Martin Bain v Rangers – Settlement Agreed? All Friends Again?

News broke yesterday which rather surprised me.

“Martin Bain Drops damages action against Rangers” stated the BBC.

I wonder if the settlement of this case, as I discuss below, is a prelude to Mr Bain throwing his hat into the ring with one of the bidders, perhaps with the Blue Knights?

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Mr Bain’s statement, issued through his lawyers, Levy & McRae, included the following:-

“Everyone close to Rangers Football Club knows that I am, and always have been, totally committed to the club and that remains my position. As chief executive and part of the independent board, our job was to assess and highlight to all stakeholders if we believed there was uncertainty over the future financial viability of the club under new ownership.

“Unfortunately, the independent board had no legal power to block the transaction and Sir David Murray made it plain that he wanted to sell.

“I strongly recommended on more than one occasion that Craig Whyte should not be allowed to buy the club. Unfortunately that forceful representation was not accepted and when he took over I was suspended and my contract ripped up.

“With what has subsequently transpired, it is quite obvious why he disposed of me in the manner he did. I was further vilified in the press and continue to be subjected to endless rumours and attacks.

“I had no option but to pursue a claim based on Craig Whyte’s actions – the litigation was a response to his actions and not those of Rangers Football Club.

“I firmly believed it was important to make sure he would have to explain everything he did in a court of law.

“Because of the legal process it has not been possible or appropriate to make public comment, which has been extremely hard given the flow of misinformation and falsehoods both myself and the club had been subjected to.

“In light of the club’s current position I instructed my lawyers to advise the administrators that I am willing to discontinue the legal action. Subject to recovering the costs associated as a result of this action, I will give over to the administrators the remainder of the money that was arrested as part of my case in an effort to help the club.

“I always have done, and will continue to do, everything I can to help the club in these difficult times.”

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Mr Bain’s case against Rangers was scheduled for the summer in the Court of Session. It was expected that, ampngst others, the last three Rangers Chairmen prior to Mr Whyte, namely Sir David Murray, John McClelland and Alastair Johnston, would be called as witnesses for Mr Bain.

The settlement has been welcomed by Duff & Phelps, the administrators. They stated:–

“We are pleased Martin Bain has, in light of the present situation at Rangers, offered to drop his action for damages following his dismissal by Craig Whyte whilst Chairman.

“Mr Bain has also agreed to release to the Club a significant proportion of the sum that was arrested as part of this action. He has made plain the litigation was a response to the actions of Craig Whyte and not Rangers FC and given developments he now wishes to end the litigation action and do what he can to support the Club in these difficult times.

“Duff & Phelps have agreed to settle the litigation with Mr Bain thereby avoiding the unnecessary costs of continuing with this court action.”

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Mr Bain had succeeded in arresting almost £500,000 in Rangers bank account last year. Because this took place over 60 days prior to any liquidation, the funds would have stayed frozen pending a decision in the case.

Why therefore has Mr Bain dropped his claim now in return only for settlement of his legal costs (which will be hefty)?

It might be that, as the process of preparing the case has continued, the advice was that his claim was not the strongest, or that the counterclaim against him by Rangers had some merit.

One of the issues advanced to the court in the hearing of Mr Bain’s application for an arrestment  concerned the validity of his contract. As Lord Hodge stated:-

“Mr Bain’s principal claim was for payment of £1,308,853.50 in respect of future entitlements which he averred he had lost because of the repudiation of his contract. A major difficulty facing that claim, as Mr Napier QC for Rangers pointed out, was that his contract of employment, which he averred was agreed with effect from 29 September 2009, was for thirty-nine months. A long-term service contract of this length is prohibited under sections 188 and 189 of the Companies Act 2006 unless it is approved by a resolution of the members of the company. Mr Ellis QC, who appeared for Mr Bain, asserted that Mr Bain did not know whether the members of Rangers had approved the contract. I found that surprising as I would have expected the chief executive of a public company to be aware whether or not his employment contract had the needed shareholder approval.

