Nash & Ors v Lygren & Ors

The court considered an application for findings of contempt arising from breaches of an interim injunction made by HHJ Worster on 29 October 2019 which prohibited Procedo from taking "any further steps to seek to remove" three directors and set aside a specific notice of a general meeting. The legal tests for contempt by breach of an order (as summarised in FW Farnsworth v Lacy) were applied: (a) receipt of the order and commission of a prohibited act, (b) intention in doing the act, and (c) knowledge of the facts making the act a breach. The court construed the injunction as wide enough to catch procedural steps such as proposing a resolution, giving notice of a meeting, holding and adjourning such a meeting, and giving notice of an adjourned meeting. The respondents' arguments that no "step" occurred until an actual removal or that their conduct was justified by ambiguity were rejected. The court found wilful breaches beyond reasonable doubt by Procedo and the two individual respondents and imposed fines of £100,000 on Procedo and £25,000 on each individual respondent, and awarded costs to the applicants on the indemnity basis, assessed at £92,648.

Background and parties:

• The applicants are three claimants in underlying company litigation concerning EMC Cement Holdings Ltd; Procedo Enterprises is the majority shareholder and the defendants include Procedo and two individual directors (Mr Lygren and Dr Walch).
• The applicants relied on a shareholders' agreement which they say entitles them to appoint a majority of directors despite being minority shareholders; Procedo holds 92.5% of shares and sought to convene members' meetings proposing removal of the applicants' nominated directors.

Nature of the application:

The applicants sought declarations that the respondents were in contempt of an interim injunction (HHJ Worster, 29 October 2019) and that sanctions be imposed for breaches consisting of proposing a removal resolution, giving notice of a general meeting to consider it (9 April 2020) and giving notice of a further meeting or adjournments (30 April 2020).

Issues before the court:

1. Whether Procedo's acts (circulating a notice, proposing a resolution, convening/adjournment of meetings) amounted to "steps to seek to remove" the directors within the injunction;
2. Whether the individual directors had the requisite intention/knowledge or wilfully failed to take reasonable steps to ensure compliance (director liability for corporate contempt);
3. Whether any ambiguity in the injunction or a genuine belief about its meaning excused or mitigated the respondents' conduct;
4. Appropriate sanction if contempt established.

Court's reasoning:

• The court applied the test for contempt in FW Farnsworth v Lacy and the principles on director liability from Attorney General of Tuvalu v Philatelic Distribution: a director aware of an order must take reasonable steps to ensure compliance and may be guilty of contempt for wilful failure to do so.
• On construction, "any steps to seek to remove" plainly covered proposing resolutions, serving notices of meetings, holding or adjourning such meetings and related procedural acts; these are steps in a constitutional process capable of leading to removal.
• The respondents' construction (that no breach occurs until a director is actually removed) was rejected as plainly incorrect; the court found the language of the injunction sufficiently clear to be enforceable and to capture preparatory procedural acts.
• The respondents proffered a range of arguments in correspondence (including reliance on wording "having due regard to any judicial fetter", assertions that adjournment cured any breach, or that further procedures would be required to effect removals). The court found those positions to be inconsistent, evasive and not genuinely held as a matter of belief that would excuse culpability.
• The facts of service and awareness were not in dispute; the admitted acts and documentary evidence established commission of the prohibited steps and the requisite wilfulness beyond reasonable doubt.

Result and sanction:

• The court declared Procedo and the two individual respondents in contempt of the injunction.
• Fines were imposed: £100,000 on Procedo, and £25,000 on each of the two individual respondents.
• Costs were awarded to the applicants on the indemnity basis and assessed (with adjustments) at £92,648.

The court also observed that the injunction remained in force (no return date fixed) and that the respondents remained in contempt while the challenged resolution remained available to be proceeded with.

The application for findings of contempt succeeded. The court held that Procedo and the two individual respondents wilfully breached the interim injunction (which proscribed "any further steps to seek to remove" the three directors) by proposing a removal resolution, serving notices and arranging/adjourning meetings. The injunction was construed to include such procedural steps, the respondents' contrary construction and asserted beliefs were rejected, and fines of £100,000 (Procedo) and £25,000 each (individuals) were imposed; costs were awarded on the indemnity basis and assessed at £92,648.