Corporate management: remedial action for maladministration
CL draws line b/w three causes of actions: personal, representative, derivative; difficult procedural distinction; P circumvents distinction by bringing claim thru Fost v Harbottle exception: (1) ultra vires, (2) individual rights, (3) special majorities, (3) fraud on the minority
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Foss v Harbottle: action by 2 shareholder against 5 dir, others charging D effected fraud, illegal transactions; property of com misapplied, wasted, aliened; Ds to purchase 180 acres of land (constructing houses, then selling or renting for profit); Ds formed joint stock com Victoria Park Com ; named themselves dir, issue shares, incorporated com; before com acquired land, D bought lands personally, then sold to com at exorbitant price; when houses sold dir appropriated profits; credited large sums of money from bank, mortgaged property to pay costs to themselves; com became insolvent o Held: possibility of convening GM; capable of controlling acts of existing board; nothing to prevent com from obtaining redress in corporate character o Wigram : Victoria Park incorporated com, injury not to P exclusively, but to whole corp; action most be brought by corp;
P no right, nor power to sue on behalf of corp; cor must sue in its own name, own capacity, corporate character o Exceptions: if cooperation could not sue, no other remedy, then individual shareholders could bring action o
Rule in Foss v Harbottle: (1) when wrong done to com, com is proper P; (2) when matters require simple majority, no individual shareholder can bring action b/c if majority agrees then no wrong committed; (3) court not interfere in matter of domestic, internal management of com on grounds of mere irregularity in form, conduct of affairs
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Edwards v Halliwell (CA): rule of union provided for set regular contributions by members, no increase except by ballot of vote w/ two thirds concurring; meeting held, decided to increase contributions w/out vote; 2 members sued to declare increase invalid o Held: B/c matter not mere irregularity in internal management of union, but matter of substance, oppressive; court grant relief to P; personal, individual rights of members invaded, damage inflicted by invalid alteration of fees; rule in Foss not applicable to individuals suing not in right of union, but own right as individual members o Jenkins J : rule in Foss does not prevent individual member suing if matter in respect of suit can validly be done, not by simply majority, but special majority (2/3); irregularity not matter of form, but substance, oppressive o Rule claimed by D: mere irregularity on matter intra vires , concerning internal management not actionable unless fraud, oppression, unfairness; but Asquith J : rule unfair, oppressive, union had no right to increase w/o special majority; when members refused to pay, threatened w/ penalties; to call this mere informality, irregularity, not oppression abuse of language (D claimed action dismissed b/c vast majority supported increase, immaterial , needed special majority) o
Exceptions to Foss v Harbottle: (1) where act ultra vires (each individual member theoretically would have cause); (2) where fraud on minority, wrongdoers in control of com; (3) where act in violation of art for special majority; (4) where act invasion of members personal rights as members
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McDonald v Gardner: art of assn gave power to chair at GM , w/ consent of GM, to adjourn; also provided for poll if demanded by 5 SH; at GM adjournment moved, declared by chair; poll demanded, but chair ruled no poll on question of adjournment; left;
SH filed bill charging actions of chair illegal, improper, that dir intended to carry out plan injurious to com, w/o discussion in GM o Held: appeal fails; upheld rule in Foss v Harbottle ; action for injury to com, com proper P; not individual shareholders
 O’Neil v Phillips: P held entire share capital of construction com; gave O, e of com, 25 shares; appointed O dir; P w/drew from management; O effectively MD; com prospered, O credited w/ profits; discussions took place for O to own 50% of shares, no agreement concluded; P waived 75% of share so O could get profits; later, P dissatisfied w/ O’s management, downturn in industry; P resumed management; O eventually severed ties w/ com; sued claiming com affairs conducted in manner unfairly prejudicial to O’s interest; judge dismissed on grounds that P did not commit to equal sharing of profits or made promise regarding additional shares thus O’s interest not suffered as member of com: on appeal O won, CA held O has legitimate expectation that he would receive equal shares of profit; P’s denial of expectation unfairly prejudicial; P appealed to HL o HOL: Lord Hoffman: appeal allowed; although member of com not ordinarily entitled to complain of unfairness unless breach of agreement, equitable considerations may make it unfair to rely on strict legal powers; no necessary for powers to be independently enforceable as contract (i.e. third parties); promise may be binding as matter of justice, equity although not enforceable in law; in instant case, since judge found no promise made, no basis, consistent w/ principles of equity, for court to hold P behaved unfairly
