Dinglis v Dinglis & Ors [2019] EWHC 1664 (Ch)

" … was and is that to the maximum extent possible the profits of the businesses should be reinvested for the long term benefit of the family and that drawings should be limited to what I considered to be necessary for a reasonably comfortable lifestyle."

"A. He had the right to make that decision because he was a director, but I didn't necessarily agree with it. Q. As you said before, you are the majority shareholder if you thought Paul was doing – an anathema to you, you could have said, 'Undo this or I'm going to call a shareholders' meeting', something you have described as a possibility before. 'I'm going to remove you as a director and I'm going to take over'. You didn't do any of those things did you? A. No, I didn't. Perhaps I should have done then."

"If you put somebody in charge, you must accept some of the things they do, whether they are right or wrong."

"When my father found out about the relationship in July 2006 he sacked me. I did not return to the office after this time"

"Mum may need to press ahead, you know that??"

"He’s sacked me to prove he’s in control, its (sic.) all twisted and bonkers."

"Paul: There's no money. Cheryl: Andane's got it for u. Hiding!!!."

"Look. You don't understand one little bit. Dad walked in and was going off about the money. Adane and I hid your money or he would have taken it. Stop and think for a sec Paul. You do not realise how bad I was today. Accusing u. He's been going through Larry's receipts, cheque books etc etc etc TOdAy (sic.)."

"Cheryl: I don't disagree with you and it is nasty what he done but we know that's how he is. All I can say is that u will be a director. Let me get the timing right. Mum u and I stuck together. Cheryl: Also, u know I was thinking. If we don't go along with it, he may bypass us in favour of those who have turned 18. It's 2 years away also when his son turns 18. Cheryl: I'm just trying to think for us. That's all. Cheryl: I wouldn't put it past him, would u? Cheryl: i.e., What if we don't go along with it and he uses Anthony for this plan and our dividends small!! Cheryl: Then in 2 years brings his son into it."

" … DML has been collecting all of the rental income for all of the properties owned by the family companies and … if it does not collect the rental income, then I don't … no income exists in terms of the way that that's passed on to any of us."

"I wholly reject every one of the allegations made by my father in paragraphs 33 to 42 in relation to impropriety with cash payments received by the companies. Any cash received by the company [i.e., DML] has been properly accounted for and either banked, declared as dividends, used to pay company outgoings, or used to return deposits to tenants" (My emphasis). iii) Given what is now known, that statement was obviously inaccurate. Rental cash receipts flowing into DML were not properly accounted for, in the sense that on any measure, there were material discrepancies in DML's books and records (both its statutory accounts and internal records) over a substantial period of time. Paul accepted as much, but when it was put to him that he must have known that his statement was wrong when made, said that he believed it was true because as far as he was concerned cash was being used in the business at the time, and " ... the use of the cash in the business … meant that it was actually being accounted for."

"I consider the figure of £25,000 per month as a likely figure for cash receipts to which my father refers at paragraph 35 to be utterly incredible." vi) In fact, if one takes the Upper Bound of the Cash Shortfall as correct, the figure (as Mr Hubbard pointed out in cross-examination) was a reasonably accurate one, over the fouryear period in question. Even taking the Lower Bound, one is still in a situation where substantial income is being received in cash each week, and so to describe Andreas' figure as "incredible" is unfair and inaccurate. vii) In his cross-examination before me, Paul's attempted explanation for his earlier evidence was confused and unconvincing. He sought to say that he thought Andreas was referring to payments received in June, i.e. a month at the end of a quarter, in which commercial rents were due, and that would have increased the rental income received. I do not understand the logic of that answer, as an attempted justification for the impression created by Paul's evidence that very little rental income was received in cash, when the agreed position now is that quite substantial sums were received in that manner. Mr Hubbard described Paul's answer as disingenuous, and I agree. viii) In a similar vein, in a Response to a Request for Further Information in the Chancery Action in October 2015, Paul and Cheryl said: "

“A member of a company may apply to the court by petition for an order under this Part on the ground— (a) that the company's affairs are being or have been conducted in a manner that is unfairly prejudicial to the interests of members generally or of some part of its members (including at least himself), or (b) that an actual or proposed act or omission of the company (including an act or omission on its behalf) is or would be so prejudicial.”

