McKillen v Misland (Cyprus) Investments Ltd & Ors (Rev 1)

Relief under section 994 of the Companies Act 2006 requires conduct of the company’s affairs, or an act or omission of the company, which causes prejudice to the petitioner’s interests as a member and is unfair. Dealings between shareholders remain outside the jurisdiction unless they translate into corporate conduct.

A breach of directors’ duties does not establish unfair prejudice where it causes no relevant prejudice. Fairness ordinarily reflects the company’s constitution and shareholders’ agreements. Equitable considerations qualify strict legal rights only where personal understandings make their exercise inequitable.

An express contractual duty of good faith cannot enlarge detailed pre-emption provisions beyond their proper construction.

The petitioner held 36.2% of Coroin Ltd, the holding company of Claridge’s, The Connaught and The Berkeley. Companies associated with Sir David and Sir Frederick Barclay had acquired a substantial shareholding and secured debts over another shareholder’s shares while pursuing control of Coroin.

The petitioner brought a petition under section 994 of the Companies Act 2006 and a related tort claim. He alleged breaches of contractual pre-emption and good-faith provisions, breaches of directors’ duties, shadow directorship, conspiracy by unlawful means and inducement of breach of contract. He principally sought an order transferring the Barclay interests’ shares to him.

The central questions were whether dealings concerning another shareholder’s shares triggered pre-emption rights, whether directors acted in breach of duty, whether any established breach caused unfair prejudice, and whether the alleged unlawful means supported the tort claims.

1. Petition and claim dismissed. No dealings concerning Mr Quinlan’s shares triggered the contractual pre-emption provisions. The alleged binding oral sale agreement was not made. The admitted arrangements, including an informal right of first refusal, security transfers, a conditional sale agreement and a power of attorney, neither transferred a proprietary interest in the shares nor attempted a disposal contrary to the shareholders’ agreement.

2. The charges over Mr Quinlan’s shares had not become enforceable. The relevant facility documents required the occurrence of a default together with the contractual steps necessary to make the security enforceable. Although unnecessary to the outcome, a shareholder would be obliged to notify the company of a triggering event known to him, and successive substantial defaults could each engage the directors’ discretion under the pre-emption clause.

3. The express duties of good faith did not expand the detailed pre-emption regime. Imposing additional pre-emption requirements would go beyond the parties’ expressed bargain.

4. Most allegations against the directors failed. Mr Faber and Mr Seal were, however, in breach of section 175 of the Companies Act 2006 because their duties to Coroin conflicted with their duties connected with the Barclay interests while an associated company negotiated to acquire Coroin’s debt. The proposed debt acquisition was a transaction between the creditor and purchaser, not a transaction with Coroin. Sections 175 and 177 were therefore mutually exclusive in their application. The conflict and negotiations should have been disclosed.

5. That breach caused neither loss to Coroin nor prejudice to the petitioner. Coroin was already seeking alternative refinancing but could not refinance its excessive indebtedness without new capital or substantial guarantees. The creditor would not have granted the lengthy extension sought. Disclosure would therefore have made no difference.

6. Sir David Barclay was not a shadow director. The evidence did not show that a majority of Coroin’s directors were accustomed to act on his directions when exercising their functions as directors.

7. The statutory unfair-prejudice requirements were not satisfied. Dealings among shareholders did not become conduct of Coroin’s affairs, save where translated into corporate action. The sole established breach of duty caused no prejudice. The tort claim also failed because the alleged contractual breaches were not proved, the established breach caused no loss, and no relevant combination or agreement was established.

• High Court and Court of Appeal—Misland preliminary issue: the Court of Appeal in [2012] EWCA Civ 179 affirmed the first-instance decision in [2011] EWHC 3466 (Ch) that the acquisition of Misland did not trigger the contractual pre-emption provisions.

• High Court and Court of Appeal—NAMA preliminary issue: the Court of Appeal in [2012] EWCA Civ 864 reversed the first-instance decision in [2012] EWHC 129 (Ch) and held in NAMA’s favour. An application for permission to appeal to the Supreme Court was pending.

• High Court—interlocutory rulings: amendments concerning shadow directorship were addressed in [2012] EWHC 521 (Ch). An application concerning privacy and confidentiality was refused in [2012] EWHC 1158 (Ch).