3PLR – HICKMAN V. KENT OR ROMNEY MARSH SHEEPBREEDERS’ ASSOCIATION.
POLICY, PRACTICE AND PUBLISHING, LAW REPORTS 3PLR
[PDF copy of this judgment can be sent to your email for N300 only. Just order through lawnigeria@gmail.com and info@lawnigeria.com or text 07067102097]
HICKMAN
V.
KENT OR ROMNEY MARSH SHEEPBREEDERS’ ASSOCIATION.
CHANCERY DIVISION
1915 March 4, 25, 31.
3PLR/1915/3 (CH.D)
CITATIONS
[1914 H. 3037.]
BEFORE: ASTBURY J.
REPRESENTATION
Micklem, K.C., and Frederick Hinde, for the defendants.
Hon. Frank Russell, K.C., and Harold S. Simmons, for the plaintiff.
Solicitors: Walters AND Co.; Ernest Simmons AND Co.
MAIN ISSUES
COMPANY LAW: Company – Articles – Contract – Action by Member to enforce his Ordinary Rights – Arbitration Clause – Application by Company to stay – Sufficient Submission – Arbitration Act, 1889 (52 AND 53 Vict. c. 49), ss. 4, 27 – Companies (Consolidation) Act, 1908 (8 Edw. 7, c. 69), s. 14, sub-s. 1.
ALTERNATIVE DISPUTE RESOLUTION: Arbitration – Arbitration Clause – relevant considerations
NONPROFIT LAW: Association – enforcement of rights of member – relevant considerations
AGRICULTURE AND FOOD LAW: Association devoted to agricultural pursuits – Enforcement of ordinary rights of members – Attitude of courts thereto
HISTORY AND SUMMARY OF FACTS
The true interpretation of the apparently conflicting decisions and dicta on s. 16 of the Companies Act, 1862 (25 AND 26 Vict. c. 89), re-enacted by s. 14, sub-s. 1, of the Companies (Consolidation) Act, 1908, is that though articles of association can neither constitute a contract between a company and an outsider, nor give any individual member special contractual rights beyond those of the members generally, – Pritchard’s Case (1873) L. R. 8 Ch. 956; Melhado v. Porto Alegre Ry. Co. (1874) L. R. 9 C. P. 503; Eley v. Positive Life Assurance Co. (1876) 1 Ex. D. 20, 88; Browne v. La Trinidad (1887) 37 Ch. D. 1 – they do in fact constitute a contract between a company and its members in respect of their ordinary rights as members.
Observations in Imperial Hydropathic Hotel Co., Blackpool v. Hampson (1882) 23 Ch. D. 1, 13; Johnson v. Lyttle’s Iron Agency (1877) 5 Ch. D. 687, 693; Bradford Banking Co. v. Briggs (1886) 12 App. Cas. 29, 33; Wood v. Odessa Waterworks Co. (1889) 42 Ch. D. 636, 642; Salmon v. Quin AND Axtens, Ld. [1909] 1 Ch. 311, 318; Welton v. Saffery [1897] A. C. 299, 315; and Bisgood v. Henderson’s Transvaal Estates [1908] 1 Ch. 743, 759, followed and applied.
An article providing for the reference of disputes to arbitration is sufficient submission in writing within the Arbitration Act, 1889, ss. 4, 27.
Baker v. Yorkshire Fire and Life Assurance Co. [1892] 1 Q. B. 144 applied.
SUMMONS.
The above company was registered on April 23, 1895, as an association not for profit.
Its objects were (inter alia): (a) “The encouragement of the breeding of Kent or Romney Marsh sheep at home and abroad, and the maintenance of the purity of the breed.” (b) “The establishment and publication of a flock book of recognised and pure-bred sires which have been used, or ewes which have been bred from, and of such other flock books (if any) which the council may think fit, and the annual registration of the pedigrees of such sheep as are proved to the satisfaction of the council to be eligible for entry.”
The articles provided as follows:-
Article 5. “The subscribers of the memorandum and articles of association, and such other persons as shall be admitted in accordance with these articles, and none other, shall be members of the association, and be entered on the register as such.”
Article 9 imposed an entrance fee and an annual subscription and provided that the annual subscription should be payable on January 1 in each year unless the member “shall give three months’ notice in writing to the secretary, before that date, of his intention to withdraw from the association.”
Article 10. “Every member shall observe all lawful bye-laws, regulations, and orders of the council, for the government and work of the association ….”
Article 11. “Any member who shall fail in the observance of any lawful regulation of the association, or of any lawful bye-law, regulation, or order of the council, may be excluded from the association ….”
Articles 31 to 40 contained provisions as to the constitution and election of the council and officers, and article 41 provided that the management of the business of the association should be vested in the council.
Article 42. “In furtherance, and not in limitation, of the general powers conferred by or implied in the preceding articles, it is expressly declared that the council shall have power to exercise and perform the following acts and duties:-
“(e) To publish such information and to hold such meetings for communication of discoveries and information as the council may deem expedient for the purposes defined in the memorandum of association.
“(f) To receive subscriptions yearly or otherwise from persons wishing to aid the objects of the association, but without admitting such persons to any of the rights of members, except (if the council think fit) the right of receiving all or some of the publications of the association free of charge.
“(g) To fix the amount of the annual subscription, and to make bye-laws and regulations for the government and work of the association, and for shows held by or in connection therewith, to be observed by the members of the association. Provided that no bye-law or regulation shall be made under this power which would amount to such an addition to or alteration of the articles as could only legally be made by a special resolution.
