Introduction

The case of (First) Alfred George Cheyne; (Second) Valerie Cheyne against Alfred Cheyne Engineering Limited and Balmoral Group Holdings Limited ([2021] ScotCS CSOH_17) was adjudicated in the Outer House of the Scottish Court of Session on February 11, 2021. This unfair prejudice petition under Sections 994 and 996 of the Companies Act 2006 revolved around allegations that Balmoral Group Holdings Limited ("Balmoral") had conducted itself in a manner unfairly prejudicial to the interests of the petitioner shareholders, Mr. Alfred Cheyne and Mrs. Valerie Cheyne.

The core dispute centered on the refusal by the petitioners to accept a settlement offer from Balmoral, which they argued resolved their grievances. Balmoral contended that continuing with the petition would constitute an abuse of process, seeking the dismissal of the petition on these grounds. The judgment by Lord Ericht delved into intricate aspects of Scottish and English corporate law, particularly focusing on the court's inherent jurisdiction to dismiss cases deemed an abuse of process.

Summary of the Judgment

Lord Ericht, delivering the judgment, ultimately refused Balmoral's motion to dismiss the petition. He held that Balmoral failed to demonstrate that its offer addressed all possible remedies the petitioners could seek if the case proceeded to proof. The judge emphasized that the court possesses a wide array of equitable remedies under the Companies Act 2006, which are not limited to a clean break solution. Consequently, because Balmoral's offer did not encapsulate all potential remedies and the case presented unique factual circumstances, the petition was allowed to proceed to proof.

Analysis

Precedents Cited

The judgment heavily referenced key English cases to align Scottish jurisprudence with established principles. Notable among these were:

• O'Neill v Phillips [1999] 1 WLR 1092 – Established guidelines for what constitutes a reasonable offer to purchase shares in the context of unfair prejudice petitions.
• Re Sprintroom Ltd [2019] BCC 1031 – Reinforced the necessity for reasonable offers to prevent abuse of process in litigation.
• Re a Company No 00836 of 1995 [1996] BCC 432 and Re a Company No 006834 of 1998 (ex parte Kramer) [1989] 5 BCC 218 – Emphasized the preference for buy-out remedies in resolving shareholder disputes.
• Moore v Scottish Daily Record and Scottish Sunday Mail Ltd [2009] SC 178 – Discussed the inherent power of Scottish courts to dismiss cases for abuse of process.

These precedents collectively underscored the importance of fairness, reasonableness, and the court's discretion in determining appropriate remedies for shareholder disputes.

Legal Reasoning

Lord Ericht articulated that the court's inherent jurisdiction allows it to dismiss proceedings deemed an abuse of process, even though "striking out" is not a term traditionally used in Scottish law. He drew parallels with English procedural law, noting that while Scottish courts handle such matters differently, the underlying principles remain consistent.

Key aspects of his reasoning included:

• Nature of the Offer: Balmoral's offer was scrutinized to determine if it encompassed all possible remedies that the petitioners could seek through litigation. Lord Ericht concluded that it did not, as the petitioners were seeking regulatory measures to protect their option rights beyond mere buy-out solutions.
• Fair Valuation: The accelerated valuation proposed by Balmoral was deemed unfair as it was influenced by temporary financial inflations due to asset sales, thereby artificially increasing the offer price.
• Potential Remedies: The court recognized that equitable remedies are broad and not confined to buy-out orders. In this case, alternative remedies such as regulating the company's affairs to allow the exercise of the option were deemed plausible and more appropriate.

Consequently, because Balmoral's offer did not fully address the potential remedies and the specific circumstances of the case, the call to dismiss the petition as an abuse of process was rejected.

Impact

This judgment has significant implications for future shareholder disputes, particularly in Scotland. It clarifies that:

• Comprehensive Remedies: Offers to settle unfair prejudice petitions must fully address all possible remedies that the petitioner could seek through litigation. Partial solutions may not suffice to prevent the continuation of proceedings.
• Fair Valuation Standards: Valuations used in settlement offers must be fair and not influenced by temporary or artificial financial metrics. This ensures that minority shareholders are not disadvantaged.
• Inherent Jurisdiction: Scottish courts affirm their inherent power to dismiss cases that constitute an abuse of process, aligning more closely with English procedural standards.

Future litigants can draw from this judgment to understand that simply making an offer to buy out a shareholder does not automatically render further litigation as an abuse of process. The offer must be comprehensive and equitable, fully addressing the grievances and potential remedies sought by the petitioners.

Complex Concepts Simplified

Conclusion

The judgment in Cheyne v. Balmoral underscores the Scottish Court of Session's commitment to equitable justice in shareholder disputes. By refusing to dismiss the unfair prejudice petition, Lord Ericht affirmed that offers to settle must be comprehensive and wholly address the complainant's grievances to prevent abuse of the legal process. This decision aligns Scottish law more closely with established English principles, particularly regarding the court's inherent jurisdiction to strike out cases deemed an abuse of process.

For practitioners and shareholders alike, this case serves as a crucial reference point for understanding the boundaries of settlement offers in the context of unfair prejudice. It emphasizes the necessity for fairness in both the substance and valuation within offers to prevent further litigation, thereby promoting more efficient and just resolutions to corporate disputes.