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	England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Hawkes v Cuddy & Ors [2007] EWHC 2999 (Ch) (13 December 2007) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2007/2999.html Cite as: [2008] BCC 390, [2007] EWHC 2999 (Ch)

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IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
BRISTOL DISTRICT REGISTRY

		Cardiff Civil Justice Centre, 2 Park Street, Cardiff CF10 1ET
		13 December 2007

Mr. Justice Lewison:

Contents

Introduction	1
The Club before 2003	5
The re-organisation of Welsh Rugby in 2003	9
The Hawkes/Cuddy Agreement	17
Neath Rugby Limited	24
Neath's acquisition of the Club	25
The liquidation of Gowerpark	27
Mr Newman's advice	28
The governance of Neath	38
South West Wales Rugby Limited	43
Governance of the Ospreys	52
Financial matters	56
The new stadium and games at the Gnoll	58
Before the Liberty Stadium	58
After the Liberty Stadium	75
The StadCo variation	97
May 2006 and the breakdown in relations	103
The trade mark dispute	117
The withdrawal of the players	132
The media and the websites	146
Neath's share in the Ospreys	150
Mrs Cuddy's resignation	152
Negotiations with the WRU to change the Regional Operating Agreement	154
The position of Swansea RFC	157
Mr Hawkes' attitude to regional rugby and the Ospreys	159
Offers to settle	163
Mr Hawkes' offer of 11 April 2007	164
Mr Hawkes' offer of 4 October 2007	165
Mr Cuddy's offer of 16 October 2007	166
Mr Hawkes' offer of 2 November 2007	167
The Cuddy/Swansea offer of 5 November	168
Section 216	169
Abuse of process	171
Mr Cuddy's duties as a director of Ospreys	182
Who decides what are Neath's interests?	196
Unfair prejudice	198
The legislation	198
The elements	202
The affairs of the company	203
Prejudice to the interests of members	217
Unfairness	218
Deadlock	222
Frustration	232
Illegality	235
Offers to purchase	239
Relief	243
The general principles	243
Demerger	248
Effect on third parties	251
Unfair prejudice: conclusions	253
Failure to play games at the Gnoll	254
Failure to transfer Neath's share in the Ospreys into Neath's name	261
The withdrawal of the players	263
The trademark proceedings	267
The StadCo variation	271
Unlawful participation in the management of Neath	276
Discussions with the WRU	281
Mr Eric Evans' view	282
Deadlock?	283
Demerger?	288
Result	290

Introduction

1. Mr Geraint Hawkes and Mr Mike Cuddy are both successful Welsh businessmen with a strong interest in rugby. Both have been long-term supporters of Neath Rugby Football Club. Mr Hawkes owns and manages a company called F.G. Hawkes Western Ltd. Mr Hawkes founded the company, which began trading as a builders' merchant in the mid-1980s. It now imports and sells commercial plywood. With his brother, Mr Cuddy runs a company called Cuddy Demolition & Dismantling Services Ltd. The company's name describes its business.
2. In circumstances which I will describe they entered into a joint venture, through the medium of a newly formed company, to acquire the assets of Neath RFC. The company was incorporated against the background of a reorganisation of Welsh rugby, which led to the formation of five regional teams, among which was Neath-Swansea Ospreys. Mr Hawkes' primary interest was in Neath as a club side; while Mr Cuddy's primary interest was in the Ospreys as a regional side. This tension between them has led to a spectacular falling out, which culminated in a hotly contested petition and cross-petition alleging that the affairs of the company had been and were being conducted in a way that caused unfair prejudice. Nominally the cross-petition is brought in the name of Mr Cuddy's wife, Simone Cuddy. However, for reasons that will become clear, I will deal with it as though Mr Cuddy himself were the cross-petitioner.
3. The dispute has already been the subject of a five day hearing before HH Judge Havelock-Allen QC followed by an appeal to the Court of Appeal. In the course of his judgment HH Judge Havelock-Allen QC set out that part of the narrative which was either common ground or which he considered could not realistically be contested. In summarising the background I have borrowed extensively from his clear and careful judgment, which I gratefully acknowledge. The hearing of the petition itself began on 23 October 2007 and concluded on 9 November 2007, occupying some three weeks of court time. The expert valuers appointed by the parties have agreed that the maximum value of Neath's issued share capital is £97,000, which must be a small fraction of the costs of these proceedings. The dispute is clearly not (or not only) about money.
4. Mr David Chivers QC and Mr High Simms appeared for Mr Hawkes. Mr Robin Hollington QC and Ms Rebecca Page appeared for Mr and Mrs Cuddy. Mr Christopher Parker appeared for Neath-Swansea Ospreys Ltd, but addressed me only on the question of the appropriate relief to be granted in the event that either the petition or the cross-petition succeeded.

The Club before 2003

5. The Club was founded in 1871 and has played at its ground in Neath (called "The Gnoll") for over 130 years. Until 1995 it was a traditional members' club and the players were amateur. Welsh rugby turned professional in the 1995/96 season, but Neath RFC continued as a members' club, run by a committee, until 1998. The committee members were unpaid volunteers from all walks of life. As professional status began attracting money to the game, the existing members' club and committee structure proved unequal to the task of managing what had become a sporting business enterprise. The Club ran up substantial debts. By 1998 these had reached approximately £600,000.
6. Mr Cuddy became a member of the Club's committee. In 1998 a consortium, of which he was a member, made an offer to the committee to acquire the assets and liabilities of the Club. The committee rejected the offer and turned to the Welsh Rugby Union ("WRU") for assistance.
7. The WRU agreed to help. It established a private company called Gowerpark Limited on 26 May 1998 to undertake the day-to-day running of the Club. Gowerpark was wholly owned and controlled by the WRU. The WRU appointed its own officers as directors, and agreed to appoint as directors certain Club supporters who had been members of the old committee. One of these was Mr Cuddy. He applied to become a director of Gowerpark from the outset: but was unsuccessful. He eventually became a director on 30 September 2001.
8. Although Neath RFC did well on the pitch, it did less well financially. It ran at a loss and Gowerpark was not able to eliminate the liabilities it had inherited from the old committee. The Club's financial prospects were not improved by the reorganisation of Welsh Rugby which the WRU proposed for the start of the 2003/2004 season.

The re-organisation of Welsh Rugby in 2003

9. Until the season of 2002/2003 there were nine local clubs playing in the Welsh Premiership. For the following season the WRU announced that it wanted to establish five regional professional teams owned and supported by the local clubs. This would create a new professional league. The local clubs would revert to semi-professional status, borrowing professional players from the regional clubs and feeding the regional clubs with new players. The regional clubs would be bigger and better financed and more able to compete against other clubs outside Wales and at European level. Local clubs would continue to play against other local clubs in the Welsh leagues: but would not be entitled to play at regional level or to advance beyond the Premiership. The aspiration underlying the reorganisation was to benefit the national game in Wales. The best standard of rugby would be played at the regional level; and the clubs would perform at a lower level. The best players, if they were offered contracts, would play for the regional sides. Both Mr Moffatt, the chief executive of the WRU at the time, and Mr Rob Davies, one of the so-called "Swansea benefactors", thought that they were the "only begetter" of the idea of regional rugby. Since the philosophy underlying regional rugby has been the subject of some debate, I should describe what it is. I take the description from Mr Moffat's witness statement. It is not, I think, controversial.
10. The regional entities were intended to be stand-alone teams. There was to be a pyramid structure, with the regional teams at the top, local semi-professional feeder teams in the premier division below them, and all the smaller lower division teams below that. The regional teams were to be the dominant entities, ultimately feeding into the national side. The regional teams were to be representative of all the teams in their region, whether they were premier teams or division 5 sides. The regional sides were to be owned by local clubs, because that was a term of the vote by which the local clubs had consented to the restructuring of Welsh rugby. It was intended that the regional side would treat all the clubs in its region equally with no special favours to a club that happened to be a shareholder in the regional side. However, Mr Moffatt was clear in his oral evidence that, so far as the WRU were concerned, it was a matter for the regional entities at which stadia they played their matches. Similarly whether the regional entities made grants to some, all or none of their feeder clubs, or paid the salaries of their coaches, was a matter for them.
11. With the establishing of regional teams, the WRU proposed to re-organise its funding of Welsh rugby. During the 2002/2003 season, the nine Premiership clubs had received grants of approximately £8-9 million from the WRU. Gowerpark itself received about £1 million on behalf of Neath RFC. The WRU decided that in future the bulk of its grant money would go to the regional teams, and that it would be for the new companies managing the regional teams to decide how much of their grant to give to the Premiership clubs. As a result, in the 2003/2004 season, Neath RFC's grant fell to around £50,000.
12. Mr Cuddy was keen to play an active role in the new regional side. He wanted to have a stake in its business. However, because the WRU had insisted that the new regional sides had to be owned by existing clubs, Mr Cuddy needed an existing club. Mr Hawkes recalls Mr Moffat having said in a meeting at which he and Mr Cuddy were both present: "If you don't take Neath you don't get your hands on the region". Thus Mr Cuddy became interested in acquiring Neath RFC and entered into negotiations with the WRU to that end either late in 2002 or early in 2003. According to Mr Newman's unchallenged evidence Mr Cuddy's interest in Neath was "as a passport to being involved in regional rugby". The WRU directed the nine premiership clubs to decide who was going to establish which regional team. The five regional teams eventually created were Cardiff Blues, Llanelli Scarlets, Neath-Swansea Ospreys, Newport Gwent Dragons and Celtic Warriors. Neath-Swansea Ospreys was the creation of Neath RFC and Swansea. Mr Cuddy was involved in discussions with Bridgend RFC before eventually he reached agreement with Swansea. Although geographically adjacent, Neath RFC and Swansea had a long rivalry and were not natural bedfellows. Swansea's principal representative in the negotiations was Mr Roger Blyth, although Mr Mike James and Mr Rob Davies were also involved. Mr Cuddy says that he would never have achieved the partnership with Swansea if their representatives had not been willing to trust him as being whole heartedly committed to the concept of regional rugby. Mr Blyth also says that trust in Mr Cuddy overcame Swansea's initial scepticism that the traditional rivalry between Neath and Swansea could be overcome. Swansea saw Mr Cuddy as having the same idea for the regional entity as they did; namely as a bold new development replacing both Neath and Swansea as the primary rugby club in the region. I accept this evidence. I find that the trust and confidence that Swansea placed in Mr Cuddy personally was one of the prime factors in their decision to join forces with Neath. I also find that, so far as Mr Cuddy was concerned, the primary purpose of the acquisition of Neath was as a vehicle to enable him to participate in the formation and management of the new regional side.
13. Bridgend RFC went on to link up with Pontypridd RFC in establishing the Celtic Warriors. But the Celtic Warriors did not survive the 2003/2004 season.
14. The agreement between Neath RFC and Swansea was that a company should be formed to promote and own the Neath-Swansea Ospreys, as the regional team was initially known. That was done on 10 April 2003, when a company called South West Wales Rugby Limited ("SWWRL") was incorporated. Meanwhile, the WRU had made it known that it was interested in disposing of its interest, through Gowerpark, in Neath RFC.
15. It transpired that Gowerpark had not inherited all of the Club's assets and liabilities. The lease of The Gnoll, including the clubhouse and stands, and the intellectual property rights remained in the ownership of the old club members. The debts remaining with the members included a sum of £180,000 owed to the WRU, and other loans of about £230,000. These would have to be repaid. The WRU also insisted that if Neath RFC was to participate in sponsoring a regional side, the Club would have to be purchased from the WRU. Mr Cuddy proposed a deal, which was acceptable to the WRU, whereby the old committee would transfer the Club assets still owned by members to the WRU. A new company would be formed to purchase these assets from the WRU, together with any assets owned by Gowerpark (principally player contracts). The purchase price was £250,000 to be paid as a premium for the lease of The Gnoll, repayable as rent over the remaining term of the lease. The sponsors of the new company would discharge the £180,000 owing to the WRU, and take over the Club's loans totalling £230,000. The WRU would use the £250,000 to pay off the Club's other debts and would take responsibility for the debts of Gowerpark.
16. Mr Cuddy needed a partner to enter into this deal with him. He needed someone who would be willing to conduct the daily management of Neath RFC while he focussed his attention on the new regional side called Neath-Swansea Ospreys. He was also looking for financial support since he was unwilling or unable to finance the transaction on his own. This is where Mr Hawkes came into the picture.

The Hawkes/Cuddy Agreement

17. Mr Hawkes' company had become a commercial sponsor of Neath RFC for the 2002/2003 season. As a comparatively wealthy man and ardent supporter of the Club, it was natural that Mr Cuddy should be introduced to Mr Hawkes. They met early in 2003. Mr Cuddy introduced his plan for acquiring Neath RFC from the WRU and the two men reached an agreement ("the Hawkes/Cuddy Agreement"). The agreement was not reduced into writing.
18. HH Judge Havelock-Allen QC found that the Hawkes/Cuddy Agreement, reached sometime between January and the beginning of April 2003, contained the following terms: (1) Mr Hawkes and Mr Cuddy would each assume personal liability to repay half of the debt of £180,000 owed by Neath RFC to the WRU, (2) they would establish, as joint co-owners a new corporate entity ("newco") to purchase the assets of Neath RFC from the WRU, and thereafter to own and manage the Club, (3) Mr Hawkes would own one share in newco and Mr Cuddy would own the other share, (4) Mr Hawkes and Mr Cuddy would each be directors of newco, (5) Mr Hawkes would concentrate on the management of Neath RFC, (6) Mr Cuddy would concentrate on the management of the regional side (Neath-Swansea Ospreys) and for that purpose would be nominated by newco to act as one of the two directors of the new entity being established to own and manage Neath-Swansea Ospreys, (7) any payments to be made by newco should be authorised by Mr Hawkes and Mr Cuddy.
19. Mr Hawkes said that it was his understanding from the outset that as Neath's nominee director on the board of SWWRL, Mr Cuddy would protect the interests of Neath. He did not, however, recall a specific agreement to that effect. Mr Cuddy says that it was agreed that as the representative of Neath on the newco board, he would be looking after the interests of Neath, the Ospreys and the other clubs in the newly formed region. The best evidence I think is an e-mail of 30 July 2004 in which Mr Hawkes said (in a formulation with which Mr Cuddy agreed in cross-examination):

"The deal was that I look after Neath and you look after the Region and Neath's interests in the Region."

20. I find that this e-mail accurately summarises the agreed role that Mr Cuddy was to play. It is substantially the same as Mr Cuddy's evidence. The ramifications of that summary, and in particular the extent to which it required Mr Cuddy to be Neath's advocate in the Ospreys' boardroom, are matters to which I will have to return. Mr Cuddy accepts that the circumstances of his appointment to the board of the Ospreys meant that he owed to Neath a duty to consult Mr Hawkes about the management of the Ospreys, just as Mr Hawkes owed a duty to consult him about the management of Neath. This mutual duty to consult is not controversial. Mr Hawkes also accepted that it was implicit in the quasi-partnership relationship between them.
21. The Hawkes/Cuddy agreement was not reduced to writing because neither Mr Hawkes nor Mr Cuddy felt any need to do so, despite having been advised on at least four occasions that it would be desirable to do so. Their relationship, at least in the beginning, was one of trust; and they regarded themselves as being, in effect, partners.
22. When SWWRL was incorporated on 10 April, Mr Cuddy was immediately appointed a director. Swansea nominated Mr Roger Blyth as their director.
23. Mr Hawkes' admitted duty to consult Mr Cuddy and to provide him with information about Neath does not arise from the fact of an appointment. Mr Cuddy was not appointed a director of Neath and was not an employee of Neath. The duty arises from the fact that it was known from the outset that Mrs Cuddy, who is a housewife with no interest in rugby, would act as a mere cipher for her husband and as his mouthpiece. Although she became a signatory on Neath's bank account, the Hawkes/Cuddy Agreement was that all payments made by Neath should be authorised by Mr Hawkes and Mr Cuddy.

Neath Rugby Limited

24. Neath was incorporated on 9 May 2003 under the name of Neath Swansea Rugby Limited. It changed its name to Neath Rugby Limited on 4 August 2003. I shall call it "Neath". Although the objects of Neath in the memorandum include the carrying on of business as a general commercial company, Neath was created in order to acquire ownership and management of Neath RFC as from the start of the 2003/2004 Welsh rugby season. For reasons I will explain, when Neath came into being Mr Hawkes and Mrs Cuddy (rather than Mr Cuddy) were nominated as directors. Their appointment was formally registered on 11 August 2003.

Neath's acquisition of the Club

25. Neath's purchase of the assets of the Club from the WRU was not completed until January 2004. On 30 January 2004 a Sale Agreement was entered into between the WRU on the one hand and Mr Hawkes and Mr Cuddy and Neath on the other. In the interval between August 2003 and January 2004, Neath ran the Club under licence from the WRU.
26. So far as Mr Hawkes and Mr Cuddy were concerned, the terms of the sale were slightly different from those Mr Cuddy had originally negotiated with the WRU. They were now to pay personally a sum of £175,000 in satisfaction of the Club's debt to the WRU. The sum was to be paid in two instalments of £87,500, one payable on completion and the second payable on 1 July 2004. Under other terms of the sale, Neath was to become a full member of the WRU and to acquire a sub-lease of The Gnoll from the WRU. Neath was also entitled to participate in the WRU Premiership and to be a member of SWWRL. In return Neath agreed with the WRU to assume responsibility for debts relating to the stand and other structures at The Gnoll.

The liquidation of Gowerpark

27. By July 2003 it was recognised by the WRU, and by Mr Hawkes and Mr Cuddy, that Gowerpark had no future if the sale to Neath went ahead. Gowerpark had incurred significant debts and the likelihood was that it would be forced into liquidation. This is in fact what happened. Gowerpark was placed into creditors' voluntary liquidation on 16 October 2003. There was a substantial estimated deficiency as regards creditors of around £750,000.

Mr Newman's advice

28. During the summer of 2003, when the acquisition of Neath by Mr Hawkes and Mr Cuddy was still being negotiated, it had become clear that it was very likely that Gowerpark would go into liquidation. Mr Hawkes and Mr Cuddy retained a solicitor, Paul Newman, from the Swansea firm of John Collins & Partners LLP, to assist them in putting the Hawkes/Cuddy Agreement into effect. Mr Hawkes had used the firm of John Collins on a number of previous occasions in connection with business litigation and personal matters and had become familiar with Mr Newman in that connection.
29. A meeting took place attended by Mr Hawkes, Mr Cuddy, Mr Newman and Mr Morris, who was a solicitor acting for the WRU. At the meeting Mr Morris mentioned the risk that Mr Cuddy might be acting in contravention of section 216 of the Insolvency Act 1986 if he were appointed a director of Neath, because he had been a director of Gowerpark until 20 June 2003 and that company was widely expected to go into insolvent liquidation by the autumn of that year.
30. Section 216 of the 1986 Act prohibits a person who has been a director of a company within the twelve months preceding its insolvent liquidation from being a director or involved in the management of a company with a prohibited name, without the leave of the court. The prohibition lasts for five years from the date of the liquidation. A name is prohibited if it is a name by which the liquidating company was known or under which it carried on business, or is a name so similar as to suggest an association. If the prohibition in section 216 is breached, there are two relevant consequences. The first is that a criminal offence is committed. The second is that the person in breach of the prohibition is personally liable for the new company's debts.
31. Mr Newman followed up the concern about section 216. Gowerpark was known by the name of Neath RFC. Mr Newman considered that the trading name of Gowerpark and the name "Neath Swansea Rugby Limited" (or "Neath Rugby Limited" as that company was shortly to become) were so close that it was likely that Mr Cuddy would be in breach of section 216 if he became a director of Neath, and that he and Mr Hawkes could incur personal liability for Neath's debts under section 217.
32. Mr Newman first raised the issue of section 216 on or about 21 July 2003. He warned both Mr Hawkes and Mr Cuddy of the risks in an e-mail of that date. His view was that "Neath Rugby Ltd will almost certainly be a prohibited name" and that Mr Cuddy had to "be very careful that you do not give the impression that you are in any way involved in the running of Neath Rugby Ltd". However, he was satisfied that Mr Cuddy was not precluded from being involved in SWWRL. Mr Newman suggested that one possible way round the problem was to buy another company as a vehicle to buy the assets from the WRU; and that Mr Cuddy should have no involvement in that company for five years. The name of Neath Rugby Ltd. should be changed so that that new company could use that name. Mr Cuddy sent the e-mail to a Mr Bill Jones, an accountant employed by Mr Cuddy's company, who was not convinced that Neath Rugby Ltd would be a prohibited name. On 28 July Mr Hawkes told Mr Newman in an e-mail that he had spoken to Mr Cuddy and that they agreed with his advice about a newco. He asked whether a company that had been recently acquired could be used for that purposes, or whether another company could be bought off the shelf. Mr Newman replied that a new company called Neath Swansea Rugby Ltd had been bought and that they could use that one. But later that evening, Mr Hawkes spoke to Mr Newman and suggested that he and Mr Cuddy should simply acquire Neath RFC in their own names rather than through a newco, until the position could be sorted out by an application to the Court. In fact Mr Hawkes' suggestion would not have worked, because the WRU's standard form of operating agreement for a regional club required its shareholders to be participating clubs rather than individuals. However, before Mr Hawkes had had a chance to put this idea to Mr Cuddy, Mr Cuddy also spoke to Mr Newman and indicated that he was unhappy about the advice Mr Newman was giving him, based on what he had been told by Mr Bill Jones. In the course of the conversation Mr Cuddy and Mr Newman resolved that Mr Cuddy would speak to Mrs Cuddy "to see if she was prepared to buy the shares and act as Company Director." At this stage Mr Hawkes was not a party to any discussion of that proposal. However the proposal was adopted.
33. Mr Morris' evidence was that he had held a meeting with Mr Cuddy and Mr Hawkes at Mr Cuddy's offices towards the end of July 2003. He said that at that meeting it was Mr Hawkes who suggested that Mrs Cuddy should be made a director instead of Mr Cuddy because of the problem with section 216; but made the point that Mrs Cuddy should not have anything to do with the day to day management of Neath. Mr Hawkes denied that this happened. Although I think it improbable that Mr Hawkes initiated the idea that Mrs Cuddy should be appointed as a director of Neath, I accept Mr Morris' evidence that the question of Mrs Cuddy's appointment was discussed at that meeting; and that Mr Hawkes' concern was that Mrs Cuddy should not participate in the day to day running of Neath.
34. On 19 August 2003 Mr Williams of John Collins e-mailed both Mr Cuddy and Mr Hawkes. Among his points were a request for Mrs Cuddy's full names, so that the share certificate could be issued to her; and also the suggestion that Mrs Cuddy and Mr Hawkes should enter into a shareholders' agreement. The latter piece of sensible advice was ignored. It was ignored again when Mr Williams repeated it in a letter of 14 November 2003.
35. As I have said Gowerpark went into liquidation on 16 October 2003. That gave Mr Cuddy a seven day window in which to apply to the court for retrospective leave to be concerned in the management of a company with a prohibited name (Insolvency Rules 1986 r. 4.229). He did not make an application. Although he did make an application much later on, the court has no power to grant retrospective leave.
36. Mr Williams and Mr Newman met Messrs Hawkes and Cuddy on 2 December 2003. Mr Newman made it clear that:

"Simone Cuddy was a Director of the Company and due to the proceedings with Gowerpark Mike Cuddy should ensure that his involvement with Neath Rugby Limited was kept to a minimum."

37. Mr Newman's advice was that if there was any risk that Mr Cuddy would become involved, directly or indirectly, in the management of Neath, then he ought to seek the leave of the court. Messrs Hawkes and Cuddy were keen to do the deal, and went ahead with the proposal that Mrs Cuddy should be appointed as a director of Neath. Mr Cuddy did not make any application to the court.

The governance of Neath

38. Mrs Cuddy and Mr Hawkes were the formally appointed directors of Neath. However, Mrs Cuddy took no part in its governance. Both Mr Hawkes and Mr Cuddy knew from the outset that Mrs Cuddy was to be no more than a front for Mr Cuddy. Although "board meetings" of Neath were held, they were attended by Mr Hawkes, Mr Cuddy and, usually, Mr Harvey. Both Mr Hawkes and Mr Cuddy completely ignored Mr Newman's advice that Mr Cuddy should keep his involvement in Neath to a minimum. Mr Hawkes had no knowledge about being involved in a rugby club; and so to start with he relied heavily on Mr Cuddy. The petition complains repeatedly that the appointment of Mrs Cuddy as a director was a sham. So it was; but it was a sham in which both Mr Cuddy and Mr Hawkes were equally complicit. There was no sense in which Mr Hawkes was deceived by the so-called sham. As he accepted in evidence, he knew from the outset that Mrs Cuddy was a front for her husband. However, although both Mr Hawkes and Mr Cuddy ignored Mr Newman's advice that Mr Cuddy's involvement in Neath should be kept to a minimum, neither of them realised at the time that the extent to which Mr Cuddy participated in the management of Neath was actually illegal. They both thought that the appointment of Mrs Cuddy as a director had solved the problem. It was not until April 2007 that Mr Hawkes was advised that the manner in which Mr Cuddy participated in the management of Neath was in fact in contravention of section 216.
39. The Hawkes/Cuddy agreement required any payments made by Neath to be approved by both Mr Hawkes and Mr Cuddy. Although Mrs Cuddy was named as a signatory on Neath's bank account, cheques were in fact signed by Mr Cuddy using his wife's name. This, too, was well-known to Mr Hawkes from the outset. On occasions he would give Mr Cuddy a chequebook for him to sign in blank; and there are frequent examples in the case papers of requests by Mr Hawkes to Mr Cuddy asking him to sign cheques that were urgently needed. There is no example of a request made by Mr Hawkes to Mrs Cuddy asking her to sign any cheque. Mr Hawkes' practice of giving Mr Cuddy a book of blank cheques to sign was witnessed by both Mr Harvey and Mr Morris, the solicitor acting for the WRU in the negotiation of the sale of the assets of Neath. When, eventually, Mr Cuddy refused to sign any more cheques Mr Hawkes still had 30 blank cheques signed by Mr Cuddy that he had not used. Mr Hawkes also knew from the outset that Mr Cuddy signed other documents in his wife's name. Mr Hawkes' allegations of forgery against Mr Cuddy were hypocritical, in that to the extent that Mr Cuddy was guilty of forging his wife's signature on cheques, Mr Hawkes was equally guilty of inciting him to do so.
40. The case papers contain a letter in the following terms:

"Dear Geraint,

I appreciate that I have today become the owner of 50% of the shares in Neath and agreed to become a Director of the Company. However, my involvement will be via Michael at all times.