“(h) To impose such reasonable fines, forfeitures, and penalties (including suspension of privileges and incapacity to vote at meetings) for breach of the rules, regulations, and conditions contained in these articles, or to be made by the council in pursuance thereof, as they think proper, provided that no fine or pecuniary forfeiture or penalty shall exceed the sum of 51.
“(i) To make such regulations as to the entry and registration of sheep in the flock book as they think proper.
“(k) To appoint and remove the secretary, clerks, and other officers, fix their salaries (if any) and duties, and require security if they think proper.
“(l) Subject to the regulations contained in the memorandum of association which relate to the conditions and regulations imposed by the Board of Trade, and to these articles, to dispose of the funds of the association for the promotion of the objects thereof, and in the first place to pay the costs, charges, and expenses preliminary and incidental to the promotion, formation, establishment, and registration of the association.” Article 45 provided that minutes of every meeting of the association and of the council should be recorded, and should be prima facie evidence of the matters stated therein.
Article 48. “The members of the council and other officers for the time being of the association shall be indemnified out of the funds of the association against all costs, charges, losses, damages, and expenses which they shall respectively incur or be put to on account of any contract, act, deed, matter, or thing which shall be made, done, entered into, or executed by them respectively on behalf of the association, and they shall be reimbursed by the association all reasonable expenses incurred by them in or about any legal proceedings or arbitration on account of the association, or otherwise in the execution of their respective offices, except such costs, losses, and expenses as shall happen through their respective wilful neglect or default;…”
Article 49. “Whenever any difference arises between the association and any of the members touching the true intent or construction or the incidents or consequences of these presents or of the statutes, or touching anything then or thereafter done, executed, omitted, or suffered in pursuance of these presents or of the statutes, or touching any breach or alleged breach of these presents, or any claim on account of any such breach or alleged breach, or otherwise relating to the premises or to these presents, or to any statute affecting the association, or to any of the affairs of the association, every such difference shall be referred to the decision of an arbitrator to be appointed by the parties in difference, or, if they cannot agree upon a single arbitrator, to the decision of two arbitrators, of whom one shall be appointed by each of the parties in difference, or an umpire to be appointed by the two arbitrators. And upon every or any such reference the costs of and incident to the reference and award respectively shall be in the discretion of the arbitrators or umpire respectively, who may determine the amount thereof, or direct the same to be taxed as between solicitor and client or otherwise, and may award by whom and to whom and in what manner the same shall be borne and paid; and such decision shall be made an order of the High Court of Justice upon the application of either party.”
On November 11, 1905, the plaintiff sent in the following application for membership and flock entry:-
“I Alfred J. Hickman of Court Lodge Egerton in the county of Kent am desirous of becoming a member of the ‘Kent or Romney Marsh Sheep-Breeders’ Association’ (Incorporated) as a flock owner and I engage, when elected, to pay the entrance fees, annual subscription, and such fees for entry of ewe flocks and individual sheep, as may then be in force or subsequently adopted, together with all such costs for inspection and tattooing as may be sanctioned by the council for the time being, and to conform to the rules and regulations of the association, until I, by notice in writing to the secretary, cease to be a member of the association.
“Alfred J. Hickman.”
On December 12, 1905, the plaintiff was duly elected a member, and on December 14, 1905, written notice of his election was sent by the secretary with an intimation that his flock would be inspected. The inspection took place in May, 1906.
On December 18, 1914, the plaintiff issued a writ against the association and Chapman claiming: 1. An injunction to restrain the association from employing Chapman as secretary, and to restrain Chapman from acting as secretary. 2. An injunction to restrain the defendants from taking any steps to expel the plaintiff from the association. 3. An injunction to restrain the defendants from doing any acts in derogation of the plaintiff’s rights as a member. 4. A declaration that the plaintiff was entitled to have the resolutions and proceedings of the association and of any committee thereof truly and accurately entered in the minutes, and consequential relief. 5. An injunction to restrain the defendants from incorrectly recording such resolutions in the minutes. 6. An order that all minutes be expunged which did not accurately record the proceedings of the association, and in particular that the entry be expunged stating that a certain committee appointed to inspect the plaintiff’s sheep and to see that they were tattooed was appointed on Chapman’s motion and not on the plaintiff’s motion. 7. An injunction to restrain Chapman from calling any meeting of the association except in accordance with the rules. 8. Damages for unlawfully refusing to register the plaintiff’s sheep and a declaration that the plaintiff was entitled to have his sheep registered. 9. Further or other relief. 10. Costs.
On January 12, 1915, the defendants issued a summons asking that all further proceedings in the action be stayed pursuant to s. 4 of the Arbitration Act, 1889, and that the matters in question in the action be referred to arbitration in accordance with the provisions of article 49, or alternatively under the submission to arbitration contained in the plaintiff’s written application for membership dated November 11, 1905, and duly accepted by the association on December 12, 1905, notice of such acceptance having been given to the plaintiff by letter of December 14, 1905. The alternative ground of submission to arbitration was added by amendment on March 12, 1915.
Micklem, K.C., and Frederick Hinde, for the defendants.
The plaintiff is merely seeking to enforce his ordinary rights as a member. That is directly within the arbitration clause (article 49). The burden is on the plaintiff to show why the dispute should not be referred, and, as he has filed no evidence, the action ought to be stayed under the Arbitration Act, 1889, s. 4: Willesford v. Watson (1); Hodgson v. Railway Passengers Assurance Co. (2) It was suggested in chambers that there was a difficulty owing to the joinder of Chapman, a non-member, but he is only joined virtute officii, and he is a proper defendant. There is nothing in this point.
