Griffith v Gourgey & Ors

Factual and Procedural Background

The appeals arise from orders made by Sir Nicholas Warren, a High Court judge, concerning two petitions under section 994 of the Companies Act 2006 alleging unfair prejudice in the conduct of affairs of two companies, Company A and Company B. The petitions were originally presented in March 2013.

Company A and Company B were among several entities established to operate hotel and property businesses by the Appellant, Respondent 1, and a third individual who was declared bankrupt in 2010. Shares in Company B were held by the Appellant and the bankrupt individual (25 shares each) and by the trustees of a family trust established by Respondent 1 (50 shares). Shares in Company A were held by the Appellant and the bankrupt individual (25 shares each) and by Respondent 1's two sons (25 shares each).

The directors of Company A at relevant times included Respondent 1, his sons, the Appellant until May 2010, and the bankrupt individual until bankruptcy. Directors of Company B included Respondent 1, his spouse, the Appellant until May 2010, and the bankrupt individual until bankruptcy.

The Appellant alleged that Respondent 1 caused Company A, Company B, and a subsidiary to transfer substantial sums to companies in which Respondent 1 and associates had interests, not in the companies' best interests but for personal benefit, without the Appellant's knowledge or approval. Respondent 1 and others contended that these companies operated as a corporate group, routinely assisting each other with loans on commercial terms, with the Appellant's consent, and that some payments were management charges agreed by the Appellant.

The primary relief sought was an order requiring Respondent 1 and the sons to purchase the Appellant's shares in Company B and Company A respectively.

Procedurally, the petitions initially progressed quickly with combined pleadings served in 2013. However, progress stalled due to the respondents' failure to provide further information on points of defence, resulting in the striking out of their points of defence by Simon J in May 2015. An appeal against this order was dismissed in July 2017.

Subsequent applications included requests to strike out relief sought against the sons in the Company A petition or to require amendment of the pleadings, and permission to amend the Company B petition to reflect the Appellant's acquisition of additional shares in 2014.

Sir Nicholas Warren heard these applications in 2018, issuing a reserved judgment that allowed the strike-out applications against the sons and a family trust unless amendments were made, and later granted permission to amend the Company A petition but refused permission to amend the Company B petition in respect of the family trust. The sons and Respondent 1 were permitted to plead full defences to the amended claims.

The Appellant appealed against the order striking out relief against the sons unless amended and against the condition allowing Respondent 1 to plead a full defence to the amended Company B petition.

Legal Issues Presented

1. Whether the pleadings against the sons in the Company A petition sufficiently alleged unfairly prejudicial conduct to sustain a claim for relief, including a buy-out order.
2. Whether the Appellant could rely on the sons' shares being held on behalf of Respondent 1 to support a claim for relief against the sons.
3. Whether permission to amend pleadings should allow Respondent 1 to plead a full defence to the entire points of claim in the Company B petition, despite prior striking out of points of defence.
4. The proper scope and requirements for pleadings in unfair prejudice petitions under section 994 of the Companies Act 2006, particularly the relationship between the petition and points of claim.

Arguments of the Parties

Appellant's Arguments

• The sons' shares in Company A were effectively held for Respondent 1, and the court should treat the relief sought against the sons as if it were against Respondent 1 directly.
• The sons, as directors, supported Respondent 1's breach of fiduciary duties by causing Company A to make payments benefiting companies in which Respondent 1 had interests, justifying relief against them.
• The judge erred in allowing Respondent 1 to plead a full defence to the entire points of claim after amendments, as permission to amend should only allow consequential defence amendments.
• The Appellant should be entitled to rely on the sons' knowledge of breaches as directors without needing to plead specific knowledge in the original points of claim.

