Re-Opening Refusals Of Permission To Appeal: One Jurisdiction Or Two? CRAFT v Pope & Cann

• Published date: 05 September 2022
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Corporate and Company Law, Directors and Officers, Trials & Appeals & Compensation
• Law Firm: Gatehouse Chambers
• Author: Joshua Griffin

Background

Ceredigion Recycling & Furniture Team is a private company limited by guarantee that had been incorporated to take over a project started by volunteers in Aberystwyth to recycle furniture and other domestic items. Clause 5 of the Memorandum of Association provided that:

'The income and property of the Company whencesoever derived shall be applied solely towards the promotion of the objects of the Company as set out herein and no portion shall be paid or transferred directly or indirectly to the members of the Company except by way of payment in good faith of reasonable and proper wages, bonuses and repayments (including loans) of expenses to any member or employee of the Company in return for any services actually rendered to the Company'

Companies limited by guarantee have no share capital and have members instead of shareholders. Such companies are normally used for non-profit making functions.

Under section 62 of the Companies Act 2006 ('the 2006 Act'), companies limited by guarantee are exempt from the requirement to include the word 'limited' in its name so long that as its objects are charitable, its articles require its income to be applied in promoting its objects, its articles prohibit the payment of dividends, and its articles require the assets that would otherwise be available to members on winding-up to be transferred to another body with similar objects to its own.

In March 2019, the Company brought a claim for breach of fiduciary against two of its former directors, Mr Clifford Pope and Ms Allison Cann (together, 'the Directors') for breach of fiduciary duty in relation to the transfer of property from CRAFT into the Directors' respective self-investment pension plans ('SIPPs').

The Directors denied any breach of fiduciary duty and argued inter alia that the transfer of the property into the SIPPs was lawful and bound the Company. In essence, it was said that:

1. As the Defendants acted unanimously and were the only members of the Company, their actions were to be attributed to the Company in accordance with the Duomatic
2. The Company's capacity is not limited by either the Memorandum or section 62 of the 2006 Act due to the abolition of the ultra vires doctrine by section 39 of the 2006 Act.
3. Therefore, the transfer into the SIPPs was an intra vires decision of the Company which, in the absence of insolvency, it is bound by.

At trial, HHJ Jarman QC rejected the argument that the transfer of property into the SIPPs had been lawful...