Re London School of Electronics Ltd

JurisdictionEngland & Wales
Judgment Date1985
Date1985
Year1985
CourtChancery Division
[CHANCERY DIVISION] In re LONDON SCHOOL OF ELECTRONICS LTD. [No. 001003 of 1984] 1985 Jan. 30, 31; Feb. 1; March 7 Nourse J.

Company - Oppression - Conduct of affairs - Quasi-partnership private company running educational college - Diversion of business by majority directors to another company owned by them - Purported dismissal of petitioner as director - Diversion of students by petitioner to new college started by him - Whether conduct of majority directors unfairly prejudicial to petitioner - Whether affected by petitioner's diversion of students to new college - Whether petitioner entitled to order for purchase of his shares - Appropriate date and basis of valuation of petitioner's minority holding - Companies Act 1980 (c. 22), s. 75(1)

The petitioner was a director of, and held 25 per cent. of the issued share capital of a limited company (“the company”) formed in 1980 with the object of providing courses in electronics. The remaining 75 per cent. of the issued shares were held by the respondent company, C.T.C., of which A. and G. were directors and the owners of most of the shares. The company was a quasi-partnership, between A. and G., who through C.T.C., had been running a college of further education since 1979, and the petitioner, who had been employed by C.T.C. as a teacher. In 1983 the relationship between the quasi-partners, which had at first worked well, deteriorated seriously, and following a board meeting on 3 June 1983 A. and G., purporting to act as directors, gave the petitioner notice of a directors' meeting to be held on 27 July for the purpose of removing him as a director on the ground of his allegedly detrimental behaviour throughout the preceding year. At that meeting a resolution was passed purporting to remove the petitioner as a director. Meanwhile the petitioner had discovered that A. and G., without informing him, had made an agreement with an American university to grant recognition for a B.Sc. degree course to C.T.C., from the benefit of which the company was excluded. On 2 August 1983, the petitioner informed his students by circular that in the next academic year he would no longer be teaching on behalf of the company, but would be teaching for a new educational college of which he was the principal, situated at the same educational centre as C.T.C. On 13 September 1983, A. and G. put up a notice at that centre stating that the petitioner had been dismissed from the company. In the academic year 1983–1984, the petitioner started the new college and took with him some 12 students who had previously been with the company. On 10 February 1984, the petitioner presented his petition, alleging that the conduct of A. and G. had been unfairly prejudicial to his interests by diverting to C.T.C. the company's electronics students, by his de facto dismissal as a director, and by displaying the notice announcing that he had been dismissed. He sought an order under section 75 of the Companies Act 1980F1 that C.T.C. be required to purchase or obtain purchasers for his shares in the company on a basis therein specified.

On the hearing of the petition: —

Held, (1) that section 75 of the Companies Act 1980 empowered the court to grant such relief as it thought fit, provided that it was satisfied that the company's affairs were being or had been conducted in a manner unfairly prejudicial to the interests of some part of the members; that the section had to be construed as it stood, without importing the test applicable under section 210 of the Companies Act 1948 of whether it was just and equitable and therefore, although the conduct of the petitioner could affect the relief which the court thought fit to grant under section 75, there was no independent or overriding requirement that it should be just and equitable to grant relief or that the petitioner should come to court with clean hands (post, p. 482A–E).

Dictum of Lord Cross of Chelsea in In re Westbourne Galleries Ltd. [1973] A.C. 360, 387, H.L.(E.) considered.

(2) That the effective cause of the breakdown of the relationship of mutual confidence between the quasi-partners was C.T.C.'s conscious and deliberate decision to appropriate to itself the students enrolling for the B.Sc. course in electronics, and that such conduct was clearly both unfair and prejudicial to the interests of the petitioner as a member of the company by depriving him of his 25 per cent. share of the profits attributable to the B.Sc. students; that the removal by the petitioner of the 12 students to his new college did not render C.T.C.'s conduct no longer unfair, and accordingly the petitioner was entitled under section 75 to an order requiring C.T.C. to purchase his shares (post, p. 483C–F).

