Hitendrakumar Patel v Michael John Parker & Ors

The court considered three interim applications in a first instance dispute arising from a failed joint venture to develop a hospital: (i) a mandatory order for delivery up of documents limited to accounting records necessary for the preparation of statutory accounts of Smart Hospitals Limited (SHL); (ii) permission to amend the Amended Particulars of Claim and to join three additional defendants; and (iii) summary judgment/strike out of the defendant’s counterclaim seeking rescission or a declaration that a personal guarantee was unenforceable. The judge treated the delivery-up application as invoking the American Cyanamid principles for mandatory relief and concluded there was a serious issue to be tried under Companies Act 2006 (in particular the obligations to keep accounting records and the right of inspection reflected in s.386 and s.388) and/or the common law; damages were inadequate and the balance of convenience favoured a limited delivery-up order. Permission to amend and to join Echo Tango (Trading) Limited, Smart Medical Clinics Limited and Echo Tango (Holdings) Limited was granted in part: amendments and joinder relating to alleged misapplications of funds and restitution/dishonest assistance against the first two were permitted, but allegations imputing guilty knowledge to Echo Tango (Holdings) Limited were refused for lack of pleaded or evidential basis. The application for summary judgment on the counterclaim was refused because the factual disputes (including contemporaneous evidence and competing witness accounts as to what was said and known when the personal guarantee was signed) meant the counterclaim had a realistic prospect of success only determinable at trial.

Background and parties: The claimant, Mr Hitendrakumar Patel, and the defendant, Mr Michael Parker, entered an oral joint venture in late 2020 to acquire and develop premises at Oyster Wharf, Lombard Road as a bariatric hospital. Two companies were formed: DDET Properties Limited (PropCo) and Smart Hospitals Limited (SHL) (OpCo). Contributions were said to be 50:50, but payments and development transactions were routed through companies controlled by Mr Parker, notably Echo Tango (Trading) Limited (ETT), and funds were advanced by Smartway PW. Holdings Limited (Smartway). A personal guarantee was executed by Mr Parker in March 2021 in favour of Smartway in respect of a loan to DDET.

Procedural posture and relief sought: This is a first instance hearing of three interim applications made by Mr Patel: (i) a mandatory order for delivery up of documents limited to those needed to prepare SHL's statutory accounts and accounting records; (ii) permission to re-amend the claim and to join three proposed defendants (SMC, ETT, ETH); and (iii) summary judgment/strike out of Mr Parker’s counterclaim seeking rescission/declaration of unenforceability of his personal guarantee.

Issues the court framed:

• Whether there was a serious issue to be tried and whether the American Cyanamid test and Nottingham Building Society principles supported a mandatory order for delivery up of accounting records under s.386 and s.388 Companies Act 2006 and/or common law rights of inspection;
• Whether proposed amendments to pleadings and joinder of additional defendants had a real prospect of success and were appropriately pleaded, including allegations of unjust enrichment, dishonest assistance, breach of trust, restitution and unlawful means conspiracy;
• Whether the counterclaim seeking rescission or a declaration of unenforceability of a signed personal guarantee on grounds of deceit/misrepresentation had no realistic prospect of success such that summary judgment should be entered.

Court’s reasoning and disposition: On the delivery-up application the judge concluded there was an arguable claim that accounting records necessary for SHL’s statutory accounts had been withheld by Mr Parker in breach of duties under ss.386 and 388 CA 2006 and/or the common law. Damages were inadequate because failure to produce records risked criminal sanction and prevented preparation of accounts; the balance of convenience favoured a limited, mandatory delivery-up order extending to documents in ETT’s name where those records related to SHL transactions, but not to documents of third parties such as SMC and ETH. The judge waived any procedural breach of Practice Direction 49A and ordered SHL to be joined so it is bound by orders.

On amendment and joinder the court applied the low threshold equivalent to the summary judgment real-prospect test. It permitted amendments and joinder against Mr Parker, ETT and SMC in respect of claims concerning misapplication of funds, unjust enrichment, dishonest assistance and unlawful means conspiracy, finding the allegation that £500,000 passed from ETT to SMC made those heads reasonably arguable. Allegations imputing Mr Parker’s knowledge to ETH for conspiracy were refused for lack of pleaded facts or evidence showing guilty knowledge or intention. Nonetheless, ETH and the other two companies were joined where appropriate and the claimant was to file modified re-amended particulars.

On the application for summary judgment of the counterclaim, the court refused to determine the enforceability/rescission issue at interlocutory stage. The judge held that the dispute involved competing factual accounts, contemporaneous documents and credibility issues which could not be resolved without a trial; the claim was not fanciful and summary disposal would risk conducting an impermissible mini-trial.

Wider context: The judgment emphasised the court’s caution in granting mandatory interlocutory relief and in determining fact‑intensive pleas of fraud on summary judgment, whilst also recognising the particular gravity of withholding accounting records needed for statutory compliance.

This first instance court granted a limited mandatory delivery-up order for documents necessary to prepare SHL’s statutory accounts and maintain its accounting records, including ETT documents that related to SHL transactions; SHL was ordered joined as a defendant. Permission to re-amend the Particulars of Claim was granted in large part and Smart Medical Clinics Limited and Echo Tango (Trading) Limited were joined as defendants; amendments and joinder relating to imputing Mr Parker’s knowledge to Echo Tango (Holdings) Limited were refused for lack of pleaded or evidential basis. The claimant’s application for summary judgment/strike out of the defendant’s counterclaim relating to rescission or unenforceability of the personal guarantee was refused because factual disputes and credibility issues required trial determination.