Case law Flashcards
What were the three legal points that Salomon v Salomon & Co Ltd established
- Limited Liability
- One person company
- Holding shares doesn’t recognise a relationship of agency or trusteeship
3 key points from SALOMON V SALOMON
- It was recognised that a validly incorporated company could legitimately shield its members from liability- LIMITED LIABILITY
- Recognised validity of a one person company
- It recognised that a relationship of agency or trusteeship is not established simply because a person holds shares in the company
Piercing the corporate veil - specifically regarding the EVASION PRINCIPLE
GILFORD MOTOR CO LTD V HORNE
- Corporate personality was disregarded as company was being used to effect a fraud, facade or sham
When piercing the veil can be disregarded under COMMON LAW
Parent acting on behalf of the subsidiary
Smith, stone and knight ltd v Birmingham Corporation
Piercing the Corporate Veil
Specifically the CONCEALMENT PRINCIPLE
2 Points
PETRODEL RESOURCES LTD V PREST
where a person is under an existing legal obligation or liability or subject to an existing legal restriction which he DELIBERATELY EVADES, or whose enforcement he DELIBERATELY FRUSTRATES by interposing a company under his control
Veil may be lifted If other more conventional remedies have proved to be of no assistance
Vicarious Liability in a General Partnership
Dubai Aluminium Co Ltd v Salaam 2002
Duty of the promoter when forming a new company
ERLANGER V NEW SOMBRERO PHOSPHATE CO
The promoter owed his duty to the unformed company and can be held liable for any acts on behalf of the unformed company. He has a fiduciary duty and must not make any profit unless disclosed.
Promoter can enforce a contract
Braymist V Wise Finance Co Ltd
Amending the articles
Allen V Gold Reefs of West Africa ltd
Power to amend the articles must be exercised, not only in the manner required by law, but also bona fide for the benefit of the company as a whole
Implying terms into the articles
ATTORNEY GENERAL OF BELIZE V BELIZE TELECOM LTD.
The courts can’t add in terms to make a contract, statute or articles to make them fairer or more reasonable. It is only concerned with what the term means to a reasonable person not connected with background knowledge as to what they would think the term meant.
Outsiders can’t enforce a S.33 contract
i.e. the articles
Eley v Positive Government Security Life Assurance Co
Apparent Authority
HELY-HUTCHINSON V BRAYHEAD LTD
It was stated that ‘apparent authority is the authority of an agent as it appears to others.’
Actual Authority
EXPRESS ACTUAL AUTHORITY –
authority that has been expressly bestowed upon an agent e.g. in the articles or the board has delegated powers to the agent.
IMPLIED ACTUAL AUTHORITY
HELY-HUTCHINSON V BRAYHEAD LTD
It tends to arise when there is express actual authority e.g. buy and sell goods but it hasn’t been stated that you can enter into a contract with suppliers but you’d need to in order to buy or sell goods.
It also arises with certain job roles where that is the standard expectation of that role to follow out those tasks.
Protection for 3rd parties when entering contracts with the company
S.40 or when that isn’t applicable
INDOOR MANAGEMENT RULE aka
TURQUANDS RULE
ROYAL BRITISH BANK V TURQUARD
Company Secretaries and their authority
PANORAMA DEVELOPMENTS (GUILDFORD) LTD V FIDELIS FURNISHING FABRICS LTD
‘Chief Administration Officer’ and will have the authority to enter into contracts on behalf of the Company of an administrative nature.
Members Remedies
Unfair Prejudice claim
Exclusion from management in quasi-partnership
GHYLL BECK DRIVING RANGE LTD
Members Remedies
Unfair Prejudice claim
Buy out of shares - fair price
s.994
GRACE V BIAGIOLI
court ordered a share purchase order at a fair price to be fixed by the court
Also complained of being removed as a Director but this was not UNFAIR OR PREJUDICE as a MEMBER so was thrown out by the court
Dividend payment was made as it was UNFAIR OR PREJUDICE
Members Remedies
Unfair Prejudice claim
Members transferring business to another company they control
LONDON SCHOOL OF ELECTRONICS
Left the company with no clients
Members Remedies
Unfair Prejudice claim
Main case
FISHER V CADMAN
CA2006 s.994-996
Father left company to children - 2 brothers, 1 daughter. Company not ran properly and brothers set up another company alongside. Daughter wants brothers to buy out her share.
Must be UNFAIR TREATMENT AND PREJUDICE.
Court orders for share to be bought out by the company.
Members remedies s994
Test for section s994 to succeed
RE SAUL D HARRISON AND SONS PLC
Petitioner must show conduct complained or is both UNFAIR & PREJUDICIAL
Members Remedies
Running of Quasi-Partnerships
PHILLIPS V O’NEILL
Someone’s valid expectations of a company disappointed, as it was never a firm agreement just an expectation it was not grounds for s994.
