Topic 1.3 Company Law - s 31

What case spoke to the nature of of s 31

Clarke v Workman stated that s 31 is “a contract of the most sacred character, on faith of which shareholders advance money.”

According to Keane, how should a s 31 commerical contract be construed

The s 31 contract is a commercial contract which should be construed to give reasonable business efficacy.

What did the case of Keyes v Holmes say about reading a s 31 contract

It should not be read as strictly as conveyancing and other legal documents.

How did Bratton Seymour distinguish between s 31 contracts and other contracts

The court noted that statutory contracts were distinct from traditional contracts, as they are not negotiated instruments, and the traditional remedies in contract law disputes such as mistake do not apply.

List the 3 effects of s 31 contracts

1. Members are bound by express, statutory and implied terms.

2. Binding between members and the company

3. Binding between members.

Name the cases re implied terms

McMahon v Irish Road Haulage and Glover v BLN.

What did McMahon v Irish Road Haulage establish

It established that a right to fair procedure is an implied term in s 31 contracts and that terms implied in the constitution may be implied in the statutory contract.

How does the s 31 contract bind members and the company?

It binds members to the company and vice versa, requiring compliance with the provisions of the constitution and CA regarding governance.

What did Hickman v Kent [1915] establish regarding the s 31 contract?

a shareholder brought proceedings against the company. The articles provided that if such a dispute arose, it must first be submitted to arbitration. The Court found in favour of the company who invoked this provision, as it created rights and obligations under a contract between the company and its members.

How does the s 31 contract bind members inter se?

It binds them by allowing a member to sue another member for failing to observe provisions of the constitution.

What does the rule in Foss v Harbottle state

It states that if the alleged wrongdoing can be ratified by majority shareholders, the court will not interfere.

What did Rayfield v Hands establish concerning members suing other members?

this case established that a pre-emption clause requiring directors (who were also members) to purchase shares was enforceable against them, as it was enforceable in their capacity as members, not directors.

What was the ruling in Lee & Company Ltd v Egan Limited

The Irish Court accepted that the statutory contract binds members inter se, and only rights that arise "qua member" (in their capacity as a member) are protected.

What was the ruling in Eley v Positive Government Life Assurance

a solicitor who was also a member could not enforce a constitutional provision (company to retain his services as a solicitor) because it pertained to a right outside his capacity as a member.

What did Usher (1986) say about the Eley case

Usher argued that the Irish courts should move beyond the “artificialities” of Eley and allow enforcement regardless of capacity, especially in small private companies.

What is a "special contract" in the context of company law?

While the company constitution itself does not create a contract for "outsider rights," its provisions can be incorporated into a separate common law "special contract" if there is agreement and consideration.

What does Keane say about the court’s approach to special contracts

Keane notes courts have somewhat modified the harsh rule of s 31 regarding outsiders' rights.

What was held in Port Darwin Mining Company?

The Court held that where the company's constitution provided that a director was to receive certain remuneration and he subsequently does, the court might infer a special or actual contract, the terms of which cannot automatically be varied unless there is bi-lateral agreement between the parties.

What was held in Bailey v NSW Medical Defense Union

It was held that where there is a special contract based on the company’s constitution, variation of its provisions by special resolution cannot automatically unilaterally very the terms.

What did Courtney say about Bailey v NSW Medical Defense Union

Courtney stated that the case was decided on strict contractual principles rather than a distinct company law doctrine, but still demonstrated how constitutional terms may form part of enforceable side contracts.

What was held in Barry v Medical Defense?

The court accepted in principle that a special contract could exist, but the claim failed as no collateral agreement was established.

What was held in Lisavaird Sales Ltd v Muingnaminnane Windfarms

a special contract can only come into existence when its terms do not conflict with any of the provisions under the CA