republic of trinidad and tobago in the high court of...

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REPUBLIC OF TRINIDAD AND TOBAGO

IN THE HIGH COURT OF JUSTICE

CV 4813 of 2014

BETWEEN

ISLAND ROOFING AND HARDWARE SOLUTIONS LTD (IRHSL)

Claimant

AND

TERRENCE KALLOO

TERITA KALLOO

BUILD TO LAST HARDWARE AND ROOF MANUFACTURING LTD

Defendants

***************************************

Before The Hon. Madam Justice C. Gobin

Appearances:

Mr. B. Reid instructed by Mr. N. Lawson for the Claimant

Ms. D. A. Prowell-Raphael instructed by Ms. C. Prowell

for the Defendants

JUDGMENT

Background

1. The claimant company, Island Roofing and Hardware Solutions Ltd (IRHSL)

was incorporated on 21st May 2005. It carries on a hardware business and specialises

in high-end roof manufacturing. The original seven directors and shareholders of

IRHSL were Messrs Arnorld Niranjan, Winston Siriram, Mark Alfonso, Sunil

Moonasar, Rawdon KamtaPersad, Nigel Jaggassar and the first Defendant Mr.

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Terrence Kalloo. They were friends and business associates, some in closer

relationships than others.

2. On 27th November 2006 a unanimous shareholders agreement was signed by

all of them. Among its terms were: -

(8.1) Number of Directors

“the number of Directors shall be 7 comprised

of one appointee of each of the initial parties”

(8.2) Appointment Removal and Replacement of Directors

The shareholders shall for as long as they remain

shareholders of the company have exclusive right to nominate

Directors as specified in Clause 8.1 above and each of them

may from time to time by written notice deliver at the

Registered Office of the Company with a copy to the other

shareholders replace its appointee or till a vacancy on the

Board resulting from the death, resignation, removal, or

disqualification of its appointee to the Board. Such

replacement of filing of a vacancy shall be at the exclusive

discretion of the shareholder. (emphasis added)

Mr. Kalloo/Employee

3. From the start up of its operations, Mr. Kalloo was also an employee of

IRHSL. He was its Chief Executive Officer until he first resigned by letter dated

5th February 2010. That first resignation came about as a result of a financial crisis

in IRHSL. The company had racked up losses of about 16 million dollars in the

previous financial year. By the time the losses were discovered, director Mr. Mark

Alfonso had replaced Mr. KamtaPersad as the company’s Director of Finance.

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4. Mr. Kalloo was blamed for the huge losses which occurred under his watch.

The accusations against him ranged from incompetence, to a lack of systems, to

downright dishonesty including a suggestion that the losses were not disclosed the

previous year in order to allow for the payment of annual bonuses to persons

including himself.

Offer to resign as Chief Executive Officer

5. Mr. Kalloo, recognising that the Board had lost confidence in him, tendered

his resignation by a letter in which he indicated he had been extremely unhappy at

IRHSL “over the past months”. At the close of the evidence, I accepted that this

unhappiness had to a large extent, to do with the personality clashes with Mr.

Alfonso as well as his (Mr. Kalloo’s) feeling that he was not treated by him (Mr.

Alfonso), with the respect which he deserved. Mr. Kalloo’s letter of resignation

also contained an offer to sell his shares pursuant the unanimous shareholders

agreement to be valued at 31st May 2010, with a payment plan to be worked out

between the shareholders.

6. The resignation was not accepted. The Board took a decision to retain Mr.

Kalloo’s services on certain conditions – including his undertaking to foster a

“professional, open and cordial relationship” with Mr. Alfonso. Mr. Kalloo was

not happy with the tenor and terms of that conditional refusal. He penned a second

letter on 22nd February 2010. It exposed the extent of the hostility and ill feeling

between himself and Mr. Alphonso, or at least such as it was perceived by

Mr. Kalloo.

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7. He wrote:

“In my mind I, am clear that the Finance Director (Alphonso)

had an agenda when he came to IR in December 2009 … ...

How could there be a spirit of co-operation when the Finance

Director has absolutely no respect for the CEO and flagrantly

refuses to follow instructions from the CEO on many

occasions even without consultation.” His “modus operandi”

during his tenure so far has been to undermine and audit the

CEO and I have no doubt in my mind that this would continue

to be his aim in the future.

It is clear in my mind that the Finance Director has worked

tirelessly to tarnish my name and all that has transpired over

the past few years under my watch. By the terms and

conditions laid out by the Board with regard to my resignation

that included the sanctioning and approval of the Financial

Director, you all have once again exacerbated an already

untenable situation.”

