NIGEL ANTHONY HARDEN GRAY AGAINST BRAID LOGISTICS (UK) LTD
OUTER HOUSE, COURT OF SESSION
[2017] CSOH 44
CA230/15
OPINION OF LORD BANNATYNE
In the cause
NIGEL ANTHONY HARDEN GRAY
Pursuer
against
BRAID LOGISTICS (UK) LTD
Defenders
Pursuer: Sandison QC; Brodies LLP
Defenders: R Dunlop QC; CMS Cameron McKenna LLP
15 March 2017
Introduction
[1] This matter came before the commercial court as a Debate at the instance of the defenders, in which the defenders sought dismissal of the action in terms of their first two pleas in law.
[2] In the action the pursuer sought declarator that a purported decision of a Mr Shane Watson dated 26 April 2013 to dismiss the pursuer as managing director of the defenders had no lawful effect in relation to the pursuer’s employment as managing director of the defenders and production and reduction of the said decision.
The Issues
[3] 1. Whether the action was competent, standing the contended failure of the pursuer to exercise rights of appeal said to be provided in his contract of employment?
2. Whether the action was relevant given the contended for implied and express ratification by the defenders of the decision to dismiss?
General Background
[4] By a written contract of employment dated 15 December 2006 between the pursuer and the defenders, the pursuer was employed as the managing director of the defenders. The defenders are a wholly owned subsidiary of a company now known as Braid Group (Holdings) Ltd (“the parent company”).
The Contract of Employment
[5] The terms of the contract of employment of the pursuer with the defenders, so far as material for the purposes of the present proceedings, are as follows:
[6] Clause 13.1 of the contract deals with termination by way of immediate dismissal. It provides that the employer (the defenders) may terminate the contract of employment without notice or pay in lieu of notice if the pursuer:
“(a) commits a material breach of the terms and conditions of this agreement or repeats or continues (after a written warning) any other breach of such terms and conditions;
(b) commits any act of gross misconduct or is guilty of any conduct which may, in the reasonable opinion of the Board, bring any Group Company into disrepute or which prejudicially affects the interests of any Group Company, whether or not the conduct occurs during or in the context of the Executive’s Employment…”
[7] The term “Board” is defined in the definition Clause 1.1 as meaning:
“The board of directors of the Parent Company from time to time and includes any committee of the Board duly appointed by it.”
[8] Clause 13.3 provides respecting suspension:
“In order to investigate a complaint against the Executive of misconduct the Company [the defenders] may suspend the Executive on full pay for as long as may be necessary to carry out a proper investigation and hold any appropriate disciplinary hearing.”
[9] Later in the contract, after a number of provisions relating to the obligations of the pursuer during and after employment one finds Clause 16. It is in these terms:
“16. Disciplinary and Grievance Procedure
16.1 There are no specific disciplinary rules or procedures applicable to the Executive. Any matters concerning the executive’s unsatisfactory conduct or performance will be dealt with by the Chairman of the Company. An appeal against any disciplinary decision should be made by the Executive in writing to the Board, whose decision will be final.
16.2 If the Executive has any grievance relating to his Employment (other than one relating to a disciplinary decision) he should refer such grievance to the Chairman of the Board and if the grievance is not resolved by discussion with him it will be referred for resolution to the Board, whose decision shall be final.”
[10] The chairman of the defenders at the time of the events averred in the Summons was the pursuer.
The Events Surround the Challenged Decision
[11] It appears that for some time the affairs of the group of companies including the defenders of which the parent company is the ultimate parent have become the subject of dispute amongst the shareholders and directors of the parent company. Three members of the board of directors of the parent company are: Allan Leddra, Shane Watson and Andrew Watson. The pursuer is also a director of the parent company: It is averred by the pursuer that:
“In terms of clause 13.7 of the contract between the parties, if the pursuer’s employment as Managing Director of the defender was terminated inter alia in circumstances where the Board of Group [the parent company] reasonably considered that he had committed an act of gross misconduct, he might (subject to compliance with various other provisions of the Articles of Association of Group and of the Shareholders’ Agreement) be requested by the defender inter alia to resign all and any offices which he might continue to hold as a director of any company within the group of companies of which Group is the parent, and further provision was made for effecting such resignation without his co-operation should he refuse to provide it. The significance of such forced resignation would be that, in terms of Article 6.8.1 of the Articles of Association of Group, the pursuer would be deemed to have served a Deemed Transfer Notice constituting the Board of Group his agent for the sale of all of the shares in Group in which he is interested, either to Group itself or to its other shareholders. Because of the circumstances in which such forced resignation would have occurred, he would further be liable to treated for the purposes of the said Articles of Association as a ‘Bad Leaver’, in consequence of which the price that would be paid for those shares would be substantially lower than the fair price of those shares.” (see: Article 5 of condescendence).
Against that background it is averred by the pursuer that:
“Mr Leddra and the Messrs. Watson conceived and attempted to implement a scheme to achieve the apparent termination of the pursuer’s employment as Managing Director of the defender in circumstances which would enable them, through their control of the Board of Group, to seek to characterise him as a ‘Bad Leaver’ within the meaning of the Articles of Association of Group, and to obtain for themselves the very substantial financial benefits of having the shares in Group in which the pursuer is interested acquired from him at a price far below their fair value.” (see: Article 6 of condescendence)
Thereafter it is averred this scheme was implemented by an allegation by Leddra and Andrew Watson against the pursuer in connection with the misuse of a customer’s expense account.
[12] At a meeting of the Board of Directors of the parent company on 25 January 2013, a majority of that Board resolved to appoint a committee of directors, namely: Mr Andrew Watson, Mr Shane Watson and Mr Leddra, to investigate said allegation of misconduct. The results of that committee’s enquiries were reported to a meeting of the parent company on 20 March 2013. The pursuer avers that at that meeting by their own votes and for the first time Messrs Watson and Mr Leddra appointed themselves as members of the Board of Directors of the defenders.
