MacDougall v Gardiner

MacDougall v Gardiner statement analysis



MacDougall v Gardiner statement analysis

In this article we are going to discuss the statement of MacDougall v Gardiner as 'If the majority are abusing their powers, and are depriving the minority of their rights, there the minority are entitled to come before this court to maintain their rights'. Starting from an introduction of statement and author we proceed towards the analytical aspects of the statement here.

The Joint Stock Companies Act 1844, which enabled companies to be formed by "deed of settlement" and the Limited Liability Act 1855, established a general incorporation procedure which offered limited liability to shareholders and gave recognition to the company as a separate legal persona. By the Joint Stock Companies Act 1856, the deed was replaced with today's style of constitution, namely the registration of the Memorandum of Association and the Articles of Association. The contents of these are now regulated under the Companies Act 1985, and form the "constitution" of the company. It is from the original 1844 Act that the wording was adopted for s.14 of the Companies Act 1985 which makes reference to the contractual nature of the memorandum and articles between the company and its shareholders.( Cheffins, 1998 126)

"Subject to the provisions of this Act, the memorandum and articles, when registered, bind the company and its members 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 to observe all the provisions of the memorandum and of the articles." s.14 Companies Act 1985

The memorandum deals with the external workings of the company. It has a specified minimum content in accordance with CA 1985, which includes the company's name, domicile, objects, extent of liability and share capital of the company. In contrast, the articles regulate the internal workings of the company and can be drawn up by the founders of the company and state the rights ands obligations of the company and its shareholders.

Also sometimes considered part of the constitution is a shareholders agreement, which binds the parties under normal contract law. If falling under the statutory provision in s.380 (CA 1985), the agreement must be registered in the same way as the memorandum and articles, though clauses in the shareholders agreement cannot contravene statutory provisions. In the case of Russell v Northern Bank Development Corpn Ltd, the House of Lords upheld a shareholders agreement on the basis that it could be interpreted as a voting agreement, even though it pertained to a restriction on increasing the share capital of the company.

Although s.14 applies to both the memorandum and the articles, it is generally the interpretation of the provision relating to the company's articles, that has become the cause of much debate and controversy. Confusion is centred on two areas - who are the parties to the constitution and what rights are conferred on them?( Davies, 2003 58)

Section 14 (CA 1985) makes it clear that there is a contract between ...