The s.994 jurisdiction where a member's shares are compulsorily acquired under the company's own machinery. Unfairness is measured against the bargain in the articles rather than at large. O'Neill v Phillips; Re Charterhouse Capital Ltd.
Informal unanimous assent of members; curing irregularities in company procedure. Buckley J held at 373 that where it can be shown that all shareholders who have a right to attend and vote at a general meeting of the company assent to some matter which a general meeting of the company could carry into effect, that assent is as binding as a resolution in general meeting would be. The origin of the Duomatic principle. Its limits matter as much as its content: it operates on the assent of the members, so it does not cure defects in the proceedings of the board, and it requires actual assent from every member entitled to vote rather than acquiescence by some. Where a shareholder-director is excluded from an inquorate board meeting and has assented to nothing, Duomatic offers the company nothing.
Just and equitable winding up; quasi-partnership; equitable constraints on strict legal rights. Lord Wilberforce held that a limited company is more than a mere legal entity: there is room in company law for recognition of the fact that behind it there are individuals with rights, expectations and obligations inter se which are not necessarily submerged in the company structure. Equitable considerations may make it unjust to insist on strict legal rights, typically where there is a personal relationship involving mutual confidence, an agreement that some or all shareholders participate in management, and restrictions on the transfer of shares. A member excluded from management may complain even though the majority acted in good faith and in the interests of the company. The foundation of the modern quasi-partnership doctrine and of the s.994 jurisdiction.
Unfair prejudice; pre-emption article; independence of the valuer. Where the articles provided for the auditor to determine the fair value of the shares, Morritt J declined to strike out the petition on the ground that this was not a case where the auditor was, and could be seen to be, wholly independent of the respondents and to have no connection with the transactions complained of: the auditor had advised the directors at the time of the impugned transfer and had sworn an affidavit appearing to prejudge the issues. Authority that equity may intervene in contractual valuation machinery where the person operating it is not independent of those who benefit from it.
Unfair prejudice; s.459 Companies Act 1985 (now s.994 Companies Act 2006). Lord Hoffmann held that unfairness is judged against the terms on which the parties agreed the company's affairs would be conducted, found in the articles and any collateral agreement, and against the equitable constraints which make it unfair to rely on strict legal rights. There is no free-floating concept of unfairness. Two situations are contemplated: departure from the agreed terms, and use of the rules in a way equity would not permit. The requirement that prejudice be suffered as a member should not be too narrowly or technically construed. In an exclusion case the unfairness lies not in the exclusion alone but in exclusion without a fair offer to buy the minority out. The leading modern authority.
Unfair prejudice; arbitration. Shareholders may lawfully agree to submit their disputes to arbitration, and an arbitration agreement will be enforced according to its terms even where the dispute falls within the court's jurisdiction under ss.994 to 996 and even though the arbitrator's powers are narrower than the court's. The risk that the arbitration does not provide as complete a remedy falls on the wronged shareholder. Reported at [2012] Ch 333. The first question to ask of any shareholders' agreement before a petition is presented.
Unfair prejudice; remedy; share valuation. The valuation judgment following a finding of unfair prejudice. It was agreed that the date of valuation should be the date of the main judgment and that there should be no discount for the minority shareholding. Roth J determined the open market value of the company's properties, the deduction to be made for contingent tax liability on a disposal, whether interest should be paid on the price and by whom the purchase should be made, and held that the court has power under s.996(1) to order that a charge be given to protect the outgoing shareholder against a contingent liability under a guarantee. A useful illustration of the breadth of s.996(1) and of the practical mechanics of a buy-out order. Reported at [2012] WTLR 165; the liability judgment of 24 February 2010 is reported at [2011] WTLR 519.
