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1931 Supreme(SC) 44
Privy Council At Egypt
Sir Lancelot Sanderson, Macmilan , Justice Lords Hanworth, JJ.
Egyptian Salt and Soda Co., Limited -Appellant
Versus
Port Said Salt Association, Limited, -Resopndent
Privy Council Appeal No. 90 of 1930
Decided On : 21-04-1931
Gordon Browne, Lionel Cohen , R.T.J. Gibson, W. Greene
A company's Memorandum of Association must be interpreted reasonably based on its text, not external transactions. If the objects clause permits global dealing and exporting of a commodity, it includes exporting from the home country unless an express prohibition exists in the document.
Headnote:(A) Companies Acts - Interpretation of Memorandum of Association - Scope of objects clause - Export trade - A memorandum of Association must be read fairly and its import derived from a reasonable interpretation of the language employed, rather than a specially rigid canon of construction. (Para 10)
(B) Reliance on Constituent Documents - The purpose of the memorandum is to enable shareholders, creditors, and third parties to know the permitted range of enterprise; therefore, the intention of the framers must be gathered from the language used in the document, not from antecedent transactions or external information to which the public has no access. (Para 11)
(C) Trading Powers - In the case of a trading company, the memorandum is intended to define the trade generally, not to specify every individual act the company is empowered to perform in carrying on that trade. (Para 14)
Facts of the case:
A company was incorporated to acquire a business undertaking. An agreement associated with the acquisition reserved the right to export salt to the vendors, as the state held a monopoly on such exports. Subsequently, the state monopoly was abolished. The company's memorandum of association authorized it to carry on the business of manufacturers, dealers, and exporters of salt and soda in any part of the world. A shareholder obtained an injunction to prevent the company from exporting salt from the country of operation, arguing that the original agreement and the memorandum's phrasing implied a prohibition on such activity.
Findings of Court:
The court found that the memorandum did not expressly prohibit the export of salt from the country of operation. The general power to be a dealer and exporter of salt globally encompasses the right to export from the country where it operates, and the omission of a specific reference to exporting from that country does not constitute a prohibition.
Issues: Whether the company's memorandum of association, by referring to an agreement that reserved export rights to vendors and by omitting specific mention of exporting salt from the home country, effectively prohibited the company from engaging in such export trade after the state monopoly was abolished.
Ratio Decidendi: The memorandum of association is the primary document for shareholders and creditors to determine the company's permitted activities; external intentions or prior agreements cannot be used to infer restrictions not explicitly stated in the text. Where a company is authorized to deal in and export a commodity globally, such power includes exporting from its own country of operation. A contractual reservation of rights based on a now-defunct monopoly does not create a permanent limitation on the company's objects unless the memorandum expressly incorporates such a restriction.
Result: Appeal allowed.
Legal Category Hierarchy
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company law
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constitutional documents
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memorandum of association
- interpretation of objects clause
- corporate capacity
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memorandum of association
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constitutional documents
Lord Macmillan—
The sole question at issue in this appeal is whether it is permissible for the appellant company, having regard to the terms of its Memorandum of Association, to engage in the business of exporting salt from Egypt. The respondent company is a shareholder of the appellant company and as such asks and has obtained from His Britannic Majesty's Supreme Court for Egypt, an injunction restraining the appellant company from engaging in this branch of business. The present appeal is against the order so obtained.
To place the controversy in its due setting it is necessary to refer to the agreed documents in the case. From these the essential facts may be briefly extracted. It appears that by decree of 26th August 1886, the Khedive established a monopoly in Egypt of the extraction, manufacture and sale of salt and natron or native sodium carbonate. In 1897 an Egyptian limited company, the Societe Anonyme des Soudes Naturelles d'Egypte, which it will be convenient to call "the Egyptian Soda Company," was formed to operate a concession obtained by it from the Egyptian Government. This concession conferred on the Egyptian Soda Company the exclusive right to exploit the minerals and natural products in the lands or lakes of a domain known as Wadi-Natron, which is situated to the west of the Nile in lower Egypt, and in particular to manufacture and export soda. The concession expressly stipulated that the Egyptian Soda Company should on no account sell or export salt, this being a monopoly of the State. Thereafter an English syndicate, known as the Egyptian Syndicate Limited, acquired the undertaking of the Egyptian Soda Company, including its Wadi-Natron concession, and shortly afterwards entered into an agreement with the Egyptian Government whereby the latter ratified the transfer to the Syndicate of the Egyptian Soda Company's Wadi-Natron concession and further conferred on the Syndicate the Government's monopoly right of manufacturing and selling salt in Egypt, the two concessions to be merged into one in the hands of the Syndicate. The salt was to be obtained by the Syndicate exclusively from the salines or salt deposits of Mex in the western part of Lake Mariout, and the sole right to export the salt so obtained was conferred on the Syndicate. In this agreement with the Syndicate the Egyptian Government expressly reserved the right on six months' notice to abolish the salt monopoly, in which case, however, the Syndicate was to continue to have the right of exploiting the salines of Mex and the Wadi-Natron concession was to remain in full force. The Syndicate thus came to hold both the Wadi-Natron concession with the right to manufacture and export soda and the Mex concession with the right to exercise the Government's monopoly of selling salt in Egypt and for export.
The Syndicate next proceeded to promote the appellant company and an agreement between the Syndicate and the company about to be formed was prepared, being the agreement referred to in Head 3 (A) of the appellant company's Memorandum of Association quoted below. The appellant company was duly incorporated under the English Companies Acts on 27th October 1899, and the agreement was executed three days later on 30th October 1899. It provided for the purchase by the appellant company from the Syndicate of: (1) the undertaking of the Egyptian Soda Company and its Wadi-Natron concession and (2) the rights of the Syndicate under the Mex concession:
"but with the reservation that the company shall not do any export trade in salt, such right of export being reserved by the Syndicate from the sale to the company. The Syndicate in exercise of such reserved rights of export of salt being bound by all the conditions imposed by the Government upon the export of salt under the terms of the said concessions."
Consequently, while the appellant company acquired the Syndicate's right to manufacture and sell salt in Egypt it did not acquire its right to export salt from Egypt,
