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Northern Counties Securities, Ltd v Jackson & Steeple, Ltd [1974] 2 All ER 625 = [1974] 1 W.L.R. 1133

Northern Counties Securities, Ltd v Jackson & Steeple, Ltd [1974] 2 All ER 625 = [1974] 1 W.L.R. 1133

Northern Counties Securities, Ltd v Jackson & Steeple, Ltd

Chancery Division

Walton J.

1974 March 22; 28

Company—Director—Duties of—Order against company for specific performance of agreement for issue to plaintiffs of shares having Stock Exchange quotation—Company's undertaking to use best endeavours to obtain quotation— Extra-ordinary general meeting to approve issue and allotment of shares prerequisite to Stock Exchange quotation—Duty to convene meeting—Form of circular accompanying notice convening meeting—Whether directors' duty to vote for resolution approving issue and allotment of shares

In an action by the plaintiffs against the defendant company, Brightman J. made an order, dated December 8, 1972, that an agreement between the parties containing an option for the issue of certain shares to the plaintiffs, which option the parties had treated as having been exercised, ought to be specifically enforced. The defendant company gave an undertaking to the court to use its best endeavours to obtain a Stock Exchange quotation for and permission to deal in the shares in accordance with the option agreement. On March 19, 1974, the defendant company having failed to take any effective steps to issue and allot the shares, the plaintiffs served a notice of motion joining the company's directors as respondents to the motion, and seeking (1) an order that the company and its directors should as soon as possible dispatch notices to the shareholders convening an extraordinary general meeting to approve the issue and allotment of the shares, that being a necessary pre-requisite required by the Stock Exchange for the grant of a quotation for and permission to deal in the shares; (2) an order that the notices should include or be accompanied by a circular containing all the relevant information calculated to induce the shareholders to vote in favour of the resolution for the issue and allotment of the shares. The notice of motion asked that the circular should contain statements to the effect that the company was contractually bound to issue and allot the shares, to use its best endeavours to obtain a quotation for and permission to deal in the shares, that the Stock Exchange required the issue to be approved in general meeting and that the defeat of the resolution or the taking of steps which would prevent the defendant company from fulfilling its undertaking would be a contempt of court. The notice of motion further sought orders (3) restraining the directors from voting against the resolution and (4) restraining the defendant company, until after the issue and allotment of the shares, from increasing the company's authorised capital or from disposing of the company's assets otherwise than in the ordinary course of business. On the same day as the issue of the notice of motion the defendant company sent out notices convening an extraordinary general meeting for April 5, to approve an increase of capital by the creation of 370,000 ordinary shares and their issue to the plaintiffs, and with it sent out a circular which was clearly not calculated to induce the shareholders to vote in favour of the resolution in that it stated, on the advice of 1134 leading counsel, that the undertaking did not bind the shareholders, who were free to vote as they chose, that while the directors were bound to use their best endeavours to obtain the necessary quotation and permission to deal, they could, as shareholders, vote as they chose, and that if the resolution were passed the cost to the company of the assets acquired would be £330,873, whereas if it were not passed, the cost would be only £183,873.

On the hearing of the motion: —

Held, (1) that the defendant company's obligation to issue and allot the shares was in no way conditional upon its ability to obtain a quotation for and permission to deal in the shares on the Stock Exchange; that if, for any reason, such quotation and permission could not be obtained, the plaintiffs would be entitled by way of supplemental order to whatever alternative order for the issue to the plaintiffs of shares without a Stock Exchange quotation and permission to deal, together with damages for the difference in value, might be appropriate in the changed circumstances (post, pp. 1137H — 1138C).

Ford-Hunt v. Raghbir Singh [1973] 1 W.L.R. 738 applied .

(2) That although the defendant company, acting through its directors, had failed to carry out its undertaking to the court by not using its best endeavours to obtain a quotation for and permission to deal in the shares, nevertheless the defendant company and its directors could be exonerated from any charge of deliberate contempt of court in view of the nature of the legal advice received (post, p. 1142E–H).

(3) That a shareholder who cast his vote in general meeting for or against a particular resolution voted as a person who owed no fiduciary duty to the company and was free tn vote as he pleased in exercise of his own property rights; his acts could not be regarded as acts of the company, and, accordingly, for the shareholders in the present case to vote against a resolution to approve the issue and allotment of the shares to the plaintiffs would not constitute a contempt of court by the defendant company, nor would the shareholders be guilty of aiding or abetting such a contempt of court (post, pp. 1144E–F, 1145B–C). 

(4) That a director, having complied with his obligation to procure the company to act in conformity with an order of the court by recommending shareholders to vote in favour of a particular resolution, was entitled, in his capacity as a shareholder, to vote against the resolution if he so pleased, and accordingly the court would refuse to grant the injunction restraining the directors from voting against the resolution to issue and allot the shares to the plaintiffs (post, p. 1146A–C, F–G).

