3PLR – HEYTING V. DUPONT AND ANOTHER.
POLICY, PRACTICE AND PUBLISHING, 3PLR, LAW REPORTS
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HEYTING
V.
DUPONT AND ANOTHER.
[COURT OF APPEAL.]
[1964] 1 W.L.R. 843
[1957 H. NO. 244.]
1964 MARCH 12, 13, 16, 24.
3PLR/1964/34 (CA-E)
BEFORE THEIR LORDSHIPS
Harman
Davies and
Russell L.JJ.
MAIN ISSUES
COMPANY LAW – Shareholder – Rights against company or directors – Action by minority shareholder – Misfeasance and breach of trust alleged but fraud or ultra vires of acts not pleaded – Whether withholding of company’s asset by majority shareholder-director – No damage to company – Whether action maintainable.
PRACTICE AND PROCEDURE – Tribunal – Jurisdiction – Consent of parties – No power for parties to impose jurisdiction on court.
The plaintiff and the defendant formed a company to exploit an invention of the defendant consisting of a machine for the manufacture of plastic pipes. They agreed that the defendant would assign the benefit of the invention and any patents in respect of it to the company. The company issued 5,021 shares of which the plaintiff took up 2,003, the defendant 3,003, and five other subscribers the remaining 15. Four directors were appointed, viz., the plaintiff, the defendant (managing director) and two others. By the articles of the company a quorum for a board meeting was three directors, so that when in January, 1955, one of the latter two directors resigned, either the plaintiff or defendant could prevent the board meeting by his non-attendance. A decision of the board to be effective without a meeting required the unanimous consent of the directors, so that either the plaintiff or defendant could veto any proposal not formulated at a board meeting. Friction developed between the plaintiff and the defendant soon after the incorporation of the company and by January, 1955, was such that it prevented the board from meeting and the company from functioning effectively. No new director was elected to replace the one who resigned since by the articles the election of a director required a three-quarters majority and owing to the friction which prevailed no such majority could be obtained.
The plaintiff brought a minority shareholder’s action against the defendant and the company, claiming, inter alia, damages on behalf of the company in respect of the defendant’s alleged misfeasance as a director. The plaintiff alleged that owing to the defendant’s misfeasance there had been delay in the commercial exploitation of the invention. The alleged misfeasance consisted of (1) an alleged refusal in 1955 by the defendant to give the other directors any details of a proposed contract for the sale of the company’s prototype machine, which was the only machine it ever made and which was never sold, and (2) an alleged wrongful withholding of the company’s patent application from the company between February, 1956, and July, 1957. The plaintiff made no allegation of fraud or of appropriation of assets in fraud of the minority or of ultra vires:-
Held, that even if a minority shareholder could sue for damages on behalf of a company against a majority shareholder-director on the ground of misfeasance without alleging fraud or ultra vires, nevertheless the misfeasance relied upon must have caused real damage to the company and since in the present case it was plain on the pleadings that the company was in such a state of paralysis that it could not have successfully exploited the invention, it had suffered no such damage, and, therefore the action failed in limine (post, pp. 852, 854).
Foss v. Harbottle (1843) 2 Hare 461 applied.
Decision of Plowman J. [1963] 1 W.L.R. 1192; [1963] 3 All E.R. 97 affirmed.
APPEAL from Plowman J.1
The plaintiff, William John Cornelius Heyting, and the defendant, Richard Evenor Dupont, formed a company, The Dupont Pipe Co. Ltd., which was incorporated in Jersey with limited liability on October 10, 1953, to exploit a machine invented by the defendant. The company’s authorised capital was £10,000, divided into 10,000 shares of £1 each, of which £5,021 was issued, 2,003 shares to the plaintiff, 3,003 to the defendant, and the remaining 15 to 5 professional men who fulfilled the function of subscribers to the memorandum of association. The plaintiff and the defendant had agreed prior to the incorporation of the company that the company when formed should have the benefit of the defendant’s invention; the defendant had agreed to assign the benefit of the invention and any letters patent in respect thereof to the company, in consideration of which the plaintiff had agreed to invest £2,000 in the company. The capital was subscribed in cash. The articles of association were calculated to produce deadlock in the event of disagreement between the plaintiff and the defendant, which was what happened. By the articles there were not to be more than seven nor less than three directors, and a quorum for a board meeting was to be three directors. The subscribers nominated the first four directors, viz., the plaintiff, the defendant (who at some time became managing director), and two others. No director could be elected thereafter except by a three-quarters majority. One of the latter two directors resigned in January, 1955, and the other died in April, 1957. After the resignation of the first of those directors in January, 1955, either the plaintiff or defendant could prevent a board meeting by his non-attendance. By the articles, a decision of the board to be effective without a meeting required unanimity, so that either the plaintiff or defendant could veto any proposal not formulated at a board meeting.
