Knox v Deane et Al
| Jurisdiction | Barbados |
| Judge | Chase, J.A.,Belgrave, J.A. |
| Judgment Date | 10 April 2003 |
| Neutral Citation | BB 2003 CA 6 |
| Docket Number | Civil Appeal No. 17 of 2001 |
| Court | Court of Appeal (Barbados) |
| Date | 10 April 2003 |
Court of Appeal
Chase, J.A.; Waterman, J.A.; Belgrave, J.A. (Ag.)
Civil Appeal No. 17 of 2001
Mr. Alair Shepherd, Q.C., and Mr. Adrian King for the appellant.
Mr. Leslie Haynes, Q.C., for the ninth respondent and in association with Miss Doria Moore of Messrs Cottle Catford holding papers of Sir Harold St. John, Q.C., for the first to the seventh respondents and the eleventh respondent.
Mr. V. O. Smith for the eighth respondent.
Mr. G. C. Turney, Q.C. for the tenth respondent.
Company law - Shares — Offer made to the appellant on behalf of the respondents — Whether the shares in company were transferable to an outsider — Whether the directors were acting properly within the scope of their powers when they recommended to their shareholders acceptance of the respondent's offer — There was no impropriety in the actions of the directors — Appellant had failed to establish any rights as a shareholder in respect of which the directors and any of the shareholders were in breach.
This is an appeal from the decision of a judge of the High Court given on June 14, 2001, in which the appellant's application by way of an originating summons against the eleven respondents was dismissed.
Except for the 9th, 10th and 11th respondents, the parties are blood related with the appellant and the 1st, 2nd, 3rd and 6th respondents being the only surviving children of the deceased Estwick Ebenezer Deane's seven children.
On July 1, 1958, Estwick Ebenezer Deane (the deceased) incorporated Kingsland Estates Ltd. (KEL) under the former Companies Act, 1910. Of the issued 200,000 in KEL, 22,224 were held by the deceased, while his wife and seven children held 22,222 each. At the time of his death on June 16, 1985, the deceased owned 10 shares in the company and by his will those shares were bequeathed to Owen Deane, the 7th respondent. With the passing of the deceased, his wife and certain children, the surviving children and grandchildren owned all the shares in the 9th respondent.
The purpose for which KEL was incorporated was inter alia “to purchase and acquire” certain sugar plantations as set out in paragraph 3(a) of its memorandum of association, and by paragraphs:
“(t) to provide for the welfare of persons in the employment of the company, or formerly engaged in any business acquired by the company, and the wives, widows and families of such persons by grants of money, provisions or other payments…
(v) to sell, dispose of, or transfer the business, properly and undertaking of the company, or any part thereof for any consideration which the company may see fit to accept and in particular for shares debentures or securities of any company or companies purchasing the same.”
Articles of Association also provided that the company was to operate as a private company and that there be a restriction on the transfer of its shares in accordance with the terms of the Articles.
Members of the family were therefore appointed the first directors of KEL (Art. 73) and the business of the company proved to be financially viable until in or about 1969 when the sugar industry in Barbados began to experience declining profits.
The evidence discloses that KEL's fortune, reflecting that of the sugar industry, also declined and its debt increased to approximately $2.5 million in 1984.
Following the death of their father in 1985, who was the chairman of KEL at the time for several years, the appellant and the 7th respondent became directors of KEL.
In seeking to determine the issues raised by this appeal, it is of significance to observe that during the final year of the deceased's chairmanship of KEL in 1985, Barbados' corporate law experienced a radical reform by the adoption of a statutory division of powers model in substitution for the former English “memorandum and articles of association” or “contractarian” model under the former Companies Act 1910.
The current Companies Act, Cap. 308, came into operation on January 1, 1985. Among the new concepts imported by Parliament into Barbados' corporate law are the devices of “Articles of Incorporation” and “Articles of Continuation”.
These new devices are more than of passing interest, since in our view they set the stage for any analysis and evaluation of the arguments and submissions of counsel on the issues raised for resolution in this appeal.
