Kaneria v Kaneria & Ors

This was an application arising in an unfair prejudice petition under Section 994 of the Companies Act 2006 concerning interim costs orders made against the petitioner following a preliminary trial. The respondents sought an order debarring the petitioner from participating in the detailed assessment of costs unless he paid the interim costs sums; the petitioner sought a stay of execution of those orders pending the valuation and buy-out of his shares in the sixth respondent company.

The court found a material change of circumstances since the interim costs orders were made: an unexpectedly protracted delay in concluding the valuation and buy-out process and the clear prospect of a set-off in the petitioner’s favour when the buy-out completes. The judge refused to make the debarment order and exercised jurisdiction to stay the petitioner’s obligation to pay the unpaid interim costs until the valuation and buy-out were agreed and ready to be completed.

Background and procedural posture:

• The petitioner brought an unfair prejudice petition under Section 994 Companies Act 2006. A preliminary issue about entitlement to further shares was tried and resolved against the petitioner. The petitioner accepted a buy-out offer for his then-existing shares.
• A costs hearing before the deputy judge resulted in reasoned supplemental interim costs orders dated 31 July 2015, requiring the petitioner to pay specified sums to the respondents; significant sums remained unpaid.
• The respondents applied for an order that the petitioner be debarred from participating in the costs assessment procedure unless he paid the outstanding interim costs. The petitioner applied for a stay of execution of the interim costs orders pending the valuation and buy-out of his shares, alleging special circumstances and inability to pay.

Issues framed:

• Whether there had been a material change of circumstances since the interim costs orders such as to permit the court to vary or stay the obligations.
• Whether the court should make a debarment order preventing the petitioner’s participation in the detailed assessment procedure if he did not pay the interim costs.

Evidence and subsidiary findings:

• There was contested evidence about delay in agreeing valuation methodology and the conduct of parties during the valuation process. The judge declined to make adverse findings on disputed allegations (for example, alleged improper contact with a valuer) because they were not proved on the written evidence.
• The petitioner’s attempts to raise finance without real estate security were not strongly evidenced; the judge accepted that his earning capacity was unlikely to produce more than small inroads into the debt but did not resolve that factual issue on paper.
• Management accounts indicated substantial cash within the company and both sides accepted that a buy-out was likely to result in proceeds of at least the respondents’ asserted figure.

Court’s reasoning and decision:

• The judge held that the passage of more than a year since the interim costs orders and the protracted delay in concluding the valuation and buy-out amounted to a material change of circumstances. The court gave weight to the clear prospect of a set-off that would produce a net sum due to the petitioner on completion and to the fact that respondents were refusing reasonable proposals to pay on account.
• The judge refused to make the debarment order sought by respondents, finding that to do so would be to assist in imposing needless economic pressure in a family dispute and might prejudice the petitioner in circumstances where a set-off was likely.
• Relying on the court’s jurisdiction in such matters and guided by the overriding objective and the authorities cited in the judgment, the court granted the petitioner’s application for a stay of execution of the outstanding interim costs orders until the valuation and buy-out had been agreed and were ready to be completed.

First instance: The court declined to make the respondents' application to debar the petitioner from participating in the costs assessment procedure and granted the petitioner's application for a stay of execution of the outstanding interim costs orders until the valuation and buy-out of the petitioner's shares had been agreed and were ready to be completed. The rationale was that a material change of circumstances had occurred since the interim orders — namely an unexpectedly protracted delay in the valuation and the clear prospect of a set-off in the petitioner's favour — and that it would be inappropriate to permit the respondents to use the court process to impose needless economic pressure. The court exercised its jurisdiction to stay payment and was guided by the overriding objective and relevant authorities cited in the judgment.