Quin & Axtens Ltd v Salmon [1909] AC 442

Facts

  • Quin & Axtens Ltd was a company trading in leather and hides, with Mr. Salmon and Mr. Axtens as both managing directors and majority shareholders.
  • The articles of association required both managing directors' approval for significant decisions, such as buying or selling company property.
  • Mr. Axtens secured a resolution at a general meeting to purchase certain premises, despite Mr. Salmon’s objection and the requirements set out in the articles.
  • Mr. Salmon sought an injunction to prevent the proposed purchase on the basis that it contravened the company's articles.

Issues

  1. Whether a majority of shareholders in a general meeting can override the board of directors’ decision taken within the scope of their authority as set by the articles.
  2. Whether the articles of association act as a binding contract limiting shareholder interference in board matters.

Decision

  • The House of Lords granted Mr. Salmon’s injunction, holding that the articles of association constituted a contract binding the company and its members.
  • It was determined that the specific powers given to the managing directors by the articles could not be overridden by resolutions of a general meeting, even if backed by a majority.
  • The attempted shareholder resolution failed because it conflicted with the company’s articles.

Legal Principles

  • The articles of association are binding as a contract between the company and its members, and among members.
  • The division of powers as set out in the articles must be observed; shareholders in general meeting cannot override the board’s decisions made within that authority.
  • Stability and clarity in company management depend on adherence to the articles, preventing ad hoc changes by shifting shareholder majorities.

Conclusion

Quin & Axtens Ltd v Salmon [1909] AC 442 establishes that shareholder majorities cannot override the board's properly exercised powers as defined in the articles of association. The case affirms the contractual and binding nature of articles, ensuring clear division of authority between general meetings and the board, a principle central to company law.

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