TANG KAM YIP AND OTHERS v. YAU KUNG SCHOOL AND OTHERS

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JUDGMENT

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Sir Alan Huggins, V.-P.:

1. There is a dispute as to the membership of the 11th to 14th Defendants in the 1st Defendant corporation. The other parties are all members of the corporation. The Plaintiffs' action is for injunctions, declarations and damages and the Defendants raised three preliminary issues. The present appeal is against MacDougall, J.'s decisions on the first of those issues: he found it unnecessary to decide the second and third. The matter is essentially one of the construction of the Memorandum and Articles of Association of the corporation and depends first upon the existence of a power in the directors to admit persons to membership and secondly upon the power of the members of the corporation (by which I mean members in general meeting) to control the directors.

2. The two issues which have been argued before us were drafted in these terms:

It is agreed that the first issue would have been better expressed as follows:

It is now common ground that the powers of the directors are controlled by the Memorandum and Articles of Association and that, unless the power to admit members has been conferred upon the directors by the Articles, it must vest in the members.

3. The form of the Memorandum and Articles leaves much to be desired. The only articles referring directly to membership are:

Mr. Neoh, for the appellant Defendants, concedes that the judge was right to hold that art. 3 relates to the duty imposed on the corporation by s.10 of the Companies Ordinance to report to the Registrar any increase of the number of members over that originally registered as the maximum number. Here the membership of the corporation has at all times been well below the maximum originally registered. Article 4 leads one to expect that express provision will have been made elsewhere for the admission of members, but, as I have said, there is none. One is therefore thrown back to the articles conferring general powers upon the directors, namely arts.30 and 31.

4. In so far as it is necessary to state the facts of the case they are as follows. The corporation is a school which served the Ha Tsun Heung area. The intention was that each village in the area should provide an equal number of members and that each village should be equally represented on the Board of Directors. There can be no doubt that the Articles gave effect to that intention in relation to the directors. At their first meeting the directors passed a resolution which it is agreed should be translated as follows:

That resolution was confirmed by the directors on 30th November 1972 in these terms:

Disputes having arisen, the Board purported to eject the 1st to 4th Plaintiffs from membership and to appoint the 11th to 14th Defendants in their place. The four Plaintiffs challenged their ejection in the High Court and obtained an order for their reinstatement. The judge in those proceedings declined to make any order in relation to the four Defendants. It seems that the Board took the view that in spite of the reinstatement of the first four Plaintiffs the appointment of the 11th to 14th Defendants to replace them remained valid and that there was no way in which those Defendants could be removed. Being of that view (whether right or wrong) they passed the following resolution:

On the assumption that the four Defendants did remain members the position then was that the villages were no longer equally represented, so the directors decided that, in order to maintain the principle established by the first resolution cited above, they would have to increase the number of members representing each village, and on 22nd December 1983 they passed a resolution which was recorded in the following terms:

5. So much for the decisions of the directors. It must now be noted that at the first Annual General Meeting the members resolved that:

Then at the Annual General Meeting held on 26th January 1973 the members resolved that:

One of the minutes thus noted was that of the resolution of 30th November 1972 confirming the original directors' resolution that each village district should have an equal number of members.

Article 30

6. Article 30 is in these terms:

That follows in large measure the wording of the corresponding article in Table C in the Schedule to the Companies Ordinance. That part of Table C has remained substantially unchanged for very many years and it is perhaps surprising that any doubt should still exist as to its proper construction. Such doubt does appear to exist, for some authorities hold that in the management of the business of the corporation the members have no control over the directors, whilst others hold that, subject to their resolutions' not being inconsistent with the Ordinance or the Articles the members can control the directors. Before endeavouring to resolve that conflict it is necessary to decide what is "the business" for the purpose of art. 30. Mr. Neoh argues that it includes almost everything that the corporation can do: Mr. Yu submits that it means only such matters as are connected with the running of the corporation as a school. Mr. Neoh's argument was based upon a passage in the opinion of the Judicial Committee in Campbell v Rofe 1933 A.C. 91. Article 117 of the Companies Act 1899 of New South Wales was in comparable terms to art. 30 in the present case and the acts of the directors which were in question were the allotment and issue of preference shares. It was the view of the Judicial Committee that "business" was wide enough to include the power to control the issue of the shares and the Board went so far as to say at p.99:

