J. A. Clyde-Smith, Esq., Commissioner, and Jurats Olsen and Liston
Dominic Neil Kilbey
James Patrick Gorton Baker
Hugh Peter Jones
Manual Labour Solutions Limited
IN THE MATTER OF GRAFTERS LIMITED
AND IN THE MATTER OF THE COMPANIES (JERSEY) LAW 1991
Advocate M. P. Renouf for the Representor and the Party Cited.
Advocate O. A. Blakeley for the First, Second and Third Respondents.
1. The representor ("Mr Kilbey") claims that the second respondent, ("Mr Baker") and the third respondent ("Mr Jones") have conducted the affairs of the first respondent ("Grafters") in a manner which is unfairly prejudicial to his interests as a member, pursuant to Article 141 of the Companies (Jersey) Law 1991 ("the Companies Law"), entitling the Court to make an order under Article 143 requiring (inter alia) Mr Baker and Mr Jones to acquire his rights in Grafters.
2. Much of the factual background to this case is not in issue and we set it out to provide the framework for the matters that are in contention.
3. Grafters was incorporated in Jersey on 7th March, 2006, by Mr Baker, Mr Jones and a Mr Philip Balderson to conduct a new business of supplying manual labour to businesses in Jersey, in particular to the construction and fulfilment industries; the original idea for the business apparently coming from Mr Jones. All three were directors and each had one share out of the authorised share capital of 10,000 shares. They had other business interests and none were employees of Grafters.
4. In July 2006, Mr Baker met with Mr Kilbey, a qualified accountant who had attended a Master's Degree course with him some seven years before, to discuss his possible involvement in the business. Mr Baker felt that with Mr Kilbey's accounting skills and experience in sales, he would make a valuable contribution to the business.
5. At around the same time, Mr Balderson indicated that he wished to concentrate on his other business interests and it was proposed therefore that Mr Kilbey should "come on board" in his place. It is clear that initially Mr Jones was somewhat resistant to this proposal and needed some persuading by Mr Baker.
6. Mr Kilbey was appointed a director of Grafters on 7th September, 2006, with responsibility for Finance and Business Development. Although not minuted, it was agreed at that meeting that the three directors would be remunerated as and when the business could afford it as follows, namely £70,000 per annum for Mr Kilbey, £25,000 per annum for Mr Baker and £40,000 per annum for Mr Jones. Mr Baker's role was to act as managing director (although it is in dispute whether he had that formal title) and Mr Jones' role was to act as operations manager. The minutes of the meeting of directors and shareholders held on 13th October, 2006, show that Mr Balderson sold his interest in Grafters to Mr Kilbey for £25,000 on that date and he resigned as a director, receiving a further £25,000 from Grafters by way of compensation for his loss of office.
7. For the first month, Mr Kilbey did not draw any salary (nor did the other directors) as the business could not afford it. Thereafter, the directors received monthly remuneration in the agreed proportions.
8. In or around 7th February, 2007, the directors met at Bohemia, when Mr Baker and Mr Jones complained to Mr Kilbey that he was not providing sufficient business growth.
9. On 8th March, 2007, Mr Baker and Mr Jones wrote to Mr Kilbey in these terms:-
"We write to advise you that after months of deliberation we are no longer able to work together. It is regretful to find ourselves in this position, but there are three main reasons for reaching this termination:-
1. Failure to meet agreed sales targets and subsequent dismissal of these targets.
2. Negative feedback from our customers about your manner.
3. The atmosphere in the office caused by our inability to work together.
The shareholders have taken professional advice and we are faced with two options - either you resign or you are removed from office in 14 days' time. This is in accordance with the enclosed copy of requisition by the shareholders and copy of notice of an EGM. We favour your resignation at the earliest opportunity.
This will leave you in a financial predicament before you are able to resume your accounting consultancy work. Whichever decision you reach, the Company will remunerate you until 23rd March - approx £4328 gross.
We must also consider your shareholding which remains at 33%. There are a number of options open to us all, including:-
1. You remain a shareholder and enjoy whatever dividend payments are made in the future by the Company.
2. We agree a valuation for your shareholding based on a willing seller /buyer scenario and you are bought out.
And a third option which we would like you to consider is:-
3. You take PPS Ltd in return for your shares in Grafters Ltd. This will give you an income as well as your own company. Grafters will waive all rights to PPS.
It is in all our interests to part company on a professional basis and to that end we will indemnify you of future claims against you as a Director.
We both regret that this business relationship has not worked out for us all.
James Baker Hugh Jones"
PPS Limited ("PPS" which stands for Private Parking Services) was a new venture which we will come to in a moment.
10. At the EGM held on 23rd March, 2007, Mr Kilbey was removed from the office of a director of Grafters. Discussions both before and after his removal as to the sale of his interest to Mr Baker and Mr Jones came to nothing.
11. Shortly before leaving Grafters and without the knowledge of anyone at Grafters, Mr Kilbey removed from Grafters in his own words "all the information I possibly could" including its main data base held on software known as ACT, which contained some 833 names of employees, together with the employment enrolment form and employer contract form. Most of the data would appear to have been downloaded and transferred to his personal computer. Documents such as bank statements were photocopied.
12. In July 2007, Mr Kilbey formed a new company "Manual Labour Solutions Limited" ("Manual Labour Solutions") which, in November 2007, commenced a competing business to that of Grafters. At that time Grafters was trading under the name "Grafters - Manual Labour Solutions".
13. Mr Kilbey did not issue his representation until 26th November, 2009, because he said he was unable to afford legal representation until that time. There has been a considerable delay from the bringing of that representation to the hearing before us, but no point was taken by any of the parties in this respect.
14. In November 2009, following a complaint made by Grafters, the Deputy Data Protection Commissioner conducted an investigation into the data removed from Grafters by Mr Kilbey and concluded that there was sufficient evidence to proceed with a criminal prosecution against Mr Kilbey for breaches of the Data Protection (Jersey) Law 2005. The file was prepared and submitted for consideration by the Attorney General, who determined not to proceed with any such prosecution.
15. When Mr Kilbey's representation was first brought before the Royal Court on 27th November, 2009, the Court ordered that the respondents take no steps towards altering the shareholdings in Grafters, including no steps to redeem Mr Kilbey's shares until agreement between the parties or until further order of the Court. This was in response to a letter written by Voisins, then acting for the respondents to Hanson Renouf, acting for Mr Kilbey, that it was intended to convert Mr Kilbey's share to a holding of a redeemable share which would then be redeemed by Grafters at a fair value.
16. On 1st April, 2012, the Low Value Consignment Relief ("LVCR") was abolished, effectively bringing the fulfilment industry in the Island to a close. This gave rise to a dramatic reduction in the turnover of Grafters and as a consequence, Mr Jones retired as a director on 18th May, 2012, receiving a redundancy package of £140,000, leaving Mr Baker as the only working director.
17. On 7th December, 2012, Grafters filed a Counterclaim against Mr Kilbey, bringing in Manual Labour Solutions as a party cited, seeking an account and damages for the unauthorised removal by Mr Kilbey of its data in or around March 2007.
18. The Court received affidavits from the parties namely Mr Kilbey, Mr Baker and Mr Jones as their evidence in chief and they were called to be cross-examined. Mr Kilbey called Mr Duncan Stuart, an accountant, who had produced a valuation of Mr Kilbey's shareholding in April 2007. He was called as a witness of fact, rather than as an expert. The respondents filed an affidavit from Mr Baker's half-brother, Mr Jonathon Baker which the Court received as his evidence in chief and he was cross-examined. In addition, the Court received a number of affidavits from witnesses filed on behalf of the respondents who were not required to attend the hearing for cross examination on behalf of Mr Kilbey - in other words their evidence was unchallenged by him. Both sides filed reports from experts as to the value of Mr Kilbey's shareholding in Grafters and the experts were called for the purpose of cross-examination.
19. We now set out by way of summary the evidence of the witnesses as presented to us and will deal with the extent to which we accept that evidence later.
20. According to Mr Kilbey, Grafters was loss making when he invested in October 2006 (by purchasing the interests of Mr Balderson) but he saw potential in the company and knew he could turn it around with his hard work, business skills and management and accounting experience. In short his case is that, having turned the company around, Mr Baker and Mr Jones conspired to expel him from the business so that they did not have to share the profits with him.
21. Business targets that had been set at the meeting of 7th September, 2006, were comfortably met. The cash flow was improving, so that all three directors could draw remuneration in the sums agreed, and the turnover had increased, so that by February/March 2007, Grafters was generating gross monthly profits of approximately £30,000 which he said was remarkable, given the time of year and the previous history of losses. A substantial proportion of Grafters' turnover came from the fulfilment industry, which had a sharp seasonal peak in the run up to Christmas and he said it was pleasing to see a consistent gross profit being earned in the months of January and February, when it might be otherwise be expected to drop.
22. Rather than getting in new business (he admitted bringing few new clients), Mr Kilbey said he concentrated on Grafters' existing business and its two large clients. He gave as an example Indigo Lighthouse, who on a visit he found had not been placing business as they had not been invoiced correctly. He remedied the problem and they took 25 people the next day. It was then a question of feeding Indigo Lighthouse's demand. We will refer to "clients" from now on as "employers".
23. He enjoyed working in and developing the business and felt that the three directors had a good working relationship together. Having said that, he deposed to some ten visits being made by Mr Baker to him in which Mr Baker had complained about Mr Jones being unsuitable as a director and that he should go as early and cheaply as possible before the business started to make serious profits. The first such discussion apparently took place as early as April 2006 which we note was well before Mr Baker had asked him if he was interested in joining the business. These approaches ceased around the beginning of January 2007. Having failed to persuade Mr Kilbey to remove Mr Jones, Mr Baker then went on to persuade Mr Jones to remove Mr Kilbey instead on grounds that he said were contrived.
24. He referred to a meeting between all three directors that took place in December 2006 on a boat during which Mr Baker had expressed discontent with Mr Jones' contribution and questioned his continuing involvement in the business. Mr Kilbey said he was shocked, as he did not know Mr Baker was going to adopt such an aggressive stance that went to the heart of the partnership between them. Mr Baker's comments came completely out of the blue and Mr Kilbey remembered saying to Mr Jones afterwards that he was not aware in advance that Mr Baker was going to speak to him about his performance in such an aggressive manner.
25. Mr Kilbey made no reference in his affidavits or in evidence to a board meeting held in December 2006 in which Mr Baker says he complained about Mr Kilbey's performance.
26. Mr Kilbey made very late discovery (24th June, 2014,) of a Moleskine notebook. He said that when he was at the Cranfield Business School, one lecturer had advised him to write down notes if anything unusual happened during his business life and he had been in the habit of writing down the occasional note if anything out of the ordinary happened. We will comment on the notebook later, but there was a note for 2nd January, 2007, purporting to show Mr Baker approaching Mr Kilbey for a "chat" about Mr Jones, with Mr Baker saying that Mr Jones was a liability and cash hungry. As Grafters was proving to be a successful and growing business, he believed there was an opportunity to buy him out cheaply, at around £½M, thus achieving two goals, firstly the removal of a liability and secondly, comparatively cheap shares in Grafters. The note states that Mr Kilbey "listened without prejudice".
27. The note for 3rd January, 2007, purports to show a meeting over lunch with Mr Baker and his brother, Mr Jonathan Baker. Mr Kilbey stated in his affidavit that he remembered the lunch well. They went to the Pizzeria Romana in Charing Cross and there was a discussion about the possible sale of equity to one of the employees. The note states that Mr Jonathan Baker was very astute and had said "Sales, control + ownership 3 mantras of new businesses". Though not referred to in the note, he says that Mr Baker again raised the issue of getting Mr Jones out of the business as a shareholder and that Mr Jonathan Baker seemed very professional about it and did not comment.
28. When confronted with an affidavit from the manager of the Pizzeria Romana that it was closed on 3rd January, 2007, and an affidavit from Mr Jonathon Baker that he had only met with Mr Kilbey once (apart from an introductory chance meeting at Rozel) in late October 2006 at De Gruchy's coffee shop, Mr Kilbey's response was to say that on reflection, he believed he had confused the location of the meeting on 3rd January, 2007. He believed there were two meetings, one in October 2006 at the Pizzeria Romana and the other on 3rd January, 2007, he presumed at the De Gruchy's coffee shop.
29. A meeting took place at the Bohemia Restaurant in or around 7th February, 2007, at which both Mr Baker and Mr Jones expressed the view that he was not providing sufficient growth for the business of Grafters. He was surprised at the complaint, because from a financial perspective, he was satisfied with the income that had been generated, the cash-flow forecast and the ability to maintain payment of the directors' remuneration for several months at least, which was infinitely better than the situation when he had joined. The profit and loss statement for March 2006 to February 2007 showed that the turnover for January 2007 (£103,563.99) had beaten all previous months of trading, bar December. From any reasonable perspective, the business was doing much better than it had done before he had joined and in no way was in crisis. He told Mr Baker and Mr Jones that the business was doing perfectly well and substantially better than it was when they were operating the business. The allegations seemed nonsensical to Mr Kilbey and it was clear to him that there was an ulterior motive. The penny dropped that they were looking to force him out in the same way that Mr Baker previously suggested Mr Jones be forced out.
30. A shareholders' agreement had been discussed in the latter part of 2006 and a third version was sent by Mr Baker to Mr Kilbey and Mr Jones on 9th February, 2007, expressing the hope that it would be signed off in the week commencing 19th February, 2007. It gave each shareholder the right to appoint a director and included provisions dealing with deadlock and for the transfer of shares at a fair value, to be ascertained by the auditors (without a discount for being a minority shareholding). It also provided for restrictions on competition. Mr Kilbey explained that by this stage, he was starting to feel uncomfortable about his position (it followed the meeting at Bohemia) and felt that Mr Baker was pushing for the shareholders' agreement to be signed quickly. Though he felt it was sensible to have such an agreement, he saw no need for it to be dealt with immediately in that way.
31. On receiving the letter of 8th March, 2007, saying that they could no longer work with him and giving notice of the EGM for his removal as a director, he was upset that he was being pushed out of the company. The reasons put forward in that letter had no basis in fact. All targets up to Christmas 2006 had been met. He did not recall them informing him of any negative feedback from customers and he was not aware of any; nor was he aware of any issues in the working environment of the office.
