THE SUPREME COURT

Barrington J
Keane J
Murphy J

Record No: 1999 /6

IN THE MATTER OF FITZWILTON PUBLIC LTD COMPANY
AND IN THE MATTER OF THE COMPANIES ACT, 1963
AND IN THE MATTER OF SECTION 204 OF THE COMPANIES ACT, 1963

Between:

Neal Duggan
								Plaintiff/Appellant

AND

Stoneworth Investment Limited
								Defendant/Respondent

Judgment of Mr Justice Francis D Murphy delivered the 21st day of December 1999
_________________________________________________________________________

These proceedings raise questions as to the proper interpretation of s.204 of the Companies Act, 1963, and as to the right of the Defendant/Respondent, Stoneworth Investment Limited (Stoneworth) compulsorily to acquire the shares of the Plaintiff/Appellant (Mr Duggan) in Fitzwilton plc (Fitzwilton) in pursuance of the powers contained in that section.

W & HM Gouldings Ltd (Gouldings) was incorporated on the 26th January 1894.  In 1972 Gouldings changed its name to Fitzwilton plc.  At all material times the shares in that company, whether under the name Gouldings or Fitzwilton, were listed on the London and Dublin stock exchanges.

On the 26th May 1998 Solomon Smith Barney, acting on behalf of Stoneworth, made an offer to purchase the Ordinary shares in Fitzwilton at 50 pence per share and the Preference shares at £1.00 per share.  At the date of the offer the total issued share capital of Fitzwilton comprised 270,328,360 Ordinary shares of 25 pence each and 617,983 Cumulative Preference shares of £1.00 each.  Dr AJF O’Reilly and Mr PJ Goulandris or their immediate families were entitled to 75,513,465 of the Ordinary shares representing approximately 27.6% of the issued Ordinary share capital in Fitzwilton.  Mr Duggan was at the date of the offer a registered owner of ten Ordinary shares in Fitzwilton representing .0001% of the Ordinary share capital.  Stoneworth was at the relevant date a company incorporated in the British Virgin Islands and was owned by one or more companies the shares in which were held by Messrs O’Reilly, Goulandris and Glucksman.  Dr O’Reilly and Mr Goulandris were directors of Stoneworth.  In those circumstances the documentation accompanying the offer explained that Dr O’Reilly, Mr Goulandris and Mr Glucksman had taken no part in the deliberations of the directors of Fitzwilton in relation to the offer and that two further directors Mr JS McCarthy and Mr St J A O’Reilly had likewise withdrawn from discussions in relation thereof.  The remaining ten directors of Fitzwilton were described in the offer documentation  as “the independent directors”.

By notice dated the 4th August 1998 Stoneworth informed Mr Duggan that up to the 6th day of July 1998 the offer dated the 26th day of May 1998 for the Ordinary shares in Fitzwilton had become binding or was approved or accepted in respect of not less than four fifths in value of the share affected and Stoneworth thereby gave notice “in pursuance of the provisions of s.204(1) of the Companies Act 1963” that it desired to acquire the beneficial ownership of the Ordinary shares held by Mr Duggan in Fitzwilton.  Mr Duggan was further notified that unless on an application made by him to the Court on or before the 3rd day of September 1998 and that “the Court [thought] fit to order otherwise”  Stoneworth would be entitled and bound to acquire the beneficial ownership of the Ordinary shares in Fitzwilton held by Mr Duggan.  In correspondence with Messrs Matheson Ormsby & Prentice Mr Duggan established that on the 4th August 1998 the offer made for the Ordinary shares in Fitzwilton had been accepted by  47% in number of the Ordinary shareholders in Fitzwilton.