Mr. Neoh contends that, if  the directors are empowered to do "everything that the company could do'', they must be able to admit members. However, he agrees that he is compelled by authority to concede that not everything which the company could do would be "business". Thus a resolution to wind up the company (In re Emmadart Ltd. 1979 Ch. 540) or to fix the remuneration of the directors (Foster v Foster 1916 1 Ch. 532) does not come within the management of "the business". If those cases were rightly decided, it would seem that the language of the Board in Campbell v Rofe was wider than the circumstances of that case necessitated. Mr. Yu asks us to draw a distinction between the constitution and administration of the School as a corporation and the running of the school by the corporation. Thus he argues that the appointment of members of the corporation does not relate to the running of the school as such, any more than does a resolution to wind up the corporation or to fix the remuneration of the directors. Foster v Foster was not cited to the Judicial Committee in Campbell v Rofe. Had it been cited, Their Lordships would have had either to overrule it or to distinguish it and it is difficult to see on what basis it could be distinguished, since in both cases the relevant resolution affected the financial position of the company. They thought the issue of the preference shares was clearly within the management of the business and they did not need to analyse the matter further. Mr. Neoh submits that there is no material distinction between the issue of preference shares and the admission of members who are required (by para.8 of the Memorandum of Association) to guarantee the assets of the corporation in a sum not exceeding $10.

7. There is one other case which throws light upon this aspect of the matter. In Scott v Scott 1943 1 All E.R. 582 the members of the company had passed three resolutions. The first was that an advance payment be made in respect of a dividend later to be declared on the preference shares; the second was that accountants be instructed to investigate the financial affairs of the company for the last two financial years; and the third was that the same accountants be appointed auditors of the company for the ensuing year. Lord Clauson, sitting as a judge of the Chancery Division, said at p.584F:

That seems to me to be consonant with the approach of the Court of Appeal and House of Lords in Campbell v Rofe.

8. In view of the members' liability to contribute (albeit a nominal amount) to the funds of the School, is the admission of members part of the "business" of the School? As it seems to me, the significant fact is that the contribution does not become payable unless and until the School is wound up, by which time the business of the School will have come to an end. This case is, therefore, distinguishable from Campbell v Rofe and is more akin to In re Emmadart Ltd. I would hold that the admission of members was not part of the management of the business of the School.

9. We still have to decide what powers are restricted by the second half of art. 30. The question comes to this, do "all powers of the School as are not required .... to be exercised by the School in general meeting" include only such powers as are necessary for the management of the business of the School? If so . (the "one-part construction"), the directors here had no power to admit members under art. 30. Only if the words just cited are to be read separately from the opening words of the article ("the two-part construction"), do they embrace powers relating to the other affairs of the School.

10. In support of the two-part construction Mr. Neoh relies on the opinion of Lord Clauson in Scott v Scott at p.585A:

If that be correct the rowers of the directors in managing the business of the School are unlimited, but the powers of the directors in relation to the other affairs of the School must be subject to the limiting words, if those words have any meaning.

11. In Quin & Axtens Ltd. v Salmon 1909 1 Ch.D. 311 and 1909 A.C. 442 the directors of the company had passed resolutions which were invalid under its art. 80, and the members then passed resolutions to the same effect in reliance upon its art. 75, which was similar to this School's art. 30. Counsel for the defendant argued that the resolution of the members could not be inconsistent with art. 80 since that article related only to resolutions of directors. Farwell, L.J., disagreed but did not explain how there could be any inconsistency: he merely observed

He referred to no other articles than arts. 75 and 80 and, with great respect, I cannot see how the resolutions passed by the members were "absolutely inconsistent with Article 80": that article merely said "no resolution of a meeting of the directors ... shall be valid ..." (emphasis supplied). The learned Lord Justice was on slightly firmer ground in so far as he thought that the resolution of the members was inconsistent with art. 75, but it could be so inconsistent only if the opening words represented an absolute delegation of the management of the business and were not restricted by the limiting words. . That construction was dependent upon Lord Clauson's being right when he said that the limiting words had nothing to do with the duty of management of the business. Some text book writers suggest that the limiting words have been deprived of any meaning: e.g. Gower's Principles of Modern Company law (4th Edn.) 145. That would be contrary to a fundamental rule of construction that words shall not be treated as surplusage if a fair and reasonable meaning can be ascribed to them, and I should not be prepared to ignore them unless expressly enjoined so to do by binding authority. The judgment of Lord Loreburn, L.C. at 1909 A. C. 443 was equally laconic as to the matter under discussion:

None of the judges expressly alluded to the argument that art. 80 related only to resolutions of the directors or to art. 76, which was, as it seems to me, a provision which had specifically conferred upon the directors power to do what the resolutions of the members sought to do - and which, therefore, clearly justified the conclusion reached in the case. It was suggested on behalf of the plaintiff that it could not have been intended that a director who was a shareholder should be able to do as a shareholder what he was unable to do as a director because another director had exercised a right to veto the decision of the board. That argument begged the very question which had to be decided, whether the articles in fact contained provisions which showed an intention to delegate the power of management to the directors absolutely. There was no express right to veto a decision of the members and art. 80 conferred no power on anyone but the two directors to whom it gave the power of vetoing decisions of the board. The attitude adopted in that case appears to be demonstrated in the following words of Farwell, L.J. at 1909 1 Ch. 319:

That is an attitude which I can readily understand and it may well justify a disinclination to construe the articles as permitting interference by the members with the management of the business where another construction is reasonably open, but can it justify ignoring limiting words restricting the directors' powers which have been expressly inserted in the Articles? If not, then Quin & Axtens Ltd. v Salmon is by implication authority binding on us which supports the two-part construction of the first half of art.  30.

12. Nevertheless, this approach, which either ignores the limiting words entirely or applies it only to the exercise of such delegated powers of the company as do not relate to the management of the business, has not been consistently followed by the courts. In Marshall's Valve Gear Co. Ltd. v Manning, Wardle & Co. Ltd. 1909 1 Ch. 267, which was cited in Quin & Axtens Ltd. v Salmon and implicitly either distinguished or overruled, a director who was in a minority on the board was the holder of a majority of the shares, although not of sufficient to ensure his being able to push through a special resolution. The board declined to bring an action against the defendant for infringement of a patent , but the majority shareholder commenced an action in the name of the company. It was accented that the absence of a formal resolution at a general meeting was immaterial, but the dissentient directors moved to strike out the company on the ground that the bringing of an action was clearly part of "the business" of the company, which by the articles was delegated to the directors. Neville, J. held that even in the management of the business the limiting words in an article similar to our art. 30 enabled the majority shareholder to control the directors. That could only have been on the basis that the limiting words applied to the powers delegated for the management of the business.

13. In In re Emmadart Ltd. Brightman, J. cited extracts from two Commonwealth cases. The first (which was not cited to the House of Lords in Quin & Axtens Ltd. v Salmon) was In re Standard Bank of Australia Ltd. (1898) 24 V.L.R. 304, 306 where Hodges, J. said:

The same view of the scope of the article was taken by O'Connor, M.R. in the Irish case In re Galway & Salthill Tramways Co. (1918) 1 I.R. 62, 65:

Brightman, J., who was not referred to Scott v Scott or to in Quin & Axtens Ltd. v Salmon, thought the two judgments just cited to be "based on sound principles", and I respectfully agree.

14. I confess that I cannot identify what precisely was the principle underlying the decision in Quin & Axtens Ltd. v Salmon and it is with no disrespect of Their Lordships' House that I approach the present case from what I apprehend to be first principles. That is to say, I decline to ignore the limiting words altogether and I construe art. 30 as conferring only such powers as are relevant to the management of the business, those powers being subject to the limiting words. Since the admission of members is no part of the business of the School, art. 30 has in my judgment no relevance to the present case.

15. For completeness I ought to express my view on the meaning of the limiting words, since that was canvassed at length before us. Mr. Neoh argues that in the phrase "regulations as may be prescribed by the School in general meeting" the word "regulations" is synonymous with "articles", because it is clearly so synonymous in art. 1 (the interpretation article), which begins "in these regulations....".   He refers to that part of the judgment of Lord Loreburn in Quin & Axtens Ltd. v Salmon where he says, at, p.444:

That was obiter, because the resolution of the directors which was there being relied upon was invalid. Although any opinion of the House of Lords must command great respect, it seems to me that the context of art. 30 requires a different interpretation of the word "regulations" where it appears the second time, although where it appears for the first and third times it clearly does mean "articles". Section 13 of the Companies Ordinance permits the alteration of and additions to the Articles by special resolution, although by para.5 of the Memorandum of this corporation any alteration must first have been submitted to and approved by the Registrar General. Any altered article is, subject to the provisions of the Ordinance, valid as if originally contained in the Articles. What of a special resolution which is inconsistent with the original Articles but does not expressly purport to amend those Articles? It seems to me that such a special resolution would be binding on the directors if it related to their powers. I go further: provided that an ordinary resolution of the members is not inconsistent with some other article there is no good reason why it should not bind the directors in their management of the business: see Marshall's Valve Gear Co. Ltd. v Manning Wardle & Co. Ltd., and compare Automatic Self-Cleansing Filter Syndicate Ltd. v Cuninghame 1906 1 Ch. 34, where the action failed because the equivalent article required an extraordinary resolution.

