Termination of Office
Cases
Bushell v Faith
[1970] AC 1099
Lord Reid
“with some reluctance I agree with the majority of your Lordships that this appeal must be dismissed. Article 9 of the articles of association of this company is obviously designed to evade section 184 (1) of the Companies Act, 1949 [sic], which provides that a company may by ordinary resolution remove a director notwithstanding anything in its articles. The extra voting power given by that article to a director, whose removal from office is proposed, makes it impossible in the circumstances of this case for any resolution for the removal of any director to be passed if that director votes against it. ”
Lord Upjohn wrote
“Harman LJ [approved article 9 of the company constitution] on the simple ground that the Act of 1948 did not prevent certain shares or classes of shares having special voting rights attached to them and on certain occasions. He could find nothing in the Act of 1948 which prohibited the giving of special voting rights to the shares of a director who finds his position attacked. Russell L.J. in his judgment gave substantially the same reasons for allowing the appeal and he supported his judgment by reference to a number of recent precedents particularly those to be found in Palmer’s Company Precedents, 17th ed. (1956), but, with all respect to the learned Lord Justice, I do not think these precedents which, so far as relevant, are comparatively new can be said to have the settled assent and approbation of the profession, so as to render them any real guide for the purposes of a judgment; especially when I note the much more cautious approach by the learned editors of the Encyclopaedia of Forms and Precedents, 4th ed. (1966), Vol. 5, p. 428, where in reference to a form somewhat similar to special article 9 they say in a footnote:
“The validity of such a provision as this in relation to a resolution to remove a director from office remains to be tested in the courts.”
My Lords, when construing an Act of Parliament it is a canon of construction that its provisions must be construed in the light of the mischief which the Act was designed to meet. In this case the mischief was well known; it was a common practice, especially in the case of private companies, to provide in the articles that a director should be irremovable or only removable by an extraordinary resolution; in the former case the articles would have to be altered by special resolution before the director could be removed and of course in either case a three-quarters majority would be required. In many cases this would be impossible, so the Act provided that notwithstanding anything in the articles an ordinary resolution would suffice to remove a director. That was the mischief which the section set out to remedy; to make a director removable by virtue of an ordinary resolution instead of an extraordinary resolution or making it necessary to alter the articles.
An ordinary resolution is not defined nor used in the body of the Act of 1948 though the phrase occurs in some of the articles of Table A in the First Schedule to the Act. But its meaning is, in my opinion, clear. An ordinary resolution is in the first place passed by a bare majority on a show of hands by the members entitled to vote who are present personally or by proxy and on such a vote each member has one vote regardless of his share holding. If a poll is demanded then for an ordinary resolution still only a bare majority of votes is required. But whether a share or class of shares has any vote upon the matter and, if so, what is its voting power upon the resolution in question depends entirely upon the voting rights attached to that share or class of shares by the articles of association…
Parliament has never sought to fetter the right of the company to issue a share with such rights or restrictions as it may think fit. There is no fetter which compels the company to make the voting rights or restrictions of general application and it seems to me clear that such rights or restrictions can be attached to special circumstances and to particular types of resolution. This makes no mockery of section 184; all that Parliament was seeking to do thereby was to make an ordinary resolution sufficient to remove a director. Had Parliament desired to go further and enact that every share entitled to vote should be deprived of its special rights under the articles it should have said so in plain terms by making the vote on a poll one vote one share. Then, what about shares which had no voting rights under the articles? Should not Parliament give them a vote when considering this completely artificial form of ordinary resolution? Suppose there had here been some preference shares in the name of Mr. Faith’s wife, which under the articles had in the circumstances no vote; why in justice should her voice be excluded from consideration in this artificial vote?
I only raise this purely hypothetical case to show the great difficulty of trying to do justice by legislation in a matter which has always been left to the corporators themselves to decide.”
Lord Donovan
“My Lords, the issue here is the true construction of section 184 of the Companies Act, 1948: and I approach it with no conception of what the legislature wanted to achieve by the section other than such as can reasonably be deduced from its language.
Clearly it was intended to alter the method by which a director of a company could be removed while still in office. It enacts that this can be done by the company by ordinary resolution. Furthermore, it may be achieved notwithstanding anything in the company’s articles, or in any agreement between the company and the director.
Accordingly any case (and one knows there were many) where the articles prescribed that a director should be removable during his period of office only by a special resolution or an extraordinary resolution, each of which necessitated inter alia a three to one majority of those present and voting at the meeting, is overridden by section 184. A simple majority of the votes will now suffice; an ordinary resolution being, in my opinion, a resolution capable of being carried by such a majority. Similarly any agreement, whether evidenced by the articles or other vise, that a director shall be a director for life or for some fixed period is now also overreached.
The field over which section 184 operates is thus extensive for it includes, admittedly, all companies with a quotation on the Stock Exchange.
It is now contended, however, that it does something more; namely, that it provides in effect that when the ordinary resolution proposing the removal of the director is put to the meeting each shareholder present shall have one vote per share and no more: and that any provision in the articles providing that any shareholder shall, in relation to this resolution, have “weighted” votes attached to his shares, is also nullified by section 184. A provision for such “weighting” of votes which applies generally, that is as part of the normal pattern of voting, is accepted by the appellant as unobjectionable: but an article such as the one here under consideration which is special to a resolution seeking the removal of a director falls foul of section 184 and is overridden by it.
Why should this be? The section does not say so, as it easily could. and those who drafted it and enacted it certainly would have included among their numbers many who were familiar with the phenomenon of articles of association carrying “weighted votes.” It must therefore have been plain at the outset that unless some special provision were made, the mere direction that an ordinary resolution would do in order to remove a director would leave the section at risk of being made inoperative in the way that has been done here. Yet no such provision was made, and in this Parliament followed its practice of leaving to companies and their shareholders liberty to allocate voting rights as they pleased.