Hon. Frank Russell, K.C., and Harold S. Simmons, for the plaintiff.
We do not rely on the joinder of Chapman, and for the purposes of our argument the action may be treated as an action against the association alone. The defendants, purporting to be parties to a submission to arbitration, seek to stay the action under the Arbitration Act, 1889, s. 4. But under s. 27 “submission” means “a written agreement” to refer differences to arbitration. Where is this written agreement? The defendants rely on article 49. But that is not an agreement between the plaintiff and the association.
(1) (1873) L. R. 8 Ch. 473, 480.; (2) (1882) 9 Q. B. D. 188.
Articles are only a contract between the members inter se, and not between the members and the company: Companies (Consolidation) Act, 1908, s. 14, sub-s. 1; Pritchard’s Case (1); Melhado v. Porto Alegre Ry. Co. (2); Eley v. Positive Life Assurance Co. (3); Browne v. La Trinidad (4); Buckley on Companies, 9th ed. pp. 27, 51, 206; Lindley on Companies, 6th ed. p. 456. The same point was recognized in Borland’s Trustee v. Steel Brothers AND Co. (5) and In re Famatina Development Corporation. (6)
Again the written agreement to submit to arbitration must be signed by both parties – Caerleon Tinplate Co. v. Hughes (7) – just as in the case of a written agreement under the Attorneys and Solicitors Act, 1870 (33 AND 34 Vict. c. 28), s. 4: In re Lewis. (8)See also Halsbury’s Laws of England, vol. i. p. 441, note (n). Now under s. 14, sub-s. 1, of the Companies (Consolidation) Act, 1908, the articles bind the company and the members to the same extent as if they had been signed and sealed by each member and contained covenants on the part of each member to observe them. But there is no provision that they are to be deemed signed by the company. In any case the section, which is merely a reenactment of the Companies Act, 1862, s. 16, cannot mean that the articles are to be treated as sighed either by the company or the members within the Arbitration Act, 1889, s. 27. No doubt, if the articles constituted an agreement signed by the association, the plaintiff by suing on them would affirm them as his contract, just as in the case of an action by the assured on a policy signed only by the assurers: Baker v. Yorkshire Fire and Life Assurance Co. (9), recognized by the Court of Appeal as an authority in Morgan v. William Harrison, Ld. (10) But in the present case that initial element is wanting.
The plaintiff’s application for membership and its acceptance by the association carry the matter no further. The application does not mention the articles, and non constat that the plaintiff knew of article 49. The rules and regulations mentioned in the application may well have referred to the by-laws, regulations, and orders of the council mentioned (passim) in the articles, e.g., articles 10, 11, 42. In any case there is no agreement signed by the association, or any resolution authorizing the secretary to send the written notice of acceptance of the application.
(1) L. R. 8 Ch. 956, 960.
(2) L. R. 9 C. P. 503.
(3) 1 Ex. D. 20, 88.
(4) 37 Ch. D. 1.
(5) [1901] 1 Ch. 279, 288.
(6) [1914] 2 Ch. 271, 279.
(7) (1891) 60 L. J. (Q.B.) 640.
(8) (1876) 1 Q. B. D. 724.
(9) [1892] 1 Q. B. 144.
(10) [1907] 2 Ch. 137, 142.
Micklem, K.C., in reply. The articles constitute a contract between a company and its members in respect of their ordinary rights as members: Imperial Hydropathic Hotel Co., Blackpool v. Hampson (1); Bradford Banking Co. v. Briggs (2); In re Wheal Buller Consols (3); Wood v. Odessa Waterworks Co. (4); Welton. v. Saffery (5); Salmon v. Quin AND Axtens, Ld. (6); though, as decided in Pritchard’s Case (7) and the other cases relied on by the plaintiff, they would not constitute a contract with an outsider, or give an individual member special contractual rights beyond those of the members generally: see Palmer’s Company Precedents, 11th ed. pt. i. pp. 632 – 636. In Borland’s Trustee v. Steel Brothers AND Co. (8) the company, which required a transfer notice under the articles, was in fact the sole defendant. The case does not suggest that the articles were not binding as between the member and the company. In In re Famatina Development Corporation (9) O’Driscoll had gone outside the scope of his employment as a servant of the company, so that of course he could not rely on the indemnity article.
The plaintiff then objects that there is no written agreement signed by both parties. But the articles are the written agreement signed by the association, and by suing on them the plaintiff affirms them as his agreement: Baker v. Yorkshire Fire and Life Assurance Co. (10) In Caerleon Tinplate Co. v. Hughes (11)there was no agreement at all, as the parties were never ad idem.
If the articles alone are not a sufficient contract, we rely on the plaintiff’s application and its acceptance. The plaintiff agreed to conform to the rules and regulations. Many of these would of course be contained in the articles: Companies (Consolidation) Act, 1908, s. 10. The notice of acceptance was obviously signed by the secretary as the association’s agent. On both grounds therefore there was a sufficient submission to arbitration.
(1) 23 Ch. D. 1, 13.; (2) 12 App. Cas. 29, 33.; (3) (1888) 38 Ch. D. 42, 46, 48.; (4) 42 Ch. D. 636, 642.; (5) [1897] A. C. 299, 315.; (6) [1909] 1 Ch. 311, 318.; (7) L. R. 8 Ch. 956.; (8) [1901] 1 Ch. 279.; (9) [1914] 2 Ch. 271, 279.; (10) [1892] 1 Q. B. 144.; (11) 60 L. J. (Q.B.) 640.
