Hawkes v Cuddy [2007] EWHC 1789 (Ch)

Claim Nos. 7BS30321/7BS30444[2007] EWHC 1789 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue BRISTOL DISTRICT REGISTRYDate 23 rd July 2007
BEFORE HIS HONOUR JUDGE HAVELOCK-ALLAN QC
IN THE MATTER OF PART XVIII OF THE COMPANIES ACT 1985
AND IN THE MATTER OF NEATH RUGBY LIMITED
Between
FREDERICK GERAINT HAWKESPetitionerSIMONE FRANCESCA CUDDYRespondentMICHAEL CUDDYRespondentNEATH RUGBY LIMITEDRespondentAND BETWEEN:SIMONE FRANCESCA CUDDYCross-Petitioner
Between
FREDERICK GERAINT HAWKESRespondentsNEATH RUGBY LIMITEDRespondents
Stephen Davies QC and Hugh Sims (instructed by Morgan Cole) for Mr HawkesRobin Hollington QC and Hilary Stonefrost (instructed by Eversheds) for Mr and Mrs CuddyRichard Ascroft (instructed by M & A Solicitors LLP) for Neath Rugby LimitedChristopher Parker (instructed by Morgan LaRoche) for Neath-Swansea Ospreys LimitedHearing Hearing dates: 26 th-28 th June, 3 rd-4 th July 2007
Judgment
[1]This judgment determines certain applications brought in proceedings begun by a petition under section 459 of the Companies Act 1985. The petition concerns Neath Rugby Limited. Neath Rugby Limited (“Neath”) is the company which owns and manages Neath Rugby Football Club (“Neath RFC” or “the Club”).[2]The Petition was issued on 4th May 2007. At the same time an application was issued on behalf of the petitioner for summary judgment in respect of part of the relief claimed in the petition. The petitioner is Frederick Geraint Hawkes (“Mr Hawkes”), who is the owner and registered holder of one of the two issued shares in Neath. The first respondent to the petition is Simone Cuddy (“Mrs Cuddy”). She is the registered holder of the other issued share. Mrs Cuddy claims to hold the share as trustee for her husband, Michael Cuddy (“Mr Cuddy”), who is the second respondent to the petition. Mr Hawkes and Mrs Cuddy were, at the date the petition was issued, the only directors of Neath. Neath is the third respondent.[3]The first hearing of the petition and of the application for summary judgment was on 23rd May. On that occasion, directions were given for an early hearing of the summary judgment application and for an expedited trial of the petition. One of the claims in the petition on which summary judgment was sought was for a mandatory injunction removing Mrs Cuddy as a director of Neath. In the event Mrs Cuddy agreed on 23rd May to step down temporarily as a director. Her place has been taken by Eric Evans, a Cardiff solicitor who is interested in rugby and, by reason of his independence, is acceptable to Mr Hawkes and to Mr and Mrs Cuddy (“the Cuddys”).[4]Since the hearing on 23rd May, Mrs Cuddy has issued a cross-petition and an application to strike out the whole, or parts of, the petition. The cross-petition was issued on 12th June against Mr Hawkes and against Neath as respondents. Mr Hawkes responded on 13th June with an application to strike out the principal claim for relief in the cross-petition. Neath followed suit on 19th June by issuing a similar application to strike-out the principal claim for relief in the cross-petition.[5]The applications with which this judgment is concerned were heard in the following[6]The hearing lasted a full 5 days. Mr Hawkes was represented by Mr Stephen Davies QC, the Cuddys by Mr Robin Hollington QC and Neath by Mr Richard Ascroft. A direction was given on 23rd May that the petition should be served on Neath-Swansea Ospreys Limited, a company half owned by Neath and half owned by Swansea Rugby Football Club Limited (“Swansea”). Mr Christopher Parker appeared on behalf of Neath-Swansea Ospreys Limited and argued against the summary judgment application.

Neath Rugby Limited

[7]Neath was incorporated on 9th May 2003 under the name of Neath Swansea Rugby Limited. It changed its name to Neath Rugby Limited on 4th August 2003. Although the objects of Neath in the memorandum include the carrying on of business as a general commercial company, Neath was created in order to acquire ownership and management of Neath RFC as from the start of the 2003/2004 Welsh rugby season.[8]Neath RFC needs no introduction to any fan of Welsh Rugby. It has come top of the Welsh Premiership in the last 3 seasons – a feat not matched by any club previously.[9]The current dispute is essentially one between the present co-owners of the Club, Mr Hawkes and Mr Cuddy. It has generated a great deal of publicity in the Welsh sporting press, not least for the allegations made by Mr Hawkes against Mr Cuddy and for the counter-allegations made by Mr Cuddy against Mr Hawkes.[10]It is important to remember that, save to the extent found in this judgment, they remain allegations which have not yet been established and which will not be established until the trial.[11]I shall begin by sketching in those aspects of the background which are either not in dispute, or which in my judgment are not open to serious contradiction.

The Club before 2003

[12]The Club was founded in 1871 and has played at its ground (called “The Gnoll”) for over 130 years. Until 1995 it was a traditional members’ club and the players were amateur. Welsh rugby turned professional in the 1995/96 season, but Neath RFC continued as a members’ club, run by a committee, until 1998. The committee members were unpaid volunteers from all walks of life. As professional status began attracting money to the game, the existing members’ club and committee structure proved unequal to the task of managing what had become a sporting business enterprise. The Club ran up substantial debts. By 1998 these had reached approximately £600,000.[13]Mr Cuddy, like Mr Hawkes, is a successful businessman in South Wales. With his brother he runs a company called Cuddy Demolition & Dismantling Services Limited. Mr Cuddy was a Neath RFC supporter in the 1990s, and eventually became a member of the Club’s committee. In 1998 a consortium, of which he was a member, made an offer to the committee to acquire the assets and liabilities of the Club. The committee rejected the offer and turned to the Welsh Rugby Union (“WRU”) for assistance.[14]The WRU agreed to help. It established a private company called Gowerpark Limited on 26th May 1998 to undertake the day-to-day running of the Club. Gowerpark was wholly owned and controlled by the WRU. The WRU appointed its own officers as directors, and agreed to appoint as directors certain Club supporters who had been members of the old committee. One of these was Mr Cuddy. He applied to become a director of Gowerpark from the outset: but was unsuccessful. He eventually became a director on 30th September 2001.[15]Although Neath RFC did well on the pitch, it did less well financially. It ran at a loss and Gowerpark was not able to eliminate the liabilities it had inherited from the old committee. The Club’s financial prospects were not improved by the reorganisation of Welsh Rugby which the WRU proposed for the start of the 2003/2004 season.

The re-organisation of Welsh Rugby in 2003

[16]Until the season of 2002/2003 there were nine local clubs playing in the Welsh Premiership. For the following season the WRU announced that it wanted to establish five regional professional teams owned and supported by the local clubs. This would create a new professional league. The local clubs would revert to semi-professional status, borrowing professional players from the regional clubs and feeding the regional clubs with new players. The regional clubs would be bigger and better financed and more able to compete against other clubs outside Wales and at European level. Local clubs would continue to play against other local clubs in the Welsh leagues: but would not be entitled to play at regional level or to advance beyond the Premiership.[17]With the establishing of regional teams, the WRU proposed to re-organise its funding of Welsh rugby. During the 2002/2003 season, the nine Premiership clubs had received grants of approximately £8-9 million from the WRU. Gowerpark itself received about £1 million on behalf of Neath RFC. The WRU decided that in future its money would go to the regional teams, and that it would be for the new companies managing the regional teams to decide how much of the grant to give to the Premiership clubs. As a result, in the 2003/2004 season, Neath RFC’s grant fell to around £50,000.[18]The WRU stipulated that the new regional sides could only be owned by an existing club. It directed the nine premiership clubs to decide who was going to establish which regional team. The five regional teams created were Cardiff Blues, Llanelli Scarlets, Neath-Swansea Ospreys, Newport Gwent Dragons and Celtic Warriors. Neath-Swansea Ospreys was the creation of Neath RFC and Swansea. Although geographically adjacent, Neath RFC and Swansea had a long rivalry and were not natural bedfellows. Mr Cuddy was involved in discussions with Bridgend RFC before eventually agreement was reached with Swansea. Bridgend RFC went on to link up with Pontypridd RFC in establishing the Celtic Warriors. But the Celtic Warriors did not survive the 2003/2004 season. The company owning Celtic Warriors was wound up in June 2004, leaving only four regional sides, which is the position today. On the demise of Celtic Warriors, the WRU allocated responsibility to Neath-Swansea Ospreys for the Bridgend area and allocated responsibility to Cardiff Blues for the area of the Rhondda and Vale of Glamorgan from which Pontypridd RFC draws its support.[19]The agreement between Neath RFC and Swansea was that a company should be formed to promote and own the Neath-Swansea Ospreys, as the regional team was initially known. That was done on 10th April 2003, when a company called South West Wales Rugby Limited (“SWWRL”) was incorporated. Meanwhile, the WRU had made it known that it was interested in disposing of its interest, through Gowerpark, in Neath RFC.[20]Mr Cuddy was interested in acquiring Neath RFC and entered into negotiations with the WRU to that end either late in 2002 or early in 2003. It transpired that Gowerpark had not inherited all of the Club’s assets and liabilities. The lease of The Gnoll, including the clubhouse and stands, and the intellectual property rights remained in the ownership of the old club members. The debts remaining with the members included a sum of £180,000 owed to the WRU, and other loans of about £230,000. These would have to be repaid. The WRU also insisted that if Neath RFC was to participate in sponsoring a regional side, the Club would have to be purchased from the WRU. Mr Cuddy proposed a deal, which was acceptable to the WRU, whereby the old committee would transfer the Club assets still owned by members to the WRU. A new company would be formed to purchase these assets from the WRU, together with any assets owned by Gowerpark (principally player contracts). The purchase price was £250,000 to be paid as a premium for the lease of The Gnoll, repayable as rent over the remaining term of the lease. The sponsors of the new company would discharge the £180,000 owing to the WRU, and take over the Club’s loans totalling £230,000. The WRU would use the £250,000 to pay off the Club’s other debts and would take responsibility for the debts of Gowerpark.[21]Mr Cuddy needed a partner to enter into this deal with him. He needed someone who would be willing to conduct the daily management of Neath RFC while he focussed his attention on the new regional side called Neath-Swansea Ospreys. He was also looking for financial support since he was unwilling or unable to finance the transaction on his own. This is where Mr Hawkes comes into the picture.

The Hawkes/Cuddy Agreement

[22]Mr Hawkes is a local businessman and lifelong supporter of Neath RFC. He owns and manages a company called F.G. Hawkes Western Limited. Mr Hawkes founded the company, which began trading as a builders’ merchant in the mid-1980s. It now imports and sells commercial plywood. The company became a commercial sponsor of Neath RFC for the 2002/2003 season. As a comparatively wealthy man and ardent supporter of the Club, it was natural that Mr Cuddy should be introduced to Mr Hawkes. They met early in 2003. Mr Cuddy introduced his plan for acquiring Neath RFC from the WRU and the two men reached an agreement (“the Hawkes/Cuddy Agreement”).[23]The following terms of the Hawkes/Cuddy Agreement, reached sometime between January and the beginning of April 2003, are common ground:(1) Mr Hawkes and Mr Cuddy would each assume personal liability to repay half of the debt of £180,000 owed by Neath RFC to the WRU,(2) they would establish, as joint co-owners a new corporate entity (“newco”) to purchase the assets of Neath RFC from the WRU, and thereafter to own and manage the Club,(3) Mr Hawkes would own one share in newco and Mr Cuddy would own the other share,(4) Mr Hawkes and Mr Cuddy would each be entitled to nominate one of the two directors of newco,(5) Mr Hawkes would become a director of newco and Mr Cuddy would nominate Mrs Cuddy as the other director,(6) Mr Hawkes would concentrate on the management of Neath RFC,(7) Mr Cuddy would concentrate on the management of the regional side (Neath-Swansea Ospreys) and for that purpose would be nominated by newco to act as one of the two directors of the new entity being established to own and manage Neath-Swansea Ospreys,(8) any payments to be made by newco should be authorised by Mr Hawkes and Mr Cuddy.[24]When SWWRL was incorporated on 10th April, Mr Cuddy was immediately appointed a director. Swansea nominated Mr Roger Blyth as their director. When newco came into being on 9th May (initially as Neath Swansea Rugby Limited with the change of name to Neath Rugby Limited on 19th August), Mr Hawkes and Mrs Cuddy were nominated as directors. Their appointment was formally registered on 11th August 2003[25]Mr Hawkes would like to add a gloss to the terms of the Hawkes/Cuddy Agreement I have just recited. It is that it was understood and agreed that as Neath’s nominee director on the board of SWWRL, Mr Cuddy would protect the interests of Neath. Mr Cuddy concedes only that the circumstances of his appointment to the board of SWWRL meant that he owed to Neath a duty to consult Mr Hawkes about the management of Neath-Swansea Ospreys, just as Mr Hawkes owed a duty to consult him about the management of Neath. This mutual duty to consult is not now controversial.[26]Mr Cuddy says that Mr Hawkes also owed him a duty to provide such information as he should reasonably require in relation to the affairs of Neath. I think that is probably right. Whether that obligation was mutual, in that Mr Cuddy was under a duty to provide Mr Hawkes with such information as he might reasonably require about the affairs of Neath-Swansea Ospreys Limited, depends in the first instance on Mr Cuddy’s duties as Neath’s nominated director on the board of SWWRL. There is apparently no English authority which determines the extent to which a nominee director may or is obliged to follow the reasonable wishes of his appointor. However there are three Australian cases which have something to say on this topic. Bowen CJ commented on the position of nominee or representative directors in Re News Corporation Limited (1987) 70 ALR 419 at 437 in these terms:
“It is both realistic and not improper to expect that such directors will follow the interests of the company which appointed them subject to the qualification that they will not so act if of the view that their acts would not be in the interests of the company as a whole.”
Similarly it was held in Re Broadcasting Station 2GB Pty Ltd [1964-5] NSWR 1648 at 1663 that it is consistent with a director’s duty for the director to follow the wishes of a particular interest which has brought about his appointment, without the need for a close personal analysis of the issues, unless the director is of the view that in doing so he or she is not acting in the best interests of the company as a whole. In Canwest Global (1997) 24 ACSR 405, the court observed uncritically that:
“Directors usually act in accordance with the wishes and interests of a party that has brought about their appointment and on whose goodwill their continuation in office depends unless that places them in breach of their duties.”
[27]The answer, in my judgment, is that the appointee’s primary loyalty is to the company of which he is a director. He is obliged to act in the best interests of that company. He is quite entitled to have regard to the interests or requirements of his appointor to the extent those interests or requirements are not incompatible with his duty to act in the best interests of the company. Whether having regard to the appointor’s wishes is a matter of entitlement or obligation must depend on the terms, express or implied, of the agreement pursuant to which the director was appointed. In this respect the Hawkes/Cuddy Agreement must be seen in the context of the structure of SWWRL. It was agreed that Neath would be joint sponsor (with Swansea) of SWWRL and would be the owner of 50% of the shares in SWWRL. Against that background I think it was an implied term of the Hawkes/Cuddy Agreement that, to the extent compatible with his duty to SWWRL, Mr Cuddy would protect the interests of Neath (whatever those might be) when acting as a director of SWWRL. That would include providing Mr Hawkes with such information as he might reasonably require about the affairs of SWWRL.[28]Mr Hawkes’ admitted duty to consult Mr Cuddy and to provide him with information about Neath does not arise from the fact of an appointment. Mr Cuddy was not appointed a director of Neath and was not an employee of Neath. The duty arises from the fact that it was known from the outset that Mrs Cuddy, who is a housewife with no interest in rugby, would act as a mere cipher for her husband and as his mouthpiece. Although she became a signatory on Neath’s bank account, the Hawkes/Cuddy Agreement was that all payments made by Neath should be authorised by Mr Hawkes and Mr Cuddy. As a director of Neath Mrs Cuddy was to be Mr Cuddy’s puppet. I do not use that word pejoratively. It simply expresses the reality. The reason for this arrangement will become clear shortly.

