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36 Cards in this Set
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Royal British Bank v Turquand
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Mr Turquand was the official manager (liquidator) of the insolvent company incorporated under Joint Stock Company Act 1844. Company had given 2000 bond to Royal British Bank which secured company's drawings on its current account. Bond was under company's seal, signed by 2 directors and the secretary. When company was sued, it alleged that under its AOA, directors only had power to borrow what had been authorised by a company's resolution. A resolution had been passed but not specifying how much director could borrow.
Court held that it was valid and Royal British Bank could enforce the terms of the bond. Indoor Management Rule/ Rule in Turquand's case... People transacting with companies are entitled to assume that the internal company rules are complied with even when they are not. This rule was not accepted as firmly entrenched in law until it was endorsed by the House of Lords (refer to the case law titled Mayhony vs East Holyford Mining Co.) |
Turquand's Rule
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Mayhony vs East Holyford Mining Co.
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Lord Hatherly: When persons conducting affairs in a manner which appears to be perfectly consonant with the AOA, those so dealing with them externally are not to be affected by irregularities which may take place in the internal management of the company.
In Mahony, AOA provided that cheques be signed by 2 out of 3 directors and secretory. The fact that directors who signed the cheque had never been properly appointed was held to be a matter of internal management and the 3td parties who received the cheques were entitled to presume that directors had been properly appointed, and thus cash the cheques. |
After Turquand
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Ruben v Great Fingall Consolidated
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If a person purporting to act as an agent of a company acts outside any actual/ostensible authority then company is not bound. If such a person acts by issuing a document purported to be that of a company when it is not, then that document is considered a forgery and thereby ruled a nullity.
Stock brokers issued forged share certificates. Question was whether company was bound. Court held forged certificates to be a complete nullity and therefore ineffective in imposing any obligations or conferring any rights. Company's secretary presented to innocent lenders shared certificates signed by 2 directors and the secretary himself. However, the seal was affixed by the secretary fraudently and Secretary had forged the two signatures of the directors. |
Consolidated compromised
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Freeman and Lockyer v Buckhurst Park Properties (Mangel) Ltd
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Lord Diplok: Actual authority is a legal relationship between principal and agent created by consentual agreement. Its scope is ascertained by applying ordinary principles of construction of contracts, including implications of words used, usages of trade, or the course of business between parties.
Contacts entered into under agent's ostensible authority are binding if:- 1. Ostensible authority was represented to the contractor. 2. Representation was made by a person who actually had the authority to manage the business in general or certain matters. 3. Contractor actually relied on that representation. Board of Directors regularly allowed one of themselves to act as an MD however no such appointment had been made. MD entered into a guarantee contract, defendant said contract was not binding because of lack of authority. Court held it to be enforceable. Representation by putting him in a position and getting innocent 3rd party to believe in that portrayal of a properly appointed MD. |
So long, Lord Diplok.. Or Mord Diplok?? Is there a Mord Diplok?
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Hely Hutchinson v Brayhead Ltd
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Lord Pearson: in order to succeed in an action under ostensible authority, there must be some communication purporting to represent that the agent has authority, and that communication must be direct from the BOD. Communication may be shown by inference from the agents conduct and by the BOD placing agent in the position where the BOD can be said to have acquiesced in his activities.
Claimant made loan to defendant and guaranteed other loans. There were cross undertakings identifying claimant and signed by Richard. Richard had never been appointed as the MD. Court held that Richard was actually authorised so the company was bound. |
Relax, Hutchinson, he's not a head.. Hutchinson Richardson Richard
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Panorama Developments v Fidelis Furnishing Fabrics Ltd
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Fidelis' secretary hired cars from Panorama using company's paper and lying that he wished to have a number of cars while the MD was away. He used them himself. He was imprisoned, though Panorama had an outstanding amount for the hired cars.
