Scottish Court of Session Decisions

Pursuer: Sandison QC; Brodies

First Defender: Party

Second and Third Defender: No appearance

9 December 2011

INTRODUCTION

[1] In this action the pursuer seeks: (1) declarator that the first defender is not and never has been a director of the third defenders, (2) production and reduction of a purported AP01 form lodged with the fourth defender on 7 July 2011(signed by the first and second defenders and bearing to appoint the first defender as a director of the third defenders) with an order in terms of section 1096 of the Companies Act 2006 directing the removal from the Register of Companies of that form, (3) interdict and interdict ad interim against the first defender from holding himself out as, acting as, or purporting to act as, a director of the third defenders, pending final determination of the action, and (4) interdict and interdict ad interim against the second defender from holding herself out as acting, or purporting to act as a director of the third defenders without leave of the Sheriff of Strathclyde, Dumfries and Galloway at Lanark, and (5) expenses.

[2] Before me today the pursuer moves for summary decree in terms of the first, second and fourth conclusions.

BACKGROUND

[3] I note that the pursuer was previously named as "Mr Stewart McCallum as Trustee for David Kirkham", it being averred that David Kirkham held the relevant beneficial interest in certain shares in the third defender. On 6 October 2011, Lord Doherty allowed the pleadings to be amended by Minute of Amendment no 12 of process, the effect of which was to substitute Mr David Kirkham as the pursuer in this action.

[4] It is not disputed that Mr McCallum previously held the shares as trustee for the pursuer. Indeed, Mr McDonald drew attention to it having been found by Lord Menzies, in another action (Sneddon and Others v McCallum and Others; McCallum and Others v Sneddon and Others 2011 CSOH 59;), that Mr McCallum had sold his shares to Mr Kirkham in or about December 2009 and relied on the case of Stevenson v Wilson [1907] S.C. 445. That case is authority for the proposition that where one person has sold shares in a company to another, so long as they remain unregistered, he holds them in trust for the purchaser, who has the beneficial interest in them.

[4] The pursuer's case is, put shortly, that the appointment of the first defender as a director of the third defenders in July this year was not valid and he does not validly hold office as a director in the company.

THE MOTION FOR SUMMARY DECREE

[5] In support of his motion for summary decree, Mr Sandison referred to the defenders' averments in answer 4. They are:-

"Denied. Explained and averred that the first defender was validly appointed. A copy of the status of the third defender as of the 6 July 2011 is produced and is held to be incorporated here in brevitatis causa. The minutes of the directors' meeting appointing the first defender as director are produced and are held to be incorporated herein".

[6] The first defender's answer to the pursuer's case is, accordingly, that he was validly appointed, having been appointed at a meeting of directors. That, however, in Mr Sanderson's submission, is no answer at all, because a director cannot be appointed by a meeting of directors; directors could only be appointed to this company by way of an ordinary resolution. He referred to article 12 of its Articles of Association; it would have taken a meeting of members to appoint a person as director.

[7] The other conclusions were, Mr Sandison explained, consequential.

[8] In answer to Mr Sandison's submissions, the first defender advanced, essentially, two arguments. First, the pursuer had no title to sue. That was because the pursuer had bought his shares from Mr McCallum in or about December 2009, but was not entered on the company's books as a shareholder until after the action had been raised. That showed that Mr Kirkham did not have title to sue. He could not subsequently acquire title to sue to the action. In support of his submissions, Mr McDonald referred to the annotations to Rule of Court 13.2.2.

[9] Secondly, Mr McDonald submitted that this was a derivative action in terms of section 265 of the Companies Act 2006. It therefore could not be raised by a member of the company in his own name. He also stated that the appointment of him as a director was a valid one. That was because he was appointed as a result of a meeting that was minuted in a document, a copy of which he produced in the course of the hearing and now forms no 15 of process. That document states:

"GDL Meeting 6/7/11, 9 Stanmore, (1) J McDonald to be director, (2) record at Comp House, (3) to dissolve GDL and no other".

Mr McDonald advised that Mr and Mrs Sneddon were the only persons present at that meeting.

[10] He sought to amend his pleadings in the course of his submissions so as to delete the words "Directors" from answer 4 so as to change his averments to: "the minutes of the meeting appointing the first defender a director are produced and held to be incorporated herein". That motion was opposed by Mr Sandison. First, he said that it would make no difference to the position so far as the fundamental difficulty with the defences were concerned. Averring that the meeting was "a meeting" did not indicate the nature of the meeting. That being so, the averment would then fall to be tested by the weaker alternative rule. That would, in this case, mean assuming that it referred to a meeting of directors, which took him back to his original submission, namely, that a resolution to appoint the first defender a director at a directors' meeting would not suffice. Secondly, Mr Sandison submitted that even if the averment was that it was a members' meeting, following what Mr McDonald had indicated, (which was that no. 15 of process refers to a meeting attended by only Mr and Mrs Sneddon), that would mean that there was only one member present; Mrs Sneddon was a member at the relevant time but Mr Sneddon was not (Mr McDonald did not dispute that that was the case). In those circumstances that would not be a valid meeting given that article 9A of the Articles of Association specifically provided for a minimum of two as the quorum for such a meeting.

