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	England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Kaneria & Anor. v Patel & Ors [2000] EWHC 1561 (Ch) (13 July 2000) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2000/1561.html Cite as: [2000] 2 BCLC 321, [2000] EWHC 1561 (Ch), [2001] BCC 692

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IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
In the Matter of GUIDEZONE LIMITED
And in the Matter of THE COMPANIES ACT 1985
And in the Matter of the INSOLVENCY ACT 1986

		CH 1999 . No 003356
		13 July 2000

Mr Justice Jonathan Parker:

INTRODUCTION

1. Before the court is a petition presented by Mr Surendra Kaneria ("Surendra") and his wife Mrs Tixa Kaneria, who are shareholders in a company called Guidezone Limited ("the Company"). By their petition they seek an order that the remaining shareholders in the Company, alternatively the Company itself, purchase their shares at a fair value to be determined by the court; and that in the case of a purchase by the Company the capital of the Company be reduced accordingly. This relief is sought pursuant to sections 459(1) and 461 of the Companies Act 1985, on the ground that the affairs of the Company have been conducted in a manner which is unfairly prejudicial to their interests. In the alternative, they seek an order under section 122(1)(g) of the Insolvency Act 1986 for the compulsory winding up of the Company, on the ground that it is just and equitable that the Company be wound up.
2. Pursuant to directions given by His Honour Judge Rich QC at a Case Management Conference held on 15 March 2000, the present hearing is limited to "issues of liability". It is common ground that the effect of that direction is that the valuation of the petitioners' shares in the Company, should an order be made for the purchase of those shares, is to be deferred to a subsequent hearing, but that all other issues are to be dealt with at this hearing.
3. The Company was formed in 1983 as a family company, with a view to the acquisition of a hotel in Bloomsbury then known as The New Ambassadors Hotel, but subsequently renamed The Ambassadors Hotel. Following its formation the Company acquired the hotel and has since then carried on the business of operating it. The Company has not engaged in any other business, and the hotel (and the goodwill associated with it) is its only substantial asset.
4. The issued share capital in the Company is £10,000 divided into 10,000 Ordinary Shares of £1 each. Surendra holds one share in his sole name and a further 2,499 shares jointly with his wife. So together they hold 25 per cent of the issued shares. A further 25 per cent of the issued shares is held by Surendra's brother Prakash Kaneria ("Prakash"), one share being held by Prakash in his sole name and a further 2,499 shares jointly with his wife Ranjan. A further 25 per cent of the issued shares is held by another of Surendra's brothers, Kiran Kaneria ("Kiran"), one share being held by Kiran in his sole name and a further 2,499 shares jointly with his wife Champa. Prior to his death on 30 December 1999 (after the commencement of these proceedings), the remaining 25 per cent of the issued shares in the Company was held by Keshavlal Patel ("Mr Patel"), the father of Surendra, Prakash and Kiran. As in the case of each of his sons, Mr Patel held one share in his own name and a further 2,499 shares jointly with his wife Keserben ("Mrs Patel"), the mother of Surendra, Prakash and Kiran. Mrs Patel is the sole beneficiary under Mr Patel's Will, and the sole executrix named in it, but she has not as yet obtained a grant of probate.
5. At all times from the formation of the Company until Mr Patel's death, the directors of the Company were Mr Patel, Surendra, Prakash and Kiran. On 4 February 2000, Mrs Patel was appointed a director of the Company in Mr Patel's place. Since then, the directors of the Company have been Mrs Patel, Surendra, Prakash and Kiran. From shortly after the formation of the Company until 13 December 1997 Surendra was managing director of the Company.
6. On 15 March 2000 Judge Rich QC appointed Mrs Patel to represent the estate of Mr Patel for the purposes of these proceedings. The respondents to the petition are thus Mrs Patel (both in her own right and as representing Mr Patel's estate), Prakash and his wife, Kiran and his wife, and the Company.
7. Prior to 1992 Surendra was in charge of the day-to-day management of the hotel. In 1992 he became seriously ill, and thereafter the day-to-day management of the hotel was undertaken by Prakash and another of Surendra's brothers, Dilip Kaneria ("Dilip"). By early 1996 Surendra had substantially recovered from his illness, but although thereafter he attended at the hotel on a part-time basis to assist in the running of the hotel, he did not seek to play any significant part in the day-to-day management of the hotel. Since mid-1997 he has not played any part in the management of the hotel. Thus, since 1992 the day-to-day management of the hotel has remained in the hands of Prakash and Dilip.
8. In the course of 1992, following discussions within the family, it was orally agreed that Dilip should have a 10 per cent interest in the hotel venture. The agreement was never reduced to writing, still less were any formal documents drawn up, and there is an issue as to the precise terms of the oral agreement. Surendra contends that the agreement was that on a sale of the hotel Dilip should receive 10 per cent of the net proceeds of sale; Prakash, Kiran and Dilip, on the other hand, contend that it was agreed that Dilip would take an immediate 10 per cent interest in the venture, not contingent upon a sale of the hotel. Hence there is an issue whether as matter stand, with the hotel unsold, Surendra should be treated as holding 25 per cent of the issued shares in the Company or only 22.5 per cent (i.e. 25 per cent of 90 per cent). This will in turn affect the value of Surendra's shares, should a buyout order be made under section 459(1). It has, however, been agreed that the issue as to the nature of Dilip's 10 per cent interest should be addressed at this hearing.
9. It is common ground that the hotel is an extremely valuable asset. In 1997 Surendra thought its open market value to be at least £10M; Prakash and Dilip thought it to be well in excess of that sum. Surendra has for some time wished the hotel to be sold, the net proceeds of sale distributed amongst the shareholders and the Company wound up. However, Prakash, Dilip and Kiran (and, before his death, Mr Patel) were not agreeable to that course. Their preference was to retain the hotel, at least for the time being, and to concentrate on increasing its trading profits. Hence they refused to accede to Surendra's wishes. It is this disagreement which has led directly to these proceedings. Surendra alleges primarily that in refusing to accede to his wish that the hotel be sold his co-directors (that is to say Prakash, Kiran and Mr Patel) conducted the Company's affairs in a manner which is unfairly prejudicial to the interest of himself and his wife. He complains that in consequence he and his wife are effectively locked into a company in which they have a substantial investment and from which they receive only modest returns.
10. The petitioners are represented by Mr Stephen Acton of counsel and Miss Miriam Stacey of counsel; the individual respondents by Mr David Mabb of counsel. The Company is not represented.

OVERVIEW OF THE PETITIONERS' CASE

11. Although both Surendra and his wife are petitioners, it is Surendra who makes the factual allegations on which the petition is based. In this sense, the effective petitioner is Surendra; there is no evidence that his wife played any part in the affairs of the Company. Accordingly for the sake of convenience I shall refer hereafter to Surendra as if he were the sole petitioner, but such references should, where appropriate, be taken as including a reference to his wife.
12. In order to place Surendra's allegations in context, it is necessary at this stage to provide a brief sketch of the family's business activities. I shall return to the factual history in detail later in this judgment.
13. In about 1976 Mr Patel, Prakash and Kiran entered into partnership together. The sole business of the partnership at that time consisted of a grocery shop in Acton. The following year (1977) the partnership acquired a supermarket in Holland Park. The Holland Park supermarket was run by Prakash, leaving Mr Patel and Kiran to run the Acton shop. In about 1979 Surendra joined the partnership. Shortly thereafter, the partnership acquired a second supermarket, in Lambeth, and the Acton shop was disposed of. The Lambeth supermarket was run by Surendra and Kiran. Following the disposal of the Acton shop, Mr Patel took no active part in the day-to-day running of the partnership businesses, although he remained a partner. In 1983 the partnership decided to branch out into running a hotel, and the hotel was acquired in the name of the Company. Surendra was primarily responsible for the administrative arrangements, including the formation of the Company. In addition, as mentioned above, the day-to-day running of the hotel was the responsibility of Surendra. In 1987 the Lambeth supermarket was sold, and in 1989 the Holland Park supermarket was sold. Following the sale of the Holland Park supermarket, Prakash joined Surendra at the hotel. Since 1989, the hotel has been the sole business of the partnership (albeit carried on by the Company).
14. Surendra's central complaint is that at a meeting which took place on 18 May 1997 the other directors of the Company (that is to say Mr Patel, Prakash and Kiran) refused to accept the principle that the hotel should be sold and the Company wound up. Surendra's primary case is that he has at all material times had a legitimate expectation that the hotel would be sold and the Company wound up at such time as he should determine, and that his wishes in that respect would override those of his co-directors: in other words, that he would have the final say as regards the sale of the hotel and the winding up of the Company. On that basis, he contends that the affairs of the Company have been conducted in a manner which is unfairly prejudicial to his interest and that of his wife, justifying a buyout order under section 461; alternatively, he contends that it justifies a winding up of the Company on the "just and equitable" ground, pursuant to section 122(1)(g).
15. Surendra puts his case in a variety of ways.

Case 1

16. Surendra's primary allegation that the initial understanding on the basis of which the Company and the hotel were acquired was that he would run the hotel as "his project", in the sense that he would have the final say on (among other things) the question whether, and if so when, the hotel should be sold and the Company wound up. He further alleges that the existence of this initial understanding was confirmed by his co-directors in March 1990, and again in March 1996, when (as he alleges) they acknowledged his right to insist upon the sale of the hotel and agreed that it be sold. He also relies, as further confirmation of this initial understanding, on the fact that the hotel was placed on the market for sale on a number of occasions pursuant to his wish that it should be sold. On that basis, he contends that since the acquisition of the hotel he has had a legitimate expectation that he would have the final say as regards the sale of the hotel and the winding up of the Company.
17. In his second witness statement, Surendra refers to what he describes as the "project system" in the following terms:

".... I do not deny that under the "project system" all parties stood to lose financially as a result of the decisions of one person. .... Moreover, it is not my case that we would not consult with each other and, obviously, the hotel being a larger project with more scope for decision-making than the supermarkets, as I have always accepted I would and did discuss matters widely with the rest of the family. It is just at the end of the day in the event of disagreement ultimately decisions were mine to take, and I could thus overrule the rest of the family, which they accepted .... Ultimately, in the event of a clear and unresolveable conflict between the project undertaker and the rest of the family, I think we would all have accepted that the matter would have to be finally resolved by one side buying the other out on a pro rata basis. It is the [individual] Respondents' refusal to agree to this now that has resulted in us being where we are. But, failing any such agreed buy-out, the position remained that any project undertaker had the ultimate right to take all decisions, and this remained the case as regards the hotel."

18. In cross-examination, however, Surendra qualified this description of the so-called "project system", accepting that in relation to a number of matters affecting the hotel he would not have the final say. However, he continued to maintain that it was understood that he would have the final say on the question of the sale of the hotel. In the light of this evidence, Mr Acton in his closing speech put forward a correspondingly qualified version of the alleged initial understanding.

Case 2

19. Surendra alleges in the alternative (that is to say, assuming that there was no such initial understanding, and consequently no legitimate expectation, ab initio, that Surendra would have the right to insist upon the hotel being sold and the Company wound up) that he has had such a legitimate expectation since March 1990, when (as he alleges) he demanded that the hotel be sold and the Company wound up and his co-directors acknowledged his right to insist that that course be taken, and agreed that the hotel should be sold.

Case 3

20. In the further alternative Surendra alleges that his legitimate expectation as to the sale of the hotel and the winding up of the Company dates from March 1996, when (as he alleges) following disputes which had arisen between him and his co-directors he demanded that the hotel be sold and the Company wound up, and his co-directors once again acknowledged his right to insist that that course be taken, and agreed that the hotel should be sold.

