[HOUSE OF LORDS.]

AND

Company - Oppression Subsidiary company - Minority of independent shareholders - Majority of nominees - Controlling powers used to destroy subsidiary company - Remedy alternative to winding up - Companies Act, 1948 (11 & 12 Geo. 6, c. 38), s. 210.

By section 210 of the Companies Act, 1948: "(1) Any member of a company who complains that the affairs of the company are being conducted in a manner oppressive to some part of the members (including himself) ... may make application to the court by petition for an order under this section. (2) If on any such petition the court is of opinion - (a) that the company's affairs are being conducted as aforesaid; and (b) that to wind up the company would unfairly prejudice that part of the members, but otherwise the facts would justify the making of a winding-up order on the ground that it was just and equitable that the company should be wound up, the court may, with a view to bringing to an end the matters complained of, make such order as it thinks fit, whether for regulating the conduct of the company's affairs in future, or for the purchase of the shares of any members of the company by other members of the company, or by the company, and, in the case of a purchase by the

company, for the reduction accordingly of the company's capital, or otherwise."

In 1946 a co-operative wholesale society formed a subsidiary company to enable it to participate in the manufacture and sale of rayon materials and get licences to manufacture rayon cloth, the production of which was then controlled and remained controlled until 1952. The two respondents were appointed joint managing directors of the company, which, so long as cotton control lasted, was dependent on their skill, knowledge and experience and on their connections with the trade, and, because of these, licences were granted. The company's capital consisted of 25,000 shares of £1 each, 7,900 of which were issued. The respondents acquired 3,450 and 450 respectively, and the society acquired 4,000, appointing as directors three nominees who were also members of its own board. The company traded successfully for several years and earned substantial profits. In 1951 the society sought to purchase from the respondents their shares at less than their true value but the suggestion was rejected. The society dropped the attempt but adopted a policy of transferring the company's business to a new department within its own organisation, thereby forcing down the value of the company's shares. The nominee directors, though aware of this policy, did not inform the respondents but promoted the society's plans. In consequence, the company's business came virtually to a standstill and the value of its shares was greatly reduced. In 1953 the respondents presented a petition under section 210 for an order on the society to purchase the whole of their shares at a price based on their previous value or such other price as the court might think fit. It was common round that at the date of the petition it was just and equitable that the company should be wound up:-

Held, that the society had acted towards the minority shareholders of the company in an oppressive manner, and that this conduct through the nominee directors of the company, who were also directors of the society, amounted to conduct of the affairs of the company, since the transactions of the two could not be separated. The inaction of the nominee directors amounted to a breach of their duties.

Per Viscount Simonds. When a subsidiary company is formed with an independent minority of shareholders, the parent company is under an obligation so to conduct its own affairs as to deal fairly with its subsidiary.

Held, further, that the respondents were entitled to the relief sought, since the purchase of the shares by the society would bring to an end the matters complained of, namely, the oppression. The making of a winding-up order would unfairly prejudice the minority shareholders.

Decision of the First Division of the Court of Session, sub nom. Meyer v. Scottish Textile and Manufacturing Co. Ltd., 1957 S.C. 110; 1957 S.L.T. 250 affirmed.

APPEAL from the First Division of the Court of Session.

This appeal from a unanimous decision of the First Division of the Court of Session (Lord President Clyde, Lord Carmont, Lord Russell and Lord Sorn) concerned the application and scope of section 210 of the Companies Act, 1948, which dealt with "alternative remedy to winding up in cases of oppression." The interlocutor appealed from, dated March 20, 1957, was pronounced in a petition presented by Dr. George Meyer and Ronald Joseph Lucas, who were the respondents in the present appeal, under section 210, praying for an order on the appellants, Scottish Co-operative Wholesale Society Ltd., for the purchase of the respondents' shares in Scottish Textiles & Manufacturing Co. Ltd. By that interlocutor the appellants were ordained to purchase the whole of the respondents' shareholdings in the company at the price of £3 15s. a share. The total purchase price payable thereby was £14,625. The interlocutor was based on a certain construction of section 210 and on findings that the respondents had satisfied the provisions of the section by proving that the appellants' nominee directors on the board of the company were conducting the affairs of the company in a manner oppressive of the respondents, and that the respondents were accordingly entitled to the order sought. The appellants submitted that the interlocutor was unfounded both in fact and in law.

The facts are stated in their Lordships' opinions.

I. Robertson Q.C. (of the Scottish Bar), Benjamin Bathurst Q.C. (of the English Bar) and A. Johnston Q.C. (of the Scottish Bar) for the appellant society. This is the first case in which an order has been made under section 210 of the Companies Act, 1948. The following are the propositions on behalf of the appellant society: (1) On the facts the appellants did not pursue such a policy as was held by the court below of systematically diverting business from the company with the deliberate intention of injuring it. There is no evidence to justify such a finding and no evidence from which it can be inferred.

(2) Even taking the court's findings in fact as justified on the evidence, section 210 does not apply, because the actings complained of are actings in the affairs of another body, the appellants' own affairs.

(3) The remedy given by the court is not a remedy justified under section 210, because that section gives an alternative remedy to winding up under the "just and equitable" provisions of section 225. It is only when the company is to be kept going

and is fit to be kept going that the remedy here given is applicable. The remedy here given is the equivalent of an award of damages for past misconduct, which is not the remedy envisaged by section 210.

(4) In any event the valuation put on the shares was unjustified by the evidence.

If the appellants are right on the first point, the question of fact, that is the end of the case. Chronologically there are five chapters in the story of the company: (a) the period of success, 1947-51; (b) the period when the realignment of the shares was the main question, August, 1951, to February, 1952; (c) the period of decline, September, 1951, to January, 1953; (d) the period when the parties were at arms' length, through the threat of litigation; (e) the period after the presentation of the petition on July 14, 1953. It is not disputed that everything went well until 1951.

On the findings of fact it is submitted for the appellants: Till August, 1951, the company's position was precarious because it had no factory and no permanent contract with Falkland Mill for the obtaining of material. The proposals and negotiations for the realignment of shares at the end of 1951 were not pursued and had no bearing on the company's prosperity. In these negotiations it was not the appellants' policy to acquire all the respondents' shares, and the appellants accepted the principle of realignment on a valuation basis. From the end of 1951 the appellants had no scheme deliberately to deprive the company of material from Falkland Mill, so as to run down its business and depreciate the value of its shares. After the summer of 1951 the company got into trading difficulties for reasons unconnected with any policy of the appellants. The abolition of rayon control in June, 1952, had no effect on the company's progress. After August, 1951, the company gave no orders to Falkland Mill, which by September, 1952, had no looms working for the company, instead of 52 a year before. After this Meyer, on behalf of the company, did not give orders to Falkland Mill but got his cloth elsewhere. By the end of 1952 Falkland Mill was in desperate straits for work and the company's business was almost at a standstill. At this time Falkland Mill even offered to sell material to the company at a loss, but this was not accepted. The price offered was genuinely lower than the cost price. Falkland Mill was a small mixed mill of low efficiency which could not produce rayon cloth at a price competitive with the large mass-producing mills. By the end of 1952 relations in the company's board were strained because of matters unconnected with

Falkland Mill. By January, 1953, the respondents had decided that they could not carry on and were determined to litigate if the appellants would not take over their shares at their own price. The appellants at this time considered that the best thing for the company would be that it should be wound up in view of its trading position and the losses it was incurring. The appellants had no desire or intention to continue the company if the respondents gave up, as the reason for its existence would then be gone. The merchant converting department was set up in June, 1951, and began to do business with Falkland Mill in December, 1952, as a consequence of the mill's idleness. The initiative in this association came from the mill's manager, Schofield. Thereafter the department did comparatively little work in rayon and did not compete for business with the company. The change-over to commission weaving was a consequence of disputes between the company and Falkland Mill and was a reasonable step for the appellants to take. Falkland Mill was under control of an independent manager, whose duty was to do his job efficiently in the appellants' interests. He at no time took orders from anyone as to how he should do his business and in particular as to his prices. These were genuine prices. The dismissal of the managing directors was necessary in the interests of the company's shareholders in view of its financial position. The nominee directors on the company's board never interfered with the respondents' conduct of the company's business and only twice was there a divided vote. The nominee directors never interfered with the working of the appellants' mill and had no right to do so. The board of the company after the change-over to commission weaving did what they could to get a lower price from Falkland Mill, without success.

Elder v. Elder and Watson¹ suggests the correct approach to section 210, and Lord President Cooper names the necessities for its application. (a) There must be oppressive conduct towards some part of the members, including the petitioner. (b) Winding up would unfairly prejudice that part of the members. (c) Otherwise the facts would justify winding up under the "just and equitable" clause. The oppressive conduct must be in the affairs of the company and it must oppress the shareholder qua shareholder. The remedy contemplated under section 210 must bring the oppression to an end and the company must be fit to proceed as a going concern once the oppression is removed. That

1 1952 S.C. 49, 54-55.

decision was referred to at an earlier stage of the present case by Lord President Cooper.²

A proper case for the application of section 210 would be one of oppression when a company was prosperous and no one would have an interest in winding it up; the remedy might then be an order for the purchase of the shares of the majority by the minority, if the minority asked for it.

Section 210 provides an alternative to winding up. The legislature contemplated a continuing business with a continuing life ahead of it, whereas here the company's business was virtually at an end when the petition was lodged and there was no point in keeping it alive. Here an order under section 210 was not justified. It is not for the appellants to suggest what would have been the right remedy. The only relief under the section must aim at "bringing to an end the matters complained of," and this order for the purchase of the shares does not satisfy that requirement. Further, the value put on the shares was excessive at the time of the order. In the fixing of this value the court did not properly exercise its discretion. The order for the purchase of these shares amounts to an award of damages for past misconduct, a matter not within section 210.

The main point is that there must be oppressive conduct to bring the case within section 210, and here no oppressive conduct in the affairs of the company was proved by the respondents, on whom the onus lies. The section contemplates a lack of probity, but that is not established. When the nominee directors of the company were sitting in the board room of the appellant society they were bound not to take any action contrary to the appellant society's interests. What the appellant society did at their own board meetings could not be oppressive of the company in the affairs of the company. On the evidence here, looking at the actions of the nominee directors in the conduct of the company's business, there was no oppression by them in 1953. At most they were inactive, doing nothing to protect the company, but what could they have done? If they had protested at the appellants' actions, what good would that have done? The respondents' complaints all relate to the actions of the society and do not touch the real issue, which is concerned with the conduct of the company's affairs. The company's position was precarious from the beginning because it had no factory and there was no

2 1954 S.C. 381, 387.

long-term agreement as to the looms. It should have ensured its supply of rayon cloth from the mill by a contract.

