BAILII [Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]

Jersey Unreported Judgments


You are here: BAILII >> Databases >> Jersey Unreported Judgments >> Representation of Galasys Plc [2016] JRC 188 (17 October 2016)
URL: http://www.bailii.org/je/cases/UR/2016/2016_188.html
Cite as: [2016] JRC 188

[New search] [Context] [Printable version] [Help]


Companies - application regarding validity and effect of certain resolutions.

[2016]JRC188

Royal Court

(Samedi)

17 October 2016

Before     :

Sir Michael Birt, Commissioner and Jurats Nicolle and Grime

Between

(1)   Galasys Plc

(2)   Teh Kim Seng

(3)   Vincent Lai Tak Yuen

Representors

 

And

(1)   Seah Kok Wah

(2)   Chuah Teong Mingh

(3)   Hee Chee Keong

(4)   Chin See Seong

Respondents

 

IN THE MATTER OF GALASYS PLC

Advocate B. J. Lincoln for the First and Second Representors.

Advocate P. D. James for the Respondents.

judgment

the commissioner:

1.        This application forms part of complex and hard-fought litigation as to who are the directors and who is authorised to act in the name and on behalf of Galasys Plc ("the Company").  This particular application is concerned with the validity and effect of certain resolutions passed at an Extraordinary General Meeting ("EGM") of the members of the Company on 12th September, 2016. 

2.        In order to understand the context of the application, it is necessary to record as briefly as possible the factual background and the course of the proceedings so far. 

The Factual Background

3.        The Company is incorporated in Jersey.  It is the holding company of a group of companies which carry on business primarily in China and Malaysia.  At all material times, the shares in the Company were listed on AIM. 

4.        As at 21st October, 2015, the board of directors comprised the following:-

Name

Position

The Second Representor ("Mr Teh")

Non-Executive Chairman

The First Respondent ("Mr Seah")

Executive Director

The Second Respondent ("Mr Chuah")

Executive Director

The Third Respondent ("Mr Hee")

Executive Director

The Fourth Respondent ("Mr Chin")

Non-Executive Director

The Third Representor ("Mr Lai")

Non-Executive Director

Mr Garry Peagam ("Mr Peagam")

Non-Executive Director

5.        The three largest shareholders in the Company are as follows.  A company called Well Oriental Investments Limited ("WOI") holds 34.99% of the shares.  WOI is owned substantially by Mr Seah and Mr Chuah, although Mr Hee is also a shareholder.  Netrove Ventures Corporation ("Netrove") owns 11.13% of the shares (subject to a dispute over some of them).  Netrove is wholly owned by Mr Teh. Shiji (Hong Kong) Limited ("Shiji") became a 20% shareholder in April 2015 and has exercised its contractual right to nominate a director, being Mr Lai. 

6.        Pursuant to the requirements of AIM, the board had constituted a sub-committee, known as the Nomination Committee, which comprised Mr Teh, Mr Lai and Mr Peagam (as the independent director on the board).  On 19th October, 2015, the Nomination Committee unanimously recommended to the board that the employment of Mr Hee and Mr Chin should be terminated.  According to the Representors, this was because of concerns over their performance, whereas the Respondents contend that this was part of a plot by Mr Teh and others to gain control of the Company. 

7.        A board meeting took place on 21st October, 2015.  There is a dispute as to what occurred at that meeting.  According to the Representors, resolutions to terminate the employment of Mr Hee and Mr Chin were passed.  According to the Respondents, the meeting was adjourned prior to voting upon the resolutions to remove Mr Hee and Mr Chin, which was voted upon only by Mr Teh, Mr Peagam and Mr Lai. 

8.        There then followed a number of further meetings at which resolutions and counter-resolutions were purportedly passed.  Most of these are disputed as there is a fundamental disagreement as to whether Mr Hee and Mr Chin were still directors, and whether or not various directors had a conflict of interest which prohibited them from voting under the articles of association of the Company. 

9.        Mr Hee and Mr Chin subsequently commenced proceedings before the High Court in Malaysia against the Company and the members of the Nomination Committee.  The proceedings sought declaratory relief regarding the validity (or otherwise) of various resolutions of the Company, including those to terminate the employment of Mr Hee and Mr Chin. 

10.      According to the Representors, on 3rd November, 2015, the board passed a resolution appointing the Nomination Committee (as a sub-committee of the board) to deal with the Malaysian proceedings. 

11.      On 9th December, 2015, Mr Seah and Mr Chuah purported to convene an EGM for 29th December, 2015, to consider resolutions to remove two of the three members of the Nomination Committee as directors (Mr Teh and Mr Peagam); to appoint Mr Seah as executive chairman; to confirm the appointment/re-appointment of Mr Hee and Mr Chin to the board; and to appoint three new non-executive directors. 

