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TMI Blog1940 (4) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... hall be appointed by the subscribers to the memorandum of association. 85. The qualification of a director shall be the holding in his own right alone, and not jointly with any other person, of not less than 200 ordinary shares of the company, and such qualification shall be acquired within two months after appointment as director. 89. Subject as herein otherwise provided, or to the terms of any subsisting agreement, the office of a director shall be vacated: (A) If he become bankrupt or insolvent or compound with his creditors, (B) If he become of unsound mind or be found a lunatic, (C) If he be convicted of an indictable offence. (D) If he cease to hold the necessary qualification in shares or stock, or does not obtain the same within two months of the date of his appointment, (E) If he wilfully absent himself from the meetings of the directors for a period of six consecutive calendar months without special leave of absence from the other directors and they pass a resolution that he has by reason of such absence vacated his office, (F) If he gives the directors one month's notice in writing that he resigns his office. 90. The directors may from time to time appoint any one or m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attention and abilities to the business of the company (subject, however, to Clause 10 hereof) and shall obey the orders from time to time of the board of the company and in all respects conform to and comply with the directions and regulations made by such board, and shall well and faithfully serve the company and use his utmost endeavours to promote the interest thereof. 9. If before the expiration of this agreement the tenure of office by Mr. Shirlaw shall be determined by the winding-up of the company (other than for the purpose of reconstruction or amalgamation) Mr. Shirlaw shall have no claim against the company or Sir Berkeley Sheffield for damages in respect of such determination. The agreement provided for payment of a salary to the respondent as managing director of 1,700 rising by annual increments of 100 to 2,000 a year and of commission at the rate of 5 per cent. on the net profits of the company available for dividend in any year. The respondent bound himself not during the continuance of the agreement or within three years after its termination without the consent of the company to carry on or be engaged in the business, of a foundry within one hundred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 which has led to this litigation : 7. The number of the directors shall be not less than two or more than ten. 8. Subject to the immediately preceding article, Federated Foundries, Ltd. shall have power at any time and from time to time by an instrument in writing subscribed on its behalf by two of its directors and its secretary to appoint any person to be a director of the company and to remove from office any director of the company. Every such instrument shall be deposited at the registered office of the company and shall take effect as at the time of such deposit. Article 68 of Table "A" in the companies Act, 1929, was incorporated in the articles. It is as follows : 68. The directors may from time to time appoint one or more of their body to the office of managing director or manager for such term and at such remuneration (whether by way of salary, or commission, or participation in profits, or partly in one way and partly in another) as they may think fit, and a director so appointed shall not, while holding that office, be subject to retirement by rotation, or taken into account in determining the rotation or retirement of directors; but his appointment shall be subject ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... office as a director of Southern was signed on behalf of Federated by two directors and the secretary, and was delivered to Southern and deposited at the registered office of Southern on March 27, 1937. The respondent thereupon ceased to be a director of Southern, and, as is admitted, necessarily ceased at the same time to be the managing director of Southern. The respondent issued his writ on June 10, 1987, against Southern and Federated. The statement of claim (paragraph 4) alleges that Federated wrongfully resolved to remove the plaintiff from his directorship of Southern and purported to do so by the instrument in writing of March 25, 1937. Paragraph 5 alleges that Southern adopted and accepted the said removal and thereby wrongfully repudiated the agreement of December 21, 1933, or, alternatively, had treated the plaintiff's appointment as managing director as terminated and had refused to allow him to perform his duties as managing director. There is no other breach of contract alleged. The claim against Federated (paragraph 6) is that that defendant wrongfully caused and induced Southern to be guilty of "the aforesaid breaches of the said agreement". It was agreed in the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o hold the office of director "by any means within the control of himself or the company". For myself I agree with nearly the whole of the judgment of the Master of the Rolls. The only doubt I have felt is in regard to the well-known principle laid down by Cockburn, C.J., in Stirling v. Maitland, where he said (34 L. J. Q.B., at p. 3; 5 B. S., at p. 852): "If a party enters into an arrangement which can only take effect by the continuance of a certain existing state of circumstances, there is an implied engagement on his part that he shall do nothing of his own motion to put an end to that state of circumstances, under which alone the arrangement can be operative". This, as the Master of the Rolls observed, is not a rigid rule; it is capable of qualifications in any particular case ; and it is a rule the application of which depends on the true construction of the agreement. An excellent example of this is to be found in the decision of this House in Rhodes v. Forwood (47 L.J. Ex., at p. 405; 1 App. Cas., at p. 274), where the rule contrary to the decision of the Exchequer Chamber was held to be inapplicable. On the whole, however, I have come to the conclusion in this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by Cockburn, C.J., would not be applicable without some qualification, for that clause makes it clear that Southern could wind up and distribute its assets without committing a breach of the agreement, though that would involve the dismissal