The Judicial Committee of the Privy Council Decisions

Privy Council Appeal No. 73 of 1996

 

(1) Bermuda Cablevision Limited

(2) McDonald Group Inc

(3) Atlantic Communications Limited and

(4) William W. McDonald Appellants

v.

Colica Trust Company Limited Respondent

 

FROM

 

THE COURT OF APPEAL OF BERMUDA

 

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JUDGMENT OF THE LORDS OF THE JUDICIAL

COMMITTEE OF THE PRIVY COUNCIL,

Delivered the 6th October 1997

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Present at the hearing:-

Lord Browne-Wilkinson

Lord Lloyd of Berwick

Lord Steyn

Lord Cooke of Thorndon

Lord Clyde

  ·[Delivered by Lord Steyn]

 

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The shape of the appeals.

Since 1987, under a licence granted by the Government, Bermuda Cablevision Limited ("Cablevision") has constructed, installed and operated a cable television system in Bermuda.  But for the involvement in Cablevision of two United States citizens, Mr. William W. McDonald and Mr. Alan McDonald, personally and through their corporate vehicles, the cable television project in Bermuda would not have achieved a successful outcome when it did.  And Cablevision would have remained a dormant company.  Colica Trust Company Ltd. became a registered shareholder in an already successful Cablevision in 1994.  Subsequently Colica bought up shares in Cablevision from the public.  Colica   acted   as  the  nominee  of  Bermuda   Telephone Company Ltd.  Colica believed when it bought the shares in Cablevision that the company was carrying on business contrary to restrictions on foreign involvement in local companies contained in section 114 of the Companies Act 1981.  Colica acted on the basis that "the unlawfulness could and should be put right, and hoped that it would be able to participate in putting it right".  In December 1994 Colica presented a petition under section 111 of the Companies Act 1981.  That section contains an alternative remedy to winding up in cases of oppression or prejudicial conduct as against the interests of some part of the members.  (The corresponding but differently worded provision in the Companies Act 1985 in the United Kingdom is section 459).  The main thrust of the petition was that Cablevision was controlled by the McDonald interests and was carrying on business unlawfully.  In February 1995 the McDonald interests (other than Mr. Alan McDonald who had died) applied to strike out the petition of Colica as being frivolous, vexatious or an abuse of process.  In August 1995 Ground J. ordered the petition to be struck out.  Colica appealed.  In April 1996 the Court of Appeal allowed the appeal and reinstated the petition.  With the leave of the Court of Appeal Cablevision and the McDonald interests (McDonald Group Inc., Atlantic Communications Limited and Mr. William McDonald) now appeal to the Privy Council.  At the hearing Cablevision and the McDonald interests were separately represented by counsel.  But they adopted identical positions and it is unnecessary to distinguish between their arguments.

 

1. Having obtained leave to appeal from the Court of Appeal on narrow questions of law, counsel for the appellants invited their Lordships to entertain an appeal on a multiplicity of points.  Their Lordships propose to keep firmly in mind that the appeal arises in the context of a striking out application and propose to decide only those issues which can sensibly and appropriately be decided on this appeal.  Before those issues can be identified it is necessary to give a brief account of the background to the appeal.

 

The legislative restriction on foreign involvement in local companies.

At all material times before the McDonald interests became involved in the affairs of Cablevision, and since then, section 114 of the Companies Act 1981, so far as relevant, provided:-

 

 

"(1)No local company shall carry on business of any sort in Bermuda unless -

(a)it is a company which, at the relevant time, complies with Part I of the Third Schedule ...

(b)...

(c)...

 

(2)Any local company that carries on business in contravention of subsection (1) shall be liable to a fine of one hundred dollars in respect of each day that it carries on business in contravention of the subsection."

 

2. Part I of the Third Schedule so far as it is relevant provides as follows:-

"1 (1)  The company shall be controlled by Bermudians.

 

  (2) Without prejudice to the generality of sub-paragraph (1), at least sixty per centum of the total voting rights in the company shall be exercisable by Bermudians.

