Shah v Shah & Ors

This is a sad case. It involves two sets of proceedings which, pursuant to the order of Mr Justice Briggs, were heard together. The first is a petition under the “unfair prejudice” provision in section 994 of the Companies Act 2006 (“section 994”) seeking an order for the purchase of the petitioner’s shares in the 3^rd Respondent company (“the Company”) or alternatively that the Company be wound up under section 122(1)(g) of the Insolvency Act 1986. The second is a claim that the transfer of 4000 shares in the Company from the claimant to the defendant was void or ineffective.

Although the Company is a nominal respondent to the petition, the disputes in these proceedings are between brothers. Following the course adopted in the trial, I shall for convenience and without disrespect refer to them by the first names used in the family. The petitioner, Dineshkumar Shah (“Dinesh”) is the third of four sons of the late Jeshang Shah. The 1^st respondent, Chandrakant Jeshang Shah (“CJ”) is his elder brother. The 2^nd respondent and defendant to the action, Mahendra Shah (“Mike”), is his younger brother. The eldest of the Shah brothers is Rajnikant (“Rajni”), who is not a party but who gave evidence on behalf of Dinesh. Ramniklal Shah (“Ramnik”) is a cousin not a blood brother to the others but he was brought up by Jeshang Shah and his wife and is in effect like a brother and I shall so refer to him; he is two years older than Rajni. Ramnik is not a party but was called as a witness on behalf of Mike and in his evidence also supported the position of CJ on the petition.

These proceedings are the latest in a succession of litigation over the past nine years in what can be described as a feud that has raged within the family. In particular:

The previous High Court action and Companies Act petition were heard together by HH Judge Howarth, sitting as a Deputy Judge of the High Court, and on 11 March 2005 he gave an unreserved judgment (“the 2005 Judgment”) dismissing both the claim and the petition, but giving judgment for CJ on his counterclaim. The Employment Tribunal dismissed Dinesh’s unfair dismissal claim by a judgment issued on 30 October 2006 (“the ET Judgment”). The County Court proceedings regarding 175 Commercial Road were discontinued by consent between the parties in 2005.

The terms of the 2005 Judgment and the ET Judgment featured prominently in these proceedings and it is unsurprising that they gave rise to questions of issue estoppel and abuse of process. As regards the 2005 Judgment, it was common ground that it was res judicata as between the present parties, but there was some argument as to what issues should be regarded as thereby conclusively determined. As regards the ET Judgment, the respondents asserted but Dinesh disputed that on certain matters it gave rise to issue estoppel or that for Dinesh to question the Tribunal’s findings would be an abuse of process. I ruled at the outset of the trial that certain findings in the ET Judgment were binding in the present case, for reasons to be given in this judgment. As regards the County Court action, there is of course no question of an estoppel but there was a strong dispute between the parties as to the terms on which that case was withdrawn, and in particular whether the parties to that action had reached a final settlement regarding the beneficial ownership of the lease to 175 Commercial Road.

There is an irony in the present proceedings on the petition compared to the petition heard by Judge Howarth in 2005. In the previous proceedings, among the relief sought by CJ as petitioner was an order that Dinesh be required to sell to CJ his shareholding in the Company at a price to be determined by the Court. As already stated, that petition was dismissed. In the present proceedings, among the relief sought by Dinesh as petitioner is an order that CJ be required to buy his shareholding in the Company at a price to be determined by the Court. However, CJ strongly opposes the making of such an order.

The Shah brothers were born in Kenya where Jeshang Shah ran a successful retail clothing business in Kitale, trading under the name “J.N. Shah” but known locally as “JANS”, and the family enjoyed a comfortable lifestyle. In the course of the 1960s and early 1970s, Jeshang Shah progressively sent his children over to England, in part to further his sons’ education but perhaps also sensing that the situation for the Asian minority in Kenya might become difficult following independence. CJ came first, in 1967, and studied accountancy. Dinesh followed the next year when he was just 13. He lived with his elder brother, whom he describes as in effect becoming his guardian, and went to school here. By December 1975, when Rajni moved to London, the rest of the family including Jeshang Shah were in this country and for a time they all lived together at 107 District Road, Sudbury, a house that had been bought in the name of CJ.

In 1972 a retail clothing business was started in London, also trading under the name “JANS”. CJ asserts that it was his business alone. Dinesh’s asserts that in the accounts, which have long since been lost, it was in due course shown as a partnership with CJ, Dinesh, Ramnik and Mike as partners. By 1975, the business had acquired five retail shops and developed a wholesale business as well. All members of the family, including the sister, Illa Shah, helped in the business.

In March 1976, the Company was incorporated then under the name Mister Dee of London Limited. At the outset, the two shares held by the company formation agents were transferred to CJ and Ramnik and a third share was issued to Dinesh. A few days later, the issued shareholding was increased to 100 shares allotted as between Dinesh: 33 shares; Ramnik: 33 shares; and CJ: 34 shares. The initial directors were CJ and Rajni, and Ramnik was appointed director and company secretary. The day after the Company was acquired, Rajni was appointed managing director and given a service contract with an annual salary of £5000. For reasons that are not material to this case, relations between CJ and Rajni in the business became strained and after a year Rajni ceased to be a director and to be further involved with the business. The father, Jeshang Shah ended his involvement with the business at the same time. On 1 July 1977, Dinesh was appointed as a third director of the Company. In December 1977, the Company’s share capital was increased to £10,000 by the creation of 9,900 new shares.

For a time the Company and the JANS business operated in parallel, with the Company concentrating on the wholesale side. But the JANS business was gradually wound down, the shops were sold and it ceased trading in the early 1980s. The Company traded from the premises at 175 Commercial Road that were later the subject of the County Court proceedings and about which it will be necessary to say more below. In about 1979/1980, it took the lease of a showroom at 60 Mortimer Street in London’s West End. The lease to Mortimer Street expired in 1995 and the Company then moved its showroom to premises of which it had acquired the freehold a few years before at 38-40 Commercial Road in the East End. That became the main office of the Company.

There are two other related companies. In about 1983, it was decided to expand the wholesale business with the rental of premises at 165/167 Commercial Road. However, these premises were not occupied by the Company but by a separate corporate entity, trading as Deni-Cler Limited (“Deni-Cler”) (originally called Davies and Doncaster Limited). (Footnote: ²) It seems that in contrast with the Company, Deni-Cler aimed at the younger end of the clothing market although (at least from 1989) the Company and Deni-Cler were run together as one business. The directors of Deni-Cler were CJ, Ramnik, Dinesh and Mike and each held one of the four issued shares in that company. Secondly, in December 1988, the Company acquired Chas Polsky Estates Limited (“Chas Polsky”), which held the head-lease to 165/167 Commercial Road. (Of the issued share capital of 1000 £1 shares, 999 are shown as held by the Company and one by CJ). Chas Polsky accordingly received the rent for those premises from Deni-Cler. It appears that the directors of Chas Polsky were the same as of Deni-Cler and, in any event, it is clear that both Dinesh and CJ were directors of Chas Polsky.

The Company’s wholesale business prospered. In January 1989, Mike was appointed a director. And in 1995 it was decided to convert the Company to a public limited company. To this end, the share capital of the Company was further increased to £50,000; 34 new shares were allotted to CJ and one share each to Dinesh and Ramnik (thus bringing their holdings to 68, 34, 34 respectively); and a bonus issue of 49,864 shares was made pro rata, resulting in holdings as follows: CJ, 25,000; Dinesh and Ramnik, 12,500 each. With effect from 30 March 1995, the Company was re-registered as Mister Dee plc, and then with effect from 23 May 1995 there was registered at Companies House a change to its current name, Mister Dee International PLC. To preserve the original name, a company called Mister Dee of London Limited was established (whether as a newly incorporated company or by way of change of name to an off-the-shelf company is not important) but it has never traded and does not play any role in this case save that I note that the same four brothers all became directors of that company as well, holding one share each.

There is no dispute that in the period to 2002, Dinesh, Ramnik and Mike worked harmoniously along with CJ in the business. The affairs of the business were conducted informally but the brothers performed different roles. Hence, Dinesh (with help from Illa) looked after the showroom in Mortimer Street until the lease there expired and then moved to the new Commercial Road premises where he dealt with both new and existing customers; whereas Mike devoted his energy more to the Deni-Cler business at 165/167 Commercial Road until that business was wound down in about 2000 and those premises were sub-let. Ramnik did the accounts and book-keeping and stock-takes. CJ was involved in managing the business generally and building up the clothing lines, and was clearly the dominant figure among the four brothers.

In the trial I head evidence from each of the five Shah brothers. All had given evidence in the 2005 Chancery Division proceedings, and their previous statements were in evidence before me. I have to say that I found none of the brothers to be a satisfactory or wholly truthful witness. Whether through long-running family bitterness, or loyalty to one or other of their brothers, each presented an account of the material events that I found partially distorted. Dinesh clearly feels a real sense of grievance against the respondents, CJ and Mike, but his account of various material events was manifestly incorrect or incredible. CJ has undoubtedly worked very hard to build up the business of the Company and feels resentment at the behaviour of his brothers who contributed less than he has, but in my judgment his evidence as to certain meetings and the preparation of documents displayed a disregard for the truth. Mike is impulsive in his approach to the facts and affected lapses of memory which I considered wholly unconvincing. Although the other two brothers are not parties to the present proceedings, I found that they were still affected in their evidence by what by now has become a long-running family feud. Rajni (who was called on behalf of Dinesh) has a strong dislike of CJ, which it appears goes back to their earlier years in Kenya. Ramnik (who was called on behalf of Mike), I found to be a malleable witness, shifting his account of events as he was cross-examined first by Counsel for Dinesh and then (in accordance with my ruling) by Counsel for CJ, and very evasive in some of his responses.

The evidence of Mike and Ramnik differed in material respects from their evidence in the 2005 trial. Although it was suggested to me that their willingness to accept that their previous evidence was inaccurate should be seen to their credit, I on the contrary consider that it demonstrated their willingness to tailor their evidence to their perception of their current interest or loyalty and I see no reason to conclude that their evidence in the current trial is more likely to be truthful than their evidence in the previous trial.

Of the other witnesses, John Shea is a partner in the firm of accountants that has acted for the Company since late June 2005. He has also been the personal accountant to CJ. I found him to be an honest witness and his evidence to be reliable, save for one matter where he had to rely on his memory without any document to assist and on which I think he was probably mistaken. Also called on behalf of CJ was his daughter, Sheenal Kothari (“Sheenal”). I found her to be a frank and honest witness who answered directly the questions put to her. Shayne Trackman was called on behalf of CJ and had been the conveyancing solicitor involved in the purchase of various of the properties. As one would expect, his evidence gave an honest account from his perspective but he was careful to explain the limit of his involvement and I found his evidence to be of peripheral relevance to the issues I have to decide. There were also statements presented under the Civil Evidence Act 1995 from Pravin Malde, who has since died. His evidence concerns a meeting on 9 April 2005 and it is not in dispute. Finally, I heard brief evidence from the wives of Dinesh and Mike: their testimony, although conflicting, was of limited scope and for reasons explained below it is not necessary for me to decide definitively whose account I prefer.

Accordingly, I treat the evidence of each of the five Shah brothers with reserve. Where they conflict on material issues, I have sought to assess their accounts against the contemporary documents and the evidence, where available, of the other witnesses to whom I have just referred. However, for some meetings or conversations there is no such extraneous evidence. For those, I have faced the difficult task of discerning where, as between their differing accounts, on the balance of probabilities, lies the truth. I have had regard to the overall context and progression of events, the inherent probabilities and motives of the various brothers, and the way in which they gave their evidence; and on occasions find the most likely version of events is somewhere between their conflicting accounts.

2002 to the 2005 Judgment

It was in the latter part of 2002 that problems developed between the four brothers engaged in the business. How this started is not directly relevant to the issues I have to decide, but it appears that Mike got into financial difficulties as a result of speculation on the stock market and asked CJ to help him out, and in response CJ lent him £50,000. But when Mike subsequently asked for more money, CJ refused. Around that time, Mike also asserted that it had been the understanding between the four brothers that he would receive an equal 25% shareholding in the Company such that, in 1995, when the new issue of shares gave CJ 50% that was on the basis that CJ would in due course transfer half of his shareholding to Mike. In making that claim, Mike was supported by Dinesh and Ramnik. However, CJ vigorously refuted it and denied that there had ever been such an agreement.

