Ntzegkoutanis v Kimionis [2023] EWCA Civ 1480

Shareholders in a cryptocurrency wallet company disputed whether unfair prejudice petition claims seeking relief for the company (compensation and constructive trust declarations) could proceed without derivative claim permission. The Court of Appeal held such claims are not barred by s.260 Companies Act 2006 and need not satisfy derivative claim requirements when pursued within genuine unfair prejudice proceedings.

Facts

Mr Ntzegkoutanis and Mr Kimionis each held 50% of shares in Coinomi Limited, a company formed to exploit a cryptocurrency wallet application. Mr Ntzegkoutanis alleged he was excluded from management and that Mr Kimionis misappropriated company assets by transferring the business, intellectual property, trademarks, and domain names to Cypriot and BVI companies under his control. The petition sought an order requiring Mr Kimionis to sell his shares, orders for compensation and accounting to the Company, and declarations of constructive trust in favour of the Company.

Proceedings Below

HHJ Klein struck out paragraphs 32.2 and 32.3 of the petition (seeking relief for the Company) applying what he termed the ‘Chime approach’, holding that claims which could be brought as derivative claims should only rarely proceed via unfair prejudice petition.

Issues

1. Whether section 260(2) of the Companies Act 2006 requires claims seeking relief for the company in unfair prejudice proceedings to obtain permission under the derivative claim regime.

2. Whether the ‘Chime approach’ from Hong Kong represents English law, requiring such claims to be struck out unless exceptional circumstances exist.

Judgment

Section 260 Argument

The Court rejected the argument that s.260(2) barred the claims. Lord Justice Newey held that while the claims were ‘in respect of a cause of action vested in the company’ under s.260(1)(a), they were not ‘seeking relief on behalf of the company’ under s.260(1)(b):

“Mr Ntzegkoutanis is seeking relief which, if granted, will benefit the Company, but he is asking for it in his own right rather than on behalf of the Company. He is exercising his personal entitlement, as a member of the Company, to apply to the Court on unfair prejudice grounds pursuant to section 994 of the 2006 Act.”

Lord Justice Snowden reached the same conclusion but additionally held that s.260(1)(a) was not satisfied, as proceedings brought pursuant to a personal right under s.994 are not representative proceedings to enforce the company’s cause of action.

The Chime Approach

Lord Justice Newey rejected the Judge’s adoption of the ‘Chime approach’ as English law, stating:

“I do not, with respect, consider that what the Judge called ‘the Chime approach’ represents the law in this jurisdiction. In particular, I do not think that it is only a ‘rare and exceptional case’ that the Court ‘will permit to proceed by way of an unfair prejudice petition when it would otherwise be brought by way of a derivative claim’.”

The Court held that where a petition genuinely seeks both relief for the company and relief only available in unfair prejudice proceedings (such as share purchase orders), it would not ordinarily be appropriate to strike out either head of relief. As Vos J stated in Fi Call:

“sections 994-996 of the 2006 Act ‘provide a wide and flexible remedy’ and ‘[a]rtificial limitations should not be introduced to reduce the effective nature of the remedy introduced by ss.994-996’.”

Implications

This decision clarifies the relationship between unfair prejudice petitions and derivative claims in English law. The Court confirmed that: (1) the Court has power to grant relief benefiting the company on an unfair prejudice petition; (2) such claims are not automatically subject to derivative claim permission requirements; (3) the ‘Chime approach’ from Hong Kong does not represent English law; (4) where a petitioner genuinely seeks both personal relief and relief for the company, both may properly be pursued in unfair prejudice proceedings; and (5) case management, rather than strike-out, is the appropriate response to complexity in determining company-benefit claims.

Verdict: Appeal allowed. The application to strike out paragraphs 32.2 and 32.3 of the petition was dismissed. The claims for compensation and constructive trust declarations in favour of the Company could proceed as part of the unfair prejudice petition.

Source: Ntzegkoutanis v Kimionis [2023] EWCA Civ 1480