Zedra Trust Company (Jersey) Ltd v The Hut Group Ltd & Ors

A section 994 petition is not a disguised derivative claim merely because the alleged unfairly prejudicial conduct also involves breaches of directors’ duties. The court must examine the true nature of the complaint and the relief sought.

The court’s power under section 996 is wide. The no reflective loss principle does not bar claims for loss uniquely suffered by a shareholder or for contractual loss which the company could not recover. Bad-faith allegations need sufficient particulars capable of supporting the pleaded inference, but need not prove the allegation at the strike-out stage.

The petitioner, a shareholder in The Hut Group Ltd, presented a petition under section 994 of the Companies Act 2006. It alleged unfair prejudice through changes to co-sale rights, dilution of its shareholding, concealment of information and breaches of an information obligation.

The respondents applied under CPR 3.4(2)(a) and (b) to strike out the petition, or parts of it, as an abuse of process, a concealed derivative claim, an impermissible reflective-loss claim, inadequately pleaded and hopeless. The central issues were whether the petition was properly brought under section 994 and whether the relief sought was capable of being granted under section 996.

1. Application dismissed. Permission was granted to serve the proposed Rejoinder.
2. The court assumed pleaded facts would be established and struck out only claims whose prospects at trial were perfectly hopeless. The jurisdiction was exercised very sparingly.
3. The distinction between a section 994 petition and a derivative claim depended on the true nature of the complaint and remedy. The petition addressed the effect of the conduct on the petitioner’s rights as shareholder, rather than loss suffered by the company. It was therefore not a concealed derivative claim.
4. The court’s section 996 powers included, in an appropriate case, compensation payable to the company for use in compensating the petitioner. The guidance in Re Chime Corp Ltd, (2004) 7 HKCFAR 546, was guidance rather than an inflexible jurisdictional precondition.
5. The no reflective loss principle did not apply because the alleged loss was unique to the petitioner and was not reflective of a diminution in the company’s value. Contractual information-obligation claims were based on rights which the company did not possess.
6. The allegations of bad faith were adequately pleaded. Repeated harmful conduct, lack of proper commercial purpose and failures to disclose information could support an inference of bad faith more likely than innocence or negligence.
7. Non-joinder of other shareholders did not make the petition hopeless or abusive. Joinder and notice were case-management matters, although orders affecting non-parties would generally require affected shareholders to be joined or notified.