COMPULSORY WINDING-UP 135

COMPULSORY WINDING-UP-THE "JUST AND

EQUITABLE" RULE
DAVID HUBERMAN*

This article discusses the use of compulsory (i.e., involuntary) wind-

ing-up as a remedy for resolving intra-corporate disputes. 1 Strictly
speaking, the·term "winding-up" is used to describe the process whereby
the company's assets are liquidated and the affairs of the company are
brought to a halt, as distinguished from "dissolution" which formally
terminates the corporate existence. 2 For practical purposes, and for the
purposes of this article, the terms are used interchangeably.
A. GENESIS OF THE RULE
Virtually all American commentaries on involuntary corporate dis-
solution dwell at length on the power of courts of equity to dissolve
corporations in the absence of express statutory authority. 3 Such dis-
cussions generally involve a consideration of the visitorial jurisdiction
of courts of equity. While the American writers are not all in agree-
ment, the general consensus would seem to be that the courts have such
jurisdiction, presumably as an extension of their visitorial powers in
equity.'
In Canada and England the visitorial powers of a court of equity over
corporations are equally well established, IS· despite statements to the
contrary. 6 Indeed, as Mr. Justice Duff said in Madden v. Dimond: 7
Herein the court but exercises .its powers of control over trustees and other per-
sons sustaining a fiduciary relation which is inherited from the Court of Chancery;
and hence it is not within the operation of the rule which proscribes its inter-
ference in purely domestic disputes among the members of such bodies.

Wegenast, a leading Canadian writer on corporations, has gone as far

as to suggest 8 that
• B.A., LL.B., LL.M. (Harv.), Associate Professor, Faculty of Law, University of British
Columblba, Vancouver, B.C.
1 For American discussion of this same subject matter see generally, Tingle, The Stock-
holde,-'s Remedy of CorpMate Dissolution ( 1954) ; Israels, The Sacred Cow of CorpMate
E:ristence-P1"oblems of Deadlock and Dissolution (1952), 19 U. of Chi. L. Rev. 778
(a "classic" in the field); Hornstein, A Remedy for Corporate Abuse-Judicial Powe,o
to Wind Up a Corporation at the Suit of a Minority Stockholder (1940), 40 Colum. L.
Rev. 220; O'neal, Close Corporations (1958), Vol. 2, ss. 9.26; O'neal, Qppughancy and
Oppression in Close Corporations: Remedies in America and Britain (1959), 1 B.C.
Ind. & Comm. L. Rev. 1, at 18-25; Cary, How Illinois Corporations May En;oy PaTtne-r-
ship Advantages: Planning for the Closely-Held Finn (1953), 48 N.W.U.L. Rev.
427, at 437-40; Barkin, Deadlock & Dissolution in Florida Closed CorpMations (1959),
13 Miami L.Q. 395; Annot., Dissolution of Corporation on GTounds of Intm-CorpMate
Deadlock OT Dissolution (1950), 13 A.L.R. (2d) 1260; Stevens, Corporations (2d ed:
1949), c. 22.
For English discussion of this subject matter see McPherson, Winding Up on the
"Just and Equitable" G,-ound (1964), 27 Mod. L. Rev. 282.
2 The American writings speak of "dissolution" whereas the Canadian and English
writings speak of "winding-up". On the distinction between these terms see Stevens,
COTPOTations (2d ed. 1949), at 959-65. Cf. Wegenast, Canadian Companies (1931), at
101-102.
a See writings cited ante, n. 1. ,
4 For a discussion of the American view on the visitorial powers of a court of equity
see Stevens, COTPOTations (2d ed. 1949), at 956-58; Pound, Visitation.al JuTisdiction
Ove,o Corp01"ations in Equity (1936), 49 Harv. L. Rev. 369.
IS See 1 Blackstone, Commentaries 481; Wegenast, Canadian Companies (1931), 775-77.
6 Re Town Topics Co. (1911), 20 Man. R. 574, 576 (Man. Q.B.-"The courts have ordinarily
no vlsitatorial power over companies").
7 (1906), 12 B.C.R. 80, 91 (B.C.C.A.).
a Wegenast, ante, n. 5, at 106.
136 ALBERTA LAW REVIEW

where a winding-up could not be brought within the four comers of the Winding-·
up Act it would be open in a proper case to invoke the general equitable juris-
diction of the court.
Furthermore, in Featherstone v. Cooke 9 it was held that the existence of
disputes between different members of the governing body of a company
which prevented its affairs being carried on properly, was a proper ground
for the intervention of the court by way of injunction and the appoint-
ment of a receiver to protect the property of the company. In that case
Vice Chancellor Malins said: 10
With regard to private partnerships, nothing is of more frequent occurrence than
the quarrels of partners. If parties quarrel, oust each other from the manage-
ment, or so conduct themselves that the partnership cannot go on with ad-
vantage, it is every day's practice for the Court to interfere by injunction, and
appoint a receiver if necessary.

In another case,11 decided by the same judge in the same year, he relied
on his earlier decision and went on to say: 12
the Court will not interfere with the internal affairs of joint stock companies
unless they are in a condition in which . . . there are such dissensions in the
governing body that it is impossible to carry on the business with advantage to
the parties interested. In such a case the court will interfere, but only for a
limited time, and to as small an extent as possible.
The courts' visitorial powers in equity aside, there is no need to dis-
cuss the power of Canadian courts to wind up a company in the absence
of express statutory authority to do so, because each Canadian juris-
diction now has legislation expressly granting this power to the courts, 18
and similar legislation also exists in England and the other common-
wealth countries. 14 The legislation in question typically provides that
winding-up may take place (a) voluntarily, (b) under supervision of
the court, and (c) by order of the court. The third means is the most
commonly used, and the most relevant for purposes of this article.
The legislation relating to compulsory (involuntary) winding-up
provides in every case that "a company may be wound up by the court
if . . . the court is of opinion that it is ;ust and equitable that the com-
pany should be wound up, "u or words to that effect. This legislation,
granting a broad discretionary power to the court, is commonly referred
to as the "just and equitable" rule.
The first statute which provided for involuntary dissolution at the in-
stance of shareholders on grounds other than the insolvency of the
corporation was the English Joint Stock Companies Winding-up Act,
1848.16 It is this same Act which first introduced the broad "just and
equitable" rule, expressed in that statute 17 as empowering the court to
dissolve and wind up the company when
any other Matter or Thing shall be shown which in the Opinion of the Court
shall render it just and equitable that the company should be dissolved.

9 (1873), 16 L.R. Eq. 298.

10 Id., at 301 (dictum).
11 TTade Au.rilian, Co. v. VickeTS (1873), 16 L.R. Eq. 303.
12 Id., at 305 (dictum).
1a See past., n. 21.
14 See Post, n. 15 and 24.
u See e.g., Companies Act, 1948, 11 & 12 Geo. 6, c. 38, s. 222 (U.K.) (Emphasis added).
16 11 & 12 Viet., c. 45. Interestingly, the full title of the Act indicates that it was
deslsned, inteT alia, "to facilitate the dissolution and winding-up of ;oint stock
companies and otheT paTtneTships," (emphasis added).
17 Id., s, 5 (8),
 COMPULSORY WINDING-UP 137

This provision, along with others in the statute, was transferred to the
English Companies Act, 1862,18 and now appears, in substantially the
same form, as section 222 (f) of the Companies Act, 1948.19
By way of comparison, the "just and equitable" rule did not make
its appearance in Canada until 1889.20 All Canadian jurisdictions now
have provisions for the involuntary dissolution of corporations on the
"just and equitable" ground, 21 although the province of Quebec did not
have legislation for involuntary winding-up until 195722 and the broad
"just and equitable" rule was not enacted there, as such, until 1963.23
Similar legislation also exists in other commonwealth countries. 24
It is not infrequently the case that the "just and equitable" rule ap".'
pears in the statutes at the end of a list of other specified grounds on
which he court may order a winding-up, 25 though this is not invariably
the case. 26 Such other stated grounds are generally in the nature of a
forfeiture or surrender for such things as allowing the number of share-
holders to fall below the minimum number required by statute, failure
to comply with statutory requisites as to the filing of reports and the
like, or failing to commence business within a year, all relate, in turn,
to a form of insolvency, as where the capital is impaired or the company
is unable to pay its debts. A detailed discussion of these other grounds
is beyond the scope of this article and, in any event, it is usually only
under the "just and equitable" rule that the principal form of relief
relevant to the theme of this article can be obtained. It is, however,
vital to note that the courts have now established, beyond any doubt
whatsoever, that the "just and equitable" rule is an independent ground
for relief and is not to be read ejusdem generis with the preceding grounds
for winding-up which are commonly set out in the statute. 27

B. THE GENERAL NATURE OF THE RELIEF

The courts have, in the exercise of their powers under the "just and
equitable" rule, made it abundantly clear that there are no fixed outside
18 25 & 26 Viet., c. 89, s. 79 (5). The "Just and equitable" rule was also transferred to
the Partnership Act, 1890, 53 & 54 Viet. c. 39, s.35 (f).
19 11 & 12 Geo. 6, c. 38.
20 52 Viet., c. 32, s.4 (Can.).
21 See, Companies Act, R.S.B.C. 1960, c. 1960, c. 67, s. 219(2); Companies Act, R.S.A.
1955, c. 53, s. 179 (e), Corporations Act, R.S.O. 1960, c. 71, s. 256(d); Corporations Act,
S.M. 1964 (2d Sess.), c. 3, s. 319(d); Companies Act, R.S. Nfdl. 1952, c. 168, s. 131(5);
Companies Winding-Up Act, R.S.N.S. 1954, c. 46, s. 4; Companies Winding-Up Act,
R.S.S. 1953, c. 131, s.5; Winding-Up Act, R.S. P.E.I. 1951, c. 176, s. 22(c); Winding-
Up Act, R.S. N.B. 1952, c. 252, s. 3(f); Winding-Up Act, R.S.C. 1952, c. 296, s. lO(e);
Winding-Up Act, R.S.Q. 1964, c. 281, s. 24.
22 S.Q. 1957, c. 41, s. 25. As to the situation in Quebec prior to this time see Re Muutal
Enterprises Inc., [1938) 2 D.L.R. 778 (Que. Sup. Ct.). For cases under the 1957
legislation see Lefebvre v. Lefebvre Freres Ltee. (1963), 4 C.B.R. (N.S.) 38 (Que.
Sup. ct.); In re PTussin & Park Distributors Inc. (1963), 6 C.B.R. (N.S.) 31.
2a S.Q. 1963, c. 55, now R.S.Q. 1964, c. 281; s. 24.
24 See, e.g., Companies Act, Victoria Acts of Parliament 1961, No. 6839, s. 221 (h)
(Australia).
211 See, e.g., U.K. Companies Act, 1948, ante, n. 15. See also, Winding-Up Act, R.S.C. 1952, c.
296, s. 10; Companies Act, R.S.A. 1955, c. 53, s. 179. For a discussion of the earliest
grounds of dissolution of a corporation see 1 Blackstone, Commentaries, 485.
26 See, e.g., Companies Act, R.S.B.C. 1960, c. 67, s. 219(2).
27 That this matter ls now universally true throughout the commonwealth would seem
beyond doubt from the authorltles. See, e.g., England: Loch v. John Blackwood Ltd.,
[1924) A.C. 783 (P.C. Barbados); In re Yenid;e Tobacco Co., [1916) 2 Ch. 426 (~A.);
In re Sailing Ship Kentmere Co., [1897) Weekly N. 58 (Ch.); Scotland: Baird v.
Lees, [1924) Sess. Cas. 83 (C.A.); Symington v. Symington's Quarries Ltd. (1906),
8 Sess. cas. (5th Ser.) 121. Ireland: Re Newbridge Steam Laundry Co., [1917) 1 Ir.
R. 67. Australia: In re Straw Products Ptv. Ltd., [1942) Viet. L.R. 222 (Sup. Ct.):
In re Brunswick (Australia) Ltd. (1931), 32 N.S.W. St. 545 (Eq.). New Zealand:
In re Upper Hutt Town Hall Co., (1920) N.Z.L.R. 125 (Sup. Ct.).
For earlier cases holding to the contrary, see In re Anglo-Greek Steam Co., [1866)
L.R. 2 Eq, 1 (M.R.); In re Diamond Fuel Co. (1879), 13 Ch. D. 400 (CA.).
138 ALBERTA LAW REVIEW

limits to the rule but rather that each case must be decided on its own
facts. Indeed, where appropriate, the courts have, over the years, ex-
panded the rule into new areas as fresh circumstances and situations
have arisen and as the courts' reformulation of standards of intra-corpo-
rate conduct have developed. Thus, parallel to, and underlying, the
expansion of the "just and equitable" rule there has been a corresponding
imposition of stricter standards of behaviour on the directors and majority
shareholders in their treatment of minority shareholders. Similarly,
there has been a growing recognition by the courts of the special nature
and needs of the close corporation or, as some courts prefer to call it,
the partnership iu the guise of a company.
The power of the court to make a winding-up order is within the
realm of its equitable jurisdiction and, as is traditional in courts of
equity, the jurisdiction is construed liberally. Thus it has been said: 28
The words "just and equitable" are words of the widest significance and do not
limit the jurisdiction of the Court to any case. It is a question of fact and each
case must depend upon its own circumstances.
And further: 29