Exceptions to rule in Foss v Harbottle:
Ultra vires
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Russell v Wakefield Waterworks Co (AC): SH filed bill on behalf of himself, all other shareholders against dir alleging illegal payment of com’s money to such promoters to buy off opposition in Parliament; monies approved in GM; dir had power to do all in their power to effect deal; no allegation made of fraud o
Held: Not established action ultra vires ; since no allegation com not sue; suit not maintained b/c proper P is com “ where there is corporate body capable of filling bill for itself to recover property, that body is proper P ”
Individual rights
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Pender v Lushington: art provided every member one vote for every ten shares w/ max of 100 votes; P registered shares in several nominees to exceed 100 votes; at GM, chair refused to accept votes; P brought representative action by SHs whose vote rejected, naming com as co-P, against dir to restrain com from acting b/c votes bad; action upheld o Held: com has no right to enter into question of beneficial ownership, member according to art is person listed on register; if listed, entitled to vote; P entitled to vote; individual right deprived; matter of substance not form

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Re a Company: management com administers 30 flat country house, each tenant has one share, one vote; respondent seeks to change vote not one share one vote, but to offer additional shares, proportional voting based on service charges paid on size of apartment; petitioner claims improper motive, that R seeks to control management com to acquire property of com for other purposes; P claims additional issue misuse of dir fiduciary duties; unfairly prejudicial to interests of SH; claims order for indemnity from com to bring claim; order rejected o
Where SH alleges dir breached fiduciary duty by using powers to allot shares for improper purpose then if action by writ or under s459 of Com Act UK, substance of complaint is that individual rights as SH infringed; thus not appropriate case for making indemnity order; that procedure only applicable where SH commences derivative action to remedy wrong to com (if claims for com, can claim com protection, but not if for himself)
Special majorities
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See Edwards v Halliwell (above)
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Baille v Oriental Telephone Co: Ps, members of trade union, brought suit against union, officials claiming that special GM invalidly convened; resolutions passed invalid; resolutions authorized loan, endorse suspension of 2 Ps o Romer J: D union legal entity, capable of maintaining action in own name; majority had power to bind minority in matters not utra vires union; not open to Ps to restrain union, however irregularly meeting summoned, conducted; Ps could not obtain any relief in respect of suspension o
Swinfen Eady LJ: certain cases members may sue in interest of justice
Fraud on minority
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Cook v Deeks: 3 dir of railway construction com obtained con in own names to exclusion of com; con obtained, but breach of trust by dir, constituted them as trustees of its benefit on behalf of com; by their votes, holders in ¾ shares, they subsequently passed resolution at GM declaring com to have no interest in com o Held: benefit of con belonged in equity to com; dir not validly use voting power to vest in themselves o Lord Buckmaster : while entrusted w/ affairs of com, dir deliberately designed to exclude, use position, influence to exclude com whose interest it was their first duty to protect; not entitled to sacrifice interest they bound to protect, while acting for com, divert business properly belonging to com; duty to com (conflict of interest)
 Menier v Hooper’s Telegraph Works (CA): D owned major shares in P com; D obtained certain advantages thru misappropriation of com assets; majority intended to divide assets among themselves excluding minority o Held: CA: fraud; fraud not confined to literal or CL fraud; includes misappropriation of corporate property; mala fide abuse of power; or discrimination against certain class of shareholders o Mellish J : I am off opinion although quite true shareholder may vote as they please, for own interest; majority cannot sell assets, keep consideration, but must allow minority to share
