Cuddy v Hawkes

A court should not make a declaration where an unresolved abuse-of-process issue may dispose of the proceedings. Nor should it make a declaration when the case-management objective can be achieved by directing the trial to proceed on the basis of existing factual findings. A restriction under section 216(3) of the Insolvency Act 1986 may make quasi-partnership obligations to consult and provide information legally impossible to perform. A petition relying on obligations intended to enable prohibited influence over company affairs is unsustainable as pleaded, although amendment may be considered where the parties’ arrangements have been overtaken by events.

Neath Rugby Limited was a two-share company owned by Mr Hawkes and Mrs Cuddy, who was said to hold her share for Mr Cuddy. Mr Hawkes presented an unfair-prejudice petition under section 459 of the Companies Act 1985, alleging that Mr Cuddy had unlawfully managed the company through his wife in breach of section 216 of the Insolvency Act 1986. Mrs Cuddy issued a cross-petition seeking share-related relief.

HHJ Havelock-Allan QC, in the Chancery Division, granted summary judgment on the declaration and struck out parts of the cross-petition: [2077] EWHC 1789 (Ch.). The appeals concerned whether the declaration was premature and unnecessarily broad, and whether the cross-petition was unsustainable because its alleged quasi-partnership duties conflicted with section 216.

Disposition. The appeal against the declaration was allowed. The cross-appeal concerning the cross-petition was dismissed.

1. Declaration. The declaration was premature because the judge had directed that the disputed allegation that the petition was an abuse of process should proceed to trial. If the petition were ultimately held abusive, there would be no petition on which the declaration could properly be made. The declaration was therefore set aside.
2. Case management. The judge’s legitimate objective was to prevent factual findings concerning the alleged contravention of section 216 of the Insolvency Act 1986 being re-litigated at trial. That objective could be achieved by directing that the trial proceed on the basis of those findings. A final declaration went further than was necessary. The declaration was replaced by such a direction.
3. Cross-petition. The cross-petition alleged that the Hawkes/Cuddy Agreement created duties of good faith, consultation and information-sharing. Those duties were said to support relief under section 459 of the Companies Act 1985. However, the acts complained of were principally failures to consult and the exclusion of Mr Cuddy from involvement in the company’s affairs. Section 216(3) required that exclusion if Mr Cuddy was to avoid contravention. The court rejected the submission that consultation and information rights could coexist with section 216(3)(b), because their purpose was to enable Mr Cuddy to influence the company’s affairs.
4. The agreement had been lawful when made but became incapable of lawful performance after Gowerpark entered insolvent liquidation. Since no application for leave under section 216(3) had been made, the cross-petition was unsustainable in its existing form. The judge was entitled to strike out paragraphs (1) and (2) of its prayer for relief. Any amendment based on the agreement having been overtaken by events, and any relief after amendment, were matters for the trial judge.

Lord Justice Chadwick gave the leading judgment. Lord Justice Tuckey and Lord Justice Maurice Kay agreed.

1. Court of Appeal (Civil Division) granted permission, heard the substantive appeals, set aside the declaration and replaced it with a case-management direction, and dismissed the cross-appeal.
2. Chancery Division, Bristol District Registry, HHJ Havelock-Allan QC, made orders on 27 July 2007, including a declaration concerning section 216 of the Insolvency Act 1986 and the striking out of paragraphs (1) and (2) of the cross-petition’s prayer for relief: [2077] EWHC 1789 (Ch.).