Marcos De Menezes v Eduardo Machado Dos Santos Alves & Ors [2026] EWHC 1906 (Ch)

[2026] EWHC 1906 (Ch)Case No BL-2026-000496
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
BUSINESS LIST (ChD)
Venue The Rolls Building, 7 Rolls Buildings, Fetter LaneDate Friday, 24 July 2026
LONDON
EC4A 1NL
Before
MR JUSTICE FANCOURT
Between
MARCOS DE MENEZESClaimant- and –
Between
EDUARDO MACHADO DOS SANTOS ALVESDefendantCOBOGO GALLERY LIMITEDDefendantOFICINA INGLESA LIMITEDDefendant
Adam Chichester-Clark and Kate Marlow (instructed by Candey LLP) for ClaimantVictor Steinmetz (instructed by Edwin Coe LLP) for First and Second DefendantsHearing Hearing dates: 24, 25 June 2026
APPROVED JUDGMENT(sent to the parties on 21 July 2026)
[1]This is a sad case about the breakdown of a long personal and business relationship between two men that risks damaging a successful business that they have built up together.[2]The Claimant (Mr De Menezes) and the Defendant (Mr Alves) are the only directors and shareholders of the Third Defendant company, Oficina Inglesa Limited (“OIL”). They are also the directors and shareholders of a Portuguese company called Goulart M. Quality, LDA (“Goulart”). These companies (each owned in equal shares) are used by the directors to commission and sell items of high quality reproduction and bespoke furniture. OIL has had a showroom in the Design Centre Chelsea Harbour for many years. Goulart is used to commission on behalf of OIL the manufacture of furniture from artisan suppliers in Portugal, and then finish the pieces and supply them to OIL’s customers.[3]The business of OIL was started in 2008 when Mr De Menezes and Mr Alves were young men in London. It proved to be successful in selling high quality furniture to businesses (e.g. hotels and clubs) and high-end private clients, through the agency of designers who were commissioned to put together furnishing proposals to a specified budget. The designers would then go out to companies like OIL to obtain proposals for their clients.[4]The personal relationship of the directors broke down in 2022, however, and with it the trust and confidence that had sustained OIL’s business. Mr Alves married a Russian woman with an interest in art. As a result, although OIL was the source of the livelihoods of both men – they paid themselves in dividends and had no salaried service agreements – reaching agreement on OIL’s business became difficult. Each director in due course looked to establish an additional business interest elsewhere. But in neither case was it intended to supplant their interest in OIL.[5]In Mr De Menezes’ case, the additional venture was the incorporation of Orléans e Braganza Limited, through which he intended to sell fine linen. This company is now dormant. Mr De Menezes also set up a company in Brazil with a view to selling OIL’s furniture there. In Mr Alves’s case, the additional venture was the incorporation of the Second Defendant, now known as Cobogo Gallery Limited (“Cobogo”) in May 2023, through which he intended to make and sell furniture, renting a unit in the Design Centre Chelsea Harbour in which his wife would also display pieces of fine art, as well as Cobogo’s items of furniture.[6]Neither step was taken surreptitiously. Mr Alves eventually agreed the formation of the Brazilian company. Mr De Menezes was told of the incorporation of Cobogo in October 2023. Initially, concerns focused on the name “Oficina Brasil Design Gallery Limited” that it took in November 2023. The name was later changed to Cobogo in October 2024, to avoid confusion with the name of OIL.[7]Mr Alves in fact had in mind that Cobogo would focus on making and selling pieces of furniture in a contemporary Brazilian style, though Mr De Menezes says that exactly what Cobogo would sell was unclear to him before the new business was opened in Chelsea Harbour in September 2025.[8]Between October 2023 and September 2025, Mr De Menezes and Mr Alves discussed, at various times, how they might organise the different businesses and their interests in them. Given the personal difficulties that now exist between them, Mr De Menezes has been keen to buy out Mr Alves’s interest in OIL, but that did not happen. In April 2026, after negotiations about buy out price, it became clear that Mr Alves did not agree to sell his shares.[9]Other negotiations during this period included Mr Alves promoting Cobogo’s business, but on the basis that it would not compete with OIL’s business, and the possibility that OIL or Mr De Menezes would take an ownership stake in Cobogo. But these negotiations did not provide an overall settlement either. In the course of my judgment, I shall have to consider whether, on the evidence, anything about Mr Alves’s right to conduct a furniture business through Cobogo was agreed by Mr De Menezes, because Mr Alves says that it was and that, for that reason, OIL’s two shareholders have informally authorised him to run Cobogo.[10]There has already been litigation in Portugal in relation to Goulart. Mr Alves started proceedings seeking to have Mr De Menezes removed as a director of that company. Mr De Menezes contested the claim, no doubt because Goulart was a very important company for OIL’s business and he wanted to retain some control over it. In May 2026, the Porto East District Court ruled in favour of Mr De Menezes, dismissing Mr Alves’s claim to remove him.[11]Following the breakdown of negotiations, when it became clear that Mr Alves would not sell and would not resign as a director of OIL, Mr De Menezes issued the claim form with particulars of claim in these proceedings, in the form of a derivative claim on behalf of OIL. The central allegation is that Mr Alves is acting in breach of his statutory duty under s.175 of the Companies Act 2006 by allowing his interest as sole director and shareholder of Cobogo to conflict with his continuing duty of loyalty to OIL. Other breaches of statutory duty are also alleged. The relief sought is, essentially, declarations of breach of duty, an injunction to restrain Mr Alves from causing Cobogo to carry on a business in competition with OIL, and an account of any profits made by Mr Alves through his interests in Cobogo.[12]A distinct claim is also brought against Cobogo, alleging that it is a constructive trustee of money that it makes, on the basis that it has knowingly received the benefits of Mr Alves’s breaches of fiduciary duty, and similar relief is sought against it on that basis.[13]In the application for permission to continue the derivative claim, it was explained that a derivative claim was appropriate as OIL was the correct claimant in principle to sue Mr Alves for breaches of statutory duty, and that it was OIL that was harmed by the wrongful competition. As OIL was 50/50 deadlocked, there was no prospect of the company itself bringing proceedings against its director. Any harm suffered by Mr De Menezes was merely reflective of loss suffered by OIL.[14]Permission to continue the claim was granted without notice by Thompsell J on 26 May 2026 and the application ended up before me on 24 June 2026, when I was listed to hear an interim application by Mr De Menezes for injunctive relief against Mr Alves and Cobogo. At the hearing, Mr De Menezes was represented by Mr Adam Chichester-Clark leading Ms Kate Marlow, and Mr Alves and Cobogo were represented by Mr Victor Steinmetz. I shall make some observations at the end of this judgment about the way that both applications ended up before me, resulting in inadequate time for hearing them and rushed presentation.

The application to continue the derivative claim

[15]Mr De Menezes’s application to continue the derivative claim was opposed root and branch by Mr Alves and Cobogo. They contend, among other things, that the proceedings are abusive because no harm is alleged to have been caused by the business of Cobogo, which is a fundamentally different business from OIL’s and does not compete with it, and because Mr De Menezes is improperly using derivative proceedings for a collateral purpose, to apply pressure to Mr Alves to agree to sell his shares in OIL at an undervalue. Accordingly, no reasonable director of OIL would consider that it was appropriate to bring such proceedings, they argue; and in any event Mr De Menezes agreed that Mr Alves could proceed to set up Cobogo, or at least authorised it, so a derivative claim is inappropriate.[16]The evidence relied on by Mr De Menezes was said not to establish a prima facie case of breach of duty by Mr Alves. It was argued that the true nature of the claim that Mr De Menezes has against Mr Alves is a petition under section 994 of the Companies Act 2006 (“the 2006 Act”), which could lead, if successful, to an order that Mr Alves sell his shares to Mr De Menezes at a fair price, and that Mr De Menezes therefore has a suitable alternative remedy, which in turn makes it inappropriate to pursue proceedings of an exceptional nature.[17]Alternatively, Mr Steinmetz argued, most of the discretionary factors that, by section 263(3) of the 2006 Act, the court must consider point towards exercising a discretion to refuse to permit this claim to continue.[18]Given some of the points that Mr Steinmetz took on behalf of Mr Alves, it is necessary to summarise the relevant statutory requirements relating to derivative claims and what the authorities say about the nature of the exercise that I have to conduct.

