England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
IN THE MATTER OF TULSESENSE LIMITED
AND IN THE MATTER OF THE COMPANIES ACT 1986

		Royal Courts of Justice Strand, London, WC2A 2LL
		15/02/2010

Mr Justice Newey:

1. The issue raised by these proceedings is whether the First Defendant's son Wayne ceased to be a director of the Second Defendant ("Tulsesense") on 18 December 2008. It is common ground between the parties that Mr Wayne Rolfe had been the sole director of Tulsesense before 18 December 2008. The Claimants contend that Mr Wayne Rolfe's appointment as a director came to an end when an annual general meeting of Tulsesense was held on that date. In contrast, the First Defendant's case is that Mr Wayne Rolfe remains a director of the company.

Basic facts

2. Tulsesense was set up by two brothers, William Rolfe and the First Defendant, to whom, for convenience, I shall refer as "William" and "Bernard". For the same reason, I shall similarly refer to other members of the Rolfe family by their Christian names.
3. William was born in about 1914 and died on 29 December 1998. His wife ("Violet") survived him by some seven years, but died on 23 July 2006. William and Violet had three children: Rita Anderson ("Rita"), and the two Claimants (respectively "David" and "Jacqueline"). Rita herself died on 11 February 2008, but she is survived by four children: Debra Meynell ("Debra"), Stephen Anderson ("Stephen"), Kevin Anderson and Kim McGrath.
4. Bernard, who is now approaching 90 years of age, also has children. Two have featured in the proceedings before me: Mr Wayne Rolfe ("Wayne") and Bernard's daughter Michelle Wood ("Michelle").
5. During William's lifetime, he and his brother each held one of the two issued shares in Tulsesense, and they were the company's only directors. In practice, the management of the company was largely undertaken by William's side of the family from 81 Broomfield Avenue, Palmers Green, London N13, where William and Violet lived and Jacqueline still lives. Violet was the company secretary.
6. Tulsesense's business is that of investment in freehold reversions of property. The company has, I am told, a portfolio of some 3,000 properties.
7. Shortly after William's death in 1998, documents were sent to Companies House recording the appointment of Violet and Rita as additional directors of Tulsesense on 4 January 1999. The forms were signed by Violet and Rita respectively and also by Bernard. There is dispute between the parties as to whether any meeting was held in connection with Violet's and Rita's appointment to Tulsesense's board.
8. William left a will in which he named Violet and Bernard as his executors and trustees. The will further provided for William's trustees to hold the net proceeds of his estate on trust to pay the income to Violet during her life and then on trust for Rita, Jacqueline and David in equal shares absolutely. Probate of the will was granted to Violet and Bernard on 12 September 2001. On 8 September 2003 a deed of appointment and retirement was executed in connection with the will. The deed was expressed to be supplemental to the will, which was referred to as "the Settlement", and provided for Bernard to be replaced as trustee by Rita and Mr David Bristow ("Mr Bristow"), who is a solicitor and a partner in W H Matthews & Co.
9. In March 2005 Companies House was sent documents (forms 288a and 288b) recording the appointment of Jacqueline in Violet's place as the secretary of Tulsesense from 1 March.
10. It is clear that Tulsesense's affairs were conducted very informally. No more than a few formal board meetings were held, and I am not aware of any signed minutes of any general meeting before 2007.
11. Following the death of Violet in 2006, there were discussions about the possibility of Bernard buying the share in Tulsesense which his brother had held. In the event, these did not come to fruition. On 22 June 2007 Rita, Jacqueline and David confirmed in a letter to Bernard that they did not wish to sell their share of Tulsesense.
12. By now, disputes had arisen between the two branches of the family as to the management of Tulsesense, notably in relation to sums received by entities associated with William's side of the family in respect of management charges and by way of commission on insurance effected on the company's properties. The issues remain unresolved, but the detail of them is unimportant for present purposes.
13. On 21 May 2007 Bernard informed Rita, Jacqueline and David in a letter that, in future, Wayne would manage his business affairs on a daily basis. Bernard was by now 87 years of age. Both this and other letters were drafted for Bernard by Wayne, but it was explained to me that the letters would be discussed with, and approved by, Bernard.
14. In a letter dated 30 June 2007, Rita and Jacqueline told Bernard that an extraordinary general meeting of Tulsesense would be held on 17, 18 or 19 July and asked that he let Mr David Jennings (a chartered accountant and the principal of Newton & Co, who had acted as the accountant for Tulsesense since its incorporation) know which date would be convenient and any particular items he would like to be included on the agenda. In his reply of 9 July, Bernard stated:

"As you are aware I have given authority for my son to act on my behalf and I am in the process of formalising this matter legally. Once this is formalised I will advise you accordingly.

My son will therefore be attending the meeting on my behalf, as I am no longer able to do so. He has advised he is able to attend on 17^th July at 2.30pm at Broomfield Avenue."

On 12 July Rita and Jacqueline wrote to Bernard to confirm that the extraordinary general meeting would take place on 17 July, and on the same day Gisby Harrison solicitors, who had been consulted by Wayne on behalf of his father, sent Rita, Jacqueline and David a letter in which they said, among other things, the following:

"Mr Bernard Rolfe is now moving immediately to appoint Mr Wayne Rolfe as his attorney to represent his interests concerning the company….

… To assist Mr Bernard Rolfe in dealing with the affairs of the company and to work towards resolving all issues, he would like to appoint Mr Wayne Rolfe as his alternate director as permitted by the articles of association of the company. Please confirm that you agree to this appointment."

