Topic Four:: Company Relationship With Outsiders

RMIT Classification: Trusted
Topic Four:
Company Relationship
with Outsiders
Overview of Topic Four
a. The mind and will of a company

b. Corporate liability: civil and
criminal
c. Contracting by Companies:
directly and indirectly
d. Enforcing Defective Contracts
a. The Mind and Will of a

Company
Why is this important?

Where a criminal act or act of a tort arises who
is responsible? eg the company or the
individual?
Remember a company is a separate legal
entity so is responsible for everything.
But can a company be liable for a death ie can
a company kill someone?
How can we make the company liable (it
generally has the most assets to pay out claim)
Use of organic theory
Lennard's Carrying Co Ltd v Asiatic

Petroleum Co Ltd [1915] AC 705: I
FACTS
• A cargo of benzine on board Lennard’s ship to be delivered to the APC was lost by a fire
caused by the unseaworthiness of Lennard’s ship in respect of the defective condition of her
boilers.
• The MD of Lennard’s was the registered managing owner and took an active part in the
management of the ship on behalf of the owners.
• The MD knew or had the means of knowing of the defective condition of the boilers, but gave
no special instructions to the captain or the chief engineer regarding their supervision and
took no steps to prevent the ship putting to sea with her boilers in an unseaworthy condition
• s. 502 of the Merchant Shipping Act, 1894 provided that the owner of a British sea-going ship
shall not be liable to make good to any extent whatever “any loss or damage happening
without his actual fault or privity” where any goods or merchandise taken in or put on board
his ship are lost or damaged by reason of fire on board the ship. Ie company not liable unless
privity
HELD
• The owners had failed to discharge the onus which lay upon them of proving that the loss
happened without their actual fault or privity.
• MD was “controlling mind” of the company and therefore company responsible as it failed to
show it was without fault
** please note this scenario would not arise today as the area is governed by international
conventions, however the principle remains **
Viscount Haldane in
Lennard's Carrying Co: II
“…a corporation is an abstraction. It has no mind of its own
any more than it has a body of its own; its active and directing
will must consequently be sought in the person of somebody
who for some purposes may be called an agent, but who is
really the directing mind and will of the corporation …. It
must be upon the true construction of that section in such a
case as the present that the fault or privity is the fault or privity
of somebody for whom the company is liable because his action
is the very action of the company itself. It is not enough that
the fault should be the fault of the servant in order to
exonerate the owner, the fault must also be one which is not
the fault of the owner, or a fault to which the owner is
privy; and I take the view that when anybody sets up that
section to excuse himself from the normal consequences of
maxim respondeat superior the burden lies upon him to do so.”
Lennard's Carrying Co: III

• Expands upon the principle arising from
Salomon v Salomon
• Prior to Lennards the primary means of
imposing liability was through vicarious
responsibility but this was only available to
employees and not directors.
• Lennard’s principle = introduced ‘alter ego”
concept that liability could be imposed on a
company for the acts of its directors.
The mind and will of a company:

Organic Theory
• Result of organic theory: company has the “mental
state” of the person(s) who is(are) its “directing mind
and will”
• Usually:
– (a) board of directors &
– (b) shareholders in general meeting
• Can be any person who “directs mind & will” of
Company different to agency (where another person
binds the Company)
• Under the organic theory approach the officers
concerned are treated not merely as agents of the
company, but as the company
8
The mind and will of a company:

HL Bolton (Engineering) Co. Ltd. V TJ Graham &
Sons
Denning LJ stated,
“A company may in many cases be likened to a human body. It has a

brain and nerve center which controls what it does. It also has hands
which hold the tools and act in accordance with directions from the
centre.
Some of the people in the company are mere servants and agents who are
nothing more than hands to do the work and cannot be said to represent
the mind or will.
Others are directors and managers who represent the directing
mind and will of the company, and control what it does. The state of
mind of these managers is the state of mind of the company and is
treated by the law as such…
Whether [the] intention [of a particular company officer or officers] is the
company’s intention depends on the nature of the matter under
consideration, the relative position of the officer or agent and the other
relevant facts and circumstances of the case.”
HL Bolton (Engineering) Co. Ltd. V

