Law Case Study - Unfair prejudice or foul play in the world of football

With the World Cup final in Qatar fast approaching, we thought it would be an ideal opportunity to review how football can get tangled up in unfair prejudice lawsuits. The recent High Court decision of Michael John Isaac v Tan & Cardiff City Football Club (Holdings) Limited [2022] EWHC 2023 (Ch) is an excellent example of this and demonstrates how the beautiful game can quickly turn Messi. This trial centred heavily around Unfair Prejudice under s. 994 of the Companies Act 2006 (the “Act”.)

Unfair prejudice court claims typically arise when majority shareholders, who in many cases are also directors, use or abuse their powers to promote their interests to the detriment of the minority. The High Court decision of Michael John Isaac v Tan & Cardiff City Football Club (Holdings) Limited [2022] EWHC 2023 (Ch) can be seen as giving minority shareholders a dramatic pause before contemplating such action against the majority.

In this case, Tan and Isaac were both shareholders at Cardiff City Football Club, the former a majority shareholder and the latter a minority. Sadly, for Isaac, Tan was also a prominent creditor of the club, forwarding loans of circa £90 million. The club’s precarious financial position even brought restrictions from UEFA's Financial Fair Play Regulations, restricting them from buying new players.

Much like any company contemplating sensible commercial issues and restructuring options when faced with challenging accounts, the club made a share offer to all its existing shareholders. The decision was made to present shareholders with the option to acquire five new shares for every two shares they held. Tan was the only shareholder to accept the offer, which effectively metamorphosed the lion's share of the debt owed to him by the club into new shares. The effect was catastrophic for Isaac, who saw his shareholding dilute, virtually out of the water. He argued this action was prejudicial to him and unfairly so.

Isaac’s dispute gravitated towards the argument that the club's actions had no proper business purpose and that Tan (who had a director appointee on the Board) was motivated by vindictiveness directed personally at him. The judges disagreed. They viewed there was a clear and justifiable commercial rationale for what the Board was being asked to do, namely to reduce the company’s indebtedness, which just happened to overlap with Tan’s agenda. Therefore, it did not amount to conduct of the company's affairs which is a requirement before s.994 is to be engaged.

Away from the glamour of football club antics, the decision is interesting as it echoes and reiterates some perhaps less glamorous fundamental principles in Company Law and practice:

• Only conduct which amounts to “conduct of the company’s affairs” will fall within the ambit of s. 994 of the Act.
• Confusion can occur if a majority shareholder is also serving as a director of the company or has a Board appointee.
• Well-crafted shareholders agreements drafted by a reputable corporate lawyer could avoid any perplexity.

For help and advice on trade arrangements, drafting, negotiating, and signing off contracts, contact our specialist Company Commercial team on 023 8063 9311. We have offices across Hampshire, including Southampton, Fareham, Portsmouth, Chandler's Ford, and Waterlooville.