Article 31

16. In the event Mr. Neoh did not rely on this article and no argument was addressed to us upon it.

17. Accordingly I think that the directors had no power to admit members at all. That that was the intention of the corporators is confirmed by the fact that the Articles of the School were clearly based upon Table C and that the express power conferred by art. 3 of Table C for the directors to admit members was omitted. In my view MacDougall, J. came to the right conclusion on the first preliminary point and I would dismiss the appeal with an order nisi that the Appellants pay the costs of the appeal.

Cons, J.A.:

18. I have had the advantage of reading in draft the judgment of my Lord the Vice-President and add my reasons only because of the difficulty of the two vital questions raised by this appeal. The first is whether the admission of members is part of the "business of the school" to be "managed by the directors" in the sense in which those words are used in Article 30. The second is what is the true meaning and effect of that Article as a whole. Each involves a matter of construction, but whereas in the first question that matter may to some extent be governed by the particular circumstances, the second question is self-contained and the answer will apply to any company which has the same or a similar provision in its Articles of Association. I find it convenient therefore to deal with the second question first.

19. Article 30 is in common form, adopted from the tables scheduled to the Company Ordinance and having, with one exception, no significant differences from the similar articles which feature in the many authorities to which we have been referred. I shall speak of them generally as "the common form article"  It seems that originally such an article was not taken in any way to impinge upon the accepted principle that the majority of shareholders in a company had the ultimate control of its affairs and could assert their rights in general meeting: see Marshall's Valve Gear Company Limited v. Manning, Wardle & Co. Ltd.⁽¹⁾

20. The first assault on the shareholders stranglehold was made in 1906: Automatic Self-Cleansing Filter Syndicate Company Limited. v Cuninghame ^(2)..   Warrington J, at first instance took the view that the vesting of the management of the business and control of the company in the directors was for the protection of the minority shareholders and that as the directors could only be removed from office by a special resolution (also common form) it followed that "the control of the company as to any particular matter, or the management of any particular transaction or any particular part of the business of the company, can only be removed from the board by an alteration of the articles, such alteration, of course, requiring a special resolution". His decision was upheld by the Court of Appeal where reliance was also placed on the interests of the minority. The weight of this authority however may be lessened by the fact that the power which the majority of the shareholders wished to exercise was of a kind expressly given to the directors by a different article and to be exercised by them on such terms and conditions as they - i.e. the directors, not the shareholders - might think fit. Moreover the common form article was the one exception. It required the appropriate regulation to be made by extraordinary resolution, whereas the shareholders had passed only an ordinary resolution.   Neville J. distinguished it on that ground in Marshall's case ⁽¹⁾ two years later.

21. In the meantime, in Gramophone and Typewriter Ltd. v. Stanley ⁽³⁾,which turned on a different point, Buckley L.J. had commented -

22. This passage was expressly approved by Farwell L.J. in Salmon v. Quin & Axtens Ltd^.(4), but again the shareholders resolutions were doomed to failure from the start because they were, as Farwell L.J. said, "absolutely inconsistent" with another article of the company although, as my Lord has observed, it is not too easy to understand why this was so. An appeal to the House of Lords was dealt with very shortly⁽⁵⁾. In the opinion of Lord Loreburn, with whose speech the rest of their Lordships agreed, the only question of substance was whether the common form article "includes at all events, if it is not equivalent to, directions whether general or particular as to the transaction of the business of the company". He was inclined to think not, but was content to decide the appeal on the inconsistency to which I have already referred.

23. Slesser L.J. exhibited the same tendency in Shaw v. Shaw ⁽⁶⁾ but he too found it unnecessary in the circumstances to express a concluded opinion. The appeal was decided upon another ground. However, in the course of his judgment, Greer L.J. commented: -

24. It is in this report that there appears for the first time the suggestion of a dichotomy in the common form article.  Slesser L.J. observed at 142 -

This suggestion was taken to the full in Scott v. Scott ⁽⁷⁾ where Lord Clauson said -

But then some 35 years later we have Brightman J., as he then was, quoting with approval the judgment of O'Connor M.R. in In re Galway and Salthill Tramways Co. Ltd.⁽⁸⁾ which includes the words "but in my opinion that part of the section which gives the directors all the powers of the company subject to the exception must be read along with the opening words giving powers of management, and is merely in aid of the proper and effective exercise of such powers" ^(9)..