[13] It is thereafter averred by the pursuer that on 21 March 2013 Mr Shane Watson as a member of the Board of the defenders, wrote to the pursuer and stated: (a) that he was going to carry out an investigation into the pursuer’s conduct and decide in the light of such material as was gathered whether there was satisfactory evidence on which the matter should be taken further and, (b) that the pursuer was suspended from his position as managing director of the defenders forthwith. It is further averred that Messrs Watson further proposed that the conduct of any disciplinary proceedings which Mr Shane Watson deemed appropriate was to be placed in the hands of Mr Andrew Watson and that:
“None of those actions or proposals had been authorised by the Board of the defender.”
[14] The pursuer protested these actions. Thereafter it is averred that when another employee subject to the investigations claimed that Mr Leddra and Mr Andrew Watson were themselves complicit in the misuse of the customer’s account in question, the majority of the Board of the parent company decided, at a meeting on 4 April 2013 to deal with that situation by simply reversing the roles of Messrs Watson as originally envisaged, so that Mr Andrew Watson would consider the evidence, including a witness statement from himself, and decide whether and against whom to instigate any disciplinary processes, and Mr Shane Watson would conduct any first instance disciplinary hearings that might be required. Mr Andrew Watson then purported to decide that disciplinary proceedings should be instigated against the pursuer and others. Mr Shane Watson then purported to conduct the ensuing disciplinary hearings and by letter of 26 April his purported decision to dismiss the pursuer from his position as managing director of the defenders was intimated to the pursuer. All of these events took place under protest from the pursuer.
[15] Said letter of dismissal was written by Mr Shane Watson, as a director of the defenders and intimated what is described in the Summons as a purported decision that the pursuer was dismissed from his employment as managing director of the defenders, pursuant to Clause 13.1(a) of the contract of employment on the grounds of either or both of gross misconduct or conduct which might bring the defenders into disrepute or prejudicially affect its interests or the interests of any group company. The letter is long and detailed setting out the materials upon which that conclusion was reached and the reasons for reaching that conclusion. However, for present purposes it is unnecessary to rehearse that detail. In its penultimate paragraph the letter stated:
“You have the right to appeal my decision to summarily dismiss you. If you wish to invoke your right of appeal you should set out in writing your grounds of appeal and email or send that to Michael McLaughlin, DWF Biggart Baillie within five workings days of the date of receipt of this letter. As matters stand, it is intended that Rick Bagely, Jeff Prowse and Garry Russell have all agreed to form an appeal committee to hear any appeal that you wish to make. They will first have to be appointed as directors of Braid UK [the defenders]. I understand that Derek Ellery is taking the necessary steps to have those individuals appointed.”
[16] Thereafter it is averred by the pursuer that he sought to appeal his purported dismissal by Shane Watson but was never offered any Appeal Tribunal which was properly constituted in terms of his contract of employment. (see: Article 10 of condescendence)
[17] The decision of Mr Watson and the background as above set out has given rise to the following proceedings:
- A petition for Judicial Review challenging the validity of the decision of Mr Watson.
- A Reclaiming Motion in respect of the decision of the Lord Ordinary in the Judicial Review Petition to grant the interim orders sought by the pursuer in the said petition.The Inner House held in Gray v Andrew Watson & others 2014 CSIH 81 that there was no competent invocation of the supervisory jurisdiction, justifying proceedings under a petition for Judicial Review and the Judicial Review proceedings were dismissed.
- A petition by the pursuer seeking orders pursuant to sections 994 and 996 of the Companies Act 2006 in respect of the parent company.The opinion of the Lord Ordinary is reported as Nigel Gray & Others 2015 CSOH 146.
- A Reclaiming Motion in respect to the section 994 proceedings which is reported as Gray & Others 2016 CSIH 68.
- The present proceedings.
Submissions: First Issue Competency of the Proceedings
[18] The primary contention for the defenders was this: in terms of the pursuer’s contract of employment an appeal process was provided in respect to any disciplinary proceedings (see: Clause 16.1). It was Mr Dunlop’s position that there were no relevant averments that the pursuer had resorted to this process. Accordingly his failure had rendered the application for reduction incompetent.
[19] In development of this argument Mr Dunlop directed me to the well-known observations of Viscount Dunedin in respect to the exercise of the remedy of reduction in Adair v Colville & Sons 1926 SC (HL) 51 at 55 and 56:
“That the remedy of reduction may be competent to set aside a judgment, when other means of review are not, is true. Instances can be found where it has been so utilised, but it is a remedy which does not exist of right, and must be most carefully applied. I shall not attempt, for I think such attempt would end in failure, to define categorically the cases in which reduction is competent. One obvious instance would be where a judgment had been obtained by reason of some fraud practiced on the Court; but, generally speaking, it is certainly not competent when other means of review are prescribed, and these means have either been utilised or the parties have failed to take advantage of them.”
[20] It was Mr Dunlop’s position that in making these observations Viscount Dunedin was setting forth a general principle which applied to all actions of reduction. Support for this view could be found in the observations of Lord Justice Clerk Alness in Philip v Watson 1927 SC 224 at 229 and 230.
[21] Mr Dunlop submitted that it was incompetent to obtain reduction where an alternative remedy was open either in terms of statute or by non-statutory means, such as here, where the alternative remedy was provided in terms of the contract of employment. Said submission was made under reference to W v Scottish Ministers 2010 SLT 65 and McCue v Glasgow City Council 2014 SLT 891, the opinion of Lord Jones at paragraphs 37, 38, 40, 41, 47, 49 – 51 and 53).
[22] Mr Sandison’s reply to this was short: the defenders’ submissions proceeded on the basis of a logical error, namely: that all reductions must proceed on Judicial Review grounds. Or put another way: all actions in which reduction was sought are appeals to the supervisory jurisdiction of the court.
