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Shareholders' Rights and the Rule in Foss v. Harbottle

  • K. W. Wedderburn
Extract

If an irregularity has been committed in the course of a company's affairs, or some wrong has been done to the company, can the individual shareholder bring a complaint before the court? The Rule in Foss v. Harbottle purports to give a negative answer to this question, subject to certain “exceptions.” The answer need occasion no surprise when it is remembered that the judges have for long been reluctant to interfere in the internal affairs of companies and similar associations; they have usually abdicated their jurisdiction in favour of the obvious alternative authority—the majority of the members. “It is not the business of the court to manage the affairs of the company. That is for the shareholders and the directors.” Whether this approach is a wholly adequate basis for judicial policy in the area of modern company law is open to doubt; the “majority” in the modern public company is usually under the effective control of a small body of managers. But the approach of the courts remains the same; the interests of the majority are theoretically paramount in the last resort. The rights of the minority must, in consequence, be restricted; and, in particular, the minority cannot complain of wrong done to the corporation as a whole or of internal improprietiess. In such terms of deceptive simplicity is the Rule in Foss v. Harbottle often presented; but the Rule is notorious among students of company law for the difficulties which lie underneath this simple surface. In order to investigate those difficulties, it is necessary, first, to examine the two different parts of the Rule and their point of contact; secondly, to mention twe preliminary matters concerning directors which must be kept in mind in the course of the discussion; and thirdly, to set out, and examine under four headings, the principles which are commonly said to constitute the “exceptions” to the Rule.

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1 (1843) 2 Ha. 461.

2 Scrutton, L.J., Shuttleworth v. Cox Bros, & Co. [1927] 2 K.B. 9, at p. 23.

3 Burland v. Earle [1902] A.C. 83, 93 (P.C.).

4 (1843) 2 Ha. 461.

5 (1847) 1 Ph. 790.

6 Foss v. Harbottle (supra) p. 494; Bagshaw v. E. Union Ry. Co. (1849) 7 Hare 114, 130 (affd. (1850) 2 Mac. & G. 389).

7 Gray v. Lewie (1873) 8 Ch.App. 1035, 1050–1051.

8 Mozley v. Alston (supra) 799; Lord v. Copper Miners Co. (1848) 2 Ph. 740, 752; MacDougall v. Gardiner (No. 2) (1875) 1 Ch.D. 13, 25.

9 La Cie. de Mayville v. Whitley [1896] 1 Ch. 788, 807, Kay L.J.

10 Kekewich, J., Normandy v. Ind Coope & Co., Ltd. [1908] 1 Ch. 84, 106.

11 See Gower, Modern Company Law (1954) 267–270, 482–485; Buckley, Companies Acts, 12th ed., 168–169; Palmer's Company Precedents, 17th ed., Part 1, 1096 et seq.; Gore-Brown, Handbook on Joint Stock Companies, 41st ed., 382–386; Halsbury's Laws of England, 3rd ed., Vol. 6, 418–420, 445–449; Palmer's Company Law, 19th ed., 229. The writer wishes to express his great indebtedness to Professor L. C. B. Gower for his assistance in discussing the problems raised in this article. It must be added that the writer is aware that the views cited from Prof. Gower's book will not necessarily represent his opinions in the forthcoming second edition of that work. (That edition has now appeared after this article went to press.)

12 Joint Stock Companies Act, 1844 (7 & 8 Viet. c. 110). See Gower, op. cit., Chaps. 2 and 3, and sources there cited. Limited liability was not, of course added until 1855 (18 & 19 Vict. c. 133).

13 Jordan, C.J. in Australian Coal & Shale Employees Fedn. v. Smith (1937) 38 S.R. (N.S.W.) 48, 53.

14 This rule applies to any association which is a “legal entity capable of suing in its own name, and which is composed of individuals bound together by rules which give the majority of them the power to bind the minority,” Romer, J., Cotter v. Nat. Union of Seamen [1929] 2 Ch. 58, 71 (affd. C.A. ibid. 93); e.g., a registered trade union or friendly society (Kirsopp v. Highton (1911) 28 T.L.R. 129, 493).

