Tarlochan Singh Badyal v Malkiat Singh Badyal Santkh Singh Badyal Paramount Powders (UK) Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Justice McCombe,Lord Justice Simon,Lord Justice David Richards |
| Judgment Date | 08 October 2019 |
| Neutral Citation | [2019] EWCA Civ 1644 |
| Date | 08 October 2019 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A3/2018/1648 |
[2019] EWCA Civ 1644
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE,
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES,
BUSINESS LIST (ChD)
Mr Justice Henry Carr
HC-2016-00763
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice McCombe
Lord Justice Simon
and
Lord Justice David Richards
Case No: A3/2018/1648
In the Matter of Paramount Powders (UK) Limited
and
In the Matters of the Companies Act 2006 and the Insolvency Act 1986
Thomas Roe QC and Richard Ascroft (instructed by Kapoor & Co.) for the Appellant
Stuart Hornett and Sarah Walker (instructed by Shergill & Co.) for the First and Second Respondents
The Third Respondent was not represented
Hearing date: 11 July 2019
Approved Judgment
Introduction
This is the appeal of Mr Tarlochan Badyal (who throughout the proceedings has been called “TSB”, an abbreviation which – without any discourtesy being intended — I will adopt in this judgment). He appeals from part of the order of 19 January 2018 of the late Henry Carr J in the present proceedings relating to the Third Respondent, Paramount Powders (UK) Limited (“the Company”).
By the material parts of his order the judge declared that TSB had been validly removed as a director of the Company and he dismissed TSB's petition for the winding up of the Company, alternatively for relief under sections 994 to 996 of the Companies Act 2006. There were also partnership proceedings between the brothers which came before the judge at the same trial. Those proceedings have relevance to the matters before us but there is no outstanding appeal in respect of any of the judge's orders in that action. The judge further ordered that TSB should pay 95% of respondents' costs of each set of proceedings on the indemnity basis.
The detailed facts of the case are set out in the learned judge's very full and careful judgment to which the reference is [2018] EWHC 68 (Ch). It is unnecessary to rehearse very much of that detail again since, in my judgment, the important features of the proceedings are the manner in which the rival claims were formulated, the judge's overall findings on the principal factual issues in the case and his evaluation of those findings in the context of the claims made by the rival parties. I will, therefore, confine myself to a very brief summary of the background.
Background
TSB is the eldest of three brothers. His younger brothers are the First and Second Respondents to whom (like the judge – again, I hope without discourtesy) I shall refer as “MSB” and “SSB” respectively. The brothers came from India to the United Kingdom to join their father in 1976. In 1981 they began a business together trading in partnership. The first partnership was called Slough Plastics Company (“SPC”). The brothers were equal partners. The business was the manufacture of powder coating. (This is a material, as I understand it, which is applied to metal surfaces in dry powder state and forms a hard coating which is tougher, when applied to such surfaces, than conventional painted finishes.)
Also in 1981 the Company was incorporated. It too has carried on a business manufacturing powder coating. It seems that there was no evidence before the judge as to why the Company was formed to run in parallel with SPC. However, nothing turns on that. Each of the brothers held 25% of the shares, with the other 25% being reserved for their father as a token of respect. SSB and MSB became the directors. It was common ground, however, that the Company was treated as a quasi-partnership, to use the convenient (if not wholly accurate) phrase between them.
In 1990 the father moved to India. A farmhouse was acquired there for his occupation. In 1993/4 TSB also moved to India with a view to setting up and running a powder coating business. He lived at the farmhouse with his father but visited the UK regularly to be involved in the UK businesses. In his absence, MSB and SSB ran those businesses.
By 1996 or 1997 the Indian business had been incorporated, under the name Paramount Powders Private Limited (“Paramount India”). As the judge summarised it, other companies were established in India and other assets were acquired there. In the UK there were further acquisitions by the family, including a hotel, a public house and a number of residential properties. These properties were subsumed into the family partnership(s). The ownership of the Indian businesses and of some of the properties was in issue in the partnership proceedings.
