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England and Wales High Court (Chancery Division) Decisions
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Cite as:  EWHC 3201 (Ch)
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BUSINESS AND PROPERTY COURTS ENGLAND AND WALES
Fetter Lane, London, EC4A 1NL
B e f o r e :
| FIONA YASMIN WEATHERLEY
|- and -
|KENNETH EDWARD WEATHERLEY
WEATHERLEY FENCING CONTRACTORS LIMITED
Ben Lynch (instructed by Brandsmiths Solicitors) for the First to third Respondents
Hearing dates: 5,6,7,8,9, 13 November
Crown Copyright ©
ICC Judge Briggs (Chief Registrar):
A family business
The Weatherley family properties
"As you are aware, the site at Weatherley Fencing falls wholly within the metropolitan greenbelt and as such there is a presumption against redevelopment of any kind unless special circumstances can be argued and agreed with the Local Authority…..If the site were developed with 4 or 5 detached homes, the footprint would be less and therefore the argument for development would be more straight forward, but the value that would be attributable to the land would not make the project financially viable. When Asprey Homes's original offer (sic) of £3.3m was made for the Weatherley site on a subject to planning basis, the built foot print we anticipated was 20,352 saleable sq ft and was reflected in our planning application….After extensive negotiations with the Council…..we believe that we are now in a position to agree a housing scheme that the Council feel able to support…..The scheme consists of 12 x 2 storey house and 1 x bunglow giving…..a built footprint area of 16,098. The loss of 4,254 sq ft from the scheme upon which the original offer was made is a result of the loss of units and the fact that the Council wanted to conduct their own survey with regard to the actual amount of current built footprint at the Weatherley site. The loss of this amount of saleable sq ft has obviously had an affect on the viability of the scheme and on the basis of the houses achieving £330 a foot this equates to a loss of £1,403,820 in sales revenue…"
Mark and the period immediately following his death
"We have set out our position repeatedly in correspondence. Your comments on the return of the Confidential Information (sic) and the 2016 Laptop Computers take us no further forward. Our client's position stands: your client has possession of our client's Confidential Information (sic) and the 2016 Laptops and must return them…….The written resolutions were circulated to Mr Mark Weatherley, not your client. Pursuant to the articles adopted on 16 October 2017, our clients will not recognise your client as shareholder of the Company. Those articles give our clients total discretion to refuse that registration. We note that your client has expressed directly to our clients (sic), namely Mr Kenneth Weatherley, that she wishes them (sic) to damage them (sic) financially and emotionally by engaging them (sic) in legal claims so that they (sic) spend "all their "money on legal fees."
Witnesses of fact
Share valuation- experts
Unfair Prejudice- the remaining live issues
i) Purporting to pass a resolution and subsequently on or around 20 October 2017 filing at Companies House the New Articles providing the directors with a discretion to refuse to register a new shareholder and following the resolution notifying Fiona that Ken, June and Debbie did not recognise Fiona as a member of the Company;
ii) the exclusion of Fiona and Aaron from the Company in breach of the understanding between the shareholders;
iii) the transfer of the Company's 50% interest in the Property at an undervalue to Ken in January 2009;
iv) non-payment of dividends; and
v) understating stock by the Company.
Unfair Prejudice- the law
"(1) A member of a company may apply to the court by petition for an order under this Part on the ground-
(a) that the company's affairs are being or have been conducted in a manner that is unfairly prejudicial to the interests of members generally or of some part of its members (including at least himself), or
(b) that an actual or proposed act or omission of the company (including an act or omission on its behalf) is or would be so prejudicial."
"(1) If the court is satisfied that a petition under this Part is well founded, it may make such order as it thinks fit for giving relief in respect of the matters complained of.
(2) Without prejudice to the generality of subsection (1), the court's order may…..
"(d) provide for the purchase of the shares of any members of the company by other members or by the company itself and, in the case of a purchase by the company itself, the reduction of the company's capital accordingly."
"…..are wide and anything that the company does or fails to do can be relied upon. But wide as the category of acts may be it is necessary that the act or omission is done or left undone by the company itself or on its behalf. Thus, voting at a general meeting, whether annual or extraordinary, may result in a resolution being passed or defeated. The resolution is, obviously, an act of the company notwithstanding that the votes which pass or defeat it are the votes of members which are their private rights which…can be exercised as they choose. The acts of the members themselves are not acts of the company and cannot found a petition under [section 994]."
