Moordene Ltd & Anor v Trans Global Chartering Ltd & Ors

For a petition under section 459 of the Companies Act 1985, unfair prejudice ordinarily requires a breach of the terms on which the member agreed that the company’s affairs would be conducted. Equitable considerations may nevertheless make reliance on strict legal rights unfair.

Where a company is commercially dependent on a parent or group, using surplus cash within the group may constitute a reasonable commercial judgment in the company’s interests. Disagreement with group banking arrangements does not itself establish unfair prejudice, particularly where the arrangement has caused no material prejudice and has been accepted in practice.

Two minority shareholders, each holding 20 per cent of Trans Global Chartering Ltd, petitioned under section 459 of the Companies Act 1985. They sought authority under section 461 to bring proceedings on behalf of the company against directors and related companies.

The petition alleged that Chartering’s receipts, including profits arising from a contract with Sumitomo Corporation Europe, had been misappropriated or improperly used to support Trans Global Projects Ltd and the wider group. The respondents denied wrongdoing and relied on Chartering’s dependence on Projects for administration, finance, commercial support and the group’s business reputation.

The central issue was whether the company’s affairs had been conducted in a manner unfairly prejudicial to the petitioners’ interests.

1. The petition was dismissed. The proposed proceedings on behalf of Chartering would be bound to fail.
2. Section 459 requires assessment of whether the company’s affairs have been conducted in a manner unfairly prejudicial to members. Applying the guidance in O’Neill v Phillips [1999] 1WLR 1092, a member will not ordinarily establish unfairness without a breach of the terms on which the parties agreed that the company’s affairs would be conducted. Equitable considerations may nevertheless make reliance on strict legal rights unfair.
3. There was no unfair prejudice. Chartering was dependent on Projects for survival, administration, longer-term finance, commercial support and the Trans Global name. The absence of an independent bank account caused understandable irritation but did not materially prejudice Chartering or its shareholders, and the position was eventually regularised.
4. The movement of Chartering’s cash through Projects was not a diversion or misappropriation. Chartering and Projects had legitimate commercial interests in assisting each other’s cash flow. The arrangement had operated in both directions, and the petitioners had accepted it while Chartering relied on group support.
5. The reasoning in Nicholas v Soundcraft Electronics Ltd [1993] BCLC 360 supported the conclusion that, where a subsidiary depends on its parent, withholding or using money within the group may be a reasonable commercial judgment if done to preserve the group and the subsidiary’s business.
6. The court did not need finally to decide whether the Sumitomo profit was held on trust. Its initial view was that the commercial context and equivocal contractual wording did not establish a trust.
7. Clause 3.3 of the shareholders’ agreement did not confer special rights requiring Projects to subordinate its position when considering Chartering’s best interests. In any event, there had been no breach of the agreed terms and no unfairness in the majority relying on its legal rights.