Section 994 of the Companies Act 2006 (Companies Act) confers a right on members of a company to petition the court on the ground that the company's affairs are being, or may be conducted, in a manner that is unfairly prejudicial to the interests of all or some of its members. Section 996 of the Companies Act provides for the relief that the court may grant if satisfied that the petition is well founded.

Under section 9(1) of the Arbitration Act 1996 (Arbitration Act), a party to legal proceedings may apply to the court for a stay of the proceedings on the ground that they relate to a matter which is subject to an arbitration agreement. The court is required to grant the stay unless satisfied that the arbitration agreement is null and void, inoperative or incapable of being performed. For further discussion on applications to stay English proceedings in favour of arbitration, see Practice note, Remedies for breach of the arbitration agreement: stays of English court proceedings.

In Re Vocam Europe Ltd [1998] BCC 396 (Vocam), majority shareholders applied to stay an unfair prejudice petition under section 9 of the Arbitration Act on the ground that the members of the company had agreed in a shareholders' agreement to refer all disputes to arbitration. Rimer J (as he then was) granted the stay sought on the basis that the claims in the petition related to matters of dispute arising under the shareholders' agreement.

In Exeter City Association Football Club Ltd v Football Conference Ltd [2004] 1 WLR 2910 (Exeter City), Exeter City petitioned on the ground of unfair prejudice as a member of Football Conference Ltd, which ran the National Conference football league. Football Conference applied for a stay of proceedings on the basis of the arbitration clause in the Rules of the Football Association (FA). HHJ Weekes, sitting as a High Court judge, refused the stay, holding that statutory rights conferred on shareholders to apply for relief at any stage were inalienable and could not be diminished or removed by contract or otherwise. In doing so, the judge referred to A Best Floor Sanding Pty Ltd v Skyer Australia Pty Ltd [1999] VSC 170 and In re Magi Capital Partners LLP [2003] EWHC 2790 (Ch), both of which concerned the right to apply to wind up a company.

The dispute arose out of the transfer of a football player, Peter Crouch, from Portsmouth City Football Club Ltd (Portsmouth) to Tottenham Hotspur & Athletic Company Ltd (Tottenham). The applicant, Fulham, alleged that the first respondent, Sir David Richards, chairman of Football Association Premier League Ltd (FAPL), interfered in the negotiations for that transfer to procure Crouch's move to Tottenham instead of to Fulham. It filed an unfair prejudice petition under section 994 of the Companies Act, seeking an injunction to restrain Sir David from, among other things, participating in future player transfer negotiations, and an order that Sir David cease to be chairman or a director of the FAPL.

The FAPL Rules, to which Fulham is subject as one of the 20 member clubs of the FAPL for the time being, and the FA Rules, to which Fulham was also subject, contain arbitration agreements. The respondents sought a stay of the unfair prejudice petition under section 9 of the Arbitration Act, on the ground that the matters in issue fell within the terms of the arbitration agreements.

It was common ground that the matters raised in the petition fell within the scope of the arbitration agreements in the FAPL Rules and the FA's Rules. However, Fulham argued that it could not have been agreed to refer a dispute about unfairly prejudicial conduct to arbitration, as arbitrators could not grant the relief sought.

The principal issue before the court was whether the statutory right of a member of a company to present an unfair prejudice petition under section 994 of the Companies Act can be removed or diminished by contract, or whether it is an inalienable right.

Vos J granted the stay of the unfair prejudice petition under section 9 of the Arbitration Act.

As a preliminary matter, the judge had to resolve the conflict between the decisions in Vocam and Exeter City. Applying the test in Colchester Estates (Cardiff) v Carlton Industries plc [1986] Ch 80, the normal rule would be that the later decision (here, Exeter City) should be regarded as settled law unless the third judge was convinced that the second judge was wrong in not following the first. This might arise where, for example, one of the earlier decisions had not considered a binding or persuasive authority.

On the substantive point, the starting point was that all of the allegations in Fulham's petition fell within the scope of the arbitration agreements, which provided for "any dispute or difference" and "all disputes" respectively to be referred to arbitration.

Further, the arbitrators could make the same kinds of orders as contemplated by section 996 of the Companies Act, because they had power to order a party to refrain from doing anything, under section 48(5)(a) of the Arbitration Act. Even if their powers were not as extensive as a court's powers, by virtue of the arbitration agreements in the FAPL and FA Rules, the parties had chosen arbitration over litigation and were to be taken as having understood that there would be advantages and disadvantages in doing so.

After considering the authorities, Vos J concluded that the decision in Exeter City was wrong and should not be followed. There was no basis, as a matter of law, for a finding that statutory rights conferred on shareholders to apply for relief at any stage are inalienable and cannot be diminished or removed by contract or otherwise. It was true, as stated in Mustill & Boyd, Law and Practice of Commercial Arbitration in England (2nd edition, 1999), that the types of remedies that arbitrators can award may be limited by public policy considerations (for example, they cannot make awards that are binding on third parties or affect the public at large). However, Fulham was not seeking such remedies. Although third parties, in the form of other member clubs, would obviously be affected by the arbitrators' decision, they would not be bound by it, as such. Similarly, their decision would not have any effect on the interests of the public at large.

The "preponderance of persuasive authority" was in favour of the view that a stay can and should be granted in favour of arbitration in a case where, as here:

The decision confirms that where there are conflicting authorities, the later decision should be regarded as settled law, unless there are exceptional circumstances leading the judge to consider that it was wrongly decided. Here, the judge considered that the decision in Exeter City was wrong and was bolstered in that view by persuasive authorities which had not been cited in either Exeter City or Vocam.

The decision confirms that unfair prejudice petitions may be referred to arbitration, and are not the preserve of the courts, provided that third parties are not to be bound by the award, that the interests of the public at large are not affected, and that none of the other factors mentioned by Mustill & Boyd is present. The fact that section 994 of the Companies Act refers to petitions to the court does not mean that arbitrators cannot grant the remedies sought. In this case, the relief sought by Fulham was such as the arbitrators had the power to grant.

The issue may be the subject of Court of Appeal authority, as we understand that Fulham has obtained permission to appeal the decision.