Benjamin Bathurst Q.C. following. There are only two questions: (1) The main question is: Have the affairs of the company been conducted in a way oppressive of the respondents as shareholders? (2) If so, was the court entitled to adopt a remedy which (a) did not ensure the continuance of the company's business, and (b) amounted in effect to a judgment for damages, whereas the remedy contemplated by section 210 in general assumes continuance of the company's business?

The main, if not the only, ground on which the First Division held that section 210 applied was that (as found by the court, but denied by the appellants) from 1952 onwards the appellants used their own mill to manufacture cloth for sale by themselves rather than to the company. On this point, contrast the views of Lord President Clyde and Lord Carmont.³ On the facts as found by the court,⁴ neither Mr. Taylor, who was chairman of the appellant society at the material time, nor the nominee directors could control the society.

To bring section 210 into play a petitioner must satisfy the court of the three matters stated by Lord Cooper in Elder v. Elder and Watson.⁵ Here the third is admitted (that it would be just and equitable to wind up the company). The second (that winding up would unfairly prejudice the members complaining) largely depends on the first.

As to whether the company's affairs had been conducted in a manner oppressive to some of the members, the conduct must be in the company's own affairs and not in those of some other body: see per Lord President Cooper and Lord Russell.⁶ The fact found that the appellants decided to use their own mill to supply their own commercial requirements in preference to those of the company has no connection with the fact that the appellants happened to hold a majority of the company's shares. The policy would in any event have been detrimental to the company, and the fewer shares the appellants held, the greater would have been the advantage to them. No case of oppression under section 210 can be made on the appellants' use of their own mill. That was an action in the course of their own trading business. If the company's business depended on a continuance of a certain supply from the mill, it would have been a matter of ordinary

3 1957 S.C. 110, 122, 134.

4 Ibid. 122, 134, 148.

5 1952 S.C. 49, 55.

6 1954 S.C. 381, 387, 394.

commercial prudence to enter into a contract with the appellants for that supply, but this was never attempted: see per Lord President Clyde.⁷ This lies at the root of the whole matter. The respondents are now trying to invoke section 210 to provide a remedy for a failure to take the normal business course of obtaining a contract.

The higher prices charged by the appellants to the company did not amount to oppression. The respondents were never prevented from buying in the market. The fact was that supplies were unobtainable and so the expression "market prices" is meaningless. It is a fallacy to talk of the mill selling its products to the appellant society; it was part and parcel of the appellant society who could not sell to themselves. Though, as a matter of internal book-keeping, the mill may have invoiced its products to the merchant converting department, there was never a sale and purchase in the true sense. Lord Carmont⁸ considered that this matter afforded no ground for complaint, and he was right.

As to the appellants' attitude on their proposal to buy the respondents' shares in the cnmpany, they were not bound to buy at the price fixed by the auditors: see per Lord President Clyde and Lord Carmont.⁹ These negotiations should be ignored.

The inaction of the nominee directors was wrongly treated as oppression in the court below. They never interfered with the company's management in the day-to-day control of it, which was in the hands of the respondents as managing directors. There was nothing to prevent the respondents from getting supplies elsewhere. Further, the nominee directors had no control over the appellant society. They were powerless to alter the course of events and their resignation could not have affected the situation. The position would have been the same if no representatives of the appellant society had ever voted at a meeting of the company or its board.

Further, Schofield's actions as manager of the mill cannot be held to be oppression by a majority of the company's shareholders. since the actions of a mill manager independent of the company cannot be "conduct of the company's affairs" within section 210.

Lord President Cooper's statement¹⁰ as to the position of a subsidiary company is too wide. The parent company's duty must be to conduct its own business in the best interests of its own shareholders. The minority shareholders in the subsidiary

7 1957 S.C. 110, 122.

8 Ibid. 134-135.

9 Ibid. 121, 131.

10 1954 S.C. 381, 391.

cannot expect to control the business of the parent company, which must be left in the hands of the directors and shareholders of the parent company. If as a matter of business the directors of the parent company consider that the interests of its shareholders are best secured by itself selling the products it manufactures, their duty (in the absence of any contractual duty to the subsidiasy) must be to do so. The Lord President's view would involve the proposition that when a company holds just over 50 per cent. of another company's shares, its trading activities would be restricted owing to its "obligation" to its subsidiary, whereas if it owned just under 50 per cent. of the shares, no such obligation would exist. But in truth in the nature of things the minority shareholders in fact put themselves in the hands of the majority. That is the commercial risk they take.

As to the dismissal of the respondents, this took place after the presentation of their petition on July 13, 1953, and was done on counsel's advice. Events subsequent to proceedings should not be taken into account. Section 210 was not intended to meet the case of a director losing his office: see Elder v. Elder and Watson.¹¹ Liquidation was the only practical and sensible course at this date to preserve such assets as the company possessed. As a corollary, it was necessary to terminate the employment of the managing directors.

As to the remedy, section 210 provides an alternative to winding up. Section 210 (2) (b) clearly contemplates that the company will continue to operate. The court might make an order regulating the conduct of the company's affairs in future, possibly by altering the memorandum or the voting powers or by granting an injunction. The proper remedy here would be either to order the majority to sell their shares to the minority or to make an order "regulating the conduct of the company's affairs in future" which would effectively prevent the majority oppressing the minority. The order appealed against would probably lead to a winding up because the appellants would have no reason to keep alive a wholly owned subsidiary. It amounted to "the solvent of a monetary award" which was not the remedy contemplated by section 210.

The relevant authorities are Bell v. Lever Brothers Ltd.¹²; Irwin & Johnson Ltd. v. Oelofse Fisheries Ltd.¹³; In re Hannetta

11 1952 S.C. 49, 57, 58, 60, 61.

12 [1932] A.C. 161; 48 T.L.R. 133.

13 (1954) (1) S.A. 231.

Ltd.¹⁴ and Buckley on the Companies Acts, 13th ed., p. 868 (as to improper use of powers).

R. Johnston Q.C. and F. O'Brien (both of the Scottish Bar) for the respondents. The decision of the Inner House was unanimous with no expressions of doubt or indecision. Thomas (or Watt) v. Thomas¹⁵ indicates that this House will be slow to reverse conclusions so arrived at.

The view of the facts relied on by the respondents is as follows: The appellants were forced to create the company in order to enter the rayon trade and took advantage of the respondents' skill, knowledge and experience in that trade. The appellants had to maintain the company in existence up to the end of cotton control to stay in the rayon trade. From November, 1951, when realignment of shareholdings was in issue, the appellants, as majority shareholders, were determined to secure realignment at par and refused to consider realignment on a fair valuation basis. The reason for the company's decline was the general recession, and efforts to "bridge" the depression were unsuccessful. After the end of cotton control the appellants decided to divert the potential rayon production at the mill from the company in order to benefit one of their own departments, in the knowledge, shared by the nominee directors, that this would prejudice the company's trade and progressively depress the value of its shares. The recession in the rayon trade ended in September/October, 1952, after which time weavers were very busy and the conditions of trade, which prevailed before the recession, returned. At this time the looms at the mill were available for the resumption of production, having been idle because of the recession. The company had stocks in hand for converting to meet the then increased demand. Before the company required new stocks of cloth the appellants' drapery committee initiated the beginning of business between the mill and the merchant converting department and it was at once apparent that there was a prospect of increasingly profitable business being done between these two. This beginning was known to the nominee directors of the company, who were at the time members of the drapery committee. When the company applied to the mill for resumption of production of rayon and, in particular, standard quality 1009, Schofield was reluctant to do business. He quoted a price to the company which he knew was

14 (1953) Nov. 2 (unreported); see 216 L.T.J. 639.

15 [1947] A.C. 484; 1947 S.C.(H.L.) 45; 63 T.L.R. 314; [1947] 1 All E.R. 582.

unacceptable because it was too high, being above the merchants' price of 1s. 6½d., which included wholesalers' profit. Meyer did not understand the quotation; he did not know of the negotiations between the mill and the merchant converting department and no one told him. In good faith he thought the mill's prices were the result of either faulty costing or inefficient manufacture or both and suggested in good faith ways and means of improving it. All his requests and suggestions were ignored. Because of market conditions the company could not get elsewhere supplies of cloth of the quality required in sufficient quantity and in time to take advantage of the returned boom. Consequently its trade did not recover. The appellants and the nominee directors were aware of this position and were aware that the result was to lower the value of the company's shares. Although deliveries of rayon from the mill to the merchant converting department were small at the beginning, there were prospects of increasing business between them. So far as the evidence goes, business increased on a substantial scale up to the end of January, 1955. Alternatively, if business between the merchant converting department and the mill began soon after the company asked for a quotation, the appellants and the nominee directors knew that the mill had been previously allocated for production for the company and they also knew that the company had applied for supply and had been quoted a price which the company considered excessive.

The evidence clearly discloses a policy by the appellants to destroy the company.

In construing section 210 one must have regard to what the law was previously, to the mischief at which it was aimed and to the remedy provided. The terms of section 210 are very wide and there is no warrant for limiting by implication the scope of the circumstances to which it in terms applies. The meaning of section 210 cannot be affected by the nature of the remedy sought. When oppression has been established, together with the other facts required by the Act, there is no limit to the nature of the order which the court may pronounce; it may have an element of an award of damages. Section 210 is not designed to redress past wrongs, but the court's order may in effect be an award of damages for a continuing wrong.

Each nominee director was aware of and responsible for the policy of the appellants as a whole, and through them the appellants "conducted" the company's affairs "in a manner oppressive" of the respondents. The nominee directors cannot

shelter behind a wall of ignorance of the appellants' policy, especially as they were appointed to look after the appellants' interests.

The appellants say that section 210 does not apply because the actings complained of were actings in the affairs, not of the company but of another body, the appellant society. But when a subsidiary company is formed with an independent minority of shareholders, the parent company must conduct its own affairs so as to deal fairly with its subsidiary, and if their affairs are so closely interrelated that it is impossible to say that the affairs of the one are not the affairs of the other, then anything the parent company does is conduct in the affairs of the subsidiary company.

In any event, in this case the evidence discloses that the appellants, as majority shareholders, conducted the company's affairs oppressively in participating in the campaign to destroy its business. Conduct includes both active and passive conduct. When there is a duty to act, failure to act is as much conduct as any action. So any conduct, whether active or passive, is within the section. One would be conducting the affairs of a boat if one knew that it was heading for the rocks and neither interfered nor informed the crew. It is a fallacy to suggest that oppression can only take an active form. Inaction can be just as much conduct as action.

The nominee directors, knowing that the appellants' policy was to destroy the company, should have disclosed that policy to the respondents or resigned. Any director who acts for the destruction of his own company is not acting in its interests.

Oppression is not a commercial risk, although in the past a minority had to run it; that is the very thing which section 210 was designed to deal with.

It is a question of fact what are a company's affairs. Section 210 can cover the whole of its activities. In any view, its trading activities are covered. On the facts of this particular case, the obtaining of supplies of rayon cloth from the mill was a vital affair of this company, and when the appellants interfered with those supplies they were interfering in its affairs.