Nor ... can any general rule be laid down as to the nature of the circumstances
which have to be home in mind in considering whether the case comes within the
phrase.
In addition, it is clear from the legislation that the courts have been
granted a broad discretion under the "just and equitable" rule. This is
not to say that such discretion is unbounded, for as was pointed out by
Lord Clyde in Baird v. Lees: so
This discretion must however be judicially exercised. It is not enough for the
Court in exercising it to have, in the familiar phrase of a decree-arbitral, "God
and a good conscience" before its eyes; grounds must be given which can be
examined and justified.
As to the general approach that the court should take in any given
case, Lord Shaw stated, in Loch v. John Blackwood Ltd.,81 that in con-
sidering whether it was "just and equitable" to make a winding-up order,
the court's consideration
ought to proceed upon a sound induction of all the facts of the case, and
should not exclude, but should include circumstances which bear upon the
problem of continuing or stopping courses of conduct which substantially impair
those rights and protections to which shareholders, both under statute and con-
tract, are entitled.
The natural tendency of text-writers and judges alike is to categorize
the relevant cases within a given area of the law so that they may be
more easily handled, discussed and applied. This writer proposes to do
likewise, in order to make the task at hand more manageable, though
it is felt appropriate at this point to add the following caveat:
Facts rendering it just and equitable that a company should be wound up can-
not be resolved into categories. Cases upon the subject are to be read with
this always in mind. They merely illustrate the diversity of the circumstances
calling for an exercise of the Court's discretion in winding up a company be-
cause it is just and equitable to do so.32
28 In Te Bleriot AiTCTaft Mfg, Co. -(1916), 32 T.L.R. 253, 255 (Ch., PeT Neville, J.).
20 Davis & Co. v. BTUns10ick (Au.stl.) Ltd., [1936) 1 All E.R. 299, 309 (P.C., Austl., Pff
Lord Maugham).
so (1924) Sess. Cas. 83, 90 (Scot.).
81 U924) A.C. 783, 788 (P.C., Barbados),
32 In Te StTaw P1'oducts Pt21. Ltd,, (1942), Viet. L.R. 222, 223 (C.A., peT Mann. C. J.),
 COMPULSORY WINDING-UP 139

With this admonition in mind, it is now proposed to consider the cir-

cumstances which will amount to a "just and equitable" cause.
There are no fixed definitions of what circumstances will constitute
sufficient grounds under the broad "just and equitable" rule although
a few jurisdictions have sought to supplement the "just and equitable"
rule by legislating specific related grounds which. might conceivably also
fall under the rule. 88
There emerge from the cases three principal relevant categories which
will be analyzed and discussed presently under the headirigs (1) "justifi-
able lack of confidence,"· (2) "deadlock", and (3) "the partnership ana-
logy". Before doing so, however, it is only appropriate to point out that
-these three grounds do not exhaust the "just and equitable" rule. In-
deed, these three grounds are actually of fairly modern origin. While
the other grounds under the "just and equitable" rule are beyond the
scope of this article by virtue of their not being directly relevant to the
resolution of intra-corporate disputes, they are, nevertheless, worthy of
brief mention, if only because of their historical importance and by way
of comparison.
The first of such other grounds which will justify a winding-up order
under the "just and equitable" rule (and the first ground to have emerged
under the rule) is where there has been a failure of the corporate objects-
the "substratum" of the company has disappeared 34 or, as so colorfully
described by Lord President Clyde in Baird v. Lees,8r, "the case in
which circumstances occur which have the effect of knocking the bottom
out of the company's business." It has been held, however, that the
winding-up process cannot be used to evoke a judicial decision as to
the probable success or failure of the company. 36
Similarly, the company may be wound up where it is a mere "bubble
company" 87 or a fraudulent scheme, 38 or where it is being operated solely
for the benefit of debenture holders. 89

33 See, e.g., Winding-up Act, R.S.N.B. 1952, c. 252, s. 3(e). Cf. S.Q. 1957, c. 41, s.
25; repealed by S.Q. 196S, c. 55. See al!;o In Te Pfflssin & PaTk DistributOTs Inc.,
ante, n. 22 which, in obiteT, nevertheless construed the 1957 Quebec provision as the
equivalent of the "just and equitable" rule.
8• For a discussion of scope and effect of the "loss of substratum" rule see, e.g.
Ensland:
Re Eastern Tele9TaPh Co., (1947) 2 All E.R. 104 (Ch.); Re Kitson & Co., (1946) 1 All
E.R. 435 (C.A.); Re Baku Consolidated Oilfields Ltd., (1944 J 1 All E.R. 24 (Ch.):
In re Amalgamated Si,ndicate, (1897) 2 Ch. 600; In Te Haven Gold Mining Co.
(1882), 20 Ch.D. 151 (C.A.): In re German Date Coffee Co. (1882), 20 Ch.D. 169
(C.A.); In Te Diamond Fuel Co. (1879), 13 Ch.D. 400 (C.A.); In re Joint Stock
Coal Co. (1869), L.R. 8 Eq, 146; In re Anglo-Greek Steam Co. (1866), L.R. 2 Eq,
1; In Te Factage Parisien Ltd. (1864), 34 L.J. Ch. 140; In re National Live Stock
Ins. Co., 26 Beav. 153, 53 E.R. 855 (M.R. 1858).
Canada:
Re Westcoast ReseaTch & Develapt. Co. (1963), C.C.H. Dom. Cos. L.Rep, No. 30-462
(B.C. Sup. Ct.): Re Columbia Gypsum Co. (1959), 17 D.L.R. (2d) 280 (B.C. Sup.
Ct.); In re Winnipeg Saddlery Co. (1934), 42 Man. R. 448 (K.B.); Re TOTonto
Finance Corp. (1930), 65 O.L.R. 351 (H.C.); Re Ju.Ty Gold Mine Developt. Co.
(1928), 63 O.L.R. 109 (C.A.); Re British Empire Steel Corp,, [1927) 2 D.L.R.
964 (N.S. Sup. Ct.): Re Hamilton Ideal Mfg. Co., 34 O.L.R. 66, 23 D.L.R. 640
(H.C. 1915). See also, Fraser & StewaTt, Company Law of Canada, (5th ed 1962),
798.
sG [1924) Sess. cas. 83, 90 (Scot.).
86 In Te Suburban Hotel Co. (1867), L.R. 2 Ch. App. 737.
87 Having reference to the famous South Sea Company and the "Bubble Act of 1720.. ,
as to both of which see generally, Gower, Modern Company Law, (2d ed. 1957), c. 2.
38 In Te T. C. Brinsmead & Sons, [1897) 1 Ch. 406 (C.A.); ·In re Anglo-Greek Steam Co.
(1866), L.R. 2 Eq, 1. Cf. In re Gold Co. (1879), 11 Ch. D. 701 (C.A.): Re Medical
Battery Co., [1894) 1 Ch. 444; Re Honoood & Co., (1921) N.S.W. St. 750 (Sup, ct.).
89 Re Chic Ltd., [1905) 2 Ch. 345; In Te Alfred Melson & Co., (1906) 1 Ch. 841.
140 ALBERTA LAW REVIEW

C. THE "JUST AND EQUITABLE" RULE

This section discusses, in considerable detail, the circumstances under
which a corporate winding-up may be obtained un4er the three main
recognizable categories of the "just and equitable" rule which are rele-
vant to the theme of this ~icle. These are here labelled, for con-
venience sake only, as (i) "justifiable lack of confidence," (ii) "dead-
lock", and (iii) "the partnership analogy". These categories are by no
means mutually exclusive, but rather are very much intertwined, both
by judicial construction and by plain common sense. For this· reason, it
is not at all uncommon to find that the facts of any given case may give
rise to a claim under any one or more of these categories. It is by no
means necessary to bring a case under all three categories. Any one
of the grounds will suffice, provided there is no other impediment to the
granting of the relief. While this is so, and while this article does purport
to discuss each category separately as if it were an independent ground
for relief, it should be pointed out that, as the subsequent discussion
will show, one or more of these separate grounds may now have proven
to be redundant in light of the development and expansion of the "partner-
ship analogy" ground and the great scope that it affords. Indeed, by vir-
tue of the fact that the "partnership analogy" seems to be pervading the
whole of the "just and equitable" rule, it may well prove to be the case
that there are not any separate categories at all, but only one broad
"partnership analogy" category.
This development is not really very surprising, for in a sense the "just
and equitable" rule is predicated on the partnership analogy and its
fundamental recognition of the close corporation as a special kind of
company and as being in reality the equivalent of an incorporated part-
nership. This is unquestionably the principal reason why winding-up
has proven to be such an effective remedy.
It should also be pointed out that running through the cases under
the "just and equitable" rule, and under each of the three categories
herein discussed, are several fundamental propositions. The most basic
of these is that there is a well-recognized reluctance on the part of the
courts to interfere in the internal affairs of a corporation. As one
judge put it: 40
While the words "just and equitable" are clearly intended to be elastic in their
application in order that as the case arises injustice and inequity may be pre-
vented, it is common ground that a very strong case must be made to justify the
interference of the court in the internal management of the company's affairs.
This reluctance to interfere is based on several well known "rules",
variously called the "internal management" rule; the "business judge-
ment" rule, and the principle of "majority rule". Simply put, these
rules come down to nothing more than this--the courts believe strongly
that the majority of a corporation are entitled to govern the corporation
as they, and not the court, see fit and the majority will be allowed to do
so free from court interference, unless their conduct is so gross as to
stock the conscience of the court.
Not all courts are as reluctant as others to grant winding-up orders.
Those that are reluctant tend invariably to fall back on the standard
40 Re British EmpiTe Steel COTP., (1927) 2 D.L.R. 964 (N.S. Sup. Ct., Chisholm, J.).
See also, Re Lanoham Skating Rink Co. (1877), 5 Ch.D. 669, 685 (James, L. J.).
 COMPULSORY WINDING-UP 141

principles of majority rule, and the like. Those courts less reluctant,
manage skillfully to avoid reference to these time-worn cliches. Hope-
fully, in the discussion which follows, the foregoing matters will become
apparent.
(i) "Justifiable lack of confidence"
The leading case which established this ground is Loch v. John Blach-
wood Ltd. 41 The facts of the case are briefly as follows. A company was
formed under the Barbados Companies Act to take over an engineering
business carried on by Mr. Blackwood before his death and left by his
will for the benefit of members of his family. The testator's brother-in-
law was given a preponderating voting power and the post of managing
director. He, together with fellow directors omitted to hold general
meetings, submit financial statements, or recommend any dividends and,
in the opinion of the court, had laid themselves open to the suspicion
that they were keeping the minority shareholders in ignorance of the
company's position ·and affairs so as to freeze out the minority and
acquire their shares at an under value. In these circumstances the
minority shareholders, who were not directors, petitioned for a winding-
up order on the ground, inter alia, that it was "just and equitable" that
the company should be ordered to be wound up.
Lord Shaw, speaking for the Privy Council, allowed the petitioners'
appeal from the lower courts, which had refused to make a winding-up
order, and said that the circumstances were such that it was indeed just
and equitable that the company should be ordered to be wound up. In
the course of his judgement Lord Shaw propounded the now classical
"justifiable lack of confidence" test in the following words: 42
It is undoubtedly true that at the foundation of applications for winding up,
on the "just and equitable" rule, there must lie a justifiable lack of confidence
in the conduct and management of the company's affairs. But this lack of con-
fidence must be grounded on conduct of the directors, not in regard to their
private life or affairs, but in regard to the company's business. Furthermore
the lack of confidence must spring not from dissatisfaction at being outvoted
on the business affairs or on what is called the domestic policy of the company.
On the other hand, wherever the lack of confidence is rested on a lack of probity
in the conduct of the company's affairs, then the former is justified by the latter,
and it is under the statute just and equitable that the company be wound up.

This statement by Lord Shaw contains all the elements of this test,
though subsequent cases have often added a gloss to it.
In the course of developing his judgement, Lord Shaw had occasion
to rely4 8 on the following statement by Lord President Clyde in Baird
v. Lees,:"
I have no intention of attempting a definition of the circwnstances which amount
to a 'just and equitable' cause. But I think I may say this. A shareholder puts
his money into a company on certain conditions. The first of them is that the
business in which he invests shall be limited to certain definite objects. The
second is that it shall be carried on by certain persons elected in a specified
way. And the third is that the business shall be conducted in accordance with
certain principles of commercial administration defined in the statute, which
provide some guarantee of commercial probity and efficiency. If shareholders
find that these conditions or some of them are deliberately and consistently vio-
lated and set aside by the action of a member and official of the company who
4t [1924} A.C. 783 (P.C., Barbados).
42 Id., at 788.
48 Id., at 793.
44 [1924) Sess. Cas. 83, 92 (Scot.).
142 ALBERTA LAW REVIEW

wields an overwhelming voting power, and if the result of that is that, for the
extrication of their rights as shareholders, they are deprived of the ordinary
facilities which compliance with the Companies Acts would provide them with,
then there does arise, in my opinion, a situation in which it may be just and
eq¢table for the Court to wind up the company.
As to the scheme of the directors to freeze out the petitioners and acquire
their shares at an under value, Lord Shaw, in a classic bit of judicial
understatement, simply said: 411
Their Lordships do not desire to characterize these suggestions in the language
which they fully deserve ..... confidence in its management was, and is, and
that most justifiably, at an end.
It is interesting to note, before leaving this case, that in spite of the
fact that the company in question was formed as a "public" company,
the Privy Council treated it as a "domestic or family concern" 46 and
hence perhaps foretold the eventual application of the "partnership
analogy".
The Loch case, in addition to being the fountainhead of the "justifiable
lack of confidence" test, is also a classic example of one of the most
frequently encountered forms and manifestations of intra-corporate con-
flict, namely the situation where the power of the majority sharehold~rs
is used to secure ownership of the undertaking of the company or of the
holdings of the minority at an undervalue through the classic device of
a "freeze out"' 7 of the minority. 48
The other classic manifestation of cause and effect of intra-corporate
disputes is the situation where the majority shareholders treat the com-
pany or its assets as their own property and thus avoid the necessity of
even buying the minority shareholders out. It is now abundantly clear
that such conduct will also come within the "justifiable lack of con-
fidence" test and thus support a winding-up order. 49 Probably the
leading case which best illustrates this point is Thomson v. Drysdale. 150
There the majority shareholder held 1,501 shares to the minority share-
holder's one share and, after differences arose between the parties, the
majority shareholder proceeded to take over the entire control of the
business and treat it as if it were his alone. In granting the minority
shareholder's petition for winding-up order Lord President Clyde stated
that 151
in any case in which the shareholders who hold a preponderating voting interest
in a company make it manifest that they intend to set at naught the security
provided by company procedure, and to treat the company and its affairs as if

415 Ante, n. 41, at 796.

48 Id., at 786.
47 On "freeze-outs" (or "squeeze-outs") see generally, O'Neal & Derwin, E%PU18iofl Ot'
()pJwesaion of BusineBB ABBociates: Squeeze-Outs in SmaU Ente1'Prises (1961).
The earliest known use of the term "freeze-out" in Canada is believed to be .in
Re Jo.mes Lumbe,os Ltd. (1925), 58 Ont. L.R. 100, 117 (Ont. H.C.).
48 For another classic case of "freeze-out" see In T"e Wondoflez Teztiles PttJ. Ltd.,
(1951) Viet. L.R. 458 (Sup. Ct.). Majority deliberately made false accusations against
minority, reduced his. salary and status, and threatened further action of the same
kind, all with the obJect of making minority's POSltlon intolerable and forcing him
to resign and to sell his shares at a substantial undervalue.
Cf,, Re FIOT"entine Land Co. (1926), 31 O.W.N. 70 (H.C.); Re Jo.mes Lumbe,os
Ltd., ante. n. 47.
49 See, e.g., Bo.inl v. Lees, [1924) Sess. Cas. 83 (Scot. C.A.); Re Mo.T'tello & Sons Ltd.,
(1945)· 453 (C.A.); In T"e WA, Stoo.n & Som Ltd., (1962) So. Austl. St. 310. (Sup, Ct.
1947); In T"e Straw Products pty, Ltd., [1942) Viet. L.R. 139 (Sup. Ct.), aff'd. [1942)
Viet. L.R. 222 (C.A:.). See also, Re Consolidated South Rand Mines Deep Ltd., (1909)
1 Ch. 491.i, Re Bleriot Mfg, AiT"eraft Co. (1916), 32 T,L.R. 253 (Ch.); .Re Neu,brlc:lge
So.nito.T"U.,-team Lo.undf'U Ltd,, (1917) 1 I. R. 67 (C.A.).
GO [1925) Se88, Cas. 311 (Scot, C.A.).
111 Id., at 315.
 COMPULSORY WINDING-UP 143

they were their property, it is impossible that the minority should retain any
confidence in the impartiality or probity of the company administration.