12.      As part of the listing on AIM, the Company had entered into a 'Relationship Agreement' with WOI and others.  That agreement was entered into because of the perceived risk of WOI having too much control over the Company to the detriment of other shareholders.  The Relationship Agreement prohibited WOI from (amongst other things) voting at any general meeting to 'unduly influence' the composition of the board of the Company.  The Nomination Committee believed that the resolutions at the proposed EGM would constitute 'undue influence' and accordingly the Nomination Committee decided to institute proceedings before the High Court in England (the Relationship Agreement being governed by English law and containing a provision conferring exclusive jurisdiction upon the English High Court).  According to the Representation, a board meeting on 18th December authorised the Nomination Committee to appoint lawyers in England, Jersey and Malaysia, and to issue or defend proceedings in the name of the Company in any jurisdiction.  The validity of that resolution is disputed by the Respondents.  

13.      Mr Peagam resigned as a director of the Company on 18th December, 2015.  This left Mr Teh and Mr Lai as the members of the Nomination Committee.  It also left the board evenly divided between Mr Teh and Mr Lai on the one hand, and Mr Seah and Mr Chuah on the other (assuming that Mr Hee and Mr Chin were no longer directors). 

14.      On 20th December, 2015, a written resolution was signed by certain directors purporting to replace Mr Teh as chairman of the Company by Mr Seah.  One of the signatories to that resolution was Mr Hee and it is of course disputed as to whether he was still a director at that time. 

15.      On 23rd December, 2015, the High Court granted an interim injunction preventing the EGM from going ahead and restraining WOI and the other defendants (including the Respondents) from taking steps to reconstitute the board.  In the English proceedings, WOI and the Respondents argued that the Nomination Committee had no authority to commence the English proceedings in the name of the Company.  They argued that all four Respondents were still directors and that accordingly they out-voted the three man (later two man) Nomination Committee.  In the circumstances the English Court required an undertaking from the Company to bring proceedings in Jersey with all due expedition to resolve that dispute before returning to England to decide the merits of the claim under the Relationship Agreement.  The Jersey proceedings were therefore commenced in January 2016 in order to resolve the issue of whether the Nomination Committee was properly authorised to pursue the English proceedings in the name of the Company.  This required the Court to consider what happened at the meeting of 21st October and subsequent meetings so as to ascertain who were the directors of the Company. 

These Proceedings

16.      These proceedings were originally listed as a cause de briéveté and were listed for trial with an estimate of 5-8 days in April 2016.  However, the Respondents were granted permission to amend their defence so as to allege that the members of the Nomination Committee were not acting bona fide in the best interests of the Company and that accordingly, even if the decisions were taken on 21st October and thereafter as the Representors alleged, they were voidable because of this improper purpose.  This meant that the proceedings immediately became very much more complex and detailed.  The April trial date was vacated to facilitate settlement discussions but these were unsuccessful.  The trial was re-fixed to begin on 20th September with an estimate of three weeks. 

17.      The next relevant event is that on 10th August, 2016, Mr Lai resigned as a director of the Company.  This meant that Mr Teh was the only remaining member of the Nomination Committee in circumstances where the terms of reference of that Committee required two directors for a quorum.  It also meant that the deadlock at board level was broken as there were now three undisputed directors, namely Mr Teh on one side and Mr Seah and Mr Chuah on the other.  These latter two called a board meeting for 17th August to discuss the resignation of Mr Lai and circulated draft written resolutions purporting to revoke any authority of the Nomination Committee or Mr Teh to continue giving instructions on behalf of the Company and to confer such authority upon Mr Seah.  Mr Teh immediately responded to the effect that any such resolutions would be invalid as both Mr Seah and Mr Chuah, as Respondents to the actions in England and Jersey, clearly had a conflict of interest in relation to such a matter and were prohibited from voting.  The board meeting went ahead on 17th August by conference call although the contents of the meeting are disputed.  The upshot was that on 18th August Mr Seah and Mr Chuah signed the written resolutions and in consequence wrote to the lawyers acting on behalf of the Company on the instructions of the Nomination Committee (i.e. Nabarro LLP in England, Mourant Ozannes in Jersey and Zaid Ibrahim & Co in Malaysia) purporting to terminate the Company's retainer with those firms. 

18.      On 18th August, 2016, the Nominated Adviser (Nomad), a requirement of listing on AIM, gave notice of its immediate resignation following the Nomad's attendance at the board meeting of the previous day.  This meant that trading of the Company's shares on AIM was suspended with immediate effect and the Company had thirty days to appoint a new Nomad or it would be delisted. 

19.      On 26th August, the board received notices from the requisite percentage of shareholders calling for an EGM to be held in order to consider resolutions in broadly the same terms as the resolutions purportedly passed by the written board resolutions dated 18th August.  That EGM was convened for 12th September. 

