Engineering giant Hampson Industries is facing a multi-million-pound bill after a judge slammed its “fraudulent” £3.1 million deal to sell off an ailing car parts firm.

Hampson Industries’ former chief executive kept quiet about a key customer being on the brink of deserting subsidiary Hampson Precision Automotive (HPA) before selling it to a group of investors led by Midland industrial heavyweight David Grove, it emerged in the High Court in London.

Mr Justice Field ruled ex-Hampson Industries chief executive Kim Ward, who stepped down from the firm last year, was behind a “fraudulent misrepresentation” in the £3.1 million deal.

And now in a very rare step, the judge has opened the way for the investors, trading as Erlson Precision Holdings, to hand back Lancashire-based HPA to Hampson Industries and claim their money back, with interest.

Erlson is also seeking damages for “wasted transaction costs”, the time and expense of continuing to run HPA and “for its loss of opportunity of making a different acquisition”, meaning Black Country firm Hampson’s final bill could spiral well beyond the original £3.1 million it made from the deal.

Responding to the decision, former Hill & Smith chairman David Grove said: “It is clear that the outcome fully vindicates our decision to take legal action against Hampson Industries.”

Describing Mr Ward’s behaviour as “truly extraordinary” for the chief executive of a publicly listed company, the judge said that Erlson Precision Holdings paid £3.1 million for HPA on the basis of “false and misleading” sale forecasts.

Erlson discovered soon after the deal went through that Cummins Turbo Technologies – which made up 37 per cent of HPA’s turnover – was “exiting” from its 10-year relationship with HPA, which employs 150 people and specialises in manufacturing turbocharger components.

That, the judge added, came as “to say the least, a bolt from the blue”, and “horrified” Erlson, which swiftly claimed it had been deceived and sought to rescind the deal.

Mr Justice Field ruled HPA’s sale “was achieved by fraudulent misrepresentation”.

The judge said HPA’s business was in the process of recovering from deep recession and its future looked positive when it was decided to seek a buyer in July 2009.

However, the critical moment came on April 30 last year, when Mr Ward had a 15-minute telephone conference with Cummins’ managers, who told him that the company, which had re-sourced its supplies in the Far East, was calling off its long-standing relationship with HPA.

The judge said Mr Ward was told that the decision was “final” and that there was nothing either he or Hampson Industries could do to keep Cummins as an HPA customer.

Mr Ward told the court he thought that was just a “negotiating ploy” by Cummins, to get a lower price, and did not believe that the company would really depart the HPA fold.

He denied saying that, with the loss of Cummins as a customer, HPA would become “unsaleable”.