Cobden Investments Ltd. v RWM Langport Ltd & Ors

A shareholder petition under Companies Act 2006, section 994, requires conduct in the affairs of the company which is both prejudicial and unfair, with a causal link to the member’s prejudice. In a quasi-partnership or joint-venture company, the starting point is the articles and shareholder agreements, subject to subsequent variation, waiver or acquiescence. Nominee directors owe their duties to the company and must exercise independent judgment, although unanimous shareholder assent may qualify those duties in specific areas. A contractual obligation to promote and enhance a business does not require a shareholder to surrender its separate business, but it does require good-faith conduct which is not positively detrimental to the company. Persistent late payment, diversion of a material business opportunity, and allowing unauthorised or unfair intra-group arrangements may constitute unfair prejudice.

Cobden Investments Ltd., the petitioner and holder of 50 per cent of the shares in Southern Counties Fresh Foods Ltd., petitioned under section 994 of the Companies Act 2006 against RWM Langport Ltd., Southern Counties Fresh Foods Ltd. and Romford Wholesale Meats Ltd. The company was formed as a joint venture between the Cobden and Heffer family interests.

The petition alleged breaches of the shareholder agreements, fiduciary duties owed by RWM-appointed directors, and unfairly prejudicial conduct in trading, payment terms, business opportunities, use of company property, service charges and management. The central issues were the construction and effect of the interlocking agreements, the extent to which nominee directors’ duties had been qualified, and whether the pleaded matters established unfair prejudice.

1. Statutory test. The petition succeeded only where CIL established conduct in the affairs of SCFF which caused prejudice to its interests as a member and was unfairly prejudicial. A causal link was required. The court applied the principles in Re Neath Rugby Ltd [2007] EWHC (Ch) 2999.
2. Constitutional and contractual framework. The articles, Shareholders Agreement, Trading Agreement, MoU and Lease formed an interlocking commercial arrangement. The “Business” in the Shareholders Agreement included the business of wholesale butchers and meat processors, including bone-out meat. RWM had to promote and enhance that Business, but was entitled to retain and develop its separate pre-existing bone-out business and to negotiate its own trading interests in good faith.
3. Directors’ duties. The RWM Directors owed their duties to SCFF alone and were entitled to exercise their rights as RWM directors under the interlocking agreements. They nevertheless remained subject to the ordinary duties to act in SCFF’s interests and exercise best independent judgment when acting for SCFF. Any general relaxation required strong evidence; a specific qualification might arise from unanimous shareholder assent, but complete subjugation of SCFF’s interests remained doubtful.
4. Successful complaints. Persistent late payment under the MoU breached contract and duty and was unfairly prejudicial. RWM’s taking of certain bone-in cow trading opportunities without bringing them to the SCFF board also breached the Shareholders Agreement and fiduciary duties. The failure to implement the Supply Agreement correctly, so that SCFF financed RWM Dorset’s livestock purchases, was unfairly prejudicial. The failure to review the inadequate procurement fee for RWM Dorset was likewise unfairly prejudicial. The unauthorised agreement for a £2.70 sheep slaughter fee was unfairly prejudicial.
5. Unsuccessful complaints. The court rejected complaints concerning the initial cattle killing fees, contract killing of cows as such, most customer diversion allegations, historic lamb export diversion, most property use before 21 February 2006, rent review, electricity and effluent accounting, termination of the MoU, failure to attend board meetings, legal defence costs and the SIL loyalty payment.
6. Relief. The court found unfairly prejudicial conduct in several respects but adjourned submissions on the appropriate relief. A share sale and purchase order was likely, given the breakdown of trust and deadlock, but the direction of sale and valuation required further submissions and expert consideration.