Gamlestaden Fastigheter AB v. Baltic Partners Ltd & Ors (Jersey) [2007] UKPC 26

Judicial Committee of the Privy Council
Case No Privy Council Appeal No 56 of 2005Venue FROM THE COURT OF APPEAL OF JERSEY - - - - - - - - - - - - - - - - -
Between
Gamlestaden Fastigheter ABAppellantBaltic Partners Ltd & Ors (Jersey)Respondent
Before
Lord Scott of FoscoteLord Phillips of Worth MaltraversLord Rodger of EarlsferryLord Brown of Eaton-under-HeywoodLord ManceDate 25 April 2007
[1]:- Lord Scott of Foscote Lord Phillips of Worth Maltravers Lord Rodger of Earlsferry Lord Brown of Eaton-under-Heywood Lord Mance - - - - - - - - - - - - - - - - [Delivered by Lord Scott of Foscote ] This is an appeal from the Court of Appeal of Jersey, given on 10 February 2005, dismissing the appeal of Gamlestaden Fastigheter AB ('Gamlestaden'), the appellant before the Board, from the judgment of Royal Court of 22 July 2004 striking out Gamlestaden's application under Article 141 of the Companies (Jersey) Law 1991. Article 141(1), in terms substantively identical to those of section 459(1) of the Companies Act 1985, enables a member of a company to apply to the court for a remedial order under Article 143 (section 461 in the 1985 Act) on the ground that "the company's affairs are being and have been conducted in a manner which is unfairly prejudicial to the interests of …. some part of its members (including at least the [applicant] member) …".[2]Gamlestaden's unfair prejudice application relates to the conduct of the affairs of Baltic Partners Ltd ('Baltic'), a company incorporated in Jersey in April 1989 with 5,000 issued shares of which 1,100 shares (22 per cent) were held by Gamlestaden and the remaining 3,900 shares were held partly directly (1500 shares) and partly indirectly (2400 shares) by Hengoed Ltd (also incorporated in Jersey). Hengoed Ltd was owned and controlled, partly directly and partly indirectly, by a Mr Karlsten. The directors of Baltic at the relevant time were Mr Boleat, Mr de Figueiredo and Mr Bailey, the 2nd, 3rd and 4th respondents to this appeal. Each was a chartered accountant and a partner in or employee of Cooper & Lybrand. It is their conduct of the affairs of Baltic that is criticised by Gamlestaden. Mr Boleat died on 6 September 2000, some two years after the Article 141 application had been commenced. Their Lordships have not been addressed on any procedural consequences for these proceedings of Mr Boleat's demise and will assume that the consequences have no relevance to any issue that arises on this appeal.[3]Baltic is insolvent and the main issue for decision is whether it is open to a member of a company to make an unfair prejudice application for relief in circumstances where, as here, the company in question is insolvent, will remain insolvent whatever order is made on the application and where the relief sought will confer no financial benefit on the applicant qua member. The main relief now sought by Gamlestaden on its Article 141 application is an order under Article 143(1) ordering the directors to pay damages to Baltic for breaches of the duty they owed to Baltic as directors. But it is accepted that the damages, assuming the claim succeeds, will not restore Baltic to solvency. It will, however, if it does succeed, produce a considerable sum which will be available to Baltic's creditors. Gamlestaden, either itself or as representing its parent company Gamlestaden AB, is a substantial creditor. The indebtedness in question was a major part of Gamlestaden's investment in Baltic's business ventures. So, it is said, Gamlestaden has a legitimate interest, in the particular circumstances of this case, justifying the making of the Article 141 application.[4]The directors, however, applied to have the application struck out on the ground that it was bound in law to fail. They contended before the Bailiff of the Royal Court and before the Court of Appeal, and have repeated the contention before the Board, that the alleged improprieties in the management of Baltic of which Gamlestaden complain cannot be shown to have caused Gamlestaden any financial loss in its capacity as shareholder. Its loss, if any, is suffered as a creditor. An application under Article 141 (or under section 459 of the 1985 Act) is, it is argued, a shareholder's remedy, not a creditor's remedy. Once it becomes clear that the only benefit to be derived from the relief sought in an unfair prejudice application