6. Contracts with outsiders, Slides of Law

Download 6. Contracts with outsiders and more Slides Law in PDF only on Docsity! 22 6. Contracts with outsiders Company powers and how they are exercised s. 124 Legal capacity and powers of a company s. 125 Constitution may limit powers and set out objects s. 126 Agent exercising a company’s power to make contracts s. 127 Execution of documents (including deeds) by the company itself Assumptions people dealing with companies are entitled to make s. 128 Entitlement to make assumptions s. 129 Statutory assumptions that can be made under s. 128 s. 130 Information available to the public from ASIC does not constitute constructive notice ANSWER GUIDE DIRECTLY For a contract entered into directly (s. 127) (signature, seal, or other means authorised by const.) by two directors, or a director and a company secretary, or a sole director/secretary of a pty coy. DETERMINE IF DIR/SEC: • Is validly appointed • If on ASIC register as director/secretary, can assume they are: s. 129(2) • If being held out as someone with that office under s. 129(3) (by someone with actual authority: Brick and Pipe v Occidental – extends to implied actual authority by conduct and ostensible authority) • if a D states next to signature: sole director/C secretary, person may assume that is correct: s. 129(5) – even if there are, in fact, multiple directors CONSIDER • Whether it is appropriate to use the assumptions in s. 129(1)/ Turquand (useful if there has been a failure to comply with an internal governance rule) THEN • Rely on s. 129(5)/(6) to bind the company • If you have used IMR/s. 129 YOU MUST consider exceptions under s. 128(4)/Northside Development • Also ref s. 130(1) where appropriate (ASIC register not assumed knowledge if they haven’t actually checked it) If the answer is no, check if the company ratified the contract. INDIRECTLY Contract entered into indirectly – s. 126: Company able to appoint agent • Was express authority given by someone with actual authority? Keep in mind: if board resolution/GM resolution invalid e.g. because no quorum, not properly convened, no notice given, not within express authority. Refer to early notes re decision-making by board or general meeting • Was the contract entered into by someone with implied actual authority from office? (MD, officer may have authority for some types of contracts) Consider: Were they validly appointed? Also consider s. 129(2)(b) for MD, large/complex contracts outside scope of MD: Crabtree Vickers • Was contract entered into by someone with implied actual authority from conduct? Hely Hutchison: acquiescence of Board to a similar pattern of conduct. o If no evidence of pattern of behaviour by coy, say no evidence and therefore unlikely implied by conduct) • Was the contract entered into by someone with ostensible authority? (Have criteria in Freeman been satisfied? Trickiest is usually whether representation has been by someone with actual authority. Remember: Holding out must be by someone with actual authority (Crabtree Vickers)). CONSIDER s. 129 assumptions (in particular consider use of (1), (3) and (4))/Re Turquand’s • If you have used IMR/s. 129 YOU MUST consider exceptions under s. 128(4)/Northside Development 23 SUMMARY Where an organ contracts in the name of the C, its act is an act of the C itself. The position is different when the C contracts through an agent whose act is an act for, but not of, the company. The ability to contract with other legal entities arises because a C has the legal capacity and powers of an individual: s. 124(1) • Compliance with constitution can be assumed (IMR: Royal British Bank v Turquand) • Authority to contract, concept of holding out: Freeman and Lockyer; Crabtree-Vickers • Board of Ds may manage C: s. 198A • Board may elect MD: ss. 201J, 198C • C execution of docs: s. 127 • CA creates assumptions in favour of outsiders dealing with C: s. 129 • The benefit of assumptions are lost if knowledge or suspicion of an irregularity exits: s. 128, Sofyer v Earlmaze CORPORATE CAPACITY AND POWERS A company has the legal capacity and powers of an individual s. 124(1) It is not open to a C/SH to argue a contract is not enforceable because their interests are not served by the contract: s. 124(2) The doctrine of ultra vires is now dead to Cs registered under the CA Breach of constitutional restrictions/prohibitions does not render exercise