Harborne Road Nominees Ltd v Karvaski & Anor

An offer to purchase shares does not automatically make continued unfair-prejudice proceedings an abuse of process. The court must decide whether, in all the circumstances, the offer makes the petition abusive or bound to fail. Guidance concerning reasonable offers in O'Neill v Phillips [1999] UKHL 24 is not a statutory code. It must be applied with regard to the parties' relationship and the issues raised by the petition. Particular caution is required where equal shareholders operate a quasi-partnership, where factual allegations affecting value remain unresolved, or where the petitioner has been denied information. An expert valuation cannot provide an authoritative determination of disputed breaches of duty or compel the company to declare dividends. An offer that leaves material disputes unresolved may therefore be insufficient to justify striking out the petition.

The petitioner beneficially owned 50 per cent of the shares in Sitewatch, with the first respondent beneficially owning the remaining 50 per cent. The petitioner alleged that the company had been established and operated as a quasi-partnership, but that he had been excluded from management and information after relations broke down. He also alleged possible diversion of business, manipulation of remuneration and withholding of dividends.

The first respondent made successive offers to purchase the petitioner's shares by reference to an expert valuation. The respondents applied to strike out the petition as an abuse of process, or alternatively for summary judgment, relying principally on the guidance in O'Neill v Phillips [1999] UKHL 24. The central issue was whether the continued prosecution of the petition was abusive or bound to fail in light of the offers.

1. Application dismissed. The court was not satisfied that continued prosecution of the petition was an abuse of process or bound to fail.
2. The guidance in O'Neill v Phillips [1999] UKHL 24 concerning reasonable purchase offers was obiter and did not establish an automatic mechanism for terminating an unfair-prejudice petition. The court must consider all the circumstances. The relevant question is whether the offer gives the petitioner all the advantages that he could reasonably expect to obtain from the petition.
3. The guidance was principally directed to a majority shareholder and minority shareholder. Equal shareholders, particularly quasi-partners, may have a legitimate expectation of participation in management. One shareholder must not be able to seize de facto control and force the other to accept an offer or remain excluded without an effective remedy.
4. Where the petition raises disputed allegations of breach of duty affecting the value of the shares, an expert valuation is insufficient if the expert cannot authoritatively determine those allegations. Otherwise the alleged wrongdoer might benefit both from the breach and from a depressed valuation.
5. Denial of access to company information creates a further difficulty. A shareholder who must accept an offer before inspecting the books may be unable to identify transactions or breaches that affect value. The offers here also left unresolved possible claims by Sitewatch against the petitioner or PRMC and ambiguities concerning dividends. A valuer could not require the company to adopt particular accounts or compel the directors to declare dividends.
6. The proposed timetable for representations was not itself objectionable because an independent expert could reasonably be trusted to set it. That point did not cure the other substantial deficiencies in the offers.