Principles Set Out by Richardson J in Thomas v H. W. Thomas Ltd - Essay Example

341138 Rewrite What were the principles set out by Richardson J in Thomas v H. W. Thomas Ltd? The Principles set out by Richardson J in Thomas v H. W. Thomas Ltd (1984) 1 NZLR 686, 693-5 Richardson J’s approach has won a broad recognition and has been consistently adopted in the New Zealand courts. Generally, it is an oppression remedy which assesses the existence of oppression and the assessment for a just and equitable remedy appropriate with the conduct and motives of both the oppressed and the oppressor. In the Thomas case, Richardson J in the Court of Appeal mentioned that the company “is obviously in a position, if it elects to do so, to pay a much greater dividend return to its members without harm to its future trading.”1 It is only the attitude of Mr. Thomas, being “commercially unreasonable”, which gives inadequate dividend payments to the shareholders, considering that he himself is a shareholder that was petitioned for intervention. There was no further mismanagement issue, however, against him. Under sec 209, he sought an order giving him authority to sell his shares to company or to any of other shareholders. Richardson J in Thomas v HW Thomas Ltd (1984) confines all that it needs to be “oppressive and unfairly discriminatory or unfairly prejudicial”.2 In a lot of domination cases the behavior of the company's controllers is supposed to be illegal independent of s 209 (now s 174). Since self-governing illegality is not an essential element of a winning application, the courts have had to expand their own criteria to decide whether legal conduct is cruel or unjustly prejudicial or biased. Basically, sec 209 allows the Court to intervene if there is a proven existence of fair dealing and oppression. The amended sec 209 by the Companies Amendment Act 1980 (carried through to sec 174 of the Companies Act 1993) allows a broader scope of the oppression remedy which was given a more liberal interpretation by Richardson J in the Thomas v HW Thomas Ltd. The interpretation made by Richardson J was recognized and accepted by the New Zealand Court of Appeal which resulted in a popular enthusiasm on the part of the shareholders to use the said amended oppression remedy. It was then became a very useful and corrective instrument for shareholders especially the minority ones though it will not guarantee its use in opposing corporate wrongs. The amended 209 of 1980 contains added paragraph (d) which states “the court could make an order ‘authorising a member or members of the company to institute, defend, or discontinue court proceedings in the name and on behalf of the company.’ However, in Richardson J’s point of view, fairness assessment matters here as it cannot be assessed from just one member’s opinion. It will depend on the thorough evaluation of the conflicting interests of different groups or members. According to Richardson J, “It is a matter of balancing all the interests involved in terms of the policies underlying the companies legislation in general and s 209 in particular: thus to have regard to the principles governing the duties of a director in the conduct of the affairs of a company and the rights and duties of a majority shareholder in relation to the minority.” After the Thomas case, the New Zealand cases are gearing towards the development of the shareholders’ control over the companies rather than the management or the director’s business judgment. It is evident that the current liberalisation of oppression remedy has improved the rights of the shareholders against personal wrongs; however, it is still insignificant if it will be effective in insisting for any corporate moves. Why were they applicable to the Cornes case? Background of the Cornes v Kawerau Hotel (1994) Ltd case The case was filed under the filename of Cornes v Kawerau Hotel (1994) Ltd (1999) 8 NZCLC 261,815 in High Court, Palmerston North, M44/98, 18 December 1988. The plaintiff of the Cornes v Kawerau Hotel (1994) Ltd case is Mr. Cornes who is managing the hotel for Lion Nathan Limited and later on became one of the major stockholders of the hotel. Mr. Taylor, on the other hand, own and operate a wholesale liquor business from the Hotel and leasing his business premises also from Lion Nathan Limited. He also eventually became one of the major stockholders of the hotel. When Cornes and Taylor learned that Lion Nathan is thinking of selling the Kawerau Hotel, they discussed the possibility of buying the Hotel which materialized for the amount of $800,000. Negotiation leaves the Company with a loan from the solicitors’ nominee company of $450,000 secured by an interest only mortgage. This loan will be due on August 1997. The Company was owned with equal sharing of 49.5% each for Mr. Cornes and Mr. Taylor and 1% for Mr. Finnigan making