The relevant law

[19]A derivative claim is one brought by a member of a company on behalf of the company, where it is the company that has the right to claim the relief sought, not the member. It is usually brought in circumstances where the company has a claim against a wrongdoing director and/or a person associated with those controlling the board, where there is otherwise no prospect of the company bringing the claim. Its origins are the rule in Foss v Harbottle, and the exception to it, which sometimes permitted a member in those circumstances to bring a claim on behalf of the company.[20]Because of the potential for abuse, derivative actions are closely controlled by the courts. The control of “single” derivative actions is now provided by the 2006 Act, which only allows such claims to be brought under the regime in Part 11, or pursuant to a direction of the court in unfair prejudice proceedings (s.260(3)). For present purposes, “double” derivative actions (where one or more further corporate layers are interposed between the member and the company that has the right of action) can be left to one side, as indeed they were (inadvertently or otherwise) by the draftsman of the 2006 Act.[21]Section 261 of the 2006 Act provides that a member of a company who brings a derivative claim must apply to the Court for permission to continue it. The Court must dismiss the application “if it appears … that the application and the evidence in support of it do not disclose a prima facie case for giving permission” (s.261(2)).[22]Section 263 of the 2006 Act provides:
“(1) The following provisions have effect where a member of a company applies for permission (in Northern Ireland, leave) under section 261 or 262. (2) Permission (or leave) must be refused if the court is satisfied— (a) that a person acting in accordance with section 172 (duty to promote the success of the company) would not seek to continue the claim, or (b) where the cause of action arises from an act or omission that is yet to occur, that the act or omission has been authorised by the company, or (c) where the cause of action arises from an act or omission that has already occurred, that the act or omission— (i)was authorised by the company before it occurred, or (ii)has been ratified by the company since it occurred. (3) In considering whether to give permission (or leave) the court must take into account, in particular— (a) whether the member is acting in good faith in seeking to continue the claim; (b) the importance that a person acting in accordance with section 172 (duty to promote the success of the company) would attach to continuing it; (c) where the cause of action results from an act or omission that is yet to occur, whether the act or omission could be, and in the circumstances would be likely to be— (i) authorised by the company before it occurs, or (ii) ratified by the company after it occurs; (d) where the cause of action arises from an act or omission that has already occurred, whether the act or omission could be, and in the circumstances would be likely to be, ratified by the company; (e) whether the company has decided not to pursue the claim; (f) whether the act or omission in respect of which the claim is brought gives rise to a cause of action that the member could pursue in his own right rather than on behalf of the company.” (a) that a person acting in accordance with section 172 (duty to promote the success of the company) would not seek to continue the claim, or (b) where the cause of action arises from an act or omission that is yet to occur, that the act or omission has been authorised by the company, or (c) where the cause of action arises from an act or omission that has already occurred, that the act or omission— (i)was authorised by the company before it occurred, or (ii)has been ratified by the company since it occurred. (a) whether the member is acting in good faith in seeking to continue the claim; (b) the importance that a person acting in accordance with section 172 (duty to promote the success of the company) would attach to continuing it; (c) where the cause of action results from an act or omission that is yet to occur, whether the act or omission could be, and in the circumstances would be likely to be— (i) authorised by the company before it occurs, or (ii) ratified by the company after it occurs; (d) where the cause of action arises from an act or omission that has already occurred, whether the act or omission could be, and in the circumstances would be likely to be, ratified by the company; (e) whether the company has decided not to pursue the claim; (f) whether the act or omission in respect of which the claim is brought gives rise to a cause of action that the member could pursue in his own right rather than on behalf of the company.”
[23]Section 172 of the 2006 Act provides, so far as relevant in this case:
“(1) A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to— (a) the likely consequences of any decision in the long term, (b) the interests of the company's employees, (c) the need to foster the company's business relationships with suppliers, customers and others, (d) the impact of the company's operations on the community and the environment, (e) the desirability of the company maintaining a reputation for high standards of business conduct, and (f) the need to act fairly as between members of the company.” (a) the likely consequences of any decision in the long term, (b) the interests of the company's employees, (c) the need to foster the company's business relationships with suppliers, customers and others, (d) the impact of the company's operations on the community and the environment, (e) the desirability of the company maintaining a reputation for high standards of business conduct, and (f) the need to act fairly as between members of the company.”
[24]The Court therefore must consider, first, whether a reasonable person in the position of a director of the company would not seek to continue the claim, and, separately, whether what is complained of has been authorised or ratified by the company, in accordance with the constitution of the company. The first of these questions is likely to overlap, in most cases, with the question of whether the evidence discloses a prima facie case that the claim will succeed, but it may encompass other matters, such as reputational harm to the company by bringing the claim, or the cost of pursuing it.[25]If the court is not satisfied that either of the two mandatory refusal grounds in s.263(2) is made out, it must then proceed to consider, more generally, whether there is a prima facie case, taking into account the issues set out in section 263(3).[26]The relevant Rules of Court, set out in CPR rules 19.14 and 19.15, require a claimant to apply for permission to continue the claim without taking any other substantial step in the litigation (other than an urgent application for interim relief), and for this to be supported by evidence and dealt with on paper, without notice in the first instance, with only the company served at that stage. If permission to continue is granted on the papers, the application is then served on the other defendants, who have the opportunity to contest the application for permission at a hearing. The judge giving permission on the papers is required to give directions for the defendants to file evidence and other directions leading to an effective on notice hearing.[27]The right approach in law has been considered by the courts in a number of decisions to which I was referred.[28]In Iesini v Westrip Holdings Ltd [2009] EWHC 2526 (Ch) (“Iesini”), Lewison J gave some guidance at [85], [86] on the way in which the test under s.172 should be applied:
‘As many judges have pointed out ... there are many cases in which some directors, acting in accordance with s.172, would think it worthwhile to continue a claim at least for the time being, while others, also acting in accordance with s.172, would reach the opposite conclusion. There are, of course, a number of factors that a director, acting in accordance with s.172, would consider in reaching his decision. They include: the size of the claim; the strength of the claim; the cost of the proceedings; the company’s ability to fund the proceedings; the ability of the potential defendants to satisfy a judgment; the impact on the company if it lost the claim and had to pay not only its own costs but the defendant’s as well; any disruption to the company’s activities while the claim is pursued; whether the prosecution of the claim would damage the company in other ways (e.g. by losing the services of a valuable employee or alienating a key supplier or customer) and so on. The weighing of all these considerations is essentially a commercial decision, which the court is ill-equipped to take, except in a clear case.’
He then explained that:
“…s.263(2)(a) will apply only where the court is satisfied that no director acting in accordance with s.172 would seek to continue the claim. If some directors would, and others would not, seek to continue the claim the case is one for the application of s.263(3)(b). Many of the same considerations would apply to that paragraph too.”
[29]Mr Steinmetz argued that a further requirement of a prima facie case for permission to can now be seen in the decision of the Court of Appeal in McGaughey v Universities Superannuation Scheme Ltd [2023] EWCA Civ 873 (“McGaughey”), a case involving a common law double derivative claim. At [120] Asplin LJ said:
“It seems to me, therefore, that the authorities make clear that the first and essential element of any derivative action is that the claim is brought forthe company in order to seek a remedy for a loss or harm which it has suffered which would not otherwise be remedied and that the claim is for the benefit of the company. That is clear from a decision of this court. As Lord Denning MR put it in Wallersteiner v Moir [1975] 1 All ER 849, [1975] QB 373, it is the company which must be ‘damnified’. Further, as Templeman J put it in Daniels v Daniels [1978] 2 All ER 89, [1978] Ch 406, the breach of duty by the directors must harm the company. If the company has not suffered harm of some kind, an action would be unnecessary and it would be impossible to establish that the company had a bona fide claim which a reasonable, independent director would pursue in its best interests. The need to establish that the company has suffered a loss or harm which it is sought to remedy by the action, also avoids the situation in which an applicant might seek to use a derivative action to challenge the legitimate decision making of the board, or otherwise subvert the constitutional allocation of decision-making power within a company.”
[30]Mr Steinmetz accordingly argued that unless some harm, causing loss, had actually been suffered by OIL, Mr De Menezes could not bring a derivate claim at all. That matters in this claim, because it was accepted that the evidence, as it stands, does not show that OIL has in fact suffered financial loss to date as a result of Mr Alves’s promotion of Cobogo and its early trading. Mr De Menezes relies instead on the significant risk of harm caused by a director of OIL also being a director of a competing business.[31]While, on the face of it, the submission appears to be supported by the words that I have quoted, it is important to consider what the issues were in McGaughey and therefore what Asplin LJ was addressing. As is often said, context is everything. The issue in that case was whether the company had suffered loss or whether it was only the claimants (pensioners) who had suffered harm in their own right, by a reduction in benefits payable to them. A derivative claim requires the true claimant to be the company, suing for the harm caused to it, not the nominal claimants for any harm they have suffered separately from reflective loss. In McGaughey it was held that the company itself had suffered no loss as a result of the impugned conduct of the directors; only the members had suffered loss in their own right, as pensioners, which was not reflective loss. Accordingly, in this context, it is obvious that Asplin LJ was not addressing the issue of whether threatened or anticipated harm and loss, as distinct from harm or loss that had already been suffered, could form the basis of a derivative claim.[32]I asked Mr Steinmetz whether he was really submitting that, if a member feared imminent harm caused by a delinquent director in control, there was no claim that the member could bring to attempt to restrain the harm, and that a derivative claim could only be brought at a later stage, once the act in question had taken place and the harm was suffered. I suggested that seemed a little surprising. He told me in effect that that was a matter that the Court of Appeal would have to answer, in view of the clarity of the dicta in McGaughey.[33]I do not agree that I should abdicate responsibility. I do not consider that a strong Court of Appeal well versed in this area of the law (Sir Julian Flaux C and Snowden LJ agreeing with the judgment of Asplin LJ) was really saying only where harm had already occurred could a derivative claim be brought. Asplin LJ was only addressing, in a case where the pleaded allegation was that actual loss had been suffered, the question of whether it was loss that the company had suffered or that only the members had suffered. It is natural, in that context, that her Ladyship would use the language of loss or harm that has been suffered when seeking to explain that the company (not just the members) needs to have suffered loss.[34]It would be very strange if, in the case of a company where the delinquent director was not in control, the company itself could bring a timely claim to stop the dissipation of its assets, but that in a case where the director was sufficiently in control of the company’s decision-making organs to obstruct a claim by the company, a member had to sit and wait for the assets to be dissipated before they could issue a claim to try to recover them, or obtain compensation. I am unable to accept that that is the law, whether at common law or under the statutory derivative action regime. It would make little sense for that to be so in the context of default, breach of duty or breach of trust by a director of a company.[35]Further, it is clear from the terms of the 2006 Act that that is not the law, at least as regards the statutory regime. That is because s.260(3), which explains when a derivative claim may be brought, states: “A derivative claim under this Chapter may be brought only in respect of a cause of action arising from an actual or proposed act or omission involving negligence, default, breach of duty or breach of trust by a director of the company.” (my emphasis) Similarly, s.263(2)(b) states that where the cause of action arises from an act or omission that is yet to occur and the act or omission has been authorised by the company, permission must be refused.[36]I therefore reject the argument on behalf of Mr Alves that the claim is bound to fail in the absence of evidence that identifiable loss has already been suffered by OIL. A sufficient threat of future harm may suffice.[37]What is required to establish a prima facie case for giving permission to continue the claim has also been addressed in previous judgments. The issue is straightforward enough at the without notice stage, as the court only has the evidence of the claimant. In Abouraya v Sigmund [2014] EWHC 277 at [53], David Richards J said:
“The first requirement is that the claimant must demonstrate a prima facie case that the company… is entitled to the relief claimed. A prima facie case is a higher test than a seriously arguable case and I take it to mean a case that, in the absence of an answer by the defendant, would entitle the claimant to judgment. In considering whether the claimant has shown a prima facie case, the court will have regard to the totality of the evidence placed before it on the application.”
[38]At the on notice stage of hearing the application, the court will have the defendants’ evidence too. In Iesini, Lewison J said:
“79. …I do not consider that at the second stage this is simply a matter of establishing a prima facie case (at least in the case of an application under s.260) as was the case under the common law regime, because that forms the first stage of the procedure. At the second stage something more must be needed. In Fanmailuk.com Ltd v Cooper [2008] EWHC 2198 (Ch); [2008] B.C.C. 877, Mr Robert Englehart QC said that on an application under s.261 it would be ‘quite wrong … to embark on anything like a mini-trial of the action’. No doubt that is correct; but on the other hand not only is something more than a prima facie case required, but the court will have to form a view on the strength of the claim in order properly to consider the requirements of s.263(2)(a) and 263(3)(b). Of course any view can only be provisional where the action has yet to be tried; but the court must, I think, do the best it can on the material before it.”
[39]Not all the reported first instance cases since Iesini have put the matter in quite the same way. The issue was in my view best articulated by Morgan J in Bhullar v Bhullar [2016] 1 BCLC 106 (a common law double derivative claim) at [25]:
“It is one thing to ask whether the claimant has shown a prima facie case in the absence of an answer from the defendant and another thing to ask whether the claimant has still shown a prima facie case when one takes into account the suggested answer. If the facts relied upon by either the claimant or the defendant are not disputed, there may be little difficulty. But what if the claim and the suggested answer depend, as they often will, on disputed facts? Further, what if the resolution of that dispute will in due course require the trial judge to reach conclusions as to the credibility of witnesses? I consider that the court has to recognise that it cannot resolve disputes of fact at a hearing which does not involve any cross-examination of witnesses and which takes place in advance of any formal disclosure of documents. It will not be unusual to find that the claimant can establish a prima facie case, if one ignores the evidence relied upon by the defendant, but yet the claimant would fail at trial if the defendant’s evidence were to be accepted. In such a case, I consider that it is still open to the court to hold that the claimant has made out a prima facie case because it would be wrong to assume that the defendant’s evidence will be accepted at the trial and it may simply not be possible to predict with any degree of confidence whether the defendant’s evidence will be so accepted.”
[40]If something more than a prima facie case is required, as Lewison J considered, what is that standard? Possibilities might be a “strong prima facie case” or, as Mr Steinmetz suggested, the better of the argument as the evidence stands, by analogy with the test for satisfaction of a gateway under CPR PD6B for service out of the jurisdiction. The law has previously got itself into something of a tangle when deciding what standard applies on particular types of interim application, and what the difference between the various formulations of standards is: see the discussion in Dos Santos v Unitel S.A.[2024] EWCA Civ 1109. I would be reluctant to add to the complexity of the law in this area by defining a further standard that applies, not least because the statute and the Rules of Court do not do so: the only test prescribed by the statute is “a prima facie case”, without discriminating between the different stages of consideration of the application.[41]Support for keeping the test at “prima facie case” is to be found in McGaughey, where Asplin LJ endorses what she calls the “practical approach” that Morgan J advocated. She said, at [142], that the way in which the evidence should be approached depends on the nature of the evidence itself and on the nature of the claims, and at [145]:
“where the issue is one which is not merely raised and answered on the documents, such as whether a director was acting in good faith in a way which would be most likely to promote the success of the company for the benefit of its members as a whole, it should not be assumed that the evidence on behalf of the company/directors will be accepted at trial and the claimant’s evidence should prevail for the purposes of determining whether there is a prima facie case”
[42]The other issue on which there is relevant authority is the requirement of good faith in s.172 of the 2006 Act, imported into the tests in s.263(2)(a) and s.263(3)(b) as a test of what a person complying with the s.172 duty would do and think about the continuation of the derivative claim. In Iesini, Lewison J considered (at [115] and [118]) that the requirement of good faith meant that the claimant must be acting for the company’s sake, not for any other purpose or ulterior motive, but recognised at [121] that if the claimant is bringing the claim for the benefit of the company, they are not disqualified from doing so because there are other benefits that they will derive from the claim.

