Ondhia v Ondhia

JUDGE DIGHT: This is an unfair prejudice petition brought under section 994 of the Companies Act 2006 in respect of FSC Andrews Ltd, which I will refer to as "the company", which traded as a pharmacy in Great Yarmouth. It was a family business. There were 75 issued shares.

The petitioner, who is the middle brother of a relatively extended family, had trained as a pharmacist. He held 25 shares in the company in his own name and was a joint owner with the first respondent of 25 shares.

The first respondent and the youngest brother in the family, also a pharmacist, was a director and secretary of the company holding 25 shares in his own name and 25 shares jointly with his older brother, the petitioner, as I have already mentioned.

The second respondent is the first respondent's wife. She was a director of the company.

The third respondent is the company, which of course plays no part in this application.

The oldest brother of the family, Mr Yashavantrai Ondhia, who is referred to in the evidence and the skeletons as "Yashu", as an accountant. At one stage, as I will come to in due course, he alleged that he was entitled to 50 per cent shares in the company and that the first respondent was entitled to the other 50 per cent. He had commenced proceedings in the Chancery Division in 2009, which I will refer to as "the 2009 claim", relating to the company, but they were ultimately compromised.

In those proceedings, Yahsu had claimed ownership of part of the shares in the company. There is one other member of the family who plays a role in this matter, although relatively minor, a gentleman called Narendra, a cousin, who had acted as the nominee for the petitioner and the first respondent, initially holding the jointly owned 25 shares with them. He emigrated to Canada, and when he did so, he transferred the shares into the joint names of the petitioner and the first respondent claiming not interest in them for himself. There is a detailed family tree in the bundle which I have had regard to.

By his petition, the petitioner seeks an order that the respondents purchase his shares in the company at a price determined by an independent expert. The first and second respondents say that the first respondent has already contracted to acquire all the petitioner's shares at an agreed price, or at least a price that could be determined by reference to a mechanism set out in a series of contracts made in 1986, 1992 and 1993. They say that as a consequence of those agreements, their beneficial interest in the shares has moved to the first respondent such that since 1993, he has been the sole beneficial owner of all the shares in the company.

The first respondent submits that since the unfair prejudice which the petitioner relies on allegedly took place after those agreements were entered into, the petitioner cannot be entitled to the relief which he now seeks.

The matters which the petitioner complains of are set out in paragraph 10 of the petition. They are first that on 19 December 2005, the first respondent caused the company to sell to him property at 156 King Street in Great Yarmouth, which is the trading premises of the company as I understand it, at an undervalue, and secondly, that between the end of the financial year 2008 and the company's financial year 2009, the first respondent caused the company to pay out a substantial sum of money in breach of his duties as a director such that the sums standing in the company's accounts for the two years reduced by £732,000-odd in cash and £711,000 held in shareholder's funds; the inference being, although it is not stated expressly, that the first respondent diverted those funds to himself or for his benefit. The petitioner therefore prays that his shares be purchased on the assumption that the company still held the property and held the funds.

The first respondent denies that the sale of the property took place at an undervalue and relies on a joint experts' report which was prepared in the course of the 2009 claim, which concludes that at the material time, the property was not worth more than the amount that was paid for it. He says that he has provided full accounts to the petitioner of the sums due to him under the three agreements, which show in fact that there is a substantial balance due to the first respondent, rather than the other way round, and the first respondent argues that account has never effectively been challenged. It is not agreed, but it has never been challenged.

In his petition, the petitioner makes no mention of the three agreements. Mr Parfitt for the petitioner does not deny the agreements, nor does he say that they are not binding on his client and the first respondent, but he contends that the purchase price for the shares has not been paid. As I have already indicated, the final sum due in respect of the purchase price is still in dispute.

Mr Parfitt says that the unpaid purchase price gives rise to an unpaid vendor's lien over the shares, by which the petitioner retains or has had granted to him by operation of law, a beneficial interest in the shares sufficient to give him locus in the proceedings. I note that is not how the position is put in the petition.

