Home Information Cases Folkes Group plc v (1) Shirley Suzanne Alexander (2) Louis Roger Lucas (2002)

Skip to content. | Skip to navigation

Folkes Group plc v (1) Shirley Suzanne Alexander (2) Louis Roger Lucas (2002)

Summary

Evidence of negotiations and subjective intention were not admissible when construing the meaning of an amendment to the articles of association of a company in line with the principles in Investors Compensation Scheme Ltd v West Bromwich Building Society (1998)] 1 WLR 896.

Facts

Application by the claimant, a quoted company listed on the London Stock Exchange, for the court to construe amendments made to its articles of association in May 1999. The company's authorised capital of £4 million was divided into 5p shares of which 13.1 million were voting shares and 66.9 million were non voting shares. The Folkes family held a substantial proportion of the voting shares. Article 7 of the articles of association contained provisions that the non-voting shares would become voting shares if "the Folkes Family Shareholding" fell and then remained below 40 per cent of the issued voting shares for 14 consecutive days. The question before the court was whether the effect of the 1999 amendments to Art.7 was to reduce the Folkes Family Shareholding to below 40 per cent of the voting shares and so entitle the non-voting shares to become enfranchised. In a circular to shareholders, the executive chairman described the problem as arising from a clerical error and asserted that the intention had been to increase rather than to reduce the categories of shareholders who would be regarded as Folkes family members. Representatives were appointed to represent the interests of the voting shareholders (the first defendant) and the non-voting shareholders (the second defendant).

Held

(1) When interpreting the articles of association, the court could not have regard to evidence of negotiations and statements of intention (Investors Compensation Scheme Ltd v West Bromwich Building Society (1998) 1 WLR 896). However, the background knowledge that would reasonably have been available to the parties at the time included the original form of the 1985 articles. (2) On the face of the amendment, a significant class of voting shares was thereby removed from the category of "qualifying shares", in particular those voting shares that were "beneficially owned by... a member of the Folkes Family". (3) However, this interpretation led to an absurd result, one that could not sensibly be regarded as reflecting the true intention of the amendments (see the Investors Compensation case (supra)). The literal construction of the amended article was one that must be made to yield to business common sense. The amendment did not have the effect of triggering a right of enfranchisement in the non-voting shareholders.

Judgment accordingly.

Chancery Division
Rimer J
Judgment date
31 January 2002
References

​LTL 4/2/2002: (2002) 2 BCLC 254

Members

Practice areas