15 Jenkins, L.J., Edwards v. Halliwell [1950] 2 All E.R. 1064, 1066.

16 Alderson B., Bligh v. Brent (1837) 2 Y. & C.Ex. 268, 295. See, too, Soc. of Practical Knowledge v. Abbott (1840) 2 Beav. 559; Blackburn v. Jepson (1823) 3 Swans. 132, 138; R. v. Patrick (1783) 1 Leach 253; Cooch v. Good man (1842) 2 Q.B. 580; Att.-Gen. v. Wilson (1840) Cr. & Ph. 1. On earlier developments, see Holdsworth, H.E.L. III, pp. 482 et seq.; VIII, pp. 202 et seq. The conclusive step on registered companies was, of course, taken in Salomon v. Salomon [1897] A.C. 22.

17 (1843) 2 Ha. 461 (a statutory corporation). See, too, Dominion Cotton Mills Co., Ltd. v. Amyot [1912] A.C. 546; Pavlides v. Jensen [1956] Ch. 565; and Burland v. Earle itself (supra).

18 Mozley v. Alston (1847) 1 Ph. 790, 800, per Cottenham L.C.; Hattersley v. Earl of Shelbourne (1862) 7 L.T. 650, 653.

19 Lindley, , Law of Partnership (1st ed. 1860), Vol. II, p. 752, 753 (italics supplied).

20 Carlen v. Drury (1812) 1 V. & B. 154, 158; but even here there is evidence of an already changing attitude (p. 157). The matter was in the first half of the century “the subject of much difference of opinion”; Lord Cottenham L.C. in Wallworth v. Holt (1841) 2 Myl. & Cr. 619, 635. For the survival of the old approach, see Smith v. Jeyes (1841) 4 Beav. 503; Marshall v. Colman (1820) 2 J. & W. 266; Richards v. Davies (1831) 2 Russ. & M. 347.

21 Wigram, V.-C., who decided Foss v. Harbottle, firmly rejected the old partnership doctrine one year later in Fairthorne v. Weston (1844) 3 Ha. 387, 392. See, too Watney v. Trist (1876) 45 L.J.Ch. 412, 413; and for the position today, Lindley, Partnership (11th ed. 1950), pp. 571, 601 et seq., 637 et seq.

22 Lindley, op. cit. (1st ed. 1860), 754 (italics supplied).

23 Lindley, , op. cit. (11th ed. 1950) 573.

24 Bailey v. Birkenhead, etc., Ry. Co. (1850) 12 Beav. 433; Anglo-Universal Bank v. Baragnon (1881) 45 L.T. 362; but if “fraud” can be shown, see Alexander v. Automatic Telephone Co. [1900] 2 Ch. 56, discussed below.

25 Southern Counties Deposit Bank, Ltd. v. Rider (1895) 73 L.T. 374. See, too, Browne v. La Trinidad (1887) 37 Ch.D. 1, 17; Campbell v. Australian Mutual Soc. (1908) 77 L.J.P.C. 117.

26 Amal. Soc. of Engineers v. Jones (1913) 29 T.L.R. 484; Cox v. N. U. of Foundry Workers (1928) 44 T.L.R. 345; Cotter v. N. U. Seamen [1929] 2 Ch. 58. Cf. Lord v. Copper Miners Co. (1848) 2 Ph. 740.

27 MacDougall v. Gardiner (No. 2) (1875) 1 Ch.D. 13 (compare the previous action in (1875) 10 Ch.App. 606).

28 Ibid, per Mellish L.J., p. 25, adopted in Burland v. Earle [1902] A.C. 94. See, too, Harben v. Phillips (1883) 23 Ch.D. 14, 39; and the second proposition of Jenkins L. J. in Edwards v. Halliwell [1950] 2 All E.R. p. 1066.

29 R. v. Varlo (1775) 1 Cowp. 248, 250; Att.-Gen. v. Davy (1741) 2 Atk. 212.

30 Danckwerts, J., Parlides v. Jensen [1956] Ch. 565, 576; and see Re Transvaal Gold Exploration Co. (1885) 1 T.L.R. 604.

31 per Russell, L.J. in Cotter v. N. U. Seamen [1929]2 Ch. p. 111.

32 e.g., James, L.J. in MacDougall v. Gardiner (supra), pp. 2223. This is also one way of explaining Mozley v. Alston (supra).