Case 4

21. In the further alternative, Surendra puts his case on something of a "catch-all" basis. Thus, he alleges that even if there was no such initial understanding as alleged in Case 1, and no such acknowledgements or agreements as are alleged in Cases 2 and 3 respectively, nevertheless there was in practice little or no chance of his recommendations concerning matters affecting the hotel (including the matter of the sale of the hotel) not being accepted by his co-directors, or of his decisions on such matters being overridden by his co-directors, and that he has throughout proceeded on that basis. He also relies on this connection on a number of other aspects of the factual history since the acquisition of the hotel which I shall identify later in this judgment, including the complaints made under Cases 5 and 6 (below). He contends that, taking such factors together and looking at the entirety of the factual history, a case is made out for a buyout order, alternatively for a winding up order.

Case 5

22. Surendra complains of what regards as the low level of returns to the directors/shareholders. He alleges that his co-directors' policy of funding substantial bedroom refurbishments out of revenue was uncommercial and unrealistic, and contributed to the low level of returns.

Case 6

23. Surendra complains of the failure of his co-directors to procure the Company to repay loans made to the Company out of partnership funds (i.e. funds representing the balance of the proceeds of sale of the two supermarkets) until after the commencement of the present proceedings. He submits that the non-repayment of what I may call the partnership loan became particularly unfair once he had made it clear that he no longer wished to continue with the Company but instead wished the hotel to be sold and the Company wound up, alternatively that his shares be bought out.
24. Surendra also complains of the failure of his co-directors to procure the repayment of loans made to the Company by the directors until after the commencement of the present proceedings.
25. In the case of both the partnership loan and the directors' loans, Surendra complains that his co-directors' failure to procure their repayment left him in the position of an involuntary lender.
26. Cases 5 and 6 are "free-standing", in the sense that Surendra contends that each of them, if made out, justifies the relief he seeks.

THE EVIDENCE

27. I heard evidence in support of the petition from Surendra, from Mr Per Lindsten (who was the General Manager of the hotel from 1983 until February 1991), and from Mr. H Marshad Sadhu (who was employed at the Lambeth supermarket from 1979 to 1981, and at the hotel from 1983 until 1987).
28. I heard evidence in opposition to the petition from Prakash, from Kiran, from Dilip, from Mrs Patel, and from Mr Alex Apostolakos (who has been employed at the hotel since December 1994, initially as Deputy General Manager and since November 1996 as General Manager).
29. Inevitably, given the wide-ranging nature of the factual issues, the principal witnesses were the four brothers, Surendra, Prakash, Kiran and Dilip. Mrs Patel was not in a position to give very much direct evidence on relevant issues, and the evidence of Mr Lindsten and Mr Sadhu was of little more than peripheral relevance. The evidence of Mr Apostolakos was of direct relevance, but in relation only to one particular aspect of the factual dispute (viz. certain complaints made by Surendra of the way he was treated when he attended at the hotel after his recovery from illness).
30. Given that the factual history explored in evidence extends as far back as the 1970s, it is only to be expected that recollections of relevant events may differ to some extent, due simply to the passage of time; and in the case of each witness I make full allowance for that. Similarly, I make allowance for the fact that evidence as to the alleged understandings and intentions of others will inevitably be affected by subjective perception.
31. So far as Mrs Patel, Mr Lindsten and Mr Sadhu are concerned, I am satisfied that they were honest witnesses, doing their best to assist the court to the best of their recollection (in the case of Mrs Patel, under particularly difficult circumstances, in that she had to give her evidence through an interpreter). I reach the same conclusion in relation to Mr Apostolakos. I found Mr Apostolakos to be an impressive witness. He gave his evidence in a confident and straightforward manner, and I have no doubt that he was telling the truth, and that his recollection is sound. I have no hesitation in accepting his evidence as entirely reliable.
32. I turn next to the main protagonists: the four brothers.
33. Surendra is about 50 years of age. He is well-educated, intelligent and articulate. His English is fluent. On the other hand, his general health has plainly been affected by the serious illness (leukaemia) which he suffered from 1992 to 1996, and in the circumstances it was not in the least surprising that over the course of a long cross-examination (extending over four days) he should show signs of fatigue. That said, however, I am satisfied that his recollection of events has become significantly distorted over time. This may well be due in part to this illness. Equally, however, I have no doubt that a further contributory cause of such distortion is his genuine feeling that his family has treated him unfairly in refusing to accede to his wish that the hotel be sold and the Company wound up. Although I acquit him of any intention deliberately to mislead the court, I am in no doubt that many of the complaints of unfair conduct which he now makes are the product of an unwitting reconstruction of events, in which incidents have been exaggerated and magnified out of all proportion, and accorded a significance which they simply did not have at the time. In other respects, and more seriously, I am satisfied that Surendra's distorted recollection has led him to give evidence of understandings which never in fact existed. This is illustrated most clearly by the inconsistency between his evidence in chief as to the so-called "project system" (as set out in his witness statements, and in particular as explained in the passage from his second witness statement quoted earlier) and his evidence under cross-examination, when, as already mentioned, he accepted that in relation to a number of matters relating to the hotel it was understood that he would not have the final say.
34. These conclusions are consistent with the fact that since the petition was first presented Surendra's case has substantially changed (Mr Acton prefers the word "evolved"). Thus, and by way of example, the petition in its original form alleged that the parties had agreed at the outset that they would improve the hotel and then sell it: a substantially different understanding to that which is now alleged in Case 1. No reference was made in the petition as presented to the so-called "project system", or to any understanding that Surendra should have the right to insist that the hotel be sold and the company wound up. By way of further example, the petition as presented alleged that it had also been agreed at the outset that Surendra would be the sole executive director, but that on his return to the hotel in 1996 following his illness he was effectively excluded from the management of the hotel. However, Surendra does not now found his case on any allegation of exclusion; rather, his evidence is to the effect that in the circumstances he was left with little choice but to take no further part int he management of the company.
35. In the circumstances, and for the reasons I have given, I take the view that I must treat Surendra's recollection of relevant events and understandings with very considerable caution.
36. I turn next to Prakash, Kiran and Dilip.
37. Prior to the present dispute, relations between members of the Kaneria family were very close indeed, and there was a strong bond of loyalty between them. Surendra's decision to commence the present proceedings has inevitably fractured that bond, causing a split in the family coupled (no doubt) with serious damage to relations between him and the other family members. That being so, I have to take account of the risk that feelings of common loyalty, coupled with resentment against Surendra, may have unwittingly led his brothers to exaggerate or otherwise embellish their evidence. I am satisfied, however, that that did not occur. On the contrary, each of Prakash, Kiran and Dilip gave his evidence with commendable restraint, exhibiting an instinctive (and laudable) reluctance to criticise Surendra.
38. Prakash is two years younger than Surendra. He is also a much fitter man. Like Surendra, Prakash is well-educated, intelligent and articulate, with a good command of English. Like Surendra, Prakash was subjected to a long and searching cross-examination. In the course of his cross-examination of Prakash, Mr Acton was able to establish (and Prakash admitted) that in a number of respects his recollection of events as set out in his witness statements was either unclear or faulty. As I have already observed, in itself this is not particularly surprising given the length of time which has elapsed. At the same time, it is a fair criticism of Prakash's evidence that in a number of respects he felt able to give evidence in his witness statements on the basis of what appeared to be a clear recollection in circumstances where (as he later frankly admitted) his recollection was by no means clear. On the other hand, and in contrast to Surendra, I am satisfied that Prakash's recollection has not been distorted by the present dispute. I am satisfied that Prakash was an honest witness, who was concerned throughout to assist the court by giving his evidence fairly and according to the best of his recollection.
39. Kiran is the eldest of the four brothers; he is now about 52 years of age. Unlike his three younger brothers, he has not had the advantage of a full education. Nor is his command of English anything like as good as that of his brothers. In consequence, reading the lengthy witness statements in this case does not come as easily to him as it does to his brothers. Notwithstanding these limitations, however, I found Kiran to be an honest and careful witness, concerned to give his evidence fairly and accurately to the best of his recollection. Mr Acton submits that in one particular respect (relating to Kiran's evidence of property acquisitions which he has made on his own account) his evidence is self-evidently incredible, and that on that account alone his evidence as a whole should be discounted. I do not accept that submission. I found nothing self-evidently incredible in Kiran's evidence; on the contrary, I am satisfied that in general his evidence may be relied upon.
40. Dilip is the youngest of the four brothers; he is now about 42 years of age. His English is completely fluent. He has an impressive educational and academic record, which was reflected in the way he gave his evidence. I found him to be a most impressive witness. He answered the questions put to him thoughtfully and carefully; and when he could not remember a particular event he said so frankly. I have no doubt that in giving his evidence he was concerned to do so honestly and fairly, according to the best of his recollection; and that where he was able to recollect an event his recollection of that event is sound and reliable.

THE FACTS

41. I now turn to the detailed factual history.

Early history

42. The Kaneria family is an Indian family. From about 1952 onwards, Mr and Mrs Patel were living in Mombasa, Kenya, where Mr Patel ran an import agency. From about 1965 onwards, Kiran helped Mr Patel in his business. In February 1968 (when Kiran was aged about 20, Surendra about 18, Prakash about 16 and Dilip about 10), the family moved to the United Kingdom. By that time Mr and Mrs Patel had two further children, twins named Hasu and Madhu. Hasu and Madhu play no part in the story for present purposes.
43. After a short time, Mrs Patel returned to Kenya with Hasu and Madhu, followed shortly thereafter by Mr Patel and Kiran. Kiran had found difficulty finding work in the United Kingdom, and on his return to Mombasa he resumed working in Mr Patel's business. In the meantime, Mr Patel bought a house at 26 Clifton Avenue, Wembley, in which Surendra, Prakash and Dilip lived. About a year later (that is to say, in about 1969) Mrs Patel returned to the United Kingdom with Hasu and Madhu, joining the three brothers at 26 Clifton Avenue.
44. In 1971 Surendra commenced a pharmacy course, but left after a year and took a year "out". From 1973 to 1976 he studied for a pharmacy degree at Sunderland Polytechnic.
45. In about 1972 Mr Patel decided to wind up his business in Mombasa and move to the United Kingdom. Kiran remained in Mombasa for about six months to complete the winding up of the business, before following Mr Patel to the United Kingdom in about February 1973.
46. Soon after his arrival in the United Kingdom, Mr Patel bought a small grocery shop in Acton. The shop traded under the name "Patsons". Surendra assisted in the shop until Kiran returned from Kenya. On his return, Kiran took over from Surendra and thereafter Mr Patel and Kiran ran the Acton shop together, with occasional assistance from Surendra.
47. Surendra contends that the Acton shop was Mr Patel's "project", in the sense that it was always accepted that he would have the final say as to how the shop should be run and when it should be sold. The accounts of the shop are drawn on the basis that it was run by Mr Patel and Kiran in partnership, Mr Patel being entitled to 75 per cent of the profits and Kiran to the remaining 25 per cent. However, in evidence Kiran said that at the time he gave no thought to the question whether the relationship between himself and his father in running the Acton shop might constitute a partnership in any formal or legal sense, and that he paid little regard to the 72/25 split shown in its accounts. So far as he was concerned, he and his father were running the shop together; and although in practice in played a greater part in the day-to-day running of the shop than his father (due principally to the fact that his father's English was poor), decisions concerning the shop were always joint decisions, reached by agreement between him and his father. He accepted, however, that he would respect his father's views and that if they had disagreed on any matter concerning the shop he would have deferred to his father's wishes.
48. There was accommodation over the Acton shop, into which the family moved. Following the move, Mr Patel rented out part of 26 Clifton Avenue, retaining the remaining part.
49. In 1976 both Surendra and Prakash married, and Surendra graduated as a pharmacist. The following year, Surendra's first child was born. At that stage, there were no less than 13 people living over the Acton shop. At the end of 1977 Surendra and his wife and child moved to the unlet part of 26 Clifton Avenue. Shortly thereafter, Dilip and Hasu followed.