1 [1963] 1 W.L.R. 1192; [1963] 3 All E.R. 97.
The plaintiff and defendant became at loggerheads soon after the incorporation of the company, no director was elected to replace the one who resigned or the one who died because it was not possible to secure a three-quarters’ majority for any person owing to the friction between the plaintiff and the defendant, which reached such a state that neither of them was willing to co-operate with the other in the running of the company, and so prevented the board meeting and the company from functioning effectively. After April, 1957, there was no board capable of acting. The company only made one prototype machine in accordance with the invention, and that machine was never sold.
Early in 1955 litigation began in Jersey between the plaintiff and the defendant, each accusing the other of wrongful acts and misfeasances as a director of the company, and on the plaintiff’s application the Royal Court of Jersey appointed inspectors to investigate the position of the company and report to that court, which they did. In August, 1959, the Royal Court of Jersey made an order, on the plaintiff’s application, authorising the Judicial Greffier to receive and hold on behalf of the company all letters patent, books, documents and moneys that any court might order to be paid or transferred to the company.
In January, 1955, the company lodged with the patent office an application for a patent in respect of the invention together with a specification. The application was signed by the defendant as inventor authorising the granting of a patent to the company and was also signed by him as a director of the company. The patent office, which had the application for a long time, apparently wanted the seal of the company to be appended to it, and returned it to the defendant in February, 1956, through the company’s patent agent for that purpose. The plaintiff alleged that the defendant deliberately withheld it from the company after he received it in February, 1956, until July, 1957, asserting that he and not the company was entitled to the benefit of the invention, and that thereby the company had suffered loss. The patent was subsequently granted in January, 1959, without the application form ever being sealed.
In early 1955 there was a meeting (not a board meeting) of the then three directors. The plaintiff alleged that the defendant indicated that he had negotiated a contract to sell the prototype machine, but that he refused to give any details of the contract to the other directors or disclose any detail of the negotiations concerning the contract to anyone. In fact there were negotiations to sell the machine but they failed to be embodied in a binding contract.
On January 31, 1957, the plaintiff, on behalf of himself and the other shareholders of the company except the defendant, issued the writ in the present action which, substantially, sought an order for specific performance of the oral agreement made between the plaintiff and the defendant prior to the incorporation of the company whereunder the defendant had agreed to assign the benefit of the invention to the company. That was a personal contract between the plaintiff and defendant, and personal damages in addition were claimed. The plaintiff also claimed on behalf of the company delivery up from the defendant of its patent application form which the defendant was alleged to be wrongfully withholding, and damages on behalf of the company for the defendant’s alleged misfeasance in respect of, inter alia, the withholding of the patent application form. At that stage the pleading was defective in that no allegation was made of damage caused thereby to the company. By the statement of claim, it was alleged that it was impossible for the company to bring an action in its own name because the first defendant was able to cast a majority of votes at any general meeting of the company. The plaintiff made no allegation of ultra vires or of fraud or of appropriation of assets in fraud of the minority.
