Shareholder disputes can be disruptive, costly and damaging to a company’s long-term success. These conflicts often arise when the interests of shareholders begin to diverge. While every business is unique, many shareholders disputes stem from a common set of issues. Understanding the triggers can help business owners to take proactive steps to minimise risk.
Here are the top 10 causes of shareholder disputes:

1. Breach of Shareholder Agreements
Shareholder agreements often outline the rights, obligations and expectations of each shareholder. When one party breaches the terms, whether by selling shares without consent, failing to fulfill duties or violating voting arrangements, usually leading to significant tension and legal challenges.

2. Unequal distribution of profits or dividends
Disagreements often arise when shareholders feel that profits are not being distributed fairly, especially when majority of shareholders control dividend policies. Minority shareholders may claim oppression if they believe profits are being withheld for personal gain or to devalue their shares. Also, some disagreements may arise in relation to the allocation of profits, dividends or the retention of earnings, this causes issues mainly for the shareholders that have financial needs which arise a lot in family businesses.

3. Mismanagement or allegations of misconduct
If shareholders believe that company directors or managers are mismanaging the business, whether it is through poor financial decisions, nepotism or unethical behaviour, then conflict is likely to follow. This becomes particularly contentious if management fails to provide transparency or timely updates.

4. Lack of communication and transparency
Open communication is vital for shareholder trust. A lack of transparency around financials, strategy or decision making can create suspicion and lead to disputes. Often, the absence of clear reporting structures is the root cause of these problems.

5. Disagreements on business vision, direction or strategy
Shareholders may have different visions for the future of the company. Some may priorotise rapid growth and expansion, while others may advocate for conservative and more stable development.

6. Exit strategy conflicts
Many shareholder disputes emerge when one party exits the business and there is no clear mechanism in place to facilitate a fair buyout. Disagreements over valuation, timing or who can purchase the departing shareholder’s stake can easily lead to litigation.

7. Minority shareholder oppression
In closely held companies, minority shareholders may feel excluded from key decisions or denied access to important information. This can result in claims of unfair treatment, especially if minority shareholders act in their own interests without regard to others.

8. Deadlock between equal shareholders
When ownership is split equally, deadlocks can arise during key decisions, especially when there is no mechanism for resolution via votes. Without a resolution process, these deadlocks can strain personal relationships.

9. Changes in shareholder circumstances
Life events such as bankruptcy, divorce or death can suddenly shift the balance of shareholder power. If these transitions are not accounted for in the shareholder agreement or succession planning, then they could lead to disputes among remaining shareholders.

10. Dilution of ownership
Disputes often occur when new shares are issues, diluting the ownership of existing shareholders. If these decisions are made without full consent or transparency, then they may be perceived as self-serving or as an attempt to weaken minority influence.

Resolving Shareholder Disputes

There are many ways that shareholder disputes can be resolved. In the first instance, the shareholders will most likely engage in conducting a meeting to see whether all parties can come to an agreement, however in other cases third-party assistance may be required to resolve the dispute. Please see below ways that a third party can assist in resolving shareholder disputes:
1. Alternative Dispute resolution including mediation – this method involves a neutral third party helping to come to a mutual agreement.

2. Arbitration – this is a more formal process where a third party makes a binding decision.

3. Litigation – this is where the Court intervention may be required when all other methods have failed to resolve the dispute. This is known to be the last resort due to its costs and time involved.

Shareholder disputes can be complex and emotionally challenging, often involving personal relationships as much as legal and financial matters.

For further advice and assistance please contact our Litigation and Dispute Resolution team on  01604 344562 / 01908 916096 or email info@franklins-sols.co.uk.

Alternative Dispute Resolution (ADR) is a fundamental aspect of the Civil Procedure Rules (CPR) which are the rules that govern the process of Civil Litigation. ADR is a way of settling a dispute other than having a judge decide the claim at trial after a lengthy dispute. ADR includes various methods of settling a dispute such as mediation, arbitration, part 36 offers, early neutral evaluation, without prejudice offers and an ombudsman.

