Case Law - Part 1 Flashcards
Duties of a promoter
Erlanger
v
New Sombrero Phosphate Co (1878)
- Promoters occupy fiduciary position in relation to unformed company
- Promoters cannot make a profit out of a companies promotion unless the nature of transaction and profits are disclosed
Contractual Capacity
Lee
v
Lee’s Air Farming Ltd (1961)
- A company can enter contracts with persons outside the company and persons within in
- Insurance company to pay out compensation owed to Lee’s widow
Pre-Incorporation contracts case law
Phonogram v Lane (1981)
Mr Lane was held personally liable to return funds
- Where a person purports to act on behalf of a company not yet formed
- Unless clear exclusion of personal liability, s.51 should be given its full effect
- Can escape liability if there is an agreement to the contrary
Contract of novation
Howard v Patent Ivory Manufacturing Company (1888)
- Method of payment changed from cash (pre-incorp contract) to cash and debentures
- Held to be evidence of a fresh agreement
- Newly formed contract cannot takeover pre-incorporation contract without being able to show change in pre-incorp contract
- Replacing an old obligation with a new one
- All 3 parties must agree (company, promoter and third-party)
Pre-incorporation contract between agent and third party
Braymist v Wise Finance Limited (2002)
- Third party (Wise) sought to avoid liability
- Third party (Wise) going to buy land from lawyers of Braymist (agent) not yet formed
- Third party (Wise) failed to get planning permission and attempted to pull out of contract because Braymist was not yet formed
- Held that Braymist could enforce contract and Wise was held liable
Name the seminal case and the three reasons it is vital to understanding the significance of corporate personality
Salomon v A Salomon & Co Ltd (1897)
- The HOL recognised that a validly incorporated company could legitimately be used to shield its members from liability
- Implicitly recognised the validity of a ‘one person’ company (company run by one person, with several dominant nominee shareholders)
- Recognised that a relationship of agency or trusteeship is not established because a person holds shares (even if all) in a company
When can a corporate personality be disregarded by STATUTE
- CA 2006 s.399 (group accounts)
- CA 2006 s.767 (doing business without a trading certificate)
- CA 2006 s.993 (fraudulent trading)
- IA 1986 ss.213 and 246ZA (fraudulent trading)
- IA 1986 ss.214 and 246ZB (wrongful trading)
- IA 1986 s.238 (transaction at an undervalue)
- IA 1986 s.239 (preferences)
Disregarding corporate personality under common law (concealment)
- Prest v Petrodel Resources Ltd (2013)
The evasion principle
- 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;
and - if other, more conventional, remedies have proved to be of no assistance
Disregarding corporate personality under statute (company used as facade or a sham)
Gilford Motor Co Ltd v Horne (1933)
Disregarding corporate personality under statute (relationship of agency exists between parent company and subsidiary)
Smith, Stone and Knight Ltd v Birmingham Corporation (1939)
Further application of Prest v Petrodel (2013)
Wood v Baker (2015)
Duty of care case law
Chandler v Cape Industries plc (2012)
Interpretation of articles case law
Rayfield v Hands (1960)
Article amendment case law
Allen v Gold Reefs of West Africa Ltd (1900)
- Lindley MR stated the power to alter 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’.
- The company here refers to the corporate entity, so if an amendment benefits the members, but not the company, then it will be invalid
Article amendment case law that does not affect the company at all but affects its members
Greenhalgh v Arderne Cinemas Ltd (1951)
- Held that the amendment was valid because it might well be in a hypothetical member’s benefit to sell his shares directly to an outsider. Further, the advantage obtained by Mallard was also obtained by all the other shareholders, so the amendment did not discriminate between majority and minority shareholders.
Enforcing s.33 contract
A member breaches a term of the constitution, the company can sue the member for breach of contract
Hickman v Kent or Romney Marsh Sheepbreeders’ Association (1915)
- The company’s articles stated that any dispute between it and a member should be referred to arbitration before any legal proceedings were issued.
- The constitution formed a contract between the company and Hickman, and Hickman had breached this contract.
- Accordingly, the court stayed the legal proceedings brought by Hickman
and allowed the company to enforce the arbitration clause.
Enforcing s.33 of contract
A company breaches the terms of the constitution, a member can sue the company for breach of contract
Wood v Odessa Waterworks Co (1889)
- The articles provided that the directors could declare a dividend be paid to the members
- The board proposed an ordinary resolution stating that debenture bonds would be issued to the members, instead of payment of a dividend.
- (Wood) objected and sued the company on the ground that it had breached the articles. Wood’s action succeeded and an injunction was granted preventing the bonds from being issued
Enforcing s.33 of contract
A member (or members) of the company breaches a term of the constitution, another member can sue for breach of contract
Rayfield v Hands (1960)
- The articles provided that any member who wished to sell his shares should first offer them to the directors and the directors would then purchase them.
- Directors refused to purchase shares
- The directors had breached the articles and so Rayfield’s action succeeded. The court ordered that the directors should purchase Rayfield’s shares.
Outsiders and outsider rights case law
Eley v Positive Government Security Life Assurances Co (1876)
- Eley as a solicitor could not sue for breach because, as an outsider, he was not party to the s.33 contract
Members can only enforce the s.33 contract if they bring a claim in their capacity as a member case law
Beattie v E and F Beattie Ltd (1938)
- Company intitiated proceedings
- The dispute was between the company and Mr Beattie in his capacity as a director, not in his capacity as a member.
- Accordingly, the arbitration article could not be enforced and the legal proceedings continued.
Apparent authority
Hely-Hutchinson v Brayhead Ltd (1968)
- Claimant (MD of Hely-Hutchinson) Mr Richards sueing Brayhead for money incurred due to losses following indemnification
- Board of Brayhead claimed chairperson acted without authority
- Court held money to be recovered as Brayheads board acquiesced to decisions made by chairman
Share expropriation case law deemed invalid
Dafen Tinplate Co Ltd v Llanelly Steel Co (1907) Ltd (1920)
Court held article amendment was not bona fide for the benefit of the company and was therefore invalid
Article provisions state shareholder can be forced to sell his shares to specified persons (usually other directors or shareholders)
Implied actual authority case law
Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd (1964)
- Legal relationship between the principle and agent created by a consensual agreement
- Two types of actual authority (express actual authority, implied actual authority)
Share expropriation case law that was approved
Sidebottom v Kershaw Leese Co
- restrictive provision allowing expropriation
- shareholder competed with company
