Adam Farnsworth v Kevin Chave & Ors

In an unfair-prejudice petition, a person should remain a party only where the pleaded case and relief make that participation desirable in light of the overriding objective. The court must distinguish between someone who may give important evidence and someone against whom substantive relief is sought. Permission to bring separate company claims does not justify joining or retaining alleged wrongdoers where the petition does not seek relief against them and the proposed authorisation is likely to be otiose. An unfair-prejudice petition must not be used to determine distinct corporate claims while avoiding the procedural requirements applicable to those claims. A former employee’s alleged contractual breaches or conspiracy do not, without more, amount to involvement in conducting the company’s affairs in an unfairly prejudicial manner.

Adam Farnsworth brought a cross-petition concerning alleged unfair prejudice in the affairs of Essex and East London Van Services Limited. Kevin Chave was the principal opposing shareholder and director. Adam also named Kevin’s son, Aaron Chave, and Kent Van Solutions Limited as respondents, alleging that they were involved in a competitive business and related misconduct.

The only relief sought against Aaron and Kent Van Solutions was authorisation under Companies Act 2006, section 996(2)(c), to bring civil proceedings in the company’s name. Aaron and Kent Van Solutions applied at a preliminary hearing to cease being parties under Civil Procedure Rules 1998, rule 19.2. The issue was whether their continued participation was desirable having regard to the pleaded case, the relief sought, the overriding objective and the proper scope of the unfair-prejudice jurisdiction.

1. The application was granted. Aaron Chave and Kent Van Solutions Limited were ordered to cease to be parties to the cross-petition.

2. The court’s discretion under Civil Procedure Rules 1998, rule 19.2, required an assessment of desirability in the light of the overriding objective. Relevant considerations included whether the proposed party was important to the claims, affected by them and subject to substantive relief. The court distinguished between an essential witness and a proper party. It was also wrong to draw a person into lengthy and costly litigation where no substantive remedy was sought against that person.

3. The pleaded case attributed the conduct of the company’s affairs to Kevin. Aaron had left the company before the complained-of conduct. The allegations against him concerned restrictive covenants in his employment contract. Those allegations were contractual matters and did not establish that he was concerned, directly or indirectly, in conducting the company’s affairs in an unfairly prejudicial manner. Kent Van Solutions was likewise part of the factual matrix, but not a party against whom unfair-prejudice relief was sought.

4. The authorisation sought under section 996(2)(c) was likely to be otiose because Adam would obtain control of the company on either anticipated outcome and could then cause the company to bring Part 7 proceedings. More fundamentally, the practical purpose advanced for retaining the respondents was to obtain binding findings on corporate claims. That would turn nominal authorisation into a determination of distinct company causes of action and circumvent the procedural requirements applicable to Part 7 proceedings. The approach came dangerously close to an abuse of process and was inconsistent with the rule in Foss v Harbottle.

5. Aaron could give evidence as a witness, and documents could be sought through proper third-party disclosure. Any company claims could be pursued later in Part 7 proceedings. The time for permission to appeal was extended to 21 days after the consequentials hearing, where costs would be dealt with if not agreed.