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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Simmers v. Innes [2005] ScotCS CSOH_92 (11 July 2005)
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Cite as: [2005] ScotCS CSOH_92, 2006 SCLR 61, [2005] CSOH 92
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Simmers v. Innes [2005] ScotCS CSOH_92 (11 July 2005)
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OUTER HOUSE, COURT OF SESSION [2005] CSOH 92 |
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CA77/04
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OPINION OF LORD CLARKE in the cause ARTHUR WILLIAM SIMMERS Pursuer; against JAMES GRIGOR INNES Defender:
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Pursuer: Davidson, Q.C., A.M. Stuart; Maclay, Murray & Spens
Defender: Haddow, Q.C., Gardiner; Brodies
11 July 2005
Introduction
[1] In this commercial action, which came before me for proof before answer, the pursuer seeks implement of certain provisions of a shareholder's agreement between the parties, dated 18 December 1998. The background to the execution of that agreement was as follows. [2] The pursuer, who is 63 years of age, has been engaged in pig farming since 1959. His business supplied pigs to, among others, the family business of the defender. The pig farming business, in general, collapsed in 1997/1998. As a result, the pursuer's business was put in receivership. The pursuer took advice from Pricewaterhousecoopers and the Trustee Savings Bank about the possibility of buying back, from the receivers, the lands on which the business had been conducted, and the assets of the business. Such a proposal required the obtaining of third party finance. The defender was anxious to secure a continuing supply of pigs for his business. To that end, he proposed to the pursuer that he would assist in providing finance for the re-establishment of the pursuer's business. A new company would be set up, known as Scotpigs Limited. The shareholding in the company was to be split 50/50 between the parties. The defender informed the pursuer that he would be obtaining the funding, which he was to provide, from his own bank. In the event, the defender invested £2,500,000. This sum was designed to pay for the purchase of the lands, on which the pursuer's business was carried out, at £2,100,000 and £400,000 for shares in the new company.The Shareholders' Agreement
[3] It appears that the shareholders' agreement which, in due course, was entered into between the parties was concluded under some considerable pressure of time. It is No.44/1 of process. The parties to it are not only the pursuer and defender, but the pursuer's wife, Mrs Myra Isobel Simmers, and his two sons, Charles Alexander Simmers and Brian Arthur Simmers. The company "Scotpigs Limited" is also a party to the agreement. In the preamble of the agreement, it is narrated:"WHEREAS:
(A) The Company has been formed by the parties for the purpose, inter alia of acquiring the Properties and the Business of the Simmers Companies, disposing of certain of the Properties and carrying on business in its own right.
(B) The parties have agreed to subscribe for shares in the Company and wish to enter into this Agreement for the purpose of recording the terms and conditions of their Joint Venture and of regulating their relationship with each other and certain aspects of the affairs of, and their dealing with, the Company and the Company has agreed with the parties that it will comply with the terms and conditions of this Agreement in so far as they relate to the Company."
The remaining provisions of the shareholders' agreement which are relevant in the light of the present dispute, are as follow. Clause 2 (1) provides:
"The parties hereby agree with one another to enter into the Joint Venture for the purposes of the Joint Venture Objective and for no other purpose; No party shall hold out that the Joint Venture extends to any other property or business. None of the provisions of this Agreement shall be deemed to constitute a partnership between the parties hereto and no party hereto shall hold himself out as an agent or partner of any other party hereto."
"1. The acquisition of the Properties and the Business
2. The sale by the Company of the Buy Out Properties to Mr Innes and the sale of other properties or parts thereof remaining in the ownership of the Company that the Directors of the Company agree from time to time
3. Forming the Limited Partnership
4. Leasing the Buy-Out Properties for the Limited Partnership
5. Conducting the Business in a profitable manner
6. Completing the Buy-Out.
7. The doing of such acts, matters and things as the Directors may consider incidental to the attainment of any of the foregoing objects."
By virtue of Clause 4(2) of the agreement it is provided:
"At Completion the parties shall do or procure the doing of the following:
(a) the parties shall subscribe at par for a total of 800,000 shares in the following proportions:
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Shareholder |
Number and Class of Shares |
Subscription Price |
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James G Innes |
400,000 "A" Ordinary Shares |
£400,000 |
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Arthur W Simmers |
21,000 "B" Ordinary Shares |
£ 21,000 |
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Mrs Myra I Simmers |
199,000 "B" Ordinary Shares |
£199,000 |
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Charles A Simmers |
90,000 "B" Ordinary Shares |
£ 90,000 |
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Brian A Simmers |
90,000 "B" Ordinary Shares |
£ 90,000 |
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TOTAL |
£800,000." |
Clause 5 of the agreement then went on to make certain provisions regarding the land, which was to be acquired from the pursuer's business, by the new company. It is in the following terms:
"On the Completion Date immediately following the acquisition by the Company of the Properties and the Business the parties shall procure that the Company shall sell the Buy-Out Properties to Mr Innes or his nominees for the Base Properties Price and on the further terms and conditions set out in the Innes Missives ...".
The Buy-Out Properties are defined as:
"the heritable subjects' more particularly described in Part 2 of the Schedule less those or parts thereof that have been subject of a Part Sale."
The Base Properties Price is defined as "TWO MILLION ONE HUNDRED THOUSAND POUNDS (£2,100,000) STERLING."
The buy out properties were sold to the defender. Clause 6 went on to provide:
"On the Completion Date, the parties shall procure that the Company and Mr Innes shall enter into the Limited Partnership with the Company being the general partner and Mr Innes being the limited partner."
Clause 7 provides:
"Upon execution of the Limited Partnership agreement and then the Lease by the Company and Mr Innes respectively, Mr Innes shall lease the Buy-Out Properties to the Limited Partnership on the terms and conditions set out in the Lease and as further provided for in the Post-Lease Agreement. The Company shall pay as rent for the Lease the sums of interest demanded by the Clydesdale Bank plc, lenders to Mr Innes, by way of repayment of their lendings to Mr Innes. The capital element of such repayments shall be met by the Company by way of a management charge and the parties hereto shall use their best endeavours to procure that the Company and Mr Innes enter into a Management Agreement in the Agreed Form for certain services to be provided."
The Clause which is at the very heart of the present litigation, is Clause 10. It is in the following terms:
"On the Buy-Out Date, Mr Simmers shall be entitled to effect the Buy-Out and acquire the Buy-Out Shares and the Buy-Out Properties in exchange for payment by way of telegraphic transfer of the Buy-Out Price, and the Buy-Out Expenses to Mr Innes or his nominees. In exchange Mr Innes shall execute all transfers, conveyances, deeds and documents as shall be reasonably required to constitute Mr Simmers as owner of the 'A' Shares and the Properties. Mr Simmers shall however amend at his own expense any defects in the title that exist at the date of conclusion of the Innes Missives and continue to exist as at the Buy-Out Date."
The "Buy-Out Price" is defined as: "the aggregate of the Buy-Out Shares Price and the Buy-Out Properties Price". "Buy-Out Properties Price" is defined as:
"(a) the price payable by Mr Simmers or his nominees to Mr Innes on the Buy-Out Date being the higher of (i) the Base Properties Price; or (ii) the aggregate of the Base Properties Price and an amount equal to the figure brought out by the following formula:-
1/2 x (Buy Out Valuation - £2.1m)
or (b) In the event that there has been a Part Sale, the Base Properties Price shall be adjusted as ascertained in Clause (9) hereof."
"the price payable for the Buy-Out Shares being the higher of (i) FOUR HUNDRED THOUSAND POUNDS (£400,000) STERLING or (ii) FOUR HUNDRED THOUSAND POUNDS (£400,000) STERLING plus half of any [gain] in the net asset value of the Company as disclosed by the balance sheet produced to 31 March 2004 up to a maximum half share gain of FOUR HUNDRED THOUSAND POUNDS (£400,000) STERLING."
The Buy-Out Valuation is defined as meaning: "... the valuation carried out by a valuer to be agreed between the 'A' Director and the 'B' Director on or within one month prior to the Buy-Out Date."
The "A" Director and the "B" Director are, in terms of the Agreement, the pursuer and defender respectively. Clause 21 of the agreement provides as follows:
"The terms of this Agreement shall remain in full force and effect for a period of five years expiring on 31 March 2004. If Mr Simmers has not served on Mr Innes a notice intimating his intention to effect the Buy-Out prior to the Buy-Out Date, then this Agreement shall terminate automatically without the requirement of any party to serve notice. Termination of this Agreement with respect to any or all of the parties shall be without prejudice to the rights of any party accrued prior to such termination or under any provision which is expressly stated not to be affected by such termination."
Lastly, as regards the provisions of the Agreement with which the present litigation is particularly concerned, Clause 24 is headed "Good Faith". It provides as follows:
"Each of the parties agree with each other that:
(a) during the continuance of this Agreement, all transactions entered into between any of them on the one hand and the Company on the other shall be conducted in good faith and on the basis set out or referred to in this Agreement or, if not provided for in this Agreement as may be on an arms length basis;
(b) each of them shall at all times act in good faith towards the others and shall use all reasonable endeavours to ensure the observance of the terms of this Agreement;
(c) no party will seek to increase its profits or reduce its loss at the expense of another; and
(d) each of them will do all things necessary or desirable to give effect to the spirit and intention of this Agreement."
The History of the Parties' Relationship
[6] It appears that the relationship between the parties soon broke down and became the subject of various disputes between them. The company, Scotpigs Limited, ran into financial difficulties. Prior to 2003, the defender has suggested, on more than one occasion, apparently, that the buy out properties should be bought back from him by the pursuer, but no agreement was reached about this. The pursuer, in late 2003, had begun to explore the possibility of obtaining finance in the region of £6,500,000 to enable a re-financing and reconstruction of the company to take place, and also to provide consideration for purchasing the buy out properties. [7] The contract of limited partnership between Scotpigs Limited and the defender had been executed on 18 December 1998. It is No.44/3 of process. The limited partnership was designed Scotpigs & Co. A lease between the defender and the firm of Scotpigs & Co was executed on 18 December 1998 and was registered on 25 November 2003. On 26 March 2003 the defender served a notice of dissolution of the partnership. It is No.44/4 of process. On 16 June 2003 a notice was served on the defender, on behalf of Scotpigs Limited, in which Scotpigs Limited (as general partner of the limited partnership) gave notice in terms of Section 76(36) of the Agricultural Holdings (Scotland) Act 2003, that the company intended to become the tenant under the tenancy in its own right. The notice is No.44/7 of process. Those notices now form the subject of proceedings under the 2003 Act which are pending before the Land Court. [8] In April 2003 the pursuer, his wife and sons brought a petition, under Section 459 of the Companies Act 1985, seeking to have the defender removed as a director of Scotpigs Limited. The pursuer thereafter brought another petition seeking to have Scotpigs Limited wound up under Section 122 of the Insolvency Act 1986. The Lord Ordinary, Lord McCluskey, in April 2003 refused to appoint a provisional liquidator to the company. The petition to wind up was subsequently dismissed. In September 2003 the pursuer and his family again sought the removal of the defender as a director of the company, having abandoned their original petition. On or about 2 December 2003, the pursuer and his family made a proposal to the defender that they would pay him £3,500,000 to buy out his interests in the company. In the petition proceedings for the removal of the defender as director, the pursuer and his family enrolled a motion in the following terms:"In respect that the first petitioner (the now pursuer) has given notice of his intention to exercise his right of buy out of the respondent's (the present defender) property and shares to regulate the position of the company in the interim pending completion of the buy out by removing the respondent as a director of Scotpigs Limited."
That motion was refused by the Lord Ordinary, Lord Carloway, on 17 December 2003.
[9] On or about 10 February 2004, the defender presented a petition for the winding up of the company. He did so in terms of Section 122(i)(b) and (g) and Section 123(i)(e) of the Insolvency Act 1986. On 16 March 2004, the Lord Ordinary, Lady Paton, appointed provisional liquidators to the company, having been satisfied in terms of Section 122(i)(g) and Section 123(e) that the company was unable to pay its debts as they fell due.The commencement of the pursuer's attempt to exercise the Buy-Out option
[10] The foregoing, is in broad outline, the context in which the present proceedings, which relate to the attempt by the pursuer to exercise the buy out option in terms of Clause 10 of the shareholders' agreement, has to be set. On 11 February 2004, agents acting for the pursuer, Messrs. Maclay Murray & Spens intimated to the defender that the pursuer intended to exercise the buy out option. A copy of the notice in question is No.44/11 of process. It is in the following terms:"On behalf of and as instructed by Arthur Simmers, we hereby give notice that in terms of clause 10 of the Shareholders' Agreement in respect of Scotpigs Limited dated 18 December 1998, Arthur Simmers intends to effect the buy-out of the buy-out shares and buy-out properties as at the buy-out date being 31 March 2004 all in accordance with the terms of the Shareholders' Agreement.
