Mission Capital Plc v Sinclair & Anor

The court considered multiple interim applications arising from disputed board action which purported to terminate the employment of two executive directors and, by contractual consequence, their directorships. The principal legal questions were whether mandatory interim injunctive relief could be granted to restore the defendants to employment and to the board, and whether permission should be given to continue a derivative claim under Chapter 1 of Part 11 of the Companies Act 2006.

The court held that specific performance or mandatory interim relief restoring the directors to executive office was not seriously arguable on the evidence because a high degree of mutual trust between employer and employee was lacking and the balance of justice favoured refusal. A claim to be reinstated as directors (a personal Pulbrook-type cause of action) was held to be at least arguable, but the court exercised its discretion to refuse the mandatory relief. On the derivative claim, the court applied sections 261–263 of the Companies Act 2006, concluded the derivative action was not sufficiently persuasive on the s263(3) factors (notably the notional section 172 director would not attach significant importance and remedies like section 994 might be available), and refused permission to continue the derivative claim. The court did allow joinder of the non-executive directors and Mr Phillips to the counterclaim.

Background and parties:

• These were interim applications in two related actions concerning the affairs of Mission Capital plc. Until a board meeting on 5 February 2008 Ronald Sinclair and Emma Sinclair were the only executive directors and were in a minority on the board; three non-executive directors were in the majority.
• The company relied on clauses in the Sinclairs' service agreements (notably clause 16.1.6 permitting immediate termination for conduct the board reasonably regard as unacceptable, and clause 18 providing that termination required resignation of directorships and permitted other directors to execute documents as attorney) to terminate employment and remove them as directors. The company then sought injunctive relief to exclude the Sinclairs from premises and to obtain delivery up of documents; Treacy J granted interim relief by telephone.

Nature of the applications:

• The Sinclairs sought (a) interlocutory injunctions restraining reliance on the board resolution and restoring them to employment and to the board, (b) joinder of the non-executives and Mr Phillips to their counterclaim, (c) permission under section 261 of the Companies Act 2006 to bring a derivative action, and (d) indemnity for costs out of the company's assets. The company sought continuation of the telephone injunction excluding the Sinclairs.

Issues framed by the court:

Whether specific performance or mandatory interim relief restoring employment and/or directorships should be granted in light of authorities limiting specific performance of personal service contracts and the special considerations applicable to imposing a director on a company.

Whether the Sinclairs had a triable personal cause of action to be reinstated as directors (Pulbrook line).

Whether permission should be granted for a derivative claim under Part 11 Companies Act 2006, having regard to the two-stage permission regime and the statutory factors in section 263.

Court's reasoning:

• On employment-specific relief the court reiterated the general rule against specific performance of personal service contracts and the need for a high degree of mutual trust (citing Re Tottenham Hotspur, Hill v Parsons and other authorities). The available evidence did not show a sufficient degree of mutual confidence or shareholder support to justify mandatory relief and the balance of justice favoured refusal.
• On restoration to the board the court recognised a Pulbrook personal cause of action as legally arguable and that, if a claimant is ultimately found to have been a director and wrongly excluded, that should suffice. Nevertheless, the court exercised caution about imposing a director on a company where disputes and allegations of improper conduct exist and refused mandatory relief on the balance of justice, taking account of an undertaking offered by the company concerning disposals and notice.
• On the derivative claim the court applied the Companies Act 2006 framework. It found the derivative claim was not merely duplicative but nonetheless, on the s263(3) factors—good faith, the importance a notional section 172 director would attach, the prospect of ratification or authorisation, the availability of alternative remedies such as a section 994 unfair prejudice petition, and the speculative nature of alleged company loss—the court refused permission to continue the derivative action and therefore did not reach the indemnity question.

Outcome in brief:

• All applications for mandatory injunctive relief were refused; permission to continue the derivative action was refused; joinder of the non-executive directors and Mr Phillips to the Sinclairs' counterclaim was permitted. The court directed further procedural steps to resolve ancillary matters.

This was a first-instance determination. The court refused the Sinclairs' applications for mandatory interim injunctions to restore them to employment and to the board because specific performance of personal service contracts was not sufficiently supported by the evidence (no proven high degree of mutual trust) and the balance of justice favoured refusal. The court also refused permission under sections 261–263 Companies Act 2006 to continue the derivative claim, finding the s263(3) factors did not favour permission and alternative remedies were available. The court allowed joinder of the non-executive directors and Mr Phillips to the Sinclairs' counterclaim.