3PLR – IMPERIAL HYDROPATHIC HOTEL COMPANY BLACKPOOL V. HAMPSON

POLICY, PRACTICE AND PUBLISHING, LAW REPORTS  3PLR

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IMPERIAL HYDROPATHIC HOTEL COMPANY BLACKPOOL

V.

HAMPSON

COURT OF APPEAL

1882 Dec. 13, 15 

CITATION

[1882 I. 3676.]

23 Ch.D. 1

 

BEFORE THEIR LORDSHIPS

JESSEL, M.R.

COTTON and BOWEN, L.JJ.

 

REPRESENTATION

Marten, Q.C., and H. B. Buckley, for the Appellants Rigby, Q.C., and Pankhurst, for the Defendants

Solicitors: Pritchard, Englefield, & Co., agents for Storer & Lloyd, Manchester; T. Crowther.

 

MAIN ISSUES

COMPANY LAW:- Dismissal of Directors – Power of General Meeting – Alteration of Articles – Costs out of Company’s Funds.

 

HISTORY AND SUMMARY OF CASE

A joint stock company whose directors are appointed for a definite period has no inherent power to remove them before the expiration of that period.

If the articles of association of a company contain no power to remove directors before the expiration of their period of office, but authorize the shareholders by special resolution to alter any of the articles, there must be a separate special resolution altering the articles so as to give power to remove directors before a resolution can be passed to remove any of them.

 

Certain shareholders who were appointed directors by a general meeting in the place of the existing directors, brought an action in the name of the company against the existing directors to restrain them from acting. The Court held that the new directors were not duly appointed, and refused the relief prayed with costs; but inasmuch as the Plaintiffs substantially represented the wishes of the majority of the shareholders, although technically they had no right to use the name of the company, the Court allowed the costs to be paid out of the company’s assets.

 

THIS was an appeal from an order made by Mr. Bristowe, the Vice-Chancellor of the Duchy of Lancaster, on the 31st of October, 1882, dismissing a motion for an injunction restraining the Defendant, J. R. Hampson, from voting or acting as a director of the company, and restraining all the Defendants from proceeding upon certain resolutions passed at a meeting of directors on the 11th of October, 1882, and from acting in contravention of resolutions passed at meetings of the Plaintiff company held on the 28th of August, 1882, and the 27th of September, 1882, and from excluding the Plaintiffs James Lighbown and E. Rogerson from the meetings of the directors.

 

The Imperial Hotel Company, Blackpool (Limited), was registered on the 9th of June, 1873. It was re-registered on the 12th of November, 1877, with fresh articles of association.

 

In 1881, the name of the company was changed to the Imperial Hydropathic Hotel Company, Blackpool (Limited), a new body of shareholders were admitted, and a deed of agreement dated the 29th of March, 1881, was executed by the old and new shareholders as to certain matters affecting the company.

 

The articles of association contained among others the following provisions:-

Art. 1. That the regulations in Table A of the Companies Act,1862, should not apply to the company, except such as were embodied in the articles.

Art. 2. That a general meeting should mean any meeting of the shareholders duly convened and constituted pursuant to the articles, whether an ordinary or extraordinary meeting. That the expression “special resolution” should mean a special resolution of the company according to the 51st section of the Companies Act, 1862.

Art. 40. That the directors might whenever they thought fit, and they should upon a requisition made in writing by any number of shareholders holding in the aggregate not less than one-third part of the shares of the company then taken up, convene an extraordinary general meeting.

Art. 43. If they did not proceed to convene the same within fourteen days from the date of the requisition, the requisitionists or any other shareholders holding the required number of shares might themselves convene an extraordinary general meeting.

Art. 44. That the company might from time to time by a resolution passed by at least three-fourths of the votes of the shareholders present personally or by proxy at any extraordinary meeting, repeal, alter, or add to any regulations of the company, whether contained in the articles of association or not, provided that such resolution be confined to the object or business specified in the notice convening the meeting.

Art. 45. That seven days’ notice at least should be given of any special meeting, specifying the place and the time of meeting, and the purpose for which it was to be held.

Art. 46. That any shareholder might on giving not less than three days’ previous notice submit any resolution to a meeting beyond the matters contained in the notice given of such meeting.

Art. 47 required that the notice should be left at the registered office of the company.

Art. 64. That the number of directors should not be less than seven, and the qualification of every director should be the holding in his own right registered shares or stock to the nominal value of £500.

Art. 65. That the first directors should be appointed at the first general meeting of the company, and in the meantime the subscribers to the articles should act as directors.

