Kerman & Co successfully obtains injunctions in on-going unfair prejudice proceedings, restraining use of Group Company Funds
Kerman & Co successfully obtains injunctions at two contested hearings; Re Profile Partners Ltd  EWHC 1473 (Ch) (8 June 2020) & Michael Gott v Rune Hauge and Ors  EWHC 1152 (CA) (11 May 2020)
Kerman & Co’s client Mr Gott is a minority shareholder in Profile Partners Limited (“PP London”), a company incorporated in England and Wales (and in a sister company incorporated in Guernsey). PP London, and other corporates within the wider Profile Partners (“PP”) group, carry on business as sports media rights consultants. The majority shareholder is Mr Rune Hauge, the former football agent.
Mr Gott alleges that in 2005 he and Mr Hauge together established the PP business and ran it through a number of companies as a quasi-partnership, until he was wrongfully excluded from the business in 2018.
On 21 October 2019, Mr Gott presented a Petition under s.994 of the Companies Act 2006 against Mr Hauge, Ms Lisa Davey (Mr Hauge’s life partner and also an appointed director of a number of Profile Partners group companies), PP London and other companies within the PP group including the Guernsey company, and two German subsidiaries of PP London.
Earlier, on 21 June 2019, after lengthy correspondence, Mr Hauge and Ms Davey entered into contractual undertakings the purpose of which was protect and preserve the assets of PP London pending the outcome of Mr Gott’s (then prospective) proceedings and to ensure that Mr Hauge and Ms Davey did not obtain an unfair advantage in the litigation via recourse to company funds.
Fieldfisher were instructed on behalf of all Respondents. On 3 March 2020, the Respondents asserted that the contractual undertakings no longer applied on the basis of an alleged “sea-change in the factual and legal position in the case”, that at the time the contractual undertakings were given it had not been anticipated that the Respondent companies would have counterclaims against Mr Gott; it was argued that the companies would therefore need to spend money on legal fees in defending the Petition and pursuing the Counterclaim against Mr Gott. The Respondents also disclosed a consultancy services deed dated 2 March 2020 said to have been made between the German subsidiary and Mr Hauge, and invoices of the same date purporting to claim €1 million payments to Mr Hauge for services said to have been provided during 2018 and 2019, and indicated that they would be making payment of the same.
On 9 March 2020 Mr Gott applied for an injunction to restrain the proposed payments to Mr Hauge. Mr Gott argued that the consultancy services deed was not a genuine arm’s length transaction for services, but rather a means by which Mr Hauge could deplete the PP group’s resources.
Further Mr Gott sought an injunction to enforce the contractual undertakings, and to restrain the use of company funds for the purposes of a purported counterclaim against him on the well-established principle that a company’s resources should not be used to fund what is essentially a dispute between shareholders.
The application first came before ICC Judge Burton on 13 March 2020. Mr Gott succeeded on all issues. ICC Judge Burton granted an injunction restraining the PP group companies from incurring expenditure on legal or other professional services for the purposes of the Petition, and/or the Counterclaim, and/or any other aspect of the dispute between Mr Gott and Mr Hauge and Ms Davey. In addition, the other Respondents provided undertakings not to act contrary to the contractual undertakings and not to pay the invoices pending a further hearing.
Meanwhile, on 9 March 2020, Ms Davey had authorised PP Munich to bring proceedings against Mr Gott in the German Courts. The Respondents failed to mention this at the hearing before ICC Judge Burton, and Mr Gott first became aware of the German claim on 27 March 2020 (three days after the German claim was issued). The German claim duplicated a complaint made in the Defence and Counterclaim against Mr Gott.
Further hearing 19 May 2020
A further hearing took place before Deputy High Court Judge Andrew Lenon QC on 19 May 2020. Judgment was handed down on 8 June 2020. The Court again found for Mr Gott on all issues and granted further injunctions:
- Mr Gott had established a clear case that Mr Hauge and Ms Davey may breach the contractual undertakings by causing the PP group companies to use their funds to pay costs which were properly attributable to Mr Hauge and Ms Davey’s defence of the Petition. Having regard to how the Respondents had pursued the proceedings and the current formulation of the Defence and Counterclaim, the positions of all of the Respondents were inextricably linked. Whilst the contractual undertakings did not purport to restrict the PP group companies from incurring costs on their own counterclaims, there had been no attempt to apportion costs.
- Mr Gott had established a clear case that the PP group companies were in threatened breach of the principle that a company’s money should not be spent on disputes between shareholders. The timing of the counterclaims, which related to matters going back as far as 2005, strongly suggested that “they were brought in response to the Petition rather than bona fide in the interests of the Fifth to Eighth Respondents”. ICC Judge Burton had been justified in her view that the timing of the counterclaims supported the conclusion that “they are part and parcel of the dispute between shareholders” and the “identical nature of the complaints made in the Defence and Counterclaim and German claim points to the same conclusion.” It was immaterial that Mr Hauge and Ms Davey were not shareholders in the German subsidiaries since it would be a breach of duty for directors in a parent company to cause subsidiaries to pay the legal costs of the parent’s majority shareholder in a shareholder dispute, which conduct would also “be capable of constituting unfairly prejudicial conduct”.
- Accordingly, the PP group companies should be restrained from incurring costs on legal or professional services in defending the Petition, in pursuing the Counterclaim, or on any other aspect of the dispute, including the German claim.
- As regarded payment of the invoices, the Court was satisfied on the basis of Mr Gott’s submissions that there was at least a serious issue to be tried as to whether the group companies were entitled to pay them, or make other similar payments. Accordingly it injuncted against their payment. Mr Gott had argued that the fact that he had tolerated similar past payments did not entitle Mr Hauge to payment of these invoices, and that causing or permitting the payments by the German subsidiary would amount to unfairly prejudicial conduct by Mr Hauge and/or Ms Davey. Moreover damages would be an inadequate remedy for Mr Gott.
- Accordingly, Mr Gott was granted all of the injunctions sought over to trial or further order.
The Kerman & Co team is led by Robin Pickworth, supported by Sarah Weindling and Emma Shaw, and instructing James Potts QC and Andrew Blake of Erskine Chambers.