TRINIDAD AND TOBAGO
IN THE HIGH COURT OF JUSTICE
HCA NO. 3015 of 2000/CV2006-00099
IN THE MATTER OF DEMERARA LIFE ASSURANCE
COMPANY LIMITED
AND
IN THE MATTER OF THE COMPANIES ACT 1995
BETWEEN
DEMERARA HOLDINGS LIMITED
BERTRAND DOYLE
HAROLD RUSSELL
GERVAIS de MATAS
Plaintiffs
AND
DEMERARA LIFE ASSURANCE COMPANY OF
TRINIDAD AND TOBAGO LIMITED
MEGA INSURANCE COMPANY LIMITED
WILBERT WINCHESTER
PETER GILLETTE
CYRIL GILL
Defendants
Before the Honourable Justice P. Moosai
Page 1 of 53
APPEARANCES:
Dr. Claude Denbow SC leading Mrs. Donna Denbow instructed by Mr. Raymond Sowley
for the Plaintiffs.
Mr. Avory Sinanan SC leading Ms. Linda Rajpaul instructed by B.D Hewitt & Company
for First Defendant.
Mr. Alvin Fitzpatrick SC leading Mr. Bronnock Reid instructed by Messrs. J D Sellier &
Co. for the Second, Third, Fourth and Fifth Defendants.
JUDGMENT
1. Introduction
1.
This is an oppression action. By a Merger Agreement dated November 17, 1995 two life
insurance companies, Demerara Life Assurance Company of Trinidad and Tobago Limited
(Demerara Life), and GTM Life Insurance Company of Trinidad and Tobago (GTM Life) which
subsequently changed its name to Mega Insurance Company Limited (Mega Insurance), agreed
to merge their life insurance portfolios. The primary purpose of entering into such an agreement
was to ensure the long-term viability of both Demerara Life and Mega Insurance. Demerara
Holdings Limited (Demerara Holdings), as trustee for a block of policyholders of Demerara Life,
commenced proceedings to set aside the Merger Agreement on the grounds that the merger
would be oppressive or unfairly prejudicial to or in unfair disregard of the interests of the
policyholders of Demerara Life within the meaning of section 242 of the Companies Act. Thus
the essential question arising for determination is whether the court would set aside the Merger
Agreement on the grounds aforesaid.
Page 2 of 53
2. The claim
2.
The Plaintiffs commenced this action by way of an Originating Summons filed on
December 1, 2000. Their respective claims are as follows:
(a)
The First Plaintiff, for relief pursuant to the provisions of sections 242
and 250 of the Companies Act, under which the First Plaintiff complains
that the business or affairs of the First and Second Defendants, as
affiliated companies, have been and are being carried on or conducted
and are destined to be carried on or conducted, and the powers of the
Third, Fourth and Fifth Defendants as directors of both companies have
been exercised, in a manner that is oppressive or unfairly prejudicial to
or unfairly disregards its interests as a former shareholder of the First
Defendant and a shareholder of the Second Defendant and the interests
of the holders of life policies issued by the First Defendant for whom it
acts as trustee.
(b)
The Second and Third Plaintiffs, in their capacity as Directors of the
First Plaintiff and as former directors of the First Defendant, and the
Fourth Plaintiff as director of the First Plaintiff and an officer of the First
Defendant, for relief pursuant to the provisions of section 242 and 250 of
the Companies Act under which these Plaintiffs complain that the
business or affairs of the First and Second Defendants as affiliated
companies have been, and are being carried on or conducted or are
destined to be carried on or conducted, and the powers of the Third,
Fourth and Fifth Defendants as directors of both companies have been
exercised, in a manner that is oppressive and unfairly prejudicial to or
unfairly disregards their rights and fiduciary duties as directors of the
Second Defendant and as former directors of the First Defendant and as
an officer of the First Defendant respectively.
(c)
The Plaintiffs, for relief pursuant to the provisions of sections 242 and
250 of the Companies Act under which the Plaintiffs complain that the
acts of removal by the Second and Third Defendants of the Second,
Third and the Fourth Plaintiffs from further involvement and
participation in the affairs of the First Defendant at the Annual General
Meeting of the First Defendant on November 16, 2000 Board of
Directors' Meeting of the First Defendant on the same day effect a result
which is oppressive and unfairly prejudicial to or unfairly disregards the
Page 3 of 53
interests of the First Plaintiff as a former shareholder of the First
Defendant and a shareholder of the Second Defendant, and the interests
of the Second and Third Plaintiffs as former directors of the First
Defendant and the Fourth Plaintiff as an officer of First Defendant.
3. The relief claimed
3.
The Plaintiffs originally claimed against the Defendants pursuant to section 242 (3) of the
Companies Act the following six reliefs to rectify the matters complained of:
(1.) An injunction pursuant to section 242 (3) (a) of the Companies Act to
restrain the Second, Third, Fourth and Fifth Defendants from carrying on or
conducting the business or affairs of the First Defendant in a manner which is
in contravention of the legally binding directives given by the Supervisor of
Insurance (SOI) in letters dated January 7, 2000 and April 20, 2000 addressed
to the Third Defendant as Chairman of the Second Defendant which are as
follows:
(a)
That the business of Demerara Life be carried on independently of Mega
Insurance and without Mega Insurance exercising influence and control
over the affairs of Demerara Life until a Scheme of Transfer is approved
by the SOI.
(b)
That all transactions effected between Demerara Life and Mega
Insurance be done at arm’s length and be in the interests of the
policyholders of both companies.
(c)
That Mega Insurers should not publish consolidated financial
information with Demerara Life before approval of the Scheme of
Transfer by the SOI.
(2.) An injunction pursuant to section 242 (3) (a) of the Companies Act to
restrain the Third, Fourth and Fifth Defendants from acting as directors of the
First Defendants and/or seeking to manage or control the conduct of the
business or affairs of the First Defendant result be Second and Third Plaintiffs
Page 4 of 53
been included as Chairman and Director respectively of the First Defendant
and the Fourth Plaintiff as Secretary of the First Defendant.
(3.) An order pursuant to section 242 (3) (e) of the Companies Act that
Messieurs Bertrand Doyle and Harold Russell be appointed Directors of the
First Defendant in place of Mr Peter Gillette.
(4.) An order pursuant to section 242 (3) (h) setting aside the agreement dated
November 17, 1995 entered into between the First Defendant and the Second
Defendant for the merger of their respective life insurance businesses.
(5.) An order that the 17,500,000 shares issued by the Second Defendant in its
capital to the former shareholders of the First Defendant in order to acquire the
entire issued capital of the First Defendant held by such shareholders as part of
the said merger agreement, be cancelled and the former holders of shares in the
First Defendant restored to their former positions. (Added by way of
amendment on March 7, 2007.
(6.) An order that the Plaintiffs are entitled to be indemnified by the First
Defendant for any costs which they may be required to pay to the Defendants
arising out of these proceedings.
4.
On November 22, 2001 Mr. Justice Ventour, at the inter partes stage, continued the ex
parte injunctions granted by Mr Justice Tam on November 30, 2000. Those injunctions are the
terms of reliefs (1) and (2) at paragraph 3 above. In their skeleton arguments the Plaintiffs no
longer request injunctive relief (2) at paragraph 3 above.
Page 5 of 53
4. The evidence
(A) Overview
5.
In Horace Reid v Charles and Bain1 the Privy Council stressed the importance of
properly evaluating the evidence:
Mr. James Guthrie, in his able submission on behalf of Mr. Reid, emphasised
to their Lordship that where there is an acute conflict of evidence between
neighbours, particularly in rights of way disputes, the impression which their
evidence makes upon the trial judge is of the greatest importance. This is
certainly true. However, in such a situation, where the wrong impression can
be gained by the most experienced of trial judges if he relies solely on the
demeanour of witnesses it is important for him to check that impression against
contemporary documents, where they exist, against the pleaded case and
against the inherent probability or improbability of the rival contentions, in the
light in particular of facts and matters which are common ground or
unchallenged, or disputed only as an after-thought or otherwise in a very
unsatisfactory manner. Unless this approach is adopted, there is a real risk that
the evidence will not be properly evaluated and the trial judge will in the result
have failed to take proper advantage of having seen and heard the witnesses.
In determining the facts of the case, I was greatly assisted by the significant volume of
contemporaneous documents.
6.
The Plaintiffs' case is founded on section 242 of the Companies Act. The Plaintiffs
contend that the impugned conduct constituting oppression in its widest sense under section 242
can best be considered under the following headings:
1
PC App No. 36 of 1987 at p 6.
Page 6 of 53
(1)
The continuing weak financial state of Mega Insurance.
(2)
The improprieties involved in the management of the financial affairs of
Mega Insurance.
(3)
The recommendation by actuaries to the ring-fencing of $10 million for
Demerara Life's policyholders.
(4)
The alleged artificial debenture.
(5)
The consolidation of the accounts of Mega Insurance and Demerara Life.
(B) Undisputed Factual Background
7.
Mr. Justice Ventour in his written judgment2 outlined the undisputed factual background.
I adopt same with appropriate modifications.
(i) Corporate History of Demerara Life
8.
Demerara Life was incorporated on December 31, 1980 for the specific purpose of taking
over the life insurance portfolio of Demerara Mutual Life Assurance Society of Guyana
(Demerara Mutual) which operated a branch office in Trinidad and Tobago. This was in
accordance with the policy of the then Government of Trinidad and Tobago that the local
insurance operations of foreign companies should be vested in locally incorporated companies
with the majority of shareholding being vested in local hands. In order to achieve that objective
the capital structure of Demerara Life was as follows:
2
(a)
Demerara Holdings held 51% of the issued share capital in Demerara
Life;
(b)
Demerara Mutual held the other 49% shares. [para. 3, Doyle's affidavit.]
Demerara Holdings et al v Demerara Life et al HCA No. 3015 of 2000 p 7et seq
Page 7 of 53
9.
Demerara Holdings was incorporated to hold shares in Demerara Life for and on behalf
of the participating policyholders of Demerara Mutual as at December 31, 1990 and also to
facilitate implementation of the Scheme of Transfer of the life insurance business from Demerara
Mutual to Demerara Life.
10.
Demerara Holdings therefore became a Trustee for the policyholders of Demerara
Mutual and that trust was evidenced by a Trust Deed dated December 31, 1991 entered into
between Demerara Holdings on the one hand and one Wayne Abraham as a representative of the
various policyholders who were beneficiaries of that Trust. The subject matter of the trust was
some 1,529,996 shares in the authorised and issued share capital of 3 million shares of one dollar
($1.00) each in Demerara Life. Those shares were subsequently exchanged for 4,656,516 shares
in Mega Insurance by reason of the Merger Agreement. [para. 11, Doyle's witness statement.]