Neath’s acquisition of the Club

[29]Neath’s purchase of the assets of the Club from the WRU was not completed until January 2004. On 30th January 2004 a Sale Agreement was entered into between the WRU on the one hand and Mr Hawkes and Mr Cuddy and Neath on the other. In the interval between August 2003 and January 2004, Neath ran the Club under licence from the WRU.[30]So far as Mr Hawkes and Mr Cuddy were concerned, the terms of the sale were slightly different from those Mr Cuddy had originally negotiated with the WRU. They were now to pay personally a sum of £175,000 in satisfaction of the Club’s debt to the WRU. The sum was to be paid in two instalments of £87,500, one payable on completion and the second payable on 1st July 2004. Under other terms of the sale, Neath was to become a full member of the WRU and to acquire a sub-lease of The Gnoll from the WRU. Neath was also entitled to participate in the WRU Premiership and to be a member of SWWRL. In return Neath agreed with the WRU to assume responsibility for debts relating to the stand and other structures at The Gnoll.

The liquidation of Gowerpark

[31]By July 2003 it was recognised by the WRU, and by Mr Hawkes and Mr Cuddy, that Gowerpark had no future if the sale to Neath went ahead. Gowerpark had incurred significant debts and the likelihood was that it would be forced into liquidation. This is in fact what happened. Gowerpark was placed into creditors’ voluntary liquidation on 16th October 2003. There was a substantial estimated deficiency as regards creditors of around £750,000. South West Wales Rugby Limited[32]Neath-Swansea Ospreys began playing in the 2003/2004 season. The team was managed by SWWRL, of which Mr Cuddy and Mr Blyth were the joint managing directors (and only directors).[33]On 2nd July 2005 SWWRL changed its name to Neath-Swansea Ospreys Limited. The company announced that, as from the start of the 2005/2006 season, the team would be known simply as “the Ospreys”.[34]Swansea City FC and others had built a new stadium in Swansea called the Liberty Stadium. It opened in August 2005 and the first games were played there in September. The spectator capacity of the new Liberty stadium was greater than that of The Gnoll and the facilities were superior. When the new stadium opened it became the home ground of the Swansea team and of the Ospreys as well.[35]Under an agreement dated 1st September 2004 (“the Regional Operating Agreement”), the WRU had appointed SWWRL to be the regional organisation responsible for regional rugby in the region defined by the administrative boundaries of the City and County of Swansea, Neath Port Talbot County Borough Council and Bridgend County Borough Council for a renewable period of 5 years. It had also granted certain rights to SWWRL (e.g. to receive funding from the WRU) in return for the performance by SWWRL of certain obligations (as to organising the squad, hosting matches, providing broadcast facilities etc.).[36]The Regional Operating Agreement defined who was a “Participating Club”. A “Participating Club” meant “… a Welsh rugby union club or organisation being a member of the WRU and holding shares in or having an interest in [SWWRL]”. By this definition, Neath and Swansea are the Participating Clubs in SWWRL. The definitions clause contained also a definition of the phrase “Event of Insolvency” where that phrase was used elsewhere in the agreement. An “Event of Insolvency” would include the presentation of a petition for, or the convening of a meeting to consider a resolution for, the making of an administration order or the winding-up or dissolution of SWWRL. The agreement went on to provide in clause 33 as follows:
“33.1 Immediately upon the occurrence of an Event of Insolvency by or in relation to a Participating Club (the “Insolvent Participating Club”) insofar as it is lawful: (a) the shares and any other interest of the Insolvent Participating Club in [SWWRL] shall be transferred forthwith to the WRU free from all encumbrances upon payment of £1 … (b) the directors of [SWWRL] nominated by the Insolvent Participating Club shall cease to be directors of [SWWRL] and the WRU … shall be entitled to nominate an equivalent number of directors to replace those directors on the board of directors of [SWWRL].” (a) the shares and any other interest of the Insolvent Participating Club in [SWWRL] shall be transferred forthwith to the WRU free from all encumbrances upon payment of £1 … (b) the directors of [SWWRL] nominated by the Insolvent Participating Club shall cease to be directors of [SWWRL] and the WRU … shall be entitled to nominate an equivalent number of directors to replace those directors on the board of directors of [SWWRL].”
[37]The parties to the Regional Operating Agreement were the WRU and SWWRL. It is a moot point whether Neath and Swansea are bound by its terms. Mr Hawkes does not accept that Neath is bound. Nevertheless clause 33 (the “Forfeiture Clause”) is of concern to the Club and to Mr Hawkes and Mr Cuddy. If the court was to order Neath to be wound-up or dissolved, Neath might lose its share in Neath-Swansea Ospreys Limited. That share has been described in the course of argument as Neath’s most valuable asset.[38]Nothing was put in writing until April 2005 to record the basis on which Neath and Swansea would own SWWRL. On 25th April 2005 Neath and Swansea signed a shareholder’s agreement in relation to SWWRL (“the Regional Shareholders’ Agreement”). It provided that the company should have a share capital of 1,000 shares of £1 each, of which only two shares would be issued. One share would be owned by Neath and the other by Swansea. Neath and Swansea agreed that they would each hold their respective shares in SWWRL and that “the business and affairs of [SWWRL] will be operated and managed in accordance with this agreement”.[39]The following provisions of the Regional Shareholders’ Agreement are said to be relevant to the present applications:
“3. Directors and board meetings 3.1 At all times whilst this agreement remains in force each Shareholder shall whilst it remains a shareholder in the Company be entitled to appoint and maintain in office a person to act as director and shall have the right to remove from office any such person so appointed. At the date hereof Neath has appointed Mr Cuddy to the Board and Swansea has appointed Mr Blyth to the Board. 3.2 Each Shareholder shall refrain from exercising its voting rights and other powers of control available to it in relation to the Company to seek to remove from office a director appointed by the other Shareholder pursuant to the powers granted to that other Shareholder by clause 3.1 above. 3.3 The quorum for any meeting of the Board shall be not less than two directors of whom one shall be a director appointed by Neath and the other a director appointed by Swansea. 3.4 Unless otherwise agreed the Shareholders shall procure that board meetings be convened and held at least monthly unless the Board otherwise agree and that a written agenda specifying the matters to be raised at any meeting of the Board shall be sent to all directors entitled to receive notice of any such meeting together with the notice convening the meeting or (sic) not less than seven days prior to the date of the meeting. It is further agreed that (unless, in any particular case, the Shareholders shall otherwise agree in writing) no resolution relating to any business may be proposed or passed at any meeting of the Board unless the nature of the business is specified in the agenda. 5. Finance for the Company 5.1 Each of the Shareholders has made an initial unsecured financial contribution to the business of the Company which will be repaid to them by the Company at such time as the Shareholders agree it is commercially prudent to do so having regard to the financial position and prospects of the Company from time to time. The Shareholders agree that thereafter so far as possible the business of the Company will be funded by income and reserves generated from the trading profits and other business activities of the Company as carried on from time to time. 5.2 To the extent that the Company cannot be funded in accordance with clause 5.1 the parties shall seek to raise funds from third parties by way of loans or other facilities on normal commercial terms. 6. Conduct of the Company’s business It is agreed and acknowledged by the Shareholders that whilst this agreement remains in force:- 6.1 the business of the Company shall be managed in accordance with normal commercial principles … 6.3 they will at all times during the term of this agreement act in good faith to each other in relation to matters concerning the business and affairs of the Company; and 6.4 they will use and exercise the votes controlled by them at all meetings of the Company and its Board in order to ensure the observance of the terms of this agreement.”
It is agreed and acknowledged by the Shareholders that whilst this agreement remains in force:-

Mr Newman’s advice

[40]It is necessary at this juncture to backtrack to the summer of 2003, when the acquisition of Neath by Mr Hawkes and Mr Cuddy was still being negotiated. Mr Hawkes and Mr Cuddy retained a solicitor, Paul Newman, from the Swansea firm of John Collins & Partners LLP to assist them in putting the Hawkes/Cuddy Agreement into effect. Mr Hawkes had used the firm of John Collins on a number of previous occasions in connection with business litigation and personal matters and had become familiar with Mr Newman in that connection.[41]One matter raised by Mr Newman was the risk that Mr Cuddy might be acting in contravention of section 216 of the Insolvency Act 1986 if he was appointed a director of Neath, because he had been a director of Gowerpark until 20th June 2003 and that company was widely expected to go into insolvent liquidation by the autumn of that year.[42]Sections 216 and 217 of the 1986 Act are central to the argument on all three applications. It will assist to set out the material provisions of those sections here: “216 Restriction on re-use of company names(1) This section applies to a person where a company (“the liquidating company”) has gone into insolvent liquidation on or after the appointed day and he was a director or shadow director of the company at any time in the period of 12 months ending with the day before it went into liquidation.(2) For the purposes of this section, a name is a prohibited name in relation to such a person if – (a) it is a name by which the liquidating company was known at any time in that period of 12 months, or (b) it is a name which is so similar to a name falling within paragraph (a) as to suggest an association with that company.(3) Except with leave of the court or in such circumstances as may be prescribed, a person to whom this section applies shall not at any time in the period of 5 years beginning with the day on which the liquidating company went into liquidation – (a) be a director of any other company that is known by a prohibited name, or (b) in any way, whether directly or indirectly, be concerned or take part in the promotion, formation or management of any such company, …(4) If a person acts in contravention of this section, he is liable to imprisonment or a fine, or both. … (6) References in this section, in relation to any time, to a name by which a company is known are to the name of the company at that time or to any name under which the company carries on business at that time. … 217 Personal liability for debts, following contravention of s 216 (1) A person is personally responsible for all the relevant debts of a company if at any time – (a) in contravention of section 216, he is involved in the management of the company, … (2) Where a person is personally responsible under this section for the relevant debts of a company, he is jointly and severally liable in respect of those debts with the company and any other person who, whether under this section or otherwise, is so liable. (3) For the purposes of this section the relevant debts of a company are – (a) in relation to a person who is personally responsible under paragraph (a) of subsection (1), such debts and other liabilities of the company as are incurred at a time when that person was involved in the management of the company, … (4) For the purposes of this section, a person is involved in the management of a company if he is a director of the company or if he is concerned, whether directly or indirectly, or takes part, in the management of the company. …” (a) it is a name by which the liquidating company was known at any time in that period of 12 months, or (b) it is a name which is so similar to a name falling within paragraph (a) as to suggest an association with that company. (a) be a director of any other company that is known by a prohibited name, or (b) in any way, whether directly or indirectly, be concerned or take part in the promotion, formation or management of any such company, … … (a) in contravention of section 216, he is involved in the management of the company, … (a) in relation to a person who is personally responsible under paragraph (a) of subsection (1), such debts and other liabilities of the company as are incurred at a time when that person was involved in the management of the company, …[43]There is an issue as to whether Gowerpark was known by the name of Neath RFC or a name similar to the name of the new company which Mr Hawkes and Mr Cuddy had created in May 2003 in order to take over the Club. I will come back to that issue. For the present it is sufficient to note that Mr Newman considered that the trading name of Gowerpark and the name “Neath Swansea Rugby Limited” (or “Neath Rugby Limited” as that company was shortly to become) were so close that it was likely that Mr Cuddy would be in breach of section 216 if he became a director of Neath, and that he and Mr Hawkes could incur personal liability for Neath’s debts under section 217.[44]Mr Newman first raised the issue of section 216 on or about 21st July 2003. He warned Mr Hawkes and Mr Cuddy of the risks. On 28th July Mr Hawkes suggested to Mr Newman that he and Mr Cuddy should simply acquire Neath RFC in their own names rather than through a newco, until the position could be sorted out by an application to the Court. Before Mr Hawkes had a chance to put this idea to Mr Cuddy, Mr Cuddy spoke to Mr Newman and indicated that he was unhappy about the advice Mr Newman was giving him. It would seem that Mr Cuddy had received advice from another quarter suggesting that there were other ways to get round the problem foreseen by Mr Newman. At some point on the evening of 28th July Mr Cuddy and Mr Newman hit upon the solution of appointing Mrs Cuddy as the other director of Neath and registering Mr Cuddy’s share in her name. It is not clear to what extent, if at all, Mr Hawkes was party to any discussion of that proposal. However the proposal was adopted.

Deadlock

[45]From the start of the 2003/2004 season Mr Hawkes began running Neath and Mr Cuddy began running Neath-Swansea Ospreys jointly with Mr Blyth.[46]I am still concerned at this point to record matters which are either not in dispute or which in my judgment are not open to serious contradiction.[47]Until the summer of 2005 Mr Hawkes had a fairly free hand in running Neath. Mrs Cuddy played no active part. There were only a few meetings to consider administration and strategy. They were not formal board meetings and Mrs Cuddy did not attend. But Mr Cuddy attended on one or two occasions. Such acts as Mrs Cuddy did perform in her nominal role as director (such as signing cheques or accounts) she performed at the instigation of her husband.[48]Two documents have been disclosed in this case which illustrate that Mrs Cuddy was never more than a proxy for her husband. The first is an undated letter from Mrs Cuddy to Mr Hawkes. From its terms the letter purports to have been written on the day that Mrs Cuddy became the registered owner of one of the two shares in Neath. I shall call it “the Cuddy share”. The Cuddy share was issued to Mrs Cuddy on 5th December 2003. The date on which the letter was in fact written is disputed. Mr Hawkes insists that he did not see the letter until a copy was sent to him by Mr Newman in August 2006. However it would appear to be signed by Mrs Cuddy. I will refer to it as “the Signing Authority”. It states:
“Dear Geraint, I appreciate that I have today become the owner of 50% of the shares in Neath and agreed to become a Director of the Company. However, my involvement will be via Michael at all times. I am notifying you that I have authorised Michael to sign cheques in my name and the signature on the cheques will be as follows:- S F Cuddy My understanding is that you will have the day to day running of the Company, and I will simply be required to sign off the company accounts and attend the occasional Board Meeting if appropriate. Please notify Michael of anything you wish me to consider that affects the Company, and I will communicate back with you again via Michael. If you wish to notify the Bank, then please do so. I hope we have a long and successful relationship. Regards, Simone F. Cuddy”
S F Cuddy Simone F. Cuddy”