20.      On 30th August, there was a pre-trial review held before the Commissioner.  This had originally been intended as a conventional hearing to give any final directions necessary for the trial, which was due to commence on 20th September.  However, in the light of the developments just referred to, Mr Teh asked for the Court to make various rulings, including that what had happened was contrary to an interim agreement reached between the parties concerning the management of the Company pending resolution of the litigation in Jersey, that it was also in breach of the English injunction, and that the written resolutions of 18th August were invalid because Mr Seah and Mr Chuah were not entitled to vote because of a clear conflict of interest.  He further asked for a ruling that he was still entitled to give instructions on behalf of the Company. 

21.      The Commissioner declined to make any such rulings at such short notice in the absence of satisfactory evidence and submissions but noted that an EGM had been called for.  He indicated that, if the Company in general meeting were, with no votes on the part of WOI, to vote to discontinue the proceedings, he would be willing to vacate the trial date and hear an application on behalf of the Company to discontinue the proceedings.  If, on the other hand, the shareholders did not vote in favour of the resolutions, the trial date was to be maintained. 

22.      The Court was subsequently informed that the resolutions had been passed and accordingly the Commissioner vacated the trial date.  However, Mr Teh now raises certain challenges to the resolutions passed at the EGM and it is necessary to consider that issue before considering any application by the Company to discontinue the proceedings. 

The EGM

23.      The EGM was held at an office in Kuala Lumpur on 12th September at 11am Malaysian time.  It is clear that it was an eventful meeting.  Mr Teh attended. He considered that he should chair the meeting as chairman of the Company.  This was disputed by Mr Seah, who waited for five minutes and then proceeded purportedly in accordance with article 18.3 of the articles of association, which provides that if neither chairman nor deputy chairman is present or willing to act as chairman of the meeting, the directors present should elect one of their number to be chairman.  All three undisputed directors were present.  A vote was held and, by a majority, Mr Seah was elected to chair the meeting. 

24.      Thereafter there were a number of difficulties.  We have read Mr Teh's version of the events at the EGM as well as that of Mr Seah.  Mr Teh is entitled to submit with some justification that there was considerable confusion over whether the voting should be by show of hands or by poll, when in reality the position was clear and the votes should have been counted by means of a poll, as eventually they were.  He raised many questions, many of which were not answered, and the upshot was that eventually he was ejected from the meeting in circumstances which he describes as being extremely threatening and intimidating, with threats being made to him and his family in Hong Kong.  His suspicions were also justifiably raised because Mr Seah kept referring to discretionary votes in the hands of the chairman, from which Mr Teh assumed that some of the proxies from shareholders had conferred a discretion on the chairman, with the consequence that the identity of the chairman was extremely significant. 

25.      Scrutineers were however present and no one has criticised their independence.  On the poll each of the resolutions was passed by the same majority.  18,647,774 shares (67.52% of the votes cast) were in favour. 8,968,353 shares (32.48% of the votes cast) were against, and 91,111 shares represented at the meeting abstained. 

26.      The resolutions passed were in the following terms:-

"1.       The proceedings involving the Company in the courts of England and Wales, Jersey and Malaysia in respect of the disputes between the directors as to the lawfulness of certain decisions and actions of the directors of the Company during the period from October 2015 onwards are not in the best interests of the Company and shall be discontinued as soon as possible on the best terms as to costs as may be achieved.

2.        Authority shall be given to the Chief Executive Officer of the Company [Mr Seah] to take all necessary steps immediately to discontinue all of the legal proceedings involving the Company in the United Kingdom, Jersey and Malaysia including but not limited to retaining, and terminating the retainer of any legal advisers in such jurisdictions.

3.        Henceforth [Mr Teh] either in his capacity as an individual Director of the Company or as a member of the Nomination Committee or any other committee of the board, shall not have any authority to communicate with, direct and / or otherwise instruct Nabarro LLP, Mourant Ozannes and Zaid Ibrahim & Co in any manner whatsoever regarding the legal proceedings stated above on behalf of the Company.

4.        Save and except with the express written approval of all other members of the Company's board, [Mr Teh] shall not have any authority to represent the Company in relation to the legal proceedings stated above and / or any matter related to and arising out of the legal proceedings.

5.        Authority shall be given to the Chief Executive Officer of the Company [Mr Seah] to give written notice to Nabarro LLP, Mourant Ozannes and Zaid Ibrahim & Co respectively that Mr Teh in his personal capacity or in any purported capacity as a member of the Nomination Committee does not have the authority to communicate with, direct, authorise and instruct them in any manner whatsoever on behalf of the Company in matter [sic] relating to the legal proceedings stated above."

27.      We should add that since the EGM, the Company's shares have been delisted from AIM because of the failure to appoint a new Nomad. We have been informed that this means that the Relationship Agreement has terminated.  It apparently also means that WOI and those who support it are now free to vote without restriction and effectively have control of the Company. 

This Application

28.      Advocate Lincoln accepted that there was an issue as to whether Mourant Ozannes could appear for the Company given the lack of quorum for the Nomination Committee.  He said that although his firm did continue still to represent the Company pending any determination that such authority had been revoked, his submissions were being put forward essentially on behalf of Mr Teh.  He confirmed that his firm is no longer instructed by Mr Lai. 

