The Court of Appeal recently handed down a decision in respect of an unfair prejudice petition pursuant to Section 111 of the Bermuda Companies Act, 1981 (the “Act”) in which the Court of Appeal analysed the issue of whether a failure to negotiate with the minority shareholders amounts to unfairness or oppression under the unfair prejudice regime in Bermuda.

As the Court of Appeal pointed out, this is the first matter in Bermuda in which an unfair prejudice petition succeeded at trial. This forms an unusual context in which to consider the application of the unfair prejudice provision under the Act. This Court of Appeal decision is of particular significance for Hong Kong legal practitioners and senior management of listed companies given approximately 30% of the listed companies in Hong Kong are Bermuda incorporated.

The Petitioner, Annuity & Life Reassurance Ltd., a Bermuda company, together with its non-party parent, Pope Investments LLC, a Delaware company, owns an approximately 10% minority stake in Kingboard Copper Foil Limited (the “Company”). The complaints of the Petitioner are two-fold:

(a) The first limb of the complaint is that the Company has been selling its products to other companies within the Kingboard Group (i.e. the Appellants’ group of companies) at preferential rates, and thereby committing what was termed as “transfer pricing” or “preferential transfer pricing” (“Purported Transfer Pricing”). The Kingboard Group had always been the single largest customer of the Company.

(b) The sale of products by the Company to the Kingboard Group constituted “Interested Parties Transactions” which required independent shareholders’ annual approval in the Company’s annual general meetings under SGX listing rules. The Company had obtained such annual approval until the minority shareholders (particularly the Petitioner camp) vetoed it at the 2011 Annual General Meeting. Accordingly, the Company could no longer sell its products to the Kingboard Group, being its single largest customer. In response to this commercial crisis, a few months after the 2011 Annual General Meeting, the board of directors resolved to enter into a licencing agreement with a third party company, Harvest Resource Management Limited (the “Licence Agreement”) under which the Company licensed out its production line to the licensee in return for a fixed licence fee. The second limb of the complaint is that the Licence Agreement was essentially the means by which the Appellants circumvented the Petitioner’s (and other minority shareholders’) veto rights in respect of “Interested Parties Transaction” under the SGX listing rules.

(c) The First Instance Judge found that the Petitioner failed to establish the Purported Transfer Pricing complaint. There is no appeal from that finding. The focus of the appeal is on the Licence Agreement complaint.

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