Unsurprisingly, this led to a serious breakdown in relations between Dinesh, Ramnik and Mike on the one hand, and CJ on the other. On 4 November 2002, the Company’s then accountants wrote to Mike, Dinesh and Ramnik. To Mike, they stated that his employment with the Company would be terminated; whereas to Dinesh and Ramnik they ostensibly confirmed a conversation that they had had whereby:

“You felt that in view of the present circumstances that it would be better that the reigns of the company be handed over to CJ for him to run the company pending resolution of the outstanding matters.

Meanwhile you will remain away from the premises on full pay, in an effort to avoid any confrontation and adverse impact on the business.”

Although CJ said that the terms of these letters were proposed not by him but by the accountants and that the letter terminating Mike’s employment was supposed to be “a temporary measure, to warn him that this is what is going to happen if he doesn’t behave”, I find that wholly implausible. The accountant may have sensibly suggested a brief ‘cooling off’ period but nothing more; and the letter to Mike is unequivocal. I consider that the letters were written at CJ’s behest and I note that Ramnik replied by letter dated 13 November 2002, stating:

“I do not accept that CJ or you are entitled to exclude me from management of the business or to remove me as a director. Accordingly I am consulting my solicitor who will contact you in the near future.”

This was followed a week later by a letter from solicitors instructed jointly by Dinesh, Ramnik and Mike, refuting any entitlement in CJ or the accountants to terminate either their employment or their position as directors and stating that their clients intend to return to work on 25 November 2002. There followed correspondence with solicitors instructed by CJ, and on 2 December 2002 CJ’s solicitors also wrote to Mike to demand repayment of the loan of £50,000. At this time, on 29 November 2002, Dinesh, Ramnik and Mike went to the branch of Barclays Bank that handled the Company’s accounts and changed the bank mandate for both the Company and Chas Polsky to remove CJ from the mandate and provide that any future instructions required the signatures of any two of the three authorised signatories. The letter from Barclays to CJ informing him of this concluded:

“I understand from the other directors that they would be happy for you to be reinstated on the account on the basis that the joint signing arrangements remain.”

Dinesh and Ramnik said that they took this step because CJ refused to hand over the Company cheque-book when Dinesh asked for it to write the pay cheques at the end of the month, but CJ strongly disputed this account.

On 17 March 2003, at a meeting of the four directors Dinesh was appointed chairman of the Company, in place of CJ; and at a further meeting on 7 April 2003 a resolution was passed increasing the remuneration of the directors from £40,800 to £60,000. CJ opposed both these resolutions.

It was in these circumstances that, on 11 April 2003, Dinesh, Ramnik and Mike commenced proceedings in the Chancery Division against CJ seeking relief as against CJ so as to achieve the result that Mike and CJ would each have an equal 25% equal shareholding (whether by way of specific performance of alleged agreements or on the basis that CJ held half his shares on trust). CJ’s Defence included a Part 20 Claim against Mike for return of the £50,000 plus interest; and in July 2003 CJ issued his “unfair prejudice” petition under what was then section 459 of the Companies Act 2005 seeking, among other things, an order that Dinesh, Ramnik and Mike be removed as directors alternatively that they sell to him their shares.

These were the matters tried before HH Judge Howarth over five days from 7 March 2005. By his judgment, Judge Howarth roundly dismissed the claim against CJ. Although he found that “the majority of the brothers in this family feel, rightly or wrongly, …. that one way or another [CJ] ought to transfer a quarter of the shares in the company to [Mike]”, he found that there was never any agreement to that effect which created any contractual rights to any of the claimants as against CJ. The judge also gave judgment in favour of CJ on his counterclaim, to which there was no real answer.

In the Companies Act petition, the unfair prejudice relied on by CJ was the resolution increasing the directors’ salaries to £60,000 when, he claimed, they had ceased doing any work and were just lounging about in the basement of the Company’s premises at 38-40 Commercial Road. Judge Howarth held that the resolution to increase their salary was unjustified and a breach of their duties as directors, but it was not unfairly prejudicial to CJ. The Judge concluded as follows:

“93.

…It seems to me that the correct remedy in this case is there is going to be [sic] an order to wind up this company on a just and equitable ground. This is a classic case of people falling out, of being plainly the wrong people to be associated together within this company. But that does not mean that this is a section 459 case. I would like to be able to grant relief to Chandrakant, but I do not think the authorities or the terms of this petition allow me to do that. I must therefore dismiss the petition.”

Judge Howarth could not make the winding up order which he considered to be the appropriate remedy since no such relief had been claimed in the petition before him.

It is accepted that the issues determined in the 2005 Judgment are res judicata, but an issue has arisen before me as to whether there is an issue estoppel as regards the position in the office after late 2002 of the three Shah brothers who were the claimants in those proceedings. In particular, was Dinesh doing little work for the Company because he was refusing to work, contrary to CJ’s requests; or because he was in effect excluded from working by CJ? The material passage in the 2005 Judgment is as follows:

“90.

…The reality of the way in which the Company’s business has been conducted is that Chandrakant has conducted that business as his own. That the three other brothers have come in at various times of the day, sat about the Company premises hoping to be given perhaps some work to do, Chandrakant not being willing to give them any, and they have done little or no real work save signing cheques. …”

Making due allowance for the fact that this was an unreserved judgment, I consider that this constitutes a finding by Judge Howarth that after late 2002 CJ was not willing to allow his three brothers to continue to perform any work in the business, although they turned up at the Company premises and were not refusing to work. For CJ, it is argued that this finding was not necessary to Judge Howarth’s reasoning on the petition and so does not create an issue estoppel. However, as might be expected in an unreserved judgment, Judge Howarth’s reasoning on the petition was succinct. The question of what work the three respondents to the petition were carrying out and why was central to the issue he had to determine and directly contested in the evidence before him. The judge was contrasting the terms of the resolution increasing the directors’ salaries with the reality of the conduct of the Company’s business. Having regard to the way Judge Howarth’s reasoning on the point is expressed, I do not regard this finding to be only collateral to his decision so as to escape an issue estoppel. I conclude that CJ is bound by the finding that after the fall-out in late 2002, he was unwilling to give his three brothers (and thus Dinesh) any work and sought to keep the running of the Company to himself.

Indeed, although the brothers’ enthusiasm for work doubtless lapsed over time, if the point were open I would have reached the same conclusion on the evidence before me. CJ is clearly the most forceful character out of the four brothers. The atmosphere as between CJ and his brothers had become very hostile. That they did not wish to withdraw from work at the Company is supported by the solicitors’ correspondence of late 2002. Although in the present trial both Mike and Ramnik sought to resile from part of the evidence they had given to the court in 2005, I consider that perhaps Ramnik came closest to the truth when he said in his evidence before me that after the dispute erupted they initially tried to work but they found it difficult to work with CJ; and so to avoid confrontation they stayed down in the basement to keep away from him. In the light of the changed bank mandate, they necessarily continued to be involved in writing cheques for the Company, paying wages and dealing with invoices from suppliers.

The meetings following the 2005 Judgment (the share transfer claim)

Judge Howarth delivered his judgment at the conclusion of the trial on Friday, 11 March 2005. The following evening, there was a meeting at Mike’s home. In the course of that meeting, both Dinesh and Ramnik signed typed letters that are identical in their wording (apart from the name and address of the signatory at the top) and state:

“Dear Mahendra

Re: Mister Dee International Plc

This letter is to confirm that out of my shareholding of current 12,500.00 in the above company I am as from today holding 4,000 shares in the above company for you subject to you being responsible for all tax consequences and liabilities arsing [sic] from this declaration and letter.

Yours faithfully”

Further, they each signed, but did not date, stock transfer forms for the transfer of 4000 shares in the Company to Mike.

What happened at that meeting and how those documents came to be signed is at the heart of the action between Dinesh and Mike.

Dinesh claims that the meeting was arranged on the Friday evening by his elder brother, Rajni, who told him that Mike was very down after the outcome of the court case and was blaming Dinesh and Ramnik for not transferring shares direct to him in 1995, and that Mike claimed that he was still entitled to 4000 of each of their shares. After Dinesh and his wife arrived at Mike’s house, Mike produced the letters for him and Ramnik to sign. When Dinesh refused, Mike claimed that he had the right to get 8% of each of Dinesh’s and Ramnik’s shareholding in the Company since they each had held 8% of the Company for him since 1977 (when Mike became 18) and should therefore have transferred the 4000 shares to him in 1995 when new shares were issued. Dinesh said that Mike became hysterical, referring to the extent of his debts; and that he (Dinesh) actually left the house with his wife and was only prevailed upon to return by Rajni who came out and spoke to him while in his car outside. Dinesh said that Rajni supported Mike’s assertion that he was the beneficial owner of the shares and that he had a right to request that the earlier arrangements were observed. Rajni told him that this was not a question of doing a favour for Mike but, as Mike claimed, his legal entitlement and that this was why he (Dinesh) finally agreed to sign the documents.

Rajni gave evidence supporting Dinesh’s account, although he made no mention of having to persuade Dinesh to return to the house from the car outside. He said that based on what Mike told him, he stressed to Dinesh and Ramnik that this was not a question of doing a favour or giving a handout, but of giving Mike his legal entitlement. It is not in dispute that it was Rajni’s daughter, who works at a solicitors’ firm, who later joined the gathering and brought with her the two stock transfer forms.

The evidence of Mike, supported by Ramnik, was quite the opposite. They said that during the trial there had been a discussion between the three brothers as to what would happen if they should lose the action against CJ; and that Ramnik and Dinesh agreed with Mike that in that eventuality each would transfer 4000 of their 12,500 shares to Mike. Mike said that Dinesh called him on the Saturday morning after the judgment and said that he wanted to formalise matters and effect the transfer of shares as discussed. Dinesh told him that he was at a solicitors’ office in the West End having the necessary letters drafted and asked for Mike and Ramnik’s postcodes. Mike said that he subsequently called Dinesh back to give him Ramnik’s postcode, and that he later spoke to Rajni to tell him about the arrangements and invite him to join them, and that Rajni then offered to bring the stock transfer forms. The meeting proceeded accordingly that evening. It was all very amicable: although Mike was of course very disappointed by the judgment, he never became hysterical; the arrangements were made as a gentlemen’s agreement and Dinesh at no point refused to honour the understanding reached in the course of the trial. Ramnik added in his evidence that no one put pressure on him or (in his presence) on Dinesh to sign the letters or the forms.

By his claim, Dinesh contends that it was in reliance on the oral representations by Mike and Rajni, whose assertions Mike adopted, that he was under a legal obligation to transfer his shares, and believing that Mike was therefore entitled to those shares, that he signed the letter and stock transfer form. Accordingly, the representation was false or the documents were executed on the basis of a mistake of fact or law, since there was no legal obligation on Dinesh to transfer any part of his shareholding to Mike.

The gathering at Mike’s house was attended by Dinesh and his wife, Ramnik and his wife, Rajni and his wife and, as mentioned above, they were joined later on by Rajni’s daughter. Mike and his wife were of course there and their children were in the house at the time. Neither Ramnik’s wife nor Rajni’s daughter was called to give evidence. Mike’s wife, Mrs Mila Shah, gave evidence that she took the call from Dinesh that Saturday morning and that after her husband had spoken to Dinesh the phone was passed back to her so that she could discuss with Dinesh’s wife the arrangements for the evening meal and that Dinesh’s wife specifically said that “they were at solicitors at the West End”. She also said that Mike never became hysterical that evening. Dinesh’s wife was called with my permission as a supplementary witness (there had been no previous statement from her) and refuted Mila Shah’s account of their telephone conversation, saying that she was not with Dinesh at the time but called Mila on her mobile from Waitrose to ask if Mila wanted her to bring anything for dinner and to inquire how Mike was feeling. She denied having said anything about a solicitor or being in the West End.

