Sugarman v CJS Investments LLP

The appeal concerned the proper construction of article 13(a) of the articles of association of Lawrence House Management Company, the management company for a block of flats. The principal question was whether article 13(a) gave each member one vote regardless of the number of shares held, or whether on a poll the statutory rule in section 284(3) of the Companies Act 2006 (one vote per share) applied.

The Court of Appeal held that the main voting provision in article 13(a) was clear and unambiguous: "Subject as hereinafter provided, every Member present in person or by Proxy shall have one vote". That language was capable of ousting the statutory one-vote-per-share rule on a poll and therefore governed votes however taken. The court rejected the contention that the wording should be confined to a show of hands, and rejected the argument that the literal meaning produced a commercial absurdity sufficient to require departure from the textual meaning.

Background and parties. The case concerned Lawrence House Management Company, the management company for New Lawrence House, comprising 104 flats. The company had been incorporated and the flats granted on long leases; each flat-owner is a member who holds one share. Many of the flats had been acquired by investors including the first defendant, CJS Investments LLP. Disputes arose at members' meetings about the counting of votes for appointment of directors.

Nature of the dispute and procedural posture. The claimants appealed from the decision of HHJ Raynor QC in the Chancery Division, Manchester, on 12 May 2014. The narrow issue on appeal was a point of construction of article 13(a) of the articles of association: whether the article conferred one vote per member irrespective of shares (including on a poll), or whether section 284(3) Companies Act 2006 applied on a poll so that voting was by reference to shares.

Issues framed by the court.

• Does the wording of article 13(a) unambiguously give each member one vote regardless of the number of shares held?
• If the wording is ambiguous, should the court prefer a construction consistent with business common sense that reserves votes on a poll to be calculated per share under section 284(3)?
• Does a literal construction produce a commercial absurdity that justifies departing from the plain wording?

Court’s reasoning and holdings. The court analysed the textual relationship between article 13(a) and the disapplication of Table A regulation 54. The majority considered that article 13(a) was sufficiently clear and flexible to displace the statutory default in section 284(3) and to apply irrespective of whether votes were taken by show of hands or on a poll. The arguments that the draughting was inexpert, or that other provisions of the memorandum and articles pointed to an expectation of one vote per share, did not render the main voting provision ambiguous. The court also rejected the contention that the literal meaning produced commercial absurdity: although the outcome might be unusual or unattractive in certain extreme ownership patterns, it fell short of absurdity.

Relief sought and outcome. The appellants sought a declaration that article 13(a) conferred one vote per member. The Court of Appeal allowed the appeal and granted a declaration giving effect to the appellants’ construction.

This is an appellate decision. The appeal was allowed. The Court of Appeal held that article 13(a) of the company's articles of association unambiguously gave each member one vote, and that those words were sufficiently clear to displace the statutory one-vote-per-share rule in section 284(3) of the Companies Act 2006; the construction conferring one vote per member applied irrespective of whether voting was by show of hands or by poll and did not amount to a commercial absurdity.

Appeal to the Court of Appeal (Civil Division) (Neutral Citation [2014] EWCA Civ 1239) from the decision of HHJ Raynor QC sitting in the High Court of Justice, Chancery Division, Manchester District Registry (Case No A30 MA 304) given on 12 May 2014. The Court of Appeal hearing was listed as Case No A3/2014/1663 and heard on 16 September 2014, with judgment handed down 19 September 2014.