would be a benefit to the company's creditors, and that no benefit would be obtained by the company's shareholders, it becomes clear that the application is an abuse of process, cannot succeed and should be struck out. The learned Bailiff agreed and struck out the application. The Court of Appeal dismissed Gamlestaden's appeal. The point is now before the Board for a final decision. It must be emphasised that, since this appeal arises out of a strike out of the Article 141 application, the facts pleaded in support of the application must be taken as true (save for any that can be shown by incontrovertible evidence to be untrue). The Bailiff and the Court of Appeal approached the case on that footing and so must their Lordships.[5]The point at issue (identified in para.3 above) depends, first, upon the scope of the power of the court under Articles 141 and 143, properly construed, in dealing with the unfair prejudice application and, secondly, upon the particular circumstances that are relied on for bringing this application within that scope. It is convenient to begin by outlining the circumstances that prompted Gamlestaden to launch its unfair prejudice application. The Facts[6]Gamlestaden is a member of a group of companies, the Gamlestaden group. Both it and its parent, Gamlestaden AB, are incorporated in Sweden. In neither of the courts below has any distinction been drawn between Gamlestaden, the holder of shares in Baltic, and its parent, Gamlestaden AB (see e.g. para.1 of the Bailiff's judgment and para.1 of the judgment of Clarke JA in the Court of Appeal). This was no doubt realistic and their Lordships will for the time being do likewise. But the distinction between the two companies may become relevant later.[7]In 1989 Gamlestaden decided to invest in commercial property in Germany in partnership with a Mr Karlsten. Broadly speaking Mr Karlsten was to provide the expertise and Gamlestaden was to provide the funds. Baltic was the corporate vehicle through which this business venture was to be pursued. In April 1989, Baltic, Mr Karlsten and a Mr Hansen established a limited partnership under the laws of Germany, Scandinavian Partners Karlsten & Co. KG ("SPK"). Baltic's interest in SPK was its only asset. Under SPK's Articles Baltic was a limited partner with a limited capital contribution of DM85 million (later increased to DM150 million). Mr Hansen was a limited partner with a limited capital contribution of DM650,000. Mr Karlsten was a general partner without any capital contribution. Apart from the introduction of Mr Hansen, this arrangement was consistent with the understanding that Mr Karlsten was to provide the expertise for the joint venture and Gamlestaden, via Baltic, the funding.[8]Under article 2 of the SPK Articles three accounts were to be maintained – first, an Equity Account 1, to which the capital contributions of Baltic and Mr Hanson (which had been fully paid: see article 2.3) and any other capital contributions were to be credited; second, an Equity Account 2, to which the respective profit shares of the three partners would be credited as and when net profits accrued; and (3) a "loss carried forward" account to which the pro rata losses of the partners were to be charged (see article 2.4). Profits were to be applied in discharging existing losses before any credits to Equity Account 2 could be made (see article 2.4 and 2.5) and profits could only be drawn (i.e. from Equity Account 2) "so far as they exceed existing losses carried forward …" (article 2.5). Credits on Equity Account 2, but not credits on Equity Account 1, were to bear interest (see section 2.6).[9]Article 3 said that Mr Karlsten and Mr Hansen "shall be in charge of the management of the partnership" and that Mr Karlsten "shall be authorised to solely represent the partnership". Article 6.2 set out the profit shares to which the partners would be entitled, namely, Mr Karlsten 73 per cent, Baltic 22 per cent and Mr Hansen 5 per cent.[10]In paragraph 12 of the Statement of Facts and Issues agreed between the parties for the purposes of this appeal it is stated that under the Articles of SPK Baltic was entitled to repayment of the amount standing to its credit on its equity accounts in preference to the other two shareholders. Article 15.4, which deals with the dissolution of SPK, is said to produce this effect.