Estera Trust (Jersey) Ltd (formerly known as Appleby Trust (Jersey) Ltd) (a company incorporated under the Laws of Jersey) v Jasminder Singh

Hearing dates: 23–27, 31 January, 1–2, 5–9, 12–16, 19–23, 26–28 February, 1–2, 9, 12–14 March 2018

Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

THE HONOURABLE Mr. Justice Fancourt

This judgment has the following Parts, which I explain in more detail in Part I below:

I. Introduction (paras 1–21)

Part I. Introduction

A. Introduction to the issues

The Petitioners claim relief under sections 994–996 of the Companies Act 2006 on the ground that the affairs of Edwardian Group Limited (“the Company”) have been and are being conducted in a manner unfairly prejudicial to their interests as members of the Company. The relief principally claimed is an order that the First Respondent, Jasminder Singh (“JS”), or the Second and Third Respondents (“Verite” and “Jemma” respectively), or the Company, or all of them, buy out the Petitioners' shares at a fair price.

The Company runs a very successful business owning, developing and running hotels, principally in London. It was incorporated in 1977, originally for the purpose of acquiring and running a holiday let property in Kensington. It then switched its business to hotels in 1979. JS, who is a certified accountant, has been a shareholder and director of the Company since it was first acquired on behalf of the Singh family and is now and has for many years been its Chief Executive. The Second Petitioner is his younger brother, Herinder (“HS”). HS is 16 years younger than JS. He too has been a shareholder of the Company since 1977, and he was appointed a director in 1986 at the age of 19. He became employed by the Company in 1992, immediately after obtaining his chartered accountancy qualifications.

Despite successful growth of the business between 1979 and 1990, the Company very nearly foundered during the economic recession of the early 1990s. This coincided with the insolvency of a significant lender, BCCI, whose liquidator made an untimely demand for repayment of a loan of about £28m. The Company was eventually rescued with the support of other banks in 1993. As part of the rescue package, options to buy the banks' convertible preference shares were granted by them to Jersey discretionary trusts that had been created to hold those options. For tax reasons, the settlors who established the Jersey trusts were JS's and HS's parents, BM Singh and Satwant Kaur (“Mrs Kaur”). As will be described in detail later, it was JS who, with the benefit of professional advice, instigated the creation of the Jersey trusts.

The Company recovered and prospered. Between 1997 and 1999, those options were exercised by Verite – the original trustee of all the Jersey trusts – and further shares in the Company belonging to the banks were later bought back and settled on the same trusts.

The First Petitioner (“Estera”), Verite and Jemma are the current trustees of the Jersey trusts. The twelve trusts originally created were ‘divided’ in 1999 between trusts that the settlors wished to be regarded as principally for the benefit of JS's immediate family (“the Jasminder trusts”) and those that they wished to be regarded as principally for the benefit of HS's immediate family (“the Herinder trusts”). In 2005, by which time the relationship of JS and HS was very strained, BM Singh and Mrs Kaur appointed Estera as co-trustee of the Herinder trusts and Jemma as co-trustee of the Jasminder trusts. Verite resigned as trustee of the Herinder trusts in May 2008, leaving Estera as the sole trustee of those trusts. Verite and Jemma remain the joint trustees of the Jasminder trusts.

The ordinary shares in the Company at that time (and at all times since) have been held in the following approximate proportions:

There are other small shareholders.

The Fifth Respondents are the trustees of a relatively small number of shares in the Company that were settled by BM Singh and Mrs Kaur on ten trusts in 1989 (“the English trusts”). Most of these trusts are for the benefit of HS's family. Others are for the issue of JS and HS.

Verite and Jemma therefore have a large majority of the shares and have control of the Company in general meeting.

The matters about which the Petitioners principally complain, as the basis of the relief that they seek, are (in outline) the following:

i) The removal of HS as a director of the Company in 2009 and as an employee in 2010.

ii) Breaches of fiduciary duty by JS in relation to ‘corporate opportunities’ to invest in companies called Winchfern and Expotel. These matters occurred as far back as 1983 and 1991–4 respectively, but they have continued to affect the conduct of the Company's affairs.

iii) Non-disclosure by JS of his interests in Winchfern and Expotel, such that he remained (until 2005 and 2008 respectively) as a director in a position of conflict of interest and duty.

iv) The unfair way in which an investigation into Winchfern and Expotel was carried out and approved by the Company, resulting in a misleading report and recommendation to the shareholders in 2012.

v) Improper distribution of Company profits to JS through extraordinary and unreasonably high remuneration (in the years 2011, 2012 and 2014), in the absence of a proper policy to pay appropriate dividends to shareholders.

The Petitioners allege that although the articles of association of the Company permit the owner of at least 50% of the ordinary shares to appoint or dismiss a director with immediate effect by written notice to the Company, the shareholders (or at least the Singh family shareholders and Estera, Verite and Jemma) were bound by a fundamental understanding that JS, HS and BM Singh were each entitled to remain a director and participate in the management of the Company equally. In other words, the Company was – to that extent – a type of company loosely described as a “quasi-partnership”, where those shareholders (or all the shareholders) were bound by and had the benefit of an understanding between themselves that entitled each of them to be involved in running the Company's business in a way similar to the partners of a partnership. Where such an understanding is proved to exist, it gives rise to mutual equitable rights and obligations preventing the exercise of majority voting control in a way inconsistent with it.

On that basis – but only if such equitable rights can be established – the Petitioners complain that the exclusion of HS in 2009 and 2010 was unfair and prejudicial to their interests as members, both because HS was personally deprived of his right to participate and because the Herinder trusts lost their representation on the board of the Company. The impact of such prejudice is compounded to the extent that the Petitioners can establish that the Company is unfairly paying out profits of the Company by way of remuneration of directors and employees rather than as dividends for the benefit of all shareholders equally.

The history of the Company and its development over the years is important in establishing whether or not, at the relevant times, it was a “quasi-partnership”, such as to give rise to equitable rights and obligations between the Singh family shareholders (that is to say, the three adult male members of the family and the Jersey trusts) or between all the shareholders. In that regard, the Petitioners' case is that the Company from its inception, alternatively by no later than 1993, had that quasi-partnership character. Their alternative case is that by 2009, when HS was removed by Verite and Jemma, all the shareholders, without exception, had become bound by such equitable rights and obligations.

It is necessary to say something about recent litigation in this Court involving JS and HS.

B. The BM Singh Claim

The history of the Singh family and the Company has already been considered by the High Court in great detail. Findings of fact were made by Sir William Blackburne, sitting as a deputy judge of the Chancery Division, in previous proceedings started by BM Singh and Mrs Kaur against JS and HS in 2010 (“the BM Singh Claim”). Judgment was given in that claim on 8 April 2014. In it, Sir William describes the litigation as being “of a most unusual nature”.

The Singh parents claimed that, at all times since 1977,...