Prakash joins "the family business"

50. Also in 1976, Prakash, who had recently graduated with an Honours degree in engineering, joined Mr Patel and Kiran in "the family business". I use that expression in the sense in which it has been used in evidence in this case, that is to say as referring not to a particular business (such as the Acton shop) but rather to an agreement between members of the family to carry on, in equal partnership together, such business or businesses as they should from time to time decide to carry on.

The purchase of the Holland Park supermarket

51. Since the day-to-day running of the Acton shop required only two people, on Prakash joining the family business it was decided to expand the business by purchasing a supermarket, to be run on a day-to-day basis by Prakash. Accordingly, in about August 1977 the Holland Park supermarket was purchased, and responsibility for the day-to-day running of it was entrusted to Prakash.
52. By this time, Surendra was in the course of a one-year internship at Boots Chemists, training as a pharmacist.
53. Surendra gave evidence that Kiran wanted to run the Holland Park supermarket, but that Prakash insisted that it was his project and that it was run his way, and that this was eventually accepted by Kiran and the other members of the family. I reject that evidence. I accept the evidence of Prakash and Kiran that Kiran never suggested that he, rather than Prakash, should run the Holland Park supermarket. I find that the decision that Prakash should run the Holland Park supermarket was a joint decision by Mr Patel, Kiran and Prakash. The reason why Prakash was given this responsibility was, as Kiran said in evidence, that Kiran already had enough to do at the Acton shop, in addition to buying and arranging deliveries of stock for both the Acton shop and the Holland Park supermarket. I further find that Prakash regarded the Holland Park supermarket not as "his project" in the sense in which Surendra uses that expression, but as an additional branch of the family business for the day-to-day running of which he was responsible, but that subject to that all decisions in relation to the Holland Park supermarket were to be decided by the partners. Prakash's understanding in relation to the Holland Park supermarket was, as I find, shared by both Mr Patel and Kiran.
54. In his first witness statement, Surendra says, with reference to the Holland Park supermarket, that:

"... the principle established was that the profits of any project would be shared equally between the partners, but each partner would have the ultimate say as regards his own project."

Surendra then goes on to give a number of examples of situations in which (as he would have it) Prakash's views concerning the Holland Park supermarket prevailed over the views of Mr Patel and/or Kiran.

55. I find that no such principle was established. It was undoubtedly the case that on matters of day-to-day management of the supermarket Prakash's views would in practice be accepted. However, the reason for that was not any such principle as Surendra alleges. Rather, Prakash's views on such matters were in practice accepted simply because he was the man on the spot, and thus likely to be in a better position than his partners to know what should be done. The understanding between the partners was, as I find, that for the time being at least Prakash should be responsible for the day-to-day management of the Holland Park supermarket - responsible, that is to say, to the partners - but that it lay within the power of the partners to relieve him of that responsibility if they thought fit to do so, and that ultimately all decisions affecting the family business would be taken jointly by the partners. No one gave any thought at the time to the possibility of any serious disagreement arising between the partners, since the partners would always seek consensus; but had that possibility been raised I have no doubt that the response would have been that in that event the matter would have to be put to a vote. There was, as I find, no understanding that Prakash should have the right to the final say on any matter affecting the Holland Park supermarket, although, as I have already noted, in practice his decisions on matters of day-to-day management would be likely to be (and in the event were) accepted by his co-partners.
56. Surendra's evidence on this aspect of the case typifies the extent to which he has (unwittingly) reconstructed the true facts ex post facto in a manner which supports his case. Thus, the evidence is clear (and I find) that, until the first signs of the present dispute began to appear, decisions in relation to "the family business" were made jointly by the partners following discussion. The fact that in the course of such discussions differing views may have been, and often were, expressed does not mean that any one partner had a right to insist that his view should prevail. There was no question of anyone's views being overridden, nor did any decision have to go to a vote; in the event, consensus was always reached. Yet Surendra now seeks to present these discussions as examples of one partner, namely the partner with delegated responsibility for the day-to-day management of the particular business in question (the "projectee", to use Surendra's word), having the final say in relation to "his project", and of the remaining partners acknowledging his right to do so.
57. Far from any such principle as Surendra alleges being established in relation to the Holland Park supermarket, I am satisfied that at the time Surendra himself did not understand such a principle to have been established, and that he fully appreciated that true understanding between the partners in relation to the Holland Park supermarket, as set out above. In particular, I find that at the time Surendra was well aware that the Holland Park supermarket was not "Prakash's project", in the sense that Prakash was entitled to the final say on all matters relating to it.

Surendra joins "the family business"

58. When Surendra qualified as a pharmacist, Mr Patel and Kiran asked him to join the family business, but at that time he declined. Instead, he worked for retail chemists for some two years. At that time he was still living at 26 Clifton Avenue, rent-free. In about 1978, having tried unsuccessfully to raise finance to purchase a pharmacy on his own account, he asked the partnership (i.e. Mr Patel, Kiran and Prakash) for a loan for that purpose. The partners' response was that whilst they might be prepared to finance the purchase of a pharmacy as part of the family business, and on the basis that Surendra would then join the family business, they were not willing to lend money to enable Surendra to acquire a pharmacy on his own account, outside the family business. Surendra was still unwilling to join the family business, and accordingly dropped the idea of acquiring a pharmacy on his own account.
59. In about mid-1978, for reasons which are not material, Surendra left his current employment with a retail chemist. This prompted Surendra to raise once again the possibility of his joining the family business, and further consideration was then given to the possibility of Surendra joining the family business and running a pharmacy as part of that business. Kiran and Surendra set about looking for a suitable pharmacy for the family business to buy, with a view to it being run by Surendra. In the meantime, Surendra took a job with another retail chemist.
60. In early 1979 Surendra finally agreed to join the family business. I find that when he joined the family business Surendra fully understood the basis upon which it operated (as described above). In particular, I am satisfied that he did not believe at that time that anything resembling a "project system", in the sense in which he has used that expression in the course of these proceedings, had been adopted or was being operated.
61. By this time (early 1979), the Holland Park supermarket was doing very well; and whilst the continuing partners (Mr Patel, Kiran and Prakash) were glad that Surendra had finally agreed to join them, it was not necessary for the success of the supermarket that he do so. Nor was he asked for any contribution on joining. Surendra said in evidence that the partnership "took over" his car, a Fiat 131 Sport. It is certainly the case that following his joining the partnership Surendra's car was listed as a "family asset", but I accept Prakash's evidence that the car was not of any use in running the Holland Park supermarket or, for that matter, the Acton shop. Had the partners decided to acquire a vehicle for use in the family business at that time they would have considered a van rather than a car. So Surendra's evidence that his car was his contribution to the family business is an exaggeration. The true position is as stated by Prakash in evidence, namely that, in agreeing to admit Surendra as a partner in what was by then a very profitable operation without requiring any contribution from him, the continuing partners were doing him a considerable favour.

Purchase of the Lambeth supermarket

62. The search by Surendra and Kiran for premises suitable for the setting up of a pharmacy business proved unsuccessful, but in the course of the search they found premises in Lambeth suitable for use as a supermarket. Following discussions within the family it was decided to purchase these premises and to set up a second supermarket business. It was agreed that the day-to-day running of the Lambeth supermarket should, for the time being at least, be the shared responsibility of Surendra and Kiran. Surendra was content with this arrangement in the short term, although he remained hopeful that in due course an opportunity would arise for him to run a pharmacy as part of the family business. His co-partners were aware of his hopes in this respect, but no specific period was discussed in which a pharmacy would or might be acquired. Consistently with the manner in which the family business had developed theretofore, the family was keen to leave open as many options as possible, and to retain maximum flexibility in relation to possible future expansion.
63. Following the purchase of the Lambeth premises in about July 1979 Surendra left his employment and assisted Kiran in setting up the supermarket and in running it on a day-to-day basis.
64. Surendra's evidence is to the effect that the Lambeth supermarket was "Kiran's project", just as the Holland Park supermarket was "Prakash's project". I reject that evidence. I find that the understanding of the partners, including Surendra, in relation to the Lambeth supermarket was the same as their understanding in relation to the Holland Park supermarket; that is to say, the Lambeth supermarket was part of the family business, under the ultimate control of the (now four) partners. In particular, it was not envisaged that either Surendra or Kiran would have the right to insist that their views in relation to it prevail over the views of the other partners.
65. As in the case of Prakash and the Holland Park supermarket, Surendra purports to give two examples of Kiran exercising his right to have the final say in relation to the Lambeth supermarket. One relates to the the products and services to be sold and supplied at the Lambeth supermarket; the other relates to Kiran's decision to pay his wife for working at the supermarket. However, as in the case of Prakash and the Holland Park supermarket, the two examples which Surendra gives are not examples of Kiran overriding the wishes or views of the other partners; rather they are examples of Kiran's views on matters within the scope of the day-to-day running of the supermarket being accepted by his co-partners.

The disposal of the Acton shop

66. The family had it in mind that once Kiran had begun working at the Lambeth supermarket Mr and Mrs Patel should cease working in the Acton shop and that the Acton shop should be sold. Thus in September 1979, shortly after the purchase of the Lambeth supermarket, the Acton shop was disposed of by the grant of a long lease. Mr and Mrs Patel thereupon went to live with Kiran and his family at a house at 83 Ealing Road, Wembley, which Kiran had recently bought in the name of himself and his wife. They were joined there for a short time by Prakash and his wife, before Prakash and his wife moved to a house which they had bought at 23 Castleton Avenue, Wembley.
67. Surendra and his family remained at 26 Clifton Avenue until late 1982 when it was sold. On the sale of 26 Clifton Avenue, Surendra and his family moved to a house 155 Woodcock Road, Harrow, which he had bought in the joint names of himself and his wife.

Dilip's initial attendance at the Lambeth supermarket

68. By 1981 Dilip, who was then aged about 23, had completed his education and had obtained a degree in physics. He had been living for some time in Berlin. In 1981 Surendra went to India for four months on holiday. While Surendra was away, Dilip helped Kiran at the Lambeth supermarket, with a view to joining the family business at some time in the future. After a few months, however, Dilip left the Lambeth supermarket to continue his education by studying for a degree in geophysics (which in due course he obtained). Surendra's evidence is that Dilip left the supermarket because he found it difficult to work with Kiran. I reject that evidence. I accept Dilip's evidence that he left the supermarket because he wanted to continue with his education and to undertake some teaching work.

The search for a hotel

69. The Lambeth supermarket was not as profitable as the Holland Park supermarket, and by 1982 Surendra had decided that he did not wish to continue working there. He accordingly began looking around for some other business which he might run as part of the family business. One day while they were driving down Park Lane on their way home from the Lambeth supermarket, he and Kiran had the idea of acquiring a hotel as part of the family business. They accordingly began to explore that possibility.
70. The idea of buying a hotel rather than, as previously envisaged, a pharmacy business, seemed a good one to the partners for two main reasons. In the first place, the return on a retail pharmacy business would be relatively low, and suitable premises were in any event hard to find. In the second place, Mr Patel had connections within the hotel industry.
71. In commercial terms, however, the purchase of a hotel would be a very big step for the family business to take. In particular, it would involve a level of borrowing very many times higher than that to which the family had so far been accustomed. Thus any decision to purchase a hotel was one which would of necessity require the most careful consideration by all the partners, since a mistaken decision could lead to the collapse of the family business and the loss of all the family's assets.

