3PLR – BEATTIE V. & F. BEATTIE LIMITED.
POLICY, PRACTICE AND PUBLISHING, LAW REPORTS 3PLR
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BEATTIE
V.
& F. BEATTIE LIMITED.
COURT OF APPEAL
[1936. B. 4661.]
1938 JUNE 1, 2
3PLR/1914/4 (CA)
CITATION
[1938] 1 CH. 708
BEFORE THEIR LORDSHIPS:
SIR WILFRID GREENE M.R.
SCOTT and CLAUSON L.JJ.
REPRESENTATION
- F. Roxburgh K.C. and Harold Brown for the respondent.
Cleveland-Stevens K.C. and R. A. Forrester for the appellant.
Solicitors: Cunliffe & Airy, for Lee, Scott, Start & Mottershead, Manchester;
- J. Smith & Son, Liverpool.
MAIN ISSUES
COMPANY LAW:- Company Director – Claim that sums improperly paid by him to himself and to another out of company’s funds – Representative action – Motion for stay of proceedings – Article containing reference to arbitration – Companies Act, 1929 (19 & 20 Geo. 5, c. 23), s. 20. _- How ytreated
SUMMARY AND HISTORY
The Companies Act, 1929, s. 20, sub-s. 1, provides: “Subject to the provisions of this Act, 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 to observe all the provisions of the memorandum and of the articles.”
Held (affirming the decision of the Vice-Chancellor of the County Palatine Court of Lancaster on this point), that, even if a particular article of a private company was wide enough to make it apply to a dispute between the company and a member in his capacity of a director and provided for reference of such a dispute to arbitration, s. 20 of the Act did not give contractual force to the article in reference to such a dispute so as to constitute it, for the purpose of that dispute, a written agreement for submission to arbitration within s. 4 of the Arbitration Act 1889.
Hickman v. Kent or Romney Marsh Sheep-Breeders’ Association [1915] 1 Ch. 881, approved and applied.
APPEAL from the Vice-Chancellor of the County Palatine Court of Lancaster.
- & F. Beattie, Ld., was incorporated on December 13, 1900, under the Companies Acts as a company limited by shares with a nominal capital of 4000l., divided into 4000 shares of 1l. each, of which 3228 had been issued and were fully paid. Until the death of Frank Beattie, the husband of the plaintiff Margaret Jane Beattie, the issued shares of the company were held by Frank Beattie and the defendant Ernest Beattie in equal shares. Since the death of Frank Beattie the plaintiff had become and still was the registered holder of 1614 shares. The remaining 1614 shares were at all material times registered as to 1514 in the name of Ernest Beattie and 100 in the name of Edward Beattie, the son of Ernest Beattie.
Since the death of Frank Beattie the only directors of the company had been the defendant Ernest Beattie and the plaintiff. The defendant Ernest Beattie was the chairman of directors and the managing director and on July 18, 1935, Edward Beattie was appointed to be secretary of the company.
On December 30, 1936, the plaintiff commenced proceedings on behalf of herself and all other members of the company, except the defendant Ernest Beattie, against the company and Ernest Beattie, claiming a declaration that she, through or in company with her authorized agent, was entitled to inspect all books and accounts of the company including the minutes of the proceedings of the directors, and an injunction accordingly restraining the defendants from excluding her or her agent from such inspection, and a declaration that a resolution to increase the capital of the company to 14,000l. purported to be passed at a meeting of directors was invalid and an injunction accordingly.
After the pleadings in the action were delivered, the plaintiff applied by summons on December 22, 1937, for liberty to amend the writ and the statement of claim. The proposed additional claims to be added to the writ and statement of claim raising new issues were:-
(a) “An injunction restraining the company, its agents and servants from paying to the defendant Ernest Beattie and the defendant Ernest Beattie from drawing from the funds of the company any sums by way of remuneration not authorized by a resolution of the company in general meeting.”