of the respondent. For the above reasons and those given by the Master of the Rolls, I cannot agree with the view of MacKinnon, L.J., that we can properly imply a term in the agreement that the company should not exercise or create any right to remove the respondent from his directorship, if that involves the results of an alteration of the articles. It seems to me that a winding-up resolution would be within these words. Nor can I agree with the opinion of Goddard, L.J., that it was a breach of the agreement for Southern to put it within the power of some other person or company under new articles and under different circumstances to remove the respondent. After all, an implied term ought to be one which the parties must necessarily have intended at the date of the agreement, and I do not myself think that either of the parties can be taken to have been providing for a state of things which would result from the de facto amalgamation o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g a power to dismiss the company's directors. B cannot complain if he is so dismissed by the third party, for it is as I think, impossible for B to take up the position that he is bound under his contract by the new articles but can sue the company for breach of that contract based on things lawfully done under the new articles. In my opinion it has not been established in this case that Southern has committed any breach of the agreement or has repudiated the agreement, and the action therefore fails. The Master of the Rolls, at the conclusion of his judgment, expressed a view on the hypothesis which he did not accept, that a certain implied undertaking, which I think his colleagues were accepting, had been broken. I do not think he would have expressed himself as he did if the hypothesis had included a statement that the alteration of the articles and the insertion of article 8 was not prohibited by any implied term in the agreement. For the reasons stated I should be in favour of allowing this appeal; but if a majority of your Lordships are of a contrary opinion it must be dismissed. Lord Atkin. The question in this case is whether the appellant company have broken thei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve." That proposition, in my opinion, is well-established law. Personally I should not so much base the law on an implied term as on a positive rule of the law of contract that conduct of either promisor or promisee which can be said to amount to himself "of his own motion" bringing about the impossibility of performance is in itself a breach. If A promises to marry B and before performance of that contract marries C, A is not sued for breach of an implied contract not to marry anyone else, but for breach of his contract to marry B. I think it follows that if either the company of its own motion removed the respondent from the office of director under article 105, or if the respondent caused his office of director to be vacated by giving one month's notice of resignation under article 89, either of them would have committed a breach of the agreement in question. As Kennedy, L.J., said in Measures Brothers, Ltd. v. Measures (79 L.J. Ch., at pp. 717, 718; [1910] 2 Ch., at p. 258) in discussing this very question of the effect upon a contract of employment as managing director of the managing director resigning his office of director it is elementary justice that one of the partie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e respondent if done by the Federated, who derive their power to do the act from the Southern only. If a landlord gives power to a tenant to discharge the landlord's servants, gardener or gamekeeper, it is the master, the landlord, who is bound by the consequences of that discharge whether rightful, or whether wrongful and so involving the payment of damages. If a man buys goods, and contracts with a sub-purchaser to take delivery direct from his vendor, and contracts with his vendor to give delivery to the sub-purchasers, the latter's recourse for breach of contract to deliver is against his own intermediate seller and not against the head vendor. If then the Federated of their own motion determine the concurrent condition it appears to me that necessarily they cause the Southern to break the contract. I can quite see that the position may be altered where the Federated remove a director from office for such reasons as those contained in the old article 89 or in article 72 of Table A, which was not incorporated in the new articles. In such a case it may well be said that the company is not acting of its own motion, but is reasonably moved to act by the acts or omissions of the dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... writing determine this agreement. 9. If before the expiration of this agreement the tenure of office by Mr. Shirlaw shall be determined by the winding-up of the company (other than for the purpose of reconstruction or amalgamation) Mr. Shirlaw shall have no claim against the company or Sir Berkeley Sheffield for damages in respect of such determination. There were other clauses not directly material. The respondent agreed to be subject to stringent restrictive covenants for three years after the termination of the agreement. Sir Berkeley Sheffield, who was a director of the Southern company, agreed to pay the respondent his living expenses in London for a period and the cost of removing himself and his family from Birmingham to London. This agreement is unqualified in regard to the term of ten years save in the two events in which the Southern company was to be entitled to determine the agreement before the expiration of the term. But apart from the express language, the period of ten years is also qualified by the general rules of the law of employer and employed. Thus, the agreement would end if the respondent were to die or became permanently incapacitated, and the Southern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsistent with the agreement to serve for ten years under clauses 1, 2 and 3. The respondent could not without just cause rightfully give such a notice, that is if he did so he would break his agreement and be liable to a claim for damages. But as the agreement would not be specifically enforced against him, his resignation, though a breach of contract, would have the effect of vacating his directorship and hence his office as managing director. In the same way article 105 which empowers the company by extraordinary resolution to remove any director is equally excluded in the case of a managing director by article 91. If the company under article 105 had passed an extraordinary resolution to remove the respondent during his term of ten years he would no doubt have ceased to hold office, because a claim by him for specific performance or kindred relief would, I assume, fail, but the removal would have been a breach of the agreement, unless for good cause. In the result then, the articles, if they were regarded as qualifying the express agreement, would not in any substantial respect affect it. In my opinion the Southern company would beyond question have been guilty of a breach of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ported that each should do its part in carrying it out. But the question in the case arises out of an alteration in the articles of association made in 1936, when the agreement had still about seven years to run. It had been decided to effect a combination of the operations of a number of companies engaged in the iron foundry trade, including the Southern company. A new company, the second appellant, was incorporated, named Federated Foundries, Ltd., with that object, and it acquired the whole share capital of these companies. The respondent took part in these transactions and became one of the first directors of Federated Foundries, Ltd., and was present at a meeting of the board of that company, which unanimously resolved that each of the amalgamated companies should adopt similar articles of association. On April 17, 1936, at an extraordinary general meeting of the Southern company, at which the respondent was present, it was unanimously resolved by a special resolution that the existing articles of association should be abrogated and new articles decided upon by the Federated company should be adopted. It is not suggested that the action of the respondent as a director or sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve to consider is not whether as a shareholder he could have insisted on their performing that agreement, but whether under the contract he had that right." It was held that the contract prevailed. The converse case is illustrated by Allen v. Gold Reefs of West Africa, where it was held that a company, by altering its articles under which there was no lien on fully paid shares so that the altered articles did impose such a lien, could enforce that lien against a shareholder indebted to the company. The members' rights depended on the articles, which were altered in good faith by the company under its statutory powers. But Lindley, M.R., observed (69 L.J. Ch., at p. 272; [1900] 1 Ch , at p. 672): "It does not by any means follow that the altered article may not be inapplicable to some particularly fully paid up shareholder. He may have special rights against the company, which do not invalidate the resolution to alter the articles, but which may exempt him from the operation of the articles as altered." Later (69 L.J. Ch., at p. 273; [1900] 1 Ch., at p. 673) he considers the case of a special contract made with a company in the terms of or embodying one or more of the articles, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e managing director for such period as they deemed fit, "and might revoke the appointment". The Court of Appeal held that the directors' power, was in effect to appoint for a fixed time, and that this power was inconsistent with a power in the board to revoke the appointment at any time. As Swinfen Eady, L.J., said (83 L.J.K.B., at p. 830 ; [1914] 2 K.B., at p. 781): "The power to appoint and the power to revoke the appointment are in the board, but the power to revoke is to be subject to the terms of the contract for the time being between the managing director and the company." Hence when the directors dismissed the plaintiff without just cause while still fulfilling the conditions of his contract, he was held entitled to recover damages for wrongful dismissal against the company. It follows, I think, in the present case that if the appellant Southern company had dismissed the respondent either under article 105 of the original articles or article 8 of the altered articles (assuming for the moment that the power to remove was vested in them) they would have committed a breach of their contract, there not being any just cause for dismissal. The special bargain would override the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No doubt there might be cases in which apart from the contract provisions the Southern company could resist a claim for damages. There might for instance be a change in the law or there might be a requisition by the Government of the works and undertaking of the Southern company which might in certain events frustrate and dissolve the contract irrespective of the will of the parties. But even in such cases it has been held that the requisition must not be self-induced, to use the phrase employed in Maritime National Fish Co. v. Ocean Trawlers, Ltd. Even if the present case were, what it was not, analogous to such a case, the Southern company could not say that the intervention of the Federated was not self-induced, since in fact if article 8 had not been adopted in place of the earlier articles, Federated would have had no power to intervene. But it is clear that such intervention has no analogy to a requisition by government or any change by operation of law. It follows from a private arrangement between the Southern company and Federated, which is res inter alios acta so far as concerns the respondent's contractual rights even if in fact it terminates his directorship and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ondent as managing director would have come to an end in accordance with the terms of his employment. And even if his directorship had been terminated by the action of Southern themselves there would have been no breach by them of any express provision contained in the agreement. Nor would there have been any breach by the respondent of any express obligation on his part contained in the agreement had his directorship been brought to an end by his resignation under article 89 (F). But the agreement by Southern to employ the respondent, or his agreement to serve them, could only take effect for the full ten years if the respondent continued to be a director during that period. In these circumstances there was, in my opinion, an implied engagement on the part of Southern that they would not during that period exercise their power of removing him from his directorship under article 105, and an implied obligation on his part that he would not