Art. 72. That at the second ordinary meeting after the incorporation of the company, and the ordinary meeting in any subsequent year, one-third of the directors for the time being, or if their number should not be a multiple of three, then the nearest to one-third, should retire from office.

Art. 75. That the company at the general meeting at which any directors retire in manner aforesaid should fill up the vacated offices by electing a like number of persons.

Art. 77. That any casual vacancy in the board of directors might be filled up by the directors, but any person so chosen should retain his office so long only as the vacating director would have retained the same if no vacancy had occurred.

 

On the 24th of July, 1882, Mr. Batty, a shareholder and creditor of the company, filed a petition to wind up the company on the alleged ground of insolvency. At that time the directors were Messrs. Hampson, Lyddock, Booth, Byshe, Thompson, and Fish.

 

On the 27th of July, 1882, the board of directors met and removed Mr. Matthew from the office of secretary of the company and appointed Mr. Gregson in his place.

 

The petition was heard on the 5th of August, 1882, when the Vice-Chancellor made an order directing that a meeting should be convened in order to enable the shareholders to decide whether they would take steps to raise the question whether the debts claimed by the Petitioner and others in the same position with him could be enforced against the company.

 

A special general meeting was accordingly held on the 28th of August, 1882, when the following resolutions were passed:-

  1. That steps be taken to raise the question whether the debt claimed by Mr. Batty and others can be enforced against the company.
  2. That a committee (whose names were given) should be appointed for that purpose.
  3. That the proceedings which had been taken in the name of the company to compromise the petition for winding up the company were not authorized, and were not for the benefit of the company.

 

The chairman then left the chair, and declared the meeting at an end, but a new chairman was elected and certain additional resolutions were passed, of which notice had been previously given by those who proposed them under art. 46.

 

The principal of these additional resolutions were as follows:-

  1. That Messrs. Hampson and Lyddock be removed from the office of director, and that two others be elected in their place.
  2. That Messrs. Rogerson and Lighbown be elected in the place of Messrs. Hampson and Lyddock.

 

On the 27th of September, 1882, an extraordinary meeting was held for the purpose of confirming the resolutions passed at the meeting of the 28th of August, 1882, and all the resolutions passed at the previous meeting were confirmed.

 

Some of the old directors refused to acknowledge the validity of the 8th and 9th resolutions, and eventually, on the 20th of October, 1882, the present action was commenced by the company, and Messrs. Fish, Lighbown, and Rogerson, against Mr. Hampsonand others, claiming specific performance of the agreement of the 29th of March, 1881, and a declaration that Hampson was no longer a director of the company, and an injunction restraining the Defendants from excluding the Plaintiffs Rogerson and Lighbown from the meetings of the directors.

 

On the 31st of October, 1882, the Plaintiffs moved for an injunction before the Vice-Chancellor of the Duchy.

 

The Vice-Chancellor dismissed the motion with costs; and on the same day he also dismissed the petition for winding-up.

 

The Petitioner appealed from the order dismissing the petition, and the Court of Appeal on the 13th of December, 1882, dissolved the order of the Vice-Chancellor, and ordered that the company should pay the Petitioner’s debt within a month, and in default, the order for winding-up was to be made.

The Plaintiffs now appealed from the order dismissing the motion for an injunction.

 

Marten, Q.C., and H. B. Buckley, for the Appellants:-

The resolution removing the directors was valid, for art. 44 gives power to an extraordinary general meeting to vary the articles. There is no reason why the articles should not be altered and new directors appointed in pursuance of the new power, by the same resolution. If not, we say that the company has an inherent power to remove directors under the general law. They are servants of the company, and if wrongfully dismissed they may have an action for wrongful dismissal. The Companies Clauses Act, 1845, s. 91, assumes that there is a power of doing it. That section does not purport to confer a power, but assumes its existence and puts a limitation on its exercise. It was assumed in Hattersley v. Earl Shelburne (1) that the power existed, and it has never been held that any officer of a company can insist on retaining his office against the will of the company. It would be most inconvenient so to hold, for directors without going beyond the limits of their powers can do great injury to the company if there is no power to remove them. A director who, as in the present case, refuses to give effect to the resolutions of the company in general meeting ought to retire, and if he will not retire he should be dismissed. The case is not like one of dismissal at pleasure: Alison’s Case (2).

(1) 31 L. J. (Ch.) 873.

(2) Law Rep. 9 Ch. 1.

