Scottish Court of Session Decisions

OUTER HOUSE, COURT OF SESSION [2011] CSOH 23
CA97/09	OPINION OF LORD GLENNIE in the cause TIMESHARE MANAGEMENT SERVICES LIMITED Pursuers against LOCH RANNOCH HIGHLAND CLUB Defenders ­­­­­­­­­­­­­­­­­________________

Pursuers: Campbell Q.C., Barne; Balfour + Manson LLP

Defenders: Hajducki Q.C., Wallace; McKay Norwell WS

2 February 2011

Introduction

[1] The first defender is the Loch Rannoch Highland Club (hereafter "the Club"). The Club is a members' club, whose members consist of individuals who have purchased the use for one or more weeks of the timeshare apartments situated on the Club premises on the edge of Loch Rannoch.

[2] The business of the Club is run (at least nominally) by a Management Committee consisting of a number of members of the Club elected by the membership as a whole and two other individuals appointed to the committee by Macdonald Resorts Limited ("MRL"), an arrangement having its origins in the fact that MRL was a founder member of the Club. In practice, decisions as to the running of the Club are taken by a management sub-committee consisting of the elected members of the Management Committee. Except for one limited purpose, it is unnecessary to distinguish between the Management Committee and the management sub-committee. Other than in that context, I shall simply refer to it as "the Committee". The second to sixth defenders are members of the Committee.

[3] The pursuers are Timeshare Management Services Limited ("TMSL"). TMSL was set up in 2002 specifically for the purpose of managing the business of the Club. Previously that management function had been carried out by MRL. Over the years before 2003 disputes had arisen between the Club and MRL. It is not necessary to go into those disputes in any detail. They were only finally settled, after much litigation, in October 2008. Be that as it may, in 2003 the Club dispensed with the services of MRL as managers and replaced them with TMSL.

[4] The circumstances giving rise to the setting up of TMSL and the award of the management contract to them were explained by Eddie Monks, one of two current directors of TMSL. Mr Monks is a qualified accountant who has had long experience of accountancy and finance within local government and had, at the material time, recently been Financial Controller of a Division within Scottish Power. At about that time he had also been appointed Director of another timeshare management company. He had owned a timeshare unit at Loch Rannoch since about March 1998. At the AGM in 1998, the then Chairman asked whether any member who was an accountant could provide some help in understanding the financial figures being presented by MRL. At the AGM in the following year, the Chairman reiterated that plea and Mr Monks agreed to be co-opted onto the Committee. He spent some months examining the accounts and supporting documents produced by MRL, and became convinced that significant savings could be achieved if the management of the Club could be put out to competitive tender. The Management Contract with MRL was due to expire on 30 June 2003 and Mr Monks convinced the elected members of the Committee that action should be taken to ensure that competitive tenders for the management of the Club's affairs should be obtained in the Autumn of 2002 so as to allow a smooth transition to the successful tenderer by the end of June 2003..

[5] A number of timeshare management companies were identified who, it was thought, might be willing to submit a tender. Mr Monks advised the Committee that he would form a company to submit a bid as well. His main concern was to ensure that at least two bids were submitted so as to allow some comparison of costs and value to be made. In May 2002, he and three elected members of the Committee, John Coker, John Davidson and Angus Gordon, formed TMSL. The company was registered on 1 July 2002. Tenders were invited by 22 October 2002. TMSL submitted a tender but, in the event, no other companies tendered because of the dominant position of MRL.

[6] Arrangements were made for an ad hoc committee of other owners to be formed to examine and assess the tender. Because TMSL's bid was the only valid tender submitted, the ad hoc committee agreed to accept a late tender from MRL. To avoid any conflict of interest, the three other Directors of TMSL (Messrs Coker, Davidson and Gordon) resigned from the Committee and others were co-opted to fill the vacancies. In due course, in June 2003, a Management Agreement (for Provision of Services) (hereafter "the Management Agreement") was awarded to TMSL. There were challenges from MRL to the process but, despite this, TMSL settled into their role as managers.

[7] For the first three years, relations between the Committee and TMSL were good. TMSL were successful in reducing expenditure at the Club and their efforts were generally applauded. However, a number of incidents in 2006 soured relations between TMSL and at least some members of the Committee. I shall refer to these incidents in some detail later. Relations between TMSL and the Committee never fully recovered. Further incidents in 2007 and 2008 led to the Committee serving on TMSL in October 2008 a letter ("the rescission letter") stating that they were terminating the contract for repudiatory breach. TMSL did not accept the contents of that letter. They in turn treated the Club as being in repudiatory breach of the Management Agreement and purported to terminate for that breach. One way or another, therefore, the Management Agreement came to an end.

[8] The rescission letter is dated 24 October 2008. It was handed to Mr Monks and Mr Gordon - by this stage they were the only remaining directors of TMSL - just before a Special General Meeting of the Club ("the SGM") held on 25 October 2008. Mr Monks and Mr Gordon were there in their personal capacity as Club Members. The letter set out in the second and third paragraphs the grounds then relied upon by the Club for terminating the Management Agreement. Those paragraphs were in the following terms:

"The Club views your recent actions, which are contrary to your duties under the Agreement and in breach of its terms, as sufficiently fundamental to amount to a repudiation by you of the contract contained in the Agreement and both entitling and requiring the Club to treat the contract as at an end.

Your actions to which we refer include your misappropriation of the Club member list and details for the personal use of two of your Directors in sending written material to Club members including false and misleading information; failure to carry out and obstructing proper requests or instructions of, or on behalf of, the Management Committee of the Club. There has been taken into account previous action by your Directors in seeking to purchase the Club Office in your own name, contrary to your contractual obligations to obtain an option to purchase for the Club, and your attempt to improperly influence Committee election voting in 2006. These actions have been detrimental to the democratic and good management of the Club and detrimental in varying degrees to the interests of the Club and its members."

[9] The principal issue in this case is whether TMSL were in material or repudiatory breach of contract so as to entitle the Club to terminate the Management Agreement by their rescission letter. If the Club was so entitled, TMSL's claim for damages for repudiatory breach must fail. If, on the other hand, the Club was not so entitled, then it is not disputed that by their rescission letter the Club repudiated the Management Agreement, entitling TMSL to bring it to an end and claim damages. This is the first issue to be determined in this action. If TMSL succeed on this point, it is necessary to go on to consider the question of what damages they are entitled to recover.

[10] There is also, however, a separate point about what sums are due by which party to the other under the bonus arrangements contained in Clause 3 of the Management Agreement. I shall consider this question separately.

The Management Agreement

[11] The Management Agreement was signed on 5 June 2003. It provides, so far as material, as follows:

"Whereas The Committee of The Club have responsibility ('the responsibilities') for the management and administration of the property and affairs of [The Club] and wish to delegate some of the duties and obligations required to fulfil that responsibility; THEREFORE The Committee on behalf of The Club and TMS Ltd. have agreed and do hereby agree as follows:

...

3. During the period of this contract TMS Ltd. will be responsible for advising The Club on all aspects of the responsibilities and for carrying out or supervising as required such of those responsibilities as The Club will determine and instruct, whether in matters of principle, policy or detail. Without prejudice to that generality TMS Ltd. will be responsible for advising The Club on all aspects of health and safety, fire, child protection, hygiene and employment matters, including regulations and compliance measures and procedures. The duties of TMS Ltd. hereunder will also include re-sale of holiday certificates and rental of occupation rights thereunder of members of the Club and provision, procurement or arrangement of leisure facilities for members of the Club.

4. The Club will employ all staff necessary for the fulfilment of the responsibilities up to the level of General Management of the Club and its Resort at Kinloch Rannoch, Perthshire. TMS Ltd. will be responsible for staff recruitment, training and supervision and for procurement for The Club of all furniture, furnishings, equipment and information required for the fulfilment of the responsibilities. All information obtained and retained under this contract will remain the exclusive property of The Club and will not be disclosed by TMS Ltd. to any other person or body without the express permission in writing of The Club. For the avoidance of doubt such information will include any details of, or relating to, members of the Club.

5. TMS Ltd. will make available throughout the period of this contract for administration and reception purposes and any other purposes required from time to time by The Club the property comprising the former doctor's surgery in Kinloch Rannoch including the ground pertaining thereto. TMS Ltd. will procure that The Club will have an option to purchase that property for a period beginning one year from the date of commencement of this contract to five years from that date at the price of £75,000 increasing from that date yearly at the rate of the Retail Price Index. Should The Club exercise that option within the first two years from 1 July 2004, then in addition to the said price the purchaser will pay to the seller two years rental at the rate of £10,500 per year.

6. The Club will pay to TMS Ltd. the sum of £80,000 for the fulfilment of their duties and obligations hereunder for the period from 1 July 2003 to 30 June 2004, said sum being payable by monthly instalments in advance. During each succeeding year of this contract the annual payment will be £80,000 increased by the increase in the rate of the Services Sector element of the Retail Price Index from 1 October 2002 to 1 July at the beginning of such yearly period and in each year payment will be made monthly as aforesaid.

7. The Club will also pay to TMS Ltd. a performance bonus based on certain savings in expenditure below the level of such expenditure by the Club in the year 200203 or the average of that year and the two previous years (whichever is the lower figure) ("the foundation figure"). The expenditure items concerned will be all items of expenditure of the Club except wages and salaries; general rates; Special Project costs; Inventory items; sinking fund contribution; and management fee and factorial fees. The auditors of The Club will be requested to calculate the bonus payable hereunder on completion of their audit of the annual accounts and said sum will be paid within one month of the date of the auditor's certificate. The bonus will be calculated on the balance of the expenditure items concerned so that reduction in any item will be offset by any increase in any other item and the bonus paid on any net savings figure. Where a bonus has been paid on any savings figure in any year then that figure will be taken as the foundation figure for any future year's calculation, without detriment to any existing bonus. Any increases in such net expenditure figure in future years (after allowing for increases in the Services Sector of the Retail Price Index) will result in a claw back of bonus. The bonus will be paid at the rate of one-third of the amount of such savings for the year in question and repeated at that rate for the three succeeding years. In respect that the intention is that the bonus will be paid in respect of sustained savings only the amount of bonus in any year will in the event of failure to agree be determined by the auditors of The Club whose decision will be final, binding and unchallengeable.

8. TMS Ltd will be paid by The Club one third of commissions received by The Club from sale of holiday certificates and rental of occupation rights thereunder.

9. Except as provided herein, TMS Ltd will make no gain or profit of any kind out of or arising from or in connection with the performance of their duties hereunder, and any sum received by TMS Ltd in the course of and in connection with the performance of their duties hereunder, including benefit in kind, will belong exclusively to The Club."

Clauses 10 and 11 provided for termination by the Club in certain circumstances relating to the expenditure savings achieved by TMSL and in the event of a change in beneficial ownership of a certain proportion of the issued shared capital of TMSL. Clause 13 provided that TMSL were not entitled to assign or sub-contract any of their duties or obligations under the Management Agreement without the express approval in writing of the Club. Nothing turns on those provisions.

The Club's allegations of breach

[12] In its pleaded case, the Club has added to the complaints against TMSL which it made in its letter of 24 October 2008. It is, of course, trite that a party may seek to justify its rescission by relying upon grounds other than those set out in its termination notice. It is therefore necessary to consider each of these grounds now relied on. I propose to do so, so far as possible, in sequence.

Purchase of the Club office

[13] MRL had operated out of premises connected with the Loch Rannoch Hotel. It was clear that, once MRL ceased to be the Club's Managers, these premises would not be available to the Club. An office was needed from which TMSL, as managers, could operate. In the spring of 2003, Mr Coker learned that the doctor's surgery in Kinloch Rannoch would soon become available since the practice was moving to a new Health Centre. Before the property was put on the open market, Mr Coker had discussions with the seller to explain the need for the premises and to assure him that it was TMSL's intention to use premises as an office rather than as a holiday home. A price was agreed with the seller. Before a formal offer was submitted, however, Eric Morten, a Club member, identified a Mrs Ann Dale as somebody who was seeking an investment opportunity and would be able to finance the purchase of the property. This was to the advantage of both TMSL and the Club, since the Club had no funds at that stage, and such an arrangement would save TMSL having to tie up capital in the purchase of the property. It was agreed that Mrs Dale would purchase the property and she did.

[14] The arrangements were as set out in an e-mail from Mrs Dale to Mr Gordon of TMSL dated 11 May 2003. The terms of that e-mail, so far as material, were as follows:

"Dear Angus

I have seen the catalogue/brochure for the Doctor's place in Rannoch and I understand you are making a bid for the site this coming week.

I am the investor.

My name is Ann Margaret Dale. ...

If we are successful I am happy to offer TSML (sic) the following lease.

Five years lease @ £10,500 pa and you to renovate to your requirements.

An option to purchase after 3 years, or after 3 year's rent but no later than 5 years. The price would be the same total price which would include all expenses as paid in my original purchase whether the value goes up or down.

The rent is quarterly in advance to my bank account (A Dale) by standing order or private cheque to start with.

In effect I am funding this operation for you so it will release you funds for other expenses that might arise when starting up TSML.

Kind regards

Ann"

In short, therefore, Mrs Dale was to purchase the property so as to free up funds for TMSL. TMSL would then lease the property on a five year lease, with an option to purchase after three years (or after three year's rent had been paid) but no later than five years, all for the same price as that for which Mrs Dale purchased the property. The benefit to Mrs Dale was in the rent she was to receive under this arrangement, which represented a return on her investment for three to five years of around 14% a year.

[15] Mrs Dale purchased the property for £75,000. At the commencement of the management agreement TMSL moved into the property and began paying rent using Club funds as was intended. The agreement with Mrs Dale set out in the e-mail of 11 May 2003 was never formalised in anyway. No written contract was drawn up.

[16] Three years later, in 2006, TMSL sought to proceed with the option to purchase. TMSL approached the solicitors who had acted for Mrs Dale in connection with the purchase in 2003, Messrs Raeburn, Christie, Clark & Wallace (hereafter "Raeburns"), seeking to take up the option to purchase. On 19 May 2006 Raeburns wrote to Mrs Dale to this effect, saying that they were looking forward to receiving her instructions as to whether she was happy for them to progress matters on her behalf. Mrs Dale replied on 22 May 2006 in the following, somewhat peremptory, terms:

"You might like to inform your clients of the following.

I agree that no formal lease was ever entered into, nor did I ever suggest one as my agreement was with the Loch Rannoch Highland Club and it was they that paid my rent through a management company called TMS limited, a company who around the time of my purchase I thought was part of the Loch Rannoch Highland Club. My e-mail to them was the details of the agreement that I had made with the club. I never had any reply to that e-mail, there was no formal agreement of the e-mail, and there was no registration in the deeds whatsoever for an option."

Standing the terms of the e-mail of 11 May 2003, the suggestion that the agreement reflected in that e-mail was with the Club is surprising. Raeburns wrote to Mrs Dale on 24 May 2006 in the following terms;

"Thank you for your letter of 22 May. In the circumstances I have passed a copy of this to Angus Gordon of TMS. I have also advised him that having acted for you in the purchase there is a clear conflict of interest between the parties here and that I will not be able to represent either party further in relation to this matter. They will no doubt seek independent legal advice as to the validity of any agreement between the parties."

TMSL wasted little time in approaching other solicitors. On 26 May 2006, MacNairs, solicitors, acting on their behalf, wrote to Raeburns on the understanding that Raeburns still acted for Mrs Dale. They referred to the e-mail of 11 May 2003 and said that TMSL now wished to exercise their option to purchase. They confirmed that they were in funds to proceed with completion of the purchase in early course. They concluded in these terms;

"In the event that your client seeks to renege on the terms of the Agreement in so far as the option to purchase is concerned, our clients will have no alternative but to proceed to court."

On that same day, Raeburns, having received the letter from MacNairs by fax, wrote to Mrs Dale enclosing a copy of that letter and added this:

"I have an ethical problem in continuing to act for you here unless of course you do wish to proceed with the sale. As you will recollect, I acted for you in the purchase of the property but I also act for Angus Gordon (although not for Timeshare Management Limited as such). I was not involved in any negotiations between you and Timeshare Management Limited prior to the purchase. However, I do consider that I would have a conflict of interest in representing you in relation to any dispute as to the validity of the option agreement or otherwise."

He suggested that she might wish to take independent advice.

[17] Mrs Dale replied directly to MacNairs on 29 May 2006. She asked them to send her

"[any] legally signed documents of acceptance, any draft leases and completed leases signed and countersigned and any proof of option and recorded and signed regional items on the land registration regarding the building, as would be normal in such instances. Also, proof that TSML paid the rent from their own funds and not Loch Rannoch Highland club from whose fund I receive my rent. The alteration and enhancements are provided by the club for the club. I am not averse to signing to the club, building and land, but not to TSML (sic). The Club have hinted that they are now in a position to do so."

At the same time, Mrs Dale contacted Raeburns asking whether they held any legal documents relevant to the question. Raeburns replied on 2 June 2006 saying that they did not hold any such documents. McNairs wrote to Mrs Dale again on 5 June 2006 to the effect that they were taking their client's instructions; and wrote to her again on 20 July 2006 asking for the name of her current legal advisers in place of Raeburns.

[18] According to Mr Monks, when TMSL learnt that Mrs Dale was about to sell the property directly to the Club, they raised their objections to the Committee. The disagreement was referred to Mr Anderson, the Club's solicitor, who ruled that there had been no agreement between TMSL and Mrs Dale. TMSL decided not to take the matter any further and the Club proceeded with the purchase of the property from Mrs Dale.