March 31.
ASTBURY J.
This is a summons by the defendants to stay proceedings in the action pursuant to s. 4 of the Arbitration Act, 1889. The action is against the defendant association and their secretary Chapman, and the plaintiff, who became a member in 1905, claims certain injunctions and a declaration and other relief in respect of matters arising out of and relating solely to the affairs of the association. In substance he claims to enforce his rights under the association’s articles. The secretary is not a member of the association, but the plaintiff admits that he is only sued virtute officii, and the plaintiff does not seek to resist this summons on the ground that the secretary is one of the defendants. [After stating the objects of the association and reading article 49 as to arbitration, his Lordship continued:] This is a common form of article in private companies, and the objects of this association being what they are, it and its members might be seriously prejudiced by a public trial of their disputes, and if this summons fails, as the plaintiff contends that it should, these arbitration clauses in articles are of very little, if any, value.
It is clear on the authorities that if there is a submission to arbitration within the meaning of the Arbitration Act, 1889, there is a prima facie duty cast upon the Court to act upon such an agreement: Willesford v. Watson. (1)
In the present case the defendants contend, first, that article 49, dealing as it does with the members of the association, in their capacity of members only, constitutes a submission within the meaning of the Arbitration Act, or, secondly, that the contract contained in the plaintiff’s application for membership and the association’s acceptance of it amounts to such a submission. The plaintiff contests both these propositions, and independently of the particular dispute in this case, the arguments, especially upon the first of these contentions, have raised questions of far-reaching importance.
- R. 8 Ch. 473, 480.
I will first deal with the question as to the effect of article 49.
Sect. 14, sub-s. 1, of the Companies (Consolidation) Act, 1908, says: “The memorandum and articles shall, when registered, bind the company and the members thereof to the same extent as if they respectively had been signed and sealed by each member, and contained covenants on the part of each member, his heirs, executors, and administrators, to observe all the provisions of the memorandum and of the articles, subject to the provisions of this Act.”
It is laid down in text-books of the highest repute that the articles are not a contract between the member and the company; that the articles are no contract with the company but a contract with the other members; and that the articles are a contract only as between the members inter se in respect of their rights as shareholders: Buckley on Companies, 9th ed. pp. 27, 51, 206; that the exact nature of this covenant, that is the covenant referred to in s. 14, has given rise to considerable discussion and is even now very difficult to define; but it is now settled that it is not equivalent to a contract between the company on the one part and the members on the other, on which either a member can sue the company or the company can sue a member: Lindley on Companies, 6th ed. p. 456. Other writers have formed a different conclusion, and the construction of the language of this section has long been the subject of controversy: Palmer’s Company Precedents, 11th ed. pt. i. pp. 632 – 636; Hamilton’s Company Law, 3rd ed. p. 219; Gore-Browne on Joint Stock Companies, 32nd ed. pp. 40, 41.
The principal authorities in support of the view that the articles do not constitute a contract between the company and its members are Pritchard’s Case (1), Melhado v. Porto Alegre Ry. Co. (2), Eley v. Positive Life Assurance Co. (3), and Browne v. La Trinidad. (4)
In Pritchard’s Case (1) the articles of association of a mining company provided that the company should immediately after incorporation enter into an agreement with De Thierry the vendor for the purchase of the mine for 2000l. and 3200 fully-paid shares. The articles were signed by the vendor and six other persons, and the directors allotted the 3200 shares to the vendor or his nominees, but no further agreement was made with him.
(1) L. R. 8 Ch. 956.; (2) L. R. 9 C. P. 503.; (3) 1 Ex. D. 20, 88.; (4) 37 Ch. D. 1.
It was held, affirming the decision of Wickens V.-C., that the articles of association did not constitute a contract in writing between the vendor and the company within s. 25 of the Companies Act, 1867 (30 AND 31 Vict. c. 131), and that the shares could not therefore be considered as fully paid. Mellish L.J. in giving judgment said (1): “I am of opinion that the articles of association cannot be considered as a contract in writing between De Thierry and the company for the sale of the mine to them. It may, no doubt, be the case, if on other contract was entered into, and if De Thierry signed these articles and they were acted upon, that a Court of Equity would hold that as between him and the company – from their acting upon it – there was a binding contract; but in themselves the articles of association are simply a contract as between the shareholders inter se in respect of their rights as shareholders. They are the deed of partnership by which the shareholders agree inter se.”
In Melhado v. Porto Alegre Ry. Co. (2) the articles of association of a joint stock company provided that the company should defray such expenses incurred in its establishment as the directors should consider might be deemed and treated as preliminary expenses to an amount not exceeding 2000l. The plaintiffs, who were promoters of the company, had incurred preliminary expenses in its establishment, but it was held that no action for these expenses would lie at the suit of the plaintiffs against the company under the articles. Lord Coleridge C.J. said: “The action is brought on a clause in the articles of association, by which the directors are authorized to pay certain expenses if they should consider them to be properly deemed preliminary expenses. The declaration avers that all conditions were performed necessary to entitle the plaintiffs to be paid their expenses; and therefore I think we must take it that they were expenses which, if the directors had thought proper to pay them, the articles
(1) L. R. 8 Ch. 960.; (2) L. R. 9 C. P. 503, 505, 506, 507.
