Southern Foundries (1926) Ltd v Shirlaw

JurisdictionUK Non-devolved
JudgeViscount Maugham,Lord Atkin,Lord Wright,Lord Romer,Lord Porter
Judgment Date22 April 1940
Judgment citation (vLex)[1940] UKHL J0422-2
Date22 April 1940
CourtHouse of Lords
Southern Foundries (1926), Limited and Others
and
Shirlaw

[1940] UKHL J0422-2

Viscount Maugham

Lord Atkin

Lord Wright

Lord Romer

Lord Porter

House of Lords

After hearing Counsel, as well on Thursday the 7th, as on Monday the 11th, Tuesday the 12th and Wednesday the 13th, days of March last, upon the Petition and Appeal of Southern Foundries (1926), Limited, whose registered office is situate at Purley Way, Croydon, in the County of Surrey, and Federated Foundries, Limited, whose registered office is situate at 105 St. Vincent Street, Glasgow, praying, That the matter of the Order set forth in the Schedule thereto, namely, an Order of His Majesty's Court of Appeal of the 17th of March 1939, might be reviewed before His Majesty the King, in His Court of Parliament, and that the said Order might be reversed, varied, or altered, or that the Petitioners might have such other relief in the premises as to His Majesty the King, in His Court of Parliament, might seem meet; as also upon the printed Case of Alan Shirlaw, lodged in answer to the said Appeal; and due consideration had this day of what was offered on either side in this Cause:

It is Ordered and Adjudged, by the Lords Spiritual and Temporal in the Court of Parliament of His Majesty the King assembled, That the said Order of His Majesty's Court of Appeal, of the 17th day of March 1939, complained of in the said Appeal, be, and the same is hereby, Affirmed, and that the said Petition and Appeal be, and the same is hereby, dismissed this House: And it is further Ordered, That the Appellants do pay, or cause to be paid, to the said Respondent the Costs incurred by him in respect of the said Appeal, the amount thereof to be certified by the Clerk of the Parliaments.

Viscount Maugham

My Lords,

1

The facts in this case are not in dispute and may be stated as follows: —

2

The Appellants (whom I shall call "Southern") were incorporated in the year 1926 as a Private Company with the object of carrying on the business of ironfounders. The Respondent became a Director of Southern in the year 1929. The Articles of Association of Southern which regulated his position as such Director included the following Articles: —

"84. Until otherwise determined by a General Meeting, the number of Directors shall be not less than two nor more than eight. Subject to the rights of the holders of any of the Debentures hereinafter mentioned for the time being outstanding four Directors shall 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 more of their body to be Managing Director or Managing Directors for such period and upon such terms as they think fit, and may vest in such Managing Director or Managing Directors such of the powers hereby vested in the Directors generally as they may think fit, and such powers may be made exercisable for such period or periods, and upon such conditions and subject to such restrictions and generally upon such terms as to remuneration and otherwise as they may determine. The remuneration of a Managing Director may be by way of salary or commission or participation in profits, or by any or all of those modes.

91. A Managing Director shall not while he continues to hold that office be subject to retirement by rotation, and he shall not be taken into account in determining the rotation of retirement of Directors, but he shall, subject to the provisions of any contract between him and the Company, be subject to the same provisions as to resignation and removal as the other Directors of the Company, and if he cease to hold the office of Director he shall ipso facto and immediately cease to be a Managing Director.

105. The Company may by Extraordinary Resolution remove any ordinary Director before the expiration of his period of office, and may, if thought fit, by Ordinary Resolution appoint another Director in his stead; but any person so appointed shall retain his office only until the next following Ordinary General Meeting of the Company, and shall then be eligible for re-election."

3

On the 21st December, 1933, an agreement was entered into between Southern, the Respondent, and Sir Berkeley Sheffield (who was at that time the holder of all the debentures and nearly the whole of the capital of Southern) whereby the Respondent was appointed Managing Director of Southern for the term of ten years. The agreement contained, amongst others, the following clauses: —

"1. Mr. Shirlaw shall be and he is hereby appointed Managing Director of the Company and as such Managing Director he shall perform the duties and exercise the powers which from time to time may be assigned to or vested in him by the Directors of the Company.

2. Mr. Shirlaw shall hold the said office for the term of ten years from the first day of December one thousand nine hundred and thirty-three.