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Estamanco Ld v Greater London Council: greater London Council formed Estamanco Co to manage block of flats; council began policy to sell flats to renters; sold twelve; elections held, new gov stopped policy; desired to turn remaining flats into housing for poor; 2 dirs bought action for breach of con; council which had voting control resolved in GM to discontinue action; one flat owner successfully brought derivative action o
Held: breach of con, minority SH could bring suit Megarry VC : fraud on minority not confined to CL fraud, includes equitable fraud, abuse of power, discrimination
Negligence
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Pavlides v Jensen: TAC Ltd sold asbestos mine in Cyprus for 182,000lbs; valued at 1 million; P SH sued for breach of duty, dir negligent in selling for so low value; did not argue ultra vires nor fraud; P in possession of deferred shares, according to art person w/ deferred shares not allowed to votes, attend meetings; P claims entitled to sue b/c cannot petition meeting b/c he cannot attend, vote; that dir control com (derivative action) o Held: action not maintainable by P; sale of mine w/in competence of TAC Ltd, no act of fraud alleged by P; sale could be approved, confirmed by majority; wrong to com; if majority approved matter quashed; mere matter of procedure, obvious P cannot have larger right to remedy than com itself; must establish fraud, ultra vires o Case establishes that mere negligence is not fraud
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Daniels v Daniels: P, minority SH, sued 2 dir; alleged com on instructions of dirs, majority SH, sold com land for 4,250lbs to one dir, wife of other; claimed dir knew, ought to know land undervalued; dir later sold land for 120,000lbs o Held: Templeman J : action succeeded; exception to Foss v Harbottle enable minority to sue for fraud, where no other remedy available; include where no fraud alleged, breach of duty by dirs to detriment of com, benefit of dirs ( gross negligence actionable ) o Templeman J : monstrous, particularly as fraud hard to prove, that dirs make profit of negligence; to put up w/ dir who are foolish one thing; to put up w/ dir so foolish to make profit of 115,000lb at expense of com another o
Rule: minority SH may sue, if no other remedy, where dirs use power, intentionally, unintentionally, fraudulently, negligently in manner which benefits themselves at expense of company
Abuse of power
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See Cook v Deeks (above)
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Bamford v Bamford: dirs allotted ordinary shares to counter take-over bid; dir empowered by art of assn to issue unissued shares; 2 SHs sued charging action not bona fide , improper motive; dir called GM; passed resolution by substantial majority validating issue of shares, issued shares not voted; P sought to strike out vote, issue of shares null, void; judge dismissed action;

assuming dirs' action not in best interests of com, in excess of powers, allotment may be ratified by com in GM; inherent residual power of com over unissued shares; appeal o Held: dismissed appeal; issue of shares by dir, which is intra vires, but voidable b/c dirs actuated by improper motives, so guilty of misfeasance, but ratified after full, frank disclosure by dir to SH by ordinary resolution of SH in GM; impropriety by dir may be waived by GM; voidable actions subsequently affirmed by shareholders
Wrongdoers in control
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See Pavlides v Jensen (above)
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Prudential Assn Co Ltd v Newman Industries Ltd: SH brought derivative action against 2 dir of Newman for defrauding com;
2 dir had interest in Newman, another com TGP; proposed Newman by TGP; dir greatly inflated value; proposal approved at GM based on misleading info; D dirs not majority SH, one issue was if they in control of com o Held: action sustained; exceptions to Foss v Harbottle permitting suits by minority SH not confined to situations where wrongdoer in voting control; applied where wrongdoing in position to manipulate situation to ensure majority not bring claim; in interest of justice o Fraud includes use of voting power; fraud even if dir not know did something wrong derived benefit from transactions, owed fiduciary duty to com; improperly appropriated money, property, advantages belong to com
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Smith v Croft: D main SH, executive dirs; P minority SH; alleged D paid themselves excessive remunerations; associated coms received monies intended to benefit com, breach of dir fiduciary duties; com money used to aid associate coms to illegally buy shares; reimbursement of expenses gifts, ultra vires , fraudulent o Held: P failed to establish com had prima facie case w/ respect to remuneration, monies to associate companies, reimbursement; not proven transaction ultra vires, excessive, no breach; breach established w/ payment to associate com to buy share, no reason shown for transactions; since actions ultra vires , illegal, unratifiable, com established prima facie case o However, minority SH not proper P; barred from action; even though SH enforcing personal right to prevent com from ultra vires act, loss done to com; minority SH not entitled to bring claim; com alone had right o