(ii) Background to Merger Agreement
11.
By an agreement (the Merger Agreement) dated November 17, 1995, made between
Demerara Life on the one hand and GTM Life Insurance Company Ltd (GTM Life) on the other
(which latter company subsequently changed its name to Mega Insurance Company Ltd), the two
companies agreed to merge their life insurance portfolios. The Merger Agreement's primary
purpose was to ensure the long-term viability of both companies. [para. 13, Doyle's witness
statement.]
12.
The execution of the Merger Agreement was preceded by discussions over a period of
more than two years held between executives of Demerara Life and Bertrand Doyle on the one
hand, and Wilbert Winchester and former executives of the former GTM Life on the other hand,
as to the various issues involved in effecting the proposed merger on an equal or what was
referred to as a 50:50 basis. Messrs. Deloitte & Touche, Chartered Accountants, were instructed
to (see BD4 dated December 5, 1994):
Page 8 of 53
13.
1.
Design an implementation plan for the proposed merger to include
recommendations on the legal structure and methodology for achieving
legal integration of the companies and their portfolios.
2.
Value each company taking into account asset values, prospects, the
actuarial reports and intangibles to determine the appropriate distribution
of equity in the merged corporate vehicle.
3.
Assist the respective boards in dealing with organizational issues
involved in the merger of the two companies.
4.
Provide a detailed timetable for the implementation of the merger, it
being anticipated that the merger would take place based on December
31, 1993 financial statements for completion in early 1994.
In that regard in late 1993, Demerara Life and GTM Life engaged in discussions aimed at
merging the two entities.
14.
One of the main issues which was discussed and which had to be resolved between
Demerara Life and GTM Life (now Mega Insurance) before execution of the Merger Agreement
was the formulation of the appropriate legal structure for the merged entity. The following two
options were carefully considered:
(a)
(b)
Demerara Life would acquire the issued shares in GTM Life in exchange
for shares to be issued by Demerara Life. The business of GTM Life
would then be absorbed into Demerara Life and GTM Life left dormant
or as an empty shell. Demerara Life would thereafter change its name to
reflect the new shareholding and composition (hereinafter called "Option
1").
GTM Life would acquire the issued share capital of Demerara Life in
exchange for shares to be issued by GTM Life. The business of
Demerara Life would then be absorbed into GTM Life and Demerara
Life left dormant or as an empty shell. GTM Life would thereafter
change its name to reflect the new shareholding and composition
(hereinafter called "Option 2"). [para. 16, Doyle's witness statement.]
Page 9 of 53
15.
It was clearly recognised that after the selection of either option the merger exercise
would be required to move on to the second stage. This would involve the drafting of the Scheme
of Transfer for approval by the Supervisor of Insurance (“the SO1”). Pursuant to the provisions
of sections 84 to 87 of the Insurance Act any Scheme of Transfer for any merger or
amalgamation of insurance companies had to be approved by the SOI.
16.
After consideration by representatives of the two entities (Demerara Life and GTM Life),
the decision was taken to adopt Option 2 primarily because of the ease of securing shareholders'
approval. It is common ground that the shares of Demerara Life were at the time held by only
two shareholders, that is Demerara Holdings and Demerara Mutual, while, on the other hand, the
shares of GTM Life were held by multiple shareholders who were widely dispersed and therefore
securing shareholders' approval would have been a far more difficult proposition. [para. 12,
Doyle's affidavit.]
17.
The decision to adopt Option 2 was consistent with the advice given by Messrs. Deloitte
& Touche in its said letter dated December 5, 1994 (BD 4). While not having conducted any
study on the likely costs or benefits of the proposed merger, it identified similar problems
suffered by both companies, including:
(i)
Excessive expenses of management in relation to sales;
(ii)
Need for improved product range;
(iii) Lack of market significance and penetration.
Page 10 of 53
The said letter continued:
"It is intuitively believed that a merger will provide the best of both companies
and allow:
(i)
Substantial reduction of continued expense.
(ii)
Increased market penetration due to enhanced significance and range of
products.
These benefits can only be achieved if a strategic plan for merger is developed
between the two companies to deal with:-
(i)
Organisational structure and management.
(ii)
Cost savings and physical integration.
(iii) Staff dislocation and effects on morale.
(iv) External marketing strategy (including name).
(v)
Products and policies.
This plan is necessary before implementation can begin and will necessarily
determine your timetable for implementation. Our report and engagements
does not include the above matters and we have confined ourselves to the
methodology for putting the two entities together. The operational and human
issues are, however, more critical than the accounting issues.”
18.
By the said engagements Messrs. Deloitte & Touche were required to value each
company taking into account asset values, prospects, the actuarial reports and intangibles to
determine the appropriate distribution of equity in the merged corporate vehicle. The relative
valuations and ratios were found to be as follows:
Page 11 of 53
GTM
$5,500.000
66.7
Demerara Life
$2,750.000
33.3
----------------
-------
$8,250,000
100%
----------------
--------
The recommendation for the appropriate distribution of equity aforesaid was:
“As GTM already has $17,500,000 shares in issue the merger could be
equitably effected by the issue of $8,750,000 new shares to the shareholders in
Demerara. They would receive 2.917 new GTM shares for every Demerara
share held. The capital of the merged company would be $26,250,000.”
(iii)
19.
The Merger Agreement
The Merger Agreement itself details the methodology. What is quite clear is that all
parties at the time were of the view that merging their operations would have ensured their longterm survival and viability (para. 2 of recitals of Merger Agreement).
Thus the Merger
Agreement provided:
“(3) The merger as aforementioned has been sanctioned by Special
Resolutions passed at Extraordinary General Meetings of GTM Life held
on 22nd September 1995 and Demerara Life on 6th October 1995.
(4)
The method agreed to by GTM Life and Demerara Life in order to effect
the merger as aforementioned is the issue of fully paid shares in the
capital of GTM Life to the shareholders of Demerara Life in exchange
for the transfer of the whole of the issue share capital of Demerara Life
to GTM Life.
Page 12 of 53
(5)
At present GTM Life has an authorised share capital of $50,000,000.00
comprised of 50,000,000.00 ordinary shares on $1 each and an issued
share capital of $17,500,000.00.
(6)
At present Demerara Life has an authorized share capital of
$5,750,000.00 and an issued share capital of $3,000,000.00. Demerara
Life has undertaken to increase its issued share capital to $5,750.000.00
immediately upon the signing of this agreement.
(7)
GTM Life and Demerara Life have made full disclosure to each other of
their assets and liabilities as at 31st December 1994 and as at the date of
signing of this agreement.
(8)
GTM Life and Demerara Life have confirmed to each other that there are
no significant claims pending against either one of them except in the
normal course of business.
NOW IT IS HEREBY AGREED as follows:1.
On or before 1st December 1995 Demerara Life shall secure that all the
issued share in its capital held by the shareholders of Demerara Life are
transferred to GTM Life in exchange for the issue of 17,500,000.00
shares of $1 each in the capital of GTM Life.
2.
The Board of Directors of GTM Life and Demerara Life will resign with
effect from 1st December 1995 and a new Board of GTM will be
appointed with effect from 1st December 1995 comprised of an equal
number of appointees emanating from GTM Life and Demerara Life.
3.
By 31st December 1995 the new Board of Directors of GTM Life as
aforementioned will decide upon a merger implementation plan which
shall deal inter alia, with the following:
(a)
a new name for the merged entity;
(b)
a strategy for merging the portfolios of the two companies and
integrating their products;
(c)
a strategy for the merger of all operations of the merged entity;
(d)
the appointment of a management team to implement the
strategies aforementioned.
Page 13 of 53
Contrary to the advice proffered by Messrs. Deloitte & Touche, the Merger Agreement failed to
provide for the right of withdrawal in certain circumstances: see letter dated July 10, 1995.
20.
Subsequently in 1996, after the execution of the Merger Agreement, Wilbert Winchester,
the Chairman of GTM Life (now Mega Insurance), was appointed to the Board of Directors of
Demerara Life and Bertrand Doyle and Harold Russell were appointed to the Board of Directors
of the renamed entity Mega Insurance. [para. 7 Doyle's affidavit.]
21.
Pursuant to the Merger Agreement, in or about 1996, the issued share capital of Demerara
Life was increased from $3 million to $5,750,000 when Computers and Controls Ltd (CCL), a
company under the control of the Gillette family, acquired 30% of the issued share capital of
Demerara Life. As a consequence the Board of Directors was expanded to include Messrs.
Lindsay Gillette and Cyril Gill as the representatives of CCL. The former was subsequently
replaced by his brother, Peter Gillette, in October 1999. (para. 19, Doyle's witness statement).
22.
As a consequence of the various appointments to represent the interests of the various
shareholders the Board of Directors of Demerara Life prior to November 16, 2000, comprised
the following seven individuals:
(a)
Bertrand Doyle and Harold Russell, the Second and Third Plaintiffs
herein, representing the interests of Demerara Holdings;
(b)
Richard Fields and Eawan Devonish representing the interests of
Demerara Mutual;
(c)
Peter Gillette and Cyril Gill, the Fourth and Fifth Defendants herein,
representing the interests of CCL; and
(d)
Wilbert Winchester, representing the interests of Mega Insurance
formerly GTM Life.
Page 14 of 53
(C)
23.
Implementation of the Merger Agreement
With the completion of that first stage of the merger (the operational stage), the parties
now had to move to the second and more important stage, that is, to submit for the approval of
the SOI a Scheme of Transfer in accordance with sections 84 and 87 of the Insurance Act. It is
at this juncture that divergent views surfaced as to the way forward in the realisation of the
Merger Agreement. This resulted in the members of the Board of Directors of Demerara Life
being divided into two distinct camps. On the one hand there was the Mega Insurance camp and
on the other the Demerara Holdings camp. The Third, Fourth and Fifth Defendants aligned
themselves with the Mega Insurance camp with the Second, Third and Fourth Plaintiffs in the
Demerara Holdings camp. To date the second stage of the merger has not been accomplished
because of a number of issues and concerns relating to the financial status of Mega Insurance and
the need to protect the policyholders of Demerara Life.
24.