The parties’ cases

[43]Mr De Menezes’ case is straightforward. He asserts that Mr Alves has at all relevant times been, and is, intent on remaining a director of OIL, owing it fiduciary duties, including a duty of loyalty and the now statutory duty in s.175 of the 2006 Act that is central to the dispute in this claim: “(1) A director of a company must avoid a situation in which he has, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with the interests of the company. (2) This applies in particular to the exploitation of any property, information or opportunity (and it is immaterial whether the company could take advantage of the property, information or opportunity). (3) This duty does not apply to a conflict of interest arising in relation to a transaction or arrangement with the company. (4) This duty is not infringed—(a) if the situation cannot reasonably be regarded as likely to give rise to a conflict of interest; or(b) if the matter has been authorised by the directors. (5) Authorisation may be given by the directors— (a) where the company is a private company and nothing in the company's constitution invalidates such authorisation, by the matter being proposed to and authorised by the directors; or (b) where the company is a public company and its constitution includes provision enabling the directors to authorise the matter, by the matter being proposed to and authorised by them in accordance with the constitution. (6) The authorisation is effective only if— (a) any requirement as to the quorum at the meeting at which the matter is considered is met without counting the director in question or any other interested director, and (b) the matter was agreed to without their voting or would have been agreed to if their votes had not been counted. (7) Any reference in this section to a conflict of interest includes a conflict of interest and duty and a conflict of duties.” (a) if the situation cannot reasonably be regarded as likely to give rise to a conflict of interest; or (b) if the matter has been authorised by the directors. (a) where the company is a private company and nothing in the company's constitution invalidates such authorisation, by the matter being proposed to and authorised by the directors; or (b) where the company is a public company and its constitution includes provision enabling the directors to authorise the matter, by the matter being proposed to and authorised by them in accordance with the constitution. (a) any requirement as to the quorum at the meeting at which the matter is considered is met without counting the director in question or any other interested director, and (b) the matter was agreed to without their voting or would have been agreed to if their votes had not been counted.[44]Mr De Menezes contends that the business of OIL is the sale of high quality reproduction and bespoke furniture to high-end private and business customers, and that as a director of OIL Mr Alves has access to commercially confidential material, including customer lists, orders, pricing and designers’ commissions and requests, all of which would be of value to another company selling high quality furniture in the same market. Cobogo, although presently focused on a particular style (or aesthetic) of furniture, namely Brazilian contemporary furniture, is attempting to sell the same items of furniture into the same market, from the same location in Chelsea Harbour, in a similar price bracket, and is therefore in competition with OIL. Further, Mr Alves is exploiting the relationships with clients and suppliers of OIL and using the name of OIL to launch Cobogo’s business.[45]As such, and regardless of whether any financial loss has yet been caused to OIL, there is an obvious and real risk of harm to OIL’s commercial interests by facing such a competitor. Not just any competitor, of which there must be many in Chelsea Harbour, but a competitor with the information and knowledge that Mr Alves has about OIL’s business, i.e. its commercially sensitive information. Further, Mr De Menezes says that there is evidence that Cobogo has, to a limited extent so far, used Goulart to store, finish and deliver items of Brazilian furniture.[46]As such, Mr Alves is in breach of his s.175 duty as a director of OIL. Mr Alves’s riding two horses at once in a competitive market cannot reasonably be regarded as a situation that is unlikely to give rise to a conflict of interest. It is, on the contrary, a situation in which Mr Alves’s interest in Cobogo, which he describes as his passion project and is being run with his wife, will conflict with his duty of loyalty to OIL, in which his former partner with whom he has fallen out has an equal interest.[47]That being so, any (or at least some) reasonable directors of OIL would seek to restrain the conduct of Mr Alves and Cobogo that is competitive and which risks harm being caused to OIL. Mr Chichester-Clark confirmed that Mr De Menezes could not object to Mr Alves and Cobogo carrying on their business if Mr Alves was no longer a director of OIL, subject to restraint of misuse of OIL’s confidential information that Mr Alves has in his control. Mr De Menezes does not contend that Cobogo is a business opportunity of OIL.[48]Mr Chichester-Clark emphasised that Mr Alves has choices: he can sell out his interest in OIL to Mr De Menezes, to focus on Cobogo, or he can retain his financial stake as a shareholder in OIL but resign as a director of the company. But what Mr Alves cannot do is ride both horses as a director.[49]As for the case against Cobogo, this is pleaded as a claim in knowing receipt of property in breach of trust, on the basis that the proceeds of Cobogo’s business were the product of trading in competition with OIL and to the knowledge of Cobogo’s sole director, Mr Alves, are “traceable to [Mr Alves’s] breach of trust/fiduciary duty such that it is unconscionable for [Cobogo] to retain them”.[50]Mr Alves’s case is also straightforward. He asserts that the business of Cobogo simply does not compete with the business of OIL because the pieces of furniture that Cobogo sells are a totally different style from the furniture that OIL sells, and no customer who was interested in European 18th or 19th Century reproduction furniture would be interested in purchasing contemporary Brazilian furniture, and vice versa. What Cobogo sells is made under licence from the original designer of each piece of furniture and is not bespoke, save that there may be some adjustments in size. As such, there is no breach of the s.175 duty because the situation cannot reasonably be regarded as giving rise to a conflict of interest and duty. That being so, no person acting in good faith in accordance with the s.172 duty would seek to continue the claim because it is doomed to failure, and the court must not permit the claim to continue.[51]Further, Mr Alves says that he offered to enter into a non-compete agreement on 28 October 2024 by WhatsApp (in Portuguese: “que se aplique exclusivamente a comercializaçao de moveis classicos e moveis bespoke reproduziados sob encomeda” (limited to Cobogo not producing classic or bespoke furniture made from scratch) and that Mr De Menezes agreed on or before 23 April 2024 that Mr Alves could sell contemporary Brazilian furniture, and on that basis there would be no competition.[52]I think that, despite the argument about no loss or harm being mainly focused on the absence of any loss or harm that pre-dated the claim form (which I have dealt with above), Mr Steinmetz also pursued an argument that there was no risk of relevant future harm, not just because there was no competition but because, if there was competition, that competition would exist in any event if Mr Alves either sold out to Mr De Menezes or resigned as a director, therefore it is not harm caused by any breach of duty of Mr Alves.[53]Further and in any event, Mr Alves contends that the nature of Cobogo’s intended business was disclosed to Mr De Menezes and formed the subject of discussions between them. This led to an agreement between the only directors and shareholders of OIL reached on or before 23 April 2024 in (or evidenced by) an exchange of WhatsApp messages. Alternatively, the same exchange gave Mr Alves the authority of the company to proceed with the business of Cobogo. As such, any breach of duty has been authorised by the company before it occurred, within s.263(3)(c) of the 2006 Act, and the court must not permit the claim to continue.[54]Further, Mr Alves contends that the derivative claim is being brought for a collateral purpose and is an abuse of process. He contends that the claim is brought as a means of applying pressure on him to sell his shares in OIL to Mr De Menezes at an undervalue. That is said to be evident from the fact that the claim was only issued in April 2026, when the attempt to negotiate a buy out failed, in March 2026. Mr De Menezes could and should have brought a petition under s.994 of the 2006 Act as the means of achieving a compulsory buy out, not a derivative claim. If he cannot achieve a buy out, it is suggested that Mr De Menezes’s real desire is to wind up OIL’s business.[55]As to the claim against Cobogo, Mr Steinmetz argued that this was hopeless and bound to fail as a matter of law, because there was no plea that any property of OIL was received by Cobogo with knowledge that it was transferred in breach of fiduciary duty. The proceeds of Cobogo’s business were generated by its own trade, and are not property that belonged to OIL.

The evidence

[56]The evidence in support of these respective cases is wide-ranging and contained in a witness statement of Leo Nabarro, the solicitor of Mr De Menezes, dated 20 April 2026 in support of the application, a second witness statement of Mr Alves (who by that stage had made a substantial first witness statement in response to the injunction application) dated 12 June 2026, and a third witness statement of Mr De Menezes (who by that stage had made two witness statements in support of the injunction application) dated 19 June 2026.[57]The witness statements for the injunction application also cover many of the issues relevant to the continuation application. All the witness statements of the protagonists themselves are, in substantial part, argumentative and accusatory, rather than limited to relevant evidence, and they cover various aspects of the parties’ respective cases and other irrelevant matters. They exhibit very substantial quantities of documents relating to the history of OIL and the emergence of Cobogo, and their respective businesses. I was only taken to a very small part of the exhibits during the course of submissions, though other documents are referred to and identified in the skeleton arguments.[58]I read the witness statements before and during the hearing, and I have re-read them since I reserved judgment on the applications. I have borne in mind the totality of the contents of the witness statements, even if I do not refer to all the evidence below. I have not looked at any of the exhibited documents other than the few to which I was taken in argument and those that are referred to in the skeletons. I was not asked to do so, and made it clear at the hearing that I had had no opportunity to read the exhibits in advance, other than the WhatsApp “conversation” of 23 April 2024 on which Mr Alves particularly relies.

Do OIL and Cobogo compete for business?

