Brewin & Anor v Bathroom Brands Holdings UK Ltd (& Anor

This is a s.994 Companies Act 2006 petition alleging unfairly prejudicial conduct by the majority shareholder Bathroom Brands Holdings UK Ltd (BBHUK) acting through its nominated directors. The court applied the established tests for unfair prejudice (conduct of the company’s affairs; prejudice; and unfairness), relying on authorities including Saul D Harrison and O'Neill v Phillips, and concluded the petition was well founded on liability.

Key findings were:

• BBHUK failed to enter into a Deed of Adherence to the Shareholders' Agreement as required by the transaction documents, depriving the petitioners of direct contractual rights against BBHUK.
• On 30 October 2014 BBHUK's nominated director instructed removal of the prototype and associated equipment from Australia to the UK without consultation or board approval; the judge described that act as gross mismanagement that destroyed trust and precipitated resignations and loss of key engineers.
• At the 14 November 2014 board meeting a BBHUK director sought to renegotiate funding and patent hand-back terms without prior notice; the conduct was an improper exercise of influence by a director with a conflict of interest.
• On 25 November 2014 BBHUK unilaterally withdrew its funding obligations in breach of the Subscription Letter and related undertakings, effectively rendering the company moribund; later BBHUK used its voting majority at a 2017 general meeting to block the company pursuing remedies against BBHUK.

The court rejected BBHUK's primary justification that it had been reasonably misled about the stage of product development and found the petitioners had been prejudiced by unfair conduct. Liability was established; valuation and final remedy were reserved for a further hearing.

This was a first-instance unfair prejudice petition under sections 994 to 996 of the Companies Act 2006 brought by the inventors and minority shareholders of Cintep Development Limited (the Company) against the majority shareholder BBHUK and the (absent) second respondent. The petitioners alleged that BBHUK, through its nominated directors, ran the company's affairs in a manner unfairly prejudicial to them, principally by unilaterally suspending funding, removing the prototype from Australia without agreement, failing to sign a Deed of Adherence to the Shareholders' Agreement, manipulating board processes, and blocking company remedies.

Background facts (concise):

• Petitioners were inventors of patented water-recycling shower technology and had incorporated an Australian company (Cintep AU) which developed prototypes.
• In August 2014 BBHUK agreed to invest and a UK company (the Company) was formed; BBHUK subscribed and undertook to contribute at least £1m within the first year and to enter a Deed of Adherence to a Shareholders' Agreement; the Company acquired IP and prototypes from Cintep AU.
• Disputes arose after a BBHUK engineer and recruits visited Australia in October 2014 and expressed strong technical, regulatory and commercial reservations about the prototype.

Procedural posture: first-instance liability hearing only; valuation/remedy reserved.

Issues for decision:

• Whether the conduct complained of constituted conduct of the company's affairs;
• Whether the petitioners suffered prejudice in their capacity as members;
• Whether that prejudice was unfair in the sense used in the authorities (including quasi-partnership expectations, breach of understandings, director duties and conflicts of interest).

Court's reasoning (concise):

• The court applied the three-part test for a well-founded petition (management of affairs; prejudice; unfairness) and relevant authorities on unfair prejudice, nominee directors and directors' fiduciary duties.
• The court rejected BBHUK's central contention that it had been reasonably misled by the petitioners as to the status of the prototype: contemporaneous documents and exchanges showed the parties were repeatedly aware of regulatory and technical risks and that proposed timetables were optimistic.
• The court found several acts of unfairly prejudicial conduct: failure to sign the Deed of Adherence (depriving the petitioners of direct contractual remedies), the unilateral removal of the prototype from Australia (improper mismanagement and exclusion of the petitioners), the 14 November 2014 board conduct (attempted renegotiation under pressure by a director with an evident conflict), BBHUK's unilateral withdrawal of funding on 25 November 2014 in breach of contractual obligations, and BBHUK's voting to block company claims in 2017.
• The cumulative effect was to destroy the company's commercial prospects and prejudice the petitioners' interests as members. The petition was therefore well founded on liability; the court reserved valuation and the appropriate section 996 remedy for a further hearing, indicating a preliminary view that monetary relief representing the value of the petitioners' shareholdings as at late October 2014 would be appropriate.

Wider observations: the court emphasised that it need not and did not decide contested technical questions about product viability; the case turned on company law principles, director duties and the parties' conduct.

The petition under section 994 of the Companies Act 2006 is allowed. The court found BBHUK and its nominated directors engaged in conduct unfairly prejudicial to the petitioners (including failure to enter a Deed of Adherence, unilateral removal of the prototype from Australia, improper conduct at the 14 November 2014 board meeting, unilateral withdrawal of funding on 25 November 2014 and subsequent blocking of company remedies). The petitioners were prejudiced in their capacity as members; remedy and valuation were reserved for a further hearing (the court indicated a preliminary view that an award representing the value of the petitioners' shareholdings as at late October 2014 would be appropriate).