Company Law — Lecture 22 Corporate liability under defective contracts for civil wrongs (eg negligence) for crimes Commercial Applications of Company Law in New Zealand - Edition 4: Teacher's Guide

Enforcing defective contracts Where a company denies it is bound by a contract due to some lack of authority or defect in procedures Policy issue — need to balance the competing interests of outsiders dealing with companies, and innocent shareholders and creditors of companies

Where defective contract is made through an agent Lecture 22 Where defective contract is made through an agent Situation — purported agent either has no express actual authority, or has express actual authority that is too narrow for this contract What can an outsider do? at common law did the purported agent have enough (i) implied actual authority, or (ii) apparent authority? will the “indoor management rule” assist? do any of the statutory bars in s 18 of the Companies Act 1993 apply? Commercial Applications of Company Law in New Zealand - Edition 4: Teacher's Guide

At common law Indoor management rule an outsider can assume that there have been no procedural defects in the appointment of directors board meetings have been properly called and held any board or general meeting approval required under constitution/replaceable rules has been obtained but an outsider probably cannot assume that a certain director has been appointed CEO — a representation is needed

At common law (cont) Exceptions: when will the common law not assist an outsider? “actual knowledge” “put on inquiry” has the outsider failed to make inquiries that would usually be made by someone in his or her position? would a reasonable person in the outsider’s position have been put on inquiry and investigated? Northside Developments Pty Ltd v Registrar-General Story v Advance Bank Australia Ltd

Northside Developments Barclays (bank) Northside Dev Pty Ltd (owner of land) R Sturgess — director Lees — director Ellis — director G Sturgess — purporting to act as company secretary, and recorded at ASIC as secretary, but not actually the secretary R and G Sturgess execute mortgage over the land as security for loans to Sturgess companies loans “Sturgess companies” (companies owned and controlled by R Sturgess but unrelated to Northside)

Fleetwood Star Pty Ltd (owner of property) Story v Advance Bank Fleetwood Star Pty Ltd (owner of property) Mr Story — director Mrs Story — director Mortgage over the property, as security for the loan to Mr Story Advance Bank loan Mr Story loan used partly for Mr and Mrs Story’s household expenses, partly for Mr Story’s business which was conducted through Fleetwood Star

The statutory bars Section 18, Companies Act 1993 Overlap to large extent with common law agency principles (Lecture 22) and indoor management rule Section 18(1)(b) bar about denying authority of certain officers Section 18(1)(c) and (d) bars about denying apparent authority the statutory indoor management rule Limitation on statutory provisions where the outsider “knew” or “suspected” his or her assumption was incorrect (s 18(1)) probably narrower than the common law “put on inquiry” exception — where the outsider had no subjective suspicions, and was just negligent

Where defective contract made by company directly What can an outsider do about a defect in “formal authority”? where a document has been executed in accordance with s 180 (s 18(1)(b) and (c)) What can an outsider do about a defect in “substantive authority”? s 18(1)(a) applies

How can companies be liable for civil wrongs? Vicarious liability Direct liability Attribution of fault under common law Attribution of fault by statute

How can companies be liable for civil wrongs? (cont) Vicarious liability employer liable for torts committed by employees acting within scope of employment Direct liability attribution of fault under common law need to look for the officers who are the “directing mind and will” of the company attribution of fault by statute

How can companies commit crimes? Vicarious liability Direct liability Attribution of fault by statute Statutory offences

How can companies commit crimes? Which crimes can companies commit? eg murder and manslaughter — in some places Vicarious liability Direct liability attribution of fault by statute