"(1) The concept of unfairness, although objective in its focus, is not to be considered in a vacuum. An assessment that conduct is unfair has to be made against the legal background of the corporate structure under consideration. This will usually take the form of the articles of association and any collateral agreements between shareholders which identify their rights and obligations as members of the company. Both are subject to established equitable principles which may moderate the exercise of strict legal rights when insistence on the enforcement of such rights would be unconscionable.
(2) It follows that it will not ordinarily be unfair for the affairs of a company to be conducted in accordance with the provisions of its articles or any other relevant and legally enforceable agreement, unless it would be inequitable for those agreements to be enforced in the particular circumstances under consideration. Unfairness may, to use Lord Hoffmann's words, "consist in a breach of the rules or in using rules in a manner which equity would regard as contrary to good faith"…; the conduct need not therefore be unlawful, but it must be inequitable."
"But the concept of unfair prejudice which forms the basis of the jurisdiction under section 459 enables the court to take into account not only the rights of members under the company's constitution but also their legitimate expectations arising from the agreements or understandings of the members inter se. There is an analogy in Lord Wilberforce's analysis of the concept of what is 'just and equitable' In re Westbourne Galleries Ltd  A.C.360, 379. The common case of such expectations being superimposed upon a member's rights under the articles is the quasi-partnership, in which members frequently have expectations of participating in the management and profits of the company, which arise from the understandings upon which the company was formed and which it may be unfair to other members to ignore…. Although the answer to the question "-of whether such a legitimate expectation exists" must in each case depends upon the particular facts, it is well to recall that in re Westbourne Galleries Ltd Lord Wilberforce said that in most cases the basis of the Association would be "adequately and exhaustively" laid down in the articles. The "super imposition of equitable considerations" requires, he said, something more. This was said in the context of the "just and equitable" ground for winding up, but in my judgment it is equally necessary for a shareholder who claims that it is "unfair" within the meaning of section 459 for the board to exercise powers conferred by the articles to demonstrate some special circumstances which create the legitimate expectation that the board would not do so. Section 459 enables the court to give full effect to the terms and understandings upon which the members of the company return associated but not to rewrite them."
"it is my view that, in considering whether the conduct of the controllers amounts to conduct unfairly prejudicial to the interests of a member, it is also relevant to take into account any agreement, understanding or clearly established pattern of acquiescence on the part of that member which may have led the controllers to act or continue to act in a particular way, even if their action may have involved a departure from a strict adherence to the terms of the Articles. In such a case, in the light of their common understanding as to what conduct will be regarded as acceptable between themselves despite the terms of the Articles of Association, it would not be correct to characterise the action of the controllers as unfair within the context of the whole relationship between them and the member. In my view, this is a corollary of the approach to the test of unfairness adopted in the authorities to which I have referred above, whereby the agreement between the members as set out in the Articles of Association may be subject to equitable considerations and obligations arising out of the particular circumstances of their relationship overall. There is no good reason why such equitable considerations should not qualify, as well as add to, the expectations about how the controllers of the company ought to behave to be derived from a simple reading of the Articles of Association. In Anderson v Hogg 2000 SLT 634, a decision of the Outer House of the Court of Session (Lord Reed) on s. 459 , provides an example of this approach being applied. In that case, there was a finding that the petitioner had acquiesced in a departure by the controller of the company from strict adherence to the articles (see p. 639D–K). Lord Reed held (p. 640B–D) that the parties:
"agreed, by their words and conduct, to conduct the affairs of the company on an informal basis which allowed the respondent to exercise powers of management more freely than the articles may have envisaged or permitted. In these circumstances, unfairness has to be assessed against what the members actually agreed rather than against the articles."
"It is in my judgment sufficient to found a petition that an act has been proposed which if carried out or completed would be prejudicial to the interests of the petitioner. Similarly, to found a petition it is sufficient that the affairs of the company have in the past been conducted in a way which was unfairly prejudicial to the petitioner even though at the date of the petition the unfairness has been remedied. The question whether an order is required to protect the interests of the petitioner from the consequences of unfair conduct or of an act which has been proposed and which may again be proposed is one to be answered at the hearing of the petition."