As to the contention that the appellants were only acting in their own affairs and not in those of the company, see what was said in the court below.¹⁶

The directors of a company are in a fiduciary position and must show the utmost good faith in dealing with it. Where a

16 1954 S.C. 381, 390-391; 1957 S.C. 110, 144, 154.

conflict of interest arises between their duty as directors of one company and their duty as directors of another company or their interests as individuals, they must act with good faith. The least the nominee directors could have done was to tell the respondents of the situation.

Oppression does not cease to be oppression merely because it is done on the advice of counsel. One would wish to know what was the case which was put before counsel. Also counsel's opinion may have been given on a wrong view of section 210.

As to the remedy, there is no express indication that it is essential under section 210 that the company must be capable of going on and that this limits its application, but, in any event. this company was capable of going on if the oppression was removed. Any order which the court judges will bring the oppression to an end is within the competence of section 210. If the appellants were right, there would be a remedy for slight oppression, but not for grave destructive oppression: per Lord President Cooper.¹⁷

Even though the order now pronounced may have an element of damages, that does not make it improper. On the facts this was not a company which inevitably had to be wound up. It was fit to be kept alive either when the petition was first presented or when the complaints of diversion of the mill's production were first made. The company could have issued fresh capital and built its own factory. It had large resources and, on the evidence, it is not proper to suppose that it was moribund.

I. Robertson Q.C. in reply. At the material time the company was no longer able to trade, not because of any deliberate policy of the appellants, but because of the conditions prevailing. But, even assuming oppression in fact, the respondents cannot recover at law. In view of the terms of section 210, what was done within the appellant society could not be oppression within the section. There must be a difference between the conduct of the affairs of the company and the conduct of the affairs of the society. The nominee directors were not bound to disclose to the respondents information received in the appellants' board room. Their failure to resign was not oppression; it cannot be said to have affected the consequences of the alleged oppression. They were not in breach of their duty.

Their Lordships took time for consideration.

17 1954 S.C. 381, 391-392.

July 24. VISCOUNT SIMONDS. My Lords, in this appeal from an interlocutor of the First Division of the Court of Session I am in such full agreement with their Lordships both in their findings of fact and in their conclusions of law that I do not think it necessary to trouble the House at such length as I otherwise might. But, inasmuch as your Lordships have for the first time to consider a new and important section of the Companies Act, 1948, it is right that I should state my views upon it.

On May 7, 1946, there was incorporated as a private limited company the Scottish Textile and Manufacturing Co. Ltd., which I will call "the company." It had an authorised share capital of £25,000 divided into 25,000 shares of £1 each. Its substantial object was the manufacture and merchanting of rayon fabrics. The respondents, formerly of German but now of British nationality, who had left Germany when the Nazis obtained power in that country, had a large experience and extensive connections in the continent of Europe in the rayon trade, and one of them, Dr. Meyer, had already in 1945 been appointed textile adviser to the appellant society. Into this trade the society wished to enter and, though they would have preferred to carry it on as a branch of their own business, this was for more than one reason not practicable. The respondents were unwilling to act merely as employees of the society and, since at that time licences had to be obtained for the manufacture of rayon, and were granted only to persons who could satisfy the cotton control authorities that they commanded the necessary skill and experience, it was mutually advantageous to the society and the respondents that a subsidiary company should be formed in which they should both be interested. The company was accordingly formed and 7,900 shares were issued, 4,000 to the society, 3,450 to Meyer, 450 to Lucas. Thus the society had such control as a majority shareholding could give. Moreover, of the five directors of the company three were at all material times nominees of the society, the other two being the respondents, who were the managing directors. Nor was there lacking control by the society of a practical sort. For from the outset it was contemplated that, at any rate until a factory could be built or acquired for it, the company should be substantially dependent for its supplies upon the society's mill at Falkland which in 1946 was partially idle. Accordingly, under arrangements with cotton control, the production of a number of looms at Falkland was allocated to the company and the looms were licensed for rayon production. Dr. Meyer made arrangements for the supply of

rayon yarn to be used in the manufacture of the finished cloth, the yarn being purchased by the society and invoiced to them at Falkland Mill. There it was woven and the woven cloth sold to the company ready for dyeing and finishing. This was the plan, and from the beginning it flourished greatly.

But, my Lords, it was a plan which demanded the utmost good faith on both sides, and, as your Lordships will see, it was the lack of it on the part of the society which led to this discreditable tale.

I must hark back for a moment to the year 1947. It seems that in March of that year an agreement between the parties was made for what was curiously called a realignment of their shareholding, so that, instead of approximately equal holdings, the society should hold 70 per cent. and the respondents 30 per cent. of the issued capital. That was in March 1947, but nothing was done to carry the agreement into effect until the year 1951. In November of that year, the company being then apparently very prosperous, the nominee directors, as I will call them, under the instructions of the board of the society raised the question: numerous proposals were put forward, some of which involved the purchase by the society of some of the respondents' shares. It is unnecessary to go into the details of this episode, for in the end nothing was done. The significance of it lay in the fact that the society's representatives adopted the view that they were entitled to acquire at par any shares they might get under the so-called realignment and, upon a refusal of this unjust demand, threatened that the society would liquidate the company if it was not met. This and other threats led to legal advice being sought. The solicitor to the society and the company advised that the shares should be valued and bought at a valuation: they were valued by the company's auditors at no less than £6 0s. 11d. a share and thereafter the society proceeded no further in the matter. It is impossible after reading the voluminous evidence in this case not to see that the society, thus foiled in their attempt to obtain a grossly unfair advantage of the respondents, determined to seize any opportunity of procuring for themselves the benefit of the trade which had been largely built up by their efforts.

It is at this stage convenient to refer to the section of the Act under which the respondents petitioned the court for relief and obtained the order, against which this appeal is brought, that the society should buy their shares in the company at £3 15s. 0d. per share. It is, so far as relevant, as follows:

[His Lordship read section 210 (1) and (2) and continued:] It is common ground that at the date of presentation of the petition on July 13, 1953, it was just and equitable that the company should be wound up. It could hardly be denied that to wind up the company would unfairly prejudice the respondents. The only question is whether its affairs were being conducted in a manner oppressive to the respondents and, if so, whether the court ordained the appropriate remedy.

My Lords, as I have already said, I do not propose to rehearse the facts at length. The four learned judges of the First Division, including Lord Carmont who was deputed to take the proof, were unanimously of opinion that the society had conducted the affairs of the company in a manner oppressive to the respondents. Each of them gave a judgment which, I may perhaps be permitted to say, was a careful and exhaustive appraisal of the evidence, and, even if I did not myself come, as I do come, upon an independent reading of it to the same conclusion, I should be reluctant to disturb their findings, particularly as Lord Carmont had the peculiar advantage of seeing the witnesses. It cannot be ignored that, wherever there was any dispute of fact, the testimony of the respondents was preferred to that of the witnesses of the society. Having myself only read the written word, I must say that I was by no means favourably impressed by the evidence of more than one of the latter witnesses.

It is, however, necessary, if section 210 is to be successfully invoked, to show, not only that there has been oppression of the minority shareholders of a company but also that it has been the affairs of the company which have been conducted in an oppressive manner, and it was to this point that a large part of the appellants' argument was directed. I must therefore state in broad outline the course of events which led to the presentation of the petition.

The last event that I mentioned was the failure of the society to acquire at par shares that were worth a far greater sum. This was at a time of the company's great prosperity which, subject to the ups and downs of the textile trade, might be expected to continue. It was, however, followed by a recession in the rayon trade, of which the dates of beginning and ending were a matter of dispute. Such dates cannot be precisely determined and are of no consequence. It is, however, to be noted that it was in the course of it that rayon control came to an end, so that neither the society nor the company any longer depended on the personality

of the respondents to get supplies of yarn. It was also in the course of it that the respondent Meyer was anxious to visit Germany with a view to increasing the company's trade in that country but was prevented by his co-directors from doing so. This was undoubtedly the cause of much ill-feeling and was itself a matter of complaint in the original petition, but, as the averment in regard to it was struck out, I say no more about it. During the same period other incidents occurred which aggravated the hostile relations between Meyer and Schofield, the manager of the society's Falkland Mill.

An important consequence of the removal of cotton control was this. In or about June, 1951, a new department of the society had been formed called the merchant converting department. It was under the control of a Mr. Wand, the manager of the drapery department, and its function was to convert loom state cloth by dyeing, printing and finishing into material for manufacture into garments. It therefore became possible upon the removal of cotton control and upon a revival of the rayon trade for the society to divert to their own converting department the product of their Falkland Mill. It was the fact, as they were well aware, that the company which had throughout been practically tied to them for the greater part of its supplies, would have great difficulty upon a revival of trade in getting them elsewhere. Deliberately they supplied the necessary material to the converting department but, in spite of Meyer's protests, declined to supply the company except at higher and non-competitive prices. An attempt to justify this discrimination was rightly regarded by their Lordships of the First Division as unsatisfactory. I have no doubt that at any rate by the end of 1952 it was the policy of the society by one means or another to destroy the company it had created, knowing that the minority shareholders alone would suffer in that process. But it is, in truth, unnecessary to seek to draw inferences from ambiguous facts. For in January, 1953, a Mr. Robert Taylor, a director of the society and then chairman of the company, had an interview with Meyer and Lucas. He cannot be absolved from a share in the lethal policy of the society but is entitled to what credit may be due for the attempt to make the death as merciful as possible. He told them frankly that the society was out to destroy the company, that they had no chance against such a powerful organisation, and that they should make their peace with the society by offering to sell their shares, and he offered to draft, and, two days later, drafted, a letter for them to send to the society. It is not surprising that Meyer wrote,

though not in terms suggested by Taylor, offering on behalf of Lucas and himself to sell their shares at a negotiated price. This letter having been referred to a joint meeting of the society's finance sub-committee and the furnishing sub-committee, those sub-committees met and agreed that the company had served its purpose and should be liquidated, if possible. At about the same time the finance sub-committee interviewed the respondents, who intimated that in their opinion a fair price for the shares was 96s. per share and also that they were prepared after selling their shares to stay on in the service of the company. The same sub-committee recommended that Dr. Meyer should be informed that the society did not wish to accept the offer to sell "at the present time." These recommendations were approved by the board of the society on February 9, 1953, and a letter was duly sent to Meyer informing him of the decision not to accept the offer to sell "at the present time." He was not told and did not learn, until in these proceedings the minute was produced, that the society had decided that "the company had served its purpose" and should be liquidated if possible.

