Sm Life Ventures Llc Claimant v (1) Susan Morrice (2) Tony Quinn (3) International Natural Energy Llc (4) Belize Natural Energy Ltd Defendants
|Saint Kitts and Nevis
|High Court (Saint Kitts and Nevis)
|16 July 2012
|Judgment citation (vLex)
| ECSC J0716-2
|Claim No: NEVHC 2011/0162
|16 July 2012
THE EASTERN CARIBBEAN SUPREME COURT IN THE HIGH COURT OF JUSTICE
Claim No: NEVHC 2011/0162
(Nevis Limited Liability Company Ordinance 1995 ('NLLCO')— allegations by minority shareholder of unfairly prejudicial conduct on the part of the majority — whether majority guilty of unfairly prejudicial conduct — whether Court has power under the NLLCO to order company to purchase oppressed member's shares — section 40 of the NLLCO considered — whether Court has power under NLLCO to order majority to purchase oppressed member's shares — section 52 of NLLCO (Court's power to order dissolution) considered — whether dissolution to be ordered — whether unrepresented members to be given opportunity to be heard on question of dissolution)
The Claimant in this case ('SM Life') is a member of a company called International Natural Energy LLC ('INE'). INE was incorporated in Nevis under the Nevis Limited Liability Companies Ordinanceof 1995 ('the NLLCO') on 7 August 2002. Its principal purpose was to hold the shares of a Belize registered company called Belize Natural Energy Limited ('BNE'), which had been incorporated in Belize a little earlier with the object of exploring for oil in Belize and, if oil was found, extracting and selling it.
To industry surprise BNE struck oil (it was the first company to do so) in Belize in 2005 and began to sell it in January 2006. It has been astonishingly successful.
INE's history has been attended, since the discovery of oil, by dissension and the present dispute is in essence a claim by SM Life against two other members of INE for a remedy to compensate it for unfair prejudice which it is alleged to have suffered in the conduct of INE's affairs since about 2006. There are other subsidiary claims but before I can turn to the factual issues which arise I must first explain the constitution of INE and the contractual obligations which arise from its corporate regulations.
INE's capital structure was set out in a document called an Operating Agreement dated as of 15 August 2002 and expressed to be effective as of 2 January 2003. Under the NLLCO the Operating Agreement1 performs a function similar to that of the Articles of Association of limited companies incorporated under legislation modeled upon nineteenth century English companies legislation. Under its Operating Agreement INE's capital was divided into three classes of 'membership interests.' For short, I shall refer to these interests as shares. INE's initial authorized capital consisted of 32,000 Class A shares with a par value of US$150 each and 63,000 Class B shares with a par value of US$150 each.2 The holders of each class of issued share are referred to as Class A and Class B members respectively. The Operating Agreement designated five individuals as 'Originators.' They were, in the order in which the Operating Agreement lists them, the first Defendant, Susan Morrice ('Ms Morrice'), a petroleum geologist then married to Alex Cranberg, a mining engineer ('Mr Cranberg'); a mining engineer called Jean Cornec ('Mr Cornec'); Sheila McCaffrey, the sole owner of SM Life ('Ms McCaffrey); an oil drilling engineer named Paul Marriott ('Mr Marriott'); and a Belizian seismic surveyor, Michael Usher ('Mr Usher'). It is common ground that each of these individuals (other than Ms McCaffrey and Mr Marriott) was issued with an equal number of Class A shares.3 Ms McCaffrey's entitlement was issued at her direction to SM Life and Mr Marriott's to a family company called Maranco LLC ('Maranco'). The Class A shares were issued without the parties having entered into contracts of allotment, so that the shares were issued for no stipulated consideration, although it is equally the case that the first five class Amembers (or their representatives in the case of SM Life and Maranco) gave liberally of their unpaid4 efforts in driving the project forward and realising the aim of discovering oil.