 

2 (1)  The percentage of Bermudian directors, and the percentage of shares beneficially owned by Bermudians, in the company shall not be less than sixty per centum in each case ..."

 

3. Section 113 defines "Bermudian" but for present purposes that definition adds nothing of significance.  These were the statutory requirements with which the McDonalds had to comply when they became involved in the affairs of Cablevision.

 

The advent of the McDonalds.

By the end of 1986 the efforts of Mr. Wilson, the majority shareholder in Cablevision, to raise finance had failed.  In December 1986 Mr. Wilson and Mr. Craig, another shareholder in Cablevision, met the McDonald brothers at La Guardia airport.  The four men negotiated the core of an agreement and signed a manuscript to that effect.  McDonald Group Inc. ("MGI"), a United States corporation beneficially owned by the McDonald brothers, undertook to provide the funding for the construction of a cable  television  system  in Bermuda and to undertake the construction and operation of the system.  It was provided that: "In return for its contribution MGI will receive 60% of the equity of the CATV system in Bermuda".  In the next three months contractual documentation was prepared in furtherance of the transaction.  On 17th July 1987 the transaction was completed by execution of a number of agreements and documents.  On that date Cablevision and MGI entered into a Development Agreement whereby MGI undertook to procure a construction agreement with an appropriate contractor for the construction of the cable television network and to use its best efforts to procure appropriate bank finance.  On 17th July Cablevision and Atlantic Communications Limited ("Atlantic"), the McDonalds' Cayman Islands company, entered into a Consulting Agreement.  It provided for Atlantic to provide consulting services to Cablevision; for Atlantic to receive a consulting fee equal to 60% of the profits of Cablevision; and that the agreement was to be terminable only with the consent of both parties.  During the months preceding completion on 17th July 1987, the Bye-laws had been altered in a number of respects to protect the proposed investment of the McDonalds.  Further amendments were made on 17th July.  The outcome of the package of amendments was that the McDonalds acquired only a minority shareholding in Cablevision, i.e. 355,000 "B" shares allotted to the non-Bermudian McDonald group.  On the other hand, the Bye-laws spelt out in detail a comprehensive list of significant matters which could only be decided by special resolution at a general meeting.  Under the Bye-laws a special resolution could only be passed by a majority of at least 80%.  This gave the McDonald interests the capacity to block any significant resolution at a general meeting of shareholders.  The amended Bye-laws further provided that Cablevision's business should be managed by a board of directors, consisting of at least 6 directors, of whom 3 were to be appointed by the "A" shareholders and 3 by the "B" shareholders.  The "A" directors were to appoint the President and Secretary of Cablevision.  The "B" directors were to appoint the Vice-President and Assistant Secretary.  The Vice-President and failing him the Assistant Secretary would be chairman at board meetings.  In the result the McDonald appointees invariably had a casting vote at board meetings.

 

4. Following completion of the transaction the share capital was held as to 66.45% by Bermudians and 33.55% by non-Bermudians.   The  Board  was and remained constituted as

provided by the Bye-laws.  In the result the investment of the McDonalds was protected, notably by a combination of the amended Bye-laws and the Consulting Agreement.

 

5. In September 1987 the last hurdle was cleared: the necessary cable television licence was granted by the Government on 1st September 1987.  The McDonalds arranged bank finance in the form of a loan facility of US$5,500,000.  They or their companies subsequently lent in total more than $8m to Cablevision.  While such loans were at commercial rates of interest, and were secured, the McDonalds took the risk that the project might fail.  By July 1990 the system had more than 10,000 subscribers and Cablevision was beginning to make profits.  Since then Cablevision has continued to trade profitably.  Cablevision has repaid the loans to the McDonalds and their companies.  To date Cablevision has paid more than $5m by way of consulting fees to the McDonald interests.  That is, of course, a relatively modest sum in the light of the risks taken by the McDonalds.  But as matters stand the McDonald interests, having risked their capital, now have the prospect of receiving 60% of the profits of Cablevision without limit of time.

