Partnership Law and its Impact on “Domestic Companies”

1 It is generally accepted that the most appropriate, analogy is with agents, see Gore-Browne on Companies, 43rd ed. (London 1977), 27–23; although in certain circumstances directors may be treated as constructive trustees. For an excellent discussion of the law see Rao, C. S., The Role of Directors in Company Law (Madras 1966).

2 Re Smith & Fawcett Ltd. [1942] Ch. 304; Re City Equitable Fire Insurance Co. Ltd. [1925] Ch. 407, but see also Walker v. Wimbourne (1976) 50 A.L.J.R. 446 and Barrett, R., “Directors' Duties to Creditors” (1977) 40 M.L.R. 226.

3 See Rider, B. A. K., “The Fiduciary and the Frying Pan” [1978] Conv. 114.

4 (1843) 2 Hare 461. See generally Rider, B. A. K., “Amiable Lunatics and the Rule in Foss v. Harbottle”” [1978] C.L.J. 270.

5 See for example Wallersteiner v. Moir (No. 1) [1974] 1 W.L.R. 991 and in particular D.H.N. Food Distributors Ltd. v. Tower Hamlets London Borough Council [1976] 1 W.L.R. 852, and Schmitthoff, C. M., “The Wholly Owned and Controlled Sudsidiary” [1978] J.B.L. 218.

6 Pennington, R. R., Company Law, 3rd ed. (London 1973), pp. 39 to 55 and Schmitthoff, C. M., “Salomon in the Shadow” [ 1976] J.B.L. 305. If a wholly owned subsidiary company is to be treated as a group entity with its holding company, D.H.N. Food Distributors Ltd. v. Tower Hamlets London Borough Council [1976] 1 W.L.R. 852, it is hard to see why as a matter of logic the same rule should not be applied to a company wholly owned by an individual.

7 See for example Walker v. Wimbourne (1976) 50 A.L.J.R. 446 and Barrett, R., “Directors' Duties to Creditors” (1977) 40 M.L.R. 226 and Coleman v. Myers [1977] (2) N.Z.L.R. 225 and [1977] (2) N.Z.L.R. 298 and Rider, B. A. K., “Percival v. Wright—Per Incuriam” (1977) 40 M.L.R. 471 and Rider, B. A. K., “A Special Relationship on the Special Facts” (1978) 41 M.L.R. 585. In civil law countries it is not uncommon to find statutory provisions creating liability on directors for harm caused in the exercise of their duties to the company, shareholders and creditors, see for example Art. 754 of the Swiss Code of Obligations, discussed by Jenckel, J. H. and Rider, B. A. K., “The Swiss Approach to ' Insider Dealing'” (1978) 128 N.L.J. 683.

8 Allen v. Hyatt (1914) 30 T.L.R. 444; Gladsden v. Bennrtto [1913] 9 D.L.R. 719; Ferguson v. Wallbridge [1935] 3 D.L.R. 66; Briess v. Woolley [1954] A.C. 333; Gething v. Kilner [1972] 1 W.L.R. 337, and Coleman v. Myers [1977] (2) N.Z.L.R. 298 and Rider, B. A. K., “ A Special Relationship on the Special Facts” (1978) 41 M.L.R. 585.

9 3rd ed. (London 1969), Chap. 24, but see also Afterman, A. B., Company Directors and Controllers (Melbourne 1970), Chap. 3.

10 See supra at note 1.

11 Of course a director's duties may be increased through a service contract and this is particularly so with regard to the duties of care and skill to be expected from executive directors. Note the implications of Lister v. Romford Ice & Cold Storage Co. Ltd. [1957] A.C. 555 for executive directors. Directors with some kind of professional qualification, such as an accountant or solicitor, may well be liable for failure to measure up to their special expertise, see Dorchester Finance Co. Ltd. & The Talbex Group Ltd. v. Stebbing et al. (1974 D.No. 3538) High Court 22 July 1977 before Foster J.

12 See Birds, J., “The Permissible Scope of Articles Excluding the Duties of Company Directors” (1976) 39 M.L.R. 394; Baler, C. D., “Disclosure of Directors' Interests in Contracts” [1975] J.B.L. 181 and Abbey Glen Property Corp. v. Stumborg (1976) 65 D.L.R. (3d) 235, 279 et seq.

13 Pender v. Lushington (1877) 6 Ch.D. 70.

14 North West Transportation Co. v. Beatty (1887) 12 A.C. 589; Burland v. Earle [1902] A.C. 83, 93 and Regal (Hastings) Ltd. v. Gulliver [1942] 1 All E.R. 378.

15 Note the impact of the ambiguously worded Article 80 of Table A, Companies Act 1948, see Goldberg, G. D., “Article 80 of Table A of the, Companies Act 1948” (1970) 33 M.L.R. 177; Sullivan, G. R., “The Relationship Between the Board of Directors and the General Meeting in Limited Companies” (1977) 93 L.Q.R. 569; Aichin, R., “Division of Power Between Directors and the General Meeting as a Matter of Law and as a Matter of Fact and Policy” [1967] 5 Melb.U.L.Rev. 449; Cohen, C. J., “The Distribution of Powers in a Company as a Matter of Law” (1975) 92 S.A.L.J. 286. It is established that apart from any question as to the correct interpretation of Article 80, where the board of directors is deadlocked or cannot act for some: reason, the powers of management revert to the shareholders in general meeting, see Barren v. Potter [1914] 1 Ch. 895 and Alexander Ward & Co. Ltd. v. Samyang Navigation Co. Ltd. [1975] 2 All E.R. 424, 428. On the question of ratification of breaches of the articles of association or directors' duties see Winthrop Investments Ltd. v. Winns Ltd. [1975] 2 N.S.W.L.R. 666 and Mason, H., “Ratification of the Directors' Acts; an Anglo-Australian Comparison” (1978) 41 M.L.R. 161.

