Scottish Court of Session Decisions

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Cite as: [2020] CSOH 70, [2020] ScotCS CSOH_70, 2020 GWD 26-344

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OUTER HOUSE, COURT OF SESSION

[2020] CSOH 70

CA120/18

OPINION OF LORD CLARK

In the cause

(FIRST) RONALD SOMERVILLE, (SECOND) CHARLES SHAW and

(THIRD) NICK FELISIAK

Pursuers

against

DAVID McGUIRE

Defender

Pursuers: McIlvride QC; Harper Macleod LLP

Defender: Thomson QC; TC Young LLP

10 July 2020

Introduction

[1] The pursuers and the defender are shareholders in a private limited company.

Relations broke down and as a consequence they entered into a contract to have the

defender’s shares independently valued, with a view to the defender being bought out. An

expert was appointed. The present dispute is about: (i) which of the exchanges between the

pursuers and the defender constitute the terms of that contract; (ii) what those terms mean;

and (iii) whether the expert is barred from continuing in that post, as a result of apparent

bias. The case called for a proof before answer.

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Background

[2] The pursuers and the defender are shareholders in 5 PM Limited (“the company”),

which was incorporated in 1999. In rounded figures, the respective shareholdings of the

parties are as follows: first pursuer, 35.4%; second pursuer, just under 20%; third

pursuer, 7.7%; defender, 35.4%. Thus, together the parties own over 98% of the shares. The

remaining shares are held by two others. The first and second pursuers and the defender

are the directors of the company. Since 1992 the defender has been a non-executive director.

The executive directors are the first and second pursuers.

[3] From around January 2012, the pursuers and the defender have been in dispute

about certain issues relating to the affairs of the company. The defender raised proceedings

against the company and the present pursuers in the sheriff court. The parties came to

recognise that the dispute could be resolved by the defender relinquishing his shares in the

company at a fair price. The first and second pursuers proposed purchasing the defender's

shares at a price determined by a valuation conducted by Johnston Carmichael, chartered

accountants. The defender did not accept the proposal. The first and second pursuers and

the defender then jointly instructed Grant Thornton, chartered accountants, to provide a

valuation of the defender's shares. Grant Thornton issued their letter of engagement on

22 March 2013 (“the Grant Thornton letter”). Their valuation was issued on 16 July 2013.

They subsequently agreed to withdraw that valuation and offered the parties an

opportunity to make representations on any of the factual matters upon which they

intended to rely. The defender declined that opportunity. No further valuation was made

by Grant Thornton.

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[4] As at 8 November 2016, there was pending before Glasgow Sheriff Court a summary

application by the defender, raised by him against the company and the present pursuers.

He sought interdict against his removal as a director of the company or, alternatively, an

order in terms of section 996 of the Companies Act 2005 that the company or the first and

second pursuers purchase his shares in the company or, alternatively, an order for the

winding up of the company. The defender’s claims were opposed by the pursuers. By letter

dated 8 November 2016 (“the offer”), the pursuers’ solicitors wrote to the defender’s

solicitors making certain proposals to settle the dispute between the parties. One of the

proposals was for the purchase of the defender’s shares based on what was described as

“the Method 2 valuation”. This was a valuation of the defender’s shares by an independent

expert in accordance with the methodology identified in article 10.2 of the company's

Articles of Association. It was a condition of the offer that if the defender elected that his

shares were valued in accordance with Method 2 he would thereafter use all reasonable

endeavours to instruct and cooperate in such an expert valuation.

[5] Article 10.2 of the company's Articles of Association provides, so far as relevant, that

the price payable to the defender for his shares is to be such price as "the Expert shall certify

to be their fair value" and that

"The Expert will value the shares on a going concern basis as between a willing seller

and a willing buyer ignoring any reduction in value which may be ascribed to the

[shares] if they represent a minority interest and assuming that the [shares] can be

freely transferred."

Article 10.2 further provides that “The Independent Expert's decision on the Sale Price shall

be final and binding”. "The Expert" for the purposes of article 10.2 is

"an independent chartered accountant (who shall act as an expert and not as an

arbiter) nominated by the parties concerned or, in the event of disagreement,

appointed by the President of the Institute of Chartered Accountants of Scotland”

(“ICAS”).

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[6] Following the offer dated 8 November 2016, the defender continued to pursue the

summary application in the sheriff court. The defender and his solicitors entered into

correspondence from November 2016 with the principal solicitor for the first and second

pursuer, Mr Rod McKenzie. A recurring theme of the correspondence was that the defender

wished the offer, insofar as it relates to the valuation procedure, to be “Hoffman compliant”,

meaning that it should comply with the principles set out by Lord Hoffman in O’Neill v

Phillips [1999] 1 WLR 1092, at 1107-1108. By email dated 2 December 2016 the defender

advised Mr McKenzie that he had withdrawn his instructions from his former solicitor.

Thereafter, the defender and Mr McKenzie corresponded directly about the offer. In due

course another solicitor was appointed by the defender and corresponded with

Mr McKenzie until February 2017. After sundry procedure in the sheriff court action a proof

was set down for January 2018. On 1 November 2017 the sheriff refused a motion by the

defender to discharge that diet of proof. On that date the defender then indicated that he

would accept the offer. Subsequently, the defender accepted the offer in writing, by letters

in identical terms bearing no date but delivered to the pursuers’ solicitors and to each of the

pursuers on or about 27 November 2017. On 8 March 2018, at the request of the pursuers,

the president of ICAS nominated and appointed Mr Stewart MacDonald, a chartered

accountant with the firm Scott-Moncrieff, to act as the expert.

[7] Mr MacDonald wrote to the parties on 29 March 2018 confirming his agreement to

act as the expert and setting out the terms on which he was prepared to do so ("the first

letter of engagement"). In the first letter of engagement he indicated that he estimated that

his fee for providing a valuation of the defender's shares would amount to around £5,000

plus VAT and requested payment of £5,000 plus VAT prior to commencing the valuation

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exercise. That sum was paid by the company, which agreed to meet Mr MacDonald's whole

fees in connection with the valuation. Thereafter at a meeting on 16 April 2018 attended by

the first and second pursuers and the defender, Mr MacDonald discussed with them the

procedure he proposed to adopt in carrying out his valuation and the terms on which he

was willing to act as expert. The minutes of the meeting were taken by Mr MacDonald’s

colleague, Ms Kay Thomson. The minutes stated that the defender had asked

Mr MacDonald if he “was familiar with “Hoffman”?” and recorded that Mr MacDonald

confirmed that he was. Thereafter, the defender maintained that this was incorrect and that

Mr MacDonald had in fact said “No” to his question. Subsequently the defender requested

a private meeting with Mr MacDonald in order to provide him with further information.

That private meeting took place on 17 May 2018, with Kay Thomson also present. The notes

of that meeting record that the defender believed that the pursuers’ solicitors “did not tell

ICAS about an agreement between him and the other side that the valuation would be

Hoffman compliant” and that Mr MacDonald replied that he would update his draft letter of

engagement accordingly. Mr MacDonald issued to the parties a second letter of engagement

on 5 July 2018. In that second letter of engagement he indicated inter alia that in view of the

matters which had been raised by the parties at the meeting on 16 April, he now estimated

that his fee was likely to amount to around £15,000 plus VAT. The revised letter did not

contain the update referred to in the notes of the meeting with the defender on 17 May 2018.

Mr MacDonald requested that the parties confirm their acceptance of the terms of the second

letter of engagement by signing a docquet to that effect appended to each copy letter and by

returning the signed copy letters to him by 11 July. The pursuers did so. The defender did

not do so. In an email to Mr MacDonald dated 11 July 2018 the defender stated "Having

received legal advice in relation to your disregard of my proposed amendments to the LOE I

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confirm that l do not agree with your final version. I therefore will not be signing." In those

circumstances Mr MacDonald has been unable to begin the process of valuing the defender's

shares. Before Mr MacDonald can begin that process, each of the parties requires to agree to

the terms of his letter of engagement.

The pleadings

[8] In the principal action, the pursuers seek declarator that the terms of the contract are

contained in the offer issued on 8 November 2016 and the defender’s acceptance dated

27 November 2017. The pursuers averred inter alia that:

“In order that Mr MacDonald may begin the process of determining the fair value of

the defender's shares it is necessary that the terms upon which he is to do so are

agreed with him. The terms of the second letter of engagement are reasonable. The

methodology Mr MacDonald proposes to employ in determining the fair value of the

defender's shares is consistent with the parties' rights and obligations under

article 10.2. The defender is obliged in terms of the contract between the parties

constituted by the letter from Harper Macleod dated 8 November 2016 and the

defender's written acceptance to use all reasonable endeavours to instruct and

cooperate in such an expert valuation, and to execute all documents required to

achieve the agreed reduction in the share capital of the company and the payment of

the Agreed Sum to the defender. The defender is in consequence obliged in terms of

the parties’ agreement to sign and return to Mr MacDonald a copy of the second

letter of engagement in acknowledgement of his agreement to its terms. He has

failed to do so. In those circumstances the pursuers are entitled to an order for

specific implement of the defender's obligation as concluded for and, in the event

that the defender fails to implement such an order, are in the alternative entitled to

decree granting warrant and authority to the Deputy Principal Clerk of Session to

sign and return a copy of the second letter of engagement on the defender's behalf.”

