Cossac Holdings Limited v Preferred Management Limited & Ors

The court considered an application by the petitioner to re-re-amend its petition (most recently pursued under section 994 of the Companies Act 2006) to add extensive allegations concerning the affairs of a Russian company (JSCE) and an asserted temporal "sole purpose" limitation to the purpose of the English holding company (PML). The judge applied the established test for permission to amend (requirement that an amended claim carry a degree of conviction, be coherent, properly particularised and supported by evidence) and the principle against re‑litigation/Henderson v Henderson. The judge held that earlier findings made at the APOC trial precluded the proposed "Sole Purpose" and "Incentive" amendments as res judicata, and that most proposed amendments relying on an asserted de facto control of JSCE by the third respondent did not show that JSCE's affairs could properly be treated as the affairs of PML under section 994. Permission to amend was refused in the large majority of respects for want of coherence, particularity or evidential basis. The only amendments permitted were two limited complaints (paragraphs 35B and 35D of the draft re-re-amended petition) about PML's failure to exercise its votes in JSCE in accordance with the petitioner’s directions.

The court declined to permit reinstatement of the original winding-up claim on just and equitable grounds and noted that, if unfair prejudice were established, the court’s discretion under section 996 provides an alternative and less draconian remedy.

Background and parties: Cossac Holdings Limited (the petitioner, the beneficial owner of one third of the shares in Preferred Management Limited, "PML") sought permission to re-re-amend its petition to add new factual and legal allegations about PML and about a Russian insurance company, Public JSC Energogarant ("JSCE"). PML is the registered vehicle through which the three Founding Shareholders originally held a 40.35% interest in JSCE. The second respondent is Keyforce Trustees Limited (PML’s trustee) and the third respondent is Mr Zernov, who is alleged to control PML and, de facto, JSCE.

Procedural history and relief sought: The petition dated May 2018 has had prior amendments and additional points of claim (APOC). Following a four‑day trial on the APOC, the court dismissed the APOC in 2021 and directed the petitioner to discontinue or to serve a draft re-re-amended petition (RRP). The present application (30 November 2022) sought permission to make the RRP amendments. Relief originally sought in the petition included, alternatively, winding up on just and equitable grounds and/or remedies under section 994 (unfair prejudice) and, as the earlier amendment recognised, remedies under section 996.

Issues framed by the court:

• Whether the proposed amendments should be permitted under the test summarised in Kawasaki Kisen Kaisha Ltd v James Kemball Ltd: that the amended claim must carry some degree of conviction, be coherent and properly particularised, and be supported by evidence.
• Whether the new allegations are barred by res judicata/Henderson v Henderson because they relate to matters determined at the APOC trial (notably whether there was any understanding about the future holding or succession of the PML shares).
• Whether alleged wrongful acts and investigations involving JSCE can properly be treated as conduct of the affairs of PML for the purposes of a section 994 petition, particularly where PML is only a minority shareholder in JSCE and the petitioner alleges de facto control by a third party.

Court’s reasoning and conclusions: The judge set out the findings from the APOC judgment and concluded those findings precluded the proposed "Sole Purpose" and "Incentive" amendments because the earlier decision had rejected any understanding about what would happen to PML shares if a founding shareholder ceased to be involved in JSCE. The judge applied the Kawasaki criteria and found that most of the new allegations concerning criminal investigations, alleged misappropriations, dividend policy, sales at undervalue and other misconduct in JSCE did not, on the pleaded facts and evidence, carry a sufficient degree of conviction to show those matters were conduct of the affairs of PML under section 994. The court emphasised that the petitioner was effectively complaining about the third respondent’s conduct rather than about acts or omissions of PML itself. The judge recognised authorities that permit consideration of a subsidiary’s affairs as part of the affairs of a parent (or vice versa) but concluded there was no precedent to support treating the affairs of a third‑party company as the affairs of a minority shareholder merely because a third party exerts de facto influence; the petitioner had not shown the necessary factual basis. For that reason most proposed amendments were refused as abusive, insufficiently particularised or unsupported. The judge granted permission only for amendments complaining of PML’s failure to exercise its votes in JSCE in accordance with the petitioner’s directions (paras 35B and 35D of the RRP). The judge declined to restore the original winding‑up prayer and noted that section 996 provides an alternative, less draconian remedy if unfair prejudice is established.

This was a first-instance application for permission to amend. The court refused permission for the majority of the proposed amendments to the petition because they were either res judicata in light of findings at the APOC trial (notably there was no understanding about future succession or a temporal restriction on PML’s purpose), or they failed the Kawasaki test (the amended pleadings did not carry the required degree of conviction, coherence or evidential support). The court granted permission only for limited complaints that PML failed to exercise its votes at JSCE in accordance with the petitioner’s directions (paras 35B and 35D). The court declined to reinstate the original winding-up claim and observed that section 996 offers a suitable remedial alternative if unfair prejudice is proved.