Re Abbington Hotel Ltd

This is a first-instance decision under s.994 et seq. of the Companies Act 2006 concerning a 50:50 joint venture company owning the Abbington Hotel. The court found that both sides had engaged in conduct unfairly prejudicial to the other: the primary wrong by Mr D'Angelo was negotiating a sale contrary to the parties' agreed purpose and the preparation and use of a false shareholders' minute of 17 August 2006; the primary wrong by Mr DiGrado was excluding Mr D'Angelo from participation in management from March 2007. The judge held that relief under s.996 was available and that the appropriate remedy was an order that Mr and Mrs DiGrado purchase the shares of Mr and Mrs D'Angelo, with the shares to be valued as at 31 July 2007.

The judgment applies the principles in O'Neill v Phillips and related authorities, identifies the necessary personal understandings between the parties (a quasi-partnership expectation to run the hotel as a going concern), and explains why the false minute and clandestine sale negotiations destroyed trust and confidence. The court reserved detailed valuation implementation issues for further submissions.

Background and procedural posture:

• The company, Abbington Hotel Limited, was formed to acquire and run the Abbington Hotel. Shares were held equally between Mr and Mrs DiGrado and Mr and Mrs D'Angelo; Mr DiGrado and Mr D'Angelo were the only directors.
• Mr DiGrado presented a petition under s.994 Companies Act 2006 in April 2007 seeking an order for the purchase of Mr D'Angelo's shares; Mr and Mrs D'Angelo cross-petitioned in October 2009 seeking reciprocal relief. Both sides ultimately sought that one couple buy out the other.

Nature of the claim and relief sought:

The petitions alleged unfairly prejudicial conduct in the company's affairs and sought relief under s.996, principally an order for the purchase of the opposite couple's shares and consequential relief including repayment of loans and treatment of ancillary property interests.

Issues framed by the court:

1. What was the common understanding between the parties as to the purpose of acquiring the hotel (running as a going concern v. quick resale for redevelopment)?
2. Whether either party had conducted the company's affairs in an unfairly prejudicial way (including the creation of a false shareholders' minute, unauthorised withdrawals and benefits, and exclusion from management).
3. If unfair prejudice established, what is the appropriate remedy and the proper valuation date and valuation principles?

Factual findings and reasoning (concise):

• The court found the parties' agreed basis was to run and improve the hotel as a going concern with a view to a sale in due course; it rejected the account that the hotel was purchased to be sold quickly for redevelopment.
• On the balance of evidence the judge concluded that by July–August 2006 Mr D'Angelo decided to press for a redevelopment sale, clandestinely negotiated with developers, and knowingly prepared a false minute dated 17 August 2006 to give the appearance of shareholder authorisation. That conduct destroyed the mutual trust and confidence on which the association was founded and was unfairly prejudicial.
• From September 2006 and especially by March 2007 Mr DiGrado had excluded Mr D'Angelo from management, changed passwords, bank arrangements and locks and acted as sole controller of the company; that exclusion was wrongful and also unfairly prejudicial, although it was causally linked to Mr D'Angelo's earlier misconduct.
• The court held both petitions established unfair prejudice. The appropriate remedy, given the deadlock and equal shareholdings, was an order that the DiGrados buy the D'Angelos' shares. The court fixed the valuation date as 31 July 2007 and invited further submissions on valuation methodology, in particular whether the property should be valued on a going-concern hotel basis or on a redevelopment basis.

Further procedural matters: detailed valuation and consequential terms (including loans and 28 Essex Road) were left for implementation after counsel's submissions on valuation basis and form of order.

First instance: The court found that both petitions under s.994 of the Companies Act 2006 succeeded in establishing unfairly prejudicial conduct. The primary relief ordered was that Mr and Mrs DiGrado purchase the shares of Mr and Mrs D'Angelo. The rationale was that Mr D'Angelo breached the parties' agreed basis by clandestinely negotiating a sale and producing a false shareholders' minute, thereby destroying trust and confidence, and that Mr DiGrado unlawfully excluded Mr D'Angelo from management; given the deadlock and equal shareholdings the just remedy was a buy-out with the shares to be valued as at 31 July 2007, with further submissions invited on valuation mechanics and ancillary adjustments.