[9] The defender’s answers included the following averments:

“…the letter dated 8th November 2016 and the Defender’s letter delivered on or about

27th November 2017 did not represent the entirety of the correspondence which,

together, constituted the contract between the parties. Rather, that correspondence

included (i) the representations and assurances which were given to the Defender by

the Pursuers’ then solicitor, Rod McKenzie of Harper Macleod LLP, and (ii) the

position adopted by the present Pursuers in the proceedings before Glasgow Sheriff

Court at the instance of the present Defender, in the period between 8th November

2016 and 27th November 2017. The letter dated 8th November 2016, at paragraph 15,

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expressly invited the Defender to raise any concerns or queries which he had with

the terms of the letter dated 8th November 2016. So far as point (i) is concerned, the

Defender duly entered into correspondence with Mr McKenzie concerning the terms

of the letter dated 8th November 2016. That correspondence is detailed in the

schedule produced by the Defender pursuant to paragraph 3 of the Court’s

interlocutor dated 25th April 2019. In the course of that correspondence, the Defender

sought confirmation that the Pursuers’ offer was ‘Hoffmann compliant’, by which

the Defender meant that he sought confirmation that the Pursuers’ offer was to be

regarded as being subject to the requirements of an offer to purchase his shares in the

Company at a ‘fair value’ as set out in the speech of Lord Hoffmann in O’Neill v

Phillips [1999] 1 WLR 1092, 1107-1108, the relevant parts of which (pages 1107C

to 1108B) are referred to for their terms which are held to be incorporated herein

brevitatis causa. Mr McKenzie so understood the Defender. Mr McKenzie confirmed

that the Pursuers’ offer was to be understood as being subject to those

requirements…The correspondence which passed between the Defender and

Mr McKenzie (referred to in point (i), above) falls to be considered as part of the

contract which was concluded between the parties when the Defender issued his

letter accepting the Pursuers’ offer. Separatim if such correspondence does not in

itself form part of the contract between the parties, it in any event on any view forms

part of the admissible surrounding circumstances against which that contract falls to

be construed… In either case, however, on a proper construction of the parties’

contract, it was an express term of that contract that the valuation of the Defender’s

shares was to be undertaken in accordance with the requirements set forth in

O’Neill v Phillips, as set out above. Further and in any event, in the offer letter dated

8th November [2016], the sum to be paid to the Defender was defined as the ‘Agreed

Price’. The Defender’s acceptance of the offer set forth in the letter dated

8th November [2016] was on the basis of ‘Method 2’, as set out therein, that is to say,

on the basis of an expert valuation of the Defender’s shares which had as its purpose

the identification of the fair value of those shares. In that respect, however, the letter

dated 8th November [2016] also proceeded on the basis that the ‘Agreed Price’ would

be paid by the Company from funds held in its share premium account, and on the

basis of a reduction in the capital of the Company. At the very least, the terms of the

offer letter dated 8th November [2016] was [sic] not absolutely clear as to what was to

happen in the event that the ‘Agreed Price’ was in excess of the amount available to

the Company to purchase its own shares. On that basis, in the course of the

correspondence which passed between Mr McKenzie (on behalf of the present

Pursuers) and the Defender, as referred to in point (i), above, the Defender sought

clarification as to what was to happen in that event. Mr McKenzie confirmed that, in

such a scenario, the Defender would be entitled to seek payment of any further sums

so due from the Pursuers themselves… Meantime, it was an express term of the

contract between the parties that the procedure for the valuation of the Defender’s

shares had to comply with the guidance set forth by Lord Hoffmann in O’Neill v

Phillips. In that respect, it was an express term of the contract that the parties were to

have ‘equality of arms’ such that ‘both should have the same right of access to

information about the company which bears upon the value of the shares and both

should have the right to make submissions to the expert’ (O’Neill v Phillips,

page 1107H). The Pursuers have failed, over a period of many years, to provide to

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the Defender the information and documentation required and requested by him in

exercise of his right to ‘equality of arms’….Without such information and

documentation, the Defender is unable to make meaningful submissions to any

expert concerning the valuation exercise. As a result, the Pursuers are in material

breach of the express terms of the contract. The letter of engagement which is the

subject of the first conclusion of the Summons likewise makes no provision for the

Defender to have any access to information or documentation concerning the

Company. Nor indeed does that letter address the other issues which, on a proper

construction of the parties’ contract, are the subject of agreement between the parties,

as to be addressed in the Counterclaim to follow hereon. In consequence of the

Pursuers’ material breach (which the Pursuers have not remedied) the Defender is

excused performance of any counterpart obligation owed by him under the contract.

The execution of any letter of engagement or appointment is plainly the counterpart

of the Pursuers’ obligation to provide the required information and documentation

to the Defender. Accordingly, the Defender is not presently under any enforceable

obligation to execute the letter of engagement to which reference is made in the first

conclusion of the Summons. In any event, quite apart from the Pursuers’ breach of

contract, the Defender is not obliged to execute the letter of engagement to which the

first conclusion relates since that letter of engagement does not properly reflect the

terms of the parties’ contractual agreement, in respect that the Letter of Engagement

does not make provision in relation to the right to ‘equality of arms’, referred to

above. In that respect, a right to make submissions to the valuer, and any right on

the part of the valuer to call for information, do not make up for the absence of the

logically prior right on the part of the Defender to have full ‘equality of arms’,

without which a right to make submissions and representations to the valuer is

illusory.”

[10] Shortly prior to the proof a minute of amendment was tendered on behalf of the

defender, to add averments to the effect that Mr MacDonald was disqualified from acting as

an expert as a result of apparent bias. The grounds for that contention were averred to be

that Mr MacDonald wrongly continued to deny that at the meeting on 16 April 2018 he had

confirmed his lack of familiarity with O’Neill v Phillips, had ignored most of the reasonable

proposed revisions to the letter of engagement suggested by the defender, and had agreed at

the meeting with the defender on 17 May 2018 that the letter of engagement would include

express reference to the principles in O’Neill v Phillips but had not made that revisal. Senior

counsel for the pursuers opposed the motion to amend, including on the basis that Ms Kay

Thomson (who was present at the meeting on 16 April 2018 and took the minutes) would

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require to be precognosced, but she had not been cited as a witness and was unavailable to

give a precognition prior to the proof commencing. I decided to allow the amendment, but

as the proof was about to commence in seven days or so, I made clear that the pursuers

could add Ms Kay Thomson as a witness, if so advised. I also allowed the pursuers to lodge

either answers to the defender’s minute of amendment, or if that was not possible prior to

commencing the proof, to lodge their own minute of amendment, if it was necessary to

respond to the defender’s new averments. In due course, the pursuers did so and averred

that there was no apparent bias. The pursuers also averred that the defender told

Mr MacDonald that the pursuers’ solicitors had failed to disclose to Mr MacDonald that it

was agreed between the parties that the defender’s shares were to be valued on the

principles stated by Lord Hoffman in O’Neill v Phillips. The averments went on to state that

on making enquiries Mr MacDonald was advised by the pursuers’ solicitors that this was

untrue and accordingly he did not make the proposed amendment to the draft letter of

engagement.

[11] In the counterclaim, the defender seeks three declarators. Firstly, that the contract

was constituted by the correspondence referred to above, or alternatively if constituted by

the offer and the acceptance, that the contract falls to be construed with reference to the

correspondence in the intervening period and that in either event it was an express term of

the contract that any purchase of the defender’s shares was to be at “fair value” as set out,

and as subject to the requirements detailed in, the speech of Lord Hoffmann in O’Neill v

Phillips. Secondly, that the defender is not obliged to agree to the letter of engagement

issued by Mr MacDonald. Thirdly, that in terms of the contract, in the event that the

“Agreed Sum” is in excess of the amount then available to the company to purchase the

defender’s shares, on a proper construction of the contract, the defender is entitled to pursue

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payment of any outstanding balance from the present pursuers and that, until such time as

the “Agreed Sum” is paid in full, the defender (a) is not prevented from continuing to

pursue his application for orders under section 994 et seq of the Companies Act 2006, against

inter alios the present pursuers, which is in dependence before Glasgow Sheriff Court; and

(b) is entitled to retain his membership of the company. The pursuers contend that there are

no grounds for any such orders.

The issues

[12] The issues in dispute between the parties are therefore:

(i) whether, in terms of the contract between the parties, the valuation of the

defender’s shares in the company required to be carried out in a manner which

complied with the principles set forth in the speech of Lord Hoffmann in O’Neill v

Phillips;

(ii) if so, what that means, on a proper construction of the contract;

(iii) whether the expert is disqualified from acting on the ground of apparent bias;

(iv) whether the third conclusion in the counterclaim should be sustained.

Evidence

[13] Ronald Somerville (the first pursuer) was the first witness led on behalf of the

pursuers. He is a director of the company and also, along with the defender, a director of

three other companies. Mr Somerville and the defender each hold 50% of the shares in those

other companies. He commented on a number of the key documents. He explained that the

defender had access to a substantial amount of information concerning the company,

including what was referred to as the “backstage” material. This could be accessed remotely

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by electronic means and covered a wide range of details of the company’s affairs. The

defender also received the monthly management accounts. Mr Somerville accepted that the

relationship with the defender had broken down, although they remained bound together in

various businesses. They each have a negative view about the other and a series of

grievances. Referring to the contract with the defender, it was correct that in a contract of

this kind the purchaser wishes to pay as little as possible and the person whose shares are to

be bought wishes to be paid as much as possible. If the defender requested relevant

information for valuation purposes it would be provided to him. Legal advice as to what is

relevant information had been taken.

[14] Mr Somerville agreed that the Grant Thornton letter did refer to the defender having

full and unfettered access to company records, but he explained that this had been conceded

because the defender “wasn’t giving an inch”. This resulted in the defender requesting all

emails over a three-year period and receiving about 50,000 of them in hard copy.

Mr Somerville accepted that if there was an email in respect of a new business opportunity it

would not be accessible on the “backstage” platform. He spoke to the history of the sheriff

court litigation. Mr McKenzie had engaged in the correspondence after the offer dated

8 November 2016 on the pursuers’ instructions. Mr McKenzie’s view, which was the

common sense view, was that the expert valuer was best placed to decide about what

information was appropriate and relevant to the valuation. Reference was made to meetings

which the defender had held with the company’s staff during the Grant Thornton valuation

process. Several members of staff had been upset and stressed by that process. Mr

Somerville’s recollection was that at the meeting on 16 April 2018 Mr MacDonald confirmed

that he is familiar with the Hoffman principles. It was understandable that the defender

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was concerned that Mr MacDonald had not inserted in the draft letter of engagement a

reference to the procedure being “Hoffman compliant”.

