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A New Concern for the Minority Shareholder; Ebrahimi v. West-
bourne Galleries Ltd. (In re Westbourne Galleries Ltd.): [1972] 2
W.L.R. 1289 (H.L.).
Introduction
In In re Westbourne Galleries Ltd., the House of Lords pursued
an initiative undertaken some fourteen years before in the land-
mark case of Scottish Co-operative Wholesale Soc. Ltd. v. Meyer,’
when new life was very effectively breathed into the provisions of
section 210 of the U.K. Companies Act, 1948,2 which gives minority
shareholders a remedy where the affairs of their company are being
conducted oppressively toward them. In this more recent case, the
Court set itself a similar task in relation to the interpretation of
section 222(f) of the Companies Act,3 which makes it a ground for
winding-up a company that the court is of the opinion that it is
just and equitable that the company be wound up. This provision
in company legislation is of long-standing, dating back to the U.K.
Joint Stock Companies Winding-Up Act, 18484 and in partnership
law has even longer antecedents. Partly, perhaps, because of the
largely uncharted discretion that it confers in courts, it has tended
to be interpreted conservatively. Partly also because of the dra-
conian consequences for a company of the application of the pro-
vision, it has not proved a popular remedy among aggrieved mi-
nority shareholders. In In re Westbourne Galleries Ltd., the House
of Lords set about remedying the first of these deficiencies.
The significance of the decision can best be evaluated by high-
lighting differences of judicial viewpoint that manifested themselves
as the case made its way up to the House.
The facts of the case were simple, and in the present context,
somewhat familiar. A partnership with two equal partners, S and N,
which was engaged in the business of selling Persian and other
carpets, was incorporated. 1000 shares were issued, 400 each being
held by S and N, and 200 by N’s son, G. All three were directors. S
alleged a number of improprieties in the conduct of the company’s
business by N and G and brought a petition under section 210 seeking
either to buy out N and G for a fair price or be bought out himself,
‘[1959] A.C. 324 (H.L. Sc.).
2 11 & 12 Geo. 6, c. 38 (Imp.).
3Ibid. Cf. Winding-up Act, R.S.C. 1970, c. W-10, s. 10(e).
4 11 & 12 Vict., c. 5 (Imp.).
19731
NOTES
and in the alternative sought a winding-up order under section
222(f). The specific matters of which S complained were:
(1) That he had been removed as director of the company by
an extraordinary general meeting of the company purportedly under
either an expulsion clause in the company’s articles or section 184
of the Companies Act.5
(2) That N, who imported carpets from Persia, had sold the
carpets at artificially high prices to the company and thus taken
profits for himself which would otherwise have enured to the com-
pany.
(3) That the company, through the control of N and G, were
paying overheads for N’s antique business which was being carried
on at the company’s place of business.
(4) That N and G had refused to concur in the sale of the com-
pany’s lease of these premises after the company had resolved that
they be put up for sale, allegedly because N himself wished to pur-
chase the lease.
Plowman, J., at first instance,6 rejected the second and third
of these allegations as not being made out on the evidence and
held, in relation to the fourth, that even if accepted, standing in
isolation, it was insufficient to support relief under section 210
and, presumably, under section 222(f). These findings were not
disturbed in appellate proceedings and thus the focus of the case
narrows to the first allegation, namely that the petitioner had
been improperly expelled from the board.
I. Oppression
On the petition for relief under section 210, Plowman, J. held
that the requirements of the section were not satisfied. First, the
conduct complained of affected the petitioner in his capacity as
director and not that as “member”, which is the term used in section
210. Secondly, it was held that the section requires proof of lack
of probity or fair dealing, which elements were not proven in this
case. The first proposition is, of course, supported by respectable
authority7 was impliedly endorsed by the Court of Appeal,” and
G 11 & 12 Geo. 6, c. 38 (Imp.). Cf. The Business Corporations Act, R.S.O.
1970, c. 53, s. 140.
6 [1970] 1 W.L.R. 1378 (Ch.).