By a special summons dated the 28th August, 1998, and entitled “In the Matter of Fitzwilton Public Ltd Company and in the Matter of the Companies Act, 1963, and in the Matter of the Companies Act, 1963, and in the Matter of section 204 of the Companies Act, 1963”  Mr Duggan as Plaintiff sought as against the Defendant Stoneworth the relief following:-

“1	A declaration pursuant to Section 204 of the Companies Act, 1963 that the Defendant Company was neither entitled nor bound to acquire the shares of the Plaintiff in Fitzwilton Plc on the grounds that the offer made by the Defendant Company on the 26 May, 1998 for the ordinary shares of IR25p each in Fitzwilton Plc was neither approved nor accepted by not less than three quarters in number of the holders of the said ordinary shares.

2	An Order setting aside the said notice dated the 4 August 1998 from the Defendant Company to the Plaintiff on the grounds that the terms of the offer described in paragraph 1, above, were unfair and unreasonable and not supported by proper information or independent advice or professional valuation.”

The relief sought was refused by Mr Justice Kelly by the order made by him on the 30th November, 1998, for the reasons given in an ex tempore judgment of the same date.  It is from that order and judgment that Mr Duggan appeals to this Court.

The essence of the case made by Mr Duggan is summarised in paragraph 7 of his written statement of case which is expressed in the following terms:-

“In this case the bidding company, Stoneworth, did not own the shares in Fitzwilton but the persons who owned and controlled Stoneworth owned 27.6% of the shares in Fitzwilton.  Stoneworth, was their alter ego.  In these circumstances I submit to your Lordships that Section 204 should be given a teleological interpretation and applied in the same way as if Stoneworth had owned 27.6% of the shares of Fitzwilton at the time of the offer.  This may be done by tearing aside the corporate veil and treating Dr O’Reilly and Mr Goulandris as being identical with Stoneworth in construing the statute.  Stoneworth would not then have acquired the shareholding prescribed in subsection (2) as necessary to activate the compulsory acquisition provisions of the section.  Otherwise, the discretion vested in the Court under subsection (5) not to order a compulsory acquisition of the shares of the dissenting shareholders should be exercised because the majority of acceptances of the offer requisite to activate the compulsory acquisitions provisions of the section was achieved only by treating Dr O’Reilly and Mr Goulandris as separate and distinct from Stoneworth when this was a fiction that did not correspond to the commercial reality of the situation.”

In his written and oral submissions Mr Duggan emphasised that he was not contending that the shares held by Dr O’Reilly or Mr Goulandris were beneficially owned by Stoneworth.  He argued that s.204 aforesaid should be applied “as if” - and he emphasised those words - the shares so held had been beneficially owned by Stoneworth at the date of the offer.  

The material parts of s.204 of the 1963 Act are as follows:-

“(1)	Subject to subsection (2), where a scheme, contract or offer involving the acquisition by one company, whether a company within the meaning of this Act or not (in this section referred to as “the transferee company”) of the beneficial ownership of all the shares (other than shares already in the beneficial ownership of the transferee company) in the capital of another company, being a company within the meaning of this Act (in this section referred to as “the transferor company”) has become binding or been approved or accepted in respect of not less than four fifths in value of the shares affected not later than the date 4 months after publication generally to the holders of the shares affected of the terms of such scheme, contract or offer, the transferee company may at any time before the expiration of the period of 6 months next following such publication give notice in the prescribed manner to any dissenting shareholder that it desires to acquire the beneficial ownership of his shares, and when  such notice is given the transferee company shall, unless on an application made by the dissenting shareholder within one month from the date on which the notice was given, the court thinks fit to order otherwise, be entitled and bound to acquire the beneficial ownership of those shares on the terms on which under the scheme, contract or offer, the beneficial ownership of the shares in respect of which the scheme, contract or offer has become binding or been approved or accepted is to be acquired by the transferee company.

(2)	Where shares in the transferor company are, at the date of such publication, already in the beneficial ownership of the transferee company to a value greater than one-fifth of the aggregate value of those shares and the shares affected, subsection (1) shall not apply unless the assenting shareholders besides holding not less than four-fifths in value of the shares affected are not less than three-fourths in number of the holders of those shares.