I am notifying you that I have authorised Michael to sign cheques in my name and the signature on the cheques will be as follows:-

S F Cuddy [the signature is in manuscript]

My understanding is that you will have the day to day running of the Company, and I will simply be required to sign off the company accounts and attend the occasional Board Meeting if appropriate.

Please notify Michael of anything you wish me to consider that affects the Company, and I will communicate back with you again via Michael.

If you wish to notify the Bank, then please do so.

I hope we have a long and successful relationship.

Regards,

Simone F. Cuddy"

41. Although the letter is undated, from its terms the letter purports to have been written on the day that Mrs Cuddy became the registered owner of one of the two shares in Neath. Mr Hawkes said that he did not see that letter at the time. His evidence is directly contradicted by Mr Morris. Mr Morris says that he drafted the letter at Mr Hawkes' explicit request; that he read a draft of the letter to him over the telephone and that he went through the terms of the letter with Mr Hawkes on 30 January 2004. Mr Morris says that he envisaged that Mr Cuddy would sign cheques with his wife's authority, but in his own name. He said that he did not envisage that Mr Cuddy would sign cheques in his wife's name. This latter piece of evidence cannot be true because the text of the letter explicitly refers to Mr Cuddy signing cheques in his wife's name. Mr Hollington said that there was no possibility of resolving the conflict of evidence between Mr Hawkes and Mr Morris except by concluding that one or other of them was deliberately lying. He said that Mr Hawkes was lying; and that the effect of the lie was to hole Mr Hawkes' credibility below the waterline. Mr Chivers on the other hand said that Mr Morris was lying. Mr Morris is a practising solicitor and is not (at least ostensibly) personally involved in the dispute and (at least ostensibly) has no axe to grind. It is difficult to conceive of any motive for his having come to court to tell deliberate lies. He gave his evidence in a convincing manner, apart from his attempt to distance himself from the statement in the letter that Mr Cuddy was to sign cheques in his wife's name. It is also the case that his evidence that he drafted the letter at Mr Hawkes' request did not sit well with his professional duties to his client at the time, the WRU, which was on the opposite side of the transaction from Messrs Cuddy and Hawkes. He himself acknowledged this. He is therefore in the position of having admitted conduct which does him no credit. If he were prepared to tell deliberate lies, it would have suited his personal position to have denied all knowledge of the letter, but he did not. I bear in mind also that Mr Morris has acted in the past for both Mr Hawkes and Mr Cuddy, and does not appear to have any animosity towards Mr Hawkes. I accept Mr Morris' evidence in preference to Mr Hawkes'. That said whether or not the letter was written on the date that it purports to bear is not a critical issue in the case. Although I have preferred Mr Morris' evidence to that of Mr Hawkes it does not of itself demonstrate that Mr Hawkes' evidence is untrustworthy on everything. It is not, for example, suggested that the signed letter was ever given to Mr Hawkes: merely that he was shown the draft without the completed signatures. He may genuinely have forgotten having seen the draft and in the light of the increasingly bitter feud between himself and Mr Cuddy have convinced himself that he had never seen it.
42. Not surprisingly since he had not been given the signed letter, Mr Hawkes did not notify the bank. From time to time matters concerning Neath's relations with the Ospreys would be discussed between Mr Cuddy and Mr Hawkes at their meetings. For example at a meeting held on 14 December 2004 they discussed both the question of merchandising and the split of profit between Neath and the Ospreys on Ospreys' branded merchandise; and also the number of games that the Ospreys might play at the Gnoll.

South West Wales Rugby Limited

43. Neath-Swansea Ospreys began playing in the 2003/2004 season. The team was managed by SWWRL, of which Mr Cuddy and Mr Blyth were the joint managing directors (and only directors).
44. On 2 July 2005 SWWRL changed its name to Neath-Swansea Ospreys Limited. The company announced that, as from the start of the 2005/2006 season, the team would be known simply as "the Ospreys". I shall refer to the company as "the Ospreys" from now on.
45. Under an agreement dated 1 September 2004 ("the Regional Operating Agreement"), the WRU had appointed the Ospreys to be the regional organisation responsible for regional rugby in the region defined by the administrative boundaries of the City and County of Swansea, Neath Port Talbot County Borough Council and Bridgend County Borough Council for a period ending on 31 May 2009, subject to a right of renewal. It had also granted certain rights to the Ospreys (e.g. to receive funding from the WRU) in return for the performance by the Ospreys of certain obligations (as to organising the squad, hosting matches, providing broadcast facilities etc.). Clause 3 of the agreement contained a number of conditions precedent, one of which was that the Ospreys should provide evidence that all its issued and paid up share capital was vested beneficially and absolutely in Swansea and Neath. By clause 7.1 (a) of the agreement the Ospreys agreed "as an overriding objective" to "work with the WRU and the other Regional Organisations for the benefit of Rugby in Wales". By clause 7.1 (g) it agreed to use reasonable endeavours to assist Community Clubs to develop players, coaches and referees. By clause 7.1 (i) it agreed to observe the principles of corporate governance set out in Schedule 2 to the agreement. Paragraph 1 of that Schedule said that the main object of the Ospreys would be "the playing of rugby union football and the promotion and development of rugby union football and development of Community Clubs throughout the Region." Paragraph 4 of the same schedule said that only a Welsh rugby union football club or an organisation being a member of the WRU could hold shares in the Ospreys; and paragraph 7 said that 50 per cent of the issued and paid up share capital of the Ospreys was to be allocated to Swansea and the remaining 50 per cent to Neath. Thus a natural person was not permitted to own shares in the Ospreys. Paragraph 8 (c) said that matters arising at a meeting of the board of the Ospreys should be decided by a majority of votes; and that in the event of equality there should be no casting vote.
46. The Regional Operating Agreement defined who was a "Participating Club". A "Participating Club" meant "… a Welsh rugby union club or organisation being a member of the WRU and holding shares in or having an interest in [the Ospreys]". By this definition, Neath and Swansea are the Participating Clubs in the Ospreys. The definitions clause contained also a definition of the phrase "Event of Insolvency" where that phrase was used elsewhere in the agreement. An "Event of Insolvency" would include the presentation of a petition for, or the convening of a meeting to consider a resolution for, the making of an administration order or the winding-up or dissolution of the Ospreys, even if the winding up was a solvent one. The agreement went on to provide in clause 33 as follows:

"33.1 Immediately upon the occurrence of an Event of Insolvency by or in relation to a Participating Club (the "Insolvent Participating Club") insofar as it is lawful:

(a) the shares and any other interest of the Insolvent Participating Club in [the Ospreys] shall be transferred forthwith to the WRU free from all encumbrances upon payment of £1 …

(b) the directors of [the Ospreys] nominated by the Insolvent Participating Club shall cease to be directors of [the Ospreys] and the WRU … shall be entitled to nominate an equivalent number of directors to replace those directors on the board of directors of [the Ospreys]."

47. The parties to the Regional Operating Agreement were the WRU and the Ospreys. Clause 33 (the "Forfeiture Clause") is of concern to the Club and to Mr Hawkes and Mr Cuddy. If the court was to order Neath to be wound-up or dissolved, Neath might lose its share in the Ospreys. That share has been described in the course of argument as Neath's most valuable asset. The expert valuers appear to take the same view.
48. The company owning Celtic Warriors was wound up in June 2004, leaving only four regional sides, which is the position today. On the demise of Celtic Warriors, the WRU allocated responsibility to the Ospreys for the Bridgend area; and allocated responsibility to Cardiff Blues for the area of the Rhondda and Vale of Glamorgan from which Pontypridd RFC draws its support. Bridgend and Maesteg, both of which had flourishing rugby teams, thus fell within the Ospreys' area. Under the terms of the Regional Operating Agreement, the Ospreys had a responsibility to all the clubs in its region.
49. Nothing was put in writing until April 2005 to record the basis on which Neath and Swansea would own the Ospreys. On 25 April 2005 Neath and Swansea signed a shareholder's agreement in relation to the Ospreys ("the Regional Shareholders' Agreement"). It provided that the company should have a share capital of 1,000 shares of £1 each, of which only two shares would be issued. One share would be owned by Neath and the other by Swansea. Neath and Swansea agreed that they would each hold their respective shares in the Ospreys and that "the business and affairs of [the Ospreys] will be operated and managed in accordance with this agreement".
50. The Regional Shareholders' Agreement provides (among other things) as follows:

"3. Directors and board meetings

3.1 At all times whilst this agreement remains in force each Shareholder shall whilst it remains a shareholder in the Company be entitled to appoint and maintain in office a person to act as director and shall have the right to remove from office any such person so appointed. At the date hereof Neath has appointed Mr Cuddy to the Board and Swansea has appointed Mr Blyth to the Board.

3.2 Each Shareholder shall refrain from exercising its voting rights and other powers of control available to it in relation to the Company to seek to remove from office a director appointed by the other Shareholder pursuant to the powers granted to that other Shareholder by clause 3.1 above.

3.3 The quorum for any meeting of the Board shall be not less than two directors of whom one shall be a director appointed by Neath and the other a director appointed by Swansea.

3.4 Unless otherwise agreed the Shareholders shall procure that board meetings be convened and held at least monthly unless the Board otherwise agree and that a written agenda specifying the matters to be raised at any meeting of the Board shall be sent to all directors entitled to receive notice of any such meeting together with the notice convening the meeting or (sic) not less than seven days prior to the date of the meeting. It is further agreed that (unless, in any particular case, the Shareholders shall otherwise agree in writing) no resolution relating to any business may be proposed or passed at any meeting of the Board unless the nature of the business is specified in the agenda.

4 Business of the Company

4.1 The business of the Company shall unless and until otherwise agreed by the Shareholders be confined to the management and operation of the professional rugby union team called "the Ospreys" and all things incidental and conducive thereto

6. Conduct of the Company's business

It is agreed and acknowledged by the Shareholders that whilst this agreement remains in force:-

6.1 the business of the Company shall be managed in accordance with normal commercial principles …

6.3 they will at all times during the term of this agreement act in good faith to each other in relation to matters concerning the business and affairs of the Company; and

6.4 they will use and exercise the votes controlled by them at all meetings of the Company and its Board in order to ensure the observance of the terms of this agreement.

8 Promotion of Company's business

Each of the Shareholders covenants with its other to use all reasonable endeavours to promote and develop the business of the Company to the best advantage in accordance with good business practice and the highest ethical standards.

9 Chairman's Casting Vote

The Shareholders agree that notwithstanding the provisions of the Articles of Association of the Company at any meeting of the Board or of the shareholders of the Company, the Chairman thereof shall not in the event of an equality of votes whether on a show of hands or a poll, be entitled to a second or casting vote.

10. In the event that the Company's rights to play first class rugby at the [Liberty] Stadium are terminated by reason of the insolvency of [StadCo] and in the event that the Company is unable (having used all reasonable endeavours) to negotiate terms for the playing of first class rugby at the Stadium which are satisfactory to both Shareholders (acting reasonably) within such timescales as are necessary to enable the Company to continue playing such games at the Stadium it shall play all such games at the Gnoll Neath until such time (if at all) as the Company can negotiate such satisfactory terms as aforesaid in respect of the Stadium.

13.5 This agreement (together with all agreements and documents executed contemporaneously with it or referred to in it) constitutes the entire agreement between the Shareholders and supersedes all prior agreements and understandings whether oral or written with respect to that subject matter."

51. The Regional Shareholders' Agreement was signed by Mrs Cuddy and Mr Hawkes on behalf of Neath, and by the attorneys for Mr Blyth and Mr Davies on behalf of Swansea.

Governance of the Ospreys

52. Although the board of the Ospreys consisted of only two directors (Mr Blyth and Mr Cuddy), in practice its board meetings in the early years were also attended by others. Mr Hawkes attended the board meetings on 2 August 2004 and 4 December 2004, and was asked to present a proposal to the next board meeting on 14 December about merchandising. However Mr Hawkes did not attend that board meeting. He sent his apologies instead. His non-attendance was raised by Mr Cuddy at a meeting of Neath in January 2005; and according to the minute of that meeting Mr Hawkes agreed to attend all future Ospreys meetings and to reaffirm his commitment to the Ospreys at the next board meeting. Mr Hawkes did attend the next Ospreys board meeting on 20 January 2005. Thereafter, he does not appear to have attended any others. He explained in evidence that with both Neath and his own business to run he was too busy.
53. Although board meetings were recorded up to early 2005, it is a striking fact that since then there have been no agendas for board meetings and no minutes of board meetings. There are in the trial papers some papers relating to management meetings and there may be others that have been disclosed but have not been included in the trial papers, but I need say no more about this since the issue was not explored at trial. On the face of it this amounted to a breach of the Regional Shareholder's Agreement.
54. Mr Andrew Donald was the chief executive of the Ospreys until his departure at the end of 2004. Mr Andrew Piddington has been the General Manager since then. Both Mr Donald and Mr Piddington take instructions from the board. On the board, Mr Cuddy is principally responsible for playing matters, liaising closely with the coaching staff and players. Mr Blyth is primarily responsible for commercial matters.
55. It is, I think, appropriate at this stage to say something about Mr Cuddy's approach to his role as a director of the Ospreys. He said more than once during the course of his evidence that he made decisions which, in his view, were in the best interests of Ospreys. He also took the general view that what was in the best interests of the Ospreys was also in the best interests of Neath, as a 50 per cent shareholder in the Ospreys. Mr Chivers put to him that he had jumped into the Swansea camp. Mr Cuddy's reply was that "I am in my camp and the Ospreys' camp and I will do what I think is best. I am in nobody's camp." However, it is also the case that Mr Blyth in particular saw Mr Cuddy as representing Neath's interests on the board of the Ospreys and, conversely, Mr Cuddy saw Mr Blyth as representing Swansea's.

Financial matters

56. At its inception the Ospreys was simply the joint creation of Neath and Swansea. With the addition of Bridgend and Maesteg, it became the regional side for those feeder clubs as well. The Ospreys had been providing financial grants to Swansea and Neath. At the beginning of the 2005/6 season, Mr Blyth felt strongly that, in view of its expanded regional role, the Ospreys should discontinue the making of those grants. However, Mr Cuddy argued the case for continuing the grant to Neath; and eventually a compromise was reached under which the Ospreys would pay a reduced grant of £25,000 for each of the next two seasons, following which there would be a review.
57. At the meeting of Neath on 14 December 2004 Mr Hawkes had asked Mr Cuddy to secure agreement from the Ospreys to profit from Osprey branded merchandise sold by Neath in the club shop. Mr Cuddy discussed this with Mr Blyth and secured the Ospreys' agreement, despite the fact that the profits from similar merchandise sold by Swansea were passed back to the Ospreys.

The new stadium and games at the Gnoll

Before the Liberty Stadium

58. When the Ospreys began playing they played their fixtures at Neath's ground at the Gnoll, and Swansea's ground at St Helens. The fixtures were divided equally between the two grounds. However, a new stadium was under construction in Swansea. This was originally called Morfa stadium, but it subsequently became the Liberty Stadium. The stadium was a joint venture between Swansea City Council, Swansea City FC (known as "the Swans") and the Ospreys. The Swans and the Ospreys were to share the ground, but in order to comply with conditions of funding from the FA the Swans were to have priority. At the time it was not clear how long it would take for the pitch to be converted from a soccer pitch to a rugby pitch; and there was a possibility that there might be a clash of fixtures which might deny the Ospreys the use of the stadium. The Liberty Stadium is a state of the art stadium, with a seating capacity of 20,000. It can cater for over 1,000 people in its hospitality boxes and function rooms. By contrast, the Gnoll is (in Mr Hawkes' own words) "very tired" and only has a capacity of 7,200 of whom less than half are seated. It has poor facilities for corporate hospitality; and the toilets are "basic". Nevertheless Mr Hawkes was and is very keen for at least some of the Ospreys' matches to be played at the Gnoll. One of the main complaints made against Mr Cuddy in the petition is that he failed to ensure that any Ospreys' fixtures were played at the Gnoll and that, in effect, he reneged (or allowed the Ospreys to renege) on an agreement that some of those fixtures would be played at the Gnoll.
59. The first task is to locate the source of the agreement. It is not as easy as it sounds. It is, however, common ground that there was no written agreement to this effect. The petition relies on an announcement on the Welsh Rugby Union's website in the following terms:

"OSPREYS COMMIT TO MORFA AND THE GNOLL

2 September 2004, 3:36 pm

The Neath-Swansea Ospreys today made clear the playing arrangements agreed in light of the regional side's move to the Morfa stadium next season.

Ospreys joint managing director, Mike Cuddy, had already made clear at last week's supporters consultation meeting that the regional side are committed to playing at least 13 games at Morfa during next year's season, in the balance to be played at Neath's Gnoll ground. The arrangement emulates the likes of leading Irish rugby team Munster and French side Toulouse, who both operate dual playing venues.

With 18 home games anticipated for the Ospreys during season 2005/2006, the decision should see around five games played at Neath's historic Gnoll ground.

Speaking today Ospreys joint managing director Mike Cuddy said:

"When reaching initial agreement over the playing arrangements for next season, it seemed clear that we needed to strike the right balance between the commercial interests of the Ospreys and the use of the new Morfa stadium.

"In order for the stadium, commercially, to be a resounding success, we obviously needed to ensure that the majority of our games, would be played at what will be a truly world class facility. Equally, we were aware that there were games in the rugby calendar that would be inappropriate to be played at Morfa due to the size of the anticipated crowd and the resultant costs of manning the stadium.

"By splitting games between Morfa and the Gnoll, the Ospreys will be able to effectively manage commercial pressures and interests, whilst keeping a strong element of regional rugby at the Gnoll which, on current projections, will see around five games played in Neath next season."

Ospreys' chief executive Andrew Donald added:

"With a year to go before the new Morfa Stadium is up and running the Ospreys are now talking to potential sponsors in preparation for the 2005/2006 season. As part of these negotiations, the biggest question coming back at us was how many games would the Ospreys be playing at the stadium and our position now answers this question.

"By operating a dual stadium system, emulating the likes of Munster and Toulouse, we will be making the most of Morfa, its facilities and commercial opportunities, whilst also making the most appropriate use of the Gnoll. As a result, redevelopment will continue at the Gnoll over the next season, to ensure a crowd capacity of around 12,000.

"With our supporters consultation exercise now well underway and with the opening of the stadium so close at hand, we will keep a watching brief on the policy and are prepared to make changes, where necessary, in the interests of both the Ospreys and regional rugby. Commercial interests will ultimately and logically determine the level of matches to be played at each available ground."

60. There are a number of points to be made about these statements. First, they post-date the Hawkes/Cuddy agreement by about eighteen months, so they cannot form part of the original understanding on which Messrs Hawkes and Cuddy entered into their arrangements. Second, the expressions of intent contained in the statements were not carried through into the Regional Shareholders' Agreement when that was signed some five months later. Although clause 10 of the Regional Shareholders' Agreement does refer to the playing of fixtures at the Gnoll, it does so only in the context of the non-availability of the Liberty stadium. Clause 13.5 of the Regional Shareholders' Agreement contains an entire agreement clause, which must have superseded any prior understanding based on this press release. Third, there is a difference of emphasis between the statement attributed to Mr Cuddy and that attributed to Mr Donald. The former is more committed to playing fixtures at the Gnoll than the latter, who makes it clear that ultimately commercial considerations will determine the level of matches to be played at each ground. It is, however, fair to say that both statements contemplate that some Ospreys' fixtures will be played at the Gnoll. Fourth, Mr Donald refers explicitly to the redevelopment of the Gnoll, in order to ensure a crowd capacity of 12,000 (an increase in capacity of just under 5,000). The contemplated redevelopment of the Gnoll was to take place, as Mr Hawkes accepted in cross-examination, over the 2005/6 season. In fact the redevelopment never took place; and the Gnoll did not achieve a crowd capacity of 12,000. So the premise underlying Mr Donald's statement did not materialise.
61. While the new stadium was in the course of design and construction Mr Harvey voiced serious concerns on behalf of Neath about the branding of the new stadium. His concern was that it was branded as a Swansea stadium and the connection with Neath was being downplayed. To some extent this was understandable, because the new stadium was not an enterprise of the Ospreys alone. Not only was it physically situated in Swansea, it was a joint venture between Swansea City Council, Swansea City FC and the Ospreys. So two of the three joint venturers (and one of the two teams who would share the ground) were Swansea entities. Nevertheless Mr Harvey made his concerns felt to Mr Donald on a number of occasions. As he put it in an e-mail to Mr Donald on 28 September:

"To have a regionally branded team playing out of a Swansea branded stadium does not sit easily with Mike, Geraint or myself."

62. This was copied to both Mr Cuddy and Mr Hawkes. Mr Hawkes was being kept informed about the progress of the stadium; and Mr Cuddy was supporting Neath's concerns about the branding of the new stadium. On the following day, in another e-mail to Mr Donald, Mr Harvey proposed a meeting which Mr Cuddy and Mr Hawkes might attend. In October 2004 the PR consultant was due to visit Swansea to discuss the branding of the stadium. Mr Hawkes and Mr Harvey were copied into the arrangements for the meeting, and Mr Harvey suggested that "we should all meet with these people". The evidence does not reveal whether they did.
63. On 14 December 2004 a board meeting of Neath took place. Mr Hawkes was the only director present, although Mr Cuddy and Mr Harvey were in attendance. Mr Hawkes reported that Neath Port Talbot Council had said that funding would be made available to redevelop a new 4,000 seater stand at the Gnoll; and that the plans included a full refurbishment of the existing stands. However, a contribution of £250,000 was required from Neath in order to enable the project to go ahead, at an estimated cost of £2 million. He also said that a limited number of Ospreys matches (4 or 5 had been suggested) would have to be committed to the Gnoll. It was agreed that Mr Cuddy would meet the Council in February 2005 to discuss their proposals. There was some confusion in evidence about whether Mr Cuddy did meet the Council in early 2005 or whether the meeting did not take place until early in the following year, 2006. I find that the meeting took place in 2006 and that Mr Cuddy did not meet the Council in 2005.
64. In the spring of 2005 negotiations were under way towards an agreement regulating the use of the new stadium. In an e-mail of 15 March Mr Harvey records an agreement between Messrs Hawkes and Cuddy that Mr Hawkes would represent Ospreys on the board of the company formed to manage the stadium ("StadCo"). Mr Hawkes went to one StadCo meeting but otherwise did not, in the result, implement that agreement. He accepted, however, that he could have attended StadCo meetings if he had chosen to. In an e-mail to Mr Morris (then acting for Neath) of 4 April 2005 and copied to Messrs Hawkes and Cuddy Mr Harvey raised a concern about the number of matches that the Ospreys were committed to play at the new stadium. The then current draft stipulated 13 games, which Mr Harvey feared would leave no matches being played at the Gnoll. Mr Morris passed on these concerns to Ms Morgan (acting for Swansea RFC). He said that the obligation in the draft to play 13 competition matches should be amended to 13 matches, in order to accommodate the possibility of friendly matches. He added:

"if as appears likely there are more than 13 games, then it would be Neath Rugby Limited's decision as to which games were played at the Stadium and which games were played at the [Gnoll]."

65. Mr Harvey commented on this by saying that he was not sure whether Mr Hawkes would be happy with the 13 match commitment, although Mr Harvey himself thought that it would have to be agreed. Mr Hawkes said that the position that was to be adopted was that there should be only 10 games committed.
66. Mr Donald had given the Ospreys' board a presentation of the benefits of playing matches at the Liberty stadium. He summarised his presentation in an e-mail to Mr Cuddy of 25 June 2004 which Mr Cuddy forwarded to Mr Hawkes on 4 April 2005. The benefits were not only financial. He pointed out that since the demise of the Celtic Warriors the only way for the Ospreys to engage their old support base was to play at the new stadium which would be seen as neutral ground. If the Ospreys played at Neath and Swansea they would feel alienated. Mr Hawkes said in evidence that he was supportive of Mr Donald's thinking.
67. On 22 April 2005 the Ospreys entered into an agreement relating to the Liberty stadium. The other parties to the agreement were the City and County of Swansea, Swansea City Association Football Club and the Swansea Stadium Management Company (StadCo). The Ospreys agreed to subscribe for shares in StadCo; and agreed that for so long as it remained a shareholder it would play no less than 10 competition games and no less than three other equally prestigious games at the stadium.
68. In the result, Mr Hawkes appeared to be pleased at the terms of this agreement. Shortly before it was signed he e-mailed Mr Cuddy:

"Now that things are all sorted out shall we issue press release to neath people securing games at neath so come out and support ospreys and neath etc. You and I will be gods over this in neath mike. Freedom of the town and all that."