25. It is of great importance to know whether the common form article is in effect one or two articles, for if the latter, and the admission of members is indeed the "business of the school" the appeal is bound to succeed. On the other hand if it comprises only one article, concerned with business and the management and nothing else, and the admission of members does not fall within that category, the appeal is bound to fail.

26. With the greatest respect to those who have suggested otherwise I am myself unable to find a division in the words of the article. I think it would be against the natural reading of the language. Furthermore, had it been intended to vest on the one hand the business of the company in the directors and on the other to give the directors every possible power that the school would have in every other respect, I would have expected the draftsman to have used two separate articles and to have put the general power first. In my view the article is concerned and concerned only with the business of the school. This view is perhaps confirmed by the way in which Lord Thankerton expressed the opinion of the Privy Council in Campbell v. Rofe ⁽¹⁰⁾.  There was there no question of restriction by any regulation imposed by the company, so that unless restricted to the business of the company the powers held by the directors were unlimited.  If that were indeed so there would have been no need for their Lordships to deal with the construction of the words "management of the business of the company".

27. I turn then to the question of whether the admission of members is part of the business of the school. In most of the cases to which we have been referred the transactions in issue were so clearly part of the business of the company in question that this point was either not raised or was straight way disposed of. Of the rest Foster v. Foster ⁽¹¹⁾ and In re Emmadart ⁽⁹⁾ provide no assistance except to indicate that Mr. Neoh's submission to the effect that the business of a company extends to everything which a company is legally able to effect must necessarily be too wide.

28. Campbell v. Rofe ⁽¹¹⁾ was concerned with the issue of preference shares. In a technical sense that includes of course the question of membership, but in essence it is a matter of finance. In the case of a public company, as it there was, the company itself has little control over the identity of its shareholders. A private company will usually provide by its articles that the directors have an absolute discretion in this respect. That in itself may perhaps indicate that it is not part of the normal "business" of the company. Be that as it may the financial structure of a company limited by guarantee and without share capital is quite different. The financial liability of its members becomes relevant only in the event of the company's being wound up, a circumstance which in itself is not part of the business of the company: In re Emmadart ⁽⁹⁾. I do not think therefore that in this respect Campbell v. Rofe ⁽¹¹⁾ assists.

29. There is however another aspect that must be mentioned. The High Court of Australia had found "that the (common form article), was concerned only with the management of the business of the company and not with the relations of the members of the company inter se". Their Lordships of the Privy Council were "unble to agree with the narrow construction of the words "management of the business of the company" adopted by the High Court". It is said to follow therefore that the management of a company does include the relations of members inter se. For myself I am not sure that in the context of that case the conclusion necessarily does follow, but even so it would take the present question no further, for the selection of a new member is something different from the relationship which exists, or ought to exist, between those who have already been admitted.

30. Taken by itself the word "business" has a wide range of meaning. In the context of the common form article it must be. affected to some extent at least by the nature of the undertaking of the company under consideration. In the present case that is a school. Its business obviously includes the provision of facilities and personnel for instruction, the admission of pupils and the many matters directly concerned with its day-to-day operation. But I am not persuaded that it goes so far as to include the decision as to who will comprise the legal entity which is ultimately responsible:

31. For these reasons I too would dismiss the appeal and do not find it necessary to express any concluded opinion upon whether the words "subject etc" are apt to reserve an overriding power to the company, or whether if so, the resolutions passed by the school in general meeting were a sufficient exercise thereof. Both questions are hot without considerable difficulty.

(1)    [1909] 1 Ch. 267 at 272

(2)    [1906] 2 Ch. 34

(3)    [1908] 2 K.B. 89

(4)    [1909] 1 Ch. 311

(5)    [1909] A.C. 442

(6)    [1935] 2 K.B. 113

(7)   [1943] 1 All E.R. 582

(8)    [1918] 1 I.R. 62 at 65

(9)    In re Emmadart Ltd. [1979] 1 Ch. 540

(10)    [1933] A.C. 91 at 99

(11)    [1916] 1 Ch. 533

Fuad, J.A.:

32. This appeal, involving a dispute over the management of the affairs of a village school in the New Territories, raises important and difficult issues in company law. Central to the controversy which has brought these public-spirited men before the Court is the extent to which the members can control the directors. The crucial question here is who has the ultimate say over the admission of members.

