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Case law Flashcards

1
Q

What were the three legal points that Salomon v Salomon & Co Ltd established

A
  • Limited Liability
  • One person company
  • Holding shares doesn’t recognise a relationship of agency or trusteeship
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2
Q

3 key points from SALOMON V SALOMON

A
  1. It was recognised that a validly incorporated company could legitimately shield its members from liability- LIMITED LIABILITY
  2. Recognised validity of a one person company
  3. It recognised that a relationship of agency or trusteeship is not established simply because a person holds shares in the company
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3
Q

Piercing the corporate veil - specifically regarding the EVASION PRINCIPLE

A

GILFORD MOTOR CO LTD V HORNE

  • Corporate personality was disregarded as company was being used to effect a fraud, facade or sham
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4
Q

When piercing the veil can be disregarded under COMMON LAW

Parent acting on behalf of the subsidiary

A

Smith, stone and knight ltd v Birmingham Corporation

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5
Q

Piercing the Corporate Veil
Specifically the CONCEALMENT PRINCIPLE

2 Points

A

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

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6
Q

Vicarious Liability in a General Partnership

A

Dubai Aluminium Co Ltd v Salaam 2002

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7
Q

Duty of the promoter when forming a new company

A

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.

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8
Q

Promoter can enforce a contract

A

Braymist V Wise Finance Co Ltd

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9
Q

Amending the articles

A

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

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10
Q

Implying terms into the articles

A

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.

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11
Q

Outsiders can’t enforce a S.33 contract

i.e. the articles

A

Eley v Positive Government Security Life Assurance Co

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12
Q

Apparent Authority

A

HELY-HUTCHINSON V BRAYHEAD LTD

It was stated that ‘apparent authority is the authority of an agent as it appears to others.’

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13
Q

Actual Authority

A

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.

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14
Q

Protection for 3rd parties when entering contracts with the company

A

S.40 or when that isn’t applicable

INDOOR MANAGEMENT RULE aka

TURQUANDS RULE

ROYAL BRITISH BANK V TURQUARD

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15
Q

Company Secretaries and their authority

A

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.

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16
Q

Members Remedies

Unfair Prejudice claim

Exclusion from management in quasi-partnership

A

GHYLL BECK DRIVING RANGE LTD

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17
Q

Members Remedies

Unfair Prejudice claim

Buy out of shares - fair price

A

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

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18
Q

Members Remedies

Unfair Prejudice claim

Members transferring business to another company they control

A

LONDON SCHOOL OF ELECTRONICS

Left the company with no clients

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19
Q

Members Remedies

Unfair Prejudice claim

Main case

A

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.

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20
Q

Members remedies s994

Test for section s994 to succeed

A

RE SAUL D HARRISON AND SONS PLC

Petitioner must show conduct complained or is both UNFAIR & PREJUDICIAL

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21
Q

Members Remedies

Running of Quasi-Partnerships

A

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

22
Q

Members Remedies

Petition to wind up

  • leading case
A

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
23
Q

Members Remedies

Winding up

Quasi-Partnership Deadlock case

A

Yenidje Tobacco Company Limited

There was no provision for breaking the deadlock. It was JUST AND EQUITABLE to wind up.

24
Q

Unanimous Assent

A

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.

25
Q

2 Cases Directors Duties 171

  • Duty to Act within Powers
A

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

26
Q

172 - duty to promote success of the company

X2 cases

A

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

27
Q

173 - duty to exercise independent judgement

1 case

A

FULHAM FOOTBALL CLUB LTD V CABRA ESTATES PLC

28
Q

Section 174 - duty to exercise reasonable care skill and diligence

2 points

2 cases

A

RE BARINGS PLC

rouge trader

  1. 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
  2. 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

29
Q

Section 175 - duty to avoid a conflict of interest

1 cases

A

BHULLER V BHULLER

law was applied very strictly

30
Q

S176 - duty to not accept benefits from 3rd parties

A

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

31
Q

Section 177 - Duty to declare an interest in transactions x 2 cases

A

Gwembe Valley Developments v Koshy

Director is a shareholder in company regarding transaction/agreement

Movitex ltd V Bulfield Director

proposes to contract with company

32
Q

Relief from the court - directors breach

Case law

Statute s1157 CA

A

RE: DUOMATIC LTD

Relief from the court if they behaved honestly and reasonably

33
Q

Two exceptions from relief of court

X2 cases

A

LEXI HOLDINGS PLC V LUQMAN

Director completely inactive

RE PRODUCE MARKETING CONSORTIUM LTD

wrongful trading

34
Q

Variation of class rights

A

RE MACKENZIE AND CO LTD

as long as the right stays the same, the enjoyment of the right is irrelevant

35
Q

safeguarding of creditors in share capital reduction

A

RATNERS GROUP PLC

36
Q

Prohibited financial assistance

A

RE UNIQ PLC

Exception to the rule - Larger purpose - Restructuring of corporate group

37
Q

Issued vs allotted shares

A

NATIONAL WESTMINSTER BANK V INLAND REVENUE COMMISSIONERS

shares are issued when the person’s name is actually entered into the register of members

38
Q

No reflective loss principle

A

JOHNSON V GORE WOOD & CO

Rational from preventing the members from claiming (Can’t claim losses twice e.g. company and member)

39
Q

Proper claimant

A

FOSS V HARBOTTLE

the company is the proper claimant

40
Q

Definition of fixed and floating charge

A

Agnew v Inland Revenue Commissioner

41
Q

Book debts fixed or floating?

A

Re Spectrum Plus ltd Definition of floating or fixed book debts is how it behaves not what it’s called

42
Q

Exception to no reflective loss principle

A

Giles v Rhind

Member can claim as company is unable to

43
Q

Prohibited financial assistance

A

IN A FLAP ENVELOPE CO LTD

Directors were found to be in breach of their duties

44
Q

Scheme of arrangement

A

RE: National farmers union development trust ltd scheme must involve a comprise

45
Q

Liquidation: Transactions of undervalue

A

Phillips V Brewin Dolphin Bell Lawrie Transactions at 60% of true value found to be undervalue

46
Q

Liquidation: Wrongful trading

A

RE PRODUCE MARKETING CONSORTIUM directors should have concluded company was in irreversible decline and stopped trading. They had to pay £75k to company assets

47
Q

Liquidation Restriction on re-use of company names

A

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

48
Q

Liquidation Description of charges

A

RE Spectrum plus ltd Description of charges is not conclusive it’s how they act

49
Q

Liquidation Preferences

A

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

50
Q

Weighted voting rights

A

Bushell V Faith - authority that weighted voting clauses are enforceable

51
Q

Enforcement of articles Member or director

A

Rule: Hickman V Kent Can’t only enforce the articles in your capacity as a member not a director

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