In the light of all this conflicting evidence, it is necessary to bear in mind what actually has to be decided. The key question is whether it was represented to Dinesh or he considered that he was under a legal obligation to transfer his shares to Mike. I very much doubt that Mike took the result of the trial with the equanimity that he sought to suggest. The result was a devastating blow for him, not simply because he failed to obtain a 25% shareholding in the Company but because he was saddled with debt, to which was now added a share in the costs of the litigation and judgment against him for £50,000 plus interest. Whether or not he ever became hysterical does not matter; I consider that he would have been a very worried man.

I find implausible Dinesh’s evidence that there was no discussion between the three of them in the course of the trial as to what would happen if they lost, but while I expect that he and Ramnik told Mike not to worry and that they would look after him, I doubt that this would have gone as far as a specific understanding that they would each transfer 4000 shares to Mike. I can accept that when the brothers gathered at Mike’s house on the evening after the judgment, Dinesh was reluctant or even disinclined to transfer his shares to Mike, and may have had to be persuaded to do so. But even making such allowances in Dinesh’s favour, I find it utterly implausible and reject the evidence that he was told, whether by Mike or Rajni or both, that Mike was legallyentitled to 4000 of Dinesh’s shares and/or that Dinesh was under a legal obligation to transfer those shares to his younger brother.

Dinesh had just been through a trial where one of the key issues had been whether any understanding there may have been about the shareholding in the Company was legally binding on CJ or simply, in the words used by Judge Howarth, “something that was being done for the sake of the family”. By the end of the trial, at the very latest, Dinesh would have been well aware of this distinction. Moreover, he had just been fighting a case alongside Mike and Ramnik claiming, in effect, that Mike should achieve an equal shareholding by the transfer to him by CJ of one half of his shareholding. That is of course inconsistent with the statement (allegedly made the day after the trial was over) that Dinesh and Ramnik in fact held 8% of the shares in the Company on trust for Mike since 1977. Indeed, I note that Judge Howarth referred to the belief (presumably by Dinesh, Mike and Ramnik) that there was “some sort of understanding within the family in general that [Mike] should have an equal part in the running of the company, and a legal part in the ownership of the shares in the company.” But he significantly added: “It is not alleged that that understanding in any way was a legally binding obligation of anybody. It was an obligation binding in honour only.”

I can well see that Rajni, as the brother who was more detached from the recent events, may have had to persuade Dinesh to transfer his shares in order to support Mike at such a difficult time. But I consider that any such persuasion was on the basis of family obligation and loyalty, not as a legal duty. This point was not put to Dinesh in cross-examination, since Mike’s case was that Dinesh never had to be persuaded at all and was simply implementing the arrangement agreed in the course of the previous trial. But when I asked Dinesh whether he considered that he was under a legal as opposed to a moral obligation to Mike, he said that he agreed to make the transfer because Rajni told him that if he didn’t Mike may commit suicide and he would be responsible. He said that he was very upset for his younger brother, but was not thinking about whether Mike was in a position to claim the shares from him in court.

On this basis, I conclude that there was no misrepresentation to, or mistake on the part of, Dinesh at the meeting on 12 March 2005. In the light of that, it does not matter by whom or how the letters signed by Dinesh and Ramnik were produced. I would add, however, that I find it very unlikely that those letters were drafted at a solicitors’ office that morning, as implied by the evidence from Mike and his wife. Even if, which seems implausible, Dinesh was able to see a West End solicitor in his office on a Saturday when there was no emergency, there is no reason why a solicitor should have back-dated the letters to the day before; and if the intention was to create a trust, I would expect a solicitors’ draft to do so expressly and not use the wording set out above. The letter does not read like a solicitor’s draft. But it is not necessary for me to reach a concluded view on the point, nor do I need to decide as between the conflicting accounts given by Dinesh’s and Mike’s wives as to their telephone conversation.

There is an alternative way in which Dinesh’s case against Mike on the share transfer is advanced. First, it is said that the documents signed on 12 March were not sufficient to give Mike legal or beneficial title to the shares, since the stock transfer form was incomplete and the letter was insufficient to create a trust. But in my judgment the letter, coupled with Dinesh’s signing of the form, amounted to a sufficiently clear and unequivocal intention to create a trust in favour of Mike: cf Paul v Constance [1977] 1 WLR 527. There was no necessity to identify further in which 4000 shares out of Dinesh’s total shareholding in the Company he was giving Mike the beneficial interest: Hunter v Moss [1994] 1 WLR 452.

That is sufficient to dispose of Dinesh’s claim against Mike to avoid the transfer of the shares, for which the transfer form was subsequently completed on 31 August 2005. However, for completeness I should deal briefly with the argument concerning a meeting that took place four weeks later, on 9 April 2005, when Dinesh, Ramnik and Mike went to see an accountant, Pravin Malde. On that occasion, Dinesh, and Ramnik each signed a formal Declaration of Trust, whereby each “acknowledge[d] and declare[d]” that he held 4000 shares on trust for Mike; undertook not to deal with those shares save as Mike directed and to deposit with Mike an executed transfer; and further to account to Mike for all dividends on those shares; and irrevocably authorised Mike to complete the transfer by inserting the missing details on the transfer form. Dinesh contends that the signing of the Declaration of Trust was procured by a misrepresentation by Mr Malde that this document did not confer on Mike any further interest in the shares beyond that which had already been conferred on 12 March but that it was required “for tax and other administrative purposes”. As Mr Malde was at the time Mike’s accountant, this statement is said to have been made by Mr Malde on Mike’s behalf.

Mr Malde is unfortunately deceased, but there are two notes dated 17 December 2005 recording what occurred at that meeting and how the Declaration of Trust came to be prepared, which are the subject of a hearsay notice. Insofar as necessary, I accept the account given in those notes. However, given my findings regarding the events of 12 March, Mike does not need to rely on this Declaration of Trust to support his entitlement to the shares; and when Mr Malde told Dinesh that his letter of 11 March was good enough to recognise Mike’s interest, Mr Malde was not making any misrepresentation. Accordingly, the discussion with Mr Malde does not take Dinesh’s case in this regard any further.

I would add that I am fortified in rejecting Dinesh’s claim to avoid the transfer of the shares by the fact that he did not seek to challenge or complain about this until about December 2005, after the events of June-July 2005 that I go on to describe when he considered that Mike had betrayed him by siding with CJ. And even then, when a claim regarding the transfer was first advanced by solicitors acting on Dinesh’s behalf, that was on the basis of alleged duress and undue influence, and not of misrepresentation or mistake which are the only bases on which the claim is now put forward.

March – June 2005

Following the 2005 Judgment, it was clear to everyone that something had to be done regarding the conduct of the affairs of the Company. CJ’s petition had been dismissed but matters could not go on indefinitely as they were. Relations between CJ and his brothers and fellow directors had seriously broken down and the deadlock had somehow to be resolved. Moreover, there were also pending proceedings in the County Court that had been commenced by the Company, at the instigation of Dinesh, Ramnik and Mike, against CJ concerning the beneficial interest in 175 Commercial Road. I shall need to refer to these proceedings in more detail later in this judgment.

Dinesh said that on 21 March he had a meeting with CJ at the Company’s premises, specifically on the 1^st floor as Dinesh, Ramnik and Mike normally stayed in the basement. Dinesh’s evidence is that he told CJ that they could not all continue to work together and that he proposed that the Company be converted into a pure investment company, which would receive rental from its properties but avoid the need for daily conduct of retail and wholesale operations; and that if CJ wanted to continue the existing business from 38-40 Commercial Road he should form a new company for himself and pay the Company rent for those premises. He says that after the meeting he returned to the basement and dictated notes of what happened to Mike. For reasons that were not explained there are two such notes, and it is sufficient to refer to the longer one, which reads as follows:

“INTERNAL

MEETING WITH CEEJAY

1^st FLOOR

21/3/05

1.

NO REDUCTION IN SALARY

2.

MAHENDRA WILL NOT BE SACKED & PAID FULL SALARY UNTIL MATTER RESOLVED.

3.

IN THE INTEREST OF THE COMPANY WE CAN NOT WORK TO-GETHER AND FROM MY EXPERIENCE I CAN NOT SEE ANY FUTURE IN THE BUSINESS.

4.

PROPOSAL BY DINESH (CHAIRMAN)

IF CEEJAY WANTS TO CONTINUE RUNNING OF THE CURRENT BUSINESS HE HAS TO FORM A NEW COMPANY & NOTHING TO DO WITH US WHAT SO-EVER [sic]

5.

IF HE WANTS TO RUN THE BUSINESS FROM THE CURRENT ADDRESS WHICH IS 38-40 COMMERCIAL ROAD E.1 1LN HE HAS TO PAY THE CURRENT MARKET RENTAL VALUE PLUS INSURANCE & RATES AND ALSO A REVIEW OF 5 YEAR RENT REVIEW

6.

DINESH ASKED HIM IF HE HAD ANY OTHER PROPOSAL IN THE BEST INTEREST OF THE COMPANY.

7.

CEE-JAY ASKED DINESH REGARDING ABOUT SIGNATORY MANDATE FOR CHEQUES. I (DINESH) TOLD HIM I HAD ALREADY INFORMED THE BANK AND ANY TWO DIRECTORS CAN SIGN. HE WAS NOT HAPPY.”

CJ completely rejected this account. He said it was “a total invention”: there was no such meeting or discussion and the first time he read the notes in the preparation for this trial he was “shocked”. Mike accepted that the notes are in his handwriting but said that he had no recollection at all of writing them or of hearing about the meeting to which they refer. Ramnik professed no knowledge of this discussion at all; he said that if it took place, it was not mentioned to him at the time.

On this issue, I prefer the evidence of Dinesh. It seems to me wholly incredible that he would dictate notes of this nature to Mike inventing a specific and detailed account, expressed in terms that do not appear to be manufactured, of a meeting that never took place. And given that the notes expressly address the question whether Mike could remain employed by the Company, I find it equally incredible that Mike now cannot remember anything at all about these notes which he himself wrote. On the contrary, that such a discussion would have taken place is entirely logical. CJ had sought to instigate the sacking of Mike back in 2002, and now Mike’s claim to obtain shares from CJ had failed before the court. Everyone knew that the deadlock between the brothers had to be resolved, and that had to be by discussion with CJ. And of the other three brothers, Dinesh was the most suitable to carry this out: as Ramnik explained, the reason they had decided in March 2003 to appoint Dinesh as chairman was that among the three of them only Dinesh was then on speaking terms with CJ, who had in effect been his guardian when he came over to attend school in England.

Accordingly, I find that such a discussion did take place on 21 March 2005 and that CJ rejected this proposal. I further find that Dinesh would inevitably have reported back on his discussion to Ramnik and Mike. That has some bearing on the construction to be placed on later events.

It seems that over the period March – June 2005 Ramnik and Mike decided that they just wanted to get out of the Company altogether. The situation was generating so much friction and, put bluntly, they had had enough. While Dinesh continued to favour the idea of continuing with the Company as a pure investment business, I find that, at the very latest by June, he was also considering as an alternative the sale of his shares in the Company. I think that he felt that if Ramnik and Mike were going to sell out it might be sensible for him to exit as well, but he was concerned to get full value for his shares. By this time, the major assets of the Company were the freehold of 38-40 Commercial Road and a number of leasehold properties. Dinesh said, and I accept, that he was keen to have an independent valuation of the properties and told CJ of this. That is borne out by an email dated 10 June 2005 from a firm of surveyors to CJ giving a quotation in response to his “recent enquiry” for valuation of the properties. CJ said that he was aware that Dinesh was seeking an alternative quotation, and on 19 July 2005 another firm of valuers sent a fax to Dinesh with their “best and final quotation” for valuation of the properties.

