Estera Trust (Jersey) Ltd & Anor v Singh & Ors

Factual and Procedural Background

The Petitioners claim relief under sections 994-996 of the Companies Act 2006, alleging that the affairs of Company A have been conducted in a manner unfairly prejudicial to their interests as members. The primary relief sought is an order that the Defendant, or associated trustees or the Company, buy out the Petitioners' shares at a fair price.

Company A operates a successful hotel business primarily in The City. It was incorporated in 1977 initially for a holiday let property and shifted focus to hotels in 1979. Defendant, a certified accountant, has been a shareholder and director since acquisition on behalf of the family and has served as Chief Executive for many years. The Second Petitioner, Defendant's younger brother, has also been a shareholder since incorporation and was a director from 1986 and employee from 1992.

The Company faced near insolvency in the early 1990s due to economic recession and the liquidation of a major lender. A rescue package included convertible preference shares granted to Jersey discretionary trusts created by the Petitioners' parents. The trusts were divided in 1999 between those benefiting Defendant's immediate family and those benefiting the Second Petitioner’s immediate family. The Petitioners are trustees of these Jersey trusts.

Shareholdings have been held approximately as follows: Defendant 5.28%, trustees of Defendant’s trusts 69.25%, Second Petitioner 0.36%, trustees of Second Petitioner’s trusts 19.53%, with other small shareholders. The Fifth Respondents are trustees of English trusts holding a small number of shares, mostly for the benefit of the Second Petitioner’s family.

The Petitioners principally complain of the removal of the Second Petitioner as a director and employee, breaches of fiduciary duty by Defendant relating to investments in two companies (Winchfern and Expotel), non-disclosure of interests by Defendant, an unfair investigation into those matters, and improper distribution of Company profits to Defendant through excessive remuneration rather than dividends.

The Petitioners allege a fundamental understanding among certain shareholders that Defendant, the Second Petitioner, and their parents were entitled to participate equally in management, creating a quasi-partnership with equitable rights preventing majority shareholders from acting contrary to that understanding. They contend that the exclusion of the Second Petitioner was unfairly prejudicial conduct.

Prior litigation involving the family and Company was decided against the Petitioners’ parents, rejecting claims of joint family property rights. The current proceedings are extensive, addressing factual issues spanning over 30 years, and focus on whether a quasi-partnership existed and whether breaches of fiduciary duty and unfair conduct occurred.

Legal Issues Presented

1. Whether the Company is a quasi-partnership such that equitable rights arise preventing the exclusion of the Second Petitioner from management and directorship.
2. Whether Defendant breached fiduciary duties by failing to disclose and by profiting from investments in Winchfern and Expotel.
3. Whether the removal of the Second Petitioner as director and employee was unfairly prejudicial conduct.
4. Whether the Company’s investigation into the Winchfern and Expotel matters was conducted fairly and adequately.
5. Whether the remuneration awarded to Defendant in 2011, 2012, and 2014 was excessive and constituted unfair distribution of profits.
6. Whether delay by the Petitioners in issuing proceedings should affect relief.
7. What remedy is appropriate in light of the findings on unfairly prejudicial conduct.

Arguments of the Parties

The opinion does not contain a detailed account of the parties' legal arguments.

Table of Precedents Cited

Court's Reasoning and Analysis

The court undertook a detailed factual and legal examination of the history and conduct of Company A, focusing on the alleged quasi-partnership, breaches of fiduciary duty by Defendant, the removal of the Second Petitioner, the investigation into the fiduciary breaches, and the remuneration of Defendant.

On the quasi-partnership issue, the court found no enforceable equitable understanding that entitled the Second Petitioner to equal management rights or to be a director. Although there was a family context and informal understandings about roles, no binding agreement existed, and the 1991 Shareholder Agreement expressly superseded prior arrangements. The alternative case that an understanding crystallised around 1999, linking the Second Petitioner’s role to training and potential succession, was found to be an honourable but qualified and unilateral understanding, not mutual or binding on the trustees or other shareholders. The trustees of the Jersey trusts (Verite and Jemma) were not parties to or aware of such an understanding and could not be bound by it. The court rejected arguments that the trustees acted as agents or conspirators with Defendant in removing the Second Petitioner.