16 Scottish Insurance Corporation v. Wilsons & Clyde Coal Co. [1949] A.C. 462.

17 Even though as compared with some other class their treatment might not be fair, see Re Mackenzie & Co. [1916] 2 Ch. 450.

18 For instance, see White v. Bristol Aeroplane Co. [1953] Ch. 65 and supra at note 17.

19 Greenhalgh v. Arderne Cinemas Ltd. [1951] 1 Ch. 286.

20 See for example R, Lindley M.. in Allen v. Gold Reefs of West Africa [1900] 1 Ch. 671.

21 Re Smith & Fawcett Ltd. [1942] Ch. 304.

22 See cases cited at note 14, supra.

23 Per R, Evershed M.. in Greenhalgh v. Arderne Cinemas Ltd. [1951] 1 Ch. 286, 292 cited with approval in Australian Fixed Trusts Pty. Ltd. v. Clyde Industries Ltd, [1959] S.R.(N.S.W.) 33, see also Rights & Issues Investment Trust Ltd. v. Stylo Shoes Ltd. [1965] Ch. 250. This test presupposes the existence of at least three identifiable groups: those for the proposal, those against it and those of a neutral opinion—it being the interest of this neutral group that the majority must consider. It is hard, if not impossible, to apply this test where there are only two conflicting groups, see here Joffe, V., “Majority Rule Undermined?” (1977) 40 M.L.R. 71, 73. In Shuttleworth v. Cox Bros. & Co. (Maidenhead) Ltd. [1927] 2 K.B. 9 Scrutton L. J. stated that the test was whether the proposal was for the benefit of the company or a particular class of its shareholders. This was accepted by J, Megarry. in Re Holders Investment Trust Ltd. [1971] 1 W.L.R. 583.

24 The Court of Appeal in Shuttle-worth v. Cox Bros. & Co. (Maidenhead) Ltd. [1927] 2 K.B. 9 indicated that the test should be applied on a subjective basis whereas in Brown v. British Abrasive Wheel Co. [1919] 1 Ch. 290 and Dajen Tinplate Co. v. Llanelly Steel Co. [1920] 2 Ch. 124, Astbury J. and Peterson J., respectively, thought that the test was objective. Although it has been argued that expropriation of a minority's interest in the company could never be considered to be bona fide in the interests of the company as a whole, see Gower, L. C. B., The Principles of Modern Company Law, 3rd ed. (London 1969), pp. 567 to 570 and see also Re Bugle Press [1961] Ch. 270 and Esso Standard (Inter-America) Inc. v. J.W. Enterprises Ltd. [1963] S.C.R. 144, this is doubtful as a general proposition on the basis of Sidebottom v. Kershaw Leese & Co. [1920] 1 Ch. 154.

25 Given the diversity of interests and the number of people involved, even a subjective test is likely to have a significant degree of objectivity, see for example Foster, J. in Clemens v. Clemens Bros. Ltd. [1976] 2 All E.R 268, 281 and 282.

26 Re Holders Investment Trust Ltd. [1971] 1 W.L.R. 583.

27 Clemens v. Clemens Bros. Ltd. [1976] 2 All E.R. 268.

28 Clemens v. Clemens Bros. Ltd. [1976] 2 All E.R. 268, 282.

29 Clemens v. Clemens Bros. Ltd. [1976] 2 All E.R. 268, 282, referring to Wilberforce, Lord in Ebrahimi v. Westbourne Galleries Ltd. [1972] 2 All E.R. 492, 500.

30 Greenhalgh v. Arderne Cinemas Ltd. [1951] 1 Ch. 286.

31 See Gower, L. C. B., The Principles of Modern Company Law, 3rd ed. (London 1969), pp. 574 to 575, Sealy, L. S., “The Protection of Minority Shareholders” [1976] C.L.J. 235 and Joffe, V., “ Majority Rule Undermined?” (1977) 40 M.L.R. 71.

32 Foster J., unlike the opinions expressed in certain of the earlier authorities, did not appear to consider that personal self-interest was a legitimate consideration. See here Mills v. Mills (1938) 60 C.L.R. 160.

33 See Hulsmann, J. H. H., De Ongeldigverklaring van Meerderheidsbesluiten op Grand van Wilsgebreken en haar Gezag van Gewijsde (Amsterdam 1935); Prine, H., The Protection of the Minority Shareholders in a Limited Company at English, South African and Dutch Law (Leiden 1972); Wurdinger, H., German Company Law (London 1975), pp. 57 to 63, and in particular see Aktiengesetz 1965, arts. 117, 243 and 311 and also [1941] R.G.Z. 166, 129; [1935] R.G.Z. 146, 385; [1954] B.G.H.Z. 14 25; [1931] R.G.Z. 133, 190, but on the other hand see [1953] B.G.H.Z. at p. 157. The application of any general principle of good faith, outside the law relating to the alteration of a company's constitutional documents, has rarely been raised in any Commonwealth jurisdiction. The South African courts have rejected the contention that majority shareholders owe a duty of good faith when selling controlling shares at a premium, see United Trust Pty. Ltd. v. South African Milling Co. [1959] (2) S.A. 426 (Wits.L.D.) and in particular Boyle, A. J., “The Sale of Controlling Shares, American Law and the Jenkins Committee,” 13 I.C.L.Q. 189.

34 See for example article 41 of the Swiss Code of Obligations, discussed in Jenckel, J. H. and Rider, B. A. K., “The Swiss Approach to ' Insider Dealing'” (1978) 128 N.L.J. 683; for a similar provision see article 420 of the Civil Code of Thailand. On the general question of mere “unfairness” founding liability see Ffrench, H. Leigh and Rider, B. A. K., “Should Insider Trading be Regulated? Some Initial Considerations” (1978) 95 S.A.L.J. 79 and see also s. 138 of the Consumer Credit Act 1974 with regard to “extortionate” credit bargains.