[11]Interests in two properties in Hamburg were acquired by SPK. One of the properties was called Chilehaus, the other Sprinkenhof. SPK acquired a 95 per cent interest in Chilehaus but acquired Sprinkenhof outright. The acquisition of these interests required substantial funding and, at Gamlestaden's request, its parent company, Gamlestaden AB made advances of some DM72 million over the period April 1992 to April 1994. This money, treated as loans to Baltic, was paid to SPK as capital contributions made by Baltic. In addition Baltic obtained loans from two Swedish banks, DM37.5 million from Skandinaviska Enskilda Banken ("SEB") and DM56 million from Sparbanken Sverige ("Sparbanken"), repayment of which was guaranteed by Gamlestaden AB. In total, therefore, Gamlestaden AB, at the request of Gamlestaden, made available loans and guarantees of some DM165.5 million. By 30 June 1993 a total amount of over DM128 million was standing to Baltic's credit with SPK, DM120.9 million on its Equity Account 1 and over DM7 million as an additional capital contribution.[12]In January 1993, SPK obtained a revaluation of Sprinkenhof that valued the property at DM280 million. This valuation was made on the express assumption that the property would, within a period of 20 months, be refurbished. The estimated net cost of the refurbishment was over DM43 million. The value of Sprinkenhof without the refurbishment, as shown in the accounts of SPK as at 30 June 1993, was DM113 million.[13]In or about May 1993, unknown to Gamlestaden, Mr Karlsten withdrew from SPK the sum of DM104,485,482 and Mr Hansen withdrew the sum of DM8,172,898. These withdrawals, for which no apparent consideration was given, were made on the authority of written resolutions signed by each of the three SPK partners. The resolutions were signed on behalf of Baltic by the directors. The funds withdrawn were debited to Mr Karlsten and Mr Hansen respectively in SPK's Equity Account 2. The effect of these withdrawals was, according to Gamlestaden, and notwithstanding the sale of Chilehaus in June 1993, to leave SPK with insufficient money in hand to refurbish Sprinkenhof or, if SPK were to be dissolved, to repay Baltic the sum outstanding on its SPK Accounts and to leave Baltic without the funds by means of which the interest due on the loans to it could be paid. The authorisation, given by the Baltic directors for the withdrawal of the DM112.5 million from SPK, Baltic's only asset, is the principal act of mismanagement of which Gamlestaden complains.[14]On or about 1 June 1993 Chilehaus was sold and, out of the sale proceeds, DM160,740,000, or thereabouts, was paid to SPK.[15]Between September and December 1993, the three SPK partners, again without the knowledge of Gamlestaden, converted SPK from a limited liability partnership into a limited liability company, Scandinavian Partners Grundstücksgesellschaft mbH ("SPG"). The shareholding in SPG was allocated as to 98.36 per cent to Baltic, 1.54 per cent to Mr Karlsten and 0.1 per cent to Mr Hansen. Mr Karlsten was to have management control over SPG. On the conversion the debit balances owed by Mr Karlsten and Mr Hansen to SPK as a result of the withdrawals of the DM112.5 million were eliminated. This was achieved by attributing a value to Sprinkenhof of DM280 million in the opening accounts of SPG and by adjusting the SPG shareholdings to balance the withdrawals. In effect, the revaluation of Sprinkenhof, notwithstanding that it was contingent on a DM43 million refurbishment that had not happened, appears to have been the accounting basis of eliminating the DM112.5 million withdrawals from the SPG accounts.[16]Under German law the conversion of SPK into a limited liability company required the unanimous consent of the three SPK partners. Baltic's consent, given by the directors, enabled the conversion to take place. This is the second act of mismanagement of Baltic complained of by Gamlestaden.[17]Various other acts of mismanagement by the directors of Baltic are complained of but it is the allegedly damaging effect of the withdrawal of DM112.5 million from SPK and the conversion of SPK into SPG that seems to their Lordships to be the essential complaint. It is alleged by Gamlestaden that the effect of these two things was to transform Baltic's investment in German property from an investment in a vehicle with solid cash assets (SPK without the withdrawals) into an investment in a vehicle (SPG) without cash assets and where the financing of the refurbishing of Sprinkenhof would have to be sought from external sources. The directors deny that this was so. They say there was substantial cash in SPG to cover the cost of refurbishment (see para.4 of the Directors Response of 16 February 2004 to submissions made to the Royal Court on behalf of Gamlestaden).