Stuart Wells v Paul Hornshaw & Ors

The court found that the petitioner, Mr Wells, had been unfairly prejudiced under section 994 of the Companies Act 2006 because the company auditor, Mr Clark, did not use up-to-date information when producing a valuation required by the parties' Shareholders' Agreement. The court rejected the petitioner's central allegations of improper dilution, widespread corporate wrongdoing by the majority shareholders and the claim for a pro-rata valuation without a minority discount.

The court ordered a new valuation (to be carried out by an expert in the manner contemplated by the Shareholders' Agreement) with a valuation date of 26 September 2015, and awarded quasi-interest on the sum ultimately payable for the shares for the period 30 April 2016 to 30 June 2018 at a rate of 1% above the Bank of England base rate. The judge explained the award as a proportional remedy to reflect that the petitioner had been kept out of the purchase monies because of the dispute over the auditor's valuation, while also taking account of the petitioner's own conduct in advancing time-consuming allegations which were not made good.

Background and parties: The petitioner, Mr Wells, was a minority shareholder in Transwaste Recycling and Aggregates Limited. The majority shareholders were Paul and Mark Hornshaw. After Mr Wells indicated in September 2015 his intention to leave and sell his shares, an auditor (Mr Clark) produced a valuation in June 2016 which Mr Wells regarded as too low. Mr Wells issued a petition under section 994 Companies Act 2006 in July 2019, alleging unfair prejudice including improper dilution of his shareholding and misconduct by the Hornshaws and seeking an order for purchase of his shares at a corrected value.

Relief sought: An order under s.994 for purchase of the petitioner’s shares at an increased valuation (on the basis of a larger shareholding and without a minority discount) and related relief.

Procedural posture and issues: This is a first instance judgment following a liability trial. Issues decided included whether Mr Wells was unfairly prejudiced, whether the Clark valuation was binding and properly prepared, whether the dilution and misconduct allegations succeeded, the appropriate valuation date, and whether the petitioner should be awarded interest or "quasi-interest" on the purchase price.

Court’s reasoning and principal findings:

• The court concluded that September 2015 was the appropriate valuation cut-off and that the petitioner’s membership/crystallised interests should be valued as at that date (the parties agreed 26 September 2015).
• The court rejected the petitioner’s core allegations of improper dilution and of corporate wrongdoing and rejected his case for pro-rata valuation without minority discount.
• The court held that the auditor, Mr Clark, did not follow instructions and failed to use the most up-to-date information when preparing his report, which gave rise to unfair prejudice because it affected the proper calculation of the sale price under the Shareholders' Agreement.
• The court directed a fresh valuation to be carried out by a valuer acting as an expert in the manner contemplated by the Shareholders' Agreement and set the valuation date as 26 September 2015.
• On the question of compensation for delay, the court analysed causation and responsibility for the delay. Balancing the Hornshaws’ insistence that the Clark valuation was binding against the petitioner’s own pursuit of wide-ranging allegations (many dismissed), the court took a middle course and awarded quasi-interest for the period the petitioner ought, on a principled account, to have been paid (30 April 2016 to 30 June 2018).
• The rate was set at 1% above the Bank of England base rate for that period. The judge relied on the approach in Profinance Trust SA v. Gladstone and recognised Elliott v. Planet Organic Ltd as reflecting the usual rule against interest but subject to exceptions.

Wider context: The court observed that awards of quasi-interest under s.994 should be exercised with caution and that an award is appropriate where a petitioner has been deprived of the benefit of his shareholding for an extended period and fairness requires compensation, subject to assessment of responsibility for the delay.

The petition was allowed in part. The court held that Mr Wells had been unfairly prejudiced by the auditor's failure to use up-to-date information, ordered a new valuation to be conducted as an expert (valuation date 26 September 2015), and awarded quasi-interest on the sum eventually payable for the shares for the period 30 April 2016 to 30 June 2018 at a rate of 1% above the Bank of England base rate. The court rejected the petitioner’s claims of improper dilution, major corporate wrongdoing and entitlement to a pro-rata valuation without a minority discount.