Dinesh said that Ramnik and Mike were aware that he wanted to have the properties valued whereas they denied all knowledge of this. I cannot accept Ramnik and Mike’s evidence in that regard. I reject any suggestion that Dinesh was seeking to negotiate with CJ behind the back of his other brothers: on the contrary, sitting as they were together in the basement of 38-40 Commercial Road, I find that he was discussing with them the situation and the best way forward. But equally, I reject Dinesh’s assertion that he was interested to seek a valuation only to put a fair price on Ramnik’s shares: I find that he was doing so with a view to selling his own shares as well. However, no independent valuation of the properties was carried out, because of the events that occurred in the 11 days 19-29 July.

19-29 July 2005

On Tuesday, 19 July 2005, CJ met with John Shea of Shea & Co, accountants, with a view to Shea & Co taking over as the Company’s accountants. I found Mr Shea’s evidence of what transpired over this period of particular value not only because of his independence and integrity but also because he produced on a witness summons his email communications with CJ at the Company in this period, whereas the Company’s email files prior to 2006 were lost when its computer broke down in 2006 and was thrown away. I should add that CJ also appointed Mr Shea’s firm to act as his personal accountants, so that Mr Shea was carrying out a double role of adviser to the Company and to CJ himself.

From his email of 19 July, it is clear that at their meeting that day Mr Shea discussed with CJ the background to the business and a planned share buy-back. Mr Shea said that CJ told him that there was friction between him and the other directors, that a deal had been reached with one of the directors (Ramnik) to sell out and leave, and that a proposal was on the table for the other director (i.e. Dinesh). On Monday, 25 July, the Company passed a resolution, signed by all four directors, appointing Shea & Co as the auditors in place of Andrew Murray & Co. And the same day, CJ sent Mr Shea an email attaching a “breakdown as agreed” so that Shea & Co could prepare a tax computation for the share sale.

It seems clear that the “breakdown” sent to Shea & Co comprised three sheets of unheaded paper, giving details of the purchase price, term held and value of, respectively, 165/167 Commercial Road (held by Chas Polsky), 38-40 Commercial Road, and a third property Eade Road (Unit 1) in London N4. Later that afternoon, and in reliance on that information, Shea & Co sent CJ by email a draft tax computation. Mr Shea explained that this was the result of a series of telephone calls from CJ asking about the tax consequences on various assumptions, which he understood at the time followed discussions being held by CJ with Ramnik and Mike.

In response to CJ’s request, on Tuesday, 26 July, one of Mr Shea’s staff (a Mr Rim Saysa) sent him three draft letters relating to the share buy-back. The first was from Ramnik to the directors of the Company formally offering to sell his 12,500 shares and stating that if the other shareholders did not wish to buy them he would sell them to the Company at the agreed price of £103.50 per share; and also resigning as director “as of today’s date”. The other two letters were in identical form, one from Dinesh and the other from CJ, confirming that they had been given the opportunity to purchase Ramnik’s shares but did not wish to do so. Those three letters were duly signed by Ramnik, Dinesh and CJ; and Dinesh’s letter shows that it was signed by him on 26 July. Although Ramnik’s letter is also dated 26 July, both he and CJ said that it was their understanding that his resignation as director would not (contrary to what the letter states) take effect that day but only when the share sale was completed, and Mr Shea confirmed that CJ spoke to him about this shortly after the letter had been signed and returned.

Mr Saysa also attached two sets of draft Minutes, one for a directors’ meeting and the other for an EGM of the shareholders, concerning the share buy-back and the text of the special resolution to that effect to be passed at the EGM. Directors’ and shareholders’ meetings indeed took place on 26 July but the minutes of the directors’ meeting are signed only by CJ, Ramnik and Mike and not by Dinesh. Those Minutes also record that Ramnik “has formally resigned as a director of the Company”.

On 27 July, Mr Shea went to the Company’s offices and there met for the first time the other directors. Mr Shea said that in the course of this meeting, which lasted about 20 minutes, he talked through the documentation that he had brought with him. This appears to have included the Companies form 169 regarding the share buy-back, that recorded the price of the shares; a Return of Allotment form 88(2) concerning the allotment of the 12,500 shares as a bonus issue to CJ and Dinesh in the proportion 8333:4167; and form 288b concerning Ramnik’s resignation as both director and secretary. These forms were all signed by CJ while Mr Shea was at the Company. (Footnote: ³) It appears from other documents that a form 288a was also signed that day appointing CJ’s daughter, Sheenal, as secretary of the Company in place of Ramnik, but a copy of this was not produced in evidence. However, Dinesh accepted that Sheenal was appointed secretary on the resignation of Ramnik.

Although Mr Shea said that he found the atmosphere at the meeting on 27 July to be friendly, and that Ramnik was evidently pleased to be leaving the Company, in the course of the following day, Thursday 28 July, he became aware that there was discord between the brothers and learnt that Dinesh was not happy about what was taking place. He had already known on the Monday that Dinesh was not proceeding with a sale of his shares, and now CJ told Mr Shea that he was thinking of dismissing Dinesh as a director. Although Mr Shea understandably could not recall the details of various telephone conversation which he had with CJ, his email to CJ sent on the morning of 28 July told CJ that if he was thinking of dismissing his brothers as directors he should get legal advice. That email also enclosed draft minutes for a directors’ meeting, obviously prepared at CJ’s request, showing CJ to be appointed chairman and managing director, amending the bank mandate so that CJ would be sole signatory, and resolving that all previous appointments of the directors other than CJ “be cancelled with immediate effect.” Mr Shea was about to go on holiday and his email concluded:

“If you have a problem with it [i.e. the minutes], it might be best to wait until I get back. We can then call a formal meeting of the shareholders, appoint new directors and force through any measure you want.”

A few hours later, Mr Shea sent a further email to CJ in which he referred to the fact that one of the other directors had been contacting him and asking for information. Furthermore, it is clear from this email that CJ had telephoned Mr Shea again and asked about the degree of control he (CJ) had over the business. In response, Mr Shea explained briefly the distinction between the sort of matters that need consent only of the directors and those that require an EGM of the shareholders. He added: “You may therefore decide to appoint more directors to strengthen your position on the board.” He enclosed a pro forma draft notice calling an EGM that would appoint new directors and remove existing directors. He also recommended a company law solicitor to whom CJ could turn for further advice.

The pro forma sent by Mr Shea calling an EGM to change the directors was never used. But there are two documents that purport to be minutes of a meeting of the directors. The first follows in its substantive wording the draft sent by Mr Shea with his first email of 28 July but those present are shown to be CJ, Ramnik and Mike. It is signed only by CJ who has dated it 27 July 2005. The second follows the same form but: (a) the meeting is shown as being held on 29 July 2005; (b) it is signed by Ramnik and Mike as well as CJ; and (c) a new substantive paragraph (5) has been added so that the full minutes read as follows:

“1.

Chandrakant Shah was appointed chairman of the meeting.

2.

It was resolved that Chandrakant Shah be chairman and managing director of the company.

3.

It was resolved that the bank mandates be amended so that Chandrakant Shah should be sole signatory.

4.

It was resolved that all previous appointments of the directors, other than Chandrakant Shah as bank signatories, chairman or managing directors of the company be cancelled with immediate effect.

5.

Ramnik Shah and Mahendra Shah confirmed that Dinesh Shah was informed but did not attend the meeting.

6.

There being no other business the meeting was adjourned.”

There is also a document headed “Notice of Meeting of Directors” which gives notice of a meeting to be held at 3 pm on 29 July to consider and pass a resolution in terms that follow the draft sent by Mr Shea.

On 29 July 2005, a cheque for £1,293,750 drawn on the Company’s account as payment for the 12,500 shares was signed by Mike and Ramnik. The cheque was in favour of CKFT solicitor’s client account, since it was arranged at Mike’s request that the money would go to solicitors who would then divide the total to reflect Ramnik and Mike’s interests, and pass on the relevant sums. This was duly done.

Dinesh said that he did not attend the meeting of the directors on 26 July or the meeting with Mr Shea at the Company’s premises on 27 July, and that he did not see the minutes of the 26 July meeting until much later. He claimed that he did not know the price agreed with Ramnik for his shares and that the payment was made without his approval or authorisation.

I unhesitatingly reject that evidence. Mr Shea was clear that Dinesh was present at the meeting with him, although he said nothing. I find that he was also present at the directors’ meeting the day before. He accepts that he signed the letter waiving his pre-emption rights on 26 July and I find that he was well aware of the price that Ramnik had agreed with CJ. But I think that Mr Shea misinterpreted Dinesh’s silence at the meeting on 27 July for acquiescence. I find that Dinesh was very concerned when he realised that Ramnik and Mike were prepared to go ahead without an independent valuation and that they were no longer standing together with him in holding out against CJ. I find that that is the reason why he declined to sign the minutes of the meeting of 26 July. While I do not think it is material to determine the identity of the director who called Mr Shea several times on 28 July, on this one point I think that Mr Shea’s memory is probably at fault and that in all likelihood it was Dinesh and not Mike. CJ himself accepted that it was probably Dinesh who was contacting the accountants and Mike denied that he made any such calls.

CJ said that Dinesh was the one negotiating on behalf of all three brothers, that Dinesh agreed the values of the properties as notified to Mr Shea and that Dinesh then changed his mind at the last minute. CJ was quite unable to explain the first version of the minutes of the final directors’ meeting, which he signed and dated 27 July, although he accepted that no such meeting took place that day. He insisted that the second version of the minutes, dated in typescript 29 July, had been produced entirely by Shea & Co.

I reject that evidence also. On the basis of Mr Shea’s evidence it was already made clear to him on Tuesday 19 July, that one of the directors had not accepted the buy-back proposals and by Tuesday 26 July it was similarly made clear to him that only Ramnik was proceeding with the share sale. I find that Dinesh was never happy with the values placed on the properties: he made clear that he wanted an independent valuation. And although the minutes for the final directors’ meeting, in both versions, were derived from the draft prepared by the accountants, Mr Shea was clear that his firm would not have, and did not, produce a document with the words “Approved by” Ramnik and Mike, respectively, at the end; nor did he draft paragraph (5) of the second version of the minutes. The Shea & Co draft was a Word attachment to the email of 28 July and I find that CJ amended that draft to produce the two alternative signed versions. I find that he back-dated the first version to 27 July; but realising that this could not be acceptable he did not place that document before Ramnik and Mike. He therefore proceeded to call the meeting for 29 July, for which he accepted he typed out the Notice. He then produced the second version of the minutes, adding the date and incorporating paragraph (5).

CJ said that the Notice calling the meeting for 29 July was placed on the table in the basement so that his three brothers could see it on the morning of 28 July. Dinesh claimed that he was given the Notice only an hour before the meeting (i.e., at 2 pm on 29 July) and was so shocked and upset that he went home. I do not think it is necessary to resolve that particular dispute. It is common ground that Dinesh did not attend the meeting, which took place at 3 pm that Friday afternoon. I consider that Dinesh realised from the Notice of the proposed resolution that Ramnik and Mike had now joined with CJ to turn against him and he realised that there was nothing he could do. Ramnik said in his evidence that the next afternoon he had a telephone call from Dinesh protesting that “I had stabbed him in the back”. In my view, that is exactly how Dinesh perceived the situation, coming after the years in which the three brothers had stood united following the eruption of the dispute with CJ in 2002.

1 August 2005 to Dinesh’s resignation

Friday, 29 July 2005, was the last day that Ramnik and Mike spent at the Company. On Monday, 1 August, Dinesh did not come to the Company’s offices. It is not entirely clear to what extent he came to 38-40 Commercial Road that week, but on 4 August CJ gave him a letter which stated:

“Dear Dinesh

As you are aware that Mahendra and Ramnik have resigned on 31^st July 2005, I would be most obliged if you could inform me of your intentions now at the company. Do you plan to reside in the basement as before or work?

Please inform me at your earliest.

[Signed] Ceejay”

Dinesh did not reply to that letter and on 9 August CJ asked him to attend what he described as a “performance review meeting” the following day. Dinesh did not attend such a meeting, or reply to a further letter dated 11 August. Finally, on 15 August CJ wrote to him again, as follows:

“Dear Dinesh

Since October 2002 whilst acting as a Director, I found that on more than one occasion you have failed to perform your duties as Director to the Company. In doing so you have constantly been in breach of your duties and therefore not working in the interests of the Company.

