Scottish Court of Session Decisions

These proceedings are the latest in a number of litigations between the same or substantially the same parties. In October 1998 the pursuers and the first defender were parties to one such litigation, then set down for proof. On the first day of the proof discussions took place which led to a settlement the terms of which were incorporated in a Minute of Agreement dated 8 October 1998 and subscribed by or on behalf of each of the present pursuers, the present first defender and the present second defender (which holds more than 75% of the shares in the first defender). It was designed to resolve the whole outstanding disputes among the parties.

The principal element of that agreement was that the first defender undertook to purchase at an agreed price the shares in its own capital then held by each of the pursuers. Clause 3 provided:-

Provision was also made as follows in respect of certain pension arrangements for the first and second pursuers -

Provision was further made as follows in respect of depending or potential proceedings among the parties -

Clause 9 provided -

The carrying through of the principal element of that agreement involved the "off-market" purchase by the first defender of its own shares. That could only lawfully be effected in accordance with Chapter VII of the Companies Act 1985. In particular it was a statutory requirement that such a purchase be made only in pursuance of a contract approved in advance by a special resolution of the first defender. The terms of a contract in writing ("the Share Repurchase Agreement") had been negotiated and finalised by early November. It was executed by each of the pursuers on various dates in November and December, the last of those signatures being adhibited on 22 December 1998. On that date a fax of the executed agreement was sent to and received by Mr Bracegirdle, a director of the defenders who was dealing personally with those matters. The following day a principal copy was sent to Mr Bracegirdle for execution by the first defender. Mr Bracegirdle was also asked to confirm the date proposed for approval by the first defender of the Share Repurchase Agreement.

Clause 2(a) of the Share Repurchase Agreement provided -

Clause 3 (headed "CONDITION PRECEDENT") provided -

Clause 4 identified the consideration for the purchase (being the sum per share agreed in the Minute of Agreement). Clause 5 provided -

After a number of chasing letters from the pursuers' solicitors the Share Repurchase Agreement was ultimately executed by the first defender on 20 January 1999. Although confirmation of such execution was faxed by Mr Bracegirdle to the pursuers' solicitors on 21 January, no firm proposals were, despite pressure by the pursuers' solicitors, then made for convening the necessary EGM. By notice dated 15 March an EGM was ultimately convened to be held on 15 April.

Meantime, the pursuers had, with the leave of Lord Macfadyen as a nominated commercial judge granted on 4 February under reference to Clause 5 of the Minute of Agreement, served the summons in the present action. The summons made no express reference to the Share Repurchase Agreement but sought declarator and implement relative to the Minute of Agreement. The defences as lodged included the contention that the Minute of Agreement had been varied by the Share Repurchase Agreement. Reference was made to Clause 3 of the latter. It was averred that there had been no authorisation by the first defenders' members, that there was no liability to make payment of the price of the shares and that the action was accordingly premature. It was also averred that Clauses 7 and 8 of the Minute of Agreement (concerning pension arrangements) had been varied by correspondence to the effect that the first defender's obligations thereunder should be completed simultaneously with the acquisition of the shares.

Parties were heard at a preliminary hearing on 23 March. That hearing was continued to await the outcome of the EGM arranged for 15 April. At a continued preliminary hearing held on 30 April counsel for the defenders intimated that on 15 April the EGM had, on the motion of Mr Bracegirdle (who also held certain shares in the first defender), been adjourned without consideration of the resolution relative to the Share Repurchase Agreement. The same had happened at the adjourned meeting on 29 April, the meeting being then further adjourned to 13 May. I was informed that this motion had been made because (1) there were other proceedings still outstanding between the parties and (2) the pursuers had now claimed interest on the purchase price of the shares. After certain observations had been made by me as to the appropriateness of those actings, the preliminary hearing was continued until 2pm on 7 June. On that date I was informed by counsel that settlement of the principal matters in dispute between the parties had been achieved that morning, the approving resolution having been passed on 13 May. The settled matters included completion of the share purchase and of the pension provisions. Outstanding but to be resolved elsewhere were certain questions concerning expenses in other proceedings. The parties, however, remained at issue in respect of the disposal of interest and of expenses in the present action.

Mr Hodge for the pursuers moved me to award interest from the date of citation to 7 June on each of the principal sums contained in Conclusions 2 to 7 (sums representing in respect of each pursuer the purchase price of the shares and, where appropriate, their pension contribution entitlement) and to find the defenders liable in the expenses of the action to date on an agent and client, client paying, basis. That motion was opposed by Mr Mure for the defenders.

