Kingboard Chemical Holdings v Annuity & Life Reassurance Ltd (Bermuda Court of Appeal)
The principles governing the unfair prejudice remedy under section 111 of the Bermuda Companies Act 1981 were considered by the Court of Appeal for Bermuda in the recent decision of Kingboard Chemical Holdings v Annuity & Life Reassurance Ltd (Civ. App. 24 of 2015, 24 March 2017, Unreported).
The Court’s judgment was delivered by Sir Christopher Clarke JA who sits for the first time in the Bermuda Court of Appeal following his recent retirement as Lord Justice of Appeal of England and Wales. The Court of Appeal also consisted of Sir Scott Baker, President (also a former Lord Justice of Appeal of England and Wales) and Bell JA.
The ‘unfair prejudice’ petition was presented against the company (whose shares are listed on the Singapore Stock Exchange) on the basis of (i) unfair pricing in historical interested person transactions; and (ii) unfairness in a licensing agreement which was entered into between the company and a third party, following the minority shareholders’ veto of the annual mandate to enable the company to enter into interested person transactions. Historically, the company manufactured copper foil which was predominantly supplied to other corporate entitles within the same group which is a worldwide leader in the production of printed circuit boards.
At first instance, Chief Justice Kawaley ruled that there was no oppression in the historical interested person transactions. However, it was held that the licensing agreement (pursuant to which the third party supplied copper foil back to the group of companies) amounted to an oppression of the minority, in that it was a circumvention of the minority’s veto against the interested person transactions mandate, and that the majority should have adopted the licensing agreement as an interim measure only and ought to have promptly commenced negotiations with the minority.
On appeal, the Court of Appeal ruled in favour of the majority shareholders.
In particular, it was held that the licensing agreement did not amount to any unfair prejudice, as the petitioner simply failed to establish their pleaded case that the agreement was a ‘sham’ to defeat the rights of the minority shareholders. Moreover, as for the requirements that the licensing agreement should have been implemented as a truly interim measure and that there was a duty on the majority to commence negotiations with the minority, it was held that these were neither properly pleaded nor argued at trial, and that, in any event, such requirements were inconsistent with established principles.
In the premises, the first instance finding on any oppression by the majority was reversed by the Court of Appeal, and the petition failed in its entirety.
Please click here to read the full judgment
William Wong SC of Des Voeux Chambers conducted the trial as well as the appeal on behalf of the majority shareholders, leading Jeffrey Elkinson of Conyers Dill & Pearman (and a door tenant of Des Voeux Chambers). According to the Chief Justice, William Wong SC is the first Hong Kong senior counsel to have been admitted on an ad hoc basis to conduct a full trial before the Supreme Court of Bermuda.