TMI Blog1958 (11) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... n 1894, according to his own evidence, and carried it on with the assistance of Cyril and Bernard, Cyril having been employed in the business continuously since 1921 and Bernard since 1931. By 1935 Cyril had become responsible for the day-to-day management of the London office of the business and thereafter the father s participation in the day-to-day conduct of the business gradually declined. In 1940 the father opened a branch of the business in New York. In June, 1940, a United States company called H.R. Harmer Inc. was incorporated to take over the American business (hereinafter referred to as "the American company"), and all the shares were then owned by the father. In 1946 Bernard went to New York to take up the office of vice-president of the American company, of which the father was president and Cyril was a director, although Bernard was in charge of its day-to-day business. The respondent company was incorporated on July 1, 1947, with a view to acquiring, and shortly after its incorporation did acquire, the business of philatelic auctioneers and valuers formerly carried on by the father, including the issued share capital of the American company which belonged to him. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, their combined preponderance of voting power being sufficient to procure the passing of extraordinary and special as well as ordinary resolutions. Roxburgh J. found that Mrs. Harmer agreed with her husband, when her holding of "B" shares was transferred to her, to vote in accordance with his directions, and it was to be assumed that she would in fact always do so. The following is a summary of the matters of which the petitioners complained and which were referred to in the judgments as examples of the father's conduct in relation to the affairs of the company. ( a ) In 1947 the father went to Australia to investigate the possibilities of opening a branch of the business there. In or about January, 1948, the father, purporting to act on behalf of the company, but without the authority of the board of directors, set up a branch of the business in Australia. In answer to a protest by one of the directors he replied : "unless my judgment is accepted shall exercise my agreed control of the company to compel my views." The Australian business had not proved to be profitable. ( b ) In 1954 the father purported to dismiss summarily one Edwards, an old servant of the business, who wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive to keep watch on the staff, and when the matter came to the sons' knowledge, refused to give them any information. The staff knew that they were being watched and resented it. ( h ) At a board meeting held on September 12, 1956, it was resolved to pay 450 as remuneration to one Dalwick, a director. Subsequently the father wrote a letter to certain members of the staff forbidding the payment of this sum and making charges, against Cyril and the secretary, in regard to the accuracy of the records of meetings. ( i ) In September, 1956, the father told a prospective employee that Cyril was "wrong in the head" and that, if he took up employment with the company, he would not find Cyril there. ( j ) At a board meeting held on January 19, 1957, it was resolved that the secretary should proceed with negotiations for the renewal of the lease of the company's premises in Bond Street. Subsequently the father without the authority of the directors instructed the secretary not to proceed with these negotiations. At a subsequent board meeting held on May 29, 1957, it was resolved that the company's surveyor be authorised to conclude the negotiations at a specified figure. On June 3, 1957 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... board of directors, and that he should be appointed president of the company for life, but that this office should not impose any duties or rights or powers. The father appealed. All the cases cited in argument are referred to in the judgments. JUDGMENT Jenkins LJ. This truly lamentable litigation concerns a company called H.R. Harmer Ltd., and comes before us on appeal from an order of Roxburgh J. dated May 12, 1958, whereby he granted relief under section 210 of the Companies Act, 1948, at the instance of two sons of H.R. Harmer, the founder of the business. The two sons are life directors. The father, Harmer senior, is also a life director and, as will later be seen, in point of voting power controls the company. The company carries on in succession to Harmer senior [hereinafter referred to as "the father"] a large and, one might say, world renowned business of philatelic auctioneering and dealing in and valuing stamps. The father, who is upwards of 88 years of age, has been concerned in this class of business all his life, and according to him he commenced the business, which he later transferred to the company, as long ago as 1894. One finds the date 1918 given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business. The nominal capital of the company was 50,000 divided into 39,000 preference shares of 1,10,000 "A" ordinary shares of 1, and 1,000 "B" ordinary shares of 1. The whole of the ordinary shares, "A" and "B," and most of the preference shares have been issued. The preference shares conferred on the holders a right to a dividend of 4 per cent. and priority as to capital in a winding up, but they did not confer any right to any surplus assets in the winding up. The "A" ordinary shares had the right to the residue of the divisible profits, and the "B" ordinary shares conferred no right to participate in the profits but carried the whole of the voting power. On a winding up the "A" and "B" shares were to rank equally for return of capital and participation in surplus assets. On July 11, 1947, a sale agreement was entered into between the father and the company. Under that agreement the father sold to the company the whole of the assets of the business, including the shares in the United States company, for the sum of 33,325. That consideration was to be satisfied by the issue to him or nominees of his of 22,325 preference shares, all the 10,000 "A" shares and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d when Leslie left the company in 1951. On the occasion of his leaving an agreement was entered into under which he gave up his employment and his shareholding and the benefit of the option. He was suitably compensated for these matters. His "A" shares were transferred in equal shares to the father, Cyril and Bernard and his "B" shares were transferred to the father, Cyril, Bernard and the father's wife. At some stage Cyril and Bernard, each transferred 103 of their respective holdings of "B" shares to their wives, and the result of these somewhat complicated readjustments was to make the present capital situation as set out in paragraph 7 of the petition by which Cyril's and Bernard's application to the court was initiated. Paragraph 7 is in these terms: " The present shareholding of the company is as follows," and then there are three columns: "A" ordinary, "B" ordinary and preference. As to the "A" ordinary, the father holds 1,028 those are the shares he took when. Leslie left Cyril 4,611, Bernard 4,361. As to the "B" ordinary shares the father holds 491, Cyril four, Bernard four, the father's wife 295, Cyril's wife 103 and Bernard's wife 103. Then as to the preference shares, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch the order under appeal was made, the respondents to such petition being the father and the company. The gist of the sons' complaint is stated in paragraph 16 of the petition in these comprehensive terms : "Notwithstanding the incorporation of the company and its acquisition from him of the said business the [father] has continued to regard the business of the company as though it was still his own absolute property and to ignore the interests of the shareholders of the company and in particular of your petitioners, the wishes of his co-directors and the resolutions of the board of directors of the company. He asserts that he is entitled to adopt this attitude towards the company and its members and directors by virtue of his shareholding and that of [his wife], in the knowledge that [his wife] is likely always to exercise the voting rights attaching to her 'B' ordinary shares as the [father] directs. He also asserts (contrary to the fact) that hi is so entitled by virtue of his being named as governing director in the company's articles of association." I should at this point also refer to the first few lines of paragraph 17 : "The [father] has always acted as though the sole ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here that something appears on some shorthand note which the judge did not say he did not believe. I am going to say at every stage why I have found the facts exactly as I find them even if it appears to some extent from what the father said either in his affidavit or in his cross-examination. I must say that as in duty bound ; but I wish to make it quite plain that this is not in my view the type of case in which someone has come here to deceive the court. I use no offensive word about the father's evidence. I attribute his shortcomings' to things to which we are all subject, age and infirmity. None the less, when I am considering autocratic interference in the day-to-day affairs of a business, the havoc which can be wrought by age and infirmity is self-evident. I hope that I have done justice to the father, who is undoubtedly a very great man in the world of stamps, and it is just because he is such a great man that some of his wholly indefensible actions in connexion with the company's business must have done damage to the reputation of the company not only in this country but all the world over." I should also refer to this passage in the judgment of Roxburgh J. : "From the v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no longer in a position to dictate the policy of the company or to control completely the running of its business and I am prepared for the future to exercise only the ordinary powers of a director and to act in accordance with resolutions of the board. The reason why I have in the past acted as I have is that I have been under a misapprehension as to my powers which was brought about by reason of the matters referred to in paragraphs 5 and 13 of this affidavit." Then there is his oral evidence during his cross-examination by Mr. Milner Holland : "His Lordship was speaking at the same time as you with the result that I heard neither. Will you answer the question once more. Did you believe that you were entitled to disregard the decisions of the board of directors ? (A) My answer is that as long as I held the control shares I considered I had and it was agreed with my sons that I should have it." Then a little later : Mr. Milner Holland : "He said : 'As long as I hold the control shares, the answer is Yes.' " Roxburgh J. : "I will write it down and hand it to him : 'As long as I hold the control shares' then what did he say ?" Mr. Milner Holland : "The answer is Yes." Then a littl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the affairs of the company are being conducted" suggests prima facie a continuing process and is wide enough to cover oppression by anyone who is taking part in the conduct of the affairs of the company whether de facto or de