Odutola v Hart & Ors

An unfair prejudice petition under Companies Act 2006, section 994, must concern conduct of the company’s affairs that is both prejudicial and unfairly so. A mere fear that directors may cause harm in the future is premature. Conduct by shareholders or directors in their private affairs falls outside section 994, even if it causes harm to the petitioner or the company. A claim may be struck out where, assuming the pleaded facts to be true, it is certain to fail. The court may also disregard unsupported speculation where the alleged facts necessary to establish the claim are absent.

The petitioner, a former director and company secretary and continuing shareholder of a residents’ association, presented a 67-page unfair prejudice petition against current and former directors and the company. She complained of her removal, an alleged failure to circulate minutes, possible future misconduct by replacement directors, alleged control by a former director, and various private acts including harassment, insurance-related conduct and lease breaches.

The respondents applied under Civil Procedure Rules 1998, rule 3.4(2)(a) and the court’s inherent jurisdiction, alternatively for summary judgment under Part 24. The central issues were whether the pleaded matters concerned conduct of the company’s affairs and, if so, whether they disclosed actual unfair prejudice.

1. The application was granted. The unfair prejudice petition was struck out under Civil Procedure Rules 1998, rule 3.4(2)(a), and certified as totally without merit. Permission to appeal was refused.

2. The court applied the established strike-out threshold in Hughes v Colin Richards & Co [2004] EWCA Civ 266. Strike out is appropriate where the court is certain that the claim is bound to fail, although the jurisdiction may promote expedition and save expense in a clear case, as explained in Kent v Griffiths [2001] QB 36.

3. Section 994 requires conduct of the company’s affairs that is prejudicial and unfairly so. The court applied the approach in O’Neill v Phillips [1999] 1 WLR 1092: the usual starting point is breach of the company’s articles or misuse of legal powers, although equitable considerations may make reliance on strict legal rights unfair.

4. The petitioner’s removal as director was authorised by the shareholders’ mandatory statutory power under section 168. On the pleaded facts it could not be characterised as unfair prejudice. The failure to circulate minutes was also insufficient: there was no legal obligation to circulate them, only to make them available on request, and the alleged delay in discovering the removal was not caused by unfair conduct of the company’s affairs.

5. A mere fear that the company’s affairs might be conducted adversely in future is premature. The alleged shadow directorship and supposed control by a former director were unsupported by particular facts and, in any event, identified no actual prejudice. The distinction between company conduct and private conduct, drawn in Re Unisoft Group Ltd (No 3) [1994] 1 BCC 766, excluded the allegations concerning personal harassment, alleged insurance fraud, private company activities and lease breaches. Those matters might support other claims, but not this petition.

6. It was unnecessary to determine the alternative Part 24 application, although the court indicated that the no-real-prospect test would also have been met.