15. As had been contemplated in the Gisby Harrison letter, on 16 July 2007 Bernard executed an enduring power of attorney. The power of attorney provided that Wayne was to have authority to do the following on Bernard's behalf:

"TO UNDERTAKE AND CARRY OUT ALL AND ANY ACTS WHICH I AM ENTITLED TO UNDERTAKE AND CARRY OUT AS A SHAREHOLDER AND DIRECTOR OF TULSESENSE … ('THE COMPANY') INCLUDING BUT NOT LIMITED TO ACTING AS MY PROXY AT ANY MEETING OF THE SHAREHOLDERS OF THE COMPANY AND IN MY NAME TO VOTE AT AND ATTEND ON MY BEHALF ANY ANNUAL AND EXTRA ORDINARY GENERAL MEETINGS OF THE COMPANY AND SEPARATELY TO ACT AS MY ALTERNATE DIRECTOR OF THE COMPANY AS PERMITTED UNDER ITS ARTICLES OF ASSOCIATION"

The power of attorney was registered on 18 July 2007.

16. A meeting took place, as planned, on 17 July 2007 at 81 Broomfield Avenue. Those present were Rita, Jacqueline and David; Wayne and his sister Michelle; Mr Bristow; and Mr Jennings. What happened at this meeting bulked large both in evidence and submissions. I shall consider it in more detail later in this judgment.
17. Two days after this meeting, on 19 July 2007, Bernard wrote a letter to Mr Jennings in the following terms:

"I refer to the meeting with you, the company's solicitor Mr Bristow, the other 50% shareholders and both my son and daughter on 17^th July 2007.

I confirm the agreement between both the directors and shareholders in the above, for me to resign as a director and for my son Mr Wayne Rolfe to be appointed as a director of the company, in my place.

Further, my son, Wayne Rolfe, has formally been given enduring Power of Attorney to act on my behalf and to manage my business affairs in relation to the above company.

Can you please therefore produce the necessary paperwork to enable both my resignation and my son's appointment as a director in the business, to be formally implemented. Can you also please issue such paperwork to 81 Broomfield Avenue, for execution and then to the above address for my signature.

I therefore await this formal documentation, in line with the agreements reached."

The letter refers to a copy being sent to Rita, Jacqueline and David at 81 Broomfield Avenue and to another being sent to Mr Bristow. There is an issue between the parties as to whether a copy in fact reached 81 Broomfield Avenue; Mr Bristow did receive a copy.

18. On 20 July 2007 Mr Jennings circulated to Bernard, to Rita, Jacqueline and David, and to Mr Bristow the record he had prepared of the 17 July meeting. On the same day, Mr Jennings responded to Bernard's letter of 19 July as follows:

"This has arrived just as I am circulating the Notes and Memorandum of the meeting earlier in the week and I would suggest we hold over from dealing with … your resignation as a director of the Company and the appointment of Wayne in your stead just until I have the feedback from all parties attending."

19. To this, Bernard replied in the following terms on 22 July 2007:

"The shareholders have agreed to my requests at the meeting on 17^th July 2007 and my letter dated 19^th July 2007 merely confirms this agreement. In deed your minutes of this meeting also confirm this.

I therefore see no reason why any delay should ensue with regards to this matter.

I am on holiday from 24^th July 2007 and would request the formal executed documentation, dealing with the change in directorship, is with me upon my return on 4^th August 2007."

20. On 26 July 2007 Mr Jennings wrote to both Wayne and his father. Mr Jennings noted in his letter to Wayne:

"I think the major area of confusion arises in that I was under the impression that Bernard was looking to appoint you as an Alternate Director rather than him resigning as a Director at this point in time and looking to you to be appointed in his stead."

Mr Jennings made the same point in his letter to Bernard, and he added:

"Also as it appears that you have now executed a Power of Attorney in [Wayne's] favour, can you please let me have sight of this so that the Company's records can be noted."

21. Replying on 5 August 2007, Wayne enclosed a copy of the executed power of attorney and said:

"Can you please advise, by return, if the formal documentation dealing with both my father's resignation as a director, together with my appointment as a director in my father's stead, has been issued to the other 50% shareholders/other company director.

Further, can you also advise when my father will be issued with this documentation for execution.

Can you please give this your most urgent attention and advise accordingly, as my father is becoming increasingly frustrated at the delay with this formal procedure."

22. In a letter to Wayne of 6 August 2007, Mr Jennings said:

"In my previous letter I mentioned the confusion which appeared to have arisen as to whether Bernard had in fact resigned as a Director of the Company or as we originally understood you were to be appointed his Alternate. I had in fact prepared the appropriate forms showing him resigning as a Director and you being appointed in his stead but the Power of Attorney form shows the intent for you simply to act as his Alternate which in essence means that you stand in his shoes for both attendance and voting purposes. On this basis, Bernard does not resign as a Director and you are not appointed in his stead.

I should be grateful if you would confirm that you will be acting as Bernard's Alternate rather than him resigning and you being appointed as a Director in his place and I will then immediately send out the revised Notes of the Meeting incorporating the comments in your earlier letter."

23. On 7 August 2007 Wayne wrote to Mr Jennings as follows:

"I refer to your letter dated 6^th August 2007 and our subsequent telephone conversation on 7^th August 2007 and again reaffirm my fathers request he resigns as a company director and I be appointed in his stead. All company shareholders and directors have agreed to this.

I understand you have prepared the formal documentation, as confirmed these will be issued to the relevant parties by no later than 9^th August 2007.