32. Of the three options for his shareholding set out in the letter of 8th March, 2007, the first did not seem appropriate to Mr Kilbey, as Grafters was run in effect as a partnership and he did not wish to remain a shareholder if not working there. The third option, he said, was worth nothing to him, as PPS was a private parking control company, which in any event belonged to him outright. He had had a conversation with Mr Jones and Mr Baker about that business opportunity before setting it up, and they were not interested in participating in it. He therefore indicated that he wished to be bought out of Grafters as per the second option. He informed Mr Baker that his shareholding could be worth anywhere up to £800,000, but he would settle for £100,000.
33. Mr Baker, after a consultation with Mr Jones, then formulated an offer which was contained in an email of 19th March, 2007, which was in the following terms:-
"As with our chat the other day, this is a without prejudice email, setting out an offer from Hugh & I for your share.
You and I discussed the concept of there being 3 parts to the offer.
1 - A lump sum now
2- Cash in the future - preferably within 12 months
3- The ownership of PPS Ltd and subsequent assurance of Grafters' anti-competition regarding parking services.
Having now discussed this with Hugh and having not had the opportunity to chat it through with you, I set out below what our offer is, in relation to 1-3 above.
We will pay you £25,000 up front - by 1st May 2007. This will come from Hugh and I.
By the 12 month anniversary we will pay you £60,000 based on profits of £300,000. If the figure is +/- then it will be pro-rata'd accordingly. This is subject to audited accounts being prepared by Rosscott (whom I believe we both trust).
PPS unencumbered and any general assistance we can provide to get it moving including registered office etc.
A 'Grafter' subject to our usual terms and conditions, but at cost, to get PPS moving for you from 26th March.
In return to agreeing to the above, you sell your share to us jointly on receipt of the £25,000.
We believe PPS is worth at least £40,000 based on the previous company's performance and therefore the total package is c£125,000.
Please let me have your comments - I will be around later today if you want to discuss it.
34. There was a discussion between Mr Kilbey and Mr Baker following the making of the offer of 19th March, 2007, during which Mr Kilbey sought confirmation that any claims over PPS would be relinquished, because Mr Baker emailed him on 20th March in the following terms:-
As requested yesterday, please accept this email as confirmation of Hugh and my willingness to relinquish any potential claim to PPS and its services.
PPS Ltd is to form part of our offer to you for your shareholding in Grafters. However, the value of PPS is presently indeterminable."
Mr Kilbey responded by email the next day saying "Thank you"
35. It might be thought that this was an acceptance of the offer of 19th March, 2007, with the clarification contained in the email of 20th March, 2007, but Mr Kilbey told us that he was not accepting the offer; he was simply thanking Mr Baker for the email. He submitted the application to incorporate PPS that day and it was incorporated on 23rd March, 2007, the day he was removed as a director. Mr Kilbey volunteered that to continue with the establishment of the business of PPS in that way was "underhand" because, he explained, he could not be open with the people he was dealing with. He did not think that they were acting in good faith and for this reason he said that he was not himself engaging in these negotiations with them in good faith.
36. Mr Kilbey described the offer of 19th March, 2007, as derisory. He said he was already entitled to a share of the profits as a one third shareholder and in any event, the share of profits was dependent on future performance and profits could be manipulated. Setting aside the fact that he already owned PPS, it was hypocritical to value a brand new company with no trading record at £40,000 while only valuing Grafters with its track record at £25,000. In his view, the offer was worth only £25,000.
37. In a chance conversation with Mr Duncan Stuart of the firm then known as Le Rossignol, Scott-Warren & Company, who were the accountants to Grafters, Mr Kilbey mentioned that the monthly profits of Grafters were running at around £25,000 - £30,000. Mr Stuart commented in relation to Mr Kilbey's shareholding "That must be worth £240,000 of anyone's money". According to Mr Baker, it was Mr Kilbey who then suggested that his shares be valued by Mr Stuart. It is not clear from Mr Kilbey's evidence whether it was his suggestion, but it seems likely that it was, given the encouraging conversation he had with Mr Stuart. He did say he was in principle receptive therefore to Mr Stuart performing a valuation, but maintained that the instructions had come from Mr Baker and Mr Jones, rather than from all three of them.
38. It emerged that in his time at Grafters Mr Kilbey, who was finance director, had not reconciled the bank statements, leading Mr Stuart to comment that the figures produced by Mr Kilbey for the valuation were unreliable. Mr Kilbey informed us that he first attempted to reconcile the bank statements as late as February 2007 and found that he could not work the version of Quickbooks that had been updated since he had last used it six years before. He accepted that it was good practice to reconcile the bank statements every month and the consequence of this was that the figures presented by him to Mr Stuart for the purpose of the valuation were unreliable.
39. Mr Stuart's valuation is contained in his letter of 23rd April, 2007, addressed to all three shareholders and in his opinion, the value of Mr Kilbey's shareholding fell within the range of £35,000 - £50,000. In Mr Kilbey's view, this valuation was "palpably ridiculous". It did not remotely resemble a professional valuation and Mr Stuart "had been got at" by Mr Baker and Mr Jones. Accordingly he did not feel obliged to contribute towards Mr Stuart's fees for the valuation.
40. Mr Kilbey accepted that in his last few days at Grafters, he removed whatever information he could so that, he said, he could value Grafters properly. He was not proud of doing so, since this is not the way "an employee" should behave, but otherwise, he would have walked out with nothing and just hope to be paid.
41. PPS was not successful and his decision to set up Manual Labour Solutions in competition was taken some four months after his removal. He could not afford to take legal advice on the use to which he could put Grafters' data, and therefore used his own "moral compass". The "employee enrolment form" was available from the JACS website. He did not believe the "employer contract" was subject to any copyright. He amended it substantially in any event. There was no way that he should use the data relating to the employees - that belonged to Grafters. There was no systematic use of any of the data, but in 2009 and two years after he had been removed from Grafters, information in relation to about 15 manual labourers taken from the Grafters' database had been used erroneously. We will come to the precise circumstances in which this was said to have happened when we come to deal with the Counterclaim.
42. When the matter was investigated by the Deputy Data Protection Commissioner, Mr Kilbey did not disclose in his interview under caution how this data had come to be used. Nor did he disclose the true reason why he had the data in the first place. He told the interviewer that the hard drive at Grafters failed regularly and he happened to have a back-up taken at the time, but that the data had never been used. He accepted in cross examination that effectively he lied to the Deputy Data Protection Commissioner, but did so because he felt that the Deputy Data Protection Commissioner was being very aggressive and trying to prove Grafters' case.
43. On examining the data removed from Mr Kilbey's personal computer, the Deputy Data Protection Commissioner found an undated document headed "K1ll Grafters" which contained what appeared to be a "to do" list which included the following entries:-
We believe "ACT" to be a reference to Grafter's data base.
44. Mr Kilbey's response was that it was embarrassing to have his "angry" thoughts exposed in this way, but he maintained that there had been no systematic use of Grafters' data by Manual Labour Solutions in the conduct of its competing business.
45. It is clear that on receipt of the notice of the EGM for his removal, Mr Kilbey consulted Backhurst, Dorey & Crane in that they wrote to Voisin, acting for the respondents, on 20th March, 2007, (before the EGM). We do not have a copy of that letter, but presume it raised the possibility of a claim being made against Grafters for unfair dismissal, because in its reply of 22nd March, 2007, Voisin make the following statement:-
"Mr Kilbey is not an employee. Grafters is a quasi-partnership with the three shareholders each taking a profit share from the business. There are no contracts of employment".
46. The letter went on to say:-
"As to Mr Kilbey's shareholding, my client concurs that the appropriate way to move matters forward is to have the shareholding valued. I understand that my client has discussed with Mr Kilbey the appointment of Mr Duncan Stuart of Le Rossignol Scott Warren. Please take instructions in this regard.
In order to draw this matter to a conclusion, I have suggested to you the following:-
A Mr Kilbey will be removed as a Director on Friday. Mr Kilbey will not return to the office and will return all items in his possession belonging to Grafters, Mr Baker and Mr Jones.
B Mr Kilbey will continue to receive his profit share payments, which I understand amounts to approximately £5,500.00 per month. Mr Kilbey will receive this sum until such time as the company has been valued. Thereafter, Mr Kilbey will receive whatever is owing to him in respect of his shareholding on terms to be agreed. In the event that Mr Kilbey's share of the business does not exceed the payments Mr Kilbey has received then he will be liable to repay to Grafters any sums overpaid."
47. There is no follow up to this correspondence that we have seen, but we do know that Mr Stuart was instructed and produced a valuation.
48. One of Mr Jones' criticisms of Mr Kilbey was in his role as finance director in that he allowed Petty Debts Court proceedings to be commenced against Grafters and Mr Jones recalled Grafters receiving a final demand from Jersey Telecoms - this was, after all, a recruitment business. As mentioned above in addition to failing to provide management accounts, it transpired (although it was not known by Mr Baker and Mr Jones at the time) that the bank statements of Grafters had never been reconciled.
49. These criticisms were airily waved aside by Mr Kilbey. He said he was too busy concentrating on cash-flow and getting people into the business. Mr Kilbey said he reported the turnover figures and costs figures weekly to his co-directors and that as the standing costs of the business were well known and relatively low, the directors were aware of how the business was performing. He did not need to repeat the exercise by producing management accounts.
50. Another criticism levelled by Mr Jones was that they had to employ an outside agency, namely Jem Marketing, to set up appointments for Mr Kilbey with employers. This made Mr Jones irate with him, as Grafters had to pay for another person simply to make phone calls for Mr Kilbey. Mr Kilbey's response was that it was not productive to keep phoning the same potential employers and that in terms of appointment setting, it was better to employ someone who was extremely good at it.
51. Mr Stuart said he had not been instructed in writing to value the shareholding. It was some time ago, but to the best of his recollection he received financial information from Mr Kilbey in the form of draft management accounts from the period of commencement of business in April 2006 to 28th February, 2007, and further information, he thinks, from Mr Baker. His letter of the 23rd April, 2006, setting out his valuation was addressed to all three shareholders and referred to his having explained to Mr Kilbey that his company had certain conflicts of interest in providing a valuation. He could not now remember any discussion over the basis of the valuation but no one had tried to suppress the value; he would not have accepted an instruction on that basis, although he recognised that it was in the financial interests of Mr Baker and Mr Jones for the valuation to be as low as possible (just as we observe it would be in Mr Kilbey's financial interests for it to be as high as possible). He remembered that there was a reliance on two large clients and uncertainties over the future of the fulfilment industry.
52. He recalled an earlier meeting with Mr Kilbey and accepts that if he had been told that the company was making profits of £25,000 to £30,000 per month, he might have commented that £240,000 could be the value of Mr Kilbey's shareholding, but the figures that he was given by Mr Kilbey did not demonstrate that. He vaguely remembers Mr Kilbey's having referred to a figure of £800,000, but could not remember in what context.
53. He told Mr Kilbey that he was not surprised at his removal, bearing in mind his role as finance director and in the context of the fact that the bank statements had not been reconciled. It was not possible to rely on the figures at all until that was done.
54. His valuation of £35,000 - £50,000 was discounted to reflect the fact that it was a minority holding. He could not remember now what discount that would have been, but suggested that 20 - 25% would be reasonable. For the purposes of his valuation, he had allowed for directors remuneration of £100,000 for all three, a figure that the three shareholders had agreed for that purpose. He was not competent to advise on the actual remuneration that directors should receive.
55. Mr Baker explained that he had met Mr Kilbey in July 2006 in Rozel, when Mr Kilbey had introduced himself, saying that they had attended the same Master's Degree course some seven years previously, of which Mr Baker had no recollection. They agreed to meet for a coffee. When they met and learning that Mr Kilbey was looking for a job, he felt that his qualification as an accountant and experience as a salesman could be of benefit to Grafters. In or around the first week of September 2006, he suggested to his fellow directors that they should meet with Mr Kilbey, to see whether he could "come on board". It was about this time that Mr Balderson made it known that he wanted to concentrate on other business interests. After a period of mutual discussions, Mr Kilbey stepped into the shoes of Mr Balderson, becoming both a shareholder and a director, with responsibility for finance and business development.
56. It was Mr Baker who suggested that Mr Kilbey should have a greater level of remuneration in order to create a package that would attract him, but in his view, it was a risk worth taking if the sales volumes justified it.
57. At first, things went well, and he felt relieved that they had "a professional" on board who could really develop the business. One rough and ready measure of any business performance was to take a cursory look at volumes measured in "workers per day" ("WPD") since Grafters makes a margin on each worker it places with an employer.
58. During October 2006, the WPD was around 30 and by the third week of December 2006, it was up to about 75, which he described as a vast increase. Concurrent with this apparent success, "office tensions and issues" were beginning to arise. Careful inspection of the sales figures for December 2006 showed to his surprise and worry that the increased work was actually coming from the two employers who as clients pre-existed Mr Kilbey's involvement with Grafters and whose businesses were subject to seasonal variations. There had been no real increase in new employers at all.
59. He called a directors' meeting on 28th December, 2006, for which no minutes appear to have been kept or exist. He says that at that meeting, he made it clear to Mr Kilbey that he was not happy with the reliance on those two employers and that he did not see Mr Kilbey as having made much progress in terms of developing sales. He also asked him "again" for management accounts, which had yet to materialise and which would have been very straightforward to produce. They were not forthcoming.
60. With reference to Mr Kilbey's Moleskine notebook, there was no meeting between him and Mr Kilbey on the 2nd of January, 2007, and no such conversation. There was no meeting between him, his brother and Mr Kilbey on the 3rd January, 2007, either. He did not think he was on the Island then. There had been an earlier meeting with his brother but it was before the latter went on his sailing trip.
61. January 2007 started with a significant drop in WPD from about 75 to 25 and continued to drop as they entered February and March. During this time, numerous problems arose with Mr Kilbey. Mr Baker was becoming more and more aware of the damaging effect he was having on the Grafters' business. In turn, this made him grow to dislike Mr Kilbey, whom he found rude, ill-mannered and hard to be civil towards. At this time, he started to speak to Mr Jones about Mr Kilbey's attitude and conduct and was becoming aware that he was a dead weight.