[59]The principal factual dispute relates to the question of whether OIL and Cobogo are competing in the same market.[60]There is, in fact, much factual common ground, as Mr Chichester-Clark said (to which Mr Steinmetz did not demur). This was set out in Mr Chichester-Clark’s skeleton argument and repeated at the hearing, and some further common ground was identified during it. The common ground can be summarised as follows: i) Since 2016, OIL has sold its furniture from a showroom at Design Centre Chelsea Harbour, and it also sells furniture through an online catalogue, which is published on its website. ii) OIL carries on the business of supplying luxury, bespoke handmade furniture and reproduction furniture to private and commercial clients for use in personal residences and for large-scale commercial projects. Its clients may order furniture from its catalogue and/or commission bespoke furniture from scratch. Its client list extends to between 65,000 and 100,000 clients or potential clients. iii) OIL and Cobogo operate within the high-end design luxury furniture market, which is within the interior design market. The companies sell the same items of furniture, including sideboards, sofas, armchairs, dining chairs, loungers, coffee tables, desk chairs and side tables, within the same price brackets. iv) An important category of OIL’s clients are interior designers who may buy furniture for particular projects and/or invite OIL to tender to supply a range of furniture for larger scale private and commercial projects. v) The Design Centre Chelsea Harbour is a hub for interior designers and a “must have location” within the interior design industry for those selling furniture, interior lighting and soft furnishings. Cobogo now also operates from there. vi) OIL supplies a wide range of furniture or types of furniture to its customers in a range of styles, from classic to modern and contemporary. Its online catalogue contains more than 600 base products, which may be customised according to the client’s requirements as to the size, design and materials and finished using a variety of different materials and techniques in woodwork, upholstery, painting, marquetry and metalwork. vii) OIL’s principal supplier is Goulart. Goulart was founded by Mr De Menezes and Mr Alves for the purpose of sourcing and finishing furniture, which OIL sells to its clients. Specialist work, such as upholstery, metalwork and woodwork is outsourced to a number of artisan workshops with limited capacity, with which OIL has cultivated relationships. viii) A Brazilian design agency, known as Wonderpus Marketing E Design Ltda (“Wonderpus”) produces technical drawings and designs for OIL. Wonderpus is also responsible for carrying out marketing for OIL and has compiled a library of individual furniture designs and a database of marketing information to enable it to undertake targeted advertising campaigns. ix) The companies use some of the same suppliers, or suppliers within Goulart’s supply chain, to source, customise and/or finish the furniture that they respectively sell, including Paulo Neto Interiors (furniture manufacturer) and Epico & Autentico (furniture manufacturer). Cobogo has also used Unipessoal Industrimagem for photography and Wonderpus for marketing and design services. There is a dispute of fact as to whether Cobogo has also used Goulart. x) OIL’s constitution does not contain any express restriction on competition by directors, and OIL does not have any exclusivity agreements with its suppliers. xi) No supplier has to date turned down any work for OIL on the basis of lack of capacity. xii) Mr Alves invited some of OIL’s long-standing clients, Ms Stephanie Barba Mendoza, Ms Nina Kitchfield and Mr Luigi Esposito, to speak at the launch of Cobogo’s new showroom in Design Centre Chelsea Harbour. xiii) Mr De Menezes has been concerned about the possibility of competition between OIL and Cobogo and Mr Alves was aware of that fact. The parties have discussed a non-compete agreement but been unable to reach agreement on how wide or narrow such an agreement should be.[61]Mr De Menezes says in his evidence that: i) He believes that Cobogo sells customised furniture, at least as regards sizes and materials, and that it could also offer a bespoke furniture design service (this is partly admitted, but Mr Alves denies that Cobogo is offering a full bespoke design service) ii) Cobogo, in addition to using Goulart for storing and finishing furniture, has used Wonderpus to provide technical drawings and marketing materials, and the same website designer for its website. iii) He believes that Mr Alves has used OIL’s databases to inform Cobogo’s target advertising on Meta and Google. iv) Mr Alves has access to all OIL’s sales correspondence and other confidential information and Cobogo has targeted some of OIL’s customers (Mr Alves denies any misuse of OIL’s confidential information and denies that he has access to customer information). v) OIL does not only design furniture in European styles: a significant proportion of its business consists of bespoke commissions and designer collaborations not falling within rigid categories, and that if a customer wants contemporary furniture, OIL is able to design it from scratch. vi) The claimed distinction between European and Brazilian furniture is highly subjective and unsupported by any objective criteria. The idea that customers shop with a fixed idea of the style of furniture that they want and will stick to that choice is wrong – “In reality, a private client will search for high-end furniture online or at the Design Centre Chelsea Harbour with an open mind, without having determined that they will buy French or Brazilian-style furniture. The same goes for an interior designer who will initially seek tenders for a project with an open mind as to the style of furniture. Critically, private buyers and interior designers mix pieces that, strictly speaking, come from different styles and periods.” vii) OIL and Cobogo are therefore not in different markets but both compete in the highly competitive luxury furnishing sector, vying for the attention and purchasing power of private individuals and interior designers. That is illustrated by the fact that in 2023 Mr Alves contacted three designers, Estudio Orth, Jamie Lerner and Porfirio Valladeres, on behalf of OIL, proposing collaborations, and that these are now listed on the Cobogo website as “Modernist and Contemporary Designers”. Mr Alves has therefore sought to work with the same designers at both companies. viii) Suppliers such as Goulart have finite capacity. If they are working for Cobogo too, their capacity to service the needs of OIL is reduced, and the sharing of the skills of their employees undermines what OIL is offering.[62]Mr De Menezes also points to the following pieces of evidence that support his case that there is plainly competition: i) A promotional interview given by Mr Alves shortly before Cobogo’s launch in September 2025, in which he said that Cobogo was financially viable because it: “… can offer products to clients in Europe that are within the price brackets of products that people would buy for an Italian designer, or from a French designer or from an English designer”. ii) There was implied acknowledgement, in the discussions of the parties in 2024 about non-compete agreements, and also in 2025, that there was potential for competition. iii) Cobogo’s marketing makes reference to the career of Mr Alves at OIL, which suggests that he is seeking to promote his business by reference to the success of OIL, or at least that it is being promoted to the same clients and potential clients as OIL’s, within the same market.[63]Mr Alves’s evidence is that the furniture that OIL sells is a fundamentally different product from what Cobogo will sell, both aesthetically and in terms of its design and production. i) OIL sells bespoke European 18th and 19th Century reproduction classical furniture, whereas Cobogo sells works and re-editions by Brazilian modernist and contemporary designers under royalty-based agreements. Cobogo is the licensed exclusive representative of the Brazilian designers, which OIL is not licensed to sell. OIL uses designs in the public domain. ii) The stylistic differences are indeed evident from the extracts from the catalogues that were exhibited by Mr Alves. A chair in the Cobogo catalogue does not look like any of the chairs in the OIL catalogue. iii) Cobogo does not (currently) offer a bespoke design service, as OIL does – any customisation of Cobogo’s furniture is limited to certain matters, such as size and finish, with the designer’s approval. Although Mr Steinmetz argued that Cobogo’s business model would not support a fully bespoke operation, Mr Alves does not say that in terms: he says that Cobogo sells re-editions of designers, and that a fully bespoke operation is not what Cobogo does. iv) Mr Alves states that only 14 out of 158 OIL sales orders in 2025 were of contemporary pieces, of which one-third were fully bespoke and none were Brazilian modernist or contemporary pieces. v) Cobogo is not just a furniture business but is a cultural and artistic platform, hosting exhibitions and participating in international fairs. It does not operate as a luxury interiors and furniture retailer with a predominantly classical aesthetic. vi) Cobogo has recently entered into a partnership with a Lisbon-based company to supply products to its shop, Design Brasiliero, that would have no interest in working with OIL. vii) Cobogo’s online marketing used different keywords from OIL’s (this is disputed by Mr De Menezes), and its clientele is different. Cobogo has now stopped using Wonderpus to do its online marketing. viii) Most of the suppliers that Mr Alves has set up to supply Cobogo are different from those used by OIL. ix) OIL’s revenue has increased from £1.34 million to £2.16 million since Cobogo began trading, not reduced. x) Mr Alves says that he does not wish to compete, since OIL is his livelihood.[64]Mr Alves relies also on Mr De Menezes’s testimony in the Portuguese proceedings, in which he explained that he considered it problematic for Goulart to finish furniture for both companies, as the Cobogo pieces were “different from that of Oficina Inglesa”.[65]In my judgment, there is plainly a prima facie case of a degree of competition in the same market and the same price bracket. The fact that Cobogo’s chairs, sofas and tables are of a different style and aesthetic from those sold in the majority of OIL’s business (so, in one sense, “different”) does not mean that the companies are not competing for the same interest from top-end clients and designers. There may be some clients with specialist interests who only want a modernist Brazilian piece, who would be unlikely to go to OIL to seek to commission one, and there are doubtless some clients who are certain that they want a Louis XVI reproduction chaise who would not consider Cobogo as a suitable seller. But in between those extremes, on the evidence of Mr De Menezes, which seems inherently credible and which I cannot simply reject because Mr Alves has a different view, there is a significant clientele of OIL that does not have a specific product or style in mind, and is looking at various possibilities, choices or combinations within a specified price bracket.[66]For all that the pieces are of different style and some customers would not want both, both companies are competing for business in a market where customers often do not choose between them on purely aesthetic grounds. They are competing for the same furnishing opportunities. That is illustrated by the fact that both have outlets in the same “must have” Design Centre, the fact that Cobogo seeks to associate itself with OIL and is interested in having some of its prestigious clients to speak at its opening event, and that designers named on the Cobogo website were approached by Mr Alves in 2023 to do collaborative work with OIL. Further, a proportion of OIL’s business (somewhere between 10% and 40% on the different evidence before the court) is not classical European reproduction furniture, and it operates a completely bespoke service.[67]Mr Steinmetz argued that Mr De Menezes did not suggest in emails in June 2024 that the Oficina Brasil project (as Cobogo was then named) would be inappropriately competing with OIL, and that for a time in 2025 Mr De Menezes agreed to be an investor in Cobogo, so that on that basis it cannot seriously be argued that Cobogo is competing with OIL. I reject that argument. Mr Steinmetz had a tendency to dip into evidence, exhibits and authorities to extract a particular passage that assisted Mr Alves’s case, without regard to the context in which it appeared. It is impossible, in my view, to focus on particular emails or messages during a time when the parties were exploring repeatedly whether they could reach agreement on how to separate their interests, or share them, and how the two different businesses might co-exist and be funded, and draw a conclusion on an important evaluative issue from the content of one communication or proposal. It is necessary (and will be necessary at trial) to evaluate it more broadly.[68]The risk of competition was clear from the outset and Mr De Menezes’s concerns were clearly stated in the WhatsApp conversation on 23 April 2024, which preceded the emails sought to be relied on to disprove competition. Similarly, in the context of the parties attempting to come to a consensual solution to their differences in 2025, it is unrealistic to try to draw a conclusion from one aspect of an apparent agreement (which never crystallised) without regard to all the other terms that were being negotiated. As Mr Steinmetz otherwise argued (to which I will come in the next section but one), it was perfectly possible for the two directors and shareholders to reach an agreement that Cobogo could compete with OIL on overall terms that were acceptable to them. If Mr De Menezes was discussing being involved in Cobogo’s business, it is relatively unsurprising that protests about competition were not being made. It was no doubt possible for the directors to establish Cobogo jointly in a way that did not compete directly with OIL, or only to an acceptable degree, but they did not succeed in reaching that agreement. It is evident from the WhatsApps of 23 April 2024 that the terms in which a non-compete obligation was to be expressed were a major obstacle: what Mr Alves was willing to offer was either too ill-defined or too narrow to satisfy Mr De Menezes.[69]I am therefore satisfied that there is at least a prima facie case of breach of the duty in s.175 of the Companies Act: Mr Alves has chosen to put himself in a position where he has a 100% interest in a business that, at least in part, is likely to be in competition for the customers of OIL, to which company he owes a duty of loyalty. The test for avoiding a conflict of interest and duty is a strict one, as any student of company law knows.