(5) That the plaintiffs were entitled to an order that the proposed meeting of April 5 should not take place, and that the defendant company and its directors should procure the dispatch to the shareholders as soon as practicable of notices convening a fresh meeting accompanied by a circular which must be one inviting the shareholders to vote in favour of the necessary resolution; the circular must contain all relevant information including statements to the effect that the company were contractually bound to issue td the plaintiffs shares with a Stock Exchange quotation and permission to deal, and that before such quotation and permission to deal could be granted the Stock Exchange required that the issue of the shares be first approved by the shareholders in general meeting but the circular should not contain the proposed reference to the possibility of the company being in contempt of court (post, pp. 1143B–D, 1145D–G, 1147H, 1148A–B).


The following cases are referred to in the judgment:

Bower v. Bantam Investments Ltd. [1972] 1 W.L.R. 1120; [1972] 3 All E.R. 349. 

Ford-Hunt v. Raghbir Singh [1973] 1 W.L.R. 738; [1973] 2 All E.R. 700 . 

Lennard's Carrying Co. Ltd. v. Asiatic Petroleum Co. Ltd. [1915] A.C. 705, H.L.(E.). 

Monkland v. Jack Barclay Ltd. [1951] 2 K.B. 252; [1951] 1 All E.R. 714, C.A. 

Sheffield District Railway Co. v. Great Central Railway Co. (1911) 27 T.L.R. 451. 

The following additional cases were ailed in argument: 

Aberfoyle Plantations Ltd. v. Cheng [1960] A.C. 115; [1959] 3 W.L.R. 1011; [1959] 3 All E.R. 910, P.C. 

Bain v. Fothergill (1874) L.R. 7 H.L. 158, H.L.(E.).

Bolton (H. L.) Engineering Co. Ltd. v. T. J. Graham & Sons Ltd. [1957] 1 Q.B. 159; [1956] 3 W.L.R. 804; [1956] 3 All E.R. 624, C.A.Day v. Singleton [1899] 2 Ch. 320, C.A.

Thorne Rural District Council v. Bunting (No. 2) [1972] 3 All E.R. 1084, C.A.

Wroth v. Tyler [1974] Ch. 30; [1973] 2 W.L.R. 405; [1973] 1 All E.R. 897 .


An agreement dated December 23, 1968, between the plaintiffs, Northern Counties Securities Ltd., and the defendants, Jackson & Steeple Ltd., contained an option for the plaintiffs to acquire certain shares, and an obligation was imposed on the defendants to issue and transfer such shares to the plaintiffs, on the exercise by the plaintiffs of their option. In fact the option was not exercised, but the parties, by their conduct, treated it as exercised, and on December 8, 1972, in an action commenced by the plaintiffs by writ dated March 30, 1972, Brightman J. made an order declaring that the agreement ought to be specifically enforced. The defendants undertook to apply for and to use their best endeavours to obtain quotations for and permission to deal on the London Stock Exchange in the shares, and to allot the shares within 28 days of such quotation and permission to deal being obtained. They further undertook not, until after the allotment and issue of the shares, to increase the company's authorised capital without the prior consent in writing of the plaintiffs.

On March 19, 1974, the defendant company having failed to take any effective steps to issue and allot the shares, the plaintiffs issued a notice of motion against the defendant company, at the same time joining the company's directors, William John Beggs, George Hitchon Cudworth, John Roy Finch, Joseph Menaged and Harold Hinde, as respondents to the motion. The relief sought included, inter alia, (1) an order that the defendant company and its directors should as soon as possible despatch to the shareholders notices and such documents as the Stock Exchange might require convening an extraordinary general meeting for the issue and allotment of the shares; (2) an order that the notices should include, or be accompanied by, a circular with all relevant information calculated to induce the shareholders to vote in favour of the resolution, specifying in detail the matters which, in the opinion of the plaintiffs, ought to be stated therein. The statements so to be contained in the circular included, inter1136 alia, statements that the defendant company was contractually bound to issue and allot the shares; that the company had undertaken to the court to use its best endeavours to obtain a Stock Exchange quotation and permission to deal; that the Stock Exchange had made it a condition that the issue should be approved by the shareholders in general meeting; and that the defeat of the resolution or the taking of any steps which would prevent the defendant company from fulfilling its undertaking would amount to a contempt of court. (3) An order restraining the directors from voting against the resolution, and (4) an order restraining the defendant company, until after the issue and allotment of the shares, from increasing the company's authorised capital, from doing anything requiring the authority of the shareholders in general meeting, or from disposing of the company's assets otherwise than in the ordinary course of business.

On March 19, 1974, the same day as the issue of the notice of motion, the defendant company sent out to the shareholders notices convening an extraordinary general meeting for April 5, the purpose being to approve the creation of 370,000 ordinary shares of 10p each, and their issue to the plaintiffs, the notices being accompanied by a circular which was clearly not calculated to induce the shareholders to vote for the issue and allotment of the shares to the plaintiffs in that, inter alia, the circular referred to the opinion of leading counsel to the effect that the undertaking to the court did not bind the shareholders who could vote as they chose; that while the directors must take proper steps to seek a quotation for and permission to deal in the shares, in their capacity as directors, that fact did not prevent the directors, as shareholders, from voting as they chose, even if it prevented the defendant company obtaining the quotation and permission to deal, and that if a quotation for and permission to deal in the shares was not obtained the order for the issue and allotment of the shares would never take effect, the plaintiffs being unable to gct the shares even if they were willing to accept shares without a quotation. It was further stated in the circular that if the resolution were passed the total cost to the defendant company of the assets acquired would be £330,873 whereas if the resolution were defeated the cost would be only £183,873.

