Between Cable & Wireless Jamaica Ltd v Eric Jason Abrahams
| Jurisdiction | Jamaica |
| Judge | Brooks P,Simmons JA,V Harris JA |
| Judgment Date | 20 December 2022 |
| Neutral Citation | JM 2022 CA 128 |
| Docket Number | SUPREME COURT CIVIL APPEAL NO COA2019CV00029 |
| Court | Court of Appeal (Jamaica) |
| Year | 2022 |
[2022] JMCA Civ 44
IN THE COURT OF APPEAL
THE HON Mr Justice Brooks P
THE HON Miss Justice Simmons JA
THE HON Mrs Justice V Harris JA
SUPREME COURT CIVIL APPEAL NO COA2019CV00029
Mrs Sandra Minott-Phillips QC and Miss Hilary Reid instructed by Peter Goldson of Myers Fletcher & Gordon for the appellant
Conrad George instructed by Andre Sheckleford of Hart Muirhead Fatta for the respondent
I have read the draft judgment of my learned sister, V Harris JA. I agree with her reasoning and conclusion and have nothing to add.
I, too, have read the draft judgment of my learned sister and agree with her reasoning and conclusion.
Section 206 of the Companies Act, 2004 (‘the Act’), which falls under the heading “Arrangements and Reconstructions”, provides the mechanism by which a compromise or arrangement (termed ‘scheme of arrangement’) may be reached between a company and its members (or any class of them) even though some of the members who are affected by the scheme of arrangement may disagree. A scheme of arrangement is approved and binds the company and all its members when a majority representing 75% in number and value, having been notified of a meeting to consider it, votes, whether in person or by proxy, in favour of the scheme of arrangement.
The appellant, Cable & Wireless Jamaica Limited (‘CWJ’), is appealing the decision of Batts J (‘the learned judge’) given on 15 March 2019 in the Commercial Division of the Supreme Court, whereby he refused to sanction an approved scheme of arrangement advanced by CWJ (‘the scheme’). The scheme, which is a members’ scheme proposed pursuant to sections 206 and 208 of the Act, was approved by the requisite majority of CWJ's ordinary shareholders at their extraordinary general meeting on 21 November 2018 (‘the meeting’).
This appeal is primarily concerned with the approach that should be taken when considering the classification of shareholders (or members) of the same class (in this case, the holders of ordinary shares) where the majority shareholders are subsidiaries (or affiliates) of a parent company seeking to “voluntarily” acquire another of its indirect subsidiaries. The critical issue on the appeal is whether the rights and interests of the majority shareholders, in these circumstances, were not closely aligned with those of the minority shareholders, so separate meetings of the same class of members ought to have been convened to consider and approve the scheme. Another important question to be determined is whether it would be unfair, particularly to the minority shareholders, to sanction the scheme before a decision was given by the court below on a pending application to commence a derivative claim initiated by the respondent, Mr Eric Jason Abrahams. These were the reasons that the learned judge advanced for refusing to sanction the scheme. Ultimately, therefore, this court will have to decide whether or not he correctly exercised his discretion. But first, a brief outline of the factual background is necessary to provide the context of the appeal.
CWJ, the claimant in the court below, provides telecommunications services in this jurisdiction and is an indirect subsidiary of Cable & Wireless Communications Limited (‘C&WC’). C&WC is a wholly-owned indirect subsidiary of Liberty Latin America Limited (‘Liberty’). The parent company, Liberty, is a telecommunications company which operates in Latin America and the Caribbean. CWC Cala Holding Limited (‘CWC Cala’) and Kelfenora Limited (‘Kelfenora’) are also subsidiaries of Liberty and substantial shareholders in CWJ.
As at 30 June 2018, CWC Cala and its affiliate, Kelfenora, held and still hold 92.27% (of which CWC Cala has 87.40% and Kelfenora holds 4.87%) of the existing ordinary shares issued and fully paid up in CWJ. Mr Abrahams, an investment banker and a minority shareholder in CWJ, holds 0.24% of the existing shares. Together with Casa Corporation Limited (which holds 0.14% in trust for him), Mr Abrahams holds 0.38% of the existing shares in CWJ. Mr Abrahams and Casa Corporation Limited are two of the ten largest shareholders in CWJ. However, they still hold less than 25% of the total existing ordinary shares that would be required to prevent the approval of the scheme.
