The Deep Veins of the Sons of Gwalia Litigation

Abstract

This paper engages in a doctrinal analysis of historical precedent on aggrieved shareholder claims in the UK. It does so in order to expose the basis for the judgment of the House of Lords in the foundational case of Houldsworth v City of Glasgow Bank (1880) 5 App Cas 317, which held in cases involving fraudulent or misleading behaviour inducing share purchase that it would be inconsistent with a shareholder’s membership contract to ‘claim back’ amounts originally committed to the company for the pursuit of its business objects and the payment of its liabilities. This analysis will demonstrate that the judgments in Houldsworth (which have prevented shareholders ranking on par with unsecured creditors up until the determination of the High Court in Sons of Gwalia Ltd (admin apptd) v Margaretic (2007) HCA 1) ignored relevant legislation in the form of s 38(7) of the Companies Act 1862 UK which was specifically applicable to cases involving aggrieved shareholder claims, instead relying on principles drawn from the law of partnerships to decide the case. While it is submitted that the High Court was justified in choosing not to apply Houldsworth, the rule may still prove good law in certain circumstances. Having been the subject of a recent Corporations and Markets Advisory Committee review the issue of aggrieved shareholder claims is current as ever, though the veins of the problem run rather deep in the history of Australian and UK corporations law. This paper seeks to illustrate the value of a deeper understanding of the history of such claims to making informed policy decisions going forward. The paper argues that the rule in Houldsworth’s case should be abrogated by legislation in order to provide certainty in this technical area of the law.