Sharma & Anor v Farlam Ltd & Ors [2009] EWHC 1622 (Ch)

[2009] EWHC 1622 (Ch)

Case Nos: 6BM30117 and 8BM30085

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

Venue BIRMINGHAM DISTRICT REGISTRY, Birmingham Civil Justice Centre

Date 10 th July 2009

Before

HIS HONOUR JUDGE PURLE QC

(sitting as a High Court Judge at Birmingham Civil Justice Centre on 10 th July 2009)

Between

(1) Dr Anil SharmaClaimants

(2) Mrs Jayshree SharmaClaimant

(1) Farlam LimitedDefendants

(2) Mrs Davinder Kumari BhallaDefendant

(3) Mr Hardial Singh UppalDefendant

Dr Sunil BhallaClaimant

Dr Anil SharmaDefendant

Mr David Stockill (instructed by H & S Legal) appeared for Claimants in 6BM30117 and (under the Bar’s Public Access scheme) for the Defendant in 8BM30085

Mr Francis Moraes (instructed by Charles & Co) appeared for 2 nd and 3 rd Defendants in 6BM30117 and for the Claimant in 8BM30085

The 1 st Defendant in 6BM30117 was unrepresented

Hearing Hearing Dates: 13 th, 14 th, 15 th and 21 st August, 5 th, 6 th, 13 th, 14 th 17 th and 18 th November 2008, 31 st March 2009

JUDGMENT

[1]The Claimants in the first action before me (6BM30117) are husband and wife. They were married in July 2000. I shall refer to them as Dr and Mrs Sharma respectively, or the Sharmas together.

[2]The Claimant in the second action before me (8BM30085) is married to the Second Defendant in 6BM30117. They were married in April 1996. I shall refer to them as Dr and Mrs Bhalla respectively, or the Bhallas together.

[3]Drs Sharma and Bhalla were formerly partners carrying on a medical practice as General Practitioners. From December 1997, the practice was carried on from premises owned by them as partnership property at Trafalgar Road, Handsworth. Their partnership is now dissolved and this has given rise to a partnership dispute which went to arbitration. They now operate from the same Trafalgar Road premises, but not as partners. An award was made in the arbitration providing for a sale of the Trafalgar Road premises. One of the issues I have to decide is whether that award should be enforced. That is the subject matter of the second action.

[4]The Third Defendant in the first action (“Mr Uppal”) is a pharmacist who operates a pharmacy from part of the Trafalgar Road premises on behalf of the First Defendant in that action (“Farlam”). He holds beneficially 60 of the 100 £1 Ordinary shares in Farlam. The remaining 40 Ordinary Shares are registered in the name of Mrs Bhalla under her maiden name (which she continues to use for a number of purposes). Confusingly, her maiden name is Sharma, though she is not related to Dr and Mrs Sharma in any way.

[5]Farlam has 2 directors: Mr Uppal and Mrs Bhalla. Its company registration number is 03668128.

[6]The first action concerns amongst other things the beneficial ownership of 20 of the ordinary £1 shares held by Mrs Bhalla in Farlam. Dr Sharma’s case is that, from their issue at par in February 1999, 20 of the Farlam shares registered in the name of Mrs Bhalla were held by her as nominee for him beneficially. Mrs Bhalla subsequently declared herself in writing on 26th July 2001 to be a trustee of those 20 shares for Mrs Sharma.

[7]Mrs Bhalla has acted in breach of trust (it is said) by withholding dividends. In addition, it is claimed that Mrs Bhalla has improperly obstructed all attempts by the Sharmas to secure the registration of one or other of them as shareholder, putting them to needless expense, for which they seek compensation.

[8]Mrs Bhalla denies any breach of trust. She does not dispute the effectiveness of the July 2001 declaration of trust, though there is an issue as to whether its execution triggered pre-emption provisions in a shareholders’ agreement between herself and Mr Uppal. Her case (and that of Mr Uppal) is that the declaration of trust did trigger the pre-emption provisions, and that she (as regards her own 20 shares) and Mr Uppal are entitled to the benefit of those pre-emption rights.

[9]Mrs Bhalla acknowledges that some dividends have not been paid to Mrs Sharma which should have been paid. It emerged during the course of the trial that some of the dividends have been paid to and retained by Mrs Bhalla; others, though declared down to October 2005, have simply been retained by Farlam pending the outcome of this dispute. Full details are set out in the Table which forms a Schedule to this judgment.

[10]As director of Farlam with Mr Uppal, Mrs Bhalla was a party to the decision to retain within Farlam dividends which have been declared. This is not an attractive stance for a trustee to adopt. Still less attractive is the retention of some of the dividends paid to her in respect of the 20 shares held on trust. Though Mrs Bhalla recognised this in her oral evidence, she has done nothing to give effect to her outstanding obligations as trustee, and made no attempt to justify (except by reference to the existence of continuing disputes) her continuing default, which can fairly be described as wilful.

[11]There have been no dividends declared by Farlam in respect of the ordinary shares since October 2005, though dividends have been declared in respect of “A” shares issued to Mr Uppal in November 2005. Under clause 7.1 of a shareholders’ agreement between Mr Uppal, Mrs Bhalla and Farlam dated 1st February 1999 (“the Shareholders’ Agreement”) Mr Uppal and Mrs Bhalla agreed to procure the payment of dividends in respect of such profits as were prudently available for distribution, within 6 months after the end of the relevant accounting period. Further, under clause 5.1.2 of the same agreement, the issue of further shares required the consent of all shareholders. Mrs Bhalla was a party to the issue of the further “A” shares to Mr Uppal, and to the decision not to declare dividends since 2005 in respect of the ordinary shares, despite approving dividends in respect of the “A” shares and the terms of the Shareholders’ Agreement. As she concedes that she is a trustee of 20 of the ordinary shares, that also is unattractive behaviour. It is not in doubt that profits were available for distribution.

[12]Mrs Bhalla does not accept that she was (as is alleged) acting as nominee for Dr Sharma before the July 2001 declaration of trust. She says the shares were hers beneficially. For this reason (she says), she is entitled to retain dividends for the first year of trading of £20,000 paid to her (though not then declared) before the Declaration of Trust in respect of the 20 shares claimed by Dr Sharma. Moreover, Dr Sharma agreed this (she says) in June 2001, and he cannot resile from that agreement, which was the basis upon which she executed the Declaration of Trust. Mrs Sharma (the named beneficiary under the Declaration of Trust) is in no better position than Dr Sharma in this respect. Mrs Bhalla paid £20,000 to Mrs Sharma on 26th July 2001, when the declaration of trust was executed. This £20,000 was (according to Mrs Bhalla) a dividend payment for the second year of trading, which she had drawn from Farlam earlier in July.

[13]The agreement to which Mrs Bhalla refers is recorded in a minute of the surgery practice dated 7th June 2001. Dr and Mrs Sharma do not accept that the minute has the effect contended for, and deny that it has any binding effect. Moreover, they say that the £20,000 paid to Mrs Sharma on 26th July 2001 was a dividend payment for the first year of trading. .

[14]In addition, Dr and Mrs Sharma do not accept that the pre-emption provisions have been triggered. If they have, they say that they have been waived or (which amounts to much the same thing) that Mrs Bhalla and Mr Uppal are estopped from relying on them. They further say that Dr Sharma (or Mrs Sharma) is now entitled to be registered as a member of Farlam in respect of those 20 shares. On their case, the directors have no discretion to refuse registration, and could not properly do so anyway.

[15]With that brief summary in mind, I turn to consider the issues in more detail.

Mrs Bhalla as nominee from February 1999?

[16]The first issue I have to decide is whether Mrs Bhalla acquired 20 of her shares as nominee for Dr Sharma.

[17]It is Dr Sharma’s case that Mrs Bhalla acquired all 40 shares as nominee for himself and Dr Bhalla. There is, however, no issue between the Bhallas on this point. Dr Bhalla is content to treat his wife as beneficial owner. Some of the evidence, including documentary evidence, appears to assume that both doctors have an interest in the pharmacy business, and this point needs to be borne in mind in coming to an understanding of the evidence.

Funding and dealings concerning Trafalgar Road

[18]Before the establishment of Farlam, the 2 doctors had developed the surgery premises at some expense. The idea was conceived of incorporating a pharmacy so as to provide a Health Centre, a concept which is now quite common but was relatively new in the context of a GP’s practice at the time.

[19]Both doctors for various reasons from time to time placed assets in the names of others. In Dr Bhalla’s case, the arbitrator’s award of 30th April 2007 records that over a period between April and July 1997 Mrs Bhalla had provided £63,000 for the purchase of the Trafalgar Road site and the first payment to the building contractor. Although the monies came from Mrs Bhalla, they had in turn been provided to her by Dr Bhalla (it is said for tax reasons) as monies remaining from his divorce. Dr Bhalla’s contention in the arbitration was that those monies should be regarded as contributed by him. However, the monies were shown as loans from Mrs Bhalla in the partnership accounts, and it was sufficient for the arbitrator’s purposes for him to note that the monies were provided by either Mrs Bhalla or Dr Bhalla.

[20]In Dr Sharma’s case, he transferred his interest in the Trafalgar Road premises into Dr Bhalla’s sole name in 1998, apparently with a view (at least initially) of minimising his then wife’s ancillary relief claims. Before then, the property had been held in the joint names of Dr Bhalla and Dr Sharma, though funded (as I have noted) from Mrs Bhalla’s account.

[21]Dr Bhalla had, as mentioned, himself been through a divorce, but this was by now well behind him. The instrument of transfer of the Trafalgar Road premises into Dr Bhalla’s sole name bears an April 1998 date, though it was in fact executed in January 1998. There also came into being in January 1998 a handwritten declaration of trust signed by Dr Bhalla in respect of Dr Sharma’s half share. Though Dr Bhalla denied its genuineness both in the arbitration and before me, there is no doubt (the arbitrator so held) that the premises remained partnership property throughout, and that Dr Sharma became entitled to his share of the rental profits, which Dr Sharma had to enforce through the arbitration.

[22]Dr Bhalla continues to claim that the January 1998 declaration of trust is not genuine (the arbitrator reached the conclusions he did without needing to rely on it) though expert evidence clearly establishes that the signature was indeed his. The suggestion is that Dr Sharma wrote out the declaration of trust on a piece of paper signed by Dr Bhalla in blank, a suggestion which gains apparent force from the fact that it was not referred to thereafter until much later. Although the point is not directly relevant to anything I have to decide, I should in fairness to Dr Sharma say that I reject this suggestion. I accept Dr Sharma’s evidence that the document is genuine. The Trafalgar Road premises were formally retransferred into joint names on 26th July 2001, upon payment by Dr Sharma of half of the £63,000 plus interest, totalling £36,000. The arbitrator recorded that the repayment was to Dr Bhalla, though the cheque stub referred to Mrs Bhalla. The evidence before me confirms that this money was paid into Dr Bhalla’s account.

[23]This way in which the £63,000 provided by Mrs Bhalla was treated demonstrates how closely the financial affairs of Dr and Mrs Bhalla are intermingled. There is nothing sinister about this in the context of a happy marital relationship, as this one clearly is. What it brings home, however, is that there is potential for unreality in drawing a sharp distinction between the financial affairs of the 2. This is a point which I need to bear in mind when considering the financial issues relevant to the Farlam shares.

Other financial dealings

[24]Mrs Bhalla also held partnership monies from time to time, from which drawings would be made by the partners, either for partnership purposes, or as individual partner’s drawings. This caused Dr Sharma and Mr Stockill (who appeared for the Sharmas) to characterise Mrs Bhalla as “banker” for the parties. Though not the most accurate of descriptions, the relationship was certainly an unusual one.

[25]A significant sum (£50,000) representing a local authority improvement grant was transferred out of the partnership account into Mrs Bhalla’s account in February 1998. Mrs Bhalla has never disputed that these were partnership monies, though she was not holding them in a separate account. They were mixed with her own monies. She made funds available to the 2 doctors when they needed them. Unsurprisingly, this led to foreseeable difficulties when it came to reconciling what was due. It should be borne in mind also that she had previously advanced the £63,000 for the development of the surgery premises, which had not been repaid, though in her oral evidence she insisted (consistently with Dr Bhalla’s position in the arbitration) that the £63,000 was his, having been put into her name for tax reasons.

[26]The significance of dealings of this kind is that Dr Sharma attempted in his evidence to persuade me that Mrs Bhalla, or (if not her alone) she and Dr Bhalla were holding monies for him which were sufficient to cover the investment she made (according to Dr Sharma as nominee) in Farlam.

[27]As previously mentioned, the Farlam shares were allotted in February 1999. The allotment price in relation to the shares which Dr Sharma claims were his was £20. It is common ground that at least £7,000 of Dr Sharma’s share of the improvement grant was then due to him from Mrs Bhalla (this is the agreed figure ultimately paid by way of compromise in July 2001). This was sufficient to cover the subscription price.

[28]However, the matter did not end there. Farlam needed money to purchase an existing pharmacy business. Most of it was borrowed from RBS. In addition, the shareholders put up £80,000 from their own resources, of which Mrs Bhalla’s contribution was £32,000. This was strictly a loan to Farlam, but all parties, looking at the matter commercially, viewed it as shareholders’ capital, and did not distinguish it, on the occasions when they discussed the state of the account between them, from the subscription price. The £32,000 was regarded as part of a “deposit” payment in respect of which half (£16,000) was attributable to the 20 shares with which this action is concerned. As will be seen, it came to be accepted that this £16,000 had to be dealt with in some way (I adopt that vague language deliberately so as not to prejudge the issue) if the 20 shares were to be transferred to Dr or Mrs Sharma.

[29]In relation to the improvement grant, it is said on the Bhallas’ side that this was dealt with in the arbitration, so cannot now be treated as in some way funding the Farlam investment. However, the accounting treatment within the partnership is a separate issue from how those monies should be treated as between the doctors and Mrs Bhalla. In the arbitration, Dr Bhalla and Dr Sharma agreed to treat the improvement grant as partners’ drawings. This merely reinforced the need for Mrs Bhalla (to whom the monies were in fact paid) to account to the doctors for those drawings in her hands.

[30]In addition to whatever might ultimately be found to be the sum due from Mrs Bhalla in respect of the improvement grant, Dr Sharma’s case is that there were other sums due to him in 1999, either from Dr or Mrs Bhalla, which were sufficient to cover the investment Mrs Bhalla was making for him. In the course of time, however, it became evident that there was only limited agreement as regards the state of account between the various parties. Most of the points raised have now fallen away or been resolved over time.

[31]Thus, sums said to be due from Dr Bhalla to Dr Sharma (totalling just under £15,000) in respect of amounts paid to the builders of the surgery premises were disputed. I was however persuaded by Dr Sharma’s oral evidence that he probably did pay a significant amount to the builder in 1997, which does not appear to have been properly brought into account. However, the documentary support was not sufficient to sustain the claim for repayment, and he pragmatically abandoned the claim during the course of the ongoing dispute between the parties. In those circumstances, it would clearly not be appropriate to regard that sum as having funded the Farlam investment.

[32]A claim for sums also said to be due from Mrs Bhalla in respect of her salary from the medical partnership was likewise eventually abandoned, though I was under the impression from the evidence (including her own) that the amount of salary paid to her (£20,000 per annum) bore little relationship to the amount of work she did for the partnership. She did, however, undoubtedly do some work for the partnership, as Dr Sharma, with unattractive reluctance, eventually accepted in his oral evidence. Dr Sharma claims that he agreed with Dr Bhalla that this salary would be shared between them, subject to a commission payment to Mrs Bhalla of £100 per month. This, he says, was because Dr Bhalla was subject to scrutiny in respect of his own divorce and wished his finances to appear to be less than was truly the case. In the event, when Dr Sharma sought to enforce his understanding, Mrs Bhalla objected and the matter was dropped in 2001. Again, I cannot regard those salary payments as having funded the Farlam investment, whatever view Dr Sharma may have had of the matter.

[33]Partnership monies (£6,832.12) were also paid from a West Bromwich Building Society account to Mrs Bhalla in December 1997, and another cheque (for £23,329.02) was paid (apparently to Mrs Bhalla initially) on behalf of the partnership in January 1999. All these sums appear however to have been separately accounted for. Half of the West Bromwich monies were subsequently accepted by Dr Bhalla as representing monies due from him to Dr Sharma. I have also seen a detailed breakdown, prepared in 2001, of how the £23,329.02 was disbursed. No real attempt was made to persuade me that I should regard any of these particular monies as contributing towards the Farlam investment. Mr Stockill neither cross-examined nor made any submission to that effect.

[34]In addition, Dr Sharma was in February 1999 owed £12,325.71 by the partnership, representing monies received from a previous partnership in which Dr Sharma, alone of the then partners, was interested. Whilst this indebtedness was not disputed before me, there is clearly no link between this indebtedness and the Farlam investment, which was made by Mrs Bhalla, who did not owe any part of the £12,325.71. Though I have observed that the closeness of the financial relationship between Dr and Mrs Bhalla is something I must have in mind, it cannot be carried too far. Understandably, Mr Stockill did not urge otherwise on me, or cross-examine on the point.

[35]Dr Sharma also notes in his witness statement that Dr Bhalla had made drawings from the partnership account exceeding £17,000 (for which he had not accounted) down to January 1999. This may be so, but again does not bear on the question of payment for the Farlam investment, and Mr Stockill did not suggest that it did. I would be hesitant in any event to reach conclusions from these drawings without undertaking a full partnership account, which would clearly be disproportionate given the limited value to be derived from this exercise so far as concerns the issues which I have to decide. Mr Moraes (who appeared for Mrs Bhalla) touched upon the matter in cross-examination, if only to demonstrate that I could reach no firm conclusions adverse to Dr Bhalla on the historical state of the partnership account. In this endeavour, he succeeded.

Who paid for the Farlam Investment?

[36]The relevance of this exercise is that Dr Sharma claims in paragraph 38 of his witness statement to have “authorised Dr and Mrs Bhalla to use these towards the purchase of my 20% shareholding”. The reference to “these” is a reference to the various monies referred to in the preceding paragraphs of this judgment. I am not persuaded by this evidence, which seemed to emerge in this form for the first time in Dr Sharma’s witness statement. There was, I find, no agreement as to funding in such clear-cut terms. I need not dwell further upon the point, as Mr Stockill realistically accepted that he could not found a case based upon contributions to the investment, so as to give rise to a resulting trust. I must therefore look beyond contributions if I am to find that Mrs Bhalla acquired 20 of the Farlam shares as nominee for Dr Bhalla. The context of the financial relationship between the parties may, however, be relevant to ascertaining what the parties’ intentions were, a point to which I return later.

The need for distance?

[37]Dr Sharma’s case is that Dr Bhalla was unwilling that the Farlam shares should be seen to be held by the 2 doctors. There was even a suggestion in his witness statement and pleadings that doctors were prohibited from holding shares in a pharmacy company. This is also what he told Mrs Sharma later (she was not around in 1999).

[38]It is now common ground that there is no such prohibition, though there are statutory provisions precluding (in England and Wales) any non-pharmacist from holding a share in a pharmacy partnership. However, in the case of a pharmacy business carried on by a company, the statutory requirement is for that business to be carried out under the superintendence or management of a pharmacist: see, generally, Medicines Act 1968 sections 69ff. There are in addition professional restraints, but none which precluded the doctors between them from holding a minority interest in Farlam.

[39]Dr Sharma did not adhere strictly to his witness statement (or his pleaded case) in his oral evidence. He relied not on any supposed prohibition, conceding that he knew by the end of 1998 that there was none, but upon Dr Bhalla’s alleged desire that the doctors should distance themselves from the pharmacy business. For this reason (he said) Mrs Bhalla became nominee, and used her maiden name in that connection. As, however, her maiden name was “Sharma”, it is difficult to see how the use of that name was a significant advantage over “Bhalla”.

[40]Despite these difficulties in the way of his evidence, the distancing of the doctors from the pharmacy business is confirmed by the arrangements initially envisaged for the acquisition of the pharmacy business which Farlam ultimately acquired. The business in question was Kassetts pharmacy. This was owned by a company (Rotahurst Limited) run or controlled by a Mr Dhinsa, himself a pharmacist, and was the business in which Mr Uppal was at the time employed.

[41]Dr Bhalla’s brother, Rokesh Bhalla (who was a solicitor) acquired for the 2 doctors some time before Farlam’s introduction a Gibraltarian company, Kerham Associates Ltd (“Kerham”) the shares in which were held by another Gibraltarian company, Fiduciary Nominees Limited. I have seen a declaration of trust in respect of 500 shares in Kerham naming Dr Bhalla as beneficiary, though the formation costs were paid by the partnership. It is common ground that the intention was that both doctors should be interested in Kerham, and a letter from Rokesh Bhalla to the 2 of them dated 17th December 1997 refers to declarations of trust (in the plural). It seems likely from the terms of that letter that there is another declaration of trust in Dr Sharma’s favour which has not found its way into the papers. The proposal at that stage was that Kerham (owned by the 2 doctors) should acquire Kassetts pharmacy.

[42]The only explanation I have had for the use of nominees is that there was a desire of the doctors to distance themselves from ownership of the pharmacy business, as Dr Sharma confirms in paragraph 37 of his witness statement. I also heard evidence from Mr Gupta, who understood from Dr Sharma that there was some difficulty in the doctor’s holding shares in the pharmacy. Moreover, it was initially proposed by Rokesh Bhalla (when Mrs Bhalla came into the transaction) that her shares should also be held in an off-shore company, but this was unacceptable on Mr Uppal’s side.

Mrs Bhalla’s introduction into the transaction

[43]The question then arises: why did Mrs Bhalla take over the role formerly envisaged for the 2 doctors through Kerham? The case of the Bhallas is that neither of the 2 doctors had the money readily available for the proposed investment. Dr Sharma effectively confirms that this was the case in paragraph 24 of his witness statement. He says that they could not give personal guarantees which would satisfy RBS, which I infer RBS required as they were dealing with an off-shore company with no track record. When subsequently Farlam became involved, Mr Uppal did apparently procure a guarantee from wholesale chemists in return for Farlam’s undertaking to purchase 75% of its goods from that source. RBS also had a legal charge, which Mr Uppal and Mrs Bhalla signed as directors (though without assuming personal liability). The loan documentation also referred to personal guarantees of Mr Uppal and Mrs Bhalla, though none was produced in evidence, and no-one suggested that personal guarantees were in the event given.

[44]When it became apparent that the use of Kerham was not an acceptable vehicle to purchase Kassetts pharmacy, Dr Sharma at (he says) Dr Bhalla’s suggestion initially looked around for someone else to act as his nominee. He approached a friend, Pargon Mahli, and his sister, Nisa Khan, for the purpose of one of them becoming a nominee director of Farlam (which was acquired by Mr Uppal’s accountant). They both gave evidence before me confirming these approaches. The approaches did not make much sense except in the context that Dr Sharma would have an interest in Farlam. They declined the approaches. Dr Sharma says that Mr Uppal offered to be his nominee, but instead he accepted Rokesh Bhalla’s suggestion that Mrs Bhalla should act as nominee for both doctors. He also says that there were regular meetings at his house and at the apartment of Dr and Mrs Bhalla when the shareholdings were discussed between all 3 of them, and when it was agreed that the shares in Farlam would be owned as to 20% each by the 2 doctors, though subscribed for by Mrs Bhalla.

How was the £32,000 dealt with between the parties?

[45]It certainly seems odd that Mrs Bhalla would pay £32,000 on someone else’s behalf, apparently out of her own monies. However, she had previously (albeit out of what she regarded as Dr Bhalla’s monies) advanced £63,000 in connection with the acquisition and development of the Trafalgar Road premises. Moreover, half of the £32,000 was (on Dr Sharma’s case) for Dr Bhalla’s benefit, with whom she had a community of interest. I should however say that she was in no sense controlled by Dr Bhalla, and had a mind and determination of her own, as her oral evidence amply confirmed.

[46]As regards the £16,000 supposedly advanced by her for Dr Sharma, the financial background of the dealings between the parties becomes relevant. The state of account between Mrs Bhalla and Dr Sharma, and between the 2 doctors, was not settled, or even particularly clear, in February 1999. This provides the context for a possible finding or inference that the parties did indeed intend that Mrs Bhalla should make the investment, including subscribing for the shares, as his nominee, with the financial consequences to be resolved later, when the state of the various accounts was settled. To the extent that the monies due from her exceeded the £16,000 she invested, she would owe the balance to Dr Sharma. If, on the other hand, the monies due from her were less than that sum, Dr Sharma would owe the balance. Dr Sharma may well have envisaged that, as regards any balance that may be due from him, he could look to Dr Bhalla or the partnership in respect of sums due to Dr Sharma.

