Pirrwitz -v- AI, PI and Vilsmeier [2013] JRC 017 (24 January 2013)

Companies - consolidated proceedings, claims by Plaintiff for sums due under contract.

[2013]JRC017

24 January 2013

Before :

W. J. Bailhache, Q.C., Deputy Bailiff, and Jurats Le Cornu and Liston.

Between	Bjorn Pirrwitz	Plaintiff
And	AI Airports International Limited (formerly known as Meinl Airports International Limited)	Defendant
	Wolfgang Anton Werner Vilsmeier	Third Party

AND

Between	AI Airports International Limited	Plaintiff
And	Bjorn Pirrwitz	First Defendant
	Novum Capital Restructuring GmbH	Second Defendant
	(by Counter Claim)

AND

Between	Bjorn Pirrwitz	Plaintiff
And	PI Power International Limited (formerly known as Meinl International Power Limited)	Defendant
And	Wolfgang Anton Werner Vilsmeier	Third Party

Advocate M. L. Preston for the Plaintiff.

Advocate N. M. Santos-Costa for AI Airport International Limited and PI Power International Limited.

Advocate J. M. P. Gleeson for the Third Party.

judgment

the deputy bailiff:

1. These are consolidated proceedings by which the Plaintiff claims from each of AI Airports International Limited ("AI") and PI Power International Limited ("PI") sums which he alleges are due to him under contracts made with those companies while he was a director and which are payable on his ceasing to hold office. The defendant companies deny liability for the Plaintiff's claims on various grounds, but assert that if the Court finds them liable, they are entitled to an indemnity for such sums from the third party, who was chairman of both companies at the relevant time. In addition, AI claims from the Plaintiff and a company related to the Plaintiff damages for alleged negligence as a director.

2. Many of the underlying facts are not disputed. AI and PI are both public limited companies incorporated in Jersey and are investment funds now in the course of being wound down and at all material times regulated by the Jersey Financial Services Commission. The former company invested in airports and airport related businesses, and the latter company concentrated its investments on power generating assets with a particular focus on renewable energy across Europe.

3. Until July 2008 in the case of AI, and 14^th November 2008 in the case of PI, both companies had substantial connections with the Austrian company Meinl Bank Aktiengesellschaft ("Meinl") both contractually and in personnel. It is not disputed between the parties that a Meinl subsidiary, Meinl European Land Limited had admitted using the proceeds from rights issues of about €2bn not for the purposes of expansion as marketed but in order to buy back large amounts of its own stock, mostly from affiliates of Meinl. This impacted negatively on the investment funds of AI and PI because investors lost confidence in all Meinl related stocks and the share prices in the two Jersey registered funds fell. It is not disputed that a group of hedge fund investors commenced purchasing stock at about this time in both AI and PI with a view to replacing the directors of the two companies with their own nominated directors, who were expected to achieve a realisation of the investments in the two funds, the net asset value being such that, because of the drop in the share price, a substantial cash profit would be available to those investors. Extraordinary general meetings were held on 28^th July 2008, one in Jersey with regard to AI and one in Vienna with regard to PI. The EGMs had been requisitioned by the hedge fund investors, and the AI EGM was successful from their perspective; the PI EGM resulted in the hedge fund investors being narrowly defeated, but they were successful at a second EGM which was requisitioned by them in respect of PI, held in Vienna on 14^th November 2008.

AI

4. Following the EGM on 28^th July 2008, the composition of the Board of AI was as follows. The third party in these proceedings Mr Wolfgang Vilsmeier ("Mr Vilsmeier") was appointed chairman. The Plaintiff Mr Bjorn Pirrwitz ("Mr Pirrwitz") was a director and appointed deputy chairman alongside Mr Hans-Peter Dohr ("Mr Dohr"). The other directors were Mr Richard Boleat ("Mr Boleat"), Mr David Pascall ("Mr Pascall"), Mr George Baird ("Mr Baird") and Mr Fred Duswald ("Mr Duswald"). There was a further relevant resolution adopted at the EGM on 28^th July. By a majority of approximately three to one, the shareholders required the suspension of the investment programme of the company, provided that this would not apply to any investment commitments already made, or which were required to be made to protect the value of existing investments or which the company might make in bank deposits or short term money market instruments. The terms of this resolution are relevant to the TAV issue to which we return later in this judgment. At a Board meeting held by telephone on 1^st August 2008, conflicts of interest were disclosed - Mr Vilsmeier indicated that he personally owned certificates in the company and Mr Pascall advised the meeting that he was an adviser to Elliott Advisors, also a certificate holder of the company. A banking committee of directors consisting of Messrs. Pirrwitz, Vilsmeier and Boleat was appointed to deal with banking arrangements as new bank mandates would be needed. The Board resolved to close its banking account with Meinl.

5. At that time, AI had executed a management agreement with Meinl Airport Managers Limited ("MAM"). It was agreed that MAM would be asked to present a detailed overview of all AI's portfolio companies, including outstanding financial commitments and timelines. This was to be done for the next Board meeting on 12^th August.

6. The Board then resolved to set up a number of committees or working groups. We have mentioned the committee in relation to banking matters. In relation to Austrian stock exchange obligations, AI being listed on the unregulated third market of the Austrian stock exchange, Mr Vilsmeier was the director with specific responsibility. Messrs Baird and Boleat were appointed to deal with obtaining a new company secretary and administrator; Messrs Pirrwitz and Duswald were charged with finding new Austrian legal counsel; Messrs Baird and Boleat were responsible for finding auditors; Mr Vilsmeier would be responsible for PR advice, and Messrs Pascall, Pirrwitz, Duswald and Vilsmeier were appointed to an investment bankers committee for the purposes of arranging a beauty parade of investment banks to give presentations to the Board.

7. At this early stage, the Board gave consideration to the basis of the directors' remuneration, and discussed whether part of the remuneration should be success related. It was clear that a great deal of work would be required in the short-term and it was agreed that a fixed fee of €10,000 per director per month was appropriate, and that a success related fee would be discussed at a later date. Messrs Crill Canavan, who were appointed the company's Jersey advocates, were charged to prepare a draft director service contract. Finally it was agreed that the use of "Meinl" in the company's name should be discontinued and an EGM convened to consider a special resolution to change the company's name. This reflected the Board's view that the share price and business of the company had been adversely affected by the association with Meinl.

8. AI had raised €700m in April 2007 by offering 70 million shares at an issue price of €10 each, and PI only slightly less. Both funds had invested only a small proportion of their capital by mid-2008 and there seems no dispute that they were sitting on very large cash positions. Understandably, that made them attractive targets for investors when the share price began to fall as a result of the Meinl scandal. From their separate discussions with Mr Roehrig, Mr Pirrwitz and Mr Vilsmeier were clear that the new Board would have a mandate of cutting all ties with Meinl, selling the assets as quickly as possible, returning cash to shareholders and then liquidating both funds. As far as the latter objective is concerned, the Court notes that this assumption of control in the two funds took place in 2008, and that if cash is always an important commodity, it was a particularly important commodity at that time when there was a world banking crisis. The evidence we heard was that the AI and PI directors were purely non-executive until the new boards were installed. The executive functions in respect of AI had been outsourced to MAM, a 100% subsidiary of Meinl. AI itself had no employees, and MAM kept all the corporate records. MAM was paid very high management fees each year, based on a percentage of assets under management, and the notice period for termination of that AI management agreement was relatively long at six years. Meinl received substantial additional fee income from a licence agreement with AI to use the Meinl name, and there was also a placement and market maker agreement with regard to the Austrian depositary certificates in AI from which further financial benefit might be obtained by Meinl. Similar arrangements existed for PI.

PI

9. On 14^th November 2008, at the Palais Niederösterreich in Vienna an Extraordinary General Meeting of PI was held. Mr Boleat, who it was thought had already been appointed a director of the company at the EGM on 28^th July 2008, had survived a motion at an Extraordinary General Meeting of PI on 13^th November to have him removed. The EGM on 14^th November sought the removal of all the other existing directors, and the appointment of Mr Boleat, to the extent he had not already been appointed, Mr Baird, Mr Vilsmeier, Mr Dohr, Mr Pirrwitz, Mr Wilfried Hassler and Mr Fred Duswald as directors of the company, and these appointments were approved by an approximate two thirds majority of those voting.

10. The EGM instructed the board to consider proposals to eliminate or reduce the discount of the current market value of the company to the net asset value and to report to the shareholders of the company, thus marking the surplus of assets over the current market value as fixed by the share price. The EGM also required the suspension of the investment programme of PI, save that this suspension would not apply to any investment commitments already made, or which might be required to protect the value of existing investments, or which the company might make by way of bank deposit or short term money market instrument. The EGM authorised the company to purchase certificates representing shares in the company, within a margin of trading, and the board was also authorised to return to shareholders by way of interim dividend such amount as the directors resolved, subject only to the retention of such reserves as were necessary to maintain the solvency of the company.

11. It will be seen that the only difference in the composition of the two boards of AI and PI was that Mr Pascall was not a director of PI, and Mr Hassler was not a director of AI.

The Witnesses

12. The Court heard at trial from Mr Pirrwitz, Mr Vilsmeier, Mr Baird, Mr Boleat and a Mr James Shinehouse ("Mr Shinehouse"), the latter being appointed to the boards of both companies in early 2009 in circumstances we will come on to describe. The remaining witnesses from whom we heard were not directly witnesses as to fact concerning any discussions between the shareholders, or some of them, and the board of either company. It is important to make that clear, because we have not heard directly from the remaining board members, nor have we heard from the hedge fund investors or other institutional investors. To the extent that this judgment contains a reference to the intentions of such investors, we must therefore record that it is based upon the contemporaneous documents we have read and upon the perceptions of the witnesses, in particular Mr Vilsmeier and Mr Pirrwitz, from whom we did hear.

13. Mr Pirrwitz told us that he studied law and economics at different universities in Germany and Geneva, and obtained a masters degree in comparative jurisprudence from the University of Texas School of Law. He took the bar exam in Berlin, and worked in New York and Paris for a law firm, subsequently working for the German government post reunification in transaction work, and had a senior position in Lazard & Co. in Frankfurt. Subsequently he ran the German office of a European venture capital firm, and in 2006 he co-founded an investment management and advisory firm to provide debt and subordinated capital to medium sized companies for special situations. His appointment to the Board of AI was instigated in about May 2008 when he was approached by Mr Klaus Roehrig ("Mr Roehrig"), an investment manager of Elliott Associates, one of the hedge funds which ultimately invested in AI and PI. The other hedge funds concerned in the investment in these two companies as disclosed to us in evidence were QVT Financial LB ("QVT") and Cube Invest ("Cube"), that latter of which we were told is the investment vehicle of an Austrian shareholder named Alexander Proschofsky ("Mr Proschofsky").

14. Mr Vilsmeier is of dual German and Brazilian nationality, holding a number of university degree qualifications including a licentiate in economics, social sciences and law at masters level at St Gallen University. He told us that he had acquired extensive experience in the automobile and supplier industries and in several large consulting projects. He is one of the founding partners of a company specialising in international management consulting at board level. He told the Court in his witness statement that he was formerly a lecturer in general management, strategic management and marketing at the SMP St Gallen Management Programme and currently is on the board of directors of a number of public companies as well as being President of the board of directors of the Swiss Management Forum AG, St Gallen, which is concerned with management education and further education.

Problems for the Board

15. It is clear to the Court that the position which the new AI Board faced in August 2008 was complex. The mandate which they had from those who had procured their appointment was to return cash to shareholders as soon as possible. At the same time, a number of investments either had been made or had been committed to be made. There was an extremely expensive management agreement from which an exit was to be procured, and there were no employees to run the business. The company did not even have access immediately to its own corporate records. It is unsurprising that by the time of the telephonic Board meeting held on 1^st September 2008, Mr Vilsmeier was reporting to the Board that the workload attributed to the directors was far greater than anticipated and accordingly that changes should be made in the directors service contracts to take account of the extra work. Accordingly it was then agreed that the approved monthly fees of €10,000 be agreed to be based upon a maximum time commitment of five days per month, and for time spent in excess of that time commitment, directors would be compensated at the rate of €2,000 per week day, and €3,000 for non-week days. This was to be billed on a quarter day minimum base, a single business day equating to eight hours work. The Board noted that there would be further discussions in relation to incentive fees due to directors in addition to the directors fees which were payable in respect of work done.

16. The fact that the Board was feeling its way forward at this time is clear from the Board meeting minutes of 15^th September held in Munich, when alterations were made to the committee structure. An audit and risk committee was established, consisting of Messrs Baird, Pascall and Boleat. A public relations and investor communications committee was established consisting of Messrs Pascall, Dohr and Vilsmeier. An investment committee was established consisting of Messrs Dohr, Duswald, Vilsmeier, Pascall and Baird. A due diligence and legal strategy committee was established consisting of Messrs Pirrwitz, Duswald, Boleat and Dohr; and a corporate finance committee consisting of Messrs Dohr, Pascall, Duswald and Pirrwitz was also established.

17. By this stage, the Board had also appointed Mr Holger Gantz as secretary, and were also looking to appoint an assistant secretary. The Board was also looking to appoint an in house accountant to deal with monthly net asset value reporting, cash flow statements and the financial commitments of the company. Importantly, arrangements were also made for the creation of electronic data rooms in which the funds corporate records and investments might be maintained, as the most efficient way to permit directors, investment bankers and other advisers swift access to the relevant documentation in performing their duties.

18. Relations between the new Board of AI and Elliott, one of the major hedge fund investors became increasingly strained from October 2008 onwards. One of the investments which AI held was in a company called TAV Havalimanlari Holding AS ("TAV") a Turkish based company engaged in the development construction and management of airports and businesses related to airports. The shareholding in TAV was the largest asset of AI, and amounted to 10.1% of the total issued share capital of TAV, which AI had acquired in November 2007 for €185m. That investment had been made by the previous Board of AI, and it may be that questions might have been raised concerning the extent to which appropriate external advice or due diligence was carried out at the time. Be that as it may, AI held this substantial shareholding in TAV and in addition held a 4.4% call option in the company. The share price had dropped significantly by the time the new AI Board took office in July 2008, holding then a carried value of €71.8m. In September 2008, the stock lost 12% of its value. This was compounded by a slide in the Turkish lira as against the euro. In October 2008, the TAV share price decreased even more dramatically, with AI's investment hitting an all time low as at 16^th October of €29.3m. This low value was again compounded by the simultaneous depreciation of the Turkish lira against the euro. Mr Pirrwitz and Mr Vilsmeier attended a TAV Board meeting in Istanbul on 17^th October when they were told by the Chief Executive of TAV that according to information received from his brokers, the sharp decline in the stock price of TAV had resulted from heavy hedge fund selling activity. The Chief Executive apparently put this down to ordinary hedge fund activity, as many institutional investors had come under pressure following the collapse of the investment bank Lehman Brothers. According to Mr Pirrwitz, a meeting took place between him and Mr Vilsmeier with Mr Roehrig the following day. Mr Vilsmeier said in his witness statement that there were two issues of importance in particular - the question of directors' remuneration and the performance fee, and the question of TAV. As to the proposed agreement around directors' remuneration, none was forthcoming. Mr Roehrig apparently proposed that the salary and overtime paid out to Board members under the existing fee structure should be deducted from any bonus. Messrs Pirrwitz and Vilsmeier objected to this as that would mean that the harder the Board members worked to achieve payment of the bonus, the less they would in fact achieve whereas directors who worked less hard would be paid a larger bonus. Mr Vilsmeier explained that Mr Roehrig was asked whether he would receive any bonus in respect of AI and PI. To this, Mr Roehrig is alleged to have said that Elliott set a target for the return on capital of 10% per month for the equity invested in assets securities and companies, which was obviously a high target and difficult to achieve - however Mr Roehrig was confident that he had a great performance booster because on behalf of Elliott he had taken up a very large short position in TAV amounting to 7.5% of TAV's entire issued share capital. He indicated to Messrs Pirrwitz and Vilsmeier that Elliott stood by to help and that they wanted to take over AI's 10.1% stake in TAV. Mr Vilsmeier described the information as coming like a "complete bombshell". He knew that hedge fund activity had impacted on the TAV share value, and this caused difficulty for AI in explaining to the press its strategy on TAV. To find that one of the major institutional shareholders which had been instrumental in appointing the new Board was in fact the cause of depleting the value of the company's biggest asset and suggesting it would acquire that asset at the depreciated price came as a big shock. Mr Vilsmeier noted immediately the acute conflict of interest between Elliott, a major investor in AI, and AI itself, including all its other shareholders. He also recognised that it would make extremely difficult the achievement of any remuneration scheme based around increasing the value of AI's assets.