S F Cuddy

[49]The second document, which Mr Hawkes also says he saw for the first time in August 2006, is a Declaration of Trust signed by Mrs Cuddy on 30th January 2004. It records that Mr Cuddy has caused the Cuddy share in Neath to be transferred to Mrs Cuddy as trustee, and that Mr Cuddy remains the beneficial owner of the share. The Deed states that Mrs Cuddy holds the Cuddy share as trustee for her husband and that she undertakes to attend shareholders’ meetings and to vote at such meetings in such manner as her husband shall have directed.[50]For various reasons, the relationship between Mr Hawkes and Mr Cuddy became strained. There eventually occurred a breakdown of trust and confidence between them. Mr Cuddy says this point was reached in May or June 2006. Mr Hawkes puts the date no later. Indeed his evidence is that by July 2004 his working relationship with Mr Cuddy had become “extremely difficult” and they were simply tolerating each other.[51]The basis of many of the accusations and recriminations is contested. It is neither possible nor appropriate to try to resolve all the matters in dispute on the present applications. In short it would appear that Mr Hawkes believes that Mr Cuddy is intent on building himself an empire at Neath-Swansea Ospreys, at the expense of Neath. If it is permissible to mix avian metaphors, Mr Hawkes sees the Ospreys team as a cuckoo in the nest which will come to dominate the affairs of Swansea and Neath to the detriment of both local clubs. Mr Cuddy, on the other hand, believes that Mr Hawkes resents the growth of regional rugby and the lion’s share of WRU funding which it now receives. He is hostile to the ambitions of the Ospreys and will do his best to undermine their success.[52]I will summarise the rival contentions when I come to consider the petition and cross-petition in more detail. However certain events are reflected in contemporaneous documents and cannot be denied. I refer to some of them here to explain the breakdown of relations and the deadlock it created.[53]On 26th May 2006, Mr Hawkes sent an e-mail to Mr Cuddy stating that he had arranged for Neath’s suppliers to be paid by way of bacs payments (i.e. direct transfer) because he was concerned to see that cheques were being issued on Neath’s bank account with one of the signatures (that of Mrs Cuddy) being forged. Mr Cuddy replied the same day saying that as far as he was aware no signatures had been forged. He referred to the fact that Mr Hawkes had earlier asked him to sign some blank company cheques, which he had refused to do. (The forgery allegation is complicated by the fact that Mr Cuddy had indeed signed his wife’s signature on Neath company cheques on various occasions in 2005: but had done so with the knowledge of and at the express written request of Mr Hawkes.)[54]Mr Cuddy asked for a shareholders’ meeting and attached a power of attorney from his wife which authorised him to exercise her rights as a shareholder. A shareholders’ meeting took place on 5th June 2006 with Mr Hawkes, Mr Cuddy and Mr Newman in attendance. There was examination of Neath’s latest draft accounts. These showed a temporary shortage of cash because Neath had repaid certain loans too quickly. They also showed that Mr Hawkes had put more money into Neath than Mr Cuddy. Mr Hawkes apparently said that he wanted the money he had loaned to Neath to be repaid. I say “apparently” because this part of Mr Newman’s attendance note of the meeting (and what follows) may not be accepted by Mr Hawkes as accurate. According to Mr Newman, differing views were expressed as to how the repayment could be done and in what instalments. Mr Newman’s attendance note records that the meeting ended with Mr Hawkes and Mr Cuddy agreeing to explore a parting of the ways which would leave Mr Hawkes owning Neath and Mr Cuddy owning Neath’s interest in the Ospreys.[55]On 9th June Mr Newman (now purporting to act on behalf of Mr and Mr and Mrs Cuddy) wrote to Mr Hawkes in the following terms:
“Mike has also asked me to emphasise his and Simone’s insistence that no further liabilities are incurred without Simone’s agreement. In particular no further contracts are to be entered into without Simone’s agreement. Any and all further payments made by the company whether by cheque, cash, bank transfer or otherwise are to be authorised by both directors. Please confirm that you will adhere to this request.”
[56]The confirmation from Mr Hawkes was not forthcoming. It was demanded again on 27th June. By this time Mr Hawkes and Mr Cuddy were only communicating through solicitors. Mr Newman’s letter of 27th June to Mr Hawkes’ solicitors (Morgan Cole) was written ostensibly on behalf of both the Cuddys. Aside from requesting confirmation from Mr Hawkes within the next 72 hours that Neath would make no further payments of any kind without the authorisation of both directors, the letter stated that the Cuddys had asked an accountant to carry out a financial analysis of Neath’s financial records. Mr Newman asked for the whereabouts of the records and that they would be made available.[57]Having received no response Mr Newman wrote to Neath’s bank (Barclays) on the morning of 30th June stating that he acted for Simone Cuddy and instructed the bank on her behalf that no payment should be made out of any of Neath’s accounts unless signed or approved by both herself and Mr Hawkes. The letter asked for a list of all Neath’s standing orders so that Mrs Cuddy could consider whether she was willing to authorise continued payment.[58]Morgan Cole were sent a copy of the letter to the bank and replied by e-mail on 30th June to that letter and to Mr Newman’s earlier letter of 27th June. On behalf of Mr Hawkes they stated that Mr Cuddy had “no locus” to request sight of the financial records and, not being a director of Neath, had “no business interfering with Neath Rugby’s bankers”.[59]The exchanges became increasingly acrimonious. Mr Newman wrote to Morgan Cole on 3rd July stating that Mr Cuddy denied that he had signed documents for his wife or in his wife’s name, and saying that the request for financial information was being made by Mrs Cuddy, although she had signed a proxy entitling her husband to obtain information on her behalf. Without sight of Neath’s financial records, Mrs Cuddy was not willing to sign the company’s accounts to 31st July 2005 or to cooperate in the production of the accounts to 31st July 2006.[60]This drew a response from Morgan Cole on 7th July, which repeated Mr Hawkes’ allegation that documents purportedly signed by Mrs Cuddy as a director of Neath had not in fact been signed by her. The letter asserted that “Mr Cuddy has no standing in the affairs of Neath” and called on Mrs Cuddy to honour her duty as a director to act in the best interests of Neath by not blocking payments legitimately due to Neath’s suppliers.[61]Mrs Cuddy persisted in her refusal to sign the 2004/2005 accounts with the result that a criminal prosecution was commenced by the DTI in October 2006 for the directors’ failure to file the accounts at Companies House by 31st May 2006. It proved impossible to resolve the impasse before the case was heard by Cardiff magistrates on 22nd March 2007. Mr Hawkes was acquitted but Mrs Cuddy was convicted and fined £125 with costs.[62]The situation had by now become one of deadlock. Mr Hawkes was unable to agree with his co-director, who was acting on the instructions of, or doing the bidding of, Mr Cuddy. An attempt was made by Mr Hawkes and Mr Cuddy to resolve their differences. Negotiations conducted through their respective solicitors resulted in a meeting on 15th March 2007. Mr Hawkes and Mr Cuddy were present as well as a representative of the WRU and its solicitors. The discussions (in respect of which there is an unresolved issue as to whether they were privileged) envisaged that Mrs Cuddy would transfer the Cuddy share in Neath to Mr Hawkes whilst Mr Hawkes would agree to Neath transferring its share in SWWRL (now Neath-Swansea Ospreys Limited) to a transferee to be agreed by Mr Cuddy and the Ospreys. Any agreement along these lines would require the blessing of the WRU, because it is a requirement of the WRU that shares in regional organisations can only be held by clubs.[63]No agreement was reached on 15th March, and the negotiations have been overtaken by subsequent events (principally the legal advice received by Mr Hawkes in April 2007, giving rise to the petition).[64]Before the meeting on 15th March, Morgan Cole had written to Mr Newman saying that if some kind of settlement was not reached, Mr Hawkes would apply to wind-up Neath. When the meeting failed to produce a settlement, Mr Newman wrote to Morgan Cole saying “… it is clear that your client has decided that there is no alternative but for Neath Rugby Limited to be wound up. As a consequence of your client’s conduct our client [Mr Cuddy] has no alternative but to accede to this proposal”.[65]It was suggested in the course of argument that the position reached in March was that both parties were in agreement that Neath should be wound up. I am quite satisfied that that was not, and is not, the case. If a petition was presented to wind up Neath the Forfeiture Clause in the Regional Operating Agreement might apply and Neath’s share in the Ospreys might be forfeited to the WRU. The WRU has been carefully non-committal in correspondence as to whether, in those circumstances, it would seek to enforce the Forfeiture Clause. Neither party wants to see the Neath share in the Ospreys forfeited. I am in no doubt that Mr Hawkes’ threat to wind-up Neath, and Mr Cuddy’s professed willingness to acquiesce in that course, was no more than sabre-rattling or adopting a posture to provoke a response.

The cross-petition

[66]Although issued second in point of time, it is convenient to consider the cross-petition first. The case advanced by Mrs Cuddy is simple. She asserts that the plan whereby her husband and Mr Hawkes agreed to acquire the assets of the Club through the vehicle of a company (Neath) was one which envisaged a quasi-partnership. Neath was and is a joint venture between Mr Hawkes and Mr Cuddy which is akin to a partnership. Accordingly the relationship between the two men was one of trust and confidence and Mr Hawkes owed to Mr Cuddy a duty of good faith (and vice versa). By reason of the forgery allegation and the denial by Mr Hawkes that Mr Cuddy has any locus to request financial information about Neath or any standing in the affairs of the company, it is said that Mr Hawkes has breached his duty of good faith. The result is that the relationship of trust and confidence has broken down.[67]The concluding paragraphs of the cross-petition, and the prayer for relief (as amended in the course of the hearing) read as follows:
“29. In the premises, the affairs of [Neath] are being or have been conducted in a manner which is unfairly prejudicial to the interests of the members generally or some part of its members (including [Mrs Cuddy]) and/or the facts and matters set out hereinabove are so prejudicial. 30. It is averred that the court should, in the exercise of its discretion, order and direct that the assets and undertaking of [Neath], including its share in [Ospreys], be divided on the basis that [Neath’s] half share in [Ospreys] be transferred in accordance with paragraph (1) of the Prayer and subject thereto Mr Hawkes buys the Club”
. THE PETITIONER THEREFORE PRAYS AS FOLLOWS: (1) That [Mr Hawkes] do join in the sale by [Neath] to [Mrs Cuddy’s] nominee, namely any “Club” as defined in paragraph 4 of Schedule 2 to the Regional Rugby Agreement between the Welsh Rugby Union (“WRU”) and [Ospreys] dated 1 September 2004 or to the WRU of [Mr Hawkes’] share in [Ospreys] at a fair value to be determined by this court or an independent valuer. (2) That [Mr Hawkes] do purchase [Mrs Cuddy’s] share in [Neath] subject to and on the same terms as those set out in the preceding paragraph. (3) Alternatively, that [Mr Hawkes] do sell his share in [Neath] to [Mrs Cuddy] or her nominee at a fair value to be determined by this Court. … ” THE PETITIONER THEREFORE PRAYS AS FOLLOWS:[68]The claim made in paragraph 30 and paragraph (1) of the prayer was referred to in the course of argument as “the de-merger relief”. I shall refer to it as such although, as will become apparent later in this judgment, I consider it to be a misnomer.[69]It is not difficult to see why the de-merger option is raised in preference to a buy-out. Neath controls who shall be the Neath nominee director on the board of Neath-Swansea Ospreys (as SWWRL has now become). If there is any impediment to Mr Cuddy acting as a director of Neath, or any risk that Mr Cuddy may be acting unlawfully as Neath’s nominee director on the board of Neath-Swansea Ospreys because his activities in that capacity involve him being concerned indirectly in the management of Neath, there is no prospect of Mrs Cuddy obtaining an order that she or her husband buy Mr Hawkes’ share in Neath. Without divorcing Neath from Neath-Swansea Ospreys, Mr Cuddy is likely to be removed as a director of Neath-Swansea Ospreys by the board of Neath. Here I have foreshadowed two of the main arguments advanced in the petition.