Court considers views of majority of independent SH if suit to proceed; question: if P improperly prevented from suing; not improperly prevented if suit barred by action of majority of SH; test: if vote of independents exercised bona fide for benefit of com; not established that independent SH used votes against interest
Where justice requires minority action: rule not inflexible; relaxed in interest of justice ( Jenkins in Edwards v Halliwell )
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Narrow view: see Prudential Assurance v Newman Industries o Estamanco Ltd v GLC: Megarry : list of exceptions exhaustive, reason for making them to serve interest of justice o Policy: refusal by court to be involved in disputes in business; hands off approach; capitalism ( business to be unfettered )
Carlen v Drewey: Lord Eldon: not role of court to assume management of every playhouse, brew house in kingdom o
Foss v Harbottle: as policy courts do not get involved in internal management of com
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Broad view: fifth exception made where justice of case demands it o Heyting v Dupont: D invented machine; formed w/ P com; assigned panets, rights to com; D MD, majority shareholder;
D, P quarreled; D w/held patent application from com; P sued claimed w/held property com, actions constituted misfeasance, damage to com; no allegation of fraud; action dismissed
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Russell LJ: may be occasions where justice requires departure from rule; but not in present case
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Baille v Oriental Telephone Co: Swinfen Eady LJ: certain cases members may sue in interest of justice
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Russell v Wakefield Water Works: Sir George Jessel MR: but this is not universal rule; subject to exceptions; exceptions depend on necessity for court doing justice; any case where claims of justice require it is exception
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Edward v Halliwell: Jenkins LJ: rule not inflexible, relaxed where necessary in interest of justice
Alternative remedies
Indemnity: (see Smith v Croft , Re a Company )
Statutory minority remedy:
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JCA 1973 ss196, 203: application to court may be made by petition for order either: o By member of com who complains affairs of com conducted in manner oppressive to some, part of members; or o By minister; court may make order; oppressive include instance of oppression if by single act or course of conduct
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Under s203 applicant could apply to court for just, equitable winding up ( draconian measure ) o Chinatown Restaurant Ltd v Wong: respondent brought petition for winding up of com on ground that affairs of com conducted in manner oppressive to him as member of com; CA found R had no locus standi to present petition b/c as time he signed memo of assn not resident in Jamaica o
Win-doors Ltd v Bryan (Jam): respondent, minority SH, majority dirs of W Ltd brought petition against com, MD, majority shareholder, appellants; petition complained of oppressive conduct; no GM held; no dividends declared; no shares certificates issued; MD purchased horse, apartment, house out of com’s money; MD made $400,000 by illegal deal that evaded excise duty; CA of Jam struck down action; abuse of process, frivolous, vexatious; court contended even if allegations true, not oppression w/in meaning of s196 of Act
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New law jurisdictions: Barbados ss225-230:

o Wide definition of complainant: BCA s225 complainant includes shareholder or former shareholder, dir or former dir, debenture holder or former debenture holder; registrar, or other person fit, proper to bring action; complainant may apply to court for order that com affairs conducted in manner unfairly prejudicial to interest of members; o Canwest International and Atlantic: Bar CA held party who acquired rights under pre-incorporation con fit, proper to bring action under ss225 – 230; CA recognized court’s wide discretion o
Five Star Medical: court found that corporate customer; person’s telephone line wrongly disconnected; suffered damage; had locus standi to bring action under s239 of T&T CA ; corporate customer entitled to be indemnified for costs o Ward v Mount Gay Ltd William CJ: s228 (Bar) connotes jurisdiction where court’s hands not tied to do justice o Contrast w/ JCA 2004 s 212(3) defines complainant narrowly to mean (a), (b), (c) as mentioned above; does not include registrar, or fit and proper person (thus defined limited); Barbados would accord w/ new stakeholder theory o Bar, T&T discretion based on 3 pillars: (1) oppression; (2) unfairly prejudicial; (3) unfairly disregards interests; however
