Bell v Counsel Ltd

• Jurisdiction: Anguilla
• Court: High Court (Saint Christopher, Nevis And Anguilla)
• Judge: George-Creque, J.
• Judgment Date: 22 December 2003
• Neutral Citation: AI 2003 HC 10
• Docket Number: AXA HCV NO. 2003/0023
• Date: 22 December 2003

High Court

George-Creque, J.

AXA HCV NO. 2003/0023

Bell

and

Counsel Limited

Appearances:

Mr. Ravi A. Bahadursingh instructed by Wigley & Associates for claimant

Mr. John Carrington instructed by Webster Dyrud Mitchell for the defendant.

Company law - Derivative action — Directors — Breach of fiduciary duties in issuance and allotment of shares — Companies Act, s. 261 — Whether case one in which a derivative action should be brought in that it was a wrong done to the company or whether it involved an infringement of the shareholder's individual contractual rights for which the proper procedure is to sue in his individual capacity as a member — Determination by court that the derivative action was not the correct procedure — Leave to commence proceedings in the name of and on behalf of the defendant under s. 261 refused.

George-Creque, J.

1 The claimant by Fixed Date Claim Form filed on April 22 ^nd 2003 seeks the leave of the court to bring proceedings in the name and on behalf of the defendant company for breach of fiduciary duties committed by the directors of the defendant company pursuant to Section 261(1)(a) of the Companies Act R.S.A. C65 of Anguilla (“The Act”). The claimant also seeks further orders pursuant to sections 262 and 263 respectively, of The Act the following additional orders:

• (1) that the whole of reasonable costs of bringing and continuing proceedings on behalf of the defendant against the directors of the defendant be met by the defendant, and

• (2)

  • (a) authorizing the claimant to control the proceedings;

  • (b) giving directions for the conduct of proceedings; and

  • (c) that the defendant or it directors provide information or assistance in relation to the proceedings.

  The claimant's evidence in support of his Claim was by way of affidavit filed on even date in which he referred to and exhibited a number of documents comprising among others the share register and register of directors from inception of the defendant, and its constitutive documents.

2 The defendant filed an Acknowledgement of Service on May 2 ^nd 2003 and on May 16 ^th 2003, filed an Application seeking orders that the claimant's claims herein be struck out as disclosing no reasonable cause of action under the provisions of The Act and as being frivolous and vexatious and an abuse of process. The defendant relied on eleven grounds as set out in their Application as well as two affidavits sworn and filed by Malcolm Hope-Ross, Chairman of the defendant, one on May 16 ^th 2003 and the other on July 18 ^th 2003.

3 Skeletal arguments were filed on behalf of the claimant and the respondent and I am grateful to counsel on both sides for the authorities produced and the assistance rendered to the court in the presentation of their arguments.

4 The gravamen of the claimant's complaint in this action is that the directors who are also shareholders of the defendant issued to themselves additional shares which had the effect of altering the voting control or effectively diluting the voting proportion of the claimant from 50% to 20% in the defendant and such an alteration was therefore in breach of the fiduciary duties owed by the directors to the defendant and that in as much as the directors had indicated that no proceedings would be instituting by the company at their instance for breach of fiduciary duties owed to it then the remedies under sections 261, 262 and 263 of The Act were being invoked.

5 It is the defendant's contention that the claimant has not satisfied the requirements under section 261 of the Act for the grant of leave to bring a derivative action and further that the directors in the issuance of the additional shares to themselves are not in breach of their fiduciary or statutory duty to the defendant.

6 In order to obtain an appreciation of the matters giving rise to the issue before the court it is necessary to set out a short chronology of the factual background which now follows:

• (1) The defendant was incorporated on 23 ^rd September, 1986 with the primary purpose of carrying on the business of company management with a total authorized capital of 10,000 all of which were issued and allotted as follows:

  • (a) Joan M. Smith 1 ordinary share (converted to Class “A” share)

  • (b) Judith V. Smith 1 ordinary share (converted to Class “A” share)

  • (c) Clive F. Smith 98 Class “A” shares

  • (d) Hansa Bank & Trust co. Ltd. 4,950 Class “B” shares

  • (e) Hansa Bank & Trust co. Ltd. 4,950 Class “B” shares (converted to ordinary shares)

• (2) By various share transfers occurring between 23 ^rd September, 1986 and 1 ^st August 1988 Hansa Bank and Trust Co. Ltd. “Hansa Bank” and an entity called Span Corp Limited “Span Corp” held all of the issued shares of the defendant with Hansa Bank holding 9901 shares and Span Corp holding the remaining 99 shares. The claimant at that time was the sole beneficiary of the shares in Hansa Bank & and in Span Corp and in effect therefore, was the ultimate sole beneficial owner of the defendant. As can be gleaned from the share register of the defendant exhibited to claimant's affidavit as LB1, on 8 ^th August 1990, Malcolm Hope– Ross acquired 4, 450 Class “B” shares from Hansa Bank. As at 8 ^th August, 1990 all of the outstanding shares in the defendant were held as follows:

  • (a) Hansa Bank 5, 451 ordinary shares

  • (b) Malcolm Hope Ross 4,450 ordinary shares

  • (c) Span Corp 99 ordinary shares.