Mr Simmers proposes that James Galbraith of Messrs. C.K.D. Galbraith, Chartered Surveyors, be appointed Valuer to carry out the buy out valuation in terms of the Agreement. You are called upon to confirm your agreement to the said proposal as soon as possible."
At the same time, the pursuer's agents sent a copy of the formal intimation to the defender's agents, Messrs. Brodies, under cover of a letter of 11 February. That letter is No.44/11B of process. It is in the following terms:
"We attach a copy Notice served by us on behalf of Arthur Simmers on your client, James Innes in terms of the Shareholders' Agreement in respect of Scotpigs Limited dated 18 December 1998.
A Valuer requires to be appointed in terms of the Shareholders' Agreement to carry out the buy-out valuation and a proposal is made on behalf of Mr Simmers for agreement by Mr Innes.
If the buy-out is to be effected on 31 March 2004, in accordance with clause 10 of the Agreement, steps will require to be taken without delay to agree the terms of missives and prepare the necessary conveyancing documentation. Accordingly, we would ask you to provide us with title deeds in respect of the buy out properties to enable work to get started."
Messrs. Brodies were the defender's Edinburgh agents. His Aberdeen agents were Messrs. Clark & Wallace.
[11] On the evidence adduced at the proof, I am satisfied that the pursuer had begun, in late 2003, seriously to set out to acquire finance, not only in respect of the sum required to be paid for exercising the buy out option, but also in respect of re-financing the company. The hearing for the appointment of provisional liquidators to the company took place on 12 and 13 February. Maclay Murray & Spens acted for the pursuer and his family in relation to those proceedings. As has been seen, it was they who sent the notice of 11 February to the defender and the letter of that date to Messrs. Brodies. At the same time, however, Aberdeen solicitors, Messrs. Stronachs were acting for the pursuer in relation to his business affairs. As will be seen subsequently, at a critical period in relation to the possible exercise of the buy out option, the pursuer had no fewer that three sets of solicitors acting in relation thereto, a situation which clearly did not facilitate matters and indeed caused confusion in the minds of some of his advisors as to who was responsible for what. There is little doubt, also, in my judgment, that until the provisional liquidators were appointed on 16 March 2004, the pursuer had been by himself, and through those acting for him, concentrating his efforts on trying to save the company by obtaining finance to re-finance its operations, although he hoped to obtain sufficient finance to enable him also to exercise the buy out option. [12] Clause 10 of the shareholders' agreement brought with it its own problems. It seems clear that both parties understood that it provided for the right to acquire the buy out shares and the buy out properties to be exercised on one day, and one day only, namely 31 March 2004 and that the transaction had to be completed on that day by the payment of the buy out price and buy out expenses in exchange for the transfer of title to the pursuer of the buy out properties and the shares. Crucially, the time scale allowed for in the run up to the exercise of the buy out option, was restricted by virtue of the provisions regarding the ascertainment of the price to be paid for the properties. As has been seen, the machinery prescribed in the shareholders' agreement for arriving at the price, involved a valuation carried out "by a valuer agreed between the 'A' director and the 'B' director on or within one month prior to the buy out date". On one reading, therefore, of that provision, the buy out price for the properties could only be ascertained, at the earliest, one month prior to the 31 March, affording the pursuer a relatively short period to know, with any precision, what his funding requirements would be. It is to be noted, too, that the shareholders' agreement is totally silent about the basis upon which any valuation carried out by the agreed valuer is to proceed. As has been seen, in the notice of 11 February, the name of Mr Galbraith had been put forward, on the pursuer's behalf as the proposed valuer.The Correspondence Regarding the Valuation of the Buy Out Properties
[13] A counter-proposal from the defender proposed Mr Rhind of Aberdeen & Northern Marts as valuer. This counter-proposal was, in the event, accepted by the pursuer. Mr Galbraith had, however, in the meantime, been approached by the pursuer in respect of the proposed valuation. He had prepared a document headed "Instructions for the Valuations known as Innes Farms, Aberdeenshire". It forms part of the bundle of documents which are No.44/18 of process. On or about 23 February 2004, the pursuer contacted Messrs. Stronachs. He spoke to Carol Crowther, who deals with conveyancing business in that firm. He informed her that it would be necessary to ask for the titles in relation to the buy out properties from the defender's agents, in preparation for the execution of the buy out option. It appears that this was the first intimation made by the pursuer to his Aberdeen solicitors that (a) he had, through Maclay Murray & Spens, intimated his wish to exercise the option, and (b) that the title deeds should be sought from the defender's solicitors. It should be noted also that Messrs. Maclay Murray & Spens in their letter of 11 February 2003 to Messrs. Brodies, had asked Messrs. Brodies to provide them with the title deeds. There was no evidence that any request had been made directly by the pursuer, or on his behalf, to Messrs. Clark & Wallace, before the pursuer had his telephone conversation with Miss Carol Crowther on or about 21 February 2004. After having heard from the pursuer about this matter, Miss Crowther telephoned Messrs. Clark & Wallace. On 24 February, a fax message from Mr Neil Allan of Clark & Wallace was sent to Miss Crowther. This is No.44/12 of process. It is in the following terms:"We refer to your telephone call on Friday. The title numbers so far as can be made out at this stage are as undernoted. Tom Duncan who dealt with the purchase conveyancing here is signed off having had a back operation. A copy of the lease identifying the subjects by their previous sasine descriptions follows with the hard copy version of this letter."
I should say, at this stage, that I do not read that paragraph as indicating any unwillingness, or reluctance, on the part of the defender or, his agents, to co-operate in relation to the conveyancing that was required, in respect of the buy out option. The letter continued:
"Please note however that if the petition for the winding up of Scotpigs Ltd which is presently at avizandum following the hearing on 12 and 13 February is successful then the buy-back option to your client falls as it is in a Shareholders' Agreement focused round the shares. If the company to which the shareholders' agreement relates has gone in to liquidation then the option flies off.
The option is for a floor of £400,000 on the shares and £2.1 million plus half the gain on the valuation from that figure to now. If the valuation were say £4 million then the entitlement to our client would be £3.05 million for the properties, £400,000 for the shares and a retention of Pollswells Mill to which the option does not extend. The speculative development value of the rest of Ormiston would have to be valued.
Before we set about contingent implementation, the shareholders agreement states that the parties must agree a valuer by 28 February 2004. Mr Simmers has already proposed Cluttons through Maclay Murray & Spens. We propose Aberdeen & Northern Estates. A copy of their 1998 valuation is attached with the hard copy showing that they are familiar with the subjects, and of course they are familiar more so than any other valuers, with the north east market. Wording of a joint remit would require to be agreed.
In view of the difficulties that have attended the relationship between our respective clients up till now we are not prepared to enter into contractual and conveyancing details without sight of a clear and unequivocal letter of intent from Mr Simmers' lenders referring to the winding up petition and stating their awareness of the actions for debt against Scotpigs Ltd and the Inhibition or lodged, but saying that they are nevertheless prepared in principle to lend." (My emphasis).
It will be seen, therefore, that, notwithstanding what was said in the first paragraph of that letter, the remainder of the letter puts forward a more conditional approach and indeed, a view as to whether the buy out option fell to operate if the company went into liquidation. Whatever may have been the reason for the remainder of the letter being written in that way, it was departed from in a faxed letter of the following day, 25 February 2004, which was sent from Messrs. Clark & Wallace to Mr Tim Edward, a partner in Messrs. Maclay Murray & Spens, acting for the pursuer. That is No.44/14 of process. It states as follows:
"I refer to a fax dated 24 February 2004 addressed to Carol Crowther at Stronachs, which my colleague wrote. Unfortunately, certain parts of that letter are inaccurate and do not represent our client's position.
I would therefore ask you to completely disregard that letter, save insofar as it identifies the Title which relates to the buy-out properties.
For the sake of completeness, we would confirm that agreement has been reached in relation to Aberdeen & Northern Marts subject to a remit and level of fee being agreed.
We understand that you have been asked for a copy of any Valuation or Fee Quote from the Surveyor that Mr Simmers had intended to appoint. I look forward to hearing from you in early course. In the meantime, as indicated above, the letter of 24 February 2004 was written in error and should not be founded upon in any Court or other legal proceedings." (My emphasis).
"We attach a draft Remit for the agreed Valuer appointed in terms of the Shareholders' Agreement. Please confirm as soon as possible that the terms are agreed. You should have copies of all the Appendices. We would suggest that the Valuer makes a start on the Valuation as soon as possible and he is welcome to make contact directly with Mr Simmers regarding access."
The draft Remit referred to in that fax was Mr Galbraith's document which formed part of No.44/18 of process. Paragraph 4 of the draft remit was headed "The Interest to be Valued" and stated:
"The interest to be valued is the freehold of the Buy-Out Properties subject to a lease in favour of The Firm of Scotpigs & Co. The terms of the lease are incorporated into Appendix II attached to this instruction.
The Firm of Scotpigs & Co is a Limited Partnership between Mr Innes and Scotpigs Ltd, a copy of which is attached at Appendix III to this instruction. Notice to terminate the Partnership has been served by the Limited Partner (Mr Innes), a copy of which is attached at Appendix IV.
The General Partner has contested the Notice to Terminate the Partnership and the matter has been referred to the Land Court. A copy of the Proceedings is attached at Appendix V."
Paragraph 5 of the documents is headed "Basis of Valuation". It states:
"The basis of valuation is the Market Value as defined by the RICS Appraisal and Valuation standards (fifth edition) as follows:
The estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arms-length transaction after proper marketing wherein the parties have acted knowledgeably, prudently and without compulsion."
Paragraph 6 of the document provided that the date of valuation was to be within one month prior to 31 March 2004.
[16] On 4 March 2004, Mr Edward, of Maclay Murray & Spens, faxed Messrs. Brodies again. He did so in the following terms (No.44/17 of process):"We refer to our fax of 1 March 2004. In the absence of any response, we have sent the draft remit to John Rhind as agreed Valuer. Please let him have any comments as soon as possible. We attach Adjustments to the Land Court Defences which we shall be seeking to have incorporated in the Pleadings. We shall request a four week Adjustment period to enable you to respond. We have provided these adjustments with the Remit to the Valuer."
On the same day, Mr Edward faxed Mr John Rhind, the agreed valuer, in the following terms (No.44/18 of process): "We attach a draft Remit for Valuation. The terms have yet to be agreed by Mr Innes' solicitors." Accompanying that fax, was Mr Galbraith's document "Instructions for the valuations known as Innes Farms" and various appendices. Mr Rhind, himself, faxed the pursuer on 4 March (No.44/19 of process). The fax is in the following terms:
"Further to receipt of the valuation instructions this morning, I write to enclose summary I have prepared showing all the properties and land we are to inspect.
Can you confirm that we have identified the subjects correctly?
I assume that we will be valuing the land together with the subsidy element. Have you worked out a rough figure for this?
I look forward to receiving written instructions as to how we are to carry out the valuations.
Do we value Mains of Cairnbrogle has (sic) a working pig farm?
What is the planning position with regard to:
(a) Mill of Cavil Steading?
(b) mineral extraction/reinstatement at Greendams?"
What happened thereafter was that Mr Neil Allan of Clark & Wallace, on behalf of the defender, phoned Mr Rhind on 5 March to say that the terms of the draft remit, i.e. the document prepared by Mr Galbraith, were not agreed to by his client and would require to be amended. Mr Allan followed up this telephone conversation with a letter to Mr Rhind which is No.44/23 of process, a copy of which he sent to Maclay Murray & Spens. A copy was also sent to Messrs. Stronachs. The letter was in the following terms:
"I confirm my telephone call today that the fax instructions you have had from Maclay Murray & Spens acting for Arthur Simmers, originally intended to be on a joint remit basis, for the valuation of the subjects at the above address, require to be augmented.
I confirm that their draft instructions were not assented to by us as a result of which the fax is unilateral from Arthur Simmers' side. I therefore confirm that so far as Jim Innes is concerned the words 'the value is nevertheless the open market vacant possession value', should be added at the end of paragraph 4 ('the Interest to be Valued') of the instructions. At the end of paragraph 5 ('Basis of Valuation') again the words should be added 'for the avoidance of doubt, the valuation will be on a vacant possession basis'.
