QUEEN'S BENCH DIVISION
BIRMINGHAM DISTRICT REGISTRY
B e f o r e :
| BALBIR SINGH CHAGGAR
|- and -
|(1) RAGHBIR SINGH CHAGGAR
(2) HI-TECH AUTOPARTS LIMITED
for the Claimant
Edward Pepperall QC and Marc Brown (instructed by Freeths LLP)
for the First Defendant
The Second Defendant did not appear
Hearing dates: 10, 11, 12, 13, 14, 21 July 2017
Crown Copyright ©
Mr Justice Morris:
The nature of the case
The structure of this judgment
The parties and their families
"Initial Settlement Agreement dated 25 April 2012
The signatories to this agreement hereby agree as follows:
1. Hi-Tech Auto Parts Limited (company number 01770948) (Hitech) hereby agrees pay to Balbir Singh Chaggar (BSC) £60,000 on signature of this agreement, by way of dividend payments to the extent it is lawfully able to do so, on condition the bank accounts of Hitech and Delta Properties Partnership (Delta) are unfrozen and BSC and Raghbir Singh Chaggar (RSC) agree to write as directors of Hitech and partners in Delta to the bank in the following terms:
"We hereby authorise you to unfreeze with immediate effect the above accounts and pay Balbir Singh Chaggar by transfer into his account (BS & HK Chaggar, Sort Code 05 05 67, Acc No 45138236) the sum of £60,000 from Delta Properties (Name Account Number & sort code to be completed [then added in manuscript and initialled] RS + BS Chaggar T/A Delta Properties Acc No 49363203 sort code 05-0381
Please also accept this letter as authority to withdraw the internet banking facility for Delta with immediate effect.
We confirm that the dispute between us is settled and, subject to detailed legal documentation being entered in to between us, Balbir Singh Chaggar will not seek to freeze the above accounts at any time in the future.
Please confirm receipt of this letter and that it has been actioned as requested by return."
2. Hitech and/or RSC will pay to BSC a total aggregate consideration of £1.6m split £800,000 for BSC and Hardev Kaur Chaggar's (HKC) shares in Hitech and £800,000 for BSC's interest in the properties held in Delta, payable as follows:
a. £300,000 on or before 31/12/12
b. £425,000 on or before 31/12/13
c. £425,000 on or before 31/12/14
d. £450,000 on or before 30/04/15
In case of any default in such payments BSC and HKC may give to Hitech and RSC parties 3 months notice in writing to pay the amount due at the time and failure by the other parties to do so will render the balance remaining from the aggregate consideration due and payable immediately, and in addition to any other remedies available to BSC but giving due credit for any payments already made under this agreement, if requested by BSC RSC agrees to jointly instruct alongside BSC an agent to sell at the then prevailing market value such of the properties held in Delta in order to satisfy the outstanding consideration, then due. Interest 5% over base rate in case of default only but not otherwise, with the deferred aggregate consideration being interest free.
3. BSC and HKC's shares in Hitech will transferred to Hitech by them signing the share transfer forms to be held in escrow by Clarke Wilmott LLP which shall be released pro rata as follows:
a. 10 shares in Hitech on payment of the sum at 2a
b. 10 shares in Hitech on payment of the sum at 2b
c. 10 shares in Hitech on payment of the sum at 2d
4. The parties are to seek their own tax advice and have confirmed that they are not relying on any legal or financial due diligence considering this unnecessary but the parties are willing to cooperate in relation to implement any reasonable tax planning that is not to their detriment, if such advice recommends that the properties held in Delta should be transferred to an SPV or any other reasonable tax mitigation solutions, in which case then the release of any shares owned by BSC in such SPV will be on the same basis as in clause 3 above.
5. For the avoidance of any doubt BSC and HKC will transfer any shares in Hitech or the SPV if formed to Hitech subject to the parties obtaining HMRC approval and BSC will transfer the properties owned by Delta to RSC or any nominee of his upon full payment of the aggregate consideration of £1.6m.
6. Pending the payment of £1.6m Hitech and Delta will pay a monthly sum of £4000 to BSC towards the sum of £1.6m from 1 month of the date more detailed settlement agreement referred to at clause 16 below (SA), which will be deducted from the sums payable to BSC and HKC at 2b, c & d. For the avoidance of doubt the total amount payable (excluding the initial dividend payment of £60,000) will be £1.6m.
7. BSC will resign as director of Hitech on the date of the SA but will continue as director of any SPV holding the Delta Properties until payment of the consideration of £800,000.
8. On the date of the SA, the Bank mandates will be changed as follows:
a. BSC to be removed from the mandate for Hitech.
b. BSC to remain on the mandate for Delta or its SPV until payment of £800,000. BSC to operate the mandate only on the basis of two authorised signatories and in the event of any dispute will authorise Rishi Chandarana of BPG (RC) to operate the mandate as RC deems appropriate.
9. RSC hereby agrees to indemnity BSC in respect of any tax payable in respect of his share of land and property in Romania sold by RSC.
10. Each party shall be responsible to pay his/her tax as appropriate, in case of any dispute the decision of BPC will be final.
11. The SA will also incorporate suitable provisions in relation to the following:
a. The settlement terms in the SA are in full and final settlement of all claims each party or its affiliates have against each other whether known or unknown subject only in case of fraud.
b. BSC will cooperate and agree to any sale of the Delta properties to enable RSC to make payments towards the aggregate consideration net of any sale costs and payments required by the bank.
c. From the date of the SA BSC and HKC will not be entitled to any further monies by way of income, interest or capital except the monthly sum at 6 above.
d. BSC will undertake not to freeze the bank accounts of Hitech Delta or any SPV now or at any time in the future.
e. The parties will do all such acts and things necessary to give effect to the SA and in the most tax effective manner.
12. In the event Hitech or Delta does not pay any sum due under this agreement or the SA, or part of it, including for the avoidance of doubt the £60,000 referred to in clause 1 above, RSC hereby guarantees such payment as principle obligor and will upon written demand by BSC, pay the amount outstanding to BSC or as he shall direct.
13. Each party is to bear its own legal costs except:
a. Hitech will pay BSC's costs to date estimated at £2,400 plus VAT plus his costs of approving the SA subject to an estimate being provided and agreed by RSC and the invoices being addressed to Hitech.
b. Hitech and/or RSC will pay Johar & Company's legal fees.
14. Subject to the detailed SA being entered in to by the parties within 14 days of the date hereof, the parties will immediately cease all communications directly or through their solicitors and to or from any third parties except to finalise and agree the terms of the SA and BSC undertakes not to freeze the bank accounts of Hitech Delta or any SPV now or at any time in the future.
15. The terms of this agreement and the SA will be kept confidential by the parties and there will be a non disclosure provision and a provision that BSC HKC or any persons authorised or at their direction do return all documents/data and not disclose copy etc any confidential information belonging to any of the other parties.
16. The parties agree and acknowledge that this agreement shall give rise to legally binding obligations on them, notwithstanding that a more detailed SA will be put in place as soon as reasonably practicable (and in any event within 14 days) following the date of this agreement. Once entered in to, the parties agree and acknowledge that the SA will supersede the terms of this agreement and the parties hereby agree to act in good faith in order to put in place the SA as soon as reasonably practical.
This agreement is dated 25 April 2012 and the Parties hereby agree to be bound by its terms with immediate effect.
Signed by Balbir Singh Chaggar:
Signed by Raghbir Singh Chaggar:
Signed by Raghbir Singh Chaggar on behalf of Hi-Tech Auto Parts Limited (Company number 017709480)
The parties' contentions in summary
(1) The ISA was not a binding agreement. There was no sufficient intention to be bound, alternatively it was an agreement to agree, alternatively there was a failure to agree essential terms such that the agreement was not workable or sufficiently certain.
(2) If the ISA was otherwise binding, it was void as constituting an agreement by the Company to purchase its own shares contrary to the prohibition in s.659 Companies Act 2006 ("CA 2006").
(3) In any event the ISA was procured by economic duress and was avoided.
(4) If the ISA was otherwise binding, it was discharged as a result of Balbir's repudiatory breach.
(5) Alternatively, Balbir is estopped now from relying upon the ISA.
(1) The ISA was a binding agreement; there was an intention to create legal relations, as made clear by Clause 16, and the terms of the ISA are clear, certain and workable.
