Scottish Cooperative Wholesale Society v Meyer

Facts

• SCWS (parent, majority shareholder) and Meyer (minority) held shares in a subsidiary company that manufactured rayon.
• SCWS decided to transfer the subsidiary's business to itself, diverting customers, orders, and opportunities away from the subsidiary to the parent.
• The subsidiary's value was destroyed, and Meyer's investment became worthless.

Issue

1. Whether the diversion of business from a subsidiary to benefit the parent company constitutes "oppression" of minority shareholders in the subsidiary.

Held

• The House of Lords held this was oppressive conduct. SCWS used its majority power to benefit itself (parent) at the expense of the subsidiary's minority (Meyer). The deliberate destruction of the subsidiary's business value, while the majority extracted that value for itself, was "burdensome, harsh, and wrongful." Court ordered SCWS to purchase Meyer's shares at the value they would have had but for the oppression.

Ratio Decidendi

Diverting business from a company to benefit the majority/controller is oppressive. Oppression is conduct that is "burdensome, harsh, and wrongful" to minority. Remedy: majority must purchase minority's shares at fair value (value before oppression destroyed it). The majority cannot use its voting power to systematically enrich itself at the minority's cost.