Mission Capital plc v Sinclair [2008] EWHC 1339 (Ch)

Executive directors Ronald and Emma Sinclair were dismissed by non-executive directors for alleged unacceptable conduct. They sought interim injunctions to restore them to employment and directorships, and permission to continue a derivative claim. The court refused both the injunctive relief and permission to continue the derivative action, but allowed joinder of defendants to the counterclaim.

Facts

Ronald Sinclair and his daughter Emma were executive directors of Mission Capital plc, holding minority positions on the board against three non-executive directors. Their employment contracts contained provisions allowing termination for conduct deemed unacceptable by the board, with automatic resignation of directorships upon employment termination.

At a board meeting on 5th February 2008, the non-executive directors purported to terminate the Sinclairs’ employment for failing to submit financial information and meet forecasts. The Sinclairs challenged this, alleging the action was invalid as (1) no unacceptable conduct had occurred, and (2) the non-executives acted for improper purposes to advance other commercial ventures, particularly involving Chelsfield Partners LLP.

Issues

Employment Contract

Whether the Sinclairs could obtain specific performance or interim injunctive relief restoring them to their executive positions.

Directorship

Whether the Sinclairs could be restored to the board pending trial based on the personal rights of directors established in Pulbrook v Richmond Consolidated Mining Company.

Derivative Action

Whether the court should grant permission under section 261 of the Companies Act 2006 to continue a derivative claim against the non-executives and Mr Phillips.

Judgment

On Employment Restoration

Floyd J held that courts will not normally grant specific performance of employment contracts. Citing Sir Donald Nicholls VC in Re Tottenham Hotspur:

“The greater the level of mutual trust required by the contract, the less desirable it is to keep the parties harnessed together.”

The court found no evidence of sufficient mutual confidence between the parties to bring the case within exceptions such as Hill v Parsons. The judge stated:

“It follows that I do not consider it to be seriously arguable on the evidence before me that the Sinclairs will succeed at trial in obtaining the relief now sought by way of injunction to restore themselves to their executive positions within the Company. The necessary evidence of a sufficient degree of mutual trust is simply not present.”

On Directorship Restoration

The court accepted the Sinclairs had an arguable case based on Pulbrook principles but refused the mandatory injunction. Floyd J noted:

“An injunction is mandatory in effect and although I have held this aspect of the case to be arguable, Mr Greenwood did not go as far as to say that I can assume a high degree of confidence that it will succeed.”

On Derivative Action

Applying section 263 of the Companies Act 2006, the court refused permission to continue the derivative claim. While the Sinclairs acted in good faith, the court found that a notional director acting under section 172 would not attach significant importance to continuing such a claim, and the relief sought could alternatively be pursued through an unfair prejudice petition under section 994.

Implications

This case provides early judicial interpretation of the statutory derivative claim provisions under Part 11 of the Companies Act 2006. It demonstrates the two-stage process for permission applications under sections 261-263 and confirms that courts will consider whether alternative remedies (such as unfair prejudice petitions) exist when exercising discretion. The judgment also reaffirms the reluctance of courts to grant mandatory interim relief restoring directors or employees to positions where mutual trust has broken down.

Verdict: The court dismissed the applications for injunctive relief to restore the Sinclairs to employment and directorships, refused permission to continue the derivative action, but allowed joinder of the non-executive directors and Mr Phillips to the counterclaim in the Company’s action.

Source: Mission Capital plc v Sinclair [2008] EWHC 1339 (Ch)