Clause 6.01 of the Operating Agreement provided that INE's board of directors was limited to ten members. INE's initial board was to consist of the five Originators. Each Originator was to retain a permanent seat on the board and could not be removed, whether for cause or at all. Clause 10.03 provided for suitably qualified Class B members to be appointed to the board. No Class B member has been so appointed and there is no evidence that any has ever become entitled to be so appointed. Clause 10.03 also provided for other persons to be elected to the board by a majority of members entitled to vote, subject to the ten person limit. No additional director has even been elected pursuant to the provisions of clause 10.03.
Clause 6.03 of the Operating Agreement provided that a vacancy among the elected members of the board occurring for any reason other than an increase in the number of directors might be filled by a majority of directors or by the members. Since no one has ever beenelected to the board this power to fill vacancies has never arisen. Had it done so, the person so appointed would have held office only until the next following annual meeting of the members. Clause 6.03 further provided that a vacancy occurring among the original permanent members of the board was to be filled by the former permanent member's Successor in Interest, executor, administrator or personal representative. It was under this provision that Patricia Usher ('Mrs Usher') subsequently succeeded to a seat on the board following the death of her husband in 2004.
Clause 6.04 provided for the removal of elected board members. There are no provisions for the resignation or removal of Originator directors.
Clause 9.01 provided for INE to hold Annual General Meetings at a time and place to be appointed by the board. Clause 9.09 provided that action required to be taken at a meeting of members could be taken without a meeting provided each member entitled to vote signed a written consent or consents in that regard.
Clause 10.01 dealt with voting. Class A members have two votes (described as 'voting units') for each percentage point of the total of all issued shares held by the class A member and Class B members have one vote (or voting unit) for each percentage point of the total issued shares held by the Class B member.
Clause 12 provided for distributions to be made at the sole discretion of the board. No dividends have ever been declared or paid. Clause 12.02 provided for the profits and losses of INE to be allocated for each fiscal year in proportion to shares held by the respective members. There is no evidence that this has ever been done.
Clause 13 dealt with transfers. Members might transfer their shares freely to other members. Otherwise, and ignoring details, the Operating Agreement provided for the member wishing todispose of shares to negotiate, first, for their purchase by the company and if that cannot be agreed, then at the same price by the remaining members. Only if that process breaks down is the selling member free to sell to third parties, but on no less favourable terms than those that had been offered to the company. INE is not obliged to purchase the shares of any member and may not do so unless a majority of the other members agree that it should.5
Clause 13.07 provided that with the written consent of Members holding two thirds of the outstanding voting units a person might become an Additional Member of the company in consideration of such capital contribution as the members should determine. A capital contribution is defined as any contribution to the capital of the company in cash, property, services rendered or a promissory note or other binding obligation to contribute cash, property or to perform services, whenever made.6 A member so admitted is not entitled to share in any income or gain accruing to the company before the date of his admission. In other words, the existing entitlement of the previous membership to their allocations of income and capital is not to be disturbed in consequence of the admission of an Additional Member.
Clause 14 provided for dissolution and winding up. The company must be dissolved (a) upon a written determination binding two thirds of all voting units; (b) upon the sale or transfer of substantially all of the assets of the company; (c) upon the insolvency, as defined, of the company; or (d) as otherwise required by Nevis law. Other than the power of the High Court in Nevis pursuant to section 52 of the NLLCO to dissolve the company if it becomes impracticable for it to carry on its business in accordance with its operating agreement, no provision of Nevis law that might require the company to be dissolved was identified at trial.
Finally, I should mention that by clause 16.04 it was provided that the Operating Agreement might be amended upon the making of a proposal for amendment either by the board or by persons holding twenty five per cent of all voting units to the membership. It was a requirement of the Operating Agreement that a vote upon such a proposal must be taken within a thirty day period following notice of the proposal (unless extended as provided by the Operating Agreement). The amendment took effect once it had been approved by a bare majority of voting units entitled to be voted.
Such was the constitutional structure under which INE commenced its operations.
In the prayer to its so-called fresh as amended claim form, served only days before trial, SM Life claims a bewildering assortment of twenty two heads of relief, including claims for damages under each of the known economic torts; or alternatively permission to bring a derivative claim in thename of...
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