Thomas v Dawson & Anor

The Court of Appeal dismissed the appeal against HHJ Keyser QC's order under Section 996 of the Companies Act 2006 granting the petitioner an option to purchase the respondent's single share in Invicta Care Homes Ltd for £55,000. The court reaffirmed the wide discretionary jurisdiction to fashion a remedy for unfair prejudice and held that a court is not rigidly bound by expert valuation evidence prepared pursuant to directions; such evidence is assistive but does not fetter the court's discretion to do what is fair and equitable. The judge's decision to attribute a positive value to the share took account of the commercial and personal benefits of control to the purchaser, the existence of derivative judgments between the parties and the pragmatic objective of resolving the deadlock without winding up the company.

Background and procedural posture:

• This was an appeal from the Chancery Division (Cardiff District Registry) where HHJ Keyser QC had found unfair prejudice under Section 996 of the Companies Act 2006 and made an order in substance giving the petitioner (Mr Thomas) an option to buy the respondent's (Ms Dawson's) single share in Invicta Care Homes Ltd.
• The case arose from the breakdown of a quasi-partnership between the parties, who were equal shareholders and directors of Invicta. Litigation followed, including claims for unauthorised withdrawals (derivative claims) and an unfair prejudice petition. The trial on liability took place in March 2014 and the remedy hearing followed.

Nature of the claim / relief sought:

• The petitioner sought relief for unfair prejudice and, at the remedy stage, contended that the respondent's 50% share should be transferred for nominal consideration because unchallenged expert valuation evidence showed the company to be balance sheet insolvent.

Issues framed by the court:

• Whether the judge was bound by the valuation evidence prepared pursuant to directions and, if not, whether he acted unfairly in departing from valuation-based price fixation without further evidence or submissions.
• Whether the price fixed (£55,000) fell within the broad discretion conferred by Section 996 and was just and equitable in all the circumstances.

Court's reasoning and decision:

• The Court of Appeal accepted the applicable principle that the statutory jurisdiction confers a very wide discretion to do what is fair and equitable to remedy unfair prejudice (citing the dictum in Re: Bird Precision Bellows Limited).
• The court held that the May 2014 directions to obtain valuation evidence were to assist the court and did not fetter its broad remedial discretion; the single joint expert had in any event valued the care-home property/business rather than the company or the respondent's share specifically.
• The judge was entitled to treat as part of the purchase price elements reflecting the particular value of control to Mr Thomas (including the prospect of enforcing a derivative judgment against Ms Dawson and the capitalised value of Ms Dawson's income stream) and to structure the remedy to address the practical impasse without resort to winding up.
• There was no unfairness in procedure: the parties were given opportunity to make submissions, no application to adduce further evidence was made, and the matters relied on by the judge had been fully explored at trial.

Appeal dismissed. The Court of Appeal held that the judge was well within his wide discretionary jurisdiction under Section 996 to fix the remedy as he did. The valuation evidence ordered by the court was assistive but did not bind the court; the judge could take a pragmatic and equitable approach, attributing value to the share by reference to the benefits of control, the parties' respective derivative judgments and past income streams, and there was no procedural unfairness in the hearing.

Appeal from the Chancery Division, Cardiff District Registry, HHJ Keyser QC (order made 8 September 2014). The remedy followed a trial in March 2014 of claims including unfair prejudice, derivative claims and related personal claims. The judge made interim directions in May 2014 for valuation evidence and allowed a single joint expert report (Taylors) which was considered at the resumed hearing on 8 September 2014.