TJ Graham & Sons: analysis
• Denning LJ’s dicta has been described as an
“unfortunate anthropomorphic approach” as
it conflates the company with the notion of a
natural person
• Reality is companies only act through
intermediaries who are human
• Now there is a need to apply the three rules
of attribution (Meridian )
b. Corporate Liability:
Civil and Criminal

Corporate Liability I: RMIT Classification: Trusted
Three Rules of Attribution (they

apply to you)
1. Primary Rules of Attribution
- Found in company’s constitution or company law and that vest power in
the board / shareholders as a whole
2. General Rules of Attribution
- Comprising principles of agency which allow for liability in contract and
vicarious liability in tort
3. Special Rules of Attribution
- Excludes attribution of the general principles of agency / vicarious liability
e.g. rule that requires some act / state of mind of a particular person as
opposed to their servants or agents – context specific
***Formulation of these rules by Lord Hoffmann in Meridian (see over) ***

Primary Rules of Attribution
Found in:
- company’s constitution (expressly or

impliedly from company law) or
- company law and that vest power in the board
/ shareholders as a whole
General Rules of Attribution
(ordinary legal principles):

agency and vicarious liability
- Agency (e.g. whether A Co will be bound by a
contract with B when C entered into the A / B
contract on A Co’s behalf.
- Where agent has authority then agent drops out of
the picture and only the company is liable
- Vicarious liability (e.g. where an employee (X) of A
Co drives A Co’s van and negligently causes injury
then X is liable and A Co may also be liable
(where there is a sufficiently close connection
between the wrongful act of X).
Special Rules of Attribution

• Tend to arise where the provision requires
some act or state of mind on the part of
the person rather than via an employee /
agent
• Lord Hoffmann in Meridian:
- Knowledge of employees counted as knowledge of company
in the circumstances (context)
- Purpose of legislation relevant
- The relevant legislation required rapid disclosure of shareholding
and so those who were in charge of company’s dealings in the
market were treated as “controllers” in the circumstances.
Corporate Attribution
Can be used to:
- impose liability on a company (best known)
AND
- Help defend a claim against a claim brought by

the company
Corporate Liability II:

Civil Wrongs
Ho Kong Peng v Scintronix Corp Ltd [2014] 3 SLR 329
FACTS
• Director (Ho) made payments to third party to secure business for the
company
• Ho alleged that the company’s management knew the payments were
bribes and that their knowledge should be attributed to the company
• It was clear to the court that Ho did not act in the best interests of the
company as he was subjecting it to criminal liability
ISSUES
• Did the company implicitly authorise Ho’s actions
• Was the company implicated in Ho’s act and as such could not sue upon its
own improper act according to the ex turpi causa rule (means that the
person can not sue if the action arises from the person’s own illegal acts.)
Corporate Liability III:

Civil Wrongs
Ho Kong Peng continued
HELD:
1. Did primary rule of attribution apply? – i.e. in the constitution or general
principles of company law (e.g. board meeting / informal decision taken by all
directors) but there was no evidence of meetings etc.
2. Ex turpi causa (if person’s breach of law caused damage, they can not
pursue a claim) operates as a defence as the court will not involve itself as a
matter of public policy where both sides are equally tainted.
– Primary rules do not apply
– Secondary rules not relevant as the ex turpi causa requires the company itself to be responsible
for the wrong (not through an agent / employee etc)
– Special rules are context specific and apply to protect innocent third parties from improper acts
by directors but do not apply where the company brings the action against those directors.
– Ho failed to get the payments approved by the board etc. and so no reason why court
should invoke special rule of attribution in order for the knowledge of a few directors to be
attributed to the company.
Corporate Liability IV:

