Lessons from Failed Unfair Prejudice Claims

Section 994 of the Companies Act 2006 lets a shareholder ask the court for relief where the company's affairs have been conducted in a way that is unfairly prejudicial to the interests of members, or of some of them. Many petitions fail or achieve less than the petitioner hoped, and the reasons are a useful guide to whether a claim is worth bringing.

1. The prejudice must be to your interests as a member

Section 994 protects members' interests. A complaint that really concerns your position as an employee, lender or supplier may not be enough on its own. The courts read "interests as a member" broadly, though. In Strahan v Wilcock [2006] EWCA Civ 13 the Court of Appeal accepted that a shareholder who was excluded from management had been prejudiced as a member, even though the prejudice arose partly from his role as a director, because the company had become a quasi-partnership. The lesson is to show how the conduct affects your shares and your rights as a shareholder, not just your job or contract.

2. The conduct must be unfair, not just unwelcome

Both prejudice and unfairness are needed. Disagreeing with the board's commercial decisions, or losing a vote, is not enough. In Re Saul D Harrison & Sons plc [1995] 1 BCLC 14 a shareholder complained that the directors kept a loss-making family company trading, largely to pay their own salaries, when it should have been wound up. The petition failed. The Court of Appeal held that the directors had acted within their powers and duties under the articles and the Companies Act, and the petitioner had no wider expectation that equity would protect.

The same point appears in McKillen v Misland (Cyprus) Investments Ltd [2013] EWCA Civ 781, part of the Re Coroin litigation. A 36% shareholder alleged that other shareholders had got round pre-emption and transfer restrictions. The Court of Appeal found no breach of the articles or the shareholders' agreement, and so no unfair prejudice, and dismissed his appeal. Unfairness will usually mean a breach of the articles, a shareholders' agreement or directors' duties, or conduct that equity treats as unfair.

3. Quasi-partnership arguments have limits

In smaller companies the court may recognise "equitable considerations", such as an understanding that each founder would take part in management. But these must be based on a real agreement or shared understanding, not hopes. In O'Neill v Phillips [1999] 1 WLR 1092 the House of Lords rejected a petition by an employee-shareholder who expected to receive half the shares and half the profits. There had been negotiations, but no agreement had been reached, so there was nothing unfair in the majority shareholder declining to go further. Lord Hoffmann warned that the idea of "legitimate expectations" should not be allowed to lead a life of its own. Informal understandings can found a claim, but you must be able to show that one actually existed.

4. Refusing a reasonable offer for your shares

O'Neill v Phillips also established that if the majority makes a reasonable offer to buy the petitioner's shares at a fair value, continuing with a petition may be treated as an abuse of process. Courts and commentators generally treat a fair offer as one at a pro rata value without a minority discount (where appropriate), with value fixed by an independent expert if not agreed. A petitioner who turns down such an offer risks having the petition struck out and paying costs. Equally, a majority that wants to end a dispute should consider making an open offer of this kind early.

5. An arbitration clause may take the dispute out of court

In Fulham Football Club (1987) Ltd v Richards [2011] EWCA Civ 855 the Court of Appeal held that an unfair prejudice dispute can be arbitrated, and that court proceedings covered by a valid arbitration agreement must be stayed under section 9 of the Arbitration Act 1996. Arbitrators cannot make orders such as winding up the company or bind people who are not parties, but they can decide whether there has been unfair prejudice. Check the articles and any shareholders' agreement for an arbitration clause before issuing a petition.

6. Delay: no time limit, but it still matters

In THG plc v Zedra Trust Company (Jersey) Ltd [2026] UKSC 6 (25 February 2026) the Supreme Court held, by a majority, that a section 994 petition is not subject to the limitation periods in sections 8 or 9 of the Limitation Act 1980, even where it asks for a money payment. This reversed the Court of Appeal, which had applied a six-year period. Lord Burrows dissented.

That does not mean old grievances are safe to raise. The majority said the court can still take account of unjustified delay that harms the respondents or others when deciding whether to grant a remedy and which one. Acquiescence in the conduct can also count against you. Waiting years before acting remains a common reason for weaker or reduced relief.

7. The remedy may not be what you wanted

Under section 996 the court can make any order it thinks fit. In small private companies the usual order is that the majority buys the petitioner's shares at a fair value. In Grace v Biagioli [2005] EWCA Civ 1222 the trial judge only ordered payment of a withheld dividend; the Court of Appeal held that this did not protect the petitioner for the future and that a buy-out was the appropriate remedy. In Saxon Woods Investments Ltd v Costa [2025] EWCA Civ 708 the Court of Appeal confirmed that prejudice need not be financial and made an unconditional buy-out order. But the court decides the remedy, the valuation date and any discount, and the result can differ from what the petitioner asked for.

8. Costs can outweigh the value of the shares

Petitions often involve lengthy factual disputes and expert valuation evidence. The general rule is that the losing party pays the winner's costs, and costs can exceed the value of a small minority stake. A petitioner who fails, or who refuses a reasonable offer, may face a large costs order.

Practical lessons

• Identify the specific breach: of the articles, a shareholders' agreement, directors' duties, or a provable understanding between the parties.
• Keep records of any informal agreements about management, profit-sharing or share ownership as they are made.
• Show how the conduct affects your interests as a shareholder.
• Check the constitutional documents for arbitration and share-transfer provisions.
• Act promptly. There is no statutory deadline, but delay can reduce or defeat relief.
• Take any buy-out offer seriously and get an independent view on whether it is fair.

Key points

• Petitions fail where there is prejudice but no unfairness, such as conduct within the articles.
• Equitable considerations need a real agreement or understanding, not just expectations (O'Neill v Phillips).
• Refusing a reasonable buy-out offer can lead to a petition being struck out.
• Arbitration clauses can apply to unfair prejudice disputes (Fulham v Richards).
• No limitation period applies to s994 petitions (THG v Zedra, 2026), but delay can still affect the remedy.
• Remedies are discretionary and costs risks are high.