Kelly & Anor v Hussain & Ors [2008] EWHC 1117 (Ch)

[2008] EWHC 1117 (Ch)Case No 4341/07
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue BIRMINGHAM DISTRICT REGISTRY
Civil Justice Centre,
The Priory Courts,
Venue Birmingham B4 6DSDate Date: 1 st May 2008.
Before
HIS HONOUR JUDGE PURLE QC
Between
SHANE MICHAEL KELLYPetitionersSUSAN. MARIE KELLYPetitionerSAGHWAT HUSSAINRespondentsKULVINDER. KAUR DELLRespondentPRINCIPAL HOUSING CARE LIMITEDRespondentCAPRICORN INVESTMENTS LTDRespondent
Tape Transcription of Marten Walsh Cherer Ltd.,6 th Floor, 12-14 New Fetter Lane, London, EC4A 1AG.Telephone No: 020 7936 6000. Fax No: 020 7427 0093
MOHAMMED ZAMAN instructed by Neil Davies & Partners LLP appeared for PETITIONERS.JOHN BRENNAN instructed by AA Solicitors appeared for FIRST RESPONDENT.AVTAR KHANGURE QC instructed by Shakespeare Putsman LLP appeared for SECOND & FOURTH RESPONDENTS.
Judgment
[1]On 25th April I made an order, having heard evidence in this matter for two or three days, for the following questions to be dealt with as preliminary issues: a) Are the Petitioners, or either of them, entitled to relief under Section 994 of the Companies Act 2006 by reason of Mr. Kelly’s dismissal from the company and/or his exclusion from its management, as alleged in paragraph 42 of the amended Petition? b) Are the Petitioners, or either of them, entitled to relief under Section 994 of the Companies Act 2006, by reason of Mrs. Kelly’s dismissal from the company and/or her exclusion from its management, as alleged in paragraph 42 of the amended Petition?[2]I had by that stage heard the evidence of Mr. and Mrs. Kelly, but no other evidence. I made that order for the reasons I then gave, which in brief were that the other matters in the Petition, which involved looking at the post-exclusion conduct of the Respondents, could not fairly or properly be tried in the then state of the pleadings and witness statements. Those matters (subject to amendment and proper particularisation) remain to be dealt with on a future occasion. They have not gone away.[3]Having made the order for the preliminary issues which I made, the Respondents elected to call no evidence on the preliminary issues. They did so, no doubt, having regard to the strict terms of the preliminary issues and to the state of the pleadings. It is important, therefore, that I should observe the limits of what it is that I have to decide. I, therefore, take the relevant allegations from the Petition itself as amended.[4]Much of the background factual structure of the case is uncontroversial. In early 2003 a partnership was set up, which involved at least Mr. Kelly, the first Respondent, Mr. Hussain, and the second Respondent, Mrs. Dell. But the business also involved Mrs. Kelly, though it is in dispute whether she ever became a partner.[5]The business of the partnership was in providing accommodation and support services for asylum seekers, especially unaccompanied minors. Mrs. Kelly at that time worked for Sandwell Borough Council and had as her task the placing of such individuals in appropriate homes and providing for them appropriate care. She could not, therefore, be shown as a partner. Nevertheless, she came to work full-time for the business, eventually leaving Sandwell’s employment some months later, but not before first having claimed, over a substantial period, sick pay from Sandwell whilst working for the partnership.[6]Mr. Kelly worked full-time for the partnership. He also claimed sick pay from his previous employer in the initial months. The partnership shares were 50 per cent on the Kellys’ side (either Mr. Kelly’s alone or Mr. and Mrs. Kelly’s depending on what view one took of Mrs. Kelly’s status as a partner) and 50 per cent held equally between Mr. Hussain and Mrs. Dell.[7]By about September 2003 more premises were needed, and these were provided by making available for letting to the partnership the dwelling houses, which were owned by on the one part Mr. Hussain and his wife and on the other part Mrs. Dell and her husband. An acquaintance of Mr. Hussain and Mrs. Dell, a Mr. Ibrahim, purchased those properties and an arrangement was made between Mr. Ibrahim and the partners under which the partnership would pay Mr. Ibrahim’s mortgage, treating the same as rent, plus additional payments (the details of which do not matter) in return for Mr. Ibrahim agreeing to sell the proprieties to the partnership four years hence at the original purchase price. At the same time the partnership shares were readjusted, as Mr. and Mrs. Kelly were benefiting from the re-acquisition of those two properties, potentially, so that the Kellys’ share (and again I leave aside the question of whether or not Mrs. Kelly was ever a partner) was reduced to a third and each of Mr. Hussain’s and Mrs. Dell’s shares, instead of being one quarter each, became a third each.