Before me is the first respondent's application by a notice dated 28 July 2015, first for summary judgment under Part 24 of the Civil Procedure Rules on the basis that the petitioner has no real prospect of succeeding in the claim because the petitioner had already sold his shares in the company to the first respondent before the matters complained of are said to have occurred; and/or secondly for an order that the proceedings be struck out pursuant to Rule 3.4 on the basis that they amount to an abuse of the process because the petitioner's claims in the shares should have been made in the 2009 claim, in which he could have taken part but declined to do so, and that the current petition ought not to have been brought to achieve the outcome which is now sought; and/or thirdly it is said there has been inordinate and inexcusable delay in bringing the proceedings such that they should be struck out.

The relevant factual background is that the company was set up in 1979 and the shares allotted in the way I have mentioned. It ran the business of the pharmacy at Great Yarmouth. Between 1979 and 1986 the petitioner and the first respondent also acquired and ran other businesses as a partnership.

The first agreement in time made by deed dated 21 October 1986. It is to be noted in clause 1 that there is what is effectively a recital stating, "These heads of agreement are intended to have legal effect."

The agreement provides that the petitioner was to sell 35 per cent of the shares (ie 70 per cent of his shareholding) in the various businesses, including those in the company, to his brother, the first respondent. Clause 6 contains a mechanism by which the assets of the business were to be valued and the purchase price of the shares was to be calculated. Clause 6 also contains provision for payment of the purchase price over a period of 24 months.

The evidence as to payment of the purchase price is not easy to understand. Yashu, in his witness statement in his 2009 claim, said that by February 1987, the petitioner had been paid £116,000. It was subsequently asserted that by 2000, the petitioner had been paid £490,000, a sum which exceeded any value which could have been placed on the shares in the business when calculated in accordance with clause 6.

The petitioner says, in paragraph 24 of his witness statement in opposition to this application, that the correct sum to be paid by way of purchase price has never been satisfactorily resolved, and he says that is why he continues to have a beneficial interest.

Just because there remains a dispute as to the precise sum to be paid does not mean that the agreements, and in particular clause 6, are uncertain. In my judgment, they contain a clear mechanism for calculating the sums to be paid, and the mechanism could have been used to ascertain the price had parties applied their minds to it.

The petitioner says, in paragraphs 25 to 27 and later in his current witness statement that he viewed the agreements simply as a means of generating funds. He complains about the way in which he was persuaded to enter into the agreements and he places a question mark over their efficacy. Nevertheless he does not pursue that latter issue on this application.

In 1992, there was a second meeting which resulted in the document referred to in the evidence as "The 1992 Minutes", by which the petitioner agreed to transfer his remaining 15 per cent of the shares to the first respondent by 31 July 1992. The agreement indicates that it was intended to be signed, although it was not in fact signed.

Reading the 1992 Minutes in the light of the 1986 agreement, it contains on the face of it a complete agreement for transfer of the whole of the petitioner's interest in the company in return for a price to be calculated pursuant to an agreed mechanism. It also provided for security to be given.

The 1992 Minutes were subsequently supplemented by a document referred to as "The 1993 Minutes" which resulted from a telephone meeting which took place on 8 February 1993. Those minutes recorded that some monies had already been paid to the petitioner, although nothing like the sum which Yashu had asserted in his witness statement which I have referred to earlier.

The agreement contained in or evidenced by the 1993 Minutes, of which I have been shown a signed copy, is premised on the basis that the 1986 and 1992 agreements were binding. Subsequently and in line with that position, the petitioner has relied on the agreements in correspondence as the basis upon which to claim the balance of the purchase price. See, for example, an e-mail that he wrote to Yashu and the first respondent dated 26 August 2002.

The point made by the petitioner in paragraph 45 of his witness statement in these proceedings is that the final accounts were never sorted out, not that the agreements for sale of the shares were not valid and binding agreements.

Moving on in the chronology, it was on 19 December 2005 that the company sold the property in Great Yarmouth to the first respondent at what has been alleged to be an undervalue of £200,000. Events then moved more slowly. The next significant event took place on 13 August 2007 when the petitioner wrote an email to his brother, the first respondent, in which he expressly relied on the validity of the agreements. In his e-mail, headed "Outstanding balance owed since the agreement was signed in 1993", he threatened legal action if the sums due under the agreements were not paid. That e-mail was written eight and a half years ago.