The fact that the petitioner held only one share to the majority share-
holder's 1,501 singularly failed to impress the court. As Lord Skerring-
ton said: 152
it behoves [sic] the shareholder who has 1,501 votes to avoid any conduct which
would reasonably lead to the inference that he fails to appreciate the fact that
it is his duty to use his voting power in the interests of the company as a whole,
and that he must not ignore the interests of the other shareholder or treat the
company and its assets as if they were his own private property.

Subsequent cases have sometimes rephrased the test and, as a result,

new illustrations have emerged. Thus, as Mr. Justice Rose said in Re
James Lumbers Ltd./ 3 the test required
misconduct sufficient to destroy a reasonable shareholder's confidence that the
business, if left in the hands of the respondents, will be conducted competently
and honestly and in the interests of all the shareholders, including the petitioners.

Clearly, acts of fraud or dishonesty will suffic~ to give rise to a justifiable

and well founded lack of confidence in the conduct of the management
of the company. Thus, by way of illustration, it has been held ·that
involving the firm in serious income tax evasions 54 or misappropriating
company funds 155 will suffice to meet the test.
It is impossible to say with any confidence what circumstances are
certain to meet the test for there are a series of cases, most of them in
the Ontario courts, which suggest that a very serious wrongdoing will
be required before the courts will interfere by way of making a winding-
up order. 56 These cases all rely on the internal management rule and
the principle of majority rule and sprinkled throughout them are such
unfortunate expressions as "might is right". 111 These cases also speak
in terms of requiring something akin to clear "oppression" 58 or fraud.
Anything falling below these tends to be labelled a mere "domestic dis-
pute or quarrel"/ 9 or "a matter of domestic policy and internal manage-
ment."00 In addition, these courts tend to insist that such non-serious
disputes be settled by the domestic forum of the company, the general
meeting or by ordinary suit in the courts. Thus we find one court
saying: 61
A winding-up petition cannot be resorted to merely because there is dissension
within the company. The majority must govern. If they act in such a way

112 Id., at 316.

53 58 O.L.R. 100, 118 (H.C.). Quoted with approval and applled in Re Toronto Finance
Corp. (1930), 65 O.L.R. 351,355 (H.C.).
54 See, e.g., Re Maritime Asphalt Products Ltd. (1965), 52 D.L.R. (2d) 8 (P.E.I. Sup.
Ct.).
155 See, e.g., Bannerman v. Concrete Column Clamps Ltd., (1953) 4 D.L.R. 60 (Que:
Sup. Ct.); Re Martello & Sons Ltd., (1945) O.R. 453; (19451 3 D.L.R. 626 (C.A.).
56 See, e.g., Re Jury Gold Mine DeveloPt, Co. (1928), 63 O.L.R. 109 (C.A.); Re Shipu,ay
Iron Bell & Wire l\ffg. Co. (1926), 58 O.L.R. 585 (C.A.); Re James Lumbers Ltd.
(1925), 58 O.L.R. 100 (H.C.); Re Noden Hallit & Johnson Ltd. (1924), 26 O.W.N. 296
(H.C.), leave to appeal refused, 26 O.W.N. 330; Re Imperial Steel & Wire Co. (1919),
17 O.W.N. 324 (H.C.); Re Harris Maxwell Larder Lake Gold Mining Co. (1910), 1
O.W.N. 984 (H.C.); Re Dewey & O'Heir Co. (1909), 13 O.W.N. 32 (Div. Ct.).
See also, In re Winnipeg Saddlery Co. (1934), 42 Man. R. 448 (K.B.); Re Sydney
& Whitney Pier Bus Service Ltd., (1944) 3 D.L.R. 468 (N.S. Sup, Ct.).
57 In re Winnipeg Saddlery Co. (1934), 42 Man. R. 448, 458 (K.B.).
158 See, e.g., Re Sydney & Whitney Pier Bus Service Ltd., [1944) 3 D.L.R. 468, 472 (N.S.
Sup. Ct.).
59 See e.g., Re Jury Gold Mine DeveloPt Co. (1928), 63 O.L.R. 109, 110 (C.A.); Re Ship-
way Iron Bell & Wire Mfg. Co. (1926), O.L.R. 585 (C.A.).
oo See, e.g., Re R. C. Young Insurance Ltd., (1955) O.R. 598, 607 (C.A.). See also,
Scott v. Northland Beverages (1956) Ltd. (1959), 31 W.W.R. (N.S.) 287 (B.C.C.A.).
01 Re Harris Maxwell Larder Lake Gold Mining Co. (1910), 1 O.W.N. 984 (H.C.).
144 ALBERTA LAW REVIEW

as to give the minority any actionable grievance, redress must be sought in an

action in the courts, not by the staying of the company by means of the winding-
up clauses of the Companies Acts.
Such a statement similarly illustrates that the closer the conduct
complained of is to "oppression", the greater the likelihood of a finding
of lack of probity and a justifiable lack of confidence. On the other
hand, the closer the conduct complained of is to the other end of the
scale, mere dissension, the less likely the chance of success in obtaining
a winding-up order under the justifiable lack of confidence test. This is
illustrated by a line of cases 02 which adopt and apply that portion of
Lord Shaw's judgment in Loch v. John Blackwood Ltd. to the effect
that the petitioner's lack of confidence must not spring from "dissatis-
faction. at being outvoted in the business affairs or on what is called
the domestic policy of the company." 03
Similarly, it is clear that mere dissatisfaction with dividends or profits
will not sufficiently justify a lack of confidence. 64 In the words of one
court, 011
profit or loss, prudence or imprudence, are matters with which this court has
nothing whatever to do.
Seemingly, such matters fall within the realm of "domestic policy."
It is also clear that alleged misconduct of the directors in refusing
to register transfers 00 or transmissions of sharesll7 will not meet the re-
quired test to justify a lack of confidence. Nor will dissatisfaction with
the failure of the majority to buy out the shares of the dissident minority. 08
Whether or not mismanagement per se is sufficient to justify a wind-
ing-up order is impossible to determine, for the cases seem in hopeless
and possibly irreconcilable conflict. Thus in In re Diamond ·Fuel Co.,69
it was held that
mere mismanagement on the part of the directors, even although it might be
such as to justify a suit against them in respect of such misconduct or mis-
management, is not of itself sufficient to justify a winding-up order.
It should be pointed out, however, that the case just quoted from also
held that the "just and equitable" rule had to be read ejusdem generis
with the stated grounds which preceded it, a view no longer valid. This
case, among others, was, however, relied on by Mr. Justice Plowman in
In re Surrey Garden Village Trust Ltd.,7° decided in 1965. Mr. Justice
Plowman stated as a "well-settled" principle that "misconduct or mis-
management by the management committee ... is not of itself a ground
for making an order on the petition of a member." 71 It could of course
be argued that Mr. Justice Plowman relied on weak authority at best,
but the difficulty is that there is no express authority to the contrary.
02 See, e.g., Re R. C. Young InsuTance Co., (19551 O.R. 598, 607 (C.A.).
oa Ante, n. 42.
114 See e.g., BuckneT v. BouTbon Fanning Co. (1955), 14 W.W.R. (N.S.) 406, 412 (Sask.
Q.B.): Re James LumbeTs Ltd. (1925), 58 O.L.R. 100, 112 (H.C.); Re Noden Hallitt &
Johnson Ltd. (1924), 26 O.W.N. 269 (H.C.), leave to appeal refused, 26 O.W.N. 330;
Re Anglo-Continental PToduce Co., [19391 1 All E.R. 99 (Ch.). Cf., In Te W. A. Swan
& Sons Ltd., [19621 So. Austl. St. 310 (Sup. Ct.).
61\ Re E1,tTopeanLife AssuTance Soc. (1869), L.R. 9 Eq, 122, 131.
66 Cha.Tles Forte Investments Ltd. v. Amanda, (19641 Ch. 240 (C.A.).
11; Re Cuthbert CoopeT & Sons Ltd., [1937) Ch. 392.
11s Buckner v. BouTbon Fanning Co. (1955), 14 W.W.R. (N.S.) 406, 412 (Sask. Q.B.).
no (1879), 13 Ch. D. 400, 408 (C.A.). See also, In Te Anglo-GTeek Steam Co. (1866),
L.R. 2 Eq. 1 (M.R.).
,o [19651 1 W.L.R. 974 (Ch.).
il Id., at 981.
 COMPULSORY WINDING-UP 145

Indeed the only other case even remotely relevant raises the affirmative
only by implication. 72
Seemingly with a view to overcoming any doubt on the matter, the
legislature of New Brunswick has seen fit to enact a provision whereby
the court may make a winding-up order
when the company, to such an extent as to prejudice the interests of the share-
holders or creditors, . . . has committed fraudulent acts in the management of
its affairs, or has been negligently mismanaged. •3

Admittedly, the mismanagement must have been done "negligently",

but the petitioner's task is made easier by the fact that the legislation
goes on to provide that the onus is on the company to show that it is not
liable to be wound up on this ground.H Unfortunately no other Canadian
jurisdiction has such legislation and within the commonwealth only
India has even comparable legislation.' 5
One other important type of conduct is similarly free from doubt.
That is the propriety of those in control issuing new shares to themselves
or their nominees so as to keep control and keep down a dissident
minority, and whether such conduct would justify a lack of confidence
sufficient to warrant the making of a winding-up order. The 1962
Australian case of Re Wm. Brooks & Co. Ltd. 76 held that such conduct
was improper and would justify a winding-up order. By contrast, in
the 1965 case of In re Surrey Garden Village Trost Ltd.," Mr. Justice
Plowman held, as one of many grounds for refusing a winding-up order,
that there was not impropriety in such conduct. The matter is, therefore,
as yet still unsettled, though it should be pointed out that the Brooks
case was also decided on the basis of a recently enacted provision in the
New South Wales Companies Act 78 which empowered the court to make
a winding-up order if
the directors have acted in the affairs of the company in their own interests
rather than in the interests of the members as a whole, or in any other manner
whatsoever which appears to be unfair or unjust to other members.
The language of the statute just quoted is strangely reminiscent of a
judgement which takes one of the most liberal views of the degree of
conduct required to show a "justifiable lack of confidence," that of Mr.
Justice Lowe in In re Straw Products Pty. Ltd., 79 wherein he stated:
It is not necessary . . . that the facts should show a lack of probity in the
majority shareholders. A lack of probity might be sufficient ground, but it is
not the only ground. It is sufficient if the conduct of the majority has been
unfair or unjust to the minority, or if that conduct furnishes just ground for
the destruction of the confidence of the minority in the majority shareholders.
Mr. Justice Lowe's liberalized view of the test was predicated and, seem-
ingly, dependent on his recognition that the company there sought to be
wound up was in reality a partnership and 80
72 In re Westcoast Research & Developt. Co. (1963) C.C.H. Dom. Cos. L. Rep., No.
30-462 (B.C. Sup. Ct.).
73 R.S.N.B. 1952, c. 252, s. 3(e) (emphasis added).
74 Id., s. 4.
75 Indian Companies Act of 1956 (consol. to 1961), Act 1 of 1956, VI, "Prevention of
Oppression and Mismanagement".
76 1962 N.S.W. St. 142 (Sup. Ct.). See Also, In re Kurilpa Protestant Hall Pty. Ltd.,
(1946) Qd. St. R. 170 (Sup. Ct.).
77 (1965) 1 W.L.R. 974 (Ch.).
78 Now, N.S.W. Companies Act, 1964, s. 222(1) (f).
79 (1942) Viet. L.R. 139, 141 (Sup. Ct.), aff'd., (1942) Viet. L.R. 310 (C.A.),
so Ibid.i
146 ALBERTA LAW REVIEW