19. Tensions between the hedge fund investor Elliott and the Boards of AI and PI continued to grow over what has been described as the Pecik deal. Mr Pirrwitz told us that shortly after the successful extraordinary general meeting on 14^th November by which the hedge fund investors were able to replace the Board of directors of PI as well, Mr Roehrig and Mr Proschofsky requested of Mr Vilsmeier and Mr Pirrwitz access to the electronic data rooms of the two funds. The request was refused on the basis that the companies were public companies and the Board could not share confidential material with selected shareholders. On 25^th November 2008, Mr Roehrig wrote to the directors of PI and AI to express an interest in acquiring some or all of the assets of the respective companies and asking for further information with regard to these assets. The letter described Elliott's interest as acquiring "some or all" of the assets in question, and promised the signature of standard documentation such as confidentiality agreements in order that Elliott and its potential partners could have access to all the relevant data. Given that Elliott had expressed an interest in realising in money terms the investments in AI and PI as quickly as possible, it seemed to Mr Pirrwitz to be a strange request. The following day, Dr Richard Wolf, the Austrian lawyer for AI and PI received a telephone call from a lawyer representing Mr Ronnie Pecik who was also interested in getting access to information about the assets of AI and PI. On enquiry, it appears that Mr Wolf was told that the hedge fund investors were in negotiations to sell their stakes in AI and PI to Mr Pecik. The AI and PI Boards received clear advice from Mr Wolf and from Goldman Sachs and from Messrs Crill Canavan. The boards of directors had obligations to all the shareholders and therefore should not grant access to the virtual data room unless the Board came to the conclusion that the disclosure was in the best interests of AI and PI respectively as a whole. Goldman Sachs advised that if in principle the Board decided it was in the interests of the company as a whole to share information, then the process should be jointly steered by an investment bank and a lawyer chosen by the Board of the public company in play. On 8^th December, at a meeting in which Mr Pascall, Mr Vilsmeier, Mr Dohr, Mr Duswald and Mr Pirrwitz participated, Elliott was told clearly there would be no access to confidential information as a matter of principle. Mr Klaus Umek at Goldman Sachs summarised the outcome in his email circulated on 9^th December 2008. The Board would provide answers in writing to Elliott within 48 hours of receiving written requests. No confidentiality agreement would be executed by the Boards of the two companies, and any information deemed to be of general interest for all shareholders would be posted on the relevant websites of the two funds as a result of any questions which Elliott posed to the directors.

20. Matters became clearer, according to Mr Pirrwitz, when at short notice a meeting of the lawyers was set up for 15^th December 2008 in Vienna. Elliott's lawyer, a Mr Adametz, organised the meeting, which was attended by lawyers for Meinl, for Mr Pecik and Mr Wolf and some of his colleagues representing AI and PI. Detailed minutes of the meeting are provided in the Court file. It seems fairly clear that an arrangement had been reached between Elliott, Mr Pecik and Meinl Bank the results of which would be as follows:-

(i) The current and future litigation between AI/PI and the Meinl Group regarding the management agreement, the placement and market maker agreement and the licence agreement and any other potential claims would be settled.

(ii) AI would make various payments to Meinl.

(iii) Existing service agreements would be terminated.

(iv) There would be a de facto standstill including ongoing litigation and other regular ongoing business, with minimisation of costs.

(v) An EGM would be presented for liquidating assets in early March.

21. Mr Wolf, for AI and PI, considered that the lawyers for Meinl and Elliott were under the impression that the terms of the settlement agreement had been agreed and it was only a question of finalising detail. They did not appear to be ready for questions as to where the benefit lay for the shareholders of AI and PI in a transaction of the kind presented. Mr Wolf gave firm advice to the Boards of the two companies again - accepting instructions from an individual shareholder, particularly if those instructions would favour the interests of a single shareholder and were not in the best interests of the company or the other shareholders, did not conform to good corporate governance standards and might constitute a breach of the Boards' fiduciary duties leading to personal liability on the part of Board members. The evidence of Mr Pirrwitz was that he and Mr Vilsmeier withstood considerable pressure exercised by the hedge fund investors. On 19^th December, due to the failure of the AI and PI Boards to acquiesce in the arrangements, the negotiations between the hedge fund investors, Meinl Bank and Mr Pecik foundered.

22. On 22^nd December, Mr Vilsmeier wrote to Mr Mark Levine and Mr Gordon Singer, the superiors of Mr Roehrig at Elliott. He complained about what he called "the methods of blackmailing and intimidation" and he asked that instructions be given to Elliott's representatives to bring aggressive and unguided tactics to an end. The perception of both Mr Vilsmeier and Mr Pirrwitz was that the hedge fund investors were deeply dissatisfied with the two Boards.

23. Over the next two months, we were told that further pressure was brought to bear on the Board in connection with AI's investment in TAV. The latter company had resolved at an EGM held on 5^th December to increase its share capital by 50%, with existing shareholders being allowed to participate in the capital increase at nominal value. Any share coupons not used by existing shareholders could be sold on the stock exchange. AI voted in favour of the proposal. Shortly thereafter, Mr Roehrig on behalf of Elliott and Mr Geoffrey Strong on behalf of QVT made it plain that AI should not invest any further cash in TAV, but instead should consider "monetizing" the share coupons. A TAV Board meeting held on 15^th December approved a proposal to make full use of the new authorised capital by sanctioning a rights issue. According to Mr Pirrwitz, immediately thereafter he and Mr Vilsmeier again received telephone calls from Mr Roehrig and Mr Strong, and also from Mr Proschofsky, all urging them to give consideration to selling AI subscription rights, coupled with a direction that it would not be in line with the shareholders strategy to wind down the operations of the fund if further monies were invested in TAV.

24. The rights issue was published on 31^st December 2008. The information available to Mr Pirrwitz persuaded him that it would be in the best interests of AI to take up the rights issue. However an email from Mr Proschofsky sent to all directors of AI on 8^th January 2009 "demanded" a meeting with the AI and PI Boards to discuss the affairs of the two companies generally and more specifically to discuss the question of how cash could best be returned speedily to shareholders. An agenda item was the giving of a commitment to sell rights in TAV and not to subscribe for new shares.

25. Mr Pirrwitz was not inclined to agree to the request for a meeting with the hedge fund investors, but Mr Vilsmeier felt that it would not be wise to oppose their request outright. The meeting was therefore held, with advisors present. Question and answer lists for the directors with summary responses to questions were developed by the legal advisers and by Goldman Sachs prior to the meeting taking place.

26. Mr Pirrwitz told the Court in his witness statement that the meeting with the hedge fund investors took place in Vienna on 22^nd January 2009. The TAV rights issue was again discussed, and the hedge fund investors emphasised their request that the AI Board should not exercise the subscription rights in TAV. At the same meeting, the hedge fund investors requested the AI Board to consider voting a further director of the hedge fund investors' choice onto the Boards of AI and PI, namely Mr Shinehouse.

27. Trading opened in the subscription rights for the new TAV shares on 30^th January 2009. That day there was a conference call between Mr Vilsmeier and Mr Pirrwitz as representatives of AI, Mr Roehrig and Mr Levine of Elliott, Mr Strong of QVT, and Mr Proschofsky. The hedge fund investors again asked that the subscription rights should not be exercised, and they requested the directors to get in touch with a managing director of Goldman Sachs in London who apparently had a client who was interested in buying the rights. Mr Pirrwitz considered that it was odd that the hedge fund investors should take such care to direct the AI Board to a very specific intermediary.

28. Goldman Sachs of course were the advisors to AI itself. The same day, 30^th January 2009, a Mr Münch of Goldman Sachs sent an email to Mr Vilsmeier, Mr Dohr and Mr Pirrwitz requesting signature and return of a letter attached concerning a potential transaction involving the AI stake in TAV with Goldman Sachs. The letter was in effect seeking to exclude this particular transaction from the existing engagement letter between AI and Goldman Sachs, as a result of which Goldman Sachs would not be entitled to any fee from AI, and commensurately AI would be solely responsible for assessing the commercial benefits and implications of the deal. Clearly Goldman Sachs was seeking to stay clear of any conflict in relation to the sale of the subscription rights in TAV, entirely appropriately, but it does seem surprisingly coincidental that the hedge fund investors should be aware that Goldman Sachs had a buyer for those same rights, unless of course the hedge fund investors were or were close to the Goldman Sachs clients.

29. The AI Board also received numbers of unsolicited requests from Old Mutual and Credit Suisse in relation to the subscription rights in TAV thereafter. Mr Pirrwitz had the perception that as there was limited liquidity in TAV's stock, the unexpected rights issue was an opportunity for Elliott to buy TAV shares cheaply and off market in order to cover the short position in the stock which they had taken the preceding autumn.

30. At all events, the AI Board resolved on 10^th February 2009 to approve the subscription of the new TAV shares for a total subscription price of €5,830,696.51. Goldman Sachs considered that the exercise of the subscription rights was a useful investment in the best interests of AI given that it had taken place at a price which was heavily discounted to the already artificially depressed market price. On 11^th March 2009, Mr Klaus Umek, the managing director at Goldman Sachs responsible for the agreements with AI and PI wrote to the Board to congratulate it on the decision to subscribe for the TAV shares and not to sell the rights cheaply. It was, as he described it, "a strongly disputed decision and you [the Board] had to exercise judgment and courage also vis-à-vis shareholders' requests".

31. In his witness statement, Mr Vilsmeier confirms the ever increasing shareholder pressure in relation to the TAV issues and the proposed sale of shares in AI and PI to Mr Pecik. The pressure was such that on 7^th December 2008, after a series of hostile telephone calls with Mr Roehrig, Mr Vilsmeier says that he received a telephone call from Elliott's Austrian lawyer informing him that his life was in danger and that Russian agents had been dispatched to Switzerland with a view to kidnapping his 11 year old daughter. At the same time, Elliott's security personnel informed Mr Vilsmeier that security agents employed by Kroll were travelling from London to St Gallen in Switzerland with a view to protecting Mr Vilsmeier and his family. Kroll installed two agents at Mr Vilsmeier's house and offices, and the St Gallen police were informed. Kroll also suggested some security installations such as permanent cameras in the house and in the garden for the purposes of surveillance. Mr Vilsmeier says that he received confirmation from Mr Roehrig that Elliott would cover all of the costs associated with the security measures and security installations, if the security costs were not met by the companies. Mr Vilsmeier said, quite understandably, that security issues of this kind left him in an unacceptable position. If they had continued, he would have had to consider resignation, and in those circumstances, his view was that he deserved to be rewarded as originally intended if his stepping down resulted from security threats of this kind.

32. As we indicated earlier in this judgment, we have not heard evidence from the hedge fund investors, nor indeed from anyone able to dispute the evidence put before us by Messrs Pirrwitz and Vilsmeier. However, we found them both to be careful and credible witnesses, and what is more their evidence is supported by contemporaneous emails and correspondence. AI and PI are public funds registered in Jersey. Shareholders include not only the hedge fund investors but also private retail investors. The Pecik and TAV deals as proposed would pretty clearly have benefited a few individual shareholders, but not the company at large. We are satisfied that the professional advice given to the Boards of AI and PI in how to deal with these issues was good advice, and we are equally satisfied that the Board acted properly in following it. This is an important conclusion for the purposes of considering what is really in dispute in relation to Mr Pirrwitz's contractual claim against the companies, to which we now turn.

The Contractual Claim and Defence

33. Mr Pirrwitz's claim against AI and PI is based upon a contract which he asserts was made between him and each company. Clause 9.2 of each of the contracts is in these terms:-

"If [AI] shall resolve not to re-elect you as a director in accordance with Clause 1 of this letter, or to remove you as a director in accordance with Article 133 of the Articles of Association of the Fund then in consideration of your service and time commitment to the Fund since your appointment you will be entitled to such sum as shall be agreed between you and the Chairman (or any two directors as determined by the legal committee should you be the Chairman) (the "Exit Amount") which shall be payable on the date of such removal. For the avoidance of doubt, in the event that you are removed from the office of director without [AI] giving you three months prior notice under Clause 1 of this letter, the Exit Amount shall include any fees which may have otherwise been due to you in respect of such notice period..."

34. The amount is alleged to have been settled by way of further letter from AI to Mr Pirrwitz dated 6^th March 2009, signed by Vilsmeier, agreeing the Exit Amount in the sum of €600,000.

35. The claim against PI is very similar, save that the letter of appointment was dated 6^th March 2009, and the Exit Amount was agreed in the sum of €700,000, again on 6^th March 2009.

36. Mr Pirrwitz asserts that at an extraordinary general meeting of PI held in Vienna on 21^st April 2009, he was removed as a director of that company, and the following day at an extraordinary general meeting of AI, also in Vienna, he was removed as a director of that company. Mr Pirrwitz wrote to Mr Shinehouse on 12^th May 2009 to request payment of the Exit Amounts in each case, but neither AI nor PI have paid the amounts demanded. The claims by Mr Pirrwtiz are therefore straightforwardly based on the contracts which he asserted were made between AI and PI respectively and him.

37. The pleaded defences from both AI and PI are in the same terms. The companies assert that there were pre conditions before Mr Pirrwitz was entitled to an Exit Amount as claimed, or at all namely:-

(i) Each company was required to consult with Hay Associates as to an appropriate Exit Amount collectively and for each director.

(ii) Independent legal advice had to be obtained by each company as to the validity and propriety of the director's service arrangements, including the Exit Amount.

(iii) The director had to be removed as a result of a Change of Control of the Defendant before any claim for the Exit Amount could arise. This was defined by each company in its pleading as meaning circumstances in which the entire Board of the Defendant, including Mr Pirrwitz were removed in favour of those who had controlled the Board prior to Mr Pirrwitz' appointment, namely Meinl.

