Shareholder Disputes Circular

b. The family’s

b. The family’s failure to register the wife as a shareholder in place of her husband and payher a dividend was unfairly prejudicial. However, these failures had been rectified prior tojudgment and there was little chance of similar prejudice occurring in the future.Re Bankside Hotels LtdComplicated issues can arise where shareholders who agree informal/equitable arrangementsplace their shares in trust. For example, in Re Bankside Hotels Ltd the Petitioner argued that(i) there was an informal understanding between shareholders about profit division (ii) one ofthem, who was also a director, was acting in breach of this understanding and (iii) the Petitionertherefore had an actionable unfair prejudice claim against a trust into which the director hadsettled all of his shares. The Petitioner’s position was that the director and the trust wereessentially interchangeable for the purposes of the unfair prejudice petition and that the trusthad taken the director’s shares subject to the informal understanding.The Court held that there was no evidence that the director and the trust were interchangeable(the director was not a beneficiary and the trust was not a sham), or that the trustees had anyknowledge of the allegedly unfairly prejudicial conduct. The Court therefore struck out theunfair prejudice claim against the trust although it noted that the position might have beendifferent if, for example, there been a credible pleaded case that the trustees had a supervisoryobligation in relation to the director’s behaviour or the Petitioner had specifically asked thetrustees to intervene to stop that behaviour.However, the Court did suggest that if the trust tried at some stage to implement anarrangement which was contrary to the informal understanding (for example the award of anover generous salary to the impugned director) it might well be prevented from doing this.8

CommentLegitimate expectations will not arise in every set of shareholder relationships. However,the above cases demonstrate that when they do arise they can lead to results very differentto those that might initially be expected. This can lead to considerable uncertainty but thisis in effect the price shareholders pay for the protection afforded by the equitable conceptof legitimate expectations. The decision in Re Bankside Hotel is also of particular interestgiven the widespread use of trust structures to hold shares as part of the tax planning forhigh net worth individuals.9