Arbuthnott v Bonnyman & Ors, Court of Appeal - Civil Division, May 20, 2015, [2015] EWCA Civ 536

Resolution Date:May 20, 2015
Issuing Organization:Civil Division
Actores:Arbuthnott v Bonnyman & Ors
 
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Case No: A3/2014/1709

Neutral Citation Number: [2015] EWCA Civ 536

N THE COURT OF APPEAL

ON APPEAL FROM

THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

COMPANIES COURT

Mrs Justice Asplin

IN THE MATTER OF CHARTERHOUSE CAPITAL LIMITED

AND IN THE MATTER OF THE COMPANIES ACT 2006

Royal Courts of Justice

Strand, London, WC2A 2LL

Date: Wednesday 20th May 2015

Before :

THE CHANCELLOR OF THE HIGH COURT

LORD JUSTICE LEWISON

and

LORD JUSTICE MCCOMBE

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Between :

GEOFFREY ARBUTHNOTT

Appellant/Petitioner

-and-

(1) JAMES GORDON BONNYMAN

(2) DUNCAN ALDRED

(3) JAMES ARNELL

(4) GRAEME COULTHARD

(5) WILLIAM BRUCE DOCKERAY

(6) LIONEL GIACOMOTTO

(7) MALCOLM OFFORD

(8) STUART SIMPSON

(9) STEPHANE ETROY

(10) CHRISTIAN FEHLING

(11) STEPHAN MORGAN

(12) EDWARD BENTHALL

(13) EDWARD COX

(14) SIMON DRURY

(15) JEREMY GREENHALGH

(16) ROGER PILGRIM

(17) THOMAS PLANT

(18) WATLING STREET LIMITED

(a company registered in England and

Wales with number 07842601)

(19) CHARTERHOUSE CAPITAL LIMITED

(a company registered in England and

Wales with number 04220424)

Respondents

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DAVID CHIVERS Q.C., ANDREW THOMPSON Q.C. (instructed by Herbert Smith Freehills LLP) for the Appellants

KENNETH MacLEAN QC., JAMES POTTS QC., SAM O'LEARY (instructed by Slaughter and May) for the Respondents

Hearing dates : 28, 29, 30 April 2015

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JudgmentThe Chancellor of the High Court :

  1. This is an appeal from the order of Asplin J dated 8 May 2014 dismissing the petition of the appellant, Geoffrey Arbuthnott, pursuant to section 994 of the Companies Act 2006 (``the 2006 Act'') claiming that the affairs of the 19th respondent, Charterhouse Capital Limited (``the Company''), have been conducted in a manner unfairly prejudicial to him as a member of the Company.

  2. The principal issue on the appeal concerns the propriety of the compulsory acquisition of Mr Arbuthnott's shares in the Company by the 18th Respondent, Watling Street Limited (``WSL''), in which other members of the company holding a majority of the Company's shares were interested, at a price of £1,500 per share. That valued the Company as a whole at £15.15 million, which Mr Arbuthnott claims is a gross under value.

  3. Permission to appeal was granted by the Judge herself.

    The background

  4. The Judge's impressive judgment, which runs to 105 pages and 435 paragraphs, sets out at some length and in close and clear detail the background facts. There is no appeal from some of her findings. As a result and in light of the focus on specific matters, on this appeal, I can summarise much more briefly than she the relevant facts. I gratefully take the following account largely from her judgment.

  5. The Company, through various subsidiaries and limited partnerships (``the group''), carries on a well-known and very successful private equity business, trading under the name of ``Charterhouse'' (``the Business'').

  6. The early history of the Business may be summarised very briefly. Charterhouse Development Capital Limited (``CDC''), which is now a wholly-owned subsidiary of the Company, was established as a subsidiary of Charterhouse plc in 1965. After various changes in the corporate structure which it is unnecessary to describe, in July 2000 HSBC became the ultimate parent company of CDC. There was a management buy-out of CDC in 2001. The agreed purchase price of approximately £9 million represented £2 million for the assets of CDC and the other companies within the group, £4 million to reflect "goodwill" and £3 million in foregone performance bonuses.

  7. Ignoring various changes of company and partnership names, the share purchase agreement was executed between the Company's immediate parent company (a subsidiary of HSBC), Charterhouse Capital Partners Limited (``CCP'') and Charterhouse Development Capital Holdings Limited.

