Company Law Cases

STRATHMORE COLLEGE
LAW II APPENDIX OF CASES
DISTANCE LEARNING
For reference to the cases in the LAW II Study Pack

LAW II
APPENDIX OF CASES
1. FORT-HALL BAKERY SUPPLY CO v WANGOE
A plaint bearing the name "The Fort-Hall Bakery supply Co." as the plaintiff was filed against
the defendant for recovery of a certain amount of money from him. During the hearing it
was established that the business called "The Fort-Hall Bakery Supply Co." was being carried
on by a group of forty-five people and had not been registered under the Companies Act.
The defendant's advocate thereupon submitted that the action was not properly before the
court since the business was illegal under s.338 of the then Companies Act (Cap 288) which
was identical to s.389 of the current Companies Act.
It was held that the plaintiffs could not be recognized as having any legal existence and were
incapable of maintaining the action. The court thereupon terminated the proceedings
without making any order as to costs because a non-existent plaintiff can neither pay nor
receive costs. Templeton, J. stated: "The Act was intended, as it appears to me, to prevent
the mischief arising from large trading undertakings being carried on by large fluctuating
bodies, so that persons dealing with them did not know with whom they were contracting,
and so might be put to great difficulty and expense, which was a public mischief to be
repressed".
2. JUBILEE COTTON MILLS v LEWIS
Lewis was a promoter of a company formed to purchase a cotton mill and to carry on the
business of cotton spinning. The memorandum and articles of the proposed company were
delivered to the Registrar of Companies on 6th January 1920. The Registrar registered the
company on 8th January 1920 but, by an oversight, dated the certificate 6th January, 1920.
On 6th January a large number of fully paid shares were alloted to the vendors of the mill,
and they were later transferred to Lewis.
The question that the courts were asked to consider was whether the allotment was valid
since it was done before the company was actually registered.
The House of Lords held that the allotment was valid since it was made the day which,
according to the certificate of incorporation, the company was registered. It also explained
LAW II APPENDIX OF CASES 2
that a company is deemed to be incorporated from the day of the date on its certificate of
incorporation, and from the first moment of the day, and that the phrase "from the date of
incorporation" does not mean "from some part of" that date but means the whole of that day.
The Act does not in this connection divide a day into hours and minutes.
3. SALOMON v SALOMON & CO. LTD.
Salomon for many years carried on business as a leather merchant. In 1892 he registered a
limited liability company known as Salomon & Co. Ltd. to take over the business. The share
capital of the company was £40,000, divided into 40,000 shares of £1 each. The company
duly took over the business of Salomon at the agreed purchase price of £38,782 19s 7d. after
it was agreed that part of the purchase price should be paid by the issue of debentures by the
company to Salomon.
In pursuance of the said agreement as to the mode of payment of the purchase price,
debentures for £10,000 were issued by the company to Salomon in part payment thereof.
Later, at the request of Salomon, these debentures were cancelled and fresh debentures to the
same amount were issued to X as security for £5,000 lent by X to Salomon, and Salomon lent
this sum of £5,000 to the company.
Shortly after the registration of the company, 20,000 shares of £1 were issued by the company
to Salomon. For these he paid £1 per share out of the balance of the purchase money deemed
to have been received by him for the business. From that date until an order was made for
the compulsory liquidation of the company, in 1893, the share register of the company
remained unaltered, 20,000 shares being held by Salomon while his wife, daughter and four
sons held one share each.
The company became insolvent and defaulted in paying interest on the debentures, and in
1893 x instituted an action to enforce his security against the assets of the company.
Thereafter, at the instance of unsecured creditors of the company, a liquidation order was
made, and a liquidator appointed. The debts of the unsecured creditors of the company
amounted to £7,733 8s 3d. The assets of the company amounted to approximately £6,000 and
after allowing for x's debt and interest under the debentures, it would leave a balance of
£1,005, which Salomon claimed as a beneficial owner of the debentures for £10,000. In x's
action to enforce his security, the liquidator made a counterclaim against x and Salomon, and
contended that the company was the mere nominee and agent of Salomon, that Salomon was
liable to indemnify the liquidator against the whole of the unsecured debts of the company,
and that he was entitled to a lien for that sum on all moneys payable by the company to
Salomon. The Court of Appeal agreed with the liquidator's contentions and Salomon
appealed to the House of Lords.
It was held by the House of Lords that the company was a distinct person from Salomon and
not his agent and that the debentures were perfectly valid.
Lord Macnagheten said:
"The company attains maturity on its birth. There is no period of minority - no interval of
incapacity ... The company is at law a different person altogether from the subscribers to the
memorandum; and though it may be that after incorporation the business is precisely the
same as it was before, and the same persons are managers, and the same hands receive the
profits, the company is not in law the agent of the subscribers or trustee for them".
4. MACAURA v NORTHERN ASSURANCE CO.
Macaura who owned an estate sold the whole of the timber on the estate to a company in
consideration of the allotment to him of 42,000 fully paid £1 shares. All the company's shares
were held by him and his nominees, and he was also an unsecured creditor for the company
for an amount of £19,000. Subsequently to the sale he effected insurance policies in his own
name with the Northern Assurance Company and other insurance companies, covering the
timber against fire. Two weeks after the policies were effected, almost all the timber was
destroyed in a fire. A claim brought by him on the policies was dismissed by the House of
Lords on the ground that he had no insurable interest on the timber. In the course of his
judgement Lord Sumner said:
"It is clear that the appellant had no insurable interest in the timber described. It was not his.
It belonged to Irish Canadian Sawmills Ltd. He had no lien or security over it and, though it
lay on his land by his permission, he had no responsibility to its owner for its safety, nor was
it there under any contract that enabled him to hold it for his debt. He owned almost all the
shares in the company, and the company owed him a good deal of money, but neither as
creditor nor as shareholder, could he insure the company's assets. The debt was not exposed
to fire nor were the shares ...... His relation was to the company, not to its goods.
5. A.L. UNDERWOOD LTD v BANK OF LIVERPOOL
Mr Underwood had carried on business as an engineering and machinery merchant. In 1919

he converted the business into a limited company with 10,001 of the 10,002 shares into which
the capital of the company was divided being alloted to himself, his wife owning the
remaining one share.
Underwood as the sole director became possessed of forty five cheques of the aggregated
value of the £8,502 4s, drawn in favour of the company. He indorsed them "A.L.U Ltd.
A.L.U Sole Director" and paid them into his own personal account with the Bank of
Liverpool, instead of paying them into the company's account with another bank. The Bank
of Liverpool, the defendants, without inquiring whether the company had a separate banking
account, collected the cheques and credited Underwood with the proceeds and honoured
cheques drawn by him against them to pay his private debts.
The court was of the opinion that when doing what they had done, the Bank of Liverpool
had treated Mr Underwood as being identical with the company by virtue of his peculiar
position as the beneficial owner of all the company's shares and its sole director.
Consequently, the bank had overlooked the materiality of the cheques being drawn in the
company's favour and not in Underwood's favour. In action for conversion of brought by
the company on behalf of a creditor to whom debentures had been issued by the company it
was held that the Bank of Liverpool was liable and that it was precluded upon the following
grounds from arguing that Underwood, when paying the cheques into his own account, was
acting within the scope of his apparent authority as agent of the company:
(i) The act of an agent paying his principal's cheque into his own account was so
unusual as to put them on inquiry, and they ought to have inquired whether the
company had a separate banking account, and, if it had, why the cheques were not
paid into that account. The bank's failure to make the inquiry amounted to
negligence.
(ii) Underwood, when paying in the cheques, did not purport to act as the company's
agent but as being himself the company and that the bank so treated him.
In the course of his judgement Atkin, L.J. said:-
"The directors whether collectively or singly have no actual authority to steal the company's
goods".
6. FOSS v HARBOTTLE
The plaintiffs, Foss and Turton were shareholders in a company called `The Victoria Park
Company' which was formed to buy land for use as a pleasure park. The defendants were
the other directors and shareholders of the company. The plaintiffs alleged that the
defendants had defrauded the company in various ways, and in particular that certain of the
defendants had sold land belonging to them to the company at an exorbitant price. The
plaintiffs now asked the court to order that the defendants make good the losses to the
company.
It was held by Vice Chancellor Wigram that since the company's board of directors was still
in existence, and since it was possible to call a general meeting of the company, there was
nothing to prevent the company from obtaining redress in its corporate character, and the
action by plaintiffs could not be sustained.
7. NASAU STEAM PRESS v TYLER AND OTHERS
The defendants were two directors and the secretary of a company whose registered name
was "The Bastille Syndicate Limited". The action was brought upon two dishonored bills of
exchange which had been accepted by the defendants on behalf of the company. The
acceptance was stated on the bills to be on behalf of "Old Paris and Bastille Syndicate
Limited". It was held that the name of the company was not mentioned in the acceptance in
accordance with the statutory requirements and the defendants were personally liable on the
bills. Mathew J. stated:
"The sole question in this case is, whether the name of the company as inserted in the bills of
exchange was the correct name of the company. I have come to the conclusion that it was
not. For some reason or other it was deemed advisable to add to the real name of the
company the words "Old Paris", and the acceptance adopts that misdescription........ the
statute has not been complied with, and that the defendants are liable".
8. PENROSE v MARTYR
A bill of exchange was drawn on "The S.W Steam Packet Company" although the company's
full name was "The S.W Steam Packet Company Limited". The defendant, who was the
company secretary, wrote across the bill "Accepted, payable at Messrs B & Co., J.M.,
Secretary to the said company". The bill was dishonored and the holder sued the secretary
as acceptor. It was held that he was personally liable on the bill. Lord Campbell, C.J. stated:
"I think the case too clear for serious argument. The draft is directed to the company and it is
accepted by their officer, and though he does not say in terms that he accepts it for them, he
says, "Accepted". "John Martyr" Secretary to the said company "which is saying he signed it
on their behalf so he signed a bill on their behalf without their name on it".
9. RE BUGLE PRESS LTD.
Bugle Press Ltd. had an issued capital of 10,000 £1 shares, of which Jackson held 4,500, Shaw
held 4,500 and Treby held 1,000. Jackson and Shaw then incorporated a new company,
called Jackson and Shaw (Holdings) Ltd., with an issued capital of 100 shares, of which each
of them held 50 shares.
This company them made an offer to the shareholders of Bugle Press Ltd. which was
accepted by Jackson and Shaw but rejected by Treby. The company then served a notice on
Treby stating that it wished to purchase his shares.
Treby applied to the court for an order restraining the intended purchase on the ground that
it amounted to an expropriation of his interest in that the shareholders of Jackson and Treby
(Holdings) Ltd. were the same persons who held 90% of the shares in Bugle Press Ltd. and
who had purported to accept the offer. The application succeeded.
The court regarded the offer made by Jackson and Shaw (Holdings) Ltd. as having, in
substance, been made by Jackson and Shaw as individuals and thereby lifting the veil of
incorporation by treating the company and its members as one entity for purposes of
acceptance of the offer.
10. RE MAIDSTONE BUILDING PROVISIONS LTD.
A partner in a firm of accountants which acted as auditors to Maidstone was appointed

secretary of the company. He attended board meetings and pointed out that the company
was making large losses.
Nevertheless, trading continued and debts were incurred which the company had no
reasonable prospect for being able to pay. Eventually, the company went into liquidation
owing £99,000. The liquidator sought to make the secretary personally liable, contending
that he had been a party to fraudulent trading by the company because he had not advised
the directors to stop trading. The contention was rejected. Pennycuka J. stated:
"The steps he (the secretary) omitted to take were to give certain advice to the directors. It
seems to me impossible to say mere inertia ... could represent being a party to the carrying
on of the business of the company".
11. RE WILLIAM C. LEITCH BROTHERS, LTD (NO.2)
A declaration having been made by the court in the course of the windingup of a company,
that W.C.L., a governing director of the company, had been knowingly a party to carrying on
the company's business with intent to defraud creditors between certain dates, fixing the
liability of the director at £6,000, and charging a debenture for £4,000 issued to the director
with that liability, the liquidator recovered the sum of £3,356 from the director in respect of
the declaration, and asked for directions as to the application of that sum and any further
sum he might recover under the judgment, among the creditors of the company.
Held, that the moneys so recovered and to be recovered were not to be exclusively applied
for the benefit of creditors whose debts were contracted during the period when the business
of the company was carried on with intent to defraud creditors, but formed part of the
general assets of the company available for all creditors, on the same principle as that
applicable to moneys recovered from "B" contributories.
Eve, J:
" ... the company was incorporated in December, 1926, and in June 1930, was ordered to be
wound up compulsorily on the petition presented on May 21 1930. The respondent was a
director of the company throughout and, after a trial which lasted the greater part of four
days, my brother Maugham found as fact that during the months from March 1, 1930, the
company was carrying on business with intent to defraud creditors, and that it was so
carrying on business to the knowledge and, indeed, under the direction of the respondent.
He accordingly made the order I have stated, and the liquidator, having recovered some
£3,356 on account of the £6,000, now requires directions as to how he ought to deal with the
moneys in hand and anything further he may recover. The substantial question is whether
they form part of the general assets of the company available for all the creditors, or whether
they ought to be exclusively applied for any restricted class of creditors, and in particluar for
creditors with whom debts were contracted during the period when the business was being
carried on with intent to defraud. ... The section, no doubt, presents difficulties, but in
approaching its construction it is to be noted that it is one of a group of sections—271 to 277
(of the Companies Act 1929)— dealing with offences antecedent to or in the course of the
winding up. It can only be brought into operation in the course of a winding up, and in cases
where is prima facie evidence of the company's business having been carried on for
fraudulent purposes. It is not a section which regulates the procedure of an ordinary winding
up or controls the administration of the assets of the company. It is directed solely to the
particular offence of fraudulent trading and to (attaching personal liability therefore) to
directors who knowingly have been parties thereto. it imposes a liability, but it does not
purport to create any new rights for the creditors. It cannot, in my opinion, be regarded as a
section involving any departure from the general scheme of all modes of winding up (s156),
that is to say, a pari passu distribution of the assets. It may well be that the debts of the
defrauded creditors. But this is not of itself a ground for holding that the ordinary rules of
equality are to be disregarded and a preference created in favour of the defrauded creditors.
The position is, in my opinion, in all respects analogous to that of "B" contributories. Their
liability to contribute is fixed by the amount of indebtness existing at the time when they
respectivly ceased to be members, but their contributions are not applicable exclusively to
the discharge of that indebtedness, but form part of the general assets of the company for
the payment of all the creditors ...".
12. FIRESTONE TYRE & RUBBER CO. v LLEWELLIN
An American company formed a wholly-owned subsidiary in England to manufacture and

sell its brand of tyres in Europe. The American company negotiated agreements with
European distributors under which the latter would place orders with the American
company which the English subsidiary would carry out. In fact the distributors sent their
orders to the subsidiary direct and the orders were met without any consultation with the
American company. The subsidiary received the money for the tyres sold to the distributors
and, after deducting its manufacturing expenses plus 5 per cent, it forwarded the balance of
the money to the American company. All the directors of the subsidiary resided in England
(except one who was the president of the American company) and they managed the
subsidiary's affairs free from day-to-day control by the American company. It was held by
the House of Lords that the American company was carrying on business in England
through its English subsidiary "acting as its agent" and it was consequently liable to pay
United Kingdom tax.
13. JONES AND ANOTHER v LIPMAN AND ANOTHER
Lipman agreed to sell freehold land with registered title to the plaintiffs for £5,250. Pending
completion he sold and transferred the land to the defendant company (having a capital of
£100), which he acquired and of which he and a clerk of his solicitors were sole shareholders
and directors, for £3,000, of which £1,564 was borrowed by the defendant company from a
bank and the rest remained owing to him.
In an action by the plaintiffs for specific performance, it was held that, in the circumstances
of the case, the defendant company was a cloak for Lipman (the first defendant), who could
compel a transfer of the land to the plaintiffs, and the court would accordingly decree
specific performance against both defendants. Lawrence L.J. stated:
"The defendant company is the creature of the first defendant, a device and a shame, a mask
which he holds before his face in an attempt to avoid recognition by the eye of equity.... The
proper order to make is an order on both the defendants specifically to perform the
agreement between the plaintiffs and the first defendant."
The court's order to Lipman and the company to specifically perform Lipman's contract with
the plaintiffs lifted the veil of incorporation by regarding a breach of contract by the
company itself and thereby treating them as one entity.
14. GILFORD MOTOR COMPANY LTD v HORNE AND ANOTHER (1933)
The plaintiff company bought the various parts of motor vehicles from manufactures,
assembled the parts on the company's premises and sold the products under the name of
Gilford Motor Vehicles. They also sold separate parts which were handed over to the buyers
for cash.
By an agreement dated May 30, 1929, the defendant was appointed managing director of the
plaintiff company for a term of six years from September 1, 1928. Clause 9 of the agreement
provided that "the managing director shall not at any time while he shall hod the office of a
managing director or afterwards solicit, interfere with or endeavour to entice away from the
company any person, firm or company who at any time during or at the date of the
determination of the employment of the managing director were customers of or in the habit
of dealing with the company".
The employment of the defendant as managing director was terminated in November, 1931,
by an agreement between the parties under which the defendant was to receive a fixed sum
payable in instalments.
Shortly afterwards the defendant opened a business for the sale of spare parts of Gilford
Vehicles but on April 8, 1932 he incorporates a private company called "J.M. Horne & Co" the
second defendant, and transferred the business to it. "J.M" were the initials of the
defendant's wife. The company had a capital of 500 shares of £1 each, of which 202 were
issued. 101 being issued to the defendant's wife and 101 to a Mr Howard, who was
previously an employee of the plaintiff company but later became an employee of the
defendant company. The defendant's wife and Mr Howard were the only directors of the
defendant company whose registered office was private house of the defendant.
Shortly after its incorporation, the defendant company sent out circulars and other
documents inviting some persons to deal with it as a company which could supply Gilford
Motor spare parts. The persons to whom the circulars were sent had been customers of the
plaintiff company during the period when the defendant was managing director of that
company.
The evidence adduced in court established that the defendant's wife, as one of the directors,
was not taking any part in the business or the management of the defendant company and
the other director, Mr Howard, who in fact was an employer of the company. One of the
witnesses said in the witness box that, from all dealings which he had with the defendant
company, he had formed the opinion that the "boss" was the defendant Horne.
On the basis of the aforesaid facts the Court of Appeal granted an injunction restraining the
defendant Horne and the defendant company from committing breaches of the covenants
between the defendant and the plaintiff company. Farwell J. stated:
"...... the defendant company was the channel through which the defendant Horne was
carrying on his business. Of course, in the law the defendant company is a separate entity
from the defendant Horne, but I cannot help feeling quite convinced that at any rate one of
the reasons for the creation of that company was the fear of Mr Horne that he might commit
breaches of the covenant in carrying on the business and in sending out circulars as he was
doing, and that he might possibly avoid that liability if he did it through the defendant
company ......."
Lord Hanwort, M.R. stated in the Court of Appeal:
"I do hold that the company was "a mere cloak of sham"; I do hold that it was a mere device
for enabling Mr E.B Horne to continue to commit breaches of clause 9 and under those
circumstances the injunction must go against both defendants".
15. DAIMLER CO. LTD v CONTINENTAL TYRE & RUBBER CO.
A company was incorporated in England with a capital of £25,000 in £1 shares for the
purpose of selling in England tyres made in Germany by a German company, who held the
bulk of shares in the English company. The holders of the remaining shares (except one) and
all the directors were Germans resident in German. The one share was registered in the
name of the secretary, who was born in German, but resided i England and had become a
naturalised British subject.
After the outbreak of the war between England and Germany, an action was commenced in
the name of the English company by specially indorsed writ issued by the company's
solicitors on the instructions of the secretary, for payment of a trade debt. One of the
defences was that the company was an alien enemy company and that payment of the debt
would be trading with the enemy. This defense was rejected by the trial judge and the Court
of Appeal but was upheld by the House of Lords where Lord Parker stated:
"My Lords, the truth is that considerations which govern civil liability and rights of property
in time of peace differ radically from those which govern enemy character in time of war.......
I think the law on the subject may be summarised in the following propositions:
1. A company incorporated in the United Kingdom is a legal entity, a creation of law

with the status and capacity which the law confers. It is not a natural person with
mind or conscience ...... it can be neither loyal nor disloyal. It can be neither friend
nor enemy.
2. Such a company can only act through agents properly authorised, and so long as it is
carrying on business in this country through agents so authorised and residing in
this or a friendly country it is a prima facie to be regarded as a friend.......
3. Such a company may, however, assume an enemy character. This will be the case if
its agents or the persons in de facto control of its affairs, whether authorised or not,
are resident in an enemy country, or, wherever resident, are adhering to the enemy
or taking instructions from or acting under the control of enemies. A person
knowingly dealing with the company is such a case is dealing with the enemy.
4. The character of individual shareholders cannot of itself affect the character of the
company. This is admittedly so in times of peace, during which each shareholder is
at liberty to exercise and enjoy such rights as are by law incident to his status as
shareholder..... The enemy character of individual shareholders and their conduct
may, however, be very material on the question whether the company's agents, or
the persons in de facto control of its affairs, are in fact adhering to, taking
instructions from, or acting under the control of enemies. This materially will vary
with the number of shareholders who are enemies and the value of their holdings.
The fact, if it be the fact, that after eliminating the enemy shareholders the number of
shareholders is insufficient for the purposes of holding meetings of the company or
appointing directors or other officers in the present case...... the fact that he (the
secretary) held one share only out of 25,000 shares, and was the only shareholder
who was not an enemy, might well throw on the company the onus of proving that
he was not acting under the control of, taking his instructions from, or adhering to
the King's enemies in such manner as to impose an enemy character on the company
itself......
5. In a similar way a company registered in the United Kingdom, but carrying on

business in neutral country through agents properly authorised and resident here or
in neutral country, is prima facie to be regarded as a friend, but may, through its
agents or persons in de facto control of its affairs, assume an enemy character.
6. A company registered in United Kingdom but carrying on business in an enemy

country is to be regarded as an enemy.
My Lords, the foregoing propositions.... have, I think, the advantage of affording

convenient and intelligible guidance to the public on questions of trading with the
enemy.
16. RE DUOMATIC LTD (1969)
A company incorporated in 1960, with a share capital of 100 £1 ordinary shares and 80,000 £1
non-voting redeemable preference shares, had originally three directors E.H. and T. who
held all the ordinary shares. E. and T. became critical of the way in which H. performed his
duties and could have voted him off the board, but since he threatened, if dismissed, to sue
the company, they paid him £4,000 to leave the company. He ceased to be a director on
April 1, 1963, and later transferred his shares to E. on April 17, 1964, W. a representative of a
finance company, B Ltd, who were financing the company's hire-purchase business, became
a director. In July, 1964, E. transferred some of his shares to W. and some to C. and K., two
other officers of B Ltd. On August 13, 1964 the capital of the company was increased by the
creation of 25,000 additional ordinary shares and thereafter the ordinary shareholders
consisted of E., T., W., C., K., B Ltd and another company.
The company's articles of association incorporated article 76 of Table A in the Schedule to the
Companies Act, 1948, but no resolution authorising directors to receive remuneration was
ever passed. None of the directors had contracts of service. They drew sums according to
their personal needs, and at the end of each financial year the sums so drawn were totalled,
grossed up for tax and entered in the accounts as "directors' salaries".
In the year ending April 30, 1964, when E. was in control of the company, E. drew £9,000 but
no final accounts were aged. When W. had become a director in April, 1964, E. had agreed
with the shareholders to draw a lower rate of remuneration of £60 a week, although no
meeting was held or resolution passed, but the period May 1, 1964, to October 23, 1964 when
the company went into voluntary liquidation, he drew a sum in excess of that rate.
On summons by the liquidators seeking inter alia, repayment of the sums paid to E. and H.
respectively as salaries on the ground that such sums had never been voted in general
meeting, it was held that since E. and H. had, at the time when they are only ordinary
shareholders, approved the accounts showing the payments to them of £10,151 0s 8d and
£5,510 1s 0d, respectively. The liquidators could not recover the payments.
Buckley, J stated:
"Where it can be shown that all shareholders who have a right to attend and vote at a general
meeting of the company assent to some matter which a general meeting of the company
could carry into effect, that assent is binding as a resolution in a general meeting would be.
The preference shareholder, having shares which conferred upon him no right to recieve
notice of or attend and vote at a general meeting of the company could in no worse position
if the matter were dealt with informally by agreement between all the shareholders having
voting rights than he would be if the shareholders met together in a duly constituted general
meeting.
17. RE: EXPRESS ENGINEERING WORKS LTD. (1920)
A syndicate of five persons formed a private company, in which they were the sole
shareholders, and sold it for £15,000 in debentures of the company, property which they had
a few days before acquired for £7,000
The contract for the sale and the issue of the debentures was carried out at a meeting of the
five who, there and then appointed themselves directors. This meeting was described in the
minutes as a board meeting.
At a subsequent meeting, the seal of the company was affixed to the debentures. The articles
of the company privided that no director should vote in respect of any contract agreement in
which he might interested. In the winding up of the company the liquidator claimed a
declaration that the issue of the debentures was invalid and should be set aside. The claim
failed.
Warrington L.J. stated:
"As directors they could not but as shareholders acting together they could have made the
agreement in question. It was competent to them to waive all formalities as regards notice of
meetings, etc., and to resolve themselves into a meeting of shareholders and unanimously
pass the resolution in question. In as much as they could not in one capacity effectively do
what was required but could do it in another, it is to be assumed that as businessmen they
would act in the capacity in which they had power to act".
18. HAROLD HOLDSWORTH & CO LTD v CADDIES
By an agreement made in 1949 between the appellant company and the respondent it was
provided that, for a term of five years, he was appointed "a managing director of the
company and as such managing director he shall perform the duties and exercise the powers
in relation to the business of the company and the business........ of its existing subsidiary
companies...... which may be from time to time assigned to or vested in him by the board of
directors of the company". In 1950 the board resolved that he should confine his attentions
to one of these subsidiaries only.
He refused to do so and brought an action for damages for breach of contract. It was held by
the House of Lords that Lord Reid stated:
"It was argued that the subsidiary companies were separate legal entities each under the
control of its own board of directors, that in law the board of the appellant company could
not assign any duties to anyone in relation to the management of the subsidiary companies
and that therefore he agreement cannot be construed as entitling them to assign any such
duties to the respondent. My Lords, in my judgement this is too technical an argument. This
is an agreement re mercatoria and it must be construed in light of the facts and realities of
the situation".
This decision constitutes an instance of lifting the veil because the court regarded a company
(the subsidiary company) as being the same entity as the subscribers (the holding company).
In effect, Mr Caddies would be working for the holding company at the time he was working
in the subsidiary company.
19. HELLENIC AND GENERAL TRUST LTD. (1975)
A company called MIT was a wholly owned subsidiary of Hambros Ltd. and held 53 per cent
of the ordinary shares of Hellenic. A scheme of arrangement was put forward under which
Hambros was to acquire all the ordinary shares of Hellenic for a cash consideration of 48p
per share. The ordinary shareholders met and over 80 per cent approved the scheme, MIT
voting in support. However, the National Bank of Greece, which was a minority
shareholder, opposed the scheme because it would be liable to meet a heavy tax burden
under Greek law as a result of receipt of cash for its shares. Templeman J. refused to
approve the scheme after he ruled that there should have been a separate class meeting of
ordinary shareholders who were not a wholly-owned subsidiary of Hambros, thus in effect
regarding the holding company, Hambros, and the subsidiary MIT as one economic unit in
the class meeting.
20. DHN FOOD DISTRIBUTORS v LONDON BOROUGH OF TOWER HAMLETS (1976)
DHN food distributors was a holding company which ran its business through two wholly-
owned subsidiaries, Bronze Investments Ltd. and DHN Food Transport Ltd. The group
collected food from the docks and distributed it to retail outlets. Bronze Investments Ltd.
owned the premises in Bow from which the business was conducted and DHN Food
Transport Ltd ran the distribution side of the business. Tower Hamlets compulsory acquired
the premises in Bow for the purpose of building houses. This power of compulsory
acquisition arose under the Housing Act 1957 and compensation was payable under the
Land Compensation Act of 1961 under two headings: (a) the value of the land, and (b)
disturbance of business. Tower Hamlets was prepared to pay £360,000 for the value of the
land but refused to pay the second heading because DHN Food Distributors and DHN
Transport Ltd had no interest in the land. This was disadvantageous to the group as a whole
since the loss of the premises had caused all three companies to go into liquidation, it being
impossible to find other suitable premises. However, Lord Denning in the Court of Appeal
drew aside the corporate veil and treated DHN Food Distributors as owner of the property
whereupon Tower Hamlets became liable to pay for disturbance of business. The basis of
Lord Denning's judgement was that company legislation required group accounts and to that
extent recognized a group entity which he felt the judiciary should do also.
21. COTMAN v BROUGHAM
The Memorandum of an oil company mentioned a vast variety of objects, and among them
the underwriting of shares in another company. The objects clause was wound up by words
which Lord FINLAY in his speech in the House of Lords later declared "extraordinary". By
the closing words all the various objects mentioned were declared principal ones and in no
way subsidiary to the first mentioned object. The company underwrote shares in a rubber
company, and the validity of that fact was disputed.
Decision
The House of Lords held that the underwriting agreement was not ultra vires the company.
Lord PARKER said:-
"My Lords, Mr Whinney in his able argument that, in considering whether a particular
transaction was or was not ultra vires a company, regard ought to be had to the question
whether at the date of the transaction the company could have been wound up on the
ground that its substratum had failed. Upon consideration I cannot accept this suggestion.
The question whether or not a company can be wound up for failure of substratum is a
question of equity between a company and its shareholders. The question whether or not a
transaction is ultra vires is a question of law between the company and a third party. The
truth is that the statement of a company's objects in its memorandum is intended to serve a
double purpose. In the first place it gives protection to subscribers who learn from it the
purpose to which their money can be applied. In the second place it gives protection to
persons who deal with the company, and who can infer from it the extent of the company's
powers. The narrower the objects the greater is the security of those who transact business
with the company. Moreover, experience soon shows that persons who transact business
with companies do not like having to depend on inference when the validity of a proposed
transaction is in question. Even a power to borrow money could not always be safely
inferred, much loess such a power of underwriting shares in another company. Thus arose
the practice of specifying powers as objects, a practice rendered possible by the fact that
there is no statutory limit on the number of objects which may be specified. But even thus, a
person proposing to deal with a company could not be absolutely safe, for powers specified
as objects might be read as ancillary to and exercisable only for the purpose of attaining what
might be held to be the company's main or paramount object, and on this construction no
one could be quite certain whether the Court would not hold any proposed transaction to be
ultra vires. At any rate, all the surrounding circumstances would require investigation.
Fresh clauses were framed to meet this difficulty, and the result is the modern memorandum
of association with its multifarious list of objects and powers specified as objects and its
clauses designed to prevent any specified object being read as ancillary to some other object.
A person who deals with a company can do everything which it is expressly authorised to
do by its memorandum of association, and need not investigate the equities between the
company and its shareholders."
22. ASHBURY RAIL, CARRIAGE AND IRON CO. LTD. v RICHE
A company was registered under the Companies Act 1862, and by the third clause of the
memorandum of association the objects of the company were defined as follows:-
"The objects for which the company is established are to make and sell, or lend on hire,
railway carriages and wagons, and all kinds of rail plant, fittings, machinery, and rolling-
stock; to carry on the business of mechanical engineering and general contractors; to
purchase and sell, as merchants, timber, coal, metals, or other materials; and to buy and sell
any such materials on commission, or as agents."
The directors agreed to purchase a concession for making a railway in Belgium, and to form
a company in Belgium (called Societe Anonyme) to work the concession, and it was further
agreed that Messrs. Riche commenced the work, and for some time the Ashbury Company
paid money to the Societe Anonyme to be paid by them to the contractor,
Messrs. Riche. Later, difficulties arose, and the shareholders of the Ashbury Company
disapproved of what had been done in the matter of the railway, and required the directors
to take over the company's interests therein, and to indemnify the shareholders. The
directors, however, on behalf of the company, repudiated the contract for the construction of
the railway, as being ultra vires the company, and Messrs. Riche now send the company for
damages for breach of contract.
Decision:
On appeal to the House of Lords, it was held that the contract was ultra vires (beyond the
powers of) the company, and that accordingly the company was not liable to Messrs. Riche.
In the course of his judgement in the House of Lords, Lord CAIRNS, L.C. said:-
"Your Lordships are well aware that this is the Act" (that is, the Companies Act, 1862) "which
put upon its present permanent footing the regulation of joint stock companies which were to
be authorised to trade with a limit to their liability .......... and I will ask your Lordships to
observe ....... the marked and entire difference there is between the two documents which
form the title deeds of companies of this description - I mean the Memorandum of
Association on the hand, and the Articles of Association on the other hand. with regard to
Memorandum of Association, your Lordships will find that, that is, as it were, the charter
and defines the limitation of the powers of a company to be established under the Act. With
regard to the Articles of Association, those articles play a par subsidiary to the Memorandum
of Association."
And later, Lord CAIRNS said:-
Now I am clearly of opinion that this contract was entirely, as I have said, `beyond the
objects' in the memorandum of association. If so, it was thereby placed `beyond the powers
of' the company to make the contract. If so, my Lords, it is not a question whether the
contract ever was ratified or was not ratified. If it was a contract void at its beginning, it was
void because the company could not make the contract. If every shareholder of the company
had been in the room and every shareholder of the company had said: "That is a contract
which we desire to make, which we authorise the directors to make, to which we sanction
the placing of the seal of the company" the case would not have stood in any different
position from that in which it stands now. The shareholders would thereby, by unanimous
consent, have been attempting to do the very thing which, by Act of Parliament, they were
prohibited from doing."
23. RE DAVID PAYNE & CO. LTD.
X, who was a director of A company, and who also had some interest in B company,
happened to learn in his private capacity that B company, which had general borrowing
powers, proposed to raise a loan for purposes outside its business. He induced A company
to make the loan to B company, which applied it as proposed. The loan was made on the
security of a debenture. The court held that the debenture was a valid security. The private
knowledge of X was not to be imputed to A company.
ROMER L.J........ Where you have a limited company with a memorandum of association
authorising the company to embark on a series of transactions, if among those purposes you
find a power to borrow generally for the purposes of the company, I take it to be clear
beyond controversy at the present day that, when money is being borrowed within the limits
of the power of borrowing as to amount, the person who lends the money is not bound to
inquire to what purpose the borrowing company is about to apply the money so borrowed
.......
24. RE JON BEAUFORTE (LONDON) LTD.
A company, which was authorised by its memorandum of association to carry on the