33 See the most clear statement by Lord Cranworth in Davidson v. Tulloch (1860) 3 McQ 783, 796–797 (H.L.Sc). and Orr v. Glasgow, etc., Ry., ibid., 799, 804; Kay J. in Studdert v. Grosvenor (1886) 33 Ch.D. 528, 535.

34 “Ratification,” in this article refers to confirmation by ordinary majority. As to ratification by all the shareholders, see Buckley, op. cit. pp. 823 et seq. and cases cited there; and Re London and N.Y. Corpn. [1895] 2 Ch. 860.

35 Cotter v. N. U. Seamen, supra, p. 107, Lawrence, L.J.Alterations of the terms of the articles require a special resolution; and, in that respect, the dicta of Kekewich, J. in Normandy v. Ind, Coope [1908] 1 Ch. 84, 108, must go too far, although they also support the propositions in the text.

36 Grant v. U.K. Switchback Ry. (1888) 40 Ch.D. 135; Irvine v. Union Bank of Australia (1877) 2 App.Cas. 366, 375–376 (P.C.). And see Romilly M.R. in Kent v. Jackson (1851) 14 Beav. 367, 382 (affd. 2 De G.M. & G. 49); and Re Norwich Yarn Co. (1856) 22 Beav. 143, 164.

37 That is to say, a three-fourths majority obtained in compliance with s. 141 (2), Companies Act, 1948.

38 Vaughan Williams L.J., Kaye v. Croydon Tramways [1898] 1 Ch. 358, 377; and see p. 375. See, too, the valuable survey in Lindley on Companies (6th ed.), pp. 774–775, and 781; and Boschoek Proprietary Co. v. Fuke [1906] 1 Ch. 148, discussed infra, p. 214.

39 See Heading 4 of the Exceptions, infra. (In next issue.)

40 Burland v. Earle (supra) p. 94.

41 North-West Transportation, Ltd. v. Beatty (1887) 12 App.Cas. 589; Ving v. Robertson & Woodcock (1912) 56 S.J. 412. (Quaere whether the same is true at meetings of a class of members: see Gower, op. cit. p. 482, n. (7).) As Prof. Gower has pointed out, there seems to be no jurisdiction to call a meeting of “independent” shareholders only; Mason v. Harris (1879) 11 Ch.D. 97, 109.

42 e.g., their control of proxy votes: see Gower, op. cit. 464, 479. Two cases of 1883 are good examples of the C.A. still struggling to avoid the change in function of the Rule: Imperial Hydropathic Hotel v. Hampson (1883) 23 Ch.D. 1 (where the minority were given the consolation of costs out of the company's funds), and Harben v. Phillips (1883) 23 Ch.D. 14 (a battle over proxy votes, resulting in a general meeting being ordered by the court, and a subsequent refusal by the court to issue an injunction to thwart the genuine majority).

43 Pender v. Lushington (1877) 6 Ch.D. 70.

44 See, e.g., East Pant Du United Lead Mining Co. v. Merry weather (1864) 2 H. & M. 254.

45 Especially a. 184 (1) which allows for the dismissal of a director at any time by ordinary majority (after “special notice,” subs. (2), and subject to the director's right to damages for breach of contract, subs. (6)). See, too, ss. 136, 137, 165, 210. Such statutory remedies are not discussed in detail in this article.

46 MacDougall v. Gardiner (1875) 1 Ch.D. 13, at p. 25 (chairman's refusal to call poll provided for in the articles; no action for minority).

47 See e.g., Exeter and Crediton Ry. v. Buller (1847) 16 L.J.Ch. 449; Pender v. Lushington (1877) 6 Ch.D. 70; Harben v. Phillips (supra); Imperial Hydropathic Hotel v. Hampson (supra); Duckett v. Gover (1877) 6 Ch.D. 82, and 25 W.R. 554; MacDougall v. Gardiner (supra) p. 22 and (1875) 10 Ch.App. 606, 608–609. These cases show that the court has been prepared to take the necessary steps to discover the views of the majority. (See, too, Marshall's Valve Gear Co. v. Manning [1909] 1 Ch. 267.)

48 See Exeter & Crediton Ry. v. Buller (supra); and East Pant Du Mining Co. v. Merryweather (1864) 2 H. & M. 254 (where, however, a minority action was possible: Atwool v. Merryweather (1867) L.R. 5 Eq. 464, 468 n.: see Exception 4, infra).

