Zedra Trust Company (Jersey) Ltd v The Hut Group Ltd & Others
| Jurisdiction | England & Wales |
| Judge | Eyre |
| Judgment Date | 17 January 2020 |
| Neutral Citation | [2020] EWHC 5 (Ch) |
| Date | 17 January 2020 |
| Docket Number | Case No: 2014 of 2019 |
| Court | Chancery Division |
[2020] EWHC 5 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS IN MANCHESTER
INSOLVENCY AND COMPANIES LIST (Ch D)
IN THE MATTER OF THE HUT GROUP LIMITED
AND IN THE MATTER OF THE COMPANIES ACT 2006
Manchester Civil Justice Centre
1 Bridge Street West
Manchester M60 9DJ
HIS HONOUR JUDGE Eyre QC
Case No: 2014 of 2019
Paul Chaisty QC and George McPherson (instructed by DWF Solicitors) for the Petitioner
Lance Ashworth QC and Dan McCourt Fritz (instructed by Gowling WLG (UK) LLP) for the Respondents
Hearing date: 23 rd September 2019
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
HH Judge Eyre QC:
Introduction .
The Petitioner is a trust company. It is the trustee of Oliver's Sebastian Led Trust 2011, a trust of which Oliver Nobahar-Cookson is a beneficiary. The Petitioner holds shares in the First Respondent. The parties are agreed that the Petitioner holds 153,904 A Ordinary shares and 205,972 B Ordinary shares. There is disagreement, which is immaterial for present purposes, as to the precise proportion which that holding constitutes of the issued share capital of and of the voting rights in the First Respondent. The Petitioner's shareholding derives from a Sale and Purchase Agreement of May 2011 between the First Respondent, the Petitioner, and Mr. Nobahar-Cookson. That provided for the First Respondent to acquire the shares of the Petitioner and Mr. Nobahar-Cookson in Cend Ltd in return for a cash consideration and for the issue and allotment to the Petitioner of 153,904 A Ordinary shares and 153,904 A4 shares in the First Respondent. The A4 shares were subsequently converted into B Ordinary shares. It is common ground that the Petitioner's rights as shareholder were governed by the Sale and Purchase Agreement; by a Shareholders' Agreement; and by the Articles of the First Respondent although the consequences of that and the rights flowing from those documents are heavily contested.
After the First Respondent's acquisition of the share capital of Cend Ltd Mr. Nobahar-Cookson became a director of the First Respondent but there was then a significant falling out. The First Respondent alleged that Mr. Nobahar-Cookson and the Petitioner had breached the warranties in the Sale and Purchase Agreement and for their part Mr. Nobahar-Cookson and the Petitioner alleged that the First Respondent had fraudulently breached the warranties it had given.
The Petitioner says that the consequence of that breakdown of relations was that those in control of the First Respondent thereafter conducted the affairs of that company vindictively and for the purpose of causing harm to the Petitioner and to Mr. Nobahar-Cookson. That improper conduct is said to have been manifested in actions in relation to the rights of the shares held by the Petitioner; in a dilution of the Petitioner's shareholding in the First Respondent; and in breaches of an obligation to provide information which is alleged to derive from the Shareholders' Agreement.
In the current proceedings the Petitioner petitions pursuant to section 994 of the Companies Act 2006 (“the Act”) against the First Respondent and fourteen other respondents. The latter respondents are persons who have been directors of the First Respondent at various times and five of whom are also shareholders in the First Respondent. Detailed Points of Defence have been served and these have been met by Points of Reply.
In the current application the Respondents seek the striking out of the Petition in its entirety as an abuse of process or failing that the striking out of particular elements of the Petition. This course was foreshadowed in the Points of Defence which begin by characterising the Petition as an abuse of process. In the event that the Petition is not struck out the Respondents seek permission to serve a Rejoinder and the Petitioner does not resist that aspect of the application. The application is stated to be made on the basis that the Petition or parts of it are “improperly pleaded, unsustainable, and/or abusive”. The Respondents are accordingly relying on CPR Pt 3.4 (2) (a) and (b).
The Petition .
It is necessary to set out in some detail the allegations contained in the Petition and the relief sought.