S213(A)(1) JCA recognizes 2 categories which trigger oppression remedy: oppressive conduct, unfairly prejudicial o Aabert v Pederson: petitioner dismissed as MD of Golf Beach, Jam; claimed oppression under S196; CA: matter complained of affected P in capacity of MD not as SH; statutory remedies against oppression not available to him ( note this case falls under earlier JCA, not 2004 proposed Act ) o S174 of Jamaica 2004 : dir, officer must act honestly; in good faith w/ view to best interest of com; ss 4 states determining what is best interest of com dir, officers may have regard to com’s SH, e, community com operates; tone is permissive; may have regard; community general (may indicate move to move away from Foss v Harbottle
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Oppression: oppressive means burdensome, harsh, wrongful o Scottish Cooperative Wholesale Society v Meyer (HL) Lord Wilberforce ; unfairly prejudicial interpreted to refer to acts which are unjustly or inequitably detrimental; unfairly disregards means unjustly w/o cause, paying no attention to, to ignore, to treat as of no importance
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Cooperative wholesale society formed subsidiary to enable it to participate in manufacture, sale of rayon material and get licenses to manufacture rayon cloth; retained two dirs as MD to utilize their skill, contract in industry; subsidiary made substantial profits; com offered to buy shares of MD at reduced value; rejected; instituted policy to transfer business of subsidiary to parent; resulting in gradually decline of business; MD unaware; brought action against dirs of subsidiary, who were also dirs of parent claiming oppressions
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Action succeeded; com ordered to purchase shares at time shares valuable; winding up would be prejudicial to two MD, unfair b/c parent’s objectives achieved; ordered winding up, but to buy shares at original price o Unisoft Group: Harman J : com affairs being conducted in manner unfairly prejudicial to interest of members; words extraordinarily wide, general; limited however by reference to com affairs; must be actions imputed to com o Re Saul D’ Harrison & Son: words unfairly prejudicial are general words; should be applied flexibly to meet circumstances of particular case; conduct must be both prejudicial (in sense of causing prejudice or harm to relevant interest), and also unfairly so; not sufficient if conduct satisfies only one test
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Interest: Re JE Cade & Sons Ltd: T, J partners in large family partnership; proposed to dissolve partnership, T operate part of business, while J other part; J wished to continue to occupy farm; agreed that T purchase farm, grant to C com license to farm it rent free for 5 yrs; T became shareholder of C; agreed that at any time J should have option of purchasing farm for market value; at end of 5 yr period J not in position to purchase farm; T claimed com occupation of farm protected by Agricultural Holdings
Act; T commenced proceedings for possession; T also commenced proceedings under ss459 UKCA that J should purchase shares or that court order T entitled to take possession o Held: petition struck out; court not make order that J purchase T’s shares since all parties agreed J should have option to purchase; while court gives effect to equitable considerations arising from relationship b/w parties, it not superimpose on parties its concept of justice, fairness; interest T protecting not interest as member of com, but interest as freeholder, therefore not suitable to invoke ss459 which only protected petitioners interest as member; only interest in com protected
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Legitimate expectation: o Re RA Noble & Sons (Clothing) Ltd: RA Noble & Sons Ltd small, private com; set up by N, B; agreed that B introduce $10,000 into venture; B, N each have 50 shares in com; B to bear expense of fitting out new shop; N responsible for conducting com affair, receive salary; B’s contribution made thru 2 com; dispute b/w B, N; B wrote to N asking to sever relationship, sought repayment of loan; B claimed he was improperly informed, N assumed control of com, com accounts irregular, defective
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Held: claim grounded if shown value of shareholding in com seriously diminished or jeopardized by unfair conduct of those controlling com; but test for unfairness objective; reasonable bystander regard petitioner as unfairly prejudiced (not need to show bad faith, conscious intent to treat unfairly)
 On fact, treatment of B not unfairly prejudicial; due to B’s disinterest, N merely wanted to get on w/ management of com; not guilty of underhanded conduct
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If conduct of those in control substantial cause of destruction of mutual confidence involved in personal relationship unnecessary for conduct to be underhanded, for petitioners conduct to be above reproach; N’s conduct substantial cause of irreparable destruction; order for winding up, B entitled to recover cost for fitting com shop, but not loan