The petition

[70]The petition is 99 pages long. It contains a large number of complaints by Mr Hawkes about the conduct of Mr Cuddy, and of Mr Newman. These complaints (which I shall précis shortly) prompt the traditional inquiry in proceedings under section 459 relating to a quasi-partnership, namely, has the relationship of trust and confidence between the shareholder-partners broken down, and if so, who is to blame? But for one factor, it would be common ground that this is the nature of the inquiry which the court will face at trial. The factor which, in the submission of Mr Davies QC, precludes this analysis is section 216 of the Insolvency Act.[71]In brief it is Mr Hawkes’ case that he was not advised by Mr Newman that the solution to the section 216 problem which he and Mr Cuddy devised, of appointing Mrs Cuddy to the board of Neath, albeit as Mr Cuddy’s proxy, was not capable of shielding Mr Cuddy from a contravention of the Act if, through his wife, Mr Cuddy was concerned in any way in the management of Neath. Mr Hawkes says that until he received legal advice to the contrary from a different legal team, on or about 14th April 2007, he believed that the solution was a lawful one and that he could deal properly with Mr Cuddy, and indeed was obliged to deal with Mr Cuddy, over the affairs of Neath. The legal advice he received in mid-April followed disclosure by Mr Newman of his files. The advice was to the effect that the solution was not a lawful one and that, if and insofar as Mr Cuddy had, since the liquidation of Gowerpark on 16th October 2003, been in any way directly or indirectly concerned in the management of Neath through the medium of his wife he had committed a criminal offence. The advice went further. Mr Hawkes was told that the evidence established that Mr Cuddy had acted throughout as a de facto director of Neath and that, by reason of the prohibition in section 216, the Hawkes/Cuddy Agreement had been incapable of lawful performance by Mr Cuddy after Gowerpark was liquidated. If the Agreement did give rise to a quasi-partnership (and in my judgment it did), it was a quasi-partnership which was unlawful after 16th October 2003 and, if it had been a real partnership, would automatically have been dissolved by operation of section 34 of the Partnership Act 1890 (cf. Hudgell Yeates & Co. v Watson [1978] QB 451).[72]If justified by the facts, this is a formidable case with a remorseless logic. Mr Cuddy is prohibited from being concerned in the management of Neath, whether directly or through his wife or through any other nominee. His position as Neath’s nominee director on the board of Neath-Swansea Ospreys is for that reason vulnerable, because without his influence on the board of Neath, the board of Neath could decide at any time to remove him. In those circumstances the only legitimate and practical solution to these proceedings would be that Mr Hawkes is ordered to purchase the Cuddy share at a fair value.[73]Those advising Mr Hawkes have refined and extended the case made under section 216. It is now contended that it is unlawful for Mr Cuddy to remain as Neath nominee director on the board of Neath-Swansea Ospreys for 2 reasons:(1) because his conduct as joint managing director of the Ospreys involves him being concerned directly or indirectly in the management of Neath contrary to section 216(3)(b) of the Insolvency Act, and(2) because Neath-Swansea Ospreys Limited is itself a prohibited name, so Mr Cuddy’s appointment as a director of that company contravenes section 216(3)(a). I shall refer to these two additional arguments as the “Ospreys management/Neath management point” and the “Ospreys prohibited name point” respectively.[74]The allegations made in the petition against Mr Cuddy are the following. This is no more than a brief outline, approximately in the order that the allegations appear in the petition. Neath-Swansea Ospreys Limited is referred to throughout by its former name of SWWRL. The headings in brackets are those used in the petition: (1). The solution reached by Mr Cuddy and Mr Newman to get round the section 216 problem by nominating Mrs Cuddy as a director of Neath was a sham, designed to conceal the fact that Mr Cuddy would be a de facto director, telling his wife what to do: (“Mr Newman’s Solution – the Sham”). (2). Until Mr Newman disclosed some of his files to Mr Hawkes in or around April 2007, Mr Hawkes had not appreciated that Mr Newman’s advice had been negligent in that he had failed to warn Mr Hawkes that the sham solution was not lawful and had left Mr Hawkes with the impression that Mr Newman thought it was a preferable solution to his own (that Mr Hawkes and Mr Cuddy buy the assets of Neath in their own names pending an application to the Court); (“the Solicitor’s Negligence”). (3). The two documents disclosed to Mr Hawkes in August 2006 evidencing the signing authority and the share trust, if genuine, demonstrate attempts by Mr Cuddy to further the sham solution by giving him control over Mrs Cuddy’s signature and her voting rights as shareholder. Mr Hawkes believes that the documents are not genuine in that they were not brought into being at the time stated but were concocted later for the purposes of assisting the Cuddys in their dispute with Mr Hawkes: (“the Alleged Forgery Authority” and “the Alleged Share Trust”). (4). Mr Cuddy was unable to pay his half share of the second instalment of the consideration of £175,000 payable to the WRU on 1st July 2004 under the sale agreement. Mr Cuddy negotiated with the WRU for Neath to pay the whole £87,500 by instalments over 18 months. The money had to come out of Neath’s profits, which caused cash flow difficulties. This caused Mr Hawkes to make further unanticipated loans to Neath totalling £175,000, all or most of which was used to fund Neath’s contribution to financing the Ospreys in their first season. Mr Cuddy misled Mr Hawkes (by representing that the money would be repaid by a debtor of SWWRL called The Bastion Group) into allowing the loans to be shown in Neath’s accounts as a loan by Neath to SWWRL. The loans were not repaid by The Bastion Group, and have not yet been repaid: (“Hawkes/Cuddy investments/loans and accounting treatment thereof”). (5). Mr Cuddy has retained in his own name Neath’s share in SWWRL and has refused to allow it to be transferred into the name of Neath, despite confirming with Mr Blyth at a board meeting of SWWRL in December 2004 that the shares previously held on trust by himself and Mr Blyth had been transferred to Neath and Swansea respectively: (“Events leading up to the Regional Operating Agreement”). [Judicial note: Since the commencement of these proceedings, it has been confirmed in behalf of Mr Cuddy that registration has or will be effected in the name of Neath.] (6). Mr Cuddy failed to ensure that, after Swansea and the Ospreys moved into the new Liberty Stadium, a due proportion of regional rugby matches would still be played at The Gnoll. Having supported a press release indicating that at least 5 Ospreys games would be played at The Gnoll in the 2005/2006 season, none were in fact played there and no regional rugby has been played at The Gnoll since that time: (“Agreement to play games at The Gnoll”). (7). A company called Stadco was set up to own and run the Liberty Stadium. Without first consulting Neath Mr Cuddy caused SWWRL to be committed to certain agreements with Stadco which exposed SWWRL to liabilities of Stadco: (“Exposing SWWRL to the management and debts of Stadco”). (8). Mr Cuddy used the sham, the alleged forgery authority and his control of the Cuddy share in Neath to ensure that Mr Hawkes could not replace Mrs Cuddy as a director of Neath or replace himself as Neath’s nominee director on the board of SWWRL. Mr Cuddy then intermeddled in the management of Neath by attending meetings and requiring certain things to be done. Examples are meetings which took place on 2nd June 2005 and 24th June 2005 at which the business of Neath was discussed, including plans for redevelopment at The Gnoll, the relationship between the Neath squad and the Ospreys, the signing of Neath’s accounts and the provision of financial information to Mr Cuddy to enable him to satisfy himself about those accounts. Mr Hawkes cooperated with Mr Cuddy because he believed that the sham was a legitimate device and permitted Mr Cuddy to act as a de facto director: (“The Cuddy Share – Mr Cuddy’s hold over Neath”). (9). Mr Cuddy allowed SWWRL to enter into a contractual commitment with Stadco that all the Ospreys home fixtures would be played at the Liberty Stadium. He did so without consulting Neath beforehand. Mr Cuddy has never consulted Mr Hawkes, or adequately consulted Mr Hawkes, about important issues concerning the affairs of SWWRL which have a direct bearing on the affairs of Neath: (“Failure to consult as Neath Nominee Director”). (10). The power of attorney produced in May 2006 was designed to create the false appearance that, notwithstanding the prohibition in section 216, the power to create or enforce deadlock in Neath resided in Mr Cuddy: (“Furthering the Sham – the Power of Attorney”). (11). Mr Cuddy has interfered with Neath’s auditors by getting Mr Newman, ostensibly in the name of Mrs Cuddy, to make a formal request on 6th June 2006 for copies of the 2005 accounts (“The Auditor Interference”). (12). Mr Cuddy interfered with Neath’s banking arrangements by first insisting through Mr Newman on 9th June 2006 that Neath should incur no further liabilities without the agreement of Mrs Cuddy, and then causing Mr Newman to write on 30th June 2006 to Barclays purporting to give a instruction on behalf of Mrs Cuddy that no further payments should be made out of Neath’s accounts unless authorised by Mr Hawkes and Mrs Cuddy: (“The Bank interference”). (13). Mr Cuddy further misused the Cuddy share by ensuring that Mrs Cuddy did not attend a board meeting convened by Mr Hawkes on 29th August 2006 for the purpose of considering the removal of Mr Cuddy as Neath nominee director on the board of SWWRL. He has also ensured that there should be no agreement on any alternative date for such a meeting. Mr Cuddy has thereby entrenched his position on the board of SWWRL: (“Further misuse of the Cuddy share”). (14). Mr Cuddy has jeopardised Neath’s share in SWWRL by his conduct in failing to safeguard Neath’s interests in his management of SWWRL. The WRU has written to Mr Hawkes to remind him of the risk posed by the Forfeiture Clause if the dispute with Mr Cuddy were to be litigated and result in a winding-up of Neath: (“Placing Neath’s 50% share in SWWRL in jeopardy”). (15). By causing Mrs Cuddy to refuse to sign the 2005 accounts, Mr Cuddy has brought about the prosecution by the DTI which resulted in Mrs Cuddy’s conviction and Mr Hawkes’ acquittal. The prosecution was widely reported and placed Neath in an unfavourable light during the last weeks of the 2006/2007 rugby season when Neath was concentrating all its efforts on winning the Welsh Premiership for a third successive season: (“The Criminal Proceedings”). (16). Mr Cuddy, as Neath’s nominee director on the board of SWWRL, has caused or allowed SWWRL to commence legal proceedings against Neath for alleged breaches of trademark. The action was begun on 13th April 2007 and relates to merchandise with the Ospreys logo/colours sold in the Neath Shop in Neath and at The Gnoll. Mr Cuddy caused SWWRL to complain to Neath Port Talbot Trading Standards Office that Neath was selling counterfeit merchandise with the result that Neath seized all the Ospreys merchandise at the Neath Shop on 29th January 2007. He then caused or permitted SWWRL’s solicitors to write to the supplier of the merchandise on behalf of Mr and Mrs Cuddy, asking for information. He has also prevented Mrs Cuddy from agreeing with Mr Hawkes on the appointment of solicitors by Neath to defend the trademark proceedings: (“The Trademark Proceedings”) [Judicial note: the parties have now agreed to a stay of the trademark proceedings, pending resolution of the section 459 petitions] (17). Mr Cuddy has caused or allowed Neath’s squad of players to be depleted and/or prejudiced by causing or allowing SWWRL to interfere with the terms and conditions upon which those players are supplied to and/or used by SWWRL. Certain players are “development players”. Until the 2006/2007 season development players would sign a joint contract with Neath and SWWRL but initially be based at Neath. No more than two of them would transfer to full contracts with SWWRL. For the 2006/2007 season SWWRL altered these arrangements. In pre-season discussions, 6 players were identified as “development players”. SWWRL insisted that they be contracted to SWWRL alone. Neath then had to ask SWWRL for them to be loaned back and experienced difficulty in securing the agreement of SWWRL to let them go. Mr Cuddy was in part responsible for these difficulties by cancelling meetings at the last minute. The new arrangements for development players which SWWRL has insisted upon has weakened Neath’s squad in the 2006/2007 season and has angered some of Neath’s supporters. Mr Cuddy failed to protect Neath’s interests by agreeing to the implementation by SWWRL of the new arrangements: (“The Player Interference”). [Judicial note: Two of the six development players have now been made available to Neath for the 2007/2008 season.] (18). In or about April 2007 a long-standing Neath supporter, Mr Reynolds, organised a petition to Mr Cuddy and Mr Blyth complaining about the unfair nature of the player interference. Mr Cuddy asked to meet Mr Reynolds and other Neath supporters. During two meetings on 23rd and 28th April Mr Cuddy made allegations of financial impropriety against Mr Hawkes. He then asked another Neath supporter, Mr Rewbridge, who is an accountant, to attend Neath’s offices one day per week in order to monitor Neath’s financial affairs: (“The Supporter Interference”).[75]I reiterate that the foregoing is no more than a summary recital of allegations in the petition. Save to the extent found subsequently in this judgment none of these allegations has yet been proved.[76]The principal relief sought in the petition (as amended) is as follows:
“… (2) A declaration that in the period of 5 years beginning with 16 October 2003, it has been and remains unlawful pursuant to section 216(3) of the Insolvency Act 1986 for Mr Cuddy, except with the leave of the court, in any way, whether directly or indirectly, to be concerned or take part in the management of Neath or the carrying on of the business of Neath. (3) A declaration that, since 16 October 2003, in contravention of section 216(3) of the Insolvency Act 1986, Mr Cuddy has been directly or indirectly concerned and taken part in the management of Neath and/or the carrying on of the business of Neath by: a) performing the acts of a director of Neath in the name of Simone Frances Cuddy; b) using the name of Simone Francesca Cuddy as a means of concealing that he has been a de facto director of Neath since 16 October 2003; c) representing Neath on the board of the company known, or formerly known, as South West Wales Rugby Limited and/or being involved on behalf of Neath in the management of the rugby team now known as “the Ospreys”. (3A) [A declaration that] In the period of 5 years beginning with 16 October 2003, it has been and remains unlawful pursuant to section 216(3)(a) of the Insolvency Act 1986 for Michael Cuddy, except with the leave of the court, to be a director of Neath-Swansea Ospreys Limited. (3B) Since 16 October 2003, in contravention of section 216(3)(a) of the Insolvency Act 1986, Michael Cuddy has been a director of Neath-Swansea Ospreys Limited. (4) A declaration that since 16 October 2003 Simone Francesca Cuddy has acted or has been willing to act on the instructions given (without leave of the court) by Michael Cuddy whom she knew at that time to be in contravention of section 216 of the Insolvency Act 1986 in relation to Neath. (5) A declaration that pursuant to section 217 of the Insolvency Act 1986 Michael Cuddy is jointly and severally liable with Neath for all the debts of Neath incurred between 16 October 2003 and the date hereof and continuing hereafter for so long as he shall in any way, whether directly or indirectly, be concerned or take part in the management of Neath or the carrying on of the business of Neath. (6) A declaration that pursuant to section 217 of the Insolvency Act 1986 Simone Francesca Cuddy is jointly and severally liable with Neath for all the debts of Neath incurred between 16 October 2003 and the date hereof and continuing hereafter for so long as she continues to act or to be willing to act on the instructions given (without leave of the court) by Michael Cuddy whom she knows to be in contravention in relation to Neath of section 216 of the Insolvency Act 1986. (7) Payment by Michael Cuddy and/or Simone Francesca Cuddy of such sum as the court shall find appropriate to represent their contribution to Neath for the debts of Neath incurred between 16 October 2003 and the date hereof and continuing thereafter and, for the purposes of ascertaining their true liability in respect thereof, an order that all necessary accounts and enquiries be taken and made. (8) An injunction restraining Michael Cuddy from in any way, whether directly or indirectly, being concerned or taking part in the management of Neath or the carrying on of the business of Neath including, for the avoidance of doubt, representing Neath in any way on the board of the company known, or formerly known, as South West Wales Rugby Limited and/or being involved on behalf of Neath in the management of the rugby team now known as “the Ospreys”. … (11) A share purchase order pursuant to which Michael Cuddy and/or Simone Francesca Cuddy shall sell and Mr Hawkes shall purchase the one issued share in Neath registered in the name of Simone Francesca Cuddy for such consideration as to the court shall seem appropriate and fair. …”