8. Once more, Mr. Kalloo tendered his resignation as CEO, offering three

months’ notice. He again offered his shares as per terms and conditions of the

shareholders agreement, valuation to be done by an independent valuer and he

indicated a willingness to work out reasonable terms of payment. This second

resignation was in fact unanimously accepted by IRHSL as the minutes of the

meeting held on 25th February 2010 – reflected. The minutes also indicated under:

Item (2)

Discussion of shares for sale:-

The Board noted the offer for sale by the CEO’s of his

shares. It was discussed and the following procedure

should be adopted: -

ask Mr. Kalloo for the value of the shares he expects

get independent valuation

Ernest and Young will do the valuation using the same

method previous used

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Non-competing clause has to be carefully drafted if

shares purchased by company or shareholders

(emphasis is added)

Projections/cash flows to be done urgently as this will

be required for valuation and bank financing proposal

The meeting clearly recognised that there up to that time, the agreement did not

include a non-competition clause to limit the activity of a departing party. It

directed its collective mind to it but did nothing further.

9. The matter of Mr. Kalloo’s position did not end there. Further negotiations

followed. Whether Mr. Kalloo simply changed his mind and reconsidered his

earlier decision, or whether it came about because the shareholders could not at that

time take up the offer to buy the shares, is immaterial. He returned to the company.

By the time he returned however, the Board had taken a decision to restructure

IRHSL’s operations, abolishing the post of CEO. Mr. Kalloo was not, as a director,

notified of the intended change in structure nor of the reason for it. He claims

however that when he returned to his employment, he was forced to assume the role

of Director of Marketing and Operations at a considerable reduction in his salary of

seven thousand dollars. He perceived it as a demotion, but took it because the

failure or refusal to buy-out his shares left him in a precarious financial position.

10. The relationship between Mr. Kalloo and the directors of company and in

particular Mr. Alfonso did not improve. He claims he continued to ask to be re-

instated as CEO but this request was ignored. His unhappiness with the situation

continued and not surprisingly, the issue of his parting ways arose again in

November 2010. A thread of email correspondence between Mr. Kalloo and Mr.

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Niranjan beginning November 8, 2010 indicates a discussion which once again

included the selling and buying out of shares. His friendship with his fellow

directors, even with those with whom he once shared close social ties, became

strained. Mr. Kalloo said that at all times when he discussed leaving – he was very

open about his intention to open his own hardware.

Resigns as Director/termination of employment

11. On 20th December 2010, Mr. Kalloo tendered his resignation as a Director

of IRHSL by email: - It read –

“Dear All, I have informed the Chairman of my

resignation as a director of Island Roofing with immediate

effect, please be guided accordingly.”

Minutes later by further email he clarified the position: -

“Gents, apparently I was not clear in my communication

as usual. I am tendering my resignation as Executive

Director of Marketing and Operations. I am not sure how

much notice is required. I will finalize with the Chairman

of the Board an appropriate date. I am also tendering my

resignation as a Director of the Board of IR (with all these

hats, its somewhat confusing). As a shareholder, I will be

appointing a director to look after my affairs within two

weeks time.”

12. By return email Mr. Niranjan – Chairman of the Board wrote

Terrence –

This acknowledges receipt of your resignation dated

20.12.10. Under the circumstances the Board decided

to accept the resignation that you have tendered. We

note that your resignation is with immediate effect and

as such I am directed to inform you that your term of

office as Executive Director Marketing and Operations

will cease at the end of December 2010. The Board

extend its sincerest appreciation of your input over the

last 5 years in what started as a great partnership.

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We wish you all the best in your future business

endeavours which we trust will be conducted in a

responsible, respectable and fair manner.

13. Finally Mr. Kalloo responded: -

Dear Arnold

I guess my communication skills are not of the best. I

resigned as a Director but would have “held on the

marketing and operations portfolio” if required for a

couple weeks in the new year. I also thought we might

have discussed how we would have closed off things, but

this is fine. I thank you for giving me the time to demit

office properly which I will do before the end of the year.

I also wish the company well in its future endeavours and

hope that you all will also conduct your business

endeavours in a responsible, respectable and fair

manner.

I guess we may have some initial teething problems, but

I am confident that the tentacles of our friendship

transcends many boundaries. It is my honest wish that

we maintain some level of friendship in the future. Rest

assured, this has been the hardest decision I have had to

make in life. Good luck to all of you.

Regards

Terrence

14. The next Board meeting which was held one week later on 28th December

2010 was attended by the 6 remaining Directors. Mr. Kalloo’s resignation was

discussed. The discussion was minuted:-

Other matters

Mr. Kalloo resigned in writing as a Director and an

Executive of Island Roofing and the effective date is 31

December 2010.

Mr. Kalloo made an offer in writing to purchase the

shares of other shareholders of Island Roofing and if

not let those shareholders buy him out. The Directors

were polled and the unanimous decision was that they

were not willing to sell.

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The Directors were now willing to consider buying,

using the valuation methodology employed previously.

The Chairman commented that Mr. Kalloo indicated

his intention to open a business competing with Island

Roofing. This is considered to be highly unethical.