Was a Special Resolution required?

29.      The resolutions passed at the EGM were passed as ordinary resolutions.  Advocate Lincoln submits that the law requires that resolutions such as these have to be passed as special resolutions in order to have any effect.  By a combination of Article 90 of the Companies (Jersey) Law 1991 ("the Law") and article 1.2.36 of the articles of association of the Company, a special resolution in the present case means a resolution passed by a majority of three quarters of the members voting in person or by proxy. 

30.      Advocate Lincoln's submission is straightforward.  He argues that it is well established that, where the articles of a company provide that the management of the company's business lies in the hands of the board of directors, the shareholders may not interfere other than by special resolution i.e. a resolution sufficient to amend the articles.  As the resolutions passed in this case were not passed by a majority sufficient to qualify as special resolutions, they are of no effect. 

31.      Advocate James, on the other hand, submitted that there was an exception to this general principle where the board of directors was unable or unwilling to act.  That was the situation here and where such exception arose, an ordinary resolution was sufficient.  In response, Advocate Lincoln submitted that, even if the exception applied, a special resolution was required in this case. 

32.      There was no dispute between counsel as to the general principle which applies where the articles of a company (as in this case) confer the power to manage the company's business upon the directors.  It has been established in a number of cases and we would refer only to the following:-

(i)In Gramaphone and Typewriter Limited v Stanley [1908] 2 KB 89, Buckley LJ said at 105-106:-

"This Court decided not long since, in Automatic Self-Cleansing Filter Syndicate Co Ltd v Cunninghame [1906] 2 Ch 34, that even a resolution of a numerical majority at a general meeting of the company cannot impose its will upon the directors when the articles have confided to them the control of the company's affairs.  The directors are not servants to obey directions given by the shareholders as individuals; they are not agents appointed by and bound to serve the shareholders as their principals.  They are persons who may by the regulations be entrusted with the control of the business, and if so entrusted they can be dispossessed from that control only by the statutory majority which can alter the articles....."

(ii)       In Salmon v Quin & Axtens Limited [1909] 1 Ch 311, the shareholders by ordinary resolutions resolved that the company should acquire certain properties.  The directors had passed similar resolutions but one of the directors had dissented and, under the articles, his consent was required for the board's decision to be effective.  The board resolution was therefore invalid.  The Court of Appeal (in a decision subsequently upheld by the House of Lords) held that the company should be restrained from acting upon any of the resolutions on the basis that the ordinary resolutions were of no effect.  Farwell LJ specifically approved the comments of Buckley LJ just referred to and went on to say at 319:-

"That appears to me to express the true view.  Any other construction might, I think, be disastrous, because it might lead to an interference by a bare majority very inimical to the interests of the minority who had come into a company on the footing that the business should be managed by the board of directors."

(iii)      In John Shaw and Sons (Salford) Limited v Shaw [1935] 2 KB 113, certain directors resolved to institute proceedings to recover sums owed by certain other directors.  The shareholders subsequently passed an ordinary resolution directing the board to discontinue those proceedings.  The Court of Appeal held that a decision of the directors could not be overridden by an ordinary resolution of the shareholders.  Greer LJ expressed the position as follows at 134:-

"I think the judge was also right in refusing to give effect to the resolution of the meeting of the shareholders requiring the chairman to instruct the company's solicitors not to proceed further with the action.  A company is an entity distinct alike from its shareholders and its directors.  Some of its powers may, according to its articles, be exercised by directors, certain other powers may be reserved for the shareholders in general meeting.  If powers of management are vested in the directors, they and they alone can exercise these powers."

33.      The position described in the above cases is reflected in the articles of the Company.  Article 24.1 is in common form and provides:-

"Subject to the provisions of the Companies Law, the Memorandum and these Articles, and to any directions given by Special Resolution, the business of the Company shall be managed by the board which may exercise all the powers of the Company....."

34.      However, the authorities are clear that, in certain limited circumstances, there can be an exception to the above principle.  This is summarised in Gower's Principles of Modern Company Law (10th Edition) at 14 - 11 in the following terms:-

"Despite what has been said above about the powers of the board and their impact on the powers of the shareholders, it seems that, if for some reason the board cannot exercise the powers vested in them, the general meeting may do so.  On this ground, action by the general meeting has been held effective where there was a deadlock on the board; where there were no directors; where an effective quorum could not be obtained; or the directors were disqualified from voting.  These exceptions are convenient, but difficult to reconcile in principle with the strict theory of a division of powers.  Their exact limits are not entirely clear.  However, there seems good sense in the proposition that the shareholders may take the substantive decision only where the articles do not give them some effective way of reconstituting the board so as to remove the impediment to board decision-making."