The documentation dealing with my father's resignation will be issued to my father/me for execution and then is to be forwarded to the company secretary/other director for their execution.

The documentation dealing with my appointment will be first sent to the alternative director for execution, i.e. Mrs R Anderson, and then sent to me for signing…."

24. On 8 August 2007 Mr Jennings sent Wayne, for his signature, "the Form 288A relating to your appointment as a Director of the company following Bernard's resignation". Wayne returned the form, signed, on the following day. On 10 August, Mr Jennings sent a letter to Rita, Jacqueline and David at 81 Broomfield Avenue in which he said, among other things, the following:

"Following Wayne advising me that a Power of Attorney had been prepared in his favour, I requested a copy which authorises him to act as an Alternate Director on behalf of Bernard in dealing with all matters relevant to Tulsesense Limited. A copy of this is enclosed if a copy was not passed to you. Subsequent to this, there has been further correspondence signed by Bernard stating that it is his intention to resign as a Director of the Company and that Wayne should be appointed in his stead and I do not think that there would be any grounds to resist this. I have therefore prepared the necessary Forms to be lodged at Companies House and as soon as the Form 288a is returned signed to me from Wayne, I will forward these to Rita to sign before filing at Companies House."

On 15 August, having evidently received Wayne's letter of 9 August, Mr Jennings wrote to Rita as follows:

"I have now received back the Form 288a from Wayne relating to his appointment as a Director of the Company and enclose this together with the Form 288b relating to Bernard's resignation. I should be grateful if you would sign each Form where indicated as a current serving officer of the Company and then return these Forms to me so that they can be lodged at Companies House."

25. On 24 August 2007 Mr Jennings sent the completed forms to Companies House. Rita had signed them on 20 August 2007.
26. As mentioned above, Rita died on 11 February 2008, leaving Wayne as the only director of Tulsesense. On 18 February, Jacqueline wrote to Wayne asking that he approve the appointment of David as a director of the company in Rita's stead. That, however, was not agreed, and there were continuing disputes between Wayne and his cousins. By 4 April, Debra, one of Rita's children, was questioning in correspondence how Wayne had himself been correctly appointed as a director of Tulsesense.
27. On 8 May 2008 Mr Bristow, as the surviving trustee of the trusts established by William's will, appointed Jacqueline and David as trustees in place of himself and Rita. Shortly afterwards Bernard transferred to Jacqueline and David the share in Tulsesense which he had held as an executor of his brother's will.
28. An annual general meeting of Tulsesense was held on 18 December 2008. In advance of the meeting commencing, Debra stated that the attendance of Jacqueline and David at the meeting was not to be taken as acceptance of the validity of Wayne's appointment as a director. During the meeting, a resolution to appoint David as a director was proposed. Jacqueline voted in favour of the resolution, but Bernard voted against it. Minutes of the meeting record:

"The Shareholder Trustees [i.e. Jacqueline and David] asked why Wayne Rolfe was not using casting vote. Christopher Wilks [of SA Law, Tulsesense's solicitors] said that the chairman was not obliged to use his casting vote in the event of deadlock. The shareholder proposing the resolution needed 51% to pass the resolution and as they had not achieved that the resolution failed."

No resolution for Wayne's re-election as a director was proposed.

29. The proceedings now before me had been issued about a week earlier, on 10 December 2008.

Witnesses

30. I heard evidence from Jacqueline, David, Debra, Stephen, Mr Jennings, Mr Bristow, Bernard, Wayne and Michelle.
31. I should mention specifically the evidence given by Bernard. His recollection of events was clearly limited, and in certain respects he appeared confused. During his cross-examination, there were the following exchanges:

"Q. If we move to the events around 17^th July 2007 and the meeting on 17^th July, do you remember that time?

A. No, I do not remember that time.

Q. Are you going to be able to give any evidence about what happened around that time?

A. No, I cannot remember it.

Q. Did you remember it when you wrote your witness statement?

A. I cannot remember it, to tell you the truth."

I do not think that I can place any significant reliance on Bernard's evidence.

The parties' cases in outline

32. Mr Edward Knight, who appears for Jacqueline and David, argues that Wayne was appointed as a director of Tulsesense by the board of Tulsesense, of which Rita was at the time the only member, in accordance with article 95 of the 1948 version of Table A. That article provides for a director so appointed to "hold office only until the next following annual general meeting" and then to be eligible for re-election. Since Wayne was not re-elected as a director at the annual general meeting of Tulsesense held on 18 December 2008, he is no longer a director of the company, with the result, Mr Knight says, that the company now has no directors.
33. In contrast, Mr Ben Griffiths, who appears for Bernard, submits as follows:

i) Wayne was or is to be treated as having been appointed as a director by Tulsesense's shareholders, acting informally, on a date between about 17 July and 24 August 2007 pursuant to article 94 of Table A. Since article 94 provides for no limit on the period for which a director will hold office, Wayne was appointed indefinitely rather than until the next general meeting. He accordingly remains the sole director of the company. Mr Griffiths founds his arguments on the Duomatic principle.

ii) Alternatively, article 95 has been modified or disapplied by Tulsesense's shareholders acting informally.

iii) Further or alternatively, Bernard tendered his resignation as a director conditionally on Wayne being appointed as such by Tulsesense's shareholders (rather than its board) and, if that did not happen, Bernard remains a director.