49 Lindley L.J. La Cie de Mayville v. Whitley [1896] 1 Ch. 788, 803. Improper proceedings may be ratified: Danish Mercantile Co., Ltd. v. Beaumont [1951] Ch. 680.

50 e.g., Table “A,” article 80.

51 Automatic Self-Cleansing Filter Syndicate v. Cunninghame [1906] 2 Ch. 34; Quin & Axtens v. Salmon [1909] A.C. 442; Scott v. Scott [1943] 1 All E.R. 582; Grundt v. Great Boulder Mines, Ltd. [1948] Ch. 145. See the development described by Hornsey (1950) 13 M.L.R. 474–477. The rule does not operate if there is no board which can act: Barron v. Potter [1914] 1 Ch. 895; Foster v. Foster [1916] 1 Ch 532.

52 s. 184, Companies Act, 1948: this is, in itself, rather less than the control envisaged in the earlier cases cited, ante, n. (47).

53 [1935] 2 K.B. 113, 134 (Greer L.J.), 143 (Slesser L.J.). Those who take this view can also point to the discussion by Wigram V.-C. in Foss v. Harbottle itself, as to the exact powers of the directors: (1843) 2 Ha. pp. 492–493. The particular terms of the articles in question will always be critical; but powers of “general management” have often been very widely construed: e.g., Campbell v. Rofe [1933] A.C. 91, 99.

54 Jenkins, L.J. in Danish Mercantile Co., Ltd. v. Beaumont (supra) pp. 686687, where it is plain that he means a meeting of members; and Danckwerts, J. in Pavlides v. Jensen (supra) pp. 576577 (where it is true that the directors themselves were defendants). Gower, op. cit., p. 131, regards the practice as one “based on a fallacy” in view of the dicta in Shaw's case. But it may indicate that those dicta should not be accepted.

53 See e.g., Palmer, Company Precedents, 17th ed., Vol. 1, p. 1100.

56 Which is the point in the Shaw case (supra). The suggestion allows both sides initiative, and denies both a veto; this could conceivably be fitted into the case-law; but no great confidence is advanced for the likelihood of the suggestion becoming law.

57 e.g., Morris v. Morris [1877] W.N. 6; Ferguson v. Wallbridge [1935] 3 D.L.R. 66, 8384, Lord Blanesburgh (P.C.); Orr v. Glasgow etc., Ry. (1860) 3 Macq. 799.

58 This may be the meaning of Buckley's explanation of Marshall's Valve Gear Co. v. Manning (supra): Companies Acts, 12th ed., p. 860 n. (f). But see the contrary argument put later based upon ss. 132 and 184 of the Companies Act, 1948, infra, under Heading 4. And compare Smith v. Bank of Victoria (1872) 41 L.J.P.C. 34, 39.

59 [1950] 2 All E.R. at p. 1067; the order of the list as given here is different from the order in which the exceptions are stated by Jenkins L.J.

60 Sir George Jessel M.R. in Russell v. Wakefield Waterworks Co. (1875) 20 Eq. 474, 482; and see Foss v. Harbottle (1843) 2 Ha. at p. 492.

61 Pavlides v. Jensen [1956] Ch. 565, 574576.

62 e.g., Burland v. Earle [1902] A.C. 83, 93; Dominion Cotton Mills v. Amyot [1912] A.C. 546; Gray v. Lewis (1873) 8 Ch.App. 1035, 1051.

63 SeeFinlay, J. in Humphries v. Auckland Tailoresses' etc. Union of Workers [1950] N.Z.L.R. 380, 386, discussing Kaye v. Croydon Tramways Co. [1898] 1 Ch. 358, and Baillie v. Oriental Telephone Co. [1915] 1 Ch. 503 (a difficult line of cases: see infra, p. 211, n. (15). [See, too, Featherstone v. Cook (1873) L.R. 16 Eq. 298. But compare: West End Hotels, Ltd. v. Bayer (1912) 29 T.L.R. 92; Grundt v. Great Boulder Mines, Ltd. [1948] Ch. 145; Channel Collieries, Ltd. v. Dover etc. Ry. [1914] 2 Ch. 506, 510.]

64 e.g., infringements of the rules regarding maintenance of capital: Hope v. International Financial Soc. (1876) 4 Ch.D. 327 (purchase of company's own shares); Ooregum Gold Mining Co. v. Roper [1892] A.C. 125 (shares at a discount); Bellerby v. Rowland & Marwood's [1902] 2 Ch. 14.

65 Powell v. Kempton Park Racecourse Co. [1897] 2 Q.B. 242. 260, 268. “Illegality” and “ultra vires” are frequently confused (e.g., in Cockburn v. Newbridge Sanitary Steam Laundry [1915] 1 Ir.R. 237). But there are some breaches of statutes which, although “illegal,” do not fall under this heading: see Buckley, J. in Anderson v. Midland Ry. [1902] 1 Ch. 369, 376; sed quaere.

66 Simpson v. Westminster Palace Hotel Co. (1860) 8 H.L.C. 712, 717; Hoole v. G. W. Ry. (1868) 3 Ch.App. 262, 272, 277; Howden v. Yorkshire Miners [1903] 1 K.B. 308, 309; [1905] A.C. 256, 263. [It is said that a debenture holder cannot sue unless he has a security which is presently enforceable: Halsbury's Laws of England (3rd ed.) Vol. 6, p. 402, and cases cited; sed quaere if he has voting rights which equate his position to that of a member: Hutton v. W. Cork Ry. Co. (1883) 23 Ch.D. 654.]

67 See cases in last note and notes (68)–(70), infra. Rolt, L.J. in Hoole's case, pp. 277278, suggests that here a representative action can be most usefully used on behalf of a class, where there are competing interests; such an action would seem to be a “true” representative action: see (b) below.

68 Mutter v. E. & Mid. Ry. Co. (1888) 38 Ch.D. 92, 104 (personal statutory right); Hallows v. Fernie (1868) 3 Ch.App. 467 (rescission for misrepresentation) and Pulbrook v. Richmond Consolidated Mining (1878) 9 Ch.D. at p. 613.

69 Under R.S.C., Ord. 16, r. 9, on which see Prof. Lloyd (1949) 12 M.L.R. 409.

70 Mosely v. Koffyfontein Mines, Ltd. [1911] 1 Ch. 73, 80–81; Pender v. Lushington (1877) 6 Ch.D. 70; and see Foster v. Foster [1916] 1 Ch. 532 (pleaded as both a personal and a representative action).

71 The normal rule under R.S.C., Ord. 16, r. 9, is that the plaintiff has complete control of his representative action, and it is curious that no provision seems, so far, to have been made to ensure that he uses this power for the benefit of the company on whose right he is suing. Such problems have been much litigated in the U.S.A. in respect of “derivative” actions, as they are there called: see Ballantine on Corporations, pp. 333 et seq.

72 Burland v. Earle [1902]A.C. 83.

73 Towers v. African Tug Co. [1904] 1 Ch. 558 (retention of “illegal” dividends); Whitwam v. Watkin (1898) 78 L.T. 188; and see Gray v. Lewis (1873) 8 Ch.App. p. 1055. A plaintiff at fault may still be allowed to restrain prospective illegalities: see Moseley v. Koffyfontein Mines [1911] 1 Ch. 73; affd. [1911] A.C. 409. See, too, Gray v. Yellowknife Gold Mines, Ltd. [1948] 1 D.L.R. 473.

74 Seaton v. Grant (1867) 2 Ch. Ap. 459 (fraud on a minority); Bloxam v. Metro Ry. (1868) 3 Ch.App. 337 (ultra vires).

75 Ferguson v. Wallbridge [1935] 3 D.L.R. 66 (P.C.) (company in liquidation; no action, even though “fraud on a minority”); Clarkson v. Davies [1923] A.C. 100. The company will not be bound unless joined as a party: Bagshau v. E. Union Ry. (1849) 7 Hare 114, 131. But s. 333, Companies Act, 1948, should not be forgotten: (remedy by misfeasance summons during liquidation).

76 Salomons v. Laing (1850) 12 Beav. 376; Clinch v. Financial Corpn. (1868) 4 Ch.App. 117, 122; Russell v. Wakefieid Waterworks Co. (1875) 20 Eq. 474, 481.