When, therefore, it is said that a decision in favour of the respondent in this case would defeat the purpose of the section and make a mockery of it, it is being assumed that Parliament intended to cover every possible case and block up every loophole. I see no warrant for any such assumption. A very large part of the relevant field is in fact covered and covered effectively. and there may be good reasons why Parliament should leave some companies with freedom of maneuver in this particular matter. There are many small companies which are conducted in practice as though they were little more than partnerships, particularly family companies running a family business; and it is, unfortunately, sometimes necessary to provide some safeguard against family quarrels having their repercussions in the boardroom. I am not, of course, saying that this is such a case: I merely seek to repel the argument that unless the section is construed in the way the appellant wants, it has become “inept” and “frustrated.””
Southern Foundries (1926) Ltd v Shirlaw
[1940] AC 701
Lord Atkin
“My Lords, the question in this case is whether the appellant company have broken their contract with the respondent made in December, 1933, that he should hold the office of managing director for ten years. The breach alleged is that under the articles adopted by the company, after the agreement, the respondent was removed from the position of director of the company by the Federated Foundries, Ld. There can be no doubt that the office of managing director could only be held by a director, and that upon the holder of the office of managing director ceasing for any cause to be a director the office would be ipso facto vacated. Under the articles in existence at the date of the agreement, by art. 89 the office of a director could be vacated on the happening of six various events, bankruptcy, lunacy, etc., including the giving by the director of one month’s notice to resign; while by art. 105 the company by extraordinary resolution could remove him from his office. I feel no doubt that the true construction of the agreement is that the company agreed to employ the respondent and the respondent agreed to serve the company as managing director for the period of ten years. It was by the constitution of the company a condition of holding such office that the holder should continue to be a director: and such continuance depended upon the terms of the articles regulating the office of director. It was not disputed, and I take it to be clear law, that the company’s articles so regulating the office of director could be altered from time to time: and therefore the continuance in office of the managing director under the agreement depended upon the provisions of the articles from time to time. Thus the contract of employment for the term of ten years was dependent upon the managing director continuing to be a director. This continuance of the directorship was a concurrent condition. The arrangement between the parties appears to me to be exactly described by the words of Cockburn C.J. in Stirling v Maitland:[4] “If a party enters into an arrangement which can only take effect by the continuance of an existing state of circumstances”; and in such a state of things the Lord Chief Justice said: “I look on the law to be that …. there is an implied engagement on his part that he shall do nothing of his own motion to put an end to that state of circumstances, under which alone the arrangement can be operative.” That proposition in my opinion is well established law. Personally I should not so much base the law on an implied term, as on a positive rule of the law of contract that conduct of either promiser or promisee which can be said to amount to himself “of his own motion” bringing about the impossibility of performance is in itself a breach. If A promises to marry B and before performance of that contract marries C, A is not sued for breach of an implied contract not to marry anyone else, but for breach of his contract to marry B. I think it follows that if either the company of its own motion removed the respondent from the office of director under art. 105, or if the respondent caused his office of director to be vacated by giving one month’s notice of resignation under art. 89, either of them would have committed a breach of the agreement in question. As Kennedy L.J. said in Measures Bros Ltd v Measures[5] in discussing this very question of the effect upon a contract of employment as managing director of the managing director resigning his office of director: “It is elementary justice that one of the parties to a contract shall not get rid of his responsibilities thereunder by disabling the other contractor from fulfilling his part of the bargain.” I cannot agree with the view of the contract taken by the Master of the Rolls that the parties must be taken to have agreed that the term, though expressed to be for ten years, was subject to be determined by any cause, including the will of either party expressed in accordance with the articles; and that such determination therefore could not constitute a breach. I should have construed the agreement as I do on the first two clauses alone, but the remaining clauses and particularly those dealing with the mutual obligations between the respondent and Sir Berkeley Sheffield in this tripartite agreement in my view strongly reinforce that construction. I agree, therefore, with the trial judge, with the majority of the Court of Appeal, and with I believe all your Lordships in thinking that if during the term the respondent had given a notice of resignation, or if the company had exercised its power of removal under art. 105, either would have committed a breach of the contract.
The question that remains is whether if the removal by the company would have been a breach by the company, the removal under the altered articles by the Federated Foundries, Ld., was a breach by the company. In this matter the Master of the Rolls agreed with the other members of the Court of Appeal; but all the members of this House are not agreed. My Lords, it is obvious that the question is not as simple as in the case just considered of the removal being by the Southern Foundries, Ld.; but I venture respectfully to think that the result must be the same. The office of director involves contractual arrangements between the director and the company. If the company removes the director it puts an end to the contract: and indeed the contract relations cannot be determined unless by events stipulated for in the contract, by operation of law, or by the will of the two parties. The altered art. 8 which gives power to the Federated Foundries, Ld., to remove from office any director of the company is, when analysed, a power to the Federated to terminate a contract between the Southern and its director. It is an act which binds the Southern as against its promisee; and if a wrong to the respondent if done by the Southern it surely must be a wrong to the respondent if done by the Federated who derive their power to do the act from the Southern only. If a landlord gives power to a tenant to discharge the landlord’s servants, gardener or gamekeeper; it is the master, the landlord, who is bound by the consequences of that discharge whether rightful, or whether wrongful, and so involving the payment of damages. If a man buys goods and contracts with a sub-purchaser to take delivery direct from his vendor, and contracts with his vendor to give delivery to the sub-purchasers, the latter’s recourse for breach of contract to deliver is against his own intermediate seller and not against the head vendor. If then the Federated of their own motion determine the concurrent condition it appears to me that necessarily they cause the Southern to break the contract. I can quite see that the position may be altered where the Federated remove a director from office for such reasons as those contained in the old art. 89 or in art. 72 of Table A, which was not incorporated in the new articles. In such a case it may well be said that the company is not acting of its own motion, but is reasonably moved to act by the acts or omissions of the director. But in the present case no such question arises. The action of the Federated was, I think I may say avowedly, taken for the sole purpose of bringing the managing director’s agreement to an end. I do not think that it could be said that the Southern committed any breach by adopting the new articles. But when the Federated acted upon the power conferred upon them in the new articles they bound the Southern if they acted in such a way that action by the Southern on the same articles would be a breach. It is not a question of agency but of acting under powers conferred by contract to interfere with a contract between the party granting the power and a third person. For these reasons I am of opinion that this appeal should be dismissed with costs.”
