CASE TOPIC SUMMARY Royal British Bank v Turquand turquand's rule: doctrine of constructive notice Ashbury Railway & Iron Co v Riche
constitution The objects were to make and sell railway carriages. The directors made an ultra vires contract to build a railway.
Eley v. Positive Government Life Security. Assurance Co constitution- contract to only members
co's constitution: Eley should be solicitor for life. 11 months later Eley became member. Company then ceased to use him, he sued company for
breach of articles
Twycross v
Grant promoters
one who undertakes to form a company with reference to a given project and to set it going, and who undertakes the necessary steps to accomplish
that purpose Pender v
Lushington
powers of voting
Mr John Pender had bought 1000 shares. Company allowed one vote per ten shares and not more than 100 shares. Mr Pender had split his votes and registered the holders under the names of a number of nominees, and
passed a resolution. Chairman refused to count votes.
Erlanger v New Sombrero Phosphate Co promoter fiduciary duty of disclosure: disclosure to independent board
syndicate of Erlanger, promoters of New Sombrero Phosphate Co bought land for 55000 and sold to compay for 110000. Made disclosure to board
but the board wasn’t independent: one never attended meetings, two werent in town, one was puppet for agents, another trustee. Shareholders
Kelner v Baxter
pre-incorporatio
n contracts
Baxter and two others agreed on behalf of a company yet to be formed to purchase trade stock for its business. Later the company was formed and
accepted and used the trade stock, but failed to pay for the stock.
Wood v Odessa Waterworks
Co
constitution
The company declared a dividend and passed a resolution to pay it by giving their shareholders debenture bonds bearing interest. The articles
provided that the company declare a dividend to be "paid in cash"
Salomon v Salomon
legal personality
S transferred to his own company the business of making boots and shoes. The company bought the business for ™39,000 and issued shares and a
debenture for £10,000 secured by a floating charge on the assets. The business became insolvent and the trade creditors argued that the company and Salomon were one and the same. As a consequence, they
claimed, his debenture was void since a man cannot be a creditor of himself. Gluckstein v Barnes promoter fiduciary duty of disclosure: partial disclosure not enough
A syndicate bought property to sell. They bought it for £140,000 but at discount got for 120,000. They then sold it to the newly formed company,
of which they had become directors, for £180,000. prospectus disclosed 40,000 profit but not 20,000. liquidator claimed the secret profit
Natal Land & Colonization Co v Pauline Colliery Syndicate pre-incorporatio n contracts Automatic Self-Cleansing Filter Syndicate Co Ltd v Cuninghame Distribution of power between BOD and GM- majority view
mgt vested in directors. GM passed resolution of sale of asset but directors refused as they believed it was not in best interest of company
Salmon v Quinn & Axtens Ltd Distribution of power between BOD and GM- majority view
Axtens and Salmon, who were both appointed directors along with one other person. The articles permitted either Axtens or Salmon to veto any board decision. Salmon vetoed a decision,. GM was held and they passed
similar resolutions. Marshall's Valve Gear Co v Manning minority view
marshall was major shareholder of company he had formed to exploit patent of his invention.alledged that patent was being infringed by Manning. Marshall wanted to bring order against him but the directors outvoted him because they had an interest in Manning's company. mashall
Hickman v Kent or Romney Marsh Sheep Breeders Assocn constitution
The articles provided that disputes between members and the association be resolved by arbitration. Hickman brought an action against the
company in the courts.
Lennard's carrying co v Asiatic Performance co organic theory Damler Co Ltd v Continental Tyre and Rubber Co Judicial LTV- enemy character Dadoo v Krugersorp Municipal Council legal personality- property
statute prohibited Asiatics from buying land in Transvaal. Two asiatics formed company and bought land to run bs.
Macaura v Northern Assurance Co legal personality- property
M was a landowner who sold timber from his estate to a company of which he was the sole owner. he insured the timber that lay on his land in
his own name as the person insured under the policies issued by the insurance company. A few weeks later the timber was destroyed by fire. M
claimed on the insurance policy. Northern Assurance claimed that the timber belonged to the company and as a consequence it was not properly
Gilford Motor Co Ltd v Horne veil of incorporatio n
Horne left the Gilford Motor Company in order to set up his own business. When he left he agreed that he would not solicit any of his former employers customers. As a way around this restriction he set up a
company. Gilford Motor Co v Home judicial LTV- due to fraud or improper conduct
Home had been employed by Gilford Motor Company under a contract in which he undertook not to compete with the company. He tried to evade the covenant by getting his wife to set up a company. All the shares in the company were held by Home's wife and an employee. The new company
then carried on business in competition with Home's employer.