[5] But Mr Bain has a fallback position; Mr Ellis pointed out that if the contract was in breach of sections 188 and 189, the statute replaced the offending provision of the contract setting out the term of the contract with a deemed provision that the company could terminate the contract at any time on giving reasonable notice. Mr Bain avers that reasonable notice in the circumstances of his position and employment history is twelve months. Accordingly, Mr Ellis submitted that Mr Bain had a prima facie case that he was entitled to damages on the basis that he had been deprived of the benefits which would have accrued to him in a twelve-month notice period. Mr Bain averred that he was entitled to £59,811.67 in respect of rights which had accrued at the date when the contract was ended and to a further £905,500 in respect of rights which would have accrued during the period of notice.

[6] Mr Napier for Rangers accepted that Mr Bain had a prima facie case on the merits based on this fallback position. Rangers had a substantial counterclaim against Mr Bain for damages for alleged breaches of fiduciary duty. But Mr Napier readily conceded that that case had not yet been developed and he did not found on it at this stage as a ground for opposing the warrant for arrestment on the dependence.

Bearing in mind that the issue about the contract extension seems to have reduced the claim from the initial £1.3 million to the £900k figure mentioned, there had therefore already been some recognition of the validity of at least part of the Rangers defence.

Mr Bain might have been considering the substantial costs that a proof of this nature would bring, and could have been concerned that, even if successful, much of the arrested funds would be eaten up in legal fees.

The process of preparation of the case could have brought to light a “smoking gun” which would have struck at the heart of Mr Bain’s case. However, to extend the analogy, the smoking gun, whilst found in Mr Bain’s figurative possession, may not bear his fingerprints!

If anything “incriminatory” of Mr Bain had been discovered in connection with the case, then D&P would not be agreeing to pay Mr Bain’s full costs, and if the evidence was clear, would not pay anything at all.

(For the avoidance of doubt, I am not implying that there is anything to incriminate Mr Bain in, but merely looking at theoretically possible scenarios.)

So, if Mr Bain retained a strong case, why settle now?

There are at least two arguments.

One is that Mr Bain fears that his reputation might be damaged by revelations contained in the Tax Tribunal decision, whenever that is handed down. To counteract the bad publicity therefore, he has decided to garner some positive PR by acting “for the good of Rangers”.

The feeling may be that, as Chief Executive of a company facing a determination that it may have been involved in an inappropriate tax reduction scheme over many years, he would be in the firing line for criticism.

From a brief and unscientific sample of Rangers fan websites, the plan, at least among the Ibrox faithful, does not seem to be working.

The other explanation, and the one to which I subscribe, is exactly as stated by Mr Bain in his statement. His dispute was with Mr Whyte, not Rangers, and as a result, he felt he could move on, helping Rangers too by freeing up funds.

This does however ignore the fact that Mr Whyte remains, effectively, the majority shareholder at Rangers.

I take this decision by Mr Bain therefore as an acknowledgement that he, or his legal advisers, do not expect there to be a “Rangers” with Mr Whyte involved by the summer. If he did, and the welfare of Rangers was his first thought, as we can have no doubt it is, then having Mr Whyte in a witness box addressing criticism of his conduct, and potentially revealing further damaging information about him, would be a final “nail in the coffin” of his hopes of keeping Rangers.

Mr Bain also worked closely with fellow former directors, such as Paul Murray.

Will we see him declare for the Blue Knights?

Now that Mr Bain is no longer constrained from speaking, as the court action is disposed of, one wonders if he will give an answer to the question which, as far as I am aware, has never been answered.

Bearing in mind that the HMRC tax determinations regarding EBT’s started in 2007, why did Rangers not make any provision at all for the possibility that the case could go against them?

Saving, say, £5 million per annum, would have left a pot of £20 million by takeover time. In that event, there would have been a far better chance of reaching an accord with HMRC. Indeed, if such a course had bee taken, then it is likely that Rangers would (a) have survived and (b) that Mr Whyte would never have crossed the Ibrox threshold.

Mr Bain has been subjected to a fraught last twelve months. His predictions and fears regarding Mr Whyte have been vindicated, it appears.

However, his solicitor, the excellent Peter Watson of Levy & McRae has worked tirelessly for Mr Bain in an effort to re-establish his client’s reputation after the unfounded and unwarranted attacks. One way of doing so, unlike Mr Whyte, was to keep quiet!

Now that those restrictions are lifted, perhaps some more light can be shone on the mess that Rangers Football Club PLC has become?

 

Posted by Paul McConville