On September 8, 2000 an event of major significance occurred. By resolution of even
date Demerara Holdings requested the Board of Directors of Demerara Life to take immediate
steps to withdraw and/or terminate the Merger Agreement and to secure that the shares currently
held by Demerara Holdings in Mega Insurance revert to shares held in Demerara Life.
25.
Consequently at the Annual General Meeting of Demerara Life on November 16, 2000,
the Second, Third and Fourth Plaintiffs were removed (the Third Defendant says they were not
re-elected to office) as Chairman, Director and Secretary respectively of Demerara Life by
resolution of the Third Defendant, acting on behalf of the Second Defendant, who was exercising
its powers as the sole shareholder of Demerara Life. While their removal prompted the litigation
in the instant case, the die was already cast by the request of Demerara Holdings to Demerara
Life to get out of the merger.
Page 15 of 53
26.
This is an appropriate juncture to allude to the common position adopted by Demerara
Life and Mega Insurance. This persisted for the major part of the litigation. Fusion became
fission when Demerara Life, by the following resolution dated December 13, 2007, resolved that
the company should withdraw from the proposed merger as the same was no longer in its best
interest:
“(1) That upon further and careful consideration of the proposed Merger, as
evidenced by the Agreement dated 17th November, 1995, it is hereby decided
that having regard to (a) the inordinate lapse of time between the signing of the
said agreement and the present and (b) the continuing failure of the parties….
[i] High Court Action No. 3015 of 2000 to resolve the matter amicably,
that the proposed Merger is no longer in the best interest of the Company
and the Company should therefore withdraw from same.”
27.
The Plaintiffs identified the following issues as the source of tension between the two
factions:
(1)
The Ring Fencing
(2)
The Artificial Debenture
(3)
Consolidation of Accounts
However, the Plaintiffs contend that these are matters of historical oppression and are relevant as
revealing a continuing and consistent pattern of conduct on the part of the Defendants to benefit
from access to the assets of Demerara Life. Further, since the granting of the interim relief, the
more immediate and proximate matters which form the basis for the relief being sought are:
28.
(1)
The continuing weak financial state of Mega Insurance.
(2)
The improprieties involved in the management of the financial affairs of
Mega Insurance.
As intimated earlier (para. 1 above), the essence of the case is whether the court would
set aside the Merger Agreement on the ground that the merger would be oppressive or unfairly
Page 16 of 53
prejudicial to or in unfair disregard of the interests of the policyholders of Demerara Life within
the meaning of section 242 of the Companies Act.
29.
The foregoing provides an adequate historical backdrop for the resolution of the issues in
the instant case.
(D) The major plank of the Plaintiffs' case
30.
The major plank of the Plaintiffs’ case is based on the continuing weak financial state of
Mega Insurance. The Plaintiffs contend that Mega Insurance, as the continuing corporation after
the merger, is not only insolvent but has been running an increasingly substantial deficit in its
statutory fund over the years.
(E) A summary of the submissions of Second, Fourth and Fifth Defendants
31.
Mega Insurance has denied acting in any oppressive manner towards the Plaintiffs,
whether historically or not. While admitting a deficit in its statutory fund over the years, it
contends that that has now been remedied and the company is in a healthy financial position. As
such there can no impediment to the merger being proceeded with. In any event Mega Insurance
contends that the decision to approve the merger was a matter for the Supervisor of Insurance.
Page 17 of 53
5. Legal Principles to be applied
32. Oppression actions are governed by section 242 of the Companies Act. The Plaintiffs
assume the onus of establishing same. The material parts of section 242 provide:
(1)
A complainant may apply to the Court for an order under this section.
(2)
If, upon an application under subsection (1), the Court is satisfied that in
respect of a company or any of its affiliates –
(3)
(a)
any act or omission of the company or any of its affiliates effects
a result;
(b)
the business or affairs of the company or any of its affiliates are
or have been carried on or conducted in a manner; or
(c)
the powers of the directors of the company or any of its affiliates
are or have been exercised in a manner that is oppressive or
unfairly prejudicial to, or that unfairly disregards the interests of,
any shareholder or debenture holder, creditor, director or officer
of the company, the Court may make an order to rectify the
matters complained of.
In connection with an application under this section, the Court may make
any interim or final order it thinks fit, including –
(a)
an order restraining the conduct complained of;
(b)
an order appointing a receiver or receiver-manager;
(c)
an order to regulate a company’s affairs by amending its articles
or Bye-laws, or creating or amending a unanimous shareholder
agreement;
(d)
an order directing an issue or exchange of shares or debentures;
(e)
an order appointing directors in place of, or in addition to, all or
any of the directors then in office;
(f)
an order directing a company, subject to subsection (6), or any
other person to purchase shares or debentures of a holder thereof;
Page 18 of 53
33.
(g)
an order directing a company, subject to subsection (6), or any
other person, to pay to a shareholder or debenture holder any part
of the moneys paid by him for his shares or debentures;
(h)
an order varying or setting aside a transaction or contract to
which a company is a party, and compensating the company or
any other party to the transaction or contract;
(i)
an order requiring a company, within a time specified by the
Court, to produce to the Court or an interested person financial
statements in the form required by section 151 or an accounting
in such other form as the Court may determine;
(j)
an order compensating an aggrieved person;
(k)
an order directing rectification of the registers or other records of
a company under section 245;
(l)
an order winding up and dissolving the company;
(m)
an order directing an investigation under Division 2 of Part V11
to be made; or
(n)
an order requiring the trial of any issue.
Section 239 of the Companies Act defines “complainant” to mean:
(a)
a shareholder or debenture holder or a former holder of a share or
debenture of a company or any of its affiliates;
(b)
a director or an officer or former director or officer of a company
or any of its affiliates;
(c)
the registrar; or
(d)
any other person who, in the discretion of the Court, is a proper
person to make an application under this Part.”
There is no real dispute that each of the Plaintiffs falls within the definition of complainant in
section 239 of the Companies Act. More particularly Demerara Holdings is a former shareholder
of Demerara Life and a current shareholder of Mega Insurance.
Page 19 of 53
34.
Section 242 of the Companies Act is modeled on the Canadian Business Corporations
Act (CBCA)3 and provides a wide range of statutory remedies against oppression and unfair
prejudice in corporate affairs. The section 234 (CBCA) remedy has been described as the
broadest, most comprehensive and most open-minded shareholder remedy in the common-law
world. It gives the Court a wide discretion to remedy virtually any corporate conduct that is
unfair. In view of this, each case will largely depend on its facts. However analysis of the policy
underlying this remedy can provide some guidance to the Court in exercising its discretion:
First Edmonton Limited v 315888 Alberta Ltd4.
35.
Section 242, like its Canadian counterpart [section 234 (CBCA)], as remedial legislation
ought to be given a liberal and purposive interpretation. In First Edmonton Mc Donald J
articulated the principle at pp.50-51:
“The introduction of a statutory remedy against oppression is a deliberate
departure from the policy of judicial non-intervention in corporate affairs.
Section 234 “casts the Court in the role of an active “arbiter of business
policy’”. It is drawn in very broad terms and as remedial legislation should be
given a liberal interpretation in favour of the complainant…..
The addition of “unfairly prejudicial” and “unfairly disregards” gives the Court
a broad basis on which to apply notions of equity and fairness to the conduct of
the directors and the majority … Clearly, the addition of “unfairly prejudicial”
and “unfairly disregards” puts the Court in a position to judge the fairness of
the actions of management ….. In view of the broad discretion in s.234, each
case will turn on its facts.”
36.
In the interlocutory proceedings in the instant case, Mr. Justice Ventour in Demerara
Holdings5 concluded from the foregoing extract in First Edmonton:
3
Section 234, CBCA
4
(1988) 40 BLR 28 at p 45 per Mc Donald J.
5
Demerara Holdings (n 1) 28
Page 20 of 53
It seems clear therefore that section 242 as a remedial provision ought to be
given a liberal interpretation. No longer will the Court be reluctant to intervene
in the management of corporate affairs. Where the application of strict legal
rights in the business of the corporation gives rise to oppressive or unfairly
prejudicial conduct, Courts of equity will intervene to apply, where possible,
notions of equity and fairness.
37.
Thus fairness can be regarded as integral to the consideration of whether or not
oppression exists. The equitable remedy gives a court broad equitable jurisdiction to enforce not
just what is legal, but what is fair. In First Edmonton Mc Donald J at page 57 identified the
following factors as being relevant to the determination of unfair conduct:
In deciding what is unfair, the history and nature of the corporation, the
essential nature of the relationship between the corporation and the creditor, the
type of rights affected, and general commercial practice should all be material.
More concretely, the test of unfair prejudice or unfair disregard should
encompass the following considerations: the protection of the underlying
expectations of a creditor in its arrangement with the corporation, the extent to
which the acts complained of were unforeseeable or the creditor could
reasonably have protected itself from such acts, and the detriment to the
interests of the creditor. The elements of the formula and the list of
considerations as I have stated them should not be regarded as exhaustive.
Other elements and considerations may be relevant, based upon the facts of the
particular case.
38.
In determining whether oppression exists, the court would therefore have regard to,
among other matters, the reasonable expectations standard of a shareholder in the position of the
applicant. Thus in the Canadian case of Walker v Betts6 Mr Justice D. M. Smith propounded
the following:
87. The essence of oppressive and unfairly prejudicial conduct is the
abrogation of the reasonable expectations of a shareholder in the position of the
6
(2005) BCSC 128 at paras 87 to 88
Page 21 of 53
applicant. The “reasonable expectations” standard is also applicable to a
finding that it would be “just and equitable” to grant an oppression remedy.
88. In determining a shareholder’s reasonable expectations, the court must
apply a modified objective test. This test requires objectivity identifiable
expectations that a shareholder in the applicant’s position reasonably would
expect to have. Identifying those reasonable expectations is the starting point
in determining if conduct was oppressive or unfairly prejudicial.
39.
Section 242 (3) (h) of the Companies Act authorises the Court to make any interim or
final order, including an order varying or setting aside a transaction or contract to which a
company is a party, and compensating the company or any other party to the transaction or
contract. Its Canadian counterpart (section 241 (3) (h) of the CBCA) has been held to be wide
enough to permit a court to rescind a contract at the instance of a third party. Thus Markus
Koehnen, Oppression and Related Remedies 7 states at page 374:
“Section 241 (3) (h) of the CBCA allows the court to make an order varying or
setting aside a transaction or contract to which the corporation is a party. The
court may also compensate the corporation or any other party to the
transaction. The remedy is noteworthy because it changes the common law
rules of rescission. At common law, only a party to the contract could claim
rescission. Under the oppression remedy, the court has sufficient latitude to
rescind a contract even at the instance of a third party.”
