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You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Kulkarni v Gwent Holding Ltd & Anor [2023] EWHC 484 (Ch) (10 March 2023) URL: https://www.bailii.org/ew/cases/EWHC/Ch/2023/484.html Cite as: [2023] EWHC 484 (Ch) |
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BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
BUSINESS LIST (ChD)
Fetter Lane, London, EC4A 1NL |
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B e f o r e :
____________________
DR ROHIT KULKARNI |
Claimant |
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- and - |
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(1) GWENT HOLDINGS LIMITED (2) ST JOSEPH'S INDEPENDENT HOSPITAL LIMITED |
Defendants |
____________________
Thomas Braithwaite (instructed by Veale Wasbrough Vizards LLP) for the First Defendant
Hearing date: 16 February 2023
____________________
Crown Copyright ©
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.
Master Brightwell :
Introduction
"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."
"… 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."
"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
"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 insolvent.
19. Clause 6 governs the transfer of shares. Under clause 6.4(a), a shareholder wishing to transfer shares was required to give a Transfer Notice to the Company. The clause then sets out a machinery for the sale of such shares at a Fair Value, as defined in clause 8.
20. Clause 7.1(d) of the SHA is of central importance. It provides:
"7.1 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)."
21. The remaining provisions of the SHA to be noted are:
(1) Clause 6.13 which provides that a shareholder who sells its entire holding of shares automatically ceases to be a party to the SHA.
(2) Clause 15 which provides that the SHA shall terminate in three circumstances: (i) upon either a resolution to wind up the Company being passed or a winding up order being made; (ii) the appointment of a receiver, administrator or administrative receiver and; (iii) when as a result of transfers of shares only one person remained the legal and beneficial holder of the shares.
(3) Clause 19.1 which contains an entire agreement provision and clause 19.2 confirmation of non-reliance upon representations, assurances or warranties.
(4) Clause 20.2 which provides that the waiver of any right or remedy is only effective if it is in writing."
Does paragraph 67 constitute an admission?
"20. There is an important distinction, in my view, between the principles which apply to amendments involving withdrawal of admissions, and the principles which apply to amendments which involve withdrawal of averments. The former always require permission of the Court by reason of Rule 14.1(5); and considerations which must specifically be taken into account are set out in paragraph 7.2 of the Practice Direction, which was described by Mr Justice Briggs, as he then was, in Kojina v HSBC Bank No. 2, as a useful and uncontentious distillation of earlier authority. Account also has to be taken of all the circumstances of the case and the overriding objective.
21. By contrast, applications which involve withdrawal of averments only require permission at the appropriate stage of proceedings; and the principles are those which govern amendments more generally, which were usefully summarised by Mr Justice Hamblen, as he then was, in Brown v Innovatorone Plc. In particular it is often appropriate for permission to be given to withdraw averments on the usual terms as to paying the costs thrown away because it is open to parties to choose what allegations they wish to make or pursue. A party is not bound to make a positive allegation by way of a positive averment merely because he believes it to represent the true position. He will often, therefore, be permitted to abandon an averment which he was free to choose whether or not to make in the first place. Admissions are different. The allegation has been put in play by the opponent, and the party is therefore obliged to state a position in respect of it. He cannot avoid the issue arising.
22. When considering withdrawal of a plea, different considerations arise depending on whether what is to be withdrawn is an admission or an averment. In relation to an averment which a party wishes to pursue, the party is concerned not merely with whether the averment is true, but also whether and how it can be proved. On the other hand, in relation to an admission in response to an averment by the opposite party, what the party is concerned with is simply whether what is alleged against it is true. No question arises of it being able to prove or disprove the allegation evidentially distinct from the question as to whether the allegation is or is not true."
Withdrawal of an admission
"In deciding whether to give permission for an admission to be withdrawn, the court will have regard to all the circumstances of the case, including –
(a) the grounds upon which the applicant seeks to withdraw the admission including whether or not new evidence has come to light which was not available at the time the admission was made;
(b) the conduct of the parties, including any conduct which led the party making the admission to do so;
(c) the prejudice that may be caused to any person if the admission is withdrawn;
(d) the prejudice that may be caused to any person if the application is refused;
(e) the stage in the proceedings at which the application to withdraw is made, in particular in relation to the date or period fixed for trial;
(f) the prospects of success (if the admission is withdrawn) of the claim or part of the claim in relation to which the admission was made; and
(g) the interests of the administration of justice."
"It is quite clear to me that CPR 14.1A(3) confers a wide discretion on the court to allow the withdrawal of a pre-action admission and para 7.2 of Pt 14 of the Practice Direction lists the specific factors the court must take into account in addition to the need to have regard to all the circumstances of the case. These factors are not listed in any hierarchical sense nor is it to be implied in the Practice Direction that any one factor has greater weight than another. A judge dealing with a case like this must have regard to each and every one of them, give each and every one of them due weight, take account of all the circumstances of the case and, balancing the weight given to those matters, strike the balance with a view to achieving the overriding objective. Cases will vary infinitely and the weight to be given to the relevant factors will inevitably vary from case to case. Sometimes the lack of new evidence and the lack of explanation may be the important considerations; in others prejudice to one side or the other will provide a clear answer and in all the interests of justice will sway the balance. It would be wrong for this court to circumscribe the manner of the exercise of this discretion or to give any more guidance than is trite, namely, carry out the task set by the Practice Direction, weigh each of the identified factors as well as all the other circumstances of the case and strike a balance with due regard to the overriding objective."