Shaw v Shaw
Peter, John and Percy Shaw had a company together. settlement for management of co: hand over financial affairs to 'independant directors'.The independent directors resolved to bring a claim against them. Just before the hearing, an extraordinary general meeting was called,
where as the majority shareholders Peter and John procured a resolution to discontinue the litigation. The company, and Percy, contended the
resolution was ineffective.
Re FG Films Ltd judicial Lifting the Veil- company acting as agency
American company wanted to register a film as British to avoid taxes. Set up company in Britain to prove it was made in Uk. No property or staff
Newborne v Sensolid (GB) Ltd pre-incorporatio n contracts
Tinned ham was sold to Sensolid under a contract headed "Leopold Newborne (London) Ltd" and ending "Yours faithfully, Leopold Newborne (London) Ltd" and signed by Leopold Newborne. Sensolid
refused to take delivery of the ham.
Rayfield v Hands constitution as contract, fiduciary duties of directors
Mr Rayfield sued the directors of Field Davis Ltd to buy his shares. Article 11 of the company’s constitution said ‘Every member who intends to transfer shares shall inform the directors who will take the said shares equally between them at a fair value.’ The directors were refusing to follow
this rule, and Mr Rayfield sought an injunction.
Re El Sombrero Ltd
impracticabil ity of meetings
company had 3 members and shareholders. Qourum for meeting: 2. directors frustrated applicants effort to call an extraordinary GM by refusing to attend. Applicant gave special notice of intention to move ordinary resolution to remove directors at next extraordinary GM. asked
court to call meeting.
Lee v Lee Air Farming Ltd
legal personality-
contracts
The husband of the plaintiff was the controlling shareholder and director of a company formed by him. He was also employed by the company as a pilot. The company had employer's liability insurance. He was killed in an accident when flying a company plane on company business and his wife
claimed compensation from the company (effectively claiming from the insurers).
Jones v Lipman judicial LTV- due to fraud or improper conduct
Lipman agreed to sell house to Jones but later changed his mind. To avoid contractual obligations, he made a company in which he was in full control and sold the house to it. Jones sued for specific performance
Hogg v Cramphorn Ltd directors fiduciary duty
directors issued shares to gain voting power to avoid a take over
Re Duomatic resolutions
company had 2 shareholders that were directors. Articles provided that remuneration would be fixed in a GM that was never held. Directors approved co acc by signing them in a meeting with co's auditors and then
drew certain sums as remuneration. liquidator sued sums as unathorized withdrawals Bamford v Bamford Shares: Fiduciary duty of directors- issue of shares with improper motive
The directors of a company wished to fight a takeover bid. They allotted shares to a company which distributed their products because the distributors agreed not to accept the takeover bid. A shareholder brought an action claiming that the allotment was invalid, as it was not bona fide in
the best interests of the company .
DHN Food Distributors v Tower Hamlets London Borough Council Judicial LTV- ignoring groups of companies or subsidiaries and treating them as one
DHN was a holding company which ran its business through two wholly owned subsidiaries: Bronze Investments Ltd and DHN Food Transport Ltd. Bronze owned the premises from which the business was conducted
and Transport ran the business. The Council compulsarily purchased the land. Compensation could be paid under two heads: (a) the value of the land, and (b) disturbance of business. The Council was prepared to pay for
the value of the land but refused to pay for disturbance of business because neither DHN or DHN Food Transport had any rights of ow
Lategan v Boyes judicial LTV- due to fraud or improper conduct
Cane v Jones resolutions chairman had casting vote. Shareholders signed resolution in different times and places to remove chairman's casting vote.
Silverston (pty) Ltd & Anor v Lobatse Clay Works (pty) Ltd judicial Lifting the Veil- corporate personality must be upheld Barron v Potter board is deadlocked
two directors in company. Qourum:2. however, Barron refused to attend meetings, therefore no decisions could be taken. "meeting" held by defendant at railway station where plaintiff ignored him. Potter casted vote
for appointment of two directors.