Criminal Wrongs
• Criminal legislation will reference that a person who
commits the relevant crime will be punished
• Certain criminal legislation include companies in the
definition of person
• Certain punishments are not relevant to companies
e.g. imprisonment
• Some countries convict companies of corporate
manslaughter and fines are paid instead of
imprisonment
• In order for a company to be criminally liable it must
be attributed fault by a court
Corporate Liability V:
Rules of Attribution and Criminal
wrongs
• Courts must attribute fault to the company
• The three rules of attribution can be applied.
• Tesco Supermarkets Nattrass [1972] AC 153
In large companies, extensive delegation takes place and so persons lower

down the management chain can have their acts treated as those of the
company and their intention can be treated as that of the company.
***Meridian Global Funds management Asia Ltd v
Securities Commission ***
[1995] 2 AC 500
• M Ltd. Part of a syndicate bidding to take over NZ company, ENC.
• Koo and Ng worked for M Ltd. and bought 49% of ENC’s shares.
• M Ltd. failed to disclose to the Securities Commission that M Ltd. had become a substantial
shareholder (>5%) because Koo and Ng wanted to hide the transaction from their superiors.
• The Securities Commission imposed fines against Koo, Ng and M Ltd.
• M Ltd. argued it was not liable because it had not known about that it was a substantial
shareholder in ENC.
First Instance
• M Ltd knew that it was a substantial property holder as its employees (looking after the area)
had knowledge that was to be attributed to the company.
CA:
• Koo’s knowledge should be attributable because he was the “directing mind and will” of the
company.
• M Ltd. argued that the “directing mind and will” of the company was the board and not Koo.
Privy Council
• Necessary part of a corporate personality that there should be rules by which acts are
attributed to the company.
• Rules of attribution formulated and special rule created and applied herein.
• Company was liable
c. Contracting by
Companies:
Directly and Indirectly
How do companies contract with third
parties?
Directly Through an agent
Apparent
With*
Without Actual authority
seal
seal authority
1. Representation by
company
Transaction Transaction 2. Representation made
authorised authorised by someone with
& properly and properly Express Implied authority
executed executed Actual Actual
Authority Authority 3. Reliance by other
contracting party
Constitution From appointment to

Employment Contract particular position in
company
Express delegation by From words or
Board conduct of
company *Post 31 March 2017 it is not necessary to use a common seal to
execute deeds. Signature by authorised persons is sufficient.
Contracting Directly:
(1) Decision-making
(2) Execution
Contracts with the Company I:

(Decision-making)
1. Decision of the company to enter into a contract
(part of the management of the company ,
s. 157A)
• The business of the company shall be managed by, or
under the direction or supervision of the directors
• The directors may exercise all the powers of a
company except any power that this Act or the
constitution of the company requires the company to
exercise in general meeting
= board acts as company when it exercises power through
all areas not requiring decisions at general meetings.
Contracts with the Company II:

(Execution)
2. Execution of the contract by deed
• If contract is signed as:

• ……………….. Company seal
• Name of director
• (signed in accordance with s 41 of the
Companies Act)
Contracts with the Company II:

(Execution)
2. Execution of the contract
• s. 41A(1) provides that a company may have a common seal but

this is not a requirement
• s. 41(3)(b) provides that signatures are required (with the result
that seals are not required but they are still found on deeds (share
certificates, transfer documents etc. although not required as of
31/3/2017)
• Deeds are contracts that are “signed, sealed and delivered”
however s. 41B states that documents can be described as deeds
without the need for a common seal.
• Where no deed, then the board will pass two resolutions:
(a) substantive authority (decision to enter)

(b) formal authority to execute the document (one or more
directors or company secretary)
Contracting Indirectly:
(1) actual authority
(2) apparent authority
Contracting Indirectly: Agency

• Law of agency
• Principal agrees that X can act on their behalf
as an agent of theirs (of the Principal)
• Companies can be principals and contract for
other persons to act on their behalf and legally
bind them to execute contracts / make
payments / fulfill orders
• However, the agent must have the requisite
authority in order to bind the company in these
ways
Contracting through agents:

