Sheriff Appeal Court upholds sheriff’s finding of unfair conduct towards unilaterally dismissed company director

About this case:

• Citation:
  [2024] SAC (Civ) 51
• Judgment:
  External link
• Court:
  Sheriff Appeal Court
• Judge:
  Sheriff Principal N A Ross

Pursuer and respondent Stephen Miller originally raised the action against Jacqueline Miller, his spouse until 2018, and the company’s other director Fraser Stewart, seeking for Mrs Miller or the company to purchase his shares on the basis of prejudice against him. The appellants contended that the sheriff had erred in his treatment of the evidence.

The appeal was heard by Sheriffs Principal Sean Murphy and Nigel Ross, and Appeal Sheriff Patrick Hughes. R Anderson, advocate, appeared for the appellant and McShane, advocate, for the respondent.

Substantial breach

The respondent and the first appellant, who were married but separated in February 2018, were joint shareholders in Donald Ross Estate Agents Ltd until 2019, when Mr Miller was purportedly dismissed from his role. Due to the small, family nature of the business, decisions about its operation were taken without the formality of directors’ meetings. As such, when Mr Miller suffered a stroke in 2016 which rendered him unable to work, his then-spouse appointed Mr Stewart as a director unilaterally without seeking consent.

Mr Miller originally raised a petition seeking an order reducing an entry in the company’s register showing his removal as director, which Mrs Miller admitted she had done unlawfully, and an additional order that Mrs Miller purchase his shares in the company. By the time the matter reached proof, only the second order was insisted on as he no longer sought to be involved in the company’s affairs.

The sheriff found that the company’s affairs had been conducted in a manner unfairly prejudicial to the interests of the pursuer, who had also had his salary stopped after December 2018. Counsel for the appellant submitted that the sheriff had wrongly accepted affidavit evidence from Mr Miller in the absence of oral evidence, and that he erred in finding that the respondent’s exclusion from company affairs was caused by Mrs Miller’s conduct. The sheriff’s decision was based on a distorted view of the evidence and ignored the reality that Mr Miller could no longer work.

For the respondent it was submitted that the sheriff did not err in his assessment of the facts. Unfairness could be assessed by reference to the articles or other agreements, and issues such as the good faith of the parties, exclusion or exceeding powers. Removal of a director and exclusion from decisions is of fundamental importance and were here carried out in substantial breach of the articles, without consultation.

Obvious primary remedy

Sheriff Principal Ross, delivering the opinion of the court, said of the sheriff’s treatment of the evidence: “The sheriff’s judgment explains that he treated this situation with care. For Mrs Miller it was submitted that he should not rely on Mr Miller’s evidence because he did not make himself available for cross-examination, and therefore could not prove the case. The sheriff rejected that submission. He noted Mr Miller’s ability to communicate was severely restricted. The sheriff could detect no unfairness, as he found that cross-examination would not have amounted to any complex or nuanced exploration of the evidence.”

He continued: “The affidavit was lodged without opposition. It therefore formed part of the evidence in the case and the sheriff required to consider it and decide what weight he attached. He did so, in careful and balanced terms, having heard submissions. How this amounted to unfairness is not clear. The case turned largely on analysis, which is a matter for the court.”

Assessing whether the exclusion of Mr Miller from company business was unfair, Sheriff Principal Ross said: “Mr Miller was unlawfully removed as a director. He was unlawfully excluded by Mrs Miller, as well as precluded by ill-health, from participation in significant affairs, from the daily running and management of the Company, and from significant decisions. The attempted distinction, between actings and illness, does not recognise that these findings are cumulative, or that illness is not capable of excusing conduct which removes personal patrimonial interests such as dividends or remuneration.”

He went on to say: “The breach of the articles in purporting to remove Mr Miller and appoint Mr Stewart meant that Mr Miller could no longer act as a director. The informal nature of the Company management cannot serve to cloak an arrangement to strip him of his patrimonial interests.”

The Sheriff Principal concluded: “In a quasi-partnership business relationship, where the joint relationship is no longer workable, the obvious and primary remedy is to bring that relationship to an end. Whether that meant buying Mr Miller’s shares, or buying the business from the Company, or winding up the Company and selling the assets, or selling the Company, these were all options open to her to initiate. They would require consensus or court sanction, but both parties would have received a fair outcome. Mrs Miller made no such attempt.”

On this basis, the appeal was refused. Although the appellants succeeded on one minor point, this was not viewed as sufficient to permit the appeal to succeed.