At this time the three nominee directors of the company were aware (Taylor by his own confession) of the policy of the society. It is undeniable that persons so placed may find themselves in a difficulty. But in all the evidence I have not been able to find the least trace that they regarded themselves as owing any duty to the company of which they were directors. They were the nominees of the society and, if the society doomed the company to destruction, it was not for them to put out a saving hand. Rather, they were to join in that work, and, when a frank and prompt statement to their co-directors might have enabled them to retrieve its fortunes, they played their part by maintaining silence. That is how they conducted the affairs of the company, and it is impossible to suppose that that was not part of the deliberate policy of the society. As I have said, nominees of a parent company upon the board of a subsidiary company may be placed in a difficult and delicate position. It is, then, the more incumbent on the parent company to behave with scrupulous fairness to the minority shareholders and to avoid imposing upon their nominees the alternative of disregarding their instructions or betraying the interests of the minority. In the present case the society pursued a different course. It was ruthless and unscrupulous in design and it was effective in operation, and, as I have said, it was promoted by the action or inaction of the nominee directors. The company, which might have recovered

its former prosperity, had "served its purpose." It could conveniently be liquidated. I have omitted much which reflects no credit on the society and itr officers, for I do not want to repeat what has already been said, or to anticipate what will fall from some of your Lordships. I will only mention the final fact that on August 24, 1953 (that is, after the presentation of the petition under section 210) Meyer and Lucas were given three months' notice of termination of their appointments as managing directors, and Mr. Wand, the manager of the society's drapery department, was appointed manager of the company.

My Lords, upon the facts, as I have outlined them and as they appear in greater detail in the judgments of their Lordships of the First Division, it appears to me incontrovertible that the society have behaved to the minority shareholders of the company in a manner which can justly be described as "oppressive." They had the majority power and they exercised their authority in a manner "burdensome, harsh and wrongful" - I take the dictionary meaning of the word. But, it is said, let it be assumed that the society acted in an oppressive manner: yet they did not conduct the affairs of the company in an oppressive manner. My Lords, it may be that the acts of the society of which complaint is made could not be regarded as conduct of the affairs of the company if the society and the company were bodies wholly independent of each other, competitors in the rayon market, and using against each other such methods of trade warfare as custom permitted. But this is to pursue a false analogy. It is not possible to separate the transactions of the society from those of the company. Every step taken by the latter was determined by the policy of the former. I will give an example of this. I observed that, in the course of the argument before the House, it was suggested that the company had only itself to blame if, through its neglect to get a contract with the society, it failed in a crisis to obtain from the Falkland Mill the supply of cloth that it needed. The short answer is that it was the policy of the society that the affairs of the company should be so conducted and the minority shareholders were content that it should be so. They relied - how unwisely the event proved - upon the good faith of the society, and, in any case, they were impotent to impose their own views. It is just because the society could not only use the ordinary and legitimate weapons of commercial warfare but could also control from within the operations of the company that it is illegitimate to regard the conduct of the company's affairs as a matter for which they had no responsibility. After much

consideration of this question, I do not think that my own views could be stated better than in the late Lord President Cooper's words on the first hearing of this case. "In my view," he said,¹ the section warrants the court in looking at the business realities of a situation and does not confine them to a narrow legalistic view. The truth is that, whenever a subsidiary is formed as in this case with an independent minority of shareholders, the parent company must, if it is engaged in the same class of business, accept as a result of having formed such a subsidiary an obligation so to conduct what are in a sense its own affairs as to deal fairly with its subsidiary." At the opposite pole to this standard may be put the conduct of a parent company which says: "Our subsidiary company has served its purpose, which is our purpose. Therefore let it die," and, having thus pronounced sentence, is able to enforce it and does enforce it not only by attack from without but also by support from within. If this section is inept to cover such a case, it will be a dead letter indeed. I have expressed myself strongly in this case because, on the contrary, it appears to me to be a glaring example of precisely the evil which Parliament intended to remedy.

Some criticism was made of the relief given by the order of the court. It was said that only that relief could be given which had as its object and presumably its effect the "bringing to an end of the matters complained of" and that an order upon the society to purchase the respondents' shares in the company did not satisfy that condition. This argument is without substance. The matter complained of was the oppression of the minority shareholders by the society. They will no longer be oppressed and will cease to complain if the society purchase their shares.

Finally, it was said that the court had not properly exercised its discretion in fixing a price of £3 15s. 0d. per share. I see no ground for interfering with this decision. Necessarily a price cannot be scientifically assessed, but I heard no argument, nor had any evidence called to my attention, which suggested that their Lordships had acted on any wrong principle or adopted a measure too generous to the respondents.

The appeal should accordingly, in my opinion, be dismissed with costs.

LORD MORTON OF HENRYTON. My Lords, I shall refer to the

1 1954 S.C. 381, 391.

appellant society as "the society," and to Scottish Textile and Manufacturing Co. Ltd. as "the company."

I would accept the finding of fact by the First Division of the Court of Session which the Lord President expressed as follows²: "Foiled in their attempt to secure the realignment of the shareholdings by the purchase of shares from the petitioners at or about par, the society as a matter of policy thereafter proceeded, as the subsequent events demonstrated only too clearly, to endeavour to force down the value of the company's shares, and in the process in effect to transfer the goodwill of the company's business to the society itself."

The conduct thus described was, no doubt, oppressive to the company and to the respondents, minority shareholders in the company. It is necessary, however, to consider what was the nature of the steps taken by the society in furtherance of the policy thus described, in order to see whether they bring the case within section 210 of the Companies Act, 1948. The respondents, as members of the company, can only succeed if they prove that "the affairs of the company" - and I emphasise the words "of the company" - were "being conducted in a manner oppressive to some part of the members," i.e., to themselves.

I cannot improve upon the learned Lord President's summary of the steps taken by the society and I gratefully adopt it. After referring to the fact that cotton control, and its attendant licensing system, came to an end in June, 1952, the learned Lord President continued³:

"The door was then open for the department" (that is, the society's own merchant converting department) "to utilise Falkland Mill" (which belonged to the society) "for the manufacture of rayon and to merchant it themselves - thereby by-passing the company altogether. The trade and the connections built up by the company could then be transferred to the society itself, and the goodwill of the company emptied of almost any content. No contractual arrangement had been made between the company and Falkland Mill whereby the latter undertook to do the weaving for the former. All the members of the company's board knew that the facilities at Falkland Mill were essential to the company, and no breach of any formal contract (as distinct from any question of fair dealing) was therefore involved in Falkland Mill abandoning the customer who had employed it for so many years and

2 1957 S.C. 110, 121.

3 Ibid. 122.

substituting the merchant converting department of the society as its customer. But this is what was in fact done.

By the autumn of 1952 a temporary trade recession in rayon had passed; manufacturers were getting busy, and |he market was short of goods. It would not have been easy for the company in these conditions to secure its manufacturing requirements in some other quarters. Now that the barrier created by the existence of cotton control was removed, this was the moment selected for the gradual transfer of the society's interest in the merchanting of rayon from the company to the merchant converting department."

The Lord President then went on to state that the prices which Falkland Mill quoted for deliveries to the company, and refused to lower, were quite uneconomic for the company and were throughout consistently above market prices. He referred to efforts made by the respondent, Dr. Meyer, to induce Falkland Mill to do business with the company, and continued⁴:

"Nothing came of these approaches, as the mill's prices remained far too high. Dr. Meyer reported the difficulties to the board of the company, all the members of which must have realised how serious an effect these high quotations were having on the operations of the company. But none of the members of the board appear to have given him any assistance or explanation, nor taken any steps to try to remedy the situation by raising his difficulties at any committee or board meeting of the society.

The reason is not far to seek. At the very time when Dr. Meyer was finding the mill consistently quoting these high prices to him, the society decided that the merchant converting department should obtain deliveries of rayon goods from the Falkland Mill. This was not a mere departmental matter arranged between managers, but was raised to a policy level by a direct approach to the merchant converting department by the manager of Falkland Mill. This is clear on the evidence both of Mr. Schofield and Mr. Wands. The board of the society and the society's nominee directors on the board of the company were, therefore, fully advised of the decision.

"Moreover, the arrangement made was that the mill would supply woven rayon cloth to the merchant converting department and that the mill would 'accept the prices which the department was prepared to pay, and see the manager of the

4 1957 S.C. 110, 123.

department about it later if the prices were not economical ones.' To start with, experimental orders only were given and accepted. But the manager of the department said in evidence that he gave Falkland Mill in 1952 enough orders to keep the looms going for six months. In 1953 and 1954 all the rayon looms at Falkland were operating for the merchant converting department. This department was buying from the mill at prices throughout substantially lower than those quoted by the mill to the company. Moreover, on the costing figures produced by the respondents, the prices at which the merchant converting department were buying were completely uneconomic.

It was contended that there was nothing wrong in the mill changing over from one customer to another, particularly if the mill could not arrange a mutually satisfactory price with the company. This would no doubt be so if both customers were treated alike, or if it could be maintained that the company was holding out for an unduly low price. But this was not the situation. The policy adopted involved starving the company of deliveries and diverting the production to the merchant converting department at substantially lower prices with the understanding that the department would see about it later if the prices turned out too small. It involved a clear violation of the elementary principles of fair dealing which normal commercial standards require."

My Lords, it is, I think, manifest that the oppressive operations so clearly described were all operations in the conduct of the society's affairs, not in the conduct of the company's affairs. The society so conducted its affairs as to oppress the company by shutting it off from its previous source of supply. By so doing the society did, I think, oppress the minority shareholders in the company; but, as I have already pointed out, the respondents can only bring themselves within section 210 of the Act of 1948 if they prove that the affairs of the company whereof they are members are being conducted in a manner oppressive to themselves as minority shareholders. They cannot succeed, in my opinion, merely by proving that the affairs of another company are being so conducted, even if that other company holds the majority of the shares in the company whereof the petitioners are members, and nominates the majority of its directors. It may be unfortunate that this form of oppression is not covered by the section; but this is, to my mind, the inevitable result of the words "the affairs of the company are being

conducted." For this reason, my Lords, I should have held the appellant society entitled to succeed if the only evidence of oppression had been evidence that the society deliberately so conducted its own affairs as to cause hardship to the company and to force down the value of its shares, however regrettable such conduct may be, and whether or not it may be actionable.