35 Symington v. Symington Quarries [1905] 8 F. 121; Harris v. A. Harris [1936] S.C. 183 and Baird v. Beard & Co. (Falkirk) Ltd., 1949 S.L.T. 368.

36 Harris v. A. Harris [1936] S.C. 183, to be discussed in due course.

37 See Brandeis, J. in Louis K. Liggett Co. v. Lee, 288 U.S. 517 and generally Williston, R., “A History of the Law of Business Corporations Before 1800,” 2 Harv.L.Rev. 105; Raymond, R. L., “The Genesis of the Corporation,” 16 Harv.L.Rev. 791; Cohen, Lord, “One Hundred Years of Limited Liability Companies in England” (Hebrew University of Jerusalem, 3rd Series, 1957) and Berle, A., Historical Inheritance of American Corporations, Social Meaning of Legal Concepts, (3) The Powers and Duties of Corporate Management [1950] N.Y.Univ. 189.

38 Dodd, H., “Statutory Developments in Business Corporation Law 1886–1936,” 50 Harv.L.Rev. 27 and Latty, “Why are Business Corporation Laws Largely Enabling?” 50 Corn.L.Q. 599.

39 15 Ind. 294, 295.

40 See also Jackson v. Hooper, 76 N.J.Eq. 598, 599 and Weisman v. Awnair Corp. 3 N.Y. 2d 444.

41 See for example Recreation & Amusement Association of the Philippines v. City of Manila, 100 Phil. 950 and Salonga, J. R., Philippine Law on Private Corporations (Manila 1968), Chap. 1 and also Park, K., Some Problems Concerning The Amendment of Korean Stock Company Law (Seoul 1977), Chap. 1.

42 See Gower, L. C. B., The Principles of Modern Company Law, 3rd ed. (London 1969), Chap. 2, and see the materials that Professor Gower refers to at p. 22, n. 1, and also Hein, R., “The British Company, its Origins and its Control,” 15 Univ.Toronto L.J. 134.

43 See for example Hawaii General Corporation Law 172–1; Mason v. American Express Co., 334 F. 2d 392 (2d Cir. 1964) and Hibbs v. Brown, 190 N.Y. 167. There are of course a wide variety of business forms in the United States of America, see for example Jones, R. “Business Trusts in Florida,” 14 Univ.Fla. L.Rev. 1.

44 Gower, L. C. B., “Some Contrasts Between British and American Corporation Law,” 69 Harv.L.Rev. 1369, 1371.

45 See Hiscock, J. in Hibbs v. Brown, 190 N.Y. 167 and Brandeis, J. in Buck-Waggoner Oil Association v. Hopkins, 269 U.S. 110.

46 Zahn v. Transamerica Corporation, 162 F. 2d 36 (3rd Cir. 1947); Southern Pacific Co. v. Bogert, 250 U.S. 483, 487; Mansfield Hardwood Lumber Co. v. Johnson, 268 F. 2d 317 (5th Cir. 1959); Overfisld v. Penroad Corporation 42 F, Supp. 586 (E.D.Pa. 1941); Singer v. Carlisle, 26 N.Y.S. 2d 172; Sinclair Oil Corporation v. Levien, 280 A. 2d 717 and Jones v. H. F. Ahmanson & Co., 1 Cal. 3d 93, see also Berle, A., “Corporate Powers as Powers in Trust,” 44 Harv.L.Rev. 1049 and Wood, D., “ Voting Status of Management Stockholders,” 38 Yale L.J. 57.

47 308 U.S. 295, 306.

48 Perlman v. Feldman 219 F. 2d 173 (2d Cir. 1965); Gerdes v. Reynolds, 28 N.Y.S. 2d 622; Honigmen v. Green Giant Co., 309 F. 2d 667 (8th Cir. 1962) and Essex Universal Corporation v. Yates, 305 F. 2d 572 (2d Cir. 1962) and generally Cary, W., Cases and Materials on Corporations, 4th ed. (1969), Chap. 6.

49 See s. 15 of the Securities Act 1933 and s. 20 (a) of the Securities Exchange. Act 1934 and Securities and Exchange Commission v. Management Dynamics Inc., 515 F. 2d 801 (2d Cir. 1975) and Note, “The Burden of Control, Derivative Liability Under Section 20 (a) of the Securities Exchange Act,” 49 N.Y.U.L.Rev. 1019.

50 See for example United Trust Pty. Ltd. v. South African Milling Co. [1959] (2) S.A. 426 (Wits.L.D.) referring to the British law, and see also Boyle, A. J., “The Sale of Controlling Shares, American Law and the Jenkins Committee,” 13 I.C.L.Q. 189 and Mason, H. H., “Share Dealings by a Company's Officers, an Australian-American Comparison,” 12 Univ.West.Aust.L.Rev. 153. Of course the sale of control in public companies in Britain is now regulated under the City Code on Take-overs and Mergers, see generally Davies, P., The Regulation of Take-overs and Mergers (London 1976), pp. 79 to 84 and Rider, B. A. K. and Hew, E. J., “The Role of the City Panel on Take-overs and Mergers in the Regulation of Insider Trading” (1978) 20 Mal.L.Rev. (December). In certain circumstances the British courts have been prepared to regard the controllers as almost de facto directors, see Wallersteiner v. Moir (No. 1) [1974] 1 W.L.R. 991 and note the observations of Keith, Lord in Scottish Co-operative Wholesale Society Ltd. v. Meyer [1959] A.C. 324, 361.

51 See for example s. 200 (9) of the Companies Act 1948, which provides that for the purposes of the register of directors and secretaries, “a person in accordance with whose directions or instructions the directors of a company are accustomed to act shall be deemed to be a director and officer of the company.” See also s. 303 (1) of the Income and Corporation Taxes Act 1970 for a similar rule. In practice it would be extremely difficult to establish such domination. Acting merely as a professional adviser would not be sufficient, see s. 455 (2) of the 1948 Act. It should be noted that many countries adopt the wider approach of s. 200 (9) in their general definition of “directors,” see for example s. 4 of the Singapore Companies Act, as compared with the narrower general definition in s. 455 of the British Act.