The Cuddy strike out application

[77]The Cuddys’ primary application is that the whole petition should be struck out on two interrelated grounds. The first is that it fails to plead any unfair prejudice capable of conferring jurisdiction on the court to grant relief under section 459. It is well settled that the court must find unfair prejudice before any relief under the section can be given (see Oliver LJ in In re Bird Precision Bellows Ltd [1986] Ch 658 at 670F-G, Scott J in Re a Company (No. 004175 of 1986) [1987] BCLC 574 at 579 and Patten J in Grace v Biagioli [2006] BCC 85 at para. 73). No relevant unfair prejudice is set out in the petition, so it is bound to fail. The second ground is that the inclusion in the petition of claims for relief under sections 216 and 217 of the Insolvency Act is objectionable for a variety of reasons. If they are struck out, no basis remains for the share purchase order sought in Mr Hawkes’ favour.[78]In considering these submissions (and the submissions on the strike-out/summary judgment applications of Mr Hawkes and Neath as well) I bear in mind that the test is one of a real (as opposed to a fanciful) prospect of success at trial (see Lord Woolf MR in Swain v Hillman [2001] 1 AER 91 at 95), and is to be applied on the assumption that the facts averred in the petition under attack are true. However, applications for the summary dismissal of petitions under section 459 have attracted particular judicial comment. Often cited is the judgment of Hoffmann LJ in Re Saul D. Harrison [1995] 1 BCLC 14, where at p. 22 he said the following:
“In exercising his discretion to strike out the petition, the judge referred to the damaging effect of the presentation of a petition under s. 459 and the burdensome nature of the proceedings, which may involve a lengthy and detailed investigation of the company over a long period. … I accept that the notoriously burdensome nature of s. 459 proceedings does not lighten the burden on the respondent who applies to have the petition struck out. He must still satisfy the court that the petitioner’s case is plainly and obviously unsustainable. But I think that the consequences for the company mean that a court should be willing to scrutinise with care the allegations in a s. 459 petition and, if necessary, the evidence proposed to be adduced in support, in order to see whether the petitioner really does have an arguable case. This is particularly so when the petition rests on allegations of bad faith akin to fraud: see Sir George Jessel MR in Re Rica Gold Washing Co. (1879) 11 Ch D 36.”
[79]In Re Legal Costs Negotiators Ltd [1999] BCC 547 Peter Gibson LJ held (at 551E-F) that:
“The court on an application to strike out a s. 459 petition can look at the realities of the case. It is entitled to take a pragmatic view that the petition should not be allowed to proceed where the likelihood of the trial judge exercising his discretion to grant the relief claimed is so remote that the case can be described as perfectly hopeless (see Supreme Travels Ltd v Little Olympian Each-Ways Ltd [1994] BCC 947 at pp. 955 and 957 per Lindsay J and Re Oriental Gas Co Ltd [1999] BCC 237 at p. 245H where Ferris J adopted what Lindsay J said in posing the test whether it is plain and obvious that the relief claimed would never be granted).”
[80]Mr Davies cited a more recent decision (Isaacs v Bellfield Furnishings Ltd [2006] EWHC 183 (Ch)) in which the deputy judge referred to what Bingham LJ had to say about the jurisdiction to strike-out a section 459 petition in Copeland v Craddock [1997] BCC 294 at 300, and concluded that it was not enough that the claim is unlikely to succeed or that the petition is thin. The deputy judge held that: “The Petitioners are entitled to the court’s adjudication on the merits of their Petition at trial unless the Respondents are able to demonstrate that the claims made in it could never succeed, and that as a result, the continued prosecution of the Petition constitutes an abuse of process”.[81]These authorities indicate that the court should not be inhibited about examining with a critical eye allegations of bad faith in a section 459 petition: but the threshold for summary disposal remains high. It is appropriate only in cases where it is plain and obvious that the petition cannot succeed.[82]The permissible avenues to relief under section 459 were considered by the House of Lords in O’Neill v Phillips [1999] 1 WLR 1092. Mr Hollington (who appeared for the petitioners on that appeal) submits that Lord Hoffmann (who delivered the leading speech) held that there are only two ways in which unfair prejudice can be established:(1) by showing that there has been a breach of or departure from an agreement between the shareholders as to how the company should be run, or(2) by proving that an event has occurred, or there has been conduct by the respondent, which contravenes the equitable principles which underpin the jurisdiction to wind up on “just and equitable” grounds. Since Mr Hawkes denies that Neath was a 50:50 quasi-partnership, he cannot invoke the assistance of just and equitable principles to restrain or modify reliance by Mr Cuddy on his strict legal rights. Mr Hawkes’ only alternative is to rely on breach of an agreement between shareholders, which the petition does not do.[83]I do not accept this analysis. In my judgment it rests on too narrow and prescriptive a reading of what Lord Hoffmann said. It is plain first of all that, if it were not for the prohibition in section 216, Mr Hawkes would accept the quasi-partnership nature of the joint venture in Neath. He has said in paragraph 49 of his first witness statement that he and Mr Cuddy were intending to be partners. When it was created, the structure of Neath (only two issued shares and two directors) was a paradigm example of an equal share partnership in corporate guise. But the partnership analogy is defeated if Mr Cuddy was not free lawfully to act as a director of or be concerned in any way, directly or indirectly, in the management of Neath. It is for this reason that Mr Hawkes does not rely on breach of partnership principles to invoke the Court’s jurisdiction under section 459.[84]Second, Lord Hoffmann did not confine the route to relief by reference to equitable principles akin to those applied in partnership cases or cases involving want of good faith. He was careful to leave the door open to other types of case which might warrant the intervention of the court’s jurisdiction under section 459 based on equitable principles. At p. 1101H – 1102B, he said this:
“I do not suggest that exercising rights in breach of some promise or undertaking is the only form of conduct which will be regarded as unfair for the purposes of section 459. For example, there may be some event which puts an end to the basis upon which the parties entered into association with each other, making it unfair that one shareholder should insist upon the continuance of the association. The analogy of contractual frustration suggests itself. The unfairness may arise not from what the parties have positively agreed but from a majority using its legal powers to maintain the association in circumstances to which the minority can reasonably say it did not agree: non haec in foedera veni. It is well recognised that in such a case there would be power to wind up the company on the just and equitable ground (see Virdi v Abbey Leisure Ltd [1990] BCLC 342) and it seem to me that, in the absence of a winding up, it could equally be said to come within section 459. But this form of unfairness is also based upon established equitable principles and it does not arise in this case.”
[85]Mr Hawkes could perhaps have asserted that there had been a breach by Mr Cuddy of an implied term of the Hawkes/Cuddy Agreement that he could lawfully act as a director of Neath. A similar argument (that there should be implied by law into the articles of association that the company will carry on business lawfully) was held by Lord Steyn in Bermuda Cablevision Ltd v Colica Trust Ltd [1998] AC 199 at 211B, to be arguable. An argument on these lines might justify the court’s intervention on the first of the grounds recognised in O’Neill v Phillips, namely, that there had been a departure from an agreement between the shareholders as to how the company should be run: but it is not an argument advanced in the petition. It is however alleged that Mr Cuddy failed to consult Neath as to his conduct of the Neath nominee directorship of Ospreys (see paragraph 25 of the petition). I read this complaint as saying that Mr Cuddy breached an implied duty arising from the circumstances in which he was appointed to that post under the Hawkes/Cuddy Agreement. I think that is a perfectly legitimate basis on which to invoke the jurisdiction under section 459, provided it is arguable that unfair prejudice has been caused to Mr Hawkes as a shareholder by reason of the lack of consultation.[86]Even if that is wrong, I do not see why Mr Hawkes cannot say that he has been the victim of unfair prejudice by reason of the prohibition on Mr Cuddy from being concerned in the management of Neath, provided(1) he can properly rely on section 216 in this context and(2) he can establish a causative link between the statutory prohibition and what is alleged to be unfair. Lord Hoffmann makes clear that it is not enough simply to show that the basis on which the shareholders agreed to enter into association with each other has been frustrated or radically altered. It must be shown that in the circumstances it is unfair for the other shareholders to insist on the association continuing in its original form. If Mr Hawkes is right about the effect of section 216, it is in my judgment arguable that the statutory prohibition has destroyed the foundation of the joint venture in the Hawkes/Cuddy Agreement, and that Mr Cuddy’s endeavours to keep it going through his wife as proxy director have caused, and are causing, prejudice.[87]The question, therefore, is whether Mr Hawkes can rely on section 216, and is at least arguably correct as to the impact of the statutory prohibition in the present case.[88]I will do my best to summarise Mr Hollington’s several arguments under this head. His first submission was that section 216 was being relied upon in the present case to besmirch the reputation of Mr Cuddy and cause him adverse publicity. On that ground alone the Insolvency Act allegations should be struck out, and with them the rest of the petition. Second, Mr Hollington submitted that there was no jurisdiction to grant relief under section 216 or section 217 in proceedings begun by a section 459 petition. A shareholder has no locus standi to seek declarations or orders under either of these provisions of the Insolvency Act, which are for the protection of creditors. The kind of relief available under sections 216 and 217 is also not within the scope of section 461. Remedies under section 461 are designed to cure the unfair prejudice for the future. Declarations as to past criminality or as to the liability of the respondent to the petition for the past debts of the company do not assist in doing that. Finally Mr Hollington submitted that, even if it was in principle permissible to rely on section 216 in a section 459 petition, the Insolvency Act problem was causatively irrelevant on the facts of the present case because the alleged sham was not the cause of the breakdown in trust and confidence. The breakdown in trust and confidence occurred in or about May or June 2006. Mr Hawkes’ case is that he did not appreciate that Mrs Cuddy’s proxy directorship was a sham until April 2007. The necessary link between the alleged prejudice and the statutory prohibition is not established in the grounds of the petition.[89]I start with abuse of process. It does not follow from the fact that some of the reporting of the petition has been critical of Mr Cuddy, that the proceedings have been commenced for a collateral purpose. The test of abuse of process is whether the litigation would not have been commenced save for the claimant’s desire to pursue a purpose not justified by the subject matter of the claim. In Goldsmith v Sperrings [1977] 1 WLR 478, Bridge LJ (at 503) put the matter thus:
“In my judgment, one can certainly go so far as to say that when a litigant sues to redress a grievance no object which he make seek to obtain can be condemned as a collateral advantage if it is reasonably related to the provision of some form of redress for that grievance. On the other hand, if it can be shown that a litigant is pursuing an ulterior purpose unrelated to the subject matter of the litigation and that, but for his ulterior purpose, he would not have commenced proceedings at all, that is an abuse of process.”
[90]By Bridge LJ’s test, the petition is not an abuse of process even if, by raising the allegation of a contravention of section 216 Mr Hawkes intended to blacken Mr Cuddy’s name, provided Mr Hawkes can show that he would probably have sought relief under section 461 in any event. The deadlock existing in the management of Neath suggests to me that Mr Hawkes would have launched a petition even without the Insolvency Act argument. The allegation of abuse of process might be stronger if it was plain that Mr Hawkes was party to all of the discussions between Mr Cuddy and Mr Newman about the wisdom of appointing Mrs Cuddy as a proxy director of Neath, but that is disputed and is a triable issue. Where there are disputed facts on which the allegation of abuse depends, the right course in my judgment is not to try to resolve them without disclosure and a trial (cf. Lewison J in Meretz Investments v ACP [2006] 3 AER 1029 (at paras. 201-203).[91]On the question of jurisdiction to grant relief under section 216, the arguments raised by Mr Hollington in support of striking-out the petition overlapped to some extent with the arguments he advanced in opposing the application for summary judgment. The difference is that in the context of striking-out Mr Hollington must show that the contrary is not seriously arguable, whereas in opposing summary judgment he need only show that his argument on behalf of Mr Cuddy stands a real prospect of success.[92]I am not persuaded that there is no power to grant declaratory relief on a section 459 petition, whether in relation to a contravention of section 216 or on any other ground. On the contrary I think it is plain that the jurisdiction does exist. (Whether it should be exercised at an interim stage is a different question, which I shall deal with on the summary judgment application). There are plenty of recent examples of declaratory relief being granted on section 459 petitions (see e.g. Clark v Cutland [2003] 4 All ER 733, Re Fahey Developments Ltd [1996] BCC 320 or Re Castleburn Ltd (1989) 5 BCC 692). In my judgment there is nothing special about section 216 which precludes it from being raised in the context of section 459 proceedings, if it is causatively relevant to unfair prejudice. I will come back to the causation argument presently.[93]Mr Hollington’s first objection was that sections 216 and 217 were creditor remedies which have no place in a shareholder action. He submitted that a shareholder has no locus standi even to invoke sections 216 or 217. I disagree. It is true that section 217 is primarily invoked by creditors: but the section is not so limited. It simply imposes a personal liability on a director or manager who was formerly a director of a liquidating company. Section 217 is linked to section 216 because contravention of the prohibition in section 216 is a prerequisite to personal liability under section 217: but that is the limit of the connection. Section 216 creates a free-standing criminal offence. It concerns the management of companies and is designed to protect anyone who is interested in or has dealings with companies from those who act as directors of liquidating companies and then seek to carry on business through another corporate vehicle bearing the same or a similar name. The principal target of section 216 was the phoenix company: but the application of the section is not confined to the phoenix phenomenon. It can apply to pre-existing group companies as well (Ricketts v Ad Valorem Factors Ltd [2004] BCC 164).[94]It is not difficult to envisage circumstances in which the fact that a director of company B is discovered to have been a director of company A, which bore a similar name and which recently went into insolvent liquidation, might give rise to a petition by a shareholder of company B that he was being unfairly prejudiced. In that context it would be relevant that the director was not lawfully entitled to act as a director of company B. A similar scenario could arise if it was discovered that one of the directors was disqualified from acting under the Company Directors Disqualification Act, or was a bankrupt. In Re Market Wizard Systems (UK) Ltd [1998] 2 BCLC 282, Carnwath J cited with approval the judgment of Ormiston J in Commr for Corporate Affairs v Bracht (1989) 7 ACLC 40 where the latter described the statutory provision in Victoria prohibiting a bankrupt or insolvent from acting as a company director as being “… a protective section, protective at least of the creditors and shareholders”. I see no reason in principle why the prohibition under section 216 should not be regarded as protective of shareholders and available to be raised, in an appropriate case, on a section 459 petition.[95]The decision of the Privy Council in Bermuda Cablevision Ltd v Colica Trust Co. Ltd [1998] AC 198 supports this conclusion. In that case the Privy Council declined to strike out a petition brought under the Bermudan law equivalent of section 459 which alleged that the business of Bermuda Cablevision was being carried on contrary to a local law which required that Bermudians should own at least 60% of the company. It was held that although a shareholder might have no locus standi to enforce the criminal law, section 111 (which is the Bermudan counterpart to s. 459) was a self-contained remedial measure which conferred private law rights on shareholders and no jurisdictional restriction was to be implied so as to exclude from its scope a petition in which the main allegation was that the company was carrying on business unlawfully.[96]I recognise the danger of applying conclusions based on a statutory provision in one jurisdiction to a statutory provision in another jurisdiction. But the terms of section 111 of the Bermuda Companies Act 1981 are sufficiently close to those of section 459 of the U.K. Companies Act 1985 for the common root to be obvious. The analogy of the finding in the Bermuda Cablevision case is apt. In my judgment there is no warrant for imposing a jurisdictional restriction into section 459 which deprives a petitioner from being able to raise an allegation that the company is carrying on business unlawfully whether by virtue of a provision of the Insolvency Act, the Company Directors Disqualification Act or any other statutory provision.[97]Mr Hollington’s next objection was that the relief claimed by Mr Hawkes under sections 216 and 217 was not relief of the kind that was available under section 461. I am unable to accept that section 461 is not drafted in terms wide enough to encompass relief in the form of a declaration that a director or manager of the company has acted unlawfully by contravening the prohibition in section 216. The wording of section 461(1) could hardly be broader (“If the court is satisfied that a petition under this Part is well founded, it may make such order as it thinks fit for giving relief in respect of the matters complained of”).[98]Mr Hollington stressed that the hallmark of any remedy under section 461 is that it should be designed to cure the unfairness for the future (Oliver LJ in In Re Bird Precision Bellows Ltd [1986] Ch 658). He submitted that a declaration as to criminality, or as to the liability of a director under section 217 for the company’s past debts, does not assist in doing that. I do not see why it may not. If it is arguable that a party has caused and is causing prejudice by intervening in the management of the company in circumstances where it was and is unlawful for him to do so, a declaration to that effect is likely to assist in preventing such conduct in the future. It is perhaps less obvious that a declaration as to liability for the company’s debts will prove curative unless it can be said that the debts would not have been incurred but for the unlawful intervention and are therefore part of the prejudice. I am uncertain to what extent this is an element in Mr Hawkes’ argument: but I am not prepared to strike out paragraphs (5), (6) and (7) of the prayer for relief. In this context I should record that I regard it as arguable (to the standard of a real prospect of success) that section 217 creates a liability which, in appropriate circumstances, may be enforced at the suit of a shareholder as well as a creditor of the company. The fact that the few reported cases under the section are of claims by creditors does not mean that others are precluded from relying on the liability imposed by the section.[99]A further strand of Mr Hollington’s argument was that it is unusual for a civil court to make a finding, let alone to declare, that a criminal offence has been committed. I accept that it is unusual: but it is certainly not unheard of (see e.g. Financial Services Authority v Rourke [2002] CP Rep. 14). A finding that the defendant has contravened section 216 is a necessary ingredient of every civil judgment in favour of a creditor under section 217. Whether the court in this case should go so far as to make a declaration that section 216 has been contravened must depend on the application of CPR40.20 (which governs the power to make binding declarations) and on whether a useful purpose would be served by granting declaratory relief. That question falls to be addressed under the summary judgment application.[100]That brings me to the causation point. Mr Hollington conceded that the sham (i.e. the appointment of Mrs Cuddy as a director of Neath, and the registering of the Cuddy share in her name, when she had in fact agreed to act as Mr Cuddy’s proxy both as a director and shareholder) might be relevant to the remedy the court would grant if unfair prejudice was established. Self-evidently the court will recoil from a solution which involves or sanctions unlawful conduct. But the sham is not relied upon in the petition for that purpose. It is relied upon as having caused unfair prejudice to Mr Hawkes. The way Mr Davies put the case is that the sham was the instrument whereby Mr Cuddy caused deadlock in Neath. It enabled the intended quasi-partnership to operate when it was in fact unlawful. Mr Hollington’s riposte was that the deadlock arose from the corporate structure of Neath rather than from the sham.[101]For present purposes it is enough for me to conclude that both contentions are arguable. The deadlock could not have arisen but for the corporate structure. However the quasi-partnership represented by the corporate structure was not legally viable after 16th October 2003 unless leave was obtained from the court. The sham made the structure work. It led Mr Hawkes to believe that he had to cooperate with Mr Cuddy in managing Neath’s affairs, and it paved the way for their eventual disagreements about the running of the company.[102]I agree with Mr Hollington that in a quasi-partnership case the remedy granted under section 461 will chiefly depend on who is found to have been responsible for the breakdown in trust and confidence between shareholders. However in my judgment it is taking too narrow a view to exclude the sham and the alleged contravention of section 216 from being the cause, or part of the cause, of the breakdown in the present case. So I refuse to strike out the petition in its entirety, either on the causation point or by reason of the Insolvency Act relief.[103]Mr Hollington contended that even if the whole petition was not struck out, parts of it remained objectionable for a number of discrete reasons. These parts should be excised or the court should direct that the matters they address are not to be the subject of proof at trial. One such matter was Mr Cuddy’s conduct as Neath’s nominee director on the board of Neath-Swansea Ospreys.[104]Mr Hollington submitted that there was no reported case where it had been held on a section 459 petition that conduct by the respondent of the affairs of company A constituted unfairness in the conduct of the affairs of company B, unless the former company controlled the latter company or vice versa. Control certainly seems to be regarded as the touchstone in the authorities. In Re GrandactualLimited [2006] BCC 85, Sir Donald Rattee reviewed the reported cases on the ambit of the phrase “the company’s affairs” in section 459(1). Section 459(1) provides:
“A member of a company may apply to the court by petition for an order under this Part on the ground that the company’s affairs are being or have been conducted in a manner which is unfairly prejudicial to the interests of its members generally or of some part of its members (including at least himself) or that any actual or proposed act or omission of the company (including an act or omission on its behalf) is or would be so prejudicial.”
[105]The “affairs” of a company have been widely construed in this context (see Sir Martin Nourse in Gross v Rackind [2005] 1 WLR 3505 at paras. 21 to 29). It has been held that the court should look at “the business realities of the situation” and not confine the words to a “narrow and legalistic view” (see Lord President Cooper in Scottish Co-operative Wholesale v Meyer Society Ltd, approved by Viscount Simonds in [1959] AC 324 at 343 and by Ralph Gibson LJ in Nicholas v Soundcraft Electronics Ltd [1993] BCLC 360 at 368). However no English court has extended the affairs of a company to include the affairs of another company where that other company was not controlled by or in the control of the company the subject of the petition.[106]In the Grandactual case, the shareholders in Grandactual, which operated a restaurant in London, complained that they had been unfairly prejudiced in the conduct of the company’s affairs inter alia because the capital structure of another company, called IL, which owned the intellectual property relating to the restaurant and in which the petitioners were also shareholders of the same class, had been altered so that it no longer reflected the capital structure of Grandactual (as had been the case when trading began). Sir Donald Rattee struck out the petition and held that the fact that the petitioners controlled both Grandactual and IL as majority shareholders did not mean that Grandactual controlled IL or vice versa. So the affairs of IL could not be treated as the affairs of Grandactual.[107]The “control” test is readily explicable on two bases. First, it emphasises the need for a causative nexus between the affairs of the two companies. The conduct of the business of company A is more likely to have a direct impact on the conduct of the affairs of company B if one has a controlling interest in the other. Second, the test places a limit on the inquiry which is necessary under section 459. There may be many instances where the affairs of one company directly affect the affairs of another: but that is not the same as saying that the affairs of company A are the affairs of company B. There needs to be a boundary and the test of control provides it.[108]Given that boundary, Mr Hollington submitted that there was no prospect of Mr Hawkes being able to establish that Mr Cuddy’s management of Neath-Swansea Ospreys had caused unfair prejudice to the shareholders of Neath. So all passages in the petition relating to the management of the Ospreys should be struck-out.[109]I recognise the force of this submission, but am unable to accede to it for two reasons. First, Mr Cuddy’s conduct as joint managing director of Neath-Swansea Ospreys is relevant to the Ospreys management/Neath management point. In my judgment it is at least arguable that Mr Cuddy was concerned indirectly in the management of Neath by virtue of his management of Neath-Swansea Ospreys. Second, I think it is arguable (to the standard necessary to survive a strike-out) that Mr Cuddy’s management of the Ospreys was conduct of the affairs of Neath. True, the argument under section 459 is different to that under section 216(3)(b), and is one which pushes at the frontiers of the control test applied in Re Grandactual Limited. But the facts of the present case are not the same as those in Grandactual. In Grandactual, the company held no shares in IL and IL held no shares in Grandactual. The only link was that the majority shareholders were the same. In this case Neath holds 50% of the shares in Neath-Swansea Ospreys and has appointed 50% of the board. That is not a controlling interest in the sense of being a majority interest. But Mr Davies is right that the terms of the Regional Shareholder Agreement mean that Neath and Swansea each have a degree of negative control i.e. they can prevent certain matters being considered and voted upon by the Ospreys’ board. Against that background it would in my judgment be wrong to strike out the Ospreys’ management allegations on footing that it is plain and beyond serious argument that the conduct of the affairs of Neath-Swansea Ospreys constituted conduct of the affairs of Neath.[110]Detailed criticisms were made by Mr Hollington of other sections of the petition. I have an instinctive reluctance to wield a blue pencil where substantial parts of the petition are destined for trial in any event. Neuberger J was similarly reluctant to take that course in Morris v State Bank of India [1999] BCC 943 at 951G. So was the court in Atlasview Ltd [2004] EWHC 1056 (see para. 51 of the judgment). A good reason for not trying to prune the petition in a complex case such as the present one is that the court cannot always be confident that it appreciates, at the strike-out stage, the extent to which the various allegations interrelate. Whilst I have doubts about the relevance of some of the allegations (in particular those about “Player Management” in section 8 and the “Misrepresentations to the Law Society” in section 35), I am not persuaded that the right course is to strike them out or to direct that they should not be proved at the trial. I am not convinced that any of them are so weak or so obviously immaterial that they should be ruled out of account on a summary basis. With no disrespect to Mr Hollington’s arguments, I think that no purpose will be served by prolonging this judgment with an item by item consideration of his critique of the contents of the petition.[111]One issue remains on the Cuddy strike out application. It is whether Mr Cuddy should be named as a respondent to the petition. It is plain in my view that he should. There is no hard and fast rule about who should be respondent to a s.459 petition. Anyone against whom there is an arguable claim for relief from unfair prejudice can be included (see the judgment in Atlasview Ltd at para. 56). Mr Cuddy, who is alleged to have acted as a de facto director of Neath and to have caused deadlock in the management of the company, falls fair and square within this category. The court can also join as respondent anyone with an interest in the outcome of the proceedings and whom it is desired to bind by the judgment given after trial. On this basis the court approved the joinder of a firm of accountants in Isaacs v Bellfield Furnishings Ltd [2006] EWHC 183 (at paras. 44-45), although they were not members, directors or otherwise involved in the management of the company. The test for joinder in such cases is the test in CPR 19.2. Mr Cuddy satisfies that test as well in the present case.

