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England and Wales High Court (Chancery Division) Decisions
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Cite as:  EWHC 76 (Ch)
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ON APPEAL FROM THE HIGH COURT OF JUSTICE BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY AND COMPANY LIST (ChD)
ICC JUDGE BURTON
IN THE MATTER OF PROSPECT PLACE (WIMBLEDON) MANAGEMENT COMPANY LIMITED
AND IN THE MATTER OF THE COMPANIES ACT 2006
Fetter Lane, London, EC4A 1NL
B e f o r e :
| (1) LILY PROPERTY NOMINEES LIMITED
(2) GURUPARAN CHANDRASEKARAN
|- and –
|(1) WILLIAM GEORGE STONEBRIDGE
(2) PAUL JOHAN VOGT
(3) RICHARD MICHAEL JOSEPH
(4) PROSPECT PLACE (WIMBLEDON) MANAGEMENT COMPANY LIMITED
Richard Samuel and Hafsah Masood (instructed by Peacock & Co Solicitors) for the Respondents
Hearing date: 14 December 2021
Crown Copyright ©
Covid-19 Protocol: This judgment has been handed down by the judge remotely by circulation to the parties' representatives by email and release to Bailii. The date for hand-down is deemed to be 17 January 2022.
Mrs Justice Joanna Smith:
Background to the Petition
"Last week, your gardener, who identified himself as Jakob, no less confronted me with a very menacing and aggressive approach and tone respectively, in which he told me I was "wasting everybody's' time" and that I should pay him "at least twenty to twenty five quid" to clear the leaves. He told me that the was employed by you and that you had told him to ask me. Having spoken to me in this manner, he goes on to ask, menacingly, "can you speak English?". Ironically, a first generation immigrant, who can hardly string a grammatical sentence in the language together, asks this of a second one! It seemed obvious to me that he had been put up to the whole task; this had shades of the past of course to which I refer above. For the record, I was educated in the English medium, attended two (English medium) top ranked Universities, was an advisor to the UK CBI (in English), advisor to the Dti (in English) and advisor to the Prince of Wales (in English), am a Visiting Professor in a leading (English speaking) University, am a director of a English Company of which all matters are discussed in English and am a father and husband within a house where only English, with poor but passable French, is the 'mother tongue' and more (in English); we can therefore reasonably deduce that I have passed the English test and I would thank you not to send your gardener around to ask such rude and impertinent questions. I trust this type of incident will never again take place. I now have a note from Jakob for £700:00 for the clearance of my garden. This is clearly intimidation and harassment. You might like to remind him that I have paid my dues for his welfare as a recent immigrant himself and that as house owner in the close he will in future treat me and more immediately my family with more respect - as in the alternative I will take swift and pretty harsh action - please do not underestimate me on this. If you think me a shrinking violet - 1 warn you to think carefully, again please" (emphasis added).
"In conclusion, the events between the completion of your property purchase on 15th January and the present fell well below the standard we would expect of ourselves and we will ensure that in our future conduct we will treat you fairly and equitably, just the same as we would any other shareholder of Prospect Place. Having said that, in consideration of the distress caused to you, we wish to pay your reasonable legal costs up to £500.00. We wish to have good neighbourly relationships going forward, and trust that this will reassure you of our good intentions in that regard".
"On any view, it is wholly inappropriate to continue to engage an individual for the estate who has been so hostile to one of the long-standing residents. It seems to our clients that by supporting the behaviour of the gardener, the board has supported the obviously racist slur made. Our clients believe that it was a former board member which encouraged the gardener to be so hostile and as such demonstrates the feeling of the board towards our clients which is clearly one of prejudice. Our clients further object to being asked to contribute annually to a fund which pays this supplier" (emphasis added)
"…your client's continued retention of the gardener amounts to harassment of Mr Chandrasekaran as it is plainly intended to cause him alarm and distress…By continuing to retain the gardener your client is also effectively condoning his racism towards Mr Chandrasekaran. This amounts to a form of continuing discrimination in the form of victimisation under s.27 of the Equality Act 2010".
The August 2018 Letter went on to address other matters in respect of which complaint was made and then returned to a similar theme to that adopted in the May 2018 Letter:
"…the Board and its members have treated Mr Chandrasekaran and [Lily] differently than the other shareholders. They have also gone out of their way to antagonise and frustrate Mr Chandrasekaran and his family. This treatment amounts to a campaign of harassment that is prohibited under s.1 Protection from Harassment Act 1997…Moreover, as the campaign has followed Mr Chandrasekaran's complaint that the gardener engaged by the Board racially abused him, the Board's conduct constitutes victimisation prohibited by s.27 Equality Act 2010".
