Re London School of Electronics [1986] Ch 211

Key Point

  • When ordering a buy out of shares in a petition for unfair prejudice, the starting point is that the valuation should be conducted as at the date when the shares are going to be purchased i.e. at the end of the hearing when the order is made by the judge.
  • However, exceptions apply if necessitated by fairness, such as if the shares increase in value largely due to the efforts of the other shareholders.

Facts

  • The petitioner was a 25% shareholder at London School of Electronics Ltd
  • City Tutorial College Ltd, the 75% shareholder in London School of Electronics Ltd, had through its directors, diverted the London School of Electronics Ltd’s B.Sc. students to itself for the 1983-4 academic year.
  • The petitioner brought a petition for unfair prejudice.

Held (High Court)

  • There was unfair prejudice and a buyout of the petitioner’s shares was ordered.
  • Valuation of the shares should be at the date of the petition.

Nourse LJ

  • “If there were to be such a thing as a general rule, I myself would think that the date of the order or the actual valuation would be more appropriate than the date of the presentation of the petition or the unfair prejudice. Prima facie an interest in a going concern ought to be valued at the date on which it is ordered to be purchased.” p. 224
  • “But whatever the general rule might be it seems very probable that the overriding requirement that the valuation should be fair on the facts of the particular case would, by exceptions, reduce it to no rule at all.”

Current case

  • The directors appointed by City Tutorial College Ltd ” … have now been able to acquire a greater academic standing for the course in this country. I find that has been entirely due to their own efforts and owes nothing to the petitioner and, moreover, that it is unlikely that it would have been achieved if the petitioner had remained with the company.”

Commentary