This case centres on the concept of unfair prejudice and shows how the Courts can struggle with this notion and applying it to a particular case.
This case was appealed to the High Court, the Court of Appeal reversed the High Court's decision and then it was appealed to the House of Lords. In the House of Lords, the Court of Appeal's decison was reversed.
Mr Philips owned a company and Mr O'Neill worked for him. Mr O'Neill impressed Mr Philips and so was awarded shares in the company with a promise that further rewards might come his way. However, due to a decline in the company's fortunes, this did not happen.
Ultimately Mr O'Neill bought an action claiming unfair prejudice under what is now section 994 of the Companies Act 2006. The House of Lords analysed the situation and paid particular attention to that although various suggestions had been made about what might happen, as no formal arrangements had been made, this could not amount to legitimate expectations.
Lord Hoffman gave an interesting discussion of the equitable jurisdiction of the Court, stating that Parliament has chosen fairness as the criterion to decide whether to grant relief. Normally, there cannot be unfair prejudice unless there has been a breach of the terms which have been agreed for the conduct of the affairs of the company.
The concept of legitimate expectations, according to Lord Hoffman, was based on an expectation that the company's affairs will be conducted in the manner agreed by all the members, not a personal hope of the petitioner that the others will do something they had not in fact agreed to do.
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