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Published online by Cambridge University Press: 24 January 2025
The High Court has recently heard argument in the case of WCP Ltd v Gambotto. The case is on appeal from the New South Wales Court of Appeal. Although the facts of the case are relatively simple, the issues they raise are rather more complex. WCP Ltd is a company, the shares of which are almost entirely owned by Industrial Equity Ltd.
The author wishes to thank Stephen Bottomley for his comments on an earlier draft. The completion of this paper was also greatly assisted by lively interchanges with my corporate law colleagues, Stephen Bottomley and Peta Spender. Any errors remain, of course, my responsibility.
1 Lecturer in Law, The Australian National University. The author wishes to thank Stephen Bottomley for his comments on an earlier draft. The completionof this paper was also greatly assisted by lively interchanges with my corporate law colleagues, Stephen Bottomley and Peta Spender. Any errors remain, of course, my responsibility. Judgement reported at (1993) 10 ACSR 468.
2 (1992) 10 ACLC 1046 at 1049.
3 (1993) 10 ACSR 468 at 475.
4 See the passage quoted above: “In my opinion such an amendment amounts to unjustl oppression of those minority shareholders who object.”(1992) 10 ACLC 1046 at 1049.
5 The Corporations Law does contain provisions permitting compulsory acquisition ofi minority interests in ss 411 and 701-702; however these provisions restrict such activity to that occuring in the context of a takeover scheme or a compromise with the company's creditors.
6 Allen v Gold Reefs of West Africa Ltd [1900] 1 Ch 656; Brown v British Abrasive Wheel Co Ltu [1919] 1 Ch 290; Sidebottom v Kershaw Leese & Co Ltd [1920] 1 Ch 154 and Shuttleworth v Cox Bros & Co (Maidenhead) Ltd [1927] 2 KB 9.
7 In the form of provisions such as ss 260 and 1324 of the Corporations Law.
8 Such as the power to amend the articles of association by special resolution: s 176(1).
9 Note here the observations recently made in the Report by Expert Panel of Inquiry into Desirability of Super Voting Shares for Listed Companies: “The principle of democratic political theory is one person, one vote. This survives in the Corporations Law in respect of voting on a show of hands. However on a poll, we are talking not about one shareholder, one vote but one share one vote. It is clearly recognised that there can be differences between shareholders depending on the number of shares which they hold and that this will be based on their wealth. At this point the analogy with political theory starts to disintegrate and is being used emotively.” Report by Expert Panel of Inquiry into Desirability of Super Voting Shares for Listed Companies, Corporations Law Super Voting Shares (1994) at 27.
10 In Pender v Lushington (1877) 6 Ch D 70 at 75-76, the Court stated: “There is ... no obligation on a shareholder of a company to give his vote merely with a view to what other persons may consider the interests of the company at large. He has a right, if he thinks fit, to give his vote from motives or promptings of what he considers his own individual interest.”
11 [1900] ICh 656 at 671.
12 (1993) 10 ACLC 468 at 470.
13 See, eg, the judgments of Latham CJ and Dixon J in Peter s American Delicacy Co Ltd v Heath (1938) 61 CLR 457. See also S Fridman, “Ratification of Directors' Breaches” (1992) 10 Co & Sec Lf 252 and references therein.
14 (1843) 2 Hare 461; 67 ER189.
15 See for example the reasons for judgement in Residues Treatment and Trading Co Ltd v Southern Resources Ltd (1988) 51 SASR177 at 198.
16 In recent years, Australian courts have been more inclined to seize the opportunity presented to them by s260 to use the judicial discretion grantedtherein to fashion appropriate remedies to protect the interests of minority shareholders: see particularly Re Enterprise Gold Mines NL (1991) 3 ACSR 531 and Re Spargos Mining NL (1990) 3 ACSR1.
17 (1985) 59 ALJR 798.
18 Ibid at 804.
19 See for example, Residues Treatment and Trading Co Ltd v Southern Resources Ltd (1988) 51 SASR 177 where the Full Court of the SouthAustralian Supreme Court held, in a case dealing with a shareholder's challenge to the exercise of the power of the company's directors toissue shares, that shareholders were possessed of a personal right “to be protected against dilution of [their] voting rights in the company” (at 201). This personal right, according to the Court, was “fortified by the nature of the contract between the company and the members constituted by the memorandum and articles of association and given statutory force by s 180(1)” (at 202). The personal right, thus founded, allowedthe Court to permit shareholder action despite the “proper plaintiff” principle emanating from the rule in Foss v Harbottle.
20 See Eley, v Positive Government Security Life Assurance Co (1876)Google Scholar 1 Ex D 88.
21 Section 260(5)(c) provides: “[A] reference to an act or omission by or on behalf of a company or a resolution of a class of members of a company being oppres prejudicial to, or unfairly discriminatory against, a member is a reference to an act or omission by or on behalf of a company or a resolution of a class of members of a company being oppressive or unfairly prejudicial to, or unfairly discriminatory against, a person who is a member, whether in the person's capacity as a member or in any other capacity.”
22 See B L Welling, Corporate Law in Canada: The Governing Principles (1992) at 55-73.
23 See Hill, J “Protecting Minority Shareholders and Reasonable Expectations” (1992) 10 Co &Sec LJ 86.Google Scholar
24 SeeBrudney, V “Corporate Governance, Agency Costs and the Rhetoric of Contract” (1985)CrossRefGoogle ScholarColumbia L Rev 1403.
25 See for example Ebrahimi v Westbourne Galleries Ltd [1973] AC 360.
26 The Simplification Task Force, Attorney-General's Department, has recently released proposals to simplify and reform the law relating to proprietary companies: Corporations Law Simplification Program, Small Business: Proposal to Simplify Proprietary Companies, (1994). Note that the proposal does not include any mention of reform to the shareholder remedies provisions of the legislation insofar as they affect small businesses.
27 (1993) 10 ACSR468 at 474.
28 See Spender, P “Compulsory Acquisition of Minority Shareholdings”Google Scholar, 11 Co ' Sec L J 83 at 89-92.
29 Note that Canadian provisions dealing with compulsory acquisitions are substantially concerned with ensuring that the value offered for the securities is fair: see Canada Business Corporations Act RSC 1985, c C-44, s 206 (hereinafter “CBCA”) and the Ontario Business Corporations Act RSO 1990, c B-17 (hereinafter “OBCA”), s 189.
30 CBCA s 190 and OBCA s 185. The statutory right of dissent is essentially the right to require the corporation to purchase one's shares for fair value. It is triggered by, amongst other things, the amendment of the company's articles.
31 (1992) 10 ACLC 1046 at 1049.
32 ASC, Practice Note 29, Selective Capital Reductions, para 34 states: “The Law does not prohibit the instigator of the proposal (often the controlling shareholder or an associate of the controlling shareholder) voting on the proposal to cancel the share capital of the other minority shareholders. However, to demonstrate fairness to the minority shareholders as a group: (a) the interests of such persons should be fully disclosed; and (b) they should not vote on the resolution.”
33 Ibid at para 35.
34 See for example the speech of Lord Simonds in Scottish Insurance Corp Ltd v Wilsons & Clyde Coal Co Ltd [1949] AC 462, dealing with the return of capital to preference shareholders. The preference shareholders had argued that if their capital were returned they would be deprived of an investment that they could not hope to replace. This argument was not! sufficient to persuade the court that the reduction of capital proposed would be unfair.