Cases Fi

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.
LAW II APPENDIX OF CASES 2
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 às such' are treated as a statutory agreement between them
and the company as well as between themselves inter se, and, in my judgement, article 49 in the
present case does constitute a submission to arbitration within the true meaning and intent of the
Arbitration Act...........
32. WOOD v. ODESSA WATER WORKS CO.

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

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

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

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

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

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

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

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

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

(Privy Council, on appeal from the Supreme Court of New South Wales).
By s.148 of the Companies Act, 1936 of New South Wales:
"(1)... It shall not be lawful for a company to give...... by means of a loan..... any financial
assistance for the purpose of ....... a purchase made or to be made by any person of any
shares in the company: Provided that nothing in this section shall be taken to prohibit -
(a) where the lending of money is part of the ordinary business of a company, the
lending by a company of money in the ordinary course of its business......."
In this appeal, the Privy Council was called upon to decide whether certain transactions by
which a company (I.V.M.) gave financial assistance for the purchase of its shares by another
company (A.M.H.) contravened the provisions of the Act. The appellants were the directors of
I.V.M. at the time of the transactions and had been found guilty of misfeasance or breach of duty
in causing the loan to A.M.H. to be made.
The judgement of the Privy Council was delivered by Viscount Radcliffe.
VISCOUNT RADCLIFFE: "............ The section in question first appeared in the law of New
South Wales in the year 1936. As it had been introduced into the United Kingdom a few years
earlier as section 45 of the Companies Act of 1929, it is safe to assume that the later piece of
legislation took its inspiration from the earlier. There is no difficulty in describing the notorious
objections to a company's money being used to assist the purchase of its own shares (see, for
instance, the practice described by Lord Greene M.R. in re: V.G.M. Holdings Ltd) but the
question that now calls for consideration is what is the scope and nature of the various
exemptions allowed by the section from its general prohibition of money being provided for such
purposes.
When provisos (b) and (c) are contrasted with proviso (a), it seems clear that the second and
third are intended to take care of situations different in kind from that envisaged by the first.
What they exempt are loans or other transactions which are explicitly designed by the lender to
make possible what would otherwise be directly prohibited by the general words of the section -
the purchase of employees' shares by trustees under an established company scheme or the
purchase by employees, not being directors, of shareholdings in the company for their own
beneficial purposes. Purchases of these two kinds fall within limited and defined categories: the
section envisages (see subsection (2)) that each loan made for either of these reasons will admit of
identification as such and that the aggregate amount of such loans outstanding at the date of any
balance-sheet will be capable of precise computation and statement.
Proviso (a), on the other hand, is expressed in different terms. Whatever exemption it confers is
not described in relation to the purposes for or in connection with which the money is made
available, nor, it seems, are moneys loaned in reliance on this proviso envisaged as admitting of
identification according to the purpose of the loan. If it were otherwise, what could be the reason
of requiring the aggregate of outstanding loans made under (b) and (c) to be shown in the
balance sheet, but not of making any similar requirement with regard to loans protected under
proviso (a)?
This proviso, then, must be read not as exempting particular loan transactions made for
identifiable purposes but as protecting a company engaged in money-lending as part of its
ordinary business from an infraction of the law, even though moneys borrowed from it are used
and, perhaps, used to its knowledge, in the purchase of its own shares. Even so, the qualification
is imposed that, to escape liability, the loan transaction must be made in the ordinary course of
its business. Nothing, therefore, is protected except what is consistent with the normal course of
its business and is lending of a kind which the company ordinarily practices.
In their Lordships' opinion, such an approach to the interpretation of proviso (a) necessarily
requires that the "lending of money", to be part of the ordinary business of a company must be
what may be called a lending of money in general, in the sense, for example, that moneylending
is part of the ordinary business of a registered moneylender or a bank. Such lenders are not
obliged to accept their borrowers, but it is characteristic of their business that, if they do lend, the
money made available is at the borrower's free disposition and is not, except in special
circumstances, confined to special uses or restricted to particular and defined purposes. Unless
the lending of money as part of the ordinary business of a company is understood in this sense,
the absurd result would be reached that any lending operations of which it made a practice,
however restricted their purpose or remote from general money-lending, would qualify the
comapny to ignore the prohibition of the section and finance purchases of its shares, provided
that it could describe such advances as made in the ordinary course of its business. Thus a
company which, for instance, lent money from time to time to trade suppliers or purchasers
claim that the lending of money was part of its ordinary business and that it was accordingly one
of the companies intended to be protected by proviso (a), if it chose to make loans in connection
with the purchase of its shares. Yet it is not possible to suppose that the section could have been
intended to provide any exemption or relief for such cases, for there could be no good reason for
allowing a company to use previous lendings for quite different purposes as the justification for
share purchase loans, which the legislation is in general intended to forbid.
This interpretation is supported by the fact that in the proviso the "ordinary business of the
company" is associated with "lending.... of money in the ordinary course of its business". The
latter words are not intended, their Lordships think, to be synonymous with "the ordinary course
of business" itself and seem to refer more particularly to advances of a scale and for a purpose
similar to those regularly made by the company in carrying out its business. Such a constitution
accords naturally with the idea of general moneylending, provided that the advances do not
amount to a departure from the usual order of business: but it, is on the other hand, virtually
impossible to see how loans, big or small, deliberately made by a company for the direct purpose
of financing a purchase of its shares could ever be described as made in the ordinary course of its
business..........."
Appeal dismissed.
53. BRITISH AND AMERICAN TRUSTEE AND FINANCE CORPORATION, LTD. AND
REDUCED v. COUPER (House of Lords, 1894).
The appellant company, as a company limited by shares, had power under its articles to reduce
its capital by paying off capital. The shares were divided into ordinary shares partly paid up,
and founders' shares fully paid up. The company had carried on business both in England and
the United States but it being found impossible to do so in both countries with advantage it was
determined that the company should cease to carry on business in the United States, that the
American investments should be made over to the American shareholders, their shares being
canceled, and that the English shareholders should take the English assets, receiving an agreed
sum by way of adjustment. This arrangement was carried out by special resolution providing
that the capital should be reduced by paying off the shares (both ordinary and founder's) held by
the American shareholders (the capital represented thereby being in excess of the wants of the
company,) and that such shares and all liability thereon be wholly extinguished. The company
presented a petition praying the court to confirm the resolution. All the creditors were either
paid or assented to the arrangement. The confirmation by the court was opposed by one
shareholder.
HELD:
Reversing the decision of the Court of Appeal, that the reduction of capital was within the
powers conferred by the Companies Act and that the arrangement being a fair and equitable one
there was no reason why it should not be confirmed.
LORD HERSCHELL: "..........When the case of TREVOR v. WHITWORTH was before this House,
my noble and learned friend Lord Macnaghten said: "I may say that the Act of 1867, as explained
by the Act of 1877, seems to prohibit a company from purchasing its own shares, except under
certain stringent conditions............ There can be no doubt that the ratio decided in that case was
in part, at least, this that a company which paid away its assets for the purchase of its own shares
did thereby reduce its capital, and that not in a manner authorized by the Legislature".
54. IN RE MEUX'S BREWERY COMPANY LTD. (1918)
The company was incorporated with a fully paid share capital of £1,000,000, in addition to which
it had issued £1,000,000 perpetual debentures stock secured by certain trust deeds constituting a
floating security. In 1904 the company had incurred losses amounting to upwards of £800,000,
since which year no dividend had been declared, the profits in each year being applied in
reduction of the deficiency, which now amounted to £640,000 or upwards. In 1917, by special
resolution, the company resolved to reduce its capital to £360,000 by writing off the lost capital.
(Article 46 of the Articles of association empowered the company from time to time, by special
resolution, to reduce its capital by paying off capital or canceling capital which had been lost or
was unrepresented by available assets).
The reduction did not involve the diminution of any liability in respect of any unpaid capital or
the payment to any shareholder of any paid-up capital.
This petition by the company to confirm the special resolution was opposed by certain holders of
debenture stock on the ground that the proposed reduction would be prejudiced to their security
by enabling the company to pay dividends out of profits instead of such profits being applied in
making good the lost capital. The assets according to the latest balance sheet exceeded the
amount of the debenture debt by £500,000 and upwards. No evidence was adduced to show
what part of the lost capital was attributable to circulating capital.
Held: That the holders of the debentures stock were not entitled to object to the reduction.
ASTBURY J.: "I think that I am at least right in saying that prima facie creditors are not supposed
to be concerned in these questions of reduction of capital where no diminution of unpaid capital
or repayment to shareholders of paid-up capital is involved, in other words, if the court is to
allow a secured creditor in particular to object to a reduction which does not involve such a
diminution of assets as is referred to in s.69(2), it is at least incumbent on him to make out a
strong case before such a direction would be given."
55. RE THOMAS DE LA RUE & CO. LIMITED & REDUCED
(A scheme for the reduction of the share capital of a company comes within s.68 of the
Companies Act, although it differentiates between the holders of the same class of shares to the
extent of paying off some and not others and imposes upon the shareholders whose shares are to
be extinguished the obligation to accept debenture stock in lieu of cash, and also involves the
advance to the company of the money's to be utilized in redemption of the share capital by the
very persons whose shares are to be redeemed.)
In confirmation the scheme as on the whole fair and equitable the court made it a term of its
confirmation that the costs of a dissentient shareholder, who had assisted the court by his
criticism of the scheme, should be provided by the petitioning company.)
EVE,J: "This petition has given rise to an interesting discussion. The company thereby seek the
confirmation by the court of a scheme for the reduction of their share capital. The capital is large
- £1,200,000 divided in £10 shares, whereof 30,000 are "A" 5 per cent (Cumulative preference
shares, 40,000 are "B" 5 per cent cumulative preference shares and 50,000 are ordinary shares.
The company desires to reduce the capital by the sum of £560,000, and they propose to bring that
reduction about by paying off the whole of the 30,000 "A" shares and 26,000 out of the 40,000 "B"
shares. They have not sufficient moneys in hand wherewith to provide for these payments in
full, but they have an accumulated reserve of undistributed profits amounting to £266,000 and
upwards, and £34,000 which the individuals mainly interested in the company's welfare are
prepared to advance to the company by ways of loan without security, in paying off the £300,000
representing the capital paid up on the "A" preference shares. They further propose to raise the
money required for paying off the £260,000 represented by 26,000 "B" preference shares by the
issue of perpetual debenture stock charged upon the assets of the company and carrying interest
at the rate of 4½ per cent per annum; but they do not contemplate raising this money from any
outside quarter, but from those who under the scheme will be entitled to receive it on payment
off of their shares. In other words, the scheme imposes upon each holder of the 26,000 "B" shares
the obligation to accept in exchange for and in satisfaction of his holding as a shareholder an
aliquot proportion of the debenture stock equivalent in nominal amount to the amount paid
upon his "B" shares. Such is the scheme of reduction, and the first question which arises is
whether such a scheme comes within "(s.68 of the Companies Act); if it does not, it is a scheme
which the court has no jurisdiction to confirm. The section is in very wide terms. It enacts that,
"subject to confirmation by the court, a company limited by shares ....... may, if so authorized by
its articles, by special resolution reduce its share capital in any way", and then goes on to deal
with some particular modes of reducing capital; but it is obvious from the wording of the section
itself and from what has been laid down by the House of Lords in the two cases which deal with
this matter very fully, namely COUPER'S case and Poole v National Bank of China, that full
effect is to be given to the earlier part of the section without reference to the particular modes
indicated in the latter part and that this latter part is not to be treated in any way as limiting or
controlling the wide power conferred by the earlier part."
It cannot be denied that the scheme under consideration is one for reducing the share capital of
the company, but it involves in the case of the "B" shareholders the payment off of some only of
the shares - 26,000 out of 40,000 - and further it imposes on those of the shareholders whose
shares are to be extinguished the obligation to accept debenture stock in lieu of cash. Do these
elements put the scheme outside S.68? Guided by the authorities to which I have just referred
and by the case of In Re nixon's Navigation Co. I do not think they do. It is thereby established
that in a scheme for the reduction of share capital a company mat differentiate between the
holders of the same class of shares at least to the extent of paying off some and not paying off
others, and that it is open to a company desiring to reduce its share capital to borrow a sufficient
fund to pay off the capital represented by the shares by which the capital is to be reduced. It is
true that the scheme here proposed involves something further - the advance to the company of
the moneys to be utilized in redemption of the share capital by the very persons whose shares
are to be redeemed - but this addition does not in my opinion, put the scheme outside the
section. It is an element to be taken into consideration by the court in exercising the discretion
with which it is charged...............
The dissenting shareholder regards the reduction in the rate of interest as not being compensated
for by the additional security afforded by the debenture stock, and therefore he dissents. That he
is entitled to do, but in determining whether the scheme is so inequitable as to compel me at his
invitation to withhold my confirmation of it, I am bound - all other things being equal - to pay
regard to the fact that the view which he takes is the view of a very small minority ........... I
therefore, propose to confirm the reduction ........ and I propose, therefore, to confirm the
reduction on the condition that the debenture stock which is to be issued to the "B" shareholders
is to be made repayable at the expiration of forty years from the date of issue, and is not to be
what is called "perpetual debenture stock"
56. SCOTT v SCOTT
The plaintiffs were two members and the defendants the remaining members of a private limited
company, Frank F. Scott (Liverpool) Ltd, which had adopted the provisions of Table A.
Resolutions were passed in general meeting to the effect, inter alia, that certain payments in
respect of interim dividend be paid to preference shareholders. The plaintiffs contended that the
resolution was invalid. It was held by the Court of Appeal that the resolution was invalid as an
attempt by the general meeting to usurp the directors' powers of financial control derived from
the articles.
57. WOOD v ODESSA WATERWORKS CO.
A company declared a dividend and passed a resolution to pay it by giving to the shareholders
debenture bonds bearing interest and redeemable at par, by an annual drawing, over thirty
years. The articles empowered the company to declare a dividend "to be paid" to the
shareholders.
It was held that the words "to be paid" meant paid in cash, and a shareholder suing on behalf of
himself and the other shareholders could restrain the company from acting on the resolution on
the ground that it contravened the articles.
58. STEINBERG v SCALA (LEEDS) LTD
Miss Steinberg, an infant, purchase 500 £1 shares from the defendant company. She paid 10
shillings on each share and, being unable to meet some calls, repudiated the contract while she
was still a minor and claimed -
(a) rectification of the register of members to remove her name therefrom, and thereby
relieve her from liability on future calls; and
(b) recovery of the money already paid.
Held - (a) She was entitled to rescind and so was not liable for future calls, but
(b) She was not entitled to recover the money already paid because there had not
been a total failure of consideration. She had got the thing for which the money
was paid, namely, the shares. Although she had not yet received any dividends
on the shares, the shares had some value.
59. RE: SUSSEX BRICK CO.
On 16 January 1901, W. Belcher transferred shares in the company to G.B. Browne and D.G.H.
Pollock. The transfers were deposited with the company for registration but, owing to
unnecessary delay on the part of the company, they were not registered. In April, 1903, the
company passed a special resolution to wind up voluntarily for the purpose of reconstruction.
