O'Neill v Phillips
Unfair prejudice requires a breach of the terms on which the members agreed the company's affairs should be conducted, or the use of rules in a way that equity would regard as contrary to good faith.
Facts
Mr O'Neill was employed by a company owned by Mr Phillips. Mr Phillips gave him 25 per cent of the shares, made him a director, and later allowed him to manage the company and receive half of the profits. There were discussions about Mr O'Neill being given more shares, but no agreement was reached. When the business declined, Mr Phillips took back control of the company and told Mr O'Neill that he would receive only the dividends on his 25 per cent shareholding and his salary. Mr O'Neill petitioned for relief under section 459 of the Companies Act 1985, now section 994 of the Companies Act 2006.
Legal principle
The House of Lords held that Mr O'Neill had not been unfairly prejudiced. Lord Hoffmann said that a member will not ordinarily be entitled to complain of unfairness unless there has been some breach of the terms on which he agreed that the affairs of the company should be conducted, whether in the articles or in some informal understanding. Unfairness may also arise from the use of the rules in a manner which equity would regard as contrary to good faith. Mr Phillips had never agreed to give Mr O'Neill more shares or half of the profits permanently, so he was entitled to withdraw those benefits. Lord Hoffmann also said that a member is not entitled to leave the company at will and demand that his shares be bought.
Related cases on unfair prejudice and just and equitable winding up
- Re Bird Precision Bellows Ltd [1986] Ch 658
- Ebrahimi v Westbourne Galleries Ltd [1973] AC 360
- Re Elgindata Ltd [1991] BCLC 959
- Fulham Football Club (1987) Ltd v Richards [2011] EWCA Civ 855, [2012] Ch 333
- Grace v Biagioli [2005] EWCA Civ 1222, [2006] 2 BCLC 70
- Re Harmer (HR) Ltd [1959] 1 WLR 62
- Loch v John Blackwood Ltd [1924] AC 783
- Re Sam Weller & Sons Ltd [1990] Ch 682
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