The Hawkes’ summary judgment application

[112]The application seeks summary judgment in terms of the declarations in paragraphs (2), (3), (3A), (3B) and (5) of the prayer. The declaration in paragraph (2) is compendious of all the conduct alleged to have constituted an infringement of the prohibition in section 216. The declaration in paragraph (3) is focussed on the conduct of Mr Cuddy which is said to have rendered him a de facto director of Neath in contravention of section 216(3)(a) and/or (b). Paragraph 3(c) is the Ospreys’ management/Neath management point. Paragraph 3(A) also raises the same point. While paragraph 3(B) claims relief in respect of the Ospreys prohibited name point.[113]I allowed an amendment to add paragraphs 3(A) and 3(B) to the prayer in the petition and to the summary judgment application (in the latter case as paragraphs 2(A) and 2(B) of the draft order). Mr Hollington opposed the amendment but said that if permission was granted, it should be on condition that the court hears, at the same time as the summary judgment application, an application by Mr Cuddy for leave under section 216. I rejected that argument. The application to amend was only made after the argument on the summary judgment application (including argument on the Ospreys prohibited name point) was complete or nearly complete. Although Mr Cuddy has stated his intention to apply for leave under section 216 in respect of both Neath and Neath-Swansea Ospreys, he has not as yet issued any such application. If such an application is to be made, Mr Cuddy will need to file evidence which is not presently before the Court. If permission to amend was granted only on terms that there should be a simultaneous hearing of the application for leave and the summary judgment application, there would need to be a lengthy adjournment of the summary judgment application. This has now been recognised, and the request for a simultaneous hearing has been withdrawn. Mr Cuddy’s solicitors accept that their client is not likely to be in a position to launch an application for leave under section 216 in the near future.[114]Applying for leave under section 216 is a solution which has always been open to Mr Cuddy. It is probable that an application for leave would have been regarded in 2003 as a straightforward matter. Events since then have complicated the picture. At the very least Mr Cuddy will have to explain why he interposed his wife as a proxy director and what advice he received in respect of that course.[115]The test to be adopted on the summary judgment application is no less stringent than that on the Cuddy strike-out. Applying that test I am quite satisfied that Mr Cuddy stands no real prospect of being able to deny at trial(1) that Gowerpark Limited traded as Neath RFC prior to its liquidation,(2) that Neath Rugby Limited is a name so similar to Neath RFC as to suggest an association between Neath and Gowerpark, and(3) that since 16th October 2003 Mr Cuddy has been concerned or has taken part in the management of Neath by intervening in Neath’s affairs through, or purportedly on behalf of, his wife. I am not persuaded that the Ospreys management/Neath management point is so clearcut or the Ospreys prohibited name point. The more difficult question is what relief, if any, should be granted under CPR 24.[116]At first it was believed that Mr Cuddy would not dispute that Gowerpark was known as Neath RFC. Mr Hawkes’ solicitors wrote to Mr and Mrs Cuddy’s solicitors on 24th May 2007 formally asking them to admit that fact. When the admission was not forthcoming, Mr Hawkes served a third witness statement on 6th Junein which he stated that Neath RFC was the only name under which Gowerpark carried on business. Mr Hawkes exhibited two documents to that statement dealing with this issue. The first was the statement of affairs lodged by the liquidator of Gowerpark in Form 4.20 which stated that the company had traded as Neath RFC. The second was a copy of a letter written on 22nd August 2002 to the chairman of Gowerpark (Mr Dennis Gethin) by another director of the company (Mr G.A. Bowden) in which Mr Bowden threatened to resign over his disagreement at the influence of Mr Cuddy in the company’s affairs. The letter was addressed to “Mr Dennis Gethin, Chairman, Gower Park Ltd, T/A Neath RFC”.[117]Mr Cuddy responded on 12th June in his first witness statement by saying at paragraph 37: “I do not accept that Gowerpark could be confused in anybody’s mind with Neath Rugby. Gowerpark ran Neath RFC but I do not accept that it was known by that name, in particular not in the 12 months before its liquidation. The events that I have described surrounding the insolvency of Neath RFC and the creation of Gowerpark were widely known and commented upon in the press. People generally referred to Gowerpark by its company name to distinguish it from Neath RFC. Copies of newspaper articles and entries on the BBC’s website for this period all referring to Gowerpark are at pages 1-16. I do not believe that anyone would have thought for one minute that Neath Rugby Limited had anything to do with Gowerpark. …”.[118]However the point is not whether some or all members of the public were able to distinguish between the registered name of the operating company and the name of the Club. The point is whether the operating company was known by the name of the Club at any time in the 12 months before the company went into liquidation (see section 216 (2)(a)).[119]In reply to Mr Cuddy Mr Hawkes served a fourth witness statement, dated 21st June, referring (in paragraph 72) to several documents containing evidence that Gowerpark traded as Neath RFC. Two of those documents were witness statements from members of the Club’s old committee, Mr Allan Benjamin and Mr John Williams. Their statements were signed on 19th June and filed on 20th June. Mr Benjamin categorically stated that Gowerpark always traded as Neath RFC. Mr Williams agreed with Mr Benjamin’s statement. The clincher, to my mind, is that Mr Benjamin exhibited to his statement the front page and the first page of his booklets of season tickets for the 2000/2001 and 2002/2003 seasons. The front page bore the title “Neath RFC” (in 2000/2001) or “Neath Rugby” (in 2002/2003). The first page was headed “Gower Park Ltd T/A”, followed underneath by “Neath Rugby Football Club” in larger bold type and then a list of the company’s directors and officers.[120]Mr Hollington objected that Mr Cuddy had not had a sufficient opportunity to rebut this evidence. But I agree with Mr Davies that the name by which Gowerpark was known was highlighted as an issue almost from the outset of this litigation. Mr Hawkes only produced evidence in reply because it was not until Mr Cuddy served his first witness statement that it was appreciated that he disputed that Gowerpark traded as Neath RFC. In my judgment Mr Cuddy has had more than sufficient opportunity to adduce evidence on this point. Mr Cuddy served a second witness statement on 2nd July, which said nothing more on this topic. Mr Hollington submitted that the court would need to investigate the frequency of the instances in which Gowerpark used the trading name of Neath RFC. He suggested that the examples given in the evidence served by Mr Hawkes might have been rare. I got the strong impression that Mr Hollington was clutching at straws. Mr Cuddy needs to show that at no time in 12 months prior to 16th October 2003 was Gowerpark known as Neath RFC. The evidence of the season tickets is enough to demonstrate that he has no chance of doing so.[121]The similarity in name between Neath RFC and Neath Rugby Limited is patent. Whether the similarity suggests an association is determined by the context in which the names have been used. In Ricketts v Ad Valorem Factors Ltd [2004] BCC 164 Simon Brown LJ said (at paras. 22 and 30) that:
“It is necessary … to make a comparison of the names of the two companies in the context of all the circumstances in which they were actually used or likely to be used: the types of product dealt in, the locations of the business, the types of customers dealing with the companies and those involved in the operation of the two companies. … To my mind the similarity between the two names must e such as to give rise to a probability that members of the public, comparing the names in the relevant context, will associate the two companies with each other, whether as successor companies or … as part of the same group.”
[122]The context here is very clear. The Club remained one and the same throughout. The former operating company (Gowerpark) used the Club’s name as a trading name. The successor company (Neath) adopted as its registered name a name almost identical to that of the Club (Neath Rugby Football Club/Neath Rugby Limited). I do not believe that the issue admits of much further analysis. In my opinion it is obvious that most Neath Rugby supporters would regard Neath and Gowerpark trading as Neath RFC as associated, in that successively they have both owned (or appeared to own) and managed Neath Rugby Club.[123]Quite extensive particulars are given in the petition, and in the evidence of Mr Hawkes, of Mr Cuddy’s alleged interference in the management of Neath. It is said that everything Mrs Cuddy did or did not do was at Mr Cuddy’s instigation or request. In addition it is said that Mr Cuddy attended management meetings which were in the nature of board meetings. Two identified are those on 2nd June and 13th September 2005. Then, when relations with Mr Hawkes began to turn sour, Mr Cuddy insisted, as did Mrs Cuddy, that Neath should incur no further liabilities without Mrs Cuddy’s consent. Letters were written by John Collins & Partners to Neath’s bank and to its auditors. The petition alleges that although these letters were purportedly written on the instructions of Mrs Cuddy, in reality it was Mr Cuddy who was pulling the strings and telling his wife what to do.[124]If contradicted on the evidence, these allegations would not be ones into which further investigation would be appropriate on a summary judgment application. They would give rise to issues fit only for a trial. But I can find nothing in the two witness statements of Mr Cuddy (save some passages dealing with the “Player Interference” and a brief comment in the second statement on his role in the trademark proceedings) which refutes these charges. All Mr Cuddy says (in paragraphs 36 and 41 of his first statement) is that as far he is concerned he has not been concerned in the management of Neath Rugby. Mrs Cuddy has filed no evidence at all.[125]The best that Mr Hollington could say in this evidential vacuum was that Mr Cuddy did no more than request some financial information. An irony here is that one pleaded cause of the breakdown of trust and confidence in the cross-petition is that Mr Hawkes instructed his solicitors in June and July 2006 to say that Mr Cuddy had no locus to request company information and had “no standing in the affairs of Neath”. Mr Cuddy’s case is that he did have locus by virtue of the Hawkes/Cuddy Agreement. The Agreement can only be said to have given him locus because it was originally intended that he should be a director of Neath. Instead he arranged the appointment of Mrs Cuddy as his proxy. The information requested was information concerning the company accounts. It was requested in circumstances where Mrs Cuddy was declining to sign the 2004/2005 accounts unless the information was produced. Mr Cuddy has not disputed that at all material times Mrs Cuddy was acting as his cipher. He asserts positively that it was always intended that his wife should perform this role. It follows to my mind that Mr Cuddy stands no prospect at trial of denying that all of Mrs Cuddy’s acts or omissions as director (including the withholding of her signature from the accounts) were his acts and omissions that he was, from the beginning, a de facto director of Neath.[126]De facto directors are included within the definition of directors in the Insolvency Act (see section 251). So as a de facto director of Neath Mr Cuddy was acting in contravention of section 216(3)(a). The “sham” was no protection.[127]It is not a defence to say that the Hawkes/Cuddy Agreement contemplated that Mr Hawkes would be responsible for the day-to-day running of Neath and that Mr Cuddy would concentrate on the Ospreys. Mr Cuddy’s acts or omissions as a de facto director, telling his wife what to do or to refrain from doing, were enough to place him in breach of the statutory prohibition. However it seems to me that Mr Cuddy also fell foul of section 216(3)(b). The terms of that provision are very wide. Similar wording in section 188(1) of the Companies Act 1948 (now section 1(1)(a) of the Company Directors Disqualification Act 1986) was given a broad interpretation by the Court of Appeal in R v Campbell [1984] BCLC 83. In that case a management consultant who was under a disqualification which meant that he could not be a director of a company or “… in any way, whether directly or indirectly, be concerned or take part in … the management of a company” was found guilty for having advised a company how to extricate itself from financial difficulties. The court held that the wording of the section was “… so widely cast that it is the opinion of this court that it is intended to insulate persons, against whom an order of disqualification has been made, from taking part in the management of company affairs generally. It is cast in the widest of terms “… in any way, whether directly or indirectly, be concerned or take part in the management …”. It would be difficult to imagine a more comprehensive phraseology designed to make it impossible for persons to be part of the management and central direction of company affairs.”[128]Mr Hollington focussed on the reference in that judgment to “central management”. So did Mr Parker on behalf of Neath-Swansea Ospreys, although the main thrust of his concise and helpful submissions was to urge the court not to remove Mr Cuddy as a director of Ospreys by reason of either the Ospreys prohibited name or Ospreys management/Neath management points. However in my judgment neither gave sufficient weight to the preceding words (“… in any way, whether directly or indirectly, be concerned or take part in …”). It is these words which give section 216(3)(b) its broad ambit. Isolated and intermittent conduct which bears on the central direction of a company infringes the prohibition. Involvement in day-to-day running of the company is not required nor is the regular exercise of control. I can think of no clearer an example of being concerned in the management and central direction of Neath than that Mr Cuddy should have insisted in the summer of 2006 that Neath incur no further liabilities without his approval (through the medium of his wife) or that his wife (on his instruction) should refuse to sign the 2004/2005 accounts and so preclude them being filed timeously at Companies House.[129]I shall deal briefly with the Ospreys management/Neath management point and the Ospreys prohibited name point. I regard both as sufficiently arguable that the less I say about them the better, other than to explain why I am not prepared to make summary findings or to grant summary relief in respect of them.[130]A number of decisions taken by the board of the Ospreys have had a direct and immediate impact on Neath: the number of games to be played at The Gnoll and the availability of development players to play in the Premiership are just two examples. But the fact that the management decisions of company A affect the management decisions of company B is not, without more, sufficient to make the management of the one the management of the other. I have held that it is arguable on the petition that the negative control conferred by the Regional Shareholders’ Agreement creates the necessary connection even if it falls short of control in the majority sense. There is also a good case for saying that Mr Cuddy’s various responsibilities as Neath nominee director of the Ospreys mean that he fulfils a function “which touches the central administration of Neath” (see Hart J in Hill v Defra [2006] 1 BCLC 601). But there are contrary arguments (well put by Mr Parker) which I do not think are suitable for summary determination.[131]Mr Davies’ argument on the Ospreys prohibited name point rested on the similarity between Neath RFC (the trading name of Gowerpark) and Neath-Swansea Ospreys (the trading name of SWWRL until June 2006 and the registered name of the regional operating company after that date). He might also have relied on the fact that Neath, when first incorporated, was called Neath Swansea Rugby Limited. Mr Newman still raised the risk of contravening section 216. In other words, it is not apparent that Mr Newman had concerns about section 216 only by virtue of the planned change of name to Neath Rugby Limited. Neath Swansea Rugby Limited is very close to Neath Swansea Ospreys Limited. If acting as a director of the former rang alarm bells, so should acting as a director of the latter. But the extent of the association suggested by the similar names depends on the context in which they are used (Ricketts v Ad Valorem Factors Ltd supra). Neath is a local club. The Ospreys are a regional side. There is scope for argument that the different levels of rugby and joint ownership structure of the Ospreys means that Gowerpark and Neath-Swansea Ospreys are not identified together either as predecessor and successor or as part of the same group. That is an argument I am not prepared to decide under CPR24.[132]I will not leave the Ospreys prohibited name point without indicating that the argument which Mr Hollington sought to develop from the judgment of Arden LJ in ESS Production Ltd v Sully [2005] EWCA Civ 554 was misconceived. Arden LJ was not, in paragraph 61 of her judgment, suggesting that section 216(6) should be read as though the name by which a company is known is the trading name where that name is different from the registered name. It is apparent from the rest of her judgment (in particular para. 68) and from the judgment of Chadwick LJ that the court accepted that the effect of s. 216(6) is that a prohibited name is either the registered name of the liquidating company or the name under which the liquidating company carried on business or a name so similar to either of those two as to suggest an association.[133]The more difficult question, as I have said, is whether and if so what relief should be granted in the light of my finding that Mr Cuddy contravened the prohibition in section 216. I shall deal first with the claimed declarations. Mr Hollington and Mr Parker submitted four reasons why no declarations should be granted:(1) there is no jurisdiction to grant declaratory relief in a section 459 petition unless unfair prejudice has been established (see Oliver LJ in In re Bird Precision Bellows Ltd, supra, Scott J in Re a Company No. 004175 of 1986) [1987] BCLC 574 at 579c-d, and Patten J in the Court of Appeal in Grace v Biagioli [2006] BCC 85 at para. 73):(2) it is exceptional for a civil court to grant declaratory relief in respect of the commission of a criminal offence. The only example Mr Davies could cite was FSA v Rourke, supra, where there were strong public interest grounds for granting the declarations:(3) declaratory relief would serve no useful purpose in this case because it remains at least arguable that Mr Hawkes cannot show that he has suffered unfair prejudice:(4) Mr Hawkes is in any case arguably complicit in any contravention of section 216. Either he is jointly liable with Mr Cuddy for having conspired with him or for having aided and abetted the commission of the offence, or he is unable to come to equity with clean hands. Both are good grounds for declining to exercise in his favour the discretion to grant declarations.[134]None of these arguments dissuades me from the conclusion that I can and should grant a limited declaration in the present case. I will deal with each in turn.[135]The thread that runs through the cases on jurisdiction to give relief under section 461 is that the court cannot grant a remedy which presupposes that unfair prejudice will be found at trial. In other words, there is no power under a section 459 petition to make an order premised on a finding of unfair prejudice, unless and until unfair prejudice has been found. Thus the court cannot order an interim payment in favour of the petitioner which assumes that he will prove unfair prejudice, when a finding to that effect has not yet been made. The decision in Re a Company (No. 004175 of 1986) proceeds on this basis. It is an understandable and logical approach: but in my view it does not mean that in proceedings begun by a petition under section 459, the court is precluded from granting any interim relief. Nor does it mean that the court’s case management powers are restricted in a way which precludes a final decision being reached on any issues at an interim stage. That was not the position under the RSC (see e.g. the decision of Harman J in Re a Company [1985] BCLC 80), and a straitjacket of that kind would run contrary to the spirit and purpose of the CPR. The rationale of the CPR is one of active case management. The court is encouraged to send to trial only those issues which need to be sent to trial, and to determine those that do not on a summary basis. This new approach applies as much to section 459 petitions as to any other type of proceeding: examples are North Holdings Ltd v Southern Tropics Ltd [1999] BCC 746 and Dalby v Bodilly [2005] BCC 627.[136]Section 459 petitions are no different from other claims in having the potential to raise a multiplicity of issues. If the court is able to conclude at an interim stage of the proceedings that there is no real prospect of one party being able to deny or dispute a particular argument at trial, in other words that one or more issues are beyond serious argument, the court can and should determine that issue summarily, at least if invited to do so. The finding that Mr Cuddy contravened section 216 by acting as a de facto director of Neath does not presuppose a finding of unfair prejudice at trial. It is an issue which is relevant to whether Mr Hawkes can establish unfair prejudice: but in the context of the petition it is no more than a staging post on the road to the determination at trial of whether there has been unfair prejudice. Its effect on the cross-petition may be greater (see below) - but not in the sense that it assumes unfair prejudice: quite the contrary. I therefore consider that there is no jurisdictional bar to my making a finding of fact at this stage if the position is clear, and no jurisdictional bar to granting a declaration.[137]I have dealt, on the application to strike-out the petition, with the argument that it is exceptional for a civil court to grant a declaration in respect of the commission of a criminal offence. There is certainly jurisdiction to do it. If the objection to the exercise of that jurisdiction is that the petitioner is seeking to enforce the criminal law other than through the criminal courts, it is noteworthy that the Privy Council did not uphold that objection in the Bermuda Cablevision case (supra). If the objection is that there is a lack of the kind of public interest grounds which influenced Neuberger J to grant declarations in FSA v Rourke (supra), then the argument is one of justice and utility. Declarations have been granted, on a summary basis, in other contexts where there was no pressing public interest of the kind which existed in the Rourke case (see the judgment of Patten J in Padden v Arbuthnot Pensions & Investments Ltd [2004] EWCA Civ 582, and the judgment of Toulson LJ, sitting in the High Court, in BBC Worldwide Ltd v Bee Load Ltd [2007] EWHC 134 (Comm)). In both cases the judge adopted the following guidance from the judgment of Neuberger J in FSA v Rourke :
“It seems to me that, when considering whether to grant a declaration or not, the court should take into account justice to the claimant, justice to the defendant, whether the declaration would serve a useful purpose and whether there are any other special reasons why or why not the court should grant a declaration.”
[138]Following that guidance, I think it is appropriate in the present case to grant a declaration in terms of paragraph (3)a) and b) of the prayer in the petition, but not 3c) (which covers the Ospreys management/Neath management point) or paragraph (2), which is too wide. I am not prepared to grant a declaration in terms of paragraph (5) of the prayer (Mr Cuddy’s liability for Neath’s debts) because, although this may follow from the declaration in (3)a) and b), the only useful purpose served by such a declaration at this stage of the proceedings is to highlight potential relief from the consequences unfair prejudice. A declaration of this kind is in a real sense remedial of the prejudice alleged. But there has been no finding of unfair prejudice to Mr Hawkes. I therefore question whether there is jurisdiction to grant a declaration in terms of paragraph (5). Even if there is, I think it would be inappropriate to grant that declaration at an interim stage because it trespasses too far into the section 461 relief.[139]No such objection applies to the factual conclusion that Mr Cuddy has acted in contravention of section 216 as a de facto director of Neath. A declaration in these terms merely crystallises the finding which the court has made under CPR24, in the same way as the court would do if it had made the finding on the determination of a preliminary issue. As I said earlier, it fixes a staging post but does not pre-empt Mr Hawkes’ argument about unfair prejudice. There is no other satisfactory way of recording that the court’s conclusion on this issue is a final one, which is subject to appeal. A mere finding might give rise to an issue estoppel but not be open to appeal in the absence of a court order adverse to Mr Cuddy.[140]The justice to Mr Hawkes of granting a declaration is in direct proportion to the useful purpose it will have in these proceedings. It will obviate further argument on the point. It will serve greatly to simplify and concentrate the remaining arguments at trial. So far as Mr Cuddy is concerned, a declaration may add to the stigma of the finding that he has contravened section 216, but not greatly. Stigma is inevitable where a finding of unlawful conduct is made. It arises inevitably where a successful claim is pursued under section 217. It cannot, without more, be justification for refusing declaratory relief. In the present case a declaration has the advantage of confirming for Mr Cuddy that the solution of appointing Mrs Cuddy to be his proxy on the board of Neath does not work. He has the option either of appealing my decision or of seeking leave from the court under section 216. Unless one or other course is adopted and is successful, any result on the hearing of the petition or cross-petition which leaves Mr Cuddy in touch with the management and central direction of any part of Neath is unworkable. It is as well that both parties know that now. I do not think the proposed declaration is unjust to Mr Cuddy.[141]Is Mr Hawkes’ alleged complicity a bar to such relief? The Court of Appeal’s decision in Thorne v Silverleaf [1994] BCC 109 demonstrates that in the context of section 217, it is not material that the claimant may have aided and abetted the breach of the statutory prohibition, unless he has positively to assert and rely on his own wrongdoing in order to pursue the claim. Peter Gibson LJ held that the rule of public policy that no person is permitted to found rights upon his deliberate commission of a crime prevented the enforcement of rights directly resulting from the crime i.e. precluded recovery of property or money to which, but for the crime, the claimant would have no right or title; but it did not make the crime of the director (Mr Thorne) the crime of the creditor (Mr Silverleaf) because the transactions under which money was due to Mr Silverleaf were not in themselves illegal transactions. If they had been, not only would the public policy rule have applied but also Mr Silverleaf would have had to plead or rely on his own illegality and his claim would have been defeated by the principle “ex turpi causa non oritur actio”. (cf. Tinsley v Milligan [1994] 1 AC 340). In the present case the chronology is important. Gowerpark did not go into liquidation until 16th October 2003. There was nothing illegal about the Hawkes/Cuddy Agreement or the director appointments made pursuant to it until that date arrived. After 16th October, the Agreement could lawfully be performed if Mr Cuddy obtained leave under section 216. Mr Hawkes does not have to rely on any illegal transaction in order to raise the unlawfulness of the conduct of Mr Cuddy.[142]Maybe for this reason Mr Hollington did not rely on the “ex turpi causa” principle but instead relied on the principle that “he who comes to equity must come with clean hands”. It is not obvious to me how that maxim applies in the present case. Although I have a discretion whether to grant a declaration, it is not an equitable remedy and the stage has not yet been reached in this litigation where the Court has to consider the application of the equitable principles referred to by Lord Hoffmann in O’Neill v Phillips. In Richardson v Blackmore [2006] BCC 276, a case relied upon by Mr Hollington for another purpose, it was held by the Court of Appeal that there was no requirement that a petitioner under section 459 should come to court with “clean hands”: but that the conduct of the petitioner could affect the relief that the court thought fit to grant him.[143]Even if the maxim does apply, the reason why in my view it does not avail Mr Cuddy in the present case is that it is not alleged against Mr Hawkes that he knew that it was unlawful for Mr Cuddy to attempt to act as a de facto director of Neath through the appointment of Mrs Cuddy as his proxy. It is only alleged that he knew there was a risk that if Mr Cuddy became a director of Neath he would be acting in contravention of section 216 and so for that reason adopted the solution of appointing Mrs Cuddy in his stead (see paras. 40 and 41 of Mr Cuddy’s first witness statement). There is no evidence that Mr Hawkes knew that, if Mr Cuddy told his wife what she could or could not do as a director, Mr Cuddy would be acting unlawfully. It is Mr Cuddy’s own case that he had no idea that doing anything of the kind would be unlawful. In his case that is no excuse because section 216 is an offence of strict liability. But it is an answer to the “clean hands” point so far as Mr Hawkes is concerned. For the maxim to have any application, it must be shown that Mr Hawkes was knowingly party to wrongdoing, because equity operates on the conscience and the maxim does no more than express the principle that a person with a guilty conscience will be deprived of the assistance of a court of equity. Nothing in the conduct of Mr Hawkes so far as section 216 is concerned leads me to conclude that the declaration should not be granted.[144]An injunction is also sought in terms of paragraph (8) of the prayer in the petition. I do not propose to grant it and can state quite shortly my reasons for declining to do so.[145]The application is made on 3 grounds :(1) that if declaratory relief is granted an injunction should follow;(2) that even if declaratory relief is not granted, there is at least a good arguable case that Mr Cuddy has acted in contravention of section 216(3)(a) and/or (b) in the various respects already considered in this judgment, and(3) that there is a good arguable case that Mr Cuddy is not a fit and proper person to be a director of Neath or Neath’s nominee director of Neath-Swansea Ospreys.[146]As to (1), the only declaration I shall grant relates to Mr Cuddy’s intervention in the management of Neath through Mrs Cuddy. There is no need for injunctive relief in this respect pending the trial, because Mrs Cuddy has resigned and Mr Evans has assumed her place. I appreciate that this arrangement is only temporary, but unless my judgment is reversed, there will be ample opportunity for the trial judge to consider whether a permanent injunction is appropriate in the light of his other findings at the trial.[147]As to (2), I am not prepared to grant an injunction removing Mr Cuddy as nominee director of Neath-Swansea Ospreys until trial on the basis only of a good arguable case or serious question to be tried. By reference to conventional Cyanamid principles, I consider that the balance of convenience is in favour of maintaining the status quo. I have in mind the observation of Harman J in Re a Company [1985] BCLC 80 (at 82i-83a) that:
“… in cases of litigation under s.75 [of the Companies Act 1980] it is most desirable that the position of the company be not altered or disturbed more than is absolutely essential, between the presentation and the hearing of the petition”
. What is proposed would affect the constitution of the board of a company other than Neath. It is strongly opposed by Neath-Swansea Ospreys itself and by the Swansea interests in that company. The threat to the interest of Mr Hawkes from Mr Cuddy remaining nominee director of the Ospreys until trial is mitigated to an extent by (a) Mr Cuddy’s undertaking in future to make every effort to consult Neath about Ospreys’ business affecting Neath, and (b) the open offer made by Neath-Swansea Ospreys to allow Mr Evans to become an additional non-voting director until after the trial. Whilst the court cannot impose this latter solution, and it is possible that the offer will be withdrawn in the light of this judgment, I would commend the appointment of Mr Evans to the Ospreys’ board as a non-voting observer. If he is not appointed and there is no adequate consultation, it would be open to Mr Hawkes to make a fresh application for an interim injunction. Next time the court might view the balance of convenience differently.[148]For broadly the same reasons, I refuse to grant an injunction removing Mr Cuddy on the grounds that he is not a fit and proper person. If the balance of convenience radically changes, Mr Hawkes can re-apply. It also remains open to the board of Neath to remove Mr Cuddy. The understandable caution of Mr Evans about supporting such a move no doubt has its limits.

