Cuddy v Hawkes

The Court of Appeal considered adjourned applications for permission to appeal from orders made in proceedings under section 459 of the Companies Act 1985 and declarations alleged to involve contraventions of section 216 of the Insolvency Act 1986. The judge below had granted summary judgment making a declaration that Mr Cuddy had, since 16 October 2003, been directly or indirectly concerned in the management of the company in contravention of section 216(3), and had struck out parts of Mrs Cuddy's cross-petition which sought share-purchase and de-merger relief. The Court of Appeal held that the declaration was premature and went further than necessary for case management and should be set aside and replaced by a direction that the trial proceed on the basis of the factual findings made as to the alleged contravention of section 216. The court upheld the judge's conclusion that the Cuddy cross-petition, in its present form, was unsustainable because the complained-of acts amounted merely to compliance with the restriction imposed by section 216 and therefore struck out paragraphs (1) and (2) of the prayer for relief in the cross-petition.

Background and parties:

The proceedings arose between two equal shareholders in Neath Rugby Limited, Mr Frederick Hawkes and Mrs Simone Cuddy (who was said to hold a share as trustee for her husband Mr Michael Cuddy). The company owned and managed Neath Rugby Football Club. The Hawkes/Cuddy Agreement of early 2003 envisaged joint ownership and mutual rights to nominate directors. Concern that Mr Cuddy might be restricted by section 216 of the Insolvency Act 1986 led to Mrs Cuddy being the registered shareholder and director.

Nature of the proceedings and relief sought:

• The petitioner, Mr Hawkes, presented a petition under section 459 Companies Act 1985 alleging unfairly prejudicial conduct and sought, among other things, a declaration that since 16 October 2003 Mr Cuddy had unlawfully taken part in the management of the company in contravention of section 216(3) Insolvency Act 1986 and a share purchase order requiring sale of the Cuddy share to Mr Hawkes.
• Mrs Cuddy issued a cross-petition seeking reciprocal relief including orders for sale or purchase of shares and de-merger relief, and she sought to strike out the Hawkes petition.

Procedural posture:

The judge in the Chancery Division (HHJ Havelock-Allan QC) declined to strike out the petition, granted summary judgment by making the declaration concerning past contravention of section 216 and struck out paragraphs (1) and (2) of the prayer in the cross-petition. The petition was listed for trial in Bristol. Applications for permission to appeal were considered on the papers and then heard in the Court of Appeal, which gave permission and heard the appeals.

Issues framed by the court:

• Whether the judge below was entitled to make the declaratory relief by summary judgment as to past contravention of section 216, or whether that declaration was premature or unnecessary for case management.
• Whether the cross-petition remained sustainable in light of the judge's findings about contravention of section 216 and whether the parts of the cross-petition seeking share-purchase and de-merger relief should be struck out.
• Whether the presentation of the petition amounted to an abuse of process (an issue the judge held should go to trial).

Court’s reasoning and outcome:

The Court of Appeal concluded the declaration was premature because a live abuse of process issue remained to be tried; making the declaration would pre-empt that trial. The court further held the declaration went beyond what was necessary for useful case management: the same case management objective could be achieved by directing that the trial proceed on the basis of the judge's factual findings about the alleged contravention of section 216. The court therefore set aside the declaration and replaced it with a direction that the trial be conducted on the basis of those findings. As to the cross-petition, the court accepted the judge's reasoning that the pleaded complaints (failure to consult, exclusion from management, deadlock) were effectively the consequence of the restriction imposed by section 216 and so the cross-petition, in its present form, was unsustainable; the court upheld the strike-out of paragraphs (1) and (2) of the prayer.

Procedural note: the Court of Appeal allowed the appeal in relation to the declaration but dismissed the cross-appeal against the strike-out.

Appeal allowed in part. The Court of Appeal set aside the judge's declaration that Mr Cuddy had contravened section 216(3) and replaced it with a case management direction that the trial proceed on the basis of the judge's factual findings as to the alleged contravention; but the court upheld the judge's decision to strike out paragraphs (1) and (2) of the prayer in the cross-petition on the ground that, as pleaded, the complaints were the inevitable consequence of the restriction imposed by section 216 and therefore the cross-petition in its present form was unsustainable.

Appeal from the Chancery Division, Bristol District Registry (judgment of HHJ Havelock-Allan QC delivered 23 July 2007, reported [2007] EWHC 1789 (Ch.)). Applications for permission to appeal were considered by Thomas LJ on the papers on 24 August 2007 and adjourned for oral hearing; permission was granted and the substantive appeal heard in the Court of Appeal, judgment given 17 October 2007 ([2007] EWCA Civ 1072).