conduct which is sufficient to destroy the confidence of one partner in another

is an adequate ground for ordering a winding up of a private company.
This unequivocal molding of the "partnership analogy" into the "justifi-
able lack of confidence" test has undoubtedly expanded the scope of the
latter test. Alternatively, as was commented on earlier in this article,
it may well indicate the disappearance of the "justifibale lack of con-
fidence" test into what is gradually becoming an all encompassing "part-
nership analogy" test. 81 The intertwining of the two concepts by Mr.
Justice Lowe seems all the more valid when one remembers that even
Lord Shaw in Loch v. John Blackwood Ltd. 82 hinted at such inter-in-
volvement, although Lord Keith, in Elder v. Elder & Watson, 88 has thrown
some doubt on the validity and thrust of Mr. Justice Lowe's approach.
Lord Keith stated: 84
Lack of confidence rested on a lack of probity in the conduct of a company's
affairs seems to me to be something quite different from mutual lack of con-
fidence between partners in the management of partnership affairs.
Before leaving a discussion of the "justifiable lack of confidence"
test, it is not inappropriate to point out that, regardless of the conduct
complained of, the petitioner will be more likely to impress the court if
he can show some prejudice to himself. This is so because, as one judge
has pointed out: 815
I can see no reason why there should be a lack of confidence-quite the contrary .
. . . I could stand a lot of nonsense from a man who was making me as much
money as [defendant] is making, not only for himself but for the applicants.
(ii) "Deadlock"
Deadlock in the management of the company's affairs was held to
be a sufficient ground to justify the making of a winding-up order as
early as 1897 in England, 86 but this category of winding-up was first given
full expression in In re Yenidje Tobacco Company Ltd., 87 a case which
is also credited with the firm establishment of the "partnership analogy".
The facts of the Y enidje case are briefly as follows. Two individuals,
Wand R, who had previously carried on separate businesses as tobac-
conists and cigarette manufacturers, agreed to amalgamate their busi-
nesses and to this end formed a private limited company in which they
were the sole shareholders and directors. Each was to have equal voting
control and any differences between them were to be settled by arbitra-
tion. The one difference which was submitted to arbitration, whether
or not a certain individual should be employed as factory manager, re-
sulted in an arbitration which lasted for eighteen days and involved costs
exceeding £1,000, not including the costs of the parties. The arbitration
resulted in an award to which R declined to give effect. Relations be-
tween the two shareholders deteriorated further and they became so
hostile and antagonistic to one another that neither would even speak
to the other, and all communications between them had to be conveyed

st See, e.o., Re National Drive-in Theatres Ltd. (1954), 11 W.W.R. (N.S.) 145 (B.C.S.C.);
In re Purvis Fisheries Ltd. (1954) [ 13 W.W.R. (N.S.) 401 (Man. C.A,).
82 Ante, n. 46.
83 (1952) Sess. Cas. 49 (Scot. C.A.).
84 Id., at 59.
815 Re Michael P. Georgas Ltd., [1948) O.W.N. 429, 431 (H.C., per Urquhart, J.) (Winding•
up granted for "deadlock"), revs'd. by [1948) O.R. 708 (C.A.).
86 In re Sailing Ship "Kentmere" Co., [1897) W .N. 58 (Ch.). Cf. In re Mason Bros.
Ltd. (1891), 12 L.R. (N.S.W.) Eq. 183.
87 [1916) 2 Ch. 426 (C.A.).
 COMPULSORY WINDING-UP 147

through the secretary of the company. Despite this bitter dissension and
hostility, the company continued to prosper. In these circumstances W
petitioned the court for a winding-up order under the "just and equitable"
rule. The Court of Appeal affirmed the trial judgement that the cir-
cumstances justified the making of a winding-up order under the "just
and equitable" rule. Lord Cozens-Hardy, Master of the Rolls, categorized
the situation which existed between the parties by saying: "If ever there
was a case of deadlock I think it exists here." 88 He pointed out the futility
of arbitration as a means of resolving the differences between the parties
and also pointed out that the company was in substance a partnership.
He approved and adopted, 89 as the basis for justifying the making of a
winding-up order in the circumstances there present, the following pas-
sage from Lindley on Partnership: 90
Refusal to meet on matters of business, continued quarrelling,· and such a state
of animosity as precludes all reasonable hope of reconciliation and friendly co-
operation have been held sufficient to justify a dissolution. It is not necessary,
in order to induce the Court to interfere, to show personal rudeness on the part
..of one partner to the other, or even any gross misconduct as a partner. All that
is necessary is to satisfy the Court that it is impossible for the partners to place
that confidence in each other which each has a right to expect, and that such
impossibility has not been caused by the person seeking to take advantage of it.

Lord Justice Warrington also confirmed that "a company may be

wound up if, for example, the state of things is such that what may be
called a deadlock has been arrived at in the management of the business
of the company. " 91
It should also be noted that the company was ordered to be wound
up despite the fact that it continued to earn substantial profits, even in
the face of the "deadlock" and inability of the two shareholder-directors
to agree on matters of corporate management.
From the Yenidje case the "deadlock" rule can be formulated as
follows. Where it is impossible to carry on the business of the company
owing to internal disputes which have produced a state of deadlock which
cannot be ended by a resolution passed by the shareholders, the court
will wind up the company on the ground that it is "just and equitable"
to do so. As is readily apparent, this rule is really only applicable to
close corporations or incorporated partnerships, for in non-close corpora-
tions there is likely to be a separation of ownership and management
and hence at least the possibility of the shareholders meeting apart from
the disputing factions and resolving the dispute.
One of the most fascinating Canadian cases on "deadlock" is In re
Prussin and Park Distributors Inc., 92 a case which also serves to introduce
an examination of a most unique legislative attempt to define the "dead-
lock" category. In the Prussin case the shares were owned equally by
two factions, each faction being comprised of a husband and wife. Each
of the four was to be a director, officer and employee. Disputes arose
and the relationship between the parties deteriorated to the point w,here
one faction was excluded from any participation in the management and

ss Id., at 432.
89 Id., at 430.
oo Lindley, Partnnship, (8th ed. 1912), 657: now found at (12th ed. 1962), 593.
91 Ante, n. 87, at 435.
92 (1963), 6 C.B.R. (N.S.) 31 (Que. Sup. Ct.). CJ. Lefebvre v. Lefebvre Freres Ltee.
(1963), 4 C.B.R. (N,S.) 38 (Que. Sup. Ct.).
148 ALBERTA LAW REVIEW

affairs of the company. This excluded faction petitioned for a winding-

up order under legislation first enacted less than five years previously. 98
Mr. Justice Hannen of the Quebec Superior Court held that this was
a case of "deadlock" and made the winding-up order on the basis of the
petitioner's having met the five statutory requirements. These require-
ments were that there be (1) no other effective and appropriate remedy,
(2) an equal split of shares and control, (3) serious and persistent
disagreement, as to the choice of directors or officers or as to some im-
portant questions respecting the management or functioning of the
corporation, (4) a resulting deadlock (5) which paralyses and seriously
interferes with the normal operations of the corporation. 94
Needless to say, this legislation almost exactly describes the common
law version of the "deadlock" category and indeed, Mr. Justice Hannen
went out of his way to point out that as far as he was concerned this
legislation should be construed and interpreted in a manner analogous
to the "just and equitable" rule, despite the difference in wording.
In the course of his judgement Mr. Justice Hannen alluded to the
fact that in the French language version of the statute the word "im-
passe" was used in place of "deadlock" and that that word equally de-
scribed the state of affairs which existed between the parties. 95 He
went on to point out his interpretation of the "paralysis" requirement
of the legislation and in so doing took an extremely realistic view for
he said: 00
I include in "normal operations" not only the trading operations but also the
basic matters of administration and control and policy.
This interpretation is, it is submitted, completely consistent with the
realistic approach taken in the Y enidje case.
It should be pointed out that the Quebec legislation just discussed
was the sole ground provided for involuntary winding-up. It was re-
pealed in 1963°7 and replaced by a simple "just and equitable" rule, thus
bringing the legislation into conformity with the legislation of all the
other Canadian jurisdictions. 08
These are by no means the only cases which have held that "dead-
lock" was a sufficient basis on which to justify the making of a winding-
up order. 99 The cases are not, however, in complete agreement as to
whether or not deadlock is of itself a sufficient basis for the making
of a winding-up order, although the tendency to be found in the more
modern cases would seem to be that "deadlock" is per se sufficient. 100
oa S.Q. 1957-58, c. 41, s. 25.
Ibid.
94
os 6 C.B.R. (N.S.) 31, 40.
oo Id., at 40-41.
01 S.Q. 1963, c. 55. Now see R.S.Q. 1964, c. 281.
os See, e.g., Companies Act, R.S.B.C. 1960, c. 67, s. 219 ( 2).
oo See, e.g., Re Vancouver Minit Auto Wash Ltd. (1956), 17 W.W.R. (N.S.) 208 (B.C.S.C.):
Re National Drive-in Theatres Ltd. (1954), 11 W.W. (N.S.) 145 (B.C.S.C.): In f'e
Purvis Fisheries Ltd. (1954), 13 W.W.R. (N.S.) 401 (Man. C.A.); Bonar v. Toth,
[1957) O.W.N. 268 (C.A.); Re Bondi Better Bananas Ltd., (1951) O.R. 845 (C.A.);
In re White Castle Inn Ltd., [1946) O.W.N. 773 (H.C.); Bannerman v. ConCTete Column
Clamps Ltd., (1953) 4 D.L.R. 60, C.S. 107 (Que. Sup. Ct.); Re Citizen's Coal &
Forwarding Co., [19271 4 D.L.R. 275 (Ont. Cty. Ct.); In re Upper Hutt Town ·Han
Co., [1920) N.Z.L.R. 125 (Sup. Ct.); Re The Merchants &: Shippers' S.S. Lines Ltd.
(1917), 17 N.S.W. St. 146 (C.A.); In re Fromm's Extract Co (1901), 17 T.L.R. 302
(C.A.); In re Mason Bros. Ltd. (1891), 12 L.R. (N.S.W.) Eq. 183.
100 See, e.g., Re Bondi Better Bananas Ltd., [1951) O.R. 845, 855 (C.A.). See also
In re Fromm's E:rtract Co. (1901), 17 T.L.R. 302 (C.A.). Cf., In re F. Hall & Sons
Ltd., [1939) N.Z.L.R. 408 (C.A.).
 COMPULSORY WINDING-UP 149

As was suggested by the Quebec legislation discussed in the Prussin

case, 101 the "deadlock" must involve and be the result of "serious and
persistent disagreement", for the courts will be loathe to interfere in
anything less serious. The rule was best expressed in the case of
Symington v. Symington's Quarries Ltd.: 102
[If] the Court finds that . . . the company has come to a deadlock they will
consider themselves justified in acting. . . . On the other hand, they certainly
will not allow the aid of that section where all that has happened is merely
what you might call a domestic quarrel between two sets of shareholders. The
company itself is the proper "forum" for the settlement of domestic differences,
according to the powers of the majority under the constitution of the company.
While the classic case of "deadlock" is the situation where there
are only two equal shareholders at odds, or two equal factions at odds,
the authorities now establish (despite cases to the contrary) 103 that
"for a situation in a company to be recognized as a deadlock, equal
holdings of stock by the contesting factions is not required.". 104 The
trend is, hence, to treat "complete deadlock" and "deadlock in sub-
stance" alike. 1011
It is submitted that a court would have no difficulty in resolving not
only a deadlock caused by an equality of votes, but also a deadlock.
caused by the exercise of a veto power 100 built in to the corporate
structure in the form of higher than normal voting or quorum 101 · re-
quirements. Indeed, the chances of deadlock occurring are greatly
increased where there are such veto or high quorum provisions or
where there are only two shareholders or an even number of directors.
As one judge said, in commenting on a provision of a shareholders'
agreement which provided for an equal number of directors, "the likeli-
hood of impasse was foolishly agreed upon in advance." 108
Some of the cases, most notably those which imply that a "complete"
or "absolute" deadlock must exist, have tended to hold that a winding-
up will not be granted where the deadlock is only "temporary" 100 or
where it can be overcome by the appointment or election of an ad-
ditional director. 110 Similarly, it has been held that the deadlock must
be actual and present and not merely speculative or future. 111
The proposition that an "absolute deadlock" is not required an~ that
a "deadlock in substance" will suffice finds its clearest expression in the
cases dealing with casting votes. Theoretically and technically, the
101 Ante, n. 72.
102 8 Sess. Cas. (5th Ser.) 121, 129 (Scot. C.A.). Quoted and applied in Re Jury Gold
Mine Developt. Co. (1928), 63 O.L.R. 109 (C.A.). See also, Re Hugh-Pam Porcupine
Mines Ltd., (1942) O.W .N. 544 (H.C.); Re Toronto Finance Corp. (1930), 65 O.L.R.
351 (H.C.); Re James Lumbers Ltd. (1925), 58 O.L.R. 100 (H.C.).
10s See, e.g., In re Bambi Restaurant Ltd., (1965) 1 W.L.R. 750, 752 (Ch.), ,:by implication);
In re Davis Investments (East Ham) Ltd., (1961) 1 W.L.R. 1396, 1399 (C.A.), (by
implication); Re Furriers' Alliance Ltd. (1907), 51 Sol. J. 172, 173 (Ch.), (by dm-
pllcatlon).
104 In re Purvis Fisheries Ltd. (1954), 13 W.W.R. (N.S.) 401, 409 (Man. C.A.). Accord,
Bannerman v. Concrete Column Clamps Ltd. (1953), C.S. 107, 115 (Que. Sup. Ct.). See
also, Re Winding-up Ordinance & Timbers Ltd. (1917), 35 D.L.R. 431 (Alta. C.A.);
St. Joseph's Lithuanian Benefit Soc. v. Wasiltanskas (1924), 27 O.W.N. 318.
1011 See, e.g., ln re White Castle lnn Ltd., (1946) O.W.N. 773, 775 (H.C.).
100 See, e.g., Re The Merchants & Shippers, S.S. Lines Ltd. (1917), 17 N.S.W. St. 146
(C.A.).
101 See, e.g., Re Michael P. Georgas Co., (1948) O.W.N. 429 (H.C.), revs'd. by (1948)
O.R. 708 (C.A.).
10s In re Prussin & Park Distributors Inc., Ante, n. 22, at 37 (per Hannen, J.).
109 See, e.g., Re Michael P. Georgas Co. ante, n. 107 (C.A.).
110 See, e.g., Re Toronto Finance Corp. (1930), 65 O.L.R. 351, 355, (H.C.); In re Davis
Investments (East Ham) Ltd., (1961) 1 W.L.R. 1396, 1399 (C.A.); Re Furriers Alliance
Ltd. (1907), 51 Sol. J. 172, 173 (Ch.).
111 Re Anglo-Continental Produce Co., (1939) 1 All E.R. 99, 103 (Ch.).
150 ALBERTA LAW REVIEW

presence of a casting vote in one of two equal factions at serious odds

with one another precludes the possibility of an absolute deadlock and
ensuing corporate paralysis. Fortunately, the courts have held, subject
to dictum in one case, 112 that the presence of a casting vote is not a bar
to obtaining a winding-up order under the "deadlock" category. 113 This
was most eloquently put in Re Citizen's CoaL and Forwarding Co. Ltd. 114 _
In discussing the use of a casting vote to break a deadlock "of a parti-
cularly embarrassing and persistent nature" the judge said: m
I am disposed to think that that provision is not intended to go further than to
provide a ready and reasonable means of dealing with occasional or even fre-
quent tie-votes rather than a continuous and settled condition which here
existed.
In another Canadian case 116 the judge said, in respect of a by-law.
which provided for a casting vote, that
the court is of the opinion that the elementary rules of ordinary business morality
would preclude the application of that by-law in favor of a president who sought
to use the same to perpetuate his corrupt administration. 11 ;
Similarly, the "deadlock" category has been applied where there is a
clear imbalance of voting power between two irreconcilable factions. 118
One last aspect of the law relating to the "deadlock" category re-
mains to be mentioned. That is that. the court will not grant a winding-
up order under the "deadlock" category where the petitioner has him-
self caused the deadlock, 119 as for example where he has persistently
and deliberately refused to attend meetings and has thus "broken
quorum". 120 These cases presumably have reference to the last portion
of the statement taken from Lindley on Partnership and applied by the
court in the Y enidje case, 121 namely that the impossibility of recon-
ciliation and cooperation have "not been caused by the person seeking
to take advantage of it."
In summary it may be said that the "deadlock" category is now both
clearly established and fairly fully developed. Circumstances falling
short of actual deadlock will suffice though presumably the disagree-
ment must be present, serious and persistent to avoid being treated
as a mere domestic quarrel or as being of a merely temporary character.
The more permanent and hopeless the deadlock is, the greater the
chance of inducing the court to interfere.

112 In Te Davis Investments (East Ham) Ltd., ante, n. 110.

113 Re Citizen's Coal & FOTWaTding Co., (1927) 4 D.L.R. 275, 277 (Ont. Cty. Ct.); Banner-
man v. Concrete Column Clamps Ltd. (1953), C.S. 107, 114-115 (Que. Sup, Ct.);
Re National Drive-in TheatTes Ltd. (1954), 11 W.W.R. (N.S.) 145, 153 (B.C.S.C.);
Slone & Holt v. MaTgolian (1957), 8 D.L.R. (2d) 115, 123 (N.S.S.C.) (dictum).
114 [1927) 4 D.L.R. 275:
1111 Id., at 277.
110 BanneTman v. ConCTete Column Clamps Ltd., ante, n. 113..
11; Id., at 114-115.
us Re The MeTchants & Shippe,-s' S.S. Lines Ltd., ante, n. 106.
110 See, e.g., Re Bondi Bette,- Bananas Ltd., (1951) O.R. 410 (H.C.) revs'd by (1951),
O.R. 845 (C.A.); Re James Lumbe,-s Ltd. (1925), 58 O.L.R. 100, 115 (H.C.); Re
Dewey & O'Hei'T Co. (1909), 13 O.W.R. 32, 38 (Div. Ct.-Appeal); In 'Te F. Hall &
Sons Ltd., (1939) N.Z.L.R. 408 (C.A.).
120 See, e.g., Re Michael P. Geo'Tgas Co., (ante, n. 107 (C.A.); Re T01'onto Finance
Co'TP, (1930), 65 O.L.R. 351 (H.C.); Re James Lumbe,-s Ltd. (1925), 58 O.L.R. 100,
115 (H.C.).
On the propriety of "breaking quorum" compaTe Ba'TTon v. Potte,-, (1914) 1 Ch.
895 with In Te Capal Varnuh Co., (1917) 2 Ch. 349.
121 Ante, n. 89.
 COMPULSORY WINDING-UP 151

(iii) The "Partnership Analogy"

The "partnership analogy" category of the "just and equitable" rule
is unquestionably the most important and far-reaching of the three
categories discussed in this article.
Its development and subsequent expansion may well prove, in time,
that the "partnership analogy" has made the other categories redundant.
This is so because the "partnership analogy" is extremely broad in
scope and, at the same time, the easiest category to satisfy in terms of
proof. 122
The "partnership analogy" category may be summarized as follows:
in the case of a private company which is in substance a partnership,
the court, in exercising its jurisdiction under the "just and equitable"
rule, should apply the same principles as would be applied in a claim
for dissolution of a partnership.
The earliest expression of the "partnership analogy" is probably to
be .found in Symington v. Symington's Quarries Ltd.,123 wherein Lord
McLaren found that the company comprised as it was of three brothers
was really a "domestic company" and not one "formed by appeal to
the public." 124 He said that "one of the grounds on which it has been
the practice of the court to decree a dissolution is where there is a
small number of partners equally, or nearly equally divided, so that
it is impossible that the business can be. carried on." 125 He went on
to say that "in such a case it is quite obvious that all the reasons that
apply to a dissolution of private companies, on the ground of incom-
patibility between the views or methods of the partners, would be ap-
plicable in terms to the division among the shareholders of this com-
pany".126
While the Symington case might be said. to have contained the seeds
of the "partnership analogy" category, it was really in the famous case
of In re Yenidje Tobacco Co. Ltd. 12 ; that the "partnership analogy" took
root and bloomed. The facts of that case have already been related. 128
It need only be repeated that relations between the t~o equal share-
holder-directors had deteriorated to the point of open hostility, such
that neither would even speak directly to the other and all communica-
tions had to be conveyed between the parties by the company's secretary.
In the course of his now classic judgement, Lord Cozens-Hardy, Master
of the Rolls, set out all the elements of the "partnership analogy" rule.
Thus he said: 120
I think it right to consider what is the precise position of a private company such
as this and in what respects it can be fairly called a partnership in the guise
of a private company.
He went on 130 to add that

122As to the "proof" required, see, however, In re Davis Investments (East Ham)
Ltd., ante, n. 110.
12s (1906), 8 Sess. Cas. (5th Ser.) 121 (Scot. C.A.).
124 Id., at 130.
125Ibid. (Emphasis added).
120 Ibid. (Emphasis added).
12; (1916) 2 Ch. 426 (C.A.).
12R See text accompanying no. 87.
1211 (1916) 2 Ch. 426, 429 (Emphasis added).
1ao Id., at 432.
152 ALBERTA LAW REVIEW

circumstances which would justify the winding up of a partnership ... are cir-
cumstances which should induce the Court to exercise its jurisdiction under
the just and equitable clause and to wind up the company.
Then, with these basic principles established Lord Cozens-Hardy, went
on to examine the state of affairs which existed between the parties and
considered whether the existing state of hostility and dissension should
be allowed to continue. He held that the state of things should not b~
allowed to continue since that was not what the parties contemplated
by the arrangement into which they entered when they formed the
company. He said 131 that
they assumed, and it is the foundation of the whole of the agreement that was
made, that the two would act as reasonable men with reasonable courtesy and
reasonable conduct in every way towards each other.
He later concluded his judgement by adding: 182

It is contrary to the good faith and essence of the agreement between the parties
that the state of things which we find here should be allowed to continue.
Lord Cozens-Hardy made it abundantly clear that the "partnership
analogy" rule was an independent ground and was not dependent on
the establishment of "deadlock". While he conceded that a serious
deadlock did in fact exist there, he went on to add: 133
but, whether it exists or not, I think the circumstances are such that we ought
to apply, if necessary, the analogy of the paTtnership law and to say that this
company is now in a state which could not have been contemplated by the
parties when the company was formed and which ought to be terminated as
soon as possible.
In the course of setting out the criteria for partnership dissolution
which would apply with equal force to the winding-up of a company in
the guise of a partnership, Lord Cozens-Hardy adopted the broadly
worded passage from Lindley on Partnership which was earlier quoted
in this paper.m Its nub and effect is simply that "continued quarrellipg
and such a state of animosity as precludes all reasonable hope of re-
conciliation and friendly cooperation" will suffice to justify the order.m
There is no doubt whatsoever now about the firm establishment of
the "partnership analogy" category, for both the Y enidje case and the
principles which it established have been widely quoted and applied. 130
In fact, so firmly is the "partnership analogy" established that at least
one court felt sufficiently confident to apply it without even relying
on the Yenidje case. 13 ;

1a1 Id., at 431.

1 a:? Id., at 433.
1:ia Id., at 432 (Emphasis added). See also In Te Davis & Collett Ltd., (19351 1 Ch. 693,
at 698 and 701.
1:1.a See text accompanying ante, n. 90.
tali Re Bondi Better Bananas Ltd., ante n. 119, at 855 (per Aylesworth, J. A.). See also,
Bonar v. Toth, ante, n. 99, at 269.
1:111 See, e.g., Re Davis & Collett Ltd., (19351 1 Ch. 693; In re Lundie Bros. Ltd., (19651
1 W.L.R. 1051 (Ch.); Re Winding-up Ordinance & Timers Ltd. (1917), 35 D.L.R. 431
(Alta. C.A.); Re National Drive-in Theatres Ltd. (1954), 11 W.W.R. (N.S.) 145 (B.C.
Sup. Ct.) ; In Re Purvis Fisheries Ltd. (1954), 13 W .W.R. ( N .S.) 401 (Man. C.A.) ;
Bonar v. Toth, [19571 O.W.N. 268 (C.A.); Re Bondi Better Bananas Ltd., (1951) O.R.
845 (C.A.); Re Michael P. Georgas Co., (1958) O.W.N. 429 (H.C.), revs'd by (1948)
O.R. 708 (C.A.); In re White Castle Inn Ltd., [1946[ O.W.N. 773 (H.C.); Bannerman
v. Concrete Column Clamps Ltd., [1953) C.S. 107 (Que. Sup. Ct.); In re Wondofle:r
Textiles Pty. Ltd., (1951) Viet. L.R. 458 (Sup. Ct.); Tench v. Tench Bros. Ltd., (1930)
N.Z.L.R. 403 (C.A.); In re Upper Hutt Town HaU Co. Ltd., [19201 N.Z.L.R. 125
(Sup. Ct.). Cf. Re Horwood & Co. Ltd., [19211 N.S.W. St. 750 (Sup. Ct.). See also,
Re R. C. Young Insurance Ltd., [1955) O.R. 598 (C.A.).
13i Re Maritime Asphalt Products Ltd. (1965), 52 D.L.R. (2d) 8 (P.E.I. Sup. Ct.).
 COMPULSORY WINDING-UP 153

The application of the "partnership analogy" in any given case quite

clearly necessitates that the court be prepared to find that the company
sought to be wound up is in substance an incorporated partnership with
all that that entails by way of implicit mutual good faith, understanding
and cooperation between the "partners". Some Canadian courts have
construed this requirement very strictly and have required that the
shareholders be true "co-adventurers". 13 " Other courts have been more
realistic and liberal and have said that for the partnership analogy to
apply it is not essential that there should be any agreement or under-
standing that all the shareholders are to be entitled to take part in
the company's business. 139
By way of comparison with the United States, there are at least some
American courts which have refused to treat "incorporated partner-
ships" as partnerships for dissolution purposes 140 and the statement was
made in one case 141 that
there is no occasion, either, for holding that, after all, the corporation is only a
partnership. . . . The corporation was chartered by the State, contracted and
incurred debts as a corporation and in all respects operated in that capacity.
Apparently it is only when dissension arises that respondents become dis-
satisfied with their position as shareholders.
These views should be contrasted with the following statement by
Lord Justice Warrington in the Yenidje case: 142
In substance, therefore, it seems to me these two people are really partners.
It is true they are carrying on the business by means 9f the machinery of a
limited company, but in substance they are partners; the litigation in substance
is an action for dissolution of the partnership, and I think we should be un-
duly bound by matters of form if we treated either the relations between them
as other than that of partners or the litigation as other than an action brought
by one for the dissolution of the partnership agai~t the other; but one result
which of course follows from the fact that there is this entity called a company
is that, in order to obtain what is equivalent to a dissolution of the partnership,
the machinery for winding up has to be resorted to. Now, if this had been an
ordinary partnership and an action had been brought for dissolution, it seems
to me quite clear that the plaintiff, who is the petitioner in this case, would have
had sufficient ground for a dissolution of partnership according to the ordinary
principle by which the Court is guided in such matters.
The principal reason why the "partnership analogy" affords such
great scope is that it opens the door to reliance on any of the grounds
which would suffice to justify the dissolution of a partnership by a
court. 143 The full panoply of these "added" grounds may be seen, for
example, in the provisions of the British Columbia Partnership Act, 1 -1-1
which provides:
s. 38 On application by a partner, the Court may decree a dissolution of the
partnership in any of the following cases: -
(a) When a partner is found lunatic by inquisition, or is shown to the satis-
faction of the Court to be of permanently unsound mind, in either .of
which cases the application may be made as well on behalf of that
partner by his committee or next friend or person having title to in-
tervene as by any other partner:

1a11 Re James Lumber Ltd. (1925), 58 O.L.R. 100, 116 (H.C.). See also, Re Sydney &
Whitney Pier Bus Service Ltd., (1944) 3 D.L.R. 468,471 (N.S.S.C.).
130 See, e.g., In re Wondoflex Textiles Ptv. Ltd., I 1951 I Viet. L.R. 458, 4~5 (Sup. Ct.).
140 Hanes v. Watkins (1953), 63 So. (2d) 625 (Fla.); Hennessy v. L?unng (1953), 124
N.Y.S. (2d) 266 (Sup. Ct.), both cited in 2 O'Neal, Close Corporations (1958), 228.
141 Freedman v. Fox (1953), 67 So. (2d) 692, 693 (Fla.).
142 (1916) 2 Ch. 426, 434 (C.A.).
143 As to the grounds on which a partnership may be dissolved by the court see generally,
Lindley, Partnership, (12th ed. 1962), at 587-97.
l•H R.S.B.C. 1960, c. 277,
154 ALBERTA LAW REVIEW

(b) When a partner, other than the partner suing, becomes in any other way
permanently incapable of performing his part of the partnership contract:
(c) When a par~er, other than the partner suing, has been guilty of such
conduct as, in the opinion of the Court, regard being had to the nature
of business, is calculated to affect prejudicially the carrying-on of the
business: . ·
(d) When a partner, other than the partner suing, wilfully or persistently
commits a breach of the partnership agreement, or otherwise so conducts
h~self in matters relating to the partnership business that it is not
reasonably practicable for the other partner or partners to carry on the
business in partnership with him:
(e) When the business of the partnership can only be carried on at a loss:
(f) Whenever in any case circumstances have arisen which, in the opinion
of the Court, render it just and equitable that the partnership be dis-
solved.
Similar legislation exists in every other Canadian provinceH 5 but
one, 1411 as well as in the English Partnership Act, 1890.14 ;
It is readily apparent that the incorporation by reference of the
partnership criteria affords tremendous scope for justifying the winding-
up of a close corporation under the "just and equitable" rule and that,
accordingly, it is not necessary to resort to either the "justifiable lack
of confidence" or "deadlock" categories since it will invariably be
easier to prove a case under the "partnership analogy". As if the specific
grounds stated in the statute for partnership dissolution were not
enough, it should also be remembered that the last groui:id stated is in
itself a "just and equitable" clause and so the whole category is really
still very much open-ended.
While, seemingly, it is not necessary to establish more than a serious
and persistent disagreement with one's fellow shareholders in a close
corporation to succeed under the "partnership analogy", more flagrant
situations will clearly provide "just and equitable" cause, as for example
where the petitioner has been excluded from the management and af-
fairs of the corporation., 14 " assuming it to have been the understanding
of the parties when he entered the firm that he was to be an "active
partner" rather than a "sleeping partner". 140 It must be pointed out,
however, that, generally speaking, a petition for winding-up based upon
the "partnership analogy" cannot succeed if what is complained of is
merely a valid exercise of powers conferred in terms by the articles, 150
as for example where the petitioner was a party to articles of association
or a shareholders' agreement which provides for restrictions on the
transfer of shares and he now complains that the directors have re-
fused to "consent" to his transferring his shares. 1 r.1 In such circum-

145 See, Partnership Acts: R.S.A. 1955, c. 230, s. 38; S.M. 1965, c. 59, s. 38; R.S.N.B. 1952,
c. 167, s. 36; R.S. Nfdl. 1952, c. 224, s. 35; R.S.N.S. 1954, c. 212, s. 37; R.S.O. 1960,
c. 288, s. 35; R.S. P.E.I. 1951, c. 106, s. 38; R.S.S. 1953, c. 352, s. 37.
1411 Quebec has no Partnership Act as such. The dissolution of partnerships is, however,
provided for in the Quebec Civil Code, Arts. 1895, 1896.
Hi 53 & 54 Viet., c. 39, s. 35 (This is, of course, still the current English partnership
legislation) .
ux See, e.g., In Te Lundie BTos. ltd., [19651 1 W.L.R. 1051, 1057 (Ch.); In Te Davis &
Collett Ltd., [19351 1 Ch. 693; Re Winding-Up 0Tdinance & TimbeTs Ltd. (1917), 35
D.L.R. 431 (Alta. C.A.); Re National Drive-in TheatTes Ltd. (1954), 11 w.w.R. (N.S.)
145 (B.C.S.C): In Te Wondoflex Textiles Pty. Ltd., I 1951 I Viet. L.R. 458 (Sup. Ct.).
Cf., Scott v. NOTthland BeveTages (1956) Ltd. (1959), 31 W.W.R. (N.S.) 287 (B.C.C.A.);
Re R. C. Young lnsuTance Ltd., [19551 O.R. 598 (1955), 3 D.L.R. 571 (C.A.).
149 In Te Wondoflex Textiles Pty. Ltd., id., at 467.
tliO Ibid,
t5t See, e.g., In Te CuthbeTt CoopeT & Sons Ltd., [1937) Ch. 392. Cf., ChaTles FoTte In-
vestments Ltd. v. Amanda, [1964) 1 Ch. 240 (C.A.).
 COMPULSORY WINDING-UP 155

stances the "partnership analogy" has worked in reverse, for the courts
have held 1112 that
private companies are . . . from the business and personal point of view . . .
more analogous to partnerships than to public corporations. Accordingly, it is
to be expected that, in the articles of such a company, the control of the directors
over the membership may be very strict indeed. There are very good reasons
. . . why those who bring such companies into existence should give them a
constitution which gives to the directors powers of the widest description.

Seemingly, this use of the "partnership analogy" to sustain the validity

of share transfer restrictions takes precedence over the use of the
"partnership analogy" to justify a winding-up for refusal of the direc-
tors to register a transfer 153 or transmission 164 of shares.
On the other hand, it must be remembered that at least one judge
has said 1511that
acts which, in law, are a valid exercise of powers conferred by the articles may
nevertheless be entirely outside what can fairly be regarded as having been in
the contemplation of the parties when they became members of the company;
and in such cases the fact that what has been done is not in excess of power
will not necessarily be an answer to a claim for winding-up. Indeed, it may be
said that one purpose of ... [the "just and equitable" rule] is to enable the
Court to relieve a party from his bargain in such cases.
Thus, it is on the basis of this reasoning that winding-up orders have
been made where the petitioners were excluded from their positions
as "working partners", even though such exclusions were made by the
majority in the exercise of lawful powers. 156
-The creation and development of the "partnership analogy" seems
less surprising and a little less "modem" when one remembers that the
predecessor of the English company as we now know it was the joint
stock company, which in many ways may be said to be simply an ex-
tension of the partnership. 1117 It should similarly not be overlooked that
the English legislation which introduced the "just and equitable" rule
for winding-up in 1848m had as its formal title, "AN ACT ... TO
FACILITATE THE DISSOLUTION AND WINDING-UP OF JOINT
STOCK COMPANIES AND OTHER PARTNERSHIPS." In addition
Nathaniel Lindley's 159 treatise on the law of Companies, published in
1888, was subtitled: "Considered as a Branch of the Law of Partner-
ship" .100
Whether or not the "partnership analogy" has pre-empted the other
categories under the "just and equitable" rule remains still to be seen.
It is quite clear, however, that even under the existing cases the "part-
nership analogy'' pervades the cases dealing with both "justifiable lack
of confidence" 161 and "deadlock". 162 In fact, the "partnership analogy"
1112 Re Smith & Fawcett Ltd., [1942) Ch. 304, 305 (C.A.).
111sCha8. Forte Investments Ltd. v. Amanda, ante, n. 151.
1114 In Te CuthbeTt CooPeT & Sons Ltd., SUPTaante, n. 151.
11111In
Te Wondo/le.:r Textiles Pty. Ltd., ante, n. 148, at 467 (pe,o Smith, J.).
See cases cited, ante, n. 148.
1116
157 For the history of company law, see generally, Gower, Modun Company Law, (2d
ed. 1957), C. 2, 3.
111s11 & 12 Viet., c. 45 (1848).
159 Afterwards Lord Lindley, M. R., and a Lord of Appeal.
160 Lindley, A TTeatise on the Law of Companies: ConsideTed as a bTanch of the Law of
ParlneTship, (5th ed. 1889).
161 See, e.g., In Te Purvis FisheTies Ltd. (1954), 13 W.W.R. (N.S.) 401 (Man. C.A.);
Bannerman v. ConCTete Column Clamps Ltd., [1953) C.S. 107 (Que. Sup. Ct.).
102 See, e.g., Re Bondi Bette,- Bananas Ltd., ante, n. 119.
156 ALBERTA LAW REVIEW

is so engrossing that it may well prove in time to be so broad that all

that will be required to be proved by the minority shareholder who
petitions for a winding-up order is that there has been a "failure of
cooperation in the common interest, " 163 regardless of what form it takes.
It now seems quite clear that, on the authority of cases such as
Y enid;e, it is not necessary to establish any misconduct or a deadlock
in order to succeed in obtaining a winding-up order. All that is re-
quired is a fundamental and persistent disagreement such as ·makes
it impossible for the parties to get together again and work in harmony
and mutual cooperation. It may one day even be sufficient to show
mere mutual incompatability.
The liberalization of the "just and equitable" rule by the broad
scope of the "partnership and analogy" bodes well for the dissident
minority shareholder who seeks to be rescued by the court from an
unpleasant business relationship.
If the true nature of the close corporation is such that it resembles
a "marriage" of partners, then the "partnership analogy" has provided
what would appear to be, in most circumstances, very broad and ef-
fective grounds for "divorce".
D. BASIC CONDITIONS PRECEDENT TO RELIEF
This section discusses a variety of matters which, under the present
case law and the existing legislation, restrict or bar the right of a
petitioner to get a winding-up order, despite the fact that he may have
in all other respects established a "just and equitable" cause sufficient
to entitle him to a winding-up order.
(i) Who may apply
Among the conditions which must be fulfilled by a minority share-
holder in England who seeks to bring a winding-up petition is that he
prove to the court that
the shares in respect of which he is a contributory, or some of them, either were
originally allotted to him or have been held by him, and registered in his name,
for at least six months during the eighteen months before the commencement
of the winding-up, or have devolved on him through the death of a former
holder. 16 '
This provision, originally enacted in 1867,165 was obviously designed
to prevent a person from becoming a shareholder merely to enable him
to present a winding-up petition.
Similar legislation exists in Australia 166 and India. 167 Only two
Canadian provinces have similar legislation, 168 although a recent un-
reported case 168 a in British Columbia held that an unregistered owner
of shares did not meet the statutory definition of "member" and hence
lacked status to seek a judicial winding-up.
10a Hornstein, A Remedu for CorpOTate Abuse: Judicial Power to Wind Up a CorpOTation
at the Suit of a Minority Stockholder, (1940), 40 Colum. L. Rev. 220, at 230.
10, (U.K.) Companies Act, 1948, 11 & 12 Geo. 6, c. 38, s. 224(1) (a) (ii). For cases dealing
with the need to comply with this requirement see In re City & County Bank (1875),
10 Ch. App, 470 (C.A.); Re A Co., [1894) 2 Ch. 349.
165 See Companies Amendment Act, 1867, 30 & 31 Viet. c. 131, s. 40.
166 See, e.g., Companies Act, Victoria Acts of Parliament 1961, No. 6839, s. 255 (3).
167 Companies Act (India), Act 1 of 1956 (consol. to 1961), s. 439(4) (b).
168 See, Companies Act, R.S. Nfdl. 1952, c. 168, s. 134; Companies Act, R.S.A. 1955, c.
53, s. 180 (2) (a) (II).
1asa In re Sullivan Hotel Ltd., (unreported, April, 1966, B.C; Sup. Ct.).
 COMPULSORY WINDING-UP 157

Most American statutes which provide for involuntary dissolution

at the suit of a minority shareholder require that the plaintiff be the
holder of a specified percentage of the outstanding capital stock of the
corporation, varying from ten percent 169 to one third 110 of the "out-
standing capital stock". Still others require a specified percentage of
the "voting power", in some cases as much as fifty percent. 111
The only comparable provision in Canada is a requirement under
the federal Winding-up Act 112 that the petitioner hold "shares in the
capital stock of the company to the amount of at least five hundred
dollars par value or . . . five shares without nominal or par value in
the capital stock of the company" .178
The object of such requirements is, seemingly, to curb "strike suits"
brought for ulterior or frivolous purposes. 174 The absence of any
statutorily required minimum shareholding in England and Canada,
where the petition for winding-up may be brought by any member (or
contributory) regardless of the size of his shareholding, m has not re-
stricted the courts from exercising an inherent jurisdiction to refuse
a winding-up order whenever they felt the petition was vexatious or
frivolous and not brought bona fide. 176
(ii) The requirement of"clean hands"
Since the relief granted by the court in making a winding-up order
is equitable· the courts are wont to insist that the petitioner come into
court with "clean hands" .111 Thus, in one case, 178 the court refused to
make a winding-up order on the basis, inter alia, that the petitioners
had already secretly gone about setting up a business in competition.
In the colorful language of the judge: 179
People who neglect the obligation to be off with the old love before being on
with the new, and who act in this way, do not display that delicate sense of
honour which one would expect from those who complain of the injury to
their name and fame.
Similarly, the courts have refused in innumerable cases to make a
winding-up order where "the petitioner is himself responsible for the
position in which he finds himself" 180 by reason of his own conduct. 181
This is, it is submitted, simply another manifestation of the "clean
hands" requirement. Thus, in one case 182 the court refused to make
a winding-up order where it felt that the petitioner himself had pre-
cipitated and created the deadlock in a desire to get his money out of
the company. The court there said that the petitioner "does not come
169 See, e.g., Conn. Gen. Stat. 1949, s. 5226.
110 See, e.g., Cal. Corp. Code 1953 (Deering), s. 4650 (b).
111 Ky. Rev. Stat. 1933, s. 271, 570(2).
112 R.S.C. 1952, c. 296.
178 Id., s. 11.
1 H As to the nature of "strike suits" see, Note, Eztortionate Corporate Litigation-the
Strike Suit (1934), 34 Colum. L. Rev. 1308.
See, e.g., Thomson v. DT21sdale, (1925) Sess. Cas. 311 (Scot.), where plaintiff holder
1111
of only one share to defendant's 1,501 shares got a winding-up order.
176 See, e.g., cases cited post, section D (Ill),
111 See Re Mariello & Som Ltd., [1945) 3 D.L.R. 626 (Ont. C.A.), (by Implication).
178 Re Honaood & Co., [1921) N.S.W. St. 750 (S.C.Eq.).
119 Id., at 756.
1so In 1'e Sovereign Oil Co., [1934) 3 W.W.R. 317, 319 (B.C.S.C.).
181 See, e.g., cases where the court held that any alleged deadlock was due largely to
the conduct of the petitioner: Re T01'onto Finance Corp. (1930), 65 O.L.R. 351 (H.C.);
Re James Lumbers Ltd. (1925), 58 O.L.R. 100, 115 (H.C.); Re Dewey & O'Hei1' Co.
(1909), 13 O.W,R. 32, 38 (Div. Ct.); In 1'e F. Hall & Sons Ltd., (1939) N.Z.L.R. 408
CC.A.).
1s2 Re Bondi BetteT Bananas Ltd., ante, n. 99.
158 ALBERTA LAW REVIEW

to Court with clean hands. They are soiled in uncleanliness of his

own making" .188

(iii) The "bona fides" of the petition

The court will almost invariably dismiss a winding-up petition as
frivolous, vexatious and an abuse of the process of the courts 184 where,
in the opinion of the court, the petition is not brought bona fide, but
rather to achieve some ulterior or personal motive, such as "to extort
submission to demands." 186
Thus, the courts have dismissed winding-up petitions where they
felt that the real motive of the petitioner was solely a desire to get his
money out of the company, 186 even where the petitioner was a majority
shareholder. 187 Similarly, a winding-up petition has been granted
where the objection to it was based solely on a desire to force settlement
of a claim for wrongful dismissal, 188 rather than on any real bona fide
desire to keep the company alive. Likewise, a petition has been dis-
missed where the object in bringing it was to collect a debt, 189 or where,
in the opinion of the court, the real object of the petition was to remove
a restrictive covenant imposed by the ·company and thus facilitate the
sale of the petitioners' land. 190
Another situation in which the courts have summarily dismissed a
winding-up petition is where, in the opinion of the courts, the real
motive behind the petition. was to force a purchase of the petitioner's
shares. 191 It is this ground, more than any other, which can prove to
be grossly unfair to the minority shareholder who seeks, as a means of
resolving an impasse between himself and the other shareholders or as
a means of extricating himself from a hostile climate, to sell out his
share interest. In a publicly held corporation he generally has a ready
market for his shares. In the close corporation, however, he may well
be virtually "frozen-in" 192 to his position as a shareholder because the
shares of a close corporation normally have no ready market, particular-
ly where they represent only a minority interest in the corporation. To
add to the troubles of the minority shareholder in the close corporation,
the shares are invariably subject to restrictions on their transferability

1sa Id., at 419. See also cases cited ante, n. 181.