[8]It is said by the Respondents that there was an understanding at the time the partnership was formed that if any partner should be guilty of dishonesty the partnership share would be forfeited. However, this allegation was not accepted by the Kellys in evidence and has not been proved.[9]Eventually the partnership business was transferred (in 2005) to the limited company to which this Petition relates, namely, Principal Housing Care Ltd. By that time Mr. Kelly, Mr. Hussain and Mrs. Dell had signed a partnership agreement. That was in February 2004. Mrs. Kelly did not. Nonetheless, she appeared as a partner in the partnership accounts for the years ending 31st March 2004 and 2005 respectively. It is said that there were tax reasons for doing this, as indeed there were. Nonetheless, at least so far as the Kellys were concerned, this reflected the reality of Mrs. Kelly’s position. By now she was working full-time for the partnership, running the care side.[10]The company having been established, 100 shares were issued; 25 to Mr. Kelly, 25 to Mrs. Kelly and 50 to each of Mr. Hussain and Mrs. Dell. The fact that Mrs. Kelly obtained a shareholding reflects the role in the business that she had been playing hitherto and was to continue to play. Nevertheless, she did not become a director. There were only three directors (Mr. Kelly, Mr. Hussain and Mrs. Dell). Those three between them took the important financial decisions. The day-to-day running of the company was, as regards financial matters, in the hands of Mr. Kelly and, as regards operational matters, in the hands of Mr. Kelly and Mrs. Kelly who continued to run the care side. It is evident from Mrs. Kelly’s evidence that she did not understand the difference between a company, a partnership or the significance of being a director. Nonetheless, her role was a senior management role and I am satisfied that, as between the four participants, there was a mutual expectation that Mrs. Kelly would continue to be involved in the management side.[11]The Petition pleads in paragraph 20 that:
“Mrs. Kelly was not formally appointed as a director of the company, but continued to participate in the running and management of the company.”
I agree that that is made out. It continues:
“And attended meetings of the directors as a matter of course and was a de facto director of the company.”
[12]I accept from the evidence I have heard from Mr. and Mrs. Kelly that she did attend meetings at which Mr. Hussain and Mrs. Dell were present and discussed matters pertinent to her role. She did not, however, attend meetings which related to financial matters, because that was not something in which she had any interest. Whether or not she was a de facto director of the company does not seem to me to matter for present purposes. She was heavily involved in its management and became a shareholder on that basis.[13]Paragraph 21 of the Petition pleads:
“The company has at all times relevant to this Petition been run on the basis of a personal relationship of trust and confidence between the shareholders and as a quasi-partnership. Formal board meetings did not take place and minutes were not circulated.”
I find that allegation satisfactorily proved.[14]Paragraph 22 of the Petition pleads that:
“Each of the shareholders had a legitimate expectation that he/she would continue to participate in the running and management of the company and that he/she would not be unfairly excluded from such participation.”
Again I find that allegation made out. It seems to me to square with the authorities which go back to Ebrahimi v WestbourneGalleries [1973] AC 360 and which have permeated a long line of decided cases, under what was Section 459 of the 1985 Act and is now Section 994 of the 2006 Act.[15]Paragraph 22 of the Petition is also linked importantly with paragraph 42 of the Petition, upon which the preliminary issues are founded. What happened (in circumstances which I shall I come to later) is that Mrs. Kelly was dismissed from her role in the company and Mr. Kelly was dismissed and excluded as a director. Paragraph 42 of the Petition reads that:
“The dismissal of Mrs. Kelly, the dismissal and removal of Mr. Kelly as director were intended to exclude both of them from the participation and management of the company, contrary to the quasi-partnership understanding on which the company was formed.”