62. He remembered the meeting on the boat, although he did not recall why it took place there. It must have been in November 2006, as the boat was not in the Island for December and January. It was a general discussion about business, but he has no recollection of saying anything against Mr Jones. He does remember, however, Mr Kilbey being patronising and "high and mighty" towards Mr Jones, treating him like a "numpty". The tension created between Mr Kilbey and Mr Jones was palpable and he therefore elected to walk back, rather than go with them by car. He found the meeting deeply embarrassing, bearing in mind that it had been his decision to take on Mr Kilbey.
63. Mr Baker denied approaching Mr Kilbey on any occasion with a view to removing Mr Jones from Grafters or saying that he was not the sort of person to be a director, although he accepted that paragraph 19 of the answer filed by the respondents did contain an admission that in December 2006, there had been discussions about Mr Jones leaving Grafters, and this to the knowledge of Mr Jones, who had expressed a view about leaving Grafters to concentrate on other plans.
64. The situation with Mr Kilbey was causing real difficulties in his own relationship with Mr Jones, who blamed him for introducing Mr Kilbey, and who was thoroughly fed up with the situation. Mr Kilbey had a short term air of credibility but Mr Baker became more and more unsure of his background and therefore instructed David Watkins, the private investigator, to make inquiries, something which he says he should have done at the outset. These showed that Mr Kilbey had been removed/sacked/dismissed from all of his previous roles and had a track record of failure here, in the UK and in Japan.
65. He was unclear as to the meaning of the term "quasi partnership". In his view, the relationship of the shareholders were governed by the articles of association. If a director did not perform, then he could be removed from the board, and if so removed, he could assume that his shareholding would be bought for a fair price.
66. There were discussions about a shareholders' agreement at the outset. He referred to a note he had made of a meeting with Mr Kilbey and Mr Jones on 31st January, 2007, which indicated that they had agreed it would be finalised the following week. As mentioned above, he sent a third draft to Mr Kilbey and Mr Jones on 9th February, 2007. In his view, and with the benefit of hindsight, Mr Kilbey had refused to sign the agreement because of the non-compete clauses contained within it.
67. Mr Baker was referred to an email exchange between him and Mr Jones in relation to the removal of Mr Kilbey. It is of note that even as at 13th/14th February, 2007, following the Bohemia meeting, Mr Baker was expressing the view that "the preferred option must be that he works out, but that is looking less and less likely". In his email of 4th March, 2007, Mr Jones added to the list of faults compiled by Mr Baker as follows:-
"An excellent and adequate list which, put into writing make you realise just the size of the problem we have. Below are a few add-on's.
1) Wage level. Not only is he failing to meet sales targets (as agreed) but he is failing woefully short of them, i.e. January = 85, actual = 26 and so forth. As I said to him the other day even the figures we have out are not contributable to him and he and we know that he has bought in very little or none in the way of new custom since he came.
70K or 84K (with the cost of the appointments company thrown in) is completely disproportionate to his performance. I would pay that for Achie Norman types but not for someone who blatantly under performs, and frighteningly appears not to understand what is required.
2) Outbursts. Not only outbursts, but almost child-like sulks, which appear frequently and completely change the office dynamics.
3) Clients.[negative feedback] So far, Maltby's, Delta, Geo-marine, Druids, Cable & Wireless, Regal and Warrens. Yes, I agree that some are difficult but his whole attitude of "Fuck them, we don't need customers like that" is crazy and arrogant. Word spreads fast on this Island and the bottom line is customers are our income.
4) Grafters. He cannot relate to grafters at apparently any level. His dress sense (though not a sackable offence) proves his misunderstanding of the type of people, both clients of grafters, that we deal with.
5) Attitude to staff. He does not practise what he preaches. He took great pleasure in bollocking me for my dress, the calendar & the pizza. I took it on board and changed yet he makes lewd and patronising comments to the girls and as mentioned in 2) can upset the whole office with his constant mood swings.
6) Referees. To date I have not seen a reference or CV.
7) Obstructive behaviour. Add to that his inability to read e-mails or answer phone messages. His Office is still a pig sty and he frequently loses important papers. I finally moved the files that have sat on his office chair since before Christmas. He fails to pay bills on time which has so far led to one Petty Debts Court summons and one threat of the phones being cut off.
8) Work ethic. The girls will evidence that whilst you and I are out he does very little other than play with his phone. He continues to disappear without telling anyone where he is or when he is returning.
9) Role. In my opinion he has failed to perform the role of sales and we will be able to evidence, that since his joining, the amount of new sales he has created and as such the amount of grafters placed and resulting revenue is close to zero. He cannot justify his position on incoming or existing custom. He is there to sell and in five months he has failed to do so. He always has a weak excuse and an unjustified arrogance and is basically bleeding our business dry. Though it's not my domain, from what Allana says, he has not worked wonders with the accounts other than to double check her work. He certainly can't keep on top of basic housekeeping. In my mind business development is widening our profile which results in more grafters out and more income in. To date James this simply isn't happening."
68. In evidence, Mr Baker explained the reference to Mr Kilbey's lack of dress sense was a reference to the construction industry, an important source of work for Grafters. Whenever going on a construction site, he and Mr Jones would always wear the appropriate personal protection equipment (PPE). There is a well-known expression "No hats, no vest, no boots, no job". Mr Kilbey would not dress appropriately when visiting construction sites, showing a lack of knowledge of that industry. This did not impress the foremen, one of whom told him to get off site. He took this issue up with Mr Kilbey but to no avail.
69. Having analysed the various issues regarding Mr Kilbey, Mr Baker was resolute that he no longer wanted him on the board. Having sent out the formal notice of 8th March, 2007, he had a number of meetings with Mr Kilbey. He assumed that Mr Kilbey would want his money back, namely the £25,000 he had invested in buying a shareholding from Mr Balderson. Mr Kilbey's reaction was to laugh, saying his shares were worth £800,000, but he would accept £100,000 for a deal. Mr Baker thought £25,000 was reasonable, bearing in mind that none of that money had gone to the company and he did not think for one second that Mr Kilbey's shares were worth £100,000. He asked Mr Kilbey how he arrived at that figure. He responded that Grafters would make £300,000 profit in twelve months and he therefore wanted one-third of that. Mr Baker did not know how he could have arrived at such a figure but went away and did his best to structure a deal around it. He was appreciative that this was a difficult time for Mr Kilbey. His chances of finding work were not high and his partner was expecting a baby. An advantage of the profit share would be that it would keep Mr Kilbey on side as an ally during the period of the profit share.
70. Mr Baker described PPS as a real opportunity. Grafters had been approached by Mr Jason Maindonald of Serco, who was not impressed with the then current operators at the Waterfront and who invited Grafters to provide the service. Both he and Mr Kilbey attended a meeting with Mr Maindonald when they were able to look at the figures for the current operators. There was no one competing with Grafters for this work. With information gleaned from the existing operators, Mr Kilbey had produced a spread sheet (which was no longer available) showing that the business could generate some £80,000 per annum. Mr Baker felt that PPS was worth at least £40,000. Mr Kilbey was keen to get going with PPS and Mr Baker and Mr Jones were willing to relinquish any claim to it as part of their offer of the 19th March, 2007; hence the email of 20th March, 2007, to that effect.
71. Mr Baker thought that they had reached agreement on the offer of 19th March, 2007, which in his view was fair. However Mr Kilbey rejected the offer as being "ridiculous and derisory" and suggested that Mr Stuart should value the shareholding. All three shareholders agreed that this would be a sensible way forward, and it was agreed that they would each contribute one third towards his fees. Mr Baker was happy to be bound by that valuation. Mr Baker could not remember meeting with Mr Stuart but recalled a telephone call in which Mr Stuart apologised for the valuation taking longer than originally thought. He remembered him commenting that "the numbers were un-reconciled" and therefore meaningless. Neither Mr Kilbey nor his former lawyers responded to Mr Stuart's valuation, nor did he contribute his one third share of the cost. Mr Baker concluded that he was not prepared to sell his shares at a reasonable price at all.
72. Later in 2007, Mr Kilbey set up Manual Labour Solutions in direct competition with Grafters. To Mr Baker's utter disbelief, he now had a shareholder working against the interests of Grafters. He felt spectacularly let down by his own decision to introduce Mr Kilbey into the business.
73. Mr Jones had been reluctant to take on Mr Kilbey in the first place, but had been persuaded by Mr Baker to do so. He quite liked Mr Kilbey at first, but his demeanour and work ethic went downhill. He became frustrated by Mr Kilbey's failure to get out of the office to create sales. He described Mr Kilbey as someone who sulked, was petulant and arrogant to the point of narcissism. Based on his beliefs, everything he did was right. He had never met anyone like Mr Kilbey. As he was the man on the ground dealing with the employers on site, he raised his concerns with Mr Baker, who to begin with was reasonably supportive of Mr Kilbey. He felt it was a matter of pride for Mr Baker as he had introduced Mr Kilbey and he wanted it to work. Mr Baker seemed embarrassed by what was happening.
74. Mr Kilbey's account of the meeting on the boat was a fabrication. Mr Baker had not been aggressive towards Mr Jones. Mr Kilbey, however, was rude and patronising towards him, criticising the casual way that he dressed. He was angry and irritated by this, but still gave Mr Kilbey a lift back in his car, where Mr Kilbey continued to be patronising. Mr Jones' suspicions evolved to the point that he felt Mr Kilbey had come to Grafters with the sole purpose of copying it. He was so suspicious that he considered contacting the police.
75. Mr Jones accepted that the turnover of Grafters was improving, but in his view, this was a regular steady growth to which Mr Kilbey made no contribution at all, apart from "lies and bad atmosphere". He had a habit of upsetting employers and staff. Taking the example given by Mr Kilbey of Indigo Lighthouse, he had gone down with Mr Kilbey to meet the manager and they were told that Grafters was not being used because its rates were too high. It was Mr Jones who checked with the office as to the rate that was being charged and then gave a second lower rate which was accepted. Other than his presence there, he said Mr Kilbey cannot take any credit for that.
76. The discussions over the shareholders' agreement had started prior to Christmas 2006. Mr Jones was content with the proposal, as it gave a degree of security to all three shareholders going forward. Subject to that agreement being signed, he was not party to any agreement that Mr Kilbey was entitled to be a director and involved in the management of Grafters as a shareholder. He could be removed from the board of directors at any time by a majority of the shareholders voting for his removal. In his view, this would not happen if he fulfilled his role as a director. It was preposterous to suggest that Mr Kilbey as a shareholder had a right to be involved in the management of the company after his behaviour and performance, but on his departure, Mr Jones did think it was reasonable to have purchased his shareholding in the company at a fair price if he wanted Mr Baker and Mr Jones to do so.
77. At the meeting at the Bohemia Bar, Mr Baker was once again trying to encourage Mr Kilbey in a supportive way. However Mr Kilbey was arrogant saying that they did not know what they were talking about. He lost his temper with Mr Kilbey at this and wished he had done it earlier. He was tired of his excuses and arrogance when the reality was that he simply was not getting the results that he had constantly stated he would. He did not believe that if Mr Kilbey stayed they would have a business left - he had to go.
78. In his view, the offer made to Mr Kilbey for his shares on 19th March was fair and worth in excess of £100,000. He accepted that there was no guarantee that there would have been profits for Mr Kilbey to share in, but the offer had been put forward in good faith and there was no intention to manipulate the figures. If he had taken up the offer, then he would have been paid.
79. PPS was an idea formulated within Grafters. Mr Maindonald probably spoke to Mr Jones first, as he knew him. The work to establish the business had been done, but he was not that keen on it being under the Grafters' banner - he was looking to expand Grafters into other areas, such as gardening and removals.
80. In his email exchanges with Mr Baker, Mr Jones monitored the activities of Mr Kilbey on a particular day, 14th February, 2006, demonstrating in his view how little he was doing. The email ends with this:-
"In the meantime I place three more today; obtain two new clients, organise with three existing clients to take more smurfs and generally run around like a blue arsed fly ..... and decide 100% that this twat has to go before he drains our company anymore."
He explained that "smurfs" was a term of affection used in the office for the manual labourers they supplied to employers.
81. Mr Jonathan Baker was quite certain that he had only met Mr Kilbey twice, once by chance at Rozel and once at a meeting in late October, 2006 at De Gruchy's coffee shop. He knows it occurred then, because on 1st November, 2006, he set sail to cross the Atlantic.
82. He believed that at that time, Mr Kilbey had only recently joined Grafters and whilst he could not remember names, there was a general discussion about expanding share ownership to employees in respect of which he was not enthusiastic. With reference to the words attributed to him in Mr Kilbey's Moleskin notebook-- "Sales, controls + ownership - three mantras of new business" -this was not language that he would have used - particularly the word "mantra".
83. Although he was in the Island on the 3rd January, 2007, he had flown in from Southampton departing on the 11:30am flight and had a meeting with his own lawyers at 4pm. He was adamant that there was no meeting with Mr Kilbey and his brother that day.
84. Miss Binnie's affidavit of 3rd March, 2014, was admitted unchallenged by Mr Kilbey. She began working at Grafters on or about May or June 2006 and held the position of office manager. She was asked to recall her observations of Mr Kilbey in the office environment. When he first arrived, she said he was very positive, supportive and encouraging and initially appeared to be doing a lot of hours at Grafters, although she could not say how this translated in respect of improving Grafters' business. Over a short time, his behaviour changed and he became temperamental and sometimes difficult to work alongside and there were times when he seemed displeased. She considered Mr Kilbey unprofessional towards Mr Jones at times. It appeared that he had little respect for him. She often formed the opinion that clients preferred to deal with her or her colleague, Ms Jackie Robinson, rather than Mr Kilbey and that a particular client, Mrs Fay de Gruchy, refused to deal with Mr Kilbey because she found him patronising.