A valuation following any discount for tenants' rights is incorrect in law as far as Mr Innes is concerned. It is not our view in any case that Mr Simmers has any authority to give instructions on behalf of Scotpigs Ltd, far less the limited partnership of Scotpigs & Co which is the tenant, being a partnership of Mr Innes (the Limited Partner) and of the company Scotpigs Ltd."
On 8 March 2004, Mr Edward faxed Mr Allan in the following terms (No.44/24 of process):
"I acknowledge receipt of your fax of 5 March copying to me your letter of that date to John Rhind.
We have consulted with Senior Counsel on the issue of Valuation and although the Shareholders' Agreement does not clearly specify the basis of Valuation, it is our view that the proper interpretation of the buy out Valuation in terms of the Agreement is a Valuation of your client's interest in the land as it exists on 31 March 2004.
Although clearly the issue is a matter of dispute before the Land Court, it remains the position of our client that there is an ongoing tenancy and that the buy-out Valuation must take account of this.
In any event, the priority is at this stage to move matters forward and the only sensible way to do so would seem to be to have the Valuation carried out on alternative bases as instructed by us and by you. If necessary, the issue of basis of Valuation can then be referred to the court for resolution. I attach a copy of a further letter I have sent to John Rhind providing this instruction and should be grateful if you would confirm your agreement with this course of action to him."
The copy fax sent by Mr Edward to Mr Rhind (No.44/25 of process). It is in the following term:
"I refer to letter dated 5 March 2004 from Neil Allan of Clark & Wallace to you.
For the avoidance of doubt, it is the position of Mr Simmers that the interest to be valued is Mr Innes' interests in the property as it exists at 31 March 2004 or in otherwords, the interests subject to the existing tenancy. There is nothing in the Shareholders' Agreement which provides that the valuation will be on a vacant possession basis.
Clearly this issue is a legal issue which will require to be resolved in due course. With a view to progressing matters, we would suggest that you should carry out the Valuation for the moment both on the basis set out in the Remit which we provided and on a vacant possession basis. I am copying this letter to Clark & Wallace and I am going to ask them to confirm this to you."
[18] Following Mr Edward's faxes of 8 March, and no doubt conscious of the fact that the clock was ticking and that unless a single valuation figure was produced by 31 March in terms of the shareholders' agreement, no buy out could take place at that date, Messrs. Maclay Murray & Spens changed their approach in correspondence with Mr Rhind. In a fax message dated 12 March (No.44/26 of process) to Mr Rhind, Mr Edward wrote as follows:
"I have discussed the issue of Valuation with Senior Counsel and he has confirmed that rather than providing alternative Valuations, you should proceed to provide one Valuation as stipulated in the Shareholders' Agreement, taking into account all factors. Clearly, the view expressed by Clark & Wallace that the Valuation must be on the basis of vacant possession would have to be taken into account, but equally the reality of the existing Tenancy (subject to the uncertainty of the Land Court proceedings), would have to be taken into account.
I trust that this clarifies the situation. I look forward to receiving your Valuation as soon as possible."
That change of tack, however understandable, having regard to the fact that no agreement had been reached regarding the basis of the valuation, and the fact that time was short was, in my judgment, for the reasons I will discuss, in due course, an ineffective one and, more significantly, if it was intended to be an instruction to Mr Rhind it was never agreed to by, or on behalf, of the defender. It is referred to in a file note of Mr Edward, No.44/27 of process, of a telephone conversation he had with Mr Rhind on 12 March. The file note states:
"Telephone discussion with John Rhind of Aberdeen & Northern. I explained that rather than produce alternative Valuations what is required of him is to produce a single Valuation taking into account the contentions put forward by both parties. He would have to look at the position as it exists now with regard to the tenancy and the proceedings challenging the tenancy in the Land Court. He said that this would be a difficult task and I acknowledged that but indicated that nonetheless this is what he had to do. I said that if it would help he could speak to James Galbraith who had considered the matter and would provide his views on the remit."
That is simply a record of a unilateral instruction given by Mr Edward on behalf of the pursuer which obviously could not bind and did not bind to the defender. As has been seen, on 16 March 2004 Lady Paton appointed provisional liquidators to Scotpigs Limited. On 17 March Mr Edward sent another fax message to Mr Rhind, 44/29 of process. In it Mr Edward stated provisional liquidators have been appointed to Scotpigs Limited on the petition of James Innes. He went on:
"Notwithstanding this, it is Mr Simmers's instruction that you proceed with the valuation of the buy-out land as previously advised. His position is that the appointment of Provisional Liquidators does not affect the tenancy and this should be taken into account in the valuation."
Once again the fact of the matter was that that was a unilateral instruction given by Mr Edward on behalf of the pursuer. It was never communicated to the defender or those acting for him, far less agreed to by them.
[19] On 19 March 2004 Mr Rennie of Stronachs wrote to Messrs. Clark & Wallace (44/30 of process) in which, after having referred to the shareholders' agreement and the notice of 11 February 2004, sent by Maclay Murray & Spens on behalf of the pursuer, indicating his intention to exercise the buy out option, Mr Rennie continued as follows:"Our purpose in writing to you is to re-affirm Mr Simmers's intention to effect the Buy-Out and to seek your confirmation that in exchange for the Buy-Out Price and the Buy-Out Expenses Mr Innes will be in a position to deliver the following:-
i. executed conveyances in favour or Mr Simmers or his nominee of the Buy-Out Properties;
ii. executed Discharges of all securities affecting the Buy-Out Properties;
iii. executed Transfers in favour of Mr Simmers or his nominees of the Buy-Out shares;
iv. the Share Certificate(s) representing the Buy-Out Shares (failing which a Lost Share Certificate Indemnity in a form satisfactory to Mr Simmers); and
v. such other deeds and documents as Mr Simmers shall reasonably require to constitute him or his nominees as owner of the Buy-Out Properties and the Buy-Out Shares respectively.
We look forward to hearing from you."
Mr Allan of Clark & Wallace responded to that letter on 23 March (No.44/34 of process) raising a number of points. Among the points raised were the following, under the subheading "Valuation of Buy-Out Properties":
"(a) Please let us have a copy of the instruction by Maclay Murray & Spens to John Rhind. This was referred to in Court last week, but we have not, as yet, received a copy.
(b) We submit that Mr Rhind should finalise his Report on the basis of an open market value on a vacant possession basis.
(c) Mr Rhind's Report will require to be paid by Mr Simmers. We understand that Mr Rhind will not release the Report until he has been paid by Mr Simmers. Do you have a note of his costs?"
Under another subheading "Funding of Buy-Out Price" Mr Allan then wrote:
"(a) We assume that Mr Simmers has procured the requisite funding? Please confirm the identity of the lender(s).
(b) The Titles will require to passed not only to yourselves, but also to the lenders' agents for consideration. We have the Title Deeds within our Office, with the exception of the Titles in respect of Mill of Caval. Please confirm the agents acting on behalf of the lenders, so that we can, if required, provide them with copies of the requisite Titles.
(c) The buy-out properties are currently secured to the Clydesdale Bank. They are separately represented by Messrs. Dundas & Wilson in Glasgow. We understand that the Clydesdale Bank will not consent to the discharge of the properties, without repayment of all sums due in respect of those Securities. We await confirmation of exactly what is required to be repaid.
We look forward to hearing from you as soon as possible in relation to the points raised above, to enable us to consider matters and how best to progress matters for 31 March 2004."
On 26 March 2004 Mr Rhind produced a document, No.44/32 of process, which bore to be the fulfilment of what he considered his instructions to be. It will be necessary to consider the content of this document in some detail in due course. For the moment it is appropriate, however, to note that the first paragraph of the document is in the following terms:
"In accordance with instructions received from Messrs. Maclay Murray & Spens, Solicitors, Edinburgh dated 5 March, and instructions from Clark & Wallace, Solicitors, Aberdeen also dated 5 March, we have inspected the above properties and now write to advise you as to our opinion of value."
There was, as can be seen, no reference there to Maclay Murray & Spens's letters of 8 and 12 March to Mr Rhind as forming part of his instructions.
The evidence of Mr Rhind and James Galbraith regarding Mr Rhind's report
[20] Mr Rhind gave evidence on behalf of the pursuer. It has to be said that he was a not altogether satisfactory witness. He was clearly uncomfortable in giving his evidence. He vacillated in answering questions put to him from time to time. He made it clear that he wished he had never acted in the matter and, in my opinion, his discomfort arose from the fact that he had been left in some confusion as to what precisely he was being asked to do at the time he produced the document 44/32 of process. What was really remarkable about his position was that he was adamant, and I accepted his evidence in this respect, that he had never seen the shareholders' agreement prior to producing 44/32 of process. Indeed my understanding of his evidence was that he had not seen it until the proof. Mr Rhind, in examination-in-chief, said that, as at 5 March, he was being instructed to do a valuation when he knew there was a conflict between the parties as to the basis of valuation. When referred to 44/25 of process, he said that this was requiring him to proceed on a vacant possession valuation basis. When referred to 44/26 of process he said that he considered that to be "a final instruction of behalf of the two parties" and that he thought that that was the position because the answer was going to serve both parties. When it was put to him that he had received no confirmation from Clark & Wallace that what was said in 44/26 was agreed to on behalf of the defender, he said that he thought the answer he was to provide was going to be satisfactory to both of them. It was difficult to understand what the witness meant by this answer, unless he meant simply that he was providing a figure for each of the contending bases of valuation. He then went on to say, under reference to the telephone conversation between Mr Edward and himself, recorded in 44/27 of process, that he was uncertain as to what he was being asked and said "I wasn't absolutely clear what I was meant to be doing". In my judgment that reveals the witness position throughout the relevant period up until, and including, preparation of 44/32 of process. Mr Rhind confirmed, in evidence, that after 5 March, and prior to the issuing of 44/32 of process, he had no communication with the defender or Messrs. Clark & Wallace, save for a telephone conversation from Mr Allan on 18 March when Mr Allan informed him that provisional liquidators had been appointed to Scotpigs Limited and a letter from Mr Allan, 44/31 of process enclosing a copy of Lady Paton's opinion of 16 March. [21] In examination-in-chief when the attention of the witness was drawn to the first paragraph of 44/32 of process, he said that he should have also referred to instructions sent by Messrs. Maclay Murray & Spens on 8 and 12 March but that he understood that those additional instructions were on behalf of both parties. It was difficult to understand how he could ever have reached that conclusion which is clearly false. At various parts of his evidence, however, Mr Rhind said that he was being asked to provide a valuation stating two different bases of valuation of the buy out properties. He confirmed that he did not consider it was his task, nor was it his intention, to indicate any preference in respect of either of those bases of valuation. That view of matters corresponds with what Mr Rhind said in a fax message to Mr Allan, on 29 March 2004, when he sent to Mr Allan a copy of 44/32 of process. The fax message is 44/39 of process. In it Mr Rhind wrote, "Please find enclosed copy of our report and valuation for Mr Simmers". It is noteworthy that in that message Mr Rhind seemed to think that he had produced a report for one party only, namely the pursuer. In any event, the letter continued:"As you will appreciate, we are not in a position to make a judgement on the complex issues of whether or not there is a tenancy, and our report merely shows the two alternative valuations. It is, however, first necessary to work out the open market value of the farms, in order to calculate the values subject to tenancy."
Mr Rhind's position, if anything, was made somewhat clearer in a fax message 44/50 of process in which he wrote to Messrs. Maclay Murray & Spens on 27 April 2004. In it he stated:
"By way of clarification I confirm that there is one valuation. That valuation includes my assessment of both vacant possession value and valuation subject to lease.
I have not expressed in the valuation any view as to which is the more appropriate figure." (emphasis added)
"Our approach to the valuation of the properties has been to first work out how much each farm would realise if placed on the open market for sale. From this we have then deducted the cost of any tenant's improvements and fixtures and then applied an appropriate discount to the resultant value. Our discount figure is based on current market evidence."
At the foot of the same page, having brought out a vacant possession value for the properties of £3,931,000 Mr Rhind made deductions of nil in respect of tenants' improvements and tenants' fixtures. A deduction of £226,000 is then made in respect of "single farm payment" £80/acre x 1415 acres x 2 bringing out a figure of £3,705,000. At the top of page 10 the discount is then described as "discount subject to tenancy - 45%." The report then goes on to state: "Value subject to a lease in favour of the firm of Scotpigs & Co £2,038,000." A following note states "Discount takes into account indication that a tenant right to buy may be introduced in May 2004 under the Agricultural Holdings (Scotland) Act 2003". Mr Rhind, in evidence, admitted that he did not know what rent was being paid under any agricultural lease which was in place in relation to the properties. He accepted that for a valuation subject to tenancy it would have been important to have that information. He also agreed that prior to the 2003 Act the limited partnership concept, used in relation to agricultural leases in the way that had occurred in the present case, was a means of avoiding security of tenure for a tenant. In cross-examination the witness agreed that the 45% discount included the possibility of a tenant's right to buy under the 2003 legislation. Mr Rhind also accepted that his valuation did not take into account the effect, if any, of the appointment of provisional liquidators to the general partner of the limited partnership. It was difficult to know, accordingly, in my opinion, with any certainty, what were the facts and assumptions used by Mr Rhind which resulted in his 45% discount.
