MURIA CJ:
This is an action by the Plaintiff for specific performance of the
provisions of the Articles of Association of the Plaintiff
company. The
defendant was a former employee and shareholder in the company. The order
which the plaintiff seeks in this
case is that the defendant be required to
transfer his shares in the company to the other remaining employees and
shareholders
of the company. The defendant objects to parting with his
shares.
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Brief background to the case
The tiff is an incorporated company and operates a Travel AgencAgency
business in Honiara. The defendant was an employee
of the plaintiff and a
minority shareholder holding 10% shares in the company. Three other Solomon
Islanders who were
also employees of the plaintiff company also hold 10%
shares each in the company. It was part of the plaintiff's policy since
it
started business that its senior staff be given the opportunity to own
shares in the company as an incentive to them.
A
meeting was said to be held in late January 1987 to ve the proposal
that that the Articles of Association of the company
be amended to make it
incumbent on any employee shareholder leaving the plaintiff's employment for
any reason must offer
his or her shares to be purchased by the other
employees. The Articles 4 and 6, were agreed to be deleted and replaced with
new Articles 4 and 6 to meet the proposed changes. The agreement to alter
Articles 4 and 6 was said to be unanimous by
all present at the meeting.
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The Case for the plaintiff
The case for the plaintiff is a short one. It says that there was a ms a meeting
of its employees - shareholders in late
January 1987. Present at that
meeting was the defendant as well as the other employees. It was unanimously
agreed at
that meeting the Articles 4 and 6 be altered to provide for a
situation where an employee shareholder leaves the company�s
employment for
whatever reasons that employee must offer his or her shares to the other
existing shareholders.
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The defendant was dismissed from the plaincompany on 29th sup>
May 1992. Pursuant to Articles 4 and 6 the defendant was obliged to offer
his shares to the existing shareholders.
He was requested to do so but he
refused to transfer his shares to three employees of the plaintiff namely.
Philip Morris
Szetu. A. Evans and May Campbell. The total value of the
defendant's shares was $79,210.62 and with deductions made therefrom
the sum
of $27,253.19 was due to be paid to the defendant for the transfer of his
shares. The defendant refused to sign
the share transfers denying agreeing
to the alteration of Articles 4 and 6.
The case for the defendant
The case put on behalf of the defendant is that he did not attend the
meeting at which Articles 4 and 6 were said to be
agreed to be altered. He
therefore denied agreeing to sell his shares and refused to do so.
Alternatively the defendant says that if there was ting during which
Art Articles 4 and 6 were said to be agreed upon
to be altered, such a meeting
was contrary to Article 13 of the Articles of Association of the company as
well as the
provisions of the Companies Act and therefore ultra vires.
The defendant says that in such circumstances the alteration of Articles 4
and 6 must be invalid.
It is also part of the defendant�s case that since he had not executed any
transfer of his shares to the other employees,
they could not be holding
those shares lawfully in their names. The defendant maintains that he still
is entitled to
have his shares in the plaintiff company.
The issues
As observed from the competing positions maintained by the parties in this
action, itn, it is clearly necessary to consider
the following issues: whether
there was in fact a meeting as claimed by the plaintiff during which
Articles 4 and 6 were
altered; if there was such a meeting, whether it
complied with the Articles of Association of the plaintiff and the Companies
Act; whether specific performance requiring the defendant to dispose of his
shares pursuant to Articles 4 and 6 should be ordered;
and what is the
status of the plaintiff�s shares now held by the other employees
shareholders without execution of transfer
of shares by the defendant? I
shall turn to these issues in due course. But first, let me consider the law
on alteration
of Articles of Association of a company and meeting called for
such purpose.
Alteration of Articles of Association
I
deal first with the questions of alteration of Articles of Association of
the company and a meeting to carry out the
same. Section 12 of the Companies
Act allows alteration of the Articles of a company. It provides:
�12. (1) Subject t provisions of this Ordinandinance and to the conditions
contained in its memorandum, a company may
by special resolution alter or
add to its articles.