Fidelis claimed it wasn't bound because there was never any authority present to make the contract. Court held that Fidelis was bound (ostensible/apparent authority). Times had change since 1887 when Barnett v South London Tramways Co. held that company secretaries couldn't be assumed to have authority for anything. Nowadays, secretaries are certainly entitled to sign contracts connected with administration side of the company's affairs, such as employing staff has ordering cars and so forth. |
Fidelis Ford Fidelis
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International Sales and Agencies v Marcus |
Unless you are able to prove good faith didn't exist, a contract that a director enters into will be looked upon as as if they have the appropriate authority and will be enforceable. In the case, when a major shareholder became ill, his friend Marcus agreed he would repay loans by using company cheques. Lawson, J made it clear that it was lender's responsibility to establish dealing and the lack of good faith be recognized from companies. Marcus used companies as the medium of his generosity and it was clear there were no actual dealings with the company. Claimant company was saying to recover 30,000 paid to the defendant under the instructions of sole effective director of claimant. Defendants made a loan to the majority shareholders if claimant company. Court held that dealings were within the control of sole effective director and that he was liable for it. |
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Rolled Steel Products (Limited) Ltd v British Steel Co. |
Rolled steel gave security to guarantee the debts of a company called SSS Ltd to British Steel. This didn't benefit Rolled Steel. Moreover, Rolled Steel director was interested in SSS Ltd. The company was empowered to grant guarantees under AOA but approval of deal was irregular because Director's personal interest meant that his vote should not have had counted for at the approval meeting. Shareholders and Rolled Steel knew about this irregularity. Rolled Steel wanted out, arguing it was unenforceable because either it was ultra vires I'd because the guarantee was created without proper authority. Court held the decision to give guarantee was invalid. |
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First Energy (UK) v Hungarian International Bank |
An agent who had no apparent authority to conclude a transaction might nevertheless have apparent authority to make representations of fact concerning it, such as the fact that his principal had given the necessary approval for it. Manager of branch made an effort of credit facilities to plaintiff. Defendant was to provide plaintiff with business finance. Whether agent had ostensible authority to communicate the offer upon which the contract was based was in question. Court held that he did, and that the plaintiff accepted that offer, so creating that contract. The plaintiff's case was that the defendant's agent, while not authorised to enter into the transaction, did have ostensible authority to communicate his head office's approval of the financing facility. He had sent the plaintiff a letter to this effect, which the judge held amounted to an offer capable of acceptance by the plaintiff. Law recognized that in modern commerce, an agent who had no apparent authority to conclude a particular transaction might sometimes be clothed with apparent authority to make representations of fact. |
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Smith v Heniker-Major Co. |
Court of Appeal held that claimant couldn't rely on Section 40 to assign himself the company clause of action. The policy of section was to protect someone from outside the company and someone who was not a director had no reason to doubt the authority of the particular act of the company. Court concluded that claimant was not merely a director, but the chairman of the company and couldn't rely on Section 40 where he himself was responsible for company's constitution not being followed. |
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Ford v Polymer Vision Ltd |
A debenture by way of fixed and floating charges over the defendant's assets and undertakings was issued in the claimant's favour. It was executed purportedly under the authority of a resolution of the defendant said to have been passed at a meeting of its directors held at the defendant's premises and attended by the chief executive officer (CEO) in person and the chairman (C) of the board of directors by phone. A dispute later arose as to whether the board meeting approving the debenture (among other things) had been validly convened. The court found that the meeting had not been validly convened in accordance with the defendant's articles of association and therefore the resolutions to grant the debenture (and a subsequent option agreement) would not bind the defendant. However, provided a director had the company's actual or ostensible authority to sign agreements on its behalf, the resulting instruments were binding on the company. Further, under the Companies Act 2006 s 40, so long as the claimant acted in good faith, the transaction could be validated. The CEO and C had not misused their powers as directors in granting the debenture, notwithstanding the procedural defects. The debenture was therefore valid and binding on the defendant. |