(2) There was no breach of any provision of the CA 2006. The ISA did not require the Company to purchase its own shares and in any event there was a lawful mechanism by which the Company could have purchased its own shares.
(3) The ISA was not concluded as a result of economic duress and in any event Raghbir affirmed the ISA.
(4) The matters relied upon by Raghbir did not constitute a repudiation of the ISA. In any event, Raghbir proceeded to rely upon and affirm the ISA.
(5) There is no defence based on estoppel. In particular at no point did Balbir make a representation that he did not wish to assert his rights under the ISA and there was no relevant reliance by Raghbir upon any conduct on the part of Balbir.
(1) A binding agreement: Is the ISA a valid and binding agreement (such that Balbir is entitled to enforce its terms)?
(2) Breach of Companies Act 2006: Was the ISA an agreement for the Company to purchase its own shares prohibited by CA 2006 and thereby void?
(3) Economic Duress: Was the ISA procured by economic duress?
(4) Discharge by repudiation: Did Balbir commit a repudiatory breach of the ISA which was accepted by Raghbir as terminating the ISA?
(5) Estoppel: Is Balbir estopped from asserting his rights under the ISA?
The facts in outline
(B) The Parties' contentions in more detail
Issue (1): Binding agreement/Agreement to agree
(1) Agreement to agree: the ISA was an agreement to agree final settlement terms and was not, nor intended to be, binding. It was an "emerging agreement", meaning no more than an "agreement to agree".
(2) Absent a further agreement between the parties providing for a lawful mechanism for the purchase by the Company of its own shares, the ISA, in so far as it provided for the purchase of its own shares, was unlawful under CA 2006. As it stood it was incomplete and unworkable and an unlawful agreement, and thus should not be construed as binding, but rather as an agreement to agree.
(3) Further even if the ISA was more than an "agreement to agree" and even if the parties intended to be bound by the ISA, there was no agreement of the essential terms sufficient for the formation of a binding contract and thus the ISA was not an enforceable contract. Clause 16 is not determinative of the issue. Without a binding SA, the agreement as a whole, and the ISA, was unworkable: see Pagnan SA v Feed Products  2 Lloyds Rep 601, proposition (5) and Barbudev v EuroCom Cable Management Bulgaria Eood  EWCA Civ 54 at §§30, 37, 42, and 55.
(4) In support of these contentions ("agreement to agree" and "lack of essential terms"), Raghbir points to the following matters:
(a) The ISA specifically envisaged a subsequent more detailed settlement agreement.
(b) Hardev Chaggar was not a party to the ISA and was thus not bound by a substantial number of the obligations in the ISA, including the sale of her shares and the payment terms. The parties failed to agree how the ISA was to bind Hardev Chaggar. Unlike the position of Raghbir signing on behalf of the Company, Balbir had not signed the Agreement "for and on behalf of" Hardev. The transfer of her shares contemplated by the ISA could not be completed without an SA. Further "affiliate" in clause 11 must include Hardev. She could not be a party, as well as being an affiliate.
(c) Clause 4 envisaged that the parties would seek tax advice and might restructure their emerging deal in a more tax-efficient manner. That would involve unscrambling the deal and doing it differently through an SPV.
(d) Key obligations in clauses 6, 7, 8, 11 and 14 of the ISA were tied to agreement of the SA.
(e) The ISA failed to identify who was to pay the sum of £1.6 million – the Company or Raghbir.
(f) The ISA failed to specify how or to whom the properties in Delta were to be transferred. Clause 4 envisaged that they might be transferred to an SPV and the release of shares owned by Balbir in such an SPV.
(g) Clause 5 provided for the transfer of shares in the Company or the SPV to be "subject to HMRC approval". Yet there was no agreement as to the nature and manner of obtaining such approval nor as to what was to happen if it was not forthcoming.
(h) The parties failed to agree when payments should be made under clause 6, nor when Balbir should resign as a director under clause 7, nor when Balbir should be removed from the Company's bank mandate under clause 8(a), other than by reference to the intended SA that was never concluded.
(i) The parties failed to agree what should be "suitable provision" for the various matters covered by clause 11 a. to e.. In particular, without a final settlement agreement, the ISA could not give effect to the stated intention to achieve full and final settlement.
(j) The parties failed to agree whether (i) they should be able to continue to negotiate or discuss via their solicitors and with third parties, given that such agreement in clause 14 was made expressly "subject to the detailed settlement agreement being entered into within 14 days" or (ii) Balbir was entitled to freeze the bank accounts of the Company again in the event of the SA not being finalised within 14 days, despite his desisting from doing so being a key term of the ISA.
(1) Clause 16 of the ISA determines definitively that the ISA itself was binding, and that the ISA was not merely "an agreement to negotiate"; further, even absent an SA, the ISA is workable and not uncertain. Barbudev turns on the specific terms of the side letter in that case.
(2) As regards Hardev, she did not need to be joined as a party to the
Agreement. Balbir could agree to sell her shares irrespective of her consent. In any event, and as a matter of fact, in concluding the ISA, Balbir was acting as Hardev's agent; she was an undisclosed principal.
(3) The provisions in clauses 2 and 3 governing the transfer of the shares and the properties are self-standing and operate regardless of the conclusion of the SA. Further matters covered by clauses 6 to 8 and 11 to 14 are self-contained and do not affect the enforceability of the ISA as a whole. Obligations which are framed by reference to the date of the SA do not render the ISA unworkable or void.
(4) As regards clauses 7 and 8(a), even if no SA was concluded, but the parties performed the terms of the ISA, once Balbir and Hardev's shares were transferred, in practice Raghbir, in his then capacity as majority shareholder, would be in a position to procure Balbir's resignation as a director and his removal from the bank mandate.
(5) Clause 5 was not a substantive provision, but merely confirmed certain aspects of the parties' obligations "for the avoidance of doubt". That HMRC approval can only be in relation to the Company; and, as a matter of construction it applied only if the SPV was formed. Further there is to be a term implied in the ISA that, in the event that HMRC approval is not obtained, Balbir is to transfer the shares, at Raghbir's direction.
Issue (2): Companies Act 2006
(1) The ISA is an agreement for the Company to acquire its own shares. Clauses 3 and 5 of the ISA requires Balbir's and Hardev's shares in the Company to be transferred to the Company. Further clause 2 provides that the £1.6m would be paid by the Company and/or Raghbir. Clause 2 is clearly a contract to acquire its own shares.
(2) The Company's agreement to purchase its own shares is in breach of the prohibition in s.658(1) CA 2006.
(3) Further since clause 2 of the ISA provides for payment for the shares to be made in tranches, it breaches s.691(2) CA 2006.
(4) The procedure prescribed in ss.694-695 in relation to the relevant resolution was not followed (Amended Defence §15.3).
(5) As to reduction in capital (governed by s.641(1) and s.659(2))
(a) Whilst the parties could have contracted for a reduction in share capital, they did not in fact do so. This was an agreement for purchase of the shares and not an agreement for the reduction in capital.
(b) In any event, the requirements for such a capital reduction have not, and could not have, been complied with. First, the brothers themselves could not have secured a special resolution (requiring 75% of shares). Secondly, there is no evidence that the Company was solvent and that a solvency statement could be signed nor that the court ought properly have confirmed the proposed capital reduction, especially in view of likely objections from creditors to pay £1.6 million and the failure to offer like terms to Kiran.
(6) Accordingly, the ISA was void.
(1) The fact that one mode of performance of the ISA might have resulted in the transfer of the shares being void, does not render the ISA void. The court should construe the contract in such a way as to ensure that it is performed lawfully.
(2) Under the ISA, the Company was not required to purchase its own shares. Clause 2 provides that payment to Balbir was to be made by "Hitech and/or Raghbir" and conferred upon Raghbir the option to decide what proportion of the contractual sum would be borne by him personally and what proportion by the Company. This option reflected previous discussions which had canvassed the possibility of a buy-out by Raghbir and a buy-out by the Company in the alternative. Further by clause 12, Raghbir personally guaranteed any payment obligation. In any event, the Court should construe the ISA as imposing the obligation upon Raghbir alone. If the Company was unable lawfully to pay for the shares, Raghbir was obliged to do so and the ISA should be construed and/or performed accordingly.
(3) In any event, since payment was to be and/or could properly be made by Raghbir (rather than the Company), the Company would be acquiring its own shares "otherwise than for valuable consideration" falling within the exception to the s.658(1) prohibition found in s.659(1); in that situation it is not the company which is paying for the shares.