would have justified them in paying. The question, therefore, is whether an action will lie for the payment of these expenses, in pursuance of the articles of association, to which the plaintiffs were not parties. I have come to the conclusion that no such action will lie – I must say somewhat reluctantly, because, though I wish to express no opinion on the merits of this particular case, having no materials for forming such an opinion, it does seem just, in general, if a company takes the benefit of the work and expenditure by which its existence has been rendered possible, and voluntarily comes into existence on the terms that it shall be liable to pay for such work and expenditure, that a cause of action should be given. I can find, however, no legal principle upon which such an action can be maintained. It appears to me that there is no contract between the plaintiffs and the defendants. The doctrine of ratification is inapplicable, for the reasons given in the judgments in Kelner v. Baxter.” (1) Mellor J. said: “The plaintiffs were not in any way parties to the articles of association, and there was not, therefore, any express contract to pay them.” Brett J. said: “There is no contract, in my judgment, of any sort upon which they can sue, and unless there be a contract of some sort between them and the company, I do not see that they can have any cause of action. No contract made with them before the existence of the company can be ratified by the company for the reasons pointed out in the case of Kelner v. Baxter (1), with which I fully agree.”
In Eley v. Positive Life Assurance Co. (2) the articles of association contained a clause in which it was stated that the plaintiff, a solicitor, should be the solicitor to the company and transact its legal business. The articles were registered and the company incorporated, and eleven months later the plaintiff became a member. The plaintiff was not appointed solicitor by any resolution of the directors, nor by any instrument bearing the seal of the company, but he acted as such for a time.
(1) (1866) L. R. 2 C. P. 174.; (2) 1 Ex. D. 20, 88.
Subsequently the company ceased to employ him and he brought an action for breach of contract against the company for not employing him as its solicitor. The first count of the declaration stated (1) that it was agreed by and between the plaintiff and the defendants that the plaintiff should be employed by the defendants as, and appointed by them to the office of, solicitor of the company. During the argument (2) it was contended that the contract declared on was not the contract purported to be contained in the articles. Amphlett B. said (3): “The articles, taken by themselves, are simply a contract between the shareholders inter se, and cannot, in my opinion, give a right of action to a person like the plaintiff, not a party to the articles, although named therein. If authority were wanted for this proposition, the cases cited in the argument, Pritchard’s Case (4)and Melhado v. Porto Alegre Ry. Co. (5), are, in my opinion, quite conclusive on the subject.” Subsequently he said (6): “For these reasons, I think that there was no contract at all between the plaintiff and the company to the effect stated in the declaration.” Cleasby B. confined his judgment to the last points raised in the case and said (7): “I am of opinion that clause 118 of the articles cannot by itself be taken to operate as a contract between the solicitor and the company.” Kelly C.B. said (7): “I forbear to pronounce any opinion as to whether these articles, with the fact of the subsequent employment, constitute a contract on the terms contained in them, because, were I to so hold, there would be a difficult question behind, whether it was not ultra vires for the directors to attempt to bind the company to employ a solicitor to transact, for all his life, all the legal business of the company. Passing by this, I come to consider the objection raised under the 4th section of the Statute of Frauds. I do not see how any one can doubt that this agreement was not to be performed within a year. It was for the life of the plaintiff, subject to a defeasance on the possibility of his being guilty of some misconduct. But, assuming, as I think we must, that this was not to be performed in a year, the question arises, whether there is any memorandum or note in writing of it signed by the defendants. The signatures affixed to the articles were alio intuitu, and it can hardly be suggested that the directors had any idea that, in signing the articles, they were signing a note of this contract.”
(1) 1 Ex. D. 22.
(2) 1 Ex. D. 23.
(3) 1 Ex. D. 26.
(4) L. R. 8 Ch. 956.
(5) L. R. 9 C. P. 503.
(6) 1 Ex. D. 28.
(7) 1 Ex. D. 30.
This case went to the Court of Appeal and Lord Cairns L.C. said (1): “I wish to say, in the first place, that in my opinion a contract of the kind suggested to exist in this case ought not to receive any particular favour from the Court. The statement is that Baylis was endeavouring to form a joint stock insurance company upon a new principle, and applied to the plaintiff to make advances to meet the expenses of getting up the company, and it was arranged between them that in the event of the company being formed the plaintiff should be appointed permanent solicitor to the company. That is to say, a bargain is made between a professional man and Baylis which, so far as the case is concerned, does not appear to have been communicated to those who were invited to join the company, that if the former will advance money for the formation of the company, he shall be appointed permanent solicitor, and the company shall be obliged to employ him as their professional adviser. When the articles are prepared, they are so by the plaintiff, and in them he inserts a clause which no doubt informs those who signed the articles of the arrangement, but does not appear to have been brought to the notice of those who joined from receiving circulars. This, I repeat, is not a proceeding which the Court would encourage in any way. I also wish to reserve my judgment as to whether a clause of this kind is obnoxious to the principles by which the Courts are governed in deciding on questions of public policy.” Then a little lower down he said (1): “This case was first rested on the 118th article. Articles of association, as is well known, follow the memorandum, which states the objects of the company, while the articles state the arrangement between the members. They are an agreement inter socios, and in that view, if the introductory words are applied to article 118, it becomes a covenant between the parties to it that they will employ the plaintiff. Now, so far as that is concerned, it is res inter alios acta, the plaintiff is no party to it. No doubt he thought that by inserting it he was making his employment safe as against the company; but his relying on that view of the law does not alter the legal effect of the articles. This article is either a stipulation which would bind the members, or else a mandate to the directors. In either case it is a matter between the directors and shareholders, and not between them and the plaintiff.”
