Mohammed Saleem Khawaja v Stela Stefanova & Ors

This is a first-instance judgment dealing with costs and an application for permission to appeal following an earlier dismissal of the petitioner’s application for summary judgment in a s.994 petition under the Companies Act 2006.

The court emphasised that the wide remedial powers under s.996 make summary judgment rarely appropriate in s.994 petitions because the court may need to fashion bespoke remedies after a fuller hearing. Although the judge found that many of the petitioner’s allegations had limited prospects and that the first respondent’s conduct in litigation had been poor, the application for summary judgment was rejected on case management grounds rather than by finding the respondent had a good defence to the substantive petition.

As to costs, the judge directed that there should be no order as to costs: ordinarily the successful party recovers costs, but given the unusual features of the case, the nature of the allegations and conduct on both sides, no costs order was appropriate. The judge refused permission to appeal, holding that the decision to refuse summary judgment was a case management decision and there were no arguable prospects of showing it was plainly wrong on the material now relied on.

Background and parties: The petitioner, Mr Khawaja, brought a petition under section 994 of the Companies Act 2006 alleging unfair prejudice against Dermamed Solutions Limited and others, including the first respondent, Ms Stefanova. The petitioner applied for summary judgment which was dismissed on 18 July 2024. This judgment addresses consequential matters: costs and the petitioner’s application for permission to appeal.

Nature of the application: The petitioner sought summary judgment on his s.994 petition and subsequently sought permission to appeal the dismissal of that application. The court was asked to decide costs of the summary judgment application and whether leave to appeal should be granted.

Issues framed:

• Whether an order for costs should be made in favour of the first respondent following dismissal of the summary judgment application.
• Whether permission to appeal should be granted on identified grounds challenging the refusal of summary judgment and consequential case-management decisions.

Grounds of proposed appeal: The petitioner relied on six principal grounds: (a) that the judge was wrong to find the first respondent had realistic prospects of defending allegations of diversion of business to BiotechnologiesUK Limited; (b) that the judge was wrong to find damages unlikely and that other remedies were more probable; (c) that the judge was wrong not to grant summary judgment on misappropriation of company funds; (d) that the judge was wrong not to order an interim payment; (e) that the judge was wrong not to transfer County Court proceedings to the High Court; and (f) that the judge was wrong not to order the first respondent to pay the petitioner’s costs of the County Court and High Court proceedings.

Court’s reasoning: The court reiterated that refusal of summary judgment in unfair prejudice petitions is frequently appropriate because s.996 allows flexible remedies which require full consideration at a substantive hearing. The judge accepted that another judge (HHJ Baumgartner) had reached a different view on diversion of business after detailed review of bank statements, but that decision was in a different context and was not binding. The judge considered he had not been taken to sufficient factual material to conclude that the first respondent had no realistic prospects of defending the diversion allegation; the matter required a "mini-trial" rather than disposal on papers. New developments since the hearing (the first respondent presenting her own s.994 petition and HHJ Gerald’s comments about multiple overlapping proceedings) did not show the original decision to be plainly wrong or otherwise materially alter the case-management exercise. On costs, although the first respondent was the successful party on the summary judgment application, the unusual procedural and substantive circumstances and contested conduct by both parties led the judge to make no order as to costs. The judge declined permission to appeal, applying the standard that an appellate challenge to a case management decision must show that it was plainly wrong.

Other procedural steps: The judge invited the parties to provide a draft order and noted no further case management directions were sought.

This first-instance court refused permission to appeal and made no order as to costs. The judge explained that refusal of summary judgment in s.994 petitions is often appropriate because of the wide remedial discretion under s.996 and the need for a fuller hearing; the material before the court did not establish that the earlier case-management decision was plainly wrong and recent developments did not change that conclusion.