7 Elder v. Elder, [1952] Sess. Cas. 49 (Scot.); In re H.R. Harmer Ltd., [1959]
1 W.L.R. 62 (C.A.); In re Lundie Bros., [1965] 1 W.L.R. 1051 (Ch.).
8 [1971] 1 Ch. 799, at p. 811, per Russell, L.J.
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expressly endorsed by Lord Cross in the House of Lords.9 This is
distinctly unfortunate. In small family or domestic companies, it
is often not meaningful to distinguish between the dual capacities
of a person as both director and shareholder. All parties, as in the
instant case, may possess both capacities and the functions of each
may never be differentiated. For example, in In re Westbourne
Galleries Ltd. itself, the company had never paid any dividends
but instead paid out all its profits in the form of directors’ remu-
neration. This might have been prompted by a number of factors
ranging from tax implications to simple considerations of conven-
ience but it certainly in no way reflected a conscious desire to
differentiate the roles of the parties as either shareholders or di-
rectors. As Lord Wilberforce recognized in the House of Lords in
this case, once S had been removed as director, he had for all
practical purposes largely lost his financial stake in the company
notwithstanding the fact that he remained a shareholder. While
Plowman, J.’s conclusions on section 210 were not the subject of
appeal, and therefore did not call for comment from the Court of
Appeal or the House of Lords, it is particularly unfortunate that
the latter, given the reforming spirit it exhibited in relation to
section 222(f), did not find an opportunity to lay this aberration
to rest.
The second reason advanced by Plowman, J. for refusing to
invoke section 210 is, if anything, more unfortunate than the first,
not the least because it was again endorsed in passing by Lord
Cross in the House of Lords, 1 but, more importantly, because it
appears to impose a new restriction on the scope of the section.
In the former’s view, lack of probity appears to mean lack of in-
tegrity, something akin to actual dishonesty. The-case cited as a
paradigm example of lack of probity – Loch v. John Blackwood
Ltd.’ 2 –
appears to bear this out. This inference is further borne
out by the learned judge’s finding on section 222(f) that an order
lay because there had been “an abuse of power and a breach of
the good faith which parties owe to each other [not] to exclude
one of them from all participation in the business upon which they
have embarked on the basis that all should participate in its man-
agement”.’3
9 [1972] 2 W.L.R. 1289, at p. 1303.
10 Ibid., at p. 1299.
11 Ibid., at p. 1303.
12 [1924] A.C. 783 (P.C.). Cited by Plowman, J. at: [1970] 1 W.L.R. 1378, at
p. 1383.
13 [1970] 1 W.L.R. 1378, at p. 1389.
1973]
NOTES
It is difficult to see why, if an “abuse of power” and “breach
of good faith” on the part of the majority had occurred here “op-
pression” should not have been regarded as made out. “Oppression”
is a highly subjective term and there is no reason why it must
necessarily mean lack of probity, as defined, and not abuse of
power or breach of good faith. As cases such as In re H. R. Harmer
Ltd.14 show, “oppression” can, and should readily, be found in cases
of honest, but heavy-handed and discriminatory exercise of power.
In Australia, in Re Broadcasting Station 2 G.B. Ltd.,5 Jacobs, I.
held that in determining the scope of the term “oppression”, re-
liance should be placed on developed principles pertaining to fraud
on the minority and directors’ duties. In both contexts, it is clear
that breach of duty is not conditioned upon proof of dishonesty
or “lack of probity”.
II. The Just and Equitable Ground for Winding-Up
Plowman, J., at first instance, granted the petitioner relief under
this head for reasons mostly given above. The learned judge ac-
cepted that the company was a “quasi-partnership” under the prin-
ciples laid down in In re Yenidje Tobacco Co. Ltd.’6 He rejected
principal propositions from both sides, namely from the petitioner
that in a “quasi-partnership” case, the removal of the petitioner
from the board was of itself sufficient to entitle him to a winding-
up order, and, from the respondents that the removal of a director
under the powers conferred by the articles or by the Act, even in
a quasi-partnership situation, is never in itself ground for a wind-
ing-up order.