 

The Plaintiffs have a right to use the name of the company: they represent the majority of the shareholders, and if unsuccessful they ought to have the costs out of the company’s assets.

 

Rigby, Q.C., and Pankhurst, for the Defendants, were not called on, except as to the costs.

 

MAIN JUDGMENT

JESSEL, M.R.:-

The appeal in this case is brought against an order of Vice-Chancellor Bristowe, and it certainly raises a new question, namely, whether without express statutory authority a company can in general meeting remove its directors. That is the chief question argued. Now when we consider the nature of these companies we find that they are statutory corporations, created under the Companies Act, 1862, section 18 of which says that the subscribers to the memorandum and the other members shall on registration be a body corporate by the name contained in the memorandum of association, capable forthwith of exercising all the functions of an incorporated company. I find no other power given to them by express words as regards their proceedings, except under the 50th section, which gives them the power of altering their regulations by special resolutions. They also have the power if they think fit, but not otherwise, of adopting the rules contained in Schedule A. to the Act of Parliament. There is one section of those regulations which it is material to consider, because it has a bearing on the general terms of the Act of Parliament. It is art. 65 of Table A.: “The company in general meeting may by a special resolution remove any director before the expiration of his period of office, and may by an ordinary resolution appoint another person in his stead; the person so appointed shall hold office during such time only as the director in whose place he is appointed would have held the same if he had not been removed.” So that it is plain that the enactors of this Act of Parliament did not imagine that there was an express power to remove in the Act of Parliament itself, otherwise this would have been entirely superfluous.

 

The fact of the company being a corporation is not quite conclusive of the question: because it may well be that either from the nature of the corporation itself or by reason of a special provision you ought to infer this power. I will consider both points. First of all, is there any necessity? I think not. If the regulations of the company either prohibit the removal of the director or contain no provision like that in Table A. for the removal of the director, you can insert such a provision in the articles of association by special resolution under sect. 50. Therefore, whenever the occasion arises that you require to remove a director without special cause shewn, you cannot accomplish that object except under that power in the articles of association, and if you have given yourselves the power of removing the director, then you can proceed to exercise that power by an act of removal. Therefore, that appears to me to be a strong argument against the incidental power of removal. The only other question is whether the power is inherent in a corporation – it is quite plain to me it is not incidental to a corporation. As regards the corporators themselves it has been decided that in ordinary corporations there is a power of removal from the corporation for good cause. From the nature of the case one would assume that. Take the case of a municipal corporation – a corporation for the government of a town – if the head of a corporation became incapable of carrying on his functions it would be unreasonable to assume that there was no inherent power in the corporation to remove him and appoint some one else in his stead. So in the same way you might make by-laws that whenever a corporator was incapable of exercising his functions either from personal incapacity, or because he had become infamous or otherwise unfit, he might be removed from the corporation; but all that is a necessary incident for carrying out the purposes for which the corporation is created, and it stands on a totally different footing from removing a person from an office in the corporation. It appears to me there is no doctrine of the Common Law, and there is no statutory provision which enables you to vary the contract entered into between the members that the directors shall hold office for a given period, supposing there is a contract which does not contain the power of removal. That special power not being there, I think that disposes of the notion that you can remove by some inherent power not contained in the statute or the articles. Now, as regards the other point, I think there can be no doubt whatever. The directors are to be elected in the ordinary way, to hold office for a certain period, obviously until they retire. There are provisions for the retirement in the ordinary way, and of course the meaning of the articles is that until the retirement they hold office and continue to hold office. Therefore, it comes to this, that the directors once elected hold office during the period for which they are elected without any power of removal.

 

The only other argument addressed to us is this:- It is said that under the special terms of these articles of association you can remove the directors; and for that purpose it is therefore necessary to see what the special terms are. The 44th clause is relied on: “The company may from time to time by a resolution passed by at least three-fourths of the votes of the shareholders present personally or by proxy at any extraordinary meeting, repeal, alter, or add to any of the regulations of the company, whether contained in the articles of association or not, provided that such resolution be confined to the object or business specified in the notice convening the meeting.” Then the 45th clause requires seven days’ notice at least, “specifying the place, the time, the hour of meeting, and the purpose for which any general meeting is to be held.” Then clause 46: “Any shareholder may, on giving not less than three days’ previous notice, submit any resolution to a meeting beyond the matters contained in the notice given of such meeting,” which is to be left under the 47th at the registered office of the company.