[47]In addition, the bulk of the £16,000 (less perhaps £20 for the subscription of the shares claimed by Dr Sharma) was provided by way of loan to Farlam, to whom Mrs Bhalla could also look for repayment if Dr Sharma did not cover any shortfall. As things turned out, she ended up paying Dr Sharma £7,000 in respect of the improvement grant in July 2001, having recouped the whole of the £32,000 from Farlam by March 2001.

[48]I should perhaps add that no-one identified precisely how the subscription price (of £40 for all the shares registered in Mrs Bhalla’s name) was dealt with, but, given the tiny amounts involved, no-one suggested this made any difference.

[49]This approach, of trying to resolve the financial state of the accounts between the parties, coloured the discussions that ensued in 2000 and 2001, when Dr Sharma sought to pursue his perceived rights to the shares in question.

[50]Initially, the calculations (in notes said by Dr Sharma to date from February 2000) showed that, even after taking into account the need for Mrs Bhalla to recoup the outlay of £16,000, monies were due to Dr Sharma, and not the reverse. I have considerable doubts as to whether these particular notes produced by Dr Sharma are correctly dated by him (February 2000), as they also refer to July 2000, a date which could have been added later. I am nevertheless satisfied that these notes do reflect a meeting which he had (as he says was the case) with Dr and Mrs Bhalla at some time in 2000, and that similar discussions were ongoing from early 2000. The financial picture changed as certain items of account (most notably concerning Mrs Bhalla’s salary entitlement) were rejected by her and other figures were revised. Nevertheless, the treatment of the £16,000 as monies due to her from Dr Sharma in the settling of accounts is consistent with Dr Sharma’s case that she only made the investment as his nominee in the first place.

[51]I should perhaps add that Mr Moraes placed reliance on the failure of Dr Sharma after 26th July 2001 to demand repayment of the £16,000 paid to Mrs Bhalla by Farlam, as this money was (according to Mr Moraes) on Dr Sharma’s case his money. What happened instead was that on 26th July 2001:-(i) £7,000 was paid by Mrs Bhalla to Dr Sharma in respect of the balance owing from the improvement grant;

(ii) £36,000 was paid by Dr Sharma to Dr Bhalla in respect of the £63,000 outlay for the Trafalgar Road premises;

(iii) those premises were retransferred into the joint names of the 2 doctors;

(iv) the Declaration of Trust in relation to the 20 Farlam shares was executed in Mrs Sharma’s favour;

(v) £20,000 was paid by Mrs Bhalla to Mrs Sharma in respect of a dividend;

(vi) the partnership agreement for the surgery practice was varied so as to introduce a new partner.

[52]As the £16,000 to which Mr Moraes referred was neither deducted from the £7,000 paid to Dr Sharma on 26th July 1991, nor demanded from him either then or afterwards, Mr Moraes’ point is at best neutral. Had the money not been (as in fact it was) repaid to Mrs Bhalla by Farlam, Dr Sharma would (on his case) have been obliged to repay it to her (as it was advanced on his behalf) and claim any subsequent repayment through her from Farlam. Had he made such a payment to Mrs Bhalla and then discovered that she had previously (or subsequently) received the same sum back from Farlam, he could then have claimed that amount from Mrs Bhalla, and Mr Moraes’ point would be a good one. That, however, was not the case, though it will be seen that, earlier, when Dr Sharma thought that the state of account between himself and Mrs Bhalla was in his favour, he was seeking repayment of the £16,000 from Farlam to himself. There is accordingly nothing in this point for Mr Moraes.

Farlam and the Shareholders’ Agreement

[53]I return to consider the facts concerning the initial Farlam investment.

[54]The commercial negotiations agreeing the pharmacy deal in principle were conducted between (in the main) Mr Uppal, Mr Dhinsa, Dr Bhalla and Dr Sharma. Mrs Bhalla had no involvement until the 2 doctors could not proceed with the Kerham proposal. I am concerned with the position when the Farlam proposal emerged.

[55]All parties engaged solicitors. Rokesh Bhalla acted for the 2 doctors in relation to the proposed lease of the pharmacy premises to Farlam. He was also acting in relation to the negotiation of the Shareholders’ Agreement (which as I have said was dated 1st February 1999) between Mr Uppal, Mrs Bhalla and Farlam, and new Articles of Association. In this respect he acted (ostensibly at any rate) for Mrs Bhalla, and some of the correspondence concerning the setting up of Farlam was copied to her alone. Dr Sharma said that this was all part of the strategy of distancing the doctors from the pharmacy, and that matters were discussed between them all, and Rokesh Bhalla, on frequent occasions. On the face of the correspondence, however, Rokesh Bhalla was acting for, and taking instructions from, Mrs Bhalla in relation to Farlam.

[56]Underwoods acted for Mr Uppal as shareholder and, effectively, for Farlam as tenant. Manby & Steward acted for Mr Dhinsa and his company, Rotahurst Limited.

[57]The terms of the Shareholders’ Agreement pay no regard to the fact that one of the shareholders was (as Dr Sharma alleges) to act as nominee. Many clauses do not easily fit that analysis. Thus, the shareholders give restrictive covenants, but Drs Bhalla and Sharma do not, and there are pre-emption provisions which appear to apply only to the parties to the agreement. Moreover, the pre-emption provisions are triggered by the insolvency or death of either shareholder, which is slightly odd given that Mrs Bhalla was (according to Dr Sharma) acting merely as nominee. In the case of death, the pre-emption provisions are supported by a provision for “Shareholders Key Man Insurance” to finance the purchase of the deceased shareholder’s shares. Thus, should Mrs Bhalla have pre-deceased Mr Uppal, her shares could on the face of it have been acquired by Mr Uppal notwithstanding that she had (according to Dr Sharma) no beneficial interest in relation to half of her shares. That remains the case today, so that the shares held upon trust for Mrs Sharma under the Declaration of Trust of 26th July 2001 are potentially vulnerable in the event of Mrs Bhalla’s untimely demise.

[58]On the other hand, one clause of the Shareholders’ Agreement (clause 5.5) vests in Mr Uppal sole authority to act in relation to Farlam’s lease of the Trafalgar Road pharmacy premises, thus reflecting the obvious fact that Mrs Bhalla would be expected to lack independence in that regard. That does not necessarily mean, however, that she was acting as nominee, though it is consistent with that.

[59]The Shareholders’ Agreement (and accompanying documentation) is poorly drafted:-(i) It refers to “Shareholders”, “Parties” and the “Lease”, with upper case first letters, as though they are defined terms, but without defining them. It is however tolerably clear what they mean;

(ii) “The Board” is defined by reference to unidentified individuals;

(iii) The pre-emption provisions themselves confusingly contain 2 different and inconsistent time limits;

(iv) There is a definition of “Executive Directors” as meaning those retained full-time pursuant to service agreements;

(v) Although the accompanying minutes as signed purported to table and approve service agreements (said to be in the plural and expressed to relate to “each of Mr Uppal” but not to anyone else), I was told that there were none;

(vi) Though the term “Executive Directors” is defined, the agreement does not use that expression except in the definition section;

(vii) Clause 5.1.12 restricts the payment of fees or salaries to directors except pursuant to “the Service Agreements” and clause 5.2 regulates the termination of “the Service Agreements”, but the expression “the Service Agreements” is also not defined;

(viii) Clause

1.1 contains a definition of “the Group” which is not used anywhere in the agreement;

(ix) Clause 1.3 defines references to documents in “the agreed form” but there are no such references;

(x) The accompanying minutes as signed provide for the allotment of shares, leaving the names of the applicants and the numbers and types of shares subscribed for blank. Fortunately, the agreement itself specifies the proposed applicants (Mr Uppal and Mrs Bhalla) and the numbers of shares to be applied for: clause 2.2. However, according to returns of allotments to Companies House, and Farlam’s register of directors’ interests, the shares (apart from the single subscriber’s share) were issued before the date of the Shareholders’ Agreement, in December 1998, which clearly cannot be right. The returns of allotment themselves were received by Companies House in January 1999, which again pre-dates the Shareholders’ Agreement;

(xi) Clause 5.1 prohibits Farlam from undertaking certain actions without the prior written approval of “[all four shareholders/all of the directors]”. There were only 2 shareholders;

(xii) The pre-emption provisions in clauses

9.2.1 and

9.2.2 appear to be triggered by (put broadly) the insolvency of Farlam, but the only consequence specified is that “the Shareholder in such financial difficulties” (which by definition will not be Farlam) is deemed to have given a “Transfer Notice” (an expression derived from the New Article 14.1, incorporated by Clause

1.2 ).

[60]Some of the provisions to which I have referred (in particular, the triggering of pre-emption rights upon death, and the associated Key Man insurance) can be traced back to an earlier draft in which one of the proposed contracting shareholder parties was an unnamed Gibraltarian company. This particular pre-emption provision made even less sense in that context, as a company does not die in the conventional sense. Similarly, references to corporate insolvency as a triggering event can also be traced back to the same draft where, as the proposed corporate shareholder was unidentified, so was the identity of the corporate body whose insolvency was to be the triggering event. When, eventually, there was no corporate shareholder, the blank seems to have been filled in by reference to the only company around, which (inappropriately) was Farlam.

[61]I make these observations not for the purpose of scoring points (which is always dangerous as I may have missed something) but to demonstrate how difficult it is from the terms of the Shareholders’ Agreement and its accompanying documents to reach any reliable conclusions as to the parties’ intentions on the issue of nomineeship. When I come to construe the Shareholders’ Agreement later, I will of course be concerned to arrive at an objective ascertainment of the presumed intentions of the parties. This is different, however, from the issue of whether Mrs Bhalla was acting as trustee or nominee. She was clearly contracting as principal, but trustees always do, and there is no necessary inconsistency between the Shareholders’ Agreement and the subscription for 20 of the shares having been undertaken as trustee or nominee.

[62]To the extent that there are provisions in the Shareholder’s Agreement which are difficult to relate to Mrs Bhalla’s alleged status of nominee, I must take those into account in the overall evaluation of the evidence, but these indications are by no means an end of the matter, nor, in the circumstances of an agreement which appears to have lacked much in terms of professional care and attention, especially illuminating.

Rokesh Bhalla

[63]In a P.S. to a letter dated dated 3rd December 1998 to Underhills, Rokesh Bhalla stated:

“my client’s shareholding will be held by an offshore company”

. The same letter confirmed that his client was Mrs Bhalla. It is not wholly clear what offshore company he was referring to, but Kerham was the only offshore company then in play, and that belonged to the doctors beneficially.

[64]I am more than a little surprised that Rokesh Bhalla was not called as a witness, as both sides say at different stages that they were relying on him, and he was involved both when Farlam was set up and, from time to time, subsequently.

[65]Of the parties, I would have expected Mrs Bhalla to call him, as she claims that Rokesh Bhalla acted for her alone in relation to the Farlam transaction. Surprisingly, however, the evidence does not reveal who paid his fees in connection with that transaction. Rokesh Bhalla was also Mrs Bhalla’s brother-in-law and Dr Bhalla’s brother. The firm with which he has or has had an association (Charles & Co) acts for Mrs Bhalla in 6BM30117 and for Dr Bhalla in 8BM30085 and the arbitration.

[66]I should be slow however to draw adverse inferences from the failure to call Rokesh Bhalla, as issues of privilege might well have arisen, at least in relation to some aspects of his evidence. Moreover, it is possible that any evidence of Rokesh Bhalla would have been undermined by credibility issues arising from his suspension from practice for 18 months in August 2001 for serious breaches of the solicitors’ accounts rules. The disciplinary tribunal found (in a case unconnected with the present one) that his conduct in relation to the handling of client monies had been far below what was expected from a member of the profession, and that he had acted with an almost contemptuous disregard of the rules.

[67]None of this precludes me, however, from drawing any appropriate inferences from what Rokesh Bhalla did or said from time to time, as I am prepared to assume, in the absence of reliable evidence to the contrary, that he acted in accordance with his instructions.

[68]My attention was drawn to a note in Rokesh Bhalla’s handwriting, which though undated is likely to have been created in late 1998 or early 1999. The document apparently summarises advice given or instructions received (or a combination of the 2) in connection with the proposed acquisition. It is not clear whether advice was given at a meeting, or whether this was simply an aide memoire for Rokesh Bhalla, which he prepared for his own purposes. The note refers to each of “AS” (Dr Sharma) “SKB” (Dr Bhalla) “DKS” (Mrs Bhalla, the “S” denoting her maiden name of Sharma) and “Dell” (a pseudonym for Mr Uppal). So it must have been made at a time when Mrs Bhalla was coming, or had come, on board.

[69]There is a reference in the note to “D’s” (meaning Davinda’s, a reference to Mrs Bhalla) or “Drs” (meaning doctors’) shareholding; it is not entirely clear which, but it looks more like “D’s”, and is therefore more likely to be a reference to Mrs Bhalla. That reference without more is however inconclusive on the issue of whether Mrs Bhalla was to hold shares beneficially, or as nominee. The same reference is linked by an arrow to (or following) an item “Transfer of Kerham Associates Ltd”, which was beneficially owned by the 2 doctors. There is before that a reference to the need for protection of the 2 doctors, and a later reference to the need for draft heads of agreement for a) the 2 doctors b) Mrs Bhalla and Mr Uppal.

[70]Each side put its own interpretation on particular aspects of the note. However, none of this was illuminating in the absence of Rokesh Bhalla as a witness. I therefore do not find this particular note helpful at all, one way or the other.

The purchase of the pharmacy business

[71]The pharmacy business was purchased by Farlam from Rotahurst Ltd, with completion on 1st April 1999. Both Mrs Bhalla and Mr Uppal guaranteed the performance of Farlam’s obligations. Mr Moraes makes the point that this is more the action of a beneficial shareholder than that of a mere nominee. There is considerable force in this point. As, however, Farlam’s primary obligation was to pay the purchase price, which Farlam could do because it had already raised monies from its shareholders and had the RBS facility, the risk to the sureties was broadly covered, and certainly minimised.

[72]I doubt therefore whether this point adds much of significance to the fact that Mrs Bhalla put up the £32,000. That is of course a significant point in itself, which I have already considered in paragraphs 45-52 above.

The August 1999 proposed declarations

[73]Following the acquisition of Kassetts pharmacy by Farlam, Rokesh Bhalla on 2nd August 1999 sent to both of Drs Sharma and Bhalla 2 draft declarations of trust, one in relation to the Trafalgar Road premises (to be executed by Mr Bhalla in favour of himself and Dr Sharma) and one in relation to the 40 Farlam shares held by Mrs Bhalla (to be executed by her in favour of the 2 doctors). Mr Bhalla told me that he regarded this as an occasion where Dr Sharma had instructed Rokesh Bhalla on his own initiative, and that he simply told Rokesh Bhalla to ignore it. I do however consider it to be unlikely that Rokesh Bhalla would have acted in this way on Dr Sharma’s instructions alone, especially as the covering letter suggested that Dr Sharma take independent legal advice. As, moreover, he had previously acted (ostensibly at any rate) solely for Mrs Bhalla in connection with the Farlam shares, I would not have expected him to have prepared these documents unless they accorded with what he understood to be her instructions at the time.

[74]The draft documents were not in the event executed. I am, however, mindful that the arbitrator found that the Trafalgar road premises were indeed partnership property and therefore held on trust for the 2 doctors. What seems to have impeded both transfers was that the state of accounts between the parties was not agreed, though Dr Sharma appears later to have thought that the draft declaration of trust in relation to the shares may have been executed. When in 2004 that document was referred to in the correspondence, Mrs Bhalla’s solicitors, Charles & Co (in a letter dated 29th July 2004) stated that the document was not executed “because your client did not pay the sums due to ours as had been anticipated at the time the document was drafted”. This is consistent with other documents from and discussions in 2000 and 2001 which I shall come to consider. The expression “the sums due to ours” must, I think, so far as the Farlam shares are concerned, refer to the £32,000 which Mrs Bhalla put up for the Farlam investment.

[75]The significance of this stance is that it appears to recognise that the shares were indeed held by Mrs Bhalla for Dr Sharma, but that she had a claim for reimbursement of expenditure. A trustee does of course have a lien for expenditure. In the circumstances of this case, there may also have been a right of indemnity (as regards the £16,000 attributable to the shares claimed by Dr Sharma) enforceable against Dr Sharma. Dr Sharma always acknowledged this fact, whilst taking the position that other sums exceeding £16,000 were due the other way.

[76]Mr Moraes contends, correctly, that a nominee is a person who has a bare legal interest, and that a person who has only a conditional interest in property cannot be a nominee, for that interest is not a bare legal interest. I do not however consider that Dr Sharma was claiming a conditional interest (such as, for example, an interest conditional on payment of the purchase price). His case is that Mrs Bhalla acquired 20 of the Farlam shares for him. If that is correct, the fact that Mrs Bhalla may have had a right of reimbursement (whether by way of lien or by way of indemnity) is not inconsistent with her acting as nominee, but is an incident of her doing so: see, generally, Lewin on Trusts, 18th ed., at paragraphs 1-28; 21-44. It may also be that Mrs Bhalla in making the Farlam investment, acted in the particular circumstances of this case as agent for Dr Sharma (with incidental rights of indemnity). I doubt whether it matters As Lord Hoffmann said in Ingram v IRC [2000] 1 A.C. 293 at 305:

“But a trustee in English law is not an agent for his beneficiary. He contracts in his own name with a right of indemnity against the beneficiary for the liabilities he has incurred.”

[77]I should add, parenthetically, that there may be room for argument as to whether any lien on the shares would, strictly speaking, extend beyond the subscription price of £20. That does not matter, as the parties, as I have said, saw the £16,000 as the investment, and, on a strict analysis, Mrs Bhalla would if acting as trustee or nominee have a lien on the resulting debt due from Farlam, and (possibly) a right of indemnity from Dr Sharma.

Dividends and reconciliation of accounts

[78]In January 2000, Dr Sharma took advice from the partnership accountants as to the tax treatment of pharmacy dividends. The partnership accountants (who were not Farlam’s accountants) clearly understood, I infer from what Dr Sharma told them, that Dr Sharma was a shareholder. It is a fair inference from this event that Dr Sharma was kept informed of the state of profit within the pharmacy business. Otherwise he would not be taking advice about taxation of dividends. He can only have been kept informed of this by one or more of the Bhallas and Mr Uppal. If as is now alleged Mrs Bhalla was then the beneficial owner of all of the pharmacy shares held in her name, it is difficult to understand what interest Dr Sharma had in being kept so informed. The reality, it seems to me, as other evidence to which I shall shortly come confirms, is that all parties (including Mrs Bhalla) recognised that the pharmacy, having been established as an integral part of the development of the surgery premises, was owned through Farlam by the 2 doctors and Mr Uppal. The fact that there were outstanding financial matters to be resolved did not detract from this fact.

[79]I heard evidence from other friends and acquaintances who also understood from social contact that both doctors had an interest in the pharmacy. Again, however, the principal source of this understanding was Dr Sharma, and I do not think evidence based on social contact alone is of any great weight.

[80]Of greater importance is what passed between the parties. It is clear that in 2000, when the payment of a dividend was in prospect (and subsequently, after a dividend was paid) Dr Sharma had discussions with the Bhallas (and upon occasions with Mr Uppal) over what Dr Sharma regarded as his investment. Dr Sharma also pursued his claim for an interest in the Trafalgar Road premises. These discussions intensified in 2001, involving also Mrs Sharma on occasions, until their apparent resolution on 26th July 2001 by the execution of the documents, and payments of monies, summarised above in paragraph 51.

[81]It was open to the Bhallas, if this was really their case, to turn round and say that the Farlam investment was not Dr Sharma’s investment at all, but Mrs Bhalla’s investment. This however was not their position. The discussions centred on the financial consequences of the various dealings between the parties, including the position adopted by Mrs Bhalla (as recorded in paragraph 16 of her witness statement) that she should receive full recompense for her financial commitment to the venture.

[82]The recompense she ultimately sought was retention of the £20,000 dividend paid in 2000 by Farlam to her in respect of the 20 shares claimed by Dr Sharma, and retention of the £16,000 repaid by Farlam in tranches by March 2001, being half of the £32,000 originally invested. Subject to that, she was willing to declare a trust of those 20 Farlam shares in favour of Mrs Sharma. On the footing that (as she now says) the investment was hers, she was, by keeping the dividend, merely retaining what was hers. She was also entitled one way or another to recoup the £16,000 outlay. On her case, therefore, she was by the Declaration of Trust of 26th July 2001 giving valuable shares away for nothing. Conclusion on the issue of whether Mrs Bhalla held the shares as nominee for Dr Sharma

[83]What I have to decide is whether the negotiations between the parties related to the terms upon which the shares would be transferred from Mrs Bhalla’s beneficial ownership (which is Mrs Bhalla’s case) or whether they related to what needed to be done to give effect to the pre-existing trusteeship of Mrs Bhalla for Dr Sharma (which is Dr Sharma’s case). In my judgment, the latter is the correct view. I shall in the paragraphs which follow consider the negotiations in more detail, and identify those aspects of the evidence which lead me to the conclusion that Mrs Bhalla was a trustee or nominee for Dr Sharma throughout. Most significantly, I can think of no reason for her transferring valuable shares for nothing if she really thought they were hers. Her explanation in the witness box was unconvincing. She said she was prepared to transfer the shares to keep peace in the surgery practice, because her husband, Dr Bhalla, wanted her to do so. I have already noted that Mrs Bhalla had a mind and determination of her own. The 20 shares produced a dividend yield of £20,000 in the first year of trading, and this was expected to and did continue. Under the Shareholders’ Agreement, the parties agreed that profits would continue to be distributed by way of dividend. The shares clearly had a significant value. However highly Mrs Bhalla may have regarded her husband, she would not have given the shares away unless she recognised that she was holding the shares for Dr Sharma in the first place. Nor, however much his desire for peace, would Dr Bhalla have asked her to do so absent the same recognition.

The Defendants’ evidence generally

[84]In reaching this conclusion, I have had regard to the evidence of the discussions between the parties. In general terms, the Bhallas (supported by Mr Uppal as regards meetings said to have been attended by him) denied much of the evidence given by Dr Sharma about meetings which he says took place. I was under the impression that, where they could not recall the details (which is hardly surprising, given that the relevant meetings were some years ago) they would instinctively claim that Dr Sharma was making the details, or in some cases the particular meeting, up. I did not find any of them impressive or careful witnesses. In addition, as regards each of them individually:-(i) Mrs Bhalla’s general credibility was undermined by her failure to recognise that her approach to withholding payment of dividends was unacceptable, and by her obstructive responses to requests to transfer the shares (to which I refer later);

(ii) Dr Bhalla’s general credibility was undermined by his failure to recognise that the Trafalgar Road premises were partnership property throughout;

(iii) Dr Bhalla also had a serious criminal conviction of wounding his former wife with intent for which he was sentenced on a guilty plea to 21 months imprisonment in February 1994. Whilst not an offence of dishonesty, the conviction does perhaps show that Dr Bhalla under pressure has in the past resorted to wholly inappropriate means of resolving his differences. Given its age, though, I have not placed any reliance on this conviction in reaching the conclusions I have reached in this judgment;

(iv) Mr Uppal’s evidence was coloured by what seemed to me to be an unexpected degree of animus towards Dr Sharma. He did not miss out on opportunities to criticise Dr Sharma. Some of this may have been referable to his apparent conviction that Dr Sharma was diverting prescriptions away from the Farlam pharmacy. He was also understandably nervous and this may have produced an unintended reaction on his part. Nevertheless, I felt that his answers were often ill-considered, and occasionally glib.

January 2000 to January 2001

[85]Dr Sharma’s evidence was supported, on 2 significant occasions, by contemporaneous notes.

[86]I have already referred to the notes of a meeting said to have taken place in February 2000. I have doubted that date as regards those notes, but do not doubt that Dr Sharma raised the issue of share ownership then (as he had done previously in his dealings with Rokesh Bhalla in August 1999 – paragraph 73 above). This likelihood is confirmed by the fact that he raised with the partnership accountants the question of tax treatment of dividends in January 2000, which must (as I have said) have been prompted by discussions about the prospect of a dividend. It is also clear from correspondence between solicitors (Faber and Co for Dr Sharma; Abrahams-Dresdens for Dr Bhalla) that Dr Sharma was seeking a retransfer of the Trafalgar Road premises into joint names at this time.

[87]I also do not doubt that the “February 2000” notes (which consisted both of notes Dr Sharma took into the meeting, and of notes he took at the meeting) accurately record a meeting that Dr Sharma had with Mrs and Dr Bhalla at some time in 2000, though probably not in February. He explained those notes in a way which was largely coherent and credible, and I consider it extremely unlikely that he would have made them up subsequently.

[88]What the notes show is that the parties were endeavouring to reach agreement as to the state of account between Dr Sharma and Mrs Bhalla, which included an item treating Dr Sharma as owing £16,000 in respect of the Farlam investment.