The acquisition of the hotel

72. Mr Patel's jeweller, a Mr Pattni, knew a Mrs Bhatia who owned several hotels in London including the New Ambassadors Hotel (as it was then called). The family learnt from Mr Pattni that the hotel was on the market for sale. Mrs Bhatia had recently bought the hotel off a receiver, and was looking to make a quick turn on a resale. At the time the hotel was temporarily closed, due, it appears, to staffing problems, and the family were only able to view it from the outside.
73. Negotiations ensued between the partners and Mrs Bhatia. It is common ground that Mrs Bhatia is an extremely shrewd businesswoman, and the negotiations were lengthy and complex. A number of meetings took place with Mrs Bhatia. In addition, there were numerous discussions within the family, particularly concerning the financing of the purchase. Bank finance was not then available, and accordingly the family could only proceed with the purchase if Mrs Bhatia was herself prepared to provide some financial assistance.
74. Mr Patel brought mutual contacts in Africa into the discussions with Mrs Bhatia, as a result of which Mrs Bhatia felt sufficiently confident to allow £1.45M of the eventual purchase price of £1.7M to remain outstanding for a year (with an option of a further year if the family could not raise the necessary finance within that period). In the event the deal was structured on the basis that the family took possession of the hotel under licence on 1 July 1983, in consideration of licence fees at the rate of £20,000 per month, with completion being deferred to 29 June 1984. The contract, in which the four partners were named as purchasers, provided for a deposit of £250,000 to be paid on exchange of contracts, and for a discount of £25,000 should the purchase be completed by 30 June 1984. The deposit was funded as to £170,000 out of partnership funds and as to the balance of £80,000 by a loan from Barclays Bank secured on Surendra's house. Completion took place on 29 June 1984, when the hotel was transferred into the name of the company.

The formation of the Company

75. Surendra's evidence is that it was entirely his idea that the hotel should be acquired and run through the medium of a limited company. Whilst it is true that he was given the responsibility for making the necessary arrangements for the formation of the company and the issue of shares to the four partners, the decision to use a limited company as the vehicle for the hotel business was one which the partners reached jointly.
76. The Company was incorporated on 10 January 1983, and acquired "off the shelf" in about July 1983 when the two subscriber shares in the Company were registered in the names of Surendra and Mr Patel respectively, and they, Prakash and Kiran were appointed directors. The objects clause in its memorandum includes the carrying on of a hotel business. The Articles of Association of the Company incorporate the regulations contained in Table A in the First Schedule to the Companies Act 1948 (as subsequently amended) save in so far as those regulations are not excluded or varied by the Articles. Regulation 80 of Table A as at 10 January 1983 (which is not excluded or varied) provides that the business of the Company shall be managed by the directors. Similarly, Regulation 107 of Table A confers power on the board to appoint a managing director for such period and on such terms as it thinks fit.
77. As a result of what appears to be an oversight, shares were not issued to Prakash and Kiran until February 1985. In June 1985 the authorised capital of the Company was increased to £10,000 divided into 10,000 ordinary shares of £1 each, and the additional shares were issued to the four partners and their wives, leaving each partner holding 2,500 shares (2,499 of those shares being registered in the joint names of himself and his wife).

The partners' initial understanding in relation to the hotel

78. In acquiring the hotel, the partners kept an open mind as to future developments. As was their custom, they were keen to retain maximum flexibility. They did not acquire the hotel with the intention of selling it, although they recognised that a sale of the hotel at some time in the future was an option which they might decide to take, depending on current circumstances. There was no discussion in 1983 as to any future sale of the hotel; rather, the partners' excitement in acquiring the hotel led them to contemplate the possibility that they might in the future acquire additional hotels as part of the family business.
79. After discussion, it was agreed by the partners, that the day-to-day running of the hotel should, for the time being at least, be entrusted to Surendra. In the circumstances as set out above, this was the natural decision for the partners to take. In effect Surendra became managing director of the Company, although no formal appointment appears to have been made. At all events, he became the sole executive director. As in the case of the Holland Park supermarket and the Lambeth supermarket, however, the partners were concerned to retain maximum flexibility of manoeuvre for the future. Thus (as I find) all four of them, including Surendra, fully understood that unforeseen circumstances might arise in the future in which other arrangements might need to be made for the day-to-day running of the hotel.
80. As explained earlier, Surendra's primary case is that the partners' understanding when the hotel was acquired was that it was to be "his project", in the same way as (on his case) the Holland Park supermarket was Prakash's project and the Lambeth supermarket was Kiran's project. I have already rejected his evidence as to the existence of any "project system" in relation to the two supermarkets, and I similarly reject his evidence that it was understood that such a system should apply to the hotel, even in the qualified form indicated by Surendra in cross-examination (referred to earlier).
81. In my judgment, Surendra's admission that on a number of matters (but not including the sale of the hotel) Surendra was not to have the final say effectively destroys any credibility that Surendra's evidence as to partners' initial understanding in relation to the so-called "project system" might otherwise have had. Moreover, given that it is accepted by Surendra that there was no discussion between the partners in relation to the alleged initial understanding, it is quite impossible to spell out, by implication, an understanding that various specific matters would require the agreement of the partners whilst others would not. Nor would it make any sense for Surendra to retain the final say on such an important and fundamental matter as the sale of the hotel and the winding up of the Company, whilst requiring the agreement of his co-partners on various lesser matters.
82. I find that the initial understanding of all four partners in relation to the hotel was similar to the understanding of the partners in relation to the supermarkets; that is to say that it was understood that the hotel represented a further extension of the family business and that all decisions affecting it were ultimately decisions for the partners. In particular, it was not understood or envisaged by any of the partners, including Surendra, that Surendra would have the right to override the wishes of the other three partners on matters affecting the hotel, although on matters of day-to-day management the other partners would be likely to accept his views.
83. In support of his contention that the hotel was to be "his project" Surendra points to the fact that the £80,000 loan from Barclays Bank was secured by a charge over his house at 155 Woodcock Hill. However, I accept Prakash's evidence that the choice of Surendra's house as security was dictated by the fact that 83 Ealing Road and 26 Castleton Avenue were already subject to charges to secure bank lending to the partnership to provide working capital for the supermarkets.
84. It is also to be noted that there is no support in the contemporary documentation for the existence of a right for Surendra to have the final say in relation to the sale of the hotel; nor, on the evidence, did Surendra at any stage prior to the present dispute assert that he had such a right.
85. In the circumstances I am satisfied that, as in the case of his evidence in relation to the two supermarkets, Surendra's evidence that the hotel was understood to be "his project" (even in the qualified sense of that expression, as explained above) is an ex post facto reconstruction which does not accord with the true understanding of the partners at the time.
86. I find that it never occurred to Surendra in 1983, or for that matter at anytime prior to the present dispute, that he had the right to insist on the sale of the hotel in the face of opposition from his partners, and I have no hesitation in rejecting his evidence to the contrary.

The running of the hotel 1983-1986

87. Surendra duly undertook the day-to-day management of the hotel business, and the partners held regular meetings on Saturdays at the hotel at which discussions took place and decisions were taken relating to the business. In formal terms these meetings were board meetings of the Company, but the partners gave little thought to formalities of that kind.
88. Surendra's evidence in chief was that he ran the hotel as "his" project, in the sense that he had sole control and took all decisions affecting the hotel (as already mentioned, he qualified this evidence in the course of his cross-examination); and that the regular Saturday meetings of the partners were held only to enable him to explain and report to his co-partners the decisions which he had taken. He further states that his co-partners accepted that he had the right to take all the decisions affecting the hotel business. I reject all that evidence. The hotel was run in accordance with the partners' initial understanding, as set out above.
89. When it was acquired, the hotel was in a poor state and in urgent need of upgrading. However, the partnership was not in a position financially to commit itself immediately to any capital investment or improvement to the hotel, as the acquisition of the hotel had itself stretched the partnership's resources considerably. For the first year after acquisition the Company was paying the monthly licence fees, and as from July 1984 it was saddled with substantial interest payments on funds borrowed (principally from a merchant bank) to finance completion of the acquisition. However, repairs and improvements to the hotel were undertaken as and when funds were available, and to this end the partners provided support for the hotel from profits earned by the supermarkets.
90. In 1985, a programme of refurbishing the bedrooms was undertaken. In his first witness statement, Surendra says:

"... it was completely my decision to embark upon these improvements and as to what the improvements would consist of. It is completely inaccurate to suggest that the other parties and I came to a joint decision about this."

Surendra goes on to accept, however, that in one important respect the family did have a power of veto over his proposals, in that the refurbishment was funded partly by loans from the partnership.

91. It was certainly the case that, as sole executive director, Surendra was responsible for initiating and carrying forward the refurbishment programme. In the event, Surendra's decisions in relation to the refurbishment programme were indorsed by his co-partners; but that is not in any way inconsistent with the programme being under the ultimate control of the partners. Still less is it evidence of Surendra being in a position to impose his decisions on his partners. The fact that partnership funds were expended on refurbishing the hotel clearly illustrates that the hotel was a partnership venture, in which all the partners were concerned. This is further illustrated by the regular Saturday meetings of the partners. I reject Surendra's evidence that such meetings were held simply to provide an opportunity for him to report to his partners on the decisions which he had made.

Dilip joins the partnership

92. By September 1986, the partners were looking once again to expand into other ventures. Dilip had by then completed his further studies and obtained a degree in geophysics. In or about September 1986, following meetings and discussions within the family, it was agreed that Dilip should join the family business. It was made clear to Dilip that whilst he would not receive any interest in the existing family businesses (the two supermarkets and the hotel), he would be an equal partner (that is to say, entitled to a one-fifth share) in any future business which the partnership might subsequently acquire or set up.
93. Initially, however, it was agreed that Dilip would assist Kiran at the Lambeth supermarket. Dilip accordingly worked with Kiran at the Lambeth supermarket from about the end of September 1986.

The sale of the supermarkets

94. The partners had had it in mind to sell the Lambeth supermarket since about 1985, and by the end of 1986 they had decided in principle to sell the Holland Park supermarket too. The partners had come to this view for a number of reasons. The Lambeth supermarket had not been performing well, and the partners were also concerned about losing market share to major supermarket chains. They were also concerned that the capital values of the supermarkets might suffer for that reason.
95. In his first witness statement, Surendra says that by the time the hotel was acquired):

".... the family had already formed the view that the supermarket probably ought to be sold sooner rather than later but we recognised that this decision was ultimately up to Kiran."

If and in so far as Surendra is there suggesting that Kiran had the right to insist that the Lambeth supermarket should be sold I reject that evidence, as being an ex post facto reconstruction. The true position was that Kiran's partners recognised that, as the partner in charge of the day-to-day running of the Lambeth supermarket, Kiran had a particular interest in the question whether it should be sold, and to that extent had predisposition to accept his views on that question. But it went no further than that. In particular, the decision was not "ultimately up to Kiran" in the sense that he had the right to insist on his views prevailing over the views of his co-partners. In the event, all the partners were agreed that the Lambeth supermarket should be sold.