[15] Charles Shaw, the second pursuer, was the next witness. He had a long and

successful career in the drinks industry, reaching high-level positions, before becoming a

director of the company. At the time of the Grant Thornton valuation the defender

interviewed six or seven staff, some of whom became upset. The defender insisted on

seeing some 56,000 emails. Mr Shaw spoke to the background of the sheriff court litigation

between the parties. Mr McKenzie was authorised to say what was said in his

correspondence with the defender or his solicitors. At the meeting on 16 April 2018

Mr MacDonald stated that he was aware of the Hoffman principles. The defender would

have been exercised if Mr MacDonald had expressed unfamiliarity with those principles, but

that did not occur. The witness had a dim view of the defender and said that the defender

hated him. He spoke to the access the defender had to the company’s information. The

company would supply all information that Mr MacDonald requested.

[16] Roderick McKenzie then gave evidence. He is a senior solicitor and the former head

of dispute resolution of the firm which advises and acts for the pursuers. He explained that

the offer in the letter of 8 November 2016 was addressed to the defender’s solicitor and

made clear that any queries that person had could be raised. He spoke to the further

correspondence that had ensued with the defender’s solicitor and the defender himself. The

defender had said he required full compliance with Lord Hoffmann’s criteria and that the

offer was not compliant. The defender did not depart from that position in his

correspondence. However, any concerns the defender had were not articulated in the form

of a qualified acceptance. Mr McKenzie had Lord Hoffman’s speech in O’Neill v Phillips in

mind when drafting the offer. One had to look at the offer as a whole and ask whether the

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defender has access to material he needs which bears upon the value of shares. In addition

to requesting information from the company, the defender had various other rights

including his rights as a director to access financial information, to seek a court order, to

request information from the company via the expert and if need be to apply for judicial

review. The witness accepted that on behalf of his clients he was saying, in the

correspondence, that the offer was, and was intended to be, an offer that satisfied the

principles set forth in O’Neill v Phillips and he also accepted that the defender wished an

offer that satisfied those principles. They both wanted such a process. If the defender felt he

was not getting access to relevant material his first port of call would be the expert, although

he was not the only port of call.

[17] The next witness was the expert, Stewart MacDonald. He explained what had

occurred at the meeting on 16 April 2018 and who had been present. At the meeting he had

said he was aware of the Hoffman principles. That was recorded in the minutes of the

meeting, prepared by Ms Thomson. It was correct that he had agreed at the meeting on

17 May 2018 between himself and the defender that he would update the letter of

engagement to include the reference to being “Hoffman compliant”. He had omitted to do

that, which was an oversight. He had made a number of revisions to the original letter of

engagement. He explained his experience of carrying out valuations of shares. All

valuations that the witness had carried out over more than twenty years were based on

Lord Hoffmann’s principles and the requirement to be fair to both parties. In share

valuations there were commonly elements of contentiousness between parties and he had

experience of situations in which there had been a complete breakdown in relations. He also

had experience of one party having all of the knowledge and documentation and the other

not being in that position. It was possible that those who controlled a company might seek

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to downplay the values and prospects of the company’s business or might seek to inhibit

development of the company until the valuation was completed. He was aware that the

pursuers had access to all the information and the defender did not. There was nothing

controversial or objectionable in the Grant Thornton letter and the witness did not disagree

with what Mr Webster had said in his witness statement, that having full access to personnel

and records was what one would expect to see in order that the valuation process is carried

out properly and fairly. He had accepted revisions proposed by the pursuers’ solicitors to

the minutes of the meeting on 16 April 2018 but not those proposed by the defender. Those

minutes recorded that Mr MacDonald was to be allowed access to any information which

would help him to reach his decision on valuation. His evidence was that he would ask for

anything he needed to know and if he did not get that information he would not continue.

The information obtained would be shared with everyone. He accepted that the defender

might not be able to frame a request for information if he had not seen relevant documents

in the first place. If the witness felt it appropriate to interrogate the company’s systems by

using an information technology expert he would do so. The defender had access to a whole

load of information regarding the previous valuation. He would have an idea what he

wanted to see and, if asked, the witness would request that information from the company.

The defender would have access through him. Mr MacDonald said that if one party brought

to his attention something that party considered was worthy of investigation, then

invariably he would simply ask for it. He accepted that there may well be instances where

an expert would have no way of knowing whether he had been given everything.

[18] Mr MacDonald accepted that Ms Thomson, in her handwritten notes of the meeting

on 16 April 2018, had noted no response to the question from the defender as to whether

Mr MacDonald was ”familiar with Hoffman”. However, his response had been “yes”. The

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recollection of the defender differed from his own recollection. The witness was taken to the

email on 16 April 2018 from the defender to his adviser, Mr Webster, which stated that

Mr MacDonald had never heard of Lord Hoffmann, and to the defender’s diary entry for

that day which stated “Stuart has not heard - of valuation??”. Mr MacDonald said it was

just not possible, given what he had said at the meeting, for the defender to have that view.

In relation to revising the draft letter of engagement, the witness had made no conscious

decision to recant from what had been discussed with the defender and the failure to revise

appeared to the witness to have been an oversight. The intention was to include it in the

draft and then leave it for the parties to comment further on the revised draft. The witness

had no recollection of being advised by the pursuers’ solicitors that the defender’s statement

at the meeting on 17 May 2018, about an agreement with the pursuers that the valuation was

to be on the Hoffman principles, was untrue. He spoke to having rejected the defender’s

proposed revisions to the draft letter of engagement and accepting the revisions proposed

by the solicitors for the pursuers. It would not, on Mr MacDonald’s experience, be a normal

provision to allow the person whose shares were being valued full and unfettered access to

all information the company had; to do that would be extreme. His experience was of seeing

styles for letters of engagement issued by the “big four” accountancy firms.

[19] Kay Thomson was the final witness for the pursuers. She worked for the same firm

as Mr MacDonald, and had taken handwritten notes of the meeting on 16 April 2018. These

did not record Mr MacDonald’s answer to the question about whether he was “familiar with

Hoffman?”, however the witness said that Mr MacDonald did confirm at the meeting that he

was familiar. She was very confident in her memory that Mr MacDonald had confirmed this

and she had typed up the draft minutes that afternoon, including Mr MacDonald’s response,

before having any further discussion with Mr MacDonald. In commenting on the draft

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minutes which she had circulated, the defender had disputed what Mr MacDonald was

recorded as having said, but the defender’s comment on that was wrong. She had no doubt

about Mr MacDonald’s answer. She was aware of him being independent and

understanding the principles stated by Lord Hoffmann. She was certain he made a positive

response and if he had said “no” that would have surprised her and she would have put in a

question mark in the handwritten notes. She was not aware of Mr MacDonald having had

any discussions with the pursuers’ solicitors on whether or not it was true, as the defender

had stated in his proposed revisals to the letter of engagement, that there was agreement

about the valuation being on the Hoffman principles.

[20] The parties agreed in a joint minute that, with the exception of one sentence, the

evidence in the witness statement of the third pursuer, Nick Felisiak, would stand as his

evidence and so he was not called. The pursuers’ case was closed.

[21] Two witnesses were led on behalf of the defender, the first being the defender

himself. His evidence covered the history of the relationship between him and the pursuers

and the general background to the current dispute. He described the kind of information

about the company to which he had been given access by the pursuers. While he had been

given the management accounts and could see the final accounts at Companies House, and

could also access the “backstage” system, he was denied access to further information and

was not permitted to go into the company’s office. He wished to find out, for example, how

the company was coming to its decisions and strategies. He was completely excluded from

management. It was wrong of the pursuers to say that if he requested information it would

be provided to him. Around the time of the Grant Thornton valuation he had interviewed

several members of staff. Mr Webster was with him at these interviews. There was some

tension but the witness had not engaged in any inappropriate conduct. The full and

Page 17 ⇓

unfettered access given to him for the purposes of the Grant Thornton valuation had

resulted in him obtaining 56,000 emails. He expressed his apology if it was his fault for

asking for these to be on paper. Mr McKenzie was correct to say that the witness would

only be likely to accept a fair offer in the sense used by Lord Hoffmann. In their

correspondence, Mr McKenzie had kept on saying his clients thought the offer was

“Hoffman compliant”. The witness explained his recollection of the meeting on 16 April

2018. He was completely clear that Mr MacDonald had said “no” to the question asked

about whether he was familiar with Hoffman. Mr MacDonald had said that in an

exasperated way. The entry in the witness’s diary to “Stuart has not heard - of valuation??”

was written at the meeting and was a reference to Mr MacDonald giving his answer. On the

same afternoon the witness sent the email, in the terms noted above, to his adviser

Iain Webster, to which Mr Webster responded. The meeting on 17 May 2018 resulted in

Mr MacDonald agreeing to put the reference to the valuation process being “Hoffman

compliant” into the draft letter of engagement, but he did not do so. The other witnesses,

Mr Somerville, Mr Shaw, Mr MacDonald and Ms Thomson, who had been present at the

meeting on 16 April 2018 were wrong in their evidence as to what Mr MacDonald had said.

The defender was asked about why the diary entry had not been produced until during the

course of the proof and explained that he had brought it to the attention of his legal team at

a very early stage and had been advised that it was of little value. He agreed that his

acceptance dated 27 November 2017 to the offer dated 8 November 2016 contained no

attempt to qualify the offer, but the offer had been amended by what was said in the

intervening period. He was taken to the correspondence in that period. The offer was

accepted on the basis that it was “Hoffman compliant”. The acceptances had been produced

after a hearing in the sheriff court case at which his motion to discharge the proof had been

Page 18 ⇓

refused. The reason for continuing with the summary application when he had eventually

realised that the offer was “Hoffman compliant” may have been to do with expenses. He

did not accept that he had caused any upset to the staff members when he interviewed

them. For the present valuation, he wished to have access to emails generated within the

company from 2013 to date, although he was mindful that for the Grant Thornton valuation

access to emails over a period of three years was seen as appropriate. He would take advice

about which documents were relevant and act on that advice.