The facts are stated in the judgment.

Leolin Price Q.C. and P. J. Millett Q.C. for the plaintiffs.

Ian McCulloch for the defendant company.

Ralph Instone for the directors.

Cur. adv. vult.WALTON J.

March 28. read the following judgment. By an agreement dated December 23, 1968, and made between the plaintiffs of the one part and the defendant company of the other part, a particular op tion was granted, and as part thereof it was provided inter alia by clause 5 of the agreement as follows:

“On completion of [the] option Northern Counties shall deliver to J & S [Jackson & Steeple] a duty executed transfer or transfers in favour of J. & S or its nominee …” of certain shares “… and J & S shall issu to Northern Counties the shares required (ranking pari passu in all respects with the other shares of J & S and with permission to deal in and quotation for such shares being granted either absolutely or subject to allotment) and shall pay to Northern Counties any balance of the said price that may be due.”


The option was not in fact exercised, but the parties by their conduct treated it as exercised. The defendant company did not, however, issue the shares which it should have done to the plaintiffs, and the present action had to be commenced for specific performance of that portion of the agreement between the parties (the plaintiffs having fulfilled their part) by writ dated March 30, 1972. By summons dated March 30, 1972, the plaintiffs applied in the action for summary judgment under R.S.C., Ord. 86 and on December 8, 1972, Brightman J. made an order accordingly.

It is, I think, important to consider the form of that order carefully The first operative part of the order is as follows:

“This court doth declare that the agreement in the writ of summons mentioned and constituted by 

(i) an option agreement dated December 23, 1968, and 

(ii) the conduct of the parties in treating the said option as duly exercised ought to be specifically performed and carried into execution and doth order and adjudge the same accordingly”; and the remainder of the order is geared to that declaration and order. It proceeds:

“And the plaintiffs by their counsel reserving any claim against the defendants to the further performance of the said agreement.

“And the defendants by their counsel reserving any claim to damages which they might wish to make against the plaintiffs.

“It is ordered that the following account and inquiry be taken and made that is to say 

(1) an inquiry what number of shares of two shillings each in the defendants represented 37/202 of the equity share capital of the defendants on June 3, 1969, and 

(2) an account of the dividends that would have been payable to the plaintiffs in respect of the said shares and the shares from time to time representing the same if the number of shares of two shillings each in the defendants found upon taking the said inquiry number 1 had been allotted and issued to the plaintiffs on June 3, 1969.

“And the defendants by their counsel undertaking forthwith at their expense to apply for and to use their best endeavours to obtain quotation for and permission to deal on the London Stock Exchange in the shares hereinafter mentioned.

“It is ordered that the defendants do within 28 days of such quotation being obtained allot and issue to the plaintiffs” the correct number of shares. I do not think that I need read any more of that order; but the whole of the remainder of the order is, as I have said, geared to the original declaration and order. Hence, when the order provides:

“… the defendants by their counsel undertaking forthwith at their expense to apply for and to use their best endeavours to obtain quotation for and permission to deal on the London Stock Exchange in the shares hereinafter mentioned,” if for any reason no quotation for such shares can in fact be obtained, there can be no question of the defendant company's having found an escape route from its obligations. Under the liberty to apply which is reserved in the order the plaintiffs would then be entitled to apply for whatever, in the changed circumstances, was the correct order for the court to make having regard to the overriding determination that the contract should be specifically enforced.


That there is clear jurisdiction in the court to make a supplemental order of this nature on the proof of a changed state of affairs since the order for specific performance was made appears quite clearly from a recent decision of Brightman J., reviewing the earlier authorities, in Ford-Hunt v. Raghbir Singh [1973] 1 W.L.R. 738 . Moreover, although I do not think that this reservation is in any way essential to the plaintiffs' right to claim damages or an alternative order for transfer of what the defendant company can in any event issue to them, namely, the shares without the benefit of a Stock Exchange quotation, together with damages for the difference of the subject matter transferred (that is the difference in the value between the shares with and without such a quotation), nevertheless it is to be observed that the order expressly states (and thereby sanctions the fact) that the plaintiffs by their counsel reserved any claim against “the defendants” to the further performance of the said agreement. 

At the risk of repetition, but for a reason which will become apparent later, there is nothing conditional about the obligation undertaken by the defendant company under clause 5 of the agreement of December 23, 1968; and the order of December 8, 1972, was never intended to and never in fact did turn any obligation of the defendant company thereunder into a conditional obligation. It was directed to ensuring the discharge of the defendant company's obligations, not towards turning absolute obligations into conditional ones.

All this is, of course, quite elementary; and but for subsequent events I should not have taken up time delving into it. Although there was a great deal of correspondence between the parties, nothing effective had been done by the defendant company to issue the shares it was obliged to issue prior to March 19, 1974. It had, however, been discovered in the meantime (although I do not think that this would have come as a surprise to anybody versed in Stock Exchange practice) that the Stock Exchange required that the issue of the shares should be made subject to the consent of the defendant company in general meeting, and that a class 1 circular to shareholders including an accountant's report would have to be issued. This requirement was known by early November 1973, and the defendant company was required by the order of December 8, 1972, forthwith to use “their best endeavours” to obtain the quotation and permission to deal. Yet no such meeting of the defendant company as was requisite had been summoned by the directors by March 19, 1974.

