Re Hafner Olhausen v Powderley

• Jurisdiction: Ireland
• Judgment Date: 10 May 1943
• Date: 10 May 1943
• Court: Supreme Court

In re Hafner; Olhausen v. Powderley

In the Matter of the Estate of FREDERICK ALEXANDER HAFNER, Deceased, and in the Matter of the Trusts of his will,FREDERICK OLHAUSEN

Plaintiff

and

FLORENCE POWDERLEY, JOHN McGRATH, JOSEPH POWDERLEY and F. HAFNER & SONS, LIMITED

Defendants.

Supreme Court.

Company - Transfer of shares - Power under Article 6 to refuse registration without assigning reason - Right of pre-emption given to directors - Bequest of shares - Transfer by executors to beneficiary without first offering shares to directors - Whether transfer by executors to be subject to the right of pre-emption - Directors' refusal to register transfer in purported exercise of their discretionary power - Whether in considering and disposing of transfer under discretionary power, directors waived right of pre-emption - Executor of will and beneficiary thereunder directors of company and opposing registration - Whether approbating and reprobating under same instrument - Election - Companies (Consolidation) Act, 1908, ss. 22, 29 and 121.

F. H. held the bulk of the shares in F. H. & Son, Ltd., a private company with a nominal capital of 5,000 shares of £1 each, of which 3,100 had been issued. By his will, whereof he appointed the plaintiff and the defendant, J. M., executors, he bequeathed 500 shares to the plaintiff absolutely and 1,499 shares to the defendant, F. P., for her life with remainder to the plaintiff. On the testator's death on 4th December, 1937, F. P. was the sole director, and on the 24th February, 1938, she appointed her husband, the third defendant, J. P., a director. The defendant J. M. was subsequently appointed a director.

The Articles of Association of the company adopted Table A of the Companies Act, 1908, with certain exceptions and modifications. Articles 6 and 7 of the Articles of Association relating to the transfer of shares provided as follows:—

"6. The directors may, in their absolute and uncontrolled discretion and without assigning any reason, refuse to register any transfer of shares, and clause 20 of Table A shall be modified accordingly.

7. No member may transfer or dispose of his shares or any of them without first offering them to the directors of the company, who shall have the first option of purchasing same at a fair market price to be fixed, in the event of dispute, by the auditors of the company at the expense of the vendor. On payment of the price so fixed, the registered owner shall forthwith transfer the shares in manner directed by the directors."

The plaintiff and the defendant, J. M., as executors of the testator's will, executed a transfer of the 500 shares bequeathed to the plaintiff without first offering them to the directors, and sent the transfer to the company for registration. At a meeting of the directors, at which the three defendants were present, it was resolved to refuse registration, but no grounds were given for that refusal either at the time or at any subsequent time.

The plaintiff brought an action claiming inter alia a declaration that the refusal of the directors to register him as the holder of the 500 shares was not bona fide, alleging, among other grounds, that the defendants refused to register the transfer with the object of preventing him from questioning their action in entering into agreements on behalf of the company for payment of exorbitant emoluments to themselves. He also claimed declaratory relief against the defendants, F. P. and J. M. to the effect that F. P., as beneficiary under the testator's will and J. M., as one of the executors, were bound to assist him in perfecting his title to the shares bequeathed him by the entry of his name on the register.

On the evidence and the documents tendered in the action Black J. found that the emoluments payable to the directors were exorbitant, and that one of the motives actuating their refusal to register the transfer was a desire to facilitate the payment of such emoluments by so refusing to register the plaintiff and thus prevent him from questioning the emoluments at a meeting of the company.

Held by Black J.:—

(1) That an exercise of their discretion actuated by such a motive would not be a bona fide discharge of their fiduciary duty, and that once an illegitimate motive had been established, the Court was entitled to draw an inference from the omission of the defendants to state the grounds for their refusal and to hold—in the absence of any explanation by them— that their refusal was not the result of a bona fide exercise of their discretion.

In re Bell Brothers, Ltd., 7 T.L.R. 689, applied.

(2) The action of the defendants, F. P. and J. M., in opposing the registration could not be described as a rejection of the testators will. The equitable doctrine of election had no application and neither F. P. nor J. M. was bound to support the registration solely because the one was a beneficiary under the will and the other was an executor appointed under it.