15. It subsequently came to light that on 17th December 2010 – three (3) days

before his resignation as a director, an application had been made by someone for

a name search and reservation of some names including that of the third

defendant’s, Build to Last Hardware and Roof Manufacturing Ltd. I am prepared

to accept that this was done on Mr. Kalloo’s behalf. On 6th January 2011, days after

his employment with IRHSL came to an end, Build to Last was Incorporated by

Mr. Kalloo and the second defendant, his daughter, attorney at law, Territa Kalloo.

By email dated 26th January 2011, pursuant to clause 8.2 of the unanimous

shareholders agreement Mr. Kalloo nominated Territa to replace him on the Board

of IRHSL.

The Claimant’s case

16. This claim was filed on 19th December 2015. In it the claimant claims that

as a result of the competition introduced by the appearance on the market and

operations of Built to Last, it lost customers, business, and a significant number of

its employees, 10 of whom resigned between January 2011 and 27th February 2011.

A further 5 persons left to take up employment with Build to Last between June

2011 and 3rd October 2011. This impacted on its revenue through sales and resulted

in loss of profit in the sum of $8, 030 673.00. This figure, (according to the

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claimant’s Director Finance, Mr. Alfonso), was reflected on its audited financial

statements which were produced by accountant Mr. Kerry Mohammed.

17. The Claimant claimed that Mr. Kalloo as a director of IRHSL breached his

fiduciary duty and or duty of fidelity and exclusive loyalty to the claimant. The

following specific acts were identified in the statement of case (para 15 SOC):-

(a) That he gave 11 days only significantly less notice

(presumably for his termination of employment) than the

three months which would have been reasonably required;

(b) He failed to disclose his intention to form and

incorporate a competing business;

(c) In or about December 2010 while a director, he

wrongly solicited Quality Roofing Co. Ltd and subsequently

entered into an oral agreement – with QR to roll form roofing

coils. Evidence of this was contained in a letter from Mr.

Peter George the Manager of QR, dated 6th May 2014 which

confirmed that between January 2011 and 4th October 2011 –

Mr. George provided revenue to Build to Last in the sum of

over 2 million dollars (para 17 SOC);

(d) That Mr. Kalloo poached IR’s employees leaving

the IRHSL without critical staff and this impacted negatively

on the business and their sales and profits;

(e) He removed confidential files and used materials

and information contained in them to his benefit.

18. Insofar as the second named defendant is concerned the specific breaches of

the no conflict rule are: -

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(i) she failed to inform IRHSL that she held a conflicting

position as an officer of Build to Last, which was a

competing business.

(ii) she failed to inform the claimant or its Board that 10

employees had been solicited, by the 3rd defendant or that

they had approached the 3rd defendant seeking

employment and had in fact been employed by 3rd

defendant.

(iii) She failed to disclose that Build to Last had obtained a

contract, an opportunity lost to the claimant to supply a

third party Motilal Ramjit and Sons Contracting Ltd. with

roofs and roofing Material. Further Ms. Kalloo failed to

disclose that Build to Last purchased an SSQ Roofing

Machine (a decking machine), which would allow it to

compete with one of its fastest selling products – roof

decking.

19. The claims against Build to Last were for declarations which flowed from the

allegations of misconduct on the part of the Kalloos.

The responses of Defendant’s

20. The Defendants denied any breaches of fiduciary duties. Mr. Kalloo resigned

on 20th December 2010 and his fiduciary duties terminated immediately upon his

resignation. The date of termination of his employment on 31st December 2010

was stipulated by the claimant. The claimant was well aware of his intention to part

ways and to set up his own business. He had disclosed his intention to directors

and shareholders offering them options for his separation from the company.

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21. Mr. Kalloo claimed that he was constructively dismissed and forced to resign

in February 2010, when problems arose in the relationship between the directors

and shareholders and it became clear that they could no longer work and invest

together. When, contrary to what he expected, it became clear his shares were not

going to be bought out, he recalled his resignation and accepted employment at a

different and lower level. He took a cut in salary and assumed the position of

Marketing and Operations Director.

22. Mr. Kalloo denied soliciting employees. He did feel duty bound after he had

submitted his resignation, to tell his employees who had worked under him, some

for several years, that he was leaving. Their decision to leave had nothing to do

with him. There was no secrecy. As early as January 26, 2011 – 20 days after the

incorporation of Build to Last he frontally addressed the claimant’s concerns about

the movement of their employees. He offered to meet to discuss the situation. He

proffered his own explanation for what was happening:

“the truth is the employees have no confidence

in your management team and nobody likes

Mark… …” (Mr. Alfonso).

23. Insofar as the allegation of soliciting the client Quality Roofing (QR) was

concerned, Mr. Kalloo claimed that it was QR that first approached him to join as

its CEO but he declined. He may have had some very preliminary discussions with

Mr. Peter George of Quality Roofing sometime late in December after he had

submitted his resignation as a director.

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24. He and the third defendant denied responsibility for the claimant’s loss of

revenue. He denied taking the files identified by the claimant. Mr. Kalloo

identified other factors that would have contributed to the claimant’s losses

including the worldwide recession, 50% drop in the price of steel, the slowdown in

the construction sector and other competition, poor management etc.

25. For her part, Ms. Kalloo said that at all material times the Claimant was aware

of her position as Corporate Secretary of Build to Last. She was not involved in,

nor aware of the day to day and inner operations and management of Build to last.

She did see some workers with whom she had been previously acquainted when she

made a rare visit to Build to Last, but was unaware of any soliciting. She was not

aware of the MRSCL contract. She only became aware of her appointment as

Director of the Claimant by email dated 25th March 2011. No concern about the

purchase of a decking machine by Build to Last was ever raised with her by the

claimant’s directors.

26. The Defendant called upon the Court to deny relief on the ground of undue

delay and acquiescence which renders it unconscionable for the claimant to pursue

this claim. Ms. Kalloo counterclaimed for unpaid directors fees and for the value

of the life Insurance Coverage to which she was entitled and for relief under S 242

of the Companies Act. Ch 81:01.

Discussion/Findings

27. The applicability of what are agreed as trite propositions of law depends on

my findings of fact. It is therefore convenient to indicate what those are: the

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resolution of the factual issues required a close examination and consideration of

the chronology of relevant events as well as an assessment of the credibility of the

witnesses and the claims in general. If the result of the exercise was expected to

point to what may have caused the litigation at all, the candid utterances of Mr.

Alfonso left no doubt in my mind. The proceedings were filed on 19th December

2014, just shy of four years of the date of Mr. Kalloo’s resignation. By this time

Build to Last would have been in operation for almost four years.

28. Whatever may have been the status of his previous resignations, Mr. Kalloo’s

resignation of December 2010 as a director took effect immediately as a matter of

law and specifically under the bye-laws of IRHSL. As to the date of the termination

of his employment, it was the Board that took the decision to end it on 31st

December 2010. In the circumstances the complaint that Mr. Kalloo failed to give

sufficient notice or that at least three months’ notice was what was reasonably

required is not maintainable.

29. It was the third time in one year that Mr. Kalloo was submitting a resignation.

One does not get the impression that the Board was unhappy to be rid of Mr. Kalloo.

The minutes of the Board meeting of 29th December 2010 indicated no regrets, only

a concern that his intention to set up a competing business was considered

“unethical”. There was no agreement on the value of Mr. Kalloo’s shares and it

must have been obvious that if the relationship was to end as their shareholders

agreement had contemplated, that the issue of valuation of Mr. Kalloo’s shares

needed to be addressed. Other than those of 2nd July 2013 and 12th March 2014, the

Board minutes do not reflect that this matter of the valuation of was treated with

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any urgency, if it was considered at all. Up to the date of filing these proceedings,

the issue of the valuation of the shares remained unresolved.

The Nomination of Territa/the reaction of the Directors

30. In January 2011 Mr. Kalloo indicated his nomination of Territa to succeed

him on the Board of IRHSL pursuant to clause 8(2) of the Shareholders agreement.

He heard nothing from IRHSL until he wrote a reminder by email of 23rd March

2011. By return email of Friday 25th November Mr. Kalloo was notified that the

change was filed with effect from 31st December 2010. I have found that the

reaction of the Board to Ms. Kalloo’s appointment as her father’s successor hints at

the real issue at the heart of this case.

31. The Board strongly opposed Ms. Kalloo’s appointment. The members claim

it was because she was one of the original incorporators of Build to Last and later

its Corporate Secretary, indeed that was the crux of the case against her in the

proceedings. Mr. Alfonso said the claimant maintains an online account with the

Registrar of companies. It is hard to believe that the information as to Ms. Kalloo’s

involvement was not known at the time of the filing of the change of directors in

March 2011. Indeed Ms. Kalloo’s involvement was on the record, and it is unlikely

that Mr. Alfonso and the other directors would not have done the searches to find

out who was involved in Build to Last.

32. I believe that the fact of her appointment forced a recognition of the practical

effect of clause 8 (2). And the directors did not like it. In the course of his

submissions, Counsel for the claimant identified the specific breach of her fiduciary

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duty as a director of IHRSL. As I understood his submission, the mere fact of her

status as Corporate Secretary of Build to Last, precluded her from assuming the role

of director of IHRSL. Her dual roles in the two entities gave rise to a conflict of

interest which made it impossible for her to fulfil her statutory duty under S99. (1)

of the Company’s Act Ch 88:01 to either or both of them.

