CASE

TOPIC

SUMMARY

turquand's Royal British rule: doctrine Bank v of Turquand 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. constitutionPositive co's constitution: Eley should be solicitor for life. 11 months later Eley contract to Government became member. Company then ceased to use him, he sued company for only Life Security. breach of articles members Assurance Co Twycross v Grant 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 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.

promoters

Pender v Lushington

powers of voting

promoter fiduciary syndicate of Erlanger, promoters of New Sombrero Phosphate Co bought Erlanger v duty of land for 55000 and sold to compay for 110000. Made disclosure to board New disclosure: but the board wasnt independent: one never attended meetings, two Sombrero disclosure to werent in town, one was puppet for agents, another trustee. Shareholders Phosphate Co independent sued for profit made by Erlanger. board

Kelner v Baxter

preBaxter and two others agreed on behalf of a company yet to be formed to incorporatio purchase trade stock for its business. Later the company was formed and n contracts 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

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 legal business became insolvent and the trade creditors argued that the personality 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. promoter fiduciary A syndicate bought property to sell. They bought it for 140,000 but at duty of discount got for 120,000. They then sold it to the newly formed company, disclosure: of which they had become directors, for 180,000. prospectus disclosed partial 40,000 profit but not 20,000. liquidator claimed the secret profit disclosure not enough

Gluckstein v Barnes

Natal Land & Colonization preCo v Pauline incorporatio Colliery n contracts Syndicate

Distribution Automatic Selfof power Cleansing between Filter mgt vested in directors. GM passed resolution of sale of asset but directors BOD and Syndicate Co refused as they believed it was not in best interest of company GMLtd v majority Cuninghame view

Salmon v Quinn & Axtens Ltd

Distribution of power Axtens and Salmon, who were both appointed directors along with one between other person. The articles permitted either Axtens or Salmon to veto any BOD and board decision. Salmon vetoed a decision,. GM was held and they passed GMsimilar resolutions. majority view

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 then instituted action as a majority shareholder

Hickman v Kent or Romney Marsh Sheep Breeders Assocn

The articles provided that disputes between members and the association constitution be resolved by arbitration. Hickman brought an action against the company in the courts.

Lennard's carrying co v Asiatic Performance co Damler Co Ltd v Continental Tyre and Rubber Co Dadoo v Krugersorp Municipal Council

organic theory

Judicial LTVenemy character

legal personalityproperty

statute prohibited Asiatics from buying land in Transvaal. Two asiatics formed company and bought land to run bs.

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 Macaura v legal his own name as the person insured under the policies issued by the Northern personality- insurance company. A few weeks later the timber was destroyed by fire. M Assurance Co property claimed on the insurance policy. Northern Assurance claimed that the timber belonged to the company and as a consequence it was not properly insured.

Horne left the Gilford Motor Company in order to set up his own Gilford Motor veil of business. When he left he agreed that he would not solicit any of his Co Ltd v incorporatio former employers customers. As a way around this restriction he set up a Horne n company.

Home had been employed by Gilford Motor Company under a contract in judicial LTVwhich he undertook not to compete with the company. He tried to evade Gilford Motor due to fraud the covenant by getting his wife to set up a company. All the shares in the Co v Home or improper company were held by Home's wife and an employee. The new company conduct then carried on business in competition with Home's employer. 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. judicial Lifting the Veilcompany acting as agency

Shaw v Shaw

Re FG Films Ltd

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 was found to

Newborne v preSensolid (GB) incorporatio Ltd 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 Mr Rayfield sued the directors of Field Davis Ltd to buy his shares. Article as contract, 11 of the companys constitution said Every member who intends to fiduciary transfer shares shall inform the directors who will take the said shares duties of equally between them at a fair value. The directors were refusing to follow directors this rule, and Mr Rayfield sought an injunction.

company had 3 members and shareholders. Qourum for meeting: 2. impracticabil directors frustrated applicants effort to call an extraordinary GM by Re El ity of refusing to attend. Applicant gave special notice of intention to move Sombrero Ltd meetings ordinary resolution to remove directors at next extraordinary GM. asked court to call meeting.

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 legal Lee v Lee Air pilot. The company had employer's liability insurance. He was killed in an personalityFarming Ltd accident when flying a company plane on company business and his wife contracts claimed compensation from the company (effectively claiming from the insurers).

Jones v Lipman

judicial LTVLipman agreed to sell house to Jones but later changed his mind. To avoid due to fraud contractual obligations, he made a company in which he was in full or improper control and sold the house to it. Jones sued for specific performance conduct

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 The directors of a company wished to fight a takeover bid. They allotted duty of shares to a company which distributed their products because the directorsdistributors agreed not to accept the takeover bid. A shareholder brought issue of an action claiming that the allotment was invalid, as it was not bona fide in shares with the best interests of the company . improper motive

DHN was a holding company which ran its business through two wholly Judicial LTVDHN Food owned subsidiaries: Bronze Investments Ltd and DHN Food Transport ignoring Distributors v Ltd. Bronze owned the premises from which the business was conducted groups of Tower and Transport ran the business. The Council compulsarily purchased the companies Hamlets land. Compensation could be paid under two heads: (a) the value of the or London land, and (b) disturbance of business. The Council was prepared to pay for subsidiaries Borough the value of the land but refused to pay for disturbance of business and treating Council because neither DHN or DHN Food Transport had any rights of ow them as one nership in the land.

