## Facts

- Automatic Self-Cleansing Filter Syndicate Co Ltd convened a general meeting where a resolution was passed instructing the directors to sell the company's assets.
- The board of directors refused to comply, believing the sale would harm the company.
- Shareholders contended that, as supreme authority, the general meeting could direct the board to act accordingly.
- The dispute centered on whether the shareholders, by ordinary resolution, could override the directors’ authority granted under the articles of association.

## Issues

1. Whether the board of directors is obliged to follow a general meeting resolution directing specific management actions when the articles of association grant management powers to the directors.
2. Whether the shareholders can override the directors’ powers through resolutions without amending the articles of association.
3. Whether powers allocated to directors in the articles can be directly exercised by shareholders through a simple resolution.

## Decision

- The court held that the directors were not bound to follow the shareholder resolution instructing them to sell the company's assets.
- It was reasoned that the articles of association vested the authority to manage the company’s business, including asset sales, in the directors.
- The articles gave no provision for shareholders to directly intervene in management decisions unless the articles were amended.
- As a result, unless expressly authorized by the articles, shareholders cannot by ordinary resolution direct the board on management matters.

## Legal Principles

- The articles of association determine the division of authority between the board and shareholders.
- Directors have primary responsibility for managing the company's business as specified in the articles.
- Shareholder powers are limited to amending the articles or removing directors if they wish to change management direction.
- A shareholder resolution cannot override the board’s management powers unless such an override is permitted by the articles.
- The legal separation of ownership (shareholders) and control (directors) is fundamental to company management.

## Conclusion

The decision in Automatic Self-Cleansing Filter Syndicate Co Ltd v Cuninghame confirmed that, under a company's articles, the board retains exclusive authority over management decisions unless the articles expressly provide otherwise. Shareholders must use formal mechanisms, such as amending the articles or appointing new directors, to alter the division of power, reinforcing the primacy of the company's constitution in regulating internal governance.


Automatic Self-Cleansing Filter Syndicate Co Ltd v Cuninghame [1906] 2 Ch 34