Joseph Mark Taylor v James Lee Taylor & Anor

For the purposes of an unfair prejudice petition, equitable obligations may supplement strict legal rights where a company is operated as a quasi-partnership. Persistent exclusion from management, failure to provide information, failure to hold required meetings, and use of company assets to benefit a controlling shareholder or associates may amount to unfair prejudice.

Failure to declare dividends is not ordinarily unfair prejudice merely because profits are retained. It may be unfair where company profits are instead diverted through improper, unsecured or interest-free transactions benefiting the controller or associated companies. A director must account for and explain transactions involving company property transferred to an associate.

Joseph Mark Taylor, a 40% shareholder in Jamett Properties Limited, presented a petition under section 994 of the Companies Act 2006. He alleged that his brother, James Lee Taylor, had excluded him from a family company operated as a quasi-partnership, denied him information and participation, failed to hold meetings, and managed company assets for his own benefit and that of associated companies.

The trial was limited to liability. The court considered whether the company was a quasi-partnership, whether the petitioner had been validly removed as a director, and whether the alleged conduct was prejudicial and unfair. A related strike-out application based on offers to purchase the petitioner’s shares was also determined.

1. The petition succeeded on the principal heads of unfair prejudice. The company had been operated from 2002 until late 2012 as a family quasi-partnership, based on an oral understanding that both brothers would participate actively in management. Equitable obligations of trust and confidence therefore qualified their strict legal rights.

2. The purported removal of the petitioner as a director in 2013 was ineffective. No general meeting took place and, even if one had been called, it was not quorate under regulations 53 and 54 of Table A in Part II of Schedule 1 to the Companies Act 1948. The Companies House record was to be corrected.

3. The petitioner had been persistently excluded from management and from meaningful information about the company. The exclusion breached the quasi-partnership understanding and was unfairly prejudicial. The absence of AGMs also breached regulation 47 of Table A and deprived the petitioner of a proper opportunity to scrutinise the company’s affairs.

4. The company’s failure to declare or consider declaring dividends constituted unfair prejudice only to the extent that available profits had instead been used for unsecured, interest-free or otherwise disadvantageous transactions benefiting Mixit, Fleetwood or the first respondent. Those transactions also breached the director’s duties under sections 171(b), 172 and 175 of the Companies Act 2006.

5. The first respondent failed to account for substantial loans, recharges and payments involving the company and his associates. Once company property transferred to an associate was established, the evidential burden was on him to show that the transaction was proper and in the company’s interests. A later indemnity did not cure the unfair prejudice, particularly given the risk of repetition.

6. Other findings included unfair prejudice arising from unaccounted pension transactions, payments for valuations obtained for the proposed rights issue, inadequate accounting for the sale of 565 Romford Road, and failure to account for company services provided in relation to properties owned personally by the first respondent. Certain alleged payments and the alleged theft of £59,000 were not proved.

7. The strike-out application was dismissed. The offers to purchase the petitioner’s shares had been withdrawn, and in any event the available financial information was inadequate for the petitioner properly to assess such an offer. Consequential directions and a further hearing on relief and quantum were required.

First-instance liability judgment. The judgment states that a separate hearing was required to determine relief and quantum.