(b) “An injunction restraining the defendants their servants and agents from paying to or on account of the said Edward Beattie or …. Fred D. Beattie out of the funds of the company any sums by way of remuneration or otherwise not authorized by the terms of a valid and subsisting service agreement or by a resolution of the board of directors.”
(c) “An order upon the defendant Ernest Beattie to repay to the company all sums improperly paid to or on account of or drawn by the defendant Ernest Beattie, the said Edward Beattie or the said Fred D. Beattie out of the funds of the company subsequently to the death of the said Frank Beattie.”
(d) “If necessary, an inquiry what sums have been paid or drawn by the defendant Ernest Beattie the said Edward Beattie and the said Fred D. Beattie or any of them out of the funds of the company subsequently to the death of the said Frank Beattie and how much of such sums have been improperly paid or drawn.”
The case made against the defendant Ernest Beattie in the suggested amendments to the statement of claim was, first, that in respect of the years ended April 5, 1934, to April 5, 1937, he had drawn sums amounting to 6186l. 7s. 5d., purporting to be the sum of 20l. a week by way of salary and the residue as bonuses; and that there had at no time been any resolution, either of the company in general meeting or of the board of directors, authorizing these payments. Secondly, it was said that by a resolution of the directors at a meeting held on July 18, 1935, Edward Beattie was appointed secretary to the company at such remuneration as should from time to time be agreed between the directors, and at the same meeting it was resolved that he should be paid a commission of 5 per cent. on the profits of the business including the year 1932; and that otherwise no resolution had been passed fixing his remuneration. The defendant Ernest Beattie had nevertheless caused to be paid out of the funds of the company to or on account of Edward Beattie in respect of the years ended April 5, 1934, to April 5, 1937, sums amounting to 5454l. 11s. 8d., of which the sums paid in respect of the years ending April 5, 1935, and April 5, 1936, were made up of salary at the rate of 20l. per week, bonuses and sums for income tax. The bonuses paid in these two years alone exceeded the commission of 5 per cent. on the profits of the company’s business. Complaint was also made as to two small sums paid to Fred D. Beattie, another son of the defendant Ernest Beattie, and an employee of the company.
On December 30, 1937, the defendant Ernest Beattie gave notice of motion by which he moved that all further proceedings upon the summons taken out by the plaintiff on December 22, 1937, should be stayed until further order pursuant to s. 4 of the Arbitration Act, 1889, in view of the submission to arbitration contained in art. 133 of the articles of association of the defendant company.
Art. 133 of the company’s articles of association provides: “Whenever any doubt, difference, or dispute shall arise between any members of the company, or between the company and any member or members (and for the purpose of this article the word ‘member’ shall include any person claiming through or under a member) touching the construction of these presents, or any article herein contained, or any provision or regulation to be substituted for or added to the articles herein contained, or any of them; or the conduct, affairs, business or interest thereof, or any act or default of the directors, or any of them, the members of the company respectively, shall not take proceedings at law in respect of such doubt, difference, or dispute, but the same shall be referred to two arbitrators or their umpire, pursuant to and so with regard to the mode and consequences of the reference, and in all other respects to conform to the provisions in that behalf contained in the Arbitration Act, 1889, or any then subsisting statutory modifications thereof; and these presents may be made a rule of any decision of the High Court of Justice.”
The Vice-Chancellor said that the action so far as the amendments in question were concerned was in substance an action by and on behalf of the company against a director, or possibly managing director, for breach of trust as an agent. That seemed at once to raise a question on the construction of art. 133, of which the material words were “Whenever any doubt, difference, or dispute shall arise between …. the company and any member or members …. touching …. any act or default of the directors or any of them ….” Such an article should be construed strictly. It did not follow that all the members would be directors or that the directors would necessarily be members, as a director might act before acquiring his qualification shares. That being so, it would be giving a very liberal construction to art. 133 to hold that it covered any doubt, difference or dispute between the company and any member or members in his or their capacity as directors; and it could not be so read. It was an article which dealt with disputes arising between the company or the members in their capacity of members. If that construction was right, there was in this case no agreement to submit to arbitration the matters raised by the proposed amendments.
