Mark Lane & Anor v Pamela Lane

An oral agreement concerning the succession to shares may be contractually binding where mutual promises were intended to have legal effect, even though the agreement was not recorded in writing. A shareholder entitled under the company’s articles to transmit shares may be required by that contract to nominate the agreed transferee. Proprietary estoppel may provide an alternative remedy where a seriously intended promise is reasonably relied on and repudiation would cause detriment.

For unfair prejudice, the petitioner must establish company-affairs conduct, prejudice to membership interests, unfairness, and causation. Directors’ duties are owed to the company and breach alone does not establish unfair prejudice. A shareholder who agreed to, and understood, a remuneration arrangement substituting trust payments for dividends cannot ordinarily complain of that substitution as unfair prejudice.

Two proceedings concerning AGM Brickwork & Stonework Ltd were tried together. Mark Lane claimed that an oral agreement made when the company was incorporated required Alan Lane’s shares to pass to Mark if Alan died first. Pamela Lane disputed the agreement and relied on the company’s articles and Alan’s will.

Pamela also presented an unfair prejudice petition under the Companies Act 2006, alleging that Mark and Suzanne Lane had arranged the company’s remuneration so as to deprive her of dividends and had acted improperly in relation to loans involving the company.

The central issues were whether the oral share agreement existed and was enforceable, whether proprietary estoppel arose, and whether the pleaded conduct established unfair prejudice.

1. The Claim succeeded. The court found, on the balance of probabilities, that the parties had made an oral agreement that Alan’s shares would pass to Mark if Alan died before him. The agreement formed part of the wider arrangement under which the parties became shareholders in AGM.
2. The agreement was contractually binding. It contained mutual promises capable of constituting consideration, and, viewed objectively, the parties intended legal effect. The absence of a written shareholders’ agreement showed only that the parties considered no formality necessary. Pamela, as the person entitled to the shares under articles 29 to 31 of the company’s articles, was required to nominate Mark as transferee and execute the necessary transfer. The court rejected the alternative submission that the agreement itself amounted to an election under article 30, because Pamela was not then a member or entitled to make that election.
3. Alternatively, Mark would have succeeded on promise-based proprietary estoppel. He reasonably relied on the promise by continuing to work for and build up AGM after Alan’s death. It would have been unconscionable and detrimental to permit Pamela to repudiate the promise.
4. The Petition was dismissed. Under sections 994 and 996 of the Companies Act 2006, Pamela had to establish conduct of the company’s affairs, prejudice to her interests as a member, unfairness, and causation. Directors’ duties under sections 170 to 175 are owed to the company, and breach alone is insufficient to establish unfair prejudice.
5. The remuneration arrangement was not unfairly prejudicial. Pamela had agreed to its establishment, understood that payments were loans rather than dividends, and accepted payments in substitution for dividends. She therefore could not complain of that substitution. The court also rejected the allegation that operating the arrangement necessarily breached the duty of care, skill and diligence under section 174.
6. The loans made by Mark to AGM did not themselves establish prejudice or unfairness. The allegation that the loans resulted from excessive payments through the remuneration trust was unpleaded and could not properly be determined at trial.
7. The court observed that the directors remained responsible for considering whether continued operation of the remuneration trust and future non-payment of dividends remained appropriate after Pamela’s objection. The Claim succeeded subject to further submissions on relief, with transfer of the disputed shares appearing sufficient.