Jersey Unreported Judgments

2002/116A

ROYAL COURT

(Samedi Division)

10^th June 2002 

IN THE MATTER OF Inter-Channel Pharmaceuticals Ltd;

AND IN THE MATTER OF Article 94 of the Companies (Jersey) Law, 1991, as amended.

Representation of Isas Ilac Sanayii AS, a Turkish Company.

Application by the Representor Company to convene Mr Hamza Oguz, a co-director of the Representor Company and for orders removing the said Mr. Hamza Oguz and Mr Suleyman Ulagay as Directors of Inter Channel Pharmaceuticals Ltd.

Advocate D.J. Banks for the Representor Company.

judgment

the deputy bailiff:

1.        This is an application by the Representor under Article 94 of the Companies (Jersey) Law 1991.  Article 94 reads as follows:

"Power of court to order meetings

(1)       If for any reason it is impracticable to call a meeting of a company, or of the holders of a class of shares in a company, in a manner in which those meetings may be called, or to conduct the meeting in the manner specified in the articles or this Law, the court may, either of its own motion or on the application -

(a)       of a director of the company; or

(b)       of a member of the company who would be entitled to vote at the meeting,

order a meeting to be called, held and conducted in any manner the court thinks fit.

(2)       Where such an order is made, the court may give such ancillary or consequential directions as it thinks expedient; and these may include a direction that one member of the company present in person or by proxy be deemed to constitute a meeting."

2.        The factual background is as follows: Inter-Channel Pharmaceuticals Limited (ICP) is a company incorporated in Jersey. 80% of the issued share capital is owned by the Representor and the remaining 20% is owned by the respondent to this Representation, Mr Hamza Oguz.  The directors of ICP are Mr. Oguz and Mr Ulagay, an associate of Mr Oguz.

3.        We have received affidavit evidence from a director of the Representor which shows that relations between the directors and the Representor have broken down.  Under the Articles of Association of ICP the Representor as majority shareholder has the right to remove any director of ICP and appoint another director in his place. 

4.        The Representor wishes to exercise that power by removing both the current directors.  In order to do this, on 18^th February, 2002, the Representor wrote to the directors in order to requisition a meeting pursuant to Article 89 of the Companies (Jersey) Law 1991 ("the 1991 Law").  The stated purpose of the meeting was to consider a proposition to remove Mr Oguz and Mr Ulagay as directors and replace them with two persons nominated by the Representor.

5.        The directors failed to convene such a meeting as required.  Accordingly, on 27^th March, 2002, the Representor exercised the power which is conferred upon it by Article 89(4) of the 1991 Law, namely to convene a meeting itself following the failure of the directors to do so.  The meeting was convened for 17^th April.  On that date a duly appointed proxy of the Representor was present but Mr Oguz, the minority shareholder, was not present or represented.

6.        This meant that the meeting could not proceed.  Article 53 of the Articles of Association provides that the quorum for a meeting of shareholders is two members present in person or by proxy.  There is no provision, as is commonly found, for a lesser number to form a quorum on an adjourned meeting.

7.        The position, therefore, is that, because Mr Oguz has refused to turn up to a shareholders' meeting, the Representor cannot exercise the power to dismiss directors which the Articles of Association confer upon it as majority shareholder.  The Representor therefore applies to this Court to exercise its power under Article 94 of the 1991 Law to convene a meeting, and most importantly, to give a direction under Article 94 (2) to the effect that, at such a meeting, one shareholder present in person or by proxy should be deemed to be sufficient to constitute the meeting.

8.        Article 94 is based upon identical provisions in the English Companies legislation; currently to be found at section 371 of the Companies Act 1985, but previously to be found in section 135 of the Companies Act 1948.

9.        We have been referred to three English Authorities namely, In Re El Sombrero Limited [1958] 3 WLR 900, In Re H.R. Paul & Son Limited (1974) 118 SJ 166, and In Re Opera Photographic Ltd [1989] 1 WLR 634.  In Re El Sombrero made it clear that the question raised by the word "impracticable" in the statutory provision is merely whether, in the particular circumstances of the case, the desired meeting of the company could as a practical matter be conducted.  The case went on to hold that, if it was impracticable, a discretion then arose in the court as to whether it should make an order as sought.  In the El Sombrero case the applicant held 90% of the shares and the two respondents the remaining 10%.  They were also the only directors.  By absenting themselves from any meeting they were effectively preventing the majority shareholder from exercising the rights attaching to his 90% shareholding to change the board of directors.  The court made an appropriate order to convene a meeting and allow it to proceed in the absence of the quorum required by the articles. 

10.      In all three English decisions to which we have been referred the court in effect made it clear that the quorum provisions should not be regarded as a right vested in the minority to frustrate the wishes of the majority.  The facts in In Re Opera Photograph Limited were very similar to those in the present case.  The majority shareholder wished to dismiss a director, but was prevented from doing so because the director, who was also the other member, declined to attend the meeting of members so that the meeting was without a quorum.

11.      In our judgment the principles to be extracted from the above three English cases are equally applicable in Jersey in relation to Article 94 of the 1991 Law.  We conclude on the facts of this case that it is indeed impracticable, within the meeting of Article 94 (1), to conduct the relevant meeting because of the failure of Mr Oguz to attend and form a quorum.

12.      The question then arises as to whether the Court should in its discretion convene a meeting, and adjust the quorum requirement as requested.  It is clear from the Articles of Association that it was intended that a majority shareholder should have the right to dismiss a director.  Thus Articles 75 (e) and 81 both provide for the members at a general meeting to be able to dismiss a director by ordinary resolution.  A similar power is given to appoint a new director.  The relevant power to dismiss a director in the English cases was a statutory power rather than one conferred by the Articles of Association, but we do not see that that makes any difference.

13.      In our judgment, the quorum provisions in the Articles should not be regarded as conferring a power of veto on the minority shareholder, so as to allow him to frustrate the wishes of the majority shareholder and the latter's right to translate those wishes into action pursuant to the powers conferred on a majority shareholder by the Articles of Association.  In our judgment the deadlock in this case has to be brought to an end, and the appropriate way in which to do that is to grant the relief sought.

14.      Mr Oguz will, of course, still be a shareholder even if he and Mr Ulagay are no longer directors following the meeting which we are convening.  Mr Oguz will therefore still have the various protections such as the unfair prejudice provisions which the 1991 Law confers upon minority shareholders.  Accordingly, we order that a meeting be convened, and direct that one shareholder present in person or by proxy shall form a quorum for the meeting. 

15.      We have helpfully been provided with a draft order by the Representor.  We grant that order subject to the following changes.  The date of the meeting will be Friday 5^th July, otherwise at the time and place as suggested.  We wish to add a new paragraph (4) to the effect that, as well as service by registered post, we would order that within 10 days, the Act of Court must also be delivered to the respective addresses of Mr Oguz and Mr Ulagay which should be set out in the Act.  This can no doubt be easily achieved by agents in Turkey.

Authorities

In re Opera Photographic, Ltd [1989] 1 WLR634; [1989] BCC601.

In re El Sombrero [1958] 3 WLR 900.

In re H.R. Paul & Son, Ltd (1974) 118 SJ 166.

Companies Act 1985: s.371