 | ||
Citation(s) [1974] UKPC 3, [1974] AC 821 Ruling court Judicial Committee of the Privy Council Similar Regal (Hastings) Ltd v Gulli, Cook v Deeks, Aberdeen Rly Co v Blaikie Br, Industrial Development Consulta, Greenhalgh v Arderne Cinemas | ||
Howard Smith Ltd v Ampol Petroleum Ltd [1974] UKPC 3 is a leading UK company law case, concerning the duty of directors to act only for "proper purposes". This duty has been codified into the Companies Act 2006 section 171, and arises particularly in cases involving takeover bids.
Contents
Facts
RW Millers was embroiled in a hostile takeover bid, by a large petrol company called Ampol. Ampol already controlled (with an associated company) 55% of the shares. The directors did not want Ampol to buy the shares of RW Millers as Howard Smith had bettered terms for take over by offering employment to the directors even in the future. So the directors of RW Millers issued $10m of new shares. They said it was to finance the completion of two tankers. The shares were given to Howard Smith Ltd who were going to take over RW Millers, and that blocked Ampol’s rival bid. Without the issue, Howard Smith Ltd had no hope of succeeding in taking over the company. But with the new issue, Ampol could not complete its acquisition.
Street J said that the argument of the directors that the tanker purchase was the dominant purpose was ‘unreal and unconvincing’.
Judgment
Lord Wilberforce held that the issue was intra vires but that it was exercised for an improper purpose. ‘To define in advance [what that means is] impossible.’ It must be adjudged ‘in the light of modern conditions’, and referred back to Hogg v Cramphorn Ltd. His judgment continued.