012007 unfair prejudice booklet

Commercial & ChanceryPractice Group

Shareholder Protection from Unfairly Prejudicial Conduct

Case and Statute Citator

Introduction

Part 30 of the Companies Act 2006 enables a shareholder in acompany who is being treated in an ‘unfairly prejudicial’ way to seekrelief from the Court. Typically, these cases involve companies withrelatively small numbers of shareholders. Those shareholders areusually also directors and may be the only directors of the company.The shareholders/directors will generally have fallen out with eachother. Such falling out is often as a result of an exclusion of oneshareholder/director by another from the affairs of the company. Onother occasions, they may have fallen out because of themisappropriation by one shareholder/director of property belonging tothe company or of a business opportunity that might have beenenjoyed by the company. This legislation gives the Court very widepowers to control the conduct of the affairs of the company and itsshareholders/directors. Such proceedings regularly result in the Courtordering that one shareholder/director should purchase the shares ofanother at a value determined by the Court to be fair in thecircumstances.

Contents

Statutory Basis 4

Procedure 5

Interim injunctions and security for cost 6

Nature of unfair prejudice 8

Petition struck out as abuse of process 13

What relief will be ordered? 15

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Andrew Marsden, St John’s Chambers

Andrew Marsden was called to the Bar in1994, having previously qualified andpractised as a solicitor with Freshfields.

Andrew is recognised as a company andcommercial law expert and is described inthe Legal 500 as ‘an excellent,commercially minded advocate whoshould go to the top’.

Unfair Prejudice ClaimsCase and Statute Citator

Comprising law as of 1st March 2008

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Member’s statutory right to petition forrelief from unfair prejudice

Secretary of State’s statutory right topetition for relief from unfair prejudice

Court has unlimited power to make suchorder as it sees fit for giving relief in respectof unfair prejudice

The right to petition under section 994Companies Act 2006 is an inalienablestatutory right which cannot be limited orremoved whether by contractualagreement or otherwise

Definition of ‘member’

Query whether a majority shareholder cancomplain of unfair prejudice

Section 994 Companies Act 2006(Previously Section 459 Companies Act 1985)



Exeter City AFC Ltd-v-The Football ConferenceLtd [2005] 1 BCLC 238.


Re Nuneaton Borough AFC Ltd [1989] 5 BCC377

Re a Company (No: 003160 of 1986) [1986]BCC 99,276

Re a Company (No: 007828 of 1985) [1986] 2BCC 98,951

Re Quickdome Ltd [1988] BCLC 370

Jaber-v-Science & Info Tech Ltd [1992] BCLC764

Re a Company (No: 00506 of 1995)(unreported) 29th June 1995

Atlasview Ltd-v-Brightview Ltd [2004] EWHC1056

Re McCarthy Surfacing Ltd [2006] EWHC 832

Re Baltic Real Estate Ltd [1992] BCC 629

Re Legal Costs Negotiators Ltd [1999] BCC 547

Statutory Basis

Separate petition for each company inrespect of which unfair prejudice is alleged

Form of petition

Who should be joined in the petition?

A respondent may have the petition struckout as against him if no relief will begranted against him and he will not beaffected by an order detail

A prayer for a winding up should not beincluded where appropriate

Re a Company [1984] BCLC 307

The Companies (Unfair Prejudice Applications)Proceedings Rules 1986 (SI 1986 No: 2000)

Re a Company (No: 007281 of 1986) [1987] 3BCC 375

Re a Company (No: 005287 of 1985) [1986] 1WLR 281

Re BSB Holdings Ltd [1992] BCC 915

Re Baltic Real Estate Limited [1992] BCC 629

Re Saul D Harrison & Sons plc [1995] BCLC 14

Supreme Travels Ltd-v-Little OlympianEach-Ways Limited [1994] BCC 947

Lowe-v-Fahey [1996] 1 BCLC 262

Re Ravenhart Service (Holdings) Ltd [2004] 2BCLC 696

Supreme Travels Ltd-v-Little OlympianEach-Ways Ltd [1994] BCC 947

Re a Company (No: 004415 of 1996) [1997] 1BCLC 479

CPR Practice Direction in respect of applicationsunder the Companies Act 1985 and theInsurance Companies Act 1982 para 9(1)


