Member - Unfair prejudice to member’s interests
Phillips v Fryer and others: Chancery Division (Nicholas Strauss QC sitting as a deputy judge of the High Court): 12 June 2012
In 2004, the claimant and the first defendant had agreed to set up a property venture and had formed the fourth defendant company. The fourth defendant had acquired a freehold investment property which it had let out as self-contained serviced offices. The claimant and the first defendant each held 50% of the shares in the fourth defendant. In September 2010, the claimant started proceedings under section 994 of the Companies Act 2006 (the 2006 act) claiming, inter alia, orders for the sale of the first defendant’s shares to him and the restoration to the fourth defendant of money taken from the fourth defendant in breach of the first and second defendants’ fiduciary duties as directors of the fourth defendant (the petition). In the instant proceedings, the claimant sought permission to continue a derivative claim.
The first defendant contended in his witness statement that the claims proposed to be made in the derivative action had all been made in the petition, and that it was an unnecessary and duplicative expense to permit a derivative action. He further contended that all of the issues could be resolved in the petition by seeking a summary hearing, if appropriate. In response, the claimant relied on evidence that between January and August 2011, long after the petition had been issued, the first defendant had changed the account details for payments to be made by tenants of the fourth defendant and caused them to pay rent into his own account.
He further alleged that the first defendant had continued to pay his personal expenses out of the fourth defendant’s account and had attempted to remove the claimant from the board. The claimant further submitted that the first defendant’s conduct had increased the urgency of having those matters resolved and that it was expedient to permit a derivative action in which the claimant could seek summary judgment.
It fell to be determined whether the claimant should be permitted to continue the derivative claim. Section 172 of the 2006 act, concerning the matters to which a person seeking to promote the success of a company should have regard, was considered. The application would be allowed.
Whatever the position might have been at the outset, a derivative claim would be the better way of proceeding. There had been no convincing answer, either in the defendants’ defence in the petition or in the first defendant’s witness statement in answer to the instant application, to any part of the claimant’s case and none at all in relation to the allegations of continuing theft from the fourth defendant during the course of the last year. There had been no question of the claimant’s bona fides. The court had no doubt that he had been doing his best, in accordance with his lawyers’ advice, to recover the money which he had claimed had been taken as quickly as possible and to stop any further money from being taken.
As regarded section 172 of the 2006 act, that would be precisely what any director, seeking to promote the interests of his company, would do. Without prejudging its outcome, there would clearly be grounds for making a summary judgment application which, whatever complexities might arise, would be unlikely to take anything like the time scheduled to hear the petition. Further, there would be additional claims, that had not been made in the petition, which would have to be amended to raise them (see ,  of the judgment). Kiani v Cooper  All ER (D) 97 (Jul) distinguished; Stainer v Lee  All ER (D) 56 (Jul) distinguished; Iesini v Westrip Holdings Ltd  All ER (D) 108 (Jul) considered.