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Borland's Trustee v Steel Bros and Co. Ltd |
Shareholders went bankrupt and AOA contained provisions empowering the company to take over the shares of bankrupted shareholders provided it paid the nominal value of the shares. Shareholder's Trustee brought a declaration against the provision. Farwell J rejected Borland Trustee’s argument and held the article was valid. The transfer could be made, because the contract engendered in the articles of association are prior to the rights contained in a share. |
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Lyle & Scott v Scotts Trustees |
As part of the statuary contract, company could sue to enforce provision in the AOA on shareholders saying that they would have to offer shares to the existing shareholder before ordering them to outsiders. |
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MacDougall v Gardiner |
If the majority are abusing their powers, and are depriving the minority of their rights, there the minority are entitled to come before this court to maintain their rights. At general meeting of the company, the claimant called for polling vote in accordance with shares held rather than numbers present. He was exercising his rights under the AOA. Chairman refused to call for a vote and majority of members votes for him. Court held that wrong was done to the company and constitution was breached where company enforced AOA against members. |
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Hickman v Kent (Romney Marsh Sheep-Breeders’ Association) |
Article 49 said disputes between the association and a member should go to arbitration, before court. Mr Hickman complained about refusal to register his sheep in the published flock book and was under threat of being expelled. He started proceedings in the High Court and the association sought an injunction. held that the articles prevented Mr Hickman: there was a contract. He was bound. The predecessor to the Companies Act 2006 section 33 creates a contract, which affects members in their capacity as members, though not in a special or personal capacity (e.g. as director). As a member, Mr Hickman was bound to comply with the company procedure for arbitrating disputes and could not resort to court. |
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Pender v Lushington |
A company member's right to vote may not be interfered with, because it is a right of property. Furthermore, any interference leads to a personal right of a member to sue in his own name to enforce his right. The articles of association of the Direct United States Cable Company Ltd, registered under the Companies Act 1862 provided that no member would be allowed to vote on more than 100 shares at any meeting, and each block of ten shares was counted as one vote. Mr John Pender had bought 1000 shares. He was also chairman of Globe Telegraph and Trust Company Ltd, a holding company of a large group with competitors to the Direct United States Cable Company. Mr Pender had split his votes and registered the holders under the names of a number of nominees. Mr Lushington, the company's chairman, refused to have the nominees votes counted. It was held that Pender could have an injunction for his vote to be recorded. Pender's vote was a property right which could not be interfered with, nor were the motives in this case such as to make the vote invalid. |
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Wood v Odessa Waterworks Co. |
In this case, the articles of Odessa Waterworks allowed the directors to declare a dividend with the approval of the general meeting. The directors instead recommended that members should be given debenture-bonds and this was approved in the general meeting. Wood as a member, brought an injunction against the company on his and the other members behalf, as the company’s action was not in line with the company articles.Company was refrained from acting upon the resolution as the AOA strictly said dividends paid in cash and not in kind. Company was refrained from acting upon the resolution as the AOA strictly said dividends paid in cash and not in kind. |
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Beattie v E & F Beattie Ltd |
AOA sometimes contain provisions that disputes between members, or between and the company, will be referred to arbitration, and the courts have held that such classes are effective, but only in respect of disputes about rights and duties of members. Therefore, such a clause cannot be relied on in respect of disputes relating to Director's rights even if the director is a member. Under this case, the director sought to stay the proceedings brought against him by the company under s.14 concerning his conduct as a director. Court said arbitration clause only for members and thus did not apply here. |
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Rayfield v Hands |
A member could enforce an obligation imposed by the AOA on his fellow members, who were directors of the company, to purchase his shares from him when he wished to dispose of them. |
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London Stock and Bag Co. Ltd v Dixon and Lugton Ltd |
Defendant and plaintiff were members of a trade association registered as a company limited by guarantee. AOA contained an arbitration clause. Claimant went to court, ascerting that claim brought by defendant should be altered and referred to arbitration. Court held that claim was related to branch of contract but not covered by s.33, so therefore court couldn't refute the claim to arbitration. |
