Analyzing the case of Re Saul D Harrison and Sons plc [1995] 1 BCLC 14

With regard to Re Saul D Harrison and Sons plc [1995] 1 BCLC 141, Hoffmann LJ illustrates the concept of ‘unfairly prejudicial’ conduct, a term purposefully chosen by Parliament to replace the previously used ‘oppressive’ language under section 994.2The choice of terminology originated in the recognition that the earlier provision which is s 210 of the Companies Act 1948, had been narrowly interpreted.3 The term oppressive,  as determined in Scottish Co-operative Wholesale Society v Meyer [1959] AC 324, conveyed a meaning of "burdensome, harsh, and wrongful." This led to uncertainty regarding whether "wrongful" meant actual illegality or infringement of legal rights.4 The Jenkins Committee on Company Law in 1962 acknowledged this ambiguity and recommended the implementation of "unfairly prejudicial" to provide clarity.5This change was finally implemented in s 75 of the Companies Act 1980, a precursor to the current s 994.6

In Re Saul D Harrison and Sons plc [1995], Hoffmann LJ emphasized the thread of ‘commercial relationship’ to determine fairness or unfairness under s 994 of the Companies Act. 7The articles of association, constituting the contractual framework controlling shareholders' relationships, establish the basis for evaluating conduct. As upholding agreements and honoring commitments is most important factors in commercial fairness, the initial claim under s 994 case should be whether the complained-of conduct aligns with the articles. Importantly, Hoffmann LJ dispels the notion that a mere deviation from the articles implies unfairness or justifies court intervention. He invokes the rule in Foss v Harbottle, suggesting that minor breaches should not serve as grounds for petitions under s 994. 8 Also, conduct can be legally acceptable but still unfair, demonstrating the distinction between legality and fairness in a commercial context.

Furthermore, the principle of ‘legitimate expectation’ is introduced in this case. Hoffmann LJ borrows this term from public law to describe the equitable "right" that shareholders may have when their association goes beyond the explicit contractual terms. 9 This ‘legitimate expectation’ might arise from an understanding, not explicitly stated in the articles, that each investor will partake in company management and receive returns in the form of a salary, not just dividends. Hoffmann LJ acknowledges that these equitable considerations can override strict contractual obligations, subject to specific circumstances.

References

  1. Re Saul D Harrison and Sons plc [1995] 1 BCLC 14
  2. Companies Act 2013, s 994
  3. Companies Act 1948, s 210
  4. Scottish Co-operative Wholesale Society v Meyer [1959] AC 324
  5. Charles Wild, Stuart Weinstein, Smith & Keenan’s Company Law (Pearson 2019, 18th edn) p.490
  6. Companies Act 1980, s 75
  7. Re Saul D Harrison and Sons plc [1995] 1 BCLC 14
  8. Foss v Harbottle (1843) 2 Hare 461, 67 ER 189
  9. Charles Wild, Stuart Weinstein, Smith & Keenan’s Company Law (Pearson 2019, 18th edn) p.490