In the Court of Appeal, Plowman, J.’s decision to grant a wind-
ing-up order was reversed. The Court (Russell, Megaw and Buckley,
L.JJ.) said that expulsion in these circumstances does not afford
a ground for winding-up unless it can be shown that the power
was not exercised bona fide in the interests of the company, or that
the grounds for exercising the power were such that no reason-
able man would think that the removal was in the interest of the
company. On the question of good faith, the Court said that this
was a matter for the shareholders’ judgment and that the Court
was not entitled to substitute its own judgment on this point. Both
N and G had testified that they believed their actions were in the
14 [1959] 1 W.L.R. 62 (CA.).
15 [1964-65] N.S.W.R. 1648.
10 [1916] 2 Ch. 426 (C.A.).
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best interests of the company, and the Court said that it could not
possibly be asserted that reasonable men could not have come to
the same conclusion. This concluded the case against the petitioner.
The Court approved the decision in In re Cuthbert Cooper & Sons
Ltd.17 and disapproved In re Lundie Bros. Ltd.,18 a previous deci-
sion of Plowman, J., where he had granted a winding-up order in
circumstances similar to the instant case.
In the House of Lords, the decision of the Court of Appeal was
reversed and the order of Plowman, J. restored.
Lord Wilberforce (Viscount Dilhorne and Lord Pearson con-
curring), in describing the history of section 222(f), pointed out
that until the turn of the century a dictum of Lord Cottenham, L.C.
in Ex parte Spackman, 9 that “just and equitable” had to be con-
strued ejusdem generis with the other grounds for winding-up, had
inhibited the proper development of the section. In addition, Lord
Wilberforce rejected two other restrictive interpretations of the
section: first, that cases must be brought within certain established
categories or headings –
“general words should remain general
and not be reduced to the sum of particular instances ‘ 20 –
and,
secondly, that the circumstances complained of must affect the
petitioner in his capacity as shareholder and not primarily in some
other capacity. The learned judge, while recognizing that a more
constructive judicial attitude has been taken to the section since
the turn of the century, said that even so “the courts may sometimes
have been too timorous in giving [the section] full force”.21
Lord Wilberforce then addressed himself to what had previously
been regarded as a leading case on the section, In re Cuthbert
Cooper and Sons Ltd. In this case, Simonds, J. had refused relief
to the successors of a deceased shareholder, who complained that
the directors of the company had arbitrarily refused to register
share transfers, purportedly acting under powers in the company’s
articles. Simonds, J. adopted a “strict constructionist” approach
to the statute:
Whether it be a matter of articles of association or articles of partner-
ship the rights of the parties are determined by these articles, and the
question whether it is right for me applying here the principles of part-
nership to the question of dissolution to wind up this company or not
largely depends on what are the contractual rights of the parties as
17 [1937] Ch. 392, [1937] 2 All E.R. 466.
Is [19653 1 W.L.R. 1051.
19 (1849) 1 Mac. & G. 170, at p. 174; 41 E.R. 1228, at p. 1230.
20 [1972] 2 W.L.R. 1289 (Ch.), at p. 1293.
21Ibid., at p. 1297.
22 [1937] Ch. 392, [1937] 2 All E.R. 466.
19731
NOTES
determined by the articles of association in this case. Accordingly, when
I come to consider the allegations which are made in ‘the petition, I
must be guided by what are the legal rights of the parties as determined
by the bargain into which they entered.P
On this view, the literal contract between the parties is almost
exhaustive of their obligations to each other, and scarcely any scope
is left for the concept of judicial restraint on the abuse of power.