33. This argument is not supported by established law. There is nothing in the

claimant’s Bye Laws which precludes directors from rendering services to another

company. In Bell v. Lever Brother Ltd. – [1932] A.C. 161 at 195, this issue was

addressed in the judgment of, Lord Blanesburgh: -

“And this brings me to the position of a director in relation

to contracts of the second class, with which we are here

alone concerned. The principle will be found in the case

usually cited in relation to it, although reported only in the

Weekly Notes, of London and Mashonaland Exploration

Co. v. New Mashonaland Exploration Co. (2), where it was

held that, it not appearing from the regulations of the

company that a director’s services must be rendered to that

company and to no other company, he was at liberty to

become a director even of a rival company, and it not being

established that he was making to the second company any

disclosure of information obtained confidentially by him as

a director of the first company he could not at the instance

of that company be restrained in his rival directorate. What

he could do for a rival company, he could, of course, do for

himself.”

In the absence of any express prohibition in the claimant’s bye laws, Ms. Kalloo

was allowed to assume a directorship, even in a rival company. That being so, I

should think there could be no impediment to her continuing as Corporate Secretary

of Build to Last while assuming or continuing her directorship of IRSHL.

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34. Ms. Kalloo’s appointment to succeed her father was confirmed by the email

of 25th March 2011 but she attended her first meeting on 10th September 2012 some

eighteen months later. That was the first meeting to which she had been invited.

Even then her request for financial statements and management accounts to be

provided prior to the date of her first meeting, was denied. She was told that on 8th

June 2011 at a meeting which had been held in her absence, and without any notice

to her, that the Board had decided that no accounts, or sensitive information would

be presented prior to Board meetings and no copies would be circulated to directors.

35. Even in September 2012, when the Board could no longer postpone the

inevitable, and a meeting had to be called, the minutes disclose the attitude of the

other directors. I shall set out the relevant portion of the minutes because I consider

the contents material to my findings on the counterclaim under s.242 of the Act: -

Minutes of Meeting held on 10th September 2012 at Shay

Shay Tien Restaurant, Port of Spain at 4:30 p.m.

Present Were:

Mr. Arnold Niranjan -Chairman

Mr. Nigel Jaggassar -Director

Mr. Winston Siriram -Director

Mr. Mark Alfonso -Director

Mr. Rawdon KamtaPersad -Director

Mr. Sunil Moonasar -Director

Terita Kalloo -Director

The meeting was called to order at 4:30 p.m.

The minutes of the meeting of 10th April 2012 was confirmed by

Mr. Alfonso and seconded by Mr. Jaggassar.

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The Chairman welcomed Ms. Terita Kalloo to her first meeting

on the Board.

The Chairman went on to ask Ms. Kalloo if she was a Director or

Corporate Secretary of Build to Last Hardware (BTL) and Roof

Manufacturing Limited to which she confirmed she was no longer

a Director but still the Corporate Secretary.

The Chairman explained that the Corporate Secretary is an agent

of the Company and will be privy to sensitive information similar

to a Director as they both sit on the Board. The Board is

uncomfortable as this constitutes a conflict of interest in Ms.

Kalloo’s role especially where there is a request for information

i.e. Information that considered to be sensitive and confidential.

Mr. Jaggassar expressed his agreement with the Chairman on the

conflict of interest.

Ms. Kalloo asked which part of her role is a conflict as she only

advises on legal issues at BTL.

Mr. Jaggassar indicated that saying legal advisor is itself a

conflict especially if there is a conflict between Island Roofing and

Hardware Solutions Limited (IRHSL) and BTL.

Ms. Kalloo indicated that she did not see any conflict, as despite

the fact that she sits on the Board of BTL, conflict will only arise

if she gives advice.

Mr. Jaggassar said that once you sit on the Board, you are privy

to information.

Mr. Moonasar expressed the view that Ms. Kalloo is the daughter

of the CEO and Chairman of BTL and that is also a conflict of

interest.

Mr. Alfonso said that there is a clear conflict of interest and

clarified the fact that shareholders are not entitled to management

accounts but only entitled to audited accounts at the AGM.

Mr. Siriram said in his view an IR Director must always do what

is in the best interest of IR. However, Ms. Kalloo cannot think

independently as she is the daughter of the CEO of BTL and legal

advisor to the Board of BTL.

Mr. KamtaPersad agreed with all sentiments expressed on the

issue that Ms. Kalloo’s position as Director of IR is a conflict of

interest with her position as Corporate Secretary of BTL.

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Ms. Kalloo asked then which person appointed to the Board of

shareholder Terrence Kalloo will not be in conflict.

The Chairman responded that the shareholder has the right to

appoint anyone as a Director. However, that person will still

represent shareholder Kalloo who has a competing business and

as such we will still feel uncomfortable.

36. The significance of the question asked by Ms. Kalloo and the answer of the

Chairman cannot be overstated. None of the other directors in attendance distanced

themselves from the Chairman’s position and I believe it points to what was the real

objection and explains their conduct thereafter. It had less to do with Ms. Kalloo’s

position as Corporate Secretary. Those minutes were sufficient to indicate and I

consider them so to do that the concerns went beyond her role in Build to Last. To

my mind the comment of the Chairman candidly raised their discomfort with Clause

8.2.

