Carrier Australasia Ltd v Hunt [1939] HCA 21;

Carrier Australasia Ltd v Hunt [1939] HCA 21; - HCA 1939 case summary — Zoe

[5]

The plaintiff in this case sued the defendant for wrongful dismissal. The declaration in the action alleged an agreement to employ the plaintiff for a term certain and the repudiation of the contract by his dismissal before the expiration of the term. The defendant pleaded to this declaration and the plaintiff demurred to the fourth plea. On the hearing the Full Court of the Supreme Court of New South Wales gave judgment for the plaintiff. The plea sets out the contract of employment, a lengthy document, and goes on to allege an amendment of an article of association, art. 91, the effect of which would be to empower a meeting of shareholders by extraordinary resolution to remove the plaintiff from the office of director and then to allege that such a resolution was passed. According to the plea the special resolution amending art. 91 was duly passed in accordance with law; and the ordinary resolution purporting to remove the plaintiff from the board of directors was duly passed at a duly convened extraordinary general meeting. Unless the facts stated in the plea are enough in themselves to show that either the special resolution or the extraordinary resolution was invalid they must, for the purpose of this demurrer, be taken to be valid and not void. The only material facts stated in the plea are (a) the text of the agreement, and (b) the text of the articles of association, i.e., apart from the nature of the resolutions themselves. The question on which the appeal depends is whether the plea in the circumstances answers the declaration and shows that the dismissal was not wrongful. This obviously depends, in the first instance, on the provisions of the agreement. The first provision, that upon which the plaintiff relies, is an agreement by the defendant "to employ the" plaintiff "who in turn agrees to serve the" defendant "as managing director for the term and subject to the company's articles of association and the provisions hereinafter contained." This, it is said, gives the plaintiff a fixed term which, as afterward appears in the agreement, would expire on 31st December 1941. But the appointment of a director to be managing director for a certain period does not postulate his continuance in his office of director. Then it was contended that the word "and" between the word "term" and the word "subject" shows that the term is not subject to the articles of association. But this cannot be intended because the same construction would make it appear that the term was not qualified by "the provisions hereinafter contained." The provisions, however, not only fix the length of the term but they contain one qualification upon which I think the whole case turns. Clause 7 of the agreement provides that "notwithstanding anything hereinbefore contained the company shall be at liberty to terminate the term by notice to that effect if" among other things "the managing director ceases to be a director of the company." Now it is quite clear that if the amendment of art. 91 was valid and if the resolution removing him from the board was duly passed he did cease to be a director of the company. If both these premises are granted then it would follow that his dismissal was not a breach of the agreement unless some implication can be discovered qualifying or limiting the general words I have quoted from clause 7 of the agreement. What I have said comes to this: that there are three points, one at least of which must be made good by the plaintiff before he can succeed. They are these: He must show either (a) that the amendment of art. 91 was invalid, or (b) that the resolution removing him from the board was invalid, or (c) that the general words of clause 7 of the agreement are subject to some unexpressed limitation which prevents them from applying to the particular circumstances in which the plaintiff ceased to be a director. I take these in order: - (a) Art. 91 was as follows: "Subject to the provisions of any agreement for the time being subsisting the company may by extraordinary resolution remove any director before the expiration of his period of office and may by ordinary resolution appoint another qualified person in his stead." It was assumed by the company that while the introductory words "Subject to the provisions of any agreement for the time being subsisting" stood, the company could not exercise the power given by art. 91 because it would be inconsistent with the agreement to do so. I doubt whether this assumption was right. The agreement did not say absolutely that the plaintiff was to remain the managing director until 31st December 1941. It said only that he was so to remain unless he ceased to be a director and he would cease to be a director if he were removed in the manner stated by art. 91. However, the amendment was made on the assumption I have mentioned. I cannot see any grounds for treating it as invalid on this demurrer. We have recently dealt with a ground upon which a purported amendment of articles of association may be considered void (Peters' American Delicacy Co. Ltd. v. Heath[1]). The plea states no facts which justify such an application of the principles of law as there declared as would invalidate the resolution. The resolution amending art. 91 must, therefore, be treated as valid. (b) The extraordinary resolution removing the plaintiff from the directorate might, of course, be impeached on the same grounds as are dealt with in Peters' Case[2], but, again, there are no facts stated in the plea from which its invalidity is a proper conclusion. It is clearly within the power conferred by art. 91 unless the purpose corrupts it, and the purpose is not alleged. (c) On the general words of clause 7 the agreement was at an end as soon as the plaintiff was removed from the office of director. It is, of course, possible to imply conditions or restrictions on general words which make them inapplicable to a description of the case apparently falling within their express meaning. Where B's obligations to A are to terminate on the occurrence of a contingency which neither party is supposed to desire there may be an implication that B shall not bend his energies to bring it about. We are familiar with the cases governing the remuneration of commission agents by which their employer is impliedly restrained from preventing them earning their commission: Cf. Prickett v. Badger[3]; Inchbald v. Western Neilgherry Coffee, Tea and Cinchona Plantation Co. (Ltd.)[4]; Burchell v. Gowrie and Blockhouse Collieries Ltd.[5]. May it be said that clause 7 is not to be applied where the company deliberately removes the plaintiff from the office so as to obtain the benefit of clause 7 itself? I find it difficult to introduce this implied restriction on its scope. The office of director has a tenure which must rest on the articles of association and subject to the articles upon the voting of a general meeting of the company. Articles may be amended by a three-fourths majority, and it is hard to see how the motive of the majority which votes to amend the articles and remove the plaintiff or at an election fails to elect him can be made the test of the application of clause 7. An implication cannot be made unless it appears clearly to be intended and clause 7 of the agreement prevents such an implication being made. The plaintiff is not suing for a breach of an implied promise that the defendant would not amend art. 91 and would not remove him from the office of director for the purpose of terminating his contract as managing director. He is suing the defendant company for wrongful dismissal. But in any case I do not think such an implied promise can be spelt out of the agreement.

