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

A company is not a quasi-partnership merely because it is a successful family business. Equitable constraints on legal shareholder rights require a mutual, enforceable understanding affecting the relevant shareholders’ consciences. A qualified family understanding about a director’s possible future advancement, unknown to majority trustees, is insufficient.

A director must disclose an opportunity relevant to the company and any real conflict between duty and personal interest. The director cannot decide privately that the company would decline the opportunity. Concealing such interests, conducting a defective internal investigation, and diverting profits through excessive remuneration instead of dividends may amount to unfair prejudice under Companies Act 2006, section 994.

Where those acts have depressed a minority holding’s value, a share-purchase order may be appropriate. Deliberate delay may justify an earlier valuation date, but does not necessarily bar relief.

The petitioners were the trustee of discretionary trusts holding about 19.5% of the shares in Edwardian Group Ltd and Herinder Singh, a minority shareholder and former director. They sought relief under Companies Act 2006, sections 994 to 996.

They alleged that the company was a quasi-partnership and that Herinder Singh’s removal as director and employee was unfairly prejudicial. They further alleged that Jasminder Singh had diverted corporate opportunities involving Winchfern and Expotel, failed to disclose continuing conflicts of interest, and received excessive remuneration instead of proper dividends. They also challenged the company’s internal investigation into those matters.

The central issues were whether equitable participation rights existed, whether the fiduciary and governance failures constituted unfair prejudice, and what remedy should follow.

1. The petition succeeded in substantial part. The court ordered that the petitioners’ shares be purchased by Jasminder Singh or the company. No purchase order was made against Verite or Jemma.

2. The company was not a quasi-partnership. Although it began as a family company, external investment, the 1991 shareholder agreement and the 1993 restructuring were inconsistent with the alleged continuing equitable right of family members to manage it. The 1999 understanding between the brothers was only that Herinder Singh might progress to a senior role if he proved capable. It was qualified, lacked the mutuality required for an equity between shareholders, and was unknown to the majority trustees.

3. Jasminder Singh breached fiduciary duty by taking interests in Winchfern and Expotel without informed company approval. The opportunities were relevant to the company and he could not decide for it that it would be uninterested. His interest in competitor and booking-agent businesses created continuing, undisclosed conflicts. His 2008 disclosure was incomplete and misleading. The Expotel opportunity might have been taken by the company and later realised more than £11m for the Carriere trust.

4. The board committee’s investigation into those matters was neither independent nor fair. Its undisclosed report and the shareholder letter omitted material facts about non-disclosure and the trust arrangements. That denied shareholders a properly informed opportunity to consider whether Jasminder Singh should account to the company and was unfairly prejudicial.

5. The company also exercised its remuneration powers for an improper purpose. It retrospectively treated personal expenditure for Jasminder Singh’s benefit as bonuses or benefits in kind, rather than declaring dividends. Remuneration above £1.8m in each of 2011, 2012 and 2014 was unreasonable. The resulting diversion of profits unfairly prejudiced minority shareholders.

6. The petitioners’ deliberate delay did not amount to acquiescence and had caused no substantial evidential prejudice. It did, however, justify fixing June 2014 as the valuation date. The fair price was the market value of the petitioners’ shares plus one half of the marriage value released by their acquisition, with notional adjustments for the Expotel proceeds and excessive remuneration.

not stated in the judgment.