Actual and Apparent Authority
Actual authority
– expressly granted authority OR
- through dealings / circumstances they are treated as having
actual authority
- Idea is that for actual authority the principal must have agreed by
express statements or by conduct / acquiescence
Apparent Authority
- exists when san agent appears to have authority because the
company has in some way represented that the person does have
authority even though the company may not have provided that
person with actual authority
Actual Authority
Actual Authority can be:
– ‘‘express’’ actual authority; or

– ‘‘implied’’ actual authority
Where the principal states (verbally or in writing) that the agent can act for the
principal, the agent has express actual authority e.g.
• From a provision in the company’s constitution or from a provision in the

agent’s employment contract or contract of appointment; or
• By the board of directors delegating its authority through a board
resolution to someone else; or
But the law also recognises that actual authority can arise from indirect statements
made by the principal and from the principal’s conduct (such as appointing someone to
a certain position) or acquiesence, then the agent has implied actual authority:
Express Actual authority

Arises from / by:
1. A provision in a company’s constitution
2. The board of directors (or other agent with actual

authority) delegating its power and expressly
authorising a particular person to exercise the power
3. From a provision in the agent’s employment contract of

appointment
Express Actual Authority:

A provision in a company’s constitution
• e.g. constitution may provide that the MD has authority to

exercise all the company’s borrowing powers
• There is no conflict with broad range of powers granted to

the board under s. 157A
• Not very common


Delegation by the Board of Directors
• Clearest route is for a resolution to be passed that expressly

provides agent to act on their behalf
• Often granted to senior staff but may also be necessary to pass

resolution to authorise the company’s finance manager to
negotiate and enter into contract in certain circumstances
• Service agreements are often used that detail the scope of the
authority delegated by the board
• e.g. Reg, 93. Table 93 Model Constitution (granting power to contract to

MD)

Provision in an Employment Contract
• e.g. employee in HR may be delegated authority to

hire staff on behalf of the company
• The scope of authority may be in contract between
HR employee and company but also may be found in
company’s internal documents
• Express actual authority from an employment
contract / appointment does not extend to
fraudulent actions e.g. Skandinvaskia Enskilda Banken AB
(Publ), Singapore Branch v Asia Pacific Breweries (Singapore) Pte Ltd
[2009] 4 SLR (R) 788 “defendants actual authority was impliedly subject to a condition
that it be exercised honestly and on behalf of the principal”
Implied Actual Authority

Can arise from :
1. Being appointed to a certain position (see

table overleaf);
2. Acting in a way that gives the person

authority (incl. acquiescing)
RMIT
Whilst can be express, courts Classification:
consider mere fact ofTrusted
being appointed as Hely Hutchinson v Brayhead Ltd. [1986] 1 QB
Implied actual authority MD/CEO = grant of implied actual authority to do all things within usual 549 , 583.
of CEO or MD scope of that office (includes everyday matters / supervising senior
managers, being in charge of the company's business but excludes entering Corpers (No 664) Pty Ltd v NZI Securities
into transactions that are not characterised as ordinary trading) Australia Ltd (1989) ASC.
Senior execs on the board or just below. May have implied actual authority Skandinaviska Enskilda Banken AB
Implied actual authority due to scope of role, however does not extend to fraud. (Publ), Singapore Branch v Asia pacific
of other executive Breweries (Singapore) Pte Ltd. (fraud)
officers
Company with one director = that director acts as a collective body and
Implied actual authority would normally have the implied actual authority of a CEO.
of a director acting
Company with several directors = director acting alone has no implied actual
alone authority to bind the company in contracts with outsiders. For a director to iSAL Industrial Leasing Ltd. V Hydtrolmech
have authority to bind the company they must have: (a) expressly granted Automotive service Pte Ltd. & Ors [1998] 1 SLR
authority (board resolution) or from the conduct of the board as a whole). 702
Director would usually have the implied actual authority to perform the
function of fixing and witnessing the fixing of the common seal.
Northside Developments Pty Ltd. V Registrar-

