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Content Type Cases
Title : Allen v Gold Reefs of West Africa Ltd
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Status: Positive or Neutral Judicial Treatment

*656 Allen v Gold Reefs of West Africa, Limited.


Same. v Same.
Court of Appeal
19 February 1900

[1897 A. 585.][1897 A. 977.]

[1900] 1 Ch. 656


Lindley M.R. , Vaughan Williams L.J. and Romer L.J.
1900 Jan. 18, 19, 20; Feb. 19.
Company—Articles of Association—Shareholder—Vendor's Shares—Fully Paid Shares—
Unpaid Shares—Calls—Arrears—Debts—Lien of Company on Unpaid Shares—Alteration
of Articles—Special Resolution—Lien on Fully Paid Shares for Arrears of Calls on Unpaid
Shares—Contract—Retrospective Effect of Altered Articles— Companies Act, 1862 (25 &
26 Vict. c. 89), s. 50 —General Meetings—Notice—Service—“Member”—Deceased
Member—Legal Personal Representatives.
A limited company by one of its articles provided that it should have a lien for all
debts and liabilities of any member to the company “upon all shares (not being fully
paid) held by such member.”
The company, by way of purchase-money for the property acquired by it, allotted
fully paid shares to Z., a nominee of the vendor to the company. Z. also applied for
and had allotted to him shares not paid up. He was the only holder of fully paid-up
shares. At his death he was indebted to the company in arrears of calls on the
unpaid shares, but his assets were insufficient to pay the arrears. Thereupon the
company, by special resolution under s. 50 of the Companies Act, 1862 , altered the
above articles by omitting therefrom the words “not being fully paid,” thus creating a
lien on Z.'s fully paid shares:—
Held, by the Court of Appeal (Lindley M.R., Vaughan Williams and Romer L.JJ.), that
the company had power to alter its articles by extending its lien to fully paid shares:
Held, also, by Lindley M.R. and Romer L.J. (Vaughan Williams L.J. dissenting), that
the lien so extended, having been made in good faith, was enforceable against Z.'s
fully paid shares, since he took them subject to the original articles and the power of
altering them given to the company by s. 50 of the Act, and did not make any
special or implied bargain that they should not be affected by any subsequent
alteration of the articles; and that the fact of those shares being vendor's shares
allotted in payment for the property purchased by the company, instead of being
shares paid for in cash in the ordinary way, was immaterial.
James v. Buena Ventura Nitrate Grounds Syndicate, [1896] 1 Ch. 456 , and Andrews
v. Gas Meter Co., [1897] 1 Ch. 361 , considered as to the “retrospective” effect of an
alteration by a company of its articles.
Page 3

Where, under a company's articles, notice of general meetings is to be given to


“members,” and such notice may be served upon any “member” either personally or
by sending it prepaid by post addressed to “such *657 member” at his registered
address, it is not necessary, in the case of a deceased member, either to send a
notice addressed to him at his registered address, or to serve his legal personal
representatives unless they have themselves become “members” by formal
registration.
Judgment of Kekewich J., [1899] 2 Ch. 40 , varied.
1
APPEAL from the judgment of Kekewich J.
The defendant company, the Gold Reefs of West Africa, Limited, was incorporated on
July 2, 1895, under the Companies Acts, 1862 to 1890. Clause 5 of the memorandum of
association was as follows: “The capital of the company is 90,000l., divided into 360,000
shares of 5s. each. The said shares or any shares issued upon an increase of capital or
any portion thereof respectively may be issued fully paid up, at a premium, or at par,
and with such preference, privileges or priority over or postponement to the remaining
or any other shares of the company in respect of dividends or otherwise as may be
determined.” The memorandum was accompanied by articles of association, which
provided (art. 2) that the word “member” should mean a registered holder of any share
or stock of the company; (art. 22) that if any “member” failed to pay any call,
instalment, or interest, the directors might serve a notice on such “member” requiring
him to pay the same, together with further interest from the date of the notice, and all
expenses incurred by the company through such non-payment; (art. 23) that the notice
should name a day on which such call, instalment, or interest was to be paid, and also
state that in the event of non-payment the shares in respect of which the call was made
or the instalment was payable would be liable to be forfeited; (art. 24) that if the
requisitions of the notice were not complied with, any share in respect of which such
notice had been given might be forfeited by a resolution of the directors to that effect;
(art. 25) that any share so forfeited should be deemed to be the property of the
company, and might be disposed of as the directors thought fit; (art. 26) that any
member whose shares had been forfeited should, notwithstanding, be liable to pay and
should forthwith pay to the company all calls, instalments, interest, and expenses *658
owing upon or in respect of such shares at the time of the forfeiture, together with
interest thereon from the time of forfeiture until payment, in the same manner as if the
shares had not been forfeited, and to satisfy all (if any) the claims and demands which
the company might have enforced in respect of the shares at the time of forfeiture,
without any deduction or allowance for the value of the shares at the time of forfeiture;
(art. 27) that the forfeiture of a share should involve the extinction at the time of
forfeiture of all interest in and all claims and demands against the company in respect of
the share, and all other rights and liabilities incidental to the share as between the
shareholder and the company, except only such rights and liabilities as were by the
articles expressly saved, or as were by the statutes given or imposed in the case of past
members; (art. 28) that a record in the minute-book of the company of the forfeiture of
a share should be conclusive evidence as against all persons claiming to be entitled to
the share as forfeited; (art. 29) “that the company shall have a first and paramount lien
for all debts, obligations, and liabilities of any member to or towards the company upon
all shares (not being fully paid) held by such member. …Provided always that if the
company shall register, or agree to register, any transfer of any share upon which it has
Page 4