(4) The fact that the shares were to be acquired in tranches does not fall foul of s.691(2).
(5) There were, and are, other mechanisms by which the parties could have enabled the shares to be purchased by the Company. This acquisition by purchase could lead, or could have led, to a permitted reduction in share capital. Whether it is a reduction in capital depends upon what the company does with the shares, once acquired. Acquisition by purchase and reduction in capital are not mutually exclusive. Further there was evidence of solvency and a special resolution was and is possible.
(6) Finally, in any event even if the Company and/or Raghbir had chosen to perform the ISA in a way which was unlawful, then the acquisition by the Company of its own shares would be void to that extent. It would not detract from the validity and enforceability of the ISA itself.
Issue (3): Economic Duress
(1) Balbir exerted illegitimate pressure upon Raghbir by the following conduct:
(a) On 18 April 2012, Balbir froze the Company's bank account, leading the Bank to consider appointing administrators.
(b) Balbir refused to unfreeze the bank account and insisted that he would only lift the freeze (and thereby take action to avoid the appointment of administrators) upon Raghbir signing the ISA.
(c) This conduct was illegitimate: Balbir was acting for his own benefit and for his own interests, rather than in the interests of the Company and thus in breach of his fiduciary duties to promote the success of the Company and to avoid a conflict of interests, contrary to ss. 172 and 175 CA 2006. The pressure was thus "unlawful". Balbir foresaw the risk that the Company would close down and that was his intention.
(2) But for this illegitimate pressure, Raghbir would not have agreed to buy him out for £1.6 million. The high figure of £1.6m was originally suggested by Balbir. The ISA was entered into shortly before the Bank's 4pm deadline for the appointment of administrators.
(3) Raghbir had "no real alternative" to entering into the ISA. Absence of a realistic practical alternative goes to the issue of whether pressure is legitimate and not to the issue of causation. The authorisation limits proposed by Balbir were not practical. Further, seeking an injunction to lift the freeze of the bank account, was not an option, because Raghbir had no authority to instruct solicitors on behalf of the Company: see Mitchell & Hobbs (UK) Ltd v Mill  2 BCLC 102.
(1) His conduct was not illegitimate. Steps taken to freeze the account were lawful.
(2) He acted in good faith, based on genuine concerns that Raghbir had misappropriated monies and assets from the Company. Those concerns were in fact well founded.
(3) He did not make any threat by reference to the conclusion of the ISA. The freeze was never accompanied by any demand to sign any agreement. The prospective buy-out agreement formed no part of Balbir's demand; what he asked for was a restriction being placed on the transfer of monies from the Company. Rather, the offer of a buy-out came, in the first place, from Raghbir.
(4) Balbir's conduct was not causative of the conclusion of the ISA. The freeze on the account was not a significant cause of Raghbir's offer to buy out Balbir's interests. Rather Raghbir's decision to offer to buy him out arose because of Raghbir's desire to avoid further investigation of his own conduct.
(5) As regards the freeze on the account, Raghbir had the practical alternatives of seeking injunctive relief (which at the time he believed to be an available course) or agreeing to the proposed sensible limits on authorisation of payments.
(6) At all material times, Raghbir had the benefit of legal representation, as provided, in particular, by Deepak Johar.
(7) In any event Raghbir affirmed the ISA by his subsequent conduct and made no attempt to assert that it had been procured by duress. In particular, he sought to remove Balbir from the Company's BUPA policy, in July 2012 asked Balbir's lawyers to send a further draft of the SA and on 6 August 2012, stated that he was content to proceed. There was no indication that the ISA was entered into under protest, nor a prompt rejection of the ISA. The 17 May 2012 letter was not a protest on grounds of duress. In fact, despite the terms of the letter of 26 November 2012, no allegation of duress was made until service of the Defence in December 2014.
Issue (4): Repudiatory Breach
(1) In breach of clauses 14 and 16 of the ISA, Balbir failed to agree, or indeed to engage in negotiations, for the SA, whether within 14 days of the ISA or at all.
(2) By his solicitor's letter of 18 June 2012, Balbir refused to accept instalment payments as provided for by clause 2 of the ISA and instead insisted on a lump sum payment. That was fundamentally inconsistent with the continuation, and amounted to a renunciation, of the ISA. The fact that letter was written "without prejudice" does not make it inadmissible as evidence of repudiation and the statement made was sufficiently clear and unequivocal: see Alan Ramsay Sales & Marketing Limited v Typhoo Tea Limited  EWHC 486 (Comm)  4 WLR 59.
(1) Johar & Co's email of 17 May 2012 stating that the "ISA is now null and void". This was acceptance of the repudiation constituted by the failure to agree the SA.
(2) Freeths' letter dated 26 November 2012 expressly accepting Balbir's repudiatory breaches – this was acceptance of both the repudiatory breaches in paragraph 38 above. The letter of 6 August 2012 did not amount to an affirmation of the Agreement. In any event it was properly marked "without prejudice" and the principle in the Alan Ramsay Sales case applied.
(1) As regards the letter of 18 June 2012, it was written "without prejudice", is not admissible and in any event, because it was part of an ongoing negotiation, cannot be construed as an unequivocal renunciation: see Alan Ramsay Sales, supra. Secondly, read in its proper context (effective date and acceleration of shares transfer) the contents of that letter did not state that Balbir was refusing to perform his obligations under the ISA. The proposal in that letter was not inconsistent with the terms of the Agreement. There is nothing to prevent the terms of the SA being different from those in the Agreement which it would replace. Further by his objective conduct, in seeking to have Balbir excluded from the Company in his letter of 4 July 2012, Raghbir was relying upon the continued validity of the ISA. In any event, by the letter of 6 August 2012, Raghbir unequivocally affirmed the ISA.
(2) As regards the alleged failure to agree, or negotiate for, the SA, this was no more than an obligation to agree or negotiate in good faith and as such unenforceable as a matter of law. Thus a failure to comply with an unenforceable obligation cannot amount to a repudiation of a contract, and thus of the ISA. In any event, on the facts, Balbir did not fail to seek to agree the, or an, SA (see eg 18 July 2012 letter from Clarke Willmott).
Issue (5): Estoppel
(1) In an ongoing series of events starting almost immediately after the ISA was agreed, Balbir impliedly represented that he would not enforce his strict legal rights under the ISA. Specifically he continued to engage as a director of the Company, to seek due diligence and to investigate the affairs of the Company and sought to renegotiate the terms of the settlement agreement.
(2) Raghbir relied upon such representations by "suffering" or "allowing or permitting" Balbir's continued involvement in the business right up to the sale of the Delta properties (including the receipt by Balbir of over £500,000 in respect of sale of properties which, if the ISA were binding, should have been transferred to Raghbir under its terms) and the insolvency of the Company.
(3) Only when it was obvious that the Company was in serious financial difficulty did Balbir seek to reverse his position of the two previous years and instead assert his alleged rights under the ISA.
(4) It is inequitable for Balbir to seek, in or after June 2014, to rely upon his strict legal rights under the ISA, given the passage of time and the fact that the Company was on the verge of administrative receivership.
(1) There was no representation that Balbir would not enforce his rights under the ISA. There must be a clear and unequivocal promise not to enforce rights. Instead Raghbir relies, wrongly, on alleged breach of obligations. Mere delay in enforcing rights cannot give rise to a representation founding an estoppel.
(2) There is no evidence of any reliance on the part of Raghbir. Raghbir's case is that he permitted or allowed certain things to continue. Raghbir did not alter his position in reliance upon the alleged promise or representation. The things Balbir did were things he was always entitled to do under the ISA and pending the signing of the, or an, SA. Balbir remained a director and was entitled to remain in the business. He would cease to be a director once the SA was signed and concluded.
(3) In any event, Raghbir cannot invoke the Court's equitable jurisdiction, because his own misconduct and illegality mean that he has not come to the Court "with clean hands".
Sub-issues of fact
(1) The history of the business relationship between Balbir and Raghbir:
(a) Who created the business? What was the respective involvement of Balbir and Raghbir in the business over time? Did Raghbir exclude Balbir and Manveer from the management of the Company? (limited findings at para 54 below.)
(b) Did Balbir (and Manveer) hack into the Company's computers? (para. 46 below).
(2) What were the circumstances of the earlier buy-out negotiations? (paras 60 to 66 below).