General (1990) 170 CLT 146, 204-205.
Chair person is one member of a body that acts collectively and so does not
Implied actual authority usually have power to bind company.
of the chair person of
the board of directors Company with several directors = chair person has no implied actual Dart Sum Timber (Pte) Ltd. V Bank of canton Ltd.
authority to bind the company in contracts with outsiders. [1982] 2 MLJ 101.
Has implied actual authority to sign contracts relating to administrative Panorama Developments (Guildford)
Implied actual authority matters. Ltd. v Fidelis Furnishing fabrics Ltd.
of the company [1971] 2 QB 711.
CS would usually have the implied actual authority to perform the function of
secretary fixing and witnessing the fixing of the common seal.
Hely Hutchinson v Brayhead Ltd. [1986]
1 QB 549 , 583.
Hely Hutchinson v Brayhead Ltd.

[1986] 1 QB 549 , 583.
FACTS
• R was MD of B Ltd.
• B Ltd. Acquired controlling interest in P Ltd.
• P Ltd.’s MD was the plaintiff (HH).
• P Ltd was not in a strong financial position.
• HH and R agreed:
– HH would lend his own funds to P Ltd.
– HH would get a seat on the board at B Ltd.
– B Ltd would sign a guarantee of P Ltd.’s debt to HH
– B Ltd would sign an indemnity agreeing to indemnify HH if other crediotrs of P called in personal guarantees
granted by HH to them
• P Ltd went into liquidation and HH resigned from board of B Ltd.
• HH called upon board of B Ltd to honour indemnity and guarantee
• Directors of B Ltd (not incl R) claimed they had no knowledge of the
agreements and that they were not binding as R did not have authority to sign
such contracts
Hely Hutchinson v Brayhead Ltd

continued
ISSUE
Whether B Ltd was bound to honour agreements on
the basis that R had implied actual authority?
HELD
The contracts signed by R related to matters
within the scope of the position of MD and so
the company had implied actual authority.
Implied Actual Authority:

Acting in a way that gives the person authority
(incl. acquiescing)
Implied delegation of actual authority to a person that
can arise from acquiescence.
Acquiescence: more than silent approval e.g. agreeing
to contracts signed by person who had no express
authority to conclude contracts when the board knew
this = acquiescence (Freeman & Lockyer v Buckhurst
park properties (Mangal) [1964] 2 QB 480
Elements of acquiescence:
• Person that appointed as an officer / agent acts as if they are an agent
• Company learns that person is acting as if they are an agent
• Company stands by whilst that person enters into new contracts
• Company or BOD consents by words or conduct (incl. not doing
anything to stop the act)
Apparent authority
• Agent that acts beyond his authority can still
bind the company if those acts are within their
apparent authority
• Three conditions* for apparent authority:
1) Statement / representation made by the company that the

agent has the authority to enter contract
2) That statement is made by someone with higher authority
than agent and says that the agent is authorised to act
3) Third party relies on this statement and enters into the
contract
* There is fourth condition in the case from which these tests come but it is not
relevant in SG see Freeway and Lockyer)
Freeman & Lockyer v Buckhurst