[26] Mr Galbraith in cross-examination, agreed that in carrying out a valuation of the lands, subject to an agricultural lease, he would have expected the valuer to have regard to the terms of the lease. Mr Galbraith also said that the tenant's right to buy under the 2003 Act would not necessarily have had any significant effect on value. He agreed also that the use of the limited partnership device might have been a relevant factor to take into account, subject to the new provisions of 2003 Act and, accordingly, the proceedings before the Land Court in relation to that matter could have been relevant. The level of rent was also a relevant fact in carrying out such an exercise.The evidence regarding the pursuer's attempts to obtain finance
[27] While the communings regarding the valuation exercise were going on, and Mr Rhind was engaged in carrying out whatever he thought his instructions were, the pursuer's efforts to obtain finance continued. As had already been noted the pursuer and his family had, since late 2003, been exploring the possibility of raising finance to enable them both to refinance the company's operations and to effect the buy out on 31 March 2004. In particular, the pursuer dealt with a Mr D. Phillips of UK Mortgages and Finance Services Limited. He is a finance broker. Mr Rennie of Stronachs had been, from the end of 2003, aware of the pursuer seeking finance in the region of £7,000,000. In evidence, however, Mr Rennie said that he did not receive any instruction regarding the buy out, from the pursuer, until 3 March 2004. He e-mailed the pursuer on 4 March to obtain "confirmation" regarding his instructions. The catalyst for that was a telephone message he received from a firm of English solicitors, Messrs. Burges Salmon who were acting for UK Mortgages and Finance Services Limited. They had been contacted by the pursuer and UK Mortgages and Finance Services Limited regarding the legal steps that would need to be taken regarding the obtaining of finance from UK Mortgages and Finance Services Limited by the pursuer and his family. They had, in fact, written to Maclay Murray & Spens on 3 March 2004 (44/52 of process) raising certain questions regarding the buy out properties and their valuation. Messrs. Maclay Murray & Spens replied in a fax message of 4 March (44/53 of process). In that message Mr Edward wrote:"I confirm that I am representing Arthur Simmers in relation to various matters arising from the Shareholders' Agreement in respect of Scotpigs Limited. As I understand it, Mr Simmer will be represented by David Rennie of Messrs. Stronachs in Aberdeen in respect of the mechanics of the buy-out. I am copying this fax to him for his information as well as to Mr Simmers."
At the end of the fax Mr Edward said: "I agree that it will be helpful to have a conference call. I would suggest that we involve Mr Rennie in this as well." It was apparently this suggestion that triggered the contact between Burges Salmon and Mr Rennie. It is noteworthy that in his fax of 4 March to Burges Salmon, Mr Edward wrote that he was attaching a copy of Mr Galbraith's draft remit and stated that the remit "has yet to be agreed with Mr Innes ... If there is disagreement - and it may be that Mr Innes will seek to impose vacant possession value - the intention will be to have the agreed Valuer value on both bases." The partner in Burges Salmon dealing with the matter was Mr Richard Bedford who gave evidence for the pursuer at the proof. On 5 March 2004 Mr Phillips of UK Mortgages and Finance Services Limited wrote to the pursuer, and one of his sons, making a proposal on certain terms and conditions for the provision of £6,534.765 (44/54 of process). On 8 March 2004 Mr Bedford faxed a letter to Mr Rennie (44/59 of process). That faxed letter commenced as follows:
"In anticipation of our conference call later today, I have obtained from UK Mortgages their proposal regarding the split of property referable to the finance applications following on from their receipt of valuation figures."
The faxed letter went on to discuss the lending proposals. A telephone conference took place later that day in which Mr Bedford, Mr Rennie, Mr Edward, the pursuer, his son Charles and Mr Phillips of UK Mortgages and Financial Services Limited all took part. As has been noted Lady Paton gave her decision regarding the appointment of provisional liquidators to Scotpigs Limited on 16 March. Apparently consideration was given to seek leave to reclaim against that decision. To support any such application Mr Bedford wrote a letter to Mr Edward on 16 March 2004 (44/62 of process) which outlined the position with regard to the seeking of finance by the pursuer and his family. In that letter Mr Bedford wrote inter alia as follows:
"We confirm that we are currently instructed by Mr Arthur Simmers to advise and assist in obtaining appropriate finance in relation to complete on what is known as the Innes Buy-Back Properties (as detailed within the Shareholders' Agreement between the relevant parties dated 18 December 1998) and take all appropriate steps in the anticipated proposed refinance of the property belonging to Scotpigs Limited following control being revested (in accordance with the buy-out provisions of a Shareholders' Agreement) in Arthur Simmers.
On the above basis, we confirm that Arthur Simmers has also specifically retained UK Mortgages and Finance Services Limited (mortgage brokers) and Carver Knowles (valuers) in the preparation of the finance applications.
We aware that Carver Knowles has completed the valuation process and that UK Mortgages and Finance Services Limited have submitted applications to Commercial First, I Group and Bristol & West Finance Plc, in respect of a total gross finance package amounting to £7.3 million which will net approximately £6.5 million. Those applications have been supported by the detailed valuations carried out by Carver Knowles.
We are informed by UK Mortgages and Finance Services Limited that those applications had been acknowledged by the prospective lenders who are currently working on those applications with a view to issuing appropriate offers of finance. Our instructions are to process those offers on an expedited basis specifically to be able to be in a position to complete the Innes Buy-Back Properties in accordance with the Shareholders' Agreement on 31 March and thereafter to secure the refinance of Scotpigs Limited.
We are currently taking in anticipation of those finance offers all appropriate and available steps in respect of title investigation and searches in order to meet the specific requirements of the lenders within the stated timescale."
It may be noted that Mr Bedford did not, in that letter, state, or apparently anticipate any problem with regard to the question of title investigation and searches. Once the decision not to reclaim Lady Paton's interlocutor was taken, and provisional liquidators were appointed, the pursuer appeared to have given instructions that the focus should now be to seek, in the immediate term, finance for the exercise of the buy out option.
[28] Mr Bedford, in his evidence to the Court, said that, after accepting initial instructions from the pursuer, on 18 February, his firm had experienced problems regarding the payment to account of fees by the pursuer. This caused his firm "some difficulty" in advancing matters on behalf of the pursuer. A member of his firm, a Mr Bremner, who is a qualified Scottish solicitor was to carry out the necessary conveyancing in relation to the buy out and in particular the preparation of the security deeds to be granted in favour of the lenders. Burges Salmon had obtained the title numbers from Messrs. Stronachs and Mr Bedford said that his firm held back to some extent, in carrying out any work until the pursuer eventually agreed to pay certain sums in respect of fees to account. That remained the position until the week commencing 23 March. Burgess Salmon did, however, carry out certain work on a speculative basis in the meantime. Mr Bedford said that at the time of the telephone conference on 9 March, his firm was very concerned about the time that was available to carry out the work required in respect of the amount of money that was being sought. After the telephone conference, a decision was taken to make two applications to the lenders, one in respect of refinancing of the company and another in respect of the buy out. This resulted in fresh applications having to be submitted. Mr Bedford, in examination-in-chief, said that his understanding was that his firm was to take responsibility for certifying good title to the lenders. [29] As at 16 March, Mr Bedford had formed the view that it was possible, but unlikely, in the circumstances that the buy out transaction could be completed by 31 March. Another complication had emerged in that it was suggested that a Scottish firm of solicitors would require to be instructed on behalf of one of the proposed lenders. After 17 March, it soon became apparent that the original scheme for obtaining finance could not be put in place in time and instead it was decided to seek bridging finance for the purposes of exercising the buy out option. This was to be sought from a company known as County Capital in which the broker, Mr Phillips, had a personal interest. Mr Bedford said that he was surprised that the pursuer wanted to pursue the buy out option. After the appointment of the provisional liquidators Mr Bedford thought that the pursuer would not have wished to proceed. Far from that being so, however, the pursuer appeared to be desperate to secure the buy out. Mr Bedford said that he assisted Mr Phillips in preparing the facility letter regarding the bridging finance. A copy of that letter is 44/63 of process. Mr Bedford said that Mr Phillips had been somewhat nervous about the proposal because of the amount involved namely £2,700,000. The witness said that he had understood that there would be an undertaking given by, or on behalf of the defender, that any security he had granted over the buy out properties would be discharged on payment of the price. Throughout the whole period between mid-February and 31 March 2004, neither Mr Bedford, nor anyone else from his firm, had any contact with the defender or his solicitor. Mr Rennie of Stronachs was the direct contact with the defender's solicitor. The title deeds to the buy out properties were delivered to Mr Rennie and they were forwarded then, to Burges Salmon. The title deeds were received by Messrs. Stronachs on Thursday 25 March 2004. Mr Bedford said that a decision had to be taken, then, as to whether they, Burges Salmon, would, as he put it, "roll up their sleeves and work on the conveyancing over the weekend." In the event it was Mr Rennie, he said, who undertook to produce the certificate of title. On Monday 29 March Mr Bedford said that, accordingly, the position was that his firm were waiting for developments but they considered it was highly unlikely that the transaction would be completed on 31 March. They understood that Mr Rennie was still awaiting "a lot of information" from the defender's solicitors, particularly regarding the discharge of the securities which had been granted by the defender to his lenders. On Tuesday 30 March the facility letter was forwarded to the pursuer. Mr Bedford agreed that the £2.7 million was being sought by the pursuer, on a very short term basis, and at a very high cost to the pursuer. He had contemplated that the money lent would require to be re-negotiated with other lenders. [30] In cross-examination, Mr Bedford repeated that his firm was relying on Messrs. Stronachs to produce the necessary certificate of title. A draft disposition, however, had been produced by his colleague Mr Bremner and provided to Messrs. Stronachs on 31 March, to be passed on to the defender's solicitors. Mr Bedford accepted that, by this time, there was a confusion as to the roles which the respective solicitors were performing. The witness accepted that, in fact, the proposed transaction did not involve any particularly complex conveyancing work to be carried out by the solicitors. [31] On the morning of 31 March 2004, Mr Rennie sent a fax to Messrs. Clark &Wallace (44/43 of process). In it he wrote inter alia:"We confirm Mr Simmers intends to proceed with the Buy-Out in accordance with Clause 10 of the Shareholders Agreement.
We enclose the following:-
- a Disposition of the Buy-Out Properties in favour of Mr Simmers for execution by Mr Innes ('the Disposition');
- a Stock Transfer Form in respect of the Buy-Out Shares in favour of Mr Simmers for execution by Mr Innes ('the Stock Transfer Form').
We will forward to you within one hour the following:- - a Warranty by Mr Innes to Mr Simmers in respect of the Buy-Out Properties and the Buy-Out Shares respectively for execution by Mr Innes ('the Warranty').
As set out in our letter yesterday the Buy-Out Price is £2,500,000.
You previously indicated that you are not yet in possession of executed discharges of all securities affecting the Buy-Out Properties ('the Buy-Out Property Securities'). Please clarify your position on this point by return fax and in any event no later than 10.45am this morning. Any failure to do so may be founded upon. We still await from you a note of the Buy-Out Expenses - please provide this immediately today.
Mr Simmers has finance available to complete the Buy-Out in exchange for delivery to us of the following items:-
1. the Disposition duly executed by Mr Innes;
2. the Stock Transfer Form duly executed by Mr Innes;
3. the Warranty duly executed by Mr Innes; and
4. executed discharges of the Buy-Out Properties Securities.
As stated above, subject to and exchange for delivery to us of the foregoing items 1-4 Mr Simmers will pay the Buy-Out price and the Buy-Out expenses to Mr Innes or his nominees. In terms of the Shareholders' Agreement payment is to be by way of telegraphic transfer - please provide us with the bank account details of Mr Innes or his nominees (as the case may be)."