[89]I am not prepared to assume (despite Dr Sharma’s evidence that this meeting resolved matters) that all the figures were agreed at that stage. They do however represent what was discussed, and indicate the way the parties were approaching the matter. No-one can confidently say at this distance of time precisely who said what, and I do not proceed on the basis that the relevant figures in the final calculation all came from Mrs Bhalla, as Dr Sharma said they did. The approach of resolving the state of account in the context of a proposed transfer of shares was, however, clearly adopted. Mrs and Dr Bhalla did not dissent from this approach. On the face of these notes, monies totalling £3,107.50 were thought at this stage (at least by Dr Sharma) to be due to Dr Sharma, as I mention in paragraph 50, and not the reverse.

[90]Another set of notes is in Dr Bhalla’s handwriting. The background to these notes is that Dr Sharma claims that there was a meeting at the end of November 2000 between himself, Dr Bhalla, Mrs Bhalla and Mr Uppal the upshot of which was that he was led to believe that he would receive the £16,000 invested in Farlam back, together with half of a dividend of £40,000 paid to Mrs Bhalla, less tax on the dividend. He deals with this and other earlier meetings in some detail in his witness statement. I have to say that I am reluctant to accept that he can have such a precise and detailed recollection after this length of time.

[91]Nevertheless, I accept that meetings took place concerning amongst other things the £16,000 and the £40,000 dividend, and that Dr Sharma was left with the expectation of payment to himself of the sums I have mentioned. The £16,000 was apparently due to him as it had been debited to him in the then calculation of the state of account between himself and Mrs Bhalla, which showed a balance in his favour.

[92]Moreover, Mr Uppal had been repaid his outlay of £48,000 well before November 2000 by Farlam and Mrs Bhalla had by that time been repaid half of the £32,000. There was no reason why the remaining £16,000 should not be repaid. As this £16,000 had apparently been recouped by Mrs Bhalla through the accounting exercise which Dr Sharma believed to represent the true state of account between them, the repayment by Farlam would (on that footing) be due to himself. It might technically have been due in the first instance to Mrs Bhalla, who would then be accountable to Dr Sharma (as she could not recoup that sum twice). Dr Sharma was however of the understanding that the £16,000 would be repaid to him direct by Farlam.

[93]I find also that Mr Uppal (despite his denial) was (at the November meeting) a party to discussions concerning the £16,000 repayment to Dr Sharma, and the payment to Dr Sharma of half of the dividend paid to Mrs Bhalla (less tax). He was well aware of Dr Sharma’s interest. Dr Sharma’s evidence (which I accept) is that when he made inquiries about pharmacy matters of Mr Uppal, he was directed by him to Mrs Bhalla, saying that he could have his say though her.

[94]That leads me back to the notes in Dr Bhalla’s handwriting. According to Dr Sharma, Dr Bhalla had been avoiding further discussions with him on financial matters, so he and Mrs Sharma paid an unannounced visit on the Bhallas at their home on 10th January 2001. Mrs Sharma remembers the visit because it was the first time she had been to the Bhallas’ home. I accept (despite the Bhallas’ denials) their evidence that such a meeting took place, at which Dr Bhalla wrote out the notes in question. Reference is made to a meeting of that date in a note dated 20th February 2001 from Dr Sharma to Dr Saikia, which was copied to Dr Bhalla and Dr Das. Drs Saikia and Das were other doctors at the Trafalgar Road premises. Mr Moraes makes the point that the figures in that note do not square with the figures in Dr Bhalla’s handwritten notes. However, the handwritten notes concerned the pharmacy business (including the premium and rent paid in respect of Farlam’s lease) whilst the note of 20th February 2001 concerned the surgery practice. There was therefore no need to refer on 20th February to the details of what was discussed concerning the pharmacy business, which did not concern the other doctors, as they had no interest in the pharmacy, or in the premises to which the premium and rental income related.

[95]The note of 20th February also mainly concerned a later meeting (at the surgery) of 19th January, which was primarily if not wholly about the surgery practice. The main point of that note was to emphasise the need to adhere to agreed cheque-signing procedures, and to ensure that the practice accountant received the paperwork necessary for the 2000 accounts as soon as possible. Dr Sharma confirms in his witness statement (as does Mrs Sharma) that he raised financial matters in respect of both the surgery and the pharmacy at 10th January meeting. I do not find this surprising, as surgery matters were also a bone of contention at this time.

[96]Turning to the content of Dr Bhalla’s handwritten notes, there is included a page headed “Pharmacy Profit”, in which Dr Sharma is shown as sharing equally in the first year’s dividend of £40,000 (which by then had been paid but not yet declared) less tax at 32.5%, leaving £13,500 due to Dr Sharma.

[97]£16,000 is also shown as owing by Dr Sharma together with interest on that sum.

[98]The result of the calculations was that, as at that date, Dr Sharma was shown as owing £4,991. The notes go on to say that £16,000 more was to be taken out in February (which confirms that the note pre-dates this event). I take this to be the balance of the £32,000 then owing by Farlam in respect of Mrs Bhalla’s initial £32,000 investment, the first £16,000 having already been repaid to her. The note treats half of that sum as prospectively due to Dr Sharma. In that event, Dr Sharma would be owed (£8,000 - £4,991) = £3,009.

[99]Dr Bhalla says that he was merely noting Dr Sharma’s suggestions. I do not accept this evidence. Dr Sharma never offered interest on the £16,000. Nor would he have credited half of the £16,000 prospective payment to Mrs Bhalla, as she had had all of the £16,000 paid to date, which was not being brought into account, and he was debited with the whole of the remaining £16,000 elsewhere in the notes.

[100]Moreover, having noted these suggestions, which according to Dr Bhalla he did at the surgery, he told me he discussed them with Mrs Bhalla, but without taking the notes home. He says he left the notes on his desk at the surgery. The inference I understood I was being invited to make was that Dr Sharma then took the notes from Dr Bhalla’s desk, which is why Dr Sharma, and not Dr Bhalla, disclosed them.

[101]I consider this to be an improbable explanation if (as was alleged) all the suggestions were Dr Sharma’s in the first place. It is much more likely (and I find) that, having made the notes, Dr Bhalla gave them to Dr Sharma, so that Dr Sharma would have a record of the Bhallas’ suggestions. Indeed, it was put to Dr Sharma in cross-examination that Dr Bhalla wrote out the notes recording what Dr Sharma told him and handed them to him. Whilst I am prepared to accept that Dr Bhalla did hand the notes over to Dr Sharma, it was a rather pointless exercise if Dr Bhalla was merely handing back to Dr Sharma a note of what Dr Sharma already knew, rather than a note of his and Mrs Bhallas’ suggestions.

[102]The main difference of approach between these notes and the earlier (“February 2000” notes) is that Dr Sharma was not given credit for any part of the improvement grant, or for other monies previously raised by way of set-off. The Sharmas’ evidence was that Dr Sharma raised at that meeting issues concerning the improvement grant and other monies due. However, Dr Bhalla insisted (according to them) that there were tax issues relating to the improvement grant and other monies and that these should be left out of this particular accounting exercise. The notes themselves give some support for this approach, as they state “Anil owes £16,000 (from taxed income)”. It does not appear that the partners had accounted to the Inland Revenue for tax then thought to be due in respect of the improvement grant. The same may have applied to other monies paid to Mrs Bhalla from the partnership.

[103]Mrs Bhalla was present throughout this meeting and, according to the Sharmas, supported Dr Bhalla’s accounting approach. I accept the Sharmas’ evidence on this point.

[104]The meeting concluded by the parties going to a local restaurant (Pinochios). Again, the Bhallas deny this, as they only recall going to that restaurant with the Sharmas on a different occasion, with medical reps. I prefer the Sharmas’ recollection, though I am prepared to accept that the Bhallas simply have no recollection of this particular meal, not that they are being deliberately untruthful on the point.

[105]Mrs Sharma (who was for the most part a careful witness) remembers the occasion, because she felt uneasy as she had serious reservations about the Bhallas. She recalls Dr Sharma telling her, before the meeting, that they would have to bite their tongues, and also recalls Dr Sharma kicking her under the table at the restaurant, in effect to remind her of this. What prompted this was a comment made by Dr Bhalla at the restaurant to the effect that she was a wealthy lady, and that if anything happened to Dr Sharma, she could trust him to give her all the assets (there was also the unresolved issue of the Trafalgar Road premises) including the pharmacy share. Mrs Sharma did not believe this and wanted to respond. It was at this point that Dr Sharma, who was aware of her reservations about the Bhallas, kicked her under the table to remind her to bite her tongue.

General observations on discussions

[106]Dr Sharma also recalls being told during his negotiations with the Bhallas in 2000/2001 that his pharmacy share, and his interest in the Trafalgar Road premises, were safe. Assurances of this kind were denied by the Bhallas, but I consider that it was likely that such assurances were given. This was, however, subject to reservation of outstanding financial issues.

[107]Dr Bhalla, whilst denying the particular meetings which Dr Sharma alleges occurred, does recall (in paragraph 5 of his witness statement) that from time to time, Mrs Bhalla was presented with documents to sign. She refused to do so “because Dr Sharma repeatedly failed to make any repayment of the capital invested by [Mrs Bhalla] or compensate her for the lost opportunity cost”. The right to recoup her outlay was, as I have mentioned, an incident of her nomineeship. As to “lost opportunity cost” she did not lose any opportunity if (as is now alleged) the shares were hers. It is noteworthy that Dr Bhalla’s case is not that Mrs Bhalla refused to sign documents because the shares were hers. Though the emphasis is different, therefore, the substance is not markedly different from what the Sharmas regarded as assurances. Similar comments apply to the passage in Mrs Bhalla’s witness statement to which I have referred in paragraph 81 above, and to Charles & Co’s letter to which I have referred in paragraph 74.

[108]I add also that the requirement of compensation for lost opportunity cost (as it is put) came relatively late in the day. The claim for interest surfaced for the first time in January 2001, and the claim to retain the whole of the £40,000 dividend (which appears to have replaced it) some months later.

[109]There were a number of meetings after 10th January 2001. The other doctors in the practice and the partnership accountant became involved in attempting to mediate or arbitrate a solution.

The Sharmas’ evidence generally

[110]An incident occurred in the pharmacy premises on 21st February 2001. Dr Bhalla was confronted, he says, in a threatening way by 2 Caribbean gentlemen in the surgery on Dr Sharma’s behalf. He undoubtedly saw this as an attempt to intimidate him, and I am bound to say that it looks very much like that. Dr Sharma denied any sinister intent and portrayed this incident as an attempt to set him up. I am very sceptical about this explanation, and I have approached Dr Sharma’s evidence with caution for this and other reasons. His witness statement dwells upon the minutiae of the case in such detail as to suggest an obsessiveness which might distort both his judgment and his recollections. Moreover, he was, as I have recorded, prepared to transfer property into the sole name of Dr Bhalla with a view (initially) of defeating his then wife’s claims, though as events turned out he made full disclosure in his divorce proceedings. He also gave what can at best be described as muddled, and at worst misleading, evidence concerning proceedings brought by him against the partnership accountants.

[111]Some of his obsessiveness may have infected Mrs Sharma’s evidence, too, with whom Dr Sharma obviously discussed the case. Nevertheless, I did feel, although she did err on occasion, that she was a careful and truthful witness overall, who was doing her best to assist me. It was evident from her oral evidence that she also, like Mrs Bhalla, has a mind and determination of her own.

[112]None of these points is ultimately decisive of the case. The Caribbean incident goes only to credit, and the reservations I have about Dr Sharma’s evidence mean that I have looked, where I can, to the documents, to the inherent probabilities and to appropriate inferences to be drawn from events which I can be satisfied occurred. Moreover, I also have reservations, for the reasons I have mentioned, about the Bhallas’ and Mr Uppal’s evidence.

Discussions and letters between February and May 2001

[113]Following the Caribbean incident, a practice meeting was held on 23rd February 2001. The minutes of the meeting are signed by all those present, including Drs Bhalla and Sharma.

[114]Item 7 of the minutes provides that Dr Bhalla and Dr Sharma would resolve the surgery premises and the pharmacy business between themselves in an amicable way.

[115]Item 8 provides that both parties agree that the surgery and pharmacy business are owned equally once the financial arrangements are agreed and settled.

[116]These minutes are a clear recognition, in my judgment, of the fact that Mrs Bhalla was holding the Farlam shares as nominee for the 2 doctors. Mrs Bhalla was not, of course, a party to the minute, or at the meeting, but it is inherently unlikely that Dr Bhalla would have added his signature to a document recording the matter in this way unless it accorded with his understanding of Mrs Bhalla’s position. The Bhallas are commendably close as a couple and I was under the impression from the evidence that he discussed everything with her.

[117]A further doctors’ meeting was held on 7th March 2001. Mrs Bhalla also attended. The minutes of the meeting record:-(i) it was agreed that Mrs Bhalla owed £7,000 in respect of the improvement grant;

(ii) Dr Sharma agreed to drop his claim in respect of payment to the builder provided his other account queries were resolved;

(iii) Dr Bhalla agreed to pay Dr Sharma half of the monies paid out of the West Bromwich account; together with half of the monies in an HSBC account;

(iv) Various other claims of Dr Sharma were dropped;

(v) Past partnership accounts were accepted;

(vi) The figures for payment of wages to Mrs Bhalla were agreed. It was also agreed that “this matter never be brought for discussion ever in future”;

(vii) It was agreed that Dr Sharma owed Mrs Bhalla £31,500 plus interest “for the practice before the Trafalgar Road premises could be transferred in his name”.

[118]So far as the last point is concerned, Mr Hothi (the practice manager, who was at the meetings of 23rd February and 7th March, and is said to have been at a subsequent meeting of 14th March 2001) signed a letter dated 20th April 2001 confirming that the upshot of the 14th March meeting was that the loan shown in the practice to Mrs Bhalla (which I take to be the £31,500) was to be settled simultaneously with “the complete transfer back of all assets belonging to Dr Sharma”. He says that he only signed this letter at Dr Sharma’s request. I do not think, however, that he would have signed it unless he thought it was a true record of what had been discussed in his presence. I heard some confusing evidence about how the letter came to be prepared but the resolution of that issue does not ultimately assist me. What matters is that Mr Hothi signed it.

[119]Dr Sharma also wrote a letter dated 1st May 2001 to Rokesh Bhalla referring to the meeting of 14th March, saying that it was agreed at that meeting that the 50% share of the Trafalgar Road premises and the 20% shares in Farlam “would be transferred to myself or my nominees”. I am not concerned with whether there was by this stage any binding agreement. What is evident though is that any transfer would be to Dr Sharma or his nominees. The Declaration of Trust in relation to the Farlam shares came to be executed on 26th July 2001 in favour of Mrs Sharma. The letter of 1st May 2001, which is part of the relevant background, suggests that the intention was that she also should in turn be a nominee for Dr Sharma. In her oral evidence, Mrs Sharma indicated that she was not interested in becoming a shareholder herself. She thought that Dr Bhalla wanted the shares to be in her name, though she must I think have formed this view from what Dr Sharma told her. I was under the impression that she really regarded herself as a nominee for her husband. I did not however get the impression from Dr Bhalla that the idea was at this stage his (rather than Dr Sharma’s) but I do not think it matters. What matters is that Dr Sharma was thinking of using a nominee or nominees, and Mrs Sharma, in the events which happened, went along with his wishes.

The 6th June draft agreeement

[120]Following an exchange of emails between Dr Saikia and Dr Sharma on May 27th 2001, Dr Saikia prepared a draft agreement (which was never executed but was dated 6th June 2001) which provided for 50% of the Trafalgar Road premises and half of Mrs Bhalla’s 40% Farlam shareholding to be transferred, in each case to Mrs Sharma. Again, I infer that Mrs Sharma was to be nominee for Dr Sharma. He was (as the arbitrator held) already beneficial owner of half of the Trafalgar Road premises, and I take the view that he was also beneficial owner of half of the Farlam shares.

[121]The same draft agreement provided (consistently with the email correspondence preceding it) as follows:

“[Mrs Bhalla] will retain the monies she has taken from the pharmacy viz £40,000 dividends and £32,000 deposit. Any further takings from the pharmacy will be split equally between [Mrs Bhalla] and [Mrs Sharma] as shareholders.”

[122]It is clear from Dr Saikia’s earlier email that this provision reflects what he understood to have been the content of the discussion between the 2 doctors, and Dr Sharma did not disabuse him of his notion. On the contrary, his own proposals are described in his email response as “not very different”. Accordingly, I have no doubt that at that stage the intention was that Mrs Bhalla was to retain the whole of the £40,000 dividend, as well as the £32,000, which had by then been recouped from Farlam in full.

[123]Neither Mrs Bhalla nor Mrs Sharma were parties to any of the discussions that resulted in this draft agreement, though they were undoubtedly aware of them. The agreement also has incomplete blanks in respect of monies to be paid “in consideration of the above transfers”.

[124]A note on one of the drafts in Dr Saikia’s handwriting made 3 points:-(i) The first point was “Cotton Ave”. This was a reference to Dr Sharma’s original partnership premises, the ownership of which was also in dispute, as Dr Bhalla was claiming an interest. I infer that this note recognises that Cotton Avenue also needed to be dealt with in the dispute resolution process;

(ii) The second point was “Two separate agreements”. I infer that it was considered that the premises and the shares should be dealt with by different agreements;

(iii) The third point was “Needs legal Opinion”. I infer that the parties recognised that legal input was needed before any binding agreement could be reached.

[125]I do not know exactly when Dr Saikia (who did not give evidence before me) made those notes and no-one could give any helpful evidence about how they came to be put there. The inference I draw is that by 6th June (the date the draft bears) this draft had been considered by the parties who recognised that it was premature for any binding agreement to be concluded. The blanks, also, never were filled in because the amounts to be paid were not then determined.

The meeting of 7th June 2001

[126]There then follows an important meeting of 7th June attended by Drs Sharma, Bhalla, Saikia and Das.

[127]The minutes of that meeting record amongst other things the following:- “Dr Saikia informed that he had the opportunity to discuss the matter with Dr Bhalla and [Mrs Bhalla] following e-mail information given by Dr Sharma … Dr Bhalla … mentioned that for the sake of peace he would settle his differences amicably provided Dr Sharma agreed the following conditions: 1. That there would be no payments due either to Dr Sharma or Dr Bhalla from the past practice accounts. 2. That Dr Sharma would repay half the loan of £63,000 given by [Mrs Bhalla] to the practice with appropriate interest. … Dr Bhalla would give the exact figure at the next meeting. 3. That the practice must be stabilised in such a way that no partner can disrupt the partnership business in future even if there are disputes. The disputes must be dealt in democratic manner through the practice meeting and discussions. 4. That Dr Bhalla would like to have his name included in the deeds of Carlton avenue property without any condition. 5. That Dr Sharma accepts voluntarily that he had utilized half share of £50,000 kept in custody with [Mrs Bhalla], the money which was taken as a loan by both Drs Sharma and Bhalla from the practice account and that they both would take a fresh loan for the same amount against their Pharmacy business to repay the practice. 6. That Dr Bhalla would transfer the practice deeds in the name of Dr Sharma only and not in the name of a third party or wife. 7. That Dr Bhalla would request [Mrs Bhalla] to transfer the 20% of her Pharmacy profit to Dr Sharma in his wife’s name and that [Mrs Bhalla] would be entitled to take £40,000 profits for the investment she had made and take out her equity of £32,000 in the pharmacy business. All other profits and rentals would be shared equally as per the share holdings. Both partners agreed the above conditions and it was decided that a written agreement would [be] drawn up by the partners in the next meeting prior to the exchange of legal contract 28 days later”

[128]The minutes are signed by all 4 doctors on the first page and by what looks like just 3 of them on the second page. Dr Saikia was not then a partner, though he was expected to become a partner and the need to prepare variations of his and Dr Das’s contracts are also mentioned later in the minutes. The precise variations are not however specified; nor are they expressed to be part of the agreed conditions resolving the issues between Drs Sharma and Bhalla.

[129]Dr Sharma says that he only signed the minutes as a record of what was discussed, and not because he was agreeing to what was in the minutes. Yet the minutes themselves record, in the relevant part, that “both partners agreed to the above conditions”, so the distinction between agreeing the minutes as minutes, and agreeing the conditions recorded in the minutes, is a distinction without a difference.

The effect of the 7th June minutes

[130]The real question is whether the conditions recorded in the minutes were intended to be legally binding. In my judgment, they were not. The minutes, as well as recording the agreement to the conditions, contemplate an exchange of contracts. This ties in with Dr Saikia’s notes on the draft agreement dated the previous day. That agreement was itself available for signature, with appropriate amendments, if the parties wished to be immediately and unconditionally bound. It was not signed, however. These are indications that the parties did not intend to be bound prior to legal documentation giving effect to the minutes.

[131]As it happens, an exchange of contracts never did occur, but the parties’ expressed understanding of 7th June was that one was needed. Moreover, solicitors were instructed by both the Bhallas and the Sharmas, and legal documentation was subsequently brought into effect, which bound the parties as far as it went. Unfortunately, that legal documentation did not deal expressly with the £40,000 so-called dividends paid but not then declared. Had a proper contract been drawn up dealing with the totality of the arrangements between the parties, many of the disputes that have subsequently been the subject of litigation, including the dispute in this case regarding the £40,000 dividend, and the dispute in the arbitration concerning rent (a point alluded to by Dr Sharma in his email of 27th May 2001) could have been averted. I can therefore understand why the parties considered on 7th June an exchange of contracts to be necessary and desirable. It is regrettable that the documentation the parties came to execute did not expressly deal with all outstanding issues.

[132]Moreover, as the 6th June draft recognised, Mrs Bhalla would be a necessary party to any agreement. She would also have to be a party to any transfer of the Farlam shares. However, she was not at the meeting of 7th June, nor does anything in those minutes purport to bind her. All point 7 records is that Dr Bhalla would request her to transfer 20% of her “Pharmacy profit” (which I consider to be a clear reference in context to the Farlam shares). Whether she would agree to do so was not known for certain, though it was regarded as likely.

[133]In the event, a Declaration of Trust was executed by Mrs Bhalla later, on 26th July, but there is nothing in the conditions of the 7th June minutes providing for a declaration of trust. The reference to “transfer” more naturally suggests the common form of share transfer effecting (subject to registration) a transfer of the legal estate. The declaration of trust route appears to have been adopted as a result of legal advice which the Bhallas took from Rokesh Bhalla. This seems to me to support the conclusion that the parties did not intend to be bound until execution of the documentation needed to give effect to the minutes.

[134]There was an obvious need for legal advice, as the proposed transfer needed to be considered in the light of Farlam’s articles and the Shareholders’ Agreement. Further, the Declaration of Trust (as will be seen) embodied an express indemnity, and was made expressly subject to the Shareholders’ Agreement. Neither of these provisions was part of the 7th June minutes.

[135]In addition, there were other matters in the conditions requiring further negotiation or legal input. Point 2 referred to “appropriate interest” but not to the rate or period. Point 3 referred to a need to stabilise and for democratic dispute resolution. The condition was hardly expressed with the certainty and precision one would expect of a contractual condition and would require refined drafting, unless it was no more than a statement of hope. Point 4 merely expressed what Dr Bhalla would like in relation to Carlton Avenue. It was not the language of commitment. The fulfilment of his wishes required further negotiation, and possibly legal advice.

Were the minutes implemented?

[136]It is also material to look at what happened subsequently. Later events are not admissible to construe an agreement, but may be of evidential materiality on the issue of whether there ever was a final concluded agreement in the first place.

[137]Dr Sharma’s solicitors (Faber & Co) wrote to Dr Bhalla with regard to the bringing into effect of the 7th June minutes on 26th June 2001. It appears from that letter that Dr Bhalla was reluctant to deal with the transfer of the Trafalgar Road premises and the Farlam shares until a deed of variation to the existing partnership agreement had been signed (which was needed to deal with Dr Saikia’s becoming a partner). This was said to be unacceptable to Dr Sharma, though he was willing to sign a Variation Deed immediately upon completion of the transfer of land and shares.

[138]The need for a variation of the contract with Dr Saikia (which would also entail a variation of the partnership) was recognised in the minutes of 7th June, though not as one of the conditions of the resolution of the dispute between Drs Bhalla and Sharma. The precise variation was not determined by the earlier minutes. This was another reason for requiring further negotiation and legal input. Moreover, if as the Bhallas now contend the earlier conditions had contractual force, Dr Bhalla was acting in breach by treating this element as an additional condition. In the events which happened, the Variation Deed was executed on 26th July 2001 along with the Transfer of the Trafalgar Road premises and the Declaration of Trust in relation to the Farlam shares.

