Joni Kamille Young Torres v Ervin Moo Young and Others

• Jurisdiction: Jamaica
• Judge: Sykes J
• Judgment Date: 05 February 2016
• Neutral Citation: [2016] JMSC Civ 17
• Docket Number: CIVIL DIVISION CLAIM NO. 2015HCV05096
• Court: Supreme Court (Jamaica)
• Date: 05 February 2016

[2016] JMSC Civ 17

IN THE SUPREME COURT OF JUDICATURE OF JAMAICA

CIVIL DIVISION CLAIM NO. 2015HCV05096

Between

Joni Kamille Young Torres (As Administrator of the Estate of Karl Augustus Young)

Claimant

and

Ervin Moo Young

First Defendant

Debbian Dewar (As an Executor of the Estate of Chad Adrian Young Aka Chad Young)

Second Defendant

ZIP (103) Limited

Third Defendant

Between

ZIP (103) Limited

Ancillary Claimant

and

Debbian Dewar (As an Executor of the Estate of Chad Adrian Young Aka Chad Young

First Ancillary Defendant

Debbian Dewar

Second Ancillary Defendant

IN OPEN COURT

Sandra Minott Phillips QC and Simone Bowie Jones instructed by Dorothy Pine McLarty of Myers, Fletcher and Gordon for the claimant

Symone Mayhew and Kimberly Morris for the first defendant

Allan Wood QC, Tana'ania Small Davis and Miguel Williams instructed by Livingston Alexander and Levy for the second defendant

M Georgia Gibson Henlin QC and Stephanie Williams instructed by Henlin Gibson Henlin for the third defendant and ancillary claimant

COMPANY LAW - Shares - Allotment of - Whether allotment in accordance with the Articles of Association - Whether allotment valid - Whether allotment should be set aside - Whether register should be rectified

Sykes J

The litigants

1 There are many Youngs and Moo Youngs. The court will use the first names for ease of reference. No disrespect is intended. Mr Ervin Moo Young (“Ervin”) and Mr Karl Young (“Karl”) were brothers. Mr Chad Young (“Chad”) was Karl's son and therefore Ervin's nephew. Mrs Joni Kamille Young Torres (“Joni”) is another of Karl's children. Therefore she is Ervin's niece and was Chad's sister. Mrs Dewar is not related by marriage or otherwise to anyone in this case.

2 Karl died on June 10, 2010. He did not leave a will. Chad died on February 27, 2014. He left a will. Ervin and Mrs Dewar are the named executors. Mrs Dewar had the will probated. By the terms of the will, Chad left 50% of the 490,000 shares issued to him for Mrs Dewar. The allotment and issuing of share are being challenged or, at least questioned by Joni. The challenge is not opposed by any of the defendants except Mrs Dewar. Thus despite the title of the claim, the only defendant resisting the claim is Mrs Dewar.

History of the allotment and issuing of shares

3 Zip (103) Ltd (“Zip”) was incorporated on September 20, 2001. According to the memorandum of association, Zip had an authorised share capital of 500,000.00 shares each with a nominal value of $1.00. In September 2001 two of the 500,000 shares were issued: one to Karl and the other to Mr Brian Schmidt. These two gentlemen were subscribers to the memorandum of association. Mr Schmidt transferred his one share to Mr Ervin Moo Young (“Ervin”).

4 Ervin and Karl were the very first directors. This remained so until Chad was appointed a director on August 23, 2004. Mrs Dewar was appointed a director on December 16, 2010. Mrs Dewar was appointed a director after the allotment under challenge was made. There is a challenge to whether Mrs Dewar was properly appointed but until that is determined the court will proceed on the basis that she was lawfully and properly appointed.

5 According to the annual returns between 2001 and 2009 only two shares were allotted. On July 9, 2010 Chad was allotted 490,000. This was approximately one month after Karl's death. The minutes before the court show that a board meeting held on July 8, 2010 at which Ervin and Chad are recorded as attending. At this meeting a decision was made to allot and issue the shares to Chad. Ervin is now saying that he was not party to any discussion about the allotment of shares. The annual return for 2010 confirms the issuing of the shares to Chad.