I accept that that allegation is made out.[16]However, the key fact for decision in this case is not whether or not the Kellys were excluded from a quasi-partnership, as they were, but whether they were unfairly excluded, as is pleaded in paragraph 22. Exclusion, as is well recognised by the authorities, does not necessarily of itself amount to unfair prejudice. It is certainly prejudicial, but it will not be unfair if, as is alleged in this case and which I must now turn to consider, the conduct of the Petitioners was deserving of exclusion.[17]There is one other matter that I should mention. Upon the activation of the limited company and the transfer of the partnership business to the limited company, substantial loan accounts were established in the names of Mr. Kelly, Mr. Hussain and Mrs. Dell. These have always been shown as being in credit since. I should mention that it is clear from the accounts that Mr. Kelly’s loan account was an amalgam of what had hitherto been treated as two loan accounts from Mr. Kelly and Mrs. Kelly.[18]I move ahead to early 2007. By this time the company had available to it (from letting agents and others) over 80 homes for asylum seekers and a number of local authorities provided clients, as they came to be known, to the company. One such local authority was Sandwell Borough Council. A very large number of the properties (about half, I think) were within Sandwell’s jurisdiction, though a relatively small number of asylum seekers (either 10 or 12 depending upon whose counting one goes by, either the Kellys’ or Sandwell’s) came from Sandwell itself.[19]The Kellys were summoned to a meeting by Sandwell on 5th February 2007. This was a pivotal meeting. Sandwell had a number of criticisms of the properties that were managed by or supervised by the company and it was evident at the conclusion of that meeting that the position was very serious indeed. The Kellys, in their evidence, accepted that their attitude at the meeting was defensive and Mr. Kelly says he came out of the meeting shell-shocked. None of this was passed on in a way which adequately reflected the seriousness of the meeting to Mr. Hussain and Mrs. Dell.[20]The next day on 6th February, Mrs. Kelly wrote a letter to Sandwell criticising their own conduct in relation to a particular individual asylum seeker, accusing Sandwell of incompetence and asserting that the company had decided to dispense with Sandwell’s services. This was not a decision which Mrs. Kelly could appropriately make without reference to anyone else, though she claims to have made the decision entirely on her own. As it happens on 5th February a letter had been sent by Sandwell to a number of other local authorities, alerting them to what they thought was the wholly inadequate standard of properties provided by the company. Sandwell took its own decision to withdraw its asylum seekers from the company at about the same time, a decision which it started to put it into effect with effect from 7th February.[21]It thus appears that Mrs. Kelly’s letter anticipated what Sandwell was about to do. She tells me that she had no inkling of what Sandwell were actually going to do and what she wrote was of her own initiative. However, I find myself wholly unable to accept that. The letter of 6th February is not an amazing coincidence; I believe that Mrs. Kelly must have divined from the meeting the day before or from others with whom she was in contact at Sandwell what Sandwell were about to do and decided to get in first with her own justification.[22]She also tells me that she did not discuss this with either Mr. Kelly, Mr. Hussain or Mrs. Dell. I accept that she did not discuss this with Mr. Hussain or Mrs. Dell, but I do not believe either her or Mr. Kelly when they say that she did not mention this to or discuss it with Mr. Kelly.[23]The letter that she wrote was an extremely damaging one. It followed upon the meeting of the day before from which Mr. Kelly emerged shell-shocked. Mr. Kelly and Mrs. Kelly were and are very close to each other. For that they are to be commended. However, I regard it as inconceivable that she would have written a letter of such importance without consulting her husband.[24]The significance of the letter can be gauged by reference to the response that ultimately came in from Sandwell. There had been an intermediate acknowledgement, which I think Mr. Kelly must have seen, although he claims not to remember seeing it. Mr. Kelly himself did not disclose the seriousness of this matter to Mr. Hussain and Mrs. Dell, though the letter did come to their attention a little while later with the consequences for Mrs. Kelly that I shall relate shortly. Eventually a letter of 26th February came in from the director of children’s social care at Sandwell Metropolitan Borough Council and I shall read the last part of that letter which demonstrates amply what effect the letter of 6th February had:
“Finally, I will comment on the tone and rather harsh nature of your letter. I find it difficult to understand how such a position could be adopted when your organisation states that you are ‘supporting minors in a major way’. As we know, these children are extremely vulnerable. In asking that the children are removed you made absolutely no reference to the implications to them of moving with such immediacy and of course this will have included the fact that all of them will all have established a relationship with your staff and a positive sense of belonging within their local community. This may also include attending the local college and be dependent upon them maintaining living arrangements in close or accessible proximity. It read as if you had no responsibility to consider these issues nor felt it necessary to do so and this, in my view, represents a lack of care that is shameful.”
