Lily Property Nominees Ltd & Anor v Stonebridge & Ors

An unfair-prejudice petition requires conduct of the company’s affairs, or an act or omission of the company, which prejudices the petitioner’s interests as a member and does so unfairly. The court assesses unfairness objectively and in context. Equity does not impose undocumented obligations merely because shareholders live in a small residential community. Additional equitable constraints require an appropriate relationship or circumstances supporting them. Matters concerning private disputes between residents fall outside section 994 unless they translate into conduct of the company’s affairs. A petitioner who can use the articles’ procedure to propose a director cannot ordinarily complain that the existing directors failed to nominate that person.

The petitioners, Lily Property Nominees Limited and its beneficial owner, occupied a home on an eight-property private estate managed by the sixth respondent company. They alleged that the company and its directors had conducted its affairs in bad faith and had unfairly prejudiced their interests by mishandling service charges, contractors, estate facilities, appointments, parking and relations between residents.

The respondents denied unfair prejudice and brought a counterclaim for unpaid service charges. The central issues were whether the complained-of matters fell within Companies Act 2006, section 994, whether an alleged informal understanding created enforceable equitable obligations, and whether the service charges were properly due.

1. The petition was dismissed. The court found no campaign to harass the petitioners or force them to leave, and no conduct which, separately or cumulatively, amounted to unfair prejudice.

2. Section 994 requires conduct of the company’s affairs, or an act or omission of the company, prejudice to the petitioner’s interests as a member, and unfairness. The statutory concepts are broad, but the court must examine the business realities and the petitioner’s capacity as a member.

3. Unfairness is contextual and objective. Applying the reasonable-bystander approach, the incidents relied upon would not objectively be regarded as unfairly prejudicial. A private disagreement between neighbours is not within section 994 unless it concerns the respondent’s directorship or translates into an act or omission of the company.

4. The company’s role was confined to managing the shared road, verges and gate system. It was not a residents’ association and had no general power to regulate conduct on privately owned land. Complaints about a barking dog, private parking disputes and garden-waste collection therefore did not ordinarily concern the company’s affairs or the petitioners’ interests as members.

5. The alleged informal understanding did not justify equitable intervention. There was no evidence of reliance on a promise when the property was acquired, no relationship of mutual confidence, and no agreement that all shareholders would participate in management. Equity could not impose undocumented duties to consult residents before appointing agents or to recommend particular shareholders for directorship.

6. The articles provided a procedure under which a shareholder could propose the petitioner’s appointment as a director. Since that remedy remained available, and there was no evidence that the respondents obstructed its use, there was no basis for compelling the existing directors to nominate him.

7. The counterclaim succeeded. The company was entitled under clause 2.1 of the Deed of Covenant to determine the annual service charge by estimating the relevant expenditure and dividing it by eight. Lily remained liable for £2,250, with interest recoverable under section 35A of the Senior Courts Act 1981.