I would like to give you one last opportunity to attend a performance review meeting.

I wait to hear from you.

[Signed] Ceejay”

Dinesh did not attend any such meeting with CJ and at the end of August CJ told him that if he did not resume work his salary would be stopped. Dinesh was accordingly not paid for September or October. On 18 November, Dinesh sent a letter to CJ by fax and recorded delivery as follows:

“Dear Ceejay

You removed my title and duties on 29^th July 2005 and ceased to pay me my salary from 1^st September 2005. I have asked you on several occasions only to hear that you will pay me. I am suffering extreme financial hardship.

In the circumstances I wish to resign with immediate effect.

Yours sincerely

[Signed] Dineshkumar J. Shah”

Employment Tribunal proceedings

On 28 November 2005, Dinesh began proceedings against the Company before the Employment Tribunal alleging that he had been constructively dismissed, essentially on the basis that payment of his salary had been stopped. The Response filed on behalf of the Company was prepared and signed by CJ personally. The grounds for resisting the claim asserted that his salary was stopped because he had stopped working, and began with the statement: “The Claimant removed himself from employment with Co, Resignation letter dated 18/11/2005.”

The claim was heard before the Employment Tribunal at Stratford on 20 September 2006, where Dinesh was represented by a solicitor and CJ represented the Company. Dinesh, CJ and Mike were among the witnesses. The Tribunal dismissed the claim and in its judgment dated 30 October 2006 it set out the terms of the letters given by CJ to Dinesh and held that:

An appeal by Dinesh against that decision to the Employment Appeal Tribunal was dismissed on 23 March 2007 on a preliminary hearing.

Before me, Mr Robin Hollington QC, appearing with Mr Nigel Hood for Dinesh, wished to contend that Dinesh was in fact seeking to continue his work in the period July-October but was prevented from doing so by CJ. For CJ, Mr Andrew Walker argued that the judgment of the Employment Tribunal creates a res judicata, or alternatively that it would be an abuse of process for Dinesh to re-litigate in the present trial these matters which the Tribunal had determined. Mr William McCormick, appearing for Mike, acknowledged that an issue estoppel could not avail his client but supported Mr Walker’s argument of abuse.

The way this matter arose was most unsatisfactory. The Petition makes clear (at paragraph 40) that it was part of Dinesh’s case that he attempted to continue to work for the Company but that CJ told him that he did not want him to be involved any more. The Amended Points of Defence plead only (at paragraph 40) an estoppel by reason of the Tribunal judgment, which allegation is denied in the Amended Points of Reply. The allegation of abuse was first raised in argument before me, and Counsel for CJ produced a list of some 15 points as to which Dinesh was alleged to be bound by an estoppel. Although I recognise that none of the Counsel appearing at this trial had been involved in the pleadings, the whole issue was dealt with sparsely in the skeleton argument for CJ and not at all in the skeleton argument for Mike. It would clearly have been preferable for this to be determined on an application to strike out this element in the petition in advance of the trial so that the scope of the permitted evidence could have been determined. However, I allowed this argument to be made and for supplemental skeleton arguments to be filed to address it. After hearing submissions at the outset of the trial, I ruled that Dinesh would not be permitted to re-litigate the matters on which the Tribunal made findings in paragraphs 13 to 17 and the last two sentences of paragraph 24 of its judgment (which cover the findings set out in paragraph 5 above). I said that I would give my reasons in my final judgment, which I now do.

Although this abuse of process application should have been made earlier, I do not consider that the lateness of the application is itself a ground for rejecting it. The situation here is very different from the one where a party makes a late application contending that the opposing case, or part of it, should be struck out as vexatious or unarguable based on analysis of the evidence: cp Halliday v Shoesmith [1993] 1 WLR 1, where the decision to strike out had precluded the defendant from having the opportunity to make good his allegations. And it seemed to me inappropriate to postpone the decision on this point to the end of the trial, as Mr Hollington urged me to do: the essence of the Court’s power to prevent this form of abuse is that a party should not have to re-litigate the same issue again.

General guidance concerning abuse of process is set out in the seminal passage in the judgment of Lord Bingham of Cornhill in Johnson v Gore Wood & Co [2002] AC 1 at 31B-G:

“The bringing of a claim or the raising of a defence in later proceedings may, without more, amount to abuse if the court is satisfied (the onus being on the party alleging abuse) that the claim or defence should have been raised in the earlier proceedings if it was to be raised at all. I would not accept that it is necessary, before abuse may be found, to identify any additional element such as a collateral attack on a previous decision or some dishonesty, but where those elements are present the later proceedings will be much more obviously abusive, and there will rarely be a finding of abuse unless the later proceeding involves what the court regards as unjust harassment of a party. It is, however, wrong to hold that because a matter could have been raised in earlier proceedings it should have been, so as to render the raising of it in later proceedings necessarily abusive. That is to adopt too dogmatic an approach to what should in my opinion be a broad, merits-based judgment which takes account of the public and private interests involved and also takes account of all the facts of the case, focusing attention on the crucial question whether, in all the circumstances, a party is misusing or abusing the process of the court by seeking to raise before it the issue which could have been raised before. As one cannot comprehensively list all possible forms of abuse, so one cannot formulate any hard and fast rule to determine whether, on given facts, abuse is to be found or not. Thus while I would accept that lack of funds would not ordinarily excuse a failure to raise in earlier proceedings an issue which could and should have been raised then, I would not regard it as necessarily irrelevant, particularly if it appears that the lack of funds has been caused by the party against whom it is sought to claim. While the result may often be the same, it is in my view preferable to ask whether in all the circumstances a party’s conduct is an abuse than to ask whether the conduct is an abuse and then, if it is, to ask whether the abuse is excused or justified by special circumstances. Properly applied, and whatever the legitimacy of its descent, the rule has in my view a valuable part to play in protecting the interests of justice.”

And in the same case, referring to the principle commonly referred to as the “rule” in Henderson v Henderson, Lord Millett stated (at 59C-E):

“It is one thing to refuse to allow a party to relitigate a question which has already been decided; it is quite another to deny him the opportunity of litigating for the first time a question which has not previously been adjudicated upon. The latter (though not the former) is prima facie a denial of the citizen’s right of access to the court conferred by the common law and guaranteed by article 6 of the Convention for the Protection of Human Rights and Fundamental Freedoms (1953). While, therefore, the doctrine of res judicata in all its branches may properly be regarded as a rule of substantive law, applicable in all save exceptional circumstances, the doctrine now under consideration can be no more than a procedural rule based on the need to protect the process of the court from abuse and the defendant from oppression.”

If the issue raised here does not amount to res judicata, that is only because the parties before the Employment Tribunal are not the same as those now before the court: see paragraph 73 above. But this is not a Henderson v Henderson type of case where the issue was not raised in the previous proceedings but it is said that it could then have been raised. Here, it was raised, and directly adjudicated upon.

The principles to be derived from Johnson v Gore Wood & Co and other cases were helpfully summarised by Clarke LJ (as he then was) in Dexter v Vlieland-Boddy [2003] EWCA Civ 14 at [49]:

“i)

Where A has brought an action against B, a later action against B or C may be struck out where the second action is an abuse of process. ii) A later action against B is much more likely to be held to be an abuse of process than a later action against C. iii) The burden of establishing abuse of process is on B or C or as the case may be. iv) It is wrong to hold that because a matter could have been raised in earlier proceedings it should have been, so as to render the raising of it in later proceedings necessarily abusive. v) The question in every case is whether, applying a broad merits based approach, A's conduct is in all the circumstances an abuse of process. vi) The court will rarely find that the later action is an abuse of process unless the later action involves unjust harassment or oppression of B or C.”

And at [53] Clarke LJ added:

“It is clear from the speeches of both Lord Bingham and Lord Millett that all depends upon the circumstances of the particular case and that the court should adopt a broad merits based approach, but it is likely that the most important question in any case will be whether C, D, E or any other new defendant in a later action can persuade the court that the action against him is oppressive. It seems to me to be likely to be a rare case in which he will succeed in doing so.”

Here, the Company was the respondent in the Employment Tribunal but it is only nominally a party to the petition. The primary respondent is CJ. However, a company can of course only act through human agency, and it is CJ against whom the actual allegations were made in the Tribunal. CJ there gave evidence to rebut them, and indeed it was CJ, as the chairman and majority shareholder, who conducted the Company’s case. To hold that there is no abuse because of the distinction between CJ and the Company would be, in my judgment, to adopt a formulaic approach to the application of the principle of precisely the kind proscribed by Lord Bingham. For in Johnson v Gore Wood & Co it was similarly argued that there could be no abuse since the previous action against Gore Wood & Co that was relied on had been brought not by Mr Johnson but by a company of which he was the managing director and majority shareholder. Although the House of Lords concluded that there was no abuse in that case, Mr Johnson’s argument on this ground was expressly rejected: see per Lord Bingham at 32C-G (with whom Lords Goff, Cooke and Hutton agreed).

Applying a “broad merits-based approach”, I think that it would be oppressive to require CJ to re-litigate the very issues of whether or not, and in what circumstances, Dinesh was willing to work at the Company in the period August-October 2005 that were argued in the Tribunal. Moreover, in my judgment it would bring the administration of justice into disrepute if Dinesh were now able to ask this court to make contrary findings to those arrived at by the Employment Tribunal which heard the evidence of both Dinesh and CJ. The fact that the form of relief sought in the present proceedings and in the proceedings before the Employment Tribunal is very different is in my view irrelevant. Dinesh is fully entitled to bring his petition under the Companies Act provisions in parallel with his constructive dismissal claim and no question of cause of action estoppel arises. But that does not permit Dinesh to advance in the present proceedings what is, in my view, a collateral attack on specific findings of the Tribunal, that were reached after hearing contested evidence and that are fundamental to its decision. I should add that I have not seen anything by way of documents disclosed in the current proceedings which suggest that the Employment Tribunal would have reached a different decision on these matters if such disclosure had been made in the Tribunal proceedings.

In view of my ruling on abuse of process, it is not necessary for me to consider the separate ground of issue estoppel on which CJ (but not Mike) also relies. However, as it was fully argued, I should add that I incline to the view that in the present case there is sufficient identity as between CJ and the Company for the requirements of an issue estoppel to be satisfied. It is fundamental that the doctrine of res judicata applies only as between the parties and their privies. Although it is well-established that the latter concept covers successors in title, the precise ambit of the concept of a privy is not altogether clear. In Gleeson v J Wippel & Co Ltd [1977] 1 WLR 510, Sir Robert Megarry V-C said at 515:

“…, it seems to me that the substratum of the doctrine is that a man ought not to be allowed to litigate a second time what has already been decided between himself and the other party to the litigation. This is in the interest both of the successful party and of the public. But I cannot see that this provides any basis for a successful defendant to say that the successful defence is a bar to the plaintiff suing some third party, or for that third party to say that the successful defence prevents the plaintiff from suing him, unless there is a sufficient degree of identity between the successful defendant and the third party. I do not say that one must be the alter ego of the other: but it does seem to me that, having due regard to the subject-matter of the dispute, there must be a sufficient degree of identification between the two to make it just to hold that the decision to which one was party should be binding in proceedings to which the other is party. It is in that sense that I would regard the phrase 'privity of interest'. Thus in relation to trust property I think there will normally be a sufficient privity between the trustees and their beneficiaries to make a decision that is binding on the trustees also binding on the beneficiaries, and vice versa.”

That test was cited with approval by Lord Bingham in Johnson v Gore Wood & Co (at 32E), where he found that it was satisfied on the facts of that case. There, Mr Johnson held all but two of the shares in the company which was party to the first action, a company that was described (at 17A) as “the corporate embodiment of Mr Johnson”. By contrast, in Barakot Ltd v Epiette Ltd [1998] 1 BCLC 283, the Court of Appeal held that Barakot Ltd, of which Mr Bell was the principal beneficial shareholder and which had been established as a vehicle for his investments, was not the privy of Mr Bell for the purposes of a cause of action estoppel.

