Graham v Every [2014] EWCA Civ 191

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.

The answers, solutions, explanations, and written content provided on this page represent PastPaperHero's interpretation of academic material and potential responses to given questions. These are not guaranteed to be the only correct or definitive answers or explanations. Alternative valid responses, interpretations, or approaches may exist. If you believe any content is incorrect, outdated, or could be improved, please get in touch with us and we will review and make necessary amendments if we deem it appropriate. As per our terms and conditions, PastPaperHero shall not be held liable or responsible for any consequences arising. This includes, but is not limited to, incorrect answers in assignments, exams, or any form of testing administered by educational institutions or examination boards, as well as any misunderstandings or misapplications of concepts explained in our written content. Users are responsible for verifying that the methods, procedures, and explanations presented align with those taught in their respective educational settings and with current academic standards. While we strive to provide high-quality, accurate, and up-to-date content, PastPaperHero does not guarantee the completeness or accuracy of our written explanations, nor any specific outcomes in academic understanding or testing, whether formal or informal.
No resources available.

Job & Test Prep on a Budget

Compare PastPaperHero's subscription offering to the wider market

PastPaperHero
Monthly Plan
$10
Assessment Day
One-time Fee
$20-39
Job Test Prep
One-time Fee
$90-350

Note the above prices are approximate and based on prices listed on the respective websites as of May 2025. Prices may vary based on location, currency exchange rates, and other factors.

Get unlimited access to thousands of practice questions, flashcards, and detailed explanations. Save over 90% compared to one-time courses while maintaining the flexibility to learn at your own pace.

All-in-one Learning Platform

Everything you need to master your assessments and job tests in one place

  • Comprehensive Content

    Access thousands of fully explained questions and cases across multiple subjects

  • Visual Learning

    Understand complex concepts with intuitive diagrams and flowcharts

  • Focused Practice

    Prepare for assessments with targeted practice materials and expert guidance

  • Personalized Learning

    Track your progress and focus on areas where you need improvement

  • Affordable Access

    Get quality educational resources at a fraction of traditional costs

Tell Us What You Think

Help us improve our resources by sharing your experience

Pleased to share that I have successfully passed the SQE1 exam on 1st attempt. With SQE2 exempted, I’m now one step closer to getting enrolled as a Solicitor of England and Wales! Would like to thank my seniors, colleagues, mentors and friends for all the support during this grueling journey. This is one of the most difficult bar exams in the world to undertake, especially alongside a full time job! So happy to help out any aspirant who may be reading this message! I had prepared from the University of Law SQE Manuals and the AI powered MCQ bank from PastPaperHero.

Saptarshi Chatterjee

Saptarshi Chatterjee

Senior Associate at Trilegal