1. 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

2. 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

3. 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 apply?
Commercial Applications of Company Law in New Zealand - Edition 4: Teacher's Guide

4. 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

5. 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

6. 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)

7. 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

8. 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

9. 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

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

11. 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

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

13. 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