CPR 1.1. contains the overriding objective which states that cases must be dealt with fairly and at a proportionate cost which would include the case being dealt with at a proportionate cost to the sum in dispute. If ADR is attempted early on in proceedings and is successful, it can save the parties the time and cost of a lengthy litigation dispute. Even at the end of a lengthy dispute that does result in a trial, the outcome of the trial cannot be promised. A claim going through the trial process has many stages that must be completed including but not limited to disclosure, exchanging witness statements, cost budgeting, expert instruction and trial preparation. All of this legal work will require payments on account throughout the process so even if a party is successful at trial and gains a cost award against the other party, expense will be incurred in the interim leading up to trial.

There is then also of course the chance that a party may not be successful at trial due to various reasons. The normal rule is that the successful party will be able to retrieve their costs from the unsuccessful party, although it is not possible to recover every penny a party has spent on litigation leading up to trial. However, a Judge can fray from this rule if they deem that the successful party has not been cooperative throughout the process and has unreasonably refused an offer of ADR. This means that if a party is successful in their claim but it is found that they unreasonably refused an invitation to enter into ADR, this may result in an adverse costs order. Mediation is a form of ADR in which parties are entered into a confidential meeting outside of the court process with a mediator who will communicate the offers of settlement between the parties.

Mediation has a high success rate of settling disputes so that the need for trial can be vacated. The case of Halsey -v- Milton Keynes General NHS Trust (2004) highlighted that there can be costs consequences for unreasonably refusing mediation where a Judge finds that mediation could have reasonably settled the dispute.

The Courts do not look favourably on parties who “want their day in Court” and strongly encourages parties to consider a reasonable alternative. The penalties for parties who don’t engage in ADR can include that the unreasonable party may be ordered to pay the other party’s costs on an indemnity basis. This could mean that the refusing party would have to pay the other party’s costs even if they are not proportionate to the amount in dispute. The Court often order a “stay” of proceedings which essentially pauses proceedings whilst the parties attempt ADR and often include on their orders that the refusing party may have to lodge a witness statement explaining their refusal to the Court.

It is well known within the profession that the Courts are extremely busy which causes significant delay in proceedings and countless adjourned trials, meaning that the relief that comes with a settled dispute is too often delayed for parties. The amendment No.3 to the Civil Procedure Rules comes into effect on 1st October 2024 which will include a stronger focus on Alternative Dispute Resolution which will take some pressure of the Courts.

For further advice and assistance please contact our Litigation and Dispute Resolution team on  01604 344562 / 01908 916096 or email info@franklins-sols.co.uk.

The decision in Hayley –v- Hayley 2020 EWCA CIV 1369 was handed down by the Court and many have found the decision reached somewhat surprising. The Court of Appeal overturned a Financial Remedy Arbitration Award after the ex-husband protested that it was unfair. 

Some may wonder what is “Arbitration” and “How Does it Work” to begin with. Arbitration is a process in which parties resolve disputes outside of the Court Arena with an appointed Arbitrator. The Arbitrator is a suitably qualified person who will hear a dispute and make an award (decision). It is used to resolve financial disputes between separating couples and disputes concerning children. If the parties agree to arbitrate by doing so they agree that the Arbitrator’s decision will be binding upon both of them. Once the decision has been made the parties send to the Court an Order reflecting the outcome of that decision to have it made into a final and binding Court Order. As a result they agree that there is a very limited basis for appeal and they cannot then apply to the Family Court for a redetermination. 

Parties are represented at Arbitration either by a lawyer or someone they choose such as a Mckenzie Friend. Quite often people will consider Arbitration where their final Hearing has been adjourned last minute by the Court due to lack of availability or more urgent Hearings have to take place. Usually Arbitration is used by the parties wishing to attempt to settle matters swiftly.

In the case of Hayley –v– Hayley, the husband was not happy with the outcome arrived at by the Arbitrator, in particular the Arbitrator’s assessment of his ability to rehouse himself, the distribution of the pensions involved and Periodical Payments he was ordered to make to his wife.  He applied to the Court for an Order to set aside the award. 