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Eley v Positive Life Assurance Co Ltd |
in the articles it stated that Mr. Ely was to be the company's solicitor. Mr. Eley later became a member. The directors then chose to use other solicitors and Eley sued for breach of the statutory contract on the term of the articles. It was held that Eley could not enforce the provision in such a way, as he was attempting to enforce his rights as solicitor, not as member. The court rules that the provision in the articles was “either a stipulation which would bind the members, or else a mandate to the directors. In either case it is a matter between the directors and shareholders, and not between them and the plaintiff”. |
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Quin & Axtens Ltd v Salmon |
Company had two managing directors. Director A (Salmon) was given a veto by articles over any decision of company to deal with property. Director B acted contrary to requirement, and got ordinary resolutions from shareholders authorising company to act in this way. Salmon sued company to stop it acting contrary to his veto. Held: Ordinary Resolution• Is not permitted to act upon ordinary resolutions which are inconsistent with substantive requirements in articles. i.e. in matters of substance, constitution can only be deviated from by special resolution.• Thus existence of ordinary resolution is irrelevant to whether company is breaching its articles. Qua Member• Director A was also a member of the company.• Therefore had power in his capacity as member to force company to adhere to its constitution. i.e. by not dealing with property where he had used his veto.Thus injunction granted against company acting upon the resolutions passed. |
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Ram Kissendas Dhanuka vs Satya Charan Law |
The increase or decrease in number of directors must be within the limits fixed by the articles. Where a company intends to increase its number of directors beyond the limit fixed by the articles, a special resolution shall be necessary to first amend the articles. |
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Globalink v Wilmbury |
The indemnity provision for directors contained in the AOA was ineffective and a seperate contract was needed between the company and its directors. |
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Campbell v Paddington Co. |
The plaintiff occupied premises of which the balcony and front rooms could be let to persons wishing to view Public processions. She had agreed to let the balcony to some man wishing to watch King Edward VII's funeral but had to release him from the contract when the defendant wrongly erected a stand outside the street, thereby blocking the view. In the court she was awarded £90 in damages and the defendant's appeal was dismissed.. Thus, making a rule that corporations can be challenged in court for tort accusations. |
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Lister v Hesley Hall Ltd |
Vicarious Liability Case. A boarding house (Axeholme House) for Wilsic Hall School, in Doncaster was opened in 1979; the principal students to live there having behavioural and emotional difficulties.[3] The claimants in the instant case had resided there between the years 1979 to 1982, being aged 12 to 15 during this time, under the care of a warden, who was in charge of maintaining discipline and the running of the house. The warden lived at the house also, with his disabled wife, and together they were the only two members of staff in the house.[4] His duties were ensuring order, in making sure the children went to bed, went to school, engaged in evening activities, and supervising other staff.[4] It had been alleged by some of the boys that the warden had sexually abused them, including gifting them unwarranted surprises, and taking trips alone with them. A criminal investigation took place some ten years later, resulting in the warden being sentenced to seven years imprisonment;[5] following this, the victims brought an action for personal injury against the employers, alleging they were vicariously liable. Court held that it was satisfied that in the case of the appeals under consideration the evidence showed that the employers entrusted the care of the children in Axeholme House to the warden. The question is whether the warden's torts were so closely connected with his employment that it would be fair and just to hold the employers vicariously liable. On the facts of the case the answer is yes. After all, the sexual abuse was inextricably interwoven with the carrying out by the warden of his duties in Axeholme House. Matters of degree arise. But the present cases clearly fall on the side of vicarious liability. |
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Tesco Supermarkets Ltd v Nattrass |