77 Stroud v. Lawson [1898] 2 Q.B. 44: and he must not sue for two corporations at once on distinct wrongs done to each: Smyth v. Muir (1891) 19 R. 81.

78 Spokes v. Grosvenor Hotel Co. [1897] 2 Q.B. 124.

79 See cases cited above: and Dumvile v. Birkenhead, etc., Ry. (1850) 12 Beav. 444; Holmes v. Newcastle-upon-Tyne Abattoir Co. (1875) 1 Ch.D. 682; Tomkinson v. S. E. Ry. (1887) 35 Ch.D. 675; cf. Winch v. Birkenhead, etc., Ry. (1852) 5 De G. & Sm. 562.

80 As for difficulties arising in the application of ultra vires to trade unions, see (1957) 20 M.L.R. 110 (n. 31); and for problems which would arise in respect of the Rule in Foss v. Harbottle if that doctrine were abolished as the Cohen Report of 1945 recommended, see (1946) 202 L.T. 225.

81 [1950] 2 All E.R. 1064, 1067.

82 Normally, no distinction is made in the trade union cases between delegates and members: Cotter v. N.U. Seamen [1929] 2 Ch. 58.

83 [1909] 1 Ch. 311; affd. [1909] A.C. 442, in a two-page judgment by Lord Loreburn L.C., Lord MacNaghten, Lord James and Lord Shaw.

84 [1909] 1 Ch. 316.

85 Subject to a proviso which cannot be discussed here: see Gower, op. cit. p. 125.

86 Ante, p. 201.

87 Farwell L.J. [1909] 1 Ch. 319.

88 As was indeed the case in the partnership articles from which the modern system sprang.

89 Farwell L.J. [1909] 1 Ch. 318. Presumably because the obligations are owed to, and rights hseld against, the company, i.e., a by-product of Foss v. Harbottle. See on this problem Welton v. Saffery [1897] A.C. 299, 315: and other cases cited Buckley, op. cit., p. 53.

90 Astbury, J. in Hickman v. Kent or Romney Marsh Sheep Breeders' Assoen. [1915] 1 Ch. 881, 900, the locus classicus, where he reviews earlier cases. See, too, Beattie v. Beattie [1938] Ch. 708 (C.A.) (article providing for arbitration between members and company, not binding in a dispute between company and member in his capacity as director).

91 The term hereafter includes a member in any “capacity other than that of member.” Examples are to be found in the cases cited in Hickman; and see Re City Equitable, Ltd. [1925] Ch. 407, 520521; Re T. N. Farrer, Ltd. [1937] Ch. 352 and Read v. Astoria Garage, Ltd. [1952] Ch. 637.

92 “A contract made upon the terms of an alterable article”: Atkin, L.J. in Shuttleworth v. Cox Bros. [1927] 2 K.B. 9, 26.

93 A company “may by special resolution alter or add to its articles.”

94 Charlesworth, Company Law, 6th ed. p. 28: citing Wood v. Odessa Waterworks Co. (1889) 42 Ch.D. 636, which was approved in Salmon's case.

95 In some cases there may be an overlap which makes it difficult to apply this distinction; see a recent example: Wigram Settled Estates v. I.R.C. [1957] 1 All E.R. 311, 318, 320.

96 e.g., Mutter v. E. & Mid. Ry. (1888) 38 Ch.D. 92; Nelson v. Anglo-American Co. [1897] 1 Ch. 130 (shareholder's right to inspect register).

97 Supra, p. 208; for a good example see Re T. N. Farrer, Ltd. [1937] Ch. 352. It seems the better view that the company cannot be restrained from altering the articles even if this may lead it into liability for breach of contract: Southern Foundries v. Shirlaw [1940] A.C. 701, 740. Contra: British Murac Syndicate v. Alperton Rubber Co. [1915] 2 Ch. 186.

98 Pulbrook v. Richmond Consol. Mining Co. (1878) 9 Ch.D. 610; Le Cie de Mayville v. Whitley [1896] 1 Ch. 788, 807; Foster v. Greenwich Ferry (1888) 5 T.L.R. 16. But the court has refused to force a director on an unwilling majority: Harben v. Phillips (1883) 23 Ch.D. 14.

99 See Hayes v. Bristol Plant Hire, Ltd. [1957] 1 All E.R. 685, where in view of dicta (p. 688), the terms of the articles were presumably incorporated into the director's contract.

1 Clark v. Workman [1920] 1 Ir.R. 107, 110.

2 [1950] 2 All E.R. 1064: it is interesting to observe that in the judgments there one can find every “exception” except ultra vires.

3 Jessel M.R. (1877) 6 Ch.D. 70, 81.

4 e.g., Borland's Trustee v. Steel Bros, Ltd. [1901] 1 Ch. 279; Bisgood v. Henderson's Transvaal Estates, Ltd. [1908] 1 Ch. 743.

5 Hickman's case (supra), p. 902; and see Beattie v. Beattie [1938] Ch. 708, 721—722

6 Pender v. Lushington (supra); Moffatt v. Farquhar (1877) 7 Ch.D. 591; Marks v. Financial News (1919) 35 T.L.R. 681; Cannon v. Trask (1875) 20 Eq. 669.

7 e.g., Staples v. Eastman Photographic Co. [1896] 2 Ch. 303; Greenhalgh v. Arderne Cinemas [1945] 2 All E.R. 719, [1946] 1 All E.R. 512; James v. Buena Ventura, Ltd. [1896] 1 Ch. 456.

8 Moodie v. Shepherd (Bookbinders) Ltd. [1949] 2 All E.R. 1044 H.L.; Burdett v. Standard Exploration Co. (1899) 16 T.L.R. 112.

9 See Godfrey Phillips, Ltd. v. Investment Trust, Ltd. [1953] Ch. 449, 457; Wall v. London & Prov. Trust, Ltd. [1920] 2 Ch. 582; Foster v. Coles and Foster, Ltd. (1906) 22 T.L.R. 555; Evling v. Israel and Oppenheimer, Ltd. [1918] 1 Ch. 101.

10 See last note, and Wood v. Odessa Waterworks (1889) 42 Ch.D. 636; Fawcett v. Laurie (1860) 1 Dr. & Sm. 192; Oakbank Oil Co. v. Crum (1882) 8 App.Cas. 65. Some of the “dividend cases” involve both (i) enforcement of the contract in the articles, and (ii) the rule prohibiting dividends out of capital: e.g., Mosely v. Koffyfontein Mines, Ltd. [1911] 1 Ch. 73; [1911] A.C. 409.

11 Johnson v. Lyttle's Iron Agency (1877) 5 Ch.D. 687; Sweny v. Smith (1869) 7 Eq. 324; Goulton v. London Architectural Co. (1877) W.N. 141 (a “procedural” irregularity).

12 Catesby v. Burnett [1916] 2 Ch. 325.

13 See the injunction that was granted in Spencer v. Kennedy [1926] Ch. 125, 135. Henderson v. Bank of Australasia (1890) 45 Ch.D. 330; Breay v. Browne (1897) 41 S.J. 159, 160.

14 Greenhalgh v. Arderne Cinemas [1951] Ch. 286 (reviewing previous cases). The right to sue is personal, although, oddly enough, the only two successful actions were both representative: Dafen Tinplate v. Llanelly Steel [1920] 2 Ch. 124; Brown v. British Abrasive Wheel [1919] 1 Ch. 290. This phenomenon is explained infra. Distinguish “frauds” under Heading 4, infra.

15 Baillie v. Oriental Telephone Co. [1915] 1 Ch. 503; Tiessen v. Henderson [1899] 1 Ch. 861; Kaye v. Croydon Tramways [1898] 1 Ch. 358, are curious cases if this is not the explanation. See, too, G. W. Ry. v. Rushout (1852) 5 De G. & Sm. 290; Smith v. Duke of Manchester (1883) 24 Ch.D. 611; and Re Direct East & West Junction Ry. (1855) 3 Eq.Rep. 479.

16 Gower, op. cit. 268, 359. Quaere whether Moffatt v. Farquhar (1877) 7 Ch.D. 591 (versus company and directors) and Murphy v. Synnott [1925] N.I. 14 (versus other members), do not support the remedy of damages. Possibly the rule is that damages are never recoverable unless the plaintiff shows special damage to himself in his capacity as a member; if he cannot he must sue for an injunction, preferably in a representative action: see Wright J. in Breay v. Browne (1897) 41 S.J. 159, 160 (an action for damages in which the jury had awarded one farthing; on appeal, this was reversed. The plaintiff's right “was not a personal one but belonged to her as a member of the corporation. The plaintiff had suffered no personal damage. Her proper course was to bring an action in the name of herself and the other shareholders … for an injunction”). Those who wish to argue that damages can never be recovered by a plaintiff from a company of which he is still member will, of course, cite Hauldxworth v. City of Glasgow Bank (1880) 5 App.Cas. 317, and Re Addlestone Linoleum Co. (1887) 37 Ch.D. 191.

17 Sweny v. Smith (1869) 7 Eq. at p. 333. The practice plainly avoids multiplicity of actions.

18 [1950] 2 All E.R. 1064.

19 [1916] 2 Ch. 325.

20 (1889) 42 Ch.D. 636.

21 (1877) 6 Ch.D. 70.

22 Gower, op. cit. p. 484.

23 See the Article set out, [1909] 1 Ch. at p. 313. The relevant parts read: “No resolution of … the directors having for its object … (various matters including purchase and sale of premises) … or any matter affecting the rights of either of them, the said William Raymond Axtens and Joseph Salmon, as holders of ordinary shares of the company, shall be valid or binding unless … notice … shall have been given to each of the managing directors, the said William Raymond Axtens and Joseph Salmon, and neither of them ehall have dissented …” (italics supplied).

24 The second proposition of Astbury J. [1915] 1 Ch. 900; supra, p. 208.

25 [1938] Ch. 708, especially at p. 722. It is true that he saw “great difficulty” because of the Rule in Foss v. Harbottle, but he did not go further into the matter. See, too, Woodlands, Ltd. v. Logan [1948] N.Z.L.R. 230, 236.

26 Ibid. 722: an article for arbitration of disputes between company and member; member was disputant in capacity of director.

27 The only case known to the writer to contain any lengthy discussion of the consequences of it is Australian Coal and Shale Employee's Fedn. v. Smith (1937) 38 S.R.N.S.W. 48, Jordan C.J. It is true that earlier cases such as Eley v. Positive Life Assurance Co. (1876) 1 Ex.D. 20, 88, are against the proposition advanced. But they do not seem to involve plaintiffs putting their case in the way suggested; and in any case, even if they did, they could not stand with Salmon's case as interpreted above.

28 (1875) 1 Ch.D. pp. 22–23; and see Foster v. Foster [1916] 1 Ch. 532.

29 (1888) 40 Ch.D. 135.

30 Catesby v. Burnett [1916] 2 Ch. 325 (no mention of Foss v. Harbottle by Eve J. or Gore Brown K.C. or Maugham K.C.).

31 See (1847) 1 Ph. 789, 796, 799. The “personal right” argument was expressly advanced. It might be argued that the internal statutory arrangements may not in that case have constituted a contract in the manner of the articles under s. 20; but this would be a last-ditch distinction!

32 e.g., Swinfen, Eady L.J. in Baillie's Case [1915] 1 Ch. p. 518, where he reduces its importance as much as he can; and compare the doubts which beset Romer, J. in Cotter's Case [1929] 2 Ch. p. 70, which have the same sort of cause.

33 [1906] 1 Ch. 148, 163; a distinction adopted by Gower, op. cit. p. 484. Buckley, op. cit. pp. 168–169, deals with this problem oddly, by stating the Rule in Foss v. Harbottle in strict terms, and throwing in an acknowledgment to Salmon's case with “the minority may sue … semble, if a bare majority are purporting to do or authorize something inconsistent with the articles.”

34 Counsel in Automatic Self-Cleansing Filter Syndicate v. Cunninghame [1906] 2 Ch. p. 41; and see Baillie's Case (above); and the “special majority” cases such as Edwards v. Halliwell (supra).

35 Clark v. Workman [1920] 1 Ir.R. p. 117. Compare Re State of Wyoming Syndicate [1901] 2 Ch. 431, 436.

36 Pender v. Lushington (supra) and MacDougall v. Gardiner (supra).

37 Wynn-Parry, J., Godfrey Phillips, Ltd. v. Investment Trust, Ltd. [1953] Ch. p. 457.

38 Page Wood V.-C., Taunton v. Royal Insurance Co. (1864) 2 H. & M. 135. 140 (italies supplied).

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