Brierley v Howe

The court considered an application under CPR 3.4(2) to strike out parts E1 and E2 of a s.994 petition. The key legal principle applied was that a s.994 petition must identify either an act or omission of the company or conduct of the company’s affairs which is unfairly prejudicial, and those threshold requirements are cumulative. The judge applied the Court of Appeal guidance in Re Coroin (No 2), Graham v Every and Primekings to require a causal link between any personal acts of shareholders and conduct of the companys affairs. The court distinguished transfers of shares (often personal arrangements) from allotment/issue of shares (which involves company action) and held that the pleaded claims in E1 (shareholding) and E2 (dividends) were personal claims between the parties or parasitic on a constructive trust claim and did not plead the required causal connection to company conduct. The judge also found the statutory misfeasance allegations in E1 and E2 to be embarrassingly vague. Accordingly sections E1 and E2 were struck out.

This was a first instance strike-out application under CPR 3.4 brought by Mr Howe challenging parts E1 and E2 of a s.994 petition presented by Ms Brierley. The petition alleged (among other heads) that the petitioner was entitled under an "Initial Agreement" and a later "49% Agreement" to a larger shareholding in 36 Bourne Street Ltd and to corresponding dividends, and advanced claims based on constructive trust, proprietary estoppel and unfair prejudice under s.994 Companies Act 2006 (seeking, inter alia, a s.996 share purchase order).

Background and procedural posture:

• The parties had a long commercial relationship; the respondent was sole shareholder and director at incorporation and the petitioner later became a director and employee and received a 10% transfer in 2018.
• The petition pleads personal agreements between the parties that the petitioner would receive increasing shareholdings contingent on performance, later alleged to have been varied and culminating in an alleged 49% agreement.
• The respondent applied to strike out two heads of the unfair prejudice section (E1 and E2) on the ground that they did not make out conduct of the companys affairs as required by s.994.

Issues framed by the court:

• Whether the matters pleaded in E1 and E2 constitute an "act or omission of the company" or "conduct of the company's affairs" for the purposes of s.994 CA 2006.
• Whether personal agreements between shareholders to transfer shares or receive dividends can, as pleaded here, form the basis of an unfair prejudice petition without a pleaded causal link to company conduct.
• Whether the misfeasance/statutory duty allegations in E1 and E2 were sufficiently particularised or were embarrassing.

Courts reasoning (concise):

• The court assumed the petitions pleaded facts for the strike-out test but analysed the statement of case against the statutory threshold for s.994. Authorities of the Court of Appeal (Re Coroin (No 2), Graham v Every, Primekings v King) require that personal acts be causally connected to company acts or the conduct of the company's affairs; absent that causal link the s.994 jurisdiction is not engaged.
• The court distinguished transfers of existing shares (typically personal arrangements requiring no company action except ministerial registration) from allotments/issues (which plainly engage company action and obligations). The petition principally pleads transfers and constructive trust arrangements arising between the parties, not company acts or omissions.
• The dividends complaint (E2) was parasitic on the shareholding claim and not pleaded as an independent company-level failure to declare or distribute dividends differently; there was no pleaded basis to say the company was obliged to pay dividends to anyone other than registered holders.
• The statutory duty/misfeasance paragraphs were held to be vague and embarrassing for lack of conventional particularity.
• Having regard to case-management and the petitioners failure to propose realistic amendments, the court concluded there was no reason to believe the defects could be cured and that striking out E1 and E2 was proportionate and consistent with the overriding objective.

Relief sought: The petition sought declarations (constructive trust), proprietary estoppel remedies and a s.996 share purchase order; the strike-out application was limited to E1 and E2 (shareholding and dividends).

The respondent's strike-out application is allowed. Sections E1 and E2 of the petition are struck out because, as pleaded in the petition and read as a whole, they concern personal arrangements between the parties (and a constructive trust claim) and do not plead an act or omission of the company or conduct of the companys affairs with the causal link required by s.994 CA 2006 and the authorities. The statutory misfeasance allegations in those sections are also struck out as embarrassing and insufficiently particularised. The court found no reason to permit amendment to cure the defects.