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Unfair prejudice in United Kingdom company law


Unfair prejudice in United Kingdom company law is a statutory form of action that may be brought by aggrieved shareholders against their company. Under the Companies Act 2006 the relevant provision is s 994, the identical successor to s 459 Companies Act 1985. Unfair prejudice actions have generated an enormous body of cases, many of which are called "Re A Company", with only a six-digit number and report citation to distinguish them. They have become a substitute for the more restrictive conditions on a "derivative action", as an exception to the rule in Foss v Harbottle. Though not restricted in such a way, unfair prejudice claims are primarily brought in smaller, non public companies. This is the text from the Act.

(1) A member of a company may apply to the court by petition for an order under this Part on the ground—

(2) The provisions of this Part apply to a person who is not a member of a company but to whom shares in the company have been transferred or transmitted by operation of law as they apply to a member of a company.

(3) In this section, and so far as applicable for the purposes of this section in the other provisions of this Part, "company" means—

Four main issues arise out of the interpretation of s.994. First of all, who has a right to complain against whom? Secondly, what specifically does the "company's affairs" mean in s.994(1)(a)? Thirdly, when is something "unfair" and at the same time "prejudicial"? And lastly, when it says "the interests of members", what counts as an "interest" of a "member"? The defining feature of the s.994 action is that it is completely vague. Courts were therefore capable of interpreting the provisions gradually as they felt would be fair. After hearing a case, a court may make "such order as it thinks fit" under s.996. This wide discretion means that previous case law is not as weighty in precedent, as in other areas of law, since each case will be decided on its particular facts.

In Re Saul D Harrison plc, Hoffmann LJ remarked,

"'Unfairly prejudicial' is deliberately imprecise language which was chosen by Parliament because its earlier attempt in s. 210 of the Companies Act 1948 to provide a similar remedy had been too restrictively construed. The earlier section had used the word 'oppressive', which the House of Lords in Scottish Co-operative Wholesale Society v. Meyer [1959] AC 324 said meant 'burdensome, harsh and wrongful'. This gave rise to some uncertainty as to whether ' wrongful' required actual illegality or invasion of legal rights. The Jenkins Committee on Company Law, which reported in 1962, thought that it should not. To make this clear, it recommended the use of the term 'unfairly prejudicial', which Parliament somewhat tardily adopted in s. 75 of the Companies Act 1980. This section is reproduced (with minor amendment) in the present s. 459 of the Companies Act 1985."


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