4.4.5.5 Conclusion

The open words `unfairly prejudicial' give the remedy an open character, thus the unfair prejudice petitions are not limited to the categories listed above.1 After fairly extensive reading of case reports and with the help of summaries made by Neil LJ in Saul D Harrison,2 it is nevertheless possible now to identify certain reasonably well settled principles or guidelines as to the correct approach to the concept of "unfairly prejudicial" in s. 994.

First and foremost, the words "unfairly prejudicial" are general words, and there are no "precise boundaries of protection" afforded by this remedy;3the court has to work out on a case by case basis with the wide discretion it is granted.4 In other words, "the jurisdiction onder s. 459 (now s. 994) has an elastic quality which enables the courts to mould the concepts of unfair prejudice according to the circumstances of the case".5It is therefore wrong to reduce the general words to the sum of particular instances.6 Nevertheless, while respecting the general term, it is still of value to identify principles when it is possible.7

Secondly, the concept of fairness must be applied objectively between the parties and by the court.8 The emphasis is more on the effect of the complained conduct than on the motive or intention of the controllers.9 Moreover, the test of unfairness is not "whatever the individual judge happens to think fair" but "whether a reasonable bystander observing the consequences of their conduct would regard it as having unfairly prejudiced the petitioner's interests".10 The court should not superimpose rights and obligations other than those arising in equity out of agreements or understanding between parties involved. Otherwise, the very width of the jurisdiction itself runs the risk of becoming a means of oppression.11 Thirdly, conduct may be prejudicial without being unfair. For instance: in order to expand the business scale or scope, the company has not distributed dividend for a while; this affects and prejudices the interests of all shareholders, but is not necessarily unfair; to keep the whole group afloat, the parent company fails to pay back the Joan owed to the subsidiary. This conduct is prejudicial to the interests of the minority shareholders in the subsidiary, but is not unfair in that context; managerial misjudgement usually prejudices the shareholder's interests as well, but it too is not necessarily unfair. The law of companies recognizes in many ways that a member can use his legal rights to prejudice his associates, to remove a director from the board, for example.12 But whether it is unfair as well depends on the circumstances of the case. But unfair, I think, usually prejudices the interests of shareholders. To pass the tests under s. 994, the conduct must be both prejudicial and unfair.13

Fourthly, in Re Sam Weller & Sons Ltd, Peter Gibson J observed that the word "interests" is clearly wider than "legal rights".14 The starting point to determine the legal rights of the petitioner can be determined by referring to the memorandum and articles of the company because they constitute the contract between the company and the member in respect of his rights and liabilities as a shareholder.15 In a close company or a quasi partnership, however, interests encompass not only the legal rights of the petitioner but also any equitable considerations such as the petitioner 's legitimate expectations, which may arise from agreements or understandings between the members.16 In contrast, in a public company, there is no room for equitable considerations beyond the constitution in that the basis of association is considered to be adequately and exhaustively laid down in the constitution.17

Fifthly, under s. 994, there are situations which the courts find insufficient to give rise to petitions, such as minor or technical infringements of the articles.18 Another example concerns managerial decisions, especially when such decisions are intended to secure the future prosperity of the company or even its survival.19 Moreover, unfair prejudice is not the same as a breakdown of mutual trust and confidence.20 Finally, s. 994 is able to control the exercise of majority power not only through resolutions passed in the general meeting but also through board resolutions, so long as the company's affairs are being conducted in an unfairly prejudicial manner, and thus allegations of breach of director 's duties can be subject to direct action under s. 99421