Inderjit Singh Bhullar v Jatinderjit Singh Bhullar and Others
| Jurisdiction | England & Wales |
| Judge | Mr Justice Morgan |
| Judgment Date | 07 July 2015 |
| Neutral Citation | [2015] EWHC 1943 (Ch) |
| Docket Number | Case No: HC2014002010 |
| Court | Chancery Division |
| Date | 07 July 2015 |
[2015] EWHC 1943 (Ch)
Mr Justice Morgan
Case No: HC2014002010
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Rolls Building, Fetter Lane,
London, EC4A 1NL
Mr Edward Davies (instructed by Pannone Corporate LLP) for the Claimant
Mr Paul Chaisty QC and Mr Andrew Grantham (instructed by Mills & Reeve LLP) for the First Defendant
Hearing date: 11 June 2015
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Introduction
This is an application by the Claimant, a minority shareholder, for permission to continue a derivative claim in which it is alleged that the First Defendant, a director of two relevant companies (the Second and Third Defendants), was in breach of his fiduciary and other duties to the companies, resulting in loss to the companies and a benefit to the director. The claim is a double derivative claim so that this application is governed by common law principles and not by sections 260 to 264 of the Companies Act 2006.
If the case is one in which the court would be minded to grant permission to continue the derivative claim, then an important issue arises as to whether the court should grant to the Claimant a pre-emptive indemnity as to costs so that he would be indemnified out of the assets of the relevant companies in relation to his costs of bringing the claim, including any costs payable by him to the First Defendant pursuant to any order for costs which might be made against the Claimant.
Mr Davies appeared on behalf of the Claimant and Mr Chaisty QC and Mr Grantham appeared on behalf of the First Defendant.
The companies
This case concerns three family owned companies. The three companies are Bhullar Bros. Limited ("BBL"), Bhullar Developments Limited ("BDL") and Bhullar Limited ("BL").
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.
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.
BL is a private company, incorporated on 2 March 2005. BL owns all of the issued share capital of BBL and BDL.
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.
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.
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 until the present, a director of BDL from 3 August 2000 until the present and a director of BL at all material times 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
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.
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.
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.
As to Southgate B, Rajinder and Sohan, as directors of BDL, executed a transfer of that property to Jat on 5 October 2007 for a purchase price of £115,000. At that time, the property was a site for the construction of a house. Jat developed the site by erecting a house on it and he then resided in the house. I understand that Jat has since sold the property. Although Inder was at the relevant time a director of BDL, he says that he was not involved in connection with this transfer. Indeed, he says that he had earlier refused to sign a transfer of the property to Jat and did not know that a transfer had then been executed by two other directors. He contends that the transfer was without the approval of the board of directors of BDL and without any approval by a resolution of BL (as sole member of BDL) and involved breaches of fiduciary duty by the other directors of BDL, including Jat. Further, Jat did not declare his interest in this transaction to the board of BDL, which at the relevant time included Inder. Contrary to section 190 of the Companies Act 2006, Jat did not obtain approval for the transfer by resolution of the members of BDL and BL with the result that Jat is liable, under section 195(3) of the 2006 Act, to indemnify BDL for any loss or damage resulting from the transfer and to account to BDL for any gain which he has made directly or indirectly by reason of the transfer.
Inder contends that BBL and BDL have suffered loss by making gifts, or unsecured and interest free loans, to Torex. He also contends that BDL has suffered loss, and Jat has received a benefit, as a result of the transfer of Southgate B to Jat. Inder says that the transfer was at an undervalue and deprived BDL of the opportunity of making a profit by developing the property itself. Inder seeks an account and inquiry in relation to the losses made by the relevant company and/or of the profits made by Jat.
For the purposes of the application which is before me, Jat accepts that there is a prima facie case that:
(1) he acted in breach of duty in relation to the payments to Torex;
(2) in relation to Southgate B he acted in breach of duty by failing formally to declare his interest in the transaction; and
(3) there was no sufficient contemporaneous or subsequent ratification of the transactions.
The application
On 22 December 2014, Inder issued these proceedings naming three Defendants, Jat, BBL and BDL. The claim was expressed to be a derivative claim relying on causes of action against Jat for various breaches of duty as described above. The causes of action which are asserted are causes of action which belong to BBL or BDL, as the case may be. Inder is not a member of BBL or BDL but he is a member of BL, which wholly owns BBL and BDL. The derivative claim is therefore a double derivative claim and is not within sections 260 to 264 of the Companies Act 2006. Nonetheless, CPR 19.9 provides that Inder may not take any further step in these proceedings without the permission of the court. Accordingly, Inder now applies for permission to continue these proceedings as a double derivative claim asserting causes of action belonging to BBL and BDL against Jat.
The issues
The issues which have been identified on this application are:
(1) does the court have jurisdiction in relation to a double derivative claim following the enactment of sections 260 to 264 of the Companies Act 2006?
(2) has Inder established a prima facie...
To continue reading
Request your trial
-
Lawrence Ewan McGaughey v Universities Superannuation Scheme Ltd
...case that the wrongdoers benefitted themselves from the breach of duty: see, e.g., Abouraya (above) at [25] and Bhullar v Bhullar [2015] EWHC 1943 (Ch) at [34]. However, although David Richards J used the term “actual fraud” in the first case and Morgan J used the same term in the second, ......
-
Inderjit Singh Bhullar v Jatinderjit Singh Bhullar and Others
...Torex claim and also declined to make a pre-emptive indemnity as to costs in his favour. 2 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 ......
-
Lawrence Ewan McGaughey v Universities Superannuation Scheme Ltd
...[45]. He referred to the judgment of David Richards J in Abouraya v Sigmund [2014] EWHC 277 (Ch) at [53] and to Bhullar v Bhullar [2015] EWHC 1943 (Ch) per Morgan J at [25] and concluded at [45] that “the appropriate course is to find that a prima facie case has been made out only where I......
-
Durnont Enterprises Ltd v Fazita Investment Ltd
...of the evidence placed before it on the application.” 78 The application of this test was further discussed in in Bhullar v Bhullar [2016] BCC 134 by Morgan J at 79 As noted above, the first element of the test identified by the Court of Appeal concerns a prima facie case of entitlement to ......
-
2015 Half-year in review M&A legal developments
...property transfer there was no evidence of transfer at undervalue, so there was no prima facie case of dishonesty. (Bhullar v Bhullar [2015] EWHC 1943 (Ch)) Repudiatory breach does not apply to multi-party LLP agreements The High Court decided that the doctrine of repudiatory breach was imp......
-
International Multiple Derivative Actions.
...to protect its interests."). (61.) Novatrust Ltd. v. Kea Investments Ltd. [20141 EWHC (Ch) 4061 (Eng.). (62.) Bhullar v. Bhullar [2015] EWHC (Ch) 1943 (63.) Abouraya v. Sigmund [2014] EWHC (Ch) 277 (Eng.). (64.) Id. [paragraph][paragraph] 1-6. (65.) Id. If the court applies the law of the p......
-
A comparative analysis of derivative action in Cypriot company law: Comparison with English company law and the prospect of statutory reform
...by A. Reisberg, Derivative Actions and Corporate Governance: Theory andOperation (OUP, 2007), p. 265.89. Bhullar v. Bhullar [2015] EWHC 1943 (Ch); Peter Hook v. Bernard Sumner and Or [2015] EWHC 3820 (Ch);Brannigan v. Style [2016] EWHC 512 (Ch).90. See Kleanthous v. Paphitis [2011] EWHC 228......