| Russell v Northern Bank Development Corp Ltd | |
| Court: | House of Lords |
| Date Decided: | 11 May 1992 |
| Citations: | [1992] 1 WLR 588 [1992] 3 All ER 161 |
| Judges: | |
| Number Of Judges: | 5 |
| Decision By: | Lord Jauncey |
| Concurring: | Lord Griffiths, Lord Lowry, Lord Mustill and Lord Slynn |
Russell v Northern Bank Development Corp Ltd [1992] 1 WLR 588 is a leading case on shareholders' rights in the United Kingdom in which the House of Lords held that a private shareholders' agreement could not fetter a company's statutory powers but could bind the voting rights of those parties to the agreement.
Four executives of a brick works in Dungannon, County Tyrone were shareholders, with 20 shares each, in a company called Tyrone Brick Limited (T.B.L) alongside Northern Bank Development Corporation, which held 120 shares.[1] Eight hundred other shares were not allotted.[2]
All executives, Northern Bank, and the company T.B.L itself, were parties to a shareholders' agreement with a clause that stated, "No further share capital shall be created or issued in the company or the rights attaching to the shares already in issue in any way altered (save as herein set out) or any share transfer of the existing shares permitted, save in the following manner, without the written consent of each of the parties hereto."[2]
In March 1988 the board of T.B.L issued a notice to shareholders of an extraordinary general meeting to consider a resolution allowing for a 3,999,000 new shares to be issued by the company. One of the executives, Samuel Russell, sought an injunction restraining the other executives and Northern Bank from considering or voting on the resolution and damages for breach of contract.[3]
At trial the judge held that the shareholder's agreement was invalidated because it sought to fetter T.B.L's statutory power to increase its capital. The Court of Appeal, by a majority, upheld this decision. Russell appealed, although now claiming only a declaration as to his rights and not also an injunction.[4]
The House of Lords upheld the appeal. Lord Jauncey stated,
The House of Lords thus held that while the agreement could bind the shareholders it could not bind the company itself;
Professor Eilís Ferran, writing in the Cambridge Law Journal noted that regarding the question of companies contracting out of statutory powers, "The decision in Russell provides a firm and unequivocal answer to the question: there can be no contracting out by a company in respect of its statutory powers."[5] Ferran criticised the decision for making a "technical distinction which is not immediately obvious and which rests on the turning of a blind eye to the manifest practical consequences which can flow from a voting agreement."