[23] He reminded the court that this action was not an application to the supervisory jurisdiction of the court. Such an application had been made, that the instant matter, fell within the supervisory jurisdiction of the court and the Inner House had held that it did not (see: Gray v Watson & Others 2014 CSIH 81 at paragraph 23).
[24] It was his position that the cases relied upon by Mr Dunlop were all cases where there had been an application to the court to exercise its supervisory jurisdiction, either explicitly in W and McCue or implicitly in Adair and Philip. In substance these last two cases were such applications and would be raised as Judicial Reviews, if raised today.
[25] The observations of Lord Dunedin had no application to the instant case. Here the reduction action was not being used as a mode of review. The challenge was this: the person who made the challenged decision had no right to do so. Neither in form nor in substance was this an application to the supervisory jurisdiction of the court. The Inner House had made that clear in the Reclaiming Motion in the Judicial Review proceedings. He accepted that had this been an application to the supervisory jurisdiction of the court, the pursuer would have needed to exhaust his rights of appeal, however, this was not such a case.
Discussion
[26] The appropriate starting point in considering this issue is the observations of Viscount Dunedin in Adair.
[27] He begins his observations by saying this:
“That the remedy of reduction may be competent to set aside a judgment, when other means of review are not, is true. Instances can be found where it has been so utilised, but it is a remedy which does not exist of right and must be most carefully applied.”
[28] In saying that reduction is not available as of right, I believe Viscount Dunedin is making the general point, which has been made by the court in a number of cases: reduction as a remedy is an equitable one which involves the exercise of a judicial discretion. It is, in the context of that statement of principle, he considers the circumstances in which such a remedy is available and observes that it is not available: “when other means of review are prescribed… (and not) been utilised…”
[29] Analysed in that way I am persuaded that Viscount Dunedin was stating a general principle with respect to the remedy of reduction: it is not available when other means of review have not been exhausted.
[30] Mr Sandison’s submission was that to extend Viscount Dunedin’s observations to all actions of reduction was to remove them from their context. I do not for the above reasons believe that is correct. I believe that construing his remarks as stating a general principle arises from a proper understanding of the context of his observations, namely: a consideration of the remedy of reduction as an equitable remedy.
[31] I am accordingly persuaded that on a proper reading of Viscount Dunedin’s observations they are intended to set forth a general principle with respect to the remedy of reduction.
[32] I believe that some support for that view can be obtained first in Philip v Watson in the opinion of Lord Justice Clerk Alness who observes relative to the observations of Viscount Dunedin as follows:
“I apprehend his Lordship was dealing with actions of reduction in the widest senses and in which he imposes a distinct limit upon their use” (emphasis added).
[33] Secondly, in a more modern case which considers the issue, namely: Arthur v The SMT Sales Services Company 1999 SC 109. The facts so far as material were these: the court was considering the competency of an action of reduction of a decree. In the opinion of the court delivered by Lord McFadyen at P115 B the following observations are made:
“It is clearly established by the authorities which counsel cited that reduction is not a remedy to which a pursuer is entitled as of right on proof of some invalidity in the deed or decree under challenge.” (Emphasis added).
The foundation case to which the court was referred was Adair (see: P114 E to G). It was also referred to Philip v Reid.
[34] It appears to me that the observations of the court in Arthur can only be read as setting out a general principle in respect of the remedy of reduction.
[35] Thirdly in McCue v Glasgow City Council Lord Jones at paragraph 42 analyses the rationale for Viscount Dunedin’s observations in Adair that an action of reduction is incompetent when other means of review are prescribed and says this:
“to entertain an action of reduction would be an interference with what Parliament had intended.”
I believe that analysis is correct. On that analysis, it is I believe, clear that what Viscount Dunedin’s remarks amount to is the setting out of a general principle with respect to actions of reduction. Applying that analysis to the circumstances of this case: the pursuer’s action of reduction cannot be entertained, in that to do so would be an interference with what parties had agreed in the contract of employment would be the remedy.
[36] In the course of his submission Mr Sandison contended that both Adair and Philip would if raised now have been raised in the form of petitions for Judicial Review in that both actions involved reduction of decrees in inferior courts. He submitted that this supported his position. Mr Dunlop said that the foregoing submission was plainly wrong and directed my attention to Chapter 53 of the Rules of Court which deals with actions of reduction. Actions of reduction of decrees are expressly referred to within this chapter.
[37] I prefer the submission advanced on behalf of the defenders with respect to this point. I believe that the Rules of Court are such that if Adair or Philip were raised today they would properly fall within Chapter 53 and would not involve reference to the supervisory jurisdiction of the court.
[38] I accordingly for the foregoing reasons find that if there was a failure by the pursuer to utilise and exhaust the alternative remedy offered within his contract of employment then the action is incompetent.
The Alternative Position
[39] Mr Sandison had a short alternative position in respect to the competency argument which was this: if I were against him with respect to his primary argument then the pursuer’s actings were sufficient to show that the alternative remedy had been sought to be used. The position was that the pursuer had sought an appeal, the appeal panel however, which he had been offered was not as averred a properly constituted one. In light of that position the pursuer had raised the Judicial Review proceedings.
[40] Mr Dunlop’s reply was a short one: if the pursuer did not believe he was being offered a proper panel, his remedy was to seek specific implement as regards his appeal rights and by that means seek to properly exercise the alternative remedy available to him.
Discussion
[41] I am satisfied that accepting pro veritate the pursuer’s position relative to the constitution of the panel, his remedy was not to seek reduction. It was not appropriate for him on that basis to eschew the appeal provisions altogether. Rather, he should have demanded a proper panel, by resorting if necessary, to an action of specific implement. On his being provided by the court with a panel which conformed to his averred position as to what he was entitled, he should have then used and exhausted his contractual rights of appeal. The position he took up regarding the appeal panel in the judicial review proceedings is not sufficient. Those proceedings were held to be incompetent.
