CVC/Opportunity Equity Partners Ltd v Demarco Almeida
| Jurisdiction | UK Non-devolved |
| Judge | Lord Millett |
| Judgment Date | 21 March 2002 |
| Neutral Citation | [2002] UKPC 16 |
| Court | Privy Council |
| Docket Number | Appeal No. 4 of 2001 |
| Date | 21 March 2002 |
[2002] UKPC 16
Present at the hearing:-
Lord Bingham of Cornhill
Lord Hutton
Lord Hobhouse of Woodborough
Lord Millett
Lord Rodger of Earlsferry
Privy Council
[Delivered by Lord Millett]
The first appellant CVC/Opportunity Equity Partners Ltd. ("the Company") is a private company incorporated in the Cayman Islands. The second appellant Opportunity Invest II Inc. ("Opportunity") is its majority shareholder. It owns all but four of the issued shares in the Company. The respondent ("Mr Demarco") is a minority shareholder with a single share.
The appellants appeal from an order of the Cayman Islands Court of Appeal dated 17th August 2000. By their order the Court of Appeal allowed Mr Demarco's appeal from an order of Graham J made on 29th July 1999 and discharged an injunction which he had granted to the appellants. The injunction had restrained Mr Demarco from presenting a petition to wind up the Company on the just and equitable ground. The appellants seek to have the injunction restored.
The judge granted the injunction on the ground that Mr Demarco had unreasonably refused a fair offer for the purchase of his shares and was threatening to bring winding-up proceedings for an improper purpose, that is to say in order to extract a still higher offer, a course which the appellants condemn as tantamount to blackmail and an abuse of the process of the court. The Court of Appeal allowed Mr Demarco's appeal because they were not satisfied that the offer for his shares was a fair one.
Two interrelated questions thus lie at the heart of the present appeal: (1) Was the offer to purchase Mr Demarco's shares a fair one so that it was unreasonable for him to reject it? (2) Were the threatened proceedings brought for an ulterior purpose and thus an abuse of the process of the court?
The Company's business.
The Company is a single venture vehicle which carries on business as the general manager of a venture capital limited partnership established under the law of the Cayman Islands. The limited partners, who provide the funds of the partnership, are Citibank N A and associated companies. The funds have largely been invested in Brazilian enterprises and are said to be worth in the region of US$1 billion. They belong to the limited partners; the Company has no beneficial interest in them. It derives its substantial income from fees and commissions for making deals and acquisitions on behalf of the partnership.
Under the arrangements between the Company and the limited partners entered into in December 1997, the Company can be removed as general manager for cause by a simple majority of the limited partners or without cause by a 75% majority of such partners. "Cause" is defined to include the institution of proceedings seeking the liquidation or winding up of the Company where the proceedings are not dismissed or stayed within 30 days of their institution. The partnership is to be treated as dissolved upon the removal of the general manager unless 75% in value of the limited partners agree within 90 days upon the appointment of another general manager.
Since the limited partners are associated companies, their Lordships consider it unnecessary to consider whether the presentation of the proposed petition would constitute "cause" to remove the Company as general manager. They propose to proceed on the footing that the Company's tenure as general manager is at the will of the limited partners and so relatively precarious in any event. At the same time they would observe that, while the limited partners may be free to remove the company as general manager, it does not follow that it is open to the individuals behind Opportunity to accept the substitution of another company with different shareholders without accounting for any benefit which they might themselves obtain by the substitution: see North Holdings Ltd. v Southern Tropics Ltd. [1999] BCC 746 and the cases there cited.
The Company's structure.
Mr Demarco, who is resident in Brazil, became a shareholder, director and employee of the Company in December 1997. The Company has 100 issued ordinary shares of $1 each which are and have since then been held as follows:
The four individuals were all deal-makers engaged by the Company in late 1997 by written agreements on similar terms.
| Mr Demarco 1 | |
| Mr Andrade | 1 |
| Mr de Carvalho | 1 |
| Mr Wilson | 1 |
| Opportunity | 96 |
Although Mr Demarco holds only 1% of the issued shares, he claims in the draft petition to be beneficially entitled to 3.5% of the Company's issued share capital pursuant to an oral agreement between him and the Appellants entered into prior to his engagement. His claim is denied by the appellants, who advance a different case as to what was orally agreed between them. This dispute still remains to be resolved but is not material to the present appeal.