At some time later that morning, Mr Rennie had delivered to Messrs. Clark & Wallace a copy of the warranty referred to in the last mentioned letter. It forms part of 44/44 of process. Mr Bedford, in cross-examination, said that he could not confirm one way or another as to whether this warranty had been prepared by his firm. In any event he said that he did not know why a warranty in those terms was being sought from the defender at that stage. The witness confirmed that the facility letter 44/63 of process was a standard facility letter which was amended for the particular circumstances. He accepted that the duration of the loan was not expressly provided for in it. It was, accordingly, impossible to work out what the monthly repayments were to be. Mr Bedford stressed that he was not advising the pursuer in relation to that offer. He did not know who, if anyone, was advising the pursuer on this matter. He accepted, however, that in other respects he could be said to have been acting in the pursuer's interest. It was finally conceded by Mr Bedford that the whole matter had not been properly thought through. The pursuer was simply anxious to try to show that he had done all he could to exercise the buy out. Again, in cross-examination, Mr Bedford said that if the defender had indicated that he was ready and willing to proceed, on 31 March, to complete his side of the transaction on that date by, for example, handing over discharges of any securities over the properties then, as the witness put it, that would have been "an interesting moment". When the facility letter had been prepared it was considered, he said, that it would be unlikely the sum in question would be called on 31 March. He certainly could not have advised the pursuer to proceed to sign up to obtain the funds in question without knowing what the monthly repayments were to be. When asked why, if, as he maintained, Stronachs had assumed the responsibility of investigating the title to the properties, they had sent his firm the principal deeds, he said that this had indeed sparked off a discussion as to "who was doing what and when and what was to happen over the weekend prior to 31 March". He agreed that, in the event, the position came to be that on 31 March 2004 the defender was not in a position to settle because no money was actually available and the pursuer could not pay. Mr Bedford was referred to a faxed letter 44/65 of process from his firm, which was dated 3 August 2004 and is addressed to Messrs. Maclay Murray & Spens. In that letter Mr Bedford made certain criticisms of the way in which matters had been handled in the run up to 31 March 2004. In particular he remarked that "the series of letters which we anticipated would have been written to Innes' solicitors during this period were not actioned". He also wrote:
"We can confirm that had appropriate documentation/title information been provided in a realistic timeframe for a full security title review to have taken place then we would have been in a position to have progressed to anticipated drawdown stage."
It is of some interest to note that Lady Paton, in her Opinion, apparently anticipated the difficulties which did occur. At pages 10 to 11 of her Opinion she said this:
"Although it is difficult for the Court, on the material put before it, to have any faith in the refinancing which the Simmers family are currently trying to achieve, and although the mechanics of the buy out option as set out in Clauses 1 and 10 of the shareholders' agreement suggest that a large amount of ready money together with a high degree of skill, efficiency and co-operation on the part of professional advisers would be required in order to achieve practical fulfilment of the buy out condition, it nevertheless seems to me that the Court cannot ignore the faint possibility that the deadlock might be resolved by a successful buy out of the petitioner's interests by Arthur Simmers."
"The central issue here is that completing the Buy-Out is No.6 on the list of the Joint Venture Objectives comprising part 1 of the Schedule to the Shareholders Agreement. Mr Innes has an obligation to do all things necessary or desirable to give effect to the spirit and intention of the Shareholders Agreement (see Clause 24(d) of the Shareholders Agreement).
In this context your letter, which is little more than a series of questions about matters which are either irrelevant or none of your/Mr Innes' business, is not helpful. In our view Mr Innes and your firm as his agents require to adopt a much more constructive approach than is evidenced by your letter. We suggest you begin this process by delivering to us by return the principal title deeds (not copies) of the Buy-Out Properties. In that regard we first requested these from you on Friday 20 February and the fact that they are still not with us is a matter of considerable concern."
"We refer to your letter of 24 March 2004 and confirm that the Title Deeds are being delivered to your Office this morning. We presume that you have already obtained the other necessary Reports in connection with this matter, given that Mr Simmers will be paying for all legal expenses and outlays in connection with this matter. If not, can you please confirm, in the absence of any Missives in relation to this particular matter, what further Reports you may require for exhibition purposes. We shall instruct these, as soon as we have confirmation of what you require. With regard to the question of the buy out shares, we do not accept that the delivery of a Signed Stock Transfer Form in favour of Mr Simmers or his nominee is all that is required. On the basis that the Directors no longer have control and authority in the Provisional Liquidation we consider that it will be necessary for Mr Simmers to apply to the Court of Session to obtain in terms of Section 172 of the Insolvency Act, a formal Order of Court approving the transfer of shares from Mr Innes to Mr Simmers or his nominee in exchange for the price of £400,000. If there is no Court order, then we do not consider that our client has adequate protection for the payment of £400,000. We would suggest that a Motion is perhaps drafted so that we can consider the terms of the Motion and, if possible, have this granted of consent prior to 31 March 2004."
"We have your letter of 26 March. Mr Innes is not going to breach the terms of the Shareholders Agreement, and would be in a position to implement this side of the Buy Out Agreement on 31 March. We believe you now have a quick copy of the Land Certificate for Mill of Caval. The deeds are not yet drawn far less executed, and the detailed queries of our letters of 23 and 25 March await your attention. Please confirm that Mr Simmers will be in a position to deliver the price on the day, and our expenses. No local authority letter nor forms 12 have yet been instructed. Our 25 March letter refers to the possibility that you have anticipated some of these.
Delivery of executed Clydesdale Bank Discharges, you appreciate, are not entirely within Mr Innes' control. We would think they would rather call up than see a repayment reflecting a tenants' rights sum repaid."
"You indicate Mr Innes 'would be in a position to implement his side of the Buy Out agreement' but later state that 'delivery of executed Clydesdale Bank Discharges ... are not entirely within Mr Innes' control.'
These statements are hard to reconcile. If Mr Innes cannot procure delivery of the Discharges then clearly he cannot implement his obligation under the Shareholders Agreement.
Furthermore we are very surprised at the terms of the final sentence of your letter. To be advising us effectively three days before the intended completion of the Buy-Out that Mr Innes may have a problem with his bank when he has known since 11 February 2004 that Mr Simmers was to effect the Buy-Out beggars belief. We require you to confirm the position with Mr Innes' bank immediately and at the same time send us draft Discharges of all securities affecting the Buy-Out Properties.
In para. 4(a) of your letter of 23 March 2004 you confirmed the Buy-Out Shares price at £400,000. The Buy-Out Valuation is £2,038,000 and consequently the Buy Out Properties price is £2,100,000. The Buy-Out Price is accordingly £2,500,000. Assuming Mr Innes will require payment of same (along with the Buy-Out Price) we require from you a note of the Buy-Out Expenses and look forward to receiving this.
We require you to confirm that Mr Innes is willing and able to deliver the items listed in our letter of 19 March 2004 in exchange for the aggregate of the Buy-Out Price and the Buy-Out Expenses. As and when you provide this confirmation we will prepare and send round drafts of the items in question for review and subsequent execution by Mr Innes.
We feel bound to observe that your and Mr Innes' approach to this transaction has been entirely unsatisfactory. Most obviously and as mentioned in our letter of 24 March we first requested the title deeds on 20 February. The fact that you delayed for over one month in providing us with the title deeds of the Buy Out Properties (the copy Land Certificate for Mill of Caval was received only yesterday) thereby leaving us only a few working days to process a significant quantity of title documentation and liaise with other agents acting for Mr Simmers' funders is totally unacceptable.
Referring again to your letter of 27 March you indicate you require our attention to 'the detailed queries of (your) letters of 23 and 25 March' (we presume you are in fact referring to your fax of 25 March). Our position is that none of the questions set out in your letter of 23 March requires a response from us. As regards your fax of 20 March we note that you have already enrolled the requisite application in terms of Section 127 of the Insolvency Act."
"We have your letters of 30 and 31 March. We do not propose to complete the transaction as we dispute the validity of the purported buy out valuation. We propose to raise legal proceedings to set it aside."
Mr Rennie said that this was the first time that he had heard of the valuation being a problem. The witness said that he thought he could have completed the transaction for the pursuer by 31 March had the other side co-operated. In complete contradiction of Mr Bedford's evidence, Mr Rennie said that his firm was not responsible for producing the certificate of title. In his view that was the responsibility of Burges Salmon who were acting for the pursuer in this respect. They were, he said, ultimately responsible for the conveyancing. The contradictory positions of Mr Rennie and Mr Bedford in relation to this crucial matter demonstrates, in my judgement, the considerable confusion that arose because of the fact that the pursuer was employing no fewer than three sets of solicitors during the crucial period. Mr Rennie was also apparently under the impression that a Scottish firm of solicitors, Turner McFarlane & Green were acting on behalf of one of the lenders. Though that had originally been proposed, or suggested, it did not, in fact, happen.
[38] In cross-examination Mr Rennie repeated that Burges Salmon were responsible for conveyancing and he thought that the principal title deeds to the buy out properties had been sent down to them. When asked about the purpose of the warranty contained in 44/44 of process and why it had been asked for, he replied that that was an interesting question. While it was a document generated in his office, he said that it had been drafted by Burges Salmon. He simply did not know what its purpose was. Mr Rennie in, cross-examination, did accept that, up until 31 March, he did not know if the pursuer would have the finance to carry out the buy out transaction. [39] One other witness was led on behalf of the pursuer. He was Mr Michael Reid who is a chartered accountant in Aberdeen. He said he had received instructions from the pursuer in early 2004 to try to obtain finance regarding the buy out and the refinancing of Scotpigs Limited. Mr Reid said that the pursuer had had discussions with other parties regarding funding. The witness understood that what was required in respect of the buy out was £400,000 for the shares and £2.1 million for the properties. Mr Reid approached a number of banks on the pursuer's behalf, having prepared a business plan. The first business plan was completed during the third week of March. Mr Reid said he was not made aware by the pursuer that finance had been offered to him by anyone else. The witness said that he was still working on trying to obtain finance as at 30 March. Mr Reid also prepared a balance for the purpose of calculating the share price. [40] In cross-examination he said that his first attempt to get finance was during the third week of March when the business plan was finalised. He confirmed that when he became involved he was aware that Scotpigs Limited owed the Inland Revenue £1.4 million with interest and that undertakings had been given to the Inland Revenue which had been broken. The Inland Revenue had said that it would take no action until the outcome of the buy out transaction was known. The indebtedness of Scotpigs was £2.6 million. [41] The defender led no evidence. [42] Before leaving the evidence I should make the following remarks. As far as the witnesses led for the pursuer are concerned, in addition to what I have said, in passing, in relation to them and the evidence they gave in Court I would add the following. I found none of them to be a witness who was, in any material respect, trying to mislead the Court by concealing the true position from it. The pursuer, himself, I consider was guilty of a somewhat blinkered approach to events, which I, think has been a constant feature of his throughout this matter. He latched on to the non-appearance of the principal title deeds to somewhat late in the day as being the primary cause of his not being able to complete the transaction. This is simply not borne out by the evidence. I have great doubt as to whether at the time, at least until Mr Rennie started writing his letters to Clark & Wallace, during the last week of March, their absence was ever seen as a major problem to the pursuer's representatives. Their efforts and concentrations were focused on (a) the liquidation proceedings, (b) the need to get a valuation and (c) the need to obtain finance. In that respect I consider that parts of Mr Rennie's evidence, and the content of the letters when he wrote to Clark & Wallace in the last week of March, were an attempt to put the best possible picture forward of what the pursuer was trying to achieve. I think, too, that both Mr Rennie and Mr Bedford in, their evidence, were to some extent now trying to cover their respective positions in the light of events and this particular litigation. I have already made some comments on Mr Rhind as a witness and on his evidence. I should stress that I have no hesitation in holding that he was a truthful witness, who was doing his best to help the Court, but who had got himself into a difficult situation which he really appreciated from a very early stage. Mr Galbraith, again, I considered to be a truthful witness. I think however that he was straining at times to support the pursuer's position, though ultimately when the whole circumstances were put to him, he somewhat backed off from his, perhaps, initial over-confident view of matters. Again, Mr Reid was a witness who I considered to be credible and reliable. His evidence, however, was of little assistance to the Court in determining the issues before it. Of some significance, however, perhaps, was the fact that as late as the last week in March the pursuer was still trying, through Mr Reid, to find alternative sources of finance. [43] Lastly in relation to the evidence I should note that a number of objections were taken, particularly on behalf of the pursuer, during the course of the proof in, relation to questions and lines of questioning, a number of which I allowed subject to relevancy and competency. They fell, for the main part, into two broad headings. Firstly, questions and lines of questioning in relation to the history of other disputes between the parties and, secondly, questions in relation to Mr Rhind's report which were concerned with suggesting that, assuming that it was a report that fell within his instructions, it nevertheless contained errors. I was not invited, during submissions by counsel, to revisit these questions. I am satisfied, in the context of the case as a whole, as it developed, there was no merit in any of these objections and I now formally repel them.Submissions for the pursuer
