Guernsey Law Reports 2005-06 GLR Note 13
INTERNATIONAL STEEL AND TUBE INDUSTRIES LIMITED v. MASOOD
ROYAL COURT (Hancox, Lieut. Bailiff): November 4th, 2005
Companies—shareholders—right to convene meeting—bona fides
An Extraordinary General Meeting (E.G.M.) of the applicant company had been convened, at which a resolution to remove the respondent from the board was passed. The notice of requisition for the E.G.M. had been made by Z, the director of a company which held 49% of the applicant’s shares. By the time the E.G.M. had been convened, he had acquired further shares and effectively become the major shareholder in the applicant. Z had previously been a director of the applicant, but, following an investigation into his and the respondent’s activities in respect of alleged misuse of the applicant’s funds, had been dismissed from office. The report had exonerated the respondent, but it detailed numerous instances of misconduct and misappropriation of funds by Z, resulting in litigation in the United States and the United Kingdom against him and another of his companies.
In the present proceedings by the applicant company against the respondent, he alleged by way of defence that the notice calling the E.G.M. was invalid as being in breach of the duty of directors to act in the best interests of the company as a whole, since Z had underlying motives of personal advantage and retaliation: by having the respondent removed from the board, Z would be able to use his direct and indirect voting strengths to terminate the legal proceedings against him. The applicant submitted that these allegations were without foundation and applied to have the defences struck out under the Royal Court Civil Rules 1989, r.36(d). In any case, it argued, the resolution passed at the meeting matched the proposed resolution contained in the notice, there was no evidence to suggest that the meeting was improperly held or improperly convened, and the truth of the allegation of underlying purposes therefore did not matter.
Held: The defences would not be struck out, since they were not incurably bad or suffering from such a lack of supporting evidence as to be unarguable (McDonald’s Corp. v. Steel, [1995] 3 All E.R. 615, dicta of Neill, L.J. applied). The right of a shareholder to convene a meeting had to be exercised bona fide, and the shareholder would not be doing so if his object were something other than merely passing the resolutions contained in the notice (Humes Ltd. v. Unity Ltd., [1987] V.R. 467, dicta of Beach, J. applied). It was imperative to have regard to all the surrounding circumstances and to ascertain whether what was done had been done in the interests of the company as a whole, rather than just investigating whether the meeting had been properly convened and the proposed and passed resolutions matched. As the allegations were part of the complex factual matrix of the case, the respondent was entitled to include in his pleading the circumstances which he argued showed that the resolution passed, and the events building up to it, though not amounting to a fraud on a power, were nevertheless not in the interests of the company as a whole, and there were matters which could legitimately proceed to trial.
2009
Law Report
None
Guernsey Law Reports 2005-06 GLR Note 13