Mark Lee Hilliard v Carl Anthony Jordan & Anor

In an unfair prejudice petition, fairness is flexible and open-textured but remains constrained by the parties’ agreement and the circumstances in which they agreed to conduct their business. A director who controls both sides of a related-party transaction must act in the company’s interests. Authority to enter into a transaction does not amount to blanket authority to agree terms contrary to those interests. Materially above-market rent, inadequate security of tenure and misuse of a rent deposit may cumulatively constitute unfair prejudice. The court may value a petitioner’s shares at the date when the unfairly prejudicial conduct began and make fair valuation adjustments.

The petitioner and first respondent were equal shareholders and directors of Xact Skips Limited, a quasi-partnership company. The parties agreed that the first respondent would purchase the petitioner’s shares at an undiscounted value, but disputed the valuation date and resulting price.

The petitioner alleged unfair prejudice arising from the company’s entry into a new lease, rent deposit deed and related loan arrangements involving property owned by the first respondent’s family. The central issue was whether the terms imposed by the first respondent were market terms and, if not, what valuation date and adjustments were fair.

1. Petition allowed in substance. The court directed the first respondent to purchase the petitioner’s 50 ordinary shares for £115,000.
2. Fairness under Companies Act 2006, section 994, is flexible and open-textured, but is not unbounded. The terms on which the parties agreed to do business together are an important consideration. The parties’ arrangements included the company’s articles, including article 14 provisions addressing conflicts of interest. The court relied on the approach described in In re Tobian Properties Ltd [2012] EWCA Civ 998.
3. The petitioner’s approval in principle of property transactions could not amount to blanket authority to enter into them on any terms. The first respondent acted in his own interests by procuring a five-year lease where the market term was materially longer, imposing rent materially above the market rent, requiring a £200,000 deposit despite an expert assessment that £180,000 was high, and using the deposit for personal purposes contrary to the deed.
4. Those matters constituted conduct of the company’s affairs that was unfairly prejudicial to the petitioner. The fair valuation date was 23 March 2022, the date of the petitioner’s letter of claim and shortly before execution of the new lease and rent deposit deed.
5. The expert’s net asset valuation did not justify adding back the loan arrangement fee or interest, because the loan was already included as an asset in the valuation basis. A £24,000 adjustment was made for increased rent charged but unpaid before the new lease was signed. The resulting price was £115,000.

First-instance decision. The judgment records that permission had been granted to appeal an earlier interlocutory refusal of relief from sanctions, but that appeal had not been heard. No lower-court merits decision was stated.