Risk of harm to OIL’s interests

[70]The next question is whether there is a real risk of substantial harm being suffered by OIL as a result of the competition provided by Cobogo with Mr Alves as a director of both companies. Although such a risk may not be necessary to entitle a company to restrain its director from breaching their duty, it is certainly relevant to whether the board of the company, conscious of its s.172 duty, would pursue such a claim. In addition to the financial impact of competition in the same market that I have addressed, this question raises issues about confidential information, advertising and supply chains.[71]There is plainly a dispute about the extent to which Mr Alves currently has access to confidential information relating to customers and orders, as opposed to production. For the purpose of this application, I have to accept that Mr De Menezes may be right, because I cannot decide where the truth lies. However, as a director of OIL, Mr Alves is entitled to the company’s documents and, without a court order, Mr De Menezes would not be entitled to withhold them from his co-director.[72]Mr De Menezes submits that the risk of harm is obvious, given that Mr Alves is a director of two companies, one shared with Mr De Menezes and the other wholly owned by him, both of which are operating in the same market sector, seeking to attract the same range of potential customers, and using the same supply chain, with Mr Alves retaining (or entitled to) access to all OIL’s commercially confidential information, and therefore aware of its opportunities and plans.[73]In particular, Mr Alves has access to the mailing list, and Wonderpus (owned by a close friend of Mr Alves) is responsible for producing OIL’s newsletter. Mr Alves accepts that there are at least 65,000 contacts on the mailing list. Mr Alves, in his evidence, has not stated that Cobogo will not market its products to OIL’s actual or potential clients.[74]As the person responsible for production management, Mr Alves reviews Wonderpus technical drawings and sends them to suppliers, and creates purchase orders to Goulart based on the customer orders received by OIL from its clients. Although Mr Alves says that he has been excluded by Mr De Menezes from certain parts of the business, he does not say that he is no longer responsible for production management. He must therefore be assumed to have access to the technical drawings for OIL’s furniture orders that Wonderpus keeps. Mr De Menezes pointed to an email from Mr Alves to Mr Aboudib of Wonderpus dated 9 October 2023, under the heading Oficina Inglesa content, asking Mr Aboudib not to send spreadsheets and texts to his @oficinainglesa.com address “as Marcos [De Menezes] can access it, send it to Eduardo.msalves@gmail.com.”[75]Mr De Menezes claims that Mr Alves is therefore in a position to target OIL’s customers and seek to sell Cobogo’s furniture to them, or attempt to tender for commercial projects in competition with OIL.[76]Although there is no exclusivity agreement, Goulart did exclusively supply OIL, using its and OIL’s relationships with artisanal manufacturers. If Cobogo also uses some of those suppliers, which the evidence at this stage establishes that it does, there is clearly a risk of future capacity problems if, as Mr Alves intends, Cobogo’s business becomes successful and expands. As is common ground, OIL’s business has also significantly expanded (in terms of turnover) in the last 2 years. The capacity of common suppliers could therefore be used by Cobogo in conflict with OIL’s needs. At present, there is no such issue, as Mr Alves stresses.[77]There is currently no evidence of actual loss to OIL. Cobogo has only been trading for 9 months and its current turnover is said to be about £70,000 (though no management accounts were provided by Mr Alves to substantiate the up-to-date position). The potential for harm is however present. If Cobogo succeeds, its share of the market will increase and it may take opportunities that OIL would otherwise have taken, particularly if Mr Alves is in a position to target OIL’s customer base or know about opportunities that come to OIL. If successful, its requirements in terms of products may have an impact on OIL’s supply chain.[78]There is clearly a risk of loss being caused to OIL by the conflict of interest and duty of Mr Alves, given his position as a director of OIL with access (or the right of access) to its confidential information, customer details, supply chain and commercial opportunities, while operating a business in the same market. Though financial loss cannot currently be proved, there may already be harm being caused. Through Mr Alves, Cobogo has access to information of value, which could be used in such a way as to deprive OIL of opportunities, or affect its relationship with suppliers. Once it is accepted that there is a degree of competition in the same market, the information to which Mr Alves has access is exactly what every competitor of a well-established business would wish to have.[79]As for Mr Alves not wishing to harm OIL’s business, this may be true in one sense – but whether that is realistic or not depends on whether there is scope for Mr Alves’s passion project to develop and succeed without impacting on OIL’s business. This is an issue that cannot be resolved at this stage, without disclosure and full evidence about how Cobogo does and will work, and what plans it has. If it is not possible to avoid competition, Mr Alves’s 100% interest in his passion project is inevitably likely, at some stage, to trump his 50% interest in OIL, causing harm to OIL.[80]I therefore find that there is sufficiently established by the evidence as it stands a risk of substantial harm to OIL.

The first mandatory basis for refusing permission – s.263(2)(a)

[81]The section requires the court to be “satisfied” on any of the matters specified in s.263(2). If the court is satisfied, it has no discretion and must refuse permission, thereby putting an end to the claim. Given that the proceedings are only at an initial stage and many factual matters may be disputed, it is only in a clear case that the court will be able to be satisfied under this subsection.[82]Turning to s.263(2)(a), having assessed the evidence and reached some provisional conclusions on competition and potential harm, I can address the question of whether no director acting in accordance with the s.172 duty would seek to continue the claim that Mr De Menezes has brought.[83]A director would be likely, in this case, to consider not just the financial value of the claim (in terms of the account and equitable compensation sought) but its importance in protecting OIL from harmful competition, the strength of the claim as it appears to be at this stage, whether OIL can afford to fund the proceedings, the prospects of recovering costs from Mr Alves if the claim succeeds, the amount of likely liability for OIL in costs if the claim failed, the impact on running OIL’s business of continuing the claim, and possible harm caused to its reputation and supply chain. As Lewison J said in Iesini, these are evaluative issues for a company director, not matters on which a court may make a clear decision. But the court is nevertheless required to ask itself whether it is satisfied that no dutiful director would seek to continue the claim.[84]While there may be differences of view between reasonable directors as to the relative benefits and disadvantages of continuing the claim, once it is established that the claim has apparent merit and that there is a risk of commercial harm, I am quite unable to conclude that no reasonable director, acting in accordance with the s.172 duty, would continue the claim.[85]The assessment is a little unusual in the context of a two-man, deadlocked company, as there is in fact only one director of OIL other than Mr Alves. The statutory test is in my judgment best applied by a hypothesis that there is another director of OIL, apart from Mr De Menezes and Mr Alves, not by hypothetically removing Mr De Menezes from the picture. The director in question is therefore faced with a company in which there is dissent between two members of the board, and a deadlocked company in terms of control of the company in general meeting and the ability to remove a director.[86]The decision to continue the claim against one director therefore runs the risk of further undermining relations between the directors, but on the other hand those relations appear to have broken down in any event, as illustrated by the litigation in Portugal. If, as I have found, there is a risk of substantial harm, a director would be likely to have to try to minimise it, by one means of another, while seeking to resolve the impasse, if possible.[87]In the absence of employees of the company, a principal consideration for a director would be the possible impact of the litigation on the company’s relationships with its suppliers, customers and business associates. Here again, the position is somewhat unusual in that OIL currently has only one direct supplier, Goulart, which in turn has relationships with a number of manufacturers. Goulart is in the same position as OIL, in terms of ownership and management impasse, so knowledge about or involvement in litigation would have no direct effect on it that could prejudice OIL. As for the indirect suppliers, the artisanal manufacturers in Portugal, the fact that Mr Alves was being sued by Mr De Menezes in the name of the company might well be viewed as making no real difference. There had indeed already been litigation in Portugal, started by Mr Alves, about control of the principal counterparty of these furniture makers, Goulart, which must have come to the notice of the suppliers.[88]In asking what would best promote the success of the company, it is easy to imagine that some directors would strongly favour protecting the business against risks posed by Mr Alves’s conduct, whereas others might be more cautious about prolonging expensive litigation, which (on the hypothesis required by s.263(2)(a)) the company would be funding. It is however impossible to say, on the facts of this case, faced with a prima facie case of breach of fiduciary duty by Mr Alves by running a competing business, that no director honestly deciding the matter in the best interests of OIL would vote to continue the claim, as a means of resolving the dispute. Continuation of the claim is not inconsistent with seeking to resolve the dispute in parallel by negotiation, or other means, and might even lead to a satisfactory resolution at an early stage. The resignation of Mr Alves as director is only one way in which the dispute might be resolved.

The second mandatory basis for refusing permission – s.263(2)(b)

