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Week 1 Cases: Corporations Law Macaura v Northern Assurance Co Ltd [1925] AC 619 Facts Owner of a timber estate sold all the timber to a company which was owned almost solely by him. He was the company’s largest creditor. He insured the timber against fire, but in his own name. After the timber was destroyed by fire the insurance company refused the claim. Held In order to have an insurable interest in property a person must have a legal or equitable interest in that property. The claim failed as “the corporator even if he holds all the shares is not the corporation… neither he nor any creditor of the company has any property legal or equitable in the assets of the corporation.” (per Lord Wrenbury at pg 633). Foss v Harbottle (1843) 67 ER 189 Facts Richard Foss & Edward Starkie Turton were 2 minority shareholders in the “Victoria Park Company”. Company had been set up in September 1835 to buy 180 acres of land near Manchester and according to the report:

This became Victoria Park, Manchester. Subsequently, an Act of Parliament incorporated the company. The claimants alleged that property of the company had been misapplied and wasted and various mortgages were given improperly over the company’s property. They asked that the guilty parties be held accountable to the company and that a receiver be appointed. Held Wigram VC dismissed the claim and held that when a company is wronged by its directors it is only the company that has standing to sue. In effect the court established two rules. 1. “proper plaintiff rule” is that a wrong done to the company may be vindicated by the company alone

Week 1 Cases: Corporations Law 2. “majority rule principle” states that if the alleged wrong can be confirmed or ratified by a simple majority of members in a general meeting, then the court will not interfere. Developments Rule was later extended to cover cases where what is complained of is some internal irregularity in the operation of the company. However, the internal irregularity must be capable of being confirmed/sanctioned by the majority. A shareholder cannot generally bring a claim to recover any reflective loss. The proper course is for the company to bring the action and recoup the loss with the consequence that the value of the shares will be restored. Exceptions to the Rule Following exceptions protect basic minority rights, which are necessary to protect regardless of the majority’s vote 1. Ultra vires and illegality a. Directors of a company, or a shareholding majority may not use their control of the company to paper over actions which would be illegal 2. Actions requiring a special majority a. If some special voting procedure would be necessary under the company’s constitution or under the Companies Act, it would defeat both if that could be sidestepped by ordinary resolutions of a simple majority, and no redress for aggrieved minorities to be allowed b. Edwards v Halliwell [1950] 3. Invasion of individual rights a. Pender v Lushington (1977) 6 Ch D 070 4. Frauds on the minority a. Fraud in the context of derivative action means abuse of power whereby the directors or majority, who are in control of the company, secure a benefit at the expense of the company b. Atwool v Merryweather (1867) LR 5 EQ c. Gambotto v WCP Limited (1995) 182 CLR 431 d. Daniels v Daniels (1978)

Week 1 Cases: Corporations Law Salomon v Salomon & Co Ltd [1897] AC 22 Facts Mr S was a shoemaker in England. His sons wanted to become his business partners, so he converted his business into a limited company. A Salomon & Co Ltd purchased Mr S’s business for above market value. His wife & five children became subscribers. The 2 eldest sons became directors of the company. Mr S was allocated 20,001 of the company’s 20,007 shares. The company gave Mr S £10,000 in debentures and received an advance of £5,000 from Edmun Broderip, on security of the debentures. The business eventually failed and it defaulted on its interest payments on the debentures (half held by Broderip). B sued to enforce his security. Company went into liquidation. B was repaid his £5k, leaving £1,055 company assets remaining. Mr S claimed this amount under his retained debentures. This would leaving nothing for unsecured creditors. The company’s liquidator argued that Mr S should be responsible for the company’s debts. Mr S sued for the £1,055. Held After several sets of proceedings in lower courts, the appeal landed in the House of Lords. Companies Act 1862 (UK) did not require shareholders to be independent of the majority shareholder. A Salomon & Co Ltd was legally constituted and it was not the role of judges to read limitations into the statute in a manner that they considered preferable. Tesco Supermarkets v Nattrass [1972] AC 153 Facts Tesco was offering a discount on washing powder which was advertised on posters displayed in stores. Once they ran out of the lower priced product the stores began to replace it with the regularly priced stock. The manager failed to take the signs down and a customer was charged at the higher price. Tesco was charged under the Trade Descriptions Act 1968 for falsely advertising the price of washing powder. In its defence, Tesco argued that the company had taken all reasonable precautions and all due diligence, and that the conduct of the manager could not attach liability to the corporation. Held Accepted the defence and found that the manager was not part of the ‘directing mind’ of the corporation and therefore his conduct was not attributable to the corporation. The corporation had done all it could to enforce the rules regarding advertising.

Week 1 Cases: Corporations Law

Tesco was successful with their defence showing that; 1. A store manager was classed as ‘another person’, and 2. A system of delegating responsibility to that person was performance of due diligence, not avoidance of it Store manager was not the directing mind and will of the company – the company had done all it could to avoid committing an offence and the offence was the fault of another person (an employee). The company was acquitted. Briggs v James Hardie & Co Pty Ltd (1989) 7 ACLC 841 Facts Mr Briggs was employed by a company which, at the time, called Asbestos Mines Pty ltd and then called Marlew Mining Pty Ltd. The company was originally a “joint venture company”, being half owned by James Hardie & Co Pty Ltd & James Hardie Industries and the other half owned by Seltsan Ltd; in 1953 Wunderlich transferred its half interest in the company to Hardies. Mr B claimed to be suffering from asbestosis after working with Marlew. Mr B had run out of time under the Limitations Act 1969 (NSW) to bring a claim against Marlew. He applied for an extension of time in the NSW District Court but it was rejected. Mr B appealed and sought an extension of time to bring a claim against not only Marlew as his ostensible employer, but against the Hardies & Wunderlich as his true employer. Held Because s58 of the Act is a remedial provision and should be construed liberally, an application for extension of the limitation period in respect of multiple defendnats should be granted, at least in actions in negligence. This can occur where the applicant has evidence to establish a prima facie case against at least one defendant and also has evidence pointing to the possibility of a cause of action against another or other defendants. A writ of certiorari was granted to quash the decision and remit the matter back to the Disctrict Court for review. Walter v Wimbourne (1976) 137 CLR 1 Facts Held Adams v Cape Industries plc [1990] 1 Ch 433

Week 1 Cases: Corporations Law

Facts Cape Industries plc was a UK company, head of a group. Its subsidiaries mined asbestos in South Africa and shipped it to Texas, where a marketing subsidiary, NAAC, supplied the asbestos to another company in Texas. Employees of the Texas subsidiary became ill, with asbestosis. They sued Cape & its subsidiaries in a Texas court. Cape was joined and argued there was no jurisdiction to hear the case. Judgement was still entered against Cape for breach of a duty of care in negligence to the employees. The tort victims tried to enforce the judgement in the UK courts. The requirement, under conflict of laws rules, was either that Cape had consented to be subject to Texas jurisdiction (which was clearly not the case) or that it was present in the US. The question was whether, through the Texas subsidiary, NAAC, Cape Industries plc was ‘present’. For that purpose, the claimants had to show in the UK courts that the veil of incorporation could be lifted and the two companies be treated as one. Held The COA held the veil could be lifted for a façade/sham company or if there is an agency relationship. However, the corporate veil cannot be lifted in the interests of justices OR based on a single economic unit argument....