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Directing the Directors
By PATRICK USSHER, Lecturer in Law in the
University of Dublin (Trinity College).
Article 80 of Table A contained in the Companies Act
1963 delegates the power of managing a company's
business to its directors. Readers may need reminding
that Mr. John Temple Lang (
Gazette
1973, vol. 67,
p. 241), brought to the attention of those practitioners
who had not already spotted it a slight difference
between the wording of article 80 and its predecessor,
article 71, of the 1908 Act (faithfully reproduced as
article 80 of the British Companies Act 1948). Some of
the words which purported to qualify the delegation of
the management function to the directors had been
covertly excised from the horrible rigmarole of the old
article, and substitutes, allegedly of great significance,
had been inserted in the new form, so that the qualify-
ing words instead of reading "subject, nevertheless, to
any of these regulations, to the provisions of the Act
and to such
regulations,
being not inconsistent with the
aforesaid regulations or provisions, as may be
prescribed
by the company in general meeting" read instead "sub-
ject, nevertheless, to any of these regulations, • to the
provisions of the Act and to such
directions,
being not
inconsistent with the aforesaid regulations or provisions,
as may be
given
by the company in general meeting."
On the basis of this alteration, Mr. Temple Lang
argued that "Table A of the 1963 Companies Act totally
altered the balance of power between shareholders and
directors in relation to the management of a company
.. ."; he says "it is quite clear that for companies which
have adopted it, the shareholders in general meeting
may, by a 51% majority, give orders to the directors";
indeed, his conclusion is that the majority in general
meeting have a right "to give instructions to the direc-
tors as to how the business of the company should be
run."
I venture to throw some doubt on these conclusions.
Whilst it is theoretically possible for a Company's Con-
stitution to provide that the Directors shall obey the
General Meeting in matters of Management, the neyv
article 80 when construed in the context of the whole
of Table A cannot conclusively be said to have done
that. Though the new article 80 makes better sense
than its predecessor when viewed in isolation, it exists
uneasily in relation to the rest of Table A, and stands
as an illustration of the danger, familiar to practitioners,
of seeking to "improve" one clause of someone else's
draft without thinking through all the possible conse-
quences of one's alteration throughout the remainder
of the document.
The essential point to be grasped in construing the
new article 80 is that directions given thereunder are
expressly required not to be "inconsistent with" any of
the other Articles of Table A. In other words, the
other Articles, if inconsistent with a purported direc-
tion by the General Meetmg, will be dominant over and
thereby negative that direction. The question at once
arises : what (if any)
other
articles of Table A give an
exclusive function to the directors such that any pur-
ported interference by the General Meeting under article
80 would be merely an ineffective attempt at trespass?
One such category of cases might be found in the
type of article which uses imperative language to cast
a certain function upon the directors. For example,
article 116 says "the company in general meeting may
declare dividends, but no dividend
shall
exceed the
amount recommended by the directors." Or take article
5 which states that unissued shares "
shall
be at the
disposal of the directors". Where such language is used,
it would seem that the directors are being given an
exclusive
function to be exercised without interference
from a majority in general meeting.
Secondly, there are those articles giving powers to the
directors to be exercised by reference to
their own
state
of mind, in such terms that unless the directors possess
the requisite mental state the power cannot be properly
exercised at all. Article 117 is a case in point: the
directors may pay "such interim dividends
as appear to
the directors
to be justified by the profits of the
company." No amount of direction from the general
meeting can force the directors to exercise this power
if they themselves remain unconvinced. Those articles
which confer on the directors a power to be exercised
"in their absolute discretion" probably fall into this
category as well, the example being article 3 of Part II
of Table A which empowers directors of a private
company "in their absolute discretion, and without
assigning any reason therefor" to decline to register
the transfer of any share therein.
The third possible category is an extension of the
second, and is, perhaps, the most important. These are
the numerous instances found throughout Table A
where the directors are simply given a power, i.e. an
article stating that they "may" do something. As with
every unadorned power, the holder has a discretion
whether or not to exercise it. Such discretions are
usually personal to the holder of the power with the
result that no one else can tell him to exercise it. For an
example drawn from trust law, see
Re Brockbank
[1948] Ch, 206 where a trustee possessing a power was
held justified in refusing to heed the unanimous
clamourings of the beneficiaries that he should exercise
it. Conclusions such as this would seem to follow from
the juridical nature of a mere power; there should not
be any requirement that the power be fiduciary, though
it usually will be. Even if there were such a require-
ment, it is trite knowledge that powers given by the
articles to directors do possess fiduciary characteristics:
for an Irish example, see
Nash
v.
Lancegaye Safety
Glasi (Ireland) Ltd.
(1958) 92 I.L.T.R. 11. So, on the
basis of the foregoing, it would seem that discretions
given to the directors by articles other than article 80
are personal to the directors and are exclusively theirs
with the result that any purported interference by the
general meeting with those discretions by way of direc-
tion under article 80 would be ineffective as "inconsis-
tent with" the other article in question. One could arrive
at the same conclusion by a somewhat shorter route,
namely by construing article 80 directions as applying
only
t» -those matters which have not been delegated
to the directors by the other articles, the rationale being
that it would be "inconsistent with" those other articles
if article 80 were to cut down their apparent effect
in any way. But whatever the route, the admission of
this third category of articles inconsistent with article
80 has far-reaching consequences, and is perhaps the
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