Dinglis v Dinglis & Ors

A family company is not a quasi-partnership merely because its shareholders are relatives or conduct its affairs informally. The petitioner must prove a sufficiently precise agreement or understanding, binding in fairness and equity, which limits the majority’s strict constitutional rights.

For the purposes of Companies Act 2006, section 994, fairness is assessed objectively by reference to all circumstances existing when the impugned conduct occurred, including misconduct unknown to the respondent. A director’s breach of section 172 may cause unfair prejudice where company resources are deployed primarily for the director’s benefit and the interests of minority shareholders are subordinated. A transaction with the company falls within section 177 rather than section 175.

Paul Dinglis, a 12% shareholder in Dinglis Properties Limited, presented a petition under section 994 of the Companies Act 2006. He complained that his father, Andreas Dinglis, had unfairly excluded him from management and had caused company funds to be used for payments benefiting Andreas and companies he controlled.

The court rejected the alleged management understandings and held that the company was not a quasi-partnership. It nevertheless found unfair prejudice in the use of company funds for loans and payments which did not properly promote the company’s success for the benefit of members as a whole. The central questions concerned the existence of equitable constraints, the relevance of previously unknown misconduct, the statutory directors’ duties, and the appropriate remedy.

1. Exclusion from management. The petitioner failed to prove a sufficiently clear agreement or understanding that he would remain involved in management for so long as the business continued. The history showed that Andreas had retained ultimate control, even though Paul had later assumed substantial day-to-day responsibilities. Family ownership, mutual confidence, gifts of shares, personal guarantees and informal management did not establish an equitable restriction on the right to remove a director. DPL was therefore not a quasi-partnership in the Ebrahimi v Westbourne Galleries sense, and exclusion from management did not itself amount to unfair prejudice.
2. Unknown misconduct. The fairness of exclusion under section 994 is assessed objectively. The court may consider misconduct existing at the time of exclusion even if the respondent did not know of it when acting. Paul’s use of cash rental income without transparent accounting was sufficiently serious to justify exclusion, assuming that equitable constraints had existed.
3. Statutory duties. Section 175(3) excludes conflicts arising in relation to a transaction or arrangement with the company, regardless of whether the director personally enters the transaction. Such matters fall within section 177. Andreas breached section 172 in arranging the Maremonte Loans and the Personal Loan primarily to advance his own interests and limit benefits accruing to Paul. He also breached section 177 in relation to the Maremonte Loans by failing to disclose his personal guarantee, personal claims against the Maremonte Companies and the urgency created by the National Bank of Greece settlement. The Consultancy Agreement involved, at most, a technical section 177 breach and did not itself create unfair prejudice.
4. Prejudice and remedy. The section 172 breaches caused unfair prejudice because DPL lost the opportunity to deploy its funds more profitably, notwithstanding repayment at 3.5% interest. A purchase order was appropriate. MHGL was sufficiently connected with the conduct because Andreas admitted that he solely owned and controlled it. Paul’s shares were to be valued subject to a minority discount; the extent of the discount was left for a later stage.

This was a first-instance petition. The court ordered Andreas and/or MHGL to purchase Paul’s shares, subject to a minority discount.