4.4.9 Summary of the unfair prejudice remedy

The unfair prejudice remedy in the UK and the oppression remedy in the US are frequently studied and compared. In my view, these two remedies, in essence, encompass the same connation and principles, although there are inevitably differences as well. The concluding remarks on the understanding and approach to the concepts of these two terras as well as other noteworthy points are listed below:

Firstly, the terminology of oppressive and unfairly prejudicial has different perspectives. The former is subjective and the laffer is objective. While the term oppressive is still in use in the US, the English Companies Act has changed the term from oppressive to unfairly prejudicial, hoping to eliminate the restrictive and subjective element of the former term. But because these two remedies have the same rationale, i.e., to improve the traditionally inadequate protective mechanisms for minority shareholders, and both endorse wide discretion for the court to keep general words general, the scope of both terras actually remains the same, which enables them to fulfil their remedial purpose. The broad scope of these two remedies is also reflected in the fact that both jurisdictions allow petitions which were exclusively dealt with by derivative actions before being judged under the oppression/unfair prejudice remedy. In a word, judging by the wide discretion conferred on the court in such remedies, I have no doubt that these two remedies can have the same scope of protection in the US and UK, in both substantive review and the forms of relief.

Secondly, both jurisdictions attach great weight to the interpretation standard of legitimate/reasonable expectations, which is subject to objective and case by case review because the context and background of each case are very important. The words legitimate or reasonable cannot be overlooked, as they highlight the fact that not every expectation is supposed to be protected, but only those proved to have been agreed by the parties. One useful cross-check is to ask whether the exercise of the power in question would be contrary to what the parties had actually agreed, by words or conduct, at the time they entered into association and/or developed in the course of the business.1

Thirdly, whatever the interpretation standard may be, in essence, the questions are: how far protection can go or is allowed to go by the court in order to strike a balance between equitable considerations and corporate principles, and how to strike a balance between court discretion and legal certainty.

Fourthly, the exit remedy is popular in close companies in both the UK and US. One survey in the UK shows that out of 156 petitions under s. 459 in 1994 and 1995 to the High Court in London, 96 per cent related to private companies.2 Though the term close company is more often used in the USA and quasi-partnership in the UK, considering the references given in case law, they mean similar things.3 The courts in both the USA and the UK have emphasized the elements of trust and confidence in such companies and have drawn analogies to partnerships in the analysis of the controlling executives' and shareholders' duties. The basis for proceedings under this remedy is substantially the same because human nature and the relationships in small companies are universally the same.

In the fifth place, regarding the aspects of relief forms and valuation issues, the practice in the UK and the US is similar as well. The oppression remedy is part of the dissolution remedy, whereas the unfair prejudice has been severed from its origin in the wind-up provision, although a winding-up order under this remedy is entirely at the discretion of the court. In both jurisdictions the most granted form of relief is a court ordered buyout and courts have gained experience in dealing with issues concerning the valuation date and discount. The presumed date in the US is the petition date, whereas in the UK it is the date on which the valuation order is given. Because both jurisdictions recognize the discretion of the court, and the shared principle is fairness for all parties involved, the difference is actually minor. As to discount, in general, a pro rata valuation is widely accepted and applied in the US and in the UK.

Finally, closely related to the study in Chapter 5 are the key elements explored under s. 994, such as the meaning of interests of the members and a member of the company. Together with these, the demarcation and principles developed in various categories of case law, combined with proposal from the CLR, are suggestions which I will recommend to the Chinese legislators in Chapter 5.