52 This has been of particular importance in the development of liability for “insider trading,” see generally Walker, R., “The Duty of Disclosure by a Director Purchasing Stock from his Stockholders,” 32 Yale L.J. 637; Wilgus, “Purchase of Shares of a Corporation by a Director from a Shareholder,” 8 Mich.L.Rev. 267; Conant, “Duties of Disclosure of Corporate Insiders Who Purchase Shares,” 46 Corn.L.Q. 53 and Fletcher, , Cyclopedia-Corporations, Perm-ed., (1965) and Cum.Sup. 1974, Vol. III, Chap. 11, xxv, and see also Rider, B. A. K., “The Regulation of ‘Insider Trading’ in the Republic of the Philippines” (1977) 19 Mal.L.R. 353 for a discussion of the development of the “special facts” doctrine.

53 [1902] 2 Ch. 421.

54 Although there is little authority expressly approving Percival v. Wright the vast bulk of British and Commonwealth authorities merely take its correctness for granted. See specifically on thisLynall v. I.R.C. [1968] 3 All E.R. 322, 329; Green v. Charterhouse Group of Canada [1973] 2 O.R. 729 and Jones v. Drum-bell (unreported judgment of J, Smith., Supreme Court of Victoria, 25 March 1968). The Court of Appeal of New Zealand in Coleman v. Myers [1977] (2) N.Z.L.R. 298 clearly thought that the decision of Swinfen Eady J. was correct on the facts of the case.

55 [1902] 2 Ch. 421, 426.

56 Particular reference should be made to the excellent work of D. S. Ribbens of the University of South Africa in' this field, see “The Fiduciary Duty Concept and the Multinational Enterprise—A Comparative Analysis,” [1976]The South African Chartered Accountant 203 cont. 239, 276, 319, 345, 389, 434, and [1977]ibid. 53 cont: 87, 189, 261 and 330. But see also Morse, G. and Tedd, R., “Partnership Companies” [1971] J.B.L. 261; Schmitthoff, C. M., “How the English Discovered the Private Company” in Quo Vadis Ius Societatum (Liber amicorum P. Sanders 1972); Welch, J., “The English Private Company—A Crisis of Classification” [1974] J.B.L. 277 and Schmitthoff, C. M., Commercial Law in a Changing Economic Climate (London 1977), pp. 20et seq. The “close company” is recognised as a special entity for the purpose of taxation, see ss. 282, 283 and 302 of the Income and Corporation Taxes Act 1970 and in particular Tiley, J., Revenue Law, 2nd ed. (London 1978), Chap. 33 and Gore-Browne on Companies, 43rd ed. (London), §§ 24–63 to 24–66, but note the observation at § 24–63: “the close company has no counterpart in company law.” The distinction was also important with regard to the “exempt private company” under s. 129 of and Sched. 7 to the 1948 Companies Act with regard to corporate disclosure. In accordance with the recommendations of the Company Law Committee, Cmnd. 1749, paras. 57 to 63, this exemption was abolished by ss. 2, 43 and 47 of the 1967 Companies Act.

57 Coleman v. Myers [1977] (2) N.Z.L.R. 298.

58 For a comprehensive discussion of this development see D. S. Ribbens, supra at note 56, at The South African Chartered Accountant [1976], p. 433 and [1977], pp. 53 and 87.

59 For example in Jackson v. Hooper, 16 N.J.Eq. 592 the court stated “they cannot be partners inter se and a corporation as to the rest of the world.” See also Weisman v. Awnair Corporation of America, 144 N.E. 2d 415.

60 Note, “Definitions of the Close Corporation,” 16 Vand.L.Rev. 1267; Cary, W., “How Illinois Corporations May Enjoy Partnership Advantages,” 48 Nw.U.L. Rev. 427; Hornstein, “Stockholders Agreements in the Closely Held Corporation,” 59 Yale L.J. 1040 and for a full discussion of the relevant law see O'Neal, Close Corporations; Law and Practice (1958) and Oppression of Minority Shareholders (1975).

61 224 App.Div. 614 and see Fortugno v. Hudson Manure Co., S1 N.J.Super. 282; Strutts v. Strutts, 271 App.Div. 1023 and A. Chayes, “Madam Wagner and the Close Corporation,” 73 Harv.L.Rev. 1532. The law is analogous to that applied by the courts in the case of joint ventures, see for example De Boy v. Harris, 207 Md. 212.

62 See supra at note 60 and also Note, “Statutory Assistance for Closely Held Corporations,” 71 Harv.L.Rev. 1498 and O'Neal, “Recent Legislation Affecting Close Corporations,” 23 Law and Contemporary Problems 341.

63 N.Y.Leg.Doc. No. 17 at p. 115.

64 See “Symposium on the Close Corporation,” 18 Law and Contemporary Problems 433 and Notes, “The American Close Corporation and its German Equivalent” (1958) Bus.Law. 229; “The American Close Corporation and its Dutch Equivalent” (1958) Bus.Law. 251 and “The American Close Corporation and its Swiss Equivalent” (1958) Bus.Law. 263.

65 Implementation of the Second E.E.C. Directive on Company Law, An Explanatory and Consultative Note, Department of Trade (London 1977), Pt. 1; Changes in Company Law, Cmnd. 7291, Pt. 1, discussed by Walmsley, K., “Draft Companies Bill: Implementation of the Second Directive—1” (1978) 128 N.L.J. 1051 cont. 1075 and also Preparing for changes in Company Law, Peat, Marwick, Mitchell & Co. (1978), Chap. 1. Reference should also be made to Welch, J., “The English Private Company—A Crisis of Classification” [1974] J.B.L. 277; Schmitthoff, C. M., European Company Law Texts (London 1974), p. 10 and Schmitthoff, C. M., “The Future of the European Company Law Scene,” in Schmitthoff, C. M. (ed.), The Harmonisation of European Company Law (London 1973), pp. 3 and 19 to 21.

