NOTES OF CASES
| Published date | 01 November 1958 |
| Date | 01 November 1958 |
| DOI | http://doi.org/10.1111/j.1468-2230.1958.tb00503.x |
NOTES
OF
CASES
COMPANY
LAW~PPBESSION
OF
MINOBITIEB
Scottish Co-operative Wholesale Society,
Ltd.
v.
Meyer
has some
claims to be regarded
as
the most important decision in the field
of company law since the passing of the Companies Act,
1948.
It
concerns the new
''
alternative remedy
yy
introduced by section
210
of
that Act as
a
result of the recommendations of the Cohen Com-
mittee.l In effect the section enables the court to make any order
it
thinks appropriate to end a course of oppression in the conduct
of the company's affairs. Hitherto there has been some reluctance
in English professional circles to put this section to the ultimate
test;
it
has been intensively invoked as
a
weapon in negotiation
but there has been
no
example in England of a case under the
section being fought to a successful conclusion. As
so
often our
Scottish brethren have been bolder; their first major attack was
UnsuccessfulYJ but now they have triumphed. And the House
of
Lords have shown a determination
to
give the section
a
liberal
interpretation.' Hence
it
is likely in future to play a still more
important role in company practice.
Since the case has been debated
in
full
on
no
less than three
occasions5 extending over four years, the facts and issues ought
now to be reasonably familiar
to
practitioners. But owing
to
the
insularity of English lawyers
it
is probable that many remained
ignorant of this fascinating litigation until
it
left Edinburgh and
came to Westminster-thereby converting
it
from
a
mere
"
foreign
decision
yy
to a binding authority. Briefly, thenyo the two respond-
ents were experts in the rayon business which the appellants (the
Society) wished to enter upon. A company was accordingly formed
Unlike certain of the alterations made by
the
1948
Act this is one which
has
generally been followed by those Common-
wealth countries which have recently amended their Acts.
"Your Lordships are giving
a
liberal interpretation
to
eection
210.
But
it
is
a
new section designed
to
suppress an acknowledged mischief. When
it
comes before the House for the first time it is,
I
believe, in
accordance
with
long precedent .
.
.
that your Lordships should give such construction
as
shall
advance the remedy. This
characteristic remark of Lord Denning's
([1958]
3
All
I$.R.,
at
p.
89)
seems
to represent the approach of
all
their Lordships. Even Lord Morton,
who
was the on1 one to express doubts about the result, expressly stated (at
p.
76)
that Ee was not disposed to give
a
narrow meaning to the words of
the section having regard to its manifest object.
5
Twice in the Inner House of the Court of Session
(1954
S.C.
381
and
1957
S.C.
110)
and finally in the House of Lords (supra).
6
The facts are given in some detail in the speech
of
Lord Keith. As he says
(at
p.
75)
"it is dillicult to compress the salient features of the
cnse
even
in broad outline," but the essentials are, it is thought, given in the test.
1
[l968]
3
All
E.R.
66,
H.L.,
nleo
reported in
[1958]
3
W.L.R.
404..
a
Cmd.
6659,
paras.
60
and
152.
J
Elder
v.
Elder
d
Walson,
195%
S.C.
49.
And that is what your Lordshi
s
do
today."
658
63
4
THE
MODERN
LAW
REVIEW
VOL
21
in
19%
the Society becoming the majority shareholder and the
respondents the minority shareholders. The respondents and three
of the directors of the Society (as its nominees) were directors of
the company. The company needed three things
:
sourccs of supply
of rayon yarn, a licence from Cotton Control and weaving mills.
The respondents supplied the first two, together with the general
“
know-how,” but the weaving mills used were those owned by the
Society. For many years the business prospered and the company
paid large dividends and accumulated substantial reserves.
It
was
this, apparently, that led to trouble between the Society and the
respondents. The Society had not subscribed for as large a pro-
portion of the shares in the company as originally agreed.