(3)	For the purpose of this section, shares in the transferor company in the beneficial ownership of a subsidiary of the transferee company shall be deemed to be in the beneficial ownership of the transferee company, the acquisition of the beneficial ownership of shares in the transferor company by a subsidiary of the transferee company shall be deemed to be the acquisition of such  beneficial ownership by  the transferee company and shares shall not be treated as not being in the beneficial ownership of the transferee company merely by reason of the fact that those shares are or may become subject to a charge in favour of another person.

(4)  ....
(5)  ....
(6)  ....
(7)  ....

(8)	In this  section, “the shares affected” means the shares the acquisition of the beneficial ownership of which by the transferee company is involved in the scheme, contract or offer, “assenting shareholder” means a holder of any of the shares affected in respect of which the scheme, contract or offer has become binding or been approved or accepted and “dissenting shareholder” means a holder of any of the shares affected in respect of which the scheme, contract or offer has not become binding or been approved or accepted or who has failed or refused to transfer his shares in accordance with the scheme, contract or offer.

(9)  	  ....
(10)	  ....
(11)	  ....
(12)	  ....
(13)	  ....

Subsection (4) relates to the right of a shareholder to compel the transferee company to acquire the shares held by him in the transferor company:  subsections (5), (6) and (7) deal with the machinery by which a take over bid is enforced;  subsections (9), (10) and (11) relate to matters of procedure or detail and subsections (12) and (13) relate to bids made pursuant to the Companies Act, 1959.

In his written submissions to the Court Mr Duggan referred to the exercise by the Court “of its discretion under s.204 (5) to prevent the compulsory acquisition of the shares held by dissenting shareholders”.  That reference to subsection 5 is clearly erroneous.  The discretion to which he refers is conferred upon the Court by subsection 1 of s.204 which in dealing with the right of a transferee company to acquire the shares of the dissenting shareholder provide that the right to such acquisition shall not arise where “the Court thinks fit to order otherwise”.  However, this mistaken reference does not affect the substance of the argument made by the Appellant.

There are two Irish decisions (McCormick .v. Cameo Investments Ltd [1978] ILRM 191 and Securities Trust Ltd .v. Associated Properties Ltd, Unreported, High Court, McWilliam J,  19th November, 1980) which provide considerable assistance in the interpretation of s.204 but it was to cases decided or arising in other common law jurisdictions that the attention of the Court was drawn.  Mr Duggan placed reliance upon the decision of the Court of Appeal in England in In re Bugle Press Ltd [1961] 1 Ch 270 and the decision of the Supreme Court of Canada in Esso Standard (Inter-America) Inc .v. J W Enterprises Inc (1963) 37 DLR (2d) 598 whilst Stoneworth relied upon a decision of the South African Courts (Appellate Division) in Sammel & Ors .v President Brand Gold Mining Co Ltd  [1969] 3 SALR 269 and reference was also made to Blue Metal Industries Ltd .v. Dilley [1970] AC 827 - a decision of the Privy Council on appeal from the High Court of Australia.  The decision of the Court of Appeal in Bugle was referred to and discussed in both of the Irish decisions and all of the other decisions to which I have referred.  The judgment in that case has given rise to much comment and some confusion.  The facts were simple.  There were three shareholders in Bugle Press Ltd.  Two of them, Messrs Jackson and Shaw held between them 90% of the issued share capital in the company.  They procured the incorporation of a company, Jackson & Shaw (Holdings) Ltd which made an offer pursuant to the provisions of s.209 of the UK Companies Act, 1948, for the purchase of the entire issued share capital in Bugle.  The price of £10 per share was based on a valuation made by independent valuers.  When Jackson & Shaw (Holdings) Ltd sought to compel the minority shareholder to transfer his shares in Bugle Press Ltd to it in accordance with the provisions of s.209 aforesaid the minority shareholder, invoking similar provisions to those contained in s.204 of the 1963 Act, sought a declaration that the Court should “order otherwise”.  Buckley J in the High Court and all of the Judges of the Court of Appeal, but particularly Harman LJ, were critical of the procedure adopted by the majority shareholders to expropriate the minority share holding.  Harman LJ described the procedure in the following terms:-

“.... the transferee company is nothing but a little hut built round his two co-shareholders, and that the so-called scheme was made by themselves as directors of that company with themselves as shareholders and the whole thing, therefore, is seen to be a hollow sham.”