[22] The final witness on behalf of the defender was Mr Iain Webster, the defender’s

adviser. He had been a practising accountant since 1985 and had experience of the valuation

of company shares. He had carried out expert determinations and given expert advice. In

relation to the Grant Thornton letter, full access to information was what Mr Webster would

expect to see, as parties should get equality of information. The witness, in representing the

defender, would exercise judgement as to what was relevant. He would go through the

background and list the information that would be relevant. Understanding the dynamics

of the business is relevant for valuation purposes. The process for the Grant Thornton

valuation was good and was what the witness would expect to be followed in relation to this

type of contentious valuation. In response to a question from the court about whether the

defender should have full and unfettered access, the witness replied that he should either

have full and unfettered access or provision should be made for the expert to have that

access. Mr Webster would ask for information which informed the inherent value of the

business. After that, one looked for “value enhancers”, such as whether the company had

barriers to the entry into its market of other competitors, or had products in the pipeline, or

had software which could enhance the customer base or whether there might be parties

interested in purchasing the company. One would also look at “value detractors”, for

Page 19 ⇓

example whether the company was very dependent upon economic conditions. From what

the witness had seen, the defender did not have access to the information that would allow

him to make an informed judgment or indeed for the witness himself to make an informed

judgment on behalf of the defender. The expert in the Grant Thornton valuation did not

want to access the information herself, but rather she wanted to rely on the parties making

their own submissions. He had been present at all of the staff interviews conducted by the

defender for the purposes of that valuation exercise and recalled no inappropriate

behaviour. If it was for the expert to decide whether the information requested is needed,

that is not necessarily a direct route into getting the information which a party or his adviser

thinks is relevant. The defender had emailed the witness on the afternoon of the meeting of

16 April 2018 to say that Mr MacDonald did not understand what was meant by the process

being “Hoffman compliant”. The witness thought that the defender may have asked for

electronic copies, rather than paper copies, of the emails at the time of the Grant Thornton

valuation.

Submissions

Submissions for the pursuers

[23] Dealing with the relevant legal principles, in relation to construction of contracts

reference was made to Wood v Capita Insurance Services Ltd [2017] AC 1173. The fact that the

valuation of shares is referred to an independent third party showed that the parties’ object

is to obtain an appropriate valuation by a relatively speedy and informal means: Holland

House Property Investments Ltd v Crabbe 2008 SC 619 (at [19] and [23]). An expert, subject to

the terms of his remit, is entitled to carry out his own investigations and come to his own

conclusions regardless of any submissions or evidence adduced by the parties themselves:

Page 20 ⇓

Macdonald Estates plc v National Car Parks Ltd 2010 SC 250 (at [21]). The duty of an expert is

to act independently and honestly but he is not bound by the rules of natural justice: Amec

Civil Engineering Ltd v Secretary of State for Transport [2005] 1 WLR 2339 (at [38] and [46]) and

Bernhard Schulte & Ors v Nile Holdings Ltd [2004] 2 Lloyd’s Rep 352 (at [95]). The parties are

at liberty to propose amendments to the terms proffered by the expert, but it is for the expert

to then decide on what terms he will carry out the exercise: Cream Holdings Ltd v

Davenport [2012] 1 BCLC 365 (at [36]). If the terms on which the expert is prepared to act are

reasonable, the parties are bound to accept those terms: Cream Holdings Ltd (at [37]). The

appointment provisions under which the expert has been nominated do not themselves

impose any duty of disclosure of information: Cream Holdings Ltd (at [26]). One party’s fear

that the expert will be unable to deal adequately with his complaints that the company has

not made complete disclosure of all financial and other information relevant to the

determination of fair value does not excuse that party from agreeing to the terms proffered

by the expert, if the terms allow that party to raise those issues and there is no reasonable

basis for supposing the expert will not respond appropriately, although it will be for the

expert to decide what he considers necessary to know in order to carry out the valuation:

Cream Holdings Ltd (at [38]). Apparent bias is not a sufficient ground to vitiate the decision

of an expert: Macro & Ors v Thompson & Ors (No 3) [1997] 2 BCLC 36 (at 64-65); Bernhard

Schulte (at [94], [98] and [101]).

[24] Parts of the evidence of the defender and Mr Webster were objected to and in any

event aspects of the defender’s evidence were neither credible nor reliable. The terms of the

agreement between the parties were to be found in the offer dated 8 November 2016 and the

written acceptances from the defender dated 27 November 2017. The terms of the offer were

not amended or varied. It was plain that in correspondence after 8 November 2016

Page 21 ⇓

Mr McKenzie expressed the opinion that the offer was “Hoffmann compliant” and that in

their answers in the sheriff court litigation the pursuers averred that “said offer is in the

terms described by Lord Hoffmann”. Why Mr McKenzie would desire that to be the case

was readily understandable given the consequences in the defender’s unfair prejudice

summary application. Nevertheless, Mr McKenzie was simply expressing an opinion on the

offer rather than varying its terms. It was clear from a consideration of the emails sent by or

on behalf of the defender that, far from seeking confirmation that the offer was “Hoffmann

compliant”, the defender instead maintained the consistent position that the offer was not

“Hoffmann compliant”. It would of course have been entirely possible for the offer to

contain a provision to the effect that the defender’s shares were to be valued in accordance

with the principles expounded by Lord Hoffmann in O’Neill v Philips, or for the defender to

have issued a qualified acceptance insisting upon such a condition. Instead, neither

happened and the defender accepted in unqualified terms the offer which expressly

provided that his shares were to be valued “utilising the valuation methodology for shares

provided for in the current Articles of Association of the company”. Nothing in the

subsequent correspondence was capable of altering the plain meaning of the language used

in the offer as to the basis on which the defender’s shares were to be valued. The defender

was not entitled to withhold acceptance of Mr MacDonald’s letter of engagement on the

ground that it does not provide that the defender is to have an unfettered right of access to

information. By accepting the offer, as it provides, the defender is obliged to sign and return

the letter of engagement, unless its terms are unreasonable.

[25] In those circumstances Mr MacDonald was nominated to carry out the valuation of

the defender’s shares on the basis prescribed by article 10.2 of the company’s Articles of

Association. As an expert, and having regard to the terms of article 10.2, Mr MacDonald

Page 22 ⇓

would not be carrying out a quasi-judicial function. He will be obliged to carry out the

valuation exercise fairly but, subject to the terms of any letter of engagement which becomes

binding upon Mr MacDonald and the parties, he is entitled to carry out his own

investigations, may choose whether or not to have regard to any submissions made by the

parties and is not bound by the rules of natural justice. He is not obliged to allow any of the

parties unfettered access to all and any information or documentation held by another party.

The terms of the letter of engagement are reasonable and the defender is under a contractual

obligation to sign, and deliver to Mr MacDonald, a copy of that letter in acknowledgment of

his agreement to its terms.

[26] If, contrary to the above, the terms of the offer were varied to include the principles

stated by Lord Hoffmann in O’Neill v Phillips as terms of the parties’ contract, that was done

on the express condition that “equality of arms” was deemed to be achieved by the parties

having the value of the defender’s shares determined by an independent expert under a

duty to ensure a fair and reasonable valuation procedure and not on the basis that the

defender would have unfettered access to all company information. Alternatively, if the

parties must be held to have incorporated into their contract the rights and obligations

arising from the principles explained by Lord Hoffman then those principles, properly

understood, did not confer upon the defender the right of unfettered access. Lord Hoffman

refers to access to information that “bears upon the value of the shares” and this was a filter.

One could interpret Lord Hoffman’s comments as indicating that it is for the expert to

determine what is the relevant information and to ensure that both parties have equal access

to it. If the defender sought to persuade the expert that the material was potentially

relevant, the expert would determine whether and to what extent disclosure ought to be

Page 23 ⇓

required. By signing the letter of engagement the company is contractually obliged to

comply with that request.

[27] The defender was not relieved of his obligation to sign and return the letter of

engagement by reason of any apparent bias on the part of Mr MacDonald. Apparent bias

does not vitiate the decision of an expert and, in consequence, is not a ground upon which a

party can successfully challenge the expert’s appointment. If, contrary to that submission,

apparent bias is a ground upon which the defender is entitled to refuse to sign and return

the letter of engagement, the evidence does not establish that Mr MacDonald has acted in

such a way that would show a real possibility of bias on his part. As to the first ground

upon which apparent bias is contended, Mr MacDonald and Ms Thomson had confirmed in

their evidence that the minutes are accurate about Mr MacDonald’s reply to the defender’s

question. Their evidence is corroborated by Mr Somerville, another credible witness. In any

event, the defender appeared to retract his accusation of lying and to accept that

Mr MacDonald might instead have been mistaken in his recollection. On the other point

relied upon by the defender about apparent bias, Mr MacDonald accepted that by reason of

oversight he had failed to include the statement about Hoffman compliance in his draft

letter of engagement but the defender did, of course, have the opportunity (which he took)

to include it in his proposed revisals to the draft. Thereafter it was a matter for

Mr MacDonald alone to decide on the terms on which he was prepared to undertake the

valuation exercise and to set them out in the letter of engagement. In those circumstances

the reasonable observer would conclude that no prejudice had been sustained by the

defender.

[28] In relation to the third conclusion in the counterclaim, there was no contractual

obligation upon the pursuers in terms of the contract personally to make payment to the

Page 24 ⇓

defender of the balance, in the event that the defender’s shares are valued at a sum greater

than the amount then available to the company. Even if the terms of the offer were held to

have been varied subsequently in an email from Mr McKenzie, there was nothing to suggest

that the pursuers have assumed a personal obligation to make payment.

Submissions for the defender

[29] It was clear, on basic contract law principles, that the objective intention of the

parties was that the valuation required to be carried out in a “Hoffmann compliant” manner.

The correspondence following upon the offer could be regarded as being documents which

form part of the contract. Alternatively, the correspondence was on any view part of the

admissible surrounding circumstances which may be used to inform the proper construction

of the contract. On either approach, there was consensus between the parties that the

valuation of the defender’s shares should be “Hoffmann compliant”. It was not possible to

ascribe to the parties any other intention. What each subjectively understood to be required

in order for the contract to be “Hoffmann compliant” was a wholly different point.