[11] In response, Mr McDonald referred to him having played no part in these matters until May of this year when he was "brought in", as he put it, to look at Lord Menzies' judgment in the other case involving the McCallums and the Sneddons, to which I have already referred. He relied on findings made by Lord Menzies in that judgment regarding Mr Kirkham's credibility and reliability which were negative in nature. He indicated that this action was raised one day after the second defender's sequestration and, asserted that, in their rush, those who raised the action had overlooked the fundamental problem with title to sue. None of what Mr McDonald submitted at that point met or sought to meet the arguments that were advanced by Mr Sandison against his motion to amend. I indicated that the motion was refused.

[12] Thereafter, Mr McDonald reverted to the issue of whether or not one member could validly appoint a director. He referred to Stevenson v Wilson although it was not apparent how he thought that helped his argument. Ultimately, his point seemed to be that there was only one member capable of making any decision. Therefore, the exception in article 9A of the Articles of Association for circumstances where there was only one member of the company applied and that would mean that the meeting was a valid one. I would only add that that still would not meet Mr Sandison's point that, so far as reading the pleadings were concerned, they would fall to be read by reference to the weaker alternative rule; absent specification of what sort of meeting it was, the averments would have to be tested against the possibility of their being intended to refer to a meeting of directors, not a meeting of members.

[13] Mr McDonald also referred to rule of court 23.2 and sought an order that the pursuer re -serve the pleadings on the second defender. He said that the action should have been re-served on the second defender consequent on Lord Doherty's interlocutor of 6 October; reservice could, he said, be to his benefit since the second defender may take a different view at this stage and enter appearance. He did not however indicate how anything that the second defender might say in her pleadings would or could have assisted his defence.

DECISION

[14] I turn to my decision in respect of this motion. Rule of Court 21.2 provides that a pursuer can, at any time after defences are lodged, apply to the court for summary decree. It also provides that the court may, if satisfied that no defence to the action is disclosed in any of the defences, grant the motion. I am readily satisfied in this case that no defence to the action is disclosed in the defences. The pursuer avers that the first defender was not validly appointed. It is plain that, for such an appointment to have been valid, there would need to have been an ordinary resolution of the members. That is, a director could not have been appointed at a meeting of directors.

[15] The defence in the pleadings is, shortly put, that the first defender states that he was appointed at a meeting of directors. That is no answer to the case that is made against him. Separately, so far as his submissions regarding title to sue are concerned, I am satisfied they are misconceived. It is evident that the pursuer was always the party with the beneficial interest in the matters raised on the pursuer's side of this case. Moreover, Lord Doherty allowed the pleadings to be amended to substitute Mr Kirkham as pursuer in this case and that interlocutor was not reclaimed against. It is too late to do so now.

[16] So far as the derivative action argument is concerned, I am satisfied that it also is misconceived. This is an action by one member of a company and it arises from an alleged breach of the contractual arrangements that he has with the other members of the company as per the Memorandum of Association. It is not an action against a director for negligence or any other act or omission of the sort that is referred to in section 265. It may be that it would have been open to a member of the company to take action against, for instance, Mrs Sneddon, using the procedure available under 265, thereby commencing an action in the name of the company, but there was no obligation to do so. I am satisfied that the fact of the availability of that remedy does not in any way prevent Mr Kirkham from pursuing the remedy that he seeks in this action. Mr McDonald is not, on the pursuer's hypothesis, a director of the company but, even on his hypothesis the complaint is not about anything that he did as a director; it's about what was done by others or at least one other, namely Mrs Sneddon, in purporting to appoint him.

[17] So far as re-service is concerned, my response to that motion is that it is ill-founded. First, it would be a matter for Mrs Sneddon to raise, not for the first defender. Secondly, on the face of matters, he has no interest in re-service on Mrs Sneddon and I am not persuaded that the vague references to the possibility of her saying something in pleadings might be of assistance to him shows that he does have the requisite interest to take the point. Thirdly, in any event, if re-service was to be raised as an issue, the time to do that was when the case was before Lord Doherty on 6 October 2011 and it is too late to do it now.

[18] In these circumstances I will grant the pursuer's motion and will pronounce decree in terms of the first conclusion. Regarding the second conclusion, I will also pronounce decree, with the interlocutor being framed so as to reflect the pursuer's plea in law that the first defender was not validly appointed. I will, further, grant decree in terms of the fourth conclusion but that will be restricted in time to the subsistence of the second defender's sequestration.