Arbitration has become a major form of dispute resolution in England and Wales since the introduction of the Arbitration Act in 1996. The 2011 High Court decision in Fulham Football Club (1987) Ltd v Richards and Another has reinforced the enthusiasm of the English courts for the arbitration process. The extent of that enthusiasm is something shareholders and other contracting parties should ensure they are fully aware of when they enter into agreements containing arbitration clauses.
Case Facts
Fulham Football Club issued an unfair prejudice petition against the Chairman of the Football Association Premier League, Sir David Richards, and the Association itself in respect of a transfer of player Peter Crouch from Portsmouth City FC to Tottenham Hotspur FC. Fulham alleged that Richards and the Association had acted against its interests by interfering in negotiations relating to its own bid for the player. As a shareholder in the Association, Fulham pursued its allegations by issuing an unfair prejudice petition under s994 of the Companies Act 2006 for breach by the Association of its own rules and its Articles of Association.
Richards and the Association applied for a stay of the petition under s9 Arbitration Act 2006 on the basis that the dispute fell within the terms of arbitration agreement in the Association's rules.
Decision
The key question for the court was whether the right to present an unfair prejudice petition was an inalienable right or whether it could be removed or extinguished by contract. Two precedents were considered: Vocom Europe Ltd (1998) where it was decided that an unfair prejudice petition could be removed or diminished by contract and Exeter City AFC Ltd v Football Conference Ltd (2004) which considered an unfair prejudice petition an inalienable right.
Richards and the Association argued that the Exeter City case had been wrongly decided because it ignored much of the persuasive authority of the earlier decision. The High Court followed the Vocom case and the Court of Appeal dismissed Fulham's appeal on the basis that the dispute fell squarely within the terms of the arbitration agreement and that the subject matter was clearly arbitrable.
Conclusion
Unfair prejudice remains an important protection for minority shareholders.
Parties must be aware that courts favour alternative forms of dispute resolution and are likely stay proceedings if they believe a dispute falls within a procedure that the parties have agreed to, such as arbitration.
Before entering into a shareholders' agreement or signing up to a body of rules that contain alternative dispute resolution procedures, parties should ensure that they are comfortable with the types of disputes covered and the procedures themselves.
Rollingsons has lawyers experienced in handling shareholder disputes ; if you need advice or would like more information please contact James Crighton via e-mail jcrighton@rollingsons.co.uk or by phone on 0207 611 4848.
