Balancing Equitable Considerations and Formal Constitution

The concept of unfair prejudice in company law is a field where equitable considerations intertwine with the formal constitution of the company.1 Notably, this interplay is more pronounced in quasi-partnership companies, characterized by mutual trust and active shareholder involvement. However, the treatment of this issue departs when dealing with companies structured primarily for commercial purposes, like public companies.

In the case of Re Blue Arrow Plc [1987] BCLC 585, Vinelott J emphasized the exhaustive nature of relationships within a public company.2 He asserted that the constitution, often represented by the articles of association, has no space for equitable considerations to arise. In this context, shareholders are expected to rely solely on the company's formal framework. Vinelott J's statement reflects the courts' cautious approach towards inferring legitimate expectations from arrangements outside the formal constitution in public companies.

However, the scenario shifts when dealing with quasi-partnership companies, as highlighted in Re Saul D Harrison & Sons plc3 and Re Kenyon Swansea [1987] 3 BCC 259.4 In these entities, where mutual trust and active shareholder participation shape the company's dynamics, the courts recognize that equitable considerations can indeed override strict legal powers. Removal of a member from the board may amount to unfairly prejudicial conduct if it breaches a mutual understanding or legitimate expectation, as observed in Re Bird Precision Bellows [1984] Ch 4194 and Re London School of Electronics [1986] Ch 211.5

Nevertheless, the case of Brownlow v GH Marshall Ltd [2000] BCLC 655 illustrates that in small quasi-partnerships, excluding a shareholder from management could trigger unfair prejudice claims, especially if the majority doesn't offer a fair buyout.6 However, if the exclusion is motivated by genuine efforts to protect the company, courts are less inclined to regard it as unfair, as evidenced in Grace v Biagioli [2005] EWHC 12227 and Woolwich v Milne [2003] EWHC 414.8

References

  1. Charles Wild, Stuart Weinstein, Smith & Keenan’s Company Law (Pearson 2019, 18th edn) p.487
  2. Re Blue Arrow Plc [1987] BCLC 585
  3. Re Saul D Harrison & Sons plc and Re Kenyon Swansea [1987] 3 BCC 259
  4. Re Bird Precision Bellows [1984] Ch 419
  5. Re London School of Electronics [1986] Ch 211
  6. Brownlow v GH Marshall Ltd [2000] BCLC 655
  7. Grace v Biagioli [2005] EWHC 1222
  8. Woolwich v Milne [2003] EWHC 414