96. It took some time to find a buyer for the Lambeth supermarket, but eventually one was found (Kwiksave) and on 31 March 1987 contracts were exchanged. The decision to sell the Lambeth supermarket to Kwiksave was the unanimous decision of the partners.
97. Difficulties also arose in relation to the sale of the Holland Park supermarket, since the lease of the premises from the local authority was due to expire on 25 March 1987 and had to be renewed. In the event, a new lease was not granted until 28 August 1987, following an application under the Landlord and Tenant Act 1954. In the circumstances, it was decided not to look for a buyer until after Christmas 1987. A purchaser was not found until late 1988, and contracts for sale were exchanged in November 1988. The sale was completed on 26 February 1989.
98. As in the case of the Lambeth supermarket, the decision to sell the Holland Park supermarket was the unanimous decision of the partners. The net proceeds of both sales were retained by the partners in (at that stage) a single bank account, and treated as a reserve fund available to support the hotel business. From time to time thereafter partnership funds from this account were applied for that purpose, being treated for bookkeeping purposes as loans by the partners to the Company.

The hotel: 1987/1988

99. In February 1987 Prakash took a month's holiday, returning in early April 1987. While he was away, Dilip covered for him at the Holland Park supermarket. On Prakash's return from holiday, Dilip moved over to the hotel since Surendra was about to take an extended holiday.
100. Surendra left on holiday in June 1987, and while he was away his place at the hotel was effectively taken by Dilip. Thus, in Surendra's absence, the General Manager reported to Dilip. Although Dilip was given the formal title of "Hotel Controller", this did not signify any particular role in the management of the business: the primary purpose of conferring this formal title was primarily to ensure that the staff at the hotel should recognise his status as part of management.
101. On Surendra's return from holiday Dilip stayed at the hotel to assist him, and he has remained there ever since.
102. In October 1987 the Company sought funding of £690,000 from the TSB for refurbishment of the bedrooms and public rooms at the hotel. The TSB raised a number of questions in relation to the proposed works, and by letter dated 16 December 1987 (written by Surendra) the Company withdrew its request. In his letter, Surendra said this:

"Instead, we shall now resume our established system of carrying out the programme piecemeal, funded through cashflow."

103. Early in 1988, it was decided to place the hotel on the market for sale.
104. Surendra's evidence is that in September 1987 a decision was taken, at his instigation, to sell the hotel. He relies on this decision as confirmation of the so-called "project system". I have already found that there was no such "project system" as Surendra alleges. I further find that there was no decision taken in 1987 to sell the hotel: the decision which was taken by the partners was to place the hotel on the market to see what price could be obtained, with a view to the possibility of selling it should an acceptable offer be forthcoming. Moreover, it is clear from the documentary evidence that Surendra himself did not believe that anything more than that had been decided, since in his letter dated 16 December 1987 to the TSB Surendra inquired whether the TSB would be interested in lending £2M to fund a new project, the loan to be secured on the hotel.
105. In January 1988 Chestertons suggested a guide price of £10.5M. Although the suggested guide price substantially exceeded a valuation of £5M obtained for security purposes in April 1987, it did not come as a surprise to the partners as they had been keeping a close eye on the market for hotel property. Indeed, Surendra thought that a price as high as £12M might be obtainable.
106. In June 1988 offers of £10.2M and £10.5M were received. However, the partners decided to take the hotel off the market. Their principal reason for so doing was, as I find, advice which they had received from Arthur Anderson to the effect that a sale of the hotel otherwise than in circumstances in which roll-over relief could be obtained would give rise to a very substantial charge to corporation tax on the resulting capital gain.
107. In October 1988 the Company's overdraft with the TSB was increased from £36,000 to £72,000, and a few days thereafter the Company (through Surendra) sought funding of £229,000 for further refurbishment of the hotel. In the event, the request for further funding was unsuccessful.

1989

108. In about June 1989, following the sale of the Holland Park supermarket, Prakash joined Surendra and Dilip at the hotel. Surendra continued to be in charge of the day-to-day management of the hotel business, assisted by Prakash and Dilip.
109. In mid-1989 Kiran also came to work at the hotel. However, differences arose between Kiran and Surendra, as a result of which Surendra asked Kiran to leave the hotel. Kiran was extremely upset at this, and discussed the matter with Mr Patel. Kiran could not understand how one partner in the family business could prevent another from working in the business. However, Mr Patel advised Kiran to accede to Surendra's wish that he should leave, and Kiran accordingly did so. Thereafter, he spent his time investigating other possible projects for the family business, in addition to acting as driver for his parents.
110. At this stage, despite a boom in tourism, the hotel business was not performing well. Notwithstanding the refurbishment which had taken place, the facilities in the hotel remained sub-standard.
111. On 24 April 1989 Surendra wrote to the TSB outlining the hotel's current financial position. Under the heading "Plans for the Future" he said this:

"The Hotel will definitely be retained for the next 2 to 3 years while 2 or 3 new businesses shall be purchased or set up during this period."

Whether or not, in saying that, Surendra had in mind the need to obtain roll-over relief for corporation tax purposes on a sale of the hotel, it is clear that there were at that stage no plans for further marketing of the hotel. I find that as at 24 April 1989 Surendra was content that the hotel should be retained, at least in the short-term.

112. Since about 1986 the partners had been aware of serious errors in the preparation of the annual accounts of the two supermarket operations. The Inland Revenue had been looking into these errors, and in about May 1989 the Enquiry Branch of the Inland Revenue commenced a full-scale investigation into the affairs of the supermarkets. The partners retained Price Waterhouse to advise and represent them on this investigation. In a draft report produced in May 1990 Price Waterhouse advised that as a result of the investigation the partners could face a very substantial tax liability (including interest and penalties), possibly running into hundreds of thousands of pounds.

1990

113. In May 1990 the hotel was placed on the market once again.
114. Surendra's evidence is that this was done following a meeting in Room 102 at the hotel in about March 1990, attended by all four brothers and by Mr and Mrs Patel, at which he expressed dissatisfaction with the manner in which the family business had been carried on, referring in particular to the defects in accounting procedures which had led to the Inland Revenue investigation, and said that he wanted the hotel sold and the proceeds split. His evidence is that the others attending the meeting were not enthusiastic about a sale but accepted that they had no choice but to accept his decision. I reject that evidence. I find that in a series of meetings the partners decided to market the hotel, together with a piece of development land in Dulwich and a villa in Spain. Their principal reason for doing so was the potential tax liability which they were likely to face on the conclusion of the inquiry. They believed that it might be necessary to sell the hotel in order to satisfy that liability, and they were concerned that in that event they should be in a position to complete a sale with the minimum of delay in order not to incur unnecessary interest charges. Subsidiary reasons were that business at the hotel was not good, and that the reserves available to support the hotel were limited. There was, however, no question of the partners accepting that they had no alternative but to accede to Surendra's wish to sell the hotel. Surendra's evidence to the contrary is, once again, an ex post facto reconstruction of the true position.
115. In the event it proved possible to discharge the tax liability from other funds (mainly from the proceeds of sale of the Spanish villa, which was sold in August 1993) and it was accordingly unnecessary to sell the hotel in order to raise funds for that purpose.
116. Returning to 1990, an offer of £9M was received for the hotel in May 1990, but the partners decided not to accept it. In October 1990 the active marketing campaign was brought to a halt, although the hotel remained on the agent's books. In a letter to the TSB dated 23 October 1990 Surendra wrote:

"With regards to the sale of [the hotel], the current subdued market has resulted in the best offers being made around £9M. It has therefore been decided to remarket the hotel in the late spring/early summer, by which time the market would have started to move again. In this respect, the agents are being retained for a further 12 month period from the end of this year."

Thus it is clear (and I find) that Surendra was content with the decision made in October 1990 to cease actively marketing the hotel.

1991

117. During 1991 the fortunes of the hotel were at a low ebb, due (among other things) to the effect of the Gulf War on tourism.
118. In early 1991 Mr Lindsten was made redundant, as part of an exercise in cutting staffing costs.
119. In September 1991 the marketing campaign for the sale of the hotel resumed. However, on 20 November 1991 the hotel was damaged by fire and had to be withdrawn from the market so that the necessary works of repair and reinstatement could be carried out. In the event, the works were not completed until some time in 1993.

1992

120. 1992 was another poor year for the hotel.
121. In June 1991 Surendra had asked the TSB for a loan to fund further refurbishment, but in February 1992 that request was turned down.
122. In about May 1992 Surendra became ill and was subsequently diagnosed as having contracted leukaemia.
123. In June 1992 a meeting was held at Surendra's house attended by the four partners, Dilip and Mrs Patel. At this meeting, Dilip asked that he be given a stake in the family business, making it clear that unless the partners agreed to this he would consider working outside the family business. Initially Dilip was offered a 5 per cent share, but he insisted on 10 per cent. In the end, it was agreed by way of compromise that he should take a 10 per cent share in the Company, but not in any other assets of the partnership. I find that no suggestion was made that his entitlement should be limited to a 10 per cent share in the net proceeds of sale of the hotel in the event of a sale of the hotel taking place, and I reject Surendra's evidence that that was what was agreed.
124. Following the meeting it became apparent that Kiran was under the mistaken impression that giving Dilip a 10 per cent share in the Company involved a reduction of each of the existing shareholdings by 2.5 per cent of the shareholding rather than by 2.5 per cent of the total of the issued shares. Accordingly, a further meeting was held in Autumn 1992 at which the position was clarified for Kiran's benefit.
125. As mentioned earlier, the agreement with Dilip was never carried into formal effect, and in the event no transfers of shares were made.
126. From mid-1992 until he began to recover from his illness in about 1995, Surendra was not involved in any way with the hotel, and his brothers understandably did not seek to burden him with its affairs.

1993

127. In late 1993 it was decided that in view of the difficult financial situation of the hotel a single advertisement should be placed in the Financial Times to see if a suitable buyer could be found without the need for the Company to incur the expense of a full-scale marketing campaign. Prakash accordingly placed such an advertisement. Some inquiries resulted, but no serious interest.
128. In August 1993 a buyer was found for the Spanish villa (as mentioned above); and in November 1993 the final instalment of the partnership's liability to the Inland Revenue was paid.
129. In the course of 1993 the company's overdraft was cleared.

1994

130. 1994 was a much more successful year for the hotel. In evidence, Prakash referred to it as the "turn-around year". However, the family remained cautious as to the hotel's future prospects and in about mid-1994 it was decided to market the hotel once again. Agents (Messrs Christies) were accordingly instructed. Christies suggested a guideprice of £6.5M, but this was declined. In a letter to Christies dated 29 June 1994 Prakash said that the family would be looking at a sale price of £8.5M.
131. In the event, due to unforeseen delays the marketing campaign did not begin until about October 1994. By that time a further round of refurbishment had been embarked upon, financed through cashflow. No complaint was made by Surendra at the time of the decision to finance refurbishment out of cashflow.
132. The marketing of the hotel in the Autumn of 1994 attracted a certain amount of interest, but no acceptable offer was received.
133. In December 1994 Mr Apostolakos joined the hotel as Deputy General Manager.

1995

134. In early 1995 the outstanding balance of the loan from the TSB was transferred to the Royal Bank of Scotland ("the RBS"), on terms that it was repayable over ten years. This refinancing gave the family (in particular Prakash and Dilip) confidence that they could make a success of the hotel.
135. In April 1995 the four directors signed agreements with the Royal Bank of Scotland postponing repayment of directors' loans to repayment of the Company's indebtedness to the Bank.
136. In August 1995 Prakash approached the RBS for a loan to fund the ongoing refurbishment programme. In December 1995 the Bank agreed to lend £450,000 for that purpose.
137. By the end of the year Surendra was attending intermittently at the hotel, although he was not as yet fit enough to undertake any active role.

