Sheriff Appeal Court upholds decision to reduce partnership altered after partner’s signature obtained by misrepresentation

Balbir Chall, the pursuer and respondent to the appeal, argued that she did not consent to what was contained in the agreement she signed and was induced into not seeking independent advice. The appeal was made by the third defender, Hardeep Chall, who argued that reduction was not a remedy available in the circumstances of the case.

The appeal was heard by Sheriff Principal Nigel Ross, together with Appeal Sheriffs Harry Small and Derek Hamilton. JA Brown, advocate, appeared for the appellant and G MacColl KC for the respondent.

Routine document

The Chall partnership was formed by oral agreement in 1998 to act as a business vehicle for the assets of three separate families. By 2013 only three of the partners survived, including the respondent, and the partnership as a whole was managed with the consent of the other partners by Jagwinder Chall, the appellant’s father.

Between 2012 and 2013 the partnership had to re-finance its borrowing. An agreement was drafted, in English, to alter the constitution of the partnership by making the appellant a new partner and also the managing partner, thereby reducing the shares of the remaining partners from one third to one quarter. The respondent, who spoke only Punjabi, signed the 2013 agreement without taking separate legal advice, and in seeking reduction averred that she was induced by omission to believe she was being asked to sign a routine document relating to the day-to-day administration of the partnership.

Following the death of Jagwinder Chall in 2020, the respondent became concerned over the management of the partnership and thereby discovered the true nature of the 2013 agreement, as well as a 2014 conveyance naming the appellant as co-trustee on the heritable properties owned by the partnership. The sheriff found that the two contracts were voidable and fell to be reduced, and as a consequence the partnership was also dissolved.

Counsel for the appellant accepted that the 2013 and 2014 documents were potentially voidable but submitted that the sheriff erred in finding that restitutio in integrum was possible in this case. The only manner in which that would be possible would be for the partnership to provide him with an indemnity for any debts and loans made to the partnership since 2013, and for an order to be issued requiring remuneration to the appellant for the work undertaken by him for the partnership since 2013.

Gratuitous, not transactional

Delivering the opinion of the court, Sheriff Principal Ross observed: “The respondent’s signature was obtained in circumstances which were gratuitous, not transactional. She did not believe she was ceding rights of ownership in return for payment or other benefit. She did not intend to give away anything at all. She did not expect to receive anything. She believed she was enabling the conduct of routine affairs of the partnership.”

He continued: “The error in the present case was in the essentials, in the sense of a substantial error without which the respondent would have declined to contract. Restoration of the parties does not require the respondent to restore or refund anything to the appellant. There is no question of unjust enrichment or robbery. The purpose of the relief is not punishment but compensation. There is nothing to compensate the appellant for, because his liabilities were not incurred as part of any voluntary transaction with the respondent.”

On whether restitution was precluded, Sheriff Principal Ross said: “The sheriff noted that restitutio in integrum remains possible by the simple mechanism of the surviving partners indemnifying the appellant in the event that he incurs liability in respect of the partnership obligations. Counsel for the appellant agreed that to be correct, but pointed out that this was not an immediate remedy. In our view, that objection is not a good one, because the remedy is only as conditional and prospective as the liability to make payment itself.”

He concluded: “The sheriff has identified a solution which is practically just. Accordingly, even if restitutio in integrum is not, in these particular circumstances, a necessary precondition to reduction, we would have found that the sheriff had identified an equitable, and practically just, means of achieving restitutio in integrum.”

The appeal was accordingly refused, and the case remitted to the sheriff to progress in respect of the accounting.