Unfair prejudice saga – Court of Appeal tries to impose some order

Six-year pleading saga
Court of Appeal takes firm hand
Comment

In Griffith v Gourgey, the Court of Appeal sought to impose some order on an unfair prejudice petition which had been mired in wrangling over pleadings for six years.(1)

Six-year pleading saga

Mr Griffith is a shareholder in two hotel operating companies, G&G and Bankside. Mr Gourgey's sons own 50% of the shares in G&G and a family trust established by Mr Gourgey owns 50% of the shares in Bankside. In May 2013 Mr Griffith presented an unfair prejudice petition in respect of each company, alleging that Mr Gourgey had caused the companies to make improper payments and seeking an order that the Gourgeys buy his shares. The proceedings continued over the ensuing six years, punctuated by various applications by each party:

• Between May and September 2013, consolidated points of claim, defence and reply were served.
• In September 2013 the Gourgeys failed to respond to a request for further information in respect of their points of defence.
• In November 2014 the Gourgeys were given a last chance to reply to the request for further information but failed to respond.
• In May 2015 the Gourgeys' points of defence were struck out (although they were not debarred from defending the petitions).(2)
• In July 2017 the Gourgeys' appeal on an earlier decided point was dismissed, resulting in further delays.(3)
• In May 2018 the sons applied to strike out the relief against them in the G&G petition on the basis that it disclosed no basis for the buy-out order sought against them or, alternatively, for an order that Mr Griffith had properly particularised his claim against them. The application succeeded and Mr Griffith was given the opportunity to apply to amend, which he did.(4) Mr Griffith also applied to amend in relation to Bankside, to plead that he had acquired additional shares from a bankrupt shareholder to enable him to also seek a buy-out order in respect of the additional shares.
• In July 2018 permission to amend was granted in respect of G&G and Bankside on the condition that the Gourgeys be permitted to plead full defences, notwithstanding the May 2015 decision striking out their points of defence.(5)
• Mr Griffith appealed against the May 2018 and July 2018 decisions.

Court of Appeal takes firm hand

In relation to G&G, the unamended points of claim alleged that "in their breach of their fiduciary duties as directors… Mr Gourgey has… with the support of his sons" caused the alleged improper payments to be made. The petition itself contained no allegation in relation to the sons' support. The Court of Appeal decided, contrary to the view taken at first instance, that this was a proper pleaded basis for a buy-out order against the sons. Although the sons would have been entitled to significant further particulars, they served points of defence in 2013 without seeking them and it was therefore too late to apply to strike out the points of claim on the basis of any lack of particularity. Accordingly, Mr Griffith did not need to pursue his application to amend in relation to G&G, so the issue of the sons being permitted to plead a full defence in response did not arise.

The Court of Appeal also decided that the sons' support should have been alleged in the petition itself, which defined the ambit of the case. However, Mr Griffith was entitled to cure this by amendment and there was no injustice to the sons in that, given that they had known of the case against them since 2013.

In relation to Bankside, the Court of Appeal held that Mr Griffith's proposed amendment simply extended his existing claim for relief to additional shares and did not introduce a new claim for relief. Accordingly, there was no reason to permit Mr Gourgey to plead back and in doing so bypass the order striking out the points of defence. Mr Gourgey was therefore entitled to plead back only to the extent that the extension to additional shares gave rise to new arguments (eg, that Mr Griffith had known of the alleged unfair prejudice when the new shares had been acquired).

Comment

Parties presenting unfair prejudice petitions should ensure that their petition sets out the grounds for relief as these grounds cannot, in general, later be extended in the points of claim. Where points of claim lack particularity or arguably disclose no basis for the relief sought, any request for further information or application to strike out should be brought promptly.

Further, where a party has been subject to a draconian order such as the striking out of their points of defence, the courts will be slow to allow any relief from the consequences of that order, even where there have also been failings by the other party.

The decision concludes with an expression of considerable concern from the Court of Appeal in relation to the resolution of the petitions, with a clear instruction to the courts below to further the overriding objective and control the progress of the proceedings and to the parties to cooperate to achieve a resolution of the dispute or face "stringent orders against them, including as to costs". This shows that (with good reason) the Court of Appeal will not tolerate an unfair prejudice petition being progressed so little in six years.

For further information on this topic please contact Chris Ross or Daniel Hemming at RPC by telephone (+44 20 3060 6000) or email (christopher.ross@rpc.co.uk or daniel.hemming@rpc.co.uk). The RPC website can be accessed at www.rpc.co.uk.

Endnotes

(1) [2019] EWCA Civ 2046.

(2) [2015] EWHC 1080 (Ch).

(3) [2017] EWCA Civ 926.

(4) [2018] EWHC 1035 (Ch).

(5) [2018] EWHC 2807 (Ch).