Michael John Isaac v Tan Sri Dato' Seri Vincent Tan
| Jurisdiction | England & Wales |
| Judge | Mr Justice Adam Johnson |
| Judgment Date | 29 July 2022 |
| Neutral Citation | [2022] EWHC 2023 (Ch) |
| Docket Number | Case No: CR-2019-001325 |
| Court | Chancery Division |
[2022] EWHC 2023 (Ch)
Mr Justice Adam Johnson
Case No: CR-2019-001325
IN THE HIGH COURT OF JUSTICE
BUSINESS & PROPERTY COURTS OF ENGLAND & WALES
COMPANIES LIST
IN THE MATTER OF CARDIFF CITY FOOTBALL CLUB (HOLDINGS) LIMITED
AND IN THE MATTER OF THE COMPANIES ACT 2006
Royal Courts of Justice
7 Rolls Building
Fetter Lane
London, EC4A 1NL
David Reade QC and Grahame Anderson (instructed by Carbon Law Partners) for the Petitioner
Emily Betts and Ryan Hocking (instructed by Capital Law) for the Respondents
Hearing dates: 11, 14–18 and 23 February 2022
Approved Judgment
This judgment was handed down remotely by circulation to the parties' representatives by email and released to the National Archives. The date and time for hand-down is deemed to be 10.30am on Friday 29 July 2022.
CONTENTS
| Paragraph | |
| Introduction & Outline | 1 |
| The Trial & the Witnesses | 5 |
| Scope of the Trial | 5 |
| The Factual Witnesses | 9 |
| The Petitioner's Case | 9 |
| The Respondents' case | 10 |
| Relevant Background | 17 |
| Mr Tan's Lending | 17 |
| The Langston Proceedings | 22 |
| Resolutions to remove Mr Isaac | 23 |
| The “ squeeze out” advice | 27 |
| Early 2016: the Pledge | 28 |
| Immediate steps in relation to the Pledge | 32 |
| November 2016 Shareholder Resolutions | 34 |
| The Isaac Litigation | 35 |
| April 2017 and after: Mr Lim's Proposals | 37 |
| January 2018: Mr Jenkins' Final Proposal | 54 |
| The Isaac Litigation is Discontinued | 56 |
| Approval from Mr Tan | 57 |
| Approval by the Company's Board | 62 |
| Mr Isaac Decides not to take up the 5:2 Offer | 71 |
| The Factual Story: Assessment of the Evidence and Conclusions | 75 |
| Mr Tan's Motivation | 75 |
| The Motivations of Mr Borley and Mr Dalman | 77 |
| Unfair Prejudice: Discussion and Conclusions | 84 |
| Mr Tan | 84 |
| The Board of Directors | 95 |
| Did the directors act independently? | 96 |
| Did the directors act for a proper purpose? | 106 |
| Valuation: Discussion and Conclusions | 129 |
| Date of Valuation | 131 |
| Minority Discount | 135 |
| Share Value as at May 2018 | 138 |
| The Experts' Views and the Issues between them | 138 |
| Discussion and Conclusion on Valuation | 146 |
| Overall Conclusion | 158 |
Mr Justice Adam Johnson: Introduction & Outline
Mr Issac is a minority shareholder in Cardiff City Football Club (Holdings) Limited (“ the Company”), which is the holding company of Cardiff City Football Club Limited (“ the Club”). He petitions the Court for relief under Companies Act 2006 (“ CA”), s.994. He says that the Company's affairs have been conducted in a manner which has caused him unfair prejudice. More specifically, his complaint is about an open offer of shares made by the Company following a resolution of the Board of Directors dated 18 May 2018. For reasons which will be explained below, this has been referred to as “ the 5:2 Offer”. The important point about it is that the 5:2 Offer was taken up only by one shareholder in the Company, namely the First Respondent, Mr Tan. Mr Tan is a Malaysian businessman who was already at that stage the majority shareholder in the Company, holding some 94.22 % of the issued shares. The result of Mr Tan taking up the 5:2 Offer and no-one else doing so was that his shareholding increased to 98.3%. Mr Isaac's shareholding in the Company was reduced from 3.97% to 1.18%. Mr Isaac says that this dilution of his percentage shareholding was prejudicial to him, and unfairly so: prejudicial because it left him worse off in terms of his shareholding interest, and unfair because he alleges the whole exercise was in fact orchestrated by Mr Tan, who was motivated not by any proper business purpose but instead by personal animosity towards him (Mr Isaac), following a falling out between them. Mr Isaac says that although the proposal for the 5:2 Offer was approved by the Company's Board of Directors, the directors really did no more than rubber stamp the decision Mr Tan had already made, and so did not exercise their own independent judgment as they were required to (CA s.173), and/or failed to exercise their power to allot new shares only for a proper purpose (CA s.171). What is said is that the directors exercised their allotment power in order to further Mr Tan's personal vendetta against Mr Isaac, and not in order to improve the Company's financial position.
