Barrowfen Properties Ltd v Patel – Solicitors’ Conflict of Interest

Barrowfen Properties Ltd v Patel and others (2021) EWHC 2055 (Ch)

Barrowfen Properties Ltd had been around since 1984 and its most valuable asset was a cluster of commercial buildings on Upper Tooting Road in south London, a site with serious development potential, worth millions.

The company was owned and run by the Patel family. Four brothers, Rajnikant, Yashwant, Girish and Suresh, had built an international business empire together. Their families were spread across Singapore, Australia, New York and London. Barrowfen was just one piece of a much larger empire.

For years, Girish ran Barrowfen. He was the director based in London, closest to the property, and effectively ran the business single handedly. One other brother held a position as a director; Suresh, but he and the others allowed Girish to run the company.

That trust, it turned out, was misplaced.

For more information, read the full case on Barrowfen Properties Ltd v Patel and others (2021) EWHC 2055 (Ch)

A Request to Join the Board

In August 2013, Prashant Patel, son of the eldest brother, Rajnikant, asked to be appointed as a director of Barrowfen. An apparently reasonable request from a family member.

However, rather than welcoming the appointment or raising a legitimate objection, Girish began a series of maneuvers designed to keep Prashant, and the rest of the family, out of the boardroom.

A Company Built on Mutual Trust

Barrowfen’s 180,000 shares were split into three equal blocks of 60,000.

Mrs. PD Patel Discretionary Trust — held 60,000 shares (one third), with Suresh and Yashwant as trustees, for the benefit of Girish’s children.
Mr. DP Patel Discretionary Trust — held 60,000 shares (one third), with Yashwant and Girish as trustees, for the benefit of Suresh’s children.
Bedford Development Ltd — held 60,000 shares (one third), which by 2013 was controlled by Prashant (Rajnikant’s son).

The two family trusts were cross-held and built on the assumption that the brothers would always act in good faith towards one another. When that assumption broke down, the cross-holdings became weapons, with each side able to use their trustee position to frustrate the other.

Conflict Undermines the Company

By the autumn of 2015, the family was in an open civil war. Girish had lost much of his control, but he had one card left to play. Girish formulated a plan to put Barrowfen into administration, with the intention of then acquiring the Tooting Road property at a cheap price.

Barrowfen entered administration in late 2015, only emerging in September 2016. Although the company had not lost the properties, by that time the development had been significantly delayed, and the original planning scheme had been lost.

Court Action

Legal proceedings were brought by Barrowfen itself against three defendants. The first was Girish, the director whose conduct had caused the damage. The second was Stevens & Bolton LLP, the firm of solicitors whose negligence had allowed that conduct to go unchecked. The third was Barrowfen Properties II Ltd, a separate company incorporated in November 2015 by Girish’s children, which Barrowfen alleged had been used to assist Girish in the administration scheme.

Barrowfen’s case was that the combined effect of Girish’s breaches of duty and S&B’s negligence had delayed the development of its Tooting Road property by years, causing substantial financial loss. Barrowfen II played no active part in the trial and was ultimately not found liable.

Tampering with the Shareholder Register

Every company is required to maintain a register of its members, a list of who owns shares in the business, as it’s a fundamental legal record.

Barrowfen’s register was kept in an old-fashioned ledger, and when the company’s lawyers sent a copy to the other side in May 2014, the page recording Bedford Development Ltd, was missing.

The judge found that Girish had physically removed that page from the register deliberately, between August 2013 and April 2014.

Two Documents That Changed Everything

It didn’t stop there. The judge found that Girish forged not one but two sets of documents.

The first was a resignation letter from his brother Suresh as a director of Barrowfen. With Suresh’s name removed from the company’s records at Companies House, Girish became the sole director, giving him unchecked control of the business.

The second was a set of trustee resignation documents. Two family trusts held a third of the company’s shares, Girish needed to control those trusts to control the votes. The documents he forged allowed him to replace them and tighten his grip further.

Solicitors’ Professional Negligence

Stevens & Bolton LLP (“S&B”) were the firm of solicitors instructed on behalf of Barrowfen by Girish. They were experienced, well-regarded lawyers, but over the course of several years, the court found that they had failed in their duty to the company on numerous occasio0ns, possibly guided by loyalty to Girish.

When the conflicts of interest between the company and Girish became obvious, S&B failed to confront them. When Girish’s actions were clearly working against the interests of Barrowfen as a company, S&B continued to act on his instructions without proper challenge.

For more information, please read our page on Professional Ngeligence.

What the Judge Concluded

After a 15-day trial held remotely during the pandemic, the judge delivered his verdict in July 2021.

Against Girish, the court found:

He had dishonestly removed the page recording Bedford as a shareholder from the company’s register
He had forged Suresh’s resignation letter as a director
He had forged the trustee resignation documents
He had deliberately concealed his plan to put the company into administration
In doing all of this, he had breached multiple statutory duties owed to the company under the Companies Act 2006

Against Stevens & Bolton, the court found:

The firm was negligent across each of the main incidents in the case
The firm had repeatedly failed to recognise and address the conflicts of interest that arose from Girish’s conduct
The firm’s loyalty to Girish had inhibited its ability to properly advise Barrowfen as its client

The court awarded damages of £1,388,768.05, the financial loss caused to the company by the years of delay to its property development.

Why This Case Matters

Barrowfen v Patel is as much a story about solicitors as it is about a rogue director. Stevens & Bolton were not fly-by-night lawyers, they were an experienced, reputable firm, yet the court found them negligent across every major episode in the case, because they allowed their relationship with one individual to override their duty to the company they were supposed to be acting for.

They never acted dishonestly, but that was almost beside the point. By the time the damage was done, honest intentions counted for very little. For any business owner who assumes that having a solicitor in the room means the company is protected, this case is a sobering read.

A solicitor instructed by your company owes their duty to the company, not to whoever happens to be running it.