Sugarman & Ors v CJS Investments LLP & Ors

In construing articles of association, the court must first decide whether the language is capable of bearing competing meanings. Commercial common sense may guide the choice only where it is. Clear language must be applied and cannot be rewritten merely because the result is unattractive or unusual. Only a rare result that is truly nonsensical or commercially absurd can justify departing from apparently unambiguous wording. A provision giving every member one vote, without distinguishing a show of hands from a poll, can displace the statutory one-vote-per-share rule on a poll where the articles make that intention sufficiently clear.

The appellants, three members and flat owners, challenged the construction of article 13(a) of Lawrence House Management Company’s articles. The company managed a 104-flat development, and the dispute arose from meetings concerning the appointment of directors after one respondent acquired many shares. HHJ Raynor QC held that the articles provided one vote per share. The appeal concerned whether article 13(a), which gave each member present in person or by proxy one vote, applied to a poll as well as a show of hands, or left the statutory poll rule in force.

1. Disposition. The appeal was allowed. The High Court declaration was set aside and a declaration was granted giving effect to the appellants’ construction of article 13(a).
2. Statutory context. Section 321(1) of the Companies Act 2006 preserved members’ right to demand a poll. Section 284(2) provided the statutory default of one vote per member on a show of hands, while section 284(3) provided one vote per share on a poll. Section 284(4) made those rules subject to the company’s articles. Table A regulation 54 reflected the same distinction.
3. Construction. Floyd LJ applied the approach restated in Rainy Sky SA v Kookmin Bank [2011] UKSC 50; [2011] 1 WLR 2900. The court must first determine whether the words are capable of bearing competing meanings. Only then may it prefer the construction most consistent with business common sense. Clear language must be applied, even if the result is surprising or commercially unattractive. The court cannot rewrite the document.
4. Article 13(a). The words requiring a member present in person or by proxy to have one vote did not indicate that the provision applied only to a show of hands. The surviving Table A provisions concerning proxies and unpaid shares were neutral. The later RTM model articles could not assist because they postdated incorporation and used materially different language. Although the proviso was inexpertly drafted, it did not infect the main voting provision. Article 13(a) therefore applied to both a show of hands and a poll and was sufficiently clear to displace section 284(3).
5. Commercial absurdity. Floyd LJ held that one member, one vote was unusual but fell well short of commercial absurdity. Briggs LJ agreed, while explaining that the rare exception recognised in The Antaios [1985] AC 191, Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749 and Chartbrook Ltd v Persimmon Homes Ltd [2009] AC 1101 applies only where apparently clear wording produces a nonsensical result. The assessment should be made against a typical or not unlikely ownership pattern, rather than an extreme hypothetical. Lady Justice Macur agreed with Floyd LJ. The appeal was unanimously allowed.

1. Court of Appeal (Civil Division): Allowed the appeal and granted a declaration giving effect to the appellants’ construction of article 13(a).
2. High Court of Justice, Chancery Division, Manchester District Registry: HHJ Raynor QC construed article 13(a) as providing one vote per share, including on a poll.