"The alternative way in which the petitioners put their case is in respect of the previous conduct of the respondent. I can deal more shortly with that aspect of the case. It depends wholly on the conduct of the respondent whilst he was a director and employee. The petitioners have been able to exercise their own remedy in relation to those matters by bringing his employment to an end and producing his resignation as a director. Whilst it is possible (if generally unlikely) that serious mis-management could constitute unfair prejudice (see Re Elgindata Ltd  BCLC 959 at 993) I consider the prospects that the court would consider it appropriate to require him to sell his shares against his will when the petitioners had already remedied the particular mischief so remote that neither the respondent nor the company should be required to proceed with this petition. In this respect, I have been influenced by the cases where the courts have declined to act when the wrong has been remedied (eg Re Estate Acquisition & Development Ltd  BCC 338 at 352; Re Baltic Real Estate Ltd (No 2)). That seems to follow from the fact that s 461 empowers the court to give relief 'in respect of the matters complained of' so that it would be highly unlikely that the court would consider it right to give relief where the conduct complained of had already been relieved."
"Mr Collings stressed the width of the jurisdiction and of the relief which may be granted. That is of course correct, but that is not to say that there are no limitations observable in the statutory language. Thus like the judge I too would lay emphasis on the need to show that it is the affairs of the company which are being or have been conducted in an unfairly prejudicial manner or that it is an act or omission of the company that is or would be so prejudicial. The conduct of a member of his own affairs, for example by requesting a general meeting of the company or seeking answers to an excessive number of questions, is irrelevant. Further, I would emphasise the limit imposed by statute on the relief which may be given under s 461, viz the order is for giving relief in respect of the matters complained of. As Oliver LJ said in Re Bird Precision Bellows Ltd  BCLC 493 at 500,  Ch 658 at 669, the very wide discretion conferred on the court to do what it considered fair and equitable is –
"in order to put right and cure for the future the unfair prejudice which the petitioner has suffered at the hands of the other shareholders of the company ..."
"if only because the natural remedy for a failure to provide information is an order that the information be provided and there can be no purpose in making such an order when the information has in fact been provided before the order is made.""
i) act within his powers and to exercise those powers for a proper purpose pursuant to section 171 of the Companies Act 2006;
ii) promote the success of the company for the benefit of its members as a whole pursuant to section 172 of the Companies Act 2006;
iii) exercise reasonable care, skill and diligence, pursuant to section 174 of the Companies Act 2006; and
iv) avoid placing himself in a position of conflicting personal interests, pursuant to section 175 of the Companies Act 2006.
"This principle, on which the first and second defendants rely, is named after Re Duomatic Ltd  2 Ch 365 , and it has been expressed in slightly different ways in different cases. In Duomatic itself, Buckley J said at p.373:
'[W]here it can be shown that all shareholders who have a right to attend and vote at a general meeting of the company assent to some matter which a general meeting of the company could carry into effect, that assent is as binding as a resolution in general meeting would be.'
In Parker & Cooper Ltd v Reading  Ch 975, the principle was expressed in these terms by Astbury J at p.984: 956
'[W]here the transaction is intra vires and honest … it cannot be upset if the assent of all the corporators is given to it. I do not think it matters in the least whether that assent is given at different times or simultaneously.'
More recently Meagher JA in Herman v Simon (1990) 8 ACLC 1094 at p.1096 described the principle as:
'a doctrine that formalities may be disregarded if they have been waived by all shareholders acting in concert who want the same substantial result.'
Although the principle has been characterised in somewhat different ways in different cases, I do not consider that that is because its nature or extent is in doubt or the subject of debate. The difference in language is attributable to the fact that the principle will have been expressed by reference to the particular facts of the case. The essence of the Duomatic principle, as I see it, is that, where the articles of a company require a course to be approved by a group of shareholders at a general meeting, that requirement can be avoided if all members of the group, being aware of the relevant facts, either give their approval to that course, or so conduct themselves as to make it inequitable for them to deny that they have given their approval. Whether the approval is given in advance or after the event, whether it is characterised as agreement, ratification, waiver, or estoppel, and whether members of the group give their consent in different ways at different times, does not matter."
"If a director of a company informs shareholders of an intended action (or a past action) on the part of the directors, in circumstances in which neither the directors nor the shareholders are aware that the consent of the shareholders is required to that action, I do not think it is right, at least without more, to conclude that the shareholders have assented to that action for Duomatic purposes. As a matter of both ordinary language and legal concept, it does not seem to me that, in such circumstances, it could be said that the shareholders have 'assent[ed]' to that action. The shareholders have simply been told about the action or intended action, on the basis that it is something which can be, and has been or will be, left to the directors to decide on, and no question of 'assent' arises. The word 'assent' is to be found in the passages I have cited from Duomatic and Parker & Cooper; the word used in the passage I have quoted from Herman is 'waiver': waiver classically requires the person who waives to have knowledge of the legal right which he is waiving: see Peyman v Lanjani  Ch 457. Indeed, in Herman itself, just before the passage I have quoted, also at (1990) 8 ACLC 1094 at p.1096, Meagher JA described the Duomatic principle in these terms:
'where it can be shown that all shareholders having a right to attend and vote at a general meeting of a company assent with full knowledge and consent to some matter which a general meeting of the company could carry into effect, that assent is as binding as a resolution in general meeting would be.'
