Sujata Chohan v Jayendra Ved & Ors
[2024] EWHC 739 (Ch)
Oak Forest Partnership Limited (in liquidation) & Ors v Mercantile Investment Holdings SA & Ors
27 July 2023
[2023] EWHC 1903 (Ch)
High Court
Imagine two hotel owners secretly gave away important parts of their hotels to their friends without telling anyone. The court said this was wrong and that the gifts should be taken back because the friends knew what was happening.
Key Facts
- •Oak Forest Partnership Limited (C1) and Oak Property Partners Limited (C2) purchased Hever and Needham hotels respectively, intending to sell rooms to investors.
- •999-year leases of common parts were granted to White Linen Hotels & Resorts Limited (WL) and Stevenage Conference Centre Limited (SCCL) without premium.
- •Subsequent transactions involved transfers of leases to Mercantile Investment Holdings SA (1D), Hever Hotel Management Limited (2D), Hever Spa and Wellbeing Limited (3D), and Blakemore Hotels Property Holdings Limited (4D).
- •Claimants alleged the leases were granted without authority, depleting company assets and benefiting connected parties.
- •Defendants argued the transactions were for proper purposes and they were bona fide purchasers for value without notice.
- •Key witnesses, including Ron Popely, did not attend the trial, raising concerns about their evidence.
- •Expert evidence addressed valuations of the leases and consideration provided.
Legal Principles
Directors' duties under s.172 of the Companies Act 2006 (CA)
Companies Act 2006
Transactions void for fraud on a power (lack of good faith and improper purpose)
Case law (Hopkins v TL Dallas Group Ltd, Heinl & Others v Jyske Bank)
Voidable vs. void transactions; consequences for third parties
Case law (MacMillan Inc v Bishopsgate Investment Trust Plc, Hely-Hutchinson v Brayhead, Howard Smith Ltd v Ampol Petroleum Ltd)
Relief under section 423 of the Insolvency Act 1986 (IA)
Insolvency Act 1986
Rectification of land registry entries under Schedule 4 of the Land Registration Act 2002 (LRA)
Land Registration Act 2002
Attribution of knowledge to companies
Case law
Duomatic principle (informal ratification of directors' actions)
Case law
Outcomes
The Hever Common Parts Lease and the Needham Lease were void.
The leases were granted without authority, for improper purposes, and in breach of directors' duties. The subsequent transactions were not bona fide purchases for value without notice.
The Hever CPL Variation was void.
The variation was an improper exercise of power, reducing the value of C1's assets without consideration.
The court has jurisdiction to rectify the land register by cancelling the entries for the leases and subsequent transactions.
The registrations were mistakes because the underlying transactions were void, and the subsequent parties were not bona fide purchasers for value without notice. The exception in Schedule 4, paragraph 3(2) LRA does not apply.
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