Pacific Investments Ltd v Christensen and Seven Others

CourtRoyal Court
JudgeLe Cras, Lieutenant Bailiff and Jurats Orchard and Gruchy:
Judgment Date10 August 1995
Date10 August 1995
Le Cras, Lieutenant Bailiff and Jurats Orchard and Gruchy:

J.G. White for the plaintiff;

W.J. Bailhache for the first to fourth and eighth defendants;

A.D. Hoy for the fifth defendant;

R.J. Michel for the sixth and seventh defendants.

Cases cited:

(1) Company, Re a, [1986] BCLC 362.

(2) Prudential Assur. Co. Ltd. v. Newman Indus. Ltd. (No. 2), [1982] Ch. 204; [1982] 1 All E.R. 354; [1981] Com. L.R. 265; (1981), 126 Sol. Jo. 32, considered.

(3) Smith v. Croft (No. 2), [1988] Ch. 114; [1987] 3 All E.R. 909; 1987 PCC 209; [1987] 1 FTLR 319; (1986), 131 Sol. Jo. 1038; sub nom. Smith v. Croft (No. 3), [1987] BCLC 355, applied.

Additional cases cited by counsel:

Barrett v. Duckett, [1993] BCC 778.

Company (No. 003843 of 1986), Re a, [1987] BCLC 562.

Company (No. 008699 of 1985), Re a, (1986), 2 BCC 99024.

Elgindata Ltd., Re, [1991] BCLC 959.

Weller (Sam) & Sons Ltd., Re, [1990] BCLC 80.

Legislation construed:

Companies (Jersey) Law 1991, art. 141(1): The relevant terms of this paragraph are set out at page 259, lines 39-45.

Companieslegal proceedingsaction in respect of corporate wrongproper to adjourn hearing of minority shareholders' action pending general meeting seeking shareholders' viewssubsequent decision whether to allow action to continue to take into account those views, proceedings at meeting and fairness of information given to shareholders

The plaintiff brought an action against the defendants in respect of alleged corporate wrongdoing.

The plaintiff, a minority shareholder in the eighth defendant company, alleged that the company, controlled by its directors and majority shareholders (who had appointed the directors), the remaining defendants, had committed certain wrongful acts in their conduct of litigation and management of the company's assets. It accordingly initiated proceedings by Order of Justice, purportedly (a) as a derivative action on behalf of the minority shareholders, which it was entitled to bring as an exception to the rule in Foss v. Harbottle because the company was under the control of the wrongdoers; and (b) including an application under art. 141 of the Companies (Jersey) Law 1991 for an order to redress the wrongs, which constituted unfair prejudice to the minority shareholders, including itself.

There followed several procedural applications but shortly before the hearing of these or the main issues, the defendants gave notice to all the shareholders of an Extraordinary General Meeting of the company to determine whether they approved of the plaintiff's action; if they did not, the defendants stated, (a) the court would be asked to dismiss the plaintiff's action; and (b) the company would then be free to pursue its litigation.

The defendants also made the present application for all the outstanding issues to be adjourned pending the outcome of the Extraordinary General Meeting, submitting that (a) the court could not determine whether the plaintiff's action had properly been brought as a derivative action without knowing the views of the minority shareholders, which could only be discovered at the proposed meeting; and (b) if the shareholders disapproved of the plaintiff's action, it would then be appropriate for the court to dismiss it entirely, obviating the need to hear the outstanding procedural matters.

The plaintiff conceded that it was important that the views of the minority shareholders should be taken into account when deciding the main issues, but submitted that (a) the application had been made at very short notice and should be dismissed, because it was brought to gain the tactical advantage of blocking its action altogether and was not a genuine attempt to consult the minority shareholders; and (b) the statements made by the defendants when giving notice of the Extraordinary General Meeting were biased and would prejudice the other shareholders against the plaintiff, which would vitiate the result of the meeting.

The court also considered the propriety of the plaintiff's purported application under art. 141 in the present proceedings.

Held, allowing the application:

The views of the independent shareholders had to be considered before the court could decide whether it was proper to allow the plaintiff to bring an action on behalf of the company and for this purpose it was appropriate that the court should have before it evidence of the outcome of the Extraordinary General Meeting. It was not at this stage for the court to consider whether the information put to the minority shareholders had been fair, since that would be a matter to consider, together with the proceedings at the Extraordinary General Meeting itself, at a resumed hearing. Moreover, the court would need all this information whether it was considering the propriety of a derivative action brought by Order of Justice or a minority shareholders' application under art. 141 based on unfair prejudicethough it was doubtful whether an application under art. 141 could properly be included in an action brought by Order of Justice. In any event, an adjournment would be ordered pending the outcome of the proposed Extraordinary General Meeting, following which the parties should seek further directions (page 259, lines 18-34; page 260, lines 10-42).

LE CRAS, LIEUTENANT BAILIFF: The present proceedings, which are brought by a minority shareholder in the eighth defendant, American Endeavour Fund Ltd., form part of wide ranging litigation. The litigation in Jersey has produced a whole series of applications and representations which we do not presently need to set out in full as before we are called upon to deal with them, we have heard an application by Mr. Bailhache for the first, second, third, fourth and eighth defendants, backed by Mr. Hoy for the fifth defendant, that all further proceedings should be stayed here until an Extraordinary General Meeting of the eighth defendant ("the Fund") has been held on September 4th, 1995.

The situation arises in this way. The fifth defendant, Firmandale Investments Ltd., with nearly 75% of the shareholding of the Fund, has appointed the first to fourth defendants as Directors. The plaintiff, Pacific Investments Ltd., owns nearly 5% of the shares in the fund and is suspected by the defendants of being connected to, of being a surrogate connected to or of being a surrogate of the Govett Group. The remaining 20% or so of the shares are owned by between (we are told) 150 and 180 independent shareholders. The objectives of Pacific are clearly set out in the Order of Justice, which accuses the Fund and Firmandale of wrongdoing.

Mr. Bailhache today raises the point that before embarking on a series of hearings relating to these proceedings, the court should consider whether the plaintiff should be permitted, as a minority shareholder...

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