I turn now to consider whether there is any other ground upon which the present case comes within section 210. Counsel for the respondents contend that certain directors of the company, nominated by the society and constituting a majority of the company's directors, or the society acting by these directors, "conducted" the affairs of the company "in a manner oppressive" to the respondents. As these directors of the company were also directors of the society, they must, no doubt, be treated as parties to the oppression by the society in the conduct of its own affairs; but I have had great difficulty in arriving at a conclusion upon the question just posed, which is directed only to the affairs of the company. The inaction of these directors at a critical time was pointed out by the Lord President in a passage which I have already quoted from his judgment, and their conduct throughout the relevant period is open to severe criticism. My difficulty is that the conduct of which complaint is made consists rather of sins of omission than of sins of commission, and the day to day affairs of the company appear to have been "conducted" by Dr. Meyer and Mr. Lucas without any active interference by the other directors, except, possibly, on two occasions, which the First Division excluded from proof on the ground of irrelevancy, and except that notice of dismissal, on the ground of saving expense, was given to the respondents after they had presented the present petition. I shall not detain your Lordships by referring in detail to the evidence. Suffice it to say that in the end I have reached the conclusion that there is evidence to justify the view that the affairs of the company were "conducted in a manner oppressive" to the respondents. I am not disposed to give a narrow meaning to these words, having regard to the manifest object of section 210. I am naturally assisted to my conclusion by the fact that the decision of the four learned judges of that Division (including Lord Carmont, who had the advantage of seeing and hearing the witnesses) was unanimous, and by the fact that your Lordships are all of the same opinion.

I agree that this appeal must be dislissed.

LORD KEITH OF AVONHOLM. My Lords, this appeal arises out of a petition presented by the respondents (whom it will be convenient to refer to as "the petitioners") against, inter alios, the appellants (whom I will call "the society") under section 210 of the Companies Act, 1948. Under the procedure of the Court of Session such a petition must be presented to the Inner House and, unless it is remitted to the Outer House, is dealt with and disposed of by the Inner House. Where in the Inner House inquiry into the facts through the mouths of witnesses is thought necessary, evidence is taken in the presence of one of the judges of the Division of the Inner House before whom the petition comes and the hearing on the evidence thereafter takes place before the full Division, including the judge who saw and heard the witnesses. This judge gives no opinion until, after the hearing, he takes part in the judgment of the court. This was the procedure followed in the present case.

This petition was presented as far back as July 14, 1953, and after a hearing on relevancy the court, on June 1, 1954, gave a judgment allowing parties a proof before answer of their respective averments, excluding certain averments of the petitioners from probation, and appointed the proof to proceed before Lord Carmont, one of their number. The proof, which commenced on March 25, 1955, was lengthy and voluminous and extended, with many interruptions, for a period of over a year, though the actual number of days occupied was only 12. After a hearing lasting 13 days, the First Division gave judgment on March 20, 1957, ordaining the society to purchase the shares of the petitioners in the Scottish Textile and Manufacturing Co. Ltd. (hereinafter called "the company") at a price of £3 15s. per share.

It is difficult to compress the salient features of the case even in broad outline. The petitioners, who were originally of German nationality and are now naturalised British subjects, came to this country in 1939. Through an advertisement Dr. Meyer (one of the petitioners) got into touch with the society in 1945 and got employment from them as textile adviser. He had considerable knowledge of rayon trade and production and conceived the idea that one of the society's weaving mills at Falkland could be profitably employed in the weaving of rayon goods, which would be for it a new line of manufacture. He had great experience of the processes involved and had formulae of his own. He also had trade connections abroad and he succeeded in establishing relations with the cotton control board who controlled the supply of yarn and manufacture of the cloth. Ultimately it was agreed

between the society, Dr. Meyer and the other petitioner Mr. Lucas, who had been associated with Dr. Meyer in the textile business in Germany before the war, that a company should be formed on certain terms for the purpose of manufacturing and dealing in textile fabrics of all descriptions. The company called the Scottish Textile and Manufacturing Co. Ltd. was incorporated on May 7, 1946, with an authorised capital of £25,000 in one pound shares. Thereafter in March, 1947, a second agreement was entered into between the parties which gave effect largely to what had been agreed before the incorporation of the company. The terms of this agreement are important in the light of what follows. I recite the greater part of this agreement:

"FIRST. The share capital of said company is £25,000 divided into 25,000 shares of £1 each and subject to the provisions of clause 10 hereof the [society] shall subscribe and hold in their own right up to 17,500 of said shares, [Dr. Meyer] shall subscribe and hold in his own right up to 5,250 of said shares and [Mr. Lucas] shall subscribe and hold in his own right up to 2,250 of said shares the said shares to be allotted and issued from time to time as the directors of the Scottish Textile and Manufacturing Co. Ltd. may decide.

"SECOND. The [society] shall purchase as they do hereby purchase from [Dr. Meyer] all his formulae for the manufacture of textile fabrics for the price of £3,000 which formulae [Dr. Meyer] has now delivered to the [society] and as to payment of said price [Dr. Meyer] hereby requests and authorises the [society] to pay the same to the said Scottish Textile and Manufacturing Co. Ltd. to be held for his account and applied towards settlement of the amount due by [Dr. Meyer] to said company for shares allotted to him.

"THIRD. The [society] in addition to being otherwise entitled to use said formulae shall place the same at the disposal of said Scottish Textile and Manufacturing Co. Ltd. which shall have full liberty and licence to use the same without restriction.

"FOURTH. The [society] are entitled and shall continue to be entitled to nominate three persons to act as directors of the said Scottish Textile and Manufacturing Co. Ltd. along with [Dr. Meyer] and [Mr. Lucas] who already have been elected directors of the company and appointed managing directors thereof.

"SEVENTH. [Dr. Meyer's and Mr. Lucas's] appointments as joint managing directors shall subsist for a period of three years as from May 7, 1946, notwithstanding the date hereof, and on the expiry of said period unless terminated as hereinafter provided, or unless renewed for a further period, shall thereafter continue from year to year. [Dr. Meyer's and Mr. Lucas's] appointments as managing directors or one or other of them may be terminated by the company on three months' previous notice in writing being given to that effect, but said notice shall not prejudice their status to act as ordinary directors of the company if so elected.

"EIGHTH. [Dr. Meyer and Mr. Lucas] in the performance of their duties as joint managing directors shall promote and safeguard the company's interests faithfully and with due diligence and they shall devote their whole time to the management and supervision of the company and in particular they shall apply without reservation in any respect their specialised knowledge and experience in the textile trade to the advantage and benefit of the company. [Dr. Meyer and Mr. Lucas] shall also use every endeavour to renew or to re-establish all former trade connections held by them with customers and agents both in Great Britain and abroad with the purpose of enhancing and developing the company's interests to the best extent.

"NINTH. [Dr. Meyer and Mr. Lucas] shall make full disclosure for the use benefit and advantage of the company of all formulae, processes and inventions which they may discover during the tenure of their appointments. They shall also place at the disposal and use of the company all patent rights (but excluding trade names previously held by them) of which they are the present owners or of which they may come to be possessed during the period of their respective appointments and that all free of charge. Further [Dr. Meyer and Mr. Lucas] or either of them bind and oblige themselves not to transfer or make known to any other person or company any formulae (including the formulae sold to the [society] by [Dr. Meyer]) processes, patent rights or inventions held or to be held by them or to become known to them respectively without the written consent of the company. Neither shall they grant licences to any other person or company to use such formulae, processes, patent rights or inventions without the written consent of the [society].

"TENTH. In the event of this agreement coming to an end or in the event of [Dr. Meyer's and Mr. Lucas's] appointments with said company being terminated from any cause whatever [Dr. Meyer and Mr. Lucas] shall have the option to sell their shares in said company to the [society] who shall be bound to purchase said shares and that at a price to be fixed by the auditors of the company, said auditors' decision as to price being final and binding; ..."

Of the authorised share capital of the company only 7,900 shares were actually issued, of which 4,000 were held by the society, 3,450 by Dr. Meyer, and 450 by Mr. Lucas, all fully paid. This was not according to the proportions contemplated by the agreement, which were in the ratio of 70 to 21 to 9, and although this disproportion was accepted and apparently desired by the society at the beginning, it carried with it later, as will be seen, the seeds of dissension between the society and the petitioners.

To commence operations it was necessary for the company to secure three things - sources of supply of rayon yarn, a licence from cotton control to obtain and weave the yarn, and a place at which to weave it. Dr. Meyer was the chief, if not the sole instrument, in obtaining the first two of these things and he was largely responsible for securing the third. It was contemplated apparently that the company might obtain a factory of its own. On December 29, 1945, before the company was incorporated, the society minuted approval of a recommendation by its furnishing sub-committee "that steps should be taken without delay to rent a suitable factory. When we are successful in obtaining premises, sub-committee would consider transferring to them [the company] several looms (say 24) from the linen works at Falkland. Until such time as a factory becomes available, production would be carried on at Falkland and elsewhere." At a meeting of the company's board on January 14, 1947, Dr. Meyer reported disappointment that the 24 looms promised at the outset had not been altogether made available and that not more than 10 looms were running on the company's behalf at Falkland. He stressed the fact that "sales total was entirely dependent on the supply of cloth received from Falkland and that the rapid progress of the company was only possible by means of increased production." The board, which included the society's nominee directors, resolved that the report be accepted and the society be approached to ascertain a date when the company might expect the 24 looms to be in operation on its

behalf. Dr. Meyer had in fact by this time obtained a licence from cotton control for these looms, and in March, 1948, he received a revised licence to operate 40 looms at Falkland Mill with effect from March 1, 1948. It is only necessary to add that rayon production at the mill increased from some 23,000 yards in 1946-47 to over 475,000 yards in 1949-50, showing to the mill, in money, an increase from £3,087 to £39,532. The relationship observed between the company and the mill was that Dr. Meyer procured the rayon yarn, which was invoiced to the mill and paid for by the society, and the company paid the mill for the cloth produced for it. The cloth was then dyed, dressed, or otherwise treated and sold by the company to its customers. The idea of setting up an independent factory by the company faded into the background and after a short initial period, when the mill was being equipped and its workers trained for rayon production, the mill, on the rayon side, became the company's chief supplier and the mill wove rayon exclusively for the company.

The rest of the story is an unfortunate one. The company prospered for some five years and more, made considerable profits, paid large dividends and accumulated substantial reserves. The rayon looms at Falkland Mill were, during the same period, fully employed. About September, 1951, however, trade began to slacken. To Dr. Meyer it appeared that a recession was approaching, not unconnected with rumours about changes in purchase tax. He wished to hold back supplies ordered from Falkland Mill until he saw how things were going to develop and what customers wanted. This did not please Mr. Schofield, the manager of the mill, who wished to keep his workers engaged on the looms. He had large quantities of yarn in stock obtained through the efforts of Dr. Meyer. I have little doubt that Dr. Meyer's policy was sound, looking to the close relations between the mill and the company. If there was no market for cloth, there was no point in the mill making cloth to be accumulated by the company with no orders in sight and with no money coming in to pay for it. The last bulk order for cloth given by the company to the mill in 1951 was on August 22, 1951, and a dispute arose about the mill continuing to weave to this order, which was not settled till April, 1952. There are indications in the evidence that even before this Mr. Schofield was not particularly well disposed to Dr. Meyer and I think that from this time onwards his attitude unjustifiably hardened against him.

