39. Effect of constitution Flashcards
- Effect of constitution.
As to effect of alterations on members who do not consent
General overview
[39.01] This section introduced the concept of a statutory contract between the company and its members, and amongst the members inter se, based on the terms of the constitution.
Constitution as a statutory contract
[39.02] Section 39 provides that the constitution shall form a contract between the company and its members and amongst the members inter se. Any member has a right to enforce observance of the terms of the constitution, by virtue of contractual effect given to the constitution by s 39: Wood v Odessa Waterworks Co (1889) 42 Ch D 636, Ch D . The articles do not constitute a contract between the company and someone who is not a member: Eley v Positive Government Security Life Assurance Co Ltd (1876) 1 Ex D 88, CA ; Melhado & Anor v The Porto Alegre, New Hamburgh, and Brazilian Rly Co (1874) 9 CP 503 , Court of Common Pleas; Raffles Hotel Ltd v Malayan Banking Bhd (No 2) [1966] 1 MLJ 206, FC ; affirmed in Independent State of Papua New Guinea v PNG Sustainable Development Program Ltd [2016] 2 SLR 366; [2016] SGHC 19, HC ; cf Woodlands v Logan [1948] NZLR 230, SC. Section 39 empowers a member to sue in his capacity as a member only, and not in any special or personal capacity (e.g. a director): Hickman v Kent or Romney Marsh Sheep-Breeders’ Association [1915] 1 Ch 881, Ch D ; applied Pritchard’s case (1873) 8 Ch App 956; and Browne v La Trinidad (1887) 37 Ch D 1, CA . (Note: In Recommendation 3.19 of the CLRFC, October 2002, it was recommended that all obligations imposed by the constitution should be enforceable, unless the breach in question was trivial or the remedy fruitless.)
[39.03] The fairness or unfairness of an article is irrelevant in an action to enforce the articles: Wong Kim Fatt v Leong & Co Sdn Bhd [1976] 1 MLJ 140, HC. Note that any non-observance of the articles governing matters of mere procedure may be ratified by a majority of the members
Waiver of articles/regulations
- shall be unanimous consent from parties to the contract
[39.04] Per Neuberger J in Re Torvale Group Ltd [1999] 2 BCLC 605 where his Lordship held that “the articles constitute a contract, and if the parties to that contract, or if the parties for whom the benefit of a particular term has been included in the contract, are happy unanimously to waive or vary the prescribed procedure for a particular purpose, then … it seems to me that there is no good reason why it should not be capable of applying”.
Collateral contract
[39.05] A collateral contract that is based on the provisions in the company’s memorandum and articles may be imputed by the court in favour of a third party who is not a member of the company, to enable the third party to invoke the right to inspection of the company’s true books and accounts
Members’ personal right
[39.06] A company is entitled as against its members to enforce and restrain breaches of its regulations: Pender v Lushington (1887) 6 Ch D 70 , Court of Chancery, Master of the Rolls; Salmon v Quin & Axtens Ltd [1909] 1 Ch 311 , affirmed by House of Lords in [1909] AC 442. In any such actions, the company need not be joined as a party
Reflective loss
[39.07] A member has no right to sue in a personal capacity where the loss merely reflects the loss suffered by the company (the “no reflective loss” principle): Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204, CA ; affirmed in Johnson v Gore Wood & Co [2002] 2 AC 1, HL ; Universal Project Management Services Ltd v Fort Gilkicker Ltd & Ors [2013] EWHC 348; [2013] 3 WLR 164, Ch D ; Koh Jui Hiong @ Koa Jui Heong & Ors v Ki Tak Sang @ Kee Tak Sang and Another Appeal [2014] 3 MLJ 10, FC ; cf where a company is unable to pursue an action because of the actions of the wrongdoer, a member may be able to recover all the personal losses arising out of same wrongdoing: Giles v Rhind [2002] EWCA Civ 1428; [2003] Ch 618, CA . Johnson’s case (above) and Giles’ case (above) considered in Gardner v Parker [2004] EWCA Civ 781; [2004] 2 BCLC 554 ; and Perry v Day [2004] EWHC 3372; [2005] 2 BCLC 405. A shareholder’s claim was allowed where there was no risk of double recovery or prejudice to the creditors or shareholders of the joint venture: Hengwell Development Pte Ltd v Thing Chiang Ching & Ors [2002] 2 SLR(R) 454; [2002] SGHC 146, HC ; considered in Townsing Henry George v Jenton Overseas Investment Pte Ltd (in liquidation) [2007] 2 SLR(R) 597; [2007] SGCA 13, CA. A debenture holder’s loss is not reflective of the company’s loss
Contracts (Rights of Third Parties) Act (Cap 53B)
[39.08] Section 2(1) of the Contracts (Rights of Third Parties) Act (Cap 53B) does not afford third parties any rights under the memorandum and articles (i.e. the constitution) of a company, vide s 7(2) of the said Act
