Corporate disputes - unfair prejudice and limitation

Lane v Lane [2024] EWHC 2616 (CH) followed the trial of two cases, heard together, one concerning the ownership of certain disputed shares and the second of unfair prejudice claim.

The first, was a claim in the Business List (referred to throughout the judgment as the Claim) and the second an unfair prejudice action which had proceeded in the Insolvency and Companies List (referred to as the Petition). Both proceedings had concerned the affairs of a construction company, AGM Brickwork & Stonework Limited (AGM).

As with many unfair prejudice claims, the dispute focused on a breakdown of a relationship between a small number of shareholders, in this case the Lane family. The claimant and first respondent was Mark Lane (Mark), who is the son of the defendant and petitioner, Pamela Lane (Pamela), and her late husband, Alan Lane (Alan). The second respondent, Suzanne Lane (Suzanne), is Mark's wife. Mark and Suzanne are the directors of AGM (the directors) which had been incorporated in September 2003 as a vehicle for Alan and Mark to carry on their construction business. In accordance with an agreement among the parties, the 100 issued shares in AGM were held as follows: i) 40 to Alan; ii) 40 to Mark; iii) 10 to Pamela; and iv) 10 to Suzanne (AGM’s shareholders).

Following Alan’s death in November 2009, his 40 shares in AGM (the disputed shares) were recorded at Companies House as having been transferred to Mark. Mark argued that such transfer was made pursuant to an agreement between all of AGM’s shareholders at the time the initial shareholdings had been agreed in September 2003. His claim was advanced on the alternative bases of contract, proprietary estoppel and constructive trust. However, Pamela denied the existence of any such agreement and asserted that the disputed shares should have been registered at Companies House as having been transferred to her following her husband’s death and pursuant to his will.

Pamela further argued (among other things) by way of Petition that Mark, and subsequently Mark and Suzanne, had arranged the finances of AGM in a manner that deprived her of the dividends to which she was properly entitled and had thereby caused her unfair prejudice.

The court heard detailed evidence from each of the surviving members of the Lane family involved in the dispute, in addition to that of the family’s accountant, Mr Freeman, who had assisted with the incorporation of AGM. In respect of the Claim and disputed shares, the court preferred the evidence of Mark and his witnesses over that of Pamela’s.

In particular, the judge found that an oral agreement had been reached at a meeting in September 2003 to the effect that, following the death of either Alan or Mark, the deceased’s shareholding would be transferred to and be owned by the survivor of either Alan or Mark. In particular, the court noted that:

• there were no contemporaneous documents. Therefore the judge based his findings on an assessment of the witnesses in the light of the contents of their evidence and the other known facts and circumstances

• no useful conclusions could be drawn from the demeanour of the witnesses when giving evidence. Each of Mark, Suzanne and Pamela had possible reasons of self-interest for describing the September 2003 meeting as they did. As such, the judge considered the evidence of Mr Freeman, which had been broadly consistent with that of Mark and Suzanne, to be especially ‘important’

Overall, the court held that an agreement had been reached in 2003 and that it was binding since it involved mutual promises as regards the disposition of shares belonging to the first to die of Alan and Mark. The court considered that the unwillingness at the relevant time to reduce such agreement to writing reflected a shared understanding that no formality was deemed necessary.

Lane v Lane is a reminder that, no matter how cordial relations appear at the outset (or, as in this case, however ‘close’ the family), the value of a written shareholder agreement should not be underestimated.

Lane v Lane has also been added to the growing number of authorities which have referenced and/or followed the Court of Appeals decision in THG v Zedra Trust Company (Jersey). The Court of Appeal in THG ruled that remedies sought pursuant to an unfair prejudice petition would be subject to a 12-year limitation period from the date upon which the cause of action accrued – section 8 Limitation Act.