Greenhalgh v Arderne Cinema Ltd [1951] CH 286

This case was concerned with the issue of shares and the concept of a "fraud on the minority" being an exception to the rule in the case of Foss v Harbottle. This rule states that in a potential claim for a loss incurred by a company, only that company should be the claimant, and not the shareholders.

Originally the Articles of the company stated that if a shareholder wanted to sell their shares, they had to be offered to existing shareholders first - that is there was a right of pre-emption.

Then this was changed at a general meeting by special resolution so that the right of pre-emption no longer existed.

One of the shareholders wanted to sell their shares and Mr Greenhalgh objected, saying the special resolution discriminated against him as a minority shareholder.

Lord Evershed MR held that there was no fraud on the minority shareholder.  None of the majority voters had voted for a private gain and so the alteration of the articles was perfectly legitimate because it was done properly.

As such, Mr Greenhalgh's action failed.

Eclairs Group Ltd and Glengary Overseas Ltd v JKX Oil & Gas plc [2015] UKSC 71

This interesting and detailed case involved a company in the petroleum industry, JKX Oil & Gas plc.  Eclairs and Glengary were two of the shareholders.

The directors of JKK took the view that Eclairs and Glengary were engaged in activities that were detrimental to the success of JKX.  As a result, they issued notices on them under section 793 of the Companies Act 2006.  The shareholders responded, but JKX then relied on a clause in its Articles (which a number of companies have) that if the company believes the shareholders have responded to the notice in a way that is incorrect or false, the company could then restrict their voting rights.  This meant Eclairs and Glengary could not vote at the AGM.

When JKX did this, Eclairs and Glengary brought an action alleging a breach of section 171(1) of the 2006 Act, alleging that the directors had breached their duty to only use their power for the purposes for which they were conferred.

In particular, the shareholders alleged that JKX had taken this action so as to prevent them from voting at the AGM.  The power under section 793 should have been limited to obtaining information about the shareholding, they alleged.

The High Court decided it in favour of the shareholders; the Court of Appeal reversed that decision.  In the House of Lords, this decision was again reversed and the Court found in favour of the shareholders.  Lord Sumption used a "but for" test in looking at the situation; if it had not been for the desire to restrain the shareholders, the company would not have issued the notices.  As a result, the Court decided that the company had breached the "proper purpose" duty under section 171.

O'Neill v Philips [1999] 1 WLR 1092

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.

Pender v Lushington (1877) 6 CH 70

This case set out a general principle that part of a member's property when owning shares was the right to vote.  Any interference with that right, in the words of Lord Jessel MR, amounts to an interference with a property right that can lead to a cause of action.

This case indicated that interference with such a right could be both a derivative claim and a personal action.  Lord Jessel MR was keen to stress that members could vote in anyway they saw fit, even in circumstances of a conflict of interest. There was no moral or business test that was applicable. 

This case was also a reminder of the principle that company law does not look behind the ownership of the shares, for examples if the shares are held in trust.

Ebrahimi v Wesbourne Galleries Ltd [1973] AC 360

This case centres on the rights of minority shareholders.  Mr Ebrahimi had been in business with a man named Mr Nazar as buyers and sellers of expensive rugs. They were partners in the business but decided to incorporate the business as a limited company and moved to London.  Later, Mr Nazar's son was appointed as a director and became a shareholder as well, after both Mr Ebrahimi and Mr Nazar transferred some of their shares to him.  The directors were paid by director's fees and not as dividends.

There was a falling out between the directors and Mr Nazar and his son had their own meeting, at which time they passed an ordinary resolution which removed Mr Ebrahimi as a director in accordance with section 168 of the Companies Act 2006. Mr Ebrahimi then applied to the Courts to have the company wound up. Today, this application would be dealt with under section 122(1)(g) of the Insolvency Act 1986.

This case includes a discussion of the nature of a quasi-partnership company. Here, the Court was satisfied that when the partnership had been incorporated as a limited company, the directors expected the business still to be run effectively as a partnership.  Mr Ebrahimi had a legitimate expectation that the business be continued in this way. In addition, as the company had only paid its profits by way of director's fees, he was denied any income as well. 

Lord Wilberforce examined the phrase "just and equitable", which was the grounds for the application to wind up the company.  Due to the way the company had been set up and the way the directors were paid in fees rather than dividends, the House of Lords decided that Mr Ebrahimi's legitimate expectations had been breached.  This case was very fact specific and the House was keen to stress that it would not normally go beyond the legal rights set out in the Articles and other written documents of the company.

As a result, Mr Ebrahimi's application for the winding up of the company was successful as it was just and equitable.  This might today be dealt with under an application concerning the unfair prejudice of a shareholder, under section 994 to 996 of the Companies Act 2006. A particular point mentioned was that Mr Ebrahimi was supposed to work as a full time director.

Bushell v Faith [1970] AC 1099

This was a case involving the potential removal of a Director from a limited company under what is now section 168 of the Companies Act 2006.

The basic facts are that the Articles of Association of the company provided that, "in the event of a resolution begin proposed at any general meeting of the company for the removal from office of any director, any shares held by that director shall on a poll in respect of such resolution carry the right to three votes per share".

All but one of the Directors wanted to remove the other one.  The one who the others wanted to remove had a third of the shares.  As a result he could not be removed. 

Section 168 of the Companies Act 2006 (as it is now) only requires an ordinary resolution and as the legislative clause said nothing about this, it was ultimately deemed that this clause in the Articles was lawful.  A clause like this does not, of itself, prevent a resolution being an ordinary resolution. Whilst this decision has been criticised, such a clause could be useful in the situation of a quasi-partnership company.