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TMI Blog1958 (11) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. By the articles of association, the first directors were the fathe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 was appointed a director on the formation of the company. It appears that Edwards had written a letter to Bernard about a collection of postage stamp, and this letter apparently gave offence to the father in various ways including the fact that there was no referen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 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, the father wrote to the surveyor to the effect that he was not to proceed with the negotiations and on June 5, 1957, the father wrote to the surveyor to the effect that he (the surveyor) had received no valid authority to proceed with the negotiations. On account of the delay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entable 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 in some parts of the evidence as the actual date when he set up the present business, but it is clear that he was in fact doing business of this kind at a much earlier date. I think he said his first dealing in stamps took place as long ago as 1886. The father, from whatever the exact date may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 GBP33,325. 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 all the 1,000 "B" shares. The father nominated the sons as allottees in equal shares of 6,750 of the "A" shares and 240 of the "B" shares. There was further an agreement that on his death the remaining 3,250 "A" shares and 760 "B" shares allotted to the father were to be offered to the three son ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her, 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, 11,029 are held by the father, 5,291 by Cyril, 3,230 by Bernard and 150 each by Cyril's wife and Bernard's wife. That accounts for the whole of the "A" ordinary and "B" ordinary, and 19,850 of the preference, shares. Then paragraph 7 of the petition goes on : "The remaining 14,152 of the issued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 right of appointing and dismissing the senior staff of the company is vested in himself and he extends this attitude to embrace the directors of the company claiming that his views alone are to be considered as to who shall be appointed or elected a director and whether or not a director should be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 very moment of the incorporation of the company the [father] has acted, and acted consistently, not merely down to but even since the presentation of the petition, upon the footing that he can whenever he likes override any decision of the board, or regulate any matter of the company's business exactl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 little later Mr. Milner Holland said to the father : "Do sign it. Sign it by all means." Roxburgh J. : "I did not ask him to. I should not feel entitled to ask him to do that." Then the father signed the passage in the judge's notebook. Then the judge said : "I will read it out so that it can go on the shor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essive," 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 cases is Elder v. Elder & Watson, Ltd. [1952] S.C. 49. Inevitably the result of applications under section 210 in different cases must depend on the particular facts of each case the circumstances in which oppression may arise being so infinitely various that it is impossible to define them with precision. In El ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 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 which is technically legal and correct may nevertheless be such as to justify the application of the 'just and equitable' jurisdiction, and, conversely, that conduct involving illegality and contravention of the Act may not suffice to warrant the remedy of winding up, especially where alternative remedies are available. Where the 'just an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her 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 there is oppression of any part of the members in the conduct of the affairs of the company. Apart from the Board of Trade, to whom I shall refer later, it is only a member who can invoke the section, and, in my opinion, this means a member in his capacity as a member, and further, in my opinion, his only relevant ground of complaint is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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-operative Wholesale Society Ltd. sub nom. Scottish Co-operative Wholesale Society Ltd. v. Meyer [1958] 3 WLR 404, 410 ; [1958] 3 All. E.R. 66 ; 29 Comp. Cas. 1 , 8 came before the House of Lords, where the decision was affirmed some observations were made by Viscount Simonds and Lord Morton of Henryton to which I would refer. Viscount Simonds said : "My Lord upon th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld 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 petitioner's touring business (for which the company had never paid a single penny) is a very different matter. In any case, he never attempted to use his voting power in the only legitimate way." Lord Skerrington said 1925 S.C. 316 : "It must, however, be kept in view that this state of matters did not result from any underhand manoeuvring on the part of the respondent (who holds th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 course of the history of this unfortunate matter a remarkable number of appointments of directors and retirements of directors brought about in one way or another by the father. This is an aspect of the case one must approach with caution. It cannot be denied that the holder of the majority in voting power of the shares in a company may, broadly speaking, appoint any person he thinks fit a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osity 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. Harold Brown's second point was that the sons knew full well when the company was formed that the father was to retain control by means of his predominant holding of "B" shares so long as he lived. I agree, but I cannot concur with Mr. Brown in adducing from this that the sons must be taken to have assumed that the father would exercise his control irregularly by doing what he thought fit without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al 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 producing the result he desires to achieve, and simply insists on this or that being done or omitted, his conduct is oppressive because it deprives the minority of shareholders of their rights as members of the company to have its affairs conducted in accordance with its articles of association. (3) It is not shown that if the father had acted strictly in accordance with the articles of association, he could h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oot 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 case, but this case is curious in that it is not a minority beneficial interest that is being oppressed, and that would be the normal case ; it is a majority beneficial interest which is being oppressed because the voting control is placed in the hands of a minority beneficial interest. In my judgment, I reach the opinion-because that is what I have to do-that at the date of the presentation of this petition th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ghshod 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 is quite obvious that the affairs in general of the company were conducted by the father and no one else, and I should imagine the father himself would be the last person in the world to deny that. In considering whether the way in which he did conduct the company's affairs was oppressive, I agree with the judge that although naturally attention must be paid to the various incidents of which the petitioners complai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the board meetings, to show the atmosphere which prevailed there (the father and the sons each having a solicitor present), and continued :] We were told that Mr. Charles Russell, who appeared for the father in the court below, conceded that affairs had got to such a pass that a contributory's petition to wind up the company on the ground that it was just and equitable to wind it up would have succeeded. I think this concession ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 word. That being so, it seems to me that the question which arises in this case, as indeed in almost any other case of this character, is a pure question of fact to be determined in accordance with the circumstances of the particular case. In the course of the argument it was suggested that the approach to this issue of fact was in some ways analogous to the approach to the question of fact which arises in a matrimonial cause where the petition is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 going into detail in regard to any of the particular incidents to which my Lord has already referred, but viewing the conduct complained of as a whole, i.e., as a course of conduct extending over the years, it appears to me that there was abundant evidence to justify the judge in his conclusion of fact. Ever since what I may call the Australia incident in 1948, the evidence shows that by one means or another the father has sought to impose his will in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. 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 gave in the course of his cross-examination and which, to make sure it was in accordance with what he wished to say, was written down in the judge's notebook. I venture to repeat the answer which was then given and recorded. "I still believe that I am entitled to disregard resolutions of the board so long as I hold the requisite proportion of the control shares." That of course was quite different from what he had said in the concluding paragraph of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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