Sunday, 19 January 2020

Caselaw summary

Ball (PV Solar Solutions Ltd) v Hughes [2017]

Directors of a company who sought to avoid tax could be found to have breached their duty under section 172 to promote the success of the company.  They could not have reasonably concluded this would have been benefited the company's creditors.

Bushell v Faith [1970]

A clause in the Articles stating that on a vote to dismiss a director, any shares held by that director on a poll were to be counted as three votes per share was held to be valid.  Section 168 requires an ordinary resolution and so in this case, a director with 30% of the shares could block a resolution to dismiss him.

Foss v Harbottle [1957]

This case sets out the doctrine that if a company is in a position to bring a claim in the civil Courts, the company itself is the proper Claimant for that action and not the shareholders.

Ebrahimi v Westbourne Galleries Ltd [1973]

This case involved a "quasi-partnership" company. The three directors were also the three equal shareholders. Two of the directors (a father and son) had the other director removed under an ordinary resolution and the Court held this breached the third director's legitimate expectations and so the it was just and equitable to wind up the company.

Pender v Lushington [1877]

This case made it clear that a shareholder's right to vote was part of that member's property and any interference in it could lead to a derivative action or even a personal claim.  Lord Jessel MR was keen to stress a member could vote anyway they saw fit, even in a conflict of interest.

Re Duomatic [1969]

Here the Court decided that a company could take a decision in a way without necessarily suing all the requisite formalities of a general meeting. If all the members attended and voted at a general meeting, the decision they took at the meeting would be held to have the same binding effect as a formal resolution. There have been exceptions since then.

Salomon v A Salomon Co Ltd [1896]

In the House of Lords it was held that a company was entirely independent from the shareholders with a totally different legal personality.  This was the concept of limited liability.

O'Neill v Philips [1999]

Here the House of Lords held there was no unfair prejudice because the company had not breached any formal arrangements with the shareholder in question.  The concept of legitimate expectations was based on an expectation that the company's affairs would be conducted in the manner agreed by all the members.

Cook v Deeks [1916]

This case involves setting aside a fraud on a minority shareholder. The majority of shareholders had entered into a contract that competed with the company's business and the fourth shareholder applied to the Court in this regard. The Court held the majority had to account for this to the company.

Henry George Dickinson v NAL Realisations (Staffordshire) Limited [2017]

This case shows that the Courts do not have to wait for a company to be insolvent before they find that a transaction was aimed at defrauding creditors.

W T Ramsey v IRC [1982]

A Court can look over a whole series of transactions and form a view that they are being entered into with the aim of avoiding tax.  Here, the Court noted that the activities involved had no commercial significance apart from lowering the tax liability.

Eclairs Group Ltd and Glengary Overseas Ltd v JKX Oil & Gas plc [2015]

This case involved the "proper purpose" duty under section 171. The Court held that the company had only behaved in the way it did to prevent shareholders from taking the action they wanted, which breached the proper purpose test.

Hosking v Marathon Asset Management LLP [2016]

Here the Court held that a partner who breaches his fiduciary duties can be required to forfeit partnership profits.

Khan and Another v Miah and Another [2000]

This case looked at when a partnership can be said to have commenced; here it was held that it didn't necessarily when the business started trading as preparatory activities carried out with a common view to an eventual profit could be said to be the start of the partnership.

Dickenson v Gross (HM Inspector of Taxes) [1926]

A partnership deed had been entered into but it was ruled that in truth no such partnership existed as none of the terms of the deed had been put into practice.

Trego v Hunt [1896]

The Court looked at the meaning of goodwill in a business.  What goodwill meant would depend on the character and nature of the business. It was the "very sap and life of the business".

Greenhalgh v Arderne Cinema Ltd [1951]

This case was concerned with the concept of a fraud on the minority and the possibility of this being an exception to the rule in Foss v Harbottle. Here it was held there was no such fraud as the alteration to the Articles did not discriminate against minority shareholders.

Greenhalgh v Arderne Cinema Ltd [1951] CH 286

This case was concerned with the issue of shares and the concept of a "fraud on the minority" being an exception to the rule in the case of Foss v Harbottle. This rule states that in a potential claim for a loss incurred by a company, only that company should be the claimant, and not the shareholders.

Originally the Articles of the company stated that if a shareholder wanted to sell their shares, they had to be offered to existing shareholders first - that is there was a right of pre-emption.

Then this was changed at a general meeting by special resolution so that the right of pre-emption no longer existed.

One of the shareholders wanted to sell their shares and Mr Greenhalgh objected, saying the special resolution discriminated against him as a minority shareholder.