[19] It was submitted on behalf of the Club that, in attempting to purchase the Club office in 2006, TMSL was acting in breach of clause 5 of the Management Agreement. This provided that TMSL would procure that the Club had an option to purchase the property. In seeking to purchase the property for itself, TMSL was acting in breach of that obligation to procure that the Club had the option to purchase the property. I do not accept this argument. When considering the terms of the Management Agreement, it must be borne in mind that the arrangements with Mrs Dale in respect of the former doctor's surgery were already in place by the time that the Management Agreement was signed. Though there was no direct evidence of this, it is reasonable to infer that the terms of clause 5 had been drawn up before the precise details of the agreement between TMSL and Mrs Dale were known. Clause 5 speaks to the future ("TMS Limited will procure..."). By the time the Management Agreement was signed, TMSL had procured an option in its own name. I reject the gloss, which was sought to be put on the e-mail, that the agreement recorded in it was an agreement with the Club rather than with TMSL - it was plainly with TMSL, albeit that questions of enforceability arose because it was not subsequently reduced to writing. There was nothing contrary to the terms of clause 5 in TMSL themselves seeking to take up their option to purchase with a view to making the property available to the Club. In this way they would be procuring that the Club had the option to purchase, albeit from TMSL rather than from Mrs Dale.

[20] It is not clear to me quite why this became such an issue. In the evidence given by the Club and in cross-examination of Mr Monks and Mr Gordon, there was a suggestion that TMSL was trying to purchase the property for itself, either to keep it, in breach of its obligations to the Club, or make a profit out of it. Mr Monks in his evidence said that when they reached the Agreement with Mrs Dale in May 2003 it had been their intention to sell the property on to the Club for the same price of £75,000. However, when he saw the terms of clause 5 of the Management Agreement, he was "pleasantly surprised to note that the onward sale price could be inflated by RPI". He assumed that this was to be TMSL's "finder's fee", as he called it, for having sourced and secured the purchase of the property. Much time was taken in cross-examination of Messrs Monks and Gordon in exploring whether a "finder's fee" was ever mentioned at the time of the Management Agreement or subsequently; and it was established in the evidence of witnesses called by the Club that they had never heard of such a thing until the expression first appeared in the pleadings in this case. On that basis, it is difficult to see how the Club's allegation that TMSL were acting in an underhand way so as to make a profit on the deal can be supported. TMSL never told them at the time that they wanted to make a profit, or obtain a "finders fee", and an unspoken intention, even if it were the intention at the time, cannot constitute a breach of contract. In any case, Mr Gordon's evidence was that he had never thought in terms of obtaining any "finder's fee", indeed he had never heard that expression used. I accept that evidence. In so far as Mr Monks had, at the time of the purchase in 2006, any intention of obtaining the RPI uplift on the purchase price, that was an intention which he kept to himself - but I think it more likely that it was merely an afterthought which occurred to him when preparing the case and giving instructions for the pleadings.

[21] In her evidence, Mrs Dale maintained that she had not intended to give an option to purchase to TMSL - she had thought that TMSL was simply part of the Club. I do not question her honesty on this point. However, of greater importance is the fact that, as emerged from her evidence, both the terms of her e-mail of 11 May 2003 and the position which she later adopted in 2006 (when contesting TMSL's attempts to purchase the property) were to a large extent informed or guided by Mr Morten. He has since died. It would have been useful to hear his evidence on this part of the dispute. He clearly took the view that the option belonged to the Club. Two letters written by Mr Anderson in July 2003 (7/14 and 7/15) suggest that this was in fact the intention of the Club in 2003. Mr Anderson was not asked about these letters in his evidence, and neither was Mrs Dale. I am prepared to assume that in advising Mrs Dale, Mr Morten was putting forward the position which he and Mr Anderson believed to be true. But it does not follow that TMSL were in breach when they first intimated to Mrs Dale, through solicitors, that they proposed to exercise the option to purchase. Rather than assist Mrs Dale in drafting her peremptory reply of 22 May 2006 which rejected out of hand TMSL's claim to have an option to purchase, it would have been better if Mr Morten (or Mr Anderson) had contacted Mr Monks or Mr Gordon and sought to clarify the position. It is not clear why they did not do so. At all events, when in July 2006 Mr Anderson did confirm his view that the option belonged to the Club, TMSL accepted this.

[22] This episode clearly caused a lot of bad feeling between TMSL and Mr Morten and, through Mr Morten, some of the members of the Committee, particularly Mr Kenneth. Mr Kenneth, who was Chairman of the Committee for much of this period, thought that TMSL "were clearly in bad faith throughout this whole episode". Based on what he was told by Mr Morten, he said that "three different solicitors firms wrote in succession to Mrs Dale on behalf of TMSL seeking to exercise the option to purchase"; and that in each case Mr Morten challenged them, telling them that the option to purchase was held by the Club and requesting evidence from them of TMSL's purported option. The reference to three firms of solicitors is plainly wrong. Raeburns, the first firm of solicitors approached by TMSL in connection with the attempt to exercise the option to purchase, had acted for Mrs Dale in 2003, and were therefore the obvious people to approach in that regard. When Raeburns, quite properly, decided that they could not get involved if there was a dispute about the option, TMSL sought assistance from MacNairs instead. To say that three different solicitors firms had sought to exercise the option on behalf of TMSL was not only untrue; it was an exaggeration which, if it was deliberate and not merely careless, must have been designed to show TMSL in a bad light. As evidence of TMSL's bad faith, Mr Kenneth relied on the fact that Mr Gordon had "said nothing to the Committee about the ambiguous e-mail he had from Mrs Dale, but produced it to three different firms of solicitors in an attempt to exercise a non-existent option". I have already dealt with the point about the "three different firms of solicitors". There was nothing remotely ambiguous about the e-mail. On its face it purported to grant an option to TMSL. Mr Kenneth alleged that Mr Gordon had "tucked it away for future use, not discussing it with anybody in the Committee"; but that account wholly ignores the fact that Mrs Dale's e-mail was drafted with the assistance of Mr Morten who, albeit not on the Committee at that time, was clearly in touch with Mr Kenneth about these matters. Mr Kenneth said that if TMSL was proposing to purchase the premises for the benefit of the Club, they would have told him what they were doing. That might have been sensible, but there was no evidence that they were asked to explain themselves. Mr Morten and Mr Kenneth simply jumped to conclusions. Mr Kenneth referred to a telephone conversation with Mr Monks in the spring of 2006 in which he claimed to have told Mr Monks that the Committee had decided to exercise the option; he said that Mr Monks appeared to be taken aback, because he had thought that the Club had decided not to purchase. For his part, Mr Monks did not recall saying this. If he had said this he would have recalled it. I accept Mr Monk's evidence as being more consistent with the sequence of events which I have described. Further, I regret that I did not feel able to rely generally on Mr Kenneth's evidence. I have already referred to a number of occasions where his account of the conduct of Messrs Monks and Gordon has involved exaggeration, vilification and mischaracterisation. His general reliability was, in my view, undermined by his indignation about Messrs Monks' and Gordon's conduct which he perceived, without any proper basis, to be at times disreputable and at other times dishonest.

[23] The perception that TMSL had acted in an underhand manner appears to have spread amongst other Committee Members. Professor Galbraith, for example, the current Chairman of the Committee, was not directly involved, but his recollection of events was clearly heavily influenced by what he was told by Mr Morten and others. His recollection was that it was Mr Morten who first became aware of the doctor's surgery in Kinloch Rannoch becoming available. I am satisfied that that is not correct and that it was Mr Coker who first found the property and negotiated with the owner. He went on to say that Mr Morten arranged that there should be an option exercisable by the Club to buy the premises and that he was quite clear that the option belonged to the Club. While this may have been the intent, it was not what the e-mail said. Clearly he took the view that TMSL had acted in an improper fashion, but it seems to me that this was based upon an interpretation of events filtered through Mr Morten. Mr Shandon Lee, who joined the Committee towards the end of 2003, and therefore based his understanding on what he was told by others, stated, wrongly, that it was Mr Morten who found the property and negotiated an option for the Club to purchase it from Mrs Dale. Mr Anderson, the Club's solicitor, appears to have regarded TMSL's conduct as "appalling" because, in his view, TMSL had attempted to purchase the property in contravention of their obligation to obtain an option for the Club. He considered their behaviour to be "devious and dishonest in the extreme". His view was that had TMSL been intending to purchase the property and then hand it on to the Club, they would have said so at the time, and that their failure to do so left "the obvious conclusion" that they had had no such intention. According to him, TMSL, by misrepresenting the true position to Mrs Dale, tried to purchase the office (in breach of their duty under the contract) with the intention of using the advantage thus gained as a lever against the Club. This is all highly emotive and I reject it. It was clearly, in my view, coloured by the animosity that subsequently prevailed.

[24] I did not regard Mr Anderson as a wholly satisfactory witness. I do not doubt his honesty. I am satisfied that he believed what he said. But he spoke in strong emotive terms and was ready to accuse Mr Monks and Mr Gordon of dishonesty without, to my mind, having any sufficient basis for doing so. As will be seen, this was not the only episode in respect of which he ventured such strong but unfounded opinions. I found this surprising in a person of his professional standing. It seemed to me that his evidence was often partisan. I would not rely on it in opposition to the evidence of others except where it was supported by other evidence.

[25] I should mention that Mrs Dale said in her evidence that during the period under discussion in 2006, she received a "threatening" phone call from Angus Gordon accusing her of trying to renege on the deal. Having seen him in the witness box at some length, I am satisfied that Mr Gordon is unlikely to have intentionally made a threatening phone call to Mrs Dale or anyone else. But he clearly had firm views and was not afraid to express them, forcefully if need be. It is quite possible that if there was a telephone call (though Mr Gordon did not recollect one) and that Mrs Dale might have interpreted his tone as threatening. But I do not think that anything turns on this.

[26] In summary on this point, I do not accept the arguments put forward on behalf of the Club that TMSL acted in breach of contract in attempting to purchase the property in May/June 2006. I accept the evidence of Mr Monks and Mr Gordon that they tried to buy it with the intention of passing it on to the Club. Standing the Agreement reached in 2003 whereby, in terms of the e-mail, Mrs Dale was to sell to them, that was the obvious way in which they could procure that the Club could purchase the property. I am not persuaded that, at the time, they had any intention of doing otherwise than passing it on to the Club for the same price as they paid for it. The suggestion of the "finder's fee" was probably an afterthought, and in any event was never articulated at the time. The idea that TMSL were seeking to purchase the property and hold it against the Club as some sort of lever to improve their position is, to my mind, nonsensical since, had they refused to hand it over to the Club, they would then have been immediately and obviously in breach of clause 5 of the Management Agreement.

[27] It is clear that this incident caused bad blood between Mr Morten and the directors of TMSL. Mr Gordon and Mr Monks sought to shrug it off and said that, as far as they were concerned, there was no bad feeling. I am not persuaded that this was necessarily so. However, what is clear is that, from that point onwards, not only did Mr Morten have a difficult relationship personally with the directors of TMSL, but he also poisoned the atmosphere by spreading it around the Committee that Eddie Monks and Angus Gordon had attempted to gain at the expense of the Club. The difficulties in the relationship are evidenced by the fact that, in February 2007, there was an attempt to call a truce about this matter and to prevent it further souring the relationship between the Committee and TMSL. There was an exchange of letters between the Club and TMSL. I quote the letter from Professor Galbraith and Mr Gent, respectively Chairman and Senior Vice Chairman of the Committee, to the directors of TMSL dated 20 February 2007:

"It is regrettable that the misunderstandings associated with the purchase of the office have caused extant tensions between the Club Committee and [TMSL]. For any part that the Committee has played in this we formally apologise. Any associated documentation that could have exacerbated the misunderstandings is withdrawn.

We look forward to a healthy and friendly working relationship."

A letter in similar terms, apologising for any part of that TMSL had played in the misunderstandings, was sent by the directors of TMSL. Despite this, relations between the parties did not return to normal. The resulting undercurrent of bad feeling between Mr Monks and Mr Gordon, on the one hand, and Mr Morten and some members of the Committee, on the other, is a key element in attempting to understand the disputes which arose later between the parties.

The 2006 AGM

[28] In December 2005 the Club adopted a new constitution. An attempt to have this new constitution adopted earlier had been frustrated after MRL obtained an interim interdict preventing it. As a result, the election of members of the Committee intended for the 2005 AGM had also been frustrated. The 2006 AGM was scheduled to take place on 28 October 2006. This was the occasion for the first election of members of the Committee under the new constitution.

[29] The constitutional requirements in relation to the election of members are set out in paragraph G2 of the new constitution, which provides as follows:

"Elected Committee members shall be elected only at an Annual General Meeting of the Club, at which each member entitled to vote may vote by a paper ballot for a number of candidates not to exceed the number of vacancies, and those candidates securing the highest votes shall be elected. Nominations for election will be submitted in writing to the Headquarters of the Club and must be received by the Club not less than 42 days before the date of the meeting. Each nomination will be accompanied by a short curriculum vita (sic) of the candidate, which should include a personal statement. Each nomination and curriculum vitae will be signed by the candidate, a Proposer and a Seconder who will each be a fully paid up Club Member. A list of all valid nominations will be included with the notice of the following Annual General Meeting together with copies of all relevant curricula vitae."

Of particular importance for present purposes are (a) the requirement that the nominations submitted within the required time were to be signed by the candidate, a proposer and a seconder, and (b) the requirement that the candidate, the proposer and the seconder must each be a fully paid up Club member.

[30] It seems that nomination forms were submitted in something of a hurry, so much so that in some cases they were incomplete, or unsigned by some of the necessary signatories, or both. Some forms which had been submitted for the abortive election in 2005 had simply been reused, with the original signatures where applicable, and with deletions and insertions where, for example, the proposer was different. In some cases the details, such as the name of the proposer, were only filled in after the form had been submitted and after the deadline. The forms were collated by TMSL as part of their duties and sent by Mr Monks to Mr Anderson, the Club solicitor, with Mr Monk's comments. Mr Monks pointed out a number of the irregularities. Mr Anderson passed on these comments and his observations to the Committee. In summary, his approach was that because of ongoing problems with MRL, it was important to have a committee elected at the 2006 AGM and that the defects in the nomination forms were not so serious as to invalidate them.

[31] However, one defect in the nominations was more fundamental. It related to the qualification of Mr Morten to stand as a candidate for election. It is not in dispute that he had, for some time, owned two timeshare weeks. In respect of these he was up-to-date in his payment of management charges. However, to assist the Club, he had recently purchased a third week. His management charges in respect of that third week were unpaid. He was thus not a "fully paid up Club member". Accordingly, he was ineligible to stand for election. Mr Monks pointed this out to Mr Anderson at the same time as he commented on the other defects in the nomination papers. In his report to the committee on 26 September 2006, Mr Anderson made the following comment in respect of this question:

"In Eric's case there is also the fact that he had not paid his management fees for the year at the time of lodging his nomination so that he was not then a fully paid up member as required. He has since paid his fees. If Eric has a track record of being a bad payer then you may take a different attitude but if this is an occasional slip then I think you should regard his nomination as valid, as much on the basis of leaning towards leniency in all other cases."

He suggested that Mr Gent, who was also on the Committee but was neither a candidate nor a proposer or seconder and was therefore perceived to be totally impartial, should look at all the alleged defects and give his opinion. There the matter lay until the eve of the AGM. Mr Anderson in his oral evidence said that he had received an e-mail from Mr Gent to the effect that he was content for the nominations to go forward as valid. This e-mail was not produced, nor was Mr Gent called to give evidence. Standing the view which I have formed as to the reliability of Mr Anderson's evidence, I am not prepared to make a finding that such an e-mail was in fact sent.

[32] On the eve of the AGM, there was a meeting between Mr Gordon and Mr Monks and some members of the Committee, followed by dinner. According to Mr Monks and Mr Gordon, they intended at that meeting to raise again the question of Mr Morten's eligibility, since they had not had a definitive answer on the point from Mr Anderson. However, they did not want to raise the point in the absence of Mr Kenneth, who was then chairman of the Committee. Mr Kenneth arrived late and the point was never raised until the next day. Mr Kenneth had no recollection of having been late but I did not form the impression that he had a clear recollection of the detailed events around that time and I prefer the evidence of Mr Monks and Mr Gordon on this aspect.

[33] According to Mr Monks and Mr Gordon, on the day of the AGM itself they again raised the question of Mr Morten's eligibility. They raised it with Mr Kenneth some 20 minutes or so before the AGM was due to commence. Their view was that Mr Morten should not be allowed to stand. However, ballot papers had gone out before the AGM, and many members had voted. In those circumstances they suggested that rather than abort the whole election, Mr Kenneth should distribute his proxy votes equally between the candidates other than Mr Morten. In their judgement, this would have prevented Mr Morten being elected and would, albeit by a somewhat devious route, ensure the integrity of the election. They prevailed upon Mr Kenneth to give instructions to the Club's Auditor, Mr Skilling, who was acting as returning officer in the election, to distribute the proxy votes between the other candidates. Despite this, Mr Morten was duly elected to the Committee. Whether this was because Mr Gordon and Mr Monks had miscalculated what the effect of the absence of proxy votes would be on Mr Morten's prospects for election, or whether it was because of some misunderstanding between Mr Kenneth and Mr Skilling is unclear. In his evidence, Mr Monks sought to cast doubt upon whether Mr Kenneth and/or Mr Skilling had in fact implemented the agreement about the allocation of the proxy votes, but I am not persuaded that they acted in any underhand or improper manner.

[34] This episode compounded the already deep-seated mistrust between the TMSL and some members of the Committee, not least Mr Kenneth and Mr Morten. The Club does not contend that TMSL should not have brought these deficiencies in the nomination forms and the question of Mr Morten's eligibility to the attention of the Committee. It acknowledges that TMSL was right to do so. TMSL were the managers and, although legally the areas of responsibility were not as clearly defined as they might have been, they had the conduct of the election and were responsible for ensuring that it proceeded in a proper fashion.

