Act: Dean of Faculty; Simpson & Marwick, W.S. (For the Petitioner)

Alt: Johnston, Q.C., McIlvride; Brodies LLP (For the Second and Third Respondents)

23 June 2009

[1] The court having on 3 June 2009 refused as incompetent the reclaiming motion against the Lord Ordinary's interlocutor of 12 May, the compearing respondents on 12 June enrolled a motion for leave to reclaim late against the interlocutor of 17 February. That motion was enrolled subject to the reservation that it was not accepted that the reclaiming motion against the interlocutor of 12 May was incompetent.

[2] On this occasion Mr Johnston appeared as senior counsel for the compearing respondents. The Dean of Faculty appeared for the petitioner.

[3] Mr Johnston submitted that the omission timeously to enrol a reclaiming motion against the Lord Ordinary's interlocutor of 17 February had been due to mistake or inadvertence. Reference was made to Rule of Court 38.7. It had always been clear that, even after the Lord Ordinary had dealt with the matter of unfair prejudice and any remedy, orders might be required of an ancillary nature. It had been anticipated that there would be a substantial hearing on such matters on 12 May. It was understandable that the compearing respondents or those advising them would take the view (which they had) that the interlocutor of 17 February had not disposed of the whole merits. The terms of the agreement reached in the Minute of Proceedings of 12 May reflected the range of weighty issues which had been outstanding. Apart from that, other matters had been raised: whether the petitioner would be entitled to exercise the right to purchase in respect of one only of the shareholdings, what protection the compearing respondents might have against claims by the Company for losses arising out of the foreign exchange transactions and a matter relating to landfill tax. There were at least two substantive issues which would be advanced in the proposed reclaiming motion: (1) the Lord Ordinary's interlocutor of 17 February on its face allowed the petitioner to purchase one of the shareholdings without requiring him to purchase both - this had not been the basis on which the shares had been valued; and (2) the compearing respondents had a genuine concern that, the purchase prices having been reduced by certain losses incurred on FOREX contracts, they were exposed additionally to the risk of action being taken against them by the Company in respect of the same losses. This might be a matter of some complexity. These prospective grounds of appeal were of sufficient substance to merit the reclaiming motion being received late. Although there had been some delay, there had been no substantial prejudice to the petitioner by it.

[4] The Dean of Faculty opposed the motion. The petitioner had altered his position in light of the expiry of the reclaiming days following the interlocutor of 17 February. He had on 12 May entered into an agreement with the compearing respondents which he would not have entered if there was any question of the purchase of both shareholdings not going ahead. There was never any question of the petitioner acquiring only one of the shareholdings. The suggestion that he might do so had been raised for the first time on 12 May and the position had been made clear in the agreement of that date. The first purchase was being made from private funds, the second from bank borrowing. After expiry of the reclaiming days the petitioner had instructed due diligence to be done prior to his acquisition of the shares. This had involved his incurring fees of £45,000 to solicitors and £35,000 to accountants. These outlays would be wasted if there was a significant delay in the acquisition being carried through - as there would be if the motion were granted. The compearing respondents' actings in entering the agreement on 12 May were consistent only with their accepting that the Lord Ordinary's decision was final. Their actings as directors had been obstructive and in some instances secretive. The petitioner had made arrangements for the re-engagement of a valued former employee, which arrangement was dependent on the Company being in the petitioner's hands by July of this year. There was a real prospect that if matters continued as at present the Company could not avoid going into administration. It was at risk of being in breach of covenants to its lenders. As to the suggested grounds of appeal, there was no substance in the first; as to the second, the value of the shares having been reduced for the purpose of calculating the purchase price, the Company could have no enforceable right of action against the compearing respondents in relation to the same subject-matter.

[5] Mr Johnston in response observed that he had been given no prior notice of the alleged prejudice advanced by the Dean and was accordingly not in a position fully to respond on that matter. The risk of going into administration had not been raised with either of the compearing respondents, the Company had at present no overdraft, the compearing respondents had had discussions with the Company's bankers about the foreign exchange transactions and the Company continued to trade. It was difficult to believe that the due diligence expenditure referred to would have been wholly wasted. The actings of the compearing respondents on 12 May were wholly consistent with a genuine intention to reclaim. The foreign exchange adjustment to the purchase price had reduced the purchase price by more than one-third.

