## Facts

- Mr. Graham was a minority shareholder in a family business.
- The majority shareholders issued new shares to themselves without offering them first to Mr. Graham, in breach of the company’s pre-emption rights.
- This action diluted Mr. Graham’s ownership stake and reduced his influence in company decisions.
- The majority justified the share issue as necessary for the company’s financial stability.
- The share issue was carried out without adequate communication or opportunity for Mr. Graham to participate.

## Issues

1. Whether the failure to respect pre-emption rights amounted to unfair prejudice against Mr. Graham under section 994 of the Companies Act 2006.
2. Whether a business-driven reason for a share issue can justify overriding agreed shareholder protections.
3. What remedies are appropriate where unfair prejudice is established by a breach of pre-emption rights.

## Decision

- The Court of Appeal found that the failure to offer shares to Mr. Graham, in breach of pre-emption rights, constituted unfair prejudice within the meaning of Companies Act 2006 section 994.
- The Court determined that the majority’s purported rationale of financial stability did not excuse disregarding the rights of minority shareholders.
- The conduct was deemed unfair notwithstanding the absence of bad faith or direct financial loss.
- The majority was ordered to buy Mr. Graham’s shares at a fair value.
- The decision confirmed that remedies can be tailored as appropriate to redress the unfairness, including share buyouts and management or operational directions.

## Legal Principles

- Pre-emption rights protect minority shareholders from dilution and unfair shifts in control.
- Breach of agreed terms or reasonable shareholder expectations can constitute unfairly prejudicial conduct, not limited to direct financial harm.
- The purpose or perceived business necessity of a majority's action does not justify ignoring legally binding shareholder protections.
- Remedies under section 994 Companies Act 2006 are discretionary and may include a mandatory purchase of shares at fair value or other measures to restore fairness.

## Conclusion

The Court of Appeal clarified that breaching pre-emption rights can amount to unfair prejudice even in the absence of bad faith or financial loss, reinforcing the importance of respecting shareholder agreements and affording strong remedies to affected minority shareholders.


Graham v Every [2014] EWCA Civ 191