No notice of the meeting was rent to Browne or Pollock, but they did give notice of dissent to the
liquidator, requiring him to abstain from carrying the resolution into effects or to buy them out.
The liquidator would not accept the notice as valid because neither Browne nor Pollock was on
the register of members. Browne and Pollock applied to the court for rectification of the register.
They asked the court aid make the order retrospective so that their notice of dissent to the
liquidator would thereby be validated.
Held - that the court had jurisdiction to rectify the register even when the company was in
liquidation. The order was granted as prayed.
60. BURNS v SIEMENS BROS DYNAMO WORKS LTD
The plaintiffs, Burns and Hambro, were the joint owners of shares in the defendant company.
The shares were entered in the company's register in the joint names of Burns and Hambro. The
company's articles provided that, where there were joint holders, the person whose name
appeared first in the register of members, and no other, should be entitled to vote in respect of
the shares. This meant that Hambro had no voting rights.
Burns and Hambro sued for a rectification of the register so that it may show that the plaintiffs
owned roughly half of the joint shareholding.
Held - the court had jurisdiction to make such an order and the company was required to
rectify the register, showing shares numbered 1 to 1,000 in the names of Burns and
Hambro, and shares numbered 10,0001 to 19993 in the names of Hambro and Burns.
61. SIMPSON v MOLSON'S BANK
X's shares were, on his death, registered in the name of his executors. They subsequently
transferred the shares to Y in breach of the terms of X's will, and the transfer was registered by
the company. The company had a copy of the will in its possession, and its president was one of
X's executors.
Held - the company did not act wrongful, as it was only bound to satisfy itself from the will
that the executors were executors, and was not concerned with the disposition by X of
his property.
62. SOCIETE GENERALE DE PARIS v WALKER.
James Walker was the registered holder of 100 shares in X Ltd, and he created two charges over
the shares, one on 9 March 1881, in favour of James Scott Walker, who took the certificates and a
blank transfer, and one on 1 December 1882, in favour of the appellants, the latter charge being
created by means of a blank transfer, duly executed but without the deposit of the share
certificate. The appellants tried to obtain registration first, but X Ltd. would not register the
transfer without the certificates, and later the executors of James Scott Walker informed X Ltd.
that they had the certificates. This action was brought to decide who had the title to the share.
The articles of X Ltd. provided that the company should not be bound to recognize any equitable
interest in its shares. The appellants claimed that because they notified first the fact of their
equitable interest in the shares, they were entitled as against the executors of James Scott Walker.
Held - by the House of Lords - they were not, because neither the company nor its
officers could be treated as trustees for the purpose of notifying equitable
interests over the shares. The title to the shares was in the person eventually
registered by the company, and the company was right in refusing to register a
person who could not produce the share certificates. The respondents were
entitled to the shares.
63. RE: GREENE
The directors of Faulkner Greene & Co. Ltd, a private company, wishing to ensure that their
shares in the company should pass on their deaths directly to their respective wives, altered the
company's articles to provide that this should happen automatically on a director's death,
notwithstanding any provision or direction made in the director's life-time for their disposition
upon his death. Greene, a director, died intestate on 20 January 1945. Pursuant to the article, his
widow was registered as the holder of his shares. The administrator of his estate took out a
summons to determine whether the article was valid, and whether any beneficial interest in the
shares had passed to the widow. The court answered both questions in the negative.
HARMAN J. The first question which arises is as to the validity of the article introduced by the
special resolution of 20 August 1942. Is it competent to a company by an article in this form to
by-pass, so to speak, the personal representatives of a deceased holder of shares and to put them
direct into the name of his widow? In my judgement, it is not. Such an article is contrary to
section 63 of the Companies Act 1929 (now section 77 of the Companies Act).
I believe that the primary object of a section in this form, which first appeared in the Companies
Act 1928, was scotch the then prevalent practice of providing for the oral transfer of shares to the
great detriment of the Revenue, but in my judgement of transfer has been delivered, nor has the
right to the shares been transmitted to the widow by operation of law. In my judgement,
therefore, the registration of the widow was wrong and the register ought to be rectified
accordingly by registering the shares in the joint names of the personal representatives, who are
the plaintiff and the first defendant.
So far as the company is concerned there is an end of the matter, for it is not bound to recognize
any equitable interest. The first defendant nevertheless claims that as between herself and the
other beneficiaries under the intestacy she is beneficially entitled to the shares, and to this claim I
must now turn. The widow puts her claim in three ways. Firstly she says that there was an
imperfect gift to her of the shares which was perfected when she obtained a grant of
administration.
64. RE: SMITH & FAWCETT LTD.
Article 10 of the company's articles provided that the directors might in their absolute and
uncontrolled discretion refuse to register any transfer of shares. There were only two directors
and shareholders. Smith and Fawcett, who held 4,001 shares each. After Fawcett's death, Smith
and a co-opted director refused to register a transfer of his shares into the names of his executors,
or one of them, but Smith offered instead to register 20,001 shares and to buy the remaining 2,000
shares at a price fixed by himself. The court refused to intervene in the exercise of this discreet
evidence of mala fides.
LORD GREENE M.R. The principles to be applied in cases where the articles of a company
confer a discretion on directors with regard to the acceptance of transfers of shares are, for the
present purposes, free from doubt. They must exercise their discretion bona fide in what they
consider - not what a court may consider - is in the interests of the company, and not for any
collateral purpose. They must have regard to those considerations, and those considerations
only, which the articles on their true construction permit them to take into consideration, and in
construing the relevant provisions in the articles it is to be borne in mind that one of the normal
rights of a shareholder is the right to deal freely with his property and to transfer it to
whomsoever he pleases. When it is said, as it has been said more than once, that regard must be
had to this last consideration, it means, I apprehend, nothing more than that the shareholder has
such a prima facie right, and that right is not to be cut down by uncertain language or doubtful
implications. The right, if it is to be cut down, must be cut down with satisfactory clarity. It
certainly does not mean that articles, if appropriately framed, cannot be allowed to cut down the
right of transfer to any extent which the articles on their true construction permit. Another
consideration which must be borne in mind is that this type of article is one which is for the post
part confined to private companies. Private companies are in law separate entities just as much
as are public companies, but from the business and personal point of view they are much more
analogous to partnerships than to public corporations. Accordingly, it is to be expected that in
the articles of such a company the control of the directors over the membership may be very
strict indeed. There are, or may be, very good business reasons why those who bring such
companies into existence should give them a constitution which confers on the directors powers
of the widest description.
The language of the article in the present case does not point out any particular matter as being
the only matter to which the directors are to pay attention in deciding whether or not they will
allow the transfer to be registered. The article does not, for instance, say, as is to be found in
some articles, that they may refuse to register any transfer of shares to a person not already a
member of the company or to a transferee of whom they do not approve. Where articles are
framed with some such limitation on the discretionary power of refusal as I have mentioned in
those two examples, it follows on plain principle that if the directors go outside the matters
which the articles say are to be the matters and the only matters which they are to have regard,
the directors will have exceeded their powers.
Shares in the British Farmers pure Linseed Cake Co. Ltd. which were not in fact paid up, were
issued to Goulton, together with a share certificate under the seal of the company which
described the shares as `fully paid up'. These shares were later bought in good faith by Nicolls
(as trustee for a third party) and Nicolls was registered as the holder. In the winding-up of the
company, the liquidator sought to make Nicolls pay up the full amount of the shares as a
contributory. The company was held estopped by the certificate from denying that the shares
were fully paid up.
LORD BLACKBURN ........ When a person makes to another the representation, Ì take upon
myself to say such and such things do exist, and you may act upon the basis that they do exist',
and the other man does really act upon that basis, it seems to me it is of the very essence of justice
that, between those two parties, their right should be regulated, not by the real state of the facts,
but by that conventional state of facts which the two parties agree to make the basis of their
action; and that is what I apprehend is meant by estoppel in pass or homologation ..........
Now in the present case the company has issued under the seal of the company a certificate in
the form which is set out in the case, in which the company has asserted that these shares have
been fully paid up. These certificates are issued under the directions of the Act of Parliament,
and are made "prima facie evidence of all that they state;" only prima facie evidence. "The
certificates are given and issued for the very purpose of enabling the person who holds them to
go to others for the purpose, amongst others, of selling the shares, and to say: "Here is the
certificate; you see I am a shareholder, as the company has so certified it. Act upon that, and
bargain with me upon the supposition that I am." That is the very object with which they are
issued under the company's seal. Now when the company has so issued the certificate under the
company's seal to enable a person to induce others to buy the shares, and more especially when
the company has registered the transfer solely in consequence of that, it would be in the highest
degree an injustice to say that the company shall, as against that person, be permitted to say,
"There was a mistake or inaccuracy in the representations that the shares have been fully paid
up." You would be fully entitled to say as against everybody else who had acted upon it that it
worked an estoppel. I think the liquidators would be exactly in the same position..........
65. ALUMINIUM INDUSTRIES VAASSEN BV v ROMALPA ALUMINIUM
The plaintiffs (AIV) sold aluminium foil to the defendants under a contract of sale which
provided, inter alia:-
(i) that the ownership of the goods to be delivered by the plaintiffs would only be
transferred to the purchasers (the defendants) when they had met all that was owing to
the plaintiffs, no matter on what grounds;
(ii) that the defendants should store the foil separately;
(iii) that if the foil was used to make new "objects", those "objects" should be stored
separately and be owned by the plaintiff as security for payment;
(iv) that the defendants could sell the new "objects" but as agents of the plaintiffs.
The defendant company got into financial difficulties and was in debt to its bankers in the sum of
£200,000. The bank had a debenture secured over the company's assets and appointed a receiver
under that debenture. At the time of the receiver's appointment the company owed the plaintiffs
£122,000 and, in order to recover some of that money at the expense of the bank, the plaintiffs
sought, under the conditions of sale, to recover from the company (the defendants) foil valued in
round terms at £50,000 and the cash proceeds of resold foil of some £35,000. The proceeds had
been received from third party purchasers from the company after the receiver was appointed
and he had kept the fund of £35,000 separate so that it was not mixed with the company's other
funds.
Held - by the Court of Appeal (in England) - that the foil was recoverable and so were the
proceeds of sale since there were two fiduciary relationships between the plaintiffs and
the defendant company as follows -
(a) The defendant company (Romalpa) was a bailee of the plaintiff's (AIV) goods
because ownership had not passed to Romalpa.
(b) Romalpa was AIV's agent for the purpose of the sale of "objects" made with the
foil. Therefore Romalpa was accountable to AIV for the foil and the proceeds of
its sale and AIV could trace the proceeds into the hands of the receiver.
66. RE: C.L. NYE LTD
The company completed a charge in favour of a bank on 28th February 1964. Due to an
oversight by the bank's solicitor the charge was not registered. On the 18th June 1964 the
oversight was noticed and on the 3rd July 1964 registration was applied for. The 18th June was
inserted as the date of creation of the charge and the charge was duly registered. On the 16th
July the company went into liquidation and the liquidator sought a declaration that the charge
was void because if was registered too late. It was held that since a certificate of registration is
conclusive evidence of the date of creation of the charge it must be regarded as created on 18th
June 1964. Since it was registered within 21 days of this date (Note: the time allowed for
registration in England is 21 days) it was valid and could be enforced by the bank.
67. R.V. IVAN ARTHUR CAMPS (Court of Appeal for East Africa) (1962)
The respondent, in his capacity as a director of a company, had been charged with several
offences under the Companies Act. Although the directors of the company had under article 96
of the Company's Articles of Association duly appointed him to be director and he had acted as
such, he never acquired the required share qualification but in a statutory return, subsequent to
his appointment, he was shown as a director which, by article 84, was fixed at ONE FULLY
PAID-UP share in his own right.
Article 87(c) which was substantially in the same terms of S.183(1) and S.183(3) of the Act
provided that the office of the director shall be vacated if a director ceased to hold the number of
shares required to qualify him for office or fails to acquire the same within TWO MONTHS after
his election or appointment.
The magistrate held that as the respondent had never possessed or acquired his qualifying share,
his appointment was invalid and that there was no case for him to answer. He also held that the
respondent was never even a de facto director and that in any event a de facto director was not
criminally liable as a director for offences under the Companies Act.
Against that decision the Attorney-General appealed to the High Court by way of case stated,
but the appeal was dismissed, the Court holding that a de facto director was not liable qua
director for criminal offences under the Companies Act. On a further appeal it was submitted
(for the crown) that the respondent was validly appointed a de jure director, that thereafter he
was a de facto director and that a de facto director was criminally liable for offences under the
Companies Act.
HELD:
(i) The word "director" in the Companies Act includes a de facto director unless the context
otherwise requires, and looking at the mischief at which the sections in question aimed a
de facto director is as much a person whose conduct should be the subject of the sections
as a person who has been duly appointed a director.
(ii) The respondent was duly and validly appointed a de jure director but he ceased to be a
de jure director two months later as he failed to acquire his share qualification within
that time.
(iii) If the respondent acted as a director after the expiration of two months from his
appointment he was then a de facto director and he was a director for the purpose of
those sections of the Companies Act which it was alleged he had contravened.
Appeal allowed. Acquittal set aside.
SIR RONALD SINCLAIR, P. "......... Where the acquisition of a share qualification is not a
condition precedent to the appointment of a director, he may be appointed and act before he
qualifies and his act as a director are valid if done before he is bound by law to acquire his
qualification................... In this present case the acquisition of a qualifying share by the
respondent was clearly a condition subsequent, and not a condition presedent, to his
appointment. In our view he was validly appointed as a director on February 10, 1959, and he
continued to be a de jure director until the expiration of two months from the date of his
appointment when under article 87 his office of director was vacated. If he then continued to act
as a director he was a de facto director only............
We return now to the meaning of the definition of "director" in S.2 of the Companies Act which,
as we have said, is stated to include
"Any person occupying the position of a director by whatever name called".......... We are
therefore of opinion that the word "director" in the Companies Act includes a de facto director
unless the context otherwise requires............. We do not think the penalties to which an
unqualified person acting as a director is liable under S.183(5) of the Companies Act indicate a
contrary intention. To hold otherwise would, in our view, defeat the object of the penal sections
relating to the liability of directors. Looking to the mischiefs intended to be aimed at by the
sections in question, it seems to us that a de facto director is as much a person who has been duly
appointed as director. If a de facto manager can be liable, so should a de facto
director.............................."
68. BUSHELL v FAITH AND ANOTHER (1969)
A general meeting was requisitioned with a view to passing a resolution to remove the
defendant from his directorship. The meeting was held on 22nd November 1968, when on a poll
the votes of the plaintiff and her sister were recorded for the resolution removing the defendant,
whereas his votes were recorded, against it. It is the contention of the plaintiff that the resolution
was passed by 200 votes to 100 and the defendant therefore ceased to be a director. It is the
defendant's contention that, having regard to Article 9 of the articles of association, the resolution
was lost by 200 votes to 300 and that he remains a director. The motion was directed or
restraining the defendant pending trial from acting as a director, and the judge granted the relief
asked.
HARMAN, L.J.:
"The question turns on a single section of the Companies Act, 1948, S.184(1) (which in Kenya is
S.185) whereby it is enacted that:
"A company may by ordinary resolution remove a director before the expiration of his period of
office, notwithstanding anything in its articles................
