Sugarman and Others v CJS Investments Llp and Others: CA 19 Sep 2014

The parties were apartment owners in a development, each owning shares in the management company. They disputed the interpreation of the Articles as to whether the owner of more than one apartment was still restricted to one vote at member meetings, or had a number of votes equal to the number of apartments. The articles disapplied Regulation 54 of Table A which would have given votes at a number equal to the shares/apartments held.
Held: The appeal succeeded. Floyd LJ said: ‘the language of the voting provision in article 13(a) is clear and unambiguous and that I am bound to apply it. The language used is simply not flexible enough to admit of the respondents’ construction of it.’ And ‘my first task is to enquire whether the language used in the main voting provision in article 13(a) is capable of bearing the meaning contended for by the respondents, or whether, as the appellants submit, it is clear and unambiguous. It is only if I consider that the language is capable of bearing both meanings, that I am entitled to prefer that which most accords with common sense. I am not entitled, under the guise of construing the contract, to rewrite it in order to arrive at a meaning which most accords with our view of business common sense.’
Briggs LJ discussed whether the provision was absurd: ‘There can unfortunately be a fine dividing line between that which appears commercially unattractive and even unreasonable and that which appears nonsensical or absurd. . . The real question is whether the parties can really be taken to have meant by those words to prescribe one member one vote on a poll. It is truly bizarre to think that the promoters of this management company really meant to confer power on (say) 2 flat owners to control the management policy for the whole block where all the other 102 flats were owned by a single investor owner which would be powerless to use its single vote to intervene. Furthermore the care with which these Articles prescribe that each flat owner (whether an individual or co-owning group) has one share and no more (in circumstances where share ownership confers voting rights and nothing else) suggests at least at first sight that Art 13 was not meant to distribute votes, at least on a poll, regardless of the number of shares held. These considerations seemed to me, at least initially, to provide real force in favour of the judge’s view that the literal meaning of the relevant words in Art 13(a) produced a commercial absurdity which could not be its intended or real meaning.
There are however two factors which have persuaded me, on a narrow balance, that the judge was wrong in his finding of commercial absurdity. The first is that there is, as Mr Chaisty pointed out, a good reason for the prescription of one share per flat owner, quite apart from an implication that the number of a member’s shares should govern the number of his votes. It creates a structure where a member who owns multiple flats can confer membership and therefore voting participation on the buyer of one of his flats, while remaining a voting member in respect of the remainder.
The second, perhaps more fundamental, point is that it is dangerous to test commercial absurdity by reference to extreme examples, such as the 102 flats under single ownership, capable of being out-voted by the separate owners of the remaining 2 flats. The court looks at the words used in the context of what the promoters might have thought was a typical or not unlikely ownership pattern, because that is the context in which the assertion of a commercially absurd meaning must be tested. It strikes me as wholly unlikely that the promoters would have given any thought at all to the possibility of one person owning all but 2 of the flats or, for that matter (although this is what later occurred), that as many as 66 flats would come to be owned by a single investor.’

Briggs, Floyd, Macur LJJ
[2014] EWCA Civ 1239
Companies Act 2006 321(1)
England and Wales
CitedIn Re Horbury Bridge Coal Iron and Waggon Co CA 1879
Lord Jessell MR described the position at common law as regards the rights of members with different numbers of shares in the company, saying: ‘We first of all consider what may be termed the common law of the country as to voting at meetings. It is . .
CitedF L Schuler AG v Wickman Machine Tools Sales Limited HL 4-Apr-1973
The parties entered an agreement to distribute and sell goods in the UK. They disagreed as to the meaning of a term governing the termination of the distributorship.
Held: The court can not take into account the post-contractual conduct or . .
CitedAntaios Compania Naviera SA v Salen Rederierna AB (‘the Antaios’) HL 1984
A ship charterer discovered that the bills of lading were incorrect, but delayed withdrawal from the charter for 13 days. They now sought leave to appeal the arbitration award against them.
Held: Though he deprecated extending the use of the . .
CitedKookmin Bank v Rainy Sky Sa and Others CA 27-May-2010
The defendant bank appealed against summary judgment given on a claim on its obligations under an advance payment bond given to support ship-building contracts.
Sir Simon Tuckey (dissenting) said: ‘There is no dispute about the principles of . .
CitedRainy Sky Sa and Others v Kookmin Bank SC 2-Nov-2011
Commercial Sense Used to Interpret Contract
The Court was asked as to the role of commercial good sense in the construction of a term in a contract which was open to alternative interpretations.
Held: The appeal succeeded. In such a case the court should adopt the more, rather than the . .
CitedMannai Investment Co Ltd v Eagle Star Assurance HL 21-May-1997
Minor Irregularity in Break Notice Not Fatal
Leases contained clauses allowing the tenant to break the lease by serving not less than six months notice to expire on the third anniversary of the commencement date of the term of the lease. The tenant gave notice to determine the leases on 12th . .
CitedChartbrook Ltd v Persimmon Homes Ltd and Others HL 1-Jul-2009
Mutual Knowledge admissible to construe contract
The parties had entered into a development contract in respect of a site in Wandsworth, under which balancing compensation was to be paid. They disagreed as to its calculation. Persimmon sought rectification to reflect the negotiations.
Held: . .

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Updated: 10 November 2021; Ref: scu.536776