  8. On 15 June 2001 the 16 investment managers forming the management buy-out team (which included Mr Arbuthnott and the 1st to 8th and 12th to 17th respondents along with Ms Kate Adderley who sold her shares in 2004) (``the Founders"), subscribed for shares for a nominal value in CCP and the Company. Mr Arbuthnott subscribed £9, the par value, for 900 A shares of £0.01 each in the capital of the Company, amounting to 9% of the issued share capital (subsequently reducing to 8.9%). He was the second largest shareholder after the 1st respondent, James Gordon Bonnyman, who acquired 18% (subsequently reducing to 17.8%). At all relevant times Mr Bonnyman was the chief executive of the Company.

  9. CCP was used by the Founders as a vehicle to acquire the various companies related to the private equity business. The Company then acquired the shares of the investment managers in CCP for nil consideration.

  10. It was initially contemplated that the Founders would raise two new funds after the management buy-out and then seek an exit.

  11. The basis of participation in the Company was set out in a shareholders' agreement dated 15 June 2001 made between CCP, the Company and the Founders (``the Shareholders' Agreement''). Particularly relevant to the present dispute are the following provisions relating to exit and remuneration:

    "7. EXIT

    7.1 Each of the parties confirms its intention to seek an Exit within eight years of the date of this Agreement or such later date as the Founder Majority may specify.

    7.2 Each of the parties (other than the Company) hereby agrees that if a Founder Majority (excluding any Founder who is a proposed purchaser or is connected with a proposed purchaser involved in the Exit and, for this purpose, a Founder will be connected to a proposed purchaser if such a purchaser is a "connected person" within the definition of Section 839 of the Income and Corporation Taxes Act 1988) agrees to pursue an Exit at any time after the date of this Agreement, he will co-operate in the pursuit of the Exit and will agree to sell all the shares in the capital of the Company held by him to the proposed purchaser provided that the terms on which he is required to sell his shares are no less favourable to him than those being offered to any other shareholder holding shares of the same class.

    7.3 The Founders, the Employees and the Company hereby agree to the disclosure by the Founders (acting with Founder Consent) of any information regarding the Group (whether confidential or otherwise) to any third party in contemplation of an Exit provided that no confidential information shall be so disclosed unless such third party shall have undertaken in writing to preserve the confidentiality thereof.

    . . . . .

    11 REMUNERATION

    11.1 The parties hereto undertake to establish a standing committee of the directors of the Company called the remuneration committee (the "Remuneration Committee"). For so long as Gordon Bonnyman is Chief Executive of the Company (or, if the office of Chief Executive no longer exists, for so long as Gordon Bonnyman holds an office equivalent to Chief Executive), the Remuneration Committee shall comprise Gordon Bonnyman and, for so long as the Company has a Chairman, one other person who shall be the Chairman of the Company. At all times while composed of such individuals, the Remuneration Committee shall act by the unanimous agreement of its members. In respect of any decision, either member may notify the Founders that the two members are unable to agree on a decision, giving details of the decision which requires to be made. Within 21 days of any such notification, a Founder Majority shall appoint any other person to be a member of the Remuneration Committee in connection only with its consideration of the relevant decision, such appointment to subsist only for so long as is required to make the relevant decision and in relation to which the Remuneration Committee shall act by majority.

    11.2 If and when Gordon Bonnyman ceases for any reason to be Chief Executive of the Company (or the holder of an equivalent office), the parties hereto undertake to ensure that the then existing members of the Remuneration Committee resign from membership of that committee and that instead the Remuneration Committee comprises the Founder Representative(s), any person holding the office of the Chief Executive of the Company and any other director appointed to the committee from time to time by the Founder Directors. At all times while the Remuneration Committee is so comprised, the Remuneration Committee shall act by majority, such majority to include a Founder Representative.

    11.3 The Remuneration Committee shall make determinations on all matters concerning the emoluments payable or proposed to be paid to any employee or director of the Company or other member of the Group (including, without limitation, initial salary, salary reviews and the setting of bonus levels and performance targets, co-investment opportunities and entitlement to carried interests) and shall be empowered, on behalf of the Company (but not on behalf of the relevant employee or director) to amend any of the terms of the service contracts of any such employee or director from time to time.

    11.4 For the avoidance of doubt nothing in Clauses 11.l, 11.2 and 11.3 shall affect or limit the right of the Founder Representative to receive remuneration and repayment of expenses in accordance with Clauses 6.3 and 6.4.

    11.5 Each of the parties hereto (with the exception of the Company) hereby waives any right he may have to make a claim (whether in respect of any breach of fiduciary duties or otherwise) in respect of the payment by the Company to the employees and/or directors of the Company or any other member of the Group by way of remuneration (whether as part of a contractual right to be paid or as part of a discretionary element paid) provided the making of such payment has been determined in accordance with Clauses 11.1, 11.2 and 11.3.

    11.6 Each of the parties hereto...

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