The articles here adopt Table A with modifications. One of the adopted articles is Article 62,
which provides that, subject to any rights or restrictions for the time being attached to any class
or classes of shares, on a show of hands every member present in person shall have one vote and
on a poll every member shall have one vote for each share of which he is the holder. Special
article 9 provides:-
"In the event of a resolution being proposed at any general meeting of the company for removal
from office of any director any shares held by that director shall on a poll in respect of such
resolution carry the right to THREE VOTES PER SHARE and reg.62 of Part 1 of A
Table A shall be construed accordingly"
This special article exactly fits the circumstances of this case........ He (the defendant) was thus
able to record 300 votes and outvote his sisters, who only recorded 200 votes between them. The
plaintiff however argues, and the judge held, that article 9 is a contravention of S.184 of the Act
and therefore invalid, and that is the subject of this appeal. The judge held that a resolution
passed (as he put it) "under article 9" is not an "ordinary resolution" within the meaning of S.184
of the Act and therefore it is ineffective to remove a director. I do not myself accede to this
reasoning.
"It seems to me that the words "ordinary resolution", which are found nowhere in the Act except
in S.184, merely connote "a resolution depending for its passing on a simple majority of votes
validly cast in conformity with the articles............"
The defendant's argument goes on to urge that there is nothing in the section or in the Act of 1948
to prevent the attachment of special voting rights to special shares or classes of shares, and that is
what has happened here, an ordinary resolution for the removal of the .....defendant director
being lost because his shares counted THREE TO ONE for this purpose.
The plaintiff on the other hand argues that an article in this form is invalid as being a mere
device for circumventing the section. The judge held that it made a mockery of it, and counsel
for the plaintiff advanced the proposition that any provision in the articles having as its object to
make more difficult the removal of a director is void, whether operating directly or indirectly.
This article 9 operated indirectly. It certainly does in effect make the removal of a director more
difficult. It follows, says counsel, that it is invalid.
I cannot accept this view because I do not find it in the Act, which merely says that a simple
majority of votes will unseat a director. The Act does not as I see it, prevent certain shares or
classes of shares having special voting rights attached to them and on certain occasions. The
obvious example is that of preference shares, which usually carry no vote unless their dividend
be in arrear or the resolution proposed affects their interest. There are many other instances of
shares with special voting rights and I do not see anything in the Act which prohibits the giving
of special voting rights to the shares of a director who finds his position attacked.
RUSSEL L.J.
"Section 184(1) of the Companies Act 1948 enacts that a company may by ordinary resolution
remove a director. This spelt out, means that a director may be removed by a resolution of the
company in general meeting passed by a majority of votes cast at the meeting. The section
continues, "notwithstanding anything in its articles": these words though convenient in the
drafting of the section add nothing: without them a provision in the articles requiring a greater
majority than a simple majority for the effectiveness of such a resolution would contradict the
statute and be of no effect.
The question is whether art.9, which on the occasion of such a resolution being proposed attaches
to any share registered in the name of the director named in the resolution three votes in place of
one vote, is provision purporting, contrary to the section, to require for his removal a greater
majority than simple votes cast at the meeting, and therefore of no effect.
It seems to me that it is manifestly not such a provision. Section 184 says nothing about voting
rights attached to shares. It does not seek to restrict the powers of a company by its articles to
attach to different shares or classes of shares different voting rights, either generally or on
particular types of resolution, including the particular type in question...........
It is argued, and the judge accepted the argument, that an article such as article 9 if effective
made nonsense of the section, was contrary to its gist and purpose, and for that reason must be
considered contrary to the section. This approach I think begs the question whether the purpose
of the section included the purpose of fettering a company's rights to say what voting rights
attached to its shares ...............
In my view it would ........ not conflict with the section if the article provided that on a resolution
for the removal of the director either,
(a) shares other than the class should have no vote; or
(b) that the shares of that class should have attached to them enough votes to pass or defeat
a resolution for that removal.............
69. ABERDEEN RAILWAY CO. v BLAIKIE BROS (1854)
The respondents, Blaikie Bros, had agreed to manufacture iron chairs for the railway company at
£8 10s per ton, and sued to enforce the contract. The railway company pleaded that it was not
bound by the contract because, at the time when it was made, the chairman, of its board of
directors was managing partner of the respondents. This plea was upheld by the House of
Lords.
LORD CHANWORTH L.C. ...... This, therefore, brings us to the general question whether a
director of a railway company is or is not precluded form dealing on behalf of the compoany
with himself, or with a firm in which he is a partner.
The directors are a body to whom is delegated the duty of managing the general affairs of the
company.
A corporate body can only act by agents, and it is of course the duty of those agents so to act as
best to prmote the interests of the corporation whose affairs they are conducting. Such agents
have duties to discharge of a fiduciary nature towards their principle. And it is a rule of
universal application that no one having such duties to discharge, shall be allowed to enter into
engagements in which he has, or can have, a personal interest conflicting with the interests of
those whom he is bound to protect.
So strictly is this principle adhered to that no question is allowed to be raised as to the fairness or
unfairness of a contract so entered into.
It obviously is, or may be, impossible to demonstrate how far in any particular case the terms of
such a contract have been the best for the interest of the beneficiary, which it was possible to
obtain.
It may sometimes happen that the terms on which a trustee has dealt or attempted to deal with
the estate or interests of those for whom he is a trustee, have been so good as could have been
obtained from any other person, - they may even at the time have been better.
But still so inflexible is the rule that no inquiry on that subject is permitted. The English
authorities on this head are numerous and uniform.
The principle was acted on by Lord King in Keech v. Sandford, and by Lord Hardwicke in
Whelpdale v. Cookson and the whole subject was considered by Lord Eldon on a great variety of
occasions.........
It is true that the questions have generally arisen on agreements for purchases or leases of land,
and not, as here, on a contract of a mercantile character. But this can make no difference in
principle. The inability to contract depends not on the subject-matter of the agreement, but on
the fiduciary character of the contracting party, and I cannot entertain a doubt of its being
applicable to the case of a party who is acting as manager of a mercantile or trading business for
the benefit or others, no less than to that of an agent or trustee employed in selling or letting land.
Was then Mr. Blaikie so acting in the case now before us? - if he was, did he while so acting
contract on behalf of those for whom he was acting with himself?
Both these questions must obviously be answered in the affirmative. Mr. Blaikie was not only a
director, but (if that was necessary) the chairman of the directors. In that character it was his
bounden duty to make the best bargains he could for the benefit of the company.
While he filled that character, namely, on 6 February 1846, he entered into a contract on behalf of
the company with his own firm, for the purchase of a large quantity of iron chairs at a certain
stipulated price. His duty to the company imposed on him the obligation of obtaining these
chairs at the lowest possible price.
His personal interest would lead him in an entirely opposite direction, would induce him to fix
the price as high as possible. This is the very evil against which the rule in question is directed,
and I here see nothing whatever to prevent its application.
I observe that Lord Fullerton seemed to doubt whether the rule would apply where the party
whose act or contract is called in question is only one of a body of directors, not a sole trustee or
manager.
But, with all deference, this appears to me to make no difference. It was Mr. Blaikie's duty to
give to his co-directors, and through them to the company, the full benefit of all the knowledge
and skill which he could bring to bear on the subject. He was bound to assist them in getting the
articles contracted for at the cheapest possible rate. As far as related to the advice he should give
them, he put his interest in conflict with his duty, and whether he was the sole director or only
one of many, can make no difference in principle.
The same observation applies to the fact that he was not the sole person contracting with the
company; he was one of the firm of Blaikie Brothers, with whom the contract was made, and so
interested in driving as hard a bargain with the company as he could induce them to make........"
70. INDUSTRIAL DEVELOPMENT CONSULTANTS LTD v. COOLEY (1972)
Facts of the Case:
The plaintiffs were one of the group of companies which offered to large industrial enterprises,
both in the public and private sector, comprehensive construction services which included the
services of architects, engineers, project managers, construction analysts and others involved in
such work. The defendant was an architect of considerable distinction and attainment in his own
sphere; he had worked in the gas industry for some 17 years, and prior to his appointment as
Managing Director of the plaintiffs had been the chief architect for the West Midlands Gas Board.
The success which the plaintiffs had attained was largely in the private sector and they were
anxious to enter the public sector. Because of the defendant's connections and contacts in the gas
industry the chairman of the group offered the defendant the post of Managing Director of the
plaintiffs at a salary of £6,000 a year with considerable fringe benefits.
The defendant accepted and the appointment took effect from 5th February, 1968. No service
agreement was signed however with the result that whilst the defendant was with the plaintiffs
there was no press provision as to notice and no covenants of any kind restrictive or otherwise.
Within days of joining the plaintiffs the defendant embarked on negotiations with the Eastern
Gas Board in an effort to discharge his duty to the plaintiffs. In 1968 the Eastern Gas Board were
contemplating building four depots and had not decided whether to farm out the work to other
architects or do it themselves. The plaintiffs were interested in this work and with the aid of the
defendant they attempted to get at least one of the depots. That attempt failed. It became
evident that the Eastern Gas Board disliked the set up of the plaintiffs' organisation and were not
prepared to deal with the plaintiffs in any capacity. In May 1969 the Eastern Gas Board finally
decided on the location of their four depots. In addition they decided to build a central store to
support the four depots. At that time a new deputy chairman of the Eastern Gas Board was
appointed and during discussion with his colleagues at the board about the project the
defendant's name was mentioned.
The deputy chairman was of the opinion that the defendant was the right man for the job and so
he telephoned him at his home and arranged a meeting. At the meeting on 13th June the
defendant soon realized that he had a good chance of getting the work from the Eastern Gas
Board for himself, the board made it clear that they were only interested in employing the
defendant privately and that they were also in a hurry to proceed with the projects.
The defendant realized that if he was to get this work he had to free himself from the plaintiffs as
soon as possible. He therefore made an appointment to see the group chairman and at the
interview told him that he wanted to resign on account of his health. Because the defendant's
representations as to the state of his health the group chairman got the impression that the
defendant was on the verge of a breakdown and so agreed to release him quickly. The
representations made by the defendant about his health were to his knowledge untrue. The
defendant ceased to be managing director of the plaintiffs from 1st August. On
6th August the Eastern Gas Board wrote to the defendant offering him employment as project
manager for four projects, the defendant to be totally responsible for the design and supervision
of the four projects. This work was in substance the same work which the plaintiffs had
unsuccessfully attempted to obtain in 1968. In an action by the plaintiffs for an account of the
whole of Mr. Cooley's earnings for breach of fiduciary duty, the defendant denied that there was
any fiduciary duty or any breach of such duty, contending that if there were a remedy lay in
damages but that the plaintiffs had suffered no damages since they would not have obtained the
work for themselves in any case.
HELD:
(i) While the defendant was managing director of the plaintiffs a fiduciary relationship
existed between him and the plaintiffs; accordingly information which came to him
while he was managing director and was of concern to the plaintiffs, a duty therefore to
disclose all information which he received in the course of his dealings with the Gas
Board. Instead he had embarked on a deliberate course with the Gas Board in direct
conflict with his pre-existing and continuing duty as managing director of the plaintiffs.
He was therefore breach of his fiduciary duty to the plaintiffs in failing to pass on to
them all the relevant information received in the course of his dealings with the Gas
Board and in guarding it for his own personal purposes and profit.
(ii) Because of his breach of duty the defendant was liable to ACCOUNT to the plaintiffs for
ALL THE BENEFIT HE HAD RECEIVED OR WOULD RECEIVE UNDER THE
CONTRACT WITH THE GAS BOARD.
The question whether the benefit of the contract would have been obtained for the plaintiffs but
for the defendant's breach of fiduciary duty was irrelevant. It was therefore irrelevant that, as a
result of the order to account, the plaintiffs would receive a benefit which they would not
otherwise have receive.
Keech v. Sandford, and dicta of Lord Granworth L.C. in Aberdeen Railway Co. v. Blaike
Brothers, and Lord Upjojn in Boardman v. Phipps.
ROSKILL J: "....... I think the right approach to the present case is first to consider the duty which
a director (including a managing director) owed to the company of which he is a director. This
has been the subject of repeat statements in cases of the highest authority over the years. The law
is summarised in BUCKLEY ON THE COMPANIES ACTS (13th Ed. pp.876, 877).
"Upon general rules of equity a person holding a fiduciary position as director cannot obtain for
himself a benefit derived from the employment of the company's funds, unless the company
knows and assents. No director can, in the absence of a stipulation to the contrary, partake in
any benefit from a contract which requires the sanction of a board of which he is a member. He
stands in a fiduciary position towards the company, and if he makes any profit when he is acting
for the company, he must account to the company. It makes no difference that the profit is one
which the company itself could not have obtained, the question being not whether the company
would have acquired it, but whether the director acquired it while working for the company, nor
that the interest of the director is as a trustee for a third party. The reason for this is, that the
company has a right to the services of its paid directors as an entire board; that it has a right to
the advise of every director upon matters which are brought before the board for consideration;
and that the general rule that no trustee can derive any benefit from dealing with the trust funds
applied with still greater force to that state of things in which the interest of the trustee deprives
the company of the benefit of his advice and assistance."
71. COOK v. DEEKS (1916) (Privy Council)
The defendants, three of the four directors of the Toronto Construction Company, who were
named Deeks, Deeks and Hinds, resolved to break their business relations with the fourth
director, the plaintiff Cook. The company had built up considerable good-will with the
Canadian Pacific Railway Company as a result of the satisfactory performance of a series of
construction contracts, each of which had been negotiated with the railway company's
representative by one of the defendants. The last of these contracts, the Shore Line contract, was
negotiated in the same way, but when the arrangements were completed, the defendants took it
in their own names and not that of the company. Cook claimed that the company was entitled to
the benefit of the contract, and that a shareholders' resolution (which the defendants had carried
by their own votes) purporting to confirm that the company claimed no interest in the contract
was ineffective. The Privy Council upheld both contentions, reversing the decisions of the courts
in Ontario in favour of the defendants.
The opinion of their Lordships was delivered by LORD BUCKMASTER......... The management
of Messrs Deeks and Hinds of the affairs of the construction company was eminently
satisfactory; but so far as railway construction was concerned the whole of their reputation for
the efficient conduct of their business had been gained by them while acting as directors of the
Toronto Construction Company. In 1911, and probably at an earlier date, the three defendants
had settled that they would no longer continue business relationships with the plaintiff. It is
unnecessary to seek the cause of the quarrel, or to determine whether they had good reason for
the opinion that they had formed. There was nothing to compel them to work with or for the
plaintiff, and it is impossible to see that they were bound to continue their relationship with him
by any legal or moral consideration. They were however, involved with him in different
reciprocal duties, by reason of their relationship in connection with the Toronto Construction
Company, and if they desired freedom to act, without regard to the restrictions that those
relationships imposed, it was necessary that they should terminate their position as directors and
shareholders in the company and place it in dissolution. This they could easily have
accomplished owing to the fact that they held three-fourths of the share capital. It is suggested
that they might also have resolved at a general meeting of the company that the company should
no longer continue the work. This would have been all b equivalent to a resolution of voluntary
liquidation; but even this step was not taken. While still retaining their position as directors,