 

Section 111 of the Companies Act 1981.

Having described the context in which the petition was presented, it is now necessary to set out the relevant part of section 111:-

"(1)  Any member of a company who complains that the affairs of the company are being conducted or have been conducted in a manner oppressive or prejudicial to the interests of some part of the members, including himself, ... may make an application to the Court by petition for an order under this section.

(2)  If on any such petition the Court is of opinion -

(a)that the company's affairs are being conducted or have been conducted as aforesaid; and

(b)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 that the company should be wound up,

 

the Court may, with a view to bringing to an end the matters complained of, make such order as it thinks fit, whether for regulating the conduct of the company's affairs in future, or for the purchase of the shares of any members of the company by other members of the company or by the company and, in the case of a purchase by the company, for the reduction accordingly of the company's capital, or otherwise."

 

6. Subsection (3) makes clear that an order under subsection (2) may provide for an alteration or addition to a company's memorandum or bye-laws.

 

The decisions of Ground J. and the Court of Appeal.

Ground J. regarded the question of control of Cablevision as arguable but he struck out the petition on two grounds.  First, he held that the fact that Colica had prior knowledge of the structure put in place to protect the McDonalds' investment precluded a petition under section 111 inasmuch as there could be no arguable case of unfairness, which he held to be an essential requirement under section 111.  Secondly, Ground J. held that Colica was in reality seeking to enforce the criminal law and that this was a purpose beyond the reach of section 111.

 

7. The Court of Appeal regarded the question of control as arguable.  Sir James Astwood P. then concentrated on the question whether Colica was seeking to enforce the criminal law.  He answered that question in the negative.  He did not deal with the effect of Colica's prior knowledge.  Kempster J.A. held that there had to be implied in the statutory contract embodied in the Memorandum of Association and Bye-laws a term that the company would only carry on business lawfully: see section 16(1) of the Companies Act 1981.  For this reason he held that Colica had locus standi.  He said that the question of prior knowledge could not be considered on a striking out application.  Da Costa J.A. agreed with both judgments.

 

The major issues.

The threshold question is whether, by reason of section 114(1) of the Companies Act 1981 and Part I of the Third Schedule, Cablevision has been carrying on business unlawfully.  This issue turns on the construction of paragraph 1(1)  of  Part  I  of  the  Third Schedule.  It can be called the control issue.  It is appropriate for final determination.  The second major issue is whether the nature of Colica's case, involving as it does an allegation of a breach of the criminal law, precludes as a matter of law resort to section 111.  This issue was described by counsel as relating to the distinction between public law rights and private law remedies.  It will be convenient to discuss it under this general heading.  The third major issue is whether Colica's prior knowledge of the matters of which it now complains debars it as a matter of law from invoking section 111.

 

8. Apart from these three major issues their Lordships are persuaded that it will be convenient to decide an issue of construction which arises on Bye-law 32(2).  The nature of this issue will be explained in due course.

 

The control issue.

The question is whether the arrangements put in place to protect the investment made by the McDonald interests have had the result that the company has been carrying on business in breach of paragraph 1(1) of Part I of the Third Schedule which requires that the company "shall be controlled by Bermudians".  Counsel for the appellants submitted that the authorities establish that the natural meaning to be given to the word "controlled" in paragraph 1(1) is control by virtue of a simple majority of the votes entitled to be cast at general meetings of the company.  For this proposition counsel cited several tax cases which included three decisions of the House of Lords, namely British American Tobacco Company Limited v. Inland Revenue Commissioners [1943] A.C. 335; Inland Revenue Commissioners v. J. Bibby & Sons Limited [1945] 1 All ER 667; and Barclays Bank Limited v. Inland Revenue Commissioners [1961] A.C. 509.  The decisions cited do not assist.  Indeed a study of the reasoning in those decisions shows that expressions such as "control" and "controlling interest" take their colour from the context in which they appear.  There is no general rule as to what the word "controlled" means.  Contrary to the submissions of counsel for the appellants, the expression "controlled by Bermudians" in paragraph 1(1) is not a term of art.  The expression must be given the meaning which the context requires.  Paragraph 1(1) is the general provision and paragraph 1(2) is a specific provision introduced by the words "Without prejudice to the generality of sub-paragraph (1)".   Nothing  in  Part I of the Third Schedule warrants a restrictive interpretation of paragraph 1(1) to limit its scope to control by means of a vote at general meetings.  Indeed paragraph 2(1), so far as it requires the percentage of Bermudian directors not to be less than 60%, shows that the legislature did not proceed on the myopic footing that control can be exercised only through a vote at general meetings.  That the legislature was alive to the fact that businessmen might by "arrangement, artifice or device" create the appearance of compliance with the legislation is made clear elsewhere: see section 113(2).  This was the context in which the legislature adopted the broad general statutory requirement of control by Bermudians.  The generality of the meaning of control in such a context is illustrated by the famous decision of the House of Lords in Daimler Co. Ltd. v. Continental Tyre and Rubber Company (Great Britain) Limited [1916] 2 AC 307.  Lord Parker of Waddington observed (at page 340):-