38. Secondly each company asserts that the directors had no power to agree Clause 9.2 of the contract, and therefore that Clause was ultra vires. This assertion was made on the basis that the contracts provided no corporate benefit to the companies in question and the directors did not have the power to award themselves Exit Amounts unless it could be shown that such awards were in the best interests of the company and not the directors personally. It was further asserted that the contract was not approved by a resolution of the Board and the Memorandum and Articles of Association did not confer on the directors any power to award themselves an Exit Amount or indeed any exit payment whatsoever.

39. In the alternative, it was asserted that if there were any entitlement to an Exit Amount, the figure which was agreed between Mr Pirrwitz and Mr Vilsmeier was excessive and unreasonable and as such the Exit Amount was ultra vires the power of Mr Vilsmeier as Chairman of each company in circumstances where it was asserted Mr Pirrwitz knew that to be so. As Mr Vilsmeier, on this analysis, lacked the capacity to make the agreement alleged, the contract was unenforceable.

40. Each company asserted that Mr Pirrwitz acted in breach of his duties under Article 74 of the Companies (Jersey) Law 1991 as amended ("the Companies Law"), and generally, failed to act honestly and/or in good faith and/or in the best interests of the company in agreeing and claiming the Exit Amount. The reasons for this assertion follow the other objections which each company has raised in its defence as summarised above. To the extent that Mr Pirrwitz was entitled to the Exit Amount as claimed or at all, then each company claimed that the Exit Amount should be extinguished because an equal sum was due to each company because Mr Pirrwitz was asserted to have acted in breach of fiduciary duty in agreeing these amounts.

41. Each company's defence included an assertion that if that company, respectively, was liable to Mr Pirrwitz, then the company had a right to an indemnity or contribution from Mr Vilsmeier for failing to act honestly and in good faith with a view to the best interests of the company by agreeing the exit amounts with Mr Pirrwitz; alternatively that in doing so, Mr Vilsmeier was grossly negligent and/or in breach of fiduciary duty.

42. AI also brought a counter-claim against Mr Pirrwitz in respect of the SOGEAP investment, details of which appear below.

43. In both Mr Pirrwitz's reply, and in the answer of Mr Vilsmeier to the third party claim, those two directors asserted that the contract had been validly made; that the Exit Amounts were properly fixed; that both directors had acted honestly and in the best interests of the company; and in Mr Vilsmeier's case, by way of alternative, that he should be relieved from liability under Article 212 of the Companies Law on such terms as the Court thought fit, if the Court was otherwise prepared to determine that there was a liability on Mr Vilsmeier's part towards AI and PI respectively.

44. There were other issues raised on the pleadings between Mr Vilsmeier and AI, but by Act of the Court of 11^th August 2011, and by consent, these issues were adjourned for hearing at a later date.

Capacity to make the contract.

45. We deal with this first. If the Boards had no capacity to make the contracts in question, the basis for the claims falls away.

46. The Articles of Association of AI and PI are agreed to be identical for all material purposes of this case.

47. The Articles of AI in their material parts are as follows:-

"POWERS OF THE BOARD

123. Subject to the provision of the Act, the Memorandum and these Articles and to any directions given by special resolution, the business of the company shall be managed by the board which may pay all expenses incurred in forming and registering the company and may exercise all the powers of the company, including without limitation the power to dispose of all or any part of the undertaking of the company... The powers given by this Article shall not be limited by any special power given to the board by these Articles. A meeting of the board at which a quorum is present may exercise all powers exercisable by the board.

124. The board may exercise the voting power conferred by the shares in any body corporate held or owned by the Company in such manner in all respects as it thinks fit (including without limitation the exercise of that power in favour of any resolution appointing its members or any of them directors of such body corporate, or voting or providing for the payment of remuneration to the directors of such body corporate).

...

DELEGATION OF POWERS OF THE BOARD

128. The board may delegate any of its powers to any committee consisting of one or more directors or other person as the directors think fit. The board may also delegate to any director holding any executive office such of its powers as the board considers desirable to be exercised by him. Any such delegation shall, in the absence of express provision to the contrary in the terms of delegation, be deemed to approve authority to sub-delegate to one or more directors or other persons (whether or not acting as a committee) or to any employee or agent of the company or any of the powers delegated and may be made subject to such conditions as the board may specific, and may be revoked or altered...

...

REMUNERATION OF NON-EXECUTIVE DIRECTORS

134. The directors who do not hold executive office for their services (excluding amounts payable under any other provision of these Articles) shall be entitled to such ordinary remuneration as the directors made from time to time by ordinary resolution determine. Subject thereto, each such director may be paid a fee (which shall be deemed to accrue from day to day) at such rate as made from time to time be determined by the board.

135. Any director who does not hold executive office and who serves on any committee of the board, or otherwise performs special services which in the opinion of the board are outside the scope of the ordinary duties of a director, may (without prejudice to the provisions of Article 134) be paid such extra remuneration by way of salary, commission or otherwise as the board may determine.

...

EXECUTIVE DIRECTORS

137. Subject to the provisions of the Act, the board may appoint one or more of its body to be the holder of any executive office (except that of auditor) in the company and may enter into an agreement or arrangement with any director for his employment by the company or for the provision by him of any services outside the scope of the ordinary duties of a director. Any such appointment, agreement or arrangement may be made on such terms, including without limitation terms as to remuneration, as the board determines. The board may revoke or vary any such appointment but without prejudice to any rights or claims which the person whose appointment is revoked or varied may have against the company because of the revocation or variation, provided that the remedy of any such person for any breach of such agreement shall be in damages only and he shall have no right or claim to continue in such office contrary to the will of the directors or of the company in general meetings.

...

139. The emoluments of any director holding executive office for his services as such shall be determined by the board, and may be of any description, including without limitation admission to, or continuance of, membership of any scheme (including any share acquisition scheme) or fund instituted or established or financed or contributed to by the Company for the provision of pensions, life assurance or other benefits for employees or their dependants, or the payment of a pension or other benefits to him or his dependants on or after retirement or death, apart from membership of any such scheme or fund.

...

GRATUITIES, PENSIONS AND INSURANCE

142. The board may (by establishment of, or maintenance of, schemes or otherwise) provide benefits, whether by the payment of gratuities or pensions or by insurance or otherwise, for any past or present director or employee of the company or any of its subsidiary undertakings or any body corporate associated with, or any business acquired by, any of them, and for any member of his family (including a spouse and a former spouse) or any person who is or was dependant on him, and may (as well before as after he ceases to hold such office of employment), contribute to any fund and pay premiums for the purchase or provision of any such benefit."

48. It was submitted by Advocate Santos-Costa for AI and PI that the exit fees provided for by the contract are not "ordinary remuneration", and therefore Article 134 does not apply. He further submitted that none of the services which were given by Mr Pirrwitz fell outside the obligations which he had as a director of the company, and irrespective of how many hours he worked, there were no special services which would justify any exit fee under Article 135. He submitted that serving on a committee of the Board was not of itself a special service. He further submitted that neither Mr Pirrwitz nor for that matter the other directors of the company were appointed as executive directors. In order to decide whether they were appointed as executive or non-executive directors, the Board resolution as to their appointment is conclusive. In fact they were appointed by an extraordinary general meeting, and accordingly the provisions of Article 137 do not apply to Mr Pirrwitz or to his colleagues. He contended that performing executive functions was not the same thing as being an executive director which, for the purposes of Article 137 was required to be a formal appointment. Accordingly, for the purposes of the Articles, Mr Pirrwitz and his colleagues fall to be considered as non-executive directors. In any event, for the purposes of Article 139, the word "benefits" was contended not to include exit fees, because the Article is concerned with pensions or life insurance, and the word "benefits" must be construed sui generis with pensions and life insurance.

49. Similarly in Article 135 the words "or otherwise" needed to be construed having regard to the context of the clause which concern the payment of remuneration to a director by way of salary or commission.

50. The rival contentions from Advocate Preston and Advocate Gleeson were that the word "remuneration" clearly did include exit payments on the basis that the retention element of an exit payment is an incentive, and therefore clearly reflects work which was to be done in the future by the director. Article 135 was applicable because Mr Pirrwitz served on several committees and went beyond the scope of his ordinary duties as a director. This Article was relied upon. To the extent that it was necessary to rely on other Articles, it was said that Article 137 is permissive and not mandatory, and one did not need a formal document making a formal appointment for a director to be categorised as an executive director. In relation to Article 142, the inclusion of the words "or otherwise" again makes it perfectly plain that Advocate Santos-Costa's construction was too prescriptive. The real issue in this clause was whether or not the Board had resolved to provide benefits for any past or present director or employee of the company.

51. In our judgment the contentions of AI and PI that the Board did not have capacity to make a contract with the directors which included provision for payment of exit fees are misconceived. Even if Advocate Santos Costa's submissions as to the construction of Articles 134, 135, 137, 139 and 142 were right, and we turn to those in just a moment, Article 123 makes it plain that the business of the company is to be managed by the Board, and the powers which are conferred by that Article are not to be treated as limited by any special powers given to the Board elsewhere in the Articles. Subject to the powers of the Board being exercised honestly, in good faith, and for the corporate benefit of the company, issues to which we will return later in this judgment, Article 123 confirms the general power of the Board to manage the business of the company, which must include the contractual arrangements which govern its relationship with its directors. The remaining provisions in the Articles should be construed against that background.

52. The contracts between AI and PI and the directors all show that the directors have been appointed as independent directors, but the contracts do not provide expressly whether they are to be treated as executive or non-executive. It is true that some of the earlier draft contracts prepared by Messrs Carey Olsen for PI used the expression "non-executive director" in the draft service agreements, but that language has not been carried forward to the final contracts. Advocate Santos-Costa's submission is that the directors must be treated as non-executive directors because they were not appointed as directors by the Board but instead were appointed by an extraordinary general meeting, and the Board has not appointed any director to be the holder of a specific executive office. In our judgment that involves a misreading of Article 137, which should be read disjunctively - namely the Board may appoint one or more of its body to be the holder of an executive office; and the Board may enter into an agreement with any director for his employment by the company on such terms as the Board determines. The use of the word "any" includes both executive and non-executive directors, notwithstanding the heading for this article. In our judgment, this is the purposive construction. Accordingly, even if Article 123 does not provide the corporate power in the Board to make contracts with provision for exit payments, we think Article 137 does.

53. If that conclusion were wrong, the question would arise as to whether Articles 134 or 135 provide corporate power in the Board to enter a contract of this kind. Advocate Santos-Costa submits that the exit fees are not "ordinary remuneration" properly so called for the purposes of Article 134. We agree with that submission. The question is whether the exit fees amount to a benefit for the director which can properly be resolved by the Board under Article 135. We think it can. First of all Article 135 extends to a director who serves on a committee of the Board, which Mr Pirrwtiz did - indeed he served on several committees of the Board. The reference in Article 135 to "special services" is an alternative to a director who sits on a committee of the Board. In any event, we think that Mr Pirrwitz did provide special services outside the scope of his ordinary duties as a director. Those ordinary duties involved a commitment of a maximum of 60 working days a year which was considerably exceeded. The circumstances in which Mr Pirrwitz and his colleagues came to be appointed to the Board in July 2008 was such that the business of the company was being managed by a manager with whom the Board knew there would be difficult negotiations or litigation. The company had no staff. It was inevitable that the board of a public company of this kind would be required to put in considerable work over and above that which would normally be expected of a board in normal circumstances.

54. For all these reasons, the Court is of the opinion that the Board had capacity to make a contract with individual directors which included the provision for payment of exit fees in the event of a director not being re-elected at an annual or extraordinary general meeting.

55. We turn next to the capacity of the company in theory to delegate the quantum of exit payments to Mr Vilsmeier. In our judgment, Article 128 of the Articles of Association makes it plain that the Board may delegate the exercise of any of its powers to any committee of one or more directors or other person as the directors think fit. It is not essential in our view that the form of delegation should include any reference to "a committee" or to Article 128. It is a matter of fact as to whether the Board has delegated its powers as Mr Pirrwitz and Mr Vilsmeier contend that it did. As a matter of capacity, we are satisfied that the Board was able to do so if it thought fit.

Authorisation

56. We turn next to whether these contracts were in fact authorised by the respective boards. This seems to us to be partly a question of law and partly a question of fact.

57. Articles 156 and 157 of the Articles of Association of each of AI and PI provide as follows:

"156. The board shall cause minutes to be made in books kept for the purpose of:

(a) All appointments of officers made by the board; and

(b) All proceedings at meetings of the company, the holders of any class of shares in the capital of the company, the boards and committees of the board including the names of the directors present at each such meeting.

157. Any such minutes, if purporting to be signed by the chairman of the meeting to which they relate or of the meeting at which they are read, shall be sufficient evidence of the proceedings at the meeting without any further proof of the facts stated in them."

58. We have not been addressed with any legal authorities on the proper construction of articles of this kind, but it seemed to us that, applying ordinary principles, they reflect the arrangements agreed between the company and the board and therefore bind both, unless there is some obvious error on the face of the record or the record is vitiated by fraud. Nonetheless, Article 157 only says what it says - such that if, for example, the minutes are signed not by the chairman of the meeting to which they relate or of the meeting in which they are read, but by some other person, the minutes no longer fall into the class of minutes with which Article 157 is concerned.

59. For the purposes of the present dispute, the important meetings of the Board of AI and PI took place at the Longueville Manor Hotel in Jersey on 14^th December 2008, at the Radisson SAS, St Gallen, Switzerland on 2^nd February 2009 with a telephone board meeting held on 24^th February 2009. In each case, Mr Baird was appointed chairman of the meeting, notwithstanding that Mr Vilsmeier was present in person in respect of the first two of these meetings and over the telephone in the case of the meeting of 24^th February. This was a practice that had been adopted in the autumn of 2008. Mr Vilsmeier originally acted as chairman of the meetings, but he would ask Mr Baird from time to time for advice on the proper interpretation of words used, and when he could not attend the Board meeting in Bratislava, Mr Baird chaired it, and the meeting took half the time that had previously been taken. According to Mr Baird, it was a result of that experience that Mr Vilsmeier asked Mr Baird to act as chairman of the meetings thereafter. This version of events did not seem to be contradicted by any of the other directors who gave evidence. In fact, all the minutes of the Board meetings held after 29^th November were signed by Mr Vilsmeier notwithstanding that the chairman of each meeting was Mr Baird. The procedure that was generally adopted was that Lisa Diamond, (later Lisa Boleat) would take the minutes and subsequently circulate them. Mr Vilsmeier described in his evidence in chief that he would be given a pack of documents to sign, and he would take some time to read them before doing so. In practice, therefore, the minutes were sent to Mr Vilsmeier by Ms Diamond, and he would sign them and send them back.

60. No doubt those who prepared the Articles of Association would have assumed that the chairman of the company would chair the meetings of the board in accordance with Article 80 of the company's Articles of Association, and did not envisage a circumstance where the chairman of the company would allow someone else to chair the meetings on his behalf notwithstanding his own attendance. One can certainly understand how Mr Vilsmeier, as chairman of the Company, would consider that it was his place to sign the minutes of board meetings. Nonetheless, Article 157 apparently requires, for the minutes to be conclusive, that they be signed by the chairman of the meeting to which they relate. In the circumstances, we do not treat the minutes of the meetings of 14^th December, 2^nd February and 24^th February that have been provided to us, as being conclusive evidence of the proceedings at the meeting in question without further proof.

