Competing Interests and Conflicting Principles: An Examination of the Power of Alteration of Articles of Association
| Published date | 01 July 1986 |
| Date | 01 July 1986 |
| Author | F. G. Rixon |
| DOI | http://doi.org/10.1111/j.1468-2230.1986.tb01698.x |
COMPETING INTERESTS
AND
CONFLICTING
PRINCIPLES: AN EXAMINATION
OF
THE
POWER
OF
ALTERATION
OF
ARTICLES
OF
ASSOCIATION
One learns the vast difficulty of eneralisin on any matter of
minds that have the imaginative grasp to see the full
implications
of
a generalisation
. . .
And, perhaps, only their
successors who have to work upon them appreciate how flashy
have been the gnomic utterances
of
some
of
our best known
judicial sages.’
principle, just because, short
o
P
genius, t
a
ere are very few
I.
INTRODUCTION
This study was prompted by a number of dicta of English and
Australian judges* expressing, or exhibiting, difficulty in discovering
from the line of authority on alteration of articles of association the
limits of the power conferred on companies by section
10
of the
Companies Act
1948,
now section
9
of the Companies Act
1985.
The purpose
of
the study is twofold. First, to trace the source of
the dissatisfaction with and misunderstanding of the cases defining
the scope of the power of alteration of articles. Secondly, to
consider whether those cases contain lessons for the guidance
of
the court in the exercise
of
the power conferred on it by Part XVII
of the Companies Act
1985.3
For a member of a company aggrieved
by an alteration
of
the company’s articles of association now has
open to him two avenues of relief: he may bring an action for a
declaration that the resolution effecting the alteration was not a
valid exercise
of
the power of alteration of articles contained in
section
9
of the Companies Act
1985;
or he may apply to the court
by petition for an order under Part XVII
of
the Act on the ground
that the alteration is unfairly prejudicial to his interests.
One preliminary matter may be shortly disposed of. In the case
of
Estmunco
Ltd.
v.
GLC‘
Sir Robert Megarry V.-C. said: “Now
the question is how far authorities such as these on the validity of
making alterations in the articles fit in with the rule in
Foss
v.
Hurbottle
. .
.”
The right
of
a member of a company to bring an
action for a declaration that an alteration of the company’s articles
is void and of no effect comes, it is submitted, within the exception
’
Lord
Radcliffe, Not
in
Feather Beds,
pp.216-217.
*
See especially
Aust.
Fixed Trustr
v.
Clyde Industries Ltd.
(1959)
S.R. (N.S.W.)
33,
per McLelland
J.
at
p.53;
Crumpton
v.
Morrine Hall
Pry.
Ltd.
[1%5]
N.S.W.R.
240,
per
Jacobs J. at
pp.243-244;
Clemens
v.
Clemens
Bros.
Ltd.
[1976] 2
All E.R.
268,
per Foster
J. at
p.281;
Esrmanco
Ltd.
v.
GLC
I19821 1
All E.R.
437,
per Sir Robert Megarry V.-C.
at
p.444.
Formerly
s.75
of
the Companies Act
1980.
446
‘
[1982] 1
All E.R.
437, 444.
JULY
19861
COMPETING
INTERESTMONFLIC~NG PRINCIPLES
447
which states that the rule in
Foss
v.
Harborrlf?
does not “prevent
an individual member from suing if the matter in respect of which
he [is] suing [is] one which [can] validly be done or sanctioned, not
by a simple majority
of
the members
of
the company
.
. .
but only
by some special majority, as, for instance
.
.
.
a special resolution
duly passed as such.’’6 Articles of association may be altered only
by special resolution,’ and if the power of alteration has been
exercised irregularly or improperly, it is not competent to a “bare
majority [to] say we will not allow any proceedings to be taken.”6
Hence, the rule in
Foss
v.
Hurborrle
is no bar to an action by an
individual member impeaching an alteration of a company’s articles
of
association.
11.
THE
POWER
OF
ALTERATION
OF
ARTICLES
OF
ASSOCIATION
Section 9(1) of the Companies Act 1985 states: “Subject to the
provisions of this Act and to the conditions contained in its
memorandum, a company may by special resolution alter its
articles.”
It follows that “[plrima facie rights altogether dependent upon
articles
of
association are not enduring and indefeasible but are
liable to modification or de~truction”~ and that “when a man comes
into a company, he is not entitled to assume that the articles will
always remain in a particular forrn.”l0 It has, however, “never been
conceded that the power [of alteration of articles]
is
unrestrained.””
For it is “easy to see that a power of alteration might be used for
the aggrandisement of a majority at the expense
of
a minority.”12
However, it is one thing to “say that such a power is not unlimited
or uncontrolled and another to define the grounds upon which an
ostensible exercise of the power should be considered invalid.”13
The classical test
of
the validity
of
an alteration
of
articles of
association was laid down in the case of
Allen
v.
Gold Reefs of
West Africa, Limired14
by Lindley
M.R.,
who said:
“The power thus conferred on companies to alter the
regulations contained in their articles is limited only by the
provisions contained in the statute and the conditions contained
(1843)
2
Hare 461.
Edwards
v.
Halliwell
I19501 2
All
E.R. 1064,
per
Jenkins L.J. at p.1067. See also
K.
W. Wedderburn, “Shareholders’ Rights and the Rule in
Foss
v.
Harbottle”
[1957]
C.L.J. 194, especially at pp.207-209.
’
Companies Act 1985, s.9(1).
*
Baillie
v.
Oriental Telephone and Electric Company, Limited
(19151 1 Ch. 503,
per
Swinfen Eady L.J. at p.518. See also
per
Lord Cozens-Hardy M.R. at p.515.
Peters’ American Delicacy Co. Ltd.
v.
Heath
(1938-1939) 61 C.L.R. 457,
per
Dixon
J.
at p.507.
lo
Greenhalgh
v.
Arderne Cinemas, Lid.
(19511
1
Ch. 286,
per
Evershed M.R. at p.292.
Cf. Crumpton
v.
Morrine Hall Pty. Ltd.
(19651
N.S.W.R.
240,
per
Jacobs
J.
at p.245.
l1
Peters’ American Delicacy Co. Ltd.
v.
Heath
(1938-1939) 61 C.L.R. 457,
per
Dixon
J.
at p.503.
I*
(1938-1939) 61 C.L.R. 457,
per
Dixon J. at p.504.
l3
(1938-1939) 61 C.L.R. 457,
per
Dixon
J.
at p.503.
[1900]
1
Ch. 656, 671.
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