Another event took place about this time which is crucial in this case. The society, stimulated presumably by the prosperity

of the company and desiring to have a share interest in the company corresponding to what they were entitled to under the original agreement, decided to seek what was described as a proper alignment of the shareholding. The matter came before the society first on August 20, 1951, and their representatives on the company's board were thereafter asked to raise the matter with the company. At a board meeting of the company on November 5, 1951, proposals were continued for further consideration at a meeting to be held on November 22. In the meantime, on November 15 an informal meeting took place between Messrs. Nicholson, Patterson and Dow, the society's nominees on the company's board, and Dr. Meyer and Mr. Lucas, at which Mr. Douglas, the company's secretary, was also present. No minute was taken of this meeting and what transpired can be got only from the evidence given in this case. The judges of the First Division, including Lord Carmont, who saw and heard the witnesses, have accepted the account given by Dr. Meyer and Mr. Lucas, and I find it impossible to take a different view. At the meeting discussion took place on certain proposals for rearrangement of the share capital. The society's representatives insisted that they should acquire the shares at par. Dr. Meyer and Mr. Lucas objected. Discussion got heated and the petitioners say threats were made that if they did not agree the society would liquidate the company. When Dr. Meyer pointed out that this was impossible as the society did not have a three-quarter majority of shareholding, another threat was made that "we will increase the capital to £25,000 and that will put you in a pickle." The shares of the company were at this date of considerable value. But Mr. Nicholson, one of the society's representatives, who was present at the meeting, agrees that the society was determined to realign the shares at par value.

Following this meeting Dr. Meyer put forward certain proposals in writing to the society, one of which was that 5,100 new shares should be allotted to the society at a value to be ascertained by the auditors of the company. The society resolved to ascertain the decision of the auditors before coming to a decision. The auditors fixed a value of £6 0s. 11d., and on February 18, 1952, the society's board resolved that this be noted and communicated this decision to the company. No further action was ever taken in the matter of realignment of shares by the society. From this date till the end of the tale it is, I think, clear that there existed in the company an atmosphere of hostility on the part of the society's nominees on the board to the petitioners,

except in the case of Mr. Taylor, who was not at all times on the board. Even Mr. Schofield seems to have been aware of the fact, and Mr. Taylor recognised it, as will be seen in the events of a year later. It is to be remembered that the directors of the company were personally or as representatives of the society the whole shareholders and that the company was a private company. No appeal to a shareholders' meeting would alter the situation because the composition of board and shareholders' meeting would be the same.

The recession deepened through the major part of 1952 and manufacture by the mill for the company was non-existent. It would seem likely that the recession was felt by other mills of the society than Falkland Mill, but a veil is drawn over much of the society's and the petitioners' activities in 1952 by the exclusion from probation by the Court of Session of inquiry into certain happenings of which complaint was made by the petitioners in their pleadings.

In June, 1952, cotton control was abolished. This has a material effect on what followed for it left the society free to procure rayon yarn and weave rayon cloth without any licences. No orders had passed from the company to Falkland Mill since 1951. But trade began to pick up in the autumn of 1952 and it is clear that Dr. Meyer was anxious for the mill to resume weaving for the company. The mill itself was at a low ebb. There were no looms working on raygn cloth. It was impossible, however, for Mr. Schofield and Dr. Meyer to come to terms on prices. On November 15, 1952 Dr. Meyer writes to the mill: "We feel most unhappy to place our order somewhere else while not all of your looms are working. Please do recalculate your prices again." On November 20, he writes: "We are very reluctant to place an order with some other firms while your looms are standing idle," and suggests a small order of some 16,000/17,000 yards "so that we can start business again and then we can review the position from time to time and see if we can carry on or not. This would at least, even if we both worked without any profit at all, mark the beginning." Mr. Schofield quoted prices of 1s. 7d. a yard and 1s. 9½d. a yard for two qualities of cloth, which Dr. Meyer was unable to accept, and on December 4 Dr. Meyer is writing again: "I feel very sorry indeed that you are unable to accept an order from us after so many years of co-operation." On the same date Mr. Schofield was writing to the convener of the drapery and furnishing committee of the society, following on an interview

with them two days earlier, in which he presents the mill's point of view and concludes: "We are in desperate need of work for these rayon looms at the present time, and in view of the foregoing circumstances, we consider that we are receiving unfair treatment from the Scottish Textile and Manufacturing Co. Ltd." This letter was never disclosed to the petitioners, though it may well have been known to the company's society nominees, and it is, I think, significant that it should have been written at a time when other plans were maturing. Shortly before this date the drapery department of the society had put Mr. Schofield in touch with a department of the society, formed about a year before, known as the merchant converting department. This was a department which carried on a business similar to that of the company. In other words, it included the business of buying materials and dyeing, finishing or otherwise processing them for sale to customers. The proposal was that the mill should supply the merchant converting department with a variety of woven goods for converting, including rayon cloth. This idea came to fruition and the first experimental order for rayon cloth was placed on December 11, 1952, and the first bulk order in April, 1953. For the year 1953 £2,167 worth of rayon cloth was supplied by the mill and for the year 1954 £11,776 worth. From transfer invoices produced for these years it is shown that a line of rayon cloth known as 1009 was throughout debited by the mill to the merchant converting department at 1s. 6½d. a yard. The lowest price quoted by Mr. Schofield to the company for this quality on November 24, 1952, was 1s. 7d. a yard, and Dr. Meyer was never able to secure a better quotation. Indeed, much later, in July, 1953, when the society was not prepared to provide cloth for the company except on a weaving commission basis, Mr. Schofield was quoting prices which, on a manufacturing basis, worked out as high as 1s. 9½d. a yard. In December, 1952, when Dr. Meyer was endeavouring to resume business with the mill he was able to buy this quality cloth from other sources at about 1s. 56/8d. and from a merchant converter at 1s. 6¼d. In these circumstances, the judges of the First Division all took the view that there was a policy on the part of the society to starve the company of cloth, and I do not find it possible, in the circumstances proved, to differ from this view. It is said that during 1953 and 1954 the society made a contribution to the mill to make up for the alleged uneconomic price charged by the mill against the merchant converting department. But, like Lord Sorn, I find the evidence on this very

unsatisfactory and unconvincing. The allowance, for which no specific figures can be shown in the books of the society, would seem to have been given, if at all, in respect of the conversion at the mill of looms that had nothing at all to do with the weaving of rayon. Likewise, I discard the costing evidence given to support the prices quoted by Mr. Schofield to the company. It falls with the other evidence and it seems that, in any case, it is based on reduced production at the mill, whereas Dr. Meyer was anxious to get the mill back to a state of full production. I find it difficult to appreciate how, if Dr. Meyer was unable to compete on the mill's quotations in a competitive market, the society would be able to compete, unless it be that the society enjoyed a quasi monopoly in the retail co-operative world.

The next chapter in this unfortunate history opens with the month of January, 1953. In that month Dr. Meyer and Mr. Lucas had a meeting with Mr. Taylor, one of the society's representatives and fellow director, with whom Dr. Meyer was on friendly personal and social relations. Dr. Meyer says Mr. Taylor told him: "They want to get you out and to destroy the company and you have no chance at all," and Mr. Lucas gave evidence to the same effect. Though Mr. Taylor denies using this language, Lord Carmont accepts it as true, and it certainly fits in with the surrounding facts and circumstances at the time. About the same time Mr. Taylor drafted a letter which he suggested the petitioners should send to the society. It was not sent, as will be seen, but it shows Mr. Taylor's recognition of the existing situation. It opens: "I explained to you [the society's secretary] on Friday afternoon how unhappy Mr. Lucas and I have been recently because of the strained relations in our board." After a reference to the impossibility of re-establishing harmony and offering their shares to the society it proceeds: "You will understand how reluctant we are to take this step as we have been together associated with Scottish Textiles since it was formed and we feel we are making it a success as the records will show. However, it is quite impossible to carry on in the present atmosphere and this decision is forced upon us." The letter, dated January 27, 1953, that was sent by Dr. Meyer was couched in somewhat different language and in particular refers to a price to be negotiated for the petitioners' shares. It runs:

"Dear Mr. Stirling,

"In our conversation last Friday we covered all events from the negotiations regarding the ratio of shareholding up to today.

I explained to you how the very harmonious and friendly relations which were the guiding principle in all our dealings started to deteriorate rapidly, and certain actions taken during the last fifteen months did serious harm to our prosperity and goodwill.

"Mr. Lucas and myself regret this turn of events most deeply as it affects not only our livelihood which we built up with so much pain and labour, but also our sentiment and affection which we gave wholeheartedly to the co-operative idea in spirit and actions.

"In spite of all these happenings we still feel that a friendly settlement is very much desired at least from our side and we have therefore decided to offer to you our shareholding of 3900 shares at a price to be negotiated between us.

"As we have to take certain important decisions very soon we would be grateful if you could let us have your views as soon as possible.

"Yours truly,

"(Sgd.) GEORGE MEYER."

Following on this letter Dr. Meyer and Mr. Lucas had a meeting with the society's finance sub-committee, when it was indicated to them that as they wished to give up their interest in the company it might be voluntarily liquidated. Dr. Meyer stated that in that case the goodwill would be lost, that they had had no desire to bring about the present position and they were not going to give up their shares at a liquidation value and, in their opinion. they should be paid 96s. a share. They were prepared to stay on after selling their shares to the society. At a meeting of the society's board on February 9, 1953, it was minuted that the finance sub-committee and the furnishing committee had met and agreed that the company "had served its purpose" and should, if possible, be put into voluntary liquidation. The interview with Dr. Meyer and Mr. Lucas was then referred to and a recommendation of the finance sub-committee approved that a reply be sent to Dr. Meyer indicating that the society did not wish to accept his offer to sell the shareholding of Mr. Lucas and himself "at the present time." The purpose which the company had served was plain. It was introducing rayon production to the society, as Mr. Nicholson, one of the society's directors, himself said in evidence.

The petitioners knew nothing of the terms of this minute or of the decision by the two sub-committees that the company had

served its purpose. But they did receive a letter dated February 9, 1953, stating that the society did not wish "at the present time" to accept the offer to sell to them the petitioners' shares. After that, according to Dr. Meyer, the petitioners were refused access to the company's books. There followed a letter from the petitioners' solicitors to the society, dated February 19, threatening proceedings under section 210 if the petitioners' shares were not taken over at £6 0s. 11d. a share. The petitioners continued to carry on in the company while attempts were made to resolve the differences between the parties. These, however, came to nothing and the present proceedings were commenced on July 14, 1953. The petitioners still remained with the company. Business, however, was at a low ebb, and on August 24, 1953, the board passed a resolution that their employment as managing directors should terminate on November 30, 1953. They were, I think, still anxious to do what they could to promote the trade of the company and conserve its goodwill and did in fact do some business through other sources than the mill. Under their agreement, they were in any case bound to do so and had been told to do so at a board meeting on August 24, 1953. But excessively high commission weaving rates quoted by Mr. Schofield prevented business on any scale being done with the mill and disputes arose also with regard to a special order where the price charged was of no consequence. The evidence suggests to me the continuance of a policy of hostility to and discouragement of the petitioners by the society. This period produces an instance of support of the petitioners by their fellow directors. Following a meeting of the company's board on October 5, 1953, at which Dr. Meyer complained of the rates quoted by the mill, the company's secretary, on the board's authority, wrote to the society's secretary that "my board would like to inquire if there is any possibility of the quoted commission weaving charges from the linen works, Falkland, being reduced," an inquiry which produced a reply in the negative. But this, it seems to me, was but an idle gesture. Litigation was in progress, the company's conduct was under the scrutiny of the court, and the mill, to the knowledge of the society's representatives, was now in active production for the merchant converting department.

