Re Southern Counties Fresh Foods

The petition was brought under section 994 (unfairly prejudicial conduct) in respect of the affairs of Southern Counties Fresh Foods Limited (SCFF). The court applied the established unfair prejudice principles derived from authorities such as Saul D Harrison, O’Neill v Phillips and Ebrahimi and considered the interaction between contractual arrangements (in particular the Shareholders Agreement, the Trading Agreement and the 2000 Memorandum of Understanding (MoU)), directors’ fiduciary duties (including the no-conflict/no-profit rules) and the possibility of waiver or acquiescence by conduct.

The judge made detailed factual findings on a large number of pleaded complaints. He found established unfairly prejudicial conduct in several discrete areas: persistent late payment by RWM under the MoU (and a history of late payment under earlier arrangements), certain diversion of trading opportunities (notably some cow-trading opportunities taken by RWM without proper board consideration), improper credit/ procurement arrangements between SCFF and RWM Dorset (the Producers’ Club/Supply Agreement and associated generous credit terms), failures to review procurement charges, and an unauthorised low agreed slaughter fee (£2.70) for a short period in 2007. The judge rejected many of the other pleaded complaints (including many alleged breaches concerning kill-fees, some alleged customer diversions, and various procedural complaints) or held them to be time-barred, acquiesced in, or incapable of supporting relief in the present circumstances.

The court emphasised that where conduct complained of pre-dated the MoU the MoU materially altered the parties’ position and that historic breaches of earlier arrangements could not simply be relied on as free-standing unfair prejudice once the parties had negotiated and accepted new terms, save where earlier breaches could be taken into account alongside present breaches of the MoU. The judge also analysed at length the duties and position of nominee/executive directors serving two related corporate interests and stressed the high burden of proof required to show any implied attenuation of those duties by unanimous shareholder consent.

The petition under section 994 Companies Act (unfair prejudice) was presented by Cobden Investments Limited (CIL), a 50% shareholder in Southern Counties Fresh Foods Limited (SCFF), against RWM Langport Limited and affiliated RWM companies and their nominee directors. SCFF was a joint venture between the Cobden and Heffer families. The claim alleged multiple instances in which the RWM side (through its directors and companies) had preferred group interests over SCFF, breached fiduciary duties, and failed to comply with the shareholders’ and trading arrangements (notably the 1996 Shareholders Agreement, the earlier Trading Agreement and the 2000 MoU), producing unfair prejudice to CIL.

The nature of the application: a petition under section 994 (unfairly prejudicial conduct) seeking relief in respect of management and transactional conduct, and potentially an order for purchase of one party’s shares.

Main factual and documentary background: the court reviewed the 1993/1996 Shareholders Agreements, the Trading Agreement, the 2000 MoU, the 1994 lease of the boning hall and ancillary documentation; the history of the joint venture from 1993 onward (including the effect of the BSE crisis, the OTMS cull contracts, the refurbishment of the Langport site, and the creation of RWM Dorset and other group arrangements) was found by the judge to be central to construction and to the factual matrix.

Issues framed by the court: whether specific acts or omissions constituted management of the company’s affairs; whether those acts caused prejudice to CIL’s interests; and whether the prejudice was unfair. Particular issues included construction of the Shareholders Agreement and MoU, the scope of the RWM directors’ duties while serving both companies, application of the no-conflict/no-profit rules, whether conduct had been waived/acquiesced in or was time-barred, and whether proprietary estoppel or implied licences arose in respect of site occupation.

Reasoning and conclusions (concise):

• The court applied the familiar unfair-prejudice framework (Saul D Harrison / O’Neill v Phillips / Ebrahimi), recognising that contractual departures and breaches of fiduciary duty can found relief but that equitable considerations, waiver and acquiescence are highly fact-specific.
• The judge held that a number of factual complaints were made out: notably persistent late payment by RWM under the MoU (and a prior course of late payments), wrongful credit arrangements under the Supply Agreement (SCFF financing RWM Dorset), failure to review procurement charges, some wrongful diversion or capture of cow opportunities that should have been brought to SCFF’s board, and an unauthorised low slaughter fee (£2.70) for a short period. Those matters amounted to unfairly prejudicial conduct in the affairs of the company.
• Other complaints failed: several alleged unilateral reductions of killing fees were not established; some historical allegations were held to have been overtaken by the MoU (so could not sustain free-standing relief); several claims failed for want of evidence of consent/authority or were time-barred or acquiesced in.
• The judge analysed nominee directors’ duties, concluding that such directors owe their duties to the company and that any qualification of those duties by unanimous shareholder agreement must be proved; attenuation of fiduciary duties is exceptional and fact-specific.
• On property issues the court recognised that long-continued occupation and contribution to site works gave rise to equitable rights in some cases (proprietary estoppel/licence) but found the prejudice from occupation claims was generally time-limited (pre-21 February 2006) and that some equitable rights had in practical terms expired; nevertheless some occupation conduct and failures to account should be considered in the remedy assessment.

The judge concluded that relief was appropriate in part, reserved detailed remedy and valuation questions and invited further submissions and updated expert evidence on valuation before making final orders.

The petition is allowed in part. The court found established unfairly prejudicial conduct in respect of several matters (notably persistent late payment under the MoU and antecedent arrangements, improper credit/procurement arrangements with RWM Dorset, failures to review procurement fees and certain unauthorised pricing decisions) but rejected or limited many other complaints (for lack of agreement, acquiescence, delay, or insufficient evidence). The judge made extensive factual findings and legal rulings on construction, directors’ duties and equitable remedies, and reserved final relief and valuation for further submissions.