1996

138. By January 1996 Surendra was attending at the hotel once or twice a week. At that time a new computer system was being installed, and Surendra worked on the layout of the cabling. However, he did not seek to resume his previous role as de facto managing director.
139. In February 1996 the Bank loaned a further £250,000 for refurbishment.
140. Surendra's evidence is that at a meeting held at Mr and Mrs Patel's house in March 1996 and attended by the four directors, together with Mrs Patel and Dilip, it was once again agreed in principle, as it had been in March 1990, that the hotel should be sold: that is to say, that on completion of the current refurbishment programme the directors should proceed to a sale of the hotel, subject only to their being satisfied that the sale was at market value. Prakash, Kiran and Dilip deny that any such agreement was made, as does Mrs Patel.
141. I reject Surendra's evidence as to the alleged agreement, and find that no such agreement was made. Such an agreement would in any event have been wholly inconsistent with the family's habitual approach to commercial decisions, which was to retain maximum flexibility for the future. Moreover, I accept Prakash's evidence that he would not have continued with the refurbishment programme if it had been agreed that the hotel should be sold.
142. Surendra's evidence is that the alleged agreement was reached in the context of his expressed wish to work outside the family business. I find that during 1996 there was some discussion within the family as to whether Surendra should work outside the family business; that Prakash expressed the view that if Surendra did decide to work outside the family business it would be unfair for him to continue to receive remuneration from the Company equal to the other directors; and that Kiran agreed with that view. But there was never any definite or firm proposal that Surendra should work outside the family business; nor was the question raised in any formal way. Such discussions as took place about it were brief and informal.
143. As Dilip said in cross-examination:

"The family are quite savvy business people. They are not just going to throw up a business [on the basis of] a minor talk [of] somebody working outside. There is no way that somebody will consider throwing away an asset or selling an asset on those considerations. It just does not make sense to me."

144. Surendra alleges that from early 1996 onwards Prakash and Dilip - and particularly Dilip - sought to undermine his position. He alleges that Dilip was positively antagonistic towards him. In evidence, Surendra sought to provide examples (on any footing, trivial examples) of this. Prakash and Dilip deny these allegations and I accept their evidence. Further, the evidence of Mr Apostolakos establishes that Surendra's evidence on this aspect of the case (as on other aspects already identified) is grossly exaggerated and bears no relation to reality. On the other hand, I accept Dilip's evidence that during the marketing of the hotel (referred to below) Surendra incautiously allowed a call from the estate agent to be received through the switchboard, thus alerting the staff to the fact that the hotel was being marketed (something which the family wished to avoid so far as possible); and that when Dilip raised this with Surendra, Surendra responded that Dilip had no authority to stop him, saying: "You are nothing. I am the managing director".

1997

145. By the end of 1996, when the current refurbishment programme had been substantially completed, a number of tour operators had agreed to increase their rates in respect of accommodation at the hotel, thus opening up the prospect of a significant increase in profits from the hotel. By this time, Surendra was becoming impatient for the hotel to be sold. However, as the hotel was trading well and had the opportunity substantially to improve its revenue and profitability as a direct result of the latest refurbishment, the other directors considered that the hotel should be retained for the time being, in order to allow the effects of the recent refurbishment to be reflected in improved trading figures. A further consideration in the mind of the other directors was the fact that the final account submitted by the contractor who had carried out the refurbishment had exceeded the quantity surveyor's assessment by some £220,000 and was currently being disputed.
146. However, with a view to accommodating Surendra so far as possible it was decided by the other directors to allow Surendra to conduct preliminary discussions with suitable agents in order to ascertain the state of the hotel market and to find out what commission levels were likely to be. The other directors also had it in mind that if the agents should advise that the market was currently unfavourable, Surendra's enthusiasm for an immediate sale might be tempered.
147. In the event, however, Surendra went further and appointed an agent (Christies) and the hotel was actively marketed.
148. Surendra's evidence is that the hotel was placed on the market as an agreed means of resolving the differences between him and the other directors. I reject that evidence. The marketing was undertaken in the circumstances and for the reasons described above.
149. On 18 May 1997 a meeting, attended by all parties, took place at Mr and Mrs Patel's house. Mr Patel, Prakash and Kiran expressed disapproval of the fact that Surendra had gone ahead with the marketing without authority, and of his having taken calls from Christies via the hotel switchboard. For his part, Surendra confirmed that he had no interest in the future running of the family business, stating that his sole concern was that the hotel should be sold immediately for the best price obtainable. The other directors made it clear to Surendra that the hotel would only be sold at a price acceptable to the majority of the directors, and that it appeared to them that the best price would be achieved only after the hotel had been traded for some time in its refurbished state. A period of some two to three years was mentioned. Surendra said that if the other directors insisted on retaining the hotel they should buy him out. He then walked out of the meeting.
150. Surendra's evidence is that at one stage in the course of the meeting Prakash warned him that if he chose to work outside the family business he would cease to receive any remuneration from the hotel. I reject that evidence. I find that Prakash did no more than restate his view that if Surendra worked outside the family business he should not continue to receive remuneration from it equal to that received by the other directors. Surendra also seeks to make much of a suggestion by Mr Patel that Surendra (who had recently undergone an eye operation) should "stay at home and rest". This is another example of Surendra seeking ex post facto to attach to a particular incident a significance which at the time it did not possess. I have no doubt Mr Patel's suggestion was prompted by genuine concern for Surendra's wellbeing, coupled, no doubt, with the desire to quell what had by then revealed itself as a serious dispute within the family.
151. Following the meeting on 18 May 1997, Surendra sent Prakash the file of correspondence with Christies, under cover of a handwritten note which began as follows:

"As I did not get the majority vote to deal with this my way in our meeting, I therefore cannot deal with this any more!"

The reference to "majority vote" is sufficient in itself to explode the suggestion of an unqualified "project system", such as Surendra described in his evidence in chief.

152. Following the meeting of 18 May 1997, and consistently with that attitude expressed in the handwritten note quoted above, Surendra did not return to the hotel. Surendra's decision to play no further part in the day-to-day management of the hotel was entirely his own. I find that no obstacle has been placed in the way of his return to the hotel by other members of he family, and that he has at all material times remained entirely free to resume his executive role should he wish to do so.
153. In the event, the marketing of the hotel aroused little interest, and no satisfactory offer was received.
154. In October 1997, at Surendra's instigation, a meeting took place between Surendra, Kiran and Mr and Mrs Patel, at which attempts were made, unsuccessfully, to reach a compromise of the dispute. Subsequently, a further attempt at compromise was made, this time using an intermediary. It too was unsuccessful.
155. On 8 December 1997 a letter before action was written by Surendra's solicitors, threatening a petition under section 459, and/or section 122(g).

1998

156. On 11 June 1998 the petition was presented, seeking a buyout order, alternatively a winding up order.

Remuneration

157. Since the days of the Acton shop, family policy had always been to remunerate partners in the family business equally, and this policy has been followed throughout the life of the Company. Moreover, the approach of the family to payment of remuneration from the family business (whether in the form of salary or dividend) has, as Surendra must have appreciated, always been extremely conservative and cautious. As Prakash put it in cross-examination:

"You have to understand the principle of the family; how they worked. The profit of the supermarket was brought back in the family for further refurbishment of the hotel or for new ventures .... We were not ever thinking of paying ourselves sufficient remuneration to be able to accumulate wealth individually. That was never thought of. It was always going to be for the family fund, to use in the next venture."

I find that Surendra was at all material times fully aware that that was the basis on which the family operated, so far as remuneration is concerned.

158. So far as Kiran is concerned, he has not worked actively in the family business since 1989, when Surendra asked him to leave the hotel. Nor, as I find, has he worked outside the family business (as suggested by Mr Acton in cross-examination). I accept Kiran's evidence that he has since 1989 remained available to work in the family business, should it embark on some further project in the future, and that he is waiting for that to happen. It is on that basis that he has received remuneration from the Company equal to that received by the other partners.
159. Throughout the Company's life the level of remuneration has, I find, been decided jointly by the partners/directors by reference to what the Company could prudently afford. In the early years of its life, the Company paid no salaries or dividends, and until about 1992 levels of remuneration were barely adequate. Thus, from 1988 until 1992 the salary of the directors was £12,385 per annum. Since 1993 directors' salaries have averaged approximately £28,000 per annum. In the circumstances it is common ground that levels of remuneration have remained modest.

Repayment of loans

160. The acquisition of the hotel was financed in part by directors' loans in the sum of £42,999 each. Further, as already mentioned, from time to time the partnership made loans to the Company. As at the commencement of the present proceedings in June 1998 the sum outstanding by way of loan from the partnership was £114,000. Both the directors' loans and the partnership loan have been repaid in full since the commencement of the proceedings.
161. So far as loans made from time to time by the partnership are concerned, I accept Prakash's evidence that they were made on the clear understanding that they would be repaid only when it was safe for the Company to do so. In the event, they were repaid buy instalments, the final instalment being paid on 3 February 2000.
162. As to the directors' loans, by the postponement agreements referred to earlier, made in April 1995, the four directors agreed not to seek repayment of their loans from the Company during such time as the Company remained under a liability to the RBS. These agreements met a requirement of the security documentation relating to the loans made by the RBS to the Company. By letter dated 24 May 2000 the RBS consented to the repayment of the directors' loans, and they were repaid on or about 26 May 2000.
163. Prior to 24 May 2000 the RBS was unwilling to consent to repayment of the directors' loans, although it would have been willing to consent to repayment of the loan to Surendra if he had ceased to be a director and shareholder.

THE LAW

The relevant statutory provisions

164. Part XVII of the Companies Act 1985 (which comprises sections 459 to 461 of the Act) is headed "Protection of company's members against unfair prejudice". Section 459(1)(as amended) provides as follows:

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

165. Section 461 provides that if the court is satisfied that a petition under Part XVII is well founded it may, among other things, provide for the purchase of the shares of any members of the Company by other members of the company (a buyout order).
166. Section 122(1) of the Insolvency Act 1986 provides that a company may be wound up by the court if:

"(g) the court is of the opinion that it is just and equitable that the company should be wound up".

167. Section 125(2) of the Insolvency Act provides that, before making a winding up order on the "just and equitable" ground on a petition by a contributory, the court must consider whether some other remedy is available to the petitioners. This would include a remedy under sections 459 and 461.

The relevant authorities

168. In Ebrahimi v. Westbourne Galleries Ltd [1973] AC 360 the House of Lords considered the nature and extent of the jurisdiction to make a winding up order on the "just and equitable" ground under section 222(f) of the Companies Act 1948 (the statutory predecessor of section 122(g) of the Insolvency Act 1986). Westbourne Galleries was an expulsion case, in which the appellant complained that his removal as a director of the company was contrary to the basis on which the company had been formed, viz. that all the corporators should participate in management.
169. Lord Wilberforce, who delivered the leading speech, after reviewing the earlier authorities, said this (at page 379A):

"My Lords, in my opinion these authorities represent a sound and rational development of the law which should be endorsed. The foundation of it all lies in the words "just and equitable" and, if there is any respect in which some of these cases may be open to criticism, it is that the courts may sometimes have been too timorous in giving them full force. The words are a recognition of the fact that a limited company is more than a mere legal entity, with a personality in law of its own: that there is room in company law for recognition of the fact that behind it, or amongst it, there are individuals, with rights, expectations and obligations inter se which are not necessarily submerged in the company structure. That structure is defined by the Companies Act and by the articles of association by which the shareholders agree to be bound. In most companies and in most contexts, this definition is sufficient and exhaustive, equally so whether the company is large or small. The "just and equitable" provision does not, as the respondents suggest, entitle one party to disregard the obligation he assumes by entering a company, nor the court to dispense him from it. It does, as equity always does, enable the court to subject the exercise of legal rights to equitable considerations; considerations, that is, of a personal character arising between one individual and another, which may make it unjust, or inequitable, to insist on legal rights, or to exercise them in a particular way.