"Admittedly three of the five corporators did not vote in favour of the resolution, but they undoubtedly suffered it to be passed with knowledge of their power to stop it … What these corporators did and did not do [for the four years] points, in my view, to one conclusion only. The conclusion is that they outwardly accepted the resolution to wind up as decisively as if they had positively voted in favour of it. If corporators attend a meeting without protest, stand by without protest while their fellow-members purport to pass a resolution, permit all persons concerned to act for years on the basis that that resolution were duly passed and rule their own conduct on the basis that the resolution is an established fact, I think it is idle for them to contend that they did not assent to the purported resolution."
Unfair Prejudice- a question of fact
"Mark was ambitious and had secured good relationships with schools and local authorities such as the London Boroughs of Bexley and Lewisham. Part of his job was to provide quotations for those large-scale works. These were big contracts, but my dad did not get involved in such things and left it to Mark to manage. I don't think that my dad ever imagined the Company could grow to be as big as it was, he would have been happy with the Company staying smaller, as long as it was ticking over. Mark was the driving force."
"Ken would have the option to buy the Company's half share back from the Company at a later date for £200,000 that it was contributing. That was fair: we wanted Ken to own the Property himself to give us security if anything ever happened to the business. Ken and I have always been very open with Mark and Debbie about our finances, and Mark and Debbie knew about this agreement. We are a small family business, and would have never thought to have the agreement formalised or written down as between ourselves we trusted one another."
"….after the proposed sale had fallen through, dad explained to Mark, mum and me that he wanted to buy back the Property from the Company in accordance with the agreement that him and my mum had made when the Property was originally purchased in 1989. I think my dad wanted the additional security, particularly given the general economic downturn which was affecting the Company at that time. Although it was a long time ago I do distinctly recall a discussion in the office around this. It seemed to me that my dad and Mark had already discussed the transfer together before my dad spoke to the four of us. In my mind (and Mark and mum's also) there was no doubt that the Property was rightfully Dad's, such that we were all happy for Dad to do this. He had put his life into the Company, and given both Mark and I not only our shares in the Company for free but also various rental properties that he and mum had paid for. Mark and I were always respectful of that, and neither Mark or I opposed this."
"It is perhaps worth explaining that, from mine and Mark's perspective, this was not a particularly big deal or an important shift as the Property was not leaving the family. Our family, that is my mum, dad, Mark and I, operated our shared assets closely and informally on relationships based upon trust. As I have already referred to above, my mum and dad had already contributed the entirety of the purchase price of five properties purchased between 1989 and 2001, registering them in mine and Mark's names (the "Trust Properties") to provide security for ourselves."
Fundamental understanding and exclusion
"Q. its obvious you selected passages, isn't it?
A. No its not.
Q. You selected passages within the recordings
A. No it was just because, I was turning it on and off. I was very concerned. I could not remember things, I wanted to make sure I got everything right. One day I thought I would record conversations. I felt vulnerable. If my husband did not trust Ken I was concerned. I only put it on when I thought it worth recording.
Q look at this recording, divider 237, its clear isn't it you were trying to set Ken up?
Q explain the recording page 88/89 ["but Ken, you've blatantly lied to me and incited me to lie to the Inland Revenue, haven't you? When you say over there that day and I asked you what about- is there anything I need to know for probate um…]
A. On this occasion I fully knew where the conversation was going and recorded it. I was terrified that the tax office would not be told the truth."
Remedy anticipated future unfairness
"I understand that the petition alleges that the Company failed to pay Mark its declared dividends. As the evidence from the accountants shows this is incorrect: none of the Directors have ever directly received any of these funds declared- the figures have instead been added to their director's loan account. I was previously of the understanding that Mark's director's loan account was not in credit however I have since, during the course of preparing this evidence, been shown a spreadsheet prepared by our accountants showing a positive balance of £29,972.04. I need to consider this further given that the Company has a counterclaim against Mark/Fiona for the value of the Range Rover (at £44,000) but if any of the funds are owed by the Company to Mark, then we will pay them out."