Giannis Ntzegkoutanis v Georgios Kimionis & Ors.

The court determined that two heads of relief pleaded in an unfair prejudice petition (para.32.2 seeking compensation to the company and para.32.3 seeking declarations of constructive trust) disclosed claims that, in substance, were claims vested in the company and would ordinarily be pursued by way of a derivative action. The judge applied the approach in Re Chime Corpn Ltd, distinguishing the court's theoretical jurisdiction to grant relief under ss.994–996 Companies Act 2006 from the practical question whether it is appropriate to adjudicate causes of action belonging to the company in unfair prejudice proceedings.

The judge held that it is a rare and exceptional case in which the court should allow an unfair prejudice petition to proceed in respect of remedies that properly belong to the company without the procedural protections of the derivative regime (including the permission stage under Part 11, ss.260–263). Because the compensation and constructive trust claims could not be conveniently or sufficiently pleaded and quantified in the unfair prejudice petition, permitting them to remain would be an abuse of process. Accordingly paras.32.2 and 32.3 were struck out as against the first respondent.

Background and parties: Coinomi Limited was a company in which the petitioner and the first respondent were equal shareholders in a quasi-partnership. The petitioner alleged two strands of unfair prejudice by the respondent: (i) mismanagement of the petitioner’s position in the company and (ii) misappropriation of the company’s business and assets to companies controlled by the respondent (Cyprus and BVI). The petition sought a variety of remedies including a buy‑out (para.32.1), compensation to Coinomi (para.32.2) and declarations of constructive trust over assets in the hands of the respondent, Cyprus and BVI (para.32.3).

Procedural posture and relief sought in the application: The first respondent applied to strike out, or obtain reverse summary judgment on, paras.32.2 and 32.3 of the petition under CPR 3.4 on the grounds that those heads of relief disclosed no reasonable grounds, amounted to an abuse of process and sought relief that should be pursued by way of a derivative claim.

Issues framed by the court:

• Whether the court has theoretical and practical jurisdiction to adjudicate claims for compensation and restitution to the company in unfair prejudice proceedings.
• Whether permitting those claims to proceed in the petition would amount to an abuse of process by circumventing the statutory derivative claim regime in Part 11 (ss.260–263 CA2006).
• Whether the compensation and constructive trust claims could be conveniently determined in the unfair prejudice proceedings.

Reasoning and decision: The judge reviewed authority including Re Charnley Davies Ltd (No.2), Re Chime Corpn Ltd and Gamlestaden, and Court of Appeal authorities such as Re The Hut Group Ltd and Taylor Goodchild Ltd v Taylor. The court accepted the Chime distinction between theoretical jurisdiction (the court may be capable of granting relief to the company) and practical jurisdiction (whether it should do so in unfair prejudice proceedings). The judge emphasised the statutory derivative permission regime (ss.260–263 CA2006) and the need to avoid undermining Foss v. Harbottle and the procedural safeguards governing derivative claims.

Applying that approach, the judge concluded that the compensation and constructive trust claims were properly derivative in nature, were not pleaded with the particularity that a derivative claim would require, and could not be conveniently adjudicated on in the unfair prejudice petition. Allowing them to proceed would be an abuse of process. The appropriate and proportionate remedy was to strike out paras.32.2 and 32.3 as against the first respondent. The judge declined to grant reverse summary judgment so as not to prejudice the petitioner’s ability to pursue those matters by a derivative claim.

Practical observation: The judge noted that the petitioner remains free to pursue a derivative claim and that, in principle, case management could lead to those claims being heard together with the petition in future, subject to the derivative permission procedure and any consequential litigation steps.

Application allowed in part. The court struck out paras.32.2 (compensation to the company) and 32.3 (declarations of constructive trust) of the petition as against the first respondent on the basis that those claims are in substance company causes of action which ought properly to be pursued by a derivative claim and could not be conveniently adjudicated in the unfair prejudice petition; permitting them to remain would be an abuse of process. The court did not grant reverse summary judgment.