Re Singh Brothers Contractors (North West) Ltd
| Jurisdiction | England & Wales |
| Judge | Judge Hodge QC |
| Judgment Date | 27 June 2013 |
| Neutral Citation | [2013] EWHC 2138 (Ch) |
| Docket Number | Claim No. 3MA30080 |
| Court | Chancery Division |
| Date | 27 June 2013 |
[2013] EWHC 2138 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
MANCHESTER DISTRICT REGISTRY
Manchester Civil Justice Centre
1 Bridge Street West
Manchester M60 9DJ
His Honour Judge Hodge QC
sitting as a Judge of the High Court
Claim No. 3MA30080
and
Counsel for the Claimant: Mr. Wilson Horne
Counsel for the First Defendant: Miss Elisabeth Tythcott
This is my extemporary judgment in the matter of Singh Brothers Contractors (North West) Limited — claim number 3MA30080. On 12 th February 2013, the claimant, Mr Sukhpaul Singh, issued a derivative claim form in the Manchester District Registry of the Chancery Division against his elder brother, Mr Satpaul Singh, and also the company of which they are both shareholders and directors, Singh Brothers Contractors (North West) Limited. The claim was said to be a derivative claim on behalf of the company under section 261 of the Companies Act 2006 against the first defendant, a director of the second defendant, for breach of director's duty, breach of fiduciary duty and breach of trust. The claimant sought orders for damages, an account, further or other relief and costs. The claimant also sought an order that he be indemnified out of the company's assets in respect of the legal costs of the derivative claim. It was said that the claimant expected to recover more than £800,000.
Accompanying the claim form were detailed particulars of claim settled by Mr Wilson Horne (of counsel) and verified by a statement of truth dated 22 nd January 2013 made by the claimant. Details of the shareholding in the company and the nature of its business were given in paragraphs 2 to 4. The company was said to have carried on business as specialist demolition contractors. As at 1 st September 1995, the claimant and his brother, the first defendant, were each said to have held 24 of the 100 shares in the company, with the balance being held by their mother, Mrs Harsharan Singh, holding 52 shares. By 31 st August 1998, however, the parties' shareholdings had changed such that the claimant and defendant each held 33 of the 100 shares in the company, with their mother holding the balance of 34 shares.
The mother died on 12 th January 2010. She was then 76 years of age. She left two wills — the earlier dated 17 th May 2007; the later, 5 th July 2007. The only material difference between the earlier and the later wills is that under the former, the mother's house fell to be divided equally between the claimant, the defendant and their two sisters, whereas under the later will the house was left to the first defendant alone. Neither will has been admitted to probate. The claimant and his two sisters have alleged in correspondence that the later will was procured by the undue influence of the first defendant. That will dispute is not before the court, but it is acknowledged by the claimant himself that it is the genesis of the present derivative claim. In paragraph 16 of his second witness statement, the claimant says that the first defendant is right to make the point that the reading of their late mother's will did change everything. It was at that juncture that the claimant put in hand investigations which have ultimately resulted in the instant litigation.
Paragraphs 5 to 10 of the particulars of claim deal with the direction of the company. The company's directors have always been the claimant, the first defendant and their mother; and she was the company secretary. It is said that the claimant has always had an onsite managerial and operational role within the company whilst the first defendant has at all material times had a management role and, as such, it was he who managed the company's accounts and other company formalities. It is said that it is the first defendant who has had exclusive responsibility for the preparation of accounts and company documentation, and that the claimant, as indeed his mother, were used to reposing trust and confidence in the first defendant as regards their financial affairs in the company, including their interests as shareholders and directors.
Paragraphs 11 through to 15 of the particulars of claim plead the duties owed by the first defendant to the company as one of its directors. Paragraphs 16 through to 26 address one of the two substantive heads of claim. That is the payment of what are said to have been unlawful and excessive dividends to the first defendant. Those paragraphs make it clear that the claim for payment of excessive dividends to the first defendant extends over the financial years of the company, eight in total, from the year ending 31 st August 2002 to the year ending 31 st August 2009. In that regard, it seems to me that paragraph 33(1) is in error in referring only to the accounting years ending 31 st August 2003 to 31 st August 2009, although the total claimed of £424,460 seems to me to be correct. When one looks at paragraph 18 of the particulars of claim and paragraph 24 of the claimant's first witness statement, it is clear that the complaint that is being made is not that the dividends themselves during those eight years were unlawful as such, but that dividend waivers, in reliance upon which they were paid, were ineffective.
At paragraph 24 of his first witness statement, the claimant says this:
"The conclusions of the accountants are that the company had profits available for the amount of dividends which were paid but only after I and our late mother had waived totally or partially our entitlement to dividends. If we had not waived the entitlement to dividends, the profits would not have been sufficient and the dividends would have been illegal. Further, the accountants state that, from the company records, it is clear that there were adequate available funds in the company's bank to make payments of the dividends actually paid, but only after I and our late mother had waived our entitlements, and had these dividend waivers not been obtained, the distributions could not have been made out of available profits and the company could not have afforded to make the payments without substantial borrowings in excess of £1 million."
The complaint, therefore, goes to the efficacy of the dividend waivers which were signed by the claimant and his late mother.
As to that, it is asserted in paragraph 17 of the particulars of claim that the dividend waivers were ineffective. In the case of the mother, it is said that that results from the application of the doctrine of presumed undue influence; in the case of the claimant himself, it is said that his signatures on dividend waivers arose by reason of an express misrepresentation on the part of the defendant that these were simply company documents that required his signature and that are said to have induced the claimant to sign the same. The claimant says that such representations were false in that the dividend waivers were in fact documents that potentially affected the claimant's interests as a shareholder of the company, and that they were made by the defendant fraudulently, or by him not caring whether or not they were true.
Prior to the issue of the instant litigation, the company's accountants had written to the solicitors acting for the claimant, Linder Myers, on 22 nd May 2012 (at page 302 of the hearing bundle). In that letter they said as follows:
"We do not understand your comments regarding the treatment of dividends in the accounts as being improper and illegal. The company had sufficient profits during the years in question to pay dividends and, as such, these are legal. On the other matter, we are somewhat perplexed as to how Sukhpaul Singh had no record of the dividends that were paid to his brother, as we have provided to him copies of dividend minutes and dividend waivers which have been declared over the years in question, and of which we enclose herewith a sample of the dividend waivers that were written and signed by Mr Sukhpaul Singh himself. In addition, he authorised and approved the annual accounts each year, which clearly state the amount of dividend paid."
Issue is not taken with that. Rather, what is said in Linder Myers's letter to the first defendant's solicitors, Slater Heelis, of 28 th June 2012 (at page B206 of the hearing bundle) is this:
"So far as any issue as to signing of accounts is concerned, that obviously will be a matter of fact to be determined. In that context, our client's evidence will be clear that he trusted his brother to manage the financial affairs of the company in an equal way, to their joint and equal benefit. His evidence will be that he was presented with documents and usually required to sign them immediately under the pretext of being taken to the accountants immediately. He was given no opportunity to peruse or understand the documents that he was signing. He trusted his brother to have acted truthfully and honestly throughout, and plainly that did not occur. This would address not only your comments to the effect that our client signed the documentation, but also any issues which you seek to raise in respect of limitation."
The second head of the proposed derivative claim is allegedly excessive remuneration. At paragraph 29 of the particulars of claim, it is said that, for the accounting years ending 31 st August 1997 and 31 st August 1998, the total amounts paid to the claimant and the defendant were £793,886 and, assuming that the remuneration had been paid equally between them, that the claimant and the defendant...
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