Decision on the First Issue
[42] For the reasons given, I hold first: that before an action of reduction could be competently raised the pursuer had to resort to and exhaust the alternative remedy provided by his contract of employment. Secondly, the pursuer I hold, has not pleaded a relevant case that he resorted to and exhausted the said rights. Accordingly his application for reduction is not competent.
The Second Issue
Relevancy
RATIFICATION
[43] The relevancy submissions related to the pursuer’s response to the averments made by the defenders regarding ratification by them of the dismissal decision.
[44] There were two chapters to the argument with respect to ratification, first: implied ratification and second express ratification.
[45] Mr Dunlop’s general position regarding ratification was this: the only basis for challenge by the pursuer is that the dismissal was effected by Watson and he had no lawful power to make that decision. The situation in which this dispute arose was one of agency and this had been expressly confirmed by the Inner House in Gray v Andrew Watson & Others at paragraph 23.
[46] Generally, the law on ratification of an agent’s actings was this: where an agent, if he acted without authority, or exceeded his authority, his act could be ratified, by the person in whose name the act was done, making the act valid (see: Palmers Company Law 8.2137/2138 and Bowstead and Reynolds on Agency 2-047).
Implied Ratification
[47] The first leg of Mr Dunlop’s argument was this: in the present case there had been ratification of the dismissal by Mr Watson of the pursuer by the defenders. That ratification, in the first instance, being implied from the position which the defenders from the outset, had taken in the litigations raised by the pursuer.
[48] There were many authorities which vouched the proposition that ratification could occur in such circumstances (see: example Danish Mercantile Co Ltd & Others v Beaumont & Others 1951 Ch 680 per Jenkins LJ at 687/8; and Alexander Ward & Co Ltd v Samyang Navigation Co Ltd 1975 SC (HL) 26, a Scottish appeal in which Lord Kilbrandon at page 52 expressed agreement with the views set out in Danish Mercantile).
[49] Mr Dunlop then argued that in the instant case there was multiple ratification by means of the position taken in the various litigations by the defenders. He in particular relied on the following:
- The appearance before the Lord Ordinary to oppose the interim interdict sought by the pursuer, in the Judicial Review proceedings.It was impossible to read the submissions as set out in the opinion of the Lord Ordinary, made on behalf of the parties, including the defenders, as other than an adoption of the actings of Mr Watson in dismissing the pursuer.
- The Lord Ordinary having granted interim interdict, his decision was subject to a Reclaiming Motion.Mr Dunlop was instructed to appear at the Reclaiming Motion on the basis of a resolution of the Board of Directors of the defenders (see 7/16 of process at 1.13.2) which states as follows:
“to instruct DWF to support and represent the company in relation to the interdict appeal, a scheduled hearing for which was set for 6 May.”
He submitted that the submissions made on behalf of the defenders as set out at paragraphs 16, 17 and 18 of the decision of the Inner House in Gray v Watson & Others were once more impossible to read as anything other than an affirmation of the dismissal made by Mr Watson.
- The defenders’ defence to these proceedings at Answer 10, is once more to the effect that they are affirming the dismissal and that their earlier actings in the litigation ratified the dismissal.
[50] Mr Sandison’s response began by accepting that implied ratification could arise by the putting forward of a defence which cut across the position of the pursuer. However, he submitted that the stating of such a defence required to be based upon a valid act of the defenders and at no stage was the defence based on such a valid act.
[51] The position advanced by Mr Sandison was this: when the defenders averred that there was implied ratification a call was placed upon them in the pleadings to aver how the various acts of implied ratification were authorised; in other words who authorised them.
[52] In development of this point Mr Sandison said that the ordinary agents of a company are the Board acting as such. So in essence, what the pursuer was seeking to understand, was what meeting or meetings of the Board of the defenders directed the actings which were founded upon as basing the implied ratification.
[53] In response to the call all that was produced was 7/16 of process, the minutes of a board meeting. Mr Sandison observed that the pursuer had been excluded from the said board meeting.
[54] At paragraph 1 of the minute of the meeting the following is said:
“SW had asked NG to leave the meeting on the basis that NG was conflicted in relation to the subject about to be discussed. Accordingly, NG left the meeting.”
Mr Sandison said the minute did not entirely reflect what happened. The pursuer had been given no option as to whether he could remain and was required to leave.
[55] Mr Sandison directed my attention to the Articles of Association of the defenders. In particular he asserted that the Articles of Association did not require in all circumstances the exclusion of a director where he has an interest in the matter to be discussed.
[56] The defenders had adopted table A of the 1948 Companies Act as amended by the 1981 Companies Act subject to certain specific derogations (see: 6/22 of process). In particular Article 20 of the Articles of Association provided as follows:
“Subject to full disclosure as required under Regulation 84(1) of Table A Part I and section 199 of the Act, no director shall be disqualified by his position as director from entering into any contract or arrangement with the company, and a Director may vote and be taken into account for the purpose of constituting a quorum in respect of any contract or arrangement in which he may be in any way interested and may retain for his own absolute use and benefit all profits and advantages accruing to him therefrom.”
[57] Against that background he turned to look at the three occasions founded on as showing implied ratification and said this:
- Nothing was provided with respect to validly authorising the appearance before the Lord Ordinary at the interim interdict hearing.In particular no minute of the Board of the company had been produced relative to this.
- With respect to the appearance at the Reclaiming Motion the pursuer’s position was that he was wrongly excluded from that meeting given the terms of Article 20 of the Articles of Association and accordingly the resolution of the Board was invalid.
- Nothing had been produced properly authorising the defence to the present action.