Section 242 (3) (h) of the Companies Act would therefore empower the court, even though the
Plaintiffs are not a party to the Merger Agreement, to set aside same at the instance of the
Plaintiffs.
40.
The foregoing analysis makes manifest that the intention of the legislature was to balance
the competing interests within the corporate structure including the rights of creditors, minority
shareholders and the public. In First Edmonton Beard J at page 41 stated:
7
Markus Koehnen, Oppression and Related Remedies (Thomson Carswell 2004)
Page 22 of 53
By framing the remedy provisions in very broad terms, the reformers have
sought to do away with the restrictive approach that the courts had previously
taken when judging the conduct or misconduct of corporate management.
The old view that the management of the company was in the total discretion
of its directors and shareholders has been replaced by an expansive view of the
Court’s role in balancing the interests of shareholders (majority and minority)
creditors and the public in general.
However the jurisdiction is one which must be exercised with care.
On the one hand
stakeholders within the corporate structure must be protected from unfair treatment. On the
other hand Courts ought not to usurp the function of the board of directors in managing the
company, nor should it eliminate or supplant the legitimate exercise of control by the majority:
see Bank of Montreal v Dome Petroleum Ltd8. The Ontario Divisional Court underscored the
point in SCI Systems Inc. v. Gornitzki Thompson Little9.
I agree that the oppression remedy is designed to protect reasonable
expectations. However, one of the most reasonable of all expectations of those
dealing with corporations must be that the directors will manage the company
in accordance with their legal obligations. Some of these obligations are
specifically prescribed by statute. Others are more generally derived from the
common law. However, they essentially add up to the same thing: namely, to
act honestly and in good faith in the best interests of the corporation and to
exercise the diligence expected of a reasonable prudent person.
41.
The Supreme Court of Canada in BCE Inc and Bell Canada et al v Canada Inc et al 10
pronounced on the concept of reasonable expectations and sought to provide guidance on the
three statutory components of oppression:
8
(1987) 67 CBR 296 (Canada) at pp. 305-306
9
(1998) 110 OAC 160 at para 36
10
[2008] 3 SCR 560 paras. 62, 64, 72 and 67
Page 23 of 53
62. As denoted by "reasonable", the concept of reasonable expectations is
objective and contextual. The actual expectation of a particular stakeholder is
not conclusive. In the context of whether it would be "just and equitable" to
grant a remedy, the question is whether the expectation is reasonable having
regard to the facts of the specific case, the relationships at issue, and the entire
context, including the fact that there may be conflicting claims and
expectations.
64. Determining whether a particular expectation is reasonable is
complicated by the fact that the interests and expectations of different
stakeholders may conflict. The oppression remedy recognizes that a
corporation is an entity that encompasses and affects various individuals and
groups, some of whose interests may conflict with others. Directors or other
corporate actors may make corporate decisions or seek to resolve conflicts in a
way that abusively or unfairly maximizes a particular group's interest at the
expense of other stakeholders. The corporation and shareholders are entitled to
maximize profit and share value, to be sure, but not by treating individual
stakeholders unfairly. Fair treatment — the central theme running through the
oppression jurisprudence — is most fundamentally what stakeholders are
entitled to "reasonably expect".
72.
Factors that emerge from the case law that are useful in determining
whether a reasonable expectation exists include: general commercial practice;
the nature of the corporation; the relationship between the parties; past practice;
steps the claimant could have taken to protect itself; representations and
agreements; and the fair resolution of conflicting interests between corporate
stakeholders.
67. "Oppression" carries the sense of conduct that is coercive and abusive,
and it suggests bad faith. "Unfair prejudice" may admit of a less culpable state
of mind, that nevertheless has unfair consequences. Finally, "unfair disregard"
of interests extends the remedy to ignoring an interest as being of no
importance, contrary to the stakeholders' reasonable expectations... the phrases
describe, in adjectival terms, ways in which corporate actors may fail to meet
the reasonable expectations of stakeholders.
42.
With specific reference to a merger or amalgamation of companies, a court may set aside
same pursuant to section 242 (3) (h) of the Companies Act on the ground that the merger is
oppressive, unfairly prejudicial to or in unfair disregard of the interests of shareholders of one of
the amalgamation companies: Palmer v Carling O’Keefe 11. The Court considered the following
11
(1989) 41 BLR 128 (Canada)
Page 24 of 53
circumstances as relevant in determining whether oppression existed with respect to the merger
or amalgamation of companies and whether relief should be awarded:
(i)
The amalgamation resulted in the continuing corporation that was a far
weaker financial entity.
(ii)
The result of the amalgamation was a tremendous benefit to one
party, but was of no benefit to the other party.
(iii)
The decision of the directors was made for the exclusive benefit of one
party and to the detriment of the financial worth of one of the merged
companies and the preference shareholders who had an interest in such
worth.
(iv)
The preference holders were entitled reasonably to expect the directors
only to fulfil their duty and to act lawfully. It was questionable whether
the existence of the support agreement by a foreign company provided
the preference holders with such protection for the investment so that
they could not reasonably assert that their interests had been unfairly
disregarded.
(v)
The directors of one of the merged companies, in their treatment of the
preference shareholders, were in breach of their duty to act for the benefit
of the company as a whole.
(vi) Due to the fact that the amalgamation had been in effect for 18 months,
that numerous changes had occurred which would be difficult to unravel,
and an order setting that aside would have unwelcome tax consequences,
the court made an order requiring redemption of the preference shares.
(A) Past Oppression
43.
Mr Fitzpatrick SC on behalf of some of the defendants submitted that an applicant, in
invoking the jurisdiction of the court, must ask for relief to protect interests that are being
oppressed, or unfairly prejudiced or unfairly disregarded at the time of the application for relief.
If, for example, the oppressive conduct of the respondent has ceased at the time of the
application, relief will be refused and the application dismissed.
Page 25 of 53
44.
Section 242 of the Companies Act creates a wide-ranging statutory remedy. The use of
the present-tense ‘is’ in subsection (c) of s. 242 have led some courts to conclude this section
requires the oppression to continue at least until the time the proceeding is commenced for the
remedy to become available. In essence meaning, there is no relief for ‘past oppression’. This
meant that if matters had been brought to an end or remedied before the trial, then the basis on
which a court could award a remedy had been removed. In the case of Michalak v Biotech
Electronics Ltd12, the court held that no oppression claim was available because the oppression
was not continuing at the time the action was commenced.
45.
However, there also exists an opposite line of reasoning, which rejects a focus on the
time for the oppression, for a number of reasons:
i.
The statute provides a remedy where the affairs of the corporation ‘are’
or ‘have been’ conducted in a manner that is oppressive. The use of the
past tense as well as the present tense makes it unnecessary that the
oppression be current or continuing: Ontario (Securities Commission) v
McLaughlin13.
ii.
A complainant is defined as a present or former security holder,
suggesting that past oppression is also subject to remedy, see: Chernoff
v Parta Holdings Ltd14.
iii.
Oppression continues until it is rectified, see: Ludlow v McMillan15. In
the case of Canada v Royal Trustco Ltd.16, shareholder who sold his
shares at a discount because of oppressive conduct, continues to be
oppressed. The loss he suffered because of the defendants’ conduct is a
continuing one. Similarly, where false financial statements were issued
12
(1986) 35 BLR 1
13
(1987) 11 OSCB
14
(1995) BCJ No. 710
15
(1995) 19 BLR (2d) 102 at 105
16
(1984) 6 DLR (4th) 682
Page 26 of 53
or where money was taken wrongly from the corporation, the
oppression continues until the financial statements have been re-issued
or the funds have been repaid: Re National Building Maintenance Ltd.
17
Courts following this approach have been willing to provide relief for
conduct committed in the past even though the plaintiff did not object at
the time: Lajoie v. Lajoie Brothers Contracting Ltd.18 This recognizes
that the failure to complain may simply be evidence of a relationship of
trust and confidence.
iv.
The requirement that oppression exist at the time of the hearing is
merely akin to the doctrine that an action must have accrued before it
can be sued upon. The court does not lose its power to award a remedy,
even where the conduct is cured before the hearing - although the
correction of the misconduct may affect the remedy. A remedy may
even be necessary to protect against future oppression: Low v Ascot
Jockey Club19.
On analysis of the timing issue, as laid out above, it seems that the court is entitled to examine
and provide remedies for present or past conduct. The present tense in the concluding language –
the word ‘is’ in subsection (c) – merely indicates that some type of damage must exist when the
proceeding is commenced.
6. Analysis
46.
The Plaintiffs contended that Mega Insurance as the continuing corporation after the
merger is not only insolvent but has been running an increasingly substantial deficit in its
statutory fund over the past few years. To a similar effect is Demerara Life's contention that
historically, and up to the present time, Mega Insurance has been in a state of poor financial
health and has been consistently in default of its obligations in relation to the Statutory Fund
which it is duty bound to maintain under section 37 (4) of the Insurance Act. The Second, Third,
17
[1971] 1WWR 8
18
(1989) 45 BLR 113
19
(1986) 1 BCLR (2d) 123
Page 27 of 53
Fourth and Fifth Defendants deny that they have acted in an oppressive manner towards the
Plaintiffs, whether historically or not. They also assert that they have tendered evidence in the
form of the audited accounts of Mega Insurance that speak to the company's financial health.
47.
It should be noted that the merger of the insurance businesses of Mega Insurance and
Demerara Life cannot be completed except in pursuance of a scheme prepared in accordance
with the provisions of the Insurance Act and requires the approval of the insurance regulator, the
Central Bank (formerly the SOI). That scheme is required to set out the terms of the merger
agreement. Accordingly sections 84 and 85 of the Insurance Act provide:
"(1) A company shall not transfer or amalgamate any class of its insurance
business, either in whole or in part, to or with the insurance business of any
other company, except in pursuance of a scheme –
(a) prepared in accordance with this section and sections 85 to 87; and
(b) confirmed by the Central Bank."
Section 85 provides:
"A scheme shall set out the terms of the agreement or deed under which it is
proposed to effect the transfer or amalgamation and shall contain such further
provisions as are necessary to give effect thereto."
