Sugarman v CJS Investments LLP
| Jurisdiction | England & Wales |
| Judge | Lord Justice Floyd,Lady Justice Macur,Lord Justice Briggs |
| Judgment Date | 19 September 2014 |
| Neutral Citation | [2014] EWCA Civ 1239 |
| Docket Number | Case No: A3/2014/1663 |
| Court | Court of Appeal (Civil Division) |
| Date | 19 September 2014 |
[2014] EWCA Civ 1239
Lord Justice Briggs
Lord Justice Floyd
and
Lady Justice Macur
Case No: A3/2014/1663
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
MANCHESTER DISTRICT REGISTRY
HHJ Raynor QC sitting as a judge of the High Court
Case No A30 MA 304
Royal Courts of Justice
Strand, London, WC2A 2LL
Paul Chaisty QC (instructed by Paul Ross & Co Solicitors) for the Appellants
Mark Warwick QC and Camilla Chorfi (instructed by DAC Beachcroft LLP) for the Respondents
Hearing date: 16 September 2014
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Introduction
This is an appeal by the claimants from the decision of HHJ Raynor QC (sitting as a judge of the High Court in Manchester on 12 May 2014). It raises a short point of construction of one of the articles of association of Lawrence House Management Company ("the Company"), which is the management company of a residential development called New Lawrence House, consisting of 104 flats, at Shawheath Close in Manchester. Between March 2009 and December 2010 the original developer, JCS Homes Ltd., granted 104 leases of 125 years each of flats in New Lawrence House. The leases are between JCS Homes Limited and the tenant, but the Company is a party to each lease. A large number of the leases (some 66) are now held by the first defendant CJS Investments LLP, 6 are held by a company owned by the second, fifth and sixth defendants and one each by the third and fourth defendants. The vast majority of the remainder (all except one) are held by individuals, including the three claimants. Each flat is held on the basis that a member owns one share in the company.
Meetings of the company were held on 7 April 2014 and 11 April 2014 concerned with the appointment of directors. The details of those meetings do not matter, but it is common ground that their outcome depends on whether each member can exercise one vote, regardless of the number of shares he holds, or whether he or she can exercise one vote for each share held. The appellants contended for one vote per member, whilst the respondents contended for one vote per share. The judge construed the articles as conferring one vote per share.
It is not difficult to see why the issue between the parties matters. If the 66 flats in fact owned by the first defendant entitle them to only one vote they can be routinely outvoted by the remaining flat owners, even though the first defendant holds the majority of the shares in the company.
Before coming to the relevant article, it is necessary to refer briefly to the common law and statutory position as it affects voting at company meetings. The common law position is summarised in the judgment of Jessell MR in Re Horbury Bridge Co. (1879) 1 Ch D 109, at page 115, as follows:
"We first of all consider what may be termed the common law of the country as to voting at meetings. It is undoubted, and it was admitted by Sir Henry Jackson in his argument for the Respondents, that, according to such common law, votes at all meetings are taken by show of hands. Of course it may not always be a satisfactory mode – persons attending in large numbers may be small shareholders and persons attending in small numbers may be large shareholders, and therefore in companies provision is made for taking a poll, and when a poll is taken the votes are to be counted according to the number of shares…."
The ability of members to call for a poll is not now dependent on the articles but is enshrined in statute. Section 321(1) of the Companies Act 2006 recognises the right of the members of a company to demand a poll and renders void any provision of the company's articles insofar as it would have the effect of excluding the right to demand a poll at a general meeting on any question other than the election of the chairman or the adjournment of the meeting.
As to votes at the meeting, section 284 (1) to (4) of the Companies Act 2006 ("the Act") provides, and provided at the date of incorporation of the company, as follows:
"(1) On a vote on a written resolution –
(a) in the case of a company having a share capital every member has one vote in respect of each share or each £10 of stock held by him, and
(b) in any other case, every member has one vote.
(2) On a vote on a resolution on a show of hands at a meeting –
(a) every member present in person has one vote, and
(b) every proxy present who has been duly appointed by a member entitled to vote on the resolution has one vote.
(3) On a vote on a resolution on a poll taken at a meeting –
(a) in the case of a company having a share capital, every member has one vote in respect of each share or each £10 of stock held by him, and
(b) in any other case, every member has one vote.
(4) The provisions of this section have effect subject to any provisions of the company's articles."
Accordingly it is necessary to look to the Company's articles to determine whether those statutory provisions — one member one vote on a show of hands and one vote per share on a poll — have been modified.
Companies which do not wish to draft bespoke articles of association may simply adopt the regulations in Table A. In the present case the Company's articles provided by article 1 that the regulations contained in Table A should apply to the Company " subject as hereinafter provided".
Regulation 54 of Table A is expressly disapplied by article 13(b) of LHM's articles. But I should set it out, as the very fact that it is disapplied forms a component of the appellants' argument on construction:
"Subject to any rights or restrictions attached to any shares, on a show of hands every member who (being an individual) is present in person or (being a corporation) is present by a duly authorised representative, not being himself a member entitled to vote, shall have one vote and on a poll every member shall have one vote for every share of which he is the holder."
Regulation 54 therefore reflects the terms of section 284(2) and (3) of the Act: one vote per member on a show of hands and one vote per share on a poll. As regulation 54 is disapplied, the critical question then is whether and if so to what extent the bespoke articles have modified the position laid down by statute.
The relevant article is article 13. It is headed "Votes of members" and reads:
"(a) Subject as hereinafter provided, every Member present in person or by Proxy shall have one vote, provided that where a dwelling has no dwellingholder those members who are subscribers to the Memorandum of Association or who have been nominated Members under Article 4(a) shall have such number of additional votes each that when taken collectively form a three quarters majority of the votes cast.
(b) Regulation 54 and 55 in Table A shall not apply to the Company…."
A number of points can be noted about this article. Firstly and most obviously it appears in the opening words (without intending to pre-judge the issue which arises) to provide that each member present or by proxy has one vote. I will refer to this part of the article as "the main voting provision". Secondly, unlike section 284 and regulation 54 of Table A, it does not make the distinction between votes taken by a show of hands and by a poll. Thirdly it contains a proviso to make special provision for the case where a dwelling has no dwellingholder, something which is tailor-made to this particular company and has no counterpart in Table A ("the proviso").
A "dwellingholder" is defined by the articles of association of the Company as:
"… the lessee and/or transferee of a dwelling provided that where two or more persons are the lessees and/or transferees of a dwelling they shall for all purposes of these Articles be deemed to jointly constitute one Dwellingholder and the expression 'Dwellingholder' shall be read and construed accordingly."
Both sides recognised that the proviso is far from clear in its meaning and effect. It is, however, clear that it involves a special weighting provision which is to apply in certain circumstances. If taken literally, it would mean that the fact that one dwelling was temporarily bereft of a dwellingholder triggered the weighting provisions of the proviso. It is not necessary for us to reach a conclusion on the precise meaning and effect of the proviso, save to note, as both sides recognise, that at least this aspect of article 13(a) appears to have been inexpertly drafted.
The arguments on the appeal
Mr Chaisty QC, who appears for the appellants, contends that the language of at least the main voting provision of article 13(a) is crystal clear and means that, however the vote is cast, each member has one vote. He supports his argument by reference to the fact that regulation 54 of Table A, which expressly provided for a different method of counting on a show of hands and on a poll, is expressly disapplied. Article 13(a) must therefore necessarily require one vote per member on a show of hands or on a poll. He submits that this is not a case where the court has the option of choosing between possible constructions on the footing that one or the other accords more closely with commercial common sense. The court can only reject...
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