The articles of association

34. It will be apparent from the summary I have given of the parties' cases that the articles of association of Tulsesense incorporate, subject to certain exclusions and modifications, the 1948 version of Table A. The articles so incorporated include the following:

i) Article 7

"Except as required by law, no person shall be recognised by the company as holding any share upon any trust, and the company shall not be bound by or be compelled in any way to recognise (even when having notice thereof) any equitable, contingent, future or partial interest in any share or any interest in any fractional part of a share or (except only as by these regulations or by law otherwise provided) any other rights in respect of any share except an absolute right to the entirety thereof in the registered holder."

ii) Article 29

"In case of the death of a member the survivor or survivors where the deceased was a joint holder, and the legal personal representatives of the deceased where he was a sole holder, shall be the only persons recognised by the company as having any title to his interest in the shares…."

iii) Article 63

"In the case of joint holders the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders; and for this purpose seniority shall be determined by the order in which the names stand in the register of members."

iv) Article 94

"The company may from time to time by ordinary resolution increase or reduce the number of directors, and may also determine in what rotation the increased or reduced number is to go out of office."

v) Article 95

"The directors shall have power at any time, and from time to time, to appoint any person to be a director, either to fill a casual vacancy or as an addition to the existing directors, but so that the total number of directors shall not at any time exceed the number fixed in accordance with these regulations. Any director so appointed shall hold office only until the next following annual general meeting, and shall then be eligible for re-election but shall not be taken into account in determining the directors who are to retire by rotation at such meeting."

The Duomatic principle

35. As I have already mentioned, Mr Griffiths founds his argument that Wayne was or is to be treated as having been appointed as a director by Tulsesense's shareholders, under article 94 of Table A, on the Duomatic principle.
36. That principle takes its name from the decision of Buckley J in Re Duomatic Ltd [1969] 2 Ch 365. In that case, Buckley J said (at 373):

"[W]here it can be shown that all shareholders who have a right to attend and vote at a general meeting of the company assent to some matter which a general meeting of the company could carry into effect, that assent is as binding as a resolution in general meeting would be."

More recently, Neuberger J summarised the principle in the following terms in EIC Services Ltd v Phipps [2003] EWHC 1507 (Ch)^[1] (in paragraph 122):

"The essence of the Duomatic principle, as I see it, is that, where the articles of a company require a course to be approved by a group of shareholders at a general meeting, that requirement can be avoided if all members of the group, being aware of the relevant facts, either give their approval to that course, or so conduct themselves as to make it inequitable for them to deny that they have given their approval. Whether the approval is given in advance or after the event, whether it is characterised as agreement, ratification, waiver, or estoppel, and whether members of the group give their consent in different ways at different times, does not matter."

37. Mr Griffiths submitted that, in the context of the Duomatic principle, the assent of the legal owner of a share suffices; if, he said, a person who holds a share as a trustee or executor assents, it is immaterial whether the beneficiaries also do so. Moreover, where a person who holds some shares for himself and other shares as a trustee or executor assents to a course of action, he is, Mr Griffiths suggested, to be taken as giving approval in respect of both his own shares and those of which he is a trustee or executor. Mr Griffiths further argued that assent need not involve any outward manifestation; it is, he contended, enough that a shareholder decides in his own mind on a course of action. Mr Griffiths contended, too, that where a share is held on trust for a number of persons jointly, or in equal shares, the assent of any one of those persons will do for Duomatic purposes.
38. These propositions, if correct, could have surprising consequences. If, say, it were proposed that a person should become a director, the appointment would presumably occur as soon as the last shareholder concluded in his own mind that this should happen, regardless of whether the shareholders had done anything either to communicate or to record their decisions. The appointment would, moreover, remain legally effective even if a shareholder changed his mind in advance of communicating or recording his initial decision. Further, were shares in a company to be held on trust for one person ("X") as to a 99% share and another ("Y") as to a 1% share, the assent of Y alone would, on Mr Griffiths' case, satisfy Duomatic requirements, even if both X and the trustee of the shares disagreed with what was proposed.
39. There are several respects in which I am either unable to accept the propositions which Mr Griffiths puts forward or would wish to qualify them.
40. In the first place, in my judgment if an individual who holds some shares for himself and other shares as a trustee or executor has expressed assent, he is not to be taken to have given that assent in respect of the shares held as a trustee or executor if he did not intend or purport to be making a decision in relation to those shares, at any rate if it would have been apparent to an observer that the assent was not intended to extend to the shares held as a trustee or executor. To take an example with similarities to the case before me, suppose that an individual who held one of a company's 100 issued shares beneficially and the remaining 99 as a bare trustee concluded that a director should be appointed. The requirements of the Duomatic principle should not, without more, be taken to be satisfied were it evident that the shareholder had considered that it was for the beneficial owner of the 99 shares, and not for him, to make decisions as regards those shares.
41. Secondly, I do not accept that a shareholder's mere internal decision can of itself constitute assent for Duomatic purposes. I was not referred to any authority in which it had been decided that a mere internal decision would suffice. Further, for a mere internal decision, unaccompanied by outward manifestation or acquiescence, to be enough would, as it seems to me, give rise to unacceptable uncertainty and, potentially, provide opportunities for abuse. A company may change hands or enter into an insolvency procedure; in either event, it is desirable that past decisions should be objectively verifiable. In my judgment, there must be material from which an observer could discern or (as in the case of acquiescence) infer assent. The law applies an objective test in other contexts: for example, when determining whether a contract has been formed. An objective approach must, I think, also have a role with the Duomatic principle.
42. Turning, thirdly, to whether the assent of a single beneficial owner would be sufficient, in recent years the question whether the approval of a share's beneficial owners can satisfy Duomatic requirements has been touched on in several authorities, notably Domoney v Godinho [2004] 2 BCLC 15 and Shahar v Tsitsekkos [2004] EWHC 2659 (Ch). In each case, the point was considered unsuitable for summary determination. In Shahar, Mann J said the following (in paragraph 67):

"It seems to me that the point of principle relied on by [counsel for the Claimant] (namely that the Duomatic principle can never apply to the consent of a beneficial but non-registered owner) is not clearly right, and it should not be determined on a summary judgement application such as this. In fact my view is that as a statement of principle it is wrong. I do not see why in an appropriate case the principle should not operate in relation to the consent or informed participation of a beneficial owner of shares if the facts justify it. It may well be that the appropriate analysis is the agency argument – in many cases it will doubtless be possible to argue that a nominee shareholder has left all the real decisions to his beneficiary so that technically the consent of the beneficiary is the consent of the registered shareholder."

