Unfair prejudice: what kind of conduct is relevant?

Just because a shareholder doesn’t like how the company is being managed doesn’t mean the court will make a finding of unfair prejudice.

In Primekings Holding Limited v Anthony King [2021] EWCA Civ 1943 the Court of Appeal emphasised that a shareholder bringing a petition must prove a “causal connection” between the personal actions complained of and the prejudicial conduct of the company’s affairs.

Background

An unfair prejudice petition is a petition which a shareholder of a company can present to the court alleging that the company’s affairs are being or will be conducted in a manner that is unfairly prejudicial to the interests of the shareholders.

If the court makes a finding of unfair prejudice, it has a wide discretion to make a number of orders, including a share purchase order. You can read more about the court’s discretion here.

This case was part of a complex dispute concerning Kings Solutions Group Limited. The respondents to an unfair prejudice petition applied to strike out certain allegations in the petition on the basis that those allegations did not constitute “affairs of the company”.

There were a number of allegations in question but the key ones were allegations against the respondents conduct in separate litigation in which the respondents had sought, obtained and enforced a charging order over the petitioner’s shares. There was no specific allegation that Primekings funds were used to support that litigation.

The court struck out the relevant paragraphs of the petition and found they included conduct which was not relevant to the affairs of the company.

The court explained that the legislation states that the acts complained of must either (i) be an act or omission of the company, or (ii) be conduct of the company's affairs rather than acts done in the conduct of a shareholder's personal affairs.

Practical implications

Practically speaking, this means:

Do not use court documents to raise a multitude of offences that are irrelevant to the court’s decision. A petition needs to strike a balance between voicing personal offences and making the court aware of actions which might constitute unfair prejudice. In Primekings, Lord Justice Snowden said there had "been a clear tendency for petitions and pleadings … to seek to raise myriad grievances and complaints of diverse forms of misconduct against the respondents to the petition."
Remember that any personal acts of the potential respondents is only likely to be relevant if it is “causally connected” to the conduct of the company’s affairs.

If you have concerns about the conduct of fellow shareholders and/or directors then contact our corporate disputes solicitors George Gwynn or Morgan Rees to seek specialist advice on the options available to you.