Paul Richard Knell & Ors v Eric Van Loo
[2023] EWHC 2109 (Ch)
Sujata Chohan v Jayendra Ved & Ors
1 May 2024
[2024] EWHC 739 (Ch)
High Court
Two friends went into business together to buy a building. One friend, who was in charge of the company that owned the building, secretly gave himself a much better lease than he was entitled to. A court decided this was unfair and cancelled the better lease, finding that the friend in charge abused his position of trust.
Key Facts
- •Sujata Chohan brought a derivative claim against Jayendra Ved and Nexbell Limited alleging breaches of duty by Ved, Nexbell's sole director.
- •The claim concerned a lease granted by Nexbell to Ved for its principal asset, office premises at 5 Theobald Court.
- •Ved also brought a Part 20 claim relating to a joint venture agreement concerning the premises.
- •The joint venture involved Chohan and Ved's families, with an understanding that each family would have a 50% shareholding.
- •Initially, a lease (Original Lease) was granted to Ved excluding security of tenure, later replaced by a new lease (New Lease) including such provisions.
- •The relationship between Chohan and Ved deteriorated, leading to disputes over the terms of the joint venture and the validity of the New Lease.
- •Chohan's claim is that the new lease was procured by Ved for improper purposes and in breach of his duties as a director to Nexbell.
Legal Principles
Derivative claim under Chapter 1 of Part 11 of the Companies Act 2006
Companies Act 2006
Directors' duties under sections 171(b) and 172 of the Companies Act 2006 (to exercise powers for proper purposes and to act in good faith to promote company success)
Companies Act 2006
The subjective nature of the director's duty to act in good faith to promote the success of the company (Re Regentcrest plc v Cohen)
Re Regentcrest plc v Cohen [2001] 2 BCLC 80
Objective test for director's duty if no evidence of actual consideration of company interests (HLC Environmental Projects Ltd)
HLC Environmental Projects Ltd [2014] BCC 377
The Duomatic principle: unanimous shareholder assent can ratify director actions, even if a breach of duty (Re Duomatic Ltd)
Re Duomatic Ltd [1969] 2 Ch 365
Considerations on witness credibility and memory in civil litigation (Gestmin SGPS SA v Credit Suisse (UK) Limited)
Gestmin SGPS SA v Credit Suisse (UK) Limited [2013] EWHC 3560 (Comm)
Testing witness veracity by reference to objective facts, documents, motives, and probabilities (The Ocean Frost)
The Ocean Frost [1985] 1 Lloyd's Rep 1
Outcomes
The New Lease granted by Nexbell to Ved was declared void.
Ved breached his directors' duties under sections 171(b) and 172 of the Companies Act 2006 by procuring the New Lease for his own benefit, securing an advantage beyond his rights under the joint venture agreement. The Duomatic principle did not apply because there was no evidence of unanimous shareholder assent, including from the beneficial owner of half the shares.
Ved's Part 20 claim was adjourned to allow consideration of the court's findings of fact.
The court deemed it more appropriate for parties to first consider the findings before seeking further orders.