Re Smith & Fawcett Ltd.

Re [1942] Ch 304
Facts
● Norman Smith and Joseph Fawcett founders and Directors of the company.
● Shares equally distributed between them
● Article 10 of Article of Association “Directors may at any time at their absoulte and
uncontrolled discretion refuse to register any transfer of shares.
● After Death of Fawcett executors claimed registration of shares and appointment of
Fawcett’s son(plaintiff) and beneficiary as director
● Declined by Smith. However offered to buy and register Fawcett’s remaining shares
at a price fixed by Smith himself.
● Refused by executors
● Smith appointed solicitor as Director
● Plaintiff reapplied for member’s registration after mother’s demise. Refused again
● Action Challenged in court. Dismissed. Appealed by plaintiff.
 ISSUE

If the director’s refusal to registration of shares is in

good faith and in proper purpose?
 Claims by Plaintiff

● Smiths refusal to transfer of shares was on a wrong principle as it was not

made in the interest of the company but to preserve the dominating position
of Smith.
● The power of the directors to refuse to register a transfer of shares of a
company must always be limited to matters personal to the transferee.
Judgement
The court decided to dismiss the appeal and upheld the earlier decision in the
following grounds:

1. The Directors of a company exercise their discretion bona fide in what they
consider and not what a court may consider is in the interest of the company
2. Any claim against the rights of the shareholder must be with sufficient clarity and
not uncertain language or doubtful implications.
3. The companies has all the freedom to draft the Articles of Association in a way
that may provide total discretionary powers to the directors.
Re Smith and Fawcett: An overview
➢ The rights and Duties of a Director
➢ Proper Purpose Doctrine
➢ Current Relevance and uniqueness