- 1 Ex. D. 89.
In Browne v. La Trinidad (1) before the formation of the company an agreement was entered into between B. and a person as trustee for the intended company, by which it was stipulated (inter alia) that B. should be a director and should not be removable till after 1888. The 6th clause of the articles provided that the directors should adopt and carry into effect the agreement with or without modification, and that subject to such modification (if any) the provisions of the agreement should be construed as part of the articles. The agreement was acted upon, but no contract adopting it was entered into between the plaintiff and the company. It was held that treating the agreement as embodied in the articles, still there was no contract between B. and the company that he should not be removed from being a director, the articles being only a contract between the members inter se, and not between the company and B. Cotton L.J. towards the end of his judgment said (2): “Assuming that an unlimited power is given to the meeting by article 91, ought we, having regard to the contract entered into by the memorandum of the 24th of November, 1884, and article 6, to interfere by injunction to restrain the company in general meeting from acting under that power? I do not give any opinion upon the question how far the Court would have interfered by injunction in order specifically to enforce an agreement between the company and the plaintiff that he should be an irremovable director. That point raises questions upon which I should not like to give any opinion without having them fully discussed. In my opinion we ought not to interfere in the present case, because there is no such contract between the plaintiff and the company. The memorandum of agreement of the 24th of November, 1884, is in no way a contract between the plaintiff and the company. It is said that it was adopted and incorporated into the articles, but I cannot accede to that. The company by its directors acted upon the agreement, but that does not make it binding on the company.
(1) 37 Ch. D. 1.; (2) 37 Ch. D. 13.
Then is it incorporated into the articles in such a way as to entitle the plaintiff to say I have such a contract between me and the company as can be enforced by a Court of law, and as I might enforce in equity by way of specific performance? That point is clearly settled, I think, by Eley v. Positive Life Assurance Co. (1) There two of the members of the Court of first instance held, and the other member did not express dissent, that the articles are merely a contract between the shareholders inter se, and that though a person in whose favour a stipulation is made in the articles may afterwards have shares allotted to him, he does not by that means become in the same position as if he had entered into a contract with the company.” Lindley L.J. said (2): “Having regard to the construction put upon s. 16 of the Companies Act of 1862 in the case of Eley v. Positive Life Assurance Co. (1) and subsequent cases, it must be taken as settled that the contract upon which he relies is not a contract upon which he can maintain any action, either on the common law side or the equity side. There might have been some difficulty in arriving at that conclusion if it had not been for the authorities, because it happens that this gentleman has had shares allotted to him, and is therefore a member of the company. Having regard to the terms of s. 16, there would be some force, or at all events some plausibility, in the argument that, being a member, the contract which is referred to in the articles has become binding between the company and him. Of course that argument is open to this difficulty that there could be no contract between him and the company until the shares were allotted to him, and it would be remarkable that, upon the shares being allotted to him, a contract between him and the company, as to a matter not connected with the holding of shares, should arise.”
Now in these four cases the article relied upon purported to give specific contractual rights to persons in some capacity other than that of shareholder, and in none of them were members seeking to enforce or protect rights given to them as members, in common with the other corporators. The actual decisions amount to this. An outsider to whom rights purport to be given by the articles in his capacity as such outsider, whether he is or subsequently becomes a member, cannot sue on those articles treating them as contracts between himself and the company to enforce those rights.
(1) 1 Ex. D. 20, 88.; (2) 37 Ch. D. 14.
Those rights are not part of the general regulations of the company applicable alike to all shareholders and can only exist by virtue of some contract between such person and the company, and the subsequent allotment of shares to an outsider in whose favour such an article is inserted does not enable him to sue the company on such an article to enforce rights which are res inter alios acta and not part of the general rights of the corporators as such. The language of some of the judgments appears, however, to go further, as recognized, for instance, by Sargant J. in In re Famatina Development Corporation. (1)
The wording of s. 14, sub-s. 1, of the Consolidation Act, which is in the same terms as s. 16 of the Companies Act, 1862, is difficult to construe or understand. A company cannot in the ordinary course be bound otherwise than by statute or contract and it is in this section that its obligation must be found. As far as the members are concerned, the section does not say with whom they are to be deemed to have covenanted, but the section cannot mean that the company is not to be bound when it says it is to be bound, as if, &c., nor can the section mean that the members are to be under no obligation to the company under the articles in which their rights and duties as corporators are to be found. Much of the difficulty is removed if the company be regarded, as the framers of the section may very well have so regarded it, as being treated in law as a party to its own memorandum and articles.
It seems clear from other authorities that a company is entitled as against its members to enforce and restrain breaches of its regulations. See, for example, MacDougall v. Gardiner (2), Pender v. Lushington (3), and Imperial Hydropathic Hotel Co., Blackpool v. Hampson. (4) In the last case Bowen L.J. said: “The articles of association, by s. 16, are to bind all the company and all the shareholders as much as if they had all put their seals to them.”
(1) [1914] 2 Ch. 271, 279.; (2) (1875) 1 Ch. D. 13.; (3) (1877) 6 Ch. D. 70.; (4) 23 Ch. D. 1, 13.
It is also clear from many authorities that shareholders as against their company can enforce and restrain breaches of its regulations, and in many of these cases judicial expressions of opinion appear, which, in my judgment, it is impossible to disregard.
In Johnson v. Lyttle’s Iron Agency (1), in an action by a shareholder against the company, James L.J. said: “The notice… did not comply strictly with the provisions of the contract between the company and the shareholders which is contained in the regulations of table A.”
In Bradford Banking Co. v. Briggs (2) the articles gave the defendant company a lien on its members’ shares. The plaintiffs, who were equitable mortgagees of certain shares, brought an action against the mortgagors and the company to enforce their security. The company claimed priority for their lien. Lord Blackburn said: “The only one of the articles of association which I think it material to notice is the 103rd article, which is as follows:- ‘The company shall have a first and permanent lien and charge, available at law and in equity, upon every share of every person who is the holder or one of several joint holders thereof, for all debts due from him, either alone or jointly with any other person, whether a shareholder or not in the company.’ John Faint Easby, a coal merchant, became a proprietor of a number of shares in the respondent company, and obtained certificates for them. This property in the shares was, by virtue of the 16th section of the Act already quoted, I think, bound to the company as much as if he had (at the time he became holder of these shares) executed a covenant to the company in the same terms as article 103, but I do not think it was bound any further.”
In Wood v. Odessa Waterworks Co. (3), which was an action by the plaintiff on behalf of himself and all other shareholders against the company, Stirling J. said:
“The articles of association constitute a contract not merely between the shareholders and the company, but between each individual shareholder and every other.”
(1) 5 Ch. D. 687, 693.; (2) 12 App. Cas. 29, 33.; (3) 42 Ch. D. 636, 642.
In Salmon v. Quin AND Axtens, Ld. (1) Farwell L.J., referring to this last statement, said: “I think that that is accurate subject to this observation, that it may well be that the Court would not enforce the covenant as between individual shareholders in most cases.”
In Welton v. Saffery (2) Lord Herschell, who dissented on the main question from the rest of the House, made the following general observation: “Sect. 16 of the Act of 1862 provides that the articles of association, when registered, shall bind the company and the members thereof to the same extent as if each member had signed his name and affixed his seal thereto, and there were in such articles contained a covenant on the part of himself, his heirs, executors, and administrators to conform to all the regulations contained in such articles, subject to the provisions of this Act. The articles thus become in effect a contract under seal by each member of the company, and regulate his rights. They cannot, of course, diminish or affect any liability created by the express terms of the statute; but, as I have said, the statute does not purport to settle the rights of the members inter se, it leaves these to be determined by the articles (or the articles and memorandum together), which are the social contract regulating those rights. I think it was intended to permit perfect freedom in this respect. It is quite true that the articles constitute a contract between each member and the company, and that there is no contract in terms between the individual members of the company; but the articles do not any the less, in my opinion, regulate their rights inter se. Such rights can only be enforced by or against a member through the company, or through the liquidator representing the company; but I think that no member has, as between himself and another member, any right beyond that which the contract with the company gives.”
In all these last mentioned cases the respective articles sought to be enforced related to the rights and obligations of the members generally as such and not to rights of the character dealt with in the four authorities first above referred to.
(1) [1909] 1 Ch. 311, 318.; (2) [1897] A. C. 299, 315.
It is difficult to reconcile these two classes of decisions and the judicial opinions therein expressed, but I think this much is clear, first, that no article can constitute a contract between the company and a third person; secondly, that no right merely purporting to be given by an article to a person, whether a member or not, in a capacity other than that of a member, as, for instance, as solicitor, promoter, director, can be enforced against the company; and, thirdly, that articles regulating the rights and obligations of the members generally as such do create rights and obligations between them and the company respectively.
In Bisgood v. Henderson’s Transvaal Estates (1) Buckley L.J. said: “The purpose of the memorandum and articles is to define the position of the shareholder as shareholder, not to bind him in his capacity as an individual.”
Sect. 4 of the Arbitration Act, 1889, says: “If any party to a submission, or any person claiming through or under him, commences any legal proceedings in any Court against any other party to the submission, or any person claiming through or under him, in respect of any matter agreed to be referred, any party to such legal proceedings may at any time after appearance, and before delivering any pleadings or taking any other steps in the proceedings, apply to that Court to stay the proceedings, and that Court or a judge thereof if satisfied that there is no sufficient reason why the matter should not be referred in accordance with the submission, and that the applicant was, at the time when the proceedings were commenced, and still remains, ready and willing to do all things necessary to the proper conduct of the arbitration, may make an order staying the proceedings.” Then s. 27 says: “‘Submission’ means a written agreement to submit present or future differences to arbitration, whether an arbitrator is named therein or not.” The defendants’ first contention is that article 49 is, on the authorities, a written agreement within the meaning of this Act.
In In re Lewis (2) it was held that a document containing the terms of an agreement as to the amount of costs payable by a client to his solicitor, assented to by the client, but signed by the solicitor only, is not an “agreement in writing” within the Attorneys and Solicitors Act, 1870 (33 AND 34 Vict. c. 28), s. 4. Lord Coleridge C.J. said: “It is quite clear that there was no agreement in writing within s. 4 of the Act”; and, later on, he says: “An ‘agreement in writing’ within s. 4 must be an agreement by both parties, and both parties must sign their names upon the agreement.”
(1) [1908] 1 Ch. 759.; (2) 1 Q. B. D. 724, 726.
