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a Court will not vary any of its terms or seek to substitute its own judgment for terms which shareholders have contracted to regulate their

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relations in the coepany. - The duty of the court is to give effect to the 4/

express provisions and terms of the articles. - Thus in Quin and Axtens Ltd. v, Salmon, the 75th clause in the company's articles of association provided that the business of the company was to be managed by the directors, who might exercise all the powers of the company, "subject to such regulations (being not inconsistent with the provisions of the articles) as may be prescribed by the company in general meeting". The 80th article stated that no resolution of a meeting of the directors having for its object the acquisition or letting of premises should be

1/ Per Neville J. in ¿19097 1 Ch. 267,272. 2/ That is, by virtue of Section 20(1).

3/ See e.g. MacDougall v. Gardiner (1874-75) 10 Ch.App.606: "the Court has no jurisdiction whatever to do that which it is for the company itself to do according to the provisions of the articles", per James L.J. at p.608. See also Bamford v. Bamford at 217.

4/ See Automatic Self-Cleansing Filter Syndicate v.Cuninghams - a decision which re-affirms the inviolability of contracts.

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valid unless notice should have been given to each of the managing directors Messrs. Salmon and Axten a n d neither of them should have dissented therefrom. The directors passed a resolution with the

object of acquiring and letting premises from which Salmon duly dissented. An extra-ordinary general meeting was then held at which the same resolution was passed by a simple majority of the shareholders. It was held unanimously by the House of Lords that upon the true construction of the articles the resolutions of the company were inconsistent with the provisions of the articles*

This rather short judgment is typical of the zealous attempt by courts to protect the "bargain" between shareholders as set out in the articles in dispute but certain aspects of the case raise serious questions. Although it was consonant with Article 80 that the other directors should not over-ride the right of Salmon to dissent one would have wished the Court to say why the general meeting could not by an ordinary resolution direct the board to acquire the property. Firstly, the Court might have taken the view that the acquisition or letting of premises was a management matter as it related to the day-to-day decisionswhich directors have to take. On the other hand, if it was a substantial acquisition which was likely to have a major effect on the company's business structure then the general meeting ought to have been given a say in deciding whether

1/ It is remarkable that most of the cases considered under this topic are about two to three pages long in the reports, which will appeal to students not too keen on reading very long judgments. However, the brevity of the decisions belies the complexity of the problems involved.

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or not to carry out the transaction. Secondly, the shareholders' resolution may have been seen as an attempt by the board to use the general meeting as a means of defeating the rights of Salmon and the contractual relations between him and the company.

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Again in Shaw v. Shaw - as a result of a dispute arising from the defendant's indebtedness to the plaintiff company the articles of association were altered so as to hand over all control of the financial affairs of the company and the management of its business to three independent persons known as "permanent directors". The defendants were divested of their voting rights and control in respect of their debts. Because of certain defaults in respect of the debts it was resolved by the "permanent directors" at a meeting to which none of the ordinary directors were summoned, that the present action be instituted against the two of the former directors. Before the hearing the shareholders at an extra-ordinary general meeting passed a resolution calling on the Chairman to direct that the proceedings be discontinued. It was held by the Court of Appeal by a majority of two to one that the action by the "permanent directors" was in order. According to Greer L.J., under the company's articles the power to give instructions for the institution of action was vested, not in the directors generally, but in the "permanent directors" alone, whose decision could not be over-ridden by the mere resolution of the shareholders.

1/ Quaere, whether a special resolution shouldn't be required in all matters affecting the fundamental character of the business rather than an ordinary resolution, whether or not this involves the alteration of the articles.

2/ Perhaps a special resolution (enough to alter the articles) rather than initiation through the board may have sufficed.

In the final analysis it is to be noted that where powers are expressly conferred b y constitution or contract on the general meeting and the board respectively neither can usurp the otherfe. Where the Constitution is silent or there is no contract the board has power over matters of day-to-day management, while the general meeting has power over major policy or fundamental or structural change. It is clear therefore, that "the directors, and no one else are responsible for the management of the company ... (but this) does not mean that no act of management, such as instructing the company's solicitor, can validly be performed without the personal and explicit authority of the directors themselves". There can, of course, be no pretence that it will always be easy to say whether a specific matter is of a fundamental

character or is one of everyday management, but most of the time this should

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be easily resolved. -

It is interesting too to ask what is the relevance of the decisions reviewed above in the conduct of the business of large public companies today. For these types of companies special articles like those in Automatic Self-Cleansing Filter Syndicate v. Cuninghame, Quin A Axten v. Salmon, Shaw v. Shawfand so on,are the exception rather than the rule - the more conmon attitude being to adopt the regulations in Table A. This, however, cannot be said of the thousands of small private companies which operate today and to which these decisions are undoubtedly still of especial

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relevance. - Two situations can insnediately be envisaged where the analysis

1/ Per Lord Kilbrandon in Alexander Ward v. Samyang Navigation C o . ¿19757 1 W.L.R.673 at 683.

2/ As in Clark v. W o r k m a n , supra.

3/ The Department of Trade Annual Report for 1979 shows that the effective ” number of private companies on the register in Britain for that year

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becomes relevant for large companies:

(1) Where there are interventionist shareholders

wanting to wrest control from inefficient management or in take-over situations,-^ and

(2) Where the dominant or more active shareholders decide

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