while still actually acting as managers of the company, and with their duties to the company of
which the plaintiff was a shareholder entirely unchanged, they proceeded to negotiate with Mr,
Leonard for the New Shore Line contract, in reality on their own behalf, but in exactly the same
manner as they had always acted for the company,h and doubtless with their claims enforced by
the expeditious manner in which they, while acting for the company, had caused the last contract
to be carried through..........
During the whole of this discussion, up till the time when these prices were fixed, it does not
appear that at any moment the representatives of the Canadian Pacific Railway Company were
told that this contract was in any way different from the others that had been negotiated in the
same manner on behalf of the Toronto Construction Company, although it was plain that Mr.
Deeks, when he was engaged on the Georgian Hay and Seaboard line, that when it was finished
Messrs Deeks and Hinds intended to go on their own account and leave Mr. Cook. But after all
the necessary preliminaries of the contract had been concluded Mr. Hinds made to Mr. Leonard
this statement: `Remember, if we get this contract it is to be Deeks's and I, and not the Toronto
Construction Company.'
On 12 March 1912 the Canadian Pacific Railway Company made the necessary appropriation for
the contract, and this was communicated to Mr. Deeks by Mr. Ramsay, that company's engineer
of construction, who said that they might proceed with the contract at once. As from this
moment, although the formal contract was not signed until 1 April 1912, the defendants became
certain of their position, and knew that they had obtained the contract for themselves. They then
for the first time informed the plaintiff of what had happened. He protested without ret, and the
defendants G.S. Deeks, G.M. Deeks and T.R. Hinds to carry out the work. The contract was
accordingly taken over by this company, by whom the work was carried out and the profits
made.
On 20 March 1912 there was a meeting of directors of the Toronto Construction Company, at
which the three defendants were present,h and they resolved that a fresh meeting of the
shareholders be held to consider the question of the voluntary liquidation of the company.
Ultimately, after sundry meetings which are really not material, on 26 April 1913 resolutions
were passed owing to the voting power of the defendants G.S. Deeks, G.M. Deeks and T.R.
Hinds, approving the sale of part of the plant of the company to the Dominion Construction
Company, and a declaration was made that the company had no interest in the Shore Line
Contract, and that the directors were authorised to defend this action, which had in the
meantime been instituted.
Two questions of law arise out of this long history of fact. The first is whether, apart altogether
from the subsequent resolutions, the company would have been at liberty to claim from the three
defendants the benefit of the contract which they had obtained from the Canadian Pacific
Railway Company; and the second, which only arises if the first be answered in the affirmative,
whether in such event the majority of the shareholders of the company constituted by the three
defendants could ratify and approve of what was done and thereby release all claim against the
director.
It is the latter question to which the Appellate Division of the Supreme Court of Ontario have
given most consideration, but the former needs to be carefully examined in order to ascertain the
circumstances upon which the latter question depends. It cannot be properly answered by
considering the abstract relationship of directors and companies; the real matter for
determination is what, in the spec circumstances of this case, was the relationship that existed
between Messrs Deeks and Hinds and the company that they controlled. Now it appears plain
that the entire management of the company, so far as obtaining and executing contracts in the
east was concerned, was in their hands, and, indeed, it was in part this fact which was one of the
causes of their disagreement with the plaintiff. The way they used this position is perfectly plain.
They accelerated the work on the expiring contract of the company in order to stand well with
the Canadian Pacific Railway when the next contract should be offered, and although Mr.
Mclean was told that the acceleration was to enable the company chances whatever of acquiring
the benefit, and avoided letting their co-director have any knowledge of the matter. Their
Lordships think that the statement of the trial judge upon this point is well founded when he
said that it is hard to resist the inference that Mr. Hinds was careful to avoid anything which
would waken Mr. Cook from his fancied security, and again, that `the sole and only object on the
part of the defendants was to get rid of a business associate whom they deemed, and I think
rightly deemed, unsatisfactory from a business standpoint.' In other words, they intentionally
concealed all circumstances relating to their negotiations until a point had been reached when
the whole arrangement had been concluded in their own favour and there was no longer any
real chance that there could be any interference with their plans. This means that while
entrusted with the conduct of the affairs of the company they deliberately designed to exclude,
and used their influence and position to exclude, the company whose interest it was their first
duty to protect........
It is quite right to point out the importance of avoiding the establishment of rules as to the
directors' duties which would impose upon them burdens so heavy and responsibilities so great
that man of good position would hesitate to accept the office. But, on the other hand, men who
assume the complete control of a company's business must remember that they are not at liberty
to sacrifice the interests which they are bound to protect, and while ostensibly acting for the
company, divert in their own favour business which should properly belong to the company
they represent.
Their Lordships think that, in the circumstances, the defendants T.R. Hinds and G.S. and G.M.
Deeks were guilty of a distinct breach of duty in the course they took to secure the contract, and
that they cannot retain the benefit of such contract for themselves, but must be regarded as
holding it on behalf of the company.
There remains the more difficult consideration of whether this position can be made regular by
resolutions of the company controlled by the votes of these three defendants. The Supreme
Court have given this matter the most careful consideration, but their Lordships are unable to
agree with the conclusion which they reached.
In their Lordships' opinion the Supreme Court has insufficiently recognised the distinction
between two classes of case and has applied the principles applicable to the case of a director
selling to his company property which was in equity as well as at law his own, and which he
could dispose of as he thought fit, to the case of a director dealing with property which, though
his own at law, in equity belonged to his company. The cases of North-West Transportation Co.
v. Beatty and Burland v. Earle both belonged to the former class. In each, directors had sold to
the company property in which the company had no interest at law or in equity. If the company
claimed any interest by reason of the transactions, it could only be by affirming the sale, in which
case such sale, though initially voidable, would be validated by subsequent ratification. If the
company refused to affirm the sale the transaction would be set aside and the parties restored to
their former position, the directors getting the property and the company receiving back the
purchase price. There would be no middle course. The company could not insist on retaining
the property while paying less than the price agreed. This would be for the court to make a new
contract between the parties. It would be quite another thing if the director had originally
acquired the property which he sold to his company under circumstances which made it in
equity the property of the company. The distinction to which their Lordships have drawn
attention is expressly recognised by LORD Davey in Burland v. Earle and is the foundation of the
judgement in North-West Transportation Co. v. Beatty, and is clearly explained in the case of
Jacobus Marler Estates v. Marler.............
If, as their Lordships find on the facts, the contract in question was entered into under such
circumstances that the directors could not retain the benefit of it for themselves, then it belonged
in equity to the company and ought to have been dealt with as an asset of the company. Even
supposing it be not ultra vires of a company to make a present to its directors, it appears quite
certain that directors holding a majority of votes would not be permitted to make a present to
themselves. This would be to allow a majority to oppress the minority. To such circumstances
the cases of North-West Transportation Co. v. Beatty and Burland v. Earle have no application.
In the same way, if directors have acquired for themselves property or rights which they must be
regarded as holding on behalf of the company, a resolution that the rights of the company should
be disregarded in the matter would amount to forfeiting the interest and property of the minority
of shareholders in favour of the majority, and that by the votes of those who are interested in
securing the property for themselves. Such use of voting power has never been sanctioned by
the courts, and, indeed, was expressly disapproved in the case of Menier v. Hooper's Telegraph
Works.
If their Lordships took the view that, in the circumstances of this case, the directors had exercised
a discretion or decided on a matter of policy (the view which appears to have been entertained
by the Supreme Court) different results would ensue, but this is not a conclusion which their
Lordships are able to accept. It follows that the defendants must account to the Toronto
Company for the profits which they have made out of the transaction..........."
72. BOSTON DEEP SEA FISHING CO. v ANSELL (1888)
Ansell was a director of thd plaintiff company and, on the company's behalf, contracted for the
building of fishing smacks. Unknown to the company, he was paid a commission on the contract
by the shipbuilders. He was also a shareholder in an ice company which, in addition to
dividends, paid bonuses to shareholders who were owners of fishing smacks and who employed
the ice company in supplying ice to the fishing smacks. Ansell employed the ice company in
respect of the plaintiff company's fishing smacks and received the bonus.
Held - Ansell must account to the company for both the commission and the bonus, although
the bonus could never have been received by the plaintiff company as it was not a
shareholder in the ice company.
73. PERCIVAL v. WRIGHT
The plaintiff wished to sell shares in the company and wrote to the secretary asking if he knew of
anyone willing to buy. After negotiations, the Chairman of the board of directors arranged the
purchase of 253 shares, 85 for himself and 84 for each of his fellow directors at a price based on
the plaintiff's valuation of £12 10s per share. The transfers were approved by the board and the
transactions completed. The plaintiff subsequently discovered that prior to and during the
negotiations for the sale, a Mr. Holden was also negotiating with the board for the purchase of
the company for resale to a new company, and was offering various prices for shares, all of
which exceeded 15612 10s per share. No firm offer was ever made, and the negotiations
ultimately proved abortive, and the court was not satisfied that the board ever intended to sell.
The plaintiff brought this action against the directors asking for the sale of his shares to be set
aside for non-disclosure.
Held - The directors are not trustees for the individual shareholders and may purchase their
shares without disclosing pending negotiations for the sale of the company. A contrary
view would mean that they could not buy or sell shares without disclosing negotiations,
a premature disclosure of which might well be against the best interests of the company.
There was no unfair dealing since the shareholder in fact approached the directors and
named his own price.
74. RE: W&M ROITH LTD.
The controlling shareholder and director of two companies wished to provide for his widow but
did not want to leave her his shares. Accordingly he entered into a service agreement with one
of the companies under which his widow was entitled to a pension for life on his death.
Held - On the application of the liquidator - that the agreement was not binding on the
company.
75. HUTTON v. WEST CORK RAILWAY CO.
The West Cork Railway Company had entered into an agreement to sell its undertaking to the
Cork and Bandon Railway Company and remained in existence purely for the purpose of
winding up. After the sale had been completed, the shareholders resolved at a meeting to spend
£1,050 of the purchase money in compensating the salaried employees of the company for their
loss of employment and £1,500 to the directors, who were not servants, as remuneration for their
past services. It appeared that the directors had always understood that they were going to serve
the company for nothing and there was in fact no power in the company's constitution to pay
them. Hutton, a dissentient shareholder, challenged the validity of the resolution.
Held - By the Court of Appeal - that although these payment might be made whilst the
company was a going concern, a gratuitous payment could not be justified once the
company had ceased to be a going concern. Therefore the payments could not be made.
À railway company, or the directors of the company, might send down all the porters
at a railway station to have tea in the country at the expense of the company. Why
should they not? It is reasonably incidental to the carrying on of the business of the
company; and a company which always treated its employees with draconian severity,
and never allowed them a single inch more than the strict letter of the bond, would soon
find itself deserted - at all events, unless labour was very much more easy to obtain in
the market than it often is. The law does not say that there are to be no cakes and ale,
but there are to be no cakes and ale except such as are required for the benefit of the
company......... I think the resolution as to compensation is clearly wrong. The directors
have no right to give it. It might in some instances be worth the while of the company to
compensate a meritorious, but dismissed officer, but that kind of justification cannot
exist in the case of a dying company. I think that makes the resolution bad....' per Bowen
L.J.
76. HOGG v. CRAMPHORN
In order to prevent a take-over bid, which they honestly thought would be bad for the company
as a whole, the directors used certain money belonging to the company which was standing in an
account headed ""employees" benevolent and pension fund" to set up a pension scheme by
issuing preference shares bearing 10 votes each. This had the effect of giving the trustees of the
fund and the directors together control of the company. The directors had power to issue shares
but not attach more than one vote to each. This action was brought by a minority shareholder on
behalf of all the others except the directors against the company and the directors.
Held - Since the proper purpose of issuing shares is to raise capital for the company, an issue
made to forestall a take-over bid was a breach of the directors' fiduciary duties. The
allotment could not stand unless confirmed in general meeting and a meeting should be
convened to consider whether to approve what had been done. However, the increased
votes should not be exercised by the directors at the meeting though they could exercise
their original votes.
77. ELLIS v. BAILEY & CO. (EAST AFRICA) ETC.
The appellant, who resided in Kenya, and three other persons who resided in England, one of
whom was a Mr. P., were named in the articles of association of the respondent company as the
FIRST DIRECTORS. Mr. P. was also managing director of a company in England which was the
parent of the respondent company (The respondent company was formed with an issued share
capital of 6,000 £1 shares; of which 5999 shares were held by the parent company and one was
held by the appellant as trustee for the parent company)
At the first meeting of directors of the respondent company held in 1958, the appellant was by
resolution appointed managing director but he was given no service agreement. The appellant
was paid at the rate of £2,500 p.a., the payment being entered in the respondent company's
accounts as salary. The appellant was summarily dismissed on December 9, 1959, by an
authorised representative of Mr. P., who had discovered that the appellant had been personally
concerned in transactions with the respondent company of which the other directors were
unaware. These transactions had resulted in the respondent company financing the appellant to
the extent of about £1,000. At a meeting of directors held in England on December 11, 1959 the
dismissal of the appellant was confirmed but notice of this meeting was not given to the
appellant.
On January 10, 1960, the appellant started his own business. The respondent company then sued
the appellant for the amount owed by him in answer to which the appellant filed a defence and
counter-claim admitting the amount owing, but claiming Shs.16,666/68 salary accrued to the
date of filing the defence.
The ground for the counterclaim was that his directorship had never been lawfully terminated.
The judge gave judgement in favour of the respondent company on its claim, and on the counter-
claim the judge held that the appellant had not been effectively dismissed because the resolution
of the directors confirming the dismissal was of no effect as it had NOT been passed in general
meeting as required by cl.68 of Table "A" of the Companies Act, which was incorporated in the
respondent company's articles.
On appeal it was held:-
(i) the directors had power to dismiss or confirm the dismissal of the appellant as managing
director and the judge had erred in holding that as managing director the appellant
could only be dismissed by the respondent company in general meeting.
(ii) even though the respondent company had power under cl.68 of Table "A" to determine
the appellant's appointment in general meeting, this did NOT derogate from the
directors' full powers of management.
(iii) the appellant's appointment as managing director had been effectively terminated on
December 9, 1959.
NEWBOLD, J.A. "............ Power was given in the articles to confer on a managing director all
orany of the powers of the directors and at any time to revoke such powers........
On December 9, 1959, a Mr. Flowitt, who was not a director of the company but who had arrived
from England a few days before to investigate the unsatisfactory position of the company (learnt
of these dealings) informed the appellant that he had laid himself open to criminal proceedings
and told the appellant to leave the office at once and without any salary. Mr. Flowitt was armed
with a letter of authority signed by Mr. Pethed to close down the company and dispense with the
appellant's services, which letter had been shown to the appellant on December 7. The appellant
had then expressed surprise at the authority and stated that he was unaware of any meeting of
the company or of the directors at which decisions of such gravity could have been made. On
December 11, 1959, a meeting of the directors was held at Iikley, Yorkshire, which endorsed the
action of Mr. Flotwitt in the "dismissal of Mr. P.G. Ellis.......... consequent upon his findings on his
arrival in Nairobi."
No notice of the meeting was given to the appellant.........

