9911796707
TMI Blog1969 (1) TMI 42X X X X Extracts X X X X X X X X Extracts X X X X ..... case, fit is trite law, I had thought, that if directors do acts, as they, do every day, especially in private companies, which, perhaps because there : is no quorum, or because their appointment was defective, or because sometimes there are no directors properly appointed at all, or because they are actuated by improper motives, they go on doing for years, carrying on the business of the company in the way in which, if properly constituted, they should carry it on, and then they find that everything has been so to speak wrongly done because it was not done by a proper board, such directors can, by making a full and frank disclosure and calling together the general body of the shareholders, obtain absolution and forgiveness of their sins ; and provided the acts are not ultra vires the company as a whole everything will go on as if it had been done all right from the beginning. I cannot believe that that is not a commonplace of company law. It is done every day. Of course, if the majority of the general meeting will not forgive and approve, the directors must pay for it. It will be remembered that in the well-known case of Regal (Hastings) Ltd. v. Gulliver [1067] AC 134. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in which he went through the whole line of cases to show that the general meeting of the company by ordinary resolution cannot override or usurp the authority of the directors where the conduct of the business is entrusted to them. I see no quarrel with any of those cases, and I do not see that anybody can say there is any question about it. I will only mention one of them because it has an observation or so which may be useful. It is North-West Transportation Co. v. Beally [1887] 12 App. Cas. 589 , where the decision of the Privy Council was delivered by Sir Richard Baggallay. The point, as stated in the headnote, was that a voidable contract, fair in its terms and within the powers of the company, had been entered into by its directors with one of their number as sole vendor. It was, therefore, voidable. But it was said, and said quite properly, that the general meeting could set that right. Sir Richard said, at page 593 : "The general principles applicable to cases of this kind are well established. Unless some provision to the contrary is to be found in the charter or other instrument by which the company is incorporated, the resolution of a majority of the shareholders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... two cases. I will only mention one of them and that is Grant v. United Kingdom Switch' back Railways Co. [1888] 40 Ch. D. 135. I cite that because of certain observations both of Cotton and Lindley L JJ. There, there was a limitation on the powers of the directors to borrow; they overstepped those powers and were affirmed by a general meeting. It was said that could not be done because there was an article which gave a special resolution as necessary to a future authority to exceed the borrowing power. Cotton L.J. said, at page 139 : "A majority of a meeting called with due notice of the object for which it was called could make this a contract of this company, and it would be wrong for the court to interfere with the proceedings of a general meeting as to an act within the powers of the company. It is clear that a contract of this nature [that is to say, borrowing money] was within the objects of the company, and the appeal, in my opinion, fails." Lindley L.J. said, on the same page : "The appellant contends that the company could not ratify this contract except by special resolution. In my opinion that contention is unfounded. There is a broad distinction between alt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cast in respect of the 5,707 shares could ratify the issue of those shares." He, therefore, stood over that action until it was seen whether a general meeting would ratify the transaction which it did, as the report shows and, therefore, the complaint fell to the ground. The present case is very much on a parallel with that, apart from the timing. Here, the approving resolution had been passed before the preliminary point came before the judge and, that having been done, the act, wrong as it was in its inception, was ratified and approved, and validly ratified and approved. That, in my opinion, was the end of the matter, and the judge, although not for reasons with which I altogether sympathise, came to the right conclusion. I would dismiss this appeal. Russell L.J. This case depends solely upon the mooted point of law and the assumptions on which it is based. It is to be artificially assumed that the board, to whose decision by the articles the disposal of unissued shares was confided, allotted to company A these 500,000 shares as a tactical move in a battle for control of the company having as its primary purpose to make it more difficult for company B to obtain such contro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... waiving the defect in a mala fide and, therefore, voidable allotment infringes the articles and must be a special resolution. I do not accept this argument, which seems to me to run counter to the general situation that impropriety by directors in the exercise of their undoubted powers is a proper matter for waiver or disapproval by ordinary resolution. Basically the argument treats an allotment by directors otherwise than bona fide in the interests of the company as a nullity, which it is not. In truth the allotment of shares by directors not bona fide in the interests of the company is not an act outside the articles : it is an act within the articles, but in breach of the general duty laid on them by their office as directors to act in all matters committed to them bona fide in the interests of the company. It is true that the point before us is not an objection to the proceedings on Foss v. Harbottle [1843] 2 Hare 461 grounds. But it seems to me to march in step with the principles that underlie the rule in that case. None of the factors that admit exceptions to that rule appear to exist here. The harm done by the assumed improperly-motivated allotment is a harm done ..... X X X X Extracts X X X X X X X X Extracts X X X X
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