Lord Evershed MR held that there was no fraud on the minority shareholder.  None of the majority voters had voted for a private gain and so the alteration of the articles was perfectly legitimate because it was done properly.

As such, Mr Greenhalgh's action failed.

Monday, 13 January 2020

Trego v Hunt (1896) HL

In this case, the Court looked at the meaning of the goodwill of a business. What goodwill meant would depend on the character and nature of the business.  Goodwill is often the "very sap and life of the business, without which the business would yield little or no fruit.  It is the whole advantage, whatever it may be, of the reputation and connection of the firm, which may have been built up by years of honest work or gained by lavish expenditure of money."

Sunday, 12 January 2020

Dickenson v Gross (H.M. Inspector of Taxes).(1) (1926-27) 11 TC 614

In this case, it was said that a partnership deed had been entered into, but it was ruled that in fact no such partnership had existed.

The partnership deed, it was found, was entered into for tax purposes and whilst it was "perfectly good according to its tenor", it had really governed the relationship of the parties, none of its terms or requirements had been put into practice. 

It was found that the partnership deed was set on one side and disregarded.  As a result, there was no partnership as a matter of fact and so the business could not be dealt with as a partnership for income tax purposes.

Saturday, 11 January 2020

Khan and Another v Miah and Another [2000]

This case relates to partnership law and the starting point from which a partnership can be said to have commenced.

It was held that a partnership could be said to have arisen before a business started trading. In this case, the purported partners had committed capital and spent time and money acquiring business premises and obtaining planning consent for carrying on business as restaurateurs.  These and other activities were part of the joint venture of the business, which was carried on with a view to a (admittedly eventual) profit.

Here the House of Lords reversed a decision by the Court of Appeal. The Court of Appeal believed there was a rule that a partnership could only exist once trading had commenced and had focused on the distinction between contemplating or agreeing to become partners and actually becoming partners.  The House of Lords held there was no such rule in law. Instead the question is when do they embark on the activity required by the joint venture of the business with a view to making a profit.

An interesting additional point in the judgement of Lord Millet concerns the implied terms of a partnership under the Partnership Act 1890 if no other terms, written or implied, apply.  The Judge noted that these were default provisions only and were not statutory presumptions. It would only need slight evidence to rule out the default provisions found in the Act.  The House of Lords allowed the appeal and restored the orders of the trial Judge.

Monday, 6 January 2020

Hosking v Marathon Asset Management LLP [2016] EWHC 2418 (Ch)

In this case, the Court held that a partner who breaches his fiduciary duties can be required to forfeit partnership profits. 

Mr Hosking was a partner in Marathon.  Their limited liability partnership deed provided that a retiring partner was entitled to receive half the profits to which he would have been entitled as a working partner.  An arbitration took place between the LLP and Mr Hosking and the arbitrator decided that Mr Hosking had committed breaches of fiduciary duty in the period before he left the asset management company.

As a result, the arbitrator applied the forfeiture rule and ordered that the half share of the profits which Mr Hosking had been paid were to be forfeit.

Mr Hosking appealed against this ruling but this was dismissed, holding that if it was properly defined as remuneration, a partner's profits could be forfeited.

Sunday, 5 January 2020

Eclairs Group Ltd and Glengary Overseas Ltd v JKX Oil & Gas plc [2015] UKSC 71

This interesting and detailed case involved a company in the petroleum industry, JKX Oil & Gas plc.  Eclairs and Glengary were two of the shareholders.

The directors of JKK took the view that Eclairs and Glengary were engaged in activities that were detrimental to the success of JKX.  As a result, they issued notices on them under section 793 of the Companies Act 2006.  The shareholders responded, but JKX then relied on a clause in its Articles (which a number of companies have) that if the company believes the shareholders have responded to the notice in a way that is incorrect or false, the company could then restrict their voting rights.  This meant Eclairs and Glengary could not vote at the AGM.

When JKX did this, Eclairs and Glengary brought an action alleging a breach of section 171(1) of the 2006 Act, alleging that the directors had breached their duty to only use their power for the purposes for which they were conferred.

In particular, the shareholders alleged that JKX had taken this action so as to prevent them from voting at the AGM.  The power under section 793 should have been limited to obtaining information about the shareholding, they alleged.

The High Court decided it in favour of the shareholders; the Court of Appeal reversed that decision.  In the House of Lords, this decision was again reversed and the Court found in favour of the shareholders.  Lord Sumption used a "but for" test in looking at the situation; if it had not been for the desire to restrain the shareholders, the company would not have issued the notices.  As a result, the Court decided that the company had breached the "proper purpose" duty under section 171.