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Company Constitution Cases

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Company Law Supervision II - Cases THE CORPORATE CONSTITUTION Legal Status Company Against Member Hickman v Kent or Romney Marsh Sheepbreeders' Association [1915]
Articles provided that any dispute between member and company should be solved by arbitration. C was a member of company, and company refused to register C's sheep. C 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. C argued that arbitration clause did not apply, as the dispute was unrelated to C's membership of the company - rather it was related to . Held: 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

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C's claim is to enforce his rights as a member of D. Arbitration article deliberately addresses disputes amongst members themselves.

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Therefore case stayed in favour of arbitration.

Members Against Company Quin & Axtens Ltd v Salmon [1909]
Company had two managing directors. Director A (Salmon) was given a veto by articles over any decision of company to deal with property. Director B acted contrary to requirement, and got ordinary resolutions from shareholders authorising company to act in this way. Salmon sued company to stop it acting contrary to his veto. Held: Ordinary Resolution

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Is not permitted to act upon ordinary resolutions which are inconsistent with substantive requirements in articles.
? i.e. in matters of substance, constitution can only be deviated from by special resolution.

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Thus existence of ordinary resolution is irrelevant to whether company is breaching its articles. Qua Member

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Director A was also a member of the company.

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Therefore had power in his capacity as member to force company to adhere to its constitution.
? i.e. by not dealing with property where he had used his veto.

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Thus injunction granted against company acting upon the resolutions passed. Members Amongst Themselves Rayfield v Hands [1960]
Articles provided that where a member wished to dispose of shares, in certain circumstances directors had an obligation to purchase those shares offered. C wished to sell his shares and a director, who was also a member, refused to take them. Held:

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Company's articles intended for the directors to be bound as members in this situation.
? i.e. as matter related to purchase of shares. Therefore directors were bound by articles in their capacity as members.

Eley v Positive Life [1876]
Articles stated that C was to be the solicitor of Positive Life. However he was not appointed so sued for breach of the articles. At time articles were created, C was not a member. However by time C brought action, C was a member. Held:

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C could not enforce the articles.

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