Commercial judge refuses to make finding of unfair prejudice prior to proof in minority shareholder action

About this case:

• Citation:
  [2025] CSOH 34
• Judgment:
  External link
• Court:
  Court of Session Outer House
• Judge:
  Lord Braid

Petitioner Fotheringay Ltd, which owned 20 per cent of the shares in the first respondent, West Ranga Developments Ltd, sought orders under sections 994 and 996 of the Companies Act 2006, including for the purchase of its shares in the company at fair value. The majority shareholder, West Ranga Property Group Ltd, opposed the petition alongside the company, and claimed there was a good reason for their conduct.

The petition was heard by Lord Braid in the Outer House of the Court of Session. Mackenzie, solicitor advocate, appeared for the petitioner and Brown, advocate, for the first and second respondents.

Disabled emails

The petitioner company was incorporated in March 2021 at the instance of David Reid, an experienced chartered surveyor, as a vehicle for Mr Reid entering into a joint venture property development with the second respondent, WRPG. At the time of the first respondent’s incorporation, it issued share capital of four £1 shares, one of which was acquired by the petitioner.

In or around August 2023, the share capital of the first respondent was altered to become 1,000 shares of 1p. The third respondent, Romar CS Ltd, then became a 10 per cent shareholder of the company and the petitioner a 20 per cent shareholder. A new shareholder agreement was entered into between the three parties, which the petitioner averred did not supersede the previous agreement between itself and WRPG.

The petitioner complained that, on 8 May 2024, the respondents disabled Mr Reid’s access to his company email account and OneDrive storage, practically excluding him from company affairs, and stopped holding regular board meetings despite being obliged to hold one every two months. While they did not accept it was unfairly prejudicial of them to do so, the respondents accepted they had excluded Mr Reid from company affairs, claiming it was for good reason in light of Mr Reid’s own conduct.

Counsel for the respondents submitted that Mr Reid had himself breached his fiduciary duties to the company by forwarding emails to himself and pursuing opportunities on his own account. They were entitled to proof of those averments before the court reached any decision as to whether the exclusion was unfairly prejudicial.

Not as clear-cut

In his decision, Lord Braid began by observing: “There can be little doubt that the exclusion is prejudicial to the petitioner, but whether it is unfairly prejudicial or not is a fact-sensitive question. The petitioner’s right, in terms of the shareholders’ agreement, to nominate a director, existed for so long as the petitioner held at least 25 per cent of the issued share capital of the company, but on the petitioner’s averments, it has held only 20 per cent since the introduction of Romar as a shareholder.”

He continued: “As regards the petitioner’s averment that the company is required to hold a board meeting every 2 months, and that any purported board meeting held without his presence would be inquorate, that appears to be founded on the first shareholders’ agreement. However, the second shareholders’ agreement, to which the petitioner is also party, provides in the corresponding provisions that the board is to meet at regular intervals not exceeding once every month; that the maximum number of directors is to be six; and that the quorum for meetings is to be three, with no requirement that Mr Reid be among that number.”

Noting the difficulty in reconciling these provisions, Lord Braid said: “The matter may not be as clear-cut as the petitioner would have it. In all the circumstances, I have reached the view that whether or not the exclusion of Mr Reid was unfairly prejudicial to the petitioner is something which can be decided only after the court has heard evidence, and that it would be going too far, too fast, to decide that matter at this stage.”

He concluded: “Even had I made the order sought, I do not agree with the solicitor advocate for the petitioner that it would have had the advantages he perceived. While he was correct in saying that a finding of unfairly prejudicial conduct under section 994 necessarily leads to the question of remedy under section 996, the extent and nature of any remedy is inextricably intertwined with the extent and nature of the unfairly prejudicial conduct.”

Lord Braid therefore refused in hoc statu the petitioner’s motion for an order and put the case out by order for discussion of further procedure.