British America Nickel Corporation Ltd v O'Brien [1927]

British America Nickel Corporation Ltd v O'Brien [1927] AC 369 deals with the variation of class rights, specifically in the context of mortgage bonds. It establishes the principle that, in addition to complying with statutory procedures, resolutions affecting class rights must be passed bona fide in the interests of the entire class, not just individual members.

The company had issued mortgage bonds, and the terms of these bonds could be altered by a three-quarter majority of the class holding those bonds. A scheme of arrangement proposed modifying the rights of the mortgage bond holders. A majority of bondholders voted in favour, but it was later revealed that this majority was influenced by a promise of receiving a block of ordinary shares in return.

The Privy Council held in favour of the minority bondholders. Viscount Haldane, delivering the judgment, emphasised that the power conferred on a majority to alter class rights must be exercised for the benefit of the entire class. There is a general principle that such powers should not be used for the selfish interests of individual members but should serve the collective interests of the class.

Viscount Haldane drew an analogy between the case at hand and the power granted to a majority of shareholders under section 13 of the English Companies Act of 1908 to alter articles of association. He highlighted the restriction on such powers when aimed at binding a minority, asserting that they must align with the overarching principle of benefiting the class as a whole.

This case underscores the importance of good faith and collective benefit in resolutions affecting class rights. It establishes a limitation on the power of majorities to ensure that their actions are not driven by individual gains but genuinely serve the interests of the entire class. The judgment reflects the equitable principles governing variations of class rights.
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