184 Compare the discussion in section E, post.
186 Niger Merchants Co. v. Capper (1880), 18 Ch. 557 (1875), (M.R.). See also, Cadiz
WaterwOTks Co. v. Barnett (1875), L.R. 19 Eq. 182; Re London & Paris Banking Co.
(1875), L.R. 19 Eq. 444; Re A Co., (1894) 2 Ch. 349; Re Horwood & Co., (1921) N.S.W.
St. 750, 756 (S.C. Eq.).
186 See, e.g., Re Bondi Better Bananas Ltd., (1951) O.R. 410, 418-19 (H.C.), reversed by
(1951 J O.R. 84:l ( C.A.). See also, In re Maquinna Hotel Ltd, ( 1961), C.C.H. Dom. Cos.
Reporter No. 30-381 (B.C.S.C.), (petitioner leaving the area and wishing a return of
his investment).
187 "The mere fact that a majority want to get their money back does not make it ;lust
and equitable that the company should be wound up 1n order that they may get it
back. There must be something more than that." Re Anglo-Continental Produce Co.,
[1939) 1 All E.R. 99, 102 (Ch.). Accord, Re Langham Skating Rink Co. (1877), 5 Ch.
D. 669, 685-86 (C.A.).
188 Re Coast Quarries Ltd. (1956), 18 w.w.R. (N.S.) 47 (B.C.S.C.).
1so Niger Merchants Co. v. Capper, ante, n. 185.
190 In re Surrey Garden Village Trust Ltd,, (1965) 1 W.L.R. 974 (Ch.).
191 See, e.g., Re A-Co. (1917), 34 D.L.R. 396 (Man. K.B.).
192 This term is used as an appropriate counterpart of the. reverse situation, a "freeze-out".
 COMPULSORY WINDING-UP 159

and, indeed, in all Commonwealth countries such a corporation must

have some restriction on the transferability of its shares. 103
The need to allow some latitude in these circumstances was clearly
expressed in Tench v. Tench Brothers Ltd. 104 In that case the petitioner,
one of four brothers, was removed as a director and as a working
partner. He tried unsuccessfully to get his three brothers to buy his
shares and on their failure to do so, brought ~ petition for a winding-up.
The trial judge ordered the proceedings stayed as vexatious and not
filed bona fide for obtaining a winding-up order, but rather for the
purpose of putting pressure on the remaining directors to purchase his
shares. The New Zealand Court of Appeal reversed the trial judge.
Several of the judgments are worth quoting from briefly.
Chief Justice Myers said that "although the court has an inherent
jurisdiction to dismiss a petition which is frivolous or vexatious, or
otherwise an abuse of its process, it should be sparingly exercised". 195
He went on to point out that "it has to be remembered that in the cir-
cumstances of the case it would be difficult, if not impossible, for him
to find a purchaser outside the membership of the company." 100
Mr. Justice Smith said: 197
To hold that these admitted facts amount to putting an improper pressure upon
the company would seriously endanger negotiations for the settlement of dis-
putes-:-even family disputes, as is the case here.
Mr. Justice Kennedy expressed himself even more eloquently when
he said: 198
I do not draw the inference that the petition was not presented bona fide with
the legitimate aim of procuring a winding-up. The purchase of shares was
intended as a solution of the impasse which had arisen, and when the negotiations
failed the petitioner sought other means of getting his money out of the company.
I am reluctant to come to a contrary conclusion, because otherwise contri-
butories might well hesitate to seek to settle differences out of Court. They
could not negotiate for a sale of shares without running the risk of being greatly
prejudiced if the presentation of 9. petition, on a disagreement as to price, were
held to be not with the object of obtaining a winding-up order, but for the
purpose of putting pressure on the other shareholders to buy.

It is to be hoped that other courts will similarly take a realistic

approach to the unfortunate position of the minority shareholder in a
close corporation and. not penalize him for attempting to resolve intra-
corporate dissension or deadlock by means of having some or all of
the other shareholders buy him out.
The courts have, unfortunately,' imposed further restraints on the
minority shareholder's ability to sell out. Thus, where the existing
shareholders had refused to purchase the petitioners' shares and the
10a All such corporations, commonly called "private companies" or "proprietary com-
panies", must, in order to maintain that status, comply with certain basic condition~
as set out in the applicable Companies Act. Typical of such legislation Is the Com-
panies Act, R.S.B.C. 1960, c. 67, s. 2:
"private company" means a company that by its memorandum or articles
(a) TestTicts the right to tTansfeT its shaTes; and
(b) limits the number of its members to fifty or less ... ; and
(c) prohibits any invitation to the public to subscribe for any shares or de-
bentures of the company;" (Emphasis added).
194 [1930) N.Z.L.R. 403 (C.A.).
l 95 Id., at 406.
196 Id., at 408.
101 Id., at 411.
10s Id., at 413.
160 ALBERTA LAW REVIEW

petitioner had sought to sell them to outsiders but was unable to ef-
fectively do so because the directors had refused to consent to the
transfer of shares, a court has held that such a refusal does not con-
stitute a basis for making a winding-up order under the just and equit-
able rule. 199 In so doing, the court held that in view of the broad dis-
cretion conferred on the directors under the articles of association and
under the existing state of the law, 200 there was no basis for complaint
and the petition to wind up the company was therefore an abuse of the
process of the court. 201 The court has similarly held in the case of a
refusal of directors to register shares acquired by transmission. 202 One
need only point out that such refusals are commonly accompanied by,
and aggravated by, a sudden increase in the majority's salaries and a
failure to declare any, or adequate, dividends. 208
There are still other situations where the courts have refused to
entertain a petition to wind up. Though not strictly cases where the
courts have held the petitions to be frivolous, or vexatious, or an abuse
of their process, they do appear to be sufficiently relevant to merit re-
ference at this point. The _courts have held, by way of illustrative
examples, that a winding-up petition is not the appropriate procedure
in which to determine the beneficial ownership of shares 204 or to give
redress for wrongs connected with dealings in shares. 2011
(iv) The court may look at the consequences of a winding-up
In a number of cases the courts have considered it appropriate,
though not conclusive, to look at the consequences likely to flow from
the making of the winding-up order requested, and in particular to
the likelihood of loss to the respondent. Thus, Mr. Justice Rose in
Re James Lumbers Co. Ltd. 206 said: 201
This risk of loss is something to which the Court ought not lightly to subject
[certain of the parties affected], and so. I say that before proceeding upon the
ground of the petitioner's loss of confidence in the respondents, the Court ought
to be quite sure that the respondents as directors have really done something to
merit the distrust which the petitioners feel.

199 Charles Forte Investments Ltd." v. Amanda, [19641 1 Ch. 240 (C.A.).
200 The law relating to directors' refusal to register transfers of shares is beyond the
scope of this article. See, however, the following leading cases: In Te CoalpoTt China
Co., (1895) 2 Ch. 404 (C.A.); In Te Smith & Fawcett Ltd., [1942] Ch. 304 (C.A.). See
also Palmer, Company Law, (20th ed. 1959), 341-44.
201 Charles Forte Investments Ltd. v. Amanda, ante, n. 199, at 259. Mr. Justice Cross,
in the same case said (id., at 263): "I do not say that there could never be a
case in which the facts were such that it would be proper to launch a winding-up
petition in respect of a refusal to register a transfer." The learned Judge would seem
to have overlooked the case of In re Smith & Fawcett Ltd., ante, n. 200, a most shocking
example of refusal to register, which, it is submitted, would not, on the present
state of the law, even be sufficient to obtain a winding-up order.
See also, discussion in Section E, post, on "The Exclusiveness of Winding-up
Remedy."
202 Re Cuthbert CoopeT & Sons Ltd., [1937) 2 All E.R. 466 (Ch.).
20a For a classic example of the last two types of conduct see, In Te W. A. Swan & Sons
Ltd., (19621 So. Austl. St. 310 (Sup. Ct. 1947). For examples of recommendations
made to cure these problems and the problems relating to the directors' refusal to
register transfers and transmissions see: Report of the Committee on Company Lato
Amendment, CMD. 6659, paras. 59, 60 (U.K. 1945); Report of the Company Law Com-
mittee, CMD. 1749, paras. 205, 211, 212 (U.K. 1962); McmOTandum by the Council of
the Law Society, Minutes of Evidence taken before the Company Law Committee,
1192-93 (15th day, Feb. 17, 1961) .
204 See, e.g., In re Bambi Restaurant Ltd., [1965] 1 W.L.R. 750, 754 (Ch.).
205 See, e.g., In Te Gold Co. (1879), 11 Ch. D. 701, 714 (C.A.) (fraud in inducing petitioner
to become a shareholder) .
200 ( 1925), 58 O.L.R. 100 (H.C.).
201 Id., at 118-19 (dictum). See also In Te Sovereign Oil Co., [1934) 3 W.W.R. 317
(B.C.S.C.) (dictum).
 COMPULSORY WINDING-UP 161

To the same effect is the statement by Mr. Justice Pruhart in

Re Michael P. Georgas Co. Ltd. 208 that "the dire consequences of a
winding-up are to be considered only in making the Court exercise
more than ordinary care in examining the circumstances on which the
order might be based. " 200 The learned judge went on to concede that
the consequences of the winding-up order "will be very serious and
perhaps ruinous" 210 to the respondent, but nevertheless made the order.

E. THE "EXCLUSIVENESS" OF THE WINDING-UP REMEDY

Apart from any difficulties the petitioner may have in proving his
basic entitlement to a winding-up, he is faced with yet another hurdle
for, broadly speaking, the courts have been generally unwilling to grant
a winding-up under the "just and equitable" rule where the petitioner
has another remedy. The courts have indeed viewed the destruction
of a company as such a drastic and distasteful thing that they have
insisted that the remedy will only be made available in circumstances
where it is, in the last resort, the sole and exclusive means of affording
relief.
Thus, as Lord Justice Mellish said in the case of In re Professional,
Commercial and Industrial Benefit Building Society, 211 the court ...
ought not to grant a winding-up order unless it sees that some plain
injustice is being done to the members who present the petition which
cannot be avoided otherwise than by giving a winding-up order."
The alternative remedy which must first be exhausted is most
commonly, though not invariably, the "domestic forum" of the company,
i.e., the general meeting. Thus Lord Jessel, Master of the Rolls, in
In re Langham Skating Rink Co.,212 stated that
it is a power which must not be acted upon unless there is very strong ground
for acting upon it, and for this reason, that these companies are governed by a
majority of their own members, and where there is a domestic tribunal which
has power to decide upon a question, it should, if possible, be left to that domestic
trib'1Ilal.
Lord Justice James, in the same case, went on to say that "it is really
very important to these companies that the Court should not . . . take
upon itself to interfere with the domestic forum which has been esta-
blished for the management of the affairs of the company." 213
Some indication of the alternative remedies which might first have
to be exhausted is suggested by In re Surrey Garden Village Trust Ltd.,
where Mr. Justice Plowman expressed as a "well-settled" principle that
where other remedies are available, such as calling a general meeting, arbitration
under the rules, an action for a declaration or an injunction, or an application
to rectify the register, a winding-up petition is misconceived. 214
Even in a leading case in which a winding-up was granted on the
basis of deadlock the court went out of its way to state that "the com-
pany itself is the proper 'forum' for the settlement of domestic di£-
20s [1948] O.W.N. 429 (H.C.) (dictum), reversed by [1948] O.R. 708 (C.A.).
200 Id., at 435.
210 Ibid.
211 (1871), L.R. 6 Ch. 856, 864 ( emphasis added) ; quoted and relied on in Re ShiPWaY
!Ton Bell & WiTe Mfg. Co. (1925-26) 58 O.L.R. 585 (C.A.).
212 5 Ch. D. 669,684 (C.A.).
21a Id., at 685. Accord, Re Hugh-Pam Porcupine Mines Ltd., (19421 O.W.N. 544 (H.C.).
214 [1965) 1 W.L.R. 974,981 (Ch.).
162 ALBERTA LAW REVIEW