35.      Examples of the exception are to be found in the following cases:-

(i)In Baron v Potter [1914] 1 Ch 895, there were two directors of the company and the quorum for board meetings was two.  One of the directors refused to attend any meetings so that the board could not function.  A meeting of shareholders passed a resolution appointing additional directors.  The articles conferred the power to appoint additional directors on the board.  In those circumstances it was contended that the shareholder resolution was of no effect.  Warrington J accepted the general principle that in the ordinary case, the shareholders could not exercise a power conferred on the directors.  However, this was a case where, for practical purposes, there was no board of directors at all as one of them refused to act with the other.  He concluded by saying this at 903:-

"If directors having certain powers are unable or unwilling to exercise them - are in fact a non-existent body for the purpose - there must be some power in the company to do itself that which under other circumstances would be otherwise done.  The directors in the present case being unwilling to appoint additional directors under the power conferred on them by the articles, in my opinion, the company in general meeting has power to make the appointment."

(ii)       In Foster v Foster [1916] 1 Ch 532, a number of issues arose but for present purposes, the relevant dispute was over whether the plaintiff or the defendant Mrs Foster should be appointed as managing director.  The power to make such appointment rested under the articles with the board.  The board had passed a resolution appointing Mrs Foster but that was invalid because she should not have voted because of a conflict of interest.  A meeting of shareholders was called for the purpose of confirming the resolution to appoint Mrs Foster and the question arose as to whether the shareholders had power to make such an appointment.  Peterson J followed the decision in Baron v Potter and held that, as the board had been reduced to the position that it was unable, owing to internal friction and faction, to appoint anybody as managing director, the company could effect an appointment in general meeting. 

36.      We are in no doubt that we are in the position discussed in the above cases because the board of the Company is unable to act in relation to any decision to discontinue or continue the litigation in this jurisdiction, England and Malaysia.  Article 29.4 of the articles provides that a director shall not vote on any resolution of the board concerning any contract, transaction, arrangement or other proposal whatsoever to which the Company is or is to be a party and in which the director has an interest which is to his knowledge a material interest 'otherwise than by virtue of his interests in shares.....of or otherwise in or through the Company.....'.

37.      The Respondents sought to argue that they could take advantage of the italicised words, in that the underlying dispute was related to the fact that they were shareholders in WOI which was a shareholder in the Company.  We have to say that we consider that to be a hopeless submission.  The interest which the directors have is because of their position as parties to the litigation.  Mr Seah and Mr Chuah are Respondents and clearly stand to gain if the litigation is discontinued.  They have a material interest in any decision of the Company to discontinue the litigation.  Mr Teh has a similar interest.  He has committed financial resources to funding the litigation on behalf of the Company and his financial position would clearly be materially affected by any decision to discontinue or to continue the litigation.  We have no hesitation in concluding that all three directors have a material interest in the decision in question and therefore may not vote.  It follows that the board is incapable of acting in relation to any decision to discontinue the litigation. 

38.      Although there is no doubt on the authorities that the Company in general meeting has a reserve power to act where the board is unable or unwilling to act, there is uncertainty as to the extent of this reserve power.  Does it extend to taking the management decisions which the board is unable to take, or is it normally limited to exercising a power to appoint additional or replacement directors so as to resolve any deadlock or inability to act?

39.      The wider approach derives support from the observation (admittedly obiter) of Lord Hailsham of St Marylebone in Alexander Ward and Co Limited v Samyang Navigation Co Limited [1975] 1 WLR 673.  The facts of that case were very different from the present case.  The company in question instituted action at the instance of two individuals who were not directors and had no authority to act for the company.  The company subsequently went into liquidation and the liquidator purported to ratify the proceedings which had been instituted.  The question was whether he could properly do so.  The House of Lords held that he could and in passing Lord Hailsham said this at 678:-

"In my opinion, at the relevant time, the company was fully competent either to lay arrestments or to raise proceedings in the Scottish courts.  The company could have done so either by appointing directors, or, as I think, by authorising proceedings in general meeting, which in the absence of an effective board, has a residual authority to use the company's powers.  It had not taken, and did not take, the steps necessary to give authority to perform the necessary actions.  But it was competent to have done so, and in my view it was therefore a competent principal within the meaning of the second of Wright J's three conditions." [emphasis added].

Having then referred to the third edition of Gower (which was to broadly similar effect as the passage quoted at para 34 above), Lord Hailsham continued:-

"Counsel attempted to draw a distinction between the cases supposed in this passage, where the directors were for some reason unable or unwilling to act, and the instant case where there were no directors.  I see no difference in this distinction......".

40.      Advocate James submitted that Foster was also supportive of the approach indicated by Lord Hailsham.  The decision in Foster was not to appoint a new director to resolve an impasse, but was a decision as to which of two existing directors should be appointed as managing director.  It was in effect a management decision normally to be taken by the board and therefore went beyond the limited function envisaged in the narrower approach described above. 

