Re London School of Electronics [1986] Ch 211

Facts

• The case concerned conflict between minority and majority shareholders in the London School of Electronics.
• The petitioner, who had contributed significantly to the company's growth, was excluded from management following a breakdown in relations.
• The company exhibited characteristics of a quasi-partnership, with informal agreements and personal relationships among shareholders.
• The petitioner sought relief under section 459 of the Companies Act 1985 (now section 994 of the Companies Act 2006), alleging unfair prejudice due to exclusion and disregard of informal agreements.

Issues

1. Whether the company’s actions towards the petitioner amounted to unfair prejudice under section 459 of the Companies Act 1985.
2. Whether informal, unwritten agreements and the quasi-partnership nature of the company should be recognised and enforced by the court.
3. What remedies were appropriate where exclusion from management or breach of fair expectations was established.

Decision

• The court found that the petitioner had suffered unfair prejudice, particularly considering the quasi-partnership nature of the company and the exclusion from management.
• Informal arrangements and basic agreements between shareholders, even if not formally documented, were recognised and could be enforced.
• The court exercised its discretion under section 459 to order the majority/shareholding respondents to purchase the petitioner’s shares at a price determined by the court.
• The decision established that a share purchase order is a common remedy for such cases, with valuation considering company assets, liabilities, and future prospects.

Legal Principles

• Section 459 of the Companies Act 1985 (now section 994 CA 2006) widens the scope of conduct amounting to unfair prejudice, beyond the earlier concept of "oppression."
• Acts constituting unfair prejudice include exclusion from management, misuse of company assets, and non-payment of dividends, especially in quasi-partnerships.
• Courts will consider the parties’ shared expectations and informal agreements when assessing unfair prejudice in quasi-partnership companies.
• Exclusion from management in a quasi-partnership is likely to be found unfair unless justified.
• Remedies for unfair prejudice are flexible, with share purchase orders being the typical response, but may also include regulation of company affairs or enforcement of legal obligations.
• The case’s principles have been affirmed and refined in subsequent authority, including O’Neill v Phillips [1999] 1 WLR 1092 and Re Saul D Harrison & Sons Ltd [1995] 1 BCLC 14.

Conclusion

Re London School of Electronics [1986] Ch 211 is a foundational authority for unfair prejudice claims under company law, establishing how the courts approach quasi-partnerships, informal agreements, and exclusion from management, and setting out key principles for the use of share purchase orders as a remedy.