Park Properties
FACTS
• K, H and two others were directors of BP Ltd
• They had not appointed an MD
• K arranged contract with an architectural company to provide BP Ltd
architectural services
• K did not consult the other directors in relation to this
• BP Ltd refused to pay as it claimed K had no authority to enter into the
contract
ISSUE
• Was BP Ltd liable to pay for the contract amount and did K have implied
actual authority to enter into the contracts?
HELD
• Judge found that K had been acting as MD by employing agents and other
steps to find permission and the board knew this.
• F&L had been induced into thinking K had authority.
Dicta of Diplock LJ in
Freeman and Lockyer
An ‘apparent’ or ‘ostensible’ authority . . is a legal relationship between
the principal and the contractor created by a representation, made by
the principal to the contractor, intended to be and in fact acted upon by the
contractor, that the agent has authority to enter on behalf of the
principal into a contract of a kind within the scope of the ‘apparent’
authority, so as to render the principal liable to perform any obligations
imposed upon him by such contract . . The representation which creates
‘apparent’ authority may take a variety of forms of which the commonest is
representation by conduct,, that is by permitting the agent to act in some
way in the conduct of the principal’s business with other persons. By so
doing the principal represents to anyone who becomes aware that the agent
is so acting that the agent has authority to enter on behalf of the principal
into contracts with other persons of the kind which an agent so acting in the
conduct of his principal business has usually ‘actual’ authority to enter
inito.”
d. Enforcing Defective
Contracts and the Indoor
management Rule
Enforcement of Defective
Contracts
• Where the person making the contract has no
actual authority at all; or
• Where the person has actual authority that is
too narrow to make the relevant contract:
• Where the agent has authority but the value of
the contact is outside their authorised limit.
• An outsider may be able to assert that the
agent had apparent authority OR rely upon
the indoor management rule
Indoor Management Rule

An outsider can assume:
• Directors have been properly appointed
• Any meetings of the board of directors have been
correctly called and held
• Any board or general meeting by shareholders
approval required under the constitution has been
obtained.
• These assumptions can be made by the
outsider even though they did not take place.
• However, if forgery is involved then the indoor
management rule can not be relied on.
Royal British Bank v Turquand

(1855)
FACTS
• T Ltd, a mining company, had a clause in constitution that stated only company
could only borrow money if shareholders approved.
• T Ltd. And bank entered into contract.
• Common seal was attached and two directors witnessed the contract.
• Shareholders did not approve the loan as required by the constitution.
HELD
• The co. was nevertheless bound by the loan as the bank, a third party, having
only seen the co.’s deed which authorised it to borrow, was entitled to infer
that when the co. sought to borrow & all matters of internal management had
been complied with.
• An outsider dealing with the company in good faith is entitled to assume
acts of internal management have been complied with, e.g.:
– Board / shareholder approval given
– Properly convened meeting of the board
– Adequate notice of meetings given to shareholders
– There was a sufficient quorum
Singapore example: Development Bank of

Singapore Ltd v Bok Chee Seng Construction Pte Ltd
[2002]
FACTS
• BCS kept a bank account with DBS
• BCS passed resolutions-
1. Authorising DBS to honor cheques signed jointly by 2 of its directors (Peh
and Phua)
2 . That a resolution certified by the chairman of the meeting and the co.
secretary/ another director was, as between BCS and DBS, conclusive
evidence of the passing of a resolution
• DBS was later notified that a resolution so certified was passed whereby cheques
could be signed singularly by Phua
• The co. secretary, Chua, who signed the certificate was not properly appointed (only
appointed by one director)
• DBS honoured cheques drawn in accordance with the new mandate
• However Peh’s solicitors later requested it freeze the account due to disputes
between Peh and Phua
• Peh later obtained a declaration that the resolution effecting the new mandate was
void
48
Development Bank of Singapore Ltd v Bok

Chee Seng Construction Pte Ltd : Issue
BCS then commenced an action against DBS to recover the amounts

of the cheques honored under the new mandate
Issue was whether DBS could rely on the Turquand rule(indoor

management)
49
Development Bank of Singapore Ltd v Bok

Chee Seng Construction Pte Ltd
Singapore Court of Appeal
DBS could rely on the indoor management rule”
“It is precisely for such a situation that the Turquand rule

comes to the aid of third parties who had relied in good faith
on such a document from the co.
DBS had no notice of any irregularity or impropriety in the
appointment of Chua as the new co. secretary.
Neither did DBS know that only one director passed the
resolution to appoint Chua as the company secretary… A bank
cannot be expected to investigate the internal management or
squabbles of a co.’
50
Exceptions to Indoor Management

rule
Result is that an outsider cannot enforce the contract
where:
(1) Outsider had actual knowledge of the defect of the defect
e.g. knowledge of lack of authority
(2) Insider exception applies
(3) Because of the circumstances, the person was ‘put on inquiry’

