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Nominet Not Complying with the Company’s Articles​

A High Court Judge has ruled that Curon Davies’ grounds of appeal “have a real prospect of success”.

He has been granted leave to appeal the decision from the County Court in May this year. A date for a one-day appeal hearing is being scheduled.

Nominet has admitted that the board have never put in place a subscription bye-law that they have been required to put in place since September 1997. As the judgment said:

The next thing to note is that there is again no dispute that the defendant has never established any bye-law in relation to subscription fees in accordance with Article 51 of the Articles of Association.

Nominet’s Board has been in breach of its corporate governance obligations for nearly 30 years.

What remains in dispute is what should happen as a result of that breach.

Curon Davies says that the default position is that there is no authority to charge subscriptions, since the board’s authority to do it on its own explicitly ended in August 1997. They were then required to consult with the members and for a bye-law to be put in place, something they admit they have never done.

The board, and the judge below, believe the consequence of that failure should be that the subscription rate from 1997 should carry on forever.

The judge reached his decision based on the following finding:

It is important, in my judgment, to note that Article 19 covers two matters. It covers subscriptions, but also poll voting rights. The claimant’s assertion in respect of this case is that those matters are inextricably linked in the Articles of Association.

……

If the claimant’s interpretation is correct and subscriptions cease to be chargeable post 31 August 1997 in the absence of a bye-law, then it is difficult to see why a similar position would not arise in respect of the poll voting rights.

……

it is helpful to adopt a hypothetical scenario, which is this. If the company had passed no bye-laws at all then there would be, in my view, nothing at all to dictate the poll voting rights of the members of the company. It is certainly difficult, in my judgment, to see how that could be the intention of the members at a time when the Articles were adopted. If that is the position in respect of the Articles in so far as they relate to poll voting rights, it is difficult to see why there is any difference in relation to subscriptions.

The problem with this is that the Companies Act does provide for a situation where the company has no weighted voting articles. The Act provides for one-member, one-vote.

Unfortunately, the judge did not ask the parties to address his novel suggestion, which he raised for the first time in the judgment.

It is clear that the company could and would continue to function when the board failed to comply with the need to make a bye-law. Subscriptions should have dropped to zero.

If the board does not want this situation, all it has to do is comply with the Articles. The board should consult and persuade the members to change things by passing a bye-law.

It is very disappointing that Nominet continues to fight this, despite accepting it has not complied with its own Articles. So far it has spent around £350,000 of members’ money, which the judge described as “disproportionate”.

Rather than resolving the matter by engaging in a sensible and constructive manner to comply with the company’s constitution, Nominet’s board has spent members’ money like water and tried to gaslight them into believing there is no breach in place.

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