Benjamin Daniel Sparks & Anor v Emma Ashton Thomas & Ors

Unfair prejudice requires both prejudice and unfairness, assessed objectively against the company’s constitutional and contractual framework. Exclusion of a shareholder from management is not justified merely by personal misconduct, incompetence, loss of confidence or a breakdown in relations. The conduct must relate to the affairs of the company, be sufficiently serious to undermine the basis for equitable relief, and make exclusion without a fair offer proportionate and justified. The court may consider all circumstances known at trial, although causation remains a relevant factor. Where unfair prejudice has caused a decline in company value, a share purchase order should provide proportionate relief and must not preserve the prejudice through an unfair valuation date or minority discount.

The petitioners and the respondents were equal shareholders in Ngage Holdings Limited and involved in its management. The petitioners alleged that the respondents had unfairly prejudiced their interests by excluding Mr Sparks from management, misapplying company assets and diverting business to Graft Rail. The respondents brought a counter-petition based principally on alleged sexual misconduct, misuse of company funds, damage to staff and client relations, and conduct affecting banking and credit-protection arrangements.

The court determined whether the alleged conduct established unfair prejudice under section 994 of the Companies Act 2006, whether directors’ duties had been breached, and what relief and valuation basis were appropriate.

1. Outcome. The petitioners established unfair prejudice through Mr Sparks’ exclusion from management and the respondents’ establishment and use of Graft Rail. The counter-petition was not made out on the principal allegations. The fair and proportionate remedy was an order for the purchase of the petitioners’ shares, with possible indemnification of Mr Sparks under his personal guarantee.
2. Applicable principles. Under section 994 of the Companies Act 2006, there must be both prejudice and unfairness. The assessment is objective and must be made against the company’s articles, shareholders’ agreement and applicable equitable principles. The court may consider all circumstances known at trial, even if they were not the reason for the exclusion. Causation is relevant but is not an essential precondition.
3. Exclusion. Personal sexual misconduct, incompetence, a breakdown of trust or confidence, and the majority’s view of the company’s interests do not by themselves justify exclusion without a fair offer. The conduct must be misconduct in the affairs of the company, sufficiently serious to undermine the equitable basis of the relationship, and the exclusion must be proportionate and justified. The alleged sexual conduct and expense claims did not meet that standard.
4. Directors’ duties. Mr Thomas breached his duties by pursuing the development of Graft Rail while a director of GCL. Mrs Thomas breached her duty by failing to disclose relevant intentions and actions to Mr Sparks as co-director. The use of Graft Rail, company facilities and former staff was likely to have diverted business.
5. Relief and valuation. A winding-up order would not fairly remedy the prejudice. The valuation date was the beginning of November 2023, when Mr Sparks was excluded, because the later decline was primarily attributable to the exclusion, resulting breakdown in relations and Graft Rail. No minority discount should be applied because the purchaser would obtain complete ownership and applying a discount would be unfair.
6. The parties were directed to attempt to agree the purchase price and to file an agreed draft order, with unresolved matters to be determined on written submissions unless a further hearing was required.

First-instance decision. No prior appellate decision is stated in the judgment.