[18]The arrangements between Gamlestaden and Mr Karlsten were more complex than the history so far given might suggest. In 1990 financial difficulties of the Gamlestaden group had led to the group being taken over and re-financed by a consortium of Swedish banks that included SEB and Sparbanken. The restructuring led to disagreements between Gamlestaden and Mr Karlsten as to the extent of Gamlestaden's obligations to fund SPK. In February 1991 Gamlestaden and Hengoed (i.e. Mr Karlsten) entered into an option agreement under which Gamlestaden could, between 1 July 1994 and 31 December 1998, purchase Hengoed's 78 per cent shareholding in Baltic at nominal value. One of the terms of this agreement was that Gamlestaden would lend money to Baltic to cover the financial deficit arising from SPK's acquisition of Chilehaus and Sprinkenhof. And in May 1992 Gamlestaden confirmed its willingness to make secured loans to Baltic to enable financial deficits in SPK to be covered. In 1995 Gamlestaden exercised its option to acquire the Hengoed 78 per cent shareholding in Baltic. If the contract brought about by this exercise of the option had been duly completed, Gamlestaden would thereby have assumed complete control of Baltic, or have been in a position to have done so via the requisite resolutions at general meetings. However, paragraph (1) of the relief sought in Gamlestaden's Article 141 application seeks an order that a copy of the Representation "be served upon Hengoed as shareholder of the Company". So it must be supposed that the option contract never was completed.[19]There seems to be no doubt that Baltic is insolvent. Exactly when it became insolvent may be in dispute but it is not a dispute that needs to be resolved now. Baltic's only asset, following the conversion of SPK into SPG, was its shareholding in SPG and SPG, according to the directors of Baltic, "went bankrupt in 1997 and its assets have been liquidated entirely" (see para.11.2 of the Baltic directors' Response of 16 February 2004). It has not been suggested before the Board that the amount of the damages recoverable by Baltic from the directors, if the breach of duty allegations can be made good, would restore Baltic to solvency. The litigation[20]Their Lordships must now refer to some of the litigation history. In paragraphs 9, 10 and 11 of his judgment dismissing the strike-out application the Bailiff set out a summary of the litigation history. These paragraphs were set out verbatim by Clarke JA in paragraph 16 of his judgment in the Court of Appeal. Their Lordships need not repeat them. It suffices to note that, first, in 1995 Sparbanken (one of the consortium of banks that owned Gamlestaden) applied to have Baltic declared en désastre. If that application had succeeded the Viscount would have realised any realisable assets of Baltic and made a pro rata distribution to Baltic's creditors i.e. the banks and Gamlestaden. But Baltic's only asset, besides its by then worthless shareholding in SPG, was, in the view no doubt of the banks, its cause of action in damages against its directors for breach of duty. The Viscount might have pursued that cause of action if, after investigation, he had concluded it was proper to do so and, also, if the banks had been prepared to fund the action. The Bailiff granted the désastre application but Baltic (acting by its directors) appealed and on 18 April 1996 the Court of Appeal allowed the appeal. The ground on which the appeal was allowed was that Sparbanken had not shown a sufficiently clear and unimpeachable debt owed by Baltic.[21]Second, the banks commenced proceedings against Baltic in Sweden, in order to obtain a court order establishing the requisite unimpeachable debt, and in March 2002 Baltic was ordered to pay a sum in Krona equivalent to £35 million or thereabouts, plus interest and costs. Baltic appealed but in 2003 withdrew its appeal. Its insolvency became and remains indisputable.