Company law revision question and answer

The Articles of Akim Ltd provide that Adam, one of the promoters and a lawyer be appointed the company‟s advocate for life. It also contains a provision to the effect that any dispute between the company and a member be referred to arbitration. Adam holds 80% shares in the company and acts as the company‟s advocate for 8 years after which the company begins to channel some of its legal work to a new form of advocates. Adams protests to the company but in vain. After 8 months all the company‟s legal work is taken over the new firm. Advise Adam.
 This problem is based on the characteristics of the contract created between the company and its members when the articles are registered (Section 22 (1)).

It is clear that Adam is a member of Akim Ltd and the articles provided that he be appointed the Company solicitor for life.

It is evident that there is a dispute between Adam and Akim Ltd in that the company is
now channeling its legal work to another firm of advocates contrary to the articles.
The issue boils down to the question whether the article in question is enforceable Adam.
Since the contract created the articles is between the company and its members only (Welton V. Saffery) (Hickman V. Kent)and can only be enforced members in their capacity as members, ie, member qua member, it follows that the article is unenforceable.
My advice to Adam is that he has no actionable claim against the company for the simple reason that he is an outsiders and hence cannot enforce the article. Secondly, if he sued as a member his action would still be unsuccessful as the rights conferred the articles can only be enforced members in their capacity as members. Adam would be suing to enjoy rights accruing to him as a solicitor.
 My advice is based on the decision in Eley V. Positive Government Life AssuranceCo. Ltd whose facts were substantially similar to those of the instant case.

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