The two main issues on appeal are as follows: first, was the appellant's appointment as managing
director effectively terminated on December 9, 1959, whether or not such termination was
wrongful; secondly, if the appellant's appointment as managing director was not effectively
terminated, did the appellant by his action in opening his own business repudicate his contract
and in effect resign his appointment............
The undisputed evidence ....... was that the appellant's entitlement to any remuneration arose
from his position as managing director and not from his position as director. There is, in my
view, a basic and not merely a technical difference between a claim for remuneration as a
director and a claim for salary as a managing director, and a claim in one capacity cannot be
supported by evidence of the other capacity. As was said ........... in SOUTHERN FOUNDARIES
(1926) LTD v SHIRLAW ......., when referring to the position of a managing director:
"........... the two positions, that of director and that of manager, involve different qualifications,
duties and responsibilities." In FOWLER v COMMERCIAL TIMBER CO. LTD, Scrufton, L.J.,
referred "the two positions of the plaintiff 1. as managing director........ and 2. as a director....."
and this passage was quoted with approval by the Council in LEE v. LEE'S AIR FARMING
LTD.............
Turning now to the first of the main issues argued on the appeal, I understand the learned judge
to have held that under reg.68 of Table "A" the appointment of a managing director may only be
terminated against his will if he ceases from any cause to be a director or if the company in
general meeting determines the appointment. The learned judge, having examined the facts,
held that the appellant had not ceased to be a director by reason of disqualification and that the
resolution of the board of directors confirming the dismissal of the appellant was of no effect as it
was not passed in general meeting. Regulation 68 of Table "A", so far as it is relevant to this
point, reads as follows:-
"The directors may from time to time appoint one.............. of their body to the office of managing
director......... for such time and at such remuneration..... as they may think fit, and a director so
appointed shall not............ be subject to retirement by rotation ....... but his appointment shall be
subject to determination ipso facto if he ceases from any cause to be a director, or if the company
in general meeting resolve that his tenure of the office of managing director ............ be
determined".
Does this mean that though the appointment is made by the directors they have no power to
determine it or does it mean that the directors may determine the appointment and in addition
the company in general meeting has an overriding power of determination. Though there are
obita dicta to the contrary in NELSON v JAMES NELSON AND SONS LTD., in my view on first
principles the directors who make the appointment have power to terminate it, and the matter is
placed beyond doubt by s.47 of the Interpretation and General Provisions Act, 1956, which
provides that, unless the contrary intention appears, a person having a power to appoint under
any written law (and reg.68 of Table "A" is a written law) shall also have the power to dismiss. A
number of cases have been decided on the basis that the directors have effectively dismissed a
managing director (see FOSTER v FOSTER.........., READ v ASTORIA GARAGE (STREATHAN)
LTD.............)
In my view reg.68 of Table "A" gives to the directors a power to appoint a managing director on
such terms as may be agreed. Such terms could include a provision that the managing director
was to continue as such for a specified period or a provision that he was not to be dismissed
without reasonable notice. In either of such cases the directors could not, unless there was
justification for a summary dismissal, dismiss the managing director contrary to the agreed terms
without laying the company open to an action for wrongful dismissal, but there remains the
overriding power of the company in general meeting to terminate the appointment. But, subject
to the dismissal not being contrary to any terms, express or implied, of the appointment, the
directors, by having the power to appoint, inherently also have the power to dismiss. This being
so, with respect to the learned judge, I consider that he erred in holding that the appellant could
only be dismissed from his appointment as managing director by the company in general
meeting; in my view the board of directors had power to dismiss or confirm the dismissal of the
appellant as managing director..........
It is urged, however, that the meeting of the directors on December 11, 1959, was not properly
convened in that NO NOTICE OF THE MEETING was given to the appellant and as a
consequence............. the resolution confirming the dismissal of the appellant was ineffective (see
also YOUNG v LADIES IMPERIAL CLUB)................ Accepting for the purposes of this case that
notice of the meeting should have been given to the appellant, even though the meeting took
place in England and the appellant was in Kenya and could not under the articles have voted on
the question of his dismissal, and that resolutions at a directors' meeting of which due notice has
not been given may in a number of cases be ineffective, was the resolution dismissing the
appellant for reasons which the directors regarded, with some justification, as misconduct such
that the courts would say that the dismissal is ineffective. The appellant is claiming under an
implied service agreement the terms of which have not been set out in writing but which must I
think consist of the terms referred to in the letter from Mr.Pethed to the appellant offering him
the appointment and a term that the agreement is subject to the articles. The cases dealing with
the service agreement of a managing clearly assume that the ordinary law of master and servant
would apply to the appointment of the appellant as managing director (see for example LEE's
case, and ANDERSON v SUTHERLAND (PETERHEAD LTD) and with respect to the learned
judge I see no reason, nor has he given any, for holding the contrary. As I understand the law of
master and servant it is that unless the servant has a certain statutory status, a de facto dismissal
is effective even though the dismissal may be wrongful and give rise to a claim for damages.
This, perhaps, is merely another aspect of the principle that the courts will not normally grant
specific performance of a contract of service.
I consider that the case of BARBER v MANCHESTER REGIONAL HOSPITAL BOARD makes it
clear that the post of managing director (whatever may be the position of a director) cannot be
said to be an appointment having a statutory status so that any dismissal therefrom to be
effective must comply with all the requirements in accordance with the principle set out in VINE
v NATIONAL DOCK LABOUR BOARD (1957) A.C 488). As Lord Wright said in the
SOUTHERN FOUNDRIES case.
"In the same way art.105 which empowers the company by extraordinary resolution to remove
any director is equally excluded in the case of a managing director by article 91. If the company
under article 105 has passed an extraordinary resolution to remove the respondent during his
term of ten years, he would not (sic) doubt have ceased to hod office because a claim by him for
specific performance or kindred relief would, I assume, fail, but the removal would have been a
breach, of the agreement, unless for good cause....... The case would have been simply a case of
wrongful dismissal of a servant or employee. The servant or employee is in such a case
effectively dismisses"
In this case the appellant is not claiming damages for wrongful dismissal but he is claiming
salary on the ground that he is still the managing director in effect therefore he is asking for
specific performance of at least one aspect of a contract of service. In this case there has
undoubtedly been a de facto dismissal of the appellant on December, 9, 1959, which, however
irregularly, was confirmed by the board of directors on December 11, 1959, and which the
company two and a half years later is claiming to have been an effective dismissal. For the courts
to say that the appellant was not effectively dismissed and is thus still the managing director of
the company would, in my view, be quite wrong and would offend against the principles that a
master can effectively even though wrongful dismiss a servant, that a contract of personal service
will not be specifically enforced and that equity will not interfere where an irregularity has been
committed if it lies within the power of the person committing the irregularity to correct it at any
time. It could, in my view, be all the more extraordinary to force on to an unwilling company a
managing director who was considered by his fellow directors, with some justification, to have
been guilty of misconduct justifying summary dismissal and to do so in the case of a private
company where all the shares are held by the parent company who would thus have had full
power at any time either to reinstate the appellant or to confirm his dismissal. My attention has
not been drawn to any case in which the dismissal of a managing director, however wrongful or
irregular, has been held to be ineffective and any claim arising out of any such dismissal has
almost invariably been for damages for wrongful dismissal and not for "salary owing" by reason
of an ineffective dismissal".............. In any opinion, therefore, the appellant was effectively
dismissed on December 9, 1959..........."
SIR TREVOR GOULD, Ag. V-P:-
"............s.3 of the Interpretation and General Provisions Ordinance, 1959, "written law" is so
defined as to include "all Ordinances" and by s.17 every schedule to or table in any written law
shall be construed and have effect as part of such written law. Table "A" is therefore a written
law, and as the sole purpose which the regulations in Table "A" may serve is to take effect as
articles of limited companies, those who adopt or do not exclude them must be deemed to know
and accept the legal implications which follow........... Regulation 67 of Table "A", which is also
one of the articles of the respondent company, is in the usual terms giving the directors power to
manage the business and to exercise all such powers of the company as are not by the ordinance
or the articles required to be exercised by the company in general meeting. That, in the ordinary
course of business, would include power to engage and dismiss employees, and in the
circumstances of the present case, there being nothing in the articles of the respondent company
which indicates the contrary, I would accept that the current of authorities shows that the
position of the appellant qua managing director was that of employee.
Apart from authority, I would not think that because a power is given by reg.68 to the company
IN GENERAL MEETING to determine the appellant's tenure of office as managing director, it
follows that there is any derogation from the full powers of management of the directors. ......... It
is true that without specific authority in the articles directors may not appoint on e of their
number to the position of managing director or other salaried office ...... Such an appointment
would entail delegation of authority or payment of remuneration not authorised for directors.
But where there is, as here, specific authority to appoint for such term and at such remuneration
as may be decided by the directors, is there any reason to suppose that reg.68 is to be regarded as
a complete code so far as appointment and dismissal is concerned? It contains no specific denial
of the directors' power to dismiss, if one is implied if the company in general meeting resolve", in
reg.68, are to be of managing director be exercised only in general meeting, would they detract
from the powers conferred by reg.67. As a matter of drafting of course it would have been easy
to reserve a power of revocation to the directors in reg.68, but it would have been equally easy to
make it clear that only the occurrence of one or two circumstances stated in the concluding
words of that regulation could determine the appointment, otherwise than by the expiry of his
term.
It would be in my reading of reg.68 that the power given to the company in general meeting is an
overriding one, enabling the company to take that particular matter out of the hands of the
directors if it wishes; that it is a recognition of the rule that a company cannot give nor overrule
their decisions unless the articles so provide JOHN SHAW & SONS LTD V SHAW As I see it, the
power of the company in general meeting under reg.68 and the power of the directors to manage
in all which is not "required" to be done in general meeting can co-exist without conflict, and the
existence of the power in the general meeting does not import a requirement that the tenure of
office of a managing director may be determined in that way only. I should perhaps repeat that I
am referring to power of effective determination, irrespective of whether it amounts to breach of
contract. ......... If powers of management in the terms of reg.67 do not include power to dismiss
for good cause there seems to be no good reason to say they include power to suspend a
managing director from his duties even for the protection of the company. .......... As Newbold, J
A has observed in his judgement, a court will not give specific performance of a contract of
service and that is in effect what the appellant seeks. In my judgement the respondent company
has effectively excluded the appellant from his position as managing director and his remedy (if
he has good ground on the merits) is in an action for wrongful dismissal or wrongful
repudiation".
NOTES
1. Reg.67 referred to in this case is now Article 80 of Table "A".
2. "Reg.68" is now Article 107, but it should be observed that the words, "or if the company
in general meeting resolve that his tenure of the office of managing director ........... be
determined" in Reg.68 have been omitted from Article 107 of the current Table A.
78. SOUTHERN FOUNDRIES (1926) LTD V SHIRLAW (194) (HOUSE OF LORDS):
In 1933, the respondent was by a written agreement appointed managing Director of the
appellant company (Southern) for ten years. In 1936, after Souther had been taken over by
Federated Foundries Ltd. (Federated), Southern altered its articles so as to include, inter alia; a
new article 8 which empowered Federated by a written instrument to remove any director of
Southern. In 1937 Federated exercised this power and removed the respondent from his
directorship. He sued Southern for breach of contract and Federated for wrongly procuring the
breach of contract. He was awarded 12,000 pounds damages against both defendants, and the
award was upheld by the Court of Appeal (Greene M R dissenting) and by the House of Lords
(Viscount Maugham and Lord Romer dissenting).
LORD ATKIN My Lords, the question in this case is whether the appellant company have
broken their contract with the respondent made in December 1933 that he should hold articles
adopted by the company, after the agreement, the respondent was removed from the position of
director of the company by the Federated Foundries Ltd. There can be no doubt that the office of
managing director could only be held by a director, and that upon the holder of the office of
managing director ceasing for any cause to be a director the office would be ipso fact vacated.
Under the articles in existence at the date of agreement, by article 89 the office of a director could
be vacated on the happening of six various events, bankruptcy, lunacy, etc., including the giving
by the director of one month's notice to resign; while by article 105 the company by extraordinary
resolution could remove him from his office. I feel no doubt that the true construction of the
agreement is that the company agreed to employ the respondent and the respondent agreed to
serve the company as managing director for the period of ten years. It was by the constitution of
the company a condition of holding such office that the holder should continue to be director
and such continuance depend upon the terms of the articles regulating the office of director. It
was not disputed, and I take it to be clear law, that the company's articles so regulating the office
of director could be altered from time to time: and therefore the continuance in office of
managing director under the agreement depended upon the provisions of the articles from time
to time; and therefore the continuance in articles from time to time. Thus the contract of
employment for the term of ten years was dependent upon the managing director continuing to
be a director. This continuance of the directorship was a concurrent condition. The arrangement
between the parties appears to me to be exactly described by the words of Cockburn C J in
Stirling v Maitland: Ìf the party enters into an agreement which can only take effect by the
continuance of an existing state of circumstance': and in such a state of things the Lord Chief
Justice said: Ì look on the law to be that.... there is an implied engagement on his part that he
shall do nothing of his own motion to put an end to that sate of circumstances, under which
alone the arrangement can be operative.' That proposition in my opinion is well established by
law. Personally I should not so much base the law on an implied term, as on a positive rule of
the law of contract that conduct of either promisor or promisee which can be said to amount to
himself òf his own motion' bringing about the impossibility of performance is in itself a breach.
If A promises to marry B and before performance of the contract marries C, A is not sued for
breach of an implied contract not to marry any one else, but of his own contract to marry B. I
think it follows that if either the company of its own motion removed the respondent from the
office of director to be vacated by giving one month's notice of resignation under article 89, either
of them would have committed a breach of the agreement in question. As Kennedy L J said in
Measures Bros Ltd v Measures in discussing this very question of the effect upon a contract of
employment as managing director: Ìt is elementary justice that one of the parties to a contract
shall not get rid of his responsibilities thereunder by disabling the other contractor from
fulfilling his part of the bargain.
I cannot agree with the view of the contract taken by the Master of the Rolls that the parties must
be taken to have agreed that the term, though expressed to be for ten years, was subject to be
determined by any cause including the will of either party expressed in accordance with the
articles; and that such determination therefore could not constitute a breach. I should have
construed the agreement as I do on the first two clauses alone, but the remaining clauses and
particularly those dealing with the mutual obligations between the respondent and Sir Berkeley
Sheffield in this tripartite agreement in my view strongly reinforce that construction. I agree,
therefore, with the trial judge, with the majority of the Court of Appeal, and with I believe all
your Lordships in thinking that if during the term the respondent had given a notice of
resignation, or if the company had exercised its power of removal under article 105, either would
have committed a breach of the contract.
The question that remains is whether if the removal by the company would have been a breach
by the company, the removal under the altered articles by the Federated Foundries Ltd. was a
breach by the company. In this matter the Master of Rolls agreed with the other members of the
Court of Appeal; but all the members of this House are not agreed. My Lords, it is obvious that
the question is not as simple as in the case just considered of the removal being by the Southern
Foundries Ltd; but I venture respectively to think that the result must be the same. The office of
director involves contractual arrangements between the director and the company. If the
company removes the director it puts an end to the contract: for in the contract, by operation of
law, or by the will of the two parties. The altered article 8 which gives power to the Federated
Foundries Ltd to remove from office any director of the company is, when analysed, a power to
the Federated to terminate a contract between the Southern and its directors. It is an act which
binds the Southern as against its promises; and if a wrong to the respondent if done by the
Southern it surely must be a wrong to the respondent if done by the Federated who derive their
power to dot the act from the Southern only. If a landlord gives power to a tenant to discharge
the landlord's servants, gardener or gamekeeper, it is the master, the landlord, who is bound by
the consequences of that discharge whether rightful, or whether wrongful, and so involving the
payment of damages. If a man buys goods and contracts with a sub-purchaser to take delivery
direct from his vendor, and contracts with his vendor to give delivery to the sub-purchaser, the
latter's recourse for breach of contract to deliver is against his own intermediate seller and not
against the head vendor. If then the Federated of their own motion determine the concurrent
condition it appears to me that necessarily they cause the Southern to break the contract. The
action of the Federated was, I think I may say avowedly, taken for the sole purpose of bringing
the managing director's agreement to an end. I do not think that it could be said that the
Southern committed any breach by adopting the new articles. But when the Federated acted
upon the power conferred upon them in the new articles they bound the Southern if they acted
in such a way that action by the Southern on the same articles would be a breach. It is not a
question of agency but of acting under powers conferred by contract to interfere with a contract
between the party granting the power and third person..........
LORD PORTER........ The general principle therefore may, I think, be thus stated. A company
cannot be precluded form altering its articles thereby giving itself power to act upon the
provisions of the altered articles - but so to act may nevertheless be a breach of contract validly
made before the alteration. Nor can an injunction be granted to prevent the adoption of the new
articles and in that sense they are binding on all and sundry, but for the company to act upon
them will none the less render it liable in damages if such action is contrary th the previous
engagements of the company. If, therefore, the altered articles had provided for the dismissal
without notice of a managing director previously appointed, the dismissal would be intra vires
the company but would nevertheless expose the company to an action for damages if the
appointment had been for a term, of say ten years and he were dismissed in less......... LORD
WRIGHT delivered a concurring opinion.
VISCOUNT MAUGHAM and LORD ROMER dissented.
79. READ v. ASTORIA GARAGE (STREATHAM) LTD. - (1952)
The defendant company's articles included article 68 of Table A of the 1929 Act, which provided
that the directors might appoint a managing director for such term and at such remuneration as
they might think fit; `.......but this appointment shall be subject to determination ipso facto if he
ceases from any cause to be a director, or if the company in general meeting resolve that his
tenure of the office of managing director be determined'. Read was appointed managing director
at a salary of £7 per week by a resolution of the board.
JENKINS L.J......... There is no record anywhere of any terms on which the plaintiff was
appointed managing director beyond the minute of resolution No.4 which was passed at the first
meeting of the directors by which the plaintiff was appointed managing director at a salary of £7
per week from 1 February 1932, and the articles of association of the company. The company's
articles adopted Table A, with certain modifications. Amongst the articles of Table A adopted
was article No. 68. (His Lordship read the article).
It is argued by Mr. Harold Brown for the plaintiff that, notwithstanding the provisions of article
68, there was a contract between the plaintiff and the defendant company in the nature of a
contract of general hiring - a plain contract of employment, one of the terms of which was that
the plaintiff's employment should not be determined by the defendant company except by
reasonable notice. The judge came to the conclusion that the terms of the plaintiff's appointment
were not such as to entitle him to any notice in the event of the company choosing under article
68 to resolve in general meeting that his tenure of office as managing director be determined,
and, in my judgement, the judge was clearly right.
80. ROYAL BRITISH BANK v. TURQUAND

