Protection of Foreign Shareholders’ Investments – Where is the Regulation?

In recent judgments the Court of Civil Appeal has ruled against foreign Shareholders being afforded protection under the Companies Act in Mauritius and has overturned the UK House of Lords ruling on directors’ dereliction from duty.

In the case of a British investor and Shareholder of Mordaunt Estates Ltd the Shareholder sought protection of the Supreme Court when he found that the Company had registered an amended company Constitution without his consent which diluted his 50% shareholding to virtually nothing. The Company refused to restore the original Constitution and refused to make payments due to him under unanimous shareholders resolutions so he sought the protection of the Supreme Court.

No Right for Shareholders to be heard
At the hearing on 1st September 2014, the Supreme Court of Civil Appeal refused to allow the Shareholder to submit his appeal case at all, no explanation was given by the bench! Instead the Court went on to hear the Respondent Company’s lawyers ONLY and concluded some important precedents from this unusual approach to ‘justice’.

Prejudice to Shareholders
The Companies Act has provisions at s178 for prejudiced shareholders to ask the Supreme Court for a wide range of remedies but the Court ruled in this case that Claimant should have claimed for breach of contract as between the shareholders and the Company. What is unclear from the ruling is why a breach of contract is not considered itself to be a prejudicial act for which the shareholder may claim protection. More importantly, the question remains to be answered; why are the judges reluctant to give the claimant any legal remedy when the judges have recognised the inequity?

Unlawful Directors and Their Acts Condoned
In the pleadings, the shareholders had drawn the court’s attention to the fact that, not only had the Company diluted shares by filing a new Constitution without the shareholders consent but also the persons who had done this were not directors. Furthermore that the Lawyers present in Court were had not been lawfully appointed by the Company! The fact was established earlier in proceedings that the appointment of the directors of the Company was void under the Companies Act s137 but the Company was claiming the protection of the Turquand Rule enacted under s141, which usually protects third parties from the acts of persons purporting to be directors of a company. In what must be considered another landmark ruling the Hon. Chief Justice and Hon. Chong J. ruled that even when the purported directors are aware that they have not been lawfully appointed under the Companies Act, the court will uphold their actions, even including to the point of those purported directors being allowed to dilute shares and prejudice shareholders.

House of Lords Ruling Overturned
Without any explanation being given, the Court overturned the ruling in Kanssen (1946) in which the House of Lords had stated that “It is the duty of directors, and equally of those who purport to act as directors, to look after the affairs of the company, to see that it acts within its powers and that its transactions are regular and orderly. To admit in their favour a presumption that that is rightly done which they have themselves wrongly done is to encourage ignorance and condone dereliction from duty”
It is to be noted that the husband of the Registrar of Companies has been paid over £1m by Mordaunt Estates to defend the conduct of the Company. Amba Chinien, 50% owner of the law firm C&A Law representing Mordaunt Estates Ltd was convicted of illegal currency dealing in connection with drugs trafficking, a conviction that was upheld at appeal by the Privy Council in 1993.

Where does this leave foreign shareholders and foreign investment in the future? Despite the already flagging rhetoric, of “Transparency” score which has fallen from 57 to 54 and “Rule of Law” score which has fallen from 86 to 84 in the past 2 years, the most disappointing element of this case is that it brings into question whether a shareholder can rely on the rule of law being applied by the Mauritian Courts. The rulings can only undermine international investment confidence in corporate regulation and will do nothing to restore the falling FDI in Mauritius.

Posted by on Jan 26 2015. Filed under Actualités, Faits Divers, Featured. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry

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