It appears that Barakot was not cited in Johnson v Gore Wood & Co. (Footnote: ⁴)However, Balcombe LJ, in the leading judgment in Barakot, when quoting Sir Robert Megarry’s test emphasised the phrase “having regard to the subject-matter of the dispute.” There, the issues determined in the earlier case brought by Mr Bell were very different from those raised in the subsequent case brought by the company. Here, the issues raised in the claim against the Company and determined by the Employment Tribunal were (a) whether Dinesh was willing to work for the Company, and (b) whether CJ’s conduct of the affairs of the Company was such as to deny Dinesh the opportunity to work. The present case raises directly the manner in which the affairs of the Company have been conducted, and in particular the way in which they were conducted by CJ as regards Dinesh. The Court of Appeal in Barakot stressed that the question of identification of interest for the purpose of privity must be such as to make it just or equitable that the party to the later proceedings is barred by the determination in the earlier proceedings: per Balcombe LJ at 288f; Beldam LJ at 291e-f. Here, I consider that it is just and equitable that Dinesh should be bound by the decision on these issues in his earlier case against the Company; just as if Dinesh had succeeded before the Employment Tribunal I would have considered it just and equitable that CJ should be bound by the determination of those particular issues as against the Company. Although the Company cannot be regarded as CJ’s alter ego, not least because Dinesh retains a substantial minority interest, I think that as regards the subject-matter of the previous dispute there probably is sufficient identification of CJ with the Company for an issue estoppel to apply.

Did Dinesh resign as a director of the Company?

CJ contends that, by his letter of 18 November 2005 (see paragraph 73 above), Dinesh resigned not only his employment but also his directorship. Dinesh disputes that. In my view, the letter is ambiguous. The Employment Tribunal in its judgment recorded that Dinesh had not resigned as a director, apparently on the basis that this was common ground: see at paragraphs 18 and 27. CJ was unable to explain how the Employment Tribunal could have come to that view. I do not regard CJ as prevented by the doctrine of either abuse of process or issue estoppel (if applicable) from arguing before me that Dinesh’s resignation covered his directorship, since this statement by the Tribunal was not part of the reasoning on which its decision is based. However, approaching the matter afresh, I have come to the conclusion that the Tribunal’s statement is correct.

First, in the accounts of the Company that were approved and signed by CJ and by his daughter as secretary on 28 November 2005, only 10 days after Dinesh’s letter, Dinesh is shown as remaining as a director. Although the trading year covered by those accounts was to 30 June 2005, they record the subsequent resignations of both Ramnik and Mike, and indeed other developments since the end of the Company’s financial year (see at note 15 to the accounts). In my view, this is a strong indication that CJ did not on receipt of Dinesh’s letter regard it as constituting a resignation by Dinesh of his directorship. Secondly, on 15 December 2005, Sheenal as company secretary signed the annual return on form 363s for the Company, which showed Dinesh as a director. Although the form may have been prepared by Shea & Co, Sheenal said that she would not have signed the form if she thought it was incorrect. Thirdly, Dinesh was also a director of the various associated companies, Chas Polsky, Deni-Cler and Mister Dee of London Ltd. (Footnote: ⁵) Not only is there no suggestion in Dinesh’s letter that it covers those other companies, but only on 18 October 2006 did CJ sign and submit a form 288b to Companies House in which he purported to treat Dinesh as having resigned as director of Mister Dee of London Ltd on 18 November 2005. It appears, although it is not in evidence, that a form 288b was similarly submitted at the same time as regards Dinesh’s directorship of Chas Polsky. And there is no suggestion that Dinesh ever resigned as director of Deni-Cler; indeed, the annual return for Deni-Cler for the year ended 1 June 2009, and presumably filed on the authority of either CJ or Sheenal, continues to show Dinesh as a director. I think it is improbable, on any objective view, that Dinesh can be regarded as choosing to terminate his directorships of some of the companies in the group while remaining on the board of another. Finally, stepping back from the detail, I consider that whereas Dinesh decided after the events of late July 2005 that he no longer wanted to work at the Company and deal there with CJ on a day-to-day basis, it is extremely unlikely that, having retained a substantial minority shareholding, and with Ramnik and Mike now off the board, he would have decided to relinquish the degree of supervision of the Company’s affairs which he had as director and, in effect, leave entire control to CJ. Although it may be that none of the above considerations individually would have led me to conclude that Dinesh did not resign as a director, taken together they point ineluctably to that conclusion.

I therefore find that it was only from early 2006 that CJ decided that he would seek to treat Dinesh’s letter of the previous November as constituting his resignation as a director, because it suited CJ’s purposes to do so. It was on that basis that on 6 January 2006 a form 288b was signed by CJ stating that Dinesh’s appointment as director of the Company had terminated on 18 November 2005.

Thereafter, Dinesh was not treated by CJ and Sheenal as a director of the Company. Indeed, this is common ground. Insofar as any directors’ meetings were held, Dinesh was not notified or invited. He was not involved in the decision to appoint Sheenal as a director with effect from 25 July 2006. Nor was he involved in decisions regarding dividends: in particular, none were recommended or paid for the year ended 30 June 2008, despite net profits after tax of over £200,000 that were broadly in line with the two previous years.

Quasi-partnership

In his judgment in the landmark case of In re Westbourne Galleries Ltd [1973] AC 360, Lord Wilberforce expressed (at 379G-380B) caution concerning the application of the concept of a quasi-partnership to a company, since a company is never the same in law as a partnership or a quasi-partnership. Nevertheless, Lord Wilberforce observed that the concept may be convenient and the term continues to be used on that basis. It is in essence a shorthand encapsulation of a company with certain characteristics that may on principles of equity engage obligations that are common to partnership relations.

In considering these characteristics, Lord Wilberforce expressed the position as follows (at 379E-G):

“It would be impossible, and wholly undesirable, to define the circumstances in which these considerations may arise. Certainly the fact that a company is a small one, or a private company, is not enough. There are very many of these where the association is a purely commercial one, of which it can safely be said that the basis of association is adequately and exhaustively laid down in the articles. The superimposition of equitable considerations requires something more, which typically may include one, or probably more, of the following elements: (i) an association formed or continued on the basis of a personal relationship, involving mutual confidence - this element will often be found where a pre-existing partnership has been converted into a limited company; (ii) an agreement, or understanding, that all, or some (for there may be “sleeping” members), of the shareholders shall participate in the conduct of the business; (iii) restriction upon transfer of the members’ interest in the company - so that if confidence is lost, or one member is removed from management, he cannot take out his stake and go elsewhere.”

It is in a company of such a character that, on equitable principles, it may be unjust, or unfair, to exclude a member from participation in the management. As Lord Wilberforce stated in a much-quoted passage (at 379A-D):

“The words [“just and equitable”] are a recognition of the fact that a limited company is more than a mere legal entity, with a personality in law of its own: that there is room in company law for recognition of the fact that behind it, or amongst it, there are individuals, with rights, expectations and obligations inter se which are not necessarily submerged in the company structure. That structure is defined by the Companies Act and by the articles of association by which shareholders agree to be bound. In most companies and in most contexts, this definition is sufficient and exhaustive, equally so whether the Company is large or small. The “just and equitable” provision does not, as the respondents suggest, entitle one party to disregard the obligation he assumes by entering a company, nor the court to dispense him from it. It does, as equity always does, enable the court to subject the exercise of legal rights to equitable considerations; considerations, that is, of a personal character arising between one individual and another, which may make it unjust, or inequitable, to insist on legal rights, or to exercise them in a particular way.

The House of Lords judgment in In re Westbourne Galleries Ltd concerned only the winding up provisions in what is now section 122 of the Insolvency Act 1986. But the same reasoning has been held to apply to the concept of unfairness in what is now section 944 of the Companies Act 2006, in the other leading House of Lords case in this area, O’Neill v Phillips [1999] 1 WLR 1092: see at 1099.

In their original defence to the petition, the respondents expressly admitted the allegation that the Company was operated by the members of the family as a quasi-partnership. By a draft amended defence served on 27 August 2009, the respondents sought to withdraw that admission and, after argument at the outset of this trial, I permitted that amendment and allowed the respondents to put this directly in issue.

However, on the evidence I have heard, I have no doubt that when it was established the Company indeed had the character of a quasi-partnership. At the outset, the shareholding was held virtually equally as between CJ, Dinesh and Ramnik: see paragraph 9 above. Although CJ said in his evidence that this was a mistake, that in providing for equal shareholding Ramnik acted contrary to his instructions, and that he did not appreciate what was being done at the time, I reject that evidence as untrue. The position was very clear in the initial minutes of the meeting of members of 2 March 1976, which approved the allocation of one share each, and the assertion by CJ that he did not appreciate what this meant on signing those minutes (apparently on the basis that he did not understand that the remaining 97 shares were not issued) is incredible, all the more so from someone who had studied accounting. Similarly, CJ would have been well aware of what was happening when the issued share capital was increased shortly afterwards and the resulting shares were allotted so as to give Dinesh and Ramnik 33 shares each and 34 shares for himself. Accordingly, I consider that it was clear to all, and their common intention, that these three brothers should have a relatively equal stake in the Company when it was established. And I note that when Deni-Cler was set up or acquired in about 1992, each of the four brothers on becoming a director was allotted one share, and there is no suggestion that this equality between them was yet another oversight on the part of CJ.

It is significant that in the early years the Company paid no dividends. The shareholding brothers accepted that all the Company’s earnings would be ploughed back into the business for which they were all working. And in the 2005 Judgment, Judge Howarth summarised, based on the evidence he had heard, the way the Company operated prior to the breakdown of relations in 2002:

“22.

… This was a company which conducted its affairs in an informal way. It is clear from the evidence that was called before me that the Company did not hold formal meetings or even formal director’s meetings in the sense that larger companies do. What happened from time to time was that matters to do with the business were discussed between the shareholding brothers and they would agree what needed to be done, and they would then go to either solicitors or accountants and get them to do the necessary paperwork for them, which would then be signed, they relying on their professional advisors to carry out their instructions in a way which would be legally effective.”

In short, this was very much, as CJ himself described it in his letter to the solicitors then acting for Dinesh, Ramnik and Mike on 22 November 2002, a “family business.” When the Company sought loan facilities from the Equatorial Bank in 1992, not only did CJ, Dinesh and Ramnik as directors give personal guarantees, but so also did some other members of the Shah family. And I regard it as significant that one of the stated purposes for which the loan was required was to purchase a home for Dinesh. I find that the Company was established on the basis of a personal relationship involving trust and confidence between the Shah brothers, and that from 1977 it was the understanding that the three shareholders, CJ, Dinesh and Ramnik, would as directors participate in the overall conduct of the business.

I should add that the fact that the Company has the character of a quasi-partnership of course does not mean that all the members were of equal status. As in a true partnership, one member may play a greater role. Here, I have no doubt that CJ was the dominant figure as a matter of personality and also, I suspect, in terms of industry and entrepreneurial skill. This is reflected in the fact that it was regularly agreed that he should be paid a higher salary than Dinesh and Ramnik (albeit that the degree of discrepancy between their respective salaries fluctuated significantly), and in the allotment of new shares in 1995, when it was agreed that the relative shareholding held by CJ, as compared to Dinesh and Ramnik, would be very substantially increased.

Mr Walker submitted that even if the Company had the character of a quasi-partnership in the earlier years, its nature changed in 2002 when CJ and the three other brothers fell out. He submitted, in essence, that by his stance supporting Mike’s claim to a shareholding from CJ, Dinesh effectively repudiated any prior relationship of mutual trust and confidence, and that that relationship thereupon came to an end. It is of course possible for the character of a company to change over time, and a business founded on personal relations between the members may develop into a “purely commercial” one. One party can make clear that he wants to end the quasi-partnership arrangement, such that he wants the relations between the members for the future to be governed only by the formal provisions of the articles. But Mike’s claim to a shareholding from CJ in 2002 and in the previous court proceedings, albeit mistaken, rested upon the assertion of a personal relationship between the brothers as regards the Company. And the fact that Dinesh (along with Ramnik) had joined in Mike’s claim which led to the breakdown in relations cannot, in my judgment be regarded as an indication that Dinesh wished to sever his interest and involvement in the affairs of the Company. Indeed, it was after the dispute had erupted that Dinesh was appointed chairman; and after the 2005 Judgment that Dinesh at the meeting with CJ put forward proposals as to how the affairs of the Company should proceed: paragraphs 49-51 above. Cp. Re Phoenix Office Supplies Ltd [2002] EWCA Civ 1740, [2003] 1 BCLC 76, where the court found that the petitioning shareholder had no interest in being involved in the management and was concerned only to secure the purchase of his shareholding and repayment of his personal loan.