By his defence the defendant denied that he had committed any misfeasance. In July, 1957, the defendant’s solicitors sent to the plaintiff’s solicitors a formal assignment executed by the defendant of all his rights in the invention to the company together with the company’s application form. The parties were so taken up with their alleged wrongs that neither of them apparently realised that there had accordingly been performance of the contract as prayed for in the statement of claim. When the action came on for hearing before Roxburgh J. on June 19, 1959, it emerged in the course of the hearing that there had been performance of the contract to assign the benefit of the invention to the company, and a transfer of the application form to the company, which by this time had been granted a patent, and Roxburgh J. held that there was no issue left in the action to try except that of damages. It also transpired that the company had not been served, the plaintiff having omitted to obtain in sufficient time leave to serve out of the jurisdiction, and was therefore not a party. It being essential in a minority shareholders’ action that the company should be made a party, the action could not proceed on the issue of damages (the only remaining issue) and was adjourned generally with liberty to apply to restore the action for hearing on the issue of damages. The plaintiff obtained leave to serve out of the jurisdiction, and joined the company as a second defendant to the proceedings. On February 24, 1961, the plaintiff was given leave to amend the statement of claim, as a result of which it was very considerably amended, in particular to include allegations that the company had suffered damage because of the defendant’s alleged misfeasance in (1) wrongfully withholding the patent application form from the company between February, 1956, and July, 1957, and (2) refusing to disclose any details to the other directors at a meeting in early 1955 of the proposed contract which he had negotiated for the sale of the prototype machine. The defendant, pursuant to the leave of the master, amended his defence to counterclaim damages against the plaintiff in respect of the plaintiff’s alleged misfeasance as a director.
The action came on for hearing in June, 1963, before Plowman J. Counsel for the plaintiff opened the case for five days in the course of which the judge on his motion raised the point that the plaintiff was not competent to bring an action on behalf of the company. Both parties, however, consented to the court having jurisdiction and asked the judge to try the case. In a reserved judgment,2 Plowman J. held that despite the consent of the parties he had no jurisdiction to entertain the action, and he dismissed it, having regard to the pleadings and without hearing evidence.
The gist of his judgment is to be found in this passage, which followed a review of authorities3:
“In the present case I do not propose to read in detail the pleadings, which are long and involved. Suffice it to say that the statement of claim contains no allegation of ultra vires, it contains no allegation of fraud on the part of the first defendant, and it contains no allegation of appropriation of assets by the first defendant in fraud of the minority which is now of any materiality. I do not overlook the fact that, in paragraph 17 of the statement of claim and again in paragraph (a) of the particulars under paragraph 23 of the amended statement of claim, are allegations which suggest that the first defendant was at one time wrongfully seeking to appropriate to himself ‘property or advantages,’ to quote Lord Davey, belonging to the company – namely, the benefit of the invention. But in or about July, 1957, as I have already indicated and as the plaintiff now pleads, the first defendant assigned the benefit of the invention to the company, and on January 21, 1959, British Letters Patent, dated January 5, 1955, were sealed in favour of the company.
“The plaintiff claims that the company is entitled to damages for delay and lost opportunities, but there is no allegation that the first defendant made any profit out of the alleged misappropriation, nor is there any claim to make him account for any such profit as property rightfully belonging to the company; and, in these circumstances, the case is not, in my judgment, within the type of exception to the rule in Foss v. Harbottle4 which is illustrated by Menier v. Hooper’s Telegraph Works.5”
The plaintiff appealed.
Raymond Walton Q.C. and Muir Hunter for the plaintiff.
- P. Harvey Q.C. and E. Campbell-Salmon for the defendant.
The following cases were cited in argument, in addition to those referred to in the judgments: Alexander v. Automatic
2 [1963] 1 W.L.R. 1192.
3 Ibid. 1198.
4 (1843) 2 Hare 461.
5 (1874) 9 Ch.App. 350.
Telephone Co. Ltd.6; Greenhalgh v. Arderne Cinemas Ltd.7Spokes v. Grosvenor Hotel Co. Ltd.8; Lewis v. Baldwin9; Burland v. Earle10; Overseas Tankship (U.K.) Ltd. v. Morts Dock and Engineering Co. Ltd.11; Dean v. MacDowell12; Hutton v. West Cork Railway Co.13; Birch v. Sullivan14; Westminster Bank Ltd. v. Edwards15; Parke v. Daily News Ltd.16; In re Polemis and Furness, Withy AND Co.17; Mason v. Harris18; Howard v. Hill19; Williamson v. London AND North Western Railway Co.20
March 24. The following judgments were read.
