Mohammed Saleem Khawaja v Stela Stefanova

Summary judgment on liability in a petition under Companies Act 2006, section 994 is available, but it is an exceptional remedy. The court must apply the ordinary realistic-prospect test while recognising that the flexible unfair-prejudice jurisdiction and the wide remedial discretion under section 996 create a close relationship between liability and remedy.

Even where a party has no realistic prospect of defending a particular issue, the court retains a case-management discretion whether to determine it summarily. A declaration should not be made where it will not materially assist resolution of proceedings that require a trial on other issues, or where the eventual remedy remains uncertain.

The petitioner applied for summary judgment on liability in a section 994 petition concerning Dermamed Solutions Ltd. He alleged that the first respondent had misappropriated company money, diverted the company’s business to the second respondent, and breached duties owed to the company. The application also sought an interim payment, transfer of related County Court proceedings, and costs.

The petitioner had previously established in County Court proceedings that an agreement existed under which he was entitled to a 50% shareholding. The present application concerned whether the remaining issues in the unfair-prejudice petition should be determined before trial, including the alleged breaches, damages and an account.

1. The application for summary judgment was refused. The interim-payment application and the request concerning costs of the County Court proceedings therefore fell away.
2. The principles governing summary judgment in EasyAir Ltd v Opal Telecom Ltd applied to section 994 petitions. The court had to consider whether the respondent had a realistic, rather than fanciful, prospect of success, without conducting a mini-trial. It had to consider evidence reasonably expected to be available at trial and hesitate before finally determining issues requiring fuller factual investigation.
3. The section 994 jurisdiction is highly flexible. The concepts of unfairness and prejudice are interpreted broadly, and section 996 gives the court a very wide discretion to fashion relief. The nature of the remedy may depend upon the findings on liability. That relationship makes section 994 petitions difficult candidates for summary judgment, even where the defence appears weak.
4. The court considered that the respondent had no realistic prospect of defending allegations that company money had been used for her legal fees, a car, a handbag and pension payments. Those matters supported a finding of breach of duty and unfair prejudice. The alleged diversion of business, however, required fuller factual consideration and could not be resolved without a mini-trial.
5. Although the court considered that the respondent had no reasonable prospect of defending the company-money allegations, it declined to make a declaration. Summary judgment on an individual issue is a case-management decision, and determining that issue would not materially assist when most issues and the appropriate relief still required determination at trial. The damages and account claims were also unsuitable for summary determination because the eventual form of relief remained uncertain.
6. The request to transfer the County Court proceedings was not pursued substantially. An earlier transfer application had been rejected, and no sufficient change of circumstances justified reconsideration.

This was a first-instance decision on an application within a section 994 petition. The judgment records related County Court proceedings in which the petitioner established the existence of the underlying agreement and later proceedings concerning disclosure, contempt and case management. An earlier application to transfer those proceedings to the High Court had been rejected.