jure. Fourthly, the section gives no guidance as to the meaning of the word, "oppressive," although it does, as already mentioned, indicate that the victim or victims of the oppressive conduct must be a member or members of the company as such. prima facie , therefore, the word "oppressive" must be given its ordinary sense and the question must be whether in that sense the conduct complained of is oppressive to a member or members as such. Inasmuch as in the present case it is not in dispute that the facts would justify a winding-up order under the "just and equitable" rule and it is recognized that such an order would unfairly prejudice the complaining members, this would appear to be in effect the only question in issue. There is no English case before this one in which an order has been made under the section, but there have been two such cases in Scotland, one of which has been the subject of an appeal to the House of Lords. The first of the Scottish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld justify the making of a winding-up order under the 'just and equitable' clause. "In the present case it is conceded that it would be quite unjustifiable to liquidate the company and that condition ( ii ) is satisfied. It remains to consider conditions ( i ) and ( iii ), which can best be examined together. The introduction into section 210 of condition ( iii ) refers us back to the pre-1947 practice under the 'just and equitable' clause, and is a salutary reminder of the fact that the new remedy is not lightly to be accorded. Under the former practice winding up has been ordered in many types of case which involved no true element of oppression to shareholders, for example, where the substratum of the company had vanished, and such cases will doubtless continue to arise. On the other hand the justice and equity which led to the grant of a winding-up order have often been found in conduct reasonably capable of being described as 'oppressive' to some part of the company's members, the oppression being usually exerted by a person with predominating voting power which was employed for his own advantage to the detriment of a helpless minority. The decisions indicate that conduct wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ides, and the real complaint is that more of them sided with Walter Elder than with the petitioners. Moreover I search the petition in vain for any relevant averment that the petitioners have suffered in their character as members of the company. Qua members, their position does not seem to me to differ significantly from that of any other shareholder. The true grievance is that two of them, Keith Elder and James Glass, have lost the positions which they formerly as directors and officers of the company. I do not consider that section 210 was intended to meet any such case, the 'oppression' required by the section being oppression of members in their character as such. I do not think that a 'just and equitable' winding up has ever yet been ordered merely because of changes effected in the board of directors or the dismissal of officers, and very strong grounds would be needed to justify such a step." Lord Keith said [1952] S.C. 49, 58 : "The difficulty is perhaps to define the, limits within which section 210 shall apply. It does not apply to all cases in which it would be just and equitable to wind up a company, because some of these are cases in which it could not be said that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts than was Elder v. Elder Watson 1952 S.C. 49. Meyer v. Scottish Co-operative Wholesale Society Ltd. 1954 S.C. 381 appears to have been a case in which a parent company was in control of a subsidiary company which also had a minority of independent members. A time came when trading conditions were such that it would be to the advantage of the parent company to do away with the subsidiary company and the question, which the court answered in the affirmative, was whether the conduct of the parent company in seeking to achieve that result amounted to oppression or oppressive conduct of the affairs of the company within section 210. I do not propose to take up time by citing at length from this case ; I will content myself by taking this from the judgment of the Lord President, Lord Cooper 1954 S.C. 391 : "I am not prepared to state on the basis of mere averments that the company's affairs were not being conducted in a manner oppressive to the petitioners within the meaning of the section. In my view, the section warrants the court in looking at the business realities of a situation and does not confine them to a narrow legalistic view." Then when Meyer v. Scottish Co- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase. The first is Thomson v. Drysdale Lord 'Clyde said 1925 S.C. 315 : "Now, in any case in which the shareholders who hold a preponderating interest in a company make it manifest that they intend to set at naught the security provided by company procedure, and to treat the company and its affairs as if they were their own property, it is impossible that the minority should retain any confidence in the impartiality or probity of the company's administration, and according to the circumstances of each particular case it becomes a question whether the minority are not entitled, as a matter of 'justice and equity' within the meaning of subsection ( vi ) of section 129 of the Companies (Consolidation) Act, 1908, to have the company wound up. It is always true that the majority are entitled to use their voting power in what they believe to be the interests of the company ; and the petitioner's fellow-shareholder had no doubt been allowed to acquire an overwhelmingly preponderant power so far as votes