Gott v Hauge & Ors

A company’s money should not ordinarily be used to fund disputes between its shareholders. An exception may arise where a company pursues a genuinely independent corporate claim in its own interests. The court must examine the substance of the proceedings, including the pleadings, the relief sought, the chronology and whether the company’s interests are sufficiently distinct. A broadly pleaded counterclaim brought only in response to an unfair-prejudice petition may remain part and parcel of the shareholder dispute. For the purposes of Companies Act 2006, s 994, the affairs of the company are construed broadly.

Mr Michael Gott presented a petition under s 994 of the Companies Act 2006 against the respondents. He applied for injunctions restraining the individual respondents and respondent companies from using company funds to meet legal and professional costs connected with the petition, related counterclaims and the injunction application.

The respondent companies argued that they should be able to use their own money to protect distinct corporate interests and pursue claims pleaded in their counterclaim. The central issue was whether those interests were sufficiently separate from the shareholder dispute to justify an exception to the general rule against using company funds in such litigation.

1. Outcome. The court declined to permit the Fifth to Eighth Respondents to use company money to fund their costs of the injunction application on the pleadings before the court. Directions were made for the return hearing, with costs reserved.
2. The general principle that company money should not be spent on disputes between shareholders applied. The principle could yield where a company had a legitimate and sufficiently independent corporate interest in pursuing or defending proceedings, as explained in Jones v Jones [2002] EWCA Civ 961.
3. For the purposes of s 994 of the Companies Act 2006, the affairs of the company should be construed broadly. The June agreement, although not made by the Fifth to Eighth Respondents, had been entered into to protect the Fifth Respondent’s assets and prevent the individual respondents obtaining an unfair litigation advantage through company funds.
4. The counterclaims repeated substantial parts of the defence, were brought many years after the alleged causes of action arose and were advanced only in response to the petition. The pleadings combined the interests of several respondents and did not show how the companies’ costs could be separately identified or what distinct damage they would suffer before the return hearing.
5. On those facts, the interests of the Fifth to Eighth Respondents were not sufficiently distinct to justify an exceptional departure from the general rule. The court therefore maintained the restriction on the use of company funds pending the return hearing. The matters were to remain listed for the week commencing 4 May 2020, when the High Court Judge could give further directions and deal with costs.

Not stated in the judgment.