Ntzegkoutanis v Kimionis

The Court of Appeal held that a petitioner may, in an unfair prejudice petition under Part 30 of the Companies Act 2006 (notably s.994 and s.996), seek relief that will benefit the company, but such relief is subject to careful case management and the ordinary rules against abuse of process. The judge below had applied what he described as the "Chime approach" and struck out paras 32.2 and 32.3 of the petition (claims for compensation and declarations of constructive trust in favour of the company). The Court of Appeal allowed the appeal, concluding that the judge had approached the matter on a mistaken basis.

Key legal principles stated: (i) the court has power to grant orders in favour of the company in unfair prejudice proceedings; (ii) ordinarily relief in favour of the company should correspond to what the company could obtain in an action or derivative claim, but that does not erect a categorical bar to including such relief in an unfair prejudice petition; (iii) it can be an abuse of process to use an unfair prejudice petition solely to pursue what is in substance a derivative claim designed to circumvent the statutory derivative-permission regime in Part 11, but where an unfair prejudice petition seeks mixed relief and the petitioner genuinely seeks unfair-prejudice relief, including company-beneficial remedies is not necessarily abusive; and (iv) section 260 of the Companies Act 2006 does not, in general, prevent a petitioner from seeking relief in unfair prejudice proceedings which will benefit the company where the petitioner is exercising his personal right under s.994 rather than acting as a representative to enforce the company’s cause of action.

Background and facts.

• The company (Coinomi Limited) was formed in 2016; the appellant and respondent each held 50% of the shares and were directors. The appellant alleged exclusion from management and that the respondent misappropriated company business and assets by transferring intellectual property and other rights to associated Cyprus and BVI companies ultimately owned by the respondent.
• The petition (presented 22 April 2022) under s.994 of the Companies Act 2006 sought various remedies: an order requiring the respondent to sell his shares to the appellant, compensation and accounting to the company by the respondent, declarations of constructive trust in favour of the company, or alternatively authorisation to pursue litigation on the company’s behalf.

Procedural posture.

The respondent applied to strike out paras 32.2 (compensation) and 32.3 (constructive trust) of the petition. His primary grounds were abuse of process and that such relief was only permissible as a derivative claim under Part 11 of the Companies Act 2006 (s.260). His Honour Judge Klein struck out those paragraphs. The appellant appealed.

Issues framed.

1. Whether an unfair prejudice petition may properly seek relief that will benefit the company (such as compensation and constructive trust declarations) rather than only personal relief for the petitioner.
2. The relationship between Part 30 (unfair prejudice petitions) and Part 11 (derivative claims), and whether s.260(2) prevents the petitioner from advancing those heads of relief except under the Part 11 permission regime or an order under s.996(2)(c).
3. Whether the so-called "Chime approach" (derived from Re Chime Corp Ltd) forms part of English law and, if so, whether it was correctly applied below.

Court’s reasoning and disposition.

The Court of Appeal held that:

• the court does have the power to make orders in favour of the company in unfair prejudice proceedings (following authorities such as Re Chime and decisions in this jurisdiction);
• however, as a general principle the court should not make orders for the company that do not correspond to orders available to the company in an action or derivative claim, because otherwise unfair prejudice petitions could be used to circumvent derivative claim safeguards;
• it can be an abuse of process to use an unfair prejudice petition solely to pursue a derivative cause of action without engaging the Part 11 permission regime, but where the petition properly seeks unfair-prejudice relief and also asks for company-beneficial orders the answer is usually case management rather than strike-out; and
• the judge below erred by employing a restrictive "Chime approach" as a rule of English law and by concluding at the pleading stage that paras 32.2 and 32.3 could not conveniently be adjudicated in the petition. The respondent’s s.260 argument also failed because the petition sought relief by the petitioner in his personal right under s.994 rather than seeking relief "on behalf of the company" as contemplated by s.260(1)(b). The appeal was therefore allowed and the strike-out dismissed.

The judgment also summarises subsidiary case-management considerations and records a difference of view among the three judges on the precise ambit of s.260(1)(a), but all agreed the strike-out was wrong.

The appeal is allowed. The Court of Appeal held that the judge below erred in applying an unduly restrictive "Chime approach" and in concluding that paras 32.2 and 32.3 of the petition were necessarily abusive or incapable of being managed in unfair prejudice proceedings. The strike-out of those paragraphs is dismissed. The Court explained that (i) the court has power to grant relief in favour of a company in unfair prejudice petitions but (ii) ordinarily such relief should correspond to what the company could obtain in its own action or a derivative claim, and (iii) where a petition seeks mixed relief and the petitioner genuinely seeks unfair-prejudice remedies the remedy is case management rather than a categorical bar or strike-out. The Court also held that s.260(2) did not prevent the petitioner from seeking the contested relief because the petitioner was exercising his personal right under s.994 rather than bringing a derivative claim "on behalf of the company" under s.260(1)(b).

Appeal from High Court (Business and Property Courts, Insolvency and Companies List (ChD), His Honour Judge Klein) [2022] EWHC 3178 (Ch) to the Court of Appeal [2023] EWCA Civ 1480. The interlocutory strike-out application against paragraphs 32.2 and 32.3 of the petition was determined in the High Court and then appealed to the Court of Appeal.