In the circumstances, I am willing to assume, without deciding, that the assent of the beneficial owners of a share will meet Duomatic requirements. Mr Griffiths goes a step further, and suggests that the consent of any one of a number of beneficial owners is enough, on the following basis: the essence of the Duomatic principle is that those who could have done a thing formally should be allowed to do it informally; the consent of a share's beneficial owners will, accordingly, be relevant because the beneficial owners could have required the share to be transferred to them; were they to have done so, they would have become joint holders of the share, with the consequence that, at a general meeting, any of the beneficial owners could have voted and bound the share; the assent of any of the beneficial owners should similarly be enough in a Duomatic context. In support of his submissions in this respect, Mr Griffiths referred me to In re Gee & Co (Woolwich) Ltd [1975] 1 Ch 52. In that case, Brightman J said (at 71):

"It seems to me plain that an acknowledgment signed by the directors in relation to their own debt would be fully effective if sanctioned by every member of the company. If so sanctioned I do not see how it could be said that the directors were acting in breach of their fiduciary duty. If authority is needed for that proposition, see for example Parker and Cooper Ltd. v. Reading [1926] Ch 975 and In re Duomatic Ltd. [1969] 2 Ch. 365. The general meeting of the company at which the accounts were adopted and the state of the Eccles accounts confirmed, was in fact a meeting attended by, or by the representative of, every member of the company. The only absentee was one of the two joint holders of shares, which is irrelevant because the holder present could vote on behalf of both."

This shows, Mr Griffiths contends, that where there are joint holders of a share, an assent by one of those joint holders is sufficient for the purposes of the Duomatic principle.

43. Whether or not, however, the assent of all the beneficial owners of a share will suffice, I do not think that the assent of just one of a number of such owners normally will. First, while the beneficial owners of a share, acting together, might be able to require the share to be transferred to them (compare the rule in Saunders v Vautier (1841) Cr & Ph 240), no individual beneficial owner could do so. Further, even supposing that a share were transferred to its beneficial owners, with the result that they became joint holders, it would not necessarily follow that any of them could vote in respect of the share. As noted above, article 63 of the 1948 Table A provided for the vote of the "senior who tenders a vote" to be accepted. In the circumstances, it seems to me that, unless perhaps the legal owner of a share had entrusted decisions in respect of a share to just one of its beneficial owners, the assent of only one such owner cannot be enough for Duomatic purposes.

The relevant assents in the present case

44. It is common ground between the parties that by 2007 Bernard was the only person who fell to be recognised by Tulsesense as a shareholder. Bernard had throughout held one share for himself. As regards the other share, this was now held by Bernard as William's sole surviving executor.
45. However, it is apparent from the evidence that neither Bernard himself, nor Wayne as his agent, regarded Bernard as entitled to make decisions in respect of William's share, to which, by 2007, Rita, Jacqueline and David were beneficially entitled. Wayne explained in his witness statement that he and his father had taken advice from Gisby Harrison on the basis of which they understood that the permission of Rita, Jacqueline and David would be needed for Wayne to be appointed as a director. In oral evidence, Wayne said that he had been advised that Rita, Jacqueline and David were the shareholders so far as his uncle's share was concerned and that that was therefore his understanding when he attended the 17 July meeting on behalf of his father. That Rita, Jacqueline and David were seen as entitled to their father's share and to make the decisions in respect of it also emerges from the contemporary correspondence: for example, Bernard referred to Rita, Jacqueline and David as "the other 50% shareholders" in his letter of 19 July and, in his 22 July letter, to the "shareholders and directors" having agreed to his requests at the 17 July meeting; Rita, Jacqueline and David were similarly referred to as the "other 50% shareholders" in Wayne's letter of 5 August 2007. In argument, Mr Griffiths fairly accepted that there was evidence suggesting that Wayne and his father took it that it was for Rita, Jacqueline and David to make decisions in relation to the share which Bernard held as an executor. Mr Griffiths further accepted, correctly, that there was no evidence that Bernard had considered whether it was appropriate for him to assent as an executor to Wayne's appointment as a director; as Wayne and Bernard saw matters, the question did not arise. In the circumstances, I do not think that the assent of Bernard, or of Wayne on his behalf, can represent assent in respect of the share formerly held by William. Neither Wayne nor Bernard intended or purported to make any decision in respect of that share, and it was apparent that they were not so intending.
46. It follows that, for Duomatic purposes, any assent in respect of William's share can have been given in 2007 only by (a) Rita, Jacqueline and David (as the ultimate beneficial owners) or, possibly, (b) Rita and Mr Bristow (as the trustees of the trust established by William's will). In either case, the assent of Rita alone would not suffice. As I have explained above, I do not think that the assent of one of a number of beneficial owners can be enough unless, perhaps, the legal owner has entrusted decision-making to just one of the beneficial owners, and there is no suggestion of that in the present case.