[58] Accordingly at this stage there was no valid authorisation by the defenders of the actings founded upon.
[59] Mr Dunlop’s response to this was short. He referred to counsel’s mandate and said this could not be looked behind. Counsel’s mandate bound his clients.
[60] So far as the Board resolution of April 2014 he said this: taking the pursuer’s averment that he had been improperly asked to withdraw pro veritate this did not render the Board’s decision invalid.
Discussion
[61] The sole issue regarding implied ratification is the validity of the various actings relied upon by the defenders.
[62] It first appears to me that Mr Dunlop’s submission founded on the extent of counsel’s mandate is overstated. On counsel’s appearance there is a presumption that he has authority to act. However, that authority can be disputed (see: Fischer & Co v Andersen 1896 23 R 395 at 399).
[63] In the defences to this action, on the first occasion on which a defence based on implied ratification has been put forward, the pursuer has called upon the defenders to aver the foundation for that argument. He has asked to see the authority for the defenders proceeding as they have done in the various actions. The pursuer, in one sense, might be said to be challenging counsel’s mandate, however, he is entitled to do so. However, I believe the appropriate way of characterising the position of the pursuer is that he is challenging the underlying basis of this part of the defenders’ defence to the action, namely: the foundation of the defence of implied ratification.
[64] Approached in either way the pursuer is entitled to make this challenge and reliance on counsel’s mandate is not I believe an answer to this line of defence.
[65] The defenders do not simply rely on the position taken in the defence to this action, but on their position as taken at first instance in the judicial review petition proceedings and in the Reclaiming Motion arising therefrom. In those proceedings no challenge, as I understand it, was made on the basis of the lack of valid authority for the position being advanced on behalf of the defenders. However, I do not believe any such lack of challenge assists the defenders in their argument before this court. In the earlier proceedings the pursuer has chosen not to argue the issue of whether there was valid authority for a line of argument put before the court on behalf of the defenders. There may be many reasons for this. However, that choice, I am persuaded, does not prevent him in these proceedings, where for the first time reliance is placed on implied ratification, in raising the issue of whether there was valid authority for the position put forward. There is in these proceedings no argument of personal bar put forward on behalf of the defenders. There is no plea in law to that effect.
[66] Having considered the preliminary argument regarding the challenge to the validity of the authorisation I turn to the substance of that challenge.
[67] It appears to me in the context of this case, namely: a dispute amongst shareholders and directors of a company and thus where the Board is not unanimous, the will of the company, is primarily expressed through resolutions of the Board, validly passed at regularly constituted meetings of the Board. The pursuer’s position is succinctly put in his Note of Argument where he contends that what is happening here is this: factions meeting in private and agreeing to act in a particular way. Thus he submits that the defenders must produce valid resolutions of the board to found the actings the defenders rely on. It is not an answer in these circumstances (at least when considering the issue of the relevancy of the pursuer’s averments) for it to be said on the defenders’ behalf that generally things done were known to the Board of the defenders and done with the consent of the Board. At this point when considering whether the pursuer has a relevant answer to the defenders’ case based on implied ratification by challenging its validity, such argument does not answer the pursuer’s position so as to make it irrelevant. I cannot rule out that following proof valid authorisation may be established, however, that is not the test at debate. At present in the absence of board resolutions to show that the defenders validly instructed the line of defence relied on I am not persuaded that the pursuer’s challenge in relation to these matters is irrelevant.
[68] There has been one resolution of a board meeting lodged and I turn to consider that. As regards the validity of the Board meeting in April 2014 I am of the view, if the pursuer was improperly excluded, then the resolution of the Board is invalid so far as relating to matters concerning the dispute between the pursuer and the defenders.
[69] When considering the issue of the validity of the resolution, the context of the Board meeting has to be had regard to. The context here was a dispute amongst Board members and shareholders and in those circumstances the matters to be discussed were clearly of material significance to the pursuer. I believe, given its significance, that improper exclusion of the pursuer is not a mere technicality, but goes to the root of the matter and if established would lead to the resolution being held to be invalid.
[70] Accordingly at this stage, taking the pursuer’s pleadings regarding exclusion from the meeting pro veritate, I am not satisfied that there are averments which show valid authorisation for the line put forward at the Reclaiming Motion.
[71] For all the above reasons I cannot say at this stage that the pursuer’s response to the defenders argument in respect to implied ratification would necessarily fail. Accordingly for the foregoing reasons I reject the defenders’ argument based on implied ratification.
Express Ratification
[72] The second chapter of the relevancy argument related to the question of express ratification. In respect to this chapter Mr Dunlop relied on a resolution of the Board of the defenders dated 7 December 2016 in the following terms:
“The Board of Braid Logistics (UK) Limited hereby formally ratifies the dismissal of Nigel Gray of 26 April 2013 and of the Company’s defence of the various claims and cases that have been brought by Nigel since then.”
The argument under this head only arose if the court were rejecting the defenders’ argument in terms of implied ratification.
[73] The initial issue under this head once more turned on a consideration of Article 20 of the defenders Article of Association. The argument in particular turned on that part of the article dealing with disclosure of directors’ interests. The pursuer’s primary position was, that at this meeting of the Board there had not been proper disclosure in terms of that provision and therefore the resolution was invalid.
[74] Mr Dunlop in reply, contended that the following passage in the minute amounted to proper disclosure in terms of the article:
“AD stated that he had no direct financial interest in the matter under discussion.
GR stated that his vote is not motivated by financial interest but will be done with the best interests of the company.
AL stated that his position was as per GR’s statement.
AW also agreed with GR.
SW also agreed with GR.
NG asked again if any other director was prepared to declare a financial interest. This was not a question about each Director’s motivation but whether they were prepared to abstain from this vote.
GR stated that NG was asking a question that he knew the answer to and he restated that he would be voting with the best interests of the company at heart.”