such lien as aforesaid without giving to the transferee notice of its claim, the said share
shall be freed and discharged from the lien of the company”; (art. 30) that the directors
might serve upon any member who was indebted or under obligation to the company a
notice requiring him to pay the amount due to the company, or satisfy the said
obligation, and stating that if payment were not made, or the obligation satisfied, within
a time (not less than fourteen days) specified in such notice, the share held by such
member would be liable to be sold; and that if such member should not comply with
such notice, the directors might sell such share without further notice; (art. 38) that the
directors might, in their discretion, refuse to register the transfer of any shares upon
which the company had a lien, and in case the shares proposed to be transferred should
be not fully paid up might decline to register a transfer of the same to any person not in
*659 their opinion a responsible person; (art. 41) that “the executors or administrators
of a deceased member (not being one of several joint holders) shall be the only persons
recognised by the company as having any title to the shares registered in the name of
such member…”; (art. 42) that any person becoming entitled to a share in consequence
of the death of any member might elect either to be registered himself as a holder, or to
have some person nominated by him registered as a transferee thereof; (art. 45) that a
person so becoming entitled should, subject to any lien of the company, be entitled to
receive dividends, bonuses, or other moneys payable in respect of the share, but should
not be entitled to receive notices of, or to attend or vote at meetings of the company, or,
save as aforesaid, to any of the rights or privileges of the members, unless and until he
should have become a member in respect of the shares; (art. 74) that notice of general
meetings should be given to such members as were, under the provisions therein
contained, entitled to receive notices; but the accidental omission to give such notice to,
or the non-receipt of such notice by, any member, should not invalidate any resolution
passed at any such meeting; (art. 88) that no member should be entitled to be present
or vote at any meeting unless he had paid all calls and other moneys due from him to
the company; and (art. 170) that “a notice may be served by the company upon any
member either personally, or by sending it prepaid by post addressed to such member at
his registered address as appearing in the register of the members of the company.” The
articles contained no special provision for service of notices in the case of a deceased
member. With reference to art. 29, it seems that a lien on fully paid-up shares of a
company, or the possibility of such a lien, renders them unquotable on the Stock
Exchange.
Shares, both fully paid up and not fully paid up, were issued by the company. One Emilio
Zuccani, as the nominee of the vendor to the company, had a number of fully paid-up
shares allotted to him by way of purchase-money for the property acquired by the
company under their memorandum of association, and he held 27,885 of these shares at
the time of his *660 death, these shares being his own property. It did not appear that
when Zuccani took these shares he entered into any special bargain conferring upon him
any special rights in respect of them.
In addition to these fully paid-up shares, Zuccani applied for and had allotted to him
60,000 ordinary 5s. shares, not paid up. These were applied for and allotted on the
terms of the company's prospectus (on which no question turned) and articles of
association. Calls were from time to time made in Zuccani's lifetime on these unpaid-up
shares, but he did not pay the calls when they became due, and as early as May, 1896,
and thenceforward during his life letters were sent to him pressing for payment of his
Page 5

arrears. Although he did not pay his calls, he constantly paid up quantities of shares in
full before their amounts had been called up: in other words, he from time to time not
only paid all the calls due on some of his shares, but also prepaid the uncalled-up
amounts of the same shares. He did this constantly all through 1896, and in that way he
was able to sell and transfer the shares so paid up free from all liability to calls and from
all lien in favour of the company. From the money so obtained by him he made
remittances to the company on account of his calls in arrear. His object in fully paying up
batches of these shares in the way described was to obtain shares which he could put on
the market free from all claims and demands by the company. This, it appeared, the
directors allowed him to do as a favour or accommodation to him. All the shares thus
paid up were transferred by him in his lifetime; he did not hold any of them at the time
of his death.
Zuccani died on February 4, 1897, leaving a will which was proved by the plaintiffs, his
executors.
At the time of his death he was the registered holder of the 27,885 fully paid-up
vendor's shares, and also of 36,435 other shares partly paid up, and he owed the
company 6072l. 10s. for calls in respect of these, besides interest to a considerable
amount.
The plaintiffs did not get themselves registered as members of the company in respect
of any of Zuccani's shares, and they *661 had not sufficient assets to answer his
liabilities. Steps were taken to have his estate administered in the Chancery Division, but
the company, instead of electing to carry in a proof for its debt, proceeded to take more
summary measures for recovering it.
In the first place, on February 9, 1897, a notice was sent out of an extraordinary general
meeting of the company to be held on February 18, for the purpose of passing a special
resolution to alter art. 29 of the articles of association (being the article giving a lien for
all debts, &c., upon shares “not being fully paid”) by omitting the words “not being fully
paid.” This notice was posted to Zuccani at his registered address, although the directors
were then aware of his death. The meeting was held on February 18, and the special
resolution was then passed. Thereupon notice of a confirmatory meeting to be held on
March 8 was, as before, sent to Zuccani's registered address. Both notices, addressed to
Zuccani personally, came to the knowledge of the plaintiffs, his executors. On March 8
the confirmatory meeting was held and the resolution confirmed. Thus the company
claimed to extend their lien to all fully paid-up shares. There were in fact no fully paid-up
shares except those belonging to Zuccani.
The next step the company took was this. On June 4, 1897, the directors, purporting to
act under arts. 22, 23, and 24, posted to Zuccani at his registered address a notice
requiring payment by June 21 of the 6072l. 10s. due for calls on the 36,435 shares, a
sum of 804l. 6s. 11d. for interest on arrears of calls, and further interest from the date
of the notice; the notice also stating that in the event of non-payment by the time
appointed those shares would be liable to be forfeited. This notice was sent also to the
plaintiffs, Zuccani's executors, who had not then lodged the probate of his will with the
company for registration. The amounts demanded were not paid, and on June 23 the
directors passed a resolution purporting to forfeit the 36,435 partly paid-up shares.
On January 29, 1897, the directors had refused to register a transfer of some of
Zuccani's fully paid-up shares, but ultimately, finding that the articles gave no power to
Page 6

