The Legal Nature of the Corporate Constitution: Hickman v Kent or Romney Marsh Sheep-Breeder’s Association Ltd (1915)

A century-old dispute between a sheep breeder and his association continues to shape how we understand corporate law today. Hickman v Kent or Romney Marsh Sheep-Breeders' Association (1915) established a principle that remains controversial yet enduring: shareholders can only enforce "membership rights" against their company, not provisions that benefit them in other capacities.

The Sheep Breeder's Quarrel

Alfred Hickman was both a sheep breeder and export agent who suspected his competitor, Chapman—who happened to be the association's secretary—of exploiting his position for commercial advantage. After Hickman improperly registered sheep he didn't own, bitter disputes erupted. When Hickman sued to prevent the association from employing Chapman and to stop his own expulsion, the association invoked an arbitration clause in its articles.

Hickman argued the articles weren't binding between members and the company—only between members themselves. The court disagreed, staying proceedings in favour of arbitration. But in reaching this decision, Astbury J, as the first instance judge, made observations that would echo through company law for over a century.

The Membership Rights Doctrine

Astbury J distinguished between provisions creating rights for members "as such" and those purporting to grant rights to persons in other capacities—as solicitors, directors, or contractors. Only the former, he held, were enforceable under what is now Companies Act 2006, section 33, which applies to limited as well as unlimited companies in the UK. The Court of Appeal endorsed this approach in Beattie v Beattie (1938), cementing the distinction into law.

This limitation seems puzzling. If the constitution binds the company and its members "as if there were covenants" between them (to use the Act's language), why can't all provisions be enforced?

The Academic Critique

In 1957, Bill Wedderburn advanced an academic critique on Hickman. He argued the case contradicted binding precedent, particularly Quin & Axtens v Salmon (1909), where the House of Lords allowed a shareholder-director to enforce his veto rights. Wedderburn contended that members should be able to compel their company to observe all constitutional provisions, not just those affecting membership rights.

This critique gained support. If constitutions are contracts, why shouldn't they be fully enforceable? The debate continued through the 1970s and 1980s, with various scholars proposing intermediate positions. Some argued members could enforce provisions relating to the company's functioning; others suggested the limitation arose from reconciling individual enforcement with majority rule.

Why Hickman Endures

Despite sustained academic criticism, Hickman survived. Courts continue to apply it, Parliament hasn't overruled it, and modern textbooks accept it as settled law. Why?

The answer lies in recognizing that corporate constitutions aren't ordinary contracts at all. While incorporation begins with an agreement between founders, once the company exists as a separate legal person, the constitution transforms into something different: regulations for the company.

This explains many puzzling features:

• Constitutions can be amended by 75% majority, unlike contracts requiring unanimous consent
• Courts won't imply terms from extrinsic circumstances
• Vitiating factors like misrepresentation or duress don't apply
• Rectification for drafting errors isn't available

These aren't contractual characteristics—they're features of statutory instruments. The Companies Act 2006 gives shareholders power to make "regulations for the company," but this power has limits. Only provisions that genuinely regulate corporate affairs fall within Companies Act 2006, section 33's scope.

Modern Echoes: The Tianrui Decision

The recent Privy Council advice in Tianrui v China Shanshui Cement Group (2024) might seem to challenge this analysis. The Board allowed a minority shareholder to bring a personal claim against improper share dilution, using contractual language to describe the constitutional relationship.

However, Tianrui doesn't undermine Hickman's core insight. The Board found that protection against dilution was inherent in membership rights—the right to proportionate voting power. While using "contract" terminology, the judgment relied on the constitution's statutory basis and didn't suggest non-membership provisions were enforceable.

A Landmark Reconsidered

Hickman marked company law's evolution from partnership origins toward recognizing corporations as distinct institutions. By clarifying that companies are bound by their constitutions while limiting enforcement to membership rights, it balanced corporate flexibility with member protection.

The case remains controversial because it challenges our contractual intuitions. But perhaps that's precisely why it endures—it forces us to recognize that corporate constitutions serve a unique function, creating governance frameworks for legal persons that transcend the agreements creating them. 

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Eva Micheler is a Professor of Law at the London School of Economics, and an ECGI Research Member.

Further reading: Eva Micheler, Company Law, A Real Entity Theory, chapter 6, OUP 2021. 

This blog is based on the paper “The Legal Nature of the Corporate Constitution:  Hickman v Kent or Romney Marsh Sheedbreeders’ Association Ltd and Tianrui v China Shanshui Cement Group” presented at the Koç University – ECGI Conference “Corporate Constitution and Private Ordering”.  Visit the event page to explore more conference-related blogs.

The ECGI does not, consistent with its constitutional purpose, have a view or opinion. If you wish to respond to this article, you can submit a blog article or 'letter to the editor' by clicking here.