Khadim Hussain v Allah Hussain & Ors

Under section 994 of the Companies Act 2006, a breakdown in trust is insufficient by itself. The member must prove specific actual or threatened acts or omissions which are both prejudicial and unfair. A petitioner’s own wrongdoing may affect whether the respondents’ conduct is unfair and may justify refusing relief. Exclusion from management can constitute prejudice, but the court must examine the particular decisions and conduct relied upon. General concerns about future conduct, or appointment of a director, do not suffice without identified prejudicial acts. An appellate court should rarely interfere with factual findings, particularly findings based on witness credibility, unless there is no supporting evidence or the judge misunderstood or failed to consider relevant evidence.

The appellant challenged the dismissal of his petition under section 994 of the Companies Act 2006. He alleged that the respondents had unfairly prejudiced his interests by excluding him from management of KTA Group Ltd, appointing a director for an improper purpose, conducting scripted and partisan board meetings, restricting banking arrangements, and controlling recruitment and dividends.

Chief ICC Judge Briggs dismissed the petition after trial, finding that the parties’ longstanding family understanding permitted separate management of the businesses and informal withdrawals, that the appellant had not been excluded from management, and that the appointment of Shahzad Hussain was proper. Permission to appeal was granted only on the management-exclusion ground. The central issues were whether the judge had misunderstood the evidence and whether the pleaded conduct was prejudicial and unfair.

The appeal was dismissed in its entirety. Grounds G1 to G9 failed.

1. Section 994 framework. A breakdown in trust and confidence does not itself establish unfair prejudice. The petitioner must prove specific acts or omissions which are prejudicial and unfair, or which threaten to be so. The appointment of a director and general concerns about future conduct are insufficient without identified actual or proposed conduct. Specific decisions or conduct may, however, found a petition even where no financial loss is shown.
2. Effect of the petitioner’s conduct. The petitioner’s own wrongdoing may mean that conduct which is prejudicial is not unfair. It may also justify refusing relief or affect the remedy. The trial judge was entitled to find that the appellant had acted inconsistently with the parties’ common understanding by suspending Tanvier Hussain and commissioning an investigation without authority.
3. Management and board conduct. The trial judge was entitled to find that Shahzad Hussain had been appointed for proper purposes, including adding objectivity and improving transparency and accountability. Private and inappropriate communications between directors and a non-director did not establish a conspiracy or breach of duty because the proposed actions were not implemented. The appellant had not shown that board decisions were made outside properly constituted meetings or that the communications caused prejudice.
4. The appellant’s voluntary failure to attend or participate in meetings was relevant. The change to the banking mandate and the requirement for board approval of future hires were not shown to have interfered in practice with the management of Worleys or to have caused prejudice. Compliance with the company’s constitution was not, without more, unfairly prejudicial.
5. Appellate review. The court applied the high threshold governing appeals on fact. It would not interfere merely because it might have reached a different conclusion. The judge had considered the documentary evidence, assessed the witnesses, and reached conclusions open to him. Isolated answers from cross-examination did not demonstrate perversity, absence of evidence, or a failure to consider material evidence.

The order dismissing the petition was upheld.

1. Chancery Appeals, High Court: Appeal against the order of Chief ICC Judge Briggs dated 19 July 2022 dismissed. The judgment appealed was reported at [2022] EWHC 1880 (Ch).
2. Permission stage: Adam Johnson J granted permission to appeal on Ground (1) but refused permission on Ground (2).