Lord Wright
“In my opinion the appellant company would beyond question have been guilty of a breach of contract sounding in damages if without just cause they had removed him from his directorship and thus terminated his tenure of office, as was done in March, 1937, in the circumstances which will appear later. The case would have been simply a case of wrongful dismissal of a servant or employee. The servant or employee is in such a case effectively dismissed. His employment is terminated but the termination is wrongful, and the employer has to answer in damages. The employers here are the appellant company, but for this purpose they are like any other employers. The articles may give them the power to dismiss, but the power to dismiss is to be distinguished from the right to dismiss. I do not think that in this particular case the fact that the office includes that of a director, affects this conclusion. It is said that it is impossible to accept that a company would guarantee to a director a ten years’ tenure of his office. But the answer is that they have actually done so, according to the terms of the contract, though subject to the express exceptions of the contract and to the general exceptions which the law reads into the contract. The word guarantee is inappropriate. No one, individual or company, can be compelled against his or their will, to employ a man, though, if the contract is broken, damages will have to be paid. When the respondent was appointed managing director for ten years, the contract necessarily meant that the appellant company would not without good cause remove him from his directorship during that period, because if they did so they would ipso facto terminate his employment. There is no question of implying a term that the appellant company would not remove the respondent from his directorship. He could not serve for the agreed term of ten years unless the appellant company continued him in his office. As Lord Blackburn said in Mackay v Dick:[7] “where in a written contract it appears that both parties have agreed that something shall be done” [as here that the respondent shall hold office for ten years] “which cannot effectually be done unless both concur in doing it, the construction of the contract is that each agrees to do all that is necessary to be done on his part for the carrying out of that thing.” The agreement involved for its fulfilment the concurrence of the appellants and the respondent and imported that each should do its part in carrying it out.”
Shuttleworth v Cox Bros and Co (Maidenhead)
[1927] 1 Ch 154
Cox Bros and Co (Maidenhead) had appointed a board of directors for life, and had fixed this under its articles of association. Then it proposed to amend its articles so that a director would lose his position if the other directors requested in writing for him to resign. Mr Shuttleworth, who was targeted by the changes, brought a claim alleging that the alteration of the articles was not bona fide for the benefit of the company as a whole.
Bankes L.J.:
“So the test is whether the alteration of the articles was in the opinion of the shareholders for the benefit of the company. By what criterion is the Court to ascertain the opinion of the shareholders upon this question? The alteration may be so oppressive as to cast suspicion on the honesty of the persons responsible for it, or so extravagant that no reasonable men could really consider it for the benefit of the company. In such cases the Court is, I think, entitled to treat the conduct of shareholders as it does the verdict of a jury, and to say that the alteration of a company’s articles shall not stand if it is such that no reasonable men could consider it for the benefit of the company. Or, if the facts should raise the question, the Court may be able to apply another test – namely, whether or not the action of the shareholders is capable of being considered for the benefit of the company. I cannot agree with what seems to have been the view of Peterson J. in Dafen Tinplate Co. v. Llanelly Steel Co. that whenever the Court and the shareholders may differ in opinion upon what is for the benefit of the company, the view of the Court must prevail. In the present case it seems to me impossible to say that the action of these defendants was either incapable of being for the benefit of the company or such that no reasonable men could consider it for the benefit of the company. It is idle to say that their action was directed against the plaintiff, because the more outrageous the conduct of a director the more certain it is that his removal will be bona fide for the benefit of the company, and the more certainly will the efforts of the shareholders, acting bona fide and for the benefit of the company, be directed against him, because it is necessary to protect the company against such conduct for the future. For these reasons I am of opinion that this appeal must be dismissed.”
Glover v. B.L.N. Ltd.
[1973] I.R. 414
Kenny J.
The principle of natural justice invoked is that when a charge is made against someone and when a person or body of persons has to decide whether it is well founded or not, the person against whom it is made should have notice of the matters alleged against him and be given a fair opportunity of making his case to the person or body which has to decide it. I do not propose to review the many cases on this matter because Lord Reid has done this in Ridge v. Baldwin. His survey shows that the courts have never stated a general rule which makes it possible to say when the principle applies: they have, as always, decided each case by holding that, in some circumstances the principle applies and that in others it does not. Some rules in this connexion are, however, well established. The first is that the principle is not limited in its application to judicial or semi-judicial tribunals but extends to an administrative body which is not administering justice: see the decision of the Supreme Court in Foley v. Irish Land Commission and the speech of Lord Hodson in Ridge v. Baldwin. The second rule is that it does not apply to the removal of the holder of an office which is held at the will or pleasure of another. The third rule is that it applies to the removal of a person who holds an office for a term of years when he is discharged before the term has expired. The fourth is that it does not apply to the dismissal of a person who is employed under a contract of service when it is terminated under a clause in it which authorises dismissal for misconduct or when the employee is discharged under the term implied in most contracts of employment that he may be summarily dismissed for misconduct; in this case there is no such implied term because it is excluded by clause 12. The fifth is that when someone is deprived of property rights by a decision of any tribunal or body of persons, the Courts, in the absence of a statutory provision excluding the necessity for giving him notice of the charges and an opportunity of making his case, hold that justice requires that he should be given a hearing before a decision is made: see Lord Reid’s speech in Ridge v. Baldwin.