business of costumiers and gown-makers, embarked on the business of making veneered
panels and erected a factory for this purpose. The company later went into liquidation.
Among the proofs of debts was one for coke supplied to the factory. The suppliers argued
that the fuel might have been used for legitimate purposes. The court affirmed the decision
of the liquidator to reject the claim on the ground that the contract to which it related was
ultra vires.
ROXBURGH J. ........... The argument is that the company needed fuel for its legitimate
business, and that the fuel merchant cannot be prejudiced by its misapplication. I need not
consider what the position might have been if the fuel merchant had not had clear notice that
the business, which the company was carrying on and for which the fuel was required, was
that of veneered panel manufacturers. The correspondence shows that they had actual
notice of that, and,h as they had constructive notice of the contents of the memorandum of
association, they had notice that the transaction was ultra vires the company. Their proof
was rightly rejected, although they and the other claimants may have other rights arising out
of these ultra vires transactions.
(Dealing with two other claims in respect of which judgements had been obtained against the
company, Roxburgh J. said):
"It seems to me that any compromise made upon the footing that the contract is ultra vires,
and any judgement suffered in an action in which the defence of ultra vires is not raised, can
be set aside because (applying the principle stated) it is ultra vires the company to proceed
upon the footing that the contract is intra vires, whether by negotiating a compromise on that
footing or by submitting to judgement without delivering an appropriate defence .......... In
this case of an ultra vires contract no judgement founded upon it is inviolable, unless it
embodies a decision of a court upon the issue of ultra vires or a compromise of that issue
......"
25. RE INTRODUCTIONS LTD.
The memorandum of association of a company included among the objects of the company
"To borrow or raise money in such manner as the company shall think fit and in particular by
the issue of debentures."
The objects clause of the memorandum concluded with a declaration "that each of the
preceding sub-clauses shall be construed independently of and shall be in no way limited by
reference to any other sub-clause and that the objects set out in each sub-clause are
independent objects of the company." At a time when the sole activity being carried on by
the company was pig-breeding, which was ultra vires the company, i.e. not included in the
object clause, the company gave debentures to its bank as security for its overdraft. Before it
took this security the bank had been given a copy of the memorandum and articles of
association of the company, and knew that the company's sole business was pig-breeding.
HELD:
Borrowing money was a power of a company, and could not be an object, the powers of the
company could be exercised only for purposes intra vires the company, and so the company
was not entitled, despite the clause and the declaration,h to borrow money for pig-breeding;
accordingly, as the bank knew that the borrowing was for an ultra vires purpose, the
debentures were void. (Note: company in liquidation).
HARMAN L.J.: "It was argued that the only obligation of the defendant bank was to satisfy
itself that there was an express power to borrow money and that this power was converted
into an object by the concluding words ..... It was said that if this was so not only need the
bank enquire no further but they were unaffected by knowledge that they had that the
activity on which the money was to be spent was one beyond the company's powers.
The judge rejected this view and I agree with him. He based his judgement I think, on the
view that a power or an object conferred on a company to borrow cannot mean something in
the air: borrowing is not an end in itself and must be for some purpose of the company, and
as this borrowing was for an ultra vires purpose that is an end of the matter....... you cannot
convert a power into an object merely by saying so ........... I would agree that if the
defendant bank did not know what the purpose of the borrowing was it need not enquire,
but it did know, and I can find nothing in Cotman v Brougham to protect it not withstanding
that knowledge.
An earlier case, Re David Payne & Co Ltd..... shows the limit to which this particular
doctrine can go. The first words of the head note are as follows:
"Where a company has a general power to borrow money for the purposes of its business, a
lender is not bound to enquire into the purpose for which the money is intended to be
applied and the misapplication of the money by the company does not avoid the loan in the
absence of knowledge or the part of the lender that the money was intended to be
misapplied".............
I agree with the judge that it is a necessarily implied addition to a power to borrow, whether
express or implied, that one should l add "for the purposes of the company". his borrowing
was not for a legitimate purpose of the company; the bank knew it and therefore cannot rely
on its debentures. I would dismiss the appeal.
RUSSEL, L.J.:"If the borrowing clause had expressly stated hat it did not include borrowing
for use in n undertaking ultra vires the company it would have been plainly unarguable that
the defendant bank's security was valid, the bank being fully aware that the borrowing was
only for us in the pig-breeding business and being at last deemed to be aware that such
business was wholly ultra vires the company. But in very borrowing clause that which I
have stated as having been expressly stated is implicit, whether or not the objects clause
contains the provision that is contained here.
Putting the matter round the other way, supposing the borrowing clause had purported
expressly to include borrowing for use in a business ultra vires the company, no lender could
conceivably rely upon such a provision, which would have to be ignored as mere nonsense"
26. SINCLAIR v BROUGHAM
In the winding up of a building society which had embarked upon ultra vires banking
activities, questions of priority arose between the outside creditors, the shareholders and the
bank depositors. By consent, the outside creditors were paid out in full, leaving the question
of how the remaining assets,which were insufficient to meet the claims of shareholders and
depositors in full, should be distributed. The House of Lords held that the assets should be
distributed pari passus between the shareholders and depositors in proportion to the amount
credited to them in the books of the company.
LORD PARKER OF WADDINGTON:........" Accepting the principle that no action or suit lies
at law or in equity to recover money lent to a company or association which has no power to
borrow the question remains whether the lender has any other remedies. On this point the
result of the authorities may be stated as follows:-
First, it appeals to be well settled that if the borrowed money be applied in paying off
legitimate indebtedness of the company or association (whether the indebtedness be incurred
before or after the money was borrowed), the lenders are entitled to rank as creditors of the
company or association "to the extent to which the money has been so applied." There
appears to be some doubts as to whether this result is arrived at by treating the contract of
loan as validated to the extent there is no increase in the indebtedness of the company or
association, in which case, if the contract of loan involves a security for the money borrowed,
the security would be validated to a like extent; or whether the better view is that the lenders
are subrogated to the rights of the legitimate creditors who have been paid off.........
Secondly, it appears to be also well settled that the lender in an ultra vires loan transaction
has a right to what is known as a tracing order. A company or other statutory association
cannot by itself or through an agent be party to an ultra vires act. It its directors or agents
affecting to act on its behalf borrow money which it has no power to borrow, the money
borrowed is in their hands the property of the lender. At law, therefore, the lender can
recover the money, so long as he can identify it, and even if it has been employed in
purchasing property, there may be cases in which, by ratifying the action of those who have
so employed it, he may recover the property
purchased ...........
The case therefore, presents itself in this way. Here is a mass of assets arising in the course of
an ultra vires business carried on by the directors and agents of the society. There are, on the
other hand, liabilities, how or for what purpose incurred is not in evidence. No one claims
any interest in the assets except the ultra vires lenders, the members of the society and the
creditors, in respect of the liabilities to which I have referred. The ultra vires lenders and the
members are willing that these liabilities and the cost of the liquidation, which are in effect
costs of administering the fund, shall be first paid. If this is done, what is left may be taken
to represent in part the moneys of the ultra vires lenders and in part the moneys of the
society wrongfully employed in the business. The equities of the ultra vires lenders and of
the society are equal, and it follows that the remainder of the assets ought to be divided
between the ultra vires lenders and the society rateably, according to the capital amount
contributed by such lenders and the society respectively......."
27. RE: CYCLISTS' TOURING CLUB
The club was incorporated as a limited liability company having as its objects the promotion
of the use of cycles for touring and other purposes. The court refused to sanction an
alteration of the memorandum making all tourists, including motorists, eligible for
membership.
WARRINGTON J........... It has been said by Mr. Eve that the alteration comes within either
clause (a) or clause (d) enlarging the membership of the club in the way proposed, it will be
possible to carry on the business of the club as altered more economically or more efficiently.
But with all respect to that argument, I do not think that it is sound. The alteration which is
contemplated in that clause seems to me to be an alteration which will leave the business of
the company substantially what it was before, with only such changes in the mode of
conducting it as will enable it to be carried on more economically or more efficiently. But in
the present case the proposed alteration would alter the business of the club completely. The
business of the club at present is - reading again from the memorandum - promote, assist
and protect the use of bicycles and other similar vehicles, on the public roads, and to provide
certain privileges for those who tour on bicycles, tricycles and other similar vehicles. That is
the business which it seems to me is contemplated by clause (a), and it is impossible to say
that that business will be conducted more efficiently is a business of catering for the
privileges, and protecting the interests, not of the riders of bicycles and tricycles, but of
tourists generally, and only incidentally, as part of that body, of the riders of bicycles and
tricycles. It seems to me it cannot come under clause (a). Does it come under clause (d): "To
carry on some business which under existing circumstances may conveniently or
advantageously be combined with the business of the company? Of course it may be said
that you can separate touring on bicycles and touring in other ways, and that what it is
proposed to do is to combine, with the business of a club formed to promote the sport of
bicycling, the business of a club formed to promote the sport of touring in motors. But that,
as it seems to me, is not the true result of what is proposed. Having regard to the business of
the club as at present, which is to cater for a particular class of tourists. It seems to me that
you cannot regard this as a proposal to combine a business of one kind with a business of
another kind. It is really intended to enlarge the business which is now carried on by giving
the privileges and the advantages of the carrying on of that business to a larger class of
people.
But even assuming that that is wrong, and supposing that it is sought to combine the
business of catering for tourists, other than those who tour on bicycles and tricycles, with the
business of catering for those who tour on bicycles and tricycles, it made out that the new
business can conveniently or advantageously be combined with the business of the
company? In my opinion that is not only not made out, but it seems to me that it is
impossible to maintain that view in face of the affidavits which have been filed in support of
the petition. The statement in the affidavit of the chairman of the council of the club in
support of the petition is that touring on bicycles has gone out of favour chiefly on account of
the introduction of motor cars, which, besides being more attractive in themselves, have to a
great extent destroyed the pleasure of cycling, and have increased the risk of accident in the
use of bicycles. It seems to me that one of the present objects of the club, namely, to project
bicyclists in their touring, would be to protect them against that very danger which the
chairman has emphasised in the affidavit which he has filed. If the business of catering for
motorists is combined with this, the club could only protect bicyclists against the dangers
arising from motors by taking measures against another class of its own members; and it
seems to me that the result would be that it would be impossible to combine (I am relying on
the evidence filed in support of the petition) the business of catering for and protecting the
rights and interests of motorists with the business of catering for and protecting the rights
and interests on the roads of those who ride bicycles and tricycles.
On those grounds it seems to me that I must refuse the petition, and I must refuse it with
costs.
28. RE: EGYPTIAN DELTA LAND AND INVESTMENT CO. LTD
The "Egyptian Delta Land and Investment Co. Ltd" was formed to acquire land in Egypt. It
proposed altering its objects in order to be able to acquire land in the Sudan.
Held:
The additional power would be granted on condition that the company changed its name to
"Egyptian Delta and Sudan Land and Investment Co. Ltd."
29. RE: HAMPSTEAD GARDEN SUBURB TRUST LTD
A clause in the company's memorandum provided that surplus assets on the company's
winding up should be given to any institution with objects which were similar to those of the
company and, in default, to any charitable institution. The clause was altered so as to
provide that any balance on a winding up should go to a named charity.
Held:
That the alteration was not one that would enable the company "to restrict or abandon" any
of its objects and was ineffective.
30. RE: PARENT TYRE CO.
The company petitioned the court to confirm a special resolution altering its object pursuant
to s.8 of the Companies Act 1908 under which it was necessary to seek the court's
confirmation before the resolution could become effective. The company had been
incorporated to manufacture rubber tyres and vehicle spare parts, and to invest in companies
which manufactured such goods. It wished to change to the business of finance, banking and
underwriting "and to deal in any kind of property, either real or personal". It had not carried
on any business since 1912 but had made certain investments which were permitted by its
memorandum. It was held that the proposed alteration of objects pertaining to a finance,
banking and underwriting business was valid because it would enable he company to carry
on a business which could be conveniently or advantageously combined with its existing
business. However, the alteration pertaining to dealing "in any kind of property either real
or personal".
31. HICKMAN v. KENT OR ROMNEY MARSH SHEEP-BREEDERS' ASSOCIATION.
The defendant association was incorporated as a non-profit-making company. Article 49 of

its articles of association provided that disputes between the association and any of its
members should be referred to arbitration. Hickman, a member, brought this action
complaining of various irregularities in the affairs of the association, including the refusal to
register his sheep in its published flock book, and a threat to expel him from membership.
The association was granted a stay of proceedings on the ground that the statutory provision
corresponding to the present s.22 made article 49 an agreement to arbitrate, enforceable as
between the association and a member.
ASTBURY J. This is a summons by the defendants to stay proceedings in the action pursuant
to section 4 of the Arbitration Act 1889. The action is against the defendant association and
their secretary Chapman, and the plaintiff, who became a member in 1905, claims certain
injunctions and a declaration and other relief in respect of matters arising out of and relating
solely to the affairs of the association. In substance he claims to enforce his rights under the
association's articles ......... (After stating the objects of the association and reading article 49
as to arbitration, his Lordship continued:) This is a common from of article in private
companies, and the objects of this association being what they are, it and its members might
be seriously prejudiced by a public trial of their disputes, and if this summons fails, as the
plaintiff contends that it should, these arbitration clauses in articles are of very little, if any,
value.
It is clear on the authorities that if there is a sub-mission to arbitration within the meaning of
the Arbitration Act 1889, there is a prima facie duty cast upon the court to act upon such an
agreement ........
In the present case the defendants contend, first, that article 49, dealing as it does with the
members of the association, in their capacity of members only, constitutes a submission
within the meaning of the Arbitration Act, or, secondly, that the contract contained in the
plaintiff's application for membership and the association's acceptance of it amounts to such
a submission. The plaintiff contests both these propositions, and independently of the
particular....... Now in these four cases the article relied upon purported to give specific
contractual rights to persons in some capacity other than that of shareholder, and in none of
them were members seeking to enforce or protect rights given to them as members, in
common with the other corporators. The actual decisions amount to this. An outsider to
whom rights purport to be given by the articles in his capacity as such outsider, whether he
is or subsequently becomes a member, cannot sue on those articles treating them as contracts
between himself and the company to enforce those rights. Those rights are not part of the
general regulations of the company applicable alike to all shareholders and can only exist by
virtue of some contract between such person and the company, and the subsequent allotment
of shares to an outsider in whose favour such an article is inserted does not enable him to sue
the company on such an article to enforce rights which are res inter alios acta and not part of
the general rights of the corporators as such..........
The wording of section 14, sub-section 1, of the (1908) Act, which is in the same terms as
section 16 of the Companies Act 1862, is difficult to construe or understand. A company
cannot in the ordinary course be bound otherwise than by statute or contract and it is in this
section that its obligation must be found. As far as the members are concerned, the section
does not say with whom they are to be deemed to have covenanted, but the section cannot
mean that the company is not to be bound when it says it is to be bound, as if, etc., nor can
the section mean that the members are to be under no obligation to the company under the
articles in which their rights and duties as corporators are to be found. Much of the
difficulty is removed if the company be regarded, as the framers of the section may very well
have so regarded it as being treated in law as a party to its own memorandum and
articles.......
It seems clear from other authorities that a company is entitled as against its members to
enforce and restrain breaches of its regulations.
It is also clear from many authorities that shareholders as against their company can enforce
and restrain breaches of its regulations, and in many of these cases judicial expressions of
opinion appear, which, in my judgement, it is impossible to disregard.
In Welton v. Saffery Lord Herschell, who dissented on the main question from the rest of the
House, made the following general observation: `Section 16 of the Act of 1862 provides that
the articles of association, when registered, shall bind the company and the members thereof
to the same extent as if each member had signed his name and affixed his seal thereto, and
there were in such articles contained a covenant on the part of himself, his heirs, executors
and administrators to conform to all the regulations contained in such articles, subject to the
provisions of this Act. The articles thus become in effect a contract under seal by each
member of the company, and regulate his rights. They cannot, of course, diminish or affect
any liability created by the express terms of the statute; but, as i have said, the statute does
not purport to settle the rights of the members inter se, it leaves these to be determined by
the articles (or the articles and memorandum together), which are the social contract
regulating those rights. I think it was intended to permit perfect freedom in this respect. It is
quite true that the articles constitute a contract between each member and the company, and
that there is no contract in terms between the individual members of the company; but the
articles do not any the less, in my opinion, regulate their rights inter se. Such rights can only
be enforced by or against a member through the company, or through the liquidator
representing the company, but I think that no member has, as between himself and another
member, any right beyond that which the contract with the company gives.
In all these last mentioned cases the respective articles sought to be enforced related to the
rights and obligations of the members generally as such and not to rights of the character
dealt with in the four authorities first above referred to.
It is difficult to reconcile these two classes of decisions and the judicial opinions therein
expressed, but I think this much is clear, first, that no article can constitute a contract
between the company and a third person; secondly that no right merely purporting to be
given by an article to a person, whether a member or not, in a capacity other than that of a
member, as, for instance, as solicitor, promoter, director, can be enforced against the
company; and, thirdly, that articles regulating the rights and obligations of the members
generally as such do create rights and obligations between them and the company
respectively.............
In the present case, the plaintiff's action is, in substance, to enforce his rights as a member
under the articles against the association. Article 49 is a general article applying to all the
members as such, and, apart from technicalities, it would seem reasonable that the plaintiff
ought not to be allowed in the absence of any evidence filled by him to proceed with an
action to enforce his rights under the articles, seeing that the action is a breach of his
obligation under article 49 to submit his disputes with the association to arbitration, and if
the case fails within the Act 1 see no reason for exercising my discretion under section 4 in
his favour.
In my judgement, article 49, for the reasons above referred to, creates rights and obligations
enforceable as between the plaintiff and the association respectively and those rights and
obligations are contained in a written document, but whether that document is a contract or
agreement between the plaintiff and the association within section 27 of the Arbitration Act
depends upon whether the decisions in Eley v. Positive Life Assurance Co., and the other
three cases of a similar character above referred to, ought to be regarded as only dealing with
and applying to articles purporting, first, to contain an agreement with the company and a
third person, or, secondly, to define the rights of a shareholder in some capacity other than
that of a member of the company. To reconcile those decisions with the other expressions of
judicial opinion above mentioned, some such view should, I think, be adopted and general
articles dealing with the rights of members às such' are treated as a statutory agreement
between them and the company as well as between themselves inter se, and, in my
judgement, article 49 in the present case does constitute a submission to arbitration within
the true meaning and intent of the Arbitration Act...........
32. WOOD v. ODESSA WATER WORKS CO.

(1889) 42 Ch.D. 636
Chancery Division
The articles empowered the directors to declare a dividend `to be paid' to the shareholders.
The company passed an ordinary resolution proposing to pay no dividend but instead to
give the shareholders debenture bonds redeemable at par, by an annual drawing extending
over thirty years. Wood, a shareholder, sought an injunction to restrain the company from
acting on the resolution. It was held that the proposal was inconsistent with the articles, and
the injunction was accordingly granted.
STIRLING J...... It was not disputed that profits available for the payment of a dividend by
the company had been actually to create a charge on the assets of the company, or to raise
money by means of such charge, or to apply the money so raised in payment of a dividend.
The question, simply, is whether it is within the power of a majority of the shareholders to
insist against the will of a minority that the profits which have been actually earned shall be
divided, not by the payment of cash, but by the issue of debenture-bonds of the company
bearing interest at £5 per cent and repayable at par by an annual drawing extending over
thirty years. It is to be inferred from the terms in which the bonds are offered for
subscription that the company cannot issue them in the open market except at a discount of
at least £10 per cent. Now the rights of the shareholders in respect of a division of the profits
of the company are governed by the provisions in the articles of association. By section 16 of
the Companies Act 1862, the articles of association `bind the company and the members
thereof to the same extent as if each member had subscribed his name and affixed his seal
thereto,h and there were in such articles contained a covenant on the part of himself, his
heirs, executors, and administrators, to conform to all the regulations contained in such
articles, subject to the provisions of this Act'. Section 50 of the Act provides the means for
altering the regulations of the company contained in the articles of association by passing a
special resolution, but no such resolution has in this case been passed or attempted to be
passed; and the question is, whether this is a matter as to which the majority of the
shareholders can bind those shareholders who dissent. The articles of association constitute
a contract not merely between the shareholders and the company, but between each
individual shareholder and every other; and the question which I have just stated must,h in
my opinion, be answered in the negative if there be in the articles a contract between the
shareholders as to a division of profits, and the provisions of that contract have not been
followed........ That then brings me to consider whether that which is proposed to be done in
the present case is in accordance with the articles of association of the company. Those
articles provide (101) that the directors may, with the sanction of a general meeting, declare a
dividend to be paid to the shareholders. Prima facie that means to be paid in cash. The
debenture-bonds proposed to be issued are not payments in cash; they are merely
agreements or promises to pay: and if the contention of the company prevails a shareholder
will be compelled to accept in lieu of cash a debt of the company payable at some uncertain
future period. In my opinion that contention ought not to prevail.........
33. BEATTIE v. E. & F. BEATTIE LT

(1938) Ch.708
Court of Appeal
The plaintiff brought a representative action on behalf of herself and the other shareholders,
alleging (inter alia) that certain sums had been improperly paid by the defendant company to
Ernest Beattie, the second defendant, as remuneration for his services as managing director
and chairman of directors. Ernest Beattie moved for a stay of proceedings, relying on article
133 of the company's articles of association, which provided that disputes between members
or between the company and any member should be referred to arbitration. A stay was
refused, on the ground that the article affected Ernest Beattie only in his capacity as a
member, and not when, as here, he was sued as a director.
GREEN M.R. ........ To bring himself within section 4 of the Arbitration Act (1889) the
appellant must point to a written agreement for submission. For that reason it will not be
sufficient for him to rely on an agreement appointing him director which is merely to be
inferred from conduct, even if in such an agreement a term corresponding to article 133
ought to be imported. An agreement so extracted from the general relationship of the parties
would not be a sufficient submission within section 4.
The appellant, accordingly, seeks to find in the articles themselves a contract to which he is a
party giving him the right to demand an arbitration in the present circumstances. I cannot
find that contract. The appellant must rely on section 20 of the Companies Act 1929, which
gives to articles of association a contractual force......
Mr Cleveland-Stevens says: Here is a member - namely, Mr. Ernest Beattie. Here is an article
which provides that a dispute between the company and a member shall be referred to
arbitration. It covers, among other things, a dispute relating to an act or default of a director.
And he says that what he is seeking in the present case to do is to enforce that right as a
member under that article and not any right as a director; that he has a right, and all other
members have a right, when they find the company disputing with a director, to insist on
that dispute being referred to arbitration. Mr Cleveland-Stevens says that the case must be
treated as though the circumstances that the appellant happens to be a director is immaterial.
He says that it is quite immaterial that the member who is demanding arbitration is himself
the member attacked.
In my judgment, that argument is based on an incorrect view both as to the effect of the
article and as to the effect of section 22 of the Companies Act. The question as to the precise
effect of section 22 has been the subject of considerable controversy in the past, and it may
very well be that there will be considerable controversy about it in the future. But it appears
to me that this much, at any rate, is good law: that the contractual force given to the articles
of association by the section is limited to such provisions for the articles as apply to the
relationship for the members in their capacity as members..........
It is to be observed that the real matter which is here being litigated is a dispute between the
company and the appellant in his capacity as a director, and when the appellant, relying on
this clause, seeks to have that dispute referred to arbitration, it is that dispute and none other
which he is seeking to have referred, and by seeking to have it referred he is not, in my
judgment, seeking to enforce a right which is common to himself and all other members. He
is seeking to enforce a quite different right. I will explain what I mean. Let me assume that
this article on its true construction entitles any member of the company to say to the
company, when it is in dispute with a director; `You, the company, are bound by your
contract with me in the articles to refer this dispute to arbitration, and I call upon you so to
do'. That is the right, and the only right in this respect, which is common to all the members,
under this article. If that were the right which the appellant was seeking to exercise, there
might be something to be said for that argument, but, with all respect to the able argument of
Mr Cleveland-Stevens, it appears to me that that is not at all the right which the appellant is
seeking to enforce. He is not seeking to enforce a right to call on the company to arbitrate a
dispute which is only accidentally a dispute with himself. He is asking, as a disputant, to
have dispute to which he is a party referred. That is sufficient to differentiate it from the
right which is common to all the other members of the company under this article, which I
have tried to define. That right is one which a member might find very great difficulty in
enforcing in the courts, because it concerns a matter relating to the internal management of
the company, with which the courts will not, in general, interfere.
But quite apart form that consideration, the two rights are, in my judgement, perfectly
distinct and quite different - the general right of a member as a member and the right which
the appellant as a party to the dispute is seeking to enforce ...........
In the result, the appeal must be dismissed.
34. ELEY v. POSITIVE GOVERNMENT LIFE ASSURANCE CO.

(Court of Appeal)
Article 118 of the company's articles provided: `Mr.William Eley, of No.27, New Broad
Street, in the City of London, "shall be" the solicitor to the company, and shall transact all the
legal business of the company, including parliamentary business, for the usual and
accustomed fees and charges, and shall not be removed from his office except for
misconduct.' Eley, the plaintiff, who had himself drafted the company's documents for
registration, and who became a shareholder several months after its incorporation, sued the
company for breach of contract in not employing him as its solicitor. In the Exchequer
Division, it was held that the articles did not create any contract between Eley and the
company. Eley appealed, but the Court of Appeal affirmed the decision.
LORD CAIRNS L.C. ......... This case was first rested on the 118th article. Articles of
association, as is well-known, follow the memorandum, which states the objects of the
company, while the articles state the arrangement between the members. They are an
agreement inter socios, and in that view, if the introductory words are applied to article 118,
it becomes a covenant between the parties to it that they will employ the plaintiff. Now, so
far as that is concerned, it is res inter alios acta, the plaintiff is no party to it. No doubt he
thought that by inserting it he was making his employment safe as against the company; but
his relying on that view of the law does not alter the legal effect of the articles. This article is
either a stipulation which would bind the members, or else a mandate to the directors. In
either case it is a matter between the directors and shareholders, and not between them and
the plaintiff.
The matter has been put in another way, it is said, this, though not an agreement in itself, is
at all events a statement of what had been agreed upon; it must have been intended to be
brought to the plaintiff's knowledge, he has accepted and acted upon it, and therefore it is
evidence of another agreement on which he can rely. Now it may be considered that article
118 would have warranted the directors in entering into an agreement with the plaintiff by
which they should contract to employ the plaintiff; but I ask, was such a contract ever made?
A joint stock company may act under their seal, or by the signature of their directors, which
may have equal effect as their seal, or possible by a resolution of the board. Nothing of the
kind exists here; and if the article is not an agreement on which the plaintiff can rely, there is
nothing in the case before us but the fact of his employment, and that would entitle him to
remuneration only for work he has done. This seems to us to dispose of the whole case.
35. RAYFIELD v. HANDS
Article 11 of the articles of association of Field-Davis Ltd. provided: Èvery member who
intends to transfer shares shall inform the directors who will take the said shares equally
between them at a fair value ...' Rayfield, a member, sought to compel the defendants, the
three directors of the company, to purchase his shares in accordance with this provision. The
court declared that they were bound to do so.
VAISEY J. It is article 11 with which I am mainly concerned in the present case, in the
following circumstances. On or about 4 April 1955 the plaintiff, by a notice in writing
bearing that date, informed the defendants as the directors of the company of his intention to
transfer his shares to them as provided by article 11. The defendants were and are, however,
unwilling and contend that they are not liable to take and pay for the plaintiff's shares. They
say that article 11 imposes no enforceable liability upon them, and they base their contention
first on the wording of article 11 itself, arguing that on its true construction it does not
purport to impose any liability on the company's directors. (His Lordship considered the
wording of article 11 and rejected this argument.)
The next and most difficult point taken by the defendants, as to which it would appear that
there is no very clear judicial authority, is that article 11, as part of the company's articles of
association, does not do what it looks like doing, that is, to create a contractual relationship
between the plaintiff as shareholder and vendor and the defendants as directors and
purchasers. This depends on section 20(1) of the Companies Act 1948. (His Lordship read
the section and passages from various text-books. He continued:)
Now the question arises at the outset whether the terms of article 11 relate to the rights of
members inter se (that being the expression found in so many of the cases), or whether the
relationship is between a member as such and directors as such. I may dispose of this point
very briefly by saying that, in my judgement, the relationship here is between the plaintiff as
a member and the defendants not as directors but as members.
In re Leicester Club and County Racecourse Co., Pearson J., referring to the directors of a
company, said that they `continue to be members of the company, and I prefer to call them
working members of the company,' and on the same page he also said: `directors cannot
divest themselves of their character of members of the company. From first to last.......... they
are doing their work in the capacity of members, and working members of the
company...........' I am of opinion, therefore, that this is in words a contract or quasi-contract
between members, and not between members and directors.
On the whole, if the proper way to construe the articles of association of a company is as a
commercial or business document to which the maxim `validate if possible' applies, I think
that the plaintiff in this action ought to succeed. Not one of the judges in the case to which I
have already referred, Dean v. Prince, showed any signs of shock or surprise in the
assumption there made of a contract between directors being formed by the terms of
company's articles. I am encouraged, not I hope unreasonably, to find in this case a contract
similarly formed between a member and member-directors in relation to their holdings of the
company's shares in its articles. The conclusion to which I have come may not be of so
general an application as to extend to the articles of association of every company, for it is, I
think, material to remember that this private company is one of that class of companies
which bears a close analogy to a partnership;
Nobody, I suppose, would doubt that a partnership deed might validly and properly
provide for the acquisition of the share of one partner by another partner on terms identical
with those of article 11 in the present case. I do not intend to decide more in the present case
than is necessary to support my conclusion, though it may be that the principles upon which
my conclusion is founded are of more general application than might be supposed from
some of the authorities on the point.
I will make an appropriate declaration of the plaintiff's rights, or will order the defendants to
give effect to them, and if necessary there must be an inquiry to ascertain the fair value of the
shares ..........
36. LYLE & SCOTT LTD v. SCOTT'S TRUSTEES
The articles of Lyle & Scott Ltd, a private company, prohibited a registered holder of more
than one per cent of the company's shares from selling them if any other ordinary
shareholder was willing to buy them, and required the would-be seller to inform the
secretary in writing of the number of shares he wished to transfer, so that notice could be
sent to the holders of ordinary shares for offers. Scott's Trustee held more than one per cent
of the shares, and, in common with the other shareholders, were approached on behalf of
Hugh Fraser, who had no shares in the company, with an offer to buy shares. The
respondents agreed that, if the offer became unconditional, which it did, Fraser's nominees
would be authorized to use general proxies, and that they would deliver their share
certificates and execute transfer deeds when called upon to do so. Fraser paid for the shares.
The company sought a declaration that the respondents were bound to implement the
articles.
Held - (House of Lords) - They were. Having agreed to sell their shares to Fraser, they could
not deny that they were "desirous of transferring their shares within the meaning of Article 9
merely because it suited the purchaser to delay the registration for the time being. There was
an unequivocal desire to sell, and the secretary must be notified, and the machinery of the
articles set in motion.
37. ALLEN v. GOLD REEFS OF WEST AFRICA LTD.
The defendant company was incorporated on July 2, 1895, and clause 5 of the memorandum
of association was as follows:- "The capital of the company is £90,000, divided into 360,000
shares of (S.5/= each). The said shares or any shares issued upon an increase of capital or
any proportion thereof respectively may be issued fully paid up, at a premium, or at par, and
with such preference, privileges or priority over or postponement to the remaining or any
other shares of the company in respect of dividends or otherwise as may be determined."
The memorandum was accompanied by articles of association, which provided (article 2)
that the word "member" should mean a registered holder of any share or stock of the
company; (article 29) "that the obligations, and liabilities of any member to or towards the
company upon all shares (not being fully paid) held by such member..........; (article 42) that
any person becoming entitled to a share in consequence of the death of any member might
elect either to be registered himself as a holder, or to have some person nominated by him
registered as a transferee thereof; (article 45) that a person so becoming entitled should,
subject to any lien of the company, be entitled to receive dividends, bonuses, or other monies
payable in respect of the share, but should not be entitled to notices of, or to attend or vote at
meetings of the company, or save as aforesaid, to any of the rights or privileges of the
members, unless and until he should have become a member in respect of the shares."
Shares, both fully paid up and not fully paid up, were issued by the company. One Zuccani,
as the nominee of the vendor to the company, had a number of fully paid-up shares alloted
to him by way of purchase money for the property acquired by the company under their
memorandum of association, and he held 27,885 of these shares at the time of his death, these
shares being his own property.
In addition to these fully paid-up shares, Zuccani applied for and had allotted to him 60,000
ordinary 5s. shares, not paid-up. These were applied for and allotted on the terms of the
company's prospectus and articles of association.
At the time of his death (4th February, 1897) Zuccani was the registered holder of the 27,885
fully paid-up vendor's shares, and also of 36,435 other shares partly paid-up, and he owed
the company £6,072. 10s. for calls in respect of these, besides interest to a considerable
amount.
The plaintiffs, as Zuccani's executors, did not get themselves registered as members of the
company in respect of any of Zucanni's shares, and they had not sufficient assets to answer
his liabilities. Steps were taken to have his estate administered in the Chancery Division, but
the company, instead of electing to carry in a proof for its debts, proceeded to take more
summary measures for recovering it.
In the first place, on February 9, 1897, a notice was sent out of an extraordinary general
meeting of the company to be held on February, 18, for the purpose of passing a special
resolution to alter article 29 of the articles of association by omitting the words "not being
fully paid." This notice was posted to Zuccani at his registered address, although the
directors were then aware of his death. The meeting was held on February 18, and the
special resolution was then passed.
Thereupon notice of a confirmatory meeting to be held on March 8, was as before, sent to