[75] Moreover, Mr Dunlop argued, the pursuer was aware of the financial interest of the various directors who it was argued had not made full disclosure. They had fully set out their position in the course of previous proceedings. There had accordingly been full disclosure at that point.
[76] If the court was not with him in relation to his primary argument Mr Dunlop said this: in any event the consequences of any failure to disclose did not give rise to any remedy on the part of the pursuer. He submitted that the duty of disclosure was owed to the company and gave no remedy to the pursuer. In support of this submission counsel directed my attention to Hely-Hutchison v Brayhead Ltd 1968 1 QB 549 per Lord Denning MR at 585.
[77] Mr Sandison’s position was that there had not been proper disclosure in terms of the article as there was no disclosure of financial interest at the Board meeting. It was the core of his argument that disclosure had to be at the Board meeting and not at some other time. It was his position that it was not proper disclosure for one director to say to the pursuer you already know the answer to the question which you have asked.
[78] So far as Mr Dunlop’s second argument, Mr Sandison said this: the judgment of Lord Denning MR in Hely-Hutchison said no more than this: where the result of the failure to disclose was entry into a contract by the company, that contract was voidable at the instance of the company rather than being void. What was not said by Lord Denning MR is that a resolution passed in breach of the Articles of Association is valid and cannot be challenged by somebody such as the pursuer.
Discussion
[79] Article 20 is in essence a power to allow a director to vote in circumstances where there is a possible conflict of interest. However, before he can vote in such circumstances the director must make: “full disclosure as required under Regulation 84(1) of table A Part I and section 199 of the Act…”
[80] Section 199 of the Act requires the disclosure to be made at a meeting of the directors of the company. The question for the court is this: was there proper disclosure at the board meeting?
[81] The first director AD made a straightforward, clear and express declaration that he had no direct financial interest in the matter under discussion. There is then the following statement by GR:
[82] “GR stated that his vote is not motivated by financial interest but will be done with the best interests of the company.”
[83] I am persuaded that on a fair reading of the above that is an implied acceptance of a financial interest. It would be understood as such by any reasonable member of the Board present at the meeting. I am satisfied it can only be understood as an acceptance of financial interest. In saying that his motivation in voting was not financial interest he is impliedly accepting that he has a financial interest. There would be no need to say his motivation in voting was not financial interest, if the director did not have such a financial interest. Thereafter each of the three other directors state in slightly differing forms, but in essentials say the same thing, namely: their position is as already stated by GR. Thus each of them implicitly accepts a financial interest, but said that when voting they would have regard to the best interests of the company.
[84] Accordingly, I am persuaded, that each director declared his financial interest at a Board meeting. The article did not require them, given the nature of the matters under discussion, to make anything beyond a bare declaration of financial interest. Having fulfilled that condition each director was then entitled to vote on the issue.
[85] For the above reasons I reject Mr Sandison’s argument with respect to the validity of the resolution.
[86] Had I not been with the defenders in relation to their primary argument I would have found against them with respect to their secondary argument. I believe that argument is misconceived. In Hely-Hutchison the material facts were that the plaintiff, a director of B failed to declare an interest in the contract entered into by B. Its Articles of Association provided that a director could have an interest in such a contract, if he had declared the nature of that interest at a meeting of the Board. The plaintiff did not make any such declaration. Lord Denning MR held on a proper construction of the particular Article of Association that the contract was voidable rather than void. In the instant case, the court is not having to consider the effect of the breach of the Articles of Association with respect to the entry into a contract by the company. Rather the question is whether the resolution was valid and formed a proper basis for the ratification of the decision to dismiss the pursuer. The issue before this court is accordingly entirely dissimilar to that which was considered by Lord Denning MR. I am not persuaded that anything said by Lord Denning MR bars, someone who is in the position of the pursuer, namely: someone who is materially affected by the decision of the board, from challenging the validity of the resolution on the basis of an alleged breach of the said article. It does not follow from what Lord Denning MR said that the pursuer is left without a remedy.
[87] Thereafter the second issue which arose between the parties in respect to express ratification was this: was the said act done too late to have the effect of ratifying the act of dismissal?
[88] It was a matter of agreement between parties that the relevant principles in considering this issue are as set out in Owners of the Ship ‘Borvigilant’ v Owners of the Ship ‘Romina G’ 2003 EWCA Civ 935. (“The Borvigilant”). In that case the court carried out a review of the authorities with respect to this issue and at paragraph 70 Clarke LJ observed:
“The authorities support the proposition that the law is correctly stated in Article 19 of Bowstead. I do not think that there is any absolute rule that a contract (or indeed any other act) cannot be ratified if the effect of ratification would be to divest an accrued property right. The better view is, in my opinion, that the principle identified in paragraph (1) of Article 19 in Bowstead is an example of the general proposition stated at the beginning of the article, namely that ratification is not effective where to permit it would unfairly prejudice a third party.”
[89] At paragraph 2-087 of Bowstead & Reynolds on Agency (17th Edition) under the heading Limitation on Ratification the following is said:
“Article 19
Ratification is not effective where to permit it would unfairly prejudice a third party, and in particular –
(1) Where it is essential to the validity of an act that it should be done within a certain time, the act cannot be ratified after the expiration of that time, to the prejudice of any third party;
(2) The ratification of a contact can only be relied on by the principal if affected within a time after the act ratified was done which is reasonable in all the circumstances.”
[90] Mr Sandison advanced the argument that the act of ratification came too late and in doing so relied upon the following:
- The pursuer had already resigned his employment prior to the passing of the resolution.Accordingly it was beyond the power of the defenders to seek to undo his resignation by retrospectively dismissing him (see:Dibbins v Dibbins 1896 2 Ch 348).It was Mr Sandison’s position that this resignation brought the matter within the terms of the principle enunciated in Article 19(1).
