Discussion 7.5
The case of Regal (Hastings) Ltd. V. Gulliver [1942] UKHL 1 raises a number of interesting issues:
- The whole mess could have been avoided;
- Oxford & Berkshire Cinemas Ltd. ended up getting a sweet deal; and
- It involves Lord Denning before he was Lord Denning.
I find it interesting that with a number of cases in this chapter, the litigation and ultimate ruling against the defendant directors could have been avoided had they just brought the resolution to the shareholders in a general meeting. They didn’t even have to bring it to the shareholders prior to their actions but rather could have waited until after.
Secondly, Oxford & Berkshire Cinemas Ltd. who ultimately bought Regal got to have their theater popcorn and eat it too. Not only did they get Regal (Hastings) Ltd. including all the cinemas it had been able to purchase due to the directors’ actions but then they also got the money.
While the case seems odd to me in some ways, I understand the court’s hesitation about making decisions based on directors acting in good faith. While it seems clear that the directors were acting in good faith in this case, as mentioned in the lecture material, it’s difficult to ever know all the ins and outs of the decision making. How can we know for sure that the directors weren’t at least somewhat motivated by self-interest? If people knew that as long as their express motivations exhibited good faith, they would be allowed to act however they wanted, they might be more inclined to be secretive with true motivations and take complicated steps to appear to be acting in good faith. Could the company have taken out a loan to avail itself of the funds to purchase the cinemas? I would argue that one way to truly demonstrate good faith or make it a non-issue is to fully disclose to your shareholders what you are planning on doing or what has already been done and have them get on-board with your choices.
Lastly, you can’t have a Lord Denning case without a theatrical plot twist, this case doesn’t disappoint.
I think you’ve pointed out an important reason why, even if at first glance the decision looks unfair, the court decided to stick to a rigid principle. It seems like the court is trying to encourage directors to do things by the book instead of relying on what they subjectively perceive as good faith.
Great post Lisa! I agree, I think that director’s should get into the habit of disclosing their decisions to shareholders to show good faith. However, if that becomes a premeditated solution in case the issue becomes litigious, then we end up with the same difficulty of trying to determine good faith.
Well-written and funny post Lisa! I agree with your observation, and with Floriana’s comment, that it’s very difficult for courts to decide when a director is acting in good faith. This definitely makes Professor Festinger’s proposition that Bhasin v Hyrnew (and good faith as an organizing principle) should apply to all corporate law cases that much more of an interesting and seemingly difficult one.