Primekings Holding Ltd v Anthony King
| Jurisdiction | England & Wales |
| Judge | Lord Justice Snowden,Lord Justice Nugee,Lord Justice Green |
| Judgment Date | 17 December 2021 |
| Neutral Citation | [2021] EWCA Civ 1943 |
| Docket Number | Case No: A3/2021/0216 |
| Court | Court of Appeal (Civil Division) |
In the Matter of Kings Solutions Group Limited
and
In the Matter of Section 994 of the Companies Act 2006
Lord Justice Green
Lord Justice Nugee
and
Lord Justice Snowden
Case No: A3/2021/0216
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY AND COMPANIES LIST (ChD)
Mr. Tom Leech QC (Sitting as a Deputy High Court Judge)
Royal Courts of Justice
Strand, London, WC2A 2LL
Catherine Addy QC and Joseph Sullivan (instructed by Macfarlanes LLP) for the Appellants
Christopher Newman (instructed by Claremont Litigation Limited) for the Respondents
Hearing date: 3 November 2021
Approved Judgment
This judgment was handed down remotely by circulation to the parties' representatives by email. It will also be released for publication on BAILII and other websites. The date and time for hand-down is deemed to be 10 a.m. on Friday 17 December 2021.
INTRODUCTION AND BACKGROUND
This is an appeal from an interlocutory decision in the course of an unfair prejudice petition under Section 994 of the Companies Act 2006 (the “Petition” and “Section 994”). The Petition is only one piece of litigation in a long-running and procedurally complex dispute between the shareholders of Kings Solutions Group Limited (the “Company”).
The appeal is brought by the main respondents to the Petition (the “Appellants”) against the refusal of Tom Leech QC (as he then was) (the “Judge”) to strike out a number of paragraphs of the Points of Claim of the Petitioners. The decision of the Judge was included in a lengthy and careful judgment handed down on 19 November 2020: see [2020] EWHC 3130 (Ch) (the “Judgment”). The Judge struck out some paragraphs of the Points of Claim, but refused to strike out others which are the subject of the appeal (the “disputed paragraphs”).
The main issue on the appeal is whether, and if so, in what circumstances, it is permissible to include in a statement of case in a petition under Section 994, allegations of personal conduct by the respondents to that petition which are not, of themselves, within the scope of Section 994. The appeal also raises questions of abuse of process by re-litigation of matters said to have been decided in other proceedings.
The unfair prejudice jurisdiction
Section 994(1) and Section 996(1) of the Companies Act 2006 provide,
“994. (1) A member of a company may apply to the court by petition for an order under this Part on the ground –
(a) that the company's affairs are being or have been conducted in a manner that is unfairly prejudicial to the interests of members generally or of some part of its members (including at least himself), or
(b) that an actual or proposed act or omission of the company (including an act or omission on its behalf) is or would be so prejudicial.
996. (1) “If the court is satisfied that a petition under this Part is well founded, it may make such order as it thinks fit for giving relief in respect of the matters complained of.”
The basic requirements for a petition under Section 994(1)(a) were conveniently and shortly summarised by Floyd LJ in Loveridge v Loveridge [2020] EWCA Civ 1104 at paragraph 41,
“A number of uncontroversial propositions can be derived from the authorities cited to this court:
i) For a petition to be well founded the acts or omissions of which the petitioner complains must consist of the conduct of the affairs of the company: Hawkes & Cuddy (No 2) [2007] EWHC 2999 at [202] per Lewison J;
ii) The conduct of those affairs must have caused prejudice to the interests of the petitioner as a shareholder: ibid;
iii) The prejudice so caused must be unfair: ibid;
iv) A minority shareholder cannot normally complain of conduct which is in accordance with the company's constitution unless he can establish a breach of the rules on which it is agreed that the affairs of the company should be conducted, or the use of those rules in a way which equity would regard as contrary to good faith: O'Neill v Phillips [1999] 1 WLR 1092 at 1099 A-B per Lord Hoffmann;
v) Although the term “legitimate expectation” has been used in connection with establishing equitable restraint on the exercise of constitutional power, that expression does not have “a life of its own”, supplanting traditional equitable principles: ibid at 1102 B-F.
The background to the litigation was set out at length in the Judgment. It was not materially disputed for the purposes of the argument on the appeal and I shall summarise it as briefly as possible.