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Procedure

The petitioner must have appropriate locus Baker-v-Potter [2005] BCC 855

Re McCarthy Surfacing Ltd [2006] EWHC 832

6 |

Rules of the Supreme Court applicable

Leave required to serve petition outside ofjurisdiction

On return day the court will give directionsfor progress of petition (statements ofcase, preliminary issues, mediation,disclosure, witness statements, expertevidence, etc)

Rule 2(2) of The Companies (Unfair PrejudiceApplications) Proceedings Rules 1986 (SI 1986No: 2000)

Spiliada Maritime Corp-v-Cansulex Ltd [1987]AC 460

Re Harrods (Buenos Aires) Ltd [1991] BCC 249

Re Baltic Real Estate Ltd [1992] BCC 629


Re Rotadata Ltd [2000] BCLC 122

Interim injunctions and security for cost

Interim relief not available under section461 Companies Act 1985 before unfairprejudice is established but interiminjunctions are available under SupremeCourt Act 1981

Re a Company (No: 004175 of 1986)[1987] 3 BCC 41

Re a Company (No: 004502 of 1988)[1991] BCC 234

Re Posgate & Denby (Agencies) Ltd [1986] 2BCC 99

Re a Company (No: 00596 of 1986) [1986]2 BCC 99,352

Re Sticky Fingers Restaurant Ltd [1991] BCC754

Re Mountforest Ltd [1993] BCC 565

Lunn-v-All Starr Video Ltd [1993] 137 SJ108

Re Tottenham Hotspur plc [1994] 1 BCLC655

Security for costs may be ordered

Interim orders may be refused if sufficientundertakings are given as to the futureconduct of the company

Re a Company (No: 003061 of 1993) [1994]BCC 883

Re Whitchurch Insurance Consultants Ltd[1994] BCC 51

Re BML Group Ltd [1994] BCC 502

Wright, Petitioners [1997] BCC 198

Wilson-Davies-v-Kirk [1997] BCC 770

Corbett-v-Corbett [1998] BCC 93

Trident European Fund-v-Coats Holdings Ltd[2003] EWHC 2471

Re Ravenhart Service (Holdings) Ltd [2004] 2BCLC 376

Re Premier Electronics (GB) Ltd [2002] 2 BCLC634

Williams-v-Brinkmann [2004] EWHC 601

Pringle-v-Callard [2007] EWCA Civ 1075

Section 726 Companies Act 1985

CPR 25.12

Re Unisoft Group Ltd [1992] BCC 494 and[1994] BCC 11

Re Tottenham Hotspur plc (Unreported) July1993

Re Sherborne Park [1986] 2 BCC 99,528

Re Kenyon Swansea [1987] 3 BCC 259

Re Crossmore Electrical and Civil EngineeringLtd [1989] 5 BCC 37


Re Hydrosan Ltd [1991] BCC 19

Re Milgate Developments Ltd [1991] BCC 24


Re a Company (No: 001126 of 1992) [1993]BCC 3257 |

Not usually proper for respondents to usecompany funds to defend a petition

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Unfair prejudice must comprise conduct ofthe company’s affairs and be an act oromission of the company or an act oromission on its behalf

Conduct complained of is ordinarily that ofcontrollers of the company

Re Gorwyn Holdings Ltd [1985] 1 BCC 99,479

Re a Company [1987] BCLC 141

Re Kenyon Swansea Ltd [1987] 3 BCC 259


Lloyd-v-Casey [2002] 1 BCLC 454

Re a Company (No: 001761 of 1986) [1987]BCLC 141

Re Kenyon Swansea Ltd [1987] 3 BCC 259

Re Piccadilly Radio Plc [1989] 5 BCC 692



Re Unisoft Group Ltd (No: 3) [1994] 1 BCLC609

Re Leeds United Holdings plc [1997] BCC 131


SCWS-v-Meyer [1959] AC 324

Re Bovey Hotel Ventures Ltd (unreported) 31July 1981

Nature of unfair prejudice

Unfair prejudice may consist of acts oromissions committed in the past, beingcurrently committed or which areanticipated

Corbett-v-Corbett [1998] BCC 93

Cas (Nominees) Ltd-v-Nottingham Forrest plc[2002] BCC 145

Arrow Trading & Investments-v-EdwardianGroup Ltd [2003] EWHC 2863

Pollard-v-Pollard and others LTL 26/09/2007

‘Unfairness’ to be judged by ordinarymeaning of the word and does not requireinfringement of legal rights. Keepingpromises and honouring agreements arethe ‘watchwords’