- The pursuer had already accrued property rights, namely:his entitlement to pay and bonuses in respect of which he sued in the present action (see:Bird v Brown 1850 4 Exch 786).
- The pursuer had conducted his affairs in reliance on the decision of Watson being invalid and there not having been any express ratification of the said decision by the defenders.In so doing he had acted to his material prejudice, by first raising the Judicial Review proceedings;secondly opposing the Reclaiming Motion and thirdly raising and proceeding with the present action.Moreover, he had been prejudiced by the raising of the section 994 proceedings which to a substantial extent were founded upon the invalidity of his dismissal.All of these proceedings would not have been raised had the defenders validly ratified the dismissal at a time which was reasonable in all the circumstances.As a result of these proceedings being raised he had incurred significant expenditure.The defenders were aware from the outset that the pursuer challenged the validity of the said decision, yet the defenders did not for over three years, expressly seek to ratify it.This delay had resulted in material unfair prejudice to the pursuer.This brought the matter within the terms of the principle enunciated at Article 19(2).
[91] Mr Sandison turned to examine two authorities which were considered in The Borvigilant. First he looked at Bolton Partners v Lambert 1889 LR 41 Ch D 295 (“Bolton”). The material facts were these: an offer of purchase was made by the defendant to S, who was the agent of the plaintiffs, but was not authorised to make any contracts of sale. The offer was accepted by S on behalf of the plaintiffs. The defendant withdrew his offer, and after the withdrawal the plaintiffs ratified the acceptance of the offer by S. The court held that the withdrawal was ineffective.
[92] Mr Sandison said that looked at through the prism of unfair prejudice, there was nothing unfair in Bolton in the offeror being subjected to the terms of the agreement. The circumstances of the instant case were entirely different. More than three years had passed and there would be unfair prejudice, if ratification was allowed.
[93] He then turned to Bird v Brown. The material facts were: here goods were in transit; a party not authorised to stop the goods in transit stopped them; that acting was ratified after the transit had ended. The ratification was held not to be effective.
[94] In the instant case Mr Sandison submitted the position was the same: the dismissal could no longer be ratified, after the resignation. Accordingly the ratification could not be effective.
In conclusion Mr Sandison directed the courts attention to paragraph 84 in the judgment of Clarke LJ in The Borvigilant at paragraph 84, which, as I understood it, he submitted contained a correct analysis of the law.
[95] As regards the pursuer’s resignation Mr Dunlop also directed my attention to Bolton and submitted that the pursuer’s argument had been firmly rejected in that case.
[96] The pursuer in the instant case said: after my resignation there cannot be effective ratification. If that were correct, the court in Bolton would have held after the withdrawal of the offer, any ratification could not be effective
[97] He also directed my attention to Presentaciones Musicales SA v Secunda & Another 1994 Ch 271 (“The Presentaciones”). The material facts were these: a writ was issued within the limitation period applicable to the cause of action. However, the authority of the nominal plaintiff was not obtained within the limitation period. The raising of proceedings was held not to be a nullity. The ratification after the expiry of the limitation period was held to be valid. Mr Dunlop submitted that there was a much stronger argument against ratification in Presentaciones than that advanced by the pursuer in the instant case, it had, however, failed. The instant case he submitted was on all fours with Presentaciones in that it could not be argued that the dismissal by Watson was a nullity in that it at least gave the pursuer the right to raise an action for wrongful dismissal.
[98] Mr Dunlop then turned to The Borvigilant and submitted this: it was made plain in that case that the test applied by the court was unfair prejudice. There was no such unfair prejudice in the instant case. All that was being done in the present case was that the pursuer was being held to the agreement he had entered into, namely: that he might be dismissed for gross misconduct. The situation was the same as in The Borvigilant where it was held it was not unfair prejudice to hold the company to the original barge contract. What The Borvigilant set out was that there is no absolute rule that ratification cannot interfere with accrued property rights, the issue was one of fairness (see: paragraph 88).
[99] In any event it was his position that the pursuer had accrued no property rights. As in The Borvigilant the only possible property right accrued was a cause of action and that was not an accrued property right in the context of the law of ratification (see: The Borvigilant at paragraph 89).
Discussion
[100] The first question for the court is this: does the pursuer’s resignation render the express ratification ineffective? I am persuaded that the answer to that question is no.
[101] The argument being put forward on behalf of the pursuer can be summarised in this proposition: The act of ratification must take place at a time, when the ratifying party might himself have lawfully done the act which he ratifies. Accordingly, the argument runs, in the present case the defenders could not lawfully dismiss the pursuer at the date of their ratification, because he had already resigned and thus the ratification cannot be effective.
[102] In considering that argument the appropriate starting point is the Judgment of Clarke LJ in The Borvigilant at paragraph 73. In this paragraph he considers and adopts the analysis of Robert Walker LJ in Smith v Henniker-Major & Co 2003 Ch 182. Clarke LJ says this:
“73. Robert Walker LJ also analysed the decision of this court in the Presentaciones case, where the defendants relied upon Bird v Brown for the proposition ‘that the act of ratification must take place at a time, and under circumstances, when the ratifying party might himself have lawfully done the act which he ratifies’. However, I do not read Robert Walker LJ as accepting the proposition as so formulated. He observed in paragraph 68 that in the Presentaciones case Dillon LJ discussed the leading cases, including Bird v Brown, and at p 279 extracted from them the principle that ‘if a time is fixed for doing an act, whether by statute or by agreement, the doctrine of ratification cannot be allowed to apply if it would have the effect of extending that time’.”
[103] Turning to the Judgment of Dillon LJ in the Presentaciones at page 278 I observe that among the cases he considers, which found the decision in Bird v Brown includes Dibbins v Dibbins upon which the pursuer relies. In each case which Dillon LJ considers there was a time limit within which an act had to be done and in each case ratification took place outwith the time limit and was therefore held to be ineffective. Bird v Brown, upon which Mr Sandison placed reliance, is also considered by Dillon LJ. In that case there was a time limit within which stoppage in transit had to be exercised, namely: it was exercisable only during the period of transit. The ratification came after the transit and thus could not be effective.