" PRINCIPLE 14—THE UNFAIR PREJUDICE REMEDY (1) To establish a claim under s.994, the aggrieved shareholder must demonstrate that (a) the affairs of the company in question have been conducted (b) in a manner which is unfairly (c) prejudicial to the interests of the petitioner or the shareholders generally. (2) Both element (b), i.e. unfairness, and element (c), i.e. prejudice, have to be established. Conduct may be unfair without being prejudicial, and vice versa. (3) As to (b), i.e. the requirement of unfairness: (i) the concept of unfairness, although objective in its focus, is not to be considered in a vacuum. An assessment that conduct is unfair has to be made against the legal background of the corporate structure under consideration. This will usually take the form of the articles of association and any collateral agreements and understandings between shareholders which identify their rights and obligations as members of the company; (ii) these are the terms upon which the parties agreed to do business together, which include applicable rights conferred by statute. The starting point therefore is to ask whether the exercise of the power or rights in question would involve a breach of these terms; (iii) these terms include, by implication, an agreement that any party who is a director will perform his duties as a director; (iv) these terms are subject to established equitable principles which may moderate the exercise of strict legal rights when insistence on the enforcement of such rights would be unconscionable; (v) agreements and understandings do not have to be contractually binding in order to be enforceable in equity; (vi) it follows that it will not ordinarily be unfair for the affairs of a company to be conducted in accordance with the provisions of its articles or any other relevant and legally enforceable agreement, unless it would be inequitable for those agreements to be enforced in the particular circumstances under consideration. Unfairness may, to use Lord Hoffmann’s words, 'consist in a breach of the rules or in using rules in a manner which equity would regard as contrary to good faith': see O’Neill v Phillips [1999] 1 W.L.R. 1092 HL at 1099A; the conduct need not therefore be unlawful, but it must be inequitable. Although it is impossible to provide an exhaustive definition of the circumstances in which the application of equitable principles would render it unjust for a party to insist on his strict legal rights, those principles are to be applied according to settled and established equitable rules and not by reference to some indefinite notion of fairness; (vii) to be unfair, the conduct complained of need not be such as would have justified the making of a winding-up order on just and equitable grounds as formerly required under s.210 of the Companies Act 1948; (viii) it is not enough merely to show that the relationship between the parties has irretrievably broken down. There is no right of unilateral withdrawal for a shareholder when trust and confidence between shareholders no longer exist. It is, however, different if that breakdown in relations then causes the majority to exclude the petitioner from the management of the company or otherwise to cause him prejudice in his capacity as a shareholder. (4) The court has a wide discretion with regard to the relief to be granted if unfair prejudice is made out, fashioning the remedy to the unfair prejudice which has been made out."

"A family company can be one in which such equitable considerations are present ... However, those considerations will not be present in every family company and something more is needed for them to be present than the ownership of the shares in a company by the members of the same family and more even than the mere fact that family members are officers of or employed by the company in question."(My emphasis). ii) The starting point, in a case where the parties have chosen to conduct their business through the medium of a company, is the company's constitution, including the articles. If the matter complained of was in accordance with the constitution, then the allegation of some inconsistent obligation or right needs to be carefully scrutinised: In re Saul D Harrison & Sons plc [1995] 1 BCLC 14 at 17-18, per Hoffmann LJ; Re Edwardian Group Ltd, Estera Trust (Jersey) Ltd v Singh [2019] 1 BCLC 171, per Fancourt J. at [127]. iii) Every director of a company is subject to the possibility of being removed as a director by ordinary resolution under section 168 Companies Act 2006. The right under section 168 has been described as "one of the most important rights given to shareholders": Palmer's Company Law, §8.1317. It enables the shareholders to assert themselves against the directors if needs be and makes it clear that the ultimate control is in the hands of the proprietors of the company: ibid., §8.1318. iv) If the conduct complained of is in accordance with the constitution, the burden is on the Petitioner (here, Paul) to show that the equitable constraints for which he contends do in fact apply. As to what the Petitioner must show, in Re Ringtower Holdings (1989) 5 BCC 82 Peter Gibson J put it as follows, at p.93: "

"Where the equitable considerations are said to derive from an agreement or understanding between the members of a company a degree ofprecision is required. The agreement does not have to have the degree of certainty which would be necessary for an agreement to be enforceable as contract but there must be 'a sufficient degree of agreement that it can besaid that there has been a breach of good faith in departing from it' (Khoshkhou v Cooper & others [2014] EWHC 1087 (Ch) per HH Judge David Cooke at 24)."

"The affairs of DPL are therefore properly to be regarded as having been conducted as a quasi-partnership between Andreas, Paul, Cheryl and Iris"

"As the Family Business began to grow rapidly during the course of 1989, Andreas (following discussions with Paul) decided that the business ought to be operated through a limited company. He therefore incorporated DPL". ii) §18: "

"At around this time [in 1998], Andreas began to harbour concerns … that liabilities incurred by DPL in the course of acting as landlord might ultimately be enforceable against its property portfolio. In order to meet this concern, Andreas procured DPL to enter into an arrangement with another company [DPSL.]" iv) §27: "

"In 2002, Andreas resigned as a director of DPL and started spending more time in Cyprus. However, he continued to be actively involved in theconduct of the Family Business."

"Andreas would, from time to time, giveinstructions regarding the management of DPL's loan liabilities. In or around 2006, Andreas contacted Paul by telephone from Cyprus on several occasions and stated that DPL's loans should be converted from sterling to yen. Paulfollowed this instruction and converted around 50% of DPL's loans into foreign currencies." vi) §39.7: refers, as part of Paul's case on the Understandings, to Andreas' own evidence in the Chancery proceedings that " … he was the boss and in overallcharge of the Family Business."