[22]In the meantime, in August 1997, Gamlestaden had instituted proceedings in Jersey against the directors claiming damages payable to Baltic for their breach of duty to Baltic. Baltic was joined as a defendant. After amendments had been made to allow the claim to proceed as a derivative action, the action was struck out, on the directors' application, on the ground that the claim could not be brought within any of the exceptions to the rule in Foss v Harbottle (1843) 2 Hare 461 . The recourse by Gamlestaden to a derivative action would appear to confirm the assumption that the contract brought about by Gamlestaden's exercise of the option to acquire Hengoed's shares in Baltic was never completed. Otherwise Gamlestaden could have called a general meeting, removed the directors from office, appointed their own nominees and instituted the desired action against the directors without more ado. In the event, however, Gamlestaden appealed against the strike-out of the derivative action. But on 1 July 1998 the appeal was adjourned sine die so that Gamlestaden could consider making an application under Article 141.[23]Gamlestaden decided to make an Article 141 application and the proceedings which have led to the appeal before the Board were commenced in September 1998. The relief sought includes an order for payment by the directors to Baltic of damages for breach of duty and, alternatively, an order authorising Gamlestaden to continue the derivative proceedings in which the appeal against the strike-out has stood adjourned sine die since 1998. The scope of Articles 141 and 143[24]In order to qualify for relief under Article 143 Gamlestaden must be a member of Baltic (which it is) and must satisfy the court that the company's affairs "have been conducted in a manner unfairly prejudicial" to itself. If the facts alleged in Gamlestaden's Representation, and, in particular, the facts giving rise to the two matters of complaint that their Lordships have identified, are true there can, in their Lordships' opinion, be no doubt that the court would be so satisfied. Mr Gabriel Moss QC, counsel for the directors, has not suggested otherwise. The focus then shifts to Article 143.[25]Article 143(1) empowers the court, if satisfied that an Article 141 application is well founded, to "make such order as it thinks fit in respect of the matters complained of." Article 143(2) specifies, "without prejudice to the generality of paragraph (1)", four types of order that the court may make. Of these, only one, described in sub-paragraph (c), has any relevance to the present case. Sub-paragraph (c) would enable the court, if it thought fit to do so, to authorise Gamlestaden to bring civil proceedings in the name of Baltic against the directors. This is, indeed, what Baltic hoped to do by the original derivative action now in limbo. Miss Newman, however, recognises that an action commenced pursuant to an order in the terms of sub-paragraph (c) would raise difficult limitation of action questions. A new derivative action against the directors, brought pursuant to a sub-paragraph (c) order, might well be statute barred. Their Lordships have been given to understand that under Jersey law the relevant limitation period for a cause of action against the directors of a company for breach of fiduciary duty would be 10 years from the time when the cause of action accrued. The acts of mismanagement on which the claim against the Baltic directors would be based took place in 1993. Gamlestaden did not discover what had happened until 1996. But, of course, in a derivative action it would be Baltic, not Gamlestaden, that would be the notional claimant, and Baltic, through its directors, could be said to have had the same knowledge that they had of the withdrawals from SPK and the conversion of SPK into SPG. Their Lordships were, to their relief, not addressed by counsel on the limitation of action implications that arise where the alleged wrongdoers are the directors of the alleged corporate victim. All that is necessary for present purposes is to observe that, if Gamlestaden is entitled to relief at all under Article 143, it would be desirable to choose a form of relief that did not give rise to limitation of action difficulties.[26]As their Lordships have noted, the relief sought under Gamlestaden's Representation includes an order that the directors pay damages to Baltic for breach of duty. That order, if it is to be made, would have to be made under paragraph (1) of Article 143. It is possible, and their Lordships refrain from expressing any opinion on the point, that if such an order were made all limitation difficulties would, since these proceedings were commenced in 1998, be avoided.