[15]

But the recent decision, Shirlaw v. Southern Foundries (1926) Ltd.[12] (MacKinnon and Goddard L.JJ., Greene M.R. dissenting), requires consideration. In that case a company had appointed a managing director to hold office for the term of ten years. The articles of association of the company, when the managing director was appointed, provided that the directors might appoint one or more of their body to be a managing director, that he should not be subject to retirement by rotation, but that he should be subject to the same provisions as to resignation and retirement as those applicable to the other directors but subject to the provisions of any contract between him and the company and there was a general power to remove any ordinary director. It is not quite clear on the report whether there was any provision in the articles that the managing director should ipso facto and immediately cease to be a managing director if he ceased to hold the office of director from any cause (See Palmer's Company Precedents, 15th ed. (1938), part 1, p. 693), but at all events it was argued that the articles meant that anyone holding the office of managing director ceased to be managing director if he ceased to hold office as a director. The company amended its articles. By the new articles the Federated Foundries Ltd. (which had become the beneficial owners of all or practically all the shares in the company) was empowered to remove any director of the company and it was also provided that an appointment as managing director should determine if he ceased from any cause to be a director. The majority of the Court of Appeal held that there must be implied in the agreement with the managing director a term that the company would not so alter its articles as to put it in the power of itself or anyone else to determine the contract and consequently that the termination of the managing director's position as a director of the company constituted a breach of contract. In my opinion that decision does not govern the present case. The critical distinction is that the agreement relied upon in this case is made subject to the provisions of the company's articles of association, which are alterable, and subject also to the express provisions of clause 7, which is not expressed to be subject to the terms of existing contracts, and that implication is not "so obvious" to my mind "that it goes without saying."

[30]

The appellant, which is an incorporated company, is the defendant in an action brought by the respondent to recover damages from it for breach of contract. The contract is pleaded in the company's fourth plea. It was entered into between the company and the respondent under an authority conferred on the directors of the company by art. 109 of its articles of association. The contract was made on 15th May 1937, the respondent then being a director of the company. The contract provides that "the company agrees to employ the managing director who in turn agrees to serve the company as managing director for the term and subject to the company's articles of association and the provisions hereinafter contained." One of these provisions is that: "The term of employment shall commence or be deemed to have commenced on the first day of January one thousand nine hundred and thirty-seven and subject to the provisions hereinafter contained shall continue until the thirty-first day of December one thousand nine hundred and forty-one." By clause 7 it is provided that: "Notwithstanding anything hereinbefore contained the company shall be at liberty to terminate the term by notice to that effect if" (inter alia) "the managing director ceases to be a director of the company." After setting out the provisions of the contract, the plea annexes a copy of the company's articles of association. Art. 109 provides that the directors may from time to time appoint one of their body to be managing director for a fixed term not exceeding five years and may from time to time, subject to the provisions of any contract between him or them and the company, remove or dismiss him from office. Art. 110 concludes with the provision that if the managing director cease to hold the office of director he shall ipso facto and immediately cease to be a managing director. Art. 91 provides that: "Subject to the provisions of any agreement for the time being subsisting the company may by extraordinary resolution remove any director before the expiration of his period of office and may by ordinary resolution appoint another qualified person in his stead." Art. 82 provides that the office of director shall ipso facto be vacated if (inter alia) he be removed under art. 91. After setting out the terms of the contract and the articles of association, the fourth plea proceeds: "the plaintiff entered upon the services under the said agreement and thereupon and before the termination of the said agreement by effluxion of time the defendant company, by a special resolution, duly passed in accordance with law, amended art. 91 of the said articles by deleting therefrom the words subject to the provisions of any agreement for the time being subsisting and thereupon the defendant company duly passed an extraordinary resolution at a duly convened extraordinary general meeting of the defendant company in the words following namely: - That Mr. Noel Percy Hunt (meaning the plaintiff) be and he is hereby removed from the board of directors of the company and thereupon the defendant company gave due notice of the termination of the term of the said agreement in accordance therewith which is the alleged breach." The respondent demurs to the plea on the grounds that: (a) the said fourth plea confesses but does not avoid the breach mentioned in the declaration; (b) it does not allege any facts entitling the defendant to terminate the plaintiff's employment under the agreement therein mentioned; (c) the facts alleged in it, even if proved, would not establish that the plaintiff ceased to be a director of the company within the meaning of clause 7 of the said agreement.

