Cool Seas (Seafoods) Ltd v Interfish Ltd & Ors

Section 994 of the Companies Act 2006 is construed broadly and commercially. Relief may be granted to a majority shareholder where reserved matters prevent it from remedying the alleged prejudice. Equitable considerations will qualify the articles only where the parties’ relationship and understandings justify that result. A nominee shareholder may be responsible for unfairly prejudicial conduct by its nominated director where attribution is just in the statutory context. The court may determine claims which would ordinarily be brought by the company against directors for breach of duty. Serious non-disclosure, unlawful trading practices, misuse of company resources and inadequate conflict-management arrangements may amount to unfair prejudice.

Northbay Pelagic Ltd was acquired as a new company from the business and assets of Fresh Catch Ltd. Cool Seas held 40% of Northbay’s voting rights, while Interfish and Altaire held the remaining voting control. Mr Christopher Anderson and his son were nominated by Cool Seas as directors and employees.

After relations deteriorated, both men were dismissed and ceased to be directors under Northbay’s articles. Cool Seas petitioned under section 994 of the Companies Act 2006, alleging exclusion from management and misappropriation of company funds. Interfish brought a cross-petition alleging non-disclosure, black fishing, misuse of Northbay resources, breaches of duty and mismanagement. The central issues were whether equitable considerations overrode the articles, whether the alleged conduct was unfairly prejudicial, and what relief-related findings should be made.

1. Cool Seas’ petition dismissed. Northbay was not a quasi-partnership. The transaction was governed by detailed bespoke agreements, there was no significant prior personal relationship, and Interfish exercised substantial supervision and control. Casual references to a partnership did not alter the contractual relationship. Cool Seas therefore had no legitimate expectation that its chosen directors would remain involved after ceasing to be employees.
2. The court also held that the dismissals were justified by misconduct. Any prejudice caused by the directors’ exclusion was therefore not unfair. Interfish’s reimbursement of Baker Tilly and TLT fees was a proper payment of Northbay’s costs connected with acquiring the Fresh Catch business and establishing Northbay, and was not unfairly prejudicial.
3. Interfish’s cross-petition succeeded in part. A section 994 petition may encompass claims ordinarily brought by the company for breach of fiduciary duty. The court could try those causes of action in the petition. Interfish was not barred from petitioning merely because it held the majority of voting rights, since important reserved matters required Cool Seas’ consent, including the institution of proceedings.
4. The court applied a fact-sensitive attribution test: the question was whether Cool Seas was so connected with the unfairly prejudicial conduct that it was just, in the statutory context, to grant relief against it. That test was satisfied because Cool Seas was Mr Anderson’s corporate vehicle, had nominated him, was party to the transaction documents and had used its consent rights to frustrate proceedings.
5. Unfair prejudice was established through Mr Anderson’s failure to disclose Fresh Catch’s extensive black fishing and serious HMRC disputes, his subsequent instigation or knowledge of black fishing at Northbay, and his failure to establish proper accounting and conflict-management arrangements for Northbay resources used by Anderson Marine, ACIL and E2. The precise sums due in respect of ACIL and E2 remained for the valuation or accounting stage.
6. No unfair prejudice was established regarding Lynsey Anderson’s salary or the alleged mismanagement of the rebuild.