4.4.1 Introduction

One reason for the unpopularity of appraisal rights in the UK is the power of the unfair prejudice remedy in this country. Sections 994-996 of the CA 2006 restate the previous sections 459-461 of CA 1985, which provide shareholders with a remedy when the company's affairs are being or have been conducted in a manner which is unfairly prejudicial to the interests of its members generally or of some part of its members, or when any actual or proposed act or omission of the company is or would be prejudicial. Once the unfairly prejudicial conduct has been established, courts may make such orders as they think fit to provide the minority with relief from the objectionable behaviour. Possible forms of relief offered in s. 996 include but are not limited to: regulating the conduct of the company's future affairs, asking the company to carry out or omit certain acts, authorizing civil proceedings to be brought on behalf of the company, requiring the company not to make any, or any specified, amendments to its articles without the leave of the court and to buy out the petitioners.1

In the US, as noted in Chapter 3, most of the state laws provide for an oppression remedy similor to the one in the RMBCA. Nonetheless, differences exist with respect to the specific wording in state corporation statutes as well as in the understanding and interpretations of their wording by the court. In a word, the remedy is not applied consistently across the country. The unfair prejudice remedy, in a broad sense, is a counterpart of the oppression remedy in the US but is applied more consistently across the UK and has a more abundant source of case law. This remedy will therefore be explored and discussed in more detail in this chapter, for instance, as to when this remedy can be relied upon, how the court has interpreted the key elements in this remedy, and how it has been applied in certain most frequently recurring scenarios. The most frequently reoccurring situations summarized in this chapter are breach of articles of associations and shareholder agreements, exclusion from management, increase of issued share capital, amendment of articles of association, breach of director's duties, excessive remuneration and non-payment of dividends.

Prior to its extensive discussion, an understanding of the historical development and rationale of the unfair prejudice remedy will help to grasp its essentials. This chapter therefore begins with the history of this remedy, and then goes on to break down the elements in s. 994. The main focus is on exploring the meaning of 'unfair prejudice'. Recommendations for reform by the CLR are also considered.