61. Although this is in our view the correct technical approach to take to these particular minutes, it is necessary in any event to avoid treating these minutes as conclusive without further enquiry, as a result of the allegations which have been made against Mr Vilsmeier and Mr Pirrwitz that these minutes do not reflect what was actually agreed. In their re-re-amended answer, AI and PI both assert that the Board minutes of 14^th December 2008 do not accurately reflect what was agreed by the Board, and reliance is placed on a verbatim transcript of the Board meeting.

62. The Court has read the transcripts of the Board meeting of 14^th December 2008, and also had the doubtful privilege of listening to some of the tapes recording that meeting. We have no hesitation in saying that some of the comments of the individual directors, including Mr Pirrwitz, Mr Boleat and Mr Baird were comments which we found to be surprising given that they were expressed by directors of a public company in a board meeting. We think that if the shareholders had the opportunity of listening to the way in which their company's affairs were conducted, they too would have been surprised.

63. The minutes of the Longueville Hotel Board meeting of AI held on 14^th December 2008 in their material parts are as follows:-

"The chairman tabled the following documentation:-

1. directors service agreement

2. draft indemnity agreement; and

3. draft indemnity security agreement.

The Board discussed that the directors all had service contracts in place which were standard contracts and needed to be revisited in light of the history of the Company and the work required restructuring the Company for the benefit of the existing shareholders. In particular, the Board discussed that it was appropriate to revisit the working of the indemnity provision.

The Board discussed that in the last days/weeks pressure from certain shareholders on the board and on individual directors has become bigger and bigger, including threats to sue directors and call an EGM to have directors removed if they did not execute the "instructions" given. In this climate of conflict and fear it is of the utmost importance for the board to remain independent and meet its fiduciary duties so as not to favour one shareholder over another and always act in the best interest of all shareholders and not in the interest of one group over another. It would therefore strengthen the independence of the directors if they knew they were going to receive a compensation payment in the event they would be removed from their office and/or sued by an unhappy (controlling) shareholder although that director had only exercised his office in line with his fiduciary duties and in the best interests of all shareholders.

The Chairman further reported to the Board that in view of the above and in consideration of the director's service and commitment to the Company thought should be given to the making of a one off payment to a director should he not be re-elected at the next AGM/EGM, should his appointment be terminated in accordance with the Articles of Association of the company or should be decide to resign for whatever reason. The Board discussed and it was RESOLVED that the value of the one off payment is to be determined by Wolfgang Vilsmeier in has [sic] capacity as Chairman and it may be appropriate to incorporate a formula which reflects the contribution made and time engaged by the individual director. IT WAS FURTHER RESOLVED that the DDC, acting by a majority of its members, would make said one off payment value determination in respect of the Chairman.

IT WAS RESOLVED and agreed that Crill Canavan will be instructed to draw up new service contracts, substantially in the form of the draft director's service agreement tabled to the Meeting, for circulation which will incorporate the above resolutions and that the Chairman will sign all such contracts on behalf of the Company. It was agreed and RESOLVED that Bjorn Pirrwtiz will sign the Chairman's service contract on behalf of the Company.

The Board discussed that it was appropriate to ensure that the directors obtain a full indemnity to ensure that each director has sufficient comfort and security to undertake the difficult tasks of restructuring the company which may involve lengthy litigation proceedings against various parties and the balancing and management of the objects of the Company's shareholders. It was further discussed that there may be occasions when a director may seek a loan or reimbursement from the Company for reasonable legal costs and other out of pocket expenses properly incurred by a director in defending a claim to which he would be entitled to seek reimbursement from the Company's insurer under the D&O policy. The directors raised the concern that should their appointment be terminated due to resignation, non re-election or termination that the Company, via a newly appointed board, may delay payment of such loans which will cause hardship and difficulty for a director.

As a result IT WAS RESOLVED to APPROVE the draft Indemnity Agreement and Indemnity Security Agreement tabled before the Board to formalise the Company's obligations to make loans to any director in relation to covering his reasonable expenses legal costs and other out of pocket costs and expenses incurred in defending a claim. IT WAS FURTHER RESOLVED that the DDC be authorised to take independent advice and finalise these agreements and any one member of the DDC was authorised to sign the agreements on behalf of the Company. The DDC was also authorised to take whatever steps it felt necessary in order to secure the obligations of the Company to the Directors by virtue of said agreements and report to the Board in due course."

64. The minutes of the Board meeting in relation to PI held at Longueville Manor on the same date are not dissimilar. There is different introductory language in connection with the directors service agreements reflecting a different remuneration rate for work done by directors before the EGM on 13^th/14^th November but the ordinary remuneration terms after that date were settled for directors at the rate of €12,000 per month reflecting a time commitment of five working days per month. The relevant part of the minutes then continues:-

"The Board discussed that in the last days/weeks pressure from certain shareholders on the board and on individual directors has become bigger and bigger, including threats to sue directors and call an EGM to have directors removed if they did not execute the "instructions" given. At the same time opposing shareholders have written letters to the board signalling their concern about the board's independence. In this climate of conflict and fear it is of the utmost importance for the board to remain independent and meet its fiduciary duties so as not to favour one shareholder over another and always act in the best interests of all shareholders and not in the interest of one group over another. It would therefore strengthen the independence of the directors if they knew they were going to receive a compensation payment in the event they would be removed from their office and/or sued by an unhappy (controlling) shareholder although that director had only exercised his office in line with his fiduciary duties and in the best interests of all shareholders.

The Chairman reported to the Board that in the light of the above and in consideration of the directors service and commitment to the Company thought should be given to the making of a one off payment to any director should he not be re-elected at the next AGM/EGM, should his appointment be terminated in accordance with the Articles of Association of the Company or should he decide to resign for whatever reason. The Board discussed and IT WAS RESOLVED that the value of the one off payment is to be determined by Wolfgang Vilsmeier in has [sic] capacity as Chairman and it may be appropriate to incorporate a formula which reflects the contribution made and time engaged by the individual director. IT WAS FURTHER RESOLVED that the DDC, acting by a majority of its members would make said one off payment value determination in respect of the Chairman.

IT WAS RESOLVED and agreed that Carey Olsen will be instructed to draw up draft service contracts for circulation which reflect the above resolutions and that the Chairman will sign all such contracts on behalf of the Company. It was agreed and resolved that BP will sign the Chairman's services contract." (emphasis added).

65. Apart from the underlined words, the language of the two minutes is nearly identical.

66. Ms Diamond followed the usual process following the drawing up of these minutes, and circulated drafts for both AI and PI to all members of the Boards. The first drafts circulated on 17^th December 2008, were in very similar terms to those which were ultimately signed. There were two substantive differences. The first was that there was no language in the minute describing the pressure of individual shareholders on the Board, and the second was that the draft minute included this closing paragraph:-

"The Board discussed and it was unanimously resolved that independent advice will be taken to ensure that all remuneration matters including break up clause provisions and indemnity security agreement are reasonable in all the circumstances and reflective of the onerous tasks with which the directors are faced. It was agreed that BP would engage an independent adviser and obtain a report from said adviser for presentation to the Board."

67. Mr Baird had no comments on the draft minute. Mr Pirrwitz suggested that there should be an expanded rationale for the severance clause that was discussed referring to pressure from certain shareholders on the Board and on individual directors, including threats to sue and call an EGM if the directors did not execute the instructions given, and further referring to the need to strengthen the independence of the directors. Mr Boleat acknowledged that comment and agreed to recirculate the minutes. In relation to PI, Mr Pirrwitz thought that the chairman would receive the same monthly fee as the other directors, and not as set out in the draft minutes, but both Mr Baird and Mr Boleat emailed shortly thereafter to confirm that they agreed the draft minutes were right in that respect. No point was taken by any director at that time that the closing paragraph of the draft minutes which referred to the need to take independent advice and the obligation on Mr Pirrwitz to engage an independent adviser to obtain a report for presentation to the Board, was incorrect. The schedule of matters arising, or action points, contains a reference to the need for BP to instruct an independent professional adviser to review service contracts and indemnity agreements and report to the Board. This revised draft and schedule were circulated to all directors.

68. On 22^nd January 2009 Ms Diamond sent a final version of the Board meeting minutes to all the directors similar to the ones which had been sent on the 18^th December. These minutes were attached to the notice and agenda of the meeting of the Board convened for St Gallen in Switzerland on 2^nd February. This agenda had been put together by Mr Boleat as acting company secretary and it makes no reference to the question of directors service agreements. The following day on 27^th January, Ms Diamond circulated a further copy of the Board minutes in relation to PI, with a schedule of matters arising. In relation to directors service contracts, the schedule indicated that Carey Olsen were to draft and circulate to all directors and BP was to sign the agreement with Mr Vilsmeier. As to the remuneration matters the schedule shows that BP was to obtain an independent review of remuneration.

69. The Board of both companies met on 2^nd February at St Gallen. The relevant AI Board minute provides as follows:-

"The Minutes of the previous meeting dated 14th December 2008, having already been circulated, were discussed and some minor amendments were noted. An amended version will be circulated to the directors after the Meeting.

The Board discussed the matters arising from the Board Meeting on 14th December.

It was noted that at the previous board meeting, comments would be provided on circulated Board minutes within 5 business days of circulation, failing which the Minutes would be signed as conclusive evidence of the business conducted at the relevant meeting. All comments now having been made, the minutes of the previous meetings are final and have been filed in the minute book of the company as a true, complete and accurate record of those meetings."

70. The minutes do not reflect any discussion on the directors service agreements.

71. The papers put before us in this litigation have been voluminous but nonetheless they seem to be in part incomplete. We do not have a signed copy of the minutes of the meeting of PI at St Gallen on 2^nd February. A draft of those minutes, which it appears may have been disclosed by Mr Vilsmeier, does not refer to the minutes of the previous meeting in December at all, and equally does not refer to any discussion about the directors service agreements.

72. There was a telephonic Board meeting on 24^th February 2009 at which Mr Shinehouse was appointed as a director on the same terms as to ordinary remuneration as other directors.

73. The next Board meetings took place in Klosters, Switzerland, on 9^th March 2009. Mr Boleat attended over the telephone but was not there personally. Paragraph five of the minutes of the PI board that meeting provide as follows:-

"The Chairman noted that the previous Board Minutes dated 2nd February, 9th February and 24th February had been approved by all members of the Board and accordingly were signed and placed in the Minute Book at 7 Bond Street, St Helier, Jersey. The Board noted that the resolutions made in the meeting of 9th February are currently under review with the DDC.

The Board discussed the matters arising from these Board Minutes."

74. Paragraph 5 of the Minutes of the AI Board Meeting of that date are framed slightly differently:-

"The Minutes of the previous meetings, having already been circulated, were signed by the Chairman as a true and accurate record.

The Board discussed the matters arising from the Board Meetings on 2nd February, 9th February and 24th February.

75. There was no reference to the directors service agreements. The minutes of the Klosters meetings of both AI and PI were signed by Mr Vilsmeier.

76. The next minutes we have been shown are minutes of a meeting of AI held at the Royal Yacht Hotel, Jersey on 14^th April. Mr Dohr was in telephone attendance and Mr Pirrwitz attended only the latter stages of the meeting. The minutes reflect that Mr Baird was appointed chairman, and they are signed by him. Pursuant to Article 157 of the Company's articles, these Minutes may be taken as conclusive. Paragraph 13 of the minutes provides as follows:-

"JS [Mr Shinehouse] reported on the issue of directors indemnification and confirmed that he had been advised by Elliott Advisors (UK) Limited that they were willing to indemnify each of the directors against loss or damage arising from any actions taken by them arising from the passing of resolutions at the upcoming EGM.

In relation to directors' compensation generally, the board discussed the implementation of performance related fee agreements and JS commented that such compensation should flow from returns to the shareholders above a reasonable expected base return level. JS confirmed that this may be put in place for both current and prior Board members. It was agreed that Bill Pyke and Thomas Theilmann will work on the appropriate model with JS and WV.

The Board discussed and IT WAS RESOLVED that a committee of the board be tasked with finalising a settlement agreement and/or consultancy agreement in relation to BP's intended resignation as a director from the Company. It was noted that the terms of BP's resignation from the Company would also extend to all subsidiaries companies [sic]. It was resolved that WV, JS and GB be co-opted to the committee. The Board noted that the JFSC will need to be informed of BP's resignation."

77. It is obvious from this lengthy recital of the minutes of meetings of the companies in question that the minute keeping over the relevant period fell far short of what should be expected of a public company. If Mr Pirrwitz is to succeed in his claims, he must establish on the balance of probabilities that the two companies agreed the form of contract including the exit payments and authorised Mr Vilsmeier to settle on the amount of the exit payments by individual negotiation with each director. If final draft contracts had been tabled before the Board, and the minutes reflected that those contracts had been agreed, no problems would have arisen. That is not however the position, and the Court therefore has to ascertain from all the evidence it has heard, and from the papers which it has read, whether Mr Pirrwitz has discharged the evidential burden which lies upon him.

78. The transcript of the AI Board meeting held in the Longueville Manor in December shows that the Board meeting was a stormy one. The Court has some sympathy with the minute taker in that different directors said different things, and it is not easy to establish what the consensus was. It is clear that Mr Pirrwitz tabled a draft form of director's service agreement which included a severance payment clause. The context in which it was tabled included the Pecik deal that was being negotiated, the request for access to data rooms and the shorting by Elliott of the TAV stock. Mr Pirrwitz suggested that the severance payment should obviously be reasonable and although the draft service agreements tabled had a blank amount in them, he suggested that there was no open discussion but that authority was given to Mr Vilsmeier to fix the amounts for each individual. He added that the lawyers would have to be happy with it. His proposal therefore was that the chairman would fix the amounts in question in one on one discussions, and indeed the same would be true for any success fee. In his presentation, Mr Pirrwitz clearly distinguished between the severance fee and the success fee. In relation to the latter he mentioned pay and when he did so, Mr Boleat suggested that KPMG could come up with an appropriate net asset value when the Board took over the running of the business, because they had the methodology for the current net asset value at that time. He asked whether the Board would receive an opinion which stated that all this was in the best interests of the company and Mr Vilsmeier agreed. Mr Boleat's position was that it was necessary to have an independent opinion to say that this was in the best interests of the company. When challenged by Mr Vilsmeier as to whether this referred only to the success fee, he answered that it applied to all of the arrangements. Mr Pirrwitz did not agree with that. He thought that for the severance payment, it was easier to establish these were in the best interests of the company. When Mr Boleat suggested that a suitably qualified person independent of Meinl or Elliott - someone like Hay - could prepare the opinion, Mr Pirrwitz clearly had in mind the reference to the severance payment and he thought this was a legal issue so a lawyer's opinion would be sufficient. When Mr Baird suggested that the amended contracts would still have to be approved by the Board, Mr Pirrwitz said firmly that they would not. The decision was being taken then.

79. After a lengthy discussion Mr Pirrwitz said this:-

"First we need to be very precise about what we minute and what we resolve. I think we should minute the fact that the documents that I just referred to will be distributed after this meeting, I mean, as soon as practicable, I would just go and print it out, everybody can go and read these three documents plus the advice letter from Crill Canavan.

Secondly, we will resolve that with regard to the severance payment and the success fee, this Board now decides to give the authority to the chairman to determine this individually, subject to Andrew advising us that this does not have to go to the Board again. If he says it has to, then we will take this to the Board again. And I think that is - did I miss something?