"The apology of 18th February 2018 (sic) does not contain any admissions, our client having no way of knowing what happened. It did say, and this was accepted at the time by Mr Chandrasekaran, that there would be no repetition, and this has been fulfilled. Your letter of 16th May did not allege racism, nor did this suggestion appear in Gardner Leader's letter of 22 March".
In response to the demand made in the August 2018 Letter, Peacock wrote:
"The Company does not propose to alter its present arrangements for gardening for the reasons given above, principally that there have been no further complaints about the gardener, the matter has already been settled and the allegation of racism is rejected as being groundless and having nothing to do with the Company"
"Your assertion that the allegation of racism is groundless is offensive, wrong and deliberately intended to promote disharmony…Our clients are outraged at your stance in retaining this individual whose interest your client has so boldly tried to protect…This is a very serious matter and your clients protection of the gardener amounts to demonstrating not just bad judgement on your client's part but also a willingness to defend racism generally and specifically in relation to a shareholder. It therefore has everything to do with the company and its conduct. The gardener enjoys the benefit of the income from the estate and the relationship with the board which protects him. In regards to further intimidating our clients and as we have stated, our clients will never put up with raising a family in this climate. Your client and its members will face this as a separate claim against them, given that it was accepted and established previously that the gardener and his remarks to our clients were unacceptable and yet your client continues to retain him and seek, as we say, to promote racism. Our clients instruct us that, as some members of the board treat the estate as their own fiefdom, it is not surprising to see the turnaround and denial. Mr Chandrasekaran is minded to sue all members of the board individually for the defence of this heinous action."
"As to 16.1 [of the draft Petition], the Company has sought to strike a balance in managing the altercation with the gardener. An apology has been provided on behalf of the individual in question and the Company does not consider that requiring its contractor to remove him from site is necessary. In any event it appeared to our clients that this matter had been resolved in 2016."
"discriminated against Mr and Mrs Chandrasekaran and their children…in the way that they have managed the Company…It is to be inferred from the matters set out in this Re-Amended Petition that [Mr Stonebridge, Mr Vogt and Mr Joseph] have adopted a policy in the manner that they have managed the Company aimed at not only diminishing the Chandrasekaran's quality of life but at causing them to sell 7PP or otherwise leave the property. Details of relevant matters are set out in the subsequent paragraphs of this Re-Amended Petition" (emphasis added).
"There is abundant evidence of bad faith by those controlling the company as set out in the Re-Amended Petition and including…(ii) keeping on a racist gardener causing obvious distress".
At paragraph 24(d) it went on:
"The…gardener issue [has] not been resolved and remain[s] relevant. [It] is indicative of and form[s] part of the course of conduct complained of in the Petition. The undertaking given in the letter of apology has not been complied with".
"60. I was getting out of my car, which I parked outside of my Property, when the gardener suddenly scolded me outside of my Property. He did so in the most uncouth fashion with his voice raised, and demanded I pay him '£25 quids' (sic - he had an Eastern European accent and his English was not perfect, but his meaning was clear). He told me he was employed by the Company. His ranting at the top of his voice went on. I was baffled and speechless. His attitude and demeanour were very unpleasant. He then asked, 'Do you speak English?' and "do you understand English?'. He was a much shorter man than me and I will not forget the way he seemed to stand on the ball of his feet and the way he leant toward me with disdain in his eye as he was saying the words. I have previously seen such hatred in the eyes of people who would speak to me or my family like this in decades past and I recognised it for what it was – racism. I contend he would not have said this in this way to a fair skinned person. He then repeated the first question. He went on to say that my drive was dirty and demanded £700:00 for clearing it up. This sum made no sense, given the job he was talking about and it was my land he was talking about not part of the private road. 61. On any view, this was a slur, and many would and indeed have said it was racist in nature. It certainly seems so to me. I thought these times had passed. I wrote to [Mr Vogt] about this several times, in particular I refer to my email of 3 February 2016, mentioned above. The racist element was not initially emphasised because it was a painful matter to draw attention to. It had been assumed that the board would understand what was going on and take appropriate steps" (emphasis added)
"On that basis, and in addition to the commitment by the board in the letter of apology, the matter was seen as closed. There have been no further issues between [the Gardener] and Mr Chandrasekaran or anyone else".
"The directors failed, in May 2018, when Mr Chandrasekaran asked them to do so, to take suitable steps to terminate the contract of a gardener. Mr Chandrasekaran had complained that the gardener had racially slurred him in February 2016. The gardener's continued presence on the Company's land caused the Chandrasekaran family discomfort, "compounded by the Chandrasekarans' knowledge that those in control of the Company prefer to support an individual accused of racism than the persons the Company was designed to serve"."