85. Before Mr Kilbey joined, there was a good atmosphere within the office, with the team working well together. After he joined, things changed. She was aware of difficulties between the three directors. Quoting from her affidavit:-
"7. ...Mr Kilbey would regularly criticise Mr Jones via Mr Baker, and speak to me about it. This made life very difficult. It was very difficult for Mr Baker being put in that position and it was obviously very uncomfortable for Mr Jones. I felt the criticism was excessive/out of proportion to the situation. Mr Kilbey's contribution became disruptive to the business and the relationship between Mr Baker and Mr Jones fragmented as a consequence.
8. By the time Mr Kilbey left, things at the office had got quite strained and it was a relief when that ended. In general, working life was much easier and enjoyable but we were faced with new challenges undoing some of the damage that had been caused to client relationships. There were some clients who came back and started using us again once Mr Kilbey had left, as they said they had stopped using us due to him. We also had to work harder because Mr Kilbey soon set up a competing business to Grafters...."
86. Mrs De Gruchy's affidavit of 3rd March, 2014, was admitted unchallenged by Mr Kilbey. She had been in the building industry since the age of 16, and at the material time, was general manager of Building Renovations Limited. It used Grafters from time to time and historically, her contact was with Mr Jones, with whom she got on well. She found Grafters an efficient and well run business and it made obtaining casual labour very easy. At some point, she met Mr Kilbey. He asked about her and her experience in the construction industry and remarked "Strange job for a bird". She was not offended by the comment. She had been exposed to this kind of thing from males in the industry before and was well used to it, but it was a totally unprofessional way of conducting business, in her view.
87. She continued to use Grafters, but after a time, grew tired of having to deal with Mr Kilbey, who she found inefficient and frustrating to deal with. She remembered instances when she would telephone Grafters because she had a particular requirement and would speak to Mr Kilbey. He would often not return the call in good time and she would find this frustrating. She was a good customer for Grafters and felt as though it was not responding efficiently to her requests. She found she received a much better service from Mrs Binnie and she made a point of dealing with her rather than Mr Kilbey whenever possible.
88. At the beginning of the hearing the Commissioner gave Mr Kilbey leave to amend his pleadings to remove the assertion that he was an employee of Grafters. It is clear to the Court that, consistent with the status of Mr Baker and Mr Jones, he was not an employee for the following reasons:-
(i) There was no contract of employment either oral or in writing.
(ii) There was no written statement of the terms of his employment as required by Article 3 of the Employment (Jersey) Law 2003 ("the Employment Law"); failure to provide the same being a criminal offence, pursuant to Article 9.
(iii) No Social Security contributions had been paid by Grafters as an employer.
(iv) No ITIS returns had been submitted by Grafters and Income Tax deducted on the payment of his remuneration.
(v) He did not start to draw remuneration until Grafters could afford to pay him (and the other directors), which is inconsistent with the status of an employee.
(vi) The clear statement by Voisin in their letter of 22nd March, 2007, that Mr Kilbey was not an employee was not challenged by his own advisers and no claim for unfair dismissal under the Employment Law was ever pursued.
89. The development of Jersey company law has closely followed English company law, particularly in the field of shareholder remedies as demonstrated by the recent decision of the Privy Council in Gamlestaden Fastigheter AB v Baltic Partners Limited, Boleat, de Figueiredo and Bailey  JLR 393, which expanded the scope of both Article 141 of the Companies Law and Section 994 of the Companies Act 2006 (the English law equivalent to Article 141) by confirming that a shareholder could seek a remedy for the company itself rather than a personal remedy (such as the purchase of his or her shares).
90. Article 141 is in the following terms:-
"141 Power for member to apply to court
(1) A member of a company may apply to the court for an order under Article 143 on the ground that the company's affairs are being or have been conducted in a manner which is unfairly prejudicial to the interests of its members generally or of some part of its members (including at least the member) or that an actual or proposed act or omission of the company (including an act or omission on its behalf) is or would be so prejudicial".
91. In general, the relationship between shareholders is governed by the terms of the articles of association and it would not ordinarily be unfair for the affairs of a company to be conducted in accordance with the same or any other relevant legally enforceable agreement, but as Hoffmann LJ said in Re Saul D Harrison & Sons plc.  1 BCIC 14:-
"How can it be unfair to act in accordance with what the parties have agreed to? As a general rule, it is not. But there are cases in which the letter of the articles does not fully reflect the understanding upon which the shareholders are associated. Lord Wilberforce drew attention to such cases in a celebrated passage of his judgment in Ebrahim v Westbourne Galleries Ltd  AC 360 at 379 which discusses what seems to me to be the identical concept of injustice or unfairness which can form the basis of a just and equitable winding up. Thus the personal relationship between a shareholder and those who control the company may entitle him to say that it would in certain circumstances be unfair for them to exercise a power conferred by the articles upon the board or the company in general meeting."
92. That equitable considerations may come into play was affirmed by Lord Hoffmann in the House of Lords decision in O'Neill v Phillips  QBCLC 1, where he said:-
"(5) Unfairly prejudicial
In s 459 Parliament has chosen fairness as the criterion by which the court must decide whether it has jurisdiction to grant relief. It is clear from the legislative history (which I discussed in Re Saul D Harrison & Sons plc  1 BCLC 14 at 17-20) that it chose this concept to free the court from technical considerations of legal right and to confer a wide power to do what appeared just and equitable. But this does not mean that the court can do whatever the individual judge happens to think fair. The concept of fairness must be applied judicially and the content which it is given by the courts must be based upon rational principles. As Warner J said in Re J E Cade & Son Ltd  BCLC 213 at 227: 'The court ... has a very wide discretion, but it does not sit under a palm tree'.
Although fairness is a notion which can be applied to all kinds of activities, its content will depend upon the context in which it is being used. Conduct which is perfectly fair between competing businessmen may not be fair between members of a family. In some sports it may require, at best, observance of the rules, in others ('it's not cricket') it may be unfair in some circumstances to take advantage of them. All is said to be fair in love and war. So the context and background are very important.
In the case of s 459, the background has the following two features. First, a company is an association of persons for an economic purpose, usually entered into with legal advice and some degree of formality. The terms of the association are contained in the articles of association and sometimes in collateral agreements between the shareholders. Thus the manner in which the affairs of the company may be conducted is closely regulated by rules to which the shareholders have agreed. Secondly, company law has developed seamlessly from the law of partnership, which was treated by equity, like the Roman societas, as a contract of good faith. One of the traditional roles of equity, as a separate jurisdiction, was to restrain the exercise of strict legal rights in certain relationships in which it considered that this would be contrary to good faith. These principles have, with appropriate modification, been carried over into company law.
The first of these two features leads to the conclusion that a member of a company will not ordinarily be entitled to complain of unfairness unless there has been some breach of the terms in which he agreed that the affairs of the company should be conducted. But the second leads to the conclusion that there will be cases in which equitable considerations make it unfair for those conducting the affairs of the company to rely upon their strict legal powers. Thus unfairness may consist in a breach of the rules or in using the rules in a manner which equity would regard as contrary to good faith.
This approach to the concept of unfairness in s 459 runs parallel to that which your Lordships' House, in Ebrahim v Westbourne Galleries Ltd  2 All ER 492,  AC 360, adopted in giving content to the concept of 'just and equitable' as a ground for winding up. After referring to cases on the equitable jurisdiction to require partners to exercise their powers in good faith, Lord Wilberforce said ( 2 All ER 492 at 500,  AC 360 at 379):
'The words ('just and equitable'] are a recognition of the fact that a limited company is more than a mere legal entity, with a personality in law of its own: that there is room in company law for recognition of the fact that behind it, or amongst it, there are individuals, with rights, expectations and obligations inter se which are not necessarily submerged in the company structure. That structure is defined by the Companies Act 1948 and by the articles of association by which shareholders agree to be bound. In most companies and in most contexts, this definition is sufficient and exhaustive, equally so whether the company is large or small. The 'just and equitable' provision does not, as the respondents [the company] suggest, entitle one party to disregard the obligation he assumes by entering a company, nor the court to dispense him from it. It does, as equity always does, enable the court to subject the exercise of legal rights to equitable considerations; considerations, that is, of a personal character arising between one individual and another, which may make it unjust, or inequitable, to insist on legal rights or to exercise them in a particular way."
93. The elements required in order to enable the court to apply equitable principles to the parties' legal rights were identified by Lord Wilberforce in Ebrahim v Westbourne Galleries Ltd  AC 360:-
"The superimposition of equitable considerations requires something more, which typically may include one or probably more of the following elements (i) an association formed or continued on the basis of a personal relationship, involving mutual confidence - this element will often be found where a pre-existing partnership has been converted into a limited company; (ii) an agreement, or understanding, that all, or some (for there may be 'sleeping' members), of the shareholders shall participate in the conduct of the business; (iii) restriction upon the transfer of the members' interests in the company - so that if confidence is lost, or one member removed from management, he cannot take out his stake and go elsewhere ..."
As explained in Minority Shareholders, (4th edition, 2011) by Joffe, Drake, Richardson, Lightman & Collingwood at paragraph 7.88:-
"A company which exhibits some or all of the features identified by Lord Wilberforce in Ebrahim v Westbourne Galleries Ltd so as to give rise to the application of equitable principles is usually called a 'quasi-partnership'. But the term 'quasi-partnership' is only intended as a useful shorthand label, which does not in itself govern the answer to be given to the underlying question, whether the circumstances surrounding the conduct of the affairs of a particular company are such as to give rise to equitable constraints upon the behaviour of other members going beyond the strict rights and obligations set out in the Companies Act and the articles of association."
94. Unfairness must be judged on an objective basis. As Parker J held in Re Guidezone Limited  2 BCLC 321:-
"O'Neill v Phillips  2 BCLC 1,  WLR 1992 establishes that 'unfairness' for the purposes of [Companies Act 2006, a 994] is not to be judged by reference to subjective notions of fairness, but rather by testing whether, applying established equitable principles the majority has acted or is proposing to act, in a manner which equity would regard as contrary to good faith. In the case of quasi-partnership company, exclusion of the minority from participation in the management of the company contrary to the agreement or understanding on the basis of which the company was formed provides a clear example of conduct by the majority which equity regards as contrary to good faith ... Similarly, as Lord Hoffmann points out, 'unfairness may arise from agreements or promises made, or understandings reached, during the life of the company which it would be unfair to allow the majority to ignore."
95. However, a petitioner cannot succeed unless he can show that the conduct complained of is both prejudicial, and unfair. One element without the other will not suffice. As Neill LJ commented in Re Saul D Harrison & Sons plc:-
"The conduct must be both prejudicial (in the sense of causing prejudice or harm to the relevant interest) and also unfairly so: conduct may be unfair without being prejudicial or prejudicial without being unfair, and it is not sufficient if the conduct satisfies only one of these tests."
96. The general position is that every director of a company is susceptible to being removed by an ordinary resolution of the shareholders. As Ferris J said in Re Estate Acquisition & Development Ltd  BCC 338 at 349H350B:-
"The first and most important point to be noted in relation to this matter is that every director of a company is subject to the possibility of being removed as a director by ordinary resolution under [Companies Act 2006, s 168]. Accordingly it cannot be said that, in the absence of special circumstances, a member who happens also to be a director of a company has any right to remain in office and to participate in the management of a company's business. There may, of course, be special circumstances which have the result that, if removal takes place under the statutory provisions, there will be grounds for complaint under [Companies Act 2006, s 994]. Circumstances of the kind which existed in Ebrahim v Westbourne Galleries Ltd  C 360 constitute a typical example."
97. In the case of a quasi-partnership, exclusion from management will usually be unfair if no reasonable offer is made to purchase the petitioner's shares. As Lord Hoffmann said in O'Neill v Phillips at page 16:-
"In the present case, Mr Phillips fought the petition to the end and your Lordships have decided that he was justified in doing so. But I think that parties ought to be encouraged, where at all possible, to avoid the expense of money and spirit inevitably involved in such litigation by making an offer to purchase at an early stage. This was a somewhat unusual case in that Mr Phillips, despite his revised views about Mr O'Neill's competence, was willing to go on working with him. This is a position which the majority shareholder is entitled to take, even if only because he may consider it less unattractive than having to raise the capital to buy out the minority. Usually, however, the majority shareholder will want to put an end to the association. In such a case, it will almost always be unfair for the minority shareholder to be excluded without an offer to buy his shares or make some other fair arrangement. The Law Commission (Shareholder Remedies paras 3.26 to 3.56) has recommended that in a private company limited by shares in which substantially all the members are directors, there should be a statutory presumption that the removal of a shareholder as a director, or from substantially all his functions as a director, is unfairly prejudicial conduct. This does not seem to me very different in practice from the present law. But the unfairness does not lie in the exclusion alone but in exclusion without a reasonable offer. If the respondent to a petition has plainly made a reasonable offer, then the exclusion as such will not be unfairly prejudicial and he will be entitled to have the petition struck out. It is therefore very important that participants in such companies should be able to know what counts as a reasonable offer.
In the first place, the offer must be to purchase the shares at a fair value. This will ordinarily be a value representing an equivalent proportion of the total issued share capital, that is, without a discount for being a minority holding. The Law Commission (paras 3.57 to 3.62) has recommended a statutory presumption that in cases in which the presumption of unfairly prejudicial conduct applies, the fair value of the shares should be determined on a pro rata basis. This too reflects the existing practice. This is not to say that there may not be cases in which it will be fair to take a discounted value. But such cases will be based upon special circumstances and it will seldom be possible for the court to say that an offer to buy on a discounted basis is plainly reasonable, so that the petition should be struck out.
Secondly, the value, if not agreed, should be determined by a competent expert. The offer in this case to appoint an accountant agreed by the parties or in default nominated by the President of the Institute of Chartered Accountants satisfied this requirement. One would ordinarily expect the costs of the expert to be shared but he should have the power to decide that they should be borne in some different way.
Thirdly, the offer should be to have the value determined by the expert as an expert. I do not think that the offer should provide for the full machinery of arbitration or the half-way house of an expert who gives reasons. The objective should be economy and expedition, even if this carries the possibility of a rough edge for one side or the other (and both parties in this respect take the same risk) compared with a more elaborate procedure. This is in accordance with the terms of the draft regulation recommended by the Law Commission: see App C to the report.
