In Re Dinglis Properties Ltd

This is a petition under section 994 Companies Act 2006 brought by a 12% shareholder (Paul) of Dinglis Properties Limited ('DPL'). The court rejected the contention that DPL was a quasi-partnership and that Paul's exclusion from management in June 2012 was unfair on that basis. The court found on the facts that Paul's exclusion in 2012 was justified by his misconduct with rental cash administered through the family 'buffer' company (DML), such that his exclusion did not amount to unfair prejudice on the quasi-partnership ground.

Separately, the judge found that the First Respondent, Andreas, had from 2015-2016 authorised and caused payments and loans from DPL (the Maremonte/Gatemark loans, a personal loan and consultancy-related payments) which breached his duties as a director under CA 2006 section 172 (duty to promote the success of the company) and (in relation to the Maremonte loans) section 177 (duty to declare interests). Those breaches were unfairly prejudicial to Paul.

Accordingly, the court held the petition to be well founded in respect of the post-2015 misconduct and exercised its wide remedial discretion under section 996 to order that Paul's shares be purchased. The court directed that the purchase should be ordered against Andreas and his BVI vehicle MHGL and that a minority discount should apply; the precise discount and the valuation date were left to be determined subsequently.

The petitioner, Paul Dinglis, a 12% shareholder in Dinglis Properties Limited ('DPL'), applied under section 994 Companies Act 2006 alleging unfair prejudice. He relied on two principal complaints: (1) exclusion from management from June 2012 later said to be inconsistent with alleged equitable "Understandings" between family shareholders amounting to a quasi-partnership; and (2) misuse of DPL funds by his father Andreas (including loans to Cypriot entities and payments to Iris) said to involve breaches of fiduciary duty and/or breaches of the alleged Understandings.

Procedure and factual matrix: the dispute arose from prolonged family litigation including matrimonial proceedings and a Chancery action. HH Judge Barker in the Chancery Action had earlier made findings about accounting shortfalls in the family-managed buffer company (DML) but the Court of Appeal later reversed a key agency finding. Extensive witness evidence was led; the judge treated Paul as an unreliable witness on key issues and treated Andreas more favourably in parts, while noting caution about both.

Issues the court framed and decided:

• Whether DPL was a quasi-partnership such that Paul's exclusion in 2012 was unfairly prejudicial. The court analysed the Ebrahimi/O'Neill principles and concluded the petitioner had not proved the necessary equitable understanding that curtailed Andreas' legal rights; the quasi-partnership argument failed.
• Whether Paul's exclusion could alternatively be justified by his misconduct. The court examined the joint expert findings in the Chancery action about unexplained cash (the 'cash shortfall') and rejected Paul’s account that the cash had been legitimately used in the business. The court held Paul's removal in 2012 was justified by his misconduct in relation to DML cash receipts and secrecy, and accordingly his exclusion was not unfair on that ground.
• Whether Paul adequately pleaded and proved breaches of fiduciary duties by Andreas in 2015-2016 (loans/payments). The court held the Petition (as amended) sufficiently pleaded the complaints. On the facts, the court found Andreas in breach of section 172 (duty to promote the success of the company) in relation to loans and the personal loan and in breach of section 177 (duty to declare interests) in relation to the Maremonte/Gatemark arrangements. The consultancy charges were treated as more technical and did not, on the evidence, amount to unfair prejudice.
• Remedy: whether a buy-out order was appropriate, against whom, and valuation issues. The court exercised its discretion under section 996, ordering a purchase of Paul's shares and directing that the purchase order be made against Andreas and his controlling BVI vehicle (MHGL). The judge left the valuation date to be determined later but directed that a minority discount should apply to the valuation.

The court therefore dismissed the quasi-partnership/unfair exclusion claim but allowed the petition insofar as it alleged unfair prejudice arising from Andreas' misuse of DPL funds and granted a buy-out remedy with a minority discount to be fixed later.

First instance: The petition is allowed in part. The court held that DPL was not a quasi-partnership and that Paul's exclusion from management in June 2012 was not unfair on that basis; it was in any event justified by Paul's misconduct in relation to DML cash. However, the court found that from 2015 onwards Andreas caused DPL to make loans and payments which breached his duties as a director (section 172 and section 177 Companies Act 2006) and that those breaches were unfairly prejudicial to Paul. The court therefore ordered that Paul's shares be purchased and directed that the order be made against Andreas and his controlling vehicle MHGL; a minority discount will apply and the valuation date is to be determined later.