41.      Support for the narrower approach is to be found in the decision of the Court of Appeal of New South Wales in Massey v Wales [2003] NSW CA 212.  The facts of that case, so far as material, were that the company had three shareholders, each holding approximately one third of the share capital.  Two of the directors constituted the only directors of the board.  One of the directors purported to appoint the third shareholder as a third director and thereafter these two directors gave instructions to a firm of lawyers to commence proceedings against, amongst others, the other director.  Subsequently, a meeting of shareholders passed a resolution ratifying the appointment of the solicitors in relation to the legal proceedings.  The Court held that the appointment by the board of the third shareholder as an additional director was invalid as it had been made by only one of the original two directors and under the articles, the presence of two directors was necessary to constitute a quorum.  The issue then arose as to whether the company in general meeting was empowered to ratify the appointment of the solicitors to institute the proceedings and the institution of those proceedings. 

42.      The Court of Appeal conducted a thorough review of the authorities, some of which we have referred to earlier.  Having reminded itself of the general principle, the Court held at para 47:-

"I have stated a general position; and there is strong authority that this is subject to a qualification to the effect that, where the board is unable or unwilling to act, the general meeting does have some kind of reserve power.  In my opinion, the source of this reserve power must be considered a matter of implication or presumed intention of the members, on the basis of business efficacy or necessity."

43.      However the Court then went on to say that it did not seem reasonable to regard a deadlock between board members as giving rise to any general power of management in the shareholders in general meeting when the deadlock could be resolved by the meeting exercising its power to appoint additional directors.  The Court respectfully disagreed with the observation of Lord Hailsham referred to above and went on to hold that, on the facts of that case, the deadlock could have been resolved by appointing additional directors at the shareholder meeting and the board so constituted would then have had power to ratify the commencement of proceedings.  It held therefore that the general meeting did not have the power to ratify the commencement of the legal proceedings.  The last sentence of the passage from Gower quoted at para 34 above is based on the decision in Massey. 

44.      Part of the reasoning to justify this limitation of the reserve power is to be found in para 46 of the judgment which reads:-

"Furthermore, there is reason to see this as a significant aspect of the contract between the members constituted by the memorandum and articles of the company.  It is of significance that management of the company should be by a body of persons who each have a fiduciary duty to act in the interests of the company as a whole, rather than a body where the majority is free to favour its own interests over those of the minority.  The general meeting does have power to approve transactions undertaken by directors which might otherwise be a breach of fiduciary duty; but this requires that there be full disclosure by the board to the general meeting, and it is also subject to the requirement that there not be 'fraud in the minority' or oppression.  Despite this power in the general meeting, it is reasonable to see the entrusting of management to a body of persons subject to fiduciary duties to act in the interests of the company, as a whole, as giving greater protection to minority shareholders than they would have if the general meeting could simply make majority decisions on management matters."

45.      The Court did however envisage some circumstances in which a power of management could be exercised by the shareholders in general meeting because it said at para 48:-

"That may leave some circumstances in which, as a matter of business efficacy or necessity, some terms could be implied by which a general meeting could exercise emergency powers, namely where an urgent decision is required and the members are unanimous, or where no one ready, willing and able to accept an appointment as a director, so as to resolve a deadlock, could be found."

46.      Had it been necessary to resolve this difference of opinion as to the extent of the reserve power, we would, as at present advised, have been inclined towards the wider view expressed by Lord Hailsham and exemplified in Foster.  However, it is not necessary for us to resolve the point.  That is because, at the time the general meeting was held, it was arguably not open to the shareholders to reconstitute the board because of the terms of the injunction from the English High Court.  We can certainly accept that the shareholders might have felt it necessary to apply to the High Court before the meeting for a variation or for clarification that the injunction did not prevent the shareholders (other than WOI and its associates) from appointing new directors thereby reconstituting the board.  Accordingly, even if Massey is correct, the facts of this case fall within the exception envisaged at para 48 of the judgment (quoted at para 45 above). 

47.      In the circumstances, we hold that it was open to the shareholders in general meeting to exercise the power (which would otherwise belong to the board) to discontinue the litigation in three jurisdictions and give directions as to how this could be achieved and who had authority to speak for the Company in this respect. 

48.      Advocate Lincoln's final point in this respect was that, even if the shareholders in general meeting had such a reserve power, it could only be exercised by special resolution.  In this respect he referred back to the terms of article 24.1 of the articles set out at para 33 above. 

49.      We cannot accept that argument.  Careful reading of the authorities shows that the courts were invariably concerned with whether the shareholders could by ordinary resolution exercise management functions conferred on the board.  The general principle was that they could not but, where the board was unable or unwilling to act, the shareholders could so act.  It would be pointless to recognise such a reserve power if it could only be exercised by special resolution as this would not advance the position at all.  In common with most articles of association, article 24.1 enables the shareholders to give directions to the board by special resolution even where the board is perfectly willing and able to act.  There would thus be no point to any reserve power where the board is unable or unwilling to act if such power could only be exercised by special resolution.  This is not a case of the Court going against the articles.  As the Court of Appeal in Massey made clear, the existence of this reserve power exercisable by ordinary resolution is simply to cover a position not envisaged by the articles, namely where the board is unable or unwilling to function. 