Example of quasi-partnership
Must be UNFAIR or PREJUDICIAL as a MEMBER
Members Remedies
Petition to wind up
- leading case
E BRAHIMI V WESTBOURNE GALLERIES LTD
Insolvency Act 1986 s122
- Just and Equitable winding up
- quasi-partnership
- petition to wind up
- original director/member pushed out by newly appointed son of existing director and existing director
Members Remedies
Winding up
Quasi-Partnership Deadlock case
Yenidje Tobacco Company Limited
There was no provision for breaking the deadlock. It was JUST AND EQUITABLE to wind up.
Unanimous Assent
RE DUOMATIC LTD
duomatic principle under common law
Common law has long allowed companies to make decisions by unanimous assent: if all of the members agree on a matter, the decision will be made validly even if no meeting takes place and no resolution is passed.
2 Cases Directors Duties 171
- Duty to Act within Powers
Substantive Purpose/Proper Purpose
Howard Smith ltd V Ampol Petroleum Ltd
- Steps to determine a breach ‘improper use’
Extrasure Travel Insurance V Scattergood
Next steps in determining why directors had the power, what it’s for and did they use it correctly
172 - duty to promote success of the company
X2 cases
EXTRASURE TRAVEL INSURANCE LTD V SCATTERGOOD
the court held that as long as the decision of the directors was honest, no breach of duty will arise even if that decision was unreasonable
Test for breach of duty is subjective
REGENTCREST PLC V COHEN
Director honestly believed he was doing what was best for the company at the time and it was ruled that he wasn’t in breach of s.172
AKA - honestly believed he was doing what was best for the company and was bonafide he will not be liable
173 - duty to exercise independent judgement
1 case
FULHAM FOOTBALL CLUB LTD V CABRA ESTATES PLC
Section 174 - duty to exercise reasonable care skill and diligence
2 points
2 cases
RE BARINGS PLC
rouge trader
- Directors can delegate duties but they must be overseeing and must have sufficient knowledge of what’s going on - this backed by FRC board effectiveness review
- Whilst you can delegate to functions (subject to articles) the exercise of power of delegations doesn’t absolve a director from the duty to supervise
DORCHESTER FINANCE CO LTD V STEBBING
inactive directors will be in breach
Section 175 - duty to avoid a conflict of interest
1 cases
BHULLER V BHULLER
law was applied very strictly
S176 - duty to not accept benefits from 3rd parties
ATTORNEY GENERAL OF HONG KONG V REID
Common law has long provided that a person in a fiduciary position cannot accept a bribe or a secret commission
Section 177 - Duty to declare an interest in transactions x 2 cases
Gwembe Valley Developments v Koshy
Director is a shareholder in company regarding transaction/agreement
Movitex ltd V Bulfield Director
proposes to contract with company
Relief from the court - directors breach
Case law
Statute s1157 CA
RE: DUOMATIC LTD
Relief from the court if they behaved honestly and reasonably
Two exceptions from relief of court
X2 cases
LEXI HOLDINGS PLC V LUQMAN
Director completely inactive
RE PRODUCE MARKETING CONSORTIUM LTD
wrongful trading
Variation of class rights
RE MACKENZIE AND CO LTD
as long as the right stays the same, the enjoyment of the right is irrelevant
safeguarding of creditors in share capital reduction
RATNERS GROUP PLC
Prohibited financial assistance
RE UNIQ PLC
Exception to the rule - Larger purpose - Restructuring of corporate group
Issued vs allotted shares
NATIONAL WESTMINSTER BANK V INLAND REVENUE COMMISSIONERS
shares are issued when the person’s name is actually entered into the register of members
No reflective loss principle
JOHNSON V GORE WOOD & CO
Rational from preventing the members from claiming (Can’t claim losses twice e.g. company and member)
Proper claimant
FOSS V HARBOTTLE
the company is the proper claimant
Definition of fixed and floating charge
Agnew v Inland Revenue Commissioner
Book debts fixed or floating?
Re Spectrum Plus ltd Definition of floating or fixed book debts is how it behaves not what it’s called
Exception to no reflective loss principle
Giles v Rhind
Member can claim as company is unable to
Prohibited financial assistance
IN A FLAP ENVELOPE CO LTD
Directors were found to be in breach of their duties
Scheme of arrangement
RE: National farmers union development trust ltd scheme must involve a comprise
Liquidation: Transactions of undervalue
Phillips V Brewin Dolphin Bell Lawrie Transactions at 60% of true value found to be undervalue
Liquidation: Wrongful trading
RE PRODUCE MARKETING CONSORTIUM directors should have concluded company was in irreversible decline and stopped trading. They had to pay £75k to company assets
Liquidation Restriction on re-use of company names
RICKETTS V AD VALOREM FACTORS LTD Used a prohibited name and was found criminally liable for breach of name and personally liable for debts of new company
Liquidation Description of charges
RE Spectrum plus ltd Description of charges is not conclusive it’s how they act
Liquidation Preferences
MC BACON Stated that there must have been a desire to create a preference and it must have influenced the decision to enter into the transaction
Weighted voting rights
Bushell V Faith - authority that weighted voting clauses are enforceable
Enforcement of articles Member or director
Rule: Hickman V Kent Can’t only enforce the articles in your capacity as a member not a director
