SHICHUANG XIE v QINGHENG MENG & Ors

In an unfair prejudice petition, fairness is assessed judicially and in context. A member may rely on equitable constraints arising from the parties’ understandings and dealings, but a respondent’s honest belief that conduct was authorised does not by itself prevent a finding of unfairness.

A purported agreement must be established on the evidence and construed commercially. Informal dealings, corporate documents and later conduct may demonstrate that no alleged agreement was ever made. A loan without agreed repayment terms is ordinarily repayable on demand. Corporate acts remain subject to statutory and constitutional formalities, including those governing director removal and share allotments.

The petitioner invested substantial sums in Enno Capital Ltd, a company established to expand a bubble-tea business operated by the respondents. He became a director and majority shareholder. After relations deteriorated, he was removed as director, further shares were allotted to a respondent-controlled company, and business assets were transferred.

The petitioner presented a petition under Companies Act 2006, s.994. The central issues included whether alleged June and August agreements governed the parties’ relationship, whether the petitioner’s payments were loans, whether the share allotments and removal were valid, and ownership of the Bubble CiTea brand and EU trademark.

1. The petitioner established unfairly prejudicial conduct. The court applied the principles in O’Neill v Phillips [1999] 1 WLR 1092: fairness is contextual and may arise from breach of agreed rules or equitable constraints, but is not determined merely by a respondent’s state of mind.

2. There was no June Agreement and no August Agreement. The alleged arrangements were unsupported by contemporary documents, commercially unrealistic, internally inconsistent and contradicted by the parties’ subsequent conduct. The August Resolution was not an effective agreement governing the petitioner’s rights. It did not contain the alleged 100-outlet condition and did not validly authorise the later conduct.

3. The petitioner’s payments were loans. Since no repayment period had been agreed, the Loan was repayable on demand. The Company’s treatment of the sums as amounts falling due within one year supported that conclusion.

4. The petitioner’s removal as director did not comply with Companies Act 2006, s.168, or regulation 17 of the Model Articles. The appointments made in substitution were also invalid because there was no validly called or quorate directors’ meeting and no shareholders’ resolution.

5. The allotment of 30 non-voting shares in August 2019 and 10,000 ordinary shares in July 2020 was invalid and ineffective. The necessary statutory and constitutional formalities had not been satisfied. The purported articles relied upon to disapply pre-emption provisions were fabricated and did not authorise the allotment.

6. The Bubble CiTea brand belonged to Bubble City. The Purchase of Business Agreement permitted the third respondent to recall Bubble City and its assets. The transfer of the EU trademark to Bubble City was therefore valid and effective.

7. The later transfer of Bubble Opco involved value beyond the third respondent’s contractual entitlement and evidenced the respondents’ purpose of removing value from the Company. The parties were directed to seek agreement on relief and further directions.