Fixed-term employment contracts cannot be undermined by altering articles to let a third party end the agreed term.

A fixed-term employment contract was treated as carrying an implied obligation that the company would not defeat its promise by using altered articles to enable early removal of the managing director. The company's power to amend its articles remained intact, and good-faith alteration for an amalgamation was not itself a breach. However, once the alteration conferred removal power on another company and that power was used to end the agreed term, the resulting termination was treated as a contractual breach attributable to the original company. The stated principle is that a company cannot avoid liability for a fixed-term employment promise by transferring termination power to a third party.

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Issues: (i) Whether the contract of employment impliedly restrained the company from altering its articles so as to enable removal of the managing director before the agreed ten-year term; (ii) Whether removal of the respondent by the Federated company under the altered articles constituted a breach or repudiation by Southern of the 1933 agreement.

Issue (i): Whether the contract of employment impliedly restrained the company from altering its articles so as to enable removal of the managing director before the agreed ten-year term.

Analysis: The agreement fixed a ten-year term for service as managing director, and that office could be held only while the respondent remained a director. The statutory power to alter articles under Section 10 of the Companies Act, 1929, remained intact, but the majority held that the company could not, consistently with the contract, remove the respondent itself during the term except for recognised grounds. However, the implied obligation was limited: it did not extend to forbidding every corporate act whose indirect consequence might later affect the respondent, and the mere adoption of new articles, in good faith for an amalgamation, was not itself a breach.

Conclusion: The company was under an implied obligation not to dismiss the respondent directly during the term, but it was not in breach merely by altering its articles.

Issue (ii): Whether removal of the respondent by the Federated company under the altered articles constituted a breach or repudiation by Southern of the 1933 agreement.

Analysis: The majority held that the respondent's removal was not the act of a stranger breaking an independent contract, but the effective consequence of rights conferred by Southern's own alteration of its articles. Once Southern conferred the power of removal on Federated, the subsequent exercise of that power was treated as an act for which Southern remained responsible in contract, because the contract could not be defeated by delegating to an outsider a power to terminate performance that Southern had promised to maintain. The alteration and the later removal were therefore linked as part of the same contractual disruption.

Conclusion: The removal constituted a breach by Southern of the employment contract, and the respondent was entitled to damages.

Final Conclusion: The appeal failed, and the respondent succeeded on his claim for damages for breach of the ten-year managing director agreement.

Ratio Decidendi: A company cannot avoid liability for breach of a fixed-term employment contract by altering its articles to confer on a third party a power to remove the employee if the exercise of that power defeats the company's own contractual promise.

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