Both ‘unfairness’ and ‘prejudice’ need to beestablished objectively

Petitioner’s shares need not have decreasedin value

Petitioner’s interests in his capacity as amember must be affected by the conductcomplained of

Re R. A. Noble (Clothing) Ltd [1983] BCLC 273



Re Saul D Harrison & Sons plc [1995] BCLC 14

Re Blue Arrow plc [1987] BCLC 585

Re Saul D Harrison & Sons plc [1995] 1 BCLC14

Re BSB Holdings Limited (No: 2) [1996] 1BCLC 155

Re Marchday Group [1998] BCC 800

O’Neill-v-Phillips [1999] 1WLR 1092



Re Ringtower Holdings plc [1989] 5 BCC 82



Re Blackwood Lodge [1997] BCC 434


McGuiness, Petitioners [1988] 4 BCC 161


Re Alchemea Ltd [1998] BCC 964


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10 |

Of primary importance in identifying rightsand interests of members are thememorandum and articles of associationand any shareholders’ agreements

In certain cases unfair prejudice may arisedespite the absence of any breach of a legalright but where there is only a failure tofulfil a ‘legitimate expectation’ of amember arising from an understanding ornon legally binding agreement betweenmembers which would make it unjust,unfair or inequitable were the majoritypermitted to enforce their strict legalrights. Such a ‘legitimate expectation’might be that the member should continueto be employed as a director or/ and beallowed to participate in management ofthe company

It is unlikely that any ‘legitimateexpectations’ will exist in relation to listedpublic companies

Of itself, an irretrievable breakdown inrelations does not constitute unfairlyprejudicial conduct. There must be a‘legitimate expectation’ of continuinginvolvement

Generally mere mismanagement will notconstitute unfair prejudice though it mightin extreme cases


O’Neill-v-Phillips [1999] 1 WLR 1092

Re a Company ( No: 00477 of 1986) [1989] 5BCC 82

Re J E Cade & Son Ltd [1992] BCLC 213


Re R & H Electric Ltd-v-Haden Bill Electrical Ltd[1995] 2 BCLC 280

Re Leeds United Holdings plc [1997] BCC 131

Quinland-v-Essex Hinge Co Ltd [1997] BCC 53



Mears-v-R Mears & Co (Holdings) Ltd [2002] 2BCLC 1

Re Astec (BSR) Plc [1998] 2 BCLC 556




McKee-v-O’Reilly [2003] EWHC 2008

Re Elgindata Ltd [1991] BCLC 959


Re Macro (Ipswich) Ltd [1994] BCC 781

The petitioner’s own conduct may result in‘prejudicial’ conduct not being’unfair’

If directors exceed the powers vested inthem or exercise those powers otherwisethan in the best interests of the companyas a whole or otherwise breach theirfiduciary duties a member may generallycomplain of unfair prejudice in the conductof the company