[27]The first question to be addressed, therefore, is whether an order for payment of damages to the company whose affairs have allegedly been conducted in an unfairly prejudicial manner can be sought and made in an unfair prejudice application. Another way of putting the question is whether a cause of action allegedly vested in the company can be prosecuted to judgment in an unfair prejudice application. It would, of course, always be essential for the parties allegedly liable on the cause of action to be respondents to the proceedings. But that is not a problem in the present case.[28]There is nothing in the wide language of Article 143(1) to suggest a limitation that would exclude the seeking or making of such an[29]That leaves the important issue regarding Baltic's insolvency. Here, too, it is appropriate to start by noting the breadth of the Article 143(1) discretion conferred on the court. The court "may make such order as it thinks fit for giving relief in respect of the matters complained of …". The matters complained of are the directors' consent to the withdrawal of DM112.5 million from SPK and to the subsequent elimination of the debit balances owed by Mr Karlsten and Mr Hansen to SPK achieved by the conversion of SPK to SPG. These things, it is alleged, caused loss to SPK and, consequently, to Baltic. Baltic's loss thus caused is estimated to have been at least DM98 million. That loss has deprived Baltic of a fund in which Gamlestaden, with other creditors, would have been entitled to share and thereby to recover at least some part of its investment, via Baltic, in its German commercial property venture.[30]Bar the relatively trivial sum that Gamlestaden must have paid in subscribing for its 1100 shares in Baltic, Gamlestaden's investment took the form of the provision of loans to Baltic to enable Baltic to fund SPK. Baltic was the corporate vehicle through which the joint venture enterprise of Gamlestaden and Mr Karlsten of investment in German commercial property was to be pursued. If mismanagement by the directors of that corporate vehicle has led to loss it seems to their Lordships somewhat artificial to insist that the qualifying loss, for Article 141 (or section 459) purposes, must be loss which has reduced the value of the investor's equity capital and that it is not sufficient to show that it has reduced the recoverability of the investor's loan capital. This artificiality was pointed out by Robert Walker J (as he then was) in R&H Electric Ltd v Haden Bill Electricial Ltd [1995] 2 BCLC 280. This was a case where the applicant for section 459 relief was, of course, a shareholder in the company but, via another company that he controlled, had also provided working capital to the company. He was removed by the majority shareholders from any management role and accordingly applied under section 459 for an order requiring the majority shareholders to purchase his shares and, alternatively, petitioned for the company to be wound up on the just and equitable ground. One of the grounds relied on by the majority shareholders for resisting any section 459 relief was that the applicant's "only real involvement was as an agent for [the other company] which was a loan creditor, not a shareholder …; therefore … there was no prejudice to [the applicant] in his capacity as a shareholder." As to this point Robert Walker J said this:
"If [the applicant] himself had been [the company's] loan creditor, under arrangements made between him and the majority shareholders when the company was first being planned, I should have had little hesitation in coming to the conclusion that the arrangements were a reflection of, and sufficiently closely connected with, [the applicant's] membership of [the company] as to be within the scope of s.459."
Robert Walker J then addressed the question whether the fact that the loan creditor was not the shareholder applicant, but was the other company that he controlled, mattered. He concluded that it did not:
"On the whole I have come to the conclusion that I should not treat the separateness of [the applicant] and [the other company] as excluding him from seeking relief under s.459 on the basis that [the other company's] loans to [the company] were procured by [the applicant] and formed part (and an essential part) of the arrangements entered into for the venture to be carried on by that company."
In the outcome the judge made an order for relief under section 459. He ordered that the applicant's shares be purchased by the majority shareholders at a fair value and that the loans from the applicant's other company be repaid as soon as reasonably possible.[31]Robert Walker J's approach in the R&H Electric Ltd case commends itself to their Lordships. Mr Moss QC has pointed out, rightly, that the company in question in the case was not insolvent and that the order for purchase of the applicant's shares was plainly a benefit to him as a member . These he represented as being essential differences between that case and this. His submission comes to this, that it is a fatal and insurmountable bar in any and every application for Article 141 (or section 459) relief if the relief sought cannot be shown to be of some benefit to the applicant shareholder in his capacity as shareholder.[32]Mr Moss supported his submission by reference, in particular, to the well established rule that a shareholder cannot petition for a winding-up order to be made in respect of a company that is insolvent. The reason is that the petitioning shareholder cannot obtain any benefit from the winding-up. The company's assets will be realised; dividends may be paid to creditors but nothing, if the company is insolvent, will go to the members. The rule that Mr Moss prays in aid is a long established one and one on which their Lordships cast no doubt. But there is a significant difference between a creditor's winding-up petition and an Article 141 (or section 459) application. The former is seeking an order to put the company into an insolvent liquidation that will affect the interests of all creditors as well as of all members. It will involve the administration of the liquidation either by the Viscount (or, in England, the Official Receiver) and his officials or by a professional liquidator who, in carrying out his duties, will be an officer of the court. The liquidation, although from a financial point of view carried out for the benefit of creditors, is a public act or process in which the public has an interest. It seems to their Lordships quite right that a member with no financial interest in the process or its outcome should be denied locus standi to initiate the process.[33]Where relief is sought via an unfair prejudice application, on the other hand, the position is quite different. There is no public involvement or interest in the proceedings, other than the natural interest that may attend any proceedings heard in open court. The purpose of Article 141, or of section 459, or of their counterpart in Hong Kong, is to provide a means of relief to persons unfairly prejudiced by the management of the company in which they hold shares. If the company is a joint venture company and the joint venturers have arranged that one, or more, or all of them, shall provide working capital to the company by means of loans, it would, in their Lordships' opinion, be inconsistent with the purpose of these statutory provisions to limit the availability of the remedies they offer to cases where the value of the share or shares held by the applicant member would be enhanced by the grant of the relief sought. If the relief sought would, if granted, be of real, as opposed to merely nominal, value to an applicant joint venturer, such as Gamlestaden, in facilitating recovery of some part of its investment in the joint venture company, that should, in their Lordships' opinion, suffice to provide the requisite locus standi for the application to be made.[34]Mr Moss placed reliance on re J.E.Cade & Son Ltd [1992] BCLC 213 where Warner J refused section 459 relief because the applicant was "pursuing his interests as a freeholder of the farm and not his interests as a member of the company" (p.229). But there was no counterpart in that case with the feature in this case that the loans made by Gamlestaden were made pursuant to and for the purposes of the joint venture to be carried on by Gamlestaden and Mr Karlsten via Baltic.[35]There are several cases in which judicial approval is given to affording a wide scope to section 459. Some of these were referred to by Robert Walker J in R&H Electric Ltd. Thus, in re a Company (No.08477 of 1986) BCLC 376 at 378, Hoffmann J as he then was, commenting on the proposition that section 459 should be limited to conduct unfairly prejudicial to the interests of members as members and could not extend to conduct prejudicial to other interests of members, said that "… the application [of the proposition] must take into account that the interests of a member are not necessarily limited to his strict legal rights under the constitution of the company. The use of the word 'unfairly' in s.459, like the use of the words 'just' and 'equitable' in s.517(1)(g) enables the court to have regard to wider considerations." In re Macro (Ipswich) Ltd [1994] 2 BCLC 354, Arden J (as she then was) said that "… the jurisdiction under s.459 has an elastic quality which enables the courts to mould the concepts of unfair prejudice according to the circumstances of the case". In re Little Olympian Each-Ways Ltd [1994] 2 BCLC 420 at 429 Lindsay J said that "… in point of jurisdiction the wide language of ss.459 and 461 is not to be cut down." And in O'Neill v Phillips [1999] 1 WLR 1092 at 1105 Lord Hoffmann said that "As cases such as R&H Electric Ltd v Haden Bill Electrical Ltd [1995] 2 BCLC 280 show, the requirement that prejudice must be suffered as a member should not be too narrowly or technically construed."