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FARWELL the power; and that the appointment made in favour of the
J- second defendant is valid and takes effect accordingly. I will
1942 make a declaration to that effect.
HOFF, In re.
CARNLEY Solicitors : Cameron, Kemm & Co., for S. B. Carnley &
HOFF. Tinn, Alford, Lines; Crossman, Block & Co., for Reed, Wayman
& Hyner, Downham Market.
H. L. L.


Mar7if> 27. CompanyPrivate companyTransfer of sharesRegistrationRefusal
Powers of directorsMotives for refusalAffidavit evidence.
Article 10 of the articles of association of a private company
provided : " T h e directors may at any time in their absolute and
"uncontrolled discretion refuse to register any transfer of shares,
" a n d cl. 19 of Table A shall be modified accordingly." The
issued capital of the company consisted of 8002 ordinary shares,
of which the two directors of the company, J. F. and N. S., held
4001 each. J. F. died, and his son as his executor applied to
have the testator's shares registered in his name. N. S. refused
to consent to the registration, but offered to register 2001 shares
and to buy 2000 at a fixed price. The executor applied to the
court by way of motion that the register of members of the
company might be rectified by inserting his name as the holder
of the 4001 shares :
Held, affirming Simonds J., that art. 10 gave the directors the
widest powers to refuse to register a transfer, and that, while
such powers are of a fiduciary nature and must be exercised in
the interests of the company, there was nothing to show that
they had been otherwise exercised.
Affidavit evidence is unsatisfactory evidence of the motives of
directors in exercising their powers.

APPEAL from Simonds J.

On December 15, 1937, Smith & Fawcett, Ld., was in-
corporated as a private company to take over a business
carried on by Joseph Fawcett and Norman Smith. The
nominal capital of the company was 25,000/., divided into
10,000 preference and 15,000 ordinary shares of ll. each, but
only 8002 ordinary shares were issued, 4001 to Fawcett and
4001 to the first defendant, Smith, who were the directors
of the company. Art. 10 of the articles of association
provided: " The directors may at any time in their absolute
"and uncontrolled discretion refuse to register any transfer
"of shares, and cl. 19 of Table A shall be modified c. A.
"accordingly." Fawcett by his will, dated August 2, 1939, I942
appointed his wife and his son, Edwin Arthur Fawcett, the siavrn
plaintiff, to be the executors and trustees thereof, and, after AND
making certain provisions applicable during the widowhood of FA L ET
his wife, he bequeathed, on her death, 2000 shares in the in re.
company to his daughter, Alice Marjorie Fawcett, and ~
2001 snares to the plaintiff. Joseph Fawcett died on
February 26, 1940. In April, 1940, Mrs. Fawcett and the
plaintiff, as executors of Joseph Fawcett, applied to Smith
that they should be registered as members of the
company, and that the plaintiff should be appointed to be
a director of the company. Smith, however, refused to
consent to the registration or appointment, but offered to
register 2001 shares and to buy 2000 of the shares at a price
fixed by himself. In July, 1940, Smith appointed the second
defendant, his solicitor, J. W. Feather, to be a director of the
company. Mrs. Fawcett died on April 11, 1941. Some time
afterwards the plaintiff again asked Smith to register him as a
member of the company, but Smith, with the assent of Feather,
refused. The plaintiff then applied to the court by way of
motion that the register of members of the company might be
rectified by inserting his name as the holder of the 4001 shares.
Simonds J. dismissed the motion. The plaintiff appealed.

Spens K.C. and Pennycuick for the plaintiff. Smith's

refusal to register the transfer was on a wrong principle since
it was not made for the benefit of the company, but was rather
to preserve the dominating position of Smith. The ground of
refusal must be personal to the transferee : In re Bede Steam
Shipping Co., Ld. (1), and the fact that the transferee might
not be a fit and proper person to be a director is irrelevant,
as is also the fact that the transfer may result in a deadlock.
The proprietary rights of shareholders give them a right to
transfer. There is no case in which the court has upheld a
refusal to register in respect of part of a holding while the
remainder is registered. They also cited In re Royal British
Bank : Nichol's case (2), In re Gresham Life Assurance Society :
Ex parte Penney (3), In re Stranton Iron and Steel Co. (4) and
In re Dublin North City Milling Co. (5).
(1) [1917] 1 Ch. 123. (4) (1873) L. R. 16 Eq. 559.
(2) (1858) 3 D e G. & J. 387. ( 5 ) (1909) 1 I. R. 179.
(3) (1872) L. R. 8 Ch. 446.
V O L . I. 1942. 2A 1

C A. Roxburgh K.C. and Sir Norman Touche for the defendants

were n
1942 t called on.
AND LORD G R E E N E M.R. The principles to be applied in cases
AWCETT, whgj-g t n e articles of a company confer a discretion on directors
in re. with regard to the acceptance of transfers of shares are, for
the present purposes, free from doubt. They must exercise
their discretion bona fide in what they considernot what
a court may consideris in the interests of the company,
and not for any collateral purpose. They must have regard
to those considerations, and those considerations only, which
the articles on their true construction permit them to take
into consideration, and in construing the relevant provisions
in the articles it is to be borne in mind that one of the normal
rights of a shareholder is the right to deal freely with his
property and to transfe? it to whomsoever he pleases. When
it is said, as it has been said more than once, that regard
must be had to this last consideration, it means, I apprehend,
nothing more than that the shareholder has such a prima
facie right, and that right is not to be cut down by uncertain
language or doubtful implications. The right, if it is to be
cut down, must be cut down with satisfactory clarity. It
certainly does not mean that articles, if appropriately framed,
cannot be allowed to cut down the right of transfer to any
extent which the articles on their true construction permit.
Another consideration which must be borne in mind is that
this type of article is one which is for the most part confined
to private companies. Private companies are in law separate
entities just as much as are public companies, but from the
business and personal point of view they are much more
analogous to partnerships than to public corporations.
Accordingly, it is to be expected that in the articles of such a
company the control of the directors over the membership
may be very strict indeed. There are, or may be, very good
business reasons why those who bring such companies into
existence should give them a constitution which confers on
the directors powers of the widest description.
The language of the article in the present case does not
point out any particular matter as being the only matter to
which the directors are to pay attention in deciding whether
or not they will allow the transfer to be registered. The
article does not, for instance, say, as is to be found in some
articles, that they may refuse to register any transfer of shares

to a person not already a member of the company or to a C. A.

transferee of whom they do not approve. Where articles 1942
are framed with some such limitation on the discretionary power SMITH
of refusal as I have mentioned in those two examples, it follows AND
on plain principle that if the directors go outside the matters LD.,
which the articles say are to be the matters and the only In re.
matters to which they are to have regard, the directors Lord Greene
will have exceeded their powers.
Mr. Spens, in his argument for the plaintiff, maintained
that whatever language was used in the articles, the power
of the directors to refuse to register a transfer must always
be limited to matters personal to the transferee and that there
can be no personal objection to the plaintiff becoming a
member of the company because the directors are prepared
to accept him as the holder of 2000 of the shares which
have come to him as legal personal representative of his father.
Mr. Spens relies for his proposition on observations in several
authorities, but on examination of those cases it becomes
clear that the form of article then before the court by its
express language confined the directors to the consideration of
the desirability of admitting the proposed transferee to
membership on grounds personal to him. I cannot put the
point which I am endeavouring to make with greater clearness
than in the words used by Warrington L.J. in In re Bede
Steam Shipping Co., Li. (1). There the articles empowered
the directors " in their discretion and without assigning any
'reason therefor " to " refuse to register the transfer of any
'share (not being a fully paid-up share) to any person of whom
'they do not approve as transferee, and may decline to
'register the transfer of any fully paid-up share or shares
'on certifying that in their opinion it is contrary to the
'interests of the company that the proposed transferee
'should be a member thereof." Warrington L.J. said (1) :
'The article gives them one ground, and one ground only,
'for refusing to register the transfer of a fully-paid share,
'namely, that in their opinion it is contrary to the interests
'of the company that the proposed transferee should be a
' member." It is perfectly clear from that observation that the
court was not laying down a general rule to be applied to all
forms of article, but was coming to a decision on the particular
article before it, the nature of which was such as to confine
the directors to the consideration of one particular matter.
(1) [1917] 1 Ch. 123, 136.
2 A 2 1