Fourthly, the offer should, as in this case, provide for equality of arms between the parties. Both should have the same right of access to information about the company which bears upon the value of the shares and both should have the right to make submissions to the expert, though the form (written or oral) which these submissions may take should be left to the discretion of the expert himself.
Fifthly, there is the question of costs. In the present case, when the offer was made after nearly three years of litigation, it could not serve as an independent ground for dismissing the petition, on the assumption that it was otherwise well founded, without an offer of costs. But this does not mean that payment of costs need always be offered. If there is a breakdown in relations between the parties, the majority shareholder should be given a reasonable opportunity to make an offer (which may include time to explore the question of how to raise finance) before he becomes obliged to pay costs. As I have said, the unfairness does not usually consist merely in the fact of the breakdown but in failure to make a suitable offer. And the majority shareholder should have a reasonable time to make the offer before his conduct is treated as unfair. The mere fact that the petitioner has presented his petition before the offer does not mean that the respondent must offer to pay the costs if he was not given a reasonable time."
98. The House of Lords found that the majority shareholder Mr Phillips had not driven the minority shareholder Mr O'Neill out of the company. Mr O'Neill's decision that he had lost confidence in Mr Phillips and that there was no way to repair their relationship, was not as a result of anything wrong or unfair which Mr Phillips had done. The petition was therefore dismissed.
99. Lord Hoffmann referred at page 13i, under the heading "No Fault Divorce", to cases in which it has been said that:-
"If a breakdown in relations has caused the majority to remove a shareholder from participation in the management, it is usually a waste of time to try to investigate who caused the breakdown. Such breakdowns often occur (as in this case) without either side having done anything seriously wrong or unfair."
100. As Minority Shareholders observes at paragraph 7.136 such cases do not suggest that whenever the fairness of the exclusion is at issue, an investigation as to whether or not it was merited can or necessarily must be dispensed with. In the case before us, Advocate Blakeley submitted that the removal of Mr Kilbey was justified and it is clear that misconduct on his part could result in a finding that the conduct of which he complains (his removal) is not unfair. A shareholder may behave in such a way as to justify his removal as a director (see RA Noble & Sons Clothing Ltd  BCLC 92).
101. An example of this is the case of Woolwich v Milne & Others  EWHC 414 (Ch). In that case, the parties had formed a company by way of a joint venture to produce television programmes. There was a shareholders' agreement and Mr Woolwich was employed as an executive producer. As a consequence of his bullying and inappropriate behaviour, his directors initiated disciplinary procedures following advice from ACAS to address his status as an employee and separately gave notice of his removal as a director, which took place at a subsequent EGM. His principal complaint was the use of their majority holding to remove him from the board and exclude him from the management of the company, contrary to the terms of the shareholders' agreement. The essential question was whether such removal was unfair within the meaning of s 459 (the then equivalent of Article 141 of the Companies Law). Quoting from the judgment of Sir Donald Rattee, at page 14:-
"In those circumstances was it unfair to remove him from the board in February 2001? If it had not been for his own conduct, which led to his removal, I think that removal would probably have been unfair, but the fact is that he was not removed for no reason. He was removed because his fellow shareholders and directors concluded, and on the evidence I have seen and heard I think they were well entitled to conclude, that Mr Woolwich's continued involvement in the management of the company's business, whether as director or employee, placed the efficient conduct of that business in serious jeopardy, in that he was treating staff in the production management department in a wholly inappropriate way, and this despite his fellow directors having made plain to him on more than one occasion that such treatment risked damage to the company's business....
I reject Mr Woolwich's case that his fellow shareholders had some hidden agenda and that his conduct was merely an excuse on their part for removing him in breach of the shareholders' agreement. I am satisfied that Miss Milne, Mr Whittaker and Mr Casely-Hayford had no other motive whatever for removing him. After all, it was he whom they all regarded as the company's future hope in maintaining and developing the company's business when Miss Milne and Mr Whittaker retired, as they fully intended to do.
Mr Woolwich's allegation in his evidence of some sort of conspiracy against him by Miss Milne, Mr Whittaker and Mr Casely-Hayford, joined by Miss Vasey and Miss O'Connell, is in my judgment fanciful. ...
Accordingly, in my judgment, Mr Woolwich has failed to make good any of the allegations of unfair prejudice made in his petition, and the petition must be dismissed."
102. A more recent example is the case of Flex Associate's v Hussein  EWHC 3690 (Ch) where there was evidence that the petitioner had conspired to divert potential business away from the company for his personal benefit. It was held that his conduct was in breach of his fiduciary duties as a director and fundamentally infringed the understanding on which the company had been operating. This conduct made it inequitable that the respondents should have been required to accept the petitioner's continued participation in the management of the company and justified his exclusion; an exclusion that did not constitute unfair prejudice.
103. What we draw from these authorities is that, as per Lord Hoffmann in O'Neill v Phillips at page 11, in a standard case where shareholders have entered into an association upon the understanding that each of them who has ventured his capital will also participate in the management of the company, it will usually be considered unfair for the majority to use their voting powers to exclude a member from management without giving him the opportunity to remove his capital upon reasonable terms. As Lord Hoffmann said at page 16 in the passage quoted above, it is close to a presumption that the removal of such a shareholder from his function as a director without such an opportunity is unfairly prejudicial conduct. However it will not be unfair to do so in a case where he has done something seriously wrong, i.e. where there is serious misconduct, and it is inequitable to require the other shareholders to accept his continued participation in the management of the company.
104. In the light of Mr Kilbey's admission that, unbeknownst to his co-directors, he had removed a large quantity of data from Grafters (on his account for the purpose only of ensuring he received fair value for his shareholding), the issue arose as to whether there was a requirement for him to come to Court with "clean hands". In Re London School of Electronics Ltd  BCLC 273, it was held:-
"In determining whether or not the affairs of the company had been conducted in an unfairly prejudicial manner .... There was no overriding requirement that it should be just and equitable to grant relief or that the petitioner should come to the court with clean hands. In granting relief ... the conduct of the petitioner could be relevant in a number of ways of which the two most obvious were first, that it might render the conduct of which the petitioner complained, even if prejudicial, not unfair, and second, even if the treatment of the petitioner was unfair and prejudicial, it might affect the relief granted by the court."
105. In Richardson v Blackmore  EWCA Civ 1356, the petitioner had at one stage in negotiations over the possible purchase by him of shares belonging to the respondents, forged a letter the purpose of which was to reduce their expectation as to the price they might receive. The English Court of Appeal held:-
"2. There was no requirement that a petitioner under s. 459 should come to the court with "clean hands" but the conduct of the petitioner could affect the relief which the court thought fit to grant under s. 461. (Re London School of Electronics Ltd  1 BCC 99,394,  Ch 211 considered). Depending on the seriousness of the matter and the degree of its relevance, such conduct would be capable of leading a court to deny the petitioner any relief at all, even though the conditions under s. 459 were made out. B's behaviour in forging the letter was deplorable, but the judge was right to disregard the forgery and the petitioner's use of the forged letter, when deciding whether the conditions under s. 459 were made out. He was also right to disregard it in relation to the question whether to exercise any, and if so what, order under s. 461. The forgery itself had no immediate or necessary relation to the circumstances upon which B's entitlement, or otherwise, to relief depended. At best it was an episode in the background history. Given the lack of impact it had on R and W, the judge was entitled to treat it in the way in which he did. It was plain that B's conduct during the proceedings in referring to the letter before he admitted that it was a forgery was not as could be described as an abuse of the process of the court rendering a fair trial impossible. (Arrow Nominees Inc v Blackledge  BCC 591 distinguished). B's conduct was neither sufficiently serious nor sufficiently closely related to the respondents' unfairly prejudicial conduct to make it appropriate for the court to exercise its discretion so as to refuse to grant him a remedy under s. 461 which it would otherwise grant. Accordingly the appeal was not well founded."
106. Thus by way of summary of the law in the context of the facts of this case, in general the relationship between shareholders is governed by the terms of the articles of association (Re Saul D Harrison) but in the case of a quasi-partnership (the elements of which are set out in Ebrahim v Westbourne Galleries), equitable considerations may make it unfair for the other members to use their strict legal powers in a manner which equity would regard as contrary to good faith (O'Neill v Phillips). Unfairness must be judged on an objective basis (Re Guidezone Limited) and the conduct complained of must be both prejudicial and unfair; one element without the other will not suffice (Re Saul D Harrison). Exclusion will usually be unfairly prejudicial unless a reasonable offer is made for the shares of the director so removed (O'Neill v Phillips), but that exclusion may be justified by the serious misconduct of the director concerned (Woolwich v Milne and Flex Associates v Hussein). What counts as a reasonable offer is set out in the speech of Lord Hoffmann in O'Neill-v-Phillips quoted in paragraph 97 above. There is no requirement for the director so excluded to come to Court with clean hands but that director's conduct could be relevant if it renders the conduct complained of, even if prejudicial, not unfair (In Re London School of Economics).
107. The case put forward by both sides can be summarised briefly. Advocate Renouf submitted that this was a quasi-partnership, that Mr Baker and Mr Jones had no grounds to remove Mr Kilbey as a director and that the offer made by them for his shareholding was manifestly unreasonable. Mr Kilbey having turned the company around, Mr Baker and Mr Jones conspired to expel him from the business so that they did not have to share the profits with him.
108. Advocate Blakeley, on the other hand, submitted that it was not a quasi-partnership, that Mr Kilbey's conduct did justify his removal and in any event, the offer made to him for his shares was reasonable. There were two aspects to this, firstly, the offer made by email on 19th March, 2007, was reasonable, and secondly, the offer to buy his shares at a fair price to be determined by Mr Stuart was reasonable. Mr Kilbey rejected both.
109. There are four issues, therefore, for the Court to determine in this order:-
(i) Was this a quasi-partnership? If so,
(ii) Did Mr Kilbey's conduct justify his removal as a director without a reasonable offer for his shareholding? If not,
(iii) Did Mr Baker and Mr Jones make a reasonable offer for his shareholding? If not
(iv) Assuming an order for the purchase of Mr Kilbey's shareholding, what valuation should the Court place on it?
110. We should note at this stage that quite separately from the issue of his removal, Mr Kilbey also sought to engage the Court's jurisdiction under Article 141 on a number of grounds arising out of alleged breaches of his rights under the articles of association in the period following his removal, namely:-
(i) The failure by Mr Baker and Mr Jones to timeously provide detailed accounts for 2006-2012.
(ii) The failure by Mr Baker and Mr Jones to hold AGMs.
(iii) The attempt to engineer the purchase of Mr Kilbey's shareholding by converting it into a redeemable preference share.
(iv) Mr Baker and Mr Jones paying themselves excessive remuneration.
(v) Mr Baker and Mr Jones failing to control company expenditure.
(vi) Mr Baker and Mr Jones failing to declare any or any adequate dividends.
(vii) Mr Baker and Mr Jones retaining dividends that were declared.
(viii) Mr Baker and Mr Jones using company funds to pay legal fees.
111. During the course of the hearing, most of these either fell away or were not pursued, leaving only the allegations in relation to the directors' remuneration of Mr Baker and Mr Jones and the alleged failure to declare any or any adequate dividends. We will come to these later.
112. Advocate Renouf volunteered the concession, however, that if the Court found that the offer made by Mr Baker and Mr Jones (comprising the two elements described above) was reasonable, then the whole of Mr Kilbey's case failed. Although not canvassed with him at the time the concession was made, it must follow that if the Court were to find that his conduct justified his removal without a reasonable offer for his shareholding, then again the whole of his case would fail.
113. We have no doubt that the relationship between Mr Kilbey, Mr Baker and Mr Jones was a quasi-partnership. Notwithstanding our findings as to the reliability of Mr Kilbey as a witness, which we deal with below, it was clear to us that he was invited to "come on board" in place of Mr Balderson in what was a personal relationship involving mutual confidence between all three individuals. Mr Kilbey told us that the £25,000 he paid Mr Balderson represented all of his savings, and whether or not that is true, we accept that he would only have invested such a sum for a minority stake in Grafters on the basis of that personal relationship and that he would be involved in the management of the business. The first two elements set out in Ebrahim v Westbourne Galleries Ltd are therefore met. In relation to the third element this was also met in that there is a restriction on the transfer of his shares under the articles of Grafters in that Article 46 provides that the directors "may, in their absolute discretion, and without assigning any reason therefor, refuse to register any transfer of shares, including, without limitations, a transfer of shares to a person of whom they do not approve ...."
114. There are serious issues as to the credibility of Mr Kilbey and we found his evidence to be unreliable at best. On any of the matters in issue in this case, we invariably preferred the evidence of Mr Baker and Mr Jones. Advocate Renouf described the evidence of Mr Jones as extraordinary; it was clear, he said, that he disliked Mr Kilbey with a vengeance. We accept that Mr Jones gave his evidence in a very blunt and robust manner compared to Mr Baker, who was more restrained, and it was clear that he disliked Mr Kilbey; nonetheless we found Mr Jones to be an honest and reliable witness, as we did Mr Baker.
115. We make the following findings on the balance of probabilities:-
(i) No approaches were made by Mr Baker to Mr Kilbey with a view to removing Mr Jones as a director and shareholder.
(ii) We accept the evidence of Mr Baker and Mr Jones as to the meeting held on the boat, and in particular, that Mr Baker did not aggressively criticise Mr Jones; it was Mr Kilbey who was critical of and patronising towards Mr Jones.
(iii) There was no meeting between Mr Kilbey, Mr Baker and his brother Mr Jonathan Baker on 3rd January, 2007. Only one such meeting took place as recounted by Mr Jonathan Baker and that was in late October 2006. We were troubled in this respect by the Moleskin notebook, discovered so late in the proceedings by Mr Kilbey. All of the entries are in the same ink. The first page reads:- "This is a note of significant events/conversations/thoughts as they happen." There are then a mere six separate entries. The first two are those referred to above relating to the 2nd and 3rd January, 2007. The third dated 5th January, 2007, relates to Mr Jones allegedly bringing in a "girlie" magazine to the office and inappropriate conversations between Mr Baker and Mr Jones surrounding it - not something which was explored in evidence. The fourth entry relates to a watch he was thinking of buying from a shop in King Street. The fifth, dated 15th January, 2007, relates to an incident in which Mr Jones came into his office and allegedly "farted" - this was explored in evidence and denied by Mr Jones. The final entry for 11th January, 2007, relates to his partner's pregnancy. Thereafter the notebook is blank. There are no entries for the significant events which took place later, in particular the meeting at Bohemia, the receipt of the notice of his removal and the negotiations that followed, contrary to the advice that he said he had received from his lecturer. In our view, these notes were not made contemporaneously and no reliance can be placed upon them.
