Summary

The court granted a member's petition for a company to be wound up on just and equitable grounds where other members had breached their fiduciary duties, failed to keep company records, and misled members and investors. Those defaults also constituted unfairly prejudicial conduct under the Companies Act 2006 s.994.

Facts

The court was required to determine a winding-up petition in consolidated proceedings.

The claimants (Apex and Mr Almhairat) had set up a joint venture company named Fi Call with the second respondent (Global Torch). Global Torch was owned by the third and fourth respondents (Prince Abdulaziz and Mr Abu-Ayshih), and another shareholder. Relations between the Apex and Global parties soured. Both parties issued unfair prejudice petition under the Companies Act 2006 s.994 seeking share purchase orders in respect of Fi Call. The Global parties alleged that the Apex parties had misappropriated monies belonging to Fi Call, were guilty of misrepresentation and had breached fiduciary duties. The Apex parties alleged that the Global parties had caused Fi Call to be involved in bribery and money laundering. Judgment in default was entered against Prince Abdulaziz for approximately $6 million after his failure to comply with a court order. He was also debarred from defending Apex's s.994 petition. Global made an alternative claim under the Insolvency Act 1986 s.122(1)(g) for the winding-up of Fi Call on just and equitable grounds, and for an account of all monies paid out of Fi Call by the Apex parties. Apex's s.994 petition was later struck out after repeated failure to comply with court orders, and it was debarred from defending Global's alternative claim. The court was required to determine Global's winding-up petition and claim for an account, and Prince Abdulaziz's application to set aside the judgment in default. An issue also arose concerning the role of the Apex parties in the hearing.

Held

(1) Although the Apex parties were debarred from defending Global's alternative claim, both sets of pleadings had to be considered in determining the ambit of the dispute, Thevarajah v Riordan [2015] EWCA Civ 41 followed. While it was not necessary to determine the extent to which Apex could make submissions generally, they would be allowed to make submissions on a discrete point concerning a proposed amendment to Global's alternative claim (see paras 66-70 of judgment). (2) When determining whether prejudice caused to a member was unfair, case law established that it might be unfair to allow a party to exercise their strict legal rights in a way which equity would regard as contrary to good faith. The parties' relationship was therefore often referred to as a "quasi-partnership", O'Neill v Phillips [1999] 1 W.L.R. 1092 and Saul D Harrison & Sons Plc, Re [1994] B.C.C. 475 followed. For a breakdown of trust and confidence between the parties to amount to "conduct of the company's affairs", it had to relate to some breach of a legal right or equitable constraint affecting the conduct of the company's affairs. It might suffice for one quasi-partner to so denigrate another's conduct of the company's affairs as to make their continuation in quasi-partnership unrealistic. Once the grounds of an unfair prejudice petition were established, the court had extremely broad powers under s.996(1). Those powers extended to adjusting the proportion of distributions upon a winding-up of the company, even though the court should not ordinarily make a winding-up order pursuant to s.996 (paras 36, 43-51). (3) The s.994 remedies ran in parallel, but were not coterminous, with those under s.122 of the 1986 Act. To succeed in its petition, it was not necessary for Global to establish its defence to the allegations made by the Apex parties. While the Global parties wanted vindication, that was not necessary in order to determine their claims. That did not mean that the allegations had any substance. In effect, they had been withdrawn. It was common ground that the trust and confidence between the Apex and Global parties had broken down, Fi Call had been unable to trade and its goodwill had been destroyed. Winding up Fi Call would simply confirm the reality that it had no viable business or purpose. Further, the Global parties had demonstrated that Fi Call should be wound up on just and equitable grounds, Ebrahimi v Westbourne Galleries Ltd [1973] A.C. 360 followed. The Apex parties must have known that there was doubt about whether Fi Call had any legal right to the technology it was seeking to exploit; the Global parties had been induced to invest on a false basis; and the Apex parties were in breach of their fiduciary duties and the shareholders' agreement. Fi Call's books and records were inadequate. The dispute as to the $6 million arose out of accounting deficiencies for which the Apex parties were primarily responsible. Their default also constituted unfairly prejudicial conduct, within the scope of s.994. The court's powers under s.996 were broad enough to enable it to appoint a liquidator and direct him to examine the issue of the $6 million. The Apex parties would be required to account for sums due to Fi Call. Their unlawful misappropriation of monies was a further factor in favour of a winding-up order under s.122(1)(g) (paras 56-58, 101, 108-109, 137-138 , 157-158, 168-177, 182). (4) The most formidable difficulty confronting the set aside application was the decision in Prince Abdulaziz v Apex Global Management Ltd [2014] UKSC 64. However, by directing that $6 million be held by the Prince's solicitors to the order of the High Court, the Supreme Court had left open the possibility that he might be entitled to recoup those sums. Pursuant to the court's inherent jurisdiction and s.996, there would be a further hearing on that issue once the liquidator had gathered further documentation. The Apex parties should be permitted to appear at that hearing, and the set-aside application should be heard at the same time (paras 76-77,134-136, 139-140, 183).

Judgment for defendants