Waldron & Ors v Waldron & Anor

In a family company, the expression “quasi-partnership” is a convenient label, not a legal definition. The question is whether the dealings between members generated equitable considerations making it unfair for those in control to rely on their strict legal powers. Third-party shareholders may be highly relevant, but their presence is not an automatic bar.

Unfairness is assessed objectively and in the light of all the circumstances. A director’s fiduciary breach will generally indicate unfair prejudice where it concerns the management of the company. Relief remains discretionary, and informed acquiescence may defeat it. In assessing exclusion from a family company, the excluded member’s conduct is relevant even without a causal connection to the exclusion.

The petitioners were siblings and shareholders in Westshield Limited. The first respondent, Patrick Waldron, was managing director. The petitioners alleged that he had conducted the company’s affairs in a manner unfairly prejudicial to their interests, including by acquiring assets through a company he owned, causing Westshield to pay that company, and dismissing and excluding two petitioners from the business.

The court determined whether equitable considerations constrained Patrick’s legal powers, whether those considerations survived a subscription deed and a company voluntary arrangement, whether the alleged conduct was unfairly prejudicial, and whether relief should be granted under section 994 of the Companies Act 2006.

1. The court applied the three requirements identified in Hawkes v Cuddy (No ): the conduct must concern the management of the company’s affairs, prejudice the petitioner’s interests as a member, and be unfair.

2. The company was subject to equitable constraints arising from the family understanding governing participation in its affairs. “Quasi-partnership” was only a convenient description. The controlling question was whether the dealings between members made it inequitable or unconscionable to exercise strict legal rights. The presence of third-party shareholders was a factor, not an absolute bar, and the relevant question was one of fact and degree.

3. Unfairness was objective. It did not require bad faith, and the petitioner’s own conduct could be relevant. In deciding whether exclusion was unfair, the court had to consider the circumstances as a whole. A causal connection between the petitioner’s conduct and the exclusion was not legally necessary, although it might affect the weight of the evidence.

4. Patrick’s acquisition of the DCT assets through Tunnelling, and the company’s subsequent dealings with Tunnelling, involved an opportunity obtained by virtue of his position as director. The fact that Westshield could not itself have funded the acquisition, and that the arrangement benefited Westshield, did not remove the fiduciary breach. The conduct was unfairly prejudicial because it had not been approved in advance.

5. The dismissal and exclusion of Austin and Gerard were justified by their serious misconduct in seeking covert access to Patrick’s emails and attempting to bribe the company’s IT contractor. Their exclusion therefore did not constitute unfair prejudice. The other allegations were rejected or unproved.

6. Although unfair prejudice was established in relation to Tunnelling, relief was discretionary. Austin and Gerard had known of the arrangement shortly after it occurred and had remained silent. Their longstanding acquiescence, together with the justified exclusion, precluded relief. Marian was likewise disentitled because she had left the company’s affairs to her brothers and was bound by their acquiescence.

7. The petition was dismissed. The judge stated obiter that, if relief had been granted, the shares would have been bought on a fully discounted basis.