Question:
Discuss About The Positive Government Security Life Assurance?
Issue: on the basis of the facts that have been provided in this question, the issues that have to be resolved include the question if the contract created by Mary with Canberra Van Rentals & Sales Pty Ltd. regarding the purchase of three armored vans. Similarly, Heritage Pty Ltd also wants to know if it can recover the value of the diamonds that No Worries Storage Pty Ltd. have given to Mary before she left the company and disappeared.
Rule: it is important for the directors of corporations that they should be aware of the risk that in some cases, the company may incur liability even without the knowledge or consent of these directors. There are certain provisions present in the Corporations Act, 2001 (Cth) in this regard. These provisions allow the persons having dealings with a corporation to rely on a particular document in such government appears to be executed duly even if in reality, it was not. In this regard, the decision given in Australia and New Zealand Banking Group Ltd v Frenmast Pty Ltd (2013) by the Court of Appeal is very significant. In this case, the court had considered the relevant provisions of the Corporations Act and arrived at the conclusion that the bank can be allowed to rely on a guarantee even when the signatures of one of the director’s on the guarantee document had been forged.
In practice, a company generally enters into a contract with outsiders through an agent who is acting on behalf of of the corporation. A contract can be described as being binding on the corporation gave such a contract has been created by an agent who has the authority provided by the company. But such a situation sometimes results in problems for the outsiders who want to enter into a contract with the corporation through the agent of audit company. In many cases, the company tries to deny the authority of the agent as it wants to stay, contract later on. As a result, it is important that the outsiders feel certain that the agent creating the contract has actual or ostensible authority to bind the company regarding the transaction. It is said that actual authority has been provided to the agent when a consensual agreement or a contract is present. The actual authority of the agent may arise as a result of the internal governance rule present in the Corporations Act, the internal governance rule that may be mentioned in the Constitution of the company or any authority that is the result of the consent given on behalf of the company, for example by the board of directors, that has the actual authority to give such consent. Details may be provided express or implied, actual authority to act on behalf of the company.
At the same time, the law also protects the outsiders. In order to balance competing policy issues. In this regard is that of competing issues that need to be balanced. First is the promotion of business convenience that would otherwise be endangered if the persons, who are dealing with the corporation, were required to investigate the internal proceedings of the corporation in order to satisfy themselves that the agent has the actual authority and regarding the validity of instruments. The second interest is related, protecting the innocent shareholders of the company as well as its creditors.
The common law, indoor management rule needs to be explained at this point. Under the common law, when an outsider enters into a contract with an agent who is purported to be acting on behalf of the company, but whose lacks the relevant authority, the contract was voidable at the option of the company. However it was felt to be a very hard outcome for the outsiders (particularly the creditors) , who were dealing with the corporation in good faith and that they had no means to certify if all internal approvals have been taken and the requirements satisfied. In order to deal with this,, latte mugs with the Indoor Management Rule. This rule was provided in Royal British bank v Turquand (1856).
This rule provides that when a board of directors offer corporations wants to provide actual authority to an agent, there are certain procedural conditions that need to be satisfied. In case these conditions are strictly applied, they may require that (i) the directors should be appointed properly; (ii) there should be a properly convened meeting of the board; (iii) the members of the board should be informed properly; and (iv) : should be present before anything has been decided by the directors. However, the issue arises how a bona fide outsider can be expected to establish all these requirements and any other conditions. Therefore the indoor management rule provides that when an outsider is dealing with a company in good faith, and when the outsider does not have any notice or reasonable grounds to suspect the presence of any impropriety or irregularity, is not impacted by the presence of any such actual impropriety or irregularity regarding the internal management of the company. This means that the outsiders are not with what to check if all necessary internal action was taken and they can assume that all the necessary internal steps have been taken.
In the present case, Mary was a director of Heritage. It was mentioned in the constitution of the company that before entering into a contract for more than $50,000, the prior approval of the board will be required. However, going against these instructions, Mary decides to enter into a contract with Canberra Van Rentals & Sales Pty Ltd. for purchasing three armored vans at a price of $100,000 each. Now Mary had disappeared and Heritage wants to know if it is bound by the contract, particularly in view of the fact that any contract over $50,000 required the approval of the board. Although the Indoor Management Rule that has been incorporated in section 129, Corporations Act allows the outsiders to assume that all the internal regulations are fulfilled. If properly appointed agent is going to enter into transaction on behalf of the company. But in the present case, the manager of Canberra Van Rentals & Sales Pty Ltd., Mike has a suspicion if Mary would have been allowed by the company to place such a big order. In his hurry to get a bonus for the sale, Roger decides to enter into the contract anyway, without making further inquiries regarding the authority of Mary.
As a result, the protection provided to the outsiders by section 129 is not available in this case. As a result, Heritage can avoid this contract on the basis of the fact that Canberra Van Rentals & Sales Pty Ltd. had entered into the contract under suspicious circumstances in which it may further inquiries regarding the authority of Mary.