Vilsmeier: Yes and I take the help of a natural third party like Hay

Pirrwitz: In determining the success fee which is obviously - OK maybe one more thing also with regard to the severance payment it needs to be satisfactory to the lawyers so the lawyers should look at it and say OK this makes sense with whatever formula, and with regard to the success fee to determine what is a success and how do you [define it]."

80. Mr Baird agreed that this was a perfectly logical suggestion, and no director seemed to raise any criticism of it.

81. The transcript of the PI Board meeting which followed immediately after the AI meeting revealed that there was a vigorous and sometimes impolite argument between Mr Hassler and Mr Pirrwitz over the former's entitlement to remuneration. The argument became so heated that on many occasions Mr Baird had to intervene to ask the two men to act professionally and to remember that it was a Board meeting. Other directors also said their piece in a quite direct fashion. The substance of the dispute is not directly relevant to what we have to decide in this case, but what it does show is that discussions about remuneration in this particular Board of directors were always likely to be fraught, and it would be an unsurprising outcome if each director individually wanted to avoid such confrontation again. A contract by which the chairman, as a single individual, be mandated to discuss and agree on behalf of the company a form of severance payment or a success fee would be one way of avoiding such a performance in the future. We very much gained the impression that all the board members were of that view.

Developments after 14^th December 2008

82. We have seen that the directors may individually have come away from the Board meeting of 14^th December with different views as to what had or had not been agreed although Mr Pirrwitz' summary of what was agreed (see paragraph 79 above) is consistent with what the signed minutes ultimately revealed. The Court is in little doubt that Mr Pirrwitz and Mr Vilsmeier considered that the Board had substantially agreed the proposals which Mr Pirrwitz had outlined to the meeting and a review of the correspondence after that date supports that conclusion. In addition, the Court is in no doubt that Mr Pirrwitz, with Mr Vilsmeier's support, was the driving force behind the initiative to secure new directors contracts. This is not to suggest in any way that he was the only director who made a contribution in this regard, nor that he was entitled to ride roughshod over the views of his colleagues on the Board - it is merely a reflection that the drive and initiative for making progress with the issue clearly came from Mr Pirrwitz and did not come, for example, from the Jersey directors. We also take into account that at just this time, negotiations around the Pecik deal were fraught, which undoubtedly was a pressure on the Boards of AI and PI, and on Mr Vilsmeier and Mr Pirrwitz particularly.

83. There were extensive communications on this subject between Mr Pirrwitz and the lawyers for AI and PI in the days leading up to the Longueville Manor board meeting and immediately thereafter. His email to Mr Alan Stevens of Messrs Carey Olsen, sent at 9.33 a.m. on 14^th December before the Board meeting is illustrative of the way he was approaching the matter. The email sets out the compensation arrangements and the last two paragraphs describe the need for a break-up fee in the event of non re-election as a Board member, which was to serve as a protection in the event of a change of control, and a success fee, which was a different matter, based on the value creation achieved by the Board for shareholders. In each case the amount to be paid to each director would be fixed by the chairman.

84. The Carey Olsen response of 16^th December does not suggest there is anything unlawful in the chairman settling the quantum of the payments, but the lawyers very properly added that the chairman and the Board would have to be able to justify the sums to shareholders, that there was an implied requirement for the chairman to exercise his discretion in good faith, and that perhaps consideration might be given to establishing a remuneration committee. It was also suggested that the agreement should contain either a maximum or some formula indicating how the Chairman would calculate the exit payment, or both. A good deal of attention was given to the question of a prospective indemnity trust agreement to be entered into between the company and the individual members of the Board. This indemnity trust agreement was never concluded but a considerable amount of time does seem to have been given to developing a draft agreement which would be effective.

85. On 19^th December, Carey Olsen sent a revised director service agreement to Mr Pirrwitz and Mr Boleat which contained provisions at clause 10.2 which were in many respects similar to the final version of the contract. There was to be an exit payment of a specific amount payable on the director ceasing to hold office for whatever reason, provided the director was not in breach of duty. There is no record of dissent at that time from either Mr Pirrwitz or Mr Boleat to these provisions.

86. Mr Pirrwitz was at the same time receiving advice on behalf of the Company from Advocate Santos-Costa's firm, the AI lawyers. On 16^th December 2008, Advocate Pinel advised that the Company could delegate to the Chairman the finalisation of the agreements provided "the full board of directors have reviewed the form of the agreements". He qualified the advice by saying this was not ideal and the board might be criticised. He wondered why the final form agreements could not be presented to the board for approval.

87. What is clear is that notwithstanding the "matters arising schedule" which was circulated by Ms Diamond which suggested that Mr Pirrwitz would instruct an independent professional adviser to review the service contracts and indemnity agreements, Mr Pirrwitz certainly did not consider that the independent professional adviser was an adviser like Hay Associates who would give professional advice on the quantum of remuneration or the basis upon which it might be payable. It is also noteworthy however that the "matters arising schedule" as circulated on 23^rd January certainly envisaged that the new directors service contracts would be in the form tabled before the Board, and indeed should be signed. That note does not suggest that there was any uncertainty about the content of the agreements, nor that the Board had not agreed them.

88. The pressure from the hedge fund investors, as already indicated above, had not relented during January. On 8^th January, Dr. Proschofsky convened a meeting of the hedge fund investors and the directors for 22^nd January in Vienna, and attached a list of questions, not all of which one might think were appropriate for individual shareholders to put to the Board outside a general meeting of shareholders. A further email was sent by him on 2^nd February, following the Vienna meeting, where he complained about not receiving data about the fund and its investors and about not having a conference call which he was expecting. Mr Roehrig added to that message by seeking an update on the appointment of Mr Shinehouse to the Board. On 4^th February, only two days after the St Gallen meeting, Mr Levine of Elliott pressed Mr Vilsmeier and Mr Pirrwitz for information as to the Board's decision in relation to the TAV rights, described above. At the same time, further consideration was also being given to the litigation with MAM.

89. It is important to keep in mind the different issues that were taking up the attention of the Board, particularly Mr Vilsmeier and Mr Pirrwitz, at this time. The Court is in no doubt that these other matters had an impact on the thinking of Mr Pirrwitz and Mr Vilsmeier in relation to the directors service contracts, but the Court is equally convinced that it would be unfair to Mr Pirrwitz and Mr Vilsmeier to give the directors service contracts a prominence in their approach to the affairs of each company which these contracts did not deserve.

90. It is clear from the minutes of the St Gallen meeting that there was considerable discussion about the director service agreements at that meeting, and indeed that was the evidence of the directors present who appeared before us. Mr Vilsmeier told us that he certainly considered that after the Longueville Manor meeting, he had authority from the Board to fix the amount of the exit fees, in his discretion. He told us that he had discussions with Board members individually in January 2009 before the meeting with shareholders in Vienna, and that any requirement for independent advice was put aside. The directors were aware that the contracts were being prepared by the two law firms in question, so the legal mechanics were assumed to be in order, and the assessment of the actual exit fees was a matter for commercial decision.

91. There was a flurry of activity in relation to finalising the directors service agreements in the few days following 3^rd March. Mr German of Messrs Carey Olsen, with whom Advocate Pinel of Advocate Santos-Costa's firm was liaising, prepared a draft service agreement for Mr Shinehouse, which was circulated by an email of 3^rd March. It appears that Mr Pirrwitz was liaising mostly with Advocate Pinel, because he asked Mr German to call Advocate Pinel to deal with questions over the draft contracts. Mr German sent out revised draft service agreements on 4^th March and on 6^th March. Indeed on this later date, the revised draft service agreement was sent to Mr Pirrwitz and Mr Boleat, and he had a reply from Mr Boleat to this effect:-

"I am happy with these but Bjorn needs to sign off. Clearly the amounts in [clauses] 9.2 and 9.3 [the Exit Amount and Resignation Amount] need to be inserted before the letters can be signed."

92. At this time, the draft contained provision by which there could be separate sums for an exit payment and a resignation payment. The same day, on instructions, revisions were made to the draft service agreement so that the relevant clauses would confer a power on the Chairman to agree the amounts individually due by way of termination payment with the individual directors, and the lawyers produced draft side letters.

93. It is not in dispute that the final form of the service agreements and side letters were signed in Klosters on or about 9^th March, at the same time as the side letters were signed confirming the amounts in question, all following one on one meetings between Mr Vilsmeier and the individual directors present in Klosters (which did not include Mr Boleat), other than Mr Pascall and Mr Shinehouse. However, the service agreement for Mr Shinehouse contained exactly the same provisions as had been drawn up for the other directors. The Court is therefore faced with the factual position that the signature of each of the directors on their individual service contracts at that time must be taken to reveal that that director personally was satisfied that the company had authorised the Chairman to complete the service contracts on its behalf.

94. As we indicated at paragraph 77 above, the question as to whether the draft service agreements were approved by the Board is one which need not have arisen, had the minutes of the meetings of the company's been appropriately prepared, agreed and signed off. The recollections of individual witnesses some three to four years after the event are inevitably somewhat inconsistent with each other. Furthermore, the transcript of the meeting held at Longueville Manor is of itself only partly helpful in resolving what was actually agreed. Although the context was different, we are conscious of the comments of Le Quesne J A in Burt -v- States of Jersey [1996] JLR 1 at page 8, when considering the issue as to whether the transcripts of what was said in the States Assembly by members of the States would be helpful in ascertaining the intentions of the States as a whole, when he said this:-

"[Mr Boxall] submitted that the mind of the States should be discerned from the speeches of the six or seven members who spoke in the debate and who emphasised their concern about the nuisance and annoyance which the house was constituting. What is in question here is what was the collective mind of the States upon the proposition put before them. The collective mind of the States can be shown in one way only: that is, by a vote."

95. The minutes of AI and PI set out in paragraphs 63 and 64 above show that the two companies approved new service contracts substantially in the form of the drafts presented to the two boards and that Mr Vilsmeier was authorised to fix the quantum of payment for each director except himself. Although the different directors may have their own ideas about the advice which Mr Vilsmeier was to take, or the conditions under which the Exit Payment provisions would become operative, or whether the contracts would come back before the boards of the respective companies, the Court is satisfied that, having considered all the evidence, both AI and PI respectively did authorise the making of the directors service agreements with each director in the form they were actually made. While we think it is difficult to say that agreement was reached unconditionally in December 2008 at the Longueville Manor meeting, notwithstanding the summary of Mr Pirrwitz as to what had been agreed as described in paragraph 79 above, we do think the substance of what later emerged was agreed then: and that there were further discussions leading to what one might call a travelling consensus which became a true consensus at the St Gallen meeting in February 2009. It is clear that at that meeting there was discussion about the directors service agreements, and no-one has contended that the minutes of the St Gallen meeting are in any way incorrect (although they are somewhat opaque on detail) in reflecting the existence of that discussion. Furthermore the conduct of Messrs Pirrwitz, Vilsmeier and Boleat in connection with directors service contracts between December 2008 and March 2009 in our view show that consensus was reached as to the finalisation of these contracts. Additionally, each director other than Mr Shinehouse and Mr Boleat, the latter not being present, in fact agreed the terms of their individual contracts, which they signed, and the amount of the exit fees. Mr Shinehouse signed an identical form of contract on 20^th February 2009, albeit there was no signed side letter to agree the quantum of the Exit Payment. The evidence taken as a whole suggests that there was agreement that the Board should authorise Mr Vilsmeier to sign these individual contracts on behalf of the company in question, and having seen the witnesses and read the relevant evidence, we are satisfied that he had corporate authority from the board of each company, to do so.

Preconditions

96. Although AI and PI did not substantially address these defences in their submissions before us, the pleaded case includes the assertions that there were preconditions which had to be met before Mr Pirrwitz was entitled to an Exit Amount as claimed. These are summarised at paragraph 37 above.

97. We deal first with the alleged precondition that each company was required to consult with Hay Associates as to an appropriate Exit Amount collectively, and for each director. There is no doubt in our judgment that the possibility of advice from Hay Associates was contemplated at the Longueville Manor board meeting, and there was probably no consensus as to whether this was needed in relation to the exit amounts or the success fee, a matter which was still under discussion. In fact the developments between December 2008 and March 2009 were such that the issues of payments on termination of employment as a director and success fees merged. Mr Vilsmeier told us that he had been aware from a discussion with Mr Strong of QVT after the successful AI Extraordinary General Meeting in July 2008 that a bonus pool of €3m should be available in respect of the Board of AI. In September 2008, AI resolved to take advice from the Hay Group with regard to remuneration issues and in September that year, Mr Pirrwitz and Mr Vilsmeier met Dr. Christine Abel at the Hay Group offices in Frankfurt to discuss a Hay presentation. Mr Vilsmeier also told us that the Hay Group presentation slides were circulated in hard copy to members of the AI Board at its meeting in Istanbul on 20^th October 2008.

98. Discussions between Mr Pirrwitz and Mr Vilsmeier on the one hand and Mr Roehrig of Elliott on the other took place in Istanbul, when, to his dismay, Mr Vilsmeier became aware that Elliott had "shorted" the TAV stock. Mr Roehrig had in mind a much lower discretionary bonus pool of €750,000, but with base salary and bonus for value uplift it might take the total compensation up to a figure in excess of €2m. Of course, the views of Mr Strong of QVT and Mr Roehrig of Elliott were views only of individual shareholders. In autumn 2008 there was discussion regarding a compensation committee, including Mr Vilsmeier, Mr Pirrwitz, Dr. Proschofsky, Mr Roehrig and Klaus Umek of Goldman Sachs. This was only an informal suggestion and nothing came of it.

99. These facts support the view which some directors may have taken away from the Longueville Manor board meeting that Hay could relatively easily come up with an endorsement of any bonus fee proposals. However Mr Vilsmeier was clear that this was not a precondition, as was Mr Pirrwitz. We think that had the question been limited to the calculation of a success fee at the end of the job of liquidating the two companies, there is little doubt that Hay would have been asked to conclude advice on this subject. However, that is not the nature of the exit payments which were ultimately agreed. Mr Vilsmeier's evidence, as is that of Mr Pirrwitz, is that the Board did not require any such precondition for making the exit payments, although Mr Vilsmeier did contact Dr Abel of Hay Group on the issue of calculating the exit payment at some point in January 2009, a matter to which we return later.

100. Mr Boleat considered that the advice of Hay was critical to finalising the exit payments and success fees. His evidence was to some degree supported by Mr Baird. We regret that we did not find the evidence of either of these two directors particularly compelling, and where there is a divergence between the evidence which they gave and the evidence of Mr Vilsmeier and Mr Pirrwitz, we substantially accept the evidence of the latter directors. We regarded Mr Vilsmeier and Mr Pirrwitz as careful witnesses who gave their evidence credibly and well. What they had to say was largely consistent with the written records put before us. By contrast, we formed the view that Mr Boleat and Mr Baird gave evidence of what they would have liked the Board to have done rather than what it actually did. The result was a series of inconsistencies, some major and some minor, both within their own testimony and between their evidence and the rest of the evidence including the contemporaneous material which reflects what they knew or said at the time. As one example only, Mr Boleat was adamant in his evidence before us that the directors service contracts had to come back before the Board for approval; but it is clear from the communications with the Jersey lawyers respectively for AI and PI on 6^th March 2009 that he knew this would not be the case, and he made no objection at that time. We are satisfied that there was no precondition that the Board would have to receive an independent assessment of the proposed quantum of exit payments, whether by Hay or by anyone else.