(3) As at the time of the freeze, had Raghbir in fact misappropriated funds from and/or acted fraudulently in relation to the Company and related businesses? (paras 162 to 174 below).
(4) What was Balbir's motive or intention when imposing the freeze on the Company's bank account - to stop misappropriations or to intend that the Company would fail or to obtain a buy out? (paras 134 to 137 below).
(a) Who first raised the possibility of a buy-out in April and who first mentioned the figure of £1.6 million (paras 121 to 124 below).
(b) Did Raghbir have a practical alternative to agreeing to the buy-out? (paras 125 to 128 below).
(5) In concluding the ISA, was Balbir acting as agent for Hardev? (paras 131 to 133 below).
(6) At what points in time was Deepak Johar acting for Raghbir? (paras 129 to 130 below).
(7) Who was to blame for the stalling of the SA process? Did Raghbir affirm the ISA after it was concluded? (paras 254 to 262 below).
(C) The Evidence
Hardev Singh Chaggar
Raghbir Singh Chaggar
(D) Detailed factual chronology (including certain findings of fact)
The overseas operations: Romania and Australia
Previous Discussions about a buy-out of Balbir's shares (including findings of fact)
(2) April 2012: up to the signing of the ISA
Balbir seeks financial information
Balbir takes action with the Bank
Balbir takes action in relation to the Company's bank accounts : 10 April 2012
"Regarding Hi-Tech Auto-parts Limited and Delta Properties
Please action the following with immediate effect:
1. All future cheques and payment instructions are to be counter-signed only by myself, Balbir Chaggar, and Raghbir Chaggar or Tejinder Bahra.
2. Any current signatures other than the above mentioned are to be indefinitely removed for any payment instructions/authorisations.
3. Only myself, Balbir Chaggar, and Raghbir Chaggar are to be allowed access to the company bank accounts. Any other persons with access to the company bank accounts must be removed.
4. All Internet banking and telephone banking is to be stopped and cancelled.
5. All future correspondence and meetings must be addressed to and include myself, Balbir Chaggar and Raghbir Chaggar together."
The letter was signed by Balbir in his capacity as "managing director" of the Company. This did not constitute a freeze on the bank accounts of the Company. Rather it sought to limit the authorised signatories on all payments by the Company and to put a stop to Internet banking and telephone banking. Internet banking facilities were stopped; they were reinstated subsequently on 18 April.
The freeze of the Company's bank accounts: 18 April 2012
"Further to your telephone conversation yesterday, I want you to freeze the Hitech Autoparts Account immediately as Raghbir Chaggar and myself are in dispute.
Balbir was clear that significant sums of money were being spent by Raghbir which did not appear to be legitimate. He felt that he had no option but to freeze the account and that this was in the best interests of the company, its shareholders and its employees. He vehemently denied, in his witness statement, that he was acting in breach of his duties as a director of the Company. In re-examination, he said that what had caused him to freeze the account was that he saw first the profit and loss sheet and that Raghbir had taken £110,000 and then he saw the Sage file and that Raghbir had been paying his son backdated salary, even though he had only just come back from Australia. Then, Raghbir had told him that he could not stop internet banking and that he, Balbir, would not get paid any salary. Raghbir was taking decisions on his own.
"Dear Mr Chaggar
I have been instructed by Hi-Tech Autoparts Limited and Mr Raghbir Singh Chaggar.
My instructions are that you have instructed Clydesdale Bank that no payments are to be made out of Hi-Tech's bank accounts with Yorkshire Bank. I am instructed that this arises out of a dispute between you and Mr RS Chaggar relating to the potential purchase of shares in Hi-Tech belonging to you and your wife. Your instruction is for no legitimate reason. Hi-Tech is in no financial difficulty and it must therefore be assumed that it is for personal reasons alone.
Your action is in breach of your duties as a director to promote the success of Hi-Tech in accordance with Section 172 of the Companies Act 2006. It also gives rise to an action by Mr Raghbir Singh Chaggar under section 994 of the Companies Act 2006." (emphasis added)
The email continued, requiring Balbir to withdraw the instruction to freeze and pointed out that if it was not withdrawn it would cause serious and unquantifiable loss to the Company's business and would cause the Company to fail. The email continued:
"I therefore look forward to hearing from you with confirmation that the instruction has been withdrawn and giving the undertaking that you will not reinstate this instruction without first giving Mr RS Chaggar 7 days written notice. If no such confirmation is received by 930 am tomorrow, I anticipate being instructed to apply to the Court for urgent injunctive relief without further notice to you." (emphasis added)
It is noteworthy that Mr Nugent Smith was purporting to act both for the Company and for Raghbir personally, and in particular pointed out a right of action vested in Raghbir personally under section 994 CA 2006.
19 April 2012
"Hi-Tech Autoparts Limited has not and cannot instruct you without my authority.
Let me stress and make it clear that the action taken by me with Clydesdale Bank, has no connection whatsoever with the potential purchase of shares in Hi-Tech Auto-parts Ltd belonging to me and my wife, by Mr RS Chaggar.
Let me further stress and make it clear, that the action taken with Clydesdale Bank has been taken as a last resort and not due to personal reasons as you have implied. I have been made to believe that there may be inconsistencies within Hi-Tech Auto-parts Ltd for many reasons. Furthermore, this action was taken in order to protect my investment in Hi-Tech Autoparts Ltd, Hi-Tech Autoparts Ltd employees, debtors and creditors." (emphasis added)
The email went on to indicate that Balbir would not withdraw his instructions to freeze the account until he had been provided with a number of items of information: "I have continually and persistently requested information from Mr RS Chaggar, who has not been forthcoming".
"The proposal in your below email is not acceptable to Hi-Tech. Mr BS Chaggar is clearly in breach of his duties under the Companies Act and continues to use the freezing of the bank account to attempt to gain commercial leverage in his wider disputes with RS Chaggar and Hi-Tech. I am confident (as I think you accept) that Hi-Tech will obtain an injunction to compel withdraw of the relevant instruction to the Bank. Hi-Tech therefore requires Mr BS Chaggar to agree to the proposal in my email of 1235 today. Hi-Tech is willing to give your client until 12 pm tomorrow to reconsider his position but in the absence of a satisfactory response will have little option but to take the relevant Court action.…" (emphasis added)
Thus at this point Raghbir's position is that he was not willing to agree to a limit on the authority to make payments from the Company's bank accounts and his solicitors were asserting with confidence that Raghbir would obtain an injunction from the court to unfreeze the account. In his evidence, Kiran commented that he kept Mr Nugent Smith's email from the Bank as he was fearful of them appointing an administrator.
20 April 2012: Raghbir suggests a buy-out for the first time
"I now have instructions to put forward a proposal to bring a final resolution to the issues between Hi-Tech, BS Chaggar and RS Chaggar.
The proposal is as follows:
- RS will reinstate his offer to purchase the 50% of the shares in Hi-Tech owned by BS Chaggar and his wife for the sum of £300,000.
- BS Chaggar will resign as a director of Hi-Tech with immediate effect.
- Payment of the £300,000 referred to above will be in full and final settlement, and be paid in full within 7 days of the conclusion of a suitable settlement agreement.
- BS Chaggar will clearly withdraw the instructions made to Yorkshire Bank and Hi-Tech will not pursue an injunction in this regard.
… I also understand that BS Chaggar was prepared to accept zero value for his shares in Hi-Tech on Wednesday when he was informed his actions could lead to the closure of the company." (emphasis added)
Balbir relies upon the above underlined words as showing that Raghbir (and the parties) were canvassing the possibility of the shares being purchased by Raghbir (as well as by the Company). I do not accept that that can be read into those words. Whilst the previous "offer" may have come from Raghbir, the "offer" that was being reinstated was itself an offer for the Company to buy Balbir's shares: see paragraphs 64 and 66 above.
"Hi-Tech undertakes not to make any payments in excess of £30,000 other than to staff, suppliers or in respect of loans without first obtaining the consent of BS Chaggar, such consent not to be unreasonably withheld and to be given within 48 hours of a request by email to email@example.com for the same. Staff for these purposes will exclude are RS Chaggar, GS Chaggar, BS Chaggar, and Hardev and Valvinder Chaggar, who will be removed from the payroll. Kiran Chaggar is a key member of staff, and Hi-Tech needs to be able to continue to pay him.
… A threshold of less than £30,000 will therefore inhibit the proper management of Hi-Tech, and it may lose suppliers of approved materials."
The effect of these revised proposed limits on authority was as follows. Balbir would have no control upon payments to staff, suppliers or in respect of loans. In cross-examination, Raghbir accepted that Ypsilon was considered to be a supplier to the Company. As regards other payments, there would be no control upon any payments of £30,000 or less. To this extent, the control offered by Raghbir to Balbir was weaker than that which had been offered in the email the previous day at 1235pm (paragraph 81 above). However in respect of other payments in excess of £30,000, these would be subject to approval by Balbir. Whilst payments to Raghbir, Balbir and Gaggandave were excluded from payments to staff, the proposal would not have stopped payments to Raghbir or to Gaggandave of any sum up to and including £30,000. In his witness statement, Balbir said that he considered the proposal to be clearly unacceptable.
"On Sunday late evening, my son, Dave, told me that Balbir had spoken to his father-in-law, Harbinder Sethi, and told him that he was looking for a settlement similar to that which was paid in respect of Jasbir and Dave mentioned that he had been told a figure of £1.6 m was what Balbir wanted"
The sequence of the communication of what Balbir was looking for was thus: Balbir told Harbinder Sethi; Harbinder Sethi told Gaggandave; Gaggandave told Raghbir.
Monday 23 April 2012
Raghbir's telephone calls with Deepak Johar early on 23 April 2012
Meeting at 10am at the Temple
"Only the point it happened was when you said that I thought that you desired to be bought out and I used the Company to my advantage that is the time I started using it."
Later, Raghbir asserted (page 12) that the money that he had been moving was his money and that:
"I don't want to go through that proving to the taxman or anybody as to how I've moved my money".
Then Raghbir referred again (page 17) to starting to use the Company for himself and that if Balbir had not offered to sell it to him he would not have done any of this:
"I put all the expense receipts in and took the money out on Kiran's name or my name. Now I've told Rishi Chandarana that they've got to be reversed on this years accounts if we want to go forward like this."
"You gave him full money as well when we settle you said we should give them more money. Told you all the accounts at what it was and how much values had increased. Don't involve Romania, it will give problems, I'm telling you this as well. Whatever I did, to hell with ITL and everything else there is no clean way out for anyone. Whatever actions you've taken about litigation are wrong they are wrong, there is no need to go through this because personal liabilities are huge. Stop the solicitors bit, I beg you there no solution in this one for anyone. I will give you whatever you want. You want 1.6, I will work it out and give it to you. You keep all the. Properties, I will keep the business. Finish clean. You keep all the properties I will do a side contract and go and…"
Subsequently in the meeting, the question of the price came up again. Raghbir stated (pages 18-19):
"We can get together with Rishi, you want to take 1.6 million. I don't think it comes to 1.6. I was sitting with him just now you have 800,000 in Delta and it comes to 1.6 million balance sheet after taking out the loans etc that comes to 800,000 and I will give you 500 from Hi-Tech and if I have got money I will give you 200,000 from Romania but I can't put that in writing, whenever the property value goes up at present it zero that I can promise you so 1.8 , comes to 1.3. That 500 will give you I don't know I will pay but because buying from the company will cost you 10%. Then Delta when the properties get sorted sometime I will pay you then."
"I'm telling you listen to me fully. Since you started to compromise I spoke to Deepak about how to put his application. Have to show he has income here right listen to me, I put a contract and backdated it so he has a little income start, you hadn't say no by then whether you wanted to sell shares or not."
When asked in cross-examination about the application and the need to show income, Raghbir invoked the privilege against self-incrimination. He said that Sunny was due consultancy fees and denied that he was seeking to create the illusion of income.
After the meeting at the Temple
Tuesday 24 April 2012
"Raghbir's attitude is that if he is able to settle at £1.6 million even though that is probably a higher price than he would like, he would like to proceed otherwise he will have to let Hi-Tech and Delta Properties go and the bank sort it out. I said of course I could not advise whether the £1.6 million that he was proposing to pay was the right amount or not but that was a commercial matter for him. He understood and said that he had already spoken to Rishi and discussed with Chubby and he was prepared to go with this."
The meeting at Mr Johar's offices at 3 pm on 24 April 2012
"I began by outlining my role as informal mediator because both Balbir and Raghbir had their own solicitors. Raghbir indicated that he had now not instructed Wragge & Co because he wanted to end the litigation as it was becoming too expensive. Balbir said that he was continuing to use Clarke Willmott and I said that I would act as an informal mediator between them and prepare a settlement agreement if matters could be agreed today but if there was any conflict of interest at all I could not act for either of them. They understood and Raghbir said that he had suggested that he and Balbir meet with me because they both trust me to act fairly. I said that was fine but I would still prefer that once the settlement agreement is done that it is explained and witnessed separately by independent solicitors because I do not want to be in a situation where my position is compromised in any way."
It appears therefore that by this time Wragge & Co were no longer acting. The attendance note also recorded that Raghbir confirmed the value of £1.6 million was "an old valuation of 5 years old" when they did the deal in respect of Jasbir's shares. Item 12 of the note recorded that they needed to sort out Inland Revenue clearance for the Company. Raghbir telephoned Rishi who said it would take approximately 28 days.
Wednesday 25 April 2012
"He explained that his clients were in a position where they had lost trust and confidence with our client. The heads of terms are obviously detailed but not detailed enough and he notes that a settlement agreement is to follow." (emphasis added)
The note recorded that whilst Mr Thomas recognised the need for a subsequent settlement agreement, the payment of the £60,000 on the release of the accounts needed to be on the basis that "there is a legally binding agreement based on the heads of terms". The attendance note continued:
"I said that as a matter of law even if you express a document to be legally binding does not necessarily make it legally binding because of uncertainty. Mr Thomas agreed and said in the circumstances. however there needs to be some attempt to make the document legally binding. I said that the heads of terms is the route that I went for in the timescale available because it certainly sets out the intentions of the parties. He said that things like how the properties and shares are to be transferred needs to be agreed also but this is a detail that has to go into the settlement agreement.
I said that trying to express that the heads of terms are going to be legally binding is not in my view going to be controversial but I will take instructions.
He then went on to explain that the only leverage his client had was the freezing of the bank accounts and they did not want to lose that leverage unless that something was legally binding." (emphasis added)
Mr Johar was cross-examined about this passage and in particular the reference to his own note referring to Raghbir as his own client and to the fact that he would take instructions from Raghbir. He accepted that at that point he was taking instructions from Raghbir. In a further part of that attendance note, which had originally been redacted but which was put to Mr Johar in cross-examination, Mr Johar recorded that he had "telephoned Raghbir to discuss and advise on the above". He accepted that, by then, he must have transitioned into acting for Raghbir.
Certain findings of fact as at the signing of the ISA
(i) Who made first offer and who mentioned £1.6 m first?
(ii) Practical alternatives
(iii) The role of Deepak Johar
(iv) The position of Hardev under the ISA
"My husband is acting on my behalf. I authorise him to act. He is acting on my behalf. He did everything on my behalf. I trust them completely… I agreed to sell my shares. He had authority to act on my behalf".
That evidence was consistent with other evidence in the case that the women in the family were not involved in the business and that their shareholdings were there for reasons of tax efficiency. Raghbir accepted that that was the reason why his wife held some shares.
(v) Balbir's motives – intention to close down company
(3) Post-ISA. May to August 2012: negotiations for the detailed Settlement Agreement (SA)
"Just to keep you in the loop on this, I have been through the draft with my client and made a few comments.
Balbir is waiting for input from his accountant who in turn is waiting for some underlying financial information from Delta and Hi-Tech's accountants Haines Watts.
I will therefore be in touch as soon as I have the go-ahead from my client following the accountant/tax advice."
Clause 4 of the ISA provided that the parties considered that financial due diligence was unnecessary. In his evidence, Raghbir commented that he could not believe that Balbir was not satisfied with the amount of money he had extracted from him and that he could not understand why Raghbir was approaching Haines Watts, who were the company's previous accountants, and not Rishi.
"When the £1.6 million was offered by Raghbir at the Gurdwara he did not argue or negotiate. He merely accepted it. That is okay from on but he wants to make sure on having received a second opinion that he has received all his dues in the past and that is why he needs information so his accountants can check."
17 May 2012 letter
WITHOUT PREJUDICE & SUBJECT TO CONTRACT
I note I have not heard from you substantively in response to the draft SA I sent to you, or following your email of 9 May in which you stated you were waiting for the go-ahead from your client. The deadline of 14 days agreed in the ISA has expired. As I mentioned in my email of 11 May Balbir called me seeking further information and I asked for this request to be put in writing with reasons why this information was required in the context of the ISA. He stated that he would be seeking further financial disclosure before signing the SA and had instructed another firm of accountants and implied that this may have an impact on the terms of the ISA. This would make it difficult for the parties to agree the SA.
… I am instructed there are further issues in relation to your client's breach of his duties as a director and the disclosure of the Confidential Information.
My clients' consider that in view of the above the ISA is now null and void.
In those circumstances I do not believe I can take this matter further. If there is any continuing dispute then, as I have made clear to all parties from the outset, I would withdraw from acting in this matter due to a potential conflict of interest."
In his witness statement, Raghbir explained the reason for this email being sent. He and Kiran were very unhappy about the delay and the requests for information. He felt that was a breach of the ISA and that he wanted to withdraw. He instructed Mr Johar that he wished to withdraw and in any event the £1.6 million was not appropriate to pay. In fact prior to the sending of this email, Mr Johar had advised Raghbir by email at 1042am that just because a document was expressed to be legally binding does not mean that it is.
"a. He will go back to Balbir and ascertain if Balbir is trying to get more money out of deal then this may be a deal breaker.
b. If Balbir wants income from Delta until he is paid this may be a deal breaker.
c. Is there any merit in flipping the deal so that Delta monies are paid first and the Hi tech monies paid second?
d. He will write to me with Balbir's precise position after take instructions to include factually what he requires and what he wants it.
e. I will then take instructions from R S Chaggar.
f. He should also indicate whether he wants to meet face-to-face to canvass the possibility of salvaging the settlement.
g. One other point he raised was a dispute appears to have occurred because Balbir's Bupa membership had been cancelled. He is still a director of the company and is upset that his Bupa membership has been cancelled. Simon also said that he can understand why RS Chaggar has done this because based on the initial settlement agreement Balbir is to have resigned as director. I said that I will take instructions but that may be a minor matter in the scale of things."
18 May 2012 letter
18 June 2012 letter from Clarke Willmott to Mr Johar
Dispute between BS Chaggar and RS Chaggar
I am mindful that we haven't had any contact since your email of 17 May when negotiations over the Final Settlement Agreement broke down, and you said that you were withdrawing from acting in the matter.
I understand that since that date, Raghbir has been refusing to engage with my client on this ongoing issue and I would therefore be grateful if you could pass the following communication onto him.
In short, my client is not prepared to accept that this matter is just closed and a resolution to the current situation must therefore be found. Both Balbir and Raghbir have received correspondence from Paul Elliott of Yorkshire Bank requesting certain payments to be made as well signing offer letters in relation to a restructure of loans and renewal of overdraft facilities in Delta. Notwithstanding that this is likely to result in Yorkshire Bank determining that the facilities with Delta are in default, Balbir will not sign any of the additional documentation unless a deal is finalised to buy out his interests. He will also contact the bank again in relation to once again freezing Hi-Tech's bank accounts (which he only agreed not to do if the original agreement was finalised) as it seems that this is the only way that he can get his brother to address the situation.
Balbir has been to Hi-Tech's premises on several occasions in the last few weeks and has been met with hostility and abuse from Raghbir. This has reinforced Balbir's concerns that any deal reached between him and his brother must involve a "clean break" where Balbir's side of the family's interests are bought outright for cash on completion without deferred payment terms. Raghbir will then have full control of Hi-Tech, Delta and all related entities as soon as the deal is signed.
In the light of this, Balbir is now only prepared to sell out all of his and his family's interest in Hi-Tech and Delta and waive any claims that he has against Raghbir in return for the payment of £1.6 million cash on completion.
If this is not agreed, Balbir will not sign any documentation agreed by the Bank and will instruct the bank to freeze the Hi-Tech and Delta bank accounts. He will also instruct this firm to formally commence proceedings against Raghbir for breach of his fiduciary duties in respect of Hi-Tech, including involving misappropriation of company monies.
Balbir appreciates that result of this could involve Yorkshire Bank appointing receivers under their security over Delta's properties and potentially also the insolvency of Hi-Tech. Whilst this is clearly not financially in either his or his brother's interest, Balbir is prepared for it to happen in order to finally bring closure to this dispute. Therefore unless Raghbir enters in negotiations to reach agreement to separate their respective business interests Balbir is left with no other option." (emphasis added)
Mr Johar responded on the same day indicating that he would pass the letter on to Raghbir.
"I have had a number of further discussions with my client and whilst he is prepared to go back to the original deal as set out in the "Initial Settlement Agreement" dated 25 April 2012, he feels that a clean break with a lump sum payment is the only sensible way to resolve matters. On this basis a number of our concerns with the settlement agreement drafted by Johars would go away and a deal could be swiftly concluded."
After pointing out that issues had arisen in relation to Balbir signing cheques for the Company and also the fact that Balbir had received a tax bill in relation to Delta, he continued:
"I have persuaded him that he does not need to carry out a full forensic accounting exercise in relation to Delta and/or Hi-Tech but he will need to have sufficient information to make sure his tax affairs are properly dealt with.
Can you therefore take instructions from your client on the terms of a settlement involving an upfront payment and limited provision of information in order to ensure that my client's personal tax affairs are correctly resolved and we can then try to get this resolved one way or another in the near future. This will allow all parties to move on without the need for continued engagement between them in relation to the businesses."
In his witness statement, Raghbir commented that he could not entertain negotiations for a lump sum payment or indeed "any payment at the level of the ISA".
"I have now taken instructions from RSC.
Whilst he is content to proceed as per the terms of the Initial Settlement Agreement, RSC is concerned that your client has no intention of honouring the agreed deal. There is concern in particular at the lack of progression on the Detailed Settlement agreement over the past 2-3 months and a feeling that your client is trying to renegotiate the fundamentals that were agreed. On this basis, we can see the benefits of a clean break for all parties. Otherwise there is a real risk of further dispute and unnecessary expenditure on legal costs. I think we are agreed on that at least.
In order to achieve this clean break, I am therefore instructed to offer the following alternatives to your client:
The letter then proceeded to put forward three alternative structures for the proposed "clean break".
From August 2012 onwards
26 November 2012 letter
Meeting on 16 January 2013
Findings of fact: Misappropriation in Fact
Privilege against self-incrimination
(E) Discussion and Analysis of the Issues
Preliminary: the terms of the ISA
(1) A promise by Balbir/Hardev made to the Company to transfer the shares to the Company, in return for a promise by the Company to pay the price.
(2) A promise by Balbir/Hardev made to the Company to transfer the shares to the Company, in return for a promise by Raghbir to pay the price.
(3) A promise by Balbir/Hardev made to Raghbir to transfer the shares to the Company, in return for a promise by the Company to pay the price.
(4) A promise by Balbir/Hardev made to Raghbir to transfer the shares to the Company, in return for a promise by Raghbir to pay the price.
Issue (1): Binding Agreement?
The relevant legal principles
(1) The construction of contracts in general.
"For a contract to be binding its terms must be sufficiently definite to enable the court to give it a practical meaning. Its terms must be so definite, or capable of being made definite without further agreement of the parties, that the promises and performances to be rendered by each party are reasonably certain…. But, in applying this test the court has an established reluctance to strike down what were obviously intended to be legally enforceable commercial agreements, citing Hillas v Arcos
"… It is clear that the parties both intended to make a contract and thought they had done so. Businessmen often record the most important agreements in crude and summary fashion; modes of expression sufficiently unclear to them in the course of their business may appear to those unfamiliar with the business far from complete or precise. It is accordingly the duty of the court to construe such documents fairly and broadly, without being too astute or subtle in finding defects, but on the contrary, the court should seek to apply the old maxim of English law "verba ita sunt intelligenda ut res magis valeat quam pereat". That maxim, however does not mean the court is to make a contract for the parties, or to go outside the words they have used, except insofar as that appropriate implications of law, as, for instance, the implication of what is just and reasonable to be ascertained by the court as a matter of machinery where the contractual intention is clear but the contract is silent on some detail…. Thus in contracts for future performance over a period the parties may neither be able nor desire to specify many matters of detail, but leave them to be adjusted in the working out of the contract. Save for the legal implication I have mentioned, such contracts might well be incomplete or uncertain; with that implication in reserve they are neither incomplete nor uncertain."
