Bermuda Cablevision Ltd and Others v Colica Trust Company Ltd

• Jurisdiction: Bermuda
• Judgment Date: 14 March 1997
• Date: 14 March 1997
• Docket Number: Civil Appeal No. 13 of 1996,Civil Appeal No. 26 of 1995
• Court: Court of Appeal (Bermuda)

In the Court of Appeal for Bermuda

Astwood, P.

da Costa, J.A.

Kempster, J.A.

Civil Appeal No. 26 of 1995

BETWEEN:

Colica Trust Company Limited

Appellants

-and-

Bermuda Cablevision Limited

Mcdonald Group Inc.

Atlantic Communications Limited

and

William W. Mcdonald

Respondents

Sir Patrick Neill, Q.C. and Philip Hoser instructed by King and Associates for the Appellants (Colica Trust Co. Ltd.)

David Oliver, Q.C. and Narrinder Hargun instructed by Conyers, Dill & Pearman for the Respondents (McDonald Interests.)

Robin Potts Q.C. and Alan Dunch instructed by Appleby, Spurling & Kempe for the Respondents (Bermuda Cablevision Ltd.)

Gouriet v Union of Post Office WorkersELR [1978] AC 435

Lonrho Ltd v Shell Petroleum (No. 2)ELR [1982] AC 173

Rickless v United Artists CorporationUNK [1987] 1 All ER 679

Re International Securities Ltd (1908) 99 LT 581

Attorney General v BlakeTLR The Times, 23 April 1996

Companies Act 1981, s. 111, 114

Control of company by non-Bermudians — Locus — Whether petitioner has standing to bring proceedings — Whether conduct of company oppressive or prejudicial — Consulting agreement — Whether Colica entitled to petition in respect of alleged breaches of criminal law

JUDGMENT

Astwood. P.

This is an appeal from a decision of a Judge of the Suprme Court striking out a Petition brought by the Appellant, Colica Trust Company Limited, (‘Petitioner’) against the Bermuda Cablevision Limited (‘the Company’) and certain other Respondents known as the McDonald Group Inc. and one of its associates Atlantic Communication Limited (‘Atlantic’). The McDonald Group is a McDonald non-Bermudian family business of the United States of America.

The Petition was brought pursuant to the provisions of section 111 of the Companies Act, 1981 of Bermuda which enact:

• ‘(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, or where a report has been made to the Minister under section 110, the Registrar on behalf of the Minister, 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 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.

• (3) Where an order under this section makes an alteration in or addition to any company's memorandum or bye-laws, then, notwithstanding anything in any other provision but subject to the provisions of the order, the company concerned shall not have power without the leave of the Court to make further alteration in or addition to the memorandum or bye-laws as so altered or added to accordingly.

• (4) An office copy of any order under this section altering or adding to, or giving leave to alter or add to, a company's memorandum or bye-laws shall, within fourteen days after the making thereof, be delivered by the company to the Registrar for registration; and if a company makes default in complying with this subsection, the company and every officer of the company who is in default shall he liable to a default fine.’

BACKGROUND

The Petitioner is the registered holder of 117066 “A” Shares in the Company. The McDonald Group interest in the Company is as the registered holders and/or beneficial owners of 355000 “B” Shares (being all the “B” shares in issue) and not less than 33,710 “A” Shares. Other non-Bermudians own “A” Shares in the Company, giving non-Bermudians 16.82% of the “A” Shares.

The Petitioner complains that the Company is not controlled by Bermudians as is required of a local company carrying on business in Bermuda, and is in breach of the provisions of section 114 of the Act which exposes the Company to the risk that it is liable to be fined for a breach of the provisions of the Act or liable to be wound up on a petition of the Registrar of Companies. The Petition also pleads inter alia that the Company is carrying on business illegally and the Company, or alternatively the general body of shareholders including the Petitioner, are deprived of a large part of its profits which should be available to the Company and to the general body of shareholders for investment or for distribution to the shareholders.

The provision in section 114 of the Act is quite specific. It enacts:

• ‘(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;

• (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.

A local company is defind in the Act and means any company incorporated in Bermuda other than an Exempted Company. I am not concerned in this judgment with and Exempted Company.

Part I of the Third Schedule of the Act stipulates the constitutional framework to be complied with by a local company carrying on business in Bermuda. The Judge stated in his judgment in dealing with the pleading of non-Bermudain control:

‘These arguments turn largely upon the meaning of ‘control’when used in the context of paragraph 1(1) of Part I of the Schedule to the Companies Act 1981, which sets out the fundamental requirement that—

“1 (1) The Company shall be controlled by Bermudians.” They boil down to the question, does the power to appoint an effective voting majority of the directors of a company amount, without more, to control of it for the purposes of the Companies Act 1981.

I was taken to much law on this, and to various dictionary extracts. However I am not trying this question as a preliminary issue, and it is not for me to decide it one way or another. If I answer in the negative, then I strike out the Petition, but if I consider that it is arguable that the matters relied upon by the Petitioner could amount on their own to control, then I have to leave the question for trial. In such a case any analysis by me of the careful and helpful arguments advanced by both sides would pre-empt the trial judge, which would be wrong. I will simply say, therefore, that I think the point arguable, and if there had been nothing else taken against the Petition, I would have allowed it to proceed to trial.’

I agree with the view taken by the trial Judge on this aspect of the petition, and would leave this to be resolved at trial.

The Judge struck out the Petition for the reason that he came to the conclusion that the Petitioner failed to bring itself within the province of section 111 of the Act. He stated at p. 7 of his judgment:

‘In my judgment a pre-existing state of affairs to which an incoming member voluntarily makes himself subject can rarely if ever be regarded as oppressive, or prejudicial in the sense that I consider it bears. The element of voluntary subjection is incompatible with any meaning that can sensibly be attributed to those words.’

The Judge also stated in his summary at p. 13 of the judgment:

‘However, I am of the view tht this Petition must necessarily fail because the Petitioner became a shareholder with knowledge of the matters of which it complains. In those circumstances those matters cannot, in my judgment, be said in any meaningful sense to be oppressive or prejudicial to this particular Petitioner. I therefore strike out the whole Petition on that basis.

Morevoer, had I not taken the view that the whole should be struck out, I would nevertheless have considered any attempt to use the Court's powers, given to it by section 111 for the protection of the oppressed and prejudiced, to force an effective takeover of Cablevision by the Petitioner (whether or not it was acting on behalf of Telco) to be an abuse of process, and I would therefore of my own motion have struck out so much of the prayer for relief as might achieve that effect.’

I, for my part, had some concern about the last statement since earlier in his judgment at p 9 the judge said that in arriving at his view ‘he had no regard to the Petitioner's motive for bringing the Petition nor to its character as a nominee of Telco’. This is one of the issues which the trial judge might have to resolve at trial.

The Petitioner's case, as I understand it, is that the Company is masquerading as a local company when in fact it is controlled by non-Bermudians. It points to the Company bye-laws which entrench the Consulting Agreement under which 60% of the profits of the Company are paid to Atlantic, an affiliate of the McDonald Group, as an annual consulting fee for an indefinite duration. It points also to the formula entrenched in the bye-laws for the appointment and removal of directors and they refer to the provision in the bye-laws by which 6 directors are appointed, 3 by “A” shareholders and 3 by the “B” shareholders, and to a provision whereby the “B” directors can determine the course of the Company business. They also advert to other agreements and arrangements made by the Company which it alleges support its contention that the Company is not controlled by Bermudians but by the McDonald Group. These matters will all have to be determined at trial.

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