Relations between the brothers became gradually more and more strained. The judge took the view that TSB, as the elder brother, regarded himself as the senior partner. The judge took a highly unfavourable view of the quality and veracity of his evidence. At paragraph 9 of the judgment, the judge said this:
“9. TSB is an imposing man with a very strong will. He holds a genuine (albeit misplaced) belief that, as eldest brother, he is entitled to more of the partnership and company assets than his younger brothers. He also believes that he was primarily responsible for the success of the family business. In my judgment, TSB exaggerated his contribution and minimised that of his brothers. When assessing his evidence, I bear in mind his limited English, and the poor state of his health during his cross-examination. Unfortunately, I have concluded that both in his written evidence and his oral evidence, he did not tell the truth about key issues in dispute.”
It should be noted that the reference to TSB's poor health is of some significance in the proceedings, since his health was such that he was unable to complete his evidence in court. It seems that he suffered a stroke outside court, at a time when his cross-examination was nearly complete. He remained in hospital for the residue of the trial.
Before litigation loomed, there were discussions between the brothers about splitting the business assets. The first “hostile” act, however, was taken by TSB by way of a letter before action from solicitors on 5 November 2014. In that letter TSB's solicitors asserted their client's entitlement to dissolve the partnerships and to have accounts taken and to achieve a distribution of assets. Regarding the Company, the solicitors complained about the incorporation of a further company called Paramount Powder Limited (“PPL”), with SSB as sole director, allegedly competing with the business of the Company in breach of fiduciary duties owed to the Company. The letter demanded that steps be taken against PPL, in default of which TSB would be entitled to bring derivative proceedings for passing off and for breaches of fiduciary duty. It was contended further that TSB was entitled to seek relief against unfair prejudice in the conduct of the Company's affairs. Absent a satisfactory answer, it was said, proceedings would be commenced.
MSB and SSB acknowledged the setting up of the new business which dealt in the raw materials/chemicals required in the Company's business. However, they denied that there was any breach of duty on SSB's part. Their case was that TSB was fully aware of the setting up of the PPL business and that he had agreed to it. In due course, after a careful factual review, the judge accepted that case advanced by MSB and SSB and he rejected that of TSB. In the meantime, however, before the inception of proceedings, to avoid confusion with the Company, the name of PPL was changed to AMJ Paint Limited (“AMJ”).
In about March 2015 MSB and SSB discovered that TSB's son, Sandeep Badyal, was involved in a business which was thought by them to be directly competing with that of the Company. The rival company was called Trident Powders Limited (“Trident”). MSB and SSB suspected that TSB was also involved in Trident's business. TSB denied involvement. This led to further enquiries by his brothers as to whether the denial was true. Gradually, as MSB and SSB were to maintain, certain matters emerged which suggested that TSB was indeed directly involved with Trident and was actively assisting his son in that business. At trial, the evidence included: (i) the supply of raw materials by Paramount India to Trident; (ii) the use of common professional advisers by TSB and Trident; (iii) the funding of Trident by TSB; (iv) his attendance at Trident's business premises; (v) his placing of orders for Trident at a Mitsubishi dealership; (vi) approaches made by TSB on Trident's behalf to machinery manufacturers; (vii) the engagement by Trident of two senior staff members of the Company.
While the judge rejected some other factors said to link TSB to Trident, he did accept that the evidence established TSB's connection with Trident in breach of his fiduciary duty to the Company.
I will return later to say a little more about the judge's conclusions on these matters after summarising the course of the two sets of proceedings up to judgment.
On 4 March 2016, TSB presented the petition in the proceedings relating to the Company, limiting the claim at that stage to relief under sections 994 to 996 of the Companies Act 2006. There was no claim for a winding-up order. In the petition, TSB alleged breach of fiduciary duty by his brothers in respect of the conduct of the PPL/AMJ business. He further alleged that, in 2010, SSB had used £20,000 of the Company's money to invest in a company called Jay Tees Limited and that his shares in that company had been sold for £40,000. It was said that SSB had failed to return either the £20,000 or to account for the profit made on the share sale. (This claim was later abandoned.) The petition also complained about alleged manipulation of the Company's payroll by SSB by altering the records to...
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