Digrado v D'Angelo

Under Companies Act 2006, s 994, unfair prejudice may arise where a shareholder conducts the company’s affairs contrary to the agreed basis on which the members entered into association, particularly where that conduct destroys the trust and confidence essential to the venture. A breakdown in relations alone does not create an automatic right to a buy-out. The court must identify unfairly prejudicial conduct of the company’s affairs and consider whether it has been remedied. A false corporate minute used to obtain professional action may itself form part of the conduct of the company’s affairs. The appropriate valuation date for relief under s 996 is the date of judgment unless another date is more appropriate and just, especially because it better remedies the established prejudice.

The proceedings comprised a petition by Frank DiGrado and a cross-petition by Antonio D’Angelo and Rosetta Urso under Companies Act 2006, s 994, concerning Abbington Hotel Limited. The parties held the shares in two equal family blocks and had acquired the hotel as a joint venture.

Both sides alleged that the other had conducted the company’s affairs unfairly and sought a buy-out order. The principal disputes concerned the agreed purpose of acquiring and operating the hotel, Mr D’Angelo’s attempt to progress a sale for redevelopment and his use of a false shareholders’ minute, Mr DiGrado’s exclusion of Mr D’Angelo from management, unauthorised payments, and the appropriate valuation date and basis.

1. Unfair prejudice. Both petitions established unfairly prejudicial conduct of the company’s affairs. Mr D’Angelo acted contrary to the agreed basis on which the hotel was acquired by seeking to sell it for redevelopment and by creating and using a false minute purporting to record shareholders’ authority. That conduct destroyed the relationship of trust and confidence on which the venture depended.
2. The court applied the approach in O’Neill v Phillips [1999] 1 WLR 1092. A quasi-partnership company does not confer an automatic right on a shareholder to withdraw at will merely because trust and confidence has broken down. Here, however, the breakdown resulted principally from conduct contrary to the parties’ understanding and was not a faultless breakdown.
3. Mr DiGrado’s subsequent exclusion of Mr D’Angelo from the company’s banking arrangements, records, office and management was also unfairly prejudicial. Although it followed Mr D’Angelo’s earlier misconduct, it lacked legal justification. The reasoning in Re Legal Costs Negotiators Ltd [1999] 2 BCLC 171 did not assist because the prejudice had not been lawfully cured and the equal shareholdings prevented either side from removing the other.
4. The false minute was conduct of the company’s affairs. It was produced by Mr D’Angelo in his capacity as director and used on behalf of the company to persuade its solicitor that a proposed sale was authorised.
5. The appropriate relief under Companies Act 2006, s 996, was an order requiring Mr and Mrs DiGrado to purchase Mr and Mrs D’Angelo’s shares. No minority discount was to be applied.
6. The usual valuation date is the date of judgment, but the court may select another date that is appropriate and just and best remedies the established prejudice. The shares were therefore to be valued as at 31 July 2007. The court reserved submissions on the valuation basis for the hotel property and on consequential terms, including repayment of loans and the parties’ interest in 28 Essex Road.

First-instance decision. No earlier appellate decision is stated in the judgment.