Dr Rohit Kulkarni v Gwent Holdings Ltd
| Jurisdiction | England & Wales |
| Judge | Master Brightwell |
| Judgment Date | 10 March 2023 |
| Neutral Citation | [2023] EWHC 484 (Ch) |
| Docket Number | Case No: BL-2021-001842 |
| Court | Chancery Division |
[2023] EWHC 484 (Ch)
Master Brightwell
Case No: BL-2021-001842
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
BUSINESS LIST (ChD)
Royal Courts of Justice, Rolls Building
Fetter Lane, London, EC4A 1NL
Dominic Chambers KC (instructed by DJM Solicitors) for the Claimant
Thomas Braithwaite (instructed by Veale Wasbrough Vizards LLP) for the First Defendant
Hearing date: 16 February 2023
Approved Judgment
This judgment will be handed down remotely by circulation to the parties' representatives by email and release to The National Archives. The date and time for hand-down is deemed to be 10:00am on Friday 10 March 2023.
Introduction
At the hearing of an earlier application in these proceedings, the first defendant made a statement in its skeleton argument accepting the claimant's pleaded case as to the remedy to which he would be entitled if the admitted breaches of contract relied on by the claimant were not capable of remedy. An issue now arises as to whether that statement by the first defendant was for the purposes of CPR rule 14 an admission that it would not in such circumstances be entitled to apply for relief from forfeiture and, if so, whether it should be permitted to withdraw that admission.
The claimant and the first defendant (“Gwent”) are shareholders in the second defendant company (“SJIH”), which owns a private hospital, St Joseph's Hospital, in Newport, Wales. On 13 February 2020, the claimant subscribed for 1,651 ‘A’ shares in SJIH and the parties to these proceedings entered into a shareholders agreement (“SHA”) in relation to SJIH.
In October 2021 the claimant issued these proceedings, claiming that Gwent had committed repudiatory breaches of the SHA which, he alleges, were so serious and had such a negative effect on him that they could not be remedied. Before a defence was filed, the claimant issued an application for summary judgment, seeking without a trial both rectification of the register of shareholders, and a declaration that the breaches of the SHA were not, as a matter of construction of the SHA, capable of remedy. It served a draft order giving effect to clause 7.1(d), deeming Gwent to have served a Transfer Notice and providing for the sale price of the shares to be sold in accordance with the terms of the SHA.
The claimant's application for summary judgment was heard by Deputy Master Marsh on 12 and 13 April 2022, and dismissed in a judgment handed down on 8 June 2022 ( [2022] EWHC 1368 (Ch)). The claimant has sought permission to appeal his order dismissing the application. By an order dated 17 October 2022 Joanna Smith J directed that there be a rolled-up hearing of that permission application, with the hearing of the appeal to follow if permission is granted. This hearing has been listed in early April 2023.
In its skeleton argument in response to the claimant's application for summary judgment, Gwent's leading and junior counsel made the following statement at paragraph 67, the ante-penultimate paragraph of the document. It is on the meaning and effect of this statement that the present application turns.
“Gwent accepts that if, contrary to its case, it is deemed to have served a Transfer Notice by reason of the alleged breaches engaging clause 7.1(d), then the relief sought in paragraphs 1 to 8 of the draft order would follow. [The Claimant] would be entitled to acquire Gwent's shares at the lesser of (a) the price Gwent paid for them and (b) market value. On that basis, it is not necessary for Gwent to address section G of [the Claimant's] skeleton argument. The effect would be to entitle [the Claimant] to obtain the shares at the price that Gwent paid for them, which by all accounts would be significantly less than market value given the success that has been made of the hospital over the last 2 years.”
In its points of defence, filed on 12 August 2022, Gwent has pleaded as follows at paragraph 56, in the alternative to its plea that its admitted repudiatory breaches of the SHA were not accepted by the claimant, and that they are capable of remedy:
“… clause 7.1 of the SHA is an expropriatory provision, the primary purpose of which is to seek to secure compliance with the parties' obligations under the SHA. Its operation is therefore subject to the court's equitable power to grant relief from forfeiture. Even if, therefore, any breaches of the SHA by Gwent are to be treated as irremediable under clause 7.1(d) for all, some or any of the reasons pleaded in Paragraphs 89 to 91, Gwent claims relief from forfeiture on the grounds that it has, as a matter of fact, and prior to the issue of these proceedings substantively remedied any breaches of the SHA by restoring the ‘A’ shares and ‘B’ shares as aforesaid, by affirming the SHA and indicating its willingness to remain a party to the same with the Claimant, and by agreeing the appointment of Mr Hussain.”
