Supreme Court upholds rights of shareholders to arbitrate
The Supreme Court has upheld the Court of Appeal decision in Fulham Football Club (1987) -v- Richards affirming that a proper arbitration clause will exclude the option of bring an unfair prejudice petition (see previous post in this respect). The judicial approval of this option means that it is more likely that arbitration clauses will start to appear in shareholders agreements.
There are various advantages to using arbitration in resolving shareholder disputes, notably the flexibility and potential speed of resolution. However, this will require careful consideration of the choice of arbitration process when drafting a shareholders agreement to avoid the risk of swapping one cumbersome procedure for another. In addition, as previously noted, the perceived merits of arbitration may well depend upon the size of your shareholding.
There is sometimes a tendency for commercial lawyers to stick in a default arbitration clause at the end of an agreement without fully considering the ramifications. This is inherently risky in light of the potential impact in the event of a breakdown in relations between shareholders. Careful consideration needs to be given as to whether the clause is to the best advantage of the client. Given that this may vary by size of shareholding it is further proof, if proof was needed, that the common practice of one firm of solicitors drafting up a shareholders agreement for all shareholders carries a very high risk of a conflict of interests occuring.
Tags: Arbitration, shareholder dispute resolution, shareholders agreements
Corporate Governance, shareholders rights | Ed Weeks | 
March 9, 2012 9:32 am
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