In  his decision in the first instance Buckley J had referred to the substance of the transaction in the following terms:-

“.... although as a matter of law the body making the offer must be regarded as distinct from the persons who hold shares in that body, nevertheless, as a matter of substance the persons who are putting forward this offer are the majority shareholders, the only two shareholders in the transferee company, and they are the holders of the 90 per cent majority share holding, whose acceptance of that offer it is  suggested binds the dissenting shareholder also to accept the offer.”

In delivering the judgment of the Supreme Court of Canada in the Esso Standard case Judson J did repeat with apparent approval some of the expressions used in the Bugle case.  In particular Judson J agreed with the summary that the transaction of the Bugle case was a “sham” with a foregone conclusion.

It is, however, important to identify the basis on which the Bugle case was decided.  Having reviewed the facts of the case Buckley J dealt with the onus of proof (at page 277) in the following terms:-

“In a case of this kind it seems to me that the onus must clearly be on the other side, and it must be incumbent on the majority shareholders to satisfy the court that the scheme is one with which the minority shareholder ought reasonably to be compelled to fall in.”

He then went on  to consider the nature of the evidence provided as to the valuation of the shares.  He pointed out that no affidavit had been filed by the transferee company substantiating that valuation and accordingly it was not possible for the applicant to explore the valuations which he sought to challenge.  In those circumstances the learned Judge concluded (at page 278) as follows:-

“In my view, therefore, the onus which I consider rests on the transferee company has not been discharged, and having regard to the unusual nature of this case - unusual in the sense that the 90 per cent majority shareholders are, themselves, in substance the transferee company - I think this is certainly a case in which the court ought to ‘order otherwise’ within the meaning  of the section.  In my judgment, the applicant ought not to be compelled to sell his shares at the proposed price in these circumstances.”

It is then important to note that the Master of the Rolls quoted that conclusion and rested his decision thereon.  Again, whilst Harman LJ spoke scathingly of the scheme devised by the majority shareholders, the conclusion which he reached supported that of Lord Evershed and was expressed in the following terms:-

“It was then for the transferee company to show that nevertheless there was some good reason why the scheme should be allowed go on.  The transferee company, whether because the two members did not wish to go into the witness box and be cross-examined or for some other reason, did not file any evidence at all; they merely purported to rely on a copy of a valuation said to have been made on their behalf by a firm of chartered accountants.  That valuation was not sworn to, nobody was able to cross-examine the authors of it and there is in my judgment no case [to] answer.  The minority shareholder has nothing to knock down; he has only to shout and the walls of Jericho fall flat.”

The Esso case concerned the interpretation and application of the take over provisions contained in s.128 (1) of the Canadian Companies Act, 1952.  Esso Standard made an offer to purchase the entire issued share capital in International Petroleum Company.  Ninety-six per cent of the outstanding shares of International Petroleum were held by the parent company of Esso Standard and it indicated its intention to accept the offer made for the purchase of its share holding.  In those circumstances the outcome of the bid was undoubtedly a foregone conclusion.  Judson J expressed his opinion thereon (at page 604) in the following terms:-

“We have here 90% ownership in Standard Oil Company (New Jersey).  The promoting force throughout is obviously that of Standard Oil and not its subsidiary.  A transfer of shares from Standard Oil to Esso Standard is meaningless in these circumstances as affording any indication of a transaction which the Court ought to approve as representing the wishes of 90% of the shareholders.  This 90% is not independent.  On this ground alone I would reject the appeal and hold that the section contemplates the acquisition of 90% of the total issued shares of the class affected and that this 90% must be independently held.”