In Caerleon Tinplate Co. v. Hughes (1), an action for the price of goods sold, the bought note signed by the defendants contained a provision for arbitration in case of dispute, whilst the sold note signed by the plaintiff contained no such provision. It was held that there was no submission within the meaning of the Act, for an agreement to submit to arbitration must be in writing and signed by both parties. In re Lewis (2) was referred to, and Denman J., referring to s. 27 of the Arbitration Act, said: “In my judgment there can be no written agreement unless in writing signed by the parties as their agreement, and that ‘written agreement’ means one in which the terms on both sides are reduced into writing. It is useless to discuss the documents here, for the bought and sold notes differ in the essential particular that the former contains a provision which is wholly absent in the latter.” Then Wills J. said: “Supposing there were a contract, and the parties were ad idem,” – which in fact they were not in this case – “yet there was no submission under the Act unless there were an agreement in writing by both parties. In re Lewis (2) is conclusive on this point. In the present case the agreement is to be in writing under s. 27, and we must hold that both parties must sign their names to it; otherwise there might be a conflict of evidence, and a discussion as to what was understood by either party.”
In Baker v. Yorkshire Fire and Life Assurance Co. (3) an action was brought on a fire policy which was executed in the usual way by the company but not by the assured, and it was held that the policy, though not signed by the plaintiff, amounted to a submission to arbitration within the meaning of the Act.
(1) 60 L. J. (Q.B.) 640, 641.; (2) 1 Q. B. D. 724.; (3) [1892] 1 Q. B. 144, 145.
Lord Coleridge C.J., who had been a party to the case of In re Lewis (1), said: “The plaintiff sues on the policy, and by so suing affirms it to be his contract; he cannot disaffirm a part of the very contract on which he is suing. He contends that in order to bring into operation the arbitration clause contained in the policy, the policy must be signed by both parties; but the Act of Parliament says nothing of the kind, and the only apparent justification for the contention is to be found in Caerleon Tinplate Co. v. Hughes. (2) That decision must be interpreted, however, with regard to the particular facts of that case. There was there no complete contract; the two documents constituting the contract differed materially in their terms, and the Court said it was plain that the parties never were ad idem.” Then A. L. Smith J. said: “It is said, however, that by the interpretation clause a submission must be a written agreement to refer disputes to arbitration. This, however, is not a higher interpretation than was necessarily put on the language of the old Act, under which it was the universal practice to refer these cases, and does not mean that in all cases the written agreement to refer must be signed by both parties. It is quite unnecessary to say more as to the decision in Caerleon Tinplate Co. v. Hughes (2)than that it turned entirely upon the peculiar facts of the case.”
The result of these decisions is, I think, that if the submission is in writing and is binding on both parties as their agreement or as the equivalent in law to an agreement between them the statute is satisfied.
In the present case, the plaintiff’s action is, in substance, to enforce his rights as a member under the articles against the association. Article 49 is a general article applying to all the members as such, and, apart from technicalities, it would seem reasonable that the plaintiff ought not to be allowed in the absence of any evidence filed by him to proceed with an action to enforce his rights under the articles, seeing that the action is a bleach of his obligation under article 49 to submit his disputes with the association to arbitration, and if the case falls within the Act I see no reason for exercising my discretion under s. 4 in his favour.
(1) 1 Q. B. D. 724.; (2) 60 L. J. (Q.B.) 640.
In my judgment, article 49, for the reasons above referred to, creates rights and obligations enforceable as between the plaintiff and the association respectively and those rights and obligations are contained in a written document, but whether that document is a contract or agreement between the plaintiff and the association within s. 27 of the Arbitration Act depends upon whether the decisions in Eley v. Positive Life Assurance Co. (1), and the other three cases of a similar character above referred to, ought to be regarded as only dealing with and applying to articles purporting, first, to contain an agreement with the company and a third person, or, secondly, to define the rights of a shareholder in some capacity other than that of a member of the company. To reconcile those decisions with the other expressions of judicial opinion above mentioned, some such view should, I think, be adopted and general articles dealing with the rights of members “as such” treated as a statutory agreement between them and the company as well as between themselves inter se, and, in my judgment, article 49 in the present case does constitute a submission to arbitration within the true meaning and intent of the Arbitration Act.
Having regard, however, to the conclusion to which I have come on the second contention raised by the defendants, it is not necessary for me to base my decision upon this ground alone, and upon the opinion I have so expressed.
The defendants’ second contention is that the contract contained in the plaintiff’s application for membership, and the association’s acceptance of it, amounts to a submission within the Act. [His, Lordship stated the facts as to the plaintiff’s application and election and continued:] In consideration of being elected a member and of his offer to join the association being accepted, the plaintiff contracted in writing with the association to conform to its rules and regulations. One of those regulations was a general submission to arbitration of all differences between the association and any of its members as such, amply wide enough to cover the matters in dispute in this action. The association at the date of the contract was already bound to each and all its corporators to act in conformity with those regulations, and was at the date of the writ in this action, and has been since, ready and willing to so act. It is submitted on behalf of the plaintiff that at the date of this contract he may have known nothing about article 49, and that as the council of the association have power under its articles to make further by-laws and regulations as to certain matters therein referred to the plaintiff’s offer may have referred to these. The plaintiff has, however, filed no evidence in support of this, and the articles not only constitute the rules and regulations of the association but refer to the rules and regulations of the association as contained in them, and I am unable to accept this contention.
- 1 Ex. D. 20, 88.
In my judgment, the contract so made between the plaintiff and the association is also a submission in writing within the true meaning and intent of the Arbitration Act, and I make an order to stay under s. 4 and direct that the matters in dispute in this action be referred to arbitration accordingly.
