Grace v Biagioli and others: CA 4 Nov 2005

The petitioner complained that he had first been removed as director, and that the remaining directors had misdescribed the company’s profits and paid those profits to themselves as management expenses and in breach of a resolution requiring an equal distribution. He appealed a finding that he had not been improperly removed as director, and as to the remedy awarded.
Held: The claimant’s behaviour in negotiating to set up a competing company was sufficient to justify his removal as a director. The judge having found the misapplication of profits in one year had closed his mind to later years and had declined to receive evidence on the point. He had not therefore been correct to conclude that the misappropriation would not be repeated. The judge should have ordered the defendants to buy out the claimant’s shares.
Patten J (at [61]) highlighted the following principles from the speech of Lord Hoffmann in the leading case of O’Neill v. Phillips: ‘(1) The concept of unfairness, although objective in its focus, is not to be considered in a vacuum. An assessment that conduct is unfair has to be made against the legal background of the corporate structure under consideration. This will usually take the form of the articles of association and any collateral agreements between shareholders which identify their rights and obligations as members of the company. Both are subject to established equitable principles which may moderate the exercise of strict legal rights when insistence on the enforcement of such rights would be unconscionable.
(2) It follows that it will not ordinarily be unfair for the affairs of a company to be conducted in accordance with the provisions of its articles or any other relevant and legally enforceable agreement, unless it would be inequitable for those agreements to be enforced in the particular circumstances under consideration. Unfairness may, to use Lord Hoffmann’s words, ‘consist in a breach of the rules or in using rules in a manner which equity would regard as contrary to good faith’ . . ; the conduct need not therefore be unlawful, but it must be inequitable.’
Mummery, Mance LJJ, Patten J
[2005] EWCA Civ 1222, [2006] 2 BCLC 70, [2006] BCC 85
Companies Act 1985 459
England and Wales
CitedRe London School of Electronics 1986
The court considered its powers under the section: ‘The combined effect of sub-ss (1) and (3) is to empower the court to make such order as it thinks fit for giving relief, if it is first satisfied that the affairs of the company are being or have . .
ExplainedO’Neill and Another v Phillips and Others; In re a Company (No 00709 of 1992) HL 20-May-1999
The House considered a petition by a holder of 25 of the 100 issued shares in the company against the majority shareholder. The petitioner, an ex-employee, had been taken into management and then given his shares and permitted to take 50% of the . .
CitedIn re Bird Precision Bellows Ltd CA 1986
The company which was formed to combine one party’s expertise in the manufacturing of precision bellows with the general experience of two others in financial, commercial and industrial matters. For several years the company’s affairs had worked . .

Cited by:
CitedMacom Gmbh v Bozeat and Others ChD 21-Jun-2021
Order regulating company’s affairs
COMPANY – Unfair prejudice – Petitioner 60% shareholder – Respondents 40% shareholders – Alleged breaches of director’s duties and failures to observe Shareholders’ Agreement – Undermining company’s corporate governance – Appropriate remedy – . .

These lists may be incomplete.
Updated: 10 July 2021; Ref: scu.234453