(3) The word "member" as used in Article 7 did not per se include the personal representative of a deceased member but that Article was to be read in conjunction with s. 29 of the Companies Act and clause 22 of Table A (which was incorporated in the company's Articles). The right of the personal representative under clause 22 of Table A "to make such transfer of the share as the deceased . . . could have made" must mean the right to make such transfer of any given share as the deceased could have made of that share, having regard to the Articles of Association. Accordingly, Article 7 applied to the transfer of the 500 shares by the executors.

(4) Having regard to the decision in Jameson's Case [1904] 2 I. R. 644; [1905] 2 I. R. 218, compliance with the requirement of Article 7 was part of the essence of the executor's right to make any transfer of shares, and, as there was no such compliance in this case, the directors were entitled to refuse registration.

Accordingly Black J. dismissed the action.

On appeal, the Supreme Court affirmed the judgment of Black J. in regard to (1) and (2), but

Held further, that as the defendants, with a knowledge of their rights under Article 7, considered and disposed of, under Article 6, the application to register the transfer, they waived their rights under Article 7; and as the plaintiff had acted upon that waiver by bringing a suit against the defendants to challenge the validity of their action under Article 6, the defendants were not entitled to rely upon the non-compliance with Article 7 as a ground for refusing to register the transfer.

Accordingly the plaintiff was entitled to an order that the company do register the transfer.

Witness Action.

The plaintiff, Frederick Olhausen, brought an action against Florence Powderley, Joseph Powderley, John McGrath and F. Hafner and Sons, Limited, for the purpose of compelling the defendant company to register a transfer to him of 500 shares bequeathed under the will of his uncle, Frederick Alexander Hafner, and of obtaining relief in connection with a dispute between him and his co-executor, the defendant, John McGrath, as to the method by which the money should be raised to pay the legacy duty on 1,499 shares which the testator had bequeathed to the defendant, Florence Powderley, for her life, with remainder to the plaintiff.

The facts as set out in the statement of claim were was as follows:—

"1. Frederick Alexander Hafner, deceased, late of 88 Merrion Road in the City of Dublin, died on the 4th day of December, 1937, having made his last will, dated the 18th day of May, 1936, whereby he appointed the defendant, John McGrath, and the plaintiff (his nephew), Frederick Olhausen, to be his executors. Probate of the said will with one codicil thereto, dated the 5th day of August, 1937, was granted to the said executors forth of the Principal Registry on the 8th day of April, 1938.

2. By the provisions of his said will and codicil the said testator bequeathed certain pecuniary legacies and bequeathed 1,499 £1 shares in the capital of the defendants, F. Hafner & Sons, Limited (hereinafter called "the Company"), to his sister, the defendant, Mrs. Florence Powderley, for her life with remainder on her death to his nephew, the plaintiff, absolutely, and the testator directed that on his decease the said holding of 1,499 shares should be registered in the name of the said defendant, Florence Powderely, it being his wish that she should have control of the Company.

3. The testator also bequeathed 500 £1 shares in the capital of the Company to the plaintiff absolutely.

4. The Company is a private Company, incorporated in the Irish Free State in the year 1927, and carries on the business of Pork Butchers in the City of Dublin. The nominal capital is £5,000 divided into 5,000 ordinary shares of £1 each. At the time of the testator's death (4th December, 1937) 3,100 of the said shares had been issued (fully paid-up) and no further shares have since been issued. The said 3,100 shares were then registered as to 2,999 thereof in the name of the testator and as to the remaining 101 in the name of the defendant, Florence Powderley.

5. From the date of the incorporation of the Company the testator had been the beneficial owner of 1,499 of the said 2,999 shares, which were registered in his name, and his brother, Charles T. Hafner, had been the beneficial owner of the remaining 1,500 of the said 2,999 shares. The said Charles T. Hafner by his will bequeathed the income of his estate to his widow during widowhood (or £300 per annum thereof to her in the event of her re-marriage) and the residue of his estate (which included the said 1,500 shares) to his brother, the testator, and his sisters, Mrs. Lewis and the defendant, Florence Powderley, in equal shares. The said Charles T. Hafner died in June, 1934.

6. In September, 1935, the testator purchased the life estate of the widow of the said Charles T. Hafner in the said 1,500 shares for the sum...