during that period serve notice of resignation under article 89 (F). "If", said Cockburn, C. J., in Stirling v. Maitland 31 L.J. Q.B., at p. 3; 5 B. S., at p. 852) "a party enters into an arrangement which can only take effect by the conti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ested, that the adoption was made for the purpose of having the respondent removed, or that the possibility of such removal resulting from the adoption was ever in the contemplation of Southern. He was in fact removed, as we know, by the exercise by the appellants, Federated Foundries, Ltd. (hereinafter referred to as Foundries) of the general power over the directors of Southern conferred upon them by article 8 of the new articles of association. But the conferring of this power on Foundries was no breach of any obligation they owed the respondent, as I have already pointed out; and I am wholly unable to see how it could become a breach by any subsequent exercise of the power by Foundries. Had Southern in any way instigated the subsequent exercise of the power by Foundries their instigation could no doubt have been regarded as a breach of their implied obligation. But of any such instigation no trace is to be found. The removal of the respondent would appear to have been the spontaneous act of Foundries in the exercise of their free and unfettered discretion. Nor can Foundries be regarded as being in any way the agents of Southern in effecting the respondent's removal. It must be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... continued: On March 25, 1937, the board of directors of the Federated company passed a resolution removing the respondent from his office as a director of the Southern company, and an instrument in writing subscribed on behalf of the Federated company by two of its directors and its secretary was sent to the office of the Southern company and was received by it on March 27, 1937. Upon receipt of this document the respondent admittedly ceased to be a director of the Southern company and consequently ceased to be managing director. The respondent, however, contends that he was thereby wrongfully dismissed from his office as managing director by the Southern company and that that company is liable to him in damages for breach of the agreement of December 21, 1933. He also contends that the Federated company is liable to him in damages for procuring that breach. No question arises for the determination of your Lordship's House as to whether the latter claim is or is not sustainable, since the appellants were content to treat the result of the action against the Southern company as binding also upon the Federated company, and in the remarks which follow I deal only with the right of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g three years before his appointment ends a period which if the company could get rid of him at any time might long precede the beginning of the contract. But apart from these considerations it has to be borne in mind that Sir Berkeley Sheffield was also a party to the contract and that he not only undertook by clause 13 to pay an extra sum for the respondent's living expenses and the cost of his removal to London up to twelve months after the date of the contract, but also entered into an arrangement with the respondent as to the subscription for and the non-transference of preference shares in another company so long as the obligations of the respondent under the contract were duly and punctually performed. In my view, therefore, the terms of the contract lead to the conclusion that it is one for ten years and in my view is not subject to the provisions of articles 89 (F), 98 and 105. Having regard to the provisions of articles 90 and 91 it could not be and was not contended that such an appointment was ultra vires. The application of the rest of the terms of article 89 to a managing director is somewhat different. The true view may well be that in the case of the happening ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y which the Court of Appeal thought entitled him to have the whole of the profits distributed, was held entitled to a declaration that the assurance company ought to distribute the whole of such profits. The action was necessitated because the company, which, when the policy was taken out, had been formed and was operating under a deed of settlement providing for the distribution of the whole of the profits, at a later date proposed to register itself with limited liability, to substitute a memorandum and articles for the deed of settlement, and under the terms of the articles to carry part of the profits to a reserve fund. The Court of Appeal affirmed a declaration by Kekewich, J., that the company ought to continue to distribute the entire profits arising from the participating branch of its business, and Cozens-Hardy, L. J., said (73 L. J. Ch., at p. 245; [1904] 1 Ch., at p. 385): "But the case of a contract between an outsider and the company is entirely different, and even a shareholder must be regarded as an outsider in so far as he contracts with the company otherwise than in respect of his shares. It would be dangerous to hold that in a contract of...........service...... ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l be that the covenant would not have the effect contended for; but if it is put an end to by their own voluntary act, that is a breach of covenant for which the plaintiff may sue. The transfer of business and the dissolution of the company was certainly the act of the company itself, so that they have by their act put an end to the state of things under which alone this covenant would operate". If, therefore, the Southern company had altered their articles in such a way as to enable them to remove the respondent from his directorship at will, and had so removed him, I, in common I believe with all your Lordships, would regard their action as coming under Sir Alexander Cockburn's dictum as an actionable breach of contract. In reaching this conclusion I find myself unable to accept the dissenting judgment of the Master of the Rolls, who took the view that under the contract the plaintiff was not expressly appointed managing director for ten years but only for such a period not exceeding ten years as he remained a director and that no term could be implied which would prevent the company from terminating the respondent's directorship with the result that he ceased to be capable o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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