Don’t Go Down that Lane!
December 2024
3 minutes
In this article, Cole Johnston examines the implications of the High Court’s recent judgment in Lane v Lane 2024 EWHC 2616 (Ch) and discussed the importance of having well documented and commercially astute shareholder agreements.
The High Court provided judgments in two related cases involving family-owned construction company AGM Brickwork & Stonework Ltd (AGM). The first case concerned the disputed ownership of shares following a shareholder’s death, and the second was an Unfair Prejudice Petition.
This case underscores the importance of written shareholder agreements and reinforces the prevailing view that a 12-year limitation period will likely apply to most Unfair Prejudice Petitions in cases whereby the relief sought is a buyout order.
Case Background
In 2003, Alan Lane and his son, Mark Lane, founded AGM. For tax planning purposes, each held a 40% share in the company, while their wives each held a 10% stake. Mark and his wife, Suzanne, served as company directors.
Alan sadly passed away in 2009, and in his will – created in 2001- he left all the property to his wife, Pamela Lane. However, his AGM shares were transferred to his son Mark. This led to a dispute with Pamela stating that her husband’s shares should have passed to her under his will, and by transmission under the AGM’s articles of association.
Mark contended that the transfer was in accordance with an oral agreement made between all AGM shareholders at the time of incorporation. Pamela denied the existence of this agreement and brought an Unfair Prejudice Petition against the directors on the basis that they had managed the finances of AGM in a way which denied her of her entitled dividends.
Court Ruling on the Share Dispute
Following a five-day trial, the court ruled in favour of Mark Lane, finding that the oral agreement did exist. Additionally, the court determined that Mark’s claim would have succeeded on the alternative in any event, based on the principal of proprietary estoppel.
In reaching this conclusion, the court considered several factors, notably that father and son both worked in the same trade and established the business for this purpose, while their wives lacked business experience relevant to its operations. The wives’ 10% shares were primarily for tax efficiency, not to influence business decisions.
The court observed that the lack of formal documentation reflected an informal understanding among the shareholders. However, it is prudent to note that such litigation could have been avoided if the agreement had been documented from the outset.
The Unfair Prejudice Petition
It was accepted that the Petition relied largely on the above claim and that the financial benefits received by Pamela Lane (by way of a Remuneration Trust) could imply she did not suffer prejudice if, contrary to her assertions, her entitlement was limited to a 10% shareholding.
However, the court addressed the issues which were pursued, one of which involved the appropriate limitation period. Mark Lane argued for a six-year limitation period based on Section 9 of the Limitation Act 1980, as the relief sought included monetary compensation.
The court, however, rejected this, citing the Court of Appeal’s decision in THG v Zedra Trust Company (Jersey) and noting that Pamela Lane’s ultimate relief was a buyout order. Thus, the court held that a 12-year limitation period under Section 8(1) of the Limitation Act 1980 generally applies to unfair prejudice claims under Section 994 of the Companies Act 2006.
This ruling, unless overturned, suggests that a 12-year limitation period will likely apply to most Unfair Prejudice Petitions where the relief sought is a buyout order.
Planning for the Future
This case serves as a reminder of the potential complications that can arise without forward-planning and clearly documented agreements. It also illustrates a broader principle, that businesses operate within a changing environment, with relationships and circumstances evolving. Clear and robust agreements provide security and minimise the risks associated with these changes.
At MKB Law, our Commerical Litigation team specialises in shareholder disputes and in drafting agreements that help businesses navigate change and prepare for the future. Contact us to learn how we can help you safeguard your business interests.
This article is for general guidance only and should not be regarded as a substitute for professional legal advice.