Shareholder Disputes Circular

Technical issuesBecause

Technical issuesBecause unfair prejudice petitions are highly technical disputes, they can raise importanttechnical issues. These can be of considerable practical importance to the efficient running of aclaim. We highlight two in particular.AshdownThe first issue concerns costs. As a general rule, the Court will order that the unsuccessful partyin proceedings pays the successful party’s costs. However, in unfair prejudice petitions, thesuccessful party for costs purposes may not always be the party that proves its case at trial.For example, in Ashdown, the Petitioners succeeded in their claim for unfair prejudice and theCourt ordered a buy-out of the Petitioners’ shares. However, it was subsequently decided thatthe shares were worthless. Given that the Petitioners had failed to obtain any value for theirshares, the Court held that in reality they had been unsuccessful and that they should pay all ofthe Respondent’s costs 5 .Importantly, the Court made clear that the whole point of an unfair prejudice petition is notto establish unfairly prejudicial conduct purely for the sake of it, but rather for the Petitioner toobtain meaningful relief. If the shares in question are worthless, and this is not attributable tothe unfairly prejudicial conduct, then the case is not worth pursuing. The Court was clear thatshareholders should not be encouraged to present unfair prejudice claims for uncommercialreasons.Re Bankside HotelsThe second issue concerns the requirement for a Petitioner to actually prove his or her casewith relevant evidence. In Re Bankside Hotels (also considered above), the Respondents’Points of Defence was struck out and the Petitioners claimed an entitlement, as an automaticconsequence, to judgment and appropriate relief based solely on their pleaded case (this havingbeen signed off with a statement of truth). The Court disagreed and declined to move straightto the question of applicable relief. Notwithstanding the striking out, the Petitioners had not,from a technical perspective, established unfair prejudice based purely on their pleaded case.5An additional consideration as to the quantum of the costs payable was that the Petitioners had refused to accept sensiblesettlement offers.16

Under the statutory provisions governing unfair prejudice petitions, the Court always needs tobe satisfied that an unfair prejudice petition is well-founded before it grants relief and here thatwould require further evidence to be produced (albeit the Respondents’ ability to challengesuch evidence would be severely constrained given the strike out). It might be possible for thePetitioners to find a way of expediting the process of obtaining a judgment by means of asummary judgment application. However, any such application would still need to result in theCourt obtaining sufficient evidence that unfair prejudice had actually occurred, and so therewould probably be no advantage in a summary judgment application rather than going straightto trial.CommentTechnical nuance is unavoidable in unfair prejudice petitions. But it is still the case thatcommon sense rules apply. In particular:a. Uneconomic cases should not be pursued for emotional reasons.b. Sensible settlement/buy-out offers should be considered to avoid the need for trial.c. Petitioners will need to prove to the Court with sufficient witness and documentaryevidence that prejudice has actually been suffered and that it is unfair.17