 

Now, that being the position of matters, it is suggested that under clause 44 the company can by resolution remove two directors. In my opinion they cannot. They can only alter the articles of association. On the contrary, by the resolution which was passed, they left the articles alone. The articles remained, prescribing the whole term of office, three years, or whatever it might be. They have not altered them in the least, but they have passed a simple resolution that two specially named directors shall be removed from office. In my opinion that is not in the purview of clause 44 at all. If they wanted to act under clause 44 they should have had passed a clause enabling the company to remove the directors, and then when they had conferred on themselves that power they might have acted upon it. That, I think, disposes of the whole matter.

 

But it was suggested that three days’ notice given of a resolution by a shareholder would do instead of the notice specified in clause 45. In my opinion it would not. The notice given by clause 45 is to be given to every shareholder. The notice given by clause 46 is only to be left at the registered office of the company, the one notice is seven days’ notice, and the other is three days’ notice. It is plain to me that the notice to be given under clause 46 is something ancillary or subsidiary, which could be properly brought forward under the terms of the notice convening the meeting, and therefore the resolution passed at the first meeting was passed on a bad notice. As regards the second meeting it is not necessary to decide whether the second meeting had power to remove directors. The result, therefore, will be that this appeal will be dismissed with costs.

 

As regards the question of costs it stands in this way:- There is no doubt that the directors had arranged, and according to our previous decision properly arranged, to pay the debt of Mr. Batty, but the Vice-Chancellor had the power of consulting the company as to whether the company desired to oppose Mr. Batty’s claim, and he directed the company to meet and consider it. A general meeting was accordingly summoned in pursuance of the terms of the 91st section of the Act of Parliament, and the company in general meeting decided on opposing the claim. The company went further and appointed a certain number of people to oppose it, and gave them certain directions; but the holding of the meeting was in accordance with the desire of the Vice-Chancellor to ascertain what the wishes of the company were. That being so, and the company having appeared, though not technically, substantially by these shareholders, it is for us in the exercise of our discretion to decide whether it is reasonable to allow the costs of their so doing out of the funds of the company. Now it does appear to be not unreasonable, but right so to do, as it was the company’s opposition – not technically, but really and substantially – the act of the majority of the company, and it appears to me that it would not be fair to throw the costs of that opposition on these shareholders personally, who really acted throughout simply as the delegates and representatives of the company. For those reasons I think that if the company pay the debt which it is ordered to pay to Mr. Batty, the costs should be paid out of the company’s funds. Of course the company’s own costs will come out of the company’s funds in the same way. If the debt is not paid, and the matter should go to a winding-up, the costs of both parties should come out of the company’s assets.

 

COTTON, L.J. :-

In this case, in my opinion, it is not necessary to express any opinion whether a corporation has any inherent power to remove directors when there is nothing like, as there is in the present case, a contract between all the members of the corporation as to the appointment and duration of the office of the directors. In the present case there is not only the charter of incorporation, and the memorandum, but there are the articles of association, which under the Act are a contract between all the shareholders to comply with the regulations in them, and we find in the articles provisions as to the appointment of directors, and the rotation of directors, that they are to go out at a certain period; that in my opinion is a contract that those who may be duly appointed by the shareholders to be directors shall continue in the office till under the rotation they are to go out, or until they are to go out under the other provisions of those articles as to disqualification or otherwise. Therefore it becomes not a question, though raised so here, as regards the right of the directors, but it is a question of the right of the shareholders inter se to pass any such resolution as has been attempted to be passed in this case. If, as I think there is, there is a contract between all the shareholders as regards the directors, then it is a question whether a majority at a general meeting can bind those who are not there, and take no part in it – whether this is one of the matters as regards which the majority at the meeting has power to bind the absent and has power to bind those who are found, on the investigation being made, to dissent. It is the right of the shareholders not acquiescing in the removal of the directors which is in question, because on that depends whether the resolution to remove them is or is not a valid resolution; and therefore, we have really to consider whether in the present case the contract between these shareholders has been followed. There is nothing in the Act or in the articles which directly enables a general meeting to remove directors; but the way it is put is this – that there is power in these articles, as there is power in the Act, by a meeting duly called to pass a resolution altering the articles; and it is said that here there was a resolution which would have been effectual to alter the articles that these directors whom the articles did not authorize to be removed should be removed. Now in my opinion it is an entire fallacy to say that because there is power to alter the regulations, you can by a resolution which might alter the regulations, do that which is contrary to the regulations as they stand in a particular and individual case. It is in no way altering the regulations. The alteration of the regulations would be by introducing a provision, not that some particular director be discharged from being a director, but that directors be capable of being removed by the vote of a general meeting. It is a very different thing to pass a general rule applicable to every one who comes within it, and to pass a resolution against a particular individual, which would be a privilegium and not a law. Now here there was no attempt to pass any resolution at this meeting which would affect any director, except those who are aimed at by the resolution, no alteration of the regulations was to bind the company to those regulations as altered; and assuming, as I do for the present purpose, as the second meeting seems to have been regular according to the notice, that everything was regularly done, what was dune cannot be treated in my opinion as an alteration first of the regulations, and then under that altered regulation as a removal of the directors. But it would be evidently most unreasonable to say that in such a case all these shareholders are not to have notice that this is an alteration in the regulations, but are simply to be told the object is to remove those whose policy is objected to. The case referred to, Alison’s Case (1), was entirely different. The principle laid down in that case was confined by the Judges who decided it to cases where the resolution is one that necessarily involves the alteration of the constitution and regulations of the company. In that case under the articles there was power given by the Act of Parliament to add to the capital, and when there was a resolution that the directors should issue additional capital for a particular purpose that necessarily involved the alteration of the memorandum by providing that the capital should be its original capital plus this new capital. That is entirely different from such a case as the present, where there is not a general alteration of the regulations of the company, but simply an attempt, without altering the rules for the purpose, to remove a director, his removal being, unless there is a general alteration, an illegal act on the part of those who attempt to remove him – by illegal I mean an act ultra vires and not supported by any regulation of the company. Therefore, I think that the appeal ought to be dismissed with costs.

