Mohammed Saleem Khawaja v Stela Stefanova

The court considered an application for summary judgment on a petition under section 994 of the Companies Act 2006 alleging unfair prejudice and related relief under section 996. The judge applied the established summary judgment principles (as summarised in EasyAir) and the flexible but wide remedial jurisdiction under s. 994/s. 996. The court found strong evidence that the first respondent had taken sums from the company and breached director's duties, so she had no realistic prospect of defending those allegations, but declined to grant summary judgment as a matter of case management because the overall scope of the petition, the discretionary remedies available under s. 996 and contested factual issues (notably the alleged diversion of business and certain salary claims) required fuller investigation at trial.

This was an application by the petitioner for summary judgment on a petition brought under section 994 of the Companies Act 2006 together with related interim relief (an interim payment), transfer of related County Court proceedings and an order for costs. The petition alleged, among other matters, that the first respondent had misappropriated substantial sums from the company, diverted the company’s business to a second respondent, and breached duties as a director; the petition sought a wide range of relief including an account, equitable compensation, a buy‑out of shares, and permission to bring derivative claims.

Background facts and procedural posture:

• The petitioner and the first respondent had an oral agreement of April 2018 by which the petitioner was to become a 50% shareholder and director; the petitioner had earlier pursued County Court proceedings for specific performance and damages, in which HHJ Gerald found in the petitioner’s favour on key factual points but reserved the question of remedy pending further evidence.
• The first respondent was found to have failed to comply with disclosure orders; subsequent freezing orders were made and continued; contempt proceedings led to findings of multiple contempts and a suspended custodial sentence conditioned on provision of outstanding bank statements.
• The petitioner later presented the section 994 petition and obtained interim freezing relief; the petition pleads misappropriation of company funds (counted at least £340,324.53), diversion of business to the second respondent, and derivative claims on behalf of the company.

Issues framed by the court included whether the petitioner had established unfair prejudice for the purposes of s. 994; whether summary judgment was appropriate on (i) the terms of the parties’ agreement, (ii) the duties owed by the first respondent to the company, (iii) the pleaded grounds of unfair prejudice (save for two specific sub‑allegations), (iv) entitlement to damages, and (v) entitlement to an account in respect of sums taken or diverted.

Reasoning and conclusion:

• The judge reviewed the principles governing s. 994 petitions (including the generous construction of ‘‘interests of members’’, the wide discretionary remedial power under s. 996, and illustrative categories of unfairness) and the principles for summary judgment (EasyAir).
• The court recognised the strength of the evidence that the first respondent had paid company monies to herself (including legal fees, a motor vehicle and other personal payments) and that she had treated the company as if she were sole shareholder; on those elements the first respondent had no realistic prospect of successfully defending liability for breach of duty and unfair prejudice.
• However, because the petition seeks broad discretionary remedies under s. 996, and because other contested factual issues (notably alleged diversion of business to the second respondent and an unresolved salary agreement) required fuller factual investigation, the judge concluded that summary adjudication of the petition as a whole or even partial summary determination was inappropriate as a case‑management matter. The judge therefore declined to make the summary judgment orders sought; consequential interim relief applications fell away and the question of transfer of County Court proceedings was not pursued at that hearing.
• The judgment records that the first respondent will face difficulty defending the petition at trial, but emphasises the rarity of successful summary judgment applications in s. 994 proceedings because of the remedial flexibility and factual complexity.

The court declined to make the summary judgment orders sought in respect of the s. 994 petition. Although the judge found that the first respondent had likely misapplied company funds and had breached director's duties (and thus had no realistic prospect of defending those specific allegations), the breadth of relief available under section 996 and unresolved factual issues (notably alleged diversion of business and a salary dispute) meant it was a case management decision to refuse summary determination and require fuller hearing on the petition. Consequential interim relief applications fell away.

The judgment describes prior proceedings in the County Court and interlocutory High Court applications. The petitioner had earlier succeeded before HHJ Gerald in the County Court on the existence of the April 2018 agreement but the remedy was reserved; various disclosure orders, freezing injunctions (granted by Zacaroli J and continued by Meade J) and contempt findings (Richard Smith J; sentence considered on appeal and referred to by HHJ Baumgartner) followed. A separate hearing by Dame Sarah Worthington DBE KC (Hon) refused transfer of the County Court proceedings to the High Court. The current decision is a first instance High Court determination of a summary judgment application in the section 994 petition (no further appellate history of this decision is stated).