Westport Trust Company Ltd v Paragon Trust Ltd

• Jurisdiction: Bermuda
• Judgment Date: 11 June 2010
• Date: 11 June 2010
• Docket Number: Commercial Jurisdiction 2009 No. 127
• Court: Supreme Court (Bermuda)

In The Supreme Court of Bermuda

Commercial Jurisdiction 2009 No. 127

BETWEEN:

WESTPORT TRUST COMPANY LIMITED (AS TRUSTEE OF THE LAYLASH TRUST)

Petitioner

v

PARAGON TRUST LTD (AS TRUSTEE OF THE HALE TRUST); C-HOLDINGS LTD; CARL PAIVA

Respondents

Mr D Kessaram for the Petitioner

Mr T Marshall for the Second Respondent

The following cases were referred to in the judgment:

Pickering v StephensonELR (1872) LR 14 Eq 322

Re A Company No. 004502 of 1988, ex parte JohnsonUNK [1991] BCC 234

Re Crossmore Electrical and Civil Engineering LtdUNK (1989) 5 BCC 37

Re A Company (No. 1126 of 1992)UNK [1994] 2 BCLC 146

Arrow Trading & Investments Est 1920 v Edwardian Group Ltd [2003] EWHC 2863

Abstract:

Oppression of minority shareholders - Shareholder dispute - Whether company should expend funds on dispute

RULING of KAWALEY, J

Introductory

1. The Petitioner presented a minority shareholder's oppression petition under section 111 of the Companies Act 1981 on May 12, 2009. The Petitioner is the trustee of a trust of which the principal beneficiary is Lois Wilson and the First Respondent is trustee of a trust settled for the benefit of the Carl Paiva, who was added as Third Respondent by way of amendment on May 21, 20091. Each trust owns shares in the Second Respondent ("the Company"). The Petition complains that Wilson invested in the Company on the basis that both she and Paiva would be entitled to manage the Company and benefit equally from it; it is alleged that Paiva has wrongfully ousted her from any further role in managing the Company. The present interlocutory applications arise out of this substantive action.

2. The first application is the Petitioner's Summons dated October 5, 2009 seeking the following relief:

"an Order that the Second Respondent may be restrained from applying or allowing its funds or the funds of its subsidiary, C Travel Company Limited, to be applied in the defence of these proceedings…"

3. The second application is the cross-application of the Second Respondent made by Summons dated February 22, 2010 for an Order that:

"1. The Second Respondent be at liberty to use its funds in defence of these proceedings."

4. These cross-applications appear to present for consideration for the first time in Bermuda the question of when it is appropriate or inappropriate for the corporate

respondent to a minority shareholder oppression petition to expend its funds in responding to what the petitioner contends is a dispute between two shareholders.

The Petition

5. The Petition alleges that the Company was incorporated on November 9, 2009 with the Petitioner and the Respondent each holding 30,600 shares. Its business is an investment holding company whose main assets include the shares of C Travel Co. Ltd. ("C Travel") and a leasehold interest in C Travel's business premises. Wilson and Paiva founded C Travel, with Wilson contributing financial and organisational skills (she is a chartered accountant) and Paiva travel industry expertise. It was mutually understood that the two would jointly manage and benefit from the Company. Wilson and Paiva both personally guaranteed bank loans to the Company in respect of the lease and related renovations.

6. On November 14, 2008 Wilson was unilaterally removed from the Boards of, inter alia, the Company and C Travel at the instigation of Paiva, who wrongly characterised Wilson's email of September 25, 2008 as an offer to resign. It is also alleged that this removal "was not prompted by any business consideration or any solicitude for the welfare of the Company" (paragraph 20). So it is clear on the face of the Petition that although the principal allegations are directed at the Third Respondent (and by implication the First Respondent as well), the suggestion that the Board accepted Wilson's purported resignation without regard to the interests of the Company is an allegation which only the Company can evidentially answer with any credibility. It is also clear from the Petition's Prayer, that the relief sought potentially impacts upon the Company as well. Paragraph 1 and 2 state as follows:

"1. That the First Respondent and/or the Second Respondent and its subsidiaries and/or the Third Respondent be ordered to purchase the shares of your Petitioner on an independent valuation to be ordered by the Court but in any event to be conducted on the basis of the market value of the assets of the Company.

2. Alternatively, an order that the Company be wound up."

The Evidence

7. The Second and Third Wilson Affidavits were sworn in support of the Petitioner's injunction application and in reply to the opposing First Hanson Affidavit, respectively. Second Wilson complains that although the Petition is directed primarily at the First and Third Respondents, the Company has insisted on actively defending the present proceedings. Six of the seven affidavits filed in response to the Petition including Paiva's Affidavit have been filed by the Company's attorneys, it is asserted, making it clear that the Company's funds are being expended on a shareholder dispute.

8. Second Hanson is sworn by a director in opposition to the injunction application. Firstly it is asserted that the directors consider they cannot adopt a passive role in the present proceedings because (a) the...