Russell v Northern Bank Development Corp Ltd [1992]

Russell v Northern Bank Development Corp Ltd [1992] 1 WLR 588 is a significant UK company law case concerning shareholders' rights. The House of Lords clarified the limitations of private shareholders' agreements in restricting a company's statutory powers.

Tyrone Brick Limited (TBL) had shareholders, including four executives and Northern Bank Development Corporation. A shareholders' agreement among them stipulated that no further share capital could be issued or existing shares' rights altered without unanimous written consent. In 1988, TBL sought approval to issue new shares. Samuel Russell, one of the executives, sought an injunction against voting on the resolution, claiming a breach of contract.

The trial judge invalidated the agreement, considering it an attempt to restrain TBL's statutory power. The Court of Appeal, with a majority, upheld this decision. However on appeal, the House of Lords held in favour of Russell. Lord Jauncey stated that while an agreement among shareholders about voting rights is valid, an attempt to bind the company's statutory powers is obnoxious. TBL's undertaking not to exercise its statutory powers was deemed unenforceable but separable from the shareholders' agreement.

The case distinguished between a company's statutory powers and shareholders' agreements. Statutory powers could not be restricted, but agreements among shareholders about voting were permissible. The House of Lords affirmed that a shareholders' agreement could bind the shareholders personally but could not restrict the company's statutory powers. The court emphasised the severability of TBL's undertaking from that of the shareholders. While TBL's commitment was unenforceable, the shareholders' agreement was valid among themselves.

In conclusion, this case clarified the delicate balance between shareholders' agreements and a company's statutory powers. It underscored the enforceability of personal agreements among shareholders while preserving a company's ability to exercise its statutory powers independently.
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