6 The minutes state that the directors had discussions and agreed on the allotment and issuing of 490,000 shares to Chad. Ervin's response is suggesting that the minutes are grossly inaccurate in that he had no discussions with Chad and did not agree to any allotment. He even goes as far as saying that he did not agree that $490,000.00 should have been paid by Chad for the shares. Now that Chad is dead there is no one to say otherwise. The board minutes and the record of allotment are the only record exhibited relating to this transaction. However, it does not follow that there is any inevitability about the acceptance of Ervin's evidence on this point. It still has to be assessed in light of the other evidence in the case. The internal logic and coherence of Ervin's account has to be examined. It may be that the evidence proves unacceptable after analysis. There is no principle of law that requires uncontradicted evidence to be accepted.

7 Ervin states in his affidavit that although he signed the return of allotment he did not know what it was that he was signing. According to him the document was simply presented to him and he signed without appreciating what it was that he was signing. He added that it was only after Chad's death and he spoke to lawyers at Nunes Scholefied DeLeon & Co that he realised what he had signed and the implications of the document. Ervin is also saying that it is only within recent times that he appreciated that the shares should have been sold at market value.

Was there a breach of the articles?

8 Mrs Minott Phillips' first point is that the allotment and issuing of shares were decided by the two directors, Ervin and Chad, without reference to, or notification to the Estate of Karl. The submission was to the effect that the articles of association required all unissued shares be offered first to existing members before being issued. If the company did not wish to do this then it had to pass a special resolution to that effect. It is common ground that no such resolution was passed. The proposition is that the issuing of the shares was in breach of the articles of association and should be set aside. Mrs Gibson Henlin QC on behalf of Zip adopted that submission as did Mrs Symone Mayhew for Ervin.

9 Before turning to the articles in question it is important to bear in mind that articles of association are a special kind of contract. They are the rules concerning internal management of the company; the constitution of the company. As the law has developed and subject to the provisions of the Companies Act it is not accurate to suggest (as the submissions of Mrs Minott Phillips, Mrs Gibson Henlin and Mrs Mayhew hinted at) that once there is a breach of the articles relating to the allotment of and issuing of shares it necessarily and inevitably follows that the remedy must necessarily be a setting aside of the allotment and issuing of shares.

10 Reference was made to the decision of Edwards J in Northover v Northover [2014] JMCC Comm 14. Her Ladyship did not accept the proposition that breach of pre-emption rights provisions when previously unissued shares are being issued, ipso facto, meant that the allotment and issuing of shares were automatically invalid. What Edwards J found in that case was that there was a breach of the procedure laid down in the articles and therefore the allotment and issuing of the shares were invalid. Her Ladyship also found that the purpose of allotment was to shift the balance of power within the company.

11 In addition, when it comes to the directors of a company exercising the power to issue shares the courts have engrafted the equitable principle that the power must only be exercised for a proper purpose. The duty flows out of the fact that directors are in a fiduciary relationship with the company.

12 The primary relevant article is number 47 which reads:

• (a) Unless the company shall by special resolution otherwise direct all unissued shares (whether in the original or any increased share capital) shall, before such issue, be offered to the member. …

• (b) …

• (c) …

• (d) For the purpose of this article, where any person is unconditionally entitled to be registered as the holder of a share, he and not the person actually registered as the holder thereof, shall be deemed to be a member of the Company in relation to that share.

13 Mr Allan Wood QC took the view that articles 34, 35 and 133 are also relevant. The other attorneys did not agree. These articles deal with deceased persons who held shares. These articles are now set out:

Article 34

In case of death of a member the survivor or survivors where the deceased was a joint holder, and the legal personal representatives of the deceased where he was a sole holder, shall be the only persons recognised by the Company as having any title to his interest in the shares, but nothing herein contained shall release the estate of a deceased joint holder from any liability in respect of any share which had been jointly held by him with another person. (emphasis added)

Article 35

Any person becoming entitled to a share in consequence of the death … of a member may, upon such evidence being produced as may from time to time properly be required by the directors and subject as hereinafter provided, elect either to be registered himself as the holder of the share or to have some person nominated by him registered as the transferee thereof, but the directors shall in either case, have the same right to decline or suspend registration as they would have had in the case of a transfer of the share by that member before his death or bankruptcy as the case may be.

Article 133

A notice may be given by the Company to the persons entitled to a share in consequence of the death … of a member by sending it through the post in a prepaid letter …

14 When it comes to the interpretation of commercial documents generally and articles of association in particular the rule is that “the plain and ordinary meaning of the words used … can only be displaced if it produces a commercial absurdity”( John Thompson, Janet Thompson v...