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

The court dismissed the respondents’ application to strike out the petitioner’s section 994 Companies Act 2006 petition save that permission was granted to serve a rejoinder. The judge held that the petition properly alleged unfairly prejudicial conduct under section 994 and sought relief within the scope of section 996. The petition was not a disguised derivative claim under section 260, the relief sought did not offend the no-reflective-loss principle, and allegations that the respondents acted in bad faith and for an improper purpose were pleaded with sufficient particularity to survive strike out. The court noted that one limb of the prayer (an order to reinstate co-sale rights) had become redundant by events but was not struck out as an abuse of process; joinder or notice to other shareholders was a case management issue rather than a ground for striking out.

Background and parties:

• The petitioner, a trustee company, held A and B ordinary shares in the first respondent, The Hut Group Limited, under agreements including a Sale and Purchase Agreement and a Shareholders’ Agreement.
• Following a falling out between shareholders and directors, the petitioner alleged a course of conduct by those controlling the company that unfairly prejudiced its interests as a shareholder.

Nature of the application:

• The respondents sought striking out the section 994 petition as an abuse of process or otherwise unsustainable (CPR Pt 3.4), arguing in particular that it was in substance a derivative claim (section 260), sought impermissible reflective loss, contained inadequately particularised allegations of bad faith, and sought relief the court could not or would not grant (including orders affecting non-party shareholders).

Issues framed by the court:

1. Whether the petition was, in reality, a derivative claim and therefore an abuse of process for failing to obtain permission under sections 261–263.
2. Whether parts of the relief sought amounted to claims for reflective loss and were therefore impermissible.
3. Whether allegations that the company and its directors acted in bad faith or for an improper purpose were pleaded with sufficient particularity.
4. Whether particular relief sought was hopeless or outside the court’s powers, including orders affecting the rights of non-parties.

Reasoning and conclusions:

• The judge applied the established approach to strike-out applications and assumed the petitioner’s pleaded facts to be true for present purposes but tested whether the petition was "perfectly hopeless."
• The court analysed the nature of the complaint and the relief sought and concluded the petition sought redress for unfair prejudice to the petitioner as shareholder rather than solely for injury to the company; accordingly it was not a concealed derivative claim. Paragraph 4 of the prayer seeking compensation payable to the company and then to the petitioner was held to be an indemnity-type claim which could appropriately be included.
• The judge rejected the respondents’ reflective loss argument on the basis that the petitioner alleged loss distinct from any loss to the company: the petitioner complained of loss to its rights and relative position as a shareholder rather than loss to the company as a whole.
• Allegations of bad faith and improper purpose were held to be adequately pleaded. The petition alleged a course of conduct, lack of proper commercial basis for some actions, and concealment of information amounting to matters capable of supporting inferences of bad faith if established at trial.
• Orders sought that would affect non-parties (other shareholders) raised joinder and notice issues but these were matters for case management rather than grounds to strike out; the petition was not hopeless for seeking such relief. One element of the prayer had become redundant because the co-sale rights had been restored but that did not warrant striking out as abusive.

The court dismissed the respondents’ striking out application save that permission was granted for the proposed Rejoinder. The judge held that (i) the petition properly fell within the scope of section 994 and did not amount to a concealed derivative claim under section 260, (ii) the relief sought was within the scope of section 996 and did not impermissibly seek reflective loss, (iii) allegations of bad faith and improper purpose were adequately particularised to survive strike out, and (iv) issues about joinder or notice to other shareholders were case-management matters rather than a basis to strike out.