The Petition lists the dates of appointment of the Second – Fifteenth Respondents as directors of the First Respondent with the dates of termination of the appointments of the Fourth and Eighth Respondents. It then sets out duties owed by those respondents deriving from sections 171, 172, and 175 of the Act and states that the duties were owed to the First Respondent. It sets out the circumstances of the Sale and Purchase Agreement and the Petitioner's acquisition of shares in the First Respondent pleading particular terms of the Shareholders' Agreement. It asserts that the effect of the Shareholders' Agreement was in part that the First Respondent “and its director shareholders” were “each bound to disclose and not to withhold from [the Petitioner] … such information as it reasonably required for the purpose of monitoring the value of its shareholding in [the First Respondent]”. This is characterized as “the Information Obligation”. At paragraph 1 of the prayer the Petitioner seeks a declaration that the Information Obligation is binding on the First Respondent “and its directors and shareholders”.
At paragraphs 24 – 29 the Petition pleads that the Articles were amended with effect from 7 th August 2014 to remove the co-sale rights which had formerly attached to the Petitioner's A Ordinary shares. It says that in approving the special resolution adopting the new Articles the First Respondent “and its directors” had acted “in bad faith and/or for an improper purpose”. The allegation that the action was taken in bad faith and/or for an improper purpose is made at paragraph 27 of the Petition and the particulars are set out at 27.1 – 27.4. Thus it is said that there was “no proper commercial basis” for the amendment; that the amendment “could not have been inadvertent and/or by mistake”; that it was to be inferred from the acrimonious breakdown of relations following the respective allegations of breach of warranty that “the directors exercised their power vindictively and for the improper purpose of causing damage to [the Petitioner] and Mr. Nobahar-Cookson”; that the omission of reference to the relevant Article in an email sending a draft amendment resolution was a breach of the Information Obligation and that it is to be inferred it was a deliberate omission which was intended to conceal from the Petitioner the effect of the amendment. At paragraph 2 of the prayer the Petitioner seeks an order that the First Respondent “amend the Articles to reinstate the co-sale rights”.
The Respondents' Points of Defence plead that the amendment was made in error and was ineffective and invalid by reason of a failure to comply with the requirements of section 630 of the Act. They say that the error has now been remedied and that an offer to do so had been made before the presentation of the Petition. In those circumstances the Respondents seek the striking out of paragraph 2 of the prayer as seeking relief that is no longer needed and also of those parts of the Petition which allege bad faith in relation to the amendment as being irrelevant to the current issues.
At paragraphs 30 – 39 the Petition sets out the second of the actions which are said to have adversely affected the Petitioner's shareholding in the First Respondent. It is said that the Articles were amended to have the effect that the conversion of the Petitioner's A4 shares to B Ordinary shares would result in the loss of the Petitioner's co-sale rights in a way which would not happen to the holders of A, A1, A2, A3, A5, A6, and D shares who converted their shareholdings. The Petitioner converted its A4 shares to B Ordinary shares in March 2018 and lost the co-sale rights which had formerly attached to them.
At paragraph 37 the Petition alleges that the First Respondent “and its directors” had acted “in bad faith and/or for an improper purpose” and preferred the interests of the other shareholders to those of the Petitioner. The particulars of the alleged bad faith and impropriety are set out at 37.1 – 37.6. It is said that the preferential treatment of the other shareholders had “no proper commercial basis”; that the shareholder beneficiaries of this preferential treatment included four directors of the First Respondent (naming the Fifth, Sixth, Seventh, and Ninth Respondents); that the Board of the First Respondent unlawfully prevented the Petitioner from inspecting the register of members and that the purpose of this was the improper one of concealing the conversions from the Petitioner; that it was a breach of the Information Obligation for the First Respondent not to disclose to the Petitioner the intention of the other shareholders to convert their holdings; that the shareholders who did convert their shares are to be inferred to have acted collectively and in consultation with the Board of the First Respondent but to the exclusion of the Petitioner; and that there was a further breach of the Information Obligation on the part of the First Respondent in failing to disclose to the Petitioner the effect of the proposed conversion of the Petitioner's shares. The relief sought appears in part at paragraph 3 of the prayer where the Petitioner seeks an order for amendment of the Articles so that the Petitioner's A4 shares benefit from the co-sale rights.
The Respondents deny the alleged impropriety. In short they say that the amendments to the Articles were...
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