Contracting Out of Company Law: Section 459 of the Companies Act 1985 and the Role of the Courts
Since the late 1970s, company law theory has been enriched by a vociferous debate about the role of contract in explaining corporate personality. ' The advocates of the contractual cause seek to challenge traditional legal theory by arguing that companies represent a mere nexus of contracts between those various corporate actors shareholders, directors, creditors, employees, etc interested in the affairs of the company. This article seeks to join the debate and pursues two objectives. First, Section I describes and criticises the contractual approach. That approach purports to be comprehensive in its application, in the sense of addressing all corporate relationships and all classes of companies, yet the emphasis has usually been upon the larger, public company and upon the shareholder-management relationship within such companies. The focus for this article is the smaller, private company and the intershareholder relationship therein. Moreover, as much as the contractarian position seeks to offer a normative framework for all corporate contracting, it has proceeded at a relatively abstract level, failing to address itself adequately to the detail of those contracts it suggests constitute the company. This article sets out to examine the actual process and form of inter-shareholder contracting. In so doing, it emphasises the role of the judiciary in that process, and argues for the inevitability and legitimacy of limited interference in private contracting. Second, it is a theme of this article that the construction of the contract between shareholders is driven by the particular remedy which is sought. To this end, Section II focuses upon the unfair prejudice provisions of sections 459-461 of the Companies Act 1985. This appears to be the regime resorted to with growing frequency by minority shareholders, and its interpretation and application by the courts should tell us much about the judiciary's attitude towards the theoretical position advanced in Section I, as well as offering the opportunity to look at contractual construction in the context of specific remedies.