In 2008, the company ceased trading under a special arrangement and was wound up. The precise scheme is a slight mystery to me, but I am told that it is something like a members’ voluntary winding up, in which the members are paid the surplus when the business is wound up.

The following year, Yashu started the 2009 claim against the first respondent. Through those proceedings, Yashu sought an interest in the businesses, including the company, equal to the interest claimed by the first respondent; in other words he asserted that he and the first respondent were entitled to 50 per cent each. There was no suggestion in those proceedings by the brothers that the petitioner had any remaining interest in the company.

The petitioner's alleged position and the agreements which I have mentioned are referred to in the course of paragraphs 43 to 49 of the Particulars of Claim. The proceedings also raised in one way or another the allegation that the Great Yarmouth property had been sold to the first respondent at an undervalue and that there should be a proper account of the sums that were paid out from the assets of the company to the first respondent during the period now challenged by the petitioner.

In his defence and counterclaim, the first respondent asserted, as he does in the instant proceedings, that he had become the sole beneficial owner of the company. He denied the allegations against him in a very detailed way. There is no suggestion in his pleading that there was any interest in the shares which could be claimed by or for the petitioner.

The proceedings came on for case management. The court was plainly concerned about the potential interest of other members of the family, because the basis of Yashu’s claim was there was some type of family trust for the benefit of all members of the family in respect of the business assets.

Accordingly, the Deputy Master required notice of the claim to be served on various family members, including the petitioner. Paragraph 5 of the order dated 2 September 2009 provides:

Yashu's solicitors, McGrigors LLP, by a letter dated 17 September 2009, wrote to the petitioner serving the section 19.8 notice, saying, among other things, as follows:

It goes on to say that the petitioner was not a party to the proceedings. Then: "However, due to your family connection, the Court would like to be satisfied either that you do not claim any interest in the matters in issue in these proceedings or that, if you do claim any interest, you have the opportunity to assert this interest in these proceedings, should you wish to do so."

Skipping a paragraph:

The final paragraph noted that whether he appeared as a witness was entirely separate to whether the petitioner was to become a party to the proceedings.

It seems to me that that was a clear opportunity offered to the petitioner to assert, in those proceedings, the claim in respect of the beneficial ownership of the shares which he makes in the current claim. However he replied by an e-mail dated 12 November 2009, saying:

I do not need to determine whether a reservation can be made in that way, but on the assumption that it can, it seems to me that on a proper construction of that e-mail, the petitioner was purporting to reserve his rights to payment of the monies due in respect of the sale of his shares to the first respondent. He was not purporting to reserve his right to beneficial interest in those shares.

He then approved, so it is said, a witness statement in Yashu's claim which is dated 5 September 2010, but which was not ultimately signed by him. The correspondence at the time indicated that it had been approved and that a signed copy would be provided in due course.

Again in his witness statement, the petitioner repeated his decision that he did not want to become a party to the proceedings, underlining the fact that he was aware that that was a course which was open to him. In the body of the witness statement, he went further than he has in his current evidence, challenging the effects of the agreements which had been made, but saying that he had entered into them with a view to getting funds which he desperately needed at the time.

In other parts of the witness statement, he inferentially accepted that the agreements were valid and he did not assert that anybody other than Yashu and the first respondent had an interest in the shares in the company.

It was also in that witness statement that he specifically referred (at paragraph 198) to the two matters which he complains of in the petition, namely the sale of property at an undervalue and distribution of the assets of the company to the first respondent. It was shortly afterwards, on 15 October 2010, that the two experts appointed to advise the court on the value of the property came to the conclusion that in their view there had been no sale at an undervalue. That is only a matter of interest. It is not something which is in any sense determinative in the current proceedings, because no view has been formed about the reliability of that evidence.

On 9 November 2010, Yashu and the first respondent compromised those proceedings. All claims were dismissed and there were no orders as to costs. The company was shortly afterwards struck off the register again (having been restored for those proceedings) and has again been restored for the purposes of the current proceedings.

The last indication by the petitioner prior to the issue of the current proceedings that there remained any issues of contention relating to the shareholding in the company was a letter dated 8 August 2012 from a firm of solicitors called Desor & Co, written to the first respondent, who said they had been instructed by the petitioner:

The point being made in that letter was that the petitioner was looking for the payment for the balance of the purchase price of the property and the shares in the company.