[44] In opening his submissions, senior counsel for the pursuer emphasised that the shareholders' agreement was a joint venture agreement and that the buy out option was a very important matter for the pursuer, who, as he had indicated in his evidence, was very keen that the lands be recovered for his family. Senior counsel also emphasised what he suggested was the significance of the provisions of Clause 24 of the agreement. After rehearsing the history of matters, as disclosed by the evidence, senior counsel submitted that the defender, in bringing his petition for winding up, on 10 February, was acting upon an earlier threat, referred to in the pursuer's evidence, not to allow the company to get to 31 March. The defender's reluctance or unwillingness to co-operate in terms of the shareholders' agreement was demonstrated in his agents' failure to respond to requests for the title deeds. They were asked for in late February 2004. Mr Allan had agreed, on behalf of the defender, to the terms of Mr Galbraith's draft remit, subject to one matter, that is the basis of valuation. It was the position of senior counsel, on behalf of the pursuer, that in terms of the shareholders' agreement there required to be a valuation of the buy out properties and that valuation had to be conducted by an agreed valuer. Where, as had occurred here, there was a dispute between the parties where one party said the valuation should be on a vacant possession basis and the other said that it should be on a tenanted basis then "if the matter was left to the valuer and he produced a valuation the parties were stuck with it". That submission, as will be seen, was crucial to the pursuer's case. Senior counsel accepted that there was no agreed remit but that, he said, was not required, by the shareholders' agreement. Senior counsel for the pursuer emphasised that the evidence and the correspondence showed that the defender and his representatives were doing nothing to assist in the progress of the transaction. The defender had, for example, chosen not to have informed his solicitors as to how much he needed to pay his bank to have the securities over the properties discharged. The defender never recognised the spirit of the agreement or acted according to his obligation to act in pursuance of its objectives. No bank details were provided. No note of expenses was given. On the other side, senior counsel said that the pursuer was doing all he could to achieve the buy out on 31 March. Both Mr Bedford and Mr Rennie spoke to that being the case. They thought that in return for the payment of the consideration for the shares and the properties, the defender would grant some undertaking that the securities would be discharged. The defender's agents had had a copy of Mr Rhind's report since 24 March but it was only on 31 March that the defender, through his agents, said that he was not going to proceed because he did not agree with the valuation contained in it. Once Mr Rhind proceeded, having received the instruction from Mr Edward of 12 March that he was to produce one valuation and one valuation only, that was indeed what he produced in 44/32 of process. In that document Mr Rhind described his process of valuation, involving various stages culminating in a final figure. Senior counsel, however, was obliged to accept that in evidence Mr Rhind, at times, contradicted this submission and indeed presented a somewhat different account of what he said he was doing in producing 44/32 of process. What he said he was doing in his letter to Mr Allan, 44/39 of process, namely that 44/32 contained two alternative valuations was, senior counsel for the pursuer submitted, said to Mr Allan and Mr Allan only. Mr Galbraith said in his evidence that 44/32 could be regarded as a valuation containing a single value figure. Senior counsel for the pursuer reminded the Court that, in evidence, the pursuer had told the Court that, in the present proceedings, he had enrolled a motion for interim orders which was heard by Lord Penrose in which he offered to pay for the properties at £2.5 million and to give an undertaking to pay £3.4 million if, later on, it was determined that that was the correct value of the properties. The motion was opposed and refused. This simply demonstrated that the defender never had had any intention to perform his obligation under the buy out provisions. [45] Turning to the law which was applicable to the situation, senior counsel referred me to authorities dealing with the circumstances in which a valuation of property produced by an independent valuer, appointed jointly by parties, can be challenged subsequently by either of those parties. In the first place reference was made to the case of Jones &c v Sherwood Computer Services plc [1992] 1 W.L.R. 277. That decision of the Court of Appeal, it was submitted, was authority for the proposition that where parties had agreed to be bound by the report of an expert, the report, whether or not it contained reasons for its conclusions would not be subject to challenge in the Courts on the ground that mistakes had been made in its preparation, unless it could be shown that the expert had departed from the instructions given to him in a material respect. Reference was made, in particular, to the judgment of Dillon L.J. at pages 284-285 and to the judgment of Balcolmbe L.J. at pages 289-290. Senior counsel then referred the Court to the decision in Shell UK v Enterprise Oil [1999] 2 Lloyd's Rep. 456, particularly at pages 469-470 for a discussion regarding when a Court can become involved in a challenge to an expert's decision because of a departure from his instructions. It was counsel for the pursuer's submission that, in the present case, Mr Rhind was not guilty of any material error or departure from his instructions which entitled the Court to disregard the valuation he had produced. I was then referred to the case of B.S. v V.S.E.L. Consortium plc (1997) 1 Lloyd's Rep. 106 where Lightman J. sought to summarise the legal position governing the status of decisions of persons occupying the role of expert. From that summary emerged the proposition again that, provided the expert stayed within his instructions, he was entitled to get things wrong and, indeed, quite wrong unless his decision disclosed a manifest error or a material departure from his instructions. On the evidence, senior counsel submitted that number 44/32 of process was the outcome of an exercise by Mr Rhind which fell within his instructions. On the hypothesis that 44/32 was a valid valuation in terms of Clause 10 of the shareholders' agreement, the defender, in sending his letter of 31 March, was acting in breach of the agreement by refusing to proceed with the buy out. Senior counsel referred me to Investors Compensation Scheme Limited v West Bromwich Building Society [1998] 1 W.L.R. 897 and B.C.C.I. v Ali [2002] 1 AC 251 for dicta of the House of Lords regarding the proper approach to the construction of contracts. Reference was also made, in this respect, to Sinochem International Oil (London) Co Ltd v Mobil Sales and Supply Corporation [2000] 1 Lloyd's Rep 339. If the position be, as contended for by the pursuer, that the machinery agreed for ascertaining the buy out price of the buy out properties had been exercised properly and, accordingly, Mr Rhind's report had produced the buy out price in an exercise of his function as a valuer, then the defender was in material breach of contract and the pursuer was entitled to specific implement as the primary remedy available, in our law, for breach of contract. Reference was made to McBryde on Contract, 2nd Ed., paras. 23-08, 23-09 and 23-10. Reference was also made to the case of Retail Park Investments Limited v The Royal Bank of Scotland (No. 2) 1996 SC 227 and Highland and Universal Properties Limited v Safeway Properties Limited 2000 S.L.T. 414. These authorities were referred to for support of the proposition that, unlike the position in England, in Scotland a party to a contract was generally entitled to enforce his rights by decree for specific implement, subject to the residual discretion of the Court in granting this remedy. In the present case, there were no circumstances pointing the Court towards exercising its discretion to refuse implement. Implement was important to the pursuer, as opposed to damages, because he wanted to pass on the properties to his family, which was always what he had wanted. These had been properties which had been in his family's ownership for some time. The aim of the parties was that the agreement had envisaged that the buy out would take place on 31 March and on that day only, and the valuation was made with reference to that date. The pursuer had intimated his intention to exercise the buy out on that day, and was, it was submitted, entitled "to the protection of the Court to sustain the agreement to enable him to carry out the buy out". His right to do so had "crystallised" on 31 March. The fact that it could not be exercised on that date was due to the breach of contract of the defender. Matters could now, as it were, be repaired. That last submission was made under reference to the decision of the House of Lords in the case of Sudbrook Trading Estate Ltd v Eggleton [1983] A.C. 444. In that case lessees were given an option to purchase the leased properties from the lessors at a price to be agreed by two valuers, one to be nominated by the lessor and one to be nominated by the lessees. The lessors had refused to appoint a valuer when the lessees sought to exercise the option. The House of Lords held that, on a true construction of the agreement, the lessees had the right to buy at a fair and reasonable price the properties and the fact that the agreed machinery for ascertaining that price had broken down, through the fault of one party, did not prevent the Court for fixing machinery to ascertain a fair and reasonable price. While accepting that the circumstances of that case were significantly different from the present case, senior counsel submitted that, by analogy, the reasoning contained in it could be applied to the present case. Senior counsel seemed to consider that this submission was supported by the terms of Clause 21 of the shareholders' agreement. It was not impossible for an up-do-date valuation to be produced now, notwithstanding the passage of time, and it would be open to the Court to make an appropriate order to that effect, so that the contract could be enforced at the present time. I was invited by senior counsel for the pursuer to sustain the first plea-in-law of the pursuer, and thereafter, to put the case out By Order to deal with further orders which might be appropriate.Submissions for the defender
[46] In reply Mr Haddow, Q.C., for the defender, began his submissions by suggesting that the main issue in this case was the status and effect of Mr Rhind's report, 44/32 of process. He referred to certain of the defender's pleadings which referred to the report being reducible on what were described as "judicial review grounds". These averments were there because if the report was, contrary to what the defender's primary position on the matter amounted to, an exercise by Mr Rhind in deciding the legal dispute between the party, as to whether the vacant possession or tenancy basis for valuation was correct, then he must have assumed the mantle of an arbiter. If that were so, his "decision" was challengeable on judicial review grounds, that he had failed to take into account relevant factors and had taken into account irrelevant factors. The particular points of criticism were as follows:1. Mr Rhind had not had regard to the provisions of the Shareholders' Agreement in deciding whether the intention of the parties was that the buy out valuation should be on a vacant possession or a tenanted basis.
2. He failed to take account of the rent and that it was a high rent set on a financial basis rather than a market rent.
3. He failed properly to take account of the effect of the Land Court proceedings.
4. He failed to take account of the appointment of the provisional liquidators to Scotpigs Limited and
5. He did take into account the tenant's perspective right to buy under the 2003 Act which was not yet in force.
Both Mr Rhind and Mr Galbraith accepted that factors such as these would have a material effect on value of a tenancy basis. These errors of approach would entitle the Court, it was submitted, if it reached the conclusion that Mr Rhind had been acting in effect as an arbiter, to reduce the report ope exceptionis and to sustain the defender's plea-in-law 8, which is to the effect -
"separatim, esto the Report dated 22 March 2004 is the Buy-out Valuation, John Rhind having omitted to take into account relevant and material considerations in arriving at the Buy-out Valuation and in any event, the Buy out Valuation being wholly unreasonable it is ultra vires and it should be reduced ope exceptionis."
If the report was reduced on that ground the basis of the buy out exercise had never been provided and the defenders should be assoilzied.
[47] The defender's primary position was, however, that, having regard to all the circumstances, Mr Rhind had not been setting out to resolve the legal issue as to the proper basis of valuation, having regard to the shareholders' agreement, but that he carried out a valuation which, in the circumstances, provided alternative figures. As the shareholders' agreement had envisaged that a single figure would be produced by the agreed valuer, which would become the agreed consideration for the buy out properties, the machinery, in terms of that agreement, for arriving at the price had either failed or had never been operated. The different bases of valuation were productive of a very great difference in the figure produced. While the defender was not asking the Court to determine the question as to what was the proper basis of valuation, it was his position having regard to the terms of the shareholders' agreement and its provision, that it had never been the intention of the parties that the buy out price was to be arrived at on the basis that the lands were tenanted. The intention of the parties was that they should share equally in any growth in the value of the buy out properties in the period between the date of the shareholders' agreement and the buy out date. On completion of the buy-out the pursuer could sell the properties for an open market value having regard to his ownership of Scotpigs Limited. Mr Haddow submitted that it was of great significance that Mr Rhind had not even seen the shareholders' agreement, prior to carrying out whatever he thought his instructions were. Had he done so he would, no doubt, have realised that the valuation envisaged by that agreement was a single figure valuation. Knowing that the parties were, however, at odds as to the basis of valuation, which was a legal issue not for him to determine as a valuer, he would not then have proceeded to produce 44/32 of process until that issue had been resolved. In fact, in evidence, he said that if he had known the true position he would, on balance, have refused to take the instructions. Accordingly, it was submitted, the report produced by Mr Rhind was "born flawed" and did not provide the deemed agreed price in terms of the shareholders' agreement. On that basis the pursuer had been left with no right to enforce the agreement against the defender on 31 March, either by seeking implement or seeking damages. [48] Turning to consider the English authorities which have been referred to by senior counsel for the pursuer in relation to the circumstances in which an expert valuation could be challenged in Court, senior counsel for the defender submitted that the approach adopted in those cases was to distinguish between situations where the expert might have "simply got it wrong" which the parties have to live with, and those where the report was in some way wholly vitiated where it could be set aside. Mr Rhind's report, in the present case, fell into the second category. Senior counsel for the defender referred me to the case of Jones v Jones [1971] 1 W.L.R. 840. That case involved an agreement to compromise a petition to wind up a private company. The agreement provided, inter alia, that an individual, D, had to value the shares of a new company to which certain of the assets of the company were to be transferred "as between a willing vendor and a willing purchaser of a business carried on as a going concern", the valuation being directed to be made "on an assets basis". It was held that the individual, D, had failed to follow those instructions in valuing the shares. D had also been instructed to employ an expert to value certain machinery. He did not do so but valued the machinery himself. As far as the valuation of the shares was concerned, the Court held that D was obliged, in terms of the agreement, to value the shares on a going concern basis and not on a break-up valuation basis. D had valued the assets of the new company on a break-up valuation basis. After reviewing certain of the authorities, Ungoed-Thomas J held that D's approach to the valuation of the shares, and his failure to appoint an expert to value the machinery, were departures from his instructions which vitiated the valuation as a whole. In doing so, his Lordship rejected, at p.855, a submission that an error in principle does not vitiate a valuation unless it is shown by the person relying on it that it also results in a materially different valuation, both in the part of the valuation subject to error, and in the overall valuation. In the present case Mr Rhind had accepted, in effect, two competing sets of instructions. He had as a result provided a valuation which was designed to be "all things to all men". It was not a valuation in terms of the shareholders' agreement. It was erroneous in principle. I was then referred by senior counsel to the decision of the Court of Appeal in the case of Veba Oil Supply & Trading GmbH v Petrotrade Inc. [2002] 1 AllER 703. That case involved a contract for the sale of a quantity of gas oil. The contract provided that the quality and quantity of the gas oil was -"to be determined by a mutually agreed independent inspector at the loading installation in the manner customary at such installation. Such determination shall be final and binding for both parties save fraud or manifest error. Inspector to be appointed by seller."
