Attending a meeting but objecting to it being held is not acquiescence for the purposes of the Duomatic principle
The Duomatic principle allows a decision made by shareholders to be valid, even if the correct procedure to reach that decision was not followed. The principle is commonly seen in the context of company meetings that are not called with the correct notice period, but because all the shareholders attend and all agree to the resolutions put to the meeting, the resolutions passed at the meeting are held to be valid.
The principle takes its name from the leading case Re Duomatic Ltd [1969] 1 All ER 161. Section 281 of the Companies Act 2006 preserves the principle.
The Duomatic principle is applied objectively; each shareholder must indicate agreement either expressly or by implication (verbally or by conduct), but nothing short of unqualified agreement by each shareholder is sufficient.
Schofield v Schofield and others
In Schofield v Schofield [2011] EWCA Civ 154 the Court of Appeal considered the application of the Duomatic principle to the following facts:
X and Y were the only shareholders of Company A. X and Y attended a meeting that X claimed was an extraordinary general meeting of A, held at short notice with the agreement of both X and Y. At the meeting, X (the majority shareholder) removed Y as a director and was himself appointed as a director.
X maintained that Y’s attendance at the meeting, Y’s action in voting on the resolutions put to the meeting, and Y’s suggestion that the meeting be adjourned, all indicated his agreement to, or at least his acquiescence in, the meeting being held at short notice. With the result, X maintained, that the resolutions were validly passed.
The Court of Appeal’s judgment
The Court of Appeal, by an unanimous verdict, rejected X’s argument. The court stated that “all the authorities show…that [X] must establish an agreement by [Y] to treat the meeting as valid and effective, notwithstanding the lack of the required period of notice”. Nothing short of “unqualified agreement, objectively established, will sufffice”.
On the facts, there had not been unqualified agreement by Y. Y had raised an objection to the short notice period, and also to the capacity in which X was acting. Y’s position throughout was that the meeting had not been properly called. As there was a lawyer present, who informed Y that the meeting was valid, and as Y was not a lawyer, Y attempted to protect his position by acting as he did, including voting against the resolutions and requesting an adjournment. Those actions did not indicate consent to the meeting. The court’s decision on Y’s actions was:
“[Y's] position throughout was that the meeting had not been properly called, but, if and insofar as (contrary to his stated position) it was a valid meeting, he responded to the various proposals suggested by [the lawyer] in the way that he did. That was not an agreement by [Y], as shareholder, to treat the meeting as valid and effective. There was no objective agreement by him with the Duomatic principle.”
So the court held that the meeting was not validly convened and so the resolutions were not validly passed. The case is a reminder of the parameters and requirements of the Duomatic principle.
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