England and Wales: Articles of association and implied terms

The extent to which terms can be implied into the articles of association was recently considered in Dashfield & Anor v Davidson & Ors [2008] EWHC 486 (Ch). Argument centred on a provision in a company's articles of association which required the personal representative of a deceased shareholder to transfer the deceased shareholder's shares to the company. The trial judge, Lewison J., implied a term requiring the company to take reasonable steps to procure the auditing of the company's accounts, for the last completed financial year, before the value of the deceased shareholder's shares was certified by an auditor. His Lordship observed (at para. [83]):

"... it is possible to imply a term into articles of association, but only if the term can be implied without recourse to extrinsic evidence. Such a term will therefore only be implied where it is a necessary inference, so as to give business efficacy to the obvious intention of the parties (see Tett v Phoenix Property and Investment Co Ltd [1986] BCLC 149, 159); or where it passes the officious bystander test (Tett v Phoenix Property and Investment Co Ltd [1986] BCLC 149, 160)".

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NB: The issues raised by Dashfield are not unique to English law: see, e.g., Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd [2006] FCAFC 144.