John Seneschall v Trisant Foods Limited (in liquidation) & Ors

Under the Companies Act 2006, s 994, conduct must be both prejudicial and unfair to a protected member interest. In a small quasi-partnership, that interest may include executive participation and connected guarantees or security. Insolvency, valueless shares, or continuing office as a director do not automatically defeat a claim. A concealed plan to remove a founder, exclude him from management and information, and exploit security provided by him was unfairly prejudicial. Unlawful means conspiracy requires combination, intention to injure, unlawful acts used as the instrument of harm, and loss. There is no free-standing justification defence. A counterclaim based on alleged insolvency misrepresentations failed where the investor knew that the company had substantial overdue liabilities and depended on further funding.

The petitioner founded Trisant Foods Limited with the third respondent. Market Fresh Limited later invested in the company and became its majority shareholder under the Investment and Shareholders’ Agreement and subsequent Heads of Terms. The petitioner alleged that the respondents unlawfully controlled the company, excluded him from management, and procured his suspension and dismissal. He also alleged a collateral agreement requiring repayment of a secured company loan.

Market Fresh counterclaimed in fraudulent misrepresentation and breach of warranty, alleging that the company’s insolvency and overdue liabilities had been concealed. The court determined the enforceability and meaning of the investment agreements, the unfair-prejudice petition, the unlawful-means conspiracy claims, and the counterclaim. The remedy for the successful liability findings was reserved.

Disposition. The petition succeeded on liability in part. Unfair prejudice was established from about the end of 2019, and an unlawful-means conspiracy was established from about June 2020. The counterclaim failed. The form of relief and the extent of recoverable loss were reserved for further evidence and submissions.

1. The March investment proposal was not a binding contract. The Investment and Shareholders’ Agreement was the first binding investment contract. Its additional-share option lacked substantive effect because the material terms still required agreement. Market Fresh was not obliged to invest beyond the agreed sum. Clause 6.1 limited the company’s use of investment proceeds; it did not prevent Market Fresh attaching conditions to voluntary further funding. The Heads of Terms required payment of the agreed investment by the longstop date, if at all, with unpaid shares to be returned. They imposed no obligation to agree interim payments.
2. There was no collateral Redemption Agreement requiring Market Fresh to discharge the secured loan. The parties’ negotiations culminated in the written agreements, and the alleged collateral promise was inconsistent with the entire-agreement clause.
3. For the purposes of s 994, unfairness was assessed against the company’s structure, the parties’ agreements and established equitable principles, including those explained in O'Neill v Phillips [1999] 1 WLR 1092. The petitioner’s protected interests included his connected exposure as guarantor and mortgagor and his equitable right of executive participation. The fact that the company was insolvent, or that the petitioner remained a director, did not prevent relief.
4. There was no unfair prejudice or conspiracy between June and November 2019. Staged funding, requests for information and banking controls were not contractually prohibited, and the petitioner consented to some controls. From late 2019, however, the respondents pursued a concealed plan to reduce or end his participation. The plan included terminating the company flat, excluding him from important communications, delaying notice of the decisions concerning his and Ms Jones’s suspensions until after refinancing secured on his home, and using an unfair disciplinary process to procure his dismissal. Those matters breached directors’ duties, the Investment and Shareholders’ Agreement, his employment contract and his information rights.
5. The conspiracy test required combination, intention to injure, unlawful acts used as the means of harm, and loss. There was no independent defence of justification. From about June 2020, Market Fresh, Mr Marshall, Mr McCormick and Ms Jones combined to exclude the petitioner from executive participation, using breaches of fiduciary duty connected with his dismissal. The separate deceit allegation was rejected. Market Fresh’s counterclaim failed because it knew of the company’s financial dependency and substantial overdue liabilities, and the relevant due-diligence response and warranty were not fraudulent.

Not stated in the judgment.