The usual approach to challenging an Arbitral Award requires the person appealing to show that the decision on the question of law was obviously wrong on the facts. Yet in this case, the Court of Appeal have now come to a different conclusion. It seems now that the proper test in respect of appealing an Arbitral Award is “whether there is a real prospect of an appeal rather than the test being “no reasonable Arbitrator could have made such an Order”. Some have commented that this introduces a level of uncertainty when it comes to Arbitration which was not there previously. The question is “is this a backward step”? Most often family lawyers would explain Arbitration is to provide finality and usually most advising that contesting an Arbitration Award is unlikely to succeed. This decision suggests that it may be more feasible than thought in the past. 

Whilst some feel that this creates uncertainty, other practitioners are of the view that it is sensible to be able to Appeal a final decision when considering all of the circumstances.

For advice and assistance in relation to Family Law, contact Kelly Longmore and the team on 01908 660966 / 01604 828282 or email Family@franklins-sols.co.uk.

You may not have a choice.

What is Arbitration?

Arbitration is a strand of Alternative Dispute Resolution which has a contractual and judicial element attached to it.

The decision to refer a dispute to Arbitration will ordinarily stem from an agreement between the disputing parties, otherwise known as the “Arbitration Agreement”, where it states that in the event of a dispute, the matter is referred to Arbitration.

Arbitration itself means that when a dispute is initiated through this process, it will be referred to a Tribunal who will have the requisite power to hand down a decision that binds the parties.

What will the Arbitration Agreement state?

Subject to the agreement itself, the Arbitration Agreement will set out details of the process out further and in particular:

Why should I Arbitrate when I can go straight to Court?

The Court process is lengthy, costly and uncertain whereas the Arbitration process is far more attractive.

Once Arbitration proceedings have been initiated, the process from initiation to a hearing is rather swift.

This will have a significant impact for both parties in that there is certainly with time and legal costs. This is because once the matter proceeds to a final hearing and an award produced, such an award is binding on the parties unless challenged.

At Franklins, we understand that you want a quick resolution that is also cost effective. We will work with you to provide specialist advice and ensure a full case plan is prepared to outline your options and next steps. For advice, contact the Dispute Resolution team on 01604 828282 / 01908 660966 or email Litigation@franklins-sols.co.uk.

Yes, it seems so.

Recently the International Chamber of Commerce (“ICC”) released its statistics on Arbitration cases for the past 12 months. The results showed that in 2018, 842 new cases were registered with the ICC, involving 2282 parties from 135 countries and territories. The increase in the number of parties seeking Arbitration reflects the general trend reported by many of the other Arbitration institutions.

Arbitration image with chess pieces

The statistics also showed increasing diversity in parties and arbitrators. Just under 41% of all parties to disputes filed with the ICC are based in Europe. Gender diversity of the arbitrators is now being published by some of the Institutions with the ICC confirming that 18.4% of confirmed appointments in 2018 were women.

Many disputes revert to Arbitration due to a contractual obligation to do so. Without such an agreed contract clause, the three popular means of resolving a commercial dispute remain litigation through the Courts, arbitration and mediation.

Time is considered a negative factor of litigation through the Court with the process often being criticised for taking years to complete. The average duration of ICC cases from start through to final award in 2018 was reported to be two years and four months. An award is the Arbitration Tribunal’s equivalent of the Court’s judgment. It is difficult to draw direct comparisons as with every arbitration there are occasions when the parties agreed to suspend and stay the process due to the flexibility that this type of forum offers. To expedite awards however, the ICC is seeking to limit any delays by offering expedited procedures to incentivise Arbitrators to draft their reward decision quickly post hearing. These measures allow the ICC to reduce Arbitrator’s fees when awards are not submitted within two months by a single Arbitrator or within three months by a three-member Arbitration Panel.

