''Automatic Self-Cleansing Filter Syndicate Co Ltd v Cuninghame'' 9062 Ch 34 is a

UK company law The United Kingdom company law regulates corporations formed under the Companies Act 2006. Also governed by the Insolvency Act 1986, the UK Corporate Governance Code, European Union Directives and court cases, the company is the primary lega ...

case, which concerns the enforceability of provisions in a company's constitution. The

Court of Appeal A court of appeals, also called a court of appeal, appellate court, appeal court, court of second instance or second instance court, is any court of law that is empowered to hear an appeal of a trial court or other lower tribunal. In much ...

affirmed that directors were not agents of the

shareholders A shareholder (in the United States often referred to as stockholder) of a corporation is an individual or legal entity (such as another corporation, a body politic, a trust or partnership) that is registered by the corporation as the legal ...

and so were not bound to implement shareholder resolutions, where special rules already provided for a different procedure.

Facts

There were 2700 shares and the plaintiff, Mr McDiarmid, owned 1202 of them. The company was in the business of purifying and storing liquids. He wanted the company to sell its assets to another company. At a meeting he got 1502 of the shares to vote in favour of such a resolution, with his friends. The directors were opposed to it. They declined to comply with the resolution. So Mr McDiarmid brought this action in the name of the company, against the company directors, including Mr Cuninghame. The constitution stated that only a three quarter majority could remove the directors. It said the general power of management was vested in the directors ‘subject to such regulations as might from time to time be made by extraordinary resolution’ (art 96). They were also explicitly allowed to sell company property (art 91). In this case the words ‘regulations’ referred to the articles of association. So the articles could be changed by a three quarter majority of votes. It did not say anything about issuing directions to the directors.

Judgment

High Court

Warrington J Thomas Rolls Warrington, 1st Baron Warrington of Clyffe, PC (29 May 1851 – 26 October 1937), known as Sir Thomas Warrington between 1904 and 1926, was a British lawyer and judge. Warrington was called to the Bar, Lincoln's Inn, in 1875, and af ...

held that on the true construction of the articles that unless directions were given through special resolution, then it was impossible for a mere majority to override the views of the directors. This was simply a matter of construction.

Court of Appeal

Lord Collins MR held that the simple majority of shareholders was not enough to override the requirement in the constitution that the directors may only be given instructions through a three quarter majority. So the directors were entitled to reject the offer. They are not agents to the shareholders nor the company. The shareholders would need to dismiss the directors or change the constitution. He elaborated. 9062 Ch 34 Cozens Hardy LJ agreed. He said that

Notes

{{reflist, 2

References