Judgment handed down in Kulkarni v Gwent Holdings Ltd & Anor [2024] EWHC 1357 – No contractual estoppel in a shareholders’ agreement

Andrew Thompson KC appeared for the successful Second Defendant, St Joseph’s Independent Hospital Limited (“the Company”).  The Claimant, Mr Kulkarni, a shareholder in the Company, dropped his claims against the Company during the course of closing submissions at trial. The judgment of Richard Farnhill, sitting as a deputy judge of the High Court, also dismissed the claim against the First Defendant, another shareholder in the Company.

One issue common to both claims was an allegation of contractual estoppel arising out of the recitals in a shareholders’ agreement, which the Court roundly rejected.  The recitals to the agreement stated that at the outset, as the Company acquired its business on pre-pack sale, shares had been issued and registered fully paid in the names of certain shareholders, including the Claimant, despite the fact that as regards the Claimant he had not paid for them and they had not been registered in his name. The Court rejected the argument that, on the true construction of the agreement, it was intended that those recitals should bind the parties to proceed on the basis that they were factually accurate, even though the parties knew that they were not. There are occasions where Courts have identified such an intention (e.g. Prime Sight v Lavarello [2013] PC 22), but that was not the case here. In particular, here that would have flown in the face of the clear purpose of the parties to the agreement in raising capital for the Company.  Indeed, at the same time the Claimant and the Company entered into a contract of allotment under which the Claimant was obliged to pay for shares which would only be issued to him when he had paid.

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