Tesco was offering a discount on washing powder which was advertised on posters displayed in stores. Once they ran out of the lower priced product the stores began to replace it with the regularly priced stock. The manager failed to take the signs down and a customer was charged at the higher price. Tesco was charged under the Trade Descriptions Act 1968 for falsely advertising the price of washing powder. In its defence Tesco argued that the company had taken all reasonable precautions and all due diligence, and that the conduct of the manager could not attach liability to the corporation. The House of Lords accepted the defence and found that the manager was not a part of the "directing mind" of the corporation and therefore his conduct was not attributable to the corporation. The corporation had done all it could to enforce the rules regarding advertising.Lord Reid held that, in order for liability to attach to the actions of a person, it must be the case that "The person who acts is not speaking or acting for the company. He is acting as the company and his mind which directs his acts is the mind of the company. If it is a guilty mind then that guilt is the guilt of the company."In the House of Lords Tesco were successful with their defence showing that,a store manager was classed as ‘another person’, and,a system of delegating responsibility to that person was performance of due diligence, not avoidance of itThe store manager was not the directing mind and will of the company - the company had done all it could to avoid committing an offence and the offence was the fault of another person (an employee). The company was acquitted. |
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HL Bolton (Engineering) Co Ltd v TJ Graham & Sons Ltd |
Lord Dennings held that the tenancy contract which was entered into by the company was valid on a renewal as the directors intentions were identified as the intention of the company. |
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DPP v Kent and Sussex Contractors Ltd |
The court held that the director and the accountant both made the company produce false statements in order to evade tax. The company and their individuals were convicted of actual dishonesty. |
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Moore v I Bresler Ltd |
The secretary of the accused company, who was also the general manager of the company's Nottingham branch, acting together with the sales manager of that branch, sold, with the object of defrauding the company, certain of the company's goods. The Secretary, who alone kept the accounts, and the Sales Manager, made certain returns concerning purchase tax on the sales which were false in material particulars and which were done with intent to deceive, contrary to section 35 of the Finance (No. 2) Act, 1940. The company and the two officers were charged with appropriate offences under the Act. The company was convicted but the conviction was dismissed by Quarter Sessions in appeal on the ground that the sales were not made by the officers on behalf of the company but rather in fraud of the company itself. On appeal to the King's Bench Division, the convictions were restored on the ground that the officers were acting within the scope of their responsibilities in making the sales and the returns, and the fact that they acted in order to defraud the company did not render the company any the less liable for their acts. R.S. Welsh, writing in the Law Quarterly Review 14 criticizes the decision in Moore v. Bresler Ltd. since "it is arguable that it results in an undue extension of corporate liability by blurring the distinction in law between the agents of a corporation and the legal person itself." Welsh regards the approach taken by Winn, writing in 1929 16 as more promising. Winn divided the acts of corporation servants into three classes: 1) Acts directly authorized by the Board of Directors as primary representatives of the company; 2) Acts of other officials which are merely generally authorized acts; and 3) Unauthorized acts. Those fully within class 1 are, according to Winn, "by direct attribution" an exercise of the corporate powers, no matter by whom they may actually be performed. But acts falling within the second and third classes, if they are to be regarded as corporate acts at all, can be regarded so only by reason of the rule of respondeat superior, so that the company should not normally be held criminally responsible for them. "The only acts and mental states that will be imputed are those of persons who are in control of the corporation. These will usually be the directors but a manager is also covered if he has a controlling voice. In this respect the decisions have gone beyond the restricted words of Viscount Haldane. Thus it is settled in tort that 'a general manager of the business is deemed to be the alter ego of the company'; also, it is said, is a person 'having authority from the board of directors to conduct the company's business'. The last phrase must be read as applying only to people who occupy a rather superior position in the structure, the work of an office boy cannot be dignified as 'conduct of the company's business'. (Williams, 1953) |
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R v ICR Haulage Ltd |
An appeal by the accused corporation against a conviction for common law conspiracy to defraud was dismissed by the Court of Criminal Appeal. Here the fraudulent acts were committed by a person who was managing director of the accused company and the registered owner of all but one of the issued shares (his wife owned the one remaining share). Stable, J., who delivered the judgment of the Court, declared that a company could be indicted for a criminal offence 9 (with the exception of offences such as bigamy, perjury and murder) and stated the Court's agreement with the decision and reasoning in D.P.P. V. Kent and Sussex Contractors Ltd. Adds the rather vague guiding comment that whether or not the guilty acts of an officer will bind the company must depend "on the nature of the charge, the relative position of the officer or agent and the other relevant facts and circumstances of the case." |