[25]I consider the sentiments expressed in that paragraph to be wholly justified. As it happens, the letter had before then come to the attention of Mrs. Dell and Mr. Hussain as well and the upshot was that on 19th February, at a meeting between all of the participants, Mrs. Kelly was dismissed. Mr. Kelly could not and did not resist her dismissal. Whilst he did not openly support the dismissal, he recognised that he was in a minority and he also recognised that what Mrs. Kelly had done was wrong. The letter was intemperate and inappropriately worded, although I should say (in fairness to Mrs. Kelly) that I have no doubt that she genuinely believed that Sandwell were themselves falling below the standards expected of them in relation to their duties to the particular asylum seeker that she was referring to. Mr. Kelly accepted at the meeting that the letter should not have been sent and what made it worse is that it was signed in the names of the three directors, two of whom knew nothing about it.[26]Both Mr. Kelly and Mrs. Kelly accepted that, if anyone else had taken it upon themselves to write a letter in that way, they would have been justifiably dismissed, but contended that this did not apply to Mrs. Kelly as a partner. As I have said, I have found that Mrs. Kelly was a quasi-partner in the sense in which that expression is used in this area of the law, but, as I have also said, being a quasi-partner does note entitle the quasi-partner to remain in a participatory capacity irrespective of his or her own conduct.[27]Mr. Zaman pointed out that there is no defence of unclean hands as such in an unfair prejudice Petition. I shall assume that he is correct in that. Nonetheless, he also accepts that for relief to be available there must not just be prejudice, but unfair prejudice, and if a dismissal or exclusion is justified then that is an end of the matter so far as this head of relief is concerned. In my judgment, Mrs. Kelly was justifiably dismissed and therefore she can have no complaint under this head in respect of unfair prejudice.[28]I then turn to Mr. Kelly. Mr. Hussain and Mrs. Dell accepted the assurances that they were given, at least initially, that Mr. Kelly was not privy to his wife’s letter. I have found that he was and therefore he also could have been dismissed on this ground.[29]Matters came to a head so far as Mr. Kelly was concerned on 7th March. According to the Petition it is said that what happened then, and this did happen, is that Mr. Hussain showed Mr. Kelly copies of refunds from Scottish Power in Mr. Kelly’s name and said that these were sums that should have been paid to the company. Mr. Kelly agreed. That is the Petitioner’s own case. It is said in the Kellys’ pleading that the refunds amounted to approximately £150 in total, although Mr. Kelly was not given copies of any documents. I do not think that what the refunds amounted to really matters at all.[30]How this apparently came about is as follows: Mr. Kelly says that Scottish Power, who provided electricity to one of the properties in question, had inadvertently and mistakenly opened an account in his name rather than in the name of the company. Therefore the bills came addressed to him. For reasons which Mr. Kelly could not satisfactorily explain, on a number of occasions the company overpaid the bills and that generated the right to a refund. The refund was paid and understandably enough it was paid to the account holder, which was Mr. Kelly. Mr. Kelly banked those on his own account and did not tell anyone, but when this was discovered he freely admitted that that is what he had done and in the witness box did not demur from the description of that as theft.[31]It was put to him in cross-examination that Scottish Power had seven sheets of such payments. This, however, has not been proved to my satisfaction. However, it did happen on a number of occasions and it seems to me to point to a level of dishonesty which is wholly unacceptable, however trivial individual amounts may seem.