Relief from forfeiture
(a) The equitable jurisdiction to grant relief from forfeiture applies only where the contract which has been breached involves a transfer or creation of proprietary or possessory rights.
(b) Clause 7.1(d) of the SHA does not operate as security for the occurrence of a particular condition, but is part of the primary obligations in the contract.
(c) Relief from forfeiture is not available where a party to a contract renounces it through a deliberate breach.
The scope of the jurisdiction to grant relief from forfeiture
"17. Equitable relief from forfeiture is a remedy of ancient origin. Prior to the conveyancing and property legislation consolidated in 1925, its main spheres of activity lay in relation to leases and mortgages of land, but those are now statutory. For present purposes, it is unnecessary to trace its antecedents back before 1972, when the rationale for and main principles regulating the remedy were restated in this well-known passage in the speech of Lord Wilberforce in Shiloh Spinners Ltd v Harding [1973] AC 691, 723–724:
"it remains true today that equity expects men to carry out their bargains and will not let them buy their way out by uncovenanted payment. But it is consistent with these principles that we should reaffirm the right of courts of equity in appropriate and limited cases to relieve against forfeiture for breach of covenant or condition where the primary object of the bargain is to secure a stated result which can effectively be attained when the matter comes before the court, and where the forfeiture provision is added by way of security for the production of that result. The word 'appropriate' involves consideration of the conduct of the applicant for relief, in particular whether his default was wilful, of the gravity of the breaches, and of the disparity between the value of the property of which forfeiture is claimed as compared with the damage caused by the breach."
18. That passage contains a trenchant restatement of the central rationale and condition for the exercise of the remedy, namely that the primary object of the bargain should be the securing of a stated result, for which the forfeiture provision is added by way of security. Lord Wilberforce did not however state any second condition for the exercise of the jurisdiction to grant relief, relating to the nature of the rights liable to be forfeited. Earlier, at p 722, he said:
"There cannot be any doubt that from the earliest times courts of equity have asserted the right to relieve against the forfeiture of property. The jurisdiction has not been confined to any particular type of case. The commonest instances concerned mortgages, giving rise to the equity of redemption, and leases, which commonly contained re-entry clauses; but other instances are found in relation to copyholds, or where the forfeiture was in the nature of a penalty. Although the principle is well established, there has undoubtedly been some fluctuation of authority as to the self-limitation to be imposed or accepted on this power."
19. The property liable to forfeiture in that case was a lease but, since the right of re-entry was reserved by an assignee of the lease rather than by the lessor upon its grant, the statutory regime for relief from forfeiture did not apply. Nonetheless, since the proprietary interest in land constituted by a lease had always been fairly and squarely within the types of property liable to forfeiture within the reach of equity's remedy of relief, the issue as to the nature of the property to which the remedy might extend simply did not arise.
20. That question did arise for decision in Scandinavian Trading Tanker Co AB v Flota Petrolera Ecuatoriana (The Scaptrade) [1983] 2 AC 694. The rights in issue consisted of the charterer's rights under a time charter of a ship, which entitled the owners to withdraw the vessel from the service of the charterers if specified monthly payments due in advance were not made on time. Having failed to make timely payment and received a telex from the owners withdrawing the vessel, the charterers claimed that withdrawal amounted to a forfeiture and sought equitable relief, including an injunction restraining the owners from withdrawing the vessel from service. Affirming the Court of Appeal, the House of Lords held that the court had no jurisdiction to grant relief in such a case.
21. Giving the leading judgment, Lord Diplock identified two reasons for that conclusion, in relation to time charters. The first was that a time charter conferred upon the charterer no interest in or right to possession of the vessel. He said, at pp 700–701:
"A time charter, unless it is a charter by demise, with which your Lordships are not here concerned, transfers to the charterer no interest in or right to possession of the vessel; it is a contract for services to be rendered to the charterer by the shipowner through the use of the vessel by the shipowner's own servants, the master and the crew, acting in accordance with such directions as to the cargoes to be loaded and the voyages to be undertaken as by the terms of the charterparty the charterer is entitled to give to them. Being a contract for services it is thus the very prototype of a contract of which before the fusion of law and equity a court would never grant specific performance: Clarke v Price (1819) 2 Wils 157; Lumley v Wagner (1852) 1 De G M & G 604 …
"To grant an injunction restraining the shipowner from exercising his right of withdrawal of the vessel from the service of the charterer, though negative in form, is pregnant with an affirmative order to the shipowner to perform the contract; juristically it is indistinguishable from a decree for specific performance of a contract to render services; and in respect of that category of contracts, even in the event of breach, this is a remedy that English courts have always disclaimed any jurisdiction to grant. This is, in my view, sufficient reason in itself to compel rejection of the suggestion that the equitable principle of relief from forfeiture is juristically capable of extension so as to grant to the court a discretion to prevent a shipowner from exercising his strict contractual rights under a withdrawal clause in a time charter which is not a charter by demise."