[89]The question here is whether OIL, acting effectively by Mr De Menezes, authorised Mr Alves on or before 23 April 2024 to set up and trade in Cobogo notwithstanding that it would (or might) otherwise have been a breach of the s.175 duty that he owed OIL. If it did, then the court must refuse to allow the claim to continue. Again, given the interlocutory stage of the court’s consideration, it can only be in a clear case that the court can be “satisfied” that the ground is made out.[90]Mr Steinmetz relied on the WhatsApp conversation of 23 April 2024 as amounting to or evidencing the agreement of OIL that Mr Alves could set up Cobogo. Mr Alves, in his witness statements, did not say that an agreement had been reached by other means or at another time, and said nothing about any agreement reached before 23 April 2024.[91]Nevertheless, Mr Steinmetz’s primary argument is that the language used in the WhatsApp conversation on 23 April 2024 is evidence that an agreement between Mr Alves and Mr De Menezes had already been concluded, and his alternative case is that the WhatsApp conversation amounts to an agreement, or authorisation.[92]The WhatsApp conversation is a long one, in Portuguese in the original version, running from 8.29 am until 7.14 pm, more or less continuously throughout that period except for a long break between about 1.45 pm and 5 pm. It occupies 16 pages in the bundle, with approximately 20 WhatsApps per page, on average. Although appearing to be a conversation, there are in places up to a dozen WhatsApps in succession from Mr De Menezes and up to five in succession from Mr Alves, so some of the exchange is more in the nature of stream of consciousness than a conversation. Most of the exchanges on which each side relies are in the period between 8.30 am and 10.30 am.[93]The particular messages relied upon by Mr Alves (in translation) are the following:
“08:39:34 [De Menezes]: We agreed that you would sell contemporary Brazilian furniture. If you are going to sell contemporary Brazilian furniture by other designers, how come you are in the prototyping phase? ……. 08:41:55 [De Menezes]: Our agreement is that you will only sell contemporary Brazilian furniture – right? ……. 08:47:45 [De Menezes]: I have agreed to you selling specifically ‘contemporary’ Brazilian furniture – if you start selling anything other than Oficina Inglesa, I will very much take issue with it …… 08:52:22 [De Menezes]: We reached an agreement 08:52:41 [De Menezes]: And I want to set the rules of this agreement ……. 10:10:15 [De Menezes]: You have been authorised to make contemporary Brazilian furniture, and that is how it will be. …… 10:23:12 [De Menezes]: The business is allowing you to go into furniture under certain conditions, and this needs to be clearly established to avoid issues in the future.”
[94]Other messages of significance are:
“08:48:08 [De Menezes]: How can we sort this out and make sure you are only selling contemporary Brazilian furniture? 08:48:22 [De Menezes]: Give some thought to how this can be sorted out, as I will want to sort it out, in order to avoid further issues. 08:48:40 [De Menezes]: How to specify in the contract that what we agreed on what will be done …. 08:50:09 [De Menezes]: And what defines Brazilian furniture? Furniture designed by Brazilian designers? 08:50:28 [De Menezes]: With you, I am never really ease – I want to understand this to avoid further problems 08:50:29 [Alves]: I’m not going to bind myself to anything, because this is my new company and I’m going to do what is best for it. …… 08:53:22 [De Menezes]: You are not authorised to make contemporary furniture of any other kind – this has never been our agreement, and I do not agree to it. 08:53:37 [De Menezes]: IF you do not agree, let me know so I can take measures. 08:53:53 [De Menezes]: I want everything in black and white ….. 08:55:46 [Alves] Only furniture by Brazilian designers, designs from Brazil. I don’t know what your issue is. 08:55:58 [De Menezes]: OK, yes 08:56:11 [Alves] Oficina Brasil 08:56:16 [Alves]: Can’t you see the name? 08:56:16 [De Menezes]: So we’ll have to sign something that limits you, because I know you and don’t want to risk it 08:56:23 [De Menezes]: It doesn’t work that way 08:56:27 [Alves]: I’m not going to sign anything ….. 08:59:23 [Alves]: You were the one who didn’t want to sign the shareholders’ agreement 08:59:33 [De Menezes]: Nope 08:59:46 [Alves]: Everything was there …… 09:01:32 [De Menezes]: I don’t want you to start making contemporary furniture that isn’t Brazilian 09:01:38 [De Menezes]: And I’m not going to take your word for it …… 10:09:10 [De Menezes]: I’m not taking it easy. I’m not asking too much. We made an agreement: I keep Oficina Case and you keep with Oficina Brasil, which will sell contemporary Brazilian furniture. Your line of business is extremely delicate because you are selling the same type of product (furniture), only in a different style. So I think it is in my interest, your interest and the interest of Oficina Inglesa that things are clearly set out on paper. Circumstances change, life changes and this is why people sign contracts. I don’t want you to start manufacturing contemporary or modernist European furniture because we make this type of furniture at Oficina Inglesa …… 10:10:15 [De Menezes]: [continuation of message of this time in [94] above] Now, if you don’t want to sign anything, the problem is yours alone, because you’re throwing money away and your peace of mind in the rubbish.”
[95]The basis for the argument that the WhatsApps evidence a previously concluded agreement is the use of the past tense (“agreed”, “reached an agreement”, “have been authorised”). As far as it goes, that is indicative of previous discussion, and possibly even identified common ground, but it does not signify a previously concluded agreement or final authority for Cobogo. It is reasonably clear that there had been some discussions between Mr Alves and Mr De Menezes to attempt to agree the basis on which Cobogo could proceed, in a restricted way, with contemporary Brazilian furniture[96]However, importantly, there was no evidence from Mr Alves to the effect that an agreement had been reached on a previous occasion, or saying what had been agreed, where the agreement was made, and in what circumstances. Nor do the excerpts in the WhatsApp conversation on which Mr Alves relies contain any assertion by Mr Alves that the matter had already been agreed or concluded. The primary case is merely legal interpretation, not based on direct evidence.[97]In my judgment, the contention that there was such a concluded agreement is an overly literal interpretation out of context of messages casually written by WhatsApp on 23 April 2024. Although language such as “agreed” is used by Mr De Menezes, it is evident from the day’s exchanges as a whole that the parties are still in debate or negotiation, and equally clear that no concluded agreement or understanding is reached during the conversation itself. Mr De Menezes’s willingness to agree to Cobogo proceeding is hedged about by questions about the extent to which it will be likely to compete with OIL and the terms of a non-compete obligation, which Mr De Menezes states that he wants. The stumbling blocks were clarity about what exactly was meant by “contemporary Brazilian furniture” and the breadth or narrowness of a non-compete term in any concluded agreement.[98]Read as a whole, it is not clear that the WhatsApp conversation gives rise to a concluded agreement between Mr De Menezes and Mr Alves that Cobogo could proceed. Indeed, the opposite appears to be the case. Nor does the conversation enable the court to be satisfied about a previously concluded agreement.[99]Nor is it credible to argue, if a concluded agreement reached between the two men about Cobogo proceeding is not sufficiently established, that the conversation nevertheless amounts to (or evidences) OIL informally authorising Mr Alves to proceed in a particular way. Under the Re Duomatic principle, a company resolution to permit otherwise wrongful conduct can be made informally, if there is unanimous agreement of the shareholders, but it must be clear to the shareholders that that is what they are doing and what it is that is being authorised.[100]The WhatsApp conversation shows that the terms on which Cobogo could proceed are still in discussion, and it is clear that a written agreement containing a non-compete clause was required by Mr De Menezes. It cannot, in those circumstances, be said that Mr De Menezes has nevertheless authorised Mr Alves on behalf of OIL to breach his duty as a director of OIL by carrying on a competing business. No more was there authority granted on behalf of OIL than there was a concluded agreement between its directors.[101]The fact that, at times from June 2024 to March 2026, the parties continued to negotiate and to try to agree acceptable commercial terms does not clearly establish Mr De Menezes’s agreement, or authority, for Cobogo to trade while Mr Alves remained a director of OIL. Mr De Menezes considered, in June 2024 taking a shareholding in Cobogo, as part of a settlement agreement, then decided not to, but that does not obviously imply agreement that Mr Alves could proceed alone while remaining a director of OIL. Similarly, an agreement in principle to become a partner in Cobogo in February 2025 does not clearly evidence agreement or an absence of competition. The email relied upon by Mr Alves was written in the context of meetings with lawyers and proposed a meeting to discuss the detail. It set out certain conditions for becoming a partner. In March 2025, Mr De Menezes withdrew from the discussions, making it clear that OIL should have no involvement and that there should be a non-compete agreement. Mr Alves was only willing to agree a narrower non-compete agreement than Mr De Menezes wanted.[102]For these reasons, Mr Alves has not sufficiently established the second mandatory basis for refusing permission. Has Mr De Menezes established a prima facie case, taking account of the factors in s.263(3)?[103]In deciding whether Mr De Menezes’s evidence discloses a prima facie case for giving permission, the court must take into account the factors set out in section 263(3). The ones that are potentially significant in this case are paragraphs (a), (b) and (f); the others do not arise because Mr De Menezes’s votes as a shareholder will prevent ratification of Mr Alves’s acts, and because OIL has not decided not to pursue the claim.

Absence of good faith

[104]The first and main point taken by Mr Alves is that the proceedings are not brought and are not sought to be continued in good faith (paragraph (a)) but rather for a collateral purpose, namely to put pressure on Mr Alves to sell his shares in OIL at an undervalue.[105]The basis of that assertion is the fact that Mr De Menezes has, it is common ground, sought to buy out Mr Alves’s interest in OIL, and the timing of the issue of the claim form, namely a month or so after the negotiations for a buy out finally broke down.[106]Mr De Menezes had paid a fee for a loan facility of up to £1 million to fund the purchase of Mr Alves’s shares, and it appeared that agreement was close, but a second mediation in March 2026 to finalise a settlement did not take place because Mr Alves did not agree to attend.[107]There was no evidence at all about the price or value of Mr Alves’s holding and so the contention that there is an attempt to buy his shares at an undervalue cannot be sustained.[108]No doubt Mr De Menezes would prefer to be able to buy out Mr Alves and may be disappointed that that has not happened. Another means of resolving the problem, so far as Mr De Menezes is concerned, at least in the short term, would be for Mr Alves to resign as a director, retaining his investment.[109]The fact that either of those two outcomes would be desirable, so far as Mr De Menezes is concerned, does not however mean that bringing a claim to restrain Mr Alves and Cobogo from competing with him while Mr Alves remains a director of OIL is a claim brought in bad faith. Mr Steinmetz submitted that it was a clear inference that the proceedings were instituted, with the threat of OIL funding them, in order to apply pressure. He argued that this was self-evident from the timing of the claim form, and that genuinely pursuing the proceedings, if they were to prevent harm to OIL, was inconsistent with Mr De Menezes’s primary objective of buying out Mr Alves, because it would raise the value of OIL and so increase the price for Mr Alves’s shares.[110]I was not persuaded by any of these points. It seems to me to be perfectly understandable that Mr De Menezes should seek to negotiate to reach an acceptable settlement of the dispute with Mr Alves, which negotiations might encompass various different solutions (buying out Mr Alves and becoming a partner in Cobogo among them), but that once a negotiated settlement cannot be achieved, it is necessary to start proceedings to resolve the issue. The issue is that Mr Alves should not be both a director of OIL and the owner of a competing business. There is no necessary inconsistency here. The timing of the claim form, after negotiations have broken down, does not lead to an inference that the claim form is issued in order to pressure Mr Alves into returning to the negotiating table, or to resign. It is equally consistent with the need to stop what Mr De Menezes has consistently (since at least April 2024) objected to and that he has been unable to resolve by friendly means.[111]The fact that starting the proceedings might cause difficulty for Mr Alves, and might encourage him to consider resigning or selling out, does not mean that the proceedings were brought for that purpose rather than the purpose of stopping unfair competition and breach of duty by Mr Alves.[112]As for the argument about the impact on the value of Mr Alves’s shares, it seeks to prove too much. This is a small company where there is no ready market for its shares, and so no market price. The parties can negotiate price on any basis, not just on current value, and the court has great flexibility, in any proceedings under s.994 of the 2006 Act, when deciding the appropriate valuation date for shares and whether any particular impact on value should be taken into account or disregarded.[113]There is insufficient evidence at this stage to establish that the claim is, or appears to be, brought in bad faith. There is an impasse between Mr De Menezes and Mr Alves, affecting OIL’s business, that needs to be resolved by some means. I do not consider that the claim is in bad faith merely because it may have consequences for Mr Alves that could have been avoided by a different negotiated settlement. Nor is it in bad faith because, by resigning as a director of OIL, Mr Alves could continue trading with Cobogo in competition with OIL. What is unacceptable for Mr De Menezes is that Mr Alves does so while still a director of OIL, with all the advantages that that potentially gives Cobogo.[114]The fact that, in two emotional outbursts over the last few years, Mr De Menezes has said that “the alternative will be winding up the business” and “I couldn’t give a damn about [OIL] – in fact, I think that it’s better if it closes down soon because I can’t be bothered to put up with you anymore” does not, in my judgment, sufficiently establish that Mr De Menezes either wants to close OIL’s business or that he is only using the claim as a means to enforce a buy out. It is unrealistic, at an interlocutory stage, to seize upon two such statements, in the context of a stressful broken relationship, and draw firm conclusions from them. This is, par excellence, an issue for exploration in cross-examination, if it is relevant at all.

Importance for a director of continuing the claim

[115]I next have to consider the importance that a director complying with their s.172 duty would attach to continuing the claim. As stated above, it is impossible to posit a single reasonable person who would have a single opinion on what was in OIL’s best interests. Litigation against a director is never desirable, but then neither is a company director who appears to be acting in breach of his duties by competing with the company. The director’s duty is to protect the company and do what is likely to be best for its members. Here, there are only two members, and it is impossible to please both.[116]The importance of continuing the claim will, in most cases, depend on the strength of it, the importance of it (in terms of preventing foreseeable harm to the company), the cost of continuing it, the potential benefit to the company and the potential detriment to the company in doing so. Ultimately it will turn on whether a director considers that it is important to prevent the risk of unfair competition by Cobogo. The only way in which to prevent the unfairness of the competition is to remove Mr Alves or restrain the competition by Cobogo.[117]Given that negotiations have failed and that Mr Alves cannot easily be removed against his will, in view of the deadlock in the company, the only solution open to a hypothetical director of OIL, as distinct from Mr De Menezes as a shareholder, is to restrain the unfair competition. The claim appears to be one with merit and raises relatively self-contained issues. The cost will of course be substantial, though it might be hoped that it would not be necessary to go as far as a full trial in order to resolve the dispute. With settlement or success, OIL would be in a much better place to continue its business without risk of harm, and there would be a good chance that it could do so without being affected further by the dispute.[118]In this case, the cost of proceeding with the claim would not be compared by a director with the amount likely to be recovered, but with the benefit of removing the risk of harm in future and resolving the dispute that is affecting its business. As things stand, there may be little or no profit made by Mr Alves from Cobogo’s trading, or actual harm already suffered by OIL, though in a case of competitive trading it is not always possible to identify that a loss has been suffered. The more successful the proceedings are, the greater the chance that no financial loss will ensue. The essence of this claim is injunctive relief rather than financial remedy.[119]For these reasons, a director who was willing to contemplate litigation at all would, in my view, attach importance to continuing with the claim.