[139]The same letter (of 26th June 2001) also recorded Dr Sharma’s acceptance of £36,000 as the total sum payable under point 2 of the minutes. Thus, the interest issue was resolved, and this was the sum which was in the event paid on 26th July by Dr Sharma to Dr Bhalla. The point was raised again by Dr Bhalla in the partnership dispute. The arbitrator regarded the agreed sum of £36,000 as including adequate compensation for the loss of the use of the monies expended on the Trafalgar Road premises. The 7th June minutes did not, however, inhibit Dr Bhalla from asking for more, and the arbitrator did not rely on those minutes (nor apparently did Dr Sharma) as precluding the claim contractually.

[140]Although the interest issue was resolved, other conditions never were. Thus, nothing more was done to stabilise and democratise the partnership (point 3); though this was in reality never more than an expression of hope. It could however conceivably have been addressed (but was not) in the Variation Deed.

[141]In addition, Dr Bhalla never did have his name included on the Carlton Avenue title (point 4) and a claim by Dr Bhalla in the arbitration in relation to those premises was eventually withdrawn in return for an adjustment of the capital accounts and satisfaction of separate indebtedness. Though Dr Bhalla raised this claim in the arbitration, it does not appear from the documents I have seen to have been based on any asserted contractual effect of the 7th June minutes.

[142]Finally on the conditions, the doctors did not take out a loan to reimburse the £50,000 referred to in point 5. This was the improvement grant, and it came to be treated as drawings. Additionally, £7,000 was paid to Dr Sharma by Mrs Bhalla on 26th July 2001 (without interest) as the balance due from her in respect of this £50,000, as presaged in the earlier minutes of 7th March 2001 and repeated in Dr Sharma’s email of May 27th 2001. This £7,000 was picked up on 26th July 2001, but was not picked up in the minutes of 7th June. This underlines the need that the parties apparently perceived on 7th June for further reflection and legal input. It is no answer to this point to say that it was unnecessary to refer to the £7,000 as it was already dealt with in the 7th March minutes. The same can be said of the £31,500 plus interest, but this was referred to in both sets of minutes. Moreover, no-one has suggested that the earlier minutes had contractual effect.

[143]The fact that a number of the so-called conditions were not put into effect is an indication that they were not, as a set of conditions, intended to have legal force.

The July discussions

[144]In addition, discussions relating to the dividends and other matters were resumed between Dr Sharma and Dr Bhalla. These took place between 9th and 11th July 2001. No concluded agreement was then reached, and the draft that was produced, after Dr Bhalla consulted Rokesh Bhalla, provided that the agreement (had it ever been executed) would contain a clause expressing that agreement to be “a declaration of intent by both parties and subject to the formal approval of legal documents to the parties intentions”.

[145]Dr Sharma’s initial position in these negotiations (which are recorded in notes Dr Sharma made at the time) was to ask for the next £40,000 Farlam dividends so as to equalise matters. He was not met by the riposte that the matter was already concluded by the 7th June minutes, which this proposal flatly contradicted. On the contrary, Dr Bhalla was still adopting the position (which he continued to do thereafter) that the matter could not be concluded unless the Variation Deed was also completed. After discussing Dr Sharma’s proposal with Mrs Bhalla, Dr Bhalla came back and a counter-proposal emerged that would have resulted in the next £30,000 dividends being paid to Mrs Sharma, with equal division thereafter. It was this counter-proposal which found its way into the draft agreement embodying the declaration of intent.

[146]This draft agreement contemplated its execution first, followed by completion in the form of a declaration of trust (of the shares) and a transfer (of the Trafalgar Road premises) within 14 days. As well as dealing with the dividend issue in the way I have indicated, it embodied (subject to the declaration of intent) obligations in relation to both the shares and the Trafalgar Road premises, the extinction of the outstanding loan to Mrs Bhalla shown in the partnership accounts, the retention of the £32,000 “deposit”, and the payment of the £36,000. All of these matters were dealt with in the minutes of 7th June 2001, though the interest element within the £36,000 had not then been determined. In addition, it dealt with pharmacy rent and the £7,000 (owing in respect of the improvement grant), which were not mentioned in the 7th June minutes.

[147]The draft agreement also provided for a deed of variation “accommodating Dr Das’s increase in salary and Dr Saikia’s appointment either as a salaried partner through GMS or through the PMS”. In the events which happened, Dr Saikia became a full equity partner (a point commented upon by Dr Sharma later in his letter of 30th October 2001). However, as at 7th June 2001, the precise variation was still open to negotiation and discussion, and was not resolved until 26th July 2001.

[148]Although the draft agreement was never executed, the process of its negotiation, coupled with the embodiment of a declaration of intent, is another indication that the minutes of 7th June (which covered much of the same ground) were not meant to be contractually binding.

[149]The Bhallas both say that as far as they were concerned, they had an agreement, recorded in the minutes of 7th June 2001, and the failure to reach a finally concluded agreement on different terms means that those minutes remained contractually binding. The draft agreement was, in effect, on this approach, an attempt to negotiate a variation of the existing agreement, which failed.

[150]Had that been the true position, I would have expected Dr Bhalla to have made the point in the negotiations that the conditions recorded in the minutes were binding, but he did not take that stance, though he asserted in evidence that that was his understanding of the position. He did not even show the 7th June minutes to Rokesh Bhalla, who was advising him. His present case is also not readily reconcilable with his refusal to give effect to the conditions in advance of the Variation Deed. If Dr Bhalla regarded the conditions in the June 7th minutes as binding, he should have carried them into effect irrespective of whether the Variation Deed could be agreed.

Mrs Bhalla’s position

[151]So far as Mrs Bhalla is concerned, she was the shareholder affected by point 7 of the June 7th minutes. There is no evidence from which I can infer or construct any process of offer and acceptance between herself and Dr Sharma (or between herself and Mrs Sharma) by which they became bound between them on the terms of the 7th June minutes. It is not suggested that Dr Bhalla was acting as her agent in relation to the Farlam shares on 7th June, and she was not there. By the date of the Declaration of Trust, Drs Bhalla and Sharma had, to her knowledge, been negotiating terms different from those set out in the June 7th minutes. Although those negotiations did not bear fruit, as Dr Bhalla apparently continued to refuse to sign or ask Mrs Bhalla to sign any agreement until the Variation Deed was completed, the negotiations were by then being conducted on a different basis, and not on the basis that the 7th June minutes were final and binding. I cannot therefore regard Mrs Bhalla’s execution of the Declaration of Trust as an acceptance by her of the terms of the 7th June minutes. Nor can I find from Dr Sharma’s conduct any continuing intention, representation or understanding that he was proceeding on the basis of the 7th June minutes. He was proceeding on the basis that the shares were his, though he would (in effect) have been prepared to forego £10,000 of the first dividend of £40,000 had the draft agreement he negotiated with Dr Bhalla been signed and carried into effect. Similar comments apply to Mrs Sharma, who was kept fully informed of the state of the negotiations by Dr Sharma.

The Declaration of Trust dated 26th July 2001

[152]The Declaration of Trust executed by Mrs Bhalla on 26th July 2001 is in the following terms:

“I hereby acknowledge and declare that I hold …[20% of the Farlam shares]… as Nominee and Trustee for [Mrs Sharma] … and I undertake and agree not to transfer deal of or dispose of the said shares save as [Mrs Sharma] may from time to time direct and that I shall hold all dividends or other benefits including shares or other securities issued in lieu of dividends in trust for [Mrs Sharma] and that I shall use my voting rights attached to the said shares or additional shares or securities as aforesaid as directed by [Mrs Sharma]. I will at the request and cost of [Mrs Sharma] transfer the shares or securities aforesaid to such person or persons at such time or times in all such manner or otherwise deal with the same as [Mrs Sharma] shall direct or appoint subject to the provisions of the Shareholders Agreement between myself and [Mr Uppal] and an indemnity for any reasonable costs or expenses incurred by me in carrying out any such request or direction. Subject to the provisions of the Shareholders Agreement between myself and [Mr Uppal] [Mrs Sharma] shall be entitled to receive gross any dividends/profits received thereon.”

Recognition of existing trust

[153]Mr Stockill makes the point that the Declaration of Trust takes the form of an acknowledgment. It is not, he says, declaring a new trust, but recognising an existing one. Mrs Bhalla was not selling the shares. There was no consideration and the Declaration bears a fixed, not an ad valorem, stamp, which would be the appropriate course were there a sale. The Declaration of Trust is professionally drawn, following legal advice from Rokesh Bhalla on Mrs Bhalla’s part. Moreover, Mrs Bhalla has made full disclosure of all relevant entries in her tax returns. Had she been disposing of her own shares, that would have been a disposal for capital gains tax purposes, and tax would have been chargeable on any gain calculated by reference to the value of the shares disposed of (which were clearly worth considerably more than the subscription price of £20). Mrs Bhalla did not however in her tax return treat the Declaration of Trust as a capital gains tax disposal.

[154]In those circumstances, it seems clear to me that the Declaration of Trust was executed on the basis that there was indeed an existing trust or nominee relationship.

The £20,000 dividend payment

[155]The Declaration of Trust (executed as a deed poll with a £5 stamp) was handed over to Dr Sharma on the date it bears together with a cheque from Mrs Bhalla made payable to Mrs Sharma for £20,000. The meeting at which this was done appears, so far as Dr Sharma is concerned, to have been called on short notice. A number of other matters were dealt with on the same day, which I have summarised earlier. I heard evidence about the meeting at which all this was done, but no reliable evidence from anyone about what explanation was given about the £20,000, other than it being a dividend cheque.

[156]Dr Sharma says that he was told at this meeting by Mrs Bhalla that the £20,000 was his “first dividends” but without specifying for what accounting period. Both the Bhallas claim to recall references being made at this meeting to the 7th June minutes, but neither of them says that the dividend payment was explained by reference to those minutes. I am not persuaded that the parties agreed, or that the Bhallas stated, that the Declaration of Trust was executed, or the £20,000 cheque handed over, on the terms of the 7th June minutes.

[157]The Bhallas both say that the £20,000 was a payment on account of dividends in respect of the second year of trading (2000). However, they did not say this at the meeting when the cheque was handed over. Farlam’s accounting year coincides with the calendar year. No dividend at all had in fact been declared by 26th July 2001. The £40,000 previously paid to Mrs Bhalla related to 1999, but that had not been declared either. It was however known about. £20,000 was also paid by Farlam to Mrs Bhalla on 13th July 2001, presumably to enable Mrs Bhalla to make the payment of £20,000 to Mrs Sharma on 26th July 2001.

[158]Dr Sharma contends before me that the £20,000 cheque given to him for Mrs Sharma on 26th July 2001 was an accounting for half of the £40,000 in respect of the first year’s trading (1999). However, nothing to that effect was stated when the cheque was handed over. Dr Sharma did not seek clarification, and the Bhallas did not give it.

[159]Mrs Sharma, for her part, was surprised to receive the cheque when Dr Sharma returned home. She obviously did not know that Mrs Bhalla had drawn down £20,000 from Farlam for that purpose, for she would not have been surprised had she known that. Nor is there any evidence that Dr Sharma knew this. It was not suggested by anyone that he did. Clearly, the £20,000 could have been a payment in respect of the first dividends and, from the objective standpoint of someone knowing of the trust relationship and the £40,000 dividend previously paid, that is (in the absence of a clearly proven agreement to the contrary) how it would be seen.

[160]The Sharmas both say that, at Mrs Sharma’s urging, Dr Sharma returned to see the Bhallas to get the draft agreement signed (this is the draft referred to in paragraphs 144-148 above). I do have serious reservations about this evidence, which was denied by the Bhallas. That draft agreement was intended to be executed 14 days in advance of completion and was no longer of any obvious use, as completion had occurred, though it did refer to the need for £30,000 in dividends to be paid to Mrs Sharma. Moreover, supporting evidence was not led by the Sharmas on this point from Mr Malhi, who attended the meeting with Dr Sharma. He was called by the Sharmas as a witness, and is also said to have gone back with Dr Sharma to see the Bhallas on 26th July 2001, but was not asked to confirm this fact. In those circumstances, I do not accept the Sharmas’ evidence on this point. I am prepared to accept that Mrs Sharma had previously been keen to get the draft agreement executed, but do not accept that this was her reaction to the completion of the transaction on 26th July 2001. Dr Bhalla had refused to sign any agreement in advance of the Variation Deed, and I believe that the Sharmas had given up on the point, which had fizzled out the best part of 2 weeks previously. I should add that Mrs Sharma’s subsequent letter of 7th May 2003 does not support her version of events, and I was unpersuaded by her explanation that this letter was badly worded.

[161]I find that the £20,000 was paid as (or on account of) a dividend, still to be declared, but without specifying the accounting period to which the payment related. The Bhallas may well have thought and hoped that the £20,000 would be taken as paid on the basis of the 7th June minutes, but they did not spell this out. Dr Sharma for his part may well have thought and hoped that the £20,000 would be taken as paid in relation to the first year of trading but that was not spelt out either. In fact, the parties were at cross-purposes. I find as a fact that there was no consensus on the point.

[162]That being so, Mrs Bhalla never became entitled to retain the whole of the first dividend of £40,000 as against Dr Sharma. As she held half of the shares for him as nominee and trustee from their issue, she became accountable for half of the first dividend of £40,000 i.e., £20,000.

[163]Much later (in her letter of 14th June 2003) Mrs Bhalla relied on an agreement of 6th June 2001 to make her claim good that she was entitled to retain the whole of the first dividend, but as I have already said, no agreement was signed on that date, and I have reservations whether this was (as she says it was) a mistaken reference to the minutes of 7th June 2001. Assuming that it was, it makes no difference to my conclusions. What the parties were saying in June 2003 is too far from July 2001 to be of any real weight. The same can be said of an acrimonious meeting held at the White Swan Pub on 12th May 2003 to consider Mrs Sharma’s letter to Mrs Bhalla dated 7th May 2003, in which Mrs Sharma asked for further dividends to enable her to catch up before splitting the dividends fifty-fifty.

[164]I do not consider what the parties were saying at this juncture to be of any real help on the question of what if anything had been agreed nearly 2 years earlier. It appears that at the White Swan Pub meeting (for which Mrs Sharma produced a contemporaneous note which I accept as broadly accurate) Dr Sharma had produced his notes of the discussions of 9th and 10th July 2001 and was claiming to have agreed to be entitled to the next £30,000 dividends. I have already held that those discussions did not result in a binding agreement. Mrs Bhalla in turn asserted her entitlement to the “first lot of dividends” producing what was described in the contemporaneous note as her own version of an earlier suggestion by Dr Bhalla. I do not think this can have been a reference to the minutes of 7th June, but it is fair to say that Mrs Bhalla’s case has, since then, been consistent on the point that she is entitled to retain the whole of the first dividend. Mr Stockill’s complaint is not, however, one of inconsistency. His case, put simply, is that Mrs Bhalla has been consistently wrong. It is also right that Dr Sharma did initially go along with the suggestion that Mrs Bhalla should retain the £40,000 dividend for her own account, but this never matured into a binding agreement.

[165]Mr Moraes placed reliance on the absence of any claim for unpaid dividends until May 2003 as in some way demonstrating that the present claim for a share of the first dividend is not genuine. I do not accept this point. Further dividends were paid by Farlam to Mrs Bhalla, after the Declaration of Trust of 26th July 2001, on 4th February 2002, 8th May 2002, 2nd August 2002, 23rd October 2002 and 3rd April 2003. On any footing, Mrs Bhalla was and remains, as is not disputed, accountable for a substantial part of those dividends. Still no part of them has been paid over. I place no weight on the absence of any earlier demand from the Sharmas. They were clearly expecting, and indeed entitled to, further dividends, which Mrs Bhalla has failed to pay.

Mrs Sharma a nominee for Dr Sharma

[166]On the evidence I have already considered, Mrs Bhalla had before 26th July 2001 been a trustee or nominee for Dr Sharma. Under the Declaration of Trust, she ostensibly became a trustee for Mrs Sharma. However, I have in paragraphs 119 and 120 identified matters indicating that Mrs Sharma in turn was to act as a nominee for Dr Sharma. This is confirmed by the minutes of 7th June, which provide for the Farlam shares to be transferred “to Dr Sharma in his wife’s name”. Though not having contractual force, those minutes are clear evidence of the intention behind introducing Mrs Sharma into the transaction. I find that the intention did not change and that Mrs Sharma’s interest under the Declaration of Trust is as nominee for Dr Sharma. There was accordingly no change in ultimate beneficial ownership.

Do the 7th June minutes contradict the existence of a trust at that date?

[167]Mr Moraes argues that the terms of the 7th June minutes are inconsistent with the conclusion that Mrs Bhalla had hitherto been a nominee for Dr Sharma. He relies especially on the references to “the investment she had made” and “her equity” in point 7. However, the context of these references is to recognise Mrs Bhalla’s right to retain the £40,000 and the £32,000, a point that would, it might be said, not need to be spelt out if the investment was made by her beneficially rather than as nominee. Moreover, point 5 of the same minutes refers to the 2 doctors taking out a fresh loan “against their Pharmacy business” which is inconsistent with beneficial ownership on Mrs Bhalla’s part. It seems to me therefore that the 7th June minutes are, so far as Mr Moraes is concerned, at best double-edged.

Consideration and fair dealing

[168]I would add that I do not think that any consideration moved from Mrs Bhalla in return for what she alleges was the agreement that she should retain the whole of the £40,000 first dividend In executing the Declaration of Trust at Dr Sharma’s direction, she was doing no more than what she was bound to do as a nominee. She knew she was no more than a nominee, and had no claim to retain the dividends previously paid. She cannot have thought that she had such a claim. Had I considered, therefore, that Mrs Bhalla was otherwise entitled to rely on the 7th June minutes, I would hold that the resulting agreement was unsupported by consideration.

[169]Even if the necessary agreement, supported by some notional consideration, could be spelt out of the transaction, I doubt whether that would make any difference, as transactions between trustee and beneficiary are subject to the fair dealing rule. The onus is upon the trustee to establish their fairness, which Mrs Bhalla has not done. I can see no justification for her retaining Dr Sharma’s dividend in the absence of a genuine claim that the 20 shares were hers beneficially. However, I need reach no final view on this point, as the matter was not argued by reference to the fair dealing rule, and I have found that there was no agreement in fact.

Brief summary of findings to this point

[170]Just so that there is no doubt about it, the inference I draw is that Mrs Bhalla became a shareholder of Farlam upon an express understanding and agreement that she was acting as regards half the shares she subscribed for as nominee and trustee for Dr Sharma. Those shares were his. Financial matters between her and Dr Sharma would need resolving, but this did not detract from the fact that she was acting as nominee for Dr Sharma, and not in this respect for herself. The position may well have been (and probably was) the same for Dr Bhalla but nothing now turns on that, if it ever did.

[171]Mrs Bhalla continued to act as trustee after 26th July 2001, Dr Sharma remaining the ultimate beneficiary. I consider later on in this judgment the consequences of my findings as regards the dividend claims.

A pleading point

[172]In reaching the conclusions I have reached on the question of nomineeship, I have been troubled by the absence of any clearly pleaded case that Mrs Bhalla ever agreed to act as nominee.

[173]The Amended Particulars of Claim (“APoC”) start in the material part by pleading in paragraph 6 that in mid to late 1998, Dr Bhalla, Dr Sharma and Mr Uppal agreed to conduct a pharmacy business with Mr Uppal to hold a 60% interest and Drs Sharma and Bhalla or their nominees each to have a 20% interest.

[174]The reference to nominees was a reference (primarily) to Kerham.

[175]No allegation is there made about Mrs Bhalla. The pleading is broadly accurate thus far, because the original discussions were all between those 3 individuals, not Mrs Bhalla.

[176]Paragraph 7 of the APoC then pleads that in late 1998, the 3 individuals (i.e., not including Mrs Bhalla) acquired Farlam as the vehicle for the pharmacy business and (omitting immaterial parts) caused 40% of the share capital of Farlam to be issued and registered in the name of Mrs Bhalla. This was attributed to the erroneous belief that a doctor could not hold an interest in a pharmacy.

[177]Paragraphs 8 of the APoC then pleads the Shareholders’ Agreement, said to have come about “in accordance with the matters set out in paragraphs 6 and 7 above”.

[178]Paragraph 9 then pleads:

“In accordance with the matters set out in paragraphs 6 and 7 above, at all material times, Mrs Bhalla held one half of her shareholding in Farlam … on trust for Dr Sharma or [which I take to be a mistake for ‘as’] his nominee. This trust was confirmed by the execution of a declaration of trust by Mrs Bhalla in favour of Mrs Sharma as Dr Sharma’s nominee on 26 July 2001 …”

[179]It will thus be seen that there is no express allegation that Mrs Bhalla ever agreed to act as nominee. However, I regard it as implicit in the allegation that Mrs Bhalla held half of her shares on trust, linked as they are to the words “in accordance with the matters set out in paragraphs 6 and 7 above” (which explain why the transaction did not take the form originally envisaged) that she was privy to and accepted her nominee status. This could have been by express agreement, or a common understanding.

[180]Moreover, paragraph 9 also relies on the confirmation of the trust by the later declaration, which expressly raises the question, which needed to be explored by evidence, as to whether or not Mrs Sharma in turn acted as Dr Sharma’s nominee, and whether the Declaration of Trust was properly to be regarded as an acknowledgement, as it appeared on its face to be. It seems to me that the form of the Declaration of Trust as an acknowledgement raised an evidential presumption of an existing trust relationship, thus throwing an onus on Mrs Bhalla to answer the case by pleading and evidence. I observe parenthetically that it was not argued before me that the Declaration of Trust gave rise to any sort of estoppel in this connection. Nor have I needed to rely on any presumption in reaching the conclusions I have reached, as I am satisfied that Dr Sharma has, irrespective of any presumption, proved his case on the balance of probabilities.

[181]The Re-Amended Defence in the last sentence of paragraph 7 pleads as follows:

“For the avoidance of doubt it is expressly denied that any trust or nominee arrangement as alleged or at all (express or otherwise) was in existence from the date of the shareholder agreement until the date of the declaration of trust.”

[182]The defence therefore puts in issue whether there was an “express” trust or nominee arrangement or whether such an arrangement arose “otherwise”, which would extend to a common understanding constructive trust. It was open to the Sharmas to take issue with that plea and lead evidence to establish the trust they now rely upon.

[183]The evidence was prepared on the basis that the issue of nomineeship was at large. What the parties agreed and understood was dealt with in the evidence and cross-examined upon at length. It is clear that Mrs Bhalla was not taken by surprise by the way the case was put.

[184]Mr Stockill (who inherited the pleading at a late stage) endeavoured to introduce a number of amendments, including amendments to the trust plea. I allowed some amendments, but not those relating to the trust plea. Nevertheless, in refusing permission to amend, I commented at the time that the existing plea was wide, and enabled (so far as I could see) Mr Stockill to rely on the evidence which he wished to rely on.

[185]I do consider that the pleading of this aspect of the case leaves a great deal to be desired. Nevertheless, no-one was taken by surprise, and the case would have been conducted no differently had the case been better pleaded. In those circumstances, it would not be right to allow the pleading point to prevail. The case that I find proved is in my judgment open to the Sharmas on the pleadings.

Pre-emption generally

[186]Logically, the next question I have to consider is whether the pre-emption provisions in the Shareholders’ Agreement have been triggered, and whether those provisions can now be enforced.

[187]The answer to this question may (depending upon whose arguments I accept) involve consideration of the extent of Mr Uppal’s knowledge of the nominee arrangements, and of the declaration of trust. There are also questions of waiver and estoppel. I shall therefore consider these issues at the same time, and shall first consider (I regret at considerable length) the factual history concerning Mr Uppal’s knowledge and the attempts made by the Sharmas to have the shares registered in the name of one or other of them.

Mr Uppal’s knowledge

[188]I find that Mr Uppal knew of the nominee arrangements from the outset. I accept Dr Sharma’s evidence that Mr Uppal offered initially to act as his nominee. Both the Sharmas gave evidence (which I accept) to the effect that Mr Uppal reminded Dr Sharma of this in the negotiations leading up to the July 26th 2001 Declaration of Trust. Mrs Sharma remembers Mr Uppal being distressed by the dispute, and almost tearful. This was denied by Mr Uppal, but I prefer the Sharmas’ evidence on this point.

[189]As recorded in paragraph 93 above, Mr Uppal was present at discussions concerning the proposed payment of £16,000 and half of the dividend to Dr Sharma, and made the comments recorded at the end of that paragraph to the effect that Dr Sharma could have his say though Mrs Bhalla.

[190]Dr Sharma says he showed Mr Uppal a copy of the Declaration of Trust after it was executed. I accept this evidence (despite Mr Uppal’s denial). It seems likely that Dr Sharma would have wanted Mr Uppal to know of this arrangement. Indeed, Mr Uppal is likely to have known about the arrangement before the Declaration of Trust was executed. The pharmacy business and the surgery practice were part of the same Health Centre. Mr Uppal was in regular contact with the 2 doctors, as well as with Mrs Bhalla, his co-director. He is likely to have been told what was going on. Moreover, £20,000 was advanced by Farlam to Mrs Bhalla on 13th July 2001 to put her in funds to pay Mrs Sharma that amount on 26th July 2001 as a dividend payment. Mr Uppal as a director of Farlam must presumably have known about this. There is no suggestion that Mrs Bhalla misled him in some way as to the purpose of that payment.

[191]A copy of the Declaration of Trust was also sent to Farlam’s accountants under cover of a letter dated 31st October 2001 from Mrs Sharma. It seems inconceivable to me that the accountant (who was also Mr Uppal’s accountant) would not have drawn this letter to Mr Uppal’s attention, though Mr Uppal denies this. The letter raises issues which the accountant needed to take instructions on. The accountant was not called to support Mr Uppal’s denial, which I do not accept.

[192]Mrs Sharma also says (and I accept) that she telephoned the accountant about 14 days later who told her that Mr Uppal did not want to acknowledge her letter, as it would recognise her shareholding.

[193]The Sharmas also gave evidence (which I accept) that the Farlam AGM convened for 26th November 2001 did not go ahead as Mr Uppal telephoned at the last minute to say he could not attend. He explained to Dr Sharma the next day that he had been advised not to attend as he would otherwise be formally recognising the Sharmas’ shareholding. Clearly, whatever his formal stance, he knew all about that shareholding.

[194]In accepting the Sharmas’ evidence on these points, I have on a number of occasions rejected Mr Uppal’s denials. Mr Uppal, like the Bhallas, had a tendency positively to deny that meetings took place when the explanation might simply have been that he had no recollection of the particular meetings. Moreover, Mr Uppal on a number of occasions looked decidedly uncomfortable when making those denials. I was left under the impression that he gave evidence which he regarded as convenient and helpful without careful consideration of whether or not it was true.

[195]At one point in his evidence, Dr Uppal tried to persuade me that Dr Sharma, as he put it, “likes to create meetings out of thin air”. I do not accept this criticism of Dr Sharma. I have, for the reasons I have given, been cautious about accepting every detail relayed to me by Dr Sharma of meetings occurring several years ago. He did have mistaken recollections, sometimes quite serious ones, but I do not think he was making meetings up. Moreover, Mr Uppal’s criticism of Dr Sharma creating meetings out of thin air looked more like a point on semantics when he added that when you see Dr Sharma, he regards it as a meeting. Whatever else might be said about describing such an encounter as a meeting, it can hardly be said to be created out of thin air.

[196]The tendency on Mr Uppal’s part to deny things which could not plausibly be denied spilled over into conversations with others and even some letters. I shall mention the instances of this later in the narrative.

Proposed transfer to Mrs Sharma and claims for an account

[197]I shall now deal with the events starting in early 2004 concerning the Sharmas’ attempts to obtain a share transfer and account of dividends.

[198]By a letter dated 16th February 2004, the Sharmas’ solicitors (Anthony Collins) called upon Mrs Bhalla to execute a share transfer in Mrs Sharma’s favour in respect of the 20 Farlam shares held on trust and also sought an account of dividends received since 1st February 1999. It will be noted that the request for an account of dividends was not limited to the period during which the July 2001 Declaration of Trust had been in force, but went back to the inception of the Farlam business.

[199]Also in February 2004, the partnership was dissolved and initial steps were taken to appoint the arbitrator. It is important when reading the correspondence to have in mind the unfortunate background of a hotly contested partnership dispute. There were also some delays on the Sharmas’ side. Even when making all allowances for these factors, the correspondence is notable for the cavalier approach of Mrs Bhalla towards her duties as trustee. The strong impression I get from the correspondence as a whole is that Mrs Bhalla was concerned to put every obstacle in the way of the Sharmas. Her explanation in the witness box was that she just wanted things done correctly in the light of the Shareholders’ Agreement to which she was a party. I am unable to accept that explanation. I find that she was being deliberately obstructive both in relation to her obligation to account for dividends which had been declared and (in some cases) paid to her, and in relation to the share transfer.

[200]By February 2004, Mrs Bhalla had received £84,000 in dividends in respect of Farlam’s 2nd and 3rd years of trading (2000 and 2001). This was in addition to the £40,000 she had received in respect of the 1st year (1999). I am prepared to assume that, at this stage, Mrs Bhalla genuinely believed that she was entitled to retain the whole of the first year’s dividend. Nevertheless, she undoubtedly knew that she was accountable for half of the additional £84,000 she had received, but had (as she saw matters) accounted for only £20,000. The last of the payments making up the £84,000 was paid to her on 3rd April 2003. She readily accepted in her evidence before me that she owes at least £22,000, yet even today that sum remains unpaid.

[201]Mrs Bhalla referred the matter to her solicitors (Charles & Co). On 24th March 2004, they replied. The letter was headed “Re: Shares in Farlam Limited”. They dealt with the issues under the headings “Dr Sharma” and “Mrs J Sharma” respectively.

[202]In the Mrs Sharma section, they asked amongst other things for a certified copy of the Deed of Trust dated 25th (sic) July 2001, noted that there was a shareholders’ agreement, and looked forward to receiving an undertaking for their costs in the sum of £350 plus VAT whether or not the transfer actually occurred, whereupon they would advise Mrs Bhalla further in relation to the matter. The request for an account of dividends received no answer, even in respect of the period for which Mrs Bhalla now acknowledges that she is accountable. On one reading of the letter, the dividend issue would, like the share transfer issue, be the subject of the further advice which Mrs Sharma was to pay for. This was, as will be seen, apparently confirmed by Charles & Co’s later references to escalating costs when the Sharmas continued to press for the account of dividends back to February 1999.

[203]Mrs Bhalla had the benefit of an express indemnity in the Declaration of Trust. It is not at all clear that she was entitled to a solicitor’s undertaking as well. Moreover, the indemnity did not relate to dealing with matters of accounting pre-dating the Declaration of Trust, or (for that matter) for dealing with the consequences of Mrs Bhalla’s continuing failure to account for dividends pursuant to the Declaration of Trust itself.

[204]I am prepared however to assume that the original demand for £350 plus VAT was intended to be limited to the costs incurred in relation to the share transfer, and was reasonable in amount. Unfortunately, the demands kept on increasing, and further undertakings were sought and given, albeit under protest. Thus, the APoC assert that a total of £4,132.50 was paid in respect of solicitors’ undertakings. Yet no share transfer was ever executed. As it happens, the sum of £4.132.50 is, as will be seen, overstated by £1,175. The true figure is thus £2,957.50, which includes VAT. Even so, the costs incurred were in my judgment a disproportionate response to a simple request for a share transfer. The position is made worse by the fact that the share transfer did not happen. I emphasise that the £2,957.50 represents Charles & Co’s costs alone. In addition, the Sharmas incurred their own legal costs. Moreover, there was a further Charles & Co invoice in June 2006 of £840 plus VAT, which does not appear to have been pursued against the Sharmas or their solicitors.

[205]There was delay on the Sharmas’ side in replying substantively to the letter of 24th March 2004, despite pithy reminders from Charles & Co dated 5th and 14th May 2004.

[206]Mrs Bhalla did not entirely overlook the dividend issue, as on 20th May 2004, Farlam paid her another £12,000 on account of the dividend subsequently declared in respect of the 4th year’s trading (2002). She did not however account to the Sharmas for any part of this amount, or any other outstanding dividend payments for which she remained accountable.

[207]Eventually, a certified copy of the Declaration of Trust dated 26th July 2001 was sent to Charles & Co by Anthony Collins on 21st May 2004, in a lengthy letter dealing with the partnership and other disputes. The same letter also asked for a copy of the Shareholders’ Agreement before Anthony Collins would agree to undertake to pay the requested sum in costs, as Mrs Sharma considered that this agreement might prevent the transfer.

[208]At the end of the letter, Anthony Collins suggested that all matters in dispute be determined by the arbitrator, including issues relating to the Farlam shares.

[209]I infer that it was the request for an undertaking to pay the costs irrespective of whether the transfer occurred, and the preparation of the lengthy summary of all disputed matters, which was responsible for the delay.

[210]By a letter dated 17th June 2004, Charles & Co, seemingly overlooking the letter of 21st May 2004, presumed that Anthony Collins’ clients were withdrawing from the position set out in the letter of 16th February 2004. By a separate letter of the same date, Charles & Co opposed “any attempt to confuse this with the partnership dispute”.

[211]By their letter dated 21st June 2004, Anthony Collins pointed out that they had answered the letter of 24th March in their letter of 21st May 2004, and continued to suggest that all matters should be dealt with in the arbitration.

[212]A further certified copy of the Declaration of Trust of 26th July 2001 was sent to Charles & Co by Anthony Collins on 22nd July 2004. Anthony Collins also asked whether Charles & Co’s client had a copy of the Declaration of Trust referred to in Rokesh Bhalla’s letter of 2nd August 1999 (which was not in fact executed) and asked again for a copy of the Shareholders’ Agreement before agreeing to undertake to pay legal costs.

[213]By their reply dated 29th July 2004, Charles & Co, after noting the Declaration of Trust of 26th July 2001, pointed out that the earlier declaration of trust was unexecuted, inviting proceedings by Dr Sharma if he maintained his position.

[214]As regards the request for a copy of the Shareholders’ Agreement, Charles & Co promised a copy “just as soon as we are [in] receipt of your undertaking in relation to our costs”. They claimed that the Sharmas’ attempts to rewrite history were escalating costs and reserved the right to review the original estimate.

[215]The escalation of costs attributed to a rewriting of history was apparently a reference to taking instructions about and recording Mrs Bhalla’s instructions concerning the previous unexecuted share transfer. This can not have been very arduous, but was in any event unrelated to the indemnity in the Declaration of Trust dated 26th July 2001.

Mr Uppal’s first written consent

[216]On 21st or 24th August 2004 (or possibly both) Anthony Collins for the Sharmas wrote to Mr Uppal enclosing a copy of the Declaration of Trust, describing Mrs Bhalla as “a nominee director” and asking for confirmation that he had no objection to a transfer to Mrs Sharma pursuant to the Trust Deed. A copy of the Stock Transfer Form previously sent to Mrs Bhalla was also enclosed.

[217]Mr Uppal replied on 1st October 2004, saying:

“I am writing in response to your recent letter … I have no objection to [Mrs Bhalla] transferring her shares as she pleases”

. I am satisfied that in writing this letter he intended to waive his pre-emption rights under the Shareholders’ Agreement, of which he was aware as a party. He was clearly waiving any rights he already had arising out of the existing Declaration of Trust, as well as any rights he might have arising from the proposed transfer. At no stage in his evidence did he suggest that he acted in ignorance of any of his rights. On the contrary, when asked why he did not invoke the Shareholders’ Agreement, he said that he wanted to keep Dr Sharma happy and therefore gave his consent. He claimed not to know what happened thereafter.

[218]There was a period of some 5 weeks between the letter seeking Mr Uppal’s consent and his reply of 1st October 2004. Mr Uppal’s explanation was that he spoke to Mrs Bhalla during this period to express his surprise (he claimed not to have known of the nominee shareholding previously) and obtain her confirmation. He was also (he claims) approached by Dr Sharma who threatened to divert pharmacy prescriptions elsewhere if Mr Uppal did not comply.

[219]I do not accept these explanations. Whilst Mr Uppal (who knew the doctors were in dispute) is likely to have wanted to know whether or not Mrs Bhalla objected, I do not think he can have been surprised at what the letter from Anthony Collins revealed. I notice he did not express any surprise to Anthony Collins in his reply.

[220]I have moreover already found that Mr Uppal knew of the nominee shareholding.

[221]I am prepared to accept that, when no reply to the Anthony Collins letter was forthcoming, Dr Sharma is likely to have approached Mr Uppal to find out whether there was a problem and, if so, what it was. I do not however accept that Dr Sharma made the alleged threats. This is an example of Mr Uppal attempting to muddy the waters. Nor did Mr Uppal convincingly explain a delay of as much as 5 weeks, so I must look for some other explanation.

[222]Mr Uppal knew (he told me) that there had been problems in the surgery practice from around March 2004. He tried to keep well out of that dispute. He would I think have seen this as another area of potential dispute which could get him involved. That is why I have accepted that he would probably have asked Mrs Bhalla whether she objected. I believe she would have made known her reluctance to transfer the shares, given the dispute between the 2 doctors, and her own obstructive behaviour which I am now considering. Mr Uppal would have known this once he spoke to her (if he did not know it already) as Mrs Bhalla is not the sort of lady who would conceal her views from Mr Uppal. He was also busy dealing with the pharmacy business and the share transfer was not of the first importance to him. I expect he put the request to one side and got on with his business and life, perhaps hoping that the share problem would resolve itself along with the other disputes between the 2 doctors without further involvement from him. When subsequently he was pressed by Dr Sharma, he wrote the letter of 1st October, which allowed Mrs Bhalla to transfer the shares “as she pleases”.

Continuing attempts to progress the transfer and account

[223]On 25th October 2004, Anthony Collins answered Charles & Co’s letter of 29th July 2004. They noted the position as regards what they described as “the declaration of trust made on behalf of Dr Sharma” (the unexecuted one) and said they were currently taking instructions on issuing proceedings. It should perhaps be pointed out that the suggestion of proceedings at this stage related to Dr Sharma’s position prior to the 26th July 2001 Declaration of Trust, and not to compliance with that Declaration of Trust itself.

[224]The rest of the letter dealt with the transfer of shares to Mrs Sharma and the outstanding request for an account of dividends. A further dividend had been declared on 20th October 2005, but this was not known to the Sharmas and Mrs Bhalla ignored the outstanding request. Anthony Collins did however give the previously requested solicitor’s undertaking in the sum of £350 plus VAT. Reference was also made in the same letter to the Shareholders’ Agreement (which Anthony Collins had by then seen) and to Mr Uppal’s written consent, a copy of which was said to be enclosed.

[225]A further copy of Mr Uppal’s written consent was sent to Charles & Co on 18th November 2004.

[226]On 24th November 2004, Charles & Co sent a letter to Mr Uppal, asking him to confirm that he had consented, reminding him also of his rights under the Shareholders’ Agreement and suggesting he take independent advice. Mr Uppal did not take independent advice at this stage. In fact, he did nothing more until much later, but he did not withdraw his existing consent either.

[227]Also on 24th November 2004, Charles & Co sought from Anthony Collins an increase in the solicitor’s undertaking from £350 to £525 plus VAT. In that letter, Charles & Co stated that they had not received a copy of the written consent from Mr Uppal, which is why they had written to him direct.

[228]On 1st December 2004, Anthony Collins sent to Charles & Co a cheque in the sum of £350 plus VAT, together with another copy of the letter of 1st October 2004 from Mr Uppal. An executed Stock Transfer Form was required by 3rd December 2004, failing which proceedings were threatened requiring the execution of the Stock Transfer Form.

[229]The same letter expressed measured disbelief at the costs increase. Despite the attempt that was made to answer that point, I share that sense of disbelief. In any event, Mrs Bhalla through her solicitors now had Mr Uppal’s consent and her duty was to act on it immediately. Instead, Charles & Co took the point (on 6th December 2004) that Mr Uppal’s letter of consent was not addressed to anyone. Why that mattered was not explained. What was clear however was that Mrs Bhalla was not going to act on that consent. This was confirmed by the penultimate paragraph, which was in the following terms:

“Once we have received a written confirmation to our letter from Mr Uppal and confirmation that your client will discharge all of our costs, we shall forward the duly executed Transfer to you.”

Though expressed positively, Mrs Bhalla was refusing to comply with her duty as trustee unless and until the 2 conditions (which she was not entitled to impose) were complied with. I assume that in this and all other respects Charles & Co acted in accordance with Mrs Bhalla’s instructions. She has not suggested otherwise.

[230]Mr Uppal’s existing consent was unambiguously emphatic. He must also have known, as the request came from solicitors, that the Sharmas would (as in fact they did) incur expenditure in the form of legal fees in acting, or endeavouring to act, on his consent. Had the share transfer been executed timeously, as it should have been, Mr Uppal could have had no complaint. This must have been obvious to Mrs Bhalla.

[231]On 8th December 2004, Anthony Collins forwarded to Charles & Co a copy of the letter they had sent to Mr Uppal asking for his consent (the copy they sent was dated 24th August 2004, though they mistakenly said in the letter to Charles & Co that they sent it on 20th August 2004). Mr Uppal, in his written consent of 1st October 2004, gave the Anthony Collins reference at the head of his letter: SRPG-S2188-24001. It is quite obvious, therefore, who the letter was addressed to, and what it was an answer to. Charles & Co were dealing with Anthony Collins under the same reference, so this must have been obvious to them, too. If it was not already obvious to Charles & Co, the letter of 24th August 2004 to Mr Uppal had the reference on it, so it became obvious by reading Mr Uppal’s reply who the letter must have been addressed to. Insofar, therefore, as the point in Charles & Co’s letter of 6th December 2004 (that Mr Uppal’s letter was not addressed to anyone) needed answering (which in truth it did not) this was the answer.

[232]By the same letter, Anthony Collins noted that Charles & Co had written to Mr Uppal and also noted the 2 conditions that I have set out from the letter of 6th December 2004 (above). They confirmed that Mrs Sharma would carry out her obligations set out in the declaration of trust and would discharge Mrs Bhalla’s reasonable costs in carrying out the transfer. They recorded that Charles & Co had to date received £350 plus VAT, but had also indicated the costs now to be £525 plus VAT. Anthony Collins’ suggestion “in order to avoid unnecessary costs” was that once Mr Uppal had given the requested confirmation, Charles & Co should write concerning Mrs Bhalla’s outstanding costs and that subject to those costs being paid Charles & Co would send Anthony Collins the duly executed transfer. They did not however offer a solictors’ undertaking.

[233]In one sense this concession on Anthony Collins’ part was unnecessary in the light of my finding that £350 plus VAT already paid was adequate. However, Charles & Co, despite the threat of proceedings, had made plain that they were holding out for more costs, and were awaiting a further consent from Mr Uppal. It made sense therefore for Anthony Collins to make the suggestion they did in order (as they said) to avoid the unnecessary costs of further proceedings over £175 plus VAT. As it happens, their suggestion was not accepted.

[234]On 17th December 2004, Charles & Co recorded their instructions from Mrs Bhalla that no share certificates had been issued, and asserted that the costs incurred in drafting minutes to rectify this would be chargeable to Mrs Sharma.

[235]Also on 17th December 2004 Anthony Collins asked Charles & Co to confirm by return whether they had received confirmation from Mr Uppal regarding the transfer of the shares. On 21st December 2004 Charles & Co replied that they had not received a response from Mr Uppal.

[236]The suggestion that Mrs Sharma should pay for the preparation of the necessary board minutes unsurprisingly met with Anthony Collins’ response (on 7th January 2005) that the costs were clearly the responsibility of Farlam. That response was undoubtedly correct. Mrs Bhalla’s untenable position was nonetheless maintained.

[237]As mentioned above, Charles & Co had not heard further from Mr Uppal by this stage, and they did not press him again until 3rd March 2005.

[238]I think however that Mr Uppal must have been in regular contact with Mrs Bhalla throughout this period, either as a co-director of Farlam or through Dr Bhalla, who attended the same Handsworth health centre as Mr Uppal every day. It is obvious to me that Mr Uppal was not (to put it at its most neutral) being encouraged by Mrs or Dr Bhalla to progress the matter. Nor do I think that Charles & Co’s letter of 24th November 2004 to Mr Uppal was meant to encourage him to consent. They could simply have asked Anthony Collins for the consent Anthony Collins had if they had not previously received a copy. They did not need to write to Mr Uppal on the point. They chose instead to remind him of the Shareholders’ Agreement, and suggested he took independent legal advice. Mr Uppal was and is a shrewd individual, who was well aware of the Shareholders’ Agreement. He did not need reminding of it and, having given his consent, he did not need sending off to lawyers. Mrs Bhalla knew this. The letter of 24th November seems to have been calculated to encourage Mr Uppal to give pause.

[239]I have already found that there was contact between Mr Uppal and Mrs Bhalla before the letter of 1st October 2004 was sent, and that Mr Uppal was aware that it was Mrs Bhalla who, in the context of the ongoing dispute between her husband and Dr Sharma, was reluctant to execute the Share Transfer. Despite this, he gave the consent in the terms in which he did. Mrs Bhalla must have known about it. He did not withdraw it. Mrs Bhalla must moreover have known from her contact with Mr Uppal that he had given his consent willingly, and in the light of the provisions of the Shareholders’ Agreement to which they were both parties.

[240]There is no doubt in my judgment that Mrs Bhalla was in breach of trust in failing to execute the share transfer within a day or two of 1st December 2004, if not before. Mr Uppal did not withdraw his previous consent nor was he threatening to do so. As a result of that breach of trust, the share transfer was never executed and the Sharmas’ solicitors gave undertakings which would otherwise have been avoided and which the Sharmas have met. They also incurred avoidable solicitors’ costs of their own.

[241]The indemnity which Mrs Bhalla had did not entitle her to seek for Charles & Co an open cheque from Mrs Sharma. Her entitlement was limited to “an indemnity for any reasonable costs or expenses incurred … in carrying out any such request or direction”. £350 plus VAT should have been more than enough for this purpose. The reason the costs were so much greater was the failure on Mrs Bhalla’s part to execute a share transfer timeously when required to do so, and to which Mr Uppal had consented.

[242]It follows that Mrs Bhalla is in principle liable to pay damages or compensation for the consequences of her breach of trust. I consider those consequences later.

[243]I now return to the narrative. On 24th January 2005, Charles & Co answered Anthony Collins’ letter of 7th January 2005. They continued to insist that the Declaration of Trust required Mrs Sharma to pay for the preparation of Farlam’s minutes and refused to limit their costs to £525 plus VAT. They chose not to address the point that the responsibility to issue share certificates (and any related minutes) was Farlam’s, concluding their letter with the observation that Anthony Collins should notify their client that each unit of time continued to be charged on an ongoing basis until such time as the transfer was effected.

[244]On 27th January 2004, Anthony Collins repeated the point that they did not see why their client should have to bear the costs of errors in the administration of Farlam. However, as the continuing correspondence was not cost effective and their client was effectively being held to ransom, they sought an estimate of the costs, whether or not this involved putting right the administration errors of Farlam.

[245]By their reply dated 8th February 2005, Charles & Co estimated their costs to be in the region of £1,000 plus VAT, on the basis that no objection was received from Mr Uppal or any protracted correspondence entered into with him.

[246]On 16th February 2005, Anthony Collins confirmed that Mrs Sharma was prepared to undertake to pay a further £1,000 plus VAT, pointing out that Mr Uppal had provided his approval on 1st October 2004. They did not however give a solicitors’ undertaking.

[247]Charles & Co claimed on 22nd February 2005 not to have received a copy of Mr Uppal’s letter of 1st October 2004. This was clearly wrong, as they had previously commented upon it in their letter of 6th December 2004. They claimed on that basis that Mrs Bhalla was entitled to satisfy herself that Mr Uppal’s consent was forthcoming. I have found that she already knew that Mr Uppal had consented. They also noted that they had received no answer to what I have found was the unnecessary letter of 24th November 2004. They would send a reminder once they had received Anthony Collins’ undertaking as to their costs (in the sum of £1,000 plus VAT). They were not prepared to proceed without that undertaking. Once they had the undertaking, they would proceed with the matter “as expeditiously as our client can safely do so”.

[248]On 3rd March 2005 Charles & Co sent a letter to Mr Uppal referring to their letter of 24th November 2004, enclosing a further copy and saying that they awaited hearing from him. They did this although they had not received a solicitors’ undertaking in relation to their costs.

[249]Charles & Co on 14th March 2005 sent a reminder to Anthony Collins in relation to their letter of 22nd February 2005, claiming that a further three units had been expended in order to send the reminder and take instructions in relation thereto.

[250]By a letter dated 16th March 2005, Anthony Collins gave an undertaking to pay Mrs Bhalla’s further reasonable costs to a maximum of £1,000 plus VAT. They apologised for the delay in giving this undertaking, as they had been waiting to be put in cleared funds. They enclosed a yet further copy of Mr Uppal’s signed consent of 1st October 2004 and requested an update within 14 days.

[251]In their letter of 23rd March 2005, Charles & Co claimed that the need for a solicitors’ undertaking was “in accordance with the usual practice”, even though they had Mrs Sharma’s undertaking. What that letter appeared to indicate was that they did not then have, or were disregarding, the solicitors’ undertaking dated 16th March 2005.