[35] The Club does, however, complain about the manner and timing of TMSL's actions. There are a number of different aspects of this. There is the initial timing; TMSL first raised the questions with Mr Anderson some 10 days after receiving the nomination papers and just before the "AGM pack", a pack sent to members containing all the relevant information for the AGM, was to be sent out. This gave Mr Anderson little time to consider the issues which TML had raised. It is said, further, that TMSL misled Mr Anderson by failing to point out that he had paid his management fees for two of the three weeks which he owned. The question of timing is raised again in the context of the events just before the AGM commenced; TMSL waited until some 20 minutes before the AGM was due to begin, despite having seen the advice to the Club from Mr Anderson as long ago as 26 September 2006. It is said that Mr Monks and Mr Gordon acted improperly in checking on the state of the votes received by post prior to the discussions which resulted in Mr Kenneth agreeing to exclude Mr Morten from the allocation of proxy votes. It is said that Mr Monks and Mr Gordon used threatening and abusive behaviour, threatening to disrupt the AGM if Mr Kenneth did not agree to the compromise of excluding Mr Morten from any allocation of proxy votes. And it is said that throughout TMSL acted in bad faith and out of malice towards Mr Morten (that malice stemming from Mr Morten being instrumental in the frustration of their attempts to acquire the club premises earlier that year); and, because of this, they continued with their objection to his nomination alone, when in fact all or most of the nomination forms were irregular in one respect or another.

[36] I do not accept that TMSL acted in bad faith or out of malice towards Mr Morten. There was no evidence led on behalf of the Club to support such a charge. As I listened to the witnesses called by the Club, it seemed to me that the suggestion of bad faith and malice towards Mr Morten proceeded on the footing (a) that there was no proper basis for suggesting that Mr Morten was ineligible for election to the Committee and (b) that Mr Monks and Mr Gordon bore ill will towards Mr Morten as a result of the events surrounding the purchase of the Club office earlier that year. I have already pointed out that that incident resulted in a measure of bad blood between Mr Monks and Mr Gordon on the one hand and Mr Morten on the other. But it does not follow that in challenging Mr Morten's eligibility to stand for election Mr Monks and Mr Gordon were motivated by ill feeling towards Mr Morten personally. There were in fact good grounds for challenging Mr Morten's eligibility. The Club constitution required each candidate to be a fully paid up club member. Mr Morten was not a fully paid up member. This question of eligibility was, to my mind, quite distinct from the other irregularities in the nomination forms. In each of those cases, there was no question of ineligibility. The candidates all wished to have their names put forward and they had obtained proposers and seconders, even if some of the signatures were added late. On one view it might be thought to be a matter for the Committee whether such irregularities could be overlooked. That, certainly, was the view taken by Mr Anderson in advising the Committee. But questions of eligibility to stand for election to the Committee are of a different kind altogether. Eligibility is governed by the Club constitution. Whereas it might be able to waive procedural defects in the nomination forms, the Committee had no power to declare a person eligible to stand when, in terms of the constitution, he was not eligible. In those circumstances I do not find it at all surprising that, though they were prepared to drop their objections to the defects in the nomination papers, Mr Monks and Mr Gordon were not prepared to drop their objection that Mr Morten was ineligible. This distinction appears to have been lost on a number of the witnesses who gave evidence for the Club. In addition, a number of those witnesses, such as Mr Kenneth, Mr Shandon Lea and Professor Galbraith, appeared to be unaware of the requirements for standing for office. They spoke of Mr Morten being "in good standing" with the Club, so that, albeit technically in arrears, he should not have been excluded from standing. The previous constitution had indeed stipulated that to be eligible for election a member had to be "in good standing"; but this had been changed and the new constitution required a member to be "fully paid up". The belief that the challenge to Mr Morten's eligibility was unsound or contrived was therefore misconceived. But that belief appears to have underpinned the impression formed by certain members of the Committee that the objections to Mr Morten's candidature were motivated by personal malice against him. Mr Morten was clearly ineligible to stand for election in 2006 and should not have been allowed to stand. Mr Anderson should have advised the Committee of this. Had the rules being followed, there would have been no occasion for the unpleasantness that arose from the objections to his candidature.

[37] Nor am I persuaded on the evidence that Mr Monks and Mr Gordon used threatening and abusive behaviour just before the meeting. Mr Kenneth said in his Affidavit that, at an informal meeting which took place in a courtyard outside the window of the classroom at Stirling University just before the AGM started, Mr Monks and Mr Gordon "behaved in an extremely unpleasant and threatening fashion". They threatened to disrupt the AGM and cause a great deal of embarrassment unless Mr Kenneth changed his instructions as to how the proxy votes were to be dealt with. Mr Shandon Lee in his Affidavit describes being summoned to a meeting about 20 minutes before the AGM was due to start. Mr Monks and Mr Gordon "were being extremely unpleasant and aggressive". Both of them in oral evidence were asked to expand on this unpleasantness and aggression, but neither could point to anything other than the fact that Mr Monks and Mr Gordon were insistent in their objections to Mr Morten's eligibility. I fully accept, having heard Mr Monks and Mr Gordon give their evidence, that they were capable of talking in a firm and forthright manner. No doubt they made their point about Mr Morten's candidature forcibly. Having heard Mr Kenneth give his evidence, I would be surprised if he did not respond equally forcibly. But that is a long way from characterising the conduct of Mr Monks and Mr Gordon has "extremely unpleasant and threatening". I reject this part of the Club's contentions.

[38] As to the other complaints made by the Club about this aspect of the case, it is not in dispute that nominations for election closed on the 16 September 2006. The AGM pack had to be sent out to all Club members by 6 October. The work in preparing the AGM pack and having it printed and sent out is considerable. There were about 3,200 Club members by that time. Mr Monks sent the nomination papers to Mr Anderson on 26 September mentioning, amongst other matters, the fact that Mr Morten had not paid his management charges. A complaint is made in the pleadings that Mr Monks in some way misled Mr Anderson by failing to point out that Mr Morten had paid his fees for two of the three weeks which he owned. I do not accept this. Whether or not Mr Monks mentioned the precise detail of which fees remained unpaid is, to my mind, is beside the point. There is no evidence that he deliberately sought to mislead Mr Anderson; and Mr Anderson himself says in his Affidavit that he found out from Mr Morten that he had paid for two weeks but not the third. So Mr Anderson was fully informed of the position about Mr Morten and was in a position to advise on his eligibility. The fact that there was a period of some 10 days between the nominations closing and the point being raised with Mr Anderson is, to my mind, of no significance. I heard no evidence to support any suggestion that Mr Monks deliberately delayed in notifying Mr Anderson of the perceived problems. But in any event the point was a straightforward one. Mr Anderson gave some, albeit provisional, advice on it on that same day, 26 September 2006. That advice was, as Mr Anderson made clear, influenced not only by legal considerations but also by an assessment of the practical consequences if the election did not go ahead. I have already said that I accept the evidence of Mr Monks and Mr Gordon to the effect that Mr Kenneth was late for the meeting before dinner on the eve of the AGM. In those circumstances they cannot be criticised for not having raised this point then, though plainly it would have been better had it been resolved at that time rather than left until the next day. The complaint that Mr Monks and Mr Gordon "improperly" checked the state of the votes before seeking to persuade Mr Kenneth not to give any proxy votes to Mr Morten is also not made out in my opinion. It was in the nature of TMSL's involvement in the election process that they were aware of the postal votes received and it was not difficult for them to know, in general terms, how those votes were cast. Their calculation that withdrawing any proxy votes from Mr Morten would result in his failure to be elected was based, as I understood the evidence, on the perception that the majority of votes cast at the election were proxy votes. This cannot, in fact, have been the case, and the fact that Mr Morten was still elected despite not receiving any proxy votes suggests that Mr Monks and Mr Gordon did not know with any accuracy how the postal votes had been cast. I note, in any event, that, according to Mr Anderson, before agreement was reached to remove the proxy votes from Mr Morten, he and Mr Kenneth checked with Mr Skilling that the withdrawal of proxy votes from Mr Morten would not change the result of the election. In other words, he sought comfort, before committing himself, that Mr Morten's prospects of election would not be harmed if Mr Kenneth acceded to the wishes of Mr Monks and Mr Gordon. I cannot see why, if it was acceptable for Mr Anderson and Mr Kenneth to check the postal votes before deciding on a course of action, it should be considered unacceptable for Mr Monks and Mr Gordon to have done so.

The incident about towels in September 2007

[39] On 10 September 2007, there was a meeting of the Management Review Committee, which met three or four times a year and comprised members of the Committee as well as representatives from TMSL. The meeting of 10 September was attended by Mr Gordon. Typically, at such meetings a wide range of matters were discussed, including, for example, the website, the state of the roofs, tree removal and replacement and soft furnishings. In their pleadings, at Answer 3.4, the defenders say that at the meeting of 10 September proposals were put forward for replacing the existing poor quality towels with new good-quality coloured towels. No decision was made and the matter was to be further looked into. There is then this allegation about Mr Gordon's conduct:

"Mr Gordon intentionally concealed from the meeting that the Club had ordered and had just received delivery of poorer quality towels. On leaving the meeting Mr Gordon telephoned the Club office and instructed that the towels delivered should be removed from their wrapping so that they could not be returned."

They allege that, in so acting, TMSL acted against the Club's best interests and in bad faith. More detail is then given: it is

"Further explained and averred that Mr Gordon said nothing during the meeting but immediately after the meeting telephoned the Club and instructed Sandra, in charge of laundry, to immediately remove the peach towels from their wrappings and launder them so as to prevent them being returned."

They allege that Mr Gordon was acting dishonestly in concealment of facts relevant to the committee's discussions.

[40] The allegation itself is, in the scheme of things, trivial; and, were it not for the allegation of dishonesty, I would have dealt with it in peremptory terms. I have no hesitation in finding that the allegation is not made out. However, the fact that it was made at all, was used in an attempt to justify termination for breach, and was couched in terms which accused Mr Gordon of dishonesty is, to my mind, symptomatic not only of the breakdown in relations between the parties but also of the intemperate and ill considered approach adopted by the Club in its dispute with TMSL. There is absolutely no justification for the allegation of dishonesty in this respect. Nor does the evidence even come close to establishing any part of the case advanced against Mr Gordon. Mr Gordon accepted in his evidence that the question of towels was discussed at the meeting of 10 September. But that question was clearly not considered of sufficient importance to feature in the minutes of the meeting. There is no mention of it in those minutes. In an e-mail sent on 11 September 2007 by Zoe Roberts, a member of the Committee who was present at the meeting, she refers to having asked Angus Gordon not to open a delivery of sheets which was due that week and complains that had they known at the meeting that some linen had been ordered and was due for delivery they might have been able to take a decision about it. But nothing is mentioned about towels. The first mention of towels in this context is in an e-mail from Mr Kenneth to various members of the Committee in April 2008, some six months later. Referring to minutes of a meeting of 20 March 2007, which were to be approved at the next Management Review Meeting of 8 May 2008, Mr Kenneth says:

"It was at this meeting that Angus sat through a discussion about Zoe going to buy sheets and towels, and forgot to mention that he had just bought a supply."

He asked in that e-mail whether, before the meeting of 8 May 2008, they could add a reference to this in the draft minutes. He was reminded by Mr Anderson that the relevant minutes were those of the meeting of 10 September 2007. Mr Anderson told him that there was no reason why the minutes should not include the discussion about purchasing of sheets and towels. Mr Anderson added:

"Then if you want TMSL to have advance warning of a question you can add a piece in brackets to the effect that it was discovered after the meeting that AG had already purchased these items ... and said nothing during the meeting."

This seems to me to indicate an intention, in light of the subsequent deterioration in the relationship, to elevate beyond any reasonable level the importance of the discussion about towels at the meeting of 10 September 2007. In her evidence, Sandra Johnstone, the "Sandra" who was in charge of laundry, described how in October 2007 Mr Gordon told her to open a consignment of towels which had been received, and to launder them immediately. The date (October, not September) self-evidently does not fit in with the allegation made against Mr Gordon. When asked about this in her evidence in chief, she described Mr Gordon's instruction as perfectly normal and routine - towels are always laundered before they are first used. Margaret Noble, the manageress at the Club, thought that she remembered a problem about towels and a meeting at which the Committee had expressed unhappiness about the peach coloured towels which they had had for a long time. She went on to say, in her witness statement:

"Anyway, after this meeting Angus Gordon phoned Sandra Johnstone and told her to unpack and washed the peach coloured towels which had been delivered. Sandra told me about this. The Committee were not at all happy since they could not now send the towels back, and Angus had sat through the meeting without ever mentioning that the towels had been delivered."

Although I thought Ms Noble was a generally reliable witness, I find it difficult to give much weight to this when, as I have said, Sandra Johnstone referred to the instruction having been given to her by Mr Gordon in October, not immediately following the meeting of 10 September 2007. There was no independent verification, for example by production of an invoice, delivery order or ledger entry, that towels had been received in September 2007. But in any event, when Margaret Noble was asked about this in her evidence, she confirmed Ms Johnstone's evidence that there was nothing unusual about the instruction given by Angus Gordon to unpack and wash the towels. Nor did Ms Noble support the evidence given by Professor Galbraith in para.11 of his witness statement, where he said, purportedly on the basis of what he was told by Ms Noble, that after the meeting Mr Gordon told staff to open the new towels "so that they could not be returned". Zoe Roberts, another member of the Committee who attended the meeting in September 2007, did not seem to regard the incident as of any importance.

[41] This incident, to my mind, has been blown up out of all proportion. Allegations of dishonesty have been put forward without any proper foundation. The criticisms of Mr Gordon in this respect are not supported by any credible or reliable evidence. What evidence there is tends to undermine the allegation against him. It is difficult to avoid the impression that this complaint has been dredged up by one or more members of the Committee, or by Mr Anderson, their solicitor, when casting around for additional reasons to justify termination of the contract. Mr Campbell QC pointed out that the Club's pleadings had originally included a complaint that TMSL had purchased cheap cutlery of an inferior quality so as to reduce costs and increase their bonus payments. Then there had been an allegation about bedding. Both of these allegations were dropped and, instead, the allegation about towels was insisted on. I have already found that the allegation is entirely without merit. But the raising of these other points as well, even though they were later dropped, confirms the impression that the Club adopted what Mr Campbell called a "scattergun" approach, throwing everything at TMSL in the hope that something would stick.

Expenses - March/ April 2008

[42] The question of expenses arises in a number of different ways in this litigation. First, there is the question whether the expenses of Mr Monks and Mr Gordon travelling between their homes or offices and the Club premises at Loch Rannoch can legitimately be claimed from the Club. Second, there is the question whether the travel expenses which were claimed and paid, were claimed by and paid to Mr Monks and Mr Gordon personally or were claimed by and paid to TMSL. Third, there is the question whether, in the events which happened, TMSL were entitled to "self certify" their expenses claims (or those of Mr Monks and Mr Gordon) or whether, on the other hand, such expenses claims required to be certified by a member of the Committee. Fourth, there is the question whether the claims for travel expenses, the self certification of the same and the receipt of payment for such claims point to dishonesty or a lack of good faith on the part of TMSL. And fifth, there is the question whether TMSL are liable to re-pay some or all of the travel expenses claimed by them (or claimed by Mr Monks and Mr Gordon and certified by them).

[43] For reasons which I will explain in more detail below, I have come to the conclusion that the Management Agreement did not permit TMSL to be paid the expenses incurred by Mr Monks and Mr Gordon in travelling between their homes/offices and the Club premises at Loch Rannoch. Nonetheless, I am satisfied that claims for these expenses were made in good faith in the belief that they were authorised. So too, the self certification of these claims was done in good faith and in the belief that it was authorised. They do not indicate any dishonesty or lack of good faith on the part of TMSL. Further, although the claims for such expenses were not justified, I have come to the conclusion that the claim by the Club for payment of the amounts taken by TMSL in respect of such expenses (or certified by TMSL and paid to Mr Monks and Mr Gordon) must fail.

[44] I refer to the matter at this stage because it is part of the background to an incident that arose in March and April 2008. By this time, as has already become apparent, there was an atmosphere of distrust between TMSL on the one hand and certain members of the Committee, and Mr Anderson, the solicitor acting for them, on the other. In March 2008 the Committee decided to ask TMSL for vouching of all payments made to TMSL or to Mr Monks or Mr Gordon. A request for that information was made by Mr Anderson by e-mail of 26 March 2008. I quote it in full since it sets the tone for what happened afterwards:

"Dear Eddie and Angus. While looking at the TMSL bonus another matter has arisen from figures produced for the committee by MacFarlane Gray [MacFarlane Gray were the Club's Auditors]. The figures are a summary of payments made to yourselves by the Club from 1 July 2003 to 30 June 2007. They are under the heading of Supplier Activity with Account designations of MONK001 and GORD001 and are payments to each of you as individuals for what appear to be expenses.

Firstly these are payments which I believe should be adequately vouched and fully authorised and approved. The authorisation, as would be normal should be by the chairman and for the future I have been asked to pass on the request that you please submit all vouching for such claims to the chairman for approval.

Additionally for the past such payments and in order to keep this under proper approval procedures I have also been asked to request that you let me have copies of all invoices or other suitable vouching for all such payments made from 1 July 2003 to the present time. There is a meeting of the committee on 10 April and it would be helpful if I could have the papers in advance of the meeting.

This letter is on behalf of the management committee of the Club, of course, and not the full formal committee, although I think you would understand that anyway.

Thanks. Douglas."

[45] This e-mail clearly caused some irritation at TMSL. As far as TMSL was concerned, and I accept Mr Monks' evidence on this, the procedures by which they self certified their expenses had had the approval of the Committee. They had always filled in expenses claim forms and had had them approved and countersigned by another member of TMSL. The expenses claimed were entered into the accounting system, formed part of the management accounts and were later included within the annual accounts, which were audited each year by the Club's auditors, MacFarlane Gray. No one had raised any question about this, even though it was apparent from the accounts that expenses were being charged for items such as travel, quite separately from Committee expenses (which formed a separate item in the accounts). Further, Mr Kenneth had countersigned the first claim form submitted by Mr Gordon; and Ms Cumming, another member of the Committee, had countersigned the first claim form submitted by Mr Monks. Those claim forms had included claims for expenses of travel between, in the case of Mr Monks, his home/office at Bridge of Weir and Loch Rannoch, and, in the case of Mr Gordon, his home/office at Inverurie and Loch Rannoch.