HARMAN L.J. I will ask Russell L.J. to read the first judgment.
RUSSELL L.J. This appeal is from a decision of Plowman J. that a claim, asserting liability of a director of a Jersey incorporated limited liability company, to the company for damages for misfeasance, could not be put forward by a shareholder suing on behalf of himself and shareholders other than the allegedly liable director, who held the majority of shares and could therefore control a vote on whether the company should be a plaintiff in such a claim. It thus appears that the question is whether this is a case in which a departure from the rule in Foss v. Harbottle1 is required. I dare say that the rule in Foss v. Harbottle1 is a conception as unfamiliar in the Channel Islands as is the Clameur de Haro in the jurisdiction of England and Wales. But clearly this is a matter of procedure to be decided according to the law of this forum.
In the court below this question involved the judge contra mundum. This was because the defendant had elected to assert a counterclaim which itself required exception from the rule in Foss v. Harbottle,1 notwithstanding that he was in fact the majority shareholder. The point was taken by the judge. In this court the counterclaim, whose close resemblance to the claim was an indication that this is essentially a dispute between two discordant partners, was not pursued, and Mr. Harvey, for the defendant, was free to support the judge’s decision to
6 [1900] 2 Ch. 56; 16 T.L.R. 339, C.A.
7 [1951] Ch. 286; [1950] 2 All E.R. 1120, C.A.
8 [1897] 2 Q.B. 124; 13 T.L.R. 431, C.A.
9 (1848) 11 Beav. 153.
10 [1902] A.C. 83; 18 T.L.R. 41, P.C.
11 [1961] A.C. 388; [1961] 2 W.L.R. 126; [1961] 1 All E.R. 404, P.C.
12 (1878) 8 Ch.D. 345, C.A.
13 (1883) 23 Ch.D. 654, C.A.
14 [1957] 1 W.L.R. 1247; [1958] 1 All E.R. 56.
15 [1942] A.C. 529; 58 T.L.R. 201; [1942] 1 All E.R. 470, H.L.
16 [1962] Ch. 927; [1962] 3 W.L.R. 566; [1962] 2 All E.R. 929.
17 [1921] 3 K.B. 560; sub nom. Polemis v. Furness, Withy AND Co., 37 T.L.R. 940, C.A.
18 (1879) 11 Ch.D. 97, C.A.
19 [1887] W.N. 193.
20 (1878) 12 Ch.D. 787.
1 (1843) 2 Hare 461.
dismiss the action. [His Lordship stated the facts relating to the history of the company and continued.]
Before this court the problem ultimately was displayed in this fashion. The plaintiff contended that under two heads the defendant had by misfeasance damaged the company. The first was this: that he, as managing director, received from the company’s patent agent in February, 1956, a patent application by the company signed by him as inventor authorising the granting of a patent to the company, and signed by him as director of the company. The Patent Office, which had had this document for a long time, apparently wanted the seal of the company to be appended to it. The allegation was that after receiving this document in his capacity as director he withheld it from the company until July, 1957, while during the same period asserting that he, and not the company, was beneficially entitled to the invention, though he took no steps to benefit himself by the invention. This withholding of a property of the company – the document – during this period, coupled with his assertion of beneficial entitlement to the invention, was, it was said, a misfeasance which resulted in damage to the company in that it was hampered and delayed in the development of and profiting through the invention: the company could not in the absence of the application franked by the inventor, and in the presence of the inventor’s rival contention to beneficial entitlement, presume to push forward with development and exploitation of the invention, or so it is in effect alleged.
The second suggestion was this: that at a meeting in early 1955 between the then three directors in Jersey – not said to be a board meeting – the defendant indicated that he had negotiated an agreement to sell the one and only machine ever made in accordance with the invention, but refused to disclose to the other two any details of it or even the name of the other party unless they were prepared to ratify a cheque which it was alleged he had wrongfully drawn on the company’s bankers. It was accepted before us that there was not in fact a binding contract. It was alleged, further, that he had never thereafter made any disclosure of any detail of this negotiation to anyone. It was said that this withholding of information, property of the company, was a misfeasance causing damage in that the company lost an opportunity of selling the prototype machine.