Zuccani's registered address. Both notices, addressed to Zuccani personally, came to the
knowledge of the plaintiffs, his executors. On March 8, the confirmatory meeting was held
and the resolution confirmed. Thus the company claimed to extend their lien to all fully
paid-up shares. These were in fact no fully paid-up shares except those belonging to
Zuccani.
The next step the company took was this. The directors, purporting to act, under articles 22,
23 and 24, on June 4, 1897 posted to Zucanni at his registered address a notice requiring him
to pay by June 21st the sum of £6,072 10s. due for calls on the 36,435 shares, a sum of
£804-6-11 for interest on arrears of calls, and further interest form the date of the notice; the
notice also stating that in the event of non-payment by the time appointed those shares
would be liable to be forfeited. This notice was also sent to the plaintiffs, Zuccani's
execution, who had not then lodged the probate of his will with the company for registration.
The amounts demanded were not paid, and on June 23, the directors passed a resolution
purporting to forfeit the 36,435 partly paid-up shares.
On January, 29, 1897 the directors had declined to register a transfer of some of Zuccani's
fully paid-up shares but ultimately, finding that the articles gave no power to the company
or its directors to refuse to register a transfer of fully paid-up shares, they passed the
transfer.
The plaintiffs brought an action seeking a declaration that the defendant company had no
lien upon the fully paid-up shares, and an injunction to restrain the forfeiture of the partly
paid-up shares.
Held: (Court of Appeal)
The alteration of the articles was valid and the company had a lien on all Zuccani's shares.
LINDLEY MR.: "........... I cannot agree ......... that the resolution is invalid by reason of any
defect in the notice. Notices of meetings have only to be given to members, and the
executors were not members. If no notice at all had been sent to the executors or to Zuccani's
registered address, the omission would not, in my opinion, have affected the propriety of
holding the meeting or the validity of the resolutions passed at them. Article 45 expressly
provided that notice of meetings need not be sent to executors who had not become
members. To hold that notice of meetings were to be given to the unregistered legal personal
representatives of all deceased members would be to paralyse the transaction of business,
and would be contrary to the ordinary principles applicable to corporate bodies and, indeed,
to other associations as well .......................................
The facts above stated raise the following very important questions, namely, (1) whether a
limited company, registered with articles conferring no lien on its fully paid-up shares, can
by special resolution alter those articles by imposing a lien on such shares? (2) whether, if it
can, the lien so imposed can be made to apply to debts owing by fully paid-up shareholders
to the company at the time of the alteration of the articles? (3) whether, if it can, fully paid-
up shares allotted to vendors of property to the company are in any different position from
other fully paid-up shares issued by the company?
The articles of company are the regulations binding on its members: Companies Act s.22.
They have the effect of a contract...... but the exact nature of this contract is even now very
difficult to define. Be its nature what it may, the company is empowered by the statute to
alter the regulations contained in its articles from time to time by special resolutions; and any
regulation or article purporting to deprive the company of this power is invalid on the
ground that it is contrary to the statute..........
The power thus conferred on companies to alter the regulations contained in their articles is
limited only by the provisions contained in the statute and the conditions contained in the
company's memorandum of association. Wide, however, as the language of S.13 is, the
power conferred by it must, like all other powers, be exercised subject to the general
principles of law and equity which are applicable to all powers exercised not only in the
manner required by law, but also bona fide for the benefit of the company as a whole, and it
must not be exceeded. These conditions are always implied, and are seldom, if ever,
expressed. But if they are complied with I can discover no ground for judicially putting any
other restrictions on the power conferred by the section that those contained in it. How
shares shall be transferred, and whether the company shall have any lien on them are clearly
matters of regulation properly........ prescribed by a company's articles of association.............
But then comes the question whether this (i.e. alteration of articles) can be done so as to
impose a lien or restriction in respect of a debt contracted before and existing at the time
when the articles are altered. Again, speaking generally, I am of opinion that the articles can
be so altered, and that if they are altered bona fide for the benefit of the company, they will
be valid and binding as altered on the existing holders of paid-up shares, whether such
holders are indebted or not indebted to the company when the alteration is made.............
But, although the regulations contained in a company's articles of association are revocable
by special resolution, a special contract may be made with the company in the terms of or
embodying one or more of the articles and the question will then arise whether an alteration
of the articles so embodied is consistent or inconsistent with the real bargain between the
parties. A company cannot break its contracts by altering its articles, but, when dealing with
contracts between a member of the company and the company respecting his shares, care
must be taken not to assume that the contract involves as one of its terms an article which is
not to be altered.
It is easy to imagine cases in which even a member of a company may acquire by contract or
otherwise special rights against the company which exclude him from the operation of a
subsequently altered article. Such a case arose in Swabey v. Port Darwin Gold Mining Co.,
where it was held that directors, who had earned fees payable under a company's articles,
could not be deprived of them by a subsequent alteration of the articles, which reduced the
fees payable to directors.
I take it to be clear that an application for an allotment of shares on the terms of the
company's articles does not exclude the power to alter them nor the application of them,
when altered, to the shares so applied for and allotted. To exclude that power or the
application of an altered article to particular shares, some clear and distinct agreement for
that exclusion must be shown, or some circumstances must be proved conferring a legal or
equitable right on the shareholder to be treated by the company differently from the other
shareholders.
Zuccani bargained for fully paid-up shares and he got them. The imposition of a lien on
them did not render them less fully paid-up than they were before. They remained what
they were. Zuccani did not bargain that the regulations relating to paid-up shares should
never be altered, or that, if altered, his shares should be treated differently from other fully
paid-up shares. I cannot see that the company broke its bargain with him in any way by
altering its regulations or by enforcing the altered regulations as it did......... The fact that
Zuccani's executors were the only persons practically affected at the time by the alterations
made in the articles excites suspicions as to the bona fide of the company. But, although the
executors were the only persons who were actually affected at the time, that was because
Zuccani was the only holder of paid-up shares who at the time was in arrear of calls. The
altered articles applied to "all holders of fully paid shares", and made no distinction between
them. The directors cannot be charged with bad faith............"
ROMER, L.J.: "....... That the reason for the alteration was very existence of the large debt due
from Mr.Zuccani and that the company had principally in mind this large debt due when it
made the alteration in the articles, is no ground for impeaching the action of the company. It
appears to me that the shareholders were acting in the trust and best interest of the company
in exercising the legal right to alter the articles so that the company might as one result
obtain payment of the debt due from Mr.Zuccani. The shareholders were only bound to look
to the interests of the company. They were not bound to consult or consider Mr.Zuccani's
separate or private interests......"
38. SIDEBOTTOM v. KERSHAW, LEESE & CO. LTD
The defendant company had altered its articles by introducing a provision which gave the
directors power to buy out at fair price the shareholding of any member who competed with
the company's business. The plaintiffs, who were minority shareholders and who carried on
a competing business, unsuccessfully challenged the validity of the alteration.
LORD STERNDALE M.R......... There are two objections to this alteration: One is a very
broad one indeed, it is that whatever alterations a company may be empowered to make in
its articles varying the terms upon which its members may hold their shares, it cannot alter
its articles so as to provide a means of what was called èxpelling', as in this case, by buying
out a particular member and making him lease to be a member. I cannot find that such an
exception as that is anywhere stated in any of the authorities existing......... but there is not
doubt - in fact I think it is established by Phillips v. Manufacturers' Securities Ltd that a
power such as this is a perfectly valid power in the case of original articles, and it seems to
me that prima facie if it could be in the original articles, it could be introduced into the
altered articles provided only it is done bona fide for the benefit of the company as a whole.
The introduction into an altered article of a power of buying a person out or expelling him
can only be held invalid if the alteration is not made bona fide for the benefit of the
company.......
.......In my opinion, the whole of this case comes down to rather a narrow question of fact,
which is this: When the directors of this company introduced this alteration giving power to
buy up the shares of members who were in competing businesses did they do it bona fide for
the benefit of the company or not? It seems to me quite clear that it may be very much to the
benefit of the company to get rid of members who are in competing businesses........ I think
there can be no doubt that a member of a competing business or an owner of a competing
business who is a member of the company has a much better chance of knowing what is
going on in the business of the company, and of thereby helping his own competition with it,
than if he were a non-member; and looking at it broadly, I cannot have any doubt that in a
small private company like this the exclusion of members who are carrying on competing
business may very well be of great benefit to the company. That seems to me to be precisely
a point which ought to be decided by the voices of the business men who understand the
business and understand the nature of competition, and whether such a position is or is not
for the benefit of the company. I think, looking at the alteration broadly, that it is for the
benefit of the company that they should not be obliged to have amongst them as members
persons who are competing with them in business, and who may get knowledge from their
membership which would enable them to compete better.
That brings me to the last point. It is said that that might be so were it not for the fact that
the directors and the secretary have said, "This is directed against Mr.Bodden", and therefore
it is not done bonafide for the benefit of the company but that it is done to get rid of
Mr.Bodden. If it were directed against Mr.Bodden from any malicious motive I should agree
with that - the thing would cease to be bona fide at once; but these alterations are not as a
rule made without some circumstances having arisen to bring the necessity of the alteration
to the minds of the directors. I do not mind this as meaning anything more than this: Ìt was
the position of Mr.Bodden that made us appreciate the detriment that there might be to the
company in having members competing with them in their business, and we passed this, and
our intention was, if it became necessary, to use it in the case of Mr.Bodden; that is what we
had in our minds at the time; but we also had in our minds that Mr.Bodden is not the only
person who might compete, and therefore we passed this general article in order to enable us
to apply it in any case where it was for the good of the company that it should be applied'. Ìt
is a question of fact. I come to the conclusion of fact to which I think the Vice-Chancellor
came, that the directors were acting perfectly bona fide, that they were passing the resolution
for the benefit of the company; but that no doubt the occasion of their passing it was because
they realized in the person of Mr.Bodden that it was a bad thing to have members who were
competing with them........
For these reasons I think this is a valid article. I think the alteration was within the
competence of the company, and therefore this appeal must be allowed with casts here and
below.
WARRINGTON L.J. and EVE J. delivered concurring judgements.
39. DAFEN TINPLATE CO. LTD V. LLANELLY STEEL CO. (1907) LTD
The defendant company altered its articles so as to introduce a power enabling the majority
of the shareholders to require any member (with one named exception) to transfer his shares
at a fair value to an approved transferee. The plaintiff company, which held shares in the
defendant company, and had transferred their custom as purchasers of steel from the
defendants to a rival company, opposed the alteration. Peterson J. upheld their objection,
because in his own view the alteration was wider than necessary.
PETERSON J......." In Sidebotton's case the Court of Appeal sanctioned an alteration of the
articles of association which enabled the directors to require a shareholder who carried on a
competing business, or was a director of a company carrying on a competing business, to
transfer his shares, and it did so on the ground that the alteration was for the benefit of the
company as a whole. It has been suggested that the only question in such a case as this is
whether the shareholders bona fide or honestly believed that the alteration was for the
benefit of the company. But this is not, in my view, the true meaning of the words of Lindley
M. R. or of the judgement in Sidebotton's case. (*Refer to p.31) The question is whether in
fact the alteration is genuinely for the benefit of the company. The Lord Sterndale accepted
and approved of the view expressed by Lord Wrenbury in his book on the Companies Act,
9th ed., p.25, that: possibly the limitation on the power of altering the articles may turn out to
be that the alteration must not be such as to sacrifice the interests of the minority to those of a
majority without any reasonable prospect of advantage to the company as a whole, and
stated that it agreed with the principle enunciated by Lindley M. R. Warrington L. J.
protested against the idea that `bona fide' and `for the benefit of the company' were two
separate things in Lindley M. R.'s exposition of the law; and Eve J. in stating the principle to
be applied said: `Was the resolution adopted, or was the alteration made for the benefit of
the company or for the benefit of some section of the company, without reference to the
benefit of the company as a whole?
The question of fact then which I have to consider is whether the alteration of the articles
which enables the majority of the shareholders to compel any shareholders to transfer his
shares, can properly be said to be for the benefit of the company. It may be for the benefit of
majority of the shareholders to acquire the shares of the minority, but how can it be said to
be for the benefit of the company that any shareholder, against whom no charge of acting to
the detriment of the company can be urged, and who is in every respect a desirable member
of the company, and for whose expropriation there is no reason except the will of the
majority, should be forced to transfer his shares to the majority or to anyone else? Such a
provision might in some circumstances be very prejudicial to the company's interest. For
instance, on an issue of new capital, the knowledge that he might be expropriated as soon as
his capital was on the point of producing profitable results might well exercise a deterrent
influence on a man who was invited to take shares in the company....... In my view it cannot
be said that a power on the part of the majority to expropriate any shareholder they may
think proper at their will and pleasure is for the benefit of the company as a whole. To say
that such an unrestricted and unlimited power of expropriation is for the benefit of the
company appears to me to be confusing the interests of the majority with the benefit of the
company as a whole. In my opinion, the power which, in this case, has been conferred upon
the majority of the shareholders by the alteration of the articles of association in this case is
too wide and is not such a power as can be assumed by the majority. The power of
compulsory acquisition by the majority of shares which the owner does not desire to sell is
not lightly to be assumed whenever it pleases the majority to do so. The shareholder is
entitled to say non hace in foodera veni; and while on the authorities as they stand at present
it is possible to alter the articles in such a way as to confer this power, if it can be shown that
the power is for the benefit of the company as a whole. I am of opinion that such a power
cannot be supported if it is not established that the power is bona fide or genuinely for the
company's benefit.............."
40. RE: SOUTH OF ENGLAND NATURAL GAS & PETROLEUM CO. LTD.
The South of England Natural Gas and Petroleum Company was incorporated on 30th
January 1909 with a capital of £20,000 divided into 10,000 preference shares of £1 each and
10,000 ordinary shares of £1 each. On 21st February, 1910, a prospectus was issued marked
"For private circulation only", but also containing a statement "This prospectus has been filed
with the Registrar of Joint Stock Companies". It offered for subscription 7,000 preference
shares, 9,000 ordinary shares, and £5,000 debentures and stated that the minimum
subscription upon which the directors might proceed to allotment was fifty shares.
The prospectus was sent, it was stated, only to shareholders in certain gas companies in
which Eaton, the promoter of the company who undertook the distribution of the
prospectus, was interested. The issue was not publicly advertised and only 3,000 copies
were sent out. Only 200 shares were applied for, and of these 180 were applied for by the
directors of the company.
In March 1910, the company applied for and obtained a certificate from the Registrar of Joint
Stock Companies that they were entitled to commence business. Upon this application the
managing director made a statutory declaration that the prospectus fixing £50 as the
minimum subscription had been issued to the public.
On 3rd April, 1910, a prospectus was issued offering 8,000 preference and 8,000 ordinary
shares and some debentures.
This prospectus was publicly advertised and issued in the ordinary way. It did not contain a
statement of the amount offered for subscription or the amount allotted on the previous
allotment as required by s.81(d), Companies Act (Consolidated), 1908, (see now para.6, 4th
Schedule, Companies Act 1948).
On this issue 1,150 ordinary and 943 preference shares were applied for and allotted C.P.
Byrne applied for and was allotted 200 preference shares; he paid £50 allotment money but
died on 28th June without having paid £150 which had by that time become due. His
executors moved to rectify the register of shareholders by removing his name on the ground
of the omission in the prospectus.
In answer to this application the managing director filed an affidavit that the earlier issue
was private only, and not an offer to the public, and therefore did not need to be mentioned
in the second prospectus.
SWINFEW EADY, J.:.........."I am satisfied that the first prospectus did offer shares to the
public, and none the less because copies were sent only to shareholders in gas companies
who were the most likely subscribers. It follows that the second prospectus contained a
subsequent offer and did not comply with s.81(d).
Then the question is what is the remedy of the shareholder? Is he entitled to rescind his
contract and have his money back? There is no provision of that kind in s.81, nor in any
other section relating to the omissions relied on in this case. But the section does
contemplate a liability in damages on the part of the "directors and other persons responsible
for the prospectus", for sub.s.(6) exonerates such persons form liability if they can prove
certain matters (see now s.38(4) Companies Act, 1948). That is equivalent to saying that they
are liable if they cannot prove them. In my opinion the allottee is not entitled to rescind his
contract because of any breach of the statutory requirements, which extend to such
comparatively unimportant matters as the names and addresses of the company's auditors.
His remedy is against the directors...... The motion therefore fails".
41. GOVERNMENT STOCK & OTHER SECURITIES INVESTMENT COMPANY LTD. v.

CHRISTOPHER AND OTHERS:(1956)
By a circular dated 12th November, 1955 and issued by the British and Commonwealth
Shipping Co. Ltd. (hereinafter called "The New Company'), the new company offered to
acquire the whole of each class of preference and ordinary shares and stock in the issued
capitals of the Union-Castle Mail Steamship Co. Ltd. and the Clan Line Steamers Ltd. and to
issue its own shares in exchange therefor.
The circular was sent to all members of Union-Castle and Clan Line Steamers Ltd. together
with a form headed "Form of Acceptance and Transfer". The offer was expressed to be
conditional on acceptance on or before 30th December 1955, or such later date not after 29th
February 1956 as the new company might allow, by the holders of not less than 90 per cent of
every class of issued capital of Clan Line and Union-Castle, or such less percentage as the
new company might elect to accept, and on permission to deal and to quote being granted by
the council of the Stock Exchange before the dispatch of letters of allotment.
The plaintiff company contended, inter alia, that the circular was a "prospectus" to which
s.38 of the Companies Act 1948, applied, and that as such it did not comply with the
requirement of the Act. On behalf of itself and other shareholders of Union-Castle, it moved
for an injunction against seven directors of Union-Castle and against Union-Castle to restrain
the..........
WYNN-PARRY, J.: ...... I think that in order to understand and consider the attacks which the
plaintiff company makes on the circular, I should first consider its nature. It is alleged by the
plaintiff company that it is a prospectus to which s.38 of the Companies Act 1948 has a wider
meaning than in s.455, the reason put forward being that in section (3) reference is made to
the issue of "A form of application", and that there being nothing in the subsection to limit
the issue of the form of application to an allotment and issue for cash, it must apply where
the consideration is a consideration other than cash. This, it is said, constitutes a context
requiring the word "prospectus" to cover documents not included in the definition in s.455. I
do not accept this view. S.38 follows s.37, which appears under the heading "prospectus".
There is no ground whatsoever for giving the word "prospectus" in s.37 any more extended
meaning than it has in s.455, and it would be strange if in the very next section "prospectus"
were to be found to have a wider meaning. I can see no need to attribute any other meaning
to "prospectus" in s.38 than that given in s.455. The reference in subsection (3) to a form of
application means only a form of application in connection with a prospectus offering shares
for subscription of purchase.
It is clear that the circular does not involve an offer for the purchase of any shares. The
shares in question are unissued shares of the new company, so they cannot be the subject of
an offer for purchase.
It becomes necessary, therefore, to consider the word "subscription" in the definition of

"prospectus". In my view the word means: taking or agreeing to take shares for cash. It
imports that the person agreeing to take the shares puts himself under a liability to pay the
nominal amount thereof in cash........ paras.4,5,6 and 7 of Part 1 of Schedule 4 to the Act
clearly require that "subscription" and "subscribe" involve the notion of payment in cash.
The circular in this case does not invite subscription for shares in cash. For these reasons I
am of opinion that the circular is not a prospectus within the meaning of that word as used in
the Companies Act, 1948...... I am further of opinion that the circular was not distributed to
the public. I accept the proposition..... that the test is not who receives the circular, but who
can accept the offer put forward.
In this case it can only be persons legally or equitably interested as shareholders in the shares
of Union-Castle or Clan. In the case of those who accept non-renounceable letters of
allotment will be issued. In these circumstances the case appears to me to fall within s.55(2)
of the Companies Act, 1948.
The circular is not a prospectus, but what it purports to be, namely, the communication of an
offer to exchange shares in the new company for shares in Union-Castle or Clan as the case
may be.
.....In the result, in my judgement, the plaintiff company is not entitled to any of the
injunctions for which it asks, and consequently the motion must be dismissed.
42. DERRY v. PEEK (House of Lords)
The Plymouth, Davenport & District Tramways Co. was, by its special incorporating Act,
authorised to construct and run certain tramways. The Act authorised it to use horse trams
and, with the consent of the Board of Trade, steam-driven trams. The directors (including
Derry) put out a prospectus which stated that òne great feature' of the understanding as
that, `by the special Act of Parliament obtained, the company has the right to use steam or
mechanical motive power'. Sir Henry Peek, the plaintiff, subscribed for shares on the faith of
the prospectus, but brought this action claiming damages in deceit against the directors
when the Board of Trade refused to consent to the use of steam on most of the company's
tramways. The House of Lords, on the basis that the statement was made bona fide (though
without any foundation) reversed the decision of the Court of Appeal which had held this
sufficient to constitute deceit.
LORD HERSCHELL.......... In the court below Cotton, L.J., said:-
"What in my opinion is a correct statement of the law is this, that where a man makes a
statement to be acted upon by others which is false, and which is known by him to be false,
that is, without any reasonable ground for believing it to be true, he is liable in an action of
deceit at the suit of anyone to whom it was addressed or anyone of the class to whom it was
addressed and who was materially induced by the misstatement to do an act to his
prejudice". About much that is here stated there cannot, I think, be two opinions. But when
the learned Lord justice speaks of a statement made recklessly or without care whether it is
true or false, that is without any reasonable ground for believing it to be true, I find myself,
with all respect, unable to agree that these are convertible expressions. To make a statement
careless whatever it be true or false, and therefore without any real belief in its truth, appears
to me to be an essentially different thing from making, through want of care, a false
statement, which is nevertheless honestly believed to be true. And it is surely conceivable
that a man believes that what he states is the fact, though he has been so wanting in care that
the court may think that there were no sufficient grounds to warrant his belief. I shall have
to consider hereafter whether the want of reasonable ground for believing the statement
made is sufficient to support of deceit. I am only concerned for the moment to point out that
it does not follow that it is so, because there is authority for saying that a statement made
recklessly, without caring whether it be true or false, affords sufficient foundation for such
an action.....
I think that the authorities establish the following propositions:

First, in order to sustain an action of deceit, there must be proof of fraud, and nothing short
of that will suffice.
Secondly, fraud is proved when it is shown that a false representation has been made (i)
knowingly, or (2) without belief in its truth, or (3) recklessly, carelessly whether it be true or
false.
Although I have treated the second and third as distinct cases, I think the third is but an
instance of the second, for one who makes a statement under such circumstances can have no
real belief in the truth of what he states. To prevent a false statement being fraudulent, there
must, I think, always be an honest belief in its truth, and this probably covers the whole
ground, for one who knowingly alleges that which is false, has obviously no such honest
belief. Thirdly, if fraud be proved, the motive of the person guilty of it is immaterial. It
matters not that there was no intention to cheat or to injure the person to whom the
statement was made.......
In my opinion, making a false statement through want of care falls far short of, and is a very
different thing from, fraud, and the same may be said of a false representation honestly
believed though on insufficient grounds......... At the same time, I desire to say distinctly that
when a false statement has been made the questions whether there were reasonable grounds
for believing it, and what were the means of knowledge in the possession of the person
making it, are most weighty matters for consideration. The ground upon which an alleged
belief was founded is a most important test of its reality. I can conceive many cases where
the fact that an alleged belief was destitute of all reasonable foundation would suffice of itself
to convince the court that it was not really entertained, and that the representation was a
fraudulent one. So, too, although means of knowledge are, as was pointed out by Lord
Blackburn in Brownie v. Campbell, a very different thing from knowledge, if I thought that a
person making a false statement had shut his eyes to the facts, or purposely abstained from
inquiring into them, I should hold that honest belief was absent, and that he was just as
fraudulent as if he had knowingly stated that which was false......."
43. FIRST NATIONAL REINSURANCE CO. LTD. v. GREENFIELD

(King's Bench Divisional Court)
Greenfield applied for 150 shares in the plaintiff company relying on a prospectus which
wrongly named one F. as underwriter. On learning of the error he asked to have the
allotment to him canceled, but took no other steps until sued by the company seven months
later for a call. The court affirming the decision of the City of London Court, held that
without rectification of the share register the defence was not good, and that the defendant
had lost the right to rescind by laches. (i.e unreasonable delay).
LUSH, J.,... There are three classes of cases in which the question of repudiation has to be
considered. The first is where there is an executory contract and the defendant pleads that
he has been induced to enter into it by fraud. No difficulty occurs in that case. All the
defendant has to make out is that he has not affirmed the contract, but that on the contrary
when he had notice of the fraud he disclaimed or repudiated it. If he established that, he
succeeds in resisting the claim founded upon the executory contract. The second class of
cases is where the contract has been executed - where the chattel or the chose in action,
whatever it may be, has been transferred, or where, if it be a contract for the sale of land, the
land has been conveyed. There the defendant must do more than merely prove the fraud
and the repudiation: he must prove that there has been a restitutio in integrum as far as
possible. The contract having been completed and the subject-matter of it having been
transferred he must, in order to rescind the contract or to resist an action, show that there
has been restitutio. At first sight it might appear that that includes a case like the present
where there was a contract to take shares and the shares have been duly allotted. Shares
stand, in my opinion, upon an entirely different footing; they represent what I may call a
third class of cases. If a person agrees to accept shares, and shares have been allotted to him,
and his name is on the register, he is liable by statute to pay the calls. I do not mean that
there is an express section in the Companies Act which says that he shall pay the calls, but
the statutory right which a company has to enforce payment of what is due as a debt in effect
amounts to a statutory obligation upon the shareholder to pay the calls. What is a proper
defence to an action for calls brought against a shareholder? The member being liable qua
shareholder to pay the calls, the only plea one would have thought that could be effective
would be a plea that he is not a shareholder. The plaintiff alleges that the defendant has a
certain status, that of a shareholder. The statute says a shareholder must pay the calls. One
would expect the plea would be: Ì am not a shareholder'. In substance that the proper plea.
I do not mean that a person must plead and prove that his name has actually been taken off
the register, but he must plead that, so far as he is concerned, he had taken steps, and taken
them within a reasonable time after discovery of the fraud, to have his name removed from
the register, that is all he can do. He cannot take his own name off the register and thereby
cease to be a shareholder. He can only invoke the jurisdiction of the court and ask it to do so.
If he has done that, and if it turns out ultimately that his name will be removed from the
register, the judgement of course dates back to his application, and it will in substance turn
out to be true that he has ceased to be a shareholder and therefore not liable to pay calls.
That, in my view, is the position in law of a defendant in an action of this kind; it is not
enough merely to treat the claim as if it were a claim on a contract and say: Ì have been
deceived, and I have repudiated my contract'.
44. CLARK v. URQUHART (House of Lords)
The question was whether the plaintiff, having accepted a payment into court in satisfaction
of a claim in deceit, could nevertheless pursue a claim for compensation under s.84 of the
Companies Act of 1908 (s.45 of the present Act) and endeavor to establish additional loss.
The House of Lords, reversing the Court of Appeal in Northern Ireland, held that he could
not, as the measure of damages was the same in both cases.
VISCOUNT SUMMER..... So much for the evidence of liability. That liability gives rise under
the section to a right to `compensation'. With great respect to the Lords Justices, who held
otherwise, I cannot hold that compensation here is, either as to the amount recoverable or the
mode of measuring it, something different from and even greater than damages. Very
shortly after the Directors Liability Act of 1890 was passed, which is reproduced in s.84 of
the Act of 1908, it was stated on high authority that the object of it was to give, as against
persons who came within its terms, the remedy which the final decision in DERRY v. PEEK
in this House had limited to those who could prove a case of deceit, and this has since been
generally adopted, and in my opinion is correct. I can understand that the legislature
deemed it necessary, as a matter of policy, to make certain persons liable for false statements
in a prospectus, even though they did not know them to be false. I can understand that the
word `compensation', which has no technical significance to the contrary, was selected
because it represented the difference between the actual value of the debentures taken and
the sum paid for them on the face of the prospectus, and at the same time avoided the
invidious association of damages with dishonesty in such a connection. What I cannot
understand is how the legislature should have thought fit to impose on a director, who has
authorised a misstatement innocently, a larger liability than falls on one who has done it in
order to cheat, or to put it in the power of the plaintiff to get more money by omitting a
charge of fraud than he could get by proving it. Again, if for some inscrutable reason such
was the policy adopted, I cannot see why this gross difference was made to lurk in the use of
a colourless and inoffensive word like `compensation'. Great as is the difference between the
elements which constitute the two causes of action, the injury to be made good to the
plaintiff is the same, and I see no reason for measuring it in one way in the one case and in a
different way in the other...........
LORD ATKIN.......... I desire for myself to disclaim any intention in this case to decide what
is the true measure of damages in an action for deceit of this kind. Both parties have
accepted the measure of damages laid down in McConnel v. Wright.
I find it difficult to suppose that there is any difference in the measure of damages in an
action of deceit depending upon the nature of the transaction into which the plaintiff is
fraudulently induced to enter. Whether he buys shares or buys sugar, whether he subscribes
for shares or agrees to enter into partnership, or in any other way alters his position to his
detriment, in principle, the measure of damages should be the same, and whether estimated
by a jury or a judge. I should have thought it would be based on the actual damage directly
flowing from the fraudulent inducement. The formula in McConnel v. Wright may be
correct or it may be expressed in too rigid terms. I reserve the right to consider it if it should
ever be in issue in this House.
LORDS BLANESBURGH and TOMLIN delivered concurring opinions.
LORD THANKERTON concurred.
(The suggestion of Lord Atkin that the formula in McConnel v. Wright may be too rigidly
expressed is usually thought to refer to the possibility of consequential losses - not, of course,
damages for loss of bargain of loss of profits, for these are heads of contract damages; but
out-of-pocket expenses incurred in relation to investment would no doubt be recoverable)
45. ANDREAE v. ZINC MINES OF GREAT BRITAIN LTD
The company agreed to pay Andreae a commission of 10% on every sum that was accepted
by it on his introduction. No statement in the prescribed form (i.e Form No.225) was
registered with the registrar of companies. On one ocassion, Andreae introduced £4,600 to
the company, and was paid £200, and with it was agreed that the balance of £200 would be
paid later. However, the company defaulted and was sued for the money. The cort held
that Andreae was not entitled to the money since the payment was unlawful under what is
now s.55 of the Kenya Act. The company could not however recover the £200 already paid.
46. HOUSEHOLD FIRE INSURANCE CO. LTD v. GRANT
Grant had applied for 100 shares in the plaintiff company by handing to an agent of the
company on 30th September 1874 a written application for the shares. On 20th October,
1874, the company secretary made out the letter of allotment in favour of Grant and posted it
to him after entering his name on the register of shareholders. The letter never reached
Grant who contented, as a consequence, that he was not a member of the company.
It was held that there was a binding contract between Grant and the company because,
although he had not expressly told the company to post the letter of allotment, the court was
of the view that the post is the ordinary mode of transmission of an allotment letter.
Baggalay, L.J. stated: "Now a letter of application for shares in a public company expressed
in the usual form, must, I think, having regard to the usage in such matters, be considered as
authorizing the acceptance of the offer by a letter through the post".
47. RAMSGATE VICTORIA HOTEL CO. v. MONTEFIORE
On 8th June, 1864 the defendant applied for fifty shares in the plaintiff company but no
allotment was made till 23rd November. On 8th November, the defendant, leaving received
no communication from the company, withdrew the shares, and the company sued to
enforce the allotment. It was held that the interval from June to November was unreasonable
and judgement was given for the defendant.
48. TREVOR v. WHITEWORTH (1887)
James Schofield & Sons Ltd was incorporated in 1865 under the Companies Act 1862. Its
articles authorized it to purchase its own shares. During the company's liquidation a former
shareholder made a claim against the company for the balance of the prive of his shares
which he had sold to the company before the liquidation but had not been wholly paid for.
The liquidation rejected the claim and the shareholder sued for breach of contract.
Held - (by the House of Lords) that the company had no power under the Companies Act to
purchase its own shares, that the purported purchase was therefore ultra vires the company
and void. Lord Herschell stated:
"It cannot be question since the case of Ashbury Railway Carriage and Iron Co. v. Riche that
a company cannot employ its funds for the purpose of any transactions which do not come
within the objects speicfied in the memorandum and that a company cannot by its articles of
association extend its power in this respect.......... What is the meaning of the distinction thus
draun between a company without limit on the liability of its members and a company where
the liability is limited, but in the latter case, to assure to those dealing with the company that
the whole of the subscribed capital, unless diminished by expenditure upon the objects
defined by the memorandum, shall remain available for the discharge of its liabilities? The
capital may, no doubt, be diminished by expenditure upon and reasonably incidental to all
the objects specified. A part of it may be lost in carrying on the business operations
authorized. Of this all persons trusting the company are aware, and take the risk. But I
think they have a right to rely, and were intended by the legislature to have a right to rely, on
the capital remaining undiminished by any expenditure outside these limits, or by the return
of any part of it to the shareholders."
Lord Macnaghten, in the course of his judgement, stated: "It appears to me that the notion of
a limited company taking power to buy up its own shares is contrary to the plain intention of
the Act of 1862, and inconsistent with the conditions upon which, and upon which alone,
Parliament has granted to individuals who are desirous of trading in partnership the
priviledge of limiting their liability......... When Parliament santions the doing of a thing
under certain conditions and with certain restrictions, it must be taken that the thing is
prohibited unless the prescribed conditions and restrictions are observed."
Lord Watson stated: "One of the main objects contemplated by the Legislature in restricting
the power of limited companies to reduce the amount of their capital as set forth in the
memoradum is to protect the interests of the outside public who may become their creditors.
In my opinion the effect of these statutory restrictions is to prohibit every transaction
between a company and a shareholder by means of which the money already paid to the
company in respect of his shares is returned to him, unless the court has sanctioned the
transction."
49. RE: CASTIGLIONE'S WILL TRUSTS
A testor, Edwin James castiglione, by his will directed that 1,000 fully-paid shares in a
private company called Castiglione, Erskine & Co. Ltd be held in trust for his son for life,
and after his death without leaving any child, the shares should be transferred to the
company. The son died without children and the validity of the bequest was questioned.
Held - By Danckwerts, J. - the shares could not be transferred to the company itself, but
could be transferred to nominees to hold on trust for the company.
50. THE STANDARD BANK v. MEHOTORO FARM LTD AND ANOTHER