It is common ground that the Central Bank has not yet been called upon to exercise its statutory
power of confirmation in respect of the merger. Undoubtedly this is as a result of the instant
litigation. Mr Fitzpatrick SC argues that the decision to approve the merger should be left to the
Central Bank. However there are no statutory provisions which oust the jurisdiction of the court
in the instant case. As such a complainant in an oppression action under section 242 of the
Companies Act has a right in these circumstances to invoke the jurisdiction of the court.
A. The statutory fund
48.
With respect to the statutory fund, the material parts of sections 37, 40 and 42 of the
Insurance Act provide:
Page 28 of 53
"37. (4) Every company carrying on long-term insurance business in Trinidad
and Tobago shall place in trust in Trinidad and Tobago assets equal to its
liability and contingency reserves with respect to its Trinidad and Tobago
policyholders as established by the balance sheet of the company as at the end
of its last financial year....
40. (1) A trustee may not deal with any assets held in trust by him without the
prior general or specific approval of the Central Bank.
42. (1) Where it appears to the Central Bank that -... (b) the value of the assets or of the assets included in a particular class as
shown by the statement is insufficient or excessive, the Bank may, after
considering any explanation made by or on behalf of the company, give to the
company such directions in writing as the Bank thinks necessary for the
variation of the statement or for an increase or decrease in the value of the
assets.
"
The statutory fund provisions in the Insurance Act are derived from Australian legislation. The
purpose of the statutory fund is to ensure, as far as practicable, that the company will be able, out
of the assets of the fund, to meet all policy and other liabilities referable to the fund at the time
they become due: see Australian and New Zealand Insurance Reporter (published by CCH
Australia Ltd) under the rubric "Solvency Capital Adequacy of Funds."20 It is axiomatic that
policyholders would be severely prejudiced if the statutory fund was insolvent.
B. Around 1995.
49.
It is important to note that the Chartered Accountants, Messrs. Deloitte & Touche, while
being instructed by both Demerara Life and Mega Insurance to, among other matters, design an
implementation plan for the proposed merger and value each company to determine the
appropriate distribution of equity in the merged corporate vehicle, expressly disclaimed being
asked to conduct any study on the likely costs or benefits of the proposed merger: see
December 5, 1994 letter (BD 4). It seems to me that the difficulties encountered in the second
20
Australian and New Zealand Insurance Reporter (published by CCH Australia Ltd) para 2 -895
Page 29 of 53
stage of the merger, the implementation stage, had its genesis in the failure by the directors of
both Demerara Life and Mega Insurance to conduct such a study. That would explain why, as
soon as their attention became focused on the considerable disparate positions of the two funds
in relation to their assets and liabilities, views about the way forward became irreconcilable. The
question that needs to be considered is whether that conduct conformed to the reasonable
expectation of a policyholder in Demerara Life of being treated fairly. Surely the reasonable
expectation of such a policyholder in Demerara Life, where a proposed merger was contemplated
with another company (Mega Insurance) must have been that, for the directors of Demerara Life
to make an informed judgment on same, some type of study, preferably actuarial, would have
been conducted on the likely costs or benefits of the proposed merger. That would accord with
the principle that directors, acting in the best interests of the corporation, may be obliged to
consider the impact of their decisions on corporate stakeholders, such as the policyholders in the
instant case: see Re BCE Inc and Bell Canada21 .
50.
Indeed the Consulting Actuaries to Demerara Life, Hymans Robertson, underscored and
amplified on same in their July 1995 letter to Demerara Life. This was, of course, prior to the
execution of the Merger Agreement. Their Mike Arnold ("Arnold") noted that the auditor's
report recommended that the merger be effected and subsequent shareholdings determined solely
by reference to the paid-up share capital of each party:
"Turning now to the proposed merger I note that the report from the Auditors
recommends that the merger be effected and subsequent shareholdings
determined solely by reference to the paid-up share capital of each party.
Apparently no recognition of any accumulated profit or loss, nor any additional
Shareholder reserves, nor any inherent value in the life business of either
Company appears to be recognised by the proposal.
I would strongly urge the board to reconsider these proposals on a more
appropriate basis enabling these other, potentially significant items, to be
properly recognised. Once again the Trustees of Demerara Holdings, acting on
behalf of a significant number of Shareholders would, I believe, be subject to
21
Re BCE Inc and Bell Canada (n9) [66]
Page 30 of 53
severe criticism were any proposed merger to proceed without a full
consideration of all aspects of value in the Company, beyond simply the paidup share capital."
Again, the reasonable expectation of a shareholder must have been that the directors of Demerara
Life, in deciding to proceed with such a merger, would be guided by the actuarial advice and
would fully consider all aspects of value in the company, beyond simply the paid-up share
capital, in determining the value of their shareholding. It must be remembered that oppression
encompasses a broad spectrum of unacceptable conduct, in descending order of gravity from
oppressive to unfairly prejudicial to conduct which unfairly disregards. Thus even the least
rigorous of the three in the instant case, conduct which unfairly disregards the interests of a
shareholder (in the sense of ignoring, paying no attention to or treating the interests of the
complainant as being of no importance [see Koehnen Oppression and Related Remedies22],
may justify a court providing relief.
51.
Shortly after the execution of the merger, Messieurs Coopers & Lybrand, Chartered
Accountants advising Winchester, by letter dated July 1, 1996 underscored the fact that the
"transfer of Demerara's Life portfolio including assets and liabilities requires the approval
of the company's actuary and the Supervisor of Insurance. Until these approvals are granted
the portfolio and its assets and liabilities must remain within the books of Demerara. However, it
is possible and even desirable to operate this as a closed book of business within Demerara to
reduce the operations and accounting necessary." [emphasis added.] This would suggest that
even Mega Insurance was aware from a very early stage that approval as aforesaid was critical to
the transfer of the portfolio of Demerara Life to it.
52.
By letter dated July 4, 1996, Messieurs Hymans Robertson considered it paramount that
terms were agreed with regard to the merger of the assets and liabilities of the two companies. It
22
(n 6) 83
Page 31 of 53
noted that the considerable disparate positions of the two funds in relation to the assets and
liabilities would make a merger of the two funds difficult, if not impossible:
"I shall concentrate my comments on the letter prepared by Coopers &
Lybrand. All the comments contained in that letter make eminent sense,
particularly from a commercial perspective -- however they do pre-suppose
that agreement can be reached on the terms of the merger of the assets
and liabilities of the two companies.
There must still be some concern that the considerable disparate positions
of the two funds in relation to the assets and liabilities (i.e. the substantial
surplus contained within the Demerara Life Fund as compared with the
deficit? within the GTM Fund) will make a merger of the two funds
difficult, if not impossible.
I have to say that even if it is not possible to merge the funds and the liabilities,
the practical issues of administering the two books of business could continue
along the lines suggested by Coopers. However, you can well imagine the
difficulties that would emerge in the day-to-day management of two businesses
that could not reach agreement on the financial terms of the merger.
It does seem to me to be paramount that terms are agreed with regard to
the merger of the assets and liabilities before irreversible decisions are
taken with regard to the administration and management of the business
and that the directors of Demerara Life would be failing in their
responsibilities to Demerara policyholders if they were to allow a 'de facto'
transfer to take place prior to such agreement being reached." [emphasis
added.]
Notwithstanding the clearest possible warning the directors of Demerara Life and Mega
Insurance allowed the operational stage of the merger to continue to proceed.
53.
Hymans Robertson, by letter dated February 7, 1997, noted that as at December 31,
1995 (shortly after the execution of the Merger Agreement), the GTM fund had a deficit of $1
million compared with a surplus on the Demerara fund of TT $32.5 million. They strongly
recommended to the Board of Demerara Life that, having regard to the inequity of the
proposed merger, the merger should not be allowed to proceed on the terms indicated in both
the Actuarial report and Scheme Document. Further they noted that as the GTM fund was
Page 32 of 53
effectively insolvent, it would have been thoroughly irresponsible to recommend the
transfer of a solvent fund into an insolvent one. Again even though he considered ringfencing a significant portion of the surplus in Demerara Life exclusively for the benefit of
Demerara Life policyholders to be equitable, it was likely that the combined life fund could
not operate on a solvent basis and, in those circumstances, the directors of Demerara Life
should not be recommending such a transfer:
"The schedule on page 6 of the actuary's report graphically illustrates the
inequity of the proposed merger. The GTM fund at 31 December 1995 had a
deficit of TT $1 million compared with a surplus on the Demerara Fund (based
on the GTM method of valuation and adjusted as described) of TT $32.5
million.
As you can see, the GTM fund is effectively insolvent and I believe it
would be thoroughly irresponsible to recommend the transfer of a solvent
fund to an insolvent one.
Whilst I fully accept the points made in the actuary's report with regard to the
likely future for the Demerara Fund on its own, it would be possible to close
the Demerara Fund completely to new business, cut down on expenses and
overheads and run-off the fund for the benefit of existing Demerara
policyholders who would gain at least some benefit from an albeit reducing
surplus.
The projections for the combined company do illustrate that the level of surplus
is maintained and indeed increases over the 5 years of the projection. However,
this out turn is predicated on two key assumptions: -1.
Premium income in 1997 increases by 25% over 1996 and by
20% a year thereafter and
2.
Expenses reduce in 1997 by 20% or over TT $3 million.
I have a number of concerns over the two key assumptions not the least of
which is that they are inconsistent - I have never seen a situation where a
substantial increase in business volume is associated with a substantial
decrease in expenditure, but also neither of these two assumptions are
consistent with the experience of either company in the last three years with
regard to both new business production and expense levels.
I believe that the Board must be extremely cautious in accepting these
projections as presented and that it is far more likely that the actual out turn
Page 33 of 53
will result in a reduction in the level of surplus for the merged company rather
than the maintenance of the initial level, as presented.
In the circumstances, I do believe that the security offered for Demerara
policyholders is likely to be reduced in the merged company if the Scheme is
allowed to progress as presented.
As you indicate, and as we have discussed on a number of occasions, I
believe it is equitable for at least a significant proportion of the surplus in
the Demerara Fund to be "earmarked" and "ring-fenced", exclusively for
the benefit of Demerara policyholders. However, if this is accepted then it
is likely that the combined life fund could not operate on a solvent basis
and, once again in the circumstances I fear that the Directors of Demerara
should not be recommending such a transfer....
Even though this wording [with respect to the segregation and
hypothecation of the Demerara surplus for the Demerara policyholders]
may achieve my desired aim of protecting the reasonable expectations of
Demerara policyholders, I remain critically concerned with regard to the
on-going security of their benefits which I believe are seriously jeopardised
by the transfer into an insolvent fund.......” [emphasis added.]