3. Mr. Shirlaw shall unless prevented from ill-health throughout the said term devote the whole of his time 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 interests 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."

4

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 five 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 miles of the Company's works at Croydon. The agreement also contained provisions relating to the furnishing by Sir Berkeley Sheffield of finance for a company, Steel Parts Limited, in which the Respondent was interested.

5

Clause 10 (referred to in Clause 3 supra) provided that the Respondent might hold a directorship in Steel Parts Limited and devote a specified part of his time to that Company.

6

In the year 1935 it was agreed by Southern and some ten other Companies engaged in similar businesses to effect what was called an "Ironfounders' Merger", and with that object in view the Appellants Federated Foundries Limited (whom I shall call "Federated") were incorporated on the 6th December, 1935.

7

The amalgamation was carried through by transfers of all the shares in the capital of the Associated Companies to the Federated or its nominees on the terms of the accountants' report.

8

The holders of the shares so transferred were to receive and did receive in exchange allotments of preference and ordinary shares in Federated credited as fully paid. Part of the arrangement for amalgamation was that the Associated Companies would adopt new Articles of Association in similar terms. This was done at Extraordinary General Meetings of the Companies, the resolution in the case of Southern being passed on the 17th April, 1936. The matter had been completed by the 23rd April, 1936, except that certain transfers of shares had to be executed in relation to qualification shares in the Associated Companies; and, in order to provide the Associated Companies with one shareholder in addition to the Federated, one share in each of those Companies had to be transferred to a nominee of Federated. When all these things had been done the position was that Federated owned beneficially every share in each of the Associated Companies and was in complete control of those Companies, and each of them had adopted new Articles of Association in order to make such control effective to the same extent in relation to each of those Companies. The new Articles were very different in many respects from the previous Articles of the Associated Companies including those of Southern. Table "A" of the First Schedule to the Companies Act, 1929, so far as not excluded or altered was to apply; but the Articles as regards the Directors were almost entirely new. The following seem to be of some importance, and it is Article 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 Limited shall have power at any time and from time to time by an instrument...

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164 cases
13 books & journal articles
  • Table of Cases
    • Canada
    • Irwin Books Archive The Law of Partnerships and Corporations. Third Edition
    • 8 September 2009
    ................................................................................375–77, 382 Southern Foundries (1926) Ltd. v. Shirlaw, [1940] A.C. 701, [1940] 2 All E.R. 445, 109 L.J.K.B. 461, 84 Sol. J. 464, 164 L.T. 251, 56 T.L.R. 637 (H.L.) ........................................................
  • Table of Cases
    • Canada
    • Irwin Books The Law of Partnerships and Corporations. Fourth Edition
    • 5 August 2018
    ...1 FC 124 (CA) ...................................................................413, 415, 420 Southern Foundries (1926) Ltd v Shirlaw, [1940] AC 701, [1940] 2 All ER 445, 109 LJKB 461, 84 Sol J 464, 164 LT 251, 56 TLR 637 (HL) .....................................................................
  • Specific Performance and Injunctions
    • Canada
    • Irwin Books The Law of Contracts. Third Edition Remedies
    • 4 August 2020
    ...109 (VC) [ Pickering v Bishop of Ely ]; Ogden v Fossick (1862), 4 De G F & J 426, 45 ER 1249; Southern Foundries (1926) Ltd v Shirlaw , [1940] AC 701 (HL). And see Dupré Quarries Ltd v Dupré , [1934] SCR 528; Field v CNR , [1934] 3 DLR 383 (NSSC); Kapp v BC Lions Football Club (1967), 64 DL......
  • Specific Performance and Injunctions
    • Canada
    • Irwin Books Archive The Law of Contracts Part Six
    • 1 September 2005
    ...2 Y. & C.C.C. 249, 63 E.R. 109; Ogden v. Fossick (1862), 4 De G. F. & J. 426, 45 E.R. 1249; Southern Foundries (1926) Ltd . v. Shirlaw , [1940] A.C. 701 (H.L.). And see Dupré Quarries Ltd . v. Dupré , [1934] S.C.R. 528; Field v. C.N.R. , [1934] 3 D.L.R. 383 (N.S.S.C.); Kapp v. B.C. Lions Fo......
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