the company or its *662 directors to refuse to register a transfer of fully paid-up
shares, they passed the transfer.
The object of the plaintiffs in bringing these consolidated actions was to obtain a
declaration that the defendant company had no lien upon the fully paid-up shares, and
an injunction to restrain the forfeiture of the partly paid-up shares.
At the trial of the actions Kekewich J. held, as already reported 2 , (1.) that the notice
threatening forfeiture was bad upon the grounds (among others) that, as the company
or its directors were aware of Zuccani's death at the time they served the notice by
registered letter addressed to him at his registered address, this service was not
sufficient to bind his estate, and that the service of the notice upon his executors was
also ineffectual, an executor of a deceased member of a company not being a “member,”
unless duly registered as such; and (2.) that the notices of the meeting of the company
to pass the resolution altering art. 29 were also ineffectual as having been addressed to
Zuccani after the directors had become aware of his death. His Lordship therefore
considered it unnecessary to decide the further question whether the company could
alter its articles so as to create a lien upon Zuccani's fully paid-up shares. His Lordship
accordingly gave judgment granting an injunction restraining the defendant company
from enforcing the lien.
From that judgment the company appealed. The appeal was heard on January 18, 19,
20, 1900.
Their Lordships held that owing to mistakes on the part of the company there had been
no effective forfeiture of the unpaid-up shares, and on that point affirmed the judgment
of the Court below. The main question on which the case is now reported was whether
the company had power to alter its original articles by giving itself a lien upon Zuccani's
fully paid-up shares; and there was also the minor question as to the validity of the
notices sent to Zuccani's registered address of the meetings of February 18 and March 8,
at which the special resolution altering the articles was passed and confirmed.
*663
Warrington, Q.C. , and Dunham , for the defendant company. First, there was no
irregularity in the proceedings for passing and confirming the resolution altering art. 29.
Zuccani the “member” being dead, sending a notice to his registered address was merely
superfluous; and art. 45 dispenses with the necessity of serving the executors of any
deceased member with notice. The proceedings for passing the resolution being then
perfectly regular, the next and most important question is whether the company could
by special resolution alter its articles so a's to impose a lien upon Zuccani's fully paid-up
shares. The articles of a company constitute a contract as between a company and each
member of it: Companies Act, 1862 (25 & 26 Vict. c. 89), s. 16 . Under s. 50 3 a
company may at any time alter its articles, and a member, by virtue of his contract,
takes his shares subject to that right. The present question as affecting the powers of a
company has not been actually decided in any reported case, but in the case of a
building society it has been held that such a society can divest the previously existing
rights of a member by altering its articles: Pepe v. City and Suburban Permanent
Building Society4 ; and we submit that in principle that case covers the present.
[ROMER J. Can you alter articles so as to affect past transactions?]
We do not propose to alter the relation of debtor and creditor as between Zuccani and
Page 7

the company: quâ debtor, his position remains the same as before; all that happens is
that, quâ *664 holder of fully paid shares, we seek to impose a certain liability upon his
holding.
[ROMER L.J. In Menier v. Hooper's Telegraph Works5 it was held that, where the majority
of a company propose to benefit themselves at the expense of the minority, the Court
may interfere to protect the minority.]
In that case the majority were proposing to put a large sum into their pockets in fraud of
the minority; that is not the case here.
[LINDLEY M.R. In Andrews v. Gas Meter Co. 6 it was held that the constitution of a
company could be altered by special resolution under the powers conferred by ss. 50 and
51 of the Companies Act, 1862 .]
Suppose a company, instead of having articles of association, started with Table A,
under the power contained in s. 15 , it would have the power of altering those statutory
articles under the statutory provision.
[VAUGHAN WILLIAMS L.J. Do you say that, if a company adopts the provisions of Table
A, it could afterwards alter them so as to alter accrued rights?]
Yes; for the contract made by the shareholder with the company is that the regulations
of the company may be altered in accordance with the statutory provision. Under Table
A, clause 10, the company may decline to register any transfer of shares made by a
member who is indebted to them; and clause 75 empowers the directors to deduct from
the dividends payable to any member all debts due to the company for calls or
otherwise. That clause, though not providing for lien in terms, has that effect. Therefore
Table A does contemplate giving the company certain rights as against its members who
may be indebted to it; and what is included in the statutory Table A is surely a proper
subject for articles of association. If by Table A, or by the original articles of association,
the company can give itself a charge on the shares of its members, it can, by special
resolution under s. 50, alter its regulations so as, if necessary, to give itself that right. In
other words, a *665 company can by its new articles do what it could have validly done
by its original articles.
[VAUGHAN WILLIAMS L.J. But the new articles do not take effect as from the date of the
incorporation of the company.]
We do not say that the new articles are to have any retrospective effect so as to affect
the validity or invalidity of what has been done in past years. They have no more
retrospective effect than they had in Andrews v. Gas Meter Co.7 , though it may be said
that there is nothing in the Act to prevent their having a retrospective effect. An
alteration of the articles cannot be capricious or arbitrary, for all the shareholders
affected have the opportunity of being present and discussing and voting on the
resolution for that purpose.
Renshaw, Q.C. , and Kerly , for the plaintiffs. First, we submit that this resolution
creating a lien upon Zuccani's fully paid-up shares was an oppressive act as against him,
he being the only holder of fully paid-up shares in the company. Secondly, we contend
that a company cannot, by resolution under s. 50, do any act retrospectively affecting
the rights of any shareholder, nor can such a resolution operate upon the general body
of shareholders unequally. Now it is absurd to say that all the shareholders here have
been dealt with on an equality. In Andrews v. Gas Meter Co. 8 all the members of the
Page 8