In reply to this paragraph, as well as pleading that clause 7.1(d) is not within the scope of the court's equitable jurisdiction to grant relief from forfeiture, the claimant has pleaded as follows at paragraph 18(1) of his points of reply:
“As a threshold issue, Gwent is not entitled to make a claim for relief from forfeiture because Gwent has already admitted in paragraph 67 of its written skeleton argument dated 6 April 2022 that, if Gwent is deemed to have served a Transfer Notice by reason of its breaches of the SHA engaging clause 7.1(d), then the Claimant is entitled to the relief which he seeks (namely the compulsory purchase of all Gwent's ‘A’ shares). This constitutes an admission by Gwent for the purposes of CPR Part 14.1(1) and (2) that the Claimant is entitled to the relief which he seeks if Gwent is deemed to have served a Transfer Notice under clause 7.1 of the SHA. In the premises, unless Gwent obtains the permission of the Court to withdraw that admission under CPR Part 14.1(5), Gwent is precluded from making any claim for relief from forfeiture because such a claim is directly contrary to Gwent's admission.”
The SHA
Whilst the issues on this application are quite different from those which arose on the summary judgment application, an understanding of the structure of the SHA informs the issues that do fall for determination. In particular, as I explain below, the claimant relies on an issue of construction of the SHA in support of his submission that relief from forfeiture would not in any event be available to Gwent. I gratefully adopt the summary of the SHA set out by Deputy Master Marsh in his judgment, at [13]–[21], which I repeat here for ease of reference:
“13. The SHA describes the claimant and Gwent as the Initial Shareholders and the claimant was one of the five directors on the board as at 13 February 2020. Consultants who were associated with the hospital would be entitled to subscribe for B shares in the Company and would be required to execute a Deed of Adherence in favour of the other parties to the SHA. It was therefore anticipated that the parties to the SHA would increase in number over time, albeit that the A shareholders would always retain ultimate control and Gwent would be entitled to appoint a Controlling Shareholder Director and thus maintain control of the board.
14. The recitals, and in particular recital (B), are central to the claimant's case:
“BACKGROUND
(A) The Company currently has an issued share capital of £3,370, divided into 3,370 A shares of £1.00 each, all of which are fully paid.
(B) Each Initial Shareholder is the registered owner of the number and class of Shares set out opposite his name in Part 1 of Schedule 1.
(C) The parties have agreed to enter into this agreement as a deed for the purpose of regulating the exercise of their rights in relation to the Company and for the purpose of making certain commitments as set out in this agreement.”
15. Schedule 1 Part 1 of the SHA shows 1,718 A shares set out opposite Gwent's name and 1,652 A shares set out opposite the claimant's name.
16. Two points arising from the Recitals bear emphasis. First, Recital (A) records that all the A shares are fully paid. Secondly, Recital (B) when read with Part 1 of Schedule 1 records that the claimant was the registered owner of 1,652 shares. Neither of these statements was accurate at the date and time of execution of the SHA. The claimant was the registered owner of one A share and Gwent did not become the registered owner of the 1,717 shares until the following day, the 14 February 2020. At the date of the hearing, it remained the case that the claimant was the registered owner of one A share. Although it only indirectly affects the disposal of the claimant's application, since the hearing the claimant has accepted an offer made by the Company and is now the registered owner of 1,652 A shares. The date of registration is the date in May 2022 when the claimant executed an agreement to acquire 1,651 A shares from the Company.
17. The SHA describes the business of the Company as the operation of the Hospital. The core obligations were that (1) the shareholders each agreed to use reasonable endeavours to promote the success of the business (clause 2.2), (2) the Company agreed not to take any of the actions set out in Schedule 2 without shareholder consent (clause 3) and (3) the shareholders agreed to use reasonable endeavours to procure that the Company would not take any such actions (clause 4).
18. The list of prohibited steps in Schedule 2 is conventional and includes such matters as charging the business, incurring borrowing in excess of £100,000, merging with another business, granting a licence over IP rights and passing a resolution for its winding up or its administration unless it had become...
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...be required to undertake in order to determine whether there was an abuse. I made a similar point in Kulkarni v Gwent Holdings Ltd [2023] EWHC 484 (Ch) at [59], where it was submitted that an application to withdraw an admission was an abuse of 58 Turning to the question whether the defend......