Excessive remuneration

Failure to hold meetings

Failure properly to pay dividends

Re London School of Electronics Ltd [1986] Ch211

Re Ringtower Holdings plc [1989] 5 BCC 82

Baker-v-Potter [2005] BCC 855

Blackmore-v-Richardson [2005] EWCA Civ1356

Grace-v-Biagioli [2006] BCC 85

Re D. R. Chemicals Ltd [1989] 5 BCC 39


Re BSB Holdings (No. 2) [1996] 1 BCLC 155

CAS (Nominees) Ltd-v-Nottingham Forrest plc[2002] BCC 145

Re Cumana [1986] 2 BCC 99,453 and [1986]BCLC 430

Re Campbell Irvine (Holdings) Ltd [2006]EWHC 406


Re Ghyll Beck Driving Range Ltd [1993] BCLC1126

McGuinness, Petitioners [1988] 4 BCC 161

Re Sam Weller & Sons Ltd [1989] 5 BCC 810



Re Metropolis Motorcycles Ltd [2006] EWHC364

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12 |

Misapplication of company funds orproperty

Unfair calls on shares

Selective share issues

Failure to provide proper information as tocompany’s affairs

Ignoring board decisions

Wrongful registration of new members

Misuse of company funds to pay forwrongdoers’ costs

Re Stewarts (Brixton) Ltd [1985] BCLC 4


Re Cumana Ltd [1986] BCLC 430


Re Little Olympian Each-Ways Ltd (No. 3)[1995] 1 BCLC 636



Re a Company (No: 0026712 of 1984) [1985]BCLC 80

Re D.R. Chemicals Ltd [1989] 5 BCC 39

Re Regional Airports Ltd [1999] 2 BCLC 30

Dalby-v-Bodilly [2004] EWCA 3078

Re a Company (No: 008699 of 1985 [1986] 2BCC 99,024

Re R.A. Noble (Clothing) Ltd [1983] BCLC 273

Randall-v-S & F (Quarries) Ltd (unreported) 12October 19947

Re H. R. Harmer Ltd [1959] 1 WLR 62

Re Piccadilly Radio plc [1989] 5 BCC 692

Re Hydrosan Ltd [1991] BCC 19

Ex parte Johnson [1991] BCC 234

Committing criminal offences

Directors must act fairly as betweendifferent classes of shareholders

Delay in bringing proceedings may be a barto relief

Petition struck out as abuseof process

It may amount to an abuse of process for aperson to issue a petition in circumstanceswhere there has been unfair prejudice if thearticles of association or shareholders’agreement contains a mechanism foroffering his shares to the othershareholders at a fair price and forcalculating the fair price unless that personhas first utilised that procedure

No abuse if impropriety affects value orvaluation

No abuse if mechanism for fixing price isnot fair

Bermuda Cablevision Ltd-v-Colica Trust Co Ltd[1997] BCC 982

Re BSB Holdings Ltd (No: 2) [1996] 1 BCLC155

Re D R Chemicals Ltd [1989] 5 BCC 39

c.f. Price-v-Rawlings (unreported)

Re Grandactual Ltd [2006] BCC 73



Re Castleburn Ltd [1989] 5 BCC 652

Re Benfield Greig Group plc [2002] BCC 256


North Holdings Ltd-v-Southern Tropics Ltd[1999] BCC 746

c.f. Fuller-v-Cyracuse Ltd [2001] BCC 806


Re Abbey Leisure Ltd [1990] BCC 60


Re Copeland & Craddock Ltd [1997] BCC 294

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No abuse if valuer is not independent

Issue of petition may amount to an abuseof process even though there has beenunfair prejudice if clear that petitioner willhave to sell his shares to the respondentand the petitioner has unreasonablyrejected a reasonable offer to purchase hisshares at a fair price

It may amount to an abuse of process if theactions complained of amount only tobreaches of duties owed by directors suchthat the appropriate method of complaintwould be by means of a derivative actionrather than by an unfair prejudice petition

Uncertain whether petition will be stayedin face of an agreement to arbitrate


Re Boswell & Co (Steels) Ltd [1989] 5 BCC 145

Re Benfiled Greig Group plc [2002] BCC 256





West-v-Blanchet [2000] 1 BCLC 795

Wyatt-v-Frank Wyatt & Son Ltd [2003] EWHC520

Isaacs-v-Belfield Furnishings Ltd [2006] All ER(D) 216

Re Chime Corp Ltd [2004] 3 HKLR 922

c.f. Re Brightview Ltd [2004] BCC 542

Re Vocam Europe plc [1998] BCC 396

Shalson-v-D. F. Keane (unreported) 21 March2003

Eurotunnel-v-Balfour Beatty [1992] 2 Lloyd’sRep 7

Exeter City AFC Ltd-v-Football Conference Ltd[2005] 1 BCLC 238

What relief will be ordered?

No limit on types of order court may maketo give relief in respect of matterscomplained of. Petitioner must state reliefhe seeks

The court will not grant relief where it willserve no substantially useful purpose

Court will grant the minimum remedy torepair the misconduct and unfair prejudicesuffered

Often relief given by buy out order at pricefixed by court in light of expert valuationevidence

Rarely will court order a majorityshareholder to cede control to a minorityshareholder