[46] Mr Kenneth sought to explain away his countersignature of the claim form by pointing out that this form had covered the period from before the commencement of the Management Agreement. So it did, but this does not really answer the point, since some of the travel claimed in that form related to the period after the Management Agreement had come into force. Mr Monks gave evidence that after these initial claim forms had been countersigned, Mr Kenneth had told him that there was no need in the future to have the claim forms countersigned by a member of the Committee. As Mr Monks put it, the Committee granted them a "dispensation" in relation to the certifying of expenses. TMSL were allowed to self certify. Although Mr Kenneth was adamant that he had done no such thing, on this aspect I preferred the evidence of Mr Monks. I had the clear impression that by the time the dispute between the Club and TMSL came to court, and indeed by the time this issue about expenses arose in 2008, Mr Kenneth's recollection of events was coloured by his mistrust of TMSL and his belief that, in almost all of the incidents focused in these proceedings, they were acting dishonestly or in an underhand way. Further, the fact is that, after the initial claim forms were countersigned by Mr Kenneth and Ms Cumming, no member of the committee had ever countersigned any of the claim forms submitted by Mr Monks and Mr Gordon. Those claim forms were not limited to claims for expenses of travel which might have been controversial. They included claims for other expenses which were not, and could not be, controversial. Mr Kenneth sought to explain this by saying that he was unaware of any expenses having been claimed by TMSL or Messrs Monks and Gordon. I find this hard to believe. As I have said, the annual accounts showed expenses having been incurred in addition to Committee expenses. Mr Kenneth may not have known for certain whether these items referred to claims made by TMSL, or Mr Monks or Mr Gordon, but I find it difficult to believe that he proceeded throughout on the assumption that they made no claim for any expenses at all - and not just no claim for travel expenses - for the four or five years in question. I am satisfied that Mr Kenneth did lead Mr Monks to understand that TMSL's expenses could be self certified and was aware that this was in fact being done. In any event, the relevant question so far as concerns this incident is not so much what Mr Kenneth thought but what Mr Monks and Mr Gordon reasonably believed. I am satisfied that they reasonably believed that they were entitled to claim travel expenses between home and Loch Rannoch, and that they had acted properly in having TMSL self certify the claims which they submitted.

[47] The other problem to which Mr Anderson's e-mail gave rise was that there were no adequate storage facilities at the Club office for Club records. TMSL had been pressing for some time for the purchase of an electronic archiving system, but expenditure on this had not been authorised by the Committee. Instead, records were stored in boxes under the floor of the office and the retrieval of such records was always going to be a dirty and time-consuming process.

[48] Mr Monks replied to Mr Anderson by e-mail of 1 April 2008 in the following terms:

"Douglas,

Before I ask the office to go to the very lengthy and dirty process of digging out all the vouchers from 2003 (lengthy and dirty because the Committee have refused to authorise the purchase of a £3500 electronic archiving system) will you please remind the Committee that from the beginning in 2003 claims were submitted to the Committee for authorisation, and this practice continued until Allan Kenneth, in his capacity as Chairman at the time, decided that there was enough trust between TMSL and the Committee to dispense with the need for Committee authorisation.

Eddie"

To this Mr Anderson replied that he could not comment on the question of the electronic archiving system and would pass on Mr Monks' comments about the previous approval system to the committee. But, he added, he looked forward to receiving the copy invoices and other appropriate vouchers. I should mention here that the suggestion by Mr Monks that Mr Kenneth had dispensed with the need for Committee authorisation was firmly rejected by Mr Kenneth, but I have made my findings about this aspect of the matter and need say no more about it.

[49] Mr Monks went on holiday on 8 April 2008 for three weeks. Before leaving, he instructed Mr Fred Manders, who was employed in the Club office as an office assistant, to extract from the filing system all original expenses claim forms for himself and Mr Gordon from the beginning of 2003 to the present. Mr Monks wanted the claims to be reconciled in the form of a detailed annotated spreadsheet to which copies of the original claims would be attached, so as to show for what items the expenses had been claimed. When the task was completed Mr Manders was to put the material in folders ready to be passed over to Mr Monks when he returned. These instructions were passed to Mr Manders through Miss Noble. Mr Manders was given a printed Sage report showing debits and credits for the transactions in question on which he was to build the spreadsheet. Mr Manders gave evidence about what he did. He graphically (and humorously) described what was involved. All the paperwork had to be retrieved from the space beneath the office floor, where the files were stored in large plastic boxes. This space was accessed by a hatch in the office floor. It could only be opened when other work was not going on. Over the course of about a day and a half, when time allowed, Mr Manders extracted the relevant material from beneath the floor with the assistance of a colleague. The space under the floor was only 2 feet high and was crisscrossed with floor support beams. Mr Manders had to crawl through this space, dragging all the boxes towards the hatch area where they could be inspected. If they contained relevant material they would be brought out, but if not they would have to be put back again, and the next box dragged to the hatch space. It was, as Mr Monks said in his e-mail, "a very lengthy and dirty process". Over the next several days, when time was available after completing his normal duties, Mr Manders went through the material and compiled the spreadsheet, attaching copies in accordance with his instructions. He then stored the copies in folders ready for Mr Monks' next visit.

[50] On 22 April 2008 Mr Anderson sent an e-mail to Mr Monks copied to Mr Gordon and Mr Gent. The content of the e-mail shows that he knew that Mr Monks was still away. The e-mail reads as follows:

"Dear Eddie and Angus. In view of Eddie being away and the apparent difficulty I have arranged at the request of the committee for a representative of MacFarlane Gray to attend the Club office this Friday, 25 April to extract the information. As they are presumably acquainted with the systems I do not expect that it will be necessary for you to be there especially for this but if you are there anyway I expect that you will give them any assistance they may request. Regards. Douglas."

It is not clear what "apparent difficulty" Mr Anderson is there referring to. Mr Anderson gave no explanation in his evidence. Possibly he took the view that no action was being taken on his earlier request. If so, he was wrong. An e-mail written by him on 10 April suggests that he thought that TMSL were prevaricating. This is consistent with his Affidavit in which he says, in relation to Mr Monks' e-mail of 26 March 2008, that he was "concerned that TMSL would try to avoid producing their expenses records, possibly being dishonest with the committee as they had been previously." In this, too, he was wrong. Much of Mr Anderson's behaviour can be explained on the basis that he believed TMSL to be acting dishonestly. Such a belief was without foundation. It is not suggested that Mr Anderson made any attempt before sending out his e-mail to find out how the work of retrieving the records was progressing. He seems to have drawn his adverse conclusions simply from the fact that the records had not yet been sent to the Committee. Rather than ask how they were getting on, Mr Anderson simply assumed the worst and sent his e-mail of 22 April 2008 which, taken in its context, was peremptory in tone and likely to result in further acrimony.

[51] Mr Monks was still away on Friday, 25 April 2008. There is a dispute as to whether that e-mail of 22 April 2008 came to the attention of Mr Gordon before he visited the Club office on that day. Mr Gordon's evidence was that he had not seen that e-mail when he arrived at the Club office on 25 April 2008. He only accessed his e-mail when he was at home. On arriving at the Club office he was confronted by "an unknown gentleman" talking to Mr Manders. When questioned, this person said that he had come to inspect and collect expense forms belonging to the Club relating to Mr Monks and Mr Gordon. After some further conversation, Mr Gordon telephoned Mr Skilling, the Club's auditor, to ask on whose authority he was meant to be passing this information to the gentleman in the office. Mr Gordon said that he suggested that Mr Skilling should send an e-mail to the club office authorising him to supply the information requested, to which Mr Skilling replied that Mr Gordon should simply tell the man to return to Stirling. Mr Manders' account of the incident was that he was on early duty that day. He went to the coffee area and saw a gentleman at the large photocopying machine. He assumed that this was someone from the lease company who was there to service the photocopier. When he went into the back office to go to his desk, the man asked him if he had the files of expenses, since he was from the Auditors and needed to make copies of them. Mr Manders gave him the files and he began to make copies. Sometime later Mr Gordon came into the office and, after a heated conversation with the man, told him (Mr Manders) to take the files back. The man then left. The man himself was Bruce Macfarlane, an accounts assistant at Macfarlane Gray. He said that when he arrived at the Club office he spoke to the staff and there seemed to be to be no problem. They brought out the expenses documents in boxes and he began to go through them. Angus Gordon then appeared and began objecting to his presence, complaining that his privacy rights were being violated and complaining that he should have had some notice from the committee to let him know that he was coming. Mr Macfarlane explained that he was from Macfarlane Gray, the Auditors. Mr Gordon was still unhappy, so Mr Macfarlane phoned his office and passed the phone to Mr Gordon. At the end of this conversation Mr Skilling told Mr Macfarlane to come back, which he did.

[52] Finally on this point there is the evidence of Ms Noble. She recalled that the visit from an accountant from Macfarlane Gray, though she could not remember the precise sequence of events. She was in the office today that he arrived, which would have been 25 April 2008. She said this in her Affidavit:

"We were expecting him since he had either telephoned or e-mailed beforehand. Angus told me that when the Accountant arrived I was to tell him that he would deal with it. When the Accountant arrived one of the girls at the front desk told Angus, and he saw the Accountant behind a closed door so I could not hear what was said. The Accountant then went away."

There is a clear conflict between Ms Noble's evidence and that of the other witnesses. Both Mr Gordon and Mr Manders recall Mr Macfarlane being in the office looking at the papers before Mr Gordon arrived. That is consistent also with the evidence given by Mr Macfarlane himself. Ms Noble, on the other hand, suggests that Mr Gordon was there when Mr Macfarlane arrived. Neither Mr Manders, Mr Macfarlane nor Ms Noble had any reason not to tell the truth on this matter. Each of them was an impressive witness. I have no doubts as to their honesty. The difference between them, in my opinion, must be down to a difference in recollection. Mr Macfarlane was the principal actor in the events at the Club office of 25 April 2008. Mr Manders, on his evidence, also had a direct involvement. Ms Noble, by contrast, according to her own evidence, had a more fleeting role. On her version, she was in the office when the accountant arrived, but it was one of the other girls at the front desk who told Mr Gordon that he had arrived. Other aspects of Ms Noble's recollection, on her own admission, are imperfect. She could not remember whether the incident occurred before or after Zoe Roberts came to the office, an event which I shall describe shortly. As to Mr Gordon's evidence, I have some difficulty in accepting that he only accessed his e-mail when he was at home. It would have been perfectly easy for him to access it at the Club office, though that does not mean that he did access it there. However, the only evidence clearly suggesting that he had had prior notice of the visit was that of Ms Noble. Standing the other contradictions between her evidence and that of Mr Manders and Mr Macfarlane, which cause me to doubt the reliability of her recollection of this incident, I am not persuaded that I should, solely on the basis of her account of an alleged conversation with him prior to the incident, find that Mr Gordon was aware of the impending visit. I do not find it established, therefore, that Mr Gordon had had sight of the e-mail of 22 April 2008 from Mr Anderson and was thereby made aware that someone from Macfarlane Gray would be coming to the office on 25 April to collect the relevant information.

[53] Ultimately I do not think it matters whether or not Mr Gordon had advance knowledge of the visit. The alternative possibility is that he did receive the e-mail of 22 April 2008, was irritated by it, and let that irritation show in his treatment of Mr Macfarlane on 25 April. He clearly regarded the actions of the Committee, in sending someone to collect the information, as high-handed. By all accounts he adopted an approach to Mr Skilling which was, to say the least, unhelpful. I am prepared to accept that he asked for some written authority from the Committee before releasing the documents. This was, and was calculated to be, obstructive. But, as I have made clear, relations between the parties were by no means easy at that stage; and, although Mr Gordon may have overreacted to the idea of the Committee sending someone to collect the records when the process of collating them was already in hand, his irritation with the Committee's obvious lack of trust in TMSL on this issue was, to my mind, understandable.

[54] That was not the end of the affair. On the Sunday following the abortive visit on the Friday, Zoe Roberts, a member of the committee, went round to the office herself to pick up the records. Rather than ask Ms Noble to give them to her, which would have put her in an awkward position, she went at a time when Ms Noble was out of the office, obtained the records from Mr Manders, copied them and took the copies away. This caused further irritation. Mr Gordon and Mr Monks thought that the Committee had acted in an underhand way in sending Ms Roberts to take the files when no-one else was in the office.

[55] It perhaps goes without saying that there was the usual fall out from this incident. On 25 April 2008, on the same day as the encounter between Mr Gordon and Mr Macfarlane in the TMSL office, Mr Anderson e-mailed Mr Gordon to complain about his having disrupted the visit. Of itself this was not unreasonable, but Mr Anderson raised the temperature by stating that this appeared to be "the second time that lies and obstruction have been adopted by TMSL to prevent the committee having access to its own records." The first was when TMSL said that the records were very difficult to access "which turns out not to be the case". The second was by lying to Mr Macfarlane in pretending to have been unaware of his impending visit. He described Mr Gordon's behaviour as "aggressive, unpleasant and generally obnoxious" and required a full account of his behaviour. I have already commented on Mr Anderson's readiness to accuse someone of dishonesty without first seeking to find out the facts. While criticism of Mr Gordon's conduct might have been justified, to accuse Mr Gordon and TMSL of lies before seeking their explanation of what had happened was unhelpful and bound to inflame feelings between the parties which one might have hoped it would be the role of a solicitor to seek to calm. Mr Gordon wrote back immediately in strong terms asking for an explanation of allegations made by Mr Anderson. Meanwhile, Mr Monks and Mr Gordon sent a letter to the Committee complaining in the strongest terms at the "despicable action" taken by Ms Roberts in "cunningly and deceptively" going behind Ms Noble's back and taking the files from the office on the Sunday. On 30 April 2008 Mr Anderson responded to a request from Mr Monks that he expand on his accusations against him. Amongst other things, he said that Mr Monks "as far as I am aware" did not carry out the request from the committee to produce the relevant files. The task, he said, was carried out last week by staff without fuss and was neither a particularly lengthy or dirty process. I have already made findings about the process of extracting the files and Mr Anderson was quite wrong about this - the job was time-consuming and dirty. On the same day Mr Anderson responded to Mr Gordon, withdrawing the "generally obnoxious" description of his behaviour but otherwise persisting in his criticisms. I do not propose to go further into this, but it has a relevance to the breakdown of relations between the Club and TMSL; and it is therefore right that I should say that, although the correspondence ultimately reflects little credit on any of the participants, and I do not exclude from criticism Mr Monks' unwarranted description of Ms Roberts' actions, a major cause of the exacerbation of the ill feeling surrounding this incident must lie with Mr Anderson who, as on other occasions, was only too willing to rush to judgement and make allegations of dishonesty before giving anyone an opportunity to explain their position.

Instructions to staff

[56] The principal complaint under this heading was that TMSL instructed Club staff not to have discussions with elected Committee members. There are always liable to be difficulties about contact with staff in a relationship such as this. In principle there is no difficulty in drawing a line separating what contact by the Committee is permissible and what is not, though the precise definition of that line may depend on the terms of the Management Agreement. The usual position is likely to be something like this. The Club own the premises and employ the staff. The Managers are employed to manage, and in the course of management will require to give instructions to the staff and supervise them in the performance of their duties. Members of the Committee can and should talk to the staff as they wish, to encourage them in their duties, and to have and communicate an interest in their well-being and job satisfaction, provided that in doing so they do not trespass upon the functions of the Managers in the performance of their duties and do not undermine the position of the Managers with the staff. But things are often not as simple as that and, though there was no evidence of this, it is, I suspect, not uncommon for there to be friction when contact with staff by members of a Club Committee is perceived, rightly or wrongly, to constitute an interference with the ability of the Managers to manage.

[57] There appears to have been some such difficulties in this case at an early stage. At a meeting of 9 December 2004 there was discussion between the Committee and TMSL about lines of responsibility, and agreement was reached about the respective functions of each of them. Nonetheless there continued to be friction about demarcation. Mr Kenneth said that "we", by which I think he meant members of the Committee, had several times been told by staff that they were not supposed to talk to them. Other Committee members made similar comments. I accept that this may have happened, though to the extent that it did I suspect that it was probably due in part to individual members of staff being unduly literal in their understanding of guidance from TMSL and in part to an awareness amongst staff in the later years of the friction that existed between the Committee and TMSL. The more serious complaint, as I understand it, is that in the aftermath of the incident on 27 April 2008 when Zoe Roberts copied the files in the Club office when Margaret Noble was not there, Mr Monks wrote to the Committee about the need for clear lines of responsibility between the Committee and its Managing Agents. He said this:

"It has always been agreed that the Committee is responsible for determining policy and the Managing Agents are responsible for the day-to-day management of the site. It has also been accepted in the past that the Committee must not interfere with the running of the business, but the actions of Zoe Roberts are a flagrant breach of that rule, and this has placed the staff in an extremely difficult and embarrassing situation. It is therefore necessary to re-state the rules as follows. All and every request by the Committee for information about the Club must be made in writing to Angus Gordon or Eddie Monks in their capacities as Managing Agents. They will then obtain the information and reply in writing to the Committee. Under no circumstances must any member of the Committee speak to or approach any member of staff without first having obtained permission to do so from a director of TMSL. No member of staff will be allowed to attend any meetings with any member of the Committee, other then general meetings with members, such as Sunday Welcome meetings, and AGMs."