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

(1968) 1 Q.B. 549
(Chancery Division and Court of Appeal)
Richards was chairman of directors of the defendant company and its chief executive or `de facto
managing director', who often committed the company to contracts on his own initiative and
only disclosed the matter to the board subsequently. The board acquiesced in this practice. The
plaintiff (referred to in the judgement as Lord Suirdale) was chairman and managing director of
another company, `Perdio', which it was planned should eventually be merged with or acquired
by the defendant. As part of an agreement to put more money into Perdio, the plaintiff (who had
been made a director of the defendant company) was given certain letters (referred to as C.23
and C.26) signed by Richards, by which the defendant agreed to guarantee the repayment of
money owed to the plaintiff and to indemnify him against certain losses. When sued on these
undertakings, the defendant alleged that Richards had no authority to make the contract in
question. Roskill J. held that Richards had apparent authority to bind his company; the Court of
Appeal affirmed his decision, but on the ground that he had actual authority.
ROSKILL J...... The question to what extent there may be implied authority in a chairman or
managing director acting as such as distinct form express authority, so as to bind a company to
acts done by him in the course of his duties as chairman or managing director or chief executive,
is one of considerable difficulty and one upon which there appears to be little or no relevant
authority. The conception of implied authority in such a person as distinct from express
authority is not easy having regard to the cases on this branch of the law on ostensible or
apparent authority. I was urged by Mr MacCrindle that as Mr Richards was both chairman and
de facto managing director there was for that reason alone implied authority in him to do what
he did. I have some difficulty in accepting that. I would not be prepared to hold that there is
implied authority in a chairman of a company, merely by reason of his office, to do what Mr
Richards did in this particular case in signing C.23 and C.26. I do not think that mere status,
derived from the holding of a particular office such as chairman or managing director or chief
executive, of itself implies an authority which would not otherwise exist.
There may be cases where such an implication can be made, but I do not propose to decide this
issue on this point because I am quite satisfies, for the large number of reasons I shall endeavor to
give, that there was ostensible or apparent authority in Mr Richards to do what he did.
The set-up in Brayhead is easy to envisage. It was an industrial holding company with a large
number of subsidiaries. Its directors were in the main working directors, each in charge of a
section of the holding company's subsidiaries. One would look after electronics, another
engineering, and so on. They would all come back to Mr Richards for advice and - which is more
important - decision from time to time on matters concerning their own particular group. The
final decision - and the final decision most especially on any matter concerning finance - was Mr
Richards' and nobody else's. Sometimes, I dare say, the directors persuaded him to take or to
refrain from taking a particular step; no doubt, like any wise chief executive, he sought and
obtained advice before he made up his mind; but in all these cases the final decision, I am quite
satisfied, rested with him and with nobody else.
If one goes through the minutes and documents which have been put before me, one can see
repeated examples of Mr Richards acting in this way. Sometimes, of course, the matter would
come back to the board for formal ratification after he had committed Brayhead, perhaps
technically without express authority. On other occasions, of which there are a number of
examples in the minutes, he plainly committed Brayhead and then, as it were, reported the
matter afterwards........ I have no doubt that the board knew that he was doing this sort of thing
all the time, and that whenever he thought it was necessary he assumed, or purported to assume,
authority to bind Brayhead, and that the board allowed him to do it and acquiesced in his doing
it. That is not to say, to use Mr Finer's phrase yesterday, that all the directors were `Yes men'; I
am sure they were nothing of the kind. Mr Richards was a forceful personality; he knew his own
mind. I think he quite clearly was allowed by Brayhead to hod himself out as having ostensible
or apparent authority to enter into commitments of the kind which he entered into or purported
to enter into, when he signed C.23 and C.26..........
(The Court of Appeal affirmed the decision of Roskill J., but on the grounds that Richards had
actual authority.)
LORD DENNING M.R.... I need not consider at length the law on the authority of an agent,
actual, apparent or ostensible. That has been done in the judgements of this court in FREEMAN
& LOCKYER v. BUCKHURST PARK PROPERTIES (MANGAL) LTD. It is there shown that
actual authority may be express or implied. It is express when it is given by express words, such
as when a board of directors pass a resolution which authorizes two of their number to sign
cheques. It is implied when it is inferred from the conduct of the parties and the circumstances
of the case, such as when the board of directors appoint one of their number to be managing
director. They thereby impliedly authorize him to do all such things as fall within the usual
scope of that office. Actual authority, express or implied, is binding as between the company
and the agent, and also as between the company and others, whether they are within the
company or outside it.
Ostensible or apparent authority is the authority of an agent as it appears to others. It often

