Law and Cases
Page 1 All ER Reprints/[1914-15] All ER Rep /Hickman v Kent or Romney Marsh Sheep Breeders’ Association and another – [1914-15] All ER Rep 900 Hickman v Kent or Romney Marsh Sheep Breeders’ Association and another [1914-15] All ER Rep 900 Also reported  1 Ch 881; 84 LJ Ch 688; 113 LT 159; 59 Sol Jo 478 CHANCERY DIVISION ASTBURY J 4, 25 MARCH 1915 31 MARCH 1915 Arbitration – Submission – Article of company – Application for membership of company and acceptance Rule for all disputes between company and members to be referred.
Company – Articles – Effect – Contract between members and company and between members inter se. In 1905 the plaintiff was elected a member of the defendant association, and he then agreed to conform to its rules and regulations.
By art 49 of the articles of association differences between the association and any of its members relating to any of the affairs of the association must be referred to the decision of an arbitrator.
In 1914 the plaintiff issued a writ against the association and its secretary claiming injunctions and declarations in respect of matters which related to the affairs of the association and for certain other relief, which in substance was to enforce his rights under the articles. On an application by the defendants for a stay of the action pursuant to s 4 of the Arbitration Act, 1889, and to refer the matters in dispute to arbitration in accordance with the terms of art 49,
Held: (i) art 49 must be treated as a statutory agreement between the members and the association as well as between themselves inter se, and it constituted a submission to arbitration within the Arbitration Act, 1889; (ii) the application for membership by the plaintiff and its acceptance by the association constituted a contract between the plaintiff and the association by which the plaintiff agreed in writing to conform to the regulations of the association, one of which regulations was that all ifferences between the association and a member should be submitted to arbitration, and that contract also constituted a submission to arbitration; therefore, on both those grounds a stay of the action would be granted. Notes Applied: Anglo-Newfoundland Development Co v R,  2 KB 214. Considered: Agricultural Wholesale Society v Biddulph and District Agricultural Society,  Ch 769; Beattie v Beattie, Ltd,  3 All ER 214. Applied: Kanssen v Rialto (West End) Ltd,  Ch 154. Considered: Rayfield v Hands,  2 All ER 194.
Referred to: London Sack and Bag Co v Dixon and Lugton, Ltd,  2 All ER 763. As to the effect of memoranda and articles of association, see 6 HALSBURY’S LAWS (3rd Edn) 127-130, and for cases see 9 DIGEST (Repl) 85-88. As to submissions to arbitration and stay of proceedings, see 2 Page 2 HALSBURY’S LAWS (3rd Edn) 3 et seq, and for cases see 2 DIGEST (Repl) 421 et sec. For Companies Act, 1948 see 3 HALSBURY’S STATUTES (2nd Edn) 452, and for Arbitration Act, 1950, see ibid, vol 29, p 89. Cases referred to: 1) Willesford v Watson (1873) 8 Ch App 473; 42 LJ Ch 447; 28 LT 428; 37 JP 548; 21 WR 350, LC & LJJ; 2 Digest (Repl) 452, 190a. (2) Re Tavarone Mining Co, Pritchard’s Case (1873) 8 Ch App 956; 42 LJ Ch 768; 29 LT 368; 21 WR 829, LJJ; 9 Digest (Repl) 85, 362. (3) Melhado v Porto Alegre Rail Co (1874) LR 9 CP 503; 43 LJCP 253; 31 LT 57; 23 WR 57; 9 Digest (Repl) 53, 152. (4) Eley v Positive Government Security Life Assurance Co (1875) 1 ExD 20; 45 LJQB 50; 33 LT 743; 24 WR 252; affirmed (1876) 1 ExD 88; 45 LJQB 451; 34 LT 190; 24 WR 338, CA; 9 Digest (Repl) 87, 372. 1914-15] All ER Rep 900 at 901 (5) Browne v La Trinidad (1887) 37 Ch D 1; 57 LJ Ch 292; 58 LT 137; 36 WR 289; 4 TLR 14, CA; 9 Digest (Repl) 87, 374. (6) Kelner v Baxter (1866) LR 2 CP 174; 36 LJCP 94; 15 LT 213; 15 WR 278; sub nom Kelmer v, Baxter, 12 Jur NS 1016; 9 Digest (Repl) 682, 4498. (7) Re Famatina Development Coops, Ltd,  2 Ch 271; 84 LJ Ch 48; 30 TLR 696, CA; 10 Digest (Repl) 978, 6731. (8) MacDougall v Gardiner (1875) 1 Ch D 13; 45 LJ Ch 27; 33 LT 521; 24 WR 118, CA; 9 Digest (Repl) 619, 4130. (9) Pender v Lushington (1877) 6 Ch D 70; 46 LJ Ch 317; 9 Digest (Repl) 609, 4039. 