Sinclair v Domaille: a case of directors, shareholders and unfair prejudice under Guernsey Law

A good working relationship between directors and shareholders is crucial to ensure the success of a company. But when disagreements arise - particularly concerning prejudice - the consequences can ricochet, affecting day-to-day operations and governance. 

Under the Companies (Guernsey) Law, 2008, sections 349 and 350 offer a useful remedy to shareholders in the instance where they encounter "unfair prejudice" resulting from an actual or proposed act or omission of the company.  

The case of Sinclair v Domaille & Others 

In the matter of Sinclair v Domaille & Others [GRC081] (Sinclair), the Royal Court of Guernsey (the Court) considered allegations of unfair prejudice concerning the dilution of shares in the company Artemis Holdings Limited (AHL). 

The plaintiff, Mr Robert Sinclair, brought a claim against AHL and other defendants, seeking an order that the dilution of shares "unfairly" reduced his shareholding. He also accused AHL’s directors of breaching their fiduciary duties.  

In determining whether to grant the section 350 relief, the Court needed to consider: 

1. The director’s behaviours  

The Court considered whether AHL’s directors acted within the company’s corporate governance guidelines. It also considered whether they breached their fiduciary and common law duties which include the duty to act in good faith, for proper purposes, and with reasonable skill, diligence and care.

2. The existence of a quasi-partnership

The Court investigated whether, if such a quasi-partnership existed, AHL's operations imposed additional equitable considerations on the conduct of the company’s affairs.  

3. If the resulting share valuation was equitable

The Court scrutinised the methodology and fairness of the valuation used to determine the share dilution, noting the absence of a formal valuation and the reliance on AHL's financial statements.

The judgment in Sinclair v Domaille & Others

The Court handed down its judgment in November 2024 in favour of the defendants. The Court concluded that the directors operated within the confines of AHL's memorandum and articles of association, and that there was no unfair prejudice towards Mr Sinclair. 

The Court also found the share issuance to be a reasonable, fair and a necessary step to address operational difficulties, which were notably caused by Mr Sinclair’s own lack of cooperation.  

Moreover, as Mr Sinclair ceased to be a director after 2019, the Court ruled out the existence of any quasi-partnership.  

Finally, when considering the equitable nature of the share valuation, the Court placed weight on the fact that the directors consulted legal counsel and took legitimate steps to mitigate unfairly transferring value to Mr Domaille (the first defendant). The Court also commented on the circumstances surrounding Mr Sinclair’s lack of cooperation in the context of AHL's need to resolve pressing operational issues.   

What are the takeaways from Sinclair v Domaille & Others? 

The Court’s written affirmation of the directors’ fiduciary duties suggests that actions taken in good faith and for legitimate business purposes are defensible, even where there is no formal valuation accompanying a decision/transaction.  

Sinclair gives clarity that quasi-partnership principles are inapplicable when a shareholder is not actively managing the company, and the decision shows the necessity of clear communication and cooperation between directors and shareholders. 

The judgment also reiterates the importance of sticking to corporate governance structures and the reliance on legal advice when making pivotal company decisions. The Sinclair decision will likely influence future cases involving shareholder disputes and the interpretation of directors’ duties in Guernsey and demonstrates the Court's willingness to uphold director decisions made in accordance with established company documents and good governance practices.  

How Ogier can help 

Ogier’s Dispute Resolution team in Guernsey regularly advises clients in relation to shareholder and valuation disputes. You can contact a member of the team on +44 1481 721672 or email gsy@ogier.com. 

About Ogier

Ogier is a professional services firm with the knowledge and expertise to handle the most demanding and complex transactions and provide expert, efficient and cost-effective services to all our clients. We regularly win awards for the quality of our client service, our work and our people.

Disclaimer

This client briefing has been prepared for clients and professional associates of Ogier. The information and expressions of opinion which it contains are not intended to be a comprehensive study or to provide legal advice and should not be treated as a substitute for specific advice concerning individual situations.

Regulatory information can be found under Legal Notice