Re Smith & Fawcett Ltd [1942] Ch 304
Re Smith & Fawcett Ltd [1942] Ch 304 is an important case in UK company law on directors’ discretion. Here are the case details:
Facts of the Case
Smith and Fawcett were the sole directors & shareholders, each holding 4,001 shares. Upon Fawcett’s death, his executor sought to transfer all 4,001 shares.
Under Article 10 of the articles, directors “in their absolute discretion” could refuse transfers.
Smith co‑opted a new director, Feather and refused to register the transfer of all 4,001 Fawcett shares to his executors. Instead, he offered to register 2,001 shares and buy the remaining 2,000 himself at his own valuation.
Key Issue:
Could directors refuse share transfers at their discretion?
Judgment (Re Smith & Fawcett Ltd)
The Court of Appeal upheld the refusal.
Lord Greene MR held that any discretion granted by the articles must be exercised bona fide in what directors themselves consider to be the interests of the company, and not for any collateral or improper purpose.
He famously articulated:
“They must exercise their discretion bona fide in what they consider — not what a court may consider — to be in the interests of the company, and not for any collateral purpose.”
In this case, directors acted within their rights—no dishonesty or improper motive was found. They genuinely believed that their decision would benefit the company.
The Court affirmed that it will respect those decisions unless evidence of bad faith emerges.
Therefore, their decision stood.
Why This Case Matters?
This case remains a cornerstone in company law.
It laid the foundation and supported the duty codified in Section 172 of the UK Companies Act 2006, which says directors must act “in the way they consider… most likely to promote the success of the company.”
List of references:
- https://andrewscouller.wordpress.com/wp-content/uploads/2016/03/19-the-law-months-part-v-s-172-ca-2006-attachment.pdf
- https://www.leveluplaw.co.uk/companycases/re-smith-amp-fawcett-ltd-1942-ch-304
- https://www.pastpaperhero.com/resources/re-smith-fawcett-ltd-1942-ch-304
- https://supremecourt.uk/uploads/uksc_2019_0046_judgment_a33492fe08.pdf
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Ruchi is a legal research writer with an academic background in CA, MBA (Finance), and M.Com. She specializes in digesting and summarizing complex judicial decisions into clear and structured case notes for students and legal professionals.