I put to one side Mr Monks' characterisation of Ms Roberts' actions which, as I have already remarked, is unjustified. While the general principle is set out in a way which is unlikely to provoke controversy, the re-statement of the rules, and in particular the diktat, as Mr Kenneth called it, that "under no circumstances must any member of the Committee speak to or approach any member of staff without first having obtained permission to do so from a director of TMSL", goes too far, at least if read literally, and prevents all social contact and informal enquiry. But it was clearly not meant to be read in that sense. To my mind, the intention, which would have been obvious to anyone not influenced by the existing atmosphere of distrust and suspicion, was to seek to prevent Committee members speaking to or approaching members of staff on matters to do with the day-to-day management of the Club without the permission from TMSL. Thus understood it was unexceptional, though clumsily expressed.

[58] The dispute rumbled on, re-surfacing from time to time. I do not propose to refer to every incident. On 23 September 2008, after some discussion, TMSL wrote to Ms Roberts, then filling the role of acting Chair of the Committee, seeking to clarify the position. They said this:

"We have no problem with committee members speaking to Club employees, but we do have a serious problem with committee members giving instructions to Club employees other than through ourselves as managing agents. We very strongly made the point to you that "man cannot serve two masters". In reply, you claimed that committee members would always act with discretion. Your past and subsequent behaviour totally belies that claim. We again must insist that all instructions to staff must come through ourselves as managing agents."

Having discussed the matter with other committee members, Ms Roberts replied on 4 October in the following terms:

"We would agree that a man cannot serve 2 masters, however we will communicate with staff as we see fit and will endeavour not to disrupt the smooth running of the club."

It seems to me that, in effect, TMSL and Ms Roberts were saying much the same thing, albeit expressing it differently. Ultimately, although a few feathers were undoubtedly ruffled, I am unable to find that this complaint has any substance.

[59] There is an additional complaint that TMSL either did not permit or actively prevented the distribution to Club staff of a circular from members of the Committee dealing with the question of communication between them. This matter was not pursued in detail in the evidence. It may relate to events of 16 September 2008 when Ms Roberts sent to Margaret Noble and to Messrs Monks and Gordon a letter which she said she would like enclosed in staff pay envelopes at the next pay point to clarify any misunderstanding. Ms Roberts said in her Affidavit that she thought she had asked Margaret Noble to distribute the letter to staff with their payslips and that TMSL had said "No". Margaret Noble recalled that there was "some memo from Zoe to the members of that Eddie and Angus told us not to distribute, but I can't remember what it was". Mr Monks denied this and neither he nor Mr Gordon were cross-examined on it. I do not regard the evidence as sufficiently clear to enable me to make a finding against TMSL on this aspect. But in any event the complaint is trivial in the context of the breakdown of relations between the parties. The question of lines of communication was resolved, at least temporarily, by the exchange to which I have referred in the previous paragraph.

Separation of electricity supplies

[60] The complaint on this matter arises out of the attempt to sever relations with MRL after MRL ceased to be managers of the Club. Originally the electricity supply to the Club came via the Loch Rannoch Hotel which was owned by MRL, or the Macdonald Group, to which MRL belonged. From the time when they first became managers in place of MRL, TMSL had endeavoured to persuade Scottish and Southern Energy ("SSE") to submit energy bills directly to the Club for electricity used by the Club, but SSE refused to do so on the basis that the electricity supply contract was with the Macdonald Group. In 2008 the Macdonald Group threatened to disconnect the electricity supply to the Club. The Club applied for interdict to prevent this. At a court hearing in July 2008, interim interdict was granted. It is said by the Club in its Defences that it gave an undertaking to the court that it would make arrangements for the separation of the supply of electricity to its Studio/Apartment block from the supply to the Loch Rannoch Hotel. Despite a call by TMSL in their pleadings for the Club to identify precisely the nature of the undertaking given to the court, the undertaking as recorded was not produced. Mr Monks said in his evidence that TMSL were not told of the undertaking, and I accept that evidence. Nothing was put in writing as I would have expected it to have been (given the state of relations between the parties) had it been considered important. There was some dispute between Mr Anderson and Mr Monks about documents requested by Mr Anderson which Mr Monks said that he should already have, with Mr Monks apparently saying that he would not send copies of the documents if Mr Anderson promised not to lose them again. The documents were eventually given to Mr Anderson and I need not go further into this. On 31 July 2008, Mr Anderson instructed Mr Gordon to pay an outstanding utility bill due to Macdonalds, and to pay future bills without deducting sums due by Macdonalds to the Club, all this in accordance with the undertaking allegedly given to the court. The Club complains that these bills were not paid when they should have been. That may be so - the precise timing is not clear from the evidence - but I am not persuaded that this was due to any deliberate failure or other culpable misconduct on the part of TMSL. I accept the evidence of Mr Monks that the delay in payment was due to them being uncertain, an uncertainty later resolved by a clear instruction from the committee, as to whether the bills were to be paid gross or net. The Club complains that in September 2008 TMSL told the committee that it would take over arrangements for the separation of the electricity supply, but that by early October nothing had been done, despite the urgency arising from the Club's undertaking to the court. On 7 October 2008 the committee took back from TMSL responsibility for dealing with this matter. It is said in the Defences that by early October 2008 "it was evident that the pursuers were misleading the committee into believing that they were progressing it". This is typical of other allegations of dishonesty against TMSL. I heard no evidence to support the allegation that TMSL were misleading the committee - it was supported only by an assertion by Mr Anderson in the most general terms - and I do not find this complaint established. But in any event, any failure by TMSL to progress the question of separating the supply was of no practical consequence. On 2 October 2008 Mr Monks told Mr Anderson that the supplies could not be separated until MRL agreed to vary its existing contract with SSE. Despite the fact that the Committee took back responsibility for dealing with this matter, the supply was not in fact separated until after the litigation between the Club and MRL had been concluded, well after the termination of the Management Agreement.

[61] There is a separate issue which has been dealt with under this head. It relates to the water supply. Mr Gordon was asked by Mr Anderson to look at the water tank. Mr Gordon said that this was an unscheduled visit and that he would charge for it. The visit went ahead and Mr Gordon sent an invoice, not on behalf of TMSL but in his own name. The Club say that the charge was excessive, and that in any event Mr Gordon was not entitled to invoice for the visit. The evidence on this issue was far from clear, as was the real nature of the complaint. Mr Gordon gave the fullest account of what happened. I accept his evidence.

The 2008 SGM and AGM

[62] The Club complains about the conduct of Mr Monks and Mr Gordon in relation to motions sought to be put by them at the AGM due to be held on 15 November 2008 and, more particularly, in relation to the distribution of a paper in support of those motions. This is, to my mind, the most serious part of the case put forward against TMSL. I should therefore set out the material facts in some detail.

[63] Two years earlier, an attempt had been made by the Committee, acting on behalf of the Club, to negotiate the purchase of the Loch Rannoch Hotel. At the 2006 AGM, held on 28 October 2006, the Committee had put forward a motion (Motion 2) in the following terms:

"That the Committee be authorised to negotiate the purchase of the Loch Rannoch Hotel for a price not to exceed £3,250,000 subject to all necessary safeguards including property survey, consideration of viability etc. The committee will seek further approval when full details are decided and before signing any contract."

In support of that notion, the committee gave this explanation in the Newsletter sent out on 27 September 2006 in advance of the AGM:

"Motion 2 would authorise the Committee to negotiate terms for the purchase of the Loch Rannoch Hotel from Macdonald Resorts Limited. We have had preliminary discussions with MRL's legal team in which the figure of £3,000,000 has been mentioned, but any agreed figure would depend on many factors such as trading figures and valuation of the property. This motion would not commit the Club to an investment of £3,000,000 - or any other figure. In the order of business we have given this motion precedence over Motion 3 for the building of a Club swimming pool since, depending on the agreed terms, buying the Hotel could have advantages over building a new pool. The Club's future interests would be protected if the Club became landlord (or temporary owner) of the Hotel. There would also be the possibility of future income from the Hotel.

Any such purchase would be partly funded by a short-term loan."

The motion was passed at the AGM but the negotiations for the purchase of the Loch Rannoch Hotel were unsuccessful.

[64] In 2008 the attentions of the Committee turned to considering the purchase of the Dunalastair Hotel, another hotel on Loch Rannoch. As might be expected, some members of the Committee were very keen on the proposed acquisition, others were less keen or kept an open mind about it. Some negotiations took place with the owners of the hotel - the details of those negotiations do not matter and were not the subject of evidence. A decision was made by the Committee to convene a Special General Meeting ("SGM") of the Club to be held on 25 October 2008 to seek approval for the acquisition of the Dunalastair Hotel. It is not clear why it was thought necessary to convene an SGM for this purpose only some three weeks before the AGM due to take place on 15 November 2008, but that is of no great importance. Notice of the SGM was given on 27 September 2008. The Agenda included a number of motions, all relating to the proposed purchase. The motion seeking authorisation for the acquisition itself was in the following terms:

"2. That the management sub-committee of the Club be authorised to complete the acquisition on behalf of the Club of the hotel at a price not exceeding £1,750,000 plus stock at independent valuation, all subject to satisfactory survey and valuation, satisfactory due diligence and satisfactory borrowing approval, all to be arranged by the management of sub-committee of the Club; title to the hotel to be taken in the name of Trustees for the Club and its members from time to time."

Other motions involved approval to a necessary amendment to the Club's Constitution, to add as one of the objects of the Club the acquisition of the hotel and the operation of it for Club purposes and as a commercial hotel; the use of Club funds not exceeding hundred £150,000 towards the purchase and initial running costs; the borrowing of up to £1,400,000 by way of a term loan or mixed term loan and overdraft, on terms to be arranged by the management sub-committee; the grant of a Standard Security over the hotel in favour of the lender in respect of those borrowings; and a scheme in terms of which Club members would be responsible for the cost of repaying the borrowings, capital, interest and charges in proportion to the number of weeks owned by them at the Club.

[65] In support of the motions, the Committee circulated a paper to the Club members. That paper explained that an opportunity has arisen to purchase the Dunalastair Hotel. The Club and MRL were so far apart in their valuations of the Loch Rannoch Hotel that it seemed unlikely that the Club would ever be able to acquire that hotel. The Dunalastair Hotel, therefore, provided an opportunity for an alternative acquisition. Because of the need to open any negotiations "without delay", the Committee had called the SGM so that members "can give a definitive vote on whether they wish to purchase this asset". It was stated that there were clear potential benefits that ownership of the hotel would bring to the Club, but there were also contributions that each owner would have to make to the investment costs. The paper sought to give "a balanced assessment of benefits and investment costs". A 75% vote in favour of the motions was required for the motions to be accepted. The paper then went on to identify some of the key elements. I need not set them out here.

[66] It is clear from the evidence and the various e-mails circulating at about this time that some concerns were expressed both as to the wisdom of the proposed acquisition and as to whether the presentation by the Committee in their paper supporting the motions (the "Supporting Spiel", as it was called) was "balanced". Mr Monks, in particular, was opposed to the scheme, comparing the proposed purchase of the Dunalastair Hotel unfavourably with the acquisition of the Loch Rannoch Hotel, even if that latter acquisition was at a price much nearer the valuation put on it by MRL then that proposed by the Club. He thought that the Dunalastair Hotel would require extensive and expensive repairs, not least to the roof. In his view, circulated to the Committee in a note on 29 September 2008, the Dunalastair proposal "does not look like a very good deal for the Club members. In fact it looks like a rotten deal." He questioned whether the spiel in the Committee's paper in support of the motions was balanced, since it referred only to benefits and assets but not to liabilities or drawbacks; and he noted that there did not appear to have been any attempt to carry out a risk assessment.

[67] I have no doubt that Mr Monks genuinely believed that the proposed acquisition of the Dunalastair Hotel was a "rotten deal" for the Club members, and he was not cross-examined on this. The practical difficulty from his point of view, however, was that the SGM had already been called and the motions, with supporting arguments, circulated. The evidence showed that meetings convened by the Club seldom attracted more than a small number of Club members. Most of them owned only one or two weeks a year at the Club and lived far away. They would normally vote by proxy, either stating whether they were for or against the various motions or allowing the Chairman of the Meeting to use their votes as he or she thought fit. A Voting Paper, Form of Proxy and Attendance Card was sent out with the Notice convening the SGM and the Agenda. On the Voting Paper, the motion concerning the acquisition of the hotel was summarised as "To approve the acquisition of the Dunalastair Hotel on behalf of the Club at a price not exceeding £1,750,000". A person turning up at the SGM and arguing against the proposal would be addressing, perhaps, 100 members; but would not be able to influence those who had already given their proxy. Nor was there any obvious mechanism by which a person opposing the proposal could circulate arguments against the motions in advance of the SGM.

[68] The imminence of the AGM, which was to be held on 15 November 2008, provided Mr Monks and Mr Gordon with an opportunity to inform members of the Club of their opposition to the proposal. On 29 September 2008 they intimated seven motions which they wished to be put to the vote at the AGM. The first three motions called for amendments to the Constitution in respect of the election of Committee members and the use of proxy votes. The remaining motions were in the following terms:

"4. That all costs and losses incurred in the operation of the Dunalastair Hotel which cannot be met from current hotel revenues be met personally by those members who voted in favour of the purchase and not from Club funds.

5. To terminate with immediate effect the appointment of all members of the Committee who voted in favour of the proposal to purchase the Dunalastair Hotel, thereby potentially damaging the financial stability of the Club.

6. To terminate with immediate effect the appointment of Mr Allan Kenneth as an elected member.

7. To terminate with immediate effect the appointment of Mr Eric Morten as an elected member."

The motions were signed by Mr Monks as proposer and by Mr Gordon as seconder. There is no doubt that the motions were presented by them as individuals since only members could put forward motions for consideration at the AGM. It was tentatively suggested at one point that these were TMSL motions, and the confusion is to some extent understandable, but that is not in fact (and could not be) correct. I should add that the focus in the last two motions on Mr Kenneth and Mr Morten was because they were perceived as the most active supporters of the proposal to purchase the Dunalastair Hotel and they had been primarily responsible for drafting the Supporting Spiel, which Mr Monks considered not to be balanced.

[69] It was a requirement of the Club Constitution that notice of the AGM be given not less than 21 days before the date of the meeting, together with the Agenda of the business to be discussed. It was usual for any papers in support of motions to be discussed at the AGM to be sent out at the same time. Papers in opposition to such motions would also be sent out. The materials sent out in advance of the AGM, including the Notice, the Agenda and any papers for or against such motions were referred to in evidence as "the AGM pack" and I will use the expression in this Opinion. Mr Monks gave evidence that it had been the practice for the AGM pack to be sent out by TMSL. TMSL used a printing firm to print and post the pack to members. I accept this evidence. In the ordinary course, the AGM pack did not need to be sent out until shortly before 24 October 2008, though of course the requirements of printing and posting meant that some of the work would have to be undertaken earlier than that. Having intimated their seven motions on 29 September 2008, Mr Monks and Mr Gordon drafted a paper setting out their reasons in support of those motions. They thought it appropriate to take legal advice from a firm of solicitors on their draft before circulating it. It was their intention that it be included within the AGM pack sent out to Club members. However, while this process was still going on, the Committee itself, without informing either Mr Monks or Mr Gordon (or, indeed, TMSL) took it upon itself to issue and circulate the AGM pack. The Notice of the AGM and the Agenda are dated 13 October 2008 and were sent out at about this time. Included within the AGM pack was a paper prepared by the Committee entitled "Comments on the Motions", in which they dealt individually with each motion and, "being certain that these motions would be against the Club's interest", concluded by asking the Club members to vote against the motions rather than risk them being passed in a small turnout at the AGM. The Committee said that that Motion 6 might reflect recent disagreements over TMSL's expenses and bonuses on which the Committee were taking "a reasonable but firm line". Under reference to Motion 7, the Committee indicated that the opposition to Mr Morten might arise from TMSL's misunderstanding of the arrangements for the purchase of the Club office in 2006, TMSL having wrongly claimed that they had the option to purchase the building whereas Mr Morten had devised the arrangements which were to the advantage of the Club. The AGM pack did not, of course, contain anything from Mr Monks or Mr Gordon in support of the motions. Their supporting paper was still being considered by their lawyers.

[70] In his Affidavit, Mr Kenneth said that Mr Gordon had recently told him that TMSL did not have the capacity to prepare the papers, and that this was why the Committee itself prepared and sent out the AGM pack. In his oral evidence he amplified this by explaining that TMSL had been busy with the papers for the SGM. Mr Gordon denied having said this, and further denied that there were in fact any difficulties. Whatever the truth of this, and on this I again prefer the evidence of Mr Gordon, it does not explain why the Committee thought it necessary to send out the AGM pack before finding out whether, as they would have expected, Mr Monks and Mr Gordon wished to put forward a paper in support of their motions and to have it included within the pack. In that same part of his Affidavit, Mr Kenneth gave this explanation:

"Regarding the 2008 AGM, I received seven motions proposed by Monks and Gordon some time before the closing date for receipt of motions and nominations. I thought they were ridiculous, a joke that showed TMSL in a bad light rather than the committee. I was convinced that TMSL did not want to publicise that the AGM, and that they expected the Committee to plead with them to withdraw such embarrassing motions in return for some concession, such as dropping our investigation into TMSL expenses claims. Since Gordon had recently told me that the office did not have the capacity to prepare papers for general meetings, I was preparing the AGM papers for printing by Scotmail. I decided to say nothing to TMSL and to call their bluff by printing the seven motions exactly as received, together with an objective analysis of why they were unrealistic and in many cases irrelevant."

Leaving aside the assertion that Mr Gordon had said that TMSL did not have the capacity to prepare the papers, which I have already made clear I do not accept, that passage seems to me to explain the Committee's actions. They wanted to take control of the preparation and circulation of the AGM pack without allowing TMSL, or Mr Monks or Mr Gordon, any opportunity of backing down. To this end they not only took over one of TMSL's usual functions, without notifying them that they were doing so, but also prepared and circulated the AGM pack earlier than would normally have been done. They included within it their opposition to the motions but, because of their concern not to give TMSL the opportunity of backing down, did not ask Mr Monks or Mr Gordon whether they wished to have a paper in support of their motions included. Mr Monks put it this way: "The Committee, by issuing the AGM Pack early, denied us the opportunity of having our Statement of Reasons included in the papers." That seems to me to be an accurate summary of the position.

[71] Faced with this difficulty, Mr Monks and Mr Gordon took steps to finalise their Statement of Reasons and circulate it to the members. On 22 October 2008 they sent an e-mail to all members of the Club, including the elected members of the Committee, in these terms:

"Dear Owner,

TMSL had intended that the attached letter about motions for the AGM and the attached note on the Dunalastair hotel should have been issued with the AGM papers, but the Committee issued the AGM papers without informing TMSL. It has therefore been necessary to issue these papers separately. Please read them carefully before casting your vote.

Yours sincerely,

Angus Gordon & Eddie Monks"

Attached to that e-mail were two documents. The first, the note on the Dunalastair Hotel, was a copy of the note previously sent to the Committee on 29 September 2008 (see para.[66] above). It compared the relative advantages of the Dunalastair proposal with the previous negotiations for the Loch Rannoch Hotel and concluded that the Dunalastair proposal looked like a rotten deal.

[72] The second document was headed "Letter from TMSL to members of the Loch Rannoch Highland Club". It is a lengthy document, but since so much attention was focused on it at the proof it is necessary to set out substantial parts of it. The letter began by referring to a recent conversation between Mr Kenneth and Mr Gordon in which Mr Gordon asked what had happened to the good working relationship previously enjoyed and Mr Kenneth is said to have replied that it all went back to the 2006 AGM "when TMSL tried to undermine my authority as Chairman". There is then a section referring to the background to that conversation, setting out in some detail the events leading up to that AGM and the disputes about the validity of Mr Morten's nomination. Having dealt with that, the letter went on to deal with "other matters which owners should consider before voting at this AGM". I quote part of this:

"Mr Kenneth's actions and the apparent collective actions of the elected committee in several other matters also need to be drawn to the attention of members.

A. Mr Kenneth's attitude to Mrs Gina Cummings was largely instrumental in causing her to resign from the Committee in 2005.

B. Mr Kenneth was Chairman of the Club Committee in 2005 which was involved in drafting the Club's new constitution and inserted the clause that "no member can serve for more than two successive periods without a one-year break" ... Mr Kenneth stood for his third successive unbroken period at the 2007 AGM. This decision to stand for election was challenged by TMSL who were trying to act as honest brokers to ensure that the rules were followed, but this challenge was again dismissed as interference.

C. Several elected members are pressing hard for the Club to purchase the Dunalastair Hotel. In June 2008 the Committee made arrangements to call an SGM to vote on their proposal but this was cancelled when TMSL drew their attention to the fact that their proposed use of £1 million of Club's funds could put the Club into bankruptcy or receivership. There is no evidence available to us that they have carried out any due diligence or had the property surveyed and the business valued. Their latest proposal is to commit a much smaller portion of the Club's reserves to the purchase, but to place much greater burden on members by way of increased annual levies, and their proposals make no mention of the liabilities or weaknesses in the scheme, and there is still no evidence available to us that they have carried out the normal pre-purchase checks.

E. Committee involvement in the receipt of nominations for committee, (albeit possibly well-meaning,) and the use of prior year nomination forms with changed dates and proposer in an attempt to ensure that several nominations were received in time, when in fact they were delivered late, questions the integrity of elected member involvement in the nomination and voting process.

F. Between July 2003 and about September 2006 there was regular (sometimes daily) communication between the elected Committee Members and the directors of TMSL, and the directors of TMSL were asked to attend most if not all Committee Meetings and Sub-Committee Meetings. Since about September 2006 there has been very minimal communication between the parties and the directors of TMSL are very seldom asked to attend meetings of the Committee or Sub-Committee and do not receive copies of the minutes of those meetings.

G. Committee members and the Committee's solicitor are issuing instructions directly to staff rather than through the management company. These actions place staff in an invidious position in as much as they are being asked to serve two or three Masters. The directors of TMSL have objected to this on several occasions, but to no avail.

H. The solicitor acting for the elected members has told them to ignore advice provided by the management company, without first having had the courtesy of discussing his reasons with the management company. Furthermore the same solicitor is wasting valuable staff time by duplicating requests for information, which has previously been provided to him, rather than searching his own files to locate the data originally provided to him.

I. Bill Gent was elected Chairman of the Committee immediately after the 2007 AGM. He resigned his Chairmanship and his elected Committee membership in May/June this year because he was opposed to the decision to acquire the Dunalastair Hotel. The Committee failed to inform members of Bill's resignation when they issued the June Newsletter.

J. Zoe Roberts, who had been Senior Vice Chairman, was appointed Chairman to replace Bill Gent. Zoe was due to stand for re-election at this forthcoming AGM that seems to have chosen not to.

Signed by Angus Gordon & Eddie Monks"

It is to be noted that although the letter was described in the heading as a letter from TMSL, it was in fact signed by Mr Gordon and Mr Monks personally. This is not surprising given with the provisions of the Constitution which, as I have indicated, permitted motions by individual members but would not have permitted a motion by the management company which was not a member.

[73] Mr Monks and Mr Gordon were both challenged as to the relevance of many of these points to their motions and as to their accuracy. There is no difficulty so far as concerns the note about the disadvantages of the proposal to acquire the Dunalastair Hotel. It was not suggested that those were not legitimate points to make. Mr Monks and Mr Gordon had every right to make these points as members of the Club. Whether their concerns were justified, and whether their assumptions as to the price for which the Loch Rannoch Hotel could have been purchased were well founded, is beside the point. They had put a note in identical terms to the Committee and their points had not been reflected in the paper circulated by the Committee to the members of the Club in support of the motions. It was perfectly proper to seek to put this material directly to the members of the Club. As to the letter, which contained a number of different points, some of the content is directly material to the motions to be discussed at the AGM. The discussion about the disputed nominations at the 2006 AGM was directly material to the second and third motions. So also was the point made at item E quoted above. Items C and I, and possibly J, were related to the motions concerning liability for the Dunalastair Hotel proposals. Items A and B related to the motion that Mr Kenneth's tenure as an elected member of the Committee be terminated. Only items F, G and H were not directly related to the motions put forward by Messrs Monks and Gordon, but they contained general complaints about the difficulties being experienced with the Committee with its present composition and might therefore be said to relate, albeit indirectly, to the proposal that Mr Kenneth's tenure be terminated.

[74] I did not have enough evidence before me to decide whether the contents of the letter were accurate in all respects. Many of the points were repetitious of arguments which had taken place over the previous years, which I have already considered earlier in this opinion. But the accuracy or otherwise of the points made in that letter seems to me, with respect, to be beside the point. Although it was headed as a letter from TMSL, it was in fact, as I have said, clearly a letter by Mr Monks and Mr Gordon as proposers of the seven motions. There could have been no complaint if one of them had said all this at the AGM, or if prior to the commencement of the AGM they had put a copy of this document on every seat to be read by any member attending the AGM. Had they intimated the contents of this document to the Committee before the AGM pack was sent out, it is difficult to see that the committee could properly have refused to include it, although the Committee might have wished to say something in rebuttal. Of course, having regard to the way in which the AGM pack was sent out, Mr Monks and Mr Gordon did not have the opportunity of having their letter sent out with their motions; but equally the Committee deprived itself of the opportunity of rebutting what they had to say.

[75] The Club complain that, in acting in this way, TMSL failed to act in its best interests. I reject this complaint. Mr Monks and Mr Gordon had serious points to make about the proposed acquisition of the Dunalastair Hotel and it was entirely proper that those points should be disseminated amongst the membership of the Club before any decision was taken on the motions put forward at the SGM for approval of the purchase. The motions supporting the acquisition were of great importance to the Club and its members. In some of the evidence led on the half of the Club, a number of members of the Committee appeared to think that even if the motion in favour of acquisition was passed at the SGM, the Committee would have to come back to the membership for final approval of any deal that was agreed in principle. That was not correct and Mr Monks was entitled to be concerned that once the Committee got the go-ahead from the SGM, it would proceed to negotiate and conclude a deal without any further reference to the membership. The distinction between the motion tabled at the 2008 SGM and that put forward in respect of the Loch Rannoch Hotel in 2006 is obvious. The 2006 motion provided expressly that the Committee would seek further approval when full details were decided and before signing any contract. The 2008 motion had no such provision. If approved, it gave power to the Committee to conclude a binding contract. That was why the 2008 motion was so important, and that was why Mr Monks and Mr Gordon, acting as individual members of the Club, were fully entitled to have their views made known.

[76] The part of the complaint which was ultimately pressed most strenuously was that in sending out the letter and the note on 22 October 2008, TMSL acted in breach of clause 4 of the Management Agreement which provided that:

"All information obtained and retained under this contract will remain the exclusive property of The Club and will not be disclosed by [TMSL] to any other person or body without the express permission in writing of The Club. For the avoidance of doubt such information will include any details of, or relating to, members of the Club."

At one point in their evidence, Mr Monks and Mr Gordon suggested that they had not used the up-to-date Club membership list to send out their comments to the membership. They said they had made up their own list of members from their knowledge of the area (Mr Gordon had been involved in the local store) and had added to it during the period of the management contract. I cannot accept that evidence. Indeed, on this aspect it seemed to me that they were being evasive. I am satisfied that the material sent out on 22 October 2008 was sent out using the up-to-date Club membership list. But I am not satisfied that this amounted to a breach of clause 4 of the Management Agreement for the reasons set out in the next paragraph.

[77] There is a difficulty with this part of the case. It is clear, in my opinion, that in proposing their motions for the 2008 AGM, and in seeking to circulate their supporting material thereafter, Mr Monks and Mr Gordon were acting as individual members of the Club. But it is in fact difficult to separate their role as individuals from their role as directors of TMSL. If two other members of the club, unrelated to TMSL, had put forward motions for consideration at the AGM and, because of the actions of the Committee, had not had the opportunity of putting their supporting statement in the AGM pack sent out in advance of the AGM, they would, so it seems to me, have been entitled to ask that their supporting statement be circulated separately and in advance of the meeting. A request to that effect would have been properly directed to TMSL, the managers, who were known to be responsible for dealing with such matters. Whether TMSL would have circulated such a statement of reasons without first, if only as a matter of courtesy, asking the Committee, is perhaps a moot point, given that the Committee had no power of veto over what was sent to members. If TMSL had not asked the Committee but had simply circulated the statement of reasons to the members using the up-to-date membership list, the legitimate criticism of TMSL, if any, would surely have been unrelated to the use by TMSL of the membership list to circulate it - it would have been that they had not cleared it with the Committee before circulating the document. In other words, the use by TMSL of the membership list for the purpose of circulating the statement of reasons would have been unexceptional. In the present case the difference is simply that the members who wanted a statement of reasons circulated to the membership were in fact members who were also directors of TMSL. The circulation of that statement of reasons was, in effect, carried out by TMSL, or others instructed by it, using the membership list. Nothing in that action seems to me to constitute a breach of clause 4. There was no disclosure by TMSL of the membership list to any other person or body. The alternative analysis is that the statement of reasons was sent out by Mr Monks and Mr Gordon themselves and that they used the membership list which was available to them by virtue of their involvement in TMSL. It offends common sense to suggest that this involved in some way TMSL disclosing confidential information to Mr Monks and Mr Gordon. They already had that information.

[78] For these reasons, although it seems to me that the tone adopted in the letter and the note sent out by Mr Monks and Mr Gordon was unhelpful, and liable to exacerbate the already difficult relationship with the Committee, which had not been helped by the Committee's own actions in sending out the AGM pack in a bid to pre-empt TMSL, I am not persuaded that TMSL were thereby in breach of the Management Agreement.

Employment law matters

[79] An issue was raised by the Club relating to the maintenance by TMSL of staff employment files. No proper information had been given of the disciplinary and grievance procedures. The complaint arose out of an examination of the files after TMSL had been dismissed as managers. The evidence on this point was insufficiently clear to persuade me to make a finding that TMSL were in breach. Both Mr Monks and Mr Gordon gave evidence that they dealt with these issues properly. In so far as they were at fault, the breach gave rise to no difficulties, so far as I could tell, and was never raised with TMSL whilst they were managers so as to give them an opportunity of remedying any shortcomings. Mr Hajducki accepted that, since the matter was only discovered after their dismissal, it did not contribute in any way to the breakdown of trust between the parties.

Credibility/ Reliability of Witnesses

[80] It will be apparent from the way in which I have dealt with the various issues that I have generally preferred the evidence of Mr Monks and Mr Gordon to that of the witnesses called to give evidence by the Club. I should elaborate slightly on that. I found both Mr Monks and Mr Gordon to be, in the main, straightforward and impressive witnesses. Although I have not always accepted their evidence, and although in one respect - to do with the source of the membership list used to circulate their reasons in support of their motions to be debated at the 2008 AGM - I considered their evidence evasive, I am satisfied that in essentials they were endeavouring to tell the truth and that their evidence was reliable. By contrast, I was not able to place similar reliance on the evidence given by some of the witnesses called on behalf of the Club. Thomas Morrison, who had been a member of the Club since 2005 and was co-opted onto the Committee in August 2008, made a number of allegations about TMSL which seemed to be completely unfounded in fact. Lindsay Monro was co-opted on to the Committee in, I think, 2006 and elected as a Committee member in 2007. He criticised TMSL as not being "in the slightest bit interested in the Club or the Club members, but much more interested in the bonus money as they could achieve by cutting purchases and costs to a bare minimum". He said that "their only interest was in making money", they treated the Committee and members of the club "with contempt", and were "belligerent and uncooperative". Such impressionistic and unbalanced evidence appeared to be put forward without any adequate foundation; but that view of TMSL clearly coloured his whole approach to their actions in relation to which he could give evidence. Professor Galbraith, though in many respects an impressive witness, was, in my opinion, too ready to adopt the views of others as to the probity of TMSL. Again, I felt that this coloured the rest of his evidence. I have already referred to allegations of dishonesty scattered about liberally in the Affidavits of Mr Kenneth and Mr Anderson. It was not always easy in their evidence to distinguish between what they knew, what they had heard from someone else, and what they thought they knew because of the motives which they had ascribed to Mr Monks and Mr Gordon. I do not doubt their honesty. I have no doubt that they were seeking to act honourably and in the best interests of the Club. Nor do I have any reason to doubt that they gave up much time acting for the Club and helping it achieve considerable success. I recognise that it would not always be easy for them to work harmoniously with characters as independently minded and blunt speaking as Mr Monks and Mr Gordon. However, the manner in which they gave evidence and the content of their evidence meant that I could seldom place reliance on their account of a particular incident where it was in conflict with evidence given by others.

Breach of Contract - Conclusions

[81] The Club alleges that, by its conduct, TMSL was in material breach of express and implied terms of the Management Agreement. It was an express term that TMSL would carry out the Club's instructions. There were implied terms (a) that TMSL would act in good faith and in the best interests of the Club, and (b) that TMSL would not without reasonable and proper cause conduct itself in a manner calculated and likely to destroy or seriously damage the relationship of confidence and trust between them and the Club. At the end of Answer 3, the Club avers that, by reason of the particular matters of which complaint is made in Answer 3, which matters are discussed above, TMSL was in material breach of contract in respect of (i) its conduct in relation to the purchase of the Club office in 2006, (ii) its conduct in relation to the 2008 SGM and AGM, and (iii) the totality of its conduct on the many and varied issues there set out. Each of points (i) and (ii) alone was sufficiently material to amount to a repudiation of the Management Agreement. As to (iii), while the other matters, taken by themselves, were not sufficiently material to amount to a repudiation of the Management Agreement, taken together as a whole they did.

[82] In support of the implied terms, Mr Hajducki QC, for the Club, submitted that those terms arose out of the close relationship between the parties as regulated by the Management Agreement. How, he asked rhetorically, could the relationship work without such terms? He referred me to Denmark Productions Ltd. v Boscobel Productions Ltd. [1969] 1 QB 699, Macari v Celtic Football and Athletic Co. Ltd. 1999 SC 628 and Malik v Bank of Credit and Commerce International SA [1998] AC 20. Mr Campbell QC, for TMSL, argued that no such terms should be implied. He did, however, accept that, as agent, TMSL was subject to certain fiduciary duties in relation to its conduct of matters in behalf of the Club. The distinguishing obligation of such a relationship was "the obligation of loyalty", and that carried with it a duty on the part of the fiduciary to act in good faith, not to make a profit out of his trust, and not to act for his own benefit or for the benefit of a third person without the informed consent of his principal: see Bristol and West Building Society v Matthew [1998] 1 Ch 1,18.

[83] For present purposes I am content, without deciding the point, to proceed upon the basis that TMSL was under the implied obligations put forward by Mr Hajducki. However, in light of the conclusions which I have reached in discussing the various matters of complaint, the establishment of such terms avails the Club nothing. I have not found the various breaches alleged by the Club to be made out on the evidence.

[84] That is the end of the matter. But if I am wrong, I should comment briefly on the question whether, if TMSL was in breach in any of the respects contended for, its breach was so serious as to amount to a repudiatory breach of the Management Agreement. The gravamen of the Club's case, as I understood it, was that TMSL's conduct in relation to the above matters damaged the relationship of confidence and trust between the parties so seriously that the parties could no longer be expected to work together. In considering this matter, I have to assume that TMSL was in breach in some respects. But in what respects? That is the problem, because different breaches may have different consequences. I do not think it would be helpful to go through an exercise of supposing TMSL to be in breach in certain respects but not in others, identifying different combinations of breaches. Such a task would be almost endless and would not, in my view, be profitable. In case the matter should later be considered elsewhere, I make these brief observations. Some of the complaints - such as those about towels, instructions to staff, self-certifying expenses claims, claiming travel expenses, and separation of electricity supplies - even if established, are relatively unimportant, even if put all together. The argument about providing vouching for expenses is of rather more substance, because on the Club's case it was a manifest example of disobedience to a proper instruction, though not enough, in my view, so to damage the relationship between the parties as to amount to a repudiatory breach by TMSL. As the Club recognise, the most important of the complaints are those in respect of the purchase of the Club office in 2006 and the events leading up to the 2008 SGM and AGM. To these I would add the issue about interfering with the elections to the Committee at the 2006 AGM. The Club's allegations about the conduct of TMSL in these respects are serious and, if proved, would go some way to showing repudiatory breach by TMSL.

