Isaacs & Anor v Belfield Furnishings Ltd. & Ors

A section 459 petition should be struck out only in a plain and obvious case. Ordinarily, continued prosecution will be an abuse of process where a minority shareholder has fallen out with the majority and receives an offer to purchase the shares at a fair value, assessed by an independent professional with appropriate information, submissions and no minority discount. The case is stronger where the shareholder is contractually bound to sell under an agreed valuation mechanism. The petition may nevertheless proceed where substantial company assets may have been misapplied, or where the agreed valuer cannot exercise independent judgment. A contractual valuation mechanism is not necessarily an absolute bar where the valuation may have relied on materially incorrect information or failed to address the complaints of unfair prejudice.

The petitioners, shareholders and former directors and consultants of Belfield Furnishings Ltd, presented a petition under section 459 of the Companies Act 1985. They alleged unfair prejudice arising from their exclusion from management, failures concerning dividends and remuneration, payments to a connected company, and allegedly defective valuations of their shares.

The respondents applied to strike out the petition as an abuse of process. They relied on compulsory transfer provisions in the articles, two Hacker Young valuations and offers to purchase the petitioners’ shares. The petitioners also sought continuation of an interim injunction restraining transfer of their shares and an order joining Hacker Young under CPR 19.2.

1. Strike-out application. The court accepted that the petition raised a prima facie case under section 459 of the Companies Act 1985. Although the petition was thin, the respondents had not shown that the claims could never succeed. The jurisdiction to strike out had to be exercised sparingly and only in plain and obvious cases.
2. In the usual case of a breakdown between shareholders, it will normally be an abuse of process for an excluded minority shareholder to pursue a section 459 petition after an offer to purchase the shares at fair value. This is particularly so where the offer provides for an independent professional valuer, access to relevant information, an opportunity for submissions, no minority discount and payment of the petitioner’s costs.
3. The position is stronger where the petitioner is contractually bound to sell in specified circumstances under an agreed valuation mechanism. Even then, the petition may proceed where substantial company assets may have been misapplied, or where the agreed valuer cannot exercise independent judgment. The fact that the valuer is the company’s auditor is not, by itself, enough to establish a lack of independence.
4. The principles concerning contractual expert valuations stated in Jones v Sherwood Computer Services plc [1992] 1 WLR 277 did not determine these applications. In the section 459 context, a petition may remain viable where the valuer relied on incorrect information supplied by directors, valued the company on an inappropriate basis, or failed to account for questionable payments, particularly where the petitioner may have no effective negligence remedy against the valuer.
5. On the evidence, it was arguable that the Hacker Young valuations relied on incomplete forecasts and an incorrect share-capital assumption, that Hacker Young lacked independence, and that the offers did not compensate for all matters alleged to constitute unfair prejudice. The petition was therefore not struck out. The interim injunction was continued pending trial, and the petitioners were to be permitted to amend subject to specified exclusions.
6. The application to join Hacker Young was granted under CPR 19.2. Joinder was appropriate to avoid inconsistent findings about the valuations in the petition and the separate damages proceedings. Hacker Young would be bound by relevant findings made at trial and could not relitigate those matters in the later proceedings.

First-instance decision. No appellate history was stated in the judgment.