[36]In their Lordships' opinion Articles 141 and 143 properly construed do not ipso facto rule out the grant of relief simply on the ground that the relief sought will not benefit the applicant in his capacity as member. In many cases such a feature might justifiably lead to the refusal of relief. Miss Newman suggested in her submissions on behalf of Gamlestaden that Gamlestaden's desire as a member to restore to the company the loss which the directors' allegedly negligent management of its affairs has caused was by itself sufficient to justify the grant of the relief sought, regardless of any financial benefit that might accrue to Gamlestaden. She suggested, as their Lordships understood it, that Gamlestaden, as a member, had some sort of obligation to the creditor banks to take steps to pursue the directors for their allegedly negligent breach of their duties to Baltic and had an interest in preserving its reputation with the banks that would thereby be served. Their Lordships are unimpressed by that submission. The justification for Gamlestaden seeking Article 141 and Article 143 relief must be based on a real financial benefit that Gamlestaden as an investor via Baltic in SPK might achieve if the relief sought were to be granted. Their Lordships do not accept that the benefit must be a benefit to Gamlestaden in its capacity as a shareholder but they do accept that there must, where the only purpose of the application is to obtain payment of a sum of money to Baltic, be some real financial benefit to be derived therefrom by Gamlestaden.[37]In particular, in a case where an investor in a joint venture company has, in pursuance of the joint venture agreement, invested not only in subscribing for shares but also in advancing loan capital, the investor ought not, in their Lordships' opinion, be precluded from the grant of relief under Article 143(1) (or section 461(1)) on the ground that the relief would benefit the investor only as loan creditor and not as member.[38]In the present case the provision of loan capital to Baltic seems to have been mainly, if not wholly, made by Gamlestaden AB, rather than by Gamlestaden, although procured by Gamlestaden pursuant to its obligation to do so under its joint venture agreement with Mr Karlsten. But their Lordships, in agreement with the view expressed by Robert Walker J in relation to similar arrangements made by the applicant for section 459 relief in the R&H Electric Ltd case (see the second of the citations in para.30 above), conclude that that feature should not bar Gamlestaden from relief under Article 141.[39]Their Lordships take the view that the learned Bailiff and the Court of Appeal construed Article 143(1) too narrowly and that this appeal against the strike-out of Gamlestaden's Article 141 application ought to be allowed.[40]Their Lordships will, therefore, humbly advise Her Majesty that the appeal should be allowed and that paragraph 1 of the Court of Appeal Act of 6 July 2005 and paragraph 1 of the Act of the Royal Court of 22 July 2004 should be set aside. The parties may make written submissions within 21 days as to how the costs of the hearing before the Bailiff, the hearing before the Court of Appeal and the hearing of this appeal should be dealt with.

order

the court "may make such order as it thinks fit for giving relief in respect of the matters complained of." The point was raised and considered by the Hong Kong Court of Final Appeal (the CFA) in re Chime Corp. Ltd (2004) 7 HKCFAR 546. An unfair prejudice application had been made in respect of Chime and one of the issues was whether the court had power on such an application to make an order for the payment of damages or compensation to the company. The CFA held that the court did have power to make such an order (see the judgment given by Lord Scott of Foscote at paragraphs 39 to 49, concurred in by the other members of the court, and the cases there cited). No reason has been advanced to their Lordships on this appeal why the decision in Chime should not be followed. Accordingly, no objection to Gamlestaden's prayer in its Article 141 application for an order that the directors pay damages to Baltic for breach of duty can be taken at this strike-out stage.

Cited in 27 later judgments

and 18 more of the most senior