go beyond Article 74, but we have heard no detailed submissions on what they are.  What I think can however be said is that the cases referred to by Advocate Santos-Costa do not establish the proposition that the acts of directors are invalid if they are not in fact in the best interests of the company.  They are authority for the rather different proposition that acts of directors are invalid if, however well-intentioned the directors, they are carried out for a purpose which is not the purpose for which the power in question was conferred.  In Hogg v Cramphorn Ltd the power was a power to allot shares.  The directors purported to allot shares to trustees of a newly established trust for the purpose of ensuring that they and the trustees (who could be relied on to support them) would have voting control of the company and so be in a position to prevent an outside party from acquiring control.  Buckley J held that this was not the purpose for which the power to allot shares was conferred, and so not a proper purpose.  The fact that the directors genuinely thought that it was in the interests of the company that they and their supporters should obtain control of the company was irrelevant.  Similarly in Howard Smith v Ampol Petroleum the power in question was again a power to allot shares and it was exercised with a view to altering the existing majority shareholding.  Lord Wilberforce, giving the judgment of the Privy Council, held that it was unconstitutional for directors to use their fiduciary powers over shares for the purpose of destroying an existing majority or creating a new majority which did not previously exist. It did not matter that the directors were acting honestly.

84.      These cases are therefore examples of the proposition, which is trite law, that any power must be exercised for the purpose for which it is given and not for some foreign or ulterior purpose.  They do not I think justify any wider conclusion.  If a power conferred on directors is (i) exercised in accordance with the terms of the power; (ii) exercised for the purposes for which the power was conferred; (iii) exercised in conformity with Article 74(1)(a), namely in good faith with a view to the best interests of the company; and (iv) exercised in conformity with Article 74(1)(b), namely with the care diligence and skill that a prudent person would exercise, it is not at all obvious to me why a director should be held to be in breach of duty, or the exercise of the power be held to be invalid, simply because a court subsequently concluded that it was not in fact in the best interests of the company.  At any rate we have been shown no authority to that effect.

85.      In the present case the Royal Court concluded, having heard the evidence, that the reason for the exit payments was to secure the loyalty and independence of the directors.  This is undoubtedly a proper purpose of the power of the Board to fix remuneration.  Advocate Santos-Costa has not sought to make a case that the directors were acting anything other than bona fide with a view to the best interests of the Companies.  The fact that in certain circumstances the exit payments might have been payable when the recipients might well be thought to be undeserving of them - circumstances that did not in fact occur - does not in my view invalidate the directors' decision to authorise the Service Contracts in the form in which they did. 

86.      I would reject Ground 4 of the appeal.

87.      Ground 5 relies on the same matters as Ground 4, with one additional matter.  This is that in some cases (Mr Pascall, Mr Shinehouse) Mr Vilsmeier concluded that they should not receive exit payments and so did not sign Side Letters.  Advocate Santos-Costa submitted that the Royal Court should have held that Mr Vilsmeier, by taking it upon himself to decide which directors should and which directors should not receive an exit payment, had exercised his decision for an improper purpose, namely to give effect to his view as whether a director should receive a payment, not (as he should have done) his judgment as to the proper amount of the exit payment to be received by the director.

88.      I can deal with this submission very shortly.  I will assume (without deciding) that Advocate Santos-Costa is correct that the power which Mr Vilsmeier had was in the case of each director a power to decide how much the exit payments should be, not whether there should be one.  That would mean that he had failed to exercise his delegated powers properly in the case of Mr Pascall and Mr Shinehouse.  I do not see how it could lead to the conclusion that he had failed to exercise his delegated powers properly in the case of Mr Pirrwitz, where he did decide how much the exit payments should be.  There is in my judgment nothing in this point. 

Conclusion

89.      I would dismiss the appeal.

BELOFF JA, President:

90.      I agree on all points and have nothing to add.

LOGAN MARTIN JA:

91.      I also agree.

Authorities

Pirrwitz-v-AI and PI and Vilsmeier [2013] JRC 017.

Currencies Direct Ltd v Ellis [2002] EWCA Civ 779.

Guinness plc v Saunders [1990] 2 AC 663.

Pell Frischmann v Bow Valley Iran Ltd [2008] JCA 146.

Pell Frischmann v Bow Valley Iran Ltd [2008] JLR 311.

Hogg v Cramphorn Ltd [1967] 1 Ch 254.

Howard Smith v Ampol Petroleum [1974] AC 821.

Companies (Jersey) Law 1991.