[32]Mr. Kelly sought to answer this by saying that he was merely practising a range of frauds, which he had been tutored in by Mr. Hussain and Mrs. Dell themselves at the outset. I am bound to say that I cannot accept this (even if true) as any answer to the thefts of these monies. It is said by Mr. Kelly that he was tutored in the massaging of accounts so as to not to demonstrate too much profit, presumably so as to minimise the tax bill and also so as to facilitate the extraction of payments for Mr. Ibrahim. Even if all of that is correct, none of that amounts in any way to an authority to Mr. Kelly to extract funds from the company, however small, for his own benefit, save possibly to the extent that they may be debited to his loan account, which these sums were not. Mr. Kelly was the person who kept the records of the details of the loan account, as indeed he kept all company records on his laptop.[33]Accordingly, in my judgment, the discovery of these thefts justified Mr. Kelly’s dismissal and exclusion. There are a number of other irregularities that were referred to by Mr. Khangure who appeared for Mrs. Dell in cross-examination. Some of these may indeed turn out to be frauds which were committed for the benefit of the company, if it is possible to envisage such a concept. However, amongst other matters revealed by this cross-examination was the fact that Mr. Kelly did also use company funds to pay personal tax bills, without debiting that expenditure to his loan account. This also was another act of dishonesty which would have justified his dismissal.[34]Mr. Zaman sought to counter this by saying that Mr. Hussain and Mrs. Dell had sought to blackmail the Kellys by threatening to go to the police unless the Kellys transferred their shares for nothing. I am bound to say, having heard the oral evidence of Mr. Kelly and Mrs. Kelly, that nothing quite as clean cut as that emerged from their oral evidence, though I accept that there is witness statement evidence that suggests it was put in that way. Be that as it may, I do not think that this could possibly be an answer to the dismissal by the company of Mr. Kelly or indeed Mrs. Kelly. It is certainly the case that Mr. Hussain and Mrs. Dell wished to acquire the shares for nothing, but they were in return prepared to draw a line under everything that happened, having recently been confronted with acknowledged thefts and manifest wrongdoing.[35]At the time when these matters occurred, it is common ground (and indeed it is the Petitioner’s case) that the company was solvent and had value. In those circumstances, it seems to me that the shareholder directors, Mr. Hussain and Mrs. Dell, could properly seek to draw a line under matters by coming to an arrangement by which Mr. Kelly and Mrs. Kelly both left and gave up their shares to them.[36]In one sense this may look as if it is putting the value of any claim the company might have into Mr. Hussain’s and Mrs. Dell’s pockets; but as I have said the company was and was believed by everyone to be solvent, and therefore the shareholders between them could properly divert the benefit of any claim wherever they wished it to go.[37]The creditors were, on the face of it, unaffected by this. Accordingly, I do not think there is anything which could conceivably be called an unwarranted demand with menaces.[38]Moreover, it appears from the evidence that when this matter was first mooted, Mr. Hussain and Mrs. Dell arranged a meeting with solicitors, including independent solicitors, who would advise the Kellys. Now it is true they were only aksed to advise the Kellys (on the face of it) in relation to their employment rights; but it is a strange (if not unprecedented) course of action for a blackmailer to take to introduce the victim to a solicitor to whom the Kellys would have been able to make any complaint or comment that they wished. Moreover, it is clear from the evidence that the Kellys had their own solicitors at this time to whom they had access for advice. Finally they did not accept the proposal, and, in those circumstances, I do not think that the appropriateness of their dismissal can be undermined.[39]On 16th March Mr. Kelly received a letter dated 9th March from Mr. Hussain and Mrs. Dell, dismissing him as a director. In my judgment, that was justified dismissal and it cannot therefore be said that the dismissal was unfair or that his subsequent exclusion was unfair. The answer to the two preliminary issues must therefore be in the negative.