Union Music Ltd and Arias Ltd v Russell John Watson and Blacknight Ltd [CA (Civil), 31/01/2003]
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE PETER GIBSON,LORD JUSTICE BUXTON,MR JUSTICE MORLAND |
| Judgment Date | 31 January 2003 |
| Neutral Citation | [2003] EWCA Civ 180 |
| Docket Number | A3/2002/1372 and A3/2002/1373 |
| Court | Court of Appeal (Civil Division) |
| Date | 31 January 2003 |
[2003] EWCA Civ 180
IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT
CHANCERY DIVISION
MANCHESTER DISTRICT REGISTRY
(HIS HONOUR JUDGE HOWARTH)
Royal Courts of Justice
Strand
London, WC2
Lord Justice Peter Gibson
Lord Justice Buxton
Mr Justice Morland
A3/2002/1372 and A3/2002/1373
MR E BARTLEY-JONES QC and MR D CASEMENT (instructed by Wacks Caller, Manchester, M2 4JU) appeared on behalf of the Claimant
C FREEDMAN QC and MR V FLYNN (instructed by Shammah Nicholls, Manchester, M3 3EL) appeared on behalf of the Defendant
Section 371 of the Companies Act 1985 ("the Act") gives a power to the court to order a meeting in the following terms:
"(1) If for any reason it is impracticable to call a meeting of a company in any manner in which meetings of that company may be called, or to conduct the meeting in manner prescribed by the articles or this Act, the court may, either of its own motion or on the application—
(a) of any director of the company, or
(b) of any member of the company who would be entitled to vote at the meeting,
order a meeting to be called, held and conducted in any manner the court thinks fit.
(2) Where such an order is made, the court may give such ancillary or consequential directions as it thinks expedient; and these may include a direction that one member of the company present in person or by proxy be deemed to constitute a meeting.
(3) A meeting called, held and conducted in accordance with an order under subsection (1) is deemed for all purposes a meeting of the company duly called, held and conducted."
On this appeal the primary question is whether the lower court, when invited by a majority shareholder in a company to exercise the power under the section so that the meeting could consider whether to appoint an additional director, was correct to refuse to do so in circumstances where the minority and only other shareholder was threatening to render inquorate any general meeting of the company by his refusal to attend. It is an appeal from certain parts of the order made on 13th June 2002 by His Honour Judge Howarth, sitting as a judge of the High Court, in proceedings ("the main action") brought by the first claimant, Union Music Limited ("Union"), and the second claimant, Arias Limited ("Arias"), against the first defendant, Russell John Watson, and the second defendant, Blacknight Limited ("Blacknight"). Union in the course of those proceedings applied for an order under section 371. The judge, by his order of 13th June 2002, refused to make an order under section 371 and ordered Union and Arias to pay Mr Watson's costs. The judge refused permission to appeal. On application to this court Carnwath LJ gave permission.
Union, on 23rd January 2002, had also commenced proceedings ("the Part 8 proceedings") against Mr Watson and Arias, seeking the convening of an extraordinary general meeting of Arias pursuant to section 371 to appoint an additional director of Arias. The judge by a further order on 13th June dismissed with costs the Part 8 proceedings and ordered the payment out to Mr Watson of £15,000 paid into court by Union as security for costs. The judge again refused permission to appeal. Carnwath LJ adjourned that application to this court while expressing doubt as to whether there was sufficient ground for an appeal.
The background to the matters before us is somewhat complex. Mr Watson is a world-renowned singer of operatic arias. On 17th July 1998 Arias was incorporated as a vehicle for the promotion, management and exploitation of Mr Watson's career. It adopted Table A of the Act as its articles of association, save in so far as the regulations in table A were expressly excluded or varied. The relevant articles of Arias are the following. Regulation 40 of Table A was excluded, but the first sentence of that regulation, that no business shall be transacted at any meeting unless a quorum is present, is reproduced in article 5(3). The second sentence of regulation 40, providing for a quorum of two, is not in the articles, but article 5(E) provides that if Arias had only one member, that member, or his proxy or representative, should be a quorum.