[252]On 4th April 2005, Anthony Collins, after referring to their letter of 16th March 2004 (clearly an error for 2005) pressed Charles & Co for confirmation by return that the transfer of shares had taken place. This was met on 6th April 2005 by a yet further demand for a solicitors’ undertaking, equating giving effect to the duties of a trustee to commercial conveyancing practice.

[253]Anthony Collins in their reply dated 12th April 2005 pointed out that they had already given the requested undertaking, and forwarded a further copy of the 16th March letter. They asked for confirmation that Charles & Co were now progressing the matter, but this confirmation was not forthcoming.

[254]By a second letter of the same date to Charles & Co, Anthony Collins also required for Mrs Sharma an account of dividends for the period from 26th July 2001 to the present time, pointing out that any legal fees incurred in providing this account were not covered by their undertaking. This requirement for an account, though unanswerable, went unanswered.

Proposed transfer to Dr Sharma

[255]At this time, the proposal to transfer the 20 shares into the name of Mrs Sharma was modified to a proposal to transfer those shares into the name of Dr Sharma. There is an issue as to whether this came about because (as the Sharmas allege) Mr Uppal expressed a wish for the shares to be put in Dr Sharma’s name, or whether the idea was Dr Sharma’s, who said, according to Mr Uppal, that he was having matrimonial problems. In this respect, I prefer the Sharmas’ evidence. Mr Uppal’s evidence on this point had a hollow ring to it and was not supported by any evidence the Sharmas gave. Their position before me was one of relative indifference as to who the shares should be transferred to, as long as it was to one or other of them. I felt that Mr Uppal was distancing himself from the fact that he was (at least initially) more than willing for the shares to be put in Dr Sharma’s name. He sought to buttress his position by repeating his claim that his consent to this alternative course was also induced by threats on Dr Sharma’s part to divert prescriptions from the pharmacy. I find that the proposal that the shares should now be transferred to Dr Sharma came about because Mr Uppal expressed that preference. Indeed, his own evidence was that, given the choice, he obviously preferred the shares to be in Dr Sharma’s name, as he hardly knew Mrs Sharma.

[256]Additional corroboration for this finding is to be found in:-(i) Anthony Collins’ letter of 12th April 2005 to Mr Uppal, referring to their understanding that Mr Uppal may have some concern regarding the shares being held by the wives of two doctors;

(ii) Anthony Collins’ further letter of 14th April 2005 to Mr Uppal, which records that Mr Uppal had requested that within 28 days of the transfer to Mrs Sharma, she would transfer her shares to Dr Sharma. Mr Uppal did not write back contradicting any of these statements.

Mr Uppal’s second consent, originally undated, of 9th June 2005

[257]Mr Uppal gave a copy of a signed undated further consent to Dr Sharma some time before 9th June 2005, probably around 26th May 2005, as there is a note on the copy given to Dr Sharma in his handwriting recording that date.

[258]Mr Uppal at first said he had sent the original of this undated consent to Anthony Collins, but he changed this to Charles & Co. It obviously was sent to Charles & Co, as it is expressed to be “further to your letter of 3rd March 2005”, which was the letter in which they asked for an answer to the previous letter of 24th November 2004. From Dr Sharma’s note, the letter appears to have been sent to Charles & Co some 10 days before 26th May – around 16th May therefore.

[259]On 9th June 2005, Mr Uppal provided the Sharmas with a dated written consent in the same terms, which they sent to Garratts Legal, solicitors newly instructed by them.

[260]Each consent (dated and undated) was in the following terms: “… I am writing to confirm that I am agreeable to the transfer of 20% of the shares in Farlam Ltd. to Jayshree Sharma, on the condition that these shares will be transferred to Dr Anil Sharma within 28 days of the share transfer”.

[261]It might have been thought that this was unduly complicated and that it made more sense to transfer the shares to Dr Sharma direct. No doubt the process could be short-circuited in that way, and no-one could or would in practice have objected.

[262]What the two-fold process reflected was the fact that Mr Uppal had previously consented to the transfer to Mrs Sharma. He was not withdrawing that consent but giving consent to a further onward transfer within the stated time-limit, which would only start once the first transfer was effected. Though that onward transfer was expressed to be a “condition”, it cannot have been a condition precedent of the transfer to Mrs Sharma, as the 28 days would necessarily come after, and not before, the transfer to her. Nor was it a condition subsequent non-compliance with which would nullify the consent to the transfer to Mrs Sharma. That consent had already been given on 1st October 2004 and was not being withdrawn. Even if it was a condition subsequent, the Sharmas have not been guilty of non-compliance, as time has not yet started to run. This particular condition was, I find, no more than a term which Mr Uppal wanted and which Dr Sharma agreed to. The Sharmas continued to incur legal costs thereafter (including costs of Charles & Co which their solicitors undertook to pay) upon the strength of both consents.

The 10th June letter

[263]By a further document dated the next day, 10th June 2005, Mr Uppal wrote as follows:

“I confirm that I have consented to 20% of the shares in Farlam Ltd. being transferred to Dr Anil Sharma within 28 days subject to all shareholders entering into an agreement similar to that between myself and [Mrs Bhalla].”

[264]According to Mr Uppal, this came about because Mr Uppal spoke to a solicitor-friend who pointed out that a new shareholders’ agreement would be desirable. However, the condition was not imposed at the time of the previous consent (of 9th June, but originally undated) nor was this condition then mentioned to the Sharmas. Nor did Mr Uppal get back to them immediately after 9th June to qualify his consent in this way, as I would expect him to have done if he had by then received legal advice about the need for a shareholders’ agreement. I very much doubt whether the letter of 10th June is correctly dated and do not think Mr Uppal spoke to his solicitor-friend between one day and the next.

[265]The 10th June letter was not a new consent, replacing the previous consents. What it purported to do was “confirm” the terms of a previous consent. Mr Uppal did not however send the letter of 10th June 2005 to the Sharmas, or to either of the firms of solicitors who had by then been acting for them. They were entitled therefore to assume that the consents they were acting under remained operative.

Further attempts to procure a share transfer

[266]On 13th July 2005 Garratts Legal asked Charles & Co that they be provided with a draft copy of the Share Certificate to be issued to Mrs Sharma, as a matter of urgency. Clearly, they were contemplating that the transfer to Mrs Sharma would go ahead, Mrs Bhalla then dropping out. The second limb of the 9th June consent, namely the onward transfer to Dr Sharma, could then be implemented without input (or impediment) from Mrs Bhalla, or the incurring of more costs by her solicitors. Neither the Sharmas nor Garratts Legal had by this stage seen the 10th June letter. Both however had the letter dated 9th June 2005, embodying the two-stage process. Charles & Co had the undated version of the same letter. In my judgment, Mrs Bhalla’s failure to execute a share transfer timeously at this stage was a further breach of trust.

[267]The evidence confirms that the 10th June letter (mentioning the need for a shareholders’ agreement) was sent at some stage by Mr Uppal to Charles & Co. However, I do not think they could have had it initially, as they did not send a copy to the Sharmas’ solicitors until much later, at the end of October 2005. Moreover, when Garratts Legal threatened proceedings on 21st July 2005, Charles & Co replied on the next day, 22nd July 2005, saying what they were instructed the consent was conditional upon. They would not have put the matter in that way if they actually had the written consent. They did not mention any time limit, either, which they must have done had they seen the written consent by then, and interpreted it in the way in which they have subsequently come to interpret it. As it happens, by the date of that letter, the apparent time limit in the 10th June letter (if correctly dated) had expired. The time limit in the 9th June letter had not however, started, as the 28 days there referred to only started once the shares were transferred to Mrs Sharma.

[268]The letter of 22nd July 2005 was in the following terms, so far as material:

“We are instructed that Mr Uppal’s consent to this transfer of shares was conditional upon a) the shares being transferred to Dr Anil Sharma b) that Dr Sharma should enter into an agreement containing similar provisions with regard to the disposal of the shares as those contained in the Shareholders’ Agreement between Mr Uppal and [Mrs Bhalla].”

[269]The same letter also sought a solicitors’ undertaking in respect of the costs of Mrs Bhallas’ solicitors in relation to the work required to give effect to the transfer, in the sum of £500 plus VAT whether or not the transaction proceeded to completion.

[270]I was invited by Mr Stockill for the Sharmas to infer that Mr Uppal was being put up by the Bhallas to be obstructive. I am prepared to find that they discussed the matter on more than one occasion with Mr Uppal, and probably did discourage him from too ready compliance with the Sharmas’ requests.

[271]It must also be the case that a new shareholders’ agreement had been discussed by July 2005 between Mr Uppal and the Bhallas, as Mrs Bhalla instructed her solicitors about it. It is probable that the Bhallas in these discussions suggested to Mr Uppal that he should require a new shareholders’ agreement. This was in Mrs Bhalla’s interests too, as she would remain a shareholder. She was in receipt of legal advice and it would be surprising if this point had not been brought to her attention.

[272]So far as Mr Uppal is concerned, there is evidence that he decided to take legal advice not at this time but much later (May 2006) when he was asked to sign once more a letter identical to his letter of 10th June 2005 following Charles & Co’s suggestion that the consent in the earlier letter had expired. He would hardly have needed to take legal advice on the letter then if he had taken legal advice on the same letter earlier. Nothing had materially changed in the meantime.

[273]Ultimately, it does not matter who first suggested a new shareholders’ agreement. What is significant is that there is no evidence that the Bhallas saw the letter of 10th June 2005 at the time, or that Mr Uppal imposed in his discussions with the Bhallas a time limit for the new agreement. I find that the Bhallas did not see the letter until late October 2005, when Charles & Co received it. The share transfer should have been executed well before then. Mrs Bhalla’s failure to do so was a continuing breach of trust.

[274]Irrespective of who suggested the point, the wish (when it emerged) to have a new shareholders’ agreement was quite sensible. The problem was that all 3 shareholders would have to agree and, given Mrs Bhalla’s obstructive attitude, this was uncertain, to say the least. Moreover, the need for a new agreement, though sensible, was hardly critical. As will be seen, Mrs Bhalla and Mr Uppal had already bound themselves (if called upon) to change the Articles of Farlam to accord with the provisions of the Shareholders’ Agreement: clause 12.1. They could easily have done that. Whilst any alteration of the Articles calculated to injure Dr or Mrs Sharma would potentially expose either of them, especially Mrs Bhalla as trustee, to legal challenge, an alteration of the Articles to do no more than give effect to the Shareholders’ Agreement would have been unobjectionable.

[275]Returning to the correspondence, I note that the letter of 22nd July 2005 put the matter much more narrowly than the letter dated 10th June 2005, as condition b) in Charles & Co’s letter only referred to “provisions with regard to the disposal of the shares” whereas the letter dated 10th June 2005 referred to the Shareholders’ Agreement generally. That seems to me to be further confirmation that Charles & Co were merely relaying their instructions, not referring to the letter dated 10th June.

[276]I note also that the letter of 22nd July 2005 was written in reply to Garratts Legal’s letters of 13th and 21st July 2005. They were both letters requiring share certificates in the name of Mrs Sharma, as a preliminary (as I have explained) to the onward transfer to Dr Sharma. That appears also to have been how Charles & Co (and therefore Mrs Bhalla, whose instructions they were relaying) understood the matter, as they said that “this transfer of shares” (that is to say the requested transfer of shares to Mrs Sharma) was conditional upon the shares being transferred to Dr Sharma and the new shareholders’ agreement. Charles & Co did of course have in their possession the undated version of the 9th June letter.

[277]Whilst Charles & Co went on to say “this is the condition precedent to Mr Uppal’s consent”, this was not correct. I have already explained that, in the context of a contemplated two-fold process of one transfer followed by another, the second transfer could not logically be a condition precedent of the first. Moreover, Mr Uppal’s requirement of a new shareholders’ agreement was not a condition of his consent when he gave it and, even when the point emerged, it was not imposed as nor did it become a condition precedent to his consent, which he had already given. What Mr Uppal had consented to by 10th June is a question of fact. That is set out in his letter of 9th June. His letter of 10th June inaccurately stated that the consent he had given was subject to all shareholders entering into a new agreement. That was not true at the time of the undated letter agreeing to the transfer (which Charles & Co had in the middle of May) or on 9th June, when the same letter was dated. It is something he came to ask for, but it never became a condition precedent. It is wrong, and misleading, to read the letter of 10th June 2005 in isolation.

[278]Garratts Legal by a letter dated 26th July 2005 asked Charles & Co for documentary evidence as to the conditional consent, but this was not then forthcoming. They also expressed the view that a Stock Transfer Form was sufficient.

[279]By a further letter of the same date, Garratts Legal confirmed that the proposed transfer in favour of Dr Sharma was agreed and that they would shortly provide “an Agreement together with draft Stock Transfer Form, subject to your approval, to be utilised for execution”. I take the reference to “an Agreement” to mean an agreement of the kind requested by Mr Uppal. I infer from this that the point had by then been discussed between Garratts Legal and the Sharmas, who were happy to proceed on this basis. It is possible they discussed the point with Mr Uppal also. There is no evidence of any time limit having been imposed, however. Nor did they ever agree to this term as a condition precedent of Mr Uppal’s consent. As far as they were concerned, they had his consent. This was an additional later requirement of Mr Uppal that they were happy to go along with, but did not derogate from the consents previously given, as opposed to being an adjunct to them. A new shareholders’ agreement was not a condition precedent of the consent when given, and did not become one.

[280]I mention one other point. As I have mentioned, the 9th June consent contemplated a two-fold process of successive transfers which was in practice unnecessary. Accordingly, both Garratts Legal and Charles & Co proceeded from this stage onwards on the basis that there would be a direct transfer to Dr Sharma. This was very sensible, but did not alter the nature and terms of the consents that had been given.

[281]On 7th September 2005, Garratts Legal undertook to pay a maximum of £1,750 inclusive of VAT in respect of Charles & Co’s review of the draft Agreement (which they said they were in the process of finalising) and arranging for the transfer in favour of Dr Sharma. The letter concluded:

“In order for us to complete the draft Agreement, could you please provide us with confirmation as to the full names and addresses of the current shareholders and their respective shareholdings.”

[282]The required undertaking had for some unexplained reason increased substantially from the figure originally suggested by Charles & Co of £500 plus VAT. £1,750 was clearly more than adequate, but the limit was not acceptable to Charles & Co, as they made plain in their letter of 22nd September 2005. They followed this point up in their letter of 28th September 2005, declining to enter into any further correspondence until they had received an acknowledgment of the point made in their previous letter. They did not comply with the request to provide details of the shareholders and their shareholdings.

[283]In authorising Garratts Legal to give that undertaking, the Sharmas were proceeding on the basis of the consents they had. Although Dr Sharma was prepared to enter into a shareholders’ agreement, he did not see this as a condition precedent of Mr Uppal’s consent. Nor was it.

[284]I should mention that Mr Uppal’s oral evidence also confirmed that he discussed the matter with Dr Sharma from time to time, who let him know that discussions with the Bhallas were ongoing and that he still intended to proceed with the share transfer. Mr Uppal also knew, as I have previously mentioned, of the partnership dispute which was now proceeding through the arbitration process. At no time in these discussions did Mr Uppal disown or withdraw the consents he had given. Nor did he refer to an existing time limit for the execution of any shareholders’ agreement, or seek to impose one. It can fairly be said that, to put it at its lowest, he stood by knowing that the Sharmas were proceeding on the basis that he had consented, was not then relying upon his pre-emption rights under the Shareholders’ Agreement, and would not do so thereafter in relation to the proposed transfer to Dr Sharma.

[285]Eventually, Garratts Legal on 10th October 2005, simply forwarded a Stock Transfer Form in favour of Dr Sharma, and on 13th October 2005 undertook to pay Charles & Co’s reasonable costs in furnishing a completed Stock Transfer Form, noting that a written agreement was not necessary.

[286]On 20th October 2005, Garratts Legal threatened court proceedings seeking delivery of the duly completed Stock Transfer Form with costs. In my judgment, Mrs Bhalla’s failure to execute the requested form by this stage was a continuing breach of trust.

[287]Charles & Co by their reply dated 20th October 2005 commented as follows:

“Until such time as separate agreement has been entered into, Mr Uppal is not obliged to consent to any transfer and [Mrs Bhalla] has only obligations under the deed of trust to [Mrs Sharma] subject to the shareholders’ agreement dated 1 February 1999.”

They also commented that costs continued to mount in relation to the undertaking.

[288]Garratts Legal replied the next day (21st October 2005) enclosing a copy of the letter from Mr Uppal dated 9th June 2005 (which recorded his agreement to the transfer to Mrs Sharma on condition that those shares would be transferred to Dr Sharma within 28 days) and a letter from Mrs Sharma authorising the transfer of the shares to Dr Sharma.

[289]Charles & Co replied to Garratts Legal on 25th October 2005, in the following terms:

“You will be aware that it is for our client to obtain Mr Uppal’s consent to effect any transfer of shares. Accordingly, this was requested by us from Mr Uppal. We also recommended that he obtain independent legal advice. Mr Uppal’s consent to our client was on the basis that he was happy for the shares to be transferred to Dr Sharma subject to the new shareholders entering into a shareholders agreement with similar conditions to those between himself and your client, especially with regards to the existing shareholders’ rights of pre-emption. Despite your initial agreement to prepare a draft agreement for our consideration, you have now resiled from this. Until such time as this agreement has been entered into by the parties, Mr Uppal’s consent to the transfer does not become unconditional.”

[290]Although Garratts Legal had sent to Charles & Co the letter dated 9th June 2005, Charles & Co did not send back a copy of the further letter dated 10th June 2005. Instead, they restated the terms of Mr Uppal’s consent in their own words, different from the letter of 10th June itself, and adding a particular reference (not present in that letter) to the rights of pre-emption. The probability is that Charles & Co did not then have the letter dated 10th June 2005.

[291]On 26th October 2005, Garratts Legal replied to the effect that it was irrelevant who obtained Mr Uppal’s consent. This was undoubtedly correct. They continued:

“Mr Uppal has given consent and we have furnished documentary evidence. We are not aware of any conditions being placed by Mr Uppal in furnishing the consent. Insofar as you make reference to certain conditions please provide documentary evidence in support. For the avoidance of doubt we do not consider it necessary for an agreement to be entered into. It is not a question of us resiling from our agreement it is simply that a written agreement is not necessary and would only incur further costs. In the light of the apparent prevarication by your client we terminate undertaking.”

In the light of the apparent prevarication by your client we terminate undertaking.”

[292]I am not surprised at the stance taken by Garratts Legal. Charles & Co had failed to provide the details of the shareholders as requested, and Mrs Bhalla through them was clearly prevaricating. A new shareholders’ agreement between all shareholders would need Mrs Bhalla’s as well as Mr Uppal’s consent, and the omens for that happening within any reasonable time frame were bleak. Mrs Bhalla’s responsibilities as trustee seemed to pass both her and Charles & Co by. The outstanding question of withheld dividends was also ignored on both their parts, though further dividends were declared on 26th October 2005.

[293]On 31st October 2005, Charles & Co finally sent to Garratts Legal a copy of Mr Uppal’s letter of 10th June 2005. On this occasion, they made no adverse comment on account of the letter not being addressed to anyone. They also sent Garratts Legal an invoice for £963.50 inclusive of VAT which they called upon them to pay in accordance with their undertaking. They placed on record that until such time as their costs had been discharged they would not undertake any further work in relation to the matter and that a further undertaking from Garratts Legal would be required if the Sharmas in due course wished to proceed.

[294]The letter dated 10th June 2005 had clearly been provided to Charles & Co by this stage, but there is no reliable evidence that they had seen it before. Whether the actual date of 10th June 2005 is an accurate one seems to me to be open to considerable doubt. I find that the letter was eventually provided to Charles & Co by Mr Uppal in that form in late October 2005, but not before.

[295]By late October 2005, the Sharmas had incurred considerable further costs of their own, and an apparent liability of £963.50 under their solicitors’ undertaking (for which they would be bound to indemnify their solicitors, and which was eventually paid to Charles & Co).

[296]By a letter dated 21st November 2005, Garratts Legal disputed liability under their undertaking, as that undertaking was given in respect of Charles & Co’s costs in reviewing the draft agreement, which had not occurred. They also enclosed another copy of Mr Uppal’s 9th June consent upon which they relied, and called yet again for a completed Stock Transfer Form. Mrs Bhalla’s failure to provide a completed transfer, then and subsequently, was and is a continuing breach of trust.

[297]I now move into 2006. It appears that in January 2006 a without prejudice meeting took place between Mr Uppal and Mr Bahia of Consilium Legal. Mr Bahia was the solicitor representing the Sharmas at Garratts Legal. His firm was now called Consilium Legal.

[298]The without prejudice meeting resulted in a letter dated 27th January 2006 from Consilium Legal to Mr Uppal, requesting various information and action. The significance of the letter is not great in the overall scheme of things, though it did record that Dr Sharma had agreed to the immediate transfer of the shares into his sole name. Mr Uppal, when this letter was first put to him in cross-examination, denied receiving it as it was sent to the wrong address. Moreover, he confidently asserted that he had received no letter like it. However, an identical letter was sent to him at his correct address dated 8th February 2006, which he had to accept he received. This is a good example of Mr Uppal’s incautious approach to the truth.

[299]A further letter dated 22nd February 2006 from Consilium Legal to Mr Uppal referred to a telephone conversation Mr Bahia had that morning with Mr Uppal. As a result of that telephone call, Mr Bahia was apparently expecting an unconditional consent to the transfer of the trust shares to Dr Sharma. Mr Uppal’s answer in the witness box was that there had been no telephone conversation at all. I did not believe this, and Mr Uppal was unable to explain why he did not respond to the letter challenging the telephone conversation which it recorded.

Commencement of proceedings

[300]On 23rd March 2006 proceedings in relation to the Farlam shares (6BM 30117) were issued by the Sharmas but not then served.

[301]Also on 23rd March 2006, Dr Sharma executed a document headed “AGREEMENT “ in the following terms:- “I, DR ANIL SHARMA, of 39 Richmond Road, Edgbaston B15 3RR, agree in consideration of 20% of the shares in Farlam Limited (Company Reg. No. 03668128) (‘Farlam’) being transferred to me to abide by all the terms contained in Farlam’s Shareholders Agreement dated 1st February 1999.”

Continuing efforts to obtain a share transfer between issue and service

[302]On 30th March 2006, Consilium Legal wrote to Charles & Co enclosing the original of the 23rd March document, another Stock Transfer Form and a solicitors’ undertaking limited to £1,000 plus VAT in arranging for the Stock Transfer Form to be executed and returned by Mrs Bhalla.

[303]On 5th April 2006, Consilium Legal threatened proceedings (without revealing that they had in fact already been issued).

[304]On 6th April 2006, Charles & Co explained that the partner with conduct of the matter was away on annual leave and would deal with the matter on his return on 24th April 2006.

[305]Charles & Co replied on 25th April 2006, complaining of non-payment of the earlier invoice of 31st October 2005 (for £963.50) and stating that no further action would be taken in the matter until their costs were discharged in accordance with the undertaking. They did not say what if any action would be taken if the costs were paid. They concluded their letter stating that they had standing instructions to accept service of any proceedings.

[306]A further undertaking was offered by Consilium Legal on 26th April 2006 limited to £500 plus VAT.

[307]There then followed an increasingly painful correspondence as to the terms and amount of any further undertaking, and the extent of any liability pursuant to undertakings already give. I will not go through all of the remaining correspondence. I have gone through more than enough already for its nature to be apparent. The upshot was that a total of £1782.50 was paid pursuant to solicitors’undertakings by Consilium Legal to Charles & Co between 16th May 2006 and 30th June 2006, supposedly for work done to progress the share transfer down to 6th June 2006.

[308]By the end of June 2006, Charles & Co had issued a further invoice for £840 plus VAT for the period 6th – 26th June 2006 which they expected the Sharmas to pay. Neither the Sharmas nor Consilium Legal appear to have paid this further invoice. I do not know whether Mrs Bhalla has paid it.

[309]On 20th July 2006, Consilium Legal wrote to Charles & Co terminating their undertaking, commenting that both Charles & Co and Mrs Bhalla had deliberately delayed and complicated matters.

[310]Whilst Charles & Co refuted this suggestion, any fair reading of the correspondence leads to the conclusion that the Sharmas were being asked to fund Charles & Co not for the purpose of effecting a share transfer to Dr Sharma, but for the purpose of putting every obstacle in the way of such a transfer.

[311]Moreover, as Mrs Bhalla would be a party to any further shareholders’ agreement in her capacity as the holder of the remaining 20 shares, it is difficult to see how Charles & Co on her behalf could conscientiously ask the Sharmas to pay for that element of the transaction.

Other features of the chronology from June 2006

[312]I should draw attention to one or two other features of the chronology from June 2006 onwards.