(High Court Civil Case No.353/70)
The first defendant as the customer of the plaintiff executed two memoranda of charge in
favour of the plaintiff over its two farms as security for overdraft facilities up to a maximum
of Shs.320,000/=.
The second defendant negotiated for the purchase of the first defendant's assets; the plaintiff
advanced Shs.66,000/= to the second defendant towards purchase of the assets. Thereafter
the second defendant and his wife (the third defendant) successfully negotiated the purchase
of all the shares in the first defendant for Shs.660,000/=. The advance of Shs.66,000/= made
by plaintiff to second defendant was used as a deposit for the purchase of shares. This was
done by the plaintiff closing the second defendant's account and transferring the debit
balance of Shs.66,000/= to the first defendant's account. The plaintiff advanced the total
price of the shares to the FIRST defendant and this was secured by unstamping the existing
memoranda of charge by two INSTRUMENTS OF VARIATION under which the first
defendant agreed that the amount secured be increased to Shs.660,000/= and also by the
guarantees of the second and third defendants.
At the time of these transactions the first defendant owed the plaintiff Shs.203,309/95 under
the pre-existing overdraft arrangements.
The plaintiff in this suit claimed:-
(1) repayment of the loan from the first defendant,
(2) payment of Shs.660,000/= from the second and third defendants as guarantors; and
(3) an order that in default of payment by the defendants as claimed above, the first
defendant's shares be SOLD and the proceeds of the sale be utilised in the discharge
of the debt.
HELD:
(1) Since the plaintiff advanced the money to the first defendant for the KNOWN
PURPOSE of this money being lent to the second and third defendants to purchase
shares in the first defendant's company (sic.) the advance as rendered illegal, void
and irrecoverable by s.56 of the Companies Act (Cap.486).
(2) Likewise the securities, charges and guarantees given or executed in connection
therewith are also illegal and void and no money advanced directly or indirectly
thereunder is recoverable.
51. WALLERSTEINER v. MOIR
The relevant facts in this case were as follows:-
(a) On 30th March 1962 Camp Bird Ltd, a public company, made an agreement with a
Dr.Wallersteiner to sell to the Rothschild Trust its shares (an 80% holding) in Hartley
Baird Ltd. for £518,787.
(b) The Rothschild Trust was registered in Liechtenstein and was controlled by
Dr.Wallersteiner.
(c) The money for the Camp Bird shares was not found by the Rotchschild Trust (in
effect Dr.Wallersteiner). It was found -
(i) by loans which Hartley Baird Ltd made to Dr.Wallersteiner (in the name of
his company Investment Finance Trust Ltd of Nassav);
(ii) by regarding as canceled certain sales commissions which Camp Bird owed
to Dr.Wallersteiner's various Liechtenstein companies. It was alleged that
these commissions were not really owed but fabricated.
All this was achieved because Dr.Wallersteiner has a controlling interest in the various
companies involved who could in consequence be made to do what he wanted. These
transactions came to the notice of Mr.Moir, a minority shareholder in Hartley Baird Ltd and
he made statements to the press and applied to the Department of Trade for an investigation
into Hartley Baird's affairs. This resulted in an action by Dr.Wallersteiner for libel. The libel
action was struck out and on other matters relevant to company law the Court of Appeal
decided:-
(i) the loan by Hartley Baird Ltd to the Rothschild Trust assisted the acquisition of
Hartley Baird shares by the Rothschild Trust and was a plain breach of what is now
s.151. Dr.Wallersteiner was liable to repay the loan to Hartley Baird Ltd.
(ii) Since Dr.Wallersteiner was a director of Hartley Baird Ltd there was also an
infringement of the provisions relating to loans to directors. (see nw ss.330-334)
(iii) The corporate veil. In the course of his judgement Lord Denning MR said: Ìt is
plain that Dr.Wallersteiner used many companies, trusts or other legal entities as if
they belonged to him. He was in control of them as much as any "one man
company" is under the control of the one man who owns all the shares and is the
chairman and the Managing Director. He made contracts of enormous magnitude
on their behalf on a sheet of notepaper without reference to anyone else....... Counsel
for Dr.Wallersteiner repudiated this suggestion. It was quite wrong he said, to
pierce the corporate veil. The principle enunciated Salomon v. Salomon & Co. Ltd
(1897) was sacrosanct. If we were to treat each of these concerns as belonging to
Dr.Wallersteiner himself under another hat, we should not, he said, be lifting a
corner of the corporate veil. We should be sending it up in flames. After accepting
that the various concerns were distinct legal entities Lord Denning went on to say:
Èven so, I am quite clear that they were just the puppets of Dr.Wallersteiner. He
controlled their every movement. Each danced to his bidding. He pulled the strings.
No one else got within reach of them. Transformed into legal language they were
his agents to do as he commanded. He was the principal behind them. I am of the
opinion that the court should pull aside the corporate veil and treat these concerns as
being his creatures for whose doings he should be, and is, responsible. At any rate, it
was up to him to show that anyone else had a say in their affairs and he never did so.
52. STEENVLAW (Liquidator of International Vending Machines Properties Ltd)

(Privy Council, on appeal from the Supreme Court of New South Wales).
By s.148 of the Companies Act, 1936 of New South Wales:
"(1)... It shall not be lawful for a company to give...... by means of a loan..... any financial
assistance for the purpose of ....... a purchase made or to be made by any person of
any shares in the company: Provided that nothing in this section shall be taken to
prohibit -
(a) where the lending of money is part of the ordinary business of a company,
the lending by a company of money in the ordinary course of its
business......."
In this appeal, the Privy Council was called upon to decide whether certain transactions by
which a company (I.V.M.) gave financial assistance for the purchase of its shares by another
company (A.M.H.) contravened the provisions of the Act. The appellants were the directors
of I.V.M. at the time of the transactions and had been found guilty of misfeasance or breach
of duty in causing the loan to A.M.H. to be made.
The judgement of the Privy Council was delivered by Viscount Radcliffe.
VISCOUNT RADCLIFFE: "............ The section in question first appeared in the law of New
South Wales in the year 1936. As it had been introduced into the United Kingdom a few
years earlier as section 45 of the Companies Act of 1929, it is safe to assume that the later
piece of legislation took its inspiration from the earlier. There is no difficulty in describing
the notorious objections to a company's money being used to assist the purchase of its own
shares (see, for instance, the practice described by Lord Greene M.R. in re: V.G.M. Holdings
Ltd) but the question that now calls for consideration is what is the scope and nature of the
various exemptions allowed by the section from its general prohibition of money being
provided for such purposes.
When provisos (b) and (c) are contrasted with proviso (a), it seems clear that the second and
third are intended to take care of situations different in kind from that envisaged by the first.
What they exempt are loans or other transactions which are explicitly designed by the lender
to make possible what would otherwise be directly prohibited by the general words of the
section - the purchase of employees' shares by trustees under an established company
scheme or the purchase by employees, not being directors, of shareholdings in the company
for their own beneficial purposes. Purchases of these two kinds fall within limited and
defined categories: the section envisages (see subsection (2)) that each loan made for either of
these reasons will admit of identification as such and that the aggregate amount of such
loans outstanding at the date of any balance-sheet will be capable of precise computation and
statement.
Proviso (a), on the other hand, is expressed in different terms. Whatever exemption it
confers is not described in relation to the purposes for or in connection with which the
money is made available, nor, it seems, are moneys loaned in reliance on this proviso
envisaged as admitting of identification according to the purpose of the loan. If it were
otherwise, what could be the reason of requiring the aggregate of outstanding loans made
under (b) and (c) to be shown in the balance sheet, but not of making any similar requirement
with regard to loans protected under proviso (a)?
This proviso, then, must be read not as exempting particular loan transactions made for
identifiable purposes but as protecting a company engaged in money-lending as part of its
ordinary business from an infraction of the law, even though moneys borrowed from it are
used and, perhaps, used to its knowledge, in the purchase of its own shares. Even so, the
qualification is imposed that, to escape liability, the loan transaction must be made in the
ordinary course of its business. Nothing, therefore, is protected except what is consistent
with the normal course of its business and is lending of a kind which the company ordinarily
practices.
In their Lordships' opinion, such an approach to the interpretation of proviso (a) necessarily
requires that the "lending of money", to be part of the ordinary business of a company must
be what may be called a lending of money in general, in the sense, for example, that
moneylending is part of the ordinary business of a registered moneylender or a bank. Such
lenders are not obliged to accept their borrowers, but it is characteristic of their business that,
if they do lend, the money made available is at the borrower's free disposition and is not,
except in special circumstances, confined to special uses or restricted to particular and
defined purposes. Unless the lending of money as part of the ordinary business of a
company is understood in this sense, the absurd result would be reached that any lending
operations of which it made a practice, however restricted their purpose or remote from
general money-lending, would qualify the comapny to ignore the prohibition of the section
and finance purchases of its shares, provided that it could describe such advances as made in
the ordinary course of its business. Thus a company which, for instance, lent money from
time to time to trade suppliers or purchasers claim that the lending of money was part of its
ordinary business and that it was accordingly one of the companies intended to be protected
by proviso (a), if it chose to make loans in connection with the purchase of its shares. Yet it is
not possible to suppose that the section could have been intended to provide any exemption
or relief for such cases, for there could be no good reason for allowing a company to use
previous lendings for quite different purposes as the justification for share purchase loans,
which the legislation is in general intended to forbid.
This interpretation is supported by the fact that in the proviso the "ordinary business of the
company" is associated with "lending.... of money in the ordinary course of its business". The
latter words are not intended, their Lordships think, to be synonymous with "the ordinary
course of business" itself and seem to refer more particularly to advances of a scale and for a
purpose similar to those regularly made by the company in carrying out its business. Such a
constitution accords naturally with the idea of general moneylending, provided that the
advances do not amount to a departure from the usual order of business: but it, is on the
other hand, virtually impossible to see how loans, big or small, deliberately made by a
company for the direct purpose of financing a purchase of its shares could ever be described
as made in the ordinary course of its business..........."
Appeal dismissed.
53. BRITISH AND AMERICAN TRUSTEE AND FINANCE CORPORATION, LTD. AND
REDUCED v. COUPER (House of Lords, 1894).
The appellant company, as a company limited by shares, had power under its articles to
reduce its capital by paying off capital. The shares were divided into ordinary shares partly
paid up, and founders' shares fully paid up. The company had carried on business both in
England and the United States but it being found impossible to do so in both countries with
advantage it was determined that the company should cease to carry on business in the
United States, that the American investments should be made over to the American
shareholders, their shares being canceled, and that the English shareholders should take the
English assets, receiving an agreed sum by way of adjustment. This arrangement was
carried out by special resolution providing that the capital should be reduced by paying off
the shares (both ordinary and founder's) held by the American shareholders (the capital
represented thereby being in excess of the wants of the company,) and that such shares and
all liability thereon be wholly extinguished. The company presented a petition praying the
court to confirm the resolution. All the creditors were either paid or assented to the
arrangement. The confirmation by the court was opposed by one shareholder.
HELD:
Reversing the decision of the Court of Appeal, that the reduction of capital was within the
powers conferred by the Companies Act and that the arrangement being a fair and equitable
one there was no reason why it should not be confirmed.
LORD HERSCHELL: "..........When the case of TREVOR v. WHITWORTH was before this
House, my noble and learned friend Lord Macnaghten said: "I may say that the Act of 1867,
as explained by the Act of 1877, seems to prohibit a company from purchasing its own
shares, except under certain stringent conditions............ There can be no doubt that the ratio
decided in that case was in part, at least, this that a company which paid away its assets for
the purchase of its own shares did thereby reduce its capital, and that not in a manner
authorized by the Legislature".
54. IN RE MEUX'S BREWERY COMPANY LTD. (1918)
The company was incorporated with a fully paid share capital of £1,000,000, in addition to
which it had issued £1,000,000 perpetual debentures stock secured by certain trust deeds
constituting a floating security. In 1904 the company had incurred losses amounting to
upwards of £800,000, since which year no dividend had been declared, the profits in each
year being applied in reduction of the deficiency, which now amounted to £640,000 or
upwards. In 1917, by special resolution, the company resolved to reduce its capital to
£360,000 by writing off the lost capital. (Article 46 of the Articles of association empowered
the company from time to time, by special resolution, to reduce its capital by paying off
capital or canceling capital which had been lost or was unrepresented by available assets).
The reduction did not involve the diminution of any liability in respect of any unpaid capital
or the payment to any shareholder of any paid-up capital.
This petition by the company to confirm the special resolution was opposed by certain
holders of debenture stock on the ground that the proposed reduction would be prejudiced
to their security by enabling the company to pay dividends out of profits instead of such
profits being applied in making good the lost capital. The assets according to the latest
balance sheet exceeded the amount of the debenture debt by £500,000 and upwards. No
evidence was adduced to show what part of the lost capital was attributable to circulating
capital.
Held: That the holders of the debentures stock were not entitled to object to the reduction.
ASTBURY J.: "I think that I am at least right in saying that prima facie creditors are not
supposed to be concerned in these questions of reduction of capital where no diminution of
unpaid capital or repayment to shareholders of paid-up capital is involved, in other words, if
the court is to allow a secured creditor in particular to object to a reduction which does not
involve such a diminution of assets as is referred to in s.69(2), it is at least incumbent on him
to make out a strong case before such a direction would be given."
55. RE THOMAS DE LA RUE & CO. LIMITED & REDUCED
(A scheme for the reduction of the share capital of a company comes within s.68 of the
Companies Act, although it differentiates between the holders of the same class of shares to
the extent of paying off some and not others and imposes upon the shareholders whose
shares are to be extinguished the obligation to accept debenture stock in lieu of cash, and also
involves the advance to the company of the money's to be utilized in redemption of the share
capital by the very persons whose shares are to be redeemed.)
In confirmation the scheme as on the whole fair and equitable the court made it a term of its
confirmation that the costs of a dissentient shareholder, who had assisted the court by his
criticism of the scheme, should be provided by the petitioning company.)
EVE,J: "This petition has given rise to an interesting discussion. The company thereby seek
the confirmation by the court of a scheme for the reduction of their share capital. The capital
is large - £1,200,000 divided in £10 shares, whereof 30,000 are "A" 5 per cent (Cumulative
preference shares, 40,000 are "B" 5 per cent cumulative preference shares and 50,000 are
ordinary shares. The company desires to reduce the capital by the sum of £560,000, and they
propose to bring that reduction about by paying off the whole of the 30,000 "A" shares and
26,000 out of the 40,000 "B" shares. They have not sufficient moneys in hand wherewith to
provide for these payments in full, but they have an accumulated reserve of undistributed
profits amounting to £266,000 and upwards, and £34,000 which the individuals mainly
interested in the company's welfare are prepared to advance to the company by ways of loan
without security, in paying off the £300,000 representing the capital paid up on the "A"
preference shares. They further propose to raise the money required for paying off the
£260,000 represented by 26,000 "B" preference shares by the issue of perpetual debenture
stock charged upon the assets of the company and carrying interest at the rate of 4½ per cent
per annum; but they do not contemplate raising this money from any outside quarter, but
from those who under the scheme will be entitled to receive it on payment off of their shares.
In other words, the scheme imposes upon each holder of the 26,000 "B" shares the obligation
to accept in exchange for and in satisfaction of his holding as a shareholder an aliquot
proportion of the debenture stock equivalent in nominal amount to the amount paid upon
his "B" shares. Such is the scheme of reduction, and the first question which arises is whether
such a scheme comes within "(s.68 of the Companies Act); if it does not, it is a scheme which
the court has no jurisdiction to confirm. The section is in very wide terms. It enacts that,
"subject to confirmation by the court, a company limited by shares ....... may, if so authorized
by its articles, by special resolution reduce its share capital in any way", and then goes on to
deal with some particular modes of reducing capital; but it is obvious from the wording of
the section itself and from what has been laid down by the House of Lords in the two cases
which deal with this matter very fully, namely COUPER'S case and Poole v National Bank of
China, that full effect is to be given to the earlier part of the section without reference to the
particular modes indicated in the latter part and that this latter part is not to be treated in
any way as limiting or controlling the wide power conferred by the earlier part."
It cannot be denied that the scheme under consideration is one for reducing the share capital
of the company, but it involves in the case of the "B" shareholders the payment off of some
only of the shares - 26,000 out of 40,000 - and further it imposes on those of the shareholders
whose shares are to be extinguished the obligation to accept debenture stock in lieu of cash.
Do these elements put the scheme outside S.68? Guided by the authorities to which I have
just referred and by the case of In Re nixon's Navigation Co. I do not think they do. It is
thereby established that in a scheme for the reduction of share capital a company mat
differentiate between the holders of the same class of shares at least to the extent of paying
off some and not paying off others, and that it is open to a company desiring to reduce its
share capital to borrow a sufficient fund to pay off the capital represented by the shares by
which the capital is to be reduced. It is true that the scheme here proposed involves
something further - the advance to the company of the moneys to be utilized in redemption
of the share capital by the very persons whose shares are to be redeemed - but this addition
does not in my opinion, put the scheme outside the section. It is an element to be taken into
consideration by the court in exercising the discretion with which it is charged...............
The dissenting shareholder regards the reduction in the rate of interest as not being
compensated for by the additional security afforded by the debenture stock, and therefore he
dissents. That he is entitled to do, but in determining whether the scheme is so inequitable as
to compel me at his invitation to withhold my confirmation of it, I am bound - all other
things being equal - to pay regard to the fact that the view which he takes is the view of a
very small minority ........... I therefore, propose to confirm the reduction ........ and I propose,
therefore, to confirm the reduction on the condition that the debenture stock which is to be
issued to the "B" shareholders is to be made repayable at the expiration of forty years from
the date of issue, and is not to be what is called "perpetual debenture stock"
56. SCOTT v SCOTT
The plaintiffs were two members and the defendants the remaining members of a private
limited company, Frank F. Scott (Liverpool) Ltd, which had adopted the provisions of Table
A. Resolutions were passed in general meeting to the effect, inter alia, that certain payments
in respect of interim dividend be paid to preference shareholders. The plaintiffs contended
that the resolution was invalid. It was held by the Court of Appeal that the resolution was
invalid as an attempt by the general meeting to usurp the directors' powers of financial
control derived from the articles.
57. WOOD v ODESSA WATERWORKS CO.
A company declared a dividend and passed a resolution to pay it by giving to the

shareholders debenture bonds bearing interest and redeemable at par, by an annual drawing,
over thirty years. The articles empowered the company to declare a dividend "to be paid" to
the shareholders.
It was held that the words "to be paid" meant paid in cash, and a shareholder suing on behalf
of himself and the other shareholders could restrain the company from acting on the
resolution on the ground that it contravened the articles.
58. STEINBERG v SCALA (LEEDS) LTD
Miss Steinberg, an infant, purchase 500 £1 shares from the defendant company. She paid 10
shillings on each share and, being unable to meet some calls, repudiated the contract while
she was still a minor and claimed -
(a) rectification of the register of members to remove her name therefrom, and thereby
relieve her from liability on future calls; and
(b) recovery of the money already paid.
Held - (a) She was entitled to rescind and so was not liable for future calls, but
(b) She was not entitled to recover the money already paid because there had
not been a total failure of consideration. She had got the thing for which the
money was paid, namely, the shares. Although she had not yet received any
dividends on the shares, the shares had some value.
59. RE: SUSSEX BRICK CO.
On 16 January 1901, W. Belcher transferred shares in the company to G.B. Browne and
D.G.H. Pollock. The transfers were deposited with the company for registration but, owing
to unnecessary delay on the part of the company, they were not registered. In April, 1903,
the company passed a special resolution to wind up voluntarily for the purpose of
reconstruction. No notice of the meeting was rent to Browne or Pollock, but they did give
notice of dissent to the liquidator, requiring him to abstain from carrying the resolution into
effects or to buy them out. The liquidator would not accept the notice as valid because
neither Browne nor Pollock was on the register of members. Browne and Pollock applied to
the court for rectification of the register. They asked the court aid make the order
retrospective so that their notice of dissent to the liquidator would thereby be validated.
Held - that the court had jurisdiction to rectify the register even when the company was in
liquidation. The order was granted as prayed.
60. BURNS v SIEMENS BROS DYNAMO WORKS LTD
The plaintiffs, Burns and Hambro, were the joint owners of shares in the defendant company.
The shares were entered in the company's register in the joint names of Burns and Hambro.
The company's articles provided that, where there were joint holders, the person whose
name appeared first in the register of members, and no other, should be entitled to vote in
respect of the shares. This meant that Hambro had no voting rights.
Burns and Hambro sued for a rectification of the register so that it may show that the
plaintiffs owned roughly half of the joint shareholding.
Held - the court had jurisdiction to make such an order and the company was required to
rectify the register, showing shares numbered 1 to 1,000 in the names of Burns and
Hambro, and shares numbered 10,0001 to 19993 in the names of Hambro and Burns.
61. SIMPSON v MOLSON'S BANK
X's shares were, on his death, registered in the name of his executors. They subsequently
transferred the shares to Y in breach of the terms of X's will, and the transfer was registered
by the company. The company had a copy of the will in its possession, and its president was
one of X's executors.
Held - the company did not act wrongful, as it was only bound to satisfy itself from the will
that the executors were executors, and was not concerned with the disposition by X
of his property.
62. SOCIETE GENERALE DE PARIS v WALKER.
James Walker was the registered holder of 100 shares in X Ltd, and he created two charges
over the shares, one on 9 March 1881, in favour of James Scott Walker, who took the
certificates and a blank transfer, and one on 1 December 1882, in favour of the appellants, the
latter charge being created by means of a blank transfer, duly executed but without the
deposit of the share certificate. The appellants tried to obtain registration first, but X Ltd.
would not register the transfer without the certificates, and later the executors of James Scott
Walker informed X Ltd. that they had the certificates. This action was brought to decide
who had the title to the share. The articles of X Ltd. provided that the company should not
be bound to recognize any equitable interest in its shares. The appellants claimed that
because they notified first the fact of their equitable interest in the shares, they were entitled
as against the executors of James Scott Walker.
Held - by the House of Lords - they were not, because neither the company nor its
officers could be treated as trustees for the purpose of notifying equitable
interests over the shares. The title to the shares was in the person eventually
registered by the company, and the company was right in refusing to register
a person who could not produce the share certificates. The respondents
were entitled to the shares.
63. RE: GREENE
The directors of Faulkner Greene & Co. Ltd, a private company, wishing to ensure that their
shares in the company should pass on their deaths directly to their respective wives, altered
the company's articles to provide that this should happen automatically on a director's death,
notwithstanding any provision or direction made in the director's life-time for their
disposition upon his death. Greene, a director, died intestate on 20 January 1945. Pursuant
to the article, his widow was registered as the holder of his shares. The administrator of his
estate took out a summons to determine whether the article was valid, and whether any
beneficial interest in the shares had passed to the widow. The court answered both questions
in the negative.
HARMAN J. The first question which arises is as to the validity of the article introduced by
the special resolution of 20 August 1942. Is it competent to a company by an article in this
form to by-pass, so to speak, the personal representatives of a deceased holder of shares and
to put them direct into the name of his widow? In my judgement, it is not. Such an article is
contrary to section 63 of the Companies Act 1929 (now section 77 of the Companies Act).
I believe that the primary object of a section in this form, which first appeared in the
Companies Act 1928, was scotch the then prevalent practice of providing for the oral transfer
of shares to the great detriment of the Revenue, but in my judgement of transfer has been
delivered, nor has the right to the shares been transmitted to the widow by operation of law.
In my judgement, therefore, the registration of the widow was wrong and the register ought
to be rectified accordingly by registering the shares in the joint names of the personal
representatives, who are the plaintiff and the first defendant.
So far as the company is concerned there is an end of the matter, for it is not bound to
recognize any equitable interest. The first defendant nevertheless claims that as between
herself and the other beneficiaries under the intestacy she is beneficially entitled to the
shares, and to this claim I must now turn. The widow puts her claim in three ways. Firstly
she says that there was an imperfect gift to her of the shares which was perfected when she
obtained a grant of administration.
64. RE: SMITH & FAWCETT LTD.
Article 10 of the company's articles provided that the directors might in their absolute and
uncontrolled discretion refuse to register any transfer of shares. There were only two
directors and shareholders. Smith and Fawcett, who held 4,001 shares each. After Fawcett's
death, Smith and a co-opted director refused to register a transfer of his shares into the
names of his executors, or one of them, but Smith offered instead to register 20,001 shares
and to buy the remaining 2,000 shares at a price fixed by himself. The court refused to
intervene in the exercise of this discreet evidence of mala fides.
LORD GREENE M.R. The principles to be applied in cases where the articles of a company
confer a discretion on directors with regard to the acceptance of transfers of shares are, for
the present purposes, free from doubt. They must exercise their discretion bona fide in what
they consider - not what a court may consider - is in the interests of the company, and not for
any collateral purpose. They must have regard to those considerations, and those
considerations only, which the articles on their true construction permit them to take into
consideration, and in construing the relevant provisions in the articles it is to be borne in
mind that one of the normal rights of a shareholder is the right to deal freely with his
property and to transfer it to whomsoever he pleases. When it is said, as it has been said
more than once, that regard must be had to this last consideration, it means, I apprehend,
nothing more than that the shareholder has such a prima facie right, and that right is not to
be cut down by uncertain language or doubtful implications. The right, if it is to be cut
down, must be cut down with satisfactory clarity. It certainly does not mean that articles, if
appropriately framed, cannot be allowed to cut down the right of transfer to any extent
which the articles on their true construction permit. Another consideration which must be
borne in mind is that this type of article is one which is for the post part confined to private
companies. Private companies are in law separate entities just as much as are public
companies, but from the business and personal point of view they are much more analogous
to partnerships than to public corporations. Accordingly, it is to be expected that in the
articles of such a company the control of the directors over the membership may be very
strict indeed. There are, or may be, very good business reasons why those who bring such
companies into existence should give them a constitution which confers on the directors
powers of the widest description.
The language of the article in the present case does not point out any particular matter as
being the only matter to which the directors are to pay attention in deciding whether or not
they will allow the transfer to be registered. The article does not, for instance, say, as is to be
found in some articles, that they may refuse to register any transfer of shares to a person not
already a member of the company or to a transferee of whom they do not approve. Where
articles are framed with some such limitation on the discretionary power of refusal as I have
mentioned in those two examples, it follows on plain principle that if the directors go outside
the matters which the articles say are to be the matters and the only matters which they are
to have regard, the directors will have exceeded their powers.
Shares in the British Farmers pure Linseed Cake Co. Ltd. which were not in fact paid up,
were issued to Goulton, together with a share certificate under the seal of the company
which described the shares as `fully paid up'. These shares were later bought in good faith
by Nicolls (as trustee for a third party) and Nicolls was registered as the holder. In the
winding-up of the company, the liquidator sought to make Nicolls pay up the full amount of
the shares as a contributory. The company was held estopped by the certificate from
denying that the shares were fully paid up.
LORD BLACKBURN ........ When a person makes to another the representation, Ì take upon
myself to say such and such things do exist, and you may act upon the basis that they do
exist', and the other man does really act upon that basis, it seems to me it is of the very
essence of justice that, between those two parties, their right should be regulated, not by the
real state of the facts, but by that conventional state of facts which the two parties agree to
make the basis of their action; and that is what I apprehend is meant by estoppel in pass or
homologation ..........
Now in the present case the company has issued under the seal of the company a certificate
in the form which is set out in the case, in which the company has asserted that these shares
have been fully paid up. These certificates are issued under the directions of the Act of
Parliament, and are made "prima facie evidence of all that they state;" only prima facie
evidence. "The certificates are given and issued for the very purpose of enabling the person
who holds them to go to others for the purpose, amongst others, of selling the shares, and to
say: "Here is the certificate; you see I am a shareholder, as the company has so certified it.
Act upon that, and bargain with me upon the supposition that I am." That is the very object
with which they are issued under the company's seal. Now when the company has so issued
the certificate under the company's seal to enable a person to induce others to buy the shares,
and more especially when the company has registered the transfer solely in consequence of
that, it would be in the highest degree an injustice to say that the company shall, as against
that person, be permitted to say, "There was a mistake or inaccuracy in the representations
that the shares have been fully paid up." You would be fully entitled to say as against
everybody else who had acted upon it that it worked an estoppel. I think the liquidators
would be exactly in the same position..........
65. ALUMINIUM INDUSTRIES VAASSEN BV v ROMALPA ALUMINIUM
The plaintiffs (AIV) sold aluminium foil to the defendants under a contract of sale which
provided, inter alia:-
(i) that the ownership of the goods to be delivered by the plaintiffs would only be
transferred to the purchasers (the defendants) when they had met all that was owing
to the plaintiffs, no matter on what grounds;
(ii) that the defendants should store the foil separately;
(iii) that if the foil was used to make new "objects", those "objects" should be stored
separately and be owned by the plaintiff as security for payment;
(iv) that the defendants could sell the new "objects" but as agents of the plaintiffs.
The defendant company got into financial difficulties and was in debt to its bankers in the
sum of £200,000. The bank had a debenture secured over the company's assets and
appointed a receiver under that debenture. At the time of the receiver's appointment the
company owed the plaintiffs £122,000 and, in order to recover some of that money at the
expense of the bank, the plaintiffs sought, under the conditions of sale, to recover from the
company (the defendants) foil valued in round terms at £50,000 and the cash proceeds of
resold foil of some £35,000. The proceeds had been received from third party purchasers
from the company after the receiver was appointed and he had kept the fund of £35,000
separate so that it was not mixed with the company's other funds.
Held - by the Court of Appeal (in England) - that the foil was recoverable and so were the
proceeds of sale since there were two fiduciary relationships between the plaintiffs
and the defendant company as follows -
(a) The defendant company (Romalpa) was a bailee of the plaintiff's (AIV) goods
because ownership had not passed to Romalpa.
(b) Romalpa was AIV's agent for the purpose of the sale of "objects" made with
the foil. Therefore Romalpa was accountable to AIV for the foil and the
proceeds of its sale and AIV could trace the proceeds into the hands of the
receiver.
66. RE: C.L. NYE LTD
The company completed a charge in favour of a bank on 28th February 1964. Due to an
oversight by the bank's solicitor the charge was not registered. On the 18th June 1964 the
oversight was noticed and on the 3rd July 1964 registration was applied for. The 18th June
was inserted as the date of creation of the charge and the charge was duly registered. On the
16th July the company went into liquidation and the liquidator sought a declaration that the
charge was void because if was registered too late. It was held that since a certificate of
registration is conclusive evidence of the date of creation of the charge it must be regarded as
created on 18th June 1964. Since it was registered within 21 days of this date (Note: the time
allowed for registration in England is 21 days) it was valid and could be enforced by the
bank.
67. R.V. IVAN ARTHUR CAMPS (Court of Appeal for East Africa) (1962)
The respondent, in his capacity as a director of a company, had been charged with several
offences under the Companies Act. Although the directors of the company had under article
96 of the Company's Articles of Association duly appointed him to be director and he had
acted as such, he never acquired the required share qualification but in a statutory return,
subsequent to his appointment, he was shown as a director which, by article 84, was fixed at
ONE FULLY PAID-UP share in his own right.
Article 87(c) which was substantially in the same terms of S.183(1) and S.183(3) of the Act
provided that the office of the director shall be vacated if a director ceased to hold the
number of shares required to qualify him for office or fails to acquire the same within TWO
MONTHS after his election or appointment.
The magistrate held that as the respondent had never possessed or acquired his qualifying
share, his appointment was invalid and that there was no case for him to answer. He also
held that the respondent was never even a de facto director and that in any event a de facto
director was not criminally liable as a director for offences under the Companies Act.
Against that decision the Attorney-General appealed to the High Court by way of case
stated, but the appeal was dismissed, the Court holding that a de facto director was not
liable qua director for criminal offences under the Companies Act. On a further appeal it
was submitted (for the crown) that the respondent was validly appointed a de jure director,
that thereafter he was a de facto director and that a de facto director was criminally liable for
offences under the Companies Act.
HELD:
(i) The word "director" in the Companies Act includes a de facto director unless the
context otherwise requires, and looking at the mischief at which the sections in
question aimed a de facto director is as much a person whose conduct should be the
subject of the sections as a person who has been duly appointed a director.
(ii) The respondent was duly and validly appointed a de jure director but he ceased to
be a de jure director two months later as he failed to acquire his share qualification
within that time.
(iii) If the respondent acted as a director after the expiration of two months from his
appointment he was then a de facto director and he was a director for the purpose of
those sections of the Companies Act which it was alleged he had contravened.
Appeal allowed. Acquittal set aside.
SIR RONALD SINCLAIR, P. "......... Where the acquisition of a share qualification is not a
condition precedent to the appointment of a director, he may be appointed and act before he
qualifies and his act as a director are valid if done before he is bound by law to acquire his
qualification................... In this present case the acquisition of a qualifying share by the
respondent was clearly a condition subsequent, and not a condition presedent, to his
appointment. In our view he was validly appointed as a director on February 10, 1959, and
he continued to be a de jure director until the expiration of two months from the date of his
appointment when under article 87 his office of director was vacated. If he then continued to
act as a director he was a de facto director only............
We return now to the meaning of the definition of "director" in S.2 of the Companies Act
which, as we have said, is stated to include
"Any person occupying the position of a director by whatever name called".......... We are
therefore of opinion that the word "director" in the Companies Act includes a de facto
director unless the context otherwise requires............. We do not think the penalties to which
an unqualified person acting as a director is liable under S.183(5) of the Companies Act
indicate a contrary intention. To hold otherwise would, in our view, defeat the object of the
penal sections relating to the liability of directors. Looking to the mischiefs intended to be
aimed at by the sections in question, it seems to us that a de facto director is as much a
person who has been duly appointed as director. If a de facto manager can be liable, so
should a de facto director.............................."
68. BUSHELL v FAITH AND ANOTHER (1969)
A general meeting was requisitioned with a view to passing a resolution to remove the
defendant from his directorship. The meeting was held on 22nd November 1968, when on a
poll the votes of the plaintiff and her sister were recorded for the resolution removing the
defendant, whereas his votes were recorded, against it. It is the contention of the plaintiff
that the resolution was passed by 200 votes to 100 and the defendant therefore ceased to be a
director. It is the defendant's contention that, having regard to Article 9 of the articles of
association, the resolution was lost by 200 votes to 300 and that he remains a director. The
motion was directed or restraining the defendant pending trial from acting as a director, and
the judge granted the relief asked.
HARMAN, L.J.:
"The question turns on a single section of the Companies Act, 1948, S.184(1) (which in Kenya
is S.185) whereby it is enacted that:
"A company may by ordinary resolution remove a director before the expiration of his
period of office, notwithstanding anything in its articles................
The articles here adopt Table A with modifications. One of the adopted articles is Article 62,
which provides that, subject to any rights or restrictions for the time being attached to any
class or classes of shares, on a show of hands every member present in person shall have one
vote and on a poll every member shall have one vote for each share of which he is the holder.
Special article 9 provides:-
"In the event of a resolution being proposed at any general meeting of the company for
removal from office of any director any shares held by that director shall on a poll in respect
of such resolution carry the right to THREE VOTES PER SHARE and reg.62 of Part 1 of A
Table A shall be construed accordingly"
This special article exactly fits the circumstances of this case........ He (the defendant) was
thus able to record 300 votes and outvote his sisters, who only recorded 200 votes between
them. The plaintiff however argues, and the judge held, that article 9 is a contravention of
S.184 of the Act and therefore invalid, and that is the subject of this appeal. The judge held
that a resolution passed (as he put it) "under article 9" is not an "ordinary resolution" within
the meaning of S.184 of the Act and therefore it is ineffective to remove a director. I do not
myself accede to this reasoning.
"It seems to me that the words "ordinary resolution", which are found nowhere in the Act
except in S.184, merely connote "a resolution depending for its passing on a simple majority
of votes validly cast in conformity with the articles............"
The defendant's argument goes on to urge that there is nothing in the section or in the Act of
1948 to prevent the attachment of special voting rights to special shares or classes of shares,
and that is what has happened here, an ordinary resolution for the removal of the
.....defendant director being lost because his shares counted THREE TO ONE for this
purpose.
The plaintiff on the other hand argues that an article in this form is invalid as being a mere
device for circumventing the section. The judge held that it made a mockery of it, and
counsel for the plaintiff advanced the proposition that any provision in the articles having as
its object to make more difficult the removal of a director is void, whether operating directly
or indirectly. This article 9 operated indirectly. It certainly does in effect make the removal
of a director more difficult. It follows, says counsel, that it is invalid.
I cannot accept this view because I do not find it in the Act, which merely says that a simple
majority of votes will unseat a director. The Act does not as I see it, prevent certain shares or
classes of shares having special voting rights attached to them and on certain occasions. The
obvious example is that of preference shares, which usually carry no vote unless their
dividend be in arrear or the resolution proposed affects their interest. There are many other
instances of shares with special voting rights and I do not see anything in the Act which
prohibits the giving of special voting rights to the shares of a director who finds his position
attacked.
RUSSEL L.J.
"Section 184(1) of the Companies Act 1948 enacts that a company may by ordinary resolution
remove a director. This spelt out, means that a director may be removed by a resolution of
the company in general meeting passed by a majority of votes cast at the meeting. The
section continues, "notwithstanding anything in its articles": these words though convenient
in the drafting of the section add nothing: without them a provision in the articles requiring a
greater majority than a simple majority for the effectiveness of such a resolution would
contradict the statute and be of no effect.
The question is whether art.9, which on the occasion of such a resolution being proposed
attaches to any share registered in the name of the director named in the resolution three
votes in place of one vote, is provision purporting, contrary to the section, to require for his
removal a greater majority than simple votes cast at the meeting, and therefore of no effect.
It seems to me that it is manifestly not such a provision. Section 184 says nothing about
voting rights attached to shares. It does not seek to restrict the powers of a company by its
articles to attach to different shares or classes of shares different voting rights, either
generally or on particular types of resolution, including the particular type in question...........
It is argued, and the judge accepted the argument, that an article such as article 9 if effective
made nonsense of the section, was contrary to its gist and purpose, and for that reason must
be considered contrary to the section. This approach I think begs the question whether the
purpose of the section included the purpose of fettering a company's rights to say what
voting rights attached to its shares ...............
In my view it would ........ not conflict with the section if the article provided that on a
resolution for the removal of the director either,
(a) shares other than the class should have no vote; or
(b) that the shares of that class should have attached to them enough votes to pass or
defeat a resolution for that removal.............
69. ABERDEEN RAILWAY CO. v BLAIKIE BROS (1854)
The respondents, Blaikie Bros, had agreed to manufacture iron chairs for the railway
company at £8 10s per ton, and sued to enforce the contract. The railway company pleaded
that it was not bound by the contract because, at the time when it was made, the chairman, of
its board of directors was managing partner of the respondents. This plea was upheld by the
House of Lords.
LORD CHANWORTH L.C. ...... This, therefore, brings us to the general question whether a
director of a railway company is or is not precluded form dealing on behalf of the compoany
with himself, or with a firm in which he is a partner.
The directors are a body to whom is delegated the duty of managing the general affairs of the
company.
A corporate body can only act by agents, and it is of course the duty of those agents so to act
as best to prmote the interests of the corporation whose affairs they are conducting. Such
agents have duties to discharge of a fiduciary nature towards their principle. And it is a rule
of universal application that no one having such duties to discharge, shall be allowed to enter
into engagements in which he has, or can have, a personal interest conflicting with the
interests of those whom he is bound to protect.
So strictly is this principle adhered to that no question is allowed to be raised as to the

