Dr Rohit Kulkarni v Gwent Holdings Ltd

JurisdictionEngland & Wales
JudgeRichard Farnhill
Judgment Date05 June 2024
Neutral Citation[2024] EWHC 1357 (Ch)
CourtChancery Division
Docket NumberCase No: BL-2021-001842
Between:
Dr Rohit Kulkarni
Claimant
and
(1) Gwent Holdings Limited
(2) St Joseph's Independent Hospital Limited
Defendants

[2024] EWHC 1357 (Ch)

Before:

Richard Farnhill

(sitting as a Deputy Judge of the Chancery Division)

Case No: BL-2021-001842

IN THE HIGH COURT OF JUSTICE

BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES

BUSINESS LIST (ChD)

Rolls Building

Fetter Lane

London EC4A 1NL

Andrew Butler KC and Hugh Rowan (instructed by Acuity Law Ltd) for the Claimant

Justin Higgo KC and Thomas Braithwaite (instructed by Veale Wasbrough Vizards LLP) for the First Defendant

Andrew Thompson KC (instructed by Clarke Willmott) for the Second Defendant

Hearing dates: 9–12, 15–17 and 22–23 April 2024

Richard Farnhill (sitting as a Deputy High Court Judge of the Chancery Division):

1

This case involves St Joseph's Independent Hospital (the Hospital) in Newport, South Wales, which is now owned by the Second Defendant ( SJIH). The dispute arises out of a Shareholders' Agreement dated 13 February 2020 (the SHA), in connection with which the First Defendant ( Gwent) took 51% of the A Shares in SJIH, and the Claimant ( Mr Kulkarni) took 49%. Gwent's directing mind and will is David Lewis ( Mr Lewis), although he is neither a director nor a shareholder of Gwent.

2

Four breaches of the SHA are alleged by Mr Kulkarni, of which three are admitted by Gwent and SJIH:

2.1. Gwent wrongfully procured SJIH to allot to Gwent, and register it as owner of, 1,651 A Shares in SJIH to which Mr Kulkarni was entitled (the A Shares Breach). Gwent and SJIH admit both the A Shares Breach and that it was repudiatory in nature; the repudiation was not accepted by Mr Kulkarni.

2.2. Gwent wrongfully procured SJIH to allot to Gwent, and register it as the owner of, 2,000 B Shares without offering Mr Kulkarni a proportion of those shares as required by section 561 of the Companies Act 2006 (the B Shares Breach). Gwent and SJIH admit the B Shares Breach but deny it was a repudiation. Again, to the extent that the B Shares Breach was repudiatory, the repudiation was not accepted by Mr Kulkarni.

2.3. Gwent wrongfully purported to terminate the SHA by letter dated 28 August 2020 (the Termination Breach). Gwent and SJIH admit that the Termination Breach occurred and was repudiatory; again, the repudiation was not accepted by Mr Kulkarni.

3

The fourth alleged breach is that the defendants failed to recognise Mr Kulkarni's appointment of Mr Shelim Hussain ( Mr Hussain) in breach of the SHA (the Hussain Breach). The Hussain Breach is denied by both Defendants.

4

Mr Kulkarni relies on the various breaches for the purposes of clause 7.1 of the SHA, which provides that:

A Shareholder is deemed to have served a Transfer Notice under clause 6.4 immediately before any of the following events:

(d) the Shareholder committing a material or persistent breach of this agreement which, if capable of remedy, has not been so remedied within 10 Business Days of notice to remedy the breach being served by the Board (acting with Shareholder Consent).

5

The effect of a Transfer Notice is, broadly, that Mr Kulkarni could acquire Gwent's shares in SJIH for the lower of the subscription price paid by Gwent and the Fair Value of those shares as determined using the valuation mechanism in the SHA.

The issues for determination

6

Counsel very helpfully were able to agree the issues before me for determination. I am conscious that this is a lengthy judgment, and that it may assist the parties if I set out my conclusions on them in brief at the outset:

6.1. Is it possible for the defaulting party to remedy a material and/or persistent breach of the SHA under clause 7(1)(d) is the absence of a notice to remedy? Yes.

6.2. Are repudiatory breaches of the SHA capable, as a class, of being remedied within the meaning of clause 7.1(d)? Yes.

6.3. What was discussed and (if anything) agreed at the Pre-Meeting on 7 February 2020, and on behalf of whom? It was agreed that Gwent was to have control of the board of SJIH. Mr Lewis agreed, on behalf of Gwent, that SJIH would look to repay sums owed to Mr Kulkarni by the Hospital if Mr Kulkarni could evidence those debts and SJIH was profitable. Mr Lewis further agreed in general terms, again on behalf of Gwent, that Mr Kulkarni should have his shares in SJIH but the terms on which this was to happen were not agreed in anything like a legally enforceable form.