Regarding breaches of fiduciary duty, the court concluded that Defendant had improperly taken for himself corporate opportunities relating to the companies Winchfern and Expotel, failing to disclose his interests to the board or auditors for many years. His conduct placed him in a continuing conflict of interest and duty, causing unfair prejudice to the Company and its shareholders by depriving them of the opportunity to consider those investments and by profiting personally. The court rejected Defendant’s arguments that these were personal matters or that no loss was caused. The court held that the failures to disclose were breaches of fiduciary duty and conduct of the Company’s affairs for unfair prejudice purposes.

On the removal of the Second Petitioner as director and employee, the court found that the removal was primarily due to the Second Petitioner’s refusal to approve the Company’s accounts and his disruptive conduct, which imperilled the Company’s financial stability and governance. The removal was not instigated by Defendant to suppress complaints about fiduciary breaches. The trustees acted independently, albeit with knowledge of Defendant’s views. The redundancy of the Second Petitioner as employee was a contrived process supported by Defendant and senior management. The court held that, if a quasi-partnership had existed, removal without a fair offer was not justified by the Second Petitioner’s conduct.

The investigation into the fiduciary breaches was flawed, lacking independence, transparency and rigour. The investigation committee, composed of two directors close to Defendant, produced a privileged report that was not shared with the board or shareholders. The summary provided to shareholders was misleading and incomplete, downplaying breaches and omitting material facts. The court found the investigation and reporting to be unfairly prejudicial conduct of the Company’s affairs.

Regarding remuneration, the court found that Defendant’s remuneration in 2011, 2012 and 2014 was excessive and awarded retrospectively to cover personal expenditures, including family weddings and property renovations, rather than as reasonable remuneration for performance. The Company lacked a proper remuneration or dividend policy, and the board’s actions were for an improper purpose: to benefit Defendant personally without proportionate benefit to other shareholders. Expert evidence supported that the remuneration was unreasonably high.

On delay, the court found that the Petitioners deliberately delayed issuing proceedings, initially supporting parallel family litigation (the BM Singh Claim) before pursuing the unfair prejudice petition. While the delay was tactical and substantial, the court found no sufficient prejudice or change of position to bar relief. The Petitioners did not acquiesce in the unfair conduct and had valid reasons for delay. The court held that delay should be taken into account in valuation but should not deny relief.

For remedy, the court held that a share purchase order was appropriate to remedy the unfair prejudice, as the Petitioners were effectively locked in as minority shareholders with suppressed share value and no practical ability to sell at fair value. The purchase price should be fair, reflecting market value plus a share of "marriage value" (control premium) resulting from the acquisition increasing Defendant’s and associated trustees’ control. The court rejected a simple market value or pro rata valuation, requiring a valuation reflecting the realities of control and prejudice. Adjustments should be made for financial benefits derived by Defendant from breaches and excessive remuneration. Relief should be granted against Defendant and the Company, but not against the trustees, who were not implicated in the breaches or improper conduct.

Holding and Implications

DISPOSED OF

The court dismissed the Petitioners' primary case that the Company was a quasi-partnership conferring enforceable equitable rights to management participation on the Second Petitioner. It held that Defendant breached fiduciary duties by failing to disclose and profiting from investments in Winchfern and Expotel, causing unfair prejudice. The removal of the Second Petitioner was justified by his conduct and was not unfairly prejudicial in itself. The Company’s investigation into the breaches was flawed and misleading, constituting unfairly prejudicial conduct. Defendant’s remuneration in 2011, 2012, and 2014 was excessive and improperly distributed profits, also unfairly prejudicial.

The Petitioners’ delay in issuing proceedings did not bar relief but is relevant to valuation. The court ordered that the shares of the Petitioners be purchased by Defendant and/or the Company at a fair price reflecting market value plus a share of control premium and adjusted for financial benefits improperly obtained. No relief was granted against the trustees, who were not implicated in the unfairly prejudicial conduct.

The direct effect is the grant of relief to the Petitioners by way of a share purchase order with a carefully structured valuation. No new legal precedent was established beyond the application of established principles to the complex facts of this case.