10) Imperial Hydropathic Hotel Co, Blackpool v Hampson (1882) 23 Ch D 1; 49 LT 150; 31 WR 330, CA; 9 Digest (Repl) 553, 3655. (11) Johnson v Byttle’s Iron Agency (1877) 5 Ch D 687; 46 LJ Ch 786; 36 LT 528; 25 WR 548, CA; 9 Digest (Repl) 350, 2243. (12) Bradford Banking Co, Ltd v Briggs & Co, Ltd (1886) 12 App Cas 29; 56 LJ Ch 364; 56 LT 62; 35 WR 521; 3 TLR, 170, HL; 9 Digest (Repl) 85, 363. (13) Word v Odessa Waterworks Co (1889) 42 Ch D 636; 58 LJ Ch 628; 37 WR 733; 5 TLR 596; 1 Meg 265; 9 Digest (Repl) 86, 364. (14) Salmon v Quin and Axtens, Ltd,  1 Ch 311; 78 LJ Ch 367; 100 LT 161; 25 TLR 164; 53 Sol Jo
Page 3 150, CA; affirmed sub nom Quin and Axtens, Ltd v Salmon,  AC 442; 78 LJ Ch 506; 100 LT 820; 25 TLR 590; 53 Sol Jo 575; 16 Mans 230, HL; 9 Digest (Repl) 498, 3283. (15) Welton v Saffery,  AC 299; 66 LJ Ch 362; 76 LT 505; 45 WR 508; 13 TLR 340; 41 Sol Jo 437; 4 Mans 269, HL; 9 Digest (Repl) 203, 1293. (16) Bisgood v Henderson’s Transvaal Estates, Ltd,  1 Ch 743; 77 LJ Ch 486; 98 LT 809; 24 TLR 510; 52 Sol Jo 412; 15 Mans 163, CA; 9 Digest (Repl) 201, 1288. (17) Re Lewis, Ex parte Munro (1876) 1 QBD 724; 45 LJQB 816; 35 LT 857; sub nom R v Munro, Re Lewis, 24 WR 1017, DC; 42 Digest 126, 1211. 18) Caerleon Tinplate Co v Hughes (1891) 60 LJQB 640; 66 LT 118; 7 TLR 619; 2 Digest (Repl) 423, 27. (19) Baker v Yorkshire Fire and Life Assurance Co,  1 QB 144; 61 LJQB 838; 66 LT 161; 2 Digest (Repl) 423, 28. Also referred to in argument: Morgan v W Harrison, Ltd,  2 Ch 137; 76 LJ Ch 548; 97 LT 445, CA; 2 Digest (Repl) 445, 170. Borland’s Trustee v Steel Bros & Co, Ltd,  1 Ch 279; 70 LJ Ch 51; 47 WR 120; 17 TLR 45; 9 Digest (Repl) 99, 446. Re Wheat Buller Consols (1888) 38 Ch D 42; sub nom Re Wheal Buller Consols Ltd, Ex parte Jobling, 57 LJ Ch 333; 58 LT 823; 36 WR 723; 4 TLR 282, CA; 9 Digest (Repl) 469, 3071.
Adjourned Summons by which the defendants applied for a stay of the action under s 1 of the Arbitration Act, 1889 [see now s 4 of the Arbitration Act, 1950]. The defendants, the Kent or Romney Marsh Sheep Breeders’ Association and their secretary, W W Chapman, applied for an order staying all proceedings in the action pursuant to s 4 of the Arbitration Act, 1889, and referring the matters in dispute in the action to arbitration under art 49 of the articles of association of the association.
The Kent or Romney Marsh Sheep Breeders’ Association was incorporated under the Companies Acts in the year 1895 as an association not for profit, the defendant [1914-15] All ER Rep 900 at 902 W W Chapman having been the secretary since the incorporation of the association. On 8 November 1905, the plaintiff, Alfred John Hickman, wrote to Chapman as such secretary stating he wished to become a member of the association, and in reply on 10 November 1905, Chapman wrote to the plaintiff inclosing a form of application for membership.
This form, completed and signed by the plaintiff, was received by Chapman on or about 12 November 1905, and was as follows: Page 4 “Kent or Romney Marsh Sheep Breeders’ Association (Incorporated). – Application form for membership. – I, Alfred J Hickman, of Court Lodge, Egerton, in the county of Kent, am desirous of becoming a member of the Kent or Romney Marsh Sheep Breeders’ Association (Incorporated) as a flock owner, and I engage when elected to pay the entrance fees, annual subscriptions, nd such fees for entry of ewe flocks and individual sheep as may then be in force or subsequently adopted, together with all such costs for inspection and tattooing as may be sanctioned by the council for the time being, and to conform to the rules and regulations of the association until I by notice in writing to the secretary cease to be a member of the association. – Signature, ALFRED J HICKMAN. – Dated Nov 11, 1905. ” The plaintiff was elected a member of the association on 12 December 1905, and he was informed of such election by letter on 14 December 1905.