On that day the plaintiffs issued their notice of motion which is presently before me, addressing it not only to the defendant company but also to the individual directors thereof. It claimed the following relief: 

“1. An order that the defendants (‘the company’) do and that the individual respondents and each of them as directors of the company do procure that the company do as soon as may be practicable despatch to all members of the company a notice accompanied by such documents as the Stock Exchange may require convening an extraordinary general meeting of the company for the purpose of approving a resolution for the issue and allotment to the plaintiffs of the shares referred to in the order herein dated December 8, 1972.

“2. An order that the company and the individual respondents and each of them as directors of the company do procure that the said notice shall include or alternatively be accompanied by a circular including all relevant information calculated to induce the members of the company to vote in favour of the said resolution, and in particular1139 the following information: 

(i) that the company are under a subsisting contractual obligation to the plaintiffs to issue the new shares with permission to deal and a quotation for such shares on the Stock Exchange being granted, and that the company have given an undertaking to the court to use their best endeavours to obtain such quotation and permission to deal; 

(ii) that the Stock Exchange has made it a condition of quotation and permission to deal that the issue of the shares shall the approved by the company in general meeting; 

(iii) that it is a contempt of court for any person knowingly to take any steps which will prevent the company from fulfilling their undertaking to the court; 

(iv) that the defeat of the resolution will amount to a contempt of court on the part of the company, which could result in the payment of a substantial fine by the company or in the sequestration of the assets of the company; 

(v) that while the defeat of the resolution will prevent the new shares from receiving a quotation, it will not prevent their issue, to which the plaintiffs remain contractually entitled; 

(vi) that accordingly the only effect of defeating the resolution will be to expose the company to proceedings for contempt of court; to deprive the plaintiffs of a quotation for the shares, which the c ompany will still be bound to issue to them if they elect to take them without a quotation; and, whether or not the plaintiffs so elect, to expose the company to heavy damages; 

(vii) and that the company have undertaken to the court not until after the allotment and issue of the shares to the plaintiffs without the prior written consent of the plaintiffs to increase the authorised share capital of the company or do any other thing requiring the authority of the members of the company in general meeting, which includes the payment of dividends, appointment of directors, etc.


(1) An order that the company and the individual respondents and each of them as directors of the company do procure that the said notice shall include or alternatively be accompanied by a circular including a recommendation by the directors of the company to the members to vote in favour of the resolution. 

(2) Alternatively an order that the company and the individual respondents and each of them as directors of the company do procure that there shall be included in the said notice or circular no recommendation by the directors of the company to the members to vote against the resolution. 

“4. An order restraining the individual respondents and each of them from voting against the resolution.

“5. An order restraining the company until after the allotment and issue of the said shares to the plaintiffs or further order without the prior written consent of the plaintiffs from 

(i) increasing the authorised share capital of the company 

(ii) doing any other thing (including but without prejudice to the generality of the foregoing appointing directors, declaring final dividends, or approving accounts) requiring the authority of the members of the company in general meeting or 

(iii) disposing of the assets of the company otherwise than in the ordinary course of business.” As regards that last requirement, in the order of December 8, 1972, “the defendants” had by their counsel given an undertaking: 

(i) not until after the allotment and issue of shares to the plaintiffs as aforesaid or further order without the prior written consent of the 1140 plaintiffs to increase the authorised share capital of the defendants or do any other thing requiring the authority of the members of the defendant company in general meeting and 


to prosecute any appeal from this order” — in fact no appeal was made — “with all due diligence.” 

Mr. McCulloch, who appeared for the defendant company, specifically called my attention to the fact that the notice of motion does not claim any relief in relation to the question of costs. This is true; but it does not, in my judgment, in any way diminish my jurisdiction to award them if I think it right. At the highest, all that would be required would be a simple amendment of the notice of motion, for which I would unhesitatingly give leave. The motion was issued for March 22; and in the meantime, namely, on the same day, March 19, the defendant company duly gave its shareholders notice of an extraordinary general meetingfor April 5, 1974, accompanied by a circular.

The resolutions which it is stated were intended to be proposed ar the meeting were as follows:

“First resolution: ‘That the capital of the company be increased by the creation of 370,000 ordinary shares of 10p each ranking pari passu as to dividend with the present ordinary shares of the company’; Second resolution: ‘That the directors be authorised to issue the said ordinary shares as fully paid up to Northern Counties Securities Ltd. and that the said shares when issued do carry dividend at rate declared by the company from and since June 3, 1969, and that the proper officer of the company be authorised to pay such dividend upon the issue of the said shares to the persons who are to be registered as the holders thereof.’”