[40]I have, as I have said, decided those issues by reference to the terms of the issues and the pleaded case. No case was made by Mr. Zaman on the basis that Mr. Hussain and Mrs. Dell acted beyond their powers as directors. The basis of the preliminary issue was that the respective removals were unfair as being contrary to the quasi-partnership understanding on which the company was formed. Complaints in this sort of case may be and often are based on a failure on the part of the directors to observe the statutory requirements relating to the running of the company’s business and the memorandum and articles of association. That is not what these preliminary issues are about. I mention the point because it does seem to me that, although Mr. Kelly has been excluded, he does not appear ever to have been formally removed as a director, though that is a matter which could have been achieved with relative ease by calling an EGM. Nor, strictly speaking, was his dismissal an authorised act of the board, because it took place at a meeting to which Mr. Kelly had not been invited. That also could immediately be ratified by calling a board meeting to which Mr. Kelly as well as the other directors were invited, so I think that Mr. Zaman was wise not to place any reliance on this in seeking to found an unfair prejudice Petition.[41]As was said by

Lord Justice Lindley in Browne v La Trinidad (1887) 37 Chancery Division 1 at page 17:

“I think it is most important that the Court will hold fast to the rule upon which it has always acted, not to interfere for the purpose of forcing companies to conduct their business according to the strictest rules where the irregularity complained of can be set right at any moment.”
[42]Here any irregularity could be corrected because Mr. Hussain and Mrs Dell between them form the majority of the de jure directors and the majority of the shareholders.[43]I mention this because there is one point that troubles me greatly and which I ought to mention so that those affected can consider how best to deal with it. One of the allegations (which will be considered in Part 2 of this Petition if and when it comes back) is that Mr. Hussain and Mrs. Dell drove the company into administration in December of last year. That was a directors’ appointment, but the directors included, so it seems to me as a matter of strict law, Mr. Kelly, and that raises a question mark over the validity of the appointment. I make no ruling on it and have heard no argument on the point. It is a matter which the administrator should certainly consider and which those appointing the administrator may wish to consider also.[44]For the purpose of today, it is sufficient for me to rule in the way that I have done in relation to the questions formulated by way of preliminary issues which is to answer each of them no.

[After representations from counsel]

[45]I am now called upon to consider the question of costs. Mr. Khangure asks for the cost of the proceedings to date. He appears for Mrs. Dell and one of the other Respondents, Capricorn Investments Ltd. Mr. Brennan supports that and as an alternative, without detracting from the primary case that is made by Mr. Khangure, seeks an order for the costs of the preliminary issues.[46]Mr. Zaman, on the other side, says that I should reserve the costs and says that that is the normal order. He points out that issue costs are often deprecated. What the Court should do, when it has heard everything but not before, is to decide what the appropriate costs order should be: perhaps ordering that a proportion of the costs go one way or another.[47]I was referred to two authorities: the first was HSS Hire Services Group Plc v BMB Builders Merchants Ltd [2005] 1 WLR 3158 where this was said at page 3166:
“The proper approach at the conclusion of a trial of a preliminary issue, where there has been a Part 36 payment in or a Part 36 offer, should therefore normally be to adjourn the question of costs, pending the resolution of all the issues, including damages, at which stage the quantum of the Part 36 offer can be revealed and the discretion in relation to costs exercised in the knowledge of it.”