If the phrase “and that this 90% must be independently held” with which that quotation concludes was intended to convey or reinforce what Judson J had previously said as to the value of a transfer between closely related companies as an indication of the propriety of the transaction,  I would respectfully agree with it.  If, on the other hand, the learned Judge was deciding that the section did not apply where the majority of the shares in respect of which the offer was made were held by a company associated with the transferee company I would not accept that it is a proper interpretation of s.204 of the Irish Act nor does it accord, in my view, with the judgments in the Bugle case.  That construction, however, may be appropriate to the Canadian statute which did not contain the same form of exclusionary provision as is contained in the Irish Act or UK legislation on which it was based.  
The South African case of Sammel & Ors .v. President Brand Gold Mining Co Ltd (above) is perhaps more helpful in as much as the relevant take-over provision under consideration in that case -  s.103 of their Companies Act of 1926 (as amended) -  in its operative provision, that is to say, subsection 1 of s.103 was identical with subsection 1 of s.209 of the UK Companies Act, 1948, and indeed subsection 1 of s.8 of the Irish Companies Act of 1958.  The particular issue in relation to the interpretation of s.103 of the South African Act arose in a complicated set of circumstances but the point with which the Court was concerned arose from the fact that prior to the making of a take-over bid the transferee had secured the agreement of a number of shareholders in the transferor company to the intended bid and the question was whether the shareholders who had so committed themselves should be included in calculating the nine-tenths majority required by the section.  The judgment of the Court delivered by Trollip JA on that issue is set out at page 668 of the report but is helpfully and correctly summarised in the head note to the judgment in the following terms:-

“Section 103 of the Act does not require for its applicability that the holders of the nine-tenths majority of countable shares must be independent of or disinterested in the transferee company.  If such a majority does accept a take-over made in pursuance of a scheme of a scheme or contract the existence of any connection, interest or dependence between that majority and the transferee company is merely a factor to be taken into account by the Court in exercising its discretion under the section, the weight to be given to it depending upon the circumstances of each case.”

The South African Appellate Court rejected the argument of Counsel for the Appellant which she, like Mr Duggan in the present appeal, had based on the rationale of the section and the mischief which it was intended to correct.  The Court held that the clear words of the section did not permit an interpretation on that basis.  In my view the passage quoted from the head note to the South African case represents a  correct statement of the law as to the proper interpretation of s.204 (1) of the 1963 Act.

The significance of the Australian case - Blue Metal Industries Ltd .v. Dilley (above) - is that the Privy Council, affirming the decision of the High Court of Australia, did adopt a purposive  interpretation to s.185 of the Companies Act, 1961 (NLW).  But the extent to which this was done and the reason for doing so are significant.  The issue in that case was whether the words in the Australian legislation, like those in the Irish legislation, describing the transferee company in the singular appeared to limit the application of the legislation to a case in which the bid was made by one company and did not extend to a case where the bid was made by a consortium.  There was a tension, if not a conflict, between the emphasis which s.185 placed on the singular where it spoke of the “transferor company” and “the transferee company” on the one hand and s.21 of the Interpretation Act, 1899 (NSW), which provided that in all Acts, unless the contrary intention appeared, words in the singular should include the plural and words in the plural should include the singular.  The Court in Australia and the Privy Council (on appeal) concluded in those circumstances that it was appropriate to consider s.185 in its setting in the legislation and indeed to consider the purpose, tenor and policy of the section.  However, this purposive approach was undertaken to resolve a conflict between the New South Wales Interpretation Act and the actual terms of s.185 of the Companies Act.