were concerned. But whether he could have used that power, not only to annul the arrangements made in the directors' minutes I assume he could but also to acquire for himself the petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess shall be conducted in accordance with certain principles of commercial administration defined in the statute, which provide some guarantee of commercial probity and efficiency. If shareholders find that these conditions or some of them are deliberately and consistently violated and set aside by the action of a member and official of the company who wields an overwhelming voting power, and if the result of that is that, for the extrication of their rights as shareholders, they are deprived of the ordinary facilities which compliance with the Companies Acts would provide them with, then there does arise, in my opinion, a situation in which it may be just and equitable for the court to wind up the company." Having now dealt so far I am able with the law to be applied, I turn to the particular matters of complaint alleged by the two sons in their petition. It should be remembered that they are to some extent in the nature of illustrations of the general Course of conduct complained of in paragraph 16 of the petition. [His Lordship then referred to the father's conduct in relation to the Australian business and the purported dismissal of Edwards and continued :] There were in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were rightly granted the relief which Roxburgh J. thought fit to grant under section 210. Upon this issue Mr. Harold Brown, for the father, made in effect these submissions I am not attempting to quote his words ; I merely give the general effect of his argument, as I understood it. First he said that the sons should not be heard to complain since they acquired their shares through the generosity of their father, who having built up the business, proceeded to turn it into a company and to hand over a major part of the beneficial interest in the form of shares to his sons virtually by way of gift. As to this, the sons did at all events pay for their preference shares, and if they had not paid anything, two of them at all events had long been working in the business, while the third gave up his career in the Colonial Office in order to take up employment in the business. Moreover, the question of consideration appears to me to be irrelevant, a mere matter of prejudice. Suppose the transaction was a mere matter of gift, the gift, if valid (and there is no suggestion it was not) must surely have conferred the same rights as if the transaction had been for full consideration. Mr. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lders or classes of shareholders. I agree, but see no reason for holding that section 210 is necessarily confined to cases of discrimination, though it is to be expected that cases calling for its application would most usually take that form. Finally, he submitted that the father got no pecuniary benefit out of what he did. That is not literally true, but even if it was, I do not think it is essential to a case of oppression that the alleged oppressor is oppressing in order to obtain pecuniary benefit. If there is oppression, it remains oppression even though the oppression is due simply to the controlling shareholder's overwhelming desire for power and control, and not with a view to his own advantage in the pecuniary sense. It seems to me the result rather than the motive is the material thing. Then on the other side, Mr. Milner Holland's submissions were to this effect : (1) The question is whether the course of conduct complained of was "burdensome, harsh or wrongful" to shareholders, that is to say, a part of the shareholders, including the petitioners. (2) If a person, relying on majority control in point of voting power, dispenses with the proper procedure for produci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was intended to be introduced at that point. I think the point about the word 'minorities' is that at is only where the voting control is elsewhere that a case for the application of the section arises. To take this case, if the voting control had resided where the beneficial interest in the ordinary shares resides, there would have been no need to invoke the section. The [father] would have been eradicated root and branch by this time. It is only because of the beneficial voting interest and his having voting control that it is necessary to invoke the section at all. I cannot think of any case where it would be possible to invoke the section if the voting control was in the hands of the persons who are alleged to have been oppressed ; and that, I think, is the only and natural explanation of the word 'minorities' being there." Then he says : "It remains, in my view, a question for the court to decide on the whole story, as revealed in the evidence, whether the affairs of the company are being it has to be a state of affairs continuing at the date of the petition conducted in a manner oppressive to some part of the members. I do not know that it has any particular bearing on the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing director was wholly unconditional on the way be was to govern, and surely they were entitled to assume that their father would exercise his power moderately and reasonably and give some effect, at least, to their own life directorships to which he had agreed. Viewing the evidence as a whole, no one could doubt but that the father acted oppressively in the sense in which that word is ordinarily used. He rode roughshod over his sons and everybody else, and dictated the general conduct of the company's affairs and its policy with