54.
The independent actuaries to the SOI, Bacon & Woodrow, by letter dated December 22,
1997 summarised the following issues about the proposed transfer which needed resolution.
These were:
1.
2.
3.
4.
5.
6.
Satisfaction by both Mega Insurance and Demerara Life of the
requirements of the Insurance Act 1980 including satisfying their
statutory fund requirements.
Bonus prospects for the Demerara policyholders.
Bonus prospects of Mega policyholders.
Expense agreement between Demerara Life and Mega Insurance.
Allocation of appreciation in assets.
Demerara Life policyholders' rights to shares in Mega Insurance.
Having regard to the great disparity in the financial positions of the two companies and in an
effort to avoid prejudice being caused to Demerara Life policyholders, the independent actuaries
recognised the need for ring-fencing some proportion of the surplus in the Demerara Fund to the
Demerara Life policyholders in view of the very large contribution to the surplus of the merged
Page 34 of 53
company being made by the said policyholders. Additionally they opined that there would be a
clear benefit to the policyholders of Mega Insurance as a result of the merger:
"In the short term, the security of the Mega policyholders will be improved by
the transfer of the Demerara business. Furthermore, the surplus of the combined
fund should enable the payment of bonuses to Mega policyholders to
recommence. In these circumstances, I do not think it is necessary to consider
any further the prospects of Mega's policyholders who will clearly benefit from
the transfer."
C. Gene Dziadyk
55.
Quite naturally consulting actuaries for Mega Insurance, Buck Consultants Ltd, through
Gene Dziadyk, commented on the opinion given by Hymans Robertson to ring-fence a portion of
the surplus in Demerara Life's statutory fund for the benefit of the policyholders of Demerara
Life who had acquired shares in Demerara Life when that company was formed upon the
demutualisation of the local branch of Demerara Mutual back in the 1980s.
56.
The essence of his report (December 11, 1998) and testimony was that the participating
policyholders of Demerara Life were only entitled to what they got by contract or statute which,
in this case, would be the shares upon demutualisation. Accordingly he disagreed with any
suggestion by actuaries that the sum of $10m out of surplus be ring-fenced exclusively for the
benefit of the policyholders of Demerara Life.
57.
Having seen and heard Dziadyk and the other witnesses, considered the documents that
were admitted in evidence and considered the totality of the evidence, I find that the Plaintiffs
have satisfied me to the requisite standard that the evidence of the actuaries, Arnold and Farren
are to be preferred. Clearly, Farren of Bacon & Woodrow was an independent actuary appointed
by the regulatory authority to advise it of the proposed merger. Farren’s view accords to some
Page 35 of 53
extent with Arnold’s and with the Chartered Accountants to Winchester, Messrs Coopers &
Lybrand.
58.
Further the probative value of Dziadyk’s testimony has been diminished on the issue of
the merits of ring-fencing. Astonishingly Dziadyk was unaware at the time of the preparation of
his report, and even at trial, that the ring-fencing had already been in place, was sanctioned by
Bacon & Woodrow and was considered by Demerara Life to be binding and irreversible (see
letter of May 29, 2000 of Demerara Life).
59.
Moreover, in cross-examination by Mr. Sinanan SC, Dziadyk acknowledged that his
observations as to the advantages of the merger contained in his witness statement were not
based on any analysis of the companies involved in the merger. Rather they were general
observations based on what was likely to happen. In my view that would also impact negatively
on the probative value of his testimony.
60.
Finally on the issue of ring-fencing, I accept Arnold’s expert opinion, in preference to
that of Dziadyk, that the “ring-fencing of specific funds and their associated assets is an
extremely common practice when the merger of two with-profits funds (or companies) is
undertaken.
This is particularly the case where funds or companies of markedly different
financial strengths are merged”: see “Arnold’s letter dated December 13, 2007. Clearly the
merger would have diminished the financial worth of Demerara Life to its policyholders in the
absence of ring-fencing.
Page 36 of 53
D. Conclusion
61.
Pausing there it is pertinent at this stage to ask, by reason of the foregoing, were the
policyholders of Demerara Life in the circumstances being treated fairly? As the authorities
suggest, fair treatment is a central theme running through the oppression jurisprudence. It is
possible to argue that the evidence revealed that Demerara Holdings received the approval and
consent of the beneficiaries to enter into the merger and therefore they could not complain.
However the failure of the directors of Demerara Life to avail themselves of material information
which would permit them to make an informed judgment on the likely costs or benefits to the
merger and, indeed, to properly consider all the aspects of value in Demerara Life, vitiated such
approval or consent. It is manifest that at the inception both Demerara Life and Mega Insurance
were weak companies and sought to merge to ensure their long-term viability. However Mega
Insurance was disproportionately weaker and weaker to such an extent as to make it inequitable
for the merger to go forward. In my view had an oppression application been made at that time
all three enumerated categories of conduct in section 242 (2) (c) of the Companies Act would
have been successfully engaged. However as indicated earlier (paras. 42 to 44 above) a court can
provide remedies for past conduct of the foregoing kind. Thus I hold that in these circumstances
the Plaintiffs have successfully established oppression in its widest sense against both Demerara
Life and Mega Insurance.
E. Statutory fund deficit
62.
As early as 1999 correspondence began surfacing with respect to the inability of Mega
Insurance to meet its statutory fund requirement. Thus Bacon & Woodrow's letter dated March
31, 1999 stated:
"Based on the available assets in the Balance Sheet at 31 December 1997, Mega
was not able to meet its Statutory Fund Requirement with a shortfall of at least
$6,660,137....
Page 37 of 53
c) I have been advised by the Supervisor of Insurance that he determined Mega's
Statutory Fund to be in deficit by $4,300,713...
In light of this evidence, I am forced to conclude that Mega did not satisfy its
Statutory Fund Requirement at 31 December 1997. You will recall that this
was one of the conditions I required to be satisfied for the merger to be
approved."
63.
Albert Tom Yew ("Tom Yew") himself admitted in cross-examination that Mega
Insurance had a chronic statutory fund deficit problem over a 10-year-period:
"Q:
A:
Q:
A:
Q:
A:
Q:
A:
Q:
A:
Q:
A:
Q:
A:
Q:
A:
Q:
A:
I see. We'll be coming back to that. Now, you recall that Mega has been
in deficit in its statutory fund?
On and off for the past, am, I would say past 10 years -For the past 10 years -As far as I recall.
-- Mega has been in deficit in its statutory fund. Has it ever satisfied its
statutory fund requirements in the past 10 years?
From the minutes of the -- of a meeting on May 11, 2000 Mega had
congratulated its financial officers of meeting the statutory fund -I am talking --- up to the -Sorry?
Well, you say has it ever satisfied it?
As far as the Supervisor is concerned. Not from internally, as far as the
Supervisor is concerned, has the -No.
No. So for 10 years you have been in deficit?
Yes.
You'd say it's chronic, would you not?
Under the circumstances, the way how an insurance -Would you say it's chronic or not?
Because it's 10 years, I would have to say it's chronic."
(See Transcript (January 31, 2008) Day 4, Page 86 line 13 to page 87 line 9.)
64.
As his testimony was in 2008, it would mean that the deficit began as early as 1998, a
mere two years after the execution of the Merger Agreement. This is borne out by the letter from
Page 38 of 53
the SOI dated November 5, 1999. On an examination of the 1998 Annual Returns of Mega
Insurance, the SOI found Mega appeared to be technically insolvent by a margin of
$6,302,066. This letter stated as follows:
"Annual Returns 1998
An examination of the returns referred to at caption revealed the following: -Statutory Fund -- Long Term Business
The Statutory Fund required to be maintained in accordance with Section 37
(4) and (6) of the Insurance Act, 1980 was determined to be in deficit by
$6,296,670. A copy of computation is attached.
Technical Insolvency
In accordance with section 77 of the Insurance Act 1980, the company appears
to be technically insolvent by a margin $6,302,066. A copy of our computation
is attached.
Forms D1 & D2
Forms D1 and D2 were not submitted in accordance with the Insurance
Companies (Account and Forms) Regulations 1980. Please submit revised
forms D1 and D2 with separate columns for Long-term Insurance Business and
other classes of insurance business and with comparative figures.
Unless you can submit documentary evidence that the above positions are
incorrect you are required to rectify the deficiencies and so advise this Office
not later than three (3) weeks from the date of this letter."
(i) Rights Issue
65.
Mega Insurance sought to repair the deficit in the statutory fund by way of a preferential
rights issue of 14 million shares at $.50 each seeking to raise $7 million (see letter dated January
4, 2000). That rights issue failed and Mega Insurance was only able to raise 20% of the capital
Page 39 of 53
sought, that is, $1.4 million. Even though the rights issue was underwritten by one of the
companies in the Gillette family, CCL (one of the major shareholders of Demerara Life), the
latter was in breach of the underwriting agreement by failing in their obligation to make up the
deficit. It is difficult to imagine an insurance company seeking to attract investors on the promise
that the rights issue was underwritten, and yet pursue no claim against the underwriters when the
rights issue failed. It is to be noted that Peter Gillette is the Fourth-named Defendant in this
matter.
66.
With respect to the rights issue Doyle admitted that, notwithstanding his objection to the
terms of the original proposal, he agreed with the concept of a rights issue for the purpose of
satisfying the statutory fund deficit of Mega Insurance. The Board minutes of January 14, 2000
recorded that the rights issue was unanimously approved by the Board without objection.
However they also reveal that Doyle expressed some concerns about the reasons for the issue
and the presentation of the financial statements which showed a consolidated position thereby
resulting in two amendments being made. There was some issue as to whether Doyle objected or
made his objection known at the said meeting with respect to the rights issue. On the evidence I
find that he did not object at same. However I accept Doyle's testimony that, prior to that Board
meeting, he had expressed several reservations about the rights issue. This is consistent with the
widening rift that had begun to surface with the two factions: see paras. 50 to 58 of Doyle's
Witness Statement.
(ii) Debenture
67.
In another attempt to make up the deficit in its Statutory Fund, Mega Insurance sought to
obtain an asset in the form of a debenture secured by a first mortgage on the real estate of
Demerara Life situate at No. 74 Independence Square, Port-of-Spain. Tom Yew conceded that
this was a mechanism to shore up the statutory fund: see Day 7, page 129. The transaction
involved the following elements:
Page 40 of 53
1.
2.
3.