(2)alteration or addition so made in the articles shall, subjesubject to the
provisions of this Ordinance, be as valid
as if originally contained
therein, and be subject in like manner to alteration by special resolution.�
As noted such alteration can be done through special resolution passed at
the meeting of a company. Special resolution
is specified in section 135(2)
of the Act which provides as follows:
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�135. (1) A resolution shall be an extraordinary resolution when it has been
passed by a majority of not less than three
- fourths of such members as,
being entitled so to do vote in person or, where proxies are allowed, by
proxy, at a general
meeting of which notice specifying the intention to
propose the resolution as an extraordinary resolution has been duly given.
(2) A resolution shall be a special resolution tion when it has been passed by
such a majority as is required for the
passing of an extraordinary
resolution and at a general meeting of which not less than twenty - one
days' notice, specifying
the intention, has been duly given:
Provided that, if it is so agreed by a majority inty in number of the members
having the right to attend and vote at any
such meeting, being a majority
together holding not less than ninety - five per cent in nominal value of
the shares giving
that right, or, in the case of a company not having a
share capital, together representing not less than ninety - five per
cent of
the total, voting rights at that meeting of which less than twenty - one
days� notice has been given.�
Thus, a special rtion is a resolution passed by a majority of not less
than three - fourths of the members at a meeting
of the company requiring 21
days notice. However a special resolution may be passed at a meeting where
the majority of
the members holding 95% in nominal value of the shares
carrying voting rights at it, agree to the shorter notice of less than
21
days.
It should also be observed that there is no requiremnder section 135(2)
t that the members have to attend the meeting
in order to give their consent
to the shorter notice of it. That means, they can give their consent in
writing prior
to the meeting or even orally. However under the proviso to
this section their attention must be drawn to the fact, that the
normal
length of notice has not been or is not being given. Failure to do so leaves
open the challenge as to the validity
of the resolution. See Re Pearce
Duff and Co. Ltd [1960] 1 WLR 1014; [1960] 3 All ER 222 where Buckley J.
said:
�In my judgment that proviso requires the persopersons who agree to a resolution
being passed on short notice to appreciate
that the resolution being passed
on short notice and to agree to its being so passed with that consideration
in their
minds. I think that it is clear that in the present case the
shareholders who signed the consent did not have it in their mind
at all
that the initial notice was defective in point of time. So, in my judgment,
this consent does not cure the matter
in that way.�
�(3) A meeting of a company shall, notwithstanding that it i it is called by
shorter notice than that specified in subsection
(2) or in company�s
articles, as the case may be, be deemed to have been duly called if it is so
agreed -
<
(a) in the casa meeting called as the anne annual general meeting, by all
the members entitled to attend and vote thereat;
and
(b) in the case of any other meeting, by a majority in number of the members
having a right to attend and vote at the
meeting, being a majority to attend
and vote at the meeting, being a majority together holding not less than
ninety -
five per cent in nominal value of the shares giving a right to
attend and vote at the meeting, or, in the case of a company
not having a
share capital, together representing not less than ninety-five per cent of
the total voting rights at that
meeting of all the members.�
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The effect of these provisions is that a meeting to pass a special
resolution including one called to consent to an alteration
of Articles of
Association, can be convened at a shorter notice of less than 21 days as
agreed to by the majority of
the members holding 95% in the nominal value of
the shares and having the right to vote at the meeting. The attention of the
members as to the calling of the meeting on shorter notice than that
required under the Act must be drawn so that they
can signify their consent
to the giving of shorter notice.
Was there a meeting?
The defendant insisted that there was no meeting called to discuss the
alteration of Articles 4 and 6. I feel, however,
that the evidence clearly
shows that a meeting had taken place in or about late January 1987. The
evidence of Annie Evans,
John Penn, Donald Wilfred Menzies and Philip Szetu
confirmed that. Although, in cross - examination Philip Szetu put the
meeting to be in January or February, 1987, I think that does not matter. In
Chief, he put the meeting to be in late January
1987 and that clearly is in
line with the tenor of the evidence.
It is important to note that the defendant, through his cou agreed at
the commenommencement of the hearing to the use
of the affidavit evidence of
Annie Evans, John Penn and Donald Wilfred Menzies who were all witnesses for
the plaintiff.