(iv) Mr Kilbey's assertion in his affidavit on 10th March, 2014, that at the time of the letter of 8th March, 2007, and the offer of 19th March, 2007, PPS (not actually formed until 23rd March, 2007,) belonged to him "outright" was untrue. It was clearly a proposal that Grafters was pursuing, as acknowledged by Mr Kilbey when on 20th March, 2007, he sought and received confirmation from Mr Baker and Mr Jones that they were willing to relinquish any claims to it as part of their offer.
(v) Mr Kilbey had been warned as to his performance at the December 2006 board meeting and at the February 2007 meeting at Bohemia.
(vi) We accept the evidence of Mr Baker and Mr Jones as to Mr Kilbey's attitude, conduct and performance, as exemplified in their exchange of emails (that of Mr Jones of 4th March, 2007, being set out above) and as given before us. Some time was taken up at the hearing dealing with these (and other) incidents with Mr Kilbey in each case rejecting any criticism and it would be burdensome for us to set out each incident - suffice it to say that in every case, we accepted the evidence of Mr Baker and Mr Jones. Our findings in this respect are supported by the unchallenged evidence of Mrs Binnie, the office manager, and the client, Mrs De Gruchy. Of particular significance is Miss Binnie's evidence as to Mr Kilbey's contribution becoming disruptive to the business and causing the relationship between Mr Baker and Mr Jones to fragment.
(vii) There was no conspiracy between Mr Baker and Mr Jones to expel Mr Kilbey so that they did not have to share the profits with him.
(viii) Mr Kilbey lied to the Deputy Data Protection Commissioner over how Grafters' data came into his possession and how it came to be used. This was some time after his removal as a director but it is relevant to his credibility.
116. It is true that the turnover of Grafters increased over time from £0.450M in the year ending 2006 to a peak of £3.5M in the year ending 2011, just before the abolition of the LVCR, but it is important to remember that we are concerned with events at the very outset of this business; a full years' trading had barely been completed. Mr Kilbey justifies his position by pointing to the increase in the monthly turnover, in particular in the months of January and February 2007 and seeks to take almost sole credit for it. We share the view, however, of Mr Baker and Mr Jones that Mr Kilbey made little if any contribution to this growth, which would have happened without him. He did not turn it around. By his own admission, he had brought in few new employers and as to the existing employers, we think that Mr Jones, whose original idea the business was, as operations manager with daily contact with every site being supplied, was the main driver for the increased use of Grafters' services. We empathised with his frustration that Mr Kilbey was contributing very little, yet drawing the highest level of remuneration.
117. Advocate Renouf criticised the lack of any kind of disciplinary process that would be offered to an employee and we acknowledge that, if Mr Kilbey had been an employee, he might well have had a claim for unfair dismissal pursuant to the provisions of the Employment Law. But he was not an employee and no such protection is afforded to directors, who, as stated above, are always susceptible to being removed by the shareholders with or without any justification.
118. Advocate Renouf submitted that we should be guided by the special procedures contained in s 168 and s 169 of the Companies Act 2006. Under s 168, special notice is required of a resolution to remove a director. Under s 169, a copy of the notice must be sent to the director concerned and he is entitled to be heard on the resolution at the meeting. Any written response from a director must be circulated to the members if so requested.
119. We have no such provisions under the Companies Law and they have no application here. We accept however, that when considering whether a director's removal for the purposes of an application under Article 141 is justified, the Court can take into account his treatment. In that respect, we note the following:-
(i) This was a very small company with three working directors/shareholders and very limited staff (we believe two, at the material time).
(ii) Criticisms of his performance as a director were raised firstly in December 2006 and secondly at the meeting at Bohemia in February 2007.
(iii) He was given 15 days' notice of the EGM, which set out the reasons for his removal. Despite having access to legal advice from his former lawyers at the time, he did not seek to make any written representations about either the merits or the process.
(iv) He was given the opportunity of attending the EGM on 23rd March, 2007, and, according to the minutes, did so.
120. In the context of the facts of this case, and bearing in mind his status as a director and not an employee, we find nothing unfair in the process.
121. We accept that the question of unfairness has to be judged by an objective standard (see Guidezone Limited cited above). Using the words of Sir Donald Ratee in Woolwich v Milne, if the circumstances and manner of the removal of Mr Kilbey from the board of the company were such that a disinterested and reasonable bystander would regard such removal as unfair, it is immaterial that the respondents might genuinely have considered that they were acting fairly.
122. The fact of the matter is that Mr Kilbey was removed for a reason. We have rejected the suggestion that having failed to persuade Mr Kilbey to remove Mr Jones, Mr Baker then went on to persuade Mr Jones to remove Mr Kilbey and that the motives in removing him were to get "a larger slice of the pie". Mr Kilbey was removed because his fellow directors and shareholders were no longer able to work with him for the reasons set out in their letter of 8th March, 2007.
123. We are in no doubt that Mr Baker and Mr Jones genuinely considered that they were justified in removing Mr Kilbey as a director for these reasons but they were both clear in their evidence that he should receive a reasonable offer for his shareholding. Neither suggested that it was fair to remove him without such an offer.
124. Viewed objectively we find that his conduct, whilst serious, was not was so serious as to justify his removal as a director without a reasonable offer for his shareholding. It cannot be said for example that his conduct placed the business of Grafters in serious jeopardy (Woolwich v Milne) or that he was in breach of his fiduciary duties in such a way as to fundamentally infringe the understanding on which Grafters had been operating (Flex Associates v Hussein). We do go on to find under the Counterclaim that he was in breach of his fiduciary duties in removing data from Grafters before he left, but this was after Mr Baker and Mr Jones had decided that they could no longer work with him.
125. We move on, therefore, to the question of whether Mr Kilbey was given a reasonable offer for his shareholding.
126. Both sides had used expert evidence as to the value of Mr Kilbey's shareholding and it is necessary to summarise that evidence now. As previously stated, the business of Grafters grew steadily until the abolition of LVCR in 2012. The result was dramatic in that in 2012, the turnover fell to £1.3M (down from £3.5M in the previous year) and in 2013, it fell to £0.54M. In the six months to June 2014, turnover was down to £0.26M. Not surprisingly, it was not able to carry two working directors and Mr Jones was made redundant in 2012, leaving Mr Baker as the sole working director.
127. Mr Kilbey commissioned a report from Mr Andrew Mainz and Mr Henry Pannell of FTI Consulting LLP, a global business advisory firm, which followed an earlier report from that firm. Applying the earnings basis of valuation, this involved two main tasks, firstly, assessing the future maintainable earnings (FME) and secondly, determining the appropriate rate of capitalisation or price earnings ratio (PE Ratio). They advised that basing a valuation of the business on the results in 2007 was not appropriate, given the business was still in a growth phase and the earnings in that year were not representative of the FME, but they were instructed to do so, and had prepared a valuation based on the published financial statements. Without going into the various adjustments made, they arrived at a valuation as at 31st December, 2007, of £587,572 for the whole business of which Mr Kilbey's share would have been £196,000. On the same basis, they went on to value Mr Kilbey's shareholding from 2008 to 2011 as follows:-
(i) 2008 - £368,000;
(ii) 2009 - £373,000;
(iii) 2010 - £368,000;
(iv) 2011- £411,000.
128. For 2012, and taking out the redundancy payment of £140,000 for Mr Jones, which they considered an exceptional expense, the value of Mr Kilbey's shareholding dropped to £127,000.
129. Unfortunately, they had not been instructed to value Mr Kilbey's shares at the date of the offer of the 19th March, 2007, or at the date of these proceedings, the latter being the starting point for the valuation date (see Profinance Trust SA v Gladstone  1 BCLC at paragraph 60 which we refer to below).
130. Mr Mainz, who came to give evidence, was asked for his advice at very short notice on the value of Mr Kilbey's shareholding as of those two dates. Taking first the value as at 19th March, 2007, and working from figures provided by the respondents' expert, Mr Luke Smith, for the months of October 2006 to March 2007, they showed a net profit (when rounded up) of £140,000 for the six months to the end of March 2007. Multiplying this up by 2 gives a figure of £280,000 for a whole year. From that, he deducted directors' remuneration of £100,000 (the figure which the directors had informed Mr Stuart was a fair figure for directors' remuneration for the purposes of his valuation) giving a net profit for the year of £180,000. Applying a PE Ratio of 3.5, this would give a valuation of the whole business of £630,000 of which one third, i.e. £210,000 would be attributable to Mr Kilbey. Alternatively, taking the March net profit of (rounded up) £30,000, this would give a net profit of £360,000 for the whole year, less the same figure for the directors' remuneration, resulting in a figure of £260,000 net profit for the year. Applying the same multiple of 3.5, that would give a value of the whole business of £910,000, of which one third would be applicable to Mr Kilbey, i.e. £303,000. Taking a rough average between these two figures, he suggested a midpoint of £750,000 for the value of the whole business, of which one third would be attributable to Mr Kilbey, i.e. £250,000. Mr Mainz, whose evidence was very clearly presented, stressed that these were rough calculations.
131. Mr Mainz explained that to arrive at a fair valuation it was necessary to adjust the directors' remuneration to arrive at a price that a purchaser would expect to pay with someone installed to manage the business. That was not to criticise the actual remuneration that the directors in this case had drawn. He had no experience of the benchmark rates that would apply for recruitment agencies, although the author of FTI's previous report, Mrs Julia Wallace-Walker, did have. He had regard to her advice and to reports from the UK firm of Plimsoll, who had wide experience in this area and who had suggested £83,000 per annum as a management charge (representing 1.6 directors at £52,000 per annum per director).
132. The question of the value as at the date of these proceedings is much more difficult, given the serious decline in the fortunes of Grafters. The figures for the six months to the end of June 2014 showed a net profit (rounded up) of £26,000, which multiplied up for the year would equate to a net profit of £52,000. The remuneration paid to Mr Baker shown as consultancy fees were £10,500 which multiplied up would make £21,000 for the whole year - a low figure. Mr Mainz explained that any purchaser would wish to deduct what he or she might have to pay someone to run the business. He had no knowledge of the future trading profits of Grafters, but the business was turning over £0.5M a year and achieving a margin of 10%. In his view, it was possible to say that it was worth £0.5M today, of which Mr Kilbey's share would be one third, namely £166,000. He did stress that this was a very tentative figure.
133. Applying the dividend yield approach, as had Mr Smith, and assuming a yearly dividend of £20,000, that figure capitalised at 3% (the kind of return you might achieve by investing in equities) would give a capital value of £600,000 which he said someone might invest, albeit at the risk attached to the future the payment of dividends. Again, Mr Kilbey's share at one third would be £200,000.
134. Mr Mainz felt unable to subscribe any value to PPS as at 19th March, 2007, because the company had not yet been formed and he said that actual performance was critical for any valuation.
135. The respondents called Mr Smith, a chartered accountant, from the local firm of Purpose Financial Direction, which provides him as a "virtual finance director" giving commercial advice to clients in all aspects of local business strategy, operational process and financial performance, including potential mergers, acquisitions and disposals. He had been instructed to value Mr Kilbey's shareholding as at the 19th March, 2007, and as at the 30th September, 2013, (shortly before his report).
136. Mr Smith discounted valuing the business on the basis of earnings, net assets or discounted cash flow, advising that the appropriate method for a minority holding in an unquoted company was the dividend basis and this because a purchaser could expect nothing else but dividends by way of a cash return on his shares. Taking first the valuation as of 19th March, 2007, the figures he extracted from the accounts showed that in the six months to 31st March, 2007, there was a net profit before directors' remuneration (rounded up) of £140,000. He pointed out that there are no rules for assessing the amount of remuneration paid to directors. He mistakenly thought that Mr Stuart had suggested that £100,000 per annum per director was appropriate, whereas in fact Mr Stuart had used a figure of £100,000 per annum for the provision of all three directors, the figure that had been agreed by the directors when instructing him. It was not something which Mr Stuart had evaluated. The remuneration of £100,000 per director would have put the company into a loss over that period and as there were no distributable profits the dividend yield basis provided a zero result.
137. He did not agree with the figure of £100,000 for the three directors, which equates to £33,000 per annum each, something which he described as completely inaccurate in this market. Unlike Mr Mainz, he had experience of the local market and the surveys conducted by Hassell Blampied. In his view, £100,000 per director within the Jersey market was realistic. We observe that this would mean any purchaser attributing a management charge for this business of £300,000 per annum, which intuitively feels very high for the management of a small, albeit growing recruitment agency.
138. Notwithstanding that the dividend basis provided no value for the business as of March 2007, Mr Smith recognised that Mr Kilbey's shares had a commercial value, as he himself had paid £25,000 for them in October 2006. He ascribed a nuisance value to those shares of not more than £50,000.
139. Turning to the value of the business as at the date of the proceedings, assuming the management charge used by Mr Stuart, namely £100,000 per annum, then the figures for the half year to June 2014 showed the business operating at a loss, and therefore it had no value as of today either on the dividend or earnings basis.
140. As to PPS, he advised that if the participants had strong confidence in its revenue stream, then a value could be ascribed to it but it would be outside any arithmetical calculation.
141. The issue under consideration here is whether the offer made by Mr Baker and Mr Jones on the 19th March, 2007, was reasonable - whether it represented fair value for Mr Kilbey's shareholding. It did not help that there had been no communication between the experts (through no fault of their own) and indeed, that Mr Mainz had not been instructed to value the business as at 19th March, 2007. The Court was therefore faced with experts who had approached their valuations using different methods with Mr Mainz ascribing a value of some £250,000 for Mr Kilbey's shareholding and Mr Smith a nuisance value only of not more than £50,000.