I turn then to the two bases of the application; one of them splits into two separate considerations. Under CPR 24.2, I have to consider whether the petitioner has a real as opposed to fanciful prospect of success and whether there is any other compelling reason why the claim should proceed to trial.

The first respondent submits that the there was a binding agreement to purchase the shares, plainly intended to have legal effect, which has been relied on by the petitioner, the effect of which was to transfer the beneficial interest in the shares to the first respondent. Reliance is placed on the decision of David Richards J, as he then was, in the case of Baker v Potter [2004] EWHC 1422 (Ch).

Secondly, the first respondent submits that the allegations relied on in the petition postdate the share sale agreements and therefore cannot have caused the petitioner prejudice in any event.

Thirdly, it is said that the relief sought by the petitioner makes no sense because the first respondent has already entered into an agreement to buy the shares. The respondent submits that the petitioner’s real complaint is that there is an unpaid debt due by the first respondent to the petitioner, but it is submitted the petitioner has been paid in any event, the debt claim is probably statute-barred and the petition is the wrong mechanism for recovering it in any event.

The petitioner submits that there needs to be a trial of the claim so the court can explore the extent of the agreements and their proper construction and the consequences of them and make findings about the purchase price and the extent to which it has been paid. He submits that in the absence of agreement as to the purchase price, the beneficial interest in the shares has not passed to him.

Mr Parfitt however is unable to help me on what sum his client admits having received, nor does he say (as I have already recorded) that there were no agreements between the brothers or that they were not binding.

As to the benefit to his client in these proceedings qua shareholder as opposed to vendor of the shares, Mr Parfitt submits that an unfair prejudice petition can be used to protect interests beyond those of a mere shareholder and he drew my attention to Gamlestaden Fastigheter AB v Baltic Partners Ltd and ors Privy Council No 56 of 2005 on appeal from the Court of Appeal of Guernsey. The issue before the Board in that case is stated by Lord Scott in paragraph 3, as follows:

His conclusion appears at the end of paragraph 36 of the judgment, where he said:

My conclusions on the application for summary judgment are as follows

As I have already said, the agreements were in my judgment sufficiently certain to amount to enforceable agreements for sale of the shares and that is how plainly the parties have viewed and treated them. There was nothing further to be agreed as to the purchase price, although ascertainment of the precise sum to be paid remained outstanding. The agreements contained a mechanism for that sum to be determined.

In my judgment, the beneficial interest in the shares passed to the first respondent in tranches at the dates of the various agreements in accordance with the same line of reasoning as used by David Richards J in Baker v Potter. That case also concerned an unfair prejudice petition where there had been an agreement for sale of the relevant shares by the respondent to the petitioner.

In paragraph 2 of the holding, the learned judge is reported as saying:

In the course of his judgment, David Richards J plainly formed the view that the beneficial interest in the shares had passed at the point at which the agreement was made. As a result the relevant risk passed to the purchaser, and anything happening after the agreement could not be relied on in support of an unfair prejudice petition, see paragraph 113.

It seems to me that by parity of reason with what David Richards J said, the risk passed in this case at the latest in 1992/1993 such that any loss allegedly suffered by the shareholders by behaviour amounting to unfair prejudice after the contract to sell the shares had been entered into was not something which the vendor could properly complain of. If he had accrued rights which he was then deprived of, that might perhaps be a different matter, but no such accrued rights were claimed. The two matters complained of were raised some considerable time after the share sale agreements had been entered into.

It would in my judgment be entirely illogical for the petitioner as legal owner of the shares to have a continued interest in the conduct of the company, which has in any event been wound up and restored for this litigation for the purposes of section 994, after he has contracted to sell his shares for a consideration which is to be calculated by reference to a valuation of the assets of the company at the date of sale.

If what the petitioner really seeks is specific performance or payment of a debt or an account of what is due to him under the share sale agreements, then an ordinary claim outside the Companies Court is the appropriate route. In my judgment, it does not give him locus to complain about the management of the company after he has agreed to sell his shares. The petition cannot in my judgment be relied on to enforce performance of the agreements, and indeed, as presently drafted, it does not even refer to them.