Their evidence having been admitted into court as part of the
evidence in this trial with the agreement by the defendant, clearly
puts it
beyond any doubt whatsoever that the meeting relied on by the plaintiff
clearly took place in late January, 1987.
It was held in the plaintiff's
Office after the normal working hours and attended to by the
shareholders/employees of
the plaintiff company. Those who attended the
shareholders� meetings were John Penn, Donald Wilfred Menzies (�Don Menzies�),
Phillp Szetu, May Campbell, Annie Evans and the defendant.
When the matter of the meeting wasto the defendant in cross -oss -
examination he said that the meeting with John Penn
was an informal one. It
was put to him:
�Q. Did you recall Mr. Penn coto Honiara in January 1987?1987?
A. Yesn>
Q. Is it correct that there was a meethen?
A. It was only an informal ch the office when he came inme in�
And later when put to him oss - examination:
�Q. I put it tothat there was a meeting?
A. Only bal meeting�
>
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When one puts all the evidence together, pularly, the uncontroverted rted
evidence of the three plaintiff witnesses mentioned
earlier there can be
only one conclusion. That conclusion is, that there was in fact a meeting of
the plaintiffs� employees/shareholders
held in late January 1987 in the
plaintiff's office and attended to by all the employees/shareholders
including the defendant.
But even if there was no formal meeting. He was present at that informed
meeting at which Articles 4 & 6 were agreed
to be altered. Even if that were
so, the resolution passed by all the members present was valid as all the
members/shareholders
of the company unanimously consent to the passing of
the special resolution. Section 12 of the Act lays down the procedure
for
alteration of the articles of the company, that is, by special resolution.
The shareholders of the company, of course,
must be free to do anything
which is for the benefit of the company. This is a basic company law
principle. Nothing in
section 12 nor section 135(1) and (2) curtails that
principle. See Cane -v- Jones [1980] 1WLR 1451 where court held that
an agreement entered into by all the shareholders altering the articles of
the
company and which removed the power of the Chairman to exercise a
casting vote was valid and effective as a special resolution
despite the
fact that there was no formal meeting of the shareholders. See also the case
of Parker and Cooper Ltd -v- Reading [1926] Ch 975 referred to also
in Cane -v- Jones (supra). In that case, Astbury J. Speaking to the
same effect said at pages 984 � 985: -
�............ where the transaction is intra vires and honest, and
especially if it is for the benefit of the company,
it cannot be upset if
the assent of all the corporations is given to it. I do not think it matters
in the least whether
that assent is given at different times or
simultaneously�. If company law enables the entirety of the corporations to
ratify an irregular intra vines transaction why should this not protect an
honest bona fide intra vines transaction entered
into for the benefit of the
company? I can find nothing in In re George Newman & Co. to prevent
all the corporations from arranging to carry out an honest intra vires
transaction entered into for the benefit
of the company, even if they do not
meet together in one room or place, but all of them merely discuss and agree
to it
one with another separately.�
Even if there was any irregularities as claimed by the defendant, the
the
authorities referred are against him. However
as I have already found, in
this case, there was a meeting called and attended to by the shareholders
including the defendant
to pass a special resolution to alter the articles
of the plaintiff company.
