Wootliff v Rushton-Turner & Ors

The petition was an unfair prejudice claim under section 994 of the Companies Act 2006 arising from the petitioner’s dismissal as employee/director and subsequent dilution of his shareholding. The court applied established principles about "quasi-partnerships" and legitimate expectations (Ebrahimi, O'Neill v Phillips and authorities) and emphasised that equitable restraints on legal rights arise only where there is a personal relationship of mutual confidence or an understanding that shareholders would participate in management. The judge found a commercially negotiated merger documented by a conditional sale agreement, SPA, professionally drafted articles and service agreements, and did not find the personal-type relationships required to overlay those documents with equitable obligations.

The court found the petitioner’s post‑merger conduct (including unauthorised transfers and misleading the board) made dismissal and removal from management justifiable. The grant and exercise of a further option to Mr Thompson, which diluted the petitioner below 25 per cent, was held to be authorised by the articles and primarily to fulfil an earlier promise to Mr Thompson rather than an improper device to oust the petitioner. The petition was dismissed.

Background and parties. The petitioner, Stanley Wootliff, brought an unfair prejudice petition under section 994 Companies Act 2006 after being suspended, dismissed as an employee, removed as a director and having his shareholding diluted in Smart Diner Group Limited. The respondents included the investing controller Martin Rushton-Turner, members of the Harden family (sellers of Harden's Limited), the finance director David Thompson and others. The matter was tried before Chief Registrar Briggs (hearing 30 October–7 November 2017).

Nature of the application. An unfair prejudice petition alleging that conduct of the company and its majority members was unfairly prejudicial to the petitioner’s interests, relying principally on (i) an alleged quasi‑partnership and resulting legitimate expectation of continued participation in management and employment, and (ii) prejudicial dilution of his shareholding by grant/exercise of further options.

Issues framed by the court.

• Whether the company was a quasi‑partnership giving rise to a legitimate expectation that the petitioner would remain employed, be a director and be involved in management.
• Whether the petitioner’s conduct amounted to resignation or withdrawal from involvement.
• Whether dismissal and removal were unfairly prejudicial in connection with the company’s affairs.
• Whether any justification for summary dismissal removed unfair prejudice or relief under statute.
• Whether the petitioner had a right or legitimate expectation that his shareholding would not be diluted without consent or opportunity to maintain percentage interest.
• Whether the grant of a second option to Mr Thompson infringed the petitioner’s rights or was unfairly prejudicial.
• What relief, if any, under section 996 was appropriate (including compensation for dismissal).

Key facts and documents. The judge summarised the commercial history: HL (Harden's Limited) and SDL (Smart Diner Limited) negotiated a combination; a conditional share purchase agreement and a share exchange agreement were produced; an outside investor (Rushton‑Turner) underwrote the project and insisted on amended articles and protections; service agreements were executed for directors; options were granted and later a second option to the finance director was granted and exercised leading to dilution below 25%.

Court’s reasoning and findings.

• The court applied the legal tests from authorities (Ebrahimi, O'Neill v Phillips, Hoffmann J and subsequent cases) and emphasised that equitable constraints on legal rights require personal relationships of mutual trust or an express understanding that shareholders would participate in management. Mere cordial or extensive commercial dealings and professionally drafted documents do not suffice.
• Factually the judge found the transaction to be commercial: professionally drafted SPA, SEA, articles, subscription agreements and service agreements showed arms‑length bargaining and did not support an expectation that the petitioner would retain management rights beyond the contractual terms. The petitioner had legal advice and signed a service agreement setting out termination and notice provisions.
• The petitioner’s credibility was assessed adversely in material respects: the judge found instances of evasiveness and admitted dishonesty to the board and rejected the petitioner’s account of an alleged compromise authorising unauthorised payments.
• The petitioner’s unauthorised transfers of company funds, conduct towards staff, changing locks and related behaviour justified suspension and dismissal; the disciplinary and appeal process was not criticised.
• The second option granted to Mr Thompson was authorised by the articles and, on the facts, had a legitimate primary purpose: to fulfil an earlier promise to Mr Thompson (and to remunerate/retain his services). Although there was also an intention by some individuals to remove the petitioner, the dominant purpose was proper and the grant was not set aside.

Conclusion and remedy. The petition was dismissed: the petitioner failed to show a quasi‑partnership or unfair prejudice. The court declined to order relief under section 996.

This was a first instance decision. The petition is dismissed. The court held that the company was not a quasi‑partnership: the relationship between the parties was commercial and governed by professionally drafted documents (SPA, SEA, amended articles and service agreements), so there was no legitimate expectation to participate in management beyond those agreements. The petitioner’s post‑merger misconduct justified his dismissal. The second option granted to Mr Thompson was within the company’s powers and its dominant purpose was to fulfil an earlier promise, not an improper device to oust the petitioner.