The Court of Appeal held that the independent expert appointed had departed from his instructions. It, furthermore, held that a departure from instructions was quite different from the situation where an expert had gone wrong in the course of carrying out his instructions. Once a material departure from instructions was established, the Court was not concerned with its effect on the result. Such a determination was not binding on the parties because, if an expert departed from his instructions, the parties would not have agreed to be bound by his decision. Reference was made, in particular, to the judgment of Simon Brown L.J., as he then was, at pps.711-713. The last authority referred to by senior counsel for the defender in relation to this chapter of the case, was the decision of the Lord Ordinary in the case of A.G.E. Ltd v Kwik Save Stores Ltd 2001 S.C. 144. In that case the main question was whether or not an individual, to whom a question as to what a revised rent should be, on a rent review on a commercial lease was referred, was acting as an arbiter or as an expert. The Lord Ordinary held that the individual had been acting, not as an arbiter, but as an expert valuer. In the course of his opinion the Lord Ordinary, Lord Hardie, referred to the opinion of Lord Sands in the case of Cameron v Nicol 1930 S.C. 1 at p.15 where his Lordship said as follows:
"There is here no question of the resolution of matters in dispute but there is simply a valuation to determine the amount payable in respect of certain things which it had been agreed were to be taken over at an agricultural waygoing. It is well settled that in such valuations the same strictness of form is not required as in an arbitration to determine a dispute, whether as regards heritable or moveable rights of property, or as regards claims for damages."
Lord Hardie, at p.149, went on to point out that in the case before him, had there been a dispute regarding the assumptions or disregards, which were to be made, in terms of the lease, that dispute would require to have been determined by arbitration, but that was not the position in the case before him. When the valuer was appointed, he was appointed simply to apply his expertise in arriving at a revised rent. In the present case, senior counsel for the defender submitted, that on the facts what had emerged was, first, that a valuation was required to be carried out in terms of the shareholders' agreement for the buy out option to operate, but secondly, there was a legal dispute between the parties as to the basis of the valuation exercise to be carried out by the valuer. The second matter had never been resolved. Mr Rhind's report did not meet the requirements of a valuation carried out in terms of the shareholders' agreement, when properly understood, in its context. What both parties accepted was that the shareholders' agreement required a single value. Mr Rhind's report contained two valuation figures. The context which led one to that conclusion was the following:
(1) The instructions which were given to him;
(2) The absence of an agreement between the parties regarding the basis of valuation;
(3) The general practice of surveyors, spoken to by Mr Galbraith, to the effect that they declined to answer legal questions as being outwith their competence.
If the valuation was produced on the basis of assumptions which were not agreed, it did not provide a price in terms of the shareholders' agreement. Mr Galbraith had given clear evidence that one cannot arrive at a single figure from two different bases of valuation. If there were competing bases of valuation, a valuer could not give a single figure. As the witness had said, "He could not do his job." It was not his position, as valuer, to act as judge between the competing bases of valuation. Mr Galbraith had said that if the last four lines of Mr Rhind's letter to Clark & Wallace on 29 March, 44/39 of process, had been added to 44/32 of process, then there would have been no doubt that his report contained two values. Mr Rhind had said, in evidence, that the appendices attached to his report 44/32 of process were signed and dated by him. Appendices III, IV and V refer to open market values of the various properties. That demonstrated that the report was not providing a single value, on a tenanted basis. It was absolutely plain that there was an absence of agreement between the parties as to the basis of valuation and the difference in approach was productive of considerable differences in the figures arrived. The dispute was still not resolved. The proceedings in the Land Court were still not resolved - they were, perhaps, an empty matter since the winding up of Scotpigs Limited.
[49] Mr Galbraith said that when he wrote his letter of 25 April 2004 (44/51 of process) his purpose was to support an application for interim orders in the present case. At that time he was unaware that the instructions to Mr Rhind were anything other than his own draft remit under cover of Maclay Murray & Spen's faxed letter of 4 March 2004 addressed to Mr Rhind. He was not aware of the "double instructions" letter of 8 March. Mr Rhind's evidence, it was submitted, that when he received the instructions contained in 44/18 of process, he did not know that there was any dispute between the parties regarding the basis of valuation. He considered that there was quite a lot of work to be done in arriving at a value. On the following day, he became aware of the difference of approach between parties, when he received Clark & Wallace's letter to him, 44/23 of process. He had said that, on receipt of that letter he was aware that he could not then produce a single figure. He said that when he received the letter from Messrs. Maclay Murray & Spens, 44/25 of process, he intended to follow what was said in that letter, because it absolved him from having to address and resolve the legal question as to what the correct basis of valuation was. Senior counsel for the defender submitted that when Mr Rhind received the subsequent letter from Maclay Murray & Spens, 44/26 of process, that did not distract him from the approach he had decided to adopt, that is to provide two values. While the document 44/32 of process, when read completely out of context, could be read either way, that is either presenting one or two figures, once it was placed in context it was clear what Mr Rhind had been doing, that is, producing two values. That was what he intended to do and what he told Clark & Wallace he had done when he sent them a copy of his report. It was also what, in effect, he told Maclay Murray & Spens he had been doing in his letter to them, 44/50 of process. It is what he told the Court, in his evidence, he had done since he had never been shown the shareholders' agreement. He was not alive to the issue that he was being asked to determine the price. [50] On the foregoing approach to the evidence, senior counsel for the defender, invited the Court to hold that 44/32 of process did not meet what was required in respect of the buy out under the shareholders' agreement. The opening words of 44/32 of process referred to the two competing approaches. Mr Rhind did not set out to resolve a dispute of material importance between the parties and did not resolve it. What he did was to provide material which would have given the price once the dispute was resolved. Senior counsel for the defender invited me, accordingly, to repel the pursuer's second and third pleas-in-law and to sustain the defender's second and third pleas-in-law, to reduce 44/32 of process ope exceptionis and to dismiss the action. [51] On the hypothesis that, contrary to his primary submission that 44/32 of process did constitute a valuation for the purpose of the buy out, senior counsel for the defender then turned to address the issue as to whether the pursuer was, in any event, in a position to complete the buy out on the agreed date. In the first place it was contended that the obligations on the pursuer involved him being in a position to pay the relevant price on 31 March 2004. That obligation was not qualified by virtue of any obligation of good faith, or any duty to co-operate, arising from the agreement and imposed on the defender. While it was not expressly provided in the shareholders' agreement that notice had to be given of an intention to exercise the buy out option, that was implied and started the running of the timetable up to 31 March. On the evidence, the pursuer and his agents, it was submitted, were slow in setting in motion all that had to be done for the purpose of exercising the buy out option. The delay in carrying out the necessary conveyancing was caused not by the defender nor those acting for him. Mr Reid was not approached by the pursuer until 1 March in relation to the obtaining of funding. The English solicitors, Burges Salmon had not received clear instructions regarding the buy out by 17 March, by which time Mr Bedford said, in evidence, that the timing was very tight. Instructions to the English solicitors had been put on hold because of the fact that fees to account from the pursuer were awaited. The delays continued until 31 March when a draft disposition was sent for the first time to the defender's solicitors, and the warranty letter was submitted for the first time, the reason for which no reasonable explanation had been given. No request was made regarding the defender's bank details until 31 March. The pursuer, in his evidence, clearly had it in his mind that the conveyancing delays were caused by the defender failing, through his agents, to produce the principal title deeds until 25 March. This belief, on the part of the pursuer, was not borne out by the evidence. Mr Bedford himself accepted, in his evidence, that the critical conveyancing delays had not been caused by the absence of the principal title deeds. There were also significant delays in the pursuer arranging funding. Even by 31 March finance had not yet been agreed to be available. The conditions of the bridging loan document, 44/63 of process, were not accepted or met by the pursuer on 31 March. He had not signed the bridging loan agreement. [52] Senior counsel submitted that 31 March 2004 was an essential date in terms of the parties' agreement. The option provision, in the present case, was different from that which was considered in the case of Stone v McDonald 1979 SC 363 where the Court held that timeous intimation of intention to exercise the option was not merely a sine qua non for the exercise of the option, but was the prescribed method for the exercise of the option itself. In the present case the option provisions were materially different. They prescribed a particular day for the exercise of the option - 31 March 2004. That was the day on which Clause 10 required certain things to be done. It was a potential date for the termination of the limited partnership and it was the date of the termination of the shareholders' agreement if no notice of exercise of the option had been given. It was, accordingly, of the essence of the contract, and there had been no submission to the contrary. Reference was made to the case of In Re Gray [2005] 1 W.L.R. 815, and Visionhire Ltd v Britel Fund Trustees Ltd 1991 S.L.T. 883. The case of Sudbrook relied upon by the pursuer, was simply dealing with the question of whether an enforceable contract of sale had been entered into when the price had not been specifically provided for. It was held that the contract was enforceable. That case might have been relevant if the shareholders' agreement had a provision which could have resolved the difficulty where a valuer did not provide an appropriate valuation, but the pursuer could not, in effect, ask the Court to provide a different provision from the provisions in the shareholders' agreement. The agreement provided that if the money in respect of the buy out price was not on offer on the day in question, it was not offered in terms of the agreement. For all these reasons the defender was accordingly not in breach of contract and should be assoilzied.Decision
[53] I will in the first place make some additional comments about the witnesses and their evidence. As I have already indicated, while I do not regard the pursuer as having been untruthful, he did, I think, as senior counsel for the defender put it, "gild the lily", from time to time in his evidence. Apart from the idée fixe that the whole failure in the progress towards the exercise of the buy out arose from the non production of the principal title deeds, he also, contrary to the evidence, considered that financing was unconditional and in place for him by 31 March 2004. I have already alluded to the contradiction in the evidence between the two solicitors, Mr Rennie and Mr Bedford as to who was ultimately acting in relation to the conveyancing matter. It is difficult to reach a conclusion as to whether this discrepancy arose due to a general misunderstanding of their respective roles at the time, or an attempt to minimise involvement or responsibility, at least at this stage. In favour of Mr Rennie's position, perhaps, is the fact that Burges Salmon produced a draft disposition and also appeared to be the authors of the warranty letter, 44/44 of process. Mr Rennie, while he started off somewhat robustly in asserting that the major problem was the delay in producing the principal title deeds then, under reference to the correspondence that had occurred with his colleague Mrs Crowther, rather backed away from the robustness of that earlier position. Mr Bedford accepted, in cross-examination, that any delay in the production of the principal title deeds could be explained by the fact that they would be in the hands, not of the defender's solicitor, but in the solicitors of the defender's lenders. In any event, Mr Bedford accepted that his colleague Mr Bremner had office copies of the titles and did not, before 24 March, need the principal deeds. The evidence of Mr Rennie and Mr Bedford, I am satisfied, established that, on 31 March, the steps necessary to obtain finance had not been completed. [54] I have already made a number of observations about the evidence of Mr Rhind. I am satisfied ultimately, that his evidence, taken as a whole and, in particular, when answers given in reply to blatant leading questions by senior counsel for the pursuer, both in chief and re-examination are discounted, was that he intended to provide in 44/32 of process two separate values for the buy out properties. Again I have made observations about Mr Galbraith's evidence. While he started out being very self-confident about his views in respect of Mr Rhind's report, he soon, however, got into difficulty in seeking to support the pursuer's position of the case regarding that report when the whole context of matters was put to him.
