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Re Southern Counties Fresh Foods Ltd

Written by Calum Haswell

Tuesday, 25 November 2008

*Re Southern Counties Fresh Foods Ltd

Citation [2008] All ER (D) 195 (Nov)

Alternative Citations [2008] EWHC 2810 (Ch)

Hearing Date 20 November 2008

Court Chancery Division, Companies Court

Judge Warren J

Representation

Bernard Weatherill QC and Peter Griffiths (instructed by Rosenblatt) for CIL.Victor Joffe QC and Timothy Collingwood (instructed by DLA Piper UK LLP) for the respondents.

Abstract

Company – Member. Chancery Division: Having ruled on various allegations made by the petitioner against the directors of the respondent companies in support of the petitioner's application pursuant to s 994 of the Companies Act 2006, the relevant considerations suggested that the association between the parties should be brought to an end by ordering a share sale and purchase in one direction or another. Accordingly, the parties would be given a further opportunity to make further submissions as to the appropriate form of relief.

Catchwords

Company – Member – Unfair prejudice to member's interests – Second respondent company formed as joint venture vehicle for interests of two families – Petitioner company owning 50% of shares in second respondent – First respondent company owning other 50% of shares in second respondent – Petitioner alleging directors of first respondent and its associated companies taking actions amounting to breaches of fiduciary duties to petitioner – Petitioner further alleging directors taking action amounting to breaches of agreements governing relationship between shareholders – Companies Act 2006, s 994.

Summary JHC Ltd (JHC) operated an abbatoir in Langport, Somerset. The shareholders of JHC were the Cobden family. The first respondent, RWM Langport, was a company within the RWM group of companies (RWM), owned and controlled by the Heffer family. RWM had at all material times been a meat processor and wholesaler, with significant supermarket customers. The processing aspect of its business involved the boning of cattle and sheep which had been slaughtered by third-party abattoirs. As a result of trading difficulties experienced by JHC in 1993, JHC and RMW Langport agreed that RWM would move its boning business to RWM's Langport site where a new boning hall would be built, at JHC's expense and owned by JHC, supplied with animals slaughtered by JHC. RWM and later RWM Langport occupied the boning hall under the terms of a lease. On 14 August 1996, the second respondent, SCFF, was incorporated as a joint venture vehicle for the interests of the Cobden and Heffer families. On 21 August 1996, following a scheme of reconstruction, SCFF took over JHC's business. The petitioner, CIL, owned 50% of the issued shares of SCFF and was the vehicle through which the interests of the Cobden family were held. The other 50% was held by RWM Langport. The third respondent, RWM Ltd, was another company within the RWM group which had originally held that other 50%. There had also been trading between SCFF and RWM Dorset Ltd (RWM Dorset), another subsidiary of the RWM Group. RWM Dorset was a processor of and wholesaler dealer in lamb; it was supplied with live lambs by SCFF. The governing documents which formed the basis of the relationship between the parties were the articles of association, a 1993 share sale agreement, and a 1996 shareholders' agreement. In 1993, a trading agreement had also been negotiated at arm's length, which regulated the trading relations between the petitioner and the second respondent. In November 2000, the trading agreement was superseded by a memorandum of understanding (MoU). CIL subsequently presented a petition pursuant to s 994 of the Companies Act 2006, alleging that actions had been taken by the RWM directors in the conduct of the affairs of the company which, either they had no power to take on behalf of SCFF, or which amounted to breaches of their fiduciary duties to SCF, and breaches of the agreements governing the relationship between the shareholders. CIL sought an order that RWM Langport should sell its shares to CIL. It was common ground that breaches of duty or breaches of some express agreement were capable of both being unfair and prejudicial.In support of the petition, CIL alleged that: (i) the directors of SCFF appointed by RWM or RWM Langport (the RWM directors), had acted in breach of the fiduciary duties owed by them to SCFF; (ii) RWM and RWM Langport had acted in breach of their obligations in the 1996 shareholders' agreement; and (iii) they had all preferred the interests of RWM and RWM Dorset in failing to ensure that the terms of the trading agreement, the MoU and the lease had each been complied with. The court ruled:For an unfair prejudice petition to be well-founded, the shareholder had to establish: (i) a breach of the terms on which he agreed that the affairs of the company should be conducted; (ii) that equitable considerations arising at the time of the commencement of the relationship or subsequently, made it unfair for those conducting the affairs of the company to rely on their strict legal rights; (iii) that the board of directors had exceeded the powers vested in them or had exercised their powers for an illegitimate or ulterior purpose; or (iv) some event putting an end to the basis on which the parties had entered into association with each other, making it unfair that one shareholder should insist on the continuance of the association. The conduct complained of had to be both unfair and prejudicial, one element without the other would not suffice (see [41], [46]). Having considered the specific complaints raised in the petition, a considerable number of CIL's complaints would be rejected, however, unfairly prejudicial conduct was established in a number of respects. All of the complaints established had to be taken into account in considering whether relief should be granted and, if so, what relief. Some of the complaints which were established were significant and serious matters; and it was also the case that the parties had fallen out to such an extent that a working relationship was in reality no longer possible. Those considerations suggested that the association between the parties should be brought to an end by ordering a share sale and purchase in one direction or the other (see [810], [811], [823]). The parties would be given a further opportunity to make further submissions as to the appropriate form of relief.Harrison (Saul D) & Sons plc, Re [1995] 1 BCLC 14 applied; Company, a (No 00709 of 1992), Re, O'Neill v Phillips [1999] 2 All ER 961 applied; Bhullar v Bhullar [2003] All ER (D) 445 (Mar) considered; Re Neath Rugby Ltd [2007] EWHC 2999 (Ch), [2008] BCC 390 applied.Neneh Munu Barrister.