Ross v Telford [1998] 1 BCLC 82

Court: Court of Appeal

Facts: Company 1 was equally owned by a husband (R) and wife (T), and was also the sole director of Company 2, which was equally owned by R and Company 1. Both companies required the presence of both R and T for quorum at shareholder and board meetings. After a contentious divorce, R accused T of financial misconduct involving Company 2 and sought to initiate legal proceedings. R applied to the High Court for orders under section 371 of the Companies Act 1982 (now section 306 of the Companies Act 2006) to: Convene a general meeting of Company 2 with only one shareholder being present. Appoint R’s solicitor as a representative of Company 1 and vote on its behalf at the general meeting. Appoint R’s solicitor as a third director of Company 2.

Issue: Can the court use section 371 to override quorum requirements and resolve a deadlock between equal shareholders?

Held: The Court of Appeal allowed R’s appeal, stating that the High Court had no jurisdiction to override a deadlock between equal shareholders using section 371. The court emphasized that section 371 was not intended to resolve voting deadlocks between equal shareholders.

Key Judicial Statement: Nourse LJ stated, “I am satisfied that neither of the two decisions relied on by [counsel for the respondent] is authority for the proposition that section 371 enables the court to break a deadlock between two equal shareholders and that is confirmed by the decision of this court in Harman v BML [1994] 1 WLR 893.”

💡 Leveluplaw: Section 371 (now section 306) is a procedural provision intended to facilitate meetings, not to resolve substantive deadlocks in voting rights between equal shareholders.