66 See cl. 14. Changes in Company Law, Cmnd. 7291 and Implementation of the Second E.E.C. Directive on Company Law, An Explanatory and Consultative Note, Department of Trade (London 1977), Pt. 1.

67 Company Law Committee, Cmnd. 1749, paras. 57 to 63, and with regard to incorporated partnerships see at paras. 71 to 75.

68 See supra, at note 56.

69 See for example, Report of the Committee of Inquiry on Small Firms, Cmnd. 4811; Bates, J., The Financing of Small Businesses, 2nd ed. (London); Hadden, T., Company Law and Capitalism, 2nd ed. (London 1977), pp. 222 to 231 and Chesterman, M., Small Businesses (London 1977), Chap. 8.

70 Cmnd. 5391, paras. 30 to 34. The present Government is known to be considering this problem also.

71 See supra at note 65 with regard to the Second Directive on Company Law Harmonisation.

^71a As to the Government's proposals in this regard see Rider, B. A. K., “Changes in Company Law—Directors' Duties” (1978) 128 N.L.J. 1116; “Changes in Company Law—Directors' Private Transactions” (1978) 128 N.L.J. 1138 and “Companies Bill—Insider Trading” (1978) 128 N.L.J. 1236, and Chow, K. C. K., “Proper Purpose Doctrine and the Companies Bill” (1979) 129 N.L.J. 123 continued (1979) 129 N.L.J. 135.

72 For instance Keith, Lord in Scottish Co-operative Wholesale Society Ltd. v. Mayer [1959] A.C. 324, 361.

73 See for example, with regard to Canada, Re Rogers and Agincourt Holdings Ltd. et al. (1977) 74 D.L.R. (3d) 152: Re Bondi Better Bananas Ltd. [1952] 1 D.L.R. 277; In Re Concrete Clamps Ltd. [1953] 4 D.L.R. 60; Re White Castle Inn [1946] O.W.N. 773; Re Purvis Fisheries Ltd. (1954) 13 W.W.R.(N.S.) 401 and Re Sydney and Whitney Pier Bus Service Ltd. [1944] D.L.R. 468; New Zealand, Tench v. Tench Bros. Ltd. [1930] N.Z.L.R. 403; Australia, Re Wonderflex Textiles Pty. Ltd. [1951] V.L.R. 458 and Re Straw Products Pty. Ltd. [1942] V.L.R. 222; Malaysia, Ng Eng Hiam v. Ng Kee Wei [1965] M.L.J. 238; Singapore, Re Kwong on Company Ltd. [1949] S.L.R. 20; West Indies, Lock v. John Blackwood Ltd. [1924] A.C. 783; Black Africa, in the Matter of the Stevedoring (Nig.) Ltd. [1962] L.L.R. 164; Re Pool House Group (Nig.) Ltd., High Court of Lagos, No. M./190/70, 25 January 1971; Georgius Cole v. R. C. Irving & Co. Ltd. [1971] i U.I.L.R. 314; Re Modern Retreading Co. [1962] E.A. 57 and Mitha v. Mitha [1967] E.A. 575 and South Africa, Redler & Collier v. General Manufacturing Co. Ltd. [1923] C.P.D. 458 and Lawrence v. Lawrich Motors Ltd. [1948] (2) S.A. 1029 (Wits.L.D.).

74 [1972] 2 All E.R. 492 reversing [1971] 1 All E.R. 561 and restoring [1970] 3 All E.R. 374.

75 See for example Symington v. Symington's Quarries Ltd., 13 S.L.T. 509; Re Yenidje Tobacco Co. Ltd. [1916] 2 Ch. 426; Thomson v. Drysdale, 1925 S.C. 83; Elder v. Elder & Watson, 1952 S.C. 49; Baird v. Lees, 1924 S.C. 83; Re Cooper (Cuthbert) & Sons Ltd. [1937] 2 All E.R. 466: Re Lundi Bros. Ltd. [1965] 1 W.L.R. 1051; Re Expanded Plugs Ltd. [1966] 1 W.L.R. 514; Re K/9 Meat Supplies (Guildford) Ltd. [1966] 1 W.L.R. 1112; Re Swaledale Cleaners Ltd. [1968] 1 W.L.R. 1710; Rè Fildes Bros. Ltd. [1970] 1 W.L.R. 592 and Re Ledenhall General Hardware Stores Ltd. (Unreported), High Court, 4 February 1971, noted in 115 S.J. 202.

76 Under s. 222 (f) of the Companies Act 1948. For procedure see Gore-Browne On Companies, 43rd ed. (London), Chap. 31.

77 See generally Lindley on the Law of Partnership, 13th ed., Pt. 111. s. 14 and Pt. IV; Underhill's Principles of the Law of Partnership, 9th ed., Chap. V. and Drake, C. D., The Law of Partnership, 2nd ed., Chap. V. Reference should also be made generally to Bamford, The Law of Partnerships and Voluntary Associations in South Africa, 2nd ed. (Pretoria), and Pothier On Partnership.

78 See McPherson, B. H., “Winding Up on the ‘Just and Equitable Ground’” (1964) 27 M.L.R. 282; Chesterman, M. R., “The Just and Equitable Winding Up of Small Private Companies” (1973) 36 M.L.R. 129; Beuthin, R. C., “Winding Up a Domestic Company…” (1972) 89 S.A.L.J. 481, Pitt, G., “Winding Up on the ‘Just and Equitable’ Ground” (1977) 127 N.L.J. 619 and Markson, H. E., “Winding Up the Partnership Analogy” (1978) 128 N.L.J. 115.

79 For a thorough discussion of the relevant law see Gore-Browne On Companies, 43rd ed. (London), Chap. 31.

80 But see the exceptional case of Re Sailing Ship “Kentmere” Co. [1897] W.N. 58. Where the board of directors is “deadlocked” then it would seem that the power of management reverts to the shareholders in general meeting, see Barron v. Potter [1914] 1 Ch. 895 and supra, at note 15.

81 See Warrington, L. J. in Re Yenidje Tobacco Co. [1916] 2 Ch. 426.

82 See supra, at note 77.

83 In Re Yenidje Tobacco Co. [1916] 2 Ch. 426, the Court of Appeal adopted the relevant passage in Lindley on the Law of Partnerships to the effect that “all that is necessary is to satisfy the court that it is impossible for the partners to place that confidence in each other which each has a right to expect, and that such impossibility has not been caused by the person seeking to take advantage of it…” See also as to the nature of the relationship of confidence Nash v. Muirhead (1909) 19 C.T.R. 69; Truter v. Hancke [1923] C.P.O. 48 and Bamford, The Law of Partnerships and Voluntary Associations in South Africa, 2nd ed. (Pretoria), p. 28.

84 See in particular Lord Wilberforce in Ebrahimi v. Westbourne Galleries Ltd. [1972] 2 All E.R. 492, 498, and also Re A. & B.C. Chewing Gum Ltd. [1975] 1 W.L.R. 579 and Re North End Motels (Huntly) Ltd. [1976] 1 N.Z.L.R. 446. See also the approach of the courts in Moosa No v. Mavjee Bhawan Pty. Ltd. [1963] (3) S.A. 131 (T), especially Trollip J. at p. 136; Re Bondi Better Bananas Ltd. [1952] 1 D.L.R. 277 and Lawrence v. Lawrich Motors Ltd. [1948] (2) S.A. 1029 (Wits.L.D.).

85 The restrictive approach of the courts in placing reliance on the articles of association, see for example Re Cooper (Cuthbert) & Sons Ltd. [1937] 2 All E.R. 466 and Re Expanded Plugs Ltd. [1966] 1 W.L.R. 514, has been firmly rejected by the House of Lords, see Wilberforce, Lord in Ebrahimi v. Westbourne Galleries Ltd. [1972] 2 All E.R. 492, 498, and see also Beuthin, R. C., “Winding Up a Domestic Company…” (1972) 89 S.A.L.J. 481, 483. Of course the articles of association may well be a highly probative item of evidence as to the parties' intentions, see Malone Trust v. Secretary for Inland Revenue [1977] (2) S.A. 819 (A.D.) and Bellairs v. Hodnett [1978] (1) S.A. 1109 (A.D.).

86 Per Lord Wilberforce [1972] 2 All E.R. 492, 500.

87 Re A. & B.C. Chewing Gum Ltd. [1975] 1 W.L.R. 576, discussed by J. Birds in (1975) 125 N.L.J. 786.

88 [1902] 2 Ch. 421, 424.

89 Per Lord Wilberforce [1972] 2 All E.R. 492, 500.

90 [1977] (2) N.Z.L.R. 225.

91 Mahon J. rejected the plaintiff's allegations that the defendant had been guilty of fraudulent misrepresentation on the basis that there was no evidence that in fact the defendant made a misrepresentation, fraudulently or otherwise.

92 See Rider, B. A. K., “Percival v. Wright—Per Incuriam” (1977) 40 M.L.R. 471.

93 According to British company law and indeed the laws of most Commonwealth jurisdictions, shareholders do not have a right to inspect the books of account and other financial documents belonging to their company, see for example Lynall v. I.R.C. [1971] 3 All E.R. 914 and Crabtree v. Hinchcliffe [1971] 3 All E.R. 967. It would seem that even directors have not got an unqualified right of inspection under s. 147 (3) of the Companies Act 1948, see Conway v. Petronius Clothing Co. Ltd. [1978] 1 All E.R. 185. In the United States of America there is in many states both a common law and a statutory right vested in the shareholder of a corporation to inspect its records and financial documents provided the inspection is “in good faith for the purpose of advancing the interests of the corporation and the rights of the shareholders,” Guthrie v. Harkness, 199 U.S. 148. This privilege extends to allowing the shareholder to be accompanied by professional advisers, see Varney v. Baker, 194 Mass. 239 and also Re Aimonette v. C.R. Heating Service Co., 475 Sw. 2d 409. On the slightly different problem of selective disclosures see City Panel on Take-overs and Mergers Practice Note 2, “General Principle 10—Publication of information”; “Announcement of Price Sensitive Matters”—Joint Statement of the City Panel on Take-overs and Mergers and the Stock Exchange (1977); “Probe into Dunbee share dealings,” Sunday Times, 29 October 1978, p. 53, and in particular Dunford & Elliott Ltd. v. Johnson & Firth Brown Ltd. [1977] 1 Lloyd's Rep. 505 and Rider, B. A. K., “The Abuse of Inside Information” (1977) 127 N.L.J. 830.

94 Rider, B. A. K., “Percival v. Wright—Per Incuriam” (1977) 40 M.L.R. 471, 475, n. 27.

95 [1977] (2) N.Z.L.R. 298 and Rider, B. A. K., “A Special Relationship on the Special Facts” (1978) 41 M.L.R. 585.

96 The Court of Appeal considered that the information in question was sufficiently material and had been misrepresented.

97 See Rider, B. A. K., “A Special Relationship on the Special Facts” (1978) 41 M.L.R. 585.

98 J, Cooke. referred to Ebrahimi v. Westbourne Galleries Ltd. [1972] 2 All E.R. 492; Re Hellenic & General Trust Ltd. [1976] 1 W.L.R. 123; Clemens v. Clemens Bros. Ltd. [1976] 2 All E.R. 268 and Daniels v. Daniels [1978] 2 W.L.R. 75.

99 [1978] (1) S.A. 1109 (A.D.). The author is extremely grateful to Professor S. W. L. De Villiers of the University of South Africa for drawing his attention to this decision.