50.      In the circumstances, we do not need to consider Advocate James' alternative submission.  Nevertheless, in case we are wrong about our decision on the nature of the reserve power exercisable in general meeting, we shall consider the position briefly. 

51.      Article 29.9 of the articles of the Company provides:-

"Subject to the Companies Law the Company may by Ordinary Resolution suspend or relax the provisions of Articles 29.1 to 29.7 to any extent or ratify any transaction or arrangement not duly authorised by reason of a contravention of this Article 29."

52.      That is wide wording and in our judgment is wide enough to cover a decision relating to the discontinuance of litigation in which the Company is involved. 

53.      As we have already held, the two directors (Mr Seah and Mr Chuah) who voted in favour of the decision to procure the discontinuance of the litigation had a clear interest in that decision and their vote was therefore in contravention of article 29.4.  On the face of it therefore an ordinary resolution (as oppose to a special resolution) would be sufficient to ratify the (unauthorised) decision of the board pursuant to article 29.9. 

54.      Advocate Lincoln submitted that there was nothing in the terms of the resolutions put to the EGM which used the word 'ratify' or suggested that the shareholders were being asked to ratify the board's decision.  We do not agree.  Whilst it is correct that the word 'ratification' or 'ratify' is not used in the resolutions, the terms of paragraphs 2 to 5 of the resolutions are, save for minor grammatical changes, identical to the resolutions passed by the board.  The only addition is paragraph 1, which merely states expressly what is implicit in paragraph 2.  In our judgment, looked at as a matter of common sense, the ordinary resolutions are in generally identical terms to the board resolution and can therefore be said to have ratified the decision of the board. 

55.      Advocate Lincoln's second argument on this point is that article 29.9 of the articles is contrary and must give way to Article 76 of the Law.  Article 75 of the Law provides that a director must disclose a material interest and lays down how this should be done.  Article 76 goes on to say (so far as relevant) as follows:-

"(1)     Subject to paragraphs (2) and (3), where a director fails to disclose an interest of the director under Article 75 the company or a member of the company may apply to the court for an order setting aside the transaction concerned and directing that the director account to the company for any profit or gain realised, and the court may so order or make such other order as it thinks fit.

(ii)       A transaction is not voidable and a director is not accountable, under paragraph (1) where, notwithstanding a failure to comply with Article 75:-

(a)       the transaction is confirmed by special resolution; and

(b)      the nature and extent of the directors interest in the transaction were disclosed in reasonable detail in the notice calling the meeting at which the resolution is passed.

(iii)     .......".

56.      Advocate Lincoln submits that this is mandatory and that accordingly a transaction where a director has failed to disclose an interest is voidable unless confirmed by special resolution; confirmation by ordinary resolution is insufficient to save the transaction even if that is what the articles provide. 

57.      We accept the general point made by Advocate Lincoln and, to the extent that article 29.9 deals with overcoming a failure to disclose an interest by passing an ordinary resolution, it cannot stand with Article 76 of the Law and to that extent would be ineffective.  However, article 29.9 does not just deal with failures to disclose an interest; it deals with cases (such as the present) where directors have voted notwithstanding an interest even where that interest is disclosed.  We accept that there is nothing before us to show that Mr Seah and Mr Chuah formally disclosed their interest in the decision by having it recorded in accordance with Article 75.  However, the Court has to have regard to the realities of the situation.  This was a case where Mr Seah and Mr Chuah were engaged in public litigation in three jurisdictions in which Mr Teh, the other director, was on the opposing side.  It was abundantly well known to Mr Teh that they had this interest and indeed he asserted as much both before the board resolution was passed and in his circular to the members prior to the EGM.  We do not think therefore that this was a case which falls within Article 76.  It was not a case of ratifying a decision where the directors had failed to disclose an interest; it was a case of the members being asked to ratify a decision where directors had acted in contravention of article 29.4 by voting on a matter where they had a disclosed interest.  That is not covered by Article 76 and accordingly article 29.9 is effective, so that an ordinary resolution is sufficient to ratify the decision.  Accordingly, even if we are wrong on Advocate James' primary submission about the reserve power of the shareholders in general meeting, the decision of the board was validly ratified at the EGM pursuant to article 29.9. 

58.      For these reasons, we hold that it was sufficient for the Company to pass the resolutions in this case by means of ordinary resolutions and special resolutions were not required. 

Other Concerns

59.      Mr Teh's affidavit and the skeleton argument filed in support of the summons, raised certain other grounds for doubting the validity of the resolutions passed at the EGM.  During the course of the hearing, Advocate Lincoln, while maintaining the concerns were validly raised, accepted that in the light of the evidence filed by the Respondents, these concerns were not themselves sufficient to cause the Court to declare the resolutions to be invalid.  In the circumstances we will refer to them only briefly. 

