COMPANIES AND SECURITIES LAW 77947 Week 4 1 WEEK 4 TOPIC Company’s dealings with outsiders Directing mind and will of company Company contracting Principles of agency Statutory assumptions and indoor management rule Criminal and tortious liability 2 WHO ACTS AND THINKS FOR THE COMPANY DECISION-MAKING FOR THE COMPANY ￠ Abstract nature of the corporate personality (artificial legal person with all the powers of a natural person and more (s 124)) creates conceptual difficulty: Who acts and thinks for the company decision-making for the company Solution: Company as organic 3 COMPANY AS ORGANIC ￠ Organic theory origins: Lennard’s v Asiatic Petroleum Co (LHW 5.15) ￠ Organic theory is an extension of agency theory Dawson J in Northside Developments (LHW 1.195) ￠ Organic theory is a legal fiction that allows the company to be identified with the individuals who control it 4 DIRECTING MIND AND WILL OF THE COMPANY ￠ Who is the directing mind and will The brains of the company ￠ H L Bolton (Engineering) Co Ltd (LHW 5.30) Management ￠ Tesco Supermarkets (LHW 5.40) Company secretary More than one person ￠ Brambles v Carey (LHW 5.75 and 5.80) 5 WEEK 4 TOPIC Company’s dealings with outsiders Directing mind and will of company Company contracting Principles of agency Statutory assumptions and indoor management rule Criminal and tortious liability 6 HOW DOES A COMPANY EXECUTE A CONTRACT ￠ Directly, by person authorised to execute “as the company” ￠ Directly, affixing a company seal ￠ Directly, using statutory rules (s 127) Director and secretary Two directors Sole director ￠ Indirectly, using an agent 7 AFFIXING A COMPANY SEAL ￠ Person authorised to affix the seal ￠ Who may witness the seal Person authorised: MYT Engineering v Mulcan (LHW 5.125) Per statute: s 127 ￠ Two directors ￠ Director and secretary ￠ Sole director 8 WEEK 4 TOPIC Company’s dealings with outsiders Directing mind and will of company Company contracting Principles of agency Statutory assumptions and indoor management rule Criminal and tortious liability 9 AGENCY ￠ A company can enter into a contract by appointing someone as the company’s agent ￠ Agent enters into the contract on behalf of the company, not “as the company” ￠ Recognised at common law, but also given statutory recognition in ss 126 and 129 10 AUTHORITY OF AGENTS ￠ Express actual authority ￠ Implied actual authority Implied by position Implied by custom or course of conduct ￠ Ostensible or apparent authority A representation is made to an outsider that a person has authority Representation is made by someone with actual authority Outside relies on the representation 11 APPARENT/OSTENSIBLE AUTHORITY ￠ Representation must be made by someone with actual authority: Representation by course of conduct Representation by appointing to a position Representation by acquiescence ￠ Cases (LHW 5.215 and 5.225): Freeman and Lockyer v Buckhurst: Representation made by acquiescence – board failed to stop agent acting as though he had authority Crabtree Vickers v ADMA: Contract executed by 1 director and his brother. Argued representation by the 1 director. However, director did not have actual authority to enter into this contract – that was for the whole board 12 WEEK 4 TOPIC Company’s dealings with outsiders Directing mind and will of company Company contracting Principles of agency Statutory assumptions and indoor management rule Criminal and tortious liability 13 CONTRACTS/EXECUTION OF DOCUMENTS ￠ It is very difficult for outsiders to know the internal rules of a company for authorisation to perform an act etc., and more difficult to know if they have been complied with i.e. meeting quorum. ￠ Accordingly Royal British Bank v. Turquand and the statutory assumptions in S.127-129, outsiders can make certain assumptions, i.e. that a company’s internal procedures under its constitution have been complied with. ￠ Note this is subject to detailed rules, and the benefit of the assumptions will be lost if an outsider knew, or should have known, there was a problem. 14 INDOOR MANAGEMENT RULE ￠ Rule in Turquand’s case (LHW 5.175 and 5.190) Even though persons dealing with company have constructive notice of everything in public documents, they do not need to go further and ensure that all internal procedures have been carried out ￠ Exceptions: Outsider had actual knowledge of irregularity Outsider put on notice: Northside Developments Case (LHW 5.195) Cannot be for benefit of insider or company Cannot be used to create authority for someone without authority (that is, it cannot bypass the agency rules) 15 STATUTORY ASSUMPTIONS ￠ Complement (and, to a large extent, override, the rule in Turquand’s case) ￠ See Fig 5.1 in LHW: Compliance with constitution/replaceable rules (statutory indoor management rule) Person named as a director in lodged documents: ￠ Has been duly appointed ￠ Has customary authority (statutory ostensible authority rule) Person held out by company as officer or agent has been duly appointed and has customary authority (a second statutory ostensible authority rule) 16 STATUTORY ASSUMPTIONS (2) ￠ See Fig 5.1 in LHW: officers and agents properly perform their duties: Pico v Vistas (LHW 5.268) Documents are duly executed in accordance with statutory rules: Brick & Pipe v Occidental (LHW 5.285) – even where did not hold that position That authority to warrant the correctness of a document is genuine ￠ Impact of fraud or forgery: still apply the assumptions ￠ Limitation on statutory assumptions Knowledge Suspicion: does not require that is put on inquiry 17 WEEK 4 TOPIC Company’s dealings with outsiders Directing mind and will of company Company contracting Principles of agency Statutory assumptions and indoor management rule Criminal and tortious liability 18 CRIMINALITY AND TORTIOUS LIABILITY ￠ Companies can be held liable for a crime, depending on the type of crime and the penalties involved. ￠ Need to prove fault: Guilty act Guilty mind ￠ Penalties: generally, criminal law will convert penalties to financial 19 CRIMINALITY AND TORTIOUS LIABILITY ￠ Common law: Generally only if done by the directing “mind and will” of the company Recently this has changed with “attributed legislation” – ABC learning case ￠ Federal law: Legislative codification of the various rules Physical element can be proven if committed by employee, agent or officer acting within actual or apparent authority 20 FEDERAL LAW – GUILTY MIND (FAULT ELEMENT) ￠ Depends on what “fault element” is needed for crime: Intention, recklessness, criminal negligence, negligence ￠ Federal law sidesteps this distinction by looking at whether the corporation expressly, tacitly or impliedly authorised or permitted the commission of the offence: Authorisation or permission comes from board of directors or “high managerial agent” (a person with such responsibility that conduct may fairly represent that of corporation) Proving that there is a corporate culture that directed, encouraged, tolerated or led to non-compliance Failing to prove that maintained a corporate culture requiring compliance 21 FEDERAL LAW – NO FAULT ELEMENT ￠ Strict liability offences – defence of “mistake of fact” Employee, officer or agent who carried out the conduct Corporation exercised due diligence ￠ Absolute liability offences 22 COMPANY LIABILITY IN TORT ￠ Vicarious liability: A company is liable for the acts or omissions of its employees committed in the course of their employment. ￠ Contributory negligence of company: Directors or management: Daniels v Anderson 23 WEEK 4 TOPIC Company’s dealings with outsiders Directing mind and will of company Company contracting Principles of agency Statutory assumptions and indoor management rule Criminal and tortious liability 24