The Rhind report and its consequences
[55] I have reached the clear conclusion that 44/32 of process did not provide the prerequisite for a buy-out to be exercised. Both sides were in agreement on one thing at least, and that that was the agreed valuer was required to provide one figure, and one figure only, as the buy out valuation, for the machinery for arriving at the buy out price to work. I am satisfied that Mr Rhind did not provide, in 44/32 of process, one such figure and only one such figure. He never intended to do so and did not do so. Instead he produced two figures based on two different bases of valuation. That was his intention and that was what he did, as he confirmed, subsequently in his letter to Messrs. Clark & Wallace, 44/39 of process. I do not accept the suggestion, made on behalf of the pursuer, that that last mentioned letter was written, as it were, with the benefit of hindsight. It is not inconsistent with what Mr Rhind wrote to Messrs. Maclay Murray & Spens on 27 April 2004, 44/50 of process, when the letter is read as a whole, and in context. A great deal of sterile play was made by senior counsel for the pursuer of the expression "one valuation" in examining the witnesses and in submissions. That expression can be used misleadingly, having regard to the context, unless it is simply being used to describe the fact that Mr Rhind did not produce two separate reports. What he did produce was a single report for both sides which contained two figures on two different bases of valuation. He did not exercise a judgment as to which was the appropriate basis of valuation, far less express a preference for one over the other. It was a remarkable feature of the case that Mr Rhind, apparently until the proof, had never seen the shareholders' agreement. He did not, therefore, appreciate that the exercise to be carried out under it, by the agreed valuer, was to produce a single figure. He recognised though that it was not his place to adjudicate on the dispute that he became aware of between the parties as to the proper bases of valuation. [56] Had matters stopped at the date of Messrs. Maclay Murray & Spens's letter to Mr Rhind on 8 March, 44/25 of process, there could have been no doubt about the matter. What raised the apparent difficulty, in this respect, in this case, is the letter from Maclay Murray & Spens of 12 March to Mr Rhind, 44/26 of process. That was, in my judgment, a bold, but confusing attempt by the pursuer's legal advisers to try to produce an outcome that would satisfy the contractual requirements for the buy out. It was totally inept because, while it directed Mr Rhind to proceed to produce one value then, if by that was meant one figure, he could not do so standing the continuing dispute as to the basis of valuation, which was itself referred to in the letter, simply adding to the confusion. It was also an entirely inappropriate letter to send to Mr Rhind, since its content had never been seen, or agreed to, by Clark & Wallace on behalf of the defender. I agree with senior counsel for the defender that Mr Rhind either consciously, or sub-consciously, ignored it and carried out the exercise which he had been set in terms of Maclay Murray & Spens's letter of 8 March, 44/25 of process. As has been noted Mr Galbraith, in his evidence, accepted that if there was a dispute as to the basis of valuation, then a single figure valuation could not be done. He also said that it would have been inappropriate for Mr Rhind to accept instructions as an expert valuer which would involve him adjudicating upon the basis of valuation. Mr Galbraith's evidence in these respects was entirely consistent with what Mr Rhind said he intended to do and did do when he produced 44/32 of process. The difficulty for the pursuer is that had Mr Rhind done what the pursuer contended he did, namely produce a single figure valuation on, the basis of what was said in the letter from Maclay Murray & Spens of 12 March then 44/32 of process, that could not have been relied upon by the pursuer because the purported instruction contained in 44/26 was never seen, or agreed to by, or on behalf, of the defender. It was clearly accepted up until 12 March by those acting for the pursuer, and in my judgment correctly, that the instructions to the valuer had to be on an agreed basis. For all the foregoing reasons it follows, in my judgment, that one of the essential prerequisites for the buy out, namely the production of a single figure valuation by the agreed valuer never materialised by 31 March, and indeed has not materialised to this date. For that reason alone, the pursuer's claim in this action has a baseless foundation and the defender is entitled to be assoilzied. [57] Lest I am wrong about that, I turn to deal with the other matters which were discussed before me. If, contrary to my clear view, as expressed above, 44/32 of process did provide, a single figure valuation, then I agree with the submissions made on behalf of the defender that it would, nevertheless, fall to be disregarded. If it is to be considered as producing a single figure value, that must have involved Mr Rhind having adjudicated upon a legal dispute between the parties as to the proper basis of the valuation. It is, in that connection, no doubt of significance that the pursuer in Article 3 of condescendence avers "explained and averred that Mr Rhind was not instructed to adjudicate on parties' difference (sic.) but as a valuer". If he did purport to adjudicate upon the dispute then he was in effect assuming the role of arbiter rather than simply expert valuer. In that situation I am satisfied that counsel for the defender was well founded in submitting that the decision could be set aside on what he described as "judicial review grounds". It was clear from Mr Rhind's evidence that in carrying out a valuation of the subjects based on the existence of an agricultural tenancy, he knew nothing of the terms of the lease, in particular the passing rent. He had not seen the shareholders' agreement. He did not, on the evidence, really have a proper understanding of the Land Court proceedings. He had paid no regard to the appointment of provisional liquidators to Scotpigs Limited. What he appears to have done was to make a discount on the open market value which took account of a possible future right to buy in the tenant under legislation that was not in force. That legislation is contained the provisions of the Agricultural (Holdings) Act 2003, in particular Sections 24-34 and Section 72. It was not clear to me that Mr Rhind produced the discount he did on any proper understanding of how that legislation, when in force, might have application to the present case. I am satisfied, therefore, that had 44/32 been an exercise by Mr Rhind of a adjudicating on the legal dispute between the parties then it would fall to be set aside for his failure to take into account relevant factors and for his taking into account irrelevant factors.The pursuer's ability to complete the buy out on 31 March 2004
[58] Had No.44/32 of process satisfied the requirements of the shareholders' agreement, contrary to what I have decided in that regard, then the question would still have arisen as to whether the pursuer was, in any event, in the position to complete the buy out on 31 March. What the pursuer had to do in terms of Clause 10 of the shareholders' agreement to effect the buy out was to pay by way of telegraphic transfer buy out price and the buy out expenses to Mr Innes or his nominee, on the buy out date, i.e. 31 March 2004. I am entirely satisfied that, on the evidence, the pursuer was not in the position to do that, I am, furthermore, satisfied that that state of affairs came about not because of any breach of contract by the defender, but because(1) The shareholders' agreement had placed a tight timetable upon the pursuer;
(2) The pursuer and his advisers left the commencement of the process somewhat late in the day;
(3) The process was not helped by (a) the pursuer having no fewer than three sets of solicitors, (b) the fact that there were other issues between the parties and (c) the fact that there was confusion and overlap of roles as between the various solicitors acting for the pursuer;
(4) As a result of the foregoing, the pursuer did not have a concluded and binding unconditional agreement with lenders to provide him with the buy out price on 31 March 2004 to enable him to make a telegraphic transfer to the defender.
I reject entirely the suggestion that the pursuer found himself in that position because of the defender's agents allegedly delaying forwarding the principal title deeds to the property. The evidence of Mr Bedford and Mr Rennie did not ultimately support that belief on the part of the pursuer. The nearest the pursuer ever got to obtaining the funds necessary to pay the buy out price (as he understood or wished that price to be) was the letter of County Capitals dated 30 March 2004, 44/63 of process. That was an offer of, in effect, a bridging loan subject to a number of conditions. These conditions were never accepted by the pursuer, in the way required by the offer, namely by him signing the offer letter. Mr Bedford, while he said he was not acting for the pursuer as his solicitor in respect of that transaction made it clear, however, that he could never have advised the pursuer to accept the conditions as they stood. Among other things the duration of the loan was not specified, so it was impossible to work out what monthly payments were to be. The pursuer himself accepted that the rate of interest was something that he could not have afforded to pay except for a relatively short time. Other financial arrangements would have had to have been put in place. Mr Bedford said that when the letter of offer was prepared it was considered unlikely that it would ever be called upon. In re-examination he said that its purpose was simply to demonstrate that funding could be available but he accepted that it was thought unlikely that the stage of funding being made available would ever be reached because there was no progress on certifying title. On the basis of the evidence the pursuer, in my judgment, could not have paid the buy out price (as he understood it to be) on 31 March 2004. That situation was not caused by any breach of contract by the defender, in particular in relation to any delay in the production of the principal title deeds or some more general failure in the duty to co-operate, as was suggested from time to time in the pursuer's case. The situation was that the parties' relationship had broken down completely by the time the buy out option fell to be exercised. The shareholders' agreement provides for strict requirements to be met for the buy out option to be exercised and I do not read the agreement as providing any room for any modification of those requirements due to the provisions which refer to co-operation and good faith. I am satisfied that the inability to pay the buy out price on 31 March meant that the right to exercise the buy out option, as a matter of contract, expired thereafter. I agree with the submissions of senior counsel for the defender that 31 March was a material date in terms of the contract and was of its essence. As senior counsel for the defender correctly observed, there was no submission made on behalf of the pursuer to the opposite effect. It was clear that all the various representatives of the pursuer were acting on the basis that 31 March was of the essence. It was the date on which Clause 10 required certain things to be carried out. It was a potential date for the termination of the limited partnership. It was the date for the termination of the shareholders' agreement if no notice of exercise of the option had been given (Clause 21 of the agreement). It was the date to which a balance sheet had to produced to bring about the buy out price for the shares. I am satisfied, therefore, in all the circumstances of the present case, in particular having regard to the nature of the contractual provisions just referred to, the stipulation as to when the option exercise had to be carried out was material and required strict compliance if the option was to be validly exercised - (see Visionhire Ltd per Lord President Hope p.888D-I.) The present case, in my judgment, is distinguishable from the position in Stone v McDonald. In the present case the agreement unequivocally, and unconditionally, provided that the option could be exercised on one day and one day only. The pursuer's argument that, in some way, the right to exercise the option had vested, when he intimated his intention to exercise it, does not do justice to the language of Clause 10 and the structure of the agreement as a whole. Though no doubt the giving of notice of intention to exercise the option was an implied obligation upon the pursuer if the option was to be validly exercised, it was not the exercise of the option itself. I, therefore, agree with senior counsel for the defender that Clause 21 does not assist the pursuer since it is not concerned with his rights in relation to the option, but how the shareholders' agreement might come to an end. I reject, furthermore, the submission made on behalf of the pursuer that, in some way, the pursuer can rely on the decision of the House of Lords in the case of Sudbrook Trading Estate Ltd. Reliance on that case, in my opinion, betrayed another failure to face up to what the parties had themselves actually agreed to in the present case. In Sudbrook the House of Lords were prepared to substitute a means for arriving at a fair and reasonable price, where one of the parties had declined to operate the machinery provided by the contract itself, to arrive at that price. That is a quite different position from the present one, where agreed preconditions for exercising the option, on a precise date, have not been met and where this situation has not arisen because of any breach of contract by one of the parties.
[59] To sum up the pursuer's case, in my judgment, necessarily fails for the following reasons. [60] First, there was never an agreed price for the buy out properties arrived at by a valuation in terms of the agreement. [61] Secondly, and in any event, the pursuer ran out of time with regard to the completion of what he had to do to achieve execution of the option on 31 March both with regard to completion of the legal steps which had to be taken and his obligation to hand over the appropriate consideration on that date. The provisions of the shareholders' agreement in relation to the buy out option were, in my judgment, unsatisfactory from the pursuer's point of view and a degree of foresight would have anticipated the very difficulties that he ran into, difficulties which, as I have noted, Lady Paton, herself, anticipated and recognised in her opinion. The difficulties were, perhaps, compounded by the complete breakdown of the relationship between himself and the defender which occurred prior to February 2004 and may also have been further compounded by his having too many advisers acting for him simultaneously. What, as I have indicated, more than once, cannot be said, on the evidence, is that these difficulties were caused by any breach of contract on the defender's part. [62] I shall, accordingly, repel the pursuer's second and third pleas-in-law, sustain the defender's second and third pleas-in-law and grant absolvitor. I hesitated as to whether, in the event, reduction of Mr Rhind's report ope exceptionis, as sought by the defender, was strictly necessary but, on further reflection, have decided that reduction should be granted on the basis that the document has no legal effect for the purposes of the particular contract, that is the shareholders' agreement.