[48]That was a case where there had been a Part 36 payment in. The Court of Appeal in that case approved the procedure of revealing the fact of a payment in, but not its amount, at the conclusion of the trial of the preliminary issue. In that case the preliminary point was simply liability, damages coming later; in which case the approach of the Court of Appeal makes obvious good sense.[49]Here there has, I am told, been a Part 36 offer by the Kellys. I am told that the Part 36 offer was made on the 25th March. By that stage the Petition had been amended without objection to the form in which it now appears. Therefore, it is said, HSS Hire Services applies in the same way.[50]I was also referred by Mr. Zaman to Intense Investments Ltdv Development Adventures Ltd [2006] EWHC 1628 (TCC). That was a case where there had been no Part 36 offer and where His Honour Judge Peter Coulson QC (as he then was) considered (after a series of preliminary issues had been tried) what the appropriate costs order should be and pointed out that it can be difficult, as a matter of practice, to do anything other than reserve the costs incurred by the parties in dealing with preliminary issues in advance of the main trial, and, after citing amongst other case HSS Hire Services Group (that is to say the case to which I have just referred), concluded as follows:
“It will often be the case that even without the existence of offers or payments into Court the Court will conclude that any order as to the costs of preliminary issues should be reserved in any event.”
And that is what he did in that case.[51]There are, however, a number of features of this case which take it out of the ordinary run. The first and most important is that the preliminary issues that I have decided went to the very heart of the relief originally claimed, until the amendments that were made in February of this year. The case moreover came before me last week for a full trial, which proved impossible because the February amendments were (it became apparent) as things then stood untriable. The preliminary issues were fashioned to help the Petitioners. They could proceed with the triable element of their claim and preserve the untriable part so that it could be put into proper order in due course.[52]There were some other matters that were relied upon in the original Petition, which I have not dealt with. The first was transferring money out of the company and there the primary facts are clear. £140,000 was transferred out of the company, or to be more accurate out of the partnership account in which the company funds were held, into the company account on 1st March. And on 2nd March £140,000 was transferred to the fourth Respondent, Capricorn Investments Ltd: the circumstances in which that happened have not yet been fully explored in evidence; however, what is clear is that that £140,000 was retuned by 9th March 2007 and so there simply cannot have been any relevant prejudice by the time the Petition was launched, or by the time the matter came before me.[53]Leaving aside the amendments, the other complaint that is made is that certain payments were not made to Mr. Kelly following his exclusion. I do not see how that can amount to a case of unfair prejudice: if he was owed money by the company he could sue for it.[54]It is said that following the exclusion of Mr. Kelly the company has ceased to make those payments to him. It is not said that the like payments have been made to Mrs. Dell and Mr. Hussain, though there are of course now, in the amended allegations, wide-ranging allegations of wrongdoing in the intervening period between the exclusion and the administration. However, on the Petition as originally formulated, it seems to me that that did not amount to a case of unfair prejudice.[55]The next matter is (e), failing to offer to buy out the Petitioners. That paragraph contains the usual averment that there was a failure to purchase the Petitioners’ shares. However, in the absence of unfair prejudice (and I have found that there has been none on the case as originally pleaded) that allegation did not amount to unfair prejudice, because (as is clear from the authorities) the shareholder does not have a right to exit from his investment simply upon falling out with his co-shareholders, unless he has been unfairly prejudiced.[56]Accordingly, on the Petition as it was originally formulated down to February the preliminary issues that I have ruled upon would have been decisive as to the result. I therefore consider the February amendments. As I said in my earlier judgment last Friday, when I ruled that these allegations could proceed so long as they were reformulated with proper particularity, I was shown enough by Mr. Zaman to demonstrate that there is (factually) a properly arguable case under the heading which he seeks to put forward in relation to unexplained cash withdrawals, as they are described for short, and unexplained payments for personal purposes, from 9th March onwards.[57]However, the degree of want of particularity was such that I took the view that this part of the claim could not fairly be tried. Likewise the further complaint that the company was placed into administration for the purpose of acquiring the business could not fairly be tried, because it is dependent, as pleaded in paragraph 53(f), upon establishing that Mr. Hussain and Mrs. Dell have misapplied funds, as set out above. So if what was set out above could not fairly be tried neither could that paragraph.[58]I gave serious consideration to striking those allegations out. I was persuaded in February to leave the trial date unmoved, on the footing that these allegations could fairly be dealt with within the tight timetable which was then put forward by Mr. Zaman. In doing that I overrode the objection of Mr. Weaver, who then appeared for Mrs. Dell and Capricorn Investments Ltd, that he could not do the case justice. It seems to me that Mr. Weaver was entirely justified and that I should not have been so readily persuaded to proceed in the way in which I did.[59]I therefore gave serious consideration last week, as I have said, to striking this case out and it seems to me that I could have done so. Mr. Zaman says:
“Well, the allegations do disclose a cause of action.”
