52 Addressing what Lord Hoffman had said about "legitimate expectation", his Honour observed that the phrase is a very convenient shorthand which the parties had used and his Honour proceeded to use (at 743-5):
[417] He now said that it was probably a mistake to use the term when in this area of the law the idea had already been sufficiently defined in other terms. He went on that when in Saul D Harrison he had said that legitimate expectation was correlative to the equitable restraint:
I meant that it could exist only when equitable principles of the kind I have been describing would make it unfair for a party to exercise rights under the articles. It is a consequence, not a cause, of the equitable restraint. The concept of a legitimate expectation should not be allowed to lead a life of its own, capable of giving rise to equitable restraints in circumstances in which the traditional equitable principles have no application.
[418] In his reasons for judgment, Young J had noted that although, following Lord Hoffmann's lead in earlier cases, the concept of "legitimate expectation" had been accepted in England in the area of company law presently in question, it had not been adopted in other jurisdictions, although the kind of consideration given by the courts elsewhere to the situations dealt with in England under the term was very much to the same effect. Thus, although, following Lord Hoffmann's comment in Re a Company (No 00709 of 1992) ; O'Neill v Phillips , use of the term may drop off in England, the application of the equitable principles which resulted in its adoption will continue. Lord Hoffmann discussed those equitable principles in an earlier section of Re a Company (No 00709 of 1992) ; O'Neill v Phillips under the heading "Unfairly prejudicial" in terms which, from the Australian point of view, are in my opinion substantially consistent with the way those words in s 260 of the Corporations Law have come to be understood and applied in Australia. His statement of the position provides a very useful background against which to approach the present case.
[419] Lord Hoffmann first pointed out that in company law persons become associated for an economic purpose on terms "contained in the articles of association and sometimes in collateral agreements between the shareholders" so that the affairs of the company will be conducted according to rules agreed by the shareholders. Second, however, he said:
… company law has developed seamlessly from the law of partnership, which was treated by equity, like the Roman societas, as a contract of good faith. One of the traditional roles of equity, as a separate jurisdiction, was to restrain the exercise of strict legal rights in certain relationships in which it considered that this would be contrary to good faith. These principles have, with appropriate modification, been carried over into company law.
[420] He then briefly discussed three cases which have become well known in this area of the law, Ebrahimi , then Blisset v Daniel which was used as an example by Lord Wilberforce in Ebrahimi , and Re Wondoflex Textiles Pty Ltd (a decision of Smith J). He then continued:
I cite these references to "the literal construction of the articles" contrasted with good faith and "the plain meaning of the deed" and "what the parties can fairly have had in contemplation" to show that there is more than one theoretical basis upon which a decision like Blisset v Daniel can be explained. Nineteenth century English law, with its division between law and equity, traditionally took the view that while literal meanings might prevail in a court of law, equity could give effect to what it considered to have been the true intentions of the parties by preventing or restraining the exercise of legal rights. So Smith J speaks of the exercise of the power being valid "in law" but its exercise not being just and equitable because contrary to the contemplation of the parties. This way of looking at the matter is a product of English legal history which has survived the amalgamation of the courts of law and equity. But another approach, in a different legal culture, might be simply to take a less literal view of "legal" construction and interpret the articles themselves in accordance with what Page Wood V-C called "the plain general meaning of the deed". Or one might, as in Continental systems, achieve the same result by introducing a general requirement of good faith into contractual performance. These are all different ways of doing the same thing. I do not suggest there is any advantage in abandoning the traditional English theory, even though it is derived from arrangements for the administration of justice which were abandoned over a century ago. On the contrary, a new and unfamiliar approach could only cause uncertainty. So I agree with Jonathan Parker J when he said in In re Astec (BSR) Plc [1998] 2 BCLC 556 , 588:
"… in order to give rise to an equitable constraint based on 'legitimate expectation' what is required is personal relationship or personal dealings of some kind between the party seeking to restrain such exercise, such as will affect the conscience of the former."
This is putting the matter in very traditional language, reflecting in the word "conscience" the ecclesiastical origins of the long-departed Court of Chancery. As I have said, I have no difficulty with this formulation. But I think that one useful cross-check in a case like this is to ask whether the exercise of the power in question would be contrary to what the parties, by words or conduct, have actually agreed. Would it conflict with the promises which they appear to have exchanged? In Blisset v Daniel the limits were found in the "general meaning" of the partnership articles themselves. In a quasi-partnership company, they will usually be found in the understandings between the members at the time they entered into association. But there may be later promises, by words or conduct, which it would be unfair to allow a member to ignore. Nor is it necessary that such promises should be independently enforceable as a matter of contract. A promise may be binding as a matter of justice and equity although for one reason or another (for example, because in favour of a third party) it would not be enforceable in law.
I do not suggest that exercising rights in breach of some promise or undertaking is the only form of conduct which will be regarded as unfair for the purposes of s 459. For example, there may be some event which puts an end to the basis upon which the parties entered into association with each other, making it unfair that one shareholder should insist upon the continuance of the association. The analogy of contractual frustration suggests itself. The unfairness may arise not from what the parties have positively agreed but from a majority using its legal powers to maintain the association in circumstances to which the minority can reasonably say it did not agree: non haec in foedera veni. It is well recognised that in such a case there would be power to wind up the company on the just and equitable ground (see Virdi v Abbey Leisure Ltd [1990] BCLC 342) and it seems to me that, in the absence of a winding up, it could equally be said to come within s 459 [at 1100-2].
[421] Although by the time the present appeal came to be argued, Lord Hoffmann's doubt about the wisdom of using the term "legitimate expectation" in the area of the law now in question was well-known to the parties, (a number of their submissions referred to aspects of Re a Company (No 00709 of 1992) ; O'Neill v Phillips ), they continued to use the term in both written and oral submissions. It is a convenient shorthand term, so long as Lord Hoffmann's caveat about its proper significance is kept in mind, namely that it is a consequence not a cause of equitable restraint upon legal rights. It seems to me to be a useful label for describing the result of the way in which equitable considerations operate. It is difficult to find a short counterpart for it. I will therefore use it, as counsel did, in the sense defined by Lord Hoffmann.
[422] One of the notable features in the long passage I have set out from Lord Hoffmann's opinion in Re a Company (No 00709 of 1992) ; O'Neill v Phillips is his adoption of what Jonathan Parker J said in In re Astec . That adoption and what he himself said in his following paragraph make it clear that the equitable considerations which give rise to a "legitimate expectation" themselves grow out of the relationships and dealings between the parties and the whole of their conduct in regard to one another. This seems to me to support a wider approach to the question whether equitable considerations have given rise to a "legitimate expectation" in a particular case than is recognised by the six propositions which Young J drew from the authorities.
[423] I set out those six propositions in [324]. Subject to what I have just said I agree generally with the first five of these propositions, although I think more is to be drawn from the cases than they contain. I have reservations about the sixth. In my view, in some circumstances if it is no longer practicable for the expectation to continue, that may cause it to be lost; but it would all depend on the particular circumstances of the case, and there will be cases where even if it is no longer practicable for the expectation of continuation in management to continue that will not bring the considerations leading to that legitimate expectation to an end. For example, the party enjoying the legitimate expectation will certainly in some such circumstances be entitled to be bought out.