Shaw v Shaw [1935] 2 KB 113

Court: Court of Appeal

Facts: A company was suing its own directors, who were also shareholders, over a dispute. Before the hearing, the directors arranged and passed a shareholders' resolution to discontinue the claim. The validity of this resolution was challenged.

Issue: Can shareholders pass a resolution to discontinue litigation against directors when the constitution vests such powers in the directors?

Held: The Court of Appeal dismissed the appeal. The shareholders could not use a resolution to bypass the company's constitution and direct the discontinuation of the litigation. The directors retained the authority to manage such decisions.

Key Judicial Statement: Greer LJ stated, “A company is an entity distinct alike from its shareholders and its directors. Some of its powers may, according to its articles, be exercised by directors, certain other powers may be reserved for the shareholders in general meeting. If powers of management are vested in the directors, they and they alone can exercise these powers.”

💡 Leveluplaw: Where the company's constitution vests management powers in directors, shareholders cannot override these powers through resolutions. The only way shareholders can influence such decisions is by altering the articles or choosing not to re-elect the directors.