6.4. What was discussed and (if anything) agreed at the Main Meeting on 7 February 2020, and on behalf of whom? Various matters were agreed, but in connection with the issues in dispute in this case no substantive progress was made on the three key matters addressed at the Pre-Meeting.

6.5. What was discussed and (if anything) agreed at the SJIH Board Meeting on 12 or 13 February 2020, and on behalf of whom? Specifically, was a contract of allotment under which shares would be issued conditional on payment of £80,000 concluded between SJIH and Mr Kulkarni at that meeting? Again, various points were discussed and agreed, most importantly for the purposes of these proceedings a contract of allotment was entered into under which Mr Kulkarni would receive 1,651 A Shares in SJIH conditional on payment being made to SJIH of £80,000.

6.6. What is the true construction and effect of Recitals (A) and (B) of the SHA, and does the doctrine of estoppel by deed operate to prevent Gwent or SJIH from challenging what is stated? If the doctrine of estoppel by deed does apply, what is the effect of that doctrine? The recitals record that Mr Kulkarni was, at the date of the SHA, the holder of 1,652 A shares. However, that recital was not intended to form the basis of the parties' agreement and the doctrine of estoppel by deed does not apply in connection with it.

6.7. Was the Board of Gwent required to accept the appointment of Mr Hussain as a director of SJIH immediately on service of Mr Kulkarni's notice of appointment? If so, did Gwent or SJIH breach the SHA in failing to acknowledge or accept the directorship of Mr Hussain as a director of SJIH until 11 November 2021? The appointment might properly have been subject to a short delay to allow for the necessary formalities to be completed under article 9 of SJIH's articles, but that was measured in days, not weeks and most certainly not months. The delay in accepting Mr Hussain's notice of appointment was accordingly a breach of the SHA.

6.8. Did the Hussain Breach, if made out, amount to a material or persistent breach of the SHA? It was both material and persistent.

6.9. Did any of the other three breaches relied on by Mr Kulkarni in the Re-Re-Amended Particulars of Claim amount to a persistent breach of the SHA? All three were persistent.

6.10. Were any of the four specific breaches of the SHA relied on by Mr Kulkarni incapable of being remedied within the meaning of clause 7.1(d)? All four breaches were both capable of being remedied and were remedied.

6.11. Alternatively, even if capable of remedy when first committed, did they cease to be capable of remedy because of their persistence or for any other pleaded reason? No.

6.12. Does Clause 7.1(d) engage the court's equitable jurisdiction to grant relief from forfeiture? This does not arise.

6.13. If so, should the court grant Gwent relief from forfeiture? This does not arise.

6.14. Is Mr Kulkarni entitled to declarations as a result of the Court's findings on any of the above issues? In particular is Mr Kulkarni entitled to a declaration that Gwent is deemed to have served a Transfer Notice, and is SJIH obliged to appoint Valuers pursuant to clause 8 of the SHA? Mr Kulkarni is entitled to a declaration that the Hussain Breach was a material and persistent breach of the SHA. He is not entitled to declarations in respect of the service of a deemed Transfer Notice or the appointment of valuers.

6.15. Is Mr Kulkarni entitled to the sum of £80,000 from Gwent in respect of the 1,651 A Shares? Is Mr Kulkarni entitled to interest on the same? In both cases, no.

6.16. Is Mr Kulkarni entitled to rectification of the Register to show him as the registered shareholder of the 1,651 A Shares with effect from 13 February 2020? No.

The witnesses

7

Certain aspects of this case turn heavily on the witness evidence, particularly the evidence of Mr Kulkarni, Mr Lewis and Mr Davies.

8

I was referred by Mr Higgo KC to the line of cases flowing from Gestmin SGPS SA v Credit Suisse (UK) Limited [2013] EWHC 3560 (Comm). The cases are well known and do not require extensive quotation: witness recollection is fallible and can be heavily influenced by subsequent events, including in particular the linked processes of the dispute and preparing for the trial itself. In Gestmin, Leggatt J, as he then was, concluded, at paragraph [22]: the best approach for a judge to adopt in the trial of a commercial case is to place little if any reliance on witnesses' recollections of what was said in meetings and conversations, and to base factual findings on inferences drawn from the documentary evidence and known or probable facts.” I have had that very much in mind in considering the evidence in this case.

9

I also had in mind an observation that is, I suspect, less frequently cited in proceedings, from Professor Cane's article Taking Disagreement Seriously: Courts, Legislatures and the Reform of Tort Law (2005) 25 OJLS 393 at 409:

In many situations in life, people can agree to disagree. The very act of submitting a dispute to a court indicates that the parties cannot agree to disagree; and it is not open to the court to tell them to live with their disagreement. On the other hand, while going to court may resolve the immediate dispute, it provides no guarantee that the disagreement that gave rise to the dispute will be resolved. Courts provide machinery for resolving disputes and, in this way, for managing, without necessarily resolving, the...

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