Alternative remedy

[120]Finally, I must consider whether the act or omission in respect of which the claim is brought gives rise to a cause of action that the member could pursue in his own right rather than on behalf of the company. The act in question is Mr Alves’s conducting a business through Cobogo that prima facie competes with OIL’s business, thereby placing him in breach of his duties as a director of OIL. The proper basis of complaint about that is a claim by OIL that Mr Alves is in breach of duties that he owes to OIL. Mr De Menezes as a shareholder is not the proper person to complain (absent fiduciary or contractual duties owed between the shareholders, which is not alleged in this case), albeit a breach of statutory or fiduciary duty is often one of the complaints raised against a controlling director by a petitioner under s.994 of the 2006 Act.[121]The nature of a petition under s.994 is a complaint that the affairs of a company are being conducted in a manner that is unfairly prejudicial to some of the shareholders, and a petition can be brought by someone who owns 50% of the shares because that person is not in control of the company: they are not in a position either to remove a delinquent director or cause the company to bring a claim, using their control of the company. The essence of the claim, however, is that the petitioner has been prejudiced unfairly in his rights and interests as shareholder.[122]Mr Steinmetz submitted that the more appropriate claim is a petition by Mr De Menezes, which would give him everything that he desired. He argued that the substance of the complaints goes to ownership and control of shares and the internal management of OIL between its shareholders. Those proceedings would be better for OIL, because it would only be a nominal defendant and not liable for costs. The derivative claim will not resolve the underlying disputes between the shareholders or the deadlock. The real complaint, he submits, is about internal management as a result of the breakdown of relations between the shareholders.[123]It would clearly be possible for Mr De Menezes to bring a s.994 petition asserting that his interest as a shareholder is adversely affected by the conduct of Mr Alves as a director, relying on breaches of statutory or fiduciary duty. The remedy sought would doubtless be the acquisition of Mr Alves’s shares at a fair price. But no complaint other than lack of cooperation or engagement on the part of Mr Alves in managing the business is raised by the claim. There is no shareholders agreement relied upon, or allegation of exclusion or other infringement of equitable rights attaching to Mr De Menezes’s shares. Any prejudice to Mr De Menezes’s interests as a shareholder would therefore be reflective loss. A buy out, rather than injunctive relief or compensation, would not be the obvious remedy, unless there were other matters of complaint raised.[124]It is far from obvious that a s.994 petition would be the more appropriate remedy, much though Mr De Menezes might wish to be able to buy out Mr Alves. An unfair prejudice petition would be likely to give rise to more wide-ranging allegations and counter-allegations and more expensive and protracted proceedings, as is often the case. The discrete issues of breach of statutory duty raised in the derivative claim against Mr Alves are, in my view, more appropriately dealt with in such a claim, on behalf of OIL itself. They are matters for which the company itself is the proper claimant, and they are relatively confined issues that can be tried in a more focused way in this claim. Any suggestion (as made on behalf of Mr Alves) that the derivative procedure is being abused in order to give Mr De Menezes an indemnity for the costs of the claim can be dealt with in the exercise of the court’s discretion to grant or refuse such an indemnity.[125]As to the argument that resolution of the matters alleged will not resolve the dispute or the deadlock, it is true that in these proceedings the court cannot make Mr Alves resign as a director of OIL or give up his shareholding, but the essence of Mr De Menezes’s complaint is that Mr Alves is wrongly acting as a director of OIL while running a competing business. That the court can resolve and prevent, by granting injunctive relief if necessary; and Mr De Menezes concedes that if Mr Alves resigns as a director there can be no injunction against him or Cobogo (save in relation to confidential information that either of them holds).[126]In short, I do not accept that the real substance of this claim is an internal management dispute. While there clearly are disagreements between Mr De Menezes and Mr Alves, the real issue is whether Mr Alves is abusing his position as a director of OIL.

Conclusion

[127]For the reasons given above, I consider that Mr De Menezes has established a prima facie case that, in principle, should be permitted to continue.

Scope of the claim

[128]I do however need to address the extent of the claims brought by Mr De Menezes.[129]The claims against Mr Alves allege that he owes OIL duties under sections 172, 173, 175 and 176 of the 2006 Act. I have so far focused on s.175 and concluded that there is a prima facie case of breach of that duty. With it, almost inevitably, will go allegations of breach of Mr Alves’s s.172 duty, as acting in circumstances of an actual conflict of interest and duty by running a competing business is liable to give rise to a failure to act honestly in the best interests of the members of OIL as a whole, and to act fairly as between them. While the detail of the pleaded case might require further attention, it is sufficiently clear from the facts alleged, and from the evidence in support of this application, that there is a prima facie case that Mr Alves has failed to discharge his s.172 duty.[130]The claim based on s.173 (duty to exercise independent judgment) is not separately particularised in Mr De Menezes’s statement of case, nor was it relied upon or explained at the hearing. It is indeed difficult to see how a separate case of failure to exercise independent judgement arises from the facts of this case, where Mr Alves has not submitted to any other director’s or shareholder’s direction or acted in accordance with the wishes of anyone else, or agreed to fetter his judgement. I agree with Mr Steinmetz that there is no prima facie case disclosed and this claim should not be permitted to continue.[131]As for s.176 (duty not to accept benefits from a third party by reason of his office or acts as a director), there is similarly nothing specific in Mr De Menezes’s statement of case, just a general assertion that he has benefited as a shareholder and director of Cobogo from its trade. It is pleaded that it is to be inferred that Cobogo has derived income from its business which it has paid out in salary or fees to Mr Alves, or holds as undistributed profits for the benefit of Mr Alves. However, although it is accepted that Cobogo had turnover in its last accounting year of around £70,000, there is no factual basis for an assertion that fees or profits have been paid. Even if a director’s fee had been paid by Cobogo, or a dividend declared, those would be in right of Mr Alves’s position as a director and shareholder of Cobogo, not by reason of his being a director of OIL. I therefore agree once again with Mr Steinmetz that there is no prima facie claim based on s.176 and this claim may not continue.[132]I turn then to the claim against Cobogo itself.[133]It is alleged that Cobogo is liable to account to OIL as a constructive trustee on the ground of knowing receipt of the proceeds of breaches of trust by Mr Alves. What is alleged is that it:
“…received or must be taken to have received the proceeds of trading in competition with [OIL], for its own use and benefit …has sufficient knowledge that the said proceeds are traceable to [Mr Alves’s] breach of trust/fiduciary duty such that it is unconscionable for [Cobogo] to retain them.”
It is alleged that Mr Alves’s knowledge is to be imputed to Cobogo.[134]In my judgment, this plea is inadequate to establish a prima facie case against Cobogo for knowing receipt of trust property. As confirmed by the Supreme Court in Byers v Saudi National Bank [2023] UKSC 51; [2024] AC 1191 (“Byers”), a claim in knowing receipt is a proprietary claim and there must be trust property that has been transferred in breach of trust, to the knowledge of the defendant who receives it. There must therefore be an allegation and a properly arguable case of OIL’s property having been disposed of in breach of Mr Alves’s fiduciary duty, with the property or its traceable proceeds having been received by Cobogo. It is not sufficient to identify property that is held by Cobogo as part of its general assets: see Byers at [83], referring to Angove’s Pty Ltd v Bailey [2016] 1 WLR 3179 at [27]-[29]. A claim in knowing receipt is not an appropriate basis for the imposition of a remedial constructive trust to prevent unconscionable conduct.[135]Mr De Menezes’s pleaded case against Cobogo does not allege that any property belonging to OIL was appropriated in breach of Mr Alves’s duty and received by Cobogo. The only basis on which Cobogo’s general assets are alleged to be OIL’s property are by the attempt to impose a constructive trust, on the basis that they were made by exploiting an opportunity that resulted from Mr Alves’s breach of duty. That is insufficient to establish a case in knowing receipt.[136]Recognising the difficulty with his pleaded case overnight, Mr Chichester-Clark handed up at the start of the second day of the hearing draft Amended Particulars of Claim, which include an “alternative” claim against Cobogo for dishonest assistance in a breach of trust. This requires dishonesty on the part of Cobogo’s director to be proved, which knowing receipt does not. The same underlying facts are however relied on as the basis of Mr Alves’s knowledge, to be attributed to Cobogo.[137]Mr Steinmetz objected strenuously to the attempt by Mr Chichester-Clark to rely on a new cause of action without proper notice, and said that he had not had any chance to consider with Mr Alves his position. Mr Chichester-Clark, recognising the difficulty, did not press any informal application for an amendment but invited me effectively to adjourn the application to amend for future consideration.[138]In my judgment, the correct approach is to deal with the claim against Cobogo as it is pleaded for the purpose of considering whether a prima facie claim exists, and leave Mr De Menezes to make any application, on notice, if he wishes to amend his claim against Cobogo. For the brief reasons that I have already given, the claim as pleaded that Cobogo is liable to account to OIL as a constructive trustee is inadequate and does not disclose a prima facie case. I will therefore refuse permission for that claim to be pursued. Cobogo is nevertheless clearly a necessary or proper party to Mr De Menezes’s claim against Mr Alves, given that Cobogo is the means by which Mr Alves is alleged to have acted in breach of duty, and any relief granted against Mr Alves will be likely to be framed with reference to the business of Cobogo.[139]If so minded, Mr De Menezes can make his application to amend in a rolled up form, seeking permission to amend and permission to continue that amended claim against Cobogo.

Indemnity for costs

[140]The final issue under the application to continue the derivative claim is whether Mr De Menezes should be indemnified by OIL at the conclusion of the proceedings for his costs of the claim. The witness statement of Mr Nabarro dated 20 April 2026 in support of the application confirms that Mr De Menezes does not seek a “pay-as-you-go” order that would require OIL to reimburse Mr De Menezes as the claim proceeds.[141]Mr De Menezes contends that an indemnity order is appropriate because(a) the claim is being brought in good faith for the benefit and protection of OIL,(b) there is a prima facie case, and(c) the recoveries will all be for OIL, not him.[142]Mr Alves submits that the court should not make a pre-emptive costs order where there is a real possibility of injustice or if it would result in inequality of arms in litigation between two disputing shareholders. The usual rule is that the company’s assets should not be used to benefit either of them at the expense of the other. Further, it should only do so where there is a high degree of assurance that the indemnity would be the proper order to make following a trial.[143]I will not order an indemnity at this stage for the following reasons.[144]First, the company in this case is, in substance, the claimant, Mr De Menezes, and the defendant, Mr Alves. Regardless of whether a derivative action is a preferable form for resolution of the pleaded allegations, which I have found that it is, it is nevertheless litigation between two shareholders, each of which has an equal share of the company. This is not therefore the more common case of one shareholder acting in the interests of all other shareholders except for the defendants, and there being a dichotomy between what is being done for the company and what is being done for the claimant. The claimant is the only beneficiary of this claim, as the defendant has chosen to oppose it.[145]Second, as a consequence, if OIL indemnifies Mr De Menezes for his costs of the claim, Mr Alves is in substance funding half of it, as the distributable profits of OIL will be reduced.[146]Third, Mr De Menezes did not disclaim the possibility that there will in due course be a s.994 petition, if this claim does not resolve the dispute between the parties. In those circumstances, Mr De Menezes would have an advantage, in terms of funding the proceedings, if he was assured of an indemnity at the end of this claim.[147]Fourth, although if the claim succeeds there can be a high degree of assurance that OIL should indemnify Mr De Menezes for his costs, the position is much less clear in the event that the claim fails. It is impossible to speculate about why the claim may fail, but in some circumstances it might be arguable that Mr De Menezes was at fault as regards factual allegations that were made and did not succeed. In those circumstances, it might well not be appropriate for an indemnity to be ordered.[148]Fifth, since Mr De Menezes does not seek a pay-as-you-go order, there is no real benefit to Mr De Menezes in making an indemnity order now, rather than at the end of the claim, other than a degree of comfort in planning his future cash flow and in proceeding with the claim. Since the possibility of a consensual end to the litigation is a real one, and is to be encouraged, it would potentially be unfair to one party for the other to have the comfort of knowing that they can allow the proceedings to continue without any financial risk.[149]I will therefore make no order now but reserve the question of whether to make an indemnity order until the trial.

