Shirlaw v Southern Foundries [1939] 2 KB 206 Court of Appeal

The claimant had been employed as a managing director of Southern Foundries the office of employment was to last for 10 years. Federated Foundries then purchased a controlling share in the company and altered the company's Articles of Association giving them the power to remove directors. They then dismissed the claimant as a director who brought an action for wrongful dismissal. There was no breach of contract for his dismissal based on the employment contract as they had not dismissed him from being a managing director but only as a director. However, if he was not a director he was not able to be a managing director. The claimant asked the court to imply a term that the defendant would not act in a way making it incapable for him to perform his contract.

Held:

The Court of Appeal applied the officious bystander test and did imply the term.

The officious bystander test:

If a third party was with the parties at the time the contract was made and had they suggested the term should be implied it would be obvious that both parties would reply with a hearty 'oh of course'.

It must be obvious that both parties would agree to the term at the time the contract was made.

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