Everest Alliance Ltd v Maslovskiy & Ors

The court considered whether Article 80 of the articles of association of Petropavlovsk plc permitted the board to appoint directors whose appointments would take effect after the imminent annual general meeting (a "straddling appointment"). The judge construed Articles 79 and 80 by reference to commercial common sense and business efficacy and held that the word "appoint" ordinarily describes the formal act (the board resolution) rather than the later commencement of the office. Consequently an appointment made by the board is made at the time of the resolution and automatically terminates at the next annual general meeting under Article 84.2, so prima facie a straddling appointment is ineffective.

However, the judge held that Article 86 (the deeming provision) could operate to validate a director who retired under the articles by deeming that director to have been re-elected where no resolution to the contrary was passed. That meant the claimant did not have a clear or immediate "knock-out" blow to defeat the challenged appointments. The court therefore found the applicant's challenge to be arguable but not conclusively established, leaving the question of interim relief to be determined on that basis.

Background and parties:

• Everest Alliance Limited, a significant shareholder, commenced a derivative claim and applied for interim relief to challenge purported board appointments at Petropavlovsk plc and to restrain those appointees from acting as directors.
• Petropavlovsk plc is a London-listed company; the dispute arose in the run-up to the annual general meeting (AGM) which had to be held by 30 June 2020 pursuant to section 336 of the Companies Act 2006.

Nature of the application:

• The applicant sought permission to continue a derivative claim and injunctive relief to restrain the so-called Temporary Directors, appointed by the board under Article 80 of the articles of association, from acting.

Issues framed by the court:

1. Whether Article 80 allowed a board to make appointments which take effect in the future (in particular, appointments taking effect after the next AGM, i.e. "straddling" the AGM);
2. The meaning of the words "appoint" and "existing Board" in Articles 79 and 80;
3. Whether Article 86 could operate to deem a retiring director to be re-elected, thereby validating an appointment which otherwise might be ineffective; and
4. Whether the claimant had a clear prima facie case entitling it to interim relief.

Court's reasoning and conclusions:

• The articles are contractual and must be construed by ordinary principles, with commercial common sense and business efficacy applied where appropriate.
• The court accepted that an appointment can be made with effect from a future date but held that the natural meaning of "appoint" in Articles 79 and 80 is the formal act by resolution: the appointment occurs when the board or general meeting resolves to appoint, even if the office takes effect later.
• Because Article 84.2 provides that any director appointed pursuant to Article 80 shall retire at the first annual general meeting following his appointment, an appointment made by board resolution which precedes the AGM will terminate at that AGM; accordingly a purported appointment stated to take effect after that AGM cannot survive, and prima facie a straddling appointment is ineffective.
• Nevertheless Article 86 may operate to deem a retiring director to have been re-elected at the AGM unless a resolution to the contrary was passed or a resolution for re-election was put and lost. That deeming mechanism could validate the position of the Temporary Directors even where a straddling appointment was otherwise ineffective, and it is an arguable route of validation.
• The judge declined to decide allegations about improper purpose or other disputed facts at this interlocutory stage and concluded that the claimant did not have a clear, conclusive point of construction to secure immediate relief; the complaint was arguable but not conclusively good.

The court therefore left the interim relief application to be determined on the footing that the claimant has an arguable but not decisive case.

First instance: The court declined to grant a definitive immediate victory to the claimant. The judge held that Article 80 does not, on its natural construction, permit a board appointment which takes effect only after the next annual general meeting because the act of "appointment" is the board resolution and that appointment terminates at the following AGM under Article 84.2. However, Article 86 may operate to deem a retiring director to have been re-elected, which could validate the Temporary Directors. Consequently the claimant's challenge is arguable but not conclusively established; the interim relief application must be considered on that basis.