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

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

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

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

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

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

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

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

London, E.C., on Wednesday, the 30th day of December, 1874, pursuant to notice, R.H.
Silversides, Esq., in the chair, the notice convening the meeting having been read, the minutes of
the last meeting were confirmed. The financial statement, ending the 28th of November,
showing a balance of £83 11s. 5d. against the shareholders, having been read, it was
Resolved - `That the same be received and passed.'
Captain William Taylor's report having been read, it was
Resolved - `That the same be received and passed, and, together with the financial statement, be
printed and circulated among the shareholders.'
Resolved - `That a call of 4s. 6d. per share be now and is hereby made payable to the secretary,
and that a discount of 5 per cent be allowed if paid by the 20th of January, 1875.'
Resolved - Ìn consequence of the death of Lieut-Col. W.T. Nicolls, and until the appointment of
a shareholder to act in his stead, that all cheques be signed by Mr.R.H. Silversides and
Mr.Granville Sharp jointly.'
1. (These tin-mining companies are unincorporated and governed by special statutes: see
Gower, Modern Company Law, 3rd edition (London, 1969), p.7).
(Signed) R.H. Silversides, Chairman.
Resolved - `That a vote of thanks be given to the chairman.'

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

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

(1894) 3 Ch.159
Chancery Division
After a resolution proposed by the chairman, Sykes, had been lost, he declared the meeting
dissolved and left the room together with his supporters, although the remainder of the agenda
had not been dealt with. The shareholders who were left elected another chairman and
proceeded with the business, but Sykes and his supporters refused to recognize the validity of
the decisions so reached. It was held that the chairman had no power to declare the meeting
dissolved in this way.
CHITTY J. A question of some importance has been mooted in this case, with regard to the
powers of the chairman over a meeting. Unquestionably it is the duty of the chairman, and his
function, to preserve order, and to take care that the proceedings are conducted in a proper
manner, and that the sense of the meeting is properly ascertained with regard to any question
which is properly before the meeting. But, in my opinion, the power which has been contended
for is not within the scope of the authority of the chairman - namely, to stop the meeting at his
own will and pleasure. The meeting is called for the particular purposes of the company.
According to the constitution of the company, a certain officer has to preside. He presides with
reference to the business which is there to be transacted. In my opinion, he cannot say, after that
business has been opened, Ì will have no more to do with it; I will not let this meeting proceed; I
will stop it; I declare the meeting dissolved, and I leave the chair.' In my opinion, that is not
within his power. The meeting by itself (and these articles certainly apply to what I have said)
can resolve to go on with the business for which it has been convened, and appoint a chairman to
conduct the business which the other chairman, forgetful of his duty or violating his duty, has
tried to stop because the proceedings have taken a turn which he himself does not like........
(The decisions which had been taken in the absence of the chairman were accordingly ruled to
have been valid, including a resolution appointing a committee of investigation. Other matters
still in issue were then referred to another meeting for determination.)
96. SECOND CONSOLIDATED TRUST LTD. v. CEYLON AMALGAMATED TEA & RUBBER
ESTATES LTD.
(1943) 2 AII E.R. 567
Chancery Division
(The power of the chairman to demand a poll must be exercised not in accordance with his own
wishes or judgement but in such a way as to give effect to "the real sense of the meeting")
A meeting of debenture stockholders was attended by fourteen people in person, but this
number was insufficient to form a quorum. The chairman, Fidler, whose bona fides was not
questioned, declined to exercise his power to demand a poll (in which case the proxies which he
held would have been lost.) Instead he declared the resolution carried by the unanimous vote of
the fourteen persons present. These proceedings were brought to challenge the validity of the
resolution.
UTHWATT J......... The duty of a chairman of a meeting is to ascertain the sense of the meeting
upon any resolution properly coming before the meeting. Then comes the question as to his
position in regard to his right to demand a poll. Upon a fair construction of this (debenture stock
trust) deed, I do not regard that as a personal right to be exercised according to the fancy of the
chairman; in other words, I do not think he has an unlimited discretion as to the manner in which
he may exercise that power. It appears to me that the power to demand a poll is a power
possessed by the chairman which is to be exercised or not to be exercised according to his
decision whether it is necessary to exercise the power in order to ascertain the sense of the
meeting upon the matter before them; in other words, it is a power directed towards enabling
him to carry on the meeting for the purpose for which it is convened.
In this particular case, the first thing the chairman knew was this, that in order to have a quorum
at the meeting at all he must count in at any rate some of the proxies which he held. The second
thing he knew and which is not denied is that, if a poll were demanded and he used his proxies,
the resolution could not be carried.
In those circumstances, it seems to me that the chairman in this particular case is deciding not to
demand a poll never had his mind directed to the real point which he should have considered
before coming to a decision. That point was how best to ascertain the sense of the meeting. The
position was: Ì have these proxies in my possession; they have been sent to everybody.
Everybody has had a chance of expressing their views. Some are present; others are not. Unless
I count in some at least of the proxies, I have not got a quorum. How then shall I get the sense of
this meeting?' I do not think he ever directed his mind to that point, and, not having directed his
mind to that point, which is a matter which he ought to have taken into consideration, it seems to
me that he failed in this particular case in his duty as chairman, and, having so failed in his duty
as chairman, the resolution was not properly carried.
I would just like to add this, that, in addition to having this duty to demand a poll or exercise his
power to demand a poll, I think - and I think Fidler as a business man must take the same point
of view - he would be under a duty in law to exercise all the proxies which he held as chairman
in accordance with the instructions which they contained."
97. SCOTTISH CO-OPERATIVE WHOLESALE SOCIETY LTD. v. MEYER AND ANOTHER

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

(1959) (Court of Appeal)
In 1947 Harmer senior ('the father') formed a private company to take over the stamp-dealing
business which he had founded many years earlier; and although as a result of a succession of
gifts and purchases the majority of shares in the company were now owned by his sons, the
father retained his voting control. The father and sons were appointed life directors by the
articles of association, which also constituted the father 'governing director'- an office not defined
as carrying any distinctive powers. The sons petitioned for relief under s.210, alleging that the
father (by now aged upwards of 88) ran the business as if it were entirely his own, ignoring the
wishes of his co-directors, the resolutions of the board, and the interests of the shareholders. (He
had, inter alia, founded a branch of the business in Australia, against the wishes of the other
directors, which proved unprofitable; purportedly dismissed an old servant and fellow director
on his own initiative; procured the appointment of his own 'yes-men' to the board; drawn
unauthorised expenses for himself and his wife; engaged a detective to watch the staff;
countermanded resolutions of the board; and endeavoured to sell off the company's American
business, severely damaging its goodwill.)
Roxburgh J. granted the sons relief under s.210, ordering inter alia, 'that the company should
contract for the services of the father as a philatelic consultant at a named salary that the father
should not interfere in the affairs of the company otherwise than in accordance with the valid
decisions of the board of directors, and that he should be appointed president of the company for
life, but that this office should not impose any duties or rights or powers'.
The order was upheld by the Court of Appeal.
JENKINS L.J. referred to the evidence and continued:
I should next say a word or two as to the scope and effect of section 210 of the Act....it is to be
observed, first, that the person permitted to apply to the court under section 210 is àny member
of the company', and he must show 'that the affairs of the company are being conducted in a
manner oppressive to some part of the members (including himself)'. this indicates that the
oppression complained of must be complained of by a member of the company and must be of
oppression to some part of the members (including himself) in their or his capacity as a member
or members of the company as such. Secondly it is to be noted that the section does not purport
to apply to every case in which the facts would justify the making of a winding-up order under
the `just and equitable' rule, but only to those cases of that character which have in them the
requisite element of oppression.Thirdly, the phrase `the company are being conducted' suggests
prima facia a continuing process by anyone who is taking part in the conduct of the affairs of the
company whether defacto or dejure.
Fourthly, the section gives no guidance as to the meaning of the word òppressive', although it
does,as already mentioned, indicate that the victim or victims of the oppressive conduct must be
a member or members of the company as such. Prima facie, therefore the word òppressive' must
be given its ordinary sense and the question must be whether in that sense the conduct
complained of is oppressive to a member or members as such. inasmuch as in the present case it
is not in dispute that the facts would justify a winding-up order the `just equitable' rule and it is
recognised that such an order would unfairly prejudice the complaining members, this would
appear to be in effect the only question in issue...
(His Lordship referred to the evidence and continued:)
The question remains whether,on these facts, the petitioners were rightly granted the relief which
Roxburg J. thought fair to grant under section 210. upon this issue Mr. Harold Brown, for the
father, made in effect these submissions.....First, he said that the dons should not be heard to
complain since they acquired their shares through the generosity of their father,who having built
up the business, proceeded to turn it into a company and to hand over a major part of the
beneficial interest in the form of shares to his sons virtually by way of gift. As to this, the sons did
at all events pay for their preference shares, and if they had not paid anything, two of them at all
events had long been working in the business, while the third gave up his career in the Colonial
Office in order to take up employment in the business. moreover, the question of consideration
appears to me irrelevant, a mere matter of prejudice. Suppose the transaction was a mere matter
of gift, the gift, if valid (and there is no suggestion that it was not ) must surely have conferred
the same rights as if the transaction had been for full consideration.
Mr Harold Brown's second point was that the sons knew full well when the company was
formed that the father was to retain control by means of his predominant holding of `B' shares so
long as he lived. I agree, but cannot concur with Mr Brown in adducing from this that the sons
must be taken to have assumed that the father would exercise control irregularly by doing what
he thought fit without reference to the board or in defiance of the board's decisions.
Then the third submissions of Mr Harold Brown was that what was done by the father was not
oppressive of the rights of the sons as members, but merely oppressive of their rights as
directors. I cannot accept this . It appears to me that the sons as members and not merely as
directors were oppressed by the singular conduct of the father the oppression must be no doubt
be oppression of members as such, but it does not follow that the fact that the oppressed
members are also directors is a disqualifying circumstance when the question of relief under
section 210 arises. I think there may well be oppression from the point of view of member-
directors where a majority shareholder (that is to say, a share holder with a preponderance of
voting power) proceeds, on the strength of his control, to act contrary to the decision of, or
without the authority of, the duly constituted board of directors of the company.
Fourthly, Mr. Harold Brown said that the acts complained of may have been restrained by
injunction in so far as they were acts without the authority of the board. As to this I do not think
a wrongdoer in this field can well complain that the person wronged might have chosen another
remedy.
Then fifthly, Mr. Harold Brown said that the acts complained of were not in their result
oppressive, because it cannot be demonstrated that the company suffered any loss from any of
them.I cannot agree. The acts complained of were, I should say for the most part, calculated to
damage the company in one way or another.
Sixthly, Mr Harold Brown said that the acts complained of might have been lawfully done by
calling a general meeting and passing the requisite resolutions, ordinary or special. As to this, I
think the sons were at least entitled to require that the proper procedures should be applied.
Then seventhly, Mr. Harold Brown said that this is not a case of discrimination between different
shareholders or classes of shareholders. I agree, but see no reason for holding that section 210 is
necessarily confined to cases of discrimination, though it is to be expected that cases calling for its
application would most usually take that form.
Finally he submitted that the father got no pecuniary benefit out of what he did. that is not
literally true, but even if it was, I do not think it is essential to a case of oppression that the
alleged oppressor is oppressing in order to obtain pecuniary bene fit.If there is oppression, it
remains oppression even though the oppression is due simply to the controlling shareholder's
overwhelming desire for power and control, and not with a view to his own advantage in the
pecuniary sense. It seems to me the result rather than the motive is the material thing.
Then on the other side, Mr. Millner Holland's submissions were to this effect:
(i) The question is whether the course of conduct complained of was `burdensome, harsh or
wrongful' to shareholders, that is to say, a part of the shareholders,including the