Mr Hodge submitted that there was and never had been any substantive defence to this action. The proposition advanced in the defences (and elaborated in very recent adjustments by the defenders) that the Share Repurchase Agreement involved variation in or departure from the Minute of Agreement or give rise to personal bar was unsound. It had always been recognised by the parties that to comply with the applicable legal requirements a form of contract would required to be placed before and resolved upon by the members of the first defender. The four week period provided for in the Minute of Agreement had been designed to allow of that. In the event it had taken somewhat longer to put the Share Repurchase Agreement in place but the obligation of the first defender without unreasonable delay to execute it and to place it before its members had not been complied with. The contention, advanced in the recent adjustments, that the first defender could not itself procure the passage of the special resolution might be technically correct but was highly artificial. The second defender controlled the first defender. The conduct of the litigation had been unreasonable. An award of expenses on the higher scale should be made.

Mr Mure, in resisting the motions, referred selectively to correspondence passing from October 1998 onwards between Mr Bracegirdle on the one hand and solicitors acting for the pursuers on the other. The defenders had co-operated from the outset in settling the terms of the Share Repurchase Agreement. It had been the pursuers' solicitor who had introduced the Condition Precedent provision. Terms had been agreed by the end of October and by early November the principal was ready for execution by the pursuers. Execution by the various pursuers had not been completed until 22 December. The Share Repurchase Agreement involved material changes to the Minute of Agreement, particularly to the date of payment. It was not a mere piece of mechanism. The defenders had promptly advanced arrangements for implement of the pension provisions in the Minute of Agreement, though these arrangements (which involved third parties) made impractical the deadlines stipulated in Clauses 7 and 8 of that agreement. It was accepted that there was an implied obligation to bring matters forward and not to attempt to delay them; but what was a reasonable time depended on the whole circumstances. As at January 1999 the defenders' position was that all the elements should be put together with a view to there being a single settlement meeting. That had ultimately been achieved on 7 June. It was a reasonable attitude to adopt given the history of mistrust between the parties. That approach had dictated the delay in sending out notices convening the EGM. The atmosphere of mistrust had been exacerbated by the service on 5 February of a summons accompanied by inhibition and arrestment on the dependence. The summons had contained no reference to the Share Repurchase Agreement. Nor had the defenders been made aware at that time that the commercial judge's leave had been sought and obtained. The defenders had nonetheless continued their attempts to move matters forward to an agreed global settlement. The pursuers were not entitled to interest on the principal sums concluded for. Under the Share Repurchase Agreement the purchase price was payable only on completion. The defenders legitimately and reasonably relied on the terms of that agreement and on the consensus that everything should move towards a single settlement meeting. Nor were the pursuers entitled to any award of expenses. If expenses were to be awarded, it should be in favour of the defenders. The action had been raised without reference to the Share Repurchase Agreement and was premature. The pursuers had contributed to the difficulties and to the fact that settlement was not achieved prior to 7 June. In any event agent and client expenses should not be awarded against the defenders. The pleadings in the action had barely been developed. Both sides had been working towards a settlement, which had in the event been achieved. The test for an award on the higher scale was that the conduct of the party had been "unreasonable" (British Railways Board v Ross and Cromarty County Council 1974 SC 27). That was not made out in the present circumstances.

Mr Hodge in response submitted that having regard to the whole circumstances (including the prior actions) the defenders' conduct of this litigation was properly to be regarded as unreasonable. The concept of a global settlement had been a unilateral stipulation sought to be imposed by Mr Bracegirdle. Although the pursuers' advisers had latterly been prepared to go along with it, they were, as they had made clear, under no obligation to do so. The concept of a global settlement had no foundation in the Minute of Agreement which envisaged distinct timescales. The share purchase aspect of the Minute of Agreement was critical to the whole agreement. It required the convening of an EGM (by the first defender) and the passing of the relative special resolution in circumstances where the second defender itself held the requisite proportion of votes. Mr Bracegirdle had indicated that an EGM would be convened but had failed to take any steps to convene it until after the action was raised. The pursuers had been wholly justified in applying to the commercial judge for leave to bring the present action. No justification had been demonstrated for the delay thereafter in convening the meeting or in putting or passing the resolution.

The motion was first heard by me on the afternoon of Monday 7 June and, as argument was not completed in the time then available, was continued until Friday 11 June. At the end of the continued hearing I announced my decision to grant Mr Hodge's motion in both its aspects. At that stage I gave short oral reasons for that decision. As I am now informed that a reclaiming motion has been enrolled, I give my reasons in writing.

The full detail of the prior litigations among these parties is not known to me. However, it is plain that the settlement contained in the Minute of Agreement was designed to resolve finally a range of separate disputes between the parties. The central element of the settlement (and the one which was by far the most important in financial terms) was the buying out of the pursuers' shares in the first defender. The purchase was to be by the first defender itself. It must have been immediately obvious to all concerned that such an arrangement required compliance with the relative statutory procedure. Such compliance included the preparation of a written contract or proposed contract to be placed formally before the members of the first defender. Once it was so placed, there ought to have been no difficulty in its approval, the second defender holding the requisite majority of votes. The Minute of Agreement envisaged payment of the purchase price within four weeks of execution of that minute, a timescale which was short but not wholly unrealistic with co-operation on all sides - for example, by agreement to a written resolution procedure (thus obviating the need to convene an EGM) or by consent to the shortening of the statutory three week notice period for an EGM.

The terms of the contract were settled by about the beginning of November. The convening of an EGM did not require to await execution of the contract, though, given Clause 3, there would be some sense in the first defender deferring the issuing of notices until the pursuers' signatures were known to have been adhibited. In the event there was some delay on the pursuers' side in securing those signatures. However, by the third week in December they had all signed the contract. The requisite documentation was immediately passed to Mr Bracegirdle. Only one execution (that of the first defender) was required on the defenders' side to the Share Repurchase Agreement. It was for the board of the first defender to convene the requisite EGM. There was some, although not inordinate delay, in the first defender executing the Share Repurchase Agreement. More importantly, although the pursuers' solicitors had been pressing for some weeks for appropriate action, it remained uncertain whether the board of the first defender was taking urgent and effective steps to convene the EGM. In my view the pursuers were justifiably concerned that unreasonable delay was occurring in that regard. Their application to the commercial judge early in February for leave to bring the present action was in the circumstances warranted.

The defences to the action, both as lodged and as subsequently elaborated, were in my view without any real substance. The Share Repurchase Agreement is properly to be regarded as an instrument implementing the Minute of Agreement. Although completion in the former was defined by reference to the passing of the special resolution, the latter event was wholly dependent on steps being taken by the first and by the second defenders. It did not elide the first defender's timely to make payment under the Minute of Agreement. Although the expressed time for payment of the purchase price (four weeks) had passed, an implied obligation to pay within a reasonable time, in my view, took its place. A reasonable time meant in the circumstances a relatively short time. The proposition that the first defender could not itself procure the passing of the resolution does not avail it in circumstances where it had failed to take the preliminary step of convening the meeting. Thereafter the second defender failed to secure prompt consideration and passing of the resolution. I do not accept that the second defender had no relevant obligation under the Minute of Agreement. In my view it was implicit in that agreement that the second defender would take such steps as were within its power to secure timely payment by the first defender of its pecuniary obligations. The attitude adopted by the defenders collectively (through the agency of Mr Bracegirdle) from about the beginning of 1999 can, in my view, appropriately be described as obstructive. Mr Bracegirdle appears to have conceived that the defenders were entitled to insist that the whole matters arising from the Minute of Agreement be directed to a single settlement meeting and, with that in view, to postpone taking the necessary steps to advance the approval of the special resolution and to postpone discharging the primary obligations relative to the pension arrangements. The defenders had no right to insist on such single resolution. While in some circumstances such a course might be both reasonable and sensible, in the prevalent atmosphere of antipathy it merely served to generate an apprehension on the part of the pursuers that the defenders were postponing indefinitely the performance of their principal obligations. That was particularly unfortunate in the context of a settlement agreement which had made provision for discrete resolution of separate matters. The defenders' insistence on this attitude during the period from the commencement of the action until mid-May, constituted, in my view, unreasonable conduct. That conclusion is not affected by the circumstance that, in the end, the pursuers' advisers considered that, without prejudice to their rights, the only practical way of achieving resolution was to go along with the single settlement concept.

In these circumstances I was satisfied that the pursuers should be awarded their expenses and that these should be on the higher scale. The general test for the latter is whether the conduct of the proceedings (or the relevant part of them) has been unreasonable. Although the present action has, happily, been relatively short in duration, that is no barrier to an award on the higher scale. In British Railways Board v Ross and Cromarty County Council the award of expenses on the higher scale covered in the event only the last few months of that litigation (an earlier award on the ordinary scale remaining undisturbed). The same occurred in Walker v McNeil 1981 SLT (N) 21. The circumstances of the latter case have some parallels with those of the present. Here also, to use the words of Lord Maxwell, the attitude on the part of the defenders has, in my judgment, been "less than reasonable". It was not suggested that, in the event of expenses being awarded on the agent and client scale, the relative interlocutor should do otherwise than include the explanation "client paying".

The pursuers are also in my view entitled to interest from the date of citation. It follows from the views expressed above that I reject the contention that the sums claimed became payable only on settlement on 7 June. The sums due relative to pension contributions for the first and second pursuers were due long prior to the raising of the action. The sums in respect of the share prices ought, had the defenders timeously fulfilled their procedural obligations, to have been paid by or in any event very shortly after the date of citation.