Lord Hailsham then referred to a passage from Gower's Modern Company Law , to which I will come later.
58 At 432, Lord Kilbrandon said this:
My Lords, I must say I have the gravest doubts as to the soundness of the proposition pleaded. I am not at all convinced that, the management of a company having been confided to the directors, and the instructing of actions at law being an act of management, then, if the company has for the time no directors, it cannot during that time take steps to recover its debts. I think the article probably means no more than this, that the directors, and no one else, are responsible for the management of the company, except in the matters specifically allotted to the company in general meeting. This is a term of the contract between the shareholders and the company. But it does not mean that no act of management, such as instructing the company's solicitor, can validly be performed without the personal and explicit authority of the directors themselves. In any case I have even graver doubts whether the validity of the company's act, resting as it must on a construction of the contract with the shareholders, can in such a matter be challenged by someone whose only relationship with the company is one of indebtedness. The point, however, does not seem to, have been taken in this form in the Court of Session, and I will therefore say no more about it.
59 In so far as Lord Hailsham and Lord Kilbrandon suggest that a company, the management of whose business is given to the directors, can in general meeting authorise the commencement of proceedings, I would respectfully disagree. I note that Lord Hailsham's expression of that view is tentative, it is supported by reference to a passage from Gower, which, as will be seen, relies in part on the case of Marshall's Valve Gear referred to earlier which, as was submitted, would appear to have been substantially discredited by Quin. In my opinion, the decision in Alexander Ward is supportable on the basis that a company can be a competent principal, for the purposes of later ratification of an act purportedly done on its behalf by an unauthorised agent, even if at the time of the act it had no agent or organ immediately available to act on its behalf. To the extent that it supports a proposition that, in the absence of a competent board, a general meeting can authorise the commencement of legal proceedings, I would respectfully disagree.
60 Turning to Winthrop Investments Limited v. Winns Limited (1975) 2 NSWLR 666, the most pertinent passage is that by Samuels JA at 682-3, as follows:
But there are, no doubt, circumstances in which the shareholders in general meeting may exercise powers vested in the directors. I exclude from consideration the effect of any doctrine of residual powers which, as I understand it, contends that the shareholders may still act in areas of decision which the articles prima facie exclude from their ambit. I need not decide whether any such doctrine exists, or, if it does, whether the present circumstances would attract its application. If it does exist it would enable the shareholders to make their own decision in place of a decision by the directors. It looks to an original decision by the general meeting, and not to a resolution approving a decision to be taken by the directors. So it has no operation in this case. Nor indeed, and for the same reason, has the principle that the shareholders have more clearly defined default powers, so that if "for some reason the board cannot or will not exercise the powers vested in them, the general meeting may do so": Gower, op. cit., p. 136. Examples of action by the shareholders on this ground are said to be the existence of a deadlock on the board: Barron v. Potter, where Warrington J. observed: "For practical purposes there is no board of directors at all."; or the absence of an effective quorum as in Foster v. Foster, where the board "owing to internal friction and faction" was unable to appoint a managing director. Peterson J. applied Barron v. Potter and held that the directors being unable to exercise the powers conferred upon them by the articles, the company in general meeting could make the appointment. Apart from Quin & Axtens Ltd. v. Salmon, the other cases which Gower cites in support of his proposition are strictly examples of ratification. Neither Grant v. United Kingdom Switchback Railways Co. nor Irvine v. Union Bank of Australia seem to me to illuminate what the learned author means when he exemplifies a board which "will not" exercise its powers. Certainly, I would suppose that, if the directors for some reason refuse to act, so that, to borrow the words of Cotton L.J. in Isle of Wight Railway Co. v. Tahourdin, "the business of the company" is at a deadlock, the shareholders could themselves intervene.