By art 49 of the articles of association of the defendant company: “Whenever any difference arises between the association and any of the members touching the true intent or construction or the incidents or consequences of these presents or of the statutes, or touching anything then or thereafter done, executed, omitted, or suffered in pursuance of these present, or of the statutes, or touching any breach or alleged breach of these presents, or any claim on account of any such breach or alleged breach, or otherwise relating to the premises or to these presents, or to any statute affecting the association, or to any of the affairs of the association, every such difference shall be referred to the decision of an arbitrator to be appointed by the parties in difference or if they cannot agree upon a single arbitrator, to the decision of two arbitrators, of whom one shall be appointed by each of the parties in difference, or an umpire to be appointed by the two arbitrators. “
On 18 December 1914, the plaintiff issued the writ in the present action claiming, inter alia, an injunction to restrain the defendants from taking any steps to expel him from the association or doing any act or acts in derogation of his rights as a member of the association, and damages for refusing to register his sheep, and a declaration that he was entitled to have his sheep registered. A summons for directions was issued, but before it was heard or any further step taken is the action, the defendant association and Chapman issued this summons far the hearing of an application by them that all further proceedings be stayed, pursuant to s 4 of the Arbitration Act, 1889, and that the matters in question in the action should be referred to arbitration in accordance with art 49 of the articles of the association.
By s 4 of the Arbitration Act, 1889 [see now Arbitration Act, 1950, s 4]: “If any party to a submission, or any person claiming through or under him, commences any legal proceedings in any court against any other party to the submission, or any person claiming through or under him, in respect of any matter agreed to be referred, any party to such legal proceedings may at any time after appearance, and before delivering any pleadings or taking any other steps in the proceedings, apply to that court to stay the proceedings, and that court, or a judge thereof, if satisfied that there is no sufficient reason why the matter should not be referred is accordance with the submission, and that the applicant was, at the time when the proceedings were commenced, [1914-15] All ER Rep 900 at 903 and still remains, ready and willing to do all things necessary to the proper conduct of the arbitration, may make an order staying the proceedings. ” By s 27 [see s 32 of Act of 1950]: “‘Submission’ means a written agreement to submit present or future differences to arbitration, whether an arbitrator is named therein or not. “
By s 14(1) of the Companies (Consolidation) Act, 1908 [see now s 20 of Companies Act, 1948]: “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, his heirs, executors, and administrators, to observe all the provisions of the memorandum and of the articles, subject to the provisions of this Act. ” Page 5 Micklem, KC, and F Hinde for the defendants. Frank Russell, KC, and HS Simmons for the plaintiff in the action. Cur adv vult, 31 Mar 1915 ASTBURY J: (read the following judgment) This is a summons by the defendants to stay proceedings in the action under s 4 of the Arbitration Act, 1889 [see now s 4 of Arbitration Act, 1950].
The plaintiff, by his writ in the action, which is brought against the defendant association and their secretary, claims injunctions, a declaration, and certain other relief in respect of matters which arise out of and relate solely to the affairs of the association, which relief is, in substance, to enforce the plaintiff’s rights under the articles of association of the defendant company. It is admitted by the plaintiff that the action is against, the association and the second defendant as its officer, and no point is made by the plaintiff of there being two defendants. The association is a limited company registered under the Companies’ Acts, and by its memorandum of association it is provided (inter alia) that the objects of the association are “the encouragement of the breeding of Kent or Romney Marsh sheep at home and abroad and the maintenance of the purity of the breed” Further: The establishment and publication of a flock book of recognised and pure-bred sires which have been used, or ewes which have been bred from, and of such other flock books (if any) which the council may think fit and the annual registration of the pedigrees of such sheep as are proved to the satisfaction of the council to be eligible for entry. … The undertaking of the arbitration upon and settlement of disputes and questions relating to or connected with Kent or Romney Marsh sheep and the breeding thereof, and for other subsidiary purposes. ” By art 49 disputes between the association and any of its members are to be referred to arbitration.
This is a common form of article in private companies, and, the objects of the association being what they are, it and its members might he seriously prejudiced by a public trial of their disputes. If this summons fails, as the plaintiff contends that it should, these arbitration clauses in articles are of very little, if any, value. The plaintiff became a member of the association in 1905. It is clear on the authorities that if there is a submission to arbitration within the meaning of the Arbitration Act there is a prima facie duty cast upon the court to act upon such an agreement: per LORD SELBORNE in Willesford v Watson (1) 8 Ch App at p 480.
In the present case the defendants contend, first, that art 49, dealing as it does with the members of the company in their capacity of members only, constitutes a submission within the meaning of the Arbitration Act, or, alternatively, that the contract contained in the plaintiff’s application for membership and the company’s [1914-15] All ER Rep 900 at 904 acceptance of it amounts to such a submission. The plaintiff contests both these propositions. Independently Page 6 of the particular dispute in this case, the arguments, especially upon the first of these contentions, have raised questions of far-reaching importance and of great difficulty. I will deal with the question as to the effect of art 49 first. Section 14(1) of the Companies (Consolidation) Act, 1908 [see new s 20(1) of Companies Act, 1948], says: The memorandum and articles shall, when registered, bind the company and 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, his heirs, executors, and administrators, to observe, all the provisions of the memorandum and of the articles, subject to the provisions of this Act” It is laid down in text-books of the highest authority that the articles are not a contract between the members and the company, but a contract with the other members. The articles are a contract only as between the members inter se in respect of their rights as shareholders.
The exact nature of this covenant – that is, the covenant referred to in s 14 – has given rise to considerable discussion and is even now very difficult to define; but it is now settled that it is not equivalent to a contract between the company, on the one part, and the members, on the other, on which either a member can sue the company or the company can sue a member. The principal authorities in support of these propositions are Re Tavarone Mining Co, Pritchard’s Case (2); Melhado v Porto Alegre Rail Co (3); Eley v Positive Government Security Life Assurance Co (4); and Browne v La Trinidad (5) In Pritchard’s Case (2) by the articles of association of a mining company it was provided that the company should immediately after incorporation enter into an agreement with the vendor of the mine for the purchase of the mine, and the price was fixed.
The articles were signed by the vendor and six other persons, and the directors allotted shares to the vendor, but no further agreement was made with him. It was held, affirming the decision of WICKENS, V-C, that the articles of association did not constitute a contract in writing between the vendor and the company within s 27 of the Companion Act, 1867, and that certain shares should not, therefore, be considered as fully paid up. MELLISH, LJ, in giving judgment, said (8 Ch App, at p 960): “But I am of opinion that the articles of association cannot be considered as a contract in writing between De Thierry and the company for the sale of the mine to them.
It may no doubt be the case if no other contract was entered into, and if De Thierry signed these articles and they were acted upon, that a court of equity would hold that as between him and the company – from their acting upon it – there was a binding contract; but in themselves the articles of association are simply a contract as between the shareholders inter as in respect of their rights as shareholders. They are the deed of partnership by which the shareholders agree inter se. ” In Melhado v Porto Alegre Rail Co (3) the articles of association of a joint stock company provided that the company should defray such expenses incurred in its establishment as the directors should consider might be deemed and treated as preliminary expenses to an amount not exceeding a sum named. The plaintiffs, who were promoters of the company, had incurred preliminary expenses in its establishment, and it was held that no action would lie at the suit of the plaintiffs against the company under the articles. LORD COLERIDGE, CJ, said (LR 9 CP at p 505): The action is brought on a clause in the articles of association, by which the directors are authorised to pay certain expenses if they should consider them [1914-15] All ER Rep 900 at 905 to be properly deemed preliminary expenses. The declaration avers that all conditions were. performed, necessary to entitle the plaintiffs to be paid, their expenses; and therefore I think we must take it that, they, were expenses which, if the directors had thought proper to pay then the articles would have justified them in paying. The question therefore is whether an action will lie for the payment of these expenses, in pursuance of the articles of association, to which the plaintiffs were not parties.
I have come to the conclusion that no such action will lie – I must say somewhat reluctantly, because though I wish to “press no opinion on the merits of this particular case, having no materials for forming such Page 7 an opinion, it does seem just, in general, if a company takes the benefit of the work and expenditure by which its existence has been rendered possible, and voluntarily comes into existence on the terms that it shall be liable to pay for such work and expenditure, that a cause of action should be given. I can find, however, no legal principle upon which such an potion can be maintained. It appears to me that there is no contract between the plaintiffs and the defendants.
The doctrine of ratification is inapplicable, for the reasons given in the judgments in Kelner v Baxter (6). ” MELLOR, J, said (ibid at p 506): “The plaintiffs were not in any way parties to the articles of association, and there was not, therefore, any express contract to pay them. ” BRETT, J, said (ibid at p 507): “There is no contract, in my judgment, of any sort upon which they can sue, and unless there be a contract of some sort between them and the company I do not see that they can have any cause of action. No contract made with them before the existence of the company can be ratified by the company for the reasons pointed out in the case of Kelner v Baxter (6) with which I fully agree. “
In Eley v Positive Government Security Life Assurance Co (4) the articles of association contained a clause in which it was stated that the plaintiff, a solicitor, should be the solicitor to the company and transact its legal business. The article were registered and the company incorporated. The plaintiff was not appointed solicitor by any resolution of the directors, nor by any instrument bearing the seal of the company, that he acted as such for a time. Subsequently the company ceased to employ him, and he brought an action for breach of contract against the company for not employing him as its solicitor. The first count of the declaration stated that it was agreed by and between the plaintiff and the defendants that the plaintiff should be employed by the defendants as, and appointed by them to the office of, solicitor of the company.
During the argument it was contended that the contract declared for was not the contract purported to be contained in the articles. AMPHLETT, B, in his judgment, said (1 ExD at pp 26, 28): “The articles, taken by themselves, are simply a contract between the shareholders inter se, and cannot, in my opinion, give a right of action to a person like the plaintiff, not a pasty to the articles, although named therein. If authority were wanted for this proposition, the cases cited in the argument, Pritchard’s Case (2) and Melhado v Porto Alegre Rail Co (3) are, in my opinion, quite conclusive on the subject. … For these reasons, I think that there was no contract at all between the plaintiff and the company to the effect stated in the declaration. “
CLEASBY, B, confined his judgment to the last points raised in the case and said (ibid at p 30): “I am of opinion that cl 118 of the articles cannot by itself be taken to operate as a contract between the solicitor and the company. ” [1914-15] All ER Rep 900 at 906 KELLY, CB, said (ibid at pp 31, 32): “I forbear to pronounce any opinion as to whether these articles, with the fact of the subsequent employment, constitute a contract on the terms contained in them, because, were I to so hold, there would be a difficult question behind, whether it was not ultra vires for the directors to attempt to bind the company to employ a solicitor to transact, for all his life, all the legal business of the company.
Passing by this, I come to consider the objection raised under s 4 of the Statute of Frauds. I do not see how anyone can doubt that this agreement was not to be performed within a year. It was for the life of the plaintiff, subject to a defeasance on the possibility of his being guilty of some misconduct. But, assuming, as I think we must, that this was not to be performed in a year, the question arises whether there is any memorandum or note in writing of it signed by the defendants. The signatures affixed to the articles were she intuitu and it can hardly be suggested that the directors had any idea that in signing the articles they were signing a note of this contract. ” Page 8
This case went to the Court of Appeal, and LORD CAIRNS, LC, said (1 ExD at pp 89, 90): “I wish to say, in the first place, that in my opinion a contract of the kind suggested to exist in this case ought not to receive any particular favour from the court. The statement is that Baylis was endeavouring to form a joint stock insurance company upon a new principle, and applied to the plaintiff to make advances to meet the expenses of getting up the company, and it was arranged between them that in the event of the company being formed the plaintiff should be appointed permanent solicitor to the company. That is to say, a bargain is made between a professional man and Baylis, which, so far as the case is concerned, does ot appear to have been communicated to those who were invited to join the company, that if the former will advance money for the formation of the company he shall be appointed permanent solicitor, and the company shall be obliged to employ him as their professional adviser. When the articles are prepared, they are so by the plaintiff, and in them he inserts a clause which no doubt informs those who signed the articles of the arrangement, but does not appear to have been brought to the notice of those who joined from receiving circulars. This, I repeat; is not a proceeding which the court would encourage in any way. I also wish to reserve my judgment as to whether a clause of this kind is obnoxious to the principles by which the courts are governed in deciding on questions of public policy. … This case was first rested on the 118th article.
Articles of association, as is well known, follow the memorandum, which states the object of the company, while the articles state the arrangement between the members. They are an agreement inter socios, and in that view, if the introductory words are applied to art 118, it becomes a covenant between the parties to it that they will employ the plaintiff. Now, so far as that is concerned, it is res inter alios acts, the plaintiff is no party to it. No doubt he thought that by inserting it he was making his employment safe as against the company, but his relying on that view of the law does not alter the legal effect of the articles. This article is either a stipulation which would bind the members or else a mandate to the directors.
In either case it is a matter between the directors and shareholders, and not between them and the plaintiff. ” In Browne v La Trinidad (5) before the formation of the company an agreement was entered into between B. and a person as trustee for the intended company by which it was stipulated (inter alia) that B should be a director and should not be removable till after 1888. The sixth clause of the articles provided that the directors should adopt and carry into effect the agreement with or without modification, and that subject to such modification (if any) the provisions of the agreement [1914-15] All ER Rep 900 at 907 should be construed as part of the articles.
The agreement was acted upon, but no contract adopting it was entered into between the plaintiff and the company. Held, that treating the agreement as embodied in the articles, still there was no contract between B and the company that he should not be removed from being a director, the articles being only a contract between the members inter as, and not between the company and B COTTON, LJ, towards the end of his judgment, said (37 Ch D at pp 13, 14): “Assuming that an unlimited power is given to the meeting by art 91, ought we, having regard to the contract entered into by the memorandum of Nov 24, 1884, and art 6, to interfere by injunction to restrain the company in general meeting from acting under that power?
I do not give any opinion upon the question how far the court would have interfered by injunction in order specifically to enforce an agreement between the company and the plaintiff that he should be an irremovable director. That point raises questions upon which I should not like to give any opinion without having them fully discussed. In my opinion we ought not to interfere in the present case, because there is no such contract between the plaintiff and the company. The memorandum of agreement of Nov 24, 1884, is in no way a contract between the plaintiff and the company. It is said that it was adopted and incorporated into the articles, but I cannot accede to that. The company by its directors acted upon the agreement, but that does not make it binding on the company.