[85] But there are problems in the way of the Club succeeding in its case of repudiation even on the hypothesis that TMSL were in breach in these three respects. First, although I am satisfied that the relationship of confidence and trust between the Committee and TMSL had taken some serious knocks over the years, I am not persuaded that it had completely broken down by the time of the SGM in October 2008. Put another way, I am not persuaded that the relationship was significantly worse by late October 2008 as a result of the events surrounding the SGM and AGM then it had been earlier in 2008, at the time of the dispute about verification of expenses, or in 2006 and 2007 when other disputes were current. As at late October 2008, the Management Agreement had just over a year and a half to run. It came to an end on 30 June 2010, and it is clear that the management sub-committee of the Club had already by then taken some steps to replace TMSL as managers from that date. On the evidence, I am not persuaded that the parties could not have continued to work together, with each carrying out its expected functions, for the remainder of the contractual term had the Committee not decided to treat TMSL as being in repudiatory breach of the Management Agreement. There would have been difficulties, no doubt, as the history of the relationship shows, but I see no reason why this could not have been done. Second, even if TMSL was in breach, it seems to me that on any realistic view of the evidence, the Committee itself contributed substantially to the breakdown of trust. If the question as to the seriousness of TMSL's breach, assuming TMSL was in breach, has to have regard to the consequences of the breach, in terms of the destruction of the relationship of confidence and trust, it is necessary to look at other causes of that breakdown. In other words, the Committee's contribution to the destruction of the relationship is relevant, as is the question whether, as a result of previous incidents which were not the fault of TMSL, there remained a relationship of trust and confidence capable of being further damaged by the conduct alleged against TMSL. Third, the breakdown of trust and confidence had its roots in the dispute about the Club office in 2006 and in TMSL's perceived interference in the elections to the Committee later that year. It never really recovered from that. If TMSL was in breach over one or more of those incidents, that breach will have contributed significantly to the breakdown of the relationship. But that all happened over two years before the denouement in October 2008. If TMSL was in repudiatory breach then, it is much too late to rely on that breach in October 2008 as a ground of repudiation. Faced with a repudiatory breach by one party, the innocent party has the option to affirm the contract or to rescind. He cannot keep his options open indefinitely. I consider that by October 2008 the Club had lost the right to rescind on the grounds of TMSL's repudiatory breach or breaches (if it/they was/were such) in 2006. This conclusion does not depend on the letters exchanged between the parties in February 2007, though that exchange makes it clear, if the matter were otherwise in doubt, that the Club had affirmed the Management Agreement in full knowledge of what it viewed as serious breaches of contract by TMSL in relation to the Club office and the 2006 elections. The issues about the purchase of the Club office and the 2006 elections were raised again as part of the background to the events leading up to the 2008 SGM and AGM, but that does not justify resurrecting the issues themselves as grounds for treating TMSL as in repudiatory breach. Mr Campbell characterised the issue as one of waiver. Terminology varies in this area of the law. I prefer to say that the Club, with full knowledge of the alleged breaches of the Management Agreement by TMSL, elected to continue with the contract rather than to accept those breaches as bringing it to an end, and thereby lost their right in the future to rely upon those alleged breaches as grounds for rescission.

[86] I therefore find that the Club has failed to establish that TMSL was in repudiatory breach of contract so as to justify the purported rescission by its letter of 24 October 2008. It follows, and this was not disputed by Mr Hajducki, that that letter sent on behalf of the Club purporting to rescind the Management Agreement was itself a repudiatory breach of the Management Agreement, which TMSL was entitled to accept by bringing the Agreement to an end and claiming damages. This they have done.

Damages

[87] A number of figures relevant to the assessment of damages suffered by TMSL as a result of the wrongful repudiation of Management Agreement by the Club are agreed and are set out in the Joint Minutes of Admissions lodged in process. Junior counsel for the Club helpfully confirmed, in a Schedule put in during parties' final submissions, that the sum which would have been paid for management fees and commission for the balance of the duration of the Management Agreement had it not been prematurely terminated is £186,056.

[88] Mr Hajducki submitted that, notwithstanding that the figures were agreed, TMSL had failed to prove its loss. He argued, in effect, that TMSL had failed to put forward a relevant case on damages. In assessing what loss TMSL had suffered, it was necessary to have regard not only to what it would have received had the contract continued but also to what it would have had to expend in order to receive it or, more pertinently in the present case, what it has saved by reason of not having had to incur such expense for the duration of the contract. In other words, he argued that a "net loss" approach should be adopted. He went on to point out that a management contract is, in essence, a contract for the provision of services, and said that TMSL would have required a number of persons to carry out those management functions under the Management Agreement. There was no explanation or evidence about how such persons were paid, the terms on which they were employed and whether the cost of employing them was saved when the Management Agreement came to an end. In particular, there was no evidence as to how Mr Monks and Mr Gordon were remunerated. Were they paid salaries or did they take their remuneration by way of dividends? It was important to remember that TMSL could recover only the loss which it had suffered, not the loss that Messrs Monks and Gordon had suffered.

[89] The principle relied upon by Mr Hajducki is trite. It is so well established that I do not propose to refer to the cases cited by him in support of it. Where I part company with his submission is in applying that principle to the case presented by TMSL in its pleadings and to the evidence led at proof. In its pleadings, TMSL avers that it has sustained loss and damage by reason of the Club's wrongful repudiation of the contract. It goes on in Article 7 to quantify that loss by reference to the sum which they would have received had the contract not been brought to an end prematurely. It is true that there is no mention in Article 7, or elsewhere in the Summons, of any expenditure which TMSL would have had to incur in order to perform the contract for the remainder of his term, nor of any savings that it was able to achieve as a result of the contract coming to an end when it did. But that does not amount to an assertion by TMSL that it is entitled to recover as damages the sums it would have received without giving credit for any savings (if there were any). TMSL's pleaded case is quite consistent with the "net loss" approach. Had the Club wished to challenge the damages claim on the basis that TMSL had not suffered loss in the gross amount which it had not received, but had saved certain expenditure (whether by way of wages or salary or in some other way), and that this ought to be brought into account in assessing damages, it could have done so. In light of the averments made by TMSL, the onus shifted to the Club to raise such other matters (if any) as in its view ought also to be taken into account. In its Answers, however, it made no averments to that effect. It joined issue with some of the figures put forward by TMSL, and it included pleas in law in standard form (a) to the relevancy of TMSL's averments, (b) to the effect that TMSL had not sustained loss and damage as a result of the Club's breach of contract and, separately, (c) that the sums sued for were excessive. But it gave no notice, either by positive averment or by inserting a call, of a case that TMSL had made savings and ought to bring them into account. Nor at any of the preliminary and procedural hearings in the case was any notice given that it was to be contended that TMSL had not pled a relevant case. Mr Hajducki referred to the fact that in its "Note of Proposals for Further Procedure", lodged some six months before the date of the proof, the Club had suggested that the case be sent to proof for answer on three issues, the third of which was whether, if the pursuers had suffered loss as a result of the Club's breach of contract, "the sum claimed is a proper measure of any damages which may be due". He submitted that this was clear notice of the point that was to be taken. I disagree. It gives no notice at all there is to be an argument as to the relevancy of the averments on damages. In any event, as I have already held, I am satisfied that the case is relevantly pled in that there is nothing to suggest that the claim is put forward on anything other than a "net loss" basis.

[90] The case, therefore, does not raise any issue of legal principle on this point; the question is simply one of evidence. There being no case made by the Club, let alone any evidence, that TMSL has saved anything by reason of the early termination of the Management Agreement, I find that TMSL have suffered loss and damage in the sum of £186,056.

Bonus Payments

[91] The parties are in dispute about what sums if any are due to TMSL by way of efficiency bonus under clause 7 of the Management Agreement. The Club now accepts that something is due. At one time the Club had a counterclaim for repayment of part of the bonus already paid to TMSL, but this is no longer insisted upon. The question of bonus payments arises independently of the claim for damages for repudiation.

[92] For convenience I will set out again the terms of clause 7 of the Management Agreement:

"7. The Club will also pay to TMS Ltd. a performance bonus based on certain savings in expenditure below the level of such expenditure by the Club in the year 200203 or the average of that year and the two previous years (whichever is the lower figure) ("the foundation figure"). The expenditure items concerned will be all items of expenditure of the Club except wages and salaries; general rates; Special Project costs; Inventory items; sinking fund contribution; and management fee and factorial fees. The auditors of The Club will be requested to calculate the bonus payable hereunder on completion of their audit of the annual accounts and said sum will be paid within one month of the date of the auditor's certificate. The bonus will be calculated on the balance of the expenditure items concerned so that reduction in any item will be offset by any increase in any other item and the bonus paid on any net savings figure. Where a bonus has been paid on any savings figure in any year then [the expenditure figure which gave rise to the saving] will be taken as the foundation figure for any future year's calculation, without detriment to any existing bonus. Any increases in such net expenditure figure in future years (after allowing for increases in the Services Sector of the Retail Price Index) will result in a claw back of bonus. The bonus will be paid at the rate of one-third of the amount of such savings for the year in question and repeated at that rate for the three succeeding years. In respect that the intention is that the bonus will be paid in respect of sustained savings only the amount of bonus in any year will in the event of failure to agree be determined by the auditors of The Club whose decision will be final, binding and unchallengeable."

I have inserted the words in italics and square brackets in the middle of the clause in substitution for the words "that figure" to reflect what both parties agreed - and in my view they were plainly correct in this - was the clear intention of the parties in this regard. Neither party sought to rely on the provision that the decision of the auditors would be final, binding and unchallengeable. There were in fact a number of decisions by the auditors, not all of them consistent with one another.

[93] Parties helpfully lodged in process spreadsheets setting out the bonus calculation as they saw it. A number of discrete issues were identified as requiring to be decided for the purpose of working out what sums were due to TMSL. I shall deal with each in turn.

(i) What is the correct way of identifying the foundation figure?

[94] This is a point of construction. In so far as evidence was given as to what was the intention of the parties, what the clause was meant to achieve and how it operated, I shall treat it as part of the parties' submissions.

[95] In terms of clause 7, the performance bonus payable to TMSL is based on savings in expenditure as compared with the "foundation figure" for that particular year. For the first year of the Management Agreement (i.e. the year 2003/2004), it was agreed that the foundation figure should be the average of the level of expenditure by the Club for the year 2002/2003 and the two previous years. The relevant expenditure to be taken into account for this purpose includes all items of expenditure by the Club except wages and salaries, general rates, Special Project costs, Inventory items, sinking fund contribution, and management fee and factorial fees. It includes expenses claimed by and paid to the managers, TMSL.

[96] Subject to one point which I deal with in para.[113] below, there is no dispute between the parties that the foundation figure for the year 2003/2004 is £404,304, that being the average of the previous three years. There is also no dispute that actual relevant expenditure in 2003/2004 was £357,321, a saving as against the foundation figure of £46,983. The bonus is calculated on the saving of £46,983. That figure is divided by 3 to produce a figure of £15,661, and that sum is payable to TMSL as a bonus payment both in that year (2003/2004) and in the following three years, up to and including the year 2006/2007.

[97] For the year 2004/2005, the foundation figure is the expenditure figure from the year before, namely £357,321, multiplied by 1.04, that being the increase in the Services Sector of the Retail Price Index ("RPI") over that period. That gives a foundation figure for 2004/2005 of £371,614. Nor is there any dispute that actual expenditure in the year 2004/2005 was £388,957. Since actual expenditure for that year was in excess of the foundation figure by £17,343, that gives rise to a claw back of £5,781in that year and in the three following years. Again, there is no dispute about any of this.

[98] The difference between the parties is as to how to calculate the foundation figure for the following year, 2005/2006. TMSL say that it should be the actual expenditure figure from the year before (£388,957) multiplied by 1.04, that again being the increase in the Services Sector of the RPI over that period. That produces a figure of £404,515 as the foundation figure for 2005/2006. The Club, for their part, contend that the expenditure figure from the previous year is only to be taken as the foundation figure for the following year "where a bonus has been paid" by reference to that expenditure figure: see clause 7. That was not the case in 2004/2005; no bonus was paid for that year and there was, in fact, a small claw back. In those circumstances, the foundation figure for the previous year continues to apply, multiplied by 1.04 for the increase in the Services Sector of the RPI. On the Club's approach, the foundation figure for 2004/2005 is £386,479 (£371,614 x 1.04).

[99] On this issue I consider that the argument for the Club is correct. The operative part of clause 7 provides that:

"Where a bonus has been paid on any savings figure in any year then [the expenditure figure which gave rise to the saving] will be taken as the foundation figure for any future year's calculation"

A bonus was paid on the savings in 2003/2004. In terms of the clause, therefore, the expenditure figure for 2003/2004 is to be taken as the foundation figure "for any future year's calculation". It will remain the foundation figure year on year, as adjusted in accordance with the RPI multiplier, until the time when a further bonus becomes payable because the actual expenditure in year X is lower than the foundation figure for year X.

[100] On that basis, the foundation figure for 2005/2006 was £386,479. Actual expenditure in that year was £419,693, an amount of £33,214 in excess of the foundation figure. That results in a claw back of £11,071 (£33,214 ÷3) for that year and each of the three following years.

[101] Applying the Club's approach, which I have held to be correct, the foundation figure for the year 2006/2007 is £405,803(£386,479 x 1.05, that being the appropriate RPI multiplier for that year). Expenditure in 2006/2007 was only £369,025, a saving of £36,778, giving a bonus for that and the three following years of £12,259 (£36,778 ÷ 3).

[102] Because the year 2006/2007 resulted in a bonus, the actual expenditure for that year is taken as the basis for the foundation figure for 2007/2008, resulting in a foundation figure for that year of £383,786 (£369,025 x 1.04). Expenditure for 2007/2008 was only £290,347, a saving of £93,439, leading to a further bonus for that year and the three following years of £31,146 (£93,439 ÷ 3).

[103] The year 2007/2008 was the last full year in which TMSL continued to act as managers under the Management Agreement. Parties have taken 25 October 2008 as the date on which TMSL ceased to be managers, and I shall take that date also. The following year, 2008/2009, was therefore only a partial year, TMSL being managers for a period of just under four months or one third of that year (1 July - 25 October 2008). That gives rise to different problems which I shall address later.

(ii) Does clause 7 allow for any unused claw back to be rolled forward to reduce a subsequent year's bonus or to allow recovery by the Club of a bonus already paid?

[104] A question arises as to the proper operation of the claw back provision in clause 7. Claw back is calculated as the difference between actual expenditure and the foundation level for a particular year, in a case where the expenditure is greater than the amount of the foundation level. The basic principles are straightforward. Where expenditure exceeds the foundation level for a particular year, the amount of that excess is divided by three, and the resulting figure is the amount of claw back to which the Club is entitled in that year and in the three following years. There may, in the same year, be a sum due by way of bonus from the previous year. In that case, the claw back will be set off against the bonus.

[105] This is where the problem arises. There is no difficulty where the amount of the claw back is less than the bonus payable in that year as a result of savings in previous years. The amount of claw back will simply reduce the sum due to TMSL. A net figure will be paid. But what if the claw back is in an amount greater than any bonus payable in that year? It is argued on behalf of TMSL that the effect of the claw back provision can legitimately reduce the net bonus payable to TMSL in any particular year to Nil - but that it should never go further than that so as to produce a balance for any particular year in favour of the Club. Nor, by the same token, should any claw back beyond that necessary to reduce the bonus payment in a particular year to Nil be carried forward to the next year so as to reduce the bonus payments for that year. Nor, in any event, can the claw back operate so as to entitle the Club to recover bonus paid by it in previous years. Mr Campbell QC submitted that clause 7 envisaged a yearly resolution of claw back and bonus, with either a payment being made or a run-off bonus being reduced to Nil. It did not envisage that payment might be made by TMSL to the Club in the event that the claw back for any year exceeded the bonus payable in that year. He relied, in particular, on the words "without detriment to any existing bonus" in the middle of the clause, "existing bonus" meaning, he suggested, "bonus already paid".

[106] The claw back provision in clause 7 describes it as a "claw back of bonus". This is crucial to an understanding of the clause. It seems to me to be clear that the extent of the claw back can never exceed the extent of bonus payments which would otherwise be due or have been paid. There can be no question, in my view, of the overall balance of payment to be from TMSL to the Club under this clause. Short of that, however, I do not see why the claw back should not end up in a recovery by the Club of bonus already received by TMSL; nor do I see why the net figure for any particular year should stop at Nil; nor do I see why any "unused" claw back from one year should not be carried forward to set off against bonus payments due for a subsequent year. I do not think that the words "without detriment to any existing bonus" assist Mr Campbell in his argument. They appear in clause 7 in that part of the clause which provides that when a bonus has been paid on savings for a particular year, then the expenditure figure for that year becomes the foundation figure for any future years. The addition of the words "without detriment to any existing bonus" makes it clear that the reduction of the foundation figure for the next year does not have any retrospective effect, i.e. does not alter the calculation giving rise to the bonus payment for that year in the first place.

(iii) does clause 7 allow for bonus and claw back to be awarded for partial years?

[107] As I have already noted, the year 2007/2008 was the last full year in which TMSL acted as managers under the Management Agreement. After 1 July 2008, TMSL served for another period of nearly four months. The question arises whether the provisions of clause 7 apply to the last partial year. For the reasons given below, I do not consider that they do apply to those last four months.

