Bhullar v Bhullar & Ors

Key legal principles and holdings:

This is a first instance derivative claim brought by a minority director/shareholder on behalf of two family companies (BDL and BBL) alleging that substantial payments from the companies to a company called Torex (controlled by the first defendant, Jat) were unauthorised and in breach of fiduciary duty. The court held that a director must disclose an interest and secure informed authorisation before causing his companies to advance substantial sums to a company in which he has an interest; absent that disclosure and formal authorisation, the director was in breach of fiduciary duty.

The court considered and applied the Duomatic principle but held it did not validate the payments because unanimous, informed assent of all relevant decision‑makers (including the claimant) had not been established. The court addressed limitation defences, concluding that equitable compensation claims of the kind pleaded fall within the Limitation Act gateway discussed in Burnden Holdings v Fielding, but that the claimant had not proved dishonesty sufficient for the s.21(1)(a) fraud gateway. The court refused relief under s.1157 Companies Act 2006 because, although not dishonest, the director’s conduct was not reasonable.

Background and parties:

The claimant, Inderjit Singh Bhullar, brought a derivative claim on behalf of Bhullar Developments Limited (BDL) and Bhullar Brothers Limited (BBL) against his brother, Jatinderjit Singh Bhullar (the first defendant), alleging that substantial payments to Torex Developments Limited (a company solely owned and controlled by Jat) were unauthorised and amounted to breaches of fiduciary duty.

Procedural posture:

• The claimant had previously obtained permission for a derivative claim from Morgan J. (reported at [2015] EWHC 1943 (Ch)), limited to the so‑called Torex claim.

Nature of the claim / relief sought:

• The claimant sought relief on behalf of BDL and BBL including an account and inquiry of losses and/or an account of profits, repayment of sums advanced or a monetary award in equitable compensation, and associated relief (including interest).

Issues framed by the court:

• Whether the payments from BBL and BDL to Torex were authorised or, if unauthorised, whether they breached the fiduciary and statutory duties of Jat as a director.
• Whether the unanimous informal consent (Duomatic) of the relevant decision‑makers existed so as to validate the payments.
• Whether limitation barriers applied (Limitation Act 1980 ss.21 and 32) and whether dishonesty or deliberate concealment tolled limitation.
• Whether the court should relieve the director from liability under s.1157 Companies Act 2006.

Court’s findings and reasoning (concise):

• Factual background and credibility: the judge made detailed findings on witness credibility and accepted contemporaneous documentary evidence as central to the resolution of disputed events.
• Liability: the payments to Torex were not properly authorised by formal board/member procedures; Jat failed to disclose his interest and there was no recorded board approval or proper member ratification. The court held that causing the companies to advance large sums to a company he controlled without disclosure and informed authorisation constituted a breach of fiduciary duty.
• Duomatic principle: the court applied Re Duomatic and later authorities but concluded the principle did not apply because unanimous, informed consent of all relevant decision‑makers (including the claimant) had not been established; knowledge or acquiescence was not proved in relation to Inder for the 2007 transfers.
• Characterisation of transfers: on the facts the judge found the family treated the advances as informal, non‑commercial loans (not outright gifts), but without formal repayment terms or security.
• Limitation: the judge held that equitable compensation for conversion of company property may fall within the non‑statute‑barred category in the light of Burnden Holdings v Fielding, but the claimant failed to demonstrate dishonesty (required for the s.21(1)(a) fraud gateway). Deliberate concealment under s.32 did not apply to the 2007 payments (they were not hidden in a way that would make discovery unlikely), but later payments in 2008/2009 were treated differently and were not time‑barred.
• Relief and remedial approach: the appropriate remedy in principle was repayment of the outstanding sums with interest (equitable compensation) rather than an account of profits. The court refused to relieve the director under s.1157 because the conduct was not reasonable despite not being dishonest.

Practical outcome: Liability for breach of fiduciary duty was established in respect of the Torex payments; Duomatic did not validate them; limitation partially operates but equitable compensation was available in principle; the court directed that remaining remedial and consequential matters be addressed at a further hearing.

First instance judgment: the claimant’s derivative claim establishes that the first defendant, as director of BBL and BDL, caused those companies to advance substantial sums to Torex without making the necessary disclosure and without formal informed authorisation, thereby breaching his fiduciary duties. The Duomatic principle did not validate the transactions because unanimous informed consent was not proved. The equitable compensation claim is not defeated in principle by limitation considerations (in the light of relevant authorities), but the claimant did not establish dishonesty for the fraud gateway and relief under s.1157 Companies Act 2006 was refused. The appropriate remedy was directed to be repayment of outstanding monies with interest; other reliefs (account of profits and wider inquiries) were rejected or not ordered. Further procedural steps and detailed remedy calculations were left for further hearing.