Ghai & Ors v Chahal & Anor

A party cannot rescind a contract for fraudulent misrepresentation unless a relevant representation was made and relied upon. Even if representations had been made, subsequent conduct may affirm the contract and make rescission unavailable. Restitution must also remain possible.

Late amendments are discretionary. The court must apply the overriding objective and balance the applicant’s prejudice against prejudice to the opponent and other court users. Where evidence is complete, a heavy burden lies on the applicant to explain the delay and demonstrate a sufficiently strong case.

The claimants sought to enforce a shareholders’ agreement concerning the development of Bolbec Hall. The defendants alleged that the claimants had fraudulently represented that they would personally provide funds to repay company debts and finance development, and that the agreement had therefore been rescinded.

The court also considered a late application by the first defendant to amend his defence to allege a further fraudulent misrepresentation concerning a proposed £50,000 payment. The issues were whether the alleged representations were made or relied upon, whether the agreement had been affirmed, whether rescission remained available, and whether the late amendment should be permitted.

1. Misrepresentation and rescission. The alleged representations were not made. The contemporaneous documents and the parties’ conduct showed that the claimants intended to seek third-party finance rather than personally fund repayment of the company’s debts or development costs.
2. Even if the representations had been made, they were not relied upon. The first defendant promptly participated in efforts to obtain third-party finance and did not require the claimants to provide the alleged personal funding. His subsequent conduct, including obtaining further company loans and payments, affirmed the shareholders’ agreement and would have barred rescission.
3. Restitution was also impossible. The company and the first defendant were unable to restore the sums advanced by the claimants. Rescission was therefore unavailable. The entire agreement clause did not assist the claimants in respect of fraudulent representations, had any such representations been proved.
4. Late amendment. The principles stated in Quah v Goldman Sachs International [2015] EWHC 759 (Comm) were applied. An amendment must be refused if it has no real prospect of success. A very late amendment requires a good explanation and a strong justification under the overriding objective. The court must consider prejudice to the applicant, the opponent and other court users, including the disruption of a fixed trial.
5. The proposed amendment was made after the evidence had closed, without satisfactory explanation. It would have required an adjournment and further evidence, causing disproportionate prejudice. The proposed case was also weak and raised difficulties concerning reliance, dishonesty and restitution. Permission to amend was refused.
6. Judgment was entered for the claimants. The form of relief, including rectification of the share register and steps to procure the claimants’ appointment as directors, was adjourned for agreement or further hearing.

Not stated in the judgment.