Cheyne v Alfred Cheyne Engineering Ltd
| Jurisdiction | Scotland |
| Judge | Lord Ericht |
| Judgment Date | 11 February 2021 |
| Court | Court of Session (Outer House) |
| Docket Number | No 5 |
[2021] CSOH 17
Outer House
Lord Ericht
Annacott Holdings Ltd (Re) [2013] EWCA Civ 119; [2013] 2 BCLC 46
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Company — Unfair prejudicial conduct — Relief — Whether petitioners refused reasonable settlement offer — Whether petition should be dismissed as abuse of process — Companies Act 2006 (cap 46), secs 994, 996
Process — Refusal of settlement offer — Whether abuse of process — Whether dismissal competent
Alfred George Cheyne and Valerie Cheyne petitioned the Court of Session for orders pursuant to secs 994 and 996 of the Companies Act 2006 on the ground that the affairs of Alfred Cheyne Engineering Ltd had been conducted in a manner that was unfairly prejudicial to the interests of some of its members. The petition called the company and all the other shareholders as respondents. Following sundry procedure, a proof on the petition and answers was fixed for 10 August 2021. The second respondent enrolled a motion seeking dismissal of the petition as an abuse of process. The cause called before the Lord Ordinary (Ericht) for a hearing.
Section 994(1) of the Companies Act 2006 (cap 46) (‘the 2006 Act’) provides, inter alia, “(1) A member of a company may apply to the court by petition for an order under this Part on the ground– (a) that the company's affairs are being or have been conducted in a manner that is unfairly prejudicial to the interests of members generally or of some part of its members (including at least himself)”. Section 996 provides, inter alia, “(1) If the court is satisfied that a petition under this Part is well founded, it may make such order as it thinks fit for giving relief in respect of the matters complained of. (2) Without prejudice to the generality of subsection (1), the court's order may– … (e) provide for the purchase of the shares of any members of the company by other members or by the company itself”.
The minority shareholders in Alfred Cheyne Engineering Ltd (‘the company’) brought a petition under sec 994 of the 2006 Act alleging that the affairs of the company had been conducted in a manner that was unfairly prejudicial to the petitioners' interests. The petitioners founded the company and owned the entire share capital until 2017, when the second respondent (‘Balmoral’) acquired a majority of the share capital. An option agreement was entered into between the parties granting the petitioners an option to buy Balmoral's shares, after the third anniversary of the option agreement. The petitioners remained as directors of the company until January 2020, when they were suspended as directors. The petitioners averred that Balmoral had run the affairs of the company so as to prevent them from exercising their right under the option agreement to buy Balmoral's shares; had breached a term of the option agreement; had breach the company's articles of association; and had sought to exercise financial pressure on the petitioners by suspending monthly payments to them. Balmoral disputed the factual basis of the petition and a proof was fixed to commence on 10 August 2021.
In October 2020, Balmoral offered to settle the dispute with the petitioners by offering to buy the petitioners' shares in the company. The petitioners rejected Balmoral's offer and made a counter-proposal to buy Balmoral's shares and regain control of the company. That offer was rejected. The petitioners' offer was to buy Balmoral's shares at the current market price. Balmoral's offer entailed calculating the price on the basis of the parties' option agreement and not at current market value. Balmoral enrolled a motion to dismiss the petition as an abuse of process, on the basis that the petitioners had rejected a reasonable offer to settle the action.
Balmoral argued that the petitioners had refused a reasonable offer that cured the petitioners' complaint. The Balmoral offer was the only realistic remedy the petitioners could hope to obtain. A clean break could be achieved by the acceptance of Balmoral's offer.
The petitioners submitted that the intention of the parties when entering into the option agreement was to allow the petitioners to regain control of the company. The court would require to adjudicate upon which party should buy the other out and at what price, which could only be done after hearing evidence. It was also submitted that there was no default rule that the majority required to buy the minority shares and that the fairness of the Balmoral offer could only be determined after proof.
Held that: (1) where the petitioner, in an unfair prejudice case, refused a reasonable offer which gave all the remedy he could reasonably expect to obtain, it was competent for the court to dismiss the petition as an abuse of process (paras 53–57); (2) before dismissing an unfair prejudice petition as an abuse of process on the basis of a refusal to accept a reasonable offer, the court required to be satisfied that if the petitioner succeeded in proving all he averred the court would grant the remedy in the offer (para 58); (3) in the circumstances set out in the petition, a buy out of the minority by the majority was a possible remedy but not the only one and it could not be said without hearing evidence that the second respondent's offer gave the petitioners all the remedy they could realistically expect to obtain (paras 59–65); and motion refused.
Opinion reserved as to whether dismissal for abuse of process for refusal of an offer would be competent in Scotland in any petition or action other than an unfair prejudice petition (para 57).
Moore v Scottish Daily Record and Sunday Mail Ltd 2009 SC 178 Hepburn v Royal Alexandra Hospital NHS Trust 2011 SC 20 and Re Sprintroom Ltd[2019] BCC 1031considered.
At advising, on 11 February 2021—
Lord Ericht—
[1] This unfair prejudice petition called before me on the second respondent's motion to dismiss the petition as an abuse of process because the petitioners had refused a reasonable offer to settle. Answers had been lodged by the second respondent but not by the first respondent.
[2] The petition seeks orders under secs 994 and 996 of the Companies Act 2006 (cap 46) in respect of unfairly prejudicial conduct in the affairs of the first respondent, Alfred Cheyne Engineering Ltd (‘the company’).
[3] The orders sought are, in brief:
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(i) interdict from issuing shares or diluting the petitioners' shareholding;
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(ii) interdict from appointing advisers to assist with, or taking steps to, sell the business or assets of the company to the second respondent, Balmoral Group Holdings Ltd (‘Balmoral’);
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(iii) reduction of the appointment of a particular individual as a director;
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(iv) interdict from ratifying etc the acts of that individual;
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(v) reduction of a resolution reducing monthly payments to the petitioners' loan account;
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(vi) declarator that the petitioners were entitled to have these payments increased;
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(vii) an order ordaining the increase;
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(viii) declarator that the petitioners were entitled to information about the company;
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(ix) order to furnish information;
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(x) interdict the appointment of an insolvency practitioner or winding up the company;
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(xi) ordain Balmoral to sell Balmoral's whole shareholding to the petitioners on such terms and within such time as to the court seems proper and reasonable.
[4] On 22 July 2020 Lord Tyre granted interim interdict in respect of (i), (ii), (iv) and (vii). On 21 August 2020 I refused the second respondents' motion for recall...
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