Richard Stanley Morgan v Nigel James Morgan & Ors

In a quasi-partnership company, exclusion of a member from management may be unfairly prejudicial where the member had a legitimate expectation of participation and did not cause the exclusion. The court must assess fairness judicially, by reference to rational equitable principles and the parties’ relationship. A member’s refusal to provide further funding does not justify exclusion where there was no agreement requiring financial contributions. Loans without an agreed repayment date are ordinarily repayable on demand unless a contrary term can properly be implied. Relief may include repayment of the member’s loans, release or indemnity from company guarantees, and a buy-out at fair value without a minority discount.

The petitioner, a shareholder and former director of two family companies operated as a quasi-partnership, presented a petition under Companies Act 2006, section 994. He alleged that the active respondents had excluded him from management, removed him as a director, terminated his and his wife’s employment, withheld financial benefits, and failed to repay substantial loans made to one company. The fourth respondent counterclaimed against the petitioner and his wife for a share of compensation received in connection with historic banking frauds, alleging contract, constructive trust and unjust enrichment.

The central issues were whether the petitioner had been unfairly prejudiced, whether the payments to the company were loans repayable on demand, whether the counterclaim was established, and what relief should be granted.

1. Petition succeeded; counterclaim dismissed. The petitioner had been excluded from management and information, removed from his directorships, deprived of employment and associated benefits, and excluded from the farm. Those matters prejudiced his interests as a member.
2. Fairness under section 994 is not a licence to do whatever appears fair to an individual judge. It must be applied judicially, by reference to rational principles, the context, the company’s quasi-partnership character and equitable restraints on the exercise of legal rights.
3. The companies were operated on the basis of a quasi-partnership. The petitioner had a legitimate expectation of participation in management. There was no express or implied agreement requiring the brothers to provide further financial support. His refusal to sign a bank mandate before receiving financial information did not justify his removal.
4. The payments made by the petitioner and his wife were loans. No term limiting repayment to the company’s discretion, or requiring proportionate repayment to all lenders, was necessary or obvious. The loans were therefore repayable on demand. The Braganza principles did not apply because the alleged discretionary terms were not implied.
5. The counterclaim failed in contract, constructive trust and unjust enrichment. No compensation-sharing agreement was proved. Voluntary payments between family members did not establish a legal obligation. Unjust enrichment could not be used to reverse unimpeachable gifts, and any valid contract would govern the parties’ relationship.
6. Relief under section 996 should provide a clean break. The company was ordered to pay £656,111.98 on account of the admitted loan balance, followed by an inquiry into the full balance and any repayments. It was also required to use best endeavours to release the petitioner from personal guarantees, or indemnify him against liability. After repayment of the loans, the respondents were to buy his shares at fair value, without a minority discount if the company retained value.

First-instance decision. The judgment records related Employment Tribunal and Employment Appeal Tribunal proceedings, but no appellate history of this petition.