"... I think that the analogy is to be found in control, an idea which, if not very familiar in law, is of capital importance and is very well understood in commerce and finance.  The acts of a company's organs, its directors, managers, secretary, and so forth, functioning within the scope of their authority, are the company's acts and may invest it definitively with enemy character.  It seems to me that similarly the character of those who can make and unmake those officers, dictate their conduct mediately or immediately, prescribe their duties and call them to account, may also be material in a question of the enemy character of the company.  If not definite and conclusive, it must at least be prima facie relevant, as raising a presumption that those who are purporting to act in the name of the company are, in fact, under the control of those whom it is their interest to satisfy."

 

9. While those observations dealing with an issue of trading with the enemy cannot be treated as definitive in the present case they are illustrative of a possible wide general meaning of the concept of control in the context of companies.  And their Lordships are satisfied that there is nothing in the present contextual scene which justifies any restriction on the natural width of the expression "controlled by Bermudians".  Indeed, if one has regard to the purpose of the legislation this conclusion is reinforced.  The purpose of the requirement is plainly to ensure that Bermudian resources remain Bermudian.  And  it  must  have  been  intended  to  make  an  effective

provision to this end.  Giving the words in paragraph 1(1) their ordinary meaning achieves this legislative purpose.

 

10. Once the appellants' restrictive interpretation is rejected, as their Lordships do, it is perfectly plain that the McDonald interests controlled Cablevision by the scheme constituted by the amended Bye-laws and the Consulting Agreement.  They controlled the board of directors through a casting vote and they controlled general meetings through the special resolution procedure.  And they entrenched their entitlement to receive 60% of the profits of Cablevision by the provision that the Consulting Agreement cannot be terminated without their consent.  In every relevant sense the McDonald interests had and have control of Cablevision.  The consequence of this holding must necessarily be that Cablevision has carried on business contrary to the provisions of section 114 of the Companies Act 1981, and unlawfully, since 1987.

 

11. In the light of this conclusion it is unnecessary to consider the alternative argument of Colica that the non-Bermudian control of Cablevision violates the legislative policy of the Telecommunications Act 1986 and the Cable Television Service Regulations 1987 under which the relevant licence was granted.

 

Public rights and private remedies.

Counsel for the appellants submitted that by their petition under section 111 the petitioners are attempting to enforce the criminal law.  And they argue on the authority of the decisions of the House of Lords in Gouriet v. Union of Post Office Workers [1978] AC 435 and Lonrho Ltd. v. Shell Petroleum Co. Ltd. [1982] A.C. 173 that as a matter of law the remedy under section 111 is not available for this purpose.  Their Lordships accept that it is a highly abnormal procedure to allow the civil law to be employed to enforce the criminal law.  And there are good constitutional reasons for allowing only the Attorney General to resort to such an unusual procedure.  The criminal law is best enforced directly by courts of criminal jurisdiction, who have to try criminal cases in accordance with criminal procedure and in recognition of the protections afforded to a citizen by our system of criminal justice.  Persons other than the Attorney General do not therefore have standing to enforce, through a civil court, the observance of the criminal law as such: C.B.S.  Songs  Limited  v.  Amstrad  Consumer  Electronics Plc [1988] Ch. 61, at page 76G, per Nicholls L.J. (now Lord Nicholls of Birkenhead).  To this extent their Lordships accept the arguments advanced on behalf of the appellants.

