Inderjit Singh Bhullar v Jatinderjit Singh Bhullar and Others
| Jurisdiction | England & Wales |
| Judge | His Honour Judge Stephen Davies |
| Judgment Date | 02 March 2017 |
| Neutral Citation | [2017] EWHC 407 (Ch) |
| Docket Number | Case No: C30MA082 |
| Court | Chancery Division |
| Date | 02 March 2017 |
[2017] EWHC 407 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
MANCHESTER DISTRICT REGISTRY
Manchester Civil Justice Centre,
1 Bridge Street West, Manchester M60 9DJ
His Honour Judge Stephen Davies
SITTING AS A JUDGE OF THE HIGH COURT
Case No: C30MA082
Lesley Anderson QC (instructed by Excello Law, London WC2) for the Claimant
Paul Chaisty QC & Andrew Grantham (instructed by Mills & Reeve, Manchester M1) for the First Defendant
Hearing dates: 10, 11, 12, 13, 16, 17, 18, 19 January 2017
Draft judgment circulated 3 February 2017
JUDGMENT APPROVED
Contents
Introduction
The witnesses
The "Original Loan Agreement"
The "Varied Loan Agreement"
The Torex payments
The recording of the Torex payments
The circumstances in which the Torex payments were made
Inder's discovery of the Torex payments
Breach of fiduciary duty – the law and the respective arguments
Did the other directors know of and agree to or acquiesce in the Torex payments?
Was Jat in breach of fiduciary duty?
Limitation
Relief under s.1157 Companies Act 2006
The appropriate remedy
Conclusions
Introduction
This is a derivative claim brought by the claimant Inderjit Singh Bhullar, referred to as "Inder", on behalf of two limited companies, the second defendant ("BDL") and the third defendant ("BBL") against his brother the first defendant Jatinder Singh Bhullar, referred to as "Jat". Inder sought permission to make two derivative claims but Morgan J. granted Inder permission to bring only one of those claims, referred to as the Torex claim and also declined to make a pre-emptive indemnity as to costs in his favour.
The judgment of Morgan J. is reported at [2015] EWHC 1943 (Ch). It begins with a summary of the significant individuals and companies involved in this case and of the Torex claim, which I gratefully adopt and repeat here.
"[4] This case concerns three family owned companies. The three companies are Bhullar Bros. Limited ("BBL"), Bhullar Developments Limited ("BDL") and Bhullar Limited ("BL").
[5] BBL is a private company, incorporated on 22 October 1964. At all material times, BBL has carried on the business of property development. In addition, BBL owns 50% of the issued share capital of Silvercrest Trading Limited.
[6] BDL is a private company, incorporated on 5 November 1998. At all material times, BDL has carried on the business of property investment and development.
[7] BL is a private company, incorporated on 2 March 2005. BL owns all of the issued share capital of BBL and BDL.
[8] The family in question is the Bhullar family and the members of that family relevant for present purposes are the father, Sohan Singh Bhullar ("Sohan"), who died on 5 September 2008, the mother, Rajinder Kaur Bhullar, ("Rajinder") and their two sons, Inderjit Singh Bhullar ("Inder") and Jatinderjit Singh Bhullar ("Jat"). Satwant Kaur Sandhu, the sister of Inder and Jat, has provided a witness statement in connection with the present application.
[9] The 1,132 issued shares in BL are owned as follows: Inder has 244 shares (22%), Jat has 466 shares (41%) and their mother, Rajinder has 422 shares (37%); these percentages are stated to two significant figures. Prior to Sohan's death on 5 September 2008, Sohan and Rajinder held some 57% of the shares in BL.
[10] The position as to the directorships of the three companies is as follows:
(1) Sohan was a director of BBL, BDL and BL until his death on 5 September 2008;
(2) Rajinder has been a director of BBL from 24 July 2007 1 until the present, a director of BDL from 3 August 2000 until the present and a director of BL at all material times 2 until the present;
(3) Jat has been a director of BBL, BDL and BL at all material times; and
(4) Inder was a director of BBL, BDL and BL until he was removed from office on 28 April 2011.
The allegations of wrongdoing
[11] Inder makes a number of allegations of wrongdoing. The allegations are directed principally against Jat. These allegations fall into two categories. The first category concerns certain payments to a company, Torex Developments Limited ("Torex") and the second category concerns the transfer to Jat of a property, referred to as Southgate B.
