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 interests of the company’. The decision of the Privy Council in Howard Smith Ltd. v. Ampol Petroleum Ltd. [1974] A.C. 821 clearly establishes that a decision can be attacked in the courts and upset notwithstanding (a) that directors were not influenced by any ‘corrupt’ motive, by which I mean any motive of personal gain as by obtaining increased remuneration or retaining office, and (b) that directors honestly believed that their decision was in the best interests of the company as they saw its interests. Lord Wilberforce’s observations delivering the advice of the board at p. 831E acquits the directors of corrupt motive; at p. 832 he asserts the primacy of the board’s judgment; but he goes on, at p. 835, to assert that there remains a test, applicable to all exercises of power given for fiduciary purposes, that the power was not to be exercised for any ‘bye-motives’.
If it were to be proved that directors resolved to exercise their powers to recommend dividends to a general meeting, and thereby prevent the company in general meeting declaring any dividend greater than recommended, with intent to keep moneys in the company so as to build a larger company in the future and without regard to the right of members to have profits distributed so far as was commercially possible, I am of opinion that the directors’ decision would be open to challenge. This is an application, in a sense, of the principle affirmed in so many local government cases and usually called ‘the Wednesbury principle’: Associated Provincial Picture Houses Ltd. v. Wednesbury Corporation [1948] 1 K.B. 223. If it were proved that the board of directors had habitually so exercised its powers that could justify the making of an order for winding up on the just and equitable ground.’
Harman J
[1988] 1 WLR 1068
England and Wales
Citing:
Followed – Howard Smith Limited v Ampol Petroleum Limited PC 14-Feb-1974
(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 . .
Cited by:
Cited – Kohli v Lit and Others ChD 13-Nov-2009
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 . .
Applied – Hunter v Senate Support Services Ltd and others ChD 2005
The court set aside a forfeiture of shares for non-payment of a call. The decisions of the directors to forfeit the shares and to transfer the forfeited shares to the group holding company were flawed, though not improperly motivated, because the . .
Lists of cited by and citing cases may be incomplete.
Updated: 04 August 2021; Ref: scu.378391 br>