Independent Legal Advice

101. The second precondition which is asserted by AI and PI is that independent legal advice had to be obtained by each company as to the validity and propriety of the directors service agreements, including the exit amount. We think this overstates the position. We are satisfied that the boards of each company expected independent legal advice to be given by the respective company's lawyers that the directors service contracts would be formally valid and that it would not be improper for the board to authorise making contracts of that kind. Mr Pirrwitz was clear before us that he did not regard legal advice as to the quantum of the exit payment to be appropriate - he contended that this was a commercial matter, which would not properly be the subject of legal advice. Although there are circumstances where the quantum of an exit payment was so disproportionate to the service which the individual director was performing for the company that a lawyer would be expected to say that the company would be acting improperly in making such an arrangement, we substantially accept Mr Pirrwitz approach. We think the quantum of the exit payments was a matter for the commercial judgment of the company, and that commercial judgment in the first instance fell to be exercised by the board, which delegated its powers in this respect to the chairman for all directors other than the chairman himself. Indeed both Mr German and Mr Stevens, partners in Carey Olsen's corporate group, with much experience of practice both in and outside of Jersey appear to take the same approach. In their evidence before us they confirmed that they regarded the fixing of the quantum of fee to be a commercial rather than a legal matter, and thus one for the board of directors to decide in the exercise of its commercial judgment. Both Mr German and Mr Stevens gave evidence that in their view the quantum of the fee might have to be justified, and would have to be considered reasonable if it were to be in the best interests of the company in question. That was the advice which they gave to the board of PI, and we think it was good advice.

102. It is clear from the advice that was given by the lawyers after the Longueville Manor board meeting that the structure of the directors service contracts was substantially signed off by the lawyers then, although there were points of detail which continued to receive further attention. One of the particular difficulties appears to have involved the execution of some indemnity agreements and the establishment of a trust which would give additional comfort to the directors if they were pursued for carrying out their duties as a director of each of the companies. There was a flurry of activity on these points in the early part of March 2009 but certainly by then, the main points of the director's service contract were settled. However it is to be noted that even as late as 5.31 p.m. on 6^th March, Mr German was sending to Mr Boleat and Mr Pirrwitz a draft service contract which contained a pair of square brackets at paragraph 9.2, upon the assumption that the figure reflecting the exit amount would be inserted in that paragraph. There must have been further discussions with the lawyers because at 7.00 p.m. on 6^th March, Mr O'Shea of Crill Canavan, on behalf of AI, contacted Mr German of Carey Olsen on behalf of PI to suggest language in paragraphs 9.2 and 9.3 which was in fact the language subsequently adopted in the executed contracts. At 7.27 p.m. the same day, Mr O'Shea sent to Mr German a draft of the side letter from Mr Vilsmeier to Mr Pirrwitz by which both the exit amount and the resignation amount (not directly relevant to the present claim as Mr Pirrwitz did not resign, would be quantified under the arrangements which were set out at paragraph 9.3 of the directors service contract. He also enclosed a draft letter to Mr Vilsmeier also agreeing the exit amount and the resignation amount. In both draft letters, the quantum of the exit amount and resignation amount was left blank. The difference between the two letters is that the draft to Mr Pirrwitz was to be signed by Mr Vilsmeier, and the draft to Mr Vilsmeier was to be signed by two directors.

103. At 8.24 p.m. on 6^th March, Mr German sent "red line" directors' service letters, and at 8.25 p.m. he sent what are described as "execution versions" of the appointment letters. We think these must have been the directors service contracts. He also sent at the same time a form of letter stipulating the exit amount and the resignation amount (left blank as to quantum), which we think must be the form sent to him by Mr O'Shea earlier that evening. Apart from the inclusion of the actual figures, these letters are the same as the final letters executed by the individual directors and Mr Vilsmeier respectively. It is to be noted that the email from Mr German sent at 8.25 p.m. on 6^th March was sent both to Mr Pirrwitz and Mr Boleat and copied to Mr Stevens. It is clear that all of them were therefore aware that Mr Vilsmeier would fix the amount of the exit payment and resignation payment; and there is no evidence of anyone having objected to this arrangement at the time. In the circumstances, we are quite satisfied that any precondition that the lawyers should be satisfied as to the propriety of the arrangements was met.

Change of Control

104. The third precondition asserted by AI and PI to any agreement that an exit fee be payable was that the director in question had to be removed as a result of a change of control of the relevant company - that is to say, the entire board of directors of the relevant company would have to be replaced in favour of those who had controlled the board prior to Mr Pirrwitz's appointment, namely Meinl.

105. It is clear that at the Longueville Manor board meeting in December 2008, negotiations were taking place in relation to what we have described as the Pecik deal, and it seemed clear that Mr Pirrwitz and Mr Vilsmeier suspected that there was some connection between Mr Pecik and the Meinl group. However it is of interest to note that in the legal advice given by Mr O'Shea to AI on 2^nd December 2008, the "change of control" question is the subject of advice. Mr O'Shea said:-

"Clause 9 of the director service agreement is prepared to provide that in the event that any director shall not be re-elected at an AGM, shall be removed in accordance with the Articles of the company or shall resign then he shall be immediately entitled to a one off payment. I thought that this would be a less onerous provision for each director than incorporating a "change of control" condition. It is arguable from the company's perspective that it is justifiable to authorise a one off payment considering the circumstances under which each director has accepted his appointment. Therefore I would suggest that the provision of the draft director service agreement are clear than the Goldmans mechanism."

106. We think that the possibility of Meinl reassuming control of AI and PI was one about which Mr Pirrwitz and his fellow members of the board were probably nervous in the latter part of 2008, but it seems fairly clear that the Pecik deal, which Mr Pirrwitz and Mr Vilsmeier considered was a cover for such resumption of control by Meinl, had become history by the end of December that year. It seems to us to be highly unlikely that it was the common intention of the parties by March 2009 that the provisions of clause 9.2 of the directors' service contracts should be conditional upon the sacking of the entire board and its reinstatement by Meinl appointees. Furthermore, a precondition that required replacement of the entire board of directors before the Exit Payment was due would have been illogical. If the purpose of the provision was to bolster the independence of the directors, there is no obvious reason why the payment should not be made in circumstances where one or more of the directors colleagues might have been persuaded to continue in office under a Meinl assumed control - why should the director's payment be withheld simply because one or more of his colleagues had sold out to the perceived enemy? Furthermore, if there had been any common intention to make this a precondition, it would not have been very difficult to introduce language to that effect. The fact is that the communications with the lawyers for AI and PI do not give any indication of such a precondition and we are satisfied that there was no such requirement.

Was this exit payment in the best interests of the company?

107. It seems to us that this question needs to be considered by reference to two separate components. First of all, was the making of any exit payment reasonable, and in the best interests of the company? Secondly, assuming the answer to the first question to be affirmative, was the quantum fixed such that the agreement was still in the best interests of the company.

108. In our judgment the answer to the former of these two questions is unequivocally in the affirmative. There are essentially two reasons for this, independent of each other and both of equal importance. The first is that most of the directors were individually key men. The companies had no employees familiar with the investments which had been made and no infrastructure to deal with the business which they had. They relied exclusively upon a management agreement with a Meinl subsidiary and did not even have access to their own corporate records. Enormous amounts of work were performed by the different directors, but particularly by Mr Vilsmeier, Mr Pirrwitz, Mr Dohr and Mr Duswald, and of course the more work they did, the more their knowhow and experience became essential to the successful management of each company. Furthermore, the recruitment of these directors had been made against a background of support for a success fee which would be payable by each company once the hedge fund investors' objectives had been met. The reality was that in the case of AI, the policy pursued by Elliott in shorting the TAV stock, and the policy of all the hedge fund investors in relation to the TAV rights issue meant that calculation of a success fee would be difficult. Coupled with their feelings of insecurity given their increasing lack of popularity with the hedge fund investors, these directors could reasonably have concluded that an investment of very large amounts of their time in the business of the company in the closing months of 2008 and early months of 2009 would provide no material rewards beyond per diem fees. In those circumstances, the exit payment could reasonably be seen as an important factor in securing the continuing contribution of directors who were key to the prosperity and success of each company during complex and urgent re-structuring. The exit amounts were justified on the basis of securing the loyalty of these key men.

109. The second reason for concluding that the payment of these exit fees was in principle in the best interests of each company lies in the conduct of the hedge fund investors, the very shareholders who put these directors in place in July and November 2008 respectively, and who procured a change of management from April 2009 onwards. Of course, we recognise the duties of directors as set out in Article 74 of the Companies (Jersey) Law 1991 ("the Law"). The director is required to act honestly and in good faith with a view to the best interests of the company and to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. In his evidence before us, Mr Boleat suggested that given this statutory duty, it was quite unnecessary to have any incentive by way of exit fee or otherwise for a director to do what he should. This was supported by Mr James Davies, who is an English solicitor with considerable experience in employment law as a partner of Lewis Silkin LLP in London, and who gave evidence as an expert witness to us. He considered that as a rationale for exit fees, safeguarding the independence of the directors was unreasonable and inappropriate, because directors who were concerned about being sued by aggressive shareholders could address that by a directors' and officer insurance cover and obtain the benefit of indemnities, and in any event, it was a matter for the shareholders, acting by a majority, to determine who should and who should not remain on the board. By contrast, Mr Andrew Page, a partner with New Bridge Street which apparently is the UK's largest adviser on executive remuneration, also gave expert evidence to us and in his experience, a main rationale for structuring arrangements with exit payments was to ensure that the services of an individual were retained through a potentially difficult period and to provide certainty to that individual in uncertain times. He added however that, in addition, the payment assisted in preserving the independence of the board by strengthening its ability to act in the best interests of the company overall.

110. The two experts helpfully agreed a paper which set out their points of agreement and disagreement. One point of disagreement relates to this very subject. Mr Davies has never come across a situation where a severance payment was put in place to safeguard the independence of directors, and he considered it to be inappropriate. He considered that deterring the removal of a director by a majority of shareholders dissatisfied with that director's performance by making a large severance payment undermined the legal rights of shareholders as set out in the Articles of Association of the company. By contrast, Mr Page considered that while these arrangements were rare, he had come across analogous situations. He drew a distinction between "poison pill" arrangements which were intended to frustrate the legitimate will of a majority of shareholders and those arrangements which were intended to provide additional security to directors who might be subject to pressure from a significant minority shareholder or group of shareholders. In the latter situation, the severance payment might be a reasonable method of giving security to the director who would be aware that a compensatory payment would be received if he acted in the best interests of the company but was later removed.

111. Although the Court has not received evidence directly from the hedge fund investors to whom we have referred in this judgment, we consider that there is every reason to believe that their conduct fell very far short of what might be regarded as reasonable, and that by imposing on the directors the pressure which they did, they sought to anaesthetise the conduct of each company's affairs against proper and ethical business practice. There is nothing objectionable, of course, in spotting that a company's net asset value exceeds the company's market price, and accordingly seeking to invest in it; nor indeed to persuade fellow shareholders that it might be right to change direction and seek to bring the company's business to an end thereby realising the profit which trading shares at a discount to net asset value would provide. There is, however, a substantial gulf between successful practice of that kind and the conduct which is described in paragraphs 18 to 32 of this judgment. A good test of whether it could reasonably be thought that exit payments were in principle in the best interests of the company in these circumstances would be to ask what the reaction of the shareholders in general meeting would have been had they been advised firstly of the terms which were actually agreed between the company and each director and secondly of the directors' resistance to the efforts of individual shareholders who were seeking to make very large profits at the expense of the company and the shareholders at large. We do not think there is much doubt that in those circumstances the shareholders in general meeting would have considered that the directors ought to have support for resisting the approach of significant individual minority shareholders which sought to drive down the value of the company and profit as a result, and to take confidential information available to the company on the premise that it would be used for their benefit rather than the company's benefit and possibly even to the company's detriment.

112. Advocate Preston sought support for his case from the arrangements surrounding the sale of TAV shares at the end of April or beginning of May 2009, once Mr Pirrwitz had been removed as a director and Mr Vilsmeier no longer had any influence on the board. An EGM of AI had been convened for 22^nd April 2009 and revised investment objectives were approved in the following terms:-

"That the investment objectives of the company be varied so that there will be no investment in new projects (or follow on projects unless these are in the reasonable opinion of the board of directors of the company necessary for the preservation of value of the relevant investment) without shareholder approval by ordinary resolution AND THAT the company will be managed with a view to realising the value of existing investments AND THAT the directors of the company be and are hereby authorised to sell or otherwise dispose of all or any assets of the company at such times and on such terms as they consider appropriate and in the best interests of the company."

113. In reliance on the revised investment objectives, Mr Shinehouse recommended to his fellow board members that there was a buyer for 40% of AI's TAV shares, namely Deutsche Bank (Elliott) which proposed to pay the current market price. He asserted that Mr Dohr agreed that the sale should take place. By his response, it appears that Mr Dohr neither acquiesced in that statement nor denied it, but perhaps if anything his email implies agreement. Mr Boleat also agreed it, as did Mr Baird. Mr Vilsmeier suggested there should be a conference call. He had been in touch with Credit Suisse regarding the TAV stake, and they also had potential buyers. It appears it was impossible to arrange the conference call meeting which he requested, and which Mr Baird thought was sensible, and the sale went ahead. Advocate Preston's argument was that the fact that the TAV sale went ahead in an upwardly mobile market to an individual shareholder who had shorted that stock and was in need of acquiring shares showed that the directors previously had been right to hold out against individual shareholder pressure, and the removal of Mr Pirrwitz showed that thereafter the board would do the hedge fund investors' bidding.

114. We express no view on this. The argument is not central to the matters which we now have to decide and could conceivably be raised in other proceedings in one form or another. Furthermore, it is theoretically possible that even if the directors were at fault in the sale of the TAV shares in April/May 2009 at the price that was then secured, such a result is quite unconnected with the conduct of the hedge fund investors in relation to TAV at an earlier stage. We therefore have not taken this into account in forming the views which we have of the company's best interests in the board agreeing the directors service contracts which it did.

Settling Fees

115. Best practice is to have a wholly transparent assessment that eschews any arguments about good faith and also ensures that the quantum is settled in the best interests of the company.

116. These principles suggest:-

(i) Directors fees must be reported to shareholders;

(ii) Directors fees must be reported to the board;

(iii) Directors fees should be assessed against the needs of the company and against market rates (for it is assumed that whilst particular directors may have special value to the company, no director is irreplaceable).

117. These considerations may promote a methodology of a remuneration committee; or of taking outside advice from specialist employment agents; or of discussions with key shareholders; or one or more of these approaches.

118. There may be some particular restrictions introduced by listing rules, which require particular steps to be taken. In that event, the sanction for failing to take those steps would be a matter for the regulator of the market where the company is listed.

119. We make these points because the Court has the function of determining Mr Pirrwitz's claim in this case by applying relevant principles of law to the facts which the Court finds established. Best practice and any listing rules may be relevant to the extent that a failure to comply with them may say something about the good faith of the parties entering into the transaction, absent some other explanation for that conduct being given, but it is important to remember that breach of best practice and/or listing rules would not of itself disentitle Mr Pirrwitz to success in his action. In any event, it is unclear whether one could point to a set of consistent best practice guidelines which applied across different jurisdictions.

