Bal: Dispute over clause in option agreement
The High Court has overturned a decision to dismiss a breach of contract claim by a former law firm owner against the solicitor he sold his business to after being suspended.
Mr Justice Rajah said that Davinder Bal’s case – which was dismissed at the start of the trial after the first preliminary issue considered went against him – would now resume.
Mr Bal owned DBS Law, which had offices in Birmingham and Nottingham and operated the personal injury brand Claim Today Solicitors. In September 2018, the Solicitors Disciplinary Tribunal (SDT) suspended him for a year, after he received £154,000 in personal injury referral fees from a credit hire firm.
Unusually, it postponed the sanction for a month so he could secure the future of the firm. The SDT also imposed conditions on his ability to practise without the prior approval of the Solicitors Regulatory Authority (SRA) for a further three years.
Shortly before these events, DBS’s head of family, Parveen Attri, set up a new law firm, PKA Legal, and entered into a share option agreement which gave Mr Bal an option to acquire 80% of PKA for £1.
In October 2018, PKA bought DBS Law in a pre-pack for £120,000. Mr Bal loaned PKA £55,000 to help fund the purchase.
Rajah J recorded that relations between the pair “thereafter soured”, with Ms Attri refusing to sign a form for SRA approval of Mr Bal as a member of PKA “on the basis that she was not willing to certify that he was a fit and proper person”.
In September 2020, Mr Bal purported to exercise his option, “knowing that without SRA approval, completion of the option risked placing him in breach of the conditions imposed on him by the SDT”.
Proceedings began the following year, with Mr Bal’s seeking specific performance of the option agreement – including orders that Ms Attri sign and submit the form to the SRA – or damages in the alternative.
Ms Attri asserted that the option had not been validly exercised because clause 7.5 had not been complied with and was a condition to the exercise of the option.
This clause said Ms Attri and Mr Bal agreed to enter into a shareholders agreement and new articles of association prior to the date of the exercise of the option.
These would require that any new issue of shares be offered to all the shareholders on a pro rata basis, so that they would have the opportunity to prevent a dilution of their shareholdings.
PKA entered administration in August 2021.
When the proceedings reached trial this January, His Honour Judge Williams in Birmingham held as a preliminary issue that, on the true construction of the option agreement, the failure to agree a new shareholders agreement prior to the purported exercise of the option rendered the exercise of the option invalid. He dismissed the claim.
Rajah J questioned the judge’s statement that the clause was “clear and unambiguous”, noting that it was “completely silent as to the consequences” if the parties did not agree to enter into the new agreement and articles, and did not say that these steps ‘must’ or ‘shall’ be taken.
“The judge has not expressly addressed the question of why it is necessary to give business efficacy to the option agreement to imply compliance of clause 7.5 as a pre-condition to the exercise of the option,” he continued.
Rajah J also disagreed with HHJ Williams’ conclusion that the clause provided Ms Attri with important protection as a minority shareholder: “There was no commercial imperative such that the court should infer that the parties must have intended clause 7.5 to impose a pre-condition to the exercise of the option.”
As HHJ Williams had not dealt with any of the other preliminary issues or heard any evidence, Rajah J remitted the case for trial.
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