Therefore, the significance of the repeal of the former Companies Act, 1910, by the reformed legislation of 1982 with its new provisions for corporate governance cannot be ignored. In this regard, it is perhaps appropriate at this stage to pose the question as to whether or not the assertion that the “Articles of Association of a company constitute a contract between the company and its' shareholders”, which was made with reference to the issues in this appeal, is valid and sustainable under the reformed legislation?
The former Act of 1910 contained the following provision:
“16(1). The memorandum and articles shall, when registered, bind the company and the members thereof to the same extent as if they respectively had been signed and sealed by each member and contained covenants on the part of each member, his heirs, executor arid administrator, to observe all the provisions of the memorandum and of the articles, subject to the provisions of this Act.”
This provision had its genesis in the earlier English legislation of 1844. Indeed, in Gower's “Principles of Modern Company Law” 6th Edition; 1997, the author indicates at pp. 115 & 116 as follows:
“Contractual effect of memorandum and articles
Section 14 of the Act provides that the memorandum and articles, ‘shall, when registered, bind the company and its members to the same extent as if they respectively had been signed and sealed by each member, and contained covenants on the part of each member to observe all’ their provisions, and that money payable by a member to the company under the memorandum or articles shall be in the nature of a specialty debt.
The wording of this section can be traced back with variations to the original Act of 1844 which adopted the existing method of forming an unincorporated joint stock company by deed of settlement (which did, of course, constitute a contract between the members who sealed it) and merely superimposed incorporation on registration. The 1856 Act substituted the memorandum and articles for the deed of settlement and introduced a provision on f, the lines of the present section.”
In Farrar's Company Law 4th edition, the nature of the contract created by these statutory provisions, its legal effect and the principles arising from the cases resulting from their interpretation and application are set out at pp. 118–123.
The references in the foregoing paragraphs to the origin of section of the 1910 Act and the commentaries on the comparable provisions of the English legislation would therefore seem to support the characterisation of such legislation as the “contractarian” model, a term used by Bruce L. Welling, in his “Corporate Law in Canada: The Governing Principles” 2nd edition at pp. 54 and 55.
When the existing Companies Act, Cap. 308 came into operation on January 1, 1985 it repealed the 1910 Act, and it would seem that the legal effect of section 16(1) was neither saved by or incorporated into its new provisions. In the result, the statutory basis for the assertion that the articles of association of a company constitute a contract between the company and its shareholders would seem to have disappeared from the corporate landscape of Barbados.
With the repeal of the 1910 Act, KEL the 9th respondent came within scope of the following provisions of the current legislation:
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(a) Section 349(1) which provides that:
“Every former — Act Company must within 6 years after the 1st January, 1985, apply to the Registrar for a certificate of continuance under this Act.”
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(b) Section 352(2) which states:
“On the date shown in the certificate of continuance
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(i) the former — Act Company becomes a company to which this Act applies as if it had been incorporated under this Act;
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(ii) the articles of continuance are the articles of incorporation of the continued company; and
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(iii) except for the purposes of subsection (1) of section 62, the certificate of continuance is the certificate of incorporation of the continued company.”
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In 1986, the 9th respondent applied for and was granted a certificate of continuance by the Registrar dated July 24, 1986. Schedules 1 and 2 to the articles of continuance provide essentially for the restriction on the transfer of shares in the company and for non-subscription by invitation to the public for its shares or debentures.
Schedule 1 is in the following terms and format:
“1(a) a share may be transferred by a shareholder or other person entitled to transfer such share to any shareholder selected by the transferor; but save as aforesaid, and save as provided by clause 3 of this schedule, no share shall be transferred to a person who is not a shareholder so long as any shareholder, or any person selected by the directors as one whom it is desirable in the interests of the company to be a shareholder, is willing to purchase the same at the fair value;
(b) any shareholder or other person entitled to do so, who intends to transfer shares (hereinafter called the proposing transferor) shall give notice in writing to the directors of his intention. Such notice shall constitute the directors his agent for the sale of the said shares in one or more lots at the discretion of the directors to the shareholders of the...
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