Griffith v Gourgey & Ors

This Court of Appeal considered appeals from two petitions under section 994 of the Companies Act 2006 alleging unfairly prejudicial conduct by a majority shareholder and related parties. The principal legal issues were (i) the relationship between the petition and points of claim and the extent to which matters pleaded only in points of claim must be reflected in the petition, (ii) the adequacy of the pleading against two respondent directors/shareholders (the Sons) and whether that pleading could properly support a buy-out order under section 996, and (iii) whether a respondent whose points of defence had been struck out should, when the petitioner sought a limited amendment, be permitted to plead a full defence to the entire points of claim.

The court held that an allegation pleaded in the points of claim that the Sons had "supported" the majority shareholder in causing allegedly improper payments was a substantive ground of complaint against them and should have been incorporated into the petition rather than being struck out; the appropriate remedy was to permit amendment of the petition to conform to the points of claim rather than striking out the claim for relief against the Sons. The court also held that the judge had been wrong to permit the respondent in the Bankside petition to plead a full defence to the entire points of claim simply because the petitioner sought to amend to plead acquisition of an additional parcel of shares; permission to plead should be limited to such matters as are necessary to enable the respondent to run particular defences relevant to that amendment (for example, knowledge at acquisition and consent of the transferor).

Background and parties:

• The petitions were presented in March 2013 by Mr Griffith against various respondents including Mr Gourgey, his sons (Neil and Charles) and entities in a group of companies (G&G Properties Ltd and Bankside Hotels Ltd). The principal complaint was that the majority shareholder (Mr Gourgey) caused substantial transfers from the companies to companies in which he and associates had an interest, to the prejudice of Mr Griffith, a minority shareholder.
• Mr Hodge, the third original shareholder, had been declared bankrupt and his shares were, in part, held by trustees. The Sons were registered shareholders and directors of G&G; Mr Griffith sought buy-out orders requiring purchase of his shares by the Gourgeys and the Sons.

Procedural history:

• Combined points of claim and defence were served in 2013. The respondents failed to provide further ordered information and disclosure, leading Simon J to strike out the points of defence in May 2015 (see [2015] EWHC 1080 (Ch)). An appeal from that order was dismissed in the Court of Appeal ([2017] EWCA Civ 926).
• Applications were later made (2018) to strike out the relief against the Sons in the G&G petition and to permit limited amendments to the petitions to reflect later factual events (notably acquisition by Mr Griffith of additional shares in Bankside). Sir Nicholas Warren heard interlocutory applications and issued two written judgments: the first on 9 May 2018 ([2018] EWHC 1035 (Ch)) and the second on 25 October 2018 ([2018] EWHC 2807 (Ch)). The judge struck out relief against the Sons unless the petition and points of claim were amended, and conditioned permission to amend the Bankside petition by allowing the respondent to plead a full defence to the amended points of claim.

Issues for the Court of Appeal:

1. Whether the judge was right to treat the allegation in paragraph 36 of the points of claim (that the Sons "supported" their father in causing the payments) as inadequate and to strike out relief against the Sons rather than permitting amendment of the petition to conform to the points of claim.
2. Whether the Sons could be subject to a buy-out order merely because they were registered shareholders and directors, absent pleaded agency, nominee status or a pleaded connection to the alleged misconduct.
3. Whether, in respect of the Bankside petition, the judge was right to allow the respondent to plead a full defence to the entire points of claim as the condition of permitting an amendment to plead an additional acquisition of shares.

Reasoning and outcome:

• The court held that paragraph 36 of the points of claim did make a substantive allegation of support by the Sons for Mr Gourgey’s conduct and that the Sons had, by serving points of defence in August 2013, put those pleaded facts out of issue; it was therefore too late for them to seek to strike out the claim for relief on the basis that the pleading lacked detail. The omission of that allegation from the petition should have been cured by amendment of the petition so it matched the points of claim. The judge was wrong to strike out the claim for relief against the Sons on pleading grounds. Appeal allowed as regards the G&G petition.
• As to the argument that the Sons could be liable merely because they were the registered holders of shares, the court rejected that submission: something more must be pleaded linking the Sons to the alleged wrongdoing (agency, nominee holding, direction or knowledge/foreseeability) before a buy-out order could be made against them.
• In the Bankside petition the court held that permitting the respondent to plead a full defence to the entire points of claim would undermine the earlier strike-out order; nevertheless certain defences relevant to the additional 8 shares (for example, knowledge at acquisition and consent of the transferor) should be permitted and the respondent should be allowed to plead limited factual matters necessary to run those defences. The judge’s broader condition was therefore incorrect and modified.

Practical note: The court emphasised the importance of timely progression and active case management in long-running unfair prejudice petitions and warned parties that procedural obstructionism would attract stringent orders and costs consequences.

Appeal allowed. The Court of Appeal held that the judge erred in striking out the claim for relief against the Sons: an allegation in the points of claim that the Sons "supported" the majority shareholder in causing the impugned payments amounted to a substantive ground for relief and the omission of that allegation from the petition should have been remedied by amendment to the petition rather than by striking out. The court also held that the judge was wrong to permit the respondent in the Bankside petition to plead a full defence to the entire points of claim as a condition of allowing a limited amendment; instead the respondent should be permitted to plead only such factual matters as are necessary to run specific defences relevant to the additional shares (for example, knowledge at acquisition and consent by the transferor).

Appeal from orders of Sir Nicholas Warren in the High Court (Companies Court, ChD) in petitions CR-2013-003502 and CR-2013-003499. Key High Court decisions in the procedural history include Simon J’s order striking out points of defence ([2015] EWHC 1080 (Ch)), the judge’s first reserved judgment ([2018] EWHC 1035 (Ch), [2019] 1 BCLC 434) and second judgment ([2018] EWHC 2807 (Ch), [2019] 2 BCLC 174). An earlier appeal from Simon J’s order was dismissed by the Court of Appeal ([2017] EWCA Civ 926). The present judgment is [2019] EWCA Civ 2046.