Martin Hague & Anor v David Hague & Ors

Allegations of dishonesty must be pleaded clearly and with particularity. A claimant cannot rely on generalised allegations, later witness evidence, or the fact that the opposing party may understand the broad complaint. The pleading must identify the case to be met before trial.

A pleading may nevertheless be sufficient when read realistically and as a whole. An alleged breach of Companies Act 2006, section 172 may arise from an ongoing failure to act in good faith to promote the company’s success. It is not confined to a single transaction or decision. Where the pleading sufficiently identifies personal animosity, rather than legitimate business concerns, as the alleged motivation, the case may proceed.

The petitioners, Martin Hague and Jean Hague, brought an unfair prejudice petition concerning their minority shareholdings in Hague Plant Ltd. They sought an order requiring David Hague and Dianne Hague to acquire their shares.

David Hague, supported by Dianne Hague, applied for directions limiting the evidence, cross-examination and submissions at trial. The application challenged three aspects of the petition: allegations that Hague Plant received cash payments which were not properly accounted for; an allegation that the directors caused Hague Plant to act contrary to legal advice; and an allegation of breach of the duty under section 172 of the Companies Act 2006.

The central issues were whether each matter was sufficiently pleaded and whether the section 172 allegation could be based on continuing conduct rather than a specific transaction.

1. Cash-payment allegations. The allegations of dishonest conduct were inadequately particularised. Applying the rule stated in Belmont Finance v Williams Furniture [1979] Ch 250, allegations of dishonesty must be pleaded clearly and with particularity. The relevant paragraphs were expressed in almost unlimited generality. They did not identify the nature of David’s involvement, the source of Dianne’s alleged knowledge, or specific sales. Witness statements could not cure those deficiencies, particularly because the witnesses could not say what happened to the cash after it was handed over. The Respondents were entitled to know the case they had to meet before trial.
2. Allegations of acting contrary to legal advice. The word “including” improperly suggested that further unidentified instances might emerge during trial. One identified allegation was sufficiently particularised, but the Petitioners were restricted to that example. A party cannot reserve general and unidentified allegations for a liability trial after having had sufficient time to investigate and plead the case.
3. Section 172 allegation. The allegation was sufficiently clear when the Petition was read realistically and as a whole. The duty in section 172 requires a director to act in the way he considers, in good faith, most likely to promote the success of the company for the benefit of its members as a whole. The duty is capable of applying to an ongoing failure to re-establish commercial and personal relationships; it is not confined to a specific transaction or decision.
4. The pleading sufficiently alleged that David and Dianne acted from personal animosity towards Martin rather than legitimate business concerns. That was capable of amounting to a sufficiently clear allegation that they failed to act in good faith in the interests of Hague Plant. The direction was therefore granted in relation to the cash-payment allegations and the unidentified instances of acting contrary to legal advice, but refused in relation to the section 172 allegation.