McKillen v Misland (Cyprus) Investments Ltd & Ors

In an unfair-prejudice case, late amendments are not justified merely by a costs order. The court must assess the strength of the new case and its effect on all litigants. Close to trial, proposed amendments should be tested for arguability under Civil Procedure Rules 1998 Part 24, especially where the statutory jurisdiction is broad and the pleadings complex. A de facto director occupies the position and assumes the functions of a director. A shadow director gives directions which a board is accustomed to follow, even if only on a limited range of matters. Shareholders do not owe fiduciary duties to one another simply because their arrangement is a quasi-partnership or joint venture. Contractual good-faith obligations are not equivalent to fiduciary duties. Further information may be ordered where reciprocal fairness makes refusal unconscionable.

This was a first-instance interlocutory judgment in related proceedings brought by Patrick McKillen concerning the affairs of Coroin Ltd. One proceeding was a petition under section 994 of the Companies Act 2006; the other was an associated Part 7 claim for damages for conspiracy to injure by unlawful means.

Mr McKillen sought extensive amendments after disclosure. The proposed case included allegations that the Barclay Brothers were de facto or shadow directors, that shareholders owed fiduciary duties, and that various contractual and statutory duties had been breached. The respondents challenged the amendments as late and unarguable. Derek Quinlan sought further information about loans secured over Mr McKillen’s shares and possible events of default.

1. Amendments and lateness. The applications to amend were granted in part and refused in part. The modern approach in Worldwide Corporation Limited v GPT Limited [1998] EWCA (Civ) 1894 and Swain-Mason v Mills and Reeve [2011] EWCA (Civ) 14 requires more than payment of the opposing party’s costs where an amendment is late. The applicant must show the strength of the new case and why justice to all litigants requires its consideration. Here, the principal amendments followed disclosure only three weeks earlier, so they were not refused solely for lateness.
2. The arguability issue was to be assessed by the test applicable to summary judgment under Part 24 of the Civil Procedure Rules 1998. The court had to analyse the proposed case rather than reject all amendments or leave every issue to trial. This was particularly important because section 994 of the Companies Act 2006 is broadly expressed and the proposed pleading was complex.
3. Directors. Under the Companies Act 2006, a de facto director occupies the position of director and is subject to the full range of directors’ duties. A shadow director is a person whose directions or instructions the directors are accustomed to follow and is subject to duties only to the extent provided by section 170(5). The categories remain distinct, although they may overlap. Influence need not extend across the whole field of corporate activity, and it is sufficient that a majority of the board acts on the instructions. The pleaded case did not arguably establish that either Barclay Brother was a de facto director. It did not establish any arguable case against Sir Frederick Barclay. It did, however, justify a limited amendment alleging that Sir David Barclay was a shadow director in relation to matters on which he was said to have given instructions.
4. Good faith and fiduciary duties. Clause 8.5 of the shareholders’ agreement imposed contractual obligations of good faith. It could not be expanded into the pleaded fiduciary duties of loyalty and conflict avoidance. Each alleged breach had to be identified with the contractual interpretation relied upon. Shareholders owned their shares and contractual rights for themselves, not for fellow shareholders, and therefore did not owe fiduciary duties merely because the arrangement was described as a quasi-partnership or joint venture. Contractual and fiduciary relationships may coexist, but any fiduciary obligations must conform to the contract. The proposed shareholder fiduciary-duty case was therefore refused.
5. Other amendments. The allegations that payments by the Barclay Brothers to Mr Quinlan and his family induced his support were sufficiently arguable. Several inadequately particularised allegations, including the proposed conspiracy allegation against Mr Quinlan and the proposed general director-duty allegation, were refused. The associated Part 7 claim had to be redrafted and had to plead the necessary knowledge that the agreed conduct would constitute breaches of contract or duty.
6. Further information. Such requests will ordinarily be refused where they amount to a fishing expedition for facts supporting a new claim or defence. However, Mr McKillen had previously demanded equivalent information from Mr Quinlan on the basis of an asserted contractual obligation, and Mr Quinlan had answered. It was unconscionable for Mr McKillen to refuse reciprocal disclosure. The request was limited to actual or possible events of default since 1 April 2010.

This was a first-instance interlocutory judgment. The proceedings were commenced on 5 October 2011 by a petition under section 994 of the Companies Act 2006 and an associated Part 7 claim. The court had previously ordered an expedited trial and had granted permission for significant earlier amendments. No appellate decision is stated.