Alexander Ward v Samyang Navigation board is deadlocked
company's shareholders sued to recover money owed to company. Action was brought on behalf of company. The defendant claimed that the
shareholders sued and not the co's directors.
Foster v Foster
board is ineffective
company had 3 directors, qourum: 2. however, a director couldn’t vote on matters of his interest. 2 directors had an interest in matter brought to them and therefore the board was deemed ineffective. The matter was of
Grant v Switchback Rvs directors have acted in excess of their powers and shareholders can ratify the
transaction
The company’s articles prohibited any director from votingon a transaction in which he was interested; but they entered into a contrac in which all but one were interested. therefore, as it stood, thetransaction was
voidable. However, a general meeting was called, which an ordinary resolution approving and adopting the transaction,
Irvine v Union Bank of Australia directors have acted in excess of their powers and shareholders can ratify the
transaction Percival v Wright Fiduciary duty of directors Re W & M Roith Ltd Fiduciary duty of directors: act bonafides
directors altered company' constitiution to pay widow of worker the pension of a retired employee
Abardeen Rly Co v Blaikie Bros Fiduciary Duty of directors: when directors contract with companies
where a company entered into acontract to purchase chairs from a partnership when, at the time, one of its directors was a partner in the partnership. Conflict of interest as director of Abardeen's duty ws to buy chairs at lowest price but his personal interest was to buy chairs at highest
North-west Transportation v Beatty if director is shareholder in company, he is free to use shares as shareholder and vote to ratify contract
director (Beatty) sold steamer to N.W transportation. Then he used his votes as a majority shareholder to ratify the contract in the GM. One
shareholder challenged the ratification
Cook v Deeks director should not have conflict of interest and duty/ majority to use power bona fides
The Toronto Construction Co had four directors. It helped in construction of railways in Canada. The first three directors wanted to exclude Mr Cook from the business. Each held a quarter of the company's shares. Deeks, Deeks and Hinds took a contract with the Canadian Pacific
Railway Company (for building a line at the Guelph Junction and Hamilton branch) in their own names. They then passed a shareholder resolution declaring that the company had no interest in the contract. Mr
Cook claimed that the contract did belong to the Toronto Construction Co and the shareholder resolution ratifying their actions should not be valid because the three directors used their votes to carry it. cook excluded
from voting Robinson v Randfontein director should not have conflict of interest and duty
Robinson was chairman of co. co asked him to purchase land for the co. Robinson in his personal capacity, purchased land at 60,000 and then sold
it to company at 275,000 and never disclosed his interest. Company sued for secret profit
Peso Silver Mines v Cropper directors fiduciary duty Re City Equitable Fire Insurance Co Ltd
Dovey v Cory
Diretctors duty to exercise care
and skill
where a director relied on the judgment and advice of the chairman and general manager of the company when he assented to the payment of dividends and to loans from the company’s funds. He had no reason to doubt the balance sheets presented to board meetings nor did he have any
reason to doubt the competence of the general manager. In fact, the dividends were paid out of capital and the loans were made without
proper security. Percy v Mills director excercises powers for proper purposes Treasure Trove Diamonds Ltd v Hyman director excercises powers for proper purposes
Directors of company issued shares to an Investment Corporation. Shareholders were informed that the shares were deferred in matter of dividends but not voting powers. They were interested in the Investment Corporation as one of co's directors was chairman and other secretary of IC. company was not in need of extra capital. purpose of scheme: gain
control of company Burland v Earle director and shareholder duties. Duty of majority
Burland sold land to the company for 60,000 and made profit of 38,000. He was both a shareholder and Director in company. The contract was voidable but by using his powers as a majority shareholder, he ratified the
contract; a minority shareholder sued for secret profit
Daten Tinplate Co v Hanelly Steel member's duties: expropriatio n of other members property
MacDougall v Gardiner members duties: internal mgt principle in foss v harbottle
Gardiner was a director in Emma Silver Mining co. at a GM, a vote was requested on a matter and Gardiner ignored this request from the shareholder and adjourned the meeting. McDougall went to court against
Gardiner, seeking a declaration that Gardiner's conduct was improper
Trevor v Withworth rules governing maintanence of capital Foss v Harbottle member's duties:
harbottle, director, sold land to the company, Victoria Park Company. Foss was a shareholder in the company and sued the director to compel them to make good the loss sustained on transaction on grounds that the
directors had paid themselves a price in the land
Lipchitz No v UDC Bank Ltd rules governing maintanence of capital
Lewis v Oneanate Pty Ltd rules governing maintanence of capital Re Exchange Banking Co (Fletcrofts case) dividends may not be paid out of capital
director presented in GM reports that misrepresented the financial affairs of the co. f/ss showed apparent profit when there was no real proft.
