Unfair Prejudice Case Spotlight: Re Cardiff City Football Club (Holdings) Ltd [2022] EWHC 2023 (Ch)

To succeed under s.994 of the Act, a shareholder must show they have been subjected to unfairly prejudicial conduct by directors or shareholders of the company.

The test is objective, and the court will take into account whether a hypothetical reasonable bystander would consider the conduct unfair. 

The court will consider various factors, including:

(1) Whether the unfairly prejudicial conduct is by the company in respect of the company's affairs, namely management decisions (whether they are carried out by directors or shareholders). 

(2) The conduct relates to the interests of shareholders with respect to their shareholding. 

(3) The petition can be based on a single act or omission or future conduct. 

(4) The conduct must be both unfair and prejudicial. It is not enough to say that an action is unfair but that it has caused, or will cause, some tangible detriment to the petitioner. 

Mr Isaac issued an unfair prejudice petition on the basis the offer of shares was orchestrated by Mr Tan to dilute his shares, citing Mr Tan's personal animosity towards him.

Further, he alleged the directors had breached their duties under the Act by rubber stamping Mr Tan's decision, namely to exercise independent judgement (s.173) and failure to use their powers to allot shares for a proper purpose (s.171). 

Mr Tan and the Company, as respondents to the petition, claimed the shares were issued for the purpose of improving the club's financial position and that the underlying decision was motivated by sound commercial reasons.

Mr Tan had also previously made a pledge to reduce the company's debt. 

Mr Isaacs sought an order for Mr Tan to buy his shareholding at their value immediately before the offer. 

The key takeaway from this case is that unfairness in the moral sense will not necessarily amount to a successful unfair prejudice action, particularly where the actions are supported by sound commercial reasons.

Although one might understand why Mr Isaac felt aggrieved by the actions of Mr Tan and the board of directors, the motivations for which appeared based on a personal vendetta against him, the claim failed since: 

1. Mr Isaac failed to establish Mr Tans' actions were centred on acts constituting the affairs of the company. Despite being unfair in the moral sense, they were not unlawful or unconscionable in making out unfair prejudice. 
2. Whilst there may have been ulterior motives on the part of the directors, there was a commercial rationale for their decisions. 
3. A director's independence would not be compromised merely because they conclude that the company's best interests are aligned with the majority shareholder. What ultimately matters is the outcome of the board's decision and, in this case, the court determined Mr Isaac suffered no prejudice.  

The case emphasises the importance of making decisions on the basis of sound commercial reasons for the benefit of the company and maintain a clear record of decisions reached and the reasons why.