fairness or unfairness of a contract so entered into.
It obviously is, or may be, impossible to demonstrate how far in any particular case the terms
of such a contract have been the best for the interest of the beneficiary, which it was possible
to obtain.
It may sometimes happen that the terms on which a trustee has dealt or attempted to deal
with the estate or interests of those for whom he is a trustee, have been so good as could
have been obtained from any other person, - they may even at the time have been better.
But still so inflexible is the rule that no inquiry on that subject is permitted. The English
authorities on this head are numerous and uniform.
The principle was acted on by Lord King in Keech v. Sandford, and by Lord Hardwicke in
Whelpdale v. Cookson and the whole subject was considered by Lord Eldon on a great
variety of occasions.........
It is true that the questions have generally arisen on agreements for purchases or leases of
land, and not, as here, on a contract of a mercantile character. But this can make no
difference in principle. The inability to contract depends not on the subject-matter of the
agreement, but on the fiduciary character of the contracting party, and I cannot entertain a
doubt of its being applicable to the case of a party who is acting as manager of a mercantile
or trading business for the benefit or others, no less than to that of an agent or trustee
employed in selling or letting land.
Was then Mr. Blaikie so acting in the case now before us? - if he was, did he while so acting
contract on behalf of those for whom he was acting with himself?
Both these questions must obviously be answered in the affirmative. Mr. Blaikie was not
only a director, but (if that was necessary) the chairman of the directors. In that character it
was his bounden duty to make the best bargains he could for the benefit of the company.
While he filled that character, namely, on 6 February 1846, he entered into a contract on
behalf of the company with his own firm, for the purchase of a large quantity of iron chairs at
a certain stipulated price. His duty to the company imposed on him the obligation of
obtaining these chairs at the lowest possible price.
His personal interest would lead him in an entirely opposite direction, would induce him to
fix the price as high as possible. This is the very evil against which the rule in question is
directed, and I here see nothing whatever to prevent its application.
I observe that Lord Fullerton seemed to doubt whether the rule would apply where the party
whose act or contract is called in question is only one of a body of directors, not a sole trustee
or manager.
But, with all deference, this appears to me to make no difference. It was Mr. Blaikie's duty to
give to his co-directors, and through them to the company, the full benefit of all the
knowledge and skill which he could bring to bear on the subject. He was bound to assist
them in getting the articles contracted for at the cheapest possible rate. As far as related to
the advice he should give them, he put his interest in conflict with his duty, and whether he
was the sole director or only one of many, can make no difference in principle.
The same observation applies to the fact that he was not the sole person contracting with the
company; he was one of the firm of Blaikie Brothers, with whom the contract was made, and
so interested in driving as hard a bargain with the company as he could induce them to
make........"
70. INDUSTRIAL DEVELOPMENT CONSULTANTS LTD v. COOLEY (1972)
Facts of the Case:
The plaintiffs were one of the group of companies which offered to large industrial
enterprises, both in the public and private sector, comprehensive construction services which
included the services of architects, engineers, project managers, construction analysts and
others involved in such work. The defendant was an architect of considerable distinction
and attainment in his own sphere; he had worked in the gas industry for some 17 years, and
prior to his appointment as Managing Director of the plaintiffs had been the chief architect
for the West Midlands Gas Board. The success which the plaintiffs had attained was largely
in the private sector and they were anxious to enter the public sector. Because of the
defendant's connections and contacts in the gas industry the chairman of the group offered
the defendant the post of Managing Director of the plaintiffs at a salary of £6,000 a year with
considerable fringe benefits.
The defendant accepted and the appointment took effect from 5th February, 1968. No
service agreement was signed however with the result that whilst the defendant was with
the plaintiffs there was no press provision as to notice and no covenants of any kind
restrictive or otherwise. Within days of joining the plaintiffs the defendant embarked on
negotiations with the Eastern Gas Board in an effort to discharge his duty to the plaintiffs. In
1968 the Eastern Gas Board were contemplating building four depots and had not decided
whether to farm out the work to other architects or do it themselves. The plaintiffs were
interested in this work and with the aid of the defendant they attempted to get at least one of
the depots. That attempt failed. It became evident that the Eastern Gas Board disliked the
set up of the plaintiffs' organisation and were not prepared to deal with the plaintiffs in any
capacity. In May 1969 the Eastern Gas Board finally decided on the location of their four
depots. In addition they decided to build a central store to support the four depots. At that
time a new deputy chairman of the Eastern Gas Board was appointed and during discussion
with his colleagues at the board about the project the defendant's name was mentioned.
The deputy chairman was of the opinion that the defendant was the right man for the job and
so he telephoned him at his home and arranged a meeting. At the meeting on 13th June the
defendant soon realized that he had a good chance of getting the work from the Eastern Gas
Board for himself, the board made it clear that they were only interested in employing the
defendant privately and that they were also in a hurry to proceed with the projects.
The defendant realized that if he was to get this work he had to free himself from the
plaintiffs as soon as possible. He therefore made an appointment to see the group chairman
and at the interview told him that he wanted to resign on account of his health. Because the
defendant's representations as to the state of his health the group chairman got the
impression that the defendant was on the verge of a breakdown and so agreed to release him
quickly. The representations made by the defendant about his health were to his knowledge
untrue. The defendant ceased to be managing director of the plaintiffs from 1st August. On
6th August the Eastern Gas Board wrote to the defendant offering him employment as
project manager for four projects, the defendant to be totally responsible for the design and
supervision of the four projects. This work was in substance the same work which the
plaintiffs had unsuccessfully attempted to obtain in 1968. In an action by the plaintiffs for an
account of the whole of Mr. Cooley's earnings for breach of fiduciary duty, the defendant
denied that there was any fiduciary duty or any breach of such duty, contending that if there
were a remedy lay in damages but that the plaintiffs had suffered no damages since they
would not have obtained the work for themselves in any case.
HELD:
(i) While the defendant was managing director of the plaintiffs a fiduciary relationship
existed between him and the plaintiffs; accordingly information which came to him
while he was managing director and was of concern to the plaintiffs, a duty therefore
to disclose all information which he received in the course of his dealings with the
Gas Board. Instead he had embarked on a deliberate course with the Gas Board in
direct conflict with his pre-existing and continuing duty as managing director of the
plaintiffs. He was therefore breach of his fiduciary duty to the plaintiffs in failing to
pass on to them all the relevant information received in the course of his dealings
with the Gas Board and in guarding it for his own personal purposes and profit.
(ii) Because of his breach of duty the defendant was liable to ACCOUNT to the plaintiffs
for ALL THE BENEFIT HE HAD RECEIVED OR WOULD RECEIVE UNDER THE
CONTRACT WITH THE GAS BOARD.
The question whether the benefit of the contract would have been obtained for the plaintiffs
but for the defendant's breach of fiduciary duty was irrelevant. It was therefore irrelevant
that, as a result of the order to account, the plaintiffs would receive a benefit which they
would not otherwise have receive.
Keech v. Sandford, and dicta of Lord Granworth L.C. in Aberdeen Railway Co. v. Blaike
Brothers, and Lord Upjojn in Boardman v. Phipps.
ROSKILL J: "....... I think the right approach to the present case is first to consider the duty
which a director (including a managing director) owed to the company of which he is a
director. This has been the subject of repeat statements in cases of the highest authority over
the years. The law is summarised in BUCKLEY ON THE COMPANIES ACTS (13th Ed.
pp.876, 877).
"Upon general rules of equity a person holding a fiduciary position as director cannot obtain
for himself a benefit derived from the employment of the company's funds, unless the
company knows and assents. No director can, in the absence of a stipulation to the contrary,
partake in any benefit from a contract which requires the sanction of a board of which he is a
member. He stands in a fiduciary position towards the company, and if he makes any profit
when he is acting for the company, he must account to the company. It makes no difference
that the profit is one which the company itself could not have obtained, the question being
not whether the company would have acquired it, but whether the director acquired it while
working for the company, nor that the interest of the director is as a trustee for a third party.
The reason for this is, that the company has a right to the services of its paid directors as an
entire board; that it has a right to the advise of every director upon matters which are
brought before the board for consideration; and that the general rule that no trustee can
derive any benefit from dealing with the trust funds applied with still greater force to that
state of things in which the interest of the trustee deprives the company of the benefit of his
advice and assistance."
71. COOK v. DEEKS (1916) (Privy Council)
The defendants, three of the four directors of the Toronto Construction Company, who were
named Deeks, Deeks and Hinds, resolved to break their business relations with the fourth
director, the plaintiff Cook. The company had built up considerable good-will with the
Canadian Pacific Railway Company as a result of the satisfactory performance of a series of
construction contracts, each of which had been negotiated with the railway company's
representative by one of the defendants. The last of these contracts, the Shore Line contract,
was negotiated in the same way, but when the arrangements were completed, the defendants
took it in their own names and not that of the company. Cook claimed that the company was
entitled to the benefit of the contract, and that a shareholders' resolution (which the
defendants had carried by their own votes) purporting to confirm that the company claimed
no interest in the contract was ineffective. The Privy Council upheld both contentions,
reversing the decisions of the courts in Ontario in favour of the defendants.
The opinion of their Lordships was delivered by LORD BUCKMASTER......... The

management of Messrs Deeks and Hinds of the affairs of the construction company was
eminently satisfactory; but so far as railway construction was concerned the whole of their
reputation for the efficient conduct of their business had been gained by them while acting as
directors of the Toronto Construction Company. In 1911, and probably at an earlier date, the
three defendants had settled that they would no longer continue business relationships with
the plaintiff. It is unnecessary to seek the cause of the quarrel, or to determine whether they
had good reason for the opinion that they had formed. There was nothing to compel them to
work with or for the plaintiff, and it is impossible to see that they were bound to continue
their relationship with him by any legal or moral consideration. They were however,
involved with him in different reciprocal duties, by reason of their relationship in connection
with the Toronto Construction Company, and if they desired freedom to act, without regard
to the restrictions that those relationships imposed, it was necessary that they should
terminate their position as directors and shareholders in the company and place it in
dissolution. This they could easily have accomplished owing to the fact that they held three-
fourths of the share capital. It is suggested that they might also have resolved at a general
meeting of the company that the company should no longer continue the work. This would
have been all b equivalent to a resolution of voluntary liquidation; but even this step was not
taken. While still retaining their position as directors, while still actually acting as managers
of the company, and with their duties to the company of which the plaintiff was a
shareholder entirely unchanged, they proceeded to negotiate with Mr, Leonard for the New
Shore Line contract, in reality on their own behalf, but in exactly the same manner as they
had always acted for the company,h and doubtless with their claims enforced by the
expeditious manner in which they, while acting for the company, had caused the last
contract to be carried through..........
During the whole of this discussion, up till the time when these prices were fixed, it does not
appear that at any moment the representatives of the Canadian Pacific Railway Company
were told that this contract was in any way different from the others that had been
negotiated in the same manner on behalf of the Toronto Construction Company, although it
was plain that Mr. Deeks, when he was engaged on the Georgian Hay and Seaboard line, that
when it was finished Messrs Deeks and Hinds intended to go on their own account and leave
Mr. Cook. But after all the necessary preliminaries of the contract had been concluded Mr.
Hinds made to Mr. Leonard this statement: `Remember, if we get this contract it is to be
Deeks's and I, and not the Toronto Construction Company.'
On 12 March 1912 the Canadian Pacific Railway Company made the necessary appropriation
for the contract, and this was communicated to Mr. Deeks by Mr. Ramsay, that company's
engineer of construction, who said that they might proceed with the contract at once. As
from this moment, although the formal contract was not signed until 1 April 1912, the
defendants became certain of their position, and knew that they had obtained the contract for
themselves. They then for the first time informed the plaintiff of what had happened. He
protested without ret, and the defendants G.S. Deeks, G.M. Deeks and T.R. Hinds to carry
out the work. The contract was accordingly taken over by this company, by whom the work
was carried out and the profits made.
On 20 March 1912 there was a meeting of directors of the Toronto Construction Company, at
which the three defendants were present,h and they resolved that a fresh meeting of the
shareholders be held to consider the question of the voluntary liquidation of the company.
Ultimately, after sundry meetings which are really not material, on 26 April 1913 resolutions
were passed owing to the voting power of the defendants G.S. Deeks, G.M. Deeks and T.R.
Hinds, approving the sale of part of the plant of the company to the Dominion Construction
Company, and a declaration was made that the company had no interest in the Shore Line
Contract, and that the directors were authorised to defend this action, which had in the
meantime been instituted.
Two questions of law arise out of this long history of fact. The first is whether, apart
altogether from the subsequent resolutions, the company would have been at liberty to claim
from the three defendants the benefit of the contract which they had obtained from the
Canadian Pacific Railway Company; and the second, which only arises if the first be
answered in the affirmative, whether in such event the majority of the shareholders of the
company constituted by the three defendants could ratify and approve of what was done
and thereby release all claim against the director.
It is the latter question to which the Appellate Division of the Supreme Court of Ontario have
given most consideration, but the former needs to be carefully examined in order to ascertain
the circumstances upon which the latter question depends. It cannot be properly answered
by considering the abstract relationship of directors and companies; the real matter for
determination is what, in the spec circumstances of this case, was the relationship that
existed between Messrs Deeks and Hinds and the company that they controlled. Now it
appears plain that the entire management of the company, so far as obtaining and executing
contracts in the east was concerned, was in their hands, and, indeed, it was in part this fact
which was one of the causes of their disagreement with the plaintiff. The way they used this
position is perfectly plain. They accelerated the work on the expiring contract of the
company in order to stand well with the Canadian Pacific Railway when the next contract
should be offered, and although Mr. Mclean was told that the acceleration was to enable the
company chances whatever of acquiring the benefit, and avoided letting their co-director
have any knowledge of the matter. Their Lordships think that the statement of the trial
judge upon this point is well founded when he said that it is hard to resist the inference that
Mr. Hinds was careful to avoid anything which would waken Mr. Cook from his fancied
security, and again, that `the sole and only object on the part of the defendants was to get rid
of a business associate whom they deemed, and I think rightly deemed, unsatisfactory from a
business standpoint.' In other words, they intentionally concealed all circumstances relating
to their negotiations until a point had been reached when the whole arrangement had been
concluded in their own favour and there was no longer any real chance that there could be
any interference with their plans. This means that while entrusted with the conduct of the
affairs of the company they deliberately designed to exclude, and used their influence and
position to exclude, the company whose interest it was their first duty to protect........
It is quite right to point out the importance of avoiding the establishment of rules as to the
directors' duties which would impose upon them burdens so heavy and responsibilities so
great that man of good position would hesitate to accept the office. But, on the other hand,
men who assume the complete control of a company's business must remember that they are
not at liberty to sacrifice the interests which they are bound to protect, and while ostensibly
acting for the company, divert in their own favour business which should properly belong to
the company they represent.
Their Lordships think that, in the circumstances, the defendants T.R. Hinds and G.S. and
G.M. Deeks were guilty of a distinct breach of duty in the course they took to secure the
contract, and that they cannot retain the benefit of such contract for themselves, but must be
regarded as holding it on behalf of the company.
There remains the more difficult consideration of whether this position can be made regular
by resolutions of the company controlled by the votes of these three defendants. The
Supreme Court have given this matter the most careful consideration, but their Lordships are
unable to agree with the conclusion which they reached.
In their Lordships' opinion the Supreme Court has insufficiently recognised the distinction
between two classes of case and has applied the principles applicable to the case of a director
selling to his company property which was in equity as well as at law his own, and which he
could dispose of as he thought fit, to the case of a director dealing with property which,
though his own at law, in equity belonged to his company. The cases of North-West
Transportation Co. v. Beatty and Burland v. Earle both belonged to the former class. In each,
directors had sold to the company property in which the company had no interest at law or
in equity. If the company claimed any interest by reason of the transactions, it could only be
by affirming the sale, in which case such sale, though initially voidable, would be validated
by subsequent ratification. If the company refused to affirm the sale the transaction would
be set aside and the parties restored to their former position, the directors getting the
property and the company receiving back the purchase price. There would be no middle
course. The company could not insist on retaining the property while paying less than the
price agreed. This would be for the court to make a new contract between the parties. It
would be quite another thing if the director had originally acquired the property which he
sold to his company under circumstances which made it in equity the property of the
company. The distinction to which their Lordships have drawn attention is expressly
recognised by LORD Davey in Burland v. Earle and is the foundation of the judgement in
North-West Transportation Co. v. Beatty, and is clearly explained in the case of Jacobus
Marler Estates v. Marler.............
If, as their Lordships find on the facts, the contract in question was entered into under such
circumstances that the directors could not retain the benefit of it for themselves, then it
belonged in equity to the company and ought to have been dealt with as an asset of the
company. Even supposing it be not ultra vires of a company to make a present to its
directors, it appears quite certain that directors holding a majority of votes would not be
permitted to make a present to themselves. This would be to allow a majority to oppress the
minority. To such circumstances the cases of North-West Transportation Co. v. Beatty and
Burland v. Earle have no application. In the same way, if directors have acquired for
themselves property or rights which they must be regarded as holding on behalf of the
company, a resolution that the rights of the company should be disregarded in the matter
would amount to forfeiting the interest and property of the minority of shareholders in
favour of the majority, and that by the votes of those who are interested in securing the
property for themselves. Such use of voting power has never been sanctioned by the courts,
and, indeed, was expressly disapproved in the case of Menier v. Hooper's Telegraph Works.
If their Lordships took the view that, in the circumstances of this case, the directors had
exercised a discretion or decided on a matter of policy (the view which appears to have been
entertained by the Supreme Court) different results would ensue, but this is not a conclusion
which their Lordships are able to accept. It follows that the defendants must account to the
Toronto Company for the profits which they have made out of the transaction..........."
72. BOSTON DEEP SEA FISHING CO. v ANSELL (1888)
Ansell was a director of thd plaintiff company and, on the company's behalf, contracted for
the building of fishing smacks. Unknown to the company, he was paid a commission on the
contract by the shipbuilders. He was also a shareholder in an ice company which, in
addition to dividends, paid bonuses to shareholders who were owners of fishing smacks and
who employed the ice company in supplying ice to the fishing smacks. Ansell employed the
ice company in respect of the plaintiff company's fishing smacks and received the bonus.
Held - Ansell must account to the company for both the commission and the bonus,
although the bonus could never have been received by the plaintiff company as it
was not a shareholder in the ice company.
73. PERCIVAL v. WRIGHT
The plaintiff wished to sell shares in the company and wrote to the secretary asking if he
knew of anyone willing to buy. After negotiations, the Chairman of the board of directors
arranged the purchase of 253 shares, 85 for himself and 84 for each of his fellow directors at a
price based on the plaintiff's valuation of £12 10s per share. The transfers were approved by
the board and the transactions completed. The plaintiff subsequently discovered that prior
to and during the negotiations for the sale, a Mr. Holden was also negotiating with the board
for the purchase of the company for resale to a new company, and was offering various
prices for shares, all of which exceeded 15612 10s per share. No firm offer was ever made,
and the negotiations ultimately proved abortive, and the court was not satisfied that the
board ever intended to sell. The plaintiff brought this action against the directors asking for
the sale of his shares to be set aside for non-disclosure.
Held - The directors are not trustees for the individual shareholders and may purchase their
shares without disclosing pending negotiations for the sale of the company. A
contrary view would mean that they could not buy or sell shares without disclosing
negotiations, a premature disclosure of which might well be against the best interests
of the company. There was no unfair dealing since the shareholder in fact
approached the directors and named his own price.
74. RE: W&M ROITH LTD.
The controlling shareholder and director of two companies wished to provide for his widow
but did not want to leave her his shares. Accordingly he entered into a service agreement
with one of the companies under which his widow was entitled to a pension for life on his
death.
Held - On the application of the liquidator - that the agreement was not binding on the
company.
75. HUTTON v. WEST CORK RAILWAY CO.
The West Cork Railway Company had entered into an agreement to sell its undertaking to
the Cork and Bandon Railway Company and remained in existence purely for the purpose of
winding up. After the sale had been completed, the shareholders resolved at a meeting to
spend £1,050 of the purchase money in compensating the salaried employees of the company
for their loss of employment and £1,500 to the directors, who were not servants, as
remuneration for their past services. It appeared that the directors had always understood
that they were going to serve the company for nothing and there was in fact no power in the
company's constitution to pay them. Hutton, a dissentient shareholder, challenged the
validity of the resolution.
Held - By the Court of Appeal - that although these payment might be made whilst the
company was a going concern, a gratuitous payment could not be justified once the
company had ceased to be a going concern. Therefore the payments could not be
made. À railway company, or the directors of the company, might send down all
the porters at a railway station to have tea in the country at the expense of the
company. Why should they not? It is reasonably incidental to the carrying on of the
business of the company; and a company which always treated its employees with
draconian severity, and never allowed them a single inch more than the strict letter
of the bond, would soon find itself deserted - at all events, unless labour was very
much more easy to obtain in the market than it often is. The law does not say that
there are to be no cakes and ale, but there are to be no cakes and ale except such as
are required for the benefit of the company......... I think the resolution as to
compensation is clearly wrong. The directors have no right to give it. It might in
some instances be worth the while of the company to compensate a meritorious, but
dismissed officer, but that kind of justification cannot exist in the case of a dying
company. I think that makes the resolution bad....' per Bowen L.J.
76. HOGG v. CRAMPHORN
In order to prevent a take-over bid, which they honestly thought would be bad for the
company as a whole, the directors used certain money belonging to the company which was
standing in an account headed ""employees" benevolent and pension fund" to set up a
pension scheme by issuing preference shares bearing 10 votes each. This had the effect of
giving the trustees of the fund and the directors together control of the company. The
directors had power to issue shares but not attach more than one vote to each. This action
was brought by a minority shareholder on behalf of all the others except the directors against
the company and the directors.
Held - Since the proper purpose of issuing shares is to raise capital for the company, an
issue made to forestall a take-over bid was a breach of the directors' fiduciary duties.
The allotment could not stand unless confirmed in general meeting and a meeting
should be convened to consider whether to approve what had been done. However,
the increased votes should not be exercised by the directors at the meeting though
they could exercise their original votes.
77. ELLIS v. BAILEY & CO. (EAST AFRICA) ETC.
The appellant, who resided in Kenya, and three other persons who resided in England, one
of whom was a Mr. P., were named in the articles of association of the respondent company
as the FIRST DIRECTORS. Mr. P. was also managing director of a company in England
which was the parent of the respondent company (The respondent company was formed
with an issued share capital of 6,000 £1 shares; of which 5999 shares were held by the parent
company and one was held by the appellant as trustee for the parent company)
At the first meeting of directors of the respondent company held in 1958, the appellant was
by resolution appointed managing director but he was given no service agreement. The
appellant was paid at the rate of £2,500 p.a., the payment being entered in the respondent
company's accounts as salary. The appellant was summarily dismissed on December 9, 1959,
by an authorised representative of Mr. P., who had discovered that the appellant had been
personally concerned in transactions with the respondent company of which the other
directors were unaware. These transactions had resulted in the respondent company
financing the appellant to the extent of about £1,000. At a meeting of directors held in
England on December 11, 1959 the dismissal of the appellant was confirmed but notice of this
meeting was not given to the appellant.
On January 10, 1960, the appellant started his own business. The respondent company then
sued the appellant for the amount owed by him in answer to which the appellant filed a
defence and counter-claim admitting the amount owing, but claiming Shs.16,666/68 salary
accrued to the date of filing the defence.
The ground for the counterclaim was that his directorship had never been lawfully
terminated. The judge gave judgement in favour of the respondent company on its claim,
and on the counter-claim the judge held that the appellant had not been effectively dismissed
because the resolution of the directors confirming the dismissal was of no effect as it had
NOT been passed in general meeting as required by cl.68 of Table "A" of the Companies Act,
which was incorporated in the respondent company's articles.
On appeal it was held:-
(i) the directors had power to dismiss or confirm the dismissal of the appellant as
managing director and the judge had erred in holding that as managing director the
appellant could only be dismissed by the respondent company in general meeting.
(ii) even though the respondent company had power under cl.68 of Table "A" to
determine the appellant's appointment in general meeting, this did NOT derogate
from the directors' full powers of management.
(iii) the appellant's appointment as managing director had been effectively terminated on
December 9, 1959.
NEWBOLD, J.A. "............ Power was given in the articles to confer on a managing director all
orany of the powers of the directors and at any time to revoke such powers........
On December 9, 1959, a Mr. Flowitt, who was not a director of the company but who had
arrived from England a few days before to investigate the unsatisfactory position of the
company (learnt of these dealings) informed the appellant that he had laid himself open to
criminal proceedings and told the appellant to leave the office at once and without any
salary. Mr. Flowitt was armed with a letter of authority signed by Mr. Pethed to close down
the company and dispense with the appellant's services, which letter had been shown to the
appellant on December 7. The appellant had then expressed surprise at the authority and
stated that he was unaware of any meeting of the company or of the directors at which
decisions of such gravity could have been made. On December 11, 1959, a meeting of the
directors was held at Iikley, Yorkshire, which endorsed the action of Mr. Flotwitt in the
"dismissal of Mr. P.G. Ellis.......... consequent upon his findings on his arrival in Nairobi."
No notice of the meeting was given to the appellant.........
The two main issues on appeal are as follows: first, was the appellant's appointment as
managing director effectively terminated on December 9, 1959, whether or not such
termination was wrongful; secondly, if the appellant's appointment as managing director
was not effectively terminated, did the appellant by his action in opening his own business
repudicate his contract and in effect resign his appointment............
The undisputed evidence ....... was that the appellant's entitlement to any remuneration arose
from his position as managing director and not from his position as director. There is, in my
view, a basic and not merely a technical difference between a claim for remuneration as a
director and a claim for salary as a managing director, and a claim in one capacity cannot be
supported by evidence of the other capacity. As was said ........... in SOUTHERN
FOUNDARIES (1926) LTD v SHIRLAW ......., when referring to the position of a managing
director:
"........... the two positions, that of director and that of manager, involve different
qualifications, duties and responsibilities." In FOWLER v COMMERCIAL TIMBER CO.
LTD, Scrufton, L.J., referred "the two positions of the plaintiff 1. as managing director........
and 2. as a director....." and this passage was quoted with approval by the Council in LEE v.
LEE'S AIR FARMING LTD.............
Turning now to the first of the main issues argued on the appeal, I understand the learned
judge to have held that under reg.68 of Table "A" the appointment of a managing director
may only be terminated against his will if he ceases from any cause to be a director or if the
company in general meeting determines the appointment. The learned judge, having
examined the facts, held that the appellant had not ceased to be a director by reason of
disqualification and that the resolution of the board of directors confirming the dismissal of
the appellant was of no effect as it was not passed in general meeting. Regulation 68 of Table
"A", so far as it is relevant to this point, reads as follows:-
"The directors may from time to time appoint one.............. of their body to the office of
managing director......... for such time and at such remuneration..... as they may think fit, and
a director so appointed shall not............ be subject to retirement by rotation ....... but his
appointment shall be subject to determination ipso facto if he ceases from any cause to be a
director, or if the company in general meeting resolve that his tenure of the office of
managing director ............ be determined".
Does this mean that though the appointment is made by the directors they have no power to
determine it or does it mean that the directors may determine the appointment and in
addition the company in general meeting has an overriding power of determination. Though
there are obita dicta to the contrary in NELSON v JAMES NELSON AND SONS LTD., in my
view on first principles the directors who make the appointment have power to terminate it,
and the matter is placed beyond doubt by s.47 of the Interpretation and General Provisions
Act, 1956, which provides that, unless the contrary intention appears, a person having a
power to appoint under any written law (and reg.68 of Table "A" is a written law) shall also
have the power to dismiss. A number of cases have been decided on the basis that the
directors have effectively dismissed a managing director (see FOSTER v FOSTER..........,
READ v ASTORIA GARAGE (STREATHAN) LTD.............)
In my view reg.68 of Table "A" gives to the directors a power to appoint a managing director
on such terms as may be agreed. Such terms could include a provision that the managing
director was to continue as such for a specified period or a provision that he was not to be
dismissed without reasonable notice. In either of such cases the directors could not, unless
there was justification for a summary dismissal, dismiss the managing director contrary to
the agreed terms without laying the company open to an action for wrongful dismissal, but
there remains the overriding power of the company in general meeting to terminate the
appointment. But, subject to the dismissal not being contrary to any terms, express or
implied, of the appointment, the directors, by having the power to appoint, inherently also
have the power to dismiss. This being so, with respect to the learned judge, I consider that
he erred in holding that the appellant could only be dismissed from his appointment as
managing director by the company in general meeting; in my view the board of directors had
power to dismiss or confirm the dismissal of the appellant as managing director..........
It is urged, however, that the meeting of the directors on December 11, 1959, was not
properly convened in that NO NOTICE OF THE MEETING was given to the appellant and
as a consequence............. the resolution confirming the dismissal of the appellant was
ineffective (see also YOUNG v LADIES IMPERIAL CLUB)................ Accepting for the
purposes of this case that notice of the meeting should have been given to the appellant, even
though the meeting took place in England and the appellant was in Kenya and could not
under the articles have voted on the question of his dismissal, and that resolutions at a
directors' meeting of which due notice has not been given may in a number of cases be
ineffective, was the resolution dismissing the appellant for reasons which the directors
regarded, with some justification, as misconduct such that the courts would say that the
dismissal is ineffective. The appellant is claiming under an implied service agreement the
terms of which have not been set out in writing but which must I think consist of the terms
referred to in the letter from Mr.Pethed to the appellant offering him the appointment and a
term that the agreement is subject to the articles. The cases dealing with the service
agreement of a managing clearly assume that the ordinary law of master and servant would
apply to the appointment of the appellant as managing director (see for example LEE's case,
and ANDERSON v SUTHERLAND (PETERHEAD LTD) and with respect to the learned
judge I see no reason, nor has he given any, for holding the contrary. As I understand the
law of master and servant it is that unless the servant has a certain statutory status, a de facto
dismissal is effective even though the dismissal may be wrongful and give rise to a claim for
damages. This, perhaps, is merely another aspect of the principle that the courts will not
normally grant specific performance of a contract of service.
I consider that the case of BARBER v MANCHESTER REGIONAL HOSPITAL BOARD