"The Company's role is very limited. Its directors are unpaid. Membership arises only as a result of ownership of a home on Prospect Place. Its existence facilitates the maintenance and administration of the common drive, verges and gate entry system by a nominated few, thus avoiding the need for all homeowners to become involved in all decisions and payments as they arise. Members are fairly entitled to expect the Company to be run in accordance with its constitution and for the directors to observe their statutory and common law duties."
"Mr Chandrasekaran took care to listen to the questions being asked of him. He appeared to be concerned that the Respondents' counsel would try to make him say or agree to statements that were not correct and on occasion, held back from providing detailed answers until the purpose of a particular line of questioning became clearer to him. I did not form the impression that he was trying to hide anything. I believe he answered the questions posed of him as honestly as he could, relying on his recollection, perception and interpretation of events. However, as will be seen, in my judgment it is Mr Chandrasekaran's perception of the way he and his family have been treated, coupled with his inability to anticipate or appreciate the effect of his own actions on others, that lies at the heart of this very sad affair."
"…perception of encounters and correspondence in which she was not directly involved, was dependent upon her husband's interpretation of the events. She appears mostly to have heard only his side of the story and appears to have accepted it without question" (paragraph 67).
"Mr Vogt agreed that the Company's directors could have chosen not to have employed the gardener or could have terminated his contract far earlier than they did. However, he explained that he did not accept that there was evidence that the gardener was racist. Mr Chandrasekaran had described the conversation he had with the gardener but in Mr Vogt's opinion, did not describe why it was racist. He referred to a letter of apology which the directors at the time had been led to believe would diffuse matters. He was not aware of any further interaction between the gardener and Mr Chandrasekaran after that letter was sent."
"Whilst I found Mr Birley's letter to have been potentially inflammatory, I consider Mr Chandrasekaran's response to have been incendiary. This was the first of many occasions when he chose to portray himself as a victim, at the mercy of others whom he perceived to want to bully, harass and generally treat him unfairly. The language he used both in his correspondence and during cross-examination was emotional and resentful. He said in cross-examination that he considered Mr Birley's letter to be "More than irritated. I think he's sending me a message. I'm prepared to fall in but that is an unnecessary and threatening email that threatens to impugn …" . He said: "What he's saying is that he disapproves of how I've bought the house or disapproves of us". He said that he considered the letter to be a clear indication of how his family would be treated and he wanted it to stop."
"126. The petition complains that the directors failed, in May 2018, when Mr Chandrasekaran asked them to do so, to take suitable steps to terminate the gardener's contract. Mr Chandrasekaran's email of 3 February 2016 referred at length to his encounter with the gardener. At that time, the gardener was employed by Mr Birley.
127. The Apology Letter apologised for the gardener's conduct and said that the Company would ensure that it would not be repeated. In his witness statement, Mr Chandrasekaran confirms that:
"Presumably someone had a word with him because he has not confronted me in the same way since, though he is generally haughty on the occasions when our paths cross".
Nevertheless, he says that:
"His presence on the estate has been a regular and upsetting reminder of the event in 2016 and caused my family continuing discomfort. It has been a constant reminder of the apparent contempt the board has towards my family".
128. During cross-examination, counsel referred to the Apology Letter, describing the directors as having abased themselves to give Mr Chandrasekaran all that he wanted. Mr Chandrasekaran replied that was not correct because he wanted the gardener to be removed.
129. I find that, by the wording of the Apology Letter, Mr Chandrasekaran did not ask for the gardener to be removed; rather he asked the directors to assure him that the gardener's behaviour would not be repeated. His own evidence confirms that it was not. Mr Chandrasekaran chose to interpret the gardener's continued presence as a reminder of the contempt that he perceived the board to feel towards him and his family. I saw no evidence surrounding the issue of the gardener to suggest that this was the case. I find nothing prejudicial or unfair in the directors taking on the employment of a gardener whose alleged offensive conduct towards Mr Chandrasekaran, they had ensured, was not repeated".
"244. Having considered, in detail, the documentary and oral evidence concerning the incidents relied upon in the Petition, and the conduct of the Respondents and of Mr Chandrasekaran in relation to each of them, I have seen absolutely no evidence to support Mr Chandrasekaran's firmly held belief that the directors wish to diminish his family's quality of life, whether to cause them to sell 7PP or move or otherwise.
245. I have seen no evidence that the Company has been run other than in good faith in the interests of all of the homes at Prospect Place, including 7PP. Mr Vogt, in particular, expended considerable effort trying to appease Mr Chandrasekaran. Mr Joseph wanted to be no part of the historic dispute, seeking only to encourage the parties to find an amicable solution.
246. There appear to have been some errors in the manner in which the Company's affairs have been conducted [none relates to the Gardener Issue]… Such errors do not appear to have caused any lasting damage to Lily's shareholding.
247. Applying Slade J's reasonable bystander test (set out at paragraph 46 above), objectively I do not consider that a reasonable bystander observing the consequences, whether separately or cumulatively, of the various incidents relied upon (and I include here also events referred to in evidence but not the Petition, such as potholes outside 7PP's driveway) would regard them as having unfairly prejudiced Lily's interests as a shareholder in the Company".
"248. I have found no justification for imposing upon the Company or its members equitable duties over and above those set out in statute, common law, the Company's constitution and the [Deed of Covenant].
249. Even taking into account the breadth of the jurisdiction set out in Mr Beasley's submissions, I have found, in relation to each of the incidents relied upon in the petition, either that they do not fall within the scope of section 994, or that there was no unfair prejudice and no abuse of power on the part of the Company that requires judicial intervention.
250. I have seen no evidence of a campaign on the part of the Respondents to harass or force the Chandrasekarans to leave Prospect Place.
251. The unfair prejudice petition is dismissed."
"3….Mr Beasley explained that the Judge was wrong to conclude that the directors' handling of the complaint concerning the gardener involved no breach of duty giving rise to unfair prejudice that warranted relief. He then sets out a list of particular issues of which either no or an insufficient account was taken. Those include that the Judge did not even refer in the judgment to Mr Chandrasekaran's evidence that when an apology letter was given he did not ask for the gardener to be removed because he had already, separately been assured by Mr Beckwith that the gardener would be removed.
4. They also include that, notwithstanding that the directors were aware from Mr Chandrasekaran's emails of the distress caused to him by the comments made by the gardener in 2016, they nevertheless proceeded subsequently to employ him and then to retain him…
5. Whilst not every piece of evidence is referred to, the conclusions I reached in relation to the gardener followed a full review of all of the evidence before me including Mr Chandrasekaran's evidence and the written apology demanded and received by him. At the time of the incident, the gardener was not employed by the company. The directors were asked to ensure that the incident which founded Mr Chandrasekaran's complaint was not repeated. The directors spoke to him, the conduct was indeed not repeated and some time later they chose to employ him.
6. I do not consider that this ground of appeal has a real prospect of success."
"The Judgment recites at paragraph 103 the full details of the incident with the gardener. It proceeded on the basis that the alleged incident did take place. The conclusions reached were supported by the evidence before the Judge including in particular a written apology demanded and received by P2. The Court found that the directors responded in the manner requested of them by ensuring that the offensive conduct was not repeated. There is no reasonable prospect of an appeal court reaching a different conclusion" (emphasis added).
The Grounds of Appeal
i) That in dismissing the Gardener issue and refusing to grant the Relevant Relief, the Judge:a) Failed to take any, alternatively any sufficient account of the following facts and matters:i) There was no proper basis for the Judge to have found that the Racist Comment (i.e. the comment made by the Gardener to Mr Chandrasekaran in early 2016) was not made and she did not so find;ii) The Racist Comment was highly offensive to Mr Chandrasekaran and was self-evidently racist, but was not acknowledged as such by the directors of the Company or any of them;iii) The Gardener never apologised for his unacceptable behaviour or otherwise sought to make amends for his conduct;iv) The continued presence of the Gardener was likely to continue to be a source of discomfort to Mr Chandrasekaran and his family;v) It was wholly inappropriate for the directors to cause the Company to retain the services of the Gardener (who had previously been employed by the owner of one of the properties) thereafter knowing of the Racist Comment;vi) The fact that the Gardener Issue was not confined to the question whether the Gardener made any further racist comments subsequently, but extended to the directors' decision to cause the Company to retain the services of the Gardener and, notwithstanding Mr Chandrasekaran's complaint, not to dispense with his services until late 2019, and then only on grounds of cost; andvii) The fact that the directors' refusal to acknowledge the problem of the Gardener's continued presence and the ease and willingness with which they removed him when another stated problem associated with him arose (his cost) and/or in combination with the other matters summarised at 246-247 of the Judgment (including the finding that there were some "errors in the manner in which the Company's affairs have been conducted"), constituted unfairly prejudicial conduct of the Company's affairs within the meaning of section 994 of the 2006 Act such that the Relevant Relief should have been granted under section 996 of the 2006 Act; and/orb) Erred in law in failing to give any, or any sufficient, weight to the duty of each of the Company's directors under section 172 of the 2006 Act to "act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole" and in doing so to have regard inter alia to "(e) the desirability of the company maintaining a reputation for his standards of business conduct and (f) the need to act fairly as between members of the company", which duty was breached by reason of the manner in which the directors addressed the Gardener Issue, and which ongoing breach of duty was unfairly prejudicial to Lily's interests as a member of the Company and required and/or justified the grant of the Relevant Relief under section 996 of the 2006 Act"
"The duty imposed on directors to act bona fide in the interests of the company is a subjective one (see Palmer's Company Law (Sweet & Maxwell) para. 8.508). The question is not whether, viewed objectively by the court, the particular act or omission which is challenged was in fact in the interests of the company; still less is the question whether the court, had it been in the position of the director at the relevant time, might have acted differently. Rather, the question is whether the director honestly believed that his act or omission was in the interests of the company. The issue is as to the director's state of mind. No doubt, where it is clear that the act or omission under challenge resulted in substantial detriment to the company, the director will have a harder task persuading the court that he honestly believed it to be in the company's interest; but that does not detract from the subjective nature of the test."
