Dean Joseph Banfield v Paul Robert Edwards & Ors (Re Brand Evolution Ltd)

A quasi-partnership may exist where a company was formed through mutual trust and confidence, its shareholders were expected to participate in management, and share transfers were restricted. The label is only shorthand: equitable restraints must rest on established principles.

A member who voluntarily resigns as director, leaves the business and takes alternative employment has no automatic right to continue participating in management or receiving director-level information merely because the company is a quasi-partnership. Section 994 relief requires both prejudice and unfairness assessed in the company-law context. Directors may increase their remuneration under the constitution, provided they comply with their statutory duties and the remuneration is objectively commercially reasonable.

The petitioner, a founder and shareholder of Brand Evolution Ltd, presented an unfair-prejudice petition under section 994 of the Companies Act 2006. He alleged that the company was a quasi-partnership, that an oral agreement required the respondents to buy his shares, and that his exclusion from management, lack of meeting notices, dilution, non-payment of dividends and increased remuneration were unfairly prejudicial.

The petitioner abandoned his claim that an unsigned shareholders’ agreement was binding. The court therefore determined whether a quasi-partnership existed, whether a binding exit agreement had been made, and whether the pleaded conduct amounted to unfair prejudice.

1. Quasi-partnership. The company was a quasi-partnership. The founders had worked together for years, contributed personal funds, relied on mutual trust and confidence, participated in management and operated under restrictions on share transfers. Family members and friends who held non-voting Alphabet Shares for tax purposes were sleeping members and did not prevent that conclusion. Equitable considerations were therefore superimposed upon the company’s constitution.
2. Exit agreement. The petitioner proved neither a legally enforceable oral agreement nor a sufficiently clear assurance requiring the company or the other shareholders to buy his shares. The contemporary documents showed discussions about a possible purchase subject to an acceptable valuation, not a binding commitment. The contractual and estoppel claims were dismissed.
3. Management exclusion. A quasi-partnership does not confer an unconditional right of unilateral withdrawal or continued management participation. The petitioner resigned as director, left to take another job and accepted that he did not wish to undertake day-to-day management. His exclusion from management and director-level information was consequently not unfairly prejudicial.
4. Corporate decisions and remuneration. The articles gave the directors power to appoint an additional director, determine directors’ remuneration and decide dividend payments. The allotment of Alphabet Shares to retain a key employee had a proper commercial basis and promoted the company’s success. Dividends paid through Alphabet Shares represented directors’ remuneration, so stopping the petitioner’s payments after he ceased working was not unfair. The proposed distribution of profits excluding him did not occur and therefore caused no prejudice.
5. Although the continuing directors had to comply with their statutory duties, their increased remuneration was objectively commercially reasonable. They had assumed the petitioner’s and another founder’s workloads, while total founder remuneration broadly remained unchanged. The petition was dismissed.