Heyting v Dupont

I will ask Lord Justice Russell to read the first judgment in this case.

This appeal is from a decision of Mr. Justice plowman that a claim, asserting liability of a director of a Jersey incorporated limited liability company, to the company for damages for misfeasance, could not be put forward by a shareholder suing on behalf of himself and shareholders other than the allegedly liable director, who held the majority of shares and could therefore control a vote on whether the company should be a plaintiff in such a claim. It thus appears that the question is whethor this is a case in which a departure from the rule in Foss v. Harbottle is required. I dare say the rule in Foss v. Harbottle is a conception as unfamiliar in the Channel Islands as is the Clameur de Haro in the jurisdiction of England and Wales. But clearly this is a matter of procedure to be decided according to the law of this forum.

In the court below this question involved the judge contra mundum. This was because the defendant Dupont had elected to assert a counterclaim which itself required exception from the rule in Foss v. Harbottle, notwithstanding that he was in fact the majority shareholder. The point was taken by the judge. In this court the counterclaim - whose close resemblance to the claim was an indication that this is essentially a dispute between two discordant partners - was not pursued, and Mr. Harvey for the respondent was free to support the judge's decision to dismiss the action.

The plaintiff-appellant Heyting owned 2, 003 shares in the company, the defendant-respondent Dupont owned 3, 003 shares, and the remaining 15 issued shares were outstanding in five professional men who fulfilled the function of subscribers to the Memorandum of Association. The company was incorporated in Jersey to exploit an invention of Dupont which consisted in a machine which could travel over ground manufacturing by extrusion and laying a plastic pipe to be used for the conduct of liquids.

There was an agreement between the two that the company when formed should have the benefit of the invention and any letters patent in respect thereof. The capital was subscribed in cash. The Articles of Association were calculated to produce deadlock should the parties disagree, and this happened. The directors were to be not more than seven nor less than three. The subscribers nominated the first Board of four, including Heyting and Dupont. No director could be elected thereafter except by a three-fourths majority. Three was the quorum. One director resigned in January, 1955, another died in April, 1957. No other was appointed. After the first death either Heyting or Dupont could prevent any decision by the Board by not attending meetings. After April, 1957, there was no Board capable of acting. Any Board meeting outside Jersey was incapable of passing a resolution, and a written decision to be effective without a meeting required unanimity. It is plain from the allegations in the Statement of Claim that Heyting and Dupont soon became at loggerheads, and with that constitution it is not surprising to find that the company never succeeded in getting beyond making a prototype machine. Dupont was at some stage appointed managing director.

Before this court the problem ultimately was displayed in this fashion. Heyting contended that under two heads Dupont had by misfeasance damaged the company. The first was this: That he as managing director received from the company's patent agent in February, 1956, a patent application by the company signed by him as inventor authorising the granting of a patent to the company, and signed by him as director of the company. The Patent Office which had had this document for a long time apparently wanted the seal of the company to be appended to it.

The allegation was that after receiving this document in his capacity as director he withheld it from the company until July, 1957, while during the same period asserting that he and not the cdmpany was beneficially entitled to the invention, though he took no steps to benefit himself by the invention. Thiswithholding of a property of the company - the document - during this period, coupled with his assertion of "beneficial entitlement to the invention, was, it was said, a misfeasance which resulted in damage to the company in that it was hampered and delayed in the development of and profiting through the invention: the company could not in the absence of the application franked by the inventor, and in the presence of the inventor's rivai contention to beneficial entitlement, presume to push forward with development and exploitation of the invention, or so it is in effect alleged. The complete specification was lodged in January, 1955, and the patent was granted with effect from a date in 1959, without the application form I think ever being sealed.

The second suggestion was this: That at a meeting in early 1955 between the then three directors in Jersey - not said to be a Board Meeting - Mr. Dupont indicated that he had negotiated an agreement to sell the one and only machine ever made in accord-ance with the invention, but refused to disclose to the other two any details of it or even the name of the other party unless they were prepared to ratify a cheque which it was alleged he had wrongfully drawn on the company's bankers. It was accepted before us that there was not in fact a binding contract. It was alleged further that he had never thereafter made any disclosure of any detail of this negotiation to anyone. It was said that this withholding of information, property of the company, was a misfeasance causing damage in that the company lost an opportunity of selling the prototype machine.

The respondent asserted in this court that these two complaints as pleaded did not set out a case of damage caused to the company, supporting the judge's dismissal of the plaintiff's action on this additional ground. In my view this contention is correct as to the second head of complaint. The facts alleged do not seem to me to lead at all to the conclusion of a lost opportunity by the company: the assertion is a non sequitur. But I do noi; think that the first complaint can be dismissed on that ground. The allegation of damage to the company of thecharacter alleged is at least in theory sufficiently plausible for the pleading of misfeasance to hold water.

In those circumstances it is necessary to consider whether on the case as pleaded by the plaintiff the judge was right in refusing to recognise it as one which called for exemption from the rule in FOSS V. Harbottle that in general, in an action to remedy a wrong done to a company, the only acceptable plaintiff is the company.

Before approaching this question some attention must be paid to the course of this action. The writ was issued in January, 1957, and the Statement of Claim followed in February, 1957. The claim was for specific performance of the contract made between Heyting and Dupont to assign the benefit of the invention to the company; this was of course a personal contract between the individuals, and personal damages in addition were claimed. A claim was also made for delivery to the company of the patent application form already mentioned. The prayer to the Statement of Claim claimed damages for misfeasance under ( inter alia) the first now remaining head of complaint already mentioned - the withholding of the patent application foriii - but at that stage the pleading was defective in that no allegation was made of damage caused thereby to the company. In course of time the action and counterclaim found themselves before Mr. Justice Roxburgh in June, 1959. The company had not been served, the plaintiff having omitted to obtain in sufficient time leave to serve out of the jurisdiction, and was therefore not a party. It is essential in a minority shareholders' action that the company should be made a party: and this is so even if, as here, it be afflicted with the equivalent of quadriplegia. But that did not matter, because in the course of the hearing, to the undisguised relish of that learned judge, it transpired that -unnoticed and forgotten by all - the patent application together with a formal assignment to the company of all rights in the invention had been sent by Dupont's solicitors to Heyting's solicitors in July, 1957. The action was stood over generallyon the issues as to damages which all agreed could not be proceeded with in the absence of the company. There followed considerable amendment of the Statement of Claim in February, 1961, including allegations of damage suffered by the company, so that the two matters of complaint still alive before us were then first laid in the form which I have...