But does the principle apply when a person holds the office of director and has a contract under which he is entitled to retain it for a fixed period? The defendants say that Mr. Glover was an employee of the companies and nothing more, and that he cannot rely on the principle. The characteristic features of an office are that it is created by Act of the National Parliament, charter, statutory regulation, articles of association of a company or of a body corporate formed under the authority of a statute, deed of trust, grant or by prescription; and that the holder of it may be removed if the instrument creating the office authorises this. However, the person who holds it may have a contract under which he may be entitled to retain it for a fixed period: see the decision of the Supreme Court in O’Brien v. Tipperary Board of Health 18 and in Carvill v.Irish Industrial Bank Ltd. This is Mr. Glover’s position because he held the office of director of three of the companies at the date of his dismissal and had a contract under which he could retain them for five years. But the holder of an office does not hold it under a contract: he holds it under the terms of the instrument which created it and so, if he has not a contract, he cannot recover damages if he is removed. So justice requires that he should not be removed until the body with power to do this knows his answer to the case against him so that it can reach a correct decision. But as the holder of an office may have a contract, the presence or absence of it cannot be the feature which distinguishes an office from employment so far as the principle of natural justice is concerned. It follows, I think, that someone who has a contract of service may successfully invoke the principle of natural justice if his position under the contract resembles that of the holder of an office and the question in every case of this type is:””Should the person who has been dismissed be put into the category of the holder of an office or should he be regarded as an employee only?” These were the considerations which Lord Reid had in mind in Ridge v. Baldwin when he said at p. 65 of the report:””The law regarding master and servant is not in doubt. There cannot be specific performance of a contract of service, and the master can terminate the contract with his servant at any time and for any reason or for none. But if he does so in a manner not warranted by the contract he must pay damages for breach of contract. So the question in a pure case of master and servant does not at all depend on whether the master has heard the servant in his own defence: it depends on whether the facts emerging at the trial prove breach of contract. But this kind of case can resemble dismissal from an office where the body employing the man is under some statutory or other restriction as to the kind of contract which it can make with its servants, or the grounds on which it can dismiss them.”
Walsh J. Supreme Court
“The parties by their conduct explicitly set up the machinery for dismissal specified in clause 12(c); that machinery designated the board of directors as the tribunal, and required unanimity of opinion upon the effect of such serious misconduct if it should be proved.
In my view, it was necessarily an implied term of the contract that this inquiry and determination should be fairly conducted. The arguments and submissions in this Court ranged over a very wide field particularly in the field of constitutional justice: see the judgments of this Court in McDonald v. Bord na gCon 61 and East Donegal Co-operative v. The Attorney General. 62 The Constitution was relied upon; in particular Article 40, s. 3, of the Constitution. This Court in In re Haughey 63 held that that provision of the Constitution was a guarantee of fair procedures. It is not, in my opinion, necessary to discuss the full effect of this Article in the realm of private law or indeed of public law. It is sufficient to say that public policy and the dictates of constitutional justice require that statutes, regulations or agreements setting up machinery for taking decisions which may affect rights or impose liabilities should be construed as providing for fair procedures. It is unnecessary to decide to what extent the contrary can be provided for by agreement between the parties. In the present case the provisions of clause 12(c) do not seek expressly or by implication to exclude the right of any of the parties to a fair procedure.
The plaintiff was neither told of the charges against him nor was he given any opportunity of dealing with them before the board of directors arrived at its decision to dismiss him. In my view this procedure was a breach of the implied term of the contract that the procedure should be fair, as it cannot be disputed, in the light of so much authority on the point, that failure to allow a person to meet the charges against him and to afford him an adequate opportunity of answering them is a violation of an obligation to proceed fairly.
For the reasons I have already stated, I am of opinion that the plaintiff was wrongfully dismissed in that the dismissal was a violation of the provisions of clause 12(c) of the service agreement because of the failure to inform him of the charges against him and the failure to give him an adequate opportunity of answering them.
I am conscious of the fact that Mr. Justice Kenny’s conclusion that the defendants had acted in breach of the contract is based on somewhat different grounds and, therefore, I should deal with Mr. Justice Kenny’s reasons. He placed great reliance upon the speech of Lord Reid in Ridge v. Baldwin 65 and quoted with apparent approval the passage at p. 65 of the report in which Lord Reid said:””The law regarding master and servant is not in doubt. There cannot be specific performance of a contract of service, and the master can terminate the contract with his servant at any time and for any reason or for none. But if he does so in a manner not warranted by the contract he must pay damages for breach of contract.” This particular point does not arise for decision in this case but I wish to expressly reserve my opinion on the correctness of this statement if it is intended to convey that a court cannot make a declaration which would have the effect of reinstating a person wrongfully dismissed. I do not think that the decision in Ridge v. Baldwin is directly applicable to the present case. In that case the appellant was a Chief Constable and by a statutory provision the watch committee had power to suspend or dismiss him when they thought him negligent in the discharge of his duty or otherwise unfit for the same. The Chief Constable was not the servant of the watch committee, or of any one else, and he was the holder of an office from which he could be only dismissed in accordance with statutory provisions. It was held that the power of dismissal of this officer, contained in the Municipal Corporations Act, 1882, could not have been exercised until the watch committee had informed the officer of the grounds on which they proposed to proceed and had given him a proper opportunity to present his case in defence. It was a prerequisite that the question of neglect of duty should be considered in a judicial spirit and that could not be done without giving the officer in question the opportunity to defend himself against such a charge, and he would therefore have to be told what was the alleged neglect of duty. As that had not been done the decision was a nullity.
