Introduction
The court’s power to order a share purchase, as seen in Re London School of Electronics [1986] Ch 211, is a key part of company law, especially in conflicts between minority and majority shareholders. This case set out clear rules for when the court can act under section 459 of the Companies Act 1985 (now section 994 of the Companies Act 2006) to require the majority to buy shares. The main requirement for such an order is showing that the company’s actions unfairly hurt the petitioner’s rights. This rule needs careful examination of facts and legal tests.
Unfairly Harmful Conduct: Setting Limits
Section 459 of the Companies Act 1985 broadened what counts as “unfair harm” compared to the older “oppression” remedy. This let claimants challenge more types of conduct. Re London School of Electronics shows that unfair acts could include being shut out from management, misusing company funds, or not paying dividends. The court focused on quasi-partnerships, pointing out how shared expectations in these relationships affect decisions.
The Quasi-Partnership: Expectations and Practice
Quasi-partnerships, though not formal partnerships, often rely on personal ties and trust between shareholders. Re London School of Electronics made clear that basic agreements between parties matter in these cases. If the majority ignores these agreements, it may count as unfair harm. The court ruled that informal arrangements can be enforced, even without written contracts.
Exclusion from Management: A Key Problem
Being removed from management roles, particularly in quasi-partnerships, often leads to rulings of unfair harm. In Re London School of Electronics, the petitioner’s dismissal from running the business, after helping build it, strongly affected the court’s decision. This shows the need to review the petitioner’s involvement and fair expectations in the company.
Remedies under Section 459
Section 459 lets courts choose from several fixes for unfair harm. The most common, used in Re London School of Electronics, is a share purchase order. This forces the majority or company to buy the petitioner’s shares at a court-set price. Courts decide share value by looking at assets, debts, and future potential. Other options include controlling company decisions, requiring legal duties, or allowing claims against the company.
Impact and Later Cases
Re London School of Electronics has shaped many later cases, changing how unfair harm and share orders are viewed. Rulings like O’Neill v Phillips [1999] 1 WLR 1092 clarified how fair expectations work with a company’s formal structure. Re Saul D Harrison & Sons Ltd [1995] 1 BCLC 14 confirmed that unfair harm can include broken trust in quasi-partnerships, not just money loss. These cases, following Re London School of Electronics, offer better guidance for legal practice.
Conclusion
Re London School of Electronics stays a key case in company law, showing how courts can order share purchases to fix unfair harm. It established tests for quasi-partnerships, fair expectations, and management removal. Later cases like O’Neill v Phillips and Re Saul D Harrison & Sons Ltd improved these ideas, creating a structured way to apply section 459 (now section 994). The decision balances majority control with minority rights, ensuring fairness under the law. It still protects minority shareholders in companies, particularly quasi-partnerships where informal agreements matter. The rules from Re London School of Electronics remain central to company law.