Of the 100 issued shares, 51 are held by Union and 49 by Mr Watson. There were three directors appointed: Union, Mr Watson and his wife. In September 2001 Mrs Watson resigned and she has not been replaced. A shareholders' agreement ("the Agreement") dated 5th August 1998 was entered into between Union, Mr Watson and Arias for the purpose of regulating their relationship with each other, as was recited in recital C.
Clause 4.1 of the Agreement provided that:
"The maximum number of Directors holding office at any time shall be 4 unless otherwise expressly agreed in writing by each of the Shareholders."
Clause 4.3 provided that:
"The Chairman of the meeting of the Board shall not be entitled to a second or a casting vote."
Clause 6 was entitled "Matters Requiring Consent of the Shareholders". Clause 6.1 provided:
"The Shareholders shall exercise all voting rights and other powers of control available to them in relation to the Company so as to procure (insofar as they are able by the exercise of such rights and powers) that the Company shall not without the prior written consent of both the shareholders:-"
There then follow 18 sub-paragraphs listing various actions or activities which are prohibited without the prior written consent of both shareholders. They include clause 6.1.1, appointment of an agent; clause 6.1.4, the borrowing of a sum in excess of £1,000; clause 6.1.8, entering into commitments over £1,000; clause 6.1.16, doing or permitting any act whereby Arias might be wound up; and then clause 6.1.18:
"Hold any meeting of Shareholders or purport to transact any business at any such meeting unless there shall be present duly authorised representatives or proxies for each of the shareholders."
Clause 10.1 provided:
"Each Shareholder undertakes with the other as follows:-.
10.1.1. to exercise all voting rights and powers of control available to it in relation to the Company so as to give full effect to the terms and conditions of this Agreement."
I need not read further from that clause.
Clause 24.1 provided that in the event of any ambiguity or conflict arising between the terms of the Agreement and those of Arias' memorandum and articles, the terms of the Agreement should prevail as between the shareholders.
Unhappily, Union and Mr Watson fell out in 1999. Union alleges that Mr Watson entered into contracts with Blacknight and Decca, cutting out Union and Arias. On 22nd December 2000 the main action was commenced in the Manchester District Registry. Arias purportedly acted by the same solicitors as were acting for Union, and was a claimant even though there had not been any vote sanctioning the commencement of the proceedings in any board meeting or any general meeting.
It was pleaded by the claimants in paragraph 9 of the particulars of claim that it was the wish of Union, as the majority shareholder in Arias, that Arias commence and continue the proceedings as against Mr Watson, that by its participation in the main action, Union authorised and ratified the commencement and continuation of the proceedings by Arias against Mr Watson, and that so far as necessary Union would seek directions from the court under section 371 for the holding of a meeting of Arias so that the commencement and continuation of the main action could be authorised by Arias in a general meeting. It was further pleaded that Mr Watson, as a director of Arias, owed fiduciary duties to it, and that he was in breach. A restitutionary claim was made to recover monies expended by Union and Arias on Mr Watson's career. The claim against Blacknight is no longer pursued and I need say nothing about it.
By his defence and counterclaim, Mr Watson said that it was served without prejudice to his case that (1) Union's solicitors had no authority to act on behalf of Arias, and he reserved the right to claim wasted costs against them; (2) the agreement was unenforceable as being in restraint of trade; (3) alternatively the agreement should be set aside by reason of undue influence and/or unconscionable bargain. Mr Watson denied that either or both Union and Arias was or were entitled to relief, and he counterclaimed for a declaration that the agreement was unenforceable, or alternatively should be set aside.
On 16th March 2001 Union and Arias served a part 18 request on Mr Watson. He was asked whether his position was that the proceedings brought by Arias were a nullity and incapable of being ratified in a general meeting. Mr Watson, in his response of 23rd May 2001, said that he did not contend that the claim form in the main action was a nullity; his position was that the solicitors had no authority to act for Arias and were personally liable for the costs of the proceedings.
A further request by Union and Arias was whether Mr Watson would be prepared to attend a properly convened general meeting of Arias so that consideration could be given by the members of Arias to whether or not they should ratify the commencement and continuation of the main action. The request also stated that if Mr Watson refused to co-operate, an application would be made under section 371. Mr Watson's response was that the relationship between him and the directors of Union had completely broken down to the extent that direct dialogue was unlikely to be...
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