Shareholders relied on the fss and passed a resolution approving a dividend. Liquidator demanded director repay amount of dividends paid
out of capital Tomkwane Sawmill Co Ltd v Filmater auditors duties Re London & General Bank auditors duties
appalent auditor of Bank. Co made out certain loans and some were realisable. When preparing balance sheet, auditor entered loans as assets when he was aware of their status, stated in opinion: value of assets in bs dependant on realization. Based on this, shareholders declared dividends which were paid out of capital,. co went into liquidation, liquidator sued
Re Kingston Cotton Mill
auditors duties
co's MD falsified co's acc. He wanted the affairs to appear better than they actually were. Deliberately overstated the value of stock. Auditor adopted entries made by MD and inserted them in Bs. If auditor had done further investigation, would have realized falsification. nothing on face of acc,
auditor acted honestly. based on BS, shareholders declared dividends which was paid out of capital. capital went into liquidation and liquidator
sued auditor for breach of duty Re Thomas
Gerrard and Sons
auditors duties
Co's MD falsifisied acc in many ways including alteration of invoices. Auditor accepted explanation of MD on matter, didn’t investigate further. Co paid dividends from capital and went into liquidation. Liquidator sued
HELD people transacting with companies are
entitled to assume that internal company rules are complied with, even if they are not. Check
only published company doc: constitution and special resolutions Contract could not
be valid even if it were subsequently approved by the shareholders in general meeting he sued in capacity of
solicitor not member so the constitution as a contract was not binding on company
meaning of promoter company member's right to vote may not
be interfered with, because it is a right of property contract rescinded and disclosure to independent board
The company was not liable as it could
not ratify a pre incorporation
contract with retrospective effect to a date before the company existed. Baxter and friends
were therefore unable to recover
their money The words meant paid in cash and in
consequence a shareholder could restrain the company
from acting ultra vires
It is possible for the sole owner of a company to assert rights against it as a
secured creditor, because the company
is a separate legal person distinct from
its members.
liquidator claim's held
common law: company cant by adoption or ratification obtain benefit of contract purporting to have been made on its
behalf before incorporation
based on construction of the
articles that unless directions were given
through special resolution, then it was impossible for a
mere majority to override the views of
the directors Salmon as a member
had the right to enforce the provisions of the
articles and to prevent the company
acting unconstitutionally - he sued as a member,
not as a director
majority shareholder had right to bring action as company had been formed to exploit the company
association were entitled to have the action stayed as the articles constituted a
contract between Hickman and the association in respect
of their rights as members. faults of MD of company were faults
of company LTV as German company had no locus standi in Uk
courts since company had
separate legal personality, legislation didn’t prohibit Asiatic co
from owning land The timber belonged
to the company and not to M. As a result his claim failed as he
did not have an insurable interest in
Horne left the Gilford Motor Company in order to
set up his own business. When he left he agreed that he would not solicit any
of his former employers customers.
As a way around this restriction he set up a company. Home's company barred from competing with Gilford Motors. Home's device a mere device to help
Home breach contract.
shareholder resolution invalid. Cant usurp powers
British company came into existance
deliberately for the purpose of making the American film pass for a British
Neither the then unincorporated company nor Mr Newborne personally
could sue on the contract. as the company was not in
existence when the contract was signed there never was a
contract, and Mr Newborne cannot come forward and sav: "Well, it was mv
contract."
granted the injunction and held
the article imposed an obligation on the
directors directors in breach of
statutory duty by not holding GM
Lee and the company had separate legal personalities and the
deceased could, as director, enter into a contract on behalf of
the company between the company and himself
company was sham, mere mask formed
for defendant to avoid contractual
obligations new shares issued are invalid. Shares should
only be issued to raise capital sums authorized.