My Lords, all the judges of the First Division take the view that it was the deliberate policy of the society in the later years of its history to depress the value of the company's shares by starving it of supplies and some of them would date the genesis of this policy from the events at the end of 1951 and beginning

of 1952, when the society found itself unable to obtain an adjustment of its holding at par. There is, I think, no positive conduct proved to support that view before June, 1952, when cotton control was abolished, but from that date there was an opportunity afforded to the society to pursue such a policy, if they had already entertained it, and I think, as events showed, they did in fact then adopt such a policy. The crucial evidence is that bearing on the trading relations between the mill and the merchant converting department, on the one hand, and the mill and the company, on the other. I have already narrated the facts and, in my opinion, there was started in the autumn of 1952 a policy which took effect in 1953 of utilising the rayon looms in the mill for the production of cloth for the merchant converting department and shutting off the company from its ordinary source of supply. This was done, not by refusing orders from the company, but by quoting to the company prices at which it could not hope to compete in the selling market. While the society were at pains to show that bdcause of the costs of production they could not quote lower prices, the fact remains that throughout the whole of 1952 and 1953 cloth was being passed from the mill to the merchant converting department at prices which, for at least bookkeeping purposes, were being noted at a figure per yard materially lower than that quoted to the company. It is in evidence that the various trading departments of the society were regarded as separate entities expected to show results on a commercial basis. If that meant that the society was content that the mill should work at a loss in order that the merchant converting department should work at a profit, that only means that it allowed the mill to show favour to the merchant converting department which it could equally have shown to its old customer the company. But I prefer the view that the mill was giving the merchant converting department rayon cloth at prices which it was prepared to quote on an ordinary commercial and competitive basis. I have already dealt with the evidence by which the society seeks to escape this natural inference. Mr. Schofield's own evidence was that he was expected to show a profit at his mill. It is to be remembered that the company was, shortly before, giving full employment to the rayon looms and that, if it had been allowed the opportunity to place orders after the recession passed, there was every reason to think it would do so again. According to the evidence trading prospects were good and the results shown in the production of rayon for the merchant converting department bear out this evidence. According to a

report of the manager of the drapery department dated August 8, 1953, the cost prices of the mill were based on covering overheads on reduced production and it was anticipated "that if full productive capacity can be obtained mill cost prices will be lowered."

From the company's point of view, the position was very serious. It had become dependent on the mill for its supplies of cloth. At the height of its prosperity 94 per cent. of its cloth was obtained from the mill. When trade revived in 1953 other sources on any scale were not available to the company. Manufacturers were busy supplying their regular customers. The position was so minuted by the company as the opinion of the managing directors on August 24, 1953. Mr. Schofield agrees that it was difficult for the company to obtain woven cloth in any quantities outside Falkland and that the company had been tied to Falkland for its rayon cloth. On the other hand, the society had the formulae, connections, and technical knowledge introduced to the mill by the company through Dr. Meyer, and the equipment and workers to manufacture the cloth free from any controls. For practical purposes the mill had started as being, on the rayon weaving side, the company's mill, a substitute for a mill owned by or leased to the company. The rayon weaving looms had now been diverted to the purposes of the society which was enjoying the monopoly which had previously belonged to the company. In the circumstances prevailing, this spelt death to the company. A very significant situation arose in August, 1953, when Dr. Meyer found the commission weaving rates quoted by Mr. Schofield impossible of acceptance. When the secretary of the company wrote on August 19: "As a result of this no production is being undertaken on behalf of this company and its activities are brought almost to a standstill," the society, at a board meeting on August 24, decided to make no reduction in the commission charge. In their minute there appears this passage: "Another factor which affects the situation is that increasing orders are being received from the merchant converting department of the drapery department, and an increasing number of looms are being devoted to that work so that our manager does not feel himself pressed to cut his price to the limit as he was towards the end of last year when work was very difficult to get."

Lastly, on the facts, it is to be noted that while the society's directors of the company, who were also directors of the society, knew all that was happening within the society, Dr. Meyer and

Mr. Lucas knew nothing apart from what they could infer from the communications, verbal and written, which they had received, with reference to the alignment of the shareholding and the taking over of shares from the petitioners, and the general attitude of the society's directors on the company's board. On the vital matters affecting the company's prosperity known to the nominee directors these directors remained silent, concealed the facts from the petitioners and took no action and gave no advice helpful to the company. As Lord Sorn put it, their conduct as directors was a negative one to "let the company drift towards the rocks."

My Lords, if the society could be regarded as an organisation independent of the company and in competition with it, no legal objection could be taken to the actions and policy of the society. Lord Carmont pointed this out in the Court of Session. But that is not the position. In law the society and the company were, it is true, separate legal entities. But they were in the relation of parent and subsidiary companies, the company being formed to run a business for the society which the society could not at the outset have done for itself, unless they could have persuaded Dr. Meyer and Mr. Lucas to become servants of the society. This the petitioners were not prepared to do. The company, through the knowledge, the experience, the connections, the business ability and the energies of the petitioners, had built up a valuable goodwill in which the society shared and which there is no reason to think would not have been maintained, if not increased, with the co-operation of the society. The company was in substance, though not in law, a partnership consisting of the society, Dr. Meyer and Mr. Lucas. Whatever may be the other different legal consequences following on one or other of these forms of combination one result, in my opinion, followed in the present case from the method adopted, which is common to partnership, that there should be the utmost good faith between the constituent members. In partnership the position is clear. As stated in Lindley on Partnership, 11th ed., p. 401: "A partner cannot, without the consent of his copartners lawfully carry on for his own benefit, either openly or secretly, any business in rivalry with the firm to which he belongs." It may not be possible for the legal remedies that would follow in the case of a partnership to follow here, but the principle has, I think, valuable application to the circumstances of this case.

In these circumstances, I have no doubt the conduct of the

society was oppressive. The only question is: was it oppressive in the affairs of the company? At a previous stage of this case when relevancy was under consideration the late Lord President Cooper said⁵: "The truth is that, whenever a subsidiary is formed as in this case with an independent minority of shareholders, the parent company must, if it is engaged in the same class of business, accept as a result of having formed such a subsidiary an obligation so to conduct what are in a sense its own affairs as to deal fairly with its subsidiary." I would adopt this statement with this expansion, that conducting what are in a sense its own affairs may amount to misconducting the affairs of the subsidiary. It is difficult to say that misconduct in the affairs of the subsidiary is not conduct in the affairs of the subsidiary and that, I think, is what Lord Cooper had in mind. Misconduct in the affairs of a company may be passive conduct, neglect of its interests, concealment from the minority of knowledge that it is material for the company to know. That, in my opinion, is what happened here. Nor do I think what I have said is materially different from the views expressed by all their Lordships in the Court of Session. The Lord President considered⁶ that there was a policy by the society's nominees on the company's board of "uniform silence" in face of the progressive deterioration in the company's activities; of failure to disclose to the petitioners the explanation of the deterioration; unwillingness to encourage the company to seek other manufacturers, leading to the conclusion that the society was extending to the conduct of the affairs of the company the same policy that was being operated by the society itself. Lord Carmont considered that the society's nominees conducted the affairs of the company oppressively as from the time when being aware of the society's policy they continued to sit on the company's board and to control its affairs. "They could not," he says,⁷ "in the circumstance of their relation to the society be anything other than active, or at best passive, supporters of the society's policy when dealing with the company's affairs, and even their continuance in office as directors of the company put an obstacle in the way of the minority taking early and perhaps some timeous action to save the company, or at all events to maintain in whole or in part the value of the company's shares." Lord Russell held⁸ that they "acted in the interests of the society and against the

5 1954 S.C. 381, 391.

6 1957 S.C. 110, 136.

7 Ibid. 136.

8 Ibid. 145.

interests of the company by adopting a policy of masterly inactivity and allowing the company's trading activities to decline to vanishing point." Lord Sorn's view was⁹ that the society as majority shareholders controlling the company "made use of its control to ensure that the company remained passive under the attack and did not have an opportunity to struggle for its existence"; that they failed in their duty of raising "the question of looking for another source of supply as an urgent question of policy"; and that, when the policy of liquidation had been expressly approved by the society's board, "the nominee directors still did nothing and let the company drift towards the rocks."

My Lords, these views indicate that the conduct of the society on the company's affairs was negative conduct. That, in a sense, is true, for it is just the other side of the shield from that which displayed the society acting positively to destroy the company. But I cannot think that where directors, having power to do something to save a company, lie back and do nothing, they are not conducting the affairs of the company, perhaps foolishly, perhaps negligently, perhaps with some ulterior object in view. They are certainly conducting the affairs of the company in breach of their duty as directors. In the present case I would go further, for I think that the production of rayon cloth at the mill was an affair of the company and that the society being majority shareholder in the company cannot claim that in diverting this production to itself and obstructing supplies to the company it was acting for itself and not conducting the affairs of the company in a manner unfair and oppressive to the minority shareholders. It was said that the company should have secured its rayon cloth from the mill by a contract. But that is beside the point, looking to the special relationship between the company and the society. A partner who starts a business in competition with the business of the partnership without the knowledge and consent of his partners is acting contrary to the doctrine of utmost good faith between partners. He is also acting in a manner which, I think, may be regarded as oppressive to his partners for he is doing them an injury in their business. In the same way there was here, in my opinion, oppression by the society of the minority shareholders and it was, I consider, oppression in the conduct of the affairs of the company. Oppression under section 210 may take various forms. It suggests, to my mind, as

9 1957 S.C. 154-155.

I said in Elder v. Elder and Watson,¹⁰ a lack of probity and fair dealing in the affairs of a company to the prejudice of some portion of its members. The section introduces a wide power to the court to deal with such a situation in an equitable manner which it did not have in the case of a company prior to the passing of the Act of 1948. The court has here acted, in my opinion, within the powers conferred upon it.

It was said that appeal could not be made to section 210 unless the company had a continuing life ahead of it and here it was clear that the company would have to be wound up. But that means that if oppression is carried to the extent of destruction of the business of the company no recourse can be had to the remedies of the section. This would be to defeat the whole purpose of the section. The present position is due to the oppression and but for the oppression it must be assumed that the company would be an active and presumably flourishing concern. The section is, in my opinion, very apt to meet the situation which has arisen.