"…whilst I accept the respondent's submission that the general principle of subjectivity applies to directors' consideration of the interests of creditors as well as to their consideration of the interests of the company, that has no application to a situation such as the respondent suggested arose here, namely that (as his counsel submitted) it simply did not occur to him at the time of the Engenharia payments or the personal payments that FRIE Grupo was a creditor at all..."
"There is an air of total unreality about the proposed appeal, which is plainly not for the purpose of protecting the Appellants' interest as shareholders, or not directly for the purpose, but in order to seek to vindicate Mr Chandrasekaran's stance over the [Gardener Incident] and the claimed injury to his feelings, and thereby justify the litigation that ensued. That much is evident from the fact that no substantial relief, other than a pronouncement that is not and was not in dispute at trial, is being sought on appeal".
i) The Gardener Issue, insofar as it related to the directors' conduct in 2018, was concerned with their failure to terminate his retainer. However, the circumstances surrounding the Gardener Issue have long since been addressed, the perceived breaches are historic and the Gardener is no longer retained by the Company. There is now no existing prejudice to "put right and cure for the future" (see Re Bird Precision Bellows  Ch 658, per Oliver LJ at 669).
ii) Insofar as the Gardener Issue was ever concerned with the original incident in 2016, the offensive conduct was never repeated in the period prior to termination of the Gardener's retainer in 2019.
iii) The existing directors have made it clear in correspondence that they wish to resign as directors of the Company and I have been told by Mr Samuel that they will do so once this litigation is over. This will permit a new cohort of directors to take over its management.
iv) There is no reason to suppose that any future directors of the Company will perpetuate the perceived wrongs of the existing directors. In any event, it is difficult to see what significance the Gardener Issue can possibly have to their future management of the Company.
v) When pushed as to the purpose of the order sought by the Appellants, Mr Lightman said that the"Gardener Issue [was] not addressed satisfactorily by [the] Board and in those circumstances going forward the Chandrasekarans want a message to be sent to [the] Board that in future you have to be more sensitive to concerns of shareholders and must deal with them more fairly and equitably".
vi) In my judgment, this explanation has nothing to do with protecting the Chandrasekaran's interests as shareholders from existing wrongs and everything to do with vindicating Mr Chandrasekaran's position in the litigation. It is not appropriate for the court to be asked to "send a message" to future directors who have not, as yet, done anything wrong and there is certainly no need for the court to "regulate the conduct of the company's affairs in the future" (see section 996(2)(a) of the 2006 Act) by doing so. There is no dispute that the Company must be run in good faith and fairly in the interests of all of the occupants of the Estate in the future, but I cannot see why an order to that effect is necessary.
vii) The suggestion from Mr Lightman that the grant of relief in the form of the order sought may be some form of "subliminal influence" on how the board conducts the Company's affairs in future does not seem to me to take matters further.
"it is not reasonably arguable that the companies court should grant general relief, in the nature of a declaration of the duties of the directors of the company, where the only matters complained of are historic, have not been repeated or threatened to be repeated, and have no continuing significance for the affairs of the company or the rights of the shareholders as a whole. There is no dispute – and the directors of the Company accepted in evidence – that they should conduct the company's affairs in good faith in the interests of the company for the benefit of the shareholders of the company generally. No purpose would be served by making the order sought other than the personal vindication of Mr Chandrasekaran".