Accordingly
it
received
a
somewhat smaller proportion
of
the spoils
than its directors thought appropriate. They therefore sought to
realign the shareholdings
on
the basis that the respondents parted
with some of theirs at par. Since the
El
shares were then worth
something over
EG
the respondents naturally objected to this and
the Society was ultimately advised that
it
could not insist. This
rebuff was met by threats, conveyed
to
the respondents through
the Society’s nominee directors, that the Society would put the
company into liquidation. This
it
could not do straight-forwardly,
as
it
did not hold
a
threequarters majority of the shares.
In June,
1952,
cotton control was abolished and this meant
that the Society could henceforth obtain rayon yarn and weave
cloth without
a
licence.
It
accordingly started to do
so
for itself
and starved the company of supplies by refusing to manufacture
for
it
except at uneconomic prices.
As
all other mills were fully
occupied the company was being starved to death. This,
it
later
became clear, was the Society’s intention and one well
known
to
its nominee directors
on
the company’s board. The latter, how-
ever, did nothing to attempt to prevent its demise. In July,
1958,
when the company was obviously almost at death’s door, the
respondents instituted proceedings under section
210.
They
claimed, in the words of that section, that “the affairs of the
company were being conducted
in
a manner oppressive to some
part of the members,” 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.” And they asked that “with a
view to bringing to an end the matters complained of
”
the court
should order the Society to purchase the respmdents’ shares at
a
fair price.
The petition came first before the Inner House
on
relevancy,
i.c.,
on
the question whether the facts pleaded disclosed a cause of
action. The court ruled that they did.l Evidence was then taken
before one of the judges and the matter again came before the
full division, which gave judgment for the respondents and ordered
7
1954
S.C.
381.
Nov.
1968
NOTES
OF
CASES
655
the Society to purchase their shares at
€8
15s.
each.8 The House
of Lords dismissed the Society’s appeal. All three decisions were
unanimous.
Whatever
‘‘
oppression
”
may mean, and a variety of definitions
were canvassed, it could hardly be doubted that the respondents
had been oppressed. But this alone was not sufficient to afford
them a remedy under the section. They had to show that the
‘‘
affairs of the company had been conducted
”
oppressively. The
Society argued that it was not conducting the company’s affairs,
its directors were. All the Society had done was to promote its
own economic interests by driving a competitor
to
the wall. Had
the company been wholly independent
of
the Society
it
could
hardly be doubted that the latter would have been within its rights.’
Did the fact that the company was a subsidiary of the Society suffice
to make the latter liable? Or was it necessary to go further and
to show that the nominee directors had themselves conducted the
company’s business oppressively in the interests of the Society
?
On
these questions their Lordships were not,
it
seems, wholly
in agreement.
In
the House of Lords, Lords Simonds’O and
Keith
I1
adopted the view of Lord Cooper
la
that:
“
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. The truth is that, whenever
a
subsidiary is formed as
in
this case with an independent minority
of
shareholders the parent
company must,
if
it
is engaged in the same class of business, accept
as
a
result of having formed such a subsidiary an obligation
so
to conduct what are in
a
sense its
own
affairs as to deal fairly with
its subsidiary.” Indeed, Lord Simonds went
so
far
as
to declare
that
it
was impossible to separate the transactions of the Society
from those of the company;
cc
every step taken by the latter was
determined by the policy of the former.”
l3
Lord Denning,
on
the other hand, emphasised the impact of
the Society’s conduct
on
the nominee directors; “by subor-
dinating the interests of the company to those of the Society, they
conducted the affairs of the company in
a
manner oppressive
to the other shareholders.”“ The fact that they were perhaps
guilty merely of inaction was irrelevant;
“
the affairs of a company
can
. .
.
be conducted oppressively by the directors doing nothing
to defend its interests when they ought
to
do something.” They
ought at least to have protested; it did not lie in their mouths
to say that
a
protest would have done
no
good.
On
the other
1957
S.C.
110.
A
serious trade recession
in
195142
had reduced the value
of
the shares which, as already pointed out,
had
nt one timc been worth
over
€6.
Per
Lord Keith, at
p.
84.
lo
At
p.
72.
11
At
p.
85.
12
At
1954
S.C.
391.
13
At
p.
71.
14
At
p.
88.
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