The 17 July meeting

47. Mr Jennings' formal note of the meeting of 17 July 2007 had as its last numbered item:

"5. Resolution of Any Outstanding Matters and Any Other Business

Mr Wayne Rolfe advised the meeting that it was Mr Bernard Rolfe's wish that he be appointed by him as his alternate for directorship purposes. It was confirmed that this was permitted by the Company's Articles and Memorandum of Association and formal notice should be given to the Board in this respect. The meeting also understood that it would be his wish that Wayne took over his directorship in the event of him not being able to continue in that capacity. This was also accepted by the meeting."

48. Several other notes of the meeting also exist. Mr Jennings himself made some manuscript notes during the meeting. These include a reference to "Alternate Directorship", but make no mention of Bernard resigning and being replaced by Wayne. An attendance note prepared by Mr Bristow on his return to his office states:

"Wayne asked that he be appointed as an alternate Director as owing to his fathers age he was not really able to deal with his business affairs."

Once again, nothing was said about Bernard resigning. Finally, manuscript notes which Wayne made while at the meeting ended as follows:

"Alternative director – no problem.

? release shareholder – increase No of shares.

- will write to us."

49. I heard evidence about the meeting of 17 July 2007 from each of those who attended it other than Rita, who has of course died. The thrust of the evidence given by Jacqueline, David, Mr Jennings and Mr Bristow was to the effect that, while Wayne referred at the end of the meeting to the possibility of his becoming a director in place of his father (as opposed to merely acting as an alternate director), no decision was made in this respect. Mr Jennings, for example, said as follows in his witness statement:

"Wayne also mentioned, again very much in passing at the end of the meeting, that it might, at some point in the future, be Bernard's wish that Wayne took over his directorship in the event that he was not able to continue in that capacity. There was nothing said or discussed about Bernard resigning or Wayne actually being appointed as a Director in his place: this, of course, was a different idea to Wayne being appointed as Bernard's alternate. I do not even think words like 'resignation' or 'appointment of Wayne as a Director' were actually mentioned or discussed. I understood his comments to be nothing more than an expression of what might happen at some point in the future."

Mr Bristow said as follows in his witness statement:

"So far as I was aware, there was never any discussion or agreement at that meeting that Bernard Rolfe would resign as a Director and Wayne be appointed in his place i.e. as a permanent Director. The only discussion that took place related to Wayne being appointed Bernard's alternate. I believe, as David Jennings' notes record, that there was some mention by Wayne that in due course if Bernard felt that he could not carry on as a Director or did not want to, then he might resign and Wayne could take his place. However, it was nothing more than a suggestion or statement as to what might happen in the future."

50. In contrast, Wayne's and Michelle's evidence was to the effect that it was agreed at the meeting that Wayne should replace his father as a director. Wayne stated as follows in his witness statement:

"Following legal advice I had received on behalf of my father before the EGM I wanted to ensure that the parties at that meeting would agree to my father's and my proposal that I replace my father as a director. During the course of the meeting I explained that because of my father's age he wanted me to become a director in his place and therefore proposed my father resign as a director and that I was appointed in his place as an alternative director. I went on to explain that the proposal was that I would replace my father as a director; that is that I would become a director in my own right. I do not recall any discussions regarding my father remaining a director and me acting as his alternate.

There was no discussion on my appointment as a director as such, it was a very quick and unopposed decision where Rita said 'yes, no problem'. David and Jacqueline were sitting next to her, they were all together at one end of the room. I do not remember David and Jacqueline saying anything; throughout the meeting Rita was the spokesperson and David and Jacqueline let her speak for them. My notes which I took at that meeting state 'Alternative Director – No problem'."

Michelle, in her witness statement, said more briefly:

"During the meeting Wayne clearly explained my father wanted to retire as a director and for him to be appointed a director in place of my father. He specifically asked whether my cousins agreed to that. They confirmed their agreement.

The accountant and solicitor did not oppose the request that Wayne became a director in place of my father. There were no disagreements and that was definitely agreed and not disputed."