(3) That in all the circumstances, the petitioner's shares should be valued at some date in the academic year 1983–1984, the date of the presentation of the petition being as good as any other, and that such valuation should be on the basis that the students removed by the petitioner to his new college had in fact remained with the company, and that the petitioner's shares should be valued pro rata according to the value of the company's shares as a whole, and should not be discounted as a minority holding; that it would have been unfair to the petitioner to value his shares as at 3 June 1983 and unfair to C.T.C. to value them as at the actual date of valuation and accordingly the shares would be valued as at 10 February 1984 (post, pp. 484B–C, G–485E).

In re A Company (No. 002567 of 1982) [1983] 1 W.L.R. 927 and In re Bird Precision Bellows Ltd. [1984] Ch. 419 considered.

The following cases are referred to in the judgment:

Bird Precision Bellows Ltd., In re [1984] Ch. 419: [1984] 2 W.L.R. 869; [1984] 3 All E.R. 444

Company (No. 002567 of 1982), In re A [1983] 1 W.L.R. 927; [1983] 2 All E.R. 854

Jermyn Street Turkish Baths Ltd., In re [1970] 1 W.L.R. 1194; [1970] 3 All E.R. 57

Noble (R. A.) & Sons (Clothing) Ltd., In re [1983] B.C.L.C. 273

O.C. (Transport) Services Ltd., In re [1984] B.C.L.C. 251

Scottish Co-operative Wholesale Society Ltd. v. Meyer [1959] A.C. 324; [1958] 3 W.L.R. 400; [1958] 3 All E.R. 66, H.L.(Sc.)

Westbourne Galleries Ltd., In re [1973] A.C. 360; [1972] 2 W.L.R. 1289; [1972] 2 All E.R. 492, H.L.(E.)

The following additional cases were cited in argument:

Boulting v. Association of Cinematograph Television and Allied Technicians [1963] 2 Q.B. 606; [1963] 2 W.L.R. 529; [1963] 1 All E.R. 716, C.A.

Fildes Bros. Ltd., In re [1970] 1 W.L.R. 592; [1970] 1 All E.R. 923

Worsley (E.) & Co. Ltd. v. Cooper [1939] 1 All E.R. 290

PETITION

By a petition dated 10 February 1984, the petitioner, Charles Alexander Lytton, who held 250 out of the 1,000 issued shares in London School of Electronics Ltd. (“the company”) and who was a director of that company alleged conduct by Gabriel George and Andreas Athanasiou, directors and owners of the respondent company, City Tutorial College Ltd. (“C.T.C.”) of the affairs of the company constituted conduct which was unfairly prejudicial to the petitioner's interests, as a member of the company, and accordingly sought relief under section 75 of the Companies Act 1980. The order sought was that C.T.C., which held the remaining 750 shares in the company, and the shares in which were held by Gabriel George and Andreas Athanasiou, should be ordered to purchase or procure purchasers for the petitioner's shares in the company at a price to be ascertained and paid in the following manner, viz., the petitioner and C.T.C. were each to appoint a professionally qualified accountant to certify jointly the net asset value (including goodwill) of the company as a going concern as at the date of the order to be made on the hearing of the petition, on the footing (1) that (a) all students who were on 1 June 1983 students of the company and thereafter became students of C.T.C. had continued to be students of the company, (b) all students enrolled by C.T.C. on or after 1 June 1983 for the study of electronic engineering had been enrolled for that purpose by the company, and (c) C.T.C. did not offer or intend to offer any courses in or including electronic engineering and that such courses had continued and would continue to be offered by the company; (2) that C.T.C. and its directors, Mr. George and Mr. Athanasiou, should afford to the accountants so appointed such access to and rights of copying and making extracts from its books and records and such other information as they should reasonably require for the foregoing purpose; (3) that if such accountants should be unable to agree on the net asset value of the company to be ascertained as aforesaid they should request the President of the Institute of Chartered Accountants in England and Wales to nominate a single Fellow of the Institute as umpire whose decision should be final and conclusive; (4) that the costs of such ascertainment should be paid by C.T.C.; and (5) that within 14 days after such ascertainment C.T.C. should purchase or procure purchasers for the shares in the company held by the petitioner at a price equal to 25 per cent. of the net asset value so ascertained, such price to be paid against delivery of an instrument of transfer of such shares signed by the petitioner and accompanied by the certificate therefor.

The facts are stated in the judgment.

Ralph Instone for the petitioner.

David Oliver for the respondent company.

...

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