69. Mr Hawkes said (and I accept) that he agreed to the Ospreys playing 13 games at the new stadium on the assumption that at least some (if not all) of their remaining games would be played at the Gnoll. On 25 April 2005 Mr Harvey recorded that his understanding was that the current position was similar to that stated in the press release of September 2004 and was keen for an announcement to be made within the next few days. At the end of April 2005 the Ospreys played their last game at St Helens. Mr Harvey was consulted about the terms of an article to appear in the match programme. He said:

"We should make it clear in the articles that games will continue to be played at the Gnoll, with an expected minimum of 5 matches (and potentially up to seven) being played there next season…. The Gnoll will be redeveloped over the next few years to ensure that it continues to be a suitable home for the Ospreys."

70. Messrs Harvey Hawkes and Cuddy met on 2 June 2005. Mr Harvey summarised the points discussed. They included:

"Gnoll redevelopment plans are to continue as previously agreed and Geraint/Mike to meet with Derek Vaughan [the leader of Neath Port Talbot Council] in respect of discussing the full project and the urgent short term improvements required (re seating capacity/clubhouse improvements/changing rooms upgrade/media facilities)"

71. Messrs Harvey Hawkes and Cuddy met again on 21 June. Mr Harvey prepared an agenda. The first point was:

"Gnoll redevelopment update – being a general update re progress and also what "needs" to be done as a minimum to enable Neath to be able to host Ospreys matches from next season and whether the council will be prepared to give support for the urgent work that needs to be carried out."

72. Season tickets for the 2005/6 season were on sale in the summer of 2005. The Ospreys' website had a list of fixtures. It began by saying that 13 fixtures were to be played at the new stadium and the balance at the Gnoll. One fan raised a query about this which was passed to Mr Harvey. His reply (which was copied to Mr Cuddy and Mr Hawkes) was that:

"13 fixtures will be played at the new stadium with the balance of fixtures played at the Gnoll – The make up of these fixtures is not agreed but it is likely to include a mix of quality friendlies (against first class opposition) and competition fixtures."

73. Mr Cuddy's response was to suggest a meeting at the stadium "to clarify everything". Mr Hawkes did not respond.
74. In the meantime the new stadium was nearing completion. Mr Harvey expressed repeated concerns that it was being branded as a "Swansea" stadium and that the name of the Ospreys and of Neath were not being given sufficient prominence. In order to gain some leverage he suggested to Mr Cuddy on 3 August that Mr Cuddy should tell the Swansea representatives that two or three games would be played at the Gnoll.

After the Liberty Stadium

75. The new stadium was ready for operation in time for the start of the 2005/6 season. The first match, a friendly against Wasps, was played there in late August 2005. It was a sell out, with a gate of 12,000 to 15,000. The next two matches were equally successful. The gates for the first two matches alone were at least as big as the gates for all the matches in the previous season played at St Helens and the Gnoll. The success of the Liberty Stadium was far greater than anyone had expected. Mr Cuddy described the experience of seeing the stadium full of spectators as "mind blowing".
76. In early September 2005 Mr Harvey pressed Mr Cuddy for a meeting to discuss matches to be played at the Gnoll. He suggested fixtures against Connacht and Borders respectively. He also wanted to discuss the refurbishment and upgrade of the Gnoll. A meeting took place on 12 September. Mr Harvey recorded the outcome of the meeting in an e-mail. He recorded that Connacht and Borders were confirmed as fixtures for the Gnoll and also recorded:

"Gnoll upgrade … Council has made a commitment to fund £800-£900k of the £1.4 m cost of the new stand. The balance will be funded by Neath from a re-mortgage of the club shop."

77. So far as the fixtures at the Gnoll were concerned, Mr Harvey suggested that they be justified on the basis that the Liberty Stadium was not available. This, I think, was an effort to placate the Swansea and Bridgend fans who would not have been happy to see fixtures played at the Gnoll. The Connacht fixture was due to be played on 14 October, so a final decision needed to be taken by Ospreys. Mr Piddington pointed out a number of "serious logistical issues" that would arise if this proposal were to be put into effect. Mr Harvey thought that these problems were not insurmountable, but he understood Mr Piddington's reluctance to play matches at the Gnoll. His view at that time was that "we have to play a minimum of two fixtures there this season." Mr Cuddy's response was "Yes, but in my opinion later on…". Some time in the weeks before the Connacht fixture, Mr Hawkes and two other representatives of Neath met Mr Piddington at the Liberty stadium. Mr Hawkes reiterated his desire for matches to be played at the Gnoll. Mr Piddington outlined the logistical difficulties about moving the Connacht fixture, and outlined the strategic reasons for playing games at the Liberty stadium. Mr Piddington said that Mr Hawkes appeared uninterested, and the meeting concluded without a clear outcome. Mr Cuddy and Mr Blyth fully debated the matter and reached the conclusion that the fixture should be played at the Liberty Stadium. Mr Piddington was a firm advocate for that decision. On 26 September Mr Blyth rang Mr Hawkes to tell him that the Connacht match would not be played at the Gnoll. Mr Hawkes was clearly angry and upset. On 4 October he protested to Mr Cuddy. He pointed out that decisions had been made at Neath before the season started based on promised incomes and because those incomes had not materialised Neath was in serious financial difficulty. He and Mr Harvey had another discussion in which Mr Harvey reported that Mr Cuddy was still hopeful that two Ospreys' matches would be delivered. On 21 October Mr Harvey e-mailed Mr Hawkes (copied to Mr Cuddy). He said:

"I believe from discussions with Mike that we can for the time being continue to assume we are still on track for Borders and Glasgow at the Gnoll – I think Ospreys and Neath staff need to meet ASAP to ensure the logistical issues are not an issue next year and we do not get another "Connacht"."

78. Messrs Harvey, Hawkes and Cuddy met again on 4 January 2006. The agenda for the meeting included: "Matches to be played at the Gnoll (Connacht/Glasgow) and work necessary to host the Ospreys (particularly re media facilities which need tidying up). At the meeting it was agreed that Mr Cuddy was to meet Mr Vaughan of the Council to discuss the redevelopment and the required commitment from the Ospreys. Mr Hawkes was recorded as having said that the Council were still keen to redevelop the main stand and that they wanted four Ospreys matches per season "for £750k contribution of £1.2m cost". At a further meeting on 19 January Mr Harvey recorded that:

"MC and GH will continue to discuss the Gnoll development with NPT Council. The Gnoll is to remain the Ospreys alternate ground, but it was recognised that updating is urgently required. It will be stressed in the meeting with the Council leader that the ground updating is required for Neath RFC use, let alone if the Ospreys are to regularly play at the ground."

79. On 30 January Mr Harvey pressed Mr Cuddy for a decision about matches at the Gnoll. He pointed out that the Borders match was only 2 ½ weeks away and that hospitality would have been sold on the basis that it would be played at the Gnoll. On the same day Mr Hawkes insisted that there would be two games at Neath and that this should be confirmed immediately. However, he thought that Mr Cuddy would not decide that the games would be played there. He said that he had agreed to the StadCo in order for that to happen and that there was an agreement that should be honoured. Mr Harvey and Mr Cuddy were in Scotland for a rugby match and they discussed the situation. Mr Cuddy's position was that he was not keen to play at the Gnoll until the facilities were improved. Mr Harvey relayed this to Mr Hawkes. He continued that Mr Cuddy could be persuaded if the Council were to join in the upgrade and the scheduling of the matches were linked to an announcement about "securing the council's investment". In his oral evidence Mr Hawkes accepted that Mr Cuddy's position was a perfectly rational one, but he added that Mr Cuddy knew that the Council would not support a redevelopment of the Gnoll unless the Ospreys committed to playing there. That is a fair point so far as it goes, but as will be seen shortly the Council's support did not extend to putting its own hand in its pocket. In his second witness statement Mr Harvey said (and I accept) that:

"Mike [Cuddy] was passionate about the redevelopment of the Gnoll and … he was caught between his wish to see the Gnoll developed and improved and the detrimental effect that playing at the Gnoll as opposed to the Liberty Stadium would have had on the Ospreys."

80. In early 2006 Mr Harvey and Mr Cuddy met Mr Vaughan, the leader of Neath Port Talbot Borough Council. Mr Hawkes did not attend the meeting. They learned at that meeting that the Council was not in a position to fund any redevelopment of the ground, although it was willing to assist in seeking funding from other sources. Mr Harvey was surprised by this, as it was not what Mr Hawkes had led him to believe. Mr Cuddy was also surprised and disappointed, and felt that Mr Hawkes had misrepresented the Council's position. It is clear (and I find) that both Mr Cuddy and Mr Harvey had been led to believe by Mr Hawkes that the Council's commitment to the redevelopment of the Gnoll was far greater than was revealed at the meeting with Mr Vaughan. Far from having committed £800,000 towards the redevelopment of the Gnoll, the Council were not in fact prepared to put up any of their own money, although a small grant was mooted.
81. On 14 March 2006 Mr Harvey prepared a draft press release which said that the fixture against Ulster (scheduled for the weekend of 26 May 2006) would be played at the Gnoll. It also contained a quotation attributed to Mr Cuddy part of which reads:

"Although we have focused our rugby at the Liberty Stadium this year we are keen to maintain our links with the Gnoll and it remains our intention to schedule a number of fixtures each season at the ground… The Gnoll has been our alternate venue for this season and it is intended that the facility will be upgraded to make it suitable for regional rugby fixtures in the longer term."

82. It is not clear whether this draft was actually released. The probability is that it was not. Mr Hawkes and Mr Harvey had a telephone conversation about the Ulster fixture (which was the last game in the season). Ulster were on course to win the Celtic League and a large attendance was expected. Ulster had asked for a large allocation of tickets. Mr Piddington was asked to prepare a financial appraisal and he advised the Ospreys board that there could be a potential revenue loss of £68,000 if the match were to be played at the Gnoll. Mr Cuddy spoke to a number of former Neath players all of whom said that to play the match at the Gnoll would send out the wrong partisan message. Mr Harvey and Mr Hawkes had a heated debate on the telephone about the merits of playing the fixture at the Gnoll. Mr Hawkes eventually said that the Ospreys should "do whatever is best for the Ospreys". They decided to play the fixture at the Liberty Stadium. Mr Hawkes agreed. He has not since then asked for any other match to be played at the Gnoll, because he believes that any such request would be refused.
83. However, as late as 2 May 2006 Mr Cuddy was still entertaining the idea of playing one match at Neath every year, with another at Bridgend. Since this proposal was contained in an e-mail internal to the Ospreys, I think that it is good contemporaneous evidence about Mr Cuddy's thought process. However, by the end of May 2006 Mr Harvey expressed the view in an e-mail to Mr Cuddy that "we are highly unlikely to play again at the Gnoll".
84. Mr Derwyn Jones was the Regional Rugby Manager of the Ospreys from 2003 to early 2007. Although he had no knowledge of any agreement about the playing of fixtures at the Gnoll he had been told that the Ospreys were committed to playing three fixtures a season there. He was in close contact with both Mr Cuddy and Mr Blyth in the run up to the opening of the Liberty stadium and thereafter. His perception was that:

"Mr Cuddy was hoping for half of the games to be played at the Gnoll. However, over time Mr Blyth, I believe, tried to change Mr Cuddy's mind to play all the games at the Liberty Stadium."

85. He added:

"And Mike Cuddy was adamant that we still had to maintain and play a certain amount of games at the Gnoll. However, Mr Blyth, through various reasons of -- whatever his reasons were, I think he did not think -- there was an element of snobbery, possibly. He did not want to play regional games out of the Gnoll. And also I think in time Mr Cuddy saw from a business sense that it would make sense for him to play all the games at the Liberty Stadium and align himself with the Swansea benefactors."

86. I think that Mr Derwyn Jones' perception was accurate. Mr Hawkes' perception, like that of Mr Derwyn Jones, was that Mr Cuddy had been persuaded to change his mind. He said in cross examination:

"Q. You would agree with what?

A. The fact that Swansea felt that all of the games should be played at the stadium because it was commercially beneficial to the Ospreys.

Q. And Swansea felt that very strongly, did they not?

A. Yes, I would say so.

Q. And they ultimately persuaded Mr Cuddy that that was the right commercial decision for the Ospreys to make?

A. It seems that way, yes.

Q. I put it to you that, throughout, Mr Cuddy had done his best to represent the interests of the Neath club, had he not?

A. Up until this point [September 2005], I would say that Mike was batting for Neath."

87. Mr Hawkes also agreed that, from the Swansea point of view, the decision to play all fixtures at the Liberty Stadium was a reasonable decision.
88. Mr Blyth also gave evidence about the business case for playing all fixtures at the Liberty stadium. In the 2005/6 season Neath asked for the fixture between Ospreys and Connacht to be played at the Gnoll, as it had been the previous season. However, the Ospreys decided to play the fixture at the Liberty stadium in order to make a comparison between the two venues. Whereas gate receipts at the Gnoll in 2004 had been £1,500, those at the Liberty stadium were £23,300 and attendance increased from 1,800 at the Gnoll to 5,511 at the Liberty stadium. In Mr Blyth's words, playing all the fixtures at the Liberty stadium had doubled attendances "and we believed that being located at one neutral venue had galvanised support throughout the region". The net effect of playing all fixtures at the Liberty Stadium had turned the Ospreys from a team that had been making substantial losses into making a profit of several hundred thousand pounds a year. As well as increased gates, there were spin-off effects on sponsorship and the sale of Ospreys branded merchandise.
89. Mr Harvey also said that the ability to generate income off the back of the Liberty stadium is enormous. He said it was the major factor which had turned the financial fortunes of the Ospreys from losing £1.4 million in its first two years (when fixtures were played at the Gnoll and St Helens) to making a profit of £600,000 after the move to the Liberty stadium.
90. There is no dispute that the Gnoll has the physical capacity to accommodate some of the smaller Ospreys games. Whether the standard of the facilities available at the Gnoll is adequate without substantial improvement is a different matter. Mr Cuddy persuaded Mr Blyth to make an offer to stage an annual fixture at the Gnoll between the Ospreys and a side selected from the regional premier clubs with all the revenue from that match being retained by Neath. However, Mr Hawkes turned down the offer in June 2006 because he "had issues" with the Ospreys.
91. The Swansea contingent had always wanted the Ospreys' fixtures to be played at the Liberty Stadium. I think that their strongly held view was underpinned not only by the financial case in favour of playing all fixtures at the Liberty Stadium but also by the traditional rivalry between Swansea and Neath, which would have made them uncomfortable about the Ospreys playing at the ground of their traditional rivals.
92. By the time of the trial Mr Cuddy was clearly convinced that it would be "financial suicide" for the Ospreys to play fixtures at the Gnoll. In financial terms he is in no doubt that it is in the interests of Neath for all the Ospreys' matches to be played at the Liberty Stadium. Not only were gates higher at the Liberty Stadium, but there would also be the problem of apparently favouring one of the regional clubs over all the others. If a fixture were to be played at the Gnoll, Mr Cuddy said that he feared that similar demands for the playing of fixtures might come from Swansea and Bridgend. However, he agreed that although Mr Blyth might have suggested from time to time that if matches were played at the Gnoll, Swansea might ask for matches to be played at St Helens, those suggestions were tongue in cheek and were not seriously intended. Despite Mr Cuddy's concession in this respect, I do accept that he genuinely thought (and still thinks) that to play competitive matches at the Gnoll would send the "wrong message" to the region. In effect, what he meant was that favouring Neath would alienate those supporters whose origins were the clubs of Swansea, Bridgend, Aberavon, Maesteg and the other regional clubs. I should also add that in my judgment the evidence that Mr Cuddy gave at trial adopted a harder line than he took at the time. He said, for example, that as early as April 2005 (i.e. before the Liberty Stadium had opened) he took the view that all matches should be played at the Liberty Stadium. I do not believe that that was his contemporaneous view. As the contemporaneous documents show he was more open to the suggestion that matches should be played at the Gnoll well into 2006; and it was only the unexpected success of the Liberty Stadium and the advocacy of Mr Blyth and Mr Piddington that persuaded him to the contrary. His evidence at trial was coloured by the rancour that this dispute has generated.
93. It is plain, in my judgment, that Mr Cuddy believes strongly that the board of a regional club like the Ospreys should not favour one of its feeder clubs over another, even if the favoured club is a shareholder. In his first witness statement he said:

"As a director of the Ospreys I have a duty to carry out my role in the best interests of the Ospreys not the interests of Neath Rugby as if it were the sole shareholder. That is precisely what I have done. Hawkes' real complaint is that I have not preferred the interests of Neath Rugby to those of the Ospreys."

94. As he put it in his oral evidence:

"I am torn between the best interests of Neath and the best interests of the Ospreys. The Ospreys is Neath's biggest asset. If the Ospreys carried on losing the money at the rate they had lost for the two years prior, we would not have had an Ospreys. And it is in my opinion that it is in the best interests of Neath to play the games at the [Liberty] stadium."

95. He subsequently explained:

"There is a number of issues at the time … that you could look at. And one of the biggest -- there are two in my mind: one, the finances. Mr Hawkes said categorically, "I am not putting any more money into the Ospreys." That is fine, I had to agree with it. So the main objective for myself is to make sure that the Ospreys becomes a sustainable business, and in the first two years it wasn't; it lost a million and a quarter. And I believe that playing games out of a new stadium, which is totally neutral from the tribalism of St Helens and the Gnoll and the Brewery field, has made a significant difference to the support of it, the way the Ospreys are perceived as the only true region, and the balance sheet. And I think that is in the best interests of Neath, that the Ospreys is healthy on the field and healthy, financially, off it."

96. Mr Harvey also said that it would be "commercial suicide" for the Ospreys to play at an undeveloped Gnoll once the Liberty Stadium had become available.

The StadCo variation

97. The original agreement for the management of the Liberty Stadium had been a joint venture between Swansea City Council, Swansea City Football Club and the Ospreys. It was managed by a company in which all three were equal shareholders ("StadCo"). At the end of 2005 Swansea City Council wanted to withdraw from the joint venture and the question arose whether Swansea City Football Club and the Ospreys would carry on alone. Mr Atherton of the Ospreys was the chief negotiator. Within the Ospreys board Mr Blyth dealt with the StadCo agreement as it was a commercial matter. Mr Cuddy said that he would not have questioned any decision that Mr Blyth made. On 16 January 2006 Mr Atherton e-mailed draft heads of terms to a number of recipients, including Messrs Cuddy and Hawkes. A meeting was arranged at the Liberty Stadium for 18 January; but it was postponed to accommodate Mr Hawkes' diary commitments. In the event he did not attend the rescheduled meeting. The draft heads of terms included a provision by which the two clubs agreed to indemnify the StadCo and the City Council directors against all losses. Messrs Harvey, Cuddy and Hawkes met on 19 January to discus the heads of terms. They agreed that Ospreys should proceed with accepting responsibility for the running of the Liberty Stadium and increasing its involvement in StadCo from 33 per cent to 50 per cent. However, there were six points of concern. The agreement to proceed was on the basis that these six points were met. The two important ones were:

i) Liability for losses should be capped at 50 per cent even if Swansea City Football Club were to become insolvent and

ii) The position in respect of maintaining the option of playing matches at the Gnoll was to remain unaffected by the new arrangements.

98. Mr Harvey relayed these points to Mr Atherton on 16 February. A few days later Mr Atherton sent round revised heads of terms. He commented that these were the best deal likely to be achieved; and he pointed out that the City Council would take responsibility for a loan to StadCo of £2.3 million, which was, in effect, being written off. Mr Harvey reviewed the revised heads of terms. He commented in an e-mail to Mr Cuddy that he could not see how the cap had been addressed in the new agreement and that that was "a big issue". The point about the option to play fixtures at the Gnoll had not been explicitly addressed; but Mr Harvey commented that it was not a big issue provided that everyone knew that that was the case.
99. On 22 May 2006 Mr Hawkes e-mailed Mr Atherton. He said that as a shareholder in Ospreys and a director and shareholder in Neath and in accordance with the shareholder agreements of both companies, he was "completely opposed to ospreys taking over the day to day running of the liberty stadium." He said that since decisions of that importance could not be made unless all shareholders both within Ospreys and Neath were in agreement, the restructuring could not proceed. Mr Hawkes' explanation in evidence for his uncompromising stance was that by this time in May 2006 "relationships had broken down". At the time, however, it seems that the ostensible trigger for Mr Hawkes' position was that he had seen an accountants' report projecting losses for StadCo. On the following day Mr Hawkes e-mailed Mr Cuddy. He said that as far as he could see none of the six points of concern had been addressed. On the same day he made the same point to Mr Atherton. Mr Atherton replied by e-mail on the same day. On the two principal points he said:

"liability for future losses is capped at 50% for the Ospreys even if the Swans become insolvent. … The issue of fixtures at the Gnoll is already covered in enduring agreements and is therefore not addressed further."

100. Mr Cuddy replied a couple of days later that all matters had been discussed at their meeting of 19 January and that as far as he was concerned he had acted in accordance with that agreement and the Ospreys shareholders' agreement. It is now accepted that Mr Atherton was quite wrong about the existence of a cap on the liability of the Ospreys. No such cap in fact existed. The heads of terms provided explicitly that the two clubs were to be "jointly and severally" liable for losses. Mr Atherton had seen an earlier draft in which the two clubs were to be "jointly and equally" liable for losses; and he had assumed that that was adequate as a cap. He had not noticed the change in wording; and anyway he did not understand the meaning of joint and several liability. On Mr Hawkes' side, it is accepted that Mr Atherton's mistake was a genuine one; and that the answer he gave in his e-mail of 22 May was given in good faith. In an internal e-mail of the following day Mr Atherton repeated that the six points of concern had been addressed. This internal e-mail shows that his mistake was a genuine one.
101. The heads of terms had been signed off in April 2006. They were agreed, but not legally binding. In June or July at a meeting with Swansea City Council Mr Atherton was disabused of his mistake about the cap. He tried to renegotiate the terms so as to introduce (or re-introduce) the cap. But the Council would not agree. Nor would Swansea City FC, because although the change would have been for their benefit, they were keen to conclude the deal which would result in their receiving a lump sum of cash that was urgently needed. Mr Atherton reported back to Mr Blyth and Mr Cuddy, whom he probably saw separately, and convinced them that the deal was still an attractive one. Both Mr Blyth and Mr Cuddy were convinced and agreed to go ahead; and the StadCo variation agreement was signed. No one went back to Mr Hawkes to tell him that the first of the six concerns had not been met. He did not find out about the terms of the agreement until much later.
102. Since Mr Hawkes was under the impression that the six points of concern had been addressed, the failure to address them cannot have been his reason for opposing the StadCo variation. He accepted as much in evidence. His contemporaneous e-mail said that his opposition was based on a pessimistic financial forecast and he expanded on this in the course of his oral evidence. His principal concern was that the Swansea City Council were dropping out of the picture, leaving the two clubs with the financial responsibility. He was also concerned about the sustainability of the stadium. Even on the basis that the liabilities had been capped, he would still have opposed the variation. This, in my judgment, represents a change of position on Mr Hawkes' part which had nothing to do with the detailed provisions of the heads of terms.

May 2006 and the breakdown in relations

103. It is now necessary to backtrack a little to the events of May 2006. Mr Hollington says that May 2006 marked a watershed; and was the start of what he described as a war between Mr Hawkes and Mr Cuddy. On 26 May 2006, Mr Hawkes sent an e-mail to Mr Cuddy stating that he had arranged for Neath's suppliers to be paid by way of bacs payments (i.e. direct transfer) because he was concerned to see that cheques were being issued on Neath's bank account with one of the signatures (that of Mrs Cuddy) being forged. The tone of Mr Hawkes' e-mail would lead an uninformed reader to suppose that Mr Hawkes had no idea that Mrs Cuddy's signature had been forged. In fact as Mr Hawkes knew perfectly well Mr Cuddy had consistently signed documents (including cheques) in the name of his wife and, moreover, had often done so at Mr Hawkes' express request. Mr Hawkes could simply have said to Mr Cuddy that the previous practice had to stop; but he did not. His e-mail was, to say the least, hypocritical. Mr Cuddy replied the same day saying that as far as he was aware no signatures had been forged. He referred to the fact that Mr Hawkes had earlier asked him to sign some blank company cheques, which he had refused to do. He accused Mr Hawkes of going behind his back to pay creditors without his (Mr Cuddy's) knowledge or approval. He offered to have a "man to man chat" and said that his aim was "to deal with this amicably and keep neath and the ospreys".
104. Mr Cuddy asked for a shareholders' meeting and attached a power of attorney from his wife which authorised him to exercise her rights as a shareholder. A shareholders' meeting took place on 5 June 2006 with Mr Hawkes, Mr Cuddy and Mr Newman in attendance. There was examination of Neath's latest draft accounts. These showed a temporary shortage of cash because Neath had repaid certain loans too quickly. They also showed that Mr Hawkes had put more money into Neath than Mr Cuddy. This appears to have come about because Mr Hawkes paid off debts owed by Neath to third parties, and treated the money so used as loans from himself to Neath. Mr Hawkes outlined a number of ways of dealing with this. One of the possibilities would be to convert the loan into shares (which would of course give Mr Hawkes a majority interest in Neath). Mr Newman said that Mr Hawkes could not simply convert his loan into shares, but Mr Hawkes said that he could. There was a short debate between Mr Hawkes and Mr Newman about that. Mr Cuddy protested that money should not have been introduced into Neath without his consent. Mr Cuddy then raised the question of a premiership game against the Ospreys which, he said, would be worth about £50,000 to £70,000. Mr Hawkes said that he was not prepared to agree to such a game being played "because of his issues with the Ospreys". Mr Newman's attendance note records that the meeting ended with Mr Hawkes and Mr Cuddy agreeing to explore a parting of the ways which would leave Mr Hawkes owning Neath and Mr Cuddy owning Neath's interest in the Ospreys. Although Mr Newman was tendered for cross-examination he was not in fact cross-examined. I accept his attendance note as an accurate record of the meeting.
105. Matters now became more acrimonious. On 9 June Mr Newman (now acting on behalf of Mr and Mrs Cuddy) wrote to Mr Hawkes in the following terms:

"Mike has also asked me to emphasise his and Simone's insistence that no further liabilities are incurred without Simone's agreement. In particular no further contracts are to be entered into without Simone's agreement. Any and all further payments made by the company whether by cheque, cash, bank transfer or otherwise are to be authorised by both directors. Please confirm that you will adhere to this request."