1 This confusion is illustrated by the statement of Innes C.J. in Robinson v. Randfontein Estates [1921] A.D. 168, 177 to 179 and discussed in Gower, L. C. B., The Principles of Modern Company Law, 3rd Ed. (London), pp. 276 to 277. Reference should also be made to Naude, S., Die Reqsposisie van die Maatskappydirekteur (Pretoria), p. 116, and also Gross, J. H., Company Promoters (Tel-Aviv 1972), Chap. 5.

2 This is clearly shown in Lister v. Stubbs (1890) 45 Ch.D. 1 and emphasised in Hanbury and Maudsley, Modern Equity, 10th ed. (London), pp. 314, 515 and 516.

3 See Regal (Hastings) Ltd. v. Gulliver [1942] 1 All E.R. 378; Industrial Development Consultants Ltd. v. Cooley [1972] 1 W.L.R. 443 and Canadian Aero Service Ltd. v. O'Malley (1974) 40 D.L.R. (3d) 371.

4 See here Boardman v. Phipps [1967] 2 A.C. 46 and see Rider, B. A. K., “The Fiduciary and the Frying Pan,” [1978] Conv. 114, and Die Meester v. Meyer en Andere [1975] (2) S.A. 13 (A.D.). The North American courts have experienced a great deal of trouble in attempting to justify the liability of an insider who trades on inside information to other market traders, see Shapiro v. Merrill Lynch, Pierce, Fenner & Smih, Inc., 495 F. 2d 228 (2nd Cir. 1974) on other than a prophylactic basis. But note the approach of the Court of Appeals for the Sixth Circuit in Fredrick v. Bradford, 542 F. 2d 307 (6th Cir. 1976), cert, denied 97 S.Ct. 767 (1977). Reference should also be made to Rider, B. A. K., “Changes in Company Law—Directors Duties” (1978) 128 N.L.J. supra, n. 71a.

5 See for example Cook v. Deeks [1916] 1 A.C. 554.

6 Compare Cook v. Deeks [1916] 1 A.C. 554 with North-West Transportation v. Beatty (1887) 12 App.Cas. 589 and see generally Rider, B. A. K. “Amiable Lunatics and the Rule in Foss v. Harbottle” (1978) C.L.J. 270. The question whether the profit or opportunity belongs in equity to the company or not has of course important implications as to the nature of remedy available. It could also have significance in regard to whether the law of theft was applicable.

7 [1905] T.S. 255.

8 [1905] T.S. 255, 265.

9 [1978] (1) S.A. 1116 (A.D.). The South African courts have been prepared to accept the analogy of partnership when considering the affairs of a two man company on a number of occasions, see for example Taylor v. Welkom Theatres (Pty.) Ltd. [1954] (3) S.A. 339, 346, and Lawrence v. Lawrich Motors Ltd. [1948] (2) S.A. 1029.

10 See for the relevant South African authorities, Purdon v. Muller [1961] (2) S.A. 230; Parr v. Crosbie (1886) 5 E.D.C. 211 and Olifants Tin “B” Syndicate v. De Jager [1912] T.P.D. 314.

11 See Nash v. Muirhead (1909) 19 C.T.R. 69 and Ford v. Abercrombie [1904] T.S. 878 see also Kregor v. Hollins (1913) 109 L.T. 225.

12 By limited partnership the defence meant a partnership with limited objectives, see generally Pothier On Partnerships, Chap. 11, s. 2 and Bester v. Van Niekerk [1960] (2) S.A. 784.

13 [1978] (1) S.A. 1112 (A.D.).

14 [1978] (1) S.A. 1130 (A.D.).

15 [1978] (1) S.A. 1133 (A.D.).

16 See supra, at note 3.

17 [1975] 1 M.L.J. 20.

18 [1972] 2 All E.R. 492.

19 [1976] 1 M.L.J. 140.

20 1936 S.C. 183.

21 1936 S.C. 183, 202.

22 1936 S.C. 183, 204.

23 [1950] Ch. 1.

24 See Lyle & Scott Ltd. v. Scott's Trustees, 1958 S.L.T. 169 reversed [1959] A.C. 763; Can Sin Tuan v. Chew Kian Kor (1958) 24 M.L.J. 62 and see in particular Bellairs v. Hodnett [1978] (1) S.A. 1109 (A.D.). Generally see Rice, “Take-over Bids For Private Companies” [1961] J.B.L. 260.

25 See Gower, L. C. B., The Principles of Modern Company Law, 3rd ed. (London), pp. 262 to 263 and (1958) 21 M.L.R. 401 and 657.

26 See for example Johnston, Lord in Brenes & Co. v. George Downie & Andrew M'Dougall, 1914 S.C. 97, 104; J, Buckley L.. in Wallersteiner v. Moir (No. 2) [1975] 1 All E.R. 849, 866 and possibly Bushell v. Faith [1970] A.C. 1099. Reference should also be made to Parsons v. Albert J. Parsons & Sons Ltd., Court of Appeal, 13 November 1978, reversing [1978] I.C.R. 456. In the Court of Appeal Lord Denning M.R. referred to the observations of Bridgewater Industrial Tribunal, “we feel that we are entitled to look at the realities of the situation. Counsel described it as ‘a family partnership with corporate status.’ There is, of course, no such description known to the law. We feel, however, that it aptly describes the position.” Reversing the Employment Appeals Tribunal the court did not consider that a director's contract of service could be inferred whenever a director worked full time for a small private company and was paid emoluments annually.

