Capacity and Authority Flashcards
(20 cards)
What is the doctrine of ultra vires?
Ultra vires is where a body acts outside its power (objects clause), and the act is held void (Re German Date Coffee Co and Re Introductions Ltd v National Provincial Bank)
- the objects clause was not permitted to be altered until 1991
- combined with the (old) doctrine of constructive notice it was difficult for 3rd parties to enforce contracts against companies acting out of capacity
How did CA 2006 change ultra vires?
- removed the doctrine of constrive notice in relation to memorandum and articles (s39)
- removed the requirement for an objects clause (s31)
note: pre CA 2006 objects clauses are treated as provisions of the articles and continue to bind the company unless the articles are altered by special resolution
Overview of agency/authority
- an agent is appointed by a principal (i.e. company) to act on their behalf (i.e. enter into contracts)
- to validly bind the principal, the agent needs authority which can be actual (express/implied) or deemed (statute/common law)
define actual authority and express actual authority
actual authority is the authority that the principal has conferred them - Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd
the Articles usually give the board the authority to manage biz
* MA 3: subject to the articles, the directors are responsible for management of biz, for which they may exercise all the powers of the company
note: MA 5 and 6 give directors the authority to delegate their powers to others
How can implied actual authority arise?
- appointment to a specific role
- course of dealing
implied actual authority: appointment to a specific role
the relationship between principal and agent determines if implied actual authority exists (e.g. appointing an MD allows that person to do all acts necessary to manage the company)
Smith v Butler
* the implied powers of an MD are those ordinarily exercisable by an MD in the relevant position, subject to the articles and express agreements
implied actual authority: course of dealing
this is based on the representation from the agent and is about internal conduct.
Hely-Hutchinson v Brayhead Ltd
* individual entered into contracts over many months and later notified the board who never objected
* implied actual authority created from a course of dealing
What is deemed authority? What categories does it have?
deemed authority is where an agent has no actual authority but can bind the principal.
- Statutory deemed authority (s40 CA 2006)
- deemed authority at common law (ostensible authority)
- deemed authority at common law under the ‘indoor management’ rule in Turquand’s case
Statutory deemed authority
s40 CA 2006
* protects third parties where there are constitutional restrictions on the power of agents
* third parties who deal with a company in good faith can assume the directors’ powers are free of constitutional limitations
* bad faith cannot be the knowledge that an act is beyond the directors (agents) constitutional powers
* this extends to member agreements
Deemed authority at common law - ostensible authority
ostensible authority refers to the authority of an agent as it appears to a third party and is based on the representation from the company.
Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd
* director acted as MD
* ostensible authority established as the board held him out as MD
Deemed authority at common law under the ‘indoor management rule’
Applies in certain situations, e.g. where the third party has not dealt directly with the board or a question of whether the agent was authorised by the board applies.
1.General rule: Royal British Bank v Turquand
* outsiders are entitled to assume that the company’s internal procedures have been complied with
2.Exception 1: does not apply where the third party has notice of this irregularity or isn’t acting in good faith (Rolled Steel Ltd v British Steel Corpn)
3.Exception 2: does not apply when the third party is an insider (Morris v Kanssen)
Ratification (authority)
company can ratify (via resolution) acts beyond the actual authority of its agents provided the act is within the authority of the appropriate organ of the company looking to ratify it (board/shareholders).
New Falmouth Resorts Ltd v International Hotels Jamaica Ltd
* the acts of an agent on behalf of the principal outside his actual authority may be adopted and ratified
* if there is ratification it has retrospective effect
Are pre-incorporation contracts valid?
Rover International Ltd v Cannon Film Sales
* until the issue of the certificate of incorporation a company is not a legal person
* and has no capacity to enter contracts
third parties cannot enforce pre-incorporation contracts (The Contracts Rights of Third Parties Act 1999)
How are third parties protected in pre-incorporation contracts?
this is dealt with by s 51 CA 2006 which makes pre-incorporation contracts personally enforceable.
* a contract purporting to be on behalf of a company, which is actually not incorporated, (subject to any agreement to the contrary), has the effect of being binding of the promoter/agent of the contract - who is personally liable
* in this case the personally liable promoter can enforce the contract (Braymist Ltd v Wise Finance Co Ltd
Phonogram Ltd v Lane
* necessary to look at the facts to determine if there is an express agreement the signatory would not be personally bound
1.Hepburn v Revenue and Customs Commissioners
* subject to any agreement on the contrary applied - no intention appellant should be personally entitled to fees
* fees were taxed as company’s income
2.Royal Mail Estates Ltd v Teesdale
* contract said the benefit of the contract is personal
* this did not expressly indicate intent to exclude s51
* s51 applied
note: s51 protects third parties and the burden for an ‘agreement to the contrary’ is high, it should explicitly indicate intent
ratification of pre-incorporation contracts
- General rule: a company cannot ratify a pre-incorporation contract (Kelner v Baxter)
- the only way to obtain the benefit is to novate the contract (Natal Land Co & Colonization Ltd v Paul Colliery and Development Syndicate Ltd)
- when a company is formed from an existing shelf company s 51 does not apply (Oshkosh B’Gosh Inc v Dan Marbel Inc Ltd)
What are the two ways a company can be liable in tort?
- Primary liability
- vicarious liability
What is the attribution theory?
where courts set out to identify the controlling mind of the company (i.e. a particular individual is identified)
defined in Lennard’s Carrying Co Ltd v Asiatic Petroleum Co Ltd
* it is necessary to identify an individual who is the directing mind and will of the corporation
* once they are identified, if they have the required fault, fault can be attributed to the company
e.g.Tesco Supermarkets Ltd v Nattrass
* a specific tesco charged for falsely advertising lower prices
* court found the store manager was not the guiding mind, tesco were not liable
Attribution theory development
This case made it easier to hold a company liable
Meridian Global Funds Management Asia Ltd v Securities Commission
* the real issue was who were the controllers of the company for the purpose of attrition (i.e. for a particular purpose) (not the guiding minds)
* controllers were identified and the company was liable
* principle: allowed the attribution of liability to those lower down in a company
Which case initially changed the position on corporate manslaughter?
Criminal liability was difficult to establish for companies, due to difficulty finding a specific individual with the necessary intent.
R v P & O European Ferries (Dover) Ltd set a precedent that a company may be charged with corporate manslaughter
Outline the Corporate Manslaughter and Corporate Homicide Act 2007
The offence is committed by a company if the manner in which its activities are managed or organised by its senior management causes the death of a person and amounts to a gross breach of the relevant duty owed to the person.
held in R v Cotswold Geotechnical Holdings Ltd
- conviction punishable by an unlimited fine
- courts can impose remedial or publicity orders against the company