60.      The concerns raised were as follows:-

(i)The meeting was called with insufficient notice. 

(ii)       Mr Seah wrongly acted as chairman of the meeting; it should have been Mr Teh as chairman of the Company.  This was particularly important as Mr Seah had indicated during the course of the meeting that certain proxies were exercisable at the discretion of the chairman.  If this were correct, the result could have been affected by the identity of the chairman. 

(iii)      Prior to, during and after the EGM, Mr Teh requested sight of the proxy forms.  This was denied to him before and during the EGM.  It was later agreed that he could inspect them but only at the office in Malaysia. Given the intimidation which he had suffered when being ejected from the meeting, this was not a realistic proposal. 

(iv)      There was concern as to whether the votes had been correctly recorded.  Mr Teh exhibited to his affidavit a form of proxy dated 8th September, 2016, from JIM Nominees Limited, one of the Company's shareholders, which indicated that it wished to use 446,667 shares in its name to vote against the resolutions but no such votes against were recorded. 

(v)       Mr Teh was wrongly ejected from the meeting, which breached Article 18.4 of the articles, which gives a director a right to attend and speak at a general meeting. 

61.      In the light of the evidence now before the Court, the position in relation to these concerns appears to be as follows. 

62.      As to (i), the evidence is that the notices were posted to shareholders on 26th August and also placed on the Company's website on that date.  Allowing for the time laid down in the articles for postage, this is sufficient to give the fourteen days clear notice required under the articles. 

63.      As to (ii), the position was clearly not straightforward with Mr Teh and Mr Seah each asserting that he was the chairman of the Company.  However, on the evidence now available, it is clear that the identity of the chairman cannot have made any difference.  All the proxies have now been produced and none of them confers a discretion on the chairman.  It follows that the identity of the chairman did not affect the voting, although we can well understand why, as a result of what was said at the meeting, Mr Teh was concerned that this might be the case. 

64.      As to (iii), it was in our judgment quite wrong of the Respondents not to supply copies of the proxies to Mr Teh when requested.  It gave rise to justifiable suspicion and there was no good reason for the refusal.  The offer that he should inspect in person was inadequate.  Nevertheless, the proxies have all now been exhibited and nothing in them appears to affect the validity of the vote. 

65.      As to (iv), it transpires that a number of proxies arrived after the deadline contained in the notice convening the EGM.  Included in these was the proxy from JIM Nominees Limited referred to by Mr Teh.  That explains why it was not recorded in the vote.  The evidence shows that proxies against the resolutions which arrived too late were outnumbered by out-of-time proxies which were in favour of the resolutions and that accordingly, had all the proxies which were out of time been counted, the vote would have been greater in favour of the resolutions. 

66.      Without hearing oral evidence, it is impossible for the Court to resolve whether Mr Teh's conduct was indeed so disruptive as to justify his eviction or whether the Respondents simply took advantage of the position to remove him.  Nevertheless, on the evidence, his removal was after the vote and accordingly cannot have affected it.  Mr Teh had had the opportunity prior thereto to make his points during the meeting and had circulated a detailed paper to all members prior to the meeting so that they were aware of his views.  Accordingly, we do not think that, even if wrongful, his eviction would be such as to invalidate the resolutions. 

67.      Ultimately, the votes were counted by independent scrutineers against whom no aspersions are cast.  The Court has now seen all the proxy forms and there is no reason to doubt that the votes were as recorded and certified by the scrutineers. 

Conclusion

68.      In all the circumstances, we dismiss this summons.  We find no grounds upon which to declare the ordinary resolutions passed at the EGM invalid or ineffective to achieve their purpose. 

69.      Had we concluded that the resolutions were invalid or should have been special resolutions, we would have exercised the power conferred on the Court under Article 94 of the Law to call a further meeting and would have given directions for the conduct of that meeting broadly on the lines suggested by Mr Teh in his summons.  However, in view of our decision, that point does not arise. 

70.      The third limb of the summons was that, if we were to convene a further EGM, the Court should give some indication of the terms upon which it might give leave to the Company to discontinue the proceedings.  In view of our decision on the validity of the resolutions, that point no longer arises. 

Authorities

Companies (Jersey) Law 1991.

Gramaphone and Typewriter Limited v Stanley [1908] 2 KB 89.

Salmon v Quin & Axtens Limited [1909] 1 Ch 311.

John Shaw and Sons (Salford) Limited v Shaw [1935] 2 KB 113.

Gower's Principles of Modern Company Law (10th Edition).

Baron v Potter [1914] 1 Ch 895.

Foster v Foster [1916] 1 Ch 532.

Alexander Ward and Co Limited v Samyang Navigation Co Limited [1975] 1 WLR 673.

Massey v Wales [2003] NSW CA 212.


Page Last Updated: 24 Oct 2016


BAILII: Copyright Policy | Disclaimers | Privacy Policy | Feedback | Donate to BAILII
URL: http://www.bailii.org/je/cases/UR/2016/2016_188.html