Peter Charles Willoughby v Eric Martin Cole & Anor

On an unfair-prejudice petition, the fairness of excluding a member from management is assessed objectively, by reference to all relevant circumstances. A causal connection between the conduct relied on and the exclusion is not legally essential, although the absence of such a connection may affect the weight of the case.

Exclusion without a fair offer for the member’s shares requires serious misconduct in relation to the company’s affairs, sufficiently serious to justify exclusion and undermine the equitable considerations protecting participation. Mere incompetence, personal misconduct, loss of confidence or a breakdown in relations is insufficient.

Historic allegations may be irrelevant where they are remote, were not relied on contemporaneously, or concern personal matters rather than the company’s affairs. Pleadings that are vague, incoherent or insufficiently particularised may be struck out. The court may grant summary judgment on a severable claim or defence, but not merely on individual facts forming part of a wider issue.

The petitioner brought a petition under section 994 of the Companies Act 2006 concerning his exclusion from the management of Simply Naturals Ltd and his removal as a director without a fair offer for his shares.

The respondents relied on historic allegations concerning misrepresentations, a dispute relating to the petitioner’s purchase of US Naturals, regulatory non-compliance concerning products, and alleged breaches of directors’ duties. They also relied on more recent allegations concerning lateness, personal activities during working time and failure to complete tasks.

The petitioner applied to strike out parts of the defence and for summary judgment. The central issues were whether the historic allegations were relevant to the objective fairness of the exclusion and whether the recent allegations, if proved, could alone justify removal without a fair offer.

1. Summary judgment and strike out. Individual paragraphs of the defence containing factual and legal matters relied on cumulatively did not themselves constitute an “issue” for CPR r.24.2. The court nevertheless considered the wider Justification Issue because both parties’ submissions addressed whether the recent allegations could independently justify removal.
2. Objective fairness. The fairness of exclusion is assessed objectively in the light of all relevant circumstances. No causal connection between the petitioner’s conduct and the exclusion is required as a matter of law. However, the fact that matters were not relied on at the time, despite being known, is relevant to whether they objectively justified exclusion.
3. Historic allegations. The misrepresentation allegations concerned dealings in the respondents’ personal capacities and were not pleaded as misconduct in the company’s affairs. The allegations concerning the Heinrich dispute and product compliance were remote, having been known for several years without prompting removal. The allegation that the petitioner misrepresented his ownership of a US mine was vague and incoherent because no clients, contacts, dates or terms were identified. The historic allegations therefore disclosed no reasonable grounds for relevance to the Justification Issue or to relief, and were struck out.
4. Required misconduct. Exclusion without a fair offer requires serious misconduct in relation to the company’s affairs. Mere incompetence, personal misbehaviour, loss of confidence or breakdown in relations does not suffice. The conduct must be sufficiently serious, proportionate and objectively capable of justifying exclusion.
5. Recent allegations. The allegations of lateness, personal activities during working time and delayed tasks were treated as director issues for present purposes. Even if proved, they had no real prospect of amounting, without more, to serious misconduct justifying removal without a fair offer. Summary judgment was therefore granted for the petitioner on the Justification Issue.
6. Relief and pleading. The recent allegations remained potentially relevant to the nature of relief if the petition succeeded. The pleaded breaches of the duties to avoid conflicts and maintain records were incoherent in relation to those allegations and were struck out. The court ordered the specified historic allegations and related duty allegations struck out, and summary judgment for the petitioner on the Justification Issue.