Unlike the present case, Ridge v. Baldwin was not governed by the terms of a contract. In my view, once the matter is governed by the terms of a contract between the parties, it is immaterial whether the employee concerned is deemed to be a servant or an officer in so far as the distinction may be of relevance depending on whether the contract is a contract for services or a contract of service. In the present case it is immaterial whether the plaintiff is an officer or a servant of his employers and, in my view, the case does not fall to be decided upon that distinction but rather upon the actual terms of the contract for the reasons I have already given.
….
Even if there had not been a pre-existing contractual relationship and the plaintiff had been invited to attend such an inquiry, it is probably correct to say, as Harman J. held in Byrne v. Kinematograph Renters Society, that a contract between the plaintiff and the defendants that the inquiry would be fairly conducted could be implied. It never appears to have been doubted in cases decided in England that, if the basis of the jurisdiction to conduct such an inquiry was based on statute or on the agreement of the parties, public policy prevents the exclusion of the rules of what in England is called natural justice where they ought to be observed. It is unnecessary in this case to enter into an examination of the other aspects of this problem which have engaged English courts, namely, whether the obligation to observe the rules of natural justice can be relied upon in a case where the relationship between the parties is not founded either on statute or on contract.
Grant v William Grant and Sons (Newtownards), Ltd., and others
High Court of Justice.
Chancery Division.
11 July 1916
[1916] 50 I.L.T.R 189
O’Connor M.R.
O’Connor, M.R.
This is an action brought by John Grant for a declaration that notwithstanding certain resolutions passed by the defendant company, on May 1 and 17, 1916, he still holds the office of a director of the company; and for an injunction restraining the other directors of the company from preventing him from acting as such director and from attending the meetings of the directors of the company. [His Lordship referred to the articles of association.] It is admitted by the defendants that if the articles of association stood at that, the plaintiff was not legally dismissed by these resolutions, and that it was for the purpose of ousting him that the shareholders passed the resolution of June 9, 1916. It was framed and passed with the avowed object of removing him from the office of director. The plaintiff contends that the resolution fails to accomplish this object because it does not embrace his case, since he had no “agreement,” properly so-called, with the company. I agree that the plaintiff had no agreement with the company, but it remains to be seen if, upon its true construction, the word “agreement” in the resolution has its technical meaning or a wider meaning, which would include article 90, which confers certain rights upon the plaintiff. [His Lordship read the resolution.] This resolution treats William Grant as a person “with whom the company may have an agreement.” What is his status ? He is chairman of the company and managing director for life, and gets all the nett profits earned in the business. As he is treated as a person having an “agreement,” and as you find that he is entitled to these very valuable rights, I do not think it is unreasonable to take the provisions of the articles of association as referred to by the word “agreement.” On that view I think that the word “agreement” in the resolution of June 9 must be construed sufficiently widely as to embrace article 90. I hold that *190 by that resolution the directors assumed the power to dismiss the plaintiff; and by a special resolution passed on the same day, that power was exercised. As to whether that power was regularly exercised, the only objection is that the notice, dated May 31, 1916, was issued at a time when the shareholders had no power to pass the resolution of dismissal. But I do not think that the objection is a good one, because at the time when, on June 24, the resolution of dismissal was passed the power to dismiss had been taken; and, accordingly, I hold that the resolution of dismissal was properly passed. The action must be dismissed, but without costs, as when it was brought the shareholders had no power to dismiss the plaintiff.
[1965]
1 I.R. Coubrough v. James Panton & Co. Ltd.
Budd J. 272
If a director has not been removed from office lawfully he may not be excluded from meetings: Pulbrook v. Consolidated Mining Company (1); Hayes v. Bristol Plant Hire Ltd. (2). The cases of Harben v. Phillips (3) and Bainbridge v.Smith (4) are clearly distinguishable from the present situation. [They also referred to Anderson v. James Sutherland (Peterhead) Ltd. (5).]
H. R. McWilliam for the defendants:
There is no reality in this claim. The plaintiff cannot be removed because the necessary majority against him cannot be obtained. But it is clear that the majority of the shareholders do not want him to act and, in those circumstances, the Court should not support him by granting an injunction: Harben v. Phillips (3); Bainbridge v. Smith (4). [He also referred to Browne v. La Trinidad (6).]
BUDD J. :
The plaintiff in this action, Archibald Murdock Coubrough, is a director and shareholder in the defendant Company, James Panton & Co. Ltd. The other defendants are the remaining directors of the Company. The plaintiff claims in the first part of this action that he was wrongfully and invalidly dismissed from his directorship and excluded from board meetings, and he claims certain declarations with regard to the purported dismissal which is alleged to have taken place as a result of a resolution passed at the Annual General Meeting held on the 9th June, 1961. The relevant resolution, proposed by J. M. Brooks and seconded by W. S. Coubrough, was that all the directors be retired and those willing should offer themselves for re-election. The resolution was carried by four votes to one, the plaintiff recording his opinion that it was invalid. There followed a series of resolutions whereby the four individual defendants were elected directors. The plaintiff seeks a declaration that the resolution purporting to remove the directors was ultra vires the Company’s Articles; a declaration that he is still a director, and an injunction restraining the defendants from excluding him from board meetings.
