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Hickman v Kent or Romney Marsh Sheepbreeders’ Association [1915] 1 Ch 881

By Oxbridge Law TeamUpdated 04/01/2024 07:04

Judgement for the case Hickman v Kent or Romney Marsh Sheepbreeders’ Association

KEY POINTS

  • Under the repealed Arbitration Act 1889, the scope of an arbitration agreement, especially within a company's articles of association, was defined by contract and typically included disputes related to the company's internal affairs.

  • The memorandum and articles of association in companies regulated by the Companies Act 1985 acted as a contract between the company and its members, with a general rule governing their roles and obligations.

  • In companies governed by the Companies Act 1985, the powers and liabilities of companies regarding actions and proceedings aimed at enforcing their regulations were subject to the provisions outlined in the Act and the company's articles of association.

FACTS

  • The Companies (Consolidation) Act 1908 defined the unique legal nature of articles of association. They didn't establish contracts with external parties or grant special rights to individual members. However, these articles did create a contractual relationship between a company and its members regarding their standard membership rights.

  • An article within a company's articles of association allowing arbitration met the criteria for a valid written submission, following the Arbitration Act 1889. Companies could enforce their regulations and address breaches by members, and conversely, shareholders had the right to enforce these regulations in case of violations.

JUDGEMENT

  • The Chancery Division resolved the apparent contradictions regarding Section 16 of the Companies Act 1862 and its re-enactment in Section 14(1) of the Companies (Consolidation) Act 1908. It clarified that while articles of association couldn't create contracts with external parties or grant unique contractual rights to individual members, they did establish a contractual relationship between the company and its members regarding standard membership rights.

  • The Chancery Division affirmed that an article in a company's articles of association, providing for dispute resolution through arbitration, fulfilled the requirements for a valid written submission under Sections 4 and 27 of the Arbitration Act 1889. The company had the authority to enforce its regulations and address breaches by its members. In their capacity as members, shareholders had the right to enforce company regulations and seek remedies for violations.

COMMENTARY

  • The Companies (Consolidation) Act 1908 defined the legal character of articles of association, establishing that they didn't create contracts with outsiders or bestow special rights upon individual members. However, articles did form a contractual relationship between a company and its members regarding standard membership rights. 

  • Additionally, articles allowing arbitration met the criteria for valid written submissions under the Arbitration Act 1889. This allowed companies to enforce their regulations and address member breaches, while shareholders, as members, had the right to enforce company rules and seek remedies for violations. 

  • The Chancery Division resolved contradictions in this legal framework, ensuring clarity in treating articles of association.

ORIGINAL ANALYSIS

  • Articles provided that any dispute between member and company should be solved by arbitration. 

  • Claimant was a member of company, and company refused to register Claimant’s sheep. Claimant complained and sued company for declaration that his sheep were entitled to be registered; company applied for action to be stayed on basis that dispute should go to arbitration. 

  • Claimant argued that arbitration clause did not apply, as the dispute was unrelated to Claimant’s membership of the company – rather it was related to.

Enforceability of Articles

  1. Where an outsider purports to be given rights by articles in their capacity as an outsider, are not enforceable.

    • This case even if outsider is or subsequently becomes a member.

    • Hence fact that an outsider purportedly given rights in a company’s articles is subsequently granted shares in company does not make a previous claim enforceable.

  2. In addition member of a company can only enforce his rights under constitution in his capacity as a member, and not e.g. as director, solicitor etc.

  3. Where articles purport to grant rights to an outsider, if outsider subsequently becomes member this does not mean that he can enforce those earlier rights

    • I.e. as these rights are still not in his capacity as a member, regardless of fact that outsider has since become a member

Facts

  • Claimant’s claim is to enforce his rights as a member of Defendant.

  • Arbitration article deliberately addresses disputes amongst members themselves.

  • Therefore case stayed in favour of arbitration.

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Company law Notes
805 total pages
1070 purchased

Company law notes fully updated for recent exams in the UK. These notes...