The defendant asserted in this court that these two complaints as pleaded did not set out a case of damage caused to the company, supporting the judge’s dismissal of the plaintiff’s action on this additional ground. In my view, this contention is correct as to the second head of complaint. The facts alleged do not seem to me to lead at all to the conclusion of a lost opportunity by the company: the assertion is a non sequitur. But I do not think that the first complaint can be dismissed on that ground. The allegation of damage to the company of the character alleged is at least in theory sufficiently plausible for the pleading of misfeasance to hold water.
In those circumstances it is necessary to consider whether on the case as pleaded by the plaintiff the judge was right in refusing to recognise it as one which called for exemption from the rule in Foss v. Harbottle2 that in general, in an action to remedy a wrong done to a company, the only acceptable plaintiff is the company. [His Lordship stated the facts relating to the history of the action and continued.]
On the Foss v. Harbottle2 point it was urged for the plaintiff that Roxburgh J., in standing over the action on the question of damages, plainly assumed that the present case was a proper exception from the rule. This is true, and it is also true that that judge was not accustomed to overlook such a point even if neither party drew attention to it. But I cannot think that this argument is of any weight: the matter was obviously not debated, and it is worthy of notice that the judgment makes no mention of the other fact that the then statement of claim made no allegation of damage done to the company, which is essential to a plea of misfeasance: see In re Canadian Land Reclaiming and Colonizing Co., Coventry and Dixon’s Case.3
[His Lordship stated the facts relating to the proceedings in Jersey, and to the present proceedings, and continued:] The contention of Mr. Walton, for the plaintiff, is that it is wrong not to except from the rule in Foss v. Harbottle4 a case where damage is caused to a company by misfeasance, when that misfeasance consists in withholding from the company a part of its property – in the present case, so far as now relevant, the patent application form. (I need not deal further with the second remaining ground of complaint, where the withheld property of the company was said to be information.) He agreed that there was no case in which such an exception had been made, but argued that it would be logically indefensible to permit a minority shareholders’ action to recover for the company its property, but deny a claim in the same action for damages done to the company by the wrongful withholding. Moreover, he drew our attention to certain dicta indicating that exception to the rule might be allowed when the attainment of justice required it. In Baillie v. Oriental Telephone AND Electric Co. Ltd,5 Swinfen Eady L.J., after quoting from Wigram V.-C. in Foss v. Harbottle,6 said7:
“In other words it has been said that in certain cases members may sue on behalf of the corporation if the interests of justice require it.”
In Russell v. Wakefield Waterworks Co.8 sir George Jessel M.R. said of the rule9:
“But that is not a universal rule; that
2 (1843) 2 Hare 461.
3 (1880) 14 Ch.D. 660, C.A.
4 (1843) 2 Hare. 461.
5 [1915] 1 Ch. 503; 31 T.L.R. 140, C.A.
6 (1843) 2 Hare 461, 492.
7 [1915] 1 Ch. 503, 518.
8 (1875) L.R. 20 Eq. 474.
9 Ibid. 480.
is, it is a rule subject to exceptions, and the exceptions depend very much on the necessity of the case; that is, the necessity for the court doing justice.”
And after referring to cases of ultra vires application of a company’s funds he said10: “But that is not the only case. Any other case in which the claims of justice require it is within the exception.” Again, in Edwards v. Halliwell,11 Jenkins L.J. said12:
“The cases falling within the general ambit of the rule are subject to certain exceptions. It has been noted in the course of argument that in cases where the act complained of is wholly ultra vires the company or association the rule has no application because there is no question of the transaction being confirmed by any majority. It has been further pointed out that where what has been done amounts to what is generally called in these cases a fraud on the minority and the wrongdoers are themselves in control of the company, the rule is relaxed in favour of the aggrieved minority who are allowed to bring what is known as a minority shareholders’ action on behalf of themselves and all others. The reason for this is that, if they were denied that right, their grievance could never reach the court because the wrongdoers themselves, being in control, would not allow the company to sue. Those exceptions are not directly in point in this case, but they show, especially the last one, that the rule is not an inflexible rule and it will be relaxed where necessary in the interests of justice.”