"No, what was ours was ours, and what was mine was again ours"

"Well, it goes back to what I had said before, that I never really wanted anything for myself as long, as I had a comfortable standard of living. I will not live for ever and I will not take anything with me, I -- like everybody else, so I felt as if I was creating everything for Paul and Cheryl and for other descendants that were to follow."

"Q. Yes, as a father and a husband and a member with a traditional mindset, your father always saw it as his obligation to provide for his family, didn't he? A. Yes."

“In practice it is likely that the adoption or rejection of Mr. Cawson's causal connexion requirement would make little difference to the outcome in most cases. This is because even if a petitioner's conduct were held not to be relevant to the fairness of an exclusion which it had not caused it would still be highly relevant to the question of the appropriate relief. In considering what relief is appropriate the court is then bound to look to the circumstances as a whole and a petitioner's conduct would be of great significance at that stage.”

" … having regard to [Andreas'] evidence as to what would be reasonable, [Paul] could honestly have expected to be generously remunerated, but that is very different from simply appropriating cash without accounting for it."

"A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as whole, and in so doing have regard (amongst other matters) to – … (f) the need to act fairly as between members of the company."

"Gatemark remained solvent on a balance sheet basis at all material times and, with funding from DPL, met its liabilities as they fell due"

"Q. Exactly. So Gatemark would take the money, develop the properties, make a decent profit, pay back DPL with, you say, 3.5% and would still have a significant profit left over. That's the idea? A.Yes Q. But did you ever address your mind to whether actually, as a director of DPL, that's a profit DPL should be making? A. My main consideration was to build up more assets for Gatemark, as I said before, in order to pay the loans, but I was reluctant to develop properties and sell in DPL because it was not completely my company."

"Q. Did you explain to your co-directors why you were doing it, because you hoped that Gatemark could use this money to make substantial development profits? A. No. I just informed the director I was making loans from DPL to Gatemark"

"Q. … You are making decisions and you are informing them, to use your words, of your decisions once they have been taken. That is right, isn't it? A. That is correct, but they could have said to me. 'No, I don't agree", and it is the same with Paul and Cheryl. Whatever I had told them, they agreed with me. They never raised any objections."

"The discussion was on how much I put into the companies at all times, and I said that even Dinglis Estates – when I was doing it in 2013/2014/2015, I was overlooking all the developments for Dinglis Estates, but I never received anything. But I had, I said, at a later time, a couple of years ago, decided that I should charge at least consultancy fees because without my consultancy fees the company would not be able to do any developments."

"Q. … but I think you'd accept that this is not as profitable a use of DPL's money as using it in its own business and that didn't bother you? A. Yes, but I considered the dividends and also the fact that there was money missing."

"The topic centred round all the dividends that I did not receive over the years and how I found myself now in a position where I had no money of my own, personally, and I needed to pay my ex-wife a large amount of money and there was no way for me to do it other than to borrow it from the company."

"Where the acts complained of have no adverse financial consequence, it may be more difficult to establish relevant prejudice. This may particularly be the case where the acts or omissions are breaches of duty owed to the company rather than to shareholders individually."

“ … the court will normally be very reluctant to accept that managerial decisions can amount to unfairly prejudicial conduct.”

“(1) If the court is satisfied that a petition under this Part is well founded, it may make such order as it thinks fit for giving relief in respect of the matters complained of. (2). Without prejudice to the generality of subsection (1), the court's order may– … (e) provide for the purchase of the shares of any members of the company by other members or by the company itself and, in the case of a purchase by the company itself, the reduction of the company's capital accordingly.”

"There is no allegation that Truchot knew of, let alone that it authorised, the alleged breaches of duty by Mr Gourgey. There is not even an allegation along the lines that Truchot ought to have exercised some supervision over the activities of the directors, that it failed adequately to do so and that such failure makes it fair and just for the court to grant relief against them."

" … a petitioning minority shareholder cannot fix a respondent shareholder with liability for a director's wrongdoings of which the respondent shareholder was unaware simply by asserting that, had they been aware of it and if they had been asked to take steps to remedy it, they would have refused to do so."

" … where a petitioner has acquired his shares as an investment without any entitlement to participation in the running of the company, as a general rule it will be appropriate to apply a discount, especially if the petitioner originally acquired the shares at a price which was discounted to reflect their minority status."

"Q. Hang on. This is your witness statement and this was signed off at the end of January this year. You say yougave them shares in DPL to provide them financialsecurity? A.Yes Q. Or sorry, with some security. I am asking you what thatmeans. You must have some idea what it means. You must have some idea of what the security you had in mind was? A. The security to the equivalent of 12% of the company'svalue. Q. Right. So if, for example, hypothetically the companywere to be sold to a third party. Say you decided you didn't want to do property investment anymore, and the company were to be sold to a third party, the moneywould obviously come into the shareholders. Your view is that Paul and Cheryl would be entitled to 12% of the proceeds of sale and that's what you mean by financialsecurity? A. That's right."