Then is it incorporated into the articles in such a way as to entitle the plaintiff to say, ‘I have such a contract between me and the company as can be enforced by a court of law, and as I might enforce in equity by way of specific performance’? That point is clearly settled, I think, by Eley v Positive Government Security Life Assurance Co (4). There two of the members of the court of first instance held, and the other member did not express dissent, that the articles are merely a contract between the shareholders inter se, and that though a person in whose favour a stipulation is made in the articles may afterwards have shares allotted to him, he does not by that means become in the same position as if he had entered into a contract with the company. ” LINDLEY, LJ, said: “Having regard to the construction put upon s 16 of the Companies Act of 1862 in the case of Eley v.
Positive Government Security Life Assurance Co (4) and subsequent cases, it must be taken as settled that the contract upon which he relies is not a contract upon which he can maintain any action, either on the common law side or the equity side. There might have been some difficulty in arriving at that conclusion if it had not been for the authorities, because it happens that this gentleman has had shares allotted to him, and is therefore a member of the company. Having regard to the terms of s 16, there would be some force, or, at all events, some plausibility, in the argument that, being a Page 9 member, the contract which is referred to in the articles has become binding between the company and him.
Of course, that argument is open to this difficulty, that there could be no contract between him and the company until the shares were allotted to him, and it would be remarkable that upon the shares being allotted to him a contract between him and the company, as to a matter not connected with the holding of shares, should arise. ” In these four cases the article relied upon purported to give specific contractual rights to persons in some capacity other than that of shareholder, and in none of them were members seeking to enforce or protect rights given to them as members in common with the other corporators. The actual decisions amount to this, that an outsider to whom rights purport to be given by the articles in his capacity as such outsider, whether he subsequently becomes a member or not, [1914-15] All ER Rep 900 at 908 cannot sue on such articles treating them as contracts between himself and the company to enforce such rights.
Such 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 non-member and the company, and the subsequent allotment of shares to an outsider in whose favour such an article is inserted does not enable him to sue the company on such an article to enforce rights which are res inter alios acta and not part of the general rights of the corporators as such. The language of some of the judgments appears, however, to go further, as recognised, for instance, by SARGANT, J, in Re Famatina Development Corpn (7) ( 2 Ch at p 279). The wording of s 14(1) of the Companies (Consolidation) Act, 1908, which is in the same terms as s 16 of the Act of 1862 [see now s 20(1) of Companies Act, 1948], is difficult to construe or understand. The company cannot in the ordinary course be bound otherwise than by statute or contract, and it is in this section that its obligation must be found, so far as the members are concerned.
The section does not say with whom they are to be deemed to have covenanted, but the section cannot mean that the company is not to be bound when it says it is to be bound, as if, , nor can the section mean that the members are to be under no obligation to the company under the articles in which their rights and duties as corporators are to be found. Much of the difficulty is removed if the company be regarded, as the framers of the section may very well have so regarded it, as being treated in law as a party to its own articles. It seems clear from other authorities that a company is entitled as against its members to enforce and restrain breaches of its regulations: see, for example, MacDougall v Gardiner (8) Pender v Lushington (9) and Imperial Hydropathic Hotel Co, Blackpool v Hampson (10). In the last case BOWEN, LJ, said (23 Ch D at p 13): “The articles by s 16 are to bind the company and all the shareholders as much as if they had all put their seals to them. “
It is also clear from many authorities that shareholders as against their company can enforce and restrain breaches of its regulations, and in many of these cases judicial expressions of opinion appear which, in my judgment, it is impossible to disregard. In Johnson v Lyttle’s Iron Agency (11) in an action by a shareholder against the company, JAMES, LJ, said (5 Ch D at p 693): “The notice did not comply strictly with the provisions of the contract between the company and the shareholders which is contained in the regulation of Table A” In Bradford Banking Co, Ltd v Briggs & Co, Ltd (12) the articles gave the company a lien on its members’ shares, and, in an action by the company to enforce such lien, LORD BLACKBURN said (12 App Cas at p 33): Page 10 The only one of the articles of association which I think it material to notice is the 103rd article, which is as follows: ‘The company shall have a first and permanent lien and charge, available at law and in equity, upon every share of every person who is the holder or one of several joint owners thereof for all debts due from him, either alone or jointly with any other person, whether a shareholder or not in the company. ‘ John Faint Easby, a coal merchant, became a proprietor of a number of shares in the respondent company, and obtained certificates for them. This property in the shares was, by virtue of s 16 of the Companies Act, 1862, already quoted, I think, bound to the company as much as if he had (at the time he became holder of these shares) executed a covenant to the company in the same terms as art 103, but I do not think it was bound any further. ” [1914-15] All ER Rep 900 at 909
In Wood v Odessa Waterworks Co (13) which was an action by the plaintiff on behalf of himself and all other shareholders against the company, STIRLING, J, said (42 Ch D at p 642): “The articles of association constitute a contract not merely between the shareholders and the company, but between each individual shareholder and every other. ” In Salmon v Quin and Axtens, Ltd (14) FARWELL, LJ, referring to this last statement, said ( 1 Ch at p 318): “I think that that is accurate subject to this observation, that it may well be that the court would not enforce the covenant as between individual shareholders in most cases. ” In Welton v Saffery (15) LORD HERSCHELL, who dissented on the main question from the rest of the House, made the following general observation ( AC at p 315): “Section 16 of the Act of 1862 provides that the articles of association, when registered, shall bind the company and the members hereof to the same extent as if each member had signed his name and affixed his seal thereto, and there were in such articles contained a covenant on the part of himself, his heirs, executors, and administrators, to conform to all the regulations contained in such articles, subject to the provisions of this Act. The articles thus become in effect a contract under seal by each member of the company, and regulate his rights. They cannot, of course, diminish or affect any liability created by the express terms of the statute; but, as I have said, the statute does not purport to settle the rights of the members inter se; it leaves these to be determined by the articles (or the articles and memorandum together) which are the social contract regulating those rights. I think it was intended to permit perfect freedom in this respect.
It is quite true that the articles constitute a contract between each member and the company, and that there is no contract in turns between the individual members of the company; but the articles do not any the less, in my opinion, regulate their rights inter se. Such rights can only be enforced by or against a member through the company, or through the liquidator representing the company; but I think that no member has, as between himself and another member, any right beyond that which the contract with the company gives. ” In all these last-mentioned cases the respective articles sought to be enforced related to the rights and obligations of the members generally as such, and not to rights of the character dealt with in the four authorities first above referred to.
It is difficult to reconcile these two classes of decisions and the judicial opinions therein expressed, but I think this much is clear – first, that no article can constitute a contract between the company and a third person; secondly, that no right merely purported 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, or director, can be enforced against the company; and, thirdly, articles regulating the rights and obligations of the members generally as such do create rights and obligations between them and the company respectively. Page 11 In Bisgood v Henderson’s Transvaal Estates, Ltd (16) BUCKLEY, LJ, said ( 1 Ch at p 759): “The purpose of the memorandum and articles is to define the position of the shareholder as shareholder, not to bind him in his capacity as individual. ” By s 27 of the Arbitration Act, 1889 [see now s 32 of Arbitration Act, 1950]: “‘Submission’ means a written agreement to submit present or future differences to arbitration, whether an arbitrator is named therein or not. ” [1914-15] All ER Rep 900 at 910
The defendant’s first contention is that art 49 is, on the authorities, a written agreement within the meaning of this section. In Re Lewis, Ex parte Munro (17) which was an action on the Attorneys and Solicitors Act, 1870, it was held that: “A document containing the terms of an agreement as to the amount of costs payable by a client to his solicitor, assented to by the client, but signed by the solicitor only, is not ‘an agreement in writing’ within the Attorneys and Solicitors Act, 1870. ” LORD COLERIDGE, CJ, said: “It is quite clear that there was no agreement in writing within s 4 of the Act. … An ‘agreement in writing’ within s 4 must be an agreement by both parties, and both parties must sign their names upon the agreement. “
In Caerleon Tinplate Co v Hughes (18) in an action for the price of goods sold, the bought note signed by the defendants contained a provision for arbitration in case of dispute, while the sold note signed by the plaintiff contained no such provision. It was held that there was no submission within the meaning of the Act, for an agreement to submit to arbitration must be in writing and signed by both parties. Re Lewis (17) was referred to, and DENMAN, J, referring to s 27 of the Arbitration Act, 1889, said (60 LJQB at p 641): “In my judgment, there can be no written agreement unless in writing signed by the parties as their agreement, and that ‘written agreement’ means one in which the terms on both sides are reduced into writing.
It is useless to discuss the doctrines here, for the bought and sold notes differ in the essential particular that the former contains a provision which is wholly absent in the latter. ” WILLS, J, said (ibid): “Supposing there were a contract and the parties were ad idem [which in fact they were not in this case] yet there was no submission under the Act unless there was an agreement in writing by both parties. Re Lewis, Ex parte Munro (17) is conclusive on this point. In the present case the agreement is to be in writing under s 27, and we must hold that both parties must sign their names to it; otherwise there might be a conflict of evidence, and a discussion as to what was understood by either party. “
In Baker v Yorkshire Fire and Life Assurance Co (19) an action was brought on a fire policy which was executed in the usual way by the company, but not by the assured, and it was held that the policy, though not signed by the plaintiff, amounted to a submission to arbitration within the meaning of the Act LORD COLERIDGE, CJ, who had been a party to Re Lewis (17) said ( 1 QB at pp 145, 146): Page 12 “The plaintiff sues on the policy, and by so suing affirms it to be his contract; he cannot disaffirm a part of the very contract on which he is suing. He contends that in order to bring into operation the arbitration clause contained in the policy, the policy must be signed by both parties; but the Act of Parliament says nothing of the kind, and the only apparent justification for the contention is to be found in Caerleon Tinplate Co v Hughes (18). That decision must be interpreted, however, with regard to the particular facts of that case.