[6] We refused to allow the petition for review of the interlocutor of 17 February to be received outwith the reclaiming days and to proceed out of time. In doing so we were prepared to proceed on the basis that the omission to mark the reclaiming motion timeously had been due to mistake or inadvertence on the part of the compearing respondents or their advisers. Their actings in entering into the various heads of agreement on 12 May were not, in our view, inconsistent with an intention to challenge the earlier interlocutor - though, if that was their intention, their apparent preparedness that the Lord Ordinary pronounce on 12 May a wholly non-dispositive interlocutor is, to say the least, surprising. The precondition for the exercise of the power under Rule 38.7 is accordingly met.

[7] It is clear that that power is wholly discretionary in nature. In these circumstances Mr Johnston very properly placed before us the two grounds of appeal which he envisaged would be presented if leave to reclaim out of time was granted - though he made it plain that these were not necessarily exhaustive. For the purposes of deciding whether or not to grant leave, it is relevant to examine these two potential grounds in the context of the wider dispute between the parties.

[8] The Lord Ordinary found as a fact that the affairs of the Company had been conducted in a manner which was unfairly prejudicial to the interests of the petitioner as a shareholder in it. Neither of the potential grounds of appeal seeks to challenge that finding, which is amply justified by the Lord Ordinary's particular findings about the conduct of the compearing respondents. The Lord Ordinary also found that the appropriate relief was that the petitioner should be allowed to purchase the compearing respondents' shares rather than vice versa. Again, that is not challenged by either of the potential grounds - except in so far as the first of these may suggest that the Lord Ordinary had not, by his interlocutor, given effect to his clear intention that the petitioner buy "the Muir shareholding" (paragraph [54]), that is, the shareholdings of both compearing respondents. We find there to be no substance in that potential ground. We note that counsel for the compearing respondents raised no points as to the form of the proposed order (paragraph [65]) and that at the By Order hearing on 12 May the Lord Ordinary saw no reason to expand upon or clarify his interlocutor. The agreement between the parties (paragraph 4 of the Minute of Proceedings) makes it plain that the petitioner's option to purchase was in respect of both shareholdings. That is, in our view, the natural construction of the interlocutor of 17 February. The compearing respondents are at no risk, in our view, that the petitioner will have the freedom to purchase only one of the shareholdings.

[9] As to the second potential ground of appeal that, as explained to us, was based on a concern that the compearing respondents, having been compelled to dispose of their shareholdings at a price which took into account certain FOREX contract losses, might yet be exposed to legal proceedings at the instance of the Company for losses it might have sustained by reason of unauthorised dealings by them on these contracts. In our view that is res inter alios acta. If the Company has by such dealings suffered a compensatable loss, then that is simply a consequence of the compearing respondents' own actings. At the hearing on evidence before the Lord Ordinary counsel for the compearing respondents expressly accepted (paragraph [64]) that, if the Lord Ordinary came to the view that the FOREX contracts losses were caused by the unfairly prejudicial conduct (as he did), the appropriate disposal was to deduct these losses from the price to be paid by the petitioner for the shares. No suggestion was made that the losses on the contracts in question should be taken into account in any other way. In particular, it was not contended that they had otherwise affected the value of the parties' shareholdings, or that the figure to be settled as the purchase price should be affected by any risk to which the compearing respondents were exposed of proceedings at the instance of the Company. Such a contention would require to have been expressly made, based on relevant averments and supported by appropriate evidence. So far as drawn to our attention, there were no such averments or evidence. The prospect of such being allowed to be introduced in the course of any reclaiming motion is remote.

[10] Against these considerations are to be set the prejudice which the Dean submitted that the Company and through it the petitioner would sustain if leave to reclaim were granted. These proceedings have been ongoing since 2006. Given the strained relations between the parties it is not surprising that the Company's affairs have been prejudiced. Without necessarily accepting the whole detail of the prejudice which the Dean stated, to which Mr Johnston may not have been in a position fully to respond, we are satisfied that significant prejudice would be likely to occur if these judicial proceedings remain unresolved.

[11] In short, there is no challenge, at least on present information, to the Lord Ordinary's findings on unfairly prejudicial conduct and on the remedy that the petitioner be authorised to acquire the shareholdings of both compearing respondents. There is no substance in the suggestion that they are at risk of the shareholding of only one of them being acquired. The risk of proceedings at the instance of the Company is at best speculative and its bearing on the valuation of the shares highly doubtful and without foundation in the pleadings and the evidence. Balancing such risk of proceedings as there may be against the real risk that the Company and the petitioner will be prejudiced by the protraction of these proceedings, we exercised our discretion against granting leave to bring the reclaiming motion out of time.