Everest Alliance Ltd v Maslovskiy & Ors

A power in a company’s articles permitting the board to appoint directors may allow an appointment to take effect on a future date. However, the meaning of “appointment” depends on the articles’ context. Where the articles provide that a board-appointed director retires at the first annual general meeting following his appointment, the appointment ordinarily occurs when the board resolves to appoint, rather than when the appointment takes effect. A purported appointment made before an annual general meeting but expressed to take effect afterwards is therefore prima facie terminated at that meeting. The position may nevertheless remain arguable if other provisions, such as a deemed re-election provision, affect the result.

Everest Alliance Limited, a significant shareholder in Petropavlovsk plc, challenged the board’s appointment of four temporary directors under article 80 of the company’s articles. The appointments were resolved on 29 June 2020 but were expressed to take effect at the conclusion of the annual general meeting held on 30 June. At that meeting, only four of the eleven existing directors standing for election or re-election were elected.

Everest brought a derivative claim and sought interim relief restraining the temporary directors from acting. Mr Justice Mann directed that the construction of article 80 be considered first, because a successful construction argument might dispose of the application. The central issue was whether article 80 permitted an appointment made before an annual general meeting to take effect after that meeting.

1. Construction of the articles. The articles had contractual effect and were to be construed as a business document, with business efficacy and commercial sense considered so far as the wording permitted. The references to the “existing Board” did not prevent an appointment from taking effect on a future date. The board was a fluid concept, and “existing Board” meant the board for the time being when the appointment took effect.
2. Meaning of “appointment”. The more natural construction was that the appointment occurred when the board resolved to appoint. The later date was when the appointment took effect and the office commenced. This was consistent with articles 79 and 80, under which the relevant resolution or general meeting performed the appointing act.
3. Effect on straddling appointments. Under article 84.2, a director appointed under article 80 retired at the first annual general meeting following his appointment. Consequently, an appointment resolved before the annual general meeting was prima facie terminated at that meeting and could not take effect afterwards. This construction gave effect to the temporary nature of the power and preserved the shareholders’ supremacy over appointments.
4. The FCA Listing Rules and examples of similar appointments by other companies did not assist in construing the articles. They did not establish that a future or straddling appointment must be permitted.
5. Article 86. The company argued that the temporary directors might have been deemed re-elected because they retired at the annual general meeting and no resolution had expressly prevented their re-election. The point was arguable and had not been fully addressed. It meant that Everest had no clear knock-out argument on the construction issue.
6. The interim application therefore had to proceed on the basis that Everest’s complaints under both its principal grounds were arguable, but not conclusively established.