Nor can it be the case that just because the relationship of trust and confidence in a quasi-partnership company breaks down, the company thereby cease to be considered a quasi-partnership for the purposes of the application of these provisions of company law. Were it otherwise, the position would be circular. It is a well-established ground for finding that the “unfair prejudice” jurisdiction is engaged that a member is excluded from management of a quasi-partnership company following a breakdown in trust and confidence. But if that breakdown were itself to deprive the company of its quasi-partnership character, then the subsequent exclusion could not on that basis be unfair. Here, Mr Hollington described the nature of the Company after 2002 as a dysfunctional quasi-partnership, and I think that is a fair description.

In the alternative, Mr Walker, supported by Mr McCormick, submitted that the understanding between the shareholding brothers was that they would share in the management only so long as they worked at the Company. Thus, once Dinesh stopped working after the end of July 2005 (as found by the Employment Tribunal), the Company either ceased to be a quasi-partnership or, put another way, there was no longer any equitable consideration that obliged CJ or the Company to allow him to participate in the management. Leaving aside the question whether the events of 29 July 2005 in themselves amounted to exclusion (which I address at paragraphs 110-120 below), I do not consider that in the present case there was an understanding that if a brother ceased to work as an employee at the Company he was no longer entitled to participate in the overall management. There is no suggestion that this was ever discussed, but I note that being an employee, a director and a shareholder did not go hand-in-hand. Mike worked at the Company from at least 1977, when he managed one of the shops in Greenford, but he became a director only in 1989; and he did not become entitled to any shareholding until Ramnik and Dinesh agreed to transfer part of their shareholding to him on 12 March 2005. His claim that he had long before been entitled to a shareholding was firmly rejected by Judge Howarth in the 2005 Judgment.

Exclusion

Once a company has the character of a quasi-partnership, the exclusion of one of the “quasi-partners” will engage the equitable considerations to which Lord Wilberforce referred. In the Westbourne Galleries case, two of the three directors (a father and son) used their combined majority shareholding to remove the third shareholder from his directorship. On the facts, it was made clear to the latter that he was no longer regarded as a partner but only as an employee. Although removed as a director in accordance with the articles, the conduct of the majority was held to be unjust and inequitable. And Lord Wilberforce made clear that the just and equitable provision is not confined to a case where the exclusion was made in bad faith, nor did it matter that the majority genuinely considered that the interests of the company were better served without the director who was excluded.

Westbourne Galleries was a case under the winding up provisions (Footnote: ⁶) but the House of Lords in O’Neill v Phillips [1999] 1 WLR 1092 held that its reasoning applied to the concept of unfairness in section 459 of the Companies Act 1985, the predecessor to section 994. Lord Hoffmann’s judgment (with which all the other Law Lords agreed) explained that the exercise of a power by the majority shareholder in a quasi-partnership company in a manner contrary to the understandings between the members at the time they entered into association, or subsequently, may be unfair for the purpose of section 459. And he gave as a further illustration (at 1101H-1102A):

“…some event which puts to an end the basis upon which the parties entered into association with each other, making it unfair that one shareholder should insist upon continuance of the association. The analogy of contractual frustration suggests itself. The unfairness may arise not from what the parties have positively agreed but from a majority using its legal powers to maintain the association in circumstances to which the minority can reasonably say it did not agree: non haec in foedera veni. ”

Later in his judgment, Lord Hoffmann referred to the case of exclusion and said that in such a case “it will almost always be unfair for the minority shareholder to be excluded without an offer to buy his shares or make some other fair arrangement.” He observed that the way the law operates is not very different from the Law Commission’s recommendation that for a private company where the shareholders are directors there should be a presumption that removal of a shareholder “as a director, or from substantially all his functions as a director” amounts to unfairly prejudicial conduct. And he stated: “the unfairness does not lie in the exclusion alone but in exclusion without a reasonable offer” (at 1107B-C). In practice, that meant that if the value was not agreed it should be determined by an independent expert.

In the present case, Mr Hollington submitted that the sequence of events of 26-29 July 2005 amounted to exclusion of Dinesh, since the discussions about sale of the shares and his removal as chairman and from the mandate were conducted by CJ, Mike and Ramnik behind his back. As set out above, I do not accept that Dinesh was unaware or uninvolved in what was going on. The offer to buy back the other directors’ shares was put forward to Dinesh as well, he initially expressed interest alongside his brothers; he knew how the price was arrived at; but, as set out above, he then decided not to proceed on that basis and wanted to have an independent valuation of the properties.

Nonetheless, the decision of the directors of 29 July 2005 has to be considered on its own terms. The fact that Dinesh was replaced by CJ as chairman cannot amount to exclusion. However, CJ was also made the sole signatory on the Company’s bank mandate, in effect removing Dinesh; and the treatment of Dinesh was underlined by the decision as set out in paragraph 4 of the Minutes: see paragraph 63 above. As the affairs of the Company had been conducted since the previous dispute with the mandate requiring two signatures for a cheque, this was a significant change. At the same time, CJ decided to move the Company’s accounts to HSBC, a decision that was not put to the directors and on which Dinesh was not consulted. He was also not asked whether he agreed to CJ’s daughter being appointed Company secretary in place of Ramnik, something that appears to have occurred without any formal decision by the shareholders at all, and he said in evidence that he was not happy about that. The inference from all this is in my view inescapable: once Dinesh decided he would not go along with Ramnik and Mike in selling his shares, CJ acted to remove from Dinesh substantially all his functions as director and to sideline him from overall decision-making regarding the business. That this was CJ’s intention is borne out by the emails he received from John Shea on 28 July, which refer to CJ having asked Mr Shea about the degree of control he had over the business; and how with his majority shareholding CJ could appoint new directors and “force through” any measure he wanted. As Mr Shea said in his evidence in answer to a question from the Court, “CJ wanted the freedom to run the business the way he wanted, unfettered by the worry of an unfriendly co-director on the Board.”

In fact, CJ took effective control initially without the appointment of any other directors, by removing the one distinct function exercised by Dinesh as co-signatory on the bank mandate, and by taking the other steps mentioned above regarding the bank and the company secretary without involving Dinesh. And when the accountants corresponded with CJ in October 2005 regarding the preparation of the accounts for the year ended 30 June 2005, it was CJ who instructed them that the property at 175 Commercial Road should be removed as an asset of the Company, without any discussion of this matter with Dinesh. When Dinesh then did not come in for work following the meeting of 29 July 2005, CJ sent him the letters to which I have referred and summoned him to a “performance review meeting”. Even making allowance for the frustration that CJ doubtless felt at Dinesh’s conduct in not turning up for work, I consider that Mr Hollington was correct in characterising CJ’s stance as treating Dinesh as a “mere employee”. Dinesh was indeed an employee. But having regard to the basis on which the brothers had established the Company, he was not just an employee. I find that once Dinesh decided that he would not join his brothers in selling his shares, CJ determined that he would nonetheless run the business without any involvement of Dinesh.

The issue of exclusion becomes even clearer once CJ determined that he would treat Dinesh’s letter of 18 November 2005 as constituting a resignation of his directorship as well as his employment. CJ appears to have adopted that stance from at least January 2006, since on 6 January 2006 he signed a form 288b notifying termination of Dinesh’s appointment as director, which form was sent by the accountants to Companies House on 13 February 2006. It was not in dispute that CJ did not treat Dinesh as a director thereafter. For example, Dinesh was not consulted over decisions whether to recommend a dividend. And although CJ’s daughter was treated as being appointed a director of the Company with effect from 25 July 2006, when a form 288a was signed by CJ to that effect, Dinesh was never consulted about this either as director or shareholder: there was no resolution passed approving her appointment.

In his evidence, CJ stated that, regardless of the shareholdings held by other members of his family, “for all intents and purposes, I was the business.” That is expressed in CJ’s witness statement to represent the position from the outset. As set out above, I reject that characterisation of the business in the earlier years. But I consider that this reflects the attitude that CJ adopted to the conduct of the Company’s affairs from at least 29 July 2005 onwards.

CJ did not at any time after 29 July offer to buy Dinesh’s shareholding whereas at the time of the discussions on price with Ramnik and Mike, CJ was not prepared to have an independent valuation of the properties as Dinesh wished. The exclusion of Dinesh without an appropriate offer to buy out his shares is in itself sufficient in my judgment to constitute unfair prejudice within established principles.

I should add that I have taken account of the possibility that the conduct of a petitioner can be such that his exclusion from the overall management of a company is not unfair. See per Nourse J in Re London School of Electronics Ltd [1986] Ch 211 at 222. But the same case makes clear that misconduct alone is not a bar to relief under section 994. Here, Dinesh clearly misconducted himself as employee, but I do not find anything in his attitude to the overall management of the Company that could justify his exclusion in the manner set out above.

Although exclusion was at the forefront of Dinesh’s case at trial, several other grounds were relied on with which it is necessary to deal.

175 Commercial Road

The leasehold interest in 175 Commercial Road was removed from the assets in the Company’s accounts for the year ended 30 June 2005 on the basis that a dispute between the Company and CJ regarding the ownership of this property had been settled in favour of CJ: note 15 to the accounts. Dinesh contends that this had not been agreed and that the removal of this asset, in the accounts that CJ approved and which was in favour of CJ’s personal interest, was accordingly unjustified. If that contention is correct, it would amount to unfair prejudice to Dinesh’s interest as a shareholder.

The background to this matter is as follows. The leasehold in 175 Commercial Road had been acquired by CJ with a mortgage in January 1976, before the Company was incorporated. Although CJ continued to be the party to the lease, the property was shown in the accounts of the Company from the outset as a fixed asset and the Company made the necessary payments on the loan. When the property was sub-let in the mid 1990s, the rent was received and retained by the Company and shown in the accounts as the Company’s income. But after the dispute between the brothers erupted, from December 2002 CJ kept the rental payments. In October 2004, at a directors’ meeting it was resolved that the Company should start proceedings against CJ for a declaration that the lease was beneficially owned by the Company and that it was entitled to the rents. That resolution was a majority decision by Dinesh, Ramnik and Mike. On 22 February 2005, such proceedings were duly commenced and, on 29 March 2005, CJ served a Defence and Counterclaim which appears (it was drafted by CJ without legal assistance and is not altogether clear) to seek reimbursement of all the rent retained by the Company.

On 8 July 2005, District Judge Avent in the Central London County Court made an order striking out CJ’s Defence and Counterclaim as inadequately setting out his case and ordered him to serve a fully particularised Defence and Counterclaim by 29 July 2005.

By this stage, CJ was legally represented in the proceedings. But in early July, discussions were also proceeding between CJ and his brothers regarding a buy-out of their shareholding. In the first two weeks of July, agreement was reached between Dinesh, Ramnik and Mike on the one hand (acting for the Company) and CJ on the other, that the Company would discontinue its claim and CJ would not pursue his counterclaim. Pursuant to that agreement, the proceedings were discontinued by consent. The issue between the parties in the present litigation is whether that agreement was only on a ‘drop hands’ basis (as Dinesh contends), or a full and final settlement compromising both claim and counterclaim (as CJ contends).

On 15 July 2005, a letter on the Company’s notepaper addressed to CJ and signed by Dinesh and Mike, stated (under reference to the County Court case number):

“We hereby wish to confirm that the proceeding we brought against Chandrakant Jeshang Shah is ceased with immediate effect and no further matter raised regarding this issue. We have informed our Solicitors to stop the proceedings and instruct the court accordingly. Our solicitors will confirm this in writing as soon as possible.”