51. For my own part I have no doubt that, while Wayne may not now recall this, there was discussion at the meeting about his acting as an alternate director. That is what the note of meeting which Mr Jennings circulated records, and no one disputed the accuracy of the note in this respect at the time. Further, Mr Jennings' manuscript notes refer to "Alternate Directorship", and Mr Bristow's attendance note records that Wayne asked to be appointed as an "alternate director". In his oral evidence, Mr Bristow remembered specifically feeling pleased that Mr Jennings had been able to confirm that alternate directorship was permissible under Tulsesense's articles of association.
52. The likelihood is, I think, that Wayne's own reference, in his notes, to "Alternative Director – no problem" related to his acting as an alternate director. Wayne accepted when giving his evidence that he was not experienced in such matters, and, that being so, it is unsurprising that he should have put down "alternative" when he really meant "alternate". Moreover, Wayne would probably have wanted to record in his notes the fact that no objection had been raised to his becoming an alternate director, and the only words which could relate to this are "Alternative director – no problem".
53. There was plainly mention at the meeting of the possibility of Bernard resigning as a director and being replaced by Wayne. That is evident from, for example, the note which Mr Jennings circulated. It is indicative, however, of the fact that the topic featured only briefly that there is no mention of it in Mr Jennings' manuscript notes, in Mr Bristow's attendance note or indeed, if I am right in the conclusions I drew in the previous paragraph, in Wayne's notes. Further, I found the evidence which Mr Bristow, Mr Jennings, Jacqueline and David gave about this meeting generally convincing. I accept that, as Mr Bristow said in cross-examination, Wayne expressed "a general wish that in the future, if and when required, Wayne would step into his father's shoes", but that this was "something that was going to happen in the future" and was "not anything specific" but a "general proposal". Doubtless Rita, Jacqueline and David did not dissent from the suggestion, but I do not think that they understood (or should reasonably have understood) that any actual decision was called for there and then or that they were making one.
54. That Wayne's and Michelle's recollections of the meeting are not wholly reliable is suggested by evidence they gave to the effect that Wayne handed over a copy of the power of attorney at the meeting. Both were clear on this point in their evidence. However, Mr Bristow, Mr Jennings, Jacqueline and David all gave evidence to the effect that the power of attorney was not produced at the meeting, and they were not challenged on the point in cross-examination. Their evidence derives corroboration, moreover, from the notes of the meeting (none of which contains any reference to the production of the power of attorney) and the ensuing correspondence. Bernard having said in his 19 July letter that Wayne had been given enduring power of attorney, Mr Jennings asked for sight of this "as it appears that you have now executed a power of attorney". When Wayne then sent Mr Jennings a copy of the power of attorney, he did not suggest that Mr Jennings had had any previous access to it. Once Mr Jennings had received Wayne's letter, the enclosed copy of the power of attorney caused Mr Jennings to question whether he had prepared appropriate documents, implying again that he had not seen the power of attorney earlier.
55. As mentioned above, there is an issue between the parties as to whether a copy of Bernard's 19 July letter (where he spoke of "the agreement between both the directors and shareholders in [Tulsesense], for me to resign and for my son Mr Wayne Rolfe to be appointed as a director of the company, in my place") reached 81 Broomfield Avenue. On balance, I think it likely that it did not, either because Wayne forgot to send it or because it was lost in the post. If, however, I had concluded that the letter had arrived at 81 Broomfield Avenue, my conclusions in respect of the 17 July meeting would have remained the same. Having regard to the other evidence about the meeting, I would still have taken the view that Rita, Jacqueline and David did not understand a decision to have been made that Wayne should replace his father as a director.
56. Although I prefer the accounts of the 17 July meeting given by Mr Bristow, Mr Jennings, Jacqueline and David, it does not follow that Wayne and Michelle were deliberately untruthful in their evidence. The correspondence which followed the meeting tends to suggest confusion: that Wayne believed that others present at the meeting had agreed on a change of director even though, in my judgment, that was neither understood by the other participants nor objectively agreed. It is also the case that witnesses trying to recall events can arrive at erroneous conclusions without any intention to mislead.
57. Nonetheless, in my judgment none of Rita, Jacqueline, David and Mr Bristow can be taken to have assented for Duomatic purposes at the meeting, either outright or on a conditional basis, to Wayne's appointment as a director.

Subsequent events

58. It is plain that, in the period after the 17 July meeting, Rita did agree to Wayne being appointed as a director on his father's resignation. So much is evident from her signing and returning to Mr Jennings, for onward transmission to Companies House, the form 288a in respect of Wayne's appointment.
59. As soon, however, as Bernard resigned as a director, Rita became the only member of Tulsesense's board and thus able to exercise alone the power to fill a casual vacancy which article 95 of Table A conferred. There is, in my judgment, no good reason to suppose that Wayne was appointed as a director on any other basis.
60. Arguing otherwise, Mr Griffiths referred me to Re Express Engineering Works Ltd [1920] 1 Ch 466. In that case, a company's five directors, who were also its shareholders, had agreed that certain debentures should be issued. It was held that, although the relevant meeting was described in the minutes as a board meeting, the five were to be taken to have acted as shareholders. Warrington LJ explained the position as follows (at 470-471):

"It happened that these five directors were the only shareholders of the company, and it is admitted that the five, acting together as shareholders, could have issued these debentures. As directors they could not but as shareholders acting together they could have made the agreement in question. It was competent to them to waive all formalities as regards notice of meetings, etc., and to resolve themselves into a meeting of shareholders and unanimously pass the resolution in question. Inasmuch as they could not in one capacity effectually do what was required but could do it in another, it is to be assumed that as business men they would act in the capacity in which they had power to act. In my judgment they must be held to have acted as shareholders and not as directors, and the transaction must be treated as good as if every formality had been carried out."

61. This decision could have been in point if Rita had sought to achieve a result which was outside her powers as a director. However, I can see no evidence that Rita was intending or purporting to do any more than appoint Wayne as a director, and that she could do as Tulsesense's sole director pursuant to article 95. There is no reason to suppose that Rita was alive at the time to the different legal consequences of appointment under article 95 as opposed to article 94. Nor, as it seems to me, is there any reason to suppose that, had she been aware of the distinction, she would have thought it important or that it necessitated appointment pursuant to article 94 rather than article 95.
62. Further, I am not satisfied on the evidence as to the events which followed the 17 July meeting that Wayne's appointment as a director could have been justified on a Duomatic basis had he not been appointed by Rita under article 95. There is ample evidence that Bernard assented to the appointment in respect of his own share. There is none at all, however, of Mr Bristow assenting: he simply was not involved. Nor, in my judgment, does the evidence show that Jacqueline and David assented. There is no documentary record of either Jacqueline or David playing a part in the appointment of Wayne as a director in August 2007. Jacqueline said that, although she saw Mr Jennings' letter of 10 August and may have spoken to Rita about it, she did not understand the part of it which dealt with Wayne's appointment as a director to be anything to do with her as a shareholder; so far as she was concerned, Mr Jennings' reference to there being no grounds to resist Wayne's appointment as a director represented advice to Rita, who it was would have to sign the form 288a. As for David, it seems that he did not even see the 10 August letter until after Rita had signed and returned to Mr Jennings the form 288a in respect of Wayne's appointment as a director. David explained in evidence that he had not seen the letter until his next visit to 81 Broomfield Road, by which time the form 288a had already been signed and sent off, and Jacqueline confirmed in cross-examination that David had not read the letter until he visited 81 Broomfield Road on about 25 or 26 August 2007.

