Home Information Cases Maria Puzitskaya & Ors v St Paul's Mews (2017)

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Maria Puzitskaya & Ors v St Paul's Mews (2017)

Summary

Where a company's articles of association provided for members to have particular voting rights in general meetings, and the articles had been drafted before the Companies Act 2006 allowed for majority voting on written resolutions, the articles could not be construed so as to apply the particular voting rights to the written resolution procedure.

Facts

The minority shareholders of a company claimed a declaration as to the voting rights of the company's members and an order under the Companies Act 2006 s.306 convening a meeting of the company.

The company had been established in 1988 to maintain and manage a private residential street of 30 houses. Under its articles of association, each house owner was to have a shareholding and equal voting rights. The developer sold four houses and allotted two shares to each. The first defendant (S) bought the remaining 26 houses. S sold all but one house but retained most of the corresponding shares. S owned 50 shares; the claimants owned 6. Article 10(a) of the articles provided that each member had only one vote at general meetings, regardless of how many shares they held. Article 11(d) provided that only members of the company could act as a director. S's owner purported to act as the company's sole director, although he did not own a house in the street and was not a member. In September 2016, the claimants complained to S about its failure to transfer the shares. In November, S caused the company to circulate a written resolution which would delete the provisions of the articles with which the claimants complained that S had failed to comply, and would remove the requirement for a director also to be a shareholder. S used its majority shareholding to pass the resolution. The claimants considered that the resolution had not been validly made, or a meeting of the company should be held to consider reversing it.

The claimants argued that

(1) although s.284 provided that members had one vote per share on a vote on a written resolution, that was displaced by the provision in art.10(a) for one vote per member; although art.10(a) only referred to general meetings, not written resolutions, it had been drafted before the Act allowed for majority votes on written resolutions, so it should be construed as making provision for the written resolution procedure as well as for general meetings;

(2) an order under s.306 should be made on the ground that it was impracticable for the members to call a meeting, since there was no director in place to be required to call a meeting under s.303(1).

Held

(1) Voting rights - When construing constitutional documents such as articles of association, the court was entitled to look at subsequent changes in circumstances. However, that approach did not permit the court to rewrite the wording so as to extend it beyond its natural meaning, Debenhams Retail Plc v Sun Alliance & London Assurance Co Ltd [2005] EWCA Civ 868, Lloyds TSB Foundation for Scotland v Lloyds Banking Group Plc [2013] UKSC 3 and Lian v Maxz Universal Development Group PTE Ltd [2009] SGCA 4 considered. Where the parties had used unambiguous language, the court had to apply it. It was clear that art.10(a) did not apply to written resolutions (see paras 51-53 of judgment).

(2) Section 306 - S's owner was ineligible under the original articles to be the company's director because he did not own a house in the street. Even if the November resolution was effective, there would have to be a fresh appointment or ratification after the alteration of the articles, East Norfolk Tramways Co, Re (1877) 5 Ch. D. 963 applied. There had been no ratification. The owner had not been validly appointed as director. The company therefore had no directors. In those circumstances, it was appropriate for the court to make an order under s.306 (paras 15-16, 69).

Judgment for claimants in part

Chancery Division (Companies Court)
Andrew Hochhauser QC
Judgment date
26 April 2017
References
LTL 3/5/2017