• (3) By 8 ^th August, 1990 the Board of Directors of the defendant comprised the claimant and Malcolm Hope Ross. Claimant resigned as a director of the defendant in April, 1993. Prior to this in March, 1993 two other directors were appointed namely Garnett B. Cutler and Michael J. Ward. Mr. Cutler resigned as a director in February 2000 and one Donald R. Curtis was appointed a director. Various other persons were appointed as directors who later were either removed or resigned so that as at the end of February 2000 the Board of Directors comprised three (3) persons namely Malcolm Hope Ross, Michael J. Ward and Donald R. Curtis. These three (3) persons continue to constitute the board of Directors of the defendant. Both Mr. Cutler and Mr. Ward were employed by the defendant. Mr. Curtis was employed sometime later in 1998.

• (4) On 5 ^th January, 1995 the following share transfers occurred:

  • (a) Span Corp transferred it 99 shares to the claimant;

  • (b) Hansa Bank transferred 4901 shares to the claimant, and

  • (c) Hansa Bank transferred 550 shares to Malcolm Hope Ross

  which resulted in the shareholding of the defendant as at 5 ^th January 1995 being as to 5,000 shares held by the claimant and as to 5,000, shares held by Malcolm Hope Ross.

• (5) On 16 ^th May 1995, by virtue of Articles of continuance being filed on behalf of the defendant the authorized share capital of the defendant was increased to 100,000 shares with no par value and on 25 ^th May 1995 further shares were issued and allotted as to 15,000 each to the claimant and Malcolm Hope Ross so that claimant and Malcolm Hope Ross each held the same number of shares — that is 20,000 each.

• (6) On 19 ^th July, claimant transferred shares to Mr. Cutler, Mr. Ward and a Ms. Rebecca Lake (who was then also an employee of the Defendant) in the amount of 4,000 shares to each of them. In February 1996 when Ms. Lake left the employ of the company she transferred her 4,000 shares as to 2,000 each to Mr. Cutler and Mr. Ward. Accordingly, as at 17 ^th February, 1996 the shareholding in the defendant stood as follows:

  • (a) Claimant — 8,000 shares

  • (b) Malcolm Hope Ross — 20,000 shares

  • (c) Garnett B. Cutler — 6,000 shares

  • (d) Michael J. Ward — 6,000 shares

  Total shares issued and outstanding as at 17 ^th February, 1996 were 40,000 shares. Claimant therefore as at 17 ^th February, 1996 was a 20% shareholder.

• (7) On 29 ^th February 2000 Mr. Hope Ross transferred 6,000 of his shares to Mr. Donald Curtis who was also an employee of the company since sometime in 1998. Accordingly, as at 29 ^th February, 2000 the shares in the Defendant were then held as follows:

  • (a) Claimant 8,000 shares

  • (b) Malcolm Hope Ross 14,000 shares

  • (c) Garnett Cutler 6,000 shares

  • (d) Micheal Ward 6,000 shares

  • (e) Donald Curtis 6,000 shares.

  Making up the total of the 40,000 issued and outstanding shares in the defendant. The claimant therefore remained a 20% shareholder.

• (8) Sometime from 1996 onwards it is fair to say that relations between the claimant and some members of the Board of Directors of the defendant became strained. The claimant, it appears, was dissatisfied with the level or quality of services being provided by the defendant and the decline in the profitability of the defendant and an issue as to the solvency or continuation of the company as a viable enterprise became a concern. Letters were exchanged between the claimant and the defendant and matters got to the stage where in 2001 thought was being given to the winding up and dissolution of the defendant.

• (9) However in early February, 2002, Mr. Hope Ross through various correspondence by emails and letters Mr. Hope Ross evinced an interest in acquiring the shares held by the claimant, Mr. Cutler and Mr. Ward.

• (10) Mr. Cutler however transferred his 6,000 shares to the claimant on 21 ^st March 2002 thereby bringing claimant's shareholding to 14,000 shares so that as at 21 ^st March 2002 claimant's voting percentage would have purportedly stood at 35%.

• (11) The claimant however learned by an email on 6 ^th July, 2002 in which the holding of an Annual general meeting of the defendant was being fixed, that the directors of the defendant had by resolution of directors on 19 ^th January, 2002 (“the January 02 Resolution”) issued and allotted the remaining 60,000 un-issued shares to Malcolm Hope Ross and Donald Curtis in the proportions of 40,000 and 20,000 respectively so that Mr. Hope Ross's shareholding as at 19 ^th January, 2002 was...