So they do, but that is not the only basis upon which a Petition could be struck out. Under CPR 3.4(2)(b) the Court may strike out a statement of case (and the same applies to a Petition) if it is an abuse of the court process, or is otherwise likely to obstruct the just disposal of the proceedings.[60]In my judgment, the want of particularity was so widespread and fundamental as to amount to an abuse and, unquestionably, to proceed with the claim last week would have obstructed the just disposal of the proceedings, given that I took the view that the case could not fairly be tried on that pleading.[61]I was therefore being indulgent towards the Respondents by allowing the February claim to proceed at all. I could have taken the view that by insisting upon the original trial date (insofar as they were able to insist upon it, which they were because they persuaded me that this was appropriate), the Petitioners had made their own bed and should lie on it. The Petitioners advanced claims by reference to a tight timetable of their own choosing within which those claims could not fairly be tried. The interests of justice therefore pointed towards simply striking the offending parts out and trying the rest of the claim within the chosen trial time table. The result in that case would be the dismissal of the Petition in its entirety.[62]I did not take that view, because Mr. Zaman persuaded me yet again that there might be something in his clients’ new case and that it would not be fair on Mr. and Mrs. Kelly to shut them out completely. However, I do think Mr. Zaman is in the position of someone who, in order to salvage his case, is forced to amend at trial, and, in those circumstances, it does seem to me that down to last Friday Mr. Zaman did not have, in the light of my rulings on the preliminary issues, a sustainable claim and indeed still does not have a sustainable claim because the Petition has not yet been amended. The sustainability of the claim depends now upon re-pleading the case with proper particularity to make good the deficiencies in the present Petition.[63]In those circumstances, it seems to me that the Respondents have effectively won on everything so far as concerns the case that came on for trial last week (which did not come before the Court then as 2 preliminary issues but as a full trial). That conclusion will be wholly unaffected by what happens hereafter. It seems to me that justice requires that the Respondents should have their costs down to this date and I so order.

[After representations from counsel]

[64]I am asked now to order an interim payment, the principle of which is not resisted, as it could not be. It is said on the part of Mrs. Dell and Capricorn Investments Ltd that their costs have been £305,000, which are indeed very high. I am going to discount those considerably. A Mr. Thompson is responsible for £100,000 of those fees. I do not know what view the district judge or the taxing officer will take as to that; but I must assume that they could be disallowed in full, which means that the figure I am looking at is in round figures closer to £200,000.[65]I have no detailed breakdown and it would not be appropriate to consider one on an application for interim payment. I must, however, discount the costs considerably in order to leave a safe margin and in my judgment an interim payment of £60,000 is the appropriate figure, which seems to me to reflect what is likely to be at least the minimum amount that these Respondents will get.[66]So far as Mr. Brennan is concerned, he tells me that Mr. Hussain’s costs are £46,000, which is considerably less than Mrs. Dell’s, which is not altogether surprising, because for a substantial part of this case Mr. Hussain has appeared before the Court in person. Of that £46,000, £17,000 has come from Counsel’s fees.[67]Mr. Brennan asked for a payment on account of £20,000 and that seems to me to be within the range of what could safely be assumed to be the minimum recovery.[68]Mr. Zaman said that I should limit the payment to the Counsel’s fee element, which is £17,000, but I do not think that it would be appropriate to assume that the solicitors were working for nothing. This would be several early Christmases rolled into one. So I think that £20,000 is the appropriate figure. _______________________________

Cited in 2 later judgments