Respondents' Arguments

• The companies operated as a corporate group with commercial loan arrangements consented to by the Appellant, negating claims of unfair prejudice.
• The sons did not hold shares as nominees for Respondent 1 and are not liable for his alleged wrongdoing absent specific allegations connecting them to breaches.
• The points of defence were properly struck out due to failure to provide further information, limiting the scope of the Appellant's claims.
• Respondent 1 should be allowed to plead a full defence to the amended Company B petition to raise specific arguments related to the additional shares acquired by the Appellant.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Re Tecnion Investments Ltd [1985] BCLC 434	Importance of proper pleading in unfair prejudice petitions and winding-up petitions to define the case and keep proceedings manageable.	The court endorsed the principle that the petition must specify grounds for relief, but detailed particulars can be provided in points of claim, reflecting modern practice.
Re Fildes Brothers Ltd [1970] 1 WLR 592	Requirement for clear pleading in petitions to define the case.	The court acknowledged that with the introduction of points of claim and defence, the strictness of petition pleading can be relaxed if the points of claim provide sufficient detail.
Lexi Holdings Ltd v Luqman [2009] EWCA Civ 117, [2009] 1 BCLC 1	Directors may be liable for breaches of duty by fellow directors if they knew or ought to have known of them.	The court held that pleading mere directorship is insufficient; the onus is on the claimant to prove breach of duty.
Thevarajah v Riordan [2015] EWCA Civ 41, [2015] CP Rep 19	Limits on reliance on struck out points of defence to establish grounds for relief not pleaded in the petition.	The court rejected the submission that a petitioner can rely on struck out defences to provide grounds for relief absent from the petition.
Bermuda Cablevision Ltd v Colica Trust Ltd [1998] AC 198	Buy-out orders may not extend to shares acquired with knowledge of the unfair conduct or from consenting shareholders.	The court allowed Respondent 1 to plead defences based on timing of share acquisition and consent by prior shareholders.

Court's Reasoning and Analysis

The court emphasized the necessity for clear pleading of grounds for relief in the petition under section 994, while recognizing that detailed particulars may be provided in points of claim. The petition defines the "ambit" of the case, and relief cannot be granted on grounds absent from it.

Regarding the Company A petition, the court found that the allegation that the sons supported Respondent 1's breach of fiduciary duties was pleaded in the points of claim but not sufficiently particularized in the petition. However, since the sons served points of defence without disputing the allegation of support, it was too late to strike out the claim on grounds of inadequate pleading. The court held that the judge erred in striking out the relief against the sons and that the omission in the petition should be cured by amendment to conform with the points of claim.

The court rejected the argument that the sons' shares should be treated as held for Respondent 1 absent specific pleading connecting them to wrongdoing. Mere ownership by family members does not expose them to relief without further allegations.

In relation to the Company B petition, the court considered the judge's condition allowing Respondent 1 to plead a full defence to the amended points of claim, which included the acquisition of additional shares by the Appellant. The court held that the case for relief was the same for both the original and additional shares, and permitting a full defence to circumvent the striking out of points of defence was inappropriate. However, Respondent 1 was entitled to plead defences specifically related to the additional shares, such as knowledge of the conduct at acquisition and consent by prior shareholders, consistent with established principles.

The court also expressed concern about the prolonged delay in resolving the petitions and urged the parties to cooperate and the court to exercise its case management powers to ensure a timely hearing.

Holding and Implications

The court allowed the appeal concerning the Company A petition, holding that the claim for relief against the sons should not have been struck out and that the petition should be amended to include the relevant allegations pleaded in the points of claim. The appeal on the argument that the sons' shares should be treated as held for Respondent 1 was rejected.

Regarding the Company B petition, the court allowed the appeal against the judge's condition permitting Respondent 1 to plead a full defence to the entire points of claim following amendment. Instead, Respondent 1 is permitted to plead defences limited to the additional shares acquired by the Appellant.

The appeals were allowed in part, resulting in reinstatement of the claim against the sons in the Company A petition subject to amendment, and limitation of Respondent 1's defence in the Company B petition to specific issues related to the additional shares.

The decision directly affects the parties' rights to plead and defend in these petitions but does not establish new legal precedents beyond clarifying procedural and pleading standards in unfair prejudice claims under section 994.