Mr. Cornes and Mr. Taylor the directors and Mr. Finnigan the secretary of the Company. The working capital for two years was given by the Company which was actually lent by Mr. Taylor to the Company in addition to what Mr. Taylor’s payment of $100,000 share capital and an additional contribution of $65,000 loan finance while Mr. Cornes paid up $98,000 share capital which does not correspond to the actual sharing stipulated in the Partnership. It was further stated in the Partnership that Mr. Cornes will be the manager of the Hotel with an annual income of $24,000 and the use of the managers flat while the Company will lease the business premise that Mr. Taylor occupied at $4,000 per month. Thus, continuing his wholesale liquor business. The Partnership and business went through until August 14, 1997 when Mr. Cornes was excluded from the Partnership without him knowing and followed by his exclusion from any involvement in the management of the Company on August 28 1997. It was later found out that Mr. Cornes was not properly notified of the meetings on August 14 and 28, 1997 when the oppressive decisions were made in his absence considering that he is the director of the Company. Because of an “ambush” notice, he attended the meeting set by Messrs. Taylor and Finnigan on August 14, 1997 in Rotorua. It is where the oppressive decision of his exclusion from the Partnership transpired when he already left the said meeting after adjournment. Mr. Cornes was not informed of what will be the agenda of the shareholders’ meeting and did not have any idea that the meeting will cater an oppressive moves against him. During the meeting, Mr. Cornes found out that he was being accused of theft from the Partnership and that Mr. Taylor gave him a notice dissolving the Partnership pursuant to s 35(1)(c) and Partnership Act 1908. Arrears of lease was also tackled which according to Mr. Cornes was it was the first time that both Messrs. Taylor and Finnigan disagreed. Mr. Finnigan produced notes of the August 14, 1997 meeting as “Minutes of a Meeting of Shareholders” of the Company to which Mr. Cornes did not conform of its accuracy. Messrs Taylor and Finnigan affixed their signatures as shareholders, confirming the said minutes. The “Minutes of a Meeting of Shareholders” on August 14, 1997 contain the following resolutions which according to Mr. Finnigan, the following resolutions were passed during the meeting by the shareholders. 1. Terminating the Partnership’s lease of the Hotel, pursuant to s 107 Property Law Act 1952. 2. Protecting the Company’s interest by taking over the management of the Hotel from the Partnership and conducting the business with a view to selling it as soon as possible. 3. Continuing the employment of existing staff, and on the same basis as previously. 4. To call a meeting, after giving the required notice, for the express purpose of considering a resolution of the shareholders to have Mr. Cornes removed from office. 5. Subject to their consent, to appoint Messrs Finnigan and Taylor the directors of the Company. Mr. Cornes found out the following day, August 15, 1997, while they were in Rotorua for the meeting, Mr. Taylor have the locks on the Hotel changed thus, unable to perform his duties as the manager. Furthermore, his monthly salary was not given to him on August 20, 1997. On August 22, he was expelled off his flat which was have the electricity cut-off on August 25, 1997. August 28, 1997 is the date the meeting was really held and not August 29, 1997 which was indicated in the notice given to Mr. Cornes. Three issues transpired and passed in the meeting as follows: 1. alleged theft of Partnership against Mr. Cornes 2. remove Mr. Cornes as director of the Company making Messrs. Taylor and Finnigan the directors of the Company. 3. Mr. Cronies has no right to remain in the Hotel’s manager’s flat Again, the minutes of the meeting was prepared by Mr. Finnigan and signed by Messrs. Taylor and Finnigan. The meeting was not attended by Mr. Cornes as the date of meeting in his notice was August 29, 1997. It was later on September when Mr. Cornes filed but unsuccessful to be reinstated as manager of the Hotel. He then filed a personal grievance over the Partnership. In October 1997 the Company demanded Mr. Cornes of $237,000 as instrument by way of security over the plaintiff’s assets. Mr. Finnigan had him signed the securities on July 23, 1997. It was noted that Mr. Taylor was not demanded of the security. On November 1997, Mr. Crones received an advice that the Company making legal action against him to recover the securities allegedly due which according to Mr. Crones was the first time to know the securities over his personal assets. On March 1999, the Company summary judgment proceeding against Mr. Crones was served although the proceeding is meant against Messrs Cornes and Taylor. It