Nor do I not accept Mr Parfitt's submission that the Baltic Partners case confers some type of locus on the petitioner in the instant case or carries him over the Part 24 test. In the Baltic Partners case, the petitioner had a legitimate interest in bringing the proceedings in respect of an insolvent company, not because it would receive any payment in its role as a member, which in theory gave him locus to bring the proceedings, but because he was also a substantial creditor of the company. The proceedings might have the effect of restoring funds to a company, which would then be paid out to the creditors. In my judgment, that is the context in which the decision of the Board has to be understood.

Drawing those threads together, the conclusion I have reached is that the petition therefore has no real as opposed to fanciful prospect of succeeding on this claim and there is no other compelling reason why the petition should proceed to trial.

I turn then to the second limb of the application under CPR 3.4, which gives the court the power to strike out a claim for abuse in a plain and obvious case. I have referred to number of authorities, the principal one being the decision of the House of Lords in Johnson v Gore Wood & Co [2002] 2 AC 1, where the leading judgment was given in the speech of Lord Bingham of Cornhill.

Having considered the rule in Henderson v Henderson, his Lordship looked at whether the jurisprudence had moved on and he went on to say at page 31(a) to (f) as follows:

The first respondent submits in this context that the approach on the issue of abuse I should take is a broad merits-based judgment; that I should keep an eye open for unjust harassment which would be occasioned by these proceedings if they were allowed to continue, and consider whether the claim could and should have been brought at an earlier stage, namely in the course of the 2009 proceedings.

He points out it does not matter that the 2009 claim resulted in a settlement rather than a judgment and he refers me to the decision of House of Spring Gardens v Waite [1991] 1 QB 241 and submits that the lack of privity between the petitioner and Yashu is not essential to an application of the abuse doctrine as explained by Lord Bingham, in which respect I was referred to the decision of the Court of Appeal in Aldi Stores Ltd v WSP Group plc [2008] 1 WLR 748.

The first respondent further submits that the petitioner ran an inconsistent case in the 2009 claim and/or stood by and did not advance his true case, despite having been offered the chance by the court to do so when the notice under CPR 19.8A was served, and that he has unreasonably delayed since then in doing so.

The petitioner submits that I should be wary of putting on one side the absence of privity between the petitioner and Yashu in the 2009 claim, that I should bear in mind that there was no judgment in that case and that the claim resulted in settlement rather than a judicial determination of the issues on the merits after trial.

It was submitted that the fault lies with the first respondent who failed to involve the petitioner in the litigation, and therefore in context it is not unfair for the first respondent to face this claim. It is said that in any event, the facts of the other set of proceedings and the alleged chance to join in does not mean that the current proceedings are abusive.

My conclusions are these:

First, one cannot escape from the fact that I have reached the view that the petitioner has no reasonably arguable case that he is the beneficial owner of these shares, which is the cornerstone of his case. However, for the purposes of this limb of the application I bear in mind that the petitioner still seeks a determination as to the beneficial ownership of the shares in the present proceedings; and he puts in issue here the (alleged under) value of the sale of the property and the propriety of distribution of the assets of the company, all of which were in issue in the 2009 claim.

There is no doubt in my judgment that the petitioner could have asserted his alleged interest in the 2009 claim, but has advanced no satisfactory reason as to why he did not do so. He was put to his election by service of the notice under CPR 19.8A and made a positive response. His positive response was not to claim a beneficial interest, as I construe his answer, but merely to reserve his right to claim the unpaid purchase price.

In my judgment, for the reasons given by Thomas LJ, as he then was, at page 765 of the Aldi case, he should be bound by that response.

One has to bear in mind that the petitioner ran an inconsistent case in the witness statement in the 2009 claim, albeit criticising the share sale agreements in the way I have described. He supported Yashu's case and asserted that Yashu was an equal owner of the businesses, leaving no room for him to enjoy an interest himself. There is no explanation now as to how these apparent inconsistencies with his present petition can be reconciled.

I bear in mind that the lack of identity of the parties in the two sets of proceedings is a powerful factor, but it is only a factor. I bear in mind that the 2009 claim resulted in a settlement rather than a judgment. But as Mr Twigger QC reminded me, it is an issue that Lord Millett dealt with in his speech in the Gore Wood case, in the following way:

He went on to say at page 60 the following: