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TMI Blog1941 (8) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... way that, except in the case of a transfer by a member to an immediate relative, no member was to be entitled to transfer his or her shares without giving the directors an opportunity as therein provided for finding a purchaser or purchasers from among the existing members themselves. I need not set out the actual articles, because they are there to read and, in fact, nothing actually turns on them in this case. There then follows article 23, which again is a very common form of article and which is the material one in this case. It is in these words: "The directors may in their discretion, refuse to register the transfer of any share to any person whom it shall, in their opinion, be undesirable in the interest of the company to admit to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the letter of 14th January was to hold a board meeting to consider the matter and on 5th February 1941 the General Transport Company Ltd. wrote a letter to the liquidators. It was in these terms: "Dear Sirs, With reference to your letter No. 23/41 of the 14th January 1941 we enclose herewith the true copy of Resolution No. 1 of the Board of Directors of this Company held on the 3rd day of February 1941. Please acknowledge and oblige. Thanking you. Yours faithfully, for the General Transport Ltd., (Sd.) General Manager." The actual resolution enclosed was in this language: "Resolved that the directors in their discretion under article 23 of the Company, are not inclined to register the names of the intending purchasers named in thei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed an affidavit in reply in which, in effect, they allege that they were not bound to give their reasons and finally by an affidavit in rejoinder, filed at the very last moment, the applicant brings forward a number of extremely vague and unconvincing charges against the directors. Now, the law applicable to matters of this kind is extremely clear. The leading case is that of In re Gresham Life Assurance Society; Ex parte Penney [1873] 8 Ch A 446. The judgment of Mellish, L.J., in that case has been referred to again and again in subsequent cases. He says: "But it is further contended that in order to secure the existing shareholders against being deprived of the right to sell his shares, the directors are bound to give their reason why th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this view in Duke of Sutherland v. British Dominions Land Settlement Corporation Ltd. [1926] 1 Ch 746, interrogatories were allowed to be delivered to directors as to the particular branch of the article under which they had exercised their discretion, but not as to the reasons which influenced them in exercising it upon that ground. Lord Tomlin in his judgment in that case says: "I think therefore on the construction of the article that the defendants are bound to say whether the directors declined to register because they do not approve of the transferee or because the transferor is indebted to the company, but that they are not bound to tell the plaintiff why in those circumstances the directors did not choose to register the transfer.. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , as Lord Tomlin puts it, are they to be exposed to suspicion of mala fides by reason merely of the fact that they have chosen to withhold their reasons. The applicants come here and tell me that the directors have acted mala fide and arbitrarily. And they have asserted that the vary fact that they have given no reasons is proof of that. In my view, it proves nothing of the kind, because the directors are doing exactly what they are entitled to do. Nor, in my opinion, is it a circumstance that affects the matter one way or the other, even if it be true, that the majority of the shareholders would welcome the transferees. It is a first and elementary principle of company law that, when powers are vested in a board of directors by the article ..... X X X X Extracts X X X X X X X X Extracts X X X X
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