They appear to be wholly misconceived. It is admitted that the defendant company has in fact amply sufficient unissued shares to enable those which it will or may have to issue to the plaintiffs to be issued without any increase in the capital being required. Moreover, the suggestion that the dividend payable on the shares should be backdated to June 3, 1969, appears to me to be also wholly misconceived, really on two grounds. First, that the order in fact expressly made provision for the amount of the dividends which would have been paid upon the shares if they had been issued on June 3, 1969, to be calculated and for the payment of the sum so found due to be paid by the defendant company to the plaintiffs, so that the proposed backdating would have involved a form of double payment. Secondly, I do not think that it is possible, at any rate under most usual forms of articles, for this kind of backdating of the right to dividends to take place. Whilst there can be no possible objection to backdating within the current financial year in which the shares are actually issued, once the accounts of the company for any one year have been duly passed I do not see how they can be retrospectively reopened in this manner.

There is, of course, the further and overriding point that any increase in the capital of the defendant company without the prior consent of the plaintiffs would be a breach of the undertaking by the defendant company contained in the order of December 8, 1972. It is therefore at once apparent that this meeting could not, on the foregoing grounds alone, be allowed to proceed.


It will be recalled that a further part of the order of December 8, 1972, was that “the defendants” had undertaken by their counsel to use their best endeavours to obtain the quotation for and permission to deal on the London Stock Exchange for these shares. The words “use their best endeavours” are, perhaps, not the most certain of all phrases: see Goff J.'s criticisms in Bower v. Bantam Investments Ltd. [1972] 1 W.L.R. 1120 , 1126; but note also that it did not appear to cause the Court of Appeal any problems in Monkland v. Jack Barclay Ltd. [1951] 2 K.B. 252 any more than it had caused any difficulty to the Railway and Canal Commission in Sheffield District Railway Co. v. Great Central Railway Co. (1911) Z7 T.L.R. 451 , where it was pointed out that the words mean what they say: they do not mean “second-best endeavours.” Certainly in their context in the order of December 8, 1972, I do not think the words cause any real difficulty. The defendant company has to use its best endeavours to see that the shareholders pass the resolution for the issue of the shares to the plaintiffs.

How do they propose to discharge that obligation, as indicated in the circular to which I have referred? Inter alia, it reads as follows:

“The board, on behalf of your company, have taken the opinion of” — a leading counsel — “(who did not act and was not concerned in either of the litigation matters hereinbefore mentioned on behalf of your company or any other party thereto), as to the rights and obligations of the board, your company and its shareholders as a result of the court order set out in appendix 1. His conclusions are set out in one paragraph which is contained in appendix 4 to this circular.” Then later it says: 

“Shareholders should seek advice as to their position from their solicitor, accountant or bank manager, if they are in doubt as to how to cast their votes.

“In accordance with the advice which has been given by counsel, shareholders are entitled to vote in whatever way they wish. In view of this the board is making no recommendation to them but is leaving the decision on how to vote to the judgment of individual members. Whatever the outcome it will have no effect on your company's quotation for its existing shares.

“At the lime the acquisition in Logan was negotiated between your company and Northern in December 1968 I was chairman of Northern as well as being chairman of your company. When the dispute arose between your company and Northern I chose to resign my position with Northern, which took effect from April 6, 1972.

“It has been suggested by your company's brokers that it would be invidious for me to vote. Accordingly I have considered this and for this reason alone I shall abstain from voting.”

The following passage I am about to read is contained in appendix 3 entitled: “General Information.” Paragraph 14 is:

“The cost of investment by J & S in Logan.

(a) If the resolutions to be put before the company in general meeting are passed the cost to your company of the acquisition will be £276,373 consisting of:

(i) Cash consideration, £150,000

(ii) Consideration attributable to the 370,000 ordinary shares previously referred to, £92,5001142 

(iii) Acquisition costs, £ 33,873. Subject to further legal fees to be ascertained.

(b) In addition if the resolutions are passed a sum of £54,500 will be payable to Northern in respect of arrears of dividend calculated from June 3, 1969, up to and including the interim dividend for the year ended December 28, 1973.

(c) If the resolutions are rejected the cost to your company will be £183,873 and further legal fees, as yet unascertained on the basis of the advice of leading counsel.”

Then a summary of the advice of leading counsel [in appendix 4] was given as follows: 

“(1) The undertaking to and order of the court in the action between Northern Counties Securities Ltd. (N.C.S.) and Jackson & Steeple Ltd. (the company) do not bind the shareholders of the company in their capacity of shareholders.

(2) There is no compulsion on the share-holders of the company to approve the proposed issue of shares to N.C.S. If they do not approve there can be no penalty upon them.

(3) The directors, officers and other agents of the company must, in those capacities, take normal proper steps to seek quotation for and permission to deal in the shares: but this does not in any way affect their position as shareholders: in that capacity they are entitled to decline to approve the issue, even if that has the effect of preventing the company from obtaining quotation and permission to deal.

(4) If quotation for and permission to deal in the shares are not obtained, the order for the allotment and issue of the shares never takes effect. In these circumstances N.C.S. could not get the shares, even if they were willing to take the shares without quotation; nor can they get anything else in compensation.”

In view of the fact at least two of the passages which I have just read either are, or are based directly upon, the opinion of the leading counsel referred to, it is perhaps difficult to come to the conclusion that the defendant company, activated by its directors, was intending deliberately to place itself in contempt of court by coldbloodedly breaking the terms of its undertaking to the court. But there can hardly be any question but that to tell shareholders “If you pass the resolutions, the company will have to pay £330,873 for the asset it has acquired from the plaintiffs, whereas if you do not pass them the cost will be something not much over £183,873” is to invite the shareholders to reject the resolution. Not even (as might have been expected, even if the advice of leading counsel was accepted wholly) words along the lines “But as honourable men running an honourable company we ought to stick to our bargain even although we might, through a legal technicality, be able to save ourselves £140, 000” are there.

