Fulfilling Policyholders' Expectations
In Equitable Life Assurance Society v Hyman, the Court considered whether the Equitable Life Assurance Society is entitled to allocate different levels of bonuses between different classes of "with-profits" policyholders.
Between 1957 and 1988 the Society issued policies with guaranteed annuity rates (GAR), fixed at a level well below the then current rates. Since then, annuity rates had fallen considerably. By September 1998 the guaranteed rates in many of these older policies were about 25% higher than current annuity rates. The Society's method of honouring the GARs, without paying more to GAR policyholders than to other policyholders, was to adjust final bonus declarations to neutralize the effect of the higher GARs.
The Society applied to the Court for declarations as to whether it could award reduced bonuses or no bonuses at all to GAR policyholders. The defendant represented GAR policyholders.
The defendant argued that varying the amount of the final bonus would constitute a breach of contract. The Court rejected this argument, ruling that there was no contractual provision between the Society and policyholders to prevent an allotment of the final bonus being conditional on the form of benefits taken by a policyholder. The Society's articles of association permitted the directors a very wide discretion, sufficient to justify an apportionment of final bonuses conditional on whether or not a policyholder invoked the GAR.
The defendant further argued that GAR policyholders had a reasonable expectation that they would receive the same proportionate final bonus as other policyholders, and that the Society's directors had failed to take this reasonable expectation into account. The Court ruled that there was no such reasonable expectation. It was for the Society's directors, not the Court, to strike a balance between all the relevant factors to be taken into account. The manner in which the directors had exercized their wide discretion under the articles could not be said to have been irrational.
Declarations were made in favour of the Society. An appeal has, however, been lodged and is proceeding.
Excluding the right of set-off
In Sinochem International Oil v Mobil Sales and Supply Corp, The Court interpreted a clause which excluded set-off or counterclaim except in certain circumstances. The buyer admitted owing money to the seller but claimed to set-off sums allegedly due under three contracts made by the buyer's affiliate with the seller's affiliate. A clause in the contract between buyer and seller provided that: "all payments under this agreement shall be made without set-off or counterclaim ... except ... notwithstanding any other provisions of this or any other contract between the parties or their affiliates, in the event any party shall ... default in the payment or performance of any obligation to the other party under this or any other contract ... then ... the other party ... shall have the right ... to set-off, counterclaim or withhold payment.
The Judge ruled that for the purposes of this clause there had to be a default by one of the parties, not simply one of their affiliates in a separate contract with the other party's affiliates. To have allowed any affiliate cross-claim would have been incompatible with the general provision that no set-off was permitted.
Shareholders' remedies
A shareholder dissatisfied with the management of a company's business by its directors can bring "unfair prejudice" petition under section 459 Companies Act 1985. Under this procedure the shareholder asserts that the company's affairs are being conducted in a manner which is unfairly prejudicial to the interests of its shareholders generally or of some part of its shareholders. The shareholder often applies for an order for the purchase of their shares by the other shareholders or by the company itself.
Unfair prejudice petitions are often time consuming and expensive, particularly where a valuation of the shares is required. A recent case, however, shows how the courts are taking a different approach to such petitions under the new Civil Procedure Rules (CPR).
In North Holdings Ltd v Southern Tropics Ltd, a shareholder claiming unfair prejudice sought an order for purchase of his shares at a price decided by the Court. The defendants alleged that there were already provisions for a shareholder to have his shares purchased (and for a fair purchase price to be determined) in both a shareholders' agreement and in the company's articles of association.
In the Court of Appeal, Lord Justice Aldous commented on these provisions and their value in providing a "rough and ready" valuation which, while not as detailed as a valuation carried out before the Court, would be far quicker and cheaper. He said that the introduction of the CPR required a new approach to enable petitions to be dealt with efficiently and that ample use should be made of the power to require a joint expert or the appointment of an assessor.
The number of cases in which applications are made to strike out unfair prejudice petitions may well be substantially reduced as a result of this new approach. Parties will realise that in most cases the Court will direct them to an alternative procedure (such as the use of a joint expert or an assessor) or will require them to meet and narrow the issues in dispute. It will therefore be unwise to trouble the Court with a petition which might not succeed or, even if it did, would not save much expense. Shareholder disputes should be capable of being resolved more efficiently in future.