Judgment affirms Abrahams win in CWJ case, raises issues of minority investor rights

Minority shareholders should get separate meetings to discuss and vote on mergers and acquisitions, rather than them being lumped with majority shareholders wherever interests diverge, according to a decision handed down by the Court of Appeal on Tuesday in the long-running litigation between Cable & Wireless Jamaica and Jason Abrahams.

It upheld an earlier ruling in the Supreme Court that withheld approval for a scheme of arrangement for the telecoms, whose parent company had launched a full takeover of it four years ago.

Schemes of arrangement are increasingly being used to effect corporate reorganisations and M&A in Jamaica, and the judgment therefore serves as a template for the correct approach, reasoned lawyer Conrad George of Hart Muirhead Fatta in an interview with the Financial Gleaner. George, along with Andre Sheckleford, represented shareholder Eric Jason Abrahams in the case.

The implication for future and previous schemes of arrangements were not immediately clear. But George called the judgment significant.

“The Court of Appeal’s decision is significant because it confirms that internationally accepted principles, designed to protect minority shareholders in schemes of arrangement, apply in Jamaica,” George said.

Cable & Wireless Jamaica, CWJ, which now trades as Flow Jamaica, was represented by Sandra Minott-Phillips KC, Hilary Reid and Peter Goldson of the law firm Myers, Fletcher & Gordon.

The telecoms said it was considering its options following its loss of the appeal.

The court held that under the Companies Act, a scheme of arrangement is approved and binds the company and all its members when a majority representing 75 per cent in number and value, having been notified of a meeting to consider it, votes in favour of the scheme of arrangement, whether in person or by proxy.

However, the process was also seen as important and was the basis on which the case turned.

The scheme under review related to Liberty Latin America and its affiliates, which sought to acquire 100 per cent of the shares in Cable & Wireless Jamaica back in 2018.

Jason Abrahams, an investment banker based in the United States, objected to the takeover and took the matter to court.

At the time, the Liberty Latin America affiliates, CWC Cala and Kelfenora, held 92.27 per cent of the shares in CWJ, while Abrahams held roughly 0.25 per cent.

CWJ had met the initial 75 per cent requirement under the act. However, the court ruled that other criteria should be considered, such as the need to hold separate class of meetings, where there are divergent interests among the shareholders.

The court, in a unanimous decision, affirmed the earlier 2019 judgment of Justice David Batts in the Commercial Division of the Supreme Court, which held that the scheme of arrangement in 2018 had been improperly done.

The appellate court noted in its decision that, among other things, a C&W affiliate entity that ultimately represented the buying side, had incorrectly been permitted to vote in the same meeting as minority shareholders who represented the selling side.

“Applying these principles to the present case, it was inappropriate for CWC Cala and its affiliate Kelfenora to have been included in the same meeting as the other shareholders,” said Justice Vivene Harris, who wrote the judgment.

“I agree that CWC Cala, Kelfenora and the other minority shareholders had identical rights in relation to CWJ, since they were all ordinary shareholders. However, even if it could be argued that there were no conflicting interests between them, it is beyond debate that CWC Cala’s and Kelfenora’s treatment under the scheme was in stark contrast (or different) to that of the minority shareholders. CWC Cala was buying out the minority. They were the purchasers. Kelfenora’s shares (as CWC’s Cala affiliate and Liberty’s subsidiary) were not being acquired, cancelled or reissued to CWC Cala. The minority were the sellers,” Justice Harris said.

As laid out in the scheme, the intention was to cancel the minority shares, in consideration for CWC Cala paying $1.45 per cancelled share, and to reissue shares to CWC Cala, paving the way for CWJ to become a wholly owned subsidiary of Liberty.

True analysis

As such, the court ruled, the rights proposed to be conferred by the scheme on CWC Cala and Kelfenora and the other shareholders were commercially so dissimilar as to make it impossible for CWC Cala and Kelfenora and the other shareholders to consult together with a view to their common interests, because they had none.

“Accordingly, ‘on a true analysis’, CWJ was, in real terms, entering into separate but interdependent arrangements with its ordinary shareholders, whose rights or treatment under the scheme put them in two distinct classes, purchaser and its affiliate on the one hand, and sellers or vendors on the other,” Harris wrote.

“Therefore, I am in no doubt that the learned judge properly exercised his discretion when he refused to sanction the scheme on the bases that he had no jurisdiction to do so, because the meeting convened to approve the scheme was improperly constituted and, as a result, the approval of the requisite majority had not been achieved,” the judge added.

The court relied upon judgments of Lord Justice Chadwick and Lord Millett in English cases, Re Hawk and UDL Argos, respectively, in forming its opinion.

The ruling is also significant for Abrahams, in his broader dispute with CWJ.

“I am pleased but in no way surprised by the judgment,” said Abrahams in a comment to the Financial Gleaner via text message.

“I hope other shareholders in Jamaica will be heartened by this result, and that shareholders will begin to take a more active role in ensuring that publicly traded companies begin to improve their corporate governance, and that shareholders also begin to demand that directors and officers of their companies understand where their very real and serious fiduciary obligation lies,” he said.

Abrahams has another claim before the court related to the management of CWJ over the years, for which a trial date is pending.

steven.jackson@gleanerjm.com