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 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 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 `as 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: `[Link] 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: `Every

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 [Link] 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 [Link]. The shareholders were only bound to look to the
interests of the company. They were not bound to consult or consider
[Link]'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 `expelling', 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
[Link]", and therefore it is not done bonafide for the benefit of the company
but that it is done to get rid of [Link]. If it were directed against [Link]
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: `It was
the position of [Link] 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 [Link]; that is what we had in our minds at the time; but we also had in our
minds that [Link] 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'. `It 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 [Link] 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 `one 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: `I 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: `I 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 [Link] 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
[Link].

(c) The money for the Camp Bird shares was not found by the Rotchschild
Trust (in effect [Link]). It was found -

(i) by loans which Hartley Baird Ltd made to [Link] (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 [Link]'s various Liechtenstein companies. It
was alleged that these commissions were not really owed but
fabricated.

All this was achieved because [Link] 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 [Link], 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 [Link] 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. [Link] was liable to repay the loan
to Hartley Baird Ltd.

(ii) Since [Link] 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:
`It is plain that [Link] 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 [Link]
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 [Link] 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: `Even so, I am quite clear that they
were just the puppets of [Link]. 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, `I

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..........
LAW II APPENDIX OF CASES 50

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.
LAW II APPENDIX OF CASES 51

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
LAW II APPENDIX OF CASES 52

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
LAW II APPENDIX OF CASES 53

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...........
LAW II APPENDIX OF CASES 54

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
LAW II APPENDIX OF CASES 55

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
LAW II APPENDIX OF CASES 56

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
LAW II APPENDIX OF CASES 57

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
LAW II APPENDIX OF CASES 58

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.
LAW II APPENDIX OF CASES 59

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
LAW II APPENDIX OF CASES 60

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
LAW II APPENDIX OF CASES 61

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.
LAW II APPENDIX OF CASES 62

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. `A 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.

LAW II APPENDIX OF CASES 63

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
LAW II APPENDIX OF CASES 64

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
LAW II APPENDIX OF CASES 65

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 [Link] 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
LAW II APPENDIX OF CASES 66

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.
LAW II APPENDIX OF CASES 67

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
LAW II APPENDIX OF CASES 68

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: `If 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: `I 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 `of 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: `It 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
LAW II APPENDIX OF CASES 69

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
LAW II APPENDIX OF CASES 70

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
LAW II APPENDIX OF CASES 71

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
LAW II APPENDIX OF CASES 72

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

LAW II APPENDIX OF CASES 73

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
LAW II APPENDIX OF CASES 74

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
LAW II APPENDIX OF CASES 75

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 `appointment' 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
LAW II APPENDIX OF CASES 76

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, `I

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
LAW II APPENDIX OF CASES 77

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 [Link]. 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. [Link], 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.
LAW II APPENDIX OF CASES 78

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 `If 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 `If 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 `impracticable'? It is conceded
that the word `impracticable' is not synonymous with the word `impossible'; and it
appears to me that the question necessarily raised by the introduction of that word
`impracticable' 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 `is 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 `impracticable' 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: `I 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
LAW II APPENDIX OF CASES 79

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 `entitled' 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
LAW II APPENDIX OF CASES 80

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.
LAW II APPENDIX OF CASES 81

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...........
LAW II APPENDIX OF CASES 82

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
LAW II APPENDIX OF CASES 83

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 - `In 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
[Link] 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
LAW II APPENDIX OF CASES 84

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.
LAW II APPENDIX OF CASES 85

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, `I
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
LAW II APPENDIX OF CASES 86

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: `I 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:-

LAW II APPENDIX OF CASES 87

"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
LAW II APPENDIX OF CASES 88

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 `any 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
LAW II APPENDIX OF CASES 89

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
[Link], 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

`oppressive', 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 `oppressive' 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
LAW II APPENDIX OF CASES 90

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 [Link] 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 [Link] 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
LAW II APPENDIX OF CASES 91

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.
LAW II APPENDIX OF CASES 92

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
LAW II APPENDIX OF CASES 93

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 ...
LAW II APPENDIX OF CASES 94

"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
LAW II APPENDIX OF CASES 95

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
LAW II APPENDIX OF CASES 96

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.
LAW II APPENDIX OF CASES 97

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, [Link] 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
LAW II APPENDIX OF CASES 98

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 [Link] 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
LAW II APPENDIX OF CASES 99

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
LAW II APPENDIX OF CASES 100

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 [Link]. 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
LAW II APPENDIX OF CASES 101

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.