I may say straight away that a notice for particulars was served by the plaintiff and it was conceded in reply thereto that the plaintiff was still a director of the Company, so that the matters now in issue are somewhat different from those dealt with in the statement of claim. It is not now contended
[1965]
1 I.R. Coubrough v. James Panton & Co. Ltd.
Budd J. 274
that the plaintiff is not a director, but it is asserted that he is not entitled to act by reason of the resolution of the Company passed at the annual general meeting and that therefore the other directors are entitled to exclude him from meetings. The second part of the action has to do with the borrowing powers of the Company and the method of negotiating a debenture. At the same annual general meeting a resolution was passed “That J. M. Brooks’ proposal to obtain additional finance and act as nominee be approved and that a 61/2%Second Debenture similar in scope to the one granted to Royal Bank with a ceiling of £5,000 as security for the financial assistance be approved and instructions given to prepare the documents.” This resolution was carried by four votes to one. It is the contention of the plaintiff that the borrowing powers of the Company should be exercised by the Company, and that negotiation of terms of borrowing cannot be delegated. Though the matter is in issue, it has been agreed that I need not deal with it now, for the procedure, if invalid, may be readily rectified by a resolution proposing a valid procedure. I am therefore only dealing with the first part of the action which concerns the plaintiff’s position.
The Company carries on the business of wholesale jewellers in Dublin. It was associated with another company of dental suppliers in that it had the same shareholders and directors. The plaintiff and the individual defendants own between them all the shares in the defendant Company. It is convenient here to refer to Article 104 of the Company’s Articles as it is important in relation to what follows. The relevant part reads:”104. The Company may by extraordinary resolution remove any Director before the expiration of his period of office, and appoint another qualified person in his stead.”The position is that the Company could not carry such a resolution against the plaintiff as the remaining shareholders had not a sufficient holding of votes to achieve the required majority. So the resolution of the 9th June, 1961, in so far as it purported to remove the plaintiff was invalid. Now the contention of the defendants is that, notwithstanding that the resolution may be invalid, if all the shareholders other than the plaintiff approve the resolution which plainly shows that they do not wish him to take part in the affairs of the Company as a director, then I should not grant him an injunction restraining them from excluding him from their meetings. They make the further point that notwithstanding that the resolution may be invalid, yet if in reality and de facto they have expressed a wish to exclude him, then that is sufficient to exclude him under the Articles for the reason that he is a trustee of the shareholders and owes a duty to them
Coubrough v. James Panton & Co. Ltd.
[1965] IR 275
Budd J.
…The position therefore is that the plaintiff is now accepted as a director. That being so, may the other directors exclude him from meetings? Before dealing with the law on the matter I should refer to the background of this action. There were two companies having common shareholders and directors, one company being dental suppliers, the other wholesale jewellers. Originally the defendant, W. S. Coubrough, the plaintiff’s uncle, was the only Coubrough concerned in the two companies. After the last war W. S. Coubrough transferred a number of shares in both companies to the plaintiff, and about 1950 the plaintiff and the defendant, J. McK. Brooks, became joint managing directors of the two companies. Certain disputes arose and the upshot was that the plaintiff bought out the other shareholders in the dental company and took over its control. He retained his shares in the defendant (jewellery) Company. The Company incurred losses in 1959 and 1960 but made a small profit recently. Allowing for debentures and debts, the Company had however built up considerable assets.
The correspondence is not important save for the letter announcing the annual general meeting on the 9th June, 1961, which gave notice that the matter of the directors would be discussed, and another letter, dated also the 9th June, 1961, in which Mr. Dockrell, who was acting as solicitor for the Company, took up the attitude that the plaintiff was no longer a director, an attitude which was maintained until the reply to the notice for particulars was delivered.
On the question as to whether directors of a company may exclude one of their fellow directors several cases were cited and a question of some difficulty arises. The first case cited was Pulbrook v. Richmond Consolidated Mining Company (1). The relevant portion of the head-note reads:”A director of a company can, if qualified, sustain an action in his own name against the other directors, on the ground of an individual injury to himself, for an injunction to restrain them from wrongfully excluding him from acting as a director.”The matter came before Jessel M.R. who at the beginning of his judgment stated the issue in the following words:”The first question is, whether a director who is improperly and without cause excluded by his brother directors from the board from which they claim the right to exclude him, is entitled to an order restraining his brother directors from so excluding him.” He then continued:”In this case a man is necessarily a shareholder in order to be a director, and as a director he is entitled to fees and remuneration for his services, and it might be a question whether he would be entitled to the fees if he did not attend meetings of the board. He has been excluded. Now, it appears to me that this is an individual wrong, a wrong that has been done to an individual. It is a deprivation of his legal rights for which the directors are personally and individually liable. He has a right by the constitution of the company to take a part in its management, to be present, and to vote at the meetings of the board of directors. He has a perfect right to know what is going on at these meetings. It may affect his individual interest as a shareholder as well as his liability as a director, because it has been sometimes held that even a director who does not attend board meetings is bound to know what is done in his absence. Besides that, he is in the position of a shareholder, of a managing partner in the affairs of the company, and he has a right to remain managing partner, and to receive remuneration for his services. It appears to me that for the injury or wrong done to him by preventing him from attending board meetings by force, he has a right to sue. He has what is commonly called a right of action . . .”. And finally at page 616 he said:”It appears to me that Mr. Pulbrook is a director, lawfully elected, and that he has not vacated his office. Therefore I think he is entitled to an injunction to restrain the directors as asked.” The facts in that case are similar to the present in as much as the plaintiff was a shareholder and entitled to remuneration and by the action of the other directors was excluded from meetings which he had a right to attend under the constitution of the Company.