37. Their position indicated an unwillingness to allow it to take effect once they

were faced with the reality that a nomination for a replacement director left to the

absolute discretion of a departing shareholder was always going to ensure the

presence of someone who would be there to protect his interest. At the same time,

the minutes show that the directors also recognised that they were bound by the

shareholders agreement. Faced with this dilemma the directors adopted a course of

conduct which was designed to limit or exclude Ms. Kalloo’s participation

depriving Mr. Kalloo of his entitlement under the agreement to have representation

of his choice. Fewer meetings were called. The Board preferred to stymie its own

operations to achieve its end.

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38. Mr. Alfonso very candidly explained it. He volunteered in answer to a

question by me that the matter would not have reached the Court if the issue of the

valuation of the shares had been resolved. He said that with the appointment of Ms.

Kalloo, they were forced to delay and to avoid meeting as a Board, it affected the

functioning of the Board and this in turn affected the running of the company. They

had expected that Mr. Kalloo’s shares would be valued and they would be rid of the

issue but four years had passed and they had not gotten anywhere so they had to file

these proceedings. (I note that the shareholders agreement specifically provides for

Resolution by Arbitration under the Arbitration Act, but neither side has so far

availed itself of that process).

39. On a different but significant matter of credibility, Mr. Alfonso’s statement

or “clarification” as contained in the minutes of that meeting on the entitlement of

shareholders to management accounts is contrary to the clear terms of the

unanimous shareholders agreement. It provided at Clause 9 (1)

9. Financial Matters

9:1 The Parties hereto agree to ensure that the

Company maintains accurate and complete

accounting and other financial records in

accordance with generally accepted principles

and the Parties shall receive financial statements

from the Company on a monthly basis.

Irrespective of what is contained herein, each

Party shall at any time have full and complete

access to financial accounts of the Company.

Mr. Alfonso’s misstatement to Ms. Kalloo, which was not corrected by the

remaining directors, did little for his and their credibility.

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Oppression

40. I accept Ms. Kalloo’s evidence as to the treatment that was meted out to her

by the Board and the level of discomfort that she felt. Not only did they object to

her appointment, they mainly excluded her but even when they were forced to

include her I find that they marginalized her. The failure to provide her with

medical insurance coverage as well as the non-payment or late payment of directors

fees were further instances of their oppressive conduct in relation to her. By 12th

March 2014 after she had attended only a few meetings, the Board discussed/

contemplated legal action against Build to Last, her father and herself Ms. Kalloo.

Ms. Kalloo opted to leave the meeting for that part of the discussion. But the

decision to proceed with the litigation effectively got her out of the way. It allowed

the Board to operate leaving no-one to watch Mr. Kalloo’s interest. By excluding

Ms. Kalloo, the other shareholders/directors managed to defeat the clear terms of

the unanimous shareholders agreement.

41. Quite apart from the questions which have been raised as to the true purpose

of this litigation, my assessment of the claim and the evidence led in support of it

has not generally been favourable to the claimant. On the factual issue I have

preferred the evidence of Mr. and Ms. Kalloo.

42. Insofar as the general loss of customers and business is ascribed to the

appearance of on the market and the operations of Build to Last, I reject the claim

completely. This allegation was made only recently for the first time and somewhat

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late in the day, almost four years after Build to Last began its business.

Significantly none of the minutes of the Board which were recorded more

contemporaneously reflect any concerns about loss of business or critical staff to

Build to Last. Indeed what were specifically identified as the cause of loss of

business in the minutes were other factors such as the inability to compete with

Fareed Mohammed, a force in the roofing business, and the loss of a main customer

Edinburgh Hardware which had closed down. The minutes also disclose that the

Board considered that the availability of cheaper product including poorer quality

material from China may have explained the losses. Even when competition was

specifically addressed, no mention was made of Build to Last. In the light of this I

do not find any causal link established between the claimant’s alleged loss and the

operations or success of Build to Last. The inconsistency in the contemporaneous

statements and the claimant’s case has only supported the general unfavourable

assessment of credibility.

43. More fundamentally, the basis of Mr. Alfonso’s calculation of the alleged loss

of profit in the sum of $8 030 673.00 (which is rejected in any case) is completely

misleading in my view. It did not conform with the profit and loss figures produced

by auditor Mr. Kerry Mohammed. The statements of Mr. Mohammed, if they were

to be relied upon, would have produced a loss of profit figure which was

substantially less than that claimed in this action. The claimant failed to elicit

evidence from its auditor that explained how Mr. Alfonzo arrived at the quantum

of the claim for special damage. This was a significant omission in my view. The

attempt by Mr. Alfonso to produce a grossly inflated loss figure by a calculation

that made little sense even to someone who is not an accountant. It did not impress

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me. Mr. Alfonso was in any case clear on his evidence that he was unable to

indicate what proportion of IRHSL’s overall loss of profit and loss of business could

be attributed to the activities of Build to Last.