 

12. Counsel for the appellants then invoked "the general rule" enunciated by Lord Diplock in Lonrho that where the only manner of enforcement created by a statute is the criminal law "that performance cannot be enforced in any other manner": 185B-186G.  Lord Diplock said that there were only two exceptions to this general rule.  The first exception is where upon the true construction of the legislation the prohibition was imposed for the protection of a particular class of individuals.  The second exception is where the statute creates a public right and individual members of the public suffer "particular, direct, and `substantial damage' other and different from that which was common to all the rest of the public".  There was much argument as to whether the present case can be brought within the scope of these exceptions.  There is some uncertainty about the scope of these exceptions, notably in respect of the question whether an aggrieved plaintiff has to bring himself within some sub-class of the community: see Atkin L.J.'s dictum in Phillips v. Britannia Hygienic Laundry Co. Ltd. [1923] 2 K.B. 832, at 841, and discussion in Clerk & Lindsell On Torts, 1995 17th edn., 11-19.  Their Lordships do not consider it necessary to make any contribution to this debate.

 

13. Their Lordships are content for present purposes to assume that counsel for the appellants is correct in submitting that "the general rule" propounded in Lonrho applies to section 114 of the Companies Act 1981 and that the exceptions are inapplicable to it.  The critical question is, however, a different one, namely whether the assertion that Cablevision is carrying on business unlawfully is beyond the reach of section 111.  In order to arrive at such a conclusion the generality of the wording of section 111 must be qualified.  What is the justification for importing such a restriction?  In enacting section 111 the legislature intended to confer only private law rights on shareholders.  The general rule enunciated by Lord Diplock in Lonrho does not apply to the legislation, designed to confer greater protection on shareholders, contained in section 111 or in section 459 of the United Kingdom Act.

 

14. In a company law context a closer analogy than Gouriet and   Lonrho   is   provided   by   the  case  of  a  company

incorporated by Royal Charter.  It has been held at common law that a member of such a society is entitled to an order restraining the commission of acts outside the scope of the charter which may result in the forfeiture of the charter and the destruction of the society: see Jenkin v. Pharmaceutical Society of Great Britain [1921] 1 Ch. 392, Dickson v. Pharmaceutical Society of Great Britain [1970] A.C. 403.  That is not altogether dissimilar from the complaint of Colica that the unlawful carrying on of business by Cablevision puts at risk the licence which is the lifeblood of Cablevision.  But their Lordships would not press this analogy too far and would decide this point on a broader basis.

 

15. Ultimately, the point is one of statutory construction.  In such a case it is wrong to seek to impress on the language of the section restrictions gathered from cases decided in different contexts.  Section 111 is a self-contained remedial measure with its own in-built safeguards.  It would be wrong to import into it a jurisdictional rule the effect of which is that a petition under section 111 is inadmissible if it asserts that a shareholder is locked into a company which, unbeknown to him, has started carrying on business unlawfully.  It is true that in the present case Colica had prior knowledge of all relevant matters but the jurisdictional point presently under consideration can be tested on a wider basis.  If the suggested restriction exists it may mean that there is no effective remedy in a case crying out for public ventilation.  Nothing in the legislative purpose of section 111 justifies importing such a restriction into the section.  Moreover it is impossible to arrive at such a result by any process of interpretation of the language of section 111.  And it is certainly not a necessary implication.  On the contrary, it would be an unreasonable restriction to imply inasmuch as it would tend to undermine the generality and usefulness of the remedy under section 111.

