German Date Coffee Co., In Re (1882) 20 Ch. D. 169
FACTS
● The memorandum of association of a company stated that it was formed for working a German patent which had been or would be granted for manufacturing coffee from dates, and also for obtaining other patents for improvements and extensions of the said inventions or any modifications thereof or incident thereto.
● The intended German patent was never granted, but the company purchased a Swedish patent, and also established works in Hamburg, where they made and sold coffee made from dates without a patent.
● Many of the shareholders withdrew from the company on ascertaining that the German patent could not be obtained; but the large majority of those who remained desired to continue the company, which was insolvent.
● This was a petition for winding up the German Date Coffee Company, Limited.
ISSUE
● Whether the company can continue or needs to be wound up?
HELD
The company was wound up because it was set up for a specific purpose and that purpose the company failed to achieve. Therefore the actions of the company were held to be ultra vires.
● KAY J. – “In this case the petition is presented by two shareholders of the company, one of whom holds 100 shares and the other ten, for a winding-up of the company, and it is supported by a sufficient number of shareholders to make me quite sure that the application is a thoroughly bonafide one. On the other hand, it is opposed by the company and by a considerable body of shareholders… I therefore think the whole substratum of the company has failed, and that the authorities I have referred to are sufficient not only to authorize but to oblige the Court to put a stop to the further proceedings of this company, which will, in my opinion, be neither more nor less than employing moneys obtained from the shareholders, in carrying on a business which practically is not authorized by the memorandum of association. I therefore make the usual winding-up order. No order as to costs, except that the company will take their costs.
● ESSEL, M.R.- “the learned Judge of the Court below said, the whole substratum of the company is gone. Its business was not to make a substitute for coffee from dates, but to work a German patented invention in Germany; to work it under the monopoly granted by the German Government to the patentee, and not to enter into any such business generally. Therefore the shareholders have a right to say, and the minority of the shareholders have a right to say, “We did not enter into partnership on the terms.” It is exactly like Baring v. Dix, 1 Cox, 213. It was not a general partnership to make a substitute for coffee from dates, but to work on a particular patent, and as that particular patent does not exist, and cannot now exist, they are entitled to say the company ought to be wound up.”
● BAGGALLAY, LJ. – “It appears to me beyond all question that there is an impossibility of carrying on the business of the company, and I think that the order Mr. Justice Kay made is quite correct. I feel bound to say I entirely go with him in the enunciation of the law applicable to the case, and his criticisms on the cases.”
● LINDLEY, L.J. – “I am of the same opinion… It appears to me, therefore, that the judgment of Mr. Justice Kay was perfectly correct, and that the facts warrant the judgment he pronounced, and the application ought to be dismissed with costs.”
COMMENTARY
“Main objects rule of construction– … German Date Coffee Co, re, is another illustration of its application; The memorandum of a company stated that it was formed for working a German patent which would be granted for manufacturing coffee from dates; for obtaining other patents for improvements and extension of the said invention; and to acquire and purchase any other invention for similar purposes. The intended German patent was never granted, but the company purchased a Swedish patent, and also established works in Hamburg where they made and sold coffee from dates without any patent.
A petition having been presented by two shareholders, it was held that the main object for which the company was formed had become impossible and, therefore, it was just and equitable that the company should be wound up. The court said: "In construing a memorandum in which there are general words ... they must be taken in connection with what are shown by the context to be the dominant or main objects. It will not do under general words to turn a company for manufacturing one thing into a company for importing something else. Taking that as the governing principle, it seems to be plain that the real objects of this company, which is called German Date Coffee Co, was to manufacture a substitute for coffee in Germany under a patent. It is what the company was formed for and all the rest is subordinate to that.”