(2) Whether there is a binding contract: intention to create legal relations, agreements to agree and incomplete agreements/certainty of terms
"As to the law, the principles to be derived from the authorities, some of which have already mentioned, can be summarised as follows:
(1) In order to determine whether a contract has been concluded in the course of correspondence, one must first look to the correspondence as a whole …
(2) Even if the parties have reached agreement on all the terms of the proposed contract, nevertheless they may intend that the contract shall not become binding until some further condition has been fulfilled. That is the ordinary "subject to contract" case.
(3) Alternatively, they may intend that the contract shall not become binding until some further term or terms have been agreed; …
(4) Conversely, the parties may intend to be bound forthwith even though there are further terms still to be agreed or some further formality to be fulfilled …
(5) If the parties fail to reach agreement on such further terms, the existing contract is not invalidated unless the failure to reach agreement on such further terms renders the contract as a whole unworkable or void for uncertainty.
(6) It is sometimes said that the parties must agree on the essential terms that it is only matters of detail which can be left over. This may be misleading, since the word "essential" in that contact is ambiguous. If by "essential" one means a term without which the contract cannot be enforced then the statement is true: the law cannot enforce an incomplete contract. If by "essential" one means a term which the parties have agreed to be essential for the formation of a binding contract, then the statement is tautologous. If by "essential" one means only a term which the Court regards as important as opposed to a term which the Court regards as less important or a matter of detail, the statement is untrue. It is for the parties to decide whether they wish to be bound and, if so, by what terms, whether important or unimportant. It is the parties who are, in the memorable phrase coined by [Bingham J] "the masters of their contractual fate". Of course the more important the term is the less likely it is that the parties would have left it for future decision. But there is no obstacle which stands in the way of the parties agreeing to be bound now while deferring important matters to be agreed later. It happens every day when parties enter into so-called "heads of agreement". (emphasis added)
Contrary to Mr Pepperall's submission, Pagnan is not authority for the proposition that even where the parties intend that their initial agreement is to be binding, a subsequent failure to agree essential further terms will render the contract unenforceable.
"On the question of an enforceable contract or not, it is for the parties to decide at what stage they wish to be contractually bound. To use the vivid phrase of Lord Bingham (as Bingham J) the parties are "masters of their contractual fate". They can agree to be bound contractually, even if there are further terms to be agreed between them. The question is whether the agreement is unworkable or fails for uncertainty. However, where commercial men intend to enter into a binding commitment the courts are reluctant to conclude that such an agreement fails for uncertainty. [footnote citing Hillas v Arcos]"
"In my view this Side Letter is, without doubt, no more than an "agreement to agree". It is an agreement to offer Mr Barbudev "the opportunity to invest in the Purchaser on the terms to be agreed between us". That is not the language of a binding commitment and no amount of taking account of the commercial context and Mr Barbudev's concerns and aims can make it so. Moreover the next phrase makes it clear that the terms of the [Investment Agreement] are not agreed; they are to be negotiated "… in good faith with you.""
On this ground alone, the claim failed.
Discussion and Conclusions
– If the parties' intention is that terms 1-5 are not to be binding unless and until terms 6-10 are agreed, then there is no binding agreement; this is Pagnan, proposition (3) ("Pagnan (3)")
– If the parties' intention is that terms 1-5 are to be binding immediately, despite the fact that terms 6-10 are not agreed, then there is a binding agreement in relation to terms 1-5; this is Pagnan (4)
– If the parties' intention is that terms 1-5 are to be binding immediately, but the failure to agree (absence of agreement in relation to) terms 6-10 makes the whole contract (including terms 1-5) unworkable, then there is no binding agreement at all; this is the second part of Pagnan, proposition (5) ("Pagnan (5)").
Issue (2): Companies Act 2006
The Companies Act 2006
Acquisition of own shares
"General rule against limited company acquiring its own shares
(1) A limited company must not acquire its own shares, whether by purchase, subscription or otherwise, except in accordance with the provisions of this Part. [i.e. Part 18]
(2) If a company purports to act in contravention of this section –
(a) an offence is committed by –
(i) the company; and
(ii) every officer of the company who is in default, and
(b) the purported acquisition is void." (emphasis added)
The underlined words in s.658(1) have the effect of excluding from the general rule acquisitions which are expressly contemplated elsewhere in Part 18. Such permitted acquisitions under Part 18 include the redemption of redeemable shares, the purchase of own shares (whether out of capital or otherwise) in accordance with the provisions in Part 18 and the acquisition of treasury shares. I address these permitted acquisitions in paragraphs 218 and 219 below.
"(1) A limited company may acquire any of its own fully paid shares otherwise than for valuable consideration.
(2) Section 658 does not prohibit-
(a) the acquisition of shares in a reduction of capital duly made;(b) the purchase of shares in pursuance of an order of the court under [various specified other provisions CA 2006](c) the forfeiture of shares, or the acceptance of shares surrendered in lieu, in pursuance of the company's articles, for failure to pay any sum payable in respect of shares." (emphasis added)
These exceptions in s.659(2) are in addition to the exceptions arising from proviso in s.658(1): see Dougherty and Fairpo: Company Acquisition of Own Shares (6th edn) §2.3.
"Payment for purchase of own shares
(1) A limited company may not purchase its own shares unless they are fully paid.
(2) Where a limited company purchases its own shares, the shares must be paid for on purchase.
However s.691(2) does not prevent a single contract from specifying separate completion dates for different shares, as long as payment in full is made on each completion date for the shares then being purchased: see Dougherty and Fairpo, supra, §5.5(b).
Reduction of share capital: Part 17, Chapter 10
"(1) A limited company having a share capital may reduce its share capital-
(a) in the case of a private company limited by shares, by special resolution supported by a solvency statement (see sections 642 to 644);(b) in any case, by special resolution confirmed by the court (see section 645 to 651).
(2A) A company may not reduce its share capital under subsection (1) (a) or (b) as part of a scheme by virtue of which a person, or a person together with its associates, is to acquire all the shares in the company or …
(2C) In this section –
"associate" has the meaning given by section 988 (meaning of "associate") , reading references in that section to an offeror as references to the person acquiring the shares in the company.
By s.283(1), a special resolution of the members (or of a class of members) of a company means a resolution passed by a majority of not less than 75%. Section 988 CA 2006 defines "associate" to include:
"(1) In this Chapter "associate", in relation to an offeror, means-
(a) a nominee of the offeror,…(e) (where the offeror is an individual) his spouse or civil partner and any minor child or step-child of his."
Discussion and Conclusions
Issue (3): Economic Duress
Relevant legal principles
(1) A contract which has been entered into as a result of duress may be avoided by the party threatened. One such form of duress is "economic duress" i.e. where the wrongful or illegitimate threat is to economic interests.
(2) There are two minimum necessary elements to establish economic duress: first, the exertion by one party on the other of "illegitimate pressure"; secondly, "causation" i.e. the illegitimate pressure must cause the pressurised party to enter into the contract that he seeks to avoid.
(3) As regards the first element, "illegitimate pressure", whilst in the normal course it will be constituted by unlawful conduct, it may be constituted by conduct which is not in itself unlawful; that will be an unusual case, particularly in the commercial context: see Progress Bulk Carriers at §§29, 30 and 36. The threat of lawful action when coupled with an illegitimate or unreasonable demand may constitute illegitimate pressure.
(4) In DSND Subsea, in a passage subsequently approved, including by Cooke J in Progress Bulk Carriers at §33, Dyson J identified a range of factors which the court takes into account in determining whether there has been illegitimate pressure, as including:
"whether there has been an actual or threatened breach of contract; whether the person allegedly exerting the pressure has acted in good or bad faith; whether the victim has any realistic practical alternative but to submit to the pressure; whether the victim protested at the time and whether he affirmed and sought to rely on the contract."
He added that illegitimate pressure "must be distinguished from the rough and tumble of the pressures of normal commercial bargaining".
(5) As regards the second element, "causation", it must be shown that the illegitimate pressure was "a significant cause inducing the [claimant] to enter into the contract": see The Evia Luck  2 AC 152 at 165G per Lord Goff, cited in Huyton v Cremer and in Progress Bulk Carriers at §32. In Huyton, Mance J (as he then was) at 636 col 2 interpreted this approach as giving rise to a minimum basic test of subjective causation, being a "but for" test.