[30] As to what the contract required, on a plain reading of Lord Hoffman’s words, a

distinction is drawn between, on the one hand, both parties having “the same right of access

to information about the company which bears upon the value of the shares” and, on the

other hand, the form of submissions (written or oral) which is a matter for the discretion of

the expert. Critically, the right of access is to be “provided for” in the offer. The right of

access is to inhere “in both parties” and not, for example, in the expert. It is not a matter for

the expert to decide what documents ought to be produced by the parties. A right conferred

on the expert to require the production of documents is not a right of access conferred on the

parties, far less is it one which provides “the same right of access” where one of the parties

Page 25 ⇓

has all of the documentation and information and the other does not. This conclusion was

reinforced by the third of Lord Hoffmann’s principles (referred to at 1107F-G).

[31] Further and in any event, the soundness of the defender’s construction of the

contract was supported by considerations of commercial common sense. It was known to

the parties at the time of contracting that the pursuers had access to all of the information

and documentation while the defender did not. The pursuers’ construction denied the

defender access to documentation and information which could be used in submissions to

the expert relevant to the valuation of his shares. The defender’s construction achieved

equality of arms and in addition would allow any valuation to be carried out in

circumstances where all relevant material is before the valuer. The letter of engagement

prepared by Mr MacDonald was therefore disconform to the requirements of the contract

between the parties, properly construed.

[32] The offer dated 8 November 2016 expressly invited the defender to raise any queries

he had arising from the terms of the offer, in order that they might be addressed by the

pursuers’ solicitors. The correspondence which then ensued was in pursuance of that

express stipulation and the letters of acceptance must be construed in that context:

Kirin-Amgen Inc Hoechst Marion Roussel Ltd [2005] 1 All ER 667, (per Lord Hoffman at [64]),

quoted with approval in Marley v Rawlings [2015] AC 129 (at 144). There was no question

here of varying or modifying the terms of the contract but, rather, simply of clarifying and

elucidating the meaning of the provisions set forth in the offer. Viewed in that context,

rather than acontextually, the acceptance plainly proceeded on the basis that all of the

relevant and clarificatory correspondence formed part of the contractual documentation.

[33] Even if that analysis was not accepted, the result was in any event the same since, on

any view, the correspondence must form part of the admissible surrounding circumstances:

Page 26 ⇓

Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900; L Batley Pet Products Ltd v North Lanarkshire

Council 2014 SC (UKSC) 174; Arnold v Britton [2015] AC 1619; Wood v Capita Insurance

Services Ltd; British Overseas Bank Nominees Ltd v Stewart Milne Group Ltd 2019 SLT 1253;

Investors Compensation Scheme Ltd v West Bromwich Building Society (No.1) [1998] 1 WLR 896,

(per Lord Hoffman at 912-913). On no view could the correspondence be characterised as

“negotiations”. It was clear that the common intention of the parties was that their bargain

was to be “Hoffmann compliant”. To reach any other conclusion would be to attribute to

the parties an intention they could not have possessed.

[34] On that approach, the parties were effectively agreeing to incorporate those

principles, just as they might incorporate a standard set of terms or conditions, or a statutory

test (eg Enviroco Ltd v Farstad Supply A/S [2010] Bus LR 1008). Having agreed to do so, those

principles fell to be construed on an objective basis. The evidence of Mr McKenzie as to

alternative means by which the defender might gain access to books and records of the

company was irrelevant to the question of construction and in any event did not amount to

rights on the part of the defender. On the evidence, Mr McKenzie was clear that he knew

the defender would not accept an offer that was not “Hoffman compliant”. The evidence

about the motivation of the defender in accepting the offer was nothing to the point; it could

not affect the proper interpretation. Lord Hoffman made clear that the offer itself should

provide for equality of arms. There was plainly also a right to make submissions. It was an

obvious misreading to proceed on the basis that this would all be left up to the expert. The

letter of engagement provided no right of access and hence it was disconform, even if one

built in the limitation that the right is only about access to information bearing upon

valuation. The letter of engagement did not give the defender a right to request information

from the expert, it only allowed him to draw to the attention of the expert things considered

Page 27 ⇓

to be relevant. The case of Cream Holdings Ltd, relied upon by the pursuers, could be

distinguished.

[35] It was clear that there has been a complete breakdown in relations between the

parties. One consequence is that the pursuers will not voluntarily produce documents or

information to the defender (at least beyond what they consider to be his bare entitlement as

a director of the company). The very real need for equality of arms was manifest, on the

evidence. Against that background, the defender was under no obligation to accept the

letter of engagement as it did not confer any rights on him to have access to information and

documentation.

[36] Even if the defender was to execute the letter of engagement, Mr MacDonald is

disqualified from acting on the grounds of apparent bias. The test was that set forth in

Porter v Magill [2002] 2 AC 357 (per Lord Hope at [103]). While it has been held that, in the

case of independent experts, actual rather than apparent bias will be required in order to

vitiate the decision of such an independent expert (see eg Macro and Ors v Thompson and Ors

(No 3) at 64G-H; and Bernhard Schulte GmbH & Co KG v Nile Holdings Ltd) that is not the

position where the expert has not yet reached the stage of performing his allotted task and

of issuing a decision: Hopkinson and others v Maximus Securities Limited and others

[2016] EWCA Civ 1057. In support of the factual basis for the case of apparent bias, reference was

made to: the material difference between the defender and Mr MacDonald as to what was

discussed at the meeting held on 16 April 2018; the fact that despite agreeing to include

reference to “Hoffmann compliance” in his letter of engagement Mr MacDonald failed to do

so; that the pursuers’ pleadings indicated that Mr MacDonald was given to understand (by

the pursuers’ solicitor) that he had been misled by the defender, and in addition that such

contact would in itself raise issues of apparent bias; and also that Mr MacDonald rejected

Page 28 ⇓

wholesale the revisions to the draft letter of engagement proposed by the defender. In

relation to the third conclusion in the counterclaim, if the sum due could not be paid by the

company then the defender was entitled to pursue payment from the pursuers and to

continue with the sheriff court claim. It was not being suggested that the meaning to be

ascribed to the contract is one of personal liability.

Decision and reasons

Objections

[37] Prior to commencement of the evidence, objections were taken by senior counsel for

the pursuers to certain passages in the defender’s witness statement. I sustained the

objection in respect of certain types of evidence but in light of the extent of the material

objected to I indicated that I required to hear from parties as to the precise parts of the

statement which would fall to be covered by my ruling. Before the defender gave evidence,

I heard those submissions and I sustained the objection in respect of particular sentences. A

number of other matters covered by the parties’ witness statements were open to objection

and I allowed the evidence to be led subject to competency and relevancy. In closing

submissions, senior counsel for the pursuer took objection to approximately twenty-eight

paragraphs in the defender’s witness statement as being irrelevant because they dealt with

the history of the parties’ dealings and relationship prior to the Grant Thornton valuation,

and to a further twenty-eight or so paragraphs, said to deal with the circumstances of the

appointment of the expert, as having no foundation on record and as being irrelevant.

While there is some force in these objections, I conclude that the material objected to is of

some, albeit very limited, relevance in setting out the history and background and I

therefore repel these objections.

Page 29 ⇓

[38] Senior counsel for the pursuers also objected to what was described as the opinion

evidence offered by Mr Webster. This was said to be inadmissible, on the ground that

where a skilled witness, giving his opinions, does not comply with the recognised duties of

being independent and impartial, that evidence should be excluded. The requirement of

impartiality was one of admissibility not weight: Kennedy v Cordia (Services) LLP 2016

SC (UKSC) 59 (at paras [39] and [40]). The defender’s position was that Mr Webster was not

called as an independent expert witness. The basis upon which the pursuer objected was

unfounded and any skilled witness could offer opinion evidence, it being for the court to

decide what weight, if any, to attach to that evidence. I accept the submissions for the

defender on this point. I considered Mr Webster to be an able and experienced accountant

who had dealt with valuations both as an expert and acting on behalf of a particular party.

He gave his evidence in a genuine and straightforward manner. The fact that he was

engaged by the defender to act on his behalf did not preclude him from giving his opinion

on the matters he was asked about. I therefore repel the objection. Of course, he was not an

independent expert called to assist the court and I take that important factor into account,

along with the fact that he was engaged to act on behalf of the defender, when assessing the

weight to be given to his evidence. His evidence about the carrying out of valuations,

including the focus on value-enhancing and value-detracting points, was of some general

assistance but overall his evidence was of no particular significance or relevance to the

specific issues to be determined, which largely concerned the contract terms and their

meaning.

Page 30 ⇓

Issue 1: What constituted the parties’ contract?

[39] As noted, this issue is whether, as was submitted for the pursuers, the terms of the

contract comprised the offer dated 8 November 2016 and the unqualified acceptance dated

27 November 2017, or whether, as was submitted for the defender, a number of documents

that passed between the parties and/or their solicitors in the period between the offer and

the acceptance also constitute the contract. In advance of the proof, nineteen documents

were identified for that purpose by senior counsel for the defender. Apart from two

documents, these were items of correspondence, mainly in the form of emails but also

including letters. The two other documents were (i) the Note of Argument for the present

pursuers lodged in the sheriff court proceedings on 15 November 2017; and (ii) the adjusted

answers for the present pursuers in the sheriff court action dated 13 November 2017. In

evidence and submissions, the focus was on the correspondence. It was not suggested that

the documents lodged in the sheriff court proceedings could themselves be seen as forming

part of the contract. That is readily understandable, as they were nothing other than

expressions of the present pursuers’ position or contentions in that litigation.

[40] In considering whether the correspondence formed part of the parties’ contract, it is

correct that the offer dated 8 November 2016 invited discussion, stating that the pursuers

would be happy to address points that may be identified by the defender or his solicitor.

The correspondence that ensued made clear the defender’s position that he wished the

question of “Hoffmann compliance” to be specifically addressed and that the offer had

failed to do so. That theme was reiterated throughout the correspondence. In an email

dated 16 November 2016, the defender’s solicitor stated to Mr McKenzie:

“In relation to the offer contained in your letter of 8 November, I am simply

instructed to say that the offer, in so far as it relates to the valuation procedure, is not

what might be described as ‘Hoffman-compliant…’”.

