For the Petitioner: Party

For the Respondents: Bowen; Tods Murray

4 February 2011

The petition

[1] This petition relates to the conduct of the affairs of the first respondent. It was raised in November 1994. The petitioner is a shareholder in the first respondent. He has 24 of the 100 issued ordinary shares in the company. The second, third and fourth respondents were formerly shareholders with holdings of 24, 25 and 25 shares respectively. The fifth respondent held the remaining two shares. The sixth respondent was the company secretary. The fifth respondent was discharged from the process in February 2000 and the sixth respondent did not enter appearance. Shortly before the petition was lodged, the shares of the third, fourth and fifth respondents were transferred to the second respondent who accordingly then held 76 shares.

[2] The petition is brought under section 459 of the Companies Act 1985. In the operative part of the prayer the petitioner seeks an order requiring the company and certain of its shareholders to purchase the shares in the company held by him at a price that represented, at the valuation date, that proportion of the value of the whole shares in issue which the nominal value of the petitioner's shares bore to the nominal value of the whole shares in issue. The petitioner also sought an order requiring the company to refrain from holding an extraordinary general meeting or from considering a proposed resolution to sell the company's heritable assets or from selling those assets. An interlocutor to that effect was granted in December 1994. That is no longer an issue.

[3] The central issue was and remains whether the affairs of the company were being, or had been, conducted in a manner that was unfairly prejudicial to the petitioner's interests. That turned on an allegation by the petitioner that there had been a series of irregular transactions, the details of which need not concern us at this stage, the result of which was that the assets of the company, and therefore the value of shares, were grossly understated.

The 2000 agreement

[4] The petitioner sought to have the value of the shares assessed as at the date of the presentation of the petition, that is to say 25 November 1994. However in 2000 the parties entered into an agreement in the following terms:

"The parties hereby agree that they will co-operate in the appointment of an appropriate expert, for the purposes of remitting to him the undernoted matters. Such agreement will be made within four weeks of the later date of execution of these presents, failing which the President from time to time of the Institute of Chartered Accountants in Scotland may be requested by other party to select and appoint an appropriate forensic accountant.

The expert will be instructed to value Bayne Services (Edinburgh) Limited (hereinafter referred to as 'the Company' as at 30 November 1998 on the following basis. He will be required to investigate the affairs of the Company, by reference to the process in the present action, including the pleadings and documentary evidence especially the accounts of the Company and working papers, and by such means and with regard to such further evidence as he considers appropriate, taking into account, but not limited to, the following factors, namely:-

(1) the nature and extent of the costs incurred by the Company in connection with the sale and re-purchase of Dalnaglar Castle between 1992 and 1993;

(2) the nature and value of the benefits enjoyed by the directors of the Company from their occupancy, if any, of (i) Dalnaglar Castle or part or parts thereof from 1984 to 1994, and (ii) 10 and 11 Belford Road, Edinburgh from 1984 to 1998;

(3) The source of the funds identified as those sums constituting the directors' and shareholders' loan accounts, verification of payment and receipt and the sums paid to and from such accounts from time to time.

He will be asked to examine and report on the accuracy of the accounting and financial records relating to such entries, if any, and the effects of such entries, or failure to record or misrecording, if any, on the value of the Company and to comment on any ancillary issues of accounting practice or probity. He will be requested to ascertain the effect of such transactions, or benefits, on the value of the Company in order to arrive at a valuation of the Company as at 30 November 1998, and to contrast such figure with the valuation arising from existing accounting records.

The parties undertake to assist the expert in such manner as he may request. The parties agree to abide by the valuation of the Company arrived at in accordance with the foregoing, and to treat the same as a fair and accurate valuation. The parties agree that the expert shall be entitled to order that all or a part of the legal or other expenses of one party shall be paid by the other party. The expenses of appointment of the expert are the joint and several liability of the parties without prejudice to the rights of the parties thereafter to seek relief inter se in terms of any determination by the expert of a proportion in which each party shall pay his expenses."

This agreement held out the prospect that the true value of the company and therefore its shares could be determined by a skilled valuer thereby saving the time and expense of a prolonged and complex proof in this court.

[5] By letter of engagement dated 29 July 2002 the parties instructed Chiene and Tait, Chartered Accountants, Edinburgh to value the company as at 30 November 1998 in accordance with the remit set out in the 2000 agreement. The effect of that agreement was to substitute a new valuation date for the date specified in the prayer. This point is not contentious.

The valuation

[6] On 10 October 2006 Chiene and Tait delivered their valuation. They calculated that each share was worth £1,542. The petitioner's holding was therefore worth £37,016. That together with his loan balance of £15,757 brought out a total due to him of £52,773. The petitioner considered that this value was erroneous and that he was due about £1 million. He thereupon sought to argue that the valuation was not binding but had brought out merely a provisional figure. By interlocutor dated 21 August 2007, the Lord Ordinary held (1) that the valuation was binding on the parties and (2) that since that was the only live issue remaining in the case, it remained only for the petitioner to execute a transfer of his shares and to receive in exchange the full consideration due to him under the valuation.

The submissions for the petitioner

[7] In this reclaiming motion the petitioner has renewed the submission that the valuation is not binding. He has submitted that in the context of section 459 of the 1985 Act the court has the power to grant a remedy that is equitable and that, in light of certain irregularities brought out by Chiene and Tait the court should have the company valued of new. In addition, the petitioner has sought leave to amend his pleadings in order to raise two new pleas namely (1) that a letter written to him by the third respondent in 1997 was an obligatory document that was binding not only on the third respondent but also on the company itself; and (2) that the petitioner, qua shareholder, could competently represent the company's interest and pursue a claim by the company for recovery of sums of money wrongfully taken from it. The petitioner proposed that he should be given time to have a suitable minute of amendment drafted by a lawyer

[8] We have refused leave to amend for three related reasons. First, the motion comes far too late in a process that has been in dependence for over sixteen years. Second, the petitioner has failed to tender a proposed Minute of Amendment setting out the averments that he seeks to add to his pleadings. Third, we are not prepared to countenance further delay to enable the petitioner to seek to have a Minute of Amendment drafted professionally. In any event, it appears to us from the petitioner's description of the proposed amendment that it would be of doubtful relevancy to say the least. That being so, as the petitioner recognises, the reclaiming motion now stands or falls on the single question whether the 2000 Agreement binds the pursuer to accept the valuation brought out by Chiene and Tait.

Decision

[9] If the valuation exercise carried out by Chiene and Tait had been fundamentally vitiated; for example, by fraud or misconduct on the part of the valuer, it would have been open to challenge by an action of reduction. But there has been no such challenge to the valuation. On the contrary, the petitioner does not suggest that the valuation itself is voidable for any such reason. He simply contends that it was only a provisional draft. His case is that the agreement should be interpreted in that sense; that the valuation has brought to light material facts that suggest that the value is greatly understated and that, whatever the effect of the agreement, the court in exercise of its equitable powers should allow the valuation to be re-opened.

[10] In our opinion, the valuation must have effect unless and until is reduced. On a straightforward interpretation of the agreement, it is final and binding on the parties. We are further of the view that since the parties have chosen to resolve the central issue of fact by way of an expert valuation this court has no power in the context of a section 459 application to disturb that valuation.

[11] We therefore consider that the reclaiming motion is misconceived and we refuse it.