Hickman v Kent or Romney Marsh Sheep-Breeders’ Association [1915]

Case name & citation: Hickman v Kent or Romney Marsh Sheep-Breeders’ Association [1915] 1 Ch 881

Court and jurisdiction: High Court, England and Wales

The learned judge: Astbury J

Area of law: Constitution of a company; Articles of Association

What is the case about?

Hickman v Kent or Romney Marsh Sheep-Breeders’ Association [1915] is a UK company law case that concerns whether a company’s articles bind a member by its terms.

Facts of the case (Hickman v Kent)

Mr. Hickman was a member of the Romney Marsh Sheep-Breeders’ Association.

A provision was contained in the articles of the company stating that any disagreements between the company and its members were to be initially submitted to arbitration.

Mr. Hickman brought a complaint over the refusal to register his sheep in the published flock book, and as a result, he faced the risk of being expelled. He initiated proceedings in the High Court, and the association sought an injunction.

Issue

The issue was whether Mr. Hickman was prevented by the articles to commence court proceedings. Was his action valid or not?

Judgment of the Court in Hickman v Kent

It was decided that the action violated the obligation imposed on the claimant by the company’s articles, which required him to submit his grievance to arbitration before taking it to Court.

As a member, he was bound to comply with the company’s policy regarding the arbitration of disputes and could not resort to Court.

Enforceability of rights

Articles of association are a company’s bye-laws or rules and regulations that govern the management of the company’s internal affairs and the way the company conducts its business. They are also known as charter documents.

The articles of association usually form a statutory contract binding on the company and its members and enforceable by both. Each member is obligated to follow the rules outlined in the Articles. He is obligated to abide by everything that is contained in the Articles of the company.

Astbury J stated as follows:

“Firstly, that no articles can constitute a contract between the company and a third person; secondly, that no right merely purporting to be given by an article to a person, whether a member or not, in a capacity other than that of a member, as for instance, a solicitor, promoter, director, can be enforced against the company; and, thirdly, that articles regulating the rights and obligations of the members generally as such do create rights and obligations between them and the company respectively.”

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Eley v Positive Government Security Life Assurance Co Ltd (1876)

Eley v Positive Government Security Life Assurance Co Ltd (1876) is a UK company law case that dealt with the point that a company, by its articles, is not bound to outsiders.

Case name:	Eley v Positive Government Security Life Assurance Co Ltd
Case citation:	(1876) 1 Ex D 88
Court:	Court of Appeal
Jurisdiction:	England and Wales
Date/year:	1876
The bench of judges:	Lord Cairns LC, Lord Coleridge CJ and Mellish LJ
Area of law:	Constitution of a company; Articles of Association

Facts of the case (Eley v Positive Government Security Life Assurance)

In the given case, there was a provision in the company’s Articles of Association that stated Eley would serve as the company’s solicitor for life and could not be removed from office for any reason other than misconduct. Eley served as the solicitor of the company and also became a member of it over the course of the period. However, his employment with the company was terminated. Following this, he sued the company for damages, claiming that it had violated the terms of the contract.

Issue

Could Eley succeed in his claim? Did he have a contractual right to act as the company’s solicitor?

Judgment of the Court in Eley v Positive Government Security Life Assurance Co Ltd

The Court held that the Articles cannot serve as the basis for a contract between the company and an outsider. Only a member can enforce rights under the Articles.

In this case, it is important to keep in mind that Eley was attempting to exercise his right as an employee of the company, not as a member. He was suing the company in his capacity as a solicitor. A person can be both a member of the company and a creditor or employee of the company at the same time.

When the company was first formed, he did not purchase any shares in it. After that, however, he had taken shares and become a member of the company; but this fact was not brought up in the judgments of the Court of Appeal.

Therefore, apart from what was stipulated in the Articles, there was no independent contract between the company and Eley. Consequently, his lawsuit was dismissed.

The reasoning behind the decision

Because the Articles of Association do not constitute a contract between the company and the outsiders, the outsiders cannot sue the company. An outsider is not permitted to use the articles as legal grounds to sue the company for violating a right that is conferred upon him by the articles. Even if the proposed business makes reference to a third party in the Articles of Association, the company is in no way obligated to comply with the terms of that reference.

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