  • Law Rep. 9 Ch. 1.

 

I agree with the Master of the Rolls as to what ought to be done as to the costs of the appearance on the winding-up petition.

 

BOWEN, L.J. :-

I am of the same opinion, and I wish to add only a few words about the general question of removal, because it seems to me the ingenuity of counsel for the Appellants has succeeded perhaps in introducing into the argument some sort of confusion. I should wish in the first instance to begin by remarking this, that when persons who are directors of a company are from time to time spoken of by Judges as agents, trustees, or managing partners of the company, it is essential to recollect that such expressions are used not as exhaustive of the powers or responsibilities of those persons, but only as indicating useful points of view from which they may for the moment and for the particular purpose be considered – points of view at which they seem for the moment to be either cutting the circle or falling within the category of the suggested kind. It is not meant that they belong to the category, but that it is useful for the purpose of the moment to observe that they fall pro tanto within the principles which govern that particular class.

 

Having said that with a view to clear the ground, I now come to the immediate question of removal of directors. These directors are not exactly agents nor exactly servants – perhaps not servants at all – nor exactly trustees, nor exactly managing partners, if by that is meant that they are nothing more and nothing less. They are persons invested with strictly defined powers of management under the articles of association of a statutory corporation. In order to consider what the powers of removal are on the part of such a corporation it stands to reason that one must look at the statutes and the articles of association. A good deal has been said about the powers incident to a common law corporation to remove. I begin by asking to remove whom? Are we talking of freehold officers of a corporation at common law, or are we talking simply of agents of a statutory corporation? All the questions about removal of the officers of a common law corporation are beside the point. This is not a common law corporation, the case of a freehold officer of a common law corporation, nor is it a question of a motion at all. As regards agents of a corporation at common law they are exactly, as it seems to me, in the position of agents of any other individual, except that their master is a corporate body and not an individual. When you come to consider how the corporation is limited by its own duties and responsibilities towards its corporate members, then possibly difficulties may arise. But I put them all aside for a moment by observing that this is neither a common law corporation, nor is it a question of removal of corporate members of a common law corporation. It is neither a question of removal of an officer nor of an agent of a common law corporation. We are discussing the rights of directors of a statutory corporation created by the Act of 1862, and in such a case we must consider what are the rights of the directors and shareholders, for the articles of association, by sect. 16, are to bind all the company and all the shareholders as much as if they had all put their seals to them. Therefore you must look, when you are considering the question of dismissal of a director, to see whether the articles of association have been complied with. When we look at the articles of association it seems quite clear that they are not complied with. It seems to me that as regards the first meeting the Appellants are out of Court, and as regards the second meeting the vice of their position is this, that they are treating what has been done at this meeting as if it amounted to an alteration of the regulations, whereas it is only a displacement of individuals.  I do not think it is possible to find language that would more happily express my view than that of Lord Justice Cotton. It is a mistake to suppose that a law and a privilegium are the same, or that you are really altering the regulations when you are attempting to deprive an individual of the benefit of them.

 

  1. W.

 

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