As I say, I feel able to exonerate the directors from the charge of deliberately flouting the order of the court, although I can well understand that others, including the plaintiffs, may not take such a charitable view of their actions. But that the circular cannot be allowed to stand is, in my view, beyond all possible argument. It is founded on a wholly false premise. I cannot for one moment accept the concluding paragraph of the extract from counsel's opinion which I have read. He has over-looked altogether that the order, into which — as he correctly states — the rights of the plaintiffs have been transmuted, is one for the execution 1143 of the contract between the parties, and that if this cannot take place exactly as ordered, obviously a supplemental order must be made along the lines I have previously indicated. Counsel's opinion lacks not only sound legal conclusions, but also elementary notions of right. Mr. Instone, for the individual directors, with studied meiosis, called the conclusions “somewhat surprising.” For my part, I am sorry that such an  opinion should ever have gone out under the imprimatur of Lincoln's Inn.

But this is by no means the end of the matter; it is one thing to condemn the circular as actually sent out, quite another to decide what must go into it. I therefore turn to paragraph 2 of the plaintiffs' notice of motion. I do not think that any question arises as to paragraph 2 (i) and (ii), these being simply highly relevant matters of fact; (iii) was eventually abandoned by Mr. Price for the plaintiffs; and rather more reluctantly, he finally abandoned (iv) as being necessarily involved with the abandonment of (iii). Involved in this abandonment, however, was a consideration of the precise scope and effect of the well worn company law phrase “the company in general meeting” in relation to which — out of deference to the extremely persuasive arguments of both Mr. Price for the plaintiffs and Mr. Instone for the directors — I think it right to say a few wards.

Mr. Price argued that, in effect, there are two separate sets of persons in whom authority to activate the company itself resides. Quoting the well known passages from Viscount Haldane L.C. in Lennard's Carrying Co. Ltd. v. Asiatic Petroleum Co. Ltd. [1915] A.C. 705 , he submitted that the company as such was only a juristic figment of the imagination, lacking both a body to be kicked and a soul to be damned. From this it followed that there must be some one or more human persons who did, as a matter of fact, act on behalf of the company, and whose acts therefore must, for all practical purposes, be the acts of the company itself. The first of such bodies was clearly the body of directors, to whom under most forms of articles — see article 80 of Table A, or article 86 of the defendant company's articles which is in similar form — the management of the business of the company is expressly delegated. Therefore, their acts an the defendant company's acts; and if they do not, in the present instance, cause the defendant company to comply with the undertakings given by it to the court, they are themselves liable for contempt of court. And this, he says, is well recognised: see R.S.C., Ord. 45, r. 5 (1) , whereunder disobedience by a corporation to an injunction may result directly in the issue of a writ of sequestration against any director thereof. It is of course clear that for this purpose there is no distinction between an undertaking and an injunction: see note 45/5/3 in The Supreme Court Practice (1973).

This is, indeed, all well established law, with which Mr. Instone did not quarrel, and which indeed his first proposition asserted. But, continues Mr. Price, this is only half of the story. There are some matters in relation to which the directors are not competent to act on behalf of the company. the relevant authority being “the company in general meeting,” that is to say, a meeting of the members. Thus in respect of all matters within the competence — at any rate those within the exclusive competence — of a meeting of the members, the acts of the members are the acts of the company, in precisely the same way as the acts of the directors are the acts of the company. Ergo, for any shareholder to vote against a resolution to issue the shares here in question to the plaintiffs would be a contempt of 1144 court, as it would be a step taken by him knowingly which would prevent the defendant company from fulfilling its undertaking to the court. Mr. Price admitted that he could find no authority which directly assisted his argument, but equally confidently asserted that there was no authority which precluded it.  

Mr. Instone indicted Mr. Price's argument as being based upon “a nominalistic fallacy.” His precise proposition was formulated as follows:

“Whilst directors have special responsibilities as executive agents of the defendant company to ensure that the company does not commit a contempt of court, a shareholder, when the position has been put before the shareholders generally, who chooses to vote against such approval will not himself be in contempt of court.” Putting this into less formal language, what Mr. Instone submitted was that although it is perfectly true that the act of the members, in passing certain special types of resolutions, binds the company, their acts are not the acts of the company. There would, he submitted, be no real doubt about this were it not for the use of the curious expression “the company in general meeting” — which, in a sense, drags in the name of the company unnecessarily. What that phase really means, he submitted, is “the members (or corporators) of the company), assembled in a general meeting,” and that if the phrase is written out in full in this manner it becomes quite clear that the decisions taken at such a meeting, and the resolutions passed thereat, are decisions taken by, and resolutions passed by, the members of the company, and not by the company itself. They are therefore in the position of strangers to the order and are not in contempt by their act in voting as they please, whatever its effect may be. 

