UK: Scotland: unfair prejudice and excessive remuneration

Yesterday, in the Outer House of the Court of Session, Lord Menzies handed down his opinion in Fowler v Gruber [2009] CSOH 36. The case concerned a petition under Section 459 of the Companies Act (1985) - the unfair prejudice remedy - now found in Section 994 of the Companies Act (2006). The opinion is long, not least because the allegations of unfair prejudice were wide ranging and included exclusion from management, breaches of company law and the payment of excessive remuneration.

Lord Menzies held that the company's affairs had been conducted in an unfairly prejudicial manner and ordered the purchase of the petitioner's shares. In doing so he accepted the approach of the English courts in determining whether remuneration was excessive: the application of "objective commercial criteria" by reference to what other directors, with the same responsibilities and duties, are paid (see, e.g., Irvine v Irvine [2006] EWHC 406 (Ch)). This raises some interesting questions. How does the emphasis on commercial criteria fit with the definition of unfairness adopted by Lord Hoffmann in O'Neill v Phillips [1999] 1 WLR 1092? Will excessive remuneration be regarded as unfair if it is determined by the directors in good faith?