When is a request for an inquiry considered to have been made on unreasonable grounds, which results in the applicant being ordered to pay the costs?
If there are good reasons to doubt the correct policy, the right of inquiry offers injured parties an effective legal remedy to solve problems within a company. Sometimes, however, the right of inquiry is used solely as a means of applying pressure. In this case, the Enterprise Section of the court may rule that the request has not been made on reasonable grounds and order the applicant to pay the costs. Corporate law attorney Onno Hennis uses a recent High Court judgement to explain when this is the case.
It all started with a dispute within CAI, a Dutch holding company with interests in Indian companies that provide credit to Indian workers without a bank account. CAI has an extensive statutory governance arrangement. A dispute between at least two shareholders in connection with a proposed
The occasion when a company issues new shares to raise additional capital
» Meer over share issue IPO.
During the proceedings, one of the shareholders, Olympus, filed a counter claim. To support the claim, Olympus stated, among other things, that the board did not operate independently and that it was possible some minority shareholders could be colluding. Olympus also stated that the board had not kept it informed about the intended IPO.
Rejection OK on unreasonable grounds
The Enterprise Chamber rejected Olympus’ claim. It ruled the claim was based on unfounded assumptions and speculations. The Enterprise Chamber took a hard line on Olympus’ statement about the possibility that shareholders could be colluding among themselves. Such far-reaching allegations require solid and concrete substantiation, which was lacking. For that reason, the Enterprise Chamber ordered Olympus to pay the costs of the proceedings.
Olympus appealed this judgement. Olympus argued that an inquiry request could only be made on unreasonable grounds if there was an abuse of procedural law. There is a very high threshold for this. This is only the case if the applicant bases their request for an inquiry on facts and circumstances of which the applicant knew or should have known the inaccuracy, or on statements of which the applicant should have understood in advance that they had no chance of success. Olympus argued that the Enterprise Chamber had not applied this standard, or at least had insufficiently substantiated that this was the case.
The High Court stated that the stated benchmark (abuse of law) is indeed the correct one. At the same time, the High Court considered that it followed from the reasons given by the Enterprise Section that this was the case. However, the High Court expressly considered that when assuming abuse of procedural law by making a request for an inquiry, restraint is appropriate in view of the right of access to the courts, which is also guaranteed by Article 6 of the ECHR. According to the High Court, however, the Enterprise Section had not misunderstood the restraint to be observed in this case.
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