Elder v Elder and Watson Ltd
| Jurisdiction | Scotland |
| Judgment Date | 29 November 1951 |
| Docket Number | No. 7. |
| Date | 29 November 1951 |
| Year | 1952 |
| Court | Court of Session |
1ST DIVISION.
Company—Winding-up—"Just and equitable"—Alternative remedy in cases of oppression—Members of private company deprived of directorships and employment—Position as shareholders unaffected—Whether entitled to remedy—Applicability of partnership law—Companies Act, 1948 (11 and 12 Geo. VI, cap. 38), sec. 210—Partnership Act, 1890 (53 and 54 Vict. cap. 39), sec. 35 (d).
George Young Elder, James Glass and three other shareholders in Elder & Watson, Limited, a private company incorporated under the Companies Acts, presented a petition in terms of section 210 of the Companies Act, 1948,1 for an order for the
purchase of the petitioners' shares by the company at a price of £1 for each preference share and £2, 15s. for each ordinary share, or at such other prices as the Court might fix.The company had an issued capital of £26,800, comprising 13,400 6 per cent cumulative preference shares of £1 each and 13,400 ordinary shares of £1 each. Of these, 6054 preference shares and 4626 ordinary shares were held by the petitioners. Prior to 18th March 1949 the directors of the company had been the first- and second-named petitioners and Walter Elder, the first-named petitioner's brother. At that date the first-named petitioner was secretary of the company, and the second-named petitioner was factory manager.
The petitioners' contentions, as summarised in article 10 of the petition, were (1) that Walter Elder had deliberately caused the company's affairs to be conducted in an oppressive manner and with a view to depriving the first- and second-named petitioners of their positions as directors and to obtaining control of the company by himself or his nominees, (2) that to wind up the
company would prejudice the petitioners, as it was an active trading concern which had earned increasing profits over a period of years, and (3) that in the circumstances the making of a winding-up order would be justified.The following narrative of the petitioners' detailed averments is taken from the opinion of the Lord President:—"In the spring of 1948 differences arose between Walter Elder and George Elder as directors of the company, and these culminated in an assault by the former upon the latter on 27th May 1948 when the parties were alone in the company's private office. It seems fairly obvious that, failing a reconciliation, one or other of these directors would have to go and the board would require to be reconstructed. No reconciliation was effected. In September 1948 Walter Elder and two of the shareholders asked George Elder to assist them in having James Glass removed from the board, to which George Elder would not agree. George Elder, whose health was not good, was then granted a month's leave of absence, and he was in fact disabled by illness for considerably longer and was absent from duty for about four months. On 22nd November Walter Elder wrote to him, in purported execution of a decision of the directors reached at a meeting held on 18th November, asking him to state in writing whether it was his intention to return as director and secretary in a permanent capacity and unconditionally. No notice of the meeting of 18th November had been sent to George Elder, and at this meeting Walter Elder was authorised to purchase certain shares which had been owned by their father. It is not clear to me what use the petitioners seek to make of this point, for it is not said that George Elder, had he been present, could or would have bought the shares, nor does it appear from the pre-emption clause in the company's articles that he could have properly objected to the acquisition of the shares by his brother. Incidentally the shares in question only numbered 2687, and, even after acquiring them, Walter Elder held less than one-third of the issued capital and did not therefore possess a controlling interest. George Elder then asked that a further directors' meeting should be called, but was informed by Walter Elder that he must first reply to the letter of 22nd November. No reply was sent to this letter, but George Elder returned to work on 11th January 1949. On 15th February an extraordinary general meeting of the company was requisitioned by two shareholders for the purpose of removing George Elder from the board of directors. George Elder submitted representations under section 184 (3) of the Act, which Walter Elder refused to circulate to the shareholders, but the representations were in fact circulated by George Elder's solicitors. At the company meeting the resolution for George Elder's removal was passed, and Walter Elder was appointed chairman and managing director. At the annual general meeting in March 1949 James Glass was not re-elected a director, and on 28th April he was dismissed from his employment as factory manager with a month's salary in lieu of notice. In the following June two new directors were appointed at an extraordinary general meeting of the company. In July 1949 George Elder gave notice to the company that he was leaving their employment as secretary. Nothing else of moment happened until the present petition was raised more than eighteen months later, except abortive negotiations for the purchase of the shares held by George Elder and James Glass, who seem to have thought that under the articles they could force their holdings on the other directors or on the company, which is not the case."
The petitioners pleaded:—"The affairs of the company having been carried on in a manner oppressive to the petitioners, and the making of a winding-up order being justified in the circumtances condescended upon, the prayer of the petition should be granted."
The respondents pleaded, inter alia:—"(1) The petitioners' averments being irrelevant et separatim lacking in specification, the petition should be dismissed. (2) The averments in article 10 of the petition being irrelevant et separatim lacking in specification, the petition should be dismissed."
The case was heard before the First Division on 7th and 8th November 1951.
The Companies Act, 1948, by sec. 210, empowers the Court, on the application of any member of a company who complains that the affairs of the company are being conducted in a manner oppressive to some part of the members (including himself), to make such order as it thinks fit for, inter alia, the purchase of any members' shares by the company, if "the Court is of opinion—(a) that the company's affairs are being conducted as aforesaid; and (b)that to wind up the company would unfairly prejudice that part of the members, but otherwise the facts would justify the making of a winding-up order on the ground that it was just and equitable that the company should be wound up."
In a petition presented under sec. 210, it was averred that two of the petitioners, shareholders in a private limited company which was in effect a small family concern, had suffered oppression at the hands of other shareholders who had used their combined voting powers to remove these petitioners from their offices as directors and from their employment as secretary and factory manager respectively. It was further averred that this action had been taken against them at the instigation of a director who had had serious differences with one of them and who had sought successfully in this way to obtain control of the company for himself and his nominees. There was no averment that the business had been mismanaged to the detriment of the shareholders. Before presenting the petition, the petitioners had sought unsuccessfully to dispose of their shares to the company at a price to be fixed by arbitration.
Held (1) that sec. 210 was intended to meet the case of oppression of members of a company in their character as such; (2) that the matters complained of by the petitioners affected them solely in the character of director or employee of the company, and there were thus no relevant averments of oppression for the purposes of the section; and (3) that there were no facts averred which would justify a winding-up order on "just and equitable" grounds; and the petitiondismissed as irrelevant.
Observations (per the Lord President and Lord Keith) on the application of the principles governing the winding-up of a partnership under sec. 35 (d) of the Partnership Act, 1890, to the case of a small private company.
Argued for the respondents;—The petitioners' averments were irrelevant. There were three requirements for the application of section 210 of the Companies Act2:—(1) There must have been oppression of a minority; (2) a winding-up must unfairly prejudice the minority; and (3) the facts must be such as would justify a winding-up on "just and equitable" grounds. The respondents were not concerned to dispute that condition (2) was satisfied. Condition (1) was not satisfied, as there were no relevant averments of oppression. The petitioners must aver that they had been oppressed as shareholders, and not merely as directors or employees. Here their interest as shareholders was not affected. The value of their shares had not depreciated. A company employee whose position as such was affected, but whose position as a member was not affected, was in the same position as an employee who was not a member of the company. Mere refusal by the directors to buy a member's shares was not oppression; there might be various reasons why they could not do so. It was not clear what the petitioners meant by their reference to Walter Elder's "nominees." It was not oppression to acquire a majority of the shares; oppression depended on how the power so acquired was used. It was part of the conception of company law that the power of the majority should prevail. Section 210 constituted an exception to a general rule.3 This exception applied only in extreme cases. Here there was no averment that any individual held a majority of...
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