William John Watkins and Raymond Gerard Connell v Richard Jepson Egglishaw
| Jurisdiction | Jersey |
| Court | Royal Court |
| Judge | H.W.B. Page,Jurats Le Brocq,Tibbo |
| Judgment Date | 17 December 2001 |
| Neutral Citation | [2001] JRC 248 |
| Date | 17 December 2001 |
[2001] JRC 248
ROYAL COURT
(Samedi Division)
H.W.B. Page, Esq., Q.C., Commissioner, and Jurats Le Brocq and Tibbo.
Advocate M. St. J. O'Connell and Advocate F.B. Robertson for the Plaintiffs in the original action.
Advocate M.M.G. Voisin and Advocate A.D. Hoy for the Defendants in the original action.
Residual Issues left over for further argument from the Court's Judgment of 31 st July, 2001 (q.v.):
1. Mr. Connell's claim that he remains director and shareholder of STR; and
2. The Defendant's counterclaim,
This judgment deals with two residual issues that were left over for further argument in the Court's judgment of 31 st July, 2001: (i) Mr Connell's claim that he remains a shareholder and director of STR and (ii) the Defendants' counterclaim. We heard further submissions on these two matters by Advocate Robertson on behalf of Mr Connell and Advocate Hoy on behalf of the Defendants in the week beginning 18 th September, 2001. In accordance with the direction given in paragraph 103 of our earlier judgment no further evidence on these issues was adduced. Although these matters, in the context of this litigation as a whole, were very very much the Cinderella of the trial in terms of evidence, time and attention, they are of considerable significance in their own right.
The background to these issues is summarised in paragraphs 46 to 50 of that earlier judgment and the heart of this particular aspect of the dispute can be stated very simply. Mr Connell says that, although he wrote to Mr Richard Egglishaw on 31 st December, 1991 giving notice of his intention to resign with effect from 1 st February, 1994, that notification was and remained at all times conditional on the anticipated new agreements between himself and the Defendants being concluded and signed; this never happened; and that, accordingly there was never any effective and binding resignation on his part. He therefore claims that he has remained at all times a director of STR and SMS, and a shareholder in STR, and seeks recovery of both the dividends and the salary that he should have, but has never, received since 1 st February, 1994. He also seeks an indemnity from the Defendants against any liability that he may incur as a director in respect of anything that has happened during the period when he has been excluded (as he contends) from participation in the management of the two companies.
The Defendants, for their part, say that when the totality of events is looked at, it is plain that, although the proposed new agreements were never signed, Mr Connell intended to and did resign with effect from 1 st February, 1994; that in this intention he was at one with the Defendants' own wishes; and that, accordingly, he has not been a director or shareholder since that date. They go on to assert – and this is their Counterclaim – that the effect of his resignation was that Mr Connell became obliged to sell his shareholding (held via his nominee company Dreamin Design Limited) to the Defendants, and they became bound and entitled to acquire it, on the basis of a valuation as at 31 st January, 1994. As we summarised the matter in paragraph 58 of our earlier judgment:
On this basis and (i) putting a value on Mr Connell's shareholding at 31st January, 1994 of £178,435, as determined by Alex Picot and (ii) setting against this his (alleged) indebtedness to, in effect, the Defendants on loan account and otherwise in a total amount of £224,172, and (iii) bringing into account an amount of £20,000 already erroneously paid to him in 1992, there was, the Defendants counterclaimed, a balance of £65,737 due to them (ignoring for present purposes the parties' respective trusts and companies) .
Although we referred in our earlier judgment to the course of events that caused Mr. Connell to write his first resignation letter of 31 st December, 1991, it is necessary now to make mention of a number of additional factors that have a material bearing on the issues in hand.
The proposed new arrangements discussed in mid to late 1989 included, among other things, (i) a new shareholders agreement to replace the First Shareholders Agreement (‘the FSA’) and (ii) a new service agreement for Mr. Connell. Neither was ever finalised.