company were dealt with alike - there was equal treatment. To say that the articles can
be altered because the contract to which the shareholder is a party is that the articles
may be altered, is begging the question. The authorities shew that a resolution altering
the regulations of a company cannot retrospectively affect existing rights: Buckley on
Companies, 7th ed. p. 206; per Rigby L.J. in James v. Buena Ventura Nitrate Grounds
Syndicate9 ; Swabey v. Port Darwin Gold Mining Co.10 The same principle is applied in the
construction of statutes: Maxwell on the Interpretation of Statutes, 3rd ed. p. 298. Pepe
v. City and Suburban Permanent Building Society 11 was a building society case, and
there is a distinction *666 between such a case and the present. A building society is a
mutual trading concern; its members are not merely a corporation, but are persons
carrying on business with each other through the society upon certain rules governing
their rights in their relations to each other. By s. 16 of the Building Societies Act, 1874
(37 & 38 Vict. c. 42) , the contract which a member of a building society is to enter into
is required to be set out in the rules of the society, and the rules are to state the manner
of altering or rescinding the rules. Then s. 17 requires copies of the rules - which include
the power of alteration - to be sent to the registrar, who, if he finds that the rules
comply with s. 16, is to register them; and by s. 18 any alteration is to be certified by
him. Thus the parties enter into the contract well knowing that the rules may be altered
- a circumstance which makes a great difference between a building society and a
company. Then, even to the power of a building society to alter its rules there must be a
limit, in that the alteration must not be directed against an individual member: all the
members must be affected equally: Strohmenger v. Borough of Finsbury Permanent
Investment Building Society12 ; so that even in the case of a building society an
alteration of the rules may be bad through being inequitable as between the members.
This is illustrated by Sixth West Kent Mutual Building Society v. Shove 13 ; and it is on
that ground that Pepe v. City and Suburban Permanent Building Society 14 can stand.
That case does not affect our contention that there must be equality among the
members of the company.
Again, we charge the company with bad faith in passing this resolution for an alteration
of the articles which was intended to operate as against a single shareholder. The
majority of shareholders in a company cannot appropriate to themselves the advantages
of having the shares of a single shareholder or of a minority of the shareholders tied up
for their own benefit and at their own discretion. Here, but for this alteration, Zuccani's
paid-up shares might have been sold, and with the proceeds his partly paid shares might
have been *667 fully paid up. If he had been alive to vote on that resolution, it would
not have been passed. Why was the notice of the meeting to pass the resolution delayed
until immediately after his death? Because those who fathered it thought this would
result in an advantage to themselves. It was in fact an attempt by a majority of partners
to do a particular act without consulting the others - a proceeding which was
disapproved by Lord Eldon in Const v. Harris . 15
Warrington, Q.C. , in reply. As to the argument that if Zuccani had been living the
resolution would not have been passed, he would, through being indebted to the
company, have been precluded from being present at the meeting by art. 88.
With regard to the resolution itself, I admit that the alteration in the articles was
expressly intended to enable the company to recover from Zuccani a large sum of money
which he could not otherwise pay, although the company had been repeatedly pressing
him.
Page 9

[ROMER L.J. I do not see that the directors were to be blamed for doing their best to
recover for the company this very large sum of money.]
They were doing what, if the law allowed them to do it, would enable them to recover
this money. Does then the law allow a company to alter its articles by imposing a lien on
its fully paid-up shares? Take the case by steps. In the first place, by s. 14 of the
Companies Act, 1862 , a company may adopt and register articles of association. Then,
by s. 15, if no articles are registered, Table A is to constitute the regulations of the
company. Now Table A contains several provisions, such as clauses 10 and 75, giving a
company certain rights as against shareholders who are indebted to it and so enabling it
to control their interests in their shares. A company can undoubtedly create a lien on its
shares by its original articles: Buckley on Companies, 7th ed. p. 97; Bradford Banking
Co. v. Briggs16 ; Bank of Africa v. Salisbury Gold Mining Co. 17 If, then, a company has
power to create a lien by its original articles, surely it has power to do so by special
resolution under *668 s. 50. What is the effect of a company's articles of association?
Sect. 16 of the Act says that “when registered, they shall bind the company and the
members thereof to the same extent as if each member had subscribed 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.”
Then the next step is to s. 50, under which it is clearly competent to the company to
alter its original articles in any way, and there is nothing there excluding the power of
altering them by creating a lien on any of the shares. The section goes on to provide
expressly that the new regulations shall have “the same validity as if they had been
originally contained in the articles of association.” It is thus part of the contract entered
into by any shareholder that the articles may be altered and that any new articles shall
be of the same validity as if they had formed part of the original articles.
[VAUGHAN WILLIAMS L.J. The section only says that the new articles shall have “the
same validity” as the original articles, not “the same effect.”]
The section means that the company can by any new articles do that which it could have
validly done by its original articles; and the creation of a lien upon any of its shares,
whether paid up or not, by its original articles is clearly valid, as appears from the two
cases in the House of Lords I have already cited. I concede that the shareholder on
taking his shares might make a special bargain that the articles should not be altered so
as to affect his shares, and that the company could not thereafter do anything affecting
that special contract; but here there was no special contract outside the articles.
[VAUGHAN WILLIAMS L.J. Suppose the original articles provided for the priorities of
different classes of shares: could that afterwards be altered by special resolution under
s. 50?]
I am not satisfied that such a thing could not be done by special resolution.
[VAUGHAN WILLIAMS L.J. Surely, if the original articles constitute the materials for a
binding contract, the company *669 has lost its power of altering the articles in such a
manner as to alter that contract.
ROMER L.J. The company has held out by its articles that if you pay up your shares in
full you shall have special privileges. Can the company after that take those privileges
away?]
Page 10

Here Zuccani was a vendor taking fully paid-up shares as purchase-money, knowing, as
he must be taken to have known, that the company might afterwards alter its articles so
as to apply to all fully paid-up shares, including his own. The resolution altering the
articles is not really retrospective: it is in a sense, because it alters the shareholder's
original position; but it takes effect only from the time it is passed.
As to the alleged distinction between building society cases and company cases, for the
purpose of applying legal principles no true distinction can be drawn. There is practically
no difference between the two classes of cases.
LINDLEY M.R. This is an important case, and requires consideration.
Cur. adv. vult.
Feb. 19. LINDLEY M.R.
This is an appeal from a judgment of Kekewich J. granting an injunction restraining the
defendants from enforcing a lien on some fully paid-up shares in the company and
belonging to a deceased shareholder named Zuccani. The appeal is not only important to
the parties to it, but it raises several questions of great general interest relating to the
power of limited companies to alter their articles, and especially to their power to alter
their articles so as to affect shares standing in the names of deceased shareholders, and
to the effect of an alteration duly made on vendors' fully paid-up shares issued before
the alteration is made.
The facts are as follows: [His Lordship then stated the facts leading up to the steps for
passing the special resolution, and referred to the memorandum and articles of
association as above set out. He observed that the lien conferred by art. 29 clearly
extended to all Zuccani's unpaid shares, and did not cease on his death, but continued to
be as available against *670 his executors (though not themselves members) as it had
been against him in his lifetime; as, independently of any article, a lien on property did
not cease on the death of the owner of the property. So far, therefore, as Zuccani's
unpaid-up shares were concerned, his Lordship held that the company was entitled to
the lien and power of sale conferred by arts. 29 and 30 - a right that had not in fact
been disputed. His Lordship then proceeded:—]
The directors, however, desired to extend the lien and power of sale and power to refuse
to register transfers to Zuccani's fully paid-up shares. I say, to his shares, for he was the
only person entitled to fully paid-up shares from whom any calls were due. Accordingly
steps were taken to pass a special resolution to alter art. 29 by striking out the words
“not being fully paid,” and a resolution to that effect was passed on February 18, 1897,
and was confirmed on March 8, 1897. Notice convening these meetings was sent
addressed to Zuccani at his registered place of address; and the notice came to the
knowledge of his executors. The directors knew that he was dead; but I cannot agree
with the learned judge that the resolution is invalid by reason of any defect in the notice.
Notices of meetings have only to be given to members, and the executors were not
members. If no notice at all had been sent to the executors or to Zuccani's registered
address, the omission would not, in my opinion, have affected the propriety of holding
the meetings or the validity of the resolutions passed at them. Art. 45 expressly
provided that notices of meetings need not be sent to executors who had not become
members. To hold that meetings of companies could not be properly held unless the
notices convening them were given to the unregistered legal personal representatives of
all deceased members would be to paralyze the transaction of business, and would be
Page 11