 

16. For these reasons their Lordships are satisfied that the fact that the main thrust of the petition is that Cablevision is carrying on business unlawfully does not take it outside the scope of section 111.  Their Lordships reject the submission advanced on behalf of the appellants under this heading.

 

17. Given this conclusion it presently appears to their Lordships unnecessary to consider the alternative argument of  Colica  that  there  is  to  be  implied  by law  into the statutory contract comprised "by the Companies Act and by the articles of association by which the shareholders agree to be bound" (In re Westbourne Galleries Ltd. [1973] A.C. 360 at 379C, per Lord Wilberforce) a term that the company will only carry on business lawfully: see section 16(1) of the Companies Act 1981; Scally v. Southern Health and Social Services Board [1992] 1 A.C. 294; Bratton Seymour Service Co. Ltd. v. Oxborough [1992] B.C.L.C. 693.  If the point subsequently becomes material, it will be for the trial judge to decide it.  In the meantime their Lordships go no further than to record that such an implication by law is arguable.

 

Colica's prior knowledge.

Section 459 of the United Kingdom Act contains the expression "unfairly prejudicial".  In section 111(1) of the Bermudian Act the word unfairly is omitted.  Section 111 gave effect to the recommendations contained in the Law Reform Committee's Interim Report on Company Law in Bermuda including a Draft Bill, February 1979, Part VIII.  This report shows that the words "prejudicial to the interests" have been inserted on the recommendation contained in the White Paper "The Conduct of Company Directors".  The latter reference is to the White Paper, namely Cmnd. 7037, November 1977, para. 18, which recommended a power to petition where the affairs of the company are being conducted in a manner "unfairly prejudicial" to shareholders.  Given this background the judge observed:-

"It is said, as it often is in the case of such omissions, that it must have been deliberate and intended by the legislature to make a distinction between the Bermudian provision and the U.K. model.  Such an argument can be very forceful in an appropriate context, but I do not think that it is here.  It is in my view just as likely that the legislature, or in reality the draftsman adapting the overseas precedent, has proceeded on the basis that unfairness is inherent in the concept of prejudice.  That it is so inherent, in this context at least, can also be seen from the conjunction with `oppressive'.  Oppression and prejudice are linked because, if they are not the same thing, they are at least of the same nature and unfairness is inherent in that nature.  To hold otherwise would allow petitioners to embroil the courts in a whole range of matters where there was perceived detriment to some member's interests in the ordinary operation of the Company."

 

18. Their Lordships are in agreement with this reasoning and conclusion.

 

19. But the judge reasoned from this conclusion that prior knowledge or what he called voluntarily subjection, can rarely if ever be regarded as oppressive or unfairly prejudicial.  He then pointed out that it is a precondition to the making of an order under section 111 that the facts should justify the making of a winding up order on the just and equitable ground.  He said that, if his construction of prejudice in section 111(1) was wrong, he would have struck out the petition on the ground that a test of commercial unfairness implicit in the just and equitable requirement under section 111(2)(b) was not satisfied.

 

20. Counsel for Colica rightly point out that the judge did not in terms hold that there was no locus standi or jurisdiction in a case where the shareholder had prior knowledge of the matters advanced in the petition.  Yet he did not embark on any examination of the countervailing arguments.  On the appeal to the Privy Council counsel for the appellants made a more radical submission.  They submitted that prior knowledge as a matter of law debars any remedy under section 111.

 

