Topic 5: Companies, outsiders and corporate liability
Company:
• Separate legal entity with powers and legal capacity of a natural person
• Legally separate from its members (shareholders) and operators
• However company can only act through actions of its owners and agents
How company acts is viewed in two ways:
Organic theory:
Company can act directly by itself through its ‘organs’:
• Members general meeting
• Board of directors
• Managing director
• Company secretary Agency theory:
• Company is principal
• Has agents to act on its behalf
• Company acts indirectly
Binding contract
-Company can enter contract directly or indirectly
Contract entered directly is binding by and against the company if:
• It is in writing and signed by officers of the company who have ‘formal authority’
• It is signed by company officers or agents who have ‘substantive authority’
to enter contract as the company itself
• Formal authority (e.g. documents signed by authorised user)
Substantive authority of an agent – s126
Authority of company’s officers or agents indirectly in making contracts may arise in several ways:
• Express actual authority: oral or written express authority given to agent by company
• Implied actual authority: Company has implied agent has authority through:
-Position of the agent
-Acquiescence: company allows a person who has not been appointed as an officer or agent to act in that capacity over a period of time and
communicates its consent in some way – Hely-Hutchinson v Brayhead Ltd (1967)
• Apparent authority: company has represented agent has authority, even though company has not given express or implied actual authority:
1. Representation is made (e.g. corporate letterhead)
2. Representation made by person with actual authority 3. Third party relies on that representation
4. Company has capacity to enter the contract
Indoor management rule – s125
Third parties dealing with a corporation, acting in good faith and without knowledge of any irregularity, are entitled to assume that a corporation’s internal policies and proceedings have been followed and complied with
Royal British Bank v Turquand (1986)
• Turquand had in its constitution stating company could only borrow money if approved by shareholders
• Loan contract entered by Turquand and Royal British Bank however not approved by shareholders
• HELD: Loan contract is still binding as Royal British Bank was entitled to assume Turquand internal processes had been carried out.
Exceptions to indoor management rule s128(4):
• Outside party has actual knowledge of an irregularity
• Outside party fails to make the enquiries that would usually be made by someone in their position
• A reasonable person in the outside party’s position would have been put on inquiry about a possible irregularity and be prompted to adequately
investigate
S129(1)
The company constitution and replaceable rules have been complied with
S129(2)
A person listed as a director or company secretary on ASIC’s records has been duly appointed and has authority to exercise the powers of their position
S129(3)
A person held out by the company to be an agent or officer of the company has been duly appointed and has authority to exercise the powers of their position
S129(4)
Officers and agents properly perform their duties to the company
S129(5)
A document that appears to have been signed in accordance with s127(1) has been duly executed
S129(6)
A document that appears to have been fixed with the company seal in accordance with s127(2) and properly witness has been duly executed
S129(7)
An officer or agent with authority to issue a document (or certified copy) also has authority to warrant the document is genuine
S129(8)
The statutory assumptions can be made simultaneously
Statutory assumptions by outsiders in dealings with the company s128
Liability in tort and in crime
• Company has primary liability for a tort or crime that the company itself has committed
• A tort is a harmful act other than a breach of contract that gives the victim the right to sue for compensation. Examples include trespass, negligence, defamation
• A crime is a harmful act or omission that leads to the state commencing criminal proceedings and seeking to have the offender punished.
Companies are liable to crime in same way as individuals and can be fined or deregistered of guilty. Examples include breaches of OHS regulations, human rights, and damage to natural environment.
Primary Liability
• For when a tort or crime is committed by the company itself
• If directors/members/shareholders act within rules of company, they act as company itself
Lennard’s Carrying Co Ltd v Asiatic Petroleum Co Ltd (1915) AC 705
• Mr Lennard was active director of Lennard’s Carry Co who owned a ship
• They carried oil owned by Asiatic Petroleum
• Ship was unseaworthy and sank
• HELD: Company was liable, not the owner of the shop. As long as directors/shareholders act within rules of the company, they act as the company itself.
Vicarious liability
• Makes company responsible for acts of its employees and agents Hollis v Vabu Pty Ltd (2001) HCA 44
• Vabu Pty Ltd carried on bicycle courier business
• Hollis was injured when bicycle courier collided into him’
• HELD: Hollis was awarded damages. Bicycle couriers were employees of company and not independent contractors. They were also acting within scope of their employment but was acting negligently.
Strict liability
• Offences where fault does not have to be proved. P 130 for examples.
Topic 6: Membership, member’s powers and dividends
Members:
• Owners of the company
• Usually invest in a company in order to receive income through dividends, and capital growth through increasing share price
• In a company limited by shares, members are shareholders
• Members are not entitled to interfere in management decisions Members rights:
• Voting on resolutions at members meetings
• Calling members meetings and proposing resolutions at meetings in limited circumstances
• Receiving distributions from company
• Certain limited rights to receive information about the company
• Right to commence derivative and oppression actions
• Any additional rights provided by company constitution Becoming a member
• Any individual or entity can become a member upon registration if specified in the application for registration
Register of members
• Company must also maintain a register of members
• A company or person has the right to apply to the court to have errors in a share register corrected for amount unpaid on shares, amount of share owned, and whether shares have been transferred
• Register of members must be kept at: (s172) -The company’s registered office
-Company’s principal place of business within the jurisdiction
-A place within the jurisdiction where work maintaining the register is done -Another place in the jurisdiction approved by ASIC
• Company must allow anyone to inspect register of members (s173(1)), but information it contains cannot be used to contact members unless:
-it is relevant to the holding of the interest recorded in the register -contact is approved by company (s171(1) and 171(1A))
IMF (Australia) Ltd v Sons of Gwalia Ltd (2005) 222 ALR 109
• Litigation arose from the purchase of shares and not ‘holding of shares’
• It is not relevant to the holding
• HELD: IMF was not entitled to use the register to contract the shareholders.
Re Clifton Springs Hotel Ltd (1939) VLR 27
• Register of members is proof of the matters shown within it s127
