Des Gunewardena's £3m court claim against Conran fails

22 November 2016 by Court Reporter

A former key man in Sir Terence Conran's business empire has failed in a complex legal battle in which he claimed he had been short changed by more than £3m when he parted company with Conran Holdings Ltd (CHL).

Desmond Gunewardena, who became chief executive officer of CHL, took the company to the High Court in a case which saw his former close friend and boss, Sir Terence, along with his sons Sebastian, Jasper, Edmund and Thomas and their sister Sophie, called to the witness box to dispute his claims.

Today (22 November) one of the country's top judges, Mr Justice Mann, dismissed the claims by Mr Gunewardena, who he described as "obviously a clever and experienced businessman".

CHL was formed in 1993 as a holding company for Sir Terence's various businesses. Mr Gunewardena had been with Sir Terence as his finance director since 1991. The judge said that over the following years he had taken on other roles in the businesses and had been "an important part of the overall operation".

He added: "He and Sir Terence were close, both commercially and personally, until the present dispute."

Mr Gunewardena acquired the shares at the centre of the dispute after CHL was formed in 1993 but under CHL's Articles of Association, they were compulsorily transferred back to the company when Mr Gunewardena ceased to be employed by the group.

The judge said that the valuation mechanism applied by the company technically gave Mr Gunewardena nothing for his shares because their valuation was nil. But he said the company in fact gave him "the par value of his shares", £1,254.

However, Mr Gunewardena argued that the company had not been entitled to invoke the compulsory transfer in the way it did and that in any event on a fair valuation he should have been entitled to over £3m.

He also attacked the compulsory transfer notice on what the judge described as an "odd footing", on the basis that by proposing a payment even though it valued the shares at nil, the company had rendered the transfer notice invalid.

The transfer notice followed a chain of events beginning in 2006. The judge said that CHL decided it did not wish to continue to run its restaurant business and to dispose of it and its restaurants.

He continued: "A deal was struck with Mr Gunewardena and a business partner of his (Mr Loewi) to give them an interest in the restaurants. The ultimate deal involved the restaurants being placed into CGL Restaurant Holdings Ltd.

"CHL had a 51% shareholding in that company and Mr Gunewardena and his partners and financiers had 49%.

"Mr Gunewardena ceased to be an employee (CEO) of CHL but became an employee of CGL. He remained a director of CHL, and there were contractual terms operating as between him and CGL which permitted that."

He said Mr Gunewardena claimed that he had reached an oral agreement with Sir Terence to the effect that he would not have to part with his shareholding.

But in April 2013 Mr Gunewardena and a private equity house acquired CHL's remaining 51% in CGL.

The judge said that CHL claimed that terminated their interest in CGL and meant that Mr Gunewardena, who remained an employee of CGL, was no longer employed by the CHL group because CGL had left it. This, they said, entitled them to invoke the share transfer provisions.

However, after going through all the arguments and evidence in detail the judge summed up his verdict briefly saying: "The claim in this case fails and falls to be dismissed. I shall dismiss it accordingly."

"In some instances I fear he was saying things that he knew to be untrue. I did not feel I could always rely on his evidence."

A statement from Conran Holdings following the case said: "The company and Sir Terence deeply regret that Mr Gunewardena felt compelled to take this action. It was clear to the company from the outset that Mr Gunewardena had no claim and this is an action that was ill-conceived and should never have been brought.

"Mr Gunewardena has received significant financial benefit from his relationship with Sir Terence and following his management buy-out in 2013 now holds over 20% of a business with a turnover of £105m.

"Conran Holdings, Sir Terence and the Conran family are pleased to have this matter resolved so that they can focus fully on their varied and successful creative interests."

In response to the outcome of the case, a spokesperson for Gunewardena said: "Des Gunewardena was a shareholder and director of CHL for two decades - he and Sir Terence enjoyed a close business and personal relationship and grew the company from a £10-million turnover company to a £120-million turnover business during Des' time as CEO.

"Des stands by the case he brought and the evidence he gave. In his evidence Sir Terence Conran described Des as a man of integrity. This case was simply about Des receiving a fair price for shares he had acquired in a company that he had served for over two decades. Des is understandably disappointed by the Judgment and is now considering an appeal.

"In the meantime, Des will continue to focus his attention on D&D London, the dynamic and highly successful restaurant business he founded with business partner David Loewi in 2006."

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