Thursday, 2 December 2010

UK: England and Wales: Section 994 does not provide an inalienable right to petition for relief

Judgment was given yesterday in Fulham Football Club (1987) Ltd. v Richards [2010] EWHC 3111 (Ch): see here. In an interesting first instance decision, with some important policy discussion, the trial judge (Mr Justice Vos) held that the judge in Exeter City Association Football Club Ltd. v Football Conference Ltd. [2004] EWHC 831 (Ch), [2004] 1 WLR 2910 had been wrong to hold that the right of a member of a company to present an unfair prejudice petition under Section 994 of the Companies Act 2006 was inalienable.

The Fulham case concerned an application to stay a Section 994 petition, under Section 9 ("stay of legal proceedings") of the Arbitration Act 1996, on the grounds that issues between the parties fell within the terms of arbitration agreements in the Football Association Premier League Limited Rules and the Football Association's Rules. In holding that the right to petition under Section 994 was not inalienable, and in granting the application to stay the Section 994 petition, Vos J. observed (paras. [76] to [79]):

... the preponderance of persuasive authority is strongly in favour of the view that a stay can (and indeed should under section 9 of the AA 1996) be granted, at least in a case like the present, where the disputes fall squarely within the terms of the arbitration agreements and a party has alleged unfair prejudice under section 994 of the [Companies Act 2006], but none of the factors mentioned in Mustill & Boyd [in the Law and Practice of Commercial Arbitration in England, 2nd edition, 1999] is present so as to limit the scope of the available arbitrations.

This result seems to me to accord with legal common sense. It is true that the [Companies Act 2006] establishes a complex statutory regime for the birth, life and death of companies, but there are very few steps that fall within that regime that only the court can take. One of them is certainly the making of a compulsory winding up order. But no such order is sought here, and, moreover, companies can, and most commonly are, put into liquidation by voluntary non-court based means in any event.

... In my judgment, to prevent the parties agreeing to arbitrate disputes that normally come to court in the form of unfair prejudice petitions would be wholly contrary to the requirements of party autonomy, enshrined in the [Arbitration Act 1996] ... Moreover, the [alternative] course ... would take the law in a direction that is precisely the reverse of that which so many judges and academics have suggested, by forcing parties into court, even though they wish to save time and costs by using arbitration as their alternative dispute resolution mechanism of choice.

I have, therefore, concluded that the statutory right conferred on shareholders to apply for section 994 relief is not an inalienable one. Members of companies and the companies themselves can agree to refer disputes that might otherwise support unfair prejudice petitions to arbitration, provided that third parties are not to be bound by the award (as they will not be in this case), and provided that the other kinds of relief mentioned by Mustill & Boyd are not sought (as again they are not in this case). It is beyond the scope of this judgment to consider what might happen if one or more such features were to be present, since they are not in this case".

Update (2 December 2010): a summary of the decision has been published by the ICLR as part of WLR Daily: see here.

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