of the power invalid: s. 125(1) Breach of C’s objects (if they have them) does not render act invalid: s. 125(2) CONTRACTING DIRECTLY s. 127 By signature of directors s. 127(1) Public: (a) Doc signed by 2Ds, (b) or 1 D and 1 sec. Proprietary: (c) sole D/sec If a C executes a document in this way, people will be able to rely on the assumptions in s. 129(5) for dealings in relation to the company. Ways the company binds itself By contracting directly Signature (s. 127(1)) Seal (s. 127(2)) Means authorised in constitution (s. 127(4)) Indirectly through agents (s. 126) Actual authority Express Implied From office From conduct or acquiescence Apparent authority Person with actual holds out another as having apparent 26 Suspicion assumption might not be correct: • ‘Suspicion’ is a state of conjecture or surmise without sufficient evidence to be certain of the truth: Queensland Bacon • Person must have actual opinion or belief it may be incorrect: Queensland Bacon • A person does not lose the benefit of the assumptions merely because their suspicions should have been aroused: Sunburst Properties 27 7. Directors duties under statute and common law General duties s. 180 Care and diligence – civil obligation only s. 181 Good faith – civil obligation s. 182 Use of position – civil obligation s. 183 Use of information – civil obligation s. 184 Good faith, use of position, and use of information – criminal offences s. 190 Responsibility for actions of delegate Powers s. 198D Delegation Civil consequences of contravening civil penalty provisions s. 1317E Declarations of contravention s. 1317H Compensation orders – corporation/scheme penalty provisions s. 1317J Who may apply for a declaration or order s. 1317S Relief from liability for contravention of civil penalty provisions Power of courts s. 1318 Power to grant relief 28 FIDUCIARY DUTIES • Ds roles result in special (fiduciary) duty to C • Good faith, proper purpose, no conflict • Shareholders can sometimes ratify a breach, but not possible if C insolvent (Kinsela) • Remedies for breach: damages, rescission, constructive trust (Paul A Davies) STATUTORY DUTIES • General law re Ds still relevant – s. 185 • Statutory duties target Ds, officers, employees • FD of good faith and loyalty are repeated in ss. 181, 182, 183 – civil penalty breaches, subject to civil penalty orders, e.g. s. 1317G (fine) • A civil penalty breach allows courts to disqualify Ds: s. 206C • Where breaches involve dishonesty, criminal offences apply – s. 180 (objective standard) • Defences: s. 180(2) e.g. BJR (reliance on BJR includes good faith, no material personal interest) • Ds obliged to disclose material personal interest: s. 191 • Aim of good governance and corporate social responsibility OVERVIEW At general law, Ds owe a duty to the C to take reasonable care in performing functions of their office: Daniels v Anderson The duty is not take all possible care but a degree of care: Re City Equitable Fire Insurance Ds are required to take the necessary steps to enable them to guide and effectively monitor the management of the company: Daniels v Anderson The test as to the standard of care required of Ds is an ‘objective one in the sense that the question is what an ordinary person, with the knowledge and experience of the defendant might be expected to have done in the circumstances if he was acting on his own behalf’: ASC v Gallagher At common law and equity, the causal connection between breach of DOC and loss suffered will not be proved unless it can be established a reasonable person acting in the position of the D would have acted differently—that is, ‘but for the breach of duty those losses would not have occurred’: Permanent Building Society TO WHOM IS THE DUTY OWED? The company Ds owe a duty to the C as a whole, that is, to the general body of SHs: Greenhalgh and Arderne Cinemas Ltd Shareholders Normally, Ds do not owe a duty to individual SHs (Percival v Wright), however, where it can be shown that a FR (one of trust and confidence) exists between individual Ds and individual SHs, a duty may be owed to those SHs specifically (Brunninghausen; Crawley v Short) Creditors Normally, Ds do not owe a duty to creditors. However, when the C is insolvent, Ds must consider the interests of creditors (Walker v Wimborne). Consider also s. 588G which imposes a positive obligation on Ds to ensure they prevent the C from insolvent trading