22. At p 702, referring to the dicta of Lord Wilberforce in the Shiloh Spinners case, he said:
"That this mainly historical statement was never meant to apply generally to contracts not involving any transfer of proprietary or possessory rights, but providing for a right to determine the contract in default of punctual payment of a sum of money payable under it, is clear enough from Lord Wilberforce's speech in The Laconia [1977] AC 850. Speaking of a time charter he said, at p 870: 'It must be obvious that this is a very different type of creature from a lease of land.'"
23. Lord Diplock's second reason was that, in any event, the provision that the owner could withdraw the vessel upon failure by the charterer to make payment in advance was not a mere security, since timely payment was needed to fund the wages and victualling of the master and crew together with the insurance and maintenance of the vessel sufficient to enable her to perform the contracted services.
24. For present purposes, the key phrases which stand out from Lord Diplock's speech are "no interest in or right to possession of the vessel" on p 700 and "proprietary or possessory rights" on p 702. He used the concepts of proprietary and possessory rights as a sine qua non in relation to the rights liable to be forfeited, in the absence of which equity could not intervene…."
"63. The doctrine of relief from forfeiture is an equitable doctrine. I would approach it from the standpoint of equity rather than through the prism of property law. Equity is a body of principles which alleviates the strict application of rules of law in appropriate cases. In this case, the relevant rule of law is that the court will enforce the terms of the parties' agreement because there is no reason in law why it should not be enforced. Equity serves to finesse rules of law in deserving cases. It thus makes the system of law in England and Wales one which is more likely to produce a fair result than would be possible if equity did not exist. This must surely be one of the reasons why the law of England and Wales is held in high regard in the world.
64. Some element of uncertainty in the application of the doctrine of relief from forfeiture is inevitable. Equity in general operates by principles rather than by rules. That means that relief from forfeiture is not an automatic consequence if particular conditions are fulfilled but instead is given in appropriate cases. It is not a foregone conclusion that once the conditions for relief are shown relief will necessarily be granted and that inevitably means an element of uncertainty about its availability.
65. Another element of inherent uncertainty arises from the fact that the doctrine of relief from forfeiture is a general doctrine and will apply to new circumstances, such as where the court has to deal with a particular form of property, or (as here) interest in or in relation to property, for the first time. The most obvious new circumstances are the creation of new forms of property or interest in property, such as shares in a registered company or aircraft. Thinking ahead, it may be applied in the future to forms of property which only exist in the cybersphere, or to rights which are treated as to all intents and purposes as rights to property (see e g Matteo Solinas "Bitcoiners in Wonderland: Lessons from the Cheshire Cat" [2019] LMCLQ 433). I note that the view that the law of forfeiture may yet expand in this general area is supported by Professor Ben McFarlane in Snell's Equity, 33rd ed (2015), para 13-023, cited by Lewison LJ in his judgment in this case [2019] Ch 331 paras 50–51.
66. It inevitably follows that there will be respects in which the equitable doctrine of relief from forfeiture will be "unfenced". So, while I agree with Lord Briggs JSC that there is a need for there to be certainty in this area of the law, especially in the commercial field, I would go further and conclude that certainty for the purposes of a general doctrine of equity differs from that which results from a hard-edged rule of law…."
Not security for a stated result
"There is again a strong argument, which Lord Neuberger PSC and Lord Sumption JSC favour, that clause 5.6 is a primary obligation to which the rule against penalties does not apply. But if all such clauses were treated as primary obligations, there would be considerable scope for abuse. I construe the clause as a secondary obligation, which is designed to deter (a) the sellers from breaching their clause 11.2 obligations and (b) a seller who is an employee from misconduct which damages the interests of the group and leads to summary dismissal (viz the Schedule 12 definition of "defaulting shareholder")."
Renunciation
"Established and, in my opinion, sound principle requires that wilful breaches should not, or at least should only in exceptional cases, be relieved against, if only for the reason that the assignor should not be compelled to remain in a relation of neighbourhood with a person in deliberate breach of his obligations."
"Paragraph 78 is admitted. In purporting to terminate the SHA, Gwent acted in the bona fide belief that as the Claimant had not been paid for or been issued with the 1,651 'A' shares, the fundamental presumptions as to the parties' shareholding on which the SHA was founded had not been achieved."
Should permission to withdraw the admission be given?
The grounds of the application
Conduct of the parties
Prejudice to the claimant if the admission is withdrawn
Prejudice to Gwent if the application is not allowed
Stage in the proceedings at which the application is made
The prospects of success of the point on which the admission is sought to be withdrawn
The interests of the administration of justice
"The final consideration within the list set out in the Practice Direction is the 'interests of the administration of justice'. It cannot be in those interests to permit the withdrawal of an admission made after mature reflection of a claim by highly competent professional advisors when there is not a scintilla of evidence to suggest that the admission was not properly made. Were it to be otherwise civil litigation on any sensible basis would be impossible."
Disposal