Minority Oppression and Awarding Costs:  Lessons from the Court of Appeal

PUBLISHED: 2nd November 2022

A recent decision of the Court of Appeal showcases the potential of section 212 of the Companies Act 2014, which provides for remedies for shareholders in cases of oppression, upon application to the court. 

This judgment sets out the circumstances in which a court will make an order for a minority shareholder to purchase the shares of a majority shareholders in a company.  In addition, the court found that section 212 proceedings can be brought against individuals who are not officially directors or shareholders of company, which is a truly novel consideration for the purposes of section 212. 

Separately, the court also considered section 169 of the Legal Services Regulation Act 2015. It relates to orders for costs, and particularly that parties must conduct proceedings in the most cost-effective way possible and be willing to engage in mediation or other forms of alternative dispute resolution.   These considerations have implications for all parties to civil proceedings.

Mascarenhas v Karim & Anor [2022] IECA 48

The facts of this case involved an English language school in Dublin founded by a married couple, Ms Sultana and Mr Karim, who were not involved in the daily affairs of the business.  Ms Sultana was a majority shareholder in the business, while Mr Karim was neither a shareholder nor a director.  The day-to-day running of the business was conducted by Mr Mascarenhas who was a director and held a minority shareholding in the business.  A dispute arose between the parties concerning the abuse of the company finances by Mr Karim. 

The dispute came before the High Court where Mr Mascarenhas argued that Mr Karim was a beneficial shareholder for the purposes of section 212, whereby a member of a company claims that the affairs of the company are being conducted, or the powers of the directors are exercised, in a manner oppressive to him or in disregard of his interests.  The High Court ruled that Mr Karim was the beneficial owner of his wife’s shares, and consequently, relief was granted to Mr Mascarenhas against the oppressive conduct complained of, and Mr Mascarenhas was granted the right to acquire the respondents’ shares in the company.

The case was appealed to the Court of Appeal.  The High Court’s decision was upheld, except in relation to the High Court’s finding that Mr Karim was the beneficial owner of his wife’s shares.  The Court of Appeal went on to affirm that notwithstanding the fact that it was not established that Mr Karim was the beneficial owner of his wife’s shares, he had acted in a manner oppressive to the applicant and was the husband of the respondent shareholder (Ms Sultana) who had acquiesced in such oppressive action.

Thoughts

The judgment unequivocally reaffirms the test that is applied and the approach that is taken by the court in proceedings under section 212 of the Companies Act 2014 -- reaffirming the type of behaviour that will amount to oppressive conduct justifying an order of relief being awarded.   But the scope of section 212 has been extended beyond shareholders and directors and will apply to individuals who directly or indirectly influence the affairs of a company.  In a wider context this case may have a far-reaching impact on individuals who exert influence over the affairs of a company, but who do not hold shares or any formal position in the company.  Such persons will not be sheltered from the impact of section 212 proceedings. 

In relation to costs, it is clear that it no longer follows from section 169 of the Legal Services Regulation Act 2015 that a party is automatically entitled to an award for the entire amount of the costs, as the award may be reduced proportionately according to the conduct of the party in the proceedings.  However, the key concern in respect of section 169 will involve consideration by the court whether the parties conducted the proceedings in the most cost-effective manner possible, which will involve a consideration of the willingness of the parties to engage in mediation. 

For further information please contact Eamon Jones or Clare Dowling.