makes it clear that the post of managing director (whatever may be the position of a director)
cannot be said to be an appointment having a statutory status so that any dismissal
therefrom to be effective must comply with all the requirements in accordance with the
principle set out in VINE v NATIONAL DOCK LABOUR BOARD (1957) A.C 488). As Lord
Wright said in the SOUTHERN FOUNDRIES case.
"In the same way art.105 which empowers the company by extraordinary resolution to
remove any director is equally excluded in the case of a managing director by article 91. If
the company under article 105 has passed an extraordinary resolution to remove the
respondent during his term of ten years, he would not (sic) doubt have ceased to hod office
because a claim by him for specific performance or kindred relief would, I assume, fail, but
the removal would have been a breach, of the agreement, unless for good cause....... The case
would have been simply a case of wrongful dismissal of a servant or employee. The servant
or employee is in such a case effectively dismisses"
In this case the appellant is not claiming damages for wrongful dismissal but he is claiming
salary on the ground that he is still the managing director in effect therefore he is asking for
specific performance of at least one aspect of a contract of service. In this case there has
undoubtedly been a de facto dismissal of the appellant on December, 9, 1959, which,
however irregularly, was confirmed by the board of directors on December 11, 1959, and
which the company two and a half years later is claiming to have been an effective dismissal.
For the courts to say that the appellant was not effectively dismissed and is thus still the
managing director of the company would, in my view, be quite wrong and would offend
against the principles that a master can effectively even though wrongful dismiss a servant,
that a contract of personal service will not be specifically enforced and that equity will not
interfere where an irregularity has been committed if it lies within the power of the person
committing the irregularity to correct it at any time. It could, in my view, be all the more
extraordinary to force on to an unwilling company a managing director who was considered
by his fellow directors, with some justification, to have been guilty of misconduct justifying
summary dismissal and to do so in the case of a private company where all the shares are
held by the parent company who would thus have had full power at any time either to
reinstate the appellant or to confirm his dismissal. My attention has not been drawn to any
case in which the dismissal of a managing director, however wrongful or irregular, has been
held to be ineffective and any claim arising out of any such dismissal has almost invariably
been for damages for wrongful dismissal and not for "salary owing" by reason of an
ineffective dismissal".............. In any opinion, therefore, the appellant was effectively
dismissed on December 9, 1959..........."
SIR TREVOR GOULD, Ag. V-P:-
"............s.3 of the Interpretation and General Provisions Ordinance, 1959, "written law" is so
defined as to include "all Ordinances" and by s.17 every schedule to or table in any written
law shall be construed and have effect as part of such written law. Table "A" is therefore a
written law, and as the sole purpose which the regulations in Table "A" may serve is to take
effect as articles of limited companies, those who adopt or do not exclude them must be
deemed to know and accept the legal implications which follow........... Regulation 67 of Table
"A", which is also one of the articles of the respondent company, is in the usual terms giving
the directors power to manage the business and to exercise all such powers of the company
as are not by the ordinance or the articles required to be exercised by the company in general
meeting. That, in the ordinary course of business, would include power to engage and
dismiss employees, and in the circumstances of the present case, there being nothing in the
articles of the respondent company which indicates the contrary, I would accept that the
current of authorities shows that the position of the appellant qua managing director was
that of employee.
Apart from authority, I would not think that because a power is given by reg.68 to the
company IN GENERAL MEETING to determine the appellant's tenure of office as managing
director, it follows that there is any derogation from the full powers of management of the
directors. ......... It is true that without specific authority in the articles directors may not
appoint on e of their number to the position of managing director or other salaried office ......
Such an appointment would entail delegation of authority or payment of remuneration not
authorised for directors. But where there is, as here, specific authority to appoint for such
term and at such remuneration as may be decided by the directors, is there any reason to
suppose that reg.68 is to be regarded as a complete code so far as appointment and dismissal
is concerned? It contains no specific denial of the directors' power to dismiss, if one is
implied if the company in general meeting resolve", in reg.68, are to be of managing director
be exercised only in general meeting, would they detract from the powers conferred by
reg.67. As a matter of drafting of course it would have been easy to reserve a power of
revocation to the directors in reg.68, but it would have been equally easy to make it clear that
only the occurrence of one or two circumstances stated in the concluding words of that
regulation could determine the appointment, otherwise than by the expiry of his term.
It would be in my reading of reg.68 that the power given to the company in general meeting
is an overriding one, enabling the company to take that particular matter out of the hands of
the directors if it wishes; that it is a recognition of the rule that a company cannot give nor
overrule their decisions unless the articles so provide JOHN SHAW & SONS LTD V SHAW
As I see it, the power of the company in general meeting under reg.68 and the power of the
directors to manage in all which is not "required" to be done in general meeting can co-exist
without conflict, and the existence of the power in the general meeting does not import a
requirement that the tenure of office of a managing director may be determined in that way
only. I should perhaps repeat that I am referring to power of effective determination,
irrespective of whether it amounts to breach of contract. ......... If powers of management in
the terms of reg.67 do not include power to dismiss for good cause there seems to be no good
reason to say they include power to suspend a managing director from his duties even for
the protection of the company. .......... As Newbold, J A has observed in his judgement, a
court will not give specific performance of a contract of service and that is in effect what the
appellant seeks. In my judgement the respondent company has effectively excluded the
appellant from his position as managing director and his remedy (if he has good ground on
the merits) is in an action for wrongful dismissal or wrongful repudiation".
NOTES
1. Reg.67 referred to in this case is now Article 80 of Table "A".
2. "Reg.68" is now Article 107, but it should be observed that the words, "or if the
company in general meeting resolve that his tenure of the office of managing director
........... be determined" in Reg.68 have been omitted from Article 107 of the current
Table A.
78. SOUTHERN FOUNDRIES (1926) LTD V SHIRLAW (194) (HOUSE OF LORDS):
In 1933, the respondent was by a written agreement appointed managing Director of the
appellant company (Southern) for ten years. In 1936, after Souther had been taken over by
Federated Foundries Ltd. (Federated), Southern altered its articles so as to include, inter alia;
a new article 8 which empowered Federated by a written instrument to remove any director
of Southern. In 1937 Federated exercised this power and removed the respondent from his
directorship. He sued Southern for breach of contract and Federated for wrongly procuring
the breach of contract. He was awarded 12,000 pounds damages against both defendants,
and the award was upheld by the Court of Appeal (Greene M R dissenting) and by the
House of Lords (Viscount Maugham and Lord Romer dissenting).
LORD ATKIN My Lords, the question in this case is whether the appellant company have
broken their contract with the respondent made in December 1933 that he should hold
articles adopted by the company, after the agreement, the respondent was removed from the
position of director of the company by the Federated Foundries Ltd. There can be no doubt
that the office of managing director could only be held by a director, and that upon the
holder of the office of managing director ceasing for any cause to be a director the office
would be ipso fact vacated. Under the articles in existence at the date of agreement, by
article 89 the office of a director could be vacated on the happening of six various events,
bankruptcy, lunacy, etc., including the giving by the director of one month's notice to resign;
while by article 105 the company by extraordinary resolution could remove him from his
office. I feel no doubt that the true construction of the agreement is that the company agreed
to employ the respondent and the respondent agreed to serve the company as managing
director for the period of ten years. It was by the constitution of the company a condition of
holding such office that the holder should continue to be director and such continuance
depend upon the terms of the articles regulating the office of director. It was not disputed,
and I take it to be clear law, that the company's articles so regulating the office of director
could be altered from time to time: and therefore the continuance in office of managing
director under the agreement depended upon the provisions of the articles from time to time;
and therefore the continuance in articles from time to time. Thus the contract of employment
for the term of ten years was dependent upon the managing director continuing to be a
director. This continuance of the directorship was a concurrent condition. The arrangement
between the parties appears to me to be exactly described by the words of Cockburn C J in
Stirling v Maitland: Ìf the party enters into an agreement which can only take effect by the
continuance of an existing state of circumstance': and in such a state of things the Lord Chief
Justice said: Ì look on the law to be that.... there is an implied engagement on his part that
he shall do nothing of his own motion to put an end to that sate of circumstances, under
which alone the arrangement can be operative.' That proposition in my opinion is well
established by law. Personally I should not so much base the law on an implied term, as on a
positive rule of the law of contract that conduct of either promisor or promisee which can be
said to amount to himself òf his own motion' bringing about the impossibility of
performance is in itself a breach. If A promises to marry B and before performance of the
contract marries C, A is not sued for breach of an implied contract not to marry any one else,
but of his own contract to marry B. I think it follows that if either the company of its own
motion removed the respondent from the office of director to be vacated by giving one
month's notice of resignation under article 89, either of them would have committed a breach
of the agreement in question. As Kennedy L J said in Measures Bros Ltd v Measures in
discussing this very question of the effect upon a contract of employment as managing
director: Ìt is elementary justice that one of the parties to a contract shall not get rid of his
responsibilities thereunder by disabling the other contractor from fulfilling his part of the
bargain.
I cannot agree with the view of the contract taken by the Master of the Rolls that the parties
must be taken to have agreed that the term, though expressed to be for ten years, was subject
to be determined by any cause including the will of either party expressed in accordance
with the articles; and that such determination therefore could not constitute a breach. I
should have construed the agreement as I do on the first two clauses alone, but the
remaining clauses and particularly those dealing with the mutual obligations between the
respondent and Sir Berkeley Sheffield in this tripartite agreement in my view strongly
reinforce that construction. I agree, therefore, with the trial judge, with the majority of the
Court of Appeal, and with I believe all your Lordships in thinking that if during the term the
respondent had given a notice of resignation, or if the company had exercised its power of
removal under article 105, either would have committed a breach of the contract.
The question that remains is whether if the removal by the company would have been a
breach by the company, the removal under the altered articles by the Federated Foundries
Ltd. was a breach by the company. In this matter the Master of Rolls agreed with the other
members of the Court of Appeal; but all the members of this House are not agreed. My
Lords, it is obvious that the question is not as simple as in the case just considered of the
removal being by the Southern Foundries Ltd; but I venture respectively to think that the
result must be the same. The office of director involves contractual arrangements between
the director and the company. If the company removes the director it puts an end to the
contract: for in the contract, by operation of law, or by the will of the two parties. The
altered article 8 which gives power to the Federated Foundries Ltd to remove from office any
director of the company is, when analysed, a power to the Federated to terminate a contract
between the Southern and its directors. It is an act which binds the Southern as against its
promises; and if a wrong to the respondent if done by the Southern it surely must be a wrong
to the respondent if done by the Federated who derive their power to dot the act from the
Southern only. If a landlord gives power to a tenant to discharge the landlord's servants,
gardener or gamekeeper, it is the master, the landlord, who is bound by the consequences of
that discharge whether rightful, or whether wrongful, and so involving the payment of
damages. If a man buys goods and contracts with a sub-purchaser to take delivery direct
from his vendor, and contracts with his vendor to give delivery to the sub-purchaser, the
latter's recourse for breach of contract to deliver is against his own intermediate seller and
not against the head vendor. If then the Federated of their own motion determine the
concurrent condition it appears to me that necessarily they cause the Southern to break the
contract. The action of the Federated was, I think I may say avowedly, taken for the sole
purpose of bringing the managing director's agreement to an end. I do not think that it could
be said that the Southern committed any breach by adopting the new articles. But when the
Federated acted upon the power conferred upon them in the new articles they bound the
Southern if they acted in such a way that action by the Southern on the same articles would
be a breach. It is not a question of agency but of acting under powers conferred by contract
to interfere with a contract between the party granting the power and third person..........
LORD PORTER........ The general principle therefore may, I think, be thus stated. A company
cannot be precluded form altering its articles thereby giving itself power to act upon the
provisions of the altered articles - but so to act may nevertheless be a breach of contract
validly made before the alteration. Nor can an injunction be granted to prevent the adoption
of the new articles and in that sense they are binding on all and sundry, but for the company
to act upon them will none the less render it liable in damages if such action is contrary th
the previous engagements of the company. If, therefore, the altered articles had provided for
the dismissal without notice of a managing director previously appointed, the dismissal
would be intra vires the company but would nevertheless expose the company to an action
for damages if the appointment had been for a term, of say ten years and he were dismissed
in less......... LORD WRIGHT delivered a concurring opinion.
VISCOUNT MAUGHAM and LORD ROMER dissented.
79. READ v. ASTORIA GARAGE (STREATHAM) LTD. - (1952)
The defendant company's articles included article 68 of Table A of the 1929 Act, which
provided that the directors might appoint a managing director for such term and at such
remuneration as they might think fit; `.......but this appointment shall be subject to
determination ipso facto if he ceases from any cause to be a director, or if the company in
general meeting resolve that his tenure of the office of managing director be determined'.
Read was appointed managing director at a salary of £7 per week by a resolution of the
board.
JENKINS L.J......... There is no record anywhere of any terms on which the plaintiff was
appointed managing director beyond the minute of resolution No.4 which was passed at the
first meeting of the directors by which the plaintiff was appointed managing director at a
salary of £7 per week from 1 February 1932, and the articles of association of the company.
The company's articles adopted Table A, with certain modifications. Amongst the articles of
Table A adopted was article No. 68. (His Lordship read the article).
It is argued by Mr. Harold Brown for the plaintiff that, notwithstanding the provisions of
article 68, there was a contract between the plaintiff and the defendant company in the
nature of a contract of general hiring - a plain contract of employment, one of the terms of
which was that the plaintiff's employment should not be determined by the defendant
company except by reasonable notice. The judge came to the conclusion that the terms of the
plaintiff's appointment were not such as to entitle him to any notice in the event of the
company choosing under article 68 to resolve in general meeting that his tenure of office as
managing director be determined, and, in my judgement, the judge was clearly right.
80. ROYAL BRITISH BANK v. TURQUAND

(1856) 6 E.&B. 327
Exchequer Chamber
Turquand was sued, as the official manager of a coal mining and railway company
incorporated under the Act of 1844, on a bond for £2,000 which had been given by the
company to the plaintiff bank to secure its drawings on current account. The bond was given
under the seal of the company and signed by two directors and the secretary, but the
company alleged that under the terms of its registered "deed of settlement" the directors had
power to borrow only such sums as had been authorised by a general resolution. No such
resolution had been passed. The Court of Exchequer Chamber, affirming the judgement of
the Court of Queen's Bench, held that even so the company was bound by the bond.
JERVIS C.J. I am of opinion that the judgement of the Court of Queen's Bench ought to be
affirmed. I incline to think that the question which has been principally argued both here
and in that court does not necessarily arise, and need not be determined. My impression is
(though I will not state it as a fixed opinion) that the resolution set forth in the replication
goes far enough to satisfy the requisites of the deed of settlement. The deed allows the
directors to borrow on bond such sum or sums of money as shall from time to time, by a
resolution passed at a general meeting of the company, be authorised to be borrowed: and
the replication shows a resolution, passed at a general meeting, authorizing the directors to
borrow on bond such sums for such periods and at such rates of interest as they might deem
expedient, in accordance with the deed of settlement and the Act of Parliament; but the
resolution does not otherwise define the amount to be borrowed. That seems to me enough.
If that be so, the other question does not arise. But whether it be so or not we need not
decide; for it seems to us that the plea, whether we consider it as a confession and avoidance
or a special non est factum, does not raise any objection to this advance as against the
company. We may now take for granted that the dealings with these companies are not like
dealings with other partnerships, and that the parties dealing with them are bound to read
the statute and the deed of settlement. But they are not bound to do more. And a
prohibition from borrowing, but a permission to do so on certain conditions. "Finding that
the authority might be made complete by a resolution, he would have a right to infer the fact
of a resolution authorizing that which on the face of the document appeared to be
legitimately done. (i.e he would be entitled to assume that the resolution had been passed)
the party here, on reading the deed of settlement, would find, not
POLLOCK C.B., ALDERSON and BRAMWELL BB., and CRESSWELL and CROWDER JJ.
concurred.
81. HELY-HUTCHINSON v. BRAYHEAD LTD

(1968) 1 Q.B. 549
(Chancery Division and Court of Appeal)
Richards was chairman of directors of the defendant company and its chief executive or `de
facto managing director', who often committed the company to contracts on his own
initiative and only disclosed the matter to the board subsequently. The board acquiesced in
this practice. The plaintiff (referred to in the judgement as Lord Suirdale) was chairman and
managing director of another company, `Perdio', which it was planned should eventually be
merged with or acquired by the defendant. As part of an agreement to put more money into
Perdio, the plaintiff (who had been made a director of the defendant company) was given
certain letters (referred to as C.23 and C.26) signed by Richards, by which the defendant
agreed to guarantee the repayment of money owed to the plaintiff and to indemnify him
against certain losses. When sued on these undertakings, the defendant alleged that
Richards had no authority to make the contract in question. Roskill J. held that Richards had
apparent authority to bind his company; the Court of Appeal affirmed his decision, but on
the ground that he had actual authority.
ROSKILL J...... The question to what extent there may be implied authority in a chairman or
managing director acting as such as distinct form express authority, so as to bind a company
to acts done by him in the course of his duties as chairman or managing director or chief
executive, is one of considerable difficulty and one upon which there appears to be little or
no relevant authority. The conception of implied authority in such a person as distinct from
express authority is not easy having regard to the cases on this branch of the law on
ostensible or apparent authority. I was urged by Mr MacCrindle that as Mr Richards was
both chairman and de facto managing director there was for that reason alone implied
authority in him to do what he did. I have some difficulty in accepting that. I would not be
prepared to hold that there is implied authority in a chairman of a company, merely by

reason of his office, to do what Mr Richards did in this particular case in signing C.23 and
C.26. I do not think that mere status, derived from the holding of a particular office such as
chairman or managing director or chief executive, of itself implies an authority which would
not otherwise exist.
There may be cases where such an implication can be made, but I do not propose to decide
this issue on this point because I am quite satisfies, for the large number of reasons I shall
endeavor to give, that there was ostensible or apparent authority in Mr Richards to do what
he did.
The set-up in Brayhead is easy to envisage. It was an industrial holding company with a
large number of subsidiaries. Its directors were in the main working directors, each in
charge of a section of the holding company's subsidiaries. One would look after electronics,
another engineering, and so on. They would all come back to Mr Richards for advice and -
which is more important - decision from time to time on matters concerning their own
particular group. The final decision - and the final decision most especially on any matter
concerning finance - was Mr Richards' and nobody else's. Sometimes, I dare say, the
directors persuaded him to take or to refrain from taking a particular step; no doubt, like any
wise chief executive, he sought and obtained advice before he made up his mind; but in all
these cases the final decision, I am quite satisfied, rested with him and with nobody else.
If one goes through the minutes and documents which have been put before me, one can see
repeated examples of Mr Richards acting in this way. Sometimes, of course, the matter
would come back to the board for formal ratification after he had committed Brayhead,
perhaps technically without express authority. On other occasions, of which there are a
number of examples in the minutes, he plainly committed Brayhead and then, as it were,
reported the matter afterwards........ I have no doubt that the board knew that he was doing
this sort of thing all the time, and that whenever he thought it was necessary he assumed, or
purported to assume, authority to bind Brayhead, and that the board allowed him to do it
and acquiesced in his doing it. That is not to say, to use Mr Finer's phrase yesterday, that all
the directors were `Yes men'; I am sure they were nothing of the kind. Mr Richards was a
forceful personality; he knew his own mind. I think he quite clearly was allowed by
Brayhead to hod himself out as having ostensible or apparent authority to enter into
commitments of the kind which he entered into or purported to enter into, when he signed
C.23 and C.26..........
(The Court of Appeal affirmed the decision of Roskill J., but on the grounds that Richards
had actual authority.)
LORD DENNING M.R.... I need not consider at length the law on the authority of an agent,
actual, apparent or ostensible. That has been done in the judgements of this court in
FREEMAN & LOCKYER v. BUCKHURST PARK PROPERTIES (MANGAL) LTD. It is there
shown that actual authority may be express or implied. It is express when it is given by
express words, such as when a board of directors pass a resolution which authorizes two of
their number to sign cheques. It is implied when it is inferred from the conduct of the parties
and the circumstances of the case, such as when the board of directors appoint one of their
number to be managing director. They thereby impliedly authorize him to do all such things
as fall within the usual scope of that office. Actual authority, express or implied, is binding
as between the company and the agent, and also as between the company and others,
whether they are within the company or outside it.
Ostensible or apparent authority is the authority of an agent as it appears to others. It often

coincides with actual authority. Thus, when the board appoint one of their number to be
managing director, they invest him not only with implied authority, but also with ostensible
authority to do all such things as fall within the usual scope of that office. Other people who
see him acting as managing director are entitled to assume that he has the usual authority of
a managing director. But sometimes ostensible authority exceeds actual authority. For
instance, when the board appoint the managing director, they may expressly limit his
authority by saying he is not to order goods worth more than £500 without the sanction of
the board. In that case his actual authority is subject to the £500 limitation, but his ostensible
authority includes all the usual authority of a managing director. The company is bound by
his ostensible authority in his dealings with those who do not know of the limitation ...
Apply these principles here. It is plain that Mr Richards had no express authority to enter
into these two contracts on behalf of the company: nor had he any such authority implied
from the nature of his office. He had been duly appointed chairman of the company but that
office in itself did not carry with it authority to enter into contracts without the sanction of
the board..... The judge held that Mr Richards had ostensible or apparent authority to make
the contract, but I think his findings carry with it the necessary inference that he had also
actual authority, such authority being implied from the circumstance that the board by their
conduct over many months had acquiesced in his acting as their chief executive and
committing Brayhead Ltd to contracts without the necessity of sanction from the board.
LORDS WILBERFORCE and PEARSON delivered concurring judgements.
82. HOWARD v. PATENT IVORY MANUFACTURING CO.

(1888) 38 Ch.D. 156
Chancery Division
(The facts appear from the judgement.)
KAY J..... But then a very much more serious question has been raised, and that is this. The
debentures were issued by the directors, and it is said that the power of the directors to issue
debentures is limited, and the limit is very plain when you look at article 95, which is as
follows. The directors are empowered `to borrow from time to time on behalf of the
company such sums of money, not exceeding in the whole at any one time £1,000, as the
directors think necessary or advisable, also to raise such further moneys as may be
authorised from time to time by resolution of any general meeting of shareholders
summoned for the purpose'. So that when the directors have borrowed up to £1,000, and
there are existing loans unpaid to that amount, the borrowing power of the directors is
exhausted, and no more can be borrowed without the authority of a general meeting of
shareholders. Then the next clause is: `To secure the repayment of any moneys so borrowed,
together with the interest, by debentures'. Therefore the directors could only issue valid
debentures for moneys borrowed by themselves without the assent of a general meeting to
the extent of the borrowing power to authorize themselves to borrow and beyond that, in
order to issue debentures, there must be the assent of the general meeting.
Now in this case, unfortunately for the holders of these debentures, they are all directors,
and therefore the well-known authorities which make it unnecessary to see whether the
internal regulations of a company have been observed or not do not apply: because, of
course, the directors must be taken to know that the internal requirements of the company
had not been observed in the case of these debentures. Accordingly, I am very sorry to say
that I cannot treat the debentures as valid to the extent of more than £1,000. How that sum is
to be allotted between the different parties I do not know. I have heard nothing on that
point. I must treat the issue of the debentures as being invalid within the knowledge of the
directors beyond the amount of £1,000. There must be a declaration that the first ten only of
the thirty-five debentures, taking them according to their numbers, are valid."
83. IRVINE v. UNION BANK OF AUSTRALIA

(1877) 2 App. Case 366
Privy Council
The bank sought to enforce a security given to it by the Oriental Rice Co. Ltd over a rice mill
situated in Rangoon. The directors of the company had exceeded the limit of an amount
equal to half the paid-up capital imposed on their power to borrow by the articles of
association, but the bank argued that the company in general meeting might by a special
resolution have enlarged the directors' powers, and that the bank was entitled to assume that
this had been done. The contention was rejected: if any such vote had been passed, the fact
would have been apparent from the company's registered document.
SIR BARNES PEACOCK delivered the opinion of Privy Council....... The case of Royal British
Bank v. Turquand, and the same case in error, were cited in the course of argument to show
that the excess of authority was a matter only between the shareholders and the directors,
and that it does not affect the rights of the bank. In that case it was said by Chief Justice
Jervis: We may now take it for granted that the dealings with these companies are not like
dealings with other partnerships, and that parties dealing with them are bound to read the
statute and the deed of settlement; but they are not bound to do more. The party here (that
is in Turquand's case) on reading the deed of settlement would find not a prohibition from
borrowing, but a permission to do so on certain conditions.' In the present case, if the bank
had referred to case 50 of the articles of association they would have found that the directors
were expressly prohibited from borrowing beyond a certain amount. (Note: In Turquand's
case, there was no such limit)
The case of Royal British Bank v. Turquand was decided with reference to a company
registered under (the Act of 1844), and Chief Justice Jervis remarked that the lender finding
that the authority might have been made complete by a resolution would have a right to infer
the fact of a resolution authorizing that which on the face of the document appeared to be
legitimately done. In the present case, however, the bank would have found that, by the
articles of association, the directors were expressly restricted from borrowing beyond a
certain amount, and they must have known that if the general powers vested in the directors
by article 50 had been extended or enlarged by a resolution of a general meeting of the
shareholders under the provisions of section 51, a copy of that resolution ought, in regular
course, to have been forwarded to the Registrar of Joint Stock Companies, in pursuance of
section 53 of the Companies Act, and would have been found amongst its records. (Note:
S.51 is now S.143 of the Kenya Act)
Their Lordships are of opinion that the learned Recorder was correct in holding that this case
is different from that of Royal British Bank v. Turquand.....
For the above reasons their Lordships are of opinion that the plaintiffs are not entitled as
against the defendant to a charge on the property beyond the amount of one-half of £17,100,
the paid-up capital of the company.
The amount therefore allowed to the plaintiffs by the decree of the lower court must be
reduced, and their Lordships will humbly advise Her Majesty that the decree be reversed,
and that it be declared that the plaintiffs had a valid equitable mortgage on the property
mentioned in the plaint of the principle sum of £8,550 only..........."
84. B. LIGGET (LIVERPOOL) LTD v. BARCLAYS BANK

(1928) I.K.B. 48
(King's Bench Division)
The original directors of the plaintiff company were Ligget and Melia, and the articles
empowered the directors at any time to appoint an additional director. The bank was
instructed to honour cheques signed by the two directors, but Ligget was in the habit of
issuing cheques signed only by himself which Melia would subsequently countersign at the
bank, sometimes after they had been paid. In July 1925 Melia instructed the bank that
cheques were not to be paid without his signature, but the former practice was at times still
followed. In September 1925 Ligget as chairman of the board wrote informing the bank that
his wife had been appointed an additional director. Melia was unaware of this letter and of
the alleged àppointment' of Mrs Ligget. The bank thereafter honoured cheques signed by
Mr and Mrs Ligget. The bank was sued by the company for paying these cheques without
authority, and it was held liable, on the ground that it had been put on inquiry.
WRIGHT J.......... The primary defence set up by the defendant bank is one based upon an
application of the well-known rule which is often referred to as the rule in the Royal British
Bank v. Turquand, a rule which has been applied in a great many cases to which I have been
referred..... The rule as relied on by the defendant bank is that the defendant bank having
had the articles of association were entitled to assume that the notice of 1 September 1925
sent to them by the chairman was a valid and proper notice, because according to the articles
of association it was possible if the proper steps in the matter of internal management had
been taken by the directors of the company that Mrs Ligget should have been duly appointed
an additional director, as the notice stated. I am relieved from any examination of the exact
definition of this very respectable but perhaps somewhat ambiguous rule of law, because the
plaintiff company in answer to that contention have alleged that the defendant bank in any
case is not entitled to the benefit of hat rule by reason of circumstances of the case and were
negligent in not investigating the position before they accepted and acted upon the notice of
the appointment of a new director. On that issue I put two questions to the jury, and the
questions were these: `Was the bank put on inquiry whether the appointment of Mrs Ligget
was in order?' The jury answered: `Yes.' `Secondly, whether the bank was guilty of
negligence in paying the bills and cheques complained of?' and again the jury answered
`Yes'. Whatever may be the exact scope of the rule in Turquand's case I think it is quite clear
on principle and on the authorities I have already referred to that it can never be relied upon
by a person who is put on inquiry. The rule proceeds on a presumption that certain acts
have been regularly done, and if the circumstances are such that the person claiming the
benefit of the rule is really put on inquiry, if there are circumstances which debar that person
from relying of the prima facie presumption, then it is clear, I think, that he cannot claim the
benefit of the rule; and if, therefore, the answers of the jury to the questions which I put to
them stand, it is clear, I think, that his defence will not avail the defendants here......"
85. BURKINSHAW v. NICOLLS
Shares in the British Farmers Pure Linseed Cake Co. Ltd. which were not in fact paid up,
were issued to Goulton, together with a share certificate under the seal of the company
which described the shares as `fully paid up'. These shares were later bought in good faith
by Nicolls (as trustee for a third party) and Nicolls was registered as the holder. In the
winding-up of the company, the liquidator sought to make Nicolls pay up the full amount of
the shares as a contributory. The company was held estopped by the certificate from
denying that the shares were fully paid up.
LORD BLACKBURN........When a person makes to another the representation, Ì take upon

myself to say such and such things do exist, and you may act upon the basis that they do
exist', and the other man does really act upon that basis, it seems to me it is of the very
essence of justice that, between those two parties, their right should be regulated, not by the
real state of the facts, but by that conventional state of facts which the two parties agree to
make the basis of their action; and that is what I apprehend is meant by estoppel in pass or
homologation.............
Now in the present case the company has issued under the seal of the company a certificate
in the form which is set out in the case, in which the company has asserted that these shares
have been fully paid up. These certificates are issued under the directions of the Act of
Parliament, and are made "prima facie evidence of all that they state;" only prima facie
evidence. "The certificates are given and issued for the very purpose of enabling the person
who holds them to go to others for the purpose, amongst others, of selling the shares, and to
say: `Here is the certificate; you see I am a shareholder, as the company has so certified it."
Act upon that, and bargain with me upon the supposition that I am." That is the very object
with which they are issued under the company's seal. Now when the company has so issued
the certificate under the company's seal to enable a person to induce others to buy the shares,
and more especially when the company has registered the transfer solely in consequence of
that, it would be in the highest degree an injustice to say that the company shall, as against
that person, be permitted to say, "There was a mistake or inaccuracy in the representations
that the shares have been fully paid up." You would be fully entitled to say as against
everybody else who had acted upon it that it worked an estoppel. I think the liquidators
would be exactly in the same position ... ".
86. BARRON v. POTTER

(1914) 1 Ch. 895
Chancery Division
The two directors of the company were not on speaking terms, so that effective board
meetings could not be held. (This aspect of the case is dealt with above, at p. 287). The
plaintiff, Canon Barron, had requisitioned a shareholders' meeting at which additional
directors had purportedly been appointed, but the defendant objected that the power to
make such appointments was vested by the company's articles in the directors. It was held
that, in view of the deadlock, the power in question reverted to the general meeting, and so
the appointments were valid.
WARRINGTON J. (having held that no proper board meeting had been held: see above,
p.287). The question then arises, was the resolution passed at the general meeting of the
company a valid appointment? The argument against the validity of the appointment is that
the articles of association of the company gave to the board of directors the power of
appointing additional directors, that the company has accordingly surrendered the power,
and that the directors alone can exercise it. It is true that the general point was so decided by
Eve J. in Blair Open Hearth Furnace Co. v. Reigart and I am not concerned to say that in
ordinary cases where there is a board ready and willing to act it would be competent for the
company to override the power conferred on the directors by the articles except by way of
special resolution for the purposes of altering the articles. But the case which I have to deal
with is a different one. For practical purposes there is no board of directors at all. The only
directors are two persons, one of whom refuses to act with the other, and the question is;
What is to be done under these circumstances? On this point I think that I can usefully refer
to the judgement of the Court of Appeal in Isle of Wight Ry. Co. v. Tahourdin, not for the
sake of the decision, which depended on the fact that it was a case under the Companies
Clauses Consolidation Act 1845, but for the sake of the observations of Cotton and Fry L.JJ.
upon the effect of a deadlock such as arose in the present case. Cotton L.J. says: "Then it is
said that there is no power in the meeting of shareholders to elect new directors, for that
under the 89th section the power would be in the remaining directors. The remaining
directors would no doubt have that power if there was a quorum left. But suppose the
meeting were to remove so many directors that a quorum was not left, what then follows? It
has been argued that in that case, there being no board which could act, there would be no
power of filling up the board so as to enable it to work. In my opinion that is utterly wrong.
A power is given by the 89th section to the remaining directors if they think proper so to do
to elect persons to fill up the vacancies. I do not see how it is possible for a non-existent
body to think proper to fill up vacancies. In such a case a general meeting duly summoned
for the purpose must have power to elect a new board so as not to let the business of the
company be at a deadlock'........... Those observations express a principle which seems to me
to be as applicable to the case of a limited company incorporated under the Companies
(Consolidation) Act 1908 as to a case falling under the Companies Clauses Consolidation Act
1845, and moreover to be a principle founded on plain common sense. If directors having
certain powers are unable or unwilling to exercise them - are in fact a non-existent body for
the purpose - there must be some power in the company to do itself that which under other
circumstances would be otherwise done. The directors in the present case being unwilling to
appoint additional directors under the power conferred on them by the articles, in my
opinion, the company in general meeting has power to make the appointment........
87. FOSTER v. FOSTER