petitioners.
(ii) if a person, relying on majority control in point of voting power, dispenses with proper
procedure for producing the result he desires to achieve, and simply insists on this or that
being done or omitted ,his conduct is oppressive because it deprives the minority of their
right as members of the company to have its affairs conducted in accordance with its articles
of association.
(iii) It is not shown that if the father had acted strictly in accordance with the articles of
association he could have achieved his object.the proper procedure cannot be put on one side
as mere machinery. It is the duty of the board to consider any proposal. if a majority
shareholder desires to override the board, there must be a proper meeting,whether of the
board or of the company, and at least an opportunity of discussion. Moreover, if a
majority shareholder sets about asserting his power in accordance with the articles and
succeeds in point of numbers, he may be faced with questions as to fraud on the minority
and so forth, which are backed by the expedient of simply doing as he chooses without
ceremony on the ground that if it came to a vote he could outvote anyone.
In his judgement, Roxburgh J., after saying that he adopted the reasoning of the Lord President,
Lord Cooper in Mayer v. Scottish Co-operative Wholesale Society Ltd, said: " That being so, for
my part the section seems to admit of no ambiguity. The word "oppression" is a word of common
use and understanding in the English language. But I would just observe in passing that it does
not say "who complains of acts of oppression"; it says "that the affairs of the company are being
conducted in a manner oppressive". In other words, I think it invites attention not to events
considered in isolation, but to events considered as part of a consecutive story; and it is because, I
take the view that I have not dealt (and do not propose to deal) with each of the items which I
have enumerated one by one....It remains, in my view, a question for the court to decide on the
whole story, as revealed in the evidence, whether the affairs of the company are being - it has to
be a state of affairs continuing at the date of the petition - conducted in a manner oppressive to
some part of the members. i do not know that it has any particular bearing on the case, but this
case is curious in that it is not a minority beneficial interest that is being oppressed, and that
would be the normal case; it is a majority beneficial interest which is being oppressed because the
voting control is placed in the hands of a minority beneficial interest. In my judgement, I reach
the opinion - because that is what I have to do - that at the date of the presentation of this petition
the affairs of the company were being conducted in a manner oppressive to the petitioners'.
having given the best consideration I can to this not altogether easy case, I have come to the same
conclusion, preferring the reasoning of Mr. Milner Holland to that of Mr. Harold Brown, and
accepting the reasoning and conclusion of the judge.....
99. CLEMENS VS CLEMENS BROS LTD AND ANOTHER (1976) 2 ALL E.R. 268
The plaintiff held 45% and her aunt 55% of the issued share capital of a family company. The
company had been incorporated in 1913 and carried on a highly successful business in the
building trade. the capital of the company consisted of 200 preference shares, of which the
plaintiff and the aunt each held 100, and 1,000 ordinary shares of £1 each fully paid,of which the
plaintiff held 800 and the aunt 1,000. under the articles of association members of the company
had a right of pre-emption if another members wished to transfer his shares. The aunt was a
director of the company but the plaintiff was not. There were four other directors. The total
director's emoluments exceeded the company's net profits before taxation in each of the years
1971 to 1974. The directors proposed to increase the company's shareholding from £2,000 to
3,650 by the creation of a further 1650 ordinary shares all of which were to carry voting rights.
The directors other than the aunt would receive 200 shares each and the balance of 350 shares
would be placed in trust for long service employees of the company.
The secretary wrote to the plaintiff on 1st November 1974 setting out the proposals and enclosing
a notice of an extraordinary meeting to be held on 27th November to approve the setting up of a
trust for the company's employees, to increase the company's capital and to provide for the
proposed allotment. resolutions to that effect were out in the notice and a draft of the proposed
trust deed was enclosed. On 22nd november the plaintiff's solicitor wrote a letter to the aunt
pointing out that the scheme would reduce the plaintiff's shareholding to under 25% and stating
that the plaintiff was opposed to it. The aunt wrote that she was fully aware of the implications
of the changes in the company's structure but intended to support the scheme. The plaintiff's
solicitor attended the meeting on 27th November as her proxy, and proposed an adjournment.
The aunt voted against an adjournment, and the three resolutions were then passed.
The plaintiff brought an action against the company and the aunt, seeking a declaration that the
resolutions were oppressive of the plaintiff and an order setting them aside.
HELD
(The company's Chairman's remuneration was £17,500 p.a) the Managing director's £29,510 in
£41,189 in 1974, excluding benefits in kind).
The aunt was not entitled as of right to exercise her majority votes as an ordinary shareholder in
any way she pleased. Her right was subject to equitable considerations which might make it
unjust to exercise it in a particular way. although it could not be disputed that she would like to
see other directors have shares in the company and a trust set up for long service employees, the
inference was irresistible that the resolutions had been framed in order to put complete control of
the company into the hands of the aunt and her fellow directors, to deprive the plaintiff of her
existing rights as a shareholder with more than 25% of the votes and to ensure that she would
never get control of the company. those considerations were sufficient in equity to prevent her
aunt using her votes as she had, and the resolutions would accordingly be set aside.
Dicta of Sir Richard Bagallay in North-west Transportation Co. Ltd. v Beatty, of Lindley Mr. in
Allen v Gold Reefs of Africa Ltd. of Evershed Mr. in Greenhalg v Arderne Cinemas Ltd. of the
Lord President in Meyer v scottish Textile and Manufacturing Co. Ltd and of Wilberforce in
Abraham v westbourne Galleries Ltd. applied.
FOSTER J.: "This action arises from unhappy differences which have arisen between an aunt
(aged around 68) and her niece (aged about 50), who together hold all the issued shares in
Clemens Bros Ltd..... by August 1967 both the plaintiff and Miss Clement (the aunt) were
directors, but the plaintiff resigned on 5th November, 1968 as a result of disagreements with the
chairman... The general meeting duly took place on 27th November 1974 and at that meeting
Mr. Barnes, who attended as proxy for the plaintiff, read a prepared statement which is in these
terms:
"(The plaintiff) has, since she was instrumental in disclosing the fraudulent acts of the Company's
managing director, been excluded from the board and refused detailed information of the
Company's accounts which would have enabled her to judge whether the company was being
properly run by the Board and whether the remuneration which was voted to them was fair and
reasonable. She retained, however, her dividend income, her right to prevent any step being
taken which required a special resolution and her right to acquire any of the existing shares in
the company on the occasion of their transmission. The present proposals, in whatever terms the
board chooses to put it has the following effects upon (the plaintiff) :
(1) Instead of receiving 4/9 th of the dividend on the ordinary shares she will receive
fractionally less than 2/9 ths of future dividends so that her future from her ordinary
shareholding will be more than halved.
(2) Her accountants conservatively estimate the current value of the ordinary shares of the
company to be £60.00 each. If the proposal os carried out it is the auditor's view that the
value of the ordinary shares will then be £19.50 so they presumably put the current
value at about £37.00 . She will therefore suffer a capital loss of about £14,000 at
the lowest estimate.
(3) It takes away her power to oppose a special resolution so that fundamental changes in
the nature and undertaking of the company may take place without her concurrence.
(4) It so reduces her right of acquisition of shares on transmission as to relegate her

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

101. PENDER v. LUSHINGTON (1877), Court of Chancery (Master of the Rolls)
Pender has split his shareholding among nominees in order to defeat a provision in the articles
which fixed a maximum number of votes to which any one shareholder was entitled. The
chairman refused to accept the nominees' votes and accordingly declared lost a resolution
proposed by Pender, which would otherwise have been carried. The Master of the Rolls granted
Pender (who brought a representative action on behalf of himself and other shareholders, and
also of the company) an injunction restraining the directors from acting on the basis that the
nominees' votes had been bad. He also held that Pender had a right to sue in the company's
name, at least until a general meeting resolved otherwise, and a further right to sue in his own
name.
Jessel M.R.......... In all cases of this kind, where men exercise their rights of property, they
exercise their rights from some motive adequate or inadequate, and I have always considered the
law to be that those who have the rights of property are entitled to exercise them, whatever their
motives may be for such exercise. His Lordship then held that the registered shareholders were
members entitled under the articles to vote as they (or Pender) wished. He continued:
I now come to the surbodinate question,not very material in the view I take of the case, namely,
whether you have the right plaintiffs here. The plaintiffs may be described as three, though there
are really two. There is, first, Mr.Pender himself, on behalf of himself; next, as the representative
of the class of shareholders who voted with him, whose votes I hold to have been improperly
rejected; and, next, there is the Direct United States Cable Company. It is said that the company
ought to have been made plaintiffs. The reasons given were reasons of some singularity, but
there is no doubt of this, that under the articles the directors are the custodians of the seal of the
company, and the directors, who in fact are defendants, have certainly not given any authority to
the solicitor for the plaintiffs on this record to institute this suit in the name of the company as
plaintiffs.
It is equally clear, if I am right in the conclusion to which I have come as to the impropriety of the
decision of the chairman in rejecting these votes, that if a case in which the company might
properly sue as plaintiffs to restrain the directors from carrying out a resolution which had not
been properly carried, and then comes the question whether I ought not to allow the company
now remain as plaintiffs.
The first point to be considered is this: Supposing there was no objection to the right of a general
meeting to direct an action to be brought, could I, even in the case, allow the company to sue? I
think I could. In that case the general meeting, having a right to direct an action to be brought,
would act by the majority of the members. The majority wish their rights to be protected. A
meeting could be called, and, if the court was satisfied that the majority would direct an action to
be brought, the company's name would not be taken away.
But what is the court to do in the meantime, if it is satisfied that a real majority (would decide) in
favour of bringing an action? Surely it must do something in the meantime, and it follows, I
think, from that portion of the judgement, that in the meantime the court ought to grant the
injunction to keep things in statu quo........... I think I ought not on this summons to take away the
name of the company, but to let the summons stand over, leaving either party to call a meeting to
decide whether the company's name is to be used or not. In the meantime, whether this is an
action in the name of the shareholders or in the name of the company, in either case I think there
should be an injunction.
But there is another ground on which the action may be maintained. This is an action by
Mr.Pender himself. He is a member of the company, and whether he votes with the majority or
the minority he is entitled to have his vote recorded - an individual right in respect of which he
has a right to sue. That has nothing to do with the question like that raised in Foss v. Harbottle
and that line of cases. He has a right to say, `whether I vote in the majority or minority, you shall
record my vote, as that is a right of property belonging to my interest in this company, and if you
refuse to record my vote I will institute legal proceedings against you to compel you'. What is
the answer to such an action? It seems to me it can be maintained as a matter of substance, and
that there is no technical difficulty in maintaining it.
102. MENIER v. HOOPER'S TELEGRAPH WORKS (1874), Court of Appeal in Chancery
Hooper's company was a substantial shareholder in the European Telegraph Co., and had
contracted with it to make and lay a cable to South America under certain concessions granted to
the European company by the foreign government concerned. Menier, a minority shareholder in
the European company, claimed that Hooper's company had used its votes to procure the
diversion of this business to a third company, to cause the abandonment of the proceedings
brought by the European company to assert its right to the concessions, and to have the
European company wound up. The court, affirming Bacon V.C., held that a minority
shareholder's action was properly brought in these circumstances.
JAMES L.J........The defendants, who have a majority of shares in the company, have made an
agreement by which they have dealt with matters affecting the whole company, the interest in
which belongs to the minority as well as to the majority. They have dealt with them in
consideration of their obtaining for themselves certain advantages. Hooper's company have
obtained certain advantages by dealing with something which was the property of the whole
company. The minority of the shareholders say in effect that the majority had divided the assets
of the company, more or less, between themselves, to the exclusion of the minority. I think it
would be a shocking thing if that could be done, because if so the majority might divide the
whole assets of the company, and pass a resolution that everything must be given to them, and
that the minority should have nothing to do with it. Assuming the case to be as alleged by the
bill, then the majority have put something into their pockets at the expense of the minority. If so,
it appears to me that the majority have a right to have their share of the benefits ascertained for
them in the best way in which the court can do it, and given to them.
It is said, however, that this is not the right form of suit, because, according to the principles laid
down in Foss v. Harbottle, and other similar cases, the court ought to be very slow indeed in
allowing a shareholder to file a bill, where the company is the proper plaintiff. This particular
case seems to me precisely one of the exceptions referred to by Vice-Chancellor Wood in Atwool
v. Merryweather, a case in which the majority were the defendants, the wrongdoers, who were
alleged to have put the minority's property into their pockets. In this case it is right and proper
for a bill to be filed by one shareholder on behalf of himself and all the other shareholders.
Therefore the demurrer ought to be overruled.

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

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

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STRATHMORE COLLEGE

LAW II APPENDIX OF CASES

For reference to the cases in the LAW II Study Pack

2. JUBILEE COTTON MILLS v LEWIS

3. SALOMON v SALOMON & CO. LTD.

Lord Macnagheten said:

4. MACAURA v NORTHERN ASSURANCE CO.

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

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

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

7. NASAU STEAM PRESS v TYLER AND OTHERS

9. RE BUGLE PRESS LTD.

10. RE MAIDSTONE BUILDING PROVISIONS LTD.

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

12. FIRESTONE TYRE & RUBBER CO. v LLEWELLIN

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

13. JONES AND ANOTHER v LIPMAN AND ANOTHER

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

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

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

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

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

16. RE DUOMATIC LTD (1969)

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

Warrington L.J. stated:

18. HAROLD HOLDSWORTH & CO LTD v CADDIES

19. HELLENIC AND GENERAL TRUST LTD. (1975)

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

21. COTMAN v BROUGHAM

Lord PARKER said:-

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

And later, Lord CAIRNS said:-

23. RE DAVID PAYNE & CO. LTD.

24. RE JON BEAUFORTE (LONDON) LTD.

25. RE INTRODUCTIONS LTD.

26. SINCLAIR v BROUGHAM

27. RE: CYCLISTS' TOURING CLUB

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

29. RE: HAMPSTEAD GARDEN SUBURB TRUST LTD

30. RE: PARENT TYRE CO.

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

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

32. WOOD v. ODESSA WATER WORKS CO.

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

In the result, the appeal must be dismissed.

34. ELEY v. POSITIVE GOVERNMENT LIFE ASSURANCE CO.

35. RAYFIELD v. HANDS

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

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

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

Held: (Court of Appeal)

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

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

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

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

42. DERRY v. PEEK (House of Lords)

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

I think that the authorities establish the following propositions: