C. GASTRONOMÍA Y FOLKLORE
9. Alimentación festiva
"It must be borne in mind that the professional view as to the control of the company in general meeting over the actions of the directors has, over a period of years, undoubtedly varied, as may be observed by a critical investigation of the statements about
the law on the matter to be found in the earlier editions of well-known textbooks".
Early textbooks which portray this divergence of views include Buckley's 4/
Company Law - in which the author expressed the view that the company in general meeting had power to direct and control the board. In
contrast is the opinion of Lord Thring expressed in his Compendium on Joint Stock Companies,
"The ordinary members of a joint-stock company have no voice in its management, but elect directors or managers, to whom they commit the entire control of their affairs".
1/ Article 80 has its origin in Article 46 Table B of the 1856 Act which itself derived from Section 90 of the Companies Clauses Consolidation Act 1845. Art. 46 was repeated as Article 55 of the 1862 Act which remained the principal Act until 1908, then through Art. 71 of 1908 Act, Article 67 of 1929 to Article 80, 1948. See Geoffrey Hornsey, "Some Aspects of the Law Relating to Company Control", (1950) 13 M.L.R.470 at 474-475.
2/ £19437 1 All E.R. 582. 3/ At 585.
4/ (1897) 7th ed. p.530. 5/ (1861).
These two points of view reflect the controversy which has continued to present times about the implications of a general delegation of power as under Article 80, but by far the more popular is the Lord Thring school of thought, although this is not necessarily a wholly correct interpretation.
The modern proponents of the popular view (of the exclusiveness) of the board's management powers rest their argument on the case of Automatic Self-Cleansing Filter Syndicate Co.Ltd, v. Cunjlinghame. /1906./,
which is regarded as establishing the "managerial autonomy" of directors. That case is regarded by Professor Gower as laying down the modern English rule on the issue, and as the learned author writes in his leading textbook:
"Under an article in the terms of Table A (Article 80) the members in general meeting cannot give directions on how the company's affairs are to be managed, nor can they over-rule any decision come to by the directors in the conduct of its business. And this applies even as regards matters not specifically delegated to the directors provided they are not expressly reserved to a general meeting by the Act or the Articles".
21
1/ In Ghana Companies Draft Code, the Final Report of the Commission of Inquiry into the Working and Administration of the present Company Law in Ghana (1961), Ghana Publishing Corporation, Accra. At p.107.
2/ The Principles of Modern Company L a w (1969) 3rd edition, p.132. See fci 4th edition at 146 where the wording and the author's interpretation seem slightly modified to the extent that he now recognises as Lord Kilbrandon points out in Alexander Ward Co. v, Samyang Navigation that the fact that a general delegation is made to the board of directors "does not mean that no act of management... can validly be performed without the personal or explicit authority of the directors themselves". See p.146 note 54.
159
While Cuninghame is undoubtedly sound authority, to regard it as laying down all there is about the rule is, as would be seen below, an over-simplification and is misleading. The facts of that case are as follows. Article 96 of the company's articles of association vested in the directors "the management of the business and the control of the company" in terms similar to Article 80 of Table A except that the power was made "subject to such resolutions as may be made by
extra
ordinary resolution".
-^Article 97(1) specifically empowered them to sell any property of the company on such terms and conditions as they might think fit. The company passed anordinary resolution
directing the board to sei.l the company's undertaking but the directors disapproved of the proposed terms on the grounds that it was not for the benefit of the company and declined to carry out the sale. The Court of Appeal upheld the directors' refusal and emphatically rejected the argument that directors as agents of the company must exercise their powers subject to the rule that an agent must obey his principal - in this2/
case, the general meeting. - This was a rejection of the hitherto prevailing view that the shareholders in general meeting constitute the
3 / company and that the directors are their agents or delegates. -
The Court was of the view that the power to sell the company's property having been expressly vested in the directors b y Article 97 the shareholders could not by an ordinary resolution usurp that power. Collin M.R. went further to remark in respect of shareholders' participation that if it is desired to alter the powers of the directors that must be done, not by an
1/ This was the crux of the case and differs from Article 80 which requires an ordinary resolution.
2/ See the argument of plaintiff's counsel at p.37 and his argument in the Court of Appeal, p.39.
ordinary resolution but by an extraordinary resolution, required wider Article 96.
This case has also been regarded as deciding that a bare majority cannot control the directors in their conduct of the affairs of the company. But as Neville J. remarked in Marshall's Valve Gear Company
2
/Ltd, v. Manning, Wardle and Co.Ltd., - the decision in Cuninghame turned on the terms of the articles which were that the directors should have the entire management of the affairs of the company
ft
subject to regulations, not being inconsistent with these presents
3/
as may from time to time be made by extraordinary resolution". The decision is therefore of limited relevance when the different wordings of Article 80 requiring an ordinary resolution are in question.
4/
In Marshall's Case,the relevant Article - vested the management of the company in the board in the same manner as under Article 80
of Table A, that is, subject to resolutions as may be prescribed by the company in general meeting. Marshall was the majority shareholder and managing director of the plaintiff company which had been formed to exploit an invention which he had patented. The defendant conpany, in which the other three directors were interested, was alleged to be infringing the plaintiff's patent and Marshall, inspite of the opposition of his co-directors, as a majority shareholder, decided to bring this
1/ At p.52.
2/ ¿19097 1 Ch.267.
3/ At p.373. This was the crux of the matter.
4/ Article 55 in Schedule 1 to the Companies Act 1862 which provided: ''the business of the company shall be managed by the directors, who may... exercise all such powers of the company as are not by the foregoing Act, by these articles, required to be exercised by the company in general meeting...?
action in the company's name to restrain the alleged infringement. Thereupon the directors moved the Court to strike out the name of the company as plaintiff and dismiss the action on the grounds that the name of the plaintiff company had been used without authority.
Neville J. held that on the construction of the article, the majority of the shareholders had the right to control the action of the directors in this matter and so their motion was dismissed with costs. In his judgment his Lordship distinguished Cuninghame, stating that the present case involved no difficulty about the articles of association:
"because there is no unusual contract between the members of the company with regard to the powers of the directors... and I think that under (Article 55) the majority of the shareholders in the company at a general meeting have a right to control the action of directors, so long as they do not affect to control it in a direction
contrary to any of the provisions of the articles which jy bind the company".
Those two cases indicate that the question whether or not the general meeting can control the board of directors is too complex to be
2/
resolved simply by a "Yes" or "No" answer. - The truth is that it all 3/
depends on the circumstances, - and the construction of the company's articles of association. As Greer L.J. said in John Shaw A Sons (Salford)
4/ Ltd, v. Shaw: - 1/ At p.274.
2/ To explain the apparent contradiction in both cases Professor Pennington has suggested that both the board of directors and the general meeting retain parallel authority exercisable in appropriate circumstances, despite Article 80. See Pennington's Company Law (4th edition,1979),524. 3/ E.g. whether the matter is one which falls within the day-to-day
management of the company or can be so defined. 4/ £ 9 3 5 7 2 K.B.113.
"A company is an entity distinct alike from its shareholders and its directors. Some of its powers, may according to its articles, be exercised by directors, certain other powers may be reserved for the shareholders in general meeting. If powers of management are vested in the directors, they and they alone can exercise the
powers. The only way in which the general body of the shareholders can control the exercise of the powers vested by the articles in the directors is by altering their articles or if opportunity arises under the articles, b y refusing to re-elect the directors of whose actions they disapprove".
1
/That statement sumnarises the rule but at the risk of saying the obvious the rule can, for purposes of clarity and simplicity, be broken down into four inter-related principles:
(1) Where the Act or a company's articles of association require certain matters to be done by and vests the power therefor in the general meeting that power cannot be usurped by the board of directors.
2
/Thus in Isle of Wight Railway Company v. Tahourdin -
a sufficient number of shareholders required the directors of the company to call a meeting for certain objects amongst which was to appoint a committee to inquire into the working and general management of the company and to perform certain specified matters in the management of the company. The directors refused to convene a meeting as required by the requisitionists, whereupon the latter issued a notice themselves calling a meeting. The directors brought an action in the name of the company to restrain the requisitionists from holding the meeting. It was held
inter alia
by Kay, J. that the part of the requisition which 1/ At p.134.163.
went beyond the appointment of a committee was illegal, for it proposed to transfer the management powers of the directors to the comnittee, but otherwise the requisitionists were entitled to call the meeting. The shareholders had power to call a meeting under Clause 70 of the Companies Clauses Act 1845, then in force, and the Court was unwilling to be used to defeat the members' enjoyment of this power. The Court of Appeal in rejecting the board's application for an injunction stated:
"It is a very strong thing indeed to prevent shareholders from holding a meeting of the company, when such a meeting is the only way in wh i c h they can interfere, if the majority of them think that the course taken by the directors, in a matter
intra vires
of the directors is not for the benefit of the company".Marshall's Case , already referred to, is another example
where the Court was unwilling to act to defeat the exercise by shareholders
2
/of powers expressly conferred on them by contract. -
3/
Also in Foster v. Foster - the articles of association of the defendant company provided (inter
alia
) that every share would confer one vote bo t h at general meetings of the company and at the meetings of the directors, and (by Article 89) that the business of the company should be managed by the directors. Article 93 provided that a director might contract with the company, but prohibited a director from voting in respect of any contract in which he was interested,1
/ Per Cotton L.J. at 329. Note that under the 1845 Act which was then in force Article 90 conferred on the general meeting power to over rule the board.2/ See also Neville J's remarks quoted in p.161 supra. By virtue of S.20(l) of the 1948 Act the memo.and articles of association are contracts binding on all members of the company which require them to observe all the provisions of the (memorandum an<tyarticles.
and Atticle 99 empowered the directors from time to time to appoint one of their body to be managing director for such period and at such remuneration as they thought fit. The plaintiff who was appointed managing director at a remuneration was removed from office by a resolution at a board meeting moved by Mrs. F. and supported by the third director. By another resolution she w a s appointed the sole managing director at a substantial remuneration. The plaintiff opposed both resolutions and upon Mrs. F's appointment*demanded a poll. By means of her own votes there was a majority in favour of the resolution appointing her. In an action by the plaintiff challenging this, it was held
inter alia
that the appointment by Mrs. F. of herself as sole managing director was prohibited by Article 93 and so was invalid, but as it was competent for the general meeting to waive this irregularity and to confirm the resolution appointing her, the irregularity was not of such a character as to give a dissenting minority (the plaintiff) any right to sue. The Court cited with approval the observation of Lord Davey in Burland v. Earle - ^that:"It is an elementary principle of the law relating to the joint stock companies that the court will not interfere with the internal management of
companies acting within their powers and in fact
2
/ has no jurisdiction to do so".It follows from the above remark that if a matter does not involve internal management the court will interfere. Thus in Clark v
3/
Workman, - the defendant directors entered into an agreement to sell
1/ Zi90tf A.C.83. 2/ At 93.
165.
a controlling interest in the company to an outsider but the shareholders intervened to prevent the transaction. Rejecting the defendant's
contention that this agreement was within their power over the company's internal management it w a s held that the transfer of a controlling interest in a company is not a matter of mere internal management. Ross J. justified the shareholders' intervention in the following words:
"It was a matter involving complete transformation of the company - a fundamental alteration of policy from a policy of isolation to a policy of cooperation with a great syndicate in England, about which very little was k n o w n in this country. This operation could in no sense he held to be mere management".
The effect of these authorities therefore is that where the matter is one that can b e properly undertaken by the majority in general meeting, for example, the making of fundamental change or policy, the board - and indeed the minority shareholders - cannot deny the majority the exercise of their power.
(
2
) Wheregeneral
powers have been delegated to the board of directors as under Article 80 the effect is that the board isresponsible for the day-to-day management of the company's business. The shareholders cannot therefore usurp this power themselves or transfer it to an outside body. Thus in Tahourdin's Case the general meeting was restrained from transferring the power over day-to-day management
2
/from the board to a committee. - It could only do so if it first of
1/ At 117.
2/ One object of the resolution was "To appoint a Committee to inquire into the working and general management
6
f the company, and the means of reducing the working expenses, to empower such committee to consolidate offices, to remove a n y of the officers and appoint others and to authorise and require directors to carry out the recommendations of the Comnittee? (1884) 25 Ch. D. 320.all altered the articles or complied with the appropriate procedure. However, the view has been expressed that the numerical majority who c a n alter the articles can over-rule the directors without first altering the articles. In Gramophone & Typewriter Ltd, v. Stanley Buckley, L.J. stated that shareholders could control the board "by
3/
the statutory majority which can alter the articles", - which could be construed to mean that a special resolution of the general meeting could be sufficient for the general meeting to control the board without first
4/
altering the articles. -
Diota
in the same paragraph at any rate raised doubts whether his Lordship intended to convey this meaning. The point had b e e n urged upon his Lordship that an English Company which owned all the shares in a German Company cojild control the latter in the sense that it m u s t do all that the English Company directs. The court rejected this argument and relying on Automatic Self-Cleansing Filter Syndicate Co.Ltd, v, Cuninghame stated that:"even a resolution of a numerical majority at a general meeting of the company cannot impose its will upon the directors when the articles have confided to them the control of the company's affairs...." "Directors are not, I think, bound to comply with the directions even of all the corporators , , acting as individuals".
1/ See e.g. Buckley, L.J. in Gramophone & Typewriter Ltd. v. Stanley /1908/ 2 K.B. 89.
3/ A t p.106.
4/ See e.g. Slutsky (1968) U.B.C.L.R. 81,88. But see Slesser L.J. in Shaw v. Shaw at p.143 where he stated that an alteration of the articles by special resolution was necessary in respect of a matter which fell within the ambit of general management,to wit: instituting action in the company's name.
A t 105-106. 5/
167. Even assuming Che dicta of Buckley L.J. in Gramophone