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Alteration of Articles 4 and 6
It is the defendant�s contention that he never agreed to the alteralteration of
Articles 4 and 6 of the plaintiff�s Articles
of Association and that he only
heard of it later. The relevant parts of Articles 4 and 6 to these
proceedings are Articles
4 (iii) and 6 (ii) (c) which are as follows:
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�4 (iii) Any employee who is a shareholder and who wiso wishes to leave the
company�s employment shall, upon ceasing to
be so employed not be entitled
to hold shares in the company, and shall be obliged to offer his/her shares
to the other
existing shareholders in accordance with the procedures
contained in Article 6(ii)[sic] and (iii) hereof.�
and
�6(ii) Any employee who is required by d by Article 4(iii) to offer his/her
shares to other existing share - holders,
or any shareholder who is a
citizen of Solomon Islands and who desires to sell his/her shares shall: -
(c) in the of shareholders who are cire citizens of Solomon Islands
terminating employment with the company, offer the
shares at the fair value
to the incoming employee (being a citizen of Solomon Islands) if considered
appropriate by the
Directors.�
The effect of those provisions is that once an employee/solder leaves
the comp company�s employment he or she is required
to offer his/her shares to
the existing shareholders and thereafter shall cease to be a shareholder of
the company. Not
only did the defendant denied agreeing to the alteration of
Articles 4 and 6 but that he objected to selling his shares. Asked
why he
objected to the alteration, he said:
�I object because according to my goort my shares would go to myto my
children�
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Turning to vidence before the court, it is once again obvious that thet the
defendant is in no better position than he
was in relation to the issue of
whether there was a meeting or not. He agreed to the evidence contained in
the affidavits
of Mrs. Evans Mr. Penn and Mr. Menzies. The evidence of those
witnesses and that of Mr. Szetu clearly confirmed that the proposed
alteration of Articles 4 and 6 was discussed at the meeting attended to by
the managing director and all the shareholders
including the defendant in
late January 1987 and at which it was unanimously agreed that the said
Articles be altered
as proposed. Having agreed to the evidence given by
those witnesses, it would be difficult for the defendant to now ask this
court accept his denial of any knowledge of the approval of Articles 4 and 6
of the Articles of Association of the plaintiff
company. The evidence on
this aspect of the case is overwhelmingly against the defendant. I accept
without hesitation
that Articles 4 and 6 were discussed at the meeting of
the shareholders in late January 1987 at which the defendant was present
and
that it was unanimously agreed that the proposed changes thereto be approved
and was in fact approved.
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Thus on the evidence before the court, thlearly was a shareholders
ers
meeting in late January, 1987 attended to by the
managing director and all
shareholders including the defendant. That meeting was duly convened in
compliance with the
Articles of Association of the company as well as the
provisions of the Companies Act. At that meeting Articles 4 and 6 were
validly altered with the said alteration unanimously agreed to by all
present
including the defendant. The case of Herrman -v- Simon (1990)
4 ACS 81 also referred to by Counsel for the Plaintiff would preclude the
defendant from denying the validity
of the resolution passed to alter the
articles mentioned.
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Whethecific performance should be ordered.
<
As a matter oeral principle, a contract for the sale of shares may be
be
enforced by an action for specific performance
of the contract. The
jurisdiction of the court in this regard is clearly discretionary.
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The order as sought by the plaintiff here is that for an order of specific ific
performance of the provisions of the Articles
of Association in particular
Articles 4 and 6. Following the passage of the special resolution which
altered Articles
4 and 6, the defendant was advised of the need to comply
with the said provisions after having been dismissed from the plaintiff
company�s employment. An assessment of the value of his shares was made and
they were valued at $79,210.62 as shown by
the document marked �Exhibit D1�
referred in paragraph 14 of the defendant�s affidavit sworn on 30th
November 1995 and filed on the same day. The date on document �Exhibit D1�
is incomplete showing only as �11th November 19�. In his evidence
in court the defendant stated that the date should be �11th
November 1994�. That is confirmed by paragraph 13 of his same affidavit
where he stated that on that date he attended
a meeting with the then
solicitor for the Plaintiff with a view to compelling him to offer his
shares to the existing
members of the company. As things turned out, the
defendant refused to offer his shares to the existing shareholders of the
company. He still does so.
This is not, iview, a case where the defendant entered into a contract
ct
with individual shareholder for the sale of
his shares and that having done
so, refused to execute the transfer of share documents. It is very much a
case of the
defendant refusing to comply with the terms of the provisions of
the articles of the plaintiff company, the terms which the
defendant and
other shareholders agreed to abide by. By such an agreement the company and
the members are bound by the
contractual obligation to abide by the terms of
the agreement. That agreement in this case is the agreement by special
resolution to alter Articles 4 and 6. That had been done and both the
company and the members are bound by the terms of those
articles. The
company is bound by the memorandum and articles just as much as its members.
To strengthen the position I have just mentioned, one needs oeds only to turn to
section 21 of the Companies Act. That section provides:
�21. (l) Subject to the provisions of this Ordinance, the 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 to observe all
the provisions of the memorandum and of the articles.