Re Bird Precision Bellows [1986] Ch 658

Re Nuneaton Borough AFC Ltd (No:2) [1991]BCC 44

Each-Ways Ltd [1994] BCC 947

Supreme Travels Ltd-v-Little Olympian

Re J.E. Cade & Son Ltd [1992] BCLC 213

c.f. Re Full Cup Int. Trading Ltd [1998] BCC 58

Re a Comapnay (No: 008126 of 1989) [1992]BCC 542

Re Full Cup Int. Trading Ltd [1998] BCC 58

Re Hailey Group Ltd [1993] BCLC 459

Grace-v-Biagioli [2006] BCC 85

Re Metropolis Motorcycles Ltd [2006] 364



Re Nuneaton Borough AFC Ltd (No: 2) [1991]BCC 44



Re Brenfield Squash Rackets Club Ltd [1996] 2BCLC 184

Nuneaton Borough AFC Ltd [1989] 5 BCC 792

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16 |

Impecuniosity of proposed purchaserirrelevant

Payment on account can be ordered

Buyout price to be fair

Buyout price to take account of reductionin share value as a consequence of unfairlyprejudicial conduct

In ‘quasi-partnership’ cases there isgenerally no discount applied to reflectminority shareholding status. Position isotherwise where not a ‘quasi-partnership’

Generally valued as at date of buy out orderbut this may be varied if justice of caserequires


Ferguson-v-Maclennan Salmon Co Ltd [1990]BCC 702

Dalby-v-Bodilly [2004] EWCA 3078

Re Bird Precision Bellows Ltd [1986] Ch 658

Re D. R. Chemicals Ltd 5 BCC 39

Re Bird Precision Bellows Ltd [1984] Ch 658


Howie-v-Crawford [1990] BCC 330


Re Planet Organic Ltd [2000] 1 BCLC 366

CVC Opportunity Equity Partners Ltd-v-Demarco Almeida [2002] 2 BCLC 108

Phoenix Office Supplies Ltd-v-Larvin [2002]EWCA Civ 1740

Re Jayflex Construction Ltd [2003] EWHC 2008

Strahan-v-Wilcock [2006] EWCA Civ 13

Re Campbell Irvine (Holdings) ltd (No:2) [2006]EWHC 583



Re O. C. Transport Services Ltd [1984] 1 BCC99,068

Re D.R. Chemicals Ltd [1989] 5 BCC 39

Interest may be awarded in addition toprice

Relief may also take the form of ordersregulating conduct of the affairs of thecompany

Relief may also take form of an order tomake good a company’s assets and ashareholder will not be penalised fromseeking such relief merely because he willonly benefit as a creditor because of theinsolvency of the company.

Declaratory relief may also be given (evenon a summary basis)

Other specified forms of relief

Petition to wind up may be adjournedpending determination of claim for reliefunder Section 994 Companies Act 2006


Profinance Trust SA-v-Gladstone [2002] BCC356

Re Clearsprings (Management) Ltd [2003]EWHC 2516

Bennett-v-Bennett (unreported) 17 January2003

Harrison-v-Thompson [1992] BCC 962

Profinance Trust-v-Gladstone [2002] 1 BCLC141

Re H R Harmer Ltd [1959] 1 WLR 62

Whyte, Petitioner 1984 SLT 330

McGuiness-v-Bremner plc [1988] BCLC 673

Grace-v-Biagioli [2006] 2 BCLC 70

Gamlestaden Fastigheter ATS-v-Baltic PartnersLtd [2007] UKPC 26

AB-v-Baltic Partners Ltd [2007] UKPC 26

Hawkes-v-Cuddy & others [2007] EWHC 1789

Section 996 Companies Act 2006

(Previously Section 461(2) Companies Act1985

Re Minrealm Ltd [2007] EWHC 3078

17 |

Robin Neill, Head of Practice Group 1979Leslie Blohm QC 1982David Fletcher 1971John Blackmore 1983Richard Stead 1979Charles Auld 1980Peter Wadsley 1984Nicholas Ashton 1982Guy Adams 1989Andrew Marsden 1994John Sharples 1992James Pearce-Smith 2002John Dickinson 1995Alex Troup 1998Christopher Jones 2004Suella Fernandes 2005Richard Gold 2006Andrew Kearney 2007Martin Mann QC (Associate Member) 1968Peter Ralls QC (Associate Member) 1972

Rob Bocock, Practice ManagerDirect Line 0117 923 4714Email [email protected]

Paul Bennett, ClerkDirect Line 0117 923 4793Email [email protected]

© St John’s Chambers, March 2008

Commercial & ChanceryPractice Group

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012007 unfair prejudice booklet

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