[104] I am persuaded that the analysis of Clarke LJ; Robert Walker LJ and Dillon LJ is correct and I would adopt it. Thus the proposition put forward by Mr Sandison has been rejected and a narrower principle identified.
[105] Applying the principle identified to the circumstances of the instant case I am satisfied that the pursuer’s resignation does not render the ratification ineffective. In the instant case there is no time fixed by agreement or by other means of a type identified above for doing the act, namely: dismissal for gross misconduct, which would be extended by finding the express ratification valid. I accept the situation would have been different had the proposition of the defendant in Bird v Brown been shown to be correct. Applying that proposition to the instant case the ratification would have come too late, in that it would have come after the resignation therefore at a time at which it could not have been lawfully ratified. However that proposition was found to be too widely stated.
[106] Mr Sandison in the course of his address directed the court’s attention to the analysis of Clarke LJ at paragraph 84 in the The Borvigilant. I am persuaded that Clarke LJ’s analysis of Bolton supports the defenders’ contention rather than the contention of the pursuer. Clarke LJ says this at paragraph 84:
“The facts were that (in Bolton Partners v Lambert) A accepted an offer to buy property on behalf of the plaintiffs without authority to do so. The defendant subsequently withdrew the offer and sometime after that the plaintiffs ratified the contract. The court held that the ratification related back to the acceptance by A and that the withdrawal was thereafter inoperative.
The observations of Cotton LJ relied upon were therefore obiter and, insofar as Cotton LJ said… that Bird v Brown was authority for the unqualified proposition that ‘an estate once vested cannot be divested’ by ratification, his view is inconsistent with that of Dillon LJ which… I prefer.”
[107] Applying that analysis to the instant case: the Board resolution although it comes after the resignation relates back to the dismissal and therefore the resignation is inoperative. The dismissal was valid subject to ratification.
[108] I observe that at page 310 in Bolton Lopes LJ says this:
“To hold otherwise (to hold the ratification ineffective) would be to deprive the ratification of its retrospective effect.”
As observed in The Borvigilant at paragraph 69 of the Judgment of Clarke LJ:
“The general principle of ratification is that it is ‘equivalent to an antecedent authority’: Koenigsblatt v Sweet [1923] 2 Ch 314 per Lord Sterndale MR. It thus has retrospective effect: see: eg Smith v Henniker-Major… per Robert Walker LJ at paragraph 56.”
[109] In the present case to have held the Board resolution ineffective, because of the intervening resignation, would have been to deprive the ratification of its retrospective effect.
[110] I also am persuaded that for the reasons advanced by Mr Dunlop The Presentaciones case supports the defenders position.
[111] Overall I am persuaded that when the relevant authorities are properly analysed in respect to this first issue of the effect of the resignation of the pursuer on the effectiveness of the later ratification they support the argument advanced by Mr Dunlop.
[112] For the foregoing reasons I reject the pursuer’s first argument.
[113] With respect to the second argument, that the pursuer had become vested in certain property rights, namely: the salary and bonus which are the subject of the present action and thus would suffer unfair prejudice were the ratification to be held effective, I am not persuaded that these can be properly characterised as vested property rights in the context of ratification.
[114] At paragraph 89 in The Borvigilant Clarke LJ considers the issue of what amounts to vested property rights which cannot usually be divested by ratification and says this:
“I would hold that an accrued cause of action, while being a chose in action and a type of property right, is not the kind of property right which, for example Cotton LJ, who spoke of an estate, had in mind. It is more akin to an accrued right to rely upon the Limitation Acts, which, as Robert Walker observed, is often spoken of in terms approximating to a property right. In my opinion similar principles should apply to each.”
[115] I would accept what is said there as a correct analysis. Applying that analysis to the present case the pursuer has no more than an accrued cause of action. He has no more than a right to sue for losses based on his alleged wrongful dismissal.
[116] I accordingly reject the pursuer’s second argument.
[117] The final argument for the pursuer is a novel one, namely: that he has conducted his affairs on the basis that the decision to dismiss was invalid and in particular that there was no express ratification by the defenders of the said decision.
[118] I am persuaded there is some force in this argument for these reasons:
- The defenders could at any time have expressly ratified this decision.They chose not to do so for a significant length of time.I have held at this stage that I am unable to hold the pursuer’s defence to the implied ratification as irrelevant and I am accordingly approaching the issue of express ratification on the basis that there was no implied ratification.
- The pursuer proceeded in the absence of such express ratification to act in a certain way, namely:to raise the proceedings earlier referred to.
- The pursuer would not he says have proceeded in this way if there had been express ratification at an earlier stage.
- Against that background he has been unfairly prejudiced by the delay in the passing of the resolution ratifying the original decision.
[119] The principle explained in The Borvigilant is that if there is unfair prejudice done to a party by the delay in the express ratification the ratification should not be held to be effective. I am persuaded that having regard to that principle there is force in the argument advanced by Mr Sandison that to allow express ratification at this stage would be unfairly prejudicial and I accordingly prefer his argument on this issue.
Conclusion
[120] For the foregoing reasons in respect of the argument on competency I hold the action to be incompetent. Had I been with the pursuer in relation to this primary issue of competency I would have held the pursuer’s case in reply to the defenders’ position on ratification to be relevant to the extent I have set out.
Decision
[121] I accordingly sustain the defenders’ second plea in law to the competency of the action, to the extent as set out in part (a) of that plea; repel the defenders’ first plea in law with respect to the issue of relevancy; repel the pursuer’s pleas in law and dismiss the action. I reserve all issues of expenses.