Can companies be trusted? Some aspects of Tesco law
by Roderick Ramage, solicitor, www.law-office.co.uk
first published in New Law Journal (email@example.com) on 12 May 2006
This article is not advice to any person and may not be taken as a definitive statement of the law in general or in any particular case. The author does not accept any responsibility for anything that any person does or does not do as a result of reading it.
Sir David Clementi’s report (Final Report Review of the Regulatory Framework for Legal Services in England and Wales (December 2004)) had as its brief to consider what “regulatory framework would best promote competition, innovation and the public and consumer interest in an efficient, effective and independent legal sector” and to make recommendations. His recommendations to liberalise the legal services market included the creation of alternative business models, which would enable the ownership of law firms to be split from their management, so that a law firm could have outside equity investors or an existing business (eg Tesco, the RAC and the Co-Op) could provide legal service to the public. The government accepted most of his proposals in its White Paper (The Future of Legal Services: Putting Consumers First October 2005 CM 6679) and a Legal Services Bill is expected to be published soon).
corporations and individuals
Law and morals are uneasy bedfellows. A corporation is a legal person but the concept of a moral or an immoral corporation is an oxymoron. A corporation is an artificial person with such powers as are given to it by statute or its constitution, its memorandum and articles of association in the case of companies incorporated under the Companies Acts 1985 or earlier. One should not fall into the trap of assuming that a company has human attributes because it operates through the agency of human beings, or because of the fact that it is a person, or even the fact that it may have rights under the Human Rights Act 1998: see eg Marpa Zeeland BV and another v Netherlands (App No 46300/99) (ECHR), Ashworth Hospital Authority v MGN Ltd  UKHL 29 and Cream Holdings Ltd v Banerjee  UKHL 44,  1 AC 253 HL).
The facts of this case are that the company was to be wound up, having transferred its business to another company, and, between the transfer and the winding up, resolved at a general meeting to pay one thousand guineas as compensation for loss of office to certain employees, although they had no legal claim for it. The resolution was invalid, as the company was no longer a going concern and existed only for the purpose of winding-up.
In this case Lord Justice Bowen stated:
In this case Henry Ford and the directors of the Ford Motor Co had decided not to pay a dividend despite substantial retained earnings in the company and substantial profits in the particular year in question. The reason for the decision expressed by Henry Ford was that the money was be used for plant expansion so that the Ford industrial system could be expanded for the general benefit of society. That may have been a very noble reason but that reason was not directed at the profit of the company and thus it was not a basis for refusing to pay a dividend. A refusal to pay a dividend had to be based on the best interests of the corporation and decisions that are in the best interests of the corporation were assumed to be those that promoted future profits. (Copied with thanks from chapter 27 of Notes on Business Associations by Professor Mark Gillen of the University of Victoria Faculty of Law.)
“… the conflict that would inevitably arise between the commercial interests of the owners and the ethical duties on which the practice of law is based. An owner of a law firm who was not a lawyer and therefore not subject to those duties would be perfectly entitled to pursue his own financial interests, even in circumstances where those conflicted with the best interests of clients of the firm or with other core values of the legal profession.”
copyright Roderick Ramage
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