To these may be added the comment of Romer J. in Cotter v. National Union of Seamen13: “An action at the suit of individual members of an incorporated company is no doubt permissible where justice so requires,” and he then proceeded to refer to instances of exception from the rule.
I do not think it necessary for the purposes of this case to review the many authorities on this subject, all or most of which are noted in the report of Pavlides v. Jensen.14 I am prepared to assume for the purposes of this case (though I must not be understood as accepting it as a proposition of law) that there may be occasions in which justice requires departure from the rule when all that is asserted is damage to the company arising from misfeasance in withholding an asset of the company without fraud or ultra vires. But to my mind it is quite plain that justice does not require it in the present case.
The misfeasance alleged is the withholding by the defendant of the patent application document between February, 1956, and July, 1957 (while at the same time he asserted to the company’s patent agent a claim to be entitled to the invention), and the damaging consequence is said to be that thereby the development by the company of the invention was delayed and its profitability
10 (1875) L.R. 20 Eq. 474, 482.
11 [1950] 2 All E.R. 1064, C.A.
12 Ibid. 1067.
13 [1929] 2 Ch. 58, 69; 45 T.L.R. 352.
14 [1956] Ch. 565; [1956] 3 W.L.R. 224; [1956] 2 All E.R. 518.
to the company was impaired: this is expanded (in particulars) to the allegation that the company had lost the chance of profit arising from manufacturing or causing to be manufactured, and selling, machines made according to the invention to a total estimated capacity from 1955 to 1960 of four machines in all. It is really as plain as a pikestaff that this contention is wholly visionary, and that if the document had been returned by the defendant to the patent agent, or sent by him to the plaintiff the day after its receipt, it would not in the circumstances of discord between the partners [the plaintiff and the defendant] have made an atom of difference to the company’s activities. The company has been since 1955 in a state of paralysis owing to such discord, incapable of transacting business without the co-operation of the defendant, its managing director. So much so, indeed, that it has not been able to dispose of the only machine which was ever made, and which has remained unsold since before 1955: it figures in one calculation in the plaintiff’s particulars of alleged damage, with a considerable sense of reality, at a “scrap” valuation. In my judgment, for those reasons it cannot by any stretch of imagination be said that the interests of justice require that the ordinary rule should be departed from so as to permit such barren litigation.
For these reasons I would dismiss the appeal. I add that we were invited by the defendant to take into consideration certain passages in the inspectors’ report on the ground that its contents were to be treated as averments in the statement of claim, which contained the phrase “The plaintiff will refer to the said report.” For my part, I do not think that this is a correct approach, but, in any event, I have not found it necessary to accept the invitation.
HARMAN L.J. I have the authority of Davies L.J., who cannot be here today, to say that he concurs in the judgment which has just been delivered.
HARMAN L.J. This appeal arises out of an attempt by the judge in the teeth of the opposition of both parties to put a summary end to the action and counterclaim. This attempt I am inclined to regard with approval because its success puts a stop to perhaps the most barren and futile litigation it has ever been my lot to encounter. The defendant has accepted the judge’s ruling and abandoned what I can only regard as a wholly untenable claim. The plaintiff, however, wishes to persist and says that the court has at this stage no jurisdiction to stop the action.
The conjunction of the parties was in effect a partnership agreement made in 1952 intended to exploit an invention of the defendant’s, but in an evil hour it was decided, apparently at the plaintiff’s desire, to carry on the joint adventure through the medium of a company incorporated in the island of Jersey. The defendant company was therefore formed. The plaintiff subscribed £2,000 for shares and the defendant £3,000. There were some other small shareholders. The articles were framed, again presumably by the plaintiff, in such a way that unless absolute unanimity prevailed deadlock was inevitable. Unanimity was far from prevailing; in particular, the plaintiff denied that the defendant was entitled to act as managing director, a thing which he admitted at the hearing before us, and the defendant complained that the plaintiff interfered with the detailed conduct of the company’s business. When in January, 1955, one of the four directors retired it was impossible to appoint a new one unless both partners agreed, and when another director died in 1957 it became similarly impossible ever to elect a board having a quorum at all. In fact deadlock has existed since early in 1955 and each of the two protagonists has since then forgotten that their object was to promote an invention and remembered only his grievances against the other.