[313]On 9th June 2006, Charles & Co wrote to Mr Uppal, attaching a copy of his letter of 10th June 2005 with his previous consent which had (Charles & Co said) now expired. They asked whether he now consented to the shares being transferred on the basis set out in his letter of 10th June 2005. They also attached what they referred to as an agreement proposed by Dr Sharma’s solicitors, proffering their opinion as to its woeful inadequacy, and urging him to take legal advice. This was hardly the conduct of a trustee seeking to carry out the beneficiary’s instructions.

[314]A copy of this letter was sent to Consilium Legal on 16th June, in which Charles & Co repeated their contention that Mr Uppal’s consent was required as his original consent expired on about 8th August 2005. This seems to have resulted in a meeting between Dr Sharma and Mr Uppal on 27th June 2006, to which I refer shortly.

[315]I take the reference to the proposed agreement in the letter to Mr Uppal to be a reference to the document dated 23rd March 2006 signed by Dr Sharma. Mr Uppal when that document was put to him in the witness box seemed to think it was fine (though in re-examination he said that he expected a new agreement in similar terms to the Shareholders’ Agreement) but claimed never to have seen it. This cannot be right as it was sent to him by Charles & Co with their letter of 9th June 2006. Although that letter was sent to Mr Uppal at “12A” Mirfield Road, and his address was 2A Mirfield Road, the probability is that it did reach him, as another significant letter (which I mention below) certainly did reach him, though also wrongly addressed. Both letters had the correct postcode and Mr Uppal’s name on them. There is no evidence that 12A as such exists. Moreoever, it is clear from Dr Sharma’s note of a meeting that took place between Mr Uppal and Dr Sharma on 27th June 2006 that Mr Uppal had received at least one letter from Charles & Co. Whilst, as will be seen, Charles & Co sent a further letter to Mr Uppal before that meeting, that letter was also wrongly addressed. Moreover, the meeting with Dr Sharma concerned the subject matter of the first letter – namely, Mr Uppal’s consent.

The Sale Notice

[316]On 16th June 2006, Charles & Co sent a further letter (wrongly addressed in the same way) to Mr Uppal, in the following terms:- “You will be aware that we act on behalf of [Mrs Bhalla] in connection with the proposed transfer of 20% of the shares in Farlam Limited. In accordance with clause 12 of the Shareholder’s Agreement dated 1 February 1999 made between you and our client this letter constitutes a ‘Sale Notice’. Please confirm whether or not you wish to exercise your rights to purchase these shares or not. We attach a copy of your letter of 10th June 2005 with your previous consent which has now expired. Your consent will have serious consequences for you and we would suggest that you obtain independent legal advice relating thereto.”

[317]Mr Uppal claimed never to have received this letter, as it was sent to the wrong address. However, he replied to it, albeit somewhat later, on 31st July 2006, after proceedings were served. When this reply was pointed out to him, he suggested that the letter must have been resent to him at the correct address. There is however no record of that happening. This is in my judgment another example of less than careful evidence on Mr Uppal’s part. I find that Mr Uppal received both letters sent to “12A” Mirfield Road.

The meeting of 27th June 2006

[318]On 27th June 2006 Dr Sharma tried to persuade Mr Uppal to sign a document in identical terms to the 10th June letter. Mr Uppal would not do so. Dr Sharma made a contemporaneous note recording Mr Uppal appearing to confirm previous “gentlemen’s agreements” and that he had always regarded the 2 doctors as the true owners. He now wanted to receive legal advice before signing the letter as too much “shit” was being thrown around. It was in this context that he appears to have referred to a letter from Charles & Co.

[319]I accept the broad accuracy of Dr Sharma’s contemporaneous note. I did not find Mr Uppal’s denial of its contents convincing. He also claimed that Mrs Sharma threatened to close the pharmacy business down if he did not sign this document, though Mrs Sharma denied this. She said she typed the document but left it to Dr Sharma to discuss it with Mr Uppal. She says she was not present when the document was discussed. I accept Mrs Sharma’s evidence in this respect. Though not wholly reliable in her recollections, she was a more impressive witness than Mr Uppal. There may well have been by this time some sort of exchange between her and Mr Uppal revealing her sense of frustration and growing anger. I do not think however that she would or could have threatened to close the business down, as it was obvious to her and everyone else that this was not within her power.

[320]It is said that the fact that the Sharmas tried to get Mr Uppal to sign this document shows that they thought that they needed Mr Uppal’s consent, and did not think that they had it. I think this is too simplistic. These proceedings (which had by this stage been issued but not served) were brought, rightly or wrongly, upon the basis that the Sharmas had all the consents they needed, if indeed they needed any at all. Nevertheless, Charles & Co had recently asserted that a new consent from Mr Uppal was needed, as the previous letter dated 10th June 2005 had according to them expired. It made sense, therefore, to try and cut off that argument by getting the document re-executed. The Sharmas were not abandoning other arguments if that attempt did not work.

Service of proceedings

[321]The proceedings were served upon Mr Uppal together with a letter delivered by hand dated 11th July 2006. Mr Uppal claimed not to remember whether he received the letter. The letter enclosed the Claim Form, Particulars of Claim, and Response Pack. As Mr Uppal filed an acknowledgement of service, I infer he was served. He must therefore have had the accompanying letter.

[322]The accompanying letter also referred to a telephone conversation between Mr Bahia of Consilium Legal and Mr Uppal in the week commencing 26th June 2006, during which (the letter recorded) Mr Uppal advised that he anticipated obtaining legal advice within a 2 week period. This is in line with Dr Sharma’s contemporaneous note of 27th June 2006. Mr Uppal claimed that no such telephone conversation between himself and Mr Bahia occurred, but I did not believe this denial either, and the statement was never challenged in correspondence. I can see no reason why Mr Bahia would have made this up. The same letter also sought an explanation for the apparent issue of further shares to Mr Uppal, but none was forthcoming.

[323]Charles & Co also accepted service on behalf of Mrs Bhalla at this time. Farlam appears to have been served not long after.

The answer to the Sale Notice

[324]By a letter dated 31st July 2006, Mr Uppal answered Charles & Co’s letter of 16th June in the following terms:- “I have now taken independent legal advice and wish to exercise my rights to purchase the shares contained in the ‘Sale Notice’ contained in your letter. To save costs, I am prepared to finalise this transfer once the proceedings brought by Dr & Mrs Sharma have been dealt with.”

Mr Uppal’s defence of these proceedings

[325]Mr Uppal’s defence of the proceedings was subsequently taken over by Charles & Co.

[326]On 2nd August 2006, Mr Uppal wrote to Charles & Co as follows:- “I confirm that I am happy for you to act on behalf of all Defendants in this case in order to save costs. I confirm that you have advised me that potentially I have a potential claim against [Mrs Bhalla] in relation to the execution of the Declaration of Trust dated 26th July 2001 without notifying me and that this could be in breach of the Shareholders Agreement. As suggested by you I have taken independent legal advice and am happy to confirm that I have no intention of bringing any claims against her. If the shares can be transferred to me that is fine but if not then they will just have to be transferred to Dr & Mrs Sharma. Please prepare my defence on the instructions I have already given you.” Please prepare my defence on the instructions I have already given you.”

[327]Mr Uppal has not in the event counterclaimed to enforce any rights he may conceive himself as entitled to under the pre-emption provisions, or even to seek declaratory relief.

The application of the facts to the pre-emption provisions

[328]With that possibly over-extended background, I turn now to consider the application of the facts to the relevant terms of the Shareholders’ Agreement.

[329]Clause 2.1 provided for the Shareholders to pass Written Resolutions (as defined) which included the adoption of New Articles. The Written Resolutions were duly passed, and the New Articles adopted.

[330]Those New Articles incorporate with modifications Table A in the Companies (Table A to F) Regulations 1985 as amended by the Companies (Table A to F) (Amendment) Regulations 1985 (“Table A”).

[331]Regulation 24 of Table A is in the following terms:- “The directors may refuse to register the transfer of a share which is not fully paid to a person of whom they do not approve and they may refuse to register the transfer of a share on which the company has a lien. They may also refuse to register a transfer unless—(a) it is lodged at the office or at such other place as the directors may appoint and is accompanied by the certificate for the shares to which it relates and such other evidence as the directors may reasonably require to show the right of the transferor to make the transfer;

(b) it is in respect of only one class of shares; and

[332]Clause 14 of the New Articles provides for pre-emption rights on transfer.

[333]Clause 14.8 provides that Regulation 24 of Table A shall not apply to the Company.

[334]The most relevant provisions of the Shareholders’ Agreement are to be found in Clause 12, as follows:- “12.1 In so far as any provision of this Agreement shall be inconsistent or conflict with any of the provisions of the New Articles, the Shareholders (on the request of any of them) shall procure that the New Articles are altered to accord with the provisions of this Agreement and, prior to such alteration, the provisions of this Agreement shall prevail. 12.2 If at any time during this Agreement any one of the Parties wishes to sell transfer or otherwise dispose of his shares in the Company or ceases to be a shareholder of the company by reason of their death (‘the Retiring Party’) he shall give or be deemed to have given notice in writing to all the other shareholders of the Company (‘the Continuing Parties’) (‘the Sale Notice’) stating that he wishes them to purchase all his shares in the Company at a price (hereinafter defined) 12.2.1. Upon receipt of the Sale Notice (other than on the death of the Retiring Party) the Continuing Parties shall have the option to purchase all the Retiring Party's shares in the Company at a price to be agreed between the parties within twenty working days of the Sale Notice or in the absence of agreement or upon receipt of the Sale Notice in the event of the death of the Retiring Party the Continuing Parties shallpurchase the Retiring Party's shares at the priced fixed by the Auditors within twenty eight (28) days of the Auditors fixing the same (‘the Price’). 12.2.2 In the event of the Retiring Party's death the Price shall be paid to his Personal Representatives. 12.2.3 The Continuing Parties' option to purchase the Retiring Party's shares shall last for a period of sixty (60) days from the date of the Price being agreed or determined by the Auditors as the case may be (‘the Option Period’). At any time during the Option Period the Continuing Parties shall be entitled by written notice to the Retiring Party to exercise the option hereinbefore contained. 12.2.4 Upon receipt of such written Notice the Retiring Party shall transfer to the Continuing. Parties all his shares in the Company free from all liens charges and encumbrances and the Continuing Parties shall pay the Price. 12.2.5 If the Continuing Parties shall not have exercised the option within the Option Period then the Continuing Parties shall consent to the Retiring Party transferring the shares comprised in the Sale Notice to such other person or Company (‘the Third Party’) as the Retiring Party wishes and the Continuing Parties will not exercise their discretion to refuse to register the transfer in the register of members…”

[335]It is said first that the Declaration of Trust dated 26th July 2001 operated as a deemed Sale Notice.

[336]The wish that is referred to in 12.2.1 must be the wish of one of “the Parties”. I have already noted that the term “the Parties” is undefined, but it clearly means in the present context Mrs Bhalla and Mr Uppal, not either Dr Sharma or Mrs Sharma. Given however my finding that Mrs Bhalla held 20 of the shares from inception as nominee for Dr Sharma, his wish to have the Declaration of Trust executed must always have been attributable to Mrs Bhalla, as she was bound to act in accordance with his directions and, as regards the Declaration of Trust, did so.

[337]I have no doubt, as Mr Moraes contends, that the wording of the pre-emption provisions is deliberately wide and that the words “sell transfer or otherwise dispose of” embrace a transfer of a beneficial interest, whether or not the legal title to the shares is made the subject matter of a transfer.

[338]However, in the case of the Declaration of Trust of 26th July 2001, there was on my findings no transfer of a beneficial interest, as the ultimate beneficial owner was Dr Sharma throughout. The shares were not being sold, as there was no price. Nor were they being transferred, as they remained in Mrs Bhalla’s name. They were not being disposed of either, as the beneficial interest was Dr Sharma’s before and afterwards. Mrs Sharma was (I have found) no more than a nominee for Dr Sharma. There cannot therefore have been in those circumstances a “wish” to dispose of the shares.

[339]It may be that, as Mrs Sharma is herself a nominee for Dr Sharma in respect of the Farlam shares, she drops out and Mrs Bhalla holds the shares upon trust for Dr Sharma direct: see Lewin on Trusts, 18th ed., at para 1-31. I do not think it matters what the correct analysis is. Even if Mrs Sharma remains in some representative capacity in the chain of interested persons, she has no proprietary interest of her own and her introduction into that chain did not therefore amount to a “disposal” within the meaning of the Shareholders’ Agreement.

[340]In Lyle & Scott Limited v Scott’sTrustees

[1959] AC 763

, the term “desirous of transferring his shares” was held to extend to the case of a member executing, in return for a sale price, a transfer of his shares to a non-member together with an irrevocable proxy. That is not comparable to the present case. No price was paid on the occasion of the Declaration of Trust, and Dr Sharma was the person beneficially interested before and afterwards. The introduction of Mrs Sharma as an intermediate nominee may possibly be likened to a proxy (or sub-proxy, as Mrs Bhalla would still be exercising the votes) but that would not without more operate as a relevant disposal.

[341]That is sufficient to dispose of the argument based on the Declaration of Trust. However, it seems to me also that Mr Uppal has now lost any right to enforce his rights under any deemed Sale Notice arising under the Declaration of Trust. He has known about the Declaration of Trust (on my findings) since around the time it happened (or on his version since August 2004) and has done nothing to get the Auditors to value the shares.

[342]If Farlam had an outsider shareholder in Mr Uppal’s position, that shareholder could have brought proceedings to enforce the Shareholders’ Agreement, requiring Farlam to instruct the auditors to produce a valuation or asking the Court to provide substitute machinery: see Sudbrook Trading Estate Ltd v Eggleton

[1983] 1 AC 444

. The proceedings would not have been premature: Hasham v Zenab

[1960] AC 316

[343]In this case, the position was much simpler. Mr Uppal and Mrs Bhalla could have instructed the auditors themselves as directors of Farlam. They took no steps to do so. Mr Uppal did not ask that this be done. The obvious inference is that he was not concerned to enforce any rights he might have arising under the Declaration of Trust, and was abandoning any claim to specific performance.

[344]Were he now to seek to enforce the pre-emption rights, he would need to seek an order for specific performance against Mrs Bhalla and the Sharmas. The Court would not entertain an application for specific performance after the prolonged delay since 2001, and would regard Mr Uppal as having abandoned any claim to enforce any rights he may have arising out of that Declaration of Trust.

[345]Further, any claim for specific performance ought in my judgment to have been brought in these proceedings. There is a strong public policy interest in having all disputes, where practicable, raised and dealt with in one set of proceedings. Later proceedings reopening a dispute or seeking to raise issues or claims that should have been but were not previously raised are vulnerable to a charge of abuse of process: see Henderson v Henderson(1843) 3 Hare 100as explained and qualified in Johnson v Gore Wood

[2002] 2 AC 1

. Although the rule is not inflexible, it seems peculiarly apt in the present case, where the defence relies on the triggering of pre-emption provisions which Mr Uppal does not seek to enforce. Mr Uppal has chosen not to bring any claim in these proceedings and has in his letter of 2nd August 2006 to Charles & Co expressly abandoned any claim against Mrs Bhalla, who would be a necessary party to an action for specific performance.

[346]The Defendants also say that Garratt Legal’s letter of 26th July 2005 (para 279 above) confirming the proposed transfer in favour of Dr Sharma operated as a deemed Sale Notice.

[347]I accept, as Mr Moraes contends, that a transfer of the legal title, even to an existing beneficial owner, would be a “transfer” within the meaning of Clause 14 of the Shareholders’ Agreement. Whatever else “transfer” may be taken to extend to in the context of Articles of Association generally, it must in almost every case include an ordinary share transfer from one member to someone else. As the provisions of the Shareholders’ Agreement might by virtue of Clause12.1 have become part of the Articles, and in the meantime prevailed over the Articles, I do not think the approach should be different here. I also accept that as Mrs Bhalla was bound to act in accordance with Mrs Sharma’s (and ultimately Dr Sharma’s) directions, the Sharmas’ wishes must be attributed to Mrs Bhalla for the purposes of Clause

12.2 of the Shareholders’ Agreement. It follows that Mrs Bhalla has wished to transfer the shares to Dr Sharma since at the latest 26th July 2005 and that wish (once communicated) effected a deemed Sale Notice. It might be withdrawn, but has not been. On the contrary, the Sharmas seek an order requiring Mrs Bhalla to execute the required transfer in these proceedings.

[348]Mr Stockill sought amongst other things to imply a term permitting a transfer to a beneficial owner or to Dr Sharma specifically, but that is not necessary to make the Shareholders’ Agreement work. It is also well established that it is inappropriate to look at external facts to imply terms in the context of Articles of Association, and that approach is equally inappropriate here. In my judgment, no term permitting a transfer to a beneficial owner generally or to Dr Sharma in particular is to be implied.

[349]It will be remembered that at the time of the 26th July 2005 letter upon which the Defendants rely, Mr Uppal had consented to the proposed share transfers to Mrs Sharma, and then to Dr Sharma, by his letters of 1st October 2004 and mid-May 2005 (undated, but subsequently dated 9th June 2005). Though he added the rider of requiring a new shareholders’ agreement in his letter dated 10th June 2005, he had not sent the letter by that date and he did not impose that requirement as a condition precedent of his consent.

[350]Mr Uppal was, it can fairly be said, well aware of the wish to transfer the shares (whether to Mrs Sharma or Dr Sharma) throughout and not only went along with that wish but expressed his own preference for the shares to be transferred to Dr Sharma.

[351]It does seem strange in those circumstances that Mr Uppal can now claim to have been served with a deemed Sale Notice in July 2005 entitling him to exercise the rights under the Shareholders’ Agreement in respect of a proposed transfer which he encouraged. If however he is right, then similar reasoning applies as in the case of the earlier Declaration of Trust. He did nothing to exercise or assert those rights at any time and failed to raise a counterclaim for specific performance or even a declaration. In my judgment, he is no longer entitled to specific performance and his rights are therefore lost.

[352]In reaching these conclusions, I also take into account the encouragement that Mr Uppal gave to the Sharmas to progress the share transfers. They had his consents, which did not on my findings expire.

[353]If there ever was a time limit which had started to run in relation to the consents which Mr Uppal gave (which I do not think there was) Mr Uppal in giving those consents and standing by knowing that the Sharmas were proceeding with the matter, incurring expense in that connection, waived any time limit. Even if the letter of 10th June 2006 is read as imposing a time limit which was not waived, neither the Sharmas (nor for that matter the Bhallas) saw it until late October 2006, by which time substantial expense had been incurred acting on the earlier consents.

[354]There was some debate before me as to whether I should approach this case by reference to the principles of waiver by estoppel or waiver by election.

[355]In my judgment, it is enough for me to say that Mr Uppal could no longer enforce his rights under the Shareholders’ Agreement, as his right to apply for specific performance (which is a discretionary remedy) has been lost by abandonment or at least by delay, and even now is not being asserted. As there has, in the language of Clause 12.2, been (on his case) an actual “disposition” known to him since 2001, and a consistent “wish” known to him to “transfer” the shares to either Mrs Sharma or Dr Sharma since August 2004, he should, if he was going to do so, have asserted his rights long before now, and sought to enforce them, if still extant, in these proceedings. To do so hereafter would, as I have said, face unsurmountable hurdles as well as possibly being an abuse of process. Moreover, his abandonment of claims against Mrs Bhalla seems irrevocable on the additional ground that he was only allowed to participate in her defence on the basis that he had no intention of bringing any claims against her.

[356]If, however, it is necessary for me to analyse the matter in terms of waiver, I am satisfied that there has been a clear waiver by estoppel. The words and conduct of Mr Uppal during the course of the prolonged exchanges between the parties amounted to a clear representation that he was not treating either the July 2001 Declaration of Trust or the wish to transfer the shares to Mrs Sharma and (then) Dr Sharma as amounting to a deemed Sale Notice, and that he was not enforcing and would not enforce any pre-emption rights arising out of that Declaration of Trust or wish. The representations were acted upon in the sense that the Sharmas incurred substantial costs trying to progress matters. Mr Uppal knew costs were being incurred. It seems to me that all the elements of a binding estoppel or waiver are present.

[357]There may (depending upon one’s choice of terminology) have been a waiver by election also, as Mr Uppal, upon service of a deemed transfer notice, had the right to call upon Dr Sharma (through Mrs Bhalla) to agree a price and, failing that, to call upon her to authorise with him the auditors to fix a price. These rights were not in the future but were in the present. He did not do any of these things because he was not treating the pre-emption provisions as triggered, and encouraged the Sharmas to proceed on the basis that he was choosing not to exercise any pre-emption rights he might otherwise have. Having elected not to pursue those rights, it is now too late for him to do so as regards the proposed transfer to Dr Sharma. The position might have been different had I found a conditional consent where the condition had not been met, but that is not what I have found.

[358]I should deal also with one other point made by Mr Moraes. He says that the only reason the Auditors have not hitherto been asked to value the shares is simply to allow this dispute to be resolved. This is a reflection of Mr Uppal’s letter of 31st July 2006 (para 324 above). However, that letter was written after these proceedings were served in response to the Sale Notice of 16th June 2006 (para 316 above) which (for reasons I give below) was probably void and ineffective and which I shall require Mrs Bhalla to withdraw. What I am considering in this part of the judgment is whether Mr Uppal has any rights arising out of any earlier deemed Sale Notices. He never sought to exercise, or even to assert, any rights under those earlier deemed Notices. He had in my judgment by 16th June 2006 lost any rights he may have had in that respect and cannot now assert them.

Mrs Bhalla’s pre-emption rights

[359]Mr Moraes claims that Mrs Bhalla is also entitled to pre-emption rights. Clearly, she has no rights under the Shareholders’ Agreement against Dr Sharma, as Dr Sharma is not a party. Nor does she have contractual rights under the Declaration of Trust, as it is a Deed Poll.

[360]The argument for Mrs Bhalla seems to be based on the words “subject to the provisions of the Shareholders Agreement” which appear in the Declaration of Trust. The suggestion is that by using these words, Mrs Bhalla conferred upon herself rights that she did not previously have in relation to these shares. This argument does not get off the ground, in my judgment. Mrs Bhalla has no pre-emption rights in respect of any of the shares registered in her name. In those circumstances, I need not consider whether she has waived or is estopped from asserting any such rights.

Clause 12.2 or Article 14?

[361]Clause 12.2 of the Shareholders’ Agreement seems to me to relate, and relate only, to the case where one of the parties wishes to sell, transfer or dispose of all of his or her shares. The opening sentence of clause 12.2 refers to “his shares” generally, and concludes by saying that there must be a Sale Notice (which may be deemed) “stating that he wishes them to purchase all his shares…”. Clause 12.2.1 likewise gives the other shareholders an option to purchase “all” the shares.

[362]Mrs Bhalla has not, of course, given a Sale Notice, actual or deemed, for all the shares she holds. As moreover her wish (or the wishes of the Sharmas that are attributed to her) relate to only some of the shares registered in her name, clause 12.2 cannot in my judgment apply.

[363]That is not necessarily an end to the matter, as the New Articles apply where not inconsistent with the Shareholders’ Agreement. Article 14 contains pre-emption rights which relate to a Member “proposing to transfer any share or beneficial ownership of a share” (emphasis supplied). The pre-emption provisions are very detailed and have some similarities with, but are in many respects quite different from, Clause 12. One point of similarity is that it is for the Auditors to fix a price if the directors do not consider the price specified by the vendor to be fair.

[364]The strict position, in my judgment, is that if any pre-emption provisions apply in this case, the relevant provisions are in the New Articles, not the Shareholders’ Agreement. There is no inconsistency between the New Articles and Clause 12. Clause 12 applies to the transfer of the whole of one of the parties’ shareholding. The New Articles apply to the transfer of some only of a member’s shares. There is no real sense in this, but there never was any explanation for adopting New Articles at the same time as entering into the Shareholders’ Agreement. I have to make such sense of this muddle as I can. As it happens, the case was pleaded and argued by both sides before me on the basis that Clause 12.2 applied. I have therefore left this point to last, when it might otherwise have come first.

[365]As I have heard no argument on Article 14, and there is no pleaded reliance on that Article, I do not propose to consider it in detail. It is enough to say that Clause 12.2 does not apply to partial transfers, and no case has been pleaded or argued under Article 14. Had either side argued the case on the basis of Article 14, my decision would almost certainly have been the same, for reasons similar to those I have given. Were the issue open on the pleadings, I would, had I thought the result might be different under Article 14, have considered restoring the matter for further argument.

The Sale Notice

[366]It will be recalled that Charles & Co on Mrs Bhalla’s behalf on 16th June 2006 served a “Sale Notice” on Mr Uppal which he replied to on 31st July 2006, after these proceedings were served.