Page 31 ⇓

In his reply, by email dated 17 November 2016, Mr McKenzie said that the offer “was drawn

up with specific regard to the five elements that such an offer should include, as set out by

Lord Hoffmann” and also stated that “The purpose of the offer was to provide a

‘Hoffman-compliant’ mechanism which would achieve precisely what it was understood

was your clients preferred outcome”. On 9 December 2016, in his email to the defender,

Mr McKenzie stated that the defender had been asking for a “Hoffman compliant” process

“and that is what you have been offered.” In an email to Mr McKenzie on 12 December

2016, the defender stated that it should be obvious that his solicitor “intends the wording of

the acceptance will set to ensure that the agreement between us is fully

Hoffman-compliant”. In a further email to Mr McKenzie on 13 December 2016, the defender

stated that the offer was “manifestly not ‘a fair and reasonable’ offer” and that “the

deficiencies in the offer are blindingly obvious to me”. One point mentioned was a

suggestion by the defender that the “companies [sic] records be made available” to him and

“this process would assist in ensuring that both parties have ‘equality of arms’ in making

submissions to the valuer if that is the eventual route”. In response, by email on

13 December 2016, Mr McKenzie stated: “The valuer will make such directions as to access

to documents and records that he considers acceptable.” The email ended with the words:

“Equality of arms is ensured by having an independent professional appointed by a

professional body such as ICAS who will be under a duty in law to ensure a fair and

reasonable valuation procedure”.

By email dated 2 February 2017, the defender’s solicitor requested

“all email correspondence sent or received by the company between 2013 and the

present date using the 5pm email address or any version of it along with all links,

attachments and documents referred to in these emails”.

Page 32 ⇓

In his reply later that day, Mr McKenzie stated “Your client has no right to have open access

and/or a copy of every electronic communication sent or received by the company during

the referenced period.” He added that

“In the context of a valuation process, if your client wants access to company

material which goes beyond his statutory rights [as a director] then he may specify

what that information is, why it would be relevant to a valuation of his shares and

how he will ensure that it will not be used by your client in a way which [is] against

the interests of the company. The directors will consider any request in those

contexts. If your client disagrees with the decision of the board on such a request

then he will have the option of asking the expert to require provision of the material

and ultimately, if he is still dissatisfied, will be able to apply to the court for an

order.”

The defender’s solicitor replied on 8 February 2017, stating inter alia that the offer of

8 November 2016 needed to be read along with Mr McKenzie’s email of 13 December 2016.

He went on to say that the defender:

“… remains willing to accept an offer which complies with the criteria stated by

Lord Hoffman in O’Neill v Phillips. However, he has consulted Counsel about the

proposal whose firm view is that it is not Hoffman compliant.”

The defender’s solicitor then set out two reasons for the proposal not being compliant. The

“main reason” was that there would be a cap on what the company will pay. The second

reason was that Mr McKenzie was proposing that if there was a shortfall between what the

company could pay and the valuation, the defender’s remedy would be to continue the

litigation. In response, Mr McKenzie stated: “I have my clients’ instructions on your

proposal. My clients consider the offer made by them to have been Hoffman compliant”.

[41] In the submissions for the defender, senior counsel argued that the defender’s

acceptance plainly proceeded on the basis that all of the relevant and clarificatory

correspondence formed part of the contractual documentation. The offer dated 8 November

Page 33 ⇓

2016 required an acceptance in writing, which was duly given on 27 November 2017. The

letters of acceptance stated:

“I accept your offer of 8/11/16 and expressly elect for method 2 and I agree to be

deemed to have agreed and to act all as provided for in Clause 4 of the offer

of 8/11/16 and I agree to be deemed to have agreed to act as elsewhere provided in

the offer of 8/11/16.”

The acceptance was not in any way qualified and it referred only to the offer dated

8 November 2016, making no reference at all to any of the other correspondence or

documents which are now argued to form part of the contract. These other documents

comprise many pages and deal with a number of matters. On behalf of the defender, there

was no identification of the relevant passages in these numerous documents which were to

be taken to constitute part of the contract. This raises considerable difficulties for the

suggestion that they do form part of it. It is inappropriate to conclude that an offer which is

met by an acceptance is supposed to have added to it words from numerous other

documents which also form part of the contract when those words are not identified.

Moreover, there is nothing in the further correspondence relied upon by the defender to

suggest consensus in idem on the points raised. The central feature of the defender’s case

concerns the right of access to the company’s books and records for the purposes of

valuation, a matter mentioned by Lord Hoffman, as noted below. It is absolutely clear that

this issue was discussed in the correspondence and the positions of the parties were in stark

contrast: the defender sought unfettered access and the pursuers expressly refuted any such

right of access. It is impossible to see the correspondence as clarificatory on that issue. The

proper view is that there was a detailed offer and an acceptance of it, against the

background of a lengthy and detailed discussion of various points of difference.

Page 34 ⇓

Accordingly, the numerous other documents relied upon by the defender do not constitute

part of the contract between the parties.

Issue 2: The meaning of the contract terms

The relevance of the correspondence

[42] In the alternative, the defender relies heavily on this correspondence as indicating

the common intention of the parties that the offer, and the valuation procedure, were

“Hoffman compliant”. In relation to construction of contracts, in Arnold v Britton,

Lord Neuberger (with whom Lord Sumption and Lord Hughes agreed) set out the key

principles, including the following:

“15. When interpreting a written contract, the court is concerned to identify the

intention of the parties by reference to ‘what a reasonable person having all the

background knowledge which would have been available to the parties would have

understood them to be using the language in the contract to mean’, to quote

Lord Hoffmann in Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38,

[2009] 1 AC 1101, para 14. And it does so by focussing on the meaning of the relevant

words...in their documentary, factual and commercial context. That meaning has to

be assessed in the light of (i) the natural and ordinary meaning of the clause, (ii) any

other relevant provisions of the lease, (iii) the overall purpose of the clause and the

lease, (iv) the facts and circumstances known or assumed by the parties at the time

that the document was executed, and (v) commercial common sense, but

(vi) disregarding subjective evidence of any party's intentions.”

As is well-known, that position is in line with a number of other authorities (eg Rainy Sky v

Kookmin Bank Co Ltd; Wood v Capita Insurance Services Ltd) and is the approach taken in

Scotland (eg HOE International Ltd v Andersen 2017 SC 313; British Overseas Bank Nominees

Ltd v Stewart Milne Group Ltd; Ashtead Plant Hire Company Limited v Granton Central

Developments Limited [2020] CSIH 20).

[43] As Lord Hodge explained in Luminar Lava Ignite Limited v MAMA Group plc 2010

SC 310 (at [42]) while evidence of prior negotiations is generally inadmissible, evidence of

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the factual background to the contract is relevant where the facts are known to both parties

and those facts can cast light on either (a) the commercial purpose or purposes of the

transaction objectively considered; or (b) the meaning of the words which the parties used in

their contract. As Lord Hodge explained, the two cases very often overlap, as the

ascertained commercial purpose may give meaning to particular words or phrases. In

Patersons of Greenoakhill Ltd v Biffa Waste Services Ltd 2013 SLT 729, Lord Hodge also

discussed the relevance of pre-contractual discussions in relation to the parties’ intentions

and said:

"[17] Not everything that the parties knew when negotiating an agreement can be

considered when the court construes the contract. For reasons both of relevancy and

also of pragmatism the law has set its face against the consideration of parties'

statements of intention in the negotiations leading to the contract. There is recent

authority for this (Chartbrook Ltd, Lord Hoffmann at pp.1115-1121, paras 27-42;

Luminar Lava Ignite Ltd v Mama Group Plc at 2010 S.C., pp.319-321; 2010 S.L.T.,

pp.153-154, paras 39-45). Again there is also older authority in this jurisdiction

(Buttery & Co v Inglis, Lord Gifford (dissenting) at (1877) 5 R., pp. 69-70; Inglis v

Buttery & Co, Lord Blackburn at (1878) 5 R. (H.L.), pp.102-103).

[18] The rule excluding statements of intention in pre-contractual negotiations has

its limits. In Chartbrook Ltd Lord Hoffmann stated (at p.1121, para.42):

'The rule excludes evidence of what was said or done during the course of

negotiating the agreement for the purpose of drawing inferences about what

the contract meant. It does not exclude the use of such evidence for other

purposes: for example, to establish that a fact which may be relevant as

background was known to the parties, or to support a claim for rectification

or estoppel. These are not exceptions to the rule. They operate outside it.'"

The fundamental distinction drawn by Lord Hodge in these cases is therefore between

evidence about the factual background as known to both parties and parties’ statements of

intention in pre-contractual negotiations. This fits with Lord Neuberger’s observation in

Arnold v Britton that subjective evidence of either party's intentions is to be disregarded. It is

perhaps of assistance to note what Lord Blackford said in Inglis v Buttery, where the House

of Lords held that no regard should be had to evidence of the parties’ prior communings (or

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negotiations) that were said to establish their intention as to the meaning of the words in

dispute. Lord Blackburn said (at 103):

“…you may, while taking the words of the agreement, ‘look at the surrounding

circumstances,’ as Lord Ormidale expresses it, and see what was the intention. You

do not get at the intention as a fact, as Sir James Wigram in his Treatise on Extrinsic

Evidence calls it, but you see what is the intention expressed in the words used as

they were with regard to the particular circumstances and facts with regard to which

they were used. The intention will then be got at by looking at what the words mean

in that way, and doing that is perfectly legitimate.”