21. In the absence of any authority directly on the point the answer to the submission of the appellants must be sought in the application of first principles.  By its express terms section 111 covers both past and future conduct.  In the present case the petition complains of unlawful conduct which is continuing.  Moreover, the prejudicial effect of such conduct is increasing as the years pass and Cablevision's profits increase so that ever larger amounts are paid out of the profits of Cablevision to Atlantic.  The shareholders of Cablevision, including Colica, are locked into that position without limit of time.  Moreover, it is realistic to accept that Colica's prior knowledge will be shared by any incoming member.  If Colica is debarred from presenting a petition, the effect will be to shut out complaints by any new members, ever, and thus to facilitate the continuation of Cablevision carrying on business unlawfully.  That is a most unattractive result.  That is the reality which led the Court of Appeal to reinstate the petition.  The consequences of an acceptance of the absolutist argument of the appellants, based on prior knowledge,  induce  an  initial  sense  of  incredulity.  But consequentialist arguments do not by themselves solve the present problem.  There is, however, a principled answer to the submission of counsel for the appellants.  It is entirely orthodox to say that a petitioner, who bought shares with prior knowledge of all relevant matters, is entitled to proceed on the basis that the statutory contract contained in the Bye-laws (which in the present case incorporates the Consulting Agreement) must be regarded as tempered by the provisions of the Companies Act 1981, including section 114 read with Part I of the Third Schedule, and indeed by the general law.  To that extent such a shareholder may have a legitimate or reasonable expectation that he may be able to put matters right.  Such a shareholder may have the necessary locus standi to present a petition, and the court may have jurisdiction to grant relief under section 111.  Their Lordships are therefore satisfied that the generality of the wording of section 111(1) is not qualified by a bar to presentation of a petition by a member who had prior knowledge of the grounds of the petition.  Accordingly, their Lordships reject the submission of counsel for the appellants as well as the less extreme reasoning of Ground J.

 

22. A cautionary note must be entered.  Prior knowledge of the matters complained of in a petition will always be a most relevant consideration in deciding cases under section 111.  Sometimes it will be decisive.  But there may be cases, perhaps relatively rare, where this fact may be outweighed by sufficiently cogent countervailing factors.  The fact that shareholders are locked into a position where a company is continuing to carry on business unlawfully may be such a factor.  In the present case it will be a matter for the trial judge to decide how this tension between competing considerations should be resolved.

 

Bye-law 32(2).

Colica alleged that contrary to Bye-law 32(2) all the "B" shares are held by non-Bermudians.  The registered holder of the "B" shares is a Bermudian registered company, Reid Finance Limited.  The McDonald interests are the beneficial owners of the shares.

 

23. Bye-law 32(1) expressly provides that "the common shares, whether `A' shares or `B' shares, ... shall be deemed for all purposes except as specifically provided in these Bye-laws to be one class of shares".  This deeming provision applies to Bye-law 32(2), which reads as follows:-

 

"No shares in the capital of the Company shall be issued and no reduction of the capital of the Company shall be permitted if such issuance or reduction would have the effect of causing the issued shares of the Company or the issued shares of any class of shares of the Company held by Bermudians to be less than 60% of all issued shares or all issued shares of any such class of shares, respectively."  (Emphasis supplied)

 

24. Counsel for Colica submitted that the word "held" connotes beneficial ownership.  This submission is difficult to square with Bye-Law 1(5) which provides that, unless inconsistent with the context, "`Member' means the person registered in the Register of Members as the holder of shares in the Company ...".  No person can be shareholder until he is registered: see National Westminster Bank Plc v. Inland Revenue Commissioners [1995] 1 A.C. 119, 126F-G (per Lord Templeman) 146H-147A (per Lord Lloyd of Berwick).  That is the context in which the word "held" must be seen: it refers to registered shareholders.  It was argued that this construction would make Bye-law 32 totally ineffective.  Whatever force this argument may otherwise have had, it cannot prevail in the light of their Lordships' interpretation of section 114 of the Companies Act 1981 read with Part I of the Third Schedule.  Colica's argument is rejected.

 

The remaining issues.

Counsel for the appellants invited their Lordships to deal with a range of other issues which included restraint of trade, breach of fiduciary duty by directors, ratification, disclosure, the just and equitable requirement, the relief sought, and so forth.  The remaining issues involve questions of mixed fact and law, and in some cases pure fact.  Given that the appeals arise in the context of a striking out application, it is inappropriate to consider the remaining issues.

 

Conclusion.

Their Lordships will humbly advise Her Majesty that both appeals ought to be dismissed.

 

25. Their Lordships invite short written submissions on costs.  The submissions must be lodged with the Registrar within 10 days.

 

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