The Company
The Company is a holding company for a group of operating companies which provide security and fire services to domestic and commercial customers. It has a subsidiary, Kings Security Systems Limited (“KSSL”), which is a respondent to the Petition, but, like the Company itself, played no active role in the appeal.
Prior to the events giving rise to the disputes between the parties, all of the shares in the Company were held as to 20% by the First Petitioner (“Anthony King”), as to 40% by his parents, the Second and Third Petitioners (“Mr. and Mrs. King”), and as to 40% by a family trust called the JPK No 1 Discretionary Settlement (the “Trust”). The Petitioners were each directors of the Company.
The Transaction in 2013
The litigation between the parties stems from a transaction (the “Transaction”) involving an acquisition of the majority of the equity shares and a capital investment in the Company by the First Appellant (“Primekings”). The Second Appellant (“Mr. Fisher”), and the Third Appellant (“Mr. Stiefel”), are directors of Primekings.
The Transaction was completed on 20 December 2013 and comprised a number of features:
i) Primekings purchased the ordinary shares held by Mr. and Mrs. King for £2 million. £750,000 of the purchase price was payable immediately. The balance of £1,250,000 was to be paid whenever and as soon as Primekings, acting reasonably and in good faith, determined that the Company could lend or distribute sufficient funds to pay this sum but with the intention of paying it entirely by the third anniversary of completion. As events turned out, the Company did not have sufficient funds to fund the payment of the additional £1,250,000, but Primekings paid this sum from its own resources in instalments to Mr. and Mrs. King, making the final payment on 31 March 2015.
ii) Mr. and Mrs. King were allotted six B shares which carried no voting rights but were redeemable over a period of three years at £500,000 per share if the EBITDA of the Company was equal to or greater than £3,000,000 or in accordance with a detailed formula if the EBITDA of the Company was less than that figure. The Company's obligation to redeem the shares was, however, dependent upon it having sufficient distributable profits to do so (or other monies which could be lawfully applied for their redemption).
iii) Primekings agreed to subscribe for further ordinary shares in the Company for £1 million.
iv) Primekings granted Anthony King a put option entitling him to require Primekings to acquire up to 50% of his shares on or after the third anniversary of the date of completion (the “Put Option”). Under the terms of the Put Option, the price payable for the option shares was their “fair value” which was defined to be the price as agreed between Anthony King and Primekings, or in the absence of agreement, as calculated by an independent accountant on certain stated assumptions. The Put Option provided that the independent accountant was to act as expert and not as arbitrator, was to be appointed by the board of directors of the Company, and his fees were to be borne equally by Anthony King and Primekings, who would be jointly and severally liable for such fees.
The effect of the Transaction was that, on completion, Primekings became the owner of about 76% of the ordinary share capital of the Company, and Anthony King and the Trust retained the balance of approximately 24%. In November 2014 Primekings reduced its shareholding from about 76% to about 60%, leaving Anthony King and the Trust holding the remaining 40%.
On completion of the Transaction, Mr. and Mrs. King resigned as directors of the Company and were replaced by Mr. Fisher and Mr. Stiefel. A Mr. Peter Swain was also appointed as a director at the same time. Anthony King remained a director of the Company and also acted as the managing director of KSSL. On 23 April 2014 Mr. Swain resigned as a director and on 28 July 2015 the Fourth Appellant (“Mr. Zeidler”), became a director of the Company. Mr. Zeidler was later also appointed to be a director of KSSL and the Chairman of the boards of directors of both companies.
The Misrepresentation Claim
At or shortly after payment of the final instalment of the purchase price for the shares of Mr. and Mrs. King in March 2015, the Petitioners sent a letter before action to Mr. Stiefel, Mr. Fisher and Mr. Swain. On 15 July 2015 the Petitioners issued proceedings under CPR Part 7 against (among others) Primekings, Mr. Fisher and Mr. Swain (the “Misrepresentation Claim”). Neither Mr. Stiefel nor Mr. Zeidler were parties to the Misrepresentation Claim. The Company was initially named as a claimant, but this was done without authority, and the claim in its name was discontinued.
The essence of the Misrepresentation Claim was an allegation that in the course of events leading up to the conclusion of the Transaction in December 2013, Primekings and the individual defendants connected with it had made fraudulent misrepresentations to the Petitioners about the...
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