Flats – Management company – Articles of association – Companies Act 2006 – Parties holding long leases of flats in development – First respondent company holding more than half of flats –Appellants each holding individual flat – Leaseholders all members of management company – Voting on appointment of directors – Articles of association expressly certain voting provisions of section 284 of 2006 Act – Whether articles providing for one vote per member or permitting one vote per share where leaseholder owning more than one flat – Appeal allowed
The appellants were the long leaseholders of three flats in a residential development in Manchester. There were 104 flats in total, all let on 125-year leases granted by the developer between 2009 and 2010. The first respondent company held 66 of the leases, while another six belonged to a company owned by the second, fifth and sixth respondents. The remainder were mostly held by individuals, including the third and fourth respondents, who held one flat each. Each leaseholder was a member of the management company for the flats.
In April 2014, two meetings of the management company were held to deal with the appointment of directors. A dispute arose as to the voting rights of the parties, with the appellants contending that each member of the company was entitled to only one vote while others, particularly the first respondent, argued that members who held several flats could exercise one vote for each share held.
The dispute arose against the background of section 284(1) to (4) of the Companies Act 2006, which set out, in table A, a set of regulations for companies that did not wish to draft bespoke articles of association. The management company’s articles expressly disapplied regulation 54, which would otherwise have provided for one vote per member on a vote by a show of hands and one vote per share where a poll was taken. Instead, article 13(a) provided that, on any vote at company meetings, “every Member present in person or by Proxy shall have one vote”, subject to a proviso setting out alternative voting provisions for any flat that had no leaseholder or transferee. The respondents contended that article 13(a) applied only to a vote by a show of hands and not where the statutory right to a vote by poll was exercised.
In the court below, the judge found for the respondents and held that the management company’s articles conferred one vote per share. The appellants appealed.
Held: The appeal was allowed.
Properly construed, the main voting provision in article 13(a) of the management company’s articles of association provided for one vote per member irrespective of the method by which the vote was taken. In understanding how the reasonable person would understand the language used in article 13, the relevant background included the fact that regulation 54 was expressly disapplied. The language of article 13(a) gave no indication that the draughtsman was only considering the case of a vote by a show of hands. The reference to voting by members “present in person or by Proxy” did not have that effect but merely meant that, whether a vote was taken on a show of hands or on a poll, the voting was of those present in person or by proxy. There was nothing in the other regulations to suggest any lack of clarity in the articles or raise any implication that the holder of more than one share would get more than one vote.
The effect of the company’s memorandum and articles was that, whenever a dwelling was sold, the new owner would acquire a share and with it the right to participate in the management of the building. There was nothing in those provisions that would give rise to an expectation that the acquisition of multiple flats carried with it additional voting rights for that member. It was not a case where the reasonable person, seeking to understand the words used in the main voting provision, would think that it could not mean what it said. It was common ground that it meant exactly what it said so far as it related to a vote on a show of hands and, with regard to a poll, there was nothing inherently implausible in article 13(a) disapplying the relevant provisions of section 284(3) of the 2006 Act. The language of the voting provision in article 13(a) was sufficiently clear to oust section 284(3). There was no ambiguity and the court was bound to apply article 13(a) according to its clear language: Rainy Sky SA v Kookmin Bank [2011] UKSC 50; [2011] 1 WLR 2900 applied.
Paul Chaisty QC (instructed by Paul Ross & Co, of Manchester) appeared for the appellants; Mark Warwick QC and Camilla Chorfi (instructed by DAC Beachcroft LLP, of Manchester) appeared for the respondent.
Sally Dobson, barrister
