Michel v Michel & Ors

The petitioner brought a petition under section 994 of the Companies Act 2006 alleging that the company's affairs had been conducted in a manner unfairly prejudicial to him, principally by his exclusion from management and by an alleged oral agreement reached in late 2005. The court analysed whether the company was a "quasi-partnership", whether the late 2005 oral agreement (the "Agreement") existed on the terms pleaded, and whether the removal of the petitioner as director in 2015 was unfairly prejudicial.

The court applied established unfair prejudice principles (including the role of equity and legitimate expectations derived from O'Neill v Phillips and related authorities) and concluded there was no relationship of trust and confidence amounting to a quasi-partnership. The judge found the evidence did not prove the detailed terms of the alleged late 2005 Agreement; at most the parties had agreed that the petitioner would cease day-to-day management and would not return to work in January 2006, and later (in February 2008) that his salary would be paid to age 65. Contested complaints about accounting, the HSBC loan and the treatment of CKC were not shown to amount to unfair prejudice. The petition was dismissed.

Background and parties: The petitioner, Andrew Michel, was a shareholder and until late 2005 an executive involved in the family-owned L Kahn Manufacturing Company Limited. The respondents included family members (notably Benjamin and Richard Michel) and the company. The petitioner sought relief under section 994 CA 2006 (unfair prejudice), asking for a buy-out at fair value or, alternatively, a just and equitable winding up.

Nature of the claim / relief sought: The primary relief sought was a purchase of the petitioner's shares at fair value assessed on a non-discounted basis. The petition alleged unfair prejudice through exclusion from management (removal as director in 2015), breaches of an oral agreement reached in late 2005 concerning his role and remuneration, and mismanagement including misstatements to a bank and issues concerning the company's Chinese operations.

Procedural posture: First instance hearing in the Companies Court (Chancery Division) before Chief Insolvency and Companies Court Judge Briggs. The petition was heard over several days (July 2018 and May 2019).

Issues determined by the court:

• Whether the company was a quasi-partnership or whether equitable considerations gave the petitioner a legitimate expectation of ongoing participation in management.
• Whether an oral Agreement was concluded in late 2005 on the terms pleaded by the petitioner (continued control of finance from home, monthly meetings, guaranteed long-term remuneration and a restraint on removal as director while a shareholder).
• Whether the petitioner's removal as director in 2015 and related conduct amounted to unfairly prejudicial conduct under section 994.
• Ancillary complaints about alleged misrepresentation to HSBC in 2011 and the ownership/recording of CKC and related assets.

Court's reasoning (concise): The judge reviewed relevant authorities on unfair prejudice, legitimate expectations and quasi-partnerships (including O'Neill v Phillips, Re A Company (No. 004377 of 1986), Re Saul D Harrison and others) and applied those principles to an intensive factual evaluation of documentary and oral evidence. The court found strong indicators against a quasi-partnership: the company was governed by its articles, director appointments followed the articles, family relationships were fractured at material times, and buy-outs had been conducted with minority discounts. The asserted late 2005 Agreement was not proved in the terms pleaded; contemporaneous documents and solicitor attendance notes showed only that the petitioner agreed not to return to day-to-day work from January 2006 and that a later agreement in February 2008 provided for continued payments until age 65. Allegations that the HSBC loan had been obtained by misrepresentation or that CKC was being concealed so as to prejudice the petitioner were not established on the evidence. The judge therefore concluded there was no unfair prejudice requiring relief.

Wider context: The court emphasised that equitable considerations to restrain strict legal rights arise only where there is a close, trust-based relationship or a legitimate expectation superimposed on the articles; such constraints were not present here. The judgment also underscores the centrality of contemporaneous documents and the burden on a petitioner to prove oral agreements and equitable expectations.

The petition is dismissed. The court found on the balance of probabilities that there was no quasi-partnership or equitable constraint preventing the company and controlling shareholders from exercising rights under the articles, that the pleaded late 2005 Agreement was not proved in the terms alleged (at most there was agreement that the petitioner would cease day-to-day management from January 2006, and a February 2008 agreement to continue payments until age 65), and that the removal as director and the conduct complained of did not amount to unfair prejudice under section 994 CA 2006.