(2) All money payable by any member to the company under the memorandum or
articles shall be a debt due from him to the
company.�
This section creates a contract between the company and its its members to
observe all the provisions of the memorandum
and articles. This statutory
contract however has been construed to create a contract only in respect of
the rights and
obligations of the members as was observed by Astbury J. in
Hickman -v- Ken or Romney Marsh Sheep � Breeders� Association [1915]
1 Ch. 881, at 897:
�... no right merely purporting to be given by an article to a to a person,
whether a member or not, in a capacity other
than that of a member, as for
instance as solicitor, promoter, director, can be enforced against the
company and� that
articles regulating the rights and obligations of the
members generally as such do create rights and obligations between them
and
the company respectively.�
A
case in point is that of Lyle and Ltd -v- Scott�s Trustees
[1959] 2 All ER 661 where article 9 of the appellant company in that case
provides that a shareholder who wishes to sell his shares in the company
must first offer them to the existing shareholders to purchase and not to
allow them to be offered to strangers in the
first place. The respondents
were in breach of article 9 by offering their shares to outsiders instead of
first offering
them to the other existing members of the company. Having
found the respondents in breach of article 9, the Court proceeded
and
ordered, among other things, the respondents to comply with the article.
In the present case, the defe as we have seen, simply rely refused to comply
with Articles 4 and 6 of the plaintiff company�s
Articles of Association. In
such circumstances the defendant is clearly in breach of Articles 4 and 6
and the Court should
order that he abides by the terms of those articles,
that is to say, he must give notice to the plaintiff that having been
dismissed from the company�s employment he offers his shares to the existing
employees/shareholders.
The time within which to comply with the obligations under Ader Articles 4 and 6
is important. On the argument by the
plaintiff, the defendant�s shares were
valued in 1994 at $79,210.62 which he should be entitled to, less his
outstanding
account with the company and tax bill. This was two years after
he was dismissed from the plaintiff�s employment. Up to the
present moment
the defendant has not yet executed any transfer of share documents
transferring his shares to any body
else. He is therefore in a position of
continuously being in breach of Articles 4 and 6. This is a continuing
breach
of obligation on the defendant�s part. Nonetheless he has not parted
with his legal titles to his shares in the plaintiff company.
The position
in law is that until the transfer is actually registered, the legal title to
the shares remained vested
in the defendant. See Colonial Bank -v-
Hepworth [1887] UKLawRpCh 119; (1887) 36 Ch.D. 36. I noticed from the documents (List of Past
and Present Members) presented to the Court that up to 1994 the defendant�s
name still appeared as a shareholder holding 10,489 ordinary shares in the
plaintiff company. In the 1995 list of Past and
Present Members, the
defendant�s name had been deleted. This was perhaps because in November 1994
his shares had been
valued in anticipation of him executing the transfer of
his shares to the other existing members of the plaintiff company and
that
he would be paid the valued amount of $79,210.62. The defendant neither
executed any transfer of his shares nor
received any payment for his shares.
No doubt his failure to do so stems from his continuing breach of the
articles referred
to.
<
The remedy of specific performance equitable remedy and it isit is in the
discretion of the Court to grant or refuse.
In this case, the breach by the
defendant of his contractual obligation is continuing and the defendant is
unlikely to
put a stop to that breach unless the Court orders him to do so.
The defendant�s continuing breach must come to an end so that
the process he
agreed to pursuant to Articles 4 and 6 can proceed.
I
exercise the Coudiscretion in this case and grant the order of specific
c
performance against the defendant, that
is to say, the defendant shall
comply with Articles 4 and 6 by giving notice within 14 days to the
plaintiff that he
wish to offer his shares to the existing shareholders to
purchase at a fair value and that he executes any share transfer prepared
in
consequence thereof in exchange for the price of his shares calculated up to
the date hereof.
These proceedings are largely due to the defendant�s continuing breach of
his lawful obligation and as such costs must
rightly be paid by him of these
proceedings.
Order accordingly.
(GJB
Muria)
CHIEF JUSTICE
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