In my judgment, these submissions of Mr. Instone are correct. I think that, in a nutshell, the distinction is this: when a director votes as a director for or against any particular resolution in a director's meeting, he is voting as a person under a fiduciary duty to the company for the proposition that the company should take a certain course of action. When a shareholder is voting for or against a particular resolution he is voting as a person owing no fiduciary duty to the company and who is exercising his own right of property, to vote as he thinks fit. The fact that the result of the voting at the meeting (or at a subsequent poll) will bind the company cannot affect the position that, in voting, he is voting simply in exercise of his own property rights.

Perhaps another (and simpler) way of putting the matter is that a director is an argent, who casts his vote to decide in what manner his principal shall act through the collective agency of the board of directors; a shareholder who casts his vote in general meeting is not casting it as an agent of the company in any shape or form. His act therefore, in voting as he pleases, cannot in any way be regarded as an act of the company.

Mr. Instone in his second proposition which was as follows “Where it is necessary for the proper performance of a contract that something should first be approved by a third party who is not under the control of a party to the contract, the withholding of such approval with the result that the contract cannot be performed does not create a breach of contract,” was enunciating a proposition which he intended to relate to the shareholders in the defendant company. His “third party” is intended to be the shareholders, and they are not (in his words) “under the control” of the defendant company. I would accept this as far as it goes, but although an1145 acceptable proposition in the abstract, it does not, of course, have any relevance to the present case, where the contract is not in any way conditional, and where the order of the court is directed merely to ensuring — if at all possible — that the defendant company performs the contract to the letter rather than performs it partly, with compensation, or not al all, with damages.  

It is, I think, equally clear that the shareholders are not abetting the company to commit a contempt of court; the company is, indeed, by convening the requisite meeting and putting a positive circular before the members duly complying with the obligations which rest upon it. It will have done its best, and the rest is in the lap of the gods in the shape of the individual decisions of the members.

It would, of course, be otherwise if one could envisage any circumstances in which an order was made by the courts upon a company to do something, for example increase its capital (as distinct from using its best endeavours to increase its capital), which must, of necessity, involve the shareholders voting in a particular manner. But I, at any rate, cannot envisage any ordinary situation (as distinct from, f or example, a situation where all the shareholders were before the court and were bound by the order) where such an order would ever be made. It is for these reasons that I cannot accept paragraphs 2 (iii) and 2 (iv) of the notice of motion.

Passing from these topics for a moment, it also follows from what I have said earlier, that I accept paragraph 2(v) of the notice of motion. I cannot wholly accept paragraph 2 (vi); I think the words “to expose the company to proceedings for contempt of court” are inaccurate, and I have no means of knowing at present whether the damages payable to the plaintiffs in the event they should elect to take the shares without a Stock Exchange quotation would be “heavy.” In any event, I think the damages position ought to be explained fully in the circular. Paragraph 2 (vii) is again factual and should go in, slightly expanded so as to refer to what the terms of the current undertakings of the defendant company will actually be.

Having dealt so far with what the plaintiffs seek to have included in the circular, it appears to me that in a sense the most important matter has not been dealt with; that is to say, it must be a circular which, in order to comply with the defendant company's undertaking to the court, must be one inviting a favourable response. The question which it poses must be one which Latinists would preface with the word “nonne” and not with the word “num.” In other words, I accede to paragraph 3 (1) of the notice of motion; I do not consider that the circular should be left neutral. 

This only leaves for consideration the question in what manner the circular should, as a practical matter, be drafted. For even granted that the lines of the circular are fixed, there is clearly room for a considerable amount of light and shade therein. I think that, strictly, having regard to the issue of the present clearly offending circular, the correct course would be to refer the settlement of the circular to the master. This, however, would be a remedy which, I think, neither plaintiffs nor defendants would welcome; and, having regard to the attitudes which Mr. McCulloch, on behalf of the defendant company, and Mr. Instone, on behalf of the directors, have taken up before me, I am hopeful that it will be sufficient if I order that the circular which is to go out is to be as agreed between the plaintiffs and the defendants, in accordance with the foregoing principles, and only in default of agreement is it to be so settled.


I now come to paragraph 4 of the notice of motion, which seeks an order restraining the individual respondents and each of them from voting against the resolution. Mr. Price say that, as the executive agents of the defendant company, they are bound to recommend to its shareholders that they vote in favour of the resolution to issue the shares, and hence, at the least, they cannot themselves vote against it, for they would thereby be assisting the defendant company to do that which it is their duty to secure does not happen. If, as executive officers of the defendant company, they are bound to procure a certain result if at all possible, how can they, as individuals, seek to frustrate that result?

I regret, however, that I am unable to accede to Mr. Price's arguments in this respect. I much regret it, because I cannot see how, in common honesty, directors who have committed a company to a particular course of action can themselves seek, by their own acts as individuals, to frustrate it, more especially when they will thereby be rendering the company liable to pay damages, and possibly very heavy damages indeed. But even if that were not the case, the point on commercial honesty would remain. 

