Shareholders' unfair prejudice disputes may be arbitrated

In Fulham Football Club v Sir David Richards and the FA Premier League the High Court determined that the ability to bring an unfair prejudice petition before the English courts under the Companies Act 2006 ("CA 2006") was not an inalienable right and that parties could agree to refer disputes to arbitration that might otherwise be brought under such protection.

In 2009, Fulham Football Club was competing with Tottenham Hotspur Football Club to secure the transfer of Peter Crouch from Portsmouth Football Club. Fulham allege that Sir David Richards, the Chairman of the FA Premier League (the "FAPL"), interfered in the transfer negotiations and took action to facilitate the player's move to Tottenham in preference to a bid put forward by Fulham, thereby breaching the FAPL's Articles of Association and Rules.
Fulham sought to bring the matter before the courts by way of an unfair prejudice petition under section 994 of the CA 2006. In the petition, Fulham argued that Sir David Richards and the FAPL (as a result of its failure to take adequate action to prevent Sir David Richards' conduct) had acted unfairly as between its members by promoting the interests of one club over another. Fulham sought an injunction to restrain Sir David Richards from participating in future transfer negotiations and an order that Sir David Richards cease to be the Chairman or a director of the FAPL.

Sir David Richards and the FAPL applied for a stay of the unfair prejudice petition under section 9 of the Arbitration Act 1996 on the grounds that the issues raised in the petition fell within the scope of the arbitration agreements contained in Rules of the Football Association and the FAPL Rules respectively.

Decision

The judge identified the key question to be answered as "whether the statutory right of a member of a company to present an unfair prejudice petition under section 994 of the Companies Act 2006 can be removed or diminished by contract, or whether it is an inalienable right".

The judge was required to weigh up two directly conflicting first instance decisions. In Re Vocam Europe Limited [1998] BCC 396 the court had granted a stay of an unfair prejudice petition on the basis that the claims raised in the petition related to matters of dispute which were covered by an arbitration clause contained in a shareholders' agreement entered into between the parties.

By contrast, in Exeter City v Football Conference [2004] 1 WLR 2910 the court ignored the earlier decision in Vocam and concluded that the right to bring an unfair prejudice petition before the courts could not be altered or removed by contract. The judge in Exeter reasoned that there was no difference in principle between a winding up petition, which is recognised as being the sole preserve of the courts, and an unfair prejudice petition.

Having weighed up the conflicting first instance decisions, the judge in Fulham determined that, despite being the more recent of the two judgments, exceptional circumstances merited the conclusion that Exeter was wrongly decided and Vocam should be followed.

The judge concluded that a stay can and should be granted in favour of arbitration in situations where (i) a party has alleged unfair prejudice under section 994 of the CA 2006; and (ii) the disputes fall squarely within the terms of the arbitration agreement, provided that the relief sought is not of the type that would bind a third party or that an arbitrator could not grant due to considerations of public policy.

In the present case, the judge found that the remedy sought by Fulham was of the type that an arbitrator could grant and, although any relief granted would undoubtedly affect the other members of the FAPL, it did not seek to bind any third party. In particular, the remedies in the petition were sought only against Sir David Richards and the FAPL and did not require the other member clubs to do or refrain from doing anything. It was also accepted by the judge that the disputes raised in the petition fell within the scope of the arbitration agreements. On the basis of these factors the stay of the court action in favour of the arbitration agreement was granted.

Comment

The Fulham decision provides welcome clarification of the two conflicting decisions in this area and confirms the position that disputes which would otherwise be raised through an unfair prejudice petition before the courts can be referred to arbitration. The decision also reflects the established pro-arbitration stance of the English courts by recognising that parties should be free to agree as to how their disputes are resolved.

However, the decision leaves open a number of grey areas and parties seeking to rely on arbitration agreements contained in shareholders' agreements should not assume that the court will grant a stay of an unfair prejudice petition in all situations. The decision did not provide any guidance on the court's approach should one of the provisos the court referred to be present, for instance if relief is sought against a third party or if an order to wind the company up is requested in the unfair prejudice petition. Indeed, the judge stated that it was "beyond the scope of this judgment to consider what might happen if one or more such features were present".

We understand that the decision has been appealed to the Court of Appeal so further guidance on this area may be forthcoming.

Fulham Football Club (1987) Limited v (1) Sir David Richards (2) The Football Association Premier League Limited [2010] EWHC 3111 (Ch)