[367]No separate defence has been pleaded based on this Sale Notice. Mr Uppal in his reply explained that he would await the outcome of these proceedings before finalising the transfer.

[368]The service of this Sale Notice was a further breach of trust by Mrs Bhalla unless it is to be taken as referring to her own shares, which was clearly not the intention. By 16th June 2006, Mr Uppal had already lost any rights arising under any earlier deemed Sale Notice, and Mrs Bhalla had no authority to serve a fresh Sale Notice. Mr Uppal knew this as he knew that the Sharmas were claiming to enforce what they perceived to be their rights based on his previously given consent. The Sale Notice is therefore probably void. It is defective also as applying only to part of Mrs Bhalla’s shareholding. For this additional reason, it is probably ineffective, but I shall order Mrs Bhalla to withdraw it for the sake of completeness.

Refusal to register a transfer

[369]One issue which has attracted a great deal of argument and evidence is whether or not the directors could properly refuse to register a transfer to Dr Sharma (or for that matter Mrs Sharma). It is said that Mr Uppal and Mrs Bhalla (Farlam’s directors) genuinely believe that Dr Sharma has deliberately diverted prescriptions from the Farlam pharmacy and that in those circumstances their current disapproval of Dr Sharma would entitle them in their discretion to refuse to register a transfer.

[370]I should say straightaway that I was not impressed by the evidence (such as it was) that Dr Sharma was diverting prescriptions. There was some evidence that turnover had gone down, and that Dr Sharma did on occasions tell patients (in accordance with his professional duty) that they could go to any pharmacy of their choosing. I do not think he acted improperly in saying this. He would from time to time have, as inevitably happens, patients who queried the service they were getting from the pharmacy. Any drop in turnover is likely to be referable instead to the number of competitors in the vicinity rather than any sinister activity of Dr Sharma. Mr Uppal told me there were now 4 pharmacies within a relatively short distance of this one.

[371]The point is in many ways irrelevant, as the question is not whether I find the grounds of objection made out, but whether the directors, at the time of their decision to refuse registration, are acting in good faith. As they have not yet been called upon to make a decision, that question, if it arises, is a future one. What I can however decide now is whether the question is capable of arising, i.e., whether there is a power to refuse registration at all.

[372]The only provision of the Articles or the Shareholders’ Agreement which would entitle the directors to refuse to register a transfer is Regulation 24 of Table A. Regulation 24 is excluded by New Article 14.8. However, that New Article appears after and (it might be said) as part of a series of pre-emption provisions which as a whole are inconsistent with Clause 12 of the Shareholders’ Agreement. Therefore, the Shareholders’ Agreement prevails by virtue of Clause 12.1.

[373]In addition, Clause 12.2.5 appears to assume that there would otherwise be a discretion to register a transfer as it provides that where the procedure under that Clause is gone through, the “Continuing Parties” (who are necessarily shareholders but need not be directors) will not exercise it. Here, the procedure under Clause 12.2.5 has not been gone through. Therefore (the argument goes) the discretion applies.

[374]There are a number of points to be made about that argument. The first and most important is that the discretion to refuse to register a transfer must derive from some source. The only source of any such discretion is Regulation 24. Its exclusion by New Article 14.8 might be said to be inconsistent with that which is implicit in Clause 12.2.5, which therefore prevails. I do not think this can be right. What Clause 12.2.5 appears to assume implicitly is that the remaining shareholders have a discretion. As they need not be directors, this cannot be treated as in some way incorporating Regulation 24. The reality is that the Shareholders’ Agreement is badly drafted. There is no discretion on the part of the remaining shareholders (or anyone else) to refuse registration.

[375]Mr Moraes also points out that only Article 24 of Table A is excluded, not Article 25, which is on the following terms:

“If the directors refuse to register a transfer of a share, they shall within two months after the date on which the transfer was lodged with the company send to the transferee notice of the refusal.”

This makes no difference to my conclusion, as any discretion to refuse to register a transfer must derive from some source, and here there is none.

[376]Clause 12.2.5 precludes the directors from exercising their discretion against a transferee when the shareholders with the benefit of an option do not exercise it following a valuation. The transferor then becomes free to transfer the shares to anyone, and the discretion to refuse registration cannot be exercised. The position cannot be any different, in my judgment, if the person having the benefit of the option says before the process begins that he does not wish to exercise his option. It would be pointless to require the process of a valuation to be undertaken if it was clear that no-one wished to exercise the option and absurd if the discretion to refuse registration should arise in the one case but not the other. That is a strong pointer towards the conclusion that there is no discretion to refuse registration in either case.

[377]In my judgment there is no inconsistency between Clause 12 as a whole and the exclusion in the New Articles of Regulation 24. Regulation 24 is in my judgment excluded. It follows that the directors do not have a power to refuse registration.

[378]If that is wrong, and Regulation 24 of Table A for some reason applies, the discretion to refuse registration under Regulation 24 arises only in the case of “a share which is not fully paid”. The 20 shares with which this case is concerned are all fully paid. For this additional reason, therefore, the discretion to refuse registration of a transfer of those 20 shares does not arise. Remedy in 6BM 30117 Injunctions and Declarations

Remedy in 6BM 30117

[379]Injunctions and a declaration are sought in paragraphs 1 and 2 of the prayer for relief. I shall consider the precise form of the injunctions (if they cannot be agreed) with Counsel following the handing down of this judgment. The Sharmas are entitled in principle to injunctions restraining unauthorised dealings with the 20 Farlam shares, and payments to Mrs Bhalla of dividends and other benefits in respect of those 20 shares. I shall, as indicated earlier, also order Mrs Bhalla to withdraw the Sale Notice.

[380]Dr Sharma seeks a declaration that he is beneficially entitled to the 20 Farlam shares. I shall make that declaration.

[381]I am also asked to make a declaration that Dr Sharma is entitled to be registered as the holder of the 20 Farlam shares. That is strictly a future question as no transfer has yet been lodged. The same can be said of the prayer for an order rectifying the register. That also is a future question. I shall however make declarations that Farlam has no right to refuse registration of a duly delivered stock transfer form in Dr Sharma’s favour in relation to the 20 Farlam shares, and that neither Mr Uppal nor Mrs Bhalla have any enforceable pre-emption rights in respect of the proposed transfer. In addition, I shall give permission to apply to rectify the register or for further injunctive relief in the event that registration of a duly delivered stock transfer form is refused or not acted upon timeously.

[382]Paragraph 4 of the prayer asks for a mandatory order requiring Mrs Bhalla to execute a stock transfer form in respect of the 20 Farlam shares in favour of Dr Sharma for nil consideration. I shall make that order.

[383]Mr Moraes asks me to refuse in my discretion all injunctive relief enabling Dr Sharma to become registered, leaving Dr Sharma to his remedy in damages. This is founded largely but not exclusively on the allegation of diversion of pharmacy prescriptions. In addition, he seeks to persuade me that Dr Sharma is divisive, and that it would be most inappropriate to force him onto the register.

[384]I have rejected the case on the diversion of prescriptions. Whilst I can well see that the unhappy history of this matter leads to the bleak outlook of probable further dispute, that is not cured by refusing Dr Sharma the injunctive relief he seeks. He will still be entitled to the shares as a result of my finding that Mrs Sharma is his nominee under the Declaration of Trust of 26th July 2001. If damages in lieu were to be ordered, the damages would be assessed by reference to the difference in value between a registered and an unregistered holding, which would not only be difficult to assess but an unrewarding and pointless exercise. The refusal of injunctive relief would not deprive Dr Sharma of his beneficial interest. The scope for potential future dispute would remain. I can in those circumstances see no basis for not giving effect to Dr Sharma’s full rights.

Compensation for breach of trust

[385]The prayer for relief also asks for compensation for breach of trust. I shall order compensation to be paid.

[386]I have found earlier in this judgment that Mrs Bhalla was guilty of continuing breaches of trust for failure to deal timeously with the directions to transfer the 20 Farlam shares she holds as trustee to Mrs Sharma and (subsequently) Dr Sharma.

[387]I have also found that the sum of £350 plus VAT at most would have been a reasonable sum for Mrs Bhalla to seek under her indemnity. In my judgment, Mrs Bhalla is liable to pay compensation for any costs incurred under the undertakings that the Sharmas’ solicitors gave over and above the figure of £350 plus VAT.

[388]£1,175 inclusive of VAT was paid by Anthony Collins under solicitors’ undertakings. I have found that £411.25 inclusive of VAT at most would have been reasonable. The difference of £763.75 is recoverable.

[389]The compensation claimed also includes, in the schedule that was prepared for that purpose (“the loss schedule”), a further sum of £1,175 referred to in Anthony Collins’ letter of 16th February 2005. However, that letter did not contain a solicitors’ undertaking, (though it did refer to Mrs Sharma’s undertaking) and there is no evidence that this sum was paid as well as the same amount referred to in the previous paragraph of this judgment. This additional sum of £1,175 is not therefore recoverable.

[390]Consilium Legal for the Sharmas also paid sums to Charles & Co under solicitors’ undertakings totalling £1,782.50 inclusive of VAT. The documents annexed to the loss schedule prove these payments. These sums are also recoverable.

[391]Although Consilium Legal’s undertakings related to the alternative proposal to substitute Dr Sharma as transferee, had Mrs Sharma acted upon the original request to transfer the shares to Mrs Sharma timeously, Mrs Bhalla would have been out of the picture and Charles & Co would not therefore have been involved further in this respect. In addition, I have found that the failure to execute a transfer in favour of Dr Sharma was a continuing breach of trust.

[392]As the need to pay more than £350 plus VAT was a consequence of Mrs Bhalla’s breach of trust, I am satisfied that this loss was caused by the breaches of trust in question. Mr Moraes denied the causal link, as the undertakings were given and sums paid voluntarily. I do not think that is an answer to the claim.

[393]Liability under this head is accordingly assessed in the sum of £2,546.25 (£763.75 + £1,782.50).

[394]Compensation is also claimed in respect of the Sharmas’ legal costs of dealing with the transfer issue to the extent that those costs were increased by Mrs Bhalla’s obstructiveness. I have found that the matter should have completed within a reasonable time after December 1st 2004.

[395]There are 2 difficulties arising in this connection. The first is that it is necessary to extract from the solicitors’ charges items of cost which do not relate to the proposed share transfer. It will be recalled that the correspondence also raised issues concerning dividends and whether or not Mrs Bhalla had been a trustee before July 26th 2001. It seems to me that the safest course is to require the appropriate figure unless it can be agreed to be ascertained by a detailed assessment in accordance with the procedure adopted in British Racing Drivers’ Club Ltd v Hextall Erskine & Co (a firm)

[1996] 3 All ER 667

. In so deciding, I am assuming that there will be a detailed assessment of the Sharmas’ litigation costs as a result of their success in 6BM 30117. If that assumption proves to be wrong once I have heard any argument on costs, I shall invite further argument on the appropriate amount of compensation, as the amounts claimed, though substantial, are not sufficiently large to justify a detailed assessment by themselves.

[396]The second difficulty is that the correspondence continued up to and beyond the commencement of proceedings. Mr Moraes rightly points out that litigation costs are not recoverable as compensation: Ross v Caunters

[1980] Ch 297

at 324.

[397]Some of the costs claimed (I have seen the bills) clearly are litigation costs. To that extent, they cannot be claimed as compensation. There is however no reason why the costs of the correspondence relating to a share transfer after (say) 15th December 2004 should not be recoverable as compensation to the extent that they are not part of the costs of the litigation.

[398]In principle, therefore, the Sharmas are entitled to further compensation to be assessed under this head for costs incurred after 15th December 2004. I shall consider the precise form of order when dealing with costs issues following the handing down of judgment. If (as presently seems likely) Mrs Bhalla is ordered (whether alone or with others) to pay the costs of 6BM 30117, it should be possible to devise an order which deals with the assessment of all the costs (including the compensation part) together.

[399]For the avoidance of doubt, I do not distinguish between costs incurred by Mrs Sharma and those incurred by Dr Sharma. Any costs incurred by Mrs Sharma were incurred on Dr Sharma’s behalf as his nominee, for which Dr Sharma was bound to indemnify Mrs Sharma. To the extent that she might recover those damages, she would be accountable as trustee to Dr Sharma. In addition, as beneficial owner, Dr Sharma has a claim of his own against Mrs Bhalla. Whether or not Mrs Sharma strictly drops out of the chain, there undoubtedly was at least a fiduciary relationship between Mrs Bhalla (as legal owner) and Dr Sharma (as ultimately beneficial owner) which Mrs Bhalla breached by failing to give effect to the requested share transfers.

[400]A pleading point was taken on the compensation claim. It is said that the APoC limits the claim to failure to execute a transfer in favour of Dr Sharma only, which cannot therefore pre-date 26th July 2005, as that was the first time such a transfer was requested. The pleading also refers to transfer requests from “at least July 2005” (which appears to mean “at the latest”) in favour of Dr Sharma. Before then, a transfer in favour of Mrs Sharma was sought. I agree that this is what APoC says, but as the damages claimed relate to the earlier solicitors’ undertakings and earlier legal costs, it is clear that what was intended was to complain about failure to execute transfers generally. A transfer to Mrs Sharma would also have been in favour of Dr Sharma beneficially, as she was (as is pleaded) acting as his nominee. The course the trial took examined all the transfers which were asked for. In addition, everything from Mr Uppal’s 1st October 2004 consent onwards was expressly put in issue by the Reply, albeit in the context of waiver or estoppel. In the circumstances, Mrs Bhalla cannot plausibly claim to have been taken by surprise. I therefore regard this claim as open to the Claimants.

Account of dividends and other benefits

[401]The prayer for relief seeks an account in respect of all dividends or other benefits received by Mrs Bhalla. I shall order an account on the footing of wilful default, to include all dividends or other benefits that should have been received for the Sharmas.

[402]The dividends which have been declared are set out in the Dividend Schedule. Mrs Bhalla accepts that she is accountable in respect of all except the first of the items in the Dividends Declared column, to the extent that those dividends have been received by her. Credit should be given for the £20,000 paid by her to Mrs Sharma on 26th July 2001.

[403]In my judgment she is also accountable, on the footing of wilful default, for dividends that she should have but did not receive and duly pass on after 26th July 2001, either because they have been retained within Farlam despite being declared, or because she has waived compliance with the requirement of the Shareholders’ Agreement that dividends be declared.

[404]The amount of her liability will be determined on inquiry. On that inquiry, the propriety of the dividends paid in respect of the “A” shares can also be examined. The point has not been explored fully in evidence, and I express no concluded view on the outcome of that aspect of the inquiry. Should Farlam now pay the dividends which Mrs Bhalla should have ensured it paid in the past, her liability under the inquiry and account will abate accordingly.

[405]It will also be open to the Sharmas, upon an inquiry, to investigate the propriety of pension payments which have been paid to Mr Uppal and Mrs Bhalla. The evidence about this emerged late in the day, following the production during the trial of draft accounts, so it would again be wrong of me to express a final view. However, what did emerge on the evidence was that the pension payments were made pro rata according to the size of the shareholdings – i.e., Mrs Bhalla received two-thirds of the amount paid to Mr Uppal. It seems to me that this might turn out to be a concealed dividend for which Mrs Bhalla would be accountable so far as the 20 shares held on trust are concerned. If not a concealed dividend, she may turn out to be accountable as a trustee for an unauthorised profit. As Mr Uppal explained, the pension payments “followed the shareholdings”.

[406]Mrs Bhalla claims that she is not accountable in respect of the first item in the Dividends Declared column of the Dividends Schedule (i.e., for half of the first £40,000 dividend), as she is entitled to retain the whole of that £40,000 under the 7th June minutes. However, I have held that the minutes do not have contractual force, that Mrs Bhalla was not in any event a party to the minutes, and that when the Declaration of Trust was executed, there was no consensus as to the basis upon which the £20,000 was paid. In those circumstances, I need to look at beneficial ownership at the time that dividend was paid. That was Dr Sharma’s. It follows that Mrs Bhalla is accountable to him in respect of the first dividend unless she can establish that Dr Sharma gave up his rights. In the absence of the necessary consensus, she has in my judgment failed to establish that.

[407]Mrs Bhalla has paid tax on the whole of the first £40,000 dividends paid to her. For this reason, her liability to account will prima facie be limited to the net figure, unless she is able to recover any of the tax paid.

[408]Mrs Bhalla’s minimum liability is therefore half of £184,000 (being the total of the dividends declared) i.e. £92,000 less the £20,000 paid on 26th July 2001, which results in a figure of £72,000. Assuming for present purposes (without deciding) that Mrs Bhalla was at the material time a higher rate taxpayer and that the tax cannot now be recouped, I shall provisionally deduct a further £8,000 for the half of the first dividend for which Mrs Bhalla is accountable. The resulting total is £64,000. That is the minimum amount for which Mrs Bhalla is liable.

[409]I shall entertain an application for an interim payment upon handing down this judgment, when matters of interest can also be considered.

[410]In approaching the matter in the way I have done, I am following the parties (and the submissions made to me) in treating the payment of the £40,000 in November 2000, and all later payments “on account” of dividends to be declared, as having the character of dividends. I very much doubt whether it is strictly correct to treat the matter in that way. The payment of dividends is strictly regulated. A company has no power to pay dividends, including so-called payments on account of dividends, except on the basis of proper statutory accounts (either annual accounts or accounts prepared for dividend purposes) and there were none in November 2000, when the £40,000 was paid, or when the later “on account” dividend payments were made in relation to later trading periods

[411]Mr Moraes points out that accounts can make provision for proposed dividends. So they can, but there were not even accounts of that character in this case at the time of payment.

[412]It seems to me that, strictly, no dividend was lawfully paid by Farlam until the first declaration of dividend in October 2001, when accounts had been prepared. Until then, the “on account” payment was an unlawful payment of Farlam’s money which it was beyond the powers of the directors and shareholders to authorise. The £40,000 was accordingly Farlam’s money, which was repayable to Farlam, had Farlam ever demanded it. The same reasoning applies to all later “on account” dividend payments.

[413]However, once the dividends were declared, the obligation of Mrs Bhalla to restore to Farlam the monies previously paid as “dividends” was extinguished, and she became directly accountable under the Declaration of Trust for the dividends.

[414]She would also in my judgment be accountable to her beneficiary from the moment of the “on account” payments as those payments, even if initially wrongful as between herself and Farlam, came to her as a shareholder and thus in her character of trustee.

[415]Mrs Bhalla is accordingly accountable one way or the other for half of all dividends which have been paid or declared, or which should have been paid or declared, and for all other benefits accruing to her by reason of her holding of the 20 shares in Farlam, which she holds on trust for (ultimately) Dr Sharma.

The Arbitration award

[416]I have already mentioned that following the dissolution of the partnership between Drs Sharma and Bhalla, arbitration proceedings were begun.

[417]A number of awards have been made in the arbitration. By an application dated 27 February 2008, Dr Bhalla seeks an order pursuant to Section 66 of the Arbitration Act 1996 for permission to enforce that part of the award dated 13 November 2006 (“the First Interim Award”) which ordered a sale of the Trafalgar Road premises.

[418]The First Interim Award, which was made by consent:-(i) Ordered the sale of the Trafalgar Road premises by public auction (clause 16).

(ii) Ordered that the auction be arranged by a reputable professional auctioneer (clause 17). Cottons, Chartered surveyors were duly appointed subsequently.

(iii) Ordered the appointment of Mills & Reeve as solicitors to have the conduct of the sale (clause 18).

(iv) Permitted both parties to bid at the auction (clause 19).

(v) Ordered both parties to vacate the Trafalgar Road premises prior to completion unless he was the purchaser (clause 20).

[419]Dr Sharma says that this award should not be enforced because to do so would be to enforce the unlawful sale of medical goodwill in an NHS practice.

[420]It was accepted before me that this objection, if made good, would be a reason for not enforcing the award.

[421]Section 259(1) of the National Health Service Act 2006 (“the Act”) makes it “unlawful to sell the goodwill of the medical practice” of a person to whom specified subsections apply. It is common ground that the medical practices of Drs Bhalla and Sharma are included within this prohibition.

[422]Sub-section (5) of section 259 of the Act provides as follows: - “In this section – ‘goodwill’ includes any part of goodwill and, in relation to a person practising in partnership, means his share of the goodwill of the partnership practice, ‘medical practice’ includes any part of a medical practice…”

[423]Paragraph 1 of Schedule 21 of the Act makes it a criminal offence to contravene section 259.

[424]Schedule 21 of the Act provides as follows:- “1 … (2) Any person proposing to be a party to a transaction or series of transactions which he considers might amount to a sale of the goodwill of a medical practice in contravention of section 259 may ask the Secretary of State for a certificate under this paragraph. (2) Any person proposing to be a party to a transaction or series of transactions which he considers might amount to a sale of the goodwill of a medical practice in contravention of section 259 may ask the Secretary of State for a certificate under this paragraph. (3) The Secretary of State must–(a) consider any such application, and

(b) if he is satisfied that the transaction or series of transactions does not involve the giving of valuable consideration in respect of the goodwill of such a medical practice, issue to the applicant a certificate to that effect. (4) The certificate must– (a) be in the prescribed form, and (b) set out all material circumstances disclosed to the Secretary of State. (5) Where any person is charged with an offence under this paragraph in respect of any transaction or series of transactions, it is a defence to prove that the transaction or series of transactions was certified by the Secretary of State under sub-paragraph (3)…. Certain transactions deemed sale of goodwill 2(1)For the purposes of section 259 and paragraph 1, a disposal of premises previously used for the purposes of a medical practice is deemed to be a sale of the goodwill of a medical practice if– (a) the person disposing of the premises did so knowing that another person ("A") intended to use them for the purposes of A’s medical practice, and (b) the consideration for the disposal substantially exceeded the consideration that might reasonably have been expected if the premises had not previously been used for the purposes of a medical practice…”

[425]Mills & Reeve, the solicitors appointed by the First Interim Award to have the conduct of the sale, have prepared a draft contract for the proposed auction, which will be conditional on obtaining a favourable certificate under Schedule 21.

[426]In those circumstances, the argument that the parties will be committing an offence by selling the Trafalgar Road premises at the proposed auction is untenable. The sale will only take place pursuant to the conditional contract if the Secretary of State gives the relevant certificate.

[427]The risk is that the 2 doctors (and maybe others) will become engaged in a bidding war which will push the price up beyond the price which would be expected had the premises not been used as a medical practice. If that does happen, the Secretary of State would not issue a certificate in the case of a purchaser intending to use the premises as a medical practice (which any purchaser would almost certainly be).

[428]A completed sale in those circumstances would be unlawful. That however is a future question with no inevitability about it. It is no reason for refusing to enforce the First Interim Award. The parties would not be committing an offence by entering into a conditional contract in those circumstances, as the condition would preclude the commission of an offence.

[429]There is a strong presumption in favour of enforcing any arbitration award. Here, too, the award represents a compromise which, if not in the form of an award, the Court would ordinarily enforce. No good reason has been shown for not enforcing the award. Dr Sharma would now prefer a partition but that is not what he agreed. Nor is it what the First Interim Award says.

[430]I shall accordingly enforce the First Interim Award by ordering a sale, and giving directions to reflect the terms (except as to dates) of the First Interim Award. There will also be permission to apply to vary the directions if, in the events which happen, the Trafalgar Road premises are not sold at auction, or a certificate is declined by the relevant authority.

[431]The NHS Litigation Authority (to whom the Secretary of State’s powers under Schedule 21 have been delegated) have rightly stated in correspondence that it is premature to apply in advance of the auction. There is also a suggestion that it may be too late to apply after the auction, as by then the property will have been sold. I do not think this last point can be right. The contract of sale will be conditional and there will not in my judgment be a relevant disposal until (at the earliest) when the condition is satisfied.

The result

[432]The Sharmas succeed on all their claims (except immediate rectification of the register) in 6BM 30117.

[433]Dr Bhalla succeeds in enforcing the First Interim Award in 8BM30085. DIVIDEND SCHEDULE Payment to B by F Date dd-mm-yy Payment to S by B Dividends Declared Retained by F £40,000 01-12-2001 £20,000 13-07-2001 26-07-2001 £20,000 10-10-2001 £40,000 £4,000 04-02-2002 £20,000 08-05-2002 £20,000 02-08-2002 23-10-2002 £44,000 £20,000 03-04-2003 24-10-2003 £40,000

£20,000

£12,000 20-05-2004 20-10-2004 £36,000 £24,000 26-10-2005 £24,000 £24,000 Notes: (i). The dividends declared relate to all the 40 shares registered in Mrs Bhalla’s name and are therefore due to B and S equally. (ii). Dividends on the A shares are not included.436. Key: B = Mrs Bhalla

437. S = Mrs or Dr Sharma

438. F = Farlam