Lategan v Boyes

judicial LTVdue to fraud or improper conduct chairman had casting vote. Shareholders signed resolution in different times and places to remove chairman's casting vote.

Cane v Jones

resolutions

judicial Silverston (pty) Lifting the Ltd & Anor v VeilLobatse Clay corporate Works (pty) personality Ltd must be upheld

Barron v Potter

two directors in company. Qourum:2. however, Barron refused to attend board is meetings, therefore no decisions could be taken. "meeting" held by deadlocked 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 couldnt 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 appointment of a Managing Director of the company

Grant v Switchback Rvs

directors have acted in The companys articles prohibited any director from votingon a excess of transaction in which he was interested; but they entered into a contrac in their powers which all but one were interested. therefore, as it stood, thetransaction was and voidable. However, a general meeting was called, which an ordinary shareholders resolution approving and adopting the transaction, can ratify the transaction

directors have acted in excess of Irvine v Union their powers Bank of and Australia shareholders can ratify the transaction Fiduciary duty of directors

Percival v Wright

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

Fiduciary Duty of where a company entered into acontract to purchase chairs from a Abardeen Rly directors: partnership when, at the time, one of its directors was a partner in the Co v Blaikie when partnership. Conflict of interest as director of Abardeen's duty ws to buy Bros directors chairs at lowest price but his personal interest was to buy chairs at highest contract with price possible from Blaikie Brothers, where he was a partner companies

if director is shareholder in company, North-west he is free to Transportation use shares as v Beatty 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

director should not have conflict of interest Cook v Deeks 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

director Robinson was chairman of co. co asked him to purchase land for the co. should not Robinson v Robinson in his personal capacity, purchased land at 60,000 and then sold have conflict Randfontein it to company at 275,000 and never disclosed his interest. Company sued of interest for secret profit and duty

Peso Silver Mines v Cropper

directors fiduciary duty

Re City Equitable Fire Insurance Co Ltd

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 Diretctors dividends and to loans from the companys funds. He had no reason to duty to Dovey v Cory doubt the balance sheets presented to board meetings nor did he have any exercise care reason to doubt the competence of the general manager. In fact, the and skill dividends were paid out of capital and the loans were made without proper security. 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

Percy v Mills

director Treasure excercises Trove powers for Diamonds Ltd proper v Hyman purposes

Burland v Earle

director and Burland sold land to the company for 60,000 and made profit of 38,000. shareholder He was both a shareholder and Director in company. The contract was duties. Duty voidable but by using his powers as a majority shareholder, he ratified the of majority contract; a minority shareholder sued for secret profit

member's duties: Daten Tinplate expropriatio Co v Hanelly n of other Steel members property

members duties: Gardiner was a director in Emma Silver Mining co. at a GM, a vote was MacDougall v internal mgt requested on a matter and Gardiner ignored this request from the Gardiner principle in shareholder and adjourned the meeting. McDougall went to court against foss v Gardiner, seeking a declaration that Gardiner's conduct was improper harbottle

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

rules Lipchitz No v governing UDC Bank maintanence Ltd of capital

rules Lewis v governing Oneanate Pty maintanence Ltd 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 auditor

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 Co's MD falsifisied acc in many ways including alteration of invoices. Auditor accepted explanation of MD on matter, didnt investigate further. Co paid dividends from capital and went into liquidation. Liquidator sued to recover sum paid as dividends

Re Thomas Gerrard and Sons

auditors duties

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 didnt 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 the property.

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 film. Sham

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 as an employee.

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 entity.

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 take the decision

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 172 company as a whole. Made ultristic decision

the contract could be avoided by the company.

ratification valid

company was entitled to benefit of contract. Majority's 130 attempt to ratify /13 contract was 1 ineffective. Contract invalid for directors

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 fides

Director not 130 negligent. Justified to and put faith in officers 158 of company

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 majority

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 65 results in capital loss alledged wrong had been done to the company and there was nothing to prevent it from suing. The action wasnt maintainable as it wasnt 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 by the transaction

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 co.

not auditor's duty to take stock.justified in relying on honesty and accuracy of MD

auditor negligent. Exhaustive enquiry

PROMOTERS

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
FIDUCIARY DUTY OF DISCLOSURE

meaning of promoter

Erlanger v New Sombrero Phosphate Co

syndicate of Erlanger, promoters of New Sombrero Phosphate Co promoter bought land for 55000 and sold to fiduciary duty of compay for 110000. Made contract rescinded disclosure: disclosure to board but the board and disclosure to disclosure to wasnt independent: one never independent board independent attended meetings, two werent in board town, one was puppet for agents, another trustee. Shareholders sued for profit made by Erlanger.

A syndicate bought property to sell. They bought it for 140,000 promoter but at discount got for 120,000. fiduciary duty of They then sold it to the newly liquidator claim's Gluckstein v disclosure: formed company, of which they held: full Barnes partial had become directors, for disclosure disclosure not 180,000. prospectus disclosed enough 40,000 profit but not 20,000. liquidator claimed the secret profit
PRE INCORPORATION CONTRACTS

Kelner v Baxter

preincorporation contracts

The company was not liable as it could not ratify a Baxter and two others agreed on pre incorporation behalf of a company yet to be contract with formed to purchase trade stock retrospective for its business. Later the effect to a date company was formed and before the accepted and used the trade company existed. stock, but failed to pay for the Baxter and friends stock. were therefore unable to recover their money

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