In the recent judgment of Morris v Elite Motors Bodyshop Ltd, the High Court of England and Wales shed light on the intricacies of family business disputes and strike-out applications in the context of unfair prejudice petitions.
In Morris v Elite Motors Bodyshop Ltd, two brothers were the directors of, and equal shareholders in, Elite Motors Bodyshop Ltd. Robert Morris issued a petition under section 994 of the Companies Act 2006 (UK), alleging that the affairs of the Company were conducted in a manner unfairly prejudicial to him, naming his brother, Julian Morris, and the Company as respondents. The petition claimed that the Company was operated as a quasi-partnership, Robert was excluded from management and received unequal dividends, and the mismanagement of company assets.
Julian applied to strike out the petition on the grounds that the petition was delayed and he had made a fair offer to purchase Robert's shares.
The Court, however, found that the offer did not adequately address the factual disputes affecting the Company's value, such as unpaid dividends and alleged mismanagement, which required a fact-finding exercise beyond the scope of the proposed expert valuer. Consequently, the Court determined that the reasonableness of the offer was open to question and the petition should not be struck out on that basis. Further, the delay in issuing the petition did not justify striking it out.
Having rejected the strike out application in relation to the petition and points of claim as a whole, the Court went on to consider the strike out application in relation to parts of the points of claim.
The Court emphasised the draconian nature of striking out, stating:
"If it will not simplify the proceedings or save time or costs to any real degree, and is not otherwise necessary to the just and proportionate conduct of the proceedings, then striking out elements of the claim appears ... to be unnecessary."
It dismissed them all, except in relation to Robert's claim for a buy-out of his shares without a minority discount but including a premium to reflect the acquisition of control of the Company by Julian (i.e. a 'marriage value' premium). The Court struck out the relevant paragraph and gave Robert permission to replead it to make clear that marriage value was only sought as an alternative to a pro-rata valuation.
The judgment underscores the Court's discretion in unfair prejudice cases, emphasising that remedies should address the unfairness suffered and that procedural delays without prejudice do not warrant dismissal. The outcome serves as a reminder to companies and shareholders alike that the Court is vigilant in its oversight, ready to intervene when the conduct of company affairs deviates from the principles of fairness and legality.
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