There is further assistance in understanding the proper approach to evidence of

pre-contractual discussions in the observations made by Leggat LJ in Merthyr (South Wales)

Limited (FKA Blackstone (South Wales) Limited) v Merthyr Tydfil County Borough Council

[2019] EWCA Civ 526 (at [43] - [55]). I need not set out the observations in full, but the following

comments are pertinent for present purposes:

“[54] What is not permissible, as the decision of the House of Lords in the

Chartbrook case confirms, is to seek to rely on evidence of what was said during the

course of pre-contractual negotiations for the purpose of drawing inferences about

what the contract should be understood to mean. It is also clear from the Chartbrook

case that it is not only statements reflecting one party’s intentions or aspirations

which are excluded for this purpose but also communications which are capable of

showing that the parties reached a consensus on a particular point or used words in

an agreed sense. The exclusion of such evidence was justified in the Chartbrook case,

not on the ground that it will always or necessarily be irrelevant, but because of the

costs and other practical disadvantages that would result from relaxing the rule and

because the ‘safety devices’ of rectification and estoppel will generally prevent the

exclusionary rule from causing injustice.

[55] I would accept that there may be borderline cases in which the line between

referring to previous communications to identify the ‘genesis and aim of the

transaction’ and relying on such evidence to show what the parties intended a

particular provision in a contract to mean may be hard to draw…”

As Lord Wilberforce observed in Prenn v Simmonds [1971] 1 WLR 1381 (at 1385):

“The only course then can be to try to ascertain the ‘natural’ meaning. Far more, and

indeed totally, dangerous is it to admit evidence of one party’s objective – even if this

is known to the other party. However strongly pursued this may be, the other party

may only be willing to give it partial recognition, and in a world of give and take,

men often have to be satisfied with less than they want. So, again, it would be a

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matter of speculation how far the common intention was that the particular objective

should be realised…

In my opinion, then, evidence of negotiations, or of the parties’ intentions, and

a fortiori of [one party’s] intentions, ought not to be received, and evidence should be

restricted to evidence of the factual background known to the parties at or before the

date of the contract, including evidence of the ‘genesis’ and objectively the ‘aim’ of

the transaction.”

[44] It was submitted on behalf of the defender that the correspondence after the offer

and prior to the acceptance did not constitute negotiations, but rather was about achieving

clarification. The terms of the correspondence from the defender included repeated

references to deficiencies in the offer, stating that it needed considerable revisal and that

many important issues remained unresolved, that safeguards required to be put in place and

that amendments were required. The points in question were identified. The

correspondence is readily capable of being viewed as negotiations. But, whether viewed as

negotiations or attempts at clarification, the characterisation of the correspondence may not

be of particular significance. It is something that took place and was shared between parties

after the offer but prior to the contract being concluded. If it did contain evidence of facts

known to both parties which, on the authorities, could properly be taken into account in

identifying the genesis or aim of the transaction or in construing the meaning of the words

in the contract, that evidence is relevant.

[45] Most of what was said in the correspondence merely involved statements of

intention rather than indications of facts known to both parties and it is therefore irrelevant.

In any event, the approach taken on behalf of the defender was that the parties’ respective

understandings of what was meant by “Hoffman compliant” did not matter, the point

simply being that according to the correspondence the valuation procedure was to be

“Hoffman compliant”. However, this is an attempt to focus only upon the use of that

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expression in the correspondence without taking into account what the parties said they

took it mean. If, against the view I have reached, it is appropriate to have regard to the

evidence of what was said in the correspondence, it is clear that Mr McKenzie was not

expressing an intention that the procedure would be “Hoffman compliant”, whatever that

was taken to mean; rather, he was saying that the terms of the offer were considered by him

and the pursuers to meet that test. He plainly intended it to be “Hoffman compliant” in

order for it to be a valid and effective defence to the unfair prejudice allegation. But that is

quite different from saying that the offer and any valuation procedure that ensued were

intended to be “Hoffman compliant”, no matter what that term meant. The defender’s

position was that “Hoffman compliant” included what was said in O’Neill v Phillips (at

page 1107H):

“Fourthly, the offer should, as in this case, provide for equality of arms between the

parties. Both should have the same right of access to information about the company

which bears upon the value of the shares and both should have the right to make

submissions to the expert, though the form (written or oral) which these submissions

may take should be left to the discretion of the expert himself.”

The defender takes that to mean a full and unfettered right of access to company

information rather than, as Mr McKenzie made clear was his position, a right to seek

information from the company via the expert. Therefore, if I view the correspondence as

part of the surrounding circumstances, it does not assist the defender; on the contrary, it

makes clear that there was no consensus on the meaning of “Hoffman compliant” and hence

no shared intention or aim.

The general context

[46] Leaving aside the pre-contractual correspondence, there was plainly a factual

background known to both parties. It is obvious from the context that a reasonable person

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would understand that each party did indeed aim to have a contract that was “Hoffman

compliant”, subject to the important qualification that this was as they respectively

understood the meaning of that concept. That is clear from the very fact that the offer was

made by the pursuers in the context of seeking to give themselves a defence to the allegation

of unfair prejudice made in the sheriff court proceedings. It could only give that defence if it

was indeed “Hoffman compliant”, as they understood it. It might also be said that the

defender could only rationally and sensibly accept the offer if he concluded, or was advised,

that it was “Hoffman compliant”, as he or his advisers understood it. If it was not, he could

readily have ignored or rejected the offer and continued with his action.

[47] The approach to identifying the aim of the transaction is stated by Lord Wilberforce

in Reardon Smith Line Ltd v Hansen-Tangen (The “Diana Prosperity”) [1976] 1 WLR 989 (at 996):

”when one is speaking of aim, or object, or commercial purpose, one is speaking

objectively of what reasonable persons would have in mind in the situation of the

parties.”

Viewed objectively, I conclude that there was no aim that the agreement would be

“Hoffman compliant” whatever that concept meant. A reasonable person in the situation of

each of the parties was not aiming for or committing to the application of a meaning of that

concept which ran starkly against his understanding. There is nothing in the factual

background to support the view that the pursuers were proceeding on the basis that the

concept applied whatever it meant and even it if did include full and unfettered access, and

that the defender was also proceeding on the basis that the concept applied, again whatever

it meant, and even if it did not include full and unfettered access. It is the substance of the

aim, and not simply the label attached to it, that may be relevant.

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The role of the surrounding circumstances

[48] Senior counsel for the defender submitted that once regard is had to the surrounding

circumstances, including the correspondence, it becomes clear that

“the common intention of the parties was that their bargain was to be Hoffmann

Compliant. To reach any other conclusion is to attribute to the parties an intention

they could not have possessed… That, in turn, leads one to the second issue of

contractual construction which arises, namely, what does Hoffmann Compliance

require?”

This reflects what was pled on behalf of the defender, as noted in para [9] above, that the

admissible surrounding circumstances had the same effect as an express agreement as to

“Hoffman Compliance”:

“In either case, however, on a proper construction of the parties’ contract, it was an

express term of that contract that the valuation of the Defender’s shares was to be

undertaken in accordance with the requirements set forth in O’Neill v Phillips, as set

out above.”

The submissions for the defender went on to refer to the principles stated by Lord Hoffman

and contended that the parties were “effectively agreeing to incorporate those principles,

just as they might incorporate a standard set of terms or conditions…”. Accordingly, the

defender’s position was not that any specific terms or language used in the offer or

acceptance fell to be construed in a particular way, having regard to these surrounding

circumstances. Rather, it was that the “common intention” incorporated into the contract

the concept of “Hoffman Compliance”. The authorities do not support the proposition that

the common intention or aim, as derived from the surrounding circumstances, becomes a

term of the contract rather than being, potentially, an aid to interpretation of the words used.

In any event, there was no common intention or aim of any substance in relation to

“Hoffman Compliance”.

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[49] For these reasons, I do not accept the alternative contention made on behalf of the

defender.

The effect of an agreement that the procedure be “Hoffman compliant”

[50] As I have decided that the defender’s case on the constitution of the contract and its

meaning must fail, the issue of what is meant by the procedure being “Hoffman compliant”

does not arise. However, in light of the submissions on the point, it is appropriate that I

briefly express my views on it. The pursuer and the defender each accepted that if there was

a requirement that the offer be “Hoffman compliant”, this had the consequence of

incorporating into the offer the various principles stated by Lord Hoffmann. The key issue

was the fourth principle, noted above, which states inter alia that “Both should have the

same right of access to information about the company which bears upon the value of the

shares the right of access to information which bears upon valuation…”. Giving these

words their natural and ordinary meaning, they do not give a full and unfettered right of

access to all information which the defender wishes to see. It is made entirely clear by the

qualification used by Lord Hoffman that the right of access is to information which bears

upon valuation.

[51] When one takes into account the surrounding circumstances, that construction does

not alter. As in many similar cases, this is a contentious dispute which follows on from a

breakdown in relations, an absence of mutual trust and indeed a degree of mutual hostility.

The pursuers have access to all of the company information and the defender does not. The

pursuers wish the company to pay the lowest price and the defender wishes to sell for the

highest price. As the expert evidence showed, it is not inconceivable that those running a

company might conceal or fail to disclose relevant information (although I make clear that I

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say that only as a general observation and not about the present pursuers). These factors do

not remove the qualification that the right of access is to information that bears upon

valuation, and in particular they do not turn these words into meaning access to all

information. Thus, in the present case when in a previous valuation exercise the defender

was given full and unfettered access to information and requested all of the emails sent

within a three-year period, resulting in some 56,000 emails being sent to him, and has now

said in evidence that he may wish to obtain emails over the seven-year period thereafter

(which he may reduce on advice), such a request for access to information is not covered by

Lord Hoffmann’s statement of requirements. In addition, it makes less sense commercially

for parties to be able to access every single communication or document. Such a process is

likely to prolong the exercise and cause it to be much more expensive. Lord Hoffmann’s

words must be viewed in the context of his earlier comments when stating the third

principle: “The objective should be economy and expedition, even if this carries the

possibility of a rough edge for one side or the other…”. In my view, any other construction

which has the effect that the words mean that a party can request every single item and then

make his or her own decision on whether they bear upon valuation, has no foundation.