Mr Demarco's appointment.
Under the terms of his engagement, Mr Demarco was employed full time in the business of the Company, his employment was terminable on 3 days' notice by either party, and upon termination of his employment he was at the Company's request to resign immediately from office as a director without any claim for compensation. While his employment continued he was entitled to (i) a director's salary of US$12,000 per annum (ii) aggregate annual remuneration of US$240,000 (inclusive of director's salary) and (iii) a performance bonus by way of a share in the profits on any deal he effected for the partnership.
Under the terms of a Shareholders' Agreement to which all the members of the Company were parties: (i) a director could be removed only by shareholders holding a majority of the shares in the Company; (ii) a shareholder should not sell any share in the Company except to Opportunity pursuant to Annex A to the Agreement; (iii) Opportunity granted each shareholder an irrevocable put option over his shares at a price and on the terms to be agreed pursuant to Annex A; and (iv) each of the individual shareholders granted Opportunity a call option over his shares on similar terms. Annex A was left blank.
On 4th February 1999 Mr Demarco was dismissed by Opportunity for alleged "bad performance". Since then he has been excluded from any part in the management of the Company. He has no longer been invited to attend board meetings or sent financial information in relation to the Company or the partnership. Mr Demarco accepts that he cannot challenge his dismissal or exclusion from management of the Company's business; but he does challenge Opportunity's right to exclude him therefrom without offering him a fair price for his shares.
Company Law in the Cayman Islands.
Section 94 of the Companies Act (1998 Revision) of the Cayman Islands provides that a company may be wound up by the court if
"… (d) the Court is of opinion that it is just and equitable that the company should be wound up."
Corresponding provisions in identical terms have formed part of English company law since the first of the Companies Acts, viz. the Companies Act 1862. Indeed, it made its first appearance in the Joint Stock Companies Winding Up Act of 1848. The relevant provision is now contained in section 122 of the English Insolvency Act 1986. Despite its presence in that Act, it is well established that a shareholder with fully paid shares has no locus standi to present a winding up petition unless there is prima facie evidence that there would be a surplus on a winding up.
The statute law of the Cayman Islands contains no provision corresponding to section 210 of the Companies Act 1948 or its successors section 75 of the Companies Act 1980 and section 459 of the Companies Act 1985. These enable a shareholder to present a petition on the ground that the company's affairs are being or have been conducted in a manner which is oppressive (or in the later legislation unfairly prejudicial) to the interests of some part of the members including himself. They give the court wide powers to make such orders as it thinks fit with a view to bringing the matters complained of to an end, including a power to regulate the conduct of the company's affairs in the future, and a power to order the company or other members of the company to purchase the petitioner's shares. Under the Companies Act 1948 it was necessary for the petitioner to establish facts which would justify the winding up of the company on the just and equitable ground even though that was not the remedy which he sought; but this is no longer required.
Section 210 of the English 1948 Act implemented a recommendation of the Cohen Committee on Company Law Amendment which reported in 1945 (Cmd 6659 para 60). The Committee was anxious to strengthen the position of minority shareholders. It observed that the winding up of the company, which was the only remedy then available, would often not benefit the minority shareholder, since the break up value of the assets might be small, and the only available purchaser might be that very majority whose conduct had driven the minority to seek redress. Accordingly, the Committee recommended that the court should have a jurisdiction which it had previously lacked to impose a just solution on the parties. In practice, the courts have generally sought to bring the matters complained of to an end by requiring one party, usually but not invariably the majority shareholders, to buy the other parties' shares at a fair price, fixed in case of dispute by the court.
As their Lordships have already noted, no such jurisdiction has been conferred on the court in the Cayman Islands. The only remedy available to a minority shareholder...
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