Section 14 states ‘Subject to the provisions of this Act, the memorandum and articles, when registered, bind the company and its members to the same extent as if they respectively had been signed and sealed by each member, and contained covenants on the part of each member to observe all the provisions of the memorandum and articles’

Lord Greene MR said of this provision that it had been “the subject of considerable controversy in the past, and it may very well be that there will be considerable controversy about it in the future” (Beattie v E and F Beattie Ltd [1938] Ch 708 at p.721).

Since Parliament enacted the Companies Act in the mid- 19th century, English companies legislation has contained a declaration that a company memorandum and articles of association constitute a contract which binds the members. At present, s.14 of the Companies Act 1985 establishes the statutory contract. The section stipulates that the memorandum and articles bind a company and its members as though these documents had been signed and sealed by each member and contained covenants on the part of each member to observe all their provision.  Hoffman LJ did affirm the contractual status of the articles of association and the memorandum in the case of Harrison & Sons plc [1994]  and in Hickman v Kent or Romney Sheepbreeders Assoc [1915], the articles contained clause saying disputes between members and the Association had to be referred to arbitration. Hickman sought to commence court proceedings against the association. The courts held Hickman could not do this without first submitting dispute to arbitration member had contracted by virtue of s14 to refer disputes to arbitration.

The principal authorities in support of the view of Astbury J was that the articles do not constitute a contract between the company and its members as so called the ‘qua member’ are Pritchard’s case (1873), Melhado v Porto Alegre Rly Co (1874), Eley v Positive Life Assurance Co (1876) and Browe v La Trinidad (1887).

In the Pritchard’s case the articles of association of a mining company provided that the company should immediately after incorporation enter into an agreement with De Thierry the vendor for the purchase of the mine for £2,000 and 3,200 fully paid shares. The articles where signed by the vendor and six other persons, and also the directors. The shares where allotted to the vendor and his nominees, but no further agreement was made with him. It was held by Mellish LJ in giving his judgement said ‘… I am of opinion that the articles of association cannot be considered as a contract in writing between De Thierry and the company for the sale of the mine to them…’ 

In Melhado v. Porto Alegre Ry. Co, the articles of association of a joint stock company provided that the company should defray such expenses incurred in its establishment as the directors should consider might be deemed and treated as preliminary expenses to an amount not exceeding 2000l. The plaintiffs, who were promoters of the company, had incurred preliminary expenses in its establishment, but it was held that no action for these expenses would lie at the suit of the plaintiffs against the company under the articles. Lord Coleridge C.J. said: "The action is brought on a clause in the articles of association, by which the directors are authorized to pay certain expenses if they should consider them to be properly deemed preliminary expenses. The declaration avers that all conditions were performed necessary to entitle the plaintiffs to be paid their expenses; and therefore I think we must take it that they were expenses which, if the directors had thought proper to pay them, the articles

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In Eley v. Positive Life Assurance Co, the articles of association contained a clause in which it was stated that the plaintiff, a solicitor, should be the solicitor to the company and transact its legal business. The articles were registered and the company incorporated, and eleven months later the plaintiff became a member. The plaintiff was not appointed solicitor by any resolution of the directors, not by any instrument bearing the seal of the company, but he acted as such for a time. Subsequently the company ceased to employ him and he brought an action for breach of contract ...

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