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R v P&O European Ferries (Dover) Ltd |
The case of R v P&O European Ferries (Dover) Ltd was an example of a large company evading liability under the common law test because a single ‘directing mind’ could not be identified despite eight defendants being brought to trial. It is arguable that theoretically the company would be held liable under the CMCHA. However, it should be noted that this case was unique due to eight ‘directing minds’ being identified. Whether the CMCHA would remedy situations where less defendants were identifiable is still questionable. the Herald of Free Enterprise sailed from Zeebrugge bound for Dover with 459 passengers and 80 crew. Tragically the roll-on-roll-off ferry was designed for the Dover-Calais run, so in order to use Zeebrugge its bow ballast tanks were flooded to lower the car decks to reach the Zeebrugge ramps. The combination of this nose-down attitude and sailing with its bow doors still open resulted in the Herald taking on a mass of water shortly after it cleared the Zeebrugge harbour and in a matter of less than a minute capsizing. Only the fact that it capsized onto a sandbank prevented the ship sinking completely. 193 people died, many not by drowning but by hypothermia, trapped in the ship in water that was only 2-3°C. This led eventually to the prosecution of P&O European Ferries (Dover). In order to convict the company of manslaughter under the identification principle that applied at the time, one of the individual defendants who could be “identified” with the company as its “controlling mind” would have had to have been guilty of manslaughter. As this was not the case, the company could not be found guilty. |
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R v Kite |
First case of conviction of Manslaughter in England and Wales. The director of the company sent 6 children on a trip with two untrained instructors. The instructors wrongly told the kids not to inflate their life jackets if the cancel capsized. 3 of the children drowned and claim was brought against the company. Court held that company was guilty. Peter Kite was imprisoned for two years and company assets worth 60,000 pounds paid to victim family as compensation. |
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Re Attorney General's Reference |
Court of Appeal did not refer to identification theory in reference to Manslaughter. This means that company could only be convicted if the directing mind may be committed crime. That is why the is difficult to obtain conviction I relation to larger companies. |
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R. v Cotswold Geotechnical Holdings Limited |
The case against Cotswold followed the death of an employee who had been obtaining soil samples from the bottom of a 3.5m trial pit. It was not disputed that it had been dangerous for the employee to enter the pit. The jury heard that the walls of the trial pit were unsupported and that soil had collapsed into the pit killing the employee. The prosecution’s case was that Cotswold had failed to take all reasonably practicable steps to protect the employee from an unsafe system of work in digging trial pits which were unnecessarily dangerous, and that they had ignored well recognised industry guidance that prohibited entry into excavations more than 1.2m deep. The employee had also been left unsupervised on site at the time of the accident. The court held that: Cotswold was guilty of Corporate Manslaughter and was sentenced to a fine of £385,000 payable over ten years at a rate of £38,500 per year. Cotswold illustrates the importance for businesses to have a health and safety culture and to ensure that everyone takes on the responsibility of improving health and safety. |
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Meridian Global Funds Management Asia Ltd v Securities Commission |
Meridian was part of a syndicate bidding to take over NZ company, Euro National Corp Ltd. Mr Koo and Mr Ng, working for Meridian, bought 49% of Euro’s shares. But Meridian failed to disclose to the Securities Commission of New Zealand that they had become a ‘substantial security holder’ of over 5% because Koo and Ng wanted to hide the transaction from their superiors. The Commission imposed fines against Koo, Ng and the Meridian. The company argued it was not liable because it had not known about it.Heron J held Meridian knew it was a substantial property holder, because as employees the knowledge of Koo and Ng was attributable to the company. The NZ Court of Appeal held that Koo’s knowledge should be attributable because he was the ‘directing mind and will’ of the company. Meridian argued that was only the board, not Koo. Held: Necessary part of corporate personality that there should be rules by which acts are attributed to the company. These may be called ‘the rules of attribution’. Investment Managers' act was directly attributed with the company and were both found liable. |
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