Batesons Hotels (1958) Ltd, Re

Unfair prejudice under Companies Act 2006, section 994, cannot ordinarily be established by a member complaining of conduct expressly authorised or ratified unanimously by the members, including trustees holding shares for that member. A later-registered member is bound by that consent unless a special agreement, understanding or legitimate expectation required the members to act differently. The position may differ where the consent is legally ineffective, such as in relation to criminal or ultra vires conduct, or where special equitable duties arise.

The petitioner acquired a beneficial interest in shares held on trust in 1970 and 1981, but became the registered member only on 10 November 2011. He presented a petition under section 994 of the Companies Act 2006, complaining of share transactions and borrowing and lending occurring in 2001 and 2008.

A district judge struck out the relevant parts of the petition. The petitioner appealed, arguing that he could complain of pre-membership conduct and that unanimous shareholder approval did not answer an unfair prejudice petition. The appeal concerned whether the pleaded conduct disclosed a reasonable basis for such a claim.

1. Appeal dismissed. Permission to appeal was granted after full argument, but the decision of District Judge Obodai was neither wrong nor unjust because of procedural irregularity.
2. The applicable strike-out approach required the court to act only where the claim disclosed no legally recognisable claim and was bound to fail. The court had to consider the pleaded case without conducting a trial of disputed facts.
3. Following O’Neill v Phillips [1999] 1 WLR 1092, unfair prejudice could ordinarily be established by breach of the rules governing the company’s affairs or by use of those rules contrary to good faith.
4. A member may in principle complain under section 994 of conduct occurring before registration as a member. However, where all registered members, including trustees holding shares for the petitioner, expressly authorised or ratified the conduct, the Duomatic principle provided a complete answer unless special facts displaced that consent.
5. Such special facts could include an agreement, understanding or legitimate expectation that the members would not consent to the conduct, or equitable duties owed in the petitioner’s favour. The petition contained no sufficient plea or evidential basis for such an arrangement.
6. Lloyd v Casey [2002] 1 BCLC 454 involved conduct contrary to the express arrangement on which the company had been formed and therefore did not assist the petitioner. A beneficiary could not obtain a better position than the trustee-member who had consented.
7. The same conclusion applied to the 2001 and 2008 transactions. The court also distinguished Bermuda Cablevision Ltd v Colica Trust Co Ltd [1997] BCC 982, because the conduct there involved a criminal offence incapable of validation by shareholder consent.

• High Court (Chancery Division): The appeal from the district judge’s order was dismissed. The relevant paragraphs of the unfair prejudice petition remained struck out.
• District Judge Obodai: On 13 February 2013, the district judge struck out the complaints concerning the 2001 and 2008 transactions and related relief, holding that they disclosed no reasonable grounds for a claim.