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Bushell v Faith

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Citation(s)
  
[1970] AC 1099

Court
  
House of Lords

Prior action(s)
  
[1969] 2 Ch. 438

Judge(s) sitting
  
Lord Donovan, Lord Reid, Lord Upjohn, Lord Guest and Lord Morris of Borth-y-Gest (dissenting)

Similar
  
Barron v Potter, Hickman v Kent or Romney, Attorney General v Davy, Southern Foundries (1926) Lt, Quin & Axtens Ltd v Salmon

Bushell v Faith [1970] AC 1099 is a UK company law case, concerning the possibility of weighting votes, and the relationship to section 184 of Companies Act 1948 (the predecessor of s 168 of the Companies Act 2006) which mandates that directors may be removed from a board by a simple majority of shareholders.

Contents

The decision is not applicable to listed companies, since the London Stock Exchange would refuse listing if restrictions existed on removing the board of directors.

Facts

A property company called Bush Court (Southgate) Ltd owned a block of flats. There was £300 capital, 100 shares held by Mr Faith and the other 200 by his two sisters, Mrs Bushell and Dr Bayne. Article 9 of the company constitution said that under a resolution to remove a director, that directors’ shares would carry three votes each. When the two sisters tried to remove him, Mr Faith recorded 300 votes and the other two, 200 votes together.

Ungoed-Thomas J said that the article infringed s 184. The Court of Appeal (Harman LJ, Russell LJ and Karminski LJ) reversed this decision. The sisters appealed to the House of Lords.

Judgment

The House of Lords held that the provision was valid, because there was no express indication by Parliament that it intended otherwise.

Lord Reid, giving the first judgment said that

But he said that given the recognition of giving weighted votes was recognised in Table A, the former Model Articles in the Schedule attached to the Companies Act 1948, "we must take the law as we find it". He emphasised the possibility of reform in later enactments.

Lord Morris of Borth-y-Gest dissented in a short opinion. He said:

Lord Upjohn approved the provision. He emphasised the Court of Appeal's approval of the provision.

Lord Donovan said:

Significance

  • Companies listed on the London Stock Exchange may not circumvent s 168 by their articles. So this has effect for non-listed companies. The LSE would refuse listing.
  • Another technique for achieving the same result as in Bushell is to make three classes of shares, each with the right to appoint one director. You then have the protection against altering class rights. Or you could have a shareholder agreement.
  • A weighted voting provision could potentially found an unfair prejudice petition under CA 2006 s 994. Also, possibility of application by director for winding up order under s 122(1)(g) Insolvency Act 1986 and CA 2006 ss. 994-996).
  • A quorum provision could state a meeting is inquorate without a particular director. Again, this could give rise to a s 994 petition.

    • References

    Bushell v Faith Wikipedia
    (Text) CC BY-SA