Ning & Anor v Dearing & Ors

The petition under s.994 Companies Act 2006 and an Insolvency Act application were considered together. The court granted permission to re-amend the petition to add, among other matters, a claim in conspiracy to injure by unlawful means, claims for personal damages and a contractual claim for breach of the Relationship Agreement. The court refused to strike out the petition or to grant reverse summary judgment for the directors and refused the directors' application for security for costs on the material then before the court (CPR 25.13). The judge held that issues of unfair prejudice, causation of loss following sale of shares to a third party (RPI), the validity or effect of the appointment of administrators and related questions of remedy were matters for trial and could not be resolved at this stage.

This was a first instance hearing of two related sets of proceedings: a petition under s.994 of the Companies Act 2006 brought by Mr Ning and China International Mining Group Corporation (CIMGC) alleging unfair prejudice and an Insolvency Act application seeking declarations about the validity of administrators' appointment. The petition alleged invalid removals of directors, breaches of the Relationship Agreement and breaches of directors' duties (including reliance on sections 171 and 172 of the Companies Act 2006), loss and damage to the company and personal loss to the petitioners arising from an alleged forced sale of shares to Rich Pro Investments Limited (RPI).

Nature of relief sought:

• Declarations and injunctions concerning invalid board meetings and removals of directors;
• damages or equitable compensation for breaches of directors' duties (sections 171, 172 and 175 were relied on);
• permission to bring derivative proceedings or damages in the petitioners' favour; and
• declarations that the administrators had not been validly appointed and recovery of fees paid.

Applications before the court:

• applications by the first five respondents (directors) to strike out the petition, obtain reverse summary judgment and to order security for costs under CPR 25.13;
• an application by the petitioners for permission to re-amend the petition.

Issues framed by the court:

• whether the proposed amendments were permissible and timely;
• whether the petition (and amended pleading) should be struck out as disclosing no reasonable grounds or as an abuse of process;
• whether reverse summary judgment should be given to the director respondents;
• whether security for costs should be ordered against the petitioners under CPR 25.13(1) and (2) (paragraphs (a) and (c)); and
• procedural and costs consequences, including payment on account.

Court's reasoning (concise):

• Permission to re-amend was granted: the proposed amendments were not late in context, were properly pleadable and materially overlap with existing allegations such that resolving them in these proceedings was sensible.
• The petition could not be struck out nor were the director respondents entitled to reverse summary judgment. Central issues, including whether the petitioners were forced to sell shares to RPI and whether RPI had thereby fully absorbed any company loss, involved disputed facts and legal issues that required trial determination.
• On standing and interests the court accepted that nominee shareholding can include the beneficial interests of the beneficial owner for s.994 purposes; the petitioners retained standing and their cause of action for personal damages was not held on trust for RPI.
• Security for costs under CPR 25.13: the court considered both paragraph (a) (foreign residence) and paragraph (c) (company likely unable to pay costs). Although there was evidence suggesting extra enforcement costs overseas, the applicants had not established the appropriate quantified figure for enforcement costs in the Cayman Islands nor given sufficient evidence of a real risk that CIMGC would be unable to pay costs (for example by dissipation). Accordingly the court refused to make a security order on the present material but indicated what evidence would be required and gave provisional views.
• The judge made detailed costs directions: assessed reasonable security (if ordered) would be £14,000; the petitioners were awarded specified shares of costs of the contested applications and a payment on account of £37,000; permission to appeal was refused as having no real prospect of success.

This was a first instance decision. The court granted permission to re-amend the petition; refused the first to fifth respondents' applications to strike out the petition and for reverse summary judgment; and refused an order for security for costs on the material before the court under CPR 25.13. The judge decided that the contested factual and legal issues, including unfair prejudice, the effect of the sale of shares to RPI and the validity and consequences of the purported appointment of administrators, could not be resolved summarily and required trial. The judge made costs directions, assessed a reasonable sum for security (if ordered) at £14,000 and ordered a payment on account of costs of £37,000; permission to appeal was refused.