Was article 95 modified or disapplied?

63. Mr Griffiths argued in the alternative that Tulsesense's shareholders were to be taken to have tacitly modified the company's articles so that the appointment of a director by the board was not to be merely "until the next following annual general meeting", as article 95 of Table A stipulates.
64. In support of his argument, Mr Griffiths referred me to Cane v Jones [1980] 1 WLR 1451 and Ho Tung v Man On Insurance Company Ltd [1902] AC 232. Mr Griffiths relied particularly on the Ho Tung case, in which (to quote from the headnote):

"The unsigned articles of a company incorporated under Hong Kong Ordinance I. of 1865 (similar to the English Companies Act, 1862) were irregularly registered along with its memorandum of association; but it appeared that they had for nineteen years been published, acted on without objection, and from time to time amended and added to by special resolutions"

The Privy Council stated (at 235) as follows:

"It appears … that these articles have been registered, and have been published and put forward as the company's only articles of association, and have been acted on, amended, and added to by the shareholders of the company, and the company's business has been conducted under the regulations contained therein for nineteen years without any objection, and the company on the record says that these articles are its articles of association. Their Lordships think that in these circumstances they are entitled to draw the inference that all the shareholders have accepted and adopted the articles as the valid and operative articles of association of the company."

65. Mr Griffiths submitted that an analogy could be drawn with the present case. He pointed out that Violet and Rita were said to have been appointed as directors of Tulsesense by the company's board, but that it was not clear that any further general meetings had been held and that, in any case, Violet and Rita had never been reappointed by the company in general meeting. They had nevertheless continued to act as directors until their deaths, respectively seven and nine years later. Mr Griffiths concluded that the parties had operated for more than ten years on the basis that people appointed by the board did not require reappointment by the members and that it should therefore be inferred that the articles had been amended in this respect.
66. I am unable to accept this argument. The evidence indicates that too little regard was paid to the terms of Tulsesense's articles, not that they were varied. In Ho Tung the parties assumed that the company's articles took a particular form; there is no evidence that anyone assumed Tulsesense's articles to be in terms different from their actual terms. There is, more specifically, no evidence in the present case that anyone intended to dispense with the provision in article 95 of Table A to the effect that an appointment under that article should continue, in the first instance, only until the next annual general meeting. In short, this is a case where the articles were not always followed, not one where they were modified or disapplied.

Is Bernard still a director?

67. Mr Griffiths argued that Bernard's resignation as a director of Tulsesense was conditional on Wayne being appointed in his place, and that that connoted Wayne's appointment on a permanent basis. Mr Griffiths summarised the point as follows in his skeleton argument:

"Bernard expressly required that Wayne be appointed 'in his place' or 'in his stead'. As at mid-2007 there can be no doubt that Bernard held office as a director on a permanent basis, that is he was not required automatically to retire from office or to [be] re-elected by the Company. To be appointed 'in his place' or 'in his stead', Wayne would have had to have been appointed also on a permanent basis (i.e. as if appointed [by] the Company's shareholders). It is not the same thing for a person to be appointed to hold office with unlimited tenure and for a person to be appointed to office with a limited tenure (in this case, alleged by the Claimants to have been approximately 18 months)."

68. For my part, I can see that Bernard might well have had cause for complaint if, after he had resigned as a director, Wayne had not been appointed one; there might have been scope for arguing that Bernard's resignation was conditional on Wayne being appointed "in his stead" as a director. However, I do not consider that Bernard's resignation was conditional on Wayne being appointed as a director by (or as if by) the shareholders. There was concern that Wayne should be appointed a director, not as to how that was effected. At the time, no one attached importance to whether the appointment was carried out pursuant to article 95 of Table A or article 94. Bernard and Wayne were no more alive to the differing consequences of such appointments than were Rita, Jacqueline and David. Moreover, no one, so far as I am aware, was anticipating that there would be any difficulty about any future re-election of either Wayne or Rita.

Conclusions

69. I can summarise my conclusions as follows. Bernard ceased to be a director of Tulsesense when he resigned in August 2007. Wayne was appointed in his place by Rita, as the sole director of Tulsesense, pursuant to article 95 of Table A. He accordingly held office until the next general meeting of the company. Since he was not re-elected at that general meeting, he ceased to be a director of the company, and the company now has no directors.
70. Mr Griffiths said that the Claimants' case was based on a complete technicality. However, Wayne became the sole director of Tulsesense only as a result of Rita's sudden illness and death, and he and his father have themselves relied on technical rules to prevent David becoming a director. It is not for me to decide whether it was desirable for Wayne to continue as a director of Tulsesense; my role is to decide whether, as a matter of law, he did so.
71. I shall, accordingly, grant a declaration that Wayne ceased to be a director of Tulsesense on 18 December 2008.

Note 1   Neuberger J’s decision was reversed by the Court of Appeal, but on other grounds: see [2004] 2 BCLC 589 at 650-661.    [Back]