Jonathan Lecaille v National Parking Enforcement Limited & Anor

A section 994 petition requires proof that the conduct concerns the company’s affairs or an act or omission of the company, and that it has prejudiced the petitioner’s interests as a member in an unfair manner.

In a small quasi-partnership company, equitable duties of good faith, trust and cooperation may continue after the parties’ personal relationship ends. Conduct which seriously undermines those duties, including destructive interference with management, may constitute conduct of the company’s affairs. Prejudice need not be financial. Fairness is objective and contextual. Exclusion from management may be fair where serious misconduct objectively undermines the basis for the equitable relationship. A shareholder’s decision whether to sell personal shares is not ordinarily conduct of the company’s affairs.

Jonathan and Julie Lecaille each held half the shares in National Parking Enforcement Ltd, a small family company operating a parking-enforcement business. Following their divorce, their working relationship deteriorated. Each presented a petition under section 994 of the Companies Act 2006, alleging that the other had conducted the company’s affairs in a manner that was unfairly prejudicial to their interests.

The principal issues were whether the company had quasi-partnership characteristics; whether alleged failures in management, withdrawals, exclusion and competing activities amounted to unfair prejudice; whether a refusal to accept a third-party offer for the shares fell within the company’s affairs; and what relief and valuation date were appropriate.

1. Mr Lecaille’s petition succeeded. The company was a quasi-partnership. Its informal establishment, equal ownership, family relationship and agreed participation in management gave rise to continuing equitable obligations of good faith, trust and cooperation, notwithstanding the parties’ divorce.
2. Section 994 required conduct of the company’s affairs or an act or omission of the company, prejudice to the petitioner’s interests as a member, and unfairness. The expression “affairs of the company” was broad. It included matters capable of coming before the board and conduct which destructively interfered with the management of a quasi-partnership company.
3. Ms Lecaille’s repeated abusive and humiliating conduct towards Mr Lecaille and employees, failure to perform agreed management functions, cancellation of approximately 9,000 parking charge notices without adequate evaluation, failure to pursue approximately 32,000 notices, withdrawal of company funds, and restriction of access to the company’s accounting system breached her statutory and equitable duties. Collectively and individually where identified, that conduct unfairly prejudiced Mr Lecaille’s interests.
4. Prejudice was not confined to financial loss. A breakdown of trust and confidence, and the corrosive effect of breaches of fiduciary duty on company administration, could amount to prejudice. Fairness was objective and depended on the whole context. Exclusion from management was not unfair where serious misconduct had undermined the equitable basis of participation. Mr Lecaille’s restrictions on Ms Lecaille’s access to company systems were therefore not unfairly prejudicial.
5. Ms Lecaille’s refusal to accept an offer to purchase her shares did not concern the company’s affairs. A board might recommend a share sale, but could not compel shareholders to sell their own shares. Her claims concerning the share-sale negotiations therefore failed.
6. Mr Lecaille’s counter-petition failed overall. His use of company funds for SSL expenses breached his duty to use powers for a proper purpose, but did not unfairly prejudice Ms Lecaille. The vehicle, premises, management and other complaints likewise did not establish unfair prejudice.
7. The appropriate remedy was an order requiring Mr Lecaille to purchase Ms Lecaille’s shares. The shares were to be valued at the date of the purchase order consequent upon the judgment. Any personal expenditure was to be properly recorded in the directors’ loan accounts.