It would be impossible, and wholly undesirable, to define the circumstances in which these considerations may arise. Certainly the fact that a company is a small one, or a private company, is not enough. There are very many of these where the association is a purely commercial one, of which it can safely be said that the basis of association is adequately and exhaustively laid down in the articles. The superimposition of equitable considerations requires something more, which typically may include one, or probably more, of the following elements: (i) an association formed or continued on the basis of a personal relationship, involving mutual confidence - this element will often be found where a pre-existing partnership has been converted into a limited company; (ii) an agreement, or understanding, that all, or some (for there may be "sleeping" members), of the shareholders shall participate in the conduct of the business; (iii) restriction upon the transfer of the members' interest in the company - so that if confidence is lost, or one member is removed from management, he cannot take out his stake and go elsewhere.

It is these, and analogous, factors which may bring into play the just and equitable clause, and they do so directly, through the force of the words themselves. To refer, as so many of the cases do, to "quasi-partnerships" or "in substance partnerships" may be convenient but may also be confusing. It may be convenient because it is the law of partnership which has developed the conceptions of probity, good faith and mutual confidence, and the remedies where these are absent, which become relevant once such factors as I have mentioned are found to exist: the words "just and equitable" sums these up in the law of partnership itself. And in many, but not necessarily all, cases there has been a pre-existing partnership the obligations of which it is reasonable to suppose continue to underlie the new company structure. But the expressions may be confusing if they obscure, or deny, the fact that the parties (possibly former partners) are now co-members in a company, who have accepted, in law, new obligations. A company, however small, however domestic, is a company not a partnership or even a quasi-partnership and it is through the just and equitable clause that obligations, common to partnership relations, may come in."

Lord Wilberforce then went on to consider the application of the "just and equitable" clause in an expulsion case.

170. In O'Neill v. Phillips [1999] 1WLR 1092 the House of Lords considered the nature and extent of the jurisdiction under section 459(1). In O'Neill the petitioner (Mr O'Neill) sought relief under section 459(1), alternatively a winding up order under section 122(g), on the ground that his co-shareholder and co-director (Mr Phillips) had unfairly terminated an agreement for equal profit-sharing and had repudiated an agreement for the allotment of further shares in the company. The judge at first instance dismissed the petition, finding that Mr Phillips had never committed himself to equal profit-sharing or to giving further shares to Mr O'Neill. The Court of Appeal allowed Mr O'Neill's appeal, on the footing that although there was no concluded agreement that Mr Phillips would give Mr O'Neill further shares, Mr O'Neill had a "legitimate expectation" that he would do so. The House of Lords allowed Mr Phillips' appeal, on the footing that since Mr Phillips had never agreed unconditionally to give Mr O'Neill further shares he had not acted unfairly in not doing so.
171. In the course of his speech, Lord Hoffmann considered the meaning of the expression "unfairly prejudicial" in section 459(1). In this context, he said (at page 1098D):

"In section 459 Parliament has chosen fairness as the criterion by which the court must decide whether it has jurisdiction to grant relief. It is clear from the legislative history .... that it chose this concept to free the court from technical considerations of legal right and to confer a wide power to do what appeared to be just and equitable. But this does not mean that the court can do whatever the individual judge happens to think fair. The concept of fairness must be applied judicially and the content which it is given by the courts must be based upon rational principles.....

Although fairness is a notion which can be applied to all kinds of activities, its content will depend upon the context in which it is being used. Conduct which is perfectly fair between competing businessmen may not be fair between members of a family. In some sports it may require, at best, observance of the rules, in others ("it's not cricket") it may be unfair in some circumstances to take advantage of them. All is said to be fair in love and war. So the context and the background are very important.

In the case of section 459, the background has the following two features. First, a company is an association of persons for an economic purpose, usually entered into with legal advice and some degree of formality. The terms of the association are contained in the articles of associations and sometimes in collateral agreements between the shareholders. Thus the manner in which the affairs of the company may be conducted is closely regulated by rules to which the shareholders have agreed. Secondly, company law has developed seamlessly from the law of partnership, which was treated by equity, like the Roman societas, as a contract of good faith. One of the traditional roles of equity, as a separate jurisdiction, was to restrain the exercise of strict legal rights in certain relationships in which it considered that this would be contrary to good faith. These principles have, with appropriate modification, been carried over into company law.

The first of these two features leads to the conclusion that a member of a company will not ordinarily be entitled to complain of unfairness unless there has been some breach of the terms on which he agreed that the affairs of the company should be conducted. But the second leads to the conclusion that there will be cases in which equitable considerations make it unfair for those conducting the affairs of the company to rely upon their strict legal powers. Thus unfairness may consist in a breach of the rules or in using the rules in a manner which equity would regard as contrary to good faith.

This approach to the concept of unfairness in section 459 runs parallel to that which your Lordships' House, in [Westbourne Galleries], adopted in giving content to the concept of "just and equitable" as a ground for winding up."

172. Lord Hoffmann went on to quote from Lord Wilberforce's speech in Westbourne Galleries the passage beginning "The words are a recognition", in the first paragraph of the extract which I have quoted above, to the end of that paragraph. Lord Hoffmann continued:

"I would apply the same reasoning to the concept of unfairness in section 459. .... In my view a balance has to be struck between the breadth of the discretion given to the court and the principle of legal certainty. Petitions under section 459 are often lengthy and expensive. It is highly desirable that lawyers should be able to advise their clients whether or not a petition is likely to succeed. Lord Wilberforce, after the passage which I have quoted, said that it would be impossible "and wholly undesirable" to define the circumstances in which the application of equitable principles might make it unjust, or inequitable (or unfair) for a party to insist on legal rights or to exercise them in a particular way. This of course is right. But that does not mean that there are no principles by which those circumstances may be identified. The way in which such equitable principles operate is tolerably well settled and in my view it would be wrong to abandon them in favour of some wholly indefinite notion of fairness.

I should make it clear that the parallel I have drawn between the notion of "just and equitable" as explained by Lord Wilberforce in [Westbourne Galleries] and the notion of fairness in section 459 does not mean that conduct will not be unfair unless it would have justified an order to wind up the company. There was such a requirement in section 210 of the Companies Act 1948 but it was not repeated in section 459. .....

The parallel is not in the conduct which the court will treat as justifying a particular remedy but in the principles upon which it decides that the conduct is unjust, inequitable or unfair."

173. After referring to Blisset v. Daniel (1853) 10 Hare 493, and to the Australian case of In re Wondoflex Textiles Pty Ltd [1951] VLR 458, Lord Hoffmann approved a passage from my judgment in In re Astec (BSR) plc [1998] 2 BCLC 556 where I said that:

".... in order to give rise to an equitable constraint based on "legitimate expectation" what is required is a personal relationship or personal dealings of some kind between the party seeking to exercise the legal right and the party seeking to restrain such exercise, such as will affect the conscience of the former."

Lord Hoffmann continued:

"That is putting the matter in very traditional language, reflecting in the word "conscience" the ecclesiastical origins of the long-departed Court of Chancery. As I have said, I have no difficulty with this formulation. But I think that one useful cross-check in a case like this is to ask whether the exercise of the power in question would be contrary to what the parties, by words or conduct, have actually agreed. Would it conflict with the promises which they appear to have exchanged? In Blisset v. Daniel the limits were found in the "general meaning" of the partnership articles themselves. In a quasi-partnership company, they will usually be found in the understandings between the members at the time they entered into the association. But there may be later promises, by words or conduct, which it would be unfair to allow a member to ignore. Nor is it necessary that such promises should be independently enforceable as a matter of contract. A promise may be binding as a matter of justice and equity although for one reason or another (for example, because in favour of a third party) it would not be enforceable in law.

I do not suggest that exercising rights in breach of some promise or understanding [the report uses the word "undertaking", but given Lord Hoffmann's earlier use of the word "understanding" this may be an error] is the only form of conduct which will be regarded as unfair for the purposes of section 459. For example, there may be some event which puts an end to the basis upon which the parties entered into association with each other, making it unfair that one shareholder should insist upon the continuance of the association. The analogy of contractual frustration suggests itself. The unfairness may arise not from what the parties have positively agreed but from a majority using its legal powers to maintain the association in circumstances to which the minority can reasonably say it did not agree: non haec in foedera veni. It is well recognised that in such a case there would be power to wind up the company on the just and equitable ground .... and it seems to me that, in the absence of a winding up, it could equally be said to come within section 459. But this form of unfairness is also based on established equitable principles, and it does not arise in this case."

174. Lord Hoffmann then went on to consider the concept of "legitimate expectation" in the context of section 459, explaining that:

"the concept .... should not be allowed to lead a life of its own, capable of giving rise to equitable restraints in circumstances to which the traditional equitable principles have no application."

175. Later in his speech, after considering the question whether Mr Phillips had acted "unfairly" for the purposes of section 459, Lord Hoffmann turned to a submission made by counsel for Mr O'Neill to the effect that it did not matter whether Mr Phillips had acted unfairly, since even if he had not done so, trust and confidence between Mr O'Neill and Mr Phillips had broken down, and in those circumstances it would be unfair to leave Mr O'Neill locked into the company as a minority shareholder. As to that, Lord Hoffmann said (at page 1104F), under the heading "No-fault divorce?":

"I do not think that there is any support in the authorities for such a stark right of unlateral withdrawal. There are cases, such as In re a Company (No. 006834 of 1988), Ex parte Kremer [1989] BCLC 365, in which it has been said that if a breakdown in relations has caused the majority to remove a shareholder from participation in the management, it is usually a waste of time to try to investigate who caused the breakdown. Such breakdowns ofter occur (as in this case) without either side having done anything seriously wrong or unfair. It is not fair to the excluded member, who will usually have lost his employment, to keep his assets locked in the company. But that does not mean that a member who has not been dismissed or excluded can demand that his shares be purchased simply because he feels that he has lost trust and confidence in the others. I rather doubt whether even in partnership law a dissolution would be granted on this ground in a case in which it was still possible under the articles for the business of the partnership to be continued. And as Lord Wilberforce observed in Westbourne Galleries ...., one should not press the partnership analogy too far: "A company, however small, however domestic, is a company and not a partnership or even a quasi-partnership ...".

Lord Hoffmann went on to conclude that section 459 did not confer a right to "exit at will".