The Hawkes and Neath strike-out applications

[149]Mr Davies submitted in the course of argument on the summary judgment application that the cross-petition cannot survive a finding or declaration by this court that Mr Cuddy has contravened section 216 either(1) by being a de facto director of Neath or(2) by being concerned in or taking part in the management of Neath by virtue of his activities as nominee director of the Ospreys. Either conclusion undermines the quasi-partnership, which is the foundation of the claim in the cross-petition. I agree with him. I have made the first of the above findings and propose to grant a declaration that since 16th October 2003 Mr Cuddy has been acting in contravention of section 216(3)(a) and/or (b) of the Insolvency Act by performing the acts of a director of Neath in the name of Mrs Cuddy and using her name as a means of concealing that he has been a de facto director. In the light of that conclusion the cross-petition is in my judgment unsustainable in its present form. However the applications to strike-out the cross-petition were confined to the claim for “de-merger” relief in paragraph 30 of the grounds and paragraphs (1) and (2) of the prayer. The argument on those applications proceeded on that basis. In the circumstances, I consider that the right course is to strike out the claim for de-merger relief, leaving Mr Hollington to make what he can of what remains of the cross-petition in the light of the declaration I propose to grant.[150]I shall express my views on the other arguments for and against the striking-out of the cross-petition in case the above conclusion is found to be wrong.[151]The applications to strike-out were heard before the first return date on the cross-petition. Argument proceeded on the basis that the cross-petition would be ordered to stand as Particulars of Claim.[152]As I have already said, the applications were targeted on paragraph 30 of the grounds and the combined relief requested in paragraphs (1) and (2) of the prayer (for the text see paragraph 67 above). If implemented, the “de-merger” proposal in paragraph 30 and paragraph (1) of the prayer would result in Neath’s share in the Ospreys being purchased from Neath by a third party. This solution has been seen as so radical that Neath has taken the unusual step of launching its own application to strike-out (or for summary judgment). This move was attacked by Mr Hollington as indicating that the board of Neath was not independent and as an inappropriate step for the company to take in a shareholder dispute. I do not accept the first of these criticisms. Whilst it is true that Mr Hawkes’ personal interest is served by Neath’s application: it is not obvious that he would want to risk incurring the cost of a duplicate application by the company, having already issued a strike-out application of his own. In any case Mr Hawkes could not have launched Neath’s application without the agreement of his co-director, Mr Evans. I am satisfied that Mr Evans is his “own man” and that he was the prime instigator of the Neath application. I say nothing about whether the Neath application was a justified step. Whilst there is a heavy onus on a company which has actively participated in proceedings between its shareholders under section 459 to justify that course, it will not always be improper – especially where the company is likely to be “truly touched in its corporate character” or “affected in its commercial character” by the relief sought from the unfair prejudice (see the judgment of Lindsay J in Re A Company No. 001126 of 1992 [1993] BCC 325). Mr Evans has filed a witness statement explaining his reasons for initiating the company’s application. They appear to me to be entirely bona fide. Both directors accept the risk that they may have to bear legal costs themselves, if objection is later taken by the Cuddys that it would be a misfeasance to charge them to the company, and the court upholds that argument.[153]Mr Davies and Mr Ascroft (for Neath) submitted that there was no real prospect of the court making an order in terms of the de-merger relief. Their reasons were as follows.[155]First, there is no sufficient connection pleaded in the grounds of the cross-petition between the alleged breakdown of trust and confidence and the proposed “de-merger”. In fact the proposed “de-merger” is not a “de-merger” at all. It is the divestment or expropriation of a particular Neath asset, which is to be transferred to an unidentified third party. The premise for such an order is not stated in the grounds of the cross-petition which precede paragraph 30. The cross-petition must at least state why this relief is appropriate and proportionate, and why it is required to cure for the future the unfair prejudice which Mrs Cuddy is alleged to have suffered at the hands of Mr Hawkes (cf. Oliver LJ in In re Bird Precision Bellows Ltd supra). Mr Davies asked rhetorically what agreement, arrangement or legitimate expectation (see Lord Hoffmann in O’Neill v Phillips at 1102B-F) gave Mr Cuddy the right to have the Neath share in Ospreys sold to another Club? In his submission the cross-petition failed to clarify this fundamental point.[156]Second, there is no jurisdiction to grant relief under s. 461 which involves utilising the assets of the company to remedy unfairness to a shareholder, save possibly in circumstances of a dissolution of the company in a quasi-winding-up on just and equitable grounds (as held or accepted by Judge Behrens in Bhullar v Bhullar [2203] 2 BCLC 241 at paras. 295 to 300). If there is jurisdiction, relief by way of splitting the assets of the company is without an English precedent and has been rejected in the only known reported case where it was raised (see the judgment of the majority in the New South Wales Court of Appeal in Re Fexuto 37 (2001) ACSR 672 at paras. 208-212).[157]Third, a request for relief in the form of a transfer of an asset to an unidentified third party should be struck out if the transferee cannot be identified. If there is as yet no willing transferee, the transfer is presently no more than a pious hope. The relief requested is premature and should not have been included in the cross-petition.[158]Fourth, the “de-merger” proposal requires that the Regional Shareholders’ Agreement should be abrogated. No justification for that step is set out in the cross-petition. In any case, the court cannot or should not make an Order which rescinds the Regional Shareholders’ Agreement without the consent of Swansea, who should be joined as respondent to the cross-petition so that they are bound.[159]These four objections pose real hurdles for the claim for “de-merger” relief: but I would not have struck out that claim if the cross-petition had survived. The fact that it has not survived, but may be resurrected in a different form, will give Mr Hollington an opportunity to reflect on what has been said in support of the first ground of attack. I say this because at one point in his submissions Mr Hollington volunteered to provide further and better particulars or an amended Particulars of Claim to explain why the “de-merger” relief is appropriate.[160]The explanation, as I understand it, is that an essential term of the Hawkes/Cuddy Agreement was that Mr Hawkes should concentrate on the management of Neath and Mr Cuddy should concentrate on the management of the Ospreys. Accordingly they devoted their energies in different directions: Mr Hawkes to building up the assets of the Club and Mr Cuddy to building up the asset represented by the Club’s 50% share in the Ospreys. A division of these assets, whereby Neath’s share in the Ospreys goes to the Cuddys and the Cuddy share in Neath goes to Mr Hawkes, would be consistent with the Hawkes/Cuddy Agreement, with their respective input into implementing that Agreement, and with the solution which, according to Mr Cuddy, has been under discussion between the parties since the meeting on 5th June 2006 and was further discussed on 15th March 2007. It is also said that the “de-merger” is the only practical solution since Mr Hawkes is on record as saying that he has no interest in regional rugby, and Swansea are supportive of Mr Cuddy. Swansea are keen to work with him: but are reluctant to work with Mr Hawkes.[161]I say nothing about the merits of this explanation beyond indicating that I think it provides a basis for the “de-merger” proposal which is arguable.[162]As for jurisdiction, I would be loath to decide any point by reference to an absence of authority. The starting point must be section 461. I have already observed the width of that section. In my judgment it is sufficiently wide to permit an order which utilises the assets of the company to grant relief from prejudice in the case of a dispute between shareholders in a corporate quasi-partnership. The only limitation in section 461, as it seems to me, is that the relief must be such as is required to put right and cure for the future the unfair prejudice of which the petitioner complains (see Peter Gibson LJ in Re Legal Costs Negotiators Ltd, supra). I reach this tentative conclusion conscious that no case has been cited in which a solution of dividing the company’s assets has ever been adopted, or where it has even been held that it could be adopted in respect of an on-going concern. Judge Behrens was considering in Bhullar v Bhullarthe extent of the court’s jurisdiction on an informal winding-up, which is a different situation. So the de-merger relief is quite exceptional, and is not the obvious relief. The obvious relief is to separate the two shareholders by one buying out the other, leaving Neath intact. Nevertheless, as a matter of jurisdiction, I think the de-merger proposal is just arguable.[163]The inability of Mrs Cuddy to identify a transferee is more of a pleading point. It is right that a claim for relief ought not to be included in a petition under section 459 if it is not, at the time of drafting, capable of being implemented. However the court’s function is to judge the appropriateness of the remedy under section 461 as at the date of the trial not as at the date of presentation of the petition (see Patten J in Grace v Bagioli at para. 73). If at the time of drafting the petition there is a real prospect that the relief sought will be viable by the time of trial, no purpose would be served in striking out the claim. I am told by Mr Hollington that negotiations are in progress with a potential transferee. The negotiations are confidential and to reveal the identity of the Club in the cross-petition or in further and better particulars would prejudice their outcome.[164]The Regional Shareholders Agreement presents a serious problem. If it is to be overcome by the cross-petitioner, the consent of Neath-Swansea Ospreys Limited and Swansea RFC will be required. Both of them should be joined as respondents to the cross-petition. The cross-petition is defective in not grappling with this issue; but the defect could be cured by amendment. The “de-merger” proposal may also require an alteration to the articles of association of Neath-Swansea Ospreys Limited. The articles were not in evidence: but there is a suggestion that they contain restrictions on the circumstances in which the shares may be transferred. There is jurisdiction under section 461 to grant relief which requires an alteration in the memorandum or articles of the subject company (see section 461(3) and (4)): but it is a moot point whether there is jurisdiction to order an alteration in the articles of another company unless the subject company has control of it. Mr Hollington submitted that these were all “collateral matters” which could be sorted out before trial. By “sorted out” I infer he means “agreed between the affected parties”. His submission does not meet the argument that they will pose an insuperable obstacle to the de-merger relief if they are not sorted out before the trial. However, unless it is plain at this stage that they cannot or will not be sorted out, I would not strike out the cross-petition because of them.

Conclusion

[165]The application by Mrs Cuddy to strike out the petition is dismissed.[166]On the application for summary judgment on the petition, I will grant a declaration in the following terms:
“that, since 16 October 2003, in contravention of section 216(3) of the Insolvency Act 1986, Mr Cuddy has been directly or indirectly concerned and taken part in the management of Neath and/or the carrying on of the business of Neath by: a) performing the acts of a director of Neath in the name of Simone Frances Cuddy; b) using the name of Simone Francesca Cuddy as a means of concealing that he has been a de facto director of Neath since 16 October 2003.”
[167]Paragraph 30 and paragraphs (1) and (2) of the prayer in the cross-petition are struck out.

order

(1) the Cuddys’ application to strike-out the petition in whole or in part;(2) Mr Hawkes’ application for summary judgment in respect of part of the relief sought in the petition (which I shall refer to for convenience as “the Insolvency Act relief”), and(3) Mr Hawkes’ application to strike-out the principal claim for relief in the cross-petition (which was referred to at the hearing as the “de-merger” proposal).

Cited in 4 later judgments