106. In an e-mail to Mr Newman of the same day Mr Hawkes said that no further decisions within the Ospreys were to be taken without consultation with him; and he also said that he proposed to nominate himself as a director of Ospreys representing Neath's 50 per cent shareholding. The confirmation that Mr Newman had requested from Mr Hawkes was not forthcoming. It was demanded again on 27 June. By this time Mr Hawkes and Mr Cuddy were only communicating through solicitors.
107. Mr Newman's letter of 27 June to Mr Hawkes' solicitors (Morgan Cole) was written on behalf of both the Cuddys. Apart from requesting confirmation from Mr Hawkes within the next 72 hours that Neath would make no further payments of any kind without the authorisation of both directors, the letter stated that the Cuddys had asked an accountant to carry out a financial analysis of Neath's financial records. Mr Newman asked for the whereabouts of the records and that they would be made available.
108. Having received no response Mr Newman wrote to Neath's bank (Barclays) on the morning of 30 June stating that he acted for Simone Cuddy and instructed the bank on her behalf that no payment should be made out of any of Neath's accounts unless signed or approved by both herself and Mr Hawkes. The letter asked for a list of all Neath's standing orders so that Mrs Cuddy could consider whether she was willing to authorise continued payment.
109. Morgan Cole were sent a copy of the letter to the bank and replied by e-mail on 30 June to that letter and to Mr Newman's earlier letter of 27 June. On behalf of Mr Hawkes they stated that Mr Cuddy had "no locus" to request sight of the financial records and, not being a director of Neath, had "no business interfering with Neath Rugby's bankers".
110. The exchanges became increasingly acrimonious. Mr Newman wrote to Morgan Cole on 3 July stating that Mr Cuddy denied that he had signed documents for his wife or in his wife's name. This was, of course, untrue; and Mr Cuddy must have known that Mr Hawkes would also know that it was untrue. Why he gave Mr Newman these false instructions is a mystery. Mr Newman also said in his letter that the request for financial information was being made by Mrs Cuddy, although she had signed a proxy entitling her husband to obtain information on her behalf. Without sight of Neath's financial records, Mrs Cuddy was not willing to sign the company's accounts to 31 July 2005 or to cooperate in the production of the accounts to 31 July 2006. The reason for her refusal to sign the 2005 accounts was the treatment of loans. In previous years the accounts had shown loans made to Neath by both Mr Hawkes and Mr Cuddy. Neath had then lent these monies to the Ospreys. The draft 2005 accounts showed these loans as having been made to the Ospreys by Mr Hawkes personally. Mr Cuddy (through his wife) objected to this change in accounting treatment, as Mr Hawkes knew. Mr Cuddy's position was supported by the Ospreys.
111. On 7 July Morgan Cole repeated Mr Hawkes' allegation that documents purportedly signed by Mrs Cuddy as a director of Neath had not in fact been signed by her. The letter asserted that "Mr Cuddy has no standing in the affairs of Neath" and called on Mrs Cuddy to honour her duty as a director to act in the best interests of Neath by not blocking payments legitimately due to Neath's suppliers.
112. On 10 August 2006 Morgan Cole informed Mr Newman that Mr Hawkes intended to convene a board meeting of Neath to vote on a resolution to remove Mr Cuddy as the Neath nominated director on the board of the Ospreys. On 31 August Mrs Cuddy said that she did not agree with the proposal to remove Mr Cuddy. The board meeting never took place.
113. Mrs Cuddy persisted in her refusal to sign the 2004/2005 accounts with the result that a criminal prosecution was commenced by the DTI in October 2006 for the directors' failure to file the accounts at Companies House by 31 May 2006. It proved impossible to resolve the impasse before the case was heard by Cardiff magistrates on 22 March 2007. Mr Hawkes was acquitted but Mrs Cuddy was convicted and fined £125 with costs. Part of the problem was that Mrs Cuddy was ill and did not attend and therefore did not give evidence on her own behalf. Mr Hawkes put out a press release drawing attention to Mrs Cuddy's conviction and stating (untruthfully) that he did not know why Mrs Cuddy had refused to sign the accounts.
114. An attempt was made by Mr Hawkes and Mr Cuddy to resolve their differences. Negotiations conducted through their respective solicitors resulted in a meeting on 15 March 2007. Mr Hawkes and Mr Cuddy were present as well as a representative of the WRU and its solicitors. The discussions envisaged that Mrs Cuddy would transfer the Cuddy share in Neath to Mr Hawkes whilst Mr Hawkes would agree to Neath transferring its share in the Ospreys to a transferee to be agreed by Mr Cuddy and the Ospreys. Any agreement along these lines would require the blessing of the WRU, because it is a requirement of the WRU that shares in regional organisations can only be held by clubs.
115. No agreement was reached on 15 March, and the negotiations were overtaken by subsequent events (principally the legal advice received by Mr Hawkes in April 2007, giving rise to the petition).
116. Before the meeting on 15 March, Morgan Cole had written to Mr Newman saying that if some kind of settlement was not reached, Mr Hawkes would apply to wind up Neath. When the meeting failed to produce a settlement, Mr Newman wrote to Morgan Cole saying "… it is clear that your client has decided that there is no alternative but for Neath Rugby Limited to be wound up. As a consequence of your client's conduct our client [Mr Cuddy] has no alternative but to accede to this proposal".

The trade mark dispute

117. When the Ospreys were formed they produced a style guide for Ospreys branded goods. The first page of the style guide carried the legend: "Ospreys logo and its constituent elements are trademarked and cannot be reproduced without permission." Mrs Deena Barton, who is Mr Hawkes' sister and the Business Development Manager of Neath, had a copy of the style guide. One of her responsibilities was the merchandising of branded goods. The branded goods were both Ospreys-branded and Neath-branded; and were sold both remotely (on line and by mail order) and in the club shop.
118. The principal supplier of replica Ospreys jerseys was KooGa Rugby Ltd. Mr Bill Newton is KooGa's managing director. Part of the deal with the Ospreys is that KooGa will supply £10,000-worth of free replica kit to each of Swansea and Neath.
119. Mrs Barton explained that from the time when the club shop opened in the summer of 2004, it was selling KooGa-branded Ospreys leisurewear and it was also "producing official Ospreys merchandise, leisurewear, but using a number of different suppliers other than KooGa."
120. The Ospreys' board met on 2 August 2004, just before the Neath club shop opened later that month. Mr Hawkes was in attendance. It was agreed at that meeting that all merchandise was to be approved by Ospreys and would be available at Swansea, Neath and on the Ospreys' website. Mr Hawkes did not inform Mrs Barton of this decision. The Ospreys' board met again on 14 December 2004. Mr Hawkes did not attend, but sent his apologies. Mr Cuddy proposed that all Osprey merchandise should be marketed via Neath; but his proposal was not agreed.
121. In her witness statement Mrs Barton said:

"I had a number of meetings with Andrew Donald, the Chief Executive of the Ospreys, and Geraint Hawkes when Neath Shop was being put together. During these meetings, I arranged to have a number of samples available to discuss my intention to target a number of different markets. I had been working on trendier designs aimed at those at college age as well as the more traditional designs. I also wanted to put together merchandise that would appeal to the higher end of the market, based upon quality clothing such as those produced by Ralph Lauren and/or Polo. All issues concerning these ranges were discussed with Neath-Swansea Ospreys Limited representatives. Once the designs were finalised, Neath Shop ordered the merchandise with the backing of Neath, which took the entirety of the risk in the event that the merchandise was not sold."

122. These discussions related to the 2004/5 season and were detailed discussions. In her oral evidence Mrs Barton explained that Mr Donald had recommended a supplier called Kukri Sports in Preston; and she ordered goods from that supplier. Before the start of the 2005/6 season Mrs Barton had discussions with Mr Simon Lloyd who was employed by the Ospreys. One of his duties was dealing with merchandising. In cross-examination Mrs Barton agreed with the following account of their meetings given by Mr Lloyd:

"One of my first tasks …was to meet with Deena Barton of Neath Rugby to select a range of non-KooGa original merchandise, i.e. produced by official and authorised suppliers. … During June 2005, my colleague at the time, Louise Valetta and I met with Deena Barton on a number of occasions at the Neath club shop. Deena had sourced some potential suppliers who had sent her designs of various clothing and various gift items, some of which are listed on the attached file exhibited to SL1. We discussed which products we thought would sell along with any amendments to the designs we thought would improve the products. On 1st July 2005 I sent Deena a list of Ospreys products for her to go ahead and order on the understanding that the quantities would be split between the Liberty Stadium and the Neath club shops."

123. It is clear, therefore, that in relation to both the 2004/5 season and the 2005/6 season, Neath discussed with the Ospreys the merchandise to be sold during the forthcoming season; and that in principle the Ospreys approved the particular merchandise to be sold. However, even in these seasons there were some unapproved products that Neath sold. One example was some womenswear designed by Mrs Barton. Mr Blyth accepted that the Ospreys had turned a blind eye to this because the quantities were small. However, in February 2006 a draft solicitors' letter was produced. Although the draft has not survived, it seems that it was a complaint about trade mark infringement. Mr Harvey commented to Mr Cuddy that sending the letter would bring the Hawkes/Cuddy relationship to "an all time low" and Mr Cuddy persuaded Mr Blyth not to send the letter. But Mr Harvey also suggested that Mr Cuddy should meet Mr Hawkes and tell him to stop selling the offending products. This does not seem to have happened either. The position changed in relation to the 2006/7 season. On 31 May 2006 Neath placed a large order for Ospreys-branded goods with MSV International. Both Mr Hawkes and Mrs Barton knew that MSV International was not licensed to reproduce the Ospreys' logo. Orders were also placed with other suppliers, who were also unlicensed to reproduce the Ospreys' logo. Mr Hawkes and Mrs Barton knew that too. The Ospreys were not consulted in advance. Mrs Barton could not explain why she did not consult the Ospreys in advance, save to say that with hindsight she should have done. She did say that she had not been given a list of approved suppliers; but on the other hand, she never asked for one.
124. On 23 June 2006 Mr Blyth sent Mr Hawkes a draft licence agreement "as per our recent conversation". The covering compliments slip invited Mr Hawkes to sign the licence "if you find this acceptable". There was no evidence either from Mr Blyth or Mr Hawkes about the content of that conversation; but the fact that there was a conversation shows that the licence did not come as a bolt from the blue. If Mr Hawkes had signed the agreement it would have given Neath the right for a period of twelve months to sell Ospreys-branded goods, provided that the merchandise was sourced from one of six nominated suppliers. The licence also stated that the sale of merchandise bearing the Ospreys' trade marks and logos without its consent would be a breach of its intellectual property rights. Mr Hawkes did not sign. Having had no response, Mr Blyth spoke to Mr Hawkes; and on 8 August 2006 Mr Blyth sent Mr Hawkes another copy of the licence. His covering letter said that the licence related to all Ospreys branded goods with the exception of replica jerseys which all KooGa retailers were entitled to sell. Mr Hawkes still did not sign. Mrs Barton said that Mr Hawkes did not show her the offered licence. He did not take up with the Ospreys any concerns he had over the terms of the licence. He simply remained silent. Why did Mr Hawkes not sign? Mr Hawkes said that the reason he did not sign was that he had been told by Mr Newton that the price of the KooGa leisure wear was to be "inflated". Mr Hawkes first mentioned this conversation in his sixth witness statement and elaborated on it in the course of his cross-examination. In the course of his oral evidence he said that there would be a mark up of 20 per cent on goods. Mr Newton said in his evidence that the price of the replica shirts already included a royalty payable to the Ospreys; but that other leisurewear would attract a royalty of 15 per cent payable to the Ospreys. He said that the terms on which goods were to be supplied did not discriminate between Neath and other customers. Mr Newton said that he spoke to Mr Hawkes about the licence; and that Mr Hawkes told him that because Neath was a shareholder in Ospreys he had the right to sell Ospreys' merchandise without any licence. However, Mr Newton told Mr Hawkes that unless Neath signed the licence agreement, he would not be able to supply them. I reject Mr Hawkes' evidence; and prefer the account of Mr Newton. There was no discrimination against Neath, and the price of goods was not to be "inflated". The reason why Mr Hawkes did not sign the licence was because he believed (wrongly) that Neath had the right to sell Ospreys merchandise without the need for any consent. The Ospreys did not chase up the licence for the next few months. Neath continued to sell Ospreys branded goods during that time.
125. On 11 January 2007 the Ospreys' solicitors wrote to Neath complaining of the sale of "unofficial merchandise/articles bearing the Ospreys logo name/trademarks" and asserting a breach of the Ospreys' intellectual property rights. The letter demanded undertakings not to infringe trade marks and the delivery up of infringing goods. Mr Hawkes did not reply to this letter. Nor did he show it to Mrs Barton or tell her of its existence.
126. On 29 January 2007 officers from the local authority trading standards department arrived at the club shop in Neath and seized a large number of items of clothing. Mr Cuddy had encouraged the raid. All the seized items bore the Ospreys' logo. None had been supplied by licensed suppliers. Since Mrs Barton had been told nothing about the offered licence or the solicitors' letter, the raid by trading standards was understandably surprising and distressing. Following the raid, Mr Hawkes said that Neath had been trading in Ospreys branded goods "before the trademarks were created". This assertion was plainly wrong, but what Mr Hawkes really meant was that the goods had been ordered before the Ospreys complained of trademark infringement. Mr Cuddy had caused Neath's records to be inspected by Mr Morgan, an accountant, ostensibly to obtain information on behalf of Mrs Cuddy in her capacity as a director of Neath. But he used that information to pass on to the Ospreys the information that the purchase of the goods had not showed up in Neath's sales and purchase ledger.
127. On 27 March 2007 Ospreys issued proceedings against Neath for trade mark infringement. Mr Cuddy signed the statement of truth at the end of the Particulars of Claim in Mr Blyth's absence on holiday.
128. In his witness statement Mr Cuddy said:

"Roger Blyth wrote several letters to Mr Hawkes asking him to remove the merchandise from the shop. Roger's first instinct was to report the matter to Trading Standards immediately. However, I was keen to preserve the Ospreys' relationship with [Neath] and Mr Hawkes as far as possible and persuaded Roger to take a softer approach and either speak to Mr Hawkes or write to him. I understand that Mr Hawkes refused to remove the merchandise from the shop despite several hand-delivered letters over a period of some weeks from the Ospreys. Roger Blyth therefore eventually, on advice from the Ospreys' solicitors, called Trading Standards. I was not involved at all in any of this."

129. There are a number of respects in which this statement is untrue. First, there is no trace of Mr Blyth having written "several letters" to Mr Hawkes asking him to remove the merchandise. Second, there is no trace of "several hand-delivered letters" left over a period of some weeks. Third, it was Mr Cuddy rather than Mr Blyth who instigated the raid by trading standards officers. Thus fourth, it is untrue that Mr Cuddy was "not involved at all". That said, it is true that until the raid by trading standards officers Mr Blyth took the lead; and it may well be that Mr Cuddy believed that there had been more communication with Neath than there really had been.
130. In my judgment it was the decision of Mr Hawkes and/or Mrs Barton to place the order with MSV International, whom they knew to be unlicensed, that brought the trademark dispute into being. It was exacerbated by Mr Hawkes' refusal to sign the offered licence agreement; his failure to voice any concerns that he may have had over the terms of the licence, and his silence in the face of the solicitors' letter. He did not attempt to negotiate with Ospreys over the terms on which Neath might continue to sell the goods that had already been ordered and paid for. In the light of his silence, it is difficult to see what else Ospreys could have done to protect their intellectual property rights.
131. Once the proceedings had been served, it was clearly important for Neath to serve a defence. One of the complaints made in the petition is that Mr Cuddy prevented it from doing so. This allegation is based on a letter written by John Collins on behalf of Mr and Mrs Cuddy to Morgan Cole, acting on behalf of Mr Hawkes. The letter objected to Morgan Cole acting on behalf of Neath because they were acting for Mr Hawkes personally. John Collins suggested that Mr Morris might act, but that suggestion was turned down by Morgan Cole because Mr Morris was not a specialist in intellectual property matters. Morgan Cole in turn suggested Geldards (who eventually became Mr Cuddy's solicitors) but no substantive response was received to this suggestion. No defence to the claim has therefore been served. There the matter rested until a hearing before HH Judge Havelock-Allen QC when at the judge's suggestion the trademark proceedings were stayed. Mr Chivers suggested that the judge was critical of Mr Cuddy's conduct. From what I have seen of the record of that hearing I do not think that he was. In addition he appears to have been told by counsel then appearing (not Mr Chivers) that Mr Cuddy's solicitors had said that Neath could not defend the trademark proceedings, which was clearly an exaggerated description of their stance.

The withdrawal of the players

132. Each of the four Welsh regions has an Academy Manager employed by the WRU. The purpose of the Academy is to ensure that young players are given an opportunity to develop their potential and become elite performers. Mr Gethin Watts is the Academy Manager for the Ospreys. He identifies young talent within the region and makes recommendations to the Ospreys' director of rugby, Mr Kevin Hopkins, for recruitment into the Academy. Once a player has been identified, recommended and subsequently approved, the player will become an Academy player. Those players who subsequently start training with the Ospreys first team thereafter become development players. At that stage monitoring their progression becomes particularly crucial as does their exposure to regular rugby. Although they may be training with the Ospreys' first team, it is unlikely at that stage that they will be in a position actually to play for the Ospreys. As part of their development, development players are sent out to play for one of the Premiership clubs, in order to gain match experience. Since the gaining of match experience is so important, a development player may be moved from one Premiership club to another if he is not playing regularly. However, the needs of the Ospreys take priority and if there comes a point where a player is needed for the first team, whether regularly or to cover injuries, that takes priority.
133. There is no clear evidence of the terms on which players were made available by the Ospreys to Neath. Mr Piddington's evidence, which I accept, was that there were no concrete rules on payment but that certain "rules of thumb" had been developed. Whichever club expected the player to turn out for it paid the player. If a player was injured, the club in question would still pay for him. Neath made payments on this basis for the first three seasons of the Ospreys' operation.
134. Six development players were placed with Neath for the season 2006/7. They were Robert Lewis, Tom Smith, Chris Martenko, Craig Mitchell, Ed Shervington and Gerwyn Price. On 15 September, towards the start of the season, Mr Piddington sent Mr Hawkes a letter about the players. There was one letter for each player. The letter referred to a review of procedure having been undertaken by the Ospreys' lawyers. It continued:

"It has been agreed that the company will process the salary payments through its payroll system accounting for relevant PAYE liabilities in respect of [the named player]. Payment will be made in accordance with the relevant contract value stated in the signed copy of the contract held by the company. In accordance with the agreement between the company and the club, the club are liable for 100% of the contract including employers National Insurance contributions.

Such payments will be paid to the player monthly in arrears. The company will then advise the club, by way of an invoice, of the payments actioned. Settlement of the amount will be required within seven days."

135. Invoices for each player were enclosed. Mr Hawkes asked for a reconciliation of the figures, which was supplied to him on 22 September. It showed the amounts claimed up to the end of December 2006. The amounts claimed amounted to £32,309-odd. Mr Hawkes commented in an e-mail to Mr Piddington that "all is much clearer now". However, he had queries over some of the amounts. But he did not dispute the principles stated in the letter of 15 September; and he agreed in cross-examination that he had accepted them. Although monthly invoices were sent Neath did not make any payment to the Ospreys during the remainder of the year. Mr Cuddy and Mr Blyth agreed not to chase for payment because Ospreys had agreed to award Neath a grant of £25,000 and they agreed to let that run out first. Some time during the autumn of 2006 Mr Blyth and Mr Hawkes had a heated meeting at the Liberty Stadium. During the course of the meeting Mr Hawkes said that Neath would only pay for players when they played and would not pay for players when they were injured. Mr Blyth regarded that as an attempt by Neath to change the terms on which players had been supplied by the Ospreys. Mr Blyth said that during the course of the heated discussion Mr Hawkes became abusive. Having read a number of Mr Hawkes' e-mails and his use of language in them (including a palpable dislike of and even contempt for Mr Blyth) I have no difficulty in accepting Mr Blyth's evidence about that.
136. On 3 January 2007 the Ospreys sent a further copy of the invoice to Mr Hawkes. The covering letter referred to the grant and in effect set that off against the amount due under the invoice. It pointed out that the amount invoiced exceeded the grant by £7,309-odd and requested payment within seven days. It concluded by saying that "if payment is not received as outlined above we will be giving due consideration to the availability of players to play for [Neath]." The letter was sent on the joint instructions of Mr Cuddy and Mr Blyth. Mr Hawkes' immediate response was that two of the players had played no active role either in playing or training and said that he would revert when he was clear as to the full extent that other players had participated. He said that once this was taken into account no monies were due from Neath to the Ospreys. He went on to say that he would raise invoices for players supplied by Neath to the Ospreys and that if those invoices were not paid within seven days he would consider withdrawing them from the Ospreys. Mr Piddington replied by letter on 5 January 2007. He pointed out that Mr Hawkes had not queried the terms of the letter of 15 September and that the Ospreys had made payments to players in accordance with its terms. He continued:

"1. If you require the services of the six players for the remainder of the season you are required to pay the amount of £7,309.75 owing up to the end of December 2006 together with the total amount of all six contracts from 1^st January 2007 to 31^st May 2007. Payment of both amounts must be made by 10^th January 2007.

2. No contracted Ospreys players will be available to [Neath] whilst there are any monies owing to [the Ospreys] from [Neath]."

137. Mr Hawkes' acceptance of these terms was required by 7 January, with settlement by 10 January. Mr Cuddy was under pressure from Mr Blyth to agree this course of action, because a similar arrangement for payment of players had been made with Swansea who were making the payments in accordance with the Ospreys' understanding of the agreement. Mr Cuddy very reluctantly agreed to the letter being sent. He believed that the money was due and was embarrassed that Neath, unlike Swansea, was not adhering to what he understood the agreement to be. Mr Blyth pointed out to him that Mr Hawkes had not queried the payments for the previous five months and when that was put to him Mr Cuddy felt that he had no contrary argument. Mr Hawkes responded on the following day. He said that the terms did not require any payment for players whose services Neath had not actually received. He said that the Ospreys were contractually bound to make the players available and that if they were withdrawn Neath would seek damages. He also pointed out that he had not had sight of the players' contracts. In fact as was subsequently revealed the contracts between the players and the Ospreys also contain terms that require the Ospreys to pay an injured player for no more than seven days, although there is a contractual discretion to continue to pay an injured player for up to thirteen weeks.
138. No payment was made by 10 January. On the following day Mr Blyth wrote to Mr Hawkes saying that the failure to pay amounted to a repudiatory breach of contract, and that the agreement was terminated. The players would, however, be made available for a further ten days. On 18 January 2007 the Ospreys wrote again to Mr Hawkes. They said that they were prepared to withdraw their notice of termination on certain terms. Those terms included payment of all sums claimed as due up to the end of December 2006; monthly payments for the players to be made on the 7^th of each month; and payment to be made by means of five post-dated cheques. Thus instead of demanding money in advance, the terms had softened to the extent of allowing payments after the end of 2006 to be made in arrear. Mr Hawkes did not reply to the letter of 18 January. On 29 January (the same day as the raid on the club shop by trading standards officers) the Ospreys delivered by hand a letter to Neath. It said that since no reply to the letter of 18 January had been received, the offer contained in that letter was withdrawn and no further players would be made available to Neath. On 31 January Neath paid the sum of £7,309.75, which was the amount that the Ospreys claimed as due up to the end of the previous December. However, the players were not re-supplied because Neath had not agreed to the additional terms about future payments.
139. Mr Cuddy was convinced that the Ospreys were right and that Mr Hawkes was wrong. Although he was reluctant to withdraw the players from Neath, he went along with the decision to do so. He agreed in cross-examination that the decision to withdraw the players was not in the interests of Neath. Neither Mr Watts nor Mr Hopkins was directly involved in this decision. The withdrawal of Tom Smith was a particular blow, because he was Neath's captain. There was also an immediate impact on the team's morale. A week after the players were withdrawn Neath played and lost their match in the first round of the Konica Cup. Since that is a knock out competition, Neath progressed no further. However, Mr Hopkins considered (and I accept) that the withdrawal of the players was not "devastating" so far as Neath were concerned. They were sitting in the middle of the league table, with a good side improving all the time. Their squad was 23 or 24 players which was enough to enable them to continue playing effectively. In fact they went on to win the league that season.
140. Nothing much seems to have happened in February. On 14 March 2007 Mr Hawkes sent an e-mail to Mr Piddington. He provided his own reconciliation, with apologies for the delay, of the figures which, according to him, showed that far from owing money to the Ospreys, Neath was actually in credit. The difference between Mr Hawkes' figures and Mr Piddington's was that Mr Hawkes had not counted weeks when the player in question had not actually played for Neath. He also said that Mr Blyth had specifically agreed that Neath would be charged as and when the players concerned played for Neath. This last assertion was wrong. Mr Blyth had agreed no such thing; and it was not put to him in cross-examination that he had. Mr Piddington replied on the following day, having consulted the directors. He said that the schedule he had originally provided showed the correct figures. He added that at no time was there an agreement that payment would be based on actual appearances for Neath; and thus the schedule he had provided represented the Ospreys' understanding of the agreement. By his calculations, £5,297-odd remained due. Mr Hawkes replied a week later on 23 March. He said:

"Our interpretations of what was agreed obviously differ and will no doubt be cleared up in due course but in the meantime are you saying that if the amount of £5,297.75 is paid by neath that all these players will be made available?"

