High Court Rules on Unfair Prejudice Claim by Minority Shareholder: Stuart Wells v Paul Hornshaw & Ors

Citation: [2024] EWHC 330 (Ch)
Judgment on

Introduction

In the case of Stuart Wells v Paul Hornshaw & Ors [2024] EWHC 330 (Ch), the High Court of Justice was tasked with adjudicating a petition brought under Section 994 of the Companies Act 2006, alleging unfair prejudice against the petitioner, a minority shareholder, by the actions of the respondent directors. This article provides an analysis of the legal principles applied by MR JUSTICE ADAM JOHNSON in reaching a determination on the case.

Key Facts

Stuart Wells, the petitioner, held 14.3% of the issued shares in Transwaste Recycling and Aggregates Limited (TRAL), a waste management business. The remaining shares were held by Paul and Mark Hornshaw. After events in 2015 led Wells to leave TRAL, he became involved in a dispute concerning the valuation and sale of his shares.

Wells argued that he experienced unfair prejudice due to various actions by the Hornshaws, including excessive and uncommercial payments to related companies, failure to declare dividends, and personal benefits derived from TRAL assets. The conflict pivoted on the adequacy of the share valuation conducted by TRAL’s auditor, Mr. Clark, which Wells contested.

Several legal principles played pivotal roles in the resolution of the case:

  1. Section 994 Companies Act 2006: This section underpins the petitioner’s right to bring a case if they believe their interests as a member of the company have been unfairly prejudiced.

  2. Valuation of Shareholding: The Court reiterated the significance of evaluating a shareholding based on its real-time value unless special circumstances mandate otherwise. The Court highlighted that a minority shareholding must be valued as a minority unless there’s a strong reason to do otherwise.

  3. Role of Expert Valuation: Clarity was provided on the role and requirements expected from an expert conducting a valuation. If an expert strays materially from their mandate, their valuation could be set aside.

  4. Unfair Prejudice: The Court considered a variety of scenarios that could constitute unfair prejudice, including non-payment of dividends and abuse of directorial power. It required a meticulous examination of both timing and continuity of the said prejudicial acts.

The Court placed significant emphasis on the intentions and agreements encapsulated in the Shareholder Agreement (SHA), specifically how they impact the valuation and sale of shares when a sale eventuality arises, such as a shareholder expressing an intent to part company.

Outcomes

MR JUSTICE ADAM JOHNSON held that:

  • The valuation conducted by Mr. Clark was not binding due to a failure to meet the terms of his mandate.
  • Specific instances of alleged misconduct did not amount to unfair prejudice, except where valuation proceedings were inadequate.
  • The appropriate remedy included a fresh valuation of Mr. Wells’ shareholding as at the end of September 2015, with interest awarded for the delay in valuation.
  • The shareholding should be valued subject to a minority discount, as it was fair and in accordance with the SHA, reflecting the nature of the asset being sold.

Conclusion

The case of Stuart Wells v Paul Hornshaw & Ors is illustrative of the complexity surrounding the valuation and fair treatment of minority shareholders. The legal principles applied reinforce the integrity of the contractual agreements and statutory protections, highlighting the Courts’ preference for valuations reflecting the true shareholding nature and for upholding pre-agreed contractual mechanisms under a SHA. The decision underlines the importance of precise and faithful adherence to contractual mandates in valuations and demonstrates the Court’s discretion in offering remedies that rectify identified wrongs while aligning with business realities and documented shareholder expectations.