SVKMS NMIMS

School Of Law, Mumbai

A synopsis for project of
COMPANY LAW I
In compliance to the partial fulfilment of the marking scheme,
for Trimester VIII of 2016-2017
Submitted To
Prof. Rahul
for evaluation.

Received by:
On date:
Time:

Submitted by:
Vidhi Agarwal
B.B.A., LL.B (Hons.)
A073
2016-2017

S H I R L AW V S O U T H E R N F O U N D R I E S ( 1 9 2 6 ) LTD ; H L 1 9 4 0
References: [1940] AC 701, [1940] 2 All ER 445
Coram: Viscount Maugham, Lord Atkin, Lord Wright, Lord Romer and Lord
Porter.
Southern Foundries (1926) Ltd v Shirlaw [1940] AC 701 is an important English contract law
and company law case. In the field of contracts it is well known for MacKinnon LJ's decision
in the Court of Appeal, where he put forth the "officious bystander" formulation for
determining what terms should be implied into agreements by the courts. In the field of
company law, it is known primarily to stand for the principle that damages may be sought for
breach of contract by a director even though a contract may de facto constrain the exercise of
powers to sack people found in the company's constitution.

Brief Facts of the Case: The plaintiff was a director in the defendant company. In 1933 he
was appointed as the managing director of the company for a term of 10 years. In 1935 the
defendant company was amalgamated with another company and new articles were adopted
under which powers were taken to dismiss a director. It was further provided that a managing
directors appointment would be subject to determination, ipso facto, if he ceased to be a
director. Under these articles the plaintiff was removed from the office of director.
He sued for wrongful repudiation of the contract, claiming for an injunction to stay in office
or substantial damages.
Topic: Section 14 of the Companies Act, 2013 which deals with Alteration of Articles.
Ratio Decidendi: Articles of Association are subject to the statutory power of Alteration.
Any one accepting an appointment purely on the terms of the articles takes the risk of those
terms being altered. However when the company has entered into an independent agreement
with a person for his appointment, the company may repudiate it by changing the articles, but
it will be answerable in damages for a breach of contract.