[108] Clearly the Management Agreement itself did not contemplate that there would be an incomplete year. The term of the agreement was from 1 July 2003 until 30 June 2010. That consideration is, perhaps, incidental, but it may explain why clause 7 appears, as it does, to contemplate complete years. There are a number of pointers to this in clause 7 itself. First, the foundation figure is expressed in terms of annual expenditure. Next, the calculation of the bonus is carried out by comparing the annual expenditure for the year in question with the foundation figure. The Club's auditors are to calculate the bonus on completion of their audit of the annual accounts. The provision for taking the expenditure in a year where the bonus is paid as the foundation figure for the next year clearly contemplates, again, that the foundation figure is based on a full year's expenditure. That same sentence talks about the new foundation figure "for any future year's calculation". The clause goes on to deal with the position of increases in net expenditure "in future years". And instalments of the bonus, or in some cases the claw back, are calculated and paid on a yearly basis.

[109] None of this is necessarily conclusive, but the clause would require a lot of manipulation if it were to be adapted to deal with partial years. In particular, expenditure over the course of the year is unlikely to be spread evenly. There will be peaks and troughs. How then would the process of identifying the appropriate "foundation figure" for the partial year be carried out? Would it be a straight line apportionment of the previous year's expenditure? Or would a more subtle exercise have to be carried out? If it were a straight line apportionment of the previous year's expenditure, it might cause great unfairness in a case where the managers ceased to be employed under the Management Agreement just after a time of seasonally high expenditure. If, on the other hand, a more subtle exercise had to be carried out, how would one do it? There might be many possible answers, many of them no doubt reasonable, but the problem is that there is no one obviously right answer.

[110] The problem is illustrated in the present case. For the period of nearly 4 months from 1 July 2008 until 25 October 2008, the Club, in its schedule (7/140), has taken a "foundation figure" of £96,793. That is simply a straight-line apportionment, representing just under one third of the total expenditure for the previous year (£290,347) inflated by the RPI multiplier of 1.04. Expenditure for the period from the 1 July 2008 until 25^th of October 2008 is shown as £179,448. This is, I am told, actual expenditure during that period. A significant element in this is a figure of £92,613 described as "legal fees". All, or almost all, of these legal fees relate to the litigation with MRL which had been running since 2003 and was, so I understand, settled in October 2008. That was when the bill for legal fees came in. The whole of the amount of that bill is treated as expenditure during the period 1 July 2008 until 25 October 2008. Presumably the bill was submitted just before 25 October; hence its inclusion. Had it not been submitted until 26 October it would presumably not have been included. This seems to me to be so random in its effect that it could not be said fairly to represent the intention of the parties to the Management Agreement. With the legal fees included, claw back is calculated at £27,552 for that year and the following three years. With the legal fees omitted, it is easy, though I have not done the calculation, to see that there would in fact be a bonus payment for those years.

[111] I hold, therefore, that the bonus and claw back provisions of clause 7 are intended to operate only on full or complete years. Any calculation in respect of the period after 30 June 2008 should be disregarded.

(iv) Do the MRL settlement costs (a) fall to be included in the year to 24 October 2008, or do they (b) affect the foundation figure for the year 2003/4?

[112] This question relates to the settlement of the litigation with MRL in October 2008. I have already held that the legal costs relating to this cannot be included in the bonus calculations since they were paid only in October 2008, in the last few days of the part year leading up to the termination of the Management Agreement.

[113] TMSL put forward an argument that since the dispute with MRL related to its removal from its role as manager of the Club in 2003, the settlement costs related to that time, or the period leading up to it, with the result that the costs should be treated as relating to the first year of the Management Agreement. This would affect the initial foundation level. I do not accept this argument. The expenditure was incurred, in the sense that the bill was submitted and paid, in 2008. I do not think it possible to operate upon the basis of some retroactive allocation of invoices depending upon whether the work was done in one year or another. For example, a plumber may have been called in in late May or early June of a particular year to attend to some problem with the boilers. Having done the work then, he might not render his invoice, or it might not be paid, until July of that year. That would be a different accounting year for the purpose of clause 7. The parties cannot, in my opinion, have intended that, for the purpose of this clause, every invoice be scrutinised and attributed to the year in which the work was done. Clause 7 requires the auditors of the Club to calculate the bonus payable on completion of their audit of the annual accounts. This seems to imply that they will simply look at the figures as they appear in the accounts and will not seek to carry out any more subtle allocation of those expenses.

[114] Accordingly I consider that the MRL settlement costs should be excluded from any consideration of the sums due by way of bonus. This is not on account of any difficulty in treating the MRL settlement costs as part of the expenditure to be taken into account for the purpose of calculating the bonus. Rather it is because those settlement costs should be included in the period when they were invoiced and paid. However, standing the termination of TMSL's engagement under the Management Agreement in October 2008, those settlement costs were invoiced and paid in a period which does not fall to be taken into account for the purpose of calculating bonus.

[115] I was helpfully given a series of figures by junior counsel for both parties. Rather than risk applying my decision incorrectly, it seems to me that I should put the case out By Order to give parties an opportunity of confirming the figures for which decree should be given on the basis of my decision.

Counterclaim

[116] The defenders originally claimed in respect of four matters. One of them related to an alleged overpayment of a management fee. This claim arose out of a misunderstanding, the alleged overpayment in fact being an amount paid in respect of VAT. This claim is no longer insisted upon. Another related to a claim for claw back of bonus payments. However, in their final submissions they very fairly recognised that this claim could no longer be insisted upon, since even on their own figures they owed the pursuers £28,286 taking account of claw back. I have already dealt with the correct position as regards bonus payments. I need say nothing more, therefore, about this part of the counterclaim. I deal with the remaining two matters below.

(a) Expenses wrongly claimed

[117] I have already indicated that there was a dispute between the parties as to payment of travel expenses. Mr Monks lived at Bridge of Weir. Mr Gordon lived at Inverurie. Each of them, on their evidence, had an office in or near their respective homes. TMSL itself has its registered office at Bridge of Weir, where Mr Monks has his home. Mr Monks and Mr Gordon gave evidence that the offices at Bridge of Weir and Inverurie were used as TMSL's offices, though not exclusively. They each claimed travel expenses at 40p per mile for travelling between their homes/ offices at Bridge of Weir and Inverurie respectively and the Club premises at Loch Rannoch.

[118] It is necessary to revisit briefly what I have already said about the claims for expenses. Both Mr Monks and Mr Gordon submitted claim forms for their expenses. A major part of expenses which they claimed each month were for travel between Bridge of Weir and Loch Rannoch and Inverurie and Loch Rannoch. But they also claimed other expenses which are not in dispute. After the initial month, when their claim forms were countersigned by Ms Cumming and Mr Kenneth respectively, their claim forms were "self certified", i.e. countersigned by another person within TMSL. The claim forms were then incorporated into the material used for the management accounts, which were submitted on a monthly basis to the Committee, and, in due course, formed part of the material going to make up the annual accounts, which were in due course audited by Macfarlane Gray. Until 2008 no questions were raised about TMSL's entitlement to claim expenses nor as to their failure to have their claim forms countersigned by a member of the Committee. Insofar as it is relevant, I am satisfied that they genuinely believed that they were entitled to claim all of the expenses claimed in the claim forms, including the expenses of travel between Bridge of Weir and Loch Rannoch and Inverurie and Loch Rannoch. I am also satisfied that they believed that there was no need to have the claim forms countersigned by a member of the Committee. Had they not believed that I do not see why they would not in fact have submitted their claim forms for counter signature, just as they had for the first month. Nor do I understand how the Committee could have failed to realise that some expenses were being claimed; and that that must have been on the basis of self certification within TMSL. So I reject any allegations of dishonesty on the part of TMSL in this respect.

[119] One point arose in the course of argument which can be disposed of briefly. Each of the claim forms submitted by Mr Monks and Mr Gordon were submitted in their name rather than in the name of TMSL. Mr Hajducki, for the Club, argued that this showed that they were claiming as individuals. If they had any claim as individuals, that claim was against TMSL, who might in turn have been entitled to claim from the Club. But Mr Monks and Mr Gordon as individuals had no such right. Accordingly, their claims were not legitimate. In so far as TMSL had certified those claims as valid, TMSL were acting improperly. I reject this submission. It seems to me that on a sensible reading of what took place, the claim forms were submitted by TMSL. They were claiming for the expenses incurred by two directors, Mr Monks and Mr Gordon. Perhaps they should have headed the forms with the name of TMSL, but that is a technicality and does not affect the substance of the matter. Neither Mr Kenneth nor Ms Cumming took any point on this in relation to the first month, and thereafter, since they did not look at the claim forms, the Club could not have been misled.

[120] That, of course, does not affect the right of the Club to seek to recover expenses wrongly claimed, if they were wrongly claimed, subject, of course, to any question of waiver, personal bar and the like. But the first question is: was TMSL entitled to claim the expenses of travel for Mr Monks and Mr Gordon between their homes and the Club premises in Loch Rannoch?

[121] I am satisfied that they were not so entitled. The Management Agreement makes provision for TMSL to be remunerated in a number of ways. It is entitled to be paid a fee for the fulfilment of its duties and obligations: see clause 6. It is entitled to a performance bonus in certain circumstances: see clause 7. It is entitled to a one third of commissions received by the Club from the sale of holiday certificates and rental of occupation rights thereunder: see clause 8. But there is no provision entitling TMSL to claim the expenses of its directors are travelling between their homes/ offices and Loch Rannoch. Evidence was led as to the negotiations leading up to the conclusion of the Management Agreement. No point was taken as to its admissibility. It is apparent that the tender put forward by TMSL included a provision for the recovery of expenses, including travel expenses. But no such term was incorporated into the Management Agreement, and it is not suggested that such a term can be implied. In those circumstances I have come to the conclusion that the claim for travel expenses was unjustified. It was accepted by the Club that other expenses directly related to the performance by TMSL of its duties as managers could properly be claimed. Such expenses would include, for example, anything from, at one end of the spectrum, the cost of travelling from the Club premises at Loch Rannoch to a meeting elsewhere, to, at the other end of the spectrum, the cost of buying paper for the photocopier

[122] What is the consequence of TMSL having both claimed and been paid travel expenses to which they were not entitled under the Management Agreement? The Club seek to recover such expenses as have been paid in respect of travel. The claim is put on the basis of unjustified enrichment and, in the alternative, as damages for breach of contract.

[123] There is a difficulty with this claim on whichever basis it is advanced. The sums claimed by TMSL as expenses and paid to it were included within the total expenditure for any particular year for the purpose of the bonus calculation pursuant to clause 7 of the Management Agreement. If the sums wrongly claimed in respect of travel were now to be recovered from TMSL, that would, on one view, require the bonus calculations for each year to be redone. Neither party suggested that this exercise should be carried out; but if it is not carried out, and TMSL is required to repay the amount wrongly claimed by it, that results in unfairness to TMSL. The reason why it results in unfairness is this. If the expenditure for previous years was reduced by the amount of the expenses which TMSL should not have claimed, that reduced expenditure would result either in an increased bonus payment for that year or a reduced claw back. Given that the bonus arrangements entitled TMSL, in a bonus year, to be paid one third of the savings for four consecutive years, TMSL would in fact have been better off not claiming the expenses than recovering a larger bonus payment (or a reduced claw back). It would be patently unfair to take back with the one hand the expenses paid to TMSL to which it was not entitled, but with the other hand to refuse it the increased bonus payments to which it would have been entitled had it not claimed those expenses in the first place. In fact, given that the bonus payments, spread over four years, amount to four thirds of the savings in any particular year, the Club is better off as a result of TMSL having been paid travel expenses to which it was not entitled than if TMSL had not been paid them

[124] For that reason, I am satisfied that the Club has not suffered any loss or damage as a result of the payment to TMSL of expenses to which it was not entitled. For that same reason, I am satisfied that it would be inequitable to require repayment of those amounts on the grounds of unjustified enrichment. Put short, there has been no enrichment.

(b) The TV licence claim

[125] The final item in the counterclaim arises out of a complaint that TMSL failed to obtain multi user TV licenses for the club members in the years 2003 to 2007. This was the subject of evidence by Mr Monks and Mr Morrison. Mr Monks said that he had applied for such a licence but had been told that it was not available for the Club. Mr Morrison gave evidence that it could easily have been obtained. I suspect that Mr Morrison is probably right on this point. But in order to hold TMSL liable for the extra license fees incurred as a result of its failure to obtain multi-user licenses, it must be shown that TMSL was in some way in breach of its duties to the Club. TMSL's obligations are not absolute. It must be shown that it failed to deal with the license issue with the appropriate level of skill and diligence. No such case was made out on the evidence. This claim therefore fails.

Disposal

[126] I shall put the case out By Order in the hope that parties can agree what interlocutor should be pronounced dealing with all aspects of the claim and counterclaim.

Postscript

[127] By way of postscript, I should refer to three additional matters.

(i) The position of Mr Anderson

[128] In his cross-examination of Mr Anderson, Mr Campbell QC made some play with the question of who he was instructed by. The letter of the 24 October 2008 from Mr Anderson purporting to terminate the contract begins with these words:

"On behalf of our clients, The Loch Rannoch Highland Club, and on the unanimous instruction of the management committee of the Club, we hereby give you notice ...".

In his Affidavit he explains that he was throughout the material time acting as solicitor "for the elected committee members of the Club". Mr Campbell sought to draw a distinction between the Club, for whom Mr Anderson was not acting, and the sub-committee (comprising the elected members of the Committee), for whom he was acting. At one point in his evidence, Mr Monks raised questions along the same lines.

[129] In my opinion there is nothing in this point. The legal status of an unincorporated association such as the Club is, in some respects, uncertain. The Scottish Law Commission presented a Report on Unincorporated Associations in November 2009 (Scot Law Com No.217). But for present purposes, it is clear that an unincorporated association such as the Club can only act through its Committee. Decisions may, of course, be taken by a sub-committee, but such decisions, assuming them to be taken within the terms of the powers delegated to the sub-committee, become decisions of the Committee and in turn decisions of the Club. Accordingly, instructions to a solicitor to act for the Club will always be given by the Committee, by a sub-committee or by a member of the Committee or sub-committee to whom that task has been delegated. With all respect to Mr Anderson, and to Mr Campbell's cross-examination of him on this point, I do not think that there is any real difficulty here. It was the sub-committee, consisting of the elected members of the Committee, which took the decisions for and in the name of the Club. When Mr Anderson says that he acts for the elected members of the Committee, I do not understand him to be saying that he acts for them personally, for example in a question with the Club. When the Committee, or in this case the sub-committee, gives instructions to a solicitor, it is doing so as representing the Club itself. The question of payment of fees was not explored, but I would assume in a case such as this that Mr Anderson's fees would be paid out of Club funds rather than by the individual members of the sub-committee out of their own pockets. I do not know why Mr Anderson expresses himself in his Affidavit in the way he does; and, to be fair to Mr Campbell, Mr Anderson adhered in his evidence to the assertion that he was acting on behalf of the elected members of the sub-committee - but the reality is that he was acting as the solicitor instructed by the sub-committee to represent the interests of the Club. That is the only way in which the Club can be represented and can give instructions.

(ii) The use of witness statements and Affidavit

[130] The second point concerns the use of witness statements or Affidavits. In this action, as in most current commercial actions, parties were ordered to exchange witness statements or Affidavits, with a direction that such statements or affidavits should stand as the evidence in chief of each witness subject to such further questioning as the court might allow. The use of witness statements and Affidavits in this way has been approved by the Inner House in Luminar Lava Ignite Ltd. v Mamma Group Plc 2010 SLT 147. In practice the first witness often gives more evidence in chief, since he will be the vehicle for introducing the court to many of the relevant documents. Other witnesses may be required to show the court certain additional documents not previously referred to. Further, as new witnesses are led, it may be that they will need to be asked questions about new points which have arisen in the course of the earlier evidence. Apart from this, however, the intention is that the evidence to be given by each witness should, in substance, be contained in their witness statement or Affidavit; and extensive and prolonged evidence in chief should be avoided. Only by treating the witness statements or Affidavits in this way will savings in court time be achieved and the expense of the preparation of such statements and Affidavits justified. In the present case there appeared to be little recognition on the part of the defenders of the requirements of the court in this regard. There was extensive examination in chief of most of their witnesses. It was suggested by counsel for the defenders that they had not appreciated, in preparing their statements and Affidavits, that they were to be used in this way. Because not everyone is yet familiar with the use of witness statements as evidence in chief, some indulgence was granted to them, though the questioning went far beyond eliciting additional material and was or often simply repetitious of what was in the witness statements. Such questioning is unnecessary. It can be assumed that the court has read the relevant witness statement or Affidavit. The witness will have ample opportunity to expand upon his evidence on any particular point in cross-examination and re-examination. Parties must anticipate that in cases where an order is made to the effect that the witness statements or Affidavits will stand as evidence in chief subject to such further questioning as the court may allow, they will not be permitted without good reason to lead evidence in this way.

(iii) Bundles of documents for use in court

[131] Finally, this may be an appropriate case in which to remind parties of the terms of paragraph 16 of the Commercial Actions Practice Note (No.6 of 2004) which provides that

"Before any proof or other hearing at which reference is to be made to documents, parties shall, as well as lodging their productions, prepare for the use of the court a working bundle in which the documents are arranged chronologically or in other appropriate order without multiple copies of the same document."

Such bundles enable the court, as well as counsel and witnesses, to see items of correspondence and other documents in their proper context, and to follow a sequence of communications easily without having to move backwards or forwards between several different bundles to find the next letter or e-mail in a particular conversation. The documents in the bundles should not only be in chronological order, but also clearly paginated consecutively throughout the bundle. If there are any questions about how in any particular case the bundles should be prepared, those questions can be raised at the Procedural Hearing or at any pre-Proof By Order.