Ghai & Ors v Chahal & Anor

The claim concerned enforcement of a shareholders' agreement dated 14 March 2018 governing a joint venture to develop Bolbec Hall. The first defendant asserted that he had been induced to enter the agreement by fraudulent misrepresentations that the claimants would (or could) provide substantial personal funding to discharge creditor liabilities (notably to Auction Finance Limited and the Newcastle Literary and Philosophical Society) and to fund development.

The judge found that none of the central alleged representations were made. The contemporaneous documentary evidence, communications between the parties (including emails and WhatsApp messages), the terms of the Shareholders' Agreement and the parties' subsequent conduct all supported the claimants' account that the arrangement was to provide an initial loan of £50,000 and to pursue third‑party refinancing and development finance, not an immediate personal commitment by the claimants to advance the full sums alleged. The judge also held in the alternative that, if such representations had been made, the first defendant did not rely on them or had affirmed the agreement and that rescission would in any event be unavailable because restitution was impossible. An application to amend the defence late in the proceedings was refused applying established principles on late amendments (Quah v Goldman Sachs and authorities). The court therefore granted judgment for the claimants and indicated that orders to rectify the share register and to procure the claimants' appointments as directors would be appropriate remedies to give effect to the Shareholders' Agreement.

Background and parties. The second defendant (Bolbec Hall Limited), of which the first defendant was sole director and shareholder, owned Bolbec Hall. The claimants (Dr Akash Ghai, Mrs Harjit Kaur Ghai and Dr Deepinder Singh Somal) entered a joint venture with the first defendant to finance and develop the property. A shareholders' agreement dated 14 March 2018 recorded subscriptions and loans by the claimants and governance and waterfall provisions. The first defendant later alleged that the claimants had fraudulently misrepresented that they personally would provide funds to repay the Company’s debts (to Auction Finance Limited and the Newcastle Literary and Philosophical Society) and to fund development, and he claimed to have rescinded the agreement.

Nature of the claim and relief sought. The claimants sought to enforce the Shareholders' Agreement, including completion of share allotments, appointment of directors, changes to bank signatories and other ancillary relief. The defendants pleaded fraudulent misrepresentation and alleged entitlement to rescission as a defence to enforcement.

Issues framed by the court.

• Whether the alleged representations (four specific representations pleaded) were in fact made by the claimants;
• whether, if made, they were fraudulent and relied upon by the first defendant so as to entitle him to rescind the Shareholders' Agreement;
• whether rescission remained available in light of subsequent events (affirmation, impossibility of restitution); and
• whether a late application to amend the defence should be permitted.

Evidence and findings of fact. The court heard oral evidence from the three principal witnesses and considered contemporaneous documents (emails, WhatsApp messages, solicitors' correspondence and the Shareholders' Agreement). The judge preferred the evidence of Drs Somal and Ghai as honest, consistent and supported by contemporaneous documents. The first defendant's evidence was found to be vague, inconsistent with contemporaneous materials and to have changed during the litigation.

Court’s reasoning and disposition of issues. The judge concluded that:

• the alleged representations (including that the claimants would personally repay the AFL debt and pay the Society debt within a stated timeframe, and that they would fund development costs) were not made;
• the contemporaneous documents (including an email of 13 March 2018, the Shareholders' Agreement and subsequent conduct) showed the parties contemplated third‑party refinancing and bridging finance rather than immediate personal payment by the claimants;
• the first defendant, in any event, treated the Shareholders' Agreement as permitting and pursuing third‑party funding after signature and accepted steps inconsistent with reliance on the alleged representations, so he had affirmed the contract;
• even if the representations had been made and were fraudulent, rescission would be unavailable because restitution could not now be achieved (the Company and the director were insolvent or unable to restore the parties to their pre‑contractual positions); and
• a late application by the first defendant to amend his defence to rely upon an additional alleged representation that he could draw £50,000 within a period was refused as unjustified and without sufficient prospect of success, applying the principles in Quah v Goldman Sachs and related authorities on very late amendments.

Remedies and outcome. The court entered judgment for the claimants. The judge indicated that primary remedies to give effect to the Shareholders' Agreement would be rectification of the company's register of members (and orders to procure the appointment of the claimants as directors), and that other relief (information, bank signatory changes) would largely be secured by such orders. The precise form of order was to be finalised or determined at a short further hearing if the parties cannot agree.

First instance: Judgment for the claimants. The court held that the pleaded fraudulent misrepresentations were not made (and, in the alternative, that any such representations were not relied on or had been affirmed and that rescission is unavailable because restitution is impossible). A late application to amend the defence was refused for lack of adequate explanation, prejudice and weak prospects of success. The court directed that orders to rectify the share register and to procure the claimants' appointments as directors were appropriate to give effect to the Shareholders' Agreement.

Prior proceedings concerning the purported sale of the Property were before the First-tier Tribunal (Property Chamber), whose decision of 17 May 2019 was adverse to the claimants. Permission to appeal that decision to the Upper Tribunal (Lands Chamber) was granted on 23 March 2020 by Judge Martin Rodger QC; that appeal was listed for hearing on 15 September 2020. No appeal history of this High Court judgment is recorded in the judgment itself at the time handed down.