Mactra Properties Ltd v Morshead Mansions Ltd & Ors

A directors’ power to refuse registration of a share transfer must be exercised bona fide in the interests of the company. The relevant interests are those honestly judged by the directors, rather than interests assessed independently by the court. The court must determine whether bad faith is established on all the evidence; the absence of evidence from the particular director does not reverse the burden of proof. A consistent policy of withholding registration while the transferor remains indebted to the company may rationally serve the company’s interests and will not, without more, establish a collateral purpose or bad faith.

The claimant had assigned two flat leases and sought registration of the corresponding share transfers in the defendant freehold company. Registration was refused because the claimant remained indebted to the company under a levy imposed pursuant to its articles. The debts were later paid and the transfers registered, leaving only the claimant’s request for a declaration that the original refusal had been made in bad faith. The central issue was whether the directors’ refusal was a bona fide exercise of their discretion in the company’s interests.

1. The court applied the principle stated by Lord Greene MR in In re Smith and Fawcett, Limited [1942] 1 Ch 304: a power to refuse registration must be exercised bona fide in what the directors consider to be the interests of the company, and not for a collateral purpose. Those interests are to be judged by the directors, not substituted by the court.
2. The claimant bore the burden of proving bad faith. The absence of evidence from the director who signed the refusal letter did not require the company to disprove bad faith. The issue had to be determined from all the material, asking whether bad faith was more likely than not.
3. The sums paid to the appointed manager under the service charge arrangements were legally distinct from sums owed to the company under the levy imposed pursuant to article 16 of the articles. No set-off had been made when registration was refused. The claimant therefore remained indebted to the company at the material time.
4. The unchallenged evidence established an established policy of refusing to register share transfers where the outgoing shareholder owed money to the company. The policy had been applied in other cases and was a rational means of encouraging payment. The evidence did not show that the claimant had been singled out, or that the refusal was motivated by hostility or another collateral purpose.
5. The circumstances did not justify an inference that the company or its director had acted in bad faith. The declaration sought by the claimant was refused.

The judgment was a first-instance determination of the remaining issue between the claimant and the first defendant. Earlier substantive issues concerning the other defendants had been disposed of by His Honour Judge Waksman QC, sitting as a High Court judge, on 14 March 2008.