"The illegitimate pressure must have been such as actually caused the making of the agreement, in the sense that it would not otherwise have been made at all, or at least, in the terms in which it was made. In that sense the pressure must have been decisive or clinching."
However he went on to add that a simple "but for" test in conjunction with the requirement of actual or threatened breach of duty could lead too readily to relief being granted:
"It would not, for example, cater for the obvious possibility that, although the innocent party would never have acted as he did, but for the illegitimate pressure, he nevertheless had a real choice and could, if he had wished, equally well have resisted the pressure and for example, pursued alternative legal redress."
(6) The foregoing propositions refer to the significance of the claimant having a "realistic practical alternative" to concluding the contract. In the authorities and in academic discussion, there are differing views as to the role played by the presence or absence of such an alternative in the proper analysis of the law on economic duress: see for example Progress Bulk Carriers at §23. Dyson J appeared to consider it to be a relevant factor in determining whether there has been illegitimate pressure; see also Universe Tankships at 400E-F. Mance J suggested, in Huyton, that it goes to the issue of causation. Chitty, supra, §8-023 suggests it is a matter of evidence relevant to causation. For the purposes of this case, I consider that it matters not precisely where in the analysis this issue falls to be considered. In any event, the presence or absence of a realistic practical alternative is, at least, relevant evidence to be taken into account in considering whether the contract has been procured by economic duress.
(7) Finally, a contract procured by economic duress is voidable, rather than void. If the victim of the pressure has acted voluntarily with full knowledge of all the circumstances, he may be held bound on the ground of ratification or, if after escaping from the duress, he takes no steps to set aside the transaction, he may be found to have affirmed it: see Chitty, supra, §8-054.
Discussion and Conclusions
(1) By 25 April at the latest, Mr Johar was acting for Raghbir in the negotiations and conclusion of the ISA: see paragraph 130 above.
(2) In the lead up to the ISA, and certainly from 4 April 2012 onwards, Balbir had genuine concerns that Raghbir might be misappropriating funds from the Company and Delta: see paragraph 20 and 162 above.
(3) In the lead up to the ISA and certainly from 4 April 2012 onwards, Raghbir had reason to believe he had, or might have, been acting unlawfully: see paragraph 172 above.
(4) The first offer of a buy-out came from Raghbir, and not Balbir. It does not matter who was the first to mention the figure of £1.6 million as the price for the buy-out: see paragraph 121 and 124 above.
(5) Following the imposition of the freeze, Raghbir was contemplating an application for an injunction to lift the freeze, and that that application might be made not only on behalf of the Company, but in his own right: see paragraph 127 above.
(6) Balbir offered to lift the freeze on the bank account if Raghbir accepted the placing of controls on payments being made from the bank account. Raghbir did not respond to the final offer in that regard made by Balbir. That final offer was reasonable: see paragraph 126 above.
(1) The freeze was originally imposed in order to restrict bank payments and to obtain financial information. There was no "demand" by Balbir for a buy-out of his interest, linked to the imposition, or the lifting, of the freeze. The idea for buy-out came from Raghbir.
(2) In seeking, and agreeing to a buy-out, Raghbir was acting not because of the freeze and the threat of the Company going into administration, but out of concern that the investigations sought by Balbir might reveal wrongdoing on Raghbir's part. Raghbir's offer at the April Temple meeting was mentioned in the context of the consequences for him of further investigation: see paragraphs 172 and 174 above.
(3) I accept and find that, however, at the point of signing the ISA on 25 April, Balbir did use the continuing pressure of the freeze and the Bank's impending deadline as commercial leverage to secure Raghbir's agreement to the specific terms of the ISA and in particular the acceptance of Clause 16 and the immediate binding effect: see the attendance note of 25 April (paragraph 116 above). However the ISA itself was implementing what the parties had already agreed in principle at the meeting at the Temple on 23 April. That does not take away from the fact that the idea for the agreement had come from Raghbir and at no stage had been demanded by Balbir as the price for the lifting of the freeze. Moreover, in this regard, I accept Mr. Johar's oral evidence that "there wasn't anything to indicate that someone was pointing a gun to Raghbir's head in that context". In these circumstances, I conclude that the refusal, on 25 April, to lift the freeze until a binding agreement was signed amounted to no more than the "rough and tumble of the pressures of commercial bargaining".
Realistic practical alternatives
Avoidance/affirmation of the contract
Issue (4): Repudiatory Breach
The relevant legal principles
"The relevant legal principles are well-established and can be summarised as follows: (1) in order for a repudiatory breach to bring the contract to an end, the innocent party must accept the repudiation, as "an unaccepted repudiation is a thing writ in water"…. Acceptance of a repudiation must be clear and unequivocal and there must be a "conscious intention to bring the contract to an end, or the doing of something which is inconsistent with its continuation"… see Chitty on Contracts, 31st edn (2012) at [24-003] and [24-013]. (2) In those circumstances mere inactivity or acquiescence will generally not be regarded as acceptance for this purpose. However there may be circumstances where a continuing failure to perform will be sufficiently unequivocal to constitute acceptance of a repudiation: see Chitty at [24-013] again;… (3) If the innocent party who is entitled to treat himself as discharged from the contract by the other party's breach, elects, with full knowledge, to treat the contract is continuing, he will be taken to have affirmed the contract. Affirmation can be express or implied. It will be implied if, with knowledge of the breach and of his right to choose whether to accept a repudiation or to affirm the contract, the innocent party does some unequivocal act from which it may be inferred that he intends to go on with the contract or that he will not exercise his right to treat the contract as repudiated: see Chitty at [24-003] (4) The innocent party is not required to make his election immediately after he learns of the repudiatory breach, but will have a reasonable time in which to decide what to do. How long will depend on the facts of the case, but if he does nothing for too long, he runs the risk that he will be taken to have affirmed: see Chitty at [24-002]…"
"…, on the assumption that the two emails of 18 and 26 March 2013 form part of a chain of without prejudice privileged correspondence seeking to resolve an extant dispute, I would not be prepared to conclude that the claimant could rely upon the emails in evidence, essentially for two reasons. First, I rather doubt whether there is any public policy requiring repudiatory conduct to be opened up when it occurs as part of a without prejudice sequence of communications, which overrides the public policy that such communications should be privileged. It seems to me that this is exactly the sort of statement which might be characterised as a threat which is part of the continuum of without prejudice negotiations which Robert Walker LJ considered in Unilever should not be filleted out and made admissible, but should remain protected by the privilege.
The second reason is that it seems to me that if the emails were part of a continuum of without prejudice discussions, it would simply not be possible to construe them as sufficiently unequivocal to constitute renunciation or repudiation of the agency agreement."
He expanded upon the second reason (at §66); even if he had been prepared to accept the submission:
"that the correspondence was not protected by without prejudice privilege, because the two emails form part of a continuum of negotiations between the parties to reach an agreement on the basis for termination, I would not regard them as repudiatory. Taken in the context of the negotiations as a whole, they simply cannot be regarded as unequivocal statements amounting to a renunciation or repudiation of the defendant's contractual obligations." (emphasis added)
Discussion and Conclusions
(i) Repudiation in fact
Balbir's evidence on post ISA conduct
Findings on Balbir's post ISA conduct and the letter of 18 June 2012
(ii) "Without prejudice"
(iii) Acceptance of repudiation or affirmation of the contract
Issue (5): Estoppel
The relevant legal principles
(1) a legal relationship giving rise to the rights and duties between the parties;
(2) a promise or a representation by one party that he will not enforce against the other his strict legal rights arising out of that relationship;
(3) an intention on the part of the promisor that the promisee will rely on the representation;
(4) reliance by the promisee on the representation;
(5) it is inequitable for the promisor to go back on his promise.
Discussion and Conclusions
(1) The ISA was and is a binding agreement between the parties (paragraph 214 above).
(2) In so far it provides for payment by Raghbir for the transfer to the Company of Balbir and Hardev's shares in the Company, the ISA does not give rise to an acquisition of shares prohibited by s. 658(1) CA 2006 (paragraphs 226 and 232 above).
(3) The ISA is not voidable and, in any event, was not avoided on grounds of economic duress (paragraph 244 above).
(4) The ISA was not terminated as a result of acceptance of a repudiatory breach (paragraph 267 above).
(5) Balbir is not estopped from enforcing his rights under the ISA (paragraph 275 above).
I conclude therefore that Balbir and Hardev are entitled to enforce their rights under the ISA.