176. O'Neill v. Phillips establishes that "unfairness" for the purposes of section 459 is not to be judged by reference to subjective notions of fairness, but rather by testing whether, applying established equitable principles, the majority has acted, or is proposing to act, in a manner which equity would regard as contrary to good faith. In the case of quasi-partnership company, exclusion of the minority from participation in the management of the company contrary to the agreement or understanding on the basis of which the company was formed provides a clear example of conduct by the majority which equity regards as contrary to good faith. Westbourne Galleries was just such a case. Similarly, as Lord Hoffmann points out, "unfairness" may arise from agreements or promises made, or understandings reached, during the life of the company which it would be unfair to allow the majority to ignore. Applying traditional equitable principles, equity will not hold the majority to an agreement, promise or understanding which is not enforceable at law unless and until the minority has acted in reliance on it. In the case of an agreement, promise or understanding made or reached when the company was formed, that requirement will almost always be fulfilled, in that the minority will have acted on the agreement, promise or understanding in entering into association with the majority and taking the minority stake. But the same cannot be said of agreements, promises or understandings made or reached subsequently, which are not themselves enforceable at law. In such a case, the majority will not as a general rule be regarded in equity as having acted contrary to good faith unless and until it has allowed the minority to act in reliance on such an agreement, promise or understanding. Absent some special circumstances, it will only be at that point, and not before, that equity will intervene by providing a remedy to the minority which is not available at law.
177. Lord Hoffmann also points out that unfairness for the purposes of section 459 may arise where an event occurs which puts an end to the basis upon which the parties entered into association with each other, "making it unfair that one shareholder should insist upon the continuance of the association". Applying traditional equitable principles, the unfairness in such a case will arise from the conduct of the majority in insisting upon the continuance of the association in the change circumstances; not in the changed circumstances themselves. Were that not so, section 459 would be in danger of recognising the kind of "no-fault divorce" which Lord Hoffmann specifically rejected.
178. I turn next to the relationship between the jurisdiction under section 459 and the jurisdiction to order a winding up on the "just and equitable" ground under section 122(g). Mr Acton submits that once it is established (applying Westbourne Galleries) that the company in question is a quasi-partnership, then the court will make a winding up order if the circumstances are such that, had the company been a partnership, the court would have made a dissolution order. He submits (echoing in this respect the submission made by counsel for Mr O'Neill in O'Neill v. Phillips in the context of section 459, referred to earlier), that it is not necessary to establish unfairness for the court to make a winding up order on the "just and equitable" ground: in other words (as he submits) the jurisdiction to make a winding up order under section 122(g) is wider than the jurisdiction to grant relief under section 459.
179. In support of that submission he relies on Re R.A.Noble Clothing Ltd [1983] BCLC 273. In that case Nourse J held that although the petitioner had not established that its interest had been unfairly prejudiced for the purposes of section 75 of the Companies Act 1980 (the statutory predecessor of section 459), nevertheless it was just and equitable that the company be wound up. In the course of his judgment in Noble Nourse J said (at page 291d-e):

"I have no doubt that sooner or later a case will emerge in which the particular facts will make it necessary for the court to make a closer examination of the relationship between s.222(f) and s.75 than I feel is necessary in the instant case. In this case I have come to the clear view that it has not been established that the affairs of the Company are being or have been conducted in a manner which is unfairly prejudicial to the interests of [the petitioner], but that it has been established that it is just and equitable that the Company should be wound up.

180. In my judgment, Mr Acton's submission is based on a misreading of both Westbourne Galleries and O'Neill v. Phillips. In the first place, in Westbourne Galleries Lord Wilberforce expressly warned against simply treating a company (even a "quasi-partnership" company) as if it were a partnership; a warning which Lord Hoffmann quoted in O'Neill v. Phillips. Secondly, in drawing a parallel in O'Neill v. Phillips between the jurisdiction to order a winding up on the just and equitable ground and the jurisdiction under section 459, Lord Hoffmann applied the reasoning of Lord Wilberforce in Westbourne Galleries. Thirdly, I accept Mr Mabb's submission that it is difficult to believe that Lord Hoffmann would have placed the limits on the section 459 jurisdiction which he did, had he thought that by so doing he was in effect transferring business from the section 459 jurisdiction to the winding up jurisdiction. On the contrary, it is plainly implicit in Lord Hoffmann's reasoning, as I read his speech, that the winding up jurisdiction is, at the very least, no wider than the section 459 jurisdiction: a proposition which is consistent with a winding up order being, as it were, the death sentence on a company (an analogy drawn by Mummery LJ in In re a Company, ex parte Estate Acquisition and Development Ltd [1991] BCLC 154, 161), and with the statutory recognition in section 125(2) of the Insolvency Act (see above) that a winding up order is an order of last resort. Fourthly, it would in my judgment be extremely unfortunate, and inconsistent with the approach and the reasoning of Lord Hoffmann in O'Neill v. Phillips, if, given the two parallel jurisdictions, conduct which is not "unfair" for the purposes of section 459 should nevertheless be capable of founding a case for a winding up order on the "just and equitable" ground. As to Nourse J's decision in Noble, in so far as that decision is authority for the proposition that conduct which is not unfair for the purposes of section 459 can nevertheless found a case for a winding up on the just and equitable ground it is in my judgment inconsistent with O'Neill v. Phillips.
181. I accordingly conclude that if the conduct by the majority relied on by Surendra in the instant case is not unfair for the purposes of section 459, it cannot found a case for a winding up order on the "just and equitable" ground.

CONCLUSIONS

182. Case 1 fails on the facts. There was no initial understanding that Surendra should have the final say on the question of the sale of the hotel.
183. Cases 2 and 3 also fail on the facts. There was no agreement in March 1990 or in March 1996, or for that matter at any other time, that the hotel should be sold. Nor did the other parties, either then or at any other time, purport to acknowledge or accept that Surendra was entitled to the final say on the question of the sale of the hotel. Moreover, even if there had been a concluded agreement that the hotel should be sold, there is no evidence that Surendra acted in reliance on the existence of such an agreement. In the course of his closing submissions Mr Acton submitted that such an agreement would be contractually binding on the shareholders. In my judgment, however, that submission is hopelessly far-fetched, given the factual background.
184. As to Case 5, Surendra's complaint at the admittedly modest levels of remuneration paid to the directors/shareholders is based to a material extent on the contention that post-1992 refurbishments ought not to have been financed out of cashflow. However, under cross-examination Surendra accepted that in proceeding with the refurbishments on that basis Prakash was doing the best he could, and that he (Surendra) "went along with it". In my judgment there is nothing that can be categorised as "unfair", for the purposes of section 459, in the fixing of levels of remuneration. The decisions in relation to levels of remuneration from time to time were made in good faith, and for what the other directors considered to be sound commercial reasons.
185. As to Case 6, Surendra's complaint is that it was unfair of the other directors not to agree to earlier repayment of the directors' loans and the partnership loan, notwithstanding the Company's ability to repay them; and especially so once Surendra had made it clear that he wished to withdraw his interest from the Company. In relation to the directors' loans Surendra also complains that the other directors were unwilling to attempt to secure the agreement of the RBS to the repayment of these loans, and that the fact that the RBS had indicated that it would be prepared to agree to repayment of the loans if Surendra ceased to be a director and shareholder of the Company made that unwillingness the more unfair since Surendra was in fact seeking to sever his connection with the Company. In my judgment, however, there is no unfairness in the fact that the directors' loans and the partnership loan were not repaid until after the commencement of proceedings. I accept Prakash's evidence that they were repaid as soon as it was considered that the Company would prudently repay them.
186. I turn, then, to Case 4.
187. As re-formulated in Mr Acton's closing submissions, Case 4 is relied on as founding a case for a buyout order, alternatively a winding up order.
188. In support of the case for a buyout order, Surendra contends (i) that even in the absence of facts to support Cases 1, 2 and 3, he had legitimate reason to believe that if he came to the view that the hotel should be sold, his decision would in practice be accepted; (ii) that it was contemplated from the outset that Surendra would remain, in effect, chief executive of the hotel, exercising the major control over the Company's fortunes and policies; (iii) that by 1988 Surendra wished the hotel to be sold, that at all times thereafter he maintained that wish, and that prior to his illness he had good reason to think that the hotel would be sold as soon as market conditions allowed and that the other directors had accepted this; (iv) that following his illness the situation had of necessity changed substantially, with the consequence that, if he returned to work in the hotel, he would no longer be in control, and that following the meeting of 18 May 1997 it is in any event unrealistic to expect him to continue to work with the other directors; (v) that he is now in a position which he had not contemplated or agreed to at the outset, in that he is locked into the Company as a minority shareholder, unable to procure the sale of the hotel or to influence the Company's commercial decisions; and (vi) that his situation is made worse by the probability (to put it no higher) that if he were to work outside the Company his remuneration from the Company would be reduced still further.
189. As to (i), I find that Surendra had no basis for expecting, nor did he expect, that his views in relation to the sale of the hotel (as opposed to matters of day-to-day management) would be accepted by the other directors. As to (ii), I have already found that there was no such initial understanding. On the contrary, the initial understanding was that circumstances might arise in the future in which it might no longer be appropriate for Surendra for remain in charge of the day-to-day management of the hotel. As to (iii), it is not the case that from about 1988 onwards Surendra continually wanted the hotel sold. His evidence to the contrary is an ex post facto reconstruction. As to (iv), as I have already made clear, it was Surendra's own decision not to return to an active role in the management of the hotel. As to (v), as I have already found, it was not contemplated or agreed at the outset (or, for that matter, at any other time) that Surendra should retain an executive role at the hotel whatever circumstances might arise in the future. As to (vi), were Surendra to decide to work outside the Company, he could not legitimately complain if his remuneration from the Company thereafter were to be less than the remuneration of the other directors who were not doing so.
190. In my judgment the factors relied on by Surendra under Case 4 in support of a buyout order do not, either singly or collectively, establish unfair conduct for the purposes of section 459. In my judgment there is nothing in any of those factors which equity would regard as being contrary to good faith.
191. In his closing submissions, Mr Acton submitted that Surendra's illness has put an end to the basis on which the parties had originally associated. Of course Surendra's illness, and his subsequent decision not to resume an active role in the hotel, does give rise to a changed situation; but it is not a change of circumstances which puts an end to, or which is contrary to, the parties' initial understanding. As I have already found, the parties' initial understanding allowed for future changes of circumstances. Hence there is nothing unfair in the other shareholders insisting upon the continuance of the association.
192. In support of a winding up order under Case 4 Surendra relies on the above factors, coupled with the fact that the other shareholders have refused to buy his shares at a price of £2.5M, offering instead to buy him out at a substantially lower price. In my judgment, however, there is nothing unfair in the attitude adopted by the other shareholders in their attempts to negotiate a buyout of Surendra's interest. On the contrary, it appears to me that the other shareholders have throughout done their best to treat Surendra fairly and to accommodate his wishes so far as possible. Nor, taking into account the remaining factors on which Mr Acton relies, is a case for a winding up on the "just and equitable" ground made out. There is nothing in the conduct of the majority towards Surendra which equity would regard as contrary to good faith, and accordingly there is no basis upon which it could be said that it is unjust or inequitable for them to continue the association by maintaining the Company in being, contrary to Surendra's wishes.
193. For those reasons, I reject Case 4.
194. I therefore conclude that Surendra has failed to make out a case for relief under section 459 or for a winding up order.
195. In the light of that conclusion, it is unnecessary for me to address a number of issues which would have arisen had I concluded that relief should be granted. For completeness, however, I shall state briefly what my conclusions would have been on such issues had they arisen.
196. So far as Dilip's 10 per cent interest is concerned, I would have concluded that that interest ought to be taken into account in valuing Surendra's shares, and an appropriate mechanism included in the order to ensure that Dilip's interest is safeguarded as against the other shareholders.
197. On the issue whether, in valuing Surendra's shares, a discount should be applied to reflect that fact that it is a minority holding, or whether his shares should be valued on a pro rata basis, I would have concluded that his shares should be valued on a pro rata basis, following Re Bird Precision Bellows [1984] 1 Ch 419.
198. As to the date of valuation, given that the value of the shares has increased since the events complained of, I would have directed that the appropriate date is the date of the order.
199. In the event, however, for the reasons which I have given the petition must be dismissed.
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