Hood Sailmakers Ltd v Axford 2

Reference: (1996) OPLR 141

The appellant company established a pension scheme for its employees of which the company was the sole trustee and administrator. In May 1986 Mr Axford and a Mr Hood were the only directors of the company. Mr Hood was resident in the United States and played no active part in the running of the business. Mr Axford oversaw an announcement to scheme members stating that a new pension scheme was being set up and the company proposed to transfer the assets from the old scheme to the new scheme. Mr Axford signed two documents, each headed "Board Resolution", which purported to amend the scheme rules, wind up the scheme and secure the members' guaranteed minimum pensions through the purchase of annuities. None of the board resolutions was signed by Mr Hood.

Mr Hood ceased to be a director and was replaced by Mr Bainbridge and Mr Woodhouse. However, in April 1991 both Mr Axford and Mr Bainbridge were summarily dismissed from their position as directors. Following their dismissal both men requested, in October 1991, that their share of scheme assets be transferred to their new pension provider. Some of those assets had been invested in an insurance company for a fixed five year period which expired at that time. The company claimed that the 1986 board resolutions were invalid since Mr Hood had no knowledge of their existence. They therefore refused to make the transfer payments.

Mr Axford and Mr Bainbridge complained to the Ombudsman who upheld their claim. He determined that the 1986 board resolutions complied with Regulation 106 of Table A of the Companies Act 1948 (which was incorporated into the articles of association of the company) and were therefore valid. Under that Regulation, a written resolution signed by all the directors of the company that were entitled to receive notice of board meetings was a valid resolution. As Mr Hood was outside the United Kingdom, only Mr Axford was entitled to receive notice of meetings. Therefore his sole signature was sufficient to execute a valid board resolution. The Ombudsman also determined that the company was estopped from denying that those resolutions were valid. He directed the company to pay the transfers to the complainant's new pension providers.

Carnwath J held that the Ombudsman's finding that the board resolutions were valid was wrong in law. Regulation 106 did not override the requirement in the company's articles for a quorum of two directors to effect a transaction. However, the finding by the Ombudsman that the third director, Mr Woodhouse, had acquiesced in the company's actions through his actions between 1986 and 1991 was a finding of fact. Since the Ombudsman had evidence upon which to reasonably reach this conclusion, the court did not have jurisdiction to overturn the finding against the company based upon estoppel.

The company was not entitled to recover its costs out of the scheme assets since it was not acting for the benefit of the fund but rather to its own ends.