Bushell v Faith
| Jurisdiction | England & Wales |
| Judge | Lord Reid,Lord Morris of Borth-y-Gest,Lord Guest,Lord Upjohn,Lord Donovan |
| Judgment Date | 16 December 1969 |
| Judgment citation (vLex) | [1969] UKHL J1216-1 |
| Date | 16 December 1969 |
| Court | House of Lords |
[1969] UKHL J1216-1
Lord Reid
Lord Morris of Borth-y-Gest
Lord Guest
Lord Upjohn
Lord Donovan
House of Lords
Upon Report from the Appellate Committee, to whom was referred the Cause Bushell (Widow) against Faith, that the Committee had heard Counsel, as well on Monday the 10th as on Tuesday the 11th, days of November last, upon the Petition and Appeal of Constance Anna Bushell (Widow), of 4 Bush Court, Crown Lane, Southgate, in the County of London, praying That the matter of the Order set forth in the Schedule thereto, namely, an Order of Her Majesty's Court of Appeal of the 21st of February 1969, might be reviewed before Her Majesty the Queen, in Her Court of Parliament, and that the said Order might be reversed, varied or altered, or that the Petitioner might have such other relief in the premises as to Her Majesty the Queen, in Her Court of Parliament, might seem meet; as also upon the Case of Geoffrey Leopold Faith, lodged in answer to the said Appeal; and due consideration had this day of what was offered on either side in this Cause:
It is Ordered and Adjudged, by the Lords Spiritual and Temporal in the Court of Parliament of Her Majesty the Queen assembled, That the said Order of Her Majesty's Court of Appeal, of the 21st day of February 1969, complained of in the said Appeal, be, and the same, is hereby, Affirmed, and that the said Petition and Appeal be, and the same is hereby, dismissed this House: And it is further Ordered, That the Appellant do pay, or cause to be paid, to the said Respondent the Costs incurred by him in respect of the said Appeal, the amount thereof to be certified by the Clerk of the Parliaments.
My Lords,
With some reluctance I agree with the majority of your Lordships that this appeal must be dismissed. Article 9 of the Articles of Association of this company is obviously designed to evade section 184(1) of the Companies Act, 1948, which provides that a company may by ordinary resolution remove a director notwithstanding anything in its Articles. The extra voting power given by that Article to a director whose removal from office is proposed makes it impossible in the circumstances of this case for any resolution for the removal of any director to be passed if that director votes against it.
We were informed that this device for giving extra votes to a particular share or a particular shareholder did not appear in any text book or any reported case until 1956. In the seventeenth edition of Palmers Company Precedents published in that year, Form No. 256( c) on page 737 in effect would give to the named shareholder power to prevent any alteration of the particular Article, thereby preventing the application of section 10 of the Act, and Form No. 259 is similar to Article 9 in the present case. Form No. 254 confers on the holder of a particular share what is in effect a veto by which he can prevent any resolution of any kind from being passed without his consent.
But the practice of giving special voting rights or special lack of voting rights to a particular class of shares is old and is recognised in Article 2 of Table A in the First Schedule to the 1948 Act. The novel use of this practice in the forms set out in Palmer may not have been contemplated in 1948, and it may be that the whole practice will be reviewed when amendments to the Companies Act are being proposed. But we must take the law as we find it.
Counsel for the Appellant found it impossible to deny that an Article like that in Form No. 254 would be effective to prevent the removal of a director without the consent of the shareholder having the veto thereby given to him, and I cannot find any sufficient reason for holding that a veto in that form would be effective but that what amounts to a veto in Article 9 in the present case is ineffective to prevent evasion of section 184.
My Lords,
It is provided by section 184(1) that a Company may by ordinary resolution remove a director before the expiration of his period of office. The Company may do so notwithstanding anything to the contrary in its articles. So if an article provided that a director was irremovable he could nevertheless be removed if an ordinary resolution to that effect was passed. So also if an article provided that a director could only be removed by a resolution carried by a majority greater than a simple majority he would nevertheless be removed if a resolution was passed by a simple majority.
Some shares may, however, carry greater voting power than others. On a resolution to remove a director shares will therefore carry the voting power that they possess. But this does not, in my view, warrant a device such as Article 9 introduces. Its unconcealed effect is to make a director irremovable. If the question is posed whether the shares of the Respondent possess any added voting weight the answer must be that they possess none whatsoever beyond, if valid, an ad hoc weight for the special purpose of circumventing section 184. If Article 9 were writ large it would set out that a director is not to be removed against his will and that in order to achieve this and to thwart the express provision of section 184 the voting power of any director threatened with removal is to be deemed to be greater than it actually is. The learned Judge thought that to sanction this would be to make a mockery of the law. I think so also.
I would allow the appeal.
My Lords,
I have had the advantage of reading the Opinion of my noble and learned friend, Lord Donovan, with which I agree.
I would dismiss the appeal.
My Lords,
This appeal raises a question of some importance to those concerned with the niceties of company law, and the relevant facts, which are not in dispute, can be very shortly stated.
The Respondent company Bush Court (Southgate) Ltd. (a formal party to the proceedings) was incorporated on 19th September, 1960, and at all material times had an issued capital of 300 fully paid up shares of £1 each held as to 100 shares each by a brother and his two sisters namely the Appellant Mrs. Bushell, the Respondent Mr. Faith and their sister Dr. Kathleen Bayne.
Mr. Faith was a director but his conduct as such displeased his sisters who requisitioned a general meeting of the company which was held on 22nd November, 1968, when a resolution was proposed as an ordinary resolution to remove him from his office as director. On a shew of hands the resolution was passed, as the sisters voted for the resolution; so the brother demanded a poll and the whole issue is how votes should be counted upon the poll having regard to special Article 9 of the Company's Articles of Association.
The Company adopted Table A in the First Schedule to the Companies Act, 1948, with variations which are immaterial for present purposes. The relevant Articles of Table A are:
"2. Without prejudice to any special rights previously conferred on the holders of any existing shares or class of shares, any share in the company may be issued with such preferred, deferred or other special rights or such restrictions, whether in regard to dividend, voting, return of capital or otherwise as the company may from time to time by ordinary resolution determine.
62. Subject to any rights or restrictions for the time being attached to any class or classes of shares, on a show of hands every member present in person shall have one vote, and on a poll every member shall have one vote for each share of which he is the holder."
Special Article 9 is as follows:
"In the event of a Resolution being...
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