44. As to the claim that Mr. Kalloo gave insufficient notice qua employee for

termination of his contract as manager of operations, it is clear that the termination

date 31st December 2010 was fixed by the Chairman of the claimant’s Board. Mr.

Niranjan rejected Mr. Kalloo’s offer to stay on beyond that date if necessary. In

those circumstances the complaint of insufficiency of notice seems somewhat

hollow. By stipulating the date, the claimant substantially reduced the period of the

continuation of Mr. Kalloo the duty of fidelity as an employee.

Non-disclosure of intention to compete

45. I reject the claimant’s allegation that Mr. Kalloo failed to disclose his

intention to form a competing business. First, there was no obligation to do so in

the light of the absence of a non-competing clause in the shareholders agreement

and I believe the remaining directors recognized this. But the emails of November

2010 between Mr. Kalloo and Mr. Niranjan and the reference to their mutual

expressions of hope for the future conduct of their respective businesses “in a fair

manner”, suggest to me that it was in fact known that Mr. Kalloo intended to go

into his own hardware business. Mr. Niranjan would hardly be concerned about

“fairness” in the conduct of Mr. Kalloo’s business if both sides did not to anticipate

competition. A specific reference to Mr. Kalloo’s intention to set up a hardware

was recorded in the minutes of the next Board minute on 30th December 2010, just

over one week after his resignation and even before Build to Last was in fact

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incorporated. No other source of this information was identified. The fact that it

was known and discussed at Board level is more consistent with Mr. Kalloo’s

evidence that it was indeed no secret.

Breach of no conflict rule

46. A substantial complaint of the claimant’s arose with respect to Mr. Kalloo’s

alleged discussions mere days before his resignation with Mr. Peter George,

Manager of QR one of IRHSL’s customers. In formulating that aspect of the claim,

the claimant relied on the principles enunciated in the case of Foster Bryant

Surveying Ltd v. Bryant and another – 2007 EWCA VIV pg. 200, from which have

been extracted what are known as the “no conflict” and “no profit rules”.

Essentially they establish that a fiduciary (a director) must not place himself in a

position where his duty and his interest may conflict and that a fiduciary may not

retain a profit which he makes from the use of property subject to the fiduciary

relationship, or which he makes by reason of his fiduciary position.

47. In submissions at the close of the case Counsel for the claimant conceded that

there was no evidence of Mr. Kalloo having exploited any current or a “maturing

business opportunity” with Quality Roofing, which would extend his fiduciary

duties beyond his resignation date 20th December 2010. Counsel then clarified that

his case on this point was that in dealing at all with QR and allegedly seeking its

customers prior to his resignation, Mr. Kalloo breached the well-established no-

conflict principle.

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48. I understood the evidence adduced by the claimant in support of the breaches

of both rules to be the same. In those circumstances it would have followed from

the concession that there was no evidence that Mr. Kalloo diverted any business

opportunity that there was also none that he breached the no-conflict rule. But if I

am wrong on this, I indicate that I reject the claim and the evidence of Mr. George

that prior to his resignation Mr. Kalloo solicited the business of QR. In assessing

his credibility I have found that Mr. George was not an independent witness.

49. The evidence established that since about 2012 – the claimant acquired 49%

of the shares in it and Mr. Alfonso is now a non-executive director of QR which he

described as an associate company of the claimant. The failure of Mr. Alfonso to

indicate his non-executive directorship of QR in his comprehensive C.V. or to

provide a copy of the agreement between the claimant and QR to allow a more

informed assessment of the relationship between the two entities, did not impress.

50. I find that sometime in late December 2010, Mr. Kalloo may have spoken to

Mr. George, about his plan to leave and to set up his own hardware business. I do

not believe however, the discussions went beyond indications of his plans and in

the circumstances I find no breach of the no conflict rule, or indeed of his duty of

fidelity qua employee. Mr. Kalloo, did not go into the business of roll forming until

several months after Build to Last was in operation. It was in respect of that activity

that he would eventually compete with the claimant.

Soliciting employees

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51. As to the claim that Mr. Kalloo approached employees whose departure left

the claimant without critical staff, as I have noted before no contemporaneous

minute was produced in which this complaint was alluded to or discussed. There

was no record indicating that the loss of staff impacted on the finances. I found

that while the written notice of resignation from the workers who joined Mr. Kalloo

at Build to Last did seem unusual, only because of the formality, there was no

evidence that prior to his resignation as a director that Mr. Kalloo solicited the

claimant’s workers. I do not believe that he can be criticized for notifying his staff

that he was leaving. Courtesy and respect for them required that. If he mentioned

at that point as I believe he must have done, that he was going into his own business,

he breached no rule.

52. I do not find it surprising that employees who had worked under Mr. Kalloo

some for five years, would have moved to be employed in his new business. It is

trite that there is no legal impediment to a number of employees deciding in concert

to leave their employer even to set themselves up in competition or to be employed

by a competitor. Indeed an equally plausible explanation for the exodus as Mr.