(1916) 1 Ch. 532
Chancery Division
The shareholders in the company were split into two factions; that controlled by the
defendant, Mrs. M.Foster, could narrowly outvote the plaintiff and his supporters. The
plaintiff had been removed from the office of chairman and had had his salary as a director
cut from £300 to £25 per annum; and, instead of being sole managing director, he was made a
joint managing director with Mrs. Foster. (He complained of all these moves, but the court
held that the resolutions were in each case regular). Later, at a board meeting of three
directors held in January 1915, resolutions were carried by Mrs. Foster and the third director,
against the opposition of the plaintiff, removing him from the post of managing director and
appointing Mrs. Foster sole managing director at a substantial remuneration. These
resolutions were irregular, since Article 93 of the articles forbade a director (in this case Mrs
Foster) from voting in respect of any contract in which he or she was interested. But the
court held that his was an irregularity which the shareholders could ratify, or alternatively a
matter in which, because of deadlock, competence had reverted from the board to the
general meeting. In either case it was for the shareholders to put it right, and the court had
no jurisdiction.
88. RE: EL SOMBRERO LTD. (1958) (CHANCERY DIVISION)
The applicant held 900 of the 1,000 shares in the company, while the remaining shares were
held as to 50 each by the two respondents, who were its only directors. The applicant had
twice requisitioned a meeting of the company for the purpose of exercising the power given
by s.184 of the Companies Act 1948 to remove the directors by ordinary resolution, but on
each occasion the respondents had absented themselves in order to ensure that the quorum
of two members (as fixed by the articles) was not present. He sought an order under s.135
and a direction that one person should be deemed to constitute a quorum at such meeting.
The court, overruling the decision of the registrar, made an order accordingly
WYNN - PARRY J:........."The first point of law which arises involves the construction of
section 135(1) of the Companies Act 1948, the examination being directed to consider the
scope of the phrase Ìf for any reason it is impracticable to call a meeting of a company in any
manner in which meetings of that company may be called, or to conduct the meeting of the
company in manner prescribed by the articles or this Act.........' It is to be observed that the
section opens with the words Ìf for any reason', and therefore it follows that the section is
intended to have, and, indeed, has by reason of its language, a necessarily wide scope. The
next words are `......it is impracticable to call a meeting of a company.........' The question
then arises, what is the scope of the word ìmpracticable'? It is conceded that the word
ìmpracticable' is not synonymous with the word ìmpossible'; and it appears to me that the
question necessarily raised by the introduction of that word ìmpracticable' is merely this:
examine the circumstances of the particular case and answer the question whether, as a
practical matter, the desired meeting of the company can be conducted, there being no
doubt, of course, that it can be convened and held. Upon the face of the section there is no
express limitation which would operate to give those words ìs impracticable' any less
meaning than that which I have stated, and I can find no good reason in the arguments
which have been addressed to me on behalf of the respondent for qualifying in any way the
force of that word ìmpracticable' or the interpretation which I have placed upon it, and
therefore upon that point I am in favour of the applicant.
(His Lordship then discussed various passages from the decision of the registrar and
continued;) Later, referring to an argument which had been put before him by Mr, Cohen on
behalf of the applicant, namely, that the applicant, as a majority shareholder, is entitled to
remove the personal respondents form the board under section 184, and that the court would
be stultifying the applicant's statutory powers if he refused to make the order which was
asked for, the registrar said this: Ì cannot accept that proposition as correct. His power of
removing a director under section 184 is limited to doing so by ordinary resolution and
under the terms of his contract with the respondents they have power to prevent him from
passing such a resolution if they wish to do so. I do not consider that the court ought to
exercise its powers under section 135 in such a way as to deprive the respondents against
their will of the power.'
With all respect to the registrar, I think those passages proceed upon misconception. It was
conceded by Mr. Lindner, and, in my view, very properly conceded, that it was not possible
to say that the respondents, by virtue of the articles, had such right as is implicit in the use of
the word èntitled' by the registrar, to prevent the applicant from holding and conducting the
meeting. They have, it is true, a power to prevent him from doing so, but that power is not
derived from the articles; it is derived from the accidental distribution of the shareholding in
this company, and that, to my mind, explains the whole difficulty which has arisen.
I therefore arrive at the stage where I hold that I have jurisdiction in this case, and there is
nothing to prevent me exercising the discretion which is given under the section if I choose to
exercise it. It is true that I am sitting as an appellate court, but I am entitled to consider the
question of discretion, because, in my view, as I have held, the registrar has misdirected
himself on a question of law. In my judgement, this is eminently a case in which the court
ought to exercise its discretion; first, because if the court were to refuse the application it
would be depriving the applicant of a statutory right, which, through the company, he is
entitled to exercise under section 184(1), to remove the respondents as directors; secondly
(and I think this is a proper matter to take into account as part of the reasons for deciding to
exercise my discretion), the evidence disclosed that the respondents are failing to perform
their statutory duty to call an annual general meeting. The period within which they should
have held an annual general meeting expired at some date in October 1957. Their excuse in
the evidence is that there would be no use in convening and holding an annual general
meeting, because the accounts for the first period of the company's history are not yet
available. I have read the evidence with care, and I do not accept it as bona fide evidence.
There is a clear statutory duty on the directors to call the meeting whether or not the
accounts, the consideration of which is only one of the matters to be dealt with at an annual
general meeting are ready or not. It cannot possibly serve as an excuse for failing to perform
that statutory duty. It is quite obvious that the only reason why the respondents refuse to
call an annual general meeting is because the inevitable result of convening and holding that
meeting would be that they would find that they had ceased to be directors......
For these reasons, therefore, I propose to accede to this application and to direct a meeting of
the company to be held under the power given me by section 135 of the Companies Act 1948.
(After a discussion it was agreed that the order should direct that one member of the
company present in person or by proxy should be deemed to constitute a quorum and that
the meeting should be held at the offices of the applicant's solicitors.)
89. RE: STATE OF WYOMING SYNDICATE LTD (1901) 2 Ch.431
A company was governed, so far as the calling of meetings was concerned, by Table A (in
Schedule 1 to the Act of 1862), clause 32 of which provided that "the directors may,
whenever they think fit.... convene an extraordinary general meeting."
By the articles of association two directors constituted a quorum. A requisition was sent to
the directors in accordance with s.13 of the Companies Act, 1900, requesting them to convene
a meeting to pass an extraordinary resolution for voluntary winding-up. Within the twenty-
one days allowed to the directors, by s.13, for convening the meeting, the secretary of the
company, without the authority of the directors, summoned the meeting. At the meeting
two directors, the requisitionists, and many shareholders were present, and the resolution
was passed by the required majority.
At the hearing of a petition by a creditor for the compulsory winding-up of the company, the
defence was set up that a voluntary winding-up was pending, and that the petitioner did not
show that he was thereby prejudiced.
Held:- that the secretary had no power to issue the notices, that there was no ratification of
his act, that the so-called ratification of the company was invalid, and that a
compulsory winding-up order must be made.
WRIGHT, J:"........... In my judgement it is clear in law that the meeting could not have been
properly summoned on the day on which it was summoned except by the directors. It could
not be summoned by the requisitionists because the twenty-one days limited by s.13 of the
Act of 1900 had not expired. I need not decide whether requisitionists can, after the
expiration of the twenty-one days mentioned in the section, call a meeting by notices signed
by the secretary. But before that period had expired only the directors could call the
meeting, and the secretary could not, without their authority, summon a meeting......
Nothing can be more important than the question whether a company should proceed to
voluntary liquidation, especially when a petition for a compulsory winding-up order is
pending against the company, and it seems to me that proceedings of this kind ought to be
conducted with substantial propriety......... If he (i.e the secretary) does summon a meeting
without authority I do not think I ought to hold that a resolution passed at the meeting is
valid. If it had been a mere question of informality with reference to the constitution of the
board which summoned the meeting, for instance, some question as to whether there was a
proper quorum present, I might have applied the principle of BROWNE v. LA TRINIDAD....
but I think I should be going too far if I held that it applied to the present case.
No doubt two directors, the requisitionists, and many shareholders were present at the
meeting, and there would have been great reason for argument if there had been full
knowledge of the irregularity and the directors had done anything to recognize the act of the
secretary as their act. Then a different question would have arisen, but there is here no
question here of ratification, and I must hold that the meeting was improperly convened, and
that no valid resolution for the voluntary winding-up was passed. There will therefore be
the usual compulsory order for winding-up."
90. RE: WEST CANADIAN COLLIERIES LTD. (1962) Ch. 370
The registrar of a company, West Canadian Collieries Ltd., in sending out to members
notices of a special resolution for the reduction of capital to be proposed at the annual
general meeting, inadvertently omitted to send notices to nine of the members. The omission
was due to the fact that the addressograph plates of these nine members were kept in a
separate place to ensure that dividend warrants were not sent out to them, since in the past
such warrants had wither been returned to the company or not been cashed.
Article 75 of the company's articles of association was identical in terms with article 51 of
Table A.
The special resolution was passed at the meeting, and the company petitioned the court for
confirmation of the reduction of capital. The petition was unopposed.
PLOWMAN J.: The question which I have to decide is whether the allegation that the special
resolution for the reduction of capital was duly passed has been proved, having regard to the
events which happened concerning the notices convening the annual general meeting and the
omission to send the notices to those nine members.........
There appears to be no authority as to the effect of that article (article 75) in the
circumstances that I am considering although it is a common form article in identically the
same terms as article 51 of the current Table A. The fact that it is a Table A article means that
its validity as an article cannot be impugned..............
In the first place, I am satisfied that the omission to give notice of the meeting to the nine
members in question was "accidental" within article 75. It follows from that that the
omission to give notice to the nine members did not - and I quote the article - "invalidate the
proceedings at that meeting." But the question arises whether the result of this is (a) that
though the proceedings of the meeting were valid, the notice of the meeting is nevertheless
still not deemed to have been duly given for the purposes of s.141, or (b) that the notice of
the meeting is to be deemed to have been duly given for the purposes of that section. The
latter, in my judgement, is the true view. It must, I think, be implicit in article 75 that a
meeting, the proceedings of which are to be taken to be valid notwithstanding the omission
to give notice to members, is to be deemed to have been duly convened for the purposes of
the articles, including in those purposes the manner of convening the meeting. It seems to
me that, in the absence of such an implication, there would be no meeting the proceedings of
which could be validated by the articles. I say that there would be no meeting, because "it is
well settled that as regards a general meeting failure to give notice to a single person entitled
to receive notice renders the meeting a nullity."
I therefore hold that the notice of the meeting was duly given, and that the resolution in
question was duly passed for the purposes of S.141, and therefore....... I propose to confirm
the reduction."
91. MUSSELWHITE v. C.H. MUSSELWHITE & SON LTD (1962) Ch.964
The company failed to give notice of an annual general meeting to the two plaintiffs who had
sold their shares to the two defendants but had not been paid and remained on the register
of members. The directors believed that the plaintiffs were not entitled to the notice. The
plaintiffs claimed successfully that the meeting was a nullity and that they had the right to
decide how their shares should be voted until full payment had been received.
RUSSEL, J:"......... On 30th December 1958 the annual general meeting of the company was
held. I am not concerned with what business was before the meeting or what passed. No
notice of the meeting was served on the plaintiffs. Prima facie the meeting was a nullity for
that reason. The defendants, however, rely on the relevant article 403 of Table A, which is in
this form: "The accidental omission to give notice of a meeting......... to any member shall not
invalidate the proceedings at any meeting." (His Lordship referred to the evidence, and
continued:) On those facts I fail to understand how the omission to give notice to the
plaintiffs was accidental....... Prima facie, therefore, the plaintiffs are entitled to their
declaration that the annual general meeting was a nullity. On that basis, they ask for an
order that the annual general meeting for the year 1957-8, now long overdue, be held...........
92. TIESSEN v. HENDERSON (1889) 1 Ch.861.
The Violet Consolidated Gold Mining Co. Ltd was in difficulty, and meetings were
summoned to put before the shareholders alternative schemes for reconstruction. The
scheme which was approved was one in which certain of the directors had a strong financial
interest, but this fact was not disclosed in the notice convening the meeting. The notice
merely stated that the "guarantors" of the new scheme were to have a "right of call" or share
option on 50,000 of new shares of the company without telling the shareholders that three of
the directors were interested as such "guarantors". Kekewich, J. held the resolution invalid.
Kekewich J: "........... The question is merely whether each shareholder as and when he
received the notice of the meeting, in which I include the circular of the same date, had fair
warning of what was to be submitted to the meeting. A shareholder may properly and
prudently leave matters in which he takes no personal interest to the decision of the majority.
But in that case he is content to be bound by the vote of the majority; because he knows the
matter about which the majority are to vote at the meeting. If he does not know that, he has
not a fair chance of determining in his own interest whether he ought to attend the meeting,
make further enquiries, or leave others to determine the matter for him.
The shareholder must be regarded as a man of ordinary prudence. Treating it as a

commercial matter, he has invested his money in this company; the company is in
difficulties, and reconstruction is necessary and what he has to consider when the notice and
the circular come to him is whether, on the whole, this is the best thing that can be done. He
is either to vote himself in person or by proxy, or he is to leave it to the majority to decide. It
seems to me impossible to exclude from the matters which he ought, as a prudent man, to
consider, the question whether some of his directors should be remunerated by means of this
call on shares........ Why should any shareholder reading this circular think for a moment that
two of his directors....... were to have a large proportion of the 50,000 shares on which there
was to be a call in favour of the guarantors? He is told that the guarantors were the
Henderson company. He is not told that they were to derive a personal benefit. Of course I
am told, and with perfect honesty no doubt, that these gentlemen only wished to do the best
for the company, that they were largely interested in it, and they thought it the best thing to
do. True; but they did so for a commission, or for remuneration; and they were not prepared
to do the best they could without being paid for it............ and those facts were not stated in
the circular. If a meeting properly convened, and properly instructed as to the purpose for
which it is convened, chooses to do so I think it ought to have the opportunity of considering
the point. The man I am protecting is not the dissentient, but the absent shareholder - the
man who is absent because, having received and with more or less care looked at this
circular, he comes to the conclusion that on the whole he will not oppose the scheme, but
leave it to the majority. I cannot tell whether he would have left it to the majority of the
meeting to decide if he had known the real facts. He did not know the real facts; and,
therefore, I think the resolution is not binding upon him."
93. SHARP v. DAWES (1876) 2 Q.B.D. 26 (COURT OF APPEAL)
A meeting of a cost-book mining company governed by the Stannaries Acts was summoned
for the purpose, inter alia, of making a call. It was attended by only one member, Silversides,
and the secretary (who was not a member); and the following proceedings took place, as
recounted in a notice sent to all members:
At a general meeting of the shareholders, held at 2, Gresham Buildings, Basinghall Street,

London, E.C., on Wednesday, the 30th day of December, 1874, pursuant to notice, R.H.
Silversides, Esq., in the chair, the notice convening the meeting having been read, the
minutes of the last meeting were confirmed. The financial statement, ending the 28th of
November, showing a balance of £83 11s. 5d. against the shareholders, having been read, it
was
Resolved - `That the same be received and passed.'
Captain William Taylor's report having been read, it was
Resolved - `That the same be received and passed, and, together with the financial statement,
be printed and circulated among the shareholders.'
Resolved - `That a call of 4s. 6d. per share be now and is hereby made payable to the
secretary, and that a discount of 5 per cent be allowed if paid by the 20th of January, 1875.'
Resolved - Ìn consequence of the death of Lieut-Col. W.T. Nicolls, and until the appointment
of a shareholder to act in his stead, that all cheques be signed by Mr.R.H. Silversides and
Mr.Granville Sharp jointly.'
1. (These tin-mining companies are unincorporated and governed by special statutes:

see Gower, Modern Company Law, 3rd edition (London, 1969), p.7).
(Signed) R.H. Silversides, Chairman.
Resolved - `That a vote of thanks be given to the chairman.'

(Signed) Granville Sharp, Secretary.
The call was in due course made on a shareholder, Dawes, who refused to pay it. It was held
that the meeting was a nullity and that therefore the call was invalid.
LORD COLERIDGE C.J. "This is an attempt to enforce against the defendant a call
purporting to have been made under section 10 of the Stannaries Act 1869. Of course it
cannot be enforced unless it was duly made within the Act. Now, the Act says that a call
may be made at a meeting of a company with special notice, and we must ascertain what
within the meaning of the Act is a meeting, and whether one person alone can constitute
such a meeting. It is said that the requirements of the Act are satisfied by a single
shareholder going to the place appointed and professing to pass resolutions. The sixth and
seventh sections of the Act show conclusively that there must be more than one person
present; and the word `meeting' prima facie means a coming together of more than one
person. It is, of course, possible to show that the word `meeting' has a meaning different
from the ordinary meaning, but there is nothing here to show this to be the case. It appears
therefore to me that this call was not made at a meeting of the company within the meaning
of the Act. The order of the court below must be reversed.
MELLISH L.J. "In this case no doubt, a meeting was duly summoned, but only one
shareholder attended. It is clear that, according to the ordinary use of the English language,
a meeting could no more be constituted by one person than a meeting could have been
constituted if no shareholder at all had attended. No business could be done at such a
meeting, and the call is invalid."
94. EAST v. BENNET BROTHERS LTD (1911) 1 Ch.163

(Chancery Division)
The memorandum of association authorised the company to increase its capital by the
creation (inter alia) of new shares to rank pari passu with existing classes of shares, provided
that the issue was sanctioned by an extraordinary resolution of the existing holders of shares
of the class in question at a separate meeting of such holders. A fresh issue of preference
shares was made at a time when all the existing preference shares were held by Joseph
Bennett, who gave his approval at a `meeting' attended, according to the minute-book only
by himself. This action was held to be equivalent to the resolution required by the
memorandum.
WARRINGTON J. referred to Sharp v. Dawes (above) and continued: But now what I have
to consider is whether this is not one of the cases referred to by Lord Coleridge C.J. as one in
which it may be possible to show that the word `meeting' has a meaning different from the
ordinary meaning. For that I think I am entitled to see what is the object of the provision in
the memorandum of association. Plainly, as I have already said, that object is that before
affecting the rights of the preference shareholders it shall be necessary to obtain and record
in a formal manner the assent of the preference shareholders to that course. I think I may
take it also that the persons who framed this document may have had, and must be taken to
have had, in their minds the possibility at all events that this particular class of shares might
fall into the hands of one person. There is nothing to prevent it in the constitution of the
company. One must regard the memorandum as far as possible as proving for
circumstances which in the ordinary course may arise. That being so, I think I may very
fairly say that where one person only is the holder of all the shares of a particular class, and
as that person cannot meet himself, or form a meeting with himself in the ordinary sense, the
person who framed this memorandum having such a position in contemplation must be
taken to have used the word `meeting', not in the strict sense in which it is usually used, but
as including the case of one single shareholder. There is, of course, no difficulty in treating
the formally expressed assent of Bennet as a resolution. The only question is the purely
technical difficulty arising from the use of the word `meeting' in the memorandum.
I think on the whole that I may give effect to obvious common sense by holding that in this
particular case, where there is only one shareholder of the class, on the true construction of
the memorandum, the expression `meeting' may be held to include that case. It seems to me,
therefore, that the shares were validly issues, and that there is therefore no necessity for the
rectification of the register........"
95. NATIONAL DWELLINGS SOCIETY v. SYKES

(1894) 3 Ch.159
Chancery Division
After a resolution proposed by the chairman, Sykes, had been lost, he declared the meeting
dissolved and left the room together with his supporters, although the remainder of the
agenda had not been dealt with. The shareholders who were left elected another chairman
and proceeded with the business, but Sykes and his supporters refused to recognize the
validity of the decisions so reached. It was held that the chairman had no power to declare
the meeting dissolved in this way.
CHITTY J. A question of some importance has been mooted in this case, with regard to the
powers of the chairman over a meeting. Unquestionably it is the duty of the chairman, and
his function, to preserve order, and to take care that the proceedings are conducted in a
proper manner, and that the sense of the meeting is properly ascertained with regard to any
question which is properly before the meeting. But, in my opinion, the power which has
been contended for is not within the scope of the authority of the chairman - namely, to stop
the meeting at his own will and pleasure. The meeting is called for the particular purposes of
the company. According to the constitution of the company, a certain officer has to preside.
He presides with reference to the business which is there to be transacted. In my opinion, he
cannot say, after that business has been opened, Ì will have no more to do with it; I will not
let this meeting proceed; I will stop it; I declare the meeting dissolved, and I leave the chair.'
In my opinion, that is not within his power. The meeting by itself (and these articles
certainly apply to what I have said) can resolve to go on with the business for which it has
been convened, and appoint a chairman to conduct the business which the other chairman,
forgetful of his duty or violating his duty, has tried to stop because the proceedings have
taken a turn which he himself does not like........
(The decisions which had been taken in the absence of the chairman were accordingly ruled
to have been valid, including a resolution appointing a committee of investigation. Other
matters still in issue were then referred to another meeting for determination.)
96. SECOND CONSOLIDATED TRUST LTD. v. CEYLON AMALGAMATED TEA &

RUBBER ESTATES LTD.
(1943) 2 AII E.R. 567
Chancery Division
(The power of the chairman to demand a poll must be exercised not in accordance with his
own wishes or judgement but in such a way as to give effect to "the real sense of the
meeting")
A meeting of debenture stockholders was attended by fourteen people in person, but this
number was insufficient to form a quorum. The chairman, Fidler, whose bona fides was not
questioned, declined to exercise his power to demand a poll (in which case the proxies which
he held would have been lost.) Instead he declared the resolution carried by the unanimous
vote of the fourteen persons present. These proceedings were brought to challenge the
validity of the resolution.
UTHWATT J......... The duty of a chairman of a meeting is to ascertain the sense of the
meeting upon any resolution properly coming before the meeting. Then comes the question
as to his position in regard to his right to demand a poll. Upon a fair construction of this
(debenture stock trust) deed, I do not regard that as a personal right to be exercised
according to the fancy of the chairman; in other words, I do not think he has an unlimited
discretion as to the manner in which he may exercise that power. It appears to me that the
power to demand a poll is a power possessed by the chairman which is to be exercised or not
to be exercised according to his decision whether it is necessary to exercise the power in
order to ascertain the sense of the meeting upon the matter before them; in other words, it is
a power directed towards enabling him to carry on the meeting for the purpose for which it
is convened.
In this particular case, the first thing the chairman knew was this, that in order to have a
quorum at the meeting at all he must count in at any rate some of the proxies which he held.
The second thing he knew and which is not denied is that, if a poll were demanded and he
used his proxies, the resolution could not be carried.
In those circumstances, it seems to me that the chairman in this particular case is deciding
not to demand a poll never had his mind directed to the real point which he should have
considered before coming to a decision. That point was how best to ascertain the sense of the
meeting. The position was: Ì have these proxies in my possession; they have been sent to
everybody. Everybody has had a chance of expressing their views. Some are present; others
are not. Unless I count in some at least of the proxies, I have not got a quorum. How then
shall I get the sense of this meeting?' I do not think he ever directed his mind to that point,
and, not having directed his mind to that point, which is a matter which he ought to have
taken into consideration, it seems to me that he failed in this particular case in his duty as
chairman, and, having so failed in his duty as chairman, the resolution was not properly
carried.
I would just like to add this, that, in addition to having this duty to demand a poll or exercise
his power to demand a poll, I think - and I think Fidler as a business man must take the same
point of view - he would be under a duty in law to exercise all the proxies which he held as
chairman in accordance with the instructions which they contained."
97. SCOTTISH CO-OPERATIVE WHOLESALE SOCIETY LTD. v. MEYER AND ANOTHER

(1958) 3 W.L.R. 404
The affairs of a company must not be conducted in a manner oppressive to some of it's
members.
FACTS OF THE CASE
The society formed a subsidiary company for the manufacture and sale of rayon materials,
and Meyer and Lucas, because of their expert knowledge and trade connections, were
appointed joint managing directors. Three nominees of the society, who also served on the
board of the society, were appointed to the board of the company as directors. The company
issued 7,900 shares, Meyer holding 3,450, Lucas 450 and the society 4,000. For several years
the company prospered. Because of changed circumstances the society offered to buy the
shares of Meyer and Lucas, but they declined the offer on the ground that it was below the
true value of the shares. Thereupon the society, with the knowledge of its three nominee
directors, diverted business from the company to a department within its own organisation,
and this in time brought the business of the company virtually to a standstill and greatly
reduced the value of its shares. Faced with this situation Meyer and Lucas petitioned the
Court under section 210 of the Companies Act, 1948, for an order that the society should
purchase their shares at a price based on their value before business was diverted from the
company or at a price which the Court regarded as fair.
DECISION
It was held by the House of Lords that the society must buy the shares at a fair price, as
determined by the Court below.
Viscount Simonds said, at p. 407:-
"It was a plan which demanded utmost good faith on both sides and ... it was the lack of it
on the part of the society which led to this discreditable tale ... It is common ground that at
the date of the presentation of the petition ... it was just and equitable that the (p. 407)
company should be wound up. It could hardly be denied that to wind up the company
would unfairly prejudice the respondents. The only question is whether, its affairs were
being conducted in a manner oppressive to the respondents. (After accepting the findings in
the Court below that the conduct of affairs was oppressive to the respondents:) It is,
however, necessary, if section 210 is to be successfully invoked, to show not only that there
has been oppression of the minority shareholders of a company but also that it has been the
affairs of the company which have been conducted in an oppressive manner ...(page 409).
"At any rate by the end of 1952 it was the policy of the society by one means or another to
destroy the company it had created, knowing that the minority shareholders alone would
suffer in that process ... (p.410). The three nominee directors were aware ... of the policy of
the society ... I have not been able to find the least trace that they regarded themselves as
owing any duty to the company of which they were directors. They were the nominees of
the society and, if the society doomed the company to destruction, it was not for them to put
out a saving hand... Nominees of a parent company upon the board of a subsidiary company
may be placed in a difficult and delicate position. It is, then, the more incumbent on the
parent company to behave with scrupulous fairness to the minority shareholders and to
avoid imposing upon their nominees the alternative of disregarding their instructions or
betraying the interests of the minority. In the present case the society pursued a different
course. It was ruthless and unscrupulous in design and it was effective in operation, and ... it
was promoted by the action of inaction of the nominee....
"But, it is said, let it be assumed that the society acted in an oppressive manner; yet they did
not conduct the affairs of the company in an oppressive manner. My Lords,. it may be that
the acts of the society of which complaint is made could not be regarded as conduct of the
affairs of the company, if the society and the company were bodies wholly independent of
each other, competitors in the rayon market, and (p.411) using against each other such
methods of trade warfare as custom permitted. But this is to pursue a false analogy. It is not
possible to separate the transactions of the society from those of the company. Every step
taken by the latter was determined by the policy of the former ... It is just because the society
could not only use the ordinary and legitimate weapons of commercial warfare but could
also control from within the operations of the company that it is illegitimate to regard the
conduct of the company's affairs as a matter for which they had no responsibility. It appears
to me to be a glaring example of precisely ... the evil Parliament intended to remedy.
"Some criticism was made of the relief given by the order of the court. It was said that only
that relief could be given which had as its object and presumable its effect the bringing to an
end the matters complained of and that an order upon the society to purchase the
respondents' shares in the company did not satisfy that condition. This argument is without
substance. The matter complained of was the oppression of the minority shareholders by the
society. They will no longer be oppressed and will cease to complain if the society purchase
their shares...."
Lord Keith of Avonholm said, at p.429:-
"It was said that appeal could not be made to section 210 unless the company had a
continuing life ahead of it (because section 210 (2) (b) provides that an order may be made if
the court is of opinion ... that to wind up the company would unfairly prejudice' the
oppressed minority) and here it was clear that the company would have to be wound up.
But that means that if oppression is carried to the extent of destruction of the business of the
company no recourse can be had to remedies of the section. This would be to defeat the
whole purpose of the section. The present position is due to the oppression and but for the
oppression it must be assumed that the company would be an active and presumably
flourishing concern...."
Lord Denning said, at p.434:-
"It is, no doubt, true that an order of this kind gives to the oppressed shareholders what is in
effect money compensation for the injury done to them: but I see no objection to this. The
section gives a large discretion to the Court and it is well exercised in making an oppressor
make compensation to those who have suffered at his hands".
98. RE H R HARMER LTD

