James Isilay v AVP Capital A FCPI & Ors

In an unfair-prejudice petition, a respondent need only be sufficiently connected with the impugned conduct for relief against it to be just. At the strike-out stage, pleaded primary facts are assumed to be true and the court considers whether they disclose a legally recognisable claim, without evidence. Summary judgment requires a realistic, more-than-arguable prospect of success and must not become a mini-trial.

A person may be a de facto director if they assume responsibility for acting as a director and exercise functions properly belonging exclusively to the board. Consultation, expressing views or assisting with recruitment is ordinarily insufficient. Where the pleaded facts plausibly suggest that an observer participated equally with directors in deciding company affairs at informal meetings, the issue normally requires disclosure and trial.

Mr James Isilay, a shareholder and former chief executive of Cognism Ltd, presented an unfair-prejudice petition against venture-capital investors and the company. He alleged that the investors and their representatives had planned his removal, conducted company business through informal “Shadow Board Meetings”, breached the shareholders’ agreement and articles, and caused unfair prejudice.

The respondents applied to strike out, or obtain summary judgment on, the claims against Blue Cloud Ventures IV LP and the allegations that two board observers were de facto directors. Mr Isilay sought permission to amend the petition to identify the observers as participants in the alleged scheme. The central issues were whether the pleaded case disclosed reasonable grounds, whether it had a realistic prospect of success, and whether the proposed amendment should be allowed.

1. Applications concerning Blue Cloud. The claim against Blue Cloud was imperfectly and imprecisely pleaded, but its core could be extracted. The pleaded case was that the investors and their representatives, including the observers, had developed and implemented a premeditated strategy through meetings outside the formal board meetings. That case disclosed reasonable grounds and retained a realistic prospect of success.
2. Strike-out and summary judgment. The court considered the pleaded facts at face value for strike-out purposes and did not determine disputed evidence. The evidence did not eliminate the realistic prospect that informal meetings had been used to pre-determine company decisions. The summary judgment application therefore failed.
3. De facto directorship. The question was whether the observers assumed responsibility to act as directors. If informal meetings were in substance occasions at which observers and de jure directors jointly decided matters properly belonging to the board, the observers might have exercised directorial functions. The distinction between formal directors and observers did not conclusively answer the issue.
4. Participation in interviewing a chief executive, expressing views on candidates, or investigating a subsidiary did not itself establish a directorial function. The decision to appoint the chief executive or close the subsidiary was different, but the evidence did not show that Ms Nolop took those decisions. The allegations nevertheless survived because the wider Shadow Board Meeting case required disclosure and trial.
5. The amendment adding the observers to paragraph 11 was allowed. Particular allegations against Blue Cloud that did not adequately plead its involvement were struck out unless Mr Isilay applied successfully to amend them. The applications otherwise failed.