Lily Property Nominees Ltd & Anor v Stonebridge & Ors

This was a first instance unfair prejudice petition under section 994 of the Companies Act 2006 brought by the owner and beneficial occupants of 7 Prospect Place against the management company and certain directors. The petition alleged that the company and/or its directors had conducted the company’s affairs in a manner unfairly prejudicial to the Petitioners by discriminating against them, adopting double standards in corporate governance and management of the communal land, and by a campaign of harassment intended to make them leave.

The court applied the usual four-part approach to s.994 claims: (i) whether the impugned acts were conduct of the company’s affairs or acts on its behalf, (ii) whether the petitioner’s interests as a member were prejudiced, (iii) whether the prejudice was unfair, and (iv) the court’s equitable discretion to intervene. The judge analysed each pleaded incident (service charge demand and apology, the gardener incident, gate/intercom upgrade, barking dog, appointment of managing agents, directorship vacancies and alleged exclusion of an elderly visitor from parking) and concluded either that the incident fell outside the scope of s.994 or that, on the objective assessment, there was no unfair prejudice or abuse of power by the company or its directors.

The judge rejected the submission that equity imposed additional duties derived from an alleged informal “Understanding” or quasi-partnership between shareholders. The petition was dismissed. The company’s counterclaim for unpaid service charges succeeded and the petitioner remained liable for the sums claimed.

Background and parties: The dispute concerned Prospect Place (Wimbledon) Management Company Limited, the freeholder and management company for a private close of eight houses. The petitioners were the legal owner company of 7 Prospect Place and the beneficial occupiers, who alleged discriminatory treatment and a campaign of conduct by those running the company. The respondents were two serving directors, a former director and the management company itself.

Nature of the application: An unfair prejudice petition under s.994 Companies Act 2006. The Petitioners sought orders including that one of them should be invited and appointed as a director, that the company consult the Petitioner on spending over a monetary threshold, and generally that the company be run in good faith and fairly towards all occupiers.

Issues framed:

• Whether the alleged acts amounted to conduct of the company’s affairs or acts on behalf of the company within s.994(1);
• Whether the petitioners’ interests as members were prejudiced (not limited to financial loss);
• Whether any prejudice was unfair in the contextual and equitable sense, including whether equitable duties (an alleged "Understanding") should be imposed; and
• What relief, if any, should follow.

Court’s reasoning and findings: The judge considered authorities on the breadth of "affairs of the company" and on the concept of unfairness and the role of equity (including that equitable intervention is narrower where members have agreed the terms on which the company is to be run). He found no evidence that the parties had entered into a context (such as a quasi-partnership) that would warrant imposing extra equitable duties described as the "Understanding". Many of the incidents complained of either fell outside the company’s affairs (for example, neighbour disputes such as a barking dog or garden waste collection) or, on close factual analysis, did not show that the directors had acted in bad faith or in a manner that would amount to unfair prejudice to the petitioners as members. The court found that some errors or discourteous communications had occurred (for example, a brusque email by a former director, and delay in completing the deed of covenant for the new shareholder), for which apologies had been made, but these did not amount, objectively, to unfair prejudice. The court rejected the claim that a campaign existed to drive the family away. The court dismissed the petition and allowed the company’s counterclaim for unpaid service charges (subject to the usual proof and calculation), awarding interest under s.35A Senior Courts Act 1981.

Wider context: The judgment emphasises the limits of equitable intervention in shareholder disputes and the need to look to the company constitution and statutory duties before imposing additional informal obligations on directors or members.

The petition is dismissed. The judge held that, on the facts, either the impugned incidents did not constitute acts or omissions of the company within s.994(1) or, where they did, they did not amount to unfair prejudice to the petitioners as members. The court refused to impose equitable duties beyond the company’s constitution and statutory duties and found that no campaign to drive the petitioners from their home was proved. The company’s counterclaim for unpaid service charges succeeded and the petitioners remain liable for the amounts claimed.