Jason Abrahams v Cable & Wireless Jamaica Ltd
| Jurisdiction | Jamaica |
| Judge | Laing, J |
| Judgment Date | 17 July 2020 |
| Court | Supreme Court (Jamaica) |
| Docket Number | CLAIM NO. 2017CD000594 |
| Date | 17 July 2020 |
[2020] JMCC Comm 18
IN THE SUPREME COURT OF JUDICATURE OF JAMAICA
COMMERCIAL DIVISION
CLAIM NO. 2017CD000594
Mr Conrad George and Mr Andre Sheckleford instructed by Hart Muirhead Fatta, Attorneys-at-Law for the Applicant
Mrs Denise Kitson QC, Mr. Kevin Williams and Ms Anna-Kay Brown instructed by Grant Stewart Phillips, Attorneys-at-Law for the Respondent
Companies Act — Application for leave to bring a derivative claim — Factors to be considered — Whether leave should be granted to bring claim outside the Jurisdiction — Application of pre-2017 company law relating to fiduciary duties — Extent of applicability of business judgment rule
The Applicant is an Investment Banker. He is the holder of the legal title of 40,000,000 shares in the Respondent and he asserts that he is also the beneficial holder of 23,661,056 shares which are held for his benefit by an entity named CASA Corporation Limited.
The Respondent is a company duly registered under the laws of Jamaica in the business of providing telecommunications services under the FLOW brand formerly under the LIME brand (“the Company”).
The Applicant by notice of application filed 27 th November 2017 (relisted 29 November 2017) is seeking leave to bring a derivative claim. A derivative claim is a claim by a member of a company seeking relief on behalf of the company in respect of a cause of action which is vested in that company. The Applicant is seeking leave to bring a claim in the name of the Respondent (“the Proposed Claim”), against certain directors for alleged breaches of their statutory and other duties to the Company and he also wishes to claim against Cable and Wireless Communications Limited (formerly bearing the suffix “Plc”) (“CWC”) on the basis that it is a shadow director.
A convenient starting point in any analysis of the development of shareholder remedies is the rule in Foss v Harbottle, derived from the case of Foss v Harbottle (1843) 2 Hare 461). The classic exposition of the rule is by Jenkins LJ in Edwards and Another v Halliwell and Others [1950] 2 All ER 1064 at 1066 as follows:
The rule in Foss v Harbottle, as I understand it, comes to no more than this. First, the proper plaintiff in an action in respect of a wrong alleged to be done to company or association of persons is prima facie the company or the association of persons itself. Secondly, where the alleged wrong is a transaction which might be made binding on the company or association and on all its members by a simple majority of the members, no individual member of the company is allowed to maintain an action in respect of that matter for the simple reason that, if a mere majority of the members of the company or association is in favour of what has been done, then cadit quaestio. No wrong had been done to the company or association and there is nothing in respect of which anyone can sue. If, on the other hand, a simple majority of members of the company or association is against what has been done, then there is no valid reason why the company or association itself should not sue. In my judgment, it is implicit in the rule that the matter relied on as constituting the cause of action should be a cause of action properly belonging to the general body of corporators or members of the company or association as opposed to a cause of action which some individual member can assert in his own right.
The rationale behind the rule was that it would be detrimental to the proper functioning of a company if each shareholder had the right to interfere with the everyday decisions of the company by bringing a claim on behalf of the Company. The operation of the rule meant that, because of his minority shareholding, the minority shareholder was hardly ever able to bring an action in the name of the company, since the right to bring such an action lies with the directors in the first instance.
Over time there developed a considerable body of case law which provided a number of exceptions to the rule in Foss v Harbottle pursuant to which a shareholder could, bring an action on behalf of the company where there had been, inter alia, a fraud on the minority and where the wrongdoers themselves were in control of the company. These claims are generally referred to as common law derivative claims.
The Companies Act 2006 (UK) consolidated and in many respects replaced the common law derivative claim procedure. This move to place the common law derivative claim procedure on a statutory footing has been adopted by a number of commonwealth jurisdictions, including Jamaica, which has done so by virtue of the current Companies Act 2004 (“the Act”). The approaches of the various jurisdictions to the details of the statutory derivative claim procedure has varied widely and I will highlight some of these differences, referencing in particular the British Virgin Islands later in this judgment.
The Jamaican statutory provision governing derivative claims is found at section 212 of the Act which provides as follows:
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212- (1) Subject to subsection (2), a complainant may, for the purpose of prosecuting, defending or discontinuing an action on behalf of a company, apply to the Court for leave to bring a derivative action in the name and on behalf of the company or any of its subsidiaries, or intervene in an action to which any such company or any of its subsidiaries is a party.
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(2) No action may be brought, and no intervention in an action may be made under subsection (1) unless the Court is satisfied that—
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(a) the complainant has given reasonable notice to the directors of the company or its subsidiary of his intention to apply to the Court under subsection (1) if the directors of the company or its subsidiary do not bring, diligently prosecute or defend, or discontinue, the action;
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(b) the complainant is acting in good faith; and
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(c) it appears to be in the interests of the company or its subsidiary that the action be brought, prosecuted, defended or discontinued.
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(3) In this section and section 213 and 213A, “complainant” means—
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(a) a shareholder or former shareholder of a company or an affiliated company;
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(b) a debenture holder or former debenture holder of a company or an affiliated company;
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(c) a director or officer or former director or officer of a company or an affiliated company.
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It is common ground between the parties that the Applicant is a “complainant” pursuant to section 212(3) of the Act and that he has fulfilled the notice requirement of section 212(2)(a). The main issues which fall for determination concern whether the Applicant has satisfied the requirements that (a) he is acting in good faith; and (b) that it appears to be in the interests of the company that the Proposed Claim, for which he seeks leave be brought.
In many applications before the Court, the applicant is required to demonstrate that a claim can clear a minimum bar. The requisite standard varies depending on the nature of the application. By way of example, on an application for a freezing order the applicant must prove that he has “ a good arguable case”. Mustill J in Ninemia Maritime Corporation v. Trave Schiffahrtsgesellachaft m.b.H. Und Co. K.G. (“the Niedersachsen) [1983] 2 Lloyds Rep 600 explained that this was “ a case which is more than barely capable of serious argument and yet not necessarily one which the judge believes to have a better than 50 percent chance of success”. On the other hand, on an application for an interlocutory injunction the applicant is required to establish to the satisfaction of the court “ that the claim is not frivolous or vexatious; in other words, that there is a serious question to be tried” (per Lord Diplock in American Cyanamid v Ethicon Ltd [1975] 1 All ER 504 at 510).
Notwithstanding the absence of any express term in the Act indicating the minimum bar which must be satisfied by the applicant on an application for leave, there must be some consideration of the Proposed Claim since this will have an impact on the issues of good faith and also whether the Proposed Claim appears to be in the interests of the company.
Both parties relied to different degrees on the Judgment of Sykes J (as he then was) in the case of Sally Ann Fulton v Chas E Ramson Ltd. [2016] JMSC Comm 14. In Fulton (supra) Sykes J (as he then was), at paragraphs 77 to 80 examined the relevance of the merits of the applicant's case and the influence it may have on the consideration of the requirements of good faith and that the claim be in the interests of the company:
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[77] It is this court's view that the closer the case is to being frivolous and vexatious the easier it is to infer an absence of good faith and the stronger the case, the easier it is to infer the presence of good faith. However, the fact that a case is frivolous and vexatious does not mean that the complainant does not have a genuine and honest belief in the case and that it should be brought. The complainant may be sincere and honest in his or her belief but misguided. A complainant can also have an honest belief in the case and the case may have good and sound legal merit but the complainant may have brought the claim in order to extract some concession from the company. It is entirely possible that the complainant has no intention of seeing the case through to completion.
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[78] What if the complainant is sincere but the case has little or no legal merit? It is this court's view that the good faith test would still be met but the court could say that it is not in the interest of the company to bring the claim because it has no legal merit.
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[79] This may well...
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