3.2.4.3 Deadlock

In Re Yenidje Tobacco Co Ltd the company had two shareholders with equal voting powers. The shareholders were the directors of the company as well. The articles of association provided that, in case of a dispute, the matters have to be referred to arbitration. A conflict occurred between the shareholders and arbitration took place. However, parties became so hostile that they no longer spoke with each other. They communicated only through the company secretary. However, the company was still very profitable. One of the shareholders petitioned for a winding-up, because of the existence of a deadlock. In the Court of Appeal, Warrington LJ held that on the one hand, there was an arbitration clause, so a `technical' deadlock could be eliminated. He considered that the arbitration clause offered a solution in specific cases where important resolutions could not be adopted, because of a dispute. The arbitration clause, however, did not offer a solution for the ongoing difficulties between parties. Moreover, Warrington considered that although the parties were both shareholders and directors of an Ltd, they were in substance partners in partnership.3 In case of a partnership, the circumstances would clearly constitute enough ground to dissolute a partnership. Based on the facts, the Court found that it was just and equitable to wind up the company.