C. A. There is nothing, in my opinion, in principle or in authority

1942 to make it impossible to draft such a wide and comprehensive
power to directors to refuse to transfer as to enable them to
AND take into account any matter which they conceive to be in the
interests of the company, and thereby to admit or not to admit
In re. a particular person and to allow or not to allow a particular
Lord Greene
transfer for reasons not personal to the transferee but bearing
M.R. on the general interests of the company as a wholesuch
matters, for instance, as whether by their passing a' particular
transfer the transferee would obtain too great a weight in
the councils of the company or might even perhaps obtain
control. The question, therefore, simply is whether on the
true construction of the particular article the directors are
limited by anything except their bona fide view as to the
interests of the company. In the present case the article is
drafted in the widest possible terms, and I decline to write
into that clear language any limitation other than a limitation,
which is implicit by law, that a fiduciary power of this kind
must be exercised bona fide in the interests of the company.
Subject to that qualification, an article in this form appears
to me to give the directors what it says, namely, an absolute
and uncontrolled discretion.
That being my view on the question of law in this case,
it only remains to consider the issue of fact which has been
raised. It is said that on the evidence before us we ought
to infer that the directors here were purporting to exercise
their power to refuse a transfer not bona fide in the interests
of the company but for some collateral purpose, namely,
the desire of the leading director to acquire part of the shares
for himself at an under-value. Speaking for myself, I strongly
dislike being asked on affidavit evidence alone to draw
inferences as to the bona fides or mala fides of the actors.
If it is desired to charge a deponent with having given an
account of his motives and his reasons which is not the true
account, then the person on whom the burden of proof lies
should take the ordinary and obvious course of requiring
the deponent to submit himself to cross-examination. That
does not means that it is illegitimate in a proper case to draw
inferences as to bona fides or mala fides in cases where there is
on the face of the affidavit sufficient justification for doing so,
but where the oath of the deponent is before the court, as it
is here, and the only grounds on which the court is asked to
disbelieve it are matters of inference, many of them of a

doubtful character, I decline to give to those suggestions the C. A.

weight which is desired. In the present case the principal 1942
director has sworn an affidavit which, if accepted, makes it SMITH
clear that, whether rightly or wrongly, the directors have . AND
bona fide considered the interests of the company and come FAWCETT,
to the conclusion that it would be undesirable to register the In re.
transfer of the totality of these shares. Accordingly, on Lord Greene
the evidence I am satisfied, as the learned judge was satisfied, M.R.

that there is no ground shown here for saying that the directors'
refusal has been due to anything but a bona fide consideration
of the interests of the company as the directors see them.
That being so, and that being, on the true construction of
the article, the only matter to which the directors have to pay
regard, I am of opinion that the learned judge was right in
the conclusion to which he came and that this appeal fails.

LUXMOORE L.J. I agree.

ASQUITH J. I agree.
Appeal dismissed.

Solicitors for plaintiff: Ward, Bowie & Co., for A. V.

Hammond & Co., Bradford.
Solicitors for defendants: Wynne-Baxter & Keeble, for
James A. Lee & Priestley, Bradford.
P. J. B.

Apr. 15.
WillAnnuities"Free of income tax"Rate of taxWill dated
before September 3, 1939Death of testator after that date
Finance Act, 1941 (4 & 5 Geo. 6, c. 30), s. 25.
Section 25 of the Finance Act, 1941, under which directions are
given with regard to provisions contained in documents for the
payment of stated amounts free of income tax, does not operate
on the will of a testator, who died after September 3, 1939,
although his will was made before that date.

By his will, dated February n , 1939, the testator, John