King & Ors v Kings Solutions Group Ltd

In an unfair prejudice petition, allegations must identify conduct of the company’s affairs, unfairness and prejudice, with a sufficient causal link between them. Personal conduct by shareholders or third parties may be relevant where it forms part of a pleaded campaign connected with the company’s affairs and the alleged prejudice.

The court may proactively strike out immaterial, duplicative or abusive allegations. A discontinued claim may engage Civil Procedure Rules 1998, Part 38.7, and may also support Henderson v Henderson abuse of process. However, allegations may proceed where they raise an arguable statutory case, are not estopped by earlier proceedings, and their determination requires evidence at trial.

The petitioners presented a petition under section 994 of the Companies Act 2006 concerning their minority shareholdings in Kings Solutions Group Ltd. They alleged that the respondents had pursued a campaign to exclude them from the business, deprive them of funds and acquire their shares below fair value.

The respondents applied under Civil Procedure Rules 1998, Parts 1, 3 and 38.7 to strike out numerous passages in the Points of Claim. Some allegations repeated matters raised in a discontinued misrepresentation claim or challenged decisions made in related costs and enforcement proceedings. The central issues were whether the allegations concerned conduct of the company’s affairs, whether they were materially relevant to unfair prejudice, and whether their pursuit was barred or abusive.

1. Disposition. The application was allowed in part. Passages concerning the alleged pre-transaction misrepresentations, the commencement and conduct of the discontinued misrepresentation claim, and related professional negligence allegations were struck out. The remaining challenged passages were permitted to proceed to trial.
2. Under section 994, conduct of the company’s affairs, prejudice to the petitioner’s interests as a member, and unfairness are distinct requirements. Conduct by shareholders or third parties may be relevant where it is combined with conduct of the company and a clear causal connection is pleaded between the personal conduct, the company’s affairs and the alleged prejudice.
3. The court should manage unfair prejudice petitions proactively. It may strike out narrative, immaterial or duplicative allegations and allegations which cannot support the pleaded remedy. A petitioner has no unqualified right to take every pleaded matter to trial.
4. Part 38.7 was engaged where allegations in the petition arose from the same or substantially the same facts as the discontinued misrepresentation claim. The allegations were struck out for failure to obtain permission. The same reasoning applied to allegations against a person who could and should have been joined to the earlier claim.
5. The court rejected the proposition that Henderson v Henderson abuse of process cannot apply after discontinuance. Res judicata and abuse of process are distinct though overlapping principles. A discontinued claim may therefore give rise to procedural abuse, assessed through the broad merits-based approach required by Johnson v Gore Wood & Co.
6. The allegations concerning the proposed acquisitions of Cougar and DSSL, the alleged obstruction of the put option, charging orders, enforcement steps, costs pressure and the Part 8 Claim were sufficiently connected to the pleaded campaign and alleged prejudice. They were arguable and should not be struck out in the absence of a trial or a relevant abuse finding.
7. The earlier Part 8 decisions did not create cause of action or issue estoppels because they did not determine a section 994 claim. Although some issues had been argued previously, special circumstances justified allowing the related allegations to proceed, including the limited scope of the earlier hearings and the absence of oral evidence and cross-examination.
8. The parties were directed to agree a Minute of Order and, if possible, the costs order. Otherwise costs would be determined on paper.