The Respondents deny these allegations. Mr Tan's position, as principal Respondent, is that the 5:2 Offer was entirely regular. The background is that by 2018, the Company had for some time been funded by means of substantial loans advanced by Mr Tan. Back in February 2016, Mr Tan had made a public commitment to reduce the amount of the Company's and the Club's indebtedness. This was a matter of concern to supporters of the Club at the time, because of its effect on the operations of the Club having regard to UEFA's Financial Fair Play Regulations. In fact, in early 2016 the Club had been embargoed from acquiring new players during the January transfer window as a result of restrictions under those Regulations. The public commitment made by Mr Tan in February 2016 became known as “ the Pledge”, and in short, Mr Tan's position is that the 5:2 Offer in May 2018 represented the culmination of the Pledge. That was because he paid for the new shares issued to him under the 5:2 Offer by agreeing to writing off a very large sum – approximately £67m – which at the time was owed to him by the Company. Thus, says Mr Tan, his motivation was a proper one. There was a very good commercial reason for the 5:2 Offer, and it was not orchestrated as a means of pursuing a vendetta against Mr Isaac. For essentially the same reason, the Company's Board of Directors acted entirely properly: there was a sound commercial purpose for the 5:2 Offer, which improved the Company's balance sheet; the Company's Directors were independently satisfied of that and accordingly exercised their allotment power for an entirely proper purpose.
In terms of relief, Mr Isaac seeks an order that Mr Tan should buy his shareholding for fair value. He says the appropriate valuation date is a point in May 2018, immediately before the 5:2 Offer. In other words, he seeks an order for sale on the basis of a 3.97% shareholding, not a 1.18% shareholding. Mr Tan, however, says that if there is an order for sale, it should be for a present day valuation. This timing point is significant, because the parties are agreed that if a present day valuation date is taken, then Mr Isaac's shares (whatever the percentage value of his shareholding) have nil value. If a May 2018 date is taken, however, then Mr Isaac relies on expert evidence to show that his shareholding has a pro rata value of £2,910,000, or £1,600,506 after application of a minority discount. Mr Tan though relies on expert evidence to show that even as at May 2018, Mr Isaac's shareholding had a nil value.
Expressed at a high level, therefore, the issues I have to decide are as follows:
i) What were the motivations underlying the 5:2 Offer, and has Mr Isaac made out his case that it was the product of Mr Tan's personal animosity towards him?
ii) If so, did that amount to conduct of the Company's affairs in a manner which was unfairly prejudicial, within the meaning of that phrase in CA s.994? More specifically, (a) does the conduct of Mr Tan as majority shareholder in the Company, in allegedly using the corporate structure of the Company to further his own agenda, qualify as conduct of “ the company's affairs … in a manner that is unfairly prejudicial” (my emphasis); and/or (b) was there in any event a breach of duty by the directors of the Company in resolving to approve the arrangements for the 5:2 Offer in the way they did?
iii) If unfair prejudice is shown, then accepting the appropriate remedy would be for Mr Tan to be required to buy Mr Isaac's shareholding, what valuation date should apply and what value should be ascribed to that shareholding?
The Trial & the Witnesses
Scope of the Trial
I must first deal with a pleading point. In my Judgment given at the start of Day 2 of the Trial, I indicated that the issues in play were effectively those in paragraphs 27 and 28 of the Petition, focusing on the 5:2 Offer. There are certain issues between the parties, however, as to what allegations fall within the scope of those paragraphs. The Respondents' position is that, properly construed, all they amount to are a challenge to the lawfulness of the decision taken by the Board on 18 May 2018, on the basis that in making the decision it did, the Board was acting for an improper purpose contrary to the duty of the directors under CA s.171. Moreover, they say that the allegation of improper purpose is a narrow one: it is only that the 5:2 offer was “ vindictively motivated following the discontinuation of the proceedings brought against Mr Isaac by the Company”. This is a refence to proceedings against Mr Isaac in June 2016, which were then discontinued shortly before trial in February 2018. I will say more about them below at [35]. For present purposes, the Respondents' position is that matters pre-dating the discontinuation of those proceedings in February 2018 are irrelevant.
Mr Isaac's position is that the pleading goes wider than that, and that:
i) it includes engagement not only with the conduct of the Board, but also with the conduct of Mr Tan;
ii) it embraces the sources of Mr Tan's vindictive motivation going beyond the discontinuation of the proceedings against Mr Isaac;
iii) it includes not only an allegation that the Board acted in excess of its powers (CA s.171), but also that the directors followed Mr Tan's wishes unthinkingly,...
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