Introduction

The Judgment issued by the Scottish Court of Session on 1 April 2025 in the case Fotheringay Limited for orders under sections 994 and 996 of the Companies Act 2006 in relation to the affairs of West Ranga Developments Limited sets a significant precedent regarding the interpretation and application of the statutory provisions concerning unfair prejudice. At the heart of the case lies the dispute over whether the exclusion of a key director – and by extension, the petitioner’s rights as a shareholder – rises to the level of conduct that is “unfairly prejudicial” under section 994 of the Companies Act 2006.

The petitioner, Fotheringay Limited, a shareholder and joint venture participant, has raised substantial allegations, including the improper diversion of company business and the effective exclusion of Mr Reid – a director and representative of the petitioner – from the company’s day-to-day operations. The respondents, which include West Ranga Developments Limited and its majority shareholder West Ranga Property Group Limited (WRPG), have countered these claims by arguing that the actions in question were undertaken either lawfully or are subject to alternative interpretations of contractual arrangements within the shareholders’ agreements.

Summary of the Judgment

In his opinion, Lord Braid carefully examined the complex factual matrix of the case, including the conflicting provisions of two shareholders’ agreements, the restructuring of the company’s share capital, and the extent to which shareholder rights were affected following the exclusion of Mr Reid and the diversion of profit-yielding opportunities for the company.

The court ultimately declined to grant the immediate relief sought by the petitioner, deciding to reserve certain matters for further evidence and discussion. Notably, Lord Braid affirmed that while the allegations, if proven, might establish a case for unfair prejudice, the ultimate determination of whether the exclusion of Mr Reid was “unfairly prejudicial” would require a fuller factual enquiry. At the same time, the decision underscores that a finding of unfairly prejudicial conduct naturally leads to the question of what remedies may be appropriate under section 996.

Analysis

Precedents Cited

The Judgment refers to several key precedents that underpin the court’s analysis:

• Hawkins, petitioners [2024] CSOH 3: This case is cited on the basis that exclusion of a shareholder from the company’s business may give rise to an unfairly prejudicial situation. The court used Hawkins to support the proposition that shareholder alienation is a sufficient ground for alleging unfair prejudice.
• Gray v Braid Group (Holdings) Ltd [2015] CSOH 146 (and its subsequent affirmation in Gray v Braid Group (Holdings) Ltd 2017 SC 409): These cases establish that breaches of directors’ fiduciary duties, and the exploitation of company opportunities, can be examples of unfairly prejudicial conduct.
• Davidson v Pinz Bowling [2025] CSIH 6: The recent decision in Davidson provides clear guidance on how courts should approach the claim of unfair prejudice under the Companies Act. The judicial reasoning used therein, particularly the reference to Lord Hoffmann’s direction in O’Neill v Phillips [1999] 1 WLR 1092, clarifies that for a claim to succeed, both the prejudicial impact and the unfairness of the conduct must be established independently.
• Other cases such as Re Saul D Harrison & Sons plc [1994] BCC 475 and Re Neath Rugby Ltd [2008] BCC 390: These were cited to reinforce the concept that fairness must be considered objectively according to the provisions of company articles and the common law principles of fiduciary duty.

Legal Reasoning

Lord Braid’s decision is rooted in the established principle that a shareholder’s grievance regarding unfair prejudice may arise not only from breaches of fiduciary duties but also from actions that effectively exclude a shareholder from the management and affairs of the company. The court emphasised several points:

• Dual Requirement in Unfair Prejudice Claims: The court reaffirmed that the claimant must demonstrate both a showing of prejudice and a demonstration that the conduct was unfair. This necessitates factual analysis and evidentiary support, which in this preliminary stage, was found inconclusive.
• Application of an Objective Standard: Referring back to cases like Re Saul D Harrison & Sons plc, the court clarified that the test for fairness is objective and based on the terms of the articles of association and contractually agreed arrangements among shareholders.
• Interplay Between Statutory and Contractual Provisions: The conflicting provisions of the two shareholders’ agreements were addressed with caution. The court noted the complexity in reconciling different requirements about board meetings, quorum, and director appointment rights. Although the petitioner argued that his exclusion was prejudicial, the court insisted that the precise legal consequences of such exclusion would depend on additional factual development.
• Directors’ Fiduciary Duties and Profit Reconciliation: The judgment examined allegations that profits from development opportunities were diverted or withheld, highlighting that such conduct might constitute a breach of the fiduciary duty imposed by section 175 of the Companies Act 2006. Yet, it was clear that more evidence was required to fully evaluate the alleged breach.

Impact on Future Cases

The decision in this case is likely to have far-reaching consequences in the field of company law. Its impact includes:

• Refinement of the Unfair Prejudice Test: Future cases concerning minority shareholder rights and exclusion from company management will refer to the dual requirement—both prejudice and unfairness must be proven independently.
• Clarification of Fiduciary Duties: The ruling reinforces that fiduciary duties bind directors to account for any diversion of company opportunities, potentially encouraging more rigorous scrutiny of arrangements that allow group companies to exploit shared projects.
• Procedural Considerations: The decision to reserve detailed factual findings concerning the exclusion of Mr Reid signals that courts may require comprehensive evidentiary hearings before determining whether conduct is unfairly prejudicial. This will affect how early interlocutory decisions are formulated in similar disputes.

Complex Concepts Simplified

Several legal concepts in the Judgment warrant clarification:

• Unfair Prejudice: This term refers to conduct by those in control of a company that unjustifiably harms the interests of a shareholder. It is not enough to show that a shareholder is unhappy with business decisions; it must be proven that the conduct is both unfair and prejudicial.
• Fiduciary Duty: Directors have a legal duty to act in the best interests of the company. This includes not exploiting company opportunities for personal gain or for the benefit of related companies without proper accounting.
• Remedies under Section 996: Should unfair prejudice be proven, the court has a wide discretion in providing relief, which could include ordering the purchase of a shareholder’s shares at a fair value, or authorizing civil proceedings to enforce the rights of the disadvantaged shareholder.

Conclusion

In summary, the Judgment delivered by Lord Braid represents an important development in the interpretation of the Companies Act 2006, particularly concerning claims of unfair prejudice. While the court declined to grant the petitioner immediate relief pending further evidence, the opinion lays down crucial guidance on:

• How courts should balance contractual shareholder rights against statutory protections;
• The objective standard that must be met to prove unfairness in the exclusion of a shareholder from the management of a company; and
• The responsibilities of directors to account for profits when company opportunities are diverted to related entities.

This decision underscores the necessity for rigorous evidence in claims of unfair prejudice and signals that, while preliminary findings may favor a claim in principle, a detailed factual inquiry remains paramount. As such, this Judgment is poised to influence future disputes regarding shareholder rights and director fiduciary duties within joint venture structures, ensuring that all parties adhere to equitable conduct and full transparency.