[12] In June 2006, Jat acquired Torex, an off the shelf company. At all material times, Jat has been the sole shareholder and director of Torex. Torex commenced trading in around June 2007, carrying on the business of property development. Inder says that Torex is therefore a direct competitor of BBL and BDL but he does not identify any specific business activities of Torex in relation to which a remedy is claimed. The payments made to Torex which fall into the first category of allegations of wrongdoing are:
(1) on 24 September 2007, BBL made a payment of £440,000 to Torex;
(2) between 24 September 2007 and 27 September 2007, BDL made 16 payments to Torex, totalling £196,000;
(3) on 21 August 2008, BDL made a payment of £335,446.37 to Torex.
[13] Inder contends that these payments were made by BBL or BDL, as the case may be, as gifts to Torex. Jat contends that the payments were by way of loans and that £140,000 has been repaid to BBL (on 4 January 2008) and approximately £33,000 has been repaid to BDL (during 2009). Inder contends that if the payments were by way of loans, then they were not recorded in the books of BBL or BDL, were unsecured and no terms as to payment of interest or repayment of capital were agreed. Further, BBL was borrowing from its own bank in order to make payments to Torex. The amount still outstanding, ignoring interest, is £798,256.37. It is also said that Torex now has very significant debts and is likely to be unable to repay these loans, if that is what they were. Although Inder was at the relevant times a director of BBL and BDL he was not involved in any way with these payments to Torex. He contends that these payments by BBL and BDL to Torex were without the approval of the board of directors of BBL or BDL and without any approval by a resolution of BL (as sole member of BBL and BDL) and involved breaches of fiduciary duty by the other directors of BBL and BDL (to the extent that they were involved), including Jat. Further, Jat did not declare his interest in these transactions to the board of the relevant company, which at the relevant times included Inder.
[14] …
[15] Inder contends that BBL and BDL have suffered loss by making gifts, or unsecured and interest free loans, to Torex. …. Inder seeks an account and inquiry in relation to the losses made by the relevant company and/or of the profits made by Jat."
By way of further introduction I record that:
(1) BDL and BBL are, for obvious reasons, parties to the claim, but have not been represented nor taken any active part in the claim.
(2) As Morgan J. noted later in his judgment, this claim is part of a wider dispute between Inder on the one hand and Jat and Rajinder on the other. Unless that overall dispute is compromised following this trial it is highly likely that a shareholder action under s. 994 of the Companies Act 2006 will follow. Although, as Morgan J. also noted, it would have been possible for Inder to have litigated this dispute as part of a s. 994 action, he rejected the submission made to him by Mr Chaisty QC and Mr Grantham on behalf of Jat that permission to bring this claim should be refused on that basis. He said this:
"[44] In relation to Mr Chaisty's submission that I should refuse Inder permission to continue this derivative claim, I accept that it would be open to Inder to bring section 994 proceedings and in the course of those proceedings to ask the court to determine the issues raised in the derivative claim. However, I do not accept that I should refuse permission to Inder to pursue the derivative claim on this ground. The issues in the derivative claim (even if one included the claim in relation to Southgate B) are relatively narrow and self-contained. The issues in section 994 proceedings would be significantly wider. Section 994 proceedings would be slow and expensive if they proceeded all the way to a trial. Both parties would be very well advised to compromise section 994 proceedings long before any such trial. I can see that there would be a real advantage to Inder if he were able to establish what he alleges in the derivative claim before negotiating a formal split between himself and Jat.
[45] I am also satisfied that Inder is acting bona fide in wishing to pursue this derivative claim. If the claim succeeds, BBL and BDL will benefit. Inder will also benefit as a shareholder in BL, the holding company of BBL and BDL. The fact that a successful derivative claim will also be of benefit to Inder in negotiations with Jat as to a formal split does not mean that a derivative claim is not bona fide on the part of Inder. I think that it is likely that Inder's wish to pursue a derivative claim is significantly influenced by his hope that he will be awarded a pre-emptive indemnity as to costs in relation to the derivative claim whereas he could not expect such an indemnity in relation to section 994 proceedings. I will later consider whether it is appropriate in this case to grant a pre-emptive indemnity. However, at this stage I can say that Inder's hope that he will be granted such an indemnity does not mean that he is not acting bona fide in pursuing a derivative claim."
(3) One particular dispute which may well figure in any s. 994 claim relates to the shareholding in BL, referred to at [9] of Morgan J's judgment. Inder disputes the transaction by which Rajinder transferred Sohan's shares from his estate to herself and Jat but not...
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