There was there no complete contract; the two documents constituting the contract differed materially in their terms, and the court said it was plain that the parties were never ad idem. ” A L SMITH, LJ, said (ibid at pp 146, 147): “It is said, however, that by the interpretation clause a submission must be a written agreement to refer disputes to arbitration. This, however, is not a [1914-15] All ER Rep 900 at 911 higher interpretation than was necessarily put on the language of the old Act, under which it was the universal practice to refer these cases, and does not mean that in all cases the written agreement to refer must be signed by both parties. It is quite unnecessary to say more as to the decision in Caerleon Tinplate Co v Hughes (18) than that it turned entirely upon the peculiar facts of the case. “
The result of these decisions is, I think, that if the submission is in writing and is binding on both parties as their agreement, or as the equivalent in law to an agreement between them, the statute is satisfied. In the present case the plaintiff’s action is, in substance, to enforce rights as a member under the articles against the company. The 49th article is a general article applying to all the members as such, and, apart from technicalities, it would seem reasonable that the plaintiff ought not to be allowed, in the absence of any evidence filed by him, to proceed with an action to enforce his rights under the articles which in itself is a breach of his obligation contained therein to submit his disputes with the company to arbitration, and, if the case falls within the Act, I see no reason for exercising my discretion under s 4 in his favour.
In my judgment, art 49, for the reasons above referred to, creates rights and obligations enforceable as between the plaintiff and the company respectively, and such rights and obligations are contained in a written document, but whether such document is a contract or agreement between the plaintiff and the defendants within s 27 of the Arbitration Act, 1889, depends upon whether the decision in Eley v Positive Government Security Life Assurance Co (4) and the other cases of a similar character above referred to ought to be regarded as only dealing with and applying to articles purporting, first, to contain an agreement with the company and a third person, or, secondly, to define the rights of a shareholder in some capacity other than that of a member of the company.
To reconcile the decisions and expressions of judicial opinion above mentioned, some such view should, I think, be adopted, and general articles dealing with the rights of members “as such” treated as a statutory agreement between them and the company as well as between themselves inter se, and in my judgment, art 49 in the present case does constitute a submission to arbitration within the true meaning and intent of the Arbitration Act. Having regard, however, to the conclusion to which I have come on the second contention raised by the defendants, it is not necessary for me to base my decision upon this ground alone and upon the opinion I have so expressed.
The defendants’ second contention is that the contract contained in the plaintiff’s application for membership, and the defendants’ acceptance of it, amounts to a submission within the Act. On 8 November 1905, the plaintiff wrote to the company, through its secretary: “I wish to become a member of the Kent Sheep Breeders’ Association. Will you kindly take the necessary steps? ” That was answered by a letter from the secretary, in which he said: “If you will fill in the inclosed form … I shall have great pleasure in submitting it to the next council meeting. ” Page 13 The form inclosed was signed by the plaintiff. It stated that the plaintiff wished to become a member of the association and agreed to pay an entrance fee, subscriptions, and fees for entry of sheep, and to conform to the rules and regulations of the association.
At a meeting of the council of the association held on December 12 the plaintiff’s offer was accepted and he was elected a member of the defendant company. Notice of such acceptance was given to the plaintiff in a letter of December 14 by the secretary, which informed him he was elected a member of the association at the council meeting held on the 12th. In consideration of being elected a member and of his offer to join the association being accepted, the plaintiff contracted in writing with the association to conform to its rules and regulations. One of such regulations was a general submission to arbitration of all differences between the [1914-15] All ER Rep 900 at 912 ssociation and any of its members as such, amply wide enough to cover the matters in dispute in this action. The association at the date of the contract was already bound to each and all its corporators to act in conformity with such regulations, and was at the date of the writ in this action, and has been since, ready, and willing to so act It is submitted on behalf of the plaintiff that at the date of this contract he may have known nothing about art 49, and that as the council of the association have power under its articles to make further by-laws and regulations as to certain matters therein referred to, the plaintiff’s offer may have referred to these.
The plaintiff has, however, filed no evidence in support of this, and the articles not only constitute the rules and regulations of the company, but refer to the rules and regulations of the association as, contained in them, and I am unable to accept this contention. In my judgment, the contract so made between the plaintiff and the association is also a submission in writing within the true meaning and intent of the Arbitration Act, and I make an order to stay under s 4 and direct that the matters in dispute in this action be referred to arbitration accordingly. Solicitors: Walters & Co; Ernest Simmons & Co. Reported by GP LANGWORTHY, ESQ, Barrister-at-Law.