Where a proposed course of action affected different groups of shareholders in a company in different ways, it was the duty of the directors in deciding upon it, not only to act in good faith for the benefit of the company, but also to strike the right balance between conflicting sections of interest. Whether, in fact, they had acted to the prejudice of a particular minority group must depend on the circumstances of the case.
Mrs Justice Arden dismissed a petition by which London Merchant Securities plc (LMS), a member of BSB Holdings Ltd (BSBH), sought relief under section 459 of the Companies Act 1985 against the satellite television consortium's four principal members, Chargeurs SA, Granada Group plc, Pearson Group plc and Reed International plc and their various subsidiaries.
The essence of LMS's complaint was that, as a minority shareholder, it had been substantially and unfairly prejudiced during the various rounds of financing and refinancing of BSBH, following its successful bid for a franchise from the Independent Broadcasting Authority, and by its eventual merger with BSkyB, about which LMS was not consulted.
Section 459 provides:
A member of a company may apply to the court by petition for an order under this Part on the ground that the company's affairs are being or have been conducted in a manner which is unfairly prejudicial to the interests of its members generally or of some part of its members (including at least himself) or that any actual or proposed act or omission of the company (including an act or omission on its behalf) is or would be so prejudicial.
Robin Potts QC, Martin Moore and Andrew Thompson (Mishcon de Reya) for LMS; David Oliver QC, David Richards QC and Philip Gilyon (Stephenson Harwood) for Chargeurs, Granada and Pearson; George Bompas QC and Rosalind Nicholson (D.J. Freeman & Co) for Reed; Robert Hillyard QC (Freshfields) for BSBH; Michael Todd (Farrer & Co) for News International plc; Alaster Walton (Herbert Smith) for British Sky Broadcasting Group plc and its subsidiaries.
Mrs Justice Arden said the words "unfairly prejudicial" in section 459 were wide and general and the circumstances in which they applied could not be exhaustively categorised. Indeed, the very width of the jurisdiction could enable it, unless carefully controlled, to become a means of oppression. It was important that the legitimate and proper workings of business and the investment of capital should not be inhibited by unfounded threats of action under section 459.
The leading authority on its application was Re Saul D Harrison & Sons plc  BCLC 14. Following that case, it was necessary to examine the ambit of a director's fiduciary duty as a matter of law. A director's duty was to act bona fide in what the director considered to be the interests of the company and not for any collateral purpose. Two questions arose: 1) When and how did the court ascertain whether a power had been exercised for a collateral purpose? 2) Were the interests of the company to which the directors must have regard, in a case such as this, those, and only those, of the company as a separate legal entity?
However, a remedy under section 459 could not only be given if the directors had acted in breach of duty or if the company had breached the terms of its articles or some other relevant agreement: these matters constituted in most cases the basis for deciding what conduct was unfair, but the words of the section were wide and the categories of unfair prejudice were not closed.
The starting-point was that directors were bound to act in good faith for the benefit of the company. But where a proposal under consideration affected the rights of shareholders as against each other, or had different effects on different groups of shareholders in a company, it was difficult to apply the test that what was done must be in the interests of the members generally, who were the company for this purpose. The duty was to act fairly as between the different groups of shareholders; to strike the right balance between conflicting sections of interest (see Mutual Life Insurance Co of New York v Rank Organisation Ltd  BCLC 11, per Goulding J). What that required would depend on the facts of the case.
In this case, having considered the facts, her Ladyship was not satisfied LMS had made out a case of unfair prejudice.
Paul Magrath, BarristerReuse content