[31]

If the removal of the respondent from the office of director did not make him cease to be a director in a way contemplated by the contract, it was a repudiation of the contract by the company to give the respondent notice putting an end to the term for which it promised to employ him as its managing director. The question which arises is whether under the contract the company had the right to exclude the respondent from the office of managing director by removing him from the board of directors. The contract does not expressly reserve to the company the right to dismiss the respondent at its pleasure from the office of managing director at any time during the term of the contract. The company assumes that, notwithstanding its promise to employ the respondent for a fixed term, it had not bound itself by the contract not to put him out of the office of director at its pleasure during the term of the contract, although the result of doing so was his automatic exclusion from the office of managing director in which the company agreed to employ him. It is clear that when the company removed the respondent from the office of director it made impossible the performance of its promise to employ him for the term stipulated in the contract and prevented him from performing his promise to serve the company as a managing director for that term. The removal of the respondent from the board of directors, was, therefore, a repudiation by the company of its promise unless the company reserved to itself by the contract the right to remove the respondent from the board whenever it thought fit to do so: See Ogdens Ltd. v. Nelson[18]. The company relies upon the provision in the contract that it is subject to the articles of association, as a condition reserving to it that right. When a contract with a company is outside the articles of association, it is not an implied term of the contract that the company has the right to exercise any power which it has under the articles to alter or put an end to contracts, to alter or put an end to that contract (Nelson v. James Nelson & Sons Ltd.[19]). On the other hand, if the respondent's appointment as managing director had been made subject to the articles simpliciter, the contract, if any, between him and the company would have depended on alterable articles.

[33]

At the date of the contract art. 91 contained a restriction which, if it applied to the present contract, made the contract subject to articles under which, in fact, the company did not have the power to remove the respondent from the office of director. It was contended on behalf of the appellant company that this restriction does not apply to the present contract because under this agreement the respondent became a managing director, whereas the restriction applies only to agreements under which the office of director is held. But it was also contended, in effect, on behalf of the company, that, even if the restriction did extend to the present contract, the provision that the contract is subject to the articles meant that the company was to have the contractual right to do at any time during the term of the contract whatever it might have the power to do under its articles of association. If that view of the meaning of the provision is right, it is clear that the company had the contractual right to remove the respondent from the office of director when it amended the article, although it did not have that contractual right when it entered into the contract. The condition of the contract that it is to be subject to the articles does not, in my opinion, mean that the parties agreed to leave room in the contract for additions to the contractual rights of the company commensurate with any additions it might lawfully make to its powers as a corporation by amending the articles of association. If the condition has that meaning, the provisions of the contract standing outside the articles, under which the respondent was promised a fixed term of employment subject to the contract, would be merely tentative, if not entirely otiose. Rather than imply in the contract a term reserving to the company the right to exercise its powers to remove the respondent from the board of directors during the term of the contract, it is necessary, in order to give "business efficacy" to the provisions of the contract outside the articles, to imply a term binding the company not to exercise such powers. I agree with the view expressed by Jordan C.J.[20] that "subject to the articles" does not mean "subject to a right in the company so to alter the articles as to enable the company to free itself from the obligations of the contract." "If it did," the Chief Justice continued, "then if the articles had contained no provision for removal at all, the phrase would have justified the introduction into the articles of a provision for removal applicable to directors who are managing directors, and the subsequent removal of such a director pursuant to the new article. By virtue of the deletion of the portion of art. 91 now in question, it has been, in effect, sought to produce this result. I am of opinion, however, that the presence in art. 91 of the words which have been deleted did not make any difference to the effect of that article. They served as a reminder that the power conferred by the articles is one the exercise of which may involve the risk of committing a breach of contract. All that their deletion has achieved has been to remove the reminder."

At a glance

Court

Decision date

Before

Source

Judgment (47 paragraphs)

Carrier Australasia Ltd v Hunt [1939] HCA 21; (1939) 61 CLR 534 (22 May 1939)

Parties

Cases Cited (1)