If this had been an English partnership, it would, of course, have been dissolved by the court long ago. Equally, if it had been a limited company incorporated in England, I cannot but think it would speedily have been wound up by the court, but we are told that in Jersey there is no such relief and that the company must go on until the official in whose hands its affairs now are is minded to divide what if anything may be left among those entitled.
In the circumstances the plaintiff has had recourse to the forum of this court and to an action of the type known as a Foss v. Harbottle15 action, that is to say an action by a minority shareholder against the company and the majority. The defendant by way of riposte launched by counterclaim a similar action even though he was the majority shareholder, but this he has now happily abandoned. In addition, each party has abandoned personal claims against the other based on the original 1952 agreement.
The judge stopped the action because he was of opinion that it did not come within the exceptions to the rule in Foss v. Harbottle.15 He held that the exceptions only cover the necessity of the case and were confined to cases either of actions ultra vires the company (which are not suggested here), or of fraud by the majority or oppression of the minority by them in the form usually called a fraud on the minority that is to say, where some property or advantage is monopolised by the majority to the exclusion of the minority. The judge found that there was no case in the reports in which such an action had been held to be competent
15 (1843) 2 Hare 461.
in the absence of some feature of this sort and no such case has been cited to us. In the comparatively recent case of Pavlides v. Jensen16 it was held by Danckwerts J. that the exception did not cover a case of negligence without fraud on the part of the majority. In that case it was said that the majority of the board had neglectfully parted with certain of the company’s property at a gross under-value. Danckwerts J. held that the minority could not complain. Here it was said that there had been misfeasance on the part of the defendant which did not indeed put any money or property into his pocket but which resulted in loss to the company because of delay in prosecuting the invention, and the judge held that the exception did not apply. For myself, I incline to the view that this was right. At any rate, to decide the other way would be to extend still further the exceptions to the rule that a company alone can complain of a wrong done to it. As Russell L.J.’s judgment shows, there are cases which suggest that the rule is not a rigid one and that exception will be made where the justice of the case demands it. I am content, as my brethren are, to assume that there may be misfeasance in respect of which the exception should be allowed, but I also agree with them that this is emphatically not a case where the rule should be further stretched.
Mr. Harvey was in my opinion right in his submission that in order to establish misfeasance damages must not only be alleged but must be claimed in the body of the claim, and he pointed out that until the statement of claim was amended in 1961 no such claim was made. As amended there were claims for damages which are set out in paragraph 24 of the amended statement of claim.
At the hearing before us it was agreed that only two matters of complaint could possibly lay the foundation for damages. The first was in paragraph 23 (a) of the amended claim that between February 1956, and July 1957, the defendant withheld the patent application form from the company and asserted that he was the beneficial owner of the invention. The second was that he had negotiated for, but had not concluded, a contract for the sale of the prototype machine and had refused to disclose the details to his co-directors. This latter claim seems to me to be clearly chimerical. As to the first I agree with my brothers that this is really a visionary claim. It is quite plain on the pleadings alone and without evidence that during this period between February 1956, and July 1957, no use whatever would have been made of the form if it had been returned. Indeed, the plaintiff and his advisers were so taken up with their wrongs that they did not even notice it when it was returned and only woke up to the fact during the hearing before Roxburgh J. in 1959.
If ever there was a case for not extending the exception to
16 [1956] Ch. 565.
the rule in Foss v. Harbottle,17 it is this case, and I would dismiss the appeal.
Appeal dismissed with costs.
Money in court as security for costs to be paid out to defendant’s solicitors in or towards satisfaction of order for costs.
Leave to appeal refused.
Solicitors: Cameron, Kemm, Nordon AND Co.; Gerald Samuels AND Shine.