an intolerant disregard of the wishes of his co-directors, and, indeed, in some instances, in disregard of the best interests of the company itself. The question, however, is whether it has been shown within section 210 of the Act that the affairs of the company were being conducted by the father in a manner oppressive to the shareholders, including the petitioners, who are in a voting minority. Mr. Harold Brown said that Cyril and not the father was conducting the affairs of the company in London. I cannot accept that suggestion. It is quite true that Cyril was, as he said in evidence, conducting the day-to-day routine work in the London office, but it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its number, in this case the father, in reliance on his superior voting power, the proprietary interests of the minority shareholders cannot fail to be affected, and a case of oppression within section 210 is, in my judgment, made out. That such has been the policy of the father since the inception of the company has been established by the evidence, in my view, beyond a shadow of doubt. The petitioners' grievance on this matter is stated generally in paragraph 16 of the petition which my Lord has read, and I do not read again. An illuminating statement with regard to it is found in the father's first affidavit, where he said : "I believe that the basis on which the company was formed entitled me to run the business and it was a breach of faith for my sons to deny it." Of all the instances or illustrations of the father's attitude as chairman, with which my Lord has dealt, I will only refer very shortly to two. [His Lordship then referred to ( a ) the father's instructions to the secretary of the company that no board meetings were to be called without his agreement ; ( b ) the question of the lease of the company's premises. His Lordship then referred to a transcript of one of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been very fully debated and are of such serious consequence, particularly for Harmer senior, I think it is right that I should endeavour to state, in as few words as I can, the reasons which have led me to my conclusion. The only question which in the event has to be decided in the case is whether or not the affairs of H.R. Harmer Ltd. were being conducted in a manner oppressive to some part of the members, including the petitioners. The judge in giving judgment pointed out that the word "oppression" is a word in common use and understanding in the English language. He did not have the advantage, which we have had, of the subsequent decision of the House of Lords in Scottish Co-operative Wholesale Society Ltd. v. Meyer [1958] 3 W.L.R. 404 , but I think it is fair to say that the decision of the House of Lords in that case has abundantly justified what the judge in this case said with regard to the meaning of the word "oppression." Viscount Simonds was content to take its ordinary "dictionary sense, that is to say, what the ordinary man would understand is the meaning of the word, and Lord Morton of Henryton said that he was not disposed to give a narrow meaning to the w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he has arrived. In this case seeing those two witnesses and hearing their evidence was important, as I think, for two reasons. First, it was important in this case, as in all others, for the purpose of assessing their credibility as witnesses. As to that the judge has told us something (the passage to which I refer has already been read) about what he thought of the credibility of the father. Secondly, in a case like this, where so much depends on the personality of the principal persons concerned and on the way in which those personalities reacted on each other, it seems to me that the judge, who actually saw the persons concerned and saw them under stress in cross-examination, had abundant opportunity of weighing up the personality of 'the people concerned, a matter which I think is of vital importance in deciding whether the conduct of one was oppressive in relation to the other. Having those inestimable advantages and having, as I have said, approached the question in the right way, the judge came to the conclusion that the petitioners' case was made out, and the father had been guilty of conducting the affairs of the company in an oppressive manner. I have no intention of go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that is said by anybody, and to have solicitors sitting at the elbows of the various parties. How it can be expected that a company's affairs will be properly conducted in that atmosphere, I do not understand. I am abundantly satisfied that all this led inevitably to damage to the interests of the company. There was some evidence of actual financial loss, for instance, in connexion with the failure to renew the lease with which my Lord has already dealt. But of far more importance than that, as it seems to me, was this very fact to which I have referred, that it was becoming increasingly difficult to carry on business at all ; and I would add to that the damaging effect that the acrimonious discussions between the father and the other directors was having upon the members of the staff particularly the senior members of the staff. In this connexion I think it is not altogether without significance that both the senior cashier and the secretary of the company should have sworn the affidavits which have been filed in support of the petition. It may be thought, possibly, that the best evidence of oppressive conduct in this case is to be found in the answer which the father himself ga ..... X X X X Extracts X X X X X X X X Extracts X X X X
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