COMPANIES AND SECURITIES
LAW
77947
Week 4
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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


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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

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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)
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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
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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
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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


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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
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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
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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
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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.
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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)
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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
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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


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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
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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
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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
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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
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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
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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


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