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Court orders: regulation of com affairs; injunction or compulsion; purchase orders
Remedies:

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Share purchase: Re London School of Electronics: petitioner minority SH, dir of LSE; com he formed to provide course of study in electronics in conjunction w/ City Tutorial College (CTC), only other SH; shares in CTC owned by A, G, dirs of CTC; relations w/ petitioner, A, G deteriorated; meeting transferred all students from LSE to CTC, removed petitioner as dir; petitioner left com; sought relief under s75, claimed value of shares under court order that CTC purchase his shares o Petitioner treated in unfairly prejudicial manner; shared valued as of date of petition o
No requirement that it should be just, equitable to grant relief; that P should come w/ clean hands; conduct of P important in two ways; (1) not affect prejudice, but render conduct of com not unfair; (2) affect relief granted by court; while P deficient in duties, in no way justified appropriating students to CTC; clearly unfairly prejudicial o In valuing share, overriding requirement is that price fair; if valued at date of valuation, that confers on P advantage of improvement in com business for which he not responsible
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Share purchase: Re Bird Precision Bellows Ltd: petitioner held 26% of share capital of com; alleged com quasi partnership; claimed there was agreement that they participate in conduct of com affairs; challenged by R, who held 74%; P excluded from com; claimed s75 unfairly prejudicial; order that R buy shares; R agreed at GM to buy shares at price to be determined by court; issue whether interest on shares to be paid
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Where court made order to purchase share, fixed price must be fair; depended on facts; no universal rule in small, private com that price fixed at pro rata basis according to value of shares as whole, or alternatively discounted to reflect fact that shares minority holding
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Where sale forced on holder b/c unfairly prejudiced & shares acquired on incorporation of quasi-partnership thus expected that holder participate in com affairs as general rule fair that price fixed pro rata w/o discount
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Where P acted to deserve expulsion price could be discounted
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Whether rules in legislation encompass suing for loss of value of shares (i.e. reflective loss) o Verderame v Commercial Union Assurance Co: policy of insurance, however insurance covered personal property, not that of corporation [separate legal personality]; action brought to sue broker of policy; court found that com was proper person; reflects general position in Prudential Assurance v Newman which shows reluctance of court to award for o reflective loss (diminution in value of shares); one available remedy is selling shares; value of shares determined on equitable terms ‘he who seeks equity must do equity’
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Jamaica Companies Act 2004 ss213-22
Lalla v TCL [Manual p357] The CA refused to find as an absolute rule that the court will not enforce a contact of personal service under s242. This case also illuminates on the meanings of the phrases oppressive, unfairly prejudicial and unfairly disregards.
Note: As to the meaning of unfairly prejudicial see the case of Re Saul The words unfairly prejudicial are general words….(see wks p38)
In quasi-partnership companies the concept of legitimate expectation may be relevant This is an equitable constraint. O’Neill v
Phillips . Members may have legitimate expectation that the company will be run in a particular way; The court has regard to the personal relationship or personal dealings, agreements and tacit understanding by word or conduct.
Having established the requirements of the conduct ie oppression etc one must then consider the remedies
Whether the statutory remedies are exhaustive.
Limitation Period
Barbados 310. An insider who, in connection with a transaction in a share of the company or any of its affiliates, makes use of any specific confidential information for his own benefit or advantage that, if generally known, might reasonably be expected to affect materially the value of the share
(a ) is liable to compensate any person for any direct loss incurred by that person as a result of the transaction and
( b) is accountable to the company for any direct benefit or advantage received or receivable by the insider as a result of the transaction

311. An action to enforce a right created by section 310 may not be commenced except within 2 years after the discovery of the facts that gave rise to the cause of action.