It is perhaps encouraging for some to note that the ICC has classified “younger” Arbitrators as those under the age of fifty and that younger Arbitrators made up 35% of the Arbitrators appointed in 2018.

If you have a contract dispute and your contract contains an arbitration clause, we can help.

For further advice and assistance please contact our Private Client Team on 01604 828282 / 01908 660966 or email info@franklins-sols.co.uk

ArbitrationWhilst many people have an understanding of the court process, arbitration is less well understood outside of certain sectors. Here’s an outline of some of the key facts.

What law applies to an arbitration?

The Arbitration Act 1996 applies to all arbitration that falls under the jurisdiction of England and Wales or Northern Ireland.

Are arbitration agreements enforceable?

If you have signed a contract specifying that any dispute between the contracting parties is to be resolved by way of arbitration, an English court is likely to uphold that agreement. This could therefore mean that any Court proceedings issued are stayed (put on hold) whilst the matter is referred to arbitration.

Can I challenge the appointment of an arbitrator?

Yes. Under section 24 of the Arbitration Act, it is possible to apply for the removal of an arbitrator on the following grounds:

• circumstances exist which indicate the arbitrator may be impartial;
• the arbitrator does not possess the qualifications required by the arbitration agreement;
• the arbitrator failed to conduct the proceedings appropriately;
• the arbitrator is physically or mentally incapable of conducting the proceedings;
• there are justifiable doubts as to his or her capacity.

In all of the above circumstances however there is a need to show that there will be “substantial injustice” caused as a result of the appointment.

The arbitrator will also be invited to comment on the objections. The Act permits the Court to make an order as to whether or not the fees of the arbitrator are paid in these circumstances or indeed if the arbitrator must repay any fees or expenses already received.

What obligations are placed upon arbitrators and what power do they have?

There are specific powers and also general duties imposed upon arbitrators.

As a general duty, the Tribunal must:

The actual powers of an arbitrator are often set out within the arbitration agreement itself. Those under the Act can therefore be amended by such an agreement but in general include the power to:-

How do you start arbitration proceedings?

Often the arbitration agreement will set out what is required to start arbitration proceedings. In the absence of such an agreement, section 14 of the Arbitration Act 1996 says:

Are there any limitation periods for the commencement of an arbitration?

Whilst there are no specific statutory limitation periods for the commencement of arbitration under the Arbitration Act, the agreement between the parties may set certain time-frames.

Normal limitation periods apply for commencing legal actions in the United Kingdom and therefore, for example, for contractual claims this will usually be 6 years from the date of the breach.

What evidence is presented to a tribunal?

A hearing before an arbitrator(s) is called a Tribunal. The evidence presented will depend upon what the parties have agreed. If the arbitration agreement between the parties is however silent on this point, the Tribunal has a discretion under sections 34, 43 and 44 of the Arbitration Act 1996. This will usually involve documentary evidence being attached to the pleadings, witness statements and expert’s reports. The Tribunal also has the ability to appoint its own legal or technical expert.

Is arbitration confidential?

There is an implied duty upon the parties and the Tribunal to maintain the confidentiality of the hearing and any associated documents as well as the final award. There are certain exceptions. The parties may also provide for confidentiality in their arbitration agreement.

Is the arbitration award decided by the Tribunal recognised?

Section 52(1) of the Arbitration Act 1996 specifies that the parties can decide upon their own form of award however if no agreement has been reached, the following are to be included:

Is the arbitration outcome final?

An award is final and binding on both parties with the exception of circumstances in which the parties agree otherwise. This does not however affect the right of any party to challenge the award by a process of appeal or review.

What steps can be taken to enforce an award if a party fails to comply?

The award can be enforced by an application to the court to enter Judgment or for an order of the Court on the same terms as the award. This is in accordance with sections 66 or 101 of the Arbitration Act 1996. Following the order of the Court, this can then be enforced using all the means available to Court under English law.

For further advice and assistance please contact our Private Client Team on 01604 828282 / 01908 660966 or email info@franklins-sols.co.uk