(1959) (Court of Appeal)
In 1947 Harmer senior ('the father') formed a private company to take over the stamp-dealing
business which he had founded many years earlier; and although as a result of a succession
of gifts and purchases the majority of shares in the company were now owned by his sons,
the father retained his voting control. The father and sons were appointed life directors by
the articles of association, which also constituted the father 'governing director'- an office not
defined as carrying any distinctive powers. The sons petitioned for relief under s.210,
alleging that the father (by now aged upwards of 88) ran the business as if it were entirely his
own, ignoring the wishes of his co-directors, the resolutions of the board, and the interests of
the shareholders. (He had, inter alia, founded a branch of the business in Australia, against
the wishes of the other directors, which proved unprofitable; purportedly dismissed an old
servant and fellow director on his own initiative; procured the appointment of his own 'yes-
men' to the board; drawn unauthorised expenses for himself and his wife; engaged a
detective to watch the staff; countermanded resolutions of the board; and endeavoured to
sell off the company's American business, severely damaging its goodwill.)
Roxburgh J. granted the sons relief under s.210, ordering inter alia, 'that the company should
contract for the services of the father as a philatelic consultant at a named salary that the
father should not interfere in the affairs of the company otherwise than in accordance with
the valid decisions of the board of directors, and that he should be appointed president of the
company for life, but that this office should not impose any duties or rights or powers'.
The order was upheld by the Court of Appeal.
JENKINS L.J. referred to the evidence and continued:
I should next say a word or two as to the scope and effect of section 210 of the Act....it is to
be observed, first, that the person permitted to apply to the court under section 210 is àny
member of the company', and he must show 'that the affairs of the company are being
conducted in a manner oppressive to some part of the members (including himself)'. this
indicates that the oppression complained of must be complained of by a member of the
company and must be of oppression to some part of the members (including himself) in their
or his capacity as a member or members of the company as such. Secondly it is to be noted
that the section does not purport to apply to every case in which the facts would justify the
making of a winding-up order under the `just and equitable' rule, but only to those cases of
that character which have in them the requisite element of oppression.Thirdly, the phrase
`the company are being conducted' suggests prima facia a continuing process by anyone who
is taking part in the conduct of the affairs of the company whether defacto or dejure.
Fourthly, the section gives no guidance as to the meaning of the word òppressive', although
it does,as already mentioned, indicate that the victim or victims of the oppressive conduct
must be a member or members of the company as such. Prima facie, therefore the word
òppressive' must be given its ordinary sense and the question must be whether in that sense
the conduct complained of is oppressive to a member or members as such. inasmuch as in
the present case it is not in dispute that the facts would justify a winding-up order the `just
equitable' rule and it is recognised that such an order would unfairly prejudice the
complaining members, this would appear to be in effect the only question in issue...
(His Lordship referred to the evidence and continued:)
The question remains whether,on these facts, the petitioners were rightly granted the relief
which Roxburg J. thought fair to grant under section 210. upon this issue Mr. Harold Brown,
for the father, made in effect these submissions.....First, he said that the dons should not be
heard to complain since they acquired their shares through the generosity of their father,who
having built up the business, proceeded to turn it into a company and to hand over a major
part of the beneficial interest in the form of shares to his sons virtually by way of gift. As to
this, the sons did at all events pay for their preference shares, and if they had not paid
anything, two of them at all events had long been working in the business, while the third
gave up his career in the Colonial Office in order to take up employment in the business.
moreover, the question of consideration appears to me irrelevant, a mere matter of prejudice.
Suppose the transaction was a mere matter of gift, the gift, if valid (and there is no
suggestion that it was not ) must surely have conferred the same rights as if the transaction
had been for full consideration.
Mr Harold Brown's second point was that the sons knew full well when the company was
formed that the father was to retain control by means of his predominant holding of `B'
shares so long as he lived. I agree, but cannot concur with Mr Brown in adducing from this
that the sons must be taken to have assumed that the father would exercise control
irregularly by doing what he thought fit without reference to the board or in defiance of the
board's decisions.
Then the third submissions of Mr Harold Brown was that what was done by the father was
not oppressive of the rights of the sons as members, but merely oppressive of their rights as
directors. I cannot accept this . It appears to me that the sons as members and not merely as
directors were oppressed by the singular conduct of the father the oppression must be no
doubt be oppression of members as such, but it does not follow that the fact that the
oppressed members are also directors is a disqualifying circumstance when the question of
relief under section 210 arises. I think there may well be oppression from the point of view of
member-directors where a majority shareholder (that is to say, a share holder with a
preponderance of voting power) proceeds, on the strength of his control, to act contrary to
the decision of, or without the authority of, the duly constituted board of directors of the
company.
Fourthly, Mr. Harold Brown said that the acts complained of may have been restrained by
injunction in so far as they were acts without the authority of the board. As to this I do not
think a wrongdoer in this field can well complain that the person wronged might have
chosen another remedy.
Then fifthly, Mr. Harold Brown said that the acts complained of were not in their result
oppressive, because it cannot be demonstrated that the company suffered any loss from any
of them.I cannot agree. The acts complained of were, I should say for the most part,
calculated to damage the company in one way or another.
Sixthly, Mr Harold Brown said that the acts complained of might have been lawfully done by
calling a general meeting and passing the requisite resolutions, ordinary or special. As to
this, I think the sons were at least entitled to require that the proper procedures should be
applied.
Then seventhly, Mr. Harold Brown said that this is not a case of discrimination between
different shareholders or classes of shareholders. I agree, but see no reason for holding that
section 210 is necessarily confined to cases of discrimination, though it is to be expected that
cases calling for its application would most usually take that form.
Finally he submitted that the father got no pecuniary benefit out of what he did. that is not
literally true, but even if it was, I do not think it is essential to a case of oppression that the
alleged oppressor is oppressing in order to obtain pecuniary bene fit.If there is oppression, it
remains oppression even though the oppression is due simply to the controlling
shareholder's overwhelming desire for power and control, and not with a view to his own
advantage in the pecuniary sense. It seems to me the result rather than the motive is the
material thing.
Then on the other side, Mr. Millner Holland's submissions were to this effect:
(i) The question is whether the course of conduct complained of was `burdensome, harsh or
wrongful' to shareholders, that is to say, a part of the shareholders,including the
petitioners.
(ii) if a person, relying on majority control in point of voting power, dispenses with proper
procedure for producing the result he desires to achieve, and simply insists on this or that
being done or omitted ,his conduct is oppressive because it deprives the minority of their
right as members of the company to have its affairs conducted in accordance with its
articles of association.
(iii) It is not shown that if the father had acted strictly in accordance with the articles of
association he could have achieved his object.the proper procedure cannot be put on one
side as mere machinery. It is the duty of the board to consider any proposal. if a majority
shareholder desires to override the board, there must be a proper meeting,whether of the
board or of the company, and at least an opportunity of discussion. Moreover, if a
majority shareholder sets about asserting his power in accordance with the articles and
succeeds in point of numbers, he may be faced with questions as to fraud on the minority
and so forth, which are backed by the expedient of simply doing as he chooses without
ceremony on the ground that if it came to a vote he could outvote anyone.
In his judgement, Roxburgh J., after saying that he adopted the reasoning of the Lord
President, Lord Cooper in Mayer v. Scottish Co-operative Wholesale Society Ltd, said: " That
being so, for my part the section seems to admit of no ambiguity. The word "oppression" is a
word of common use and understanding in the English language. But I would just observe in
passing that it does not say "who complains of acts of oppression"; it says "that the affairs of
the company are being conducted in a manner oppressive". In other words, I think it invites
attention not to events considered in isolation, but to events considered as part of a
consecutive story; and it is because, I take the view that I have not dealt (and do not propose
to deal) with each of the items which I have enumerated one by one....It remains, in my view,
a question for the court to decide on the whole story, as revealed in the evidence, whether
the affairs of the company are being - it has to be a state of affairs continuing at the date of
the petition - conducted in a manner oppressive to some part of the members. i do not know
that it has any particular bearing on the case, but this case is curious in that it is not a
minority beneficial interest that is being oppressed, and that would be the normal case; it is a
majority beneficial interest which is being oppressed because the voting control is placed in
the hands of a minority beneficial interest. In my judgement, I reach the opinion - because
that is what I have to do - that at the date of the presentation of this petition the affairs of the
company were being conducted in a manner oppressive to the petitioners'.
having given the best consideration I can to this not altogether easy case, I have come to the
same conclusion, preferring the reasoning of Mr. Milner Holland to that of Mr. Harold
Brown, and accepting the reasoning and conclusion of the judge.....
99. CLEMENS VS CLEMENS BROS LTD AND ANOTHER (1976) 2 ALL E.R. 268
The plaintiff held 45% and her aunt 55% of the issued share capital of a family company. The
company had been incorporated in 1913 and carried on a highly successful business in the
building trade. the capital of the company consisted of 200 preference shares, of which the
plaintiff and the aunt each held 100, and 1,000 ordinary shares of £1 each fully paid,of which
the plaintiff held 800 and the aunt 1,000. under the articles of association members of the
company had a right of pre-emption if another members wished to transfer his shares. The
aunt was a director of the company but the plaintiff was not. There were four other directors.
The total director's emoluments exceeded the company's net profits before taxation in each of
the years 1971 to 1974. The directors proposed to increase the company's shareholding from
£2,000 to 3,650 by the creation of a further 1650 ordinary shares all of which were to carry
voting rights. The directors other than the aunt would receive 200 shares each and the
balance of 350 shares would be placed in trust for long service employees of the company.
The secretary wrote to the plaintiff on 1st November 1974 setting out the proposals and
enclosing a notice of an extraordinary meeting to be held on 27th November to approve the
setting up of a trust for the company's employees, to increase the company's capital and to
provide for the proposed allotment. resolutions to that effect were out in the notice and a
draft of the proposed trust deed was enclosed. On 22nd november the plaintiff's solicitor
wrote a letter to the aunt pointing out that the scheme would reduce the plaintiff's
shareholding to under 25% and stating that the plaintiff was opposed to it. The aunt wrote
that she was fully aware of the implications of the changes in the company's structure but
intended to support the scheme. The plaintiff's solicitor attended the meeting on 27th
November as her proxy, and proposed an adjournment. The aunt voted against an
adjournment, and the three resolutions were then passed.
The plaintiff brought an action against the company and the aunt, seeking a declaration that
the resolutions were oppressive of the plaintiff and an order setting them aside.
HELD
(The company's Chairman's remuneration was £17,500 p.a) the Managing director's £29,510
in £41,189 in 1974, excluding benefits in kind).
The aunt was not entitled as of right to exercise her majority votes as an ordinary
shareholder in any way she pleased. Her right was subject to equitable considerations which
might make it unjust to exercise it in a particular way. although it could not be disputed that
she would like to see other directors have shares in the company and a trust set up for long
service employees, the inference was irresistible that the resolutions had been framed in
order to put complete control of the company into the hands of the aunt and her fellow
directors, to deprive the plaintiff of her existing rights as a shareholder with more than 25%
of the votes and to ensure that she would never get control of the company. those
considerations were sufficient in equity to prevent her aunt using her votes as she had, and
the resolutions would accordingly be set aside.
Dicta of Sir Richard Bagallay in North-west Transportation Co. Ltd. v Beatty, of Lindley Mr.
in Allen v Gold Reefs of Africa Ltd. of Evershed Mr. in Greenhalg v Arderne Cinemas Ltd. of
the Lord President in Meyer v scottish Textile and Manufacturing Co. Ltd and of Wilberforce
in Abraham v westbourne Galleries Ltd. applied.
FOSTER J.: "This action arises from unhappy differences which have arisen between an aunt
(aged around 68) and her niece (aged about 50), who together hold all the issued shares in
Clemens Bros Ltd..... by August 1967 both the plaintiff and Miss Clement (the aunt) were
directors, but the plaintiff resigned on 5th November, 1968 as a result of disagreements with
the chairman... The general meeting duly took place on 27th November 1974 and at that
meeting Mr. Barnes, who attended as proxy for the plaintiff, read a prepared statement
which is in these terms:
"(The plaintiff) has, since she was instrumental in disclosing the fraudulent acts of the
Company's managing director, been excluded from the board and refused detailed
information of the Company's accounts which would have enabled her to judge whether the
company was being properly run by the Board and whether the remuneration which was
voted to them was fair and reasonable. She retained, however, her dividend income, her
right to prevent any step being taken which required a special resolution and her right to
acquire any of the existing shares in the company on the occasion of their transmission. The
present proposals, in whatever terms the board chooses to put it has the following effects
upon (the plaintiff) :
(1) Instead of receiving 4/9 th of the dividend on the ordinary shares she will receive
fractionally less than 2/9 ths of future dividends so that her future from her ordinary
shareholding will be more than halved.
(2) Her accountants conservatively estimate the current value of the ordinary shares of
the company to be £60.00 each. If the proposal os carried out it is the auditor's view
that the value of the ordinary shares will then be £19.50 so they presumably put the
current value at about £37.00 . She will therefore suffer a capital loss of about £14,000
at the lowest estimate.
(3) It takes away her power to oppose a special resolution so that fundamental changes
in the nature and undertaking of the company may take place without her
concurrence.
(4) It so reduces her right of acquisition of shares on transmission as to relegate her

permanently to the position of a minority shareholder. The proposal is that all this
will be done (to the plaintiff) without any compensation whatsoever.....
"There is no suggestion that the company requires an injection of capital - indeed it is self
evident that it does not since the carrying from the company's ready moneys in order to pay
for the shares to be allocated to the employee's trust against an immediate net inflow of
£800.00. the proposal is not, therefore in the best financial interest of the company involving
as it does the depletion of the company's capital at a time of grave economic crises in the
country as a whole and, in particular the construction industry".
"There has been no discussion whatsoever of the Board's far reaching and fundamental
proposals with (the plaintiff). Indeed she was kept in ignorance of the proposal until it was
fully formulated. The proposal is directly contrary to the best interests of all shareholders
and particularly weakens the position of the plaintiff, the minority shareholder, still further.
After this there is nothing to prevent her interest being progressively eroded in a similar
way.
"As a matter of common sense and basic honesty, the proper approach to any such scheme is
one of consultation between all the affected parties, each of whom should have the benefit of
fully independent professional advice. To present the plaintiff with this package as a fait
accompli brushing aside a request for discussion of the proposals.........is contrary to morality
unjust, inequitable and oppressive". Oppressive that the meeting be adjourned for the
specific purpose of consultation between the shareholders.....
...At present the plaintiff... has 900 votes (45%) of the total votes and Miss Clemens has 1,100
votes (55%) out of the total number of 2000 votes.... It is proposed that each of the for
directors should be issued with 200 ordinary shares, a total of 800 shares, and the employees'
trust fund should be given 850 ..if the new shares are added together, totalling 1650, they
have a percentage of 452,056. This gives Miss Clemens and her fellow directors together an
overall majority of 52% and, if the trustees join them, more than 75% ... what inferences can
be drawn from these figures?....I for my part am driven to the conclusion that the figure of
850 was arrived at in order that the plaintiff's percentage of votes be below 25 per cent. this is
clearly shown since, there is no reason why the shares given to the employees' trust should
have a vote....
I accept the evidence of Mr Wilson that not only Mr. Bennet (the chairman) but also the other
directors are overpaid. the increase in the emoluments of Miss Clemens as a non-executive
director from £500 in 1970 to £3,000 in 1973 and £4,600 in 1974 is startling. there can I think
be no doubt that Miss Clemens has wholeheartedly thrown in her lot with Mr. Bennet and
the other directors and for some considerable consideration....I have no hesitation in saying
that on such information as I was allowed to see or hear Miss Clemens places complete
confidence in Mr Benett and is willing to do as he wishes. It appears that neither the plaintiff
nor Miss Clemens has any dependants, so that at least to Miss Clemens the enormous
increase in her emoluments must be of great interest and she has no incentive to preserve the
value of her shares for anyone except the present directors ...
"The directors have a fiduciary duty, but is there any similar restraint on the shareholders
exercising their powers as members at general meetings? MENIER V HOOPER'S
TELEGRAPH WORKS is a very clear case, since it involved the majority shareholders
expropriating the company's assets to the exclusion of the minority. In North-West
Transportation Co. Ltd. v Beatty Sir Richard Baggalay said:-
"The general principles applicable to cases of this kind are well established. Unless some
provision to the contrary is to be found in the charter or other instrument by which the
company is incorporated, the resolution of a majority of shareholders, duly convened, upon
any question with which the company is legally competent to deal, is binding upon the
minority, and consequently upon the company, and every shareholder has a perfect right to
vote upon any such question although he may have a personal interest in the subject-matter
opposed to, or different from, the general or particular interests of the company. On the
other hand, a director of a company is precluded from dealing, on behalf of the company,
with himself, and from entering into engagements in which he has a personal interest
conflicting, or which possibly may conflict, with the interests of those whom he is bound by
fiduciary duty to protect; and this rule is as applicable to the case of one of several directors
as to a managing or sole director. Any such dealing or engagement may, however, be
affirmed or adopted by the company, provided such affirmance or adoption is not brought
about by unfair or improper means, and is not illegal or fraudulent or oppressive towards
those shareholders who oppose it."
Here I find for the first time the word "oppressive,' but in that case the question in issue was
whether a director could exercise his vote as a shareholder in general meeting to ratify a
voidable contract to which he was a party.
In Allen v Gold Reefs of West Africa Ltd. Lindley M.R. Said:-
"The power this conferred on companies to alter the regulations contained in their articles is
Limited only by the provisions contained in the statute and the conditions contained in the
company's memorandum of association. Wide, however, as the language of s.50 is, the
power conferred by it must, like all other powers, be exercised subject to those general
principles of law and equity which are applicable to all powers conferred on majorities and
enabling them to bind minorities. It must be exercised not only in the manner required by
law, but also bona fide for the benefit of the company as a whole, and it must not be
exceeded. The conditions are always implied, and are seldom, if ever, expressed."
In Greenhalgh v Arderne Cinemas Ltd. Evershed MR said:-
Certain things, I think, can be safely stated as emerging from those authorities. In the first
place, it is nw plain that "bona fide for the benefit of the company as a whole" means not two
things but one thing. It means that the shareholder must proceed on what, in his honest
opinion, is for the benefit of the company as a whole. Secondly, the phrase, "the company as
a whole," does not (at any rate in such a case as the present) mean the company as a
commercial entity as distinct from the corporators. It means the corporators as a general
body. That is to say, you may take the case of an individual hypothetical member and ask
whether what is proposed is, in the honest opinion of those who voted in its favour, for that
person's benefit."
If that is right, the question in the instance case which must be posed is this: did Miss
Clemens, when voting for the resolutions, honestly believe that those resolutions, when
passed, would be for the benefit of the plaintiff?
In the Scottish case of Meyer v Scottish Textile and Manufacturing Co. Ltd Scottish
Cooperative Wholesale society Ltd. which was a case under s.210 of the Companies act 1948.
the Lord President (Lord Cooper) said:-
"The section is not concerned with the results to the oppressor but with the results to those
who complain of the oppression. When the section inquires whether the affairs of the
company are being conducted in a manner oppressive to some part of the members including
the complainer, that question can still be answered in the affirmative even if a member of the
company, the oppressor has suffered the same or even a greater prejudice."
That case went to the House of Lords, where Viscount Simmonds took the dictionary
meaning of the word "oppressive" as "burdensome, harsh and wrongful".
In Ebrahim v Westbourne Galleries Ltd. lord Wilberforce said:-
The "just and equitable " provision does not. .... entitle one party to disregard the obligation
he assumes by entering a company, nor the court to dispense him from it. It does, as equity
always does, enable the court to subject the exercise of legal rights to equitable
considerations; considerations that is , of a personal character arising between one individual
and another, which may make it unjust, or inequitable, to insist on legal rights, or to exercise
them in a particular way". "I think that one thing which emerges from the cases to which I
have referred is that in such a case as the present Miss Clemens is not entitled to exercise her
majority vote in any way she pleases. The difficulty is in finding a principle, and obviously
expressions such as "bona fide" for the benefit of the company as a whole, "fraud on a
minority" and "oppressive" do not assist in formulating a principle.
"I have come to the conclusion that it would be unwise to try to produce a principle, since the
circumstances of each case are infinite. I cannot escape the conclusion that the resolutions
have been framed so as to put into the hands of miss Clemens and her fellow directors
complete control of the company and to deprive the plaintiff of her existing rights as a
shareholder with more than 25% of the votes and greatly reduce her rights under article 6.
They are specifically and carefully designed to ensure not only that the plaintiff can never get
control of the company but to deprive her of what has been called her negative control.
Whether I say that these proposals are oppressive to the plaintiff or that no one could
honestly believe they are for her benefit matters not. A court of equity will in my judgement
regard these considerations as sufficient to prevent the consequences arising from Miss
Clemens' using her legal right to vote in the way that she has and it would be right for a
court of equity to prevent such consequences taking effect."
Order that the three resolutions be set aside.
100. EDWARDS V HALLIWELL (1950), Court of Appeal
The plaintiffs as members of trade union sued the union and members of a trade union sued
the union and the members of its executive committee claiming a declaration that a decision
to increase the union dues payable by members was invalid on the ground that the union's
rules, requiring a two-thirds vote on a ballot of members, had not been observed.
Vaisley J. granted the declaration, and his decision was affirmed by the Court of Appeal.
Jenkins L.J... The rule in Foss v. Harbottle, as I understand it, comes to no more than this;
first the proper plaintiff in an action in respect of a wrong alleged to be done to a company or
association of persons is prima facie the company or the association of persons itself.
Secondly where the alleged wrong is a transaction which might be binding on the company
or association and on all its members by a simple majority of the members, no individual
member of the company is allowed to maintain an action in respect of that matter for the
simple reason that, if a mere majority of the members of the company or association is in
favour if what has been done, then cadit quaestio. No wrong had been done to the company
or association and there is nothing in respect of which anyone can sue. If, on the other hand,
a simple majority of the members of the company or association is against what has been
done,then there is no valid reason why the company or association should not sue. in my
judgement, it is implicit in the rule that the matter relied on as constituting the cause of
action should be a cause of action properly belonging to the general body of corporators or
members of the company as opposed to a cause of action which some individual member can
assert in his own right.
The cases falling within the general ambit of the rule are subject to certain exceptions. It has
been noted in the course of argument that in cases where the act complained of is wholly
ultra vires the company or association the rule has no application because there is no
question of the transaction being confirmed by any majority. It has been further pointed out
that where what has been done amounts to what is generally called in these cases a fraud on
the minority and the wrongdoers are themselves in control of the company, the rule is
relaxed in favour of the aggrieved minority who are allowed to bring what is known as a
minority shareholders action on behalf of themselves and all others.
The reason for this is that, if they were denied that right, their grievances could never reach
the court because the wrongdoers themselves, being in control, would not allow the
company to sue. Those exceptions are not directly in point in this case, but they show,
especially the last one, that the rule is not an inflexible rule and will be relaxed where
necessary in the interests of justice.
There is a further exception which seems to me to touch this case directly: That is the
exception noted by Romer J. in Cotter v. National Union of Seamen. He pointed out that the
rule did not prevent an individual member from suing if the matter in respect of which he
was suing was one which could be validly done or sanctioned, not by a simple majority of
the members of the company or association, but only by some special majority, as, for
instance, in the case of a limited company under the Companies Act, a special resolution
duly passed as such. As Homer J. pointed out, the reason for that exception is clear, because
otherwise, if the rule were applied in its full vigour, a company which,by its directors , had
broken its own regulations by doing something without a special resolution could assert that
it alone was the proper plaintiff in any consequent action and the effect would be to allow a
company acting in breach of its articles to do de facto by ordinary resolution that which
according to its own regulations could only have been validly done, not by a simple majority,
but by a two-thirds majority obtained on a ballot vote. In my judgement, therefore, the
reliance on the rule in Foss v. Harbottle in the present case may be regarded as misconceived
on that ground alone.
I would go further. In my judgement, this is a case of a kind which is not even within the
general ambit of the rule. It is a case where what is complained of is a wrong done to the
union, a matter in respect of which the cause of action would primarily and properly belong
to the union. It is a case in which certain members of a trade union complain that the union,
acting through the delegate meeting and the executive council in breach of the rules by which
the union and every member of the union are bound, has invaded the individual rights of the
complainant members, who are entitled to maintain themselves in full membership with all
the rights and privileges appertaining to that status so long as they contributions in
accordance with the tables of contributions as they stood before the purported alterations of
1943, unless and until the scale of contributions is validly altered by the prescribed majority
obtained on a ballot vote. Those rights, these members claim, have been invaded. The gist of
the case is that the personal and individual rights of membership of each of them have been
invaded by a purported, but invalid, alteration of the tables of contributions. In those
circumstances, it seems to me that the rule in Foss v. Harbottle has no application at all, for
the individual members who are suing sue, not in the right of the union, but in their own
right to protect from invasion their own individual rights as members.....
Evershed M.R. and Asquith L.J. delivered concurring judgements.
101. PENDER v. LUSHINGTON (1877), Court of Chancery (Master of the Rolls)
Pender has split his shareholding among nominees in order to defeat a provision in the
articles which fixed a maximum number of votes to which any one shareholder was entitled.
The chairman refused to accept the nominees' votes and accordingly declared lost a
resolution proposed by Pender, which would otherwise have been carried. The Master of the
Rolls granted Pender (who brought a representative action on behalf of himself and other
shareholders, and also of the company) an injunction restraining the directors from acting on
the basis that the nominees' votes had been bad. He also held that Pender had a right to sue
in the company's name, at least until a general meeting resolved otherwise, and a further
right to sue in his own name.
Jessel M.R.......... In all cases of this kind, where men exercise their rights of property, they
exercise their rights from some motive adequate or inadequate, and I have always
considered the law to be that those who have the rights of property are entitled to exercise
them, whatever their motives may be for such exercise. His Lordship then held that the
registered shareholders were members entitled under the articles to vote as they (or Pender)
wished. He continued:
I now come to the surbodinate question,not very material in the view I take of the case,
namely, whether you have the right plaintiffs here. The plaintiffs may be described as three,
though there are really two. There is, first, Mr.Pender himself, on behalf of himself; next, as
the representative of the class of shareholders who voted with him, whose votes I hold to
have been improperly rejected; and, next, there is the Direct United States Cable Company.
It is said that the company ought to have been made plaintiffs. The reasons given were
reasons of some singularity, but there is no doubt of this, that under the articles the directors
are the custodians of the seal of the company, and the directors, who in fact are defendants,
have certainly not given any authority to the solicitor for the plaintiffs on this record to
institute this suit in the name of the company as plaintiffs.
It is equally clear, if I am right in the conclusion to which I have come as to the impropriety
of the decision of the chairman in rejecting these votes, that if a case in which the company
might properly sue as plaintiffs to restrain the directors from carrying out a resolution which
had not been properly carried, and then comes the question whether I ought not to allow the
company now remain as plaintiffs.
The first point to be considered is this: Supposing there was no objection to the right of a
general meeting to direct an action to be brought, could I, even in the case, allow the
company to sue? I think I could. In that case the general meeting, having a right to direct an
action to be brought, would act by the majority of the members. The majority wish their
rights to be protected. A meeting could be called, and, if the court was satisfied that the
majority would direct an action to be brought, the company's name would not be taken
away.
But what is the court to do in the meantime, if it is satisfied that a real majority (would
decide) in favour of bringing an action? Surely it must do something in the meantime, and it
follows, I think, from that portion of the judgement, that in the meantime the court ought to
grant the injunction to keep things in statu quo........... I think I ought not on this summons to
take away the name of the company, but to let the summons stand over, leaving either party
to call a meeting to decide whether the company's name is to be used or not. In the
meantime, whether this is an action in the name of the shareholders or in the name of the
company, in either case I think there should be an injunction.
But there is another ground on which the action may be maintained. This is an action by
Mr.Pender himself. He is a member of the company, and whether he votes with the majority
or the minority he is entitled to have his vote recorded - an individual right in respect of
which he has a right to sue. That has nothing to do with the question like that raised in Foss
v. Harbottle and that line of cases. He has a right to say, `whether I vote in the majority or
minority, you shall record my vote, as that is a right of property belonging to my interest in
this company, and if you refuse to record my vote I will institute legal proceedings against
you to compel you'. What is the answer to such an action? It seems to me it can be
maintained as a matter of substance, and that there is no technical difficulty in maintaining it.
102. MENIER v. HOOPER'S TELEGRAPH WORKS (1874), Court of Appeal in Chancery
Hooper's company was a substantial shareholder in the European Telegraph Co., and had
contracted with it to make and lay a cable to South America under certain concessions
granted to the European company by the foreign government concerned. Menier, a minority
shareholder in the European company, claimed that Hooper's company had used its votes to
procure the diversion of this business to a third company, to cause the abandonment of the
proceedings brought by the European company to assert its right to the concessions, and to
have the European company wound up. The court, affirming Bacon V.C., held that a
minority shareholder's action was properly brought in these circumstances.
JAMES L.J........The defendants, who have a majority of shares in the company, have made an
agreement by which they have dealt with matters affecting the whole company, the interest
in which belongs to the minority as well as to the majority. They have dealt with them in
consideration of their obtaining for themselves certain advantages. Hooper's company have
obtained certain advantages by dealing with something which was the property of the whole
company. The minority of the shareholders say in effect that the majority had divided the
assets of the company, more or less, between themselves, to the exclusion of the minority. I
think it would be a shocking thing if that could be done, because if so the majority might
divide the whole assets of the company, and pass a resolution that everything must be given
to them, and that the minority should have nothing to do with it. Assuming the case to be as
alleged by the bill, then the majority have put something into their pockets at the expense of
the minority. If so, it appears to me that the majority have a right to have their share of the
benefits ascertained for them in the best way in which the court can do it, and given to them.
It is said, however, that this is not the right form of suit, because, according to the principles
laid down in Foss v. Harbottle, and other similar cases, the court ought to be very slow
indeed in allowing a shareholder to file a bill, where the company is the proper plaintiff.
This particular case seems to me precisely one of the exceptions referred to by Vice-
Chancellor Wood in Atwool v. Merryweather, a case in which the majority were the
defendants, the wrongdoers, who were alleged to have put the minority's property into their
pockets. In this case it is right and proper for a bill to be filed by one shareholder on behalf
of himself and all the other shareholders.
Therefore the demurrer ought to be overruled.

MELLISH L.J. I am entirely of the same opinion.
It so happens that Hooper's company are the majority in this company, and a suit by this
company was pending which might or might not turn out advantageous to this company.
The plaintiff says that Hooper's company being the majority, have procured that suit to be
settled upon terms favourable to themselves, they getting a consideration for settling it in the
shape of a profitable bargain for the laying of a cable. I am of opinion that although it may be
quite true that the shareholders of a company may vote as they please, and for the purpose
of their own interests, yet that the majority shareholders cannot sell the assets of the
company and keep the consideration, but must allow the minority to have their share of any
consideration which may come to them. I also entirely agree that, under the circumstances,
the suit is properly brought in the name of the plaintiff on behalf of himself and all the other
shareholders.
The appeal will be dismissed with costs.
103 ALEXANDER v. AUTOMATIC TELEPHONE CO. (1900), Court of Appeal
All the subscribers to the memorandum of association of the defendant company paid 6d.
per share on subscription. The five directors of the company held a meeting at which it was
resolved that a call of a further 2s. 6d. per share should be made, payable upon allotment by
all the shareholders except the three directors who had the largest shareholdings (about 75
per cent of the issued shares). The remaining two directors (who had in fact supported the
resolution) then brought a representative action against the three directors and the company,
claiming a declaration that all the shareholders were bound to pay the 2s. 6d. call. The Court
of Appeal, reversing Cozens-Hardy J. granted the relief asked.
LINDLEY M.R.......... The fact.... that (other) subscribers of the memorandum paid 3s. on
their shares whilst the defendants did not, is difficult to reconcile with the existence of any
understanding that all the subscribers should stand on their strict legal rights. The
defendants rely on clause 5 of the articles as entitling the directors to issue shares on any
terms they think expedient, and to make differences between some shareholders and others.
But this, I am satisfied, is an afterthought. The defendants were not in fact acting on this
article at all. But, even if they were, this article would not, in my opinion, justify them in
making a difference in their own favour without disclosing the fact to the other shareholders
and obtaining their consent to the arrangement. The Court of Chancery has always exacted
from directors the observance of good faith towards their shareholders and towards those
who take shares from the company and become co-adventurers with themselves and others
who may join them. The maxim `Caveat emptor' has no application to such cases, and
directors who so use their powers as to obtain benefits for themselves at the expense of the
shareholders, without informing em of the fact, cannot retain those benefits and must
account for them to the company, so that all the shareholders may participate in them........ In
the present case there is no question but that, by obtaining 3s. a share from the other
shareholders and paying nothing themselves, the defendants threw upon the other
shareholders a burden which they did not share themselves. It is true that by clause 121 of
the article dividends were only payable in proportion to the amounts paid up on the shares;
and as regards dividends, had there been any, the defendants would have been at a
disadvantage. But the advantage they obtained at the expense of the other shareholders was
that of deferring their own contributions to the funds of the company at the expense of the
other shareholders. This, in my opinion, was a clear breach of duty, unless the other
shareholders knew of it and sanctioned it.............
Upon the merits of the case I come to the conclusion that a breach of duty by the directors to
the company and the other shareholders in it has been established.
It is necessary, however, to consider the form of the action, and the relief which can be given.
The breach of duty to the company consists in depriving it of the use of the money which the
directors ought to have paid up sooner than they did. I cannot regard the case as one of
mere internal management which, according to Foss v. Harbottle and numerous other cases,
the court leaves the shareholders to settle amongst themselves. It was ascertained and
admitted at the trial that, when this action was commenced, the defendants held such a
preponderance of shares that they could not be controlled by the other shareholders. Under
these circumstances an action by some shareholders on behalf of themselves and the others
against the defendants is in accordance with the authorities, and is unobjectionable in form:
see Menier v. Hooper's Telegraph Works. An action in this form is far preferable to an action
in the name of the company, and then a fight as to the right to use its name. But this last
mode of procedure is the only other open to a minority of shareholders in cases like the
present......
RIGBY and VAUGHAN WILLIAMS L.JJ. delivered concurring judgements.
104. BURLAND v. EARLE (1902), Privy Council
The respondents, as shareholders, sued (inter alia) to compel the directors to declare a
dividend, and to obtain an account from Burland of a profit made by him out of the purchase
and resale to the company of certain plant and materials.
The question here discussed concerns the right of minority shareholders to sue when the
alleged wrongdoers are in control.
The opinion of their Lordships was delivered by LORD DAVEY............. It is an elementary

principle of the law relating to joint stock companies that the court will not interfere with the
internal management of companies acting within their powers, and in fact has no jurisdiction
to do so. Again, it is clear law that in order to redress a wrong done to the company or to
recover money or damages alleged to be due to the company, the action should prima facie
be brought by the company itself. These cardinal principles are laid down in the well-known
cases of Foss v. Harbottle and Mozley v. Alston, and in numerous later cases which it is
necessary to cite. But an exception is made to the second rule, where the persons against
whom the relief is sought themselves hold and control the majority of the shares in the
company, and will not permit an action to be brought in the name of the company. In that
case the courts allow the shareholders complaining to bring an action in their own names.
This, however, is mere matter of procedure in order to give a remedy for a wrong which
could otherwise escape redress, and it is obvious that in such an action the plaintiffs cannot
have a larger right to relief than the company itself would have if it were plaintiff, and
cannot complain of acts which are valid if done with the approval of the majority of the
shareholders, or are capable of being confirmed by the majority. The cases in which the
minority can maintain such an action are, therefore, confined to those in which the acts
complained of are of a fraudulent character or beyond the powers of the company. A
familiar example is where the majority are endeavouring directly or indirectly to appropriate
to themselves money, property or advantages which belong to the company, or in which the
other shareholders are entitled to participate, as was alleged in the case of Menier v.
Hooper's Telegraph Works. It should be added that no mere informality or irregularity
which can be remedied by the majority will entitle the majority to sue, if the act when done
regularly would be within the powers of the company and the intention of the majority of the
shareholders is clear. This may be illustrated by the judgement of Mellish L.J. in MacDougall
v. Gardiner.
There if yet a third principle which is important for the decision of this case. Unless
otherwise provided by the regulations of the company, a shareholder is not debarred from
voting or using his voting power to carry a resolution by the circumstance of his having a
particular interest in the subject-matter of the vote. This is shown by the case before this
Board of the North-West Transportation Co. Ltd. v. Beatty. In that case the resolution of a
general meeting to purchase a vessel at the vendor's price was held to be valid,
notwithstanding that the vendor himself held the majority of the shares in the company, and
the resolution was carried by his votes against the minority who complained.

Company Law Cases

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Company Law Cases

Uploaded by

Copyright:

Available Formats

STRATHMORE COLLEGE

LAW II APPENDIX OF CASES

For reference to the cases in the LAW II Study Pack

1. FORT-HALL BAKERY SUPPLY CO v WANGOE

2. JUBILEE COTTON MILLS v LEWIS

3. SALOMON v SALOMON & CO. LTD.

Lord Macnagheten said:

4. MACAURA v NORTHERN ASSURANCE CO.

5. A.L. UNDERWOOD LTD v BANK OF LIVERPOOL

Mr Underwood had carried on business as an engineering and machinery merchant. In 1919

In the course of his judgement Atkin, L.J. said:-

7. NASAU STEAM PRESS v TYLER AND OTHERS

9. RE BUGLE PRESS LTD.

10. RE MAIDSTONE BUILDING PROVISIONS LTD.

A partner in a firm of accountants which acted as auditors to Maidstone was appointed

11. RE WILLIAM C. LEITCH BROTHERS, LTD (NO.2)

12. FIRESTONE TYRE & RUBBER CO. v LLEWELLIN

An American company formed a wholly-owned subsidiary in England to manufacture and

13. JONES AND ANOTHER v LIPMAN AND ANOTHER

14. GILFORD MOTOR COMPANY LTD v HORNE AND ANOTHER (1933)

Lord Hanwort, M.R. stated in the Court of Appeal:

15. DAIMLER CO. LTD v CONTINENTAL TYRE & RUBBER CO.

1. A company incorporated in the United Kingdom is a legal entity, a creation of law

5. In a similar way a company registered in the United Kingdom, but carrying on

6. A company registered in United Kingdom but carrying on business in an enemy

My Lords, the foregoing propositions.... have, I think, the advantage of affording

16. RE DUOMATIC LTD (1969)

17. RE: EXPRESS ENGINEERING WORKS LTD. (1920)

Warrington L.J. stated:

18. HAROLD HOLDSWORTH & CO LTD v CADDIES

19. HELLENIC AND GENERAL TRUST LTD. (1975)

20. DHN FOOD DISTRIBUTORS v LONDON BOROUGH OF TOWER HAMLETS (1976)

21. COTMAN v BROUGHAM

Lord PARKER said:-

22. ASHBURY RAIL, CARRIAGE AND IRON CO. LTD. v RICHE

And later, Lord CAIRNS said:-

23. RE DAVID PAYNE & CO. LTD.

24. RE JON BEAUFORTE (LONDON) LTD.

A company, which was authorised by its memorandum of association to carry on the

25. RE INTRODUCTIONS LTD.

26. SINCLAIR v BROUGHAM

27. RE: CYCLISTS' TOURING CLUB

28. RE: EGYPTIAN DELTA LAND AND INVESTMENT CO. LTD

29. RE: HAMPSTEAD GARDEN SUBURB TRUST LTD

30. RE: PARENT TYRE CO.

31. HICKMAN v. KENT OR ROMNEY MARSH SHEEP-BREEDERS' ASSOCIATION.

The defendant association was incorporated as a non-profit-making company. Article 49 of

32. WOOD v. ODESSA WATER WORKS CO.

33. BEATTIE v. E. & F. BEATTIE LT

In the result, the appeal must be dismissed.

34. ELEY v. POSITIVE GOVERNMENT LIFE ASSURANCE CO.

35. RAYFIELD v. HANDS

36. LYLE & SCOTT LTD v. SCOTT'S TRUSTEES

37. ALLEN v. GOLD REEFS OF WEST AFRICA LTD.

Thereupon notice of a confirmatory meeting to be held on March 8, was as before, sent to

Held: (Court of Appeal)

38. SIDEBOTTOM v. KERSHAW, LEESE & CO. LTD

WARRINGTON L.J. and EVE J. delivered concurring judgements.

41. GOVERNMENT STOCK & OTHER SECURITIES INVESTMENT COMPANY LTD. v.

It becomes necessary, therefore, to consider the word "subscription" in the definition of

42. DERRY v. PEEK (House of Lords)

LORD HERSCHELL.......... In the court below Cotton, L.J., said:-

I think that the authorities establish the following propositions: