Joanne Brierley v Christopher Howe & Anor (Re 36 Bourne Street Ltd)

For the purposes of an unfair-prejudice petition, personal conduct by a shareholder is not enough. It must be causally connected to conduct of the company’s affairs, and that conduct must itself cause unfair prejudice to the petitioner as a member. A private agreement to transfer existing shares ordinarily concerns the shareholder’s personal affairs. It becomes relevant under section 994 only where a properly pleaded causal link connects it with the conduct of the company’s affairs. A claim for dividends based solely on an alleged entitlement to additional shares is similarly personal and parasitic. The court may strike out such allegations where the statutory threshold is not met or the pleading is embarrassing, particularly where amendment is not realistically shown to be possible.

The petitioner brought a section 994 petition concerning 36 Bourne Street Ltd. She alleged that private agreements with the respondent entitled her to a 49% shareholding and corresponding profits and dividends. Sections E1 and E2 of the petition alleged that the respondent’s failure to recognise that entitlement and failure to secure payment of the corresponding dividends constituted unfairly prejudicial conduct and breaches of statutory duties.

The respondent applied under CPR 3.4(2)(a) and (b) to strike out those sections. The central issue was whether the pleaded complaints concerned conduct of the company’s affairs, or instead amounted only to personal claims between the petitioner and the respondent.

1. Application granted. Sections E1 and E2 of the petition were struck out.
2. Section 994 imposes cumulative threshold requirements. The petitioner must first identify either an act or omission of the company, or conduct of the company’s affairs. Only if that threshold is met does the court consider whether the conduct is unfairly prejudicial.
3. Personal conduct by a shareholder may be pleaded only where it is causally connected to relevant conduct of the company’s affairs. That conduct must in turn cause unfair prejudice to the petitioner in her capacity as a member. Case-management convenience cannot replace these statutory requirements.
4. A transfer of existing shares between shareholders ordinarily concerns personal affairs. By contrast, allotment and issue of shares involve the company’s affairs and trigger statutory obligations. A transfer may nevertheless be relevant where the exception identified in Graham v Every applies and a sensible causal link is pleaded.
5. The alleged Initial Agreement and 49% Agreement were pleaded as personal arrangements between the petitioner and the respondent. The petition did not plead that the company was required to do anything in consequence of those arrangements. The dividend claim depended entirely on the alleged share entitlement and therefore did not independently involve the company’s affairs.
6. The statutory-duty allegations in E1 and E2 were also embarrassing because they lacked conventional particularity and did not identify any company act or omission said to engage the pleaded duties.
7. The court declined to allow amendment. No amendment application or draft amendments had been produced, the petitioner maintained that the application was misconceived, and the court had no reason to believe that the defects could be cured. Striking out would also save substantial time and costs and advance the overriding objective.