Kalloo suggested in his email to the claimant, was that it was the result of the

management style of Mr. Alfonso. The absence of any direct evidence or evidence

from which I can infer that Mr. Kalloo actively solicited staff to move with him

caused me to reject this aspect of the claim as well.

Missing files/no causal connection with alleged loss

53. I do not believe that Mr. Kalloo removed files other than those he accepted

that he did. In an information age it would not have been necessary for Mr. Kalloo

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to physically remove files as alleged. But having regard to his position and the

experience he would have acquired over years in the roofing industry with specific

knowledge of markets and prices as well as factors which affected the roofing

business in general, I doubt whether there was any information on those particular

files which would not have been known or available to him otherwise.

54. More importantly, there is no evidence that Mr. Kalloo used any information

contained in the missing files or that the misuse of such information resulted in the

claimant’s financial losses. In Universal Thermosensors Ltd v Hibben and Ors

[1992] 1 WLR 840, Sir Donald Nicholas VC rejected the contention that once it was

shown that files had been stolen there arose an irrebuttable presumption and

resulting liability as to wrongful use. Here I have not found that files were stolen.

The evidence generally established that Mr. Kalloo did not go into the business of

roll forming until about 6 months after Build to Last began its operations. No causal

connection was established between the information contained in the missing files

and the apparent success of the third defendant in attracting business when he did

expand his activities to include roll forming. Indeed as I have noted above Mr.

Alfonso was unable to give evidence as to what of the portion of their annual losses

that could be attributed to the actions of Mr. Kalloo or Build to Last.

55. Since I have found that Mr. Kalloo and Build to Last did not solicit the

claimant’s employees, it follows that the complaint that Ms. Kalloo failed to

indicate that employees were being employed by Build to Last – must fail. In any

case I find that Ms. Kalloo had little knowledge of the day to day operations of the

third defendant. She, as it must have been known to the Directors of the claimant,

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was a full time attorney. While she may have made observations on her visits to

Build to Last she was not actively involved in its operations. I believe Mr. Kalloo

runs Build to Last very much as a one man operation. I accept her evidence she

was not aware of the MRCL contract or the purchase of a decking machine by Build

to Last and in the circumstances could not have been under an obligation to disclose

any of it. Indeed since the law allowed her to be involved in both she was obliged

to maintain confidentiality where it was required.

56. Mr. Kalloo’s fiduciary relationship qua director with the claimant came to an

end on 20th December 2010 upon the submission of his resignation which took

immediate effect. In the closing submissions Counsel for the claimant accepted that

at the close of the evidence IRHSL had failed to establish that there was maturing

business of opportunity which the claimant could have exploited or indeed that he

did so exploit. The claimant therefore accepted on the evidence no case was made

out to bring Mr. Kalloo within the exception to the no profit rule in Foster Bryant.

57. It is however accepted that Mr. Kalloo remained an employee of IRHSL for

about 10 days after his resignation as director and in the circumstances continued

qua employee to owe a duty of fidelity rule during that period. The claimant’s

statement of case at all times appeared to conflate the fiduciary duties of a director

and an employee. Mr. Kalloo’s employment contract was terminated by the

claimant about ten days after his resignation. With the Christmas holidays

intervening the number of actual working days may have been about seven. There

was no specific claim as to how he breached the duty of fidelity he owed IRHSL

during that period. Whatever may have been his obligation for that short period

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that he remained an employee after his resignation, the claimant failed to establish

any breaches of his duty of loyalty.

Disposition

62. The Claimant’s case is dismissed with costs to be paid to the defendants on

the prescribed scale.

The Counterclaim: -

(1) In the light of my findings of the treatment of Ms. Kalloo I find that the

defendant is entitled to a declaration under S 242 of the Companies Act that

the powers of the directors of the claimant have been exercised in a manner

that is oppressive and unfairly prejudicial;

(2) As a consequence and by extension and specifically in the light of the clear

terms of the unanimous shareholders agreement, I find that the powers of

the directors have been exercised in a manner that unfairly disregards the

interests of Mr. Kalloo as a shareholder.

(3) There is no evidence of special damage, i.e. the quantum of fees owed to

Ms. Kalloo or the surrender value of the insurance policy which ought to

have been effected upon her appointment as director I am therefore unable

to quantify her loss in that regard.

(4) Throughout the course of the management of this case the court invited the

parties to resolve the issue of the valuation of Mr. Kalloo’s shares so that

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the real bone of contention could be settled. It is my intention to exercise

the wide powers of the court under S242 of the Companies Act but I shall

hear the parties further on what reliefs would be appropriate in the

circumstances, to resolve it.

(5) The claimant shall pay the second defendant’s costs of the counterclaim in

the sum of $14,000.00.

Dated this 6th day of December, 2016

CAROL GOBIN

JUDGE

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