Directors were shareholders and had
informally and unanimously agreed
to payments The allotment of shares was valid. It was an improper use
of the directors' powers, but was not ultra vires, therefore the members could ratify the directors' actions by ordinary resolution in general
meeting. Lord Denning pierced the veil of incorporation to treat
DHN as the owners of the land, which
entitled them to payment of compensation. He felt that the group of
companies was a single economic
LTV when fraudulent use is made of corporate legal personality resolution valid as it was an unanimous agreement LTV done to fix liability elsewhere for
what are obsensibly acts of the company.
LTV done when elements of fraud,
dishonesty or improper conduct are
available in co affairs there was no meeting. Since directors were deadlocked, shareholders could
take the decision since the company had no directors at that time, it was
proper for shareholders at the GM to sue to recover
the debts of the company that were
indirectly owed to them.
since only 1 director was left to vote, the shareholders could
ratification valid
company in GM could ratify the directors borrowing in excess of the limit
in the company's articles. directors owe their fiduciary duties not to shareholders individually but collectively 130 (5) BOD was shortsighted and werent acting for the
best interests of the company as a whole.
Made ultristic decision
172
the contract could be avoided by the
ratification valid
company was entitled to benefit of contract. Majority's
attempt to ratify contract was ineffective. Contract
invalid for directors 130 /13 1
director's interest conflicts with duty.
Compnay can recover secret profit.
Director violated fiduicary duty of
disclosure A director can take
over a corporate opportunity that has
reasonably been considered and
rejected by the company in bona
Director not negligent. Justified to
put faith in officers of company 130 and 158 breach of directors’ fiduciary duties to make allotments of shares to maintain control of the company company or to defeat the wishes of an existing majority of shareholders Burland, in his capacity as majority shareholder, had right to vote
such a power on the part of the majority
to expropriate the shares of any member at the majorities will or pleasure was not for
the benefit of the company as a whole but tailored to be of the benefit of the
if the wrong complained of what
was in respect of something which the
majority of the co was entitled to do or
if the thing complained could be
regularized by a majority view, then there will be no point
in litigating about it.
co cant purchase own shares since that
results in capital loss 65
alledged wrong had been done to the company and there
was nothing to prevent it from suing.
The action wasn’t maintainable as it wasn’t brought forward by the company itself a co which has given
financial assistance out of profit for purpose of purchase
of own shares becomes poorer and is adversely affected
rationale for not giving fin assistance in purchase of shares:
protection of creditors of co who have right to look to paid up capital of co as fund from which
debts will be paid directors were held
liable to pay. They had breached fiduciary duty of care
and skill If auditor fails to audit the co's books in required manner, the co may sue for breach of contract and recover damages
for any losses incurred auditor has duty ot
be honest. Must certify what he believes is true and must take reasonable
care and skill before he what believes that
what he certifies is true. Auditor failed to discharge duty, liable to reimburse
not auditor's duty to take stock.justified in relying on honesty and accuracy of MD auditor negligent. Exhaustive enquiry
Twycross v
Grant promoters
one who undertakes to form a company with reference to a given project and to set it going, and who undertakes the necessary
steps to accomplish that purpose
meaning of promoter Erlanger v New Sombrero Phosphate Co promoter fiduciary duty of disclosure: disclosure to independent board
syndicate of Erlanger, promoters of New Sombrero Phosphate Co bought land for 55000 and sold to
compay for 110000. Made disclosure to board but the board
wasn’t independent: one never attended meetings, two werent in town, one was puppet for agents,
another trustee. Shareholders sued for profit made by Erlanger.
contract rescinded and disclosure to independent board Gluckstein v Barnes promoter fiduciary duty of disclosure: partial disclosure not enough
A syndicate bought property to sell. They bought it for £140,000
but at discount got for 120,000. They then sold it to the newly formed company, of which they
had become directors, for £180,000. prospectus disclosed
40,000 profit but not 20,000. liquidator claimed the secret
profit
liquidator claim's held: full disclosure FIDUCIARY DUTY OF DISCLOSURE
PROMOTERS
Kelner v Baxter
pre-incorporation
contracts
Baxter and two others agreed on behalf of a company yet to be formed to purchase trade stock
for its business. Later the company was formed and accepted and used the trade stock, but failed to pay for the
stock.
The company was not liable as it could not ratify a pre incorporation contract with retrospective effect to a date before the company existed. Baxter and friends
were therefore unable to recover
their money