claimed $281,503.58 which includes $131,506.56 which was allegedly advanced by the Company to the Partnership after August 14, 1997, the date Mr. Taylor dissolved the Partnership and was supported by the Minutes written by Mr. Finnigan. Analysis The principles set by Richardson J in Thomas v H W Thomas (1994) Ltd gears toward oppression remedy and apply to oppressive, unfairly discriminatory, or unfairly prejudicial cases. In my opinion, the principles of Richardson J on Thomas can be used in the Cornes v Kawerau Hotel case for two events – one event on August 14, 1997 expelled Mr. Cornes from the Partnership and the other event on August 28, 1997 when Mr. Cornes was excluded from managing the Company. It is oppressive and unfairly prejudicial for Mr. Cornes, considering that he is one of the two major shareholders of the Company and the decisions for such were done in his absence to the two meetings. The mentioned absences were not because of Mr. Cornes irresponsibility or personal preference but because of failure to receive proper notice of the two meetings. It is oppressive by the move that he was suddenly deprived of the benefits and privileges from the assets owned by the Company like the flat he used to stay as his home and not to mention, cutting off of the electricity in his flat on August 25,1997. It is also unfairly prejudicial to accuse Mr. Cornes of mismanagement and exclude him from managing the Company wherein he is a shareholder. His removal as a director of the Company seems to have no valid reason justified. It is also not fair to have Mr. Cornes to give security whereas Mr Taylor was not required to put up any security. It is also oppressive to Mr. Cornes to enforce the loans against him. Consequently, an appeal for the court to intervene is necessary. This resulted to the order for Mr. Taylor and Mr. Finnigan of buying out of Mr. Cornes from the Company and settle for a fair and an amicable agreement. It has been said that fairness cannot be assessed from one’s point of view only, but it can be achieved after weighing all the conflicting reasons and interests of all the members or groups concerned. Whatever interests the members of the case have in mind for their respective actions, with the help of the Principles set by Richardson J in Thomas, I am confident that justice will prevail. How else might they be applied to a company meeting situation? It is a Standard Operating Procedure (SOP) for any meeting to have a proper notice given to the members and the guests intended to attend the meeting at least twenty four (24) hours to two weeks prior to the date of the meeting. The proper notice should contain the agenda which will make the invited members and guests prepare themselves as well as the materials deemed necessary in the meeting. The agenda includes the review of the preceding meeting and the recapitulation of the meeting towards the end. Proper adjournment of the meeting should be observed. There was a similar case to Cornes v Kawerau Hotel (1994) in that it was only thru an “ambush” invitation to a room by another director that the company director, Mr. Trihey, was notified only to find out that it was a board meeting. To his surprise, one of the agenda is to have an immediate appointment of a new company director. The resolution was passed but, of course, Mr. Trihey voted against it. Through the Principles of Richardson J on Thomas and having been similar on Cornes v Kawerau Hotel, the court held the decision was invalid as Mr. Trihey was oppressed and unfairly prejudiced by other directors through the “surprise meeting” Mr. Trihey, as the company director, was deprived of his right to proper notification of the meeting as well as its agenda one of which is a move against him. The same strategy may be used by other members for the purpose of their interests but the principles set by Richardson J will serve as a guard to help those being oppressed. Conclusion: The Principle set by Richardson J on Thomas v H W Thomas Ltd. is by no doubt, widely adopted and well recognized. It was set to protect the oppressed and unfairly prejudiced. Several amendments of s 209 however followed and amendments varied as to the place or country it will be used. But for whatever variations the s 209 has all follows the principle set by Richardson J on Thomas and will optimistically serve as oppression remedy to all the concern. REFERENCES: Article with Chris Noonan published in (2005) 11 NZBLQ 288, Distilling their Frenzy: The Conceptual Basis of the Oppression Remedy in New Zealand Company Law George W. Reardon, Clerk of the Court of Common Pleas, v. Edwin W. Moise, Charles H. Read, Charles H. Moise, and Joseph E. Baskins. Principles Set Out by Richardson J in Thomas v H. W. Thomas Ltd 11 Shackleton, Frank, Shearman I. Law and Practice of Meetings. Sweet and Maxwell. London. 1983 Read More