It is impossible to say with certainty exactly what would or would not have been in those agreements had they ever been concluded. On any view the arrangements under discussion were of some complexity, involving as they did, among other things, the terms on which Mr de Figueiredo would become a shareholder, the ‘re-valuation’ of Mr Connell's shares in order to create a measure of parity between him and Mr de Figueiredo, adjustments to Mr Connell's loan and current accounts, and – importantly – the relinquishing by Mr Connell of the provision in the FSA concerning unanimity of decision making (which had had the effect of giving any one shareholder-director a power of veto, and which the Defendants were anxious to remove). A further level of complexity arose from the involvement of the various nominee companies through which the parties' shareholdings were held (in the case of Mr. Connell, Dreamin Design Limited, the Second Defendant to the Counterclaim). Both parties asserted in their pleadings that an agreement of some kind had been reached: Mr. Connell pleaded what he called ‘The Oral Agreement’; the Defendant's what they termed ‘The General Shareholders Agreement’, but there was no unanimity about either the precise terms agreed or the definitive draft agreement.
It is, however, fairly clear that it was contemplated that there would be an important difference between the provisions of the old FSA and those of any new shareholders agreement as regards the circumstances in which any of the shareholders was entitled to give notice of intention to retire and to require the others to buy him out. Both agreements called for a period of two years' advance notice. But, under the FSA this was not permitted (except in Mr Watkin's case) until the expiry of a period of eight years from the date of the signing of the agreement, which meant that as long as his relationship with the Defendants was governed by the FSA, the earliest that Mr. Connell could have given lawful notice of retirement was 1 st February, 1994 to take effect on 1 stFebruary, 1996 (taking, for the purpose of this discussion, the date of ‘signing’ the FSA as 1 st February, 1986): premature retirement would result in the retiring party getting no more than a “nominal par value” for his shares unless the remaining shareholders otherwise agreed. The corresponding provisions of the proposed new agreements were, however, considerably more favourable to a shareholder wanting to retire, permitting as they did two years' notice to be given at any time. Similarly, under the terms of clause (7) of Mr Connell's proposed new service agreement, he was entitled to terminate it on two years' notice at any time.
It is also reasonably clear that it was contemplated that the heart of the formula to be used for determining the value of a retiring party's shareholding under the proposed new arrangements (though not necessarily all the refinements of that formula) would remain substantially the same as under the FSA, in as much as it was to be arrived at principally by reference to a pro-rata share (by reference to the total issued share capital) of the product of the (i) net pre-tax profits of the STR Holdings Group in the last financial year completed before the date of the outgoing party's retirement, and (ii) a factor of eight.
It is also necessary to understand a little more of the circumstances that led Mr Connell to write the second of his two letters concerning his resignation, dated 20 th January, 1992.
Mr Connell's letter of 31 st December, 1991, had opened in the following terms:
Further to my meeting yesterday, with Terry, Philip, and yourself, it is with deep regret that I tender my resignation, under clause (7) of my new Service Agreement, to leave Strachans on 1st February, 1994. This is subject to all our new agreements being executed before 31st January, 1992, which you all indicated to me yesterday, would be the case .
Having referred to a number of grievances, including the protracted delay in getting the proposed new agreements finalised and signed, his letter concluded as follows:
Whilst at our meeting yesterday, when I first indicated my intention to resign, I was flattered at your offer of perhaps having a new contract to run from 1 st February, 1994, I would like to confirm, that, in the circumstances, regardless of the consequences, this would be the last thing I would ever consider. For record purposes I am also copying this letter to our fellow directors, thereby giving you all notice, regarding the purchase back of my shares, as at 31st January, 1994 .
But early in the new year Mr Connell was incensed to receive documents in the form of draft minutes of board meetings of SMS and STR on 6 th January, 1992 (meetings that had not yet taken place) which purported to record the fact that he had been given notice of (i) termination of his service agreement and (ii) and obligatory retirement as a director, and not that it was he, Mr Connell, who had given the Defendants notice of his desire to retire. He regarded this as tantamount to saying that he had...
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