Re Smith & Fawcett Ltd
Directors must exercise their discretion bona fide in what they consider, not what a court may consider, is in the interests of the company, and not for any collateral purpose.
Facts
Smith & Fawcett was a private company with two directors and shareholders, Mr Smith and Mr Fawcett. The articles gave the directors an absolute discretion to refuse to register a transfer of shares. When Mr Fawcett died, his executor applied to register the transfer of his shares to himself. Mr Smith, who was by then the only director, refused to register the transfer, but offered to register part of the shares if the executor sold the rest to him.
Legal principle
The Court of Appeal held that the refusal was valid. Lord Greene MR said that directors must exercise their discretion bona fide in what they consider, not what a court may consider, is in the interests of the company, and not for any collateral purpose. There was no evidence that Mr Smith had acted in bad faith, and the court would not interfere with the exercise of the directors' discretion merely because it disagreed with it. The duty is now in section 172 of the Companies Act 2006.
Related cases on directors' duties: powers, judgment and care
- Bamford v Bamford [1970] Ch 212
- Re Barings plc (No 5) [1999] 1 BCLC 433
- BTI 2014 LLC v Sequana SA [2022] UKSC 25, [2024] AC 211
- Re City Equitable Fire Insurance Co Ltd [1925] Ch 407
- Re D'Jan of London Ltd [1994] 1 BCLC 561
- Dorchester Finance Co Ltd v Stebbing [1989] BCLC 498
- Eclairs Group Ltd v JKX Oil & Gas plc [2015] UKSC 71
- Hogg v Cramphorn Ltd [1967] Ch 254
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This summary is for study and revision and is not legal advice. Although our case summaries are checked for accuracy, we do not guarantee that they are free from errors or omissions. Always read the full judgment for the court's reasoning.
