Wootliff v Rushton-Turner & Ors

An unfair prejudice petition requires proof that conduct relating to the company’s affairs has prejudiced the petitioner’s interests as a member and that the prejudice is unfair. Equitable considerations may supplement the articles where the company is formed or continued on the basis of a sufficiently personal relationship involving mutual confidence, participation in management or analogous circumstances. A small or private company, business collaboration, or friendly working relationship is insufficient. Detailed, professionally negotiated agreements may show that the parties intended their legal rights to govern exclusively. Where a corporate power has several purposes, its exercise is invalid only if the dominant or primary purpose is improper.

The petitioner was an employee, shareholder and director of Smart Diner Group Ltd. He alleged that his dismissal, removal from management and dilution of his shareholding amounted to unfair prejudice under section 994 of the Companies Act 2006. He also claimed that the company was a quasi-partnership and that he had legitimate expectations of continued employment, management participation and protection against dilution.

The respondents contended that the relationship was commercial, governed by detailed contractual documents and the company’s articles. The central issues were whether equitable considerations arose, whether the dismissal was justified, and whether the grant and exercise of a further share option had an improper purpose.

1. Petition dismissed. The petitioner failed to establish unfair prejudice. The court applied the four requirements stated in Hawkes v Cuddy (No 2) and Re Saul D Harrison & Sons Plc: the conduct must relate to the company’s affairs, prejudice the petitioner’s interests as a member, and be unfair.
2. The company was not a quasi-partnership. Applying Ebrahimi v Westbourne Galleries Ltd and O’Neill v Phillips, equitable considerations require something more than a small or private company, business enthusiasm, pooling resources or a strong working relationship. The relevant relationship must have a personal character involving mutual confidence or an understanding of participation in management.
3. The parties’ dealings were commercial and conducted through conditional agreements, a share exchange agreement, professionally drafted articles, a share purchase agreement and service agreements. Those documents governed their relationships and left no room for an inconsistent legitimate expectation that the petitioner would remain employed or involved in management. The reasoning in Re Coroin Limited (No. 2) was applied to the commercial and heavily documented arrangements.
4. The petitioner’s post-merger conduct, including unauthorised transfers of company money and failures to act in accordance with his duties, amounted to serious breaches of his director duties and service agreement. The disciplinary and appeal process was not shown to be defective, and the conduct justified the board’s action.
5. The directors were authorised by article 40.2 and section 551 of the Companies Act 2006 to grant share options. The further option for Mr Thompson had more than one purpose. Applying Eclairs Group Ltd v JKX Oil & Gas PLC and Re Charterhouse Capital Ltd, the relevant question was the dominant or primary purpose. The primary purpose was to honour an earlier promise to Mr Thompson and retain his services, although the option also reduced the petitioner’s holding below 25 per cent. The grant was therefore not improper or unfairly prejudicial.
6. The first, third, fifth, sixth and seventh issues were answered in the negative. The second and fourth issues did not require determination. Order accordingly.