However, I do not see where this is meant to lead me. Suppose, for example, that a minority of the board had been throughout strenuously opposed to the company's entering into this contract, are they nevertheless, as individuals, to lose control of their right to vote adversely thereto? Suppose that, before the question of implementation arose, there had been a complete change in the character of the composition of the board, and the existing board were all bitterly hostile to their predecessors' actions? True it is that they would still be bound to procure the defendant company to honour its undertakings, but it is far from clear to me upon what principle they would be obliged, at the least, to have their own votes as members sterilised. Suppose that the members of the present board resigned on the eve of this meeting; would they then be entitled to vote as ordinary members, or not?

These examples show, I think, that Mr. Price's proposition is far from self-evident. I think it is wrong. I think that a director who has fulfilled his duty as a director of a company, by causing it to comply with an undertaking binding upon it is nevertheless free, as an individual share-holder, to enjoy the same unfettered and unrestricted right of voting at general meetings of the members of the company as he would have if he were not also a director.

Mr. Instone's propositions bearing on this point were as follows. 4. Where a court makes an order directing a party to an action to observe or do some act, this does not impose an obligation on someone who is not a party to the action to do anything. 5. (a) Directors of the defendant company who are not parties to the action but have either legally or by commercial custom a duty to advise shareholders as to their interests in approving or otherwise an acquisition are free to advise them as they, the directors, bona fide think fit. (b) All the shareholders, directors or not, are free to vote at relevant meetings as they think fit.

I would accept Mr. Instone's proposition no. 4 as a purely general statement of the law, but if applied to the directors of the defendant company, subject to such an order of the court, it is misleading. The 1147 directors, although not in express terms parties to the action, do come under an obligation, to procure that the defendant company acts in conformity with the order of the court, for the simple reason that if they did not there would never be any effective remedy of this nature against a company. The provisions of R.S.C., Ord. 45, r. 5 (1) stand as an awful warning that this proposition cannot be pushed to the lengths to which Mr. Instone would, perforce, push it. 

It follows inevitably that his proposition no. 5, both (a) and (b) — being stated by him to follow from no. 4 — is, again, too wide if it is intended to link up with proposition no. 4. I have no doubt that where aconditional contract is entered into — conditional, for example, upon the shareholders approving an increase in the capital of the company — there is, in general, no duty upon the company to procure the fulfilment of the condition, and in those circumstances proposition no. 5 (a) would be correct. But I think that a great deal must depend upon the precise condition, and upon the precise construction of the contract into which the company has entered. In any event, of course, this proposition is not geared to the facts of the present case, where the question never has been, whether the defendant company shall make the acquisition — it has already done so — but whether it will fairly and squarely discharge the obligation which lies upon it to satisfy the purchase consideration, or whether it will, in lieu, pay damages.

However, as I have already stated, I agree with proposition no. 5 (b), though not as a deduction from proposition no. 4. I would under this head finally call attention to section 138 of the Companies Act 1948 , under which it will be noted that on a poll a member may cast his votes both for and against any particular resolution. This provision was, as is well known, introduced to meet the difficulties of large trust corporations which might hold shares in a company on behalf of two or more trusts, whose respective interests might well require different exercises of its votes. This recognition of the fact that a shareholder in a company may have more than one capacity, and that in each capacity he is entitled to act as necessitated by such capacity, appears to me to be fully consistent with my view that in relation to the matters here in question, a director who is, as a director, bound to take one course, may, as an individual shareholder, take quite another. 

As regards paragraph 5 of the notice of motion, Mr. McCulloch, exercising, if I may say so, his usual admirable discretion, offered, as soon as the matter was raised, to give the undertaking thereby sought. This renders it wholly unnecessary for me to say anything about the circumstances giving rise to the claim for this extended relief.

In the upshot, the final outcome is as follows. First, I accepted Mr. McCulloch's undertakings in the terms of paragraph 5 of the notice of motion, on the hearing on Friday, March 22. Second, I then ordered that the meeting convened for April 5, 1974, should not take place, or, if it took place, should merely be adjourned sine die without proceeding to any business. The parties agreed that the best method of effecting this would be by means of a suitable press announcement together with a circular letter to the members of the defendant company, informing them that the meeting would not proceed to business and that they should ignore the 1148 present circular, or words to the like effect. I understand that a suitable announcement and letter was agreed between all parties.

Thirdly, I make an order in terms of paragraph 1 of the notice of motion, and order that the notice convening the meeting is to be accompanied by a circular, both the notice and the circular to be in terms approved by the plaintiffs, or, in default of such approval, to be settled by the master in conformity with the directions contained in this judgment. Fourthly, I make no order under paragraph 4of the notice of motion.

As regards costs, Mr. Instone, on behalf of the directors, wisely conceded that the motion could not be described as premature; he was, however, vitally concerned chiefly with those parts of Mr. Price's motion which I have held to have failed. I therefore think that the proper order, so far as the directors are concerned, is to say that there is to be no order with regard to costs either way.

So far as the defendant company is concerned, in my view the motion, although seeking in some respects rather more by way of relief than that to which I have held the plaintiffs entitled, was fully justified, and I think that the defendant company must accordingly pay to the plaintiffs the costs thereof. I am minded to make an order for the immediate taxation and payment of such costs — not in any sense as a mark of the court's displeasure — but merely because, having regard to the absolutely correct attitude exhibited by the defendant company through their present representative at the hearing, I would be very loth to think that there will now be any other event in this most unfortunate action.Order accordingly.

Referring Principles
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