But assuming that art. 133 did apply to such a dispute, a very difficult question arose as to the effect to be given to an article of this kind having regard to s. 20 of the Companies Act, 1929, which provided in sub-s. 1: “Subject to the provisions of this Act, 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 to observe all the provisions of the memorandum and of the articles.”
That section, which appeared originally in the Companies Act, 1862, had given rise to a number of decisions which were difficult to reconcile. He had been referred to Hickman v. Kent or Romney Marsh Sheep-Breeders’ Association (1), where Astbury J. reviewed the cases with great care. The question seemed to be whether art. 133 properly constituted a contract between the company and Ernest Beattie in his capacity of director, because he was also a member. There seemed no doubt that articles of association did not in themselves constitute a contract between a company and a director: In re Wheal Buller Consols (2) and In re New British Iron Co. (3)
If his interpretation of the authorities was right, he considered that he was bound to hold that art. 133, having the effect given to it by s. 20 of the Companies Act, 1929, did not constitute an agreement between the company and the defendant director in his capacity as director, even though he was a member of the company. He would therefore(1) [1915] 1 Ch. 881. plaintiff paying the costs of the application and the costs of or occasioned by the amendment, and the motion would be dismissed with costs.
(2) (1888) 38 Ch. D. 42.; (3) [1898] 1 Ch. 324.
The defendant Ernest Beattie appealed. The appeal was heard on June 1 and 2, 1938.
Cleveland-Stevens K.C. and R. A. Forrester for the appellant.
The Vice-Chancellor was wrong in refusing a stay of the proceedings under s. 4 of the Arbitration Act, 1889, pursuant to the arbitration clause contained in art. 133 of the company’s articles of association. This is really a family squabble between the plaintiff, who holds half the shares of the company, and the defendant and his son, who hold the remaining half. Further, there are only two directors, the plaintiff and the defendant, and the chairman has no casting vote; and at a general meeting, if a poll was demanded, there would be the same division of voting power and again no casting vote. Therefore on a matter on which the plaintiff and defendant disagree there is a complete deadlock. The questions it is sought to raise by the amendments to the statement of claim relate to payments made by the defendant to himself as managing director and to his son as secretary, and it will be said that these payments were justified by an established practice taken together with the resolutions passed. The arbitration clause, art. 133, relates to disputes between members of the company or between the company and any member or members. Further, one of the subject-matters of such a dispute is “any act or default of the directors or any of them.” It is contended therefore that the article applies directly to the present case and it is immaterial whether it is regarded as a dispute between members or as a dispute between the company and a member. An article which deals with the rights of directors or managing directors constitutes a contract not only between the members inter se but also between members and the company: Salmon v. Quin & Axtens, Ld.
(1) [1909] 1 Ch. 311; [1909] A. C. 442.
[SIR WILFRID GREENE M.R. That was a case where the plaintiff’s right as member was being enforced.]
So here the defendant as a member is asserting his right to have a question in regard to his acts as a director referred to arbitration. He is asserting a right common to all members, and a recognized subject-matter to which the arbitration clause applies is the act or default of a director. This is not a case where the defendant is asking for the benefit of some provision in his capacity of director, but he is seeking to assert a right common to him and every other member of having the particular subject-matter referred to arbitration. The article constitutes a contract of which the defendant is entitled to the benefit by virtue of s. 20 of the Companies Act, 1929. Salmon v. Quin & Axtens, Ld. (1) is of great importance, because it shows that whether the dispute here be regarded as one between members inter se or as one between the company and the member, art. 133 applies. In_ Eley v. Positive Government Security Life Assurance Co. (2)the plaintiff was employed by the company as solicitor, but he was not a member of the company, he could therefore only enforce an article dealing with his employment in so far as it was embodied in his contract of employment. The root distinction here is that the defendant as a member seeks to enforce art. 133. It is not as if he was claiming something as director to which no ordinary member would be entitled. The defendant is not relying on his being a director but claiming as a member to have a dispute as to the acts or defaults of himself as director determined by arbitration, and the subject-matter of the dispute comes directly within art. 133.
[SIR WILFRID GREENE M.R. The dispute here is between the company or a member of the company and a servant of
the company.]
A member is not less a member because he happens to be a director. If any limit is to be placed on art. 133 it must be by limiting the class of subject-matter to which it relates and not by limiting the class of disputants: see Piercy v. Young. (3)
(1) [1909] 1 Ch. 311.; (2) (1876) 1 Ex. D. 20.; (3) (1879) 14 Ch. D. 200, 204, 210.
[SIR WILFRID GREENE M.R. Does not s. 20 of the Companies Act, 1929, operate only to give the articles of association a contractual effect between members of the company as such?]
It is submitted that as a result of the effect given to art. 133 by s. 20 of the Act, a member binds himself to go to arbitration in respect to matters as regards which he has a relation to the company other than that of a member? The shareholder is bound as an individual, and the only limit to the contractual relationship is that he is bound only as regards matters that affect him as a shareholder: see the line of cases culminating in Hickman v. Kent or Romney Marsh Sheep-Breeders’ Association. (1)
[They also referred to Imperial Hydropathic Hotel Co., Blackpool v. Hampson. (2)]
- F. Roxburgh K.C. and Harold Brown for the respondent.
The contention on the construction of art. 133 that any limitation on its effect must be in regard to the subject-matter of the dispute and not in regard to the disputants is unsound. That may be true when the disputants are specified persons, but not when, as here, they are described as members of a class. Here the words “in the capacity of members” should be read into art. 133. There is no other limit which can be given to s. 20 of the Act of 1929 in construing it, and that is what is done in practice, as was indicated by Astbury J. in Hickman’s case. (3)
[SCOTT L.J. Do you say that the word “member” in art. 133 can have no wider meaning than it does in s. 20?]
Yes. In this connection Isaacs v. Chapman (4) is directly applicable to show that in the article “member” must be construed as meaning “member as such.” Further, when art. 133 is examined it is clear that “members” and “directors” are contrasted.
Again the subject-matter of the dispute here is payment by a director to himself and to another. Therefore the dispute is whether what the defendant did as a director was lawful. If therefore art. 133 is to be treated as applying in such a case, there must be an agreement between the director and the company to refer his conduct as director to arbitration, otherwise the case is not within s. 4 of the Arbitration Act, 1889.
(1) [1915] 1 Ch. 881.; (2) (1882) 23 Ch. D. 1.; (3) [1915] 1 Ch. 881, 903.; (4) (1916) 32 Times L. R. 183.
In fact, however, no such contract exists in law, for such a contract does not arise by the application of s. 20 of the Companies Act, 1929. The conduct of a director is involved, and that is not a matter concerning the rights of members only, and is not therefore within the article: see Hickman’s case. (1) That is Astbury J.’s conclusion, and he arrives at it in seeking to reconcile earlier decisions. No right extraneous to the right of a member as such is involved as a result of the contractual effect given to art. 133 by s. 20: see also Eley’s case (2) and Browne v. La Trinidad. (3) In Eley’s case (2) the plaintiff was a member of the company at the date when the dispute arose, and those two cases are clear authority that a person who happens to occupy a position in regard to a company other than that of member cannot acquire any additional right in respect of that position by becoming a member: see also In re New British Iron Co. (4)
Lastly, the Court ought in any case to exercise its discretion by refusing the application for a stay by reason of art. 133. The action has in any case to continue in regard to the other matters raised by the statement of claim and the issues involved here are mainly issues of law.
Cleveland-Stevens K.C. replied and referred to Willesford v. Watson (5) and the Arbitration Act, 1934, s. 8.
MAIN JUDGMENT
SIR WILFRID GREENE M.R.
This is an appeal from the decision of the Vice-Chancellor of the County Palatine of Lancaster which arises out of an action brought by Mrs. Margaret Jane Beattie against a company called E. and F. Beattie, Ld., and Mr. Ernest Beattie. The company is a private company, and the action is brought by the plaintiff in her representative capacity as shareholder. The total number of issued shares of the company is 3228 ordinary shares. Of those shares the plaintiff holds 1614, which is exactly half. The remainder are held as to 1514 by the defendant, Ernest Beattie, and as to 100 by his son, Edward Beattie, who is not a party to the action. There are two directors of the company, Mrs. Beattie and the defendant, Ernest Beattie, who is chairman but has no casting vote.
(1) [1915] 1 Ch. 881, 897, 900, 903.; (2) 1 Ex. D. 20. ; (3) (1887) 37 Ch. D. 1. ; (4) [1898] 1 Ch. 324.; (5) (1873) L. R. 8 Ch. 473.
Disputes having arisen, Mrs. Beattie issued her writ on December 30, 1936, and the indorsement related to two matters: (1.) a question of her right to inspect the books and accounts: and (2.) a question as to a purported increase of capital and an allotment of new shares. With regard to that latter question, there were two subsequent amendments. So far as that part of the action is concerned, no question arises on this appeal. The action is continuing on those points.
On December 22, 1937, the plaintiff applied by summons for leave to amend her statement of claim and her writ. The nature of the amendments which she desired to make was, shortly, as follows. She alleged that the defendant, Ernest Beattie, had paid to himself and to Edward Beattie certain sums by way of remuneration which, under the regulations of the company, he was not entitled to pay. There is no allegation of any bad faith or anything of that kind in respect of the payments. They are merely payments of remuneration which are said not to have been justified.
When the application for leave to amend was made, Ernest Beattie applied under s. 4 of the Arbitration Act to have that part of the action stayed pursuant to an arbitration clause contained in the articles of association. The notice of motion was in the ordinary form. It asked for the action to be stayed, so far as it related to the new matters, proposed to be litigated, pursuant to s. 4 of the Arbitration Act. Then it went on: “The plaintiff” – that is, Mrs. Margaret Beattie – “and the defendants” – that is, the company and Mr. Ernest Beattie – “having under the submission contained in art. 133 of the articles of association of the company agreed that all disputes arising between the company and any member or members touching” – various matters, which I will deal with when I come to read the article – “should be referred to arbitration.”
It is not suggested that there is any objection to the application on the ground of a step in the action having been taken, this new matter being treated, for the purpose of s. 12 of the Arbitration Act, as in effect a new action. The learned Vice-Chancellor held that the application ought not to succeed. He accordingly dismissed it and this appeal ensued.
As I have said, Mr. Ernest Beattie is, and was at all material times, a director of the company and it is against him, in his capacity as director, that these claims are made. It is as a director in charge of the company’s funds that he is responsible for their proper application, in accordance with the regulations which govern the company. It is in that capacity, therefore, that the action is brought against him.
The claim which the plaintiff is seeking to enforce in the action – I am now only dealing with the new matter which it is sought to introduce – is, and must be, in a representative action of this character, a claim of the company itself, because a minority shareholder suing in a representative action is suing to enforce rights of the company. The reason the action takes that form is that the minority shareholder is not in a position to see that the action is brought in the name of the company itself to enforce the company’s rights. Nevertheless, the action is, in reality, an action to enforce the rights of the company and of nobody else. The essence of the claim is that the plaintiff is seeking to enforce the company’s right to recover from Mr. Ernest Beattie moneys of the company, which, as it is alleged, have been paid away by him. The company, of course, is a necessary defendant because the order, if an order is made, will be an order for payment to the company, the moneys being the company’s moneys.
The arbitration clause contained in art. 133 is as follows [His Lordship read the article]. There was some question as to the accuracy of the print which is before us, where it uses the words “the members of the company respectively, shall not take proceedings.” It was suggested that the “of” should be either “and” or “or.” I do not think that it matters whether this is so or not.
The learned Vice-Chancellor dealt with the matter in this way. He held, first, that on the true construction of the article this present dispute did not fall within it. Secondly, he held that, if that be wrong as a matter of construction, the present appellant, Mr. Ernest Beattie, cannot rely on this article as constituting a contract between himself and the company, and that, therefore, it cannot be relied on as a submission to arbitration between him and the company for the purpose of s. 4. Lastly, he expressed his view on the question of discretion, but in view of his decision it was not necessary for him to exercise his discretion in the matter.
The way in which the matter is put on the first question, that of construction, is this. It is said on behalf of the plaintiff, and it was so held by the learned Vice-Chancellor, that in the phrase: “Where any doubt, difference, or dispute shall arise between any members of the company, or between the company and any member or members” the words “any member or members” must be construed as subject to the “qualification” in his or their capacity as member or members.” That means, as a matter of construction, that a disputant who happens to be a member, but is disputing in his capacity as director, will be excluded from the class of disputant with which this clause is concerned.
It is argued on behalf of the appellant, on the other hand, that this is not what the language really means. That a member is a member, and there is no distinction to be drawn for this purpose between his capacity as a member and his capacity as an individual.
I do not myself find it necessary to resolve what appears to be a rather subtle question. It may be just to say that on construction the word “members” in this clause means “members in their capacity as members,” that is, excluding any relationship which does not flow from the membership itself. It may mean that or it may not, and I prefer to leave that matter without any expression of opinion on my part, because, in my judgment, there is a quite clear answer to this present appeal in the second matter with which the learned Vice-Chancellor dealt.
To bring himself within s. 4 of the Arbitration Act the appellant must point to a written agreement for submission. For that reason it will not be sufficient for him to rely on an agreement appointing him director which is merely to be inferred from conduct, even if in such an agreement a term corresponding to art. 133 ought to be imported. An agreement so extracted from the general relationship of the parties would not be a sufficient submission within s. 4.
The appellant, accordingly, seeks to find in the articles themselves a contract to which he is a party giving him the right to demand an arbitration in the present circumstances. I cannot find that contract. The appellant must rely on s. 20 of the Companies Act, 1929, which gives to articles of association a contractual force. That section provides: “(1) Subject to the provisions of this Act, 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 to observe all the provisions of the memorandum and of the articles.”
Mr. Cleveland-Stevens says: Here is a member – namely, Mr. Ernest Beattie. Here is an article which provides that a dispute between the company and a member shall be referred to arbitration. It covers, among other things, a dispute relating to an act or default of a director. And he says that what he is seeking in the present case to do is to enforce that right as a member under that article and not any right as a director; that he has a right, and all other members have a right, when they find the company disputing with a director, to insist on that dispute being referred to arbitration. Mr. Cleveland-Stevens says that the case must be treated as though the circumstance that the appellant happens to be a director is immaterial. He says that it is quite immaterial that the member who is demanding arbitration is himself the member attacked.
In my judgment, that argument is based on an incorrect view both as to the effect of the article and as to the effect of s. 20 of the Companies Act. The question as to the precise effect of s. 20 has been the subject of considerable controversy in the past, and it may very well be that there will be considerable controversy about it in the future. But it appears to me that this much, at any rate, is good law: that the contractual force given to the articles of association by the section is limited to such provisions of the articles as apply to the relationship of the members in their capacity as members.
Hickman v. Kent or Romney Marsh Sheep-Breeders’ Association. (1) In that case Astbury J. made a careful review of all the decisions, and he expressed his conclusions with regard to them in this way. He referred to Eley v. Positive Life Assurance Co., Ld. (2), and certain other cases, and pointed out (3) that those decisions amounted 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. 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.” Then, again, he said (4): “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.”
With those two statements I respectfully agree. They are statements with regard to the true construction and operation of s. 20, and they have the result in the present case of preventing that section from giving contractual force to the article as between the company and its directors as such.
(1) [1915] 1 Ch. 881.; (2) 1 Ex. D. 20.; (3) [1915] 1 Ch. 897. ; (4) Ibid. 900.
It is to be observed that the real matter which is here being litigated is a dispute between the company and the appellant in his capacity as a director, and when the appellant, relying on this clause, seeks to have that dispute referred to arbitration, it is that dispute and none other which he is seeking to have referred, and by seeking to have it referred he is not, in my judgment, seeking to enforce a right which is common to himself and all other members. He is seeking to enforce a quite different right. I will explain what I mean. Let me assume that this article on its true construction entitles any member of the company to say to the company, when it is in dispute with a director: “You, the company, are bound by your contract with me in the articles to refer this dispute to arbitration, and I call upon you so to do.” That is the right, and the only right in this respect, which is common to all the members, under this article. If that were the right which the appellant was seeking to exercise, there might be something to be said for that argument, but, with all respect to the able argument of Mr. Cleveland-Stevens, it appears to me that that is not at all the right which the appellant is seeking to enforce. He is not seeking to enforce a right to call on the company to arbitrate a dispute which is only accidentally a dispute with himself. He is asking, as a disputant, to have the dispute to which he is a party referred. That is sufficient to differentiate it from the right which is common to all the other members of the company under this article, which I have tried to define. That right is one which a member might find very great difficulty in enforcing in the Courts, because it concerns a matter relating to the internal management of the company, with which the Courts will not, in general, interfere.
But quite apart from that consideration, the two rights are, in my judgment, perfectly distinct and quite different – the general right of a member as a member and the right which the appellant as a party to the dispute is seeking to enforce. Indeed, Mr. Cleveland-Stevens agrees that his argument really amounted to saying that the present application is in essence the same as proceedings brought by Mr. Ernest Beattie, as a shareholder, to restrain the company from litigating and to obtain a mandatory order on the company to go to arbitration. But that is a very different thing from what he is now seeking since his claim, as I have said, is to insist on a reference of his own dispute.
That seems to me to deal conclusively with the matter, and I do not think that anything which I have said in any way differs from the reasons which the learned Vice-Chancellor has given on this part of the case. When he says, as he does say, after examining the cases: “This art. 133 having the effect given to it by s. 20 of the Companies Act, 1929, does not constitute an agreement between the company and the defendant director in his capacity as director, even though he is a member of the company,” his conclusion, in my opinion, is perfectly right.
The only other matter which has been discussed is the question of discretion. The learned Vice-Chancellor appears to indicate the view that, had he been in favour of the appellant on other matters, he would have exercised his discretion in his favour. That has been touched on in the argument before us, but having regard to the grounds on which I have rested my decision it is unnecessary for me to deal with it. But from that I do not wish it to be in any way thought that I should necessarily have taken the same view on the matter of discretion as the learned Vice-Chancellor appears to have taken.
In the result the appeal must be dismissed.
SCOTT L.J.
I agree with what the Master of the Rolls has said as to the scope of No. 133 of the company’s articles of association in the light of s. 20 of the Companies Act, and as to the application to that article of the provision of s. 4 of the Arbitration Act that if any party to a submission, or any person claiming through or under him, begins any legal proceedings against any other party to the submission, then application can be made to the Court to stay such proceedings.
I agree that this appeal should be dismissed, for the reasons which the Master of the Rolls has given, but I should like to add expressly that I should not regard this particular dispute as one which ought to be taken from the Court and referred to arbitration, even if our decision on the question of the interpretation of the particular article were wrong.
CLAUSON L.J.
I agree with all that has fallen from the Master of the Rolls and Scott L.J. and, in those circumstances, I have nothing to add.
- C. G.
[1938] Ch. 708