142. Grafters grew into a successful business over the years 2007 - 2011, but it is important to consider the reasonableness of the offer made on the 19th March, 2007, with the knowledge that the participants had at that time and to be unaffected by our knowledge as to how the business grew thereafter; i.e. to reject the wisdom of hindsight. Looking at it as best we can from the perspective of the participants on the 19th March, 2007, we would make the following points:-
(i) The business had barely completed a full year's trading and it is inherently difficult to place any value on such a nascent business, as FTI pointed out.
(ii) The financial information available to Mr Baker and Mr Jones was that produced by Mr Kilbey, who was, after all, the finance director. His management accounts (which Mr Stuart described as inaccurate because the bank statements had not been reconciled) were all the parties had to go on and that showed a net profit, after directors' remuneration of £12,402.92 for the period from March 2006 to February 2007.
(iii) Mr Kilbey had paid £25,000 for his shares barely four months before. For them to now be worth £250,000 as suggested by Mr Mainz, would mean a ten-fold increase in value over some four months. We do not think that any reasonable person seized of the information then available could possibly have contemplated such an increase.
(iv) Mr Stuart, an accountant, did value the shareholding at that time on the information then available and arrived at a figure of between £35,000 and £50,000, discounted he suggest by some 20%. We think that provides a valuable guide as to its value without being influenced by hindsight.
(v) As Mr Stuart pointed out, the business was very reliant on two employers (a concern of Mr Baker and Mr Jones) and on the LVCR.
(vi) Whilst January and February figures were encouraging (there would have been no figures available for March 2007) it was known that it was, in material part, a seasonal business.
143. From that perspective, we consider that the offer made was reasonable, in that it involved the immediate recoupment of the monies Mr Kilbey had so recently paid for his shares, gave him a share in the profits going forward and the benefit of PPS, which Mr Kilbey clearly felt had real prospects. The service was there for it to provide (there was no competition for it) and PPS went on to provide that service almost immediately, even though we know with the benefit of hindsight that it did not prosper.
144. Furthermore it was an offer made in good faith. It is difficult to put a precise figure on the value of this offer but in our view it comes within the range advised by Mr Stuart even without the discount.
145. We do not think it reasonable for Mr Kilbey to dismiss the profit share out of hand on the basis that it could be manipulated, as that assumes bad faith on the part of Mr Baker and Mr Jones, an assumption we have found to be unwarranted. The offer included an audit (Grafters' accounts were not otherwise audited) and the terms of the profit share would no doubt have been fine-tuned with the advice of Mr Stuart, in whom all three had confidence (at least at that stage).
146. The matter does not stop there however. Having rejected the offer of 19th March, 2007, unreasonably in our view, Mr Kilbey then went on to suggest a mechanism by which his shareholding could be acquired, namely on a fair valuation carried out by Mr Stuart. In making that proposal, Mr Kilbey was no doubt encouraged by Mr Stuart's chance comment that his shareholding might be worth £240,000. Mr Baker and Mr Jones, we find, agreed to that proposal in good faith and acted reasonably in doing so. They cooperated in what we find was a joint instruction, with Mr Kilbey having full access to Mr Stuart. Indeed, it was Mr Kilbey who provided the financial information to Mr Stuart.
147. Furthermore, Mr Stuart had not been "got at" by Mr Baker and Mr Jones. We reject the allegation that Mr Stuart had "not done his job properly" and "not produced anything remotely resembling a professional valuation". On the contrary, it seems to us that Mr Stuart had acted in good faith and produced a professional valuation. It was the result that Mr Kilbey rejected.
148. The passage from O'Neill & Phillips quoted at paragraph 97 above is authority for the proposition that the fair value of shares should be determined on a pro rata basis and it is no criticism of Mr Stuart's valuation that he was not instructed to produce the valuation on that basis. The fault lies with the instructions given by the parties, who at that time were legally represented. It was for them to ensure that Mr Stuart carried out his valuation on the correct basis. Furthermore on receipt of the valuation it would have been open to Mr Kilbey and his former legal advisers to have asked (supported by the authority of O'Neill v Phillips) for a revised valuation on a pro rata basis. There was no response at all from Mr Kilbey or his advisers. We find this was because Mr Kilbey wholly rejected Mr Stuart's valuation irrespective of the discount. He has gone on to malign Mr Stuart by accusing him without any justification whatsoever of being improperly influenced by Mr Baker and Mr Jones and of acting unprofessionally.
149. We conclude therefore that Mr Kilbey's conduct in proposing the sale on the basis of Mr Stuart's valuation and then rejecting that valuation outright was unreasonable. Furthermore it was unreasonable and unwarranted for Mr Kilbey to regard - if indeed he genuinely did regard, which we are inclined to doubt - Mr Baker and Mr Jones as negotiating over his shareholding in bad faith and for himself, on his own admission, to negotiate in bad faith.
150. If we are wrong in concluding that Mr Baker and Mr Jones made a reasonable offer for Mr Kilbey's shareholding (comprising these two elements), then unfair prejudice would have been established and the Court's jurisdiction under Article 141 invoked. There was no dispute between the parties that in that eventuality, the appropriate remedy under Article 143 was an order for Mr Baker and Mr Jones to acquire the shareholding of Mr Kilbey. The issue then would be the value to be placed on his shareholding, which we now turn to consider.
151. The first matter to address is the date to be chosen for Mr Kilbey's shareholding to be valued for the purposes of an order under Article 143 for their purchase. As mentioned above, Profinance Trust SA v Gladstone laid down what is in effect a general rule that the starting point should be the date on which the order to purchase is made, but the English Court of Appeal recognised that there are many cases when fairness to one side or the other requires the Court to make a date for valuation other than the date of the purchase order, summarised in this way at paragraph 7.278 of Minority Shareholders:-
"(a) Where a company has been deprived of its business, an early valuation date (and compensating adjustments) may be required in fairness to the petitioner. In Scottish Co-operative Wholesale Society Ltd v Meyer the shares were valued by considering what would have been their value at the commencement of the proceedings had it not been for the effect of the oppressive conduct of which complaint was made. Lord Keith of Avonholme held that the valuation had proceeded on the correct principle.
(b) Where a company has been reconstructed or its business has changed significantly, so that it has a new economic identity, an early valuation date may be required in fairness to one or both parties: see, for example, Re OC (Transport Services Ltd and to a lesser degree, London School of Electronics Ltd where a valuation at a subsequent date would have been unfair to the respondents who had built up the company's business since the date of the petition. But an improper alteration in the issued share capital, unaccompanied by any change in the business, will not necessarily have that outcome.
(c) Where a minority shareholder has a petition on foot and there is a general fall in the market, the court may in fairness to the petitioner order the shares to be valued at an early date, especially if it strongly disapproves of the majority shareholder's conduct; see, for example, Re Cumana Ltd where a valuation at the date of the petition obviated the necessity to determine whether payments made to the respondent since the date of the petition could be recovered, and protected the petitioner against a fall in the value of the shares since that date.
(d) But a petitioner is not entitled to a one-way bet, and the court will not direct an early valuation date simply to give the petitioner the most advantageous exit from the company, especially where severe prejudice has not been made out.
(e) The above points may be heavily influenced by the parties' conduct in making and accepting or rejecting offers either before or during the course of the proceedings."
152. Minority Shareholders goes on to comment at 7.279:-
"The second of these guidelines may involve a consideration of whether the company's fortunes have improved or declined since the occurrence of the matters complained of and who bears the responsibility for these matters. So, for example, in Bennett v Bennett, although the judge accepted, in the light of Profinance Trust SA v Gladstone that valuation as at the date of the share purchase order was the 'starting point', the successful petitioner argued that an earlier valuation date was justified due to a 'sea change'. However, since the petitioner had left the company, he had set up a successful competing business, and had used his knowledge of the company's customers, methods, costings and pricings to enable him to compete. The competition had adversely affected both the company's profitability and its share value. These factors (coupled with the petitioner's delay of over two and a half years in bringing proceedings) led to the conclusion that it was fair that the petitioner's shares should be valued as affected by his actions; it was held accordingly that the correct valuation date was that of the order."
153. For the purpose of this exercise we are assuming that there has been a finding of unfair prejudice following the removal of Mr Kilbey without a reasonable offer for his shareholding, but it is also necessary to take into account all of the circumstances of the case and in particular the conduct of the parties since March 2007 (including the various offers that have been made and rejected). For this, we need to address the allegations of unfairly prejudicial conduct made by Mr Kilbey against Mr Baker and Mr Jones in paying themselves excessive remuneration as directors and failing to pay adequate dividends; the remaining complaints of unfairly prejudicial conduct having either fallen away or not been pursued.
154. It is the case that following the growth of the company between 2007 and 2011, substantial profits were generated. We have already given the figures for the increase in the turnover, but in terms of the directors' remuneration, Mr Baker and Mr Jones drew the following between them:-
£103,861 (Turnover £1.5m)
£158,500 (Turnover £2.3m)
£195,500 (Turnover £2.7m)
£286,600 (Turnover £2.9m)
£296,000 (Turnover £3.5m)
£159,500 (Turnover £1.3m)
155. The net profit after deduction of that remuneration was as follows:-
156. Dividends were paid of £106,500 in 2010 and £70,500 in 2011. Mr Kilbey received his one third share namely £59,000.
157. Advocate Renouf submitted that whereas the initial remuneration of directors had been agreed by them both as directors and shareholders on 7th September, 2006, thereafter, whilst the directors' remuneration had been agreed at board level, it had not been fixed by the company in general meeting as required by Article 93 of the articles of association which is in the following terms:-
"93 The Directors shall be paid out of the funds of the Company their travelling and other expenses properly and necessarily expended by them in attending meetings of the Directors or Members or otherwise on the affairs of the Company. They shall also be paid by way of remuneration for their services such sum as shall be fixed by the Company in general meetings, which shall be divided between them as they shall agree, or, failing agreement, equally and shall be deemed to accrue from day to day."
158. It is not in dispute that on 7th September, 2006, at what was minuted as a meeting of the directors and shareholders of Grafters, Mr Kilbey, Mr Baker and Mr Jones agreed the level of their remuneration, although that agreement was not referred to in the minutes. We observe that Mr Kilbey was not then a shareholder and Mr Balderson, who was a shareholder, was not there.
159. It is clear from the evidence of Mr Baker and Mr Jones that they were unaware of the requirements of Article 93. However, it is a requirement of the articles of association and Advocate Renouf referred us to the case of Irvine v Irvine  1 BCLC where a director's remuneration had been taken without being considered or fixed in accordance with the company's articles of association. It was held that in the absence of this, the Court had to determine whether it was appropriate in amount and the test was whether, applying "objective commercial criteria" the remuneration which the director took was within the bracket that executives carrying the sort of responsibility and discharging the sort of duties that he was, would expect to receive.
160. Advocate Renouf further submitted, citing Blackmore v Amplus Limited  JRC 086 that this was something which the Court could decide without expert evidence due to the knowledge that the Jurats bring to bear. He suggested that the question of remuneration for the management of a small private company was particularly apt for the Jurats to determine.
161. Mr Mainz was careful to make clear that in determining an appropriate management fee for the purpose of valuation, he was not criticising and he did not criticise the level of remuneration paid to Mr Baker and Mr Jones. There was no expert evidence therefore before the Court supporting Mr Kilbey's submission that in the circumstances of this particular company, the level of remuneration paid to its directors was excessive.
162. On the other hand, Mr Smith did give evidence that in the Jersey market place, such remuneration was reasonable. Taking the total directors' remuneration for the years 2007 - 2012, namely some £1.2M, that averages out at around £85,000 per annum for each director, which in his view, was arguably low for directors of private trading companies in Jersey.
163. We think that in applying objective commercial criteria to the issue of directors' remuneration, the Court should be assisted by expert evidence. The position here is to be contrasted to that in Blackmore v Amplus, where the Master was concerned with whether an employment expert was required (in addition to medical experts) in a personal injuries claim to assist the Court in determining whether the plaintiff was able to earn in future. The Master found that the Jurats, with the expert medical evidence that was being adduced, and with the substantial statistical data that was available to them, were well placed to assess this using their knowledge and experience of people as well as of the Island.
164. It is not every Court that will be comprised of Jurats with experience of the levels of remuneration paid to directors in Jersey. As it happens, in this case, the Jurats have very considerable business experience within the Island and if they were to apply that experience, they would be of the view that the remuneration paid to Mr Baker and Mr Jones, whilst being at the high end of what was reasonable, was not excessive bearing in mind the turnover and profitability of the company.
165. The key accusation levelled by Advocate Renouf on behalf of Mr Kilbey was that every act complained of (whether remuneration or dividends, or indeed any other complaints no longer pursued) were done for the purpose of siphoning off the profits of Grafters into their own pockets. We reject that accusation.
166. This business was run by Mr Baker and Mr Jones, against competition from Mr Kilbey's company, very successfully until the LVCR was abolished. As Mr Mainz said in evidence, directors take the risk and the reward, as long as the company can meet its obligations and the interests of the other shareholders are taken into account. In our view, the interests of Mr Kilbey as a shareholder were taken into account, in that profits were made every year (bar 2012) after payment of the directors' remuneration and dividends were declared in 2010 and 2011. 2012 was the year in which the redundancy payment of £140,000 was made to Mr Jones but there was still a balance carried forward of £148,945.
167. The facts here can be contrasted with those in Re Tobian  EWCA Civ 998, to which Advocate Renouf referred us, where the Court of Appeal rejected the finding of the lower court that there was a requirement for diligence on shareholders to have found out about the remuneration charged by a director by obtaining copies of the annual accounts. The director in that case was found to have fixed his remuneration by reference to his own personal interests without regard to those of the company, drawing large amounts of remuneration over three years when the company was making substantial losses. In contrast, we find that Mr Baker and Mr Jones did have regard to the interests of the company and drew their remuneration when the company was making substantial profits.
168. It is the case that their remuneration was not fixed by the members in accordance with Article 93 of the articles of association, but as Blackburn J pointed out in Irvine v Irvine at paragraph 346, the fact is that if this requirement had been observed and the relevant meetings held, Mr Baker and Mr Jones, as the majority shareholders, could have voted in their interests to obtain the result they wanted. Accordingly, Mr Kilbey suffered no material prejudice as a result.