The second report that I wish to refer to is Hayes v. Bristol Plant Hire Ltd. (1). The head-note sets out the facts. By resolution of the board of the defendant company, passed by certain defendant directors in the absence of the plaintiff, who was also a director, the exclusion of the plaintiff from the board for his absence from board meetings, was confirmed. The consequences of the resolution, if it were valid, was that the plaintiff’s office as a director of the company would be vacated. The articles of association did not require a director to hold a share qualification and did not confer on directors the right to any specified remuneration, but provided that, subject to the terms of any agreement between a director and the company, the directors should be paid, by way of remuneration for their services, such sums as the company in general meeting might prescribe. The plaintiff had no service agreement with the company. He was a shareholder in the company. In an action for a declaration, among other declarations, that the resolution confirming the exclusion of the plaintiff was invalid, and for consequential relief by injunction, the defendants objected, as a preliminary point, that the plaintiff had no such proprietary interest as entitled him to equitable relief by declaration and injunction. It was held that the action would not be stopped on the preliminary objection because, although the articles of association of the company did not require a director to hold a share qualification and although they did not confer on directors a right to specified remuneration, yet the plaintiff had a sufficient proprietary interest to enable him to pursue an action for relief by way of declaration and injunction against his exclusion from the board.
That decision follows Pulbrook’s Case (1), and it was decided as recently as 1957. It will be helpful to read a few of the observations of Wynn-Parry J. which are relevant to the facts of this case. He first deals with the facts stating that it was the fact that the articles of association did not require a director to be a shareholder, nor did they provide any direct right to a stipulated amount for remuneration, they merely provided for the payment of such amount as the company in general meeting might prescribe. I digress for a moment to say that under the Articles of the defendant Company a director is entitled to such sum as the Company in general meeting shall from time to time prescribe. Then (at the bottom of page 686) he says:”On those facts counsel for the defendants contends that there is no, or no sufficient, proprietary interest vested in the plaintiff as director. He cited to me a number of cases the principles underlying which I wholly accept. It is perfectly clear that in the case of any relationship which involves a personal relationship this court will not intervene by way of injunction to enforce on a person or on a limited company in the position of an employer a person whom the employer or the company, expressing its view through the shareholders, does not want; and it is perfectly true also to say that the cases establish that the basis of the court’s interference is the existence of some right of property in the person seeking the relief.”Then he goes on to deal with Pulbrook’s Case (1) and points out that the Master of the Rolls did not base his decision on the fact that in that case a director was necessarily a shareholder, but that his reasoning applied equally where the articles did not require a director to be a shareholder. He also took the view that the reasoning of the Masters of the Rolls in Pulbrook’s Case (1) applied equally well to cases where the articles of association of a company did not give an express right to specified remuneration but merely provides for a director being paid such remuneration as the company may prescribe. He therefore held the plaintiff entitled to proceed. It is right to add that the learned judge made it clear that he was not dealing with the case on the basis that the majority of the company did not wish the plaintiff to continue as a director. The case was really decided on the basis of a sufficient proprietary interest to maintain an action. Reading the two cases together they go this far in my viewthat the plaintiff in the present proceedings has a sufficient proprietary right to maintain this action. However, the question still remains whether the Court should grant the relief claimed in the circumstances existing.
The next case I wish to refer to is Bainbridge v. Smith (1).I do not intend to brush it lightly aside, but it does not in my view deal with the same facts as are in issue here. The ratio decidendi is to be found on page 474, where Cotton L.J. says:”But I think it right to say that in my opinion, and I believe that my learned Brother agrees with me, if the company says that even if the plaintiff has the qualification they do not desire him to act as one of their managing directors, we should not grant an injunction, because it would be contrary to the principles on which this Court acts to grant specific performance of this contract by compelling this company to take this gentleman as managing director, although he was qualified so to act, when they do not desire him to act as such.” It is clear that the plaintiff’s rights in that case were rights under a contract and not rights arising out of the articles of association, or rights of directors or shareholdersinter se. That case does not therefore advance matters very much.
But the next case, Harben v. Phillips (2), does require careful consideration. The facts are complicated but may be stated briefly as follows: at the annual general meeting of the company concerned, two opposing groups arose relating to the number of directors, the persons to be elected as directors, the amount of dividend to be declared and the port of operation of the company’s ships. Votes were taken and polls were demanded on them. The chairman ruled proxies valid which did not comply with the Articles. Had the proxies not been admitted, the plaintiffs’ opponents would have been defeated and the five plaintiffs would have been elected to the board. The plaintiffs brought proceedings seeking declarations that their motions had been carried, that they had been elected directors and claiming inter alia an injunction to restrain the other directors from excluding them from board meetings. On the hearing of an interlocutory motion before Chitty J. and the Court of Appeal it was held that the proxies ruled valid by the chairman were invalid. Chitty J. granted the injunction above-mentioned and other relief. His order was discharged by the Court of Appeal and a series of orders made and undertakings exacted designed to preserve the status quountil a meeting of the shareholders, convened with the concurrence of all parties, had been held to deal with the matters in dispute. The extraordinary general meeting was held and a motion carried rescinding the appointment of the plaintiffs as directors. On the matter coming on again before the Court of Appeal, it was agreed that the shareholders’ resolution was ineffectual for removing the plaintiffs from office, and the plaintiffs renewed their claim for an injunction to restrain the other directors from excluding them. It was held that the injunction should not be granted, for reasons which will later appear.