In my view there is no ambiguity in the interpretation of the exclusionary provisions of subsections 1 and 2 of s.204 of the 1963 Act nor was there any such ambiguity in relation to the comparable provisions contained in s.8 of the Companies Act, 1959.  The legislature determined clearly and unequivocally to apply the relevant subsections to the beneficial ownership of shares of the transferor company other than shares “already in the beneficial ownership of the transferee company”.  Subsection 3 extended that exclusion by providing that shares in the beneficial ownership of a subsidiary of the transferee company should be deemed to be in the beneficial ownership of the transferee company itself.  It is curious, as Mr Lyndon McCann pointed out at page 201 of his book on the “Companies Acts, 1963-1990” that the deeming provisions were not extended to the case where shares in the transferor company were held by a holding company of the transferee company.  However, it is the very fact that the particular exclusionary provisions are expressed to relate to shares in the beneficial ownership of the transferee company and that the legislature consciously extended that exclusion to capture only shares in a subsidiary which makes it impossible to infer an intention to exclude other categories of share holdings.  Moreover,  the legislature must have addressed very consciously the particular terms in which the excluded share holdings were described.  Those terms differ significantly from the comparable provisions contained in s.8 of the Companies Act which had been enacted only four years earlier.  Furthermore even if s.204 expressly provided or this Court were, contrary to my views, to infer that shares in the holding company were deemed to be in the beneficial ownership of its subsidiary, that would not carry the Appellant in the present case.  The 27% of the Ordinary shares which he asks the Court to treat “as if” they were in the beneficial ownership of the transferee company were not held by its holding company but by the shareholders therein.  It is clear that the shares in question are not in the beneficial ownership of Stoneworth as a matter of fact or law.  It is equally clear that they are not deemed by the provisions of s.204 to be in the beneficial ownership of Stoneworth.  In those circumstances I can see no basis on which the Court would be justified for the purposes of subsections 1 or 2 of s.204 as treating those shares “as if” they were in that ownership.

On the other hand there can be no doubt that Mr Duggan was entitled as a dissenting shareholder in Fitzwilton to apply to the High Court and to submit that it should exercise its discretion “to order otherwise”.  In general, the onus falls on a dissenting shareholder in making such an application to satisfy the Court that it is an appropriate case in which to make such an order (see McCormick .v. Cameo Investments above).  Furthermore, it is reasonable as a matter of fact and established as a matter of law (see Securities Trust Ltd .v. Associated Properties Ltd above) that the Court should pay great attention to the views of the majority who have accepted the bid.  

The Court of Appeal in England in the Bugle case held that the fact that the promoters of the transferee company held 90% of the shares in the transferor company shifted the onus from the Applicant to the Respondents.  A 27% share holding would not necessarily have the same effect.  On the other hand, it would clearly follow that the acceptance of an offer by shareholders in the transferor company who were also associated directly or indirectly with the transferee company would not carry the same weight or influence as acceptance by shareholders wholly independent of the transferee company.  In the present case the learned Judge of the High Court adopted the prudent course of assuming - without deciding - that the onus lay on the Respondents to prove that the offer made was a fair one and that the Court should not exercise its discretion by “ordering otherwise”.  
Indisputable facts relating to the bid included the following:-

1	The offer was accepted by the overwhelming majority of shareholders.

2	The acceptances included all of the major institutional and all of the substantial 			shareholders in the transferor company.

3	The bankers, Deutsche Morgan Grenfel, advised the independent directors that the 			offer was fair and reasonable.

4	NCB Stockbrokers likewise expressed the opinion that the offer was “full and fair”.

5	The independent directors, whose independence had been scrutinised by the 			Take-over panel, unanimously recommended and accepted the offer in respect of the 	shares held by them.

6	Perhaps most important in relation to the offer price was the fact that it reflected a 			very significant premium over the then market price.

7	The objections of Mr Duggan to the bid were investigated by the Take-over panel 			and rejected.

8	The involvement of the O’Reilly Group in the transferee company was clearly and 		fully disclosed in all of the offer documentation.

9	That Mr Duggan held a mere 10 Ordinary shares in Fitzwilton representing .001% of that share capital.

Having regard to these facts the learned trial Judge was entitled to exercise his discretion by refusing “to order otherwise” and in my opinion was correct in so refusing.  Accordingly, I would dismiss the appeal.