Arrow Nominees Inc & Anor v Blackledge & Ors

For relief under section 459 of the Companies Act 1985, a shareholder's commercial conduct as supplier or lender is not, without more, conduct of the company's affairs. Relief requires an abuse of corporate control, a breach of the agreed basis of membership, or conduct contrary to equitable good faith.

A litigant who forges or suppresses documents may be barred from continuing where the conduct creates a substantial risk of an unsafe judgment, prevents the court doing justice, or consumes court resources by displacing the real issues. Strike-out in those circumstances protects a fair trial and the administration of justice; it is not a punishment.

Arrow Nominees Inc and Lorraine Blackledge, minority shareholders in Bodycare (Health & Beauty) Ltd, presented an unfair-prejudice petition under section 459 of the Companies Act 1985. They alleged that the majority shareholder and its associated directors had acted contrary to a 1994 oral agreement and their legitimate expectations.

During disclosure, Nigel Tobias admitted forging letters and altering diary entries. Evans-Lombe J dismissed an initial strike-out application, but later found a substantial risk that allegations founded on disputed 1994 terms could not receive a fair trial. He nevertheless allowed a residual petition to proceed, dismissed the petitioners' proposed buy-out claim, and refused injunctions preventing their removal as employees and directors.

The Court of Appeal considered whether any viable section 459 case remained and whether the fraud required the petition to be struck out.

1. Appeal allowed. Chadwick LJ, with whom Ward LJ agreed and Roch LJ concurred, held that the unfair-prejudice petition had to be struck out. The petitioners' cross-appeal concerning a buy-out of the majority shareholding consequently failed. The appeal from the refusal of injunctions was dismissed.

2. The court applied the approach in In re a Company (No 00709 of 1992), O'Neill v Phillips [1999] 1 WLR 1092. Conduct by a shareholder in its separate capacity as supplier or lender did not itself constitute unfair conduct of the company's affairs. The petitioners had to show that the majority used its powers as shareholder or directors to benefit itself at the expense of the company or minority, contrary to the articles, a collateral agreement, or equitable good faith.

   Once the disputed 1994 agreement and expectations were excluded because a fair trial of them was unsafe, the evidence disclosed no actual or threatened abuse of corporate powers. The complaints concerned the commercial terms on which Blackledge plc would lend or supply, rather than oppressive use of its voting or directorial powers. No viable section 459 claim remained.

3. Chadwick LJ also held, as an independent ground, that the petition should be struck out for abuse of process. Applying the principle in Logicrose Ltd v Southend United Football Club Ltd, discovery sanctions are directed to securing a fair trial rather than punishing misconduct. But persistent forgery, destruction or concealment which makes a judgment for the defaulting party unsafe, or prevents the court from doing justice, requires the court to refuse that party further participation. Fairness also requires proper regard to time, expense and the court's finite resources.

4. Lorraine Blackledge could not continue alone. The co-petitioners sought relief on common facts, so the risk of an unsafe judgment affected both equally. The claims were not severable.

5. The injunctions were properly refused. In the absence of a subsisting petition or enforceable additional rights, there was no basis to restrain the majority shareholder from controlling board composition or the directors from determining management.

Ward LJ added that, under the Civil Procedure Rules, the overriding objective required the court to weigh equality, expense, proportionality, expedition and the allocation of resources; the possibility of a fair trial was not the sole consideration.

• Court of Appeal (Civil Division) — In Arrow Nominees Inc & Anor v Blackledge & Ors [2000] EWCA Civ 200, allowed the appeal against refusal to strike out the petition, struck out the petition, dismissed the petitioners' cross-appeal, and dismissed the appeal concerning injunctions.
• Chancery Division — Evans-Lombe J dismissed an initial strike-out application on 2 November 1999. On 24 January 2000 he declined to strike out the residual petition, struck out the petitioners' proposed majority buy-out claim, and dismissed the respondents' cross-petition as demurrable. On 26 January 2000 he refused injunctions concerning dismissal and removal from the board.