HHJ Jarman KC (Summary Judgment Decision)

The petitioner (Queensgate) brought a petition under section 994 of the Companies Act 2006 alleging conduct by the respondents that was unfairly prejudicial to it as a shareholder. The petitioner applied for summary judgment against the second and third respondents under CPR Part 24, and the fourth respondent applied for security for costs under CPR 25.13. The judge dismissed the summary judgment application because the allegations of dishonesty and other contested facts raised several different issues that should properly be resolved at the imminent trial after oral evidence and cross-examination. The judge found compelling reasons to proceed to a full hearing, including the multi‑party context and risk of prejudice to another defendant (the fourth respondent) if summary judgment were entered. The court granted an order for security for costs limited to future costs from the date of the application, having regard to the claimant’s incorporation outside the jurisdiction, perceived impecuniosity, delay and the strength of the case, and fixed security at £280,000 to be provided by solicitors’ undertaking within 14 days or else the claim against the fourth respondent will be stayed.

Background and procedural posture:

• Queensgate petitioned under section 994 Companies Act 2006 seeking purchase of its shares in Solid Star Limited because of alleged unfairly prejudicial conduct. The petition alleged multiple acts of misconduct, including transfers of unsold flats and diversion of funds.
• After the petition was issued, the third respondent (Mr Prakash Bhundia) was made bankrupt (8 June 2022) and the first respondent (Solid Star) was put into liquidation (7 September 2022) following an independent winding‑up petition (Lazuli Properties Ltd v Prakash Bhundia and others [2022] EWHC 758 (Ch)).
• The petitioner sought summary judgment against the second respondent (Viking) and the third respondent (Mr Bhundia). The fourth respondent (Mr Minesh Bhundia) applied for security for costs. Both interlocutory applications were heard together and decided at first instance.

Facts:

• Star was a joint venture established in 2003, with equal shareholdings held by Viking and Queensgate under a shareholders agreement of 6 January 2004. The venture acquired and developed a hotel into flats; by 2017 a number of flats remained unsold.
• In 2017 the parties signed an agreement allocating the unsold flats between them with an assumed valuation and arrangements for balancing payments and planning obligations.
• From 2019 to 2020 several unsold flats were transferred away from Star — one to Jenmark Properties Ltd and six to PropertyX1 Ltd (X1), companies said to be owned or controlled by Mr Bhundia and/or his family. Queensgate allege the transfers were without proper consideration and amounted to diversion of assets and dishonest breaches of fiduciary duties, with significant sums deployed, including payments to a creditor (Lazuli) and payments said to benefit the Bhundia family.

Issues framed by the court:

1. Whether summary judgment should be entered against Viking and Mr Bhundia because they have no real prospect of defending the petition (CPR Part 24).
2. Whether it was just to order security for costs against Queensgate under CPR 25.13, and if so in what sum and from which date.

Court’s reasoning and decision:

• On summary judgment, the judge applied the Part 24 test and emphasised the established caution in granting summary judgment where allegations of serious dishonesty or fraud are raised (citing authorities such as Wrexham and Antonio Gramsci), noting that oral evidence may materially affect credibility and integrity findings. Although some documentary material pointed to potentially strong allegations, there were several distinct aspects to the alleged misconduct and a trial was imminent. There was also a real prospect that a finding against the third respondent might affect the defence of the fourth respondent; multi‑party fairness required the issues to be decided together. The judge therefore dismissed the summary judgment application and declined to make factual findings on dishonesty.
• On security for costs, the judge applied the principles in Keary and CPR 25.13. The judge accepted that Queensgate, incorporated out of the jurisdiction, gave cause to believe it might be unable to pay costs and that the court should weigh injustice to both sides. Although there had been delay in bringing the application and some responsibility lay with the fourth respondent for timing, the delay did not defeat the application. Because of the delay the security was limited to costs incurred from the date of the application (future costs) rather than past costs. The judge quantified appropriate security after considering the parties’ budgets and reductions for overlap and seniority, fixing security at £280,000, to be provided by solicitors’ undertaking within 14 days or the claim against the fourth respondent would be stayed.

Wider commentary: The judge noted that summary disposal of complex allegations of alleged director dishonesty is unusual and that the court must take care before depriving a party of a trial when contested credibility and multiple interrelated issues arise.

First instance: the application for summary judgment against the second and third respondents is dismissed because allegations of dishonesty and multiple contested factual matters raise compelling reasons for a full trial; the application by the fourth respondent for security for costs is allowed in part — security for future costs in the sum of £280,000 is ordered to be provided by solicitors’ undertaking within 14 days, failing which the claim against the fourth respondent will be stayed. The court declined to make any substantive findings on alleged dishonesty, leaving those matters for trial.