A letter of the same date from CJ addressed to Ramnik, Dinesh and Mike stated simply:

“I hereby wish to confirm that once you have ceased your proceedings against me I will not put forward a defence and counter claim.”

Following a formal letter to them on behalf of the Company signed by Dinesh, Ramnik and Mike dated 21 July 2005, the solicitors acting in those proceedings for the Company wrote to CJ’s solicitors on 22 July 2005 stating:

“We confirm that we have been instructed to withdraw [the County Court claim]. We enclose Notice of Discontinuance and would be grateful if you could acknowledge safe receipt.”

When parties who have instructed solicitors reach a full compromise of the issues in pending proceedings, it is of course usual for the solicitors’ correspondence to make this clear. It may be observed that there is nothing in the brief solicitors’ correspondence at the end of the County Court proceedings (there are a few other letters to which I have not expressly referred) to indicate that this was a full and final settlement of the matter. Nonetheless, I have reached the conclusion that the parties did reach a compromise as regards the ownership of 175 Commercial Road.

Although the letter from the Company to CJ of 15 July is somewhat ambiguous, this was a laymen’s letter and the wording – “no further matter raised regarding this issue” – is more consonant with a final settlement than merely an agreement to drop the litigation. And there are two aspects of the surrounding circumstances which I consider strongly support that conclusion. First, there are the quotations for valuation of the properties. The estate agents’ letter to CJ of 10 June 2005 (i.e. before the agreement of 15 July) shows that in seeking a valuation of the Company’s properties CJ had included 175 Commercial Road; whereas the letter from another valuer to Dinesh on 19 July 2005 shows that Dinesh was now asking for valuation of the same properties except for 175 Commercial Road. I reject as unconvincing Dinesh’s attempted explanation of this as attributable to the fact that they knew the value of 175 Commercial Road and wanted to keep down the valuer’s costs: if that was so, this property would similarly have been omitted from the communication with the first valuer. The only material change in the short interval between the two communications was the agreement to withdraw the County Court proceedings. Secondly, there are the properties taken into account for the share valuation. On 25 July 2005, to assist in determining the price of the shares for the buy-back, CJ sent Mr Shea an email enclosing a breakdown of the valuations of the properties, and on that basis one of Mr Shea’s assistants sent back a tax computation the next day. These calculations were the basis on which the price of £103.50 per share was agreed by CJ with Ramnik and Mike. It is quite clear that those computations comprise the three other Company properties but not 175 Commercial Road. There is no reason why Ramnik and Mike should have agreed completely to omit 175 Commercial Road from the calculation if they considered that it was, or even was arguably, owned by the Company. Their conduct can be explained only on the basis that by the settlement of the County Court litigation they had agreed to accept that this property belonged to CJ.

That such a settlement was against the advice of the solicitors instructed by Dinesh, Ramnik and Mike is apparent from the solicitor’s letter to the three brothers of 22 July, stating:

“… I must reiterate that this course of action is against the advice I gave to Mike that this concession should not be given until such time as you have reached an accommodation with CJ in connection with all outstanding issues, including the costs in relation to the proceedings you brought against him and the future of the Company. Nevertheless, I understand your wish to see the ongoing litigation settled and I respect those wishes.”

Accordingly, I find that the claim regarding 175 Commercial Road had been settled on the basis that it belonged to CJ. The removal of the property from the Company’s accounts was correct and involved no unfair prejudice to Dinesh.

Dinesh contends that for CJ to have appointed Sheenal as the other director constitutes unfair prejudice because she was not independent of her father and was appointed only to consolidate CJ’s control of the Company.

In her evidence, Ms Sheenal Kothari frankly accepted that as director she does what her father tells her to do, and that decisions on dividends and salaries are effectively taken by her father with her signing approval when asked. However, Dinesh has no right as minority shareholder to have appointed a director who specifically looks after his interests. No authority was cited to me to suggest that it is in itself unfair prejudice if a director and majority shareholder exercises his undoubted power to appoint a second director who is not independent of him. If there is nothing in the decisions subsequently taken by the directors which constitutes unfair prejudice to Dinesh or even contrary to the best interests of the Company, I do not see that simply the appointment of Sheenal, who is clearly a woman of intelligence, to act as the second director can amount to unfair prejudice.

Although a dividend was declared for the year ended 30 June 2006, Dinesh did not receive any payment because the amount due to him was set-off against amounts claimed by the Company in respect of his expenditure on a Company credit-card. Whilst he complains of the non-payment in his petition, this was not pursued. The following year, a dividend was declared and it appears that Dinesh was paid. However for the year ended 30 June 2008, no dividend was declared, despite the Company achieving net profits of £202,906 which are similar to those of the previous year. Similarly, for the following year no dividend was declared.

The lack of dividends clearly impacts adversely on Dinesh. He points out that CJ and Sheenal continue to receive their salaries as directors, but I do not see how that is relevant since the aggregate directors’ remuneration shown in the accounts for 2007/08 is £53,750, which is considerably less than Dinesh, Mike and Ramnik decided to pay themselves in the years 2003/04 and 2004/05. The decision not to pay a dividend was explained by CJ as based on Mr Shea’s advice that since the allocation of the shareholding was in dispute (i.e. as between Dinesh and Mike), no dividend should be declared until the issue of the beneficial ownership of the shares had been resolved. It is not disputed that Mr Shea indeed gave that advice.

I find this rationale somewhat curious. There is no reason why a dividend could not have been declared in the usual way, and payment to Dinesh restricted to the shares that he unquestionably owned with the balance held in an escrow account pending resolution of the dispute. The fact that CJ acted in good faith, or upon Mr Shea’s advice, does not shield his actions from a finding of unfair prejudice. But the lack of dividends of course impacted as much on CJ himself. This is not a case where the majority shareholding director was using the profits of the company to boost his salary at the expense of dividends. Although I appreciate that Dinesh may now be dependent on such dividend income as he is not otherwise working, since the monies that would have been paid out have been retained in the Company, I doubt that this could here amount to unfair prejudice to the interests of the members generally. Moreover, since the only reason for the decision was the dispute regarding Mike’s shareholding, Dinesh has in effect been the cause of this decision by making a claim which I have held to be wholly unfounded. In those circumstances, it seems to me that any prejudice he has suffered cannot be characterised as unfair. But even if it could, the dispute over Mike’s shareholding has now been resolved by this judgment. There is no suggestion that CJ has resolved that the Company will not pay out dividends for the future. Thus even if there was a temporary element of unfair prejudice, it would not in my judgment form a basis for any relief.

Other matters

The other matters raised can be disposed of briefly. Complaint is made that the accounts show a debt of £1.6 million on a loan said to have been granted by CJ’s brother-in-law, without any documentation in support. Dinesh queries whether this is a bona fide loan and expresses concern that “the true financial position of the Company is not being shown in the accounts” (Petition, paragraph 70). However, when challenged about the inclusion of this in the accounts, Mr Shea explained that he had a document on the audit file that covered it and that he could not recall this loan ever being an issue. The document subsequently produced to the Court was a short typed letter signed by Mr Sobhagchand Shah on 29 March 1994 that appears to have been sent by fax to the accountants who acted as the Company’s auditors at that time. This letter confirms such a debt from the Company to him repayable on demand. CJ explained that the Company previously had a loan from the Equatorial Bank plc on which his brother-in-law was a guarantor and that when this bank went into administration and the loan was called in, his brother-in-law in effect re-financed the loan direct to the Company on an interest-free basis. There are documents from the bank supporting the first part of this account and I see no basis for doubting the second part.

Accordingly, it cannot be suggested that the arrangement is other than to the Company’s benefit, and there are no grounds for questioning the existence of the loan. Dinesh was content over many years to approve and, when asked, to sign the Company’s accounts that included this debt. He was co-signatory of a letter dated 29 April 2004 to the Company’s then accountants that expressly recited and confirmed this debt. The Company’s accountants from time to time have been satisfied that the loan is being properly shown in the accounts. There is no prejudice to Dinesh.

Dinesh alleges that insufficient steps have been taken by the Company to rent out the floors of 38/40 Commercial Road that the Company is not using, thereby depriving it of potentially valuable income. However, the evidence shows that the Company first tried to get planning permission to convert the vacant floors for residential use but its architect was advised that this would be difficult to obtain; and that since January 2006 the property had been marketed by estate agents in east London on behalf of the Company, but there was an excess of office space available in the area. However, the top floor is now let. There is nothing in this allegation which, although never abandoned, was not pursued with much force in the hearing.

The other allegations in the Petition of mismanagement of the Company by CJ are relatively vague and were wholly unsubstantiated. In my judgment, there is no basis for concluding that CJ (and Sheenal) are not conducting the affairs of the Company in its best interests and thus the interests of all the shareholders.

The order of Briggs J of 29 July 2009 provided for a split trial of the petition and that “any issues as to the relief to be granted … or as to the valuation of properties” should be tried separately. There was some discussion before me as to the precise scope of the present trial in the light of that order. However, it was in the end accepted that I should decide as much as can properly be determined on the arguments that I heard, and that it would be helpful if I expressed any views which I had reached as to relief, and which did not depend on questions of valuation on which further evidence would be needed.

Although the winding-up jurisdiction on “just and equitable grounds” and the jurisdiction to grant relief for “unfair prejudice” under section 994 operate in parallel, they are not co-terminous: O’Neill v Phillips at 1100A-C. Hence a case that justifies relief on the grounds of “unfair prejudice” may not justify the ‘death sentence’ involved in a winding-up. Similarly, the facts may warrant a winding-up order but not satisfy the test of unfair prejudice that justifies relief under section 994. See the recent decision in Re Neath Rugby [2009] 2 BCLC 427 at [101]-[108].

Moreover, the winding-up jurisdiction is discretionary. Here, I consider that the alternative remedy under the “unfair prejudice” provision of the Companies Act is available and provides an appropriate remedy in this case. CJ now holds two thirds of the shares in the Company which is trading profitably. I have not found any basis on the material before the Court to conclude that it is not properly managed. I do not consider that it is reasonable for Dinesh to be granted the extreme remedy of winding up the Company when provision can be made for the purchase of his shares.

As regards that jurisdiction under section 996 of the Companies Act 2006 (“section 996”), Dinesh seeks an order against both Mike and CJ. However, Mike resigned as director on 29 July 2005. On my factual findings set out above, the only respect in which it can plausibly be suggested that he was involved in conducting the affairs of the Company so as to prejudice Dinesh was his support for the decision at the directors’ meeting of that day. To that extent, I accept that he had a limited involvement in the matter. But he had nothing to do with the running of the Company thereafter, and it became abundantly clear during the hearing that the substance of Dinesh’s complaint was against CJ. Moreover, Dinesh was constrained to accept in cross-examination that he does not think it is realistic to expect Mike to be able to buy his shares.

The powers of the court under section 996 are broad. For the reasons set out above, I consider that it would not be appropriate to make an order that Mike should purchase all or any part of Dinesh’s shareholding.

In my view, the appropriate remedy is for an order for the purchase of Dinesh’s shareholding. I note incidentally that this corresponds to one form of relief sought by CJ by his own petition presented in July 2003 that was dismissed by Judge Howarth in the 2005 Judgment. But having regards to the terms of Briggs J’s order, I shall hear Counsel further on the specific question of relief in the light of this judgment.

For the reasons set out above, in action HC09C00950 Dinesh’s claim against Mike is dismissed. On 26 July 2005, the Company made an issue of bonus shares pro rata to the existing shareholdings. On the basis of my conclusions regarding Mike’s shareholdings, there can be no dispute that he is entitled to 1333 of the bonus shares issued to Dinesh. Mike is accordingly entitled to judgment on his counterclaim.

On Dinesh’s petition, his claim for a winding up under the Insolvency Act 1986 is dismissed. I find that he has suffered “unfair prejudice” within the terms of section 994 of the Companies Act 2006 and that it is appropriate to grant a remedy in terms of a purchase of his shareholding pursuant to section 996. It is not appropriate for an order in that regard to be made against Mike.

I shall hear Counsel for CJ and Dinesh after the delivery of this judgment to consider further directions for final determination of the question of relief.