Demerara Life was to purchase Mega Insurance's entire computer
hardware and software system for the sum of $9,450,000.
In order to finance the purchase Demerara Life was to obtain a loan from
Mega Insurance in the sum of $9,450,000.
As security for the loan Demerara Life would grant to Mega Insurance a
charge by way of legal mortgage over the said property of Demerara
Life. A collateral deed of mortgage as further security for the loan was
also to be granted by Mega Insurance the Demerara Life.
On presentation of the debenture to the SOI by Mega Insurance as a means of satisfying the
statutory fund deficit in its annual return for the year 1998, the SOI rejected the proposed
transaction as being "a fictitious/artificial transaction": see SOI's letter dated January 7, 2000.
The SOI found that the valuation report on the computer hardware and software systems was
unacceptable; there was no need for Demerara Life to purchase computer equipment worth $9.4
million as it had ceased writing the new business; there was no benefit to be gained either by
Demerara Life or Mega Insurance in terms of reduced costs or reduced debt by Demerara Life in
the proposed sale and lease back arrangement. Indeed this arrangement increased the costs of
both companies. There having been no appeal by Mega Insurance of the SOI's findings, and
having considered the totality of the evidence (see in particular paras 37 to 49 Doyle's Witness
Statement), I hold that this was clearly an artificial transaction.
(iii) The consolidation of financial statements
68.
Demerara Holdings contended that one of the methods adopted by Mega Insurance to
deal with its financial distress was in the publication of consolidated accounts. This was
notwithstanding the fact that the SOI had by letter dated April 20, 2000 prohibited the publishing
of such accounts until the scheme of transfer had been approved. Demerara Holdings further
contended that Mega Insurance exerted pressure on the Board of Demerara Life to ensure that
consolidated accounts were published so that it did not receive a qualified audit opinion from its
auditors. They further alleged that their resistance to such pressure incurred the wrath of the
Mega Insurance directors on the Demerara Life board and was one of the matters which led to or
Page 41 of 53
triggered the removal of Harold Russell, Gervais de Matas and Doyle from any participation in
the affairs of Demerara Life.
69.
Tom Yew's evidence, which I accept, is that consolidated accounts were prepared for the
shareholders as it showed a more accurate picture of the overall financial position of the
company. However separate accounts were always prepared for the SOI. Further the SOI, by
letter dated November 12, 2002, resiled from its original position thereby paving the way for
consolidated accounts to be published. Notwithstanding same, Mega Insurance has not sought to
publish consolidated accounts. (See Transcript of September 29, 2009 pages 3 and 4.) It is
apparent therefore that Mega Insurance was justified in publishing consolidated accounts.
However having regard to their obligation to abide by the decision of the SOI, it was not entitled
to exert pressure, as I find, on the Board of Demerara Life to have consolidated accounts
published. But it was a pattern of conduct engaged in by Mega Insurance and certain directors of
Demerara Life (who had aligned themselves with the Mega camp) in or around 2000 all
designed, as I find, to prop up the weak financial position of Mega Insurance and/or gain control
of the assets of Demerara Life. This would include the creation of the artificial debenture, the
disagreement with ring-fencing and the removal of the directors.
70.
Indeed the removal of the directors must be considered contextually. Of extreme
significance is the resolution of Demerara Holdings of September 8, 2000. By that resolution
Demerara Holdings requested the Board of Directors of Demerara Life to take immediate steps
to withdraw and/or terminate the Merger Agreement and to secure that the shares currently held
by Demerara Holdings in Mega Insurance revert to shares held in Demerara Life. In those
circumstances Mega Insurance, in my view, felt it had no alternative but to remove the directors
(Doyle and Russell). The consequence of that is clear. It would have paved the way for the
merger to proceed.
Page 42 of 53
71.
Moreover the manner in which Demerara Life was established with Demerara Holdings
as a founding shareholder and trustee for participating policyholders, who were previously
owners of Demerara Mutual of Guyana, clearly indicates that there was the expectation that the
policyholders, through the trustee, would continue to have representation on the Board of
Demerara Life. This would be the position even where the shares held in trust for the
policyholders were exchanged for shares in another entity. It would follow that so long as they
remained policyholders of Demerara Life, then the protection of their interests required the
continued representation of the Trustee on the Board of Demerara Life. Further any action to
exclude such representation would be in breach of the fundamental understanding on the basis of
which Demerara Life was established. Such a breach would be a breach of the policyholders'
equitable rights and entitle them to invoke the oppression remedy under section 242 of the
Companies Act: see Demerara Holdings23 per Ventour J.
(iv) 2006 onwards
72.
The worrisome statutory fund deficit of Mega Insurance reared its head once again in
2007. By letter dated May 16, 2007 Mega Insurance admitted that there was a deficit of $23
million in the statutory fund at the end of 2006. By letter dated July 12, 2007 Mega Insurance
informed the IFI that it proposed to pursue the following course of action with respect to the
statutory fund deficit:
1.
2.
3.
4.
Injection of adequate new capital into the company by major
shareholders.
Assimilation of Cascadia Hotel, with a recent valuation of $46 million
together with a Housing Project, as a wholly owned subsidiary of Mega
Insurance.
Collection of an outstanding Management Service Debt from Demerara
Life in the region of $4 million.
Sale of company assets not currently included in the Statutory Fund.
Mega Insurance also indicated that with respect to the company's operation it would, among
other matters, restructure the company by the elimination of at least three existing branches.
23
Demerara Holdings (n 1) 20 to 21
Page 43 of 53
73.
As part of its attempt to inject new capital Mega Insurance enquired of the major
shareholders whether they were interested in participating in equity or debt financing. The
evidence reveals that they did not take up the offer.
74.
By letter dated October 2, 2007 the regulator of the Financial Institutions, the Inspector of
Financial Institutions ("IFI"), also pronounced on the staggering statutory fund deficit of
$24,969,849 existing as at December 31, 2006 and ordered rectification within 30 days:
"We confirm that the deficit as at December 31, 2006 on the Statutory Fund -Long Term was $24,969,849. A copy of all computation is attached. The
Company is required, under Section 37 (6) of the Insurance Act... to fund all
deficits within one month after the end of the Company's financial year.
In accordance with Sections 42 and 43 of the Act, you are required to rectify
your position within thirty (30) days of the date of this letter...."
75.
By letter dated August 18, 2008, Central Bank acknowledged receipt of Mega's letter
dated June 24, 2008 whereby it agreed to complete certain actions to be undertaken by the
company by stated deadlines. However the Central Bank highlighted the seven outstanding items
as at that date:
1.
2.
3.
4.
The progress with respect to the pledging of an admissible asset valued at
$2.2 million to replace the asset at Bacolet Street, Tobago which was
released from the statutory fund by August 15, 2008.
The settlement of the outstanding balance of $3.5 million owed by
Demerara Life Assurance Company (Trinidad and Tobago) Ltd, the
deadline of which was agreed to be May 31st 2008.
Repayment of the advance in the amount of $335,000 made to a relative
of one of the Company's Directors by May 31, 2008.
Full satisfaction of your Statutory Deficit by June 30, 2008. The
Company had stated that the shareholders of the company had agreed to
inject capital sufficient to cover the deficit and to assist in the operations
and expansion of the business by that date.
Page 44 of 53
5.
6.
7.
Reconciliation with the trustee of their listing of assets pledged to the
Statutory Fund by May 31, 2008. The extended period to June 30, 2008
has also elapsed.
Implementation of systems, policies and procedures to prevent the reoccurrence of breaches to the Insurance Act.
An approved interim strategic plan for the second half of 2008 by July
31, 2008 and approved 3 to 5 year Strategic and Operational Plans by
December 31, 2008.
Clearly the Central Bank had some reservations about Mega Insurance being able to honour its
commitment and about its immediate and short-term prospects.
76.
By letter dated August 29, 2008 Mega Insurance responded to Central Bank's concerns. It
highlighted, among other matters:
1.
2.
$4.5 million in admissible bonds was being pledged to the statutory fund.
The reduction of the statutory fund deficit in 2006 from $20,541,824 to
$5,752,776 in 2007.
Even though shareholders failed to inject new capital, Tom Yew testified that it no longer
became necessary to seek same as Mega Insurance was able to satisfy its statutory fund
requirements without the contemplated injection of new capital: Transcript Day 10 page 113.
77.
While there was some dispute as to whether Mega Insurance's statutory fund was in
deficit in 2008, I am satisfied, having regard to the fact that the 2008 accounts were audited, that:
(i) as at December 2007 there was a deficit in the statutory fund of $5,752,776;
(ii) as at December 2008 there was a surplus in the statutory fund of 11,770,971.
[See Tab 14 of documents requested on February 1, 2008.]
78.
While Aleong and Tom Yew were subjected to robust cross-examination, I am satisfied
on the totality of the evidence inclusive of the financial statements that Mega Insurance adopted
the following measures to satisfy their statutory fund requirements, namely: (i) reduction in
Page 45 of 53
expenses; (ii) increase in premium income or revenue; (iii) adjusting the reserves by decreasing
the interest rate credited to policyholders (see Tom Yew cross-examination Day 10 at pages 72
onwards); (iv) the conversion of surplus assets outside the statutory fund into acceptable assets
that satisfied the fund: see Tom Yew Day 8, page 64.
79.
In that regard Mega Insurance mortgaged two properties leased as car parks at
Dundonald Street, Port-of-Spain and Melville Lane, Tobago and another property at Bacolet
Street, Tobago for $13.9 million. The two properties leased as car parks were valued at
$16,700,000 in 2007 and 19,280,000 in 2008. The revaluation surplus of $2,580,000 was
credited to the Statement of Income: see page 34 of Audited Accounts 2008. I should make the
comment here that Aleong in cross-examination did not seem too confident about the increasing
value bearing in mind 2008 was a year of financial meltdown: see cross-examination Day 10
pages 12 to 19.
(v) Equity
80.
The audited accounts (page 52) revealed that in 2007 Mega Insurance had equity of
$39,142,000. However in 2008 there was a significant increase by $20,711,000 to $59,853,000.
Aleong indicated that that equity is reflected in the said accounts (page 6). That revealed an
increase in Insurance Premiums of $4,731,455 from 2007 ($26,179,168) to 2008 ($30,910,623).
Similarly there is an increase in Investment Income of $2,090,522 from 2007 ($7,501,002) to
2008 ($9,596,224).
81.