Regarding the contract created with No Worries Storage Pty Ltd, when Mary had watched the signatures of Peter and withdrawn the stock of diamonds, the law provides that the outsider may rely on forged signatures even if the signatures of one of the director have been forged (Australia and New Zealand Banking Group Ltd v Frenmast Pty Ltd., 2013). Therefore, Heritage Pty Ltd may not be able to recover the value of diamonds from No Worries Storage Pty Ltd.
Issue: The facts that have been presented in this question result in two issues. According to the first issue, it needs to be seen if Peter Jones can enforce a particular provision of the Constitution of sparkles limited period has been mentioned that a contract for three years of supply of stationary has been given for the company. But Peter finds that the company has decided later on to purchase all its stationery from Office Pax Ltd. The next issue that is present in this question is related with the rights and remedies that may be provided Peter as a minority shareholder of Sparkles Ltd. The director of the Corporation is going to sell a rare sapphire to his nephew for a price of $5000 when its real value is around $100,000. The company is not willing to take any action against the director.
Rule: in context of the first issue mentioned above, it has been provided by s140(1)(c), Corporations Act that effect of the Constitution of the Corporation can be described as contract formed between the corporation and its members. Hence, the provisions that have been mentioned in the Constitution are binding for the company and for its members to the same extent as if they were the covenants. Therefore, it can be said that the company’s Constitution amounts to a contract that is formed between the corporation and its members as well as members inter-se. The facts of Eley v Positive Government Security Life Assurance Co Ltd (1876) can be used to give an example of this situation. In this case, the articles of the company provided that Mr. Eley will continue to act as the solicitor of the company throughout his life. After some time, he also became a member of the company. Then the other directors decided that some other person needs to be appointed as the solicitor. As a result, Eley initiated action against the company for breach of contract, claiming the terms of the article. But while deciding the case, the court was of the opinion that these provisions cannot be imposed by Eley. The reasoning of the court was that he wanted to enforce its rights in his position as the solicitor of the Corporation and not as its member. The court had reiterated this position in Browne v La Trinidad (1887) also.
In case of deciding issue mentioned above, Peter Jones can be said to be facing minority oppression. He has only 5% shares in the company. The majority members of the company have decided to sell a rare sapphire for $5000 when the real price of the stone was around $100,000. The company is not ready to take any action against the director. Hence, it is clear that Peter Jones is a victim of minority oppression. Several remedies have been provided by the law to minority shareholders when the majority is misusing its position in the company or uninvolved in breach of their duties. The oppression remedy has been mentioned in Part 2 F, Corporations Act. It provides considerable safeguards regarding the rights of minority shareholders. According to section 234, the persons who can apply for an order under s232 have been mentioned. These persons include a shareholder of the Corporation. S232 provides that make grant relief to the applications it. It is of the opinion that the affairs of the company are being conducted in such a way or there is any proposed the formation of the resolution that can be considered the contrary to the shareholders interests as a whole are then it can be described as oppressive, discriminatory or prejudicial against a particular shareholder or shareholders.
Application: in this case, it cannot be claimed by Peter Jones that the decisions of directors that sparkles Ltd. will purchase all its stationery from Office Pax Ltd can be treated as oppressive conduct. Similarly, Peter cannot enforce a term of the Constitution of the company got into which it has been mentioned that a three-year contract regarding the supply of stationery will be given Peter. This contract cannot be enforced by Peter. On the other hand, the issue related with the decision to sell a rare sapphire to the nephew of the director for $5000 only when the real value of the stone was nearly $100,000, the conduct can be described as oppressive. Moreover, the director is also thinking of selling a Ruby to his niece for $8000 when the real price of the Ruby was nearly $40,000. This director has 65,000 shares in Sparkles Ltd.. The company secretary of partners Ltd. also refuses to take any action in this regard. Hence, this decision can be considered as against the interests of the shareholders of the Corporation. Similarly the conduct can also be described as oppressive, discriminatory and, prejudicial. Consequently, the remedies that have been provided to the minority shareholders who have the face minority oppression are also available to Peter Jones.
Conclusion:
In this case, Peter Jones can see the remedies for minority oppression provided by the Corporations Act, but he cannot enforce the terms of the Constitution of Sparkles Ltd. according to which a three years contract should be given to him.
References
Australia and New Zealand Banking Group Ltd v Frenmast Pty Ltd [2013] NSWCA 459
Browne v. La Trinidad, Management 37 Ch D 1 (CA)
Eley v Positive Government Security Life Assurance Co Ltd (1876) 1 Ex D 88
Royal British Bank v Turquand (1856) 6 E&B 327
Legislation
Corporations Act, Business-law
Section 140(1)(c), Corporations Act, 2001 (Cth)
Section 129 Corporations Act, 2001 (Cth)
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