- Eg failed to make all the enquiries that would have been reasonable in
the circumstances (eg red flag not investigated)
The statutory provisions

• S 151- ‘Acts of a director or manager or
secretary shall still be valid notwithstanding
any defect that may afterwards be
discovered in his or her appointment or
qualification’
• S 25A constructive notice no longer applies
• Person is deemed not to have notice of what
is in the constitution or any other document
registered with ACRA
52

• S 25B protects third parties
• It states that a third party dealing with a
company can assume that the directors have
complied with the rules of the constitution
and the third party is not bound to enquire
as to any limitation on the powers of the
directors to bind the company.
• This is the statutory version of the indoor
management rule.

• S 25C states that where a company enters
into a transaction and relies on the rule in s
25B (indoor management rule) and the
parties to the transaction are
– A director or
– A person connected to director
– Then the transaction is voidable at the
company’s choice

• S 25D a person connected to a director is a
member of directors family company in
which director has a 20% interest
1. Actual knowledge
• Outsider knows the agent has no actual
authority or contract defective
• In SAL Industrial Leasing Ltd v
Hydtrolmech Automation Services The
court held that as outsider knew the
director who signed the contract had no
authority to do so on behalf of the company .
2. Insider exception
• An insider (director or officer of company)
who knows of the actual breach of the
internal procedures can not rely on indoor
management rule.
• Applies to group companies where two
companies (separate legal entities) are
controlled by the same person.
3. Put on notice
• Transaction is suspicious
• Outsider should have made enquiries that

would normally or customarily be made by
someone in their position
• Reasonable outsider would have been put

on notice about something irregular or
wrong but outsider did not investigate
Northside Developments
Northside (owner Barclays Bank

of land) R Mortgage - to
Sturgess Director secure loans
and 2 others to Sturgess loans
companies
Sturgess companies
[ No benefit to Northside from the loans. ] Bank could not

recover
Northside Developments Pty Ltd v Register-

General (1990) 170 CLR 146
FACTS
• The company seal of Northside was affixed to mortgage documents for
a loan from Barclays Bank to a company controlled by Sturgess
(Sturgess was also a director and shareholder of Northside).
• The mortgage was over land owned by Northside.
• The seal was affixed and signed by S as director and his son as
secretary.
• The son was not appointed as a director under the constitution but
documents lodged with ASIC showed him as secretary.
• The other 2 directors of the company did not know of or authorise the
mortgage documents.
• Barclays did not inquire as to why a mortgage was being taken out
against Northside’s property when another company was the recipient
of the loan monies.
ISSUE
• Was the mortgage valid and could Barclays Bank enforce the contract?
• As the documents were signed prior to s 128-130 (assumptions that
can be made in certain circumstances) coming into effect the High
Court needed to look at the common law.
Northside Developments Pty Ltd v

Register- General : Decision
• ND not bound by the mortgage
• Barclays could not rely on the rule in Turquand’s
• Although the Barclays could assume the seal was properly
affixed, there were circumstances in the case which should
have put them on notice.
• Barclays should have been aware of the fact that the
As Barclay’s failed to make further enquiries it could not
rely on the rule in Turquand’s case.
Circumstances were unusual because Northside carried
burden but had no benefit from the loan.
Court found the bank should have made further enquiries of
the full company board as it should have suspected
irregularity
Kwee Chio Peter v Biogenics Sdn