33. The draftsman of the articles of association did not follow what is now art. 3 of Table C. Art. 4 of the School's Articles begins in the same way, stating that the subscribers to thememorandum of association shall be members, but whereas the article in the table continues "and such other persons as the directors shall admit to membership shall be members of the company", our article has it this way: "Such other persons as shall be admitted to membership in accordance with these regulations shall also be members of the School.". And nowhere in the Articles is any specific power given to anyone to admit members.

34. It seems to me that one must start an examination of the issues that divide the parties by bearing in mind a paramount consideration which is, of course, that the directors have no powers other than those which have been delegated to them by the company's articles. The articles before us set out these powers in arts. 30 and 31, and it is on the proper construction of art. 30 that the decision in this appeal will turn. The common practice, in force for many years, of adopting an article on the lines of the present reg. 33 of Table C was adopted here.

35. After reviewing the authorities, GOWER'S PRINCIPLES OF MODERN COMPANY LAW - 4th Edition (1979) summarises the effect of this provision, at p.146, as follows:

36. In broad terms it can be said that the leading text-books are agreed as to the present state of the law. Therefore Mr. Neoh has weighty support for his principal submissions.

37. Article 30 is in these terms:

38. The authority given to the directors to manage the business of the School, and to exercise the powers of the School, are limited by what follows. They cannot exercise powers which are required by the articles or by the Companies Ordinance to be exercised by the School in general meeting. Pausing here, I would remark that that these restrictions need hardly have been stated.  But the limitation does not stop there, for the directors' "management" (I use this word here in a neutral sense) is further "subject, nevertheless" to:

39. As a matter of construction I cannot see how "such regulations" can possibly mean new or amended articles because the requirement is that "such regulations" are not to be inconsistent with the "aforesaid regulations" (the articles).

40. Assuming that the directors of the School have been given power to admit members by virtue of art. 30 (they have not been given this power anywhere else), the authorities apart, on a pure construction of the article the members may pass an ordinary resolution (for no special form of resolution is stipulated) directing the directors who they shall, and who they shall not, admit to membership. I do not read the words ".....regulations.....as may be prescribed" as requiring anything more formal than that.

41. What I have been bold enough to refer to as the pure construction of the article receives support from the decision of Neville, J. in Marshall's Valve Gear Co. Ltd. v. Manning, Wardle & Co. Ltd. ⁽¹⁾ .  There the four directors resolved by a majority of three to one that the company should not sue another company for infringement of their patent. The out-voted director happened to be the major shareholder and he instituted proceedings in the company's name. The others failed to persuade the Court to dismiss the action. Neville, J. held that on the true construction of the relevant article (similar in terms to the one before us) the majority of shareholders had the right to control the directors in the matter. He said, at p.274:

42. It must be recognised, however, that there are cases of high authority which are difficult to reconcile with Marshall's ease ⁽¹⁾ .  The first authority to which I turn, in my view, is not one of them. In Automatic Self Cleansing Filter Syndicate Co. v. Cuninghame ⁽²⁾ the Court of Appeal held that the directors were entitled to refuse to carry out a sale of the assets of the company, decided upon by a resolution passed by a simple majority at a general meeting. With respect, I think Neville, J. in Marshall's case ⁽¹⁾ was right to distinguish this case on the ground that the decision rested on the construction of the relevant article, which was similar to the one in his case (and the one we have to apply) save that the regulations by which the directors could be controlled had to be made by "extraordinary resolution" and the general meeting passed the resolution by a simple majority.  However another point was not referred to by Neville, J.. There was another clause which specifically empowered the directors "to sell.....any property.....on such terms and conditions as they may think fit" which was not subject to any limitations of the kind found in the other article.

43. I will refer very briefly to Gramophone & Typewriter Ltd. v. Stanley ⁽³⁾. I will only say that the governing facts, and indeed the issues, were very different from those which concern us - but if it is said that the general remarks made by Buckley, L.J. (at the foot of p.105 and the top of p.106 of the report) help the Appellant's case, it must be noticed that the articles of the company were not discussed and it cannot be said with any confidence that Buckley, L.J. had in mind any limitations there might be to the director's exercise of powers.  His remarks are predicated on the sentence: "They are persons who may by the regulations be entrusted with the control of the business, and if so entrusted they can only be dispossessed from that control by a statutory majority which can alter the articles.". With respect, there can be no doubt about this proposition, in general terms.

44. Mr. Neoh has sought support from the decision of the House of Lords in Quin & Axtens Ltd. and others v. Salmon ⁽⁴⁾. The case was, of course, decided on its own facts, but Mr. Neoh relies on the following passage from the speech of Lord Loreburn, L.C., at p.444 of the report:

45. In a footnote on p.145 of GOWER, the view is expressed: ''If that is correct the final words are tautologous.". Again, in a footnote, under para. 26-4 of GORE - BROWNE ON COMPANIES, we find: "This makes the passage in italics ["to such regulations, being not inconsistent with the aforesaid regulations or provisions, as may be prescribed by the company in general meeting"] somewhat tautologous.".

46. GOWER, after mentioning Quin's case ⁽⁴⁾, states at p.145: "The final words of article 80 seem to have been deprived of any meaning.".

47. Our duty is to interpret art. 30 fairly to give effect to the intention of the parties to the contract as expressed by them. Everything that is said in speeches given in the House of Lords must have very great weight, but after a great deal of hesitation, and with the profoundest respect, I feel it to be impossible to construe art. 30, so that "regulations" throughout is equivalent to "articles", because I am unable to escape the analysis I put forward at the beginning of my judgment. Lord Loreburn prefaces his remarks by saying: "Now it may be a question for argument....." and I take some comfort for my boldness from this note of hesitation.

48. Campbell v. Rofe ⁽⁵⁾ is an important plank in Mr. Neoh's arguments, particularly so since it was a decision of the Privy Council. Their Lordships held that there was express power under the memorandum given to the Company (in the absence of an article to the contrary) to issue part of the original capital with preferential rights, and under another article the directors had been given specific authority to exercise the company's power in that respect. But the matter did not end there, because Lord Thankerton, who gave the judgment of the Board, said, at p.99:

49. We are, effectively, bound by this statement of this law, but Lord Thankerton's pronouncement is in very wide terms and we must not read it without bearing in mind the facts of the case. Immediately after the passage I have cited, Lord Thankerton said: "Their Lordships are unable to agree with the narrow construction of the words 'management of the business of the company' adopted by the High Court [of Australia]".  The effect of this decision, it seems to me, is that the issuing of preference shares is part of the "management of the business of the company" which power the general meeting of the company cannot usurp without changing the articles. Their Lordships did not, in my respectful opinion, specifically have in mind something that was totally unconnected with the management of the business of the company, after giving the widest interpretation to those words.

50. John Shaw & Sons (Salford) Ltd. v. Shaw ⁽⁶⁾ is a difficult case. Each Lord Justice concerned with the appeal had a different approach, and articles other than the one we have to interpret governed their decisions.   However, the following passage from the judgment of Greer, L.J., at p.134 is important:

51. I would remark in passing, that Slesser, L.J. agreed at p.143, without deciding the point finally, with Lord Loreburn's dictum in Quin's case ⁽⁴⁾ that in articles of the kind we are considering, the words "regulations" and "articles" meant the same thing.

52. Scott v. Scott ⁽⁷⁾, certainly cannot be reconciled with Marshall's case ⁽¹⁾.  Lord Clauson, sitting in the Chancery Division had before him a dispute between members of a private company. The majority had passed certain ordinary resolutions, (a) in effect, to declare interim dividends, and (b) to have the financial affairs of the company for the past two years looked into by a firm of accountants.  Lord Clauson was inclined to take the view, as regards the first resolution, that the payment of an interim dividend was a matter which, by an article which read "The directors may from time to time pay to the members such interim dividends as appear to the directors to be justified by the profits of the company", was a matter placed within the exclusive powers of the directors.

53. But he went on to consider the effect of an article in terms of the one which falls for construction in our case, if the resolution could not properly be regarded as an attempt to declare an interim dividend. Lord Clauson said, at p.564, that the one thing which, by the article, was to be managed by the directors, was the management of the business of the company.  He asked:

54. Dealing with the argument that the resolution could be justified under the limitations contained in the article, at p.585, Lord Clauson had this to say:

55. For my part, and with all due respect, I cannot discern this meaning (separating the first two lines of the article from the rest) from the way art. 30 is drafted. To read it so, seems to me at odds with the syntax employed.