[52] However, the defender is to have the same right of access as the pursuers to

information which bears upon valuation. When one seeks access to such information, there

must, no doubt, be a means of characterising the request which demonstrates that the

material has a bearing upon valuation. In his evidence, Mr Webster spoke of

value-enhancing and value-detracting information and gave examples of types of

information in each regard. Merely by way of example, the defender could request all

information concerning any new business opportunity that has arisen or has been identified

as the subject of consideration. The defender is to have “the same right of access”. This

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could be taken to mean that the defender has a right, personally or through a representative,

to ask for all information that bears upon valuation. If the words are taken to mean that the

defender can request from the company, not directly but through the expert valuer, any

information which bears upon valuation, that makes no material difference and satisfies the

test of having the same right of access to information which bears upon valuation. On the

other hand, if the expert valuer has the authority to refuse to make a request which the

defender considers to bear upon valuation, that arguably could be seen as denying the

defender the same right of access. If that decision is made by the expert on his view that the

information requested cannot have any bearing upon valuation, that leaves open the

possibility that the expert may be wrong.

[53] Thus, if, against the decision I have reached, the procedure required to be “Hoffman

compliant” and hence required the same right of access to information about the company

which bears upon valuation, the issue becomes whether the letter of engagement issued by

Mr MacDonald on 5 July 2018 is disconform to that requirement. The timetable set out in

the letter of engagement expressly refers to the parties being able to make written and oral

submissions to the expert. Mr MacDonald also lists the information that has been provided

to him by the parties since his appointment and adds that he will request further

information which: “As a minimum, I would expect to include the following”. He then lists

types of information, including “6) Any other factors which you believe may impact the

Company’s valuation”. He goes on to say:

“For the avoidance of doubt, I shall be entitled to request further information and

explanations as I consider to be relevant to my appointment, from the parties

throughout the duration of my work. The parties shall be required to provide such

information and/or explanation to me within a reasonable period…”

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He states that all of the information will be shared with the parties. The letter of

engagement therefore makes clear that he will request further information on any other

factors which the parties’ believe may impact upon the valuation. The words “believe may

impact” mean that he is founding upon their beliefs as to the potential impact, rather than

him having to be persuaded by them that it is relevant to valuation. The parties may of

course be required by the expert to say why they believe information of a particular type

may impact upon valuation. The letter of engagement does not therefore allow full and

unfettered access to all company information, but it does allow the expert to access

information which the either of the parties believes may impact upon valuation. I was given

no real or substantial basis for concluding that the same right of access, albeit exercised

indirectly through the expert valuer, would not result in the defender obtaining the same

information as he would have obtained had he directly requested information bearing upon

valuation from the company. If in a particular valuation exercise there is a failure to disclose

relevant information, that could occur whether the request was made directly by the party

or by the expert. In the present case the pursuers have accepted the terms of the letter and

such a failure to disclose would be a clear breach of their obligations. Accordingly, if the

consequences of the procedure having to be “Hoffman compliant” had arisen for

determination, I would have rejected the defender’s position that the letter of engagement is

disconform to that requirement.

Issue 3: Apparent bias

[54] On behalf of the pursuers, it was submitted that once an independent valuer has

been appointed, apparent bias will not found a challenge and it is actual bias that requires to

be established. Reference was made to Macro & Ors v Thompson & Ors (No 3) and Bernhard

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Schulte & Ors v Nile Holdings Ltd. However, in Macro the test of actual partiality was said

(at 65) to apply “when the court is considering a decision reached by an expert valuer” and

in Bernhard Schulte (at [98]) the reasoning in Macro was viewed as referring “to the duty of an

expert in issuing a valuation of the shares to act fairly and impartially”. I accept the

submission by senior counsel for the defender that the position is different where the expert

has not yet reached the stage of performing his allotted task and issuing a decision. In

Hopkinson and others v Maximus Securities Limited and others the Court of Appeal held that the

appropriate test, before the expert had performed the task entrusted to him, was that of

apparent, rather than actual, bias. Patten LJ observed (at [29]) in relation to actual bias that:

“In relation to an exercise which has not yet taken place, this is likely to be a near

impossible task. The difficulty of proving actual bias (which may often be

unconscious) has been a strong reason for the development of an objective test of

apparent bias as a sufficient basis for demanding the recusal of judges and other

adjudicators prior to any actual hearing or determination and I can see no

justification for applying a different rule in relation to experts.”

In the present case, Mr MacDonald was nominated by ICAS and was appointed as the

expert. His letter of engagement has not been signed by the defender and the process of

valuation has not commenced. The position is far from any actual determination or the

issuing of any valuation. Apparent bias will therefore suffice, if shown. The question is

whether, objectively viewed, there is a real risk, for the reasons presented on behalf of the

defender, that Mr MacDonald may act partially in carrying out the valuation. As explained

in Porter v Magill (per Lord Hope at para [103]): “The question is whether the fair-minded

and informed observer, having considered the facts, would conclude that there was a real

possibility that the tribunal was biased.”

[55] In relation to the meeting on 16 April 2018, Mr MacDonald accepted that the

defender may simply have a different recollection of what was said, rather than have stated

Page 46 ⇓

any untruth. As I understood the defender’s evidence, he was not suggesting that

Mr MacDonald was telling a lie about what happened. I see no basis for concluding that

because they differed in their recollections of what was said at the meeting that could give

rise to a conclusion of a real possibility of bias. I prefer and accept the evidence of the four

witnesses who spoke to Mr MacDonald having answered in the affirmative at that meeting,

including the evidence of his long history of familiarity with the Hoffman principles. But

the evidence of the defender was plainly his own recollection of events. The fact that on the

same afternoon he sent an email to Mr Webster recording his position backs that up. The

defender’s diary entry was less forceful, given its language. However, I do not consider the

defender’s evidence on the point to be in any way fabricated. From what appears to have

been a somewhat tense and fraught meeting between the parties, understandings of what

was said can differ. The second ground for apparent bias concerned Mr MacDonald having

been told by the defender at the meeting on 17 May 2018 that the pursuers’ solicitors had

agreed that the draft letter of engagement should include a reference to the process being

“Hoffmann compliant”, and Mr MacDonald stating that he would revise the draft letter of

engagement to that effect. In his evidence, Mr MacDonald explained that his failure to

revise the draft letter of engagement in that respect was an oversight. On behalf of the

defender, it was submitted that when one had regard to the averments made on behalf of

the pursuers in their minute of amendment (as noted above), that evidence was

questionable. It was submitted that Mr MacDonald had therefore made a judgement that

the defender had told an untruth and had done so solely in discussion or consultation with

the solicitors for the pursuer. The problem with that submission is that there was no

evidence led to indicate that what was averred had in fact taken place. I do accept that

senior counsel for the pursuer must have had some basis for making that averment but at

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the end of the day it was simply an averment and no evidence in support of it was led. I do

not regard it as relevant to the issue of apparent bias. Accepting, as I do, the evidence of

Mr MacDonald that it was simply an oversight, there is no support for the suggestion of a

real possibility of bias. In relation to the rejection of the other revisions proposed by the

defender, Mr MacDonald’s evidence was that while the majority of the proposed revisions

were unobjectionable and reasonable the letter of engagement would normally be two to

three pages long, the matters had already been adequately covered and it was not necessary

to make them explicit. Once again, this discloses no basis for finding a real possibility of

bias. Taken individually and cumulatively, the points founded upon by the defender do not

justify any basis for a conclusion of apparent bias.

Issue 4: The third conclusion in the counterclaim

[56] The third conclusion in the counterclaim states:

“… in the event that the ‘Agreed Sum’ is in excess of the amount then available to the

company to purchase the defender’s shares, on a proper construction of the contract,

the defender is entitled to pursue payment of any outstanding balance from the

present pursuers and that, until such time as the ‘Agreed Sum’ is paid in full, the

defender (a) is not prevented from continuing to pursue his application for orders

under section 994 et seq of the Companies Act 2006, against inter alios the present

pursuers, which is in dependence before Glasgow Sheriff Court; and (b) is entitled to

retain his membership of the company.”

I was not directed to any particular language in the offer dated 8 November 2016 which

should be construed to have the meaning which is suggested. The offer sets out that the

defender will, if he accepts the offer, receive the Agreed Sum (that is, under Method 2, the

sum fixed by the valuer) from the company. It also sets out certain consequences which

follow on from payment of the Agreed Sum. None of these terms provide for the position

suggested by the defender. In the defender’s averments, it is contended that the defender

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sought clarification as to what was to occur in that event and that Mr McKenzie confirmed,

in the correspondence, that the defender would be entitled to seek payment of any further

sums so due from the pursuers themselves. I have already concluded that the

correspondence does not form part of the contract and for that reason I reject the defender’s

submission to grant the declarator. However, even if the correspondence did form part of

the contract, Mr McKenzie’s comments do not support the defender’s position. He said that

if the valuation exceeded the sum the company could pay then the defender could either

accept that sum, or carry on the existing litigation in the sheriff court seeking an order

against the first and second pursuers. He did not state that if the defender accepted only

what the company was able to pay, the defender could then seek payment of the

outstanding balance from the pursuers. The position is that if the Agreed Sum is paid, then

the consequences, of the defender ceasing to be a director and the sheriff court action being

settled, will follow. If the Agreed Sum is not paid, those consequences do not follow. The

third conclusion in the counterclaim is not sustained.

Conclusion

[57] For the reasons given, I reject the submissions for the defender as to what constitutes

the contract and the meaning of its terms, and on the issue of apparent bias. The letter of

engagement issued by Mr MacDonald on 5 July 2018 is therefore not disconform to the

contract. That is the sole basis put forward for the defender’s refusal to sign the docquet. I

conclude that the terms of the letter of engagement are reasonable.

Page 49 ⇓

Disposal

[58] In the principal action, I shall sustain the first and fourth pleas-in-law for the

pursuers, repel the pleas-in-law for the defender and pronounce decree for specific

implement in terms of the first conclusion of the summons, reserving meantime the question

of whether warrant and authority should be pronounced in favour of the Deputy Principal

Clerk of Session to sign and deliver the letter of engagement. In the counterclaim, I shall

repel the pleas-in-law for the defender, sustain the second, third and fourth pleas-in-law for

the pursuers and assoilzie the pursuers from the conclusions of the counterclaim. In order

to ascertain whether the decree for specific implement has been complied with, I shall fix a

by-order hearing to call in early course. In the meantime, all questions of expenses are

reserved.