141. Mr Piddington's reply on 28 March was that after discussion with Mr Cuddy and Mr Blyth the Ospreys were willing to release the players provided that Neath paid all outstanding monies in advance and paid in advance the money due for the relevant players up to 31 May.
142. Under WRU rules players have to be re-registered half way through the season by 31 January. For the first half of the season these six players were registered to Neath. However, when they were removed from Neath they were re-registered back to the Ospreys squad. The reason behind this was that it would allow Ospreys to return them to Neath by permit as soon as the financial dispute was settled.
143. While the financial wrangle was in progress, behind the scenes Mr Hopkins and Mr Stuart Evans, Neath's director of rugby, were in communication, trying to keep the route open to reinstate the players. Their relationship was amicable at all times, and they were good friends. However, Mr Cuddy and Mr Blyth did instruct Mr Hopkins not to speak to Mr Hawkes. He was not instructed to stop speaking to Mr Evans. Mr Hopkins and Mr Evans continued to have informal discussions about which players might be allocated to Neath once the financial dispute had been resolved. Both Mr Hopkins and Mr Stuart Evans were keen to arrange a meeting. A meeting was proposed but had to be rearranged to suit Mr Cuddy's diary; and it did not eventually take place until 24 May 2007. At the meeting Mr Hopkins and Mr Stuart Evans discussed the players that Neath wanted. Neath did not have all its requests satisfied, because Mr Hopkins had other plans for some of the requested players. Although there was some disagreement about the validity of Mr Hopkins' reasons for turning down some of Neath's requests, Mr Evans accepted that the May meeting was the way that the relationship between the Ospreys and Neath over rugby matters should work. His complaint, from a rugby point of view, was limited to the withdrawal of the players in January.
144. Mr Chivers suggested that the meeting only took place as a result of criticism from HH Judge Havelock-Allen QC at a hearing in Bristol on the previous day. The note of the hearing does not reveal any such criticism despite the fact that the judge was told that the Neath supporters were "up in arms and refusing to pay subscription fees"; and in addition the petition had not by that stage been served on the Ospreys. I reject this suggestion.
145. Neath paid the sum of £5,297-odd in June 2007 without any admission of liability in order to move matters on. In consequence, on 8 June 2007 the Ospreys and Neath entered into an agreement for the loan of two players (Tom Smith and Craig Mitchell). The basis of the agreement was that Neath would pay a specified sum for each player "per match played". This was close to the position that Mr Hawkes had taken all along.

The media and the websites

146. In August 2006 Mr Hawkes had caused an advertisement to be broadcast on local radio. The script began:

"Disillusioned with regional rugby?

Then come back to the black and enjoy tribal rugby at the Gnoll."

147. Both Mr Cuddy and Mr Moffatt regarded this script as being an attack on the Ospreys. Mr Moffatt went to far as to say that if he had still been the chief executive of the WRU he would have initiated disciplinary proceedings against Mr Hawkes on account of this script. Mr Hawkes on the other hand said that it was just a jokey advertisement which was not intended to undermine the Ospreys. In my judgment Mr Cuddy and Mr Moffatt overreacted to the advertisement. Although it was clearly encouraging attendance at the Gnoll, I do not think that it can be considered as a hostile attack on the Ospreys; and I acquit Mr Hawkes of any intentional desire to harm the Ospreys as a result of it.
148. From the beginning of February 2007 Mr Hawkes began to post messages on the Neath website purporting to come from Neath supporters. In fact he composed them himself. They were supportive of Mr Hawkes' own position and derogatory and insulting towards Mr Cuddy and "the Swansea camp". It is unnecessary to go into details. In the following month Mr Cuddy and Mr Harvey (among others) began to retaliate by posting anti-Hawkes messages on the Ospreys' website. This was, in effect, tit-for-tat.
149. News of the issue of the petition appeared in the press in early June 2007. In an article in Wales on Sunday on 10 June 2007 the journalist concerned revealed the "explosive allegations" that the petition made against Mr Cuddy. It seems highly unlikely that anyone on Mr Cuddy's side revealed the contents of the petition to the press. However, Mr Hawkes denied that it was done by him or with his connivance; and there is no evidence to suggest that he himself was involved. Further articles appeared in the Welsh press at regular intervals during the summer. All repeated allegations that Mr Hawkes had made against Mr and Mrs Cuddy, although, again, there was no evidence that Mr Hawkes was directly responsible for any leak to the press. Mr Hawkes did issue a press release immediately after HH Judge Havelock-Allen's interlocutory judgment which Mr Cuddy criticised as not being a fair and balanced summary of what the judge had decided. There is some force in this criticism although by that time the parties had dug in for a long war.

Neath's share in the Ospreys

150. Although the Regional Operating Agreement required the shares in the Ospreys to be owned by participating clubs, in fact the two issued shares were issued to Mr Cuddy and Mr Blyth who held them on trust for Neath and Swansea respectively. The share registered in Mr Cuddy's name was not formally registered in Neath's name until 20 June 2007, well after presentation of the petition. Mr Cuddy was unable to explain why the registration had not taken place earlier, save to say that there was no sinister motive.
151. Mr Chivers invites me to infer that Mr Cuddy was using the fact that the share remained registered in his name as another weapon in his armoury to retain absolute control over Neath's involvement in the Ospreys. However, there is no instance of the weapon having been wielded; and in any event it has always been acknowledged that Mr Cuddy held the share registered in his name on trust for Neath. In my judgment there is no substance in this complaint.

Mrs Cuddy's resignation

152. On 17 April 2007 Morgan Cole sent a twenty page letter to Mr Newman. It detailed their view of the dispute. It ended by saying that counsel had been instructed to settle a petition under section 459 of the Companies Act 1985 and asserted that it was unlawful for both Mr Cuddy and Mrs Cuddy to be involved directly or indirectly in the management of Neath. That was the first time that the assertion was made. The petition was presented on 4 May 2007. Among the relief that is sought was an order removing Mrs Cuddy as a director.
153. Mrs Cuddy resigned on 11 June 2007 and her place was taken by Mr Eric Evans, a Cardiff solicitor.

Negotiations with the WRU to change the Regional Operating Agreement

154. On 2 September 2007 Wales on Sunday ran a story about a dispute between the regional clubs and the WRU relating to compensation to be paid by the WRU to the clubs for players participating in the World Cup as part of the national side. In the course of the story reference was made to a new "rugby charter". This was the first that Mr Hawkes had heard about a new rugby charter.
155. It subsequently transpired that since at least February 2007 the Professional Rugby Board (which included representatives of the WRU and the four regional clubs) had been discussing the possibility of amending or replacing the Regional Operating Agreement for each of the regional sides. Meetings appear to have taken place at approximately monthly intervals. The Ospreys' representative at the meetings was usually Mr Thorburn, although Mr Hopkins attended at least one meeting. The discussions do not appear to have got very far. Mr Hawkes' position is that the discussions touch on the funding of the regional sides by the WRU and that, by reason of Neath's financial interest in the Ospreys, Neath has a keen interest in those discussions.
156. Although Mr Cuddy made the faint suggestion that he might have told Mr Eric Evans about these discussions, I find that he did not. Mr Hawkes complains that in failing to inform him about these discussions or consult him over them, Mr Cuddy is in breach of the Hawkes/Cuddy agreement.

The position of Swansea RFC

157. Swansea say that they have never agreed to work with Mr Hawkes. They have done nothing wrong. The existing relationship of trust and confidence between NRL (through Mr Cuddy) and Swansea should not be destroyed. They did not know Mr Hawkes when they went into the joint venture, and what they have learned about him since makes them distrust him. They should not be saddled with Mr Hawkes as their joint venturer. Swansea's views were articulated by Mr Blyth, Mr James and Mr Davies. Although they would prefer that Neath be under the sole control of Mr Cuddy, they would be prepared to live with a solution that enlarges the board of the Ospreys so that there will be four directors; two appointed by Swansea and two by Neath, provided that Mr Cuddy remains one of the two Neath directors. This is reflected in the terms of an offer that Swansea made jointly with Mr Cuddy during the course of the hearing on 5 November 2007, to which I refer later.
158. In his closing address Mr Chivers said that Swansea were bluffing and that I could discount the views expressed by Mr Blyth, Mr James and Mr Davies. I disagree. In my judgment the views I heard were genuine views. For reasons I will explain, I think that the fears that Swansea have that Mr Hawkes is hostile to regional rugby and to the Ospreys are ultimately too pessimistic; but at the same time I consider that Swansea have reasonable grounds for having those fears.

Mr Hawkes' attitude to regional rugby and the Ospreys

159. One of the themes that ran through Mr Cuddy's case was that Mr Hawkes is antagonistic to the whole idea of regional rugby and would like the Ospreys to fail. It is true that Mr Hawkes has made disparaging comments about Mr Blyth, for whom he seems to have little if any respect. It is also true that he has made intemperate remarks about the Ospreys. On one occasion, in March 2007, in conversation with Mr Harvey Mr Hawkes said that he would destroy the Ospreys (although his actual language was more intemperate than that). Although Mr Hawkes denied that he made that statement, I am satisfied that he did. However, Mr Hawkes is a man of hot temper and intemperate language; and I do not think that such statements can be taken literally. There are a number of factors which must be balanced against such statements in order to gauge Mr Hawkes' attitude towards the Ospreys. First, there is the fact that Mr Hawkes has fought hard to procure the playing of Ospreys' matches at the Gnoll. Why would he have done that, if he was so hostile to the Ospreys? It would be altogether too Machiavellian to suggest (and it was not suggested) that his objective was to cause a loss of revenue to the Ospreys. Second, he has personally lent a great deal of money to the Ospreys (and for this purpose whether it was a direct loan from Mr Hawkes or was routed via Neath does not matter). Why would he have done that if he was so hostile to the Ospreys? Third, it is common ground that Neath's most valuable asset is its shareholding in the Ospreys. It would be cutting off his nose to spite his face if Mr Hawkes, as the 50 per cent owner of Neath, were to wish the Ospreys to fail.
160. There have also been occasions on which the interests of Neath and the Ospreys have come into conflict; and Mr Hawkes has robustly defended Neath's position. In relation to the trademark dispute, I accept that Mr Hawkes believed that Neath had the right to sell Ospreys branded goods (at least in relation to those that had been ordered before the draft licence was sent though by Mr Blyth). I do not, I think, have to decide whether his belief was reasonable or not. Suffice it to say that I am not prepared to find that it was not a genuine belief. In relation to the dispute over the withdrawal of the players, again I find that Mr Hawkes genuinely believed in Neath's position and advanced its cause robustly. His success in so doing is reflected in the fact that the eventual compromise was closer to Neath's original position than the Ospreys'.
161. I must also factor in Mr Hawkes' undoubted anger at the way that Mr Cuddy was behaving. Mr Hawkes thought that Mr Cuddy was in the Swansea camp or was at least putting the Ospreys' interests before those of Neath. As time went on his anger grew, to the extent that he initiated a campaign of placing anonymous (or fictitious) messages on the Neath website, purporting to come from Neath fans but in fact emanating from Mr Hawkes himself. The messages were denigratory and often scurrilous. The first of Mr Hawkes' perceptions about Mr Cuddy was untrue. The second was true, but amounted to no more, in my judgment, than Mr Cuddy complying with his duties as a director of the Ospreys.
162. Even allowing for all this, I do not consider that it can fairly be said that Mr Hawkes wants to wreck regional rugby or the Ospreys. But it seems probable that whatever working relationship he might have had with Mr Blyth has been seriously if not irreparably damaged. His statements have been intemperate and, if taken at face value, would indicate hostility to the Ospreys. It is for that reason that I consider that Swansea had reasonable grounds for their belief. But as I have said, I do not think that these statements can be taken at face value.

Offers to settle

163. There have been a number of open offers made by each party to compromise the dispute.

Mr Hawkes' offer of 11 April 2007

164. This offer was an offer by Mr Hawkes to buy Mrs Cuddy's share in Neath at a fair price to be agreed. In default of agreement the price was to be determined by an independent valuer.

Mr Hawkes' offer of 4 October 2007

165. This offer was also an offer to buy Mrs Cuddy's share at a valuation. In addition, however, it also proposed a reorganisation of the corporate structure of the Ospreys. It proposed a shareholding of 48 per cent each for Neath and Swansea with the remaining 2 per cent to go to the WRU. The board of directors was to be increased to five, two appointed by Neath and two by Swansea. Mr Hawkes was prepared to agree that Mr Cuddy could be one of the Swansea directors and that he himself would not be one of the Neath directors without Swansea's consent.

Mr Cuddy's offer of 16 October 2007

166. This was an offer to buy Mr Hawkes' share in Neath at a value equal to one half of the value of Neath. As an alternative it was proposed that the Cuddy share in Neath be transferred to Mr Hawkes for a nominal payment; that two new shares in the Ospreys be issued, one to Swansea and one to Bridgend RFC. The effect of this would be that Neath became a 25 per cent shareholder in the Ospreys rather than a fifty per cent shareholder. The board would be enlarged to four directors, one each appointed by Neath and Bridgend and the remaining two by Swansea. Mr Hawkes was not to be the Neath director.

Mr Hawkes' offer of 2 November 2007

167. Under the terms of this offer (made during the course of the hearing) Neath would issue two new shares. They would be designated "Ospreys" shares and would be tracker shares. The rights attaching to each tracker share would be the economic benefit of Neath's fifty per cent shareholding in the Ospreys. One tracker share would be issued to Mr Cuddy and the other to Mr Hawkes. Mrs Cuddy's loan to Neath would be repaid. Mr Hawkes would buy Mrs Cuddy's share in Neath. The Ospreys board would be increased to four directors, two appointed by Swansea and two by Neath, but Mr Hawkes would not be one of the Neath directors without Swansea's agreement. Mr Cuddy could either be one of the Swansea directors or an independent director (in which case the board of the Ospreys would be enlarged to five). But in the latter event Mr Cuddy's vote would not count if its effect would be to carry a resolution against the votes of the Neath directors. Any deadlock in the affairs of the Ospreys would be resolved by an independent third party.

The Cuddy/Swansea offer of 5 November

168. This offer (also made during the course of the hearing) is one that was made jointly by Swansea, the Ospreys and Mrs Cuddy. Swansea and the Ospreys proposed increasing the number of the Ospreys' board members to four; two appointed by Swansea and two by Neath. However, Mr Cuddy was to be one of the Neath directors. In conjunction with this offer Mrs Cuddy proposed that she have the right to nominate one director of Neath (being neither herself nor Mr Cuddy), but subject to that the composition of the board of Neath would be in Mr Hawkes' control. Mrs Cuddy and Mr Hawkes would have the right to nominate one director each to the board of the Ospreys. The manner of exercise of any vote attaching to Neath's share in the Ospreys would be decided by Neath in general meeting, any deadlock being resolved by an independent accountant.

Section 216

169. In the course of the main hearing before HH Judge Havelock-Allen QC the judge decided that Mr Cuddy had indeed been in breach of section 216 by reason of his participation in the management of Neath. He did not decide that Mr Cuddy's participation in the management of the Ospreys also amounted to a contravention of section 216. The judge made declarations to give effect to his determination. On appeal to the Court of Appeal, the declarations were set aside, but the findings made by the judge stood. The main reason why the declarations were set aside was because the making of the declarations pre-empted one of Mr Cuddy's defences, namely that the petition amounted to an abuse of process. A subsidiary reason was that the making of a formal declaration was unnecessary for achieving the sensible case management purpose.
170. As I have said, late in the day Mr Cuddy made an application for leave under section 216. He wanted that to come on for hearing at the same time as the petition. Mr Hawkes, on the other hand, was keen not to lose the trial dates already fixed; and the allotted time would not have allowed for the hearing of both the petition and also Mr Cuddy's application for leave. In consequence, Mr Hawkes agreed not to take any point based on the future application of section 216 as affecting any relief that I would otherwise be minded to grant. However, he has the right to rely on past breaches of section 216 (subject to the defence of abuse of process).

Abuse of process

171. Mr Hollington submits that the entire petition is an abuse of process with the consequence that no relief should be granted to Mr Hawkes. In essence what he says is that at the outset Mr. Hawkes recognised the power of the court to order one side to buy the other out on the ground of deadlock but he nevertheless chose to turn his petition into a direct and public attack upon the honesty and integrity of Mr. and Mrs. Cuddy and Mr. Newman. In short it was part of a smear campaign to vilify the Cuddys. Mr Hollington says that it is an abuse of process for legal proceedings to be used as a vehicle for a smear campaign.
172. I do not think that it is quite as simple as that. In Lonrho plc v. Fayed (No. 2) [1992] 1 WLR 1 Lonrho brought proceedings claiming rescission of the sale of its shareholding in Harrods on the ground of fraudulent misrepresentations. Millett J held that the pleading disclosed an arguable cause of action but nevertheless struck out the claim as an abuse of process. He said:

"In Lawrance v. Lord Norreys, 15 App.Cas. 210, the House of Lords was convinced, on a consideration of the history of the litigation, that the plaintiff's claim was without any solid basis and that the story told in the pleadings was a myth. It was an exceptional case; but so, in my judgment, is this. I am similarly convinced, on a consideration of the history of the campaign which Lonrho has waged against the Fayeds, that the present claim has no foundation in fact and is not made in good faith and with a genuine belief in its merits, but has been manufactured to provide a vehicle for a further public denunciation of the Fayeds. I have no doubt that it is an abuse of the process of the court, and I will strike it out accordingly."

173. The point arose again in Lonrho plc v. Fayed and Others (No. 5) [1993] 1 WLR 1489. This time the allegation was one of conspiracy to defame the claimants. The judge at first instance struck out the claim. He said:

"Not only do I believe that any remedy which might conceivably be available to the plaintiffs would be minimal, but also I firmly believe that the court should not be used for what is in truth simply a continuation of their half of this vendetta by the plaintiffs in the artificial form of an action at law .... Master Topley referred in his judgment in this case to the fact that 'Neither party has shrunk from blackguarding the other in public, and each has used the courts as a rooftop to crow vilifications against their adversaries.' So far as is properly in my power, I do not propose to allow that to happen again. I am convinced that exactly that is the objective of the plaintiffs, and would be the aim of the defendants if they were to have to defend and counterclaim against the present pleading. There is no need to say more."

174. However, the Court of Appeal reversed his decision. Dillon LJ said that the plaintiff's purpose in bringing the action could only be decided at trial. Stuart-Smith LJ said:

"If an action is not brought bona fide for the purpose of obtaining relief but for some ulterior or collateral purpose, it may be struck out as an abuse of the process of the court. The time of the court should not be wasted on such matters, and other litigants should not have to wait till they are disposed of. It may be that the trial judge will conclude that this is the case here; in which case he can dismiss the action then. But for the court to strike it out on this basis at this stage it must be clear that this is the case. I cannot agree with the judge that the point is so plain as to be unarguable."

175. In Goldsmith v Sperrings Ltd [1977] 1 WLR 478 Bridge LJ (with whom Scarman LJ agreed) considered the meaning of a "collateral advantage" in this context. He said:

"The phrase manifestly cannot embrace every advantage sought or obtained by a litigant which it is beyond the court's power to grant him. Actions are settled quite properly every day on terms which a court could not itself impose upon an unwilling defendant. An apology in libel, an agreement to adhere to a contract of which the court could not order specific performance, an agreement after obstruction of an existing right of way to grant an alternative right of way over the defendant's land -- these are a few obvious examples of such proper settlements. In my judgment, one can certainly go so far as to say that when a litigant sues to redress a grievance no object which he may seek to obtain can be condemned as a collateral advantage if it is reasonably related to the provision of some form of redress for that grievance. On the other hand, if it can be shown that a litigant is pursuing an ulterior purpose unrelated to the subject matter of the litigation and that, but for his ulterior purpose, he would not have commenced proceedings at all, that is an abuse of process. These two cases are plain; but there is, I think, a difficult area in between. What if a litigant with a genuine cause of action, which he would wish to pursue in any event, can be shown also to have an ulterior purpose in view as a desired by-product of the litigation? Can he on that ground be debarred from proceeding? I very much doubt it."

176. The first question in this kind of case is what is the claimant's purpose in bringing the claim? If it is his purpose (or part of his purpose) to obtain the relief he ostensibly seeks, then he is not, in my judgment, bringing his claim for a collateral purpose. With some exceptions, to which I will return, the serious allegations pleaded in the petition against Mr and Mrs Cuddy were not unrelated to the subject matter of the litigation. On the contrary they were the allegations on which Mr Hawkes' claim to the relief sought in the petition was based. Although relations between Mr Hawkes and Mr Cuddy had deteriorated badly by the time that the petition was presented the presentation of the petition was not simply the continuation of a vendetta. On the contrary it was the only legal machinery by which Mr Hawkes could achieve his ultimate objective, namely to obtain Mr Cuddy's exit from the affairs of Neath and with it his exit from the affairs of the Ospreys. That was his genuine purpose and in my judgment one which the law allows him to pursue.
177. Many of the allegations pleaded in the petition are no longer relied on. However, that state of affairs came about because, at a case management conference held a few weeks before trial, I invited the petitioner to prune the petition of inessential allegations, in order to accommodate the hearing of the petition within the available slot of court time. This was duly done, but without any acceptance that the pruned allegations were untrue or irrelevant. Mr Hawkes' stated position has consistently been that he believes that the pruned allegations are true; and that he will prove them if necessary. Again in the interests of accommodating the petition within the available court time, I ruled that Mr Hollington should not cross-examine on the pruned allegations, although I left it open to him to argue that the pruned allegations were irrelevant and/or that the evidence adduced on Mr Hawkes' side did not adequately support the allegations. Thus the second question; namely whether Mr Hawkes believed in the truth of the allegations is not one that I can answer in Mr Cuddy's favour.
178. I agree with Mr Hollington that the petition was drafted in unnecessarily emotive and outraged terms, and some of the allegations made in it (for instance the allegation of forged cheques and the persistent reference to "the Sham") were hypocritical. I agree also that some of the allegations (for example allegations of the making of secret profits in relation to a quite different company) were irrelevant to the relief sought and should not have been made. I agree also that allegations of professional negligence and professional impropriety against Mr Newman (who was not a party to the proceedings) were equally irrelevant and should not have been made. In the old language of pleading they were in my judgment "scandalous" allegations. But as Mr Chivers submitted, the way to deal with scandalous allegations is to strike them out, and allow the claim to go to trial on what are the relevant allegations. In effect that is what the pruning of the petition has done. I must also bear in mind that Mr Cuddy's summary application to strike out these allegations failed before HH Judge Havelock-Allen QC. So the matter cannot have been obvious. But the pruning of the petition of what I regard as irrelevant and scandalous allegations may, of course, have costs consequences.
179. Likewise, Mr Hollington's submission that it is abusive to seek in civil proceedings a declaration that a criminal offence has been committed failed before HH Judge Havelock-Allen QC. Although the Court of Appeal set aside the declarations he made they did so not because the declarations were in themselves abusive in principle but because they pre-empted the general defence of abuse. Whether a declaration should be made seems to me to be a question of discretion rather than a question of abuse. Even if a court decides not to make a declaration, it does not follow that it is abusive to ask it to.
180. I will deal in due course with Mr Hollington's submission (which arises principally in the context of the cross-petition) that mere deadlock is enough to found relief under section 459. At this stage all I need to say is that that is not an obvious proposition; and I do not consider that Mr Hawkes can legitimately be criticised for basing his petition on more traditional grounds.
181. I conclude therefore that the blanket defence of abuse of process fails.

Mr Cuddy's duties as a director of Ospreys

182. One of the principal legal issues between the parties concerns Mr Cuddy's duties as a director of the Ospreys. Before embarking on a consideration of unfair prejudice in the conduct of the affairs of the company it is necessary for me to reach a conclusion on the scope of Mr Cuddy's obligations. Mr Hollington's submission was that Mr Cuddy owed the following duties:

i) A fiduciary duty as a director of Ospreys to the Ospreys to act in good faith in the interests of the Ospreys. It is true that Mr Cuddy was nominated as a director of the Ospreys by Neath but the duties of a director nominated by a particular shareholder are no different from the duties of a director who is a shareholder: he must act in good faith in the interests of the Ospreys as a whole and he must exercise his own independent judgment. This was Mr Cuddy's duty inside the Ospreys' boardroom;

ii) A duty to consult with Mr. Hawkes over the business of the Ospreys, but this duty was consistent with Mr. Cuddy's fiduciary duty to act in the interests of the Ospreys. It was a duty owed outside the Ospreys' board room.

183. Mr Hollington said that once Mr Cuddy entered the Ospreys' board room his duty was to act only in the interests of the Ospreys. Although he might, in a loose sense, be the advocate of Neath, his advocacy of Neath's interests would always be outweighed by his duty to the Ospreys.
184. Mr Chivers, on the other hand, said that Mr Cuddy was required actively to promote the interests of Neath, and that in making decisions wearing his "Ospreys hat" he could not look purely at the best interests of the Ospreys. The terms of the Hawkes/Cuddy agreement and his fiduciary duty to Neath as a de facto director of Neath required him to advocate and promote the interests of Neath.
185. The general duties of a director are not in doubt. As Lord Greene MR put it in Re Smith & Fawcett Ltd [1942] Ch 304 at 306:

"'The principles to be applied in cases where the articles of association of a company confer a discretion on directors ... are, for present purposes, free from doubt. They must exercise their discretion bona fide in what they consider—not what a court may consider—to be in the interests of the company, and not for any collateral purpose."

186. Is the position of a nominee director any different? In Scottish Cooperative Wholesale Society v Meyer [1959] AC 324 the Scottish CWS owned 4,000 of the issued 7,000 shares in a textile company, and had the right to appoint three of its five directors. The CWS set out to compete with the textile company and in the process to destroy it. The nominee directors did nothing to protect the textile company's interests. In the House of Lords Lord Denning said:

"So long as the interests of all concerned were in harmony, there was no difficulty. The nominee directors could do their duty by both companies without embarrassment. But, so soon as the interests of the two companies were in conflict, the nominee directors were placed in an impossible position. … It is plain that, in the circumstances, these three gentlemen could not do their duty by both companies, and they did not do so. They put their duty to the co-operative society above their duty to the textile company in this sense, at least, that they did nothing to defend the interests of the textile company against the conduct of the co-operative society. They probably thought that "as nominees" of the co-operative society their first duty was to the co-operative society. In this they were wrong. By subordinating the interests of the textile company to those of the co-operative society, they conducted the affairs of the textile company in a manner oppressive to the other shareholders."

187. In Kuwait Asia Bank EC v National Mutual Life Nominees Ltd [1991] 1 AC 187 Kuwait Asia appointed two of its employees (House and August) as directors of a company in which it had a 40 per cent interest. In a brief discussion of the duties of House and August Lord Lowry, giving the advice of the Privy Council said:

"In the performance of their duties as directors and in the performance of their duties imposed by the trust deed, House and August were bound to ignore the interests and wishes of their employer, the bank."

188. In Boulting v Association of Cinematograph etc Technicians [1963] 2 QB 606 Lord Denning MR said (in the course of a dissenting judgment):

"Or take a nominee director, that is, a director of a company who is nominated by a large shareholder to represent his interests. There is nothing wrong in it. It is done every day. Nothing wrong, that is, so long as the director is left free to exercise his best judgment in the interests of the company which he serves. But if he is put upon terms that he is bound to act in the affairs of the company in accordance with the directions of his patron, it is beyond doubt unlawful (see Kregor v. Hollins by Avory J.), or if he agrees to subordinate the interests of the company to the interests of his patron, it is conduct oppressive to the other shareholders for which the patron can be brought to book: see Scottish Co-operative Wholesale Society Ltd. v. Meyer."

189. These cases, and in particular the last two point towards the conclusion that the duties of a director, even a nominee director, are owed to the company alone. There are, however, three Australian cases which point in a different direction. Bowen CJ commented on the position of nominee or representative directors in Re News Corporation Limited (1987) 70 ALR 419 at 437 in these terms:

"It is both realistic and not improper to expect that such directors will follow the interests of the company which appointed them subject to the qualification that they will not so act if of the view that their acts would not be in the interests of the company as a whole."

190. Similarly it was held in Re Broadcasting Station 2GB Pty Ltd [1964-5] NSWR 1648 at 1663 that it is consistent with a director's duty for the director to follow the wishes of a particular interest which has brought about his appointment, without the need for a close personal analysis of the issues, unless the director is of the view that in doing so he or she is not acting in the best interests of the company as a whole. In Canwest Global (1997) 24 ACSR 405, the court quoted uncritically the statement of a broadcasting regulator that:

"Directors usually act in accordance with the wishes and interests of a party that has brought about their appointment and on whose goodwill their continuation in office depends unless that places them in breach of their duties."

191. None of the Australian cases go as far as saying that a nominee director must follow the wishes of his appointor, and the Kuwait Asia Bank and Boulting cases suggest that he would be wrong to do so. HH Judge Havelock-Allen QC was shown the Australian cases only, and told that there was no English authority on the point. He expressed his conclusion as follows:

"The answer, in my judgment, is that the appointee's primary loyalty is to the company of which he is a director. He is obliged to act in the best interests of that company. He is quite entitled to have regard to the interests or requirements of his appointor to the extent those interests or requirements are not incompatible with his duty to act in the best interests of the company. Whether having regard to the appointor's wishes is a matter of entitlement or obligation must depend on the terms, express or implied, of the agreement pursuant to which the director was appointed. In this respect the Hawkes/Cuddy Agreement must be seen in the context of the structure of SWWRL. It was agreed that Neath would be joint sponsor (with Swansea) of SWWRL and would be the owner of 50% of the shares in SWWRL. Against that background I think it was an implied term of the Hawkes/Cuddy Agreement that, to the extent compatible with his duty to SWWRL, Mr Cuddy would protect the interests of Neath (whatever those might be) when acting as a director of SWWRL. That would include providing Mr Hawkes with such information as he might reasonably require about the affairs of SWWRL."

192. In considering this conclusion, it must also not be forgotten that Neath and Swansea entered into the Regional Shareholders' Agreement containing an entire agreement clause. Clause 8 of that agreement contained a mutual covenant to use all reasonable endeavours to promote and develop the business of the Ospreys to the best advantage in accordance with good business practice. In my judgment in so far as there is any inconsistency between this agreement and the earlier oral Hawkes/Cuddy agreement, the Regional Shareholders' Agreement prevails. I therefore respectfully differ from HH Judge Havelock-Allen QC to the extent that his conclusion was based on the Hawkes/Cuddy agreement alone which, in my judgment, was superseded by the Regional Shareholders' Agreement. To put the point in a slightly different way, by clause 8 of the Regional Shareholders' Agreement Neath was agreeing that its interests lay in developing the business of the Ospreys to the best advantage in accordance with good business practice.
193. Mr Hollington also submitted that there was no room for the implied term that HH Judge Havelock-Allen QC held to have existed. He said that since there was a duty to consult Mr Hawkes, there was no need to imply anything further. That duty was not incompatible with Mr Cuddy's duty, as a director of the Ospreys to make decisions in what he considered to be the Ospreys' best interests. To the extent that any implied term went further, it would be inconsistent with Mr Cuddy's duties as a director of the Ospreys. The term found by HH Judge Havelock-Allen QC was limited to a duty to protect the interests of Neath to the extent compatible with Mr Cuddy's duty to the Ospreys. Since I have concluded that his duty to the Ospreys was to exercise his best judgment in what he considered to be the Ospreys' best interests, I do not consider that the term as found is incompatible. However, it does seem to me that since Mr Cuddy had expressly agreed to consult Mr Hawkes no term needs to be implied.
194. In my judgment therefore the Ospreys were entitled to the best independent judgment of Mr Cuddy in deciding where their interests lay. He was not required to prefer the interests of Neath; and certainly not required to do so where in his judgment the interests of Neath conflicted with those of the Ospreys. Nor do I consider that the analogy of an advocate is a persuasive one. An advocate is there to promote the interests of the person on whose behalf he advocates. He puts the case in the best way he can. But he is not the decision maker. In the context of courtroom advocacy the true opinion of the advocate is irrelevant. But in Mr Cuddy's case when the time came for a decision to be made, it was his true opinion to which the Ospreys were entitled.
195. It is, however, accepted that Mr Cuddy had a duty to consult Mr Hawkes. As I have said a duty to consult is not incompatible with Mr Cuddy's duty to the Ospreys to exercise his independent judgment in their best interests. As Mr Parker pointed out, a duty to consult does not entail that the consultee has a right of veto. Provided that his views are taken into account, the duty to consult is satisfied.

Who decides what are Neath's interests?

196. It is plain that on a number of matters, especially the playing of the Ospreys' matches at the Gnoll, Mr Cuddy and Mr Hawkes had very different views about what was in Neath's interests so far as concerns decisions to be made by the Ospreys' board. If they cannot agree, what happens? Mr Chivers submitted that if the board of Neath (meaning effectively Mr Cuddy and Mr Hawkes) had reached a joint decision on policy, and Mr Cuddy subsequently changed his mind about the wisdom of the decision, then unless and until Mr Hawkes could be persuaded to agree to a new policy, the old policy prevailed. Mr Cuddy would therefore be bound to advocate a policy in the Ospreys' boardroom in which he did not believe.
197. I reject this submission. First, it effectively gives Mr Hawkes a veto, which goes beyond a mere right to be consulted. Second, it potentially places Mr Cuddy in breach of his duties as a director of the Ospreys. By agreeing to Mr Cuddy being a director of the Ospreys Mr Hawkes must, in my judgment, be taken as having agreed that Mr Cuddy would be free to perform his duties as a director of that company. Third, as a result of clause 8 of the Regional Shareholders' Agreement Neath had agreed that, in so far as its relationship with the Ospreys was concerned, its interests lay in developing the business of the Ospreys.

Unfair prejudice

The legislation

198. Section 994 (1) of the Companies Act 2006 provides:

"A member of a company may apply to the court by petition for an order under this Part on the ground

(a) that the company's affairs are being or have been conducted in a manner which is unfairly prejudicial to the interests of its members generally or of some part of its members (including at least himself) or

(b) that any actual or proposed act or omission of the company (including an act or omission on its behalf) is or would be so prejudicial."

199. Section 996 (1) provides:

"If the court is satisfied that a petition under this Part is well founded, it may make such order as it thinks fit for giving relief in respect of the matters complained of …"

200. Section 996 (2) gives specific examples of the kinds of order the court may make.
201. These provisions re-enact the provisions formerly to be found in sections 459 and 461 of the Companies Act 1985. Although the petition was presented before 1 October 2007 (when the new provisions came into force) the effect of section 1297 of the Companies Act 2006 is that the petition is treated as proceeding under the new provisions.

The elements

202. It follows that for a petition to be well-founded the petitioner must establish that:

i) The acts or omissions of which he complains consist of the management of the affairs of the company;

ii) That the conduct of those affairs has caused prejudice to his interests as a member of the company and

iii) The prejudice is unfair.

The affairs of the company

203. The company in question is Neath. But Mr Hawkes does not complain of anything that Mr Cuddy did as a de facto director of Neath. His main complaint is, in effect, that in performing his duties as a director of the Ospreys Mr Cuddy failed to promote (or to promote adequately) the interests of Neath. This complaint therefore raises the question: are any of the affairs of Ospreys the affairs of "the company"?
204. Mr Chivers does not suggest that all the affairs of the Ospreys are the affairs of Neath. He does not, for example, say that Mr Blyth was conducting the affairs of Neath. But he points to the following aspects of the case as amounting to the conduct by Mr Cuddy of the affairs of Neath:

i) The interdependence of Neath and the Ospreys in relation to their core businesses in relation to players, venues and merchandising;

ii) The impact on Neath of the StadCo agreement and its variation;

iii) The attendance by Mr Cuddy at Neath board meetings to discuss the affairs of the Ospreys and to consider what the "Neath position" might be.

205. In addition Mr Chivers submitted that in the following ways Mr Cuddy was conducting the affairs of Neath:

i) To the extent that Mr Cuddy was or should have been advocating Neath's interests on the board of the Ospreys he was acting in the affairs of Neath;

ii) The businesses of Neath and the Ospreys were so intertwined that the one can be regarded as the business of the other;

iii) Where Mr Cuddy was wearing both a "Neath hat" and an "Ospreys hat" (for example in relation to the trademark proceedings; and in particular the use of Neath's confidential information in furtherance of the Ospreys' cause) he was acting in the affairs of Neath;

iv) Mr Cuddy's refusal to allow solicitors to represent Neath in the trademark proceedings was purely a Neath matter;

v) Where the Cuddy share has been used to protect Mr Cuddy's position as a director of the Ospreys that is also a purely Neath matter.

206. Mr Hollington, on the other hand, says that none of the affairs of the Ospreys are the affairs of Neath. He says that since the Ospreys was a 50:50 company in which neither Neath nor Swansea had control the affairs of the Ospreys cannot be the affairs of Neath. What Mr. Cuddy did as a director of the Ospreys is not the conduct of the affairs of Neath. The board of directors of Neath does not have any power to make management decisions on behalf of the Ospreys. All the board of Neath has is the right to be consulted, through its nominee on the board of the Ospreys, as to the management decisions made by the Ospreys' board.
207. There is some learning on the question whether the affairs of one company can count as the affairs of another. There is no absolute rule that the affairs of one company cannot count as the affairs of another; but the question is fact-sensitive. In looking at the facts, the court must look at the business realities and must not adopt a narrow, legalistic view.
208. In Nicholas v Soundcraft Electronics Ltd [1993] BCLC 360 the company in question, Soundcraft Magnetics Ltd, was owned as to 75 per cent by Soundcraft Electronics Ltd. A minority shareholder petitioned on the ground that Soundcraft Electronics had failed to honour an agreement to support the company until it got on its feet. The company's financial management was non-existent; and it paid a management fee to Soundcraft Electronics which it entrusted with foreign sales of its products. Soundcraft Electronics made the sales and was invoiced by the company, but withheld payment. The withholding of payment was relied on as amounting to unfair prejudice. The trial judge held that the withholding of payment by Soundcraft Electronics was not conduct of the affairs of the company. However, the Court of Appeal disagreed. One of the important facts was that the finance director of Soundcraft Electronics, a Mr Hozier, who was not a director of the company itself, exercised financial control over the company. His signature was required on company cheques. Fox LJ summarised the position as follows:

"With the control that Mr Hozier exercised over the drawing of cheques, Electronics was able to, and did, decide which creditors of the company should be paid. Since in addition Electronics was able to withhold payments received by it from foreign customers for the account of the company its direct financial control was very strong indeed. Electronics was, in effect, treating the financial affairs of the two companies as that of a single enterprise over which it had control. I should mention that the company and Electronics both banked at the same branch and shared a total borrowing limit on both accounts.

We are not, therefore, dealing with a case of a company which is simply running its own affairs in a manner which is harmful to the interests of shareholders in its subsidiary. It seems to me that Electronics, when it withheld payments from the company, was doing so as part of general control of the financial affairs of the company. It exercised that general control by deciding how much the company should receive (by withholding sums due to the company) and restricting the company's ability to spend money (by the signature requirements on cheques drawn by the company).

In my view Electronics, when it withheld from the company payments which were due to the company, was conducting the affairs of the company."

209. In Gross v Rackind [2005] 1 WLR 3505 the company in question, Citybranch Group Ltd, had two wholly owned subsidiaries, Citybranch Ltd and Blaneland Ltd. The petition relied on alleged breaches of duty in relation to the two subsidiaries. An application to strike out the petition failed both at first instance and in the Court of Appeal. Sir Martin Nourse, giving the only reasoned judgment quoted with approval the following passage from the judgment of Phillimore J in R v Board of Trade, ex p St Martin Preserving Co Ltd [1965] 1 QB 603:

"'In speaking of "its affairs" in connexion with a company, the natural meaning of the words connotes "its business affairs". What are "its affairs" when the company is in full control? They must surely include its goodwill, its profits or losses, its contracts and assets including its shareholding in and ability to control the affairs of a subsidiary, and perhaps in the latter regard a sub-subsidiary such as Atholl Houses, Ltd. In ordinary parlance, the affairs of the applicant company must surely have included its shareholding in T.G. Tickler, Ltd., and its power in virtue of that shareholding to control the board of that subsidiary and the disposition of Atholl Houses, Ltd., the wholly owned sub-subsidiary."

210. Sir Martin commented:

"The observations of Phillimore J demonstrate that the expression 'the affairs of the company' is one of the widest import which can include the affairs of a subsidiary. Equally, I would hold that the affairs of a subsidiary can also be the affairs of its holding company, especially where, as here, the directors of the holding company, which necessarily controls the affairs of the subsidiary, also represent a majority of the directors of the subsidiary."

211. He also quoted with approval the following observations of Powell J in Re Dernacourt Investments Pty Ltd (1990) 2 ACSR 553:

"'The words "affairs of a company" are extremely wide and should be construed liberally: (a) in determining the ambit of the "affairs" of a parent company for the purposes of s 320, the court looks at the business realities of a situation and does not confine them to a narrow legalistic view; (b) "affairs" of a company encompass all matters which may come before its board for consideration; (c) conduct of the "affairs" of a parent company includes refraining from procuring a subsidiary to do something or condoning by inaction an act of a subsidiary, particularly when the directors of the parent and the subsidiary are the same …"

212. These cases were considered by Sir Donald Rattee in Re Grandactual Ltd [2006] BCC 85. In that case the parties were shareholders in a company which operated a restaurant. The first, second and third respondents and the fourth petitioner had been involved in the management of its affairs in various capacities. The company entered into a licensing agreement with a company based in the Isle of Man (IL) under which it paid an annual licensing fee for logos and trade marks. The first, second and third respondents were shareholders in the licensing company. One of the allegations in the petition was that the capital structure of IL did not mirror the capital structure of the company, as had been envisaged by the prospectus when the company was formed. An application to strike out that allegation succeeded. Sir Donald said:

"The essence of the decisions of the Court of Appeal in the two cases I have cited was in my view that it may in certain cases be possible to say that conduct of the affairs of one company also constitute conduct of the affairs of another when the first company either is controlled by or has control of the other. That, if I may say so, is perfectly understandable. However, that principle is of no avail to the petitioners in the present case, in which IL had no power to control the company and was subject to no power of control by the company. Mr Green sought to argue that the first to third respondents as directors of the company had control over IL. This they clearly did not. They had control over IL but as shareholders of that company. In my judgment, the fact that they also had control over the company cannot be said to make the affairs of one company the affairs of the other, and I so decide. In my judgment, it is a point that can and should be decided now on this application at this stage and not allowed to go to a trial."

213. Sir Donald's formulation of the principle rests on the fact of control by one company over another. If company A controls company B then the affairs of company B can count as the affairs of company A, and vice versa. This has the merit of a simple and straightforward test. Commonality of directors is also an important feature. Neither feature is present in this case. Mr Chivers said that in the present case there was negative control, in the sense that Neath could block action by the Ospreys by instructing its nominee director not to agree a proposal made by the other. I reject this submission for two reasons. First, I do not consider that Neath would have been entitled to instruct its nominee director to cast his vote in a particular way, still less to vote against something that he believed was in the best interests of the Ospreys. Second, the concept of negative control is not one that appears in the cases, and in my judgment goes too far. Even a 26 per cent shareholder has a form of negative control in the sense that he can block a special resolution, but in such a case I do not consider that that form of negative control would make the affairs of the one company the affairs of the other. Moreover, I find it difficult to see how, if the affairs of the Ospreys are the affairs of Neath as a result of the corporate structure alone, it is possible to escape from the conclusion that Mr Blyth, in conducting the affairs of the Ospreys was also conducting the affairs of Neath. Yet Mr Blyth was the nominee of Swansea; and the conclusion that he was conducting the affairs of Neath is fanciful. Mr Chivers rightly disclaimed any such contention. Mr Hollington also made the point that if the fact of negative control enabled one to say that the affairs of the Ospreys were the affairs of Neath, it must lead logically to the conclusion that the affairs of the Ospreys were also the affairs of Swansea. I am not persuaded that in any general sense it is possible to say that the affairs of the Ospreys are the affairs of Neath.
214. In the Soundcraft case, however, as Mr Chivers pointed out, the fact of the 75 per cent shareholding did not form part of the essential reasoning of the Court of Appeal. What impressed the court was the practical control over the company's finances by a person who was not a director of the company. But the essential feature of the facts of that case, to my mind, was that Soundcraft Electronics was intervening in the internal affairs of Soundcraft Magnetics. The remedy afforded by section 994 is, in my judgment, essentially a remedy for the unfair management of the internal affairs of a company. It is not designed to deal with the situation where one company deals with another on an arms' length basis. Many decisions made on an arms' length basis by one company may have enormous impact on another. The fact that Neath and the Ospreys were both interested in the allocation of players, the merchandising of Ospreys' branded goods and the venues for the Ospreys' matches does not, to my mind, support the general proposition that the affairs of the Ospreys should count as the affairs of Neath.
215. I turn to consider Mr Chivers' five instances of cases in which he said that Mr Cuddy was conducting the affairs of Neath. I have largely dealt with the first two. I have already said that I do not find the analogy of the advocate persuasive and that when exercising his powers as a director of the Ospreys Mr Cuddy's duty was to the Ospreys and not to Neath. The second case is dealt with by my general discussion. The third, fourth and fifth cases are, however, different. In these cases it can, in my judgment, properly be said that Mr Cuddy was conducting the affairs of Neath to the extent that he was intervening in the internal affairs of Neath. Essentially these cases all relate to the trademark proceedings.
216. In concurring in the decision to take hostile legal proceedings against Neath, it cannot, in my judgment, be said that Mr Cuddy was conducting the affairs of Neath. The institution of legal proceedings is quintessentially an arms' length matter. If Mr Cuddy believed (as in my judgment he did) that it was in the Ospreys' best interests to take such proceedings, he was entitled if not bound to concur in their institution. However, in using confidential information which he had obtained from Neath internally, he can be said to have been conducting the affairs of Neath in passing that information on to the Ospreys. Likewise in objecting to the instruction of Morgan Cole as Neath's solicitors in the trademark proceedings, Mr Cuddy was acting in the affairs of Neath. Mr Chivers accepted that if he succeeded in establishing that only a limited range of Mr Cuddy's activities were the conduct of the affairs of Neath that did not give him a gateway into the much wider allegations.

Prejudice to the interests of members

217. The conduct must be both prejudicial (in the sense of causing prejudice or harm to the relevant interest) and also unfairly so: conduct may be unfair without being prejudicial or prejudicial without being unfair, and it is not sufficient if the conduct satisfies only one of these tests: Re Saul D Harrison & Sons plc [1995] 1 BCLC 14, per Neill LJ. The prejudice relied on must be prejudice to the interest of a member in his capacity as a member of the company rather than in some other capacity (e.g. as mortgagee or freeholder of property occupied by the company). But the court may give a generous interpretation to this concept, so that an expectation of being involved in the management of the company as a result of an understanding between shareholders may count as an interest of a member. There is no dispute that to the extent that unfair prejudice is proved either on the petition or the cross-petition, the prejudice is prejudice to the interest of a member or the members generally.

Unfairness

218. Although the Act does not give guidance on what is meant by unfair, the cases do. In Re Saul D Harrison & Sons plc [1995] BCLC 14 Hoffmann LJ said:

"In deciding what is fair or unfair for the purposes of [s 994], it is important to have in mind that fairness is being used in the context of a commercial relationship. The articles of association are just what their name implies: the contractual terms which govern the relationships of the shareholders with the company and each other. They determine the powers of the board and the company in general meeting and everyone who becomes a member of a company is taken to have agreed to them. Since keeping promises and honouring agreements is probably the most important element of commercial fairness, the starting point in any case under [s 994] will be to ask whether the conduct of which the shareholder complains was in accordance with the articles of association."

219. In O'Neill v Phillips [1999] 1 WLR 1092 Lord Hoffmann returned to the theme. He said:

"In [s 994] Parliament has chosen fairness as the criterion by which the court must decide whether it has jurisdiction to grant relief. It is clear from the legislative history ... that it chose this concept to free the court from technical considerations of legal right and to confer a wide power to do what appeared to be just and equitable. But this does not mean that the court can do whatever the individual judge happens to think fair. The concept of fairness must be applied judicially and the content which it is given by the courts must be based upon rational principles ...

In the case of [s 994], the background has the following two features. First, a company is an association of persons for an economic purpose, usually entered into with legal advice and some degree of formality. The terms of the association are contained in the articles of association and sometimes in collateral agreements between the shareholders. Thus the manner in which the affairs of the company may be conducted is closely regulated by rules to which the shareholders have agreed. Secondly, company law has developed seamlessly from the law of partnership, which was treated by equity, like the Roman societas, as a contract of good faith. One of the traditional roles of equity, as a separate jurisdiction, was to restrain the exercise of strict legal rights in certain relationships in which it considered that this would be contrary to good faith. These principles have, with appropriate modification, been carried over into company law.

The first of these two features leads to the conclusion that a member of a company will not ordinarily be entitled to complain of unfairness unless there has been some breach of the terms on which he agreed that the affairs of the company should be conducted. But the second leads to the conclusion that there will be cases in which equitable considerations make it unfair for those conducting the affairs of the company to rely upon their strict legal powers. Thus unfairness may consist in a breach of the rules or in using the rules in a manner which equity would regard as contrary to good faith."

220. The nature of the equitable considerations was discussed by Jonathan Parker J in Re Guidezone Ltd [2000] 2 BCLC 321. He said:

"Similarly, as Lord Hoffmann points out, 'unfairness' may arise from agreements or promises made, or understandings reached, during the life of the company which it would be unfair to allow the majority to ignore. Applying traditional equitable principles, equity will not hold the majority to an agreement, promise or understanding which is not enforceable at law unless and until the minority has acted in reliance on it. In the case of an agreement, promise or understanding made or reached when the company was formed, that requirement will almost always be fulfilled, in that the minority will have acted on the agreement, promise or understanding in entering into association with the majority and taking the minority stake. But the same cannot be said of agreements, promises or understandings made or reached subsequently, which are not themselves enforceable at law. In such a case, the majority will not as a general rule be regarded in equity as having acted contrary to good faith unless and until it has allowed the minority to act in reliance on such an agreement, promise or understanding. Absent some special circumstances, it will only be at that point, and not before, that equity will intervene by providing a remedy to the minority which is not available at law."

221. In the present case Mr Chivers emphasised that Mr Hawkes' complaint was that Mr Cuddy had not honoured the Hawkes/Cuddy agreement. That was the breach of agreement on which he principally relied.

Deadlock

222. The court has long had the power to order a company to be wound up on the ground that it is "just and equitable" to do so. Deadlock between rival factions is one of the grounds upon which this power can be exercised. So too is breach of an agreement or understanding on which a quasi-partnership is to be conducted: Ebrahami v Westbourne Galleries Ltd [1973] AC 360. However, in my judgment the "just and equitable" ground is not limited to deadlock. In Re Yenidje Tobacco Co. Ltd [1916] 2 Ch. 426 the company had two members with equal shareholdings who were also its two directors. The articles of association provided for arbitration in case of dispute. One dispute (about whether the factory manager should be sacked) in fact went to arbitration. The two directors fell out so badly that they were no longer on speaking terms and one had begun an action against the other alleging fraud in the inception of the company; but the company continued to carry on business profitably. Astbury J ordered the company to be wound up on the "just and equitable" ground and his decision was upheld by the Court of Appeal. Lord Cozens-Hardy MR (with whom Pickford LJ agreed) began by considering whether, if the company had been a partnership, it would have been dissolved on the "just and equitable ground". He quoted with approval the following statement from Lindley on Partnership:

"Refusal to meet on matters of business, continued quarrelling, and such a state of animosity as precludes all reasonable hope of reconciliation and friendly co-operation have been held sufficient to justify a dissolution. It is not necessary, in order to induce the Court to interfere, to show personal rudeness on the part of one partner to the other, or even any gross misconduct as a partner. All that is necessary is to satisfy the Court that it is impossible for the partners to place that confidence in each other which each has a right to expect, and that such impossibility has not been caused by the person seeking to take advantage of it." (Emphasis added)

223. He said that where one partner had accused the other of fraud, it was impossible to expect them to work together in conducting a partnership business. He also drew attention to the fact that the two directors were not on speaking terms with the result that board meetings were a farce. In such circumstances, had the enterprise been a partnership, it would have been dissolved. The next step in his reasoning was that the same principle ought to apply to a quasi-partnership in the form of a company.
224. In Ebrahami Lord Wilberforce who gave the leading speech referred to Re Yenidje Tobacco Co. Ltd as the leading English authority, and continued (p. 376):

"It has often been argued, and was so in this House, that its authority is limited to true deadlock cases. I could, in any case, not be persuaded that the words 'just and equitable' need or can be confined to such situations. But Lord Cozens-Hardy M.R. clearly puts his judgment on wider grounds. Whether there is deadlock or not, he says, at p. 432, the circumstances

'are such that we ought to apply, if necessary, the analogy of the partnership law and to say that this company is now in a state which could not have been contemplated by the parties when the company was formed ...'

Warrington LJ adopts the same principle, treating deadlock as an example only of the reasons why it would be just and equitable to wind the company up."

225. As I understand his speech he endorsed the analogy with partnerships, while at the same time recognising that a company is not a partnership (see p. 379). In the same case Lord Cross of Chelsea (with whom Lord Salmon agreed) commented on Re Yenidje Tobacco Co. Ltd as follows (p. 383):

"It is sometimes said that the order in that case was made on the ground of 'deadlock.' That is not so. As Mr. Frank Russell K.C., who was counsel for the appellant, pointed out, although Mr. Rothman and Mr. Weinberg were not on speaking terms they communicated through third parties, the company's business was flourishing and the articles contained a provision for arbitration to which resort could be had in the event of their failing to agree on any point. The reason why the petitioner succeeded was that the court thought it right to make the order which it would have made had Mr. Rothman and Mr. Weinberg been carrying on business under articles of partnership which contained no provision for dissolution at the instance of either of them. People do not become partners unless they have confidence in one another and it is of the essence of the relationship that mutual confidence is maintained. If neither has any longer confidence in the other so that they cannot work together in the way originally contemplated then the relationship should be ended - unless, indeed, the party who wishes to end it has been solely responsible for the situation which has arisen. The relationship between Mr. Rothman and Mr. Weinberg was not, of course, in form that of partners; they were equal shareholders in a limited company. But the court considered that it would be unduly fettered by matters of form if it did not deal with the situation as it would have dealt with it had the parties been partners in form as well as in substance." (Emphasis added)

226. These passages appear to me to show that a breakdown in trust and confidence in a quasi-partnership company would give the court jurisdiction to order a winding up on the "just and equitable" ground. However, in O'Neill v Phillips Lord Hoffmann repudiated the notion of a "no fault divorce" available under section 994 merely on a breakdown in trust and confidence. He said:

"I do not think that there is any support in the authorities for such a stark right of unilateral withdrawal. There are cases, such as Re a company (No 006834 of 1988), ex p Kremer [1989] BCLC 365, in which it has been said that if a breakdown in relations has caused the majority to remove a shareholder from participation in the management, it is usually a waste of time to try to investigate who caused the breakdown. Such breakdowns often occur (as in this case) without either side having done anything seriously wrong or unfair. It is not fair to the excluded member, who will usually have lost his employment, to keep his assets locked in the company. But that does not mean that a member who has not been dismissed or excluded can demand that his shares be purchased simply because he feels that he has lost trust and confidence in the others. I rather doubt whether even in partnership law a dissolution would be granted on this ground in a case in which it was still possible under the articles for the business of the partnership to be continued. And as Lord Wilberforce observed … one should not press the quasi-partnership analogy too far." (Emphasis added)

227. In Symington v. Symington's Quarries Ltd. (1905) 8 F. 121 Lord M'Laren said:

"one of the grounds on which it has been the practice of the Court to decree a dissolution is where there is a small number of partners equally, or nearly equally divided, so that it is impossible that the business of the company can be carried on. That is a rule that would very seldom be applicable to a company under the Companies Act, never certainly where the company appeals to the public for subscriptions to its shares, because if the directors are equally divided, or if there is such a division as makes it difficult to carry on the company's affairs, the remedy of the shareholders is to turn them out and to elect an harmonious board of directors. But then this is not a company that is formed by appeal to the public. It is what, for want of a better name, I may call a domestic company, the only real partners being the three brothers of a family, the other shareholders having only a nominal interest for the purpose of complying with the provisions of the Act. In such a case, it is quite obvious that all the reasons that apply to the dissolution of private companies on the grounds of incompatibility between the views or methods of the partners would be applicable in terms to the division of the shareholders of this company, and I agree with your Lordships that this is a case in which it would be just and equitable that this company should be wound up, and the partners allowed to take out their money and trade separately." (Emphasis added)

228. Mr Hollington argued that in a case in which there is both a breakdown of trust and confidence and also deadlock, leading to the result that it has become impossible for the company to carry on business in the manner contemplated by the articles and the understandings between the shareholders, the court would wind up the company on the just and equitable ground. Thus far, in my judgment, he is right.
229. The next step in the argument is that the jurisdiction to wind up on the "just and equitable ground" and the jurisdiction to make an order under section 994 were co-terminous. In this he has the support of Jonathan Parker J in Re Guidezone Ltd [2000] 2 BCLC 321. Jonathan Parker J held:

i) that the winding-up jurisdiction is, at the very least, no wider than the section 994 jurisdiction: a proposition which is consistent with a winding-up order being the death sentence on a company and with the statutory recognition in section 125(2) of the Insolvency Act 1986 that a winding-up order is an order of last resort; and

ii) if the conduct is not unfair for the purposes of section 994, it cannot found a case for a winding-up order on the 'just and equitable' ground.

230. In other words, what Jonathan Parker J was saying was that conduct which would have justified a winding up on the just and equitable ground will always amount to unfair prejudice for the purpose of section 994. Conversely, conduct which amounts to unfair prejudice for the purposes of section 994 will not necessarily justify a winding up on the just and equitable ground. And conduct which does not amount to unfair prejudice for the purposes of section 994 cannot justify a winding up on the just and equitable ground. In reaching his conclusion, Jonathan Parker J considered and refused to follow the earlier decision of Nourse J in Re R A Noble & Sons (Clothing) Ltd [1983] BCLC 273. Even if I have doubts about whether this is correct (which I do), ordinary principles of precedent require me to follow the decision of a judge of co-ordinate jurisdiction who has considered and refused to follow a previous decision of another judge of co-ordinate jurisdiction, unless I am clearly convinced that the second judge was wrong. If, as Jonathan Parker J held, the winding up jurisdiction is no wider than the jurisdiction under section 994 it must, I think, follow that anything that would have justified winding up on the just and equitable ground will also justify the grant of relief under section 994.
231. Mr Hollington thus submits that if the circumstances are such that the court could make a winding up order on the just and equitable ground, then it can give relief under section 994 in precisely the same circumstances. This, he says, must follow from Re Guidezone Ltd. He therefore submits that if there has been a breakdown of trust and confidence coupled with deadlock, leading to the result that the business of the company cannot be carried on in the way that was initially contemplated, relief can be granted on a petition under section 994. Is this the same submission that Mr Hollington advanced unsuccessfully in O'Neill v Phillips? I do not think it is. In O'Neill v Phillips the submission was based on the breakdown of trust and confidence alone. The submission that Mr Hollington advances now has the added features of deadlock and the resulting inability of the company to conduct its business in the manner initially contemplated. I accept this submission.

Frustration

232. In O'Neill v Phillips Lord Hoffmann said:

"I do not suggest that exercising rights in breach of some promise or undertaking is the only form of conduct which will be regarded as unfair for the purposes of section [994]. For example, there may be some event which puts an end to the basis upon which the parties entered into association with each other, making it unfair that one shareholder should insist upon the continuance of the association. The analogy of contractual frustration suggests itself. The unfairness may arise not from what the parties have positively agreed but from a majority using its legal powers to maintain the association in circumstances to which the minority can reasonably say it did not agree: non haec in foedera veni. It is well recognised that in such a case there would be power to wind up the company on the just and equitable ground (see Virdi v. Abbey Leisure Ltd [1990] B.C.L.C. 342) and it seems to me that, in the absence of a winding up, it could equally be said to come within section [994]."

233. Building on Lord Hoffmann's analogy with contractual frustration, Mr Chivers submitted that where the frustration of a contract was self-induced, the person who induced the allegedly frustrating event could not rely on it as discharging contractual obligations. By analogy, a petition cannot be based on an event which puts an end to the basis upon which the parties entered into association with one another where the petitioner has brought about the event. In the present case, the event was Mr Cuddy's inability, because of section 216, to participate in the management of Neath. He could have avoided that result by applying for leave under that section, but did not. Consequently he cannot rely upon his disability under that section to found a cross petition. As a matter of contractual analysis I think that Mr Chivers may well be right. However, Lord Hoffmann referred to contractual frustration only as an analogy, and like the analogy with partnership it should not be pushed too far. I do not think that he meant that all the detailed rules about contractual frustration were to be applied to the broader-grained question arising under section 994. In the quoted passage Lord Hoffmann gives only one example of a case illustrating what he meant (Virdi v. Abbey Leisure Ltd). In Virdi the parties were shareholders in a company which had been formed to acquire and manage a nightclub. It did so for some five years, and then sold the club. Following the sale the company's only real asset was the cash realised on the sale. The other shareholders wanted to reinvest the cash in acquiring another nightclub; but the petitioner alleged that it had been agreed when the company was formed that the acquisition and management of that particular nightclub was to be its sole business. That allegation was assumed to be true. On those assumed facts the Court of Appeal held that prima facie the petitioner was entitled to a winding up order on the just and equitable ground. If all the rules of contractual frustration had been in play, it could hardly be doubted that the frustration was self-induced, because the company had voluntarily sold the nightclub. So in referring to Virdi as the only example of what he had in mind, Lord Hoffmann cannot, in my judgment, have intended to confine his remarks to a case in which the full rigour of contractual frustration was satisfied. This conclusion is also consistent with Lord Hoffmann's statement that in many cases it is not profitable to enquire into the causes of a breakdown of trust and confidence. If the approach in a quasi-frustration case is radically different because self-induced frustration cannot be relied on, Lord Hoffmann would surely have said so.
234. The broader question is, as it seems to me, whether it is unfair for legal powers to be used to maintain an association in circumstances to which the parties can reasonably say they did not agree.

Illegality

235. In the case of a real partnership section 34 of the Partnership Act 1890 provides:

"A partnership is in every case dissolved by the happening of any event which makes it unlawful for the business of the firm to be carried on or for the members of the firm to carry it on in partnership."

236. Thus if Mr Hawkes and Mr Cuddy (or for that matter Mrs Cuddy) had been in partnership, the partnership would have been automatically dissolved once it became unlawful for Mr Cuddy to be involved in the management of Neath. It makes no difference that the erstwhile partners are unaware of the illegality: Hudgell Yeates & Co v Watson [1978] QB 451. Of course a company is not a partnership and, unlike a partnership, will continue to exist even if one of its directors or shareholders is prevented from participating in its management. Nevertheless, if the analogy with partnership is applied to a corporate quasi-partnership, then the illegality of Mr Cuddy's participation in the management of Neath is capable of amounting to unfair prejudice in the conduct of the affairs of Neath.
237. In Bermuda Cablevision Ltd v Colica Trust Co Ltd [1998] AC 198 Bermudan legislation required that companies carrying on business in Bermuda be controlled by Bermudans. Bermuda Cablevision was in fact controlled by non-Bermudans and was therefore carrying on business illegally. A petition was presented under the Bermudan equivalent of section 459 and the question arose whether the fact that main thrust of the petition was based on an allegation that the company was carrying on business unlawfully took the case outside the section. The Privy Council held that it did not. However they went on to consider the effect of the petitioner's knowledge of the illegality on the question whether any prejudice to his interests was unfair. They pointed out that the illegality in that case was continuing; and that if the petitioner's prior knowledge debarred him from presenting a petition, the effect would be to facilitate the carrying on of business unlawfully. Thus they concluded that prior knowledge of the facts giving rise to the illegality did not preclude the presentation of a petition. However, they went on to say:

"A cautionary note must be entered. Prior knowledge of the matters complained of in a petition will always be a most relevant consideration in deciding cases under section [994]. Sometimes it will be decisive. But there may be cases, perhaps relatively rare, where this fact may be outweighed by sufficiently cogent countervailing factors. The fact that shareholders are locked into a position where a company is continuing to carry on business unlawfully may be such a factor. In the present case it will be a matter for the trial judge to decide how this tension between competing considerations should be resolved."

238. Plainly, therefore, illegality may amount to unfair prejudice for the purposes of section 994. But the general principle is that a person cannot rely on his own illegal conduct in order to found relief. Reliance on illegality is not, in my judgment, open to Mr Cuddy; but is open to Mr Hawkes. It will be recalled, however, that although Mr Hawkes is entitled to rely on past illegality in pursuing his petition, he has agreed not to rely on future illegality in determining the appropriate relief. Thus the argument that shareholders are locked into a position where a company is continuing to carry on business unlawfully is not one that is open to him.

Offers to purchase

239. In O'Neill v Phillips Lord Hoffmann also considered the question of offers to buy. The case was one in which the petitioner, Mr O'Neill, was the minority shareholder in a company in which Mr Phillips was the majority shareholder. Trust and confidence had broken down between them. However, the House of Lords held that there was no unfair prejudice proven, and so what was said about the significance of offers was both obiter and, to some extent hypothetical. What Lord Hoffmann said was this:

"This was a somewhat unusual case in that Mr. Phillips, despite his revised views about Mr. O'Neill's competence, was willing to go on working with him. This is a position which the majority shareholder is entitled to take, even if only because he may consider it less unattractive than having to raise the capital to buy out the minority. Usually, however, the majority shareholder will want to put an end to the association. In such a case, it will almost always be unfair for the minority shareholder to be excluded without an offer to buy his shares or make some other fair arrangement. …But the unfairness does not lie in the exclusion alone but in exclusion without a reasonable offer. If the respondent to a petition has plainly made a reasonable offer, then the exclusion as such will not be unfairly prejudicial and he will be entitled to have the petition struck out. … If there is a breakdown in relations between the parties, the majority shareholder should be given a reasonable opportunity to make an offer (which may include time to explore the question of how to raise finance) before he becomes obliged to pay costs. As I have said, the unfairness does not usually consist merely in the fact of the breakdown but in failure to make a suitable offer."

240. These observations were directed to a case in which (a) there was a majority and a minority shareholder rather than equal shareholders (b) it was the respondent who offered to buy out the petitioner and (c) the purpose of the company was to make money. Where there is no majority shareholder the significance of an offer to buy is not so powerful. The question was considered by Mr Peter Leaver QC, sitting as a judge of the Chancery Division, in West v Blanchet [2000] 1 BCLC 795. He said:

"Although I can readily accept that there may well be cases in which, if there are equal shareholders, a reasonable offer from one might not lead a court to say that the petition was 'bound to fail', even if the refusal of the offer was unreasonable, because even in such circumstances it might not be plain and obvious that the petitioner must go, it seems to me that the starting point should normally be, even in such a case, a consideration of whether a reasonable offer has been made."

241. He concluded on the facts that it was obvious that the petitioner would have to go, and struck out the petition. In the present case, one of the peculiarities (apart from the equal shareholding) is that Mr Hawkes' primary interest is in Neath, while Mr Cuddy's primary interest is in the Ospreys, and he has the vociferous support of Swansea in that respect. It is not therefore plain or obvious which (if either of them) should go. Second, in the present case although Mr Hawkes made an offer to buy out Mr Cuddy before the petition was presented, he is the petitioner. It does not seem to me to be right, save in exceptional circumstances, to require a respondent to a petition to agree to the expropriation of his asset (even for fair compensation). Third, while in the normal case people invest in companies for economic reasons, this case is different. I do not consider that either Mr Hawkes or Mr Cuddy went into the joint venture to make money. They went into it because both are lovers of rugby; and in Mr Cuddy's case he bought into Neath because it was his passport to regional rugby, as a result of the requirements of the WRU for ownership of the regional sides.
242. I do not, therefore consider, on the special facts of this case, that the making of an offer by either party to buy out the other is a shortcut to success.

Relief

The general principles

243. The court has a wide discretion in fashioning an order once unfair prejudice has been proved. But like all discretions it must be exercised judicially and on rational principles: Profinance Trust SA v Gladstone [2002] 1 BCLC 141. The starting point is the judgment of Oliver LJ in Re Bird Precision Bellows [1986] Ch. 658, 669:

"The whole framework of the section, and of such of the authorities as we have seen, which seem to me to support this, is to confer on the court a very wide discretion to do what is considered fair and equitable in all the circumstances of the cases, in order to put right and cure for the future the unfair prejudice which the petitioner has suffered at the hands of the other shareholders of the company."

244. In Re Legal Costs Negotiators Ltd [1999] BCC 547 Peter Gibson LJ emphasised the limits to the discretion given by section 996. He said:

"I would emphasise the limit imposed by statute on the relief which may be given under [s.996] viz. the order is for giving relief in respect of the matters complained of. As Oliver LJ said in Re Bird Precision Ltd [1986] Ch. 658 at 669D, the very wide discretion conferred on the court to do what is considered fair and equitable is 'in order to put right and cure for the future the unfair prejudice which the petitioner has suffered at the hands of the other shareholders of the company'. If the matters complained of have been put right and cured and cannot recur, it is hard to see how the court could properly give relief."

245. In the more recent case of Grace v. Biagioli [2006] BCC 276 the Court of Appeal said:

"Once unfair prejudice is established, the court is given a wide discretion as to the relief which should be granted. Although [s 996(1)] speaks in terms of relief being granted 'in respect of the matters complained of', the court has to look at all the relevant circumstances in deciding what kind of order it is fair to make. It is not limited merely to reversing or putting right the immediate conduct which has justified the making of the order. In Re Bird Precision Bellows Ltd Oliver LJ described the appropriate remedy as one which would 'put right and cure for the future the unfair prejudice which the petitioner has suffered at the hands of the other shareholders of the company'. The prospective nature of the jurisdiction is reflected in the fact that the court must assess the appropriateness of any particular remedy as at the date of the hearing and not at the date of presentation of the petition; and may even take into account conduct which has occurred between those two dates. The court is entitled to look at the reality and practicalities of the overall situation, past, present and future."

246. Where unfair prejudice has been established, the remedy must also be proportionate to the unfair prejudice found. It may be disproportionate to order a buy-out of one shareholder's shareholding where the unfair prejudice is relatively modest: Re Phoenix Office Supplies Ltd [2003] 1 BCLC 76, per Jonathan Parker LJ. By the same token, the exercise of jurisdiction under section 996 is not a punishment for bad behaviour.
247. Although the court has the power to order a winding up that is usually treated as a remedy of last resort. In the present case an order winding up Neath will (or at least may) cause the forfeiture of its share in the Ospreys. Since Neath's share in the Ospreys is its principal asset of value an order for winding up should be avoided if at all possible.

Demerger

248. One solution that Mr Hollington proposed was what was effectively called a demerger. In essence, this would leave Mr Hawkes with complete control of Neath on the basis that he acquired the Cuddy share. On the other hand, Neath would give up its share in the Ospreys so that the corporate connection between them would be severed. This would amount to a dismemberment of Neath and stripping it of what the experts agree is its only asset of real value.
249. Whether a demerger of this kind is available relief under section 996 has been considered by the Court of Appeal of New South Wales in relation to analogous legislation in Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (2001) 37 ACSR 672. The company in question was a large bus company, operating out of many depots. An expert consultant in the transport industry said that it would be possible to divide the company's major assets so that an individual depot or a group of depots could be run as a stand-alone business. However, he said that the process of dividing the assets would need to be "designed and managed carefully". In particular a number of third party consents would have to be obtained. Spiegelman CJ said (¶ 212):

"In my opinion, this Court should not embark on the course of attempting to divide the assets in this case. Indeed, save in a situation of a limited range of assets with little interconnection between them, I doubt if it would ever be appropriate for a court to attempt such a task. The Court should not be placed in a position where:

(i) it may have to make commercial judgments;

(ii) it runs the risk of being dependent on commercial or political negotiations;

(iii) it may have to make contingent or alternative orders, subject to the outcome of commercial or political negotiations."

250. I respectfully agree. One might also add that the position of creditors would have to be safeguarded. Although such an order is probably theoretically possible on a petition under section 994 it is one that should rarely be made. It may be that if, for instance, a company was trading in two comparable but physically separate locations, each one of which was managed day to day by one of two directors, it might be right to allow each of the directors to continue trading in one of the two locations. But in general a court should not compel a company to distribute its assets in specie to its members.

Effect on third parties

251. Mr Parker submitted that in determining what relief to grant on a petition under section 994 the court could take into account the effect of its order on third parties. In West v Blanchet [2000] 1 BCLC 795 to which I have already referred, the company was owned by the two parties in equal shares. Each of them, and one other, was a director of the company. The company's business was teaching English as a foreign language. Mr Blanchet was the principal of the school that it ran. Mr West complained of having been excluded from the management of the company, and was eventually dismissed. Mr West offered to buy out Mr Blanchet's shares; and when that offer was not accepted launched a petition under the forerunner of section 994, in response to which Mr Blanchet offered to buy out Mr West. Mr West had ceased to work for the company some time before his petition was launched. Although the company was owned by the parties in equal shares, Mr Leaver QC decided that it was plain and obvious that Mr West would have to go. His reasons were:

"(1) There is no allegation of impropriety in the petition or points of claim in respect of the running of the company. …(2) Mr West has not been an employee of the company since August 1998, and since January 1998 has not been greatly involved in the management of the company. (3) Even when he was involved in management, Mr West's role as marketing director involved him spending long periods of time abroad. The teaching and day-to-day management of the company lay in the hands of the respondents. (4) The non-shareholder member of the board of directors is opposed to Mr West. (5) There is no evidence that any of the employees of the company want Mr West to return. (6) There has been an irretrievable breakdown in relations between Mr West and the respondents."

252. Mr Parker relies especially on the fourth and fifth of these reasons. He submits that on the facts of this case, I should have regard to the position of Swansea with whom Neath will have to work in running the Ospreys. It is, of course, the case that in deciding what relief to grant on a petition under section 994 the court is not adjudicating on a "contest of virtue". It is also the case that the dispute upon which I have to adjudicate is one between the petitioner and respondent, and not one between the company and outsiders. But where the company in question is owned in equal shares, and its most valuable asset is an equal share in a joint venture with a third party, I agree with Mr Parker that the position of the joint venturer is a factor to which the court can have regard.

Unfair prejudice: conclusions

253. I take the allegations of unfair prejudice from those on which Mr Chivers relied in his closing address.

Failure to play games at the Gnoll

254. When Mr Hawkes and Mr Cuddy entered into the Hawkes/Cuddy agreement in early 2003 nothing was said about the venue at which the Ospreys' matches would be played. In fact they were shared between St Helens and the Gnoll until the opening of the Liberty Stadium. A failure to play games at the Gnoll cannot be a breach of any express term of the Hawkes/Cuddy agreement.
255. It is common ground that there was no formal agreement between the Ospreys and Neath (or between Swansea and Neath) that competitive matches would be played at the Gnoll. However, before the opening of the Liberty Stadium there was an assumption that at least some such matches could be played at the Gnoll. The assumption did not include any assumption about the financial terms on which any such matches would be played. However, running in parallel with that assumption was an assumption that the Gnoll would be redeveloped relatively quickly in order to provide a venue that was commensurate with the desire for an enhanced standard both of rugby and the surroundings in which it was played, as well as an increase in capacity. The falsification of the latter assumption was a significant contributory factor to the eventual outcome that no competitive matches were played at the Gnoll. In addition, the Liberty stadium was a far greater success than had been expected.
256. In my judgment the claims that it would be "financial suicide" or "commercial suicide" for any competitive matches to be played at the Gnoll are exaggerations. That said, I accept that the Ospreys are very likely to forego substantial sums of money (in terms of reduced gates and greatly reduced revenue from hospitality and a loss of sales of merchandise) in relation to any competitive match played at the Gnoll. The amount foregone would be all the greater if, as Mr Hawkes believes, the revenues generated by a match played by the Ospreys at the Gnoll would be retained by Neath rather than passed back to the Ospreys or shared with Swansea as the other shareholder in the Ospreys. In my judgment the financial case for playing all matches at the Liberty Stadium is overwhelming. In addition the "political" case for playing all matches at a neutral venue rather than one associated with a particular feeder club is in my judgment a powerful one.
257. Although Mr Cuddy wanted matches to be played at the Gnoll and advocated that until at least the beginning of the 2005/6 season, as time went on he became convinced of the merits of both the financial and the "political" case for playing all competitive matches at the Liberty Stadium. He reached his conclusion in what he considered to be the best interests of the Ospreys, and at least in financial terms, in the best interests of Neath. However, he and Mr Hawkes had different views on what constituted the best interests of Neath. Although Mr Cuddy was aware of Mr Hawkes' strong desire to see some of the Ospreys' competitive matches played at the Gnoll, by the middle of 2006 he had ceased to press that case. Mr Blyth would not have agreed to the playing of such games at the Gnoll, although it is right to say that Mr Cuddy never confronted Mr Blyth head on. I do not consider that Mr Cuddy was in breach of any agreement once he ceased to press the case for playing matches at the Gnoll. Even if he was, the falsification of the assumption that the Gnoll would be redeveloped with a significant contribution from Neath Port Talbot Council would not have made a change of position unfair. Mr Hawkes' views were well known to both Mr Hawkes and Mr Blyth and were taken into account in the decision making process. But since neither Mr Cuddy nor Mr Blyth agreed with them, they were overridden.
258. In addition Clause 8 of the shareholders' agreement committed Neath to using all reasonable endeavours to develop the business of the Ospreys. Both Mr Blyth and Mr Cuddy took the view that the best way of developing the business of the Ospreys was for it to play all its matches at the Liberty Stadium. Even Mr Hawkes saw the commercial merits of their decision. Mr Cuddy did manage to persuade Mr Blyth that the Ospreys should offer to play a regular friendly fixture at the Gnoll but Mr Hawkes turned down the offer. This was a compromise and, in my judgment, represented the best that Mr Cuddy could do. Any harm to Neath would have been mitigated if Mr Hawkes had accepted this compromise.
259. In addition in reaching the decision on the venue for the Ospreys' matches, Mr Cuddy was not conducting the affairs of Neath. He and Mr Blyth were conducting the affairs of the Ospreys as an independent corporation.
260. In my judgment the decision by the Ospreys not to play matches at the Gnoll does not support the claim that the affairs of Neath have been conducted unfairly. No relief on the petition is justified on this ground.

Failure to transfer Neath's share in the Ospreys into Neath's name

261. Since it was a term of the regional operating agreement that the shares in a regional side had to be owned by a club, it was plain that Mr Cuddy personally could not own a share in the Ospreys. It was, therefore, part of his duty as a director of the Ospreys to make sure that the Ospreys kept to the terms of the regional operating agreement. To the extent that he failed to do so by failing to cause the share to be registered in the name of Neath he was in breach of duty. Since he also held the share on a bare trust for Neath, he was also in breach of a duty to Neath in failing to take steps to cause the share to be registered in Neath's name when called upon to do so.
262. However, no consequence flowed from this failure and it was remedied soon after the petition was presented. Any conceivable prejudice that has flowed from this has been cured. It cannot recur. No further relief is necessary.

The withdrawal of the players

263. The withdrawal of the players was triggered by a bona fide commercial dispute between the Ospreys and Neath. It was Mr Hawkes who queried the basis on which payment had been made for players during previous seasons. This was a change of position on the part of Neath. The Ospreys may have resorted to self-help by withdrawing the players rather earlier than they might have done had relations between the Ospreys and Neath been friendlier; but it must not be forgotten that Mr Hawkes had made his position very clear during the course of the heated discussion that he had had with Mr Blyth.
264. Mr Cuddy downplayed his involvement in the decision to withdraw the players. The correspondence from the Ospreys to Neath was certainly sent with his knowledge and on his joint instructions with Mr Blyth, although his instructions were given reluctantly. So his statement in his first witness statement that he deliberately kept out of the issue about non-payment for players was, to say the least, exaggerated.
265. It was in the interests of the Ospreys to recover the amount that, in good faith, they were claiming from Neath. Swansea had paid for players on the basis that the Ospreys claimed from Neath. There was no discrimination against Neath. It was in Neath's interests to accept liability for the lower amount that Mr Hawkes was willing to concede. There was, therefore, a direct conflict of interest between Neath on the one hand and the Ospreys on the other. Mr Cuddy was convinced that the Ospreys' position was right and that Neath's position was wrong. In preferring the interests of the Ospreys to those of Neath Mr Cuddy was doing his duty as a director of the Ospreys. Claiming the higher amount was also consistent with clause 8 of the shareholders' agreement.
266. In claiming the higher amount, and concurring in the decision to withdraw the players, I do not consider that Mr Cuddy was conducting the affairs of Neath. This was an arms' length bona fide dispute on both sides. Nor do I consider it unfair that he should prefer the interests of the Ospreys to the interests of Neath where, as here, there was a direct conflict between them and where, as here, Mr Cuddy thought that the Ospreys were in the right and Neath was in the wrong. No relief on the petition is justified on this ground.

The trademark proceedings

267. In encouraging the raid by trading standards officers and in concurring in the decision to launch the trademark proceedings Mr Cuddy was not, in my judgment, conducting the affairs of Neath. He was conducting the affairs of the Ospreys, which were in this respect diametrically opposed to those of Neath. On the face of it the Ospreys have a good case against Neath. Mr Hawkes was personally present at the meeting of the Ospreys' board where it was agreed that all merchandise must be approved by the Ospreys. It was Neath who went against that agreement. To the extent that Mr Cuddy preferred the interests of the Ospreys to those of Neath, it was not unfair of him to do so.
268. However, in using Neath's internal confidential information in order to promote the interests of the Ospreys, Mr Cuddy was, in my judgment, conducting the affairs of Neath and was, moreover, doing so unfairly. The information about Neath's finances had been ostensibly obtained in order for Mrs Cuddy to satisfy herself about the state of the finances. Yet Mr Cuddy used it in order to help further the Ospreys' position in a hostile dispute. In my judgment that was unfair. To the extent that it made Neath's defence harder to maintain, it also operated to the prejudice of the members of Neath. In considering the gravity of Mr Cuddy's conduct it is necessary to consider the nature of the information that he used. The question was whether Neath had ordered the infringing goods before the Ospreys had made it clear that its formal licence would be required for the sale of Ospreys branded goods. Mr Cuddy passed on the information that there was no trace of a purchase order in Neath's books. In order for Neath to be able to maintain its defence, it would in due course have been required to make disclosure of its purchase orders for the goods. So it seems probable that the information that Mr Cuddy disclosed to the Ospreys would in due course have been liable to have been disclosed by Neath itself to the Ospreys and to have been available for use by the Ospreys in advancing its case in the litigation. Mr Cuddy's fault was, in effect, the premature disclosure of the information.
269. The other allegation relating to the trademark proceedings was the alleged refusal to allow Neath to instruct solicitors to file a Defence. This allegation is, in my judgment, exaggerated. Mr Cuddy objected to Morgan Cole, who were Mr Hawkes' personal solicitors, from being instructed on Neath's behalf. In circumstances in which relations between Mr Hawkes and Mr Cuddy personally had completely broken down, that was not an unreasonable or unfair stance to take. Mr Cuddy's suggestion that Mr Morris be instructed was rejected by Mr Hawkes. That too was not an unreasonable stance for Mr Hawkes to have taken, given that the proceedings concerned a somewhat specialised field of law. It is, however, right to say that Mr Cuddy should have responded more constructively to the counter-suggestion that Geldards be approached. But in my judgment it goes too far to say that a failure to respond constructively was the unfair conduct of Neath's affairs to the prejudice of its members in circumstances where the proceedings have been stayed pending the outcome of this petition.
270. Although a petition is not established by trivial and technical breaches, I think that the premature use by Mr Cuddy of Neath's confidential information is more than trivial or technical. That was in my judgment the conduct of Neath's affairs to the prejudice of its members. Some relief on the petition is justified on this ground.

The StadCo variation

271. Neath was not a party to the StadCo agreement or its subsequent variation. In concurring in the decision to enter into the StadCo variation Mr Cuddy acted in what he believed to be the best interests of the Ospreys. He also acted in conformity with clause 8 of the shareholders' agreement which committed both shareholders to using all reasonable endeavours to develop the business of the Ospreys to best advantage. In my judgment in so doing, he was not conducting the affairs of Neath.
272. Although Mr Chivers flirted with the idea that entry into the StadCo variation might have required Neath's consent under the terms of clause 4 of the shareholders' agreement, in the end he did not press that submission. I think he was right not to do so. Even if entry into the original StadCo agreement had required the consent of the shareholders, consent was given. I do not consider that having given consent to that, it was necessary for formal consent to be given to the variation.
273. Mr Chivers did, however, say that even though the consent of Neath might not have been formally required, in practice the board of Ospreys regarded Neath's consent as having been given through Mr Cuddy, just as Swansea's consent had been given through Mr Blyth. In a very loose sense he is right. But in my judgment this perception arose simply because Mr Blyth was assumed to be Swansea's representative on the board just as Mr Cuddy was assumed to be Neath's. How each of the directors communicated with his constituency was a matter for him. So far as the Ospreys were concerned the decision whether or not to enter into the StadCo variation was a matter for its board; and the board decided to go ahead. I do not therefore accept the submission that Neath gave only a conditional consent to the entry into the StadCo variation and that once it was appreciated that the conditions had not been fulfilled its consent lapsed, with the result that Mr Cuddy had no authority to concur in the decision to enter into the StadCo variation. Neath's consent was not necessary, and Mr Cuddy's authority derived from his position as a director of the Ospreys. He was not simply an agent of Neath.
274. However, in failing to tell Mr Hawkes that the assumption that the six points of concern had been addressed had been falsified, Mr Cuddy was in breach of his obligation to consult. But Mr Hawkes had made his position very clear: he was opposed to the StadCo variation in principle on financial grounds, even on the assumption that the six points of concern had been addressed. I do not consider that consultation would have made any difference to Mr Hawkes' personal position. Mr Chivers said that if the fact that the points of concern had not been addressed had been made known to Mr Hawkes, he might have been able to re-open the question with the other joint venturers. While that is, of course, a possibility, I do not consider that it is a strong one.
275. The breach of the obligation to consult was a breach of the Hawkes/Cuddy agreement. The failure was exacerbated by the failure by Mr Cuddy (contrary to the shareholders' agreement) to ensure that board meetings were both held and recorded and that agendas for board meetings were circulated in advance. The fact that Mr Hawkes was not consulted was, in my judgment, prejudicial to him, even though consultation would have been unlikely to have affected the outcome. Some relief on the petition is justified on this ground, but I think that the main concern must be to ensure, so far as practicable, either that consultation takes place in the future or is made unnecessary.

Unlawful participation in the management of Neath

276. In so far as either side relied on quasi-frustration, it derived from the supervening illegality which prevented the Hawkes/Cuddy agreement from being implemented. In the light of HH Judge Havelock-Allen's findings about the breach of section 216 (and the upholding of his findings by the Court of Appeal) there can be no dispute about this. From the moment that Gowerpark went into liquidation in October 2003 until Mrs Cuddy's resignation at the end of May 2007, Mr Cuddy was unlawfully participating in its management. In the present case Mr Hawkes knew of all the relevant facts. In the early days he relied on Mr Cuddy for advice. Latterly he continued to discuss Neath's affairs with Mr Cuddy and to request him to sign cheques. However, I find that at least until April 2007 neither he nor Mr Hawkes knew that this arrangement was unlawful. Perhaps they both ought to have known since they disregarded Mr Newman's advice, but they did not. In Mr Cuddy's case he continued to dispute that such role as he had in Neath was unlawful right up to the hearing in the Court of Appeal.
277. The petition complained that Mrs Cuddy had refused to carry out her duties as a director of Neath. The refusal includes (for example) her refusal to sign the 2005/6 accounts and her refusal to attend the board meeting called for the purpose of voting on a proposal to remove Mr Cuddy from the board of the Ospreys. However, the difficulty with this complaint is that, on the basis of the findings of HH Judge Havelock-Allen QC, upheld by the Court of Appeal, it would have been unlawful for Mrs Cuddy to have carried out what were perceived to have been her duties as a director of Neath.
278. Mr Chivers then said that the unfairness upon which Mr Hawkes was entitled to rely was the fact that Mrs Cuddy did not resign as a director once the illegality was exposed. But Mrs Cuddy did resign within a couple of months thereafter and her place was taken by Mr Eric Evans. It is true that it took the presentation of the petition to procure her resignation; but that would not in itself justify the grant of further relief. It was not (and is not) unlawful for Mr or Mrs Cuddy to be a shareholder in Neath, provided that they were not concerned directly or indirectly in its management. Mr Hawkes has agreed not to rely on the possibility of future breaches of section 216 to justify the grant of any particular form of relief. I cannot see therefore that the past illegality would justify an order that entitled Mr Hawkes to buy the Cuddy share.
279. The illegality that HH Judge Havelock-Allen QC held to have existed has been cured by the resignation of Mrs Cuddy and her replacement by Mr Eric Evans. Mr Hawkes has agreed not to rely on the possibility of future breaches of section 216; and in any event Mr Cuddy is prepared for a different person to be Mrs Cuddy's nominated director on the board of Neath. Accordingly, to the extent that prejudice has been caused by the unlawfulness the prejudice has been cured, and will not recur if another person is Mr Cuddy's nominated director on the board of Neath. Mr Steven Lewis, a former Chief Executive of the WRU, is, as I understand it, willing to fulfil that role. I put that slightly tentatively, since his evidence dealt with his willingness to serve as managing director of Neath, in the event that Mr Cuddy acquired Mr Hawkes' share. But I have no reason to suppose that he is unwilling to serve as a director, or that, if he is unwilling, a satisfactory alternative cannot be found.
280. I cannot see that any further relief is justified either on the petition or the cross-petition on this ground, except relief designed to ensure that this does not happen again. Since it is not unlawful for Mr or Mrs Cuddy to be a shareholder in Neath, I cannot see that a compulsory sale of the Cuddy share is justified or would be proportionate.

Discussions with the WRU

281. I do not think that the Ospreys' participation (together with the three other regional sides) in discussions with the WRU can plausibly be described as conduct of the affairs of Neath. Moreover, Mr Cuddy himself does not appear to have played any active role in those discussions. However, he was aware of them, and did not inform Mr Hawkes. It is true that by early 2007 relations between him and Mr Hawkes had broken down, but the failure to inform Mr Hawkes was, nevertheless, a breach of the Hawks/Cuddy agreement. Even so, the discussions have not progressed far, and I cannot see that any actual prejudice has been caused by that breach, other than the breach of the obligation to consult itself. As in the case of the failure to consult over the StadCo variation some relief on the petition is justified on this ground, but I think that the main concern must be to ensure, so far as practicable, either that consultation takes place in the future or is made unnecessary.

Mr Eric Evans' view

282. In his sixth witness statement Mr Eric Evans, in his capacity as a director of Neath, said that he saw no justifiable reason to support the removal of Mr Cuddy as a director of the Ospreys. He said that if he perceived that Mr Cuddy were deliberately taking unjustified action against Neath's interests, he would not hesitate to vote to remove him from the board of the Ospreys, but that he was not aware of any such action. I agree with this assessment, and, moreover, Mr Evans' evidence was unchallenged.

Deadlock?

283. There is no doubt that trust and confidence between Mr Hawkes and Mr Cuddy has broken down. But that on its own is not enough. What of deadlock? The corporate structure of Neath was such that the potential for deadlock was inherent in it. Each of Mr Hawkes and Mr Cuddy (nominally Mrs Cuddy) had the right to appoint a director. However, because of the breach of section 216, and the relationship between Mr and Mrs Cuddy, it was not possible for Mr or Mrs Cuddy to serve as the Cuddy nominee director. As the Court of Appeal pointed out in this very case, if and to the extent that Mr Hawkes excluded Mr and Mrs Cuddy from the management of Neath, he was doing no more than section 216 required him to. From the day to day perspective Neath's business has continued to operate. It continues to play matches, to attract supporters, to sell merchandise and so on. In his sixth witness statement Mr Eric Evans says that Mr Hawkes had not told him that Neath was not running well because of a lack of policy decisions at board level. He commented (rightly in my judgment) that this was not surprising, given that Mr Hawkes has a free hand in running Neath. There have, to be sure, been difficulties over Ospreys branded merchandise, but those difficulties arose from conflict between the Ospreys and Neath rather than from internal deadlock within Neath. Likewise the difficulties over the withdrawal of players arose because of conflict between the Ospreys and Neath rather than from any internal deadlock within Neath. Moreover, the difference of opinion about the terms on which players are made available by the Ospreys to Neath has been resolved by the entry into written agreements. This is not therefore a case in which deadlock has made it impossible for Neath to carry on its business. But Mr Hawkes has made plain his desire to remove Mr Cuddy as the Neath nominated director on the board of the Ospreys. Thus far his attempts have failed, not least because Mr Eric Evans does not support them. To that extent there is deadlock; and to the extent that the appointment of the Neath-nominated director of the Ospreys is the running of Neath's business, it has become impossible to reach agreement for the future running of the business. To this limited extent I find that the cross-petition is well founded.
284. Even on the basis that Mr Hawkes has agreed not to rely on the future application of section 216 in order to influence the grant of relief, it is plain that Mr Hawkes and Mr Cuddy can no longer work together directly. But there is no indication that Mr Hawkes will be unable to work with a more independent director nominated by Mr or Mrs Cuddy (who is neither of them). He does not seem to have had any real difficulty in working with Mr Eric Evans, save that Mr Evans does not support his desire to remove Mr Cuddy from the Ospreys' board. In addition Mr Cuddy's offer of 5 November 2007 envisages that Mr Hawkes will be able to increase the number of directors of Neath, such that Mr Cuddy's nominee will always be capable of being outvoted. For practical purposes, therefore, Mr Cuddy's offer of 5 November 2007 will leave Mr Hawkes in effective control of Neath. The only exception to this effective control of Neath is that it is part of the offer that Mr Cuddy remains on the board of the Ospreys and cannot be voted off by the board of Neath. I will come to this aspect of the offer shortly.
285. To my mind that solution makes it unnecessary either to require Mr Cuddy to sell out to Mr Hawkes or to require Mr Hawkes to sell out to Mr Cuddy on the ground of deadlock. I consider also that to require either of them to sell out to the other would be disproportionate, given that there are other possible solutions.
286. So far as the Ospreys are concerned, the corporate structure also has the potential for deadlock. But there is no deadlock on the board of the Ospreys, because both Mr Blyth and Mr Cuddy have a common view of what is in the best interests of the Ospreys. It is true that Mr Hawkes has a different view, but in my judgment his view prefers the interests of Neath to those of the Ospreys. The Ospreys continue to carry on their own business successfully.
287. From Mr Cuddy's perspective, his involvement with Neath as a company was a means to an end: namely his seat on the board of the Ospreys and his playing of a key role in the development of regional rugby. Bearing in mind my findings it would be disproportionate to give relief which entailed that he might lose that seat. Mr Cuddy's offer of 5 November entrenches Mr Cuddy's position as a board member of the Ospreys but gives Mr Hawkes a voice in the boardroom. Although I have found that Mr Cuddy was in breach of his obligation to consult Mr Hawkes about the StadCo variation and the negotiations for the new rugby charter, giving Mr Hawkes a voice in the boardroom through the medium of another Neath-nominated director will prevent, for the future, his being kept in the dark. It will therefore cure for the future this breach of the Hawkes/Cuddy agreement.

Demerger?

288. I have already said that although an order for demerger is a theoretical possibility, it is a remedy that should very rarely be granted. In the present case I do not consider that it would be an appropriate remedy, largely for the reasons given by Mr Eric Evans in his witness statement in support of the application for summary judgment. In short:

i) It would reduce Neath to the status of a club unconnected with regional rugby in Wales. This in turn would:

ii) Prejudice Neath's ability to attract, develop and retain quality players;

iii) Prejudice Neath's membership of the Welsh Premier League;

iv) Prejudice Neath's ability to attract sponsorship and gate money.

289. I think also that a demerger would not safeguard the position of Neath's creditors.

Result

290. I have found that to a limited extent the cross-petition is well founded. I have also found that some of the allegations in the petition are well founded. But although I have found that some of the allegations of unfair prejudice alleged in the petition have been established, they are the less serious ones. Those which pertain to the internal affairs of the Ospreys are not conduct of the affairs of Neath. It would be disproportionate to require Mr Cuddy to sell the Cuddy share to Mr Hawkes on the grounds that I have found established, if a less drastic remedy can be devised. In conducting himself as a director of the Ospreys Mr Cuddy has acted in what he considered to be the best interests of the Ospreys; and in accordance with clause 8 of the shareholders' agreement. In so doing he was not in breach of any duty owed either to Neath or to Mr Hawkes. There is no justification for terminating or imperilling his position on the board of the Ospreys as a Neath representative, which was one of the fundamental terms of the Hawkes/Cuddy agreement. On the other hand, he failed to consult Mr Hawkes on the StadCo variation once he learned that there was no cap on liability, and has failed to keep him informed about the negotiations with the WRU. That can be cured for the future by giving Mr Hawkes a voice (and eyes and ears) in the Ospreys boardroom. The spirit of the Hawkes/Cuddy agreement can be preserved by giving Mr Hawkes the ability to enlarge the board of Neath thus giving him effective control of it. This solution means that any demerger can be avoided, as can any winding up.
291. I do not therefore consider that the appropriate solution lies in either of Mr Hawkes' offers to buy the Cuddy share (Mr Hawkes' offers of 11 April and 4 October 2007). Nor do I consider that it is an appropriate solution to restructure the Ospreys so as to give a decisive shareholding to the WRU (Mr Hawkes' offer of 4 October 2007). For one thing it would require the consent of a majority of the Welsh rugby clubs. For another, it is likely to create a potential conflict of interest, given that negotiations with the WRU are in progress for a new rugby charter. Nor do I consider that the introduction of a third club (Bridgend) into the shareholders of the Ospreys is appropriate (Mr Cuddy's offer of 16 October 2007), since both Swansea and Neath went into the venture on a 50:50 basis. Since I consider that Mr Cuddy has acted properly in his capacity as a director of the Ospreys, I do not consider that it would be right to adopt a solution that means that his vote does not count if he exercises it in a manner that, in effect, does not meet with Mr Hawkes' approval (Mr Hawkes' offer of 2 November 2007). However, I consider that the joint offer made by Mr Cuddy and Swansea on 5 November 2007 is the appropriate solution to the problems that have arisen. That solution, as I see it:

i) gives Mr Hawkes eyes, ears and a voice on the board of the Ospreys;

ii) cures for the future the lack of consultation that I have found to have been established;

iii) preserves the 50:50 relationship between Neath and Swansea as members of the Ospreys;

iv) preserves the good working relationship between Mr Blyth and Mr Cuddy;

v) pays attention to the expressed position of Swansea;

vi) gives Mr Hawkes effective control of Neath while not imperilling Mr Cuddy's position on the board of the Ospreys, thus preventing any future deadlock in the affairs of Neath;

vii) retains for Neath the benefit of its most valuable asset, and

viii) does not endanger the Regional Operating Agreement by triggering a potential forfeiture.

292. Having reached this conclusion, and in the light of Mr Hawkes' agreement not to rely on any breach of section 216 in determining the proper relief, I can see no useful purpose in making any declaration about the infringement of that section.
293. I will consider with counsel what order I should make to give effect to that solution; and what consequential orders flow from my decision.