ferences, according to the powers of the majority under the constitution

of the company." 2115
Wegenast, in his classic treatise on Canadian Companies, published
in 1931, stated that "the just and equitable rule for winding-up has ap-
parently never been favored by the Ontario courts. "210 Indeed, with a
few notable exceptions, 21 7 the courts of Ontario have continued to act
only with great reluctance toward petitions for winding-up a company. 218
Wegenast speculates 219 that the reason for the Ontario courts' re-
luctance to make winding-up orders on the just and equitable ground
was their failure to fully perceive the partnership analogy. With re-
spect, it is submitted that the real reason for the courts of Ontario
displaying a marked reluctance to decree winding-up orders was their
over-adherence to the "internal management" rule and an extremely
inhospitable view of the position of minority shareholders. In this they
are not alone.
As to the "internal management rule" reference need only be had
to some of the very cases cited by Wegenast as support for his pro-
position. Thus, in Re Harris Maxwell La:der Lake Gold Mining Co.,
A winding-up petition cannot be resorted to merely because there is dissension
within the company. The majority must govern. If they act in such a way
as to give the minority any actionable grievance, redress must be sought in an
action in the courts, not by the staying of the company by means of the winding-
up clauses of the Companies Acts.
As to the inhospitable view of the courts towards the position of
minority shareholders, reference need be had to only a few cases. Thus,
in Re Imperial Steel & Wire Co. it was said: 221
These shareholders were in the position in which minority shareholders fre-
quently find themselves-bound to submit to the ruling management of the
majority; but that in itself was not a justification for a winding-up at the in-
stigation of the minority.
In Re Jury Gold Mine Development Co. the court said, 222 in speaking
of the petitioner:
He is a minority shareholder who must endure the unpleasantness incident to
that situation. If he chooses to risk his money by subscribing for shares,. it is
part of his bargain that he will submit to the will of the majority. In the ab-
sence of fraud or transactions ultra vires, the majority must govern. and there
should be no appeal to the courts for redress.
One court expressed the unfortunate position of the minority more
succinctly when it simply said "might is right". 223 A somewhat more
sympathetic, but equally direct, message was conveyed by the aside
215 Symington v. Symington's Quanies Ltd. (1906), 8 Sess. Cas. (5th Ser.) 121, 129
(Scot. App. Div.); quoted and applied in Re Jufll Gold Mine Developt. Co. (1928), 63
O.L.R. 109 (C.A.).
210 Wegenast, Canadian Companies (1931), 104.
211 See, e.g., Re Martello & Sons Ltd., [1945] 3 D.L.R. 626 (Ont. C.A.); In T'e White Castle
Inn Ltd., (1946) O.W.N. 733 (H.C.); Re Bondi Bette,. Bananas Ltd, (1951) O ..R. 845
CC.A.).
21s See, e.g., Re Hugh-Pam Porcupine Mines Ltd., (1942) O.W.N. 544 (H.C.); Re Michael
P. Georgas Co., [1948) O.R. 708 (C.A.); Re Bondi Better Bananas Ltd., [1951) O.R. 410
(H.C.), reversed (1951) O.R. 845 (C.A.); Re R. C. Young InsuT"ance Ltd., (1955) O.R.
598, (1955·] 3 D.L.R. 571 (C.A.).
210 Wegenast, ante, n. 216, at 104. (Wegenast is possibly basing his suggestion on Re
James Lumbers Ltd. (1925), 58 Qnt. L.R.100, 116 (H.C.).
220 (1910), 1 O.W.N. 984, 986 (H.C.). See also, Re James LubeTs Ltd., ante, n. 219,
at 117; Re Juro Gold Mine Developt. Co., ante, n. 215, at 110; Re TMonto Fina.nee
COTP01'ation (1930), 65 O.L.R. 351, 356 (H.C.).
221 (1919), 17 O.W.N. 324 (H.C.).
222 Ante, n. 215, at 111.
22a In Te Winnipeg Saddlero Co., Ltd. (1934'), 42 Man. R. 448, 458 (K.B.),
 COMPULSORY WINDING-UP 163

made by another court, in answer to the petitioner's argument that his

exhaustion of other avenues of relief would be futile, that "that, of
course, is the unfortunate position of minority shareholders". 224 Many
courts unfortunately rely too heavily on the view that a minority
positi~n is one assumed voluntarily. 225
Fortunately for petitioning minority shareholders not all courts have
held them in such disdain. While paying lip-service to the "exclusivity"
principle a number of courts approach the matter realistically. The
classic formulation of the realist school must surely be that of Mr.
Justice Mayo in In re W. A. Swan & Sons Ltd. 226
There can be no doubt that problems which involve conflicting interests among
shareholders of a company, where it is possible, should be effectively dealt
with and settled as matters of internal administration and adjustment. . . . Where
the internal organization provides an instrument that can deal with such dif-
ficulties, and which affords opportunity to ventilate troubles and to adjust and
dispose of obstacles, whatever they may be, thereby enabling peace and ef-
ficiency to be maintained or restored, and where no fraud has vitiated the
situation, there is no occasion for a Court to interfere. . . . But the forum
must be capable of functioning effectively. . . . If the domestic instrument does
nothing to rectify an intolerable position, the Court can hardly be said to be
interfering with the activities of a body so impotent, or supine, or otiose, as
the case may be.
There are strong reasons for being critical of the narrow "exclusivity"
rule applied by the courts. Resort to the "domestic forum" will in-
variably prove futile where the complainant is a minority shareholder,
for the majority will prevail. 22 • Similarly, where the shares are evenly
divided, a "deadlock" cannot be resolved. Resort to derivative or re-
presentative actions in the courts, if available at all, will very often
entangle the plaintiff in the intricacies of the Rule in Foss v. Harbottle 228
and, what is more, would frequently not provide a means of protection
against future misconduct. Put even more clearly, in the words of a
leading Canadian judge, 220
A petitioner is entitled to be protected not only against the past misconduct of
the management, but against future misconduct. Even though an action might
give him some measure of relief for past misconduct, I do not think it would
afford adequate relief therefor and certainly it would afford no protection for
the future.
In the clear recognition that some courts were still adhering unduly
to the "exclusivity" rule, the Report of the Committee on Company
Law Amendment 230 recommended the enactment of clarifying legis-
lation to provide that the court should be empowered to make a winding-
up order notwithstanding the existence of an alternative remedy. 231

22-1 BuckneT v. Bourbon Farming Co. (1955), 14 W.W.R. (N.S.) 406, 412 (~ask. Q.B.). For
one of the most salutary attitudes to the contrary see Thomson v. Drysdale, (1925]
Sess. Cas. 311, 316 (Scot., PeT Lord Skerrington).
22r. See, e.g., Re Horwood & Co., [1921) N.S.W. St. 750,756 (S.C. Eq.).
2211 11962) So. Austl St. 310, 315 (S.C. 1947), (no emphasis added). For other cases in
which a realistic attitude was applied by the courts see, e.g., Baird v. Less, 11924)
Sess. Cas. 83, 91 (Scot. App, Div.): Loch v. John Blackwood Ltd., 11924I A.C. 783, 787
(P.C. Barbados): Trench v. Trench Bros. Ltd., (19301 N.Z.L.R. 403, 411 CC.A.): Re
Yenidje Tobacco Co., (1916) 2 Ch. 426,435 (C.A.).
221 See, e.g., Re The Merchants & Shippers' S.S. Lines Ltd. (1917), 17 N.S.W. St. 146,
151 (C.A.).
22!l 2 Hare 461; Eng, Rep. 67 E.R. 189: as to which see, generally Gower, Modern Company
Law (2d ed. 1957), c. 25.
2w Re Martello & Sons Ltd., (1945) 3 D.L.R. 626, 636 (Ont. C.A., per (McRuer, J. A.):
see also, Re The MeTchants & Shippers' S.S. Lines Ltd. (1917), 17 N.S.W. St. 146,
150 (C.A.).
2:10 CMD. 6659 (U.K. 1945).
:!a1 Id., para. 152. See alsoid., Recommendation I, at 95.
164 ALBERTA LAW REVIEW

The resulting legislation, which is now section 225 (2) of the English
Companies Act, 1948:!:s:! is as follows:
s. 225 (2) Where the petition is presented by members of the company as con-
tributories on the ground that it is just and equitable that the company should
be wound up, the court, if it is of opinion,-
( a) that the petitioners are entitled to relief either by winding-up the
company or by some other means; and
(b) that in the absence of any other remedy it would be just and equitable
that the company should be wound up;
shall:!a:1make a winding-up order, unless it is also of the opinion both that some
other remedy is available to the petitioners and that they are acting unreason-
ably in seeking to have the company wound up instead of pursuing that other
remedy.
Similar legislation has been enacted in Australia 234 though, un-
fortunately, not yet in Canada.
Needless to say, the intention of the recommendation and the re-
sultant legislation is clear and this legislation does mark a tremendous
step forward. That it has not, however, affected the basic scope of the
underlying "just and equitable" rule is made abundantly clear by a
comparison of Re Cuthbert Cooper & Sons Ltd.,236 decided before this
new legislation, and Charles Forte Investments Ltd. v. Ama,nda., 236de-
cided after the enactment of the legislation.
The "exclusivity" rule is based on a view of winding-up as a drastic
remedy to be applied only as a last resort. While winding-up is ad-
mittedly a drastic remedy, and while other alternative solutions may
be preferable (in as much as they seek to preserve the corporate en-
tity), nevertheless the fact is that such alternative schemes are (a) as
yet not widely in use, (b) often inadequate and ineffective and (c) in
some cases of doubtful legal validity. Where the parties fail, .for one
reason or another, to build-up such alternative schemes or where such
schemes fail to do the job, then invariably the parties will end up look-
ing to the courts for assistance via a petition for a winding-up order.
It is this "backstopping" feature of judicial winding-up which makes
it so deserving of special attention. All things said and done, the right
of a dissident shareholder to petition for a judicial winding-up may
indeed prove to be the shareholder's "court of last resort."
F. EVALUATION AND CONCLUSIONS
Efforts to evaluate and describe court-ordered corporate dissolution
have provoked a spate of metaphors, each of them giving some in-
dication of its inventor's attitude toward r~sort to this remedy. Rohr-
lich237has described the remedy as the "Sword of Dissolution." Gower 238
has described it as "killing the company" and Reuschleim, 239not to be
outdone, has called it, variously, the "Judicial Guillotine," 240"a kind of
death sentence for corporations" 241and "corporate death." 242
2a2 11 & 12 Geo. 6, c. 38.
2aa Emphasis added.
2a4 See, e.g., Companies Act, Victoria Acts of Parliament 1961, No. 6839, s. 225(3); Com-
panies Act, New South Wales, Act. No. 71 of 1961, s. 225(3).
235(1937 J 2 All E.R. 466 (Ch.).
21111 (196411 Ch. 240 (C.A.).
2a, Rohrlich, Organizing Corporate & Other Business Enterprises (Rev. ed. 1953), 138.
2:18 Gower, Modern Company Law, ante, n. 228, at 540.
2ao Reuschleim, The Schools of Corporate Refonn (1950).
2-10 Id., at 34.
2-11 Id., at 26.
242 Id., at 35.
 COMPULSORY WINDING-UP 165

All of these expressions seem to indicate a genuine but perhaps

unrealistic preoccupation with corporate "death" and the great tragedy
it would bring to all concerned. Unfortunately, what seems to have
been largely overlooked is that "death" can often be a blessing, especial-
ly to a corporate body badly wracked with incurable dissension or
deadlock, permanently crippled or even paralyzed, and incapable of
enjoying a normal, healthy, and well-adjusted business life.
One has, indeed, some qualms about recommending "corporate euthe-
nasia" but, given the reality that as yet there exist few effective "cures"
which may readily be resorted to with confidence, one also sees that in
appropriate circumstances "death" may be preferable to a protracted
period of pain and suffering.
There is no denying that dissolution is a form of corporate death and
judges have been noticeably reluctant to impose the death sentence.
This reluctance is all the more surprising when one remembers that the
corporation is but an artificial legal being, a mere corporate fiction, a
figment of the legal imagination. Canadian and English courts have,
on the whole, been less reluctant to decree corporate dissolution than
have their counterparts in the United States, where Israels:!-13 was moved
to characterize this near-indestructibility of the corporate entity as the
"sacred cow of corporate existence." But not all Canadian courts are as
willing to grant the remedy as they could be or should be.
While conceding the effectiveness of corporate dissolution, it has been
described as "a singularly clumsy method":iH of solving the problem.
Clumsy it may be, but under the existing state of the law it is probably
the "surest" way of resolving most intra-corporate disputes. There are,
to be sure, a number of situations in which less drastic and more so-
phisticated "alternative" remedies would be preferable.
To date, the efforts of the courts to create such "alternative" re-
medies have proved both too infrequent and largely ineffective. With
perhaps the exception of the only slightly less crude section 210 remedy
in England, :i-1sthe legislatures have similarly failed to create suitable
"alternatives." It is true that corporate lawyers have devised ingenious
schemes for creating less drastic "alternatives," such as intra-corporate
arbitration, voting trusts, and the like, but many of these fall short of
the mark and, what is worse, are of questionable legal validity.
Unquestionably, the most effective "alternatives" are some form of
"buy-out" (whether voluntary or compulsory), or, even better, the
initial creation of a corporate structure which minimizes the possibility
of deadlock by avoiding equal shareholdings, even-sized boards of direc-
tors and the use of veto and high quorum requirements. Given the
realization, however, that incorporators frequently desire such elements
and that intra-corporate disputes need not necessarily partake of the
nature of deadlock, it may still be necessary to have ultimate resort to
winding-up. .
Whatever doubts do exist about the legal validity of some of the
"alternatives" to winding-up are due, in large part, to the failure of
2-1:1
Israels, The Sacred Lau, of Corporate Existence-Problems of Deadlock & Dissolution
(1952), U. of Chi. L. Rev. 778.
2u Gower, ante, n. 238.
2-&G Companies Act 1948, 11 & 12 Geo. 6, c. 38.
166 ALBERTA LAW REVIEW

some courts to perceive fully the unique nature and needs of the close
corporation and its participants~ The development and wide adoption of
the "partnership analogy" by the courts have admittedly, gone a long
way toward providing the minority shareholder with an effective, albeit
sometimes drastic, remedy for the resolution of intra-corporate dis-
putes. On the other hand the practice of judges in clinging to outmoded
and wholly unrealistic corporate norms has done little to inspire confi-
dence in the judiciary and has seriously impaired the development of
less drastic and often more appropriate "alternative" remedies.
The legislatures, for their part, have proved themselves woefully inept
in providing badly needed assistance by way of "alternatives" and rea-
listic norms. In part this may be due to a preoccupation on the part
of the legislatures with the public corporation. It is axiomatic that the
public corporation requires different mechanisms, procedures and norms
than does the close corporation. The distinction between the public and
private company in the Canadian and English legislation is not enough,
for the close corporation is a special variety of private company which,
to date, has not received the special attention or special legislation that it
deserves. 240
Hopefully the courts and the legislatures will make the necessary
adjustments. Until they do, however, the dissident minority share-
holder can at least take heart in the fact that he still has, generally
speaking, a very effective winding-up remedy.

240 For an early American commentary on the same problem (which is still very much
current) see Weiner, Legislative Recognition of the Close COTPOTation (1929), 27 Mich.
L. Rev. 273-84. See also Weiner, PTOPosing a New YOTk Close CoTPOTation Law (1943),
228 Cornell L.Q. 313. See also, 1 O'Neal, Close CoTPOTation., (1958 with 1964 cum supp,)
Usk.Note, Statutcm., Assistance fOT Closeh, Held COTPOTCltion8(1958), 71 Harv. L. Rev.