Court cannot decide fair value of BWIA shares

In a ruling yesterday, Appeal Court judges, Chief Justice Ivor Archie, Gregory Smith and Alice Yorke-Soo Hon ruled in favour of the Minister of Finance and the TT Securities Exchange Commission (SEC) in a lawsuit which questioned the court’s jurisdiction under By-Law 26 of the Securities Industry (Take Over) By-Laws 2005 to proceed with a shareholder’s claim to fix a fair value of his shares in the now defunct State-owned national airline.

The minister and the SEC had appealed the 2010 decision of Justice Sebastian Ventour who had rejected submissions by lawyers representing the minister, and the SEC that the court had no jurisdiction to fix a fair value of BWIA shares in a lawsuit brought by one minority shareholder, Horace Reid, on behalf of 30 of the airline’s minority shareholders.

The judge had ruled that the court could fix a fair value of the shares held by these shareholders.

Reid, a Morvant resident, had alleged that the SEC failed to protect the rights of minority shareholders. Reid’s attorney Lynette Seebaran-Suite filed a writ in accordance with By-Law 26 (2b) of the Security Industry (Takeover By-laws) 2005. The shareholders were seeking an order fixing the fair value of their shares in BWIA which was closed in 2006 to make way for Caribbean Airlines Limited.

They were offered 20 cents per share on June 1, 2009, but found the offer unacceptable. Reid’s lawsuit sought to force the Government to buyout his shares at a fair value to be fixed by the court.

Martin Daly, SC, and Mark Seepersad appeared for the Minister of Finance while Terrence Bharath instructed by Andre Le Blanc, represented the SEC.

In his ruling, Justice Smith agreed with lawyers for the minister and the SEC that although Government acquired 97.2 percent of shares in BWIA in 2004, at the time the Take Over Code was only a document being considered, and was not law.

“It gave no rights to anyone, nor did the Government act on it, in any way before it became law. No one could rely on the Take Over Code as a source of rights in a court. It had no legal effect on the rights issue,” he found.

Reid’s attorney had argued that the Government, having become the controlling majority shareholder of BWIA in 2004, minority shareholders could invoke section 26 of the Take-Over By-laws and pursue a fair value application in the court.

But Justice Smith disagreed, saying neither the majority share ownership by the Government nor the later ex-gratia payment offered to BWIA minority shareholders on June 1, 2009, could invoke the court’s jurisdiction under the statute.

He also held that the provisions in the By-law were not applicable retrospectively.

The By-laws apply to public companies whose shares are traded on the Stock Exchange and were proclaimed on March 17, 2005.

Smith said the rights issue of June 2004, did not invoke the provisions of By-Law 26 since the provisions of the statute created a new right that did not exist before March 2005.

“A 90 percent majority shareholding in a public company trading on the Stock Exchange by itself gave no rights to minority shareholders prior to March 2005. Therefore, when the Government acquired 97.2 percent shareholding in BWIA in June 2004, it gave no right to any minority shareholder to invoke any buy out or fair value scenario,” he said.

He also said retrospective interpretation of By-Law 26 to the prior rights issue would inflect a detriment on the Government “in the sense of at least creating new obligations and duties in regards to events already passed,” despite arguments to the contrary raised by Reid’s attorneys that there was an exception in this case as provisions were designed for the benefit or protection of the public.

He said this was not a case of protecting society against future misconduct but was one in which statute imposed new obligations and duties for an entity holding 90 percent shareholding in a public company traded on the Stock Exchange.

Justice Smith questioned “why must a minority shareholder have more than one bite at the cherry” when they would have “received the benefits of the rights” created by the By-law once he had accepted a buy out.

“To give continuing rights of buy out/fair value proceedings to a shareholder is to go beyond protecting minority shareholders. It is akin to punishing majority shareholders,” he ruled.