Unfair prejudice; bad leaver provisions; expropriation at nominal value. Hildyard J held there was no jurisdiction under s.994 to displace the operation of pre-emption provisions even where the price payable was nominal and the company was said to be a quasi-partnership: that was the contract the parties made, and there were no grounds for equitable intervention on the basis that the bargain was unconscionable. But the concession is important. At [55] such provisions should be strictly interpreted, exercised in good faith and not permitted to be used for unworthy purposes, on account of the abuse which may be made of them and of the hardship of expulsion, citing Blisset v Daniel. At [56] the real issue determinative of the case is whether the departing shareholder was a bad leaver. The essential authority on both sides of a leaver dispute.
Unfair prejudice; compulsory acquisition of shares under the company's own machinery; alteration of articles. Sub nom Arbuthnott v Bonnyman. The Court of Appeal upheld the compulsory acquisition of a founder member's shareholding on a management buy-out and dismissed the petition. Machinery which is lawfully triggered and honestly operated does not become unfairly prejudicial merely because the price it produces is unattractive to the outgoing member. The starting point remains the bargain the parties made. The principal authority relied on by respondents defending a compulsory transfer, and the case any petitioner attacking leaver machinery must distinguish.
Unfair prejudice; pleading; conduct of the company's affairs. A Practice Note decision of the Court of Appeal. The acts complained of must either be an act or omission of the company, or be conduct of the company's affairs rather than acts done in the conduct of a shareholder's personal affairs, and satisfaction of that requirement is not to be overlooked or minimised. Petitions and statements of case must make clear which limb of s.994 is relied upon and contain a concise statement of the facts relied on to make it out. A concise statement of personal acts of the respondents causally connected to an act or omission of the company may be included to support the primary allegation, but there is no justification for allegations of personal conduct which are not so connected. Graham v Every applied.
Unfair prejudice; standing; s.994(1) and s.112 Companies Act 2006. The petitioner's shares were subject to a charge whose terms permitted the company to act as his attorney and transfer the shares to itself on enforcement. The transfer was effected and he was removed from the register. Held, dismissing the strike-out application, that s.994(1) is directed to the commencement of proceedings and to those who have standing to bring them; there is no requirement that the shares continue to be held by the petitioner up to the hearing of the petition, and he had not lost standing. The remedies under s.996 are very wide and are not restricted to the remedy identified in the petition. Decisive on timing: presenting the petition before the register is altered fixes standing.
Shareholder disputes; use of company funds in litigation between shareholders. Reviewing the authorities, the court concluded at [66] that whatever the procedural context, if the real contest is between parties other than the company itself, it is a misfeasance for the company's directors to cause its funds to be expended on the legal costs of that contest. An injunction restraining the company from incurring such costs was granted on American Cyanamid principles. The practical remedy where a controlling shareholder funds the defence of an unfair prejudice petition out of the company.
Unfair prejudice; bad leaver; standing; rectification of the register within a petition. The petitioner, a 30 per cent shareholder, was dismissed following disciplinary proceedings, removed as a director and treated as a bad leaver under the articles, with his shares automatically converted and transferred for nominal consideration and his name removed from the register. He impugned the disciplinary proceedings as a pre-orchestrated device to remove him and deprive him of his shares, and sought both retrospective rectification under s.125 Companies Act 2006 and relief under s.994 in a single petition. Held, dismissing the strike-out application, that the court could determine a dispute as to standing, including one involving retrospective rectification, within the petition, whether as a preliminary issue or at trial. Standing was directed to be tried first. The template for a dismissal-driven expropriation claim.
Directors' duties; good faith; s.172(1) Companies Act 2006. The Supreme Court held that the requirement of good faith in s.172(1) governs a director's conduct, not merely his state of mind. A director who covertly subverts a strategy resolved upon by the board, concealing his course of action and misleading his fellow directors, acts in bad faith towards the company notwithstanding a genuine belief that he is serving its best interests. Respect for business judgment (Re Smith and Fawcett; Regentcrest) attaches to the merits of a decision, not the manner of its covert pursuit. Where a fiduciary duty of loyalty applies, the duty itself supplies the analytical framework and elaboration by reference to Ivey dishonesty is unnecessary. Expressly approves Item Software v Fassihi and Shepherds Investments v Walters on disclosure as an aspect of the loyalty duty.