Quantum

120. Advocate Santos-Costa complains that the amount of the Exit Payments was grossly excessive. Our starting point is to consider why, if that assertion were to be true, it would be a relevant factor for us. The starting point is that the contract provides for an exit payment to be made to an outgoing director. The quantum of that payment is like any agreed value which is found in a contract of employment. It is a matter for the contracting parties and, no assertion being made that the contract is governed by any law other than Jersey law, the principle of la convention fait la loi des parties applies. Unless there is some ground which as a matter of law goes to why a particular provision, or indeed the whole contract, should be set aside, the Court should enforce any contract properly made in accordance with its terms.

121. In the present case, the quantum of the exit payment was a matter for the board of directors of each company, provided that the respective boards reached their conclusions in the best interests of the company and in good faith. The assertion that the quantum of exit payments was grossly excessive is one which is capable of being relevant, if we find it to be true, if either the deal which was arranged could not reasonably be construed as being in the best interests of the company in question, in which case the board did not have capacity to agree such a contract on behalf of the company, or if the excessive fees proved to be a significant factor in the Court's assessment as to the good faith of the parties making the transaction. Outside these principles, it is otherwise hard to see that the quantum of fees is relevant for us to take into account in any respect other than it reflects the amount for which the plaintiff seeks judgment for breach of contract.

122. As already mentioned, in this case we have received evidence from Mr James Davis and Mr Andrew Page as experts informing the Court as to their view of the arrangements on the application of current market practice. In the case of Mr Davis, he has a great deal of experience of employment practice in the United Kingdom, and often advises on disputes involving members of limited liability partnerships in the legal and financial services industries. Whilst we record that we must approach such evidence with some caution, because market practice in the United Kingdom may well be affected by legislation which is applicable there but not in Jersey, we broadly accept the proposition that for companies such as AI and PI, market practice in Jersey is likely to be similar to market practice in the United Kingdom, and we have approached Mr Davis' evidence on that basis. We have approached the evidence of Mr Page, the expert called by Mr Vilsmeier, in a similar way. The major distinction in the experience of the two appears to be that Mr Page has advised remuneration committees and management of a broad range of companies both in the United Kingdom and overseas.

123. It appears to us that we should treat the evidence of market practice with some care. It remains true as a matter of law that if a contract of employment is made in a manner which is inconsistent with market practice, it is still a contract which will be enforced by the courts unless there is some reason for not doing so. Inconsistency with market practice is not a reason of itself for not enforcing the contract, if it has been properly made.

124. The Court has little doubt that both Mr Vilsmeier and Mr Pirrwitz were at all material times aware of market practice in a general way. They are both commercially experienced men. The evidence which Mr Page and Mr Davis were able to give us therefore can be treated as informing us of a market practice of which we might reasonably have expected Messrs Pirrwitz and Vilsmeier to be aware. If there were substantial inconsistency between what they did and that market practice, that might be a factor which we could take into account in going to the respective good faith of the two of them when making this particular arrangement. When the two experts gave their evidence, they included some commentary as to the rationale for market practice in particular areas. Mr Davis, for example, gave evidence as to whether the market would agree that exit payments might preserve independence on the board, and said he had never come across this before. He went on to say that if payments were due whatever the basis for the departure of the director, it was difficult to see how this would preserve independence, and indeed, if the exit payment was due even on resignation, the existence of that arrangement would incentivise departure and not loyalty. It is useful for the Court to have evidence of this kind presented to the extent that we need to focus on whether the arrangement was made in the best interests of the company and made in good faith; but we have been careful not to allow the views of the experts to deflect us from considering the principal questions - what was actually agreed between the company and Mr Pirrwitz and, if the company did agree these particular arrangements, did it have the necessary corporate capacity to do so in the way that it did?

125. In our judgment, the board acted in good faith in delegating to Mr Vilsmeier the finalisation of the exit payments, whether those be due following dismissal, non re-election, or resignation. In the particular circumstances of these two boards, having regard to the pressure on board members from some of the shareholders and the disparate personalities on the boards in question, we can see that there was room for the view - whether we would have shared it or not - that it was in the best interests of shareholders to delegate to the chairman the quantum of the exit payments, the principles having been discussed on more than one occasion. In particular, the board was entitled to have regard to the status and experience of the chairman Mr Vilsmeier and to take cognisance of the fact that he and other directors were also required to act in good faith in agreeing the actual amount of the exit payments and the fact that in requiring two directors to agree on the payment to Mr Vilsmeier, there was less scope for bad conduct by way of collusion than would otherwise have been the case.

126. We turn next to whether Mr Vilsmeier acted in good faith. In his witness statement, he explained how he spoke to Dr. Abel of the Hay Group shortly after the Longueville Manor board meeting in December 2008 and discussed the preliminary views which he had reached in relation to the matter. Those preliminary views involved consideration as to the amount of time spent by any given director in the discharge of his duties and also the onerous nature of the duties. He had regard to the stress under which the particular directors might be working. He had regard to the remuneration models which Dr. Abel had circulated in September 2008, which included the observation that in the context of the management of funds such as those of AI and PI, management fees of 1 to 3% of the assets under management were not unusual, exclusive of any performance fee which might be considerably higher. He had also reached the view that he should take into account the work which the board had commenced in respect of AI and PI but which would not be immediately finalised. He recognised that this was closer to a standard success fee, but nonetheless he thought it was right to take into account the issue of the value enhancement potential of each company.

127. There was a telephone discussion, according to Mr Vilsmeier, with Dr. Abel of the Hay Group in or about January 2009, which lasted 15 to 20 minutes. There was no formal engagement by the companies in respect of this telephone advice, and no fee was charged. It was an informal discussion to follow up on the earlier formal engagement of the Hay Group in September 2008. The purpose of the telephone call as far as Mr Vilsmeier was concerned was to ensure that his thinking and approach made sense from a commercial perspective.

128. The Court has had the advantage of listening to Mr Vilsmeier give his evidence in person, and to watch him deal with hostile cross examination in English, that not being his native language. We were impressed with him, and consider that he was an honest and competent witness. In circumstances in which there was probably no right answer for the quantum of exit payment, we think that he made a genuine attempt to reach a figure which was fair to both the company and to the director. He explained why he did not think it was appropriate to give some directors - like Mr Pascall - an exit payment of the same amount as Mr Pirrwitz, or indeed any exit payment; and similarly explained why he was not able to agree with Mr Hassler the extent of the exit payment which Mr Hassler thought was appropriately due to him. All this he regarded as a not unusual function to be imposed on the chairman of a company. He pointed out that being a member of a board with assets under management of €1.3bn was a responsible position and that should be reflected in any exit payment that was agreed. He explained that while it might seem inconsistent on the face of it, to treat an exit payment, the rationale for which was to secure the independence of the directors as including a success fee component, the reality was that if, as a result of the director acting independently in favour of all the shareholders, the hedge fund investors were reminded to generate sufficient shareholder votes to dispense with such directors in order to achieve their ends and were able to do so, then it was unfair that the director voted out of office should lose the opportunity of participating in the success fee the principles of which had already been agreed. Although the hedge fund investors had a view about what a success fee might look like in the early days, the TAV experience showed that it was not going to be possible to calculate success in quite the same way as originally had been anticipated - and, in a real sense, in Mr Vilsmeier's view, success included keeping the independence of the board from certain shareholders whose intentions were not to act in the best interests of the company but to act in their own private interest.

129. Some substantial attention was given in cross examination to why it was appropriate to fix on the same exit payment where a director resigned as where he was dismissed or not confirmed in office at a general meeting of shareholders. Taking Mr Davis' point, that provision would seem to militate in favour of an early exit and not in favour of independence of the board. It seems to us that this question of the resignation amounts ought to be considered in the same way as the question of alleged excessive quantum. The key questions are whether the provision was in the best interests of the company, and whether the parties acted in good faith. We have no doubt that Mr Vilsmeier was influenced by the threats to the safety of his own family. For him, there was the possibility therefore that he might have resigned rather than see his family put at risk. In those circumstances, the success fee component of the exit payment might have been regarded as more significant than the other components. For the purposes of this judgment, the fact that the exit payment is the same whatever the cause of the director losing that position within the company is relevant only to the good faith of those involved, because in this case Mr Pirrwitz's claim is not based on resignation but is based on the fact that he was not retained in office following a vote of the company in general meeting. We are satisfied that Mr Vilsmeier acted in good faith in fixing the same resignation payment as he did the payment due on dismissal. The resignation arguments therefore seem to us to be a non-point in the circumstances of this case.

130. In December 2008, when the principles of the exit payment were substantially agreed, and the mechanism settled that the quantum would be fixed by agreement between the chairman and the individual directors, maintaining the independence of the directors was an important consideration in the best interests of the companies in question. The flip side of that coin is to consider what the position would have been if the terms upon which the directors were retained were not acceptable to them individually. We have no doubt that in practice Mr Pirrwitz would have taken a pragmatic view. Notwithstanding the amount of hard work put in over the preceding six months, faced with a choice of bowing to the pressure of the hedge fund investors and potentially facing liability to claims from other shareholders as a result, or continuing to work extremely long hours as an independent director until such time as the hedge fund investors procured his dismissal, the obvious solution would have been to resign at that stage. That was firmly not in the interests of the companies either. He was a key man in the management of the two funds. Any reasonable board would have taken the view at that time that it was in the company's interests, if reasonably possible, to secure his continued performance as a director. Any reasonable chairman, delegated the power to determine the quantum of exit payment, would take such a consideration into account.

131. For all these reasons we conclude that the two companies made a valid contract with Mr Pirrwitz to retain his services as a director and to agree the mechanism by which the exit payments were to be settled. Similarly, we consider that Mr Vilsmeier, having appropriate corporate authority to settle the quantum of exit payments, acted in good faith and in the best interests of the companies in question in fixing the amounts he did. For these reasons, we find the Plaintiff Mr Pirrwitz has justified on the balance of probability his claim to the two exit payments pursuant to the terms of the contracts which he had with AI and PI, and for the reasons given we also consider that the claim for an indemnity or contribution from Mr Vilsmeier is ill-founded and fails. We reject the claim that Mr Vilsmeier acted in a manner that was grossly negligent and/or in breach of fiduciary duty in fixing the figures which he did.

132. Mr Vilsmeier put forward a defence, in the alternative, that he should be relieved from liability under Article 212 of the Companies Law, if there was any liability on his part towards AI and PI respectively. We have found that no such liability exists, but we have gone on to consider what the position would be under Article 212, had there been liability. Our consideration assumes that Mr Vilsmeier acted honestly, because that is our finding, and of course it is a prerequisite of relieving a director of liability under Article 212 in any event.

133. Article 212 is in these terms:-

"(1) If in proceedings for negligence, default, breach of duty or breach of trust against an officer of a company or a person employed by a company as auditor it appears to the Court that that officer or person is or may be liable in respect of the negligence, default, breach of duty or breach of trust, but that the person has acted honestly and that having regard to all the circumstances of the case (including those connected with his or her appointment) he or she ought fairly to be excused for the negligence, default, breach of duty or breach of trust, the Court may relieve the person, either wholly or partly, from his or her liability on such terms as it thinks fit."

134. If we had not reached the view that the company had properly authorised Mr Vilsmeier to fix the amounts in question, Mr Pirrwitz would not be entitled to succeed in his claims. If we had found that Mr Vilsmeier had not acted honestly, he would not be entitled to relief under Article 212. The relevance of the Article therefore is limited to the circumstance where he was validly authorised to settle the quantum of exit payments, acted honestly, but, contrary to our findings above, did not act in what objectively were the best interests of the companies in doing so. It is in those circumstances that we have considered the impact of Article 212.

135. We have no doubt whatever that we would exercise our discretion to relieve Mr Vilsmeier of liability under Article 212 in these circumstances. We think that the arrangements made were objectively in the best interests of the companies in question; but even if they were not, we think it was not unreasonable for Mr Vilsmeier to conclude that they were. In his approach to settling the quantum of exit payments, it seems to us that he took into account the factors which he did in good faith, albeit on this hypothesis negligently and/or in breach of duty. Framed in the way that it is, Article 212 assumes that in cases where the director has acted honestly but unreasonably (because he has acted negligently or in breach of duty) nonetheless there are circumstances when the Court might in fairness excuse that director from liability. In our judgment, those circumstances existed here. The pressures faced on the board by the hedge fund investors appear to us to have been entirely inappropriate and contrary to good business practice. If Mr Vilsmeier got things wrong in his approach, and we do not think he did, it was in our judgment entirely understandable that he should have done so and on that ground, we think he ought fairly to be excused from any third party liability in negligence, had such negligence been found.

Counter-claim

136. We now turn to the counter-claim of AI against Mr Pirrwitz and/or Novum Capital Restructuring GmbH. This counter-claim was introduced by an amendment to its pleading made by the company on 4^th August 2010, some 15 months after Mr Pirrwitz' dismissal as a director. In his evidence before us, Mr Shinehouse indicated that the SOGEAP negotiation was concluded in the late summer of 2010, which was the reason for the delay in introducing the claim.

137. SOGEAP is the acronym for an Italian company known as Aeroporto De Parma Societa per la Gestione S.p.A. AI had acquired a 67.94% shareholding in SOGEAP on 17^th July 2008 prior to the appointment of Mr Pirrwitz as a director of AI. The terms of that acquisition included obligations to provide capital to SOGEAP, in return for which SOGEAP gave certain representations and warranties as to litigation in which the company was involved. The investment agreement contained an indemnity from SOGEAP to AI in respect of any liability which SOGEAP might incur arising from any litigation detailed in the relevant schedule (which in fact included the Lodo Peroni litigation) provided that AI notified SOGEAP of that claim for indemnification within 30 working days of AI becoming aware of an event giving rise to such a claim, failing which AI's right of indemnification would lapse.

138. The existence of the Lodo Peroni litigation was reported on by Italian lawyers to the AI board in respect of SOGEAP in their report of 15^th October 2008. This report had allegedly been commissioned by Mr Pirrwitz on behalf of AI. On 15^th September 2008, an arbitral court had awarded the claimant in the Lodo Peroni litigation the sum of approximately €2.6m. The handing down of that award was communicated to the board of AI by its then manager MAM in a memorandum sent to Mr Pirrwitz and others on 23^rd September 2008. On 12^th March 2009, a SOGEAP board meeting, attended by Mr Pirrwitz who had been appointed as a director of SOGEAP on 19^th November 2008 approved payment of the amount due under the Lodo Peroni litigation, payable in two equal tranches in March 2009. No claim under the indemnity was made by AI, and accordingly that company now claims against Mr Pirrwitz damages for negligence as a director in failing to ensure that notice under the investment agreement was given to SOGEAP that a claim under that agreement for an indemnity would be made.

139. The claim against Novum is asserted upon the basis that Novum is vicariously liable for the breaches of duty of Mr Pirrwitz, as Novum employed Mr Pirrwitz as a director of AI in consideration for the payment of fees which Novum received, and Mr Pirrwitz' breaches of duty were asserted to have been committed by him in the course of his employment with Novum and/or in the ordinary course of Novum's business.

140. The Court is in no doubt that this claim fails on a number of grounds, each of which can be considered independently.