The major item accounting for the drastic increase in equity was the decrease in the
interest rate credited to policyholders which amounted to some $13 million (see Aleong Day 10
and page 6 Audited Accounts 2008.). Both Aleong and Tom Yew inclined to the view that this
was a one-off transaction (see Day 10 Page 51 (Aleong) and Pages 76 to 77 (Tom Yew). Further
Aleong admitted that this was unusual (it had never been done before in 23 years) as normally
Page 46 of 53
you would have an increase in insurance benefits, but in this case there was a decrease in the
interest rate (from 6% to 5%) credited to policyholders (see Day 10 page 24).
82.
With respect to the actuarial adjustment of the interest rate resulting in an increase in
shareholders’ equity by some $13 million, Tom Yew conceded that this achieved a dual purpose,
namely to increase the profits of Mega Insurance and to take care of the statutory fund deficit at
one and the same time (Day 10 pages 90 to 91).
(vi) Accumulated losses
83.
Even while Mega Insurance focused on its equity of $59 million as indicative of its
healthy state, the 2008 Audited Accounts revealed that in 2007 it had accumulated losses of $35
million and that the $20 million profit shown for 2008 reduced that accumulated loss/deficit to
$14.7 million (see also Day 10 Tom Yew). Again this is an indication of a company that is not in
a healthy financial condition. I therefore reject Tom Yew's evidence to the contrary.
5. Conclusion
84.
In view of the foregoing I agree with the Plaintiffs and the First Defendant that
historically, and up to the present time, Mega Insurance has been in a state of poor financial
health and has been consistently, save and except for 2008, in default of its obligations in relation
to the statutory fund which it is duty bound to maintain. The reasonable inference to be drawn
from the amazing turnaround of Mega Insurance in its financial fortunes from 2007 to 2008 is
that it is not indicative of any sustainable improvement in its business performance. Rather it
was, as both Aleong and Tom Yew acknowledged, a one-off transaction. It seems unlikely that it
will happen again. It seems to me that Mega Insurance was forced to go that route having regard
Page 47 of 53
to the fact that the statutory fund deficit had ballooned out of all proportion and Central Bank
required immediate steps to be taken to rectify same. Further Central Bank had some concerns
about its immediate and short-term prospects, requesting an Interim Strategic Plan for the latter
half of 2008 by July 31, 2008 and approved 3 to 5 year Strategic and Operational plans by
December 31, 2008. As such the weak financial state of Mega Insurance still persists.
85.
While at the inception of the merger Demerara Life could have been considered weak,
Mega Insurance was disproportionately weaker. Having regard to its historical weakness and
inability to satisfy the statutory fund deficit, Mega Insurance poses a threat to the financial
security of Demerara Life policyholders in the event that it be allowed to assume legal liability
for their policies.
86.
Accordingly I hold that there are good grounds for setting aside the Merger Agreement
on the basis that the merger would be unfairly prejudicial to and in unfair disregard of the
interests of the policyholders of Demerara Life within the meaning of section 242 of the
Companies Act. The question that arises is whether the court should exercise its statutory power
to set aside same in the circumstances of this case. In my view there is no legal or other
impediment to setting aside the Merger Agreement. Firstly, while the operational stage was
completed, the Merger Agreement has not been implemented and there has been no
amalgamation of the life insurance businesses of Mega Insurance and Demerara Life. Secondly
Central Bank was first required to approve the Scheme of Transfer and that has not occurred.
Thirdly there is no difficulty in unraveling the transaction so far. The main element requiring
unraveling is that shares issued by Mega Insurance to the shareholders of Demerara Life would
require cancellation. Former shareholders of Demerara Life, who now hold shares in Mega
Insurance, would need to deliver up their shares to Mega for cancellation. There are only three
such shareholders, Demerara Holdings, Demerara Mutual of Guyana and Computers and
Controls Limited. The court can therefore make an order setting aside the Merger Agreement.
Fourthly there seem to be no adverse tax implications in setting aside the merger. Fifthly there
seems to be consensus as between Mega Insurance and Demerara Life as to the management
costs incurred to date by Mega Insurance in managing the life insurance business of Demerara
Page 48 of 53
Life. Finally the First Defendant remains a viable commercial entity and it seemed to have been
accepted in the closing submissions that it still had its licence to carry on insurance business [see
generally Palmer v Carling O’Keefe24].
87.
Further I have already outlined, when dealing with the events around the time of the
merger (paras 48 to 60), conduct which in my view amounts to oppression its widest sense
against both Demerara Life and the Mega Insurance.
Allegations of impropriety not affecting the outcome of the trial
88.
There were several allegations of impropriety canvassed during the course of the trial.
However they do not, whether considered individually or collectively, alter its outcome.
Allocation of shares by Demerara Holdings
89.
As indicated earlier, Demerara Holdings was incorporated to hold shares in Demerara
Life for and on behalf of the participating policyholders of Demerara Mutual as at December 31,
1990 and also to facilitate implementation of the Scheme of Transfer of the life insurance
business from Demerara Mutual to Demerara Life. Demerara Holdings therefore became a
Trustee for the policyholders of Demerara Mutual and that trust was evidenced by a Trust Deed
dated December 31, 1991. The Scheme of Transfer governing the transfer provided that such
shares were to be held by Demerara Holdings " upon trust after being issued to the Trustee and
as soon as possible after the effective date [December 31, 1985] the Trustee shall allocate such
shares to individual policyholders while retaining title to them. The Trustee shall complete the
allotment of such shares by transferring them to the beneficial owners."
24
Palmer (n 10)
Page 49 of 53
90.
In cross-examination Doyle, as chairman of Demerara Holdings, could provide no
satisfactory explanation as to the failure by Demerara Holdings to transfer the block of shares it
holds as trustee to the Demerara Life policyholders. Doyle readily conceded that the Trustee had
a duty to give effect to the trust and that the Trustee was in breach of that duty. While Doyle
attributed the failure to, among other matters, not having an actuarial valuation, it turns out that
one was not even requested: see Day 2 Transcript and pages 13 to 17. However it should be
noted that Doyle, quite reasonably in my view, indicated in re-examination the Demerara
Holdings could not transfer the shares until they had the title to same and that could only have
been done after the Trust Deed had been prepared. Doyle now seeks to justify that failure by
stating that Demerara Life and Mega Insurance agreed to delay the distribution until after the
merger had been approved by the SOI. There is some support for the latter contention: See D 37
(Minutes of Mega Insurance of January 16, 1998 and May 21, 1998). However having regard to
my decision to set aside the merger, it is manifest that the terms of, and indeed, the distribution
of the block of shares to the Demerara Life policyholders should be re-addressed by the relevant
parties.
91.
In Greenlight Capital Inc v Stronach Mr. Justice Ground stated25 :
All of the conduct of Greenlight outlined above is certainly not something that
should be condoned by this court but the issue becomes whether such conduct
of Greenlight, or its motive for bringing this application, ought to disentitle
Greenlight to any remedy if this court finds that oppressive conduct is
established. The authorities seem to establish the proposition that an applicant's
improper conduct is not a bar to an oppression remedy unless the improper
conduct was the direct cause of the alleged oppressive conduct.
While the failure to distribute the block of shares to the Demerara Life policyholders should not
be condoned, that should not disentitle the Plaintiffs to any remedy if oppressive conduct is
25
(2006) 22 BLR (4th) 11 [117]
Page 50 of 53
established. The allegations against the First and Second Plaintiffs are not direct causes of the
oppressive conduct established in the instant case nor do they neutralize same.
Payment of fees to Winchester
92.
The Plaintiffs canvassed the issue of improper payment of fees to Winchester. Merely for
the sake of completeness I find, on the evidence, that Mega Insurance sought to some extent to
assist Winchester at a time when he was seriously ill and dying. Some of these payments were
reflected under the dubious heading "Awards Function". However, in my view that does not
impact on my overall finding.
Payment of finder's fee to Doyle
93.
To a similar extent is the question of the finder's fee of $150,000 admittedly paid to
Doyle in connection with the sale of Goodwill General Insurance, a wholly owned subsidiary of
Demerara Life. By letter dated July 19, 2000 the auditors questioned this finder's fee since they
found no evidence that this was approved by the Board of Directors of Demerara Life. In crossexamination Doyle undertook to produce the minutes of the Board approving such a fee but
failed to do so. However the Board Minutes of Mega Insurance merely reveal that the Board took
the decision that the practice of a finder's fee should be discouraged in the future.
DirecOne
94.
The evidence that emerged on the issue of arrears of rent owed by DirecOne, a company
associated with Peter Gillette, for the use of Demerara Life's building at No. 74 Independence
Square, was unsatisfactory. In those circumstances I do not propose to attach any weight to same.
95. Accordingly I make the following orders:
Page 51 of 53
96.
(1).
There will be a declaration that the business or affairs of the First and
Second Defendants as affiliated companies have been, and are being,
carried on or conducted and are destined to be carried on or conducted,
and the powers of the Fourth and Fifth Defendants as directors of both
companies have been exercised in a manner that is oppressive or unfairly
prejudicial to or unfairly disregards the interests of the First Plaintiff as a
former shareholder of the First Defendant and a shareholder of the
Second Defendant and the interests of the holders of life policies issued
by the First Defendant for whom the First Plaintiff acts as Trustee.
(2).
An order pursuant to section 242 (3) (h) of the Companies Act setting
aside the agreement dated November 17, 1995 entered into between the
First Defendant and the Second Defendant for the merger of their
respective life insurance businesses.
(3).
An order that the 17,500,000 shares issued by the Second Defendant in
its capital to the former shareholders of the First Defendant in order to
acquire the entire issued capital of the First Defendant held by such
shareholders as part of the said merger agreement be cancelled and the
former holders of shares in the First Defendant restored to their former
positions.
After hearing arguments from the parties on the date of this judgment on the issue of
costs I ordered:
1.
Costs of the action are to be paid by the First and Second Defendants to
the First Plaintiff, save that the First Defendant's costs to be paid to the
First Plaintiff shall only be payable up to December 13, 2007, the date
the resolution was passed by the First Defendant to get out of the merger.
2.
The First Defendant is to be indemnified for all costs paid to date on
behalf of the First Plaintiff.
3.
The costs herein are certified fit for Senior and Junior Advocate
Attorney.
4.
Costs are to be taxed by the Registrar in default of agreement.
Page 52 of 53
It was also by consent ordered that there would be a Stay of Execution of six weeks from the
date hereof.
DATED this 1st day of April, 2011.
………………………………….
PRAKASH MOOSAI
JUDGE
Page 53 of 53