The facts therefore are somewhat similar to those of the present case, particularly in that there was an ineffective resolution of the shareholders to remove a director. Mr. McWilliam relies on part of the judgment of Cotton L.J. as showing that he is entitled to succeed and that I should not in any event grant an injunction. The relevant portion of the judgment of Cotton L.J. is at page 39 of the report, where he says:
“If there is no power given by the articles of association to remove a director, all the shareholders cannot say effectually that he is to be removed, for it has been decided that there is no power to remove a director unless it is given by the articles of association; but no one can doubt that the wish of a corporation that certain persons should not be directors may effectually be expressed by any meeting of the shareholders duly called for such purpose, although such wish may not be effectual to remove the persons appointed to the office of directors. Then it comes to this, that we have in the resolution of the meeting an expression by the majority of the shareholders of the company of a desire that the plaintiffs should not be directors, and that the policy advocated by the plaintiffs should not be that which should be adopted by the company, and what this Court is asked to do is, as against the wish of the majority of the shareholders, to interfere by injunction to compel in fact the company and the other members of the board to allow the plaintiffs to act as directors.”Mr. McWilliam asks me to interpret that passage as a statement of the law that the Court should not force a director on the board of a company where the shareholders have made it clear that they do not want him. Mr. Parke’s answer to that is this:Cotton, L.J. was not in fact laying down the law as Mr. McWilliam claims; the Lord Justice was posing the problem which had arisen on an interlocutory application and there is no way of knowing what action the Court might have taken on a full trial of the action. The only clear view of what might have been done appears in the judgment of Bowen L.J., at page 42, where he says:”I am not satisfied if it had now to be decided, that, assuming the plaintiffs to make out their case in other respects, this is a matter in which perpetual injunction is the relief to which they are entitled, but I wish to leave that entirely open, and to decide this case on the ground simply that although there is a great inconvenience whichever way we decide, I am by no means satisfied that the balance of convenience is in favour of granting an injunction. One cannot help seeing that this company has got into a very unfortunate position for the transaction of even its most ordinary business, and it is difficult to say what can be done to relieve it so long as both parties insist on prosecuting their own views of their legal rights, but on the whole the best thing to do is, I think, to leave the matter to stand as it is and refuse the application of the plaintiffs, Mr. Macnaghten giving the undertaking that the two directors whom he represents, and whose election is open to doubt, should not act until the hearing.” In short, the matter was left open.
Now in support of the view that Cotton L.J. was merely posing a question as to what might happen if shareholders did express a wish, Mr. Parke points out that the Lord Justice proceeded as follows, at page 40 of the report:”Now, in determining whether the Court should so interfere, we must not only consider the expression of the wish of the majority of the shareholders as shewn at that last meeting, but in my opinion we must also consider how it was that the plaintiffs came to be appointed to be directors.” So Cotton L.J. in Mr. Parke’s submission, did not decide as a matter of law that the shareholders’ wish ends the matter, for that would have been the end of the case. It was only one matter to be considered. And the Lord Justice went on to say:”I assume that they were effectually appointed directors of this company, although of course at the hearing we can listen to any argument which the defendants may think fit to advance to shew that they were not properly elected. But then, assuming they were rightly elected, the election was only an accident arising from many of the shareholders who desired that some one else should be appointed, sending their proxies in such a way that the votes expressed by them could not be legally used. Taking that, as I do, into consideration, this Court ought not, in my opinion, to interfere on this motion by compelling the company to put the management of its affairs into the hands of the plaintiffs, or by requiring the other directors to receive the plaintiffs as co-directors. Cases were referred to, to shew there was authority for the Court to so interfere; but there was no case which touched the point on which I decide this.”
Now I think it is clear fr om that passage that Mr. McWilliam is not correct in suggesting that Cotton L.J. had decided as a matter of law that if the shareholders are opposed to a director the Court will not assist him to enforce his rights. It was a matter concerning the control of the company and he pointed out that the plaintiffs were directors only by the accident of the invalid proxies. That does not apply in this case. And in this case a director can only be removed by a three-fourths majority of the Company on an extraordinary resolution. I am then of opinion that Harben v. Phillips (1) is not an authority for the proposition that if the shareholders are opposed to a director the Court will not act to aid that director. To take an extreme illustration, suppose a company had five directors and as a result of prolonged differences of opinion a resolution was passed by the shareholders in general meeting that they did not want any of the directors to act. Then there would be nobody to carry on the affairs of the company. But directors have a duty to conduct their company’s affairs. And further, if Mr. McWilliam were right, it would make nonsense of Article 104 which provides that directors can only be removed by extraordinary resolutions. It would mean that while a director could not be legally removed, nevertheless the same result could be achieved by barring him from attending meetings by a bale majority. Articles 114 and 115 provide that the management and control of the Company shall be vested in the directors. So that to accede to Mr. McWilliam’s argument and not grant the relief claimed would be to exclude the plaintiff from his right to act as a director; and one must remember that he would, as a director, be responsible for decisions of the board at a time when he was not allowed to attend and to give his advice and vote.
In my view, being a large shareholder and a director, the plaintiff is in fairness entitled to know what is happening and to vote at meetings. There is the further consideration that resolutions of the board may possibly be ineffectual and invalid if a person entitled to be present is excluded from meetings at which the resolutions are passed. So I have come to the conclusion, on the basis of the cases of Pulbrook v.Richmond Consolidated Mining Company (1) and Hayes v.Bristol Plant Hire Ltd. (2) that in proper circumstances a director has a right to attend board meetings which may be enforced against the other directors. What was said in Harben v. Phillips (3), an interlocutory application, is not sufficient to prevent me granting relief. I think it is clearly distinguishable on the facts from the present case.
So the plaintiff is in the position of being a director, not validly excluded from meetings. And he is also a large shareholder. He is in consequence deprived of information on the affairs of the Company, and important decisions are made in his absence. In all the circumstances I feel I should exercise my discretion in favour of the plaintiff and grant him the relief claimed relevant to that part of the action that I am dealing with.