27 See Conway v. Petronius Clothing Co. Ltd. (1978) 1 All E.R. 185, and with regard to the ability of the majority of the shareholders to ratify acts of mis feasance see Daniels v. Daniels [1978] 2 W.L.R. 75. It has already been pointed out that in so far as the court must be satisfied that the facts of the case would justify a winding-up order under s. 222 (f) before granting a petition for oppression under s. 210 of the Companies Act 1948, the court will probably be prepared to take into account the nature of the company. On this point see Re H. R. Harmer Ltd. [1959] 1 W.L.R. 62; Re Chi Liung & Sons Ltd. (1968) 1 M.L.J. 97, noted by K. Polack in (1969) 11 Mal.L.R. 345; Re Tivoli Freeholds Ltd. (1972) V.R. 445 and Shanti Prasad Jain v. The Kalinga Tubes Ltd. (1962) A.I.R. Orissa 202. Certain Commonwealth courts, and to a limited extent the British courts, have been prepared to accept, on the presentation of a petition based on oppression, that the directors and controllers owe a duty to the minority. Thus in Re Hindustan Co-operative Insurance Society Ltd. [1961] A.I.R. Calcutta 443, Law J. stated “the directors failed to behave with scrupulous fairness to the minority shareholders as was incumbent on them as holding a position of trust. They failed to maintain the utmost good faith between themselves and the minority…” See also Scottish Co-operative Wholesale Society Ltd. v. Meyer [1959] A.C. 324.

28 [1975] Q.B. 373.

29 See Boyle, A. J. “Indemnifying The Minority Shareholder” [1976] J.B.L. 18 and Rider, B. A. K., “Amiable Lunatics and the Rule in Foss v. Harbottle” [1978] C.L.J. 270.

30 See Coleman v. Myers [1977] (2) N.Z.L.R. 225 and [1977] (2) N.Z.L.R. 298. With regard to the liability of partners see Law v. Law [1905] 1 Ch. 140. It is interesting that the Government has decided not to provide either a civil or criminal penalty for “insider trading” in the securities of an “unlisted issuer” or for that matter in any non-market transaction. See The Conduct of Company Directors, Cmnd. 7037, para. 30 and Rider, B. A. K., “The Conduct of Company Directors” (1978) 128 N.L.J. 27 and Changes in Company Law, Cmnd. 7291, cl. 61 and Rider, B. A. K. “Changes in Company Law—Insider Trading” (1978) 128 N.L.J. 1236. The only obligation, enforceable through both civil and criminal sanctions, placed upon an insider in a non-market transaction is to disclose to the other party that he is in fact an insider. It is arguable that such a duty already existed, see Strong v. Repide, 6 Phil. 680 (Supreme Court of the Philippine Islands) reversed 213 U.S. 419 and discussed in Rider, B. A. K., “The Regulation of Insider Trading in the Republic of the Philippines” (1977) 19 Mal.L.Rev. 355 and see also Rider, B. A. K., “The Crime of Insider Trading” [1978] J.B.L. 19, 27.

31 Ebrahimi v. Westbourne Galleries Ltd. [1972] 2 All E.R. 492.

32 Daniels v. Daniels [1978] 2 W.L.R. 75.

33 Clemens v. Clemens Bros. Ltd. [1976] 2 All E.R. 268.

34 This is brought out in those cases which indicate that in certain circumstances an action will be available to shareholders for a violation of the issuer's articles of association, see Pender v. Lushington (1877) 6 Ch.D. 70; Salmon v. Quin & Axtens Ltd. [1909] 1 Ch. 311 and see generally Wedderburn, K. W., “Shareholders' Rights and the Rule in Foss v. Harbotlle” [1957] C.L.J. 194, continued [1958] C.L.J. 93; Goldberg, R., “The Enforcement of Outsider Rights Under section 20 (1) of the Companies Act 1948” (1972) 35 M.L.R. 362; Bastin, N., “The Enforcement of a Member's Rights” [1977] J.B.L. 17; Chantler, D. W., “The Shareholders' Corporate Contract,” 12 Univ. West. Australia L.Rev. 320 and also Smith, R. J., “Minority Shareholders and Corporate Irregularities” (1978) 41 M.L.R. 147.

35 Rowe v. Woods (1882) 2 Jac. & W. 553, 558 and see s. 24 (5) of the Partnership Act 1890.

36 Wong Kim Fatt v. Leong & Co. Sdn.Bhd. [1976] 1 M.L.J. 140 and Bellairs v. Hodnett [1978] (1) S.A. 1109 (A.D.).

37 See for example Law v. Law [1905] 1 Ch. 140; Maddeford v. Austwick (1826) 1 Sim. 89 and Burton v. Wookey (1822) 6 Madd. 367 as well as authorities cited supra at note 83. Reference should also be made to ss. 29 and 30 of the Partnership Act 1890.

38 See here Minority Shareholders in Small Companies, Company Law Sub-Committee, Justice, March 1969. Given the complete absence of an active, or indeed in many instances, any market, in a very high proportion of unlisted securities, the minority shareholders are likely to be “locked” into the company and thus to a very real extent at the mercy of the majority. Indeed, the Companies Act 1948 in s. 209 recognises the problems that a minority “locked” into a company recently taken over by new controllers might face.

39 See generally Rider, B. A. K. and Hew, E. J., “The Regulation of Corporation and Securities Laws in Britain—The Beginning of the Real Debate” (1977) 19 Mal.L.Rev. 144; Rider, B. A. K. and Hew, E. J., “The Structure of Regulation and Supervision in the field of Corporation and Securities Laws in Britain” [1977] Revue de la Banque 83 and Rider, B. A. K. and Hew, E. J., “Regulaco de Titulos de Empressas no Reino Unido—Os Meritos da Auto-Regulacao” [1978] R.Bras.Merc.Cap. 21.

40 City Panel on Take-overs and Mergers, Practice Note No. 1, “Private Companies, Unlisted Public Companies and Foreign Companies,” see also B. A. K. Rider, “The British Approach to Policing Conduct in the Securities Business—with particular reference to the role of the City Panel on Take-overs and Mergers in the regulation of ‘insider-dealing’” [1979] 1 J. Comp.Corp.L. & Secs.Regs. No. 3, and with regard to the new Council for the Securities Industry see Rider, B. A. K. “The British Council for the Securities Industry” [1978] Revue de la Banque 303.