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In an important judgment, the Court of Appeal has clarified the content of the contractual duty of good faith, in the context of an unfair prejudice petition under s.994 of the Companies Act 2006.

At first instance, the trial judge (Adam Johnson J.) held that an express good faith clause in a shareholders’ agreement between the majority investors and the petitioning minorities entailed that certain directors, originally appointed by the minorities, could not be removed, despite the absence of any more express prohibition.

Allowing the appeal, the Court of Appeal (Newey, Carr and Snowden LJJ) determined that the judge had taken an over-broad approach to interpretation of the good faith obligation.  Giving the leading judgment, Snowden LJ discussed the English case law since Yam Seng, and its roots in Australian and North American caselaw.

The decision is likely to have important consequences for the maintainability of claims framed with reference to express or implied duties of good faith.

The judgment is available here.

Andreas Gledhill KC, instructed by Allen & Overy LLP, acted for the successful appellants, with Tim Lau at first instance.
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