Bushell v Faith

"The validity of such a provision as this in relation to a resolution to remove a director from office remains to be tested in the courts."

My Lords, when construing an Act of Parliament it is a canon of construction that its provisions must be construed in the light of the mischief which the Act was designed to meet. In this case the mischief was well known; it was a common practice, especially in the case of private companies, to provide in the articles that a director should be irremovable or only removable by an extraordinary resolution; in the former case the articles would have to be altered by special resolution before the director could be removed and of course in either case a three-quarters majority would be required. In many cases this would be impossible, so the Act provided that notwithstanding anything in the articles an ordinary resolution would suffice to remove a director. That was the mischief which the section set out to remedy; to make a director removable by virtue of an ordinary resolution instead of an extraordinary resolution or making it necessary to alter the articles.

An ordinary resolution is not defined nor used in the body of the Act of 1948 though the phrase occurs in some of the articles of Table A in the First Schedule to the Act. But its meaning is, in my opinion, clear. An ordinary resolution is in the first place passed by a bare majority on a show of hands by the members entitled to vote who are present personally or by proxy and on such a vote each member has one vote regardless of his share holding. If a poll is demanded then for an ordinary resolution still only a bare majority of votes is required. But whether a share or class of shares has any vote upon the matter and, if so, what is its voting power upon the resolution in question depends entirely upon the voting rights attached to that share or class of shares by the articles of association...

Parliament has never sought to fetter the right of the company to issue a share with such rights or restrictions as it may think fit. There is no fetter which compels the company to make the voting rights or restrictions of general application and it seems to me clear that such rights or restrictions can be attached to special circumstances and to particular types of resolution. This makes no mockery of section 184; all that Parliament was seeking to do thereby was to make an ordinary resolution sufficient to remove a director. Had Parliament desired to go further and enact that every share entitled to vote should be deprived of its special rights under the articles it should have said so in plain terms by making the vote on a poll one vote one share. Then, what about shares which had no voting rights under the articles? Should not Parliament give them a vote when considering this completely artificial form of ordinary resolution? Suppose there had here been some preference shares in the name of Mr. Faith's wife, which under the articles had in the circumstances no vote; why in justice should her voice be excluded from consideration in this artificial vote?

I only raise this purely hypothetical case to show the great difficulty of trying to do justice by legislation in a matter which has always been left to the corporators themselves to decide.

Clearly it was intended to alter the method by which a director of a company could be removed while still in office. It enacts that this can be done by the company by ordinary resolution. Furthermore, it may be achieved notwithstanding anything in the company's articles, or in any agreement between the company and the director.

Accordingly any case (and one knows there were many) where the articles prescribed that a director should be removable during his period of office only by a special resolution or an extraordinary resolution, each of which necessitated inter alia a three to one majority of those present and voting at the meeting, is overridden by section 184. A simple majority of the votes will now suffice; an ordinary resolution being, in my opinion, a resolution capable of being carried by such a majority. Similarly any agreement, whether evidenced by the articles or other vise, that a director shall be a director for life or for some fixed period is now also overreached.

The field over which section 184 operates is thus extensive for it includes, admittedly, all companies with a quotation on the Stock Exchange.

It is now contended, however, that it does something more; namely, that it provides in effect that when the ordinary resolution proposing the removal of the director is put to the meeting each shareholder present shall have one vote per share and no more: and that any provision in the articles providing that any shareholder shall, in relation to this resolution, have "weighted" votes attached to his shares, is also nullified by section 184. A provision for such "weighting" of votes which applies generally, that is as part of the normal pattern of voting, is accepted by the appellant as unobjectionable: but an article such as the one here under consideration which is special to a resolution seeking the removal of a director falls foul of section 184 and is overridden by it.

Why should this be? The section does not say so, as it easily could. and those who drafted it and enacted it certainly would have included among their numbers many who were familiar with the phenomenon of articles of association carrying "weighted votes." It must therefore have been plain at the outset that unless some special provision were made, the mere direction that an ordinary resolution would do in order to remove a director would leave the section at risk of being made inoperative in the way that has been done here. Yet no such provision was made, and in this Parliament followed its practice of leaving to companies and their shareholders liberty to allocate voting rights as they pleased.

When, therefore, it is said that a decision in favour of the respondent in this case would defeat the purpose of the section and make a mockery of it, it is being assumed that Parliament intended to cover every possible case and block up every loophole. I see no warrant for any such assumption. A very large part of the relevant field is in fact covered and covered effectively. and there may be good reasons why Parliament should leave some companies with freedom of maneuver in this particular matter. There are many small companies which are conducted in practice as though they were little more than partnerships, particularly family companies running a family business; and it is, unfortunately, sometimes necessary to provide some safeguard against family quarrels having their repercussions in the boardroom. I am not, of course, saying that this is such a case: I merely seek to repel the argument that unless the section is construed in the way the appellant wants, it has become "inept" and "frustrated."