Hitendrakumar Patel v Michael John Parker & Ors

A mandatory interim injunction for delivery up of company accounting records may be granted where there is a serious issue as to a director’s right to inspect records, damages are inadequate because failure to prepare accounts may expose directors to criminal sanctions, and the balance of convenience favours production. Records held in another company’s name may be included where they are shown to relate to the company’s transactions and are within the director’s practical control, but records belonging to other companies will not be ordered up without evidence connecting them to the company’s business.

Permission to amend requires a real, rather than fanciful, prospect of success. Summary judgment is inappropriate in fraud disputes requiring assessment of competing witness accounts, contemporaneous documents and inherent probabilities at trial.

The claimant alleged fraud, misrepresentation, breach of contract, breach of fiduciary duty, breach of trust and unjust enrichment arising from a failed joint venture to acquire and develop a hospital site. He made three interim applications.

1. An application sought delivery up of documents needed to prepare Smart Hospitals Limited’s statutory accounts.
2. An application sought permission to amend the claim and join three additional defendants following evidence of transfers from an account used for the development.
3. An application sought summary judgment or strike out of the defendant’s counterclaim challenging a personal guarantee.

The court had to determine whether the accounting-records claim was arguable and justified interim relief, whether the proposed amendments and joinder had a real prospect of success, and whether the guarantee counterclaim could fairly be resolved without a trial.

1. Delivery up of accounting records. The court permitted amendment to plead a claim under sections 386 and 388 of the Companies Act 2006 and/or at common law. A director’s right of access to company books and accounting records was at least arguably available, and the application could properly be dealt with within the existing Part 7 proceedings. Any procedural breach under Practice Direction 49A was waived under CPR rule 3.10.
2. The claimant established a serious issue to be tried concerning continuing failure to provide Smart Hospitals Limited’s accounting records. Records in ETT’s name could be included where transactions related to Smart Hospitals Limited, because the evidence suggested that the businesses and records had not been properly distinguished and the defendant controlled ETT. The order did not extend to records belonging to Smart Medical Clinics Limited or Echo Tango (Holdings) Limited, since there was no sufficient evidence that those companies undertook transactions for Smart Hospitals Limited.
3. Damages were inadequate. Failure to produce records needed for statutory accounts created a risk of criminal sanctions. Applying American Cyanamid Co v Ethicon and the mandatory-injunction guidance in Nottingham Building Society v Eurodynamics Systems, the risk of injustice from refusing relief materially exceeded the risk from granting it. Delivery up was ordered in principle for relevant ETT documents concerning the specified period.
4. Amendment and joinder. The applicable threshold was whether the proposed claims had a real, rather than fanciful, prospect of success. The allegations concerning the transfer of £500,000 through ETT to Smart Medical Clinics Limited passed that threshold, as did claims against ETT and Smart Medical Clinics Limited for unjust enrichment, breach of trust, restitution, dishonest assistance and unlawful means conspiracy. Claims against Echo Tango (Holdings) Limited based on attribution of the defendant’s knowledge and unlawful means conspiracy were not reasonably arguable because the necessary knowledge and intention were not pleaded or evidenced. Unjust-enrichment and share-trust amendments against that company were permitted.
5. Summary judgment. The counterclaim concerning the personal guarantee was refused. Although the claimant relied on powerful contemporaneous evidence, the competing allegations of deceit required cross-examination and assessment of the evidence in the round. The case lay on the frontier between improbability and fancifulness and therefore had to proceed to trial.

The judgment records that the claim was issued in the Technology and Construction Court and transferred to the Business List of the Chancery Division by order dated 19 December 2022. No appellate decision is stated.