contrary to the ordinary principles applicable to corporate bodies and, indeed, to other
associations as well. The regularity of the proceedings to alter the articles by no means,
however, disposes of the matters in controversy between the parties.
The facts above stated raise the following very important questions, namely, (1.)
Whether a limited company, registered *671 with articles conferring no lien on its fully
paid-up shares, can by special resolution alter those articles by imposing a lien on such
shares? (2.) Whether, if it can, the lien so imposed can be made to apply to debts owing
by fully paid-up shareholders to the company at the time of the alteration of the articles?
(3.) Whether, if it can, fully paid-up shares allotted to vendors of property to the
company are in any different position from other fully paid-up shares issued by the
company? (4.) Whether, assuming the altered articles to be valid and to be binding on
the general body of the holders of fully paid-up shares in the company, there are any
special circumstances in this particular case to exclude the fully paid-up shares held by
Zuccani from the operation of the altered articles?
The articles of a company prescribe the regulations binding on its members: Companies
Act, 1862, s. 14 . They have the effect of a contract (see s. 16 ); but the exact nature of
this contract is even now very difficult to define. Be its nature what it may, the company
is empowered by the statute to alter the regulations contained in its articles from time to
time by special resolutions ( ss. 50 and 51 ); and any regulation or article purporting to
deprive the company of this power is invalid on the ground that it is contrary to the
statute: Walker v. London Tramways Co.18
The power thus conferred on companies to alter the regulations contained in their
articles is limited only by the provisions contained in the statute and the conditions
contained in the company's memorandum of association. Wide, however, as the
language of s. 50 is, the power conferred by it must, like all other powers, be exercised
subject to those general principles of law and equity which are applicable to all powers
conferred on majorities and enabling them to bind minorities. It must be exercised, not
only in the manner required by law, but also bonâ fide for the benefit of the company as
a whole, and it must not be exceeded. These conditions are always implied, and are
seldom, if ever, expressed. But if they are complied with I can discover no ground for
judicially putting any other restrictions on the power conferred by the section than those
*672 contained in it. How shares shall be transferred, and whether the company shall
have any lien on them, are clearly matters of regulation properly prescribed by a
company's articles of association. This is shewn by Table A in the schedule to the
Companies Act, 1862, clauses 8, 9, 10. Speaking, therefore, generally, and without
reference to any particular case, the section clearly authorizes a limited company,
formed with articles which confer no lien on fully paid-up shares, and which allow them
to be transferred without any fetter, to alter those articles by special resolution, and to
impose a lien and restrictions on the registry of transfers of those shares by members
indebted to the company.
But then comes the question whether this can be done so as to impose a lien or
restriction in respect of a debt contracted before and existing at the time when the
articles are altered. Again, speaking generally, I am of opinion that the articles can be so
altered, and that, if they are altered bonâ fide for the benefit of the company, they will
be valid and binding as altered on the existing holders of paid-up shares, whether such
holders are indebted or not indebted to the company when the alteration is made. But,
as will be seen presently, it does not by any means follow that the altered article may
Page 12

not be inapplicable to some particular fully paid-up shareholder. He may have special
rights against the company, which do not invalidate the resolution to alter the articles,
but which may exempt him from the operation of the articles as altered.
The conclusion thus arrived at is based on the language of s. 50, which, as I have said
already, the Court, in my opinion, is not at liberty to restrict. This conclusion, moreover,
is in conformity with such authorities as there are on the subject. Andrews v. Gas Meter
Co.19 is an authority that, under s. 50 of the Companies Act, 1862 , a company's articles
can be altered so as to authorize the issue of preference shares taking priority over
existing shares, although no power to issue preference shares was conferred by the
memorandum of association or by the original articles. The answer to the argument that
the company could not alter existing rights is that, within the *673 limits set by the
statute and the memorandum of association, the rights of shareholders in limited
companies, so far as they depend only on the regulations of the company, are subject to
alteration by s. 50 of the Act.
The decision of the late Lord Justice Chitty in Pepe v. City and Suburban Permanent
Building Society20 is, in principle, also closely in point. A member of a building society,
who had given notice of withdrawal, and who by the rules, as they then stood, became
entitled to a certain sum of money, was held to be deprived of his right to that sum by
an alteration made in the rules before he had ceased to be a member. This case went
very far, but it has been treated as correct in Botten v. City and Suburban Permanent
Building Society . 21
It was urged that a company's articles could not be altered retrospectively, and reliance
was placed on Rigby L.J.'s observations in James v. Buena Ventura Nitrate Grounds
Syndicate . 22 The word “retrospective” is, however, somewhat ambiguous, and the
concurrence of Rigby L.J. in Andrews v. Gas Meter Co.23 shews that his observations in
James v. Buena Ventura Nitrate Grounds Syndicate 24 are no authority for saying that
existing rights, founded and dependent on alterable articles, cannot be affected by their
alteration. Such rights are in truth limited as to their duration by the duration of the
articles which confer them.
But, although the regulations contained in a company's articles of association are
revocable by special resolution, a special contract may be made with the company in the
terms of or embodying one or more of the articles, and the question will then arise
whether an alteration of the articles so embodied is consistent or inconsistent with the
real bargain between the parties. A company cannot break its contracts by altering its
articles, but, when dealing with contracts referring to revocable articles, and especially
with contracts between a member of the company and the company respecting his
shares, care must be taken not to assume that the contract involves as one of its terms
an article which is not to be altered.
*674
It is easy to imagine cases in which even a member of a company may acquire by
contract or otherwise special rights against the company, which exclude him from the
operation of a subsequently altered article. Such a case arose in Swabey v. Port Darwin
Gold Mining Co.25 , where it was held that directors, who had earned fees payable under
a company's articles, could not be deprived of them by a subsequent alteration of the
articles, which reduced the fees payable to directors.
I take it to be clear that an application for an allotment of shares on the terms of the
Page 13

company's articles does not exclude the power to alter them nor the application of them,
when altered, to the shares so applied for and allotted. To exclude that power or the
application of an altered article to particular shares, some clear and distinct agreement
for that exclusion must be shewn, or some circumstances must be proved conferring a
legal or equitable right on the shareholder to be treated by the company differently from
the other shareholders.
This brings me to the last question which has to be considered, namely, whether there is
in this case any contract or other circumstance which excludes the application of the
altered article to Zuccani's fully paid-up vendor's shares.
First, let us consider the shares. I am unable to discover any difference in principle
between one fully paid-up share and another. Whether a share is paid for in cash or is
given in payment for property acquired by the company appears to me quite immaterial
for the present purpose. In either case the shareholder pays for his share, and in either
case he takes it subject to the articles of association and power of altering them, unless
this inference is excluded by special circumstances.
Next let us consider whether a vendor who makes no special bargain except that he is
to be paid in fully paid-up shares is in any different position from other allottees of fully
paid-up shares. I fail to see that he is, unless he stipulates that his shares shall be
specially favoured. Zuccani bargained for fully paid-up shares and he got them. The
imposition of a lien on them did not render them less fully paid-up than they were
before. They remained what they were. Zuccani did not *675 bargain that the
regulations relating to paid-up shares should never be altered, or that, if altered, his
shares should be treated differently from other fully paid-up shares. I cannot see that
the company broke its bargain with him in any way by altering its regulations or by
enforcing the altered regulations as it did. I have already drawn attention to clause 5 of
the memorandum of association. Having regard to its plain language no allottee of
shares, whether a vendor or an ordinary applicant, can justly complain of injustice or
even hardship if his rights under the original articles are modified to his disadvantage.
Every allottee was told by the memorandum that his rights as a shareholder were
subject to alteration, and no allottee acquired any rights except on these terms unless,
of course, some special bargain was made with him. If Zuccani had not been indebted to
the company, could he have successfully maintained that the company had no power to
alter the articles and so make his shares liable to a lien and consequently less
marketable than before? I take it that it is clear that he could not. But I arrive at this
conclusion only because the bargain with him has not been broken. Zuccani's
indebtedness to the company confers on him, or his executors, no rights against it. But it
is his indebtedness which creates the embarrassment from which they seek to escape.
The fact that Zuccani's executors were the only persons practically affected at the time
by the alterations made in the articles excites suspicion as to the bona fides of the
company. But, although the executors were the only persons who were actually affected
at the time, that was because Zuccani was the only holder of paid-up shares who at the
time was in arrear of calls. The altered articles applied to all holders of fully paid shares,
and made no distinction between them. The directors cannot be charged with bad faith.
After carefully considering the whole case, and endeavouring in vain to discover grounds
for holding that there was some special bargain differentiating Zuccani's shares from
others, I have come to the conclusion that the appeal from the decision of the learned
judge, so far as it relates to the lien created by the altered articles, must be allowed. His
Page 14

decision as to the *676 forfeiture having, however, been affirmed, each party should be
left to pay his own costs.
VAUGHAN WILLIAMS L.J.
I do not know that I differ from my brethren as to the law of this case. We are all
agreed that there was power in the shareholders to pass the resolution which they did
pass. There is no question as to the abstract validity of the resolution. It falls within the
powers of alteration conferred by s. 50 of the Companies Act, 1862 .
We are further all agreed that a company cannot contract itself out of the statutory
power of alteration conferred by s. 50; and the alteration of the articles in the present
case involves no contravention of the memorandum of association. But I think that we
are all agreed that cases might occur in which a member might have acquired, by
contract or otherwise, special rights against the company which would exclude him from
the operation of the altered article. It is in this sense that I understand the observation
of Rigby L.J. in James v. Buena Ventura Nitrate Grounds Syndicate . 26 A resolution may
alter the regulations of a company but cannot retrospectively affect existing rights. I also
take it to be clear that the alteration must be made in good faith; and I take it that an
alteration in the articles which involved oppression of one shareholder would not be
made in good faith.
The result is that we have to consider in the present case whether the alteration, if
enforced against Zuccani's executors, would defeat existing rights or operate
oppressively. On this point I confess that I have much more doubt than my brethren
seem to have. It is of course true that Zuccani, when he took these shares as the price
of the property which he was selling, knew or must be taken to have known of the
statutory power of alteration; but it does not seem to me that it follows that the
company could make alterations which would alter the value, according to the articles in
force, of the consideration which they were giving for the property purchased. For
instance, I doubt very much whether, in a case in which the articles provided (as they
might well do) for the issue of *677 ordinary and preference shares, and the
memorandum of association contained a clause in the terms of clause 5 of the present
memorandum, a company, who had bought a property by the issue of fully paid
preference shares could afterwards, by altering the articles, issue pre-preference shares
and thus reduce the value of the consideration which they had agreed to give. It is
impossible to suppose that the parties to such contract of sale and purchase could have
contemplated the value of the consideration shifting from time to time at the will of the
purchasers.
Griffith v. Paget27 , which was decided prior to Andrews v. Gas Meter Co. 28 , is an
authority that in the absence of express power in the memorandum such a thing could
not be done. This, of course, is not the present case. The present case is that the
company by the articles then in force reserved to themselves a lien upon all shares not
being fully paid, and then purchased a property by the issue of fully paid shares; and the
question is whether they could, on the very day after the contract, it might be,
materially affect the consideration given by passing a resolution that the fully paid
shares thus given as a price should be subject to a lien for all debts, obligations and
liabilities of the vendor to the company, whether such debts, obligations and liabilities
should have actually arrived or not, and thus render the shares unmarketable. I think
not. I think that, notwithstanding the statutory powers of alteration, the basis of the
Page 15

contract of purchase was that the property should be paid for in marketable shares. I
think that the very object of the exception in art. 29 of fully paid shares from lien was to
render those shares marketable, and, as they chose to pay for the property in shares
thus made marketable, I think that to allow the company to subject the vendor's shares
to a lien would be to make the alteration of the articles retrospectively affect existing
rights. I think, moreover, that the resolution was not passed in good faith, being really
passed merely to defeat the existing rights of an individual shareholder.
My observations have no bearing on shares fully paid up in *678 pursuance of calls in
the ordinary way; but it is worthy of observation that Zuccani did, in respect of shares
other than vendor's shares, prepay such shares with the assent of the company for the
purpose of freeing those shares from lien. I doubt if the company could have subjected
these shares to lien after receiving prepayment.
ROMER L.J.
For the reasons given by the Master of the Rolls in his judgment, I agree with him that
there was no defect in the resolutions altering the articles of the company as to lien on
the ground of absence of notice to Mr. Zuccani or his representatives, and I have nothing
to add to what the Master of the Rolls has said on this head.
I also agree with him in the conclusions he has come to on the other points taken by the
respondents on this appeal; but, having regard to the importance of some of the
arguments addressed to us, I think it right to give my reasons for arriving at those
conclusions.
A company such as this may undoubtedly by its articles of association provide for a lien
on the shares of its shareholders in respect of any debts for the time being due from
them to the company, and, if the original articles do not provide for the lien, the
company may subsequently, by duly altering its articles, give itself such a lien; and the
fact that the original articles did not provide for a lien would be in itself no ground
justifying a shareholder who was indebted when the articles were altered in saying that
he contracted the debt or that he took his shares in reliance on there being no lien, and
that the new articles must not operate so as to make the lien thereby given extend to his
existing debt. A shareholder must be taken to have known that the articles might be so
altered as to give the lien. And certainly a shareholder could not say as against the
company that he was entitled to special rights because he did not pay his debts. And the
same considerations apply to the case where the original articles give only a limited lien,
as, for example, a lien limited to debts due for unpaid calls. The company might by
subsequent articles extend the lien, and a shareholder would have no right to object to
*679 the extended lien because he happened to be indebted to the company.
Of course, by the above observations I have not been dealing with exceptional cases. I
can imagine a case, for example, where by the memorandum of association certain
provisions as to lien are made part of the constitution of the company which could not be
affected by any alteration of the articles. And special contracts might be made with
particular classes of shareholders or individuals, or special obligations to them might be
incurred by the company, and that even by virtue of the original articles alone, which
would prevent the articles being altered as against them, or prevent the alterations
being enforceable against them. But, putting aside such exceptional cases, the
observations I have made as to the general law are in my opinion sound.
I will now consider the circumstances of the case before us. And the first question is as
Page 16

to the meaning and effect of art. 29 of the company. In my opinion that article merely
provides for a limited lien - that is to say, it limits the lien so as to exclude fully paid-up
shares. There is nothing in the memorandum of association of the company to prevent
that lien being subsequently extended to fully paid-up shares by an alteration in the
articles. There is nothing in the company's original articles of association to prevent such
extension of the lien. Nor was any shareholder justified in assuming from art. 29 that
fully paid-up shares would never be made subject to the lien by an alteration in the
articles. That article only in substance stated that the lien thereby given did not extend
to fully paid-up shares. No one was justified in assuming from it that the company
thereby held out, in favour of any person acquiring fully paid-up shares, that those
shares should never be made subject to a lien by an alteration of the articles. If art. 29
had gone on to state expressly that the lien thereby provided might be extended later on
by an alteration of the articles, no one could venture to doubt what was the true
meaning and effect of the article. But such a statement is implied though not expressed.
It was not, in my opinion, necessary for the article to say at the end, “Caution -
remember *680 the power of the company to alter its articles by extending its lien,” or
any words to that effect.
But then it is said that, though holders of shares paid up in the ordinary way by calls
could not complain of an alteration of the articles, yet the holders of other paid-up
shares stand in a different position, though they were not the subject of any special
contract as to lien. I cannot think this contention sound. Putting aside for the moment,
as we are doing, any case of a special bargain with the company, in my opinion no
shareholder was justified in assuming from art. 29 that if he obtained by allotment fully
paid-up shares, or subsequently paid-up ordinary shares in full in advance of calls, those
shares should be specially distinguished from shares subsequently paid up in full by
ordinary calls, or give him special rights so as to prevent the company from altering the
articles and extending the lien to fully paid-up shares, or so that he would be able to say
that such an alteration of the articles, if made, could not be enforced as against his
shares. I find nothing in art. 29 to deprive the company of its right, by altering its
articles, to extend its lien to fully paid-up shares generally, or to limit that right to shares
paid up by ordinary calls. Still less, in my opinion, was any shareholder entitled to
assume from the company's memorandum and original articles that the lien, if extended
at all, should only be extended so as to give a lien for liabilities incurred after the
alteration in the articles. I fail to see why a shareholder, because he became indebted to
the company, should acquire special rights against the company in respect of that debt
as to the alteration of the articles, or why the company should not, when it obtained its
extended lien, use it in respect of any existing debt as well as in respect of debts
subsequently incurred. In truth, every shareholder was bound to bear in mind, both in
paying up in full his shares, or acquiring fully paid-up shares, and in incurring a debt to
the company, that the company had a legal right by altering its articles to extend its lien
and might exercise that legal right at any time.
This being so, in my opinion, Mr. Zuccani's shares became bound by the company's
alteration of its articles unless he can *681 shew some special bargain with the
company, or some special obligation incurred towards him by the company, in respect of
his fully paid-up shares. He fails to establish any such special bargain or obligation.
There was certainly no such special bargain or obligation alleged or proved with regard
to the shares allotted to him as fully paid up; and as already pointed out, no such
Page 17

bargain or obligation can be implied merely from the wording of art. 29. Nor was there
any special bargain or obligation with regard to the shares paid up in full by him after
allotment. The fact is, with regard to the latter, that being indebted in very large sums at
the time to the company, and paying certain sums on account, he was permitted, as a
favour to him, to attribute the payment to a few shares so as to make them paid up. No
doubt this was done so as to give him the opportunity, so long as the lien was limited by
the original articles, of disposing of the fully paid-up shares, but if he did not avail
himself of the opportunity before the alteration of the articles then he could not do so
afterwards. I understand that as a matter of fact he did fully avail himself of the
opportunity; but even if he did not do so as regards some shares, that would not, in my
opinion, prevent those shares from becoming subject to the extended lien. Mr. Zuccani,
in respect of all his fully paid-up shares, whether allotted as paid up or not, in fact has
obtained and enjoyed all the advantages with regard to lien which the company ever
impliedly or expressly promised him - that is to say, the right to deal with the shares
without their being subject to any lien so long as the articles remained unaltered and did
not extend the lien to fully paid-up shares.
Something was said on behalf of the respondents as to want of good faith on the part of
the company in altering its articles. I fail to see any want of good faith. In my opinion it
is eminently fair for a company to provide by its articles, as originally framed or as
altered by resolutions, that shareholders who are indebted to the company should not be
permitted to dispose of their shares without paying their debts, and that the company
should have a lien on the shares for the debts. In the ordinary case of a partnership no
partner would be permitted *682 to withdraw or sell his share in the partnership
venture without his debts to the partnership being first paid thereout. And if the
company in the present case had, as I think it had, the legal right to alter its articles so
as to give it the lien it now claims, I cannot see why, in exercising that legal right, it
should be accused of want of good faith. That the reason for the alteration was the very
existence of the large debt due from Mr. Zuccani, and that the company had principally
in mind this large debt when it made the alteration in the articles, is no ground for
impeaching the action of the company. It appears to me the shareholders were acting in
the truest and best interests of the company in exercising the legal right to alter the
articles so that the company might as one result obtain payment of the debt due from
Mr. Zuccani. The shareholders were only bound to look to the interests of the company.
They were not bound to consult or consider Mr. Zuccani's separate or private interests.
Further, I may say that the alteration of the articles giving the extended lien was, in my
opinion, in no true sense retrospective. The lien given was not made to take effect
before the date of the alteration. It operated only from and after that date.
Again, the alteration of the articles cannot be impeached as being one not binding on all
shareholders alike. It purports to bind, and does bind, all the shareholders without
exception. An article giving a lien cannot be objected to as made in favour of or against
a special class of shareholders merely because some shareholders only are or may
become indebted to the company.
Lastly, I may say that the contention that there was anything improper in the way the
alteration of the articles was effected falls to the ground on examination. It is untrue
that the company intentionally waited for the death of Mr. Zuccani before attempting to
alter the articles, with the object of thereby preventing votes in respect of his shares
being used in considering whether the alteration should or should not be made. Besides,
Page 18

as a matter of fact, under the articles Mr. Zuccani, if living, could not have voted, seeing
that he was indebted to the company.
*683
I have now dealt substantially with the points raised on behalf of the respondents, and in
the result I can find no good or sufficient ground on which to hold that the lien given by
the amended articles was not good against Mr. Zuccani's executors; and accordingly I
think that the appeal should be allowed.

Representation
Solicitors: Mayo & Co. ; Kerly, Son & Verden .
(G. I. F. C.)

1 1. [1899] 2 Ch. 40 .

1 2. [1899] 2 Ch. 40 .

1 3. Sect. 50 is as follows: “Subject to the provisions of this Act, and to the conditions contained in the memorandum
of association, any company formed under this Act may, in general meeting, from time to time, by passing a special
resolution in manner hereinafter mentioned” - i.e. in s. 51 — “alter all or any of the regulations of the company contained
in the articles of association or in the table marked A in the first schedule, where such table is applicable to the company,
or make new regulations to the exclusion of or in addition to all or any of the regulations of the company; and any
regulations so made by special resolution shall be deemed to be regulations of the company of the same validity as if they
had been originally contained in the articles of association, and shall be subject in like manner to be altered or modified
by any subsequent special resolution.”

1 4. [1893] 2 Ch. 311 .

1 5. (1874) L. R. 9 Ch. 350 .

1 6. [1897] 1 Ch. 361 , 368.

1 7. [1897] 1 Ch. 361 .

1 8. [1897] 1 Ch. 361 .

1 9. [1896] 1 Ch. 456 , 466.

1 10. (1889) 1 Megone, 385 .

1 11. [1893] 2 Ch. 311 .

1 12. [1897] 2 Ch. 469 , 480.

1 13. (1895) [1899] 2 Ch. 64 , n.

1 14. [1893] 2 Ch. 311 .

1 15. (1824) T. & R. 496, 525; 24 R. R. 108 .

1 16. (1886) 12 App. Cas. 29 .

1 17. [1892] A. C. 281 .

1 18. (1879) 12 Ch. D. 705 .

1 19. [1897] 1 Ch. 361 .

1 20. [1893] 2 Ch. 311 .

1 21. [1895] 2 Ch. 441 .


Page 19

1 22. [1896] 1 Ch. 466 .

1 23. [1897] 1 Ch. 361 .

1 24. [1896] 1 Ch. 466 .

1 25. 1 Megone, 385 .

1 26. [1896] 1 Ch. 456 , 466.

1 27. (1877) 5 Ch. D. 894 .

1 28. [1897] 1 Ch. 361 .

(c) Incorporated Council of Law Reporting for England & Wales

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