4/
Also in Scott v. Scott - under the articles of a privata company, the management of the business and the declaration of interim dividends, were both assigned to the directors. At the company's general meeting certain resolutions were passed to the effect:
(
1
) that weekly sums calculated at the paid up capital on preference shares be paid each preference shareholder as interest free advances until the payment of the dividend for the current year, that such sums ba deducted from the dividend when declared and, if the dividend was insufficient, the deficiency be repaid to the company.(
2
) that a firm of accountants be instructed to investigate the financial affairs of the company for the last two financial years.1/ /1906/ 1 Ch.148. 2/ At 163.
3/ Ibid
4/ A 9 4 3 7 1 All E.R.582.
169.
The plaintiffs contended that these resolutions were invalid. It was held that the resolutions were invalid as being attempts b y the company in general meeting to usurp the powers of the financial direction of the company which under the articles rested solely in the hands of the directors. According to Lord Clauson it seemed quite clear that the first resolution "if it is not aimed at declaring an interim dividend, is aimed at interfering with the management of the business by the directors and, as such it is in my view wholly inoperative and the general meeting had n o power to pass it". The second resolution was rejected as being an attempt to do by an ordinary resolution what was required by the Act to be done only b y special resolution.
In respect of the first resolution it was argued on behalf of the plaintiffs that under the company's articles, as i n Article 80, the directors were authorised to "exercise all such powers of the company, as are not ... required to be exercised by the company in general meeting, subject... to such regulations not being inconsistent w i t h the company's articles or provisions as may be prescribed by the company in general
2
/ 3/meeting". - Those words, it wax argued, limit the power and duty - of directors to manage the business. His Lordship rejected this argument stating that a resolution which attempts to control the directors in the management of the business was itself inconsistent with the company's articles and so cannot be justified. Hi« lordship did not rely on
1/ At pp.584-585. 2/ At 585.
3/ It was his Lordship's opinion that only the "duty" of directors and not their "right" to manage was limited.
any authority and one finds it difficult to follow the logic of
his reasoning. Nevertheless, it is correct to assume that under Article 80 the general meeting is unlikely to involve itself in matters which relate to day-to-day management. The question then is what constitutes day-to-day management.
The description or definition of what amounts to management matters was expresed in that case in a somewhat rhetorical fashion when it was stated:
"How can you manage a business without managing its finance.... How the directors can manage the business if they are to be interfered with in such an ordinary financial matter as to how to deal temporarily with balances which are for the moment not required for the purpose of the business,
1
confess I cannot conceive?And further:
"How you can investigate the financial affairs of the company without interfering with the management of the company's financial affairs by the directors in the course of managing the business, I myself am quite unable to see...?
It is understandable, even from the first few lines of Article 80 that the board and not the shareholders are responsible for the day-to-day control of the company. If the Courts' reasoning was to the effect that shareholders cannot also give general directions or recomnendations on how the company's affairs are to be managed or that they cannot over-rule
171.
any
decision come to by the directors in the conduct of the business, then it would be difficult to agree with this. This writer agrees with the opinion expressed by Goldberg, that if, for example, a company has funds which have been taken out of the current accounts of its business, there is nothing in the case to say that the members in general meeting cannot by ordinary resolution order the directors2
/to invest them in one manner rather than another. - Moreover, it is difficult to see why investigation into a company's past financial affairs should be regarded as an interference with its management. Surely, one must suppose that his Lordship did not intend to deprive investors of this very important power of investigating h o w their investments are being managed and so divesting them of their rights just because the company's articles provide that "the business of the company shall be managed by the directors". The extent of interference must, of course, be a matter of degree and, in any case, shareholders could not
3/ interfere too frequently even if they so wished. -
1/ G.D.Goldberg, "Article 80 of Table A of the Companies Act 1948" (1970) 33 M.L.R.177.
2/ See p.183. Shareholders should at least be able to over-rule the board in major investment and policy matters, if not, routine financial transations.
3/ See pp 137-138supra. One difficulty here is that Courts are not likely to go into what constitutes "detailed" or "frequent" interference; the general unwillingness of Courts to delve into details of business management is well known. See e.g. Earle of Halsbury L.C. in Dovey v.Cory A 9 0 1 / A.C.477: "What are profits and what is capital may be a difficult and sometimes an almost impossible problem to solve.... I foresee that many matters will have to be considered by men of
business which are not altogether familiar to a Court of Law". At p.487. See also A t i y a H , "Thoughts on Company L a w Philosophy". (1965)
8
(3) It follows from the last two points that the general meeting can. by ordinary resolution exercise power in matters not
2/
involving day-to-day management, - even though such power has not 3/
been expressly vested in it by the Act or the Articles, - provided:
(a) that such power has not been expressly delegated
4/
to the board, - and
(b) that the exercise of the power does not amount to fraud or oppression of the minority.
This principle was acted upon in Marshall's Case where the trial judge relying on Pender v, Lushington and Duckett v. Cover. stated that:
1/ But see Greer L.J. in Shaw v. Shaw
El
9347 2 K.B. 113,114, approving the view of Buckley on Companies that a special resolution is necessary "even as regards matters not expressly delegated to the directors by the articles".2/ That is to say, non-routine matters.
3/ But cf., Gower in passage quoted in p ! 5 8 supra.
4/ For exanple, power for appointing a Managing Director: Thomas Logan v . Davies Q.91t> 103 L.T.419; appointing additional directors:
Blair Open Hearth Furnace Co.Ltd, v, Reigart G 9 1 $ 108 L.T.665. See also Clark v. Workman, supra and Automatic Self-Cleansing Filter Syndicate v. Cuninflh«™» See however. Hornsey, op.cit. who argues that the words in Article 80 entitle the shareholders to control the directors by ordinary resolution as regards those matters of management not expressly delegated to the directors by some other article.
5/
See Pender v. Lushington (1877)6
Ch.D.70 Bamford v. Bamford¿19707
Ch.212 and Winthrop Investments Ltd, v. Winns Ltd.¿19737
2 K.S.W.L.R.666.
According to Buckley J. in Hogg v, G r a m p h o m¿196~Q
1 Ch.254 "A majority of shareholders in general meeting is entitled to pursue what course it chooses within the company's powers, however wrong headed it may appear to others, provided the majority do not unfairly oppress other members of the company", at p.268. See also G.R.Sullivan, op.cit.; at 576.6
/6
Ch. D.70. 7/ (1877)6
Ch. D.82.173.
"the principle has been acted upon that in the absence of any contract to the contrary the majority of the shareholders in a company have the ultimate control of its affairs, and are entitled to decide whether or not an action in the name of the company shall proceed".
(4) Where the Act or Articles require a special procedure on any matter, whether delegated to the general meeting or the board,
such requirements or provisions are enforced very strictly by the courts.
The Courts cannot over-ride the provisions of the Act and,