It was contended that the value of £3 15s. put upon the shares was excessive. I see no reason for altering this figure. Lord Sorn has, in my opinion, approached this matter on a correct principle, by considering what would have been the value of the shares at the commencement of the proceedings had it not been for the effect of the oppressive conduct of which complaint was made. This is clearly not a matter on which a calculation can be made with mathematical accuracy or by the application of strict accounting principles and the figure fixed by the court is well below the figure fixed by the auditors in February, 1952, and the price suggested by Dr. Meyer in February, 1953.

I would dismiss the appeal.

LORD DENNING. My Lords, I had myself prepared a summary of the material facts in this case but, in view of the comprehensive statement by my noble and learned friend, Lord Keith of Avonholm, I will not burden your Lordships with what I had written. I would only say that I am sorry that the events of 1952 were excluded as irrelevant. Dr. Meyer and Mr. Lucas from the very beginning put those events in the forefront of their complaints. They did so in the first letter of their solicitors dated February 19, 1953, and in the original petition lodged on July 14, 1953. The burden of their complaints was that, when

10 1952 S.C. 49, 60.

there was a recession in 1952 in the rayon trade, they - Dr. Meyer and Mr. Lucas - tried, on behalf of the textile company, to develop trade in other goods: particularly in the export of woollen materials to Germany (where they had valuable trade connections) and in a large export order for £60,000: but that they were thwarted in their efforts by the actions of two of the nominee directors, who tried to get the trade for the Scottish Co-operative Wholesale Society itself. Whether these complaints be true or not your Lordships cannot know - because these allegations were excluded from probation. But your Lordships have, I think, sufficient material to decide the case on the other facts which were proved.

The complaints which were established were, I think, these: The co-operative society set up a competing business. It established its own merchant converting department, engaged in the rayon trade itself, and quoted more favourable terms to its own department than it did to the textile company. It is said that the co-operative society did this with intent to injure the textile company - to depress the value of its shares so that the co-operative society could get them cheap - but I would not myself go as far as this. It seems to me that the co-operative society all the time was seeking to promote its own interests It was ready in 1946 to enlist the co-operation of Dr. Meyer and Mr. Lucas when they were useful to it - so as |o get an introduction into the rayon trade - but it was ready to throw them over when they were no longer useful. By which I mean that it was ready to withdraw all support from them. That was, I think, the state of mind of the co-operative society right from the moment in November, 1951, when Dr. Meyer and Mr. Lucas refused to realign the shares at par. At that time the rayon trade was in a recession and Dr. Meyer and Mr. Lucas were not of so much use to the society as they had been. By the time the rayon trade revived, the controls were off and the co-operative society was able to engage in rayon production itself - and it had no further need of Dr. Meyer and Mr. Lucas or of the textile company. It had its own department for rayon. So the textile company could go to the wall. It had "served its purpose" - or rather the purpose of the co-operative society - and could be let go into liquidation. The co-operative society had not the voting power to put it into voluntary liquidation. But liquidation might come about by sheer inanition. So it came about that, when Dr. Meyer and Mr. Lucas in January, 1953, offered to sell their shares to the co-operative society at a price to be negotiated (mentioning 96s.),

the co-operative society refused "at the present time." The co-operative society thought, perhaps, that if they waited, sooner or later liquidation would come about, or that terms of purchase would be arranged later more favourable to the co-operative society than paying 96s. a share.

Such being "the matters complained of" by Dr. Meyer and Mr. Lucas, it is said: "Those are all complaints about the conduct of the co-operative society. How do they touch the real issue - the manner in which the affairs of the textile company were being conducted?" The answer is, I think, by their impact on the nominee directors. It must be remembered that we are here concerned with the manner in which the affairs of the textile company were being conducted. That is, with the conduct of those in control of its affairs. They may be some of the directors themselves, or, behind them, a group of shareholders who nominate those directors or whose interests those directors serve. If those persons - the nominee directors or the shareholders behind them - conduct the affairs of the company in a manner oppressive to the other shareholders, the court can intervene to bring an end to the oppression.

What, then, is the position of the nominee directors here? Under the articles of association of the textile company the co-operative society was entitled to nominate three out of the five directors, and it did so. It nominated three of its own directors and they held office, as the articles said, "as nominees" of the co-operative society. These three were therefore at one and the same time directors of the co-operative society - being three out of 12 of that company - and also directors of the textile company - three out of five there. So long as the interests of all concerned were in harmony, there was no difficulty. The nominee directors could do their duty by both companies without embarrassment. But, so soon as the interests of the two companies were in conflict, the nominee directors were placed in an impossible position. Thus, when the realignment of shareholding was under discussion, the duty of the three directors to the textile company was to get the best possible price for any new issue of its shares (see per Lord Wright in Lowry v. Consolidated African Selection Trust Ltd.¹¹, whereas their duty to the co-operative society was to obtain the new shares at the lowest possible price - at par, if they could. Again, when the co-operative society determined to set up its own rayon department,

11 [1940] A.C. 648, 679; 56 T.L.R. 735; [1940] 2 All E.R. 545.

competing with the business of the textile company, the duty of the three directors to the textile company was to do their best to promote its business and to act with complete good faith towards it; and in consequence not to disclose their knowledge of its affairs to a competitor, and not even to work for a competitor, when to do so might operate to the disadvantage of the textile company (see Hivac Ltd. v. Park Royal Scientific Instruments Ltd.¹², whereas they were under the self-same duties to the co-operative society. It is plain that, in the circumstances, these three gentlemen could not do their duty by both companies, and they did not do so. They put their duty to the co-operative society above their duty to the textile company in this sense, at least, that they did nothing to defend the interests of the textile company against the conduct of the co-operative society. They probably thought that "as nominees" of the co-operative society their first duty was to the co-operative society. In this they were wrong. By subordinating the interests of the textile company to those of the co-operative society, they conducted the affairs of the textile company in a manner oppressive to the other shareholders.

It is said that these three directors were at most only guilty of inaction - of doing nothing to protect the textile company. But the affairs of a company can, in my opinion, be conducted oppressively by the directors doing nothing to defend its interests when they ought to do something - just as they can conduct its affairs oppressively by doing something injurious to its interests when they ought not to do it.

The question was asked: What could these directors have done? They could, I suggest, at least on behalf of the textile company, have protested against the conduct of the co-operative society. They could have protested against the setting up of a competing business. But then it was said: What good would that have done? Any protest by them would be sure to have been unavailing, seeing that they were in a minority on the board of the co-operative society. The answer is that no one knows whether it would have done any good. They never did protest. And it does not come well from their mouths to say it would have done no good, when they never put it to the test. See the decision of this House in Morison, Pollexfen & Blair Ltd. v. Walton,¹³ as described by Scrutton L.J. in Coldman v. Hill.¹⁴

12 [1946] Ch. 169; 62 T.L.R. 231; [1946] 1 All E.R. 350.

13 (1909) May 10 (unreported); see [1915] 1 K.B. 90.

14 [1919] 1 K.B. 443, 457; 35 T.L.R. 146.

Even if they had protested, it might have been a formal gesture, ostensibly correct, but not to be taken seriously.

Your Lordships were referred to Bell v. Lever Brothers Ltd.,¹⁵ where Lord Blanesburgh said that a director of one company was at liberty to become a director also of a rival company. That may have been so at that time. But it is at the risk now of an application under section 210 if he subordinates the interests of the one company to those of the other.

So I would hold that the affairs of the textile company were being conducted in a manner oppressive to Dr. Meyer and Mr. Lucas. The crucial date is, I think, the date on which the petition was lodged - July 14, 1953. If Dr. Meyer and Mr. Lucas had at that time lodged a petition to wind up the company compulsorily, the petition would undoubtedly have been granted. The facts would plainly justify such an order on the ground that it was "just and equitable" that the company should be wound up: see In re Yenidje Tobacco Co. Ltd.¹⁶ But such an order would unfairly prejudice Dr. Meyer and Mr. Lucas because they would only recover the break-up value of their shares. So instead of petitioning for a winding-up order, they seek to invoke the new remedy given by section 210 of the Companies Act, 1948. But what is the appropriate remedy? It was said that section 210 only applies as an alternative to winding up and that an order can only be made under section 210 if the company is fit to be kept alive: whereas in this case the business of the company was virtually at an end when the petition was lodged, and there was no point in keeping it alive. If the co-operative society were ordered, in these circumstances, to buy the shares of Dr. Meyer and Mr. Lucas, this would amount, it was said, to an award of damages for past misconduct - which is not the remedy envisaged by section 210.

Now, I quite agree that the words of the section do suggest that the legislature had in mind some remedy whereby the company, instead of being wound up, might continue to operate. But it would be wrong to infer therefrom that the remedy under section 210 is limited to cases where the company is still in active business. The object of the remedy is to bring "to an end the matters complained of," that is, the oppression, and this can be done even though the business of the company has been brought to a standstill. If a remedy is available when the

15 [1932] A.C. 161, 195; 48 T.L.R. 133.

16 [1916] 2 Ch. 426; 32 T.L.R. 709.

oppression is so moderate that it only inflicts wounds on the company, whilst leaving it active, so also it should be available when the oppression is so great as to put the company out of action altogether. Even though the oppressor by his oppression brings down the whole edifice - destroying the value of his own shares with those of everyone else - the injured shareholders have, I think, a remedy under section 210.

One of the most useful orders mentioned in the section - which will enable the court to do justice to the injured shareholders - is to order the oppressor to buy their shares at a fair price: and a fair price would be, I think, the value which the shares would have had at the date of the petition, if there had been no oppression. Once the oppressor has bought the shares, the company can survive. It can continue to operate. That is a matter for him. It is, no doubt, true that an order of this kind gives to the oppressed shareholders what is in effect money compensation for the injury done to them: but I see no objection to this. The section gives a large discretion to the court and it is well exercised in making an oppressor make compensation to those who have suffered at his hands.

True it is that in this, as in other respects, your Lordships are giving a liberal interpretation to section 210. But it is a new section designed to suppress an acknowledged mischief. When it comes before this House for the first time it is, I believe, in accordance with long precedent - and particularly with the resolution of all the judges in Heydon's case¹⁷ - that your Lordships should give such construction as shall advance the remedy. And that is what your Lordships do today.

I would dismiss the appeal.

Solicitors: Martin & Co. for Gray, Muirhead & Carmichael, W.S., Edinburgh, and Keyden, Strong & Co., Glasgow; Cole & Matthews for Kinnear & Beatson, W.S., Edinburgh, and Wilson, Chalmers & Hendry, Glasgow.

F. C.

17 (1584) 3 Co.Rep. 7a.