The dispute which led to this appeal originated on 7 September 2018, with the filing of a fixed date claim form by CWJ in the court below. CWJ sought orders for, among other things, permission to convene a meeting on 21 November 2018 of the holders of its ordinary shares to consider and approve the scheme, with or without modification, for its reconstruction.
Once approved and sanctioned, the scheme would essentially enable Liberty, through its subsidiaries CWC Cala and Kelfenora, to compulsorily acquire the remaining shares in CWJ by way of a “voluntary takeover offer” from CWC Cala. The remaining shares (those not held by CWC Cala and Kelfenora, which represent 7.73% of the existing shares) would be cancelled and reissued to CWC Cala. The members eligible under the scheme would receive $1.45 per cancelled share. CWJ would then effectively become a wholly-owned subsidiary of Liberty.
In objection to the scheme, Mr Abrahams pursued an application for leave to bring a derivative action in the state of Florida, in the United States of America (where C&WC has its operational headquarters). That derivative action would be on behalf of CWJ and against Liberty, as well as directors and shadow directors of CWJ, for breach of fiduciary duties and losses. It is perhaps helpful to mention here that on 17 July 2020, Laing J granted Mr Abrahams leave to file a derivative claim in Jamaica (see Jason Abrahams v Cable & Wireless Jamaica Limited [2020] JMCC Comm 18).
On 1 October 2018, there was an ex parte hearing before the learned judge in which he granted permission for CWJ to convene the meeting on 21 November 2018 at 3:00 pm with one class of its ordinary shareholders for the purpose of considering and approving the scheme (‘ ex parte order’). Approximately one month later, on 8 November 2018, Mr Abrahams filed and served a notice of appearance in CWJ's claim.
Subsequently, on 15 November 2018, Mr Abrahams filed a notice of application for court orders to set aside the learned judge's ex parte order on the premise that (1) the court lacked jurisdiction since the proposed scheme did not raise any section 206 issues because no creditor was involved in the process; (2) the proposed scheme sought to undermine a pending application for leave to bring a derivative action; and (3) the proposed scheme also sought to subvert the operation of section 209 of the Act since it would allow approval of the scheme without the requisite vote of the majority of the shareholders and would adversely impact the rights of the minority. Further to that application, an inter partes hearing was held on 19 November 2018.
The learned judge, at the inter partes hearing, in agreement with counsel representing CWJ, took the view that the issues raised by Mr Abrahams concerning the derivative action and the oppression of minority rights were non-jurisdictional matters that raised fairness issues that should first be discussed at the meeting called to approve the scheme and could also be “urged” at the hearing to sanction the scheme (‘the sanction hearing’). He then addressed what he found to be the jurisdictional point and dismissed Mr Abraham's application to set aside the ex parte order (‘ inter partes order’).
On account of that inter partes order, CWJ proceeded to convene a single meeting of its ordinary shareholders on 21 November 2018, at which the majority of shareholders (members holding 15,328,273,433 issued and fully paid up ordinary shares and representing 75.58% of the shareholders) voted in favour of the scheme. Accordingly, having acquired the approval of the requisite statutory majority of the members with ordinary shares, CWJ applied to the court below to have the scheme sanctioned. However, Mr Abrahams, along with other minority shareholders, opposed the sanctioning of the scheme.
At the sanction hearing, which took place in January and March 2019, the learned judge refused to sanction the scheme on two bases. Firstly, the class meeting was not properly constituted as separate meetings of the ordinary shareholders should have been convened. This was because the majority shareholders (CWC Cala and Kelfenora), being both “intended” purchasers (or affiliates of them) and vendors, could not reasonably be expected to vote in the best interest of the company or the minority shareholders who were vendors only. Secondly, it would be unfair to sanction the scheme before a decision was made concerning the proposed derivative action because all the shareholders, in considering the scheme, should have the opportunity to deliberate about the efficacy of those proceedings if leave were granted to bring the claim. As a result, the learned judge made the following orders:
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“1. The application to approve the Scheme of Arrangement, voted on by shareholders at a meeting held on the 21 st day of November 2018, is refused.
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2. The Claimant is permitted, if so advised, to reconvene meetings for consideration of the Scheme of Arrangement at a time and in a manner consistent with this judgment.
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3. Costs to [Mr Abrahams] to be taxed, if not agreed. Leave granted, if necessary, to commence taxation.
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4. [CWJ] is granted leave to appeal if necessary.”
CWJ is appealing orders 1 and 3. We note that no submissions were advanced before us on the issue of costs. However, it is understood that if CWJ is successful on the appeal, they will be seeking to have their costs both here and in the court below.
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