The Right Hon Lady Arden of Heswall DBE delivers the first Jones Day Visiting Professorship on Comparative Commercial Law Lecture: In Whose Interests Should The Law Require Companies To Be Run?

On 18 April 2023, Lady Mary Arden, the Jones Day Visiting Professor on Comparative Commercial Law and a former UK Supreme Court Justice, presented a lecture on ‘In Whose Interests Should the Law Require Companies to be Run?’ The lecture was attended by the Honourable Chief Justice of Singapore, Sundaresh Menon, the Dean of NUS Law, Professor Andrew Simester, and more than a hundred guests.

The lecture began with the question of whether companies should be more outward looking or only focus on shareholder primacy and profit. To answer this question, Lady Arden used a chronological approach consisting of 3 distinct eras: the historical era, best interests of the company era, and the stakeholder era.

In the first era, the objective of the formation of companies through acts of Parliament or Royal Charters was for wealth creation. Further to the repeal of the South Sea Companies Act and the Salomon v Salomon case, the concepts of limited liability, the separate legal personality of companies, and a separate fund for creditors were introduced. However, there was nothing in the statute regarding the objectives of companies. As the doctrine of ultra vires and the objects clauses of companies subsequently became irrelevant, reference needed to be made to directors’ duties to answer this question.

Moving to the second era of the best interests of the company, the court took a flexible and expansive approach. In the cases of Evans v. Brunner Mond & Company and Park v Daily News, it was held that directors could consider the interests of third parties, provided there were derivative benefits to shareholders. This was especially important for employees who were considered as a special group.

In the third era, the purpose of companies was to benefit stakeholders through the tweaking of directors’ duties. The UK’s first move to a stakeholder model was effected through the 2006 Companies Act which codified directors’ duties in section 172(1). This provision did not prescribe a mandatory duty towards stakeholders. However, it required directors to actively consider the interests of stakeholders, although the provision did not expressly include creditors. In Sequana v BTI, a 2022 UK Supreme Court case, for the first time, the duty of directors towards creditors under this provision was clarified.

Lady Arden then presented a summary list of analytical points which she derived from Sequana. Among some interesting points were that creditors were guardians of their own interests, but directors owed a duty to consider the interests of creditors where the company was insolvent or bordering on insolvency. However, less weight should be given to creditors in the case of transitory insolvency. This duty excluded shareholders only where liquidation was unavoidable and should not conflict with wrongful trading provisions.

To conclude, Sequana laid down the principle that the protection of a group of stakeholders (in this case, creditors) could be part of the purposes of a company. Nevertheless, the exact extent of directors’ duties towards stakeholders would need to be considered carefully and the move to a stakeholder model should not be carried out by judges alone. This should instead be legislated to weigh both economic and policy considerations.

The lecture was followed by a lively question and answer session moderated by Sushma Jobanputra, partner-in-charge of Jones Day Singapore.

(From left) Professor Tan Cheng Han, S.C. (NUS Law), Professor Andrew Simester (NUS Law), Chief Justice Sundaresh Menon (Supreme Court), The Right Hon Lady Arden of Heswall DBE (Former Justice of the UK Supreme Court), Ms Sushma Jobanputra (Jones Day Singapore), Professor Tjio Hans (NUS Law) and Associate Professor Wee Meng Seng (NUS Law).

Professor Andrew Simester (Dean, NUS Law) welcoming guests

Chief Justice Sundaresh Menon (Supreme Court) giving speech

Ms Sushma Jobanputra (Partner In Charge – Jones Day Singapore) moderating an interactive Q&A

Audience posing a question

ABOUT THE RIGHT HON LADY ARDEN OF HESWALL DBE

Lady Arden became a Justice of the Supreme Court in October 2018 and retired in January 2022.

Lady Arden grew up in Liverpool. She read law at Girton College Cambridge and Harvard Law School. Called to the Bar in 1971, she became a Queen’s Counsel in 1986 and served as Attorney General of the Duchy of Lancaster between 1991 and 1993. She served on the Court of Appeal of England and Wales from 2000 to 2018.

Her judicial career began in 1993 when she was appointed to the High Court of Justice of England and Wales as the first woman judge assigned to the Chancery Division. Alongside her judicial experience, she has written extensively on how the law keeps pace with social change. Her two-volume book Shaping Tomorrow’s Law was published by Oxford University Press in 2015. It drew strongly on her knowledge of law reform, which she began to develop while serving as Chair of the Law Commission of England and Wales from 1996 to 1999.  From 1999 to 2001, she was a member of the DTI’s Steering Group on Company Law Reform and its recommendations were implemented by the UK’s Companies Act 2006.

Between 2005 and September 2018, Lady Arden was Judge in Charge and Head of International Judicial Relations for England and Wales. She organised bilateral exchanges between the senior judiciary of the UK and the judiciaries of leading national and supranational courts overseas. She became a Member of the Permanent Court of Arbitration in The Hague in 2011 and an ad hoc UK judge of the European Court of Human Rights in Strasbourg.

In February 2023, Lady Arden was appointed a member of the UK’s Committee on Standards in Public Life.