Lord Wilberforce rejected this reasoning peremptorily:
… I am unable to agree as to the undue emphasis he puts on the con-
tractual rights arising from the articles, over the equitable principles
which might be derived from partnership law, for in the result the latter
seem to have been entirely excluded in the former’s favour. I think that
the case should no longer be regarded as authority2 4
Lord Wilberforce also disapproved another decision of Plow-
man, J., In re Expanded Plugs Ltd.,25 which had applied the rea-
soning of Simonds, J. in In re Cuthbert Cooper & Sons Ltd.,2 and
impliedly approved the later decision of Plowman, J. in In re Lundie
Bros. Ltd.2 7 He warned of the dangers of too close a reliance on
the partnership analogy, pointing out that the interposition of the
corporate structure created new relationships among the directors
and shareholders to each other and to the company. Lord Wilber-
force then suggested the following guidelines for the exercise of
judicial discretion under the section:
requires … one, or
The superimposition of equitable considerations
probably more, of the following elements: (i) an association formed or
continued on the basis of a personal relationship, involving mutual con-
fidence –
this element will often be found where a pre-existing partner-
ship has been converted into a limited company; (ii) an agreement, or
understanding, that all, or some (for there may be “sleeping” members),
of the shareholders shall participate in the conduct of the business; (iii)
restriction upon the transfer of the members’ interest in the company –
so that if confidence is lost, or one member is removed from management,
he cannot take out his stake and go elsewhere28
Lord Cross of Chelsea, delivering the other judgment of the
Court (Lord Salmon concurred generally), was no less thorough
in his cleaning of the judicial closet. He agreed that In re Cuthbert
Cooper and Sons Ltd. was wrongly decided and repudiated that
portion of a decision of the Court of Appeal to which he had been
23 [1937] Ch. 392, at p. 398; [1937] 2 All E.R. 466, at p. 468.
24 [1972) 2 W.L.R. 1289, at p. 1295.
25 [1966] 1 W.L.R. 514.
28 [1937) Ch. 392, [1937) 2 All E.R. 466.
27 [1965] 1 W.L.R. 1051 (Ch.).
28 [1972] 2 W.L.R. 1289, at p. 1298.
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a party, Charles Forte Investments Ltd. v. Amanda,29 which had
approved In re Cuthbert Cooper and Sons Ltd.30 He endorsed the
previously embattled decision in In re Lundie Bros. Ltd.3′ and held
that In re K/9 Meat Supplies (Guilford) Ltd.3 2 was wrongly de-
cided, that a winding-up order should have been granted, and
on the factual footing on which the judge dealt with the case, took
the same view of In re Leadenhall General Hardware Stores Ltd 3
Lord Cross rejected, shortly, the argument that the respondents’ ac-
tions fell with the terms of the articles by finding simply that the
minds of the parties, when agreeing to these terms, had never been di-
rected to their use in the present contingency.
Conclusion
This almost dizzying spell of overruling and disapproving has
clearly opened the way for a much more activist judicial role in
the protection of minority shareholders. While in the statement
of specific guidelines to the operation of section 222(f), little may
have changed, the shift in emphasis is unmistakable and significant.
In this respect, the decision in In re Westbourne Galleries Ltd. is
to be most warmly welcomed. However, it is at the same time
important to note that the second deficiency in relief available
under section 222(f) necessarily remains: the draconian and in-
flexible nature of the remedy provided. This feature of the section
was one of the major reasons for the enactment of section 210
which allows a court to fashion any relief at all which it considers
will stop the oppression complained of. In those Commonwealth
jurisdictions which have adopted it, section 210 has already proved
a valuable adjunct to the remedies available to aggrieved minority
shareholders. The experience in these jurisdictions belies the view
4 that such
of the Lawrence Committee on Company Law Reform 3
a provision is an irresponsible abdication of legislative responsi-
bility 5 The growing body of carefully charted case-law demon-
strates that the courts are well able to handle the task of fleshing
out, pragmatically, a general mandate of this kind. It is fortunate
20 [1964] Ch. 240.
30 [1937] Ch. 392, [1937] 2 All E.R. 466.
31 [1965] 1 W.L.R. 1051.
32 [1966] 1 W.L.R. 1112.
33 February 4, 1971 (Unreported).
341967 Interim Report of the Select Committee on Company Law, (Queen’s
Printer, Ontario: 1967).
35 Ibid., at p. 60.
19731
NOTES
that the Dickerson Committee 36 has taken a different view of the
merits of the section. It is, of course, a pity that section 210 was
not directly before the House in In re Westbourne Galleries Ltd.,
but it is to be hoped that the Court will find an early opportunity
to transpose its heightened concern for the position of the minority
shareholders to the scene of its earlier endeavours and complete
the task of revitalization there begun.
M. J. Trebilcock *
a6 Proposals for a New Business Corporations Law for Canada, (Information
Canada, Ottawa: 1971), para. 485.
* Of the Faculty of Law, University of Toronto.
