REQUISITIONS AND CHAIRMAN’S POWERS: KAYE V OXFORD HOUSE (WIMBLEDON) MANAGEMENT COMPANY LTD [2019] EWHC 2181 (CH)
22nd August 2019
In Kaye v Oxford House (Wimbledon) Management Company Ltd [2019] EWHC 2181 (Ch), Lance Ashworth QC (sitting as a deputy High Court Judge) addressed a number of legal issues relating to (1) the requisition by members of general meetings pursuant to s 303 of the Companies Act 2006 (the Act); and (2) the role of the chairman in general meetings. Several of these issues had not been the subject of prior determination or judicial comment in this jurisdiction.
Background
The Court was essentially concerned with a dispute as to validity of the replacement of the Company’s board. Members had requisitioned a general meeting for the purpose of considering resolutions to remove the then directors (the Old Board) and replace them with new directors (the New Board). The Old Board comprised the substantive defendants to the claim, one of whom (D) was the defendant and counterclaimant in unrelated proceedings brought by the Company (the Property Proceedings). The requisitionists were concerned about D’s influence over the Old Board and the effect that such influence may have on the Property Proceedings.
The Old Board called a general meeting to consider all but one of the requisitioned resolutions. Shortly before the general meeting was to take place, D took advice from Counsel as to whether the resolutions were vexatious or ineffective within the meaning of s 303(5) of the Act.
Having not disclosed that advice to members, D was then appointed chairman of the general meeting by virtue of his position as a director. He refused to put any of the resolutions to the meeting, apparently on the basis that they would if passed be ineffective under s 303(5)(a) of the Act and that some would, in counsel’s opinion, be vexatious under s 303(5)(c). He then closed the meeting and departed with one of the other members of the Old Board.
The remaining members agreed that the meeting should continue and appointed a new chairman. The meeting proceeded to pass each of the resolutions proposed. The defendants insisted that this was invalid and that the Old Board remained in office. The claimants, with whom the Court agreed, contended that the Old Board had been removed and, subject to one wrinkle (which the Court overcame by applying the Duomatic principle, the New Board had been appointed.
Points of Interest
Three principal points of interest arise from the Judge’s detailed analysis of the legal position.
First, the Judge agreed with the claimants that, once the board has given notice of a requisitioned meeting, s 303(5) ceases to have any role to play. In other words, if the board considers the requisitioned resolutions to be vexatious or ineffective, the board should refuse to call the meeting: it is not open to the board to give notice of the meeting and then subsequently seek to withdraw the resolutions from the business for the meeting. Once notice of the general meeting has been given, it is not open to the board to cancel it: Smith v Paringa Mines Ltd [1906] 2 Ch 193.
Second, the Court applied the well-known case of National Bank v Sykes [1894] 3 Ch 159, to the effect that the chairman has no power to stop a meeting at his own will and pleasure and that, if he does so, it is open to the members to continue the meeting without him. The defendants had sought to rely on an Australian authority, Corpique (No 20) Pty Ltd v Eastcourt Ltd (1989) 15 ACLR 586, which they contended limited the operation of Sykes to cases in which the chairman is shown to have acted in bad faith. The Judge rejected that line of argument, holding that Corpique was (at least as relied upon by the defendants) inconsistent with Sykes and Byng v London Life Association Ltd [1990] 1 Ch 170.
Third, and perhaps of most interest to practitioners generally, the Judge expressed, obiter, some observations as to the meaning of s 303(5) of the Act. Unsurprisingly, the Judge struggled to see how resolutions for the replacement of the board could be described as vexatious, observing that:
“in this context ‘vexatious’ may properly be applied to a resolution which has the characteristics of being troublesome, burdensome or is proposed for no proper purpose connected to the company, provided that one interprets troublesome or burdensome from the standpoint of the company, as opposed to directors of the company. I do not follow how a resolution by members to remove directors and appoint new directors, which is a fundamental right of members, could be described as burdensome or troublesome or being for no proper purpose connected to the company”.
Conclusion
The outcome in Kaye v Oxford House will come as little surprise to corporate practitioners: the right of members to remove and, subject to the articles, replace the board is fundamental. The exercise of that right cannot be frustrated by the board or by the chairman in general meeting. The Judge’s analysis is nevertheless helpful in confirming the effect of section 303 and the continuing relevance of Sykes. Boards considering refusing to call a requisitioned meeting on s 303(5) grounds will no doubt have careful regard to the Judge’s observations as to the meaning of vexatiousness.
