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High Bar in place to prove Unfair Prejudice

Recent decisions by the Cayman Islands courts have illustrated how difficult it is for a petitioner to successfully wind up a company on just and equitable grounds.

Establishing the existence of unfair prejudice is often a key component in such petitions. However, a recent decision of the English High Court illustrates that proving unfair prejudice will be a formidable task at trial.  

In Michel v Michel, a former director presented a petition pursuant to the Companies Act (2006) claiming that the affairs of a private manufacturing company had been, and continued to be, conducted in a way that was unfairly prejudicial to him. He sought an order that his shares be purchased by the respondents at fair value or, alternatively, that the Court make a winding up order on just and equitable grounds.

Evidence was heard from a large number of witnesses about the company’s storied beginnings and the turbulent recent history of relationships between its main stakeholders, which included the petitioner. The dispute involved numerous allegations of unfair prejudice in the context of a family-owned and controlled company, with the allegations spanning many years.

The Judge made a number of observations about unfair prejudice applications, including:

  • That the petitioner’s case should be pleaded so it is clear to the respondent how he is to meet a claim;
  • That it is important for a petitioner to establish the precise basis of any agreement, understanding or pattern of acquiescence between shareholders in support of a contention that equitable constraints arise preventing departure from the Articles of Association;
  • Detailed and careful analysis of documentary evidence is hugely important in light of the highly fact-sensitive nature of unfair prejudice petitions, particularly in cases such as this one which went back a number of decades.

Ultimately, the Court was unconvinced by the bona fides of the petitioner and found decisively in favour of the respondents, with Chief ICC Justice Briggs concluding that “the evidence in my view is overwhelming against a finding that it would be correct to characterise the removal of [the Petitioner] as unfair and prejudicial”.

High Bar in place to prove Unfair Prejudice

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