THE JURIDIFICATION OF INDUSTRIAL RELATIONS THROUGH COMPANY LAW REFORM
| DOI | http://doi.org/10.1111/j.1468-2230.1988.tb01749.x |
| Published date | 01 March 1988 |
| Author | Peter G. Xuereb |
| Date | 01 March 1988 |
THE JURIDIFICATION OF INDUSTRIAL RELA-
TIONS THROUGH COMPANY LAW REFORM
INTRODUCTION
IT
is not the purpose of this paper to discuss the question of
juridification
of
industrial relations in general.’ Rather its purpose
is to focus on some forms which it might possibly take in a
Company Law context.
The question which this paper seeks to address, in the light of
the general debate on juridification, is: how might English Company
Law rules be developed, in
so
far as they need developing, in
order to give the directors
of
large companies clearer guidance as
to the fulfilment of their primary fiduciary duty to exercise their
functions bona fide in the interests of the company2 in the light of
the often conflicting interests which they have to take into account?
The premise underlying the proposals which follow is the
justifiability of the moral claim which employees in large companies
have to more equal treatment under the law with the shareholders.
The basis
of
this paper is an inquiry into the present formulation
of the directors’ primary fiduciary obligation. First, it will be
argued that a much ignored concept and reality
(viz.
that of the
company as a going ~oncern)~ must be given judicial recognition at
last as a focal point of directorial activity. This because, it is
submitted, the company as a going concern is the pragmatic point
of reference in daily managerial life and is the focal point for the
shareholders’ and employees’ continuing long-term interests.
Secondly, an attempt will be made to find the proper place within
a hierarchy of interests in Company Law for the interests of the
company as a commercial entity on the basis
of
what, it is hoped,
are fair relative priorities. This will involve suggesting: (a) a
priority relationship between the interests of the company as a
commercial entity (as embodying the continuing interests of
shareholder and employee alike) on the one hand and the short-
term interests
of
the shareholders and/or employees on the other,
and (b) a priority relationship between the (sometimes conflicting)
short-term interests of the shareholders on the one hand, and the
short-term interests of the employees on the other.
It will be submitted that the directors must act on the basis of
continuity, that is that the continuing interests of shareholders and
employees (which, it is submitted, coincide in the interests
of
the
company as a commercial entity) must be safeguarded at the cost
On this see Jon Clark: “The Juridification
of
Industrial Relations:
A
Review Article,”
(1985) 14 I.L.J. 69 and references iven there.
Re
Smith
&
Fuwcen
Ltd.
[1942f Ch.
304
at
306.
See
infra.
Or
the “company as a commercial entity”
or
the “enterprise.” See on this point the
Bullock Report on Industrial Democracy 1977, Cmnd. 6706, Minority Report para. 57.
156
MAR.
19881
JURIDIFICATION
OF
INDUSTRIAL
RELATIONS
157
of
short-term interests-whether of both group or of either group.
But (and this is the proposed “sub-rule”) that present or short-
term interests (of both groups or of either group) claim satisfaction
and ought to do
so
in equal measure unless the contrary
is
reasonably required in the continuing interests of both groups.
A:
The Present State
of
English Law
The main fiduciary duty (which, like all directors’ duties, is owed
to the ~ompany)~ was expressed as follows in
Re Smith
&
Fawcett
Ltd.
:5
the directors are bound individually and collectively to
exercise their powers “bona fide in what they consider-not what a
court may consider-is in the interests of the company and not for
any collateral purpose.” This duty, “implicit by law,”6 is the
primary fiduciary duty
of
each director under English law.’
While the duty is often stated to be purely subjective,s there
is
little doubt that the “reasonable man” objective threshold will be
applied by the
court^.^
As
was argued elsewherelo in regard to
general meeting power, this test involves the court in making a
common sense appreciation of the existing (or alleged) factual basis
of the exercise of power. However, the court will not order the
board to exercise a particular power in any particular way.”
Is
“the company” in the formulation of the duty capable
of
the
same interpretation put forward elsewhere1* with regard to the
exercise of general meeting power? In other words, can it be
regarded as shorthand for the continuing interests
of
the hypothetical
shareholder but also, in the present context, of the hypothetical
employee?
Before the
1980
Companies Act, the position was as stated by
G~re-Browne;’~ namely: “from the point of view
of
strict law, ‘the
interests of the company’ means those of present and future
Percival
v.
Wright
[1902] 2 Ch. 421. See generally, Gower,
Principles
of
Modern
Company Law
(4th ed.) (Stevens, London 1979), p.573. Only in special circumstances
is
a duty owed
to
the shareholders:
See
Allen
v.
Hyatt
(1914) 30 T.L.R. 444;
Gerhing
v.
Kifner
[1972] 1
All
E.R. 1166.
[1942] Ch.
304
at 306; [1942] 1
All
E.R. 542;
I11
L.J. Ch. 265;
166
L.T. 279; 86 S.J.
147,
per
Lord Greene M.R.
Ibid.
The Companies Bill of 1978 proposed
to
enact this duty as
a
duty
of
exercise the
“utmost good faith” towards the company and to exercise one’s powers “honestly.” See
on
this point Birds (1980)
1
Co.
Law 67 at 68;
P.
L. R. Mitchell,
Directors Duties and
Insider Dealing
(Buttenvorths, London, 1982), pp.37 to 38; Parsons (1967) 5 Univ. of
Melb. L. Rev. 395 at 417-418.
13
See,
e.g.
P. L. R. Mitchell,
op.cir.,
p.27.
Charterbridge Corporation Lrd.
v.
Lloydr Bank Lrd.
[1970] Ch. 62 at 74.
lo
(1985) 6 Co. Law 199.
See
Pergamon Press
Ltd.
v.
Maxwell
[1970] 1 W.L.R. 1167.
(1985) 6 Co. Law 199.
l3
Gore-Browne
On
Companies,
43rd ed. (Jordan, Bristol, 1977-1985) para. 27-9.
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