141. First of all, AI agreed in the directors service contract with Mr Pirrwitz as follows:-

"7.1 [AI] has directors and officers liability insurance (including continuance cover for you in respect of claims made after termination of your appointment relating to the period of your appointment) and [AI] will maintain such cover for the full term of your employment and for at least 10 years thereafter (or will make corresponding alternative provision for your continuing cover for such period (the "D and O insurance"). The current indemnity limit is €50,000,000 and a copy of the policy documents have been provided to you electronically. In view of the possibility for claims being brought against former directors of [AI], [AI] is in the process of arranging independent D and O insurance coverage that will be exclusively available to the current directors of [AI] and cover claims arising after the date of November 14th 2008 (the "New D and O insurance") with an indemnity limit of at least €50,000,000 and will maintain such cover for the full term of your appointment and for at least 10 years thereafter (or make corresponding alternative provision for your continuing cover for such period).

7.2 [AI] agrees that in the event you shall be entitled to effect recovery in respect of any liability or loss under the D and O insurance or any similar such policy (including any separate run off policy) maintained by [AI], [AI] will, subject to your providing it with all such information as may be necessary in order to comply with the notification requirements under such policy, either (to the extent allowed by the policy) notify the claim on your behalf or facilitate your own notification of such claim to the insurer and agrees that the rights to payment under such policy receivable by [AI] shall be exhausted prior to [AI] seeking to recover any amount from you in respect of any loss or liability for which you may be liable."

142. Mr Pirrwitz asserts that any claim against him in negligence ought to have been covered by the directors and officers insurance policy which AI was required to take out. Mr Shinehouse, when he gave evidence, asserted that the directors and officers cover was intended to provide insurance against claims by third parties against a director, and not claims by the company which took out the insurance. Reviewing the language of the directors service agreement, we do not see any such restriction. Furthermore, that would not be the type of cover which we would customarily have understood to be included in directors and officers insurance. In most circumstances, where a director is acting in that capacity for the company, one would expect third parties to make a claim against a company rather than against the director personally; and directors customarily have as a concern which needs to be addressed, the desirability of obtaining directors and officers insurance in respect of claims by the company which they serve as a director. In our judgment, the admitted failure of AI to make any claim under its own directors and officers cover which it was required to put in place in respect of its own directors, is the first reason why AI is unable to succeed in this counter-claim.

143. We turn now to the second reason the claim fails. It is agreed between AI and Mr Pirrwitz that if AI was to make a claim under the investment agreement for an indemnity, the claim had to be brought before 4^th November 2008 at the latest. We have heard evidence from two Italian legal experts, a Mr Andrea Guaccero and Mr Maurizio Delfino, who both agree that the trigger event under the investment contract was the date of delivery of the Lodo Peroni award and not the date the board of SOGEAP resolved upon payment of the relevant sums under that award.

144. The investment agreement disclosed a probable disbursement of €3.1m in respect of the Lodo Peroni litigation. On 23^rd September 2008, MAM, the then managers of AI, submitted a memorandum to the board of directors in relation to the SOGEAP investment. In that memorandum was included the following passage:-

"A pending legal litigation was initiated by the landlord of land expropriated on behalf of Parma Airport already a while ago.

Following this litigation, an arbitration committee was nominated (one member of the committee nominated by SOGEAP).

The committee reached the conclusion that SOGEAP must pay to the landlord a further compensation in the region of €2.5m.

The lawyers of the airport company will prepare a memorandum on the options available and will present these options to the board at the meeting."

145. A meeting of AI took place on 26^th September 2008 in Munich, attended by various representatives of MAM. The members of the AI board present were Mr Vilsmeier, Mr Pirrwitz, and Mr Duswald. Mr Holger Gantz was also in attendance. At that meeting, Mr Pirrwitz reported that the EGM of SOGEAP had been postponed due to a formal mistake, and that he personally had not taken part in the relevant board meeting because he had not yet been appointed to the board. He reported that he had not been informed in detail about the results of the SOGEAP board meeting.

146. At the board meeting of AI, representatives of MAM variously indicated that the investment in the Parma project was a good one which made sense and that AI had a contractual obligation to make the second investment tranche by way of shareholder loan. It is clear that the MAM representatives at that stage were aware of the arbitral award. Two other members of the board apart from Mr Pirrwitz were also aware of the existence of that award. A formal report from the lawyers was anticipated.

147. On 15^th October 2008 there was completed the second internal draft of a legal due diligence report on Parma Airport. The due diligence report went much wider than the Peroni arbitration, and with its appendices ran to 178 pages. At page 83 there is a 15 line summary of the indemnification rights. At page 128 there is a further 15 line extract dealing with the Lodo Peroni award. There is no cross reference between that award and the indemnification.

148. On 27^th October 2008 there was a telephone meeting of the investment committee of AI. Attending that telephone meeting were Mr Vilsmeier, Mr Baird, Mr Duswald, Mr Dohr and Mr Pirrwitz. Mr Gantz was also in attendance. There is a short extract dealing with the Parma Airport investment, indicating that Mr Pirrwitz informed the investment committee that AI was required to nominate seven board directors for Parma Airport of which one was already in post, and the remaining six would be appointed at a shareholders meeting on 18^th November 2008. The resolution of the investment committee was that Mr Pirrwitz would co-ordinate with Mr Dohr and Mr Duswald and report back by Wednesday 29^th October.

149. On 28^th October 2008, Messrs Latham and Watkins on behalf of AI wrote to Messrs Herbert Smith on behalf of MAM to give notice rescinding the management agreement for misrepresentations made and notice of termination of MAM's appointment. In connection with Parma Airport, the letter asserted breaches by MAM of its obligations, including a failure to carry out any adequate due diligence before the investment contract was made, the commitment without authority to payment to other SOGEAP shareholders of a sum equal to 10% of the dividends distributed by SOGEAP for a period of 10 years, and a commitment that AI should lend somewhere between €112m and €179m to SOGEAP from time to time. It is to be noted that this was a relatively short passage in a long letter containing a litany of complaints against MAM.

150. On 30^th October 2008 a board meeting of SOGEAP was held. On the agenda was an update of the Peroni arbitration. Mr Pirrwitz was not present, but it was at this meeting that he and a Mr David Raifer were appointed to the board as directors. The substance of the minute in relation to the Peroni litigation was that no update worthy of note had taken place apart from the fact that after delivery of the arbitration the general manager had met Mr Peroni who had shown a willingness not to start any legal action until the following meeting and possible reorganisation of the governing body.

151. At some point after its appointment in July 2008, AI had commissioned a report by KPMG on its investments. On 31^st October 2008, KPMG produced a 172 page report on the various investments.

152. A board meeting of AI was held in Bratislava on 15^th November. The relevant extract from the minutes says this:-

"Investment Committee [Mr Baird] reported by reference to the minutes of the meeting of the IC dated 27th October 2008. It was discussed and the board RESOLVED to appoint GB as chairman of the IC.

The board discussed and it was noted that [Guiseppe Mirante] has responsibility of dealing with the portfolio companies. GM reported that he is to make a series of visits to all portfolio companies. It was RESOLVED that GM should present a report of his findings to the board at the next board meeting.

The following matters were discussed:

- BYDGOSZCZ

- Parma

BP referred the board to the shortlist of candidates in relation to board appointments at Parma. It was RESOLVED that BP should make the relevant recommendations.

..."

153. There was an investment committee meeting on 19^th November 2008 attended by Messrs Baird, Duswald, Dohr and Pirrwitz over the telephone, with Gantz and Mr Guiseppe Mirante, among others, in attendance. There was some discussion about the arrangements at Parma Airport, but no mention of the Peroni litigation.

154. A further meeting of the investment committee took place on 3^rd December 2008. Attending, over the telephone were Messrs Baird, Duswald, Dohr and Pirrwitz, with, among others, Mr Mirante also in attendance. Under the heading of "Parma", the minutes disclosed that Mr Pirrwitz had been assigned to take over responsibility for the investment at ParmaAirport.

155. The basis of the claim against Mr Pirrwitz as pleaded is that he was director of AI between 28^th July 2008 and 22^nd April 2009, and during that period was vice chairman of the board, a member of the investment and banking committees and head of the legal committee, having responsibility for the legal matters affecting AI. It asserts that from at least 24^th September 2008, Mr Pirrwitz had assumed and/or had been assigned responsibility for the SOGEAP asset on behalf of AI. It is claimed that he had a statutory and/or contractual and/or common law duty to report to the board of AI on any matters material to the relationship between AI and SOGEAP, including anything which might give rise to SOGEAP's liability under its indemnity in the investment agreement.

156. As is clear from the papers put before us, there is nothing to suggest that Mr Pirrwitz had any responsibility over and above the responsibility of any other director of AI for the relationship with SOGEAP up until the telephone board meeting for the investment committee on 3^rd December 2008. Arguably, one could take the view that that responsibility arose at the earlier date of Mr Pirrwitz appointment as a director of SOGEAP on 30^th October 2008. Given that the delivery of the Peroni award in September was the triggering event such that notice of a claim under the investment agreement had to be made by 4^th November 2008 at the latest, and given the other responsibilities which Mr Pirrwitz had in AI at the relevant time, the Court is in absolutely no doubt that it would be grossly unfair to Mr Pirrwitz to treat him as having been negligent in failing to ensure that the board of SOGEAP was given notice by that date. There is no evidence of any facts which would suggest that Mr Pirrwitz should be liable in negligence for that failure.

157. The third reason for rejecting this claim is as follows. Even if there had been some negligence in failing to make a claim, the extent of AI's loss, if any, is not easily fathomed. Advocate Preston submits that the payment made by SOGEAP under the Peroni arbitration did not reduce the company's value, and therefore that there was no loss. It would certainly seem to be the case that under the investment agreement, the extent to which a claim could be made under the indemnity was limited to 67.94% of the losses sustained over and above those disclosed in exhibit O. Of course, in order to meet the obligations under the indemnity, it was SOGEAP itself which would have to pay, and therefore its assets would be diminished by that amount. If the net asset value of SOGEAP was reflected in its share price, a diminution of assets would be reflected by a consequent drop in the share value of SOGEAP, 67.94% of which would also be suffered by AI.

158. Mr Shinehouse's response to this point was that there was a loss in missing the opportunity to claim the indemnity. He said that SOGEAP had the cash at the time, because there was a credit balance of approximately €14m in the bank of SOGEAP's year end. If SOGEAP had therefore paid AI €1.7m at that time, it was cash in hand, and the value of SOGEAP itself was in reality always negative in any event. As he put it quite trenchantly, two thirds of zero is still zero. Ultimately AI negotiated its way out of the investment agreement by providing more cash liquidity so that SOGEAP could survive. He claims therefore that there was a real loss of €1.7m, and that this was down to the failure to make the indemnity claim in question.

159. The burden of proof to show that a loss has been sustained as a result of any alleged negligence lies with the party asserting that loss. In the present case, we are not satisfied that AI has demonstrated any particular loss which flows from the alleged negligence of Mr Pirrwitz, even if such negligence had been found. Even if Mr Shinehouse's position were plausible, about which the Court has considerable doubts, the result would still only be that we would have to make an assessment of the extent to which the loss of opportunity to negotiate might have had an impact on the ultimate exit price from the investment agreement. We feel quite unable to reach any conclusions as to what that loss of opportunity might have been worth even if we had been satisfied it existed. Accordingly we do not consider that loss has been proved to the necessary civil standard. We certainly do not accept that had the claim under the indemnity been made, SOGEAP would simply pay €1.7m as that sum was currently in its bank account. Whether it would have done so would depend upon its board's assessment of its cash requirements of the ensuing months, not least presumably its obligations to pay the amount of the Peroni award as well as its ongoing running liabilities.

160. Finally, if we had been satisfied that AI did not have to make a claim under the directors and officers insurance, that Mr Pirrwitz had been negligent and that the losses were as described by AI in its counter-claim, we would have been charged to consider the effect of Article 212 of the Companies Law as to whether Mr Pirrwitz should be relieved of any liability he had to the company in negligence. We have no doubt that we would exercise our discretion to relieve him of such liability. In order to make this assessment, we have to put ourselves in the difficult position of assuming him to be negligent in circumstances in which we find he was not. Nonetheless, even assuming we are wrong in that respect, the overall circumstances which he faced in the period between July 2008 when he was appointed and 4^th November 2008 were such that we do not think he should be held liable for losses of this kind. There is no doubt that he was acting honestly, and is therefore entitled to ask the Court to consider the impact of Article 212. Secondly, this is only one of many investments made by AI. The company did not have a coherent package of information available to the directors because its records were scattered variously between its offices in Jersey, in Bratislava and in the offices of MAM as investment manager. The report of the Italian lawyers did not in terms flag up the connection between the provisions of the investment agreement relating to claiming indemnities against SOGEAP and the Peroni award, and in particular did not flag up the need to make an application by a particular time. Mr Pirrwitz had not been on the board of AI at the time the investment in SOGEAP was made, and therefore did not have any working base of knowledge as to what its terms were. On appointment, his main tasks were to secure an exit from the relationship with Meinl and look to a liquidation of the company's investments so that cash could be returned to the shareholders. It is fair to say that other directors had, at least on the papers, the same information as was available to him. In our judgment, it is simply unfair to suggest that he should carry personal liability for any loss which flowed from the failure to make a claim under the investment agreement for an indemnity in relation to the Peroni award and on the application of Article 212, if any liability did exist, we would relieve him of it.

161. In the circumstances, we do not need to consider whether there was in fact a breach of the investment agreement, nor do we need to resolve the conflicting evidence from the Italian law experts as to the correct meaning to attribute to the expressed "sopravenienza passiva" in that agreement.

162. This counter-claim should never have been made. It was in our judgment obviously flawed from the outset. It was brought at a late stage. It was maintained until the conclusion of the hearing notwithstanding the clearest indications to AI during the course of the hearing that the Court was unimpressed with the basis of claim, and further expense was incurred with Italian law experts who came to the Island to give evidence on what was frankly a peripheral issue for us in our assessment of the claim. The counter-claim is dismissed on the basis that Mr Pirrwitz has no liability, and it is in the circumstances unnecessary to consider whether Novum might have any such liability as being vicariously responsible for Mr Pirrwitz actions. Had we had to make such an assessment, we would have concluded that Novum had no such liability even if Mr Pirrwitz was liable. The fact that Novum might, as a company beneficially owned by Mr Pirrwitz, receive fees to which Mr Pirrwitz was entitled does not justify an assertion that that company should carry liability for any negligence on Mr Pirrwitz part. There is no evidence of any relationship between Novum and AI such as would justify an undertaking by Novum towards AI that it would produce Mr Pirrwitz as a director of that company. Indeed, to the extent that there is any evidence, it is to the contrary, as Mr Roehrig approached Mr Pirrwitz and not Novum.

163. For these reasons the counter-claim is dismissed.

Authorities

Companies (Jersey) Law 1991, as amended.

Burt -v- States of Jersey [1996] JLR 1.

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You are here: BAILII >> Databases >> Jersey Unreported Judgments >> Pirrwitz -v- AI, PI and Vilsmeier [2013] JRC 017 (24 January 2013) URL: http://www.bailii.org/je/cases/UR/2013/2013_017.html Cite as: [2013] JRC 017, [2013] JRC 17

Jersey Unreported Judgments

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