169. The issue of remuneration is linked to that of the dividends. The general position in relation to dividends was usefully summarised by Blackburn J in Irvine v Irvine at paragraph 273:-
" Mr Todd submitted, again correctly, that the petitioners had no legitimate expectation (in the sense discussed in authorities such as Re Saul D Harrison & Sons plc and O'Neill v Phillips) that dividends would be paid on their shares and that, in any event, no such expectation had been pleaded. He was also correct in my view to submit that the petitioners had no expectation of a dividend payment merely because they were shareholders and that the reported decisions on the non-payment of dividends (for example Re a company, Ex p Glossop  BCLC 570,  1 WLR 1068 and Re Sam Weller & Sons Ltd  BCLC 80,  Ch 682) do no more than establish that the non-payment of dividends may, in the particular circumstances of the case, amount to unfairly prejudicial conduct."
170. The issue of dividends was clearly a very difficult one for Mr Baker and Mr Jones, in that any dividends paid to Mr Kilbey might be used to bolster the competition from Manual Labour Solutions and it is arguable whether it was in the interests of Grafters, as a company, to declare any dividends at all. The fact is, however, that dividends were declared and we reject the suggestion that in considering the issue of dividends the directors had regard to their own personal interests and disregarded the interests of the shareholders.
171. Although not pursued in oral submissions, Advocate Renouf submitted in his opening written submissions that in all of the acts complained of by Mr Kilbey, and in particular the fixing of the remuneration, the directors were acting under a conflict of interest. The best practice, he said, was for the directors to have abstained from setting their own remuneration and for an independent report to be prepared for presentation to the board.
172. Advocate Blakeley pointed out the difficulties such practice would have had on a small company of this kind. The articles contained the usual provisions in relation to disclosure of conflicts of interest but conflict in relation to the payment of their own remuneration was obvious. If both directors had abstained as such practice might dictate, there would have been no board to make a decision. Referring the matter to the members under Article 93 would have removed the issue of conflict, as the members can vote in their own interests but once again, Mr Baker and Mr Jones could have used their majority shareholding to obtain the result they wanted. Accordingly, Mr Kilbey suffered no material prejudice as a result.
173. There has been a dramatic fall in the fortunes, and therefore the value, of Grafters following the abolition of LVCR and Advocate Renouf argued on the authority of In re Cumana Limited  BCLC 430 that in fairness to Mr Kilbey this Court should value the shares of Mr Kilbey at the date of his representation (26th November, 2009), if the Court strongly disapproves of the prejudicial conduct of Mr Baker and Mr Jones, which in his view, the Court should do. In Cumana, the majority shareholder had deliberately, to the prejudice of the minority shareholder, diverted some of the business of Cumana into another company, attempted to procure a rights issue for the dominant purpose of reducing the minority's proportionate stake to under 1% and procured payment to himself, by way of remuneration, of sums which were plainly in excess of anything he had earned. The shares had gone down in value by some 10%, but the Court of Appeal upheld the trial judge's decision to value the shares at the date of the petition, which we note was issued soon after the events complained of.
174. In the scenario that we are now considering, the Court would have had to find that Mr Baker and Mr Jones had acted in a manner which was unfairly prejudicial to Mr Kilbey by removing him as a director without making a reasonable offer for his shareholding, but we do not strongly disapprove of their conduct, which can in no way be equated with the majority shareholder in Cumana. In our view, the facts here are closer to those in Bennett v Bennett  17th January (unreported), where the petitioner had chosen to compete with the company of which he was a minority shareholder. He made use of his extensive knowledge of its customers, methods, costings and pricings to enable him to compete and had succeeded to some extent in doing so. The Court found that there were was no doubt that the company's profitability and basic share value had been affected by his actions and that it was fair that the shares should be valued as affected by those actions, valuing the shares at the date of the order.
175. Mr Kilbey chose to compete with Grafters and he was able to use the extensive knowledge he had built up within Grafters to do so - quite apart from the data which he removed before he left. Manual Labour Solutions has been successful. Its turnover increased from £0.38M in the year ending October 2008 to £1.19M in the year ending October 2011.
176. Mr Mainz advised that competition was necessary to create and grow the market, implying that the competition from Manual Labour Solutions would not have affected the profitability of Grafters. Mr Baker informed us that competition from Manual Labour Solutions forced Grafters to reduce its margins and whilst it is not something which is capable of measurement, we think it is likely that competition has affected Grafts' profitability.
177. A further factor is the delay in the bringing of the proceedings. The fact is that the Representation was not served until 2 years 9 months' after Mr Kilbey's removal, during which time the business of Grafters had grown substantially, through the efforts of Mr Baker and Mr Jones and notwithstanding the competition from Manual Labour Solutions. We see nothing fair in Mr Kilbey reaping the benefit of that delay by the Court requiring Mr Baker and Mr Jones to purchase his shareholding at its value in 2009 (£373,000 according to the advice of Mr Mainz) when as a result of forces beyond the control of Mr Baker and Mr Jones that shareholding is now virtually worthless.
178. Furthermore we have found that in the period following Mr Kilbey's removal, Mr Baker and Mr Jones have not acted in a manner which has been unfairly prejudicial to him. For all these reasons, we see no reason to depart from the starting point that the shareholding should be valued as at the date of the order.
179. As to that value, we do not accept Mr Mainz' very tentative suggestion that Mr Kilbey's shareholding is now worth £166,000 or that there may be investors prepared to invest in Grafters on the expectation of a dividend return of 3%; whilst theoretically possible, the latter does not seem realistic to us as there could be no expectation that dividends would be paid when the company was only making enough in terms of profits to remunerate Mr Baker as a modest level. As to the former Mr Baker has reduced his remuneration to within the company's means, but allowing for a reasonable management charge, it is clear that the business would be loss making and we prefer the advice of Mr Smith that Mr Kilbey's shareholding currently has no value which can be arrived at arithmetically applying the earnings or dividend basis.
180. That does not mean, however, that Mr Kilbey's shareholding has no value at all. The business has a turnover of £0.5m and is achieving a margin of 10%, sufficient to remunerate one working director at a modest level. It has a nuisance value, therefore, to Mr Baker and Mr Jones. Mr Baker, in particular, informed us he felt trapped in the business, unable to sell his shares whilst there was a minority shareholder working against the business. Arriving at a fair value is not an easy task but there are some parameters to assist us. Mr Smith attributed a nuisance value to the shareholding of not more than £50,000 as at 19th March, 2007, at a time when the fulfilment industry was in existence, and we know that Mr Kilbey paid £25,000 for the shareholding in October 2006. He has since then received dividends of £59,000. Working within those parameters and assuming there are no material assets in the balance sheet (which we have not seen), we think a fair result would be for Mr Kilbey to receive back the price he paid for the shareholding, namely £25,000.
181. Thus, in summary, and answering the questions we have posed:-
(i) This was a quasi-partnership.
(ii) Mr Kilbey's conduct did not justify his removal as a director without a reasonable offer for his shareholding.
(iii) Mr Baker and Mr Jones did make a reasonable offer for his shareholding, firstly by the offer of 19th March, 2007, and secondly by agreeing to buy his shareholding at the value determined by Mr Stuart. If we are wrong in so finding, then
(iv) For the purpose of an order that Mr Baker and Mr Jones should acquire Mr Kilbey's shareholding, we find that it should be valued as at the date of this order and we assess that value at £25,000.
182. On the basis of our findings set out in sub paragraphs (i) and (iii) above, we dismiss the Representation (with the injunctions imposed pursuant to it). It follows that we lack jurisdiction to make an order as to the purchase of Mr Kilbey's shareholding.
183. Turning to the Counterclaim, Grafters contends that in breach of his fiduciary duties as a director, Mr Kilbey removed data from its office with the intention of using it for his own business interests and in particular, to compete with Grafters through Manual Labour Solutions.
184. In his skeleton argument, Advocate Renouf refers to the report of the IT expert, Mr Carl Ceillam, which appears to show that some of this data was copied in November and December 2006 in the ordinary course of business before Mr Kilbey was aware of the proposal to remove him. Mr Ceillam was not called as a witness and the report was not the subject of any discussion with counsel at the hearing.
185. The allegation against Mr Kilbey is set out in paragraph 23 of the counter-claim, namely that "on or about March 2007, without authorisation of Grafters, using an external electronic device, made a copy of the Business Data and removed the same from Grafters' office with no intention of returning it. By doing so, Mr Kilbey stole property belonging to Grafters." "Business Data" is defined in the counter-claim as including a database comprising information on all customers who had used the services of Grafters, a database comprising information on all casual labourers who have registered with Grafters ("the Grafters labour database"), an electronic library of contracts, stationery and other documents used in the day to day business of Grafters and accounting information which includes payroll information, invoices rendered and invoices received.
186. In his answer, Mr Kilbey, in response to paragraph 23 of the Counterclaim, admits copying certain of the data, although he does not specify which. In evidence, he told us that in the days leading up to his removal as a director, he removed from Grafters all the data he could in order to prove the true value of his shareholding and we find that included the Grafters labour data base. He told us that he had the Grafters labour base on his personal computer.
187. On the basis of the pleadings, and Mr Kilbey's own evidence, we find that, as he said and irrespective of when the actual copying or downloading was done, he removed the Business Data from Grafters in the days leading up to his removal as a director. This was done secretly.
188. Despite the undated document "K1ll Grafters", we cannot say that at the date the Business Data was removed from Grafters, Mr Kilbey had formed the intention of setting up in competition. He was occupied initially in setting up and running PPS. However the data that he took went way beyond what might have been necessary to prove the value of his shareholding (the financial records being most relevant in that respect) and we find that he removed the Business Data, to advance his own interests and not those of Grafters.
189. The only evidence we have of Mr Kilbey using the Grafters labour database is in 2009, when a number of manual workers complained to Grafters that they had been approached by Manual Labour Solutions using a format similar to Grafters. Mr Baker and Mr Jones referred this to the Data Protection Commission, hence the investigation that followed.
190. We find the explanation Mr Kilbey gave to us as to how the Grafter labour data base came to be used in 2009 unconvincing. He said that one of his employees, "Glyn" (who now lives abroad), informed him that he could not find any carpenters that he needed to place with an employer. Mr Kilbey said that was "rubbish" and to prove that there were carpenters available, showed him the Grafters labour database, which he had on his personal computer (and which we note would have been some two years out of date). Mr Kilbey came back to the office later, and was "flabbergasted" to find that Glyn had phoned the carpenters listed on the Grafters labour database using the contact details from it. He told us that once that had been done, the software systems used by Manual Labour Solutions became polluted, in that data in relation to these carpenters (some fifteen in all) would have been entered into it, and there was nothing he could do.
191. Grafters was seeking an account of all profits made by Manual Labour Solutions for the use of its data which, if granted, would have given rise to an expensive investigation of all records of Manual Labour Solutions going back to the inception of its business and yet further court hearings to assess the appropriate level of damages. In the light of the legal fees that had already been occurred in this matter and after discussion with the Court, Advocate Blakeley confirmed that Grafters sought only nominal damages, a concession which considerably reduced the issues before the Court.
192. It is common ground that a director is a fiduciary who owes duties to the company inter alia to act honestly and in good faith with a view to the best interests of the company (see Article 74(1) of the Companies Law).
193. Advocate Renouf submitted that on the authority of Faccenda Chicken v Fowler  Ch 117, Mr Kilbey was at liberty to use the Grafters labour database after his removal as a director. That case was concerned with the duties of employees and established three categories of information:-
Firstly, "There is information which, because of its trivial character or its easy accessibility from public sources of information, cannot be regarded by reasonable persons or by law as confidential at all".
Secondly, "Information which the servant must treat as confidential (either because he is expressly told it is confidential, or because from its character it is obviously so) but which once learned remains in the servant's head and becomes part of his own skill and knowledge" which he may not disclose whilst the relationship continues but thereafter may freely use in competition from his former master.
Thirdly, trade secrets or secret processes which are so confidential that they may "never be used for anyone's benefit but the master."
194. It is quite clear to us however that the Grafters labour database removed by Mr Kilbey and subsequently used does not come within this second category. That relates to skill and knowledge learned whilst in a person's employment and which is in his head. What an employee cannot do is make a copy of lists of customers or copy other documents to take away with him (see the principles set out by the Court of Appeal in Faccenda Chicken v Fowler at page 136). If Mr Kilbey had been an employee, then after the termination of his employment he would have been at liberty to use his knowledge as to the names and contact details of manual labourers held within his head, but he would not have been permitted to use information contained in the Grafters labour database that he had removed from Grafters secretly. It would be surprising if a director, being a fiduciary, would be in a better position than an employee.
195. We are not in a position to analyse all of the data removed, not all of which would have been confidential, and we limit our findings therefore to the Grafters labour database, which Advocate Renouf (and Mr Kilbey in evidence) conceded was confidential. We find that Mr Kilbey removed the Grafters labour database from Grafters in March 2007 secretly and in breach of his fiduciary duties as a director. It was and remains the property of Grafters for which he is liable to account, just as a former trustee is liable to account for trust property (see CMS Dolphin Ltd v Simonet & Another  BCC 600) and which he misused in relation to the carpenters contacted in 2009. We will therefore award Grafters nominal damages against Mr Kilbey in the sum of £100.
Companies (Jersey) Law 1991.
Data Protection (Jersey) Law 2005.
Employment (Jersey) Law 2003.
Companies Act 2006.
Re Saul D Harrison & Sons plc.  1 BCIC 14.
O'Neill v Phillips  QBCLC 1.
Minority Shareholders, 4th edition, 2011.
Re Estate Acquisition & Development Ltd  BCC 338.
RA Noble & Sons Clothing Ltd  BCLC 92.
Woolwich v Milne & Others  EWHC 414.
Flex Associate's v Hussein  EWHC 3690.
Re London School of Electronics Ltd  BCLC 273.
Profinance Trust SA v Gladstone  1 BCLC.
Irvine v Irvine  1 BCLC.
In re Cumana Limited  BCLC 430.
Bennett v Bennett  17th January (unreported).
Faccenda Chicken v Fowler  Ch 117.
CMS Dolphin Ltd v Simonet & Another  BCC 600.