56. There can be no doubt that we have been called upon to examine a very difficult area of the law. Despite the authoritative statements of the law in the text-books, I venture to suggest that the law is not settled and I have not been finally persuaded that Marshall's case ⁽¹⁾ was wrongly decided. However; in view the all-embracing nature of the observations of Lord Loreburn in Quin & Axtens case ⁽⁴⁾ and, more particularly, those of Lord Thankerton in Campbell v. Rofe ⁽⁵⁾, I would hesitate long before reaching a firm conclusion, on the competing merits of the approaches to the law exemplified by Marshall's case ⁽¹⁾ and Scott v. Scott ⁽⁷⁾, that the former is to be preferred to the latter I intend, instead, to concentrate of the facts of the case we have before us, and go no further than is strictly necessary to decide the dispute that has arisen.

57. It seems to me that one thing is clear: all the cases to which I have referred - and the same can be said of two other cases in Mr, Neoh's list of authorities: Teck Corporation Ltd. v. Millar ⁽⁸⁾ and Black White and Grey Cars Ltd. v. Fox ⁽⁹⁾ - undoubtedly concerned the management of the business affairs of the companies involved. As I understand it, it is in this context that decisions on the meaning and scope of articles like our art. 30 were reached.

58. I have reached the conclusion that the powers given to the directors by that article are only for the purpose of conducting the business of the company, and I draw support for this proposition from the express approval given by Brightman, J. (as he then was) in In re Emmadart Ltd. ⁽¹⁰⁾ to authorities from Australia and Ireland. I will quote passages (set out in Brightman, J.'s judgment) from two of the cases. In In re Galway and Salthill Tramways Co. ⁽¹¹⁾, O'Connor, M.R. said at p.65:

59. The other case is In re Standard Bank of Australia Ltd.⁽¹²⁾. Hodges, J. said at p.306:

60. Whatever may be the true construction of an article on the lines of our art. 30, when the act of the directors properly falls within its capacious embrace, I entertain no doubt that admitting new members cannot, by any fair use of language, be regarded as "the business of the School" which must be "managed by the directors", however widely one interprets the expression ''the business of the School".

61. I remark in passing that it is, of course, perfectly possible for an article of this kind to be drafted in even wider terms, so that powers beyond that of management of the business of the company are given to the directors: see, for example, the relevant article in In re Anglo-Danubian Steam Navigation and Colliery Company ⁽¹³⁾, one of the cases cited to us, which began: "The business of the company, and all matters relating to the company and affairs thereof, shall be controlled, managed and regulated by the directors.......".

62. And Foster v. Foster ⁽¹⁴⁾ helps to illustrate the point that "the business of the company" cannot be read as embracing everything that the company can do under the law and its articles. At p.546, Peterson, J. said:

63. I would mention that I do not think it would be right, as suggested by Mr. Neoh, to equate the issuing of preference shares (Campbell v. Rofe ⁽⁵⁾.) with the admission of members in a company of the kind which we are considering - one limited by guarantee with no share capital. The former act is plainly very much a business matter - although incidentally it affects membership - the latter cannot fairly be regarded as such.

64. To the extent indicated, it will be seen that I have come to a firm conclusion, respectfully disagreeing with that part of Lord Clauson's decision in Scott v. Scott ⁽⁷⁾ which divorces the first two lines from the rest of the relevant article.

65. Despite the draftsman's promise implicit in art. 4 ("Such other persons shall be admitted to membership in accordance with these regulations shall be members of the School") the articles, in my view, must be regarded as silent as to who has the authority to admit members. The School must have an inherent power to decide who shall be admitted to membership and that inherent power has not, on my under-standing of the articles, been handed over to the directors. In these circumstances, in my judgment, it is only the School in general meeting that has power to do so.

66. I am content to decide this appeal on this issue alone, and would therefore answer the question raised by the first of the preliminary points of law, by saying "No". I would therefore dismiss the appeal.

(1)    [1909] 1 Ch. 267

(2)    [1906] 2 Ch. 34

(3)    [1908] 2 K.B. 89

(4)    [1909] A.C. 442

(5)    [1933] A.C. 91

(6)    [1935] 2 K.B. 113

(7)    [1943] 1 All E.R. 582

(8)    [1972] 33 D.L.R. (3d) 288

(9)    [1969] N.Z.C.R. 824

(10)    [1979] 1 Ch. 540

(11)    [1918] 1 I.R. 62

(12)    (1898) 24 V.L.R. 304

(13)     (1875) 20 L.R. Eq. 339

(14)    [1916] 1 Ch. 532