Injunction application

[150]Mr De Menezes seeks an interim injunction restraining Mr Alves from procuring or allowing Cobogo to trade in furniture, and from himself selling furniture otherwise than through OIL, and restraining Cobogo from selling furniture or causing it to be sold. He also seeks an interim proprietary injunction restraining Mr Alves from disposing of any “proprietary assets”. These are defined as: profits or emoluments received by Mr Alves from Cobogo since 29 May 2023; any income or profits received by Cobogo from its trade since that date; and any assets representing those monies. The draft order also seeks disclosure of proprietary assets in support of the proprietary injunction.[151]For the reasons already given, I am satisfied that there is a serious issue to be tried as between Mr De Menezes and Mr Alves. I am not satisfied that there is a serious issue to be tried as between Mr De Menezes and Cobogo separately from the claim against Mr Alves. Given that Mr Alves alone controls Cobogo, it is not necessary to grant injunctive relief at this stage against Cobogo: any control of its activities that is justified can be achieved by means of an order against Mr Alves.[152]I am not satisfied that there is a proper basis for a proprietary claim by Mr De Menezes against Mr Alves. Any money paid by Cobogo to Mr Alves will on the face of it come from Cobogo’s trade, not from OIL. If Cobogo or Mr Alves were selling OIL’s confidential information or trade secrets, turning it directly to account, the money received would be OIL’s money, but that is not alleged at this stage. While Mr Alves may be personally liable to account to OIL for profit received by him from his breach of duty, there is no evidence that any such sums have been received, and Mr Alves has control over the extent to which Cobogo distributes any profits in the meantime.[153]The next question is whether damages would be an adequate remedy for Mr De Menezes in the event that an injunction is refused and he succeeds at trial. By that time, Mr Alves will have been trading competitively through Cobogo for a period of about 2 years, assuming a trial in the Trinity term or Michaelmas term of 2027 at the earliest. There may by then be a financial impact on OIL’s bottom line, as a result of competition, and may have been damage done to OIL’s customer base, supplier relationships and goodwill.[154]The financial impact, though often difficult to quantify, can generally be assessed, but damage to business relationships and goodwill is not easily quantifiable. A decline in profitability, a fortiori less growth than expected, is notoriously difficult to attribute to a single cause. I accept, therefore, that damages are unlikely to be an adequate remedy for this reason. Mr Chichester-Clark also submitted that there is no evidence that Mr Alves has substantial liquid assets with which to pay compensation. However, assuming that the business of OIL is not destroyed, which seems inherently unlikely, Mr De Menezes would be able to enforce against Mr Alves’s shareholding in both companies.[155]In the event that an injunction is granted in the terms sought but at trial Mr Alves’s defence succeeds, serious harm could be caused to the development of Cobogo’s business. It is at an early stage of its development. Mr Alves has invested over £300,000. I do not accept the submission that what is being sought is not liquidation but only putting the business on hold for a year or more, after which it can be revived. I find that submission commercially unrealistic, given the investment that has been made and the time spent in developing the business so far. To have to stop it entirely until the end of the trial would very probably kill it off, or at least do terminal harm to its reputation and incipient commercial relationships. I accept Mr Alves’s evidence in this regard.[156]I accept, therefore, that damages (compensation under an undertaking in damages) will not be an adequate remedy for Mr Alves either.[157]As for the balance of convenience: i) The status quo is that both companies are trading and have been for 9 months; ii) Granting an injunction restraining Mr Alves from trading in furniture in any way, save through OIL, in circumstances in which the relationship of the two directors of OIL is broken, would be likely to have a significant impact on Mr Alves and destroy Cobogo’s business; iii) Refusing an injunction could have a damaging non-financial impact on OIL’s business, but this is less certain – there may be serious harm done, or relatively little; iv) Its position would be protected further if Mr Alves provided the non-compete undertaking that he was willing to give (even though this was narrower than Mr De Menezes required); v) Mr Alves could avoid the harm to Cobogo and himself caused by an injunction by resigning as a director, in which case it is accepted by OIL that injunctive relief (save in relation to misuse of OIL’s confidential information) would be inappropriate and Cobogo could continue to trade; vi) Mr De Menezes is willing to give an undertaking in damages and has disclosed equity in two properties in London and Portugal amounting to around £725,000 in value.[158]Mr Steinmetz argued that there was a significant factor in determining the balance of convenience, namely that Mr De Menezes had delayed significantly in bringing his claim for injunctive relief, and during that period of delay the business of Cobogo has been developing. Indeed, he said that the delay was “fatal”.[159]Mr Alves’s evidence is that he told Mr De Menezes about the intended new business in November 2023. It is evident from the 23 April 2024 WhatsApp conversation that the two men had been discussing it in some detail during the intervening period. Mr De Menezes knew that Mr Alves wanted to make and sell contemporary Brazilian furniture, but what exactly that meant and how much wider than that Mr Alves intended to go he says was unclear until Cobogo started to trade in September 2025.[160]It is, in my view, unrealistic to argue that Mr De Menezes delayed in claiming injunctive relief before September 2025, first because there was no arguably competitive trading until September 2025, and second because the parties were clearly trying to negotiate one or other form of settlement of their dispute throughout that period. I do not accept on the basis of the evidence before me that Mr Alves incurred £314,000 of investment prior to opening on the basis of acquiescence by Mr De Menezes before September 2025.[161]As for the period after the opening of Cobogo’s retail outlet in the Design Centre Chelsea Harbour in September 2025, the timing is explained in Mr De Menezes’s evidence as follows:
“1. In October 2025, I began the process of obtaining finance to buy Mr Alves’ shares using a broker … 2. On 18 November 2025, Mr Alves and I held a one-day mediation to attempt to agree the buyout. This was unsuccessful. 3. In December 2025, I instructed lawyers with the intention of agreeing a buy out agreement between myself and Mr Alves. 4. Throughout December 2025, I worked through the mediator to attempt to arrange another mediation. 5. Throughout January and February 2026, Mr Alves and I negotiated between ourselves regarding the proposed buy out price. 6. In February 2026, Mr Alves and I agreed to arrange a second mediation to discuss the buy out arrangements. However Mr Alves refused to confirm a date. 7. I continued to attempt to arrange the second mediation with Mr Alves in March 2026. 8. In March 2026, in response to Mr Alves is apparent acceptance of my offer, I secured the finance facility... 9. In April 2026, I asked Mr Alves to give me a definite answer regarding my buy out offer as a deadline was approaching regarding the loan facility. Mr Alves refused to either accept or decline my offer. It became apparent to me that Mr Alves was not serious about agreeing the buy out we had been negotiating and was simply delaying the process. As I no longer believe that there was going to be a negotiated solution by which Mr Alves would remove himself from the Company, and because I could no longer wait given the risk to the Company, I instructed my lawyer to bring these proceedings.”
[162]The accuracy of this evidence was not challenged. Indeed, the attempt to negotiate a buy out was relied upon by Mr Steinmetz as the basis of his suggestion that the claim was not brought in good faith. In the light of this evidence, I do not accept that there was delay of the kind that should disentitle Mr De Menezes to injunctive relief. Reasonable attempts were being made to resolve the dispute without bringing proceedings. Mr De Menezes incurred a substantial fee (which was lost) in arranging a bank facility in readiness for the buy out, which then did not happen.[163]Despite the delay being non-culpable, the fact that 7 months did go by with Cobogo starting to develop its business is nevertheless a factor in the balance of convenience. It is an aspect of the status quo.[164]Weighing all these matters, it seems to me that the balance of convenience just falls in favour of refusing to grant injunctive relief provided that Mr Alves is willing to offer a degree of protection to OIL consistent with the position that was advanced on his behalf. This protection should be by way of undertaking that he will not until trial or further order, through Cobogo or by other means, produce or sell classic European-style furniture or bespoke furniture designed and made from scratch, and that he will not save for the purpose of OIL’s business make any use whatsoever of commercially confidential data, information or designs to which he has, or has had, access only as a director of OIL.[165]If those undertakings, or undertakings to the same substantial effect, are confirmed and given, I will not grant interim injunctive relief.[166]If these undertakings or undertakings to the same substantial effect are not given, I will grant the non-proprietary injunction sought, but with liberty to Mr Alves to apply on notice to offer suitable non-compete undertakings. I also make clear that the injunction will cease to have effect if Mr Alves resigns as a director of OIL, since Mr De Menezes accepts that any amount of competition is legitimate if Mr Alves is not a director of OIL and is not making use of OIL’s confidential information that he obtained in that capacity.[167]I shall require the parties to attempt to agree the terms of an order giving effect to my judgment, following the electronic hand down. Any matters that cannot be agreed must be addressed in a short note (no more than 5 pages) attaching a draft of the order sought.

The conduct of these applications

[168]I have already adverted to the inadequate hearing time for these applications.[169]The hearing was originally listed on 24 June 2026 for the injunction application, which had been estimated to require 3-4 hours of court time. By the time of that listing (12 May 2026), the application to continue the derivative action had not been dealt with on the papers. Mr De Menezes’s solicitors, Candey, wrote to Chancery Listing on 18 May 2026, noting the 1-day listing for 24 June 2026, inviting the court to deal with the paper application for permission to continue and then list the inter partes hearing of that application for the same date as the injunction application.[170]The letter stated: “… in relation to whether the Injunction Hearing on 24 June 2026 can accommodate both the hearing of the Injunction Application and the stage-two permission test, it is the Claimant’s position that it can”.[171]On 19 May 2026, Michael Green J’s clerk informed the parties that first stage permission would be considered in the usual way, on the papers. No direction was made as to the listing of the inter partes hearing of the permission application, should it be granted on paper.[172]On 26 May 2026, Thompsell J gave permission to continue on paper but did not make directions for an inter partes hearing.[173]On 29 May 2026, Candey wrote again to Chancery Listing, referring to the 1-day hearing of the injunction application and re-stating their position that the permission hearing could be accommodated in the same 1-day hearing of the injunction application. Chancery Listing confirmed on 12 June 2026 that it had been so listed.[174]A one-day estimate for both the injunction application and the permission application was wholly inadequate. No reasonable solicitor considering the nature of the two applications could have considered that the permission application could be dealt with in court with no (or very little) additional time than was estimated for the injunction application. As the length of this judgment demonstrates, a vigorously contested permission application, as this was, can be a weighty matter and will require detailed submissions and careful analysis.[175]The limited time available in court resulted in both Counsel acknowledging that they were under considerable pressure to make their submissions in the time available. The speed at which the parties were having to proceed made it more difficult for the court to absorb the detail of the case at the hearing, and imposed a far heavier burden than should have been the case following the hearing. Exhibits and authorities were barely referred to in the hearing, and were mostly left as references in skeleton arguments, for the court to investigate at a later time, to the extent that it was willing to do so.[176]This is, regrettably, not an egregious case. All too often in the recent past, judges have been faced with hearings with very ambitious time estimates, whether applications or trials, and manifestly inadequate pre-reading estimates. It is difficult to avoid the suspicion that hearing time estimates are understated in order to obtain an earlier hearing date. The parties in this case should have pointed out to Chancery Listing instead that directions were required from a judge about the inter partes hearing of the permission application.[177]For the avoidance of doubt, when considering the time needed for pre-reading, a judge who has no familiarity with the facts of a case is unable to read in a useful way at a speed of 50 or more pages per hour. I have personally had experience of reading estimates that would have required reading at double that speed for it to be completed in the time suggested.[178]The practices that I have identified must stop. Legal representatives are on notice that hearings are likely to be adjourned at a late stage if it is apparent to the judge that the time allowed or estimated is manifestly insufficient. Costs consequences may well follow if that is the case.