Bhd
FACTS
• K wanted to recover RM7m loan made to Biogenics.
• Biogenics created by Goh to get the loan so the money could
save a company called Seng Hup.
• G had 2 nominee directors in Biogenics Ang and Liow
• Biogenics said no loan from Kwee
• All directors of Biogenics and Sen Hup denied getting a loan
from Kwee.
• No resolution of Board of Biogenics to approve loan
HELD
• That Kwee had not been put on notice even though there were
nominee directors and Biogenics did not benefit from the loan.
• Kwee not put on notice because Goh had set up Biogenics to get
loan and reasonable for Kwee to assume that the nominee
directors would agree with Goh’s wishes to
Tutorial Two: Question One

• The constitution of a company provided that any purchase of
land by the directors required the approval at the general
meeting.
• The directors entered into a contract for the purchase of land

after showing the vendor a copy of resolution of the general
meeting approving the purchase.
• It turned out that there had not been a quorum present at the
general meeting and the company wishes to avoid the contract.
Required:
Advise the company whether it can avoid the contract for the
purchase of land.
Tutorial Two: Question Two

• B and C are the directors and equal shareholders of Hartford Pte. Ltd. a
company engaged in manufacturing.
• At a meeting with X, an outside supplier, A and B said that A was managing
director (MD) of Hartford Pte. Ltd.
• The constituion of the company provided for the appointment of a MD but
in fact one had not been validly appointed.
• A enters into a contract with X on behalf of Hartford Pte. Ltd. for the supply
of materials to the value of $20,000.
• Hartford Pte. Ltd. refuses to pay this amount on the basis that A was not its
MD and had no authority to enter into the contract on behalf of the
company.
Required
Advise X.

Topic Four:: Company Relationship With Outsiders

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RMIT Classification: Trusted

Overview of Topic Four

a. The mind and will of a company

a. The Mind and Will of a

Why is this important?

Lennard's Carrying Co Ltd v Asiatic

Lennard's Carrying Co: III

The mind and will of a company:

The mind and will of a company:

“A company may in many cases be likened to a human body. It has a

HL Bolton (Engineering) Co. Ltd. V

Civil and Criminal

Three Rules of Attribution (they

***Formulation of these rules by Lord Hoffmann in Meridian (see over) ***

Primary Rules of Attribution

- company’s constitution (expressly or

(ordinary legal principles):

Special Rules of Attribution

- impose liability on a company (best known)

- Help defend a claim against a claim brought by

Corporate Liability II:

Corporate Liability III:

Corporate Liability IV:

In large companies, extensive delegation takes place and so persons lower

Constitution From appointment to

Contracts with the Company I:

Contracts with the Company II:

• If contract is signed as:

Contracts with the Company II:

• s. 41A(1) provides that a company may have a common seal but

(a) substantive authority (decision to enter)

Contracting Indirectly: Agency

Contracting through agents:

– ‘‘express’’ actual authority; or

• From a provision in the company’s constitution or from a provision in the

Express Actual authority

1. A provision in a company’s constitution

2. The board of directors (or other agent with actual

3. From a provision in the agent’s employment contract of

Express Actual Authority:

• e.g. constitution may provide that the MD has authority to

• There is no conflict with broad range of powers granted to

• Not very common

Express Actual Authority:

• Clearest route is for a resolution to be passed that expressly

• Often granted to senior staff but may also be necessary to pass

• e.g. Reg, 93. Table 93 Model Constitution (granting power to contract to

Express Actual Authority:

• e.g. employee in HR may be delegated authority to

Implied Actual Authority

1. Being appointed to a certain position (see

2. Acting in a way that gives the person

Northside Developments Pty Ltd. V Registrar-

Hely Hutchinson v Brayhead Ltd.

Hely Hutchinson v Brayhead Ltd

Implied Actual Authority:

1) Statement / representation made by the company that the

Freeman & Lockyer v Buckhurst

Indoor Management Rule

Royal British Bank v Turquand

Singapore example: Development Bank of

Development Bank of Singapore Ltd v Bok

BCS then commenced an action against DBS to recover the amounts

Formulation of these rules by Lord Hoffmann in Meridian (see over)