Howard Smith Limited -v- Ampol Petroleum Limited; PC 1974

References: [1974] AC 821, [1974] UKPC 3
Links: Bailii
Coram: Lord Wilberforce
(New South Wales) The court considered the use by directors of their fiduciary power of allotment of shares for a different purpose than that for which it was granted, and so as to dilute the voting power of the majority shareholding of issued shares. Lord Wilberforce: ‘Having ascertained, on a fair view, the nature of this power, and having defined as can best be done in the light of modern conditions the, or some, limits within which it may be exercised, it is then necessary for the court, if a particular exercise of it is challenged, to examine the substantial purpose for which it was exercised, and to reach a conclusion whether that purpose was proper or not. In doing so it will necessarily give credit to the bona fide opinion of the directors, if such is found to exist, and will respect their judgment as to matters of management; having done this, the ultimate conclusion has to be as to the side of a fairly broad line on which the case falls’.
Lord Wilberforce said: ‘it is correct to say that where the self-interest of the directors is involved, they will not be permitted to assert that their action was bona fide thought to be, or was, in the interest of the company’ pleas to this effect have invariably been rejected just as trustees who buy trust property are not permitted to assert that they paid a good price.
No more, in their Lordships’ view, can this be done by the use of a phrase – such as ‘bona fide in the interest of the company as a whole’ or ‘for some corporate purpose’. Such phrases, if they do anything more than restate the general principle applicable to fiduciary powers, at best serve, negatively, to exclude from the area of validity cases where the directors are acing sectionally, or partially: ie improperly favouring one section of the shareholders against another. Of such cases it has said:
The question which arises is sometimes not a question of the interest of the company at all, but a question of what is fair as between different classes of shareholders.’
This case cites:

  • Approved – Teck Corporation Ltd -v- Millar ([1972] 33 DLR (3d) 288)
    The court discussed the validity of steps which might be taken by a company director to resist a take-over. Berger J said: ‘So how wide a latitude ought the directors to have? If a group is seeking to obtain control, must the directors ignore them? . .
  • Approved – Harloweӳ Nominees Pty Ltd -v- Woodside (Lakes Entrance) Oil Company No Liability ((1968) 121 CLR 483)
    . .
  • Approved – Teck Corporation Limited -v- Millar ((1972) 33 DLR 288)
    (Australia) The court discussed the use by a board of their powers in order to defeat a take over of the company: ‘So how wide a latitude ought the directors to have? If a group is seeking to obtain control, must the directors ignore them? Or are . .

This case is cited by:

  • Cited – Bruce Peskin; Kevin Milner -v- John Anderson and Others CA (Bailii, [2000] EWCA Civ 326, [2001] 1 BCLC 372)
    The Royal Automobile Club (RAC) had been demutualised. The claimants were former members who sought damages from former directors because they had received no benefit. They had ceased to be members before the re-organisation and claimed they should . .
  • Cited – Criterion Properties Plc -v- Stratford UK Properties and others CA (Bailii, [2002] EWCA Civ 1783, [2003] 1 WLR 218)
    The parties came together in a limited partnership to develop property. The appeal was against a refusal to grant summary judgment on a claim that one party had been induced to enter the contract by a fraudulent misrepresentation.
    Held: In . .
  • Cited – Cayne & Another -v- Global Natural Resources Plc ChD (Unreported, 12 August 1982, [1984] 1 All ER 225)
    The court gave this example of the legitimate use of the directors’ powers to defeat a take-over: ‘If Company A and Company B are in business competition, and Company A acquires a large holding of shares in Company B with the object of running . .
  • Cited – Criterion Properties Plc -v- Stratford UK Properties Llc and others ChD (Bailii, [2002] EWHC 496 (Ch))
    Criterion sought to set aside a shareholders agreement. Their partner had said they were concerned that another party was taking Criterion over and that this would put at risk their working relationships. The agreement sought to add a poison pill to . .
  • Cited – Ultraframe (UK) Ltd -v- Fielding and others ChD (Bailii, [2005] EWHC 1638 (Ch))
    The parties had engaged in a bitter 95 day trial in which allegations of forgery, theft, false accounting, blackmail and arson. A company owning patents and other rights had become insolvent, and the real concern was the destination and ownership of . .
  • Followed – Ex parte Glossop; Re a Company (No 00370 or 1987) ChD ([1988] 1 WLR 1068)
    The court heard a complaint as to the non payment of dividends. Harman J said: ‘It is, in my judgment, vital to remember that actions of boards of directors cannot